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.

As we suspected, the response from the entertainment community has been swift, and the company has since received a barrage of cease and desist letters from television networks, movie studios, sports leagues, broadcasters, syndicators and others in the entertainment industry alleging that the operation of the service as currently conducted amounts to copyright infringement. In response, the company has now filed a complaint for declaratory judgment in Seattle district court alleging that by complying with the Act’s compulsory licensing scheme in Section 111 “it has not infringed any of the copyrights owned by the any of the Defendants.”

We will obviously keep an eye on future developments as this complaint now moves its way through the court system and the entertainment industry’s forthcoming response.

Whether a dance routine or a martial arts demonstration, legal protection for the majority of athletic movements that will be incorporated into the forthcoming wave of motion detection-based games will likely fall under copyright law’s definition of “choreography”–a form of artistic creation which secured copyright protection in 1976 when the Copyright Act (the “Act”) was amended to include “pantomimes and choreographic works” (17 U.S.C. 102(a)). Prior to that time, choreography could only be protected under copyright statutes to the extent embodied within another copyrighted work that was eligible for protection. Although the Act extended protection to “choreographic works”, it failed to define the term and what types of movements qualified as same. Other copyrightable forms, including “architectural, audiovisual, literary, pictorial, graphic and sculptural works, motion pictures, and sound recordings” are defined in the Act, but “choreographic work” is the only copyrightable form whose meaning is left unclear. In fact, the House and Senate Reports surrounding the Act indicate that Congress’ decision not to define “choreographic work” was deliberate, as legislators believed the meaning to be “fairly well settled”. In fact, the only guidance provided by Congress with respect to the category of “choreographic works” was that it does not include “social dance steps and simple routines.”

In the absence of guidance from Congress or the copyright statutes on which activities qualify for protection under copyright law as “choreographic works”, the U.S. Copyright Office (the “Office”) offered a more technical definition of “choreography” in its Compendium of Copyright Office Practices, stating that “[c]horeography is the composition and arrangement of dance movements and patterns usually intended to be accompanied by music.”

While instructive, this interpretation is not binding on the federal judiciary, and there is little case law defining the precise scope of “choreographic works”. Moreover, even if the Office’s interpretation of a “choreographic work” does not capture the essence of certain athletic movements, the fact remains that the Act’s enumeration of copyrightable subject matter is not meant to be exhaustive, and is prefaced with the statement that “[w]orks of authorship include the following categories”; and since the Act defines the term “including” as “illustrative and not limitative,” the fact that Congress did not specifically list all athletic movements that fall within the realm of copyrightable subject matter does not mean that they are not covered (just as, for example, the absence of programming code and computer programs from the Copyright Act has not prevented the courts from finding same to be well within the range of copyrightable subject matter). Further, a separate category of copyrightable subject matter known as “dramatic works” also provides some applicability to the extent the athletic movements portray a story or narrative through action, but the underlying movements, which themselves are devoid of story, would not likely find refuge here if separated from the corresponding story or narrative in the context of an interactive game.

While some athletic movements remain close enough to the Office’s definition of “choreographic works” or “dramatic works” that they should be afforded copyright protection (e.g., figure skating, rhythmic gymnastics, synchronized swimming, etc.), there has been, in recent years, a push for the copyrightability of other athletic movements under the guise of “choreographic works.”  For instance, Open Source Yoga Unity v. Choudhury, specifically addressed the question of the copyrightability of yoga moves (see 2005 WL 756558 (N.D. Cal. Apr. 1, 2005).  While the court did not settle this question, it held that it is at least possible for individual yoga positions to be “arranged in a sufficiently creative manner” to merit copyright protection. In Ahn v. Midway Manufacturing Co., a district court held that dancers who performed martial arts routines for a software developer that later incorporated the routines into the “Mortal Kombat” video game did not become joint owners of the copyright in the game only because they assigned their rights to the copyrights pursuant to a work-for-hire contract (see 965 F. Supp. 1134 (N.D. Ill. 1997)).  The court deemed the martial art performances to be “choreographic works” and stated that these “choreographic works were all original works of authorship [and] choreographic works fall within the subject matter of copyright.”  In fact, in Baltimore Orioles, Inc. v. Major League Baseball Players Ass’n, the Seventh Circuit held that “[baseball] [p]layers’ performances possess the modest creativity required for copyrightability” (see 805 F.2d 663 (7th Cir. 1986)).

Based on the foregoing decisions, there may not be a significant enough distinction between a kung fu sequence, a skateboarding demonstration set to music and a figure skating routine that would warrant extending copyright protection to one and not the others. Ultimately, though, determining which choreography or movements actually fulfill the statutory criteria, and which on the other hand are too commonplace to qualify as copyrightable subject matter, will require a case-by-case, fact-specific analysis. That being said, as the above discussion indicates, it is certain that to qualify for copyright protection, an athletic movement will have to evince a certain degree of complexity and original expression, and routine-oriented athletic performances are more likely to warrant coverage as they generally embody sufficient amounts of artistic expression and each move is specifically choreographed and designed for repetition. As one commentator described, a sport like football, even where each play is diagrammed and practiced to some extent, depends more upon the interaction and improvisation of the participants throughout the natural course of the game. A running back, for example, may go fifty yards for a touchdown, eluding opponents, breaking tackles and navigating through the defense on one play, but the next time that play is called, he may fumble the ball or be tackled for a loss of yards. A figure skating routine, on the other hand, has a repetitive nature to it; the skater will often perform the same routine countless numbers of times with minimal variations.

Once the determination is made that the athletic movement likely falls within a class of protectable subject matter under the Act, the next step is licensing the rights for inclusion in the interactive game. The clearance process for music-based interactive games, for example, relies on a well-established framework with the licensing arms of the major labels, publishers, performing rights organizations and other collectives serving as long-standing clearing houses for securing rights from multiple artists and writers. However, there are no analogous industry clearing houses or collectives for licensing choreography rights and each applicable copyright, together with any corresponding moral, publicity or privacy rights, need to be licensed from the individual owner.

In fact, this may well be the first time that movements deemed “choreography” under the Act, whether in the form of modern dance or complex wrestling moves, will be exploited and licensed as individual works on a large scale–separate and apart from the play, the music video, the movie or even the person through which it entered the public consciousness. In other words, in order to develop an interactive title based on choreography on an operational level, each individual movement will need to be reperformed and recast by professionals and technicians who will recreate the movements in a green screen-reminiscent environment using motion sensors that will allow advanced computers to precisely track a new range of activity, in particular depth-based movement, which will then be digitized and incorporated into the video game. This process will ultimately allow for the comparison of the professional recreation against the end users’ movement on a television screen and allow the game to rate and track performance, alter difficulty settings, offer training functionality, etc., all of which have become standard functionality in interactive titles. Having now extracted and recreated the choreography as a stand-alone artistic creation, the publishers and developers of motion detection games will need to begin the process of securing the rights to those popular movements crucial to a successful gaming title.

This is where the legal confusion begins for licensing athletic movements and choreography. As an example, consider the implications of the inclusion of modern or popular dance into a motion capture video game. Dances have never been the subject of lucrative licensing outside the realm of dance companies and on-stage performances because dancers were often placed at a severe disadvantage for demonstrating ownership of copyrights. As a result, attribution and credit for a dance in the dance community is frequently not equated with ownership of the copyright given the lack of economic incentive in establishing and maintaining an accurate chain of title. In these muddy waters, who holds the necessary rights required to license the dance? The music label that owns the music video? The artist who performed the dance? The artist’s choreographer who conceived of the dance? Is it jointly owned by contributing dancers and the artist? Was it created pursuant to a work for hire agreement or within the scope of employment without an agreement? Was the dance based on a pre-existing dance which could invalidate ownership? Was the dance created outside the United States thus leaving the creator with moral rights over the work that cannot be assigned? Was it previously performed and recorded on stage or in dance studio, so that the movie studio or music label is left without ownership outside of their movie or video?

The foregoing dance hypothetical is just one example of the complications associated with one form of athletic movement destined to be incorporated into motion capture games. Once the worldwide popularity of a new line of these games takes hold and creators of all forms of movements claim copyright protection after realizing the new found economic value of their works, legal disputes over the nature of copyright and the bounds of statutory protection will force the courts to take a series of bold moves–ones that can be repeated.

As always, we will keep an eye out for developments in this area of the law, particularly as the technological bounds of interactive gaming continue to expand with the introduction of gesture-based gaming.

When it initially purchased Skype, eBay attempted to purchase Joltid as well but Friis and Zennstrom refused to sell, wanting instead to retain the intellectual property rights in GI.  They also refused to sell or directly license the GI source code to eBay.  eBay therefore purchased Skype subject to a license agreement for the GI code between Skype and Joltid.  That decision appears to be coming back to haunt eBay.

According to Friis and Zennstrom, the license agreement granted Skype the right to use an executable-only form of the GI code, known as the object code, which is un-editable.  Skype did not obtain any rights or license to the source code of the GI software.  This arrangement worked so long as Friis and Zennstrom remained with Skype because they were authorized to use and tinker with the GI source code.  However after their departure in 2007, Friis and Zennstrom began challenging eBay’s use of the GI technology, claiming that Skype (at that point owned by eBay) obtained unauthorized versions of the GI source code and breached the terms of its licensing agreement by continuing to modify and create derivatives of the source code.

In March of this year, Skype filed a claim in a U.K. court asking for declaratory relief and a finding that it is lawfully accessing, in possession of, using and modifying the GI code in accordance with the terms of the agreement.  Joltid disagreed, terminated the license agreement and filed defenses and counterclaims against Skype alleging that Skype had repudiated the license agreement, infringed upon Joltid’s copyright, and misused confidential information.  The case is scheduled for trial in June 2010.

A few weeks ago, Friis and Zennstrom opened another front in the dispute by filing a lawsuit in Northern California U.S. District Court against eBay that also names the investors as defendants.  These investors include private-equity firm Silver Lake, venture-capital firms Index Ventures and Andreesen Horowitz and the Canada Pension Plan Investment Board.  The suit claims that the investors were aware of Skype’s copyright violations during negotiations of the deal and seeks an injunction on Skype’s use of the GI technology in addition to damages and profits that Skype has made while using the technology in breach of its license. Such damages are allegedly “amassing at a rate of more than $75 million daily”.  The pair also filed another lawsuit shortly after which alleges that new software being developed by Skype incorporated confidential information that was misappropriated by a former executive at one of Friis and Zennstrom’s companies who recently joined Index Ventures, part of the investor group paying $1.9 billion for Skype.

With the benefit of hindsight, many have wondered why eBay would have paid $2.6 billion for Skype without better securing rights to its underlying technology in a manner that would not be interrupted.  While the precise reasons eBay structured the deal in this manner may not be clear, the opportunities it missed to protect itself are apparent.

First, by allowing Joltid to retain rights to the GI code, eBay’s use of the code was subject to the restrictions and limitations that Joltid and Friis and Zennstrom placed on such use as set forth in the license agreement. 

Additionally, without obtaining rights to the source code, eBay was at the mercy of Friis and Zennstrom, the two individuals who understood how the GI code functioned.  While eBay likely felt that having Friis and Zennstrom on its payroll would mitigate any concerns, perhaps additional thought should have been given to what would transpire if and when Friis and Zennstrom were no longer affiliated with eBay.

eBay also apparently did not acquire sufficiently clear rights to develop derivatives and modifications of the GI technology.  Therefore, any next generation versions of the GI technology that eBay wished to develop would have been subject to the restrictions of the original license agreement, including the rights that Joltid, Friis and Zennstrom had in the technology and source code.

While the intrigue and tangled nature of this dispute are in many ways unique, the lesson is clear: the treatment of IP rights in an M&A transaction involves consideration of multiple factors, contingencies and interests.  Careful and deliberate analysis of possible future scenarios–however likely or unlikely–is necessary to avoid losing the competitive advantage that is one of the foundations of the underlying transaction.

The question of retroactive licensing has been considered in a number of district court cases, however, Daviswas the first time the issue had been considered by an appellate court.  The case centered around two songs written by Mary J. Blige, Bruce Miller and others, all of whom were defendants in the case.  The plaintiff, Sharice Davis, claimed that Blige’s songs infringed her copyright in two songs she co-authored with Bruce Chambliss, the step-father of Blige and father of Miller.  Miller however, claimed that Chambliss, who was not a party to the case, wrote the disputed compositions on his own and orally agreed to give all rights in the music to Miller.  However, the crux of the case turned on a written agreement between Miller and Chambliss, created two days before Chambliss’ first deposition.  The agreement purported to retroactively transfer all rights in Chambliss’ works to Miller from the date of their composition.  This would make Miller a co-owner in the two disputed compositions and validate the licenses he gave to Blige to use the works.  If the Court of Appeals had upheld the agreement, as the District Court did, Davis would have lost all of her claims for past infringement against the other defendants. 

The Second Circuit overturned the District Court decision, holding that a co-author cannot immunize a third party for past infringements by retroactively issuing a license for the infringed work.  To support its decision, the Court of Appeals used the property theory of joint tenancy as a model for the rights of copyright co-owners.  Each copyright co-owner had independent rights to use and license the work, subject only to a duty to account to the other co-owners for any profits that are made.  A co-owner can only convey as much as he possesses and cannot, therefore, transfer or assign the rights of other co-owners.  The court held that a retroactive transfer would effectively allow a co-owner to assign away another co-owner’s right to sue for accrued infringements.  While Chambliss could release Miller and the others from liability from him for past infringements, he could not transfer or assign any rights Davis had against the defendants for accrued causes of action. 

By holding that licenses can only be issued prospectively, the court drew a line between a co-owners right to sue for past and future infringements.  A copyright co-owner can unilaterally issue a non-exclusive license which prevents a co-owner from suing the licensee for any future use.  However, a co-owner cannot issue a retroactive license that would prevent a co-owner from suing for infringements that have already occurred.  This holding, the court believed, provides certainty for co-owners dealing with infringement actions and discourages infringement by ensuring that retroactive licenses aren’t used to lower the cost of infringement.   

In Sybersound, the Ninth Circuit dealt with the question of a co-owner’s right to license their copyright from a different perspective.  Where Davis dealt whether a co-owner could unilaterally issue a retroactive license in order to cure past infringements, the question in Sybersound was whether a co-owner can unilaterally grant an exclusive license that gives the licensee co-ownership in the copyright. 

Sybersound had brought claims of infringement against five of its competitors in the karaoke industry for allegedly infringing Sybersound’s copyrights in nine songs.  Sybersound had acquired its rights in these songs by way of agreement with TVT, a co-owner the copyrights along with other publishing companies.  The agreement stated that TVT was making Sybersound the “exclusive assignee of TVT’s copyrighted karaoke use interest and of TVT’s right to sue,” purportedly making Sybersound a co-owner in the copyright.  The Ninth Circuit held that the agreement was invalid because TVT could not exclusively assign what it did not exclusively possess.  TVT was only a co-owner of the copyright, and therefore, “as a co-owner of the copyright, TVT could not grant an exclusive right interest.”  For Sybersonic to acquire an exclusive license, each of the co-owners of the copyright would have to agree to the transfer.  Since TVT could only unilaterally grant a non-exclusive license, Sybersonic did not have standing to sue and the infringement claims were dismissed.    

It had been a common practice in the media industry to obtain licenses after the fact.  However, after Davis, that practice has become much more uncertain.  The Sybersound decision might have a dampening effect on similar transactions as it seemingly makes it impossible for a copyright co-owner to grant an exclusive license of his proportional share in a copyright without the consent of his fellow co-owners.   

Left undiscussed in these decisions was the issue of the representations made by the co-owner of the copyrights in the underlying license agreements.  One can assume that the licensees sought and obtained a representation that the licensors had the authority to grant the underlying rights and that use by the licensee of the copyrighted works would not infringe or violate any third party’s rights.  Obviously these rulings have rendered those representations false, exposing the co-owners to potential claims under the license agreements, including claims for indemnification.

In confronting the commercial landscape created by these rulings, it is critical for licensees to carefully consider the rights they are obtaining in copyrighted works with multiple owners, particularly when rights are being granted on a retroactive or exclusive basis, to ensure that they will be able to exploit the rights as intended.  For copyright co-owners, it is important that any representations they make be tailored to reflect their limitations on the rights they can grant so that they are not promising more than they can deliver.

Our New Media, Entertainment and Technology practice group has extensive experience assisting our clients in understanding and analyzing the impact of new developments in the law on the design, development, implementation and operation of their respective business initiatives across all new media platforms, and we will continue to stay apprised of and routinely report on further developments in the treatment of co-ownership by the courts in this regard.     

* We would like to thank Kate O’Donnell, a Summer Associate at the Firm, for her assistance in preparing this article.

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 Performance Rights Act, which was approved by the House Judiciary Committee on May 13th, would levy fees on broadcasters for airing artists’ recordings. An indication of the heat generated by the debate over the PRA emerged this week when the musicFIRST Coalition, however, filed a complaint asking the FCC to investigate whether radio stations have been boycotting artists that support the PRA. The coalition’s filing accuses broadcasters of airing deceptive spots by portraying the proposed royalty as a “tax” and not airing musicFIRST’s own paid ad endorsements. While musicFIRST did not identify any specific station or broadcaster withholding airplay, the coalition alleged that several stations have refused to play an artist’s music based on his or her remarks or affiliation with endorsing the legislation. Spokesman Marty Machowsky said it would only identify specifics if the FCC initiates the proceeding and agrees to keep the information confidential.
• Facebook is now allowing users to select plain-language domain names for profile pages, which up until now, has been delineated by a string of letters and numbers. Facebook plans on allowing trademark holders to protect their marks and mediating all disputes internally. This, however, may not be enough to prevent lawsuits from occurring. Tim Cole, chief register liaison from the Internet Corporation for Assigned Names and Numbers, said that even careful mediation processes will not prevent skirmishes from breaking out. ICANN has been involved in quarrels over coveted web site names for more than a decade. We will be looking into this issue in depth in the coming week.
• The AACS Licensing Authority, which licenses AACS content protection scheme (DRM) used in high-definition Blu-ray discs, has included a provision in its Final Adopter Agreement which will lead to the eventual phase out of analog video output from hi-def discs. The goal of phasing out analog is to plug the “analog hole,” where digital content can be copied. The change, however, will not stop direct digital ripping. The efforts are being made in attempts to block means of casual copying, but may not be effective in thwarting commercial pirates.
• The second World Copyright Summit met in Washington, DC last week.  The conference agenda of four main points: New visions for creative industries, Challenges for creators and rights-owners in the digital era, Weather forecast on copyright climate, and Valuing the creative eco-system. Most of the concern was regarding copyright infringements on the Internet. The copyright owners and attendees also discussed the ongoing threat of internet privacy.

We would like to thank Jenny Liang, a summer associate with the Firm, who assisted in preparing this round-up.

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.

• The New York Times, owners of Boston.com, and GateHouse Media agreed on the eve of trial to settle their copyright lawsuit.  As part of the settlement, the complete details of which aren’t available, the headlines and first sentences from GateHouse articles will be removed from listings on Boston.com, although Boston.com will continue to link to GateHouse.  While the settlement appears to be a victory for GateHouse, some are questioning whether GateHouse’s objections to the content in the links made business sense as Boston.com was sending traffic to GateHouse.  The new restrictions may cause Boston.com to think twice about doing that in the future.  Other smaller media and content sites may want to consider these ramifications in raising similar issues.  Read here for more on the dispute.
• Controversy is already brewing at the President’s virtual home regarding privacy issues.  In what some called a “YouTube exemption” to the privacy policy at WhiteHouse.gov, YouTube was apparently permitted to plant tracking cookies on the computers of visitors to the White House site.  When objections were raised, the policy was quickly amended to limit the placement of cookies only on machines that actually click on the video.  The debate seems to point to the tricky nature of balancing the optimal privacy policy with the transparency of the actual terms of that policy.   More on the issue is here.
• In what may be the first of its kind corporate policy, Ireland’s largest ISP, Eircom, has agreed to implement a “three strikes and you’re shut down” policy for P2P file sharers.  The policy is the result of a settlement in a lawsuit against Eircom that was broght by the Irish branches of EMI, Warner, Universal and Sony.  While the concept of a graduated response has been debated before (it was actually specifically rejected by the European Parliament last year), Eircom now appears to be set to be the first ISP in the world to voluntarily cut off P2P users without court orders.    For more on this issue, read here.
• North Carolina joins a list of states now considering charging sales tax on digital downloads to help raise revenue for the state – a move that could deter customers who are already facing tough times.  More details here.
• In a move that is being widely criticized, Cox Communications, the third-largest cable company, has announced plans to test a system to manage Internet congestion by rating traffic based on its urgency and importance.   Coincidentally, Google released a new set of tools to enable users to find out if their ISPs are hindering traffic.  Read here for more.

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.