An analysis of the digittal copyright infringement issue in the music industry – internet piracy

Since the oncoming of the internet era, the production, distribution, and consumption of music and movies have undergone some drastic evolutions. Undoubtedly, this revolution has brought in some substantial issues concerning intellectual property rights. Indeed, file sharing of copyrighted data via unauthorized networks called “peer-to-peer” (P2P) has become one of the most popular internet activities. Despite the effort of the entertainment industries to fight such conducts, consumers and P2P network providers such as the popular PirateBay are constantly inventing new ways to work round legal barriers.

For purpose of clarity, the choice is made to focus on the music industry, but the issue concerning the movie industry is very similar in essence. The issue is that digital music currently traded on P2P networks is not licensed by record labels and copyright holders, and under the law throughout the world, the activity is thus considered illegal. The battle engaged between copyright holders and the anti-copyright movement will have huge consequences on the business model of the whole music industry. In order to understand the implication of the subject, it is necessary to study the protagonists, arguments and weapons of this legal battle. We can then consider the role of regulators and the solutions which can be brought to solve the issue.

 THE PROTAGONISTS

 I – Copyright owners

Copyright owners can be looked upon on a two-tiered scale: First, the artists, composers and performers who originally owns the copyrights of their works. Second, the recording industry (or music industry), to whom artists delegate part of their copyrights in exchange of some specific services.

Since the middle of the 20^th century, the recording industry has built a powerful commercial empire where major international corporations rule the market, dominated by the “big three”: Universal Music Group, Warner Music Group, and Sony Music Entertainment. Their business model, despite some recent changes, has undergone very little evolution since their creation. Traditionally, an artist will “license” some of his copyrights to a corporation through “publishing contracts” and “recording contracts”, which will allow the label to collect “royalties” for every sells of his work. In exchange, the artist will receive a percentage of the royalties, and will beneficiate from several services: Provision of a recording studio and recording materials, marketing operations and promotion, manufacturing of physical support (CDs), and distribution. Later on, live performances can eventually be taken in charge by the record company.

Basically, from the composition stage to the recording, and further away to the promotion, manufacturing and distribution stages, the music labels control each and every steps of the music business. Furthermore, these companies tend to form extremely powerful aggregates such as the U.S. Recording Industry American Association (RIAA) or the International Federation of the Phonographic Industry (IFPI). The goal of these conglomerates is to strengthen influence in political lobbying and judicial battles. To have an insight of the economic and political power of this industry, some figures can be looked upon:In 2012, the overall sells gathered $16.5 billion and saw an increase of 3.1% over 2011¹. More than 88.5% of the market is controlled by the « big three »². Altogether, the music and film industry spent $117,570,007 lobbying in 2012 ($5,068,387 for the RIAA alone), and are in the top 10 industry who spend the more money in campaign contributions to elected officials and candidates, or lobbying Congress and federal agencies³

Since the upcoming of the internet era, and under the influence of technical innovation, the traditional business model of the record industry has however attended some recent changes. Indeed, artists can increasingly produce music by themselves, and can use social media such as YouTube to promote their work. In parallel, the revolution of digital music drastically transformed the distribution process, shifting the sales from the physical support (CDs) to digital support⁴. As a result, the world main retailer is now Apple Inc’s iTunes Store⁵.

However, this recent evolution also facilitated copyright infringement. Indeed and as we will see, it is relatively easy for consumer to freely access any digital music work, and the incentive not to do so is poor. Music piracy is threatening the future of record labels, whose traditional business is being severely hit. As the Darwinian Survival Theory would suggest, Record companies need to urgently make management decisions based on people’s new music habits. If the record labels want to maintain their leading position in the music industry, they will have to adapt to these changes, instead of trying to fight them.

II – Copyright infringers

On the infringers’ side, we can find on the one hand the music consumers. The ones we look at are only those who download illegally (or buy legally) musical works, and make it available to other consumer in violation of copyright laws.

On the other hand, we find the peer-to-peer networks providers. These are websites such as Napster, Kazaa, Limewire or ThePirateBay, which relies on Peer to Peer technology (P2P). P2P is basically a protocol which gives the opportunity for users to come in contact with each other through “torrent files” (which in practice functions as internet links). The users can then, outside the computers of the P2P website administrators, exchange digital material through file sharing. These websites often uses the “advertising revenue” business model, which is a website that provides a forum for advertisements and receives fees from the advertisers.

 One of the big issues of internet piracy is to determine who should be held liable for copyright infringement: Consumers of pirated digital music? P2P network providers? Internet Service Providers (ISPs)? Searching engines like Google or Yahoo? Music labels successively tried to fight breach of intellectual property laws at each and every level. They first began to sue ISPs, but the U.S. Digital Millennium Copyright Act (1998) and the European E-Commerce Directive (2000) soon provided them with immunity from liability, as long as they did not know about the copyright infringement and took measure when a complaint is filled. Since then, lawsuits were directed at P2P network providers such as Napster, Grokster, eMule, BitTorrent and Limewire or lastly The PirateBay. We will see further that liability of such structure is much more difficult to prove, as they do not directly host or transmit infringing content themselves. Therefore, the actions are based on “contributory liability” and “vicarious liability” (secondary liability)⁶. In parallel and since 2003, the music industry filled thousands of lawsuits against individual consumers of pirated files. According to US Copyright Law for instance, the damages for copyright infringement can go up to $30,000⁷. The music labels usually ask for $750 per songs⁸. However, since 2008, they significantly dropped the mass lawsuits strategy, shifting to one of cooperative enforcement agreements with ISPs. Finally, the last trend is to take action against searching engines. The IFPI and the RIAA recently accused Google to profit from piracy and to make unsatisfactory efforts in fighting it. They are putting a lot of pressure to obtain the removal of thousands of links to “pirate” websites in its search results (this operation is called “takedown requests”), andif Google doesn’t give in to these demands, an unprecedented lawsuit may follow⁹.

INSIGHT: THE PIRATE PARTY MOVEMENT

The argument around P2P file sharing gave birth to a number of anti-copyright groups supporting the free sharing of information and culture. Among them, there is a wide spectrum of activism: On the one hand, pro-piracy groups such as The Anonymous or Piratbyrån, advocating for a complete abolition of intellectual property rights on the internet. They use aggressive means such as “electronic civil disobedience” (e.g. piracy) or “hacking” (e.g. Distributed Denial-of-Service attacks or DDoS). On the other hand, movement advocating for the existence of more flexible copyright licenses alongside the present copyright legal framework, such as Copyleft and Creative Commons.

 These movements where followed by the creation of numerous political parties inspired by the Swedish Piratbyrån (creator of ThePirateBay). These “Pirate Parties” spread in most of the western countries, they now account for 2 seats in the European Parliament, and gain more and more voices in national elections¹⁰

 THE ISSUE

A good way to look at the anti-copyright vs. anti-piracy controversy is to study the last of the numerous lawsuits opposing the music industry to a peer-to-peer networks provider. This is a Swedish case about a famous website named The PirateBay (TPB), which rallies all the traditional arguments and protagonists of the issue, and which brought a lot of political turmoil in the intellectual property world.

District court of Stockholm, Sweden, 17 April 2009

B 13301-06

The PirateBay.org (TPB) is a BitTorrent website founded by a Swedish anti-copyright group, Piratbyrån¹¹. The site is based on Peer-to-Peer (P2P) file-sharing technology, and contains many torrents directing to copyright-protected materials. The administrators had previously received numerous “cease and desist notices” and “take down requests” from copyright holders, but never gave them credit. On 31 January 2008, Several companies in the entertainment business (led by the International Federation of the Phonographic Industry (IFPI) representing Sony, Universal, Warner, EMI…), filed individual civil compensation claims of US$13 million damage against the owners of TPB¹². The charges implied “complicity to commit crime in violation of the Copyright Act (Upphovsrattslagen 1960:729)”. The Swedish prosecutor claimed the website « promoted other people’s infringements of copyright laws »¹³.

 Defendant pleaded not guilty. They presented most of the classic pro-sharing arguments claiming that:

(1) It is for the individual file sharer to bear liability, not for the P2P service provider. Indeed, according to EU directive 2000/31/EC, and the Act on Electronic Commerce and other Information Society (“the Electronic Commerce Act” 2002:552), information provider companies cannot be held liable for the acts of their customers.As file sharing services can be used both legally and illegally, it is for the individual file sharer to bear liability; Furthermore, no copyrighted contend directly passed through TPB’s computers, therefore, the administrators had no mean to control the shared contents and no direct liability can be established (Liability based arguments); (2) The plaintiffs did not suffer any damages since their sales had not fallen (Damage based argument); (3) TPB is legal under Swedish statutory and case law (Jurisdictional based argument). The plaintiffs thus went beyond their power when claiming a remedy for damages outside the Swedish jurisdiction. Some non-legal arguments were brought in, such as (4) litigation against file sharing is an obstruction to technology innovation, thus betraying intellectual property rights first purpose; (5) file-sharing can increase the sales and popularity of less well-known artists not backed by large record companies, it has a positive impact on the music industry as a whole. (6) TPB belongs to a political party (the Piratbyran), and it is illegal to close such organization according to international laws.

 Prosecutors held the classic argumentations of opponents of P2P networks. They claimed that (1) Companies like TPB knowingly contribute to copyright infringement and should be the one held liable for their conducts; (2) Intellectual property laws were originally created to promote innovation and by breaching them, P2P websites have a harmful social impact; (3) Based on legal precedence of business law (see under), the Pirate Bay cannot be considered a sustainable business, as it illegally makes money on helping to steal what other companies have spent money to create; (4) Internet piracy threatens the livelihood of artists, and of thousands of people working in the music industry.

 In its 17 April 2009 verdict, the court found that the defendants were all guilty of “accessory to crime against copyright law”. Judges held that the defendants had collective responsibility for the website, that they allegedly knew that some torrent files pointed to copyrighted material, and that the commercial and organized nature of the activity strengthened their responsibility. TPB administrators were sentenced to one year in jail each and to a total of US$3.5 million fine and damages.

 Defendants and Plaintiffs both appealed. On November 26, 2010, the court found that “The Pirate Bay has facilitated illegal file sharing in a way that results in criminal liability for those who run the service¹⁴. Judges reduced the jail sentences of the defendants but increased their fines.

 Defendant brought the case in front of the European Court of Human Rights (ECHR) in Strasbourg; on the ground of Article 10 (freedom of expression)¹⁵.The ECHR, in a judgment of March 2013, rejected the claims of Pirate Bay founders, thus confirming the appeal sentence. In its decision, the Court recognizes that the Swedish verdict interferes with their right to freedom of expression, but adds that relatively to the doctrine of “balance of interests”, the decision was necessary in order to protect copyright holders from infringement.

OUTSIDE THE CASE: POLITICAL TURMOIL¹⁶

 There was a lot of turmoil during the trial, including prosecutor introducing new evidence after the pre-trial thus breaching the protocol, numerous demonstrations from anti-copyright supporters, hacker’s attacks of the plaintiffs’ websites, accusations of conflict of interests against police investigators and judges, and one of the defendants going into hiding in Laos.

As a result of the trial, the website only changed its domain name, jumping from country to country to avoid new lawsuits.¹⁷ From thepiratebay.org it went to thepiratebay.se (Sweden), thepiratebay.is (Iceland) and finally to thepiratebay.sx (Caribbean Island of Sint Maarten). In addition, TPB disposed of all the trackers, torrents and servers, thus making it increasingly difficult to link it to the users’ sharing activities.¹⁸

 THE LEGAL BATTLE

In its fight against copyright infringers, the music industry uses two main weapons: massive lawsuits and aggressive lobbying to pass favorable legislations. The following table¹⁹ establishes a brief history of legislation and court cases affecting digital copyright. It is intended to show a progression of increasingly regulatory legal restriction over intellectual property. For purpose of clarity only the U.S. is targeted, as it is a country of the utmost importance in this field, its regulation often being the preclusive of a global trend.

LEGISLATIVE ACTION OR COURT CASE	DATE	RELEVANT DETAILS
Sony Corp. of America v. Universal City Studios, Inc. (“Sony-Betamax case”)	1984	Landmark decision on digital copyright. Ruled that copying television programs for the purpose of “time-shifting” is of a fair use. + Ruled that manufacturers of video-recording devices cannot be held liable for users’ infringing uses.
Digital Millenium Copyright Act (DMCA)	1998	Prohibit the circumventing of technological protection measures – called digital right management or DRM – of a copyrighted work (e.g. Encrypted music)
Copyright Term Extension Act (CTEA)	1998	Extend the duration of copyright protection of 20 years (from life of the author + 50 years to life of the author +70 years).
A&M Records, Inc. v. Napster, Inc.	2001	First case against a provider of P2P files sharing software.Ruled that such providers could be held liable for “contributory infringement”. Cause: Napster had the capacity to monitor and control user’s infringement behaviors. + Made a distinction between “time shifting” (see Sony-Betanax) and a new standard of “space shifting”, arguing that Napster was not targeted for personal use but for distribution of file.
Eldred v. Ashoft	2003	Failed to challenge the CTEA (see above). Led to the creation of the Creative Common label, first alternative solution to present copyright laws.
RIAA/MPAA lawsuits against individuals	2003-2008	Targeting individual file sharers of copyrighted materials.
A&M Records, Inc. v. Napster, Inc.; MGM Studios, Inc. v. Grokster, Ltd.; Arista Records LLC v. Lime Group LLC.; Sweden v. The PirateBay…	2001-Present	Lawsuits against P2P network providers.

 

THE REGULATION CONCERNING DIGITAL COPYRIGHT INFRINGEMENT

 International and national regulators have since long implemented a set of rules to protect copyrights. It has often been necessary to add some additional measures in order to adapt to the evolution brought in by the internet and new technologies. These regulations (1) allow law enforcement bodies to take criminal action against copyright infringers, and (2) allow victims of music piracy to take civil actions to recover compensation for damages suffered.

 The most famous and widely accepted of these regulations are the World Trade Organization’s Agreement on Trade-Related Aspects of Intellectual Property Rights (TRIPs), the United Nations’World Intellectual Property Organization Copyright Treaty (WCT) and WIPO Performers and Phonograms Treaties (WPT).

 The TRIPs, WCT and WPT have been locally implemented in most of the member states. We can cite for instance the U.S. “Digital Millennium Copyright Act” (DMCA, codified at Title 17 of the U.S. Code), or the European “Directive 96/9/EC on copyright protection for databases”.

 Legislations concerning digital copyright of music are often based on the traditional business model of the record industry. Taking into account the inefficiency of these business models to fight infringements, legislators need to either create an incentive to develop new business model for these companies, or find a mean to implement laws adapted to the local practices, as shows the HADOPI law.

AN EXAMPLE OF IMPLEMENTATION: THE FRENCH HADOPI²⁰

 The “Haute Autorité pour la Diffusion des Oeuvres et la Protection des Droits sur Internet”²¹ is an administrative agency created in 2009 by a law implementing the European directive. It protects digital copyright infringements following a “graduated response” system: A consumer of pirated works will be submitted to three strikes of notification, warning and technical measures (such as account suspension, fines, and legal actions) if he doesn’t stop his illegal activities. The effects of this law were surprisingly successful; according to a survey²² and a study²³ more than 50% of copyright infringers ceased their practices, and digital sales on the legal platforms increased by 25%. However, this legal method necessitate the cooperation of Internet Service Providers (ISPs), a good compliance to legal threat, and a limited number of initial infringements (Less than 20% according to the same survey).

LOOKING AT THE FUTURE: THE ALTERNATIVE SOLUTIONS

There are two major lines of response to the challenge of digital copyright infringement: develop the actual protection mechanism, or find an appropriate business model:

 I – enforcement of present strategy

The actual strategy against internet piracy is a business model that combines pricing, quality of service, and legal enforcement²⁴. The goal is to minimize the incentive for consumer to give in to piracy.

The first answer is to make music so cheap that it isn’t worth copying. Nowadays, the price of a song on iTunes is around US$0.99. The economic profit of downloading a song illegally is therefore substantially lowered. The second answer is to make legal platforms of digital music market so easy, quick and safe to use that it isn’t worth copying. One who actually tried to download MP3 music on a non commercial site has experienced the frustration of the experience: Finding songs without a proper searching engine is a real struggle, and once you have gone past the multiple pop-up adds, unreliable or dead links, there is a great deal of chance that the song will be of poor quality, or not the one you were looking for, if not a virus. The experience is often long, unreliable, necessitate some knowledge, and can be unsafe. Whereas nowadays, buying a song on a retailing platform such as iTunes takes only a few second, is safe, reliable, and convenient. The third answer is to make legal threat strong enough so that it isn’t worth copying. As previously stated, the damages for copyright infringement can go up to $30,000²⁵ and music labels usually ask for $750 per songs²⁶.

 One way of fighting digital copyright infringement would be to enhance these three lines of defenses, i.e. to lower the prices, make commercial platforms more visible and easy to use, and strengthen legal threats. However, these measures are useful against large-scale pirates, but not effective enough against small individual infringers where detection and enforcement is problematic. Hence, the need for new business models in order to adapt to the new behaviors of consumers.

 II – Finding an appropriate business model

Several alternative business models have emerged over time, which takes digital copyright infringement into account with the goal of reducing it. Their position in the market is so far immaterial; however, some of them are worth mentioning:

 The Open Music Model is an alternative business model created on researches at the Massachusetts Institute of Technology (MIT), in which music is considered as a service rather than a good. It suggest that consumers could have free, unlimited downloads for a monthly price on subscription-based system (Like internet or telephone package). According to the MIT studies, the model would substantially lower digital piracy.

The fan funded model is a business model where consumers collectively raise money through donation on websites to artists they believe in, and are given rewards based on their monetary contributions and the artist success afterward. This model is usually used to launch new artists’ career. Among the most famous fan funded companies we find ArtistShare, MyMajorCompany, Akastarer²⁷… Fan-funded music has become increasingly popular, but the crowd-funding platforms are young and not fully developed. It is not yet used as a sole source of funding for artists, often being used to launch a carreer before signing in with a label.

Another alternative is to focus on copyright law itself, more than on the business model. It is the case of Creative Commons²⁸, an organization which proposed new types of copyright licenses offering more flexibility than the classic copyright model.

Some individual initiatives from artists follow the trend: For instance, the rock band Radiohead released its 2007 album “In Rainbows” in a digital download for which customers could set their own price including getting it for free (“pay what you want” model). Although no official datas were released, the band stated it made more money than on its previous albums on traditional business model. More and more artists reject the record labels model and choose self-promotion, recording and distributions.

The main criticism to these alternative business models is that the result on digital piracy is unclear. So far, nothing proves that the decrease of copyright infringement would be substantial enough. Furthermore, the economic viability of these models is yet to be proved.

——–

 The internet piracy issue has to be taken into account in sight of the original purpose of Intellectual Property Rights, i.e. to encourage creative and intellectual work. In regard of this analysis, the record labels’ fear of alternative models threatening their existence may have altered such a goal.

Despite the drastic evolution brought by the internet era and the digital music revolution, the music industry has been sticking to a traditional business models, and has never completely embraced the customers’ new consuming habits. A huge knowledge gap (e.g., the difference between what the industry thinks customers want and what the customers actually want) seems to exist between record labels and consumers’ expectations about digital music consumption. Furthermore, the “digital right movement” is constantly inventing new way to go round legal barriers and courts’ decisions (see The PirateBay case), thus giving a feeling of a never ending fight. In order for traditional firms to make a successful transition to a new business model, record labels necessarily need to change their strategy from lawsuits to a marketing and innovation-based orientation.

 The outcome for digital music industry is still uncertain, but past experiences are worth considering: new technology like photocopy or videotape for the book and film industries. They were always greeted as the death of the existing industry, but always contributed to a resurgence of the market rather than a reduction.

By Thibault Bouëssel du Bourg