by Dr. John Sase
& Associates
CAN
"THE FUTURE" BE SUED?
“You
may build a ruthless road, but you will forever be condemned to walk on it.”
--
Cicero
The threat to copyright protection on the Internet has come to a head.
The suit filed on January 20th of this year by the Recording
Industry Association of America (RIAA) against MP3.com, Inc., an Internet
digital music provider, may prove to be the landmark case of the Internet Age.
Due to its importance, we intend to devote several articles to this
subject.
No one can deny that the emergence of the automobile industry overturned
practically every aspect of American life, from the sprawling of the metropolis
to the most minute details of the economy. Still
reeling from this future shock, our culture is now being rocked by the Internet,
the tremors of which are shaking some very high places.
The “game in
town,” a veritable Superbowl with the magnitude to go off the Richter scale,
is a pending lawsuit brought by the RIAA against MP3.com.
In this suit, the RIAA is asking for damages of $6.75 billion!
The RIAA is a Who's Who of the music business that controls or owns about
90% of recorded music and includes such companies as Sony, RCA,
Atlantic
, and Capitol Records. (They
can be accessed at www.riaa.com.) On
the other side is MP3.com, a fairly new but substantial Internet company that
has a selection of more than 45,000 CDs on its website called "Instant
Listening Service and Beam-It". (They
can be accessed at www.MP3.com.) Net
revenues for this two-year-old company grew from $1,162,438 to $21,899,228 in
its first year. The crux of
the matter is this: MP3 is copying
commercially produced music CDs onto its server and allowing Internet users to
download them and make their own copies. This
is done without licensing agreements with, and royalty payments to the RIAA.
In the introduction to their suit, which was filed in
New York
, the plaintiffs allege the following: “This litigation seeks relief against
an ongoing infringement of the copyrights in the sound recordings on some 45,000
audio CDs….”
Besides accusing MP3 of music
piracy, the RIAA also sued a related company, Diamond Inc., which produces a
portable MP3 player dubbed the
Rio
. (RIAA and Diamond have since
settled.) The
Rio
is a headset device on which one can play any song in the MP3 archive.
At the time of the suit, James M. Burger, an attorney representing
Diamond, revealed “a secret weapon” in defense of this lawsuit, which is
also evidently part of the arsenal upon which MP3 plans to rely.
This “secret weapon,” which is a key provision in the Audio Home
Recording Act (AHRA) passed by Congress in 1992, states that consumers can make
copies of recordings for their private, non-commercial use.
Burger stated in his brief, “I believe that the history of the computer
industry’s participation in the creation of the AHRA is an important element
missing from the Court’s decision-making process, because it provides
background and context for the legislative history and intent of the statutory
language concerning the ‘computer exception’ in the AHRA.”
The briefs of both the defense and the plaintiff in the RIAA vs. MP3 case
appear on the MP3 Internet site.
Basically, the defense centers on the fact that, as its brief states,
“when technology is advancing by several orders of magnitude of capability per
decade, the government cannot move fast enough to regulate such technology
without inhibiting its development.” It
may be valuable to place this situation in the context of world economic events.
When the AHRA was passed in 1992, Japanese companies were a threat both
to our domestic computer industry and to the fledgling Internet industry.
Therefore, in order to provide a competitive edge, allowances were made
in the legislation in the form of the “computer exception.”
The current MP3/Diamond situation is one of the unforeseen developments
of that decision, as are several controversies emerging from Internet commerce,
such as the sales tax conundrum being debated at both the state and federal
levels.
These controversies will
eventually come out in the wash of litigation that is inevitable when the past
collides with the future. Also, we
would do well to recognize that a moral tension has always existed in the
music industry, from the wicked grin of the snake charmer to the intrigues that
haunted Amadeus. MP3 may or may not
be a musical pirate, but it exists in the context of a long history of payola
scandals, alleged Mafia-controlled jukeboxes, and Top-40 radio playlists that
have made music lovers scowl for decades. In
addition, when the “legitimate” music conglomerates in the RIAA heavily
pushed CDs to replace vinyl records, they did so at the expense of small,
independent record producers and music fans who discovered that their equipment
was suddenly made obsolete by the new technology.
In
subsequent articles on this subject, we intend to delve even more deeply into
the donnybrook between MP3 and the RIAA, a situation that has potential impact
on copyright case law as well as on musicians and music lovers.
The question for attorneys is, “What are the copyrights in
cyberspace?” Even as this article
went to press, new issues were developing. On
February 8th of this year, MP3 filed a countersuit against the RIAA
and its CEO, Hillary Rosen. The
countersuit alleges several causes of action for unfair business practices.
The CEO of MP3, Michael Robertson, stated, “We can no longer tolerate
the bullying tactics of this not-for-profit trade association.”
The RIAA’s Rosen countered with, “The claims in [their] lawsuit are
ridiculous…. The lawsuit against MP3.com has nothing to do with MP3
technology. It has to do with
MP3.com, the company, taking music they don’t own and haven’t licensed to
offer new services to make money for themselves.”
THE INTERNET
IS LIKE A
WILD
WEST
TOWN
“Hang ‘em first, try ‘em later.
I know the law, I am its greatest transgressor.”
--
Judge Roy Bean
It may be true that we live
in an economy that is global, but this economy, particularly as it pertains to
electronic commerce, operates beyond many legal frontiers.
The Internet is like a Wild West town with claim-jumpers, cybersquatters,
cutthroat hackers, and highwaymen. Some
of them leap out of the dark at you, while the more dangerous ones do their
heavy-duty looting, and then leap back over the border at the click of a mouse.
The Internet is the new frontier in which little direct statutory or case
law exists. Like homesteaders during
the
Oklahoma
land rush, everyone is trying to stake a claim.
Sometimes it seems that the law has run amuck when we see a new breed of
squatter such as the parties in the recently reported K-Mart case who registered
the retailer’s company name as a website name and tried to sell it back.
Numerous companies have been plagued by cybersquatters such as these.
The best defense against
these varmints is for attorneys, experts and businesses to keep current in the
technology, practices, and laws of the Internet.
For instance, Mark Grossman, a
Florida
attorney who lectures nationally on copyright, patent, and trademark
protection, recommends that a company establish “a responsible party” to
police the Web periodically for infringement of intellectual property rights.
(“Computer Law Tip of the Week”,
5 December 1999
, www.mgrossmanlaw.com.)
In other columns, Grossman addresses such problems as what happens when
you or your company is deposed and your computer records--and even your
electronic mail—are subject to discovery.
In such situations a whole Pandora’s Box may be opened and trade
secrets or other information detrimental to fair competition may be exposed.
ROUNDING
UP A POSSE
The Internet is a
self-evolving complex system. Geoffrey
Hodgson tells us in World Futures
that, “Recognition of the function of variety in an evolving system leads to a
toleration of a variety of structure and ownership…. Variety and impurity are
essential to test all structures and systems on a pragmatic, experimental, and
evolutionary basis.”
Ronald Standler (www.rbs2.com/lt.htm)
points out in his article “Response of Law to New Technology,” why there is
not much law in
Dodge City
. He states, “One of the basic
principles of jurisprudence is stare
decisis: the old decision stands
as a precedent for the present and future. Such
a principle gives society stable law, so that attorneys can predict the outcome
of a case and advise their client. Therefore,
judges are reluctant to make new law.” Also,
Standler adds, “Law takes hundreds of years to fully evolve.
Modern technology evolves on a scale of a few years.
Therefore, law is unlikely to be an effective way to guide society in a
reasonable and fair use of technology.”
The government does
aggressively enforce regulations prohibiting false and deceptive advertising on
the Internet through the Federal Trade Commission (FTC).
The FTC is cracking down against credit card fraud, identity theft,
pyramid schemes, and work-at-home-and-get-rich-quick schemes.
But it has yet to resolve the sales-tax issue because of jurisdictional
problems; i.e., sales taxes are administered by States, whereas the Internet,
like the railroads and airlines, are interstate commerce and are therefore
subject to Federal jurisdiction. In
response, Ernest Hollings, a Senator from
South Carolina
, has proposed a federal excise tax of 5% on E-commerce.
If regulation of the Net in
the
U.S.
is problematic, then the problems encountered globally are titanic.
The Internet Law and Policy Forum (I.L.P.F.; www.ilpf.com),
composed of some of the world’s largest governments and most prestigious
corporations in this game, says quite bleakly, “Today, no global business or
legal structure exists to sustain a global electronic marketplace.”
The I.L.P.F. also makes the
following sober pronouncements regarding global E-commerce:
·
Governments do not always
recognize electronic records, and even when they do, they often treat those
records inconsistently. This means
that the “evidence” of a business transaction or related event may not be
recognized by many countries.
·
Private corporate information or
transaction records are not fully protected in international electronic
commerce.
·
There is little guidance for
conducting electronic data exchanges, forcing business to turn to courts that do
not always have established rules for dealing with failed electronic
transactions.
New Internet companies are forming, and more businesses--small and
medium-sized, local and regional--are becoming involved in E-commerce and
therefore are beginning to do business on a global basis.
Consequently, the economics of the Web are a high-stake game.
The market for attorneys and experts well-schooled in intellectual
property and electronic commerce will be expanding and coevolving with growth of
the Web. Although they are being
developed by the many sovereign states of the world, Computer and Internet laws
are not yet firmly established or understood.
Attorneys and experts need to be supported by rapid evolution of law in
this area. For now, they are the
Wild Bill Hickocks and Pat Garretts of this new frontier.
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