Digital Media Intellectual Property Issues

1. Recent Developments in
Digital Media Copyrights
Karl Larson, Associate
May 23, 2005

2. Overview
• Illegal File Sharing Continues
• Piracy / Anti-Piracy Technologies
• Update on Legal Music Services
• Legal Troubles for KaZaa
• RIAA Lawsuits
• Movies, Digital Radio, & Video
Games
• Digital Copyright Legislation
• International P2P Issues

3. Illegal File Sharing Continues
• Music industry claims it lost over $11.2B in sales in 2003.
– However, according to the music industry, music sales were up over 9% from
1Q 2003.
– The Yankee Group predicts 7.44 billion unlicensed audio files will be swapped
in 2005 among consumers aged 14 and older.
• March 2005 – The Pew Internet & American Life Project estimates that 7
million Americans – or about 9 percent of Internet users –are currently
making unlicensed copies of music from someone else’s iPod or similar
MP3 device and that about 10 million are getting bootlegged music and
movies through e-mail and instant messages.
• January 2005 – According to IFPI, the total number of infringing music
files on the internet in January 2005 is slightly down on one year ago at 870
million tracks.

4. Piracy / Anti-Piracy Technologies
• AnonX
– Masks the IP addresses of person using file-sharing networks.
– Sets up a Virtual Private Network (VPN) between user computer
and P2P network computer.
– Developer lives in Austin, Texas, but software owner lives on
same small Pacific Island that hosts Sharman Networks.
• Integrated Control Application for Restricting User Services
(ICARUS)
– Computer program developed and implemented by University of
Florida which automatically suspends a users network access if it
discovers that students are downloading movies or music using
P2P networks.

5. Piracy / Anti-Piracy Technologies
• Audible Magic
– California company that says it has developed software that resides
inside P2P software and can automatically block transfer of
copyrighted material.
• University of Tulsa “spoofing” patent
– In May 2004, the University of Tulsa received a patent for software
that confuses downloaders by flooding P2P networks with bogus
files.
• The idea came from a Simpson’s episode in which Mr. Burns is
unable to pick out a specific dog from a group of Dalmatians
because all the dogs look the same.

6. Legal Music Services
• Today there are now over 230 legal online music sites worldwide.
– In May 2003, there were only 20 legal online sites with an average
of 200,000 songs.
– MusicMatch, Wal-Mart, Sony, and Napster have joined in.
– Analyst Jupiter estimates that the digital music market was worth
$330M in 2004. This number is expected to grow significantly.
• In general, prices of single-song downloads rising from
“traditional” 99¢ level.
– Sony’s connect site sells some “long” tracks for as much as $5.99
per song.
– MusicNow sells The Very Best of the Eagles for $13.86 even
though it is missing 7 songs.

7. Legal Music Services
• Apple iTunes Music Store
– Good music selection – more than 1.5 million songs
– Over 400 million songs worldwide downloaded to date.
– Just 99¢ a song.

8. Legal Music Services
• After much-touted “re-launch” as a legal for-pay service in October
2003.
– Good music selection – over 1 million songs.
– BUT…..
• Executive turn-over is high.
• Lost $15M in first two months of operation.
• Only has about 15% market share compared with iTunes’ 56%
share.
• Lost a lucrative deal with HP to install link to Napster online
service on HP computers. HP instead signed a deal with rival
iTunes.
• Still under threat of legal liability of nearly $17B to music
industry for past infringing conduct.

9. More Trouble for KaZaA
• March 2005 – The assets of Sharman Networks, the maker of the KaZaA
peer-to-peer software, were frozen pending the outcome of a lawsuit
brought against the software-maker by the recording industry.
– In February of 2005, Officials of Australian recording industry
raided KaZaA’s offices in Sydney, Australia.
– An attempt to exclude the evidence from the February 2004 raids
was rejected by the federal court judge.
• A former Romanian software programmer hired by KaZaA to write its P2P
software is suing KaZaA for copyright infringement for $25M.
• KaZaA, which used to be the largest and most popular file-sharing service,
has seen its user figures drop by approximately 45% (from 4.2 million to 2.3
million concurrent users) since the start of the warning and litigation
campaign.

10. MGM v. Grokster
• MGM and several music and motion picture studios allege vicarious and
contributory copyright infringement against Grokster for distributing
peer-to-peer file-sharing software.
– The district court disagreed with MGM, granting partial summary
judgment in favor of Grokster.
– On appeal, the Ninth Circuit held that Grokster was not liable for
contributory infringement because it lacked sufficient knowledge of the
infringement and it did not materially contribute to the copyright
infringement.
• Grokster case now before the U.S. Supreme Court could very well
determine the future shape of copyright law as it relates to the internet.
– Oral Arguments were heard on March 29, 2005.
• Justice Scalia was skeptical of the plaintiffs’ arguments, questioning
whether their proposed “primary use” test made any sense, given that
the balance of lawful versus unlawful uses of technology are
constantly changing.

11. SBC v. RIAA
• SBC subsidiary Pac Bell is challenging legality of RIAA’s DMCA §512(h)
subpoenas against it on various grounds
– Seeks DJ that subpoenas are not authorized by DMCA and are
unconstitutional.
– Seeks compensation for costs of complying with subpoenas.
• FRCP 45(c)(3)(B)(iii) states that recipient of subpoena must be
reasonably compensated for costs related to preparing a response.
– Seeks ruling that subpoenas may only be issued from court in district in
which valid custodian of records exists.
• RIAA has been using single federal court in Washington, DC as
clearing house for subpoenas.
• FRCP 45(b)(2) requires that subpoena be served within district or
within 100 miles of place of production or inspection specified in
subpoena.
• Pac Bell, the proper recipient of subpoenas, is located in San
Francisco.

12. SBC v. RIAA
• Pac Bell raised numerous complaints about DMCA subpoenas:
– Many subpoenas assert only single act of infringement involving single
digital file.
– 97 subpoenas were served on “SBC” which is NOT corporate entity, but
merely a trademark used by various affiliates.
– Each of these 97 subpoenas was “served” by dropping them off with
receptionist in DC office of SBC Telecom, which is affiliate of Pac Bell
(Pac Bell’s principle place of business is San Francisco).
– RIAA attempted to serve numerous subpoenas at address in San
Antonio, TX that is not address of registered DMCA agent for Pac Bell.
• On November 12, 2004, District Court in the Northern District of
California ruled that case should be transferred to Washington, D.C.
where the original subpoenas were filed. No further status.

13. RIAA v. ISPs - the Verizon case
• December 19, 2003 – U.S. Court of Appeals for District of
Columbia.
– Rules that DMCA §512(h) does not authorize use of subpoena
to ISP to obtain user’s identity where ISP is merely conduit for
user’s access to websites whose content ISP does not control.
– Does not find it necessary to rule on Verizon’s constitutional
arguments.
• February 2003 – RIAA’s Petition to Rehearing en banc is denied.
• May 2004 – RIAA files Petition for Writ of Certiorari to Supreme
Court.
• October 2004 – Supreme Court denies Writ of Certiorari

14. RIAA v. Individual File Traders
• In light of the DC Court of Appeals’ ruling, RIAA must now file
John Doe lawsuits prior to obtaining identities of P2P users.
• January 2004 – RIAA sues 532 John Doe defendants by filing
complaints in numerous states.
• February 2004 – RIAA sues 531 John Doe defendants by filing
complaints in numerous states.
– New Jersey woman counter-sues claiming that RIAA is engaging
in extortion and violations of federal antiracketeering laws by
filing a suit alleging hundreds of thousands of dollars in liability
and then offering to settle for a few thousand dollars. Legal
experts view this countersuit as a long shot.
• March 2004 – RIAA sues 532 John Doe by filing complaints in
numerous states.

15. RIAA v. Individual File Traders
• March 2004 – Pennsylvania federal court rules that all Pennsylvania
John Does must be sued individually rather than in single suit.
• April 2004 – Florida federal court rules that all Florida John Does
must be sued individually rather than in single suit.
• April 2004 – RIAA ends amnesty program and asks California court
to dismiss (as moot) lawsuit filed against RIAA claiming amnesty
program was fraudulent.
• April 2004 – RIAA sues 477 John Doe defendants in at least 11 states.
• May 2004 – RIAA sues 493 John Doe defendants in 17 states.
• June 2004 – RIAA sues 482 John Doe defendants in numerous states.
• July 2004 – RIAA sues 506 John Doe defendants in 6 states and 90
named defendants several different states.

16. RIAA v. Individual File Traders
• September 2004 – RIAA sues 762 John Doe defendants and 68 named
defendants in numerous states.
• October 2004 – RIAA sues 750 John Doe defendants and 213 named
defendants in numerous states.
• December 2004 – RIAA sues 754 John Doe defendants in numerous
states.
• January 2005 – RIAA sues 717 John Doe defendants in numerous
states.
• April 2005 – RIAA sues 725 John Doe defendants and 200 named
defendants in numerous states.
• To date, the RIAA suits have targeted more than 9,000 people
nationally usually collecting between $3,000 and $4,000 per violator.

17. RIAA v. Retail Outlets
• May 12, 2005 –RIAA sues seven retail outlet establishments.
– In response to the recent trend in the sale of pirated music through
small, established firms.
– Demand letters sent by RIAA in December of 2002 resulted in many
settlements.
– Suit involves retail stores in New York City and several cities in
Florida.

18. Movies, Digital Radio, & Video Games
• February 2004 – Federal Court in San Francisco rules that 321 Studios’
DVD copying software products are illegal.
– Court says that even though DVD user’s have right to make back-up
copies (Fair Use), fact that software can break through DVD anti-
piracy technology makes it illegal under DMCA.
– Court grants injunction giving 321 Studios seven days to pull
products from market.
• 321 Studios must remove ability to “rip” copies of copy
protected movies from software or pull product from market
altogether.
• 321 Studios removed copy protection descrambling portion of
software and put new versions on market.
• May 2004 – NY federal judge orders another sales ban against 321
Studios’ DVD copying software on behalf of copy-protection company
Macrovision.

19. Movies, Digital Radio, & Video Games
• May 2004 – Online retailer of 321 Studios’ software is sued for
categorically refusing to stop selling original versions of software despite
cease and desist letters from movie studios.
• June 2004 – Movie industry announces $500 reward to any person who
catches someone illegally recording a movie in theatre (such as by using a
camcorder).
– In 2003, MPAA seized over 52 million illegally copied discs worth
nearly $3.5B.

20. Movies, Digital Radio, & Video Games
• November 2004 – The Motion Picture Association of America
(MPAA) announced that the major Hollywood motion picture
studios would be filing hundreds of lawsuits against individuals
using peer-to-peer (P2P) file-sharing software to access movies
online.
• November-December 2004 – MPAA members sue over 200 John
Does in numerous states.

21. Movies, Digital Radio, & Video Games
• June 2004 – RIAA asks FCC for anti-piracy protections to prevent
digital radio users from archiving songs without paying for them.
– RIAA wants to implement technology that would place a flag in a
recorded song to prevent it from being transmitted online.
– Consumer groups contend that RIAA is trying to get FCC to regulate
home taping of radio (a legal activity).

22. Movies, Digital Radio, & Video Games
• June 2004 – Atari, Electronic Arts, and Vivendi Universal Games
sue 321 Studios to block sales of Games X Copy software that
allows users to make backup copies of video games.
– Plaintiffs allege that software is intended to violate copyrights
and merely “masquerades as consumer-friendly tool.”
• August 2004 – 321 Studios ceased operations in light of expense of
legal challenges and loss of sales caused by injunctions.

23. Digital Copyright Legislation
• March 2004 – U.S. Attorney General John Ashcroft forms copyright
violation task force.
• June 2004 – Lobbyists for recording and movie industries meet with group
of state attorney generals suggesting that state prosecutors should
investigate whether P2P companies violate state law.
– Possible violations of consumer protection laws for failure to warn
consumers of copyright liability for illegal use of networks.
– Possible violations of unfair competition laws due to effect of illegal file
trading on music stores and movie theatres within states.
– Provides a way for P2P networks to be prosecuted in state court in
addition to prosecution in federal court for federal copyright violations.
• September 2004 – Piracy Deterrence & Education Act of 2004 (H.R.4077)
passed in House and received in Senate
– Provides for jail time for persons who knowingly makes 1,000 or more
copyrighted works available on a file sharing network.

24. Digital Copyright Legislation
• September 2004, California Anti-Piracy legislation (Cal. SB1506) signed
into law by Gov. Arnold Schwarzenegger
– Requires persons sharing music or movies to disclose their e-mail
addresses in the transmission to enable easier location if the copy turns
out to be illegal.
– Adult Violators – Up to 1 year in jail and up to $2,500 fine.
– Juvenile Violators – 1st and 2nd offenses  $250 fine, 3rd or more offense
 to year in jail and up to $1,000 fine.
up
• Protecting Intellectual Property Rights Against Theft and Exportation
(PIRATE) Act of 2004 (passed U.S. Senate, Referred to the Subcommittee
on Courts, the Internet, and Intellectual Property)
– Would allow federal prosecutors to file civil lawsuits against suspected
copyright infringers.

25. Digital Copyright Legislation
• Author, Consumer, and Computer Owners Protection and Security Act of
2003 (H.R. 2752 – Referred to the Subcommittee on Courts, the Internet, and
Intellectual Property)
– Proposed by Reps. John Conyers (D-Michigan) and Howard Berman (D-
California)
– Criminal penalties for online copyright infringement.
• Piracy Deterrence and Education Act (H.R. 2517 – House subcom. hearings
held)
– Proposes warning, education, and enforcement programs.
– Would involve DoJ and FBI.

26. Digital Copyright Legislation
• Digital Media Consumer Rights Act of 2003 (H.R. 107 – Referred to the
Subcommittee on Courts, the Internet, and Intellectual Property.)
– Would amend DMCA to allow use of descrambling utilities to circumvent
copy protection as long as no copyright violations occur.
– Would give FTC expanded authority to regulate copy-protected discs.

27. Digital Copyright Legislation
• Inducing Infringement of Copyrights Act of 2004 (S.2560 –
Referred to the Committee on the Judiciary)
– Whoever “aids, abets, induces, or counsels” copyright violations
would be liable for those violations.
– Hatch’s basis for introduction is belief that P2P providers induce
children commit copyright violations.
– Punishment would include civil fines and, in some circumstances,
“lengthy” prison terms.
– Opponents argue that this legislation would effectively overturn
Sony Betamax case and limit technological advancement since
makers of devices with substantial non-infringing uses (as well as
infringing uses) could be liable for infringement.

28. International P2P Issues
• Europe
– The British Video Association (BVA) estimates that illegal movie
downloading tripled in 2004 over the previous year.
– April 2004 – Intellectual Property Rights Enforcement Directive
approved.
• The Directive is designed to harmonize the remedies and procedures
available throughout the EU.
• Could possibly be used to crack down on Internet file traders.

29. International P2P Issues
• Europe
– April 2005 – IFPI filed 963 lawsuits around in 11 countries Europe
and Asia. Countries where lawsuits were filed included Finland,
Japan, Ireland, Netherlands and Iceland.
• According to the IFPI, the example that RIAA has set in the U.S. by suing
thousands of individuals, seems to work and it is determined to extend
that method to the European and Asian countries now and in the future.
• New P2P applications targeted: eDonkey, DirectConnect, BitTorrent,
Gnutella
– August 2004 – German court finds a 23-year-old guilty of copyright
infringement for downloading music for free via peer-to-peer file-
sharing programs like Kazaa.
• The 23-year-old will have to fork over a hefty €8,000 ($9,855) in fines in
addition to covering the legal costs of the case.
• The case is expected to set a precedent for future cases.

30. International P2P Issues
• Canada
– May 19, 2005 – In a unanimous decision, the Federal Court of Appeal
dismissed the Canadian Recording Industry Association's appeal to
force Internet service providers to release the names and addresses of
29 people alleged to be trading copious amounts of music with the
world. BMG Canada v. John Doe.
• Plaintiff’s must provide solid and timely evidence that supports a
bona fide claim against the wrongdoer – rather than mere
allegations.
• Lower court noted that merely placing a file in shared directory is
not a positive act of distribution of a copy so as to create a
copyright violation.

31. International P2P Issues
• Japan
– March 2005 – The Tokyo High Court upheld a lower court ruling that
MMO Japan Ltd violated the Copyright Law by providing an online
service for swapping music files and ordered it to pay a total of 71
million yen in damages to a copyright association and 19 record
labels.
• This was the first high court ruling acknowledging a copyright violation
concerning music file sharing on the Internet.
• MMO Japan, based in Tokyo, has suspended its service following an
injunction issued in April 2002.

32. Useful Resources
• www.riaa.com
– Recording Industry Association of America’s website.
• www.eff.org
– Contains court filings for Verizon and SBC cases, as well as court
papers for many John Doe lawsuits.
– Best single source for motions, briefs, and orders related to RIAA
lawsuits.
• www.mpaa.com
– Motion Picture Association of America’s website.

33. Gardere Wynne Sewell LLP
Karl Larson
3000 Thanksgiving Tower
1601 Elm Street
Dallas, TX 75201-4761
Phone: 214.999.4582 Fax: 214.999.3582
klarson@ gardere.com