1. Business Issues and
Implications of Copyright

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Copyright LAW: Simple AND
Complex
 Copyright law is very simple in basic concept
 Any work you create without copying others ideas
is immediately and automatically copyrighted
 Copyright law is complex in real applications
 FAIR USE is very difficult principle to understand
and apply, and judges disagree on same facts

Implication – BE CAREFUL; DON’T RELY ON FAIR USE
 First Sale Doctrine is often complex to apply

Implication - BE CAREFUL; DON’T RELY ON FIRST
SALE

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Distribution Rights Example
 Hotel wants to offer DVD movie rentals to
their hotel guests – two possible solutions:
 Option 1:
DVD player in every room, guest goes to office to
rent movie and walks to room to play
 Option 2:
Multiple DVD players in main office with wire and
switch to connect DVDs to rooms; guest pays for
DVD to be played at hotel office and it is sent over
wire from DVD to guest room.
 One is legal; One is NOT LEGAL –
WHY?
 But, “it’s the same thing!” – Not true in

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IP Protection Part of
Strategy
 Business Protection of Innovation
 More than legal protections
 Must make the innovation WORTH protecting!

No point in protecting something of little value
 Sometimes sharing via licensing is way to win

Sony Betamax versus VHS group of sharing companies
 Innovation Management Important
 Make your innovations work for you
 Making money (marketing) vs protecting assets

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IP Protections and
Incentives
 Do Laws Protecting IP encourage innovation?
 Some argue that there are so many patents
granted and copyright laws are so broadly
interpreted today that innovation is discouraged
 Protections of existing innovations too long?
 Why does musician need protection 70 years after
he is dead? Does he really CARE?
 Is a product monopoly of 20 years too long? If
you can not build other protections before that
time, do you really have a valuable innovation?

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Non-IP Law Protections
 Size (Economies of Scale and Scope)
 Access (to customers or channels)
 Brand image
 Distribution network
 Access (to knowledge and skills)
 Only valuable if able to keep in firm (have shoes)
 Access (to resources, property, etc.)
 Diamond mines, oil fields, etc.
 Relationship with key decision makers

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Creative Innovation Rights Protection
 Software leases or leases of other “art”
 Avoid first sale doctrine issues – in theory
 However, courts do not like such actions, and may
“reform” a lease or license into a sale to make first
sale rights apply. Be careful in contract terms.
 Annual fees, renewals, limited terms helpful
 License like Microsoft uses not likely sustainable if
challenged in court – would be viewed as sale
 Licensing of restricted use of media helpful
 TV series shown on TV limited to single showing

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Creative Innovation Rights Copying
 Wait for copyright or patent to expire
 Then, bring out new product based on
“expired” IP rights for valuable innovation
 Derivative works based on expired copyright
 Sales or showing of works out of copyright
 New products developed from expired patent
 Some firms have staff assigned to search for
potential expiring IP that can be used

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Example of Expired Copyright
 It’s a Wonderful Life, by Frank Cappa
 US$3.15 (no copyright)
 Originally not success
 28 year copyright ended
 Not renewed, by accident
 TV Stations find Free Movie
 Aired Movie during holidays
 Now HUGE hit with viewers!

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Interview with Director of Film
 Frank Cappa now well known name
 Delighted with fame and recognition
 Very happy that movie is loved by viewers
 Money not an issue – happy to have recognition
 Actually PLEASED that copyright was not
renewed
 Other films by Frank Cappa now selling more
 Giving away IP rights free increased income

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Entertainment Protection Risks
 Upsetting customers can harm reputation
 Want to protect legal rights, so sue violations
 However, don’t want to be the only one doing it
 And, concerned that might create backlash

Customers might seek alternative “labels” or channels

Artists might seek alternative distribution approaches
 Reputation is important, but needs balance
 Too soft, and won’t make money for artists
 Too tough, and can cause consumer resentment

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Example of Failure of Strict
Protection and Reversal of Strategy
 Sony developed “rootkit” to hide digital rights
management software bundled with music
 Copy protection software automatically installed, in
background, when CD was inserted in PC
 Prevented ripping of CD, and limited song copies
 If software is removed, CD/DVD is disabled
 In background, spyware reported song copying
 USERS OUTRAGED. Security violation
Issues.
 Sony released “patch” to disable software

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Legal Challenges to Sony Fail, but …
 Sony use of “virus” to protect its CDs
challenged in court, and LOST
 Sony has right to protect its CD content
 Provision of patch enables removal, but YOU CAN
NOT PLAY or COPY songs without DRM software
 Company providing “rootkit” best know as
providing tools for hackers or virus makers
 However, Sony application is legal usage
 Even so, Sony agreed not to do this again!

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Why Did Sony Give In?
 Six months after album release, sales were
still fairly strong and album was popular
 Then, news report of “virus” or hacker
software use to “infiltrate” user computers
 Within 24 hours, massive drop in sales
 Within three days, massive returns of inventory
 4.7 million copy protected disks returned to Sony
 52 albums recalled, and rereleased to fans
 Artists furious. Demanded albums be rereleased.

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Challenges for Recording Labels
 Business requires promotion and acceptance
by multiple decision makers in channel
 Radio stations
 MTV and other similar broadcasts
 Journals and newspapers
 Promotional tour bookings (with existing stars)
 Investment in promotion large and risk high
 Requires big hits to offset many losses

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Protection of Music: How Much?
 Where is balance for music protection?
 Too much upsets consumers and artists and key
channel decision makers
 Too little provides insufficient revenues & profits
 Lots of music downloading happening now
 Legal downloading increasing rapidly

Per song and per album from iTunes and others

Digital radio subscription listening for fee increasing
 Illegal downloading also increasing, hurts profits

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Music Litigation Business
Strategy
 First, get a few high profile cases
 Cost of litigation is high, and outcome unknown
 Establish precedent with clear violation cases
 Create legal framework to support later cases
 Second, expand litigation and add rights
 Lower cost of litigation due to earlier cases
 Courts more comfortable with adding new rights
 Third, dramatically expand litigation
 Economies of scale but consumer backlash risk

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Why is Success Risky?
 Mice must remain hidden to be safe
 Hidden does not mean invisible, as need sales
 However, must be not easily obvious to find
 And, must keep low profile (simple site image)
 Becoming Elephant is HIGH RISK
 Deep pockets, or impression of such
 Highly visible with advertising & brand noticed
 Attract attention of wrong people (e.g., lawyers)

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Individual Assignment
 Submit through LMES
 Due before 4pm on Monday (25 Feb)
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