1)       Cartoon Network, LP v. CSC Holding Inc.

Among the most recent and important decisions impacting cloud-based storage and distribution of entertainment content was the Second Circuit’s 2008 decision in Cartoon Network, LP v. CSC Holding Inc. (“Cablevision Case”), which addressed the copyright implications of a cloud-based DVR system. Specifically, cable operator Cablevision Systems Corporation (“Cablevision”) announced plans in March 2006 to market a “remote storage DVR system” (“RS-DVR”) to allow subscribers without a stand-alone DVR to record cable programs on central hard drives Cablevision maintained at a “remote” location. In response, major networks and studios sued Cablevision in federal court, claiming that the RS-DVR would directly infringe their rights to reproduce and publicly perform their copyrighted works. The district court agreed and enjoined Cablevision from operating the RS-DVR system without additional licenses from the plaintiffs. Cablevision appealed and the Second Circuit reversed the decision on all three infringement counts.

The first claim rejected by the Appeals Court was that the brief caching of buffering data while Cablevision’s system queried whether the customer had actually requested the program be recorded on to the applicable hard drive violated the exclusive right of reproduction. The Appeals Court held that the buffering period was so negligible as to fail the Copyright Act’s requirement that a copy of work be fixed in a tangible medium “for more than a transitory duration.” This point is potentially significant for future cloud business models given that cloud-based services may enable the storage, manipulation and distribution of content in multiple formats across multiple devices, which will continue to no doubt further implicate transitory caching of content at multiple stages in the process.

The second claim reversed by the Appeals Court was that Cablevision was liable for direct copyright infringement for copying programs to the RS-DVRs. Here, the Appeals Court held that Cablevision did not evince the required “volitional conduct” that actually caused the copy to be made and found that Cablevision’s conduct in designing, housing, and maintaining a system did not amount to direct infringement.

The third and perhaps most controversial claim reversed by the Appeals Court was that the transmission of programming from the RS-DVR to subscribers who requested playback breached the public performance right. Here, Cablevision argued (and the Appeals Court found relevant) that, “because each RS-DVR transmission is made using a single unique copy of a work, made by an individual subscriber” only one subscriber is capable of receiving the transmission of that particular work and thus the performance is not “public”.

Ultimately, the holding in the Cablevision Case that individualized copies of content specifically streamed to subscribers from remote DVRs constitute private, as opposed to public, performances introduces a lack of clarity regarding the rights necessary for cloud-based transmissions of audio/visual content. Put simply, the question remains as to whether streaming of legally obtained content to an end user from the cloud (e.g., MP3 tracks stored in a digital locker, etc.) implicates the public performance right. As a result, purveyors of cloud-based business models are left considering whether additional authorization is required from copyright holders, and in the absence of obtaining that consent, whether the potential exists that another tribunal could later disagree with the Second Circuit’s holding in the Cablevision Case. Furthermore, the application of the holding in the Cablevision Case to alternate fact patterns and business models, as even the court itself acknowledged, provides limited guidance.

“This holding, we must emphasize, does not generally permit content delivery networks to avoid all copyright liability by making copies of each item of content and associating one unique copy with each subscriber to the network, or by giving their subscribers the capacity to make their own individual copies. We do not address whether such a network operator would be able to escape any other form of copyright liability, such as liability for unauthorized reproductions or liability for contributory infringement.”

2) Capitol Records, LLC et al. v. MP3tunes, LLC

Another recent and ongoing case potentially impacting the digital locker and cloud computing landscape is Capitol Records, LLC et al. (“EMI”) v. MP3tunes, LLC (See Initial Complaint, EMI Summary Judgment Memorandum and Response, MP3tunes Summary Judgment Memorandum and Response, and recent Summary Judgment Ruling). Here, multiple record companies and publishers affiliated with EMI have asserted, among others, various copyright infringement claims against MP3tunes, which operates two separate online services–specifically, MP3tunes.com and Sideload.com. MP3tunes.com allows users to store their music collections in online digital lockers, which they can then access from any computer or mobile device with an Internet connection. Sideload.com is a music search engine site that allows end users to search for links on the internet to downloadable music that can be uploaded (or “sideloaded”) to an MP3tunes digital locker. Once music is placed in an end user’s digital locker, the music becomes available for transmission to any IP-enabled device at the end user’s direction.

Based on the documents filed to date, EMI has asserted a series of both direct and secondary copyright infringement claims against MP3tunes, including claims that MP3tunes has forfeited its eligibility under the Digital Millennium Copyright Act’s (DMCA) Safe Harbor provisions for its illicit conduct in knowingly providing the means for end users to violate EMI’s copyrights via Sideload.com and failing to respond to takedown notices. In fact, the majority of EMI’s claims are based on the functionality and content made available via Sideload.com, which essentially aggregates URLs linked to digital music files that can be readily downloaded or sideloaded to an online locker. EMI has asserted that the infringing nature of the links posted on Sideload.com, as well as the corresponding files that are made available via the linked URLs that are then sideloaded into an MP3tunes digital locker violate EMI’s copyrights.

While a detailed analysis of the merits of EMI’s DMCA and contributory liability theories remain outside the scope of this post (and have yet to be entirely decided by the court), the district court, in its recent ruling on the parties’ summary judgment motions, did find that the MP3tunes was entitled to the Safe Harbor protections afforded under the DMCA, but further addressed a key issue emerging in the new cloud-based lockering environment. Specifically, upon receipt of a valid takedown notice from EMI, the court found that MP3tunes had a duty to not only remove links to infringing songs publicly displayed on Sideload.com, but also a duty to remove songs stored in users’ personal lockers which were downloaded from such links. In its defense, MP3tunes claimed that it was only required to remove the URL links on Sideload.com because only those links were listed on EMI’s takedown notices and that it might be subject to lawsuits by users if it actually removed personal property from users’ digital lockers. The court, however, rejected this argument, pointing to the DMCA’s immunity provisions for service providers acting on valid takedown notices (see 17 U.S.C. 512(g)), and stating that:

“Where service providers such as MP3tunes allow users to search for copyrighted works posted on the internet and store those works in private accounts, to qualify for DMCA protection, those service providers must (1) keep track of the source and web address of stored copyrighted material, and (2) take content down when copyright owners identify the infringing sources in otherwise compliant notices… [Accordingly,] MP3tunes was obligated to remove specific works traceable to users’ lockers .. [b]ecause MP3tunes keeps track of the source and web address for each sideloaded song in each user’s locker and EMI’s notices gave sufficient information for MP3tunes to locate copies of infringing song in users lockers.

In addition to the foregoing claims, EMI also claimed that MP3tunes directly infringes that right of public performance by allowing end users to stream music from their online digital lockers to personal devices. Relying in part on the holding in the Cablevision Case, EMI asserted that MP3tunes violates the public performance right because it uses a “single master” to play songs to multiple users, as opposed to Cablevision which maintained a separate copy of each program for each subscriber who recorded it. In response, MP3tunes replied that it does not utilize a “single master” storage system, but rather a common open source distributed file software system that eliminates redundancy and enables MP3tunes to efficiently store and retrieve the millions of audio files uploaded by its users without employing a duplicative file storing method.

Ultimately, the district court held that MP3tunes does not in fact use a “single master” system, but rather a standard algorithm known as “Content-Addressable Storage” to store music files which uses hash tags associated with each uploaded song that ultimately allows for the reconstruction of the exact file the user originally uploaded to the service (i.e., there is no “master copy” of any EMI songs stored on MP3tunes’ servers). Still, this determination does not entirely address EMI’s infringement claim regarding the right of public performance as the court’s holding solely relates to the nature of the specific file storage technology employed by MP3tunes. This is in part due to the fact that EMI’s arguments on the public performance issue were largely based on distinguishing the file storing technology used by MP3tunes from the technology employed by Cablevision. In other words, EMI did not address the public performance question by looking at the intended audience of the transmissions enabled by MP3tunes, but rather whether MP3tunes used a “single master” to transmit music to end users.

Ultimately, the take away from both the Cablevision Case and the MP3tunes case is that cloud-based delivery, storage and consumption of entertainment content, whether overtly and implicitly, implicates many of the exclusive rights afforded copyright holders and stakeholders need to remain vigilant about allocating risk when the laws in the US and overseas have yet to suitably address the contours of these services and the corresponding technologies at play. We will obviously keep an eye on future developments in connection with cloudifcation of entertainment content and any case law potentially impacting the future deployment of related cloud-based products and services.

While consumer DVRs have been used for years, Cablevision sought to launch a service for the remote storage of shows recorded by consumers.  Cablevision’s argument in favor of such service was that, as long as consumers were still in control of the recording, playback and deletion process, the location of the hard drive on which the content was stored didn’t matter.  Broadcasters disagreed, however, claiming that by archiving and retransmitting the content, Cablevision was engaging in copyright infringement.

A district judge initially agreed with the broadcasters and, in March 2007, entered an injunction preventing Cablevision from rolling out its program.  Cablevision appealed and in August 2008, the Second Circuit reversed the district court ruling in a sweeping opinion.  The circuit court found that, while Cablevision employed a 1.2 second storage buffer, that “embodiment” of the work was only transitory and failed to constitute copyright infringement.  The circuit court also found that Cablevision did not own the copies on its servers, which were controlled by the users and therefore fell within the scope of the fair use doctrine.

The Supreme Court’s denial of cert brings to an end the litigation.  Cablevision announced that it plans on beginning a roll-out by the end of the summer.

The tremendous effectiveness of video game product placement and in-game sponsorship is no surprise, with gamers maintaining high and sustained exposure to advertisements. A recent study revealed that gaming audiences are more inclined to remember and positively perceive brands featured inside video games than other advertisements and that this form of advertising is even beginning to trump the effectiveness of television advertisements. Another similar study found that, unlike advertising messages in other media, advertising in video games is seen by gamers as making the games feel more authentic and 65% of players agreed that in-game advertisements made the gaming experience feel more realistic and 55% said the advertisements “look cool”.

In this climate, your decision to dress your main video game character in, for example, a pair of Vans (or even kicks resembling Vans) could earn you a thank you note or possibly a temporary restraining order from Vans which may have an exclusive in-game licensing arrangement with Activision Blizzard, the publishers of the Tony Hawk series of skateboarding games. Make no mistake, the major video game developers and publishers are engaged in a well-funded war for market share, and licensing agreements with real-world content owners have become the norm. Whether you’re creating a sports game, a music title or a first person shooter, there is both tremendous promotional value and legitimacy that accompanies the in-game inclusion of popular names, products and places, and the respective owners now want their say as to the games in which they appear and how and under what conditions their content is featured.

Now that content owners have skin in the game (no pun intended, of course), licensing arrangements are being struck left and right–some exclusive, some non-exclusive, some royalty bearing, some royalty free. From guitar makers to gun manufactures, content owners know that placing, for example, a “Smith & Wesson” gun in the main character’s hands, as opposed to an “ACME” rifle, has the potential to sway consumers inundated with options, especially in the already crowded first person shooter genre, from one title to another. With  in-game asset licensing arrangements becoming more and more common, the traditional test for assessing trademark infringement as it relates to video games—the likelihood of confusion among consumers as to whether the assets being depicted in the video game are endorsed or associated with the title—has and will continue to be an easier hurdle for trademark owners to clear as the amount of licensing agreements pertaining to inclusion of trademarked or copyrighted works in video games increases. In other words, circumventing the licensing process in favor of a “fair use” or First Amendment defense will no longer be a viable position from a risk assessment perspective, as plaintiffs will now have an easier time demonstrating and establishing that in-game licensing arrangements have become industry standard and convey substantial commercial value.

This will be the first of many posts to come on the subject of video game licensing and clearances, as well as the legal principles and case law underlying the topic, including fair use and infringement (both for copyright and trademark) and the building blocks of the licensing agreements required to navigate the interactive gaming space.

As we discussed in a previous post, Lenz, in her suit against Universal, is asserting a claim of “misrepresentation” under Section 512(f) of the DMCA, which states that

“Any person who knowingly materially misrepresents under this section that material or activity is infringing…shall be liable for any damages, including costs and attorneys’ fees, incurred by the alleged infringer… who is injured by such misrepresentation, as the result of the service provider relying upon such misrepresentation in removing or disabling access to the material or activity claimed to be infringing…”

Lenz’s misrepresentation claim, therefore, could be sustained only if Universal failed to comply with the takedown requirements under Section 512(c)(3)(A)(v) which states that any copyright holder filing a takedown notice must have “a good faith belief that use of the material in the manner complained of is not authorized by the copyright owner, its agent, or the law.”

In response to Lenz’s suit, Universal filed a motion to dismiss claiming that copyright owners cannot be required to evaluate the question of fair use prior to sending a takedown notice because fair use is merely an excused infringement of copyright rather than a use authorized by the copyright holder or by law. In other words, the “good faith” requirement under Section 512(c)(3)(A)(v) does not apply because fair use is not a use authorized by law. Lenz (supported by lawyers from the Electronic Frontier Foundation), countered that fair use is, in fact, an authorized use of copyrighted material and that copyright holders cannot represent in good faith under the DMCA that content infringes copyright as required without considering all authorized uses of such content, including fair use.

In August, the U.S. District Court for the Northern District of California, rejected Universal’s motion to dismiss and held that the Copyright Act provides explicitly that “the fair use of a copyrighted work…is not an infringement of copyright” and that fair use is lawful use of copyright. Accordingly, the court held that Section 512(c)(3)(A)(v) applies to fair use of a copyright and therefore Universal could be held liable on a claim of misrepresentation if Lenz can prove the requisite standard of subjective bad faith necessary to prevail.

While the impact of this decision is not yet clear (as it is merely a dismissal of a motion that allows the case to proceed), copyright holders need to proceed with caution in their approach to issuing takedown notices. If the district court’s initial ruling is upheld, it is possible that copyright holders may be required to consider the potential fair use applications of a copyrighted work before issuing takedown notices and the failure to do so may constitute a violation of the DMCA. In other words, corporations and their intellectual property enforcement regimes will now be tasked with making value judgments on the applicability of the fair use doctrine—one of the most amorphous and continually evolving legal concepts in existence.  

The DMCA was initially intended as the US implementation of two treaties adopted by the World Intellectual Property Organization (WIPO) in 1996 to establish rules for two evolving forms of digital media: music and computer software and databases.  However, as the legislation was introduced in Congress, additional provisions were added in response to lobbying efforts by two distinct constituencies.  

Media companies wanted the bill to include provisions to protect their IP, which was increasingly available in digital form, from widespread infringement.  They therefore pressed for the inclusion of anti-circumvention rules that prevent anyone from bypassing any technological measures used by copyright owners to control access to their works.  And ISPs, hosting companies and interactive services sought provisions to provide a safe harbor from infringement claims based on the actions of their users.  In hindsight, these provisions, which were ultimately included in the DMCA, have each impacted the technological landscape in ways that are felt everyday

Without the anti-circumvention provisions, it is unlikely that DVD technology, which was being test marketed when the DMCA was enacted, would have been embraced by movie studios.  The adoption of DVD technology has led to the blossoming of new lines of electronics manufacturing and rental businesses that have far outpaced those which evolved when VHS was the primary medium for home viewing of movies.

However, these same provisions have also led to disputes and litigation that, to some, run counter to their original intent.  For example, while developing and improving methods to ensure the security of the internet and computers connected to it would seem to be an unassailable goal, the anti-circumvention provisions have created a Catch-22 for security experts and researchers.  In order to improve copy-protection systems and computer security programs, these experts and researchers need to determine what flaws exist in any currently deployed security system.  Thus, the very act of testing those systems is a violation of the anti-circumvention provisions of the DMCA.  For a more detailed, albeit one-sided, view of this debate, here is the Electronic Frontier Foundation’s report, entitled “Unintended Consequences: Ten Years under the DMCA.”

The safe harbor provisions have enabled the explosive growth of the web, particularly as an interactive medium.  In effect, website operators from MySpace to WordPress were able to provide forums for users without a constant fear of being sued based on the acts of their users.

In order to maintain “safe harbor” protection, the “provider of online services” must meet certain conditions.  It cannot have knowledge of an infringement nor derive any direct financial benefit from the infringing activity where it has the right and ability to control it.  A provider must also expeditiously remove material if a copyright holder sends a take-down notice, without the need to evaluate the notice to determine if it is accurate or whether the user who uploaded the content has any rights to it.   From a simple perspective, this seems to make sense:  a provider should not be put in a position of having to adjudicate disputes over content.  As a pure intermediary, its obligations should be as simple as possible (If receive take-down notice è then take down content).  The principals are the ones with the vested interest in the content and should be the only ones debating the merits of who has the right to make content available.

However, some content owners believe that too much emphasis is being placed on the take-down “remedy” enabling it to serve as a blanket of immunity for all infringement claims.  What if an online provider’s sole business model is to provide users with a readily available means to post content online?  And what if the site becomes wildly popular, with the potential to earn substantial amounts of money selling ads to companies seeking that vast user base and audience? And what if it is clear that users are posting content they don’t own?  Doesn’t the online provider lose its safe harbor protection because it has knowledge of the infringement?  Or is deriving financial benefit from the infringement? 

These are the basic facts underlying Viacom’s lawsuit against Google.  The case is headed for trial next spring.  The outcome will undoubtedly have major repercussions throughout the digital media world.

The intermediary function of online providers has also recently come under assault in a somewhat surprising context, the presidential campaign.  John McCain’s campaign had posted various videos on YouTube that included snippets from broadcast news footage.  In response to take-down notices from the news outlets, YouTube pulled the videos.

The McCain campaign then sent a letter to YouTube claiming its use of the footage was privileged under the fair use doctrine.  While recognizing that a fair use analysis could not be undertaken in response to every take-down notice, the McCain campaign proposed that such an analysis be done, at the very least, when the content at issue was posted by a political campaign.

In response, YouTube, politely, told the McCain campaign “thanks but no thanks.”  In a possible overstatement, the letter said that “[l]awyers and judges constantly disagree about what does and does not constitute fair use.  No number of lawyers could possibly determine with a reasonable level of certainty whether all videos for which we receive disputed takedown notices qualify as fair use.”  While acknowledging that some parties abuse the take-down notification process, YouTube essentially passed the burden of policing those abuses to the users who upload the content who, according to YouTube, “operat[e] from a position of strength, with knowledge of exactly where the content in [their] videos came from.”

Ironically, McCain voted for the DMCA.  But YouTube’s response appears to be more in line with both the express language and intent of the safe harbor and take-down notice provisions of the act.

The question of whether a fair use analysis needs to be employed in connection with issuing a take-down notice is currently the subject of litigation involving not an online provider but content owners.  Universal Music and Universal Publishing Group had issued a take-down notice to YouTube over a 29-second video posted by Stephanie Lenz of her toddler dancing to Prince’s “Let’s Go Crazy.”  YouTube took down the video.  Lenz then sued the Universal entities claiming that they made a misrepresentation in sending the take-down notice to YouTube knowing that Lenz’ use of “Let’s Go Crazy” was not infringing.  In essence, Lenz was arguing that a copyright owner must make a fair use analysis prior to sending a take-down notice to an online provider.

The Universal entities moved to dismiss the complaint.  At issue is language in the DMCA that, when sending a take-down notice, the complaining party must state its good faith belief that the use at issue is “not authorized by the copyright owner.”  Universal argues that fair use is merely an “excused” infringement and therefore a fair use evaluation is not relevant to determine whether the use is “not authorized” for DMCA purposes.  As Universal also pointed out, the DMCA take-down provisions do not even mention fair use, much less place a burden on the party issuing the notice to consider it.

The district court denied the motion, stating that the issue of whether fair use qualifies as “authorized by law” in connection with a take-down notice under the DMCA was a question of first impression. 

Obviously, this is a case that will be closely watched.  However, a final ruling in Lenz’ favor will have considerable consequences, effectively shifting the fair use burden from the user uploading the content (as YouTube noted in its letter to the McCain campaign) to the party issuing the take-down notice, in most cases copyright right owner. 

And so, we usher in the next decade of the DMCA.  And while it is difficult to predict what the next ten years will bring, it is probably safe to say that, regardless of the disputes that will inevitably arise, the digital marketplace will continue to rapidly evolve, with the DMCA serving as the basic framework and foundation for protecting digital rights and the focal point for disputes yet to come.

Google’s primary objective has been to organize the world’s information and make it universally useful. Specifically, their focus to make copyrighted books available digitally to the general public without explicit permission to do so from the respective authors and publishers has been getting a lot of attention in the past few years.

On Tuesday, in what is being referred to as a landmark decision, Google Inc., the Authors Guild and the Association of American Publishers settled a class-action lawsuit dating back to 2005 over Google’s book-scanning project, which would result in the creation of, and free, public access to, a massive online library.  Google has now agreed, among other things, to pay $125 million to resolve the copyright infringement claims brought by the authors and publishers involved in the class action. According to the settlement administration website for the class action, the settlement, if approved, will authorize Google to (1) continue to scan copyrighted works, (2) develop an electronic books database, (3) sell subscriptions to the books database to schools, corporations and other institutions, (4) sell individual books to consumers and (5) place advertisements adjacent to pages of books. Through the establishment of a not-for-profit “book rights registry”, Google will pay rights holders 63% of all revenues earned from these uses, and the registry will distribute those revenues to the rights holders who register their works. Google will also pay $34.5 million to establish the registry and for other costs of administering the settlement.

Ultimately, the settlement agreement will afford Google the ability to expand public access to millions of books, including books that are out of print, as well as offer subscriptions to universities and other organizations.  Many public and university libraries (including the Universities of California, Michigan and Stanford) will make their full inventory available digitally to the public through Google’s online library. 

The parties involved describe the settlement as a victory, particularly for the copyright holders that will be compensated through the registry. However, there is concern that the settlement could have a significant impact on the success of a fair use defense, particularly in the digital space. By Google’s abandonment of its fair use argument, and the precedent that will be set vis-à-vis payment of royalties to copyright holders, it will be much harder for competitors in this space to claim fair use – meaning, now that a major player in the market like Google is going to begin paying license fees to copyright holders, courts will be less likely to rule that others can do what Google is doing for free under the fair use doctrine.  Some also say that by not seeing a judgment on fair use in this case is a downside for copyright law, particularly with respect to advising technology companies about what is protected fair use.  A University of Baltimore Law School professor has even been quoted as saying that the settlement is like “the Brown v. Board of Education of copyright”.  Now that’s a bold statement.  There will be more to come as we wait to see if the settlement is approved. 

In fact, in its attempt to prevent future instances of what the AP is claiming to be copyright infringement by bloggers, it has made public its intention to develop guidelines for what would be considered permissible use (e.g., a “fair use”) of AP’s content. Is it just me, or does the all-too-familiar law school term “slippery slope” come to mind? Is the AP essentially trying to create its own legal definition of what qualifies as “fair use”? The AP says no, but many bloggers, and I’m sure many intellectual property attorneys alike, are skeptical. Although Cadenhead’s attorney seems to think that it might be helpful to have insight into what AP considers to be acceptable use of their content in blogs (http://www.msnbc.msn.com/id/25329749/from/ET/), courts traditionally make fair use determinations on a case-by-case basis, depending on a variety of fact-specific circumstances surrounding the way in which a particular piece of copyrighted content is used. Therefore, the AP’s guidelines could be construed as an encroachment upon the legal process of evaluating arguments of fair use.