ROCKING AND RIPPING ON THE WORLD WIDE WEB: THE COLLISION BETWEEN DIGITAL MUSIC AND COPYRIGHT LAW

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1 13 SAcLJ Digital Music and Copyright Law 323 ROCKING AND RIPPING ON THE WORLD WIDE WEB: THE COLLISION BETWEEN DIGITAL MUSIC AND COPYRIGHT LAW As a new and global communications medium, the Internet has enabled the quick and effective dissemination of digitized content. For popular and technological reasons, the music industry has become the first major content industry to face the legal issues surrounding the rapid and widespread distribution of digital music. This article attempts to summarize the legal and business issues arising from the recent litigation in the United States between the American recording industry and several technology service providers (in particular, the Napster case); and offers a glimpse of the major players, commercial stakes and innovative solutions that have emerged as notable features and consequences of these cases.* In 1988, the Moving Pictures Experts Group ( MPEG ) was established as a working group of the International Standards Organisation, to develop standards for the coding, storage and retrieval of digital audio and video. 1 MPEG produced various work items, including MP3 (for MPEG 1, audio layer 3 ), which, simply put, is an algorithm that permits the compression of audio files, in such a way that formerly bulky music files can be stored on minimum disk space and downloaded and transmitted quickly, using little bandwidth in the process. With software programs known as digital audio extractors (or rippers ), a computer user could take a particular track from a compact disc ( CD ), or any audio source, compress and encode it into a MP3 file, and store the file on his/her hard drive, or write it onto a recordable CD. In addition, the compressed file was of near-cd (or equivalent) sound quality and could be attached to an , or otherwise uploaded and transmitted to other computer users relatively easily. MP3 technology therefore had a huge and immediate impact on the reproduction and distribution of music over the Internet. At the same time, broadband connections (such as through cable modems or digital subscriber lines ( DSL ), which allowed for faster downloads and transmissions compared to the older, slower telephone dialup connection speeds) arrived and Internet connectivity increased. Internet websites offering free MP3 software downloads, instructions and server * This article reflects developments in the digital music industry, and the related case law and business deals, as of July At the time, negotiations, discussions and technological collaborations were still ongoing; certain relevant developments subsequent to July 2001 are referred to in the applicable footnotes. 1 The webpage for the Group, listing their work and terms of reference, is at

2 324 Singapore Academy of Law Journal (2001) space for the uploading of MP3 music files sprang up, and hardware/ equipment manufacturers started to develop and introduce portable MP3 players which allowed the user to listen to downloaded MP3 music files without having to sit in front of his/her computer. 2 All this technological development and its rapid adoption by Internet and computer users, coupled with the general popularity of music, meant that the online exchange, trading, transmission and distribution of MP3 music files grew extremely quickly. 3 However, the corresponding risk created by these great advances in technology, which render it so convenient and easy to make, copy, send and distribute high-quality music to large numbers of people using readily available and easily accessible means, clearly includes the increased risk of piracy of copyright-protected ( copyrighted ) works, materials and content. According to the Recording Industry Association of America (the RIAA ), 4 between 1999 and 2000, there has been a growth in the number of commercial websites illegally offering copyrighted music for downloading; for example, the first six months of 2000 saw over 200% more copyright notices being sent, pursuant to the Digital Millennium Copyright Act (or DMCA ), 5 as compared to the number of such notices that were issued during the whole of The most well-known portable MP3 player is probably the Rio player, manufactured by Diamond Multimedia Systems, Inc ( Diamond ) and launched in October The Rio player was itself the subject of litigation between Diamond and the Recording Industry Association of America (the RIAA ): see the discussion, infra. 3 MP3.com, Inc recently estimated that 4.2 million people possessed 91 million music files on their hard drives; as of February 2001, the MP3.com website (at carried more than 926,000 songs and audio files by over 144,000 artists, and over 888,000 unique daily visitors. In addition, in June 1999, Webnoize Magazine estimated that the legal downloading of music files from sites such as MP3.com had increased over 800% between December 1998 and April The RIAA is a trade association whose members are responsible, between them, for approximately 90% of all the legitimate sound recordings manufactured and/or distributed in the United States. 5 The DMCA, among other things, provides for safe harbors for Internet service providers that include a fairly elaborate notice and take down process by which means copyright owners can notify such providers that copyrighted material is being posted or made available on their websites illegally: see Title II of the DMCA generally, and the discussion, infra. 6 It has also been estimated by ebusiness that, by 2003, online music piracy could cost over U.S.$10 billion annually, while Bernstein Research predicts that, by 2002, up to 16% of all U.S. online sales could be lost to web piracy, costing $985 million in lost profit; in comparison, Forrester Research estimates that by 2003 the market for digital downloads will be worth $2 billion, and that by 2004 up to 25% of all online music sales will be downloads. It has also been estimated that over 90% of MP3 files in circulation were obtained without the copyright owner s permission: see M. Spaulding, The ABCs of MP3: A Crash Course in the Digital Music Phenomenon, a background paper prepared for the Berkman Center for Internet & Society at Harvard Law School, available at

3 13 SAcLJ Digital Music and Copyright Law 325 Anti-piracy efforts on the part of copyright owners have included enforcement efforts against: (1) manufacturers of the equipment used to playback MP3 music files, 7 (2) operators of web sites that post copyrighted material without the requisite consents, 8 and (3) service providers and other parties that facilitate and assist in the location and copying of MP3 music files online. This article will focus primarily on the enforcement efforts that the music and recording industries have employed in the United States, in the context of (3), although references will be made and certain similar issues analysed in relation to the other enforcement attempts listed in this paragraph. With respect to the industry s enforcement efforts against parties who were thought to be providing software and/or services that aided and enabled Internet and computer users to share and exchange copyrighted music online and illegally, the most notable cases in the United States have been the decisions and litigation between the RIAA and MP3.com, Inc, and between the RIAA and Napster Inc. The upshot of these cases has so far been viewed generally as a victory for the copyright owners (as represented by the RIAA and its members). These cases also show the extent to which copyright law (including its various extensions and amendments, such as the DMCA) can be invoked to protect the rights and interests of copyright holders in works and content that started life in the form of traditional media (such as song lyrics and musical compositions, which were then turned into sound recordings). These works and content were then subsequently converted into digital form, made available online and thus fell within the technological abilities of the new MP3 technology. From these two cases, it therefore seems as though the balance between protecting the interests of authors and inventors in the exploitation of their works and inventions, and protecting the competing interest of society and the public at large in having access to the free flow of 7 As in the RIAA v Diamond case: see discussion, infra. 8 As in the various instances where the RIAA has attempted, usually in reliance on various provisions of the DMCA, to enforce copyright in various works against, e.g., a Princeton computer science professor in April 2001 (regarding the professor s impending disclosure of the technology he had employed to crack the recording industry s Secure Digital Music Initiative code); and various web site operators and individuals in 1999 (regarding these parties posting of, and linking to sites containing, the DeCSS algorithm breaking the digital video disc industry s encryption code): see J. Brown, Is the RIAA Running Scared?, Salon.com (April 26, 2001) (available online at

4 326 Singapore Academy of Law Journal (2001) information and ideas is currently tilted, at least in this arena, in favour of the copyright owners. 9 A. The Technology and the Beginnings of the MP3.com and Napster Cases In 1997, MP3.com, Inc ( MP3.com ) began offering downloads of digital music on its website, which operated as a kind of combination digital jukebox and digital radio station, 10 allowing users to download for free (or purchase on CD) music uploaded by artists wishing to attract an audience for their work but while circumventing traditional record companies and distribution networks. For the first two years, MP3.com featured downloads of music from artists who were not represented by record companies or distribution labels. However, in January 2000, MP3.com introduced a service labeled My MP3, which worked either through the Instant Listening Service or the Beam-It Service, both of which were based on a user s initial and legitimate ownership of a CD. The Instant Listening Service allowed users to store and listen to CDs that they first purchased from one of MP3.com s electronic commerce partners, tracks from which CDs were then uploaded to the user/ purchaser s online account for him/her to access and listen; while the Beam-It Service allowed a user to play a CD from his/her computer, which CD would then be identified by MP3.com, following which identification the user could stream the CD tracks from MP3.com s servers to any Internet-connected computer. In January 1999, a college student named Shawn Fanning developed a software application that would allow users to locate and exchange MP3 music files over the Internet. The main innovation with the program was that it utilised a peer to peer system that allowed a user to access another user s computers directly, so as to access and download the files the first user wished to have. Napster Inc (named after Fanning s childhood nickname) ( Napster ) was founded in May 1999, releasing the beta 2.0 version of its software soon after, and the company almost 9 Article I, 8, cl. 8, of the U.S. Constitution states that Congress shall have Power to Promote the Progress of Science and useful Arts, by securing for limited Times to Authors and Inventors the exclusive Right to their respective Writings and Discoveries. This provision has repeatedly been interpreted by the U.S. courts to mean that the monopoly privileges that Congress may authorize are neither unlimited nor primarily designed to provide a special private benefit. Rather, the limited grant is a means by which an important public purpose may be achieved. It is intended to motivate the creative activity of authors and inventors by the provision of a special reward, and to allow the public access to the products of their genius after the limited period of exclusive control has expired. See, e.g., Sony Corp v Universal City Studios, Inc, 464 U.S. 417 (1984), and, generally, R. Merges, P. Menell and M. Lemley, Intellectual Property in the New Technological Age (2nd ed., 2000). 10 See L. Napoli, Music Licenser Announces Agreement With Web Site, The New York Times, June 19, 1999, at C2.

5 13 SAcLJ Digital Music and Copyright Law 327 immediately took the online world by storm, 11 rapidly becoming the world s largest online music file-sharing service. The Napster service works as follows. On its website, 12 Napster provides users with free MusicShare software that the user downloads to his/her computer. The user selects a screen name and password in order to log on to Napster s servers; once logged on, the user is effectively networked with other Napster users who are also logged on, as the MusicShare software and Napster s server-side software would allow the user to conduct a text search for his/her requested file, scanning the file names and indexes then made available by those other users, which are listed on transient logon directories on the Napster servers. Once a search yields results, the searching user can click on the particular file he/she wishes to download, whereupon the Napster server will route the download request to the host user s MusicShare browser, for it to respond to the request. A successful request and response will result in a direct connection being made between the searching user and the host user s computers in order for the download to be performed, computer to computer, or, as the practice has become commonly known and referred to, as peer to peer ( P2P ). 13 This is not to say that the MP3 format, or any file-sharing software or service, is utilised on the Internet only for the distribution of pirated music, or otherwise illegally. There are a number of website operators and service providers who enable the online distribution of non-copyrighted music or copyrighted music which the copyright owner wishes to provide freely to Internet users. For instance, the Internet Underground Music Archive offers a website that caters to independent musicians without lucrative recording deals, and provides them with a URL, webpage and other services (such as , message boards and MP3 file postings). 14 Equally, the technology can be, and is, used for both legitimate as well as illegal purposes, as has been recognized in the relevant case law, including the appellate court in the Napster litigation Within its first nine months of existence, Napster boasted over ten million registered users. 12 At the site currently has all the legal briefs and documents filed in the litigation with the RIAA, including the decisions of the District Court and the Ninth Circuit appellate court. 13 For an excellent overview of what constitutes P2P technology, see C. Shirky, What is P2P and What Isn t, a piece written by a partner in The Accelerator Group for the O Reilly Network and available online at 11/24/shirky1-whatisp2p.html. 14 See 15 See, e.g., Sony Corp v Universal City Studios, Inc., 464 U.S. 417 (1984); A & M Records, Inc v Napster, Inc, 239 F.3d 1004 (9th Cir. 2001), also available at

6 328 Singapore Academy of Law Journal (2001) The music industry s response to the activities of MP3.com and Napster was similar: in both cases, the companies found themselves facing lawsuits relating to alleged copyright infringement. On January 21, 2000, the RIAA filed a lawsuit against MP3.com in the U.S. District Court for the Southern District of New York, claiming copyright infringement on the part of MP3.com, based on the My MP3 service and seeking declaratory, injunctive and monetary relief. 16 On December 6, 1999, A & M Records and several other recording companies filed suit against Napster in a U.S. district court for the Northern District of California, claiming contributory and vicarious copyright infringement on the part of Napster. The MP3.com decision, with respect to summary judgment proceedings, was handed down on April 28, 2000; the Napster decision, with respect to an appeal to the Ninth Circuit by Napster against the district court s initial interlocutory order, was handed down on February 12, B. The Lawsuits in Context The copyright issues and problems raised by the MP3 technology and the services being provided by MP3.com, Napster and other companies, are not necessarily new. Throughout the history of copyright law, various technological innovations have highlighted the limitations and uncertain scope of copyright tenets and principles. For instance, the U.S. Supreme Court held in 1908 that encoding music in a piano roll, used by an automatic player piano, did not amount to copyright infringement. More recently, U.S. and English courts have had to grapple with technological challenges to copyright in the form of twin deck cassette tape recorders that permitted easy duplication of music from a recorded cassette tape to another, 17 video recorders that permitted the recording of films and images, 18 and digital audio tape ( DAT ) technology that produced 16 Interestingly, on February 7, 2000, MP3.com filed a countersuit against the RIAA, claiming defamation, trade libel, interference with possible economic advantage, and unfair business practices. 17 For example, in CBS U.K. v Armstrad [1988] RPC 567, where the manufacturer of such a machine was sued under the copyright law of the United Kingdom, for authorising the act of primary copyright infringement by the user of the machine. 18 For example, in the Sony v Universal case. For a general discussion of the challenges and solutions that copyright law (in particular, U.S. copyright law) has met and developed in relation to new technology, see P. Goldstein, Copyright s Highway: the Law and Lore of Copyright from Gutenberg to the Celestial Jukebox (Hill & Wang, Inc 1994). In general, these cases show, as Professor Goldstein points out, that copyright owners who sued alleged infringers by reason only of the defendants development or use of new technology (where such technology could and often was used for legitimate and non-infringing purposes) could not usually convince the courts that the copyright laws extended so far as to prevent the defendants from making their technology available.

7 13 SAcLJ Digital Music and Copyright Law 329 high-quality sound reproductions on tape. 19 In these, and other, instances, the courts have proven themselves extremely adept in applying and adapting copyright laws to the then-new technology. Similarly, the copyright statutes (and the legislators behind them) have demonstrated a long history of being capable of accommodating the new technology within their protective folds. In England, the first copyright statute was codified in In the United States, the first congressional copyright statute was enacted in Since then, each statute has been amended, extended and superseded by subsequent enactments, changes and new legislation; from the extension of the term of copyright protection, 20 to the type of authors who were protected 21 and the nature of the works protected. 22 In general, both the legislators and the courts which interpret the scope of copyright legislation have shown an ability to respond to the challenges which new technology poses to existing copyright law in a reasonably practical and balanced way that does not overly or unduly favour the copyright owners and holders. The question that this article will attempt to scrutinise is whether or not a similar answer can be given in relation to the newest challenge that technology has thrown up against copyright law: digital music on the Internet. This will involve a consideration of the courts decisions in the MP3.com and Napster decisions, in light of current business realities and the rapid pace of technological developments in this area. 19 The development of DAT technology was one of the motivating forces for the Congressional passage of the Audio Home Recording Rights Act of 1992 (the AHRA ) in the United States; the relevance of the AHRA to the digital music issue, particularly the Napster case, is discussed infra. 20 The first copyright statutes granted rights for fourteen years. 21 For example, the engravers and textile designers in England quickly obtained some form of statutory protection for their work, in the eighteenth century following the enactment of the Copyright Act of For example, the original U.S. copyright statute protected only maps, charts and books; and in the United Kingdom cinematograph films and broadcasts were not protected by copyright law until the Copyright Act of Many other examples of the expansion and adaptation of copyright laws to new technology and interests can be cited, including the 1998 Digital Millennium Copyright Act passed in the United States to, inter alia, provide for the anti-circumvention of technological measures used by copyright owners to prevent tampering with their works, and allow for the exemption from liability of online service providers who satisfy certain statutory safe harbors with respect to copyright infringement.

8 330 Singapore Academy of Law Journal (2001) C. The Cases and the Law as Applied by U.S. Courts (i) Background: U.S. Copyright and Related Legislation It would be helpful to first set out the main aims and effects of the U.S. copyright and related statutes that were at issue in the MP3.com and Napster cases The U.S. Copyright Act The main federal copyright statute is the Copyright Act. 24 Section 102 of the Act provides that copyright protection subsists in original works of authorship fixed in any tangible medium of expression, now known or later developed, from which they can be perceived, reproduced, or otherwise communicated, either directly or with the aid of a machine or device. Works of authorship include literary works, musical works (including any accompanying words), dramatic works (including any accompanying music), pantomimes and choreographic works, pictorial, graphic, and sculptural works, motion pictures and other audiovisual works, 25 sound recordings, and architectural works. Copyright protection 23 Other U.S. copyright and related legislation include the 1997 No Electronic Theft Act (which provides for criminal penalties with respect to copyright infringement that is committed through electronic means), and the 1995 Digital Performance Right in Sound Recordings Act (which amended certain sections of the Copyright Act to include public performance rights with respect to sound recordings; one of the effects of this Act is that several licenses would need to be procured by a person wishing to distribute digital phonorecords (such as MP3 music files), to cover both performance and distribution rights. 24 Codified at 17 U.S.C defines audio visual works as works that consist of a series of related images which are intrinsically intended to be shown by the use of machines, or devices such as projectors, viewers, or electronic equipment, together with accompanying sounds, if any, regardless of the nature of the material objects, such as films or tapes, in which the works are embodied. Other useful definitions include: (1) A work is fixed in a tangible medium of expression when its embodiment in a copy or phonorecord, by or under the authority of the author, is sufficiently permanent or stable to permit it to be perceived, reproduced, or otherwise communicated for a period of more than transitory duration and (2) Motion pictures are audiovisual works consisting of a series of related images which, when shown in succession, impart an impression of motion, together with accompanying sounds, if any.

9 13 SAcLJ Digital Music and Copyright Law 331 also extends to compilations and derivative works. 26 Copyright ownership confers on the copyright holder the exclusive rights to do (and to authorize to do), among other things, reproduction of the copyrighted work in copies or phonorecords, distribution of copies or phonorecords of the copyrighted work to the public by sale or other transfer of ownership, or by rental, lease, or lending, and in the case of sound recordings, to perform the copyrighted work publicly by means of a digital audio transmission, 27 subject to limitations on such exclusive rights such as fair use The Audio Home Recording Rights Act of 1992 (the AHRA ) 29 The AHRA primarily dealt with the rights, restrictions and immunities affecting the use of digital home recording technology. The AHRA prohibits the import, manufacture or distribution of any digital audio recording device 30 or digital audio interface device that did not conform to the Serial Copy Management System or its functional equivalent, 31 as well as the import, manufacture or distribution of any device, or the offer to perform or the performance of any service the primary purpose or effect of which is to avoid, bypass, remove, deactivate, or otherwise circumvent any program or circuit which implements, in whole or in part [the SCMS or its functional equivalent]. 32 However, the Act also provides 26 Defined, respectively, in 101 as a work formed by the collection and assembling of pre-existing materials or of data that are selected, coordinated, or arranged in such a way that the resulting work as a whole constitutes an original work of authorship and a work 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. A work consisting of editorial revisions, annotations, elaborations, or other modifications which, as a whole, represent an original work of authorship, is a derivative work. Compilations also include collective works, defined as works 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. 27 See 106, U.S. Copyright Act. Other exclusive rights include the right to prepare a derivative work based on the copyrighted work, and a right of public performance provides that the fair use of a copyrighted work, including such use by reproduction in copies or phonorecords or by any other means specified by that section, for purposes such as criticism, comment, news reporting, teaching (including multiple copies for classroom use), scholarship, or research, is not an infringement of copyright. 29 Codified at 17 U.S.C Defined as a machine or device commonly distributed for individual use, the digital recording function of which is designed or marketed for the primary purpose of, and that is capable of, making a digital audio copied recording for private use. 31 Essentially, a form of technological control that prevents second-generation digital copying. 32 See 1002 of the AHRA.

10 332 Singapore Academy of Law Journal (2001) (in 1008) for immunity from copyright infringement for consumers who perform non-commercial home taping, stating that [n]o action may be brought under this title alleging infringement of copyright based on the manufacture, importation, or distribution of a digital audio recording device, a digital audio recording medium, an analog recording device, or an analog recording medium, or based on the noncommercial use by a consumer of such a device or medium for making digital musical recordings or analog musical recordings. 3. The Digital Millennium Copyright Act of 1998 (the DMCA ) 33 Of the five Titles making up the DMCA, 34 Title II is likely to be of most relevance to the issue of digital music, in the context of the MP3.com and Napster cases. Title II adds a new Section 512 to the federal Copyright Act, thereby creating four limitations on liability for the benefit of online service providers with respect to copyright infringement. These limitations, or safe harbors, are not conjunctive (i.e., it is not necessary to qualify for all four in order to take advantage of any one of the four safe harbors ); further, failure to qualify for one of the four limitations does not mean the service provider is therefore liable for copyright infringement (i.e., the copyright owner must still prove infringement on the part of the provider, and the provider may, if appropriate, avail himself of any defence(s) available to it under general copyright law). Service provider is defined rather broadly in the DMCA to mean, for the most part, a provider of online services or network access, or the operator of facilities therefor. 35 The definition is broad enough to include many more entities and persons than internet service or access providers, including possibly company intranets. To qualify for any of the limitations, 33 Signed into law by then-president Clinton on October 28, 1998, the DMCA is divided into five titles: Title I (the WIPO Copyright and Performances and Phonograms Treaties Implementation Act of 1998 ) implements the World Intellectual Property Organization ( WIPO ) treaties of 1996 regarding copyright and performances and phonograms; Title II (the Online Copyright Infringement Liability Limitation Act ) provides for limitations on the liability of online service providers with respect to copyright infringement; Title III (the Computer Maintenance Competition Assurance Act ) exempts the copying of a computer program for purposes of maintenance or repair; Title IV consists of several provisions that deal, inter alia, with the functions of the U.S. Copyright Office; and Title V (the Vessel Hull Design Protection Act ) creates a new right protecting the design of vessel hulls. See, generally, the U.S. Copyright Office Summary of the DMCA issued in December 1998 (available at and J. Band, The Digital Millennium Copyright Act, a summary of the major provisions and effects of the DMCA, available online at 34 Ibid U.S.C. 512(k)(1)(B).

11 13 SAcLJ Digital Music and Copyright Law 333 a service provider has to adopt and reasonably implement a policy that, in the appropriate case, terminates the accounts of repeat infringers, and it has to accommodate and not interfere with standard technical measures (i.e., nondiscriminatory measures used by copyright owners to identify and protect their works pursuant to a consensual, open, fair and voluntary multi-industry process, which measures do not impose substantial costs on the service providers). Generally, the limitations cover the service provider s acts of (1) system caching, (2) transmission of unmodified information as a mere conduit at a user s request, (3) hosting infringing material on the provider s information repositories (such as a website) at a user s direction, and (4) using information location tools (such as hyperlinks, search engines and online directories) to refer or link users to a website containing infringing material. Of the four limitations, the one at issue in the Napster case was (3), and this provision of the DMCA will be examined in some detail below. 36 (ii) An Early Case: the Rio MP3 Player 37 In 1998, the RIAA sued Diamond Multimedia Systems ( Diamond ) under the provisions of the AHRA, alleging that the portable MP3 player manufactured and distributed by Diamond (the Rio ) 38 was a digital audio recording device within the scope of the AHRA and as such had to meet the statutory requirements that it employ a Serial Copyright Management System ( SCMS ) to send and receive information about the copyright status of the music that it plays. 39 The AHRA does not prohibit digital copying of copyrighted audio recordings; instead, it prohibits the manufacture or distribut[ion of] any digital audio recording device that does not conform to the [SCMS or its functional equivalent]. 40 A digital audio recording device is defined as any machine or device of a type commonly distributed to individuals for use by individuals the digital recording function of which is designed or marketed for the primary purpose of, and that is capable of, making a digital audio copied recording for private use. 41 A digital audio copied recording is defined as a [digital] reproduction of a digital music 36 Infra, n.51 and accompanying main text (under C(iii)(b) The Napster Case ). 37 Recording Industry Ass n of America v Diamond Multimedia Systems, Inc, 29 F. Supp. 2d 624 (C.D. Cal. 1998), aff d, 180 F.3d 1072 (9th Cir. 1999). 38 The Rio is a small playback device, with headphones, that allows a user to listen to MP3 audio files downloaded to a computer, while the user is away from that computer. 39 See 17 U.S.C. 1002(a)(2). 40 Ibid. 1002(a)(1) & (2). 41 Ibid. 1001(3).

12 334 Singapore Academy of Law Journal (2001) recording, whether that reproduction is made directly from another digital music recording or indirectly from a transmission 42 (emphasis added); and a digital music recording is defined as a material object from which sounds and material can be perceived, reproduced, or otherwise communicated, either directly or with the aid of a machine or device. 43 On June 15, 1999, the U.S. Court of Appeals for the Ninth Circuit held that, taken together, these definitions mean that the Rio would constitute a digital audio recording device if it was able to reproduce a digital music recording, either directly or from a transmission. The court looked at the nature and workings of the Rio, and the legislative history of the AHRA, and held that the Rio was not a digital audio recording device within the meaning of the statute. The reasons given by the court in reaching its decision included the fact that the legislative history of the AHRA led the court to the conclusion that its main purpose was to facilitate personal use by consumers to make copies of recorded music for their private, noncommercial use. 44 The court also stated that personal computers are not considered digital audio recording devices, since the recording function of a personal computer is primarily intended for the recording of data and computer programs. The AHRA would therefore permit computer files to be laundered through their passage into and out of a computer. As such, the Rio s operation and primary purpose as a consumer playback device were consistent with the purposes of the Act. Although the Diamond decision concerned a narrow issue under the AHRA rather than a more general question of whether or not MP3 technology (including equipment manufactured to maximise that technology) could fall foul of copyright protection laws, it appeared to signal that U.S. courts might take a favourable view of the new technology and thus a liberal view of copyright. In particular, the court s express reference to the Supreme Court decision of Sony Corp v Universal City Studios, 45 which held that time shifting of copyrighted television programmes using video cassette recorders constituted fair use for copyright purposes, was interesting. The Diamond court likened the Rio s operations to that of a video cassette recorder, considering such use to be paradigmatic noncommercial personal use. The Sony defence, or something similar thereto, therefore seemed clearly applicable to new technology, at least to the extent that such new technology permitted or largely concerned legitimate (i.e., whether couched as fair use under 42 Ibid. 1001(1). 43 Ibid. 1001(5)(a). 44 And as such is consistent with the allowance for time shifting acknowledged in the Sony case, discussed infra, at n U.S. 417 (1984) (the Sony case ).

13 13 SAcLJ Digital Music and Copyright Law 335 copyright principles or as exempted noncommercial personal use under some other theory. At the time that MP3.com and Napster were unveiling its services, it might have been thought that the Sony case would have been strong authority for supporting the proposition that such services fell on the right side of the copyright law. (iii) The MP3 and Napster Cases 1. The MP3.com case 46 In this case, the plaintiffs that were allied against MP3.com were Sony Music Entertainment, BMG (the music division of Bertelsman AG), EMI Group plc, Warner Music Group and Universal Music Group 47 ( Universal ). The plaintiffs alleged that MP3.com was liable for copyright infringement, as its MyMP3 service stored copies of copyrighted music in the form of MP3 music files, for access by users through the Beam It service or the Instant Listening Service. MP3.com argued that its actions were covered by the defence of fair use. Except for Universal, the other four plaintiffs arrived at a settlement with MP3.com. The case therefore ultimately went ahead with Universal as the sole remaining plaintiff. To assess whether or not a particular use(s) constitute(s) fair use under U.S. copyright law, a court is required by the U.S. Copyright Act to consider four factors, viz, the purpose and character of the defendant s use; the nature of such use; the portion that was used; and the effect of the use on the market for the plaintiff s work. 48 On the first factor, the U.S. District Court in the Southern District of New York held that MP3.com s use of the copyrighted music was clearly a commercial use that, while innovative, did not amount to a transformative use. 49 On the second factor, what had been copied was held to be practically the core 46 UMG Recordings, Inc v MP3.com, Inc, 92 F. Supp. 2d 349 (S.D.N.Y. 2000). 47 Also known as the Big Five record companies in the U.S. 48 See 17 U.S.C. 107; for the Singapore equivalent, see 35 of the Singapore Copyright Act. Note, however, that under Singapore copyright laws, there is no general fair use defence; rather, the equivalent defences of fair dealing are tied to particular purposes and instances of use, e.g., for research or study purposes, for criticism and review, and/or the reporting of news and current events. The four factors listed in the U.S. Copyright Act as being relevant to a finding of fair use are expressly referenced in the particular defence of fair dealing for the purpose of research or private study. However, this is not to say that these factors, or any of them, might not be relevant to a factual determination of fair dealing for any other statutory purpose. 49 Citing, among other cases, Campbell v Acuff-Rose Music, Inc, 510 U.S. 569 (1994) and Castle Rock Entertainment, Inc v Carol Publishing Group, Inc, 150 F.3d 132 (2d Cir. 1998).

14 336 Singapore Academy of Law Journal (2001) of what copyright is intended to protect; and on the third factor, it was clear that MP3.com had reproduced the entirety of the copyrighted works in operating the MyMP3 service. Finally, the court held that MP3.com had attempted to usurp a consumer market that depends on reproduction of the plaintiffs copyrights, and this fact would not excuse the defendant s acts, even if they result in increasing sales of the plaintiffs recordings. In this respect, the court stated that copyright is not designed to afford consumer protection or convenience, but, rather, to protect the copyright holders property interests. Four months after the court s decision, Universal returned to court to seek as much as US$825 million in damages from MP3.com, based on an estimated total number of music albums that were infringed of over 5,000 and a possible award of US$150,000 per album. On September 6, 2000, the court ordered MP3.com to pay damages approximating US$118 million (an average of $25,000 per album infringed). Ultimately, MP3.com arrived at a settlement with Universal in November 2000 that settled the amount at US$53.4 million; Universal obtained the right to buy a twenty percent stake in MP3.com, who would obtain a license of Universal s music catalogue. 50 The MP3.com case was probably correctly decided on its facts, as it would appear that although users of the MyMP3 service had to first acquire a copy of the CD they wished to access subsequently, MP3.com had actually created a database on its servers that was comprised of copies of CD tracks from albums that MP3.com itself had bought. This meant that the copies that were transferred into the users accounts upon request were not copies made from recordings owned by the users themselves. Where the consumers own copies might have been protected (possibly either as fair use and/or permissible acts), MP3.com had made unauthorized copies of the copyrighted recordings. 2. The Napster case 51 In this case, the plaintiffs alleged that Napster, Inc was liable for secondary copyright infringement, viz, contributory and vicarious copyright infringement. The district court for the Northern District of California granted the plaintiffs motion for a preliminary injunction on July 26, 2000 (which injunction was modified slightly on August 10, 2000), enjoining Napster from engaging in, or facilitating others in copying, 50 In previous settlements with the other four original plaintiffs, MP3.com had agreed to pay each plaintiff US$20 million and license their music libraries. 51 A & M Records, Inc v Napster, Inc, 114 F. Supp. 2d 896 (N.D. Cal. 2000), aff d in part, rev d in part, remanded, 239 F.3d 1004 (9th Cir. 2001), inj. granted, 2001 U.S. Dist. LEXIS 2186 (N.D. Cal. March 5, 2001).

15 13 SAcLJ Digital Music and Copyright Law 337 downloading, transmitting or distributing plaintiffs copyrighted musical compositions and sound recordings without express permission. A temporary stay of the preliminary injunction was entered by the U.S. Court of Appeals for the Ninth Circuit and the appellate court handed down its decision, on the matter of the preliminary injunction, on February 12, In order to establish secondary liability for copyright infringement, a plaintiff first has to show that direct (or primary ) infringement had taken place, 52 i.e., that individual users of the Napster service had reproduced and/or distributed copies of copyrighted works without the copyright owner s permission. The district court s finding that this preliminary requirement had been satisfied was not challenged by Napster on appeal. As such, the appellate court turned its attention to the defences and arguments presented by Napster. Napster first argued that the Napster users had engaged in fair use of the copyrighted works, and as such could not be said to have committed direct copyright infringement. The instances of fair use were alleged to lie in sampling (i.e., where temporary copies of a work are made prior to their purchase), space-shifting (i.e., where the Napster service merely enabled users to access digital copies of music that the users already owned on CD) and permitted distribution. The Ninth Circuit Court of Appeals agreed with the district court s finding that the fair use defence did not apply to Napster users. 53 Specifically, the court considered that the district court s overall analysis of the facts in the case, within the rubric of the factors to be taken into account by a court in assessing fair use 54 was correct; that any sampling of music that Napster users may have engaged in would likely (at trial) be found to constitute a commercial use, or even if non-commercial in nature, would adversely affect the market both for CDs and for online music distribution; and further, that the space-shifting argument was unconvincing and distinguishable from earlier cases involving time shifting, 55 since those cases did not simultaneously involve distribution of the copyrighted material to the general public; the time or space-shifting of copyrighted material exposed the material only to the original user This was stated by Judge Beezer in the Napster case, 239 F.3d at 1013, citing Religious Tech Ctr v Netcom Online Communication Services, Inc, 907 F. Supp. 1361, 1371 (N.D. Cal. 1995). 53 See the discussion of fair use in the MP3.com case, supra, n Ibid. 55 As in the Sony case, where the recording of a television broadcast by a video recording machine owner for later viewing (i.e., time shifting ) was held to constitute fair use. 56 See the Napster appellate court decision, 239 F.3d at 1019.

16 338 Singapore Academy of Law Journal (2001) Having found direct infringement on the part of Napster s users which could not be excused on the basis of fair use, the court then moved on to consider the issues of contributory and vicarious infringement. (a) Contributory Infringement The raison d etre of contributory copyright infringement in the United States may be found in the 1971 decision of the Second Circuit, in Gershwin Publishing Corp v Columbia Artists Management, Inc, 57 viz, that one who, with knowledge of the infringing activity, induces, causes or materially contributes to the infringing conduct of another, may be held liable as a contributory infringer. 58 The enquiry therefore breaks down into two components (both of which must be satisfied): first, whether or not the defendant possessed the necessary knowledge; and secondly, whether or not the defendant, having the requisite knowledge, materially contributed to the direct infringer s conduct. 59 The appellate court agreed with the district court that, in all likelihood, the plaintiffs would succeed at trial in showing that Napster was liable as a contributory infringer. On the issue of knowledge, the appellate court agreed with prior authority that the defendant should either have actual knowledge of the direct infringement, or that it had reason to know of it (i.e., constructive knowledge). The district court had held that Napster had both actual and constructive knowledge of the direct infringement committed by its users; however, while the appellate court stated that it is apparent from the record that Napster has knowledge, both actual and constructive, its ruling was somewhat narrower, as it emphasized (and the court s discussion was largely limited to) the fact that Napster had actual knowledge of the direct infringement F.2d 1159 at 1162 (2d Cir. 1971). 58 For a detailed examination of the pre-netcom cases applying the principles relevant to contributory copyright infringement and an analysis of the level of knowledge required to impose liability on Internet service providers, see Y. F. Lim, The Application of the Doctrines of Contributory Infringement and Vicarious Liability to Internet Service Providers, 3 W. Va. J.L. & Tech. 2.3 (March 15, 1999), available at 59 There have been a number of U.S. cases on the issue of contributory copyright infringement. For three notable cases that were cited in Napster and which required the courts to grapple with new technology, see the Sony case (supra n.45), Sega Enterprises Ltd v Maphia, 857 F. Supp. 679 (N.D. Cal. 1994) and the Netcom case (supra n.52). 60 Given that either actual or constructive knowledge would have sufficed to make out the first element of contributory infringement, it is interesting that the district court found it necessary to rule that both types of knowledge were present in this case: see S. Sully and C. Saez, The Knowledge Requirement for Contributory Copyright Infringement Liability in the Online World: How Much Do You Have To Know?, Entertainment, Arts & Sports L.J. (N.Y. State Bar Ass n, eds., forthcoming Aug 2001).

17 13 SAcLJ Digital Music and Copyright Law 339 Further, the Ninth Circuit court held that in an online context, evidence of actual knowledge of specific acts of infringement is required to hold a computer system operator liable for contributory copyright infringement. 61 In this context, it would be sufficient if the copyright holder could provide the necessary documentation to show there is likely infringement 62 [since an] online service provider does not and cannot examine every hyperlink for potentially defamatory [and unlawful] material. The court went on to say that if a computer system operator learns of specific infringing material available on his system and fails to purge such material from the system, the operator knows of and contributes to direct infringement [c]onversely, absent any specific information which identifies infringing activity, a computer system operator cannot be liable for contributory infringement merely because the structure of the system allows for the exchange of copyrighted material. It is encouraging that the court acknowledged and allowed for the realities of operating an online service such as Napster (and, similarly, an online bulletin board or other service which allows for the posting and exchange of information between and among many users). Moreover, the court s comments seem to suggest that the Gershwin reason to know standard for constructive knowledge, at least in the online context, may be lower than the yardstick required to measure the standard and test set by the DMCA, which language may be interpreted so as to prescribe a slightly higher standard. If this view is correct, this could prove a relief to computer system operators and online service providers. However, given that actual and constructive knowledge (however measured) are either/or factors, it may not be that difficult for copyright owners to assert that a particular online system operator possesses the former type of knowledge. For instance, the providing of notice to the operator of specific infringing material (in the words of the Ninth Circuit in the Napster case) or, at the latest, the service of notice of legal proceedings, could be a primary indicator of actual knowledge; and when this is combined with a particular factual situation (such as the feature and function in Napster s system that allowed the system operator to search for and access allegedly infringing material), it is difficult to avoid a finding of actual knowledge, based on the Ninth Circuit decision in Napster. Under the DMCA, an online service provider is provided with a safe harbor from liability for copyright infringement under certain conditions; 61 Following the Netcom case, 907 F. Supp. at Citing Cubby, Inc v Compuserve, Inc, 776 F. Supp. 135, 141 (S.D.N.Y. 1991).

18 340 Singapore Academy of Law Journal (2001) however, the provider loses the protection of the safe harbor if it had actual knowledge that the material posted on its website, or other relevant act, was infringing, or if it was aware of facts or circumstances from which infringing activity is apparent. 63 The latter clause in the DMCA (with its language that nowhere expressly refers to a provider having reason to know of infringing material) could be taken to suggest that a different, and higher, level of knowledge was intended to apply to contributory liability of a third party intermediary such as an online service provider, viz, by requiring that the intermediary know of facts that would clearly indicate the presence of infringing activity, as opposed to requiring that the intermediary have reason to know that infringing activity exists. However difficult and possibly thin the line between the Gershwin and DMCA levels of knowledge, in the absence of specific case law on this phrasing in the DMCA, it is submitted that it would be logical to view the level of knowledge required for contributory copyright infringement, at least on the part of online service providers, to have evolved from, and gone beyond, the Gershwin standard of reason to know. 64 On the second component of contributory infringement, the Ninth Circuit agreed with the district court s finding that, by providing its software and services, Napster had provided the necessary support services for Napster users to find and download the music they wanted easily, and as such had materially contributed to such users acts of direct infringement. 65 In what is likely to prove a significant decision for copyright law, the Ninth Circuit decided that the existence of actual knowledge in this case meant that the Sony v Universal defence could not apply to Napster. In essence, the Sony defence disallows copyright holders from using copyright law to prevent the distribution of copying devices and technology, if such devices and technology was capable of substantial non-infringing uses (even if they could, and were, also used for illegitimate purposes such as unauthorized copying). The court attempted to distinguish between Napster s technology per se and Napster s conduct in its operation of its technology; seen from this perspective, a distinction can be drawn between the level of knowledge present in the Sony case, and that which Napster possessed. In the former, the manufacturers did not and could not know what were (and the extent of) the infringing acts that were being carried out using its technology; in the latter, the evidence seemed to show that Napster was clearly aware of its users infringing activities and, in addition, possessed the capability to ascertain what infringing material was being exchanged through its service. 63 See 17 U.S.C. 512(c)(1)(A)(i) and (ii); and 512(d)(1)(A) and (B). 64 See Sully and Saez, supra n Citing Fonovisa, Inc v Cherry Auction, Inc, 76 F. 3d 259 (9th Cir. 1996).

19 13 SAcLJ Digital Music and Copyright Law 341 The Napster decision clearly states the limit of the Sony defence, viz, that it does not apply where there is actual knowledge of primary infringement on the part of the alleged secondary infringer. This throws into significant relief the fact that it may not be that difficult in many cases to prove actual knowledge. A technology provider would not necessarily need to be engaging in behaviour as clearly indicative as Napster s of its users flagrant infringement; instead, it may suffice for the provider to merely be in possession of a cease and desist letter from the relevant rights holders, whereupon its continuing to provide its services and technology could mean it cannot then rely on the Sony defence, even where its technology is capable of substantial non-infringing uses. 66 (b) Vicarious Infringement Although the lines between direct infringement, contributory infringement and vicarious liability are not clearly drawn under U.S. copyright law, 67 the Ninth Circuit in the Napster case confirmed that vicarious liability extended beyond employer/employee relationships and included instances where a party has the right and ability to supervise the infringing activity and also has a direct financial interest in such activities. 68 As with the concept of contributory infringement, the enquiry breaks down into two components (albeit different ones): first, whether or not the defendant had a direct financial interest in the infringing activity of its users; and secondly, whether or not the defendant had the right and ability to supervise its users conduct. 69 Unlike contributory infringement, the doctrine of vicarious liability is not predicated on the secondary infringer s knowledge (whether actual or constructive) of the primary infringer s activities. On the first component, the appellate court agreed with the district court that the plaintiffs would likely succeed at trial in establishing that Napster had a direct financial interest in its users infringing activities. This conclusion was based on the fact that Napster s future revenue was 66 The Ninth Circuit acknowledged that Napster s technology was capable of substantial non-infringing use, thereby disagreeing with the district court on this point. 67 See the Ninth Circuit judgment in Napster, 239 F.3d at 1023, citing the Sony case at p Ibid at 1022, citing the Gershwin case and Polygram Int l Publ g Inc v Nevada/TIG, Inc, 855 F. Supp. 1314, (D. Mass. 1994). 69 From these components, it seems clear that where the doctrine of contributory copyright infringement focuses primarily on the existence of a causal relationship between the acts of primary and secondary infringement, a finding of vicarious liability focuses on the relationship between the primary and secondary infringers: see Y. F. Lim, supra n.58.

20 342 Singapore Academy of Law Journal (2001) intended to be drawn largely on the increase in the number of users, which in turn depended on an increase in the quality and quantity of music available through the Napster service; as such, financial benefit could exist where the availability of infringing material acts as a draw for customers. 70 On the second component, the appellate court agreed in part with the district court s conclusion that Napster had the right and ability to supervise the conduct of its users. On the facts, Napster had the right and ability to police its computer system and block an infringer s access to it. This was in turn based on the fact that Napster had displayed on its website a policy that stated that it expressly reserved the right to refuse service and terminate accounts if Napster believes that user conduct violates applicable law. The Ninth Circuit continued that [t]o escape imposition of vicarious liability, the reserved right to police must be exercised to its fullest extent ; as such, service providers such as Napster could not afford to [turn] a blind eye to detectable acts of infringement for the sake of profit. This was consistent with the finding by the district court; however, the appellate court differed from the district court by recognizing (as it did when considering contributory infringement) that there may be boundaries and limits to the policing that a party can and should do (e.g., in Napster s case, the music files are named by the users and not Napster, and as such may be misspelled or otherwise not reflect the copyrighted music title accurately). However, the court ultimately came to the same conclusion on vicarious liability as the district court as it found that the file names, even if misspelled or inaccurate, needed to be reasonably similar to the titles of the original copyrighted works in order for Napster to function effectively, and as a practical matter, Napster had access to infringing material merely by using its own search function within its system. One of the practical effects of this particular ruling by the Ninth Circuit is that website operators, online service providers and technology companies engaged in providing software and services the scope of which they attempt to define through contract (such as online terms of service contracts with users) and binding user policies (such as privacy policies and consents from users) need to be cognizant of the consequences of a provision in such contracts or policies, reserving to them a broad, discretionary right to suspend or terminate services, or otherwise to circumscribe or control user behaviour. While the provision quoted by the Ninth Circuit in the Napster case may seem commonplace and boilerplate to drafters of such terms and the companies deploying them, 70 Citing Fonovisa, 76 F.3d at