Copyright Law: Copyright and Performers' Rights in the Music Industry and Opposing Parties on the Internet - Term Paper Example

Running Head: COPYRIGHT LAW Copyright Law of the of the Table of Contents Copyright Law Introduction TheInternet is a justly global society within which numerous economic, social and technological forces interplay to cause its standardization. Much of the competition in the industry has revolved around which product will become the standard for a given market sector. Some markets have seen victors; for example, TCP/IP is the Internet communication protocol, MP3 appears to be dominating music compression, and Microsoft Corporation's Windows ("Windows") is clearly the standard operating system. Similarly, the Internet must adopt a standard for web browsing and searching, for email, and for web programming. In many cases, the competition for this standard will be fierce,(n6) because the winner likely will have intellectual property rights in the technology and hence reap a significant reward. Such incentives often are needed for the development of objectively good standards. Yet, as a consequence of granting intellectual property rights, a monopoly is created in a product that Internet users need. Once an Internet technology becomes a standard, how can the owner of the corresponding copyright be prevented from extracting monopoly rents and thereby negating the increase in consumer welfare that the standard created It is an understatement to say that the Internet has become an important communications and commercial network. The large number of Internet consumers grants each user the benefit of network effects -- the effects of a system whose value to a given user increases with the number of users of that system --- a significant externality that affects decisions by potential new participants. Network effects are particularly important with regard to the Internet, because the more users it has, the more valuable it is as an information resource, a communications tool, and a marketplace for goods and services. In fact, the network effect of the Internet would be destroyed were it not for the adoption of common standards to ensure compatible communication. For example, computers use the public domain protocol TCP/IP, which allows the network effect to prosper, because it allows everyone using the Internet to speak the same language. Without such compatibility, email messages would not be readable by, and web pages would not be accessible to, all users; such facile interchange is precisely the value of being on the network in the first place. Thus, the need for compatibility also drives the standardization of Internet protocols and tools, because the network effect requires users to be on the same network. Copyright in the Age of Internet Copyright is a relatively neglected area as far as economists are concerned and it occupies a backseat by comparison to the economic analysis of patents and R&D. This is surprising since it plays a major role in industries that are increasingly important in post-industrial economies, the cultural industries (publishing, sound recording, film, broadcasting) and computer software. It is a fruitful area for the application of law and economics, for modern theories of industrial organisation and for public choice theory. Copyright law provides the institutional framework for markets in the cultural sector of the economy. Each country has its own national copyright law; however, the necessity for that law to be effective with international trade of cultural products has led to harmonisation of copyright across countries. The author may license, assign or sell these fights outright or in part or transfer them to an agent. All such transactions are made through contracts. Only the author's moral right in the work may not be sold or transferred1. The right way to evaluate policy on copyright is to undertake empirical analysis of the economic effects of changes to the law and to see how markets respond to them. It does not seem that this approach has so far even been considered in European policy-making on copyright. Principal-Agent Model Of Copyright Apart from Plant (1934), no economist seems to have raised the question of whether the interests of author and publisher are the same or whether they conflict, though there are numerous instances (including court cases) of disputes. Publishers are accorded copyright so as to encourage the dissemination of authors' works, presumably on the assumption that authors themselves could not or would not be able to do it to the extent that is socially optimal. If publishers had no copyright, they would act only as the author's agent and the author would be viewed unambiguously as the principal. But publishers are entrepreneurs and may hire authors to create works, in which case the publisher is the principal and the author his agent. Plant made the point that a basic conflict of interest arises even in the relatively simple case of the author of a book and her publisher: the publisher seeks a price that maximises profit, whereas the author, whose royalty depends on the number of books sold, would set a price that maximises sales, the elementary economic point being that the optimal level of output would be different depending on the bargaining power of the author with the publisher. The outcome depends on the bargaining process between author and publisher over the terms of the contract between them. This process can be analysed using a principal-agent model of the system of payment for the use of copyright. The Copyright Directive does not specify how to strike a balance between these two conflicting interests and the member states are each having to wrestle with (or in some cases ignore) this conundrum when implementing the Directive (LaMarche, 2005, 78). The deadline for transposing the Directive into the member states' national laws was December 22 2002. To date, only six member states have completed the implementation - Austria, Denmark, Germany, Greece, Italy and the UK. Scope of the Directive In summary the principal features of the Directive are: Reproduction right Article 2 provides an exclusive right of reproduction for authors (of their works), performers (of fixations of their performances), phonogram producers (of their phonograms), film producers (of the first fixations of films, in respect of the original and copies of their films) and broadcasters (of fixations of their broadcasts however transmitted including by cable or satellite) (Edelstein, 2006, 154). This right is to apply fully in the digital environment and the Directive seeks to cover temporary or transient copies by stating that the exclusive right relates to "direct or indirect, temporary or permanent reproduction by any means and in any form, in whole or in part" (Gamble, 2003, 59). Communication, distribution and exceptions Article 3(1) provides an exclusive right of communication to the public for authors, including the internet "making available" right. This is expressed to be the right of authors of "making available to the public of their works in such a way those members of the public may access them from a place and at a time individually chosen by them". These words repeat the corresponding formulation in the WIPO Copyright Treaty and are intended to cover dissemination over the internet2. Article 3(2) provides an exclusive internet "making available" right for performers, phonogram producers, film producers and broadcasters. In contrast to Article 3(1), the right does not extend to grant a general right of communication to the public (LaMarche, 2005). Article 4 provides an exclusive right of distribution by sale or otherwise (of tangible articles - typically hard copies or works on carriers such as computer disks) for authors. This right is subject to "Community exhaustion". It will be exhausted within the Community where the first sale or other transfer of ownership in the Community of the original or copy of the work is made by the rightholder or with his consent (Edelstein, 2006, 99). Article 5(1) provides a mandatory exception from the infringement of copyright for temporary acts of reproduction of the type referred to in Article 2 which are transient or incidental, have no independent economic significance, and are an integral and essential part of a technological process and whose sole purpose is to enable network transmission or a lawful use. The intention is to exempt "blind" copying by intermediaries and carriers such as telecoms operators, ISPs etc (Bainbridge, 2003, 191). This exception has, however, been criticized as being difficult to interpret and of unclear effect. It does not apply either to the communication to the public or making available rights (Article 3) or to the distribution right (Article 4). In addition, it does not apply to a computer program or to a database passing through the carrier's technological processes as the exemption does not apply to works in these categories. It would appear therefore to provide only limited protection to relevant carriers. Article 5(2) provides five optional exceptions in respect of the reproduction right (Article 2) in the following cases: a) Photocopies (with the exception of sheet music) subject to fair compensation for rightholders; b) Reproductions made by a natural person for private use and for ends that are neither directly nor indirectly commercial, subject to fair compensation for rightholders; c) Certain reproductions by public libraries, educational establishments or museums or archives not for direct or indirect economic or commercial advantage; d) Ephemeral recordings by broadcasters of their own broadcasts and preservation of these recordings in official archives; and e) Reproduction of broadcasts by social institutions (such as hospitals or prisons) for non-commercial purposes, subject to compensation for rightholders. Article 5(3) provides 15 further optional exceptions in respect of the reproduction right (Article 2) and the communication to the public right (Article 3). In summary, these exceptions cover: a) Certain uses for illustration for teaching or scientific research; b) Certain non-commercial uses for the benefit of people with a disability; c) Reproduction by the press and communication to the public of published articles on current affairs, subject to conditions; d) Quotation for criticism or review, subject to conditions; E) use for public security or performance of or reporting administrative, parliamentary or judicial proceedings; f) Use of political speeches and extracts from public lectures, subject to conditions; g) Certain use for religious celebrations or official celebrations; h) Use of works such as architecture or sculptures to be located permanently in public places; i) Incidental inclusion; j) Certain uses for advertising public exhibition or sale of artistic works; K) use for caricature, parody or pastiche; L) use for demonstration or repair of equipment; m) Use of certain artistic works for building reconstruction; n) Certain uses through dedicated terminals for the purpose of research or private study; and o) Use in certain other cases of minor importance where exceptions already exist under national law and free circulation of goods and services within the Community is not affected. Adequate protection Article 6 requires member states to provide "adequate legal protection" against the circumvention of effective technological measures. In addition to providing protection against circumvention (Article 6(1)), member states are required under Article 6(2) to provide adequate legal protection against the manufacture, import, sale etc of devices which are promoted for or primarily designed for the purpose of circumvention of effective technological measures or which have only a limited commercially significant purpose or use other than circumvention of such measures. In this context, "technological measures" are defined (Article 6(3)) as "any technology, device or component that, in the normal course of its operation, is designed to prevent or restrict acts, in respect of works or other subject-matter, which are not authorised by the rightholder of any copyright or any right related to copyright as provided for by law or the sui generis right provided for in Chapter III of Directive 96/9/EC" (the sui generic right in databases). They are deemed to be "effective" where "the use of a protected work or subject matter is controlled by rightholders through application of an access control or protection process". (Kanuck, 2006, 99) The Directive cites encryption and scrambling as examples of such effective technological measures3. Under Article 8 member states are required to provide appropriate sanctions in respect of infringements of rights and obligations under the Directive. The sanctions are to be effective, proportionate and dissuasive. Issues arising from implementation As explained above, two implementation issues have been the subject of considerable debate. These are: i) the existence of numerous optional exceptions (see Articles 5(2) and 5(3)) and the likely scenario that their piecemeal adoption will, contrary to the objectives of the Directive, result in disharmony and distort competition in the internal market; and ii) The provision of legal protection for technological copy protection devices and the risk that the use of such devices may proliferate and be used in conflict with the rights of lawful users and the beneficiaries of permitted exceptions. Seizing opportunities The amending law has also taken the opportunity to extend the obligation to pay fixed royalties for broadcasts to all works that are "put at the disposition of the public" (Kanuck, 2006, 156). This has caused concern amongst both consumers and manufacturers of IT equipment. Currently, the price of blank cassettes or other media, video recorders or other recording devices, includes an element by way of a fixed royalty, which is then re-distributed to authors - the rationale being that such cassettes and recording devices will inevitably be used to copy the works of authors (Edelstein, 2006, 123). The mechanism aims to provide a pragmatic approach to ensuring that authors receive fair compensation for such copying by imposing a fixed royalty on the price of such devices rather than requiring authors to police individual acts of infringement. By extending the royalty payment obligation to works "put at the disposition of the public", the payment of such royalties would be extended to cover also computer equipment (Edelstein, 2006, 124). With regard to technological protection measures, Danish law already included a prohibition on distribution or possession of circumvention devices. In implementing the Directive, the circumvention itself is now made illegal. This is so, even where the user's purpose is to exercise lawful rights under one of the exceptions. Danish law has sought, however, to provide a mechanism to reconcile the use of copy protection methods and the rights of beneficiaries under the exceptions. It provides that if agreement cannot be reached between the rights owner and the group of users covered by the exception, the users have a right to raise the matter with The Board for Intellectual Property Rights. The Board can direct the rights owner to make the works available to such users, for instance, by making "keys" available. If the rights owner does not comply within four weeks, the users are to be permitted to circumvent the technical measure themselves. It is worth noting that this procedure does not apply to the exception for private copying (on the basis that Article 6 of the Directive is directed at encouraging the use of effective technical copy protection measures to prevent piracy and that this would be undermined if decryption tools were to be made available to every user who sought to make a private copy). In relation to exceptions and limitations, the German law introduces a number of new exceptions and limitations including introducing an exception for disabled persons to access works and extending the exceptions for current affairs reporting to cover reports in all kinds of media including the internet. In addition, limitations have been introduced for private use of non-paper copies of works. With regard to technological protection measures, again, German law has reproduced the conflict between safeguarding copy protection mechanisms on the one hand and safeguarding lawful user rights under the exceptions on the other hand. Like Austria, Germany has altered very little in transposing Article 6 of the Copyright Directive. The UK implemented the Directive by delegated legislation - The Copyright and Related Rights Regulations 2003 - which came into force on October 31 2003. In relation to exceptions and limitations, the UK government's approach has been to seek to maintain existing UK exceptions as far as possible and to change as little as possible. Apart from introducing the new Article 5 (1) exception, the only completely new exception to be added is that affected by bringing the Copyright (Visually Impaired Persons) Act 2002 into force at the same time as the Regulations4. With regard to technological protection measures, the mechanism to implement Article 6.4 has been one of the most contentious aspects of the implementation exercise. Section 296 of the existing Copyright Designs and Patents Act 1988 restricts the use of devices designed to circumvent copy-protection and the Regulations introduce a new section 296ZE (remedy where effective technological measures prevent permitted acts). Under section 296ZE a beneficiary of the exceptions who wishes to use a work that has been protected using a technical measure (and who represents a class of persons prevented from carrying out a permitted act) may complain to the Secretary of State. The Secretary of State may (in the absence of an agreement or voluntary measure enabling the person to carry out the permitted act) give directions to ensure that the rightholder makes available to the complainant the means of carrying out the permitted act to the extent necessary to benefit from it. The remedy is therefore at the discretion of the Secretary of State and it remains to be seen how it will operate in practice5. Attempts by the EU to standardize copyright legislation across the community already have changed the law in five nations. Seven others are about to fall into line, and now--belatedly--the debate on the issues has come to the public arena in the U.K.6 Copyright provisions across the EU are being amended because of a directive from the European Commission obliging national governments to harmonize certain aspects of the law. However, the directive required each national government to introduce new provisions into its domestic legislation by July of last year; the fact that the U.K. government is only now beginning the legislative process is being interpreted as a sign of its reticence over the measures in the directive. When the law is on the statute books in the U.K., France will then be the only EU nation not to have fallen into line (LaMarche, 2005, 99). The U.K. government's encapsulation of the directive's contents is draft legislation titled the Copyright and Rights of Performers Regulations 1995, which was published March 27. (Kanuck, 2006, 126) The main proposals in the document are: To grant performers a share of broadcast royalties. (At present, payments to artists is on a voluntary basis by the record companies.) To grant performers the same rights as record companies to remuneration from record rental. To make distributing unlicensed records illegal. However, British record industry lawyers regard the document as far from clear and say it is further clouded by its many references to the U.K.'s current Copyright Act. At press time--two days after the document's publication--lawyers said they are working on their best guesses as to exactly what it means. They were most clear, though, that the regulations intend performers should have their right to a portion of broadcast royalties enshrined in written law for the first time. The way the document is phrased, however, means that this provision may be creating grounds for conflict. The Copyright Tribunal is a court of law established specifically to settle disputes over intellectual property. Specifically, they are unhappy that radio can be played in public establishments without a license from PPL. Both organizations say they will lobby to have a new provision precluding this inserted in the legislation. Indeed, Andrews argues that without such a provision, the draft legislation does not carry out the intentions of the European directive. Parker says the draft legislation is the "minimum the government could get away with while still complying with the directive." (Gamble, 2003, 59) The EU directive already has been adopted into domestic legislation in Belgium, Greece, Italy, Spain, and Austria. Draft legislation is in the public arena in Portugal, Germany, Finland, Denmark, Ireland, Sweden, and the Netherlands. (Gamble, 2003, 61) With Directive 2001/29/EC "on the harmonization of certain aspects of copyright and related rights in the information society," the European Union is harmonizing its rules for copyright. The Preamble notes that this Directive implements several of the new international obligations arising from the WIPO Copyright Treaty and the WIPO Performances and Phonograms Treaty (Preamble (15)). The Directive is related to the new Directive on electronic commerce (2000 O.J. (L 178) 1, 17 July 2000), and should be implemented within the same time frame (Preamble (16)). The new Directive specifies certain aspects of copyright, especially as it applies to information technology (Article 1). Expressly excluded from the scope of the new Directive are existing EU protections for computer programs and databases, for broadcasting programs, usage rights in intellectual property, and the term of copyright protection (Article 1). The Directive orders the EU Member States to provide authors, performers, and producers the exclusive right to authorize and prohibit the reproduction of their work, and the right to distribute their work as they deem fit (Articles 2-4). On the other hand, if a party is using such works for teaching, for the benefit of handicapped people, for reviews and critique, as well as for incidental use in other works, the directive does not apply (Article 5) (McCarthy, 2005, 74). The Directive gives Member States until December 22, 2002 to transpose its provisions into domestic law. The Directive will apply to all works and other subject-matter that EU Member States legislation protects as of that date7. The Internet and its associated technologies have improved our ability to communicate rapidly, and have provided us with instantaneous access to vast amounts of information. While this has been an undoubted boon for many, the road has nonetheless had its bumps. While consumers of information view the Internet's vast information exchange capability as a benefit, commercial purveyors of information think about how the Internet might be exploited for profit, and holders of intellectual property potentially subject to distribution on the net worry about the protection of their rights. Central to all of these concerns is the question of copyright law and its application to the distribution of information electronically (Edelstein, 2006, 111). The utility of this power will scarcely be questioned. The copyright of authors has been solemnly adjudged, in Great Britain, to be a right of common law. The right to useful inventions seems with equal reason to belong to the inventors. The public good fully coincides in both cases with the claims of individuals. The advent of digital technologies rapidly changed the landscape. Perhaps the first arena in which this became apparent was consumer and business software for personal computers. Computer software can be copied easily, with absolutely no loss of information quality - each copy is a perfect replica of the original. Software producers, quick to realize that illegal software copies could damage profitability, initiated copy-protected software. Copy-protected software proved very unpopular with consumers, however, and eventually disappeared from the scene (LaMarche, 2005, 54). The replacement was the so-called shrink-wrap license agreement, wherein the purchaser agrees to make only a limited number of copies for installation on a computer hard drive or backup for disaster recovery People routinely post and download pictures, articles, artistic creations, and other materials from on-line services, bulletin boards, usenets, and other Internet sources, and transfer them from one party to another via e-mail. For copyrighted material, all such transactions are copyright violations unless they fall within the Fair Use doctrine. Further, there have been a number of criminal prosecutions for flagrantly illegal bulletin board postings of copyrighted computer software programs. Opposing Parties on the Internet The Internet was originally an academic medium, designed and built for the exchange of data and commentary between institutions, researchers, professors, and students. More recently, the Internet has become a haven for advocacy and political groups, and a range of others who view it as a cheap and easy way to reach a wide audience with their message. These groups tend to view the Internet as a medium for free exchange of information, and are wary of the idea that Internet transmissions ought to result in the payment of fees. On the other side are commercial organizations that seek to exploit the Internet and copyright holders (some of whom are large commercial organizations themselves) who seek to stop any illegal transmission of copyrighted material in order to maximize its economic value. On-line service providers have a business relationship with their subscribers. They - and, perhaps, only they - are in the position to know the identity and activities of their subscribers and to stop unlawful activities (Edelstein, 2006, 129). And, although indemnification from their subscribers may not reimburse them to the full extent of their liability and other measures may add to their cost of doing business, they are still in a better position to prevent or stop infringement than the copyright owner. Between these two relatively innocent parties, the best policy is to hold the service provider liable (LaMarche, 2005, 88). Until now, the Internet has been something of a free-for-all with respect to its adherence to copyright law. The commercialization of the Internet will inevitably bring regulation, of which the two pending pieces of legislation are only the first wave. Users of the Internet will need to continue to monitor the progress of legislation if they are to avoid running afoul of copyright law (Gamble, 2003, 67). Dozens of industry and consumer groups are battling over a proposal to update Europe's copyright laws to combat the rise in piracy in the digital age. The recording industry is pushing for tight controls on private copying of digital media, while electronics and consumer groups are defending the rights of individuals to duplicate copyrighted material for their own personal use (McCarthy, 2005, 99). Today, most European countries allow private copying and place levies on blank media or recording equipment to compensate rightsholders. While private digital copying is prohibited in three European countries--Britain, Luxembourg, and Denmark--their copyright laws are not strictly enforced. The International Federation of the Phonographic Industry (IFPI), a London-based group representing 1,300 labels in more than 70 countries, wants even more protection, though. The organization insists that private copying of digital sources cannot be tolerated-as it has been with analog-because digital copying is, in effect, cloning, or creating a product equivalent to one sold in retail. "There is no place for private copying in the digital era," says IFPI representative Adrian Strain (McCarthy, 2005, 114). The record industry's intense lobbying paid off in February when the European Parliament amended a copyright proposal developed by the European Commission to strengthen the rights of artists and producers. The Commission's proposal would have allowed the 15 countries in the European Union to decide whether to permit private copying for personal use. Copyright legislation will continue to be debated and modified by European officials throughout the year. This does not imply that there is no case for copyright. Property rights must clearly be defined and enforceable for markets to work. Copyright law provides the framework for transactions in the cultural industries and enables artists (authors and performers) and firms to appropriate returns to their investment, thereby increasing the incentive to supply. References Atkins, Bruce T., Trading Secrets in the Information Age: Can Trade Secret Law Survive the Internet 1996 U. Ill. L. Rev. 1151 (1996) Bainbridge, I. David. Intellectual Property. Longman; 6 Rev Ed edition (25 Aug 2006) Edelstein, Jonathan I., Anonymity and International Law Enforcement in Cyberspace, 7 Fordham I. P., Media & ENT. L.J. 231 (2006) -pages: 101-134 Gamble, John K., International Law and the Information Age, 17 Mich. J. Int'l L. 747 (2003) -pages: 50-65 Ginsburg, Jane C., Electronic Rights in Belgium and France: General Association of Professional Journalists of Belgium V. 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