Originally published in the Los Angeles Daily Journal in April, 2012
By Nickolas Solish
In an era when most cyber-criminals are ordinary people accused of violating copyright through illegal downloading, an Internet-savvy group has found a novel way to defraud the online music world. A group of twelve criminals worked out a unique scheme to defraud major music sellers through an elaborately devised method of laundering money.
The hooligans took advantage of online music vendors, iTunes and Amazon, by putting their own music up for sale and then using stolen credit cards to purchase it, receiving payments in royalties.
The gang of 12 was led by 24 year-old Craig Anderson, who organized the scheme and purchased two-dozen laptops to carry it out. Anderson recruited the rest of his “team” to purchase the music using stolen credit card numbers. In an attempt to avoid unwanted attention, each purchase was under £10 and the IP address of each computer was masked using a website called Hide My IP.
During 2008 and 2009, the group brought in £500,000 in royalty payments from the illegal purchases. The tip-off for iTunes was when they realized just how much in royalties they were paying to “DJ Denver,” a small, unheard of musician from Wolverhampton, England. The frequency and amount of royalty payments matched what iTunes pays to artists like Madonna.
Authorities noticed that DJ Denver was selling so well he was charting on high-volume download sales charts.
The scheme cost iTunes and Amazon between £750,000 and £1 million, according to English prosecutors. Interestingly, the thieves’ attempt to use the Hide My IP website backfired, as it failed to mask their computers’ specific IP addresses. The police were able to trace the purchases back to the computers and link them with Paypal addresses, which lead them to the gang.
Once the scheme was discovered, royalty payments were withheld, at which point a “Daniel Thompson” called Tunecore demanding payment of the outstanding royalties. Unbeknownst to him, Tunecore was aware of the fraud and persuaded him that the only way he could get his royalties was if he flew to New York to pick them up.
Tunecore offered to send him free plane tickets, at which point he gave he real name and address. From there, the police were able to uncover the entire scheme, netting twelve people total involved.
Ringleader Anderson was given a four year and eight month prison sentence. The musician who provided the songs was one James Batchelor, who pled guilty to conspiracy to defraud and received a two-year sentence. Other members of the group were given suspended sentences and ordered to do community service.
Originally published in the Los Angeles Daily Journal on 2/12/13
By Nick Solish
A report by Billboard Media and Nielsen Soundscan showed that digital music purchases accounted for 50.3 percent of total music sales in 2011, overtaking physical media for the first time. With the rise in digital purchases, music stores and bookstores, along with other retailers, are closing all over the country.
Any person who has ever owned a book or CD knows that either can be resold or given to a friend without violating copyright law. This principle is an important limitation on copyright law known as the first sale doctrine and is codified at 17 U.S.C. Section 109. The United States Attorney’s Manual explains that the first sale doctrine “provides that an individual who knowingly purchases a copy of a copyrighted work from the copyright holder receives the right to sell, display or otherwise dispose of [that particular copy], notwithstanding the interests of the copyright owner. The right to distribute ends, however, once the owner has sold [that particular copy].”
Lawmakers are faced with the question of whether the first sale doctrine should apply to purchases of digital media, including mp3s and eBooks. Digital media transfers invoke two different protected rights under copyright law. The first is the distribution right, allowing the copyright holder exclusive the exclusive right to make a work available to the public by sale, rental, lease or lending. The first sale doctrine acts as an exception to this rule, allowing purchasers of a particular copy of a copyrighted work to sell, rent or lend that copy to another.
Digital media transfers also implicate the reproduction right, which states that no one other than the copyright owner may make any reproductions or copies of the work. A transfer of a physical book or CD does not leave the original owner with a copy. However, every time a digital file is sent via email or saved to a disc a copy is made, leaving both the sender and the receiver with a copy of the file. Thus, the argument is made that first sale doctrine should not apply to digital media purchases because it violates the copyright owner’s exclusive right to make copies of a protected work.
Arguments have been made on both sides as to whether the first sale doctrine should protect digital purchases. Those in favor of extending the first sale doctrine to protect digital purchases argue that transmitting a file from one computer to another and deleting the original copy is the equivalent of selling or lending a book. Opponents of this change argue that the doctrine only protects the distribution right of the consumer and not the additional reproduction right that is an essential part of transferring digital content. They also argue that it would be virtually impossible to test that users had deleted the original copy after transferring a copy, leading to inevitable cheating of the system.
Weighing the above arguments, the U.S. Copyright Office has so far declined to extend first sale protections under Section 109 of the copyright code to digital purchases. “Unlike the physical distribution of digital works on a tangible medium, such as a floppy disk, the transmission of works [through the Internet] interferes with the copyright owner’s control over the intangible work and the exclusive right of reproduction. The benefits to further expansion simply do not outweigh the likelihood of increased harm.”
Some eMedia sellers have creatively taken on this challenge by changing purchasers into licensees instead of owners of content. In recent months, a Norweigan Amazon Kindle owner, Linn Nygaard, lost her Kindle and was told that since Amazon did not have offices in Norway, she would have to provide a U.K. mailing address to receive her replacement. A day later, her account was locked and she was denied access to her eBook library. Within 24 hours, several websites including BoingBoing, The Guardian and TechDirt, carried the story, bringing international attention to the issue. When her story went viral, Amazon eventually restored her access, but merely stated via employee Kinley Pearsall that, “[a]ccount status should not affect any customer’s ability to access their library. If any customer has trouble accessing their content, he or she should contact customer service for help.”
The Amazon Kindle store terms of service state that “Amazon Kindle content is licensed, not sold.” Amazon also provides that violation of any part of the agreement may result in loss of all of your purchased Kindle content: “[Termination]. Your rights under this Agreement will automatically terminate if you fail to comply with any term of this Agreement. In case of such termination, you must cease all use of the Kindle Store and the Kindle Content, and [Amazon may immediately revoke your access to the Kindle Store and the Kindle Content without refund of any fees].”
While it is unclear whether Nygaard did in fact violate the terms of service, many people do not realize that their purchased content is rented and not owned. The same terms of service limit a purchaser’s ability to resell or share content, which might otherwise be protected under the first sale doctrine: “[u]nless specifically indicated otherwise, you may not sell, rent, lease, distribute, broadcast, sublicense, or otherwise assign any rights to the Kindle Content or any portion of it to any third party.”
While there is not yet a digital marketplace for secondary sales of eBooks, the company ReDigi has created a secondary marketplace for reselling music purchased from the iTunes store. ReDigi does not purchase and resell used digital music files, but rather creates a marketplace where users sell music files from one person directly to another.
Launched in October of 2011, ReDigi was sued by Capitol Records in 2012 for copyright infringement. The complaint brings up the question of whether purchasers of digital content are licensees or owners, implicating the first sale doctrine and fair use. ReDigi argued that their Atomic Transaction software allowed the transfer of a digital file without copying it, avoiding a violation of the reproduction right.
Captiol Records argued that ReDigi is liable for copyright infringement, contributory copyright infringement, vicarious copyright infringement, and inducement of copyright infringement. Capitol also claimed that copies of music files were made when first transmitted to ReDigi’s cloud servers, and during sale transactions, thus infringing copyright, and claimed $150,000 of damages per infringement.
While the future of the first sale doctrine in the digital era is still uncertain, quite a bit of money is at stake. A Nielsen study showed over 1.34 billion digital music units were purchased in 2012. If purchasers can resell their songs, this could significantly cut into the market for new digital music. However, if the licensee model becomes the norm, users may have to get used to not “owning” their eBooks and mp3s but rather having entire libraries on long term loan from retailers.
From Techdirt.com: “Court Tells Omega Copyright Is Not A Sword; Rejects Attempt To Control Grey Market As Copyright Misuse”
Fascinating article about how watchmaker Omega has tried to control gray market sales of its watches by putting an engraving on the backs of its watches and then claiming copyright infringement when those watches are resold by CostCo. Read the article here.
By Nickolas Solish
[Originally published in the Los Angeles Daily Journal on November 11, 2011. Reposted here with permission. All rights reserved.]
When a story is written by a crowd, who owns the rights to it? That is the question with “Rome Sweet Rome,” a new screenplay penned by James Erwin on social media site Reddit.com. The story was inspired by an idea from one user, written into a short story by Erwin, and had music, mock movie posters and other graphics contributed by others. Last month, Warner Bros. purchased the rights to the screenplay from Erwin, but the question remains: who, if anybody, owns the rights to “Rome Sweet Rome”?
The idea for the movie came from a question posted by user “The_Quiet_Earth” on Reddit’s message boards: “Could I destroy the entire Roman Empire during the reign of Augustus if I traveled back in time with a modern U.S. Marine infantry battalion or MEU [Marine Expeditionary Unit]?”
Prufrock_451 (James Erwin) responded to the question in story form, describing the MEU’s first day in ancient Rome. Erwin’s subsequent entries followed the time-traveling marines through eight days of adventures and inspired a dedicated Reddit community called “Rome Sweet Rome.” Other users contributed fan made art, mock movie posters, and even contributions for a “Rome Sweet Rome” soundtrack.
After a short time, Adam Kolbrenner of Madhouse Entertainment approached Erwin about writing a screenplay. A contact of Kolbrenner’s at Warner Bros. liked the idea and the studio purchased rights to a movie version of Erwin’s story.
This simple scenario was complicated by Reddit’s user agreement, which states in part:
“you agree that by posting messages, uploading files, inputting data, or engaging in any other form of communication with or through the Website, you grant us a royalty-free, perpetual, non-exclusive, unrestricted, worldwide license to use, reproduce, modify, adapt, translate, enhance, transmit, distribute, publicly perform, display, or sublicense any such communication in any medium (now in existence or hereinafter developed) and for any purpose, including commercial purposes, and to authorize others to do so.”
Effectively, this appears to give Reddit and its parent Condé Nast the ability to transform or adapt Erwin’s story for any purpose, including commercial purposes. The Hollywood Reporter rightly mused that Erwin could probably write a full script and copyright that.
Though Reddit might have the right to take Erwin’s underlying idea and develop it into a separate script and sell it to a rival studio, this is unlikely. For one, sites like Reddit are largely dependent on user submitted content to attract visitors. Reddit is unlikely to risk endangering the 1.8 billion monthly page views it received in October by commercializing user content without that user’s permission. The vibrant Reddit community is largely supported by the goodwill its users.
On the other hand, Condé Nast has had trouble monetizing Reddit and may see “Rome Sweet Rome” as a business opportunity. A major movie concept from comments wholly owned by Reddit may be worth the fight for Condé Nast, though they have yet to make any legal moves towards challenging the sale to Warner Bros. Yet if Reddit moderator hueypriest’s recent comment that it would be “completely against our interests to sabotage something awesome created by a Redditor” is any indication, Reddit is unlikely to act in the near future.
Besides the issue of Reddit’s licensing rights are questions of the multi-author, crowdsourced nature of “Rome Sweet Rome.” The_Quiet_One was not compensated for coming up with the idea for the movie, though the original concept was his idea. Also uncompensated were the users who contributed mock-ups for movie posters, movie music and logos. Are these users also entitled to compensation by Warner Bros?
Under the copyright code, a “collective work” is “a work, such as a periodical issue, anthology, or encyclopedia, in which a number of contributions, constituting separate and independent works in themselves, are assembled into a collective whole.” 17 U.S.C. Section 101. “Rome Sweet Rome” does not appear to fit into this category, as it is a single story, not a collection of separate and distinct short stories or articles.
Interestingly, a work is created under the copyright code when it is “fixed in a copy or phonorecord for the first time.” 17 17 U.S.C. Section 101. Subsequently, a “derivate work” is defined as one that is “based upon one or more preexisting works, such as a translation, musical arrangement, dramatization, fictionalization, motion picture version, sound recording, art reproduction, abridgment, condensation, or any other form in which a work may be recast, transformed, or adapted.”
From these definitions one could speculate that The_Quiet_One “created” the concept for “Rome Sweet Rome” when he posted the question about an MEU in ancient Rome to Reddit. Because Erwin’s story was based upon this preexisting idea, “Rome Sweet Rome” is arguably a derivative work.
The question of who owns the movie is intriguing because it’s largely new territory under the copyright code and intellectual property laws. Never before has an Internet comment turned into a screenplay, let alone be purchased by a large studio. The answer to who owns the story will shape the future of copyright protection for crowdsourced works and may make sites like Reddit weigh user opinion against future mon
By Nickolas B. Solish
This is a follow-up to “Cyberlocker sites come under the radar of copyright holders,” which ran in the Daily Journal on Aug. 19.
Striking back against its accusers, the file-hosting website Hotfile.com has brought a countersuit against Warner Bros. Entertainment alleging copyright fraud and abuse. The complaint accuses Warner Bros. of abusing Hotfile’s anti-piracy tool by filing false copyright take-downs notices. These notices are only to be used for copyrighted files owned by Warner Bros.. Now the Florida-based company is seeking damages from the movie giant.
The complaint comes after an earlier suit this year against Hotfile by the Motion Picture Association of America, an association of five major Hollywood studios. The suit is based on a larger campaign by the MPAA to attack copyright abuse on cyber-locker sites. A cyberlocker is an online storage provider that allows users to upload and share files. Visitors to the site then can download those files for free by clicking a link.
Cyberlocker sites came under the attention of the MPAA due to a spike in traffic since the beginning of 2011. These sites now receive more traffic than BitTorrent sites, bringing them under scrutiny by the major studios. Hotfile recently became one of the top 100 visited websites in the world.
Hotfile’s recent suit against Warner Bros. is a counter-claim to the original MPAA action. The counterclaim accuses Warner Bros. of “repeated, reckless and irresponsible misrepresentations to Hotfile falsely claiming to own copyrights in material from Hotfile.com.” The complaint goes on to say that Hotfile even told Warner Bros. about these misrepresentations, but even this did not stop the false claims.
To fight copyright abuse, Hotfile provides “special rightsholder accounts” to certain copyright owners. Warner Bros. had such an account assigned to their manager of anti-piracy Internet operations, Michael Bentkover. The tool allowed an unlimited amount of file-takedowns by copyright holders, so long as the complainant held the copyright to the file.
Many of the files taken down by Warner Bros. were not files for which they owned copyrights. Hotfile alleges this was a breach of the special rightsholder account agreement, which provided that when Warner Bros. reported a file, it was asserting “under penalty of perjury that [it is] the owner or an owner or an authorized legal representative of the owner of copyrights.” Warner Bros. also represented that it had a “good faith belief” that the owner did not authorize use of the file on Hotfile.com.
Warner Bros. is accused of “willful blindness” in its use of the special rightsholder account. The complaint points out that Warner Bros. searched for a file entitled “The Rite,” which had been uploaded to filesonic.net, not Hotfile.com. “[B]ecause Warner apparently went to a third party search site looking for links to The Rite, it returned a page containing not only the filesonic link to The Rite but also dozens of seemingly unrelated links to other files at filsonic.com, Hotfile.com and other sites.” Warner then “used the [special rightsholder account] to delete each of the twenty or so Hotfile links listed on that page even though . . . none appear to have any relationship to The Rite or to Warner.” Warner Bros. is accused of deleting “hundreds if not thousands” of similar files in this manner.
Interestingly, there is speculation that Warner Bros. had a financial incentive other than preventing infringement for taking these files down. A deal was proposed by Warner Bros. to replace files removed for infringement with links to purchase Warner-owned content. If Warner Bros. takes down more files, they create more links to paid content sites.
The three counts Hotfile alleges are violations of the Digital Millennium Copyright Act, intentional interference with a contractual or business relationship, and negligence. The complaint demands a jury trial and asks for compensation for lost revenues caused by Warner Bros’s actions. Finally, the complaint asks for a permanent injunction requiring Warner Bros. to individually review every file they request to be taken down.
This suit and the original MPAA suit have the potential to greatly alter the legal landscape for cyberlocker sites on the Internet. Hotfile’s countersuit will also clarify how much legal recourse websites have against big copyright holders under the DMCA. A trial date has not yet been set.
By Nick Solish
In the war of music pirates versus record labels, cyberlockers are heating up as the next battleground for copyright suits. A cyberlocker is an online storage provider that allows users to upload and share files. Other users can then access those uploaded files for free, simply by clicking a link to the site and a second link to download the file.
This recent battle started earlier this year when the Motion Picture Association of America (MPAA) sued Fort Lauderdale-based Hotfile.com. Plaintiffs Disney Enterprises Inc., Twentieth Century Fox Film Corp., Universal City Studios Productions LLLP, Columbia Pictures Industries Inc., and Warner Brothers Entertainment Inc., all sued Hotfile Corp. and Hotfile’s owner, Anton Titov, in the Southern District of Florida alleging copyright infringement.
The suit alleges that “[d]efendants actively encourage their users to upload…infringing copies of the most popular entertainment content in the world.” Further, plaintiffs argue that defendants openly pay users to upload, and disseminate links to, infringing content. The complaint also claims that Hotfile uses a cash incentive program to encourage users to upload infringing content.
Since January 2011, cyberlocker sites have been drawing more traffic than BitTorrent sites, bringing to the attention of copyright holders. Predictably, these sites often contain access to copyrighted files. Hotfile itself has become one of the top 100 most trafficked sites on the Internet, making it a target for the MPAA.
Cyberlocker sites like Hotfile.com include disclaimers about compliance with the Digital Millennium Copyright Act as well as a process for filing take-down notices. Cyberlocker services are not inherently illegal. However, the plaintiffs allege that Hotfile’s use of a cash incentive program encourages people to upload infringing content to the site.
Hotfile may have initially been targeted because it had a track record of settling lawsuits against its service. However, they recently changed tactics. In April 2011, Hotfile filed a motion to dismiss the suit, which was followed by a ruling in July that dismissed the direct infringement claims against Hotfile. The judge found thatplaintiffs had failed to plead the necessary facts proving that Hotfile engaged in the required volitional conduct for a direct infringement of copyright law.
However, University of Texas law professor Christopher Harrison speculates that the decision throwing out the direct infringement claim may not survive on appeal. Harrison explains that Judge Adalberto Jordan’s reliance on Cartoon Network LP v. CSC Holdings Inc., 536 F.3d 121 (2d Cir. 2008) for the proposition that “a significant difference exists between making a request to a human employee, who then volitionally operates the copying system to make the copy, and issuing a command directly to a system, which automatically obeys commands and engages in no volitional conduct” may be misplaced.
Specifically, in Cartoon Network, defendant’s remote DVR system responded to commands from Cablevision subscribers and created a single, unique copy of a TV show for later viewing by that same subscriber. In [Hotfile], not only are uploaded files available to anyone using the site, Hotfile’s servers automatically make five additional copies of uploaded files and five unique links for those files. This seems to be a clear distinction.
However, in a recent filing, Hotfile has shown that it may be willing to fight back. Plaintiffs filed a motion to limit privilege logs that they are required to produce in the case. Privilege logs describe documents or other items withheld from production in a civil suit under claims of attorney-client privilege, work product doctrine, or trade secrets. The burden is on the withholding party to give the court and the opposing party enough information to test the privilege claim.
Hotfile opposed this motion, asking that the plaintiffs produce the standard, required privilege logs. In their opposition motion, Hotfile’s lawyers stated in a footnote that “[b]eing able to determine which withheld documents are related to [p]laintiffs’ cooperative antipiracy efforts to remove material from Hotfile is also important for a counterclaim Hotfile intends to bring against at least one of the [p]laintiffs — Warner Bros. Entertainment, Inc..” They allege that Warner has abused their anti-piracy tool by using it to remove content, which either was not infringing or for which Warner did not own the copyrights.
The MPAA complaint wasn’t the first major suit for Hotfile. In January 2011, plaintiff Liberty Media filed suit against Hotfile and 1,000 John Does alleging that jointly and severally, with actual or constructive knowledge of or with willful blindness, reproduced and distributed certain Liberty-owned works through www.Hotfile.com. Liberty demanded that the court freeze Hotfile’s assets held by PayPal and that the court seize Hotfile’s domain name in the meantime.
As of yet, Hotfile has not filed its counter-suit against Warner or any other copyright holders. Should these cases be successful, they may ignite a storm of litigation against other cyberlockers that could virtually shut these services down or severely limit their inherently legal function. The MPAA case against Hotfile will certainly be a strong indicator of what the future holds for other cyberlockers and whether they can survive legal scrutiny.
Nick Solish is a lawyer at Bryan Cave and recent graduate of the University of Texas. He can be contacted at nickolas.solish at bryancave.com.