Seventh Circuit opinion in Q-Ray case

I usually don’t do this, but the opinion is well worth reading, so here it is almost in full, with a few edits. Picture in original! If you don’t want to read the whole thing, at least search for and read the sentence about the 17^th dimension. It's a typically law-and-economics approach to why we ban advertising for devices that only "work" because of the placebo effect, with little attention to concepts of honesty and fair dealing generally, but it gets to the right result.

F.T.C. v. QT, Inc. 512 F.3d 858 (7^th Cir. 2008) (Easterbrook, C.J.)

WIRED Magazine recently put the Q-Ray Ionized Bracelet on its list of the top ten Snake-Oil Gadgets.

The “Gold Deluxe” Q-Ray Ionized Bracelet

The Federal Trade Commission has an even less honorable title for the bracelet’s promotional campaign: fraud. … [A] magistrate judge, presiding by the parties’ consent, concluded after a bench trial that the bracelet’s promotion has been thoroughly dishonest. The court enjoined the promotional claims and required defendants to disgorge some $16 million (plus interest) for the FTC to distribute to consumers who have been taken in.

According to the district court’s findings, almost everything that defendants have said about the bracelet is false. Here are some highlights:

• Defendants promoted the bracelet as a miraculous cure for chronic pain, but it has no therapeutic effect.

• Defendants told consumers that claims of “immediate, significant or complete pain relief” had been “test-proven”; they hadn’t.

• The bracelet does not emit “Q-Rays” (there are no such things) and is not ionized (the bracelet is an electric conductor, and any net charge dissipates swiftly). The bracelet’s chief promoter chose these labels because they are simple and easily remembered-and because Polaroid Corp. blocked him from calling the bangle “polarized”.

• The bracelet is touted as “enhancing the flow of bio-energy” or “balancing the flow of positive and negative energies”; these empty phrases have no connection to any medical or scientific effect. Every other claim made about the mechanism of the bracelet’s therapeutic effect likewise is techno-babble.

• Defendants represented that the therapeutic effect wears off in a year or two, despite knowing that the bracelet’s properties do not change. This assertion is designed to lead customers to buy new bracelets. Likewise the false statement that the bracelet has a “memory cycle specific to each individual wearer” so that only the bracelet’s original wearer can experience pain relief is designed to increase sales by eliminating the second-hand market and “explaining” the otherwise-embarrassing fact that the buyer’s friends and neighbors can’t perceive any effect.

• Even statements about the bracelet’s physical composition are false. It is sold in “gold” and “silver” varieties but is made of brass.

The magistrate judge did not commit a clear error, or abuse his discretion, in concluding that the defendants set out to bilk unsophisticated persons who found themselves in pain from arthritis and other chronic conditions.

Defendants maintain that the magistrate judge subjected their statements to an excessively rigorous standard of proof. Some passages in the opinion could be read to imply that any statement about a product’s therapeutic effects must be deemed false unless the claim has been verified in a placebo-controlled, double-blind study: that is, a study in which some persons are given the product whose effects are being investigated while others are given a placebo (with the allocation made at random), and neither the person who distributes the product nor the person who measures the effects knows which received the real product. Such studies are expensive, not only because of the need for placebos and keeping the experimenters in the dark, but also because they require large numbers of participants to achieve statistically significant results. Defendants observe that requiring vendors to bear such heavy costs may keep useful products off the market (this has been a problem for drugs that are subject to the FDA’s testing protocols) and prevent vendors from making truthful statements that will help consumers locate products that will do them good.

Nothing in the Federal Trade Commission Act, the foundation of this litigation, requires placebo-controlled, double-blind studies. The Act forbids false and misleading statements, and a statement that is plausible but has not been tested in the most reliable way cannot be condemned out of hand. The burden is on the Commission to prove that the statements are false. (This is one way in which the Federal Trade Commission Act differs from the Food and Drug Act.) Think about the seller of an adhesive bandage treated with a disinfectant such as iodine. The seller does not need to conduct tests before asserting that this product reduces the risk of infection from cuts. The bandage keeps foreign materials out of the cuts and kills some bacteria. It may be debatable how much the risk of infection falls, but the direction of the effect would be known, and the claim could not be condemned as false. Placebo-controlled, double-blind testing is not a legal requirement for consumer products.

But how could this conclusion assist defendants? In our example the therapeutic claim is based on scientific principles. For the Q-Ray Ionized Bracelet, by contrast, all statements about how the product works-Q-Rays, ionization, enhancing the flow of bio-energy, and the like-are blather. Defendants might as well have said: “Beneficent creatures from the 17th Dimension use this bracelet as a beacon to locate people who need pain relief, and whisk them off to their homeworld every night to provide help in ways unknown to our science.”

Although it is true, as Arthur C. Clarke said, that “[a]ny sufficiently advanced technology is indistinguishable from magic” by those who don’t understand its principles, a person who promotes a product that contemporary technology does not understand must establish that this “magic” actually works. Proof is what separates an effect new to science from a swindle. Defendants themselves told customers that the bracelet’s efficacy had been “test-proven”; that statement was misleading unless a reliable test had been used and statistically significant results achieved. A placebo-controlled, double-blind study is the best test; something less may do (for there is no point in spending $1 million to verify a claim worth only $10,000 if true); but defendants have no proof of the Q-Ray Ionized Bracelet’s efficacy. The “tests” on which they relied were bunk. (We need not repeat the magistrate judge’s exhaustive evaluation of this subject.) What remain are testimonials, which are not a form of proof because most testimonials represent a logical fallacy: post hoc ergo propter hoc. (A person who experiences a reduction in pain after donning the bracelet may have enjoyed the same reduction without it. That’s why the “testimonial” of someone who keeps elephants off the streets of a large city by snapping his fingers is the basis of a joke rather than proof of cause and effect.)

To this defendants respond that one study shows that the Q-Ray Ionized Bracelet does reduce pain. This study, which the district court’s opinion describes in detail, compared the effects of “active” and “inactive” bracelets (defendants told the experimenter which was which), with the “inactive” bracelet serving as a control. The study found that both “active” and “inactive” bracelets had a modest-and identical-effect on patients’ reported levels of pain. In other words, the Q-Ray Ionized Bracelet exhibits the placebo effect. Like a sugar pill, it alleviates symptoms even though there is no apparent medical reason. The placebo effect is well established. Defendants insist that the placebo effect vindicates their claims, even though they are false-indeed, especially because they are false, as the placebo effect depends on deceit. Tell the patient that the pill contains nothing but sugar, and there is no pain relief; tell him (falsely) that it contains a powerful analgesic, and the perceived level of pain falls. A product that confers this benefit cannot be excluded from the market, defendants insist, just because they told the lies necessary to bring the effect about.

Yet the Federal Trade Commission Act condemns material falsehoods in promoting consumer products; the statute lacks an exception for “beneficial deceit.” We appreciate the possibility that a vague claim-along the lines of “this bracelet will reduce your pain without the side effects of drugs”-could be rendered true by the placebo effect. …. But our defendants advanced claims beyond those that could be supported by a placebo effect. They made statements about Q-Rays, ionization, and bio-energy that they knew to be poppycock; they stated that the bracelet remembers its first owner and won’t work for anyone else; the list is extensive.

One important reason for requiring truth is so that competition in the market will lead to appropriate prices. Selling brass as gold harms consumers independent of any effect on pain. Since the placebo effect can be obtained from sugar pills, charging $200 for a device that is represented as a miracle cure but works no better than a dummy pill is a form of fraud. That’s not all. A placebo is necessary when scientists are searching for the marginal effect of a new drug or device, but once the study is over a reputable professional will recommend whatever works best.

Medicine aims to do better than the placebo effect, which any medieval physician could achieve by draining off a little of the patient’s blood. If no one knows how to cure or ameliorate a given condition, then a placebo is the best thing going. Far better a placebo that causes no harm (the Q-Ray Ionized Bracelet is inert) than the sort of nostrums peddled from the back of a wagon 100 years ago and based on alcohol, opium, and wormwood. But if a condition responds to treatment, then selling a placebo as if it had therapeutic effect directly injures the consumer.

Physicians know how to treat pain. Why pay $200 for a Q-Ray Ionized Bracelet when you can get relief from an aspirin tablet that costs 1¢ ? Some painful conditions do not respond to analgesics (or the stronger drugs in the pharmacopeia) or to surgery, but it does not follow that a placebo at any price is better. Deceit such as the tall tales that defendants told about the Q-Ray Ionized Bracelet will lead some consumers to avoid treatments that cost less and do more; the lies will lead others to pay too much for pain relief or otherwise interfere with the matching of remedies to medical conditions. That’s why the placebo effect cannot justify fraud in promoting a product. ….

[The court also upheld the amount of the remedy, which was designed to ensure disgorgement of profits.] …. Defendants’ business was a profitable one; that much, at least, they concede. (It is so profitable that they continue to carry it on despite the injunction that requires them to stop making most of their old claims for its efficacy. Today it is sold with testimonials and vaporous statements.)

…. Although defendants complain that the magistrate judge failed to separate ill-got gains from legitimate profits, they offer no reason to think that any of their profits are “legitimate.” Defendants’ sole business is the sale of Q-Ray products. …. [The court also affirmed a finding of individual liability for a principal, even though he claimed innocence.]

Predatorix possibly defamatory but not infringing

Super Future Equities, Inc. v. Wells Fargo Bank Minnesota, N.A. (N.D. Tex. Mar. 17, 2008)

As part of a lawsuit alleging a grab bag of business torts, one defendant counterclaimed for copyright infringement. Along with filing suit, plaintiffs created www.predatorix.com, which said nasty things about defendant Orix. (For all that appears from this opinion, plaintiffs have little to recommend them, but I must credit them for a better-than-average choice of protest domain name.) Predatorix.com also contained a copy of a webpage from Orix’s site, on which Orix had advertised T-shirts with a slogan touting Orix’s aggressive collection practices, “Just Pay.”

Orix counterclaimed for libel per se, based on statements basically accusing Orix of financial improprieties of various sorts. The court easily rejected the defense that the statements were mere opinion, since they recited various alleged specific facts. Even an “anonymous outrageous posting on an Internet message board” might be perceived by the audience as a statement of fact. Here, the site linked to court documents, deposition videos, news articles, etc., heightening the fact-like nature of the claims despite the formal statement that this was the creator’s personal opinion. The creator even said “I am verifying the accuracy [of one claim] and intend to post it within a few weeks.”

Defendants also argued that the heated rhetoric (“magic tricks,” “lies,” etc.) were satire or parody. The issue was “whether the publication could be reasonably understood as describing actual facts.” Again, the answer was yes.

Further, the court found that Orix was a private figure. The three relevant factors for corporations: (1) the notoriety of the corporation to the average person in the relevant area; (2) the nature of the corporation’s business (whether it makes or markets consumer goods); and (3) the frequency or intensity of media scrutiny. Orix is a “leading provider of loan servicing and asset management/loan workout services” and its customers include “some of the nation’s largest institutional investors, portfolio owners, and loan originators. But that doesn’t mean average people would be familiar with it. Orix doesn’t deal with the public. Nor does it advertise, though it occasionally issues press releases. It’s mostly discussed in business publications. Thus, the court determined that Orix was a private figure. Plaintiffs argued that the website detailed “complex schemes that may affect the well-being of untold numbers of borrowers and purchasers of mortgage backed securities, clearly a public issue.” But the court found that the statements were focused on a lawsuit between private parties, not a matter of public concern.

Because of the private figure finding, truth was an affirmative defense, and Orix didn’t need to prove falsity. Moreover, Orix need only show negligence, not actual malice.

On Orix’s business disparagement counterclaim, however, the resolution was different. The counterdefendants argued that there was no evidence of pecuniary damages, a required element. Orix argued that it was litigating the collection of a fraud judgment it obtained against another person, Avram Cimerring, and that one of the counterdefendants had testified against Orix in that litigation and used materials posted on Predatorix to support Cimerring’s claims. Thus, Orix argued, it was damaged in the amount of the attorneys’ fees it spent defending against Cimerring’s claims. Texas law, however, requires that special damages be shown in specific lost sales or “loss of trade or other dealings,” and Orix’s litigation expenses didn’t qualify. Even if attorneys’ fees could qualify as special damages, Orix was the party that sued Cimerring, so Predatorix wasn’t the cause of the lawsuit.

Orix’s copyright claim was a lot more aggressive than the rest of its litigation strategy, which seems to be saying something. Predatorix copied a page from Orix’s website (quickly removed by Orix, apparently) which offered Orix apparel for sale. The clothing bore the slogan “Just Pay” (reference here). The webpage had “three small picture images and text describing [the] apparel, offering a sale on the apparel, describing how to obtain the apparel, and describing a contest involving the apparel.” The Predatorix version had a caption stating, “Orix is determined to recover. So determined in fact, that they are willing to spend more in the pursuit of recovery, than the recovery itself.”

Totally unsurprisingly, the court found fair use. Though the use was not parodic, and was minimally transformative—it added little new expression and had no direct commentary on the webpage itself—the use was also noncommercial. Absent transformation, the relevance of commerciality was heightened. Orix argued that the copying “profited” counterdefendants by bringing them notoriety, but the court rejected that reasoning—they didn’t claim credit for the copied work and there was no evidence that they profited “professionally.” If mere peer recognition could count as profit for commerciality purposes, fair use would be gutted.

Without transformation, but with an obvious critical purpose and noncommercial nature, the first factor weighed in neither side’s favor. (Which meant, and I think the court should have said, that it weighed in the counterdefendants’ favor; noncommerciality favors fair use. Given what the court did in factor four, it’s plain that it actually weighed factor one in favor of fair use) Orix also argued that counterdefendants acted in bad faith, but bad faith for fair use purposes has involved “unauthorized use of an unpublished work or using a work for free when it could have been obtained for a fee.” Here, the Orix page was published on the internet, and there was no showing that Orix would have licensed the use for a fee.

On factor two, the court emphasized that there were only three small images on the webpage, and the majority was text. The photos didn’t rise to high levels of creativity, and the text was “more factual than creative fiction”—it instructed readers on how to get the “Just Pay” apparel and enter the contest. Moreover, the free availability of the page on Orix’s site “strongly favor[ed]” fair use. Minimal creativity plus widespread availability tilted factor two in favor of fair use.

On factor three, the court agreed with Orix that the relevant unit of analysis was the webpage, not the entire site. (The court didn’t reference the line of cases holding that what counts as a work depends on what elements have their own independent economic lives; under those decisions, the work would probably have been the entire site, not a single page.) Because the use wasn’t transformative, copying the whole thing wasn’t justified, so that disfavored fair use.

The court concluded that Predatorix’s use had no effect on the market for or value of the copyrighted work. Because the use was noncommercial, Orix had the burden of showing market harm; this it did not do. The fourth factor weighed “strongly” in favor of fair use.

State publicity claims are not preempted by the CDA

Doe v. Friendfinder Network, Inc. --- F.Supp.2d ----, 2008 WL 803947 (D.N.H.)

Defendants operate online communities for members who post personal ads, including AdultFriendFinder.com, “the World’s Largest SEX and SWINGER Personal Community.” Users enter personal information to create profiles that can be viewed by other members; portions of profiles (“teasers”) appear on search engines and in ads on other websites. In mid-2005, “petra03755” created a profile. This person was identified as “a recently separated 40-year old woman in the Upper Valley region of New Hampshire who was seeking ‘Men or Women for Erotic Chat/E-mail/Phone Fantasies and Discreet Relationship.’” The profile also included “birth date, height, build, and hair and eye color, and … a nude photograph, purportedly of [her].”

Plaintiff alleged that she had nothing to do with the profile, is offended by the promiscuity and perversity of the interests described, and is not shown in the photo. However, she alleged that the profile and photo “reasonably identified” her as petra03755 to people in her community. The only things that the plaintiff knows about the profile’s creator is that he accessed defendants’ site through the Dartmouth College network using a Yahoo! Email address. She argued that defendants “took special pains” to assure users’ anonymity and did nothing to verify accuracy.

When she found out about the profile a year later—because an acquaintance admitted that she’d been discussing the profile with other people who knew plaintiff—she contacted defendants. They removed the profile, but she alleged that consumers had already been deceived into registering for their service to meet her. Moreover, when members attempted to access the profile, they received the message, “Sorry, this member has removed his/her profile.” The plaintiff alleged that this message falsely indicated that she had been a member of the service and had put up the profile in the first place. (She also alleged that the defendants later called petra03755 a “Standard Member” of LesbianPersonals.com.) Moreover, after she complained, the profile allegedly appeared on some of defendants’ other, similar websites, and on teasers on search engines and in ads on other sites, including “sexually related” sites. The ads appeared when a website recognized a user’s location as near her geographic location. The search results appeared when users searched for terms appearing in the profile, including plaintiff’s true biographical information. She alleged that this drove traffic to defendants’ sites.

Plaintiff sued for “invasion of property/intellectual property rights,” defamation, intentional/negligent/reckless conduct, “dangerous instrumentality/product,” intentional infliction of emotional distress, violation of the New Hampshire Consumer Protection Act, false designation in violation of the Lanham Act, and “willful and wanton conduct.”

Unsurprisingly, defendants interposed §230 as a barrier to suit. Plaintiff argued that (1) her claims were based on defendants’ own statements, and (2) her invasion of privacy claim is based on IP rights and thus exempt from §230.

The First Circuit has held that §230 should be broadly construed to implement the congressional policy of avoiding tort liability for online intermediaries, and thus precludes any claim that treats a service provider as a publisher. Thus, the plaintiff can’t make the defendant responsible in any way for the information supplied by whoever created the petra03755 profile. Moreover, the bar on publisher liability also protects against liability based on allegations that defendants “facilitated the submission of false or unauthorized profiles.”

The First Circuit held in the past that allowing people to choose screen names, even multiple screen names is a standard feature; basing liability on that would eviscerate §230. The district court held that this precedent also precluded a claim that defendants wrongfully encouraged anonymous profiles or failed to verify the submitter’s true identity. For the same reasons, defendants could not be liable for “contribut[ing] to the lascivious nature of the profile” by allowing the creator to select from a pre-set menu of “sexual responses.” The underlying misinformation came from the user, not the site.

Likewise, defendants’ decisions about how to treat postings generally, including the wrongful identification of the profile as “hers” after they removed it from their site, are protected, because the wrong stems from the association between the plaintiff and the profile’s content, which can’t be attributed to defendants. The defendants’ behavior of putting a notice up that the profile had been removed was “standard” for ISPs and thus protected by § 230. Premising liability on a “failed” attempt to regulate third-party content would create the kind of perverse incentives that § 230 was designed to avoid. Likewise, the minor alterations they made in the profile (changing “42” to “forties” in the age) were insufficient to make them content providers; that’s an example of protected editorial functions. None of the non-IP claims based on posting or reposting the profile could survive, even after defendants were on notice of the profile’s falsity.

Plaintiff contended that her invasion of privacy claim was an IP claim that survived, and the court agreed that state IP laws were not preempted by §230, 9^th Circuit precedent to the contrary. A plain reading of the statute shows no “federal” modifier on the IP exclusion, and Congress inserted references to federal and state law elsewhere in the same section. That plain-meaning interpretation trumps the alleged congressional goal of national uniformity.

Moreover, state IP law is not necessarily a recipe for inconsistency and disharmony; in most states, the state and federal laws are highly similar. And, since ISPs remain bound by federal IP law regardless, the burdens on them are not much increased by applying state IP law to them. “Indeed, while protecting third-party intellectual property rights no doubt presents some challenges for service providers like the defendants, those challenges would appear to be simply a cost of doing business on-line.”

The next question was whether and to what extent plaintiff’s claims were IP claims. She alleged all four classic privacy torts: (1) intrusion on solitude; (2) public disclosure of private facts; (3) false light; and (4) appropriation of identity for defendants’ benefit. Only (4), the court ruled, could be considered an IP tort. The others did not protect property interests, only privacy interests. She properly stated a claim for violation of her right of publicity because she alleged that defendants made unauthorized use of her persona in the profile itself and in ads and teasers on other sites, and that they did so for their own profit.

Plaintiff’s Lanham Act claim also survived, for both false endorsement and false advertising. (Query whether §43(a)(1)(B) can ever be an intellectual property law for §230 purposes; I would think the answer is no, especially given the court’s distinction between privacy and property torts—false advertising is not a wrong against the plaintiff’s property.) In any event, the court found that plaintiff properly alleged all the elements of a false advertising claim, because of the rather unusual circumstance that defendants actually used her profile in ads. She alleged injury to her reputation, harming her employment opportunities. (Note that she wouldn’t have standing under the majority rule in Lanham Act cases, because her injury isn’t a competitive one--unless she’s actually in defendants’ line of work, which seems unlikely. However, the court cited McCarthy in support of its conclusion that identity appropriation cases often raise both false endorsement and false advertising concerns.) Her claims directly track §43(a)(1)(A)’s language about use of a name in a way likely to cause confusion about “affiliation, connection, or association” or “sponsorship or approval.” (Again, a little sleight of hand going on here—as I understand it, that wasn’t plaintiff’s name on defendants’ sites. What exactly is the designation of origin here? The age and location?)

The court rejected defendants’ argument that only celebrities could make Lanham Act false endorsement claims because only celebrities have commercial interests in their identities. Again, McCarthy supports the conclusion that any person has standing to sue under §43(a) for false or misleading endorsements.

Fordham IP: Free speech and P2P issues

Free Speech and Copyright and Trademark Issues in the US and around the World

Moderator: Prof. Sonia Katyal, Fordham University School of Law

Speakers: Prof. Robert Burrell, University of Queensland, Brisbane

Exporting Controversy: Free Speech and Trade Agreements

It has recently been suggested that freedom of expression should be treated as a trade issue, in part so as to ensure that future trade agreements are more ‘balanced’. This paper will argue that calls for freedom of expression to be treated in this way are unlikely to be well-received in partner countries, even amongst those who would otherwise be sympathetic to the aim of reducing censorship.

Google has thrown its weight behind proposals to treat speech as a trade issue, and some human rights and trade lawyers have expressed support. We must be very clear about the terms and the costs of such a policy. What’s motivating these calls? Google has a financial incentive to avoid the disruption of business caused by censorship. But there’s more: a desire to make future trade agreements more balanced, the informational equivalent of higher labor and environmental standards.

Still, unlikely to be met with much enthusiasm in partner countries. Consider how Australia would have reacted in the Australia-US FTA. If this just means the US exporting the First Amendment, the impact would have been dramatic—the Australian constitution establishes freedom of political communication. (1) No scope for arguing that corporations get less protection than real persons. (2) Expressive behavior falls within the scope of protection. (3) Only communication with political content is protected.

The political costs associated with the present form of US trade agreements need to be measured; Australia got mad at the US attitude when the FTA was supposed to be a thank-you for Iraq. Adding free speech would make things worse.

Suppose you say, as people will, that we’re not trying to export the First Amendment. Then, how do you decide what is a free speech issue? We’d end up with some vague statement with little help to the real issues, for example the differing treatment of defamatory statements. We should negotiate about jurisdiction on the internet. Specifics are more useful than generalities.

Prof. Spyros Maniatis, Queen Mary, University of London

Mr Miss World and Haute Diggity Dog: Parody, Freedom of Speech, and Trade Mark Law

What are the tensions between trade mark rights and freedom of speech? A look at two cases from both sides of the Atlantic.

His cases are not yet canonical, so we can’t yet make predictions about convergence or divergence. The UK case involves an attempt to restrain publication; the US case involved a full record.

A TV channel used “Mr Miss World” as a title for a documentary on a beauty pageant for transsexuals (notably, the first result in my Google search, though the show itself has been renamed Mr Miss Pageant). The TM owner of Mr World & Miss World sought an injunction. The court began by looking for straightforward TM infringement: the marks are very similar and the services, entertainment, do cover TV programs. But real holding: the use is parasitic on the trademarks, and even without confusion there would be association. Thus it’s a free riding case, with a hint of tarnishment. At least a triable question. The judge then moved to a freedom of speech argument.

In South Africa, the constitutional court held that a parodic use on T-shirts was not an infringement. One of the opinions was traditional and held no infringement under usual standards. Another opinion reasoned that free speech was at issue.

The Mr Miss World court found that free speech was a right. The brand was pitted against its own weight and popularity, altered but recognizable. But, the judge reasoned, this was a question of fact—whether the point made by the alleged infringer was disconnected from the function of a TM as an indicator of origin. The European Court of Human Rights has identified 3 kinds of expression: political, artistic, and commercial, with a hierarchy favoring political expression.

The defendant argued that its use was a parody of the 70s values that produced Miss World. The judge accepted the basic argument, but the power of the descriptive use relies on the strength of the TM. TMs are property rights, and must be balanced with free speech rights.

Haute Diggity Dog, by contrast, accepted that parody is not necessarily dilution even when used as an indicator of source. A successful parody negated both dilution and infringement.

Prof. Rebecca Tushnet, Georgetown University School of Law

Commercial Speech and Intellectual Property Law

The U.S. federal judiciary has become increasingly conservative, and specifically, increasingly pro-business. While this was good news for copyright owners in Eldred, it may have some surprising effects on free speech doctrine. If commercial speech receives heightened constitutional protection, trademark owners may find expansive trademark claims harder to maintain; and a property-like conception of copyright may even bolster the case against removing works from the public domain, as in the URAA restoration case.

Top issues from my perspective: (1) American exceptionalism, which is even more evident in our free speech doctrine than in our IP doctrines; (2) the definition of truthful commercial speech subject to heightened constitutional protection;

False and misleading commercial speech can be banned outright.

Truthful commercial speech about lawful products or services, however, can only be regulated if the regulation directly advances a substantial government interest, and if there is a reasonable fit between the aim of the regulation and the ban on the speech.

(3) trademark dilution as particularly vulnerable to constitutional invalidation.

Other problems: presumptions and burdens of proof. In other areas, the Supreme Court has been skeptical about alleged harms including deception or abuse from advertising and has required proof – very different from current trademark law, which allows courts to find confusion, and especially initial interest confusion, without direct evidence

Panelists:

Prof. Pamela Samuelson, University of California, Berkeley

5 years ago most American IP people would have said that free speech wasn’t much of a limiting principle, because TM and copyright are property interests. That perception is eroding. Her study of trade secrets shows there’s plenty of room to invoke free speech, for example third parties who acquire information through no fault of their own, or even people who agreed to secrecy but disclosed when the disclosure serves a public interest. Samuelson foresees First Amendment defenses to patents on methods if infringement could occur through thinking.

There’s more effort to breathe First Amendment doctrine into all areas. E.g., fair use ought to be a right, if it’s a free speech guarantor; Eldred invited that conclusion. Likewise, the derivative works right might need to be cut back; people are arguing that unwarranted assertions of copyright ought to be treated as misuse, as in the Joyce case brought by the Stanford Fair Use project. Intellectual privacy interests also have a First Amendment dimension, as well as certain acts of circumvention. And that’s leaving aside the Golan and Martignon cases.

Prof. Susan Scafidi, Fordham

Combining copyright and trademark in a free speech analysis is difficult. The existence of dilution highlights this: there’s always tension between free speech and property in copyright, whereas both the plaintiff and defendant in a trademark case want a mark to serve as a signal, and thus both have speech interests. (Comment: I’d say this is often, not always true; e.g., when the defendant claims that a term is descriptive or generic, it wants to use language in a particular way and has a speech interest, but it doesn’t want the term to serve as a signal.)

Cultural norms: it is extremely difficult to take something as broad as free speech and write it into law; ties into the previous panel on rules v. standards. Mr. Miss World offers no critical commentary on beauty pageants; the association is one of attempting to force the audience to remember their own preconceptions of what a beauty pageant is—that’s didactic or instructive, but attenuated. Whether that fits in parody is a cultural issue.

We’re accustomed to creating post hoc narratives—visual symbols are particularly subject to multiple interpretations. If you make the judge laugh/tell a good story, you win a parody case. (Does this mean that Americans have a better/broader sense of humor than Europeans? I’m not sure, given the existence of Monty Python.)

Counsel’s intuition about parody is 1 is a work of art, 10 may be free speech, but 1000 is commercial and free riding. We have a difficulty conceptualizing parody as a culture, and the scope of the exception will have to be fleshed out over time. Seeing things like Haute Diggity Dog, defendants are reaching for parody as a defense. What is a pair of girls’ panties with a picture of Mickey Mouse and “PARODY DESIGN” written underneath the image?

Q: Parody/satire is a ridiculous distinction, economically and culturally.

Maniatis: Comparative advertising case on smell-alikes—one judge looked at what’s happening in the US. He thought that in many cases there is a “wink” at the audience—it is and isn’t the original.

The Role, Effectiveness and Issues in Infringement Actions against Individual P2P Downloaders; Recent Legislative Initiatives Aimed at Downloaders

Moderator:

Prof. Hugh C. Hansen, Fordham University School of Law

1. What is the effect in the U.S. of the “making available” right? Comparative approaches in Asia, interpreting the making available right, and also the intersection with secondary liability.

Speaker:

Michael Schlesinger, Greenberg Traurig LLP, Wash. D.C.

The making available right has been almost universally adopted, including 5 out of 5 in Asia. Japan: a P2P case involving shared folders on individual computers—whether a user who merely connects to a server makes the files “transmittable.” Japanese court created a “making transmittable” right. Liability where the defendant takes the necessary steps for infringement to take place.

Hong Kong: Criminal case that went to the Court of Final Appeal: D seeded a file on Bittorrent and claimed no criminal distribution; court found at least attempted distribution, which occurs when recipient can easily take the copy, like getting a drink out of a vending machine.

Korea: putting files in shared or downloaded folders was making available.

Aust’l: liability for authorizing infringement by providing deep links.

[Some discussion of the US rule, which I missed, but the tenor was that this is or ought to be the rule in the US.]

Hugh Hansen polled the audience; most of the participants thought that sharing files in a shared folder was distribution even without proof of any download.

Panelists:

Ray Beckerman, Vandenberg & Feliu LLP

Hotaling is distinguishable—you don’t reward a library for failing to keep circulation records. Early filesharing cases involved pro se defendants or bad attorneys. The Capitol Records case involved a jury instruction, and the defendant’s lawyer—who had petitioned to withdraw from the case for nonpayment—declined to fight it. There are 6 fully litigated cases that declined to decide it. Recent decision from Connecticut specifically held there’s no making available right—on a default judgment, where the judge familiarized herself with the law. One fully briefed case has been pending for two years. Despite the raising of hands solicited by Hansen, this isn’t Congress. US law says distribution requires dissemination by sale or other transfer of ownership, or by license, lease, or lending.

Prof. Brian Fitzgerald, Queensland University of Technology Law School, Brisbane

In Australia, creating a hyperlink is not itself a communication, because it’s the person who puts the content at the link who creates the communication. But distribution liability can be broader. We haven’t had as many cases, but communication is regarded as a pretty broad right. Putting software up on websites would certainly be “making available,” without more.

Prof. Jane Ginsburg, Columbia Law School

When the WIPO copyright treaty put in making available as part of the right of communication to the public, the theory was that members could achieve that right through either the performance or distribution rights, and the US thought it qualified on both counts. But maybe our umbrella has been reduced to a naked shaft. A download that is not also a stream is not a public performance, according to the district court in ASCAP rate court. So that route to making available has come into question, though the rate court isn’t the last word. (Comment: no, it’s only the word that agrees with the Copyright Office and the rest of the authority to date.)

So we’re left with distribution, which has a specific definition. There’s not exactly a transfer of ownership of a copy, because it’s not the same copy. You’re creating ownership of a copy in the hard drive of the recipient. But that’s not all there is in the Copyright Act: arguments from the definition of publication and the definition of a digital phonorecord delivery. She thinks there are reasons to find §114 and §115 offer a different definition distribution. Transfer of physical copies is not the only route to distribution in the Copyright Act. Other amendments to the Act arguably effectively enlarge the distribution right despite the definition in §101. The courts have been fairly unrigorous about this. The commonsense position is that if the recipient ends up with copies because of the uploader, there’s a distribution; but we still have to ask whether the words of the Copyright Act get you to that commonsense result or whether we need to fix our tattered umbrella.

Prof. Mary Wong, Franklin Pierce Law Center

We’re not all on the same page when we talk about making available. There are serious differences in academic and national perspectives.

Schlesinger: Tasini and Grokster said that transmitting a file on the internet was distribution. (My reaction: an issue not raised or argued by anyone; the Court was focusing on entirely separate legal issues.) Perfect 10 seems to endorse “deemed distribution” under Hotaling, at least when the person accused of distributing actually has a copy. Mere offering is likely to constitute distribution.

Hansen asked Beckerman how one could sue a P2P user under his interpretation. His answer: standard copyright principles, like unauthorized reproduction. The EFF has taken the position that an ephemeral transmission can’t violate the distribution right even if it resulted in a physical copy, but the DoJ disagreed.

2. Should new limits be placed upon statutory damages? Did the supporters of P2P software and the individual defendants miscalculate the reaction of juries? A review of case law, e. g., Capitol Records v. Thomas, (D. Minn. 2007).

Speaker:

Kenneth Doroshow, Senior Vice President of Litigation and Legal Affairs, Recording Industry of America, Wash. D.C.

Stipulated already that he and Beckerman will disagree on everything. Capitol Records was an award of $9000 per work willfully infringed, a huge award total. P2P supporters grossly miscalculated the public reaction. No fair-minded person who watched the trial, though, was at all surprised. Why the disconnect? There is lots of misinformation on the internet about the facts of the cases, the strength of the cases, and the law. A fair-minded jury is likely to view the cases favorably to the RIAA. There was evidence of 24 actual downloads, so the making available issue was not relevant.

At this point I had to leave, but I have no doubt that the ensuing discussion was vigorous.

Fordham IP: Copyright Exceptions and Limitations

A. Copyright Law Exceptions and Limitations

The development agenda issues, library proposals, fair use, de minimus use, the role of the three-step test, new legislative developments

Moderator:

Prof. Justin Hughes, Benjamin N. Cardozo School of

Some argue that in a heightened-enforcement environment, it is more important—people have a right—to know what uses of copyrighted materials are allowed. Another key issue: whether exceptions and limitations should be harmonized. WIPO perceives this as a possible treaty subject.

Speakers:

Tamir Afori, Deputy State Attorney, Civil Dept., State Attorney’s Office, Ministry of Justice

Israel "Fair use" in Israel's new Copyright Act

Israel's copyright law has a new "fair use" clause. The legislative process sought and produced a compromise between certainty and flexibility. Generally based on the English tradition, giving a broad and flexible interpretation to terms like “work.” The previous act had a fair dealing section, with a closed list of purposes, and though it was interpreted broadly there were significant uncovered areas, particularly relating to libraries. Now: without prejudice to moral rights, fair use exists for the economic rights. Article 19: fair use of a work is permitted for purposes such as private study, research, criticism, review, journalistic reporting, quotation, or instruction and examination by an educational institution. “Such as” was a compromise—instead of “inter alia.” In determining fair use, courts may consider the prupose and character of the use; the character of the work used; the scope of the use, quantitatively and qualitatively, in relation to the work as a whole; and the impact of the use on the value of the work and its potential market.

Prof. P. Bernt Hugenholtz, Director, Institute for Information Law, University of Amsterdam

Conceiving an International Instrument on Limitations and Exceptions to Copyright

His institution has a report about conceptualizing an international instrument, rather than proposing substantive norms. Why do it? Promoting access to knowledge, eliminating barriers to trade (attractive even to people who don’t want lots of exceptions to exist), protecting creativity, producing legal certainty, protecting developing nations against bilateral agreements that keep ratcheting up copyright standards.

Where is the wriggle room in the international standards? Don’t focus too narrowly on what’s already in the international acquis in terms of exceptions, but also on the minimum rights, which are rarely precisely defined. Many of the terms (e.g., public; reproduction) allow national discretion and therefore also international discretion to interpret them. E.g., Austrian rule allowing cable retransmission.

Possible sources: WIPO or WTO; the latter would be connected with enforcement. But WIPO has advantages, including the connection with the development agenda.

Hon. Marybeth Peters, Register of Copyrights, U.S. Copyright Office, Wash. D.C.

The Section 108 report was posted today. In order for the Library of Congress to archive successfully, it needed to address copyright issues. The issue: have changes in technology meant that copyright owners are getting far more than they should be? A group of rightsowners, librarians, archivists, and museum representatives (including my late colleague Bob Oakley, who is much missed) tackled the issues.

They were able to reach consensus on some legislative changes, but not on others. The report also discusses important issues to libraries and copyright owners that don’t fall within 108.

A lot of the report focuses on what libraries can do for other libraries; for unpublished works, there’s a preservation right, but for published works, it’s more difficult.

Highlights:

First: add museums to 108; they’re similar to libraries in mission.

Second: Implement a distinction between undisseminated and unpublished works. If a work is publicly disseminated, treat it more like published.

Third: Eligibility requirements for institutions claiming 108 privileges: should require trained staff, public service mission, and lawfully acquired materials.

Fourth: Outsourcing of permitted activities should be allowed, subject to a number of limitations on profit and keeping copies.

Fifth: Allow a “limited number” of preservation copies—getting into the digital age, instead of a limit of 3, allow the number reasonably necessary to create and maintain a single (persistent) copy.

Sixth: Capture and reproduce publicly available online content, if not subject to a password or other gateway. To be viewable onsite. Remote access after a specific time—not recommended in the study. Opt-out available for nongovernment and nonpolitical sites. Even without opt-out, copyright owner could opt out of remote access. All captured material is to be properly labeled and marked “for private study.”

Prof. Pamela Samuelson, University of California, Berkeley (up to 12)

Rules vs. Standards in Crafting Copyright Exceptions and Limitations

The well-known advantages of rules include their greater predictability and precision, while standards are more flexible and adaptable over time. The copyright exceptions and limitations (L&E) of many nations tend to be rule-like, while U.S. copyright exceptions and limitations are mixed, with fair use serving as the preeminent flexible standard which often bemoaned as too unpredictable. This talk will consider how copyright L&E rules might be made more flexible and copyright L&E standards might be made more rule-like so that copyright can adapt more readily to new challenges without losing predictability.

There’s no doctrine in copyright as much loved and as much reviled as fair use, because of its unpredictability and flexibility. There have been a number of suggestions for fixing this. Some are procedural—adjudication outside of courts—others substantive, proposing quantitative limits or guidelines as with the documentary filmmakers. Samuelson’s response: fair use is being made to do too much work. Sometimes it’s about quotation, sometimes reverse engineering software, sometimes time-shifting, sometimes search engines, sometimes comparative advertising. When you try to do that much work, you’ll end up with incoherent and unpredictable law.

She proposes to break things up more. Free speech-promoting uses.

Authorship-promoting fair uses should include private copying, incidental use, mashups, etc.

Access to information-promoting fair uses are indexing, linking, thumbnails, snippets.

Innovation-promoting fair uses: Reverse engineering, interoperability, fixing bugs.

Other social policy-promoting fair uses: Education, learning, copying for adjudication (the Supreme Court put the entirety of the lyrics to Pretty Woman in the US Reports; that’s got to be fair use).

Personal uses in private spheres.

Market-failure-curing fair uses. Wendy Gordon has recently written an article identifying 6 different types of market failures; she says everything is!

Within each cluster, identify canonical fair and unfair uses, which help improve analysis. Some factors are relevant only in some clusters: chilling effects are more important in free speech cases than in some of the other clusters.

We can’t imagine all possible new uses of copyrighted works. We need more flexibility, so Europe should move towards a more flexible system, whether through adaptive rulemaking or allowing analogous uses to those on a list.

Panelists:

Mihály Ficsor, Director, Center for Information Technology and Intellectual Property (CITP), Budapest

Mandatory exceptions would fit badly into the present structure, which reflects minimum obligations and national treatment as its cornerstones. There are some mandatory exceptions in Berne, etc.: facts, ideas. (Comment: Don’t these two arguments conflict?) Even as far as quotation is concerned, he’s not sure it’s mandatory, even though quotation is specifically mentioned.

Prof. Jane Ginsburg, Columbia Law School

What Samuelson described makes a lot of sense: figure out the normative basis for each type of fair use. But when you get to seven categories, that’s a lot of work—less is more, by which she means not fewer exceptions but fewer standards.

She disagrees with Ficsor on mandatory exceptions. Her theory: there are Berne maxima as well as minima—Berne says copyright protects expression, not ideas, procedures, mathematical concepts, etc. Article 10 also says it shall be permissible to quote works lawfully made available to the public, providing the quote is compatible with fair practice: either that’s mandatory or extremely hortatory.

She would start with those two sections and try to work out principles stemming from those, rather than Samuelson’s seven.

Tilman Lüder, Head of Unit, Copyright and Knowledge-based Economy, DG Internal Market and Services, Brussels

There are 25 optional and 1 mandatory exceptions in EU law. He’s sympathetic to the idea of grouping them and making them mandatory, at least within the EU, as a testing ground. There are knowledge economy exceptions which promote inclusiveness and which should be mandatory and goods and services using them should be freely available in the common market. Archiving (libraries and museums, preserving common heritage); exceptions for disabled; possibly also exceptions for teaching and research.

Free speech exceptions: quotation, criticism, and review are also important safety valves. Those are his two big headings, and those are the ones that should be considered as potentially mandatory requirements in the EU.

Q from Canadian: People seem to take American fair use as a model as a paradigm for being open-ended v. fair dealing. How many countries have open-ended fair use?

A: Singapore, Austl., Phillippines are considering it; Israel and the US.

Ginsburg: One reform approach in the US literature is to have the Copyright Office or an administrative agency make rulings. How does that work?

A (from a Copyright Board guy from Canada): We don’t make fair use/dealing determinations, but we take arguments into account when setting tariffs—whether copying is legitimate when we’re setting the compensation. And sometimes we deny an orphan works application when we determine that no license is needed because it’s fair—but if we’re wrong, the person can be sued.

Comment: Canada basically created an open-ended approach by interpreting “research” so broadly it goes beyond US law.

Fordham IP Law & Policy Conference: copyright part 2

11:20 – 1:15 The Challenges and Opportunities of Copyright in the Web 2.0 World

Moderator:

Morton David Goldberg, Cowan, Liebowitz & Latman, P.C.

Speakers:

Marty Hansen, Covington & Burling, Wash. D.C.

Web 2.0: A Brief Overview of Issues and Challenges

User-generated content: That doesn’t really capture the uniqueness and challenges from a copyright perspective: “user-manipulated content” is better. How will courts treat users? And how will they treat the hosting services? As a derivative work, courts are fairly solicitous of the copyright owner (unless it’s a parody). But the search engine cases have found transformative use. User-generated content is somewhere in between those two.

Device-independence: the ability to access your data, your applications, etc. anywhere from any device. Mobility!

Cloud computing/online services/server-based computing: related to the previous element. If only you have access to your data, there’s not much of an issue, but if you start providing access to a certain number of people, you’re sharing your files and may be sharing someone else’s content. In Web 1.0, you used P2P to do this; how will courts look at this once it’s stored on remote servers?

Ad-funded business models also present copyright challenges. Ads displayed by third parties alongside user-manipulated infringing content—how does that play out in eligibility for §512 safe harbors or vicarious liability? How does it play out in fair use analysis? What happens when intermediaries actively solicit advertising from entities that are infringing copyright—is that actionable?

He counseled caution in expanding exceptions in order to protect authors’ ability to commercialize their works and create markets in creative works. Filtering is highly promising, as the User-Generated Content Principles suggest—MySpace and Daily Motion both signed on to the principles which suggests confidence that filtering and fingerprinting are reliable and scalable. Tech needs to be supplemented by industry-negotiated solutions. If we get clearer rules, though, remember we might not always like what we see.

Prof. Brian Fitzgerald, Queensland University of Technology Law School, Brisbane

Web 2.0: Creator Utopia, Platform Owners Paradise or Still the Same?

Star Wars Mashup: video-sharing platform for user-uploaded video, 250 authorized clips, ad revenue not shared with users. Users get a license solely for posting on the site; for mash-ups users grant Lucas a perpetual, exclusive, etc. license to the films, including the moral rights, whereas the license is the same for non-mash-ups except that it’s nonexclusive.

YouTube: Nonexclusive license; no clear policy about sharing revenue. Billy Bragg recently spoke out on creator v. platform. Bragg argues that platforms should share more revenue to the artists—a common sentiment, e.g. with moves to create a general public performance right for sound recordings. The difference is that the internet provides a platform for more than the few artists who profit from radio.

Revver: CC-ND licensing; ad revenue and profit-sharing; there is tracking even off-site; joining Revver means you try to share others’ media virally, and profits from ads go 20% to sharer, 40% to creator, 40% to Revver. Revver uses nonexclusive licenses (of course, with CC).

Magnatune: Music sales, revenue share with creator. Listen for free, then license or buy downloads. 50/50 gross revenue split on music, 50/50 net on merchandise. All music is released under a noncommercial-sharealike license. You can license the music automatically for TV, film, ads, etc.

Nine Inch Nails: Ghosts, 36 instrumental tracks packaged in groups of 9 tracks. 1 is released under CC sharealike license. The music is a basis for new revenue streams, like a DVD.

What role do collecting societies have? Debatable with new artists entering the market who had no market before—should they join the collecting society?

Should platform owners share revenue? That might make their models unsustainable?

Broader rights for noncommercial and transformative use might lead to more UGC and revenue streams. Reform of 512 might be on the table.

Web 2.0 is not a utopia; will it be commercialism in a new guise?

Alexander Macgillivray, Intellectual Property and Product Counsel, Google, Inc., Mountain

View

YouTube's Content Identification Systems and the new licensing models they enable.

He was happy to hear yesterday that Viacom got most of what it wanted from the lawsuit by having YouTube begin filtering; looks forward to the end of the suit.

YouTube has 1000s of partnerships with creators. The vast majority are not currently monetized on the play page, but creators can make money from uploading—these all seemed to be businesses.

Content ID & Management system: others call it fingerprinting, because fingerprints either match identically or not (oh, how little he knows about the controversial validity of fingerprinting), whereas the whole goal of Content ID is to match content that is the same in substance but not exactly the same bit for it. Part of ongoing copyright efforts: education of users; audio content identification; video content identification.

Goals: reduce infringement; enable copyright owners to monetize, block, or track content, to the extent that copyright owners know what they own (my italics, not his). Allow them to control what happens automatically. Copyright owner could turn over a pristine copy and someone can point a camcorder at their screens; how to match?

Video ID begins when a copyright owner turns over identifying info (copies) to YouTube, or downloads YouTube’s tech and runs the program on its own servers. This creates data files that can be matched against uploaded content. The copyright owner can choose what to do with a match—takedown, leave alone (previews of coming movies or new TV seasons), monetize.

Donald B. Verrilli, Jr., Jenner & Block, Wash. D.C.

Counsel for Viacom, but speaking for himself, and trying to avoid a back-and-forth about YouTube. In the past year, there’s been a positive evolution: (1) pre-upload filtering systems have been implemented by MySpace, Microsoft, and others; (2) Principles for User-Generated Content Services; (3) YouTube’s new system. Viacom isn’t thrilled with the system as implemented, but it has benefits and is a genuine advance. Liability rules in copyright are key to pushing this change—enforceable property rights are the necessary backdrop for workable business models.

Key difference between P2P and Web 2.0—these sites are entertainment sites, built around availability of particular content, which makes it more difficult for platforms to portray themselves as mere passive intermediaries. Also it makes §512 safe harbors harder to invoke. Relatedly, these business models operate in the Grokster danger zone in terms of inducement because the availability of filtering technology means that a choice not to use it can lead to an inference of an intent to induce infringement, and because they’re ad-supported. That’s the right result: copyright is a codified tort law, and we’re seeing best practices emerge in the marketplace and market actors are making decisions about the standard of care. (Comment: this is terrifying to me, because the interesting and liberating value of what gets called “Web 2.0” is not about market actors but about new creators and new audiences, and they don’t get taken into account in the language of business models.) The business model should incorporate the costs that infringement imposes on copyright owners, since the platforms are profit-seeking entities.

Panelists:

Prof. R. Anthony Reese, New York University School of Law (visiting)

Other Web 2.0 features of note: mass collaboration (Wikipedia), mass open licensing (Creative Commons). The current joint works doctrine is badly configured to handle this, as is current licensing law. The Cablevision case points out that even accessing your own data may be problematic under current copyright law.

Thomas C. Rubin, Associate General Counsel, Microsoft Corp., Redmond

An ecosystem of different types of sites encouraging creativity and technology: there’s a place for CC and DRM, a spectrum of opportunities for creators. There’s also a spectrum from ad-supported to downloading; an ad-supported solution has yet to show that it can sustain artists, which was what Billy Bragg was saying.

Prof. Mary Wong, Franklin Pierce Law Center

Need for clarification of secondary liability: it’s not just a need in the US. There is no international uniformity or consistency. In common-law countries outside the US, the concept of secondary liability is based on the idea of “authorization.” The Australian KaZaa case noted that Grokster wasn’t really helpful on that front. And safe harbors need to be worked out as well. A number of countries have safe harbor legislation.

Macgillivray: The move back to server-sides is actually a return to Geocities, which was user-posted content hosted on their servers, and was an ad-supported model. The DMCA was designed to protect Geocities, which was engaged in displaying that content, and to protect things like indexes that were hand-selected by humans as good sites even if the sites turned out to host infringing content.

Verrilli: Good luck showing that in court! (Comment: I think Verrilli is clearly wrong on this; Congress did mean to protect Geocities, and Geocities was as a natural consequence of user-directed storage also engaging in user-directed public display. 512(c) would be a nullity if the coincidence of performance or display took a service provider out of the safe harbor.)

Q about insurance as a solution.

Rubin: If sites filter and adhere to user-generated content principles, content owners have agreed not to assert infringement for remaining liability. It’s a kind of privately negotiated insurance, giving certainty to businesses.

Fitzgerald: This is a new opportunity for people who aren’t corporate entities. Insurance would be a burden on the individual creators, because sites would find ways to make the individuals pay for it.

Q: Latest version of songwriters’ proposal on internet tax is not to allow filesharing, but allows you to download a client that would allow you to share music with everyone else who’s also paid the fee. Questioner doesn’t think it’s a tax, but finds it an interesting business model.

Michael Einhorn: Think about a category of works where there’d still be liability for infringement, but the only remedy would be a reasonable royalty payment. Section 512 is a step towards that, though directed at secondary liability. You could have a section 513 that limits the entities or uses entitled to that.

Rubin: Copyright owners are tacitly allowing many of these transformative uses. That might be a solution in search of a problem.

Wong: There is a question in many jurisdictions over whether transformative use is acceptable. There are moves in that direction, as in the Canadian CCH case, but in some jurisdictions the scope will be much more limited.

Response from audience: The Michelin Man case is a terrible case on the books in Canada holding a parody to be an infringement; until we get rid of that precedent, Canada will be a bad forum.

Michael Einhorn: Graduated response in the Sarkozy agreement in France. Europe has considered more direct legislative engagement with ISP liability. The Olliven agreement: a participating ISP would send electronic warnings to people whose IP addresses were identified by rightsholders as the source of infringing files. Three strikes (possibly four) and you’re out. Repeat infringers would be referred to judges for graduated sanctions, starting with suspension; the government would publish monthly statistics on enforcement; ISPs could be required to use other measures and would be sanctioned if they didn’t, including filtering.

Trying to tone down the litigation and the rhetoric, and the government will encourage people to act responsibly. The content industries agreed to eliminated DRM that doesn’t have interoperability within one year, and have decreased the window between releasing a movie in theaters and releasing a movie for authorized use by ISPs, so that it now is equal to DVD availability.

This is not an immediate plan to filter. But if you identify a potential infringer by the upload, you don’t need to do additional filtering. This could potentially graduate to download filtering, and there lines would need to be drawn. (1) To what degree will infringers have access to encryption technology? If they do, they can get around content filtering. Then we’ll have to sue encryption providers, which sets off another arms race. (2) Protocol filtering, barring anything that’s on the Bittorrent protocol. ISPs are using this as traffic shaping, but it’s not particularly granular because there’s a real possibility of efficient, noninfringing use. Restrictions on the upload are a kindler, gentler way of solving the problem than the litigation battles in the US.

Ted Shapiro, MPAA: There are a lot of issues remaining to be worked out. We have over 300 legal services for video-on-demand, 75 online. ISPs are more and more in our business, selling movies. A graduated response of warning, limits on service (which don’t have to be termination), combined with commercially available filtering, can work even with encryption growing. No criminal actions, no civil suits, no disclosure of data about end users, no personal knowledge of end users’ communications. It wouldn’t affect ISP liability. We wish the French luck. The DRM-free requirement, however, relates only to music, though film did make concessions regarding windows.

Reese: Can’t object, as a proponent of a similar scheme, but the devil is in the details. The three-strikes notion exists, sort of, in 512. Are we contemplating permanent exile from any connection to the Internet for the rest of your life if you get three strikes? In a world where commerce and citizenship are moving more online, sometimes exclusivity, this might not be a smaller part of a graduated response than lawsuits or other penalties. We need to be careful about implementation.

Rubin: A cross-industry agreement benefits both content owners and consumers. But extrapolating from industry filtering to consumer filtering is a big leap and we shouldn’t assume it could easily be implemented. How would it impact the user experience and the network? Discrimination is also a concern: what’s the ISP’s role? See recent reports about Comcast and Bittorrent.

Wong: We seem to agree that the law is unclear in many respects and we need to look for other solutions. Reminder: a lot of the lawsuits in the US are not just against downloaders, but also and particularly against people who make available infringing copies, and there’s an interesting question as to which exclusive right that violates.

Different markets may lead to different solutions: there are 4 large ISPs in China, and 100s of little ones; if you start at the top, that could work in China if not elsewhere.

Daphne Keller, Google: Another DMCA feature is the counternotification. In web search, they say “this is a misidentification, my content is different,” or “I’m a licensee” or “this is a fair use.” How if at all is this considered in the French proposal?

Shapiro: They are concerned about due process, which is why a judge or administrative official would be part of the process. But they also have a statutory duty of care to make sure your internet subscription is not abused.

Q: Under the French proposal, is the music to be DRM-free or copy control free?

Shapiro: You could still have subscription services, but they’d make mp3s available.

Q: The current safe harbors have enabled technology to develop and represent a clear bargain between content owners and ISPs. Why change?

Shapiro: The bargain was that ISPs would cooperate in fighting infringement, but that hasn’t happened. Graduated response defines the appropriate circumstances for terminating repeat infringement.

Disney lawyer: In 2000, legislation in Europe foresaw a code of conduct for ISPs, which hasn’t developed.

Knopf: There will be a lot of fair uses—it’s scary to have a computer decide your internet access should go away after three times.

Einhorn: This isn’t a machine; a judge will have to make the decision. And it won’t necessarily be a total termination of internet access. Perhaps a graduated penalty: one month offline. Law should best be engaged as part of norms. One of the most successful pieces of legislation in his lifetime was the Civil Rights Act of 1965, which didn’t make people afraid of making the law so much as it raised awareness of the appropriate norms. The French approach suggests awareness of broader norms.

Hughes: The technological state of affairs has fundamentally changed, which puts the players in positions to make different demands, allowing us (both practically and politically) to revisit the 512 bargain.

Canadian questioner: There seems to be a concern that copyright owners could abuse the process. What about penalizing copyright owners who abuse the process?

Shapiro: That needs to be taken into account, and it’s a big concern for ISPs (who hate to terminate customers). Some UK reports suggest that graduated response is effective and termination rates are very low.

Q: What kind of notices will be given? The notices of infringement will have to be done on a machine-generated scale, and that will cause a chill on commerce. DMCA notices in the US are often worded in ways that would violate Australian law on unjustified threats.

Reese: Counternotification is a possibility; you could also go after copyright owners for material misrepresentation, but it’s not clear what that means—whether it covers cases in which you should have known something was fair use.

Wong: Within 512, there’s a question of what is substantial compliance in the form of notice from the copyright owner. Some of the cases disagree.

Q: What about effects on privacy? Totalitarian regimes could misuse these tools.

Shapiro: Totalitarian regimes are already doing these things. French data protection law is extremely rigorous, and part of the complexity of this process is complying with that. Creating an independent authority is a way to protect data.

Hughes: At least one US judge has said: if you knowingly install P2P software and have a shared file folder directory, it’s hard to make a privacy argument. (Of course, that’s not the scenario in many of these cases—you might make a post to a private community, for example.)