The Good, the Bad and the Strange of the Department of Commerce’s White Paper on Copyright

Stephen Carlisle February 11, 2016

Last month saw the release of the Department of Commerce’s White Paper on Copyright. ¹ Specifically, the voluminous (107 page) report took up three specific issues:

• Remixes, broadly defined to include all forms of combining copyrighted works, including “fan fiction.”
• The First Sale Doctrine, especially whether the doctrine should apply to digital goods.
• Statutory Damages, including whether the penalties should be lessened or further guidelines established.

The most surprising element is that after all the ink has been spilled, the DOC finds no need to massively overhaul or amend the current copyright laws, with the notable exception of statutory damages. In sum, the DOC finds:

• “[T]he record has not established a need to amend existing law to create a specific exception or compulsory license for remix uses,” ² noting that one comment called it “a solution in search of a problem.” ³
• “Amending the law to extend the first sale doctrine to digital transmissions of copyrighted works is not advisable at this time. We have seen insufficient evidence to show that there has been a change in circumstances in markets or technology, and the risks to copyright owners primary markets do not appear to have diminished.” ⁴
• With regards to statutory damages, amend the copyright act to provide for a list of factors for Judges and juries to consider, expand the ability of a defendant to claim innocent infringement, and give to Courts more discretion to award statutory damages on other than a strict “per work” basis. ⁵

I would agree with the DOC on the first two issues. On the issue of statutory damages, the DOC takes an incredibly strange and misguided approach, insisting that we should now consider the “defendant’s ability to pay” rather than the harm caused by the defendant, a concept that is nearly unheard of in U.S. jurisprudence.

Remixes

The DOC gathered a bunch of things into the general category of “remixes.” These include “mash-ups” sampling, “fan videos,” photo-manipulation, “fan-fiction” and the like. The DOC starts with the statement that “[r]emixes make valuable contributions to society in providing expressive, political and entertainment content.” ⁶ This rather bold statement is offered with no supporting facts (not even a footnote) and totally ignores the fact that these remixes start out by copying what someone else has already done, instead of creating new content themselves, which is what copyright is supposed to promote in the first place.

The DOC report notes the problem with allowing unfettered remixes is that these uses will inevitably lead to the incorporation of works into hate speech (the example of using “Hey Jude” into an anti-Semitic creed is noted in a footnote). ⁷ Or, more recently, as the run up to the election has shown on numerous occasions, imagine that a candidate that you despise has now appropriated your song as their campaign theme song. Seems like I should have some control, should I not?

As to the general question of remixes, there was this excellent comment:

“[Y]ou can’t get licenses for everything, but that’s okay…There are a billion songs you can go get to create whatever you want to create. Why is my property so important to you that you can only do your creation with my property?” ⁸

Later, there was this observation by the DOC:

“[I]n cases involving multiple samples it can be particularly cost prohibitive and impractical to clear the necessary rights. A professor referred to a “royalty stacking problem” where a musical recording has a large number of samples and the cumulative demands for royalties from the different owners of these samples can exceed 100 percent of the remixer’s revenues.” ⁹

This leads the Electronic Frontier Foundation in commenting on the DOC report to trot one of its favorite bogeymen… “censorship.”

“Thus, the current regime of expansive rights for copyright holders, a lack of clear safe harbors for important speech activities, and astronomical statutory damages gives copyright owners the de facto power to censor remix.” ¹⁰

As I have said numerous times on this blog, my speech is my speech. Copying my speech does not make it your speech. And you have no absolute Constitutional right to make my speech. Plus, according to the Constitution, I have the “exclusive right” in my “writings.” ¹¹ So, no you don’t have a right to take my speech in order to make it yours. Plus, if you have sampled so many different artists that the licensing fees exceed 100% of your revenues, the failure is not in the copyright laws, but instead is the logical consequence of your failure to do anything creative. Slapping together a bunch of segments you copied from other people’s musical compositions does not make you Mozart.

Yet, the EFF blathers on:

“We explained [PDF] the chilling effect copyright has on important remix speech and suggested a clear and narrow delineation of copyright owners’ ability to restrict derivative works like remixes… The Commerce Department panel did not discuss our recommendation in its comments.”

Well, it’s no wonder that the DOC ignored you, because it seems that such a change to the copyright act would possibly be unconstitutional. First off, the granting clause in the Constitution says I am entitled to the “exclusive right,” not the non-exclusive right like the EFF proposes. According to the Copyright Act, the right to control derivative works (which is what remixes are) is part of my exclusive rights under Section 106 (2). Now, if my exclusive right to control derivative works become a non-exclusive right, this would make my copyright much less valuable because unfettered “remixes” of my work would now compete with my licensed works. While I am not a constitutional lawyer, it seems to me that this government mandated reduction of my rights, causing financial injury, would be the sort of taking prohibited by the Fifth Amendment. ¹²

This quote from author Sharon Lee appeared in a previous blog post, but bears repeating:

“We built our [artistic works]; they are our intellectual property; and they are not toys lying about some virtual sandbox for other kids to pick up and modify at their whim.” ¹³

And finally there is this sobering point:

“Songwriting is now the most heavily regulated of the creative arts. Seventy per cent of a songwriter’s income comes from rates set by the government, rather than by the songwriters and publishers, on the free market.” ¹⁴

I fail to see how this is fair in an economy that is supposed to be governed by “free market” principles. Extending this unfairness by mandating a give-away of my property is untenable.

First Sale Doctrine for Digital Goods

Normally, when one purchases a physical copy of a copyrighted work, you can do anything which re-publishes the work. ¹⁵ You can sell it, lend it or even give it away. However, some have said that this right should be extended to digital files, even though they are uniformly licensed, not sold. ¹⁶ In rejecting the call for the first sale doctrine to be made available for digital works, the DOC made these points:

• In a market which is becoming dominated by streaming, there really is no need for a secondary market in digital goods. ¹⁷
• The digital secondary market would soon destroy any remaining market for new sales, as the “used” copy is identical to the “new” copy. ¹⁸
• The “forward and delete” technology as proposed by companies like ReDigi is not a practical or workable solution as the proliferation of unauthorized further copies is inevitable. ¹⁹

The last point is really the crux of the arguments. Digital goods are different precisely because of the ease and speed by which perfect copies can be made. While the decision in the ReDigi litigation with Capitol Records did not hinge on this point, ²⁰ there is no getting around the fact that a digital re-sale market would kill the market for new digital copies of the works.

The whole “forward and delete” scheme is a panacea that just will not work. This is because your computer does not forget anything or really delete anything. As my brother (he being the owner of a degree in computer science from Northwestern) once succinctly explained to me, your computer does not “delete” anything. It simply removes the “pointer” that tells the computer where to find it. That information stays there until such time as the computer over-writes it with new information. And until that time, it can still be recovered.

And then there is the whole problem with back-ups. Is the digital file you just “sold” still present as a back-up file on a flash drive someplace? If it was, you could then upload it again and “sell” it again. And again. And again.

And what about your peripheral devices? Just last weekend, I spent some time cleaning up my iTunes account, mainly deleting songs I didn’t want anymore. So when I connected my iPod back up to the computer, my computer immediately noticed that there were songs on my iPod that were not in my iTunes library. The computer asked “do you want to add them to iTunes”? So, it would be very simple for me to “sell” the song out of my iTunes library, have the service delete it out of my iTunes library, and then recopy it back into my iTunes library from my iPod. Where I could sell it again. And again. And again.

The whole idea that “First Sale” rights should be extended to digital files is a non-starter. Unless, of course, you want to kill the market for new copies and encourage copyright infringement.

Reforming Statutory Damages

If there is one area where the task force went off the rails it was in the area of “statutory damages.” This is where, instead of actual damages, the copyright holder can request the award of a sum per work infringed, in the range of $750 to $30,000. The task force seems swayed by the incomplete, misleading and anecdotal recitations of the activities of both the “copyright trolls” and the poor file sharer. And once again, we are treated to the sad tale of Jammie Thomas-Rasset. And it goes like this:

(Cue the sad violins)

““Jammie Thomas-Rasset, a home Internet subscriber and mother of four, was assessed $222,000 in statutory damages for sharing 24 copyrighted songs using the peer-to-peer software Kazaa—$9,250 per song.” ²¹

Why in the world is the EFF mentioning that she is a mother of four? Does her ability to procreate somehow give her the moral high ground here? No, it’s entirely irrelevant to the issues at hand. The real story is that JT-R had thousands of songs on her computer and covered up her infringement by destroying evidence and committing massive amounts of perjury. Here is the real story of JT-R: ²²

• Investigators found a KaZaA account under the name “tereastarr”, which held 1,700 music files, at an IP address that was linked to Thomas-Rassett.
• After getting a letter from the investigators about the “tereastarr” account, JT-R had her computer’s hard drive removed and replaced with a new one, destroying the evidence contained on it.
• She testified at trial that although “tereastarr” is the password she used for her email account, online shopping accounts, online dating account and her MySpace page, the KaZaA account by the exact same name was not hers.
• Her attorney suggested that some unknown person had “spoofed” her account or that some “hacker” had lurked outside her window with a laptop and “framed her.”
• She also tried to blame a former boyfriend and her children.
• A Juror commented, “She lied. There was no defense. Her defense sucked.” ²³
• The first jury awarded $9,250 for the 24 works at issue for a total of $222,000.
• After a second trial, the second jury returned a verdict of $80,000 per work, for a total of $1,920,000.
• After a third trial on the damages issue alone yielded a verdict of $62,500 per work, for a total of $1,500,000.
• The record companies offered to settle the case for $25,000, which they offered to donate to charity. She refused.

She appealed. Here’s what the Eighth Circuit Court of Appeals had to say:

““Thomas-Rassett’s willful infringement and subsequent efforts to conceal her actions certainly shows ‘a proclivity for unlawful conduct.’” “The evidence against Thomas-Rassett demonstrated an aggravated case of willful infringement by an individual consumer…” ²⁴

What kind of idiot turns down an offer of settlement that is barely 10% of what has already been awarded against you? And, remember, the 24 files that ultimately went to trial were the ones they could conclusively prove, because she destroyed her hard drive in an effort cover up her actions.

Hmm. An “aggravated case of willful infringement.” Now do you still feel sorry for her?

“The Task Force proposes a new clause in subsection Section 504(c)526 as follows:

FACTORS TO CONSIDER — In making any award under this subsection, a court shall consider the following nonexclusive factors in determining the appropriate amount of the award:

(1) The plaintiff’s revenues lost and the difficulty of proving damages.

(2) The defendant’s expenses saved, profits reaped, and other benefits from the infringement.

(3) The need to deter future infringements.

(4) The defendant’s financial situation.

(5) The value or nature of the work infringed.

(6) The circumstances, duration, and scope of the infringement, including whether it was commercial in nature.

(7) In cases involving infringement of multiple works, whether the total sum of damages, taking into account the number of works infringed and number of awards made, is commensurate with the overall harm caused by the infringement.

(8) The defendant’s state of mind, including whether the defendant was a willful or innocent infringer.

(9) In the case of willful infringement, whether it is appropriate to punish the defendant and if so, the amount of damages that would result in an appropriate punishment. When calculating the total award, all of these factors should be weighed holistically, in the context of the entire case, to ensure that the overall award is appropriate.” ²⁵

I have a different perspective. I have spent a lot of time in Court, and no, not just because I am an attorney. In between music school and law school, my day job was being an “in court clerk,” assisting the Judges by marking in the evidence, and swearing in witness and jury members. I have seen hundreds of jury and non-jury trials.

Sorry to tell you this, but virtually all measure of damages are speculative. Take your average car accident. The past medical bills are easy enough to prove. But what about necessary medical treatment in the future? What will that cost? Well, we will have to speculate a little bit. And what of the pain and suffering caused by the injuries? What is that worth? Well, I guess we’ll have to speculate a little more.

The process of assessing damages by its very nature will lead to inconsistent results. There is nothing that will smooth that out.

Back to Jammie Thomas-Rassett. You want to avoid statutory damages? OK. How much money did the record companies lose by having her file share over 1,700 songs? Tough to say if you don’t know how many times the songs were “shared.” Even if it was technically possible to find that information out, we’ll never really be sure because she destroyed the evidence.

Is that number of supposed “actual damages” any more certain than the level of statutory damages that were awarded?

And in all the trials I watched, the defendant’s inability to pay was never made an issue. As a matter of fact, it was prohibited from being asserted. This is because the issue is “what was the damage caused,” not whether you have the current ability to make it right. Do you really think that Bernie Madoff is going to be able to pay back all those people he defrauded? If he can’t, should this reduce the amount he should owe? This is what the DOC is proposing. The citation the DOC makes in support of this proposition concerns punitive damages, not ordinary damages. ²⁶ Punitive damages and ordinary damages are two vastly different concepts, and should not be treated as being alike.

But what about the “copyright trolls”? This decision was handed down February 8, 2016 against often accused “copyright troll” Malibu Media. ²⁷ What was notable was not that Malibu Media lost a summary judgment decision (usually the defendants don’t show up), but that they agreed to let the Defendant proceed anonymously as a “John Doe” and agreed in advance to only seek the minimum statutory damages of $750 per work infringed. ²⁸

Also notable was the case against pirate site Movie Tube, ²⁹ where in the case of clear liability for willful infringement, and a default by all the Defendants, the Court only awarded $75,000 per work infringed, or half of the maximum amount.

Every day, I read the copyright decisions that are handed down, and all of the concerns of the DOC seem to me to be already taken into account by the Judges in assessing the proper level of statutory damages.

As this court stated:

“To determine the appropriate amount of statutory damages, courts must consider the following factors: “(1) expenses saved and profits reaped by the infringer; (2) revenues lost by the plaintiff; (3) the strong public interest in insuring the integrity of the copyright laws; and (4) whether the infringement was willful and knowing or innocent and accidental.” In determining the just amount of statutory damages, “[t]he defendant’s conduct is the most important factor.” ³⁰

One additional proposal by the DOC that does seem to have merit and is gaining steam is for the creation of a “copyright small claims court.”

“Finally, the Task Force supports the creation of a streamlined procedure for adjudicating small claims of copyright infringement and believes that further consideration should be given to the proposal of the Copyright Office to create a small claims tribunal.581 The proposal would provide for a cap on awards of statutory and actual damages, limited discovery and counterclaims, assertion of all relevant defenses (including fair use), optional attorney representation, and awards of costs and fees against frivolous litigants.” ³¹

So, all in all, a fairly reasonable and even-handed approach by the Department of Commerce.