By Ben Challis
This is my (personal) take on copyright and the business of music in 2011. A number of threads emerged, most notably the battleground over what (if any) responsibility Internet Service Providers (ISPs) and another web intermediaries should have for the infringing acts of their users – something considered by the US Ninth Circuit Court of Appeals in UMG v Veoh, by the British High Court in Newzbin2, The Australian Full Federal Court in the iiNet case and by the European Court of Justice in Scarlet v SABAM with legislation pending in Spain and the UK. A second thread was the future role of collection societies in monetising music copyrights and the potential for enhanced but streamlined societies – at least on a pan-European basis, And finally, IF music copyrights can be monetised in the digital age with the “can pay won’t pay” generation of users, then battles remain over who gets what share of the pie with artistes beginning to challenge the accounting practices of the recorded music sector in particular.
It is no secret that music is important in almost everyone’s life, but the music industry has thus far been fairly ineffective at designing workable business models fit for the digital age – whilst others such as ISPS and companies such as Amazon, Google, YouTube and Apple have reaped huge benefits from their association with music. It’s been an interesting year!
In January, the first news was bad news with new data showing that US recorded music sales fell 2.4% in 2010 to $1.5 billion, as CD sales plummeted nearly 20% while digital track sales were up just 1%. at 1.17 billion. While CD sales fell dramatically last year, digital album sales rose 13% and the report noted that digital music accounted for 46% of all U.S. music purchases in 2010, up from 40% in 2009 and 32% in 2008, and digital track sales broke the 1 billion sales mark for the third straight year. The picture was similar in the UK where sales of digital singles and albums continued to boom in 2010 but overall recorded music sales continued to fall. Digital album sales in 2010 were up 30.6% on 2009, and singles sales – mainly digital – were at an all time high. But overall album sales were down 7%, with CD sales declining 12.4%. Better news came from Google who announced a number of new initiatives to help combat copyright infringement online, including the promise of 24-hour turnaround on takedown requests, and preventing terms associated with piracy from appearing in its “autocomplete” search results. Google also promised to improve its AdSense anti-piracy review, and expel infringing sites making money off infringing content and also said that it will experiment to make authorised preview content more readily accessible in its search results. Also in January, Limewire finally gave up the ghost and the company said that it would close its remaining businesses. Finally the legal battle between EMI and Pink Floyd seemed to have run its course. Earlier the Court Of Appeal had upheld a High Court ruling against EMI which determined the way Pink Floyds’ music could be sold online and how the label should account to the band. Pink Floyd had objected to the sale of the band’s albums on a track-by-track basis on digital services like iTunes and claimed that their 1967 contract with EMI prohibited the record company from selling their music in this way. But the parties agreed to a new five year deal – and EMI were able to sell individual Pink Floyds tracks as digital downloads after all. EMI’s recorded music division was sold to Universal at the end of 2011.
In February the Spanish Parliament passed reintroduced legislative proposals that will make it easier for content owners to target copyright infringing websites, The so called Sinde Law will offer a fast-track system through which content owners can force commercial websites that exist primarily to assist others in their illegal file-sharing offline. Amid a high profile campaign by some internet service providers, websites and consumer groups, including the accusation that the legislation was ‘US influenced’, the House of Representatives originally voted against the proposals but the legislation was reintroduced with new safeguards which include a judicial stage in the shut down process. The French government also had to add in a judicial stage into their Hadopi three-strike law. A January poll in France indicated that 49% of French Internet users continue to illegally download music and video and it remains to be seen how Spain’s new government will implement the Sinde law. Also in early February, news broke that Andrew Crossley, the lawyer behind controversial law firm ACS:Law, had withdrawn from pursuing 26 alleged illegal filesharers, blaming “criminal attacks” and bomb threats as reasons. And in speech in London, EU Digital Commissioner Neelie Kroes called on content owners to create “a simple, consumer-friendly legal framework” for making digital content available across borders in the EU.
In March, The Australian Federation Against Copyright Theft (AFACT) lost its appeal against Australian ISP iiNet. In the absence of specific legislation in Australia, AFACT, representing the TV and movie industries, had argued that net companies had an obligation under Australian copyright laws to take a proactive role in policing online piracy and that the Australian ISP was responsible for illegal content downloading by its users. Australian courts had previously found that web company Kazaa was liable for ‘authorising’ infringement and clearly content owners were hoping that the courts would extend copyright law to include a duty on ISPs to monitor and filter unlicensed content on their networks, and/or to find that that a failure to do so would make them guilty of authorising. A majority of the three judge appeal panel in the Full Federal Court dismissed the appeal holding that even though iiNet was dismissive of copyright infringement complaints, that fact alone did not mean it was liable for authorising infringement. That said, all three justices in the appellate court found that in appropriate circumstances it was appropriate to disconnect customers (one even outlined a potential termination strategy) and in a dissenting judgment, Justice Jagot held iiNet liable for authorising users’ acts of copyright infringement and that the trial Judge had erred in holding that the relevant test was whether iiNet had provided the ‘means’ of infringement. The Australian High Court will now hear the case. In better news for the content industries, credit card companies including MasterCard and Visa are working with the City of London Police and the recorded music sector to extend cooperation in tackling illegal online services selling unlicensed music worldwide.
In April another Australian case hit the headlines when the Federal Appeals court in Australia upheld a Federal Court ruling that said Larrikin Music, publishers of Australian children’s classic ‘Kookaburra Sits In The Old Gumtree’, were due a share of all songwriting royalties on the Men At Work classic ‘Down Under’, because the short but distinctive flute sequence in the 1981 pop hit was borrowed from the folk tune. The Federal Court ruled that Larrikin should get 5% of all ‘Down Under’ royalties dated paid back to 2002. EMI must also cover Larrikin’s legal costs in relation to the appeal. Also in April, the giant Chinese search engine Baidu said that they had reached an agreement with the Music Copyright Society of China to start paying a publishing royalty on any MP3s downloaded or streamed via the search platform. Under the new agreement with MCSC, Baidu will pass a share of advertising revenue on for every track accessed via the search platform from a new music service that Baidu plans to launch in May.
In May there were cloudy skies – as Google announced that it would join Amazon in launching a new music-based cloud digital locker service – despite not have any licensing deals in place with the record companies or music publishers. Amazon had previously argued that its digital locker service did not require licences from with record labels or music publishers because all its digital locker does is allow users to upload their own MP3 collections to remote servers and suddenly all eyes turned to the US case of EMI v MP3tunes which would clearly significant in determining the legality of these unlicensed platforms. More on that later! Also in May, Professor Ian Hargreaves,charged by David Cameron with independently reviewing UK intellectual property law and the environment to promote e-businesses in the UK, published his Report Digital Opportunity and his recommendations included: legalising format shifting; looking at copyright exceptions at national level to realise all the opportunities within the EU framework, including exceptions for parody, non-commercial research, and library archiving; proposals for a new system for licensing so called ‘orphan works’; the appointment of a senior figure (now confirmed as Richard Hooper) to oversee the design and implementation of a “cross sectoral Digital Copyright Exchange” and support for EC moves to establish a framework for cross-border licensing within the EU. The enhanced role of collection societies remains, in my opinion, critical to the ongoing success of the music industry.
In June a report from the United Nations said that provisions of the UK’s Digital Economy Act (which had already been unsuccessfully challenged by ISPS in a judicial review) that could see music and film pirates cut off from the internet were disproportionate. Frank La Rue, the report’s author and UN special rapporteur on freedom of expression, called on the government to “repeal or amend” the legislation. He said he was “alarmed by proposals to disconnect users from Internet access if they violate intellectual property rights”. In The USA the Senate Judiciary Committee approved a bill that would make it a felony to stream copyrighted movies and TV episodes online and in Germany two computer hackers who targeted pop stars and record companies in a bid to secure personal information and distribute pre-release tracks online were handed down prison sentences by a court in Duisberg. And back in the UK Video Performance Limited, the audio-visual arm of collection society PPL (Phonographic Performance Limited) lost a major case in the Court of Appeal against a decision of the Copyright Tribunal that said that that the correct royalty rate payable by TV channel operator CSC should be somewhere in the region of 10% to 15% rather than the higher rate set in an earlier licence between VPL and BSkyB. And Neelie Kroes set out the Digital Agenda for the EU saying “Too many barriers still block the free flow of online services and entertainment across national borders. The Digital Agenda will update EU Single Market rules for the digital era.
In July Mr Justice Arnold reached his decision in Newzbin 2, where the Motion Picture Association succeeded in an action which it brought against telecoms giant BT to invoke Section 97A of the Copyright, with Arnold J saying “in my judgment it follows that BT has actual knowledge of other persons using its service to infringe copyright: it knows that the users and operators of Newbin2 infringe copyright on a large scale, and in particular infringe the copyrights of the Studios in large numbers of their films and television programmes, it knows that the users of Newzbin2 include BT subscribers, and it knows those users use its service to receive infringing copies of copyright works made available to them by Newzbin2.”. Newzbin blocked!
In August Online music service Grooveshark had to face a new action from music publishers. The online service allows users to post their own tracks to their site while sharing them with the world was sued by a number of songwriters and music publishers. Filed in the U.S. District Court for the Middle District of Tennessee, the plaintiffs claim the music illegally violates many copyright laws, and therefore is liable for contributory infringement, copyright infringement and vicarious infringement saying “Defendant neither sought nor obtained a license, permission, or authorization from plaintiffs”.. The company claims to abide by all rules of the Digital Millennium Copyright Act (“DCMA”) and that it is protected from any copyright violations committed by its users. Also in August, YouTube’s takedown procedure came under the spotlight for seemingly being too effective with videos by Justin Bieber, Rhianna, Lady Gaga, Beyonce and Shakira after “iLCreation” managed to get videos by all of these artistes and many more taken down from YouTube. Seemingly rather easily. And finally the much anticipated ruling in EMI v MP3Tunes was announced and in a potentially highly damaging day for the US content industries, the New York district court has ruled that digital music lockers don’t need licences from record labels to store recorded music and that the operators of digital locker services are protected by the ‘safe harbor’ provisions of the DCMA.
In September a number of newspapers carried stories about moves by US songwriters and recording artistes to ‘reclaim’ copyrights from music publishers and record labels – including Bruce Springsteen’s “Darkness on the Edge of Town,” Billy Joel’s “52nd Street,” the Doobie Brothers’ “Minute by Minute,” Kenny Rogers’s “Gambler” and Funkadelic’s “One Nation Under a Groove” thanks to a till then little-noted provision in United States copyright law that meant that those artists — and thousands more — now have the right to reclaim ownership of their recordings after 35 years, so long as they apply at least two years in advance. Recordings and songs such as the Village People’s YMCA from 1978 are the first to fall under the law, but in a matter of months, hits from 1979, including “The Long Run” by the Eagles and “Bad Girls” by Donna Summer, will be in the same situation — and then, as the calendar advances, every other master recording once it reaches the 35-year mark. In Europe the European Commission announced the extension of the copyright term for sound recordings from 50 years 70 years which was agreed by the EU on the 12th September, following an earlier meeting of the European Union’s Committee of Permanent Representatives. The new Directive included some provisions which might aid artistes (rather than labels) receive a share of new revenues, although many remain unconvinced that the major labels will be able to tear themselves from traditional business models which artistes claim are simply unfair, or a widespread attempt to underpay recording artistes” or even a sometime “criminal” enterprise. Less welcome news for the music industry was a decision by a court in Germany which followed on from the record industry’s fairly unsuccessful attempt to block digital cloud locker service MP3Tunes in the USA. In Germany EMI failed to force a German ISP to block access to file-sharing service eDonkey. The court in Cologne ruled that the net firm HanseNet was not liable for the actions of its customers in accessing Russian illegal file swapping services. In the see-saw world of US copyright damages for illegal downloading and file-sharing, a federal appeals court reinstated the $675,000 judgment against Boston University post graduate student Joel Tenenbaum, who had already admitted to downloading music on Internet file-sharing sites. In an earlier hearing a judge had reduced the previous jury award at the same level by 90%.
In October the U.S. Supreme Court denied an appeal against an appellate court’s ruling that a traditional Internet download of sound recording does not constitute a public performance of the recorded musical work or the composition under federal copyright law. The Supreme Court denied the appeal without comment. Also a number of major artistes faced infringement claims with Bob Dylan accused of replicating several famous photographs in his new art show, The Asia Series, which includes paintings that seem like acrylic reproductions of images by Henri Cartier-Bresson, Dmitri Kessel and Léon Busy and Beyoncé was accused of copying the choreography of Belgian choreographer Anne Teresa De Keersmaeker for the video to her track ‘Countdown‘ . In the UK, Campbell Cowie, Director Of Internet Policy at media regulator OfCom, said that warning letters under the three-strikes style anti-piracy system put in place by the Digital Economy Act were now not likely to go out until 2013. And significantly, the European Court of Justice handed down a preliminary ruling decision in the linked cases of MPS v Murphy and FAPL v QC Leisure holding that national legislation which prohibits the import, sale or use of foreign decoder cards for pan-European satellite channels are contrary to the freedom to provide services and cannot be justified either in light of the objective of protecting intellectual property rights or by the objective of encouraging the public to attend (live football matches) football stadiums. Any yes, EU competition law trumps copyright!
In November a class action between a number of recording artistes and Universal Music over how digital royalties are calculated was given the green light by a federal judge in California. The action, headed up by a number of long established artists, led by White Zombie, Chuck D, Whitesnake, and the estate of Rick James will be a major test of how artiste digital royalties are calculated by record labels in the absence of specific contract wording: The label would like to calculate the royalty based on the same accounting process as a normal (physical) sale – whilst artistes want a share of the income which will almost certainly be a substantially greater share of the revenue. There is a precedent here, the so called ‘Eminen’ case that actually involved FBT Productions, the production house involved in some early Eminem recordings, who took Universal to court over digital royalties and succeeded in achieving the higher royalty rate: FBT argued they had a right to a 50/50 split of profits with Universal on sales of digital music and ring tones through online retailers such as iTunes and Sprint as these ‘Master Licensing’ deals attracting the higher royalty. The contract did not specifically mention income from download stores like iTunes, or what share the artist (and therefore FBT) should get from such sales but Universal have been treating download sales as being equivalent to CD sales paying a lower rate of 12-20%% as if these were physical sales. Whilst a district court refused summary judgment saying the agreement was ambiguous, The U.S. Ninth Circuit Court of Appeals in San Francisco agreed with FBT saying that the higher royalty should apply and the US Supreme Court then declined to hear an appeal by the Universal Music Group. A number of artistes including Cheap Trick and the Allman Brothers have brought a similar case against Sony BMG to gain a greater and they say fairer share of revenues. The European Court of Justice added to the jurisprudence on the role of ISPs in the Scarlet v SABAM case saying “EU law precludes the imposition of an injunction by a national court which requires an internet service provider to install a filtering system with a view to preventing the illegal downloading of files” adding “Such an injunction does not comply with the prohibition on imposing a general monitoring obligation on such a provider, or with the requirement to strike a fair balance between, on the one hand, the right to intellectual property, and, on the other, the freedom to conduct business, the right to protection of personal data and the freedom to receive or impart information”
And finally in December, The Swiss Government decided that downloading music and movies would remain legal. With an estimated one in three of the Swiss population admitting to downloading content without permission, Swiss policy will now be that downloading for personal use WILL be legal since people eventually spend the money saved on entertainment products. And in the USA the Ninth Circuit Court of Appeals handed down its decision in UMG v Veoh, the case addressing copyright liability for ISPs that host infringing works. The court affirmed the lower court’s interpretation of the DCMA and extended ‘safe harbour’ protection to Veoh and meaning that the onus to first identify infringing materials is on rights owners and the Court said that it is copyright holders who know precisely what materials they own, and are thus better able to efficiently identify infringing copies than service providers like Veoh, who cannot readily ascertain what material is protected by copyright and what is not.
I am sure next year will be equally fascinating – and can we wish our readers a happy, healthy and prosperous 2012.