A decade after the rise of Napster and a year after promising a new antipiracy strategy, the Recording Industry Association of America appears to be floundering on the piracy front.
The plan adopted last year by the RIAA, the trade group for the four largest recording companies, in place of its controversial litigation campaign seems to have gone nowhere. The RIAA said at the time that it had struck partnerships with major Internet service providers, the Web's true gatekeepers, and that they would help choke off online piracy.
It was all supposed to be a done deal. The Wall Street Journal, which broke the news about the RIAA's strategy shift, wrote on December 19, 2008, that the RIAA had "hashed out preliminary agreements with major ISPs." According to the Journal story, the ISPs were supposed to join a deterrent program designed to gradually increase pressure on accused copyright violators. As part of the so-called "graduated response," RIAA officials told me that ramifications for repeat offenders would escalate, starting with the sending of multiple letters that could take an increasingly strong tone. Eventually, as the Journal noted, "the ISP may cut off their access altogether."
RIAA CEO Mitch Bainwol in a file photo.
(Credit: Declan McCullagh)Music execs had told me much the same thing and I wrote last year that AT&T and Comcast were testing their own graduated responses. But a year after the Journal's initial story, the number of ISPs that have acknowledged adopting the RIAA's graduated response program is zero. In addition, many of the big ISPs, such as AT&T and Comcast, have gone out of their way to deny that they would ever interrupt service to customers simply because they were accused of copyright violations by the film or music industries. To do that, they would need a court order.
Some ISPs, including AT&T, Comcast, and Verizon, appear to be sending greater numbers of their own warning letters--in addition to those sent by content owners--to customers suspected of file sharing. The letters typically notify customers that they have been accused of illegally sharing songs and informed them that such activity is illegal.
But here's the big question about the RIAA's graduated response plan: is it worth anything without a legitimate threat backing it up? It's difficult to believe that sending letters is enough of a deterrent.
Mitch Bainwol, the RIAA's chairman and CEO, acknowledges that his organization hasn't achieved all of the goals it laid out a year ago, but he says that the ISP strategy is well thought out, progressing, and has already seen dramatic results.
"We've seen a million notices [from ISPs to customers suspected of file sharing] go out over the past year and that is certainly meaningful," Bainwol told CNET last week. "Are we prepared to make an announcement that is broad in scope and cuts across ISPs? No. Are we engaged in significant discussions that we believe will ultimately prove productive? Hell yes."
Maybe so, but these deals were supposed to have been done or nearly done a year ago. What happened to those "hashed out preliminary agreements" that the Journal wrote about?
Missing teeth
Multiple music sources have told me over the past month the RIAA leaders were feeling pressure to drop the lawsuit campaign, but were also being lobbied by some at the labels to put some kind of deterrent in place, even if totally toothless. They didn't want the public to think there weren't any consequences to pirating music, even if the reality was exactly that.
According to those sources, the announcement about the ISP strategy last December was little more than a scarecrow.
Bainwol didn't comment on that but did say: "The substance of our pivot to ISPs is in fact accurate. The broader arrangement that cuts across the ISP community is still out there to be tied down. There clearly are discussions going on."
The reason that some at the labels wanted an end to the litigation is that for years it brought down mountains of public scorn. The lawsuits were also expensive and RIAA's members wanted costs slashed, which happened earlier this year.
The decision was made to continue to pursue the suits already in the courts, but the widescale practice of suing individuals was over.
Here's the other reason that several of the music-industry sources say the RIAA acted before any deal was done: to fire a shot across the bow of some of ISPs that were dragging their feet. By spreading the word that the RIAA had sewn up a deal with a group of big ISPs, RIAA managers hoped they were ratcheting up the pressure to join, sources say.
They also turned to Andrew Cuomo, New York's state attorney general, to nudge the ISPs into fighting piracy in the same way he pushed them to combat child pornography, said two music industry sources. This not only rubbed some ISP execs the wrong way, but unlike with the porn problem, the law was all on the side of the ISPs.
Nothing in the Digital Millennium Copyright Act requires ISPs to adopt a graduated response or even send their own warning letters.
"I don't know that the (ISPs) are legally obliged to do it," said Jonathan Zittrain, a noted cyberlaw expert and author. "I don't know any ISP that has been sued over it...The industry has chosen not to provoke a fight."
One reason for that may be that many bandwith providers want greater access to top entertainment content. The best example of that is Comcast's proposed acquisition of NBC Universal. To many in the film and music sectors, it appears that the interests of entertainment companies and ISPs are aligning.
"We've seen great progress and great cooperation from many of the ISPs," Bainwol said. "Getting to a public uniform understanding about how we're going to work together is obviously an extraordinarily complicated endeavor...[piracy] is a problem that developed over years and a solution is going to take time but we're achieving progress toward that goal."
Some progress
To be sure, in some ways the music industry's digital strategy has never been in better shape. It's never been easier or less expensive to acquire music legally than it is at such sources as iTunes, Amazon, and Pandora.
The music sector hasn't obtained a three-strikes policy in the United States, but it's been much more successful in forcing ISPs based overseas to boot repeat copyright offenders from their networks. And some ISPs, including Cox Communications, established antipiracy policies long ago that were similar to the RIAA's graduated response. But since the U.S. is a tougher environment when it comes to discussing service interruption, has Bainwol altered his definition of "graduated response"?
"I'm not locked into any particular definition," Bainwol said. "I think the parties that are negotiating and having discussions about what kind of program is appropriate will define how you work a graduated response program. The question here is: Are we working with the ISPs? Will there be some kind of graduated response program, where the infringer is made aware when they're caught and also when there are escalating tensions.
"We'll be flexible about how we get to a deal," Bainwol continued. "We'll let others define the poles of the position."
Qtrax missed another deadline.
The would-be ad-supported music service once again failed to meet a self-imposed launch date. The company said barely two weeks ago that it would roll out in Australia and New Zealand on November 5.
For most start-up services, launch delays are embarrassing, but not unexpected. For Qtrax, this is only the latest installment in a year-long run of embarrassing misfires, lawsuits, unpaid bills and broken promises.
Within the halls of the top recording companies, Qtrax's setbacks have begun to take a heavy toll on the company's already battered reputation. To make matters worse, the ad-supported model has lost a lot of credibility in the music industry after the collapse of Ruckus and SpiralFrog. Several of the other top competitors in the sector, including Spotify, Imeem, and iLike have begun gravitating towards other revenue sources.
"Qtrax is an absolute disaster," said one music industry executive who asked to remain anonymous. "It's an embarrassment."
What's noteworthy about the most recent Qtrax setback is that typically Allan Klepfisz, the company's founder, will do damage control with the media. This time, however, a music-sector heavyweight is out in front.
"It's a difficult environment to get capital in this industry," Jay Berman, a Qtrax adviser and former chairman of the Recording Industry Association of America told The Financial Times this week. Referring to Qtrax's claim that the company hopes to raise $50 million and Qtrax said last week that it has a deal with Baidu, one of China's top search engines, Berman said: "Is it ambitious? Yes, it is. Is it doable? Yes."
Klepfisz declined to comment. Berman could not be reached for comment.
Berman was once the recording industry's top lobbyist and according to my music source he used his clout to help Qtrax secure licensing deals with the top labels. A year ago, New York-based Qtrax announced that Berman, who has offered consulting services to several digital music companies including Project Playlist, was added to the Qtrax advisory board.
"Every time something happens with Qtrax, Jay has to get on the phone and calm everybody (at the labels) down," said the music exec.
But the source said Qtrax, at this point anyway, is in no danger of losing its access to the labels' music. He said it has paid and the labels will most certainly accept Qtrax's money. "Why wouldn't they?" he asked. "But they haven't exactly created a lot of good will in the business or enthusiasm for their product.
"Qtrax hasn't instilled a sense of confidence that they can actually make something of what they have," the exec continued. "The only reason the (recording) companies have given content to them is because of Jay. If Jay didn't get on the phone, Qtrax wouldn't have its deals."
What the exec is referring to, specifically, are things like Qtrax's history of failing to pay vendors. Oracle filed suit against the company earlier this year and several companies have won judgments in New York courts against Qtrax. The latest came two weeks ago when Monarch Capital Fund won an award of $133,000 against the company.
According to court documents, Qtrax agreed in March to pay off a $200,000 debt in installments. Monarch told the court that after paying $70,000, Qtrax stopped making payments in May.
Clarification: Earlier reports by a number of other publications indicated that Qtrax's deal with Baidu wasn't completed. Qtrax does indeed have a signed agreement with the Chinese search engine, Qtrax said Wednesday afternoon.
Stardust is sprinkled all over music service Spotify.
Steve Jobs built the most successful music service by dealing from a position of strength.
(Credit: CNET)In recent months, users, reviewers, and even Facebook founder Mark Zuckerberg have heaped praise on the European service, which has yet to launch in the United States. But while Spotify may be a nifty service, it may also be a textbook example of how popularity doesn't mean profits.
CEO Daniel Ek appeared to acknowledge that his company has a long way to go before hitting profitability in a candid note he posted to the site on Thursday. Writing on the anniversary of the site's launch, Ek signaled that the service may be struggling to generate revenues by becoming the latest CEO to complain about music-licensing fees.
Ek began his post by saying he envisions a future where Spotify helps the music industry pocket $50 billion annually and lures people away from illegal file-sharing sites by the truckload. But before this happens, Ek said, the labels must help him help them.
"The new business model in music," Ek argued, "is a mix between ad-supported music, downloads, subscriptions, merchandising, and ticketing where, the user comes first...It can't happen if the industry continues to enforce the per-play fees it has tried so hard to hold on to. The new model is about figuring out how to increase the revenue per user between the different models--not squeeze as much as possible out of every single transaction."
Blaming the labels for an underperforming business model isn't new. Everybody from SpiralFrog to Imeem has claimed that overinflated licensing fees are the cause of their struggles. No doubt, the world would be a better place for consumers, if the labels gave their music away for free. The reality is that they aren't going to do that.
Label chiefs have a number in their heads that they think their songs are worth, and it's higher than Ek's valuation. All the moves of late by the record industry indicate that while they will try to help these sites, to a point, the labels appear determined to hold the line on their overall pricing strategy.
Here are some of things I've learned about the big record companies over the past year:
The labels don't think the failure of ad-supported Web sites will spell their doom. Not by a long shot. Many label honchos were skeptical of the ad-supported model from the start. The performances of these companies haven't raised the confidence level much. Ruckus and SpiralFrog are closed, Imeem barely survived a financial crisis, and no one in the sector has reported profits. In other interviews, Ek has acknowledged that less than 10 percent of the site's users actually fork over any money.
None of the services have shown that their sites appeal very much to advertisers (people listening to music don't look at ads). There's also evidence that instead of promoting song sales, ad-supported sites cannibalize them.
To hear Michael Robertson tell it, the founder of MP3.com says the top labels don't care if Spotify or the other services fail because there are always more "dummies" willing to pay big bucks to partner with the labels. One goes down, another will leap to take its place.
Here's the direction where music industry chiefs appear headed:
First, they are trying to get back control of distribution, and that means plugging the holes.
The industry knows that file sharing isn't going away, but the record companies appear to believe that they can discourage mainstream music fans from pirating music. To do that, the Recording Industry Association of America continues to lobby bandwidth providers to establish a graduated response program, which may include cutting off service to the worst offenders. The RIAA, the trade group representing the four largest music labels, hasn't been very successful so far. Not a single Internet service provider has publicly acknowledged working with the music industry on graduated response.
The next step for the labels is to focus on what works. My music industry sources say the labels, with their shrinking revenues, are backing away from risky digital models. Selling downloads is the only proven way to make money off the Web. The problem for the labels is that downloads are synonymous with iTunes, and that means they are forced to share too much control with Apple. The labels would like to see a world where lots of outlets sell songs online and the industry isn't overly dependent on a single store.
The business model that the labels really want to see succeed is subscriptions. Enticing people to pay a monthly fee to hear all-you-can-eat music wouldn't offer the same fat margins that CDs once did, but it has the potential to deliver consistent revenue and volume. So far, the public has by and large rejected paying monthly fees because they know that as soon as they stop paying, they lose their music.
As for Spotify, Ek wrote that "overnight success takes a long time," and he supported his statement by noting that iTunes "missed its revenue targets in its first year by 30 percent."
What Ek failed to mention was that in its first year--at a time when far fewer people were buying music online--iTunes sold 70 million songs and managed to turn a small profit. Apple forced the music industry to yield to its wishes by creating a wildly popular and self-sustaining business, not by pleading for mercy.
"It would obviously be wrong for me to compare Apple's success with iTunes to Spotify."
On this, Ek is right.
Joel Tenenbaum just wanted to hear music and his illegal downloading and sharing of of songs caused little damage to the music industry, his attorney argued in court Tuesday.
Tenenbaum, a graduate student at Boston University, has been accused by the Recording Industry Association of America of copyright violations and the court fight is now underway. Like Jammie Thomas-Rasset, the Minnesota woman accused of illegal file sharing, Tenenbaum has decided to take on the major music labels in court rather than to settle the case.
Tenenbaum shares more in common with Thomas-Rasset than just initials. He is only the second person accused by the music industry of copyright infringement to take their case to a jury. The first was Thomas-Rasset. By refusing to settle with the RIAA, Tenenbaum risks being found liable for millions in damages. A jury in her home state ordered Thomas-Rasset to pay nearly $2 million. Her lawyers say that they will appeal the decision.
Tenenbaum is represented by Charles Nesson, the famed Harvard professor.
"He was a kid who did what kids do and loved technology and loved music," Nesson told the jury according to a report in The Associated Press.
One of the main differences between Tenenbaum and Thomas-Rasset is he has admitted sharing and downloading music illegally. Thomas-Rasset denies she is engaging in file sharing. According to Ben Sheffner, a copyright attorney who has worked for 20th Century Fox and now blogs about online copyright issues, Nesson is essentially fighting to limit the damages Tenenbaum will likely be required to pay.
"What Nesson is saying is that what Tenenbaum did isn't so bad and he didn't cause much harm," Sheffner said. "His overall point was that whatever harm was caused was due to the Internet in general, not because of what Joel Tenenbaum did."
Nesson argued that the Internet made it possible for fans to replace the CD with digital files, which freed consumers from having to buy songs they didn't want. He compared the digital music files and its effect on the music industry to how the "automobile swept into the buggy industry."
Another way that Tenenbaum has differed from Thomas-Rasset is that her trial by comparison was relatively free from courtroom drama. Nesson has appeared at times to invite it. He deputized one of his students to do much of the work in the case. Nesson was also accused of tape recording conversations that took place between both sides attorneys, which is against the rules. During jury selection, Nesson asked questions that didn't appear very significant, such as whether potential jury members liked his turtleneck sweater.
Nesson also took the unusual step of writing to the Department of Justice to step in.
"We ask you to intervene in Joel's case on behalf of the people of the United States of America," Nesson wrote, "to save the constitutionality of Section 504(c) by interpreting its damage provision for willful infringement to apply only to commercial infringers. If applied to such individuals as Joel, who has made no commercial use of plaintiffs' copyrights, the statute violates the Constitution."
Nesson is most famous for representing Daniel Ellsberg, the man who leaked the Pentagon Papers in 1971, against charges of treason leveled by the U.S. government. The Pentagon Papers revealed that the U.S. government had deliberately expanded the war in Vietnam and Southeast Asia. Ellsberg would eventually prevail.
According to Sheffner, U.S. District Judge Nancy Gertner has been less than impressed with the theatrics.
"I think there was a lot of talk in the press when Nesson came on that finally this prominent professor from Harvard was taking on the labels," said Sheffner, who has covered the trial for his blog. "They said 'Finally, someone is going to put (the music industry) in their place.' That hasn't happened, primarily because the law is simply not on their side and two because he's litigated this case in a way that has annoyed the judge."
One of the most significant setbacks for Tenenbaum, and indeed for anyone else who might challenge the RIAA in court, has been the judge's decision to prevent him from arguing that sharing copyright content on peer-to-peer networks is fair use.
The trial is schedule to continue Wednesday.
As The Pirate Bay apparently goes legit, the Swedish file-sharing company has hired someone with experience in both legal and illegal file-sharing sites.
New Pirate Bay hire, Wayne Rosso.
(Credit: Waynerosso.com)Global Gaming Factory, the Swedish software company vying to buy The Pirate Bay, has hired Wayne Rosso, the very vocal former president of Grokster and founder of Mashboxx, to help strike licensing deals with content owners. Global Gaming announced earlier this month that the company intends to pay $7.8 million for The Pirate Bay once investors okay the deal.
In an interview with CNET News on Wednesday, Rosso detailed some of what he's been up to on Global Gaming's behalf and provided new details about the company's proposed business model.
In addition to advising Hans Pandeya, Global Gaming's CEO, Rosso has spent several days in London meeting with music executives. Among the organizations he met with are Universal Music Group and the International Federation of the Phonographic Industry, the trade group representing the music industry worldwide. Rosso said he plans to meet with a wide range of digital content creators.
"We're approaching the record and movie industries, both are at the top of the list," Rosso said. "But eventually we want to talk to (anyone producing digital content)...The Pirate Bay has turned over a legitimate new leaf, so it has to be above board from the first day. That's the only way it can work."
To anybody who remembers Rosso from his days with the now defunct Grokster, the software company that created the famed peer-to-peer program by the same name, it might be hard to see the logic in sending him to make friends with content owners. He was known to compare executives at the Recording Industry Association of America to Stalin.
Rosso said he had a change of heart after founding Mashboxx, a legal P2P service that never really caught on, and working closely with leaders in the music business.
"I've gotten friendly with a lot of these guys," Rosso said of Mitch Bainwol, the RIAA's CEO and other music industry execs. "These are good guys. They've been wonderful to me. Other people in the business have been nice to me but they've had to hold their nose. Some of them took me too seriously. To me it was a f***ing circus. None of that stuff was personal."
As for the new business model, Rosso said The Pirate Bay will offer users all the music they can download for a small monthly fee. Eventually, users can whittle that fee down to nothing by tying their computers to The Pirate Bay's "cloud" network. For example, a person may dedicate a gig of hardware space to the network and the fee may go from $9 to $5. (Rosso declined to discuss pricing yet so the numbers are made up just for the example).
"The more of your computer resources you contribute to the network, the less you pay down to zero," Rosso said. "The user is in control."
The Pirate Bay then plans to harness all that computing power and sell it, becoming a competitor of Akamai and Amazon's Elastic Compute Cloud (EC2).
"We hope to introduce a new BitTorrent technology that will optimize ISP traffic," Rosso said. "We can save ISPs up to 80 percent of their resources. Half of the Internet traffic is file sharing and half of that traffic is Pirate Bay."
Rosso first reported the news about his landing at The Pirate Bay on the British blog, the Music Void.
Update 5:48 p.m. PT: To include quotes from Thomas Rasset's attorney.
Jammie Thomas-Rasset, the Minnesota woman found liable for willful copyright infringement of 24 songs last month, has asked a federal court for a new trial or a reduction in the amount of the $1.92 million damages she was ordered to pay.
Thomas-Rasset, who a jury found liable for willful copyright infringement, asked the court Monday to either alter or amend the judgment, remove or change the award of statutory damages to the minimum, or give her a new trial. The minimum damages would be $18,000.
Joe Sibley (left) and Kiwi Camara, attorneys for Jammie Thomas-Rasset.
(Credit: Camara & Sibley law firm)"(The $1.92 million) judgment is grossly excessive and, therefore, subject to remittitur as a matter of federal common law," her lawyers wrote in the filing with U.S. District Court for the district of Minnesota. "Moreover, such a judgment is inconsistent with the Due Process Clause of the United States Constitution."
In 2007, the Recording Industry Association of America accused Thomas-Rasset, 32, of copyright infringement. The trade group for the four top recording companies initially accused her of sharing 1,700 copyright songs--the equivalent of 150 CDs--but the RIAA whittled down the number to 24. A jury heard the proof against her as well as her defense, which boiled down to her denying any wrongdoing, and rendered a $222,000 verdict against her.
That decision was thrown out by the judge after he acknowledged erring in his jury instructions. Last month, Thomas-Rasset's retrial again saw 12 jurors decide against her. This time, however, they awarded damages of $80,000 for each of the 24 songs she was accused of sharing.
The $1.92 million award outraged many, and last week, Joe Sibley, one of her attorneys told CNET News that she would appeal on the constitutionality of the damages. He said Monday night that he and and legal partner Kiwi Camara still intend to file the appeal but have some time before the deadline.
Jonathan Lamy, an RIAA spokesman declined to comment on Monday, but last week, following Sibley's statement that Thomas-Rasset would appeal, Lamy said: "What's increasingly clear, now more than ever, is that she is the one responsible for needlessly prolonging this case and refusing to accept any responsibility for the illegal activity that two juries decisively found her liable for."
In the filing, Sibley and law partner Kiwi Camera once again took aim at the evidence gathered on behalf of the RIAA by MediaSentry, the Web sleuths that gather evidence of copyright violations for entertainment companies. MediaSentry did so for the RIAA in the case of Thomas-Rasset.
Sibley and Camara argued that the evidence submitted by MediaSentry is inadmissible because it was collected through illegal means. In Thomas-Rasset's retrial, she alleged that MediaSentry violated private investigator and wiretap statutes in the states in which it operated.
The judge in the case denied her original motion to suppress the evidence. Finally, Thomas-Rasset's attorneys wrote that the courts must distinguish between commercial and non-commercial forms of copyright infringement when assessing penalties.
"Even the plaintiffs were shocked by the verdict," Thomas-Rasset said in her motion. "No one could have expected $1.92 million for 24 songs. That alone justifies remittitur; at a minimum, Mrs. Thomas should not be subjected to a penalty that no reasonable person could have expected would flow from the noncommercial music sharing of which she stands convicted.
"But the verdict reveals a deeper problem with the statutory-damages scheme of the Copyright Act as applied in cases like Mrs. Thomas'. The Act does not distinguish, in determining the range of statutory damages, between commercial and noncommercial infringers, between those who infringe for great profit and those who do so for personal use."
Corrected at 4:40 p.m. PDT: The document filed by Thomas-Rasset's attorneys on Monday was a motion for a new trial.
It's official: Jammie Thomas-Rasset intends to appeal her case, one of her lawyers told CNET News on Wednesday.
"She's not interested in settling," attorney Joe Sibley said in a brief phone interview. "She wants to take the issue up on appeal on the constitutionality of the damages. That's one of the main arguments--that the damages are disproportionate to any actual harm."
Joe Sibley (left) and Kiwi Camara represent Jammie Thomas-Rasset.
(Credit: Camara & Sibley law firm)Thomas-Rasset has a brief period to file a notice of appeal, legal experts said. The actual appeal can come later.
What this means is that the Thomas-Rasset drama will have a third act. In October 2007, a jury rendered a $222,000 verdict against her but that decision was later tossed out.
Then, two weeks ago, a federal jury in Minnesota found Thomas-Rasset liable for willful copyright infringement and ordered her to pay $1.9 million. Since then, the blogosphere has churned with speculation about how she will proceed. The 32-year-old Minnesota resident said after her latest trial that she would refuse to pay. Still, with $1.9 million in damages strapped around her neck, many have wondered whether Thomas-Rasset would fight on--or cut her losses and settle.
The Recording Industry Association of America said on Monday that it had made a phone call to Sibley and law partner Kiwi Camara last week to ask whether Thomas-Rasset wanted to discuss a settlement. An RIAA representative said that its lawyers were told by Sibley that Thomas-Rasset wasn't interested in discussing any deal that required her to admit guilt or pay any money.
In settlement talks, there's often maneuvering, so the RIAA was unsure which way Thomas-Rasset would go--at least until Sibley made it clear.
"The defendant can, of course, exercise her legal rights," said Jonathan Lamy, an RIAA spokesman. "But what's increasingly clear, now more than ever, is that she is the one responsible for needlessly prolonging this case and refusing to accept any responsibility for the illegal activity that two juries decisively found her liable for. From day one, we've been fair and reasonable in exercising our rights and attempting to resolve this case."
Sibley told CNET News that when RIAA lawyers called a couple of days after the second trial to gauge Thomas-Rasset's interest in settling, they didn't throw out any dollar figures. He did say that following Thomas-Rasset's first trial, the trade group offered to settle for $25,000.
Thomas-Rasset's case has already helped set a series of important legal precedents, including establishing that it is sufficient to show that defendants placed files in their P2P shared folder to prove they intended to make the music available across the network. With the case going to the appeals process, there's a good chance it will continue establishing legal parameters.
"They have an uphill battle," said Ben Sheffner, a former attorney at 20th Century Fox and a rising star on the pro-copyright side. Sibley and Camara "are asking the court to do something no federal court has ever done before. However, this is a good test case. You have a non-wealthy defendant and you have a huge damages award."
Usenet.com lawyers lost their copyright infringement case to the music industry on Tuesday and are now preparing for a federal court to assess damages. The judgment could be hundreds of millions of dollars.
Charles Baker, attorney for Usenet.com
(Credit: Fulbright & Jaworski law firm)In the long list of copyright cases brought by the Recording Industry Association of America, this one stands out for all the drama it provided, and depending on which side you talk to, the amount of precedent-setting decisions involved. Usenet.com lawyers argue the presiding judge diluted the power of the landmark 1984 Betamax case. RIAA attorneys sigh, and say their opponents are just trying to inflame the public.
In what became a provocative sideshow during the proceedings, the RIAA alleged that Usenet.com destroyed evidence and prevented employees from being questioned by RIAA lawyers, going so far as shipping some of them off on extended trips to Europe. Presiding U.S. District Judge Harold Baer, of the Southern District of New York, was unamused and sanctioned Usenet.com.
Usenet.com is a company that enables users to access the Usenet network, an early electronic discussion forum and formerly popular way to share binary files. In October 2007, the RIAA filed suit against Usenet.com, which charges up to $19 for access "to millions of MP3 files and also enables you to post your own files the same way and share them with the whole world."
That was how Usenet.com advertised itself and while the pitch may have lured customers, it certainly didn't help in the defense against a copyright suit. Baer ruled in favor of the RIAA on Tuesday and found Usenet.com liable for direct, contributory, and vicarious infringement. Sometime in the next three weeks, the judge will hear from both sides as to what they think damages should be and what steps Usenet.com must take to prevent copyright violations.
Both sides agree that there is a vast amount of infringing material that Usenet.com helps make available. Baer could assess damages anywhere from $750 per infringing work to $30,000. The total award to the RIAA theoretically could be in the hundreds of millions of dollars. Already, one of the three defendants in the case has filed bankruptcy. There are serious questions about whether Usenet.com can survive a significant damage award.
"The court needs to balance the fact that you can't simply shut us down," said Baker, "because the technology itself has substantial non-infringing uses. On that everyone agrees."
Erosion of Betamax
For other media services accused of copyright violations, such as YouTube and music start-up Project Playlist, nothing in the case is more important than the judge's decision to prevent Usenet.com from arguing a Betamax defense, Baker said. The Betamax case refers to the Supreme Court decision in Sony Corp. of America vs. Universal City Studios, which decided that makers of video recorders could not be held liable for copyright infringement.
That ruling has been interpreted to mean that companies can't be held liable if the devices they create are "capable of significant non-infringing uses." It is a decision that tech companies have long relied on to shield them against copyright complaints. But the RIAA now has Betamax in its crosshairs, according to Baker.
Judge Baer said, in his 38-page decision, that the chief difference between Usenet.com and Sony in the Betamax case is the latter company cut ties with customers once they purchased a VCR. After that, Sony had no part whatsoever in illegal acts committed by customers. Usenet.com, on the other hand, maintains a relationship with customers. For Usenet.com subscribers, the company is the gatekeeper to the Usenet network.
"You do see a whittling down of the (Betamax) policy unfortunately," said Baker, with the law firm of Fulbright and Jaworski. "I think because the court found that we were more actively involved in our users than they were in the Sony case itself. Yes, we maintained a relationship with our clients but we tried to point out Sony also maintained a relationship by keeping up with customers through warranties, and providing 800 numbers and by contacting their customers. In this situation, the court may have gone too far in finding that Sony Betamax was not available to us as a defense."
Another precedent set by Baer, according to Baker, is that distributing material within a closed network was a violation.
"This is something new the judge bought off on their argument," Baker said. "The way Usenet works is there is copying going on in the servers, there's multiple copies being made. When a user uploads a file it goes into a server and subsequently those binary files move from server to server as they go through the Usenet network. The court has held that was a violation of the right of distribution and no court has gone there before."
Jennifer Pariser, the RIAA's chief of litigation.
(Credit: RIAA)
Nothing new here, move along
The RIAA's chief of litigation denied in an interview that that there is much new, if anything, in Baer's decision. "Baker is inflaming your readers by suggesting that Baer went further than he did," said Jennifer Pariser, the RIAA's senior vice president of litigation.
"You only need to look at the decisions that we have prevailed in thus far against peer-to-peer services," Pariser said. "In all of those cases, the court must have determined that Betamax didn't apply because you know for sure that every defendant always tries to say 'We're immune from liability because of Sony Betamax.'"
She noted that decisions in such cases from Aimster to Napster have all said that just because a service is capable of non-infringing uses, doesn't automatically protect it from liability. In Napster, for example, the company asserted the Betamax case in its defense but U.S. District Judge Marilyn Patel ruled against the music-sharing service because the defendant had knowledge of copyright theft on the site.
"It is simply untrue that this case is unprecedented," Pariser said.
As for the way the files are distributed on Usenet, she also disagreed that Baer's findings were anything new. "It's true that this particular technology has not been observed before, but you can think of that as analogous to the transferring from one file to another on a peer-to-peer network, which the Supreme Court in Grokster said was infringement. The fact that it goes from a peer to another peer doesn't mean it's not copyright infringement.
"What Baer said," Pariser continued, "is that the transfer of the file from this defendant's server to a Usenet.com paid subscriber is unauthorized distribution."
How about the shenanigans Usenet.com was accused of committing with respect to evidence and discovery?
Baker said the RIAA's favorite tactic in these sort of cases is to "bombard defendants with discovery requests" and that his clients aren't very sophisticated. They were doing their best to comply. He added that the RIAA is trying to use this case to scare other Usenet services.
Pariser said that in all the similar cases the RIAA has pressed, when it came to Usenet.com "the discovery misconduct was unprecedented."
As for what the RIAA is going to ask for in damages, Pariser said the RIAA hasn't come to a dollar figure yet but "certainly there's no question that Usenet.com caused multimillion dollars worth of damage."
Note: See Usenet.com's reaction at "Usenet.com says RIAA 'whittling down' Betamax case."
The Recording Industry Association of America has prevailed in its copyright fight against Usenet.com, according to court documents.
In a decision that hands the RIAA an overwhelming victory, U.S. District Judge Harold Baer of the Southern District of New York ruled in favor of the music industry on all its main theories: that Usenet.com is guilty of direct, contributory, and vicarious infringement. In addition, and perhaps most important for future cases, Baer said that Usenet.com can't claim protection under the Sony Betamax decision. That ruling says companies can't be held liable for contributory infringement if the device they create is "capable of significant non-infringing uses."
Baer noted that in citing the Betamax case, Usenet.com failed to see one important difference between it and Sony. Once Sony sold a Betamax, an early videotape recorder, the company's relationship with the buyer ended. Sony held no sway over what the buyer did with the device after that. Usenet.com, however, maintains an ongoing relationship with the customer and does has some say in how the customer uses the service.
Usenet.com's lawyers could not be reached Tuesday evening.
The two-decade-old Usenet network was one of the early ways to distribute conversations and binary files, long before the Web or peer-to-peer networks existed. Usenet.com is a company that enabled users to access the Usenet network.The RIAA filed suit against Usenet.com in October 2007, accusing the company of encouraging customers to pay up to $19 a month by enticing them with copyrighted music.
The case is highly unusual because of Baer's many findings of discovery misconduct by the Usenet.com side. The rules of discovery in a civil case requires both sides to exchange information. The RIAA produced evidence, however, that Usenet.com destroyed evidence or failed to produce witnesses on multiple occasions.
The RIAA accused Usenet.com of intentionally destroying the contents on seven hard drives that contained employee-generated data; providing false information; and attempting to prevent employees from giving depositions by sending them to Europe.
The judge found the evidence credible but denied the RIAA's motion to hand it a victory based solely on the misconduct. Instead, the judge sanctioned Usenet.com "from asserting (the company's) affirmative defense of protection under the DMCA's safe harbor provision."
The Digital Millennium Copyright Act's safe harbor provides refuge to Internet service providers from being held responsible for criminal acts committed by users. Without that and without the Betamax decision, Usenet.com was a sitting duck.
In a brief note posted Tuesday to RIAA.com, the trade group for the music industry said: "We're pleased that the court recognized not just that Usenet.com directly infringed the record companies' copyrights but also took action against the defendants for their egregious litigation misconduct."
Jammie Thomas-Rasset's attorneys have rejected the music industry's "overture" at settling her case.
Just a couple days after Thomas-Rasset was found guilty of willful copyright infringement and ordered by a jury to pay $1.9 million, attorneys with the Recording Industry Association of America called to ask whether Thomas-Rasset was willing to discuss a settlement, a spokesman for the RIAA said Monday.
Jammie Thomas
(Credit: Jammie Thomas)Thomas-Rasset's lawyers responded that she wasn't interested in any deal that required her to pay any money or admit any guilt, according to the RIAA's spokesman. That was the same response the 32-year-old Minnesota woman gave after a jury decided against her in October 2007.
Contacted at his office on Monday evening, Joe Sibley, one of Thomas-Rasset's attorneys, told CNET News that he wasn't aware of any settlement talks but needed to ask his law partner.
On June 18, a Minneapolis federal court imposed damages against Thomas-Rasset of $80,000 for each of the 24 songs she was ultimately found guilty of illegally sharing. This was a step backward for Thomas-Rasset, who was ordered to pay just $222,000 following her first trial. That decision was thrown out by the judge in the case, who acknowledged that he erred in instructing the jury prior to deliberations.
Throughout, the RIAA has said it is willing to settle and at one point was asking for just $5,000 from Thomas-Rasset. There is a chance that she could walk away from the nearly $2 million damage award by declaring bankruptcy, legal experts have said.
To do that, she would likely have to prevail at another trial in bankruptcy court. To convince a bankruptcy judge not to allow Thomas-Rasset to wipe out her debt, however, the RIAA would have to prove that she had malicious intent, or meant to cause harm, when she illegally shared files.
Some legal experts say proving malice is often difficult to do.
