Big Music’s Worst Move Yet [via e-mail from Lisa Langsdorf of Trylon Communications -- !thanks!]

One has to admit: The RIAA sure is tenacious in pursuing its strategy. What it doesn’t seem to realize, though, is that it has already lost the war (see BW Online, 1/16/04, “Did Big Music Really Sink the Pirates?“). The recording industry’s hardball tactics have fueled a technological shift that’ll make it nearly impossible to pursue file swappers in the future.

How so? The culture of fear and loathing that the RIAA has created is starting to put encryption on the must-have list of every Joe and Jane Internet user. The results will be wide-ranging and will pose a threat to the movie industry, the software industry, and just about any other industry involved with the creation and sale of intellectual property.

[...] By ripping off the thin veil of anonymity and hitting hundreds of users for thousands of dollars per case in settlement costs, the RIAA has inspired the most tangible fear yet seen among Web users — something neither credit-card thieves, nor hackers, nor even the U.S. government has managed to inspire.

[...] In the end, large chunks of computing and the Internet will go behind a much stronger curtain of anonymity, and the pirates will remain untouchable underground — thanks to the RIAA’s misguided legal missiles.

Microsoft: XML patent moves are no big deal (See also Remember Microsoft’s “Embrace” of XML?)

Recent patent applications filed by Microsoft are routine moves and don’t reflect a change in the company’s position on Extensible Markup Language, according to a spokesman for the software maker.

[...] Microsoft spokesman Mark Martin said the company couldn’t comment on how the patents, if granted, might be applied or licensed. But he said such applications are standard moves for the company to protect its innovations and don’t affect its commitment to openly sharing the XML schemas used by Office.

“While the XML standard itself is royalty-free, nothing precludes a company from seeking patent protection for a specific software implementation that incorporates elements of XML,” Martin said. “The presence of this patent application…does nothing to change the commitment Microsoft made this past November when it announced the available of a royalty-free licensing program for our Office 2003 XML reference schemas.”

So, snafu — "situation normal — all fscked up"

Hey Michael Powell, you’re too late!

Financially strapped states like California are already exploring the possibility of taxing VoIP, especially since revenue streams from taxing PSTN phone calls will diminish, as VoIP services expand without contributing to the public coffers. Thus, there is political and economic pressure to impose some sort of tax-tariff paradigm, either at the state level or the federal level.

The federal courts are split on the issue. The Ninth Circuit Court of Appeals, on Oct. 6, 2003, classified cable operators as providing “telecommunications” services as defined in the Communications Act, when Internet access is involved. Thus, cable operators would be subject to FCC regulations that affect telecommunications companies.

Then on October 16, a federal district court judge in Minnesota ruled to the contrary and declared that Vonage, a VoIP service provider, is an information service provider. The court noted “Congress’s mandate that the Internet remain unfettered by regulation.”

With these two inconsistent court decisions, a vitally important policy debate has been stopped in its tracks, at least until the Supreme Court reverses one of these decisions–or until Congress decides to act.

Image is everything: MikeRoweSoft Names His Price

Just Say ‘No’ to Record Labels (see this from yesterday)

“Unless artists quickly grasp the possibilities that are available to them, then the rules will get written, and they’ll get written without much input from artists,” said Eno, who has a long history of experimenting with technology.

By removing record labels from the equation, artists can set their own prices and set their own agendas, said the two independent musicians, who hope to launch the online alliance within a month.

Their pamphlet lists ideas for artists to explore once they’re freed from the confines of the CD format. One might decide to release a minute of music every day for a month. Another could post several recorded variations of the same song and ask fans what they like best.

Gabriel, who has his own label, Real World Records, said he isn’t trying to shut down the record companies — he just wants to give artists more options.

By considering the reveral of fortunes of Arista’s Antonio Reid: A Casualty of a Roiling Music Industry

On Jan. 13 he unexpectedly resigned. Arista, which is owned by BMG, the music division of the German conglomerate Bertelsmann, would not elaborate on his departure. But an executive familiar with Mr. Reid and Arista said that during the last two years Arista had operating losses above $200 million.

In an industry desperate for some good news, Mr. Reid’s reversal of fortune has done little for morale. His exodus sent a message to many: No one, not even a hitmaker, is safe.

“If he can get fired,” said an entertainment lawyer who spoke on condition of anonymity, “what does that say for people who haven’t had the year that he has?”

[...] As the record business experiences record losses — United States album sales were down in 2003 for the third year in a row — the days of the Teflon executive, larger-than-life characters whose celebrity and lavish spending rivaled that of their artists, appear to be waning. Stand-alone labels are beginning to dwindle because of imminent mergers. A proposed merger of Sony, No. 2 in the world, and BMG, No. 5, is under review by European regulators. Warner Music Group was recently acquired from Time Warner by a private investors’ group led by Edgar Bronfman Jr. Such mergers would make it harder to land a top job , said Richard Grabel, a veteran entertainment lawyer.

“Historically the major criterion for hiring an executive was if the person had experience in the business,” Mr. Grabel said. “It often seemed success or failure at previous posts was less relevant. That’s going to change.

“It will be based less on where they worked previously,” he said, “and more on if they made a profit while they were there.”

An executive at a major label who demanded anonymity said: “It’s not about hits. It’s about the bottom line. That’s what L.A.’s departure means. It is the operators verses the creatives now. Chalk one up for the operators.”

Stan Liebowitz (of P2P’s effects on record sales analysis fame) has a paper out with Stephen Margolis that argues that the economics of copyright were incorrectly characterized in the briefs submitted in Eldred: Seventeen Famous Economists Weigh in on Copyright: The Role of Theory, Empirics, and Network Effects [via LawMeme]

From the abstract:

More important, we believe, than the particulars of this case, is the articulation of the economic issues involved in copyright extension. The articulation of those issues is not well framed in the brief. Nor is the case as one sided as the Eldred economists have claimed. First, private ownership of creative works may internalize potentially important externalities with respect to the use of existing works and the creation of derivative works. Second, the Eldred economists neglect the elasticity of the supply of creative works in their analysis, focusing instead solely on the benefits received by authors, leading to potential underestimation of additional creativity that confers benefits immediately. Third, the Eldred economists neglect certain features of copyright law, such as fair use, the distinction between idea and expression, and the parody exemption, which mitigate the costs of copyright. Finally, we present data that counters a common claim that copyright extension so far out in the future can have little effect on creativity. The small fraction of books that have the majority of commercial value when they are new appear to remain valuable for periods of time that are consistent with the expanded term of copyright under CTEA.

A quick scan of the paper indicates that the authors put a lot of weight on what has been cited by Lessig as a problematic element of the copyright term extension argument — the notion that a marginal increase in the value of copyright "incentivizes" enough new creators to get involved as to make it worth the social cost of the restrictions that come along with it. Without support, the authors use an incredibly narrow distribution of creators to argue that there must be a huge benefit.

As Lessig points out, the "marginal creator" argument has no particular governor on its application; there’s no way to argue whether there are enough benefits to their creations to actually offset the social costs to the public domain. Essentially, it’s a "more is better" argument, and I’m not convinced (on this admittedly short reading) by the paper.

It will be interesting to see what kind of response (if any) this paper gets from the economists to whom the authors offer up their advice…..

Derek points out that the IFPI statistics for the year are out with their expected spin: IFPI Report on International Digital Music Market. In The Register’s Not yet time for record labels to be smug about the end of piracy from Faultline, there’s a little deconstruction of that spin:

f these three million paid-for downloads were increasing at 25 per cent per month through 2003, then they began on about 55,000 downloads in January 2003 and ended on 640,000 in December 2003. Taking the number on from there, growing at 25% per month, this 3 million will go up to 43 million downloads in 2004, and if that same growth continued through 2005, this would take paid music downloads in Europe to 631 million, grossing some $1.1 billion. Once again if half of that belonged to EMI (and it won’t) and half of that was taken by the distribution process (which it will) then that might add up to $250 million, about half of what EMI has lost. Hardly time for dancing in the streets at the EMI shareholders meeting.

And we have more problems with this. No growth, including the original take up of browser technology on the internet, sustains a growth rate of 25% per month (the world wide web once had 15 per cent a month growth for about two years, but nothing else has come close).

See the article also for a careful discussion of the chicken and egg problem the industry faces in the deployment and exploitation of DRM schemes.

At least, that’s the spin that The Register puts on Declan’s piece in CNet: Dean should come clean on privacy. In The Register piece, Who told Dean to scream for lock-down, TCPA computing?, Andrew Orlowski suggests that this proposal from Dean cited by Declan:

Embedding smart cards into uniform IDs was necessary to thwart “cyberterrorism” and identity theft, Dean claimed. “We must move to smarter license cards that carry secure digital information that can be universally read at vital checkpoints,” Dean said in March 2002, according to a copy of his prepared remarks. “Issuing such a card would have little effect on the privacy of Americans.”

Dean also suggested that computer makers such as Apple Computer, Dell, Gateway and Sony should be required to include an ID card reader in PCs–and Americans would have to insert their uniform IDs into the reader before they could log on. “One state’s smart-card driver’s license must be identifiable by another state’s card reader,” Dean said. “It must also be easily commercialized by the private sector and included in all PCs over time–making the Internet safer and more secure.”

is just the Trusted Computing Platform Alliance writ large, to wit:

As it turns out, Dean was doing more to advocate locking down the “edge of the network” than any other Democrat candidate. And the finger of suspicion for feeding the Presidential Candidate this line of argument points firmly to his campaign manager, Joe Trippi.

[...] In the speech, which you can read on uh, Wave Systems website, Dean describes privacy as an “urban myth” and explains “little has been spent to secure the most vulnerable part of the network - the PC, the laptop, the government and corporate desktop computers – all at the perimeter of the computer network system.” Yes, it’s the national security angle that TCPA-vendors have been peddling, with the active encouragement of the law enforcement lobby.

Open PCs are dangerous, Dean argued.

Update: See Donna’s comments — Geek the Vote

DoubleUpdate: Even better, see Larry’s comment — what declan doesn’t get (how to read)

TripleUpdate: Ed Felten’s take — Dean’s Smart-Card Speech

EC to find against Microsoft

Granted, it’s a preliminary decision and granted the ruling is not expected to be published until March, but EC officials feel confident enough to brief favoured news outlets, that yes, Microsoft broke Community competition law by abusing its dominance of the PC market.

[...] The unbundling of Windows Media Player is a hobby horse of the European Commission and it is where it parts company from its US anti-trust counterparts.

The NYTimes’ take: Antitrust Ruling Near for Microsoft in Europe

Slashdot discussion: EU’s Mind ‘made up’ on Microsoft, jumping off from this BBC article

The Commission is likely to decide that the firm illegally tied audio and video software, as well as server systems, to its Windows operating system.

While continuing talks with Microsoft, it is now circulating the decision to the parties involved.

[via Donna] Part of Patriot Act Ruled Unconstitutional (keep checking here for the ruling)

In a ruling handed down late Friday and made available Monday, U.S. District Judge Audrey Collins said the ban is impermissibly vague in its wording.

The U.S. Justice Department is reviewing the ruling, spokesman Mark Corallo said in a statement from Washington.

Corallo called the Patriot Act — the federal anti-terrorism statute passed in the aftermath of Sept. 11 — “an essential tool in the war on terror” and asserted that the portion at issue in the ruling was only a modest amendment to a pre-existing anti-terrorism law.

David Cole, a Georgetown University law professor who argued the case on behalf of the Humanitarian Law Project, declared the ruling “a victory for everyone who believes the war on terrorism ought to be fought consistent with constitutional principles.”

“It Is the first federal court decision declaring any part of the Patriot Act unconstitutional,” he said.

Update: Slashdot discussion: Part of Patriot Act Ruled Unconstitutional

The University of Texas School of Law’s Guest Lecture Series presentation on Jan 23rd was by Oren Brach, The Transformation of Transformation of American Copyright Law 1789-1909 (introductory note) [Legal Theory Blog]

Brach’s key point is that there are important reasons to study the evolution of copyright through the 19th century, notably to understand the tension and conflicts underlying the concept of “intellectual property” as it exists today. He attempts to strike a third path between the strict constructionist school of copyright thought that relies upon the familiar utilitarian arguments and the “natural rights” construction of copyright that views the author as the creator, and thus controller, of creative works.

It’ll be interesting to see the whole dissertation when it’s completed.

From the note:

My account of the transformation of American copyright in the nineteenth century is part of a broad-span historical survey of the development of the modern set of concepts, legal doctrines and institutional practices collectively known as “intellectual property.” The project seeks to excavate from underneath many layers of modern consciousness the peculiar yet elaborate conceptual scheme that constitutes the notion of owning intangible ideas, as it developed in Anglo-American legal thought and related fields of discourse during the last four-hundred years. More specifically it attempts to reconstruct the appearance and transformation of two clusters of ideas: the ownership of technological inventions (known as “patents”), and property in creative works (known as “copyright”). Together, these two clusters composed the main (although not the only) conceptual and practical terrain on which the overarching concept of “intellectual property” emerged, debated and transformed. My research follows these two fields from their origins in seventeenth century England to the end of the nineteenth century in the United States. It tells a story about a conceptual transformation which, while being gradual and often full of continuities, was also radical and contingent. It was radical because our modern framework differs in fundamental ways from the early practices and ideas in which it originated. It was contingent because this modern framework is neither the necessary outgrowth of the seventeenth century origins nor the outcome of a linear progression of some preset logic implied in them.

From Legal Theory Blog: Stop Mucking up Copyright Law: A Proposal for a Federal Common Law of Contract is a Common Sense Solution (Note: Ordinarily, the abstract would be the right thing to excerpt from here, but the opening paragraphs and the closing sentences are far more accessible, IMHO.)

Introduction

The intersection of modern federal copyright law and state contact law has been a minefield for courts and scholars. Traditionally, copyrighted content was instantiated into a book or other medium and that medium was sold. Purchasers bought copyrighted works more or less the same way they purchased other goods. At the time of purchase, ownership of the embodiment containing the work was known and customary norms established the scope of the owner s right. I bought the book; therefore, I own the book. Reading the book was acceptable, a private performance was O.K., making copies of short excerpts was fine, but copying a substantial or significant part of the book was wrong (or at least illegal).

Starting in the 1980’s, things changed for at least one class of copyrighted works, digital works (including computer software). Unlike most types of copyright works, software is often sold or downloaded with strings attached. The transaction may appear to the uninitiated to be the same as the sale of a book, but these strings, depending on state law, may convert the appearance of a sale of a copy into the legal reality of a mere license to use the work. In the digital works context, I bought the work often only means I purchased a license to use the work. These strings often do not reflect accepted copyright norms. In fact, these terms are often inimical to public values, for example, terms that prohibit public commentary on the licensed product. These strings occur in what is commonly called a shrink-wrap license or end user license agreement (EULA). Tying these strings into a coherent body of contract law to govern copyright transactions has been a source of frustration to courts and scholars alike. Scholars and courts have tried to interpret or reinterpret the UCC to solve these problems. Others have tried to achieve these results through the common law. Still others have proposed new sui generic bodies of law such as UCITA. Others have sought non-contract solutions such as federal preemption. Even the most effective of these preemptions have not been adequate. This article proposes that the federal courts create a common law of contract to govern copyright disputes in order to create a coherent body of law. Alternatively, Congress should legislate contract law to govern copyright transactions. In either case, as copyrighted works become increasingly integral to domestic and foreign trade, the development of efficient markets will require a uniform body of contract law.

Federal courts currently apply state contract law to copyright disputes because as of yet, there is no federal commercial law governing copyright transactions. [...]

[...] This new common law of copyright should evolve on a case-by-case basis as technology changes and as new business models are introduced by incorporation. It should draw on commercial experience and practices with the UCC, common law of contracts, and of course, UCITA. If Congress elects to enact a federal body of contract law, this law should be consistent with the goals of the Copyright Act. Individuals should not be permitted to contract around provisions in the laws that are designed to protect the public’s interest. In either case, judges should always take care to encourage sound businesses practices while pruning those that frustrate the underlying copyright policies.

Software patents ‘threaten Linux’

The biggest challenge that will face us after that [SCO's lawsuits] is software patenting. Software patents that are being accepted are not necessarily inventions, their definitions are overbroad. And you can never finish a patent search. The definitions are so broad, you can’t ever be sure a company would or would not assert their patent on what you are doing.

You have to consider engineers today spend their entire careers combining other people’s intellectual property. And every small and medium sized enterprise is at risk regarding software patenting. That is a problem in Europe, because representatives to the European Parliament are pushing very hard for software patenting that would indeed shut out all small and medium businesses from the software development business, not just open source.

We’re looking at a future where only the very largest companies will be able to implement software, and it will technically be illegal for other people to do so. That’s a very, very bad situation developing. We must do something so that there is reason for people to innovate, there is reason for people to invent, but that companies can execute without this constant fear that we will be sued into the ground regarding software patenting.

Music Royalties Rise, Even as CD Sales Fall

Despite the travails of the music industry, with CD sales still slumping and record executives still suing suspected Internet pirates, one part of the business is thriving. Royalties paid to songwriters and music publishers from radio and television broadcasts of their songs, and from live performances, are at record highs.

“When it comes to the downloading issue, which is killing record labels and music publishers, we’re only indirectly affected by it,” said Bill Velez, the head of Sesac, one of the leading performing rights organizations in the United States. “We’re able to weather economic storms better than other segments of the entertainment industry.”

In 2003, America’s three recognized performing rights organizations - Sesac, B.M.I. and Ascap - reported record revenues, which, in turn, have generated bigger royalties distributions to songwriters and music publishers.

[...] The increase in such royalties has been the music industry’s “one saving grace,” in the view of Carey Ramos, a lawyer for the National Music Publishers’ Association, which represents music publishers and songwriters. Mr. Ramos said increased performance royalties had helped songwriters offset some lost income from mechanical royalties, as fees from record sales are known. But, he added, “I’m quite sure it doesn’t make up for the mechanical losses, by any stretch of the imagination.”

From 1996 to 1999 - the year the file sharing service Napster began - annual collections of mechanical royalties grew 18.5 percent, Mr. Ramos said, while performance royalties increased 19.8 percent. From 2000 to 2002, he said, mechanical royalties fell 22 percent, while performance royalties kept growing, by 13.6 percent.

“The continued rise in public performance royalties reflects a growing demand for music,” he said. “That tends to confirm that the dramatic decline in mechanicals is attributed to Internet piracy, not because there is less demand for music.”

Online Music Industry Is Focusing on Europe

The diverse languages and cultural tastes seem the least of the hurdles in Europe. Here, a lower percentage of households have personal computers, are connected to the Internet or have fast, broadband network connections than in the United States.

“A majority of the U.K. population has yet to experience downloading,” said Rafael McDonnell, head of strategic marketing alliances for Coca-Cola in Britain, at the conference here, known as Midem. “We need to drive that habit.”

Executives at Apple and Napster said over the weekend that they would love to help Coke do that, but they are still held back by arranging downloading rights across Europe. Eddy Cue, Apple vice president for applications and Internet services, said that the company still planned to offer its iTunes Music Store in Europe some time this year, but he declined to give a specific date.

Yes, the article really does say "We need to drive that [file downloading] habit."

Pay Service Turns CDs Into MP3s

Nova Spivack, a well-heeled New Yorker and technophile, had been dying to get an iPod for a long time.

The problem wasn’t money, but Spivack’s giant CD collection. He couldn’t face the chore of converting 1,000-plus CDs to digital format.

Then Spivack discovered RipDigital, a firm that offers a surprising but timely service: For about a dollar a disc, the company converts entire CD collections to MP3 files, all nicely organized by artist and album.

[...] “We’ve been overwhelmed with orders and scrambling to keep up,” he said. “It’s been fabulous.”

Seriously? How hard can this be, particularly for someone for whom price is no object? Especially with this little "feature"

RipDigital marks each song with a digital watermark, which can be used to uniquely identify each client. Adams said the watermark is insurance should customers start loading songs onto file-sharing networks. The company is not using the information, and has no plans to do so, Adams said. [emphasis added]

I am really surprised that this is a business at all, not to mention the leap that the article makes that says the success of this business marks the end of the CD. Of course, it also marks the end of the business itself, since eventually there won’t be any CDs to convert.

Unless they just move on to the next digital format — tough to do with a lossy format, even without the RIAA out there working to preserve a model that forces consumers to repurchase when a new format is released — after all, who do you think this firm is servicing by putting in watermarks in the first place?

From Salon: two perspectives and letters in response:

• PCs killed the mix-tape star

  All of the above methods of music listening are created by the PC, a device that is decidedly different from the old stereo system that Rob Fleming used to record his meticulous mixes. Unfortunately, the technological advances that have made music portability easier to accomplish have taken the entire visceral experience of making the mix and reduced it to just another procedure that can be executed with a few clicks of a mouse.

• Praise be to the CD burner

  Indeed, I realized, this is what computers and the Internet are for: making mix CDs!

• Letters

  But I am not in mourning, because technology has invented a whole new hobby for me. Downloading music, be it illegally, gives me an even deeper feeling of connection with the music I choose to listen to now. Downloading music is an act that requires as much attention to detail and sustained concentration as making a mix tape. Managing downloads, ensuring each file is of high quality, and then deciding whether or not a new song, artist, or album will enter my song queue gives me a real sense of ownership of the music (ironic, since legally I don’t own it). Knowing that I have almost any artist available to me means that I have spent more time creating and deciding my musical tastes and finding artists that match them. I feel like I am engaging the music I listen to more actively than I ever had, even when I was making mix tapes.

  I am not trying to advocate or justify file sharing here. This has just been my experience. Wasn’t making a mix tape just a different way of “file sharing” anyway?

Coleman Criticizes RIAA’s Renewed Efforts To Crackdown On P2P Users Through The Courts

“I don’t believe lawsuits are the answer to the RIAA’s problems,” Senator Coleman said. “While the industry has every right to protect its intellectual property, lawsuits should not be the primary means by which they do so.

[...] “The decision by the RIAA to rely primarily on the fear of the courts and litigation to pummel P2P users is unfortunate and misdirected,” Senator Coleman said. “Although the John Doe lawsuits now utilized by the RIAA may afford the consumer some additional protection than the previous litigation governed by the Digital Millennium Copyright Act (DMCA), I still believe litigation alone is not the answer.”

Coleman called upon industry officials to seek a more proactive, long-term solution, instead of using the fear of lawsuits to deter illegal file sharers.

“I urge them to participate in a dialogue with the broader digital community to find solutions that will not only address the economics of the entertainment industry, but the powerful potential of technology to open new doors of economic opportunity and growth,” Coleman said.

As chairman of the Permanent Subcommittee on Investigations, Coleman has held numerous hearings to address the problems facing the music and motion picture industries, which have found that technological innovations, rather than more legislation, can combat illegal downloading. Within several weeks Coleman will convene a roundtable of industry and technology leaders to address the crisis facing the industry and find a proactive solution.

Kazaa owner gets OK to sue record labels

A U.S. federal court has cleared the way for Kazaa file-sharing software owner Sharman Networks to sue the entertainment industry for copyright infringement, Sharman said on Friday.

Sharman, targeted by studios and record companies because its software is used to trade music and video files, has sought to turn the tables on the industry, accusing it of misusing Kazaa software to invade users’ privacy and send corrupt files and threatening messages.

Studios and record companies had asked the court to throw out Sharman’s countersuit, but U.S. District Judge Stephen Wilson in Los Angeles declined to do so.

From MI2N: Sharman Networks Cleared To Bring Lawsuit Against Entertainment Industry

In his ruling, Judge Wilson acknowledged that Sharman Networks has every right to pursue its claims that the record label and motion picture plaintiffs in the lawsuit have infringed Sharman’s copyrights. Unlike the plaintiffs’ claims that third parties are infringing their copyrights, the court has ruled that Sharman may pursue its claim that these plaintiffs directly and through their agents infringed Sharman’s copyrights. In addition, Sharman Networks can now also pursue its claims that the industry plaintiffs breached the End User License Agreement (EULA) for the Kazaa software [...]