Classic examples of “fair use” often focus on personal, largely non-commercial activities — like quoting or excerpting copyrighted content as part of a school project, or recording a television episode for private viewing at a later time. Public interest advocates also stress the crucial role of fair use in promoting such civic values as free expression.

But the benefits of fair use, and of balanced copyright law generally, aren’t limited to the non-commercial sphere. All those private, individual activities add up, and they form the basis for important markets — after all, somebody has to make, market, and sell the gizmos and services that make those individual activities possible. In the age of computers and the Internet, moreover, all kinds of fully legitimate activities require data to be copied and manipulated in various ways. The online economy is heavily dependent on fair use, and fair use provides essential breathing space for emerging digital economy innovations.

A new report commissioned by the Computer and Communications Industry Association (CCIA), “Fair Use in the U.S. Economy,” seeks to quantify the contribution to the economy of industries that depend on fair use and other limitations included in copyright law. The numbers it comes up with are large — in 2006, industries relying on fair use (broadly defined to as legal limitations to the exclusive rights granted under copyright law) accounted for $2.2 trillion or 16.6 percent of gross domestic product. Interestingly, in tallying these numbers the study follows a methodology developed by the World Intellectual Property Organization for estimating the economic contribution of copyright-related industries.

The key take-home point is that fair use isn’t just a quaint little concept that has been tacked onto copyright’s framework of rights and incentives for largely extraneous, non-economic reasons. Promoting the growth of an information age economy requires both rights and protections for copyright owners and appropriate limitations and exceptions to those rights. Hopefully the new study will prompt more attention and awareness concerning the economic benefits of balanced copyright policies.

The Computer and Communications Industry Association (CCIA) today filed an FTC complaint about inaccurate copyright warnings. If you watch major league sports, chances are you can recite some of the warnings from memory — for example, “accounts and descriptions of this game may not be disseminated without express written consent.” CCIA argues that warnings associated with certain sports telecasts, movie DVDs, and books misrepresent federal law by overstating the copyright holder’s exclusive rights and ignoring key limitations like fair use, exemptions for classroom use, and the legal principle that facts and ideas may not be copyrighted.

It’s true that copyright in general and fair use in particular often turn on subtle and imprecise distinctions, with the result that interpretations of the law differ. So coming up with a completely “objective” copyright warning may be difficult. But it’s equally true that many copyright warnings don’t seem to make any effort whatsoever to paint an accurate picture of the law, under any good faith interpretation.

CDT has argued for some time that public education about copyright is a key component of a sound copyright policy for the digital age. Certainly that means educating citizens about what constitutes infringement and why engaging in infringement is wrong. But the CCIA petition highlights the risk of highly slanted or partial education. A real education campaign should be focused on giving the public a greater understanding of the contours of copyright law and of why copyright matters — not parading around a scary caricature of the actual law. Good faith efforts at education will require an appropriate balance.

Incidentally, the NFL is one of the parties CCIA names in today’s FTC complaint. On the subject of aggressive copyright claims in the football arena, the Green Bay Packers apparently invoke copyright to limit linking to their (public) Web pages, according to this blog post.

CDT on Friday joined with a substantial group of public interest advocates and industry associations — from EFF to the U.S. Telecom Association and many others — in filing a brief in the federal appeal concerning Cablevision’s plan to deploy a “remote digital video recorder” service. The service would act just like a TiVo or other DVR device, except that it would store recorded programs on a server at a remote location instead of on a hard drive inside a small black box sitting next to the consumer’s television. But a lower court held that Cablevision can’t deploy the service because it would violate copyright.

Hopefully the participation of so many signatories on the brief will send a message to the court that there’s more at stake here than just the fate of a particular DVR product. The lower court’s decision in this case runs roughshod over the important distinction between a person who makes a copy himself and a person who provides the means — say, a xerox machine or a VCR — for someone else to make a copy. That may sound technical, but it’s an important distinction. Those who offer machines or services with perfectly lawful uses shouldn’t be on the hook every time someone uses them in an illegal way. Unfortunately, the lower court’s decision implies that this key principle of copyright law shouldn’t apply to modern services that deliver some capabilities remotely.

That kind of remote capability isn’t some kind of rare quirk. We’re living in a networked world. Services and devices of all kinds will connect to and be offered over the Internet, with little regard for geography. So there is no reason that the law should fixate on the physical location of the machines used to deliver a service. Location really isn’t important; liability for a machine that uses remote components connected by the network should be evaluated under the same principles that apply to any other machine with copying capabilities.

So the precedent here is important. With any luck, the court will see the serious implications of the decision below and reject its flawed reasoning. Check out our Policy Post from April for further details on this critical case.

Most of the participants at the roundtable Wednesday on the WIPO broadcast treaty were sharply critical of the latest draft, leaving Ben Ivins of the National Association of Broadcasters virtually alone in defending the need for a treaty that gives broadcasters new intellectual property-like rights. The best line of the day was by Ed Mierzwinski of U.S. PIRG, who — drawing on the fact that the current draft is set forth in a document labeled a “Non-paper,” a nice bit of diplomatic double-speak — said that this non-paper should clearly lead to a non-treaty.

The current draft does pare back on the sheer number of exclusive rights that earlier versions would have given to broadcasters. But it still represents an exclusive rights approach, rather than the signal theft approach that has been urged by CDT and a broad coalition of industry and civil society groups. In connection with the roundtable, CDT and over thirty other signatories submitted a document to the U.S. delegation to WIPO expressing opposition to the current draft. Hopefully the U.S. delegation will take it to heart before the important upcoming meeting of the relevant WIPO committee in June.

CDT’s specific concerns with the treaty were laid out in a Policy Post last September.

EMI’s announcement this week that it will make its music available on iTunes in a DRM-free format is a very welcome development.

Regardless of what you think about DRM — and CDT is not opposed to it — giving consumers a broader range of choices is crucial for creating a more vibrant online music marketplace. EMI’s announcement represents a significant new choice, in two respects.
First, while independent music labels have been offering online music without DRM for some time through services like eMusic, EMI becomes the first major music label to offer a DRM-free online option for a large portion of its catalog. And second, Apple’s iTunes, the dominant online music store, has not previously sold tracks that could easily be transferred to non-iPod portable devices. When iTunes sells EMI music without DRM, the music won’t be tied to the Apple platform.

It will be interesting to see how consumers exercise this new choice. ITunes will continue to offer regular tracks with DRM for $.99, alongside the new DRM-free tracks with higher sound quality for $1.29. So this will be at least a partial test of how consumers feel about DRM and whether they care enough to pay extra to avoid it.

I say “partial test” for two reasons. First, since the new higher priced tracks will be not just DRM-free but also higher audio quality, the motivations behind consumer purchasing decisions may not be entirely clear. For example, some audiophile consumers may choose the DRM-free version for reasons unrelated to their opinion of DRM. Other consumers might prefer DRM-free music, but not want to pay for premium audio quality they don’t feel they need.

Second, there remains the question of how many consumers really know what DRM does. Will mainstream consumers understand, when offered the same song at two prices, what the difference is?

I think this will depend to a substantial extent on the interface iTunes develops for presenting the choice to its customers. When a person goes to buy a song, will there be a clear explanation of what “DRM-free” means in concrete terms? Will there be, for example, a link to a description of Apple’s FairPlay DRM and the usage limitations it entails? If the interface offers enough context to promote informed consumer choice, it may have the side effect of increasing the public’s awareness of DRM and the way DRM can affect uses of digital media.

Last week, a federal court in New York ruled against Cablevision’s plan to provide digital video recorder (DVR) capability that would store recorded TV programs on a central server instead of on a device (think TiVo) in a user’s home. The decision could have implications beyond Cablevision’s specific proposed offering — though the risk could be reduced if, as one part of the decision hints, future courts hold that its reasoning isn’t applicable in the context of Internet-based services.

Cablevision’s “remote storage DVR” would have provided users with the same functionality - no more, no less - as the DVRs incorporated into many set-top boxes today. But the court stressed the differences between the two types of DVRs “under the hood.” In other words, the court seemed to attach greater legal significance to the architecture of the technology than to its function. As a general matter, that kind of approach departs from the principle of technological neutrality and can be harmful to innovation.

In terms of legal precedent, though, it seems to me that the main risk is that the decision could be read to narrow significantly the applicability of the pro-innovation rule announced in the 1984 Sony case regarding the VCR. That case held that, so long as a product is capable of substantial lawful uses, the distributor of the product isn’t liable for copyright infringement committed by some users. (The 2005 Grokster case added the caveat that the distributor must not take active steps to promote the product’s infringing use.) The bottom line is, innocent innovators can devise products without being liable for how users may eventually use or misuse them.

But the Sony rule applies to products that enable users to make copies. The Cablevision court took a different tack. It said that, in the case of the remote storage DVR, Cablevision would be engaging in unlawful copying itself, not merely providing the means by which users might do so. The court drew a distinction between “devices” and “services.” It said the VCR is a device because it is a “single piece of equipment” - meaning, I suppose, that all its circuitry is contained in a tidy black box. The remote storage DVR, in contrast, consists of a variety components not so neatly contained. In my favorite line from the opinion, the court points out that a Cablevision customer “would not be able to walk into Cablevision’s facilities and touch the [remote DVR] system.”

The possible implication is that the Sony rule about products with lawful uses applies only to devices that fit inside a compact casing and are housed in locations where users can touch them and the distributor cannot. Internet-based services that involve remote storage or processing and require some ongoing actions by the provider could be excluded. Needless to say, this would be a very narrow interpretation of the Sony rule.

It also would be a serious threat to innovation. Many valuable innovations today and in the future would fail a “touch test.” One of the great benefits of the Internet is that it enables users to overcome geography. The location of storage space or processing power is losing its relevance; capabilities can be provided remotely via the network, and used on an “as needed” basis. Often these types of Web-based services are more efficient than having a black box in each user’s home. And even where capabilities rely on devices, those devices will tend to be connected to the network, so that the provider can upgrade software, add new capabilities, or interact with the user in other useful ways. They will share many characteristics of services.

When these types of new services have the potential for both lawful and infringing uses, they should be eligible for the protection of the Sony rule. The Cablevision decision has the potential to call that into question.

On the other hand, it’s important to note that the decision also contains some language suggesting that its reasoning should not be applied to Internet-based services, which handle information flowing in from many sources rather than just from the service provider itself. If future courts focus on aspect of the opinion, the risks of the decision could be reduced.

In addition, lack of Sony-based protection doesn’t translate into automatic liability. Many services involving remote storage of user-provided content should be eligible for the safe harbor provided in section 512(c) of the DMCA.

But that safe harbor itself faces an important test, and is at some risk of being pared back, in Viacom’s recently filed lawsuit against YouTube. In suing YouTube for hosting infringing videos posted by users, Viacom will need to argue that YouTube is not eligible for the safe harbor. To do so, it may seek to establish new precedent concerning when a service provider’s level of knowledge, financial interest, or degree of control concerning infringement makes safe harbor treatment unavailable. If it succeeds, the result could be narrowed applicability for the 512(c) safe harbor.

All of which means, the legal framework for innovation is in flux in some potentially dangerous ways in the courts. It’s a battle that will likely go on for some time; the Cablevision decision is likely to be appealed, and the Viacom/YouTube suit is only just beginning.

CDT has previously noted that the effort at the World Intellectual Property Organization (WIPO) to create new, I.P.-like rights for broadcast and cable companies — a project that raises serious concerns — has received little attention to date from U.S. lawmakers. In a very welcome development, Senators Leahy and Specter, the Chairman and Ranking Member of the Senate Judiciary Committee, on Thursday added their voices to the debate in a letter to the Copyright Office and Patent and Trademark Office.

The letter hits the nail on the head. It notes that the draft treaty goes beyond the narrow purpose of protecting against signal theft and instead creates copyright-like rights that “could limit legitimate, fair use of the content and add an unnecessary layer of uncertainty in consumer use” and that “appear to be inconsistent with United States law.” It is great to see that the two leaders of the relevant Senate committee are on top of this issue and are weighing in with a united bipartisan voice.

Earlier today we filed comments with the Federal Trade Commission praising its recent settlement with Sony BMG Music Entertainment over the 2005 “rootkit” debacle.

As you may recall, in 2005, Sony BMG shipped a number of compact discs that included a new form of digital rights management (DRM) technology. When consumers attempted to play the discs on their computers, the DRM surreptitiously installed “rootkit” software. The DRM was designed to function in the background, where it was invisible to the average user. The DRM not only allowed Sony to monitor its customers’ activities — by opening the door to that surveillance, it also exposed affected computers to serious security threats.

As we point out in both our official comments and our press release, the settlement reaffirms core consumer rights in three key provisions:

• The first was that Sony BMG must clearly disclose the presence of DRM software and obtain affirmative consumer consent before installing the software. This requirement promotes the principle that consumers — not software distributors — should be in control of which applications are installed on their computers.
• Second, the FTC has required Sony BMG to obtain affirmative consumer consent prior to transmitting information about consumers, their computers, or their use of content back to Sony BMG servers. Importantly, the settlement says that these disclosures must be “unavoidable.” To us this would appear to mean that such disclosures should not be buried in end user license agreements (EULAS). This requirement reflects the fact that this kind of information transfer is a significant event from the consumer perspective, and that consumers deserve to be informed and given a choice about the collection and use of this information.
• Finally, the FTC has continued to promote the best practice of requiring software distributors to provide a reasonable and effective mechanism for consumers to uninstall their software.

By using this settlement as a template for future cases the FTC will set an important precedent that will benefit all players in the DRM and software markets, from legitimate producers and distributors all the way down to individual users.

The terms of the settlement also dovetail nicely with our DRM Metrics. Released last year, the DRM metrics aim to give consumers and product reviewers objective criteria to consider when evaluating the DRM included in a given product. The metrics are aimed at fostering greater public understanding and discussion of DRM, on the assumption that marketplace pressures from an informed consumer base can help promote a market for digital media products that is diverse, competitive, and responsive to reasonable consumer expectations.

The copyright panel at the State of the Net Conference here in D.C. earlier this week was notable for a surprising degree of consensus. The panel, entitled “User-Generated Content — Can Copyright Tolerate Mixing & Mashing?” seemed to find basic agreement that:

• Mash-ups and sampling can play a legitimate and indeed valuable role in the creation of parodies and other new and transformative creative works.
• The current rights regimes for commercial content are too complex, with too many rights holders, for it to be feasible for would-be mashers and samplers to license all commercial content they use. So even if it is preferable in theory to require users to pay some type of licensing fees to the content owners (a point that panelists did not necessarily agree on), transaction costs may make such licensing impractical.
• On a more general level, the current copyright statute is too complex for a world where digital technologies have empowered widespread public participation in activities (creating, sharing, manipulating, and distributing creative content) governed by copyright.
• Congress should pass orphan works legislation.

Of course, the apparent consensus may owe a lot to the make up of the panel: Jim DeLong of PFF, Pam Samuelson of UC Berkeley, Steven Starr of Revver.com, and Rob Pegoraro of the Washington Post as moderator. Nobody directly representing the interests of the commercial content community — the folks whose content gets “mixed and mashed.” It would have been interesting to see if, where, and how vehemently any such representative would have dissented.

Earlier this week we released a special “lame-duck” edition of our Internet Watch List, which identifies the legislative efforts that we believe to be the most dangerous to the Internet and civil liberties. We had hoped, following the election, that lawmakers wouldn’t be in the mood to do anything more than pass the necessary spending bills and head home for a long holiday rest.

Unfortunately, it appears there is at least some likelihood that lawmakers could try to move a range of troubling bills — probably by burying them in large must-pass legislative packages. The most troubling among these are bills aimed at legalizing the President’s warrantless domestic snooping program. Other measures would impose stifling filtering requirements on Web site operators, ban access to social networking sites in schools and libraries and force ISPs to retain massive amounts of customer data.

Even if the measures we identify in the Watch List weren’t fatally flawed, there is something deeply dangerous about making sweeping changes to how the Internet works, or worse, to our underlying civil liberties, in the hectic final days of a Congress.