Copyright is dead?

When the title for this article was first suggested, online music provider Napster was flourishing, artists and rights owners were petitioning the Legal Affairs Committee of the European Union (EU) on the lack of protection for their rights in the proposed EU Copyright Directive (the directive), and it seemed that technology had finally overtaken the law. If copyright was not dead, it was extremely unwell, with illegal exploitation of copyright going on unchecked all over the world.

Since then it appears all hell has broken loose in the copyright arena: seminars at Milia, an interactive content conference (“copyright is Dead”), leaders in the Financial Times (February 12) and Napster's operation being almost stopped by US courts.

There are, however, ominous signs that the issues raised by the Napster case will not go away.

The lawyer's perspective

Copyright laws can only ever provide a framework of rules that protect a copyright owner. Gaps in protection caused by advances in technology may need to be plugged from time to time. Currently, the European Parliament is considering the terms of a copyright directive, to be published this month, which will have the effect of harmonising the laws of the member states of the EU to provide uniform protection for copyright. The directive deals with the unlawful reproduction and distribution of copyright works by electronic means.

Two technological advances make the protection of copyright works difficult to police – the internet and digitisation. The former enables copyrighted works to be transmitted across the world at the touch of a button; digitisation enables works to be reproduced an infinite number of times without loss of quality.

The problems in enforcing copyright laws arise from three principal causes:

1. Copyright, along with other intellectual property (IP) rights, only provides the owner with a national monopoly on a country-by-country basis. Generally, there are practical and legal difficulties in suing someone in country A for infringement of their copyright if the infringement took place in country B.

2. Difficulties in tracing the person responsible for setting up and operating the website that is carrying infringing material.

3. The fact that quite frequently those infringing a copyright owner's rights are too numerous to contemplate taking action against them one by one.

The solution to the difficulties in enforcing copyright against operators of illicit websites is, as recently demonstrated in the Napster litigation in the US, to apply to court for an order to close down the website. This stops the problem at its source. Where the operator of the website has made themself invisible, the solution, which most national jurisdictions have adopted, is either to provide a mechanism whereby the internet service provider (ISP) is required to disclose the identity and recorded address of the operator of the website or to make the ISP itself liable for being the conduit through which infringing material is passed if it fails to close down the offending website within a specified period of time. EU copyright laws and the copyright laws of most Western countries – the Digital Millennium Copyright Act in the US, for example – enable effective action to be taken against ISPs and website operators residing within their jurisdictions.

Copyright laws provide the basis upon which action can be taken, and changes to the procedural rules relating to enforcement of copyright in Western jurisdictions have facilitated enforcement.

The economic perspective

Any decision to enforce a copyright requires not only legal but also an economic analysis. Copyright owners must always consider whether the cost of enforcing their rights in fact outweighs the potential benefits of enforcement.

There are two components to the cost of copyright enforcement. First, there are costs associated with copyright administration, and second there are the costs of actual copyright enforcement. This includes fees payable to professional advisers, the opportunity cost of pursuing this course of action in favour of others, the cost of enforcing a positive judgment, any potentially negative publicity (such as the widespread sense of discontent following the Napster decision) as well as the uncertainty as to whether the action will really be effective in protecting the copyright.

The revenues or benefits from copyright protection are the immediate benefit of stopping an infringer, any damages that the rights holder is awarded and the benefit of any deterrence value that a successful enforcement action may have.

The model can be usefully applied to Napster. While the record companies and the Record Industry Association of America (RIAA) appear to have proved their point in law (for now), it remains to be seen whether this will translate into increased revenues. The case has focused a lot of attention on Napster (much of it positive) and has brought the file-sharing application to the attention of the public. If the record companies stick to their current working model in relation to copyrights – enforced at all costs – then there is no end to the amount of potential litigation to protect their rights.

The rights owner's perspective

The pirating of hard copy such as records, tapes, CDs and DVDs conjures images of backstreets and portable businesses. The website entrepreneur looks like us. The argument that it is necessary to abolish copyright to save the entrepreneurial spirit ignores the impact it will have on the creative spirit.

Access to pirated material is public. Access to the internet is private and it does not feel like stealing when you download without payment.

Internet piracy is viewed as a victimless crime. This is incorrect. The victim of pirated videos is the film company, a giant conglomerate netting billions of dollars in profits. The victim of a shared music file is not the record company, but the musician and the songwriter, who are not receiving royalties.

It is interesting that the most strident advocates of the argument that copyright is dead are those who do not, and will never, own a copyright. The uncreative type who will not create a work of art also shies away from creating the model for application of copyright to the internet.

The global reach of the internet makes it difficult to govern in terms of choice of law forums and enforcement of rights. Difficult, but not impossible. Legislation has already been drafted in various territories regarding jurisdiction for disputes arising from the sale of goods over the internet. New tribunals, such as those regulated by the Internet Corporation for Assigned Names and Numbers (Icann) and the World Intellectual Property Organisation (Wipo), have already been rendering decisions regarding domain name registration. Courts in the US have demonstrated the ability to cope with mass infringement claims, and copyright collection societies such as the Mechanical Copyright Protection Society (MCPS), the Performing Right Society (PRS) and Phonographic Performance (PPL) have shown strength in their ability to negotiate and collect internet-related royalties.

Just as copyright is now legislated on a universal level, the protection and enforcement of those copyrights can also be similarly applied.

The distributor's perspective

The major record companies have demonstrated an aggressive willingness to pursue any infringement of their copyrights, and the film distributors have indicated that they are likely to do the same.

For smaller copyright owners, for whom enforcement is too costly or difficult, copyright law probably goes some way towards protecting their interests against normal law-abiding individuals, but does little to protect them in the face of professional copyright infringers, and more importantly peer-to-peer file-sharing networks. Any challenge to their operation runs up against legal problems, particularly as a certain amount of private copying is permitted in most major jurisdictions, with the notable exception of the UK. So at what point does private copying from the networks become illegal? Copyright law needs to address the issue squarely, and both current US and proposed European law (under the new directive) are too vague at present to provide a definitive answer.

Many distributors, particularly new online ones, have tried to argue with content owners that their use of content is promotional only, and therefore they should not have to pay for that usage. But rights owners have firmly replied that there is no such thing as promotional usage when it comes to payment. They point to traditional models such as the radio broadcasting of artists' recordings, for which all broadcasters have traditionally paid a royalty, in this case, a public performance royalty. Content owners have taken this position because they are terrified that if the concept of free promotional usage takes hold, or if their products are used to sell other products, it would result in a major devaluation in the value of their assets.

The distributors, however, provide an essential service to copyright owners, and it is this that ensures a balance of power between the two.

The manufacturer's perspective

In 1988, CBS Songs (among others) brought an action to restrain Amstrad from making and selling twin-deck tape recorders on the basis that to do so was tantamount to authorising and inciting the public to infringe their musical copyrights. The action was unsuccessful because, while these acts might facilitate acts of infringement, they could not be said to authorise them. Nevertheless, the House of Lords expressed the view that given the contempt with which home copiers themselves treated it, copyright law should be amended or repealed.

Emergent technologies create new problems for old laws. The problems of enforcement on a global scale are obvious – for example, the cost of pursuing an action extra-territorially. Some have chosen to take pre-emptive measures to protect rights holders, rather than the reactive nature of enforcement proceedings, by attacking the problem at its root, through technological measures. Indeed, rights holders will demand this, and manufacturers/developers of digital rights management technology will no doubt see the financial virtue in meeting this demand. This shift is already discernible.

The 4C group – IBM, Intel, Matsushita and Toshiba – for example, is developing technology that proposes to incorporate copy protection into hard drives. Known as Content Protection for Recordable Media, it encrypts content in a manner that only allows decryption by a compliant playback device. The development and use of such hardware should severely curtail the opportunities of the hacker.

On a more discrete level, many of the major rights holders and digital rights management developers have formed strategic alliances to develop tailored technologies to protect their copyrights. Examples of these alliances include Universal with InterTrust, BMG with Magex and Warners with Microsoft. The need for pre-emptive solutions has been recognised in the legislative agenda. The Digital Millennium Copyright Act 1998 and the EU's directive both contain provisions to prevent the circumvention of technological measures designed to protect copyright.

It is clear that old models for protecting and exploiting copyrights are inefficient, and that the only solution is to work on new models of copyright enforcement and exploitation which, ultimately, reduce the costs and increase the benefits of copyright enforcement for rights holders. First, one has to think globally in terms of enforcement. Cross-jurisdictional enforcement adds considerably to the cost of copyright enforcement. The use of extrajudicial tribunals (such as the Icann or Wipo-administered tribunals) could help to address this.

There are also attempts to combat the ability to make perfect digital copies – or, at least, to account for them – by developing digital rights management (DRM) systems, built into either software or hardware.

Second, rather than the piecemeal payment for use of copyrights (whereby the rights holder receives royalty payments based on the number of albums or copies sold by the distributors), could copyright be remunerated in a more wholesale approach? Napster is attempting to convince the major record labels to accept guaranteed payments over a period of time, in return for use of their catalogues. End users will be charged a nominal subscription fee, which varies according to their level of desired usage. While the details have to be worked out in a satisfactory business model, wholesale remuneration appears to address some important problems: it reduces the cost of copyright enforcement for the rights holders by negating the need to police the respective medium (eg the internet) for the amount of copies made of each piece of copyrighted material; it also reduces the incentive to infringe copyright, as the fee that Napster intends to charge for its service is nominal and more cost-effective to the end user than the price they pay with to the current model of distribution by hard copies.

Major record labels are considering secure file-sharing networks of their own as a way of beating the individual infringers and cutting out the distributor from the food chain. The economic success of this model will clearly depend entirely on a high degree of security.

Copyright then, while certainly not dead, may need a helping hand. n

Partners William James and Hamish Porter, and associates Stacey Hofberg, Alexander Ross, Simon Clark, Rustam Roy and Toby Headdon all practise at Theodore Goddard