October 2003

Record Labels, Internet, Film & Television

In a case reminiscent of the 1984 ‘Sony Betamax’ case, the Motion Picture Association of America has launched an action in the High Court of England & Wales against 321 Studios which produces software which allows the copying of DVDs by consumers. The MPAA has already filed an action in the US (December 2002) seeking to prohibit the sale of 321 Studios’ software titles DVD X Copy and DVD Copy Plus. It also wants any profits from sales as recovery of damages. 321 Studios says it has sold a total of 150,000 copies of the two software titles. 321 Studios insists that its software does not violate the Digital Millennium Copyright Act in the US which outlaws providing information or tools to circumvent copy-control technology. At the same time, the movie studios are using the Digital Millenium Copyright Act against a software package produced by Tritton Technologies. The studios have filed a suit in a Manhattan court to block the sale of “DVD CopyWare” that allows DVD owners to backup their DVD collection to DVD-R media. Also named in the suit are three website hosts selling the software. Paramount and Twentieth Century Fox both maintain that Tritton’s software will allow mass copying of DVDs by circumventing the built-in Content Scrambling System (CSS) encryption present on most commercially produced DVDs. Tritton maintains its innocence, pointing out that the software can only be used to backup legitimately owned DVDs, a right guaranteed to software owners years ago by the courts.

In a similar vein, US satellite transmission giant DirecTV has launched a nationwide campaign of cease and desist letters and filed nearly 9,000 federal lawsuits in response to the purchase of smart card readers, emulators, loopers, reprogrammers, bootloaders, and blockers. Smart card readers and their various derivatives have many legitimate uses, including computer security and scientific research.

COMMENT :The issue of hardware and software which has both infringing and non-infringing uses has long troubled the courts on a global basis. A useful starting point is the original 1984 ‘Sony’ (or ‘betamax’) case, where the court had to decide whether or not the betamax video machine was an illegal instrument of contributory copyright infringement. The betamax machine could both play pre-recorded films and videos legally and could be used record infringing material illegally. The US Supreme Court held on a 5-4 split that the machine was not illegal. The core issue is this: whilst it is clear that the copying of copyright material without permission is an infringement in almost all jurisdictions, the provision of a service or equipment to facilitate such copying, where that service or equipment has other legitimate uses, may notbe an infringement, or illegal.
A number of recent decisions have held that internet service providers (ISPs), telecommunications companies and software providers such as Verizon, Napster and Aimster are potentially liable for contributory and vicarious copyright infringement or are illegal. Clearly subscribers and individual users of the service actually swapping files containing copyright material or copying CDs and DVDs without permission are infringing copyright; However there are a number of conflicting decisions which suggest that the provision of a facilitating service, software or equipment does not necessarily mean that the provider of such service etc is liable for infringements.
The Napster case provides an example of the first approach outlined above. In this case, the US District Court held that the Napster file swapping service was illegal. The Recording Industry Association of America (RIAA) brought an action against Napster. Napster presented a number of defences including the argument that the service had non-infringing as well as infringing uses, that its service actually boosted record sales and thirdly that the plaintiffs were themselves in the business of facilitating file-swapping – citing Sony’s manufacture of MP3 players. In July 2000, Judge Marilyn Patel, rejecting all of Napster’s defences including a ‘betamax’ defence, granted an interim injunction against the file swapping service and Napster was effectively closed down.
But Courts have not always followed this approach. In the case of RIAA and others -v- Grokster & Streamcast Networks (2003) the RIAA suffered a serious setback. Judge Stephen Wilson held that the ‘sale of copy equipment ÿ… does not constitute contributory infringement if the product is capable of substantial non-infringing uses’. In October 2001, the plaintiffs sued KaZaA, Grokster and StreamCast Networks for contributory and vicarious copyright infringement, and nearly a year later, each side moved for an expedited ruling on liability. The District Court ruled in favour of Streamcast Networks and Grokster on April 25th 2003. The decision can be distinguished from the Napster and Aimster (below) cases in as much that (i) the software had non-infringing uses (ii) the defendants had no actual knowledge of specific infringements and could not supervise infringements – unlike Napster there was no centralised system. The claims against KaZaA and Sharman Networks, which later acquired the KaZaA business, are still pending before the District Court. The Grokster decision is to be appealed by the RIAA.
In another example, the Federal Court of Canada (in the Tariff 22 case brought by the Canadian collection society SOCAN) held that an ISP was exempt from making any copyright royalty payments when its service was used to transmit copyrighted musical recordings where the ISP provides nothing more than the ‘means of telecommunications necessary’. But the Court went on to say that if an ISP facilitated the speedy delivery of such material and went beyond providing a service which was necessary to communicate then it was not covered by the exemption and would be liable to pay royalties.
A third decision from the Netherlands also provides a different approach to the Napster decision. There, the Dutch collection societies BUMA and STEMRA, brought an action against KaZaA BV. The Dutch court held that the activities of KaZaA did not infringe copyright. The Court held that KaZaA could not prevent the exchange of copyright material by subscribers, so the service itself was not unlawful – even if the activities of subscribers were illegal.
In a fourth case, Norwegian teenager Jon Johansen was exonerated and acquitted of all criminal charges for writing and circulating a programme, DECSS, which decoded DVDs so that users could play their own DVDs on their own computers. The Norwegian government has appealed that decision, and the case is currently scheduled for re-trial in December 2003.
But these four decisions are, to an extent, an ‘exception to the rule’. A number of jurisdictions have found actual users and facilitators liable for copyright infringement. The main battle ground has been between copyright owners (such as the RIAA, MPAA and BPI) and, variously, ISPs and software manufacturers whose services and programmes are used by their subscribers to swap copyrighted material on the internet along with actions against equipment providers.
A widely reported decision was RIAA -v- Verizon (2003). This case arose out of the fact that Verizon refused to comply with a RIAA subpoena asking it to disclose the identities of individuals who used Verizon and KazaA software to swap copyrighted materials on Verizon’s service without permission. Verizon argued that it had no liability as it was merely transmitting material and not storing it and in all events the identity of potential file swappers must be protected. The US District Court (Judge John Bates) dismissed both defences and decided that the RIAA was entitled to the information that it sought and that the doctrine of privacy would not apply to protect consumers. This decision was upheld on appeal. The privacy debate continues; in both Australia and the US, educational institutions are resisting subpoenas issued by copyright owners asking for access to, or information about, students who have used the Institutes’ computer systems to download or swap files. The RIAA is already using the data obtained to issue lawsuits against individuals.
Copyright owners have won a number of clear cut victories against service providers for ‘facilitating’ copyright infringement. In the case of RIAA -v- Aimster (2002) the court granted a major victory to the record industry in their fight against the unauthorised uploading and downloading of music; In 2001 Aimster applied to the US District Court to have its service declared legal. The RIAA and other trade bodies representing copyright owners reacted by filing lawsuits against Aimster alleging contributory and various vicarious copyright infringements. The court agreed with the RIAA and in granting a preliminary injunction held that Aimster had clear knowledge of infringements taking place on its service, that Aimster materially contributed to these infringements, that Aimster could supervise the infringements if it so wanted and that Aimster had benefited financially from the infringements. Judge Marvin Aspen went as far as to say that Aimster was ‘a service whose very raison d’etre appears to be the facilitation of and contribution to copyright infringement on a massive scale’.
The final Court Order provided that Aimster must immediately prevent users from uploading and downloading copyright works (or shut down if it cannot so do) and employ technological measures to prevent copyright infringement. The Federal Court of Appeal followed the first instance decision and concluded that Aimster showed ‘wilful blindness’ to copyright infringement and could have limited infringement. The court went further and said that the plaintiff would only have had to show financial loss if Aimster had proved substantial non-infringing uses and it was for Aimster to show that its service had non-infringing uses.
Other jurisdictions have adopted a similar approach. In Sony Music Entertainment (UK) Ltd -v- Easyinternetcafe Ltd (2003) in the UK, the High Court of Justice (Mr Justice Smith) held that Easyinternetcafes were guilty of copyright infringement by allowing customers to download music without permission and then burn CD copies of these at easyinternet’s chain of cafes. In JASRAC -v- MMO (2003) the Tokyo District Court (Presiding Judge Toshiaki Iimura) held that an online music file-swapping service provided by MMO violated copyright law and as MMO administered the service and financially benefited from providing the service they were liable for damages to JASRAC.
It can be seen that ISPs have taken note of these decisions and reacted accordingly where they feel that they will almost certainly be subject to injunctions and further actions if they do not revise the service they provide to subscribers. Yahoo reached a settlement with Sony Music Entertainment in 2003 after an action was brought against Yahoo’s Launch music portal. The lawsuit alleged that Yahoo’s web radio service gave listeners so much choice is determining playlists that the listener was in effect creating a ‘virtual album’ (which of course could then be copied or downloaded).
But the issue is far from settled and the MPAA’s new action will be interesting. There are also a number of appeals pending on some of the judgements detailed above – both the Supreme Court of Canada (Tariff 22) and the Dutch Appeal Courts (KaZaA) have yet to reach their decisions and the US Court’s decision in the Morpheus/Grokster case is subject to appeal.
The core issue of the legitimacy of facilitating software, services and equipment is complicated and sensitive – complicated in many jurisdictions by issues of consumer privacy and consumer rights alongside financial considerations. The decisions will of course be reached not only on the basis of legal doctrine and precedent but also on the actual facts in each case. The whole issue is further complicated by the consolidation of ownership in the music and entertainment industries. AOL Time Warner is a company with businesses on both sides of the divide: It owns AOL and two major cable companies along with a major record label, film and TV interests. Sony owns not only a major record label, Sony Music, but is also a major producer of music equipment including recording equipment and MP3 players. BMG (part of Bertlesmann) is now the owner of Napster, as well as a member of the RIAA.
Conversely, the entertainment industry itself is facing mounting criticism – particularly after a recent spate of actions against individuals and academic institutions. The exploitation of copyright is at the heart of the recording industry and of course the record labels need to protect their valuable copyrights if they are to have a business. The recent actions by the RIAA and others against companies, organisations and individuals involved in piracy and file swapping are evidence of labels’ determination to realise value from their copyrights. But a number of serious problems face the entertainment and record industry and leave it open to criticism:


  • the fact that they labels ‘missed the boat’ when it came to the world wide web – even now Apple lead the way with legitimate downloads with Apple’s i-tunes service. It seems inconceivable that an industry which is based on the exploitation of copyright could have failed to understand and plan for the internet, but that is what seems to have happened.
  • whilst taking the ‘moral high ground’ with piracy and in particular peer-2-peer file swapping, campaign groups such as the Recording Artists Coalition point to the fact that the record labels’ own house is hardly in order. Contracts with artists are often wholly one sided in favour of labels and accounting provisions to artists are seen as obscure and unfair.
  • Consumers have long felt ‘ripped off’ by CD pricing and it is no secret that the basic cost of a CD is under US$1. The major record labels were investigated for price fixing in the US between 1995 and 2002, and in 2002 a US$143 million anti-trust settlement was awarded against the five top US distributors of CDs (BMG, EMI, Warners/Elektra/Atlantic, Sony and Universal) and the three largest CD retailers TransWorld, Tower and Music Land). The average price of CDs in 1996 was $12.70 and in 2001 $14.70.
  • Campaign groups such as the Electronic Frontiers Foundation now routinely publicly explores issues related to consumer rights and consumer privacy, and some campaign groups are going further and questioning the very essence of copyright law.

Ultimately, legislation may well resolve the issues of [passive distribution] in a number of jurisdictions. Legislation and the political process is, of course, always open to political, financial and other influences, and the MPAA, RIAA and BPI are powerful groups although interestingly dwarfed by the telecommunications industry, software and hardware manufacturers who are the target of their often successful legal actions and government lobbying.

This Update hopes to give a balanced comment from both an industry view and from those with alternative views such as the EFF.

For further information see previous Law Updates, and:,aid,108133,00.asp (MPAA -v- Studio 321) (RIAA -v- Napster) (Johansen case) (RIAA -v- MIT) (RIAA -v- Aimster [Madster])

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