US firm runs mass copyright shakedown in Canada

When Canada’s new copyright rules went into effect in January, critics feared that someone would use them to run settlement extortion schemes of the sort that have long plagued the American legal system. Those fears have proved to be justified. This week, a second U.S. company has come into Canada, apparently using an automated process to blast thousands of settlement notices far and wide.

If you’re unfamiliar with the scheme, it works like this: under Canada’s new rules, a copyright owner who detects an unauthorized download can send a notice to the subscriber’s ISP, which is then obliged to notify the subscriber. The problem is that copyright owners can abuse the system by sending out notices that are actually threats, based on false information, and scare people into paying a settlement.

This has already happened once when a company called Rightscorp began making outlandish claims based on American law (for instance telling notice recipients that they faced $150,000 fines for downloading songs — even though the maximum fine in Canada is $5,000).

Now, a second group is trying its luck. This time, the culprit appears to be the porn industry working with an enforcement firm called CEG TEK. Lawyer Bram Abramson, who is counsel for a Canadian ISP, took to Twitter to flag what’s going on:

In other words, CEG TEK is using a bot to send out thousands of “notices” that are, in reality, shakedown letters. Recipients of such notices are typically invited to call a number where someone squeezes them to pay up what they can before something much worse happens to them (the enforcement agency and the copyright owner then divvy up the proceeds).

Law professor Michael Geist, who also reported on the story, observed that the latest notices aren’t as egregious as the previous Rightscorp batch. The CEG TEK notices at least claim to be based on Canadian law, even though they also misrepresent the damages at stake as well as other basic facts about the process.

But as Geist points out, they are still a gross abuse of the process, and also impose a financial burden on Canadian ISPs, who are obliged to process this flood of trumped up notices. Both Geist and Abramson recommend the Canadian government pass regulations to curb this sort of abuse, possibly by imposing a charge on those who send notices.

Some readers will point out that the letter recipients shouldn’t be infringing copyright in the first place, and they deserve what they get. The problem with this attitude, in my view, is that it encourages an abuse of the legal process (never a good thing), and undermines overall respect for copyright law. A better approach would be for copyright owners to follow the process in good faith, and save the big legal guns for repeat and flagrant offenders.

The music industry’s broken business could change in 2015

The music business has been screwed up for a hopelessly long time, but change is afoot: Congress, courts and the Justice Department are all poised in coming months to shake up how companies and consumers pay for music. The big question, though, is whether this flurry of activity will produce a rational royalty system — or just make the existing rathole even deeper.

Here’s what to watch for in a year that could change the rules of the game for performers, [company]Pandora[/company] and everyone else with a stake in music.

Flurry of laws, hearings

The last month has seen the return of two proposed bills in Congress. One is the Local Radio Freedom Act, which would ensure that traditional AM/FM stations don’t have to start paying performance royalties on top of the songwriter fees they currently pay. The other is called the Songwriter Equity Act, which would tweak the way so-called “rate courts” calculate how much people who write songs should get paid.

Both bills have appeared before in one guise or another, but never passed. This time, the outcome will be determined in part by whether Congress takes up the issues at stake on its own, or as part of a larger royalty reform effort.

Meanwhile, industry attention is turning to the Justice Department, which is holding a hearing on March 10 over so-called consent decrees. These are antitrust orders that apply to ASCAP and BMI, two giant outfits that license songs on behalf of music publishers, and require them to license song rights at a fixed price to all comers. The antitrust orders have been a boon to everyone from cover bands to bars to radio stations because they provide an easy, efficient way to clear copyrights. But music publishers say they are getting short-changed and want the orders, which date from the 1940’s, to be changed or abolished outright.

Finally, some high stakes court cases increase the chances this will be a year of reckoning for the music industry.

Digital on trial

The most contentious of these cases involve an aggressive series of class action lawsuits, brought by record labels and former members of the band The Turtles. In courts from California to New York to Florida, the labels are claiming that Pandora, Sirius-XM and other digital music services have failed to pay for performances that date from prior to 1972.

The legal theory appears far-fetched, but it’s gained traction before some judges. If the cases go any further, they will have huge financial and legal implications not just for Pandora, but for any other service that plays old music on the internet. (The labels also pushed the issue last year through a proposed law, The Respect Act; look for that bill to return if the labels strike out in court).

And, if all that’s not enough to keep track of, there’s also a court clash between Pandora and BMI. This one is about royalty rates, but also about whether publishers who use BMI to license their songs can pull the digital portion of their catalogues or if they must instead be, in the words of one judge, “all in or all out.”

A ruling in favor of BMI could cripple digital radio services, but that appears unlikely given that ASCAP lost a similar case last year.

What the fight’s really all about

All of these disputes are bitter and complicated, but the source of them can be summed up in a sentence: the music royalty pie has shrunk significantly, and what’s left of it is being distributed unequally. As an RIAA report in 2013 revealed, digital sales may be growing, but not fast enough to offset the long-term loss of CD sales. Professor Peter Tschmuck, as part of an analysis of the U.S. music industry, put the RIAA’s data into a chart last year:

Peter Tschmuck chart of RIAA data

These larger forces are why many of the measures now floating around — the songwriter law, the consent decrees, the court cases — won’t do much to change the game. Such piecemeal fixes also do little to acknowledge the current royalty system is broken because it’s built on assumptions of the analog era.

The proper way to approach the problem is instead to require the music industry to recalibrate the entire copyright collection process from the ground up and, especially, to fix two major imbalances in how money is collected and paid. The first imbalance involves a seemingly irrational distinction in how the law treats AM/FM stations and digital radio.

Pandora, for instance, is a favorite punching bag of the industry, but the company also spends the bulk of its revenue paying performers — even as traditional radio stations pay nothing at all. The reason for this, Washington insiders suggest, is that members of Congress are eager to make nice with local stations on which they rely heavily during election campaigns. This is why they are happy to let them pay nothing to performers, while at the same time throwing the likes of Pandora and Sirius-XM under the bus when it comes to royalty rates. But for musicians and for consumers, there’s really no reason why digital and AM/FM should be treated so differently.

The other big imbalance when it comes to royalties is between songwriters and performers. Many people will be surprised to know that when performers do get paid, which is the case when a song is played on digital radio, the rates can be up to ten times higher than what the songwriters (and their publishers) get.

The reason for the imbalance in this case, though, is the consent decrees that set the rates at which publishers get paid. The Justice Department could address this by lifting the decrees, and allowing publishers through ASCAP and BMI to charge what they like. But this could lead songwriter rates to go through the roof, and fatally wound digital radio services once and for all (recall Pandora is already on the ropes). It would also create new licensing headaches for restaurants, bars and other places that play music.

That’s why any solution that looks to pay songwriters more will also have to consider when it is appropriate to pay record labels, which represent the performers, less.

As for the dispute over pre-1972 recordings, the court cases (and the now-dormant Respect Act) appear to be no more than a cash grab through copyright expansion. Judges and law-makers should blanche at the idea of handing out windfalls, at the expense of consumers, for music that is already 50 years old. Such a gift would be a boondoggle akin to ethanol subsidies or the Bridge to Nowhere.

Change is coming.. but for better or worse?

All of this comes at a time when musicians are having a harder time than ever. The record industry that once nurtured them has shrunk dramatically, CD sales are drying up rapidly, and internet royalties are not making up the difference. But on the bright side, the internet has introduced new efficiencies that make it easier to track song sales and distribute payments (which helps explain ASCAP’s surprising $1 billion year.)

A solution from courts or Congress is in order. The danger, though, is that a partial solution will protect parochial interests such as FM stations or labels that own 1960’s recordings without creating a sustainable system for royalties in the digital age. There’s also a risk that changes to the law will simply scapegoat companies like Pandora and Spotify, which represent the future of music, or even kill them off altogether.

In any event, watch closely. This is the year that a lot of long-time log-jams in the music industry appear set to move.

Bad dentist must pay $4,677 in case over Yelp threats

It’s bad enough having a toothache. It’s much worse when your dentist rips you off for $4,000 and then threatens to sue you for complaining about the treatment.

That’s what happened to New York City patient Robert Lee, whose ordeal started in 2011, but ended last week when a federal judge ordered the dentist to pay $4,677 in damages and legal fees.

The dentist in question, Stacey Makhnevich, boasted of being an opera singer who catered to musicians. Her other speciality was short-circuiting negative Yelp reviews with tricky contracts that required patients to assign their copyright in what they wrote about her services. (See Ars Technica for the legal background).

Sure enough, after Lee complained about her on Yelp, Makhnevich went after him. She pointed to the contract to demand that Lee pay $100 in copyright damages for every day the negative review stayed online.

Makhnevich is not the first to try this stunt. Other professionals around the country, mostly doctors and dentists, have also been using service contracts to stifle social media criticism.

Fortunately, they’re not all succeeding. After Lee filed a lawsuit to stop Makhnevich, U.S. District Judge Paul Crotty agreed with him that the Yelp review was fair use under the Copyright Act.

He also chewed out Makhnevich in a default judgment, finding her actions to be unconscionable and a breach of fiduciary duty, and ruling that Lee’s commentary couldn’t be defamatory under New York state law.

The Makhnevich affair is another example of the Streisand effect, and why it’s perilous to use aggressive legal tactics to control social media. (Last year, a hotel in New York found out something similar, when it threatened a bride with $500 fines for every negative review posted by her wedding guests.)

For Lee, however, the $4,677 may be a hollow victory since the rogue dentist is now nowhere to be found. The judgment is below:

Update: For the lawyers out there, Paul Levy of Public Citizen, who represented Lee: “The damages were awarded on a different cause of action than the one about the non-disparagement / copyright assignment agreement.  In addition to that claim, which is what got all the public attention, Lee had a claim for breach of contract, because the dental office promised to send records to his insurance company so he could get reimbursed for her (exorbitant) charges.  They did not send the records so he was out the money, and the damages were ONLY for that.” (I’ve changed the headline to reflect this)

Bad Dentist Judgment

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TiVo buys Aereo name, auction fetches under $2M

Aereo, the streaming start-up that was poised to upend the TV industry until the Supreme Court shut it down, has been sold for scraps.

Aereo’s assets fetched under $2 million at auction, according to a person familiar with the sale. The figure is a far cry from the $90-$100 million that media mogul Barry Diller and other investors put in the company as part of high stakes gamble on copyright law.

“We are very disappointed with the results of the auction. This has been a very difficult sales process and the results reflect that,” said William Baldiga, counsel for Aereo and partner at Brown Rudnick, in a statement.

This outcome likely reflects the legal sword that continued to hang over Aereo even in bankruptcy, as broadcasters pressed their claims for huge copyright damages. As a result, Aereo was sold off in pieces rather than as a company.

The primary winner of the auction appears to be TV recording service TiVo, which acquired Aereo’s trademark along with customer lists and unspecified other assets.

Meanwhile, the holding company RPX, which is a patent troll of sorts, has acquired Aereo’s patents.

The person familiar with Aereo said the company has yet to sell certain other assets, and that it is still looking for other opportunities. (It’s unclear what other assets could be left, one guess is trade secrets and other know-how from the company’s engineering team.)

The person also suggested that the broadcasters, including ABC, NBC, CBS and Fox, were determined to bury Aereo’s technology rather than see it emerge under a new business model.

Until it was shut down last fall, Aereo offered consumers a means of watching and recording TV on mobile devices. While some Aereo content came via partnerships with stations like Bloomberg TV, most of the shows came via over-the-air TV.

Aereo, which provided subscribers with a remote antenna and DVR, claimed it was simply offering consumers a technology akin to a VCR, which is legal under copyright law.

An appeals court judge in New York initially agreed with Aereo’s position, noting that the service was akin to cloud-based DVR’s which courts have found to be legal. The broadcasters prevailed at the Supreme Court, however, in a controversial decision that appears set to sow further confusion over copyright.

Aereo Sale Doc by jeff_roberts881

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An earlier version of this story referring to RPX linked to an unrelated story. The link has been updated.

Google and Mississippi meet in court over secret MPAA lobbying

A devastating hack on Sony late last year exposed embarrassing details about Hollywood’s darker side, including a secret campaign by the movie industry to bring about new copyright controls. Dubbed “Project Goliath,” the plan relied in part on the Motion Picture Association of America colluding with state officials in order to investigate and harass Google.

Now, in a Friday hearing that promises to be equal parts constitutional law and political theater, Google will try and persuade a federal judge in Jackson, Mississippi, to rein in the state’s controversial Attorney General, Jim Hood.

“For nearly two years, Attorney General Hood has pressured Google to remove and censor content that he and Hollywood don’t like — even though he lacks legal authority to do so,” said Google’s general counsel, Kent Walker, in a statement. “Attorney General Hood’s extraordinary 79-page subpoena is an unjustified assault on free speech and we’re asking the federal court to set it aside. We regret having to take this matter to court, and we are doing so only as a last resort.”

Hood’s office did not immediately respond to a request for comment over an affair that not only showed him to be acting as an agent of the movie industry, but that exemplifies a larger pay-to-play phenomenon in which Democratic attorneys general exercise their official powers at the behest of private industry and law firms — and receive a cut of the proceeds.

In the case of Hood, the current details came to light after the Verge discovered documents from the Sony hack that showed how lawyers from the movie industry had drafted documents that the Attorney General had sent to [company]Google[/company] as part of an investigation.

That investigation is ostensibly about protecting Mississippi consumers from online threats like drugs and pornography, but appears instead to be a stalking horse for the movie industry. Internet activists fear the industry’s goal is to use state AGs in a back-door attempt to implement the substance of SOPA, an unpopular anti-piracy bill that collapsed in early 2012.

As for Hood, the Google investigation may be no more than an attempt to use the investigative powers of his office to wring out some money for the state of Mississippi, and for his own campaign coffers.

“Hood’s crusade against Google looks and smells like an effort to simply squeeze the billion-dollar to provide some settlement money,” wrote the Natchez-Democrat, a community news site, in a January editorial.

Such criticism, however, appears to be doing little to deter Hood, who is framing his actions as a populist effort to defend the people of Mississippi, and last month filed a motion to dismiss Google’s complaint that he had overreached with his MPAA-backed subpoena.

Friday’s hearing, which will address both Hood’s dismissal motion and a request by Google for a temporary restraining order against him, will put the two sides’ theories to the test.

According to a brief filed by Google, the state of Mississippi is usurping federal statutes that shield internet companies from copyright and indecent acts carried out by their users. Google also argues that Hood is treading on its constitutional rights with “specific threats of prosecution, and there is no dispute that the First Amendment forbids threats of prosecution based on protected speech.”

Hood’s lawyers, meanwhile, will attempt to tell the judge that its subpoena falls within Mississippi’s investigative powers, and that Google can always go to state court if it fears its rights are being abused.

A ruling on the case is likely to come in coming weeks. I’ll update if there is major news out of today’s hearing. In the meantime, if you want to get a flavor of the legal issues at play, here is a copy of Google’s brief with some of the relevant parts underlined:

Google Reply Brief

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SiriusXM can fight windfall for ’60s singers, judge rules

Music lovers finally caught a break this week as a federal judge ruled SiriusXM can appeal a jaw-dropping ruling that created a new type of copyright royalty, and that could oblige digital media companies to pay the likes of the Turtles additional money for songs they sang fifty years ago.

The issue concerns so-called “sound recording rights,” which are separate from songwriter rights, and are paid to musicians whenever a recording is sold. In recent years, record labels has been claiming that companies like Pandora and SiriusXM should pay again under state laws for pre-1972 songs — even though copyright law is federal, and that no one has received such payments before. The 1960s Turtles singers, known as Flo & Eddie, have been the face of the campaign through a series of class action lawsuits.

The Turtles’ legal argument is far-fetched but, perhaps due to the complexity of music copyright, some judges have swallowed it, including Colleen McMahon, who initially gave the Turtles permission to go forward with a class action on behalf of anyone whose pre-1972 song has been performed in public or the internet. If this transpires, it would amount to a huge financial punch not just for many bars, restaurants and AM/FM radio stations, but for every digital media company — including YouTube, Apple and Vimeo — that plays Oldies.

On Tuesday, however, Judge McMahon appeared to have second thoughts and told SiriusXM that it may appeal the ruling to the Second Circuit.

“There is indeed a critically important controlling question of law in this case. If the Court’s holding that they do have such a right is incorrect, then significant portions of this lawsuit — including the public performance copyright infringement and unfair competition claims — will have to be dismissed,” she wrote in a decision cited by the Hollywood Reporter, which provides some more legal nitty-gritty on Tuesday’s ruling.

McMahon’s words are a big relief. While there’s no guarantee that the Second Circuit will put a stop to this runaway royalty theory, which has already triggered copycat class actions, it is hard to see how it could do otherwise.

As I’ve pointed out repeatedly, the original decision (and a related one in California) should be reversed for two reasons. The first is that the rulings are just wrong as a matter of law: Santa Clara law professor, Tyler Ochoa, explained why in a mic-drop of a blog post in October.

The other season is that the music industry’s pre-1972 campaign is a cynical misuse of copyright that seeks to trick the public into paying new money for old rope, under the guise of “closing a loophole” (that phrase is industry’s explanation, but it has has unfortunately been taken up by some in the press).

While we do need a new royalty regime for the digital age, it should not involve raising rates in order to grant a windfall for 50-year-old songs. Instead, if everyone is to pay more for copyright (and perhaps we should), let the new money be directed to supporting the many young musicians who would like to earn a living like the Turtles did so long ago.

Pioneering file hosting service RapidShare is shutting down

Pioneering file hosting service RapidShare is shutting down by the end of next month, according to a notice posted on the service’s website that was first reported by Torrrentfreak. The notice reads, in part:

“We strongly recommend all customers to secure their data. After March 31st, 2015 all accounts will no longer be accessible and will be deleted automatically.”

RapidShare was one of the pioneers of so-called one-click file hosting, which essentially allowed users to upload and share files publicly for free. The site was widely used to share copyrighted content, and frequently faced off with rights holders in court.

RapidShare also tried to work with the content industry, striking a partnership with Warner Bros in 2009 with plans to redirect users looking for unlicensed content to a legal download store. To appease rights holders, and to escape the fate of Megaupload, RapidShare introduced a number of measures to discourage infringement, including strict limits on how often files could be shared and tools that helped rights holders to automate take-downs.

But partnerships with Hollywood and music labels never came through, and anti-piracy measures decimated RapidShare’s user base. In early 2013, the company laid off most of its staff, and it already looked like the end was near. Later that year, RapidShare tried one more time to reinvent itself as a competitor to Dropbox and other cloud storage vendors. In the end, that may have been too little, too late.

Grammys are latest forum for fight over music payments

Last night’s Grammy Awards served up the usual hoopla and back-patting. But a policy plea from singer Jennifer Hudson also underscored how 2015 is likely to be the year when a long-brewing fight comes to a head over how — and how much — musicians should be paid.

At the show, Hudson announced the launch of an artist group called the”Grammy Creators Alliance” that will advise the government on royalty issues, while One Republic singer Ryan Tedder told the audience “music activism is coming at exactly the right time. From the Turtles to Taylor Swift, longtime established and new generations are speaking out.”

While the speeches were short on specifics, a website for the group echoes recent rhetoric from the recording industry, and appears intended to pressure Congress into passing bills like last year’s proposed “Respect Act,” which called for awarding a windfall to older musicians.

The Grammys plea also comes after the Copyright Office last week published a 245-page report that suggests dramatic changes to the music royalty system in the U.S. These could include removing consent decrees that set a cap on how much radio stations, streaming services and cover bands must pay songwriters to play their works.

The combination of industry lobbying and Grammy-style star power means the music industry is likely to get at least some of what it wants. But many of the proposed measures could also means higher prices for consumers, and new uncertainty for popular digital music services like Pandora and Spotify.

Currently, the digital services pay a far higher percentage of their revenue for royalties than do traditional AM/FM outlets, and are struggling to make money. Nonetheless, the services are regularly vilified by the music industry, which is calling on them to pay even more.

Meanwhile, the debate over what digital radio services should pay is also before the courts, in major cases concerning songwriter royalty rates. Members of the band The Turtles are leading class action cases that demand new money for old recordings.

Underlying all of the disputes is the ongoing economic disruption confronting the music industry over lost CD sales. Meanwhile, all sides appear in favor of simplifying the current mishmash of royalty regulations that draw major distinctions between digital and non-digital services.

Katy Perry’s lawyers demand takedown of 3D printable Left Shark

While the nation identifies with the Super Bowl’s insta-star Left Shark, Katy Perry’s lawyers are apparently more the Right Shark type. They issued a cease and desist letter (see below) to on-demand 3D printing service Shapeways on Tuesday, demanding a 3D model depicting Left Shark be taken down.

Shapeways complied, and Fernando Sosa, the designer behind the model, has now posted it on Thingiverse. Unlike on Shapeways, Thingiverse models are free and must be 3D printed by the downloader.

Left Shark, as it appeared Thursday on Thingiverse.

Left Shark, as it appeared Thursday on Thingiverse.

Shapeways confirmed the letter and takedown, stating:

It’s a shame because we love our community and always want to be able to support their designs. That’s part of the reason why our work with Hasbro is so fun! It’s allowing fans to create products truly inspired by the things they personally enjoy. We know these things can happen when you have a lot of user-generated content, but hopefully more brands (and celebrities!) will take note and want to work together with fans to create amazing products!

NYU law professor Christopher Sprigman tweeted that he believes Left Shark is not copyrightable because it qualifies as a “useful article,” which would mean it is not protected the same way as an artistic work.

Both Thingiverse and Shapeways are home to scores of ostensibly copyrighted models, including memes. While it’s hard to say who has the rights to sad Keanu or doge, Pokemon figurines are a little more black and white. Both sites have received takedown requests in the past, but designs tend to stay up until a letter arrives.

The Joseph Ducreux, AKA "Disregard females, acquire currency", meme, 3D printed by Shapeways.

The Joseph Ducreux, AKA “Disregard females, acquire currency”, meme, 3D printed by Shapeways.

IP law finds itself in an unchartered space with the rise of 3D printing, though new models are beginning to emerge. Shapeways has entered into partnerships with a few companies like Hasbro that allow anyone to model their characters, and then funnel some of the sale proceeds back to the copyright holder.

If you absolutely must get your hands on a 3D printed Left Shark, Sosa is urging people to download it from Thingiverse before the site receives a similar letter.

Left Shark rose to fame during the Super Bowl halftime show Sunday. Katy Perry sang “Teenage Dream” among dancing beach balls, trees and two sharks. While Right Shark had the dance down, Left Shark had to improvise a bit. But that didn’t stop him from dancing with everything his little shark heart had to give.

3D print like lawyers aren’t watching, dance like Left Shark.

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This story was updated at 2:15 p.m. PT with more details on copyright and Left Shark.

Apple is latest target in legal shakedown over pre-1972 songs

A controversy over who should get paid when songs are streamed on the internet is about to get a whole lot bigger as a company that claims to own the royalty rights to 1960s acts, including the Flying Burrito Brothers, has sued Apple’s Beats Music and other online radio services, including Rdio and Google Play.

According to a complaint filed in Los Angeles federal court, Apple’s subsidiary Beats Music owes at least $5 million for not paying performance rights over the older sound recordings.

The lawsuit was filed by Zenbu Magazines LLC, a New York holding company. It appears to be a copycat suit to the ones brought by former musicians from the band The Turtles, who are suing SiriusXM and Pandora over the same issue.

If the lawsuits gain traction, they could serve to wipe out large collections of pre-1972 music from the internet, since companies like Apple and Pandora will likely decide to simply stop playing the older songs rather than add yet another stack of royalty payments to the ones they already pay out. If this happens, consumers could lose access to millions of song recordings from before 1972.

As I’ve argued in the past, these lawsuits are simply a shakedown in which music lawyers are attempting to exploit the public’s sympathy for aging musicians and ignorance of copyright law in order to obtain a windfall.

The legal nitty-gritty is complicated but, in short, there is overwhelming evidence that performers, unlike songwriters, never had a right to be paid for public performances of sound recording in the first place — though they are paid when such recordings are sold. The songwriters, meanwhile, get paid in every case.

Here’s a copy of the lawsuit against Beats Music. Apple did not immediately respond to a request for comment.

Apple Pre-72 Suit

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