by Lee Gesmer | Apr 2, 2013 | General
As I reluctantly predicted last week, U.S District Court Judge Richard Sullivan has ruled that Redigi’s digital resale business is not protected by the first sale doctrine. His March 30, 2013 decision falls squarely in line with the arguments made by Capitol Records and rejects all of Redigi’s positions.
I have written quite a bit on this case (here and here), and there is nothing new or surprising in the court’s decision. The court described the issue before it as “the novel question . . . whether a digital music file, lawfully made and purchased, may be resold by its owner through ReDigi under the first sale doctrine.” In answering this question the court emphasized that because it is “a court of law and not a congressional subcommittee or technology blog, the issues are narrow, technical, and purely legal.” Indeed, the court hewed closely to the statute. It noted that “the plain text of the Copyright Act makes clear that reproduction occurs when a copyright work is fixed in a new material object.”* The court states that “put another way, the first sale defense is limited to material items, like records, that the copyright owner put into the stream of commerce. Here, ReDigi is not distributing such material items; rather, it is distributing reproductions of the copyrighted code embedded in new material objects, namely, the ReDigi server in Arizona and its users’ hard drives.”
*This includes phonorecords, which are the “material objects in which sounds . . . are fixed by any method now known or later developed, and from which the sounds can be perceived, reproduced, or otherwise communicated, either directly or with the aid of a machine or device.” 17 U.S.C. § 101.
The court rejected Redigi’s claim that files on users’ computers are “migrated” to the Redigi server. It found that when a user downloads a digital music file it is “reproduce[d]” on a new phonorecord within the meaning of the Copyright Act. When that user moves the file to the Redigi server the “file has moved from one material object – the user’s computer – to another – the ReDigi server – [and therefore] an [unauthorized] reproduction has occurred.” The court rejected the argument that Redigi’s system is protected under copyright fair use, noting that Capitol does not (in this case) challenge the use of cloud-based storage lockers for personal use or convenience. “Capitol asserts only that uploading to and downloading from the Cloud Locker incident to sale fall outside the ambit of fair use. The Court agrees.”
The court concluded that Redigi is liable for direct, secondary, contributory and vicarious infringement.
According to Time magazine online, Redigi has a new and different technology that was not at issue in the case (Redigi 2.0) and plans to appeal the March 30th decision. However, here is where Redigi will find itself deep in the weeds of federal civil procedure, which presents a new set of problems. The case is not over, and among other things Redigi faces a trial on damages, which could be as much as $150,000 per infringement. We don’t know what Redigi’s sales volume is, but it’s hard to think that Redigi’s potential liability will not reach millions of dollars. However, unless an injunction is issued (the court’s opinion was not accompanied by an injunction), any appeal may have to await final judgment, which will incude damages (and potentially Capitol’s attorney’s fees). However, Redigi will not be permitted to initiate an appeal unless it firsts posts a bond in the amount of the judgment. Typically, a small start-up like Redigi can obtain a bond only by providing the bonding company a cash amount equal to the bond. It seems unlikely that Redigi has sufficient assets to afford a bond to cover a large judgment.
In addition, Capitol may seek leave of court to add as defendants the individual owners and employees of Redigi that exercised control over or benefited from the infringement. While Redigi could oppose such as motion as coming too late in the case, a decision would be at the discretion of the judge. As Capitol Records showed in its copyright suit against MP3tunes and Michael Robertson, Capitol is not above suing not only corporate infringers but their founders and owners. (See: The Record Labels Want My Minivan).* The philosophy of the record companies in many copyright cases may best be described as, “never kick a man when he’s down, unless that’s the only way to keep him there.” Capitol may be preparing to put on its steel toe boots in this case.
*In the MP3tunes case Capitol insisted on proceeding against Robertson even after Mp3tunes filed for bankruptcy.
According to the court decision Redigi consulted legal counsel before launching Redigi and engaging the recording industry in a test case. One can only hope that the attorneys Redigi consulted reminded Redigi of the Chinese proverb, “A piece of paper, blown by the wind into a law court, may in the end only be drawn out again by two oxen.”
by Lee Gesmer | Apr 1, 2013 | Copyright
Do you think U.S. copyright law protects the author of this news snippet from copying? –
Job seekers can roll the dice to land work at another of the four casinos coming soon to Ohio. Hollywood Casino Toledo has posted more than 600 job listings on its website this week. . . . restaurant workers, slots and table games supervisors, groundskeepers and security officers. The casino is scheduled to open in the spring with . . .
How about this one? –
The military intelligence complex an hour outside Washington where the WikiLeaks case goes to court this week is known as a cloak-and-dagger sanctum off-limits to the public — a reputation that’s only partly true. . . . low-level clearance and a Lady Gaga CD. The prosecution can only hope that their arguments, or the evidence, will reveal the secrets of how, . . .
Would it make a difference if you knew that the 58 words in first excerpt are taken from a 109 word article, and the 61 words in the second article from a 540 word article, and that both articles were (as they appear) factual news pieces?
People constantly ask “how much can I copy and be safe” under copyright law? Thirty seconds from a several minute piece of music? 10% of a news article?*
*The “10% rule” and “30 second rule” have become the equivalent of legal urban legends. Neither has a basis under U.S. copyright law.
The answers to these questions are most often determined by application of the copyright doctrine of “fair use,” which is codified in the Copyright Act in 17 U.S.C. § 107. The question of whether 13 news excerpts (including the two above) copied from Associated Press violate AP’s copyright or are protected by fair use is the issue facing Judge Denise Cote, a highly experienced federal trial judge in the Southern District of New York in The Associated Press v. Meltwater US Holdings, Inc.
Fair use is a frequently litigated issue, and the outcome in any given case can be notoriously unpredictable. As the U.S. Copyright Office puts it, “The distinction between what is fair use and what is infringement in a particular case will not always be clear or easily defined.” This is something of an understatement. It’s not for nothing that copyright law has been described as one of the most metaphysical areas of the law, requiring distinctions that are very subtle and refined. Some cases involving fair use are black and white, but fair use is an ad hoc, case specific doctrine, and in many cases the outcome is often more in the eye of the beholder (usually the judge) than in the law books.
In the Meltwater case the defendant, Meltwater US Holdings, operates an online news clipping service similar to traditional, paper-based news clipping services. Meltwater scans 162,000 online news websites daily (who know there were so many?) and indexes and archives their content. AP holds the copyright to many of the news articles copied by Meltwater.
Meltwater’s paying customers provide it with keywords. If an article contains a hit, Meltwater sends its customer verbatim excerpts of the article, typically consisting of the headline, the lede (the opening sentence), a “Hit Sentence” (based on the search criteria) and a link to the original article. Customers can receive daily reports or do ad hoc searches. However, discovery showed that subscribers click-through to see the original article less than 1% of the time.
Meltwater did not seriously deny that it copied the 13 verbatim excerpts at issue and provided them to its subscribers in this manner. Depending on the length of the original AP article, the amount copied (based on word count) ranged from 4.5% to over 60% of the AP article. Nor did Meltwater argue that the AP articles were not protected by copyright law. Meltwater’s defense centered on its argument that it was protected from AP’s claim of copyright infringement under the doctrine of fair use.
This defense was soundly rejected by Judge Cote, who found that Meltwater had put the excerpts of the AP articles to commercial use (Meltwater and AP are competitors), that Meltwater’s use of the AP articles cheapened the value of AP’s work, that by copying the title, lede and materials surrounding the targeted keyword Meltwater had copied a qualitatively significant part of the AP articles (the “heart of the story”), and that Meltwater’s use of the AP stories was not transformative.*
*Transformative use is often an important consideration under the fair use doctrine. The judge did find that the fact that the material copied involved current news was a factor that favored Meltwater under the four-part fair use analysis.
The judge also rejected Meltwater’s contention that it is a search engine (akin to Google), noting (among other things) that Meltwater is a for-pay subscription service (Google is free, although it is advertiser supported), and that the click-through rate on Google News is over 60%, compared with a click-through rate of under 1% for Meltwater, suggesting that Meltwater does not perform a search function, but actually provides the information sought by its subscribers.
This decision is an important fair use precedent for news aggregators, but it is likely to be limited (if upheld on appeal) to cases involving verbatim copying of qualitatively important news content. Other public (non-subscription) news aggregators are much more careful about how much they copy. Sites such as Drudge Report and The Huffington Post are careful to provide very brief descriptions of news articles (including AP articles) to which they link. In the meantime other subscriber-based closed systems like Meltwater (who may have already heard from AP and might have been awaiting this ruling before deciding which way to jump) will need to refine their systems in light of this decision, or risk defending their position in court, with Meltwater as a precedent.*
*The Southern District of New York is one of the busiest, and most influential, courts in the U.S. when it comes to copyright law.
While Meltwater may be planning an appeal and hoping the Second Circuit will see the case more favorably toward Meltwater, at present it is in a legally awkward position, to say the least. The 13 articles AP sued on are only the tip of the iceberg, and if Meltwater chooses to continue to distribute excerpts from AP articles it risks multiplying its damages by as much as $150,000/infringement if AP registers its articles with the Copyright Office (as it did with the 13 articles at issue in the case). If the court orders an injunction Meltwater will be able to appeal the injunction while the issue of damages goes to trial, but even that will shut Meltwater down (at least as to AP articles) for the year or so it takes for the Second Circuit to hear and decide the case. It customers may cancel their subscriptions and demand refunds (or stop purchasing subscriptions) if AP news excerpts are excluded from Meltwater’s service. So, if AP articles are important to Meltwater (as they appear to be, based on the decision), it is in a tight spot.
Of course, Meltwater has a theoretical workaround to the outcome in this case, albeit it won’t be able to use its web crawler to implement it. Meltwater would have to rely on its employees to review AP articles and summarize them using language original to Meltwater rather than AP. However, this expensive, labor-intensive alternative would undermine Meltwater’s business model, which relies on a low-cost, computer-automated process.
The decision also addresses Meltwater’s argument that AP’s failure to use the Robot Exclusion Standard (robots.txt) constitutes implied consent (it does not), that AP has engaged in copyright misuse (it has not), and that AP’s claims are barred by equitable estoppel (they are not). However, clearly the heart of this decision is the court’s ruling on fair use.
The Associated Press v. Meltwater US Holdings, Inc.
