“Based on feedback from our customers,”  Walmart announced today that it’s put on ice the plan to shut down its DRM music server, a move that would have stranded its customers, as I reported here two weeks ago.   This new announcement from the Walmart says that they have decided to maintain the servers “for the present time,” but adds, “we continue to recommend that you back up your songs by burning them to a recordable audio CD.”  It looks like Digital Rights Management is turning out to be a tarpit for companies as well as for consumers.

Just when you thought it might be safe to go back into the water …. the DMCA anticircumvention sharks have started circling again.

Last week I blogged about how it is becoming more and more apparent, to the content industry as well as to consumers, that Digital Rights Management (DRM), enshrined in law through the DMCA’s anticircumvention provision, is a dead-end business model as well as a drag on innovation. See Signs of a Move Towards Balance? (Part 2 of 2).

But not everyone has gotten the message, in particular not the Motion Picture Association of America, which today filed a lawsuit against Real Networks, charging it with violating the DMCA by distributing RealDVD.  The RealDVD software lets consumers copy DVDs to their personal computers.  It doesn’t permit unlimited copying, but rather uses its own form of DRM to lock the copy to be playable on only a single PC; additional PCs require additional licenses.

What we’re seeing here is another example of the dynamic described in B2B, where the industry uses the Copy Control Association (CCA) licensing scheme to squelch innovations that they don’t like: innovations like RealDVD that (horrors!) make DVDs more friendly  for consumers.

Real Networks, for its part, has filed its own suit, asking court to rule that RealDVD is in compliance with the CCA license.   That’s not unreasonable: at first blush, RealDVD seems a lot like the Kaleidescape case described in chapter 6 of B2B, where the content industry huffed and puffed, but where the court found there was no license violation.  Yet, that was a different court.

Regardless of who wins in court, the fact is that this continues the DMCA’s track record as a dead weght hanging over the head of innovation.  Decisions that should be made on the basis of technology and consumer choice are instead being made by courts struggling to interpret a law that was a bad idea when it appeared in 1998 and has revealed itself to be a worse and worse idea every year.

Signs of a Move Towards Balance? (Part 1 of 2) reported on the mistrial in the Jammie Thomas case, with the court coming to appreciate the overreaching of prosecutions for music sharing, rejecting the RIAA position that simply “making music available” should be punishable as unauthorized distribution, and Judge Davis recommending that Congress reconsider egregiousness statutory damage penalties for copyright infringement.

Last week’s other optimistic signal was the continued erosion of DRM-protection as a means of music distribution.  Digital Rights Management (DRM), remember, is the technological band-aid that prompted the 1998 Digital Millennium Copyright Act (DMCA), the law that we rail against in B2B as an anticompetitive drain on innovation. We argued in the book that DRM hurts consumers and competitiveness, and we took approving note of some alternative distribution models for music that were coming to market just as we were completing our manuscript, such as the availability of DRM-free music from Amazon.

Two days ago, MySpace joined the DRM-free music distribution party with what may turn out to be the most significant of all the new models: MySpace music. MySpace users can now select from hundreds of thousands of non-DRM tracks to stream to their computers. The service is free to MySpace users, supported by advertising. You must be connected to the net to use the service. If you want a copy to listen to off-line, you’ll have to buy it from Amazon or iTunes.

Actually, I bet people have already using stream recorders to save he tracks for offline use. But in any case, having to be connected to the Internet isn’t a big deal any more. The reality is that MySpace users now have the “universal jukebox”, as we described it in B2B, that Napster presented in 2000 and 2001. The appeal will be just as great, and this time it’s legal. Of course, where MySpace goes, can Facebook be far behind? And who knows what other budding social networks? We’re finally coming to the end of the hallucination that DRM is the key to the Internet content economy. Today it’s free music tracks, but video will follow: it’s only a matter of storage and bandwidth, and the inexorable pace of Moore’s Law. Are you listening, MPAA?

As if on cue, but surely unrelated, Walmart yesterday announced the death of a third large DRM music service and the consequent stranding of consumers. This follows on the heels, as we previously reported, of Microsoft (April 23, 2008, MSN Music RIP) and Yahoo! (July 26, 2008, Yahoo joins the “strand our DRM customers” game). As of October 9, the hapless purchasers of music tracks from Walmart.com Digital Music, will no longer be able to move “their” music to new machines, compliments of Walmart ceasing to support its license server.

So DRM-based music distribution continues to die: consumers don’t want to buy it, providers don’t want to support it, and there are wildly better alternatives emerging. But it’s still the same old story with Congress continuing to not get the message, and continuing to grasp on to DMCA anticircumvention and even starker penalties for copyright infringement. Our solons still live in fear of some 1990’s bogeyman story of entertainment industry imminent collapse that never was true and becomes more transparently a fairy-tale every day.

As we wrote in B2B:

If the content industry moves to better business models and the DRM battles subside, the DMCA’s anticircumvention provisions may continue to be anti-consumer, anti-competitive blots on the digital landscape. Unless repealed from the legal code, they would remain as battlefield relics of a war that was settled by peaceful means—unexploded ordnance that a litigious business could still use in ways unrelated to the law’s original intent.

Let’s give all those Congressman MySpace accounts, so they can learn what a dying system they’re trying to shore up.

This week saw two significant developments in the world of copyright and digital information described in Blown to Bits chapter 6, “Balance Toppled.” They signal that things just might be starting to move back towards balance.

On September 24, Judge Davis set aside the jury’s October 2007 verdict in the Jammie Thomas case.  That’s the case discussed in B2B of the Minnesota single mother who who was fined $222,000, $9250 per song, for sharing 24 songs on the Kazaa network, the case that became the recording industry’s “we told you so” for why people accused of file sharing by the RIAA should settle even if they are innocent, because the stakes in losing can be so high.  As we described in the book, Thomas’s penalty demonstrates the egregiousness of the statutory damages for copyright infringement when applied to the Internet.

Last June, as I noted in this blog, trial Judge Thomas asked whether he had made a legal error in instructing the jury that simply making music available from a computer counts as unauthorized distribution under copyright law, even if no actual distribution takes place.  (See “Sending a Message”: Revisited.)

Now Judge Davis has decided that this was indeed an error, and has granted Thomas’s motion for a new trial.  This is a blow to the RIAA’s lawsuit strategy: Not only does it erase the current scariest example of damages, but it’s another court that has rejected the “making available” theory: to convict someone for music-sharing copyright infringement, they will have to demonstrate that actual distribution took place, not merely that files were available on the accused infringer’s computer.

Perhaps even more notable is Judge Davis’s plea to Congress to reconsider the law about statutory damages.  As he writes in his opinion:

“The Court would be remiss if it did not take this opportunity to implore Congress to amend the Copyright Act to address liability and damages in peer to peer network cases…. The defendant is an individual, a consumer. She is not a business. She sought no profit from her acts…..[I]t would be a farce to say that a single mother’s acts of using Kazaa are the equivalent, for example, to the acts of global financial firms illegally infringing on copyrights in order to profit in the securities market……. [T]he damages awarded in this case are wholly disproportionate to the damages suffered by Plaintiffs.”

Amen.

See Signs of a Move Towards Balance? (Part 2 of 2)

The Higher Education Act is now at the President’s desk and is certain to be signed. The full text can be viewed here. Like most such laws that update ones previously passed, it is almost unreadable, because it is really an edit log: “change this word to that, add this sentence at the end of that paragraph,” etc. 

It includes many disclosure and reporting requirements (colleges will have to include textbook costs in their online catalogs, for example). While I am all in favor of more transparency, my guess is that this will mostly result in colleges adding more clerks to satisfy the requirements, or, for colleges unable to afford more hires, conversion of educational and student-service positions into bean-counting and bean-reporting positions.

A lot of recent interest in the bill has come because of the entertainment industry’s efforts to pressure Congress into making colleges copyright enforcers on its behalf. Colleges are in a unique position — their residential students have no choice of Internet Service Providers. All the bits that students get go through the college’s connections to the Internet. Monitor and choke off illegal activity there, and students have nowhere else to get their bits.

The problem, as I noted in the Commencement issue of the Harvard Crimson, is that colleges should be the last place where communications are monitored for anything without probable cause. Students who have come to college to have new worlds opened up to them, to explore ideas and works that would have caused them shame and shunning at home, should not have every bit they are reading screened for appropriateness. That’s what we expect of Chinese universities, not American universities. If the entertainment industry (which pays a lot of the bills for many congressional campaigns) can get filtering installed on college’s networks, they will likely use that as a precedent to pressure Congress to act against other ISPs. And if the government can compel colleges to exclude this particular kind of material, it can compel colleges to keep out other kinds of bits it deems bad for the young to be consuming.

The compromise version of the Act that is at the President’s desk doesn’t mandate that colleges filter all incoming bits, only to disclose what weapons they are using to help the entertainment industry’s anti-”theft” crusade. But Congress hands the entertainment industry a different huge gift. It mandates that colleges develop plans to buy music subscription services. Here is the relevant language:

`SEC. 494. CAMPUS-BASED DIGITAL THEFT PREVENTION.

•  `(a) In General- Each eligible institution participating in any program under this title shall to the extent practicable–
  `(1) make publicly available to their students and employees, the policies and procedures related to the illegal downloading and distribution of copyrighted materials required to be disclosed under section 485(a)(1)(P); and  

  `(2) develop a plan for offering alternatives to illegal downloading or peer-to-peer distribution of intellectual property as well as a plan to explore technology-based deterrents to prevent such illegal activity.

Is there another area of private industry from which Congress mandates that colleges plan to buy subscription services? This section goes on to promise grants to colleges who fight the good fight against piracy. The recording and movie studios are rubbing their hands and setting up their money-changing tables right now, waiting for the colleges to line up to negotiate with them as federal law will soon demand.

Here’s a suggestion. Let’s instead pass a law requiring colleges to inspect laptops at the border of their property, the way DHS inspects laptops at the U.S. border, without probable cause. Students arriving as freshmen will have their laptops searched as they are unloaded from their parents’ cars. Same after they come back from winter break, etc. Ipods too, of course.

The reason this won’t happen is that students and their families wouldn’t stand for it. There would be face to face confrontations of a kind not seen since the draft protests of my youth.

The problem with network monitoring, and what makes it a more plausible and acceptable alternative, is that no one would see it happening. We all tend to accept intrusions that are logically equivalent to physical searches, even if we know they are happening, if we don’t see them happening.

The entertainment industry is winning in its efforts to force public and other private institutions keep its anachronistic business models alive for a few years longer. As much money as they claim to be losing, they have plenty to lobby Congress to do their bidding.

I wrote last week about Yahoo’s shutdown of its Music Store Server, thereby stranding customers who had bought music controlled by the Music Store’s digital rights management. This week, Yahoo announced that it will compensate stranded customers with coupons for replacing music tacks from Real Network’s Rhapsody, whose music is free of DRM copying restrictions.

It’s good to see Yahoo showing concern for its customers, and even better to see them offering higher-value, i.e. non-DRM, replacements. As recently as February 2007, Warner Music’s CEO was deriding the idea of non-DRM music as “completely without logic or merit.” Now DRM-free is becoming the norm for on-line music, with the growing realization that DRM is bad deal for music, not only for customers but for publishers, and also, as explained in Blown to Bits, for innovation. I expect that we’ll see the same shift in attitudes toward DRM-free video within a couple of years.

Yahoo was wise to quickly make amends to its customers, because there’s a lot more at stake for the IT industry than lost music tracks. The basic phenomenon of Yahoo’s (and earlier, Microsoft’s) announcement about shutting down DRM servers was that of leading high-tech companies offering a product that entailed a long-term commitment to maintaining a customer service, and then abandoning that commitment when the economics went sour.

What does that mean for the industry’s growing emphasis on cloud computing? After all, if you can’t count on Yahoo to keep your music available for five years, how can you count on Microsoft, Google, IBM, and others to keep your company email and documents available for … do you need to have confidence for 10 years? 20? 50? I’d be viewing these server shutdowns nervously if I were a corporate CIO faced with the option of moving to cloud computing. And I’d be thinking hard about them if I were high-tech exec eager to get into the cloud business. After all, maintaining “long term” DRM servers seemed like a great business opportunity in 2004.

As we were completing Blown to Bits, the big news on the copyright war front was the Jammie Thomas trial. (See “Sending a Message” in Chapter 6.) This was the first of the thousands of peer-to-peer lawsuits filed by the RIAA to go all the way to a jury trial. Thomas lost and lost big: The jury not only found the Minnesota woman guilty of sharing 24 songs using Kazaa, but they imposed a fine of $220,000: $9250 per song. This was a huge victory for the record companies, because the demonstrated reality of such high stakes for losing in court is a huge incentive for other targets of RIAA lawsuits to settle.

Now the verdict is being called into question. In May, trial court judge Michael Davis issued a ruling saying that he may have made a legal error in instructing the jury.

Here’s the issue: Thomas, and the other P2P lawsuit targets are accused of infringing copyright by illegally distributing music tracks. What they actually did (allegedly), was to place the music tracks on their computers in a way that made them available over the network. Does “making available” count as “distribution” under the copyright law, or does “distribution” require the files actually be disseminated? This issue has come up before, and different courts have ruled differently on the issue. Judge Davis instructed the Thomas jury that “making available” does in fact count as distribution. Now it appears that there is an appeals Court ruling in the 8^th Circuit going other way: “distribution” requires actual dissemination of material, not just “making available”. Since Minnesota is in the 8^th Circuit, that should be a governing precedent in the Thomas case. Davis will hear arguments on the issue in hardings scheduled for July 1.

These gyrations underscore how uncomfortable the legal system becomes when old notions of copyright confront new digital realities and just how much the copyright balance has been toppled by the world of bits.

And things can get even murkier. As Villanova Law Professor Michael Carroll points out (http://carrollogos.blogspot.com/), the RIAA, in arguing for the “making available” interpretation of distribution, may want to be careful of what it’s wishing for. US copyright law includes a provision called the first-sale doctrine, which says that once you’ve acquired a copy of something, it’s legal to redistribute it. That’s why used book stores are legal, for example. So if making music tracks available counts as distribution, it ought to be OK under the first-sale doctrine. In that case, the record companies would probably argue that placing music on a P2P network counts as contributory infringement, and the legal merry-go-round rides would continue.

I have a piece in the Crimson about copyright, including a strange story about the publication of Blown to Bits.

This gentleman unwisely posted some photos of himself waving a $20 bills as part of a Craigslist ad, and now believes that copyright law, as well as criminal fraud statutes, will come to his aid in encouraging Gawker to take them down. Gawker doesn’t seem to agree.

What’s interesting here is the gentleman’s confusion between public and private spaces, the conceit that the photos he posted on Craigslist were still “his” to control. Theoretically, Craigslist might have an argument with Gawker, since the Craigslist terms of service state, “You … agree not to reproduce, duplicate or copy Content from the Service without the express written consent of craigslist.” As a practical matter, Gawker is right: “Craigslist is a public place.”

Also interesting are the gentleman’s threats of legal action to respond to what might kindly be called a personal misjudgment. What people think might be done about the problems they have created for themselves has changed, not only with the litigiousness of society in general, but with the litigiousness about bits in particular. Before the RIAA and the MPAA started going after teenagers for music downloading, people like this might never even have heard of copyright law, much less have thought (however mistakenly) that it could protect their reputation. Another thing for which the recording industries can be thanked, I suppose.

And, as Lawrence Lessig explains in today’s New York Times, Congress seems bent on making it even worse. An “orphaned” work is something that is copyrighted but whose copyright owner can’t be found. Such works can’t be reproduced, performed, or otherwise used in violation of copyright law, but it’s also difficult or impossible to obtain permission to use them since the copyright owner has died or disappeared. Because everything written, photographed, or drawn has been copyrighted automatically for the past thirty years, there are vast numbers of orphaned works, creations that are effectively lost to human culture until the copyright term, nearly a century, expires.

To “fix” the orphaned work problem, Congress proposes immunity from copyright infringement charges for those who make a “diligent effort,” defined as “reasonable and appropriate,” to locate the copyright holder. But it assigns to a bureaucracy the problem of fleshing out that standard. As Lessig explains, this will do more to foster bureaucracy than it will do to liberate orphaned works.

Lessig describes several other problems with this legislation. We would note one broader troubling aspect. The law follows a pattern seen in the past, for example with the Deleting Online Predators Act discussed in Blown to Bits. Congress has developed a habit of handing off to the executive branch of government the job of defining vague terms on which the full force of its legislation depends. The definitions are hard to get right, and require discussion and compromise over fine points of language. So Congress, in its hurry to show that its heart is in the right place, comes up with some verbiage that sounds good but is so vague as to vest vast power in unelected officials charged with implementing it. The courts may overturn such laws later, but by that time Congress has proclaimed its accomplishments, and can blame the courts for their activism and heartlessness. Rather than going to the trouble of legislating carefully, elected officials have been able to devote the full measure of their attention to the earmarks and sports videotaping investigations on they prefer to spend their time. Politically, if the members of Congress can malign the courts at the end of the process for what is really their own legislative laziness, so much the better.