Digital Distribution of Entertainment Content -- The Battle Lines Are Drawn

by:

Charles L. Simmons, Jr.
Gorman & Williams
CLSimmons@gandwlaw.com
www.gandwlaw.com
Phone: 410-528-0600 (Baltimore)
202-628-0564 (Washington)
Fax:   410-528-0602 (Baltimore)

 I.  Introduction

     A battle is being waged in the world of digital distribution.  The spoils to the winner will be the lucrative control over entertainment (i.e. music and video) content.  Squaring off are the copyright owners of content on one side and nearly everyone else involved in the entertainment industry on the other.

     Technology advances have made it possible for the average computer user to convert music and video from compact discs (“CDs”) and digital versatile discs (“DVDs”) to standard computer files.  Combining these advances with the ever increasing popularity of the Internet and faster download and transfer speeds, entertainment content owners are now confronted with the threat of unauthorized copying and widespread, rapid distribution of their copyrighted materials.

     This article will trace the development of the dispute over control of digital content and will analyze the groundbreaking test cases being brought by content owners in an effort to stop the unauthorized copying and distribution of their copyrighted music and video content.  The article will also look to what the future may bring by way of distribution of digital content and protection for content owners.

 II.  The Brewing Storm

  A. Copyrighted Content Owners

     A few mega-corporations own the vast majority of copyrighted CD and DVD content.

     These corporations and their associations are leading the charge against unregulated and unimpeded Internet copying and distribution of copyrighted digital content.  The major players in the recording industry have formed the Recording Industry Association of America (“RIAA”).  The RIAA’s members include among others UMG Recordings, Inc., Sony Music Entertainment, Inc., Warner Bros. Records, Inc., Arista Records, Inc., Atlantic Recording Corporation, BMG d/b/a The RCA Records Label, Capitol Records, Inc., Elektra Entertainment Group, Inc., Intersocpe Records, and Sire Records Group, Inc.  The RIAA’s member companies control approximately ninety two percent of all music sales in United States.  See August 10, 1999 speech of RIAA’s President, Hilary Rosen, presented at the 1999 IMX Conference.

     The major corporations involved in the film industry have also formed an association, the Motion Picture Association of America (“MPAA”).  The MPAA member companies include among others Universal City Studios, Inc., Paramount Pictures Corporation, Metro-Goldwyn-Mayer Studios, Inc., Tristar Pictures, Inc., Columbia Pictures Industries, Inc., Time Warner Entertainment Co., L.P., Disney Enterprises, Inc., and Twentieth Century Fox Film Corporation.

  B.  Digital Technology

     One of the most significant advance in recent years in the recording and film industry has been the development of technology to digitize music and video content.  The first commercially successful digital medium was the CD.  The CD revolutionized the way consumers listened to music by providing dramatically clearer sound than older technology analog recordings.  As consumer demand for digital music increased, the CD format quickly became the standard in the recording industry for releasing and distributing new content and for re-releasing existing content.  The film industry was slower to respond to consumer demand for digital format.  Nevertheless, by the mid-90s DVDs began to appear on the market.

     Copying digital music and maintaining the digital quality was initially impractical because the hardware necessary to access music stored on CDs was restricted in function to only playing digital music.  Although copying of CDs to cassette tapes was possible and easy to do, the quality of the analog copy was substantially inferior to the digital original. It was not until some years after the introduction of CDs that Digital Audio Tape or “DAT” technology became available and the threat of digital reproduction of the digital music content, with nearly identical quality, became a reality.

  C. The Audio Home Recording Act

     In response to the threat of digital quality reproduction, Congress enacted the Audio Home Recording Act (“AHRA”) of 1992, 17 U.S.C. §§ 1001 et seq.  The AHRA was heavily lobbied for by the RIAA and similar organizations.  The AHRA contains provisions to restrict “serial copying,” i.e., duplication in digital format of a copyrighted work from a copy of an original digital musical recording.  Id. at §1001(11).  Section 1002(a) of the Act also requires that all “digital audio recording devices” conform to the Serial Copy Management System (“SCMS”).  SCMS is a technology system that encodes a copy of an original digital recording with information that prevents making a copy of the copy.  Analogous to the traditional fair use exception to copyright infringement, under the AHRA consumers can lawfully reproduce copyrighted music for their own non-commercial use.  Id. at §1008.

  D.  The MP3 File Format Poses New Risks

     Relatively recently, music consumers became aware that CD music was nothing more than collections of computer data files with “wav” extensions, each “wav” file being a separate music selection.  The “wav” files contained on CDs are not encrypted to protect against unauthorized copying.  Software is now available that can “rip” digital “wav” files from CDs, compress the files so that they can be easily copied and transferred, and store the files on computer hard drives.  The format of choice of consumers for these compressed music files is the MP3 file format.

     MP3 is an off-shoot of technology developed by the Moving Pictures Experts Group (“MPEG”).  The MPEG compression system was developed to compress digital video and movie data.  The system includes a subsystem known as MPEG, audio Layer-3 (thus “MP3”) for compression of sound.  MP3 compression is now used with music that does not accompany video.  The effectiveness of the compression technology is demonstrated in a comparison between a “wav” file format compared to a MP3 file format for a three minute music selection.  A “wav” file would require approximately 32 million bytes of disk space and would take about two hours to transfer over a 56 kb modem.  In comparison, the file compression technology of MP3 reduces the disk space requirement to about 3 million bytes which can be transferred over a 56 kb modem in a matter of minutes.  See Marshall Brian, How MP3 Files Work, www.howstuffworks.com.

     As “ripping” software grew in popularity, the RIAA member companies became increasingly concerned that consumers would rip songs from their CD collections and freely distribute the MP3 file copies over the Internet.  The obvious risk to the companies being that consumers would stop paying for CDs if they could download MP3 files for free.

     In response to this new threat, the RIAA began a push to establish industry wide standards for playing, storing, and distributing digital music files.  This organized effort became known as the Secure Digital Music Initiative (“SDMI”).  See Secure Digital Music Initiative (SDMI) Fact Sheet, riaa.com.  As a primary goal, SDMI seeks to establish a digital music file format that will contain encryption technology (unlike MP3 files) to prevent the unrestricted and unregulated copying and transfer of digital music.  To date, because of the proliferation of software and hardware that can play MP3 files, the MP3 file format remains the de facto standard for play back of digital music.

  E.  Digital Video

     The video industry has had fewer problems than the music industry for one very important reason -- digital transfer of video requires huge amounts of disk space and tremendous download and transfer times.  This is true even where digital video is compressed with the most sophisticated compression software.

     Additionally, unlike CDs, DVDs currently contain encryption technology the intent of which is to restrict unauthorized copying of DVD content.  Thus, the threat of unauthorized copying and widespread dissemination of content owned by the MPAA member companies is currently less than that facing the RIAA member companies.   Instead of spearheading initiatives to develop new standards for digital video, the MPAA is currently focusing its efforts on improving and enforcing its encryption technology.

III.  The RIAA Fires The First Shot, But Misses

      In a groundbreaking case filed on October 8, 1998, the RIAA made its first attempt to stop the distribution of copyrighted music content in MP3 format.  The RIAA, on behalf of its member companies, filed suit against a manufacturer of hardware capable of playing MP3 files downloaded from personal computers.  See RIAA v. Diamond Multimedia Systems, Inc., Case No. 98-8247 ABC (RZx) (C.D. Cal. 1998).

     In Diamond Multimedia, the RIAA asserted that Diamond violated the AHRA by failing to file required notices with the Register of Copyrights and, more importantly, by importing, manufacturing and distributing a digital audio recording device not meeting the AHRA’s Serial Copy Management System requirement.  RIAA’s primary contention was that Diamond’s Rio PMP 300 MP3 player, similar in appearance to a portable cassette player, was a device designed and marketed for the purpose of making unauthorized copies of copyrighted music content.

     The RIAA enjoyed some initial success.  District Judge Collins granted a ten day temporary restraining order prohibiting Diamond from manufacturing and distributing its Rio PMP 300.  The RIAA’s brief success ended on October 26, 1998 following Judge Collins’ Order denying RIAA’s Motion for a Preliminary Injunction.  While finding that the Rio PMP 300 would likely fall under the AHRA’s definition of a digital audio recording device, and finding that the process of ripping “wav” files from CDs to MP3 files on a computer hard disk and subsequently downloading those files to the Rio PMP 300 would likely constitute serial copying, the District Court held that the Rio PMP 300 violated the AHRA only in a technical sense and that incorporation of Serial Copying Management System technology, would not prevent illegal serial copying of MP3 music files:

     [I]f Defendant incorporated SCMS technology into the Rio [PMP 300], no violation of Section 1002 occurs because the Rio would satisfy subsection (a)(1).  This holds true even though the two-step process (CD to hard drive; hard drive to Rio) technically satisfies the Section 1001(11) definition of “serial copying.” Incorporating SCMS into the Rio, however, accomplishes nothing.  The Rio could not “act[] upon copyright and generation status information” because the MP3 files on the computer’s hard drive do not contain this information.  Similarly, it is undisputed that the Rio does not permit downstream copying because the Rio itself has no digital output capability, and the removable flash memory cards cannot be copied by another Rio device.  Therefore, it is nonsensical to suggest that the Rio must “sen[d] . . . copyright and generation status information.” In summary, incorporating SCMS into the Rio appears an exercise in futility.  Because a Rio with SCMS would not violate section 1002, and because a Rio without SCMS is functionally equivalent to a Rio with SCMS, the Court is convinced that the Secretary of Commerce will conclude that the Rio adequately “prohibit[s] unauthorized serial copying” for purposes of subsection (a)(3).  Accordingly, Defendant is only violating Section 1002(a) in a most technical sense by failing to acquire a certificate.

     See Judge Collins’ October 26, 1998 Order (footnotes omitted).

     Following the denial of the RIAA’s motion for a preliminary injunction, Diamond filed a counterclaim against the RIAA for violations of State and Federal antitrust laws and unlawful business practices under California law.  The counterclaim sought treble and punitive damages for conduct allegedly aimed at injuring Diamond.  In particular, the counterclaim alleged that the lawsuit against Diamond was “a product of a conspiracy between the RIAA and others to restrain trade and restrict competition among manufacturers in portable MP3 devices and has, in fact, damaged Diamond’s profitability and credibility in a new market area.”  See Michael Robertson, Diamond Fires Back At RIAA, www.mp3.com/news/138.html, October 16, 1998.

     On June 15, 1999, the 9th Circuit Court of Appeals affirmed the District Court’s denial of a preliminary injunction.  RIAA v. Diamond Multimedia Systems, Inc., 180 F.3d 1072  (9th Cir. 1999).  Further, the 9th Circuit rejected the District Court’s preliminary finding that the Rio PMP 300 was a “digital audio recording device” as defined by the AHRA.  Id. at 1081.  The suit was ultimately settled out of court pursuant to undisclosed terms.  See Doug Reece, RIAA / Diamond Settle Lawsuit, www.mp3.com/news/306.html, August 4, 1999.

     The Diamond Multimedia decision dealt the RIAA a serious blow in its battle to stop unauthorized copying of music content and distribution of MP3 files.  The District Court’s decision, upheld by the 9th Circuit Court of Appeals, meant that the RIAA’s efforts against MP3 hardware manufacturers would not be successful and that it would be required to look to different fronts in its efforts to stop unauthorized copying and distribution of music content.

IV. RIAA’s Fallback Position -- Attack The Facilitators Of  MP3 File Transfers

     Beaten but not deterred by its defeat at the hands of Diamond Multimedia, the RIAA shifted its focus from hardware manufacturers to facilitators of MP3 file transfers over the Internet.

     On December 7, 1999, RIAA filed suit in the U.S. District Court for the Northern District of California against a small start-up company known as Napster, Inc.  Napster developed and offers for distribution software that allows users to log onto its computer servers.  That software indexes MP3 files located on a user’s hard drives and makes those files available for download by other users logged onto Napster’s servers.

     Napster’s services have become a huge hit on college campuses.   In a recent article that appeared in The Sun, a student from Virginia Technical Institute, and presumed frequent CD purchaser, is quoted as saying that because of Napster’s services he has not bought a CD in over nine months.  Concerned about the implications of allowing students to access Napster’s services over network equipment owned by the colleges and in an effort to maintain control of computer resources, many college campuses have banned student access to Napster.  For example, Indiana University banned student access after it found that 50 percent of its network capacity was being used by students downloading music from Napster.  Other colleges including Oregon State and the University of California at San Diego have also barred students from using Napster.

     The RIAA’s suit against Napster alleges that the company is liable for contributory and vicarious copyright infringement because its software assists users in exchanging unauthorized copies of copyrighted music content.  See Complaint in A&M Records, Inc. v. Napster, Inc., Case No. 99-CV-5183 (N.D. Cal. Dec. 1999).  The RIAA suit seeks statutory damages in the amount of $100,000 for each copyrighted song transferred following the use of Napster’s indexing capabilities, estimated to be about 200,000 songs.  See Rich Menta, RIAA Sues Music Startup Napster for $20 Billion, www.mp3newswire.net/stories/napster.html, December 9, 1999; RIAA’s December 7, 1999 press release “Recording Industry Sues Napster for Copyright Infringement,” www.riaa.com/piracy/press/120799.html.  It is interesting to note that Napster does not directly copy, store, or transfer any MP3 files.  Its services merely provide its users with information concerning where MP3 files can be found and how they can be transferred.

     Officials from the RIAA have publicly referred to Napster’s activities as “operating a haven for music piracy on an unprecedented scale” and have commented that Napster service is “similar to a giant online pirate bazaar.”  See Brian Hiatt, RIAA Sues Napster Claiming “Music Piracy,” www.sonicnet.com/news/archive/story.jhtml?id=569952, December 8, 1999.

     A similar suit has been filed by the RIAA against MP3.com, Inc (“MP3.com”).  MP3.com began as a commercial Internet site that promoted the music of lesser known recording artists who were not signed by the major recording labels. MP3.com’s web site collected MP3 files created by these artists and provided visitors to its web site free access to those files.

     In January 2000, MP3.com, spurred on by its initial success, began offering two new service known as “Instant Listening” and “Beam-It.”  The two services provide basically the same function of allowing users access to “lockers” of music selections located on MP3.com’s computer servers that can be listened to anytime and anywhere.  Instant Listening allows a user at the time of purchase of a CD from an on-line retailer to have the music contained on the CD stored in the user’s “locker” on MP3.com’s web site.  Beam-It searches a user’s CD ROM drive for music CDs.  If an authorized CD is located, the music selections contained on that CD are stored in the user’s locker.  See Frequently Asked Questions About RIAA’s Lawsuit Against MP3.com, www.riaa.com/tech/press/022500.htm.  These services do not copy music selections from a user’s CD collection.  Rather, they provide access to music selections contained in a user’s locker from a database created by MP3.com.  That database consists of MP3 files ripped from CDs by MP3.com.

     On request of the user, MP3.com “streams” music selections from the user’s locker for playback.  “Streaming” is a process that allows a user to receive music and video content over the Internet through the use of software such as RealNetworks’ RealPlayer.  Streaming is similar to listening to music on a radio or watching a program on television.  Unlike radio or television, however, the streamed music or video in most circumstances cannot be recorded (or downloaded in the case of the Internet).  MP3.com’s Instant Listening and Beam-It services do not permit the user to download MP3 files.

     The allegations of the RIAA’s suit against MP3.com contend that the company violated Section 106 of the Copyright Act of 1976 when it reproduced copies of copyrighted works in the creation of its database of music selections ripped from CDs.  See Complaint for Copyright Infringement filed in UMG Recordings, Inc. v. MP3.com, Inc., Case No. 00 Civ. 0472 (JSR) (S.D.N.Y. Jan. 21, 2000).  In response, MP3.com contends that the creation of its music database is protected under the fair use exception that permits consumers to make copies of their sound recordings for personal, non-commercial use.  MP3.com asserts that it is doing nothing more than providing consumers with access to their own music.

     Summarizing the core issues involved in the dispute, MP3.com’s Chief Executive Officer states that the RIAA member companies do not have the right to control music content after it is purchased by the consumer:
The RIAA decries that its copyrights have been violated.  This is the rhetoric of a monopolist.  Your organization says that it controls 90% of the off-line distribution of music.  But the question is, to whom does the music belong?  When a consumer buys a CD, does the industry get to tell the consumer where she can listen to her music?  The type of technology that she can use to play the CD?  Whether she can use new Internet technologies?  What about the fair use rights of the consumer, Hilary?  Is it all about forcing consumers to use out-dated technologies to induce yet another CD sale?

     We think the future points in a different direction.  Only the person who buys the CD is entitled to listen to that music through our service.  That’s it.  Your argument is that technology companies cannot facilitate that use.  Why?  Because you apparently believe that you have the right to control the content even after the user buys it.  We disagree.

     See January 21, 2000 letter from Michael Robertson, CEO of MP3.com, to Hilary Rosen, CEO of the RIAA (located on the Internet at www.mp3.com/response.html).

     How will the courts rule in these two cases?  Only time will tell.  The outcome of these cases will determine whether Internet technology will wrest away some of the reproduction and distribution rights previously held exclusively by the RIAA’s member companies.

 V. A Stray Shot From A Recording Industry Ally

     In another celebrated case, suit was filed by RealNetworks, Inc., a company authorized by content owners to distribute software (the “RealPlayer”) which permits users to receive streamed audio and video.  The suit is unusual in that it appears to be the first action taken against a company dealing in entertainment content by someone other than content owners or the associations that represent them.

     In its complaint, RealNetworks accuses Streambox, Inc. of violating Section 1201 of the Copyright Act of 1976 (added after the signing into law on October 28, 1998 of the Digital Millennium Copyright Act and prohibiting offering to the public software or devices designed to circumvent technology that controls access to works protected by copyright) by offering for distribution three software products: Streambox Ripper, Streambox VCR, and Streambox Ferret.  See RealNetworks, Inc. v. Streambox, Inc., Case No. C99-2070Z (W.D. Wash. 1999).  The primary allegation of RealNetwork’s suit is that the Ripper and VCR products allow Streambox users to circumvent the security technology RealNetwork’s incorporates in its software to protect copyrighted content from being downloaded, copied, or transferred.

     On January 18, 2000, Judge Pechman granted a preliminary injunction prohibiting Streambox from distributing its VCR and Ferret products.  The court declined, however, to preliminarily enjoin Streambox from distributing its Ripper software that has the ability to convert RealNetworks’ proprietary file formats into MP3 or “wav” files.

VI.  Victory on the Video Front

     The first major victories for content owners resulted from suits brought by the MPAA and affiliated companies against disseminators of a software utility designed to circumvent the encryption technology incorporated with DVD content.

     Video content stored on DVDs is protected from unauthorized copying by the use of a copy protection and access control system known as Contents Scramble System or “CSS.”  DVD playback devices work with the CSS through the use of keys to descramble and intelligibly play back the motion picture.

     In about October, 1999, computer hackers in Europe developed DeCSS, a software utility capable of defeating CSS security.  With the use of DeCSS, DVD content can be stored on a computer hard drive and transferred as computer files over the Internet between those users with sufficient computer resources to transfer and download the enormous files.

     In December 1999 and January 2000, suits were filed in New York and California by the film industry seeking to enjoin individuals and corporate entities from publishing DeCSS on their web sites.  See Universal City Studios, Inc. v. Reimerdes, Case No. 00 Civ. 0277 (S.D.N.Y. Jan. 14, 2000) DVD Copy Control Assoc., Inc. v. McLaughlin, Case No. CV 768804 (Super. Ct. 1999).  The California suit claimed that the defendants who posted DeCSS on their web sites had misappropriated trade secrets.  The New York suit alleged that the posting of DeCSS violates Section 1201 of the Copyright Act.

     Both suits have resulted in preliminary injunctions prohibiting the defendants, at least temporarily, from posting the DeCSS utility on their web sites.  In an interesting side note, and what should be lesson to us all, the California complaint was filed with an affidavit attaching a copy of the DeCSS computer code.  The affidavit was not filed under seal and the attorneys for the film industry did not request that the affidavit be placed under seal for approximately two weeks.  During this time the www.cryptome.org web site obtained a copy of the publicly available affidavit and posted the DeCSS code on its site.  See Evan Hansen, DVD Lawyers Spill “Secret Code,” www.cnet.com, January 26, 2000.

VII.  The Future of Digital Content Distribution

     Many have speculated on the future of digital music and video.  For certain, the recording and film industries will continue to release new content and pre-existing content in digital format to meet the ever increasing demands of consumers.  What is also certain is that new methods of content distribution over the Internet will require the recording and film industries to change the way they do business, i.e., change the way they interact with consumers to deliver music and video content.

     With regard to the recording industry, the MP3.com model appears to be the future, although it may not be MP3.com in control.  With technology currently available and soon to be available, music consumers will be able to listen to digital music files transferred over the Internet at home, in the car, at the office or where ever else they may be.  Improvements in Internet access and transfer and download speeds may someday eliminate the need for the consumer to own audio disc or other forms of tangible medium to listen to music.

     Perhaps in the not too distant future consumers will purchase all of their music on-line and store the digital music files with companies such as MP3.com.  These companies could then stream, on request, music selections to the consumer’s portable receiver, car stereo, computer, or other music player.  Encryption technology incorporated in the streamed audio files could be perfected to protect against unauthorized downloading and transferring.  Suits like those brought against Napster and MP3.com would be used as an effective tool to slow the  unauthorized copying and distribution of copyrighted music until the new distribution models and methods have achieved full consumer acceptance.

     With regard to the film industry, the future clearly lies in the development of vastly improved compression technology that would make streaming of feature length films and other video entertainment feasible.  As with the music industry the future may also see the end of consumers owning physical copies of video entertainment.  It is foreseeable that in the near future consumers will have the ability to go on-line and select copies of their favorite movies and television programs.  Those selections could then be streamed, in a particular viewing order, directly to the consumer’s digital ready viewing equipment. Video content owners could also receive protection against unauthorized copying through the use of encryption technology incorporated in the streaming process.

     Perhaps with the advent of new distribution models and methods, the recording and film industries could put the legal battles behind them and go back to doing what they try to do best - delivering quality entertainment content.

© 2000 Maryland State Bar Association, Inc.  Originally published in the July/August 2000 issue of the Maryland Bar Journal. Reprinted with permission.