Last week the Department of Commerce’s Internet Policy Task Force, a joint effort of the U.S. Patent and Trademark Office and the National Telecommunications and Information Administration, issued its long-awaited White Paper on Remixes, First Sale, and Statutory Damages. The report was prepared as part of the task force’s long-running work on copyright policy, creativity, and innovation in the digital economy, announced back in 2013. The task force’s work is an analog to, but is not directly associated with, the ongoing review of copyright law undertaken by the House Judiciary Committee.
The long-awaited report follows a series of task force hearings held throughout the country at which more than 60 people participated as panelists. As the title implies, the white paper considers the state of the law with respect to three key areas as they relate to the digital environment – specifically, remixes, the first sale doctrine, and statutory damages.
With respect to remixes, the Task Force found that while allowing artists to remix existing copyrighted works into new works makes important contributions to society, and that it is important that the copyright framework remains sufficiently flexible to permit such uses, it stopped short of encouraging Congress to change the copyright law to accommodate remixers. Essentially, the Task Force concluded that while there may be some uncertainties around what can and cannot be done under fair use, or what types of uses require a license, but that those issues are best resolved through industry-wide initiatives and education about fair use.
To that end, the Task Force recommended:
- The development of negotiated guidelines providing greater clarity as to the application of fair use to remixes;
- Expanding the availability of a wider variety of voluntary licensing options; and
- Increasing educational efforts aimed at broadcasting an understanding of fair use.
Whether the music industry will take the Task Force up on its suggestions remains to be seen. As business structures continue to evolve to keep pace with technological innovation, it’s entirely possible that the recording industry will build licensing tools that permit remixers to seamlessly license works for which licenses are required (e.g., for those uses that exceed the bounds of fair use). Given the ticket of legal and business issues labels would have to navigate, however – such as certain artists simply not wanting the work to be remixed – such solutions are unlikely to develop in the near term.
First Sale Doctrine
The first sale doctrine essentially provides that the physical manifestation of a copyrighted work is distinct from the copyright interest in the underlying work itself. After the first authorized sale (which doesn’t necessarily need to be a “sale” in traditional/ terms – it means any transfer undertaken with permission of the copyright owner), the copyright owner has no legal control over the physical copy that was transferred, even though the rights owner may still control the copyright. It’s the first sale doctrine that enables us to buy, sell, and trade used books, for example. While the publisher may still own the copyright interest in the underlying work, once a consumer acquires a physical copy of the work, he or she is free to further distribute that particular copy.
While the basic principles of first sale have served the copyright community well for many decades, as digital technology begins to dominate, many users of copyrighted works have started to question whether first sale works in the digital age.
The challenges stem from the fact that most digital content is licensed, not sold, to the end user. That is, when you download a song or a film from a commercial provider such as iTunes, you receive a copy of the digital file and a license to use it – but you don’t technically have any ownership interest in the work or the file. That’s because in the digital context, there is no way to distinguish between the two. That is, it’s not possible to distribute the physical file without also implicating certain copyright interests, namely the right of reproduction and distribution (whereas when we transfer the book in our example earlier, we don’t need to do anything with the underlying work, all we transfer is the physical book itself).
Some have asserted there ought to be a “right” of digital first sale, asserting that consumers who license digital content do not have the same rights as those who buy physical counterparts. They believe “owners” of digital works should have the right to sell or otherwise dispose of their digital works in just the same way that they might with physical goods. Further, they note that the content industry doesn’t play fair when it uses phrases like “buy” or “own” in the context of digital content when, in fact, all they’re granting is a license to use the content. The content industry responds that the rights available to licensees of its content are clearly articulated in the license agreement.
Whether to extend first sale to the digital environment was the subject of an earlier report by the Copyright Office which concluded that it was not desirable and that the digital environment was simply different than its physical counterpart to warrant like treatment. The Task Force more or less agreed, finding that it was “not advisable” to extend the first sale doctrine to digital transmissions. It observed that there is “insufficient evidence to show that there has been a chance in circumstances in markets or technology, and the risks to copyright owners’ primary markets to not appear to have diminished” since the Copyright Office first considered the issue.
Accordingly, the Task Force declined to recommend a legislative initiative, but did say that “there is a need to provide consumers with more clarity about the nature of the transactions they enter into when they download copies of works.” Specifically the Task Force called for the creation of a multistakeholder process to establish best practices to consumers in connection with online transactions. The multistakeholder process has been used previously by the Commerce Department – notably, it convened the multistakeholder forum on the DMCA notice-and-takedown system, which issued a final document in April 2015, though it’s unclear what ultimate practical impact the group’s work will have.
The third and final area of inquiry that the Task Force pursued was statutory damages, which is also the only area where the Task Force called for legislative change. Specifically, the Task Force observed:
…that concerns had been raised about the application of statutory damages against individual file-sharers who make infringing content available online, and against online services, which can be secondarily liable for infringement of large numbers of works. With respect to individuals, we observed that the size of the awards in two infringement cases involving file-sharers had led to calls for changes in the levels of statutory damages. With respect to online service providers, we described a debate between those who argue that the prospect of large statutory damages awards chill investment and innovation and those who assert that this prospect is necessary to deter infringing services that have the potential to cause great financial harm
To address the concerns, the Task Force recommended four statutory adjustments. The first would incorporate a series of factors that a court would be required to consider when evaluating a damages judgment. Specifically:
- The plaintiff’s revenues lost and the difficulty of proving damages;
- The defendant’s expenses saved, profits reaped, and other benefits from infringement;
- The need to deter future infringements;
- The defendant’s financial situation;
- The value or nature of the work infringed;
- The circumstances, duration, and scope of the infringement, including whether it was commercial in nature;
- In cases involving infringement of multiple works, whether the total sum of damages, is commensurate with the overall harm caused by the infringement;
- The defendant’s state of mind, including whether the defendant was a willful or innocent infringer;
- In the case of willful infringement, whether it is appropriate to punish the defendant and if so, the amount of
damages that would result in appropriate punishment.
Because the proposed new factors are drawn largely from model jury instructions and existing case law, as a practical matter, including these factors in the statute isn’t likely to substantially change most courts’ infringement analyses, but it might require that judges and juries be more transparent about how they arrived at a particular damages award which could, in turn, be helpful for judges and juries in the future (and the lawyers that argue before them).
The second statutory adjustment the Task Force called for relates to the “innocent infringer” defense, which permits courts to reduce damage awards in cases where an infringer had a reasonable, good-faith belief that his or her conduct was non-infringing. As the law stands now, that defense is not available if the infringed work contain a copyright notice, rendering the provision, as described by one commenter, “almost useless.”
The Task Force agreed, and encouraged Congress to remove the limitation, but would still permit courts to take whether notice was present as a consideration in determining damages awards.
The third change proposed by the Task Force would permit courts to depart from the familiar “per work infringed” calculus for calculating statutory damages, in cases where the infringement is non-willful secondary liability, such as online services that facilitate the transfer of online works. The Task Force observed that in cases of unintentional mass infringement, such as that which might occur in the course of launching a new, untested business model, the “per work” infringement calculus can lead to potentially unconscionably high damages awards that can, in the words of the Task Force, “have a chilling effect on investment and innovation.”
Finally, the Task Force articulated the need for a small claims adjudication mechanism that would enable smaller rights-owners to pursue litigation for infringements that cannot justify the expense of traditional litigation in federal court. The notion of a small claims procedure was recently addressed by the Copyright Office in its September 2013 report Copyright Small Claims, which included a call for legislation. While the Task Force stopped short of endorsing the Office’s proposal, it did encourage Congress to afford the Office’s plan further consideration.
The Internet Policy Task Force’s work represents an impressive commitment of time and effort on the part of the Commerce Department as well as the dozens of stakeholders who contributed input. The recommendations are generally measured and reasonable. But the reality is that we are unlikely to see much movement on the recommendations, at least not in the near term. Congress recently concluded its own comprehensive review of copyright law and will very likely have its own thoughts and impressions on what statutory change may be required. Moreover, most major stakeholder groups have asserted that there is no need for statutory change, so it’s likely that any proposal to pursue such change would be met with resistance.
More fundamentally, though, the Internet Policy Task Force is an instrumentality of President Obama’s administration, and the keys to copyright revision are in the hands of the Republican-controlled Congress. While Congress might consider the Task Force’s work as another data point in its evaluation of copyright law, it’s exceedingly unlikely that it will simply adopt the Task Force’s suggestions.