EU Extends Copyright for Sound Recordings by 20 Years

In the European Union, popular music recordings from the 1960’s from acts such as the Beatles and the Rolling Stones were poised to enter the public domain as a result of the expiration of their 50-year copyright term.  In September 2011, however, the European Union voted to extend copyright protection for these works for another 20 years. 

 Perhaps to assuage critics who claim that record labels (and not struggling musicians) will benefit most from the extension, the new EU directive contains a number of accompanying measures to provide balance to individual musicians who may not directly benefit from the copyright extension, including the following:

•  rights to a sound recording may revert to the artist if the record label does not make the recording available for sale to the public (the “use it or lose it” clause);
• a “clean slate” provision that prevents the record label from making any deductions during the extended copyright term from the contractual royalties due to featured artists; and
• creation of a fund, financed by record labels with a percentage of benefits obtained from the copyright extension, for session musicians who signed away rights when a recording was made.

Details as to how some of these measures will be implemented or enforced is not clear from the language of the new directive.  Nevertheless, it seems likely that EU Member States will be expected to implement these accompanying measures in addition to the term extension. 

U.S. Supreme Court Restores Copyright Protection to Foreign Works

On January 18, the U.S. Supreme Court, in a decision watched closely by musicians, publishers, educators, orchestra conductors, upheld a federal law restoring copyright protection to millions of books, paintings, films and musical compositions by foreign artists that were previously in the US public domain.  In doing so, the Court rejected constitutional challenges to the law, holding that nothing in the Copyright Clause or the First Amendment “makes the public domain, in any and all cases, a territory that works may never exit.” 

 The case, Golan v. Holder (docket 10-545), involved a 1994 law enacted by Congress (which became Section 514 of the Copyright Act) to implement certain provisions of the Berne Convention for the Protection of Literary and Artistic Works.  Article 18 of the Berne Convention required member countries to accord other countries minimum levels of copyright protection and treat authors of other countries in the same manner as they treat their own with respect to that protection.  While the U.S. joined Berne in 1989, it did not implement Article 18, in effect, disregarding protection for foreign works.  In 1994, the Berne Convention specifically mandated implementation of Article 18, leading Congress to enact Section 514, which was challenged in Golan.  Section 514 granted copyright protection in the U.S. to foreign works on the same basis as enjoyed under foreign copyright law. 

 Since prior to the enactment of Section 514, the U.S. did not recognize the foreign copyright protection of these works, they were considered to be in the American public domain.  Thus, upholding the application of Section 514, with its equal treatment of works under foreign copyright law, has the effect of providing copyright protection to works that were previously in the public domain.  As noted by Justice Ginsberg, the law merely puts “foreign works on an equal footing with their U.S. counterparts.”

Other provisions of Section 514 take into consideration its impact and attempt to ease transition to the new regime.  In particular:

•  restored works will only be protected until the expiration of the full copyright terms, whether that expiration occurs in the U.S. or in the origin country;
• reanimation of copyright will be limited to only the remainder of the copyright term the work would have been entitled had it never entered the public domain;
•  “reliance parties” who used or acquired a foreign work in the public domain prior to the enactment of Section 514 will be allowed to continue to use the work until the copyright owner gives notice of an intent to enforce; and
• derivative works based on restored or reanimated work must only pay the copyright owner “reasonable compensation” to indefinitely exploit the derivation.

As the Supreme Court noted, unanswered questions remain about how Section 514 will be implemented, but the Court did not consider those questions significant enough to require rejection of the law.  In particular, the treatment of “orphan works” (when the copyright owners of the newly regulated foreign material cannot be identified or located), will likely be among the first issues for Congress to resolve next.

“Termination Rights” To Take Effect in the U.S.        

On January 1, 2013, the controversial “termination rights” provision of U.S. copyright law will be triggered, allowing authors (and their heirs) to begin regaining control of their original works from publishers and record labels to whom the works were previously assigned.  For works assigned in 1978 and thereafter, Section 203 of the Copyright Act of 1976 allows an original author to exercise an option to terminate the existing owners’ rights if 35 years have expired since the assignment. 

The wording of this provision suggests that termination rights are absolute for the original author or heirs, and thus would prevail over any written agreements assigning ownership, even if the agreements state that they are in perpetuity.  There is, however, an important exception for “works for hire,” which are deemed the property of the publisher or record label.     

Termination rights are a particularly hot topic for the music business.  Once a master recording reaches its 35-year mark, it is “game on” for the artists and songwriters who wish to reclaim ownership of qualifying songs from publishers and record labels.  However, it is likely that any attempt to recapture rights will hinge on the language of the applicable contracts between the artists and songwriters, on one hand, and labels and publishers, on the other, specifically whether there is clear assignment language (which would be subject to termination) or “work for hire” language (which would leave ownership of the works with the applicable label or publisher). 

One concern with “termination rights” is the lack of clarity in this provision as it may relate to musicians.  For example, it is unclear who exactly can qualify as an “author” of a sound recording, casting some ambiguity over who can share the rights after they revert.  The law is also murky for non-U.S. artists and whether those artists can exercise termination rights on American recordings.  What is clear, however, is that to enforce termination rights, authors (or their heirs) must comply strictly with the law.  Some of the provisions to be aware of include:

•  a requirement to file termination notices as much as ten years in advance of the effective termination date, but no less than two years before the date an author hopes to recoup their work;
• a provision stating that once a song or recording qualifies for termination, the author has five years in which to file a claim or else the right to reclaim the work relapses;
• a rule that, for works created post-1978 with multiple authors or heirs, a majority must agree to terminate; and
• a caveat that the law only has effect in the U.S., so that a publisher assigned a worldwide copyright will still retain control in foreign markets.

For publishers and other existing owners of copyrighted works who face pending terminations, there are certain considerations to keep in mind:

• time is of the essence to reach out to songwriters or their estates to attempt to negotiate a new deal; 
• if a notice of termination has already been issued, only the current publisher may try to enter into a new deal with the songwriter or his estate before the termination takes effect;
• opportunities may exist for new copyright acquisitions from authors who seek to enforce their termination rights against existing copyright holders, but who may be in the market for a deal with a new publisher; and
• consider whether the “works for hire” exception applies. 

We will keep abreast of developments in these areas, particularly as the new implementation and enforcement schemes are developed.  And we are available to assist any copyright stakeholder seeking to assess how these changes in the copyright law may affect their rights.

**  Betsy Pierce, an associate with the Firm, assisted in the research and drafting of this post.

To many, the decision to open up the top-level of the Internet’s namespace has been a long time coming, creating a powerful tool to launch and/or expand brand marketing, promotion and overall recognition into a whole new realm.  However, taking advantage of these new opportunities will not be a simple process, and unfamiliarity with the complexity of registration and application protocols, as well as the array of technical, operational and legal issues that will arise, may be overwhelming to brand leaders and legal representatives alike.  Further, applying for and obtaining a new gTLD is not only time-consuming, but also extremely costly, with initial application fees of $185,000, coupled with overall integration and implementation fees, as well as ongoing yearly maintenance fees in the event that your application is approved at all.  

So what does this mean for you, and your company or association?  Below is a brief overview of the gTLD process, which should help you identify and analyze the associated benefits and risks that may present themselves. 

Navigating the gTLD Application Process

Many are familiar with the registration of a Second-Level Domain (“SLD”), the name, term or phrase to the immediate left of the “dot” in a web address.  For example, in digitalhhr.com, “digitalhhr” is the SLD.  The process for registering an SLD is simple, and in most instances, merely requires a brief search on the internet and payment of a small fee to one of several registrars like register.com or godaddy.com. 

The new gTLD application process is considerably more complex.  Unlike a simple SLD registration, any entity applying for and (if approved) operating a gTLD will ultimately become a registry itself.  ICANN has therefore established a comprehensive and lengthy approval process. 

As part of the submission, applicants are required to provide substantial background information, including information related to corporate and legal structure and financial resources.   In addition to such background screening, the initial evaluation period consists of two primary areas of review: (i) applicant review–where the entity applying for the gTLD (including all individuals named within the application) will be subject to assessment, including an overall examination of technical, operational and financial capabilities, and (ii) string review–where the applicant’s proposed gTLD string will be evaluated. The applicant review focuses on the applicant itself in order to assess whether it has the means necessary to operate a registry, and whether applicant’s registry services would adversely affect the security or stability of the Domain Name System (“DNS”).  The string review, on the other hand, focuses on the applied-for gTLD string in order to assess such issues as whether the proposed gTLD string would create a user confusion, adversely affect DNS security or stability, etc. 

According to ICANN, this initial period of evaluation may take up to 5 months or more and includes a public comment period.  Applicants who successfully complete this process (including surviving any formal objections that can be filed after publication of the completed application) will then be required to enter into a registry agreement with ICANN, as well as pass certain technical tests before the proposed gTLD is activated.  Overall the application process can take anywhere from 9 to 20 months, depending on the complexity of the application. In addition, all applicants will be required to pay a gTLD evaluation fee of $185,000, which shall be payable by the applicant as follows: $5,000 deposit upon applicant’s request for an application and the remaining $180,000 upon submission of the completed application.  Furthermore, applicants may be required to pay additional fees in certain cases, including where extended review is requested by those applicants that do not pass the initial evaluation. 

The New gTLDs and its Affect on Trademark Owners and Brands.

For many entities, the financial expenditure, coupled with the time, resources and personnel necessary to operate a gTLD registry may deter them from moving forward with the process at all.  But even if a decision is made not to affirmatively use the gTLD process to launch and/or expand a brand, companies must still be concerned with protecting their trademarks.

In the tangled web of major stakeholders, complex processes and potential pitfalls, companies are faced with the daunting task of assessing and implementing new protection and monitoring mechanisms in order to protect their trademarks and brands. ICANN itself has integrated several mechanisms within the gTLD program to help provide comfort to trademark owners, including:

• Formal Objection to gTLD Applications: At the close of the initial submission process in April, 2012, ICANN will publish a list of all applications to the general public, which will launch a period for filing formal objections to any application.  A formal objection may be filed on one of the following four grounds: (i) String Confusion Objection, (ii) Legal Rights Objection, (iii) Limited Public Interest Objection, or (iv) Community Objection. All properly filed objections will be subject to dispute resolution proceedings, which shall be administered by one of the following service providers, depending on the grounds for such objection: the Arbitration and Mediation Center of the World Intellectual Property Organization, the International Centre for Dispute Resolution, or the International Center of Expertise of the International Chamber of Commerce.  In the event that a gTLD is delegated, there will also be a post-delegation procedure to address issues that arise. Such objection procedures are set out in much greater detail in ICANN’s gTLD Applicant Guidebook.
•  Trademark Clearinghouse: The Trademark Clearinghouse is a centralized database, which will be provided, operated and maintained by ICANN, in order to store information in connection with third party trademarks. All trademark owners will be able to register their trademarks with the Trademark Clearinghouse. The Trademark Clearinghouse will be supported by individual registry operators through the establishment of individual Trademark Claims Services, as well as a “Sunrise” Process, as further described below.  
• Trademark Claims Service/Domain Name Registration During the “Sunrise” Period:  In accordance with ICANN’s procedures, all new registry operators must implement both Trademark Claims Services and a “Sunrise” Process during the initial period of general registration. The Trademark Claims Services will provide prospective gTLD registrants with notice of any third party trademark rights in and to the desired domain name, provided that such third party has registered with the Trademark Clearinghouse. However, such notice does not completely prevent the prospective registrant from registering such domain name. If the prospective registrant moves forward with the registration of such domain name, and it is registered in the Trademark Clearinghouse, the registrar will have to provide notice to the rights holder that such domain name has been registered.  In addition to such Trademark Claims Services, a “sunrise” period during the start-up phase for registration must be implemented in order to allow for eligible rights holders in the Trademark Clearinghouse first opportunity to register an SLD at the specific gTLD if a third party is seeking a sunrise registration thereof.  Notice to rights holders registered in the Clearinghouse will be provided by the registry operator upon requested registration by a third party. 

These are only some of the means that trademark owners, companies and brands can use in order to protect their marks. However, careful monitoring of ICANN’s application process and individual registrations, and prompt action, will ultimately be necessary on a moving forward basis in order to properly defend against the potential issues that may arise.     

What Now?

Whether you are an entity ready and willing to take on the challenge of registering a new gTLD, or simply looking to go on the defensive to protect your brand, devising the right strategy in response to the arrival of ICANN’s gTLD program is crucial for all brand owners.  

The DigitalHHR team has been working with clients to assist them in understanding the gTLD initiative, evaluating the potential benefits and pitfalls of moving forward with an application and assessing their brand protection needs, and are available to answer any questions you might have.  We will continue to monitor the progress of ICANN program as we near the start of the application window, particularly as details are made available regarding the Trademark Clearing House.

DCIA, the Distributed Computing Industry Association, is an international trade organization focused on commercial advancement of cloud computing and related technologies.  “Content in the Cloud” is part of the 2012 International CES trade show, being held in Las Vegas from January 10 through 13.  CES is the world’s largest consumer technology tradeshow.  More information on the conference is available here.

A great deal of this growth stems from the increased access that children have to devices that are capable of supporting mobile applications, such as smart phones and iPads.  So perhaps it is not unexpected that the mobile app industry has started to attract some negative press, mainly from Congress on behalf of parents concerned about violent content and privacy issues. 

In an effort to preempt Congress from stepping in to regulate mobile apps, two industry groups, the Entertainment Software Rating Board (“ESRB”) and the CTIA (a wireless industry trade association), recently announced a voluntary rating system to help parents to make informed decisions about whether or not a given mobile application is appropriate for their children.  The ESRB has considerable experience in this realm, as they have been in the business of rating computer and console video games since 1994. 

The rating system will consist of two components.  First, there will be rating symbols to indicate age appropriateness.  This will be reflected through a menu of six possible rating symbols: early childhood, everyone, everyone 10+, teen, mature, adults only and rating pending.  Additionally, there will be content descriptors, which will pinpoint specific elements of the app that may have contributed to a given rating.  Content descriptors will include indications of: blood and gore, intense violence, language, sexual violence, and use of drugs.  Furthermore, the content descriptors will disclose whether the app shares personal information, utilizes user-generated content and/or connects to social networks. 

Ratings will be generated automatically based on a developer’s responses to a multiple choice questionnaire that is completed when the developer submits the app to a participating storefront.  The questionnaire is intended to assess the content of an app in light of the two-prong rating.  Developers will have the opportunity to appeal the rating for their apps should they disagree with the rating assigned.  The ESRB will also maintain oversight of the rating system by “routinely testing” the most popular apps and monitoring consumer complaints. 

The system has received a warm welcome in some circles.  AT&T, Verizon Wireless, Sprint, T-Mobile, U.S. Cellular and Microsoft have all signed on as initial subscribers.  But significantly the two largest mobile app providers–Google, the maker of the Android, and Apple, the maker of the iPhone and the iPad–have declined to participate. 

The Google Android Market currently offers more than 300,000 apps which are rated using a four-tier system based on maturity level (everyone, low maturity, medium maturity, high maturity).  Google has publicly stated that they are going to retain their own system because it is well-known and understood by Android users and developers. 

The Apple App store is currently home to over 500,000 apps.  The apps are rated by Apple according to age appropriateness.  Apple has refused to comment on whether or not they will participate in the new rating system, but has not yet included itself as a participant, which is widely understood to mean that they are politely rejecting the invitation. 

The ESRB has stated that due to the Android and Apple rating systems already in place, they are not terribly concerned about this resistance, since “the goal is to get information to consumers.”

Many questions about the mobile app rating system remain and it will be interesting to see how they play out:  First, with one of the principle goals of the system being to establish a standard rating system across all mobile app platforms, will resistance by Google and Apple marginalize this rating system?  Second, can a system that relies on developers to characterize their own applications truly be considered fair and objective?  Third, can a rating system that codes each app be successful  at a time when there are so many apps already available in the market with hundreds being released every day? 

Lastly, will this type of rating system will actually change behavior?  Unlike the movie rating system, which is enforced at the purchase of point, this proposed app system is cannot prevent adult-oriented apps from being accessed by children.  In that regard, it is more like the television rating system, which can provide guidance for parents but is not intended as an “active” shield. 

Interestingly, Apple, as a storefront operator, acts as a gatekeeper at the point of purchase.  When a user attempts to download an app with adult-oriented content, Apple’s App Store forces a pop-up message for the user to confirm s/he is over 17.  Which begs the question as to whether a rating system that is not enforced by the gatekeeper will be effective.

We will keep abreast of developments as the system is deployed by stakeholders in the app landscape.

**  Alison Peyser, an associate with the firm, assisted in preparing this article.

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.

The complete description of the panel is set forth below:

As the public’s demand for “any content anywhere” grows, entertainment, media and technology companies are turning to the “cloud” for innovative ways to distribute and monetize content. The movement to the cloud, however, presents stakeholders with a familiar challenge: how to formulate new business models without infringing the rights of content owners. While recent case law provides some guidance for cloud service innovators, many issues regarding the copyright implications of storing, reproducing and transmitting content from the cloud remain unsettled. Now, a host of emerging cloud-based business models — from MP3tunes, Dar.fm and Zediva to Amazon CloudDrive, Apple’s iCloud and GoogleMusic — are testing the parameters of copyright law. This panel will focus on the critical legal issues raised by the expansion of cloud computing and explore how stakeholders can balance the need to comply with evolving laws, standards and court decisions with the need to exploit new technological advancements that lead to improved services and enhanced user experiences.

For more information, and to register for COPYRIGHT AND CONTENT IN THE CLOUD, please follow this link: http://www.csusa.org/chapters_new_york.cfm, download the registration form and return it with your credit card information to The Copyright Society of New York by e-mail (amy@csusa.org) or fax (212-354-2847).

As we’ve discussed in a previous post, the United States lacks a comprehensive federal privacy law regulating the collection, storage, use and disclosure of personal information in the online context and lawmakers have introduced several new initiatives in an attempt to address the issue.  However, under COPPA, one of the few existing federal laws that deals with online privacy, the FTC has been flexing its muscles by regulating online (i.e., website-based), and with this case, mobile (i.e., app-based), privacy.

According to the FTC, several of W3’s apps are directed at children under the age of 13, including the popular “Emily’s Girl World”, “Emily’s Dress Up”, “Emily’s Dress UP & Shop” and “Emily’s Runway High Fashion”.  These apps encourage, but do not require, users to post comments (which could include personal information) to the Emily’s Girl World blog and to directly email their comments to “Emily”.  The FTC’s complaint states that, “in addition to the collection and maintenance of over 30,000 emails, containing email addresses, [the company has] collected, maintained, and/or disclosed personal information from over 300 Emily’s Girl World app users and 290 Emily’s Dress Up app users who have registered to submit comments.” Specifically, the FTC alleges that W3 failed to: (a) maintain or link to an online notice of its information collection, use and disclosure practices; (b) provide direct notice to parents of their practices regarding the collection, use, and/or disclosure of children’s personal information; and (c) obtain verifiable consent from parents prior to collecting, using or disclosing such information, all in violation of COPPA.

In response to the FTC action, W3 stated that its “sole purpose in collecting email data was to improve the user experience with [its] apps; we never used any email address for marketing purposes or sold it to other firms”.  The company appears to have taken immediate corrective action after receiving notice from the FTC and implemented “a strict email policy that removes any possibility of collecting and retaining email addresses, even unintentionally, from users under the age of 13”.  As part of the settlement, W3 has also agreed to delete all the personal information previously collected from children and to refrain from future violations of COPPA.

This is the second federal enforcement action made public this year over a COPPA violation which suggests that the FTC may continue to aggressively pursue privacy violations involving children.  Playdom, a Disney Enterprises subsidiary, is the first website/app developer to settle with the FTC this year over COPPA violations.  The company operates virtual world websites where users, many of whom are Children, are required to provide ages and email addresses in order to register to play online games.  They are also allowed to post their full names, email addresses, instant messenger IDs, and location data to personal profile pages and online community forums .  In May, Playdom agreed to pay $3 million in a costly settlement over FTC charges, similar to those set forth in the W3 complaint, that it collected information from children without notifying parents and obtaining prior parental consent in violation of COPPA.

Most notably for app developers and distributors, FTC Chairman Jon Leibowitz emphasized the importance of obtaining parental consent, and made clear that the app space is no different from traditional website platforms.  “The FTC’s COPPA Rule requires parental notice and consent before collecting children’s personal information online, whether through a website or a mobile app,” said Chairman Jon Leibowitz in a statement given in response to the settlement. According to Senator Amy Klouchar, who has been working to prevent deceptive in-app purchase practices on mobile devices, “Mobile apps can be great tools for kids to learn and have fun, but parents should never have to worry that their child’s personal information is being collected or violated.”

In light of the current evolving enforcement climate, developers, distributors and operators of apps and websites targeted at children that collect personal information, should, among other things, ensure that they adhere to the requirements of COPPA, including  the basic guidelines described below. Specifically, prior to collecting, using or disclosing personal information received from children under 13, developers, distributors and operators must obtain verifiable parental consent for any such collection, use or disclosure.  They should also provide notice on their apps, websites and other applicable platforms regarding the kind of information that is collected from children, how such information is used and their disclosure practices related thereto. Further, if and whenever requested by a parent (or guardian), such developers, distributors and operators must provide (a) a description of the specific types of personal information collected from that child; (b) the opportunity at any time to refuse to permit further use or maintenance in retrievable form, or future online collection, of personal information from that child; and (c) reasonable means for the parent to obtain any personal information collected from that child. In addition, COPPA rules proscribe conditioning a child’s participation in a game, the offering of a prize, or another activity on the child disclosing more personal information than is reasonably necessary to participate in such activity.

As apps continue their meteoric rise in popularity, and become, in many instances, the preferred method of digital content distribution and consumption, we will continue to monitor the FTC’s actions in both the online and mobile spaces, the new privacy initiatives making their way through Congress and what these events may ultimately mean for the current stakeholders.

As unique as the service is though, it appears that many of its features were designed and implemented to enable Turntable.fm to operate as a “non-interactive” service under the Digital Millennium Copyright Act (“DMCA”), similar to an internet radio station, thus avoiding the need for direct licenses from the music labels.  For Turntable.fm, the distinction could mean the difference between sustaining a viable business or joining a long line of digital music services that were unable to survive because of the burden of paying license fees to the labels.  While it is too early to determine if this strategy will be challenged and/or whether it will ultimately prevail, Turntable.fm’s service clearly raises some unique legal issues.

To qualify as a “noninteractive” service under the DMCA, a service’s programming cannot be “specially created for the [user]” and cannot “substantially” consist of user-requested songs if those requests are filled within one hour of being made.  On first blush, it would appear that Turntable.fm would have a difficult time meeting these criteria.  After all, one of the core features of the service is the users’ ability to select songs to be played in whatever room the user is visiting, essentially enabling users to be DJs in a virtual music club.

However, Turntable.fm has devised various rules for the service that appear to be tailored directly to address other provisions of the DMCA which determine whether a service can be classified as “noninteractive”.  For example, if there is just one DJ in a room, then the DJ can only hear 30-second previews of the songs selected.  This means that Turntable.fm cannot be used to provide interactive, on-demand programming solely for the user.  In addition, listeners in a room cannot see what song the next DJ plans to play, which satisfies the DMCA requirement that a noninteractive service cannot reveal upcoming songs to be played and while a song is being played, artist and album information is displayed.  Turntable.fm also complies with the requirement that a “noninteractive” service cannot, in any three hour period, play more than three songs from the same album (and no more than two consecutively) and no more than four songs from the same artist (and not more than three consecutively).

Yet, notwithstanding the above restrictions, the DJs have complete control over the music played and it could be argued that this type of user control is unprecedented in a noninteractive service.

The leading case to address the issue of whether a streaming service should be deemed “interactive” or “noninteractive” under the DMCA involved a suit brought by Arista Records against Launch Media, which operates the LAUNCHcast service.  The Second Circuit approached the issue by focusing on the potential impact that a service could have on sales of recorded music.  A “noninteractive” service does not require mechanical and sound recording licenses and thus the additional revenues that the record labels would receive.  Therefore, the court reasoned, at the point that a streaming music service provides “sufficient control to users such that playlists are so predictable that users will choose to listen to the [service] in lieu of purchasing music, thereby—in the aggregate—diminishing record sales,” that service is no longer “noninteractive.”  The court went on to hold that the LAUNCHcast service is “noninteractive” stating that, “to the degree that LAUNCHcast’s playlists are uniquely created for each user, that feature does not ensure predictability.”  In making this finding, the court pointed to the fact that 60% of the songs programmed through the service are done so with virtually no input.  As the court said, “the unique nature of the playlist helps Launch ensure that it does not provide a service so specially created for the user that the user ceases to purchase music.”

Whether Turntable.fm can meet the “predictability” test established by the Launch Media decision or whether it would otherwise be deemed to comply with the DMCA’s requirements for a “noninteractive” service is open for debate.  A reasonable argument could be made that users of the service have substantial control over the songs being played, making the programming sufficiently predictable that Turntable.fm could become a substitute for purchasing music.

Beyond the Second Circuit’s analysis under the Launch Media decision, other features of the Turntable.fm service do not appear to comply with certain provisions of the DMCA’s definition of a “noninteractive” service.  The music is programmed entirely by the user DJs and streamed within one hour of “selection” in violation § 114(j)(7) of the DMCA.

More broadly, the DMCA defines an “interactive” service as one that is “specially created” for the user.  It is unclear how the “specially created” element might be interpreted for a service like Turntable.fm, which has both DJ users and “audience” users.  Depending on the vantage point (i.e. DJ user or “audience member” user), the “specially created” factor could come out on either side of the “interactive”/”noninteractive” divide.

Of course, unless and until Turntable.fm is challenged in court, these questions may never be put to the test.  But regardless of whether they are, we do not believe that the unanswered questions will slow the rapid evolution of the digital music landscape and anticipate the continued launch of new services in the coming months and years.

**  Justin Greenbaum, a summer associate with the Firm, assisted in the preparation of this piece.