Friday, September 19, 2014

Gratuitous promises: Uber class action continues

Ehret v. Uber Technologies, Inc., No. C-14-0113 (N.D. Cal. Sept. 17, 2014) 

Ehret’s putative nationwide class action alleged that Uber customers had been charged a 20% fee above the metered fare for each ride, misrepresented as a “gratuity” automatically added “for the driver.”  Instead, a substantial portion was allegedly retained by Uber for its own benefit. Ehret alleged that this was deceptive, misrepresenting the actual fare.  Ehret, who took an Uber trip in Chicago, sued under the California UCL and CLRA, and for breach of contract.  Uber managed to kick out the breach of contract claims, but not the statutory consumer protection claims.

Rule 9(b): because Ehret alleged when and where she took a ride, and that she relied on the “gratuity” representation, she’d done enough. She didn’t have to allege the precise web pages she viewed or the precise date she viewed the representation, since she alleged the date she relied on it.  “To so require would be unrealistic and needlessly impede access to an important remedial statute.” Though she didn’t allege how much was “substantial” in terms of what Uber kept for itself, her allegations were sufficient on a motion to dismiss; they were specific enough to give Uber notice of the alleged misconduct.

Uber argued that she failed to state a claim because (1) the UCL does not apply to non-California residents alleging non-California conduct; and (2) she failed to allege standing under either statute.

However, the court found that Ehret’s claims didn’t require extraterritorial application of the UCL or CLRA.  It’s true that those statutes don’t apply to conduct outside California, but multiple courts—including the California Supreme Court—have found the statutes implicated where the plaintiffs’ claims were based on alleged misrepresentations disseminated from California, as was the case here. This is also consistent with Tobacco II, in which the Supreme Court instructed that the UCL’s focus is on the defendant’s conduct, not the plaintiff’s damages, “in service of the statute’s larger purpose of protecting the general public against unscrupulous business practices.”  Ehret alleged that Uber, a Delaware corporation, had its headquarters in San Francisco, and that the deceptive practices alleged were “conceived, reviewed, approved and otherwise controlled from Defendant’s headquarters.”  Moreover, the misrepresentations were contained on Uber’s website and app, maintained in California.  The billing and payment for Uber’s services were processed in California. These allegations, if true, created a sufficient nexus between California and the misrepresentations.

Standing: Uber argued that Ehret suffered no economic harm (lost money or property) because she’d pay the “gratuity” anyway: she received a taxi ride at the stated price. How Uber distributed the “gratuity” was a matter of mere curiosity to Ehret, according to Uber.  Under Kwikset, however, it sufficed to allege that she wouldn’t have agreed to or paid Uber the full amount Uber charged her if the truth had been disclosed.  If the misrepresentation was material, then she didn’t get the benefit of her bargain.  And materiality is generally a question of fact. 

The court cited Kasky v. Nike, Inc., 27 Cal. 4th 939 (2002): “For a significant segment of the buying public, labor practices do matter in making consumer choices.”  (I know this will make many eyes roll, but there is good evidence that consumers engage in mental accounting that is not purely additive and would see a tip differently from a base charge in determining whether to take an offer.  And certainly whether Uber helps or furthers the immiseration of drivers is a hotly debated issue, which the amount of the gratuity might reasonably seem relevant to.)  Materiality under the UCL doesn’t require but-for causation; it merely requires that a reasonable person would attach importance to the fact at issue.  It didn’t matter that the “gratuity” was mandatory.  There’s a “longstanding rule that under the UCL even a mandatory charge can be deceptive if it is labeled as something it is not.” 

Nor did Ehret have to allege that she wouldn’t have engaged in the transaction at all if not for the representation.  Otherwise, many people who didn’t get the benefit of their bargains would be unable to recover.  “Allowing standing in the case at bar – where a false representation is made to raise the price of a service which the plaintiff would not have agreed to pay had the truth been told, does not frustrate the purpose of Proposition 64; rather, it furthers it.”  The court commented that “it is also plausible that had Uber not made the alleged misrepresentation, the total fee it charged would have been less than what it charged with the misrepresentation.”  So, plausibly, consumers paid more than they would have but for the misrepresentation.  (Mental accounting again: consumers will pay more if you tell them the money is going somewhere they approve of.)

Ehret also stated a claim under the UCL’s fraud and unfairness prongs.  Given that Uber allegedly advertises that there’s no need to tip the driver, reasonable consumers plausibly would expect drivers to receive the whole gratuity, making its representations misleading. As for unfairness, California balances “the ‘impact on the its alleged victim’ against ‘the reasons, justifications, and motives of the alleged wrongdoer.’” At the pleading stage, the court couldn’t conclude that the costs of the alleged misrepresentation were justified.  The “unlawful” prong of the UCL also applied: see the immediately forthcoming CLRA analysis.

If Uber represented that it remitted a 20% gratuity to drivers and didn’t, then plausibly its service was advertised as having a characteristic it didn’t have within the meaning of the CLRA’s prohibition on such conduct.  California law also bars a defendant from “[r]epresenting that a transaction confers or involves rights , remedies, or obligations which it does not have or involve, or which are prohibited by law.”  Ehret sufficiently alleged a violation of this provision as well, since Uber allegedly misrepresented the “obligation” arising from the charged fee. However, Ehret didn’t state a claim based on the statute’s prohibition of “false or misleading statements of fact concerning reasons for, existence of, or amounts of price reductions.” 

Ehret did fail to state a breach of contract claim because she wasn’t contractually bound to leave the driver any tip, and so as to customers, drivers were donee beneficiaries with no legal rights. She didn’t suffer any damages for contract purposes (aimed at placing plaintiffs in the position they’d have been in had defendants performed their contractual obligations). 

The UCL, by contrast, isn’t so limited. “Stated another way, the breach of contract claim looks at the 20% gratuity statement and asks how Plaintiffs can be put in the same situation they would be in had Defendants performed.  The UCL claim looks at the 20% gratuity statement and asks how Plaintiffs would be positioned had the misrepresentation not been made.”

A hologram and a straight-up application of Dastar

Pulse Entertainment Corp. v. David, No. CV 14-4732 (C.D. Cal. Sept. 17, 2014) 

This case concerns a lifelike animation of Michael Jackson performing a previously unreleased song that appeared during the 2014 Billboard Music Awards and a related CNN interview segment.  Pulse alleged that its team developed the animation over eight months, and that the animation was meant to coincide with and publicize its launch as a new company.  “David owns Hologram USA—Pulse’s competitor in the field of human animation.”  Pulse alleged that defendants had no involvement with the creation of the animation, and that they didn’t own or control the technology used to create it.  In May, Hologram sued Pulse for patent infringement for creating the animation.

Also in May, David gave a CNN interview that aired with the caption “MICHAEL JACKSON HOLOGRAM: HOW’D THEY DO IT?  Company behind hologram gives CNN demonstration.”  In the interview, David allegedly said that he and Hologram created and produced the animation and the underlying animation techniques and technology.  He also used “we” while describing the process employed to create the animation.  While the animation played on screen, the interviewer stated that “[t]his MJ likeness used at the Billboard Music Awards was created by Hologram USA.”  CNN took the interview segment down from its website after it was informed that neither David nor Hologram was involved in the creation of the animation. But David allegedly republished the segment on his companies’ websites and on his Twitter account.

Pulse’s §43(a)(1)(A) claim failed because of Dastar.  §43(a)(1)(A) doesn’t ban false designations of “the author of any idea, concept, or communication embodied” in goods.  Pulse didn’t allege physical reverse passing off.  The animation here, as Pulse alleged, “exists wholly separate and apart from any projection technique. . . [It] is not dependent on a method of projection, and it can be displayed in a variety of ways.  In that regard, it may be likened to a cartoon animation or a CG character in a feature film or television program.” So, the complaint alleged false designation of authorship status, which is exactly what happened in Dastar. The dismissal was with leave to amend, though the court expressed skepticism that this could successfully be done.

On to §43(a)(1)(B).  The court used the standard definition of “commercial advertising or promotion” (obligatory note that Lexmark ought to affect the “defendant in commercial competition with plaintiff” aspect), and asked whether the speech at issue was commercial speech. Relevant considerations include “(1) whether the statements are in a typical advertising format; (2) whether the statements refer to a commercial product; and (3) whether the defendant had an economic or commercial motivation for making the statements.”   Also, false advertising claims are grounded in fraud and thus must be pled with particularity.

Pulse didn’t specify David’s exact statements, but alleged that he falsely took credit for the animation.  Pulse also alleged the following allegedly misleading statements: (1) “What you saw at the Billboard, you saw a digital head connected to an actor.  We capture the body and the head in real time.  And, we have the sync marks and we can attach the two together”; (2) “What you saw at the Billboard was ‘Super Michael.’  You saw Michael beyond the controversy, beyond the problems that he faced in his real life”; (3) that the animation could be adapted for “education, military, politics—it can apply—be applied across the board”; and (4) that “there is no end to how you can apply this, all we really need to do is apply our imagination.”  In addition, Pulse alleged that the interviewer stated that “[t]his MJ likeness used at the Billboard Music Awards was created by Hologram USA.”  Further, Pulse alleged that after the segment was removed from CNN’s website, Hologram republished the segment, with the complained-of caption and interviewer’s statements, on their websites and on David’s Twitter account. 

To the extent the complaint relied on the original CNN broadcast, it failed to satisfy Rule 9(b):

Most of the obviously false and deceptive statements were made by CNN (or its interviewer) rather than by Defendants. Even though Defendants participated in the interview, Pulse fails to plead sufficient facts to show that Defendants either knew of the false caption and interviewer’s statement before the broadcast aired or otherwise participated in their creation. 

The only specific statements attributed to David weren’t materially deceptive.  They were just descriptions of the animation and the technology’s potential uses.  In a footnote, the court also noted that CNN’s initial broadcast wouldn’t qualify as “commercial advertising or promotion.” “David’s statements were made in an ordinary interview format on a national news program regarding an event that received widespread publicity. There are no facts alleged indicating that Defendants had an economic motivation or that the statements were intended to influence consumers to buy defendants’ goods or services.” 

The allegations of republication came closer to stating a claim, since reposting “arguably” adopted the false statements.  (I’d go much further—beyond arguably.  There are a number of cases, including the foundational Gordon & Breach, finding that use of someone else’s noncommercial speech in one’s own commercial speech is subject to Lanham Act false advertising claims.)

However, here Pulse didn’t specify “exactly when the segment was reposted, all of the websites to which it was reposted, for how long it was made available, or provide any other contextual facts that would allow Defendants to prepare a responsive pleading.”  Again, dismissal was with leave to amend—and here I suspect that’s possible.

Thursday, September 18, 2014

House hearing on 1201



Rep. Marino: DMCA is important but there are concerns about misuses; fortunately courts have generally gotten it right to avoid anticompetitive behavior.  We want to hear more about ensuring 1201 is used to protect copyrighted works and not printer cartridges.  Copyright Office just announced the new rulemaking process. Congress recently enacted cellphone unlocking legislation: template?  1201 has a lot to do with digital distribution.

Rep. Nadler: DMCA was enacted to implement WIPO treaties.  Wants to hear how 1201 is working and what changes might be appropriate.  DMCA has been effective in allowing companies to promote new/innovative business models.  (I’d love to see the evidence of this.)  Promotes creation of new online services used to access movies etc. Often use TPMs to prevent unauthorized access: access controls. Also copy controls.  © owners depend on these as an effective way to respond to infringement and make works available online. Plays key role in reducing piracy.  Should study whether triennial rulemaking process is working correctly.  New procedures to enhance public understanding—allowing parties to provide basic information; short submission form to allow public to register their views.  While DMCA didn’t always work as intended, led to innovation and benefits for consumers. Helps creators have confidence to provide video over internet despite risks, and deters theft/unauthorized access.

Rep. Conyers: Keep in mind: we need to ensure that 1201 remains strong to prevent piracy and keep the US competitive globally. © is critical to job development and overall economy; foundation for our inventiveness and dynamic business culture, and US competitiveness. IP-intensive industries account for nearly 35% of nation’s GDP in 2010, and 40 million jobs directly or indirectly.  (I’ll just note that Coca-Cola is counted as IP-intensive in these measures because of its brand value.)  Piracy costs billions of dollars and millions of jobs.  Chinese piracy and counterfeiting cost American businesses approx. $40 billion in 2009. Over 2 million jobs could’ve been created in the US if China complied w/its current obligations.  (If this is so, the DMCA is completely irrelevant and even a distraction.)  We need to provide more resources to protect © domestically and abroad, fully funding federal enforcement, including deterrents to infringement and prosecutions of commercial infringers.  Encourage other countries to enact strong copyright laws and enforce them.  China again. 

Oppose efforts to weaken 1201 because it encourages the use of TPMs to protect copyright.  This strengthens © by cultivating innovative business models encouraging lawful innovation and discourages piracy.  Some ignore its effectiveness by wanting to weaken or eliminate it. Some contend that © owners use 1201 as a tool to stifle competition—laser printer/garage door opener.  Fortunately, courts ruled against those companies.  Others contend that the triennial rulemaking process is too narrow.  1201 maintains necessary balance between strong protection and consumer-friendly market.  (Um, that’s not a balance.)  There have been dozens of exemptions granted since 1998.  (Largely because you have to ask for your exemption every three years.)  We can make it more efficient.

Mark Richert, VP Public Policy, American Foundation for the Blind (link goes to written testimony): Helen Keller was a fierce advocate, not just inspirational.  Needless complexity in 1201 process. Bottom line: it’s time for the entire © regime to be looked at very carefully. Piecemeal process should be looked at more generally.  AFP worked to enact the Chafee Amendment, allowing people with disabilities to reproduce materials in accessible formats without needing permission. That language really helped codify the notion part of © for a long time: for certain purposes, particularly access to those with disabilities, certain uses are fair.  Limited to nondramatic literary works, but important first step.  That was narrow and incremental, and it needs to be revised for the internet.  Our experience with 1201: significant limitations.  © Office has recognized exemptions, but threatened to take them away too—nearly lost our ebook exemption.  What that shows is that, even though the rights haven’t changed, the process can fail people with disabilities.

Jonathan Zuck, president, ACT: the App Association: represent over 5000 app developers and IT businesses who create and license content.  Vibrant success story for apps.  68 billion over 6 years, employing over 750,000 Americans.  App industry didn’t exist in 1998.  Protecting content v. potential impediments to future innovations.  Courts have consistently rejected attempts to abuse DMCA to block competition or legit research, and we’ve added new exemptions for unlocking/accessiblity for the blind.  DMCA is having little if any adverse impact on innovation.  Consumers have endless options for consuming movies, music.  Technical and easy to misinterpret and misunderstand; we published a white paper “explaining” the DMCA.  Takeaway: explosive growth in tech innovation in content delivery prove the DMCA created an environment in which this is possible. Curated app store demonstrates how DRM/DMCA create a virtuous cycle for consumers and developers.  Invisible protection for developers; consumers can trust apps in store and benefit from ability to replace lost/corrupted apps with a few clicks.  Consumers don’t have to deal with viruses from noncurated app stores. TPMs are essential to success of industry. Yes, there’s app piracy, but just because in 16 years there’ve been a handful of bad cases doesn’t mean we should ignore innovation of last decade.  Over a million apps available in marketplace. Virtually no barriers to becoming an entrepreneur. There may be ways to improve DMCA, but proceed w/caution before dismantling compromises that worked.

Christian Genetski, senior VP/GC, Entertainment Software Association: Leading video game publishers and console manufacturers.  100s of millions of gamers worldwide; $21 billion to US economy.  TPMs spur innovation.  DMCA is fundamentally sound and largely working as intended.  Prevent piracy and promote broader dissemination of legit content: these incentives are working.  Platforms, publishers, and gamers have benefited.  Piracy remains a concern, but TPMs/DMCA played pivotal role in reducing their scope. Our industry understands that reducing piracy in the long run requires offering consumers a better experience. Does not reduce consumer choice.  TPMs help expand consumer choice by expanding across platforms and price points.  Explosion of free to play game offerings available on mobile phones; console has become robust online hub; enabled new digital gaming services across platforms and devices. Consumer-focused approach relies heavily on TPMs. Accepting that no tech is impervious, DMCA establishes baseline of respect for TPMs and deterrent.  Critical that any consideration to address outlier cases/unintended consequences shouldn’t undermine these benefits.  Circumvention for only noninfringing uses = embolded pirates. Not theoretical concern: recognized in last rulemaking when videogame circumvention exemption was rejected—very same steps required to hack for noninfringing uses were overwhelmingly used for piracy. No law is perfect. Where DMCA is perceived as restricting fair use, exemption process works.  We liked the exemption process a lot, though targeted efforts to improve it could be discussed.  Unrivaled innovation after DMCA.  Access to more varied/higher quality content with choice more than any other time in history.

Corynne McSherry, EFF: We regularly counsel security researchers, innovators, ordinary users, remix artists about DMCA issues.  Based on our experience we’ve seen the real price of 1201, which is too high. Was supposed to deter © infringement, but over and over we’ve seen it used to thwart not just legal but copyright-irrelevant activities.  Last year consumers discovered unlocking phones was illegal—Copyright Office has veto power over normal uses of their own devices. Congress temporarily restored unlocking; we’re grateful for that, but we should be disturbed it was necessary to do so in the first place.  A few practical examples: flaw in security protection on CDs that could potentially allow hacker to take over computers—500,000 networks including gov’t.  Researchers hesitated to share this knowledge because they’d already faced DMCA threats for past similar security work. Security is hugely important; we’re all at risk when leading researchers can’t do their jobs. DMCA also used to block competition, not just in 2 cases, but computer repair etc.  Legit competition moves into courtroom; used against hobbyists who want to make their stuff work better.  Inhibits a nation of tinkerers.  Phones, cars, fridges, farm equipment—software helps goods work. But repair/recycling may require circumvention; this is bad for the environment and consumers.  Also bad for the people it’s supposed to help: artists.  1201 stands in the way of fair use.  Exemption isn’t adequate—takes many hours of work, legal and tech expertise, and if you win you have to start all over again.  Copyright Office is dedicated, but small and overburdened and shouldn’t be the ones to make the decisions shaping the future of tech.  Individuals and companies engaging in infringement—“pirates”—aren’t deterred. They’re already on the hook for substantial infringement penalties. Best outcome: get rid of 1201.  Or limit it to the situations it was supposed to target: circumvention that aids infringement. This would get back to purpose and avoid the costs of the exemption rulemaking.

Rep. Chabot: App from his district, allow kids to play with food creating machine.  Created interactive gaming company—great success story.  Piracy threatens startups.  Pirates create copycat apps and sell them under different name.  How significant is this? Are DMCA or other remedies sufficient? What additional remedies would you like to see to protect developers and consumers?

Zuck: Piracy is an ongoing problem.  DMCA has gone a long way by allowing curated stores to have a much better record of finding and removing pirated and poorly intentioned software.  (I didn’t know that curated stores were mandated by the DMCA or would disappear without it; I’d sort of thought they served the economic interests of their curators.)  DMCA has altered the previous software landscape and allowed apps to survive.  Piracy/malware is a problem.  But DMCA is a big deal.

Chabot: could you describe how TPMs have allowed innovation?

Genetski: (1) as a matter of tech, backstopped by law, it’s been effective in not completely eliminating but diminishing piracy.  Historical difference in piracy rates between PC platform (no TPMs) and those on game consoles (use TPMs)—drastically different. PC package game market was severely undercut by piracy.  (2) TPMs have played a role in reinventing PC game market—moving to the cloud with server-based games that can authenticate legit users.  (3) TPMs incredibly useful in allowing publishers to compete with free.  By allowing users to do things like have 48 hour free trial period to evaluate whether they like it.  Start the game on their phone, then play more at tablet, then resume on TV screen at home. Users want this and TPMs are the backstop to making piracy not a consumer choice.

Rep. Goodlatte: Comprehensive review of © law.  DMCA came because of concern over mass piracy. TPMs were intended to allow self-help.  Either have been effective tool or have simply been a small speed bump for dedicated pirates. © owners have reevaluated need for TPMs: music industry has turned away from them.  Changes: Some want a scalpel and others with blunter suggestions.  Those of us involved with the drafting wouldn’t have anticipated some of the litigated issues; interested in ways to better focus 1201 on protecting copyright works from piracy rather than non-copyright industries from competition.

Rep. Conyers: Genetski mentions targeted efforts to approve efficacy/efficiency of rulemaking.  What kind of changes would you recommend?

Genetski: We all share frustration at need to return repeatedly and seek renewal where no one’s opposed an exemption.  Now we have several iterations where we’ve seen some patterns emerge. There are clearly areas emerging like Richert’s that may warrant thought about how to address. Contrast to video game console proceeding,where process worked well with voluminous record and argument from both sides.  Isolate instances where there’s room for targeted improvement.  (Excellent non-answer.)

Conyers for Zuck: do you think there are opportunities to improve the law?  Why do you want us to be wary of dismantling existing compromises?

Zuck: Agrees that there’s room for improvement in rulemaking and review particularly.  Make it more fluid, fewer impediments to legitimate exemptions.  (Which are?)  But the facts are with the law: as a whole, it’s worked. Facilitated the app industry—protects consumers from malware, need to replace software.  Instances along the way where law’s been tested doesn’t make it different from any other law.  If you got rid of every law with excesses you’d have very little law left. Deal with exceptions but remember it’s successful.  Use a scalpel.  (On what?)

Rep. Issa: We don’t have a librarian here—need that perspective.  If we leave the system in place, and Congress continues to be faced with decisions we don’t like (unlocking), where people bought something where the software was incidental to the hardware, is there flexibility to allow Congress’s view to be seen, or do we have to hope that there’s a large enough public outcry each time?

McSherry: that flexibility exists: Congress can set © policy, but it’s remarkably cumbersome to do it again for each innovation that comes up.  It’s not just occasional that these TPMs are litigated; EFF has an increasingly longer paper on unintended consequences. Rather than piecemeal backstop of Librarian of Congress: reform 1201 so that acts of circumvention creating liability have a relationship to infringement or facilitation of infringement.  Reform so that exemptions that are created apply to tools, not just acts of circumvention; big flaw in current process.

Issa: Congress is cumbersome compared to court review—do we need further administrative review that has more bias toward the intent of the DMCA?  Blind people often find themselves w/o accommodation, need circumvention.  Review under Copyright Office, or real reforms with administrative bias towards fair access?

Genetski: design of the statute with balance of prohibitions and exemptions for security testing/interoperability is fine.

Issa: this three-year review with Congress as a backstop doesn’t have any other recourse but Congress.

Zuck: largely worked, worth exploring a process to see if there’s a more fluid process in the absence of objections.  Tech people are sympathetic to innovation, but change is possible if done in targeted way.

Richert: True, visually impaired/blind people have only one recourse right now. There is another way: if rightsowners assure accessiblity of the stuff they make available.  We went to the © Office because folks who were blind or visually impaired were trying to read ebooks they’d paid for, and they wouldn’t get anything at all/they’d get a message that accessibility had been disabled at the request of the © owner.  We wouldn’t have initiated our efforts 12 years ago if the underlying works were made accessible.  Thus we suggest an overall approach to © reform, because ensuring a limited monopoly to promote progress surely means at a minimum that all people, including people w/disabilities, can use what everyone else can use.  If the underlying work isn’t optimized for the tech that assists people with disability, we should be able to make it accessibility. Presumption that these materials should be made accessible.

Issa: there are none so blind as those who will not see the needs of their customers.

Rep. Chu: Submits written statement from Copyright Alliance about the ways artists use TPMs to protect their work.  TPMs impact piracy rates in video games, comparing platforms: PC v. console.  How does the rate of piracy differ?  How does the industry combat infringing use?

Genetski: rates historically/currently: 80-85% higher for PC game titles, in many cases the same game titles.  Infringing download sites—29/30 most popular titles are PC titles. More compelling part of the story is the response to that reality: find a way to reinvent that market, recognizing the issue and using TPMs in a way that grows the market (online play).  Often free play, paying only for what they want. Need rulesets to admit only those who will play by the rules, not cheats and hacks to disrupt the experience for the majority.  TPMs play critical role in nurturing that.

Rep. Chu: Innovative game delivery mechanism—what role do TPMs play in determining whether content owners decide to make content available through new mechanisms, and what role does triennial review play?

Genetski: Steam, an online digital gaming service.  Origin is another platform: allows purchase of digital content.  EA has GameTime: 48 hour window to try a game.  Lawful means to sample.  These require TPMs for when the 48 hours ends. Steam is pro-consumer, nonrestrictive service. TPMs are the backbone to account-based services.  Few restrictions once you’ve purchased the product, but the architecture behind the scenes is important.

Rep. Chu: what are our treaty obligations?

Genetski: WIPO treaty was a motivating factor: requires effective/adequate remedies against circumvention. FTAs with Korea, Australia, etc. that are more specific to the current 1201 provisions. Repeal/rollback of current prohibitions to where adequacy/effectiveness would be called into question would be a problem.

Rep. Farenthold: EFF member.  Where could this go?  Traditionally patent law protects things and copyright law protects works.  Now more and more things have software, which you license when you purchase.  Can we distinguish software as an integral part of a thing v. an app, so you can do what you want with a thing you buy?  If I buy a car, can the car company prevent me from selling it on the used market by using software to turn the car off on transfer?

McSherry: this is one of our biggest concerns. Lots of unexpected uses.  Problem will only get worse.  Your hypo is not hypothetical: people have always tinkered with our cars but cars now have a lot of software.  Can be used to lock folks down to one repair option—all too common.  If you buy an object but only license the software, you may not know about all the restrictions. 

Rep. Farenthold: moving through courts is slow and expensive. How do we streamline the process for fair use, reverse engineering, etc.?

Zuck: while the judicial process is slow, it’s inevitable at the beginning of the life of a law. Most of the examples are old; people are now less fearful about the implications of hacking.  Hacking/modification is alive and well now.  Don’t think about it as the rule rather than exception. There are opportunities to streamline but it’s a mistake to look at experience as a whole and see DMCA as problematic; the numbers don’t support that.

Rep. Deutch: specifically, what changes would you want?

Zuck: the renewal process of an exemption could be modified and streamlined, especially when there are no objections, which is very often the case.  (Excuse me?)  The cumbersome nature of the process has been the exception and not the rule because most of the TPMs in place are seamless.

Deutch: we all agree the Office made the wrong call on cellphones.  But what next?  Only with intent?

McSherry: circumvention or tools designed to facilitate infringement.

Deutsch: but you can infringe without intent to infringe.

McSherry: only when there’s an actual tie to copyright infringement.  The way to deal with that: if someone is designing a tool in good faith, and someone happens to use it to infringe that shouldn’t be their fault.

Deutsch: Genetski says TPMs have helped innovation.  What’s your objection?

McSherry: when we look at 1201, it’s cost/benefit.  We don’t think its benefits justify its costs. 

Deutsch: you say pirates are going to be pirates.  But address the benefits Genetski laid out.

McSherry: we’re conflating TPMs and 1201.  They’ve argued for the benefits of TPMs.  It may be that they’ve been helpful.  I don’t think 1201 as a backstop to the TPMs.  Whether there’s an overall benefit to TPMs is different. 1201 has inhibited things like security research.  (It’s not just that pirates will be pirates.  It’s that 1201 doesn’t make what they’re doing any more unlawful; it’s already unlawful.  So they’ve already decided that they’re going to infringe.  And their cracking of TPMs will also contribute to infringement and they’d be liable for secondary infringement even without 1201.  Given that, 1201 interferes with people who’d like to comply with the law, not with people who’ve already decided to ignore it.)

Genetski: TPMs are a sound business choice.  Delivering consumers content in the way they want. But it establishes normative behavior. People understand it’s unlawful to hack. Where tech fails, and it always does, having a law as a backstop helps the majority of users understand the bargain.  (What’s the evidence that the majority of users know what the DMCA is?)

Zuck: backstop is important.  Open source software has bugs/security holes too.  There’s no comparison between benefits and costs.

Genetski: reduce amount of scope on consoles.  Last rulemaking: EFF proposed circumvention for game consoles for noninfringing uses.  However, we showed that the community of users that would use the tools to circumvent basically broke the lock. Once the lock is broken there’s no fixing it, and it allows playback of pirated content. May also allow a sliver of noninfringing use?

Rep. Holding: how much money are you losing?

Genetski: difficult to quantify, but we do 100s of thousands of takedowns monthly, so it’s a significant problem.

Rep. Jeffries: Richert: your resources are being expended to vindicate a civil right that’s already been established. You support reform for noncontroversial exemptions?

Richert: Short answer: yes—we want a comprehensive approach to © to accessibility. Specifically to 1201: we recommend specific reforms. 

Jeffries: how do you define a noncontroversial exemption? Seems easier said than done, especially around this place—the Export/Import bank was noncontroversial until it became controversial.  Would it be based on lack of objections?  Would it be based on repeated reauthorization?  Some combination?

Richert: Noncontroversial is not the best definition. People often think of accessibility as like motherhood and apple pie, until it’s time to actually regulate.  When someone can make a case that the use is clearly fair and traditionally, consistently recognized as such, that’s a no-brainer.

Jeffries: current framework has allowed for innovation, but what to do?

Genetski: right focus would be lack of opposition.  Perhaps not de novo review, but burden to stay the same in the absence of opposition.  (As I recall, the Joint Owners technically opposed all the exemptions, but didn’t deign to argue about the blind. Would that count?)

McSherry: we sought an exemption that would allow you to turn your console into a general purpose computer. There used to be consoles that could be modified to run Linux—useful for research because less expensive. Console design changed to prevent that. Could be easily circumvented for lawful purposes, so we sought an exemption.  Related ask for circumvention for “homebrew” games—games they developed themselves.

Rep. Smith: Any downsides to that exemption?

Genetski: record established that running Linux on a console was incredibly uncommon until there was a publicly released hack that allowed circumvention—the feature also prevented running pirated content.  After it was removed, that console manufacturer granted authorization to use that part of the system to bona fide security researchers who asked. There was very little harm.  Grave harm for opening up that door.  (I thought consumers understood the DMCA and understood lawful/unlawful.)

McSherry: be clear: that hack was widely available.  Only legitimate users were inhibited. This is the difference between TPMs and 1201.

Rep. Collins: most of EFF’s cases are old.  You eventually set precedents to fix them.  Why not remove robbery from the books?  Console developers granted permission to security researchers.  People need a profit motive to make stuff.

McSherry: Independent repair people don’t know if they can stay in business. Cars have TPMs in them.  And that’s just cars.

Collins: problems are opportunities.  Marketplace provides medicine for this problem.  (Because producers routinely encourage competition?)

Rep. Marino: we know there’s a lot of piracy, trade secret theft, trademark infringement internationally. From an international perspective, what impact does 1201 have?

Genetski: DMCA grew out of WIPO internet treaties; US has been a leader in exporting protection against circumvention.  FTAs: laws that track 1201. That has important practical impact.  Was involved in actions around the world on behalf of game publishers. We pursued cases under the local version of 1201.  The ability to have these remedies exported and used to create worldwide norms is critical.

Zuck: Prices have fallen dramatically in our industry.  Some of the incentives for piracy have decreased, while some of the consumer benefits from TPMs have increased.  Protection from malware in a curated store means that you have a better chance of exporting those protections, so rather than jailbreaking my phone I’m using cheap/free apps.  Decrease incentives for pirates and for consumers to make use of pirated goods.

McSherry: skeptical about exporting 1201, given that we already have copyright penalties.  The evidence does not show deterrence of piracy.  Given the concerns that many of us agree on, it’s wrong to export 1201 wholesale.  Even if we shouldn’t scuttle it, there are significant flaws.