www.christopher-pappas.com
INTRODUCTION
In 1883, the importance of intellectual property was recognized for first time in the Paris Convention for the Protection of Industrial Property followed by the Berne Convention for the Protection of Literary and Artistic Works in 1886. Nowadays, the Universal Declaration of Human Rights, and to be more specific Article 27, protects the intellectual property rights that a creator or an owner of a patent or copyright has on his/her own work or investment (“What is intellectual property?” n.d.).
It is true to say that countries realized that intellectual property is a powerful tool for economic development and social and cultural welfare. Furthermore, countries wanted to promote creativity and invention especially when the interests of the innovator are the same as those of the public interest. As a result, countries created laws to protect intellectual property.
Moreover, each of us should promote intellectual property rights because of the benefits we join. For example, with the patent system an inventor of a new and highly effective drug for cancer will continue his/her research in order to produce a better and more efficient product. The results of this invention will benefit the members of the society with several ways. Patients will have more possibilities of being cured and the inventor will be rewarded for his creativity.
Intellectual property refers to the intangible property, such as patents, copyrights, trademarks, and trade dress, which belong to a person or a company. To be more specific, it refers to the creations of the mind like: symbols, inventions, artistic works, literary, and images (“Introduction to intellectual property: theory and practice” (1997).
General speaking, intellectual property is divided into two categories:
1. Patent or industrial property, which includes trademarks, inventions, industrial designs, and geographic indications of source; and
2. Copyright, which includes literary and artistic works, such as poems, paintings, plays, films, musical works, novels, drawings, photographs, architectural designs, and sculptures (“What is intellectual property” n.d.).
Moreover, a patent for an invention is an exclusive right granted to the inventor, issued by the United States Patent and Trademark Office. A patent provides protection for the invention to the owner of the patent for a limited period, generally 20 years from the date the application for the patent was filed in the United States and the maintenance fees were paid. Moreover, U.S. patent grants are effective only within the United States, U.S. territories, and U.S. possessions. Patent protection means that the invention cannot be commercially made, used, distributed, or sold without the patent owner’s consent. Furthermore, a patent owner can sell the right of the invention to someone else, who will become the new owner of the patent. When a patent expires the protection ends, and as a result, the invention becomes available to commercial exploitation by others (“What is a patent?” 2005).
Also, there are several types of patents but the most common are three:
1. Utility or function patents, such as a process, machine, article of manufacture, or composition of matter,
2. Design patents, such as a new, original, and ornamental design for an article of manufacture; and
3. Plant patents, such as a distinct and new variety of plant (“What is patent? n.d).
Furthermore, the purpose of copyrights is to protect the expression of ideas. In other words, it protects the rights of the authors and creators in any field, such as literary, dramatic, musical, artistic, and certain other intellectual works, both published and unpublished. As Jennings M. (2006), states: “A copyright gives the holder of the copyright the exclusive right to sell, control, or license the copyrighted work.” (p. 624)
According to the Section 106 of the 1976 Copyright Act, the holder of the copyright, or in other words, the rightsholder has the total control over the use of the copyrighted work, such as the exclusive right to reproduce the copyrighted work, to prepare derivative works, to distribute copies or phonorecords of the copyrighted work (“What is copyright” 2005).
Also, rights related to copyright include those of performing artists in their performances, producers of phonograms in their recordings, and those of broadcasters in their radio and television programs. These closely associated field of rights related to copyright are called related rights. The related rights sometimes are more limited and of shorter duration than the copyrights (“Copyrights Basics” 2006). Moreover, after January 1, 1978 the creator holds the copyright from the date it has been created until 70 years after his death (Appendix A). Also, the Copyright Office of the Library of Congress registers copyrights (“What is copyright” n.d).
In addition, the term fair use is related to copyrights. Fair use, in fact, is the right to occasionally and in a reasonable manner use the copyrighted material (“Fair use” 2006). According to sections 107 through 118 of the Copyright Act, “one of the most important limitations is the doctrine of fair use.” (Appendix A). The doctrine was not mentioned in previous copyright law until it was developed through a substantial number of court decisions over the years and codified in section 107 of the copyright law (Appendix B). Based on Section 107, there are four factors that determine of whether or not an activity is within fair use:
1. The purpose of the use,
2. The nature of the work being used,
3. The amount of the work used, and
4. The effect of the use on the market for or value of the original, copyrighted, work (“Fair use” 2006).
In the two cases that we will discuss in this paper we will examine the court’s analysis of these four factors.
CASE STUDY I: A&M Records, Inc. vs. Napster, Inc.
Introduction
Shawn Fanning, a 19-year-old student at Northeastern University, Boston, created a peer-to-peer music file sharing service. The purpose of this service was to enable people copy and distribute MP3 music files with each other. Shawn cooperated with his friends and his uncle. In fact, his uncle was a cofounder and the chairman of Napster. His uncle was also the largest shareholder (Spencer, 2000). They named the service Napster after Fanning’s nickname. It is true that Napster was a pioneer service that was released in June 1999 and operated in this format until July 2001. However, Napster had to face legal challenges related to intellectual property and copyrights. Today, Napster operates under a new policy and philosophy. Before we further analyze this case step-by-step, it would be useful to define the following key-terms:
• MP3: Is the name of the file extension and also the name of the type of file for MPEG, audio layer 3. Layer 3 is one of the three coding schemes for the compression of audio signals. Layer 3 uses perceptual audio coding and psychoacoustic compression to remove all superfluous information, especially the redundant and irrelevant parts of a sound signal. Also, it adds a Modified Discrete Cosine Transform (MDCT) that implement a filter ban, increasing the frequency resolution 18 times higher than that of layer 2. With simply words, it makes an audio file smaller and as a result easy to transfer over the Internet (“MP3”, 2001).
• Peer-to-Peer (P2P) technology: Is the technology that individuals can use in order to connect with each other directly without the need of a central point of management. There are three different types of P2P:
1. Pure P2P. In the first type there is no central server or router and the users function as both clients and servers of the system,
2. Hybrid P2P. In the hybrid P2P there is a central server, but users have the responsibility for hosting information, for sharing files, and for downloading, and finally,
3. Mixed P2P. The third type has some common characteristics with both systems (Crosse et al., 2003).
Napster is a hybrid P2P network.
Napster’s Operation
Napster was a pioneer service and a powerful tool for sharing information that won a notable success due to its network structure and its costless service. In the following paragraphs we will present the operation of Napster in order to realize how the network worked.
Fanning created his software based on the following three objectives:
1. A search engine that was able to find only MP3 files,
2. The MP3 search engine should have the ability to trade MP3 files directly, without the use of a centralized server for storage, and
3. An effective way of online interaction between the users of the MP3 search engine.
These three objectives were the basic principles of Napster software. In order for Fanning to create this software, he had to learn Windows programming and UNIX server code. The fact that the software was allowing computer users to swap files directly, reduced server problems. Also, only Napster index and directory were uploaded on Napster’s server, all the MP3 files were transferred across the Internet using several Windows protocols directly from one user to the other (Giesler & Pohlmann, “The anthropology of file sharing: Consuming Napster as a gift,” 2003).
The users of Napster had to appropriately install Napster’s free software in their computer, and then, they had to connect to the Internet in order to connect with Napster’s central server. Next, they had to request a file from Napster’s system. Then, the software was searching all computers that were connected to the Napster system, located the requested file, and sent all files from all different computers that matched to the user. Also, users were able to load files into their computers and, by connection to the Napster system, allow any other user in any place of the world to retrieve that file on demand. The fact that users were able to quite simply upload and download several files with relatively little effort, made Napster really popular across the globe (Giesler & Pohlmann, “The social form of Napster: Cultivating the paradox of consumer emancipation,” 2003).
Based on the above, it becomes obvious that it was fairly easy to peers to use this friendly user network since they only needed to have basic computer skills and an Internet connection. Moreover, the fact that the service was free, made Napster even more compelling. Napster claimed that one year after the release of the service its unique users’ accounts were more than 20 millions, making Napster the largest file sharing community (“Napster: 20 million users,” 2000). Users were excited about the quality and credibility of this service. They were able to hear and download the music they liked at no cost. However, people involved in the music industry such as music companies and artists, counter Napster a big threat for their intellectual property and, of course, their profits. There are examples of famous singers that opposed to Napster. For example, the famous heavy metal band Metallica, sued Napster in 2000 since it released their songs even before the official release of their CD (Jones, 2000).Hence, it was obvious that music industry had to deal with numerous problems arising by this new reality.
Legal Issues
In 2000, A&M Records along with 18 other record companies sued Napster. Under the US Digital Millennium Copyright Act (DMCA), A&M accused Napster for contributory and vicarious copyright infringement (Brannen, 2008). Before we further analyze the legal issues of this case, we will briefly discuss the basic topics covered by the DMCA. Based on the U.S. Copyright Office, the DMCA was signed in 1998 and consists of five major titles. These titles are:
1. “WIPO Copyright and Performances and Phonograms Treaties Implementation Act of 1998.”
2. “Online Copyright Infringement Liability Limitation Act.”
3. “Computer Maintenance Competition Assurance Act.”
4. Title four consists of six miscellaneous provisions. These provisions regard issues such as Copyright’s Office operations and distance education.
5. “Vessel Hull Design Protection Act.” (“The Digital Millennium Copyright Act of 1998”, 1998).
Under DMCA Act, A&M accused Napster for three major infringements:
1. Its users were directly infringing plaintiff’s copyright
2. Napster was liable for contributory infringement of plaintiff’s copyright, and
3. Napster was also liable for vicarious infringement of plaintiff’s copyright (Brannen, 2008).
With simply words A&M accused Napster not of violating copyright itself, but of contributing to and facilitating other people’s infringement.
On the other hand, Napster defined itself as a search engine and claimed that many peers used it in order to hear sample music before they buy the actual CD.
Furthermore, the defense of Napster was based on the following three major points:
1. The Audio Home Recording Act of 1992,
2. The Digital Millennium Copyright Act (DMCA) of 1998, and
3. Misuse of copyright and implied license.
To be more specific, Napster used the Audio Home Recording Act that protects users on the grounds of non-commercial use, and especially the case of Sony vs. Universal Studios, which is best known as the Betamax case. Napster stated that it was a service to be used for “space shifting” of sound recordings and Napster referred to the case of Sony vs. Universal Studios where television shows were recorded to be viewed at a later time (“Sony Corp. of America vs. Universal City Studios Inc.”, 1984). However, Napster did not only move content into a more usable format, but also held copies so that files could be shared among Napster’s users.
Moreover, based on the DMCA that protects Internet Service Providers (ISPs) on the grounds of “safe harbor” provisions, Napster stated that is was used as a service for users to sample music before they purchased an entire album. Although, the District Court stated that if Napster was used only to sample music files it would only need to require limited usage of songs and not the entire song or album giving the capability to users download the MP3 files (“A&M Records, Inc. vs. Napster, Inc.,” 2001).
Furthermore, Napster stated that since the launch of Napster, music sales were increased. Though, the District Court stated that Napster did not provide enough evidence to support that notion and that the plaintiff’s presented an incredible amount of evidence that Napster actually caused harm to overall music sales (Crews, 2001).
However, in July of 2000, the District Court for the Northern District of California decided that Napster was guilty for the above three infringements. Napster was not satisfied with this outcome, hence, it appealed to the U.S.A. Court of Appeals for the Ninth Circuit, which on February 12, 2001, confirmed the District’s Court decision (“A&M Records, Inc. vs. Napster, Inc.,”2001).
To be more specific, the Ninth Circuit Court of Appeals confirmed that Napster was liable for repeated infringements of copyright law since the users uploaded and downloaded copyrighted music. In other words, Napster provided to users the chance to listen and transfer music without paying any royalties to music industry, which is illegal and is beyond the means of fair use. Regarding the purpose of use, the Court decided that the use of music was not transformative. To illustrate, songs were in their original form not, for instance, a parody (“A&M Records, Inc. vs. Napster Inc.,”2001).
Moreover, peers were using Napster for their commercial benefit. The Court justified this decision not based on the fact that peers would sell the songs, but based on the fact that they “repeated and exploitative copying,” and hence, they saved money from paying royalties to the music industry. Further, regarding the amount of work used, the Court found that Napster was liable for “wholesale copying” which is against fair use. Another factor of fair use, as these are specified in Section 107 of the Copyright Act, is the effect on the market. On this issue the Court concluded that Napster negatively affected music industry since music industry lost sales (Crews, 2001).
In 2001, the Napster case was settled, thus, Napster had to pay $26 million to creators and copyrighters for using their music without authorization and another $10 million for future licensing royalties. In the following year, Napster had to deal with severe financial difficulties. In the spring of 2002, Napster tried to convert its free service to a subscription service where users would pay $4.95 a month. However, Napster had significant trouble obtaining licenses to distribute major-label music. In April of the same year, the assets of Napster were about $8 million, while its liabilities were slightly over $100 million (“Swan song: Bankruptcy for Napster,” 2002). In May 2002, Napster announced that Bertelsmann, a German media firm, bought it for $85 million. In June of the same year, Napster filed for Chapter 11 bankruptcy in order to be protected by the take over from Bertelsmann.In September 2002, an American bankruptcy judge blocked the sale to Bertelsmann and forced Napster to liquidate its assets under Chapter 7 of the U.S. bankruptcy laws (“Napster’s high and low note”, 2000).
Conclusion
Napster still exists, but it operates under a new structure and a new policy. Today Napster’s operations are both legal and ethical. At Napster’s official web page, under terms and conditions, members must sign a legal contact, which states the standards of using this software. Among these, one can see the age requirements. Also, at the description of service it is clearly stated, that the service is only for personal, non-commercial and non-transferable use. Moreover, permanent download is only available when members have purchased the song (“Napster subscription service and music store terms and conditions,"2008). On September 15, 2008, Napster Inc. and Best Buy Co. informed the public that they agreed to merge (“Best buy to acquire Napster”, 2008).
To conclude, we believe that Fanning’s idea for creating this software was innovative and highly creative. However, it lacked the legal and ethical base it should have in order to successfully protect intellectual property rights of creators. In fact, the structure of the software made it inevitable to protect these rights, as peers were free to download and extensively use music files without paying royalties to the music industry. Finally, we consider that Napster, as it functions today, not only protests these rights, but also promotes music itself and music industry since it gives the chance to users to listen numerous music samples which, later, they can buy. At the same time, they can have access to older or rare songs that cannot be easily found. But most importantly, intellectual property rights of creators are respected and protected by all means, as they should.
CASE STUDY II: Metro-Goldwyn-Mayer Studios, Inc. vs. Grokster, Ltd
Introduction
Led by Metro-Goldwyn-Mayer Studios, Inc. (MGM), 28 major entertainment companies sued Grokster, a P2P file sharing service for music and movies, for intellectual property and copyrights infringements. Though it seems that Metro-Goldwyn-Mayer Inc. (MGM) vs. Grokster, LTD case has many similarities with the previous case, as we will discuss, they have significant differences. In fact, Grokster’s operations are different in structure than Napster’s, leading justices to a dilemma on whether Grokster’s operations were illegal or not. This case, like A&M Records, Inc. vs. Napster, Inc., went to the Court of Appeals and finally, to the Supreme Court which decided that Grokster was liable for copyright infringements. In the next sessions, we will discuss Grokster’s operations, the legal issues, and finally our conclusions.
Grokster’s Operations
Grokster’s operations, in contrast with Napster, did not use a centralized file-sharing network, in fact; Grokster was more sophisticated software. The main characteristics of Grokster are that:
1. It does not have access to the source code for the application,
2. It uses FastTrack networking technology, which Grokster does not own.
3. At the start page users see advertisements that are retrieved by Grokster’s client software.
To better illustrate Grokster’s operations, we should explain the FastTrack networking technology. FastTrack is more dynamic than P2P. This network technology consists of nodes and supernodes. Node is “an end point on the internet, typically a user’s computer,” while supernode “is a node that has a heightened function, accumulating information from numerous other nodes” (United States District Court, 2003). The individual node is free to select its supernode status. For example, based on its own needs and the network’s availability, the node could change from node to supernode, and vice versa. The one-nodes are gathered together around a supernode. The user has to connect to a root supernode, which then will direct the user to supernodes. Once users are connected to the supernode, they can search, locate, and finally download the desired file, from other users’ computer. As Samson mentions, “Many of the "root supernodes" are, however, operated by Kazaa BV/Sherman, which licenses its Kazaa software to Grokster” (Samson, 2004).
Moreover, users can transfer files using Grokster, but in fact, Grokster has neither ownership nor control over these files. The procedure of locating and connecting to a supernode is totally independent from Grokster. In Appendix C, there is a graphical representation of Grokster, and a comparison with Napster.
Legal Issues
In October 2001, Metro-Goldwyn-Mayer Studios, Inc. along with several major music and movie firms sued Grokster with the accusation of contributory and vicarious copyright infringement. The companies complained that Grokster was acting illegally and that music and movie industry were losing significant profits due to Grokster’s operations (Samson, 2004). On the other hand, defense supported its arguments using the Audio Home Recording Act, and to be more specific the Betamax case (Sony vs Universal Studios). In the MGM vs. Grokster case, the court rejected the accusation of MGM. The reasoning of this decision was that “file-sharing software could be used for legitimate purposes, and as such was protected under the 1984 Betamax ruling” (“The Betamax Case”, n.d.).
To be more specific, in the Betamax case the court decided, in 1984, that VCR manufacturer “was not liable for creating a technology that some customers may use for copyright infringing purposes, so long as the technology is capable of substantial non-infringing uses” (McGuire, 2005). The logic behind this decision was simple: electronic firms should not be accused if their products could be used to commit piracy.
Moreover, Grokster was not liable since there was no central server, and therefore, it had neither the right nor the ability to control over its users (“MGM v. Grokster,” n.d.). On the other hand, entertainment industry proved that 90% of the daily illegal downloading was happening through Grokster. Also, Grokster was earning profit through advertising because people used this software to illegally download music and movies. Grokster was an “infringement dependent” business, that its earnings were depended on copyright infringement. Though the both arguments were strong enough, Court’s decision was in favor of Grokster. It is true that the music and movie firms were not satisfied by this decision, and went to the Ninth Circuit Court of Appeals. However, Grokster also won this case for the same reasons.
Furthermore, the case went to the Supreme Court in 2005. The Supreme Court unanimously decided that Grokster is liable for inducing copyright infringement. The final decision of the Court was, “One who distributes a device with the object of promoting its use to infringe copyright, as shown by clear expression or other affirmative steps taken to foster infringement, going beyond mere distribution with knowledge of 3rd party action, is liable for the resulting acts of infringement by 3rd parties using the device, regardless of the device’s lawful uses.” (“Case Archives”, n.d.). After this decision, Grokster had to pay $50 million to the recording industry and was also forced to shut down its operation (“MGM v. Grokster,” 2003). The Court did not reexamine the Betamax case, nor made any decisions regarding technology companies and their products. However, it added one doctrine, which called “inducement” and regards copyright infringement liability (“The Betamax case”, n.d.).
Conclusion
Metro-Goldwyn-Mayer Inc. vs. Grokster, Ltd was a complicated case, since courts’ decisions were contradictory. We believe that the main issues in this case are two. The first one is whether Grokster was liable for copyright infringement, and the second is whether decisions like the above, hurt creativity and technological innovation. It is true to say that the outcome of Betamax case, gave the chance to other companies to produce CD recorders, music players, and digital video recorders, without the fear that they promote copyright infringement. However, Supreme’s Court decision made electronic industry to believe that it will block the innovation of devices like iPod. One solution to this unpleasant situation would be the introduction of new regulation or even the arrest of individual pirates. We support Supreme’s Court decision but we suggest that further regulation regarding this issue should be issued in order to protect technology innovation and creativity.
ETHICAL ISSUES
The purpose of this paper is to examine intellectual property and copyrights by studying two cases. So far, we have, in depth, analyzed the legal aspects of both cases. However, our study would be incomplete if we would not examine the ethical aspects of this issue, since we already know that legal things are not always ethical and vice versa. The ethical aspects will be discussed in the following paragraphs.
Downloading music and movie files using the methods described in this paper is not only illegal, but also unethical. It is true to say that creators have spent effort, time, and money in order to create something valuable to our society. Then, they publish their piece of art in order to get credits for their work, and of course to earn money. Users, by illegally downloading, neither give credits to the artists nor money. In our opinion, illegal downloading equals theft. We would not exaggerate if we further compare it with slavery, meaning that creators work for us, but we do not reward them. It is totally unacceptable in our civilized society to take advantage of other people’s effort and creativity.
Moreover, it is unethical because illegal downloading does not hurt only artists, but the global economy as well. Many people download files because they believe that famous artists are already rich enough, hence, they do not need more money. Unfortunately, they do not consider employees in the industry such as workers, technicians, and economists. Their salary and their career are totally depending on sales. Since illegal downloading decreases sales, entertainment’s industry profits decline and, hence, people lose their jobs. In other words, people lose their jobs and society’s welfare suffers, just because some people prefer to enjoy other people’s work without paying the cost.
Furthermore, some people download illegally music and movies in order to financially exploit other people’s work. To illustrate, some people download the copyrighted files and then, they sell them at a lower than the market’s price. This is even more unethical and immoral since they exploit other people’s work and creativity without compensating them. Instead, they illegally make money for themselves. They not only steal money from the entertaining industry but from the government as well since they pay no taxes.
To conclude, based on a survey by the Institute for Policy Innovation (IPI) due to piracy copyrighted material, economy of the U.S. losses $58 billion every year, 373,375 U.S.’s workers lose their jobs, worker’s earning is decreased by $16.3 billion every year, and government losses $2.6 billion in tax revenues annually (Fitch, 2007).
People, and mostly students, commit this crime for a variety of reasons, for instance:
• It is free,
• It is easy,
• It is a low risk crime,
• They are unaware of the consequences in industry and in the society as a whole,
• They believe that everybody else does it.
Government and entertainments’ industry role is to inform citizens about the consequences of this crime. Regarding the ethical perspective there is a guideline we should follow in order to be sure that we act in an ethical manner and will guide us to make the right choice, even if we are unaware of regulations and laws. These questions as Jennings present them are:
• Is it legal? Is it balanced? How does this make me feel? (Blanchard and Peale)
• How would a reporter describe my action on the front page of a newspaper? (The Front-Page-of –the- Newspaper Test)
• How would I view this situation if I stood on the other side? Or, would I feel comfortable to discuss with my parents about my action? (Laura Nash and Perspective)
• Is my action in compliance with the law? What are the consequences? (The Wall Street Journal Model) (p.45-47).
From our perspective, the above questions should lead our personal and professional decisions.
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World Intellectual Property Organization. (n.d.) What is patent? Retrieved
September 27, 2008, from
http://www.wipo.int/freepublications/en/intproperty/450/wipo_pub_450.pdf
World Intellectual Property Organization. (n.d.) What is copyright? Retrieved
September 27, 2008, from
http://www.wipo.int/freepublications/en/intproperty/450/wipo_pub_450.pdf less
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