Digital Media & Intellectual Property: Management of Rights and Consumer Protection in a Comparative Analysis

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Digital Media & Intellectual Property

Nicola Lucchi

Digital Media & Intellectual Property Management of Rights and Consumer Protection in a Comparative Analysis

123

Dr. Nicola Lucchi Università degli Studi di Ferrara Dipartimento di Scienze Giuridiche Corso Ercole I° d’Este 37 44100 Ferrara, Italy [email protected]

ISBN-10 3-540-36541-9 Springer Berlin Heidelberg New York ISBN-13 978-3-540-36541-9 Springer Berlin Heidelberg New York Cataloging-in-Publication Data Library of Congress Control Number: 2006930412

This work is subject to copyright. All rights are reserved, whether the whole or part of the material is concerned, specifically the rights of translation, reprinting, reuse of illustrations, recitation, broadcasting, reproduction on microfilm or in any other way, and storage in data banks. Duplication of this publication or parts thereof is permitted only under the provisions of the German Copyright Law of September 9, 1965, in its current version, and permission for use must always be obtained from Springer. Violations are liable for prosecution under the German Copyright Law. Springer is a part of Springer Science+Business Media springer.com © Springer-Verlag Berlin Heidelberg 2006 The use of general descriptive names, registered names, trademarks, etc. in this publication does not imply, even in the absence of a specific statement, that such names are exempt from the relevant protective laws and regulations and therefore free for general use. Typesetting: Camera ready by author Production: LE-TEX Jelonek, Schmidt & Vöckler GbR, Leipzig Cover: Erich Kirchner, Heidelberg SPIN 11798781

64/3100YL - 5 4 3 2 1 0

Printed on acid-free paper

To Luciano and Mirella

Foreword

This book focuses on intellectual property issues and rights in digital media, their connection with consumer protection, and the limits on freedom of contracts imposed by technological power. In particular, it analyzes, from a EU and U.S. comparative perspective, the complex issues concerning legal protection, technological measures and new business models associated with the use, distribution, and control of digital media. The book is based on a research project the author started in 2001 as Visiting Scholar at the University of California at Berkeley, Boalt Hall School of Law, later developed as Visiting Scholar at the University of Texas at Austin, School of Law and concluded as Research Associate at the Dipartimento di Scienze Giuridiche – Sezione di Rovigo of the University of Ferrara and as non residential Fellow of the Center for Internet and Society, Stanford Law School. Research support for this book has been provided by Fondazione Cassa di Risparmio di Padova e Rovigo, Rotary Foundation Ambassadorial Scholarship and University of Ferrara. I am particularly indebted to Robert Cooter, Mark Lemley and Pamela Samuelson for providing the occasion that inspired this work while I was at the University of California at Berkeley. I wish to thank all my colleagues and friends from the University of Ferrara, who offered me support, advice and encouragement when I most needed it. I also gratefully acknowledge many conversations with and comments by Roberto Bin, Oren Bracha, Ciro Grandi, Alessandra Annoni, Claudia Amodio, Andrea Ottolia, Francesca Calovi, Filippo Benelli, Mark Lemley, Natalino Ronzitti, Antonio Manganelli, Roy Mersky, Tobe Liebert, Lara Ziosi, Riccardo Resca, Pamela Samuelson on this and related topics over the last few years. A very special thank to Marina Mantovani, Anthony Norris, Patricia Sours, Meghan Brown for their editing help and suggestions on an earlier version of the manuscript. I also thank Giorgia Sensi for checking the text of the final version. Most of all, I wish to express my sincere love and gratitude to Mirella

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Foreword

and Luciano for their constant support and patience in my “inexplicable” work. The book is dedicated to them. Nicola Lucchi University of Ferrara Dipartimento di Scienze Giuridiche – Sezione di Rovigo Ferrara, Italy June 2006

Table of Contents

Foreword ................................................................................................. VII Table of Contents .................................................................................... IX List of Abbreviations .............................................................................. XI Introduction................................................................................................ 1 CHAPTER 1 Technical and Commercial Developments in Digital Media................ 11 1.1 Digital Media and Digitization ....................................................... 17 1.2 Intellectual Property: Public Interest or Private Benefit? ............... 20 1.3 From Mass Market Licenses to Access Contract............................ 30 CHAPTER 2 Intellectual Property in the Digital Age: Regulation through Law..... 41 2.1 U.S. Legal and Regulatory Framework on Digital Media: The Digital Millennium Copyright Act .......................................... 44 2.2 EC Legal and Regulatory Framework on Digital Media: The European Copyright Directive................................................. 51 2.3 The Digital Millennium Copyright Act and the European Copyright Directive: A Comparison............................................... 62 2.4 Legal Remedies at Work: Illegal File Swapping ............................ 74 2.5 Enforcement of Intellectual Property in Europe: A New Directive............................................................................. 79 CHAPTER 3 Intellectual Property in the Digital Age: Regulation through Technology................................................................................................ 89 3.1 Technological Protection Measures: Privately Legislated Intellectual Property Rights? .......................................................... 93 3.2 Technological Features to Protect Access and Rights Control....... 96 3.3 Technological Protection Measures and Consumer Protection ...... 99

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Table of Contents

3.4 The Role of DRMs in the EC Internal Market ............................. 120 3.5 Some New Business Models for Digital Media ........................... 128 Conclusions............................................................................................. 135 References............................................................................................... 143 Index ....................................................................................................... 167 About the Author................................................................................... 171

List of Abbreviations

Alb. L.J. Alb. L. Rev. Am. J. Comp. L. Am J. Int'l L. Am. U. L. Rev. Ann. Surv. Int’l & Comp. L. Berkeley J. Int'l L. Berkeley Tech. L.J. Brook. L. Rev. Brook. J. Int’l L. Buffalo L. Rev. B.U. J. Sci. & Tech. L. B.U. L. Rev. Cal. L. Rev. Cardozo Arts & Ent. L.J. Cardozo L. Rev. Case W. Res. Chi.-Kent L. Rev. Col. Law Colum. J. Eur. L. Colum. J. Transnat'l L. Colum. L. Rev. Colum.-VLA J.L. & Arts Common Mkt. L. Rev

Albany Law Journal of Science & Technology Albany Law Review American Journal of Comparative Law American Journal of International Law American University Law Review Annual Survey of International & Comparative Law Berkeley Journal of International Law Berkeley Technology Law Journal Brooklyn Law Review Brooklyn Journal of International Law Buffalo Law Review Boston University Journal of Science & Technology Law Boston University Law Review California Law Review Cardozo Arts & Entertainment Law Journal Cardozo Law Review Case Western Reserve Law Review Chicago-Kent Law Review The Colorado Lawer Columbia Journal of European Law Columbia Journal of Transnational Law Columbia Law Review Columbia Journal of Law & the Arts Common Market Law Review

XII


Comp. Law Rev. Int’l Contr. e Impr. Cornell Int'l L.J. Cornell L. Rev. Cyber. Law. Dir. Aut. Duke J. Comp. & Int'l L. Duke L.J. Emory Int'l L. Rev. Emory L.J. Ent. L. R. Eur. Intell. Prop. Rev. Fla. L. Rev. Fordham Intell. Prop. Media & Ent. L.J.

Fordham Int'l L.J. Fordham L. Rev. Foro it. Geo. Mason L. Rev. Geo. Wash. L. Rev. Georgetown L.J. Hamline L. Rev. Harv. Bus. Rev. Harv. Int'l L.J. Harv. J.L. & Tech Harv. L. Rev. Hastings Comm. & Ent. L.J. Hastings Int'l & Comp. L. Rev. Hastings L.J. High Tech. L.J. Hous. J. Int'l L. Hous. L. Rev. Ind. J. Global Leg. Stud. Info. Comm. & Ethics in Soc’y Info. & Mgmt.

Computer Law Review International Contratto e Impresa Cornell International Law Journal Cornell Law Review Cyberspace Lawer Il Diritto di Autore Duke Journal of Comparative & International Law Duke Law Journal Emory International Law Review Emory Law Journal Entertainment Law Review European Intellectual Property Review Florida Law Review Fordham Intellectual Property, Media & Entertainment Law Journal Fordham International Law Journal Fordham Law Review Il Foro Italiano George Mason Law Review George Washington Law Review Georgetown Law Journal Hamline Law Review Harvard Business Review Harvard International Law Journal Harvard Journal of Law & Technology Harvard Law Review Hastings Communications and Entertainment Law Journal Hastings International and Comparative Law Review Hastings Law Journal High Technology Law Journal Houston Journal of International Law Houston Law Review Indiana Journal of Global Legal Studies Journal of Information, Communication & Ethics in Society Information & Management

List of Abbreviations Info. Sys. J. Intell. Prop. Q. Int’l Cont. Adv. Int'l Digital Media & Arts Ass'n J. Int'l Rev. of Indus. Prop. & Copyright L.

J. Copyright Soc'y U.S.A J. Inst. Theorethical Econ. J. Marshall J. Computer & Info. L. J. Marshall L. Rev. J. Pol. Econ. Ind. L.J. Intell. Prop. L. J. Int J. Law Info Tech. J. Copyright Soc’y U.S.A. J.L. & Tech. J. Legal Stud. J. Transnat'l L. & Pol'y Jurimetrics Law & Contemp. Probs. Loy. L. Rev. Loy. L.A. Ent. L.J. Loy. L.A. Int'l & Comp. L.J.

Loy. L.A. L. Rev. Loy. U. Chi. L.J. Loy. U. Chi. L.J. Marq. L. Rev. Mich. L. Rev. Minn. L. Rev. N.M. L. Rev.

XIII

Information Systems Journal Intellectual Property Quarterly International contract advisor International Digital Media and Arts Association Journal International Review of Intellectual Property and Competition Law Journal of the Copyright Society of the U.S.A Journal of Institutional and Theoretical Economics John Marshall Journal of Computer and Information Law John Marshall Law Review Journal of Political Economy Indiana Law Journal Journal of Intellectual Property Law International Journal of Law & Information Technology Journal of the Copyright Society of the USA Journal of Law and Technology Journal of Legal Studies Journal of Transnational Law & Policy Jurimetrics Law and Contemporary Problems Loyola Law Review Loyola of Los Angeles Entertainment Law Journal Loyola of Los Angeles International and Comparative Law Journal Loyola of Los Angeles Law Review Loyola University Chicago Law Journal Loyola University of Chicago Law Journal Marquette Law Review Michigan Law Review Minnesota Law Review New Mexico Law Review

XIV


N.Y.L. Sch. L. Rev. N.Y.U. L. Rev. Nw. U. L. Rev. Penn. L. Rev. Rev. Int'l Pol. Econ. Rich. J.L. & Tech. Riv. Dir. Civ. Riv. Dir. Priv. Riv. Dir. Ind. Riv. Trim. Dir. e Proc. Civ. Rutgers Computer & Tech. L.J. Rutgers L.J. Rutgers L. Rev. San Diego L. Rev. S. Cal. L. Rev. Stan. J. Int'l L. Stan. L. Rev. Stud. Iuris Tex. Int'l L.J. Tex. L. Rev. Tex. Tech. L. Rev. Transnat'l L. & Contemp. Probs. Tul. J. Int'l & Comp. L. Tul. L. Rev. UCLA Ent. L. Rev. UCLA L. Rev. U. Chi. Legal F. U. Chi. L. Rev. U. Mich. L. Rev. U. Pa L Rev

New York Law School Law Review New York University Law Review Northwestern University Law Review Pennsylvania Law Review Review of International Political Economy Richmond Journal of Law and Technology Rivista di Diritto Civile Rivista di Diritto Privato Rivista di Diritto Industriale Rivista Trimestrale di Diritto e Procedura Civile Rutgers Computer and Technology Law Journal Rutgers Law Journal Rutgers Law Review San Diego Law Review Southern California Law Review Stanford Journal of International Law Stanford Law Review Studium Iuris Texas International Law Journal Texas Law Review Texas Tech Law Review Transnational Law and Contemporary Problems Tulane Journal of International and Comparative Law Tulane Law Review UCLA Entertainment Law Review UCLA Law Review University of Chicago Legal Forum University of Chicago Law Review University of Michigan Law Review University of Pennsylvania Law Review

List of Abbreviations U.S.F. L. Rev. U.N.T.S. Vand. J. Transnat'l L. Vand. L. Rev. Va. J. Int'l L. Va. J.L. & Tech. Va. L. Rev. W. Comp. Wake Forest L. Rev. Wash. & Lee L. Rev. Wash. L. Rev. Wis. Int'l L.J. Wis. L. Rev. Yale J. Int'l L. Yale J. L. & Tech. Yale L. & Pol’y Rev Yale L.J.

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University of San Francisco Law Review United Nations Treaty Series Vanderbilt Journal of Transnational Law Vanderbilt Law Review Virginia Journal of International Law Virginia Journal of Law and Technology Virginia Law Review World Competition Wake Forest Law Review Washington & Lee Law Review Washington Law Review Wisconsin International Law Journal Wisconsin Law Review Yale Journal of International Law Yale Journal of Law & Technology Yale Law & Policy Review Yale Law Journal

Introduction

Digital media are a new form of communication, emerging as a result of ongoing technological change, that do not compulsorily require a physical carrier. With the term digital media we refer not only to data storage product types such as CDs, DVDs, USB drives, memory sticks and MP3 players but also to all the other new means of disseminating content through the various new digital technologies.1 When we speak of digital media we mean “intellectual products made available in digital electronic form, whether operational in computers or other machines capable of reading works in digital form”.2 It is in this sense that we will use the term in this book. Digital media and their innovative transmission technology over the communication network and the Internet, represent means for the development of new approaches on traditional media, economics, culture and law. Digital media in general, and communication networks in particular, are creating a significantly different context for international industrial and technology development, particularly in the high tech and content goods sectors. The digital media revolution has resulted in a multitude of products that allow media consumers to become also producers, disrupting the traditional settlement and creating a different range of problems than analog media, such as traditional broadcast radio and television, vinyl records and 1

2

According to the definition of the Communication department at the University of Washington, digital media can be defined as any medium that uses digital interactive technologies as the engine for communication. E.g. Video on demand services, interactive television, digital broadcasting systems and internet based content distribution network. See M.C. digital media program. Department of Communication, University of Washington, available at http://ww w.com.washi ngton.edu/Program/MC/MC_Digital/faq.html. See Pamela Samuelson, Digital Media and the Changing Face of Intellectual Property Law, 16 Rutgers Computer and Tech. L.J. 323, 324 (1990). See also in this respect Tony Feldman, An introduction to digital media (1997); Alan Williams, Duncan Calow and Nicholas Higham, Digital Media: Contracts, Rights and Licensing (2nd ed. 1998).

2

Introduction

printed books. The production of digital information and the diffusion of interactive services are phenomena which have totally transformed the conditions of access to knowledge and the way of distribution of content.3 When information is recorded in digital format, also the job of the copier is much easier. The copy of a digital work will be the same in terms of quality as the original because it is the exact copy of a machine readable binary digit code (a series of zeros and ones). The same effect will apply no matter how many generations of copies are created.4 Furthermore the speed with which copies may be disseminated is also increased thanks to the power of the Internet.5 Within this framework the introduction of digital rights management systems and technological protection measures has completely extended the control of right-holders over their digital content,6 contributing to upset the traditional settlement for intellectual property rights.7 Owners of the old technology, transnational corporation and policy makers have privatized the access to digital content using a combination of technological and contractual instruments.8 When both remedies work together any rights that a consumer may have under copyright law could be replaced by a unilaterally defined contractual term and condition. The rapidly expanding and changing digital media landscape is even more complex because digital technology allows the combination of vari3

4

5 6

7

8

See Comm. on Intell. Prop. Rights and the Emerging Info. Infrastructure, National Research Council, The Digital Dilemma: Intellectual Property in the Information Age, at ix (2000) [hereinafter Digital Dilemma] (discussing the different threats to the intellectual property rules and practice produced by digital technology and describing as a “digital dilemma” the technical, legal, political, economic and sociological issues connected to the advent of digital information). For a detailed taxonomy for digital media and their connected problems for regulation of traditional intellectual property regimes see Samuelson, supra note 2, at 324; Id., Digital Media and the Law, 34 Comm. ACM 23 (1991). See Samuelson, supra note 4, at 24. Digital Dilemma, supra note 3, at 32. Jaques de Werra, Acces Control or Freedom of Access?, in Digital rights management: the end of collecting societies? 111 (Christoph Beat Graber et al., eds.) (2005). Intellectual property is a frequently used term without a particularly concrete definition. In general terms, the expression “intellectual property” can be considered to include anything coming from the working of the human brain: such as ideas, concepts, inventions, stories, songs, etc. However, there is a basic difference between intellectual property and intellectual property rights. See e.g., Ian J. Lloyd, Information Technology Law 304 (4th ed. 2004). See de Werra, supra note 6, at 111.

Introduction

3

ous forms of creative expression and promotes the creation of multimedia works combining images, sound, and text in an integrated whole.9 However, contrary to what has happened for other informatics goods, we do not have a prescriptive definition of digital media, even if there is some direct legislation to protect them.10 In particular, the protection offered to them is essentially a combination of the existing regimes of protection for other similar intellectual property works, with a legal framework resulting from a stratification of provisions, directly or indirectly connected to new technology products and digital rights.11 Even so, the increased difficulties of maintaining a balance between the inherently contradictory interests of intellectual property rights-holders and the general public, have stimulated legislative and regulatory interventions at international and national level. In particular, if we look back to the last few years, we can perceive the necessity of a modernization of the traditional instruments for the protection of intellectual property rights, particularly in relation to the new technological scenes. This matter has been characterized by normative interventions in the information society area with special attention to the protection of intellectual works and, in this context, intellectual property rights exceptions and users' rights have become one of the most controversial aspect of intellectual property law.12 Basically, the purpose of this book is to analyze the destabilizing effects of the anti-circumvention provisions for technological protection measures and digital rights management systems enacted in the United States in the Digital Millennium Copyright Act (hereinafter: DMCA)13 and the similar provisions included in the European Directive 2001/29/EC on the Harmonization of Certain Aspects of Copyright and Related Rights in the In9

10

11 12

13

See Irini A. Stamatoudi, Copyright and Multimedia Products: A Comparative Analysis 16-19 (2002). See Olena Dmytrenko and James X. Dempsey, Copyright & the Internet: Building national legislative frameworks based on international copyright law, Global Internet Policy Initiative (GIPI) – 4 (Dec. 2004) available at http://ww w.internetpolicy.net/practices/20041200copyright.pdf (illustrating the most important international treaties on copyright and discussing key issues that nations should address in updating their laws to conform to the international framework). See Stamatoudi, supra note 9, at 5. Recently European Union Member States have been forced to modify their systems of exceptions so as to comply with the Directive on the Harmonization of Certain Aspects of Copyright and Related Rights in the Information Society. See infra ch. 2.2. On the point see also generally Robert Burrell and Allison Coleman, Copyright Exceptions: The Digital Impact, 2005. 17 U.S.C. § 1201 (2000).

4

Introduction

formation Society (hereinafter: EUCD or European Copyright Directive).14 In detail, this book will reveal how current American, European and international laws compromise the consumer’s capacity to exercise legitimate rights, such as the private use exemption15 and fair use exception16, by giving content owners extralegal protection for their works and expanding control over beyond the legal limits.17 Thus, the legal protection against circumvention of technological protection measures has surreptitiously produced a form of right of access and has designed a framework that rights owners utilize to control the management of content.18 Specifically, it happens by utilizing those means of protection against the digital piracy of creative material, developed to enable secure distribution and to impede illegal distribution of creative works over digital communication network. Traditionally, intellectual property owners, have never held an unlimited control over the use of their works: in effect, copyright and related rights are a legal concept that contains several provisions that limit the monopoly control granted to right-holders. If these exclusive rights are transformed into a technological concept, courts no longer will be able to enforce these important limitations on intellectual property rights, and right-holders will be capable to use these extralegal protection measures to expand their control over content arbitrarily.19 This shift in power has significant implications because it implies an inappropriate delegation of governmental decision making to a non-governmental entity and a consequent privatization of the government's role of promotion of the arts and knowledge in the digital environment20 encouraging, in the public interest, the open flow of information. In order to clarify these and other concerns, different objectives need to be accomplished. Especially, these issues will enable subsequent queries to be considered. 14 15

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18

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2001 O.J. (L 167) 10. The generally recognized exceptions in the EC are e.g.: private use, parody, quotation, use for teaching or scientific purposes and other exceptions for archives and libraries. In the United States copyright system, it is the most important exception to the right-holder’s rights. The fair use exception is codified at 17 U.S.C. § 107 (2000). See Andrea Ottolia & Dan Wielsch, Mapping the Information Environment: Legal Aspects of Modularization and Digitization, 6 Yale J. L. & Tech. 174 (2003). See Matt Jackson, Using Technology to Circumvent the Law: The DMCA's Push to Privatize Copyright, 23 Hastings Comm. & Ent. L.J. 607, 608 (2001). Id. See Shubha Ghosh, Deprivatizing Copyright, 54 Case W. Res. 387, 395 (2003).

Introduction

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How can intellectual property law operate to reward authors for their works, and to provide incentives for new creations, while not hindering freedom of expression and the free movement of information? How can intellectual property law promote access to culture and the free flow of ideas? How is it possible, in the new digital era, to reduce the number of violations of intellectual property rights and to balance the rights of holders and users? What are the new business models, the recent legal protections, and the technological measures used to deal with the use, distribution, and control of digital media? How can they work? Some of these questions have yet to find reasonable answers. However, increased consciousness and worldwide debates about these new problems should assist in their solution.21 A clearer view of the ongoing legal and technological approaches could also emerge from a comparative analysis of the American and European patterns.22 21

22

In the last few years there were several international conferences and workshops on these and connected subjects, ACM CCS, Workshop on Digital Rights Management (DRM); DRM 2005 (Washington D.C.); DRM 2004 (Washington D.C.); DRM 2003 (Washington D.C); DRM 2002 (Washington D.C); DRM 2001 (Philadelphia); Consumer Communications and Networking Conference (CCNC) 2005; Workshop on Digital Rights Management Impact on Consumer Communications (Las Vegas); Australasian Information Security Workshop (AISW) 2005: Digital Rights Management (Newcastle, Australia); University of Dortmund, Digital Rights Management Conference, 2005, 2002, 2000, (Berlin); International Open Digital Rights Language (ODRL) Workshop: 2005 (Lisbon), 2004 (Vienna); Berkeley Center for Law and Technology (BCLT): The Law and Technology of Digital Rights Management Conference: What Will DRM Technologies Mean for the Future of Information?, 2003 (Berkeley); World Wide Web Consortium (W3C): Workshop on Digital Rights Management, Institut National de Recherche en Informatique et en Automatique (Sophia Antipolis, France). As some commentators have noted, most of the literature on the digital media is ethnocentric, that is, it refers only to the experience of a single country. It “is written in general terms, as though the model that prevailed in that country were universal.” In this framework, comparative analysis can have two functions: (1) concept formation and clarification and (2) evaluation of the role in causal inference. Comparative analysis is also “valuable in social investigation because it sensitizes us to variation and to similarity, and this can contribute powerfully to concept formation and to the refinement of our conceptual apparatus.” Furthermore, it has been underlined how, in media systems, there is a relation between countries with the most-developed media scholarship, including the United States, and countries with less developed traditions of media research. This relation results in a tendency to borrow the literature of other countries – usually the Anglo-American – and to treat that borrowed literature

6

Introduction

The production of digital content has become one of the most important assets for economic growth, enterprise, and employment; for enhancing professional, social, and cultural development; and for fostering the creative and innovative capacity of modern society.23 In this framework it becomes even more important to find and formulate a new settlement for intellectual property rights. While digital media products have recently experienced incredible market success, they are given inadequate and disproportionate protection under existing national and international copyright schemes. Intellectual property rights24 – such as copyrights, patents, trademarks, and so on – offer the legal protection upon which authors, inventors, firms, researchers, and others rely to protect their creations.25 Intellectual property rights dictate what use can legally be made of the creative work, and are thus essential to ensuring that authors are rewarded for their efforts.26 The advent of the Internet, however, has raised a new and unexpected challenge, making it more difficult to reach a balance, and has fostered an extremely protective environment where works are considered similar to physical properties, with right-holders accorded extensive control over them.27 At the same time, digital technologies allow perfect, inexpensive, and unlimited copying and dissemination of content.28 Without adequate protection and enforcement, authors may decide not to make their content

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as though it could be applied unproblematically anywhere. See Daniel C. Hallin & Paolo Mancini, Comparing Media Systems: Three Models of Media and Politics 2 (2004). See id. In general terms, the expression “intellectual property” can be considered to include anything coming from the working of the human brain such as ideas, concepts, inventions, stories, songs, etc. However, there is a basic difference between intellectual property and intellectual property rights. The latter, in fact, defines the issue to encompass those aspects of the topic which receive a measure of legal protection. See e.g., Ian J. Lloyd, Information Technology Law 304 (4th ed. 2004). Intellectual property law is “that area of law which concerns legal rights associated with creative effort or commercial reputation and goodwill”. See David I Bainbridge, Intellectual Property 4 (5th ed. 2002). See generally Robert P. Merges et al., Intellectual Property in the New Technological Age 15 (3d ed. 2003) (describing the economic incentive benefit of intellectual property protection and the necessity for encouraging inventors, authors, and artists to invest in the process of creation). See Digital Dilemma, supra note 3, at 8-12. See id. at 3-6.

Introduction

7

available in digital form.29 In short, times are changing, and the needs of the information society differ from those of its industrial predecessor.30 This book argues, in essence, that the owners of the old technology are trying to block the way to what they see as antagonism, failing to comprehend the original formulation of intellectual property law (e.g. the right to control copying), and the new means to be applied in the digital environment.31 The Internet, in fact, offers new possibilities in terms of appropriation and distribution, and so the law should be re-designed, possibly in terms of economic exploitation, but considering the original aim of copyright law.32 It could be also necessary, in view of the Internet’s potential, to craft a new business model shaped around its own characteristics.33 The first section of this book outlines how the balance that copyright law originally tried to establish has been jeopardized, and how, in response to the threats digitalization posed to copyright piracy, right-holders have managed to create a system where their creations are protected to the same extent as physical goods. So they set up a system where they exercise extensive control over access and use of their works, with consequent im29

30 31

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When information is recorded in digital format, the job of the copier is much easier. The copy of a digital work will be the same in terms of quality as the original because it is the exact copy of a machine readable binary digit code (a series of zeros and ones). The same effect will apply no matter how many generations of copies are created. Furthermore the speed with which copies may be disseminated is also increased thanks to the power of the internet. See id. at 32. See Manuel Castells, The Rise of the Network Society 33 (2d ed. 2002). See Mohanbir Sawhney, Hand in Hand, Context Magazine (2000), available at http://www.contextmag.com/setFrameRedirect.asp?src=/archives/200004/Digi talStrategy.asp. In the United States, the original aim of copyright is codified in the U.S. Const. art. I, § 8, cl. 8. However, it is necessary to remark about the substantial differences of approach in the historical foundations of the countries from the droit d’auteur tradition and countries from the copyright tradition. Several commentators remark about a movement of harmonization of copyright principles at an international level. See, e.g., Gillian Davies, The Convergence of Copyright and Authors’ Rights – Reality or Chimera?, 26 Int'l Rev. of Indus. Prop. and Copyright L. 964, 965 (1995) (observing that the Berne Convention had “provided a bridge” between the two systems); J.A.L. Sterling, Creator’s Right and the Bridge Between Author’s Right and Copyright, 29 Int'l Rev. of Indus. Prop. and Copyright L. 302 (1998). For an illustrative example of the differences between the two models compare Tullio Ascarelli, Teoria della Concorrenza e dei Beni Materiali 355 (1960), and 1 Paul Goldstein, Copyright: Principles, Law and Practice 317 (1989). See infra Ch. III § 3.5.

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Introduction

pairment of users’ rights. In particular, we start to identify how intellectual property rights, contract, and technology shape the business and regulatory framework of digital media. The second section discusses the measures taken at the legislative level to protect authors’ rights. Particular attention is given to the situation in the United States, now leading in technological and legal developments.34 A comparative analysis will be made between legal protections, technological measures, and anti-circumvention provisions recently adopted in continental Europe and in the United States. We also outline the debate surrounding peer-to-peer systems and the adverse effects of content industry lobbying activity, in particular the violent reactions against illegal file sharing and its users. The third section looks at the technological measures embraced to secure content and prevent it from being copied and illegally shared over the Internet. It considers how the content industry is trying to develop licensing systems for on-line content distribution, imposing through technology excessive restrictions on the users’ ability to enjoy the goods purchased. In particular, we reveal the upsetting trend to convert technological protection measures into functional equivalents of privately legislated intellectual property rights.35 The book concludes with an overview of the adverse effects, and the possible solutions, under U.S. and EC law posed by using contractual arrangements to expand intellectual property rights. Finally, it also proposes to learn from the old media experience because new technologies do not necessarily destroy the current architecture. On the contrary, they create new business opportunities.36 Old technologies have to find ways to cooperate with, or even co-opt, the new technology.37 The real solution, in fact, is that intellectual property rights rules need to be adapted to our digital times. A balance must be found between the interests of right-holders and users, and between protecting the original creative in-

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See Hector L. MacQueen, Copyright and the Internet, in Law and the Internet: A Framework for Electronic Commerce 181, 184 (Lilian Edwards & Charlotte Waelde eds., 2d ed. 2000). See James R. Maxeiner, Standard-Terms Contracting in the Global Electronic Age: European Alternatives, 28 Yale J. Int'l L. 109 (2003); J.H. Reichman & Jonathan A. Franklin, Privately Legislated Intellectual Property Rights: Reconciling Freedom of Contract with Public Good Uses of Information, 147 U. Pa. L. Rev. 875, 878 (1999). See Sawhney, supra note 31. See id.

Introduction

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vestment and enabling legal or licensed re-use by others.38

38

Copyright law must reach “a balance between a copyright holder’s legitimate demand for effective…protection…and the rights of others freely to engage in substantially unrelated areas of commerce.” Sony Corp. of Am. v. Universal City Studios, Inc., 464 U.S. 417, 442 (1984).

CHAPTER 1 Technical and Commercial Developments in Digital Media

The Internet, as a global medium, has the potential to reach an unlimited number of people instantaneously, with minimum expenses, and with no restrictions in terms of time and geographical limits.1 Ubiquitous networking and low-cost computing offer an environment where products that were typically distributed as physical goods can now be delivered completely in digital form.2 This transformation has extensive implications for the cost structure3 and strategies of content intermediaries.4 The digitization of content, in fact, combined with the increasing adoption of broadband distribution technologies, represents a revolution and a challenge that may be the greatest opportunity for the growth of new business and the transformation of the traditional distribution models.5 The consequences brought about in the content industry as a result of the new technologies are already before our eyes. For example, the combination of MP3 technology – compressing digital files up to 1/22nd of their original size and significantly reducing their storage space6 – and peer-to-peer 1

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4

5 6

See Manuel Castells, The Internet Galaxy: Reflections on the Internet, Business, and Society 2-5 (2001). See Digital Dilemma, supra Intro., note 3, at 32 (observing that “information in digital form is largely liberated from the medium that carries it”); see also John M. Gallaugher et al., Revenue Streams and Digital Content Providers: An Empirical Investigation, 38 Info. & Mgmt. 473, 476 (2001). Production of information goods has high fixed costs but low marginal costs, or “is costly to produce but cheap to reproduce.” Carl Shapiro & Hal R. Varian, Information Rules: A Strategic Guide to the Network Economy 3 (1999). See George M. Giaglis et al., The Role of Intermediaries in Electronic Marketplaces: Developing a Contingency Model, 12 Info. Sys. J. 231 (2002). See Shapiro & Varian, supra note 3. See generally Dean S. Marks & Bruce H. Turnbull, Technical Protection Measures: The Intersection of Technology, Law and Commercial Licenses, 22 Eur. Intell. Prop. Rev. 198 (2000). The same article was presented at the

12

CHAPTER 1

technology – ensuring independence from central servers so that file transfers occur directly through computers – has determined a substantial transformation in how intellectual creations are appropriated, used and distributed, maximizing the opportunities for the spread of culture, while also enhancing possibilities for illegal appropriation and distribution of pirated, counterfeit, and unauthorized products.7 One of the effects of this new settlement has been the possibility of a drastic shift in power. In fact, the web can be converted into an inexpensive and widespread distribution medium.8 In 1990, Pamela Samuelson prophetically proposed a detailed taxonomy for digital media.9 She categorized some fundamental features of digital media emphasizing the connected problems for regulation of traditional intellectual property regimes. According to the author, “six characteristics of digital media seem likely to bring about significant changes in the law.”10 A first characteristic of digital media is the ease of replication, that is the ease with which works in digital form can be replicated. This feature “poses a great many challenges for the law, especially for copyright law”:11 in fact with the development of digital media, it became possible to make theoretically exact copies of copyrighted works, with no degradation in quality from generation to generation. The second characteristic is the ease of transmission and the multiple use.12 This element implies that a single pirate copy can be “loaded into a computer booked up to a network of computers or a network of users of a large computer systems, each of whom can have ready and virtually simultaneous use of the same copy”.13 The combination of these first three properties offer an extremely troublesome challenge for copyright enforcement.14 Right-holders, in fact, are encouraged to erect barrier to restrict access “and to derive revenue more from uses than from sales of copies”.15

7

8 9 10 11 12 13 14 15

Workshop on Implementation Issues of the WIPO Copyright Treaty (WCT) and the WIPO Performances and Phonograms Treaty (WPPT) (Geneva, Dec. 6-7, 1999), available at http://www.sipo.int/documents/en/meetings/1999/wtc_ wppt/pdf/im p99_3.pdf. See Digital Dilemma, supra Intro., note 3, at 90 (describing the industry consequences of the new technology). See id. See Samuelson, supra Intro., note 4, at 23. Id. Id. Id. at 24. Id. Id. Id.

Technical and Commercial Develompments in Digital Media

13

The third characteristic is the plasticity of digital media. Digital content, such as music, photos and computer programs, can be easily modified, ripped, mixed, manipulated and transformed until it becomes unrecognizable as derived from the original work.16 The fourth characteristic of digital media is the equivalence of works in digital form. Copyrighted works, when are in digital form, are less differentiated by type and more equivalent to one another because they are in the same medium.17 In other words, when works are digitalized there is a breakdown of copyright distinctions among different kinds of works.18 A new chance for legal problems is connected with the fifth characteristic of digital media, that is the compactness of works when expressed in digital form. This means that works are simply stored in computer memory as a sequence of zeros and ones, with the ability to store extremely complex data in a very small space. Besides, these contents cannot be “perceived or read by humans except with the aid of a user interface”.19 The sixth and closing characteristic is the so called “non-linearity”. It is connected with the potential to create new consulting and searching techniques such as the linking navigation structures allowing users to easily find and browse the information they need, but also encouraging new intellectual property law questions.20 Finally, we can also add one more feature. Digital media, in fact, are also characterized by intangibility since they do not have the tactility and physicality associated with the forms that have preceded them during the human history of content.21 In fact, binary data, the stuff of digital media, cannot be seen or felt in the way that the stuff of their analog ancestors can be.22 This latter characteristic is evident in the drastically different human behavior in front of digital content misappropriation. So, music lovers would never think to shoplifting a CD from a record store, but they are not concerned about downloading bootlegged MP3s from a peer-to-peer distribu16 17

18

19 20 21

22

Id. at 25. Id. at 26. This equivalence of works in digital form “make increasingly easy to create a difficult to classify work by combining what have previously been thought of as separate categories of works”. See Id. Pamela Samuelson & Robert J. Glushko, Intellectual Property Rights for Digital Library and Hypertext Publishing Systems, 6 Harv. J. Law & Tec 237, 240 (1993). Id. at 241. Id. See also Samuelson, supra ch.1 note 4, at 28. See Scott Olson, Digital Deontology, 2 Int'l Digital Media & Arts Ass'n J. 53, 54 (2005). Id.

14

CHAPTER 1

tion system even if consequences to the artist and manufacturer are essentially the same.23 In such a situation, it is evident that the owners of the old distribution technology are afraid of losing control over authors, composers, and performers because their role could become unnecessary.24 In fact, the intermediation of publishers, distributors, and record companies can be easily eliminated.25 In order to maintain their business, content intermediaries are obliged to make a radical change. The arrival of the new distribution systems is forcing suppliers to undergo an inevitable metamorphosis towards decentralization and disintermediation in content management systems.26 Content intermediaries, alarmed by the inevitable process of elimination of their role in the transaction process, are resorting to very strict copyright protection measures.27 Therefore, if the most important application of the new distribution technologies is allowing flow of information, content providers have initially argued that any technological security measures used to distribute content through the Internet can eventually be circumvented and that, consequently, new legal protections for copyrighted works in the network en-

23

24

25

26

27

For this example, see Olson supra note 21, at 54. The example, as used in the cited paper, is utilized to explain the digital media tangibility. Technology promotes the elimination of those individuals and organizations between end-users and originators. This concept is summarized by the term “disintermediation.” See Digital Dilemma, supra Intro., note 3, at 90. See Alina M. Chircu & Robert J. Kauffman, Strategies for Internet Middlemen in the Intermediation/Disintermediation/Reintermediation Cycle, 9 Electronic Markets 109, 113 (1999). For an overview of the disintermediation issues see George M. Giaglis et al., Disintermediation, Reintermediation, or Cybermediation? The Future of Intermediaries in Electronic Marketplaces, in Proceedings of the Twelfth International Bled Electronic Commerce Conference, Bled, Slovenia, June 7-9, 1999 at 389 (Stefan Klein, Joze Gricar & Andreja Pucihar eds., 1999); Michael D. Smith et al., Understanding Digital Markets: Review and Assessment, in Understanding the Digital Economy 99, 121 (Erik Brynjolfsson & Brian Kahin eds., 2000). See also Alan Williams et al., supra Intro., note 1, at 4; Lawrence Lessig, Free Culture: How Big Media Uses Technology and the Law to Lock Down Culture and Control Creativity 41 (2004). However, some seem to prefer to preserve the status quo. The content industry, in fact, is lobbying to protect its supremacy. For a more general analysis about the various ways in which institutional features can facilitate or impede the improvement of legal rules, see Clayton P. Gillette, Lock-In Effects in Law and Norms, 78 B.U. L. Rev. 813 (1998).


15

vironment are also required.28 Content providers also fail to perceive some positive aspects of the new distribution technology, such as the dramatic reduction of production and distribution costs29 because digital data are no longer inseparable from a physical carrier, but could now be represented as abstract strings and symbols.30 Technology, then, can promote ethics and the public good by reducing transaction costs.31 Digital products are also particularly well-structured for price discrimination, and consumers are often ready to pay for immediate on-line access to specific content: a large variety of content, in fact, may be easily disaggregated and distributed on demand.32 “Digital content also benefits from the ability to exploit various strata of consumers that can be classified by intent-to-use and immediacy-of-need.”33 Finally, the migration of consumers to new media, the shifting expectations of consumers, the possibility to market to an increasingly diverse and stratified customer base, and the tangible differences of entirely digital vs. physical products, create a multitude of options for revenue generation.34 Probably for these reasons, content providers are now looking with positive interest to “pay-per-view” or “pay-per-download” web services.35 At 28

29

30

31

32

33 34 35

See Pamela Samuelson, Intellectual Property and the Digital Economy: Why the Anti-Circumvention Regulations Need to be Revised, 14 Berkeley Tech. L. J. 519 (1999). But see Kamiel Koelman, The Protection of Technological Measures vs. the Copyright Limitations, in Adjuncts and Alternatives to Copyright: Proceedings of the ALAI Congress June 13-17, 2001 at 448 (Jane C. Ginsburg & June M. Besek eds., 2002). See Yochai Benkler, Net Regulation: Taking Stock and Looking Forward, 71 U. Colo. L. Rev. 1203, 1240 (2000). Reduced costs could increase the size of the surplus to be had from transactions involving contents. The challenge and opportunity for copyright owners is how this new marginal surplus will be distributed either in the form of increased profits or lower prices. See Michael W. Carroll, Whose Music is it Anyway?: How We Came to View Musical Expression as a Form of Property, 72 U. Cin. L. Rev. 1405, 1413 (2004). See Digital Dilemma, supra Intro., note 3, at 32 (observing that information in digital form is largely liberated from the medium that carries it). See generally Cass R. Sunstein, Free Markets and Social Justice (1997). On the point of social norms, see also Eric A. Posner, Efficient norms, in The New Palgrave Dictionary of Economics and the Law 19 (Peter Newman ed., 1998). See Hal Varian, Pricing Information Goods, in Proceedings of Scholarship in the New Information Environment Symposium (Carol Hughes ed., 1995). See Gallaugher et al., supra note 2, at 479 (2001). See id. As demonstrated by the Apple iTunes experience, the real issue is the requirement of new philosophy. If content providers identify and focus on consumer needs instead of on business or control opportunities, innovation is possible.

16

CHAPTER 1

the same time, many artists and authors seem to be convinced that it is possible to take advantage of the opportunity to directly expose themselves to the public even if the role currently played by major distribution companies is still a restraint on complete transformation in the world of content circulation.36 Conscious of the chance the Internet has to overtake the archaic monopolistic business model allowing authors to reach their audience autonomously, the content industry has been working towards the establishment of a safe infrastructure by looking to regional and global solutions in order to leverage resources, decrease cost, and increase the implementation of standardized technological protection measures.37 At the same time, the current efforts at building an effective copy security structure have demonstrated the necessity to obtain laws that support protection technologies and prohibit the circumvention of technology protected works.38 An essential part of this book will evaluate each condition and determine whether the imposed restrictions on a user’s right could represent the correct and effective reaction to the disrespect of intellectual property rights.

36

37

38

See generally Urs Gasser, iTunes: How Copyright, Contract, and Technology Shape the Business of Digital Media – A Case Study (Berkman Ctr. for Internet & Soc’y at Harvard Law School Research Publ’n No. 7, 2004), http://ssrn.c om/abstract=556802. For example, current technology allows non-professional musicians to make high quality recordings and distribute them through the Internet directly to the public, bypassing intermediaries and with significant reductions in costs. See John Alderman, Sonic Boom-Napster, MP3, and the New Pioneers of Music 64 (2002). Regarding self-help measures and their purposes, see, e.g., Charles Clark, The Answer To the Machine Is In the Machine, in The Future of Copyright in a Digital Environment 139 (P. Bernt Hugenholtz ed., 1996). See also Kenneth W. Adam, Self-help in the Digital Jungle, in Expanding the Boundaries of Intellectual Property: Innovation Policy for the Knowledge Society 103 (Rochelle C. Dreyfuss et al. eds., 2001) also in 28 J. Legal Stud. 393 (1999); Julie E. Cohen, Copyright and the Jurisprudence of Self Help, 13 Berkeley Tech. L.J. 1089 (1998); David Friedman, In Defense of Private Orderings, 13 Berkeley Tech.L.J. 1151 (1998) (commenting on Cohen, supra note 37); and Mark Stefik, Shifting the Possible: How Trusted Systems and Digital Property Rights Challenge Us to Rethink Digital Publishing, 12 Berkeley Tech. L.J. 137 (1997). See Marks & Turnbull, supra note 6.


17

1.1 Digital Media and Digitization With the term “digital media” (as opposed to analog media) we refer to the whole electronic media phenomenon and, in particular, to all those works converted on digital codes. Over the last few years, the market of multimedia products have experienced incredible success, but, at the same time, the legal framework has offered an inadequate structure for the protection of intellectual property rights both under existing national and international schemes.39 The common problem of digital media is related to the characteristic of the binary numeral system representing numeric values using two symbols, normally 0 and 1. In the analog environment, controlling copies was relatively easy, but in the digital environment, it is much more complex. In the past analog era, in fact, paper and other physical media were able to make it difficult or extremely expensive to copy exactly, distribute far and wide, or incorporate content in new works.40 Analog technology, in fact, stores information in the form of a continuous signal, which recognizes changes in the information by modulating the amplitude or the frequency of the signal.41 On the contrary, digital technologies store any kind of information in a single format, far more compact than analog storage, because they translate content into binary code.42 For example, sound is recorded onto compact discs by translating sound waves into digits. Then, this binary representation is decoded and converted to an analog electric signal by a player device and translated into sound. With an analog recording, such as a record, sound waves are recorded as patterns of physical relief on vinyl and a turntable needle glides over these patterns to read the music. Because digitized information breaks all information into discrete units, the information is easier to process and manipulate. It can be copied economically, can be sent anywhere in the world, over the Internet, in a matter of seconds, duplicated to have a perfect copy, and included or reproduced in new works.43 Digital media has been enabled by extremely sophisticated technologies with potential opportunities for creativity, business and culture. The creation and distribution of media content, connected with manufacturing and replication, are driving major global economic development and consump39

40 41 42 43

See generally Nicholas Negroponte, Being Digital (1995) (describing the history and consequences of media technologies). See Digital Dilemma, supra Intro., note 3. See Williams, Calow and Higham, supra Intro., note 2, at 3. See Stamatoudi, supra Intro., note 9, at 22. Id.

18

CHAPTER 1

tion trends.44 Furthermore the information and communication technologies have given consumers new ways to create, distribute and benefit digital media content. Ease of distribution, in fact, is one of the information society’s major positive benefits, but distribution is also traditionally what most profits the media industries. As again recently confirmed at the International Conference on the Future Digital Economy, jointly organized by the Organization for Economic Co-operation and Development and the Italian Ministry for Innovation and Technologies,45 The aspect of digital technology that has most visibly and powerfully affected the content industry is the ease with which digital (as opposed to analog) recordings can be reproduced and redistributed. The simplicity with which perfect copies of audio and video recordings can be created and then distributed to millions has: reduced the effectiveness of copyright law; destabilized traditional business models; and given rise to most of the lawreform and business initiatives we’ve been discussing…46

The implications of the transition from analog to digital are “as great as the change from a transportation system and railroads to one of automobiles and the airplane had been in the twentieth century”.47 For media, transmission technology is the characterizing component, because it affects format, content and economics.48 Digital media such as digital audio, digital video and other digital content can be created, transferred and disseminated by using different types of digital devices. Content, in fact, can be incorporated in different way. As already argued, analog media requires physical devices to create, move, store and use content49, even if content continues to exist on a separate level from its physical carrier.50 Traditionally, in the analog world data requires a physical carrier (tapes, disks, au44

45

46

47

48 49 50

See Leonardo Chiariglione, The Digital Media Manifesto, available at http://w ww.chiariglione.it/manifesto/dmm.htm. International Conference on the Future Digital Economy - Istituto San Michele, Rome, Italy 30-31 January 2006 at www.oecd.org/sti/digitalcontent/confer ence. See William Fisher III, Conference speech: The Future Digital Economy. Digital Content – Creation, Distribution and Access, organized by the Italian Minister for Innovation and Technologies and the Organisation for Economic Cooperation and Development, 30-31 January 2006, Rome, Italy available at http:/ /www.oecd.org/dataoecd/16/44/36138608.pdf. See Eli Noam, Will Internet TV Be American?, in Internet Television 235, 236 (Eli Noam, Jo Groebel, Darcy Gerbarg eds., 2004). Id. Id. Id.


19

dio and video cassettes etc.) that can deteriorate over time. In contrast, once content has been digitized, it is available as a computer file, that is just a sequence of bits viewed as a single unit. In the analog world each piece of media has a distinct existence directly connected with its physical representation and layout. On the contrary, digital media exist in the same state and can only be differentiated with the use of specific reading program.51 Digital data, expressed in bits or digital numbers, are not only easily duplicable, but can also represent a new type of particularly secure content carrier. In fact, digital data carrier is not subject to deterioration and it could be protected by controlled access technologies like encryption, authentication, digital fingerprinting, watermarking and other distribution mechanisms for digital content, providing a secure distributed system for managing copyrighted content. To preserve digital content and provide enjoyment to users, content providers must be able to reproduce the content on new media, transfer and standardize it in the face of changing technology, and disseminate it to users at a resolution consistent with network bandwidth constraints.52 In particular, standards are important because they ensure quality, compatibility and interoperability. Therefore, content could be protected by technical mechanisms such as encryption or other controlled access technologies, implemented in ways that consent content provider to safeguard the digital content and consumer to use works on different platforms.53 The diffusion of communication networks and theirs wide ability to transmit data, allows to digitize every kind of written and audiovisual content. These technological elements are the key factor of the deep changes in the society: in fact, they have had a significant impact on the social and economic conditions and on the traditional publishing and audiovisual business models. The present transformation has an inevitable evolution, with a consequent increase in the diffusion, development and use of the information and communication technologies. In a framework where technology has created a drastic shifts in the ability to copy, distribute, control and publish, information industries and consumer behavior are altered. Digital technology has exacerbated the com51

52

53

See Michael Niederman, The Changing Narrative Paradigm Analog to Digital and What that Means, 2 Int'l Digital Media & Arts Ass'n J. 45, 50 (2005). See The National Digital Information Infrastructure and Preservation Program, Sustainability of Digital Formats, available at http://www.digitalpreservation.g ov/formats/sustain/sustain.shtml. Id. See also Alan Williams et al., supra Intro., note 1, at 11.

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CHAPTER 1

mon tension between right-holders, technology companies and consumers. Today, digital technologies and technical protection mechanisms have drastically changed the commercial and regulatory developments in digital media. Some digital content formats have embedded capabilities to limit use in order to preserve the intellectual property rights. Use may be restricted, for example, for a time period, to a particular computer or other hardware device, or may require a password or an active network connection.54 For this reason, it was coined55 the term “Digital Dilemma” to refer to the problems connected to the issues surrounding the current digital media ecosystem during this transitional period. According to the report called, “The Digital Dilemma: Intellectual Property in the Information Age,” the information infrastructure – by which we mean information in digital form, computer networks and the World Wide Web – has arrived accompanied by contradictory powers and promises. For intellectual property in particular it promises more – more quantity, quality and access – while imperiling one means of rewarding those who create and publish.”56

1.2 Intellectual Property: public interest or private benefit? International intellectual property law is secured on a global basis through a mechanism of intersecting multilateral and bilateral agreements and their resulting harmonization of national laws.57 Changes in international intellectual property law are often correlated to changes in the media system58. So, nowadays, we are observing very remarkable transformations origi-

54 55

56 57

58

Id. The United States' National Research Council commissioned a broad based, expert panel to report on intellectual property issues in the digital age. The committee coined the term "Digital Dilemma" just to refer to the problems that interested parties face. See Digital Dilemma, supra Intro., note 3, at 2. See Jonathan Franklin, International Intellectual Property Law, ASIL Guide to Electronic Resources for International Law, at http://www.asil.org/resource/ ip1.htm (last visited Jun. 5, 2006). See also generally Frederick M. Abbott and David J. Gerber, Public policy and global technological integration (1997). See, e.g., Paul Edward Geller, New Dynamics in International Copyright, 16 Colum.-VLA J.L. & Arts 461 (1992).


21

nated by the use of new information technologies:59 in this framework, for example, new media have been making the territoriality of exclusive rights elastic.60 According to the legal tradition, the scope and use of intellectual property rights is justified because they encourage democratic principles promoting the diffusion of individual expressive works, preventing a monopoly and offering a defence against piracy.61 In a few words, the international intellectual property rights regime, is concerned with creating and safeguarding rights and the incentives associated with them.62 Historically, the cradle of the IP system is considered the renaissance of northern Italy. A Venetian law of 1474 (the so called “Parte Veneziana”) made the first systematic attempt to protect inventions by a form of patent, which granted an exclusive right to an individual for the first time.63 In the same century, the invention of movable type and the printing press by Jo59

60 61 62

63

See Sony Corp. of Am. v. Universal City Studios, Inc., 464 U.S. 417, 430 (1984). The Court noted that: “copyright protection became necessary with the invention of the printing press and had its early beginnings in the British censorship laws. The fortunes of the law of copyright have always been closely connected with freedom of expression, on the one hand, and with technological improvements in means of dissemination, on the other.” See Id. (quoting Benjamin Kaplan, An Unhurried View of Copyright vii-viii (1967). See Geller, supra note 58, at 466. Lyman Ray Patterson, Copyright in Historical Perspective 14 (1968). David J. Gerber, Global Technological Integration, Intellectual Property Rights and Competition Law: Some Introductory Comments, in Public policy and global technological integration 15 (Frederick M. Abbott and David J. Gerber eds., 1997). Venice was considered the first city in Europe in which the business of printing and publishing became significant, and was the precursor to the system of copyright. See Paul F. Grendler, The Roman Inquisition and the Venetian Press 1540-1605 (1977); George Putnam, Books and Their Makers During the Middle Ages; A Study of the Conditions of the Production and Distribution of Literature from the Fall of the Roman Empire to the Close of the Seventeenth Century 404-05 (1962). See Edward C. Walterscheid, To Promote the Progress of Useful Arts: American Patent Law and Administration, 1798-1836 142 n.110 (1998) (Italy provided exclusive rights to inventors for their inventions through the Venetian Law of 1474). England followed in 1623 with the Statute of Monopolies. See id. See also Adriano Vanzetti & Vicencenzo Di Cataldo, Manuale di Diritto Industriale 265 (2000). This first exclusive right was granted from the Republic of Venice to the printer of the Histories of Pliny the Elder. See Richard Crosby DeWolf, An Outline of Copyright Law 2 (1986) (1925).

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hannes Gutenberg, around 1450, contributed to the birth of the first copyright system in the world. Copyright is a form of intellectual property rights developed in response to the advent and rapid evolution of printing technology.64 It is an instrument to both control the quality of the material made public and to regulate trade, preventing works from being pirated.65 Past and present experience demonstrate that knowledge and inventions have played an essential role in economic growth66 and, at the same time, states have had another indispensable role “recognizing, conferring and protecting intellectual property rights.”67 Economists suggest, exactly, that the accumulation of knowledge is the driving force behind economic growth.68 However, despite the economic service fulfilled, when intellec64

65

66

67

68

See Elizabeth Eisenstein, The Printing Press as an Agent of Change: Communications and Cultural Transformations in Early-Modern Europe 27-29, 36 (1979); Gillian Davies, Copyright and the Public Interest 14 (2d ed. 2002). See Simon Stokes, Digital Copyright: Law and Practice 1 (2002). For a discussion of the history of copyright, see generally Office of Technology Assessment, U.S. Congress, Intellectual Property Rights in an Age of Electronics and Information (1986); Lyman Ray Patterson, Copyright in Historical Perspective (1968); Brad Sherman & Lionel Bently, The Making of Modern Intellectual Property Law (1999); Daniel Burkitt, Copyrighting Culture: The History and Cultural Specificity of the Western Model of Copyright, 2 Intell. Prop. Q. 146 (2001); Christopher May, The Venetian Moment: New Technologies, Legal Innovation and the Institutional Origins of Intellectual Property, 20 Prometheus 159 (2002), available at http://taylorandfrancis.metapress.com/index/QA AXAY 05786CLA16.pdf. See Kamil Idris, International Intellectual Property: Introduction, 26 Fordham Int'l L.J. 209, 210 (2003); WIPO, Intellectual Property: A Power Tool for Economic Growth, http://www.wipo.int/about-wipo/en/dgo/wipo_pub_888/wipo_ p ub_888_1.htm (last visited June 4, 2006). Rapid knowledge creation, including the emergence of new technologies, resulted in policy changes regarding intellectual property and the adoption of new knowledge-asset management practices. One of the consequences of the emerging importance of IP and the new pattern of global trade that started in the beginning of the 1990s was the forging of a deliberate connection between the two. Some developed countries began to use trade measures to curb piracy of intellectual property rights abroad. Among other things, this led to the inclusion of the Agreement on the Trade-Related Aspects of Intellectual Property Rights (TRIPs) as one of the World Trade Organization (WTO) agreements resulting from the multilateral trade negotiations under the Uruguay Round. See id. Ronald V. Bettig, Copyright culture: the political economy of intellectual property 3 (1996). See Paul Romer, Increasing Returns and Long-Run Growth, 94 J. Pol. Econ. 1002 (1986). In this paper Romer proposes a model, quite different from the neo-classical economic theory, where economic growth is driven by the accu-


23

tual property rights (and copyright in particular) were first introduced, the main concern for legislators of common law as well as civil law countries69 was to encourage “creativity, science and democracy.”70 They indeed focused primarily on users’ interests, according authors and publishers a level of protection just strong enough to encourage and reward them, but weak enough not to prevent free flow of culture and information.71 In this sense, in the American tradition, the public granted authors a limited exclusive right in return for the prompt public dissemination of the work.72 But, when authors realized they could make a living out of their work and publishing corporations spotted the right excuse for strengthening their position, the original focus of copyright law got lost.73 Policy

69

70

71

72 73

mulation of knowledge. As pointed out by the author, this theory is based on “a model of long-term growth in which knowledge is assumed to be an input in production that has increasing marginal productivity. It is essentially a competitive equilibrium model with endogenous technological change.” Id. The Common Law tradition emphasizes the economic role of copyright and the role played by the idea of “public sphere” and was expressly purported to “promote the Progress of Science and useful Arts” (as later recognized in the American Constitution under Art. I, § 8, cl. 8), thus representing the essential incentive to encourage artists to produce more. In the civil law tradition, where works were considered a reflection of authors’ personality, copyright was instead considered a way to reward artists for their contribution to culture. This perception is reflected in the name “author-law” (droit d’auteur) given to the topic by several continental systems. See Copyright and the Internet, in Law and the Internet–Regulating cyberspace 68-69 (Lilian Edwards & Charlotte Waelde eds., 1997); MacQueen, supra Intro., note 33, at 182. See Siva Vaidhyanathan, Copyrights and Copywrongs-The Rise of Intellectual Property and How It Threatens Creativity 4 (2001). See id. at 5. For a complete analysis on the democratic origin of copyright law and its importance in maintaining and furthering a democratic civil society, see Julie E. Cohen, Lochner in Cyberspace: The New Economic Orthodoxy of Rights Management, 97 Mich. L. Rev. 462 (1998); Mark Lemley, The Economics of Improvement in Intellectual Property Law, 75 Tex. L. Rev. 989 (1997); Neil Weinstock Netanel, Copyright and Democratic Civil Society, 106 Yale L.J. 283 (1996); and Pamela Samuelson, Information as Property: Do Ruckelshaus and Carpenter Signal a Changing Direction in Intellectual Property Law?, 38 Cath. U. L. Rev. 365 (1989). See Jessica Litman, Digital Copyright 78 (2001). See Vaidhyanathan, supra note 70, at 38-41. This battle reached an important moment in England in 1709, with the enactment of the Statute of Anne recognizing for publishers an extended monopoly for a further twenty-one years and for authors protection over their works for fourteen years plus fourteen. Although both their positions had been made stronger, the statute never meant to diminish the value and the centrality of the public’s interests, and acted in sup-

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CHAPTER 1

talks started to lose ground, and to be slowly but steadily replaced by property talks.74 A first important step was taken in 1886 with the adoption of the Berne Convention for the Protection of Literary and Artistic Works.75 It marked international recognition of the need for and benefits of international cooperation in establishing and harmonizing national copyright protection laws.76 Another important step in that direction was probably taken in the meeting of the World Intellectual Property Organization (WIPO)77 in 1976, when intellectual creations were first addressed in terms of “intellectual

74

75

76 77

port of the diffusion of culture. Before the Statute of Anne, England only knew the 1557 Stationers’ Company Charter, granting publishers a monopoly over distribution of written works, but not a right of property over them. With Millar v. Taylor (1769), stationers obtained the recognition of authors’ natural property right over their productions, implying the abolition of Statute of Anne’s anti-monopolistic provisions and the recognition of a common law “copyright” that existed in perpetuity. This condition only lasted until Donaldson v. Beckett (1774), when the absence of a perpetual right was ultimately maintained. For a detailed explanation of the controversy in Millar v. Taylor (1769) and Donaldson v. Beckett (1774), see Mark Rose, The Author as Proprietor: Donaldson v. Beckett and the Genealogy of Modern Authorship, in Of Authors and Origins: Essays on Copyright Law 23 (Brad Sherman & Alain Strouwel eds. 1994); Mark Rose, Authors and Owners: The Invention of Copyright (1993). See Vaidhyanathan, supra note 70, at 46-47. This quarrel, as already pointed out, concluded in England in 1709, with the enactment of the Statute of Anne (entered into force in 1710). For existing works, “authors or their assigns” were granted the exclusive right of publication for twenty-one years from the effective date of April 10, 1710. For new works, the right ran for fourteen years from the date of publication; the author, if living at the expiration of such term, was granted the privilege of renewal for 14 more years. See William F. Patry, 1 Copyright Law and Practice 11-12 (1994). For a comment about the reasons why information is not generally characterized as property, see Samuelson supra note 71, at 369. Berne Convention for the Protection of Literary and Artistic Works, Sept. 9, 1886, 828 U.N.T.S. 221 (last revised at Paris, July 24, 1971). United States adhered to the Berne Convention on March 1, 1989. See Dmytrenko and Dempsey, supra Intro., note 10. The World Intellectual Property Organization is a special United Nations agency with the objective to promote the protection of intellectual property throughout the world through cooperation among States and, where appropriate, in collaboration with other international organizations. See Convention Establishing the World Intellectual Property Organization (Stockholm, July 14, 1967).


25

property” and an emphasis was primarily put on commercial exploitation.78 While the use of a new expression may seem like just a terminological issue, changing the emphasis from property to economic potential degraded the works from their status as the “engine” of development to mere consumer goods.79 Their social value was reduced, while fair use and access to culture lost their original dimension as rights and became something closer to mere concepts.80 From that moment, we can assert that intellectual property protection, despite the original requirement to serve the public interest and to encourage the open flow of information, started to advantage the private benefit expanding the scope and range of protection.81 From that moment regulation for the protection of intellectual property and (protection) of the consumers’ rights were increasingly exercised by private interests rather than governments.82 In fact, texts of treaties administered by WIPO emerged primarily as a result of transnational corporations consensus and the coincidence of the perceived interests of that group with key governments such as that of the United States.83 Consequently, WIPO recommendations demonstrate a trend toward the globalization of intellectual property rights protection84 eliminating obstacles to international commerce and responding to changes in global capitalism and technology. Looking to history, intellectual property rights were considered grants of privilege that were explicitly recognized as exceptions to the rules against

78 79

80

81

82

83 84

See Vaidhyanathan, supra note 70, at 160. For analysis of the issue, see Debora J. Halbert, Intellectual Property in the Information Age: The Politics of Expanding Ownership Rights (1999). See Wendy J. Gordon, Excuse and Justification in the Law of Fair Use: Commodification and Market Perspectives, in The Commodification of Information 149, 171-72 (Niva Elkin-Koren & Neil Weinstock Netanel eds., 2002). In particular, a great impulse towards the adoption of measures enhancing monopoly came in the mid-eighties from America, which was undergoing a fundamental transformation from industrial to information society, and – with the anxiety of maintaining international economic supremacy – brought copyright issues to the top of its agenda and to the attention of the whole international community. See Halbert, supra note 79, at 77-81 (1999). See generally Marci A. Hamilton, The TRIPS Agreement: Imperialistic, Outdated, and Overprotective, 29 Vand. J. Transnat’l L. 613 (1996). See generally Susan K. Sell, Private Power, Public Law: The Globalization of Intellectual Property Rights (2003). Id. See Frederick M. Abbott, Public Policy and Global Technological integration: an introduction, in Public policy and global technological integration 5 (Frederick M. Abbott and David J. Gerber eds., 1997).

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monopolies.85 Over time, this concept has given way to the notion of "property rights" in intellectual goods.86 Actually, intellectual creations are cultural goods whose main value lies in their power to support the progress of society.87 They undoubtedly become commercial goods, protected to the same extent as tangible property and shaped in terms of usage rights.88 Usually, this regulatory settlement provides certain exceptions and limitations to intellectual property rights, ensuring adequate access to information without undermining legal protection. 89 These exceptions are different from country to country. In most continental countries, exceptions to intellectual property rights are provided by law with a closed list of covered situations. On the contrary, in the United States copyright system, the most important exception to the right-holder’s rights is represented by the fair use exception that can be granted by the courts on a case by case basis. 90 The current system of per85

86

87

88

89

90

See Susan K. Sell & Christopher May, Moments in Law: Contestation and Settlement in the History of Intellectual Property, 8 Rev. Int'l Pol. Econ. 467, (2001). See Susan K. Sell, TRIPs and the Access to Medicines Campaign, 20 Wis. Int'l L.J. 481, 490 (2002). See William M. Landes & Richard A. Posner, An Economic Analysis of Copyright Law, 18 J. Legal Stud. 325 (1989) [hereinafter “Landes & Posner, Economic Analysis”]. See Jan van Dijk, The Network Society: Social Aspects of New Media 133 (Leontine Spoorenberg trans., 1999) (1991). For a list of the leading works against the property-for-copyright movement, see Wendy J. Gordon, An Inquiry into the Merits of Copyright: The Challenges of Consistency, Consent, and Encouragement Theory, 41 Stan. L. Rev. 1343 (1989) (citing Stephen Breyer, Copyright: A Rejoinder, 20 UCLA L. Rev. 75 (1972)); Stephen Breyer, The Uneasy Case of Copyright: A Study of Copyright in Books, Photocopies, and Computer Programs, 84 Harv. L. Rev. 281 (1970); William W. Fisher III, Reconstructing the Fair Use Doctrine, 101 Harv. L. Rev. 1659 (1988); Tom G. Palmer, Intellectual Property: A Non-Posnerian Law and Economics Approach, 12 Hamline L. Rev. 261 (1989); Timothy P. Terrell & Jane S. Smith, Publicity, Liberty, and Intellectual Property: A Conceptual and Economic Analysis of the Inheritability Issue, 34 Emory L.J. 1 (1985). See Robert Burrell and Allison Coleman, Copyright exceptions: The digital impact 4 (2005). The fair use exception in the United States copyright system is the most important exception to the right-holder’s rights, and it often plays an intricate role in the relation between freedom of expression and copyright. On the relations between copyright and freedom of expression, see Floyd Abrams, First Amendment and Copyright, 35 J. Copyright Soc’y U.S.A. 1 (1987); Robert C. Denicola, Copyright and Free Speech: Constitutional Limitations on the Protection


27

mitted acts has its origins in those spaces that were left unregulated after copyright was extended beyond its role as a system for the regulation of the book trade.91 For this reason, with the introduction of these exceptions, unrestricted enjoyment of legitimately purchased works became minimized with the consequent impairment of the original copyright balance. Common literature on intellectual property rights supports the thesis that they operate as an incentive to create and to make known new inventions or ideas.92 On the other hand, even if this theory could be applicable in a wide range of cases, it is essentially unsuccessful if we look to a range of effects arising from new legal institutions and the current technological

91 92

of Expression, 67 Cal. L. Rev. 283 (1979); Paul Goldstein, Copyright and the First Amendment, 70 Colum. L. Rev. 983, 1011-15 (1970); Lionel Sobel, Copyright and the First Amendment: A Gathering Storm?, 19 Copyright L. Symp. (ASCAP) 43 (1971), quoted in Harper & Row, Publishers v. Nation Enters., 471 U.S. 539, 559 (1985). For a European perspective, see P. Bernt Hugenholtz, Copyright and Freedom of Expression in Europe, in Expanding the Boundaries of Intellectual Propery, supra note 37, at 343. The fair use exception is codified at 17 U.S.C. § 107 (2000). In Europe, where copyright’s features always appeared to be closer to those of a reward rather then a bargain, the 1886 Berne Convention represents a sort of cornerstone of the modern intellectual property order. By making copyright automatic and recognizing the existence of moral rights, it opened up the path for granting rightholders a far better service then that given to their own public. Within the common law tradition, which was in those times still reluctant to criticize the “public sphere,” the most outstanding example of this new trend was offered by Mark Twain, who revealed himself as one of the fiercest supporters of the strongest copyright protection possible. Stirred by the extensive piracy his works suffered overseas, and regardless of the interests of the other parties, Twain fought tenaciously for the recognition of perpetual protection, becoming one of the most eager advocates of “property talk.” See Paul Marret, Information Law in Practice, 146-50 (2d ed. 2002); Vaidhyanathan, supra note 70, at 57 & 71. See Burrell and Coleman, supra note 89, at 10. See, e.g., Kenneth J. Arrow, Economic Welfare and the Allocation of Resources for Invention, in The Rate and Direction of Inventive Activity: Economic and Social Factors 609 (Richard R. Nelson ed., 1962); Gillian K. Hadfield, The Economics of Copyright: An Historical Perspective, 38 Copyright L. Symp. (ASCAP) 1 (1992); Landes & Posner, Economic Analysis, supra note 87. For a comparative description of different approaches, see William Fisher, Theories of Intellectual Property, in New Essays in the Legal and Political Theory of Property 168 (Stephen R. Munzer ed., 2001).

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framework.93 A result of this new condition is the dynamic effect that intellectual property rights have had on the market structure of the fields involved. They have significantly modified or conflicted with the original competitive process.94 In other words, they have shaped the characteristics of the market. So, if the logic underlying those rights is to remunerate a profitable idea or an invention with market power, thereby providing a sort of monopoly, we can also conclude that some intellectual rights, such as copyright, are unable to resolve the trade-off between private incentive and social welfare. On the contrary, they often amplify the inefficiency in economic systems.95 Furthermore, the economically efficient level of copyright protection is not easy to define, especially in the digital intellectual property debate, because some intellectual property rights, again such as copyright, relate to very different creative works that include variable degrees of creative and artistic expression.96 Consequently, a single property regime may not create efficiency in markets for all of the different products.97 In the last years, in fact, we have seen a shift from the idea of a bargain between the public and the author towards the standard economic model of a right granted in the measure required to stimulate production,98 and, recently, the new approach is towards extensive instruments to control access99 and use.100 This transformation has been driven by the influence ex93

94 95

96

97 98

99

100

See Giovanni B. Ramello, Intellectual Property and the Markets of Ideas, in The Elgar Companion to Law and Economics, (Jürgen G. Backhaus ed., 2005), available at http://ssrn.com/abstract=597482. See id. See Giovanni B. Ramello, Il diritto d’autore tra creatività e mercato, 1 Economia Pubblica, 37-66 (2001). See Congressional Budget Office, U.S. Congress, Copyright Issues in Digital Media viii (Aug. 2004), http://www.cbo.gov/showdoc.cfm?index=5738&seque nce=0. See id. See Paul Goldstein, Derivative Rights and Derivative Works in Copyright, 30 J. Copyright Soc’y U.S.A. 209, 210 (1983); Wendy J. Gordon, Fair Use as Market Failure: A Structural and Economic Analysis of the Betamax Case and its Predecessors, 82 Colum. L. Rev. 1600 (1982); Landes & Posner, Economic Analysis, supra note 87, at 335. See generally Niva Elkin-Koren, It's All About Control: Rethinking Copyright in the New Information Landscape, in The Commodification of Information 79 (Niva Elkin-Koren & Neil Weinstock Netanel eds., 2002); Litman, supra note 72, at 80. See William M. Landes & Richard A. Posner, Indefinitely Renewable Copyright, 70 U. Chi. L. Rev. 471, 475 (2003) (speculating that an infinite term of copyright, alternated by renewals, could be efficient); see also William M.


29

erted by the printing and publishing industry, which in the pre-computer society had the necessary resources to enable large-scale reproduction and distribution of works.101 It consequently played a key role in the whole process of spreading culture102 and it has been one the first sectors to recognize the importance of digital media.103 The industry secured its monopolistic aspirations behind the pretext of ensuring their clients received adequate compensation for their efforts and the service done for their community.104 It took advantage of its role within society and its economic supremacy, and lobbied for the adoption of regulations granting further control over works and allowing the creation of an entry barrier for unwanted competitors.105 Unfortunately, the digital revolution and the dematerialization of works as result of digitization have demonstrated that the information product and its method of delivery are separable.106 At the same time, they have

101 102

103

104

105

106

Landes & Richard A. Posner, The Economic Structure of intellectual Property Law 210-49 (2003). See Eisenstein, supra note 64, at 17. See 1 John Tebbel, A History of Book Publishing in the United States, 245, 220-221 (1972); cf. Edward C. Walterscheid, To Promote the Progress of Science and Useful Arts: The Anatomy of a Congressional Power, 43 IDEA 1 (2003). See Alan Williams et al., supra Intro., note 1, at 5 (pointing out that publishers have recognised that their role could potentially be disintermediated in on-line media like the Internet). See Francesca Calovi, Post-Napster: Protecting Content Owners Rights in the Peer-to-Peer Environment (2003) (unpublished LLM dissertation, University of Leeds) (on file with author). In 1995, the Clinton Administration's Information Infrastructure Task Force released a white paper on Intellectual Property and the National Information Infrastructure, where it expressly stated that further protection of right-holders’ interests was necessary to guarantee the development of the National Information Infrastructure and that, lacking appropriate control over their works, authors would have stopped producing and making them available to the public. Info. Infrastructure Task Force, Intellectual Property and the National Information Infrastructure: The Report of the Working Group on Intellectual Property Rights 10 (1995) available at http://www.cerebalaw.com/ipnii.txt. For a comment on the paper, see Pamela Samuelson, The Copyright Grab, Wired, Jan. 1996, at 134, 135 (criticizing the white paper for misrepresenting judicial copyright precedent and extending copyright protection beyond traditional commercial applications). See, e.g., Stan Davis & Christopher Meyer, Blur: The Speed of Change in the Connected Economy 22 (1998). See also Raymond T. Nimmer, Breaking Bar-

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brought about a Copernican revolution in the traditional copyright system, demonstrating its unsuitability to control recent technological developments.107

1.3 From mass market licenses to access contract The following question is about the fair means to protect digital intellectual property. As already seen, the revolution in information technology and digitalization of content have produced many new possibilities and challenges.108 First of all, they have determined the independence of content from the medium. As argued above, data travels digitally and there is no more need to aggregate them to a physical carrier.109 Digital distribution systems do not involve anymore tangible copies. At the same time, access contracts are became the ordinary mode of distribution of contents110. This has caused a substantial transformation in the way people can use and consume information and in the way it is delivered.111 In fact, without the mediation of the material support, the restrictions posed by technological environment could have the effect to substantialize the offered product; and because these restrictions are governed by contractual agreements the result is an equation where ”the contract is the product” or it is merged into the product 112

107

108

109 110 111 112

riers: The Relation Between Contract And Intellectual Property Law, 13 Berkeley Tech. L.J. 827, 841-42 (1998). See P. Bernt Hugenholtz, Commentary: Copyright, Contract, and Code: What Will Remain of the Public Domain?, 26 Brook. J. Int'l L. 77, 78 (2000) (highlighting the concern that the traditional copyright system could not guarantee appropriate protection in the digital framework). On the power of technology, see generally Lawrence Lessig, Code and Other Laws of Cyberspace (1999); Joel R. Reidenberg, Lex informatica: The Formulation of Information Policy Rules Through Technology, 76 Tex. L. Rev. 553 (1998). See Digital Dilemma, supra Intro., note 3, at 32. See Nimmer, supra note 106, at 884. See Digital Dilemma, supra Intro., note 3, at 39. See Alessandro Palmieri & Roberto Pardolesi, Gli Access Contracts: Una Nuova Categoria per il Diritto dell'Età Digitale, 7(2) Riv. Dir. Priv., 265, 270 (2002). According to the authors’ opinion: “Venuta meno la mediazione del supporto materiale le restrizioni di indole tecnologica – che si accompagnano, a seconda di come è disegnato il rapporto, all'entrata nel sistema automatizzato, alle attività eseguibili al suo interno, all'estrazione del materiale ivi dislocato e ai suoi eventuali impieghi in determinati


31

Secondly, the Internet allows information to be widely disseminated and readily accessed at incredible speed with extremely low expense, and to directly connect the source and the end user without intermediation.113 The flexibility of digital media allows people to easily copy, modify, and shift them in time and space.114 The newly acquired independence from the carriers secured by digitalization allows users to manipulate the information with the consequence that the “originality” of a work is threatened to be lost. There is no longer certainty as to what of the primitive product remains. Digital technologies have transformed the copyright environment and have given rise to a potentially huge market for content.115 The advent of broadband networks, and their capacity to transmit large quantities of multimedia content at high speeds, emphasizes the importance of ensuring that digital content is available under the appropriate conditions to meet the interests of all stakeholders.116 Related to this, technologies are available to establish the correct incentives for this development. Incentives include a secure environment for ensuring remuneration of right-holders in the context of private copying, payment for on-line content, and prevention of illegal copying.117

113 114

115

116 117

contesti, digitalizzati e non, per il perseguimento di determinati obiettivi – finiscono per “sostanziare” il prodotto offerto; e, posto che restrizioni di tal fatta si prestano ad essere governate dalle clausole contrattuali, non è azzardato sostenere che, mai come nel campo dell'accesso, acquista pregnanza l'assimilazione veicolata dalla locuzione “the contract is the product””. Id. At 270.; see also Margaret J. Radin, Online Standardization and the Integration of Text and Machine, 70 Fordham L. Rev. 1125, 1139 (2002). (arguing that in the "contract as product" view, the contract is part of the product, part of the collection of functional components, and not a separate text about that collection). See Castells, supra note 1; Chircu & Kauffman, supra note 25. Digital media are instruments for the development of innovative perspectives on both media and culture. They can contribute to our understanding of social and cultural change. For a detailed analysis of digital media and their social implications, see Digital Media Revisited: Theoretical and Conceptual Innovation in Digital Domains (Gunnar Liestøl et al. eds., 2003). Recording Industry Ass'n of America v. Diamond Multimedia Systems, Inc., 180 F.3d 1072 (9th Cir. 1999) (which gave recognition to the practice of “space-shifting” of music for personal use). See Commission of the European Communities, eEurope 2005 Action Plan: An Update (2004), http://europa.eu.int/information_society/eeurope/2005/doc/ all_about/com_eeurope_en.doc. See id. See Stefan Bechtold, The Present and Future of Digital Rights Management: Musings on Emerging Legal Problems, in Digital Rights Management: Tech-

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As a result, many of the intellectual property rules and practices developed in the physical world are not suitable for the digital environment, and the issues connected with digitization of content are improved by the pervasiveness of the new information infrastructure.118 Both the authors’ and industry’s prerogatives are in a difficult situation regarding copyright law. Until the advent of digitalization, it had been possible to ensure control over copying and distribution of tangible goods, which were by their nature susceptible to being counted and singularly identified. The function of copyright was upset by the same structure of the new technological framework which confused the distinction between access and copying, strictly conditioning the former to the latter.119 The whole process now is indeed substantially different from that occurring with physical goods. Attempts to exercise the same level of copying control exercised on the physical world necessarily imply maintenance of total control over access, with possible negative repercussions on the free flow of information and the users’ rights.120 The law governing on-line contracting is moving from copyright to access right121. Model acts have been proposed to simplify that rule and to conform it to current commercial practices.122 In the digital transactions, “access contracts” and “mass-market licenses” are the most common forms of commercial practice123. The mass-market license is an electronic form

118 119

120 121

122

123

nological, Economic, Legal and Political Aspects 597 (Eberhard Becker et al. eds., 2003) (illustrating both problems and positive features of DRM). See Digital Dilemma, supra Intro., note 3, at ix. See Neil Weinstock Netanel, Locating Copyright Within the First Amendment Skein, 54 Stan. L. Rev. 1, 24 (2001); Samuelson, supra note 28. See Vaidhyanathan, supra note 70, at 152. See de Werra, supra note 6, at 112; Thomas Heide, Copyright in the EU and U.S.: What “Access-Right”, 48 J. Copyright Soc'y U.S.A. 363 (2001) ; Jane Ginsburg, From Having Copies to Experiencing Works: The Development of an Access Right in U.S. Copyright Law, 50 J. Copyright Soc'y U.S.A. 113 (2003). Rob Hassett, Online contracting, available at http://www.internetlegal.com/arti cles/online.htm. The mass-market license and access contracts are a creation of the Uniform Computer Information Transaction Act (UCITA). The controversial and now largely defunct Uniform Computer Information Transactions Act (UCITA), was drafted by the National Conference of Commissioners on Uniform State Laws (NCCUSL) as a “uniform” act to govern the sales/licenses of software and online services. It was a “contract law statute” applicable to “computer information transactions” including “commercial agreements to create, modify, transfer, or distribute: computer software, multimedia interactive products computer data and databases and Internet and online information.”. It should


33

contract, that is the standard, non-negotiable, license used by software and have been applied “to many of the most significant transactions in the information age that are for the most part intangibles.” It was originally drafted as the proposed Draft Article 2B to the Uniform Commercial Code. Its intentions were to govern these contracts with special rules relating to rights of access in Section 209 and 611. Therefore, UCITA would have had the potential to create a clear and uniform set of rules to govern such areas as software licensing, online access, and other transactions in computer information. It was intended to bring the same uniformity and certainty to the rules that apply to information technology transactions that the Uniform Commercial Code does for the sale of goods. In particular, UCITA attempted to clarify and codify rules regarding fair use, reverse engineering, consumer protection and warranties, shrink-wrap licenses, and their duration as well as the transferability of licenses. Up to now, UCITA has been adopted only in Maryland and Virginia and it has not been broadly accepted not only by states, but also by academics. However, it is used as a source of analysis and as a source of terminology (see Raymond T. Nimmer, UCITA and the Continuing Evolution of Digital Licensing Law, Computer & Internet Law., Feb. 2004, at 10, 10-11). See National Conference of Commissioners on Uniform State Laws Legislative FactSheet, at http://www.nccusl.org/nccusl/uniformact_factsheets/uniformacts-fs-ucita.as p. (last visited June 5, 2006); see also Raymond T. Nimmer, Contract Law in Electronic Commerce, 587 Prac. L. Inst. 1127, 1133-35 (2000); see also Uniform Computer Information Transactions Act, Wikipedia: The Free Encyclopedia, at http://en.wikipedia.org/wiki/UCITA (last modified Dec. 27, 2005). For information and discussion of the criticisms of UCITA, see e.g. Michael L. Rustad, Making UCITA More Consumer-Friendly, 18 J. Marshall J. Computer & Info. L. 547 (1999); David A.P. Neboyskey, A Leap Forward: Why States Should Ratify the Uniform Computer Information Transactions Act, 52 Fed. Comm. L.J. 793 (2000); Raymond T. Nimmer, UCITA: A Commercial Contract Code, 17 Computer Law. 3 (2000); Patrik A. Shah, The Uniform Computer Information Transactions Act, 15 Berkeley Tech. L.J. 85 (2000); Jean Braucher, The Failed Promise of the UCITA Mass-Market Concept and Its Lessons for Policing of Standard Form Contracts, 7 J. Small & Emerging Bus. L. 393(2003); Roger C. Bern, “Terms Later” Contracting: Bad Economics, Bad Morals, and a Bad Idea for a Uniform Law, Judge Easterbrook Notwithstanding, 12 J.L. & Pol'y 641, 773 (2004) (tracing some of the history of that uniform law); Rochelle Cooper Dreyfuss, UCITA in the International Marketplace: Are We About To Export Bad Innovation Policy?, 26 Brook. J. Int'l L. 49 (2000). See also generally Symposium, Intellectual Property and Contract Law in the Information Age: The Impact of Article 2B of the Uniform Commercial Code on the Future of Transactions in Information and Electronic Commerce, 13 Berkeley Tech. L.J. 809 (1998); Symposium, Intellectual Property and Contract Law for the Information Age: The Impact of Article 2B of the Uniform Commercial Code on the Future of Information and Commerce, 87 Cal. L. Rev. 1 (1999).

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information provider in a “mass-market transaction”.124 It is used by companies instead of trying to negotiate a separate contract for each buyer, or licensee. On the other hand, an “access contract” is a contract to enter the information system of another to obtain information, or use that information system for specific purposes.125 The peculiarity of access contracts is that they do not depend on intellectual property rights: in fact owner of a computer system has a fundamental right, generally recognized in criminal and property law, to exclude others from access to its system.126 Furthermore, the fact that access to information is subject to an access contract does not itself create any informational rights; rather, the established rights to impose conditions on access to information make access contracts enforceable.127 The common application of access contracts imply that any rights or authorizations beyond those included in copyright law are covered by contract or license where right-holders can expand copy and distribution rights through the mechanism of contracts and licenses regardless of the state of copyright law.128 In this new phase of economics for digital networks, the basic code is no longer ownership of property bought and sold in markets, but rather access to services leased within networks of providers and users.129 In the digital

124

125

126

127 128

129

Section 102(a)(43) of UCITA defines a mass-market license as “a standard form used in a mass-market transaction.” Under Section 102(a)(44), a massmarket transaction is “a consumer contract” or any other transaction with an end-user licensee if: the transaction is…directed to the general public as a whole, including consumers, under substantially the same terms…; the licensee acquires the…rights in a retail transaction under terms and in a quantity consistent with an ordinary transaction in a retail market; and the transaction is not: (I) a contract for redistribution or for public performance or public display of a copyrighted work; (II) a transaction in which the information is customized or otherwise specially prepared…; (III) a site license; or (IV) an access contract. A “contract to obtain by electronic means access to, or information from, an information processing system of another person, or the equivalent of such access.” See UCITA 102(a)(1). Jessica Litman, The Tales that Article 2B Tells, 13 Berkeley Tech. L.J. 931, 937 (1998) (citing U.C.C. § 2b-102, Reporter’s Note 1. (Aug. 1, 1998 Draft) ). Id. See Karen Coyle, Rights Expression Languages: A Report for the Library of Congress 12 (Feb. 2004), available at http://www.loc.gov/standards/Coylerepo rt_final1single.pdf. Digital distribution systems do not involve tangible copies, and access contracts or mass market licenses are increasingly common methods of distribu-


35

environment, the exclusive right secured to authors is incorporating new feature called access right.130A large number of modern services are delivered through electronic networks, and this new phenomenon is not restricted to on-line digital content. As pointed out by Jeremy Rifkin, president of the Foundation on Economic Trends, tangible things – cars, computers, office buildings, and catalogues – are also “dematerializing” into services.131 Ownership of such things is becoming a liability, something to outsource. In the new environment, markets are making way for networks, and ownership is steadily being replaced by access. Rifkin explains that we are living in an age where new digital media constitute a cultural and economic phenomenon, and where industries and consumers “are beginning to abandon the central reality of modern economic life – the market exchange of property between sellers and buyers.”132 On the contrary, he asserts, Suppliers hold on to property in the new economy and lease, rent, or charge an admission fee, subscription, or membership dues for its short-term use. The exchange of property between sellers and buyers – the most important feature of the modern market system – gives way to short-term access between servers and clients operating in a network relationship.133

Rifkin then describes the change of theory that the digital systems establish in the process of protection of the intellectual property rights. In this digital framework, in fact, the barrier is not constituted by possession of the physical medium that encloses the work, but instead by access to the content. In the new network economy “both physical and intellectual property are more likely to be accessed by businesses rather than exchanged.”134 In the digital environment, providers able to collect important intellectual

130

131

132 133 134

tion. For a comparative study of this latter aspect within the Italian scene, see Palmieri & Pardolesi, supra note 112, at 265. See Ginsburg, supra note 121, at 113. Accordingly to the author’s opinion, “access right is an integral part of copyright, and therefore should be subject to exceptions and limitations analogous to those that constrain copy-right”. Jeremy Rifkin, The Age of Access: The New Culture of Hypercapitalism, Where All of Life is a Paid-for Experience 74 (2000); see also Digital Dilemma, supra Intro., note 3, at 6-7. The Foundation on Economic Trends is a non-profit organization whose mission is to examine emerging trends in science and technology and their impacts on the environment, the economy, culture and society. See The Foundation on Economic Trends, http://www.fo et.org (last visited June 1, 2006). Rifkin, supra note 131, at 4. Id. at 4-5. Id. at 5.

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capital will be also able to wield power and “control over the conditions and terms by which users secure access to critical ideas, knowledge, and expertise.”135 The economic growth and development of the information society seems to imply an increased privatization of information and a consequential enclosure of the public domain. And, this privatizationpropertization trend is transforming the Internet and other data networks in media for content distribution to passive consumers.136 On the academic front, several scholars have observed the adverse effects caused by the assumption that information is property in the traditional sense.137 This issue is a new and troublesome trend likely to have strong implications, in particular, on users’ rights, with special regard to fair use.138 Fair use is a defense recognized for certain acts that would otherwise amount to copyright infringement.139 The defense was introduced in the United States 135 136

137

138

139

Id. Matt Jackson, Using Technology to Circumvent the Law: The DMCA's Push to Privatize Copyright, 23 Hastings Comm. & Ent. L.J. 607, 608 (2001). See Pamela Samuelson, Information as Property: Do Ruckelshaus and Carpenter Signal a Changing Direction in Intellectual Property Law?, 38 Cath. U. L. Rev. 365, 396-97 (1989); Rochelle Cooper Dreyfuss, We Are Symbols and Inhabit Symbols, So Should We Be Paying Rent? Deconstructing the Lanham Act and Rights of Publicity, 20 Colum.-Vla. J.L. & Arts 123, 140 (1996); I. Trotter Hardy, Property (and Copyright) in Cyberspace, 1996 U. Chi. Legal F. 217 (1996); Mark A. Lemley, Romantic Authorship and the Rhetoric of Property (reviewing James Boyle’s Shamans, Software, and Spleens: Law and the Construction of the Information Society), 75 Texas L. Rev. 873, 895-903 (1997). (discussing how propertization of information gives creators of intellectual property rights more akin to traditional property and minimizes the public domain as an important actor in ensuring that intellectual property delivers the maximum aggregate benefit to society.); Dan Hunter, Cyberspace as a Place and the Tragedy of the Digital Anticommons, 91 Cal. L. Rev. 439 (2003) (noting the effects of analogizing the internet to real property); Mark A. Lemley, Place and Cyberspace, 91 Cal. L. Rev. 521 (2003); Richard A. Epstein, Liberty Versus Property? Cracks in the Foundations of Copyright Law, 42 San Diego L. Rev. 1 (2005). The fair use doctrine is codified at 17 U.S.C. § 107. It is “the precipitate of a series of decisions, beginning in the mid-nineteenth century, in which federal courts held that conduct seemingly proscribed by the copyright statute in force at the time did not give rise to liability.” William Fisher III, Reconstructing the Fair Use Doctrine, 101 Harv. L. Rev. 1661, 1663-64 (1988). Fair use is not an affirmative right but a sort of defense. It is essentially a safety valve operating in the absence of licensing that can be structured in different ways but that is recognized by all modern copyright systems. See Campbell v. Acuff-Rose Music, Inc., 510 U.S. 569, 590 (1994); 3 Melville B.


37

copyright law to allows consumers the right to make “fair uses” of copyrighted works. More precisely, fair use is a statutory immunity from liability for copyright infringement for certain acts used to balance the interests of opposing parties and to allow the limited use of intellectual works without having to first ask for permission.140 Therefore, the Doctrine of “fair use” under the U.S. copyright law permits, in limited situations, the use of portions of a copyrighted work without the permission of the copyright owner. In this sense, fair use is a defense that may limit any of the copyright owner’s exclusive rights, including the reproduction right implicated in temporary copies. In order to assess whether a particular use of the works at issue is a fair use, section 107 of the U.S. Code requires the consideration and balancing of four mandatory, but non exclusive, factors on a case-by-case basis: the purpose and character of the use; the nature of the copyrighted work; the amount and substantiality of the portion of the work used in relation to the copyrighted work as a whole; and the effect of the use in question upon the potential market for or value of the copyrighted work.141 In the digital environment we are observing an erosion of fair use and other intellectual property law exceptions originated from the fundamental purpose of copyright law. This erosion is caused by the development of new licensing regimes enabled by the digital environment that reduce transaction costs, thereby reducing market failures and some of the rationale for fair use.142 However, even though the development of the information infrastructure changes the processes by which fair use and other ex-

140

141 142

Nimmer & David Nimmer, Nimmer on Copyright 13-155 to 13-156 (2003). While common law countries generally recognize a general defense, civil law countries generally provide a strict list of exceptions, even though at present there are no pure systems that adhere strictly to any of the above models. See Lucie M.C.R. Guibault, Copyright Limitations and Contracts: an Analysis of the Contractual Overridability of Limitations on Copyright 19 (2002). In the U.S. system there is a strong relation between fair use and free speech. On the argument, see Netanel, supra note 119; L. Ray Patterson, Free Speech, Copyright, and Fair Use, 40 Vand. L. Rev. 1 (1987); Harry N. Rosenfield, The Constitutional Dimensions of “Fair Use” in Copyright Law, 50 Notre Dame L. Rev. 790 (1975). For a European perspective, see Hugenholtz, supra note 90. For interpretation and criticism of the fair use doctrine, see Fisher, supra note 88 and Rosenfield, supra note 139. For an overview of the relationship between DRM and fair use, see Dan L. Burk & Julie E. Cohen, Fair Use Infrastructure for Rights Management Systems, 15 Harv. J. L. & Tec. 41, 48 (2001). See U.S. Copyright Office, DMCA Section 104 Report, at xxxiv-v (2001). See Digital Dilemma, supra Intro., note 3, at 213-215.

38

CHAPTER 1

ceptions are achieved, it does not challenge the underlying public policy.143 On the contrary, fair use and other exceptions should continue to have an important role in the digital environment and policy makers have to consider these essential factors before implementing technology into the globalized legal system.144 What we are saying is that the economic power is changing. It is shifting from “a propertied regime based on the idea of broadly distributed ownership to an access regime based on securing short-term limited use of assets controlled by networks of suppliers.”145 At the same time, the legal order will be obliged to shift from ownership to the access model.146 In the meantime, content providers are confronting these new problems using and integrating models of technological protection measures147 that ensure very high levels of digital media protection, creating a secure, digital environment for the production, management, and distribution of digital content, but with an impairment of a series of rights traditionally recognized for the consumer.148 As argued by Jane Ginsburg, “as we move to an access-based world of distribution of copyrighted works, a copyright system that neglected access controls would make copyright illusory, and in the long run it would disserve consumers.”149In other words, we have to accept that a modern and pragmatic intellectual property regime needs to regulate access. The real problem is how to enforce such restrictions and 143 144

145 146 147

148

149

Id. Id. In particular, legal, economic and public policy research “should be undertaken to help determine the extent to which fair use and other exceptions and limitations to copyright should apply in the digital environment”. Furthermore the committee recommends that policy-makers take considerable caution when contemplating changes to law or policy. See id. at 215. Rifkin, supra note 131, at 6. See id. at 6-7. The term was defined as “any process, treatment, mechanism or system that prevents or inhibits any of the acts covered by the rights under this Treaty.” World Intellectual Property Organization, Basic Proposal for the Substantive Provisions of the Treaty on Certain Questions Concerning the Protection of Literary and Artistic Works to be Considered by the Diplomatic Conference, at Art. 13(3), (1996), http://www.wipo.int/documents/en/diplconf/pdf/4dc_e.pdf. See Burk & Cohen, supra note 140, at 48; Fred von Lohmann, Fair Use and Digital Rights Management: Preliminary Thoughts on the (Irreconcilable?) Tension Between Them 3 (2002), http://www.eff.org/IP/DRM/cfp_fair_use_an d_drm.pdf. See also Dan L. Burk, Anticircumvention Misuse, 50 UCLA L. Rev. 1095, 1097 (2002) (arguing “that the new anti-circumvention right created by the statute constitutes a type of exclusive right quite separate from…the legal protection provided by copyright.”). See Ginsburg, supra note 121, at 123.


39

how to ensure the preservation of consumer rights. The current impasse is due to the fact that the technological protection measures arena is, at this time, much more like the Wild West. Even though technology is becoming highly developed, the market expansion for these systems is still at an early stage.150 While standards continue to reach greater levels of maturity and adaptation, content companies will most likely continue to use technological protection measures without taking care of the problem of interoperability and users’ expectations.151 Standards, in fact, are important to ensure quality and compatibility of platforms and formats that must be standardized to allow full interoperability.152 At the same time, this solution seems too simple a practice in which technology tries to replace the law.153 So, the present challenge is to achieve and maintain the balance, “offering enough control to motivate authors, inventors and publishers, but not so much control as to threaten important public policy goals.”154

150

151 152 153

154

Comm’n of the European Communities, European Union High Level Group on Digital Rights Mgmts: Final Report 6 (2004), http://europa.eu.int/in formation_society/eeurope/2005/all_about/digital_rights_man/doc/040709_hlg_drm _2nd_meeting_final_report.pdf [hereinafter EU Group on Digital Rights Mgmts., Final Report]. See generally Digital Rights Management, supra note 117. See Bechtold, supra note 117, at 609, 630. See Williams et al., supra Intro., note 1, at 11. On this opinion, see Lessig, supra note 108; Reidenberg, supra note 108; Andrew L. Shapiro, The Control Revolution: How the Internet is Putting Individuals in Charge and Changing the World We Know (1999). Digital Dilemma, supra Intro., note 3, at 2.

CHAPTER 2 Intellectual Property in the Digital Age: Regulation through Law

Despite the reported perplexities around the suitability of the current rules, which are still based on principles consolidated in a different technological context, rights holders and content providers are not prepared to revise, in the virtual world, the order that, in the real world, has been shaped for a long time.1 When it comes to intellectual property rights, legal remedies and technological protection measures are promptly invoked and prepared at record speed. The first have been introduced to deal especially with the new problems connected with the virtual world and the digitization of contents. The technological protection measures are able to operate autonomously. Nevertheless, they are often avoidable using circumvention techniques (or brute force). For these reasons, the new intellectual property rules have included extraordinary legal protection especially for technological protection measures, resulting in a kind of reinforced double protection, one for the copyrighted content and one for the technological measure that protects it.2 Technological protection measures, in fact, require appropriate legislative and legal support to ensure that these measures are respected, and to prevent their circumvention by parties that might otherwise violate the 1

2

See John Perry Barlow, Intellectual Property, Information Age, in Copy Fights: The Future of Intellectual Property in the Information Age 37, 39 (Adam Thierer & Wayne Crews eds., 2002) (remembering Jack Valenti’s attitude). Some commentators describe this situation as a sort of “paracopyright.” See H.R. Rep. No. 105-551, pt. 2, at 24-25 (1998); Netanel, supra note 119, at 24; David Nimmer, A Riff on Fair Use in the Digital Millennium Copyright Act, 148 U. Pa. L. Rev. 673, 686 (2000); Melville B. Nimmer & David Nimmer, 3 Nimmer on Copyright 12A.18[B] n.15 (2003); See also Severine Dusollier, Some Reflections on Copyright Management Information and Moral Rights, 25 Colum. J.L. & Arts 377, 382 (2001-2002).

42

CHAPTER 2

rights of content owners.3 The consequence is a complete and structured new legal tool able to prevent, check, and repress harmful actions against intellectual property rights. The most important decision in that direction has been made with the WIPO treaties,4 followed by national legislative initiatives.5 The official aim of these two treaties was to fix adequate legal protections and effective legal remedies against the circumvention of effective technological measures, especially after the advent of digital networks.6 In 1996, the World Intellectual Property Organization (WIPO) adopted the Copyright Treaty.7 In Article 11 it decreed that contracting parties have to “provide adequate legal protection and effective legal remedies against the circumvention of effective technological measures that are used by au3 4

5

6

7

See Marks & Turnbull, supra ch. 1, note 6, at 200. It is useful to remember that there are at least two other main international treaties that are intended to harmonize copyright law among nations. The first one is the Berne Convention for the Protection of Literary and Artistic Works, adopted in 1886. The other one is the 1994 Agreement on Trade Related Aspects of Intellectual Property Rights (hereinafter TRIPs Agreement). For a positive comment on the WIPO treaties as “a measured and balanced response to the digital age,” see Thomas C. Vinje, The new WIPO Copyright Treaty: a happy result in Geneva, 5 Eur. Intell. Prop. Rev. 230, 230 (1997). For other commentators the treaties represented another step in the Americanization of world copyright law. For general discussion on the point, see Pamela Samuelson, Challenges for the World Intellectual Property Organization and the Trade-related Aspects of Intellectual Property Rights Council in Regulating Intellectual Property Rights in the Information Age, 21 Eur. Intell. Prop. Rev. 578 (1999); David Vaver, Internationalizing Copyright Law: Implementing the WIPO Treaties, OIPRC Elec. J. Intell. Prop. Rights (1998), http://www.oiprc. ox.ac.uk/EJWP0199.html. For a general comment, see also Howard P. Goldberg, Note, A Proposal for an International Licensing Body to Combat File Sharing and Digital Copyright Infringement, 8 B.U. J. Sci. & Tech. L. 272 (2002), and Silke von Lewinski, WIPO Diplomatic Conference Results in Two New Treaties, 28 Int'l Rev. of Indus. Prop. & Copyright L. 203 (1997). For the compliance of U.S. law with the WIPO treaties, see Pamela Samuelson, The U.S. Digital Agenda at WIPO, 37 Va. J. Int'l L. 369 (1997). For an article-by-article analysis of the two treaties see Mihaly Ficsor, The Law of Copyright and the Internet (2002). On the origins of globalization on intellectual property rights through the WTO agreement on Trade-Related Aspects of Intellectual Property Rights, see generally Duncan Metthews, Globalising Intellectual Property Rights: The TRIPs Agreement (2002). World Intellectual Property Organization: Copyright Treaty, Dec. 20, 1996, 36 I.L.M. 65 (1997) [hereinafter WIPO Copyright Treaty]. The list of signatories of the WIPO Copyright Treaty is available at http://www.wipo.int/edocs/notdo cs/en/wct/treaty_wct_2.html (last visited May 29, 2006).

Intellectual Property in the Digital Age: Regulation through Law

43

thors in connection with the exercise of their rights,” and to “restrict acts, in respect of their performances or phonograms, which are not authorized by the performers or the producers of phonograms concerned or permitted by law.”8 The Article, therefore, provides the adoption of a legal framework to protect technological means of control over use; for example, copy protection encryption against circumvention by third parties. In a quite similar way, Article 18 of the WIPO Performances and Phonograms Treaty declares the same provision.9 To comply with the WIPO treaties, both Europe and the United States enacted very similar anti-circumvention provisions.10 The new treaties provided the fundamental background to the efforts of the United States and European Community to find their solutions to the issues of intellectual property rights in the digital age. In 1998, the United States implemented the Digital Millennium Copyright Act (hereinafter DMCA)11 introducing new anti-circumvention provisions, while, some years later, Europe enacted Directive 2001/29/EC on the Harmonization of Certain Aspects of Copyright and Related Rights in the Information Society (hereinafter EUCD or European Copyright Directive).12

8 9

10

11 12

WIPO Copyright Treaty, supra note 7, art. 11. World Intellectual Property Organization: Performances and Phonograms Treaty, Dec. 20, 1996, 36 I.L.M. 76 (1997) [WIPO Performances and Phonograms Treaty]. The list of signatories of the WIPO Phonograms and Performances Treaty is available at http://www.wipo.int/edocs/notdocs/en/wppt/tre aty_wppt_1.html (last visited May 29, 2006). WIPO Phonograms and Performances Treaty, supra note 9, art. 18, Obligations concerning Technological Measures: Contracting Parties shall provide adequate legal protection and effective legal remedies against the circumvention of effective technological measures that are used by performers or producers of phonograms in connection with the exercise of their rights under this Treaty and that restrict acts, in respect of their performances or phonograms, which are not authorized by the performers or the producers of phonograms concerned or permitted by law. Id. at 86. Many commentators have noticed that the adoption of both acts has been the result of the great content-provider lobbying activity. See, e.g., Rick Boucher, The Future of Intellectual Property in the Information Age, in Copy Fights, supra note 1, at 95, 97; MacQueen, supra Intro., note 33, at 213; Burk & Cohen, supra ch. 1, note 140. 17 U.S.C. § 1201 (2000). Council Directive 2001/29, 2001 O.J. (L 167) 10 (EC).

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CHAPTER 2

2.1 U.S. Legal and Regulatory Framework on Digital Media: The Digital Millennium Copyright Act The most significant digital media legislation in the U.S. is the Digital Millennium Copyright Act.13 This paragraph considers the main provisions of the DMCA as they relate to digital media. The Act was signed into law by President Clinton on October 28, 1998 and its main purpose was to implement the United States’ treaty obligations under the two 1996 World Intellectual Property Organization (WIPO) treaties: the WIPO Copyright Treaty and the WIPO Performances and Phonograms Treaty. It also contains supplementary provisions addressing related matters. The enactment of the DMCA added the Chapter 12 to Title 17 of the U.S. Code.14 The DMCA is divided into five titles:15 -

-

-

-

-

13 14

15

Title I, the “WIPO Copyright and Performances and Phonograms Treaties Implementation Act of 1998,” implements the WIPO treaties. Title II, the “On-line Copyright Infringement Liability Limitation Act,” creates limitations on the liability of on-line service providers for copyright infringement when engaging in certain types of activities. Title III, the “Computer Maintenance Competition Assurance Act,” creates an exemption for making a copy of a computer program by activating a computer for purposes of maintenance or repair. Title IV contains six miscellaneous provisions, relating to the functions of the Copyright Office, distance education, the exceptions in the Copyright Act for libraries and for making ephemeral recordings,“webcasting” of sound recordings on the Internet, and the applicability of collective bargaining agreement obligations in the case of transfers of rights in motion pictures. Title V, the “Vessel Hull Design Protection Act,” creates a new form of protection for the design of vessel hulls.

Pub. L. No. 105-304, 112 Stat. 2860 (Oct. 28, 1998). The DMCA is codified as amended in a new chapter 12 to Title 17 of the U.S.C. §§ 1201-1205 (2000). For this schematization, see U.S. Copyright Office, The Digital Millennium Copyright Act of 1998: U.S. Copyright Office Summary 1 (Dec. 1998), available at http://www.copyright.gov/legislation/dmca.pdf [hereinafter: DMCA Summary].


45

The general approach taken by the DMCA is to make circumvention of technological protection measures illegal except under certain conditions.16 In brief,17 the DMCA (a) makes it a crime to circumvent anti-piracy measures incorporated into most commercial software;18 (b) does permit the cracking of copyright protection devices, however, to conduct encryption research, assess product interoperability, and test computer security systems;19 (c) provides exemptions from anti-circumvention provisions for non-profit libraries, archives, and educational institutions under particular conditions;20 (d) prohibits the manufacture, sale, or distribution of codecracking devices used to illegally copy software;21 (e) protects Internet service providers from copyright infringement liability for simply transmitting information;22 (f) obliges Internet service provider to remove material from users’ web sites that appears to constitute copyright infringement;23 (g) limits the liability of nonprofit institutions of higher education – when they serve as on-line service providers and under certain circumstances – for copyright infringement by faculty members or graduate students;24 (d) requires that “webcasters” pay licensing fees to record companies preventing misappropriation of content and determining royalties to be paid to artists for their works.25 16 17

18 19 20 21 22

23

24 25

See Digital Dilemma, supra Intro., note 3, at 318. For this outline, see the UCLA Online Institute for Cyberspace Law and Policy, The Digital Millennium Copyright Act (2001) available at http://www.gsei s.ucla.edu/iclp/dmca 1.htm. 17 U.S.C. 1201(a)(1)(A). See id. 1201(d)-1201(j). 17 U.S.C. 1201(d). See id. 1201(b)(1)(A). 17 USCS 512. Title II of the DMCA adds a new section 512 to the Copyright Act to create four new limitations on liability for copyright infringement by online service providers. Thus, new section 512(l) of the Copyright Act stipulates that “the failure of a service provider's conduct to qualify for limitation of liability under this section shall not bear adversely upon the consideration of a defense by the service provider that the service provider's conduct is not infringing under this title or any other defense.” See id. 512. “if the person described in paragraph (1)(A) makes that material available online without the authorization of the copyright owner of the material, the service provider responds expeditiously to remove, or disable access to, the material that is claimed to be infringing upon notification of claimed infringement.” Id. (E). See id. 512 (e). Section 405 of the DMCA amends the Digital Performance Right in Sound Recording Act of 1995 (DPRSA), expanding the statutory license for subscription transmissions to include webcasting as a new category of “eligible non-

46

CHAPTER 2

For the purpose of the present discussion, in the following we will confine our attention to Title I of the DMCA and, specifically, to the new section 1201 implementing the obligation of the WIPO treaties concerning technological protection measures and copyright management systems.26 In particular, we will focus on the three new infringement dispositions introduced by the DMCA: the first one is related to circumvention of technological protection measures that control access to copyrighted works;27 the second one is associated to the manufacturing, distribution or offering of products, services or devices, that circumvent access controls;28 the third, and last one, is related to the manufacturing, distribution, or offering of products, services or devices that circumvent a technological measure that “effectively protects a right of the copyright owner.”29 The above mentioned dispositions are included in the Section 103 of the DMCA that, as a result, adds a new chapter 12 to Title 17 of the United States Code.30 The section reads: Sec. 103. Copyright Protection Systems and Copyright Management In-

26

27 28 29 30

subscription transmissions.” For DPSRA's omission of webcasts, see Jane C. Ginsburg, Copyright Legislation for the “Digital Millennium”, 23 Colum.VLA J.L. & Arts 137, 167 (1999). For critical comments on the on the DMCA anti-circumvention provisions, see Julie E. Cohen, Copyright and the Jurisprudence of Self Help, 13 Berkeley Tech. L.J. 1089(1998); Neil Netanel, Recent Developments in Copyright Law, 7 Tex. Intell. Prop. L.J. 331 (1999); Jonathan Band, The Digital Millennium Copyright Act: A Balanced Result, 21 Europ. Intell. Prop. Rev. 92 (1999); Jane C. Ginsburg, Copyright Legislation for the Digital Millennium, 23 Colum.-VLA J.L. & Arts 137 (1999); Ginsburg, supra note 25; June Besek, Anti-Circumvention Laws and Copyright: A Report From the Kernochan Center for Law, Media and the Arts, 27 Colum. J.L. & Arts 385 (2004); Jacques de Werra, The Legal System of Technological Protection Measures under the WIPO Treaties, the Digital Millennium Copyright Act, the European Directives and other National Laws (Japan, Australia), Adjuncts and Alternatives to Copyright, ALAI 2001 Congress 198 (2002). For a summary of facts and case decisions, see also Amy P. Bunk, Validity, Construction and Application of the Digital Millennium Copyright Act, 2001 A.L.R. Fed 2, 2002) (collecting those cases discussing the validity, construction, and application of the Digital Millennium Copyright Act); Jonathan Zittrain, Technological Complements to Copyright 56 (2005). 17 U.S.C. (a)(1). 17 U.S.C. (a)(2). 17 U.S.C. (b). See Digital Millennium Copyright Act, Pub. L. No. 105-304, 112 Stat. 2860 (1998).


47

formation. (A) In general Title 17, United States Code, is amended by adding at the end the following new chapter: Chapter 12 - Copyright Protection and Management Systems…31

The new Chapter 12 of the U.S. Code, starts with section 1201 entitled “Circumvention of Copyright Protection Systems”. As previously announced, Section 1201 identifies three categories of anti-circumvention violations: a basic provision, a ban on trafficking, and additional violations.32 The “basic provision” provides that: “No person shall circumvent a technological measure that effectively controls access to a work protected under this title.”33 A technological measure “effectively controls access to a work” if , in the ordinary course of its operation, it involves “the application of information, or a process or a treatment, with the authority of the copyright owner.”34 In this framework, to “circumvent a technological measures” implies “to descramble a scrambled work, to decrypt an encrypted work, or otherwise to avoid, bypass, remove, deactivate, or impair a technological measures, without the authority of the copyright owner.”35 These provisions refer to the act of circumventing a technological protection measure put in place by a copyright owner to control access to a copyrighted work. In particular the violations regarding circumvention of technological systems are also defined as “the electronic equivalent of breaking into a locked room in order to obtain a copy of a book”.36 The prohibition on trafficking provides as follows: No person shall manufacture, import, offer to the public, provide, or otherwise traffic in any technology, product, service, device, component, or part thereof, that – (A) is primarily designed or produced for the purpose of circumventing a technological measure that effectively controls access to a work protected under this title; (B) has only limited commercially significant purpose or use other than to circumvent a technological measure that effectively controls access to a work protected under this title; or (C) is marketed by that person or another acting in concert with that person with that person's knowledge for use in circumventing a technological 31 32 33 34 35 36

Id. See Nimmer, supra note 2, at 684. 17 U.S.C. 1201(a)(1)(A). 17 U.S.C. 1201 (a)(3)(B). 17U.S.C. 1201 (a)(3)(A). See Melville B. Nimmer & David Nimmer, 3 Nimmer on Copyright 12A.03[D][1] (2003) (quoting H. Rep. (DMCA), p.17).

48

CHAPTER 2 measure that effectively controls access to a work protected under this title.37

Finally, the so called “additional violations” are similarly defined: No person shall manufacture, import, offer to the public, provide, or otherwise traffic in any technology, product, service, device, component, or part thereof, that – (A) is primarily designed or produced for the purpose of circumventing protection afforded by a technological measure that effectively protects a right of a copyright owner under this title in a work or a portion thereof; (B) has only limited commercially significant purpose or use other than to circumvent protection afforded by a technological measure that effectively protects a right of a copyright owner under this title in a work or a portion thereof; or (C) is marketed by that person or another acting in concert with that person with that person's knowledge for use in circumventing protection afforded by a technological measure that effectively protects a right of a copyright owner under this title in a work or a portion thereof.38

The prohibition on trafficking and the “additional violations” represents two different types of anti-trafficking provisions. The first one refers to devices and services that circumvent access controls. The second one refers to devices and services that circumvent rights controls. In this framework, a technological measure “effectively protects a right of a copyright owner” if, in the ordinary course of operation, it “prevents, restrict, or otherwise limits the exercise of a right of a copyright owner” under Title 17 of the U.S. Code.39 Furthermore, the phrase “to circumvent protection afforded by a technological measure” means “avoiding, bypassing, removing, deactivating, or otherwise impairing a technological measure”.40 Thus, section 1201 distinguishes between technological measures that prevent unauthorized access to a copyrighted work and measures that prevent not permitted copying of copyrighted work. This distinction was used to assure that the public will have the continued ability to make fair use of copyrighted works. Since the copying of a work may be a fair use under appropriate circumstances, section 1201 does not prohibit the act of circumventing a technological measure that prevents copying. By contrast, since the fair use doctrine is not a defense to the act of gaining unauthor37 38 39 40

17 U.S.C. 1201(a)(2). 17 U.S.C. 1201(b). 17 U.S.C. 1201(b)(2)(B). 17 U.S.C. 1201(b)(2)(A).


49

ized access to a work, the act of circumventing a technological measure in order to gain access is prohibited.41 The prohibitions contained in the DMCA are subject to several exceptions. Section 1201, in facts, lists circumvention of protection measures in seven criticized cases:42 legitimate law enforcement, national security purposes and governmental activities,43 achieving program-to-program interoperability (reverse engineering exception),44 engaging in justifiable encryption research,45 testing the security of computer systems with its owner’s authorization,46 enabling nonprofit libraries, archives, and educational institutions to make a good faith determination as to whether they wish to get authorized access to the work,47 allowing parents to control their children's use of the Internet,48 and protecting personal privacy.49 It is notable that, since there is no prohibition on rights control circumvention (e.g. copy control), there are no related exceptions. As rightly observed by some commentators, this lack is due to the assumption that “Legislators believed that if copies made as a consequence of circumventing rights controls were excused by copyright exemptions or privileges, there should be no liability for the circumvention. If, on the other hand, such copies were infringing, then the right-holder would have a claim under copyright law”.50 On a periodic basis, at least until October 28, 2006, a regulatory process supervised by the Librarian of Congress have the function to determine whether access to particular classes of works protected by anticircumvention technology should nevertheless be allowed to facilitate fair use and other copyright law limitations.51 Other interesting aspects of Chapter 12 concern Section 1201(c) con41 42

43 44 45 46 47 48 49 50 51

See DMCA Summary, supra note 15, at 4. See Pamela Samuelson and Suzanne Scotchmer, The Law and Economics of Reverse Engineering, 111 Yale L.J. 1575, 1636 (2002). 17 U.S.C. 1201(e). 17 U.S.C. 1201(f). 17 U.S.C. 1201(g). 17 U.S.C. 1201(j). 17 U.S.C. 1201(d). 17 U.S.C. 1201(h). 17 U.S.C. 1201(i). See Besek, supra note 26, at 398. 17 U.S.C. 1201(a)(1)(B)-(E). See Yochai Benkler, Free as the Air to Common Use: First Amendment Constraints on Enclosure of the Public Domain, 74 N.Y.U. L. Rev. 354, 427-29 (1999) (arguing that the DMCA anticircumvention rules are unconstitutional, in part because the Librarian's authority is too constricted).

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taining some saving clauses. Section 1201(c)(1) stipulates that nothing in section 1201 affects rights, remedies, limitations or defenses to copyright infringement, including fair use. Section 1201(c)(2) stipulates that nothing in section 1201 modifies vicarious or contributory copyright infringement. Finally, Section 1201(c)(3) clarify that the prohibition on circumvention devices does not need manufactures of consumer electronics or computing equipment to design their products positively to respond to any particular technological measure. (1) Nothing in this section shall affect rights, remedies, limitations, or defenses to copyright infringement, including fair use, under this title. (2) Nothing in this section shall enlarge or diminish vicarious or contributory liability for copyright infringement in connection with any technology, product, service, device, component, or part thereof. (3) Nothing in this section shall require that the design of, or design and selection of parts and components for, a consumer electronics, telecommunications, or computing product provide for a response to any particular technological measure, so long as such part or component, or the product in which such part or component is integrated, does not otherwise fall within the prohibitions of subsection (a)(2) or (b)(1). (4) Nothing in this section shall enlarge or diminish any rights of free speech or the press for activities using consumer electronics, telecommunications, or computing products.52

Any person injured by a violation of section 1201 may bring a civil action in a Federal Court.53 Section 1203 gives courts the power to grant a range of equitable and monetary remedies similar to those available under the Copyright Act and including statutory damage.54 If the violation of section 1201 is willfully and for purposes of commercial advantage or private financial gain, it is considered a criminal offence.55 There has been extensive critique to these anti-circumvention provisions of the DMCA, particularly for their wide-ranging scope and the consequent possibility to impede consumers from engaging in fair uses of copyrighted work. Responding to the unfairness of the DMCA provisions, it has proposed a bill called Digital Media Consumers' Rights Act (DMCRA).56 The DMCRA attempts to restore the historical balance in copyright law. 52 53 54 55 56

17 U.S.C. 1201(c). 17 U.S.C. 1203(a). See DMCA Summary, supra note 15, at 7. 17 U.S.C 1204(a)(1)-(2). See Digital Media Consumers Rights Act of 2005, HR 1201, 109th Cong. 1st Sess. (available at http://thomas.loc.gov/cgi-bin/query/z?c109:H.R.1201:).


51

This bill, in particular, attempts to restores consumers’ fair use rights by amending the DMCA so as to permit circumvention of copy protection for non-infringing uses of digital copyrighted material. The main aim of the bill is to ensure that consumers are fully aware of the limitations and restrictions they may discover when purchasing copy-protected digital media because manufacturers are not currently obligated to place these kind of notices on packaging. Furthermore, it also introduce an amendment to Section 1201 of the DMCA, stipulating the permission to manufacture, distribute, or make non-infringing use of an hardware or software product that enables significant non-infringing use of a copyrighted work, as in making back-up copies of legally purchased digital media.

2.2 EC Legal and Regulatory Framework on Digital Media: The European Copyright Directive In this paragraph, we do not intend to describe the EUCD in great detail, but we will confine the discussion to the EUCD’s most important provisions and elements connected with the lawful use of digital media and the legitimate exceptions to the rights of content owners.57 57

For a more comprehensive overview and commentaries on the European Directive 2001/29/EC on Copyright Law in the Information Society, see Michael Hart, The Proposed Directive for Copyright in the Information Society: Nice Rights, Shame about Exceptions, 5 Eur. Intell. Prop. Rev. 169 (1998); Adolf Dietz, The Protection of Intellectual Property in the Information Age: the Draft EU Copyright Directive of November 1997, 4 Intell. Prop. Q. 335 (1998); Severine Dusollier, Electrifying the Fence: The Legal Protection of Technological Measures for Protecting Copyright, 21 Eur. Intell. Prop. Rev. 285 (1999); P. Bernt Hugenholtz, Why the Copyright Directive is Unimportant, and Possibly Invalid, 22 Eur. Intell. Prop. Rev. 499 (2000); Ian Brown, Implementing the European Union Copyright Directive, available at http://www.fipr.org/copyright/guide/eucd-guide.pdf; Garrote Fernández-Díez, El Derecho de Autor en Internet: La Directiva Sobre Derechos de Autor y Derechos Afines en la Sociedad de la Información, 2001; Michael Hart, The Copyright in the Information Society Directive: An Overview, 24 Eur. Intell. Prop. Rev. 58 (2002); Pierre Sirinelli, The Scope of the Prohibition on Circumvention of Technological Measures: Exceptions in Adjuncts and Alternatives to Copyright: Proceedings of the ALAI Congress June 13-17, 2001 384 (Jane C. Ginsburg & June M. Besek eds., 2002); Maria Martin-Prat, The Relationship Between Protection and Exceptions in the EU "Information Society" Directive, in Adjuncts and Alternatives to Copyright 466 (Jane C. Ginsburg & June M. Besek eds., 2002); Nora Braun, The Interface Between the Protection

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As already noted, the so called EUCD is modeled on, and designed to implement the WIPO 1996 World Copyright Treaty and the World Performances Treaty: The Diplomatic Conference held under the auspices of the World Intellectual Property Organization (WIPO) in December 1996 led to the adoption of two new Treaties, the ‘WIPO Copyright Treaty’ and the ‘WIPO Performances and Phonograms Treaty’, dealing respectively with the protection of authors and the protection of performers and phonogram producers. Those Treaties update the international protection for copyright and related rights significantly, not least with regard to the so-called ‘digital agenda’, and improve the means to fight piracy world-wide. The Community and a majority of Member States have already signed the Treaties and the process of making arrangements for the ratification of the Treaties by the Community and the Member States is under way. This Directive also serves to implement a number of the new international obligations.58

The principal declared aim of the Directive is to adapt legislation on copyright and related rights to technological developments and particularly to the information society. The objective is to transpose at Community level the main international obligations deriving from the two Treaties concerning copyright and related rights, adopted in December 1996 in the framework of the World Intellectual Property Organization (WIPO).59 The Directive, unless otherwise provided, applies without prejudice to existing provisions relating to: the legal protection of computer programs; rental and lending rights and certain rights related to copyright in the field of intellectual property; copyright and related rights applicable to broad-

58 59

of Technological Measures and the Exercise of Exceptions to Copyright and Related Rights: Comparing the Situation in the United States and the European, 25 Eur. Intell. Prop. Rev. 496 (2003); Maria Teresa Scassellati Sforzolini, La Direttiva Comunitaria del 22 maggio 2001 n. 29 sull’Armonizzazione di Taluni Aspetti del Diritto d’Autore nella Società dell’Informazione, 74 Dir. Aut. 65 (2003); Alvise Maria Casellati, Protezione Legale delle Misure Tecnologiche ed Usi Legittimi. L’articolo 6.4 della Direttiva Europea e sua Attuazione in Italia, 74 Dir. Aut. 360 (2003); Kamiel J. Koelman, Copyright Law and Economics in the EU Copyright Directive: Is the Droit d'Auteur Passe?, 35 Int'l Rev. of Indus. Prop. & Copyright L. 603 (2004); Giuseppe Mazziotti, Monopoli Elettronici e Utilizzazioni Libere nel Diritto d’Autore Comunitario, 75 Dir. Aut. 150 (2004). Council Directive 2001/29, Recital 15, 2001 O.J. (L 167) 11 (EC). For this outline, see European Union SCADPLUS service, Copyright and Related Rights in the Information Society: The Harmonisation of Certain Aspects (2001), http://europa.eu.int/scadplus/leg/en/lvb/l26053.htm.


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casting of programmes by satellite and cable retransmission; the term of protection of copyright and certain related rights; the legal protection of databases. As far as we can deduce from recitals section and Articles, the Directive deals with the harmonization of the three main exclusive rights: reproduction rights, the right of communication and distribution rights.60 It also includes a thorough list of exceptions and limitations to copyright law.61 Additionally, the Directive introduces the most controversial obligation for Member States, that is to provide adequate legal protection against “hacking” or other disabling of that “anti-copying” devices and other equipment used to protect copyright when works are published digitally.62 With regard to reproduction rights,63 Member States are to provide for the exclusive right to authorize or prohibit direct or indirect, temporary or permanent reproduction by any means and in any form, in whole or in part: (a) for authors, of the original and copies of their works; (b) for performers, of fixations of their performances; (c) for phonogram producers, of their phonograms; (d) for the producers of the first fixation of films, in respect of the original and copies of their films; (e) for broadcasting organizations, of fixations of their broadcasts, whether those broadcasts are transmitted by wire or over the air, including by cable or satellite.64 With regard to the right of communication,65 Member States are to provide authors with the exclusive right to authorize or exclude any communication to the public of the originals and copies of their works, including the making available to the public of their works in such a way that members of the public may access them from a place and at a time individually chosen by them. The same applies as regards the making available to the public of protected works in such a way that members of the public may access them from a place and at a time individually chosen by them: for performers, of fixations of their performances; for phonogram producers, of their phonograms; for the producers of the first fixation of films, in respect of the original and copies of their films; for broadcasting organizations, of fixations of their broadcasts – regardless of the method of trans-

60 61 62 63 64 65

Council Directive 2001/29, art. 2, 3 and 4 2001 O.J. (L 167) 16 (EC). Council Directive 2001/29, art. 5, 2001 O.J. (L 167) 16 (EC). Council Directive 2001/29, art. 6, 7 2001 O.J. (L 167) 17, 18 (EC). Council Directive 2001/29, art. 2, 2001 O.J. (L 167) 16 (EC). Id. Council Directive 2001/29, art. 3, 2001 O.J. (L 167) 16 (EC).

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mission.66 Finally, with regard to distribution rights, the Directive harmonizes for authors the exclusive right of distribution to the public of their works or copies thereof. The Directive specifies that, the distribution right is exhausted where the first sale or other transfer of ownership in the Community of a copy is made by the right-holder or with his consent.67 This last disposition is also specified by the content of the Recital 29 stating that: The question of exhaustion does not arise in the case of services and online services in particular. This also applies with regard to a material copy of a work or other subject-matter made by a user of such a service with the consent of the right-holder. Therefore, the same applies to rental and lending of the original and copies of works or other subject-matter which are services by nature. Unlike CD-ROM or CD-I, where the intellectual property is incorporated in a material medium, namely an item of goods, every on-line service is in fact an act which should be subject to authorization where the copyright or related right so provides.

Therefore, accordingly to the WIPO Copyright Treaty,68 the Directive states that, in the context of on-line distribution, the exhaustion concept is totally eliminated. Thus, for on-line distribution, unlike distribution of tangible goods, a new basis of the exhaustion principle is introduced. This new kind of distribution is regulated through the right of communication to the public and considered as a service. The result is a restriction to resell 66 67

68

See European Union SCADPLUS service, supra note 59. Council Directive 2001/29, art. 3(2), 2001 O.J. (L 167) 16 (EC). Under the European concept of “exhaustion” and its U.S. equivalent “first sale” doctrine, the exclusive right of distribution cease after a copyright holder authorizes the first disposal of a copy of the work. A good-faith possessor of the copy can then dispose of it without seeking authorization of the copyright holder. Under the doctrine of first sale, once the copyright owner transfers title to a copy of the copyrighted work to a third party, the third party is entitled to sell or dispose of it without acquiring the copyright owner's consent. See Margreth Barrett, Intellectual Property – Patents, Trademarks & Copyrights 227 (2000). WIPO Copyright Treaty, supra note 7, art. 6 and 8. According to Article 6: “Authors of literary and artistic works shall enjoy the exclusive right of authorizing the making available to the public of the original and copies of their works through sale or other transfer of ownership.” According to Article 8: “… authors of literary and artistic works shall enjoy the exclusive right of authorizing any communication to the public of their works, by wire or wireless means, including the making available to the public of their works in such a way that members of the public may access these works from a place and at a time individually chosen by them.”


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digitally distributed content, because the application of the principle of exhaustion to digital works is restricted by license agreements. The primary intent behind these licenses is to characterize the “purchase” of digital content as a grant of a license instead of a sale that transfers ownership.69 The Directive, with the aim to reduce and standardize the fragmented Community legal framework on permitted acts, establishes also a number of exceptions to the right of reproduction and the right of communication.70 These exceptions are all optional aside from the one laid down in Article 5(1). The only mandatory exception to the right of reproduction is introduced in respect of certain temporary acts of reproduction which are integral and essential to a technological process, the sole purpose of which is to enable the lawful use or transmission in a network between third parties by an intermediary of a work or other subject-matter and which has no separate economic significance.71 The Directive also formulates provision for other non-mandatory exceptions to the rights of reproduction or communication. In summary, the optional exceptions and limitations to the reproduction and communication rights are:72 (a) (b) (c) (d) (e) (f)

use for teaching or scientific research; uses for the benefit of people with disabilities; reproduction by the press; quotations for criticism or review purposes; use for the purposes of public security; use of political speeches as well as extracts of public lectures or similar works; (g) use during religious ceremonies; (h) use of works, such as works of architecture or sculpture, made to be located permanently in public places; (i) incidental inclusion of a work or other subject-matter in other material; (j) use for the purpose of advertising the public exhibition or sale of artistic works; (k) use for the purpose of caricature, parody or pastiche; (l) use in connection with the demonstration or repair of equipment; (m) use of an artistic work in the form of a building or a drawing (or 69 70 71

72

See Gasser, supra ch. 1, note 35, at 59. Council Directive 2001/29, art. 5 , 2001 O.J. (L 167) 16 (EC). Council Directive 2001/29, art. 5 (1), 2001 O.J. (L 167) 16 (EC). See also European Union SCADPLUS service, supra note 59. Council Directive 2001/29, Art. 5(3), 2001 O.J. (L 167) 16 (EC).

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plan of a building) for the purposes of reconstructing the building; (n) use by communication or making available, for the purpose of research or private study; (o) use in certain other cases of minor importance where exceptions or limitations already exist under national law, provided that they only concern analogue uses. In these cases, exceptions are accorded at national level by the Member State concerned. The exemptions and limitations relating to the rights of reproduction and communication are optional and particularly concern the “public” domain. For three of these exceptions – reprography, private use and broadcasts made by social institutions – the right-holders are to receive fair compensation. With regard to the exceptions or limitations to distribution rights, these are accorded depending on the exceptions relating to reproduction or communication. In regards to the right of reproduction, the EC scheme provides the notion of “private copying” to allow noncommercial uses.73 Such provisions concerned mainly to statutory rights of remuneration. This right is assured by the imposition of special levies on copying devices, digital equipment and blank digital recording media.74 These levies are generally collected by national collecting societies which distribute them among the various categories of right-holders according to statutory provisions. The statutory copyright exemptions are different in each member state because Article 5 paragraphs 2 and 3 of the Directive stipulates that Member States are free to choose from an exhaustive list those copyright exemptions they want to implement in their national laws. In fact, the Directive imposes that, in the event that any implemented exemption will result in a “notable prejudice of the right-holders”, a fair compensation has to be paid to the right-holders. Consequently, there is no uniform European levy 73 74

Council Directive 2001/29, Art. 5(2)(a), (b), 2001 O.J. (L 167) 16 (EC). The rules on copies for private use have been present for many years in the legislation of a number of countries. For example, such rules were introduced in Italy by Law 93 of 5 February 1992 (entitled: “Norme a favore delle imprese fonografiche e compensi per le riproduzioni private senza scopo di lucro”), as aligned with the standards generally in force in Europe with Legislative Decree 68/2003 transposing Directive 2001/29/EC. See Italian Minister of Innovation and Technologies: Department for Innovation and Technology, Report of the Interministerial Committee on Digital Content in the Internet Age, 22 (2005), http://www.mininnovazione.it/eng/intervento/allegati/rap_cont_dig. pdf. On the levies systems, see P. Bernt Hugenholtz et al., The Future of Levies in the Digital Environment, (2003), available at http://www.ivir.nl/publicati ons/other/DRM&levies-report.pdf.


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system, but Copyright levies vary from member state to member state according to exceptions and limitations provided. Through the above mentioned provisions, the Directive attempts to remove obstacles to “the free movement of services and products incorporating, or based on, intellectual property, leading to a refragmentation of the internal market and legislative inconsistency”.75 Although the Directive does not explain which type of measure the right-holders should adopt to permit the beneficiary of an exception to start or continue to benefit, it generates the opinion that the most adequate solution will be the adoption of agreements between right-holders and beneficiaries of exceptions. Thus, some commentators suggest that the general principle emanating from the key dispositions of the Directive is that freedom of contract overrides copyright exceptions and limitations.76 From the point of view of the harmonization of the exceptions, we can assert that the Community has failed, because the Directive offers a very long list of twenty three exceptions, only one of which is mandatory. All the other exceptions are subject to the free choice of each Member States.77 The Member States are then obliged to provide legal protection against the circumvention of any effective technological measures covering works or any other subject-matter.78 The Directive invites Member States to promote the use of voluntary copyright protection measures and encourages interoperability and system compatibility. Article 6, by far the most controversial part of the Directive, offer a definition of “technological measures”: the expression ‘technological measures’ means any technology, device or component that, in the normal course of its operation, is designed to prevent or restrict acts, in respect of works or other subject-matter, which are not authorized by the right-holder of any copyright or any right related to copyright as provided for by law or the sui generis right provided for in Chapter III of Directive 96/9/EC. Technological measures shall be deemed 75 76 77

78

Council Directive 2001/29, Recital 6, 2001 O.J. (L 167) 10 (EC). See, e.g. Casellati supra note 94, at 392. See Severine Dusollier, Exceptions and Technological Measures in the European Copyright Directive of 2001 - An Empty Promise, 34 Int'l Rev. Indus. Prop. & Copyright L. 62, 66 (2003). According to the author, the EC exceptions regime is, on the contrary, largely harmonized for specific works, i.e. software and databases. Recitals 13 and 47 state that common development and use of technological protection measures and rights management information systems are fundamental, because both technologies give effect to copyright and related rights. See Council Directive 2001/29, Recital 13, 47, 2001 O.J. (L 167) 11, 14 (EC).

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CHAPTER 2 ‘effective’ where the use of a protected work or other subject-matter is controlled by the right-holders through application of an access control or protection process, such as encryption, scrambling or other transformation of the work or other subject-matter or a copy control mechanism, which achieves the protection objective.79

This legal protection also relates to “preparatory acts” such as the manufacture, import, distribution, sale or provision of services for works with limited uses. Circumvention of technological protection measures, in fact, is prohibited in the following wide terms: Member States shall provide adequate legal protection against the manufacture, import, distribution, sale, rental, advertisement for sale or rental, or possession for commercial purposes of devices, products or components or the provision of services which: (a) are promoted, advertised or marketed for the purpose of circumvention of, or (b) have only a limited commercially significant purpose or use other than to circumvent, or (c) are primarily designed, produced, adapted or performed for the purpose of enabling or facilitating the circumvention of, any effective technological measures.80

However, for some exceptions and limitations, in the absence of voluntary measures taken by right-holders, the Member States are to ensure the implementation of an exception or limitation for those who may benefit from it. The Member States may also take such measures with regard to the exception for private use, unless reproduction for private use has already been made possible by right-holders in accordance with the economic damage test. To that end, the Directive provides the complex set of rules of Article 6(4): Notwithstanding the legal protection provided for in paragraph 1, in the absence of voluntary measures taken by right-holders, including agreements between right-holders and other parties concerned, Member States shall take appropriate measures to ensure that right-holders make available to the beneficiary of an exception or limitation provided for in national law in accordance with Article 5(2)(a),81 (2)(c),82 (2)(d),83 (2)(e),84 (3)(a),85 79 80 81

Council Directive 2001/29, art. 6(3), 2001 O.J. (L 167) 17 (EC). Council Directive 2001/29, art. 6(2), 2001 O.J. (L 167) 17 (EC). Exceptions in respect of reproductions on paper or any similar medium or reprography.


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(3)(b),86 or (3)(e)87 the means of benefiting from that exception or limitation, to the extent necessary to benefit from that exception or limitation and where that beneficiary has legal access to the protected work or subjectmatter concerned.88

It is clear from the text that, in the first instance, regulations must come from right-holders and, only subsidiarily, are subject to intervention of the State. It is evident that such disposition may cause a delegation of governmental decision making to a non-governmental entity with a consequent privatization of the government's role in protecting intellectual property and in setting technical standards for digital infrastructure and interoperability. Thus, to define this unusual phenomenon, the phrase of “fair use by design” was coined,89 in the sense that copyright exceptions are designed directly by right-holders. Fair use by design can also be deduced “from the choice of a new business model that allows some space for the exercise of exception.”90 From the corollary above, it follows that whether the fair use principle or any other legally conveyed user privilege “is embedded in the technical design of the business model, its integration in the relationship between the author and the user will result from a choice or a negotiation preliminary to any litigation.” Thus, the exercise of the exception “will be dependent upon an explicit decision by the author, in a private orderings model and not by a public and democratic process of lawmaking”.91 If exceptions and limitations to copyrights law become part of a negotiation process between the parties, they are bound to disappear. The consequence is that “the exceptions are given a positive meaning and not only a defensive character” and paradoxically “authors have been 82

83

84

85

86 87 88 89

90 91

Exceptions in respect of specific acts of reproduction made by publicly accessible libraries, educational establishments or museums, or by archives, which are not for direct or indirect economic or commercial advantage. Exceptions in respects of ephemeral recordings of works made by broadcasting organizations by means of their own facilities and for their own broadcasts. Exceptions in respect of reproductions of broadcasts made by social institutions pursuing non-commercial purposes. Exceptions in respect of use for the sole purpose of illustration for teaching or scientific research. Exceptions in respect of uses, for the benefit of people with a disability. Exceptions in respect of use for the purposes of public security. Council Directive 2001/29, art. 6(4), 2001 O.J. (L 167) 17-18 (EC). The term was first used in Severine Dusollier, Exceptions and Technological Measures in the European Copyright Directive of 2001 - An Empty Promise, 34 Int'l Rev. Indus. Prop. & Copyright 62, 70 (2003). Id. Id.

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asked to facilitate the exercise of exceptions to their rights”.92 Member States can intervene only when right-holders do not adopt the so called “voluntary measures” to accommodate achieving the objectives of exception or limitation. It is then unclear how long Member States have to wait before taking action. In order to prevent abuse of such measures taken by right-holders, including within the framework of agreements, or taken by a Member State, any technological measures applied in implementation of such measures should enjoy legal protection. The third paragraph of Article 6.4 (“The technological measures applied voluntarily by right-holders, including those applied in implementation of voluntary agreements, and technological measures applied in implementation of the measures taken by Member States, shall enjoy the legal protection provided for in paragraph 1”) puts this principle into effect, extending the legal protection defined in Article 6.1 to those measures adopted in accordance with Article 6.4, paragraph 1 and 2. Then, Article 6.4 concludes by stating that: The provisions of the first and second subparagraphs shall not apply to works or other subject-matter made available to the public on agreed contractual terms in such a way that members of the public may access them from a place and at a time individually chosen by them.93

This sub-paragraph refers to the interactive on-demand services and it substantially implies that in case of on-demand services, the principle of freedom of contract prevails over copyright exceptions and limitations.94 In other words a work available on the Internet on demand can be distributed without the user being able to exercise any exceptions and it can be completely locked up. In general terms, this disposition means that the effective application of the exceptions to copyright is basically invalidated, as this type of distribution is one of the most common strategies for commodification of digital media. Finally, Article 7 of the Directive prohibits the removal or alteration of electronic rights-management information as well as the distribution, importation, broadcasting or communication of any works whose electronic rights-management information has been removed or altered without authority. The Directive was designed to be implemented by December 22, 2002, 92 93 94

Id. at 63. Council Directive 2001/29, art. 6.4(4), 2001 O.J. (L 167) 18 (EC). See Casellati, supra note 94, at 387.


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but only two Member States (Greece and Denmark) managed to meet that deadline. By now, eight of the original Member States have implemented the act.95 Among the new Member States, just Hungary, Malta, Lithuania, Poland, the Czech Republic, and Estonia have transposed it into national legislation. Recently, the European Commission has launched infringement proceedings against France, Finland, Spain and the Czech Republic for non-implementation of the European Copyright Directive.96 In Italy, the Copyrights Directive was transposed by the Legislative Decree 68/2003. The decree explicitly recognizes an author’s exclusive right to authorize or prohibit any kind of public communication of his or her original works or copies. In addition, rules on the distribution of works have been harmonized. It also recognizes the principle of fair compensation to authors where copies are made, and reinforces the protection of reproduction, public communication and distribution rights.97

95

96

97

Greece (entered into force on October 10, 2002), Denmark (enforceable since December 22, 2002), Italy (implemented April 9, 2003), Austria (entered into force on 1st July 2003), Germany (implemented September 13, 2003), Luxembourg (implemented April 29,2004), UK (implemented October 31, 2003), Ireland (implemented January 19, 2004), Netherlands (implemented September 1, 2004). Gasser & Girsberger, supra note 121, at 8. For a comment on the Italian implementation, see Mario Fabiani, L'attuazione della Direttiva CE sul Diritto di Autore nella Società dell’Informazione. Un Analisi Comparativa, 74 Dir. Aut., 331 (2003). According to the official press release, thee Commission has decided, under Article 228 of the EC Treaty, to send France and Finland further “reasoned opinions” requesting them to comply immediately with the previous judgments of the European Court of Justice on their non-implementation of the Directive. In addition, the Commission has sent the Czech Republic a letter of formal notice – the first stage of infringement proceedings under Article 226 of the EC Treaty – asking it to provide full information on its implementation of Directive. Finally, it has also sent an informal letter to Spain to receive information about compliance with a previous judgment of the European Court on its nonimplementation of the Directive. See Press Release, Copyright: infringement proceedings against France, Finland, Spain and the Czech Republic for nonimplementation of 2001 Copyright Directive, available at http://europa.eu.int/r apid/pressReleasesAction.do?reference=IP/05/921&format=HTML&aged=0& language=EN&guiLanguage=en (last visited May 1, 2006) (discussing IP/05/92 1 Brussels, Jul. 13, 2005). See Italian Minister of Innovation and Technologies: Department for Innovation and Technology, Report of the Interministerial Committee on Digital Content in the Internet Age, 32 (2005), at http://www.mininnovazione.it/eng/interv ento/allegati/rap_cont_dig.pdf.

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2.3 The Digital Millennium Copyright Act and the European Copyright Directive: A Comparison Although with some differences, the two acts strike the right balance between opposing interests.98 They pursue the same aim of creating a safe environment for transmission of digital information,99 and they also seem to reveal the same failures.100 At the heart of both acts, as well as at the heart of most criticisms, are the provisions making illegal the circumvention of copy-protection technologies in order to gain access, as well as any activity (production, distribution, making available, etc.) performed with the intent to make possible or facilitate such circumvention.101 98

99

100

101

See Gregory Hunt, In a Digital Age: The Musical Revolution Will Be Digitalized, 11 Alb. L.J. Sci. & Tech. 181, 193 (2000). President Clinton stated that the DMCA implemented “[firm] standards, carefully balancing the interests of both copyright owners and users.” President’s Statement on Signing the Digital Millennium Copyright Act, 2 Pub. Papers 1902 (Oct. 28, 1998). On the other hand, Frits Bolkestein, Internal Market Commissioner, stressed how “Europe’s creators, artists and copyright industries can now look forward for renewed confidence to the challenges posed by electronic commerce. At the same time, the Directive secures the legitimate interests of users, consumers and society at large.” Press Release, European Commission, Commission Welcomes Adoption of the Directive on Copyright in the Information Society by the Council (Apr. 9, 2001), available at http://europa.eu.int/rapid/pressReleases Action.do?reference=IP/01/528&format=PDF&aged=1&language=EN&guiLa nguage=fr. See Alice Ritchie, Hanging in the Balance: Fair Use for Digital Works, 9 U. Balt. Intell. Prop. L.J. 29, 33 (2000). The EC Directive wants to “foster the development of the information society in Europe.” Eur. Parl. Directive pmbl. 2001/29, 2001 O.J. (L 167) 2 (EC). On the failures of DMC, see generally Nimmer, supra note 2, at 739-40; Netanel, supra note 119, at 79. See Severine Dusollier, Tipping the Scale in Favor of the Right Holders: The European Anti-Circumvention Provisions, in Digital Rights Management, supra note 117, at 462, 466. See also Francesca Calovi & Nicola Lucchi, Pirateria Musicale: Tecnologia e Diritto, 7/8 Stud. Iuris 1027, 1032 (2004). The DMCA provides that: “No person shall circumvent a technological measure that effectively controls access to a work protected under this title”, nor shall any person “manufacture, import, offer to the public, provide, or otherwise traffic in any technology, product, service, device, component, or part thereof, that (A) is primarily designed or produced for the purpose of circumventing…; (B) has only limited commercially significant purpose or use other than to circumvent…” 17 U.S.C. § 1201(a)(1)-(2) (2000). Under the European Copyright


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Content providers are particularly concerned about the illegal appropriation of content as it is carried out behind the backs of rights-holders and prevents them from being compensated for their works.102 They assert that technological protection measures have the limited purpose of preventing unauthorized access to copyright material, and, assuming they are imperfect, those laws have the effect of keeping users from engaging in illegal activities, thereby restoring artists’ rights.103 Both the DMCA and the EUCD, in accordance with their intention to discipline only illegal appropriation, stipulated specific provisions to use technology, protecting copyrighted work and allow honest users to exercise their rights. Unfortunately, some commentators have noticed that, in practice, they both fail in their stated purpose, obtaining “only” an extremely high level of protection for authors.104 Technology, in fact, may not be capable of distinguishing between legal and illegal uses.105 The DMCA distinguishes measures controlling access from those protecting “other rights,” stating that the latter are not compromised.106 If at

102

103 104

105

106

Directive: (1) Member States shall provide adequate legal protection against the circumvention of any effective technological measures, which the person concerned carries out in the knowledge, or with reasonable grounds to know, that he or she is pursuing that objective. (2) Member States shall provide adequate legal protection against the manufacture, import, distribution, sale, rental, advertisement for sale or rental, or possession for commercial purposes of devices, products or components or the provision of services which: (a) are promoted, advertised or marketed for the purpose of circumvention of, or; (b) have only a limited commercially significant purpose or use other than to circumvent, or; (c) are primarily designed, produced, adapted or performed for the purpose of enabling or facilitating the circumvention of, any effective technological measures. Eur. Parl. Directive 2001/29, art. 6, 2001 O.J. (L 167) 1, 2 (EC). See, e.g., International Federation of the Phonographic Industry, IFPI:05. Digital Music Report (2005) [hereinafter IFPI:05 Digital Music Report], http://www .ifpi.com/site-content/library/digital-music-report-2005.pdf. See Ritchie, supra note 99, at 37. See P. Bernt Hugenholtz, Why the Copyright Directive is Unimportant, and Possibly Invalid, 22 Eur. Intell. Prop. Rev. 499, 500 (2000); Michael Hart, The Copyright in the Information Society Directive: An Overview, 24 Eur. Intell. Prop. Rev. 58 (2002); Dusollier, supra note 77. See Robin D. Gross, Copyright Zealotry in a Digital World: Can Freedom of Speech Survive?, in Copy Fights, supra note 1, at 189, 190. DMCA recognizes that: “Nothing in this section shall affect rights, remedies, limitations, or defenses to copyright infringement, including fair use, under this title.” 17 U.S.C. § 1201.

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first sight this seems to be a good balance, unfortunately it is the same structure of technological protection measures that negates it because, for users to enjoy “other rights,” they first have to gain access to protected material.107 But, when this is prevented by technological protection measures and their circumvention is expressly criminalized, even the exercise of legitimate rights may become a crime since technology cannot detect the animus leading to circumvention, and the Act provides no defense in such respect.108 In the digital environment, any attempt at circumvention is criminal and has to be regarded as piracy, even if it is not so in the physical world. The anti-circumvention provisions of the DMCA prevent three categories of transgressions. First, the DMCA prohibits circumventing technological measures that prevent access to a copyrighted work. Second, it prohibits trafficking in devices that can circumvent access controls. And third, it prohibits trafficking in circumvention devices for technological measures that protect the copyright holder’s exclusive rights, for example copying and distribution.109 These anti-circumvention provisions are an implicit admission that copy-protection technologies are not perfect.110 The EUCD, on the other hand, revealing reminiscences of the AngloAmerican perspective on copyright,111 deals with three main areas:112 reproduction rights,113 the right of communication,114 and distribution 107

108

109 110

111

112

113

See; Joanna Perrit, Protecting Technology over Copyright: A Step Too Far, 14 Ent. L.Rev. 1, 2 (2003). The Electronic Frontier Foundation has documented numerous problems that anti-circumvention provisions in the DMCA have caused in the U.S. for legitimate users of copyrighted works. See Electronic Frontier Foundation, Unintended Consequences: Five Years under the DMCA, (Sept. 24, 2003), http://www.eff.org/IP/DMCA/unintended_consequences.php. See Calovi, supra note 104. For this schematization, see Gasser, supra note 35. See Digital Dilemma, supra Intro., note 3, at 153; Pamela Samuelson, DRM {and, or, vs.} the Law, 46 Comm. ACM 41, 42 (2003). See Kamiel J. Koelman, Copyright Law and Economics in the EU Copyright Directive: Is the Droit d’Auteur Passé?, 35 Int'l Rev. of Indus. Prop. & Copyright L. 603, 606 (2004) (Affirming that Recital 2, 4, 9 and 10 of the Directive express the law and economics approach to copyright). For this outline, see European Union SCADPLUS Service, Copyright and Related Rights in the Information Society: The Harmonisation of Certain Aspects (2001), http://europa.eu.int/scadplus/leg/en/lvb/l26053.htm. Reproduction right: Member States shall provide for the exclusive right to authorise or prohibit direct or indirect, temporary or permanent reproduction by any means and in any form, in whole or in part: (a) for authors, of their works; (b) for performers, of fixations of their performances; (c) for phonogram producers, of their phono-


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rights.115 The Directive also obliged Member States to provide legal protection against the circumvention of any effective technological measures covering works or any other subject-matter.116 In particular, it criminalizes grams; (d) for the producers of the first fixations of films, in respect of the original and copies of their films; (e) for broadcasting organizations, of fixations of their broadcasts, whether those broadcasts are transmitted by wire or over the air, including by cable or satellite. Council Directive 2001/29, art. 2, 2001 O.J. (L 167) 10, 16 (EC). 114 Right of communication to the public of works and right of making available to the public other subject-matter: 1. Member States shall provide authors with the exclusive right to authorize or prohibit any communication to the public of their works, by wire or wireless means, including the making available to the public of their works in such a way that members of the public may access them from a place and at a time individually chosen by them. 2. Member States shall provide for the exclusive right to authorize or prohibit the making available to the public, by wire or wireless means, in such a way that members of the public may access them from a place and at a time individually chosen by them: (a) for performers, of fixations of their performances; (b) for phonogram producers, of their phonograms; (c) for the producers of the first fixations of films, of the original and copies of their films; (d) for broadcasting organizations, of fixations of their broadcasts, whether these broadcasts are transmitted by wire or over the air, including by cable or satellite. 3. The rights referred to in paragraphs 1 and 2 shall not be exhausted by any act of communication to the public or making available to the public as set out in this Article. Council Directive 2001/29, art. 3, 2001 O.J. (L 167) 10, 16 (EC). 115 Distribution right: 1. Member States shall provide for authors, in respect of the original of their works or of copies thereof, the exclusive right to authorize or prohibit any form of distribution to the public by sale or otherwise. 2. The distribution right shall not be exhausted within the Community in respect of the original or copies of the work, except where the first sale or other transfer of ownership in the Community of that object is made by the rightholder or with his consent. Council Directive 2001/29, art. 4, 2001 O.J. (L 167) 10, 16 (EC). 116 Obligations as to technological measures: 1. Member States shall provide adequate legal protection against the circumvention of any effective technological measures, which the person concerned carries out in the knowledge, or with reasonable grounds to know, that he or she is pursuing that objective. 2. Member States shall provide adequate legal protection against the manufacture, import, distribution, sale, rental, advertisement for sale or rental, or possession for commercial purposes of devices, products or components or the

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circumvention in any respect regardless of the rights it protects, but encourages right-holders to voluntarily adopt any measure deemed necessary “to make available to the beneficiary of an exception or limitation…, the means of benefiting from that exception or limitation…”117 and invites Member States to ensure compliance.118 Article 6.1 requires that Member States provide “adequate legal protection” against the deliberate circumvention of technological measures, regardless of whether such an act infringed any copyright.119 The provision, unlike the DMCA, covers any type of technological protection measures without distinction between access control or copy control measures.120 With this Article the Directive introduces a pan-European legal defense for technological protection measures, even if its provisions have not been formally implemented by all of the European Union Member States.121 Ac-

117

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119 120 121

provision of services which: (a) are promoted, advertised or marketed for the purpose of circumvention of, or (b) have only a limited commercially significant purpose or use other than to circumvent, or (c) are primarily designed, produced, adapted or performed for the purpose of enabling or facilitating the circumvention of, any effective technological measures. 3. For the purposes of this Directive, the expression ‘technological measures’ means any technology, device or component that, in the normal course of its operation, is designed to prevent or restrict acts, in respect of works or other subject matter, which are not authorized by the right-holder of any copyright or any right related to copyright as provided for by law or the sui generis right provided for in Chapter III of Directive 96/9/EC. Technological measures shall be deemed ‘effective’ where the use of a protected work or other subject matter is controlled by the right-holders through application of an access control or protection process, such as encryption, scrambling or other transformation of the work or other subject-matter or a copy control mechanism, which achieves the protection objective... Council Directive 2001/29, art. 5, 2001 O.J. (L 167) 10, 17 (EC). “...to the extent necessary to benefit from that exception or limitation and where that beneficiary has legal access to the protected work or subject-matter concerned.” Council Directive 2001/29, art. 6, 2001 O.J. (L 167) 10, 17-18 (EC). The Article also allows for right-holders’ compliance through “agreements between rightholders and other parties concerned,” namely through contracts. For a critical overview of the Directive, see Séverine Dussollier, Fair Use by Design in the European Copyright Directive of 2001, 46 Comm. ACM 51 (2003). For further discussion on the complex structure of Article 6.4 of the EC Copyright Directive, see Casellati, supra note 94, at 372-77. See Dusollier, supra note 82, at 472. See Dusollier, supra note 77, at 69. For a state of the art as to implementation status at the date of September 22,


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tually, some of them are currently under infringement procedure. The loophole of this provision is that both content owners and governments are invited, but not compelled, to ensure respect of users’ rights.122 The consequence of this, is that the former somehow retain legal power to settle the rules of the game, just as it is with the DMCA, where at present the government does not exercise any form of control over the characteristics of copy-protection tools and is thus prevented from working towards the establishment of a certain balance between authors’ and the public’s interests.123 Although the provisions of the two acts take different approaches to the problem of legitimate access, neither succeed in solving it, while they both pose high barriers to uses otherwise legally recognized. For example, “[I]n contrast to the DMCA, which does not need to list the exceptions for copyright infringement liability because these exceptions are well-established by statute and case law,”124 the EUCD stipulates a list of exceptions that are quite exhaustive. Article 5 of the Directive, for example, lays down a number of exceptions to the right of reproduction and the right of communication. At the same time, contrary to the DMCA,125 the EUCD does not

122

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2004, see Urs Gasser & Michael Girsberger, Transposing the Copyright Directive: Legal Protection of Technological Measures in E.U.-Member States. A Genie Stuck in the Bottle? (Berkman Working Paper No. 2004-10) available at http://ssrn.com/abstract=628007; Silke von Lewinski, Rights Management Information and Technical Protection Measures as Implemented in EC Member States, 35 Int'l Rev. of Intell. Prop. & Competition L. 844 (2004). Moreover, it has to be stressed how the Directive does not specifically identify any kind of measure to be taken by developers of technological protection measures, nor provides for guidelines in case of non-compliance both in terms of defining the extent of a possible action and the time deemed reasonable for voluntarily accomplishment. See MacQueen, supra Intro., note 33, at 219. Orin S. Kerr, A Lukewarm Defense of the DMCA, in Copy Fights, supra note 1, at 163, 168. 2001/29 is part of a wider program started with Directive 2000/31 aimed at preserving the status quo of power of the music industry through progressively but steadily limiting users’ rights. The E-Commerce Directive 2001/31 obliges ISPs to remove illegal material or promptly inform authorities about such activities. This responsibility is only relieved when the ISP is not aware at all of the illegality of activities. Thus, ISPs are forced to intervene when illegality is proved, and also when it is only presumed. See Enzo Mazza, Più facile contrastare il fenomeno della pirateria musicale online, Interlex, May 15, 2003, http://www.interlex.it/c pyright/mazza3.htm. Eleanor M. Lackman, Slowing Down the Speed of Sound: A Transatlantic Race to Head Off Digital Copyright Infringement, 13 Fordham Intell. Prop. Media & Ent. L.J. 1161, 1177 (2003). 17 U.S.C. § 1201(d)–(j) (2000) (in addition to a limited reverse engineering

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list exceptions to the anti-circumvention provision.126 The DMCA introduces seven exceptions to the anti-circumvention and anti-manufacturing provisions127 related to certain socially beneficial activities, including security testing, reverse engineering of software, encryption research, and law enforcement. The only one connected to copyright issues is the exception for reverse engineering.128 This exception, in theory,129 authorizes a person who has lawfully obtained the right to use a copy of a computer program to circumvent a technological measure that effectively controls access to a particular portion of that program for the sole purpose of identifying and analyzing those elements of the program that are necessary to achieve interoperability with other programs. The exception is permitted when no infringement occurs under the DMCA. Also the EUCD, despite the application of a technological protection measure, offers the opportunity of eight exceptions. But, unlike the DMCA, does not provide authorization for reverse engineering. It could be eventually subordinated to a “voluntary measures” undertaken by right-holders. In the EC regulatory framework, a similar exception for reverse engineering is contained in the EC Software Directive.130 This Directive, in fact, states that decompilation is necessary to access the “ideas and principles” which Article 1(2) excludes from protection and Article 5(3) allows a

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127 128 129

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exception stipulated in Subsection (f), contains the following exceptions and exemptions: Subsection (d) grants an exemption from liability for nonprofit libraries, archives, and educational institutions. Subsection (e) explains that activities of law enforcement, intelligence, and other government activities are not prohibited by Section 1201. Subsection (g) sets forth permissible acts of encryption research. Subsection (h) provides limited exceptions when minors are concerned, to help parental control of children's internet access. Subsection (i) allows circumvention when personally identifying information is involved. Subsection (j) recognizes permitted acts for the purpose of computer system security testing). See Dusollier, supra note 82, at 475 (remarking that Recital 48 of the directive states that protection “should not hinder research into cryptography”). 17 U.S.C. 1201(a)(1) and (2). 17 U.S.C. 1201(f) (2000). The exception is considered too narrow, because it only applies if the sole purpose of the reverse engineering is to achieve program-to-program interoperability and if reverse engineering is necessary to do so. See e.g. Pamela Samuelson, Intellectual Property and the Digital Economy: Why the AntiCircumvention Regulations Need to be Revised, 14 Berkeley Tech. L. J. 519 (1999); 3 Melville B. Nimmer & David Nimmer, Nimmer on Copyright 12A.04[B] (2000). Directive 91/250/EEC on the Legal Protection of Software Programs 1991 O.J. (L. 122) 42, 45.


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legitimate user to examine.131 Contractual provisions contrary to this exception are void.132 It has been claimed that both U.S. and EC legal and regulatory framework “do not address the issue of the contractual overriding of copyright exceptions, leaving them open to contractual ordering”.133 Article 6(2) of the EUCD states that Member States are required to protect against the manufacture or distribution of circumvention products or services on very similar terms to those used in the DMCA. At the same time, Article 6(4) introduce a significant difference permitting, but not requiring, Member States to take appropriate measures to ensure that users have the means to benefit from certain specified exceptions having legal access to protected work.134 Furthermore, while the DMCA distinguishes between measures that control access and measures that manage a right of the author, the European Copyright Directive encompasses any kind of technological measures used by right-holders, covering both access control and rights control systems. In other words, DMCA § 1201 bans circumvention of access but, at the same time, permits to circumvent technological protection measures that impede user to enjoy copyright exceptions. On the contrary, EUCD prohibits the circumvention of technological measures protecting both use and access.135 There is another point of contact between the two acts. It is characterized by the complete elimination, for on-line transactions, of the European concept of “exhaustion” and its U.S. equivalent “first sale” doctrine. The Executive Summary of the United States Copyright Office's section 131

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134 135

Article 6(1) allows a party entitled to use a program to decompile it “to obtain the information necessary to achieve the interoperability of an independently created computer program with other programs” under three conditions. The decompilation must be done (a) by “the licensee or by another person having a right to use a copy of the program” or the agent of either. It is permissible (b) to obtain only “information necessary to achieve interoperability [that] has not previously been readily available” to these persons. And it must be (c) “confined to the parts of the original program which are necessary to achieve interoperability.” Id. at 45. “Any contractual provisions contrary to Article 6 or to the exceptions provided for in Article 5 (2) and (3) shall be null and void.” Directive 91/250/EEC, Art. 9(1), 1991 O.J. (L. 122). See Thomas Heide, Copyright, Contract and the Legal Protection of Technological Measures – Not “The Old Fashioned Way”: Providing a Rationale to the “Copyright Exceptions Interface” 50 J. Copyright Soc'y U.S.A 315, 334335 (2003). See Besek, supra note 26, at 393. See Casellati, supra note 94, at 400.

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104 report on Digital Millennium Copyright Act commented on this problem:136 The first sale doctrine is primarily a limitation on the copyright owner's exclusive right of distribution. It does not limit the exclusive right of reproduction. While disposition of a work downloaded to a floppy disk would only implicate the distribution right, the transmission of a work from one person to another over the Internet results in a reproduction on the recipient's computer, even if the sender subsequently deletes the original copy of the work. This activity therefore entails an exercise of an exclusive right that is not covered by section 109. […] Proponents of expansion of the scope of section 109 to include the transmission and deletion of a digital file argue that this activity is essentially identical to the transfer of a physical copy and that the similarities outweigh the differences. While it is true that there are similarities, we find the analogy to the physical world to be flawed and unconvincing. Physical copies degrade with time and use; digital information does not. Works in digital format can be reproduced flawlessly, and disseminated to nearly any point on the globe instantly and at negligible cost. Digital transmissions can adversely effect the market for the original to a much greater degree than transfers of physical copies. Additionally, unless a "forward-and delete" technology is employed to automatically delete the sender's copy, the deletion of a work requires an additional affirmative act on the part of the sender subsequent to the transmission. This act is difficult to prove or disprove, as is a person's claim to have transmitted only a single copy, thereby raising complex evidentiary concerns. There were conflicting views on whether effective forward and delete technologies exist today. Even if they do, it is not clear that the market will bear the cost of an expensive technological measure. […] We also examined how other countries are addressing the applicability of the first sale – or exhaustion – doctrine to digital transmissions. We found that other countries are addressing digital transmissions under the communication to the public right and are not applying the principle of exhaustion, or any other analog thereof, to digital transmissions.

Basically, the Report considers the proposal of extending section 109 of the Copyright Act to digital copies, specifically whether on-line transmission of a work should fall within the scope of Section 109 that deals with the so-called “first sale doctrine”.137 In fact, under section 109, no distinc136

137

See United States Copyright Office, Executive Summary Digital Millennium Copyright Act Section 104 Report, III(1)(a) at http://www.loc.gov/copyright/re ports/studies/dmca/dmca_executive.html (last visited May 15, 2006) [hereinafter Copyright Office, Report]. 17 U.S.C. 109 (2005). “the owner of a particular copy or phonorecord lawfully


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tion is made between analogue and digital works. In considering whether there should be a "digital first-sale doctrine" the Copyright Office recommends against it, explaining that the first sale doctrine is a limitation of the right of distribution and not of reproduction. Furthermore, an on-line transmission of work does not exhaust the relevant right which protects this act of exploitation, because the result of each transmission is a new copy of the work, even when the original copy is deleted after transmission. Finally, the Copyright Office points out that other countries are addressing digital transmissions under the right of communication to the public, where the principle of exhaustion does not apply.138 Similarly, the EUCD consider the exhaustion principle exclusively for tangible copies. On this question, Recital 28 and 29 of the Directive respectively declare: Copyright protection under this Directive includes the exclusive right to control distribution of the work incorporated in a tangible article. The first sale in the Community of the original of a work or copies thereof by the right-holder or with his consent exhausts the right to control resale of that object in the Community. This right should not be exhausted in respect of the original or of copies thereof sold by the right-holder or with his consent outside the Community. Rental and lending rights for authors have been established in Directive 92/100/EEC. The distribution right provided for in this Directive is without prejudice to the provisions relating to the rental and lending rights contained in Chapter I of that Directive.139 The question of exhaustion does not arise in the case of services and online services in particular. This also applies with regard to a material copy of a work or other subject-matter made by a user of such a service with the consent of the right-holder. Therefore, the same applies to rental and lending of the original and copies of works or other subject-matter which are services by nature. Unlike CD-ROM or CD-I, where the intellectual property is incorporated in a material medium, namely an item of goods, every on-line service is in fact an act which should be subject to authorization where the copyright or related right so provides.140

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139 140

made under this title, or any person authorized by such owner, is entitled, without the authority of the copyright owner, to sell or otherwise dispose of the possession of that copy or phonorecord.”. Id. See Raquel Xalabarder, Copyright and Digital Distance Education: The Use of Pre-Existing Works in Distance Education Through the Internet, 26 Colum. J.L. & Arts 101, 117 (2003); R. Anthony Reese, The First Sale Doctrine in the Era of Digital Networks, 44 B.C. L. Rev. 577 (2003). Council Directive 2001/29, Recital 28, 2001 O.J. (L 167) 12 (EC). Council Directive 2001/29, Recital 29, 2001 O.J. (L 167) 12 (EC).

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In practice, Recital 28 states that distribution rights are exhausted by a first sale within the EC, while Recital 29 states that rights in services, principally those supplied on-demand, should not be exhausted by a sale within the EC. Thus, unless explicitly authorized by the right-holder, the resale of an intangible copy is prohibited. In spite of these similarities and differences, it has been argued that the DMCA constitutes a fairly good attempt to respond to the changes determined by digitalization and that it is still too early to condemn it, as the success of the Internet as a distribution model is yet to be determined.141 However, what has probably not been adequately considered is that behaviors that were taken for granted like making back-up copies of CDs, could now be criminalized.142 It is reasonable to assert that a certain balance is necessary in the protection of rights in order to avoid total control. The European directive, on the contrary, contemplates the most extensive legal protection measures against circumvention in all of the implementation of the WIPO treaties.143 Where technical tools are not effective enough, the law has to intervene, and vice versa.144 However, it will be evident in the latter part of this book how current technology is capable of delivering high protection, but legislation has not retreated. The DMCA and the EUCD both seem to have a rather extreme and un141

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143 144

See Emery Simon, The DMCA: Providing Locks for Digital Doors, in Copy Fights, supra note 1, at 171. The theory articulated by Simon could be easily extended to the EC Directive in question, as their scope and implications are alike. It is allowed under 17 U.S.C. § 117 (2000) and under Council Directive 91/250/CEE, art. 5(2), 1991 O.J. (L 122/42). Computer programs are always provided on some storage device (DVDs or CDs). Such storage media are relatively fragile and it is all too possible that their contents might be accidentally corrupted or erased. In these situations, it might not seem irrational for an end user to get a back-up copy of the work with the only purpose that this will be stored and used in the case that the original copy of the software is damaged or lost. See Lloyd, supra Intro., note 7, at 397. For a brief overview of anticircumvention systems in Europe, see Terese Foged, U.S. v. E.U. AntiCircumvention Legislation: Preserving the Public’s Privileges in the Digital Age?, 24 Eur. Intell. Prop. Rev. 525 (2002) (with specific reference to Denmark); Hart, supra note 104. See Dusollier, supra note 82, at 477. John R. Therien, Exorcising the Specter of a “Pay-Per-Use” Society: Toward Preserving Fair Use and the Public Domain in the Digital Age, 16 Berkeley Tech. L.J. 979, 985-990 (2001).


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balanced approach to defending authors’ rights. Legislators have also somehow “amended” their role of decision making in favor of copyright owners. In both cases there has not been a predetermined set of rules embedded into technological controls, and the power to determine the activities allowed with regard to protected content has shifted into the hands of their owners, representing a sort of “paracopyright.”145 In particular, if the aim of the Directive was the harmonization of the most troublesome aspects of copyright in the digital framework, then Article 6 fails because it principally leaves intervention up to individual Member States.146 Moreover, EUCD, as already pointed out, is particularly evasive on the method of intervention. This uncertainty also persists in the implementation of legislation of several Member States.147 Inevitably there will be differences found between Member States’ implementations, particularly in regard to the most troublesome issue: exceptions, limitations and the prohibited acts of circumvention.148 As has been noted, copyright law has always been flexible, evaluating on particular occasions what uses are legal on the basis of some lodestars. People have been allowed to engage in different behaviors and to face the consequences of their evaluation mistakes later. Choosing to determine ex ante, and with precise accuracy, the limits of fair use would chill spontaneity, deterring the public from engaging in behaviors that are otherwise legal and part of their routine.149 Unfortunately, thanks to the laws currently in force, such as DMCA and EUCD, content owners find themselves in an extremely strong position as they are offered the chance to impose their own rules and their own limits 145 146

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See Nimmer, supra note 2, at 686. See Perrit, supra note 107, at 4. See also Severine Dusollier, Exceptions and Technological Measures in the European Copyright Directive of 2001 - An Empty Promise, 34 Int'l Rev. Indus. Prop. & Copyright L. 62, 70 (2003) (noting how the Directive employs a "fair use by design" approach in the field of copyright exceptions). See Gasser & Girsberger, supra note 121, at 12. Id. European Union directives are legally binding on Member States, but they require the adoption of implementing legislation on the Member State level. See Consolidated Version of the Treaty Establishing the European Community, Dec. 24, 2002, O.J. (C 325) 65 (2002), article. 249, stating that directive “shall be binding, as to the result to be achieved, upon each Member State to which it is addressed, but shall leave to the national authorities the choice of form and methods.” For a comprehensive overview of EU law, see e.g. Denys Simon, Le Systeme Juridique Communautaire (3d ed. 2001); Giorgio Gaja, Introduzione al Diritto Comunitario (2005). See Burk & Cohen, supra ch. 1, note 140, at 60-61.

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on use and access to digital content, to the point where they could possibly supplant legal regulations.150 However, as these provisions are going to have an effect essentially relating to the material provided with anticircumvention tools, content providers have been forced to look for different solutions for material released prior to the development of technological protection.

2.4 Legal Remedies at Work: Illegal File Swapping Illegal file swapping represents one of the most well-known and global threats to intellectual property rights enforcement. Thanks to technology, the content industry has succeeded in making the removal of content from their digital supports more complicated, but there is a great new challenge that remains to be faced. That is the file sharing software, or peer-to-peer distribution systems.151 This kind of software allows users to freely exchange and distribute musical files or other copyrighted contents via the Internet. Because the greater part of these files are protected from copyright, the Majors have initially attached, in vain, the legitimacy of the MP3 standard.152 They have then focused on the file-sharing system. Napster, born in 1999, is perhaps the most well known of the peer-to-peer systems.153 The most recent peer-to-peer technology allows on-line connected computers to connect together without passing through a central file server. This creates a type of network constituted by interconnected computers, 150 151

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Id. at 50. On the relationship between technological protection measures and peer-topeer networks, see Peter Biddle et al., The Darknet and the Future of Content Protection, in Digital Rights Management, supra ch. 1, note 117, at 344. In 1998 the Record Industry Association of America (RIAA) sued Diamond Multimedia, manufacturer of the first portable MP3 player, with the purpose to hinder the distribution of MP3 music format. In this case the judge, considering the fair use doctrine, recognized the right of consumers to copy, and therefore to transform the CD into musical files. At the same time he recognized the right to produce instruments that make it possible. Recording Indus. Ass’n, Inc. v. Diamond Multimedia Sys., Inc., 29 F. Supp. 2d 624, 631-32 (C.D.Cal. 1998), aff’d, 180 F.3d 1072 (9th Cir. 1999). For a Napster case summary, see Lisa M. Zepeda, A&C Records, Inc. v. Napster, Inc., 17 Berkeley Tech. L.J. 71 (2002). For a full coverage of Napster’s history, see also Alderman, supra ch. 1, note 36; Trevor Merriden, Irresistible Forces: The Business Legacy of Napster & the Growth of the Underground Internet (2001).


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with the possibility to share files stored in single computers. This kind of communion is possible through the setting of simple software, the most famous of which has been Napster. As in the noted judicial story, Napster was the first to be diffused on a wide area network. After the ban of Napster,154 its clones (i.e. programs based on the same technique) have spread on the Net with extreme success.155 This new software enables Internet users to share music files and other types of files without such data being stored on a central server, so without the hybrid architecture of Napster.156 Technically, through these programs, the download and upload of files happen directly from one user’s computer to another’s. To commence the exchange of data, all that is necessary is to install one of these software packages and identify a special directory in which all the available files to share are stored. A peer network is created between all the users who install the same software, in which every computer operates, at the same time, as both client and server. This means that the sharing of the data does not happen through a central file server, but, on the contrary, through the sharing permissions established by every single user. Peer-to-peer networks are the result of a large number of individual connections among couples of computers. For just this reason, in a peer-to-peer net, all the computers can be considered client and file servers. In effect there is not a dominant file server, and all the positions are shaped to function in a work-group context. At the same time, every user is the administrator of his client, with the 154

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On appeal, the Ninth Circuit upheld an injunction issued by the Federal District Court finding that the sharing of copyrighted files was not fair use and was not within other exemptions of copyright infringement created by the Audio Home Recording Act or the Digital Millennium Copyright Act. See A&M Records v. Napster, 191 F. Supp. 2d 1087, 284 F.3d 1091 (2002). At present, some of the most popular sharing programs are: eDonkey, Kazaa, WinMX, LimeWire, Morpheus, BearShare, Gnutella, etc. For a detailed analysis of the current framework, see Gartner, G2 & The Berkman Center for Internet & Society at Harvard Law School, Copyright and Digital Media in a Post-Napster World, (2003) http://cyber.law.harvard.edu/home/uploads/254/20 03-05.pdf. Napster was found liable for vicarious copyright infringement because the court determined that it does have the ability to supervise and control its users. A&M Records, Inc. v. Napster, Inc., 239 F.3d 1004, 1022-23 (9th Cir. 2001). It also derived a direct financial benefit through the infringing activity. Napster, 239 F.3d at 1023. In fact, “Napster’s Achilles’ heel was that it retained a trace of the client-server model” by depending on a centralized file server. Kurt Kleiner, Free Speech, Liberty, Pornography: The Internet and Peer to Peer Networking, 169 New Scientist 32, 33 (2001).

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facility to decide autonomously whether to share a resource with the others or not. In a network so constituted, to recover a file stored by another user it is necessary to digitize the name of the file in the search interface arranged by the software and to start the screening of items possessed by the other peers. The query is submitted to all the other peers to verify the presence of the files in their shared directories, and to confirm, in positive cases, consent to the download. If existing laws have allowed the end of Napster, it is highly unlikely for right-holders to obtain the same result with the new decentralized networks (second and third peer-to-peer generations). This is because it is the same law that prevents it. Consequently, the only chance they have to find a way around the problem is to rely on other parties not directly involved in the “game,” like ISPs, cable operators and telephone companies, to make file sharing more difficult and to directly target single downloaders.157 DMCA provisions, in fact, were enacted in a period of server-based rather than peer-to-peer network distribution. As a result, it is now very complicated for a right-holder to prosecute unauthorized distribution of copyrighted materials by suing the enabling file-sharing services.158 Furthermore, the DMCA immunizes service providers, telecommunications companies and Internet search engines from liability under the Copyright Act for certain activities related to the transmission of infringing material on-line, if they satisfy some requirements designed to safeguard copyright holders’ interests.159 The consequence is that the content industry has tried to attack individual file-sharers as well. On the other hand, EC law, until now, had left much more discretion to Member States about the protection of noncommercial illegal file swapping. It is indisputable that the approval of the 157

158 159

For alternative solutions to the problem of the peer-to-peer, see William W. Fisher III, Promises to Keep: Technology, Law, and the Future of Entertainment 199-258 (2004) and Neil Weinstock Netanel, Impose a Noncommercial Use Levy to Allow Free Peer-to-Peer File Sharing, 17 Harv. J.L. & Tech. 1 (2003) (proposing to legalize peer-to-peer networks and replace the lost revenues with a tax on hardware and internet service). See also Lionel S. Sobel, DRM as an Enabler of Business Models: ISPs as Digital Retailers, 18 Berkeley Tech. L.J. 667, 667-68 (2003) (proposing another way to assure remuneration for right-holders: a model whereby ISPs act as digital retailers). See Charles Mann, The Year the Music Dies, Wired, Feb. 2003, at 90, available at http://www.wired.com/wired/archive/11.02/dirge.html. See Congressional Budget Office, supra ch. 1, note 96, at 18. See 17 U.S.C. § 512 (2000). For a discussion of this issue, see Douglas Lichtman & William Landes, Indirect Liability for Copyright Infringement: An Economic Perspective, 16 Harv. J.L. & Tech. 395, 401-02 (2003).


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recent Directives160 could change this condition, with the possibility of having lawsuits against individual file-sharers in Europe as well.161 Of course, these types of lawsuits could have only a deterrent effect on potential infringers.162 A final change in consumer behavior may be possible when the content industry is able to provide a legal alternative to illegal peer-to-peer networks.163 Some authors reveal that the Napster case is a perfect illustration of the destruction of copyright because the economics of digital technology undercuts prior assumptions about the efficacy of a private property regime for information.164 In this landscape, the economics of digital technology renders copyright both unnecessary and inefficient because it has just become a mechanism to provide protection to content distributors in a world in which middlemen are obsolete.165 According to scholars, peer-to-peer technology will continue to grow up, in ever-more ubiquitous and decentralized varieties, and content providers will need to keep fighting for the

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Council Directive 2001/29, 2001 O.J. (L 167) 10 (EC); Council Directive 2004/48, 2004 O.J. (L 195) 16 (EC). See infra Ch. 2 § 2.5. A first wave of legal actions has already affected Germany, Italy, and Denmark in March 2004. In Italy, 30 people have already been charged with copyright infringement, while computers and files have been seized as evidence. In Denmark, 120 people have been sent civil demands asking them to stop illegal file-sharing and to pay compensation or face legal action. See Europe's SongSwappers Face Court, BBC News (World ed.), Mar. 30, 2004, http://news.bbc. co.uk/2/hi/entertainment/3581935.stm. See Mark A. Lemley & R. Anthony Reese, Reducing Digital Copyright Infringement without Restricting Innovation, 56 Stan. L. Rev. 1345 (2004). Lemley and Reese assert that lawsuits against final users could be a good solution: in fact, according to their opinion: [C]opyright owners sue facilitators online because it is cheaper and easier for them than suing direct infringers. Cheaper and easier does not necessarily mean more efficient, however. The shift toward suing facilitators who are further and further removed from the act of direct infringement imposes substantial social costs on both legitimate users and on innovation, costs that the copyright owners do not have to bear. Id. at 1434. The answer that they offer to the question “is to change the economics of targeting direct infringers” by enforcing “civil and criminal copyright statutes against high-volume uploaders.” Id. See Biddle et. al., supra note 151. See generally Lemley & Reese, supra note 162. Raymond Shih Ray Ku, The Creative destruction of Copyright: Napster and the New Economics of Digital Technology, 69 U. Chi. L. Rev. 263 (2002). Id. at 294.

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hearts and minds of the public.166 After Napster shut down, in fact, end users have migrated to other peer-to-peer networks and new network infrastructure. This is true now and it will continue to be true in the future, also after the Grokster decision,167 in which the U.S. Supreme Court, adopting an inducement theory of contributory copyright infringement liability and preserving, in some circumstances, the previously articulated “substantial non-infringing use” doctrine,168 has found Grokster and StreamCast – two small software distributors – liable of infringement under a theory of inducement, for inducing copyright infringement in relation of acts taken in the course of marketing file sharing software.169 From the content industry point of view, there is a significant increase in the number of legitimate content distribution systems and a concurrent competition with unlawfully acquired content. As pointed out in a recent report of the International Federation of the Phonographic Industry (IFPI), when the supply of music available digitally proliferates it could compete with piracy.170 The report reviews the progress made in the digital music 166

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David W. Opderbeck, Peer-to-Peer Networks, Technological Evolution, and Intellectual Property Reverse Private Attorney General Litigation, 20 Berkeley Tech. L.J. 1685, 1688 (2005). Metro-Goldwyn-Mayer Studios, Inc. v. Grokster, Inc., 259 F. Supp. 2d 1029, 1041-43 (2003), aff'd, 380 F.3d 1154 (9th Cir. 2004), rev'd, 125 S. Ct. 2764 (2005). On June 27, 2005, the United States Supreme Court reversed the Ninth Circuit’s decision and held that Grokster and StreamCast could be liable for unlawfully inducing copyright infringement. For a brief overview of the case, see generally Lori Ploeger, Matthew D. Brown, and Orion Armon, An Overview of MGM Studios Inc. v. Grokster, Ltd., 34 The Col. Law. 89; Urs Gasser and John Palfrey , Catch-As-Catch-Can: A Case Note on Grokster, Berkman Center Research Publication Series 2005 available at http://papers.ssrn.com/so l3/papers.cfm?abstract_id=869030). For an European point of view, see Hilary Pearson and Graham Smith, Internet Filesharing. A European Perspective on Grokster, 10 Cyber. Law. 11 (2005). Sony Corp. of Am. v. Universal City Studios, Inc., 464 U.S. 417, 442 (1984). (applying the substantial non-infringing use doctrine for the first time in a copyright case). The Supreme Court held that “one who distributes a device with the object of promoting its use to infringe copyrights, as shown by clear expression or other affirmative steps taken to foster infringement, is liable for the resulting [third party] acts of [copyright] infringement.” See 125 S. Ct. 2764, 2780 (2005). Based on the theory of inducement and according to this evidence, the Supreme Court remanded the case to the lower courts for a determination of StreamCast’s and Grokster’s liability. See Gasser and Palfrey, supra note 167, at 6. See IFPI:05 Digital Music Report, supra note 102.


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landscape in 2004.171 The number of on-line sites where consumers can buy music legally has now hit more than 230, up from 50 a year ago, with record companies licensing the bulk of their active catalogue for download, totaling over one million songs – more than doubling the amount of available repertoire within one year. Furthermore, paid downloads went up more than tenfold to over 200 million. Services like iTunes and the new Napster have become household names internationally, and many other national sites are specializing in local repertoire. This indicates, again, that the lawsuits against peer-to-peer networks did not bring positive results despite the thousands of claims and other terror campaigns. On the contrary, the increase and proliferation around the world of services offering digital music have established a new market and new business models. Consumers have welcomed these new initiatives, and their attitudes to digital music are changing. Pay-per-downloads and subscription services are the real weapons to control music piracy, whereas fighting the problem of Internet piracy with more restrictive protection of content would only contribute to change the traditional balance of public and private rights.

2.5 Enforcement of Intellectual Property in Europe: A New Directive Another troublesome aspect of intellectual property rights in the digital environment concerns the rules of enforcement and the application of technical protection measures or digital rights management systems (hereinafter DRMs or DRM), used to secure digital content and also to manage individual users’ behavior.172 On April 29, 2004 the Council of Ministers of the European Union adopted Directive 2004/48/EC on the enforcement of intellectual property rights.173 Under this Directive, European States will establish a set of 171 172 173

Id. See infra Ch. 3. Council Directive 2004/48/EC, 2004 O.J. (L 157) 45 (EC). For detailed information on this Directive,, see Enforcement of Intellectual Property Rights, http://www.europa.eu.int/comm/internal_market/en/indprop/piracy/index.htm (last visited June 1, 2006). For critical comments, see Ryan Bates, Communication Breakdown: the Recording Industry’s Pursuit of the Individual Music User, a Comparison of US and EU Copyright Protections for Internet Music File Sharing, 25 Nw. J. Int’l L. & Bus. 229 (2004); Rico Calleja, The IP Enforcement Directive, 10 Comp. & Telecomm. L. Rev. 55 (2004); David Ellard,

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measures and procedures to “dissuade” illegal behaviour, as well as proportional remedies (for losses suffered by the counterparty) against whoever engages in counterfeiting or infringes intellectual property rights.174 This new Directive, in fact, obliges all Member States to apply “effective, proportionate and dissuasive” measures, procedures, and remedies against piracy and counterfeiting, offering a strict defense to violations.175 The rationale for that statement appears in the “Recital” sections, even if this general obligation is clearly inspired by Article 41(2) of the TRIPs (Trade Related Aspects of Intellectual Property Rights) Agreements.176 The European legislator asserts that enforcing intellectual property rights is necessary because without effective protection, “innovation and creativity are discouraged and investment diminished.”177 In this direction it is therefore necessary to ensure that “the substantive law on intellectual property…is applied effectively in the Community” because enforcement is “of

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The EU’s IPR Enforcement Directive: origin, key provisions and future of the EU’s IPR Enforcement Directive, 3 Computer L. Rev. Int’l 64 (2004); Peter Groves, The proposed EC Directive on Enforcement of Intellectual Property Rights, 25 Bus. L. Rev. 149, 151 (2004); Annette Kur, The Enforcement Directive–Rough start, happy landing?, 35 Int'l Rev. of Indus. Prop. and Copyright L. 821 (2004); Charles-Henry Massa & Alain Strowel., The Scope of the Proposed IP Enforcement Directive: Torn between the Desire to Harmonise Remedies and the Need to Combat Piracy, 26 Eur. Intell. Prop. Rev., 244 (2004); Michael Veddern, The Enforcement Directive 2004/48/EC–A Further Step in the Harmonization of IP Laws in Europe, 16 IPR Helpdesk Bulletin 4-5 (2004), available at http://www.ipr-helpdesk.org/newsletter/16/pdf/EN/N16_ 16_EN.pdf; Roger Wezenbeek, Balancing Consumer and Rightholders’ Interests in - and outside European Union (Jun. 2004), available at http://www.i pacongress.com/prog/work/download/Wezenbeek.pdf; Luca Nivarra, L’Enforcement dei Diritti di Proprietà Intellettuale dopo la Direttiva 2004/48/CE, 54 Riv. Dir. Ind. 33 (2005). See Italian Minister of Innovation and Technologies: Department for Innovation and Technology, Report of the Interministerial Committee on Digital Content in the Internet Age, 33 (2005), available at http://www.mininnovazione.it/ eng/intervent o/allegati/rap_cont_dig.pdf. The Member States will have to implement the Directive by April 28, 2006. Council Directive 2004/48, art. 3., 2004 O.J. (L 157) 61 (EC). “Procedures concerning the enforcement of intellectual property rights shall be fair and equitable. They shall not be unnecessarily complicated or costly, or entail unreasonable time-limits or unwarranted delays.” See Agreement on Trade-Related Aspects of Intellectual Property Rights, Apr. 15, 1994, art. 41(1), Marrakesh Agreement Establishing the World Trade Organization, Annex 1C, 33 I.L.M. 1125 (1994) [hereinafter TRIPS]. Council Directive 2004/48, Recital 3, 2004 O.J. (L 157) 46 (EC).


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paramount importance for the success of the Internal Market.”178 Besides, the European legislator has pointed out how “in the Member States, and despite the TRIPS Agreement,179 there are still major disparities regarding the means of enforcing intellectual property rights.”180 In particular, the legal instruments for applying provisional measures used to preserve evidence, the calculation of damages, or the instruments for applying injunctions, vary widely from one Member State to another. In fact, “[i]n some Member States, there are no measures, procedures and remedies such as the right of information and the recall, at the infringer’s expense, of the infringing goods placed on the market.”181 After Reading these main purposes, it would be difficult for any objective commentator to avoid the comparison to some of the dispositions of the U.S. Digital Millennium Copyright Act, that in the United States, organizations such as the RIAA have utilized to collect personally identifying information on file sharers with the intention to prosecute any individual responsible for copyright infringement.182 Actually, [u]p till now, the action taken by the European Community…in the field of intellectual property has focused mainly on the harmonization of national substantive law and the creation of a unitary right at Community level. Certain national intellectual property rights, for instance, have been harmonized, such as trade marks, designs, patents for biotechnological inventions, and certain aspects of 178 179

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Id. This agreement is an attempt to narrow the gaps in the way intellectual property rights are protected around the world, and to bring them under common international rules. It establishes a minimum level of protection that each government has to give to the intellectual property of fellow WTO members. See TRIPS, supra note 176. Council Directive 2004/48, recital 7., 2004 O.J. (L 157) 48 (EC). Id. According to Robin Gross, the director of civil liberties group IP Justice, the Directive “[C]reates a broad new ‘Right of Information’ which requires Internet Service Providers (ISPs) to disclose personal information about their customers to recording industry executives for civil prosecution of Peer-to-Peer (P2P) file-sharing and other activities. Similar subpoena powers, created under the notorious US Digital Millennium Copyright Act” even if the power assigned by the directive could be much wider because it “applies to all types of intellectual property infringements, not just copyrights.” Robin Gross, EU Passes Dangerous IP Law, Despite MEP’s Conflict of Interest “Midnight Knocks” by Recording Industry Executives Get Go-Ahead (2004), http://www.ipjustice.org/CODE/release20040309_en.shtml [hereinafter IPjustice].

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copyright and related rights…While the gradual harmonization of substantive law on intellectual property rights has promoted the free movement of goods between the Member States and has made the rules applicable more transparent, the means of enforcing intellectual property rights have not yet been subject to any harmonization.183

For example, the rapidly growing piracy of intellectual property rights and production of counterfeit goods, as well as the infringement of intellectual property in general, are constantly increasing phenomena that currently have international diffusion and pose a critical threat to national economies.184 The national disparities existing in the measures and procedures of enforcing intellectual property rights could support these phenomena in the European internal market. “In other words, counterfeited and pirated products are more likely to be manufactured and sold in those countries that are less effective than others in combating counterfeiting and piracy.”185 In practice, with the adoption of the Directive, the TRIPS provisions on enforcement of intellectual property rights186 – “the cornerstone of international law on enforcement of intellectual property”187 – are transposed into European law even if, arguably, they go beyond the same TRIPS rules on enforcement.188 In fact, the Directive implements at a community level 183

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European Union SCADPlus Service, Enforcement of Intellectual Property Rights (2004), http://europa.eu.int/scadplus/leg/en/lvb/l26057a.htm. Copyright, trademark and design industries are all affected by intellectual property theft, but practically no product is unaffected by these illegal practices. Contrary to what is thought, not only music, movies, software and other protected contents but also food and beverages, pharmaceuticals, watches, apparels, cigarettes and cosmetics are popular targets of counterfeiters. See Telecom Liberalization Can Benefit All Citizens, AGIP Bulletin June 2004, 5 available at http://www.agip.com/bulletin_sub.aspx?year=2004&month=6&l ang=en. The first Global Congress on Combating Counterfeiting has estimated that the value of counterfeited and pirated goods at over €. 500 billion annually. The First Global Congress on Combating Counterfeiting, World Customs Organization Headquarters, Brussels (May 25-26, 2004), http://www.akjassoci ates.com/wco2004/website.asp?page=declaration. See European Union SCADPlus Service, supra note 183. TRIPS art. 41-50 & 61. Ellard, supra note 173, at 66. The agreement states that governments have to ensure that intellectual property rights can be enforced under their laws, and that the penalties for infringement are tough enough to deter further violations. The measures must be fair and equitable, and not extremely complicated or costly. TRIPS art. 41.2. They should not require irrational time-limits or unwarranted delays. TRIPS art.


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“certain so-called ‘best practice’ measures currently in operation in one or more Member States.”189 The harmonization is not limited to specific sectors of intellectual property rights, but can be applied to any sort of infringement of intellectual property rights with the problem that within Member States the concept of IPRs is often different, and the Directive never provides a definition of them.190 So, if from one perspective the aims of the Directive seem to be positive both for right-holders and consumers, we cannot hide some critical points of view. It is indubitable that the main purpose of the act is the reduction of the discrepancies and distortions in national laws.191 It is also indubitable that the dispositions provided will encourage freedom of movement and protect fair and equal competition in the internal market, increasing a safer environment for new investment in

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41.2. People involved should be able to ask a court to review an administrative decision or to appeal a lower court’s ruling. TRIPS art. 42. The agreement illustrates in some detail how enforcement should be handled, including rules for obtaining evidence, TRIPS art. 43, provisional measures, TRIPS art. 50, injunctions, TRIPS art. 44, damages, TRIPS art. 45, and other penalties, TRIPS art. 46. It also statues that courts should have the right, under certain conditions, to order the disposal or destruction of pirated or counterfeit goods. TRIPS art. 59. Wilful and malicious trademark counterfeiting or copyright piracy on a commercial scale should be criminal offences. TRIPS art. 61. For other details, see Intellectual Property: Protection and Enforcement, World Trade Organization, at http://www.wto.org/english/thewto_e/whatis_e/tif_e/a grm7_e.htm (last visited June 3, 2006). Ellard, supra note 173, at 65. See also Veddern, supra note 173, at 4. For this and other criticisms, see Italian Minister of Innovation and Technologies: Department for Innovation and Technology, Report on Digital Rights Management 42-43 (2004), http://www.innovazione.gov.it/ita/normativa/pubbl icazioni/digital_rights_management.shtml. See also Kur, supra note 173, at 823. According to the official press release of the Commission, the main objectives of the Directive are: a) to create a level playing field for the enforcement of intellectual property rights in different EU countries, by bringing enforcement measures into line across the European Union, especially in those countries where the enforcement of intellectual property rights is currently weakest; b) to establish a general framework for the exchange of information between the responsible national authorities; c) to maintain a balance between helping holders of intellectual property defend their rights and protecting users from unfair litigation (so-called rights of due process). Press Release, Proposed Directive on Enforcement of Intellectual Property Rights, http://europa.eu.int/rapid/pres sReleasesAction.do?reference=MEMO/03/20&format=HTML&aged=0&language=EN&guiLanguage=en (last visited May 1, 2006) (discussing MEMO/03/20 Brussels, Jan. 30, 2003).

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innovation and creation. It is also possible that, in this new legal framework, there is something positive for the consumers who are often damaged by the counterfeited and pirated products.192 “These activities may also pose a real threat to the health of the consumer (counterfeit medicines) or to his safety (counterfeit toys or parts for cars or aircraft).”193 But, the Directive offers to consumers merely an outward gift (“timeo Danaos et dona ferentes” Laocoon admonished in front of the Trojan Horse194) because the disadvantages are more severe than the advantages. Some of the most controversial aspects of the Directive, in fact, start by setting out various obligations necessary to establish the infringement of an intellectual property right, such as provisions on evidence and the protection of evidence.195 The Directive offers three great rights to intellectual property right-holders: preservation196, information197 and precaution.198 Articles 6 and 7 try, specifically, to solve the problem of the control of evidence in intellectual property infringement cases. Usually the evidence in these cases is under the control of the infringer himself, and it may be difficult for the plaintiff to produce prima facie evidence of the infringement.199 So, Article 6.1 stipulates that the competent judicial authorities, on particular occasions, may order that reasonably available evidence, sufficient to support a claim, could be presented by the opposing party. According to Article 6.2, Member States should also take such measures as are necessary to enable the responsible authorities to order, upon application 192

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196 197 198 199

Is important to underline that, “[c]ounterfeiting and piracy are generally accompanied by deliberate cheating of the consumer as to the quality he is entitled to expect from a product bearing, for instance, a famous brand name, since counterfeit or pirated products are produced without the checks made by the competent authorities and do not comply with minimum quality standards. When he buys counterfeit or pirated products, the consumer does not in principle benefit from a guarantee, aftersales service or effective remedy in the event of damage.” See European Union SCADPlus Service, supra note 183. Id. “I fear the Greeks, even when they bring gifts.” Vergil, Aeneid, Book II, line 49 (Oxford Univ. Press 1969). See European Commission, IPR Enforcement Directive Gets Go-Ahead: Counterfeiting and Piracy, Single Market news, July 2004 at 10, available at http://europa.eu.int/comm/internal_market/smn/smn34/index_en.htm. Council Directive 2004/48, art. 7(1), 2004 O.J. (L 157) 65 (EC). Council Directive 2004/48, art. 8, 2004 O.J. (L 157) 67 (EC). Council Directive 2004/48, art. 9, 2004 O.J. (L 157) 70 (EC). See Ellard, supra note 173, at 68; Kur, supra note 173, at 825; Veddern, supra note 173, at 5.


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by a party, and only for infringements committed on a commercial scale, the communication of banking, financial or commercial documents under the control of the opposing party. Meanwhile, Article 7 sets out provisional measures to preserve evidence, which are enforceable when there is a demonstrable risk of intellectual property rights infringement, and even before the commencement of proceedings on the merits of the case. The recommended preservation actions includes physical seizure of the infringing goods, the materials and implements used in the production and/or distribution of these goods and the documents relating thereto. Article 8 of the Directive stipulates a right of information, in particular circumstances, allowing judicial authorities to order certain persons to provide information on the origin of the goods or services which are thought to infringe an intellectual property right for commercial purposes. In addition, the Directive provides provisional and precautionary measures in Article 9.1, such as seizure of alleged infringing goods or the blocking of the bank account and other assets of the alleged infringer in Article 9.2. Other measures, resulting from a decision on the merits of the case, could be the destruction, recall, or final removal from the market of the infringing goods as discussed in Article 10. Even if the current Enforcement Directive could represent “a step on the path toward a comprehensive Community framework of legislation both substantive intellectual property law and its enforcement,” we cannot hide several other questionable aspects.200 One of the points most criticized in relation to this new Directive is connected to the limits of the application of the measures provided for enforcement. In particular, there was heated discussion connected to peer-to-peer file sharing and the possibility of limiting application of these measures to acts carried out on a commercial scale.201 As pointed out in Recital 14 of the Directive, acts carried out on a 200 201

Ellard, supra note 173, at 71. For example, in Italy, the so-called Decree “Urbani” – “Interventions to oppose the illegal electronic circulation of audiovisual material, and to support film and entertainment activities” (Decreto 72/04), gave rise to a fervent controversy because, in its very first version, it distorted the distinction between violating copyrights for commercial and for non-commercial purposes, overturning the previous legal system. The Decree was converted into law, as amended by Law No. 128 of May 21, 2004 published in the Official Gazette of the Italian Republic No. 119 of May 22, 2004, and it went into effect on May 23, 2004. One of the goals of the provision is to fight electronic piracy. In this sense it was greatly opposed by the Internet Service Provider associations and telecommunications firms that, while agreeing with its ultimate objectives, felt that the system of safeguards the decree introduces for digital media copyrights is particularly repressive and disproportionate. Recently the law has been

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commercial scale are those executed for direct or indirect economic or commercial advantage. Therefore, this would normally exclude acts carried out by end consumers acting in good faith. Unfortunately, only the original proposal of the Directive was in this direction, limited to infringement committed for commercial purposes which generate significant harm to the rights-holder.202 The final version of the Directive, that is, the one adopted by the European Parliament and the Council, does not insist that Member States apply penalties to the individual file swapper, but gives them wide discretion.203 In the U.S. system, on the contrary, rights-holders and Internet service providers have lobbied on behalf of their business interests for moving legal liability onto individual users.204 It was argued that some DMCA provisions “reflect[] an early attempt to clarify an ISP’s potential liability for contributory copyright infringement.”205 The DMCA, in fact, specifies that Internet service providers cannot be held liable for copyright infringement for either the transmission or the storage of copyright-infringing materials on their networks if they follow the requirements laid out by the statute.206 The absence of these “safe-harbor” provisions in the EC system may push liability against ISPs and other intermediaries also, for hosting illegal content or activities.207 Currently, the problem of liability of Internet service

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amended again by the law No. 43 of 31 March, 2005 published in the Official Gazette of the Italian Republic No. 75 of April 1, 2005. For some criticism of this law, see Calovi & Lucchi, supra note 101. See also Italian Minister of Innovation and Technologies: Department for Innovation and Technology, Report of the Interministerial Committee on Digital Content in the Internet Age, 33 (2005), http://www.mininnovazione.it/eng/intervento/allegati/rap_cont_dig. pdf. See Ellard, supra note 173, at 67; Veddern, supra note 173, at 4. See Kur, supra note 173, at 821. The final version of the Directive, in fact, includes only civil measures and remedies while the proposal to harmonize criminal proceedings and penalties was rejected. See Bates, supra note 173, at 248. Congressional Budget Office, supra ch. 1, note 96, at 14. See Lichtman & Landes, supra note 159, at 402. See Kur, supra note 173, at 826. One of the most famous European cases in this direction was LICRA v. Yahoo!, Tribunal de Grande Instance de Paris [T.G.I.] [court of original jurisdiction] Paris, Nov. 20, 2001, available at http://eff.org/legal/Jurisdiction_and_sovereignty/LICRA_v_Yahoo/20001120_ fr_int_ruling.en.pdf. U.S. court will not uphold French censorship ruling against U.S.-based company for speech that is legal in the United States: in fact this ruling contrasts with section 512 of the DMCAand was not enforced in the United States due to First Amendment concerns. See Marc H. Greenberg, A Return to Lilliput: The LICRA v. Yahoo! Case and the Regulation of Online


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providers is ruled in detail by Directive 2000/31/EC, also called the Ecommerce Directive.208 This distinguishes the liability standards that apply to various on-line intermediary players, punctually classifying the liabilities that emerge from activity as a mere conduit, caching and hosting.209 On the contrary, the Enforcement Directive opens new questions and practical consequences for other types of intermediates.210 Civil liberties organizations and consumer rights groups are worried that the Directive could be used by the recording and content industry to attack users in Europe much like the lawsuits in the United States. In fact, there is more than some doubt that the Directive was influenced, at least in part, by the recent attacks on peer-to-peer and file sharing music piracy in the United States, and supported by intense lobbying of the content industry.211 As argued by John Perry Barlow, the Enforcement Directive does not seem to be very effective at protecting the interest of artists, or at least the ma-

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Content in the World Market, 18 Berkeley Tech. L.J. 1191 (2003); Lackman, supra note 124, at 1177. The same approach could be found in a German case in which CompuServe was found liable under German criminal law for the distribution of child pornography over the internet. See Amtsgericht München Geschäftsnummer: 8340 Ds 465 Js. 173158/95 (1998), available at http://eff.org/legal/Jurisdiction_and_sovereignty/LICRA_v_Yahoo/20001120_fr _int_ruling.en.pdf. (unofficial English translation available at http://www.cybhttp://www.cyber-rights.org/isps/somm-dec.htm). Some similar approaches could also be found in previous decisions of Italian courts: Tribunale di Napoli, Ordinanza 8 August 1996 (comparing, in terms of liability, a service provider to a newspaper’s director), 1 Giustizia Civile, Vol. XLVIII, January 1998 at 259, and, more recently, Tribunale di Catania, Sentenza 29 June 2004 (distinguishing the liability for content providers and service providers), available at http://www.interlex.it/testi/giurisprudenza/ct040 629.htm (last visited May 1, 2006). Council Directive 2000/31, On Certain Legal Aspects of Electronic Commerce in the Internal Market, 2000 O.J. (L 178) 1 (EC). For a complete overview of the Directive, see Rosa Julià-Barceló & Kamiel J. Koelman, Intermediary Liability In The E-Commerce Directive: So Far So Good, But It’s Not Enough, 4 Computer L. & Sec. Rep. 231 (2000). See Kur, supra note 173, at 826-27 (“As liability of ISPs seems to be confined in most of the crucial cases to what is set out in the e-commerce directive, the practical consequences may materialize primarily in the transport business.”). By sheer coincidence, the European Parliament's Rapporteur of the new intellectual property enforcement directive is Janelly Fourtou, wife of Jean-René Fourtou former top manager of Aventis and currently the CEO of Vivendi Universal, the media giant that is the biggest holder of intellectual property rights worldwide. See File Swappers Avoid Home Invasion, BBC News (UK ed.), Mar. 9, 2004, http://news.bbc.co.uk/1/hi/technology/3545839.stm.

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jority of them. Rather, it seems more designed to over-protect the interests of those “same distribution institutions that have preyed on musicians and songwriters for the last one hundred years.”212 Therefore, there is a real possibility that, even if it seems suited only for cases involving infringement for commercial purposes, it will also be used against European consumers for minor non-commercial infringements.213

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John Perry Barlow, Why Artists Oppose the EU Intellectual Property Rights Enforcement Directive, at http://www.ipjustice.org/CODE/Barlow_stmnt.html (last visited May 1, 2006). See IPjustice, supra note 182.

CHAPTER 3 Intellectual Property in the Digital Age: Regulation through Technology

As argued above, the extremely fast technological progress in information technologies has brought about new legislative and judicial attempts to restructure intellectual property rights for digital media and information, trying to balance the interests of both rights-holders and consumers. Now, protection of intellectual property rights in the information society is essentially governed by different international conventions and the subsequent compliance of national legislative principles. This legislation backs up the enforceability of privately generated norms.1 Acts, such as the DMCA and EUCD, recognize a legal status and explicit legal protection for “technological measures” and “copyright management information” hampering unauthorized uses and determining the conditions for legitimate use.2 Article 6(1) of the European Copyright Directive prohibits the circumvention of technological protection measures stipulating that “Member States shall provide adequate legal protection against the circumvention of any effective technological measures, which the person concerned carries out in the knowledge, or with reasonable grounds to know, that he or she is pursuing that objective”.3 Similarly the DMCA anti-circumvention basic 1

2

3

See Elkin-Koren, A Public Regarding Approach to Contracting over Copyright, in Expanding the Boundaries of Intellectual Property, supra ch. 1, note 37, at 191, 192. See Stefan Bechtold, Digital Rights Management in the United States and Europe, 52 Am. J. Comp. L. 323, (2004). These systems are designed to prevent the easy copying of digital works. Both the acts protect the systems with a legal regime designed to ensure protection for creative works. See id. at 356. For a description of technological protection measures, their implications and uses, see Sobel, supra ch. 2, note 157. Council Directive 2001/29, art. 6(1), 2001 O.J. (L 167) 10, 17 (EC). The Article also allows for right-holders’ compliance through “agreements between rightholders and other parties concerned,” namely through contracts. For a critical overview of the Directive, see Séverine Dussollier, Fair Use by Design

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provision states: “No person shall circumvent a technological measure that effectively controls access to a work protected under this title”.4 These legislative enactments and the transition from analog to digital media has had a Copernican impact on intellectual property rights, consumers, and content industries. While in the past analog era, rights-holders applied physical barriers to control reproduction and distribution of their goods in order to prevent unauthorized copying and to enforce intellectual property law, in this new legal framework, the technological protection measures have found formal recognition replacing the old practical barriers.5 This has the relevant advantage that technology is not subject to any legal limit and can regulate transactions in a much more powerful way.6 As a result, in order to prevent non-copyright holders from infringing upon the exclusive rights of the copyright holder, intellectual property law was amended to meet the needs of the highly technological world. The revision of current law, however, is much more difficult and complicated than in the past. The rapid advance and indiscriminate use of digital technology to control legally acquired digital creative works, on one hand could limit infringing distribution and have effects on innovation and economy, but, on the other, it could also have involuntary negative effects for consumer rights.7 Since the development of the first technical protection system, technology has taken giant steps. The most recent measures – very effective in the protection of authors’ rights – have enhanced the feasibility of new business models, in particular, enabling rights-holders to engage in differential

4 5

6

7

in the European Copyright Directive of 2001, 46 Comm. ACM 51 (2003). For further discussion on the complex structure of Article 6.4 of the E.C. Copyright Directive, see Casellati, supra ch. 2, note 94, at 372-77. 17 U.S.C. 1201(a)(1)(A). See Lessig, supra ch. 1, note 108, at 136; Reidenberg supra ch. 1, note 108, at 567-68. See Jacques de Werra, Moving Beyond the Conflict Between Freedom of Contract and Copyright Policies: In Search of a New Global Policy for On-Line Information Licensing Transactions: A Comparative Analysis Between U.S. Law and European Law, 25 Colum. J.L. & Arts 239, 251 (2003). For more extensive treatment of the different threats posed by digital technologies to consumers rights, see, for example, Jack M. Balkin, Digital Speech and Democratic Culture: A Theory of Freedom of Expression for the Information Society, 79 N.Y.U. L. Rev. 1 (2004); Burk & Cohen, supra ch. 1, note 140, 5051; Lee A. Bygrave, DRM and Privacy. Legal Aspects in the European Union, in Digital Rights Management, supra ch.1, note 117, at 418; Julie E. Cohen, DRM and Privacy, 18 Berkeley Tech. L.J. 575, 585 (2003); Samuelson, supra ch. 2, note 110, at 42-45.

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pricing according to the specific uses made of their rights. However, the application of these measures is also one of the most troublesome sources of conflict between rights-holders and consumers.8 The role technology can hold in protecting intellectual property varies greatly. It can be used simply to prevent users from gaining access or engaging in definite uses, like copying, or it can be used to develop licensing business models where rights-holders determine at their own discretion terms and conditions for access and use of their works and embed these rules in technical devices.9 In both cases it nurtures the amount of control rights-holders exert over their productions, because, as has already been seen, technology is not subject to any legal limit and is able to control transactions much more strictly than a contract.10 As recently discussed,11 a global legal regime that privileges digital-rights management may hinder development efforts, in particular in a world facing the fundamental challenge of providing knowledge, information and tools to developing countries. In recent decades, industrialized countries have increasingly promoted an international ‘DRM framework’ that more tightly restricts the use of copyrighted works and that legally reinforces the use of DRM to impose those restrictions. DRM and its sometimes-harsh restrictions on how copyrighted works may be used, some critics have argued, may ultimately take the place of the more flexible and human copyright systems of developing nations. Nor are the restrictions imposed by DRM limited to copyrighted works – even information that is not protected by copyright may be "locked" by DRM, and citizens may be legally barred from unlocking informational goods that are essential to create or promote access to knowledge. Many supporters of development see an acute set of threats in globally imposed DRM and anticircumvention laws (the "DRM framework"). For example, they argue that for countries that are net importers of copyrighted information goods, the DRM framework will result in a transfer of wealth from domestic economies to foreign rights-holders, without any guarantee of reciprocal investment in the local cultural economy. And, in countries that do not have existing industrial capacity, it is argued, the DRM frame-

8

9

10 11

See Congressional Budget Office, U.S. Congress, supra ch. 1, note 96, at 1113. See, e.g., Pamela Samuelson, Will the Copyright Office be Obsolete in the Twenty-First Century?, 13 Cardozo Arts & Ent. L.J. 55, 61 (1994). On the power of technology, see Reidenberg, supra ch. 1, note 108. See Access to Knowledge Conference, the Yale Law School (April 21st – 23rd , 2006 ) available at http://islandia.law.yale.edu/isp/a2kconfmain.html.

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CHAPTER 3 work is likely to impede technology transfer.”12

There are many expressions currently in use to indicate the expanding set of technologies and systems designed to protect content from unauthorized copying and to facilitate monitoring the use of the products by consumers.13 The terms “self-help systems,” “Digital Rights Managements Systems,” “Technological Protection Measures,” and “Automated Rights Management” all refer to automated systems able to protect and manage, individually, the distribution of digital works. Prominent among the problems that may be connected with the use of these systems is the fact that any rights a consumer may have under copyright law could be replaced by unilaterally defined contractual terms and conditions, in a sort of commercial agreement between the parties with a modifying consequence on the balance of rights.14 Moreover, these means can also individually control users’ behavior presenting a powerful threat to freedom of expression as well as privacy.15 Generally speaking, these measures are used to manage rights. According to the context, managing rights could embrace a system that is used to secure and distribute protected content or protected media files. In such a system the rights are defined during the protection step and issued as a usage license to consumers. Managing rights could also embrace a system that is used to control access to an on-line service and an accounting system that can track the rights issued and the royalties that are associated with those rights.16 Essentially, the combination of DRM and Technological Protection measures allow “the smooth, secure, trusted movement of digital works from creators and publishers to retailers and consumers.”17 12 13 14

15

16

17

Id. See Adam, supra ch. 1, note 37, at 104. See William Rosenblatt et al., Digital rights management: business and technology 46 (2002). See also Andrea Ottolia, Preserving Users’ Rights in DRM: Dealing with “Juridical Particularism” in the Information Society, 35 Int'l Rev. of Indus. Prop. & Copyright L. 491, 496-99 (2004). For comment on the replacement of a copyright system with a contract-based system, see Niva ElkinKoren, Copyright Policy and the Limits of Freedom of Contract, 12 Berkeley Tech. L.J. 93, 111 (1997). See Cohen, supra note 7; Gross, supra ch. 2, note 105, at 190. For a European perspective, see Bygrave, supra note 7. See Digital Rights Management Terms, http://www.xrml.org/reference/xr ml_terms.asp (last visited June 1, 2006). For a definition of DRM and its basic elements and features see also generally Rosenblatt et al., supra note 14. See ContentGuard, XrML: The Technology Standard for Trusted Systems in the eContent Marketplace (2000), http://www.xpert.co.kr/1com/2network/p2p/


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The first step is always the creation of an original work, then the “eContent owner can then edit and finish the original work by aggregating it with other edited works. Utilizing DRM, publishers then assign rights to a digital work and stipulate fees and access conditions resulting in a license governing the exercise of each specific right.”18 In this sense, DRM enables “eTailers to establish prices associated with different business models and consumers” while at the same time users can “access digital content with a valid license, which will trigger an automated process for royalty payments.”19

3.1 Technological Protection Measures: Privately Legislated Intellectual Property Rights? When digital rights are completely managed by software, the license terms can no longer be considered of a traditional legal nature and may or may not have legal status.20 Additionally, it becomes very difficult to manage some user rights and exceptions existing under the fair use doctrine.21 In fact, the copyright law, although carefully worded, simply cannot be expressed in the kind of algorithmic language that is required by computer programs to automate functionality like printing or copying. This is especially true of the key concept of “fair use.” Fair use is a deliberately vague exception to the monopoly rights of the copyright holder. It says essentially that although the copyright holder has the exclusive right to make copies of the work, members of the public can also make copies if their use is “fair.” There is no a priori test for whether a use is fair; each such exercise of the public’s right must be carefully scrutinized taking into account a number of factors. Even after such scrutiny, not everyone will agree on what is fair. Electronic systems need an unambiguous and quantitative definition that

18 19 20

21

pds/0_WhitePaper.pdf#search='The%20Technology%20Standard%20for%20t rusted. Id. Id. See Karen Coyle, Rights Expression Languages: A Report for the Library of Congress 12 (Feb. 2004), available at http://www.loc.gov/standards/Coylerepo rt_final1single.pdf. See also Reichman & Franklin, supra Intro., note 35. Tom W. Bell, Fair use v. Fared Use: the Impact of Automated Rights Managements on Copyright’s Fair Use Doctrince 76 N. Carolina L. Rev. 557 (1998).

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CHAPTER 3 they can act on, and the copyright law does not provide that.22

The regression of law of government origin, as useful instrument to regulate the new legal phenomena, has caused a growth of the function of contract as new instrument to determine concretely the applicable rules.23 Generally, the attribution of a fundamental role to the contract is today promoted by the globalization of the economy. As argued by some authors,24 the advent of the post-industrial society does not claim, as was the case with the advent of industrial era, deep legislative reforms. The framework of the codified law remains unaltered. But this lack of changes is connected to the fact that traditional laws are no longer the instruments for legal transformation. So, one of the most troublesome problems facing policy-makers is the speed at which radical transformation of the global economy is occurring.25 Technologies, then, contribute to produce pressure for legal change.26 For these reasons the contract has become the main instrument of legal innovation.27 The classic legal arguments do not place the contract between the normative sources; but if we continued to see the contract as a mere application of the law, rather than a source of new law, we deny ourselves the chance to recognize in which way the law is chang22 23

24

25

26

27

See Coyle, supra note 20, at 11. See Giovanni Pascuzzi, Il Diritto nell’Era Digitale. Tecnologie Informatiche e Regole Privatistiche (2002). See Francesco Galgano, Diritto ed Economia alle Soglie del Nuovo Millennio, 16 Contr. e impr. 189, 197 (2000). “L’avvento della società post-industriale non reclama, come reclamò l’avvento dell’era industriale, profonde riforme legislative. Il quadro del diritto codificato resta immutato. Ma resta immutato, perchè sono altri, non le leggi, gli strumenti mediante i quali si attuano le trasformazioni giuridiche. Il principale strumento di innovazione giuridica è il contratto. Le concezioni classiche del diritto non collocano il contratto fra le fonti normative; ma se continuassimo a concepire il contratto come mera applicazione del diritto, e non come fonte di diritto nuovo, ci precluderemmo la possibilità di comprendere in qual modo muta il diritto del nostro tempo”. On the supremacy of regulation by contractual arrangements in transnational and cyberspace activities see Ethan Katsh, Law in a Digital World: Computer Networks and Cyberspace, 38 Vill. L. Rev. 403, 415 (1993); I. Trotter Hardy, The Proper Legal Regime for “Cyberspace” 55 U. Pitt. L. Rev. 993, 994 (1994). See Frederick M. Abbott, Public Policy and Global Technological integration: an introduction, in Public policy and global technological integration 12 (Frederick M. Abbott and David J. Gerber eds., 1997). See John Goldring, Consumer Protection, Globalization and Democracy, 6 Cardozo J. Int’l &Comp. L. 1, 68 (1998). See Francesco Galgano, supra note 24.


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ing. It has been observed that international trade and other transnational transactions, including on-line transactions, “require a body of rules that is free from the idiosyncratic differences that arise between the several national legal systems”.28 In the information society framework, the combination of a contract and technological protection measures could represent a powerful mixture for a fully automated system of secure distribution, rights management, monitoring, and payment for protected content.29 So, when users access content protected by a technological protection measure, the content provider, in practice, imposes a contractual provision by a click-through or click-wrap agreement.30 However, neither copyright law nor contracts can exercise any actual control over the behavior of users of content. On the contrary, they rely on the parties to act within the stated agreement or law. But, it has been argued that because digital materials must be mediated through software and hardware for use, it is possible to exercise a priori control over access to and use of the content through that technology. The nature of the control may or may not also be expressed in a human-readable user license.31

So when we combine function of control with contract the result have a tendency to have data elements in common because they both represent license terms. Control is distinctive because it is designed to be machineenforceable, therefore it will use a highly formalized expression, generally with quantitative values since computer systems can only work with units 28 29

30

31

See Goldring, supra note 26, at 56. See P. Bernt Hugenholtz, Copyright and Electronic Commerce: An Introduction, in Copyright and Electronic Commerce, supra note 33, at 1, 2. Under this legal fiction, the consumer can agree to the terms of contract in a very similar way to the shrink-wrap license. On the latter form of licensing agreement, see Mark A. Lemley, Intellectual Property and Shrinkwrap Licenses, 68 S. Cal. L. Rev. 1239 (1995). Some commentators argue that, even if “DRM usage contracts are usually made over the Internet and are therefore not shrink-wrap licenses in the strict sense…[they could be] analogized…to their online counterpart: the so-called ‘click-wrap’ licenses.” Bechtold, supra note 2, at 343 (remarking also that “[m]ost DRM usage contracts are such click-wrap licenses”). On the electronic contracting environment, see Robert A. Hillman & Jeffrey J. Rachlinski, Standard-form Contracting in the Electronic Age, 77 N.Y.U.L. Rev. 429, 464(2002). See Karen Coyle, supra note 20.

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CHAPTER 3 that can be quantified. So control vocabularies will define units, such as pages or minutes, clock and calendar based constraints, and tokens of exchange, such as prices. They also need precise identifiers for each element or party. As an example, a contract will name a person and perhaps give that person's address or some other contact information. A control system has to have a unique identifier for each party, even though the identifier may not have any meaning outside of the context of the particular license. The need for control determines the kinds of functions that can be included in a license.32

3.2 Technological Features to Protect Access and Rights Control The inclusion of copy protection devices is a feature of much digital media. A wide range of techniques are used in an attempt to guarantee that only the authorized user can make use of the content. In general, it is possible to classify two different kinds of technological control measures, “access control” and “rights control.”33 Access control deals with the concept of “who has access to what,” and includes the type and number of operations that can be executed by users. In other words, access control measures provide a framework for the definition of authorization policies. Rights control limits a user’s ability to exercise one of the rights of the content owner. These distinctions imply, for example, that those “who circumvent a rights control will not infringe the copyright owner’s rights.”34 In this sense, access controls may enjoy stronger protection than rights controls, and rights-holders could have more incentive to use access controls rather than rights controls in order to obtain the stronger legal protection against circumvention.35 However, technological protection systems 32 33

34 35

Id. For this distinction, see R. Anthony Reese, Will Merging Access Controls and Rights Controls Undermine the Structure of Anticircumvention Law?, 18 Berkeley Tech. L.J. 619 (2003). See also Kamiel J. Koelman & Natali Helberger, Protection of Technological Measures, in Copyright and Electronic Commerce: Legal Aspects of Electronic Copyright Management 165 (P. Bernt Hugenholtz ed., 2000); Ottolia, supra note 14, at 493. As pointed out by the latter, “access control” measures allow the DRMS to function as a conditional access system while “rights control” measures allow the user who has obtained the access to carry out certain uses on it. Id. Reese, supra note 33, at 624. See id. at 641.


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could incorporate both types of control because with access controls they limit who can receive, use or download a digital content, while with right or usage control they determines what a user can do once the digital resource has been acquired. From a practical point of view, these systems can be characterized by different technology. Encryption is one of the basic features. It keeps content secure by scrambling (or “encrypting”) it and preventing it from being read until it is unscrambled with the appropriate decryption key.36 It is also particularly useful in preventing undesired access. Conversely, once access is gained, encryption provides no means of controlling how content is used, so that it could be copied in the decrypted format or passed along, together with its decryption key, and accessed by unauthorized users. Digital watermarking is another technique used to authenticate, validate, and communicate information in digital media. It enables identification of the source, author, creator, owner, distributor, or authorized consumer of digital content. This protection system is based on the science of steganography or data hiding.37 Invisible data or information, imperceptible to human senses, are embedded in a digital media but detectable by appropriate software or devices. In fact, the invisible signal may include information about the identity of rights-holders or content providers, a serial number, the name of the author, or other information that a particular software or device could read to establish the exact origin of the digital data. Even if it could be used for different purposes, like identifying ownership, authenticating the content’s integrity, ascertaining unauthorized distribution or publication (fingerprinting), there is no single type of water-

36

37

See Digital Dilemma, supra Intro., note 3, at 156-58. There are two different encryption techniques, symmetric-key and public-key. In the former, the same key used to encrypt content is also used to decrypt it so that the key is universal and can be widely distributed. Choosing to rely on this technique ensures higher speed in terms of computer processing, but it is also less secure if compared to public-key. If the key is intercepted during its transmission to the recipient and the code is broken, content becomes freely available. Public-key cryptography relies instead on two different keys, a public and a private one, the former being used to send content, the latter to decrypt it. Here, possession of the public key only is not sufficient to gain access to encrypted content. Generally, symmetric-keys are used to encrypt the message, whilst public-keys are used to send the key. The symmetric-key is used, for example, for pay-perview television. For a full description of encryption technology, see id. at 28395. See generally Chun-Shien Lu, Multimedia Security: Steganography and Digital Watermarking Techniques for Protection of Intellectual Property (2005).

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marking capable of satisfying all possible applications.38 And, it certainly cannot be used to prevent production of pirated copies. Programs like webcrawlers allow extensive searches over the Internet for documents digitally marked, and even though watermarking cannot control the use made of digitally marked works nor stop people from distributing them, unauthorized applications can be detected. With such evidence, rights-holders are then enabled to sue individuals for intellectual property rights infringement.39 Finally, another type of protection measure is constituted by “trusted systems.” These systems strengthen content protection, involving both software and hardware in the control process by building security features like cryptographic signatures in personal computers. This solution would probably lead users to lose control over their machines, but it would also make copying more easily controlled by verifying that users are trustworthy.40 Trusted systems are essentially based on the principle of confidence between participants in an exchange, with the understanding that all parties concerned will accept certain rules. These rules are disposed to be related primarily with usage rights, such as the formats and the purposes for which 38

39

40

See Digital Dilemma supra Intro., note 3, at 296-99. Watermarks can be either “perceptible” or “imperceptible” by people; “fragile” or “robust.” Fragile watermarking involves marking a file with a key associated to its creator. If the file has not been altered, using the same key to extract the file should result in obtaining the original watermark. Otherwise, an error message will be obtained, meaning that an alteration occurred. Robust watermarking works the same way but it makes provisions for changes to occur. If any alteration has occurred, the watermark obtained after using the key to extract the file will only be “close” to the original. A particular kind of watermarking is fingerprinting. Here, digital objects are embedded with further information identifying the recipient. If the file is distributed without authorization, by extracting the original fingerprint it is possible to detect its original source. Content owners also rely on labeling, which provides documents with a logo or a notice warning viewers about the uses allowed by the right-holder. Id. at 299300. Due to their purpose, they are generally visible, susceptible of alteration and do not offer enforcement of usage terms. Id. at 300. See Jonathan Weinberg, Hardware-Based ID, Rights Management, and Trusted Systems, 52 Stan. L. Rev. 1251, 1254-55 (2000). A step in this direction has already been made by the Trusted Computing Platform Alliance (TCPA) while Microsoft is currently preparing to release a version of Windows that would co-operate with TCPA technology. For a general discussion of TCPA, see David Safford, The Need for TCPA (2002), http://www.researc h.ibm.com/gsal/tcpa/ why_tcpa.pdf. A possible negative effect of such systems is little control of consumers over their computer, as well as invasion of privacy and blockage of innovation. Weinberg, supra note 40, at 1254-55.


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the content may be used. In the case of encrypted and digitally signed CDs or DVDs, for example, in addition to this protection the same CD or DVD players could also be equipped with copy protection technology, so that they have to be played with a specific device able to verify the digital signature.41

3.3 Technological Protection Measures and Consumer Protection If we accept the thesis that contemporary transnational economy is in contrast with national legal orders, which are unable to rapidly conform to the changes of the society, we also have to accept the opinion that the contract is the principal instrument for legal innovation and legal standardization.42 In this sense acts like DMCA and EUCD are the typical examples that support this thesis. The conclusion is that, because under current intellectual property law consumer’s capacity to exercise legitimate rights or exceptions could be compromised, we need to concentrate on the aspects of consumer protection and fair contractual conditions. DRM-controlled applications, in fact, have the potential to formulate rules and to enforce contractual conditions43 locking content beyond its copyright period or disrespecting existing exceptions, such as the right to make copies for private

41

42

43

See Digital Dilemma, supra Intro., note 3, at 167-71. A further example of a device embedded with “trusted system” is connected with Content Scrambling System (CSS). This is technology used by motion picture studios to encrypt DVD contents and to code contents with a geographic region feature. Only licensed devices – DVD players and DVD ROM drives, different for every region – can decrypt and play the DVD contents. The CSS decryption licenses, which permit consumer equipment manufacturers to embed keys to unlock the decrypted contents to play on their devices, require that content be sent only to authorized outputs. On the CSS technology and the Universal City Studios v. Corley lawsuit, see Besek, supra ch. 2, note 26, at 410-415; Alex EatonSalners, DVD Copy Control Association v. Bunner: Freedom of Speech and Trade Secrets, 19 Berkeley Tech. L.J. 269 (2004). See also Nicola Lucchi, Il Caso DeCSS: Tra Libertà di Manifestazione del Pensiero e Diritto d’Autore, 3 Stud. Iuris 381-88 (2002). See Francesco Galgano, La Globalizzazione nello specchio del diritto 93-94 (2005); On the relationship between Legal and Technical Standardization see Margaret J. Radin, Online Standardization and the Integration of Text and Machine, 70 Fordham L. Rev. 1125, 1138 (2002). See extensively Guibault, supra ch. 1, note 139.

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use, parody, quotation, scientific or teaching purposes.44 Furthermore a DRM enforced contract is often realized on unfairness in the process of contract formation and on unfairness in the “invisible” contract terms connected with the use of technological protection measures. Whereas “visible” terms are immediately valuable by consumers, “invisible” terms and conditions are, not only terms that cannot be readily comprehended but, in this case, they are also terms implemented without providing consumers notice of the possible limitations of the copy-protected content.45 In a few words, the restrictions imposed by technological measures are frequently unclear to consumers. The perverse consequence of this technology controlled contract is to preclude the traditional copyright balance between right-holders’ interests on the one hand and the interest of users and society on the other hand. A traditional balance that has been a part of Anglo-American fair use doctrine as well as of the copyright exemptions in European copyright law. Therefore, to avoid a legal regime that reduces options and competition in how consumers enjoy digital media, contractual licensing of information or other standardized digital content transactions, must be subject to the same legal limitations as other contracts, including the U.S. state law doctrine of unconscionability, general European consumer protection law46 44

45

46

See Ottolia & Wielsch, supra Intro., note 16 (arguing that a contract or a license might be provided and signed by the user while acquiring the DRM). One of the recent U.S. legislative solution include the Rep. Rick Boucher's proposed bill, Digital Media Consumers' Rights Act of 2005, H.R.1201, 109th Cong. (2005). The DMCRA attempts to restore the historical balance in copyright law and ensures the proper labeling of “copy-protected compact discs”. It requires labels on copy-protected compact discs and attempts to restore the legal use of digital content and scientific research prevented by the Digital Millennium Copyright Act. In particular, the main aim of the bill is to ensure that consumers are fully aware of the limitations and restrictions they may discover when purchasing copy-protected digital media because manufacturers are not currently obligated to place these kind of notices on packaging. Most consumers, in fact, are not aware of what media stores and file formats they will be limited to when they make the initial decision to buy a portable device even if it is probably written in the End User License Agreement. See Digital Media Consumers Rights Act of 2005, HR 1201, 109th Cong. 1st Sess. (available at http://thomas.loc.gov/cgi-bin/query/z?c109:H.R.1201:); see also Official summary of the bill at http://www.house.gov/boucher/docs/dmcrahandout.htm; Michael P. Matesky, The Digital Millennium Copyright Act and NonInfringing Use: Can Mandatory Labeling of Digital Media Products Keep the Sky from Falling? 80 Chi.-Kent L. Rev. 515, 532 (2005). The principal consumer protection measures in European Community law are divided into two main categories referred to generally applicable directives and


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and other traditional limitations on contractual rights.47 Traditionally, it has been recognized that a consumer buyer, that is a person acquiring goods or service for private use, might require additional form of protection to those offered to a commercial buyer.48 Consumer protection measures could play a useful role in reconciling the interest of intellectual property rightsholders and users. Unfortunately, the interaction between consumer protection and DRM, remain relatively unexplored because of early stage of the

47

48

directives containing rules regarding specific sectors or selling methods. Included in the first category are: Council Directive 84/450/EEC on Misleading Advertising, 1984 O.J. (L 250) 17 amended by the Directive 97/55/EC of the European Parliament and of the Council on comparative advertising 1997 O.J. (L 290) 18. Directive 98/6/EC of the European Parliament and of the Council on consumer protection in the indication of the prices of products offered to consumers, 1998 O.J. (L 080) 27. Council Directive 93/13/EEC on Unfair Terms in Consumer Contracts, 1993 O.J. (L 95) 29. Directive 1999/44/EC European Parliament and Council on the Sale of Consumer Goods and Associated Guarantees 1999 O.J. (L 171) 12. In the second category are included: Directive 95/58/EC of the European Parliament and of the Council amending 79/581/EEC on consumer protection in the indication of prices of foodstuffs and Directive 88/314/EEC on consumer protection of prices of non-food products 1995 O.J. (L 299) 11; Council Directive 76/768/EEC on the approximation of laws of the Member States relating to cosmetic products 1976 O.J. (L262) 169; Directive 96/74/EC of the European Parliament and of the Council on textile names 1997 O.J. (L32) 38, amended by Directive 97/37/EC 1997 O.J. (L169) of 74; Council Directive 92/28/EEC on the advertising of medicinal products for human use 1992 O.J. (L113) 13; Council Directive 90/314/EEC on package travel, package holidays and package tours 1990 O.J. (L 158) 59; Council Directive 85/577/EEC of 20 December 1985 to protect the consumer in respect of contracts negotiated away from business premises, 1985 O.J. (L 372) 31; Council Directive 87/102/EEC for the approximation of the laws, regulations and administrative provisions of the Member States concerning consumer credit, 1987 O.J. (L 42) 48; Directive 97/7/EC of the European Parliament and of the Council on the protection of consumers in respect of distance contracts.1997 O.J. (L 144) 19; Directive 90/384/EC of the Council on the harmonisation of the laws of the Member States relating to nonautomatic weighing instruments 1990 O.J. (L189) 1; Directive 94/47/EC of the European Parliament and the Council on the protection of purchasers in respect of certain aspects of contracts relating to the purchase of the right to use immovable properties on a time-share basis 1994 O.J. (L 280) 83. See Association of American Publishers, Contractual Licensing, Technological Measures and Copyright Law, at http://www.publishers.org/home/abouta/copy /plicens.htm. See Geraint Howells & Thomas Wilhelmsson, EC Consumer Law 3 (1997).

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investigation among scholars.49 However, the predominant purpose of the directives and other rules issued in the EC consumer law area relate exactly to the protection of the economic interests of consumers.50 As argued above, technological protection measures have a series of upsetting and unexpected uses. For example, most software programs are subject to End User License Agreements (hereinafter EULAs), and the common consumers’ attitude towards EULAs is to agree without reading them. But a EULA is a classic example of a contract of adhesion that does not come as the result of a negotiation between the vendor and the user.51 A mass-market software company writes the EULA to license copies of its goods, so it can restrict their customers’ rights of transfer and use. Essentially, the only possibility for the end user is to take it or leave it. Well, DRM can be used to enforce EULA clauses or even policies that are not legally enforceable. Generally, the use of technological protection measures could increase the power of rights-holders to set excessive conditions on the users. The combination of a contract and technological protection measures could represent a powerful mixture for a fully automated system of secure distribution, rights management, monitoring, and payment for protected content.52 So, DRM, de facto, could also be seen as the imposition of “unilateral[] contractual terms and conditions.”53 As already pointed out, when users access content protected by a technological protection measure, the 49

50 51

52

53

A first interesting attempt has been made at the workshop entitled “Fair DRM Use” held on 28 May 2005 in Amsterdam. See Mara Rossini & Natali Helberger, Fair DRM Use. Report on the 3rd INDICARE Workshop Held on 28 May 2005 in Amsterdam; available at http://www.indicare.org/tiki-download_file.p hp?fileId=146; See also Lucie Guibault & Natali Helberger, Consumer protection and Copyright Law, available at http://www.ivir.nl/publications/other/cop yrightlawconsumerprotection.pdf (last visited May 31, 2006). See Howells & Wilhelmsson, supra note 48, at 85. See Hillman & Rachlinski, supra note 30 (remarking on the easy adaptation of traditional contract law to electronic transactions). On EULA, see John J.A. Burke, Reinventing Contract, 10 Murdoch U. Elec. J.L. 2, ¶ 18 (2003), http://w ww.murdoch.edu.au/elaw/issues/v10n2/burke102_text.html; Robert W. Gomul kiewicz & Mary L. Williamson, A Brief Defense of Mass Market Software License Agreements, 22 Rutgers Computer & Tech. L.J. 335 (1996). See P. Bernt Hugenholtz, Copyright and Electronic Commerce: An Introduction, in Copyright and Electronic Commerce, supra note 33, at 1, 2. De Werra, supra note 6, at 244. Other commentators have criticized this approach. See Margaret Jane Radin, Regulation by Contract, Regulation by Machine, 160 J. Inst. Theorethical Econ. 1, 12 (2004) (stating that DRM is a replacement for contract).


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content provider, in practice, imposes a contractual provision by a clickthrough or click-wrap agreement.54 In this sense, “technological protection measures can be considered a condition of the widespread use of contract-based distribution models on the Internet.”55 Therefore, the unfairness that these measures introduce in the different positions should be considered by policymakers if they want to support this kind of business model.56 Some commentators have reasonably argued that, unless the legislature clarifies the issue, “the copyright regime would succumb to mass-market licenses and technological measures.”57 It will be necessary, for example, to reconsider the norms protecting consumers and weak contracting parties, particularly dealing with a contract able to impose unlimited restrictions on the contents. As already done in other similar situations, it is necessary to rebalance the function of copyright law, or rather, to identify the limits of contracts as means of exploiting intellectual property rights. Otherwise, the risk is that consumers will lose all the privileges granted under its regime.58 One of the consequences of the use of technological protection measures is that any rights that consumers may have under copyright law could be replaced by a commercial agreement between the parties with a modifying consequence on the balance of rights.59 There is an essential contradiction: if the technological measures against copying are legal, and, at the same time, the private copy is legal too, what kind of solution is possible? The 54

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57 58 59

Under this legal fiction, the consumer can agree to the terms of contract in a very similar way to the shrink-wrap license. On the latter form of licensing agreement, see Mark A. Lemley, Intellectual Property and Shrinkwrap Licenses, 68 S. Cal. L. Rev. 1239 (1995). Some commentators argue that, even if “DRM usage contracts are usually made over the Internet and are therefore not shrink-wrap licenses in the strict sense...[they could be] analogized...to their online counterpart: the so-called ‘click-wrap’ licenses.” Bechtold, supra note 2, at 343 (remarking also that “[m]ost DRM usage contracts are such click-wrap licenses”). On the electronic contracting environment, see Hillman & Rachlinski, supra note 30, at 464. De Werra, supra note 6, at 250. On the standardization of on-line contracts, see Cristina Coteanu, Cyber Consumer Law and Unfair Trading Practice 45 (2005). For a European perspective on whether copyright limitations and exceptions can be contracted or overridden through contract law or technological protection devices, see Lucie M.C.R. Guibault, Contracts and Copyright Exemptions, in Copyright and Electronic Commerce, supra note 33, at 125, 149-52. Id. at 160. De Werra supra note 6, at 244. Rosenblatt et al., supra note 14, at 46.

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issue is that users are not allowed to eliminate the legal protection to make their legal copies. In fact, even when consumers have the right to make private copies, technological protection measures can effectively hinder consumers in exercising these rights. The legal environment seems to support this bad practice because rights-holders are not legally obliged to assist a user in exercising his right of copying for private use. As a consequence, that right becomes illusory.60 A possible solution could be to see DRM systems as means to put into effect a contract between the content provider and the end user in a very similar way to “shrink-wrap licenses” for computer software.61 The issue will be to set the limit on infringement, if it could be identified as a simple contractual infringement concerning civil law of a private nature, or as a criminal offense. It is necessary to keep in mind the fact that the problem of intellectual property exceeds simple private agreements. It is essential to mention explicitly the contractual obligations of the content user. Transactions supervised and enforced by technological protection measures in addition to this type of contract could alter the balance of rights between rights-holders and consumers.62 In particular, in the U.S. systems, “some types of technologically-enforced rights transactions supersede the limits of fair use and the first sale doctrine.”63 Nevertheless, DRM, when seen as a contract, could be used to protect content that is not subject to intellectual property rights protection, and could also erect barriers not only at the entrance level.64 DRM has the potential to set up an exit barrier be60

61

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See European Consumers’ Organisation, Digital Rights Management, BEUC/ X/025/2004, http://europa.eu.int/information_society/eeurope/2005/all_about/d igital_rights_man/doc/beuc.pdf [hereinafter DRM-BEUC Position Paper]. See also Dusollier, supra ch. 2, note 77, at 71. See Bechtold, supra note 2, at 342 (arguing that DRM usage contracts are employed to establish contractual privity between providers and individual consumers in a mass market protecting content not only by technology, but also by contract). On the increasing use of licensing, see Digital Dilemma, supra Intro., note 3, at 34. But see contra Radin, supra note 53,at 12 (stating that DRM is a replacement for contract). See Dan L. Burk, DNA Rules: Legal and Conceptual Implications of Biological "Lock-Out" Systems, 92 Calif. L. Rev. 1553, 1564 (2004) (observing that by implementing technical constraints on access to and use of digital information, a copyright owner can effectively supersede the rules of intellectual property law); Elkin-Koren, supra note 14. Rosenblatt et al., supra note 14, at 46. The first sale doctrine is codified at 17 U.S.C. § 107 (1992); 17 U.S.C. § 109(a) (1997). See ProCD, Inc. v. Zeidenberg, 86 F.3d 1447 (7th Cir. 1996). In this case the court upheld a shrinkwrap license agreement that would protect the plaintiff's


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cause it does not know when copyright terms expire. Therefore it exercises the same control on works that should exit copyright, hampering their entry into the public domain and establishing a de facto unending copyright protection.65 In general, a content transaction could be identified as a license or a sale, but the controversial nature of the distinction between a license and a sale, when applied to the technology world, could make this doctrinal dispute more confusing.66 However, the main difference is that in the first case the content transaction falls under contract law while in the second it falls under copyright law.67 Vendors, usually, prefer license agreements because they allow to avoid the first sale or the exhaustion right, imposing terms and limitations on consumer’s use.68 In the U.S. systems, the relationship between copyright law and contract law is highly debated because copyright is a federal matter governed by federal law while contract law is state law, and states cannot limit or expand copyrights through state law.69 In the U.S. system the preemption doctrine is in force. It is a constitutional principle, codified in 17 U.S.C. § 301, by which Congress may impose its intent to totally or partially supplant state law.70 In practice, states do not have the constitutional authority

65 66

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CD-ROMs of telephone listings from being posted on the Internet although the Supreme Court had said that this kind of material could not be protected by copyright. See Feist Publ’ns, Inc. v. Rural Tel. Servs. Co, 499 U.S. 340 (1991). On the argument and for examples of contractual terms that conflict with copyright law, see Mark A. Lemley, Beyond Preemption: The Law and Policy of Intellectual Property Licensing, 87 Cal. L. Rev. 111, 125-26, 132 (1999). See also Elkin-Koren, supra note 14. See Therien, supra ch. 2, note 144, at 994. See Raymond T. Nimmer, Intangibles Contracts: Thoughts of Hubs, Spokes, and Reinvigorating Article 2, 35 Wm. & Mary L. Rev. 1337, 1345-46 (1994) (discussing distinctions between sales of tangible goods and licenses of intangible software under U.C.C. Article 2). See Raymond T. Nimmer, The Law of Computer Technology: Rights, Licenses, Liabilities § 6:1 (3d ed. 1997). See Rosenblatt et al., supra note 14, at 48 (arguing that the tension between copyright and contract law affects the balance that copyright law seeks to strike). Ryan J. Casamiquela, Business Law: A. Electronic Commerce: Contractual Assent and Enforceability in Cyberspace, 17 Berkeley Tech. L.J. 475 (2002). The U.S. system uses the preemption doctrine, i.e. a constitutional principle codified in 17 U.S.C. § 301 (2000), stating that copyrighted material is governed exclusively by this title and it preempts “the common law or statutes of any State.” The principle derives from the Supremacy Clause:

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to legislate on some subjects just to save the unifying function of federal law. In the copyright framework, preemption can have effect when federal law diverges from state contract law71 in order to “guarantee[ ] a homogeneous federal copyright law system that does not leave any vague areas between state and federal protection.”72 This implies that in the United States this principle could be strictly related to the contractual extension of copyrights beyond those granted by the Copyright Act, or the reduction of the rights that users have conventionally benefited from apart from contract.73 In this sense, some commentators assert that preemption could play an important role in solving the conflict between contract and copyright law,74 but cannot and will not solve the problem alone.75 However, the main issue is to decide if DRM could be seen as a contract between buyer and seller. If so, in the U.S. systems, federal copyright law

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“This Constitution, and the Laws of the United States which shall be made in Pursuance thereof; and all Treaties made, or which shall be made, under the Authority of the United States, shall be the supreme Law of the Land; and the Judges in every State shall be bound thereby, any Thing in the Constitution or Laws of any State to the Contrary notwithstanding.” U.S. Const. art. VI, cl. 2. On the relationship between copyright and contract law pre-emption, see Elkin-Koren, supra note 14; I. Trotter Hardy, Contracts, Copyright, and Preemption in a Digital World, 1 Rich. J.L. & Tech. 2 (1995), http://www.richmond.e du/jolt/v1i1/hardy.html; Lemley, supra note 64; Maureen A. O'Rourke, Copyright Preemption After the ProCD Case: A Market-Based Approach, 12 Berkeley Tech. L.J. 53 (1997); David A. Rice, Digital Information As Property And Product: U.C.C. Article 2B, 22 U. Dayton L. Rev. 621, 646-647 (1997) (proposing that 301(a) of the Copyright Act may preempt enforcement of certain contract terms that limit user’s exercises if the contract term was part of a contract of adhesion used on a market-wide basis.); Maureen A. O’Rourke, Striking a Delicate Balance: Intellectual Property, Antitrust, Contract and Standardization in the Computer Industry, 12 Harv. J.L. & Tech. 1 (1998); see also Nimmer, supra ch. 1, note 106. Elkin-Koren, supra note 14, at 102 n. 45. See Hardy, supra note 71. One of the most eloquent court decisions applying the copyright preemption doctrine to contract law is the case ProCD, Inc. v. Zeidenberg, 86 F.3d 1447 (7th Cir. 1996). It is considered the first published opinion to directly affirm that a "shrinkwrap" license, with its allegedly contracted-for restrictions on reuse of copyrighted information, is enforceable. For a plain analysis of this decision, see Elkin-Koren, supra note 14; Michael J. Madison, Legal-Ware: Contract and Copyright in the Digital Age, 67 Fordham L. Rev. 1025 (1998). See Lemley, supra note 64, at 136.


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is not involved because the relation is based on contract law. This also implies that, after the expiration of copyright, the right-holder would no longer have any right under copyright law, but the contract could still be effective and enforceable despite the expiration. It is interesting to note that the problem concerning use of contracts to create a private copyright protection was already pointed out in the same DMCA Report. It stated that: [T]he movement at the state level toward resolving questions as to the enforceability of non-negotiated contracts coupled with legally-protected technological measures that give right-holders the technological capability of imposing contractual provisions unilaterally, increases the possibility that right-holders, rather than Congress, will determine the landscape of consumer privileges in the future. 76

On the other hand, in the EC system, the tension between contract law and copyright is less obvious, because in Europe the regulation of contractual practices in the matter of copyright is not unusual, even if freedom of contract is the general rule while contractual restraint is the exception.77 However the relationship between copyright exemptions and usage contracts is still quite ambiguous.78 In fact, in addition to the mandatory provisions of the Directives on computer programs79 and databases,80 the same copyright law suggests a “little guidance for the determination of the validity of a contract that restricts the lawful exercise of a limitation on copyright.”81 In this context, it is evident in continental Europe that there is an 76

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U.S. Copyright Office, DMCA Section 104 Report, at xxxi-ii (2001), available at http://www.egov.vic.gov.au/pdf s/sec-104-report-vol-1.pdf. This report was issued following the DMCA mandate of section 104, to evaluate the effects of the amendments made by the DMCA on the operation of sections 109 and 117 of the Copyright Act, with regard to digital technologies. For a European point of view on the relation between contract and copyright law, see Lucie Guibault, Pre-emption Issues in the Digital Environment: Can Copyright Limitations be Overriden by Contractual Agreements under European Law, in Molengrafica n. 11. Europees Privaatrecht. Opstellen over Internationale Transacties en Intellectuele Eigendom, 225, 226-27 (F.W. Grosheide & K. Boele-Woelki eds., 1998). See Bechtold, supra note 2, at 366. Council Directive 91/250/EEC, On the Legal Protection of Computer Programs, 1991 O.J. (L 122). Council Directive 96/9, On the Legal Protection of Databases, 2001 O.J. (L 167) (EC). See Guibault, supra ch. 1, note 139, at 214; see also de Werra, supra note 6, at 318.

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increasing trend within the market to create private copyright protection through contract.82 In addition, some commentators underlined that also copyright law can contribute to setting a standard of consumer protection, even if copyright law is not explicitly intended to protect consumers.83 For example the US Digital Millennium Copyright Act includes provisions stipulating exceptions to the protection of technological measures for reasons of privacy or parental control,84 provisions that are undoubtedly consumer-oriented.85 Moreover traces of consumer protection could be found also in the European copyright systems86: in fact Art. 6.4 of the EUCD can be interpreted to serve some consumer interests because it encourages right-holders to voluntarily adopt any measure deemed necessary “to make available to the beneficiary of an exception or limitation…, the means of benefiting from that exception or limitation…”87 and invites Member States to ensure compliance.88 As observed by the Bureau Européen des Unions de Consommateurs (BEUC), the current course of DRM development “seems to aim at creating a new relationship between right-holders and consumers, with altered consumer rights, freedoms and expectations and towards the general replacement of copyright law with contract law and codes.”89 The issue is directly related to cases in which the contract is shaped not as the consequence of negotiation between parties, but rather as a form of imposition of unilaterally defined contractual terms and conditions. In this case the li82

83

84 85

86 87

88

89

For an analysis of this inclination within the European scene, see generally Giovanni Pascuzzi & Roberto Caso, I Diritti sulle Opere Digitali: Copyright Statunitense e Diritto d’Autore Italiano (2002); Roberto Caso, Digital Rights Management: il Commercio delle Informazioni Digitali tra Contratto e Diritto d’Autore (2004). Pamela Samuelson, quoted in Fair DRM Use. Report on the 3rd INDICARE Workshop, supra note 49, at 12-13. See 17 U.S.C.A 1201(h), (i). See Pamela Samuelson, supra ch.1, note 28 at 542 (arguing that DMCA created two consumer-oriented exceptions, one to enable parents to circumvent access controls when necessary to protect their children from accessing harmful material on the Internet, and the other to enable circumvention to protect personal privacy). See Rossini & Helberger, supra note 49, at 13. “…to the extent necessary to benefit from that exception or limitation and where that beneficiary has legal access to the protected work or subject-matter concerned.” Council Directive 2001/29, art. 6, 2001 O.J. (L 167) 10, 17-18 (EC). For a detailed discussion on the structure of Article 6.4 of the E.C. Copyright Directive, see Alvise Maria Casellati, supra ch. 2, note 94 at 372-77. DRM-BEUC Position paper, supra note 60, at 3.


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censor is effectively using the contract, the license, to manage his rights. Furthermore, in the DRM contract structure, technology has the power to enforce the terms of the contract without any support from the legal system. In general, as already discussed above, DRM technology, in combination with restrictive terms of service conditions, does not support business models based upon the first sale doctrine or the exhaustion principle, disabling consumers from reselling material.90 What we see in the contractual structure of DRM is something similar to a standard form contract, already popular in commercial and consumer transactions, and particularly diffused in technological transfers, licensing intellectual property, and service agreements.91 It is rather unquestionable that DRM systems and technological protection measures are frequently used to enforce standard contract terms. The American legal system, generally, has allowed the use of these kinds of agreements and has enforced their terms.92 Federal and state legislatures have enacted statutes to protect the consumer against aggressive contracting, unfair practices and his own ignorance in certain transactions.93 These competences are shared with the Federal Trade Commission, a law enforcement agency charged by Congress to protect the public against deceptive or unfair practices and anticompetitive behaviour.94 The most important instrument of the Federal Trade Commission in order to apply and to enforce the standard of fairness has been its rule making authority, even if the recent inclination is to prefer administrative action, seen as more flexible and efficient.95 The rulemaking procedures, the administrative actions, the injunctions and other mechanisms to obtain consumer 90

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See Burk, supra ch. 1, note 148, at 1100 (citing David Nimmer et. al., The Metamorphosis of Contract into Expand, 87 Cal. L. Rev. 17, 137 (1999), arguing that licensing a work may be attractive to a copyright holder because the first sale doctrine does not apply if a copy of a work is leased rather than sold). DRM has been defined as “a souped-up standard form contract.” Ian Kerr & Jane Bailey, The Implications of Digital Rights Management for Privacy and Freedom of Expression, 2 Info. Comm. & Ethics in Soc’y, 87, 89 (2004). For an overview of standard terms in American law, see Edward Allan Farnsworth, Contracts (4th ed. 2004). See Burke, supra note 51. See also Robert L. Oakley, Fairness in Electronic Contracting: Minimum Standards for Non-Negotiated Contracts, 42 Hous. L. Rev. 1041, 1061 (2005) (arguing that the United States does not have a general law governing unfair contract terms with any specificity). See Stanley Morganstern, Legal Protection for the Consumer 1 (2nd ed. 1978); Hans W. Micklitz & Jürgen Kessler, Marketing practices regulation and consumer protection in the EC member states and the US 419 (2002). Micklitz & Kessler, supra note 94, at 424, 433.

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compensation are all potential effective instruments to protect also digital consumers from unfair or deceptive practices. Furthermore, in the common law systems there is in force the “doctrine of unconscionability”96 with the effect of extending the protection of weak contractual parties as far as possible,97 giving judges the power to deter-

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Codified in UCC § 2-302 (1978). “If the court as a matter of law finds the contract or any clause of the contract to have been unconscionable at the time it was made the court may refuse to enforce the contract, or it may enforce the remainder of the contract without the unconscionable clause, or it may so limit the application of any unconscionable clause as to avoid any unconscionable result. When it is claimed or appears to the court that the contract or any clause thereof may be unconscionable the parties shall be afforded a reasonable opportunity to present evidence as to its commercial setting, purpose and effect to aid the court in making the determination.” It is found also in general contract law: see Restatement 2d of Contracts, § 208: “If a contract or term thereof is unconscionable at the time the contract is made a court may refuse to enforce the contract, or may enforce the remainder of the contract without the unconscionable term, or may so limit the application of any unconscionable term as to avoid any unconscionable result.” Id. For more regarding unconscionability, see Arthur Allen Leff, Unconscionability and the Code – The Emperor's New Clause, 115 U. Pa. L. Rev. 485, 505 (1967) (coining the terms "procedural" and "substantive" unconscionability); Richard Craswell, Property Rules and Liability Rules in Unconscionability and Related Doctrines, 60 U. Chi. L. Rev. 1 (1993); Richard A. Epstein, Unconscionability: A Critical Reappraisal, 18 J. Law & Econ. 293 (1975); Russell Korobkin, Bounded Rationality, Standard Form Contracts, and Unconscionability, 70 U. Chi. L. Rev. 1203, (2003); Eric A. Posner, Contract Law in the Welfare State: A Defense of the Unconscionability Doctrine, Usury Laws, and Related Limitations On The Freedom to Contract, 24 J. Legal Stud. 283 (1995); John A. Spanogle, Analyzing Unconscionability Problems, 117 U. Pa. L. Rev. 931 (1969); Carol B. Swanson, Unconscionable Quandary: U.C.C. Article 2 and the Unconscionability Doctrine, 31 N.M. L. Rev. 359, 367 (2001). On the relation between contract and intellectual property, see Lemley, supra note 64, at 151-58 (1999); Nimmer, supra ch.1, note 106. See David W. Slawson, Binding Promises: The Late 20th Century Reformation of Contract Law 57 (1996) (describing the doctrine's introduction in the 1960s and subsequent adoption); see also Hillman & Rachlinski, supra note 30, at 456 (noting that unconscionability doctrine “affords courts considerable discretion to strike unfair terms directly rather than covertly by stretching lessapplicable rules in order to reach a fair result”).


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mine boundaries of this remedy.98 The doctrine of unconscionability provides a way for courts to control unfair contracts and contract conditions. It allows a court to prevent the enforcement of a contract, or specific provisions, if the judge finds that the contract or any part of the agreement to have been unconscionable. The problem with unconscionability as a legal doctrine comes in determining the meaning of the unconscionability. The U.C.C., in fact, does not define it. Courts have describe it as “an absence of meaningful choice on the part of one of the parties together with contract terms that are unreasonably favorable to the other party”.99 However, Courts have demonstrated a reluctance to find unconscionability in standard commercial transactions100 but, it is indubitable that this institution may be able “to enlarge the spectrum of protection available to the consumer, being an incisive and effective legal instruments against unequal bargaining, and abuse of superior contractual position”.101 But, in the opinion of the majority, unconscionability does not seem well standardized to the goal of mitigating the insidious effects of form contracts and copyright licensing practices.102 98

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100

101 102

See Cristiana Cicoria, The Protection of the Weak Contractual Party in Italy vs. United States Doctrine of Unconscionability. A Comparative Analysis, 3 Global Jurist Advances (2003), http://www.bepress.com/gj/advances/vol3/iss3 /art2. The doctrine of unconscionability is a doctrine of contract law that makes a contract term unenforceable when is demonstrated the occurrence of both procedural and substantive unfairness. See Black’s Law Dictionary 1524 (6th ed. 1990). For the distinction of these two kind of unconscionability, see Leff, supra note 96, at 487-88. Williams v. Walker-Furniture Co., 350 F.2d 445, 449 (D.C. Cir. 1965). Unconscionability has been recognized also as the absence of meaningful choice on the part of one party due to one-sided contract provisions, together with terms which are so oppressive that no reasonable person would make them and no fair and honest person would accept them. See Fanning v. Fritz's PontiacCadillac-Buick. Inc., 322 S.C. 399, 472 S.E.2d 242, 245 (S.C. 1996). James J. White & Robert S. Summers., Handbook of the law under the uniform commercial code 474 (2d ed. 1980) 474 ("findings of unconscionability should be rare in commercial settings"); see also Sandra J. Levin, Examining Restraints on Freedom to Contract as an Approach to Purchaser Dissatisfaction in the Computer Industry, 74 Cal. L. Rev. 2101, 2108 (1986) (asserting that "courts have exhibited a reluctance to find unconscionability in standard commercial transactions"); Lewis A. Kornhauser, Unconscionability in Standard Forms, 64 Cal. L. Rev. 1151, 1153-57 (1976). See Cicoria, supra note 98, at 7. See, for example, Korobkin, supra note 96, at 1208, 1256. See also Guibault, supra ch. 1, note 139, at 262 (arguing that the assessment of the fairness of a licence term under the doctrine of unconscionability takes no account of copy-

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In addition to the unconscionability doctrine, also contract law offers guaranties and protection from potentially unfair clauses in standard form contracts.103 Particularly in the case of standardized agreements, the rule of the section 208 of the Restatement (second) of contracts permits the court to pass directly on the unconscionability of the contract or clause rather than to avoid unconscionable results by interpretation.104 Furthermore, the section 211 of Restatement (Second) of Contracts105 sets out a standard that, though not frequently applied,106 de facto overlaps with unconscionability doctrine, but does so in different terms and under different language.107 The Restatement states108 that a person “who manifests assent to a right policy issues and revolves only around matters of contract law and market inquiry); Reichman & Franklin, supra Intro., note 35, at 927-929 (perceiving its inability to respond to intellectual property rights issues and proposing a doctrine of “public interest uncoscionability”). 103 Restatement 2d of Contracts, § 208. See generally John E. Murray, Jr., The Standardized Agreement Phenomena in the Restatement (Second) of Contracts, 67 Cornell L. Rev. 735, 762-79 (1982); see also Hillman and Rachlinski, supra note 30 at 454-63 (investigating the three main doctrines American courts use to review potential abuses in standard-form contracts: unconscionability, Restatement (second) of contracts, section 211(3) and the doctrine of reasonable expectations). 104 Restatement 2d of Contracts, § 208 cmt. a. 105 See Restatement (Second) of Contracts § 211. 106 Only forty-three published judicial opinions had interpreted Section 211(3) of the Restatement, twenty-five of those were penned by Arizona courts, and most of those dealt with insurance coverage disputes. See James J. White, Form Contracts under Revised Article 2, 75 Wash U L Q 315, 324-25 (1997). 107 See Nimmer, supra ch.1, note 106, at 874. The called doctrine of "reasonable expectations" and its variation described in Section 211 of the Restatement (Second) of Contracts have been incorporated into (substantive) unconscionability analysis by most courts. See Korobkin, supra note 96, at 1257-58. 108 Section 211 reads as follows: (1) Except as stated in Subsection (3), where a party to an agreement signs or otherwise manifests assent to a writing and has reason to believe that like writings are regularly used to embody terms of agreements of the same type, he adopts the writing as an integrated agreement with respect to the terms included in the writing. (2) Such a writing is interpreted wherever reasonable as treating alike all those similarly situated, without regard to their knowledge or understanding of the standard term of the writing. (3) Where the other party has reason to believe that the party manifesting such assent would not do so if he knew that the writing contained a particular term, the term is not part of the agreement. The provision is explained in the comments to the section:


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standard form is bound by the terms of that form, except with respect to terms that the party proposing the form has reason to believe would cause the other party to reject the writing if it knew that the egregious term were present”.109 This standard can offer an additional basis for avoiding some terms in a standardized agreements, in particular in front of some unclear and surreptitiously undiscovered contract terms connected with the use of a technological protection measure.110 Some U.S. courts have ruled that form terms unknown to the consumer are unenforceable if the consumer is uninformed of even the existence of terms and this unawareness is reasonable.111 The doctrinal explanation is that contract terms must be “reasonably communicated” to be legally binding and that this requisite is not achieved when the consumer has no reason to know of the presence of such terms.112 An opening in this direction can be read in the proposed bill, Digital Media Consumers' Rights Act.113 The main aim of the bill, in fact, is to ensure that consumers are fully aware of the limitations and restrictions they may discover when purchasing copyprotected digital media. For this reason it obliges manufacturers to place proper labeling of “copy-protected compact discs” on packaging. On the other hand, the EC framework is based on a set of rules primarily Reason to believe [that a term would have been refused had the other party known of it] may be inferred from the fact that the term is bizarre or oppressive, from the fact that it eviscerates the non-standard terms explicitly agreed to, or from the fact the it eliminates the dominant purpose of the transaction. The inference is reinforced if the adhering party never had an opportunity to read the term, or if it is illegible or otherwise hidden from view. This rule is closely related to the policy against unconscionable terms and the rule of interpretation against the draftsman. Id. § 211 cmt. f. 109 See Nimmer, supra ch. 1, note 106, at 874. 110 Courts have already applied Restatement section 211(3) to invalidate standardized contract terms modifying existing law in software transactions. E.g., Angus Medical Co. v. Digital Equip. Corp., 840 P.2d 1024, 1030 -31 (Ariz. Ct. App. 1992) (holding contract term shortening the statute of limitations from six years to 18 months unenforceable). Cf. Darner Motor Sales, Inc. v. Universal Underwriters Ins. Co., 682 P.2d 388 (Ariz. 1984) (adopting the Restatement). See Mark A. Lemley, Intellectual Property and Shrinkwrap Licenses, 68 S. Cal. L. Rev. 1239 (1995). 111 See Korobkin supra note 96, at 1268. 112 See Ciro Silvestri v Italia Società Per Azioni Di Navigazione, 388 F2d 11 (2d Cir 1968) (establishing that terms must be "reasonably communicated" to purchasers). 113 Digital Media Consumers' Rights Act of 2005, H.R.1201, 109th Cong. (2005).

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incorporated in the European Community Council Directive on Unfair Terms in Consumer Contracts.114 It is considered one of the most important consumer contract law directives, formulating a European concept of unfairness.115 In addition, further EC legislation, which does not have consumer protection as its primary purpose, offers some consumer protection or regulates the power of national authorities to introduce consumer protection regulations.116 For example the Electronic Commerce Directive117 covers advertising and marketing to consumers by information society service providers. The Television Without Frontiers Directive118 also coordinates certain aspects of commercial communications through broadcasting

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Council Directive 93/13/EEC, On Unfair Terms in Consumer Contracts, 1993 O.J. (L95/29). A fundamental part of the literature on the Council Directive on Unfair Terms in Consumer Contracts is written by German scholars. A great number of the provisions in the Directive, in fact, are very similar to the provisions of the 1976 German Standard Contract Terms Act – (Gesetz Zur Regelung des Rechts der Allgemeinen Geschaftsbedingunen.). For comments on the Directive, see e.g. Hans Erich Brandner & Peter Ulmer, The Community Directive on Unfair Consumer Contracts: Some Critical Remarks on the Proposal Submitted by the EC Commission, 28 Common Mkt. L. Rev. 647 (1991); Vincenzo Roppo, La Nuova Disciplina delle Clausole Abusive nei Contratti fra Imprese e Consumatori, 40 Riv. Dir. Civ. 277(1994); Giorgio De Nova, Criteri Generali di Determinazione dell'Abusività di Clausole ed Elenco di Clausole Abusive, 48 Riv. Trim. Dir. e Proc. Civ. 691 (1994); Roberto Pardolesi, Clausole Abusive (nei Contratti dei Consumatori): Una Direttiva Abusata?, 119 Foro it. 137 V (1994); Christian Joerges, The Europeanization of Private Law as a Rationalization Process and as a Contest of Disciplines – an Analysis of the Directive on Unfair Terms in Consumer Contracts, 3 Eur. Rev. Private L. 175 (1995); Bernd Tremml, The EU Directive on Unfair Terms in Consumer Contracts, 3 Int’l Cont. Adv. 18 (1997); Hugh Collins, Regulating Contracts, 256 (1999); Geraint G. Howells and Stephen Weatherill, Consumer protection law 261(2nd ed. 2005). See also Oakley, supra note 93 at 1065. See Howells & Wilhelmsson, supra note 48, at 88. See Commission of the European Communities, Green Paper on European Union Consumer Protection, COM(2001) 531 final. Directive 2000/31/EC of the European Parliament and of the Council on certain legal aspects of information society services, in particular electronic commerce, in the internal market (Directive on electronic commerce) 2000 O.J. (L178) 1. Council Directive 89/552/EEC on the co-ordination of certain provisions laid down by Law, Regulation or Administrative Action in Member States concerning the pursuit of television broadcasting activities 1989 O.J. (L298) 23 as amended by Directive 97/36/EC.


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means. Moreover, the Brussels Convention119 and the Rome Convention120 establish rules, in cases of a cross-border contractual dispute within the EC, to determine which Member State Court should hear the case and which Member State’s law will apply to the contract.121 The Unfair Term Directive invalidates standardized terms that are unfair and result in a significant imbalance of obligations between the parties to the detriment of the consumer.122 Specifically, a term is considered unfair if, contrary to the requirement of good faith, it causes a significant imbalance in the parties’ rights and obligations under the contract, to the detriment of consumers.123 The Directive also contains a non-exclusive grey list of unfair terms.124 It sets only a minimum baseline, while every EC Member State has national consumer legislation that protects consumers who adhere to standardized conditions. The Commission has stated that “general contractual terms and conditions aim to replace the legal solutions drawn up by the legislator and at the same time to replace the legal rules in force in the Community by unilaterally designed solutions with a view to

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Council Regulation 44/2001/EC on jurisdiction and the recognition and enforcement of judgments in civil and commercial matters 2001 O.J. (L12) 1. Convention on the Law Applicable to Contractual Obligations 80/934/EEC [Rome Convention] 1980 O.J. (L266) 1. In Europe, the Rome Convention is the principal instrument by which consumer applicable law issues are determined. The general rule, set out in Article 3.1 of the Rome Convention, stipulates that: “A contract shall be governed by the law chosen by the parties. The choice must be expressed or demonstrated with reasonable certainty…”. At the same time, Article 5 of the Convention provides for an exception for contracts involving consumers and for which the subject "is the supply of [tangible] goods or services". For contracts involving consumers, in fact, the law preferred by the parties should not adversely affect the mandatory provisions of the State in which the consumer is habitually resident. The application of this rule is questionable in the case of intellectual property licensing agreements. In fact, the convention fail to deal expressly with issues of jurisdiction and choice of law for copyright infringement cases. See Raquel Xalabarder, Copyright: choice of law and jurisdiction in the digital age. 8 Ann. Surv. Int’l & Comp. L. 79, 80 (2002). The Directive applies only to consumer transactions, i.e. those involving an individual who acquires products for her own personal consumption and not for business or professional use. See Howells & Wilhelmsson, supra note 48, at 88-95. Council Directive 93/13/EEC, art. 3(1). Council Directive 93/13/EEC, art. 3(3).

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maximizing the particular interests of one of the parties.”125 This Directive offers some level of protection only to consumer defined in the Regulations as “any natural person who, in contracts covered by these Regulations, is acting for purposes which are outside his trade, business or profession”.126 A term included in a standard form contract could be presumed unfair if it produces a “significant imbalance in the parties’ rights and obligations arising under the contract to the detriment of the consumer”.127 Comparing the regulation of unfair contract terms and the concept related to the unconscionability doctrine under U.S. contract law, we can conclude that the European regulation defines a much lower limit for intervention by courts.128 Also the Distance Contract Directive129 and the Electronic Commerce Directive130 could be applied to products and services offered through online contracting and that may include a DRM system.131 Both Directives, in fact, include transparency provisions that oblige the provider to comply with the requirements relating to the such information about the main characteristics of the goods or services, the prices, the right of withdrawal, the contract terms and the general conditions. In particular the Distance Contract Directive grants consumers the right to withdraw from certain contracts with a supplier when the contract formation takes place without physical presence of contractual parties.132 In this type of contract, the consumer must receive written confirmation or confirmation in another durable medium, such as electronic mail, at the 125

126 127 128

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Report from the Commission On the Implementation of Council Directive 93/13/EEC of 5 April 1993 on Unfair Terms in Consumer Contracts, at 13 (Apr. 27, 2000), available at http://europa.eu.int/comm/consumers/cons_int/saf e_shop/unf_cont_terms/uct03_en.pdf. Council Directive 93/13/EEC, art. 2(b). See Guibault, supra ch. 1, note 139, at 254. See Jane K. Winn and Brian H. Bix, Diverging Perspectives on Electronic Contracting in the U.S. and the EU, Minnesota Legal Studies Research Paper No. 06-15, available at http://ssrn.com/abstract=893144. Council Directive 97/7/EC, On the Protection of Consumers in Respect of Distance Contracts, 1997 O.J. (L 144). Council Directive 2000/31/EC, On Certain Legal Aspects of Information Society Services, in Particular Electronic Commerce, in the Internal Market 2000 O.J. (L 178). Guibault & Helberger, supra note 49, at 10-14; See generally Natali Helberger, Digital Rights Management from a Consumer’s Perspective, 8 IRIS plus (2005), available at http://www.obs.coe.int/oea_publ/iris/iris_plus/iplus8_2005 .pdf.en. Council Directive 97/7/EC, art. 6.1.


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time of performance of the contract. Supplier is obliged to inform consumer in writing about: arrangements for exercising the right of withdrawal; place to which the consumer may address complaints; information relating to after-sales service; conditions under which the contract may be rescinded.133 The Electronic Commerce Directive introduces legal certainty by requiring the exchange of certain information in connection with the conclusion of such contracts, in particular it requires on-line suppliers to inform consumers about the name, geographic and electronic address of the provider of the service,134 a clear and unambiguous indication of the price,135 indication on any relevant codes of conduct and information on how those codes can be consulted electronically136 and, finally, the contract terms and general conditions provided to the recipient available in a way that allows him to store and reproduce them. Although these Directives does not expressly deal with copyright licenses, scholars suggest the possibility to extend these regulations to goods and services offered through click-wrap licenses over the Internet.137 Illustrative of the role played by EC consumer law in the DRM framework, is the case of iTunes Music Store, a virtual record shop where customers can buy and download either complete albums or individual tracks from many major artists of different genres.138 This service enforces its standard contract terms by means of a DRM systems called “FairPlay” and, according to the terms of service, the provider reserves the right, at its sole discretion, to modify, replace or revise the terms of use of the downloaded files:139 Apple reserves the right, at any time and from time to time, to update, revise, supplement, and otherwise modify this Agreement and to impose new or additional rules, policies, terms, or conditions on your use of the Service. Such updates, revisions, supplements, modifications, and addi133

134 135 136 137

138 139

To comply with this regulation, some European music stores have already granted customers the right to return downloaded digital music within seven days. See Gasser, supra ch. 1, note 35, at 21. Council Directive 2000/31/EC, art. 5.1. Id. at art. 5.2. Id. at art. 10.2. See Guibault, supra ch. 1, note 139, at 302-304; Gasser, supra ch. 1, note 35, at 21-22. See infra paragraph 3.5. See Lars Grøndal, DRM and contract terms, at http://www.indicare.org/tikiread_article.php?articleId=177 (analyzing the relationship between contract terms and DRM in on-line music stores and specifically in iTunes music store term of service.).

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tional rules, policies, terms, and conditions (collectively referred to in this Agreement as "Additional Terms") will be effective immediately and incorporated into this Agreement. Your continued use of the iTunes Music Store following will be deemed to constitute your acceptance of any and all such Additional Terms. All Additional Terms are hereby incorporated into this Agreement by this reference.140

This kind of unilaterally imposed changes in conditions of use on legitimate downloaded files, can be enforced just by changing the DRM. Well, in the EC market, these kinds of terms are prohibited by law because unfair. In fact, according to the Directive 93/13/EEC on unfair terms in consumer contracts,141 the case could be included in the indicative and nonexhaustive list of the terms which may be regarded as unfair, reproduced in the Annex to the Directive.142 Explicitly, the Directive talks about terms which have the object or effect of “enabling the seller or supplier to alter the terms of the contract unilaterally without a valid reason which is specified in the contract”143 or of “enabling the seller or supplier to alter unilaterally without a valid reason any characteristics of the product or service to be provided”.144 Recently, the EC consumer protection regulatory framework has been enriched with a new directive on Unfair Commercial Practices145 concerning unfair business-to-consumer commercial practices in the internal market. This new Directive concerns business-to-consumer transactions whereby the consumer is influenced by an unfair commercial practice which affects decisions on whether or not to purchase a product, on the freedom of choice in the event of purchase and on decisions as to whether or not to exercise a contractual right. By harmonizing the legislation in this field, it provides a general criterion for determining whether a commercial practice is unfair, in order to establish a limited range of unfair practices prohibited throughout the Community. In particular, the principle used to determine whether a practice is unfair, is the “materially distortion of the 140

141

142 143 144 145

See iTunes Music Store Terms of Service, Article 20 at http://www.apple.com/ ca/support/itunes/legal/terms.html. Council Directive 93/13/EEC, On Unfair Terms in Consumer Contracts, 1993 O.J. (L95/29). Council Directive 93/13/EEC, art. 3(3), 1993 O.J. (L95/29). Council Directive 93/13/EEC, annex letter j, 1993 O.J. (L95/29). Council Directive 93/13/EEC, annex letter k, 1993 O.J. (L95/29). Directive 2005/29/EC of the European Parliament and of the Council on Unfair Commercial Practices, 2005 O:J. (L149) 22. For first comments see Hugh Collins, The Forthcoming EC Directive on Unfair Commercial Practices (2004)


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economic behaviour of consumers”.146 This criterion refers to the use of a commercial practice that appreciably impairs the consumer’s ability to make an informed decision, thereby causing the consumer to take a transactional decision that he would not have taken otherwise.147 There is no doubt that the directive could constitute a new starting point in setting some protection standards regarding digital media transactions in the European electronic marketplace.148 In fact, it has been observed that the failure “to inform consumers about the application on a digital support of an anti-copy device, which prevents them from making any copy for timeor place shifting purposes, could amount to a misleading practice that would be prohibited”149 under this directive. Finally, another salient different approach in the regulatory framework for consumer protection in digital media world, has been noted in a recent academic work.150 Professor Jane Winn, in fact, asserts that, “because technological standards constitute a form of regulation that shapes markets and market behavior”, regulators and policy makers might also be able “to protect consumer interests in on-line markets by focusing on the content of the technical standards that define the architecture of on-line markets”.151 On this front, she points out that the EC “seems to have missed an opportunity to use information technology standards to enhance compliance with its very broad data protection laws” while “the U.S. appears to be moving in the direction of using management standards to strengthen the enforcement of some of its much narrower information privacy laws.”152 If we can accept all these patterns as a reasonable solution for the situation of conflict between the two opposing rights, we can probably find a solution to intellectual property disputes over digital content, different from the difficult legislative options. Therefore, we have to decide if we want all content rights transactions to fall under contract instead of copyright law, and, if so, we have to find remedies to protect the consumer’s rights. “Consumer contracts governing the use of digital material,” in particular, “must be fair and transparent.”153 146 147 148

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151 152 153

Directive 2005/29/EC, art. 2(e). Id. See generally Cristina Coteanu, Cyber Consumer Law and Unfair Trading Practice (2005). Guibault & Helberger, supra note 49, at 15. See Jane K. Winn, Is Consumer Protection an Anachronism in the 21st Century? (2006) available at http://www.law.washington.edu/Faculty/Winn/Docu ments/Winn_Consumer_Anachronism_Intro.pdf. Id. Id. DRM-BEUC Position Paper, supra note 60, at 3.

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and, probably, the application of general consumer protection law could immediately offer an effective solution to reduce imbalance between parties. To ensure consumer to continue to engage in fair uses, it is necessary to circumvent technological restriction when legitimate purposes require it. Consumers must acquire and keep these legal mechanisms in order to avoid abuses.

3.4 The Role of DRMs in the EC Internal Market As noted above, there is no doubt that the arrival and actual explosion of information and creative material in digital form has produced many new possibilities and challenges. One of the new challenges is in the adoption of DRMSs, that is, the process by which rights-holders of digital materials and content providers seek to implement usage rules and ensure that they are respected.154 Because the rights of rights-holders and consumers must also be balanced in the digital environment, in the public interest we need to clarify the role set out by DRM and its capability to develop successful content-based business models.155 The DRM, as already demonstrated, has potential to ensure a large variety of positive and negative effects.156 It could offer a wider range of choices for consumers to access and use digital material in a number of ways. DRM also introduces a more valuable and efficacious remedy to fight commercial piracy and illegal malpractice of file sharing. But, at the same time, it could offer more information for rights-holders about consumer use of digital media and allow for the monitoring of consumer use of digital material.157 In this way, content providers are able to restrict the number of uses and the power of users on the media. The problem is that some of these restrictions may be absolutely unjustified, against the law, and may make the judicial enforcement of copyright unnecessary. Nobody can force rights-holders not to protect their business. The challenge is to find, in this new digital environment, an appropriate balance between the conflicting rights – “a balance between a copyright holder’s legitimate demand for effective...protection…and the rights of others freely

154 155 156

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For a general overview on DRM, see Rosenblatt et al., supra note 14. See DRM-BEUC Position Paper, supra note 60, at 3. See, e.g, Digital Rights Management, supra ch. 1, note 117; Rosenblatt et al., supra note 14. See, e.g., Cohen, supra note 7, at 585; Bygrave, supra note 7.


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to engage in substantially unrelated areas of commerce.”158 In attempting to answer this question, it is useful to articulate the points of contact and tension between the different approaches adopted by countries to ensure copyright protection, in particular the pragmatic European approach in the political debate over DRM technologies. For example, in the United States under the DMCA copyright holders are allowed to request subpoenas for information on copyright infringers without taking further legal action.159 In some cases they have also tried to use – without success – the same means to access the personal information of ISP customers they assert are infringing their rights.160 In this sense the European Community has, de facto, aligned its copyright law more closely to that of the United States because Article 9 of the Directive on the Enforcement of Intellectual Property Rights stipulates very similar provisional and precautionary measures.161 Furthermore, in the European Community, the legal framework for digital content protection was established by the previously mentioned Directive on the Harmonization of Copyright and Related Rights in the Information Society (EUCD). That Directive supports the use of technological measures to protect content against illegal use, but at the same time encourages the interoperability of different copyright protection systems, addressing the use of DRM systems. The political and technical debate over the role of DRM in the EC internal market reached fever pitch in July 2003, when a Commission, the Broadband Content Workshop, “showed that operators, Internet service providers, content providers, broadcasters and the entertainment industry [were] trying to adapt their activities through new forms of partnerships crossing the traditional boundaries,”162 and that to develop successful con158 159 160

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Sony Corp. of Am. v. Universal City Studios, Inc., 464 U.S. 417, 442 (1984). 17 U.S.C. 512(h) (2000). See Recording Indus. Ass'n of Am. v. Verizon Internet Servs., 351 F.3d 1229 (D.C. Cir. 2003). Accepting Verizon’s interpretation, the DC circuit considered that the DMCA did not authorize a subpoena when the offending material is stored on a person's home computer, since the applicable provision is addressed to “material that resides on a system or network controlled or operated by or for [a] service provider.” Id. at 1234 (quoting 17 U.S.C. § 512(c)(1) (2000)). For a detailed note of the case, see Alice Kao, RIAA v. Verizon: Applying the Subpoena Provision of the DMCA, 19 Berkeley Tech. L.J. 405 (2004). See Council Directive 2004/48/CE, art. 9, 2004 O.J. (L 157) 16, 17; supra paragraph 2.5. Commission of the European Communities, Communication from the Council, the European Parliament, the European Economic and Social Committee of the Regions, Connecting Europe at High Speed: Recent Developments in the Sec-

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tent-based business models, they required adequate DRMs.163 However, market take-up of DRMs is still extremely fragmented. “Although devices are being progressively ‘DRM enabled,’ most consumers do not yet have devices equipped to use DRM services. It is also unclear whether, or how much, they would pay for them.”164 The Commission therefore, as part of the eEurope 2005 Action Plan, established a High Level Group (hereinafter HLG) on DRMs in March 2004.165 The High Level Group Final Report, presented on July 8, 2004, represents a compromise on basic principles and recommendations for future actions in three main areas. In this document, the HLG outlines the recommended actions concerning some key aspects: DRM and interoperability, impact of DRM on levies, migration to legitimate services, and consumer confidence.166

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tor of Electronic Communications at 13 (Feb. 3, 2004), available at http://europa.eu.int/eur-lex/en/com/cnc/2004/com2004_0061en01.pdf. See European Comm’n Factsheet 20, Intellectual Property Rights and Digital Rights Management Systems (2004), http://europa.eu.int/information_society/ doc/factsheets/020-ipr_drm-october04.pdf. Id. The eEurope 2005 action plan succeeds the 2002 action plan, which mainly focused on Internet connectivity in Europe. The new action plan, which was approved by the Seville European Council in June 2002, is aimed at translating this connectivity into increased economic productivity and improved quality and accessibility of services for all European citizens based on a secure broadband infrastructure available to the largest possible number of people. See the eEurope 2005 Action Plan, eEurope 2005: An Information Society for All, available at http://europa.eu.int/information_society/eeurope/2005/index_e n.h ml (last visited May 1, 2006). Current members of the group are: GESAC, IFPI, Vivendi, Eurocinema, FEP (Federation European Publishers), BBC, France Telecom, Vodafone, Fastweb, Philips, Nokia, Alcatel, HP, New Media Council, BEUC. See Digital Rights Management, http://europa.eu.int/informat ion_society/eeurope/2005/all_about/digital_rights_man/high_level_group/inde x_en.htm (last visited May 1, 2006). See EU Group on Digital Rights Mgmts., Final Report, supra ch. 1, note 150. Because technical protection measures and management systems in general make possible compensation of right-holders in a direct way, it seems illogical to also preserve a levies system. In fact, with this double compensation system, right-holders could be compensated twice for the same reason. They control and receive remuneration for private copying with the technical protection measures and also receive another remuneration for the same copying with the levies. See Marie-Thérèse Huppertz, The Point of View of Software Industry, in The Future of Intellectual Property in the Global Market of the Information Society: Who is Going to Shape the IPR System in the New Millennium? 70 (Frank Gotzen ed., 2003). Article 5.2(b) of the Copyright Directive seems to


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With regard to interoperability, the HLG found that, while open standards are best for true cross-platform interoperability, various scenarios are currently possible, ranging from different proprietary systems to standardsbased convergence.167 Digitized products, in fact, can reach the market in a variety of forms, formats or platforms. We can distinguish between physical distribution systems, such as CDs and DVDs, and on-line distribution systems, such as video on demand and Internet based services. In both cases, consumers must have the right to access digital content from the legitimate, licensed content provider they prefer. In other words, DRMs producers must permit customers to use legitimate content in different platform, because technological protection measures cannot represent an obstacle to the free use of the protected content. “It was agreed that DRM must not be allowed to become a commercial or technology licensing control point, that DRM implementation must not be undermined by lack of compliance, and that DRMs must fit business models, not vice versa.”168 Recommendations included that “[s]takeholders should continue work on open, cross-platform DRM systems and standards,” that the European Community “should foster open standards and discuss compliance mechanisms with stakeholders,” and that “Member States should foster open standards, ensur[ing] that DRM security will not be undermined and enforce[ing] anti-piracy measures.”169 The current absence of interoperability between the various technological solutions offered by manufacturers and their lack of interest in devising shared open standards constitutes a significant restraint on the free circulation of creative works because consumers are unable to decide autonomously where to buy, and they often must choose only content that fit their devices.170 How-

167 168 169 170

want to avoid this inconvenience. Member States, in fact, may allow for a limitation to the exclusive reproduction right, “in respect of reproductions on any medium made by a natural person for private use and for ends that are neither directly nor indirectly commercial, on condition that the right-holders receive fair compensation which takes account of the application or non application of technological measures.” Council Directive 29/2001, On the Harmonization of Certain Aspects of Copyright and Related Rights in the Information Society, art. 5(2)(b), 2001 O.J. (L 167) 10, 16 (EC). See EU Group on Digital Rights Mgmts, Final Report, supra ch. 1, note 150. European Comm’n Factsheet 20, supra note 163. Id. See Union Fédérale des Consommateurs – Que Choisir, Vente de musique en ligne: Les consommateurs sont pieds et poings liés par Apple et Sony, http://www.quechoisir.org/ (“Cette absence totale d'interopérabilité entre les DRM enlève non seulement au consommateur son pouvoir de choisir indépen-

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ever, the assumption of a DRM system able to ensure interoperability between very different hardware and software systems, at the moment, is quite utopian. In order to promote interoperability among different content-distribution and playback devices any industry standard would have to be adopted by service providers as well as consumer electronics manufacturers. Service providers, such as cable operators, license content under an agreement for copyright protection. Therefore, to obtain real interoperability, service providers and content owners would have to accept the same standard, with the consequence that a standardized DRM system could be more vulnerable to piracy.171 Furthermore, the imposition of a standard in this start-up situation could have the effect of restraining all the investments of new and more advanced systems.172 However, it is very important to underline that technical standards are considered one of the foundations of the modern consumer movement, as well as one of the most interesting and innovative forms of consumer protection.173 Therefore, governments should intervene in the development of information technology standards because they could be an effective vehicle to protect consumer interests. Standardized data formats and interoperability offer advantages for technology consumers as well as for the companies that develop them. Accordingly, some economists argue that: Consumers generally welcome standards: they are spared having to pick a winner and face the risk of being stranded. They can enjoy the greatest network externalities in a single network or in networks that seamlessly in-

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damment ses matériels et son lieu d'achat, mais constitue aussi un frein réel à la libre circulation des oeuvres de l'esprit.”) (last visited May 10, 2006). Recently (Jan. 19, 2005) Intertrust Technologies, Matsushita Electric Industrial (Panasonic), Royal Philips Electronics, Samsung Electronics, and Sony Corporation announced the formation of the Marlin Joint Development Association. This new step toward reducing the many different DRM systems used today will provide standard specifications for content management and protection for the consumer electronics industry. See Press Release, CE and DRM Technology Leaders to Create a DRM Toolkit for Consumer Devices (Jan. 19, 2005), available at http://www.intertrust.com/main/news/2003_2005/050119_marlin.h tml. See Huppertz, supra note 166, at 70. See Jane K. Winn, Information Technology Standards as a Form of Consumer Protection Law, in Consumer Protection in the Age of the Information Economy 99 (Jane K. Winn ed., forthcoming 2006) available at http://www.law.wa shington.edu/Faculty/Winn/Publications/Info_Tech_Stds.pdf (illustrating three case studies that demonstrate the cost and benefits of government intervention in the development and adoption of information technology standards as a competitive strategy for protecting consumer interests).


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terconnect. They can mix and match components to suit their tastes. And they are far less likely to become locked into a single vendor, unless a strong leader retains control over the technology or wrests control in the future through proprietary extensions or intellectual property rights. 174

Actually, in practice industry has been able to reach agreements on the adoption of technological protection measures for special format. The case of DVD is the most evident example. In any case, the same EUCD avoids the requirement of any particular standard yet encourages the compatibility and interoperability of different systems.175 On the question of the migration to legitimate services, the HLG emphasizes the importance for consumers of legitimate on-line services to create a thriving e-content market.176 According to HLG, DRMs could play an important role, enabling new business models and preventing unauthorized use. Stakeholders recommend that the European Community and Member States should reflect in their policy positions that abuse and unauthorized file sharing of copyrighted content will not be tolerated, that there is a necessity to provide political commitment to protecting content delivered by DRMs, and that they should promote awareness among consumers of legitimate alternative offerings.177 On the other hand, the HLG report never expresses any “recognition of the lawfulness and benefits of private copying for consumers and the many options of peer-to-peer (P2P) networks for usages that are not illegal, e.g. for the promotion of content or the potential benefits of P2P networks for unknown/independent artist[s].”178 Furthermore, the paper never distinguishes between piracy for commercial purposes and individual acts of private consumers, almost assuming that current consumer usages are illegitimate. Finally, the HLG focuses on the relationship between DRMs and private 174 175

176 177 178

See Shapiro & Varian, supra ch. 1 note 3, at 233. Id. As pointed out in the text, “the practice has shown that industry was able to reach agreements for the adoption of DRMs for certain formats (e.g. DVD video).” Id. However, the Copyright Directive avoids requiring a single management standard but encourages the compatibility and interoperability of different systems. In fact, even if the goal could be the development of a global system, the content industry is worried that a standardized management system could be more vulnerable to piracy. Furthermore, the imposition of a standard, in this start-up time, can have the result of stopping all of the investments in the development of new, more advanced systems. EU Group on Digital Rights Mgmts, Final Report, supra ch. 1, note 99, at 150. Id. at 17-18. DRM-BEUC Position Paper, supra note 60, at 5.

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copying levies. Levies were introduced in many European countries to compensate rights-holders for the limitation to their exclusive right of reproduction regarding reproductions made for private use.179 The “establishment of levies emerged in view of the de facto non-enforceability of the reproduction right.”180 “Levies operate as a tax on all purchasers, irrespective of whether [they are] engaged in private copying or not.”181 Even if the HLG paper ignores important consumer perspective on levies, it underlines the necessity to avoid double payment and to use levies as a mechanism to compensate for piracy.182 In fact, as noted by one commentator, because technical protection measures and management systems generally allow rights-holders to be compensated in a direct way, it seems illogical to also maintain a levies system.183 In fact, with this double compensation system, rights-holders could be compensated twice for the same reasons: they control and receive remuneration for private copying with the technical protection measures, and then they receive remuneration again for the same copying with the levies.184 The same European Consumers’ Organization has remarked that levies systems continue to be imposed incorrectly on an increasing number of multipurpose devices in most

179

On the levies systems in the DRM-based services, see P. Bernt Hugenholtz et al., The Future of Levies in the Digital Environment, (2003), http://www.ivir.n l/publications/other/DRM&levies-report.pdf; Jörg Reinbothe, Address Before the Conference on The Compatibility of DRM and Levies: Private Copying, Levies and DRMs against the Background of the EU Copyright Framework (Sep. 8 2003), available at http://europa.eu.int/comm/internal_mar ket/copyrig ht/documents/2003-speech-reinbothe_en.htm. As already argued, the rationale of limitations and exceptions of intellectual property law is that access to information, in all its forms, is necessary to promote the production and dissemination of culture, creation and knowledge in society. In most European Countries, connected to private use exemption is a levy on blank audio recording media, which is taxed against manufacturers and importers of these items and paid over to the collective societies that represent right-holders. The rationale of this levy is connected with the idea that audio media will be used to record copyright works, and on this basis, copyright owners are paid in advance for the private use reproduction of their works. 180 EU Group on Digital Rights Mgmts., Final Report, supra ch.1, note 150, at 14. 181 DRM-BEUC Position Paper, supra note 60, at 9. 182 On the European levies system, see Costanze Ulmer-Eilfort, Private Copying and Levies for Information – and Communication – Technologies and Storage Media in Europe, in Digital Rights Management, supra ch. 1, note 117, at 447. 183 See Huppertz, supra note 166, at 70. 184 Id.


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of the European Member States.185 Another challenge related to the development of DRMs briefly mentioned in the HLG report concerns the data protection issue and tracing individuals accessing protected content. In Europe, the collection of personal information by rights-holders is regulated by data protection principles stipulated by Directive 95/46/EC on the protection of personal data.186 These principles can contradict the legitimate purpose used by rightsholders to prevent misuse of protected information through technological protection measures that are able to trace and monitor users and their preferences. Users, for example, often identify themselves before being able to download a song from a content provider. Their profile is then completed with information through the unique identifier included in each piece of music downloaded by the same user. This technique allows for the profiling of the user based on the quality and quantity of contents downloaded or used. Rightly so, “Article 2(3) (a) of Directive 2004/48/EC, on the enforcement of intellectual property rights, confirmed the principle that the Directive 2004/48/EC does not affect Directive 95/46/EC and therefore the application of the data protection principles.”187 For these reasons, techno185

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187

See DRM-BEUC Position Paper, supra note 60, at 9. The uncontrolled imposition of levies does not take into account the content of the recital 35 of the Information Society Directive that stipulates the concrete harm of private copies must be declared when determining the compensation. In fact recital 35 states that: In cases where right-holders have already received payment in some other form, for instance as part of a licence fee, no specific or separate payment may be due. The level of fair compensation should take full account of the degree of use of technological protection measures referred to in this Directive. In certain situations where the prejudice to the right holder would be minimal, no obligation for payment may arise. Council Directive 2001/29, On the Harmonization of Certain Aspects of Copyrightand Related Rights in the Information Society, 2001 O.J. (L 167) 4 (EC). Council Directive 95/46, On the Protection of Individuals with Regard to the Processing of Personal Data and on the Free Movement of Such Data, art. 1, 1995 O.J. (L 281) 31, 35 (EC) (requiring Member States to ensure the rights and freedoms of persons with regard to the processing of personal data, and in particular their right to privacy, in order to ensure the free flow of personal data in the Community). Article 29 Data Protection Working Party, Working Document on Data Protection Issues Related to Intellectual Property Rights 4 (2005), at http://europa.eu. int/comm/justice_home/fsj/privacy/docs/wpdocs/2005/wp104_en.pdf. The Working Party has also noted that: “While control and tracing is developing at the source with the intention of checking “a priori” every user downloading legally information on the Inter-

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logical protection measures should also guarantee anonymous access to network services while the information collected should be compatible with the purpose of the service, and the storage of personal data should be limited in time.

3.5 Some New Business Models for Digital Media The action of new technologies has upset traditional business models. In particular, the diffusion of peer-to-peer systems has been a determinant in the emergence of successful digital business in the music industry. Content providers have realized the benefits of technology in delivering content to multiple broadcast markets. Also, the possibilities offered by the Internet in terms of lower costs, reproduction, and distribution offer customers an attractive and legal alternative to illegal file sharing. The content industry, in particular the recording industry, is developing legitimate on-line services that will displace illegal file-sharing. Even if, as declared by the International Federation of the Phonographic Industry (IFPI), the emergence of a successful digital business has reached the peak in 2004, important initiatives in this sector had already begun in December 2001.188 Unfortunately, these first attempts were unsuccessful. The main reason for their failure was that, although the Majors decided to get in on these digital projects, they never really took the challenge of developing an entirely new business model compatible with the economics of digital distribution. Instead, they maintained their old practices based upon dependence on predictable regular income and high profit margins, profits guaranteed by the sale of physical products.189 Furthermore, they failed to

188

189

net, the protection of copyright information also leads most of copyright actors to take actions “a posteriori” and to conduct investigations towards users suspected of infringements”. See Id. IFPI:05 Digital Music Report, supra ch. 2, note 102, at 4. In that year, in fact, were launched two online distribution services based on the idea of offering a wide choice of music paying a subscription fee. “Pressplay” (formerly “Duet”), by Sony Music Entertainment and Universal Music Group, provided access to the entire catalogue of three of the five major labels and “MusicNet,” by AOL Time Warner, Bertelsmann AG and the EMI Group. See Brad King, Pressplay Arrives in Music Fog, Wired, Jan. 23, 2002, available at http://www.wired.com /news/mp3/0,1285,49934,00.html. See Matthew Fagin et al., Beyond Napster: Using Antitrust Law to Advance and Enhance Online Music Distribution, 8 B.U. J. Sci. & Tech. L. 450, 490-91 (2002).


129

take into account the new consuming trends, pointing towards the acquisition of single songs rather than entire albums. So, consumers’ reasonable expectations to obtain music files for significantly reduced prices were frustrated. Users not only want ease of access, but also flexibility of use. They want to be able to listen to the music purchased at all the times they want, and to burn them into CDs to make their own collections, lend them to friends, and play them on stereos, just like they used to do before the advent of music in digital format.190 Originally, music industry services prevented all these features by securing works with technological protections and dictating the terms of use in order to protect content. The main problem associated with the first fee-based services was that customers entered a contract where they had no negotiating power at all because content owners, de facto, unilaterally determine and dictate terms and conditions limiting consumers’ behaviors with technological protection measures. As already discussed, the lack of legal limits and the extension of self-help measures can move responsibility for the enactment of legal regulations from the hands of policy-makers into those of the major distribution companies.191 Meanwhile, in the last few years new business models have emerged in the digital music market. The year 2004 was a milestone for the content industry.192 The combination of searching, browsing, downloading and portability is transforming the way to consuming content. An essential event in the growth of these services is the portable player explosion. As in the past, when the Sony VCR opened a new market for the film industry,193 190

191 192 193

See Brendan Scott, Copyright in a Frictionless World: Toward a Rhetoric of Responsibility, Firstmonday http://www.firstmonday.dk/issues/issue6_9/scott/ (last visited May 9, 2006). See supra ch. 1, note 37 and accompanying text. IFPI:05 Digital Music Report, supra ch. 2, note 102, at 6. In the case Sony Corp. of America v. Universal City Studios, Universal brought an action against Sony alleging that video tape recorder consumers had been recording some of Universal's copyrighted works that had been exhibited on commercially sponsored television and thereby infringed on their copyrights, and further that Sony was liable for such copyright infringement because of their marketing of the VTRs. The District Court denied Universal all relief, holding that noncommercial home use recording of material broadcast over the public airwaves was a fair use of copyrighted works and did not constitute copyright infringement, and that Sony could not be held liable as contributory infringers even if the home use of a VTR was considered an infringing use. The Court of Appeals reversed and the Supreme Court reversed the opinion of the Appeals Court. See Sony Corp. of America v. Universal City Studios, Inc., 464 U.S. 417 (1984). For a summary of the essential facts

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today the incredible diffusion of portable players, like Apple’s iPod, have convinced the recording industry to start relevant on-line services. Increasingly seen in the digital services arena are two business models: pay-per-download and subscription services.194 The first one gives consumers the chance to own music with greater flexibility than traditional media since single tracks can be selected, downloaded, and managed.195 This model is used by services such as iTunes Music Store and MSN Music.196 Subscription services offer downloadable content for a monthly fee. Usually these services allow the user to access music file databases with the possibility of purchasing selected tracks. This model characterizes services like the new Napster, Rhapsody and Virgin Digital that offer streaming access for a monthly fee while download and use on portable players is possible for an extra per-track fee or allowed as long as the consumer continues to be a subscriber.197 This trend suggests a long-term shift in music consumption from traditional physical media to digital sales with an increasing market for single track sales. In other words, digital use is expected to replace CD buying. Nobody can deny that the forerunner of this new legal alterative was Apple’s iTunes Music Store offering the most successful on-line distribution service in combination with an extremely popular portable music device.198 The Apple system was first launched in the United States in April 2003 and expanded into three key European markets in June 2004 – The United Kingdom, France, and Germany – and extended to eleven other countries in October and December 2004 – Austria, Belgium, Canada, Finland,

194 195 196

197

198

connected to the Sony decision, see William W. Fisher III, Promises to Keep: Technology, Law, and the Future of Entertainment 70-75 (2004). IFPI:05 Digital Music Report, supra ch. 2, note 102, at 7. Id. Apple Music Store, http://www.apple.com/itunes/store/ (last visited May 12, 2006); MSN Music, http://music.msn.com/ (last visited May 12, 2006). For a comprehensive directory of services, see Pro-Music, http://www.pro-music.org (last visited May 12, 2006). Napster, http://www.napster.com (last visited May 13, 2006); Real Rhapsody, http://www.real-download.com (last visited May 13, 2006); Virgin Digital, http://www.virgindigital.com/ (last visited May 13, 2006). Apple’s iTunes Music Store, http://www.apple.com/music/store/ (last visited May 13, 2006). Online services are present also outside the United States and Europe with over 40 services. For a worldwide directory of Authorized Digital Music Services divided by region, see Pro-Music available at http://www.promusic.org/musiconline.htm (last visited May 10, 2006).


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Greece, Ireland, Italy, Luxembourg, Netherlands, Portugal, and Spain. It appears to be the first product created and shaped with consideration to market expectations, but, more significantly, the first to understand that strong copy protection cannot benefit the market and that it is possible to develop a business model where different interests are allocated with profit. iTunes Music Store does not require subscription to any on-line contract.199 It instead works on the idea of allowing single purchases for the reduced price of ninety-nine cents,200 and allows buyers unlimited CD burning for individual songs (and for personal use only, of course), or copy them onto Apple’s MP3 player, iPod, and access them from five different Macintosh or Windows-compatible computers,201 thus offering ease of access, reasonable flexibility, content security, and quality. In this way, customers are able to exercise their right to make legal back-up copies of the material purchased.202 iTunes uses a proprietary DRM system – called “FairPlay” – based on the possibility of moving the downloaded files to an unlimited number of portable devices but with the restriction that it can be copied only onto five computers.203 It also prevents consumer from using other players that Apple’s iPod to play music legitimately acquired from iTunes music store. These terms and conditions are to be interpreted according to Article 9 b of the iTunes Music Store Term of Service. This Article, in fact, states that customers are “authorized to use the Products on up to five iTunes-authorized devices at any time” and are “able to store Products from up to five different Accounts on certain devices, such as an iPod at a time.”204 Users can then make unlimited CD burns, but are limited to burning the same playlist seven times. FairPlay also enables customers to create custom playlists, but limits the total number of copies to ten. Probably, the most important limitation is that only iTunes and Quicktime software are able to play FairPlay files, and the iPod is the only compatible

199 200 201

202 203

204

On the iTunes case, see Gasser, supra ch. 1, note 35. € 0.99 in the European Countries. See Apple, iTunes, http://www.apple.com/itunes (last visited May 16, 2006). FairPlay iTunes allows burning of the same playlist to seven times in order to avoid mass-production of copies for illegal use. See id. See Gasser, supra ch. 1, note 35, at 11, 56. See Lars Grøndal, DRM and contract terms, at http://www.indicare.org/tikiread_article.php?articleId=177 (analyzing the relationship between contract terms and DRM in on-line music stores and specifically in iTunes music store term of service.). See iTunes Music Store Terms of Service at http://www.apple.com/ca/support/ /itunes/legal/terms.html.

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portable player.205 The iPod, in fact, is designed to play music purchased from Apple Computer's iTunes service and files in the MP3 format, but not songs from all competitors. However, it seems that the essential reason for the general consensus it obtained is that it abandoned the idea of perfect technological control, apparently finding the right point of convergence between the interests of music labels, the computer industry, and customers. What is quite curious about this service is that it was developed within the computer industry and has not been the product of the music industry which, at least in theory, should be the most concerned about developing possible business models and finding a way to satisfy its customers. From these examples, we can conclude that when the supply of content available digitally proliferates, it could compete with piracy. The increase and proliferation around the world of services offering digital music have, in fact, established new markets and new business models. Consumers have accepted these new initiatives and their attitudes toward digital music are changing. As demonstrated by the emergent business in the digital music sector, pay-per-downloads and subscription services are the real weapons to control music piracy.206 Fighting the problem of Internet piracy with a more restrictive protection of content can only contribute to change the traditional balancing of public and private rights. However, DRMs producers should permit customers to use legitimately acquired content in different platform because, as in the case of iTunes Music Store, obliging consumers to use content only in certain ways or with certain players can be contrary to competition law as well as EC legislation, consumer and copyright law.207 In other words, the technological protection measures cannot represent an obstacle to the free use of the 205

206

207

See Leonardo Chiariglione, Pushes For a Moral Digital Media Framework, Digital Media Eur., July 28, 2004 (referring to the incompatibility “between iTunes and non-iPod-based handheld media players”). “The rapid rise of different portable player systems has exposed one key problem, namely the lack of interoperability between different devices and services.” IFPI:05 Digital Music Report, supra ch. 2, note 102, at 13. See Stuart Haber et al., If Piracy is the Problem, is DRM the Answer?, in Digital Rights Management, supra ch. 1, note 117, at 224. See Grøndal, supra note 203; Giuseppe Mazziotti, Did Apple's Refusal to License Proprietary Information enabling Interoperability with its iPod Music Player Constitute an Abuse under Article 82 of the EC Treaty? 28 W. Comp. 235 (2005) (discussing whether iTune's refusal to license Fairplay to competitors could constitute an abuse of dominance contrary to Article 82 of the EC Treaty).


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work or the protected content. Furthermore proprietary DRM technologies do not have to represent a form of protection from competitors in the same market.208 The current absence of interoperability between the various technological solutions offered by manufacturers can constitutes a significant restraint on the free circulation of creative works because consumers are unable to decide autonomously where to buy, and they often must choose only content that fit their devices. Digital content provider, particularly the music industry, must collaborate to create standardized technologies for safeguarding digital copyrighted content, otherwise it risks alienating a large segment of their customer base.209

208 209

See Mazziotti, supra note 207. See Pj McNealy and Mike McGuire, Digital Content Sales Hinge on Standardized Protection, Gartner Group, August 29 (2001) available at http://www.gart ner.com/resources/100500/100543/digital_content.pdf (last visited June 6, 2006).

Conclusions

We have illustrated how the combination of protected technological measures and licenses can create an absolutely unlimited protection of the privileges of the rights-holders, who profit from several combined layers of protection: copyright protection, technological protection, legal protection of the technological measures, and contract law. New communication technologies have increased the difficulties of maintaining a balance between the inherently contradictory interests of intellectual property rights-holders and the general public. In particular, we have underlined that one of the most important ways to achieve this balance is to recognize or create exceptions to and limitations on intellectual property protections, specially, in the area of access to knowledge, which is copyright laws. We have also seen that different forms of government intervention have not removed inequalities. On the contrary, they have brought about detrimental side effects for consumers because they have expanded the legislative boundaries of intellectual property rights and embedded technical and contractual constraints into digital media. The legislative solutions under U.S. and EC law have shown a determined trend towards the protection of content and management of rights which are considered fundamental to ensure the compliance of a business model with contractual and regulatory demands.1 We have also shown how critics argue that such legislative solutions reduce fair use and other user privileges, restrain free speech, discourage scientific research and restrict competition.2 1

2

See Bill Rosenblatt & Gail Dykstra, Integrating Content Management with Digital Rights Management (2003), http://www.xrml.org/reference/CM-DRM whitepaper.pdf. See e.g. Tom W. Bell, Fair Use vs. Fared Use: The Impact of Automated Rights Management on Copyright's Fair Use Doctrine, 76 N.C. L. Rev. 557 (1998); Pamela Samuelson, Intellectual Property and the Digital Economy: Why the Anti-Circumvention Regulations Need to be Revised, 14 Berkeley Tech. L. J. 519 (1999); Thomas C. Vinje, Should We Begin Digging Copyright's Grave?, 22 Eur. Intell. Prop. Rev. 551 (2000); P. Bernt Hugenholtz, Why the Copyright Directive is Unimportant, and Possibly Invalid, 22 Eur. Intell. Prop. Rev. 499, (2000); David Nimmer, A Riff on Fair Use in the Digital

136

Conclusions

We have, at the end, discussed how European harmonization emulates the leading American regulatory model, seriously affecting the configuration of the continental pattern. In fact, even though eight directives3 have been adopted in the last fourteen years in the field of copyright and information society, EC copyright legislation is yet to be completely granted by every Member State’s national legislation. For that reason, some commentators support the idea of a consolidation of the Acquis Communautaire,4

3

4

Millennium Copyright Act, 148 U. Pa. L. Rev. 673, 741 (2000); Therien, supra ch. 2, note 144; Michael Hart, The Copyright in the Information Society Directive: An Overview, 24 Eur. Intell. Prop. Rev. 58 (2002); Wendy J. Gordon, Market Failure and Intellectual Property: A Response to Professor Lunney, 82 B.U. L. Rev. 1031 (2002); Terese Foged, U.S. v. E.U. Anti-Circumvention Legislation: Preserving the Public’s Privileges in the Digital Age?, 24 Eur. Intell. Prop. Rev. 525 (2002); Michael Hart, The Copyright in the Information Society Directive: An Overview, 24 Eur. Intell. Prop. Rev. 58 (2002); Edward Felten, A Skeptical View of DRM and Fair Use, 46 (4) Communications of the ACM 57, 58 (2003); Albert Sieber, The Constitutionality of the DMCA Explored: Universal City Studios, Inc. v. Corley & United States v. Elcom Ltd., 18 Berkeley Tech. L.J. 7 (2003); Joseph Liu, The DMCA and the Regulation of Scientific Research, 18 Berkeley Tech. L.J. 501 (2003); June Besek, AntiCircumvention Laws and Copyright: A Report From the Kernochan Center for Law, Media and the Arts, 27 Colum. J.L. & Arts 385 (2004); Alex EatonSalners, DVD Copy Control Association v. Bunner: Freedom of Speech and Trade Secrets, 19 Berkeley Tech. L.J. 269 (2004). In order: Council Directive 91/250/EEC, On the Legal Protection of Computer Programs, 1991 O.J. (L 122) 42; Council Directive 92/100/EEC, On Rental Right and Lending Right and on Certain Rights Related to Copyright in the Field of Intellectual Property, 1992 O.J. (L 346) 61; Council Directive 93/83/EEC, On the Coordination of Certain Rules Concerning Copyright and Rights Related to Copyright Applicable to Satellite Broadcasting and Cable Retransmission, 1993 O.J. (L 248) 15; Council Directive 93/98/EEC, On Harmonization of Term of Protection of Copyright and Certain Related Rights, 1993 O.J. (L 290) 9; Council Directive 1996/9/EC, On the Legal Protection of Databases, 1996 O.J. (L 77) 20; Council Directive 2001/84/EC, On the Resale Right for the Benefit of the Author of an Original Work of Art, 2001 O.J. (L 272) 32; Council Directive 2001/29/EC, On the Harmonisation of Certain Aspects of Copyright and Related Rights in the Information Society, 2001 O.J. (L167) 10; Council Directive 2004/48/EC, On the Enforcement of Intellectual Property Rights, 2004 O.J. (L 195) 16. The acquis communautaire is defined as “everything that was decided and agreed upon since the establishment of the Communities, whatever the form in which this was done, whether legally binding or not. It refers to the body of rules which govern the Communities in whatever field of activity”. P.S.R.F. Mathijsen, A Guide to European Union Law 5 n. 12 (8th ed. 2004).

Conclusions

137

so that copyright protection would be granted directly at the EC level and would apply to its entire territory.5 On the other hand, we have noticed an unprecedented effort to organize transnational policy planning and to create a safe international legal infrastructure directed at safeguarding “U.S. global economic hegemony . . . upon the production, ownership, and marketing of intellectual property-based goods and services.”6 In particular, as already observed by other authors,7 normative and institutional change in the American state had larger effects than similar changes in other states. For this reason “U.S. institutions” and U.S. based multinational corporations “became vehicles for economic coercion and exercise of preponderant power to force changes abroad”.8 We can assume that the United States of America tendency to extend American laws to foreign business and to unilaterally rule the digital media world, capitalizing its business and technological power, will inevitably influence, also in the future, the international solutions to the intellectual property issues in the digital environment. We have also attempted to make some comments regarding the current ambiguity on the relationship between contract law and intellectual property. The above-mentioned legislation, in fact, makes a persuasive argument for considering limits on freedom of contract9 in the framework of intellectual property licensing agreements because contractual arrangements distort copyright policy.10 Technological protection measures,11 on the other hand, make possible “a regime that is very similar in its nature to a property regime.”12 In fact, when rights-holders are free to use contractual obligations to restrict use, and are then able to exercise their rights to prevent any use that is not subject to these restrictions, they can obtain an ab5

6 7

8 9

10

11

12

See Jörg Reinbothe, European Copyright – Yesterday, Today, Tomorrow, in Digital rights management, supra ch. 1, note 117, at 416, 416-17. Bettig, supra ch. 1, note 67, at 197. See Susan K. Sell, Private power, public law : the globalization of intellectual property rights 5 (2003). Id. For a discussion of the different levels of freedom of contract, see Michael J. Trebilcock, The Limits of Freedom of Contract (1997). While “copyright law defines entitlements protected under a property rule, and therefore creates rights in rem…Contract law, by contrast, only creates rights against parties to the contract.” Elkin-Koren, supra ch. 3, note 14, at 102. The same concept is demonstrated in the case ProCD, Inc. v. Zeidenberg, 86 F.3d 1447, 1454 (7th Cir. 1996). See the distinction between access control and rights control supra ch. 3, note 33, and accompanying text. Elkin-Koren, supra ch. 3, note 14, at 104.

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Conclusions

solute monopoly over their works.13 Copy prevention and digital rights management systems hamper all the so called “reasonable uses” of legitimately purchased digital media. Basically, putting digital media under contract law, is the same as killing the first sale or exhaustion right, that is the principle for the consumer’s right to lawfully make copies and to lend, distribute or resell any copyright protected work.14 Accordingly to the key provisions of the WIPO Copyright Treaty,15 under U.S. and EC law, the communication of a work to the public by the means of the communication networks is subject to the authorization of the right-holders, because it is associated to the concept of “service provision”. This implies that any further action of the same type must specifically be authorized by the holder of the distribution rights. Although the debate continues, the trend in the U.S. is the same as in the EC: the first sale or exhaustion right does not apply to digital content with a consequent detrimental effect on legitimate consumer. Finally, we can assume a different perspective to successfully resolve the problem of trying to learn something from the old media experience.16 As with other important events in the evolution of technological progress, we are confronting a situation in which the owners of older technology are trying to block the way to what they see as a threat, thus “fail[ing] to look

13 14

15 16

Id. at 112. “The policy of the first sale doctrine as adopted by the courts was to give effect to the common law rule against restraints on the alienation of tangible property. The tangible nature of a copy is a defining element of the first sale doctrine and critical to its rationale. The digital transmission of a work does not implicate the alienability of a physical artifact. When a work is transmitted, the sender is exercising control over the intangible work through its reproduction rather than common law dominion over an item of tangible personal property. Unlike the physical distribution of digital works on a tangible medium, such as a floppy disk, the transmission of works interferes with the copyright owner's control over the intangible work and the exclusive right of reproduction. The benefits to further expansion simply do not outweigh the likelihood of increased harm”. See U.S. Copyright Office, DMCA Section 104 Report, at xxxi-ii (2001) (recommending no change to Section 109 of the United States Code). See also Anthony R. Reese, The First Sale Doctrine in the Era of Digital Networks, 44 B.C. L. Rev 577, 582-83 (2003) (considering the possibility to amend the Copyright Act to preserve the benefits of first sale also for digital media). WIPO Copyright Treaty, supra ch. 2, note 7, art. 6 and 8. See Dirk J. G. Visser, Copyright Exemptions Old and New: Learning from Old Media Experiences, in The Future of Copyright, supra ch. 1, note 37, at 49.

Conclusions

139

for ways to cooperate with or even co-opt the new technology.”17 As both recent and old business experience demonstrates, new technologies do not destroy the current architecture but rather create new trade opportunities.18 The idea that a new technology renders obsolete all that came before is inflaming today’s debate about the protection of digital content. However, as always in the history of technological progress, the evolution towards new models has meant an initial loss of revenue for some industries. But, in the long run, this kind of development allows new markets to open and ensures new opportunities for commercial exploitation. It is an example of what Joseph Schumpeter described as “creative destruction.”19 Creative destruction “revolutionises the economic structure from within,” Schumpeter affirmed, “incessantly destroying the old one, incessantly creating a new one.” Innovation in business – new goods, new markets, new methods of production, new ways of organizing firms – is the “fundamental impulse that sets and keeps the capitalist engine in motion”. The history of the productive apparatus is, therefore, a history of revolutions. “The fundamental impulse that sets and keeps the capitalist engine in motion comes from the new consumers, goods, the new methods of production or transportation, the new markets, the new forms of industrial organization that capitalist enterprise creates.”20 “The opening up of new markets, foreign or domestic, and the organizational development from the craft shop and factory to such concerns as U.S. Steel illustrate the same process of industrial mutation – if I may use that biological term – that incessantly revolutionizes the economic structure 17

18

19

20

Sawhney, supra ch. 1, note 30. The author explains how often people mistakenly assume that a new technology will directly replace an old one. For example the videocassette recorder (VCR) at first was perceived as a threat for the content distribution system. In fact, “the VCR offered home tapers the ability to decide when they wanted to watch particular programs. Taking some scheduling control out of the hands of broadcasters. Television program producers also feared losing income from advertisers as home tapers deleted or fast-forwarded through commercials. The apparent threat of this new technology caused the filmed entertainment industry to seek to protect its markets through judicial and legislative action. However, when the dust settled, the VCR, like television and cable television before it, ha[d] become yet another ancillary market for the major filmed entertainment companies.” Bettig, supra ch. 1, note 67, at 4, 151. Joseph A. Schumpeter, Capitalism, Socialism and Democracy (New York: Harper, 1975) [orig. pub. 1942], p. 83. Id.

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Conclusions

from within, incessantly destroying the old one, incessantly creating a new one. This process of Creative Destruction is the essential fact about capitalism.”21

What innovation did in the past, as Schumpeter describes above, technology does today. In this sense we can assert that digital media introduce a “creative destruction” process not only in the business sector, but also in the legal order,22 emphasizing the obsolescence and inappropriateness of the traditional intellectual property regime. Sometimes, like what is now happening in the field of digital media, this process can be quite slow because the government is involved in providing financial and legal aid in order to prevent social and political costs in the period of transition. But, this approach has the end result of upsetting the market and slowing economic growth. The information society uses precisely this framework. Digital technologies allow for the wide distribution of perfect copies at practically no marginal cost with a disjointing effect on copyright law. This process is irreversible. It is difficult to imagine that one would react to this with repeated extensions of intellectual property rights, or with the arrangement of expensive repressive equipment in order to make such an extension effective. This kind of approach is accomplished in the name of the influential content industry and its business model. Cultural and economic progress is the result of the free circulation of ideas and knowledge. Continuing on the road of restrictions and barriers, or to the indiscriminate use of technological protection measures, is a return to anachronistic measures of the past, such as what happened many years ago with the untenable “red flag act” enacted to defend the carriage industry at the advent of the first automobiles.23 The present must learn 21 22

23

Id. See Raymond Shih Ray Ku, The Creative Destruction of Copyright: Napster and the New Economics of Digital Technology, 69 U. Chi. L. Rev. 263, 313 (2002) (arguing that copyright is no longer needed to encourage distribution because consumers themselves build and fund the distribution channels for digital content). After the first recognized automobiles became commonplace, in England the carriage industry promoted some untenable acts (the 1865 “Red Flag Act,” or “Locomotives on Highways Act”) stipulating that all motorized vehicles be preceded by an ambulating man bearing a red flag in the day, and a lantern at night. Anthony Bird, Roads And Vehicles 41-42 (1969). This act restricted the maximum speed of motor cars to 2 miles per hour in urban area and 4 mph in countryside. This was not welcomed by many, and protests were organized. The act was modified in 1878.

Conclusions

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from the past in order to avoid the same mistake and to protect the future. We have also observed how access to digital content and information is not only an economic problem, but also a cultural, social and political issue.24 We have, in fact, illustrated that different forms of government intervention have not removed inequalities but, on the contrary, have brought about detrimental side effects for consumers because they have compromised the capacity to exercise legitimate consumer rights, such as exemptions for private use or copying, by giving content owners extralegal protection for their works. The legislative solutions under U.S. and E.C. law have expanded the legislative boundaries of intellectual property rights and embedded technical and contractual constraints into digital media.25 Furthermore, these acts have caused an inappropriate delegation of governmental decision making to a non-governmental entity with a consequent privatization of the government's role in protecting intellectual property and in setting technical standards for digital infrastructure and interoperability.26 As already pointed out, the adopted legislation makes a persuasive argument for considering limits on freedom of contract27 in the framework of intellectual property licensing agreements, because contractual arrangements change radically copyright policy28 while technological protection measures29 make possible a proper property regime.30 For these reasons, we support the thesis that, in some ways, contract law is replacing intellectual property law because nothing is more internationally uniform than an atypical contract.31 In the global electronic communications market, in fact, the general rules of any liberal and constitutional state, which guarantees its citizens certain fundamental rights and protection against the arbitrary 24 25

26 27

28

29

30 31

See Helberger, supra ch. 3, note 131, at 3. See Bill Rosenblatt & Gail Dykstra, Integrating Content Management with Digital Rights Management (2003), http://www.xrml.org/reference/CM-DRM whitepaper.pdf. See Ghosh, supra Intro., note 19, at 395. For a discussion of the different levels of freedom of contract, see Michael J. Trebilcock, The Limits of Freedom of Contract (1997). While “copyright law defines entitlements protected under a property rule, and therefore creates rights in rem…Contract law, by contrast, only creates rights against parties to the contract.” Elkin-Koren, supra ch. 3, note 14, at 102. See also ProCD, Inc. v. Zeidenberg, 86 F.3d 1447, 1454 (7th Cir. 1996). See the distinction among access control and right control supra ch. 3, note 33, and accompanying text. Elkin-Koren, supra ch. 3, note 14, at 104. See Francesco Galgano, La Globalizzazione nello specchio del diritto 94 (2005).

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Conclusions

employment of power by the state itself, does not work properly because they co-exists with a large array of non-law regulation such as markets, the network architecture and technical standards capable of protecting rights against violation in a much stronger and standardized way than ordinary law.32 In other words, we can conclude that the privatization of information is the result of the powerful normative effect exerted by technology and electronic code, but with the concurrent liability of government regulation and global market power. However, we have verified that obligations set out in current consumer protection law, especially European ones,33 could immediately contribute, even if only partially, to provide information, protection and transparency in relation to transaction done by means of electronic instruments and involving DRM technologies contributing to re-establish consumer confidence in digital media and recalibrating the balance of intellectual property rights in digital media transactions. The challenge remains to translate these principles into realistic actions creating a more user-centric regime, because the market of digital media is one of the principal and strategic engines of the current economic and innovation development. Some potential solutions have emerged, and others will undoubtedly come out in the future. It will be important to continue to monitor the practical effects of legal and regulatory provisions applicable to digital media and, where questions became evident, to formulate tailored remedies. We can not miss this opportunity for the future of digital information and knowledge.

32

33

See e.g. Roberto Bin, Lo Stato di Diritto. Come Imporre Regole al Potere 106 (2004). Consumer protection has also received a significant place in the Community’s constitution. See Treaty establishing a Constitution for Europe, Article III-235, 2004 O.J. (C 310) 1, 105.

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cial code, 2nd edn. West Publishing, St. Paul. Wiese H (2002) The Justification of the Copyright System in the Digital Age. 24 European Intellectual Property Review pp 387-396. Williams A, Calow D., Higham N. (1998) Digital media : Contracts, Rights and Licensing, 2nd edn. Sweet & Maxwell, London. Winn JK (ed)(2006) Consumer Protection in the Age of the Information Economy. Ashgate, Aldershot Hants Burlington. Winn JK (2006) Is Consumer Protection an Anachronism in the 21st Century? available at http://www.law.washington.edu/Faculty/Winn/Documents/Winn_ Consumer_Anachronism_Intro.pdf. Winn JK, Bix BH (2006) Diverging Perspectives on Electronic Contracting in the U.S. and the EU. Minnesota Legal Studies Research Paper No. 06-15, available at http://ssrn.com/abstract=893144. Xalabarder R (2003) Copyright and Digital Distance Education: The Use of PreExisting Works in Distance Education Through the Internet. 26 Columbia Journal of Law & the Arts p 101. Xalabarder R (2002) Copyright: choice of law and jurisdiction in the digital age. 8 Annual Survey of International & Comparative Law p 79. Zepeda LM (2002) A&C Records, Inc. v. Napster, Inc.. 17 Berkeley Technology. Law Journal p 71. Ziccardi G (2001) Il Diritto d’Autore nell’Era Digitale: Evoluzione Tecnologica e Copyright: Internet, Mp3, DivX; Open Source, Gnu/Linux, Free Software, Mezzi di Protezione. Il Sole 24 Ore, Milano. Zittrain J (2005) Technological Complements to Copyright. Foundation Press, New York.

Index

levies; 57 owner; 48; 93 paracopyright; 73 protection; 71

A Access contract; 30; 34 Access control; 38; 46; 48; 64; 69; 96; 97 Access right; 32; 35 Acquis Communautaire; 136 Analog; 17; 18; 71 media; 1; 13; 17; 90 Anti-circumvention; 3; 8; 43; 45; 47; 49; 64; 68; 89

B BEUC Bureau Européen des Unions de Consommateurs (BEUC); 108 C Consumer confidence; 122 Consumer contract; 114; 118; 119 Consumer law; 117 Consumer protection; 15; 19; 99; 101; 108; 114; 118; 119; 124 Consumer protection law; 100 Consumer rights; 25; 37; 39; 50; 84; 87; 90; 99; 104; 108; 120; 123 Copyright; 4; 7; 14; 22; 24; 27; 31; 32; 52; 63; 73; 77; 105; 108; 135 balance; 100; 120 enforcement; 12 exceptions; 49; 53; 56; 57; 59; 60; 67 harmonization; 121 infringement; 36; 45; 50; 78; 81 law; 7; 12; 18; 32; 92; 121

D Digital dilemma; 20 Digital media; 1; 2; 12; 13; 17; 18; 20; 29; 31; 35; 97; 119; 135 business models; 128 EC legislation; 51 US legislation; 44 Digital Media Consumers' Rights Act; 50; 113 Digital Millennium Copyright Act; 3; 4; 36; 37; 43; 44; 45; 46; 47; 49; 50; 51; 62; 63; 64; 66; 67; 68; 69; 72; 73; 76; 86; 89; 99; 107; 108; 121; 136; 138 Disintermediation; 14 Distance Contract Directive; 116 DRM; 79; 91; 92; 99; 100; 102; 104; 106; 108; 117; 118; 123; 124; 125; 142 EC internal market; 120; 121 High Level Group on DRMs; 122; 125; 127 iTunes DRM; 131 E E-commerce directive; 87; 116 Encryption; 19; 43; 97 research; 45; 49; 68 Enforcement directive; 79; 85; 86; 87; 121; 127 EULA; 102

168

Index

Europe; 8; 43; 51; 66; 77; 107; 121 European Copyright Directive; 4; 51; 52; 63; 64; 67; 69; 71; 72; 89; 99; 108; 121 Exhaustion; 54; 71; 105; 138 principle; 69; 70; 109 F Fair use; 25; 26; 36; 37; 48; 49; 50; 135 by design; 59 doctrine; 93; 100 Federal Trade Commission; 109 Fingerprinting; 19; 97 First sale; 54; 69; 71; 104; 109; 138 Freedom of contract; 57; 60; 107; 137; 141

N Napster; 74; 77; 130 Negotiation; 59; 102 P Peer-to-peer; 8; 13; 74; 75 Piracy; 4; 7; 21; 64; 78; 82; 132 anti-piracy measures; 45; 123 commercial; 120; 125 music; 87; 132 Price discrimination; 15 Privacy; 49; 92; 108; 119 R Reverse engineering; 49; 68 Rights control; 48; 49; 69; 96 Rome Convention; 115

I Intellectual property rights; 6; 27; 35; 42; 81; 142 exceptions; 26 file swapping; 74 globalization; 25 information society; 89 piracy; 82 technological protection measures; 41; 79; 93 International Federation of the Phonographic Industry (IFPI); 128 Interoperability; 19; 39; 45; 49; 57; 68; 121; 122; 124; 125; 133 iTunes; 79; 117; 130; 131; 132 L Licensing; 8; 37; 79; 91; 100; 109; 123; 137 fees; 45 M MP3; 1; 11; 13; 74 player; 131

S Security; 16; 49; 98 measures; 14 systems; 45 testing; 68 Self-help systems,”; 92 Shrink-wrap licenses; 103; 104 Standardization; 99; 124 T Technological protection; 2; 3; 8; 38; 41; 45; 63; 64; 69; 89; 92; 95; 100; 102; 104; 113; 123; 127; 129; 135; 137; 141 circumvention; 58 Trusted systems; 98 U Unconscionability; 100; 110; 111; 116 Unfair commercial practices; 118 Unfair contract terms; 116 Unfair contracts; 111 Unfair Term Directive; 114; 115

Index Unfairness; 50; 100; 103; 114 Uniform Computer Information Transaction Act (UCITA); 32; 34 United States; 3; 8; 25; 36; 43; 81; 87; 106; 121; 130; 137 Code; 37; 44; 46; 48; 105 Copyright Office; 69

169

W Watermarking; 19; 97; 98 World Intellectual Property Organization (WIPO); 24; 42; 52 World Performances and Phonograms Treaty 1996; 42; 44; 52

About the author

Nicola Lucchi (Dottore in Giurisprudenza, 1998 University of Ferrara) is a lecturer at the Law Faculty of the University of Ferrara, Italy and research associate at the Department of Legal Studies of the University of Ferrara. He is Fellow of the Center for Internet and Society at the Stanford Law School and he is currently Global & Engelberg Center Research Fellow at the NYU School of Law (2006-2007). He was visiting scholar at the University of California at Berkeley, Boalt Hall School of Law, and at the University of Texas at Austin, School of Law. His awards include the European Commission’s, Kaléidoscope Programme scholarship, the Rotary Foundation Ambassadorial Scholarship to the University of Texas at Austin and the Global Research Fellowship within the Hauser Global Law School Program and Engelberg Center for Innovation Policy, NYU School of Law. From June 2001 to May 2005 he worked as Honorary Judge at the Court of Ferrara. Before joining the academia, Nicola was public relations assistant to one of Italy’s foremost classical music conductors Claudio Abbado and also to the Mahler Chamber Orchestra.

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