Intellectual Property Law and Policy VOLUME 10 Edited by
Professor Hugh C Hansen Professor of Law and Director, Fordham University School of Law, International Intellectual Property Law and Policy Institute
OXFORD AND PORTLAND, OREGON 2008
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Foreword This volume is an edited version of the formal presentations and colloquies from the Fordham University School of Law Fifteenth Annual Conference on Intellectual Property Law and Policy held at Fordham April 12th and 13th, 2007. With this volume we have resumed the practice of our first nine years of publishing the conference proceedings. We expect to publish the proceedings from the tenth through the fourteenth conferences to make the printed record complete. In light of the eminence of conference participants, the importance of the subject matter, and astonishing candor of the exchanges, we hope and expect that the ideas and analyses presented in this volume will make a valuable contribution to worldwide discussions of intellectual property law and policy. The entire series provides an exceptional record of the development of this vital area; pinpointing the issues, ideas, and personalities behind new legal and policy initiatives. For both practitioners and scholars, we have strived to make the conference and these volumes an accessible, comprehensive, and unbiased forum for the best thinking and analysis in this important and often contentious area. Hugh C. Hansen Editor
ACKNOWLEDGEMENTS ACKNOWLEDGEMENTS
Acknowledgements Many people and organizations have helped make the Conference and this volume possible. First and foremost are our conference sponsors. The support of over thirty organizations, listed at the beginning of this volume, has been crucial to the conference’s success and continued existence. We have benefited as much from their active interest in, and profound knowledge of intellectual property law, as from their generosity. In this regard, we wish to thank in particular Brad Smith, Microsoft Senior Vice President and General Counsel, for his personal and professional support, as well as the Microsoft Corporation itself, which has provided particularly generous support for the conference and for the publication of this volume. We are also grateful to the many representatives of our sponsors, as well as friends of the conference, who participated in the numerous group teleconferences and individual telephone calls that helped us determine which topics would be of most interest and relevance as we put together the program. Of course, any conference is only as good as its faculty. Our distinguished speakers were from the private sector, government and academia; from across town and across the globe, in fact numbering 139 from 19 countries. They are truly the crème de la crème. They came together in a lively, collegial spirit to offer presentations, discussion and commentary of the highest caliber. Also, as will be apparent to even the most casual reader of this volume, those attending the conference asked some of the most incisive questions, and made some of the most telling observations. I have often said that we could switch the speakers and the audience without any diminution in the quality of the proceedings. William M. Treanor, Dean of the Fordham University School of Law, has from the very start of his eight-year tenure given the conference and intellectual property law at Fordham his full support, for which we are very grateful. Darin Neely, International Director of our Office of Academic Programs, was instrumental in every step of the long arduous task from August through April of organizing this conference which, with its three concurrent sessions, is equivalent to a five-day conference. Also, Darin, David Quiles and the staff of the Academic Programs office worked tirelessly for the weeks immediately before the conference and nonstop for the two days of the conference to efficiently manage the herculean tasks involved in administering the conference. In this regard, members of Fordham’s Intellectual Property, Media and Entertainment Law Journal provided indispensable support throughout the two days of the conference, as well as assistance with various manuscripts co-published here and in the Journal. Sandra Sherman, Assistant Director of our new Fordham Intellectual Property Law Institute, oversaw every aspect of producing this volume, from helping to negotiate our new relationship with Hart Publishing to editing individual sessions. Her meticulous attention to detail and exceptional organizational focus kept this immense project on course. Sharon Hammer, President of Verbatim Transeedings, Inc., managed the recording, transcribing and assembling of this volume’s material. Her ability to track down a missing presentation or a stray but crucial submission is extraordinary, and often saved the day when we had nowhere else to turn. The accuracy and attention to detail of Verbatim’s transcription and manuscript services are second to none. Research assistants
viii A CK N OWL E D GE M E N T S Anthony Rizzo and Jason Lunardi, both second-year Fordham Law students, provided expert review of the manuscript including very valuable bluebooking. They were able to locate even the most obscure citations and correct the array of errors that always creep into the citations of every manuscript. Finally, we are very pleased with our association with our new publishing partner, Hart Publishing of Oxford, England. Richard Hart and his colleagues have done a wonderful job in putting this volume together. In particular, Richard, Mel Hamill, Rachel Turner, and Tom Adams have been very professional, agreeable, patient and supportive in a way that I do not think any other publisher could be, or even would want to be. Hart Publishing is in a class by itself. H.C.H.
List of Sponsors Berwin Leighton Paisner Clarke, Modet & Co. Cleary, Gottlieb, Steen & Hamilton LLP Covington & Burling LLP Cooper & Dunham LLP Darby & Darby P.C. Entertainment Software Association Frommer Lawrence & Haug LLP FTI Consulting Gómez-Acebo & Pombo, Abogados, S.L. Jones Day Kenyon & Kenyon LLP Ladas & Parry LLP McDermott, Will & Emery LLP Microsoft Corporation Milbank, Tweed, Hadley & McCloy LLP Morgan & Finnegan, LLP Morgan, Lewis & Bockius LLP Nokia Corporation Qualcomm Incorporated Ropes & Gray LLP Smith, Strong & Schlesinger LLP Thomson CompuMark Time Warner Inc. Vossius & Partner Weil, Gotshal & Manges LLP White & Case LLP Winston & Strawn LLP
CONTENTS CONTENTS
Contents Foreword
v
Acknowledgements
vii
List of Sponsors
ix
Welcoming Remarks
xxi
SESSION I: PLENARY SESSION The Next Ten Years in Intellectual Property Law: What Should Happen? What Will Happen? Part A: The Next Ten Years in WIPO and WTO Overview Michael S. Keplinger, The Next Ten Years in WIPO Hannu Wager, The Next Ten years in WTO Panel Discussion Prof. Hugh C. Hansen, Moderator Mihály Ficsor, Bruce A. Lehman, James Love, Eric H. Smith, Fred von Lohmann
1 2 3 5 9
Part B: The Next Ten Years in Trademarks Prof. Graeme Dinwoodie Panel Discussion Prof. Hugh C. Hansen, Moderator Prof. Graeme Dinwoodie, Prof. Jane Ginsburg, Prof. Sir Hugh Laddie, Prof. Marshall Leaffer, David Llewelyn, Paul Maier, Erik Nooteboom
17 18 20
Part C: The Next Ten Years in Copyright Panel Discussion Prof. Hugh C. Hansen, Moderator Prof. Jane Ginsburg, Prof. P. Bernt Hugenholtz, Fred von Lohmann, Tilman Lueder, Prof. John G. Palfrey Jr., Shira Perlmutter, Marybeth Peters, Thomas C. Rubin
29 30
Part D: The Next Ten Years in Patents Lord Hoffmann Panel Discussion Prof. Hugh C. Hansen, Moderator Lord Hoffmann, Charles Eloshway, Hon. Roger Hughes, Rt. Hon. Lord Justice Jacob, Ron Marchant, Hon. Pauline Newman, Erik Nooteboom, Prof. Tetsuya Obuchi, Hon. Randall Rader
37 38 40
Part E: The Next Ten Years of IP Law in the U.S. Supreme Court Panel Discussion Prof. Hugh C. Hansen, Moderator Dimitrios Drivas, Prof. Graeme Dinwoodie, Lord Hoffmann, Prof. Jay Thomas, Hon. Pauline Newman, Harold C. Wegner, Prof. Timothy Wu
49 49
xii CONTE NTS Part F: The Next Ten Years of IP Law in the European Court of Justice William Robinson, Overview of ECJ Cases Panel Discussion Prof. Hugh C. Hansen, Moderator Prof. Graeme Dinwoodie, Lord Hoffmann, Prof. Sir Hugh Laddie, Hon. Klaus Grabinski, Prof. Alain Strowel, Rt. Hon. Lord Justice Jacob
59 60 61
SESSION II: COPYRIGHT Unauthorized Use of Works on the Web: What Can Be Done? What Should Be Done? Part A: Legality of Unauthorized Use Prof. John G. Palfrey Jr. Donald B. Verrilli Jr. Alexander Macgillivray Panel Discussion Morton David Goldberg, Moderator Sandra Astairs, Michael A. Einhorn, Prof. Brian Fitzgerald, Thomas C. Rubin
67 68 71 73 76
Part B: Non-Copyright Legal Solutions Sandra Astairs Michael Schlesinger Panel Discussion: Morton David Goldberg, Moderator Michael A. Einhorn, Prof. Brian Fitzgerald, Alexander Macgillivray, John G. Palfrey Jr., Thomas C. Rubin, Donald B. Verrilli Jr.
85 86 88 90
Part C: Copyright Issues in Online Music Zoltán Bácsi Panel Discussion Prof. Silke Von Lewinski, Moderator Zoltán Bácsi, Tilman Lueder Jacqueline Charlesworth Elliot Peters Howard P. Knopf, Online Music 2007 Panel Discussion Eric J. Schwartz, Moderator David O. Carson, David Jones, Elliot Peters
97 99 101
105 108 110 131
SESSION III: PATENT Part A: Non-Obviousness and Inventive Step: A Comparative View John Richards Panel Discussion Norman Zivin, Moderator Hon. Klaus Grabinski, Rt. Hon. Lord Justice Jacob, Eiji Katayama, Steven J. Lee, Hon. Randall R. Rader Herbert F. Schwartz
139 140 143
CONTE NTS
Part B: Extraterritoriality and Related Principles: To What Extent Have and Should National Courts Apply their Domestic Patent Laws and Policies to Activities in Other Countries? Prof. John R. Thomas, Voda v. Cordis Hon. Roger Hughes, Jurisdiction of the State: Respecting the Incorporeal Dr. Johann Pitz, Extraterritoriality of German Patents Nicholas Groombridge Panel Discussion John Richards, Moderator Hon. Klaus Grabinski, Rt. Hon. Lord Justice Jacob, David Perkins Part C: Patentable Subject Matter: The Road Ahead for Software and Business Method Patents Bart Eppenauer David J. Kappos Ron Marchant Panel Discussion Prof. Martin J. Adelman, Moderator Dr. Anne Fitzgerald, Prof. John R. Thomas Robert Hart, Patentable Subject Matter: The Road Ahead for Software and Business Method Inventions in Europe and the U.K.
xiii
151 152 163 176 179 181
189 190 193 195 198
206
SESSION IV: ANTITRUST/COMPETITION LAW & INTELLECTUAL PROPERTY Part A: Standard Setting and Competition Issues Nicholas Banasevic John Temple Lang, Licensing, Antitrust and Innovation Under European Competition Law Roy Hoffinger Discussion/Q&A Geoff Oliver, The Rambus Case Panel Discussion Andreas P. Reindl, Moderator Victoria A. Espinel, David J. Kappos, Rondal Moore Michael Einhorn, Competition Policy and the European Commission: CDMA Standards and Qualcomm
215 216 219 224 229 235 237
240
Part B: Refusals to License Daryl Lim, Beyond Microsoft: Rethinking the Future of Refusals to License Panel Discussion: Prof. Hugh C. Hansen, Moderator Heinz Goddar, Prof. Valentine Korah, Susan Manning, John Temple Lang John Temple Lang, European Competition Law and Refusals to Licence Intellectual Property Rights
247 248 271
Part C: Intellectual Property and Competition Policy on Parallel Trade Thomas Heide, Overview of Parallel Trade Christopher Stothers
297 297 299
282
xiv CONTE NTS James B. Kobak Jr. & Ramsey Chamie, An Update On the Law, Politics and the Re-Importation of Pharmaceuticals in the United States Panel Discussion Thomas Heide, Moderator Thomas Cheng, Prof. Valentine Korah, Susan Manning, John Temple Lang
304 312
SESSION V: PATENT Part A: Japanese IP Developments Tsuyoshi Isozumi, Mutual Utilization & Enhanced Work Sharing: Patent Prosecution Highway and New-Route Proposal Hon. Koichi Tanaka, Speedy and High-Quality Disposition IP High Court Eiji Katayama, Japanese Patent Recent Developments: View from Industry and Attorney Prof. Tetsuya Obuchi, Japanese Patent and Copyright Law Developments Panel Discussion John Richards, Moderator Souichiro Kozuka, Harold C. Wegner Part B: EU Legislative and Related Developments Harrie Temmink Hon. Klaus Grabinski Panel Discussion David Perkins, Moderator Erik Nooteboom, Prof. Alain Strowel Part C: Courthouse Relationships: The Federal Circuit and the Supreme Court, The Court of Appeal and the House of Lords, Member State Courts and the Court of Justice Prof Martin J. Adelman, Introduction Lord Hoffmann Prof. John Duffy Panel Discussion Prof. Martin J. Adelman, Moderator Hon. Klaus Grabinski, Prof. Sir Hugh Laddie, Hon. Pauline Newman, Hon. Randall R. Rader, Harold C. Wegner
321 322 324 327 329 333
337 338 343 346
353 353 355 357 360
SESSION VI: HUMAN RIGHTS & INTELLECTUAL PROPERTY Prof. Martin J. Adelman, Introduction Prof. F. Willem Grosheide, The Human Rights Paradox Orit Fischman Afori, Copyright and Human Rights: External Balance for Internal Benefit Prof. Geertrui Von Overwalle, Human Rights’ Limitations in Patent Law Prof. Laurence R. Helfer, Human Rights and Intellectual Property Hannu Wager
369 370 372 375 379 382
CONTE NTS
Panel Discussion Prof. Martin J. Adelman, Moderator Hannu Wager, Prof. Peter K. Yu Orit Fischman Afori, Human Rights and Copyright: The Introduction of Natural Law Considerations into American Copyright Law Laurence R. Helfer, The New Innovation Frontier? Intellectual Property and the European Court of Human Rights
xv 384
390 430
SESSION VII: TRADEMARK Part A: Trademark Law Developments in the European Union William Robinson, Trademark Developments Gail E. Evans, Recent Developments in the Protection of Trade Names in the European Union Prof. Spyros Maniatis, Opel: What Will it Mean for the Future? Panel Discussion Claus Köhler, Moderator Prof. Annette Kur, Prof. Sit Hugh Laddie, David Llewelyn, Paul Maier Appendix: William Robinson et al., Tables: Community Trade Mark Jurisprudence of the European Community Courts, 1 January 2006 to 31 March 2007
473 474 478 502 511
521
Part B: Third-Party Uses of Trademarks: Search Engines and Key Words John Richardson, Introduction Prof. Graeme Dinwoodie Dr. Peter Ruess Panel Discussion John Richardson, Moderator Jeffrey Butler, Prof. Susy Frankel, Paul W. Garrity, Prof. Marshall Leaffer, Ilanah Simon
541 541 542 546 549
Part C: Dilution: A Review of Recent Developments Prof. Coenraad Visser, Introduction Prof. Barton Beebe, Trademark Dilution Revision Act Kenneth A. Plevan Ilanah Simon David Llewelyn Panel Discussion Prof. Coenraad Visser, Moderator Prof. Veronica Barresi, Andrew Bridges, Susan Progoff
559 559 560 563 566 570 571
Part D: Functionality and Protection of Product Configuration Marks Paul Maier Jonathan Moskin Panel Discussion Paul W. Garrity, Moderator Prof. Graeme Dinwoodie, Prof. Kenneth L. Port, Susan Progoff, Prof. Susan Scafidi
577 577 585 587
xvi CONTE NTS
SESSION VIII: COPYRIGHT Part A: Canada, Australia and New Zealand Prof. Brian Fitzgerald, Introduction Prof. Robert Burrell Howard P. Knopf, Recent Copyright Activity and Inactivity in Canada Prof. Susy Frankel Panel Discussion Prof. Brian Fitzgerald, Moderator Prof. Christoph Antons, Prof. Anne Fitzgerald, Prof. Daniel J. Gervais, Hon. Roger Hughes Part B: The Recasting of Copyright and Related Rights in the European Union — What Should the EU Do? What Will the EU Do? Prof. P. Bernt Hugenholtz, IViR Report Barbara Norcross-Amilhat Panel Discussion Prof. Lionel Bently, Moderator Mihály Ficsor, Thomas Heide, Andreas P. Reindl, Prof. Silke von Lewinski
591 591 592 595 612 613
621 621 627 631
Part C: WIPO Broadcasting Treaty and the Politics of Intellectual Property Michael S. Keplinger James Love Julie Samnadda Panel Discussion David O. Carson, Moderator Ann Chaitovitz, Shira Perlmutter, Tom Rivers
637 638 640 642 644
Part D: Exclusive Rights v. Global Remuneration Ted Shapiro Panel Discussion Mihály Ficsor, Moderator Prof. Daniel J. Gervais, Fred von Lohmann, Shira Perlmutter
651 652 659
Part E: Developments in the Copyright Office and Congress Marybeth Peters David O. Carson
663 664 667
SESSION IX: PATENT Part A: A View From the Trenches Charles Fish, Introduction Brian W. Nolan, The Real-World Effect of eBay, Inc. v. MercExchange, L.L.C. Basil Imburgia Hon. Jed S. Rakoff Panel Discussion Charles Fish, Moderator Hon. Klaus Grabinski, Brian Murphy, Hon. Koichi Tanaka, Tony Yeo
673 673 675 683 685 688
CONTE NTS
Part B: MedImmune: What Is a Case or Controversy Without Reasonable Apprehension? Implications for Licensors, Licensees and the Rest of Us John R. Lane, Introduction Steven J. Lee, MedImmune: What is a Case or Controversy Without Reasonable Apprehension? Implications for Licensors, Licensees and the Rest of Us Harold C. Wegner & Lynn E. Eccleeston, MedImmune: The Federal Circuit Fills in the Blanks Panel Discussion John R. Lane, Moderator Charles Fish, Herbert F. Schwartz Part C: Patent Law Reform John R. Lane Bruce A. Lehman Panel Discussion John R. Lane, Moderator Charles Fish, Steven J. Lee, Herbert F. Schwartz, John A. Squires Bruce A. Lehman, Bracing for the Impact of Patent Reform: Prospects for Legislation in the 110th Congress
xvii
697 697 699 709 726
731 731 734 737
748
SESSION X: COPYRIGHT Part A: Intellectual Property Law and Design Jack B. Hicks Alain Coblence, The Design Piracy Prohibition Act Harrie Temmink Paul Maier, Design Law: An Update on Decisions in the OHIM Panel Discussion Prof. Susan Scafidi, Moderator Prof. Kenneth L. Port, Mark Traphagen
759 760 773 777 780 794
Part B: The Three-Step Test: Is It Out of Step? Hoachen Sun, Overcoming the Achilles’ Heel of Copyright Law: The Case for the Creative Destruction of the Three-Step Test Panel Discussion Prof. Hugh C. Hansen, Moderator Prof. Jane Ginsburg, Prof. P. Bernt Hugenholtz, Prof. Annette Kur, Ted Shapiro, Prof. Coenraad Visser, Prof. Mary W.S. Wong
799
Part C: Copyright Law in the 21st Century: Some Empirical and Theoretical Considerations Concerning Fair Use, Tolerated Use, Indeterminate Protection, and Compulsory Licensing Prof. Barton Beebe Empirical Study of U.S. Copyright Fair Use Opinions 1978–2005 Discussion of Beebe Presentation Prof. Tim Wu, Tolerated Use Discussion of Wu Presentation Michael Einhorn, Alternatives to Fair Use Discussion of Einhorn Presentation
800 856
863 864 868 871 873 875 878
xviii CONTE NTS Michael S. Shapiro, Copyright’s Winter of Discontent? Some Thoughts on the International Public Policy Process Discussion of Shapiro Presentation Prof. Souoichirou Kozuka, Copyright Law and the Digital Agenda in Japan: Some Thoughts About Change Discussion of Kozuka Presentation Panel Discussion Prof. Hugh C. Hansen, Moderator Prof. Lionel Bently, Prof. Jane Ginsburg, Stanley Pierre-Louis Michael E. Einhorn, Alternatives to Fair Use: Can Kozinski Replace Posner?
880 887 889 894 894
899
SESSION XI: TRADEMARK From Communication to Thing: When Were Trademarks First Conceptualized and Treated as Property. Does it Matter? Prof. Lionel Bently, From Communication to Thing: Historical Aspects of the Conceptualisation of Trade Marks as Property Panel Discussion Prof. Marshall Leaffer, Moderator Andrew P. Bridges, Prof. Justin Hughes
915 916 941
SESSION XII: TRADE Part A: Thailand and Compulsory Licenses Prof. Susy Frankel, Introduction James Love Jeffrey P. Kushan Richard Kjeldgaard Panel Discussion Prof. Susy Frankel, Moderator Prof. Sir Hugh Laddie Part B: Trade Policy in Intellectual Property: Policy, Priorities, and Emerging Issues Victoria A. Espinel Questions & Answers
947 947 949 951 953 955
963 963 968
Part C: India, IP Developments and TRIPs Prof. Shamnad Basheer Victoria A. Espinel Panel Discussion Prof. Sir Hugh Laddie, Moderator James Love, Mustafa Safiyuddin, Eric H. Smith, Howard Zucker
971 972 976 978
Part D: TRIPs and China: Should a Case be Brought? — Will it be Brought? Justin Hughes, Introduction Victoria A. Espinel Eric H. Smith, The Case for TRIPs Violations
983 983 984 988
CONTE NTS
Prof. Peter Yu, Intellectual Property, Economic Development, and the China Puzzle Panel Discussion Prof. Justin Hughes, Moderator Mark Traphagen, Prof. Sir Hugh Laddie, Prof. Qian Wang
xix
990 1024
Appendix: The Next Ten Years in EU Copyright: Making Markets Work Dr. Tilman Lueder
1031
Index
1065
WELCOMING WELCOMING REMARKS REMARKS
FORDHAM UNIVERSITY SCHOOL OF LAW FIFTEENTH ANNUAL CONFERENCE INTERNATIONAL INTELLECTUAL PROPERTY LAW & POLICY New York, April 12–13, 2007 WELCOMING REMARKS PROF. HUGH C. HANSEN DEAN WILLIAM TREANOR
Fordham University School of Law
PROF. HANSEN: Good morning. Welcome to the Fifteenth Annual Fordham Conference. It is my great pleasure and honor to introduce the Dean of Fordham Law School, William Treanor, for welcoming remarks. DEAN TREANOR: Thanks very much, Hugh. Welcome. This is an incredibly exciting event for us at Fordham Law School. Today we have, for the fifteenth year, our International Intellectual Property Law & Policy Conference. As our alumni and students know, really pretty much every day we have a conference of some kind that meets here. But this is really a high point for us in the year. What it does is bring together really two of the great focuses of our Law School. Fordham Law School is one of the leading schools — certainly in the United States, I think in the world — in the areas of intellectual property and information law. Professor Hansen really is a pioneer in the field of intellectual property in the United States, and now we have Professor Sonya Katyal, Professor Mark Patterson, Professor Andy Sims, and Professor Joel Reidenberg. Joining us next year we have Professor Jeannie Fromer, who is a former U.S. Supreme Court Clerk, who also has a Masters in Computer Science from MIT. We also have two exciting visitors coming, Brett Frischmann and Kathy Strandburg. Fordham Law School has a profound commitment to intellectual property and realizes how much it is at the core of legal practice today. It is also profoundly committed to international law and has one of the preeminent international law programs in the United States. This Conference brings the two together. It started in 1993. Professor Hansen had the idea of bringing the leading figures in European intellectual property law and the leading U.S. figures together in one conference. Over fifteen years, it has expanded to what it is today. I think we have roughly 350 people here. We have people from six continents, which I think is basically all you can reasonably expect. It is a level of discussion that is really unparalleled. Professor Hansen’s motto for the conference is: Learn something; engage in the debate; have fun. That is what this Conference is about. It is about a top-level discussion, but it is done in a way that is fun and fascinating and that focuses on the debate.
xxii WE LCOMING R E MA R KS We started yesterday with a program in conjunction with the Intellectual Property Academy of Singapore, which we began in 2004, on Asian intellectual property law. It was a fabulous beginning. Now we have the program today and tomorrow. I want to thank all the sponsors who make this possible. As a dean, I am very grateful for sponsors. I want to thank them for their financial support. I want to thank all of you for coming here and bringing so much excitement to this. I want to thank Helen Herman in our Office of Academic Programs for doing such a great job in putting this together, and particularly Darin Neely, who is really a genius of logistics. And finally, before I turn things over to Professor Hansen, I want to acknowledge him again. He really is a visionary. In 1993 he thought this was what we had to do. He really reached. At a time in which intellectual property in the United States in the academy was really in its infancy, he realized both its importance and the importance of its international dimension. I think all of us who know him prize his pithy aphorisms and his sense of humor. In an increasingly soundbite-driven culture, as we have in the United States, if ever there is an IP talk show, I know who will be the host. In addition to his great wit and his vision, he has the most extraordinary intelligence and vision about intellectual property. All of us are very grateful to Professor Hansen for what he has done. It is my pleasure now to turn things over to Professor Hansen. PROF. HANSEN: Thank you very much, Bill. Wow, thanks. That was a great introduction. I have never had an introduction like that.
SESSION I: PLENARY SESSION PART A: THE NEXT TEN YEARS IN WIPO AND WTO
SESSION I: PLENARY SESSION
The Next Ten Years in Intellectual Property Law: What Should Happen? What Will Happen?
Part A: The Next Ten Years in WIPO and WTO
Moderator PROF. HUGH C. HANSEN
Fordham University School of Law
Speakers MICHAEL S. KEPLINGER
HANNU WAGER
Deputy Director General World Intellectual Property Organization (Geneva)
Counsellor Intellectual Property Division World Trade Organization (Geneva)
Panelists MIHÁLY FICSOR
JAMES LOVE
President, Hungarian Copyright Council; Former Assistant Director General WIPO (Budapest)
Director, Knowledge Ecology International (Washington, D.C.)
BRUCE A. LEHMAN
ERIC H. SMITH
Akin, Bump Strauss Hauer & Feld LLP (Washington, D.C.)
Smith, Strong & Schlesinger LLP (Washington, D.C.)
FRED VON LOHMANN
Senior Intellectual Property Counsel, Electronic Frontier Foundation (San Francisco)
2 S E S S I O N I : P L E N A R Y SE S S I O N Overview The last ten years have seen major changes in intellectual property (IP) developments at both the national and international levels. Creators, inventors, and content providers are facing difficult times on two fronts. One is the never-ending growth of technological developments that make unauthorized copying even easier. The second is more vocal opposition to intellectual property protection. Developing nations, consumers, library associations, open source advocates, nongovernmental organizations (NGOs), Internet service providers (ISPs), digital manufacturers, and others have advocated less protection for IP. This opposition has resulted in new multilateral treaties and legislation that extends IP protection being stalled or killed. The low-protection advocates, however, have been only partially successful. Courts globally continue to provide strong IP protection, and legislatures have resisted calls to cut back existing protection. This might change since a number of government-sponsored studies have weighed in to varying degrees on the side lessening IP protection. Such studies included the Gowers Review in the United Kingdom,1 the Final Report of the U.K. Commission on IP rights (CIPR),2 and the European Commission’s reports on Databases and the Copyright Acquis.3 And, of course, it now has become almost de rigueur for academics throughout the world to question previously long-held assumptions about the scope of IP protection. This Plenary Session will address what these developments mean over the next ten years. Some of the issues to be discussed are: 앫 What is causing these calls for decreased protection? Are they driven by economic self-interest and/or ideological views that, perhaps unstated, are for redistribution of wealth and against market-driven economies and capitalism in general? Or are calls for less protection the reaction to a digital world that produces new roles for all market players, the democratization of creativity, and/or the growth of non-proprietary networks and mass creative collaboration? 앫 Are both sides in the IP debate too ideologically rigid to produce a workable compromise? 앫 Will multinational organizations become irrelevant or more important? 앫 Are treaties and EU and national legislation possible in this fractured environment? If so, what approaches toward IP will they take? Will “soft law” replace enacted law? 앫 Will courts, by default or design, play the central role in the intellectual property debate? If so, can courts globally produce a consistent, or at least somewhat harmonized, approach to the protection of IP? 1 U.K. Treasury, Gowers Review of Intellectual Property (December 2006), available at http://www.hmtreasury.gov.uk/media/6/E/pbr06_gowers_report_755.pdf. 2 U.K. Commission on Intellectual Property Rights [CIPR], Integrating Intellectual Property Rights and Development Policy (September 2002), available at http:// www.iprcommission.org/graphic/documents/ final_report.htm. 3 European Commission, First Evaluation of Directive 96/9/EC on the Legal Protection of Databases (Dec. 12, 2005) (Final Report), 2004 O.J. (L 195) 16, available at http://ec.europa.eu/internal_market/copyright/ documents/documents_en.htm#reports; European Commission, Report from the Commission on the Coordination of Certain Rules Concerning Copyright and Related Rights Related to Copyright Applicable to Satellite Broadcasting and Cable Transmission (July 26, 2002), available at http://eur-lex.europa.eu/LexUriServ/ LexUriServ.do?uri=CELEX:52002DC0430:EN:NOT; European Commission, Report from the Commission to the Council, the European Parliament and the Economic and Social Committee on the Implementation and Effects of Directive 91/250/EEC on the Legal Protection of Computer Programs (Oct. 14, 2000); European Commission, Consultation on the Review of EU Legislation on Copyright and Related Rights (Working Document), available at http://eur-lex.europa.eu/internal_market/copyright/review/ consultation_en.htm.
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앫 What will copyright, patent, and trademark laws look like in ten years time? 앫 Will technology make all of the above irrelevant? The speakers and panelists in this Session will address these issues as well as some of their own. The session will consist almost entirely of discussion, with a major portion of time allocated for audience participation. * * * I think this morning’s program is very exciting. Normally, in this session review what happened in the last year. Our focus today is to look prospectively at the next ten years. Without further ado, we have two speakers addressing respectively the World Trade Organization (“WTO”) and the World Intellectual Property Organization (“WIPO”) in the future. The first speaker is Michael Keplinger. Mike a new Deputy Director of WIPO. His specialty is copyright. He has a long history in copyright in the U.S. Patent and Trademark Office (PTO). We are very, very pleased to have Mike here. MR. KEPLINGER: When I was asked to talk about the next ten years in WIPO, I thought this was quite a challenge. As Hugh said, my specialty is copyright. My new position is that of the Deputy Director General in charge of the Copyright Sector. I began by casting around the Organization to talk to the other Deputy Directors to see what their perceptions were about their respective areas. I wound up with a ten-minute talk with six pages of notes, which would let me talk for two hours about what the next ten years in WIPO are likely to bring. Let me just try to hit some of the highlights. In the next ten years, it is going to be incumbent on WIPO to work hard to maintain its leadership position in the area of intellectual property. In the area of intellectual property, we are experiencing some new trends. Some describe the “democratization” of intellectual property. It is no longer a “boutique” area but it is now one that touches almost every area of society. Certainly within the UN system, intellectual property comes up in the programs of most specialized agencies. We work in a more contested, a more multi-stakeholder environment, and one in which a wide variety of organizations are struggling hard to make their positions known. So what are we working to do at WIPO? We want to work to continue to maintain the balance of the intellectual property system. We need to look at the balance between private rights and the public good, between right holders’ needs for protection and users’ expectation for access. We need to make access to the IP system more equitable for individual creators and for those developing new business models, and for those in developed and developing countries alike. This applies across the board to all areas of intellectual property — not just patents, but to trademarks and to copyrights — and here I highlight some of the work we are doing at WIPO with regard to the Patent Cooperation Treaty (PCT)4 system. We need in WIPO to strengthen our technical capabilities in order to be able to focus discussions on the important areas. The IP system is changing. There is more emphasis these days on the management of IP, commercialization of IP, securitization, financing, and the use of IP as collateral. Today, IP is of incredible importance, and represents up to 80 percent of the value of the PROF. HANSEN:
4 World Intellectual Property Organization Patent Cooperation Treaty, Apr. 1, 2002, available at http://www.wipo.int/pct/en/texts/articles/atoc.htm.
4 S E S S I O N I : P L E N A R Y SE S S I O N top 500 Standard & Poor’s (S&P) companies, whose wealth is represented by their intangible investment in intellectual property. Technological changes are also impacting the way in which IP thinking is developing. New business models emerge constantly. Recent developments, such as Apple’s decision to release music without technological protection measures (TPMs) in certain areas, will change the way we think about the distribution of works in the future. We have at WIPO seen increasing pressure from developing countries to look at issues of concern to them. There has been pressure in WIPO to look at the Development Agenda;5 that is, what WIPO is doing to foster development among its developing country Members. This has been a very useful discussion in many ways for WIPO, because it has helped us focus our thinking, to explain and clarify how much WIPO actually does to foster development, and to also focus on the important role of intellectual property as a tool for economic development. We are doing some very important work in the area of development. In the field of copyright, we have been working with countries to establish economic models to determine the contribution of the copyright industries to national economies. The results have been surprising. The copyright industries are some of the most significant industries in many countries. I have seen a change in the perception of some of those countries where these studies have been done as to the way they approach copyright issues in WIPO. When they discover that copyright contributes some 6–8 percent of their gross domestic product (GDP) and somewhere around 8 percent of national employment, their attitude really changes. They begin to see that intellectual property offers something tangible for them. I think this is an area where WIPO’s work is going to intensify in the future. I think we will try to expand this work to examine other areas of intellectual property, and also to link this with a study that we are working on regarding the impact of piracy on national economies. WIPO has other projects. We are trying to increase our efforts towards a new treaty to protect the interests of broadcasting organizations.6 The General Assembly of WIPO in September 2006 directed the Standing Committee on Copyright and Related Rights to develop a new approach to the treaty that had been under discussion for some nine years on the protection of broadcasting organizations and to pursue a signal-based approach in looking at this treaty. We have interpreted this to mean focusing on protection of the broadcast signal and reducing emphasis on the protection of post-fixation rights. We have already had one special meeting of the Standing Committee, and in June we will have another. A new proposal has been posted for comments7 on the WIPO Web site prepared by the Chairman of the Standing Committee that focuses on this signal-based approach. The Chairman will revise this draft and release it as a basis for discussion. It is a draft that no one is completely happy with, which perhaps means it is a good approach because there is a little bit of pain in it for everyone.8 In the area of patents, we are focusing on our role as a service provider by working to increase the efficiency of our filings and our processing of works under the Patent Cooperation Treaty, and are devoting significant resources to that. Just to briefly mention other WIPO developments. We are working progressively in the 5
See http://www.cptech.org/ip/wipo/da.html. For latest developments and related documents regarding the Proposed WIPO Treaty on the Protection of Broadcasting Organizations, see http://www.cptech.org/ip/wipo/bt/ latest_docs.html. 7 See http://www.wipo.int/edocs/mdocs/copyright/en/sccr_9/sccr_9_3_rev.pdf. 8 See infra Session VIII, Part C, WIPO Broadcasting Treaty and the Politics of Intellectual Property. 6
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area of traditional knowledge and genetic resources. In trademarks, we are working on a new Trademark Treaty. WIPO’s Arbitration and Mediation Center has been very successful in resolving disputes, particularly in the area of domain name dispute resolution. We are also working strongly in the field of enforcement. WIPO recently conducted a very successful conference on enforcement, a World Congress, in cooperation with the World Customs Organization and the INTERPOL, to look at the practical effects and what we can do to combat piracy in the future. I have mentioned just some of the things that WIPO is and will be doing in the short time I’ve had. Thank you very much for your attention. PROF. HANSEN: Thank, you, Mike. Now, Hannu Wager. MR. WAGER: Thank you. Given the nature of the WTO as a member-led organization, what the next ten years will have in store for it very much depends on what issues the WTO Member governments choose to bring into its policy and rule-making processes and before the dispute settlement system. One thing is of course clear — namely, that it is not for the Secretariat to decide. Therefore, what I will say are very much only my own personal reflections on the matter. It should be borne in mind that at the WTO IP matters are handled as part of a broader trade framework. How IP matters will be treated will depend in substantial part on what happens in the WTO as a whole. It has been the experience of the WTO and GATT9 that significant changes to trade rules can only be accomplished in the context of a comprehensive round that allow trade-offs across areas of interest to different participants in negotiations. As regards the present Doha Round, there are some IP issues on the table.10 However, unlike during the Uruguay Round, they are not at the core of the Round. Perhaps it could be added that neither are they at the core of IP policy in general. Judging from past practice, WTO Members are unlikely to launch and complete new negotiating round after Doha within the next ten years. As you know, the Doha Round was launched in 2001. The negotiations have not moved forward as had been hoped. Given the failure to reach sufficient progress, the Round was suspended last July in order to allow Members time to reflect on the situation. Since February, the negotiations have resumed in full mode in all negotiating groups. Members are also working bilaterally and there is engagement and support at the highest political level. Three issues are at the forefront of the discussions at this moment: agricultural subsidies, agricultural tariffs, and industrial tariffs. However, a breakthrough in these key areas is still awaited. The main TRIPs11 issues being discussed in this context are those related to geographical indications (GIs) and a so-called “disclosure proposal” (a proposal on the disclosure of origin of biological resources and/or associated traditional knowledge12), although 9 General Agreement on Tariffs and Trade, Oct. 30, 1947, 61 Stat. A-11, T.I.A.S. 1700, 55 U.N.T.S. 194; General Agreement on Tariffs and Trade 1994, Apr. 15, 1994, Marrakesh Agreement Establishing the World Trade Organization, Annex 1A, The Legal Texts: The Results of the Uruguay Round of Multilateral Trade Negotiations 17 (1999), 1867 U.N.T.S. 187, 33 I.L.M. 1153 (1994). 10 Information and documents are available at http://www.wipo.int/activities/en/. 11 Agreement on Trade-Related Aspects of Intellectual Property Rights, 33 I.L.M. 1197, in General Agreement
6 S E S S I O N I : P L E N A R Y SE S S I O N there are different views on whether GI extension and the disclosure proposal form part of the agreed negotiating package for the Round. The introduction to this plenary session refers to a number of important questions concerning the balance in IP systems. I believe that these questions are likely to continue to be key issues in domestic and international policy discussions over the next ten years, including in the WTO. In the past few years, such questions have arisen in the WTO, particularly in the context of TRIPs and health. The work done in this area is likely to form part of the underlying consideration of future matters. The question posed in the Conference program that is most specific to the WTO is whether multilateral organizations will become irrelevant or more important. I don’t think that, due to the ongoing debate, the WTO is likely to become less important. However, it should be noted that much of the debate concerns matters such as the term of protection for copyright, the patentability of computer software and business methods, and more generally quality and scope of patents and the availability and strength of injunctive relief. In general, these types of questions are often matters that are not regulated in detail in TRIPs or go beyond its minimum requirements. Hence, this debate has taken place at the national level, and sometimes at the bilateral or regional level, and I would guess that this will continue to be the situation. Consequently, I would not expect the WTO to be the first port of call for such matters. But, in a sense, the ongoing debate at the national level, and sometimes at the bilateral or regional level, has underlined the fact that the TRIPs Agreement does contain important elements of balance and flexibility, allowing both developed and developing countries to seek their own responses to these evolving questions. Going back to the IP matters on the Doha agenda, it would appear that any significant progress on matters addressed by the disclosure proposal would be unlikely in the near future in the absence of major progress with the Round. And even with a successful conclusion of the Round, it is difficult to predict at this point what the outcome might be in this area. As regards discussions on any sui generis protection of traditional knowledge or folklore, although both of them have been standing items on the TRIPs Council’s agenda, Member governments have preferred, at least until now, to discuss them in the WIPO Intergovernmental Committee. The issues of traditional knowledge and folklore do not fit well into the bigger picture outlined in the Conference program, in the sense that in these areas a number of developing countries are in fact calling for new, additional forms of protection rather than less protection. Another area of debate in regard to the evolution of the balance in the TRIPs Agreement concerns the issue of so-called “GI extension,” the proposals for extending the higher level of protection, which presently only has to be given to GIs for wines and spirits, to other product areas. Also this issue does not fit well into the broader outline of the Conference program, since there is a mixed group of both developing and developed countries calling for more protection in this area, not less. on Tariffs and Trade: Multilateral Trade Negotiations Final Act Embodying the Results of the Uruguay Round of Trade Negotiations, Apr. 15, 1994 (333 I.L.M. 1125, Annex C) [hereinafter TRIPs Agreement], contained in an Annex to the WTO Agreement, available at http://www.wto.org/english/tratop_e/ trips_e/trips_e.htm. 12 WIPO/GRTKF/IC/5/10, World Intellectual Property Organization, Intergovernmental Committee on Intellectual Property and Genetic Resources, Traditional Knowledge and Folklore, Draft Technical Study on Disclosure Requirements Related to Genetic Resources and Traditional Knowledge (May 2, 2003), available at http://www.wipo.int/edocs/mdocs/tk/en/wipo_grtkf_ic_5/wipo_grtkf _ic_5_10.doc.
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As regards the negotiations on the establishment of a registry for GIs for wines and spirits, which is a part of the single undertaking of the Doha Round, the objective is not to readjust the balance under the Agreement, but rather to facilitate the protection of GIs. As I mentioned earlier, questions about a proper balance have been debated in the WTO particularly in relation to TRIPs and public health. The issue raised around the year 2000 was whether the flexibility in the TRIPs Agreement was sufficient to ensure that it was supportive of public health, especially in permitting affordable access to existing medicines in poor countries, while also promoting research and development into new ones. The work resulted in the 2001 Doha Declaration on the TRIPs Agreement and Public Health,13 which provides a number of important clarifications of some of the healthrelated flexibilities contained in the Agreement, and the so-called “Paragraph 6” system designed to make it easier for poorer countries to obtain cheaper generic versions of patented medicines. This system was put in place in 2003 in the form of a set of waivers, and in 2005 it was agreed to incorporate it into the TRIPs Agreement in the form of an amendment. The amendment will enter into force once two-thirds of the WTO Members have accepted it. So far, it has been accepted by seven Members — El Salvador, India, Korea, Norway, the Philippines, Switzerland, and the United States. In the meantime, the waivers remain in force. These three legal instruments have demonstrated the WTO’s ability to react to important developments, including humanitarian causes. In the coming years, the focus in the TRIPs Council will be on implementation of these instruments, including the ratification process of the Amendment. Any post-Doha work program would be likely to cover any unfinished business from the Doha Round. What other issues might come up in future discussions? 앫 Recently, there has been increasing attention to counterfeiting and piracy. Some Members have indicated in the TRIPs Council that they remain concerned about the increasing level of counterfeiting and piracy and have requested the TRIPs Council to discuss this matter. However, some other Members are not convinced that it would be appropriate for the Council to take up this matter at this stage, and argue that the Agreement leaves it to Members to determine the appropriate method of implementing enforcement measures. At this point it is not clear whether there will be work on enforcement in the TRIPs Council. 앫 Competition policy was one of the so-called “Singapore issues” that were initially examined in the context of the Doha Round. However, in 2004 it was decided to initiate negotiations only in one of these areas, namely trade facilitation. Presently, there appears to be increased interest in the interface between IP and competition law, and some recent cases have highlighted the international dimension of the issue. While competition policy has been on the back burner during the Round, it cannot be excluded that in the course of the next ten years some Members would wish to bring the international dimension of this question back to the WTO. 앫 As regards the least-developed countries (LDCs), their general transition period under TRIPs was recently extended until July 2013. Helping LDCs to implement and 13 Doha WTO Ministerial Declaration on the TRIPs Agreement and Public Health, WT/MIN(01)/Dec/2, adopted Nov. 14, 2001, available at http://www.wto.org/English/ thewto_e/minist_e/min01_e/mindecl_trips_e. htm.
8 S E S S I O N I : P L E N A R Y SE S S I O N use the IP system for their development will be an important area of work for the WTO. 앫 Also, discussions on transfer of technology will be continued, in particular in relation to LDCs. 앫 Currently the WTO has 150 members. The accession of countries, such as China, and most recently Saudi Arabia and Vietnam, have led to important developments concerning the IP regimes of these countries. Currently, there are some thirty countries in the process of accession. The negotiations with, for example, Russia and Ukraine are well advanced. IP matters are an important element in the accession negotiations of these countries. Let me close by saying a few words about dispute settlement. One of the questions posed in the Conference program is whether courts, by default or design, will play the central role in the IP debate. The number of TRIPs disputes has been relatively low. In particular, we have not seen so far any large-scale recourse to dispute settlement against developing countries. In general, I would not expect the dispute settlement system to play a major role in settling some of the key evolving policy issues that I mentioned earlier, given that they are issues that are either not regulated in detail under TRIPs or go beyond the minimum requirements under it. However, there may be issues about the interpretation and implementation of the current TRIPs provisions that Members may wish to bring to the WTO. As you know, one such case was just filed by the United States two days ago.14 PROF. HANSEN: Before our discussion the panel. I’ve mentioned Mike Kepplinger already. I should say a little more about Hannu Wager. He is a Counsellor in the Intellectual Property Division of WTO. That is actually a small shop. They also have some power as do the civil service in many governments. Panel decisions are heavily influenced by their assistance. So if you have complaints about any of the IP decisions, you can go straight to Hannu. Mihály Ficsor, who used to be the number two person for many years at the WIPO, the power behind the throne, is a world figure, now an IP and also the President of the Hungarian Copyright Council. Bruce Lehman is another world figure, head of the U.S. Patent and Trademark Office (PTO) for many years. He was a moving force certainly in the WIPO Copyright Treaties15 and is now in private practice with Akin, Gump in Washington, D.C. Jamie Love is Director of Knowledge Ecology International, which is a new name. Jamie, of course, is an international figure as well. 14 On Apr. 10, 2007, the U.S. Trade Representative requested consultations with China at the WTO over protection of IP rights and barriers to trade in copyrighted items. For information on subsequent developments, see Press Release, Office of the U.S. Trade Representative, United States Requests WTO Panel in Case Challenging Deficiencies in China’s Intellectual Property Rights Laws (Aug. 13, 2007), available at http://www.ustr.gov/Document_Library/Press_Releases/2007/August/United_States_Requests_WTO_Panel_ in_ Case_Challenging_Deficiencies_ in_Chinas_Intellectual_Property_Rights_Laws.html. See also WTO Dispute DS362, filed by the United States Apr. 10, 2007: China — Measures Affecting the Protection and Enforcement of IP Rights, available at http://www.wto.org/ english/tratop_e/dispu_e/cases_e/ds362_e.htm; WTO Dispute DS363, filed by the United States Apr. 10, 2007: China — Measures Affecting Trading Rights and Distribution Services for Certain Publications and Audiovisual Entertainment Products, http://www.wto.org/ english/tratop_e/ dispu_e/cases_e/ds363_e.htm. See also infra Session XII, Part D, TRIPs and China. 15 World Intellectual Property Organization: Copyright Treaty [adopted in Geneva, Dec. 20, 1996], 36 I.L.M. 65 (1997) [hereinafter WCT], and World Intellectual Property Organization Performances and Phonograms Treaty [adopted in Geneva, Dec. 20, 1996], 36 I.L.M. 76 (1997) [hereinafter WPPT], available at http://www.wipo.org.
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Eric Smith has been in the forefront of bilateral and multilateral IP matters for many years. He almost created the international IP field from within the private sector. He is partner in a new firm of Smith, Strong & Schlesinger. Finally, Fred von Lohmann, Senior Intellectual Property Counsel, Electronic Frontier Foundation. Fred is also an international figure and a national figure as well. Everyone knows him in this area. PROF. HANSEN: Opening up the discussion, Mihály, why don’t you start off the discussion. Having been within the WIPO for many years and the second in power, what does the future of the WIPO look like to you? MR. FICSOR: It is difficult to speak about the future. There is only one thing about which we can be sure — namely, that ten years from now, in 2017, the Fordham Conference will take place on April 20 and 21. I have checked this, and this will be definitely so, because these dates will be the Thursday and Friday after Easter in that year. As far as WIPO and WTO are concerned, my answer to the question whether these multilateral organizations will survive is definitely “yes.” They will, they should, they must. In the globalizing world this is indispensable. For the time being, the atmosphere is not very good for new treaty-making activities. I wish all the best to Michael Keplinger, who in a way is also my successor. I think the chances for the Broadcasting Treaty are quite good; certainly much better than, let us say, the chance for Arnold Schwarzenegger being elected Miss France next year. But then, even if we succeed with the Broadcasting Treaty, I think WIPO should start a new “guided development” period, which was the case during the 1970s and the 1980s, and with a certain success. This meant the working out of guiding principles, recommendations, and model laws, instead of new binding norms. For example, there was a breakthrough for the copyright protection of computer programs, on the basis of Michael Keplinger’s excellent study, at a WIPO meeting in Geneva in 1985. It was confirmed later by the TRIPs Agreement and the WCT. As regards WTO, I wish — of course, not only I, but everybody wishes — that the Doha Round ends somehow with a reasonable compromise. But, then again, I think there will be not too many new norms, and attention should be paid rather to the appropriate interpretation of the TRIPs Agreement, including Part III on enforcement, which has been a little bit neglected until now. I hope that the dispute settlement bodies will be used more frequently, that their decisions, their findings, will be granted fuller respect, and that, through this, one of the basic principles of law that the WTO dispute settlement system is supposed to serve — pacta sunt servanda16 — will better prevail in the international IP relations. We badly need this. Thank you. PROF. HANSEN: Jamie, do you have any thoughts? MR. LOVE: I am not sure if I share the optimism about our prospects for the Broadcasting Treaty. But I think the general point that WIPO has to rethink its mission is an important one, because the international multilateral system has come through a period where the idea of raising norms for intellectual property seemed like the most urgent and important thing — the TRIPs initiative and all the efforts on patent harmonization and things like that. I think that today we are in the middle of a debate — not the first time, but it is really happening now — about the relationship between strong exclusive rights regimes and 16
Pacta sunt servanda is a basic principle of international law and civil law (“pacts must be respected”).
10 S E S S I O N I : P L E N A R Y SE S S I O N innovation. We are having that debate in the United States in the patent area, with the eBay decision17 and discussions about patents and standards. We are having a serious discussion about access and the relationship between prices of products and access, and prices and enforcement as a practical matter too. People want to have all this enforcement. There are huge differences in incomes. They are not very realistic about the prices that actually get buy-in on the enforcement front. There is also, I think, a lot of new thinking about the idea of trade-related aspects of public goods. WIPO itself has got this proposal for a treaty on access to knowledge that they will be debating at the June meeting at the Development Agenda18 discussions. There are quite a few countries that have supported the idea of something like this and, to my knowledge, none that have actually opposed it. There is a discussion in the World Health Organization (WHO) about the Medical Research and Development Treaty.19 Some of the ideas of this are that not all the ideas about innovation are about strengthening a monopoly. Sometimes it is about sharing the cost of providing public goods or providing the infrastructure and environment for that. So where does WIPO fit into this? Where does WTO fit into this? I think there has been a lot of movement at WIPO in the delegates. I think the decision in the WIPO Development Agenda in February surprised everybody — it surprised me and I think it surprised all the participants — because it was a stronger agreement than anybody anticipated and it had more universal support. It was not just wrung out of the North from the South, but it was a genuine meeting of minds between the North and South on issues about norm setting for WIPO, about the role of the public domain, the control of anticompetitive practices, and things like that. So I think that actually there are more possibilities that it becomes less and less of a North/ South fight and more of a mature, and I think intellectually interesting, discussion about how to manage IP. I think that the new phase should be, not just bringing IP to the ignorant savages of the world, but it should be more how do you do something really difficult, which is manage an IP system. I think that is the challenge for WIPO. I think there has been progress. PROF. HANSEN: There seem to be some forum shopping among competing multinational organizations. You mentioned WHO as one. Do you think that the debate will be diffused among a number of organizations, other independent organizations in the United Nations, as well as the WIPO, or do you think that effectively it is going to be in WIPO where things are going to happen? MR. LOVE: I think the most interesting debates are at WIPO today. I think part of the reason for that is that the U.S. government has more or less dismantled the capacity of the WHO to deal with intellectual property organizations. There has been a reduction in the number of people in the agency that know anything about the topic, and there has been an intimidation of the people who work for the agency to deal with these kinds of issues. I think that the same is true with United Nations on Trade and Development (UNCTAD) and the United Nations Development Program (UNDP). I think, particularly led by the American government, there has been an effort to reduce the role of those agencies in intellectual property disputes. PROF. HANSEN: Has the United States ever done anything right in your view? 17
eBay Inc v. MercExchange, L.L.C., 126 S. Ct. 1837 (2006). See http://www.cptech.org/ip/wipo/da.html. 19 World Health Organization, Medical Research and Development Treaty (MRDT) (currently under discussion at the WHO Intergovernmental Working Group (IGWG) on Public Health, Innovation and Intellectual Property); see http://www.cptech.org/workingdrafts/rndtreaty.html. 18
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MR. LOVE: I think the United States did a very good job in the Broadcasting Treaty discussions in the last twelve months, and I think they did a really good job on the Development Agenda. They really exceeded everybody’s expectations. They have also done, I think, a very good job in the WHO discussions about new business models for financing R&D. So I think that the second Bush Administration has surprised everybody in the WHO discussions. They changed their position from being opposed to things, like discussions of R&D treaties or price systems or different ways of stimulating R&D in medicine, to the point where now they are supporting these conversations going forward. I think it is complicated. It is a big federal government, and there are different parts of the bureaucracy, but there have been some pretty positive things that have come out of this Administration. I think the Office of the U.S. Trade Representative so far has not gone too far in the Thailand case,20 which I think is good. PROF. HANSEN: Which we will be discussing later. Anyone else have a thought on WIPO now? We’ll go to WTO later. Bruce? MR. LEHMAN: I’m glad you clarified that. My view is that the future of WIPO in the next ten years is very cloudy. I certainly do not think WIPO will go out of existence; the treaties will not be dismantled. But certainly, unless there is very substantial change in the nature of U.S. leadership in diplomacy in general, not just simply with regard to intellectual property, I think that you are going to see in any significant norm-making activity at WIPO the kind of gridlock that we have seen on the Broadcasting Treaty, which is a very minor treaty.21 I cannot imagine that we will have any significant new international norm-making unless there is a very radical and substantial change in Washington. If we do have a change in Washington — and you are already seeing that on Capitol Hill, where we have had a change, and where we are seeing a distinct tilt against intellectual property rights I would say — I think you are going to see a big emphasis on environmental concerns and labor concerns, which are also going to be felt in the WTO. That is important, because I think intellectual property rights are less likely to be a high priority of future U.S. administrations, and that has big implications for WIPO, frankly. I would have to say, as a person who was a leading intellectual property diplomat in the 1990s, that the results of our efforts — and I have not changed my views one bit on the justice and importance of the things we did — but the results have been, frankly, quite disappointing. We are now bringing the case against China,22 but we are twelve years or so into the new TRIPs regime, and I do not think we have much to show for it when you look at the piracy rates around the world and so on and so forth. PROF. HANSEN: Fred? MR. VON LOHMANN: I agree with a lot of things that have been said. Looking ten years ahead to 2017, I think one interesting development that will be felt at WIPO is the growth of new constituencies that feel that they have an interest there. Obviously, the Development Agenda has played an important role, but I think increasingly you will find that innovation industries are interested as well. The innovation industries have shared interests both in the developed and developing world. I think that to the extent new innovators feel that the existing IP system is a hindrance or something that slows their ability to 20
See infra Session XII, Part A, Thailand and Compulsory Licenses. See infra Session VIII, Part C, WIPO Broadcasting Treaty and the Politics of Intellectual Property. 22 See supra note 13; see also infra Session XII, Part D, TRIPs and China: Should a Case Be Brought? Will It Be Brought? 21
12 S E S S I O N I : P L E N A R Y SE S S I O N bring new products to market, to grow new digital business, to grow new digital technologies, you may see those industries going to the U.S. Congress, for example, to say that the norms that are being pressed at WIPO need to be informed by issues of innovation and competition. So I think you may see some connection between the agendas of the developing world and the innovation industries. The controversies surrounding the WIPO Broadcasting Treaty have been a good example of that, where innovators in Europe and in the United States realized that they had a certain common bond with countries in the developing world. PROF. HANSEN: I think we saw what effect industries that transmitted or used copyright works can have when they, AT&T for instance, descended upon Geneva at the last minute at the WIPO diplomatic conference in 1996 on what some now call the Internet treaties. They had a dramatic effect on the level of copyright protection in the final treaties. . As Bruce and everyone has acknowledged, those treaties even as limited as they were, could not be adopted today. Now even more industries are mobilized against strong protection. So will the future hold any hope for new treaties? Or will there be a continuing stalemate leaving any new developments to “soft law” and judicial case law? Fred? MR. VON LOHMANN: That is the big question. I think it is too soon to make that prediction. It will depend on what happens in the domestic context in individual countries, which will have an echo at WIPO. PROF. HANSEN: Eric, you had your hand up. MR. SMITH: Yes. I want to echo what was said about WIPO. I do not think there are going to be any significant new norms in the next ten years. If I could limit my remarks to the copyright side, the norms are already there. Among the Berne Convention,23 TRIPs Agreement, and the Internet Treaties, the basic structure is there. I do not see in the next ten years any significant diminution in the levels of protection. If anything, I think you will see some small shifts at the margin of protection in many countries around the world, in part as a result of WIPO’s ongoing hoped-for guided development, plus all of these studies that Mike mentioned about the importance of copyright protection to domestic economies. But remember that things that are very controversial today, like technological protection measures, have already been implemented in 100 countries around the world. Terms of protection, very controversial; you already have ninety countries with terms of protection greater than fifty years, which is the international standard in TRIPs. I do not see any significant diminution there. PROF. HANSEN: That all came from free trade agreements (FTAs), right, bilateral agreements? MR. SMITH: No. I think the FTAs are part of the implementation process of the existing norms around the world. I think, even in the WTO context, where you have two cases24 that have looked at the three-step test,25 which is a key to the exceptions to protec23 Berne Convention for the Protection of Literary and Artistic Works, Sept. 9, 1886, as last revised, Paris, July 24, 1971, 828 U.N.T.S. 221. 24 The “three-step test” applied to patents: Case No. WT/DS114. Decided Aug. 18, 2000. A Dispute Settlement Body (DSB) interpreted the “three-step test” under TRIPs Art. 30. The case was brought before a WTO Panel by a complaint by the European Commission against Canada. The EC argued that there was lack of protection of patents in Canada in the area of pharmaceuticals, and that the Canadian legislation was not compatible with the obligations under TRIPs in that it did not provide for the full protection of patented pharmaceutical inventions for the entire duration of the term of protection as provided by TRIPs. See http://www.murdoch.edu.au/elaw/ issues/v10n4/meyer104_text.html. 25 See infra Session X, Part B, The Three-Step Test: Is It Out of Step? — Overcoming the Achilles’ Heel of Copyright Law: The Case for the Creative Destruction of the Three-Step Test.
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tion, you have some pretty sophisticated reasoning. I think any attempt to significantly undermine that could very well be brought up again in the WTO. I see more dispute settlement in the WTO, more emphasis on the enforcement side. That may be a little bit optimistic, but I just want to throw that out, because I think, in contrast to what has been said here — PROF. HANSEN: You said “what has been said here.” Are you ever going to mention anyone’s name? MR. SMITH: I think Jamie and Fred have taken the view — and maybe they are talking on the patent side — but certainly on the copyright side, a lot of the sturm und drang around all of these issues is just that, it’s sturm und drang. Country policymakers are seeing that they need to protect these important economic assets, and they will continue to do so. If there is any change, it is going to be at the margins. PROF. HANSEN: It’s interesting, because really when this all started out after TRIPs, it was the people in favor of IP who were more on the offensive and wanted to use the WTO to amend TRIPs and the WIPO to amend Berne to require higher protection. Now those in favor of strong IP protection seem to be more on the defensive. Are we going to see things happening around world that limit IP? Perhaps WTO most important role will to provide panels will be used defensively to stop retrenchment of IP in countries, such as by applying the three-step test.. MR. SMITH: I don’t feel on the defensive at all. I think globally we are moving forward, implementing the treaties, all the issues. China just joined the WIPO Treaties; they have access controls, they protect against trafficking in devices. There are always little areas of debate in my area, but I think ultimately, if you look at the FTAs, you look at the thrust of everything that is going on, there is progress. Enforcement is a different matter. I think, there are some real problems there. But even there, I think — and I totally disagree with Bruce on this — I don’t see any diminution in the U.S. government’s efforts, certainly in the copyright area. I think they are going to move hard and fast to keep and protect and nurture copyright industries in the United States and work with other countries to protect their own industries. PROF. HANSEN: Let me get Hannu in this now. Do you basically see WTO as sitting on the sidelines? Letting others fight it out either in the WIPO, bilaterally or individual countries’ legislatures? Will the WTO just be the referee who steps in at the end when there a dispute settlement procedure is instituted? That would still be an important role. MR. WAGER: It is a bit speculative to think about what is going to happen in the next ten
The so-called “three-step test,” a general exception concerning reproduction rights of authors, was introduced in the Berne Convention during revision at the Stockholm Conference in 1967. Revised Art. 9.2 requires that three distinct and cumulative conditions must be complied with before an exception relating to author’s reproduction rights can be justified: (1) the reproduction must be for a specific purpose: it is only allowed “in certain special cases”; (2) the reproduction must “not conflict with a normal exploitation of the work”; (3) the reproduction should “not unreasonably prejudice the legitimate interests of the author.” This “three-step test” is also contained in TRIPs Art. 30. Comparing the “three-step test” as provided in TRIPs Art. 30 to the same test under Berne Art. 9.2 and TRIPs Art. 13, the first condition of TRIPs Art. 30 is that exceptions provided under national law must be “limited exceptions,” which differs from Berne Art. 9.2 and TRIPs Art. 13, which cover only “special cases.” The second step, exceptions may “not unreasonably conflict with a normal exploitation of the patent,” does not differ in substance from Berne Art. 9.2 in TRIPs Art. 30. The third step under TRIPs Art. 30 is similar to the third condition in Berne Art. 9.2 and TRIPs Art. 13. The WCT extends the application of the “three-step test” to all economic rights provided in the Berne Convention. Art. 16(1) of the WPPT provides that Contracting States may introduce “the same kinds of limitations and exceptions with regard to the protection of performers and producers of phonograms as they provide for, in their national legislation, in connection with the protection of copyright in literary and artistic works.”
14 S E S S I O N I : P L E N A R Y SE S S I O N years. As I said at the outset, it very much depends on what governments themselves decide to bring to the WTO. There is plenty of potential work in the interpretation and implementation of the current rules. If countries wish to bring issues to the dispute settlement process, then they will be dealt with. What I said about the policy work was that we have certain issues on the Doha agenda, and what happens with them depends to a very large extent on what happens with the Doha Round as a whole. But I do not really see any new negotiating round being started and completed within the next ten years, so I would not expect major changes in the rules. On the other hand, we have the example of TRIPs and health, where a specific problem was identified and then there was a consensus to address it. So it remains to be seen if any issues of this type will be brought to the WTO. PROF. HANSEN: Okay. Assuming, we get no new treaties or amendments of TRIPs. And people realize that WTO panels and courts will have more influence and look to the policies embedded in those decisions. Do you see the WTO panels being influenced by approaches advocated by Jamie or Fred portrayed as promoting innovation? Do you see these views seeping into panel decisions, or are they immune from pretty much what is going on around them? Since you are writing them, we might as well ask you. MR. WAGER: It is not exactly like that. I often hear from scholars that the role of the WTO dispute settlement system is either to maximize the “wiggle room” or to fill in the gaps in the TRIPs Agreement. But, in fact, the Appellate Body applies the Vienna Convention on the Law of Treaties26 in interpreting the TRIPs Agreement. That is, you take the terms of a treaty and interpret them in accordance with their ordinary meaning in their context and in the light of the object and purpose of the treaty. So I would say that the current debate does not influence the way panels and the Appellate Body interpret the TRIPs Agreement. PROF. HANSEN: That’s your story and you’re sticking to it. Good. I think Jamie wants to say something. MR. LOVE: Yes. In terms of the WTO, I think the interpretation of Article 27 of TRIPs, the provision that has to do with patents, and whether you can discriminate by field of technology, is going to be an area where there is going to be a lot of discussion, because officially there is not supposed to be discrimination. There are a lot of differences in the way national patent laws treat patents in different fields of technology, and I think there is going to be more and more of that. So I think a potential issue is, to what extent do people try to resolve those issues through TRIPs disputes about what Article 27 means as it relates to software, as it relates to different treatment of compulsory licensing in different fields and things like that, and exceptions. And then, in the area of copyright, I think digital rights management (DRM) is really in play right now in terms of what the long-run outcome of DRM will be. I don’t think it is as well received as Eric would suggest. It is true that it is on the books everywhere, but if you go on the Internet and you go to YouTube and different things, you certainly see a lot of unauthorized sharing of information. Empirically, there seem to be a lot more people doing that now than ever before. I think the fact that France now has someone who is going to be deliberately regulating very deep aspects of DRM in the music field is just the first of the measures you are going to see of governments trying to regulate. PROF. HANSEN: Mike wanted to say something. 26 Vienna Convention on the Law of Treaties 1969, Vienna, May 23, 1969, effective Jan. 27, 1980. 1155 U.N.T.S. 331, available at http://untreaty.un.org/ ilc/texts/instruments/ english/conventions/1_1_1969.pdf.
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MR. KEPLINGER: Thanks. I’ll be brief, Hugh. Since WIPO has been spoken of a great deal, I think I need to say a few words. As Hannu said, WIPO is guided by the will of its Member States and we will do what our Member States direct. In that regard, I would like to mention one further thing concerning enforcement. In January 2007, WIPO hosted a Global Congress on IP Enforcement.27 We expected to receive some 600 participants. We had 1,200. Not one negative voice was raised in the Congress questioning the importance of enforcing intellectual property rights. And this was true across the spectrum of developed and developing countries. I think that is an area where we are seeing a greater consensus and recognition that enforcement is a problem and that IP infringement is something that hurts national economies. It also is becoming of increasing concern that fakes are finding their way into the stream of legitimate commerce. Fake drugs have been found in the distribution system here in the United States, let alone in countries that do not regulate their drug distribution system as well as the United States does. So it poses a real problem, and is attracting more attention. It is an area that I believe will be of great importance in the next ten years. Contrary to Bruce’s view, I think that — and here I’m not now speaking as a WIPO official, but as a senior U.S. official at WIPO — the diplomatic leadership of the United States has been absolutely crucial in reaching some of the goals we have achieved, and I think it will continue to be. This Administration has been a real force for the good in the development of intellectual property policy. PROF. HANSEN: Thank you. Thank you very much to the panel.
27 WIPO Third Global Congress on Combating Counterfeiting and Piracy, Geneva, Jan. 30–31, 2007. Post-Congress Press Release available at http://www.ccapcongress.net/archives/Geneva/Files/Keplinger_wipo.pdf. Suggestions extending from the Congress are available at http://www.wipo.int/enforcement/en/global_congress/ suggestions.html.
SESSION PLENARY PART B: THE NEXTI:TEN YEARSSESSION IN TRADEMARKS
SESSION I: PLENARY SESSION
The Next Ten Years in Intellectual Property Law: What Should Happen? What Will Happen?
Part B: The Next Ten Years in Trademarks
Moderator PROF. HUGH C. HANSEN
Fordham University School of Law
Panelists PROF. GRAEME DINWOODIE
PROF. MARSHALL LEAFFER
Chicago-Kent College of Law
University of Indiana School of Law (Bloomington, IN)
PROF. JANE GINSBURG
DAVID LLEWELYN
Columbia Law School (New York)
IP Academy, Singapore; White & Case LLP (London)
PROF. SIR HUGH LADDIE
PAUL MAIER
Rouse & Co. International; University College London
President, Boards of Appeal, Office of Harmonization for the Internal Market (Alicante)
ERIK NOOTEBOOM
Head of Unit, Industrial Property Unit, DG Internal Market, European Commission (Brussels) PROF. HANSEN: Now we will focus on “The Next Ten Years in Trademarks,” looking at it from the U.S./European/Asian level. Let me introduce this panel. They are all very well known in the IP world. Graeme Dinwoodie from at Chicago-Kent College of Law and Queen Mary, London University; Jane Ginsburg from Columbia Law School; Sir Hugh Laddie, now at Rouse & Co. International and University College of London; Marshall Leaffer from the University of Indiana School of Law; David Llewelyn from White & Case, IP Academy, Kings College London; Paul Maier, President, Boards of Appeal, Office of Harmonization for the
18 S E S S I O N I : P L E N A R Y SE S S I O N Internal Market (OHIM); and Erik Nooteboom, Head of the Industrial Property Unit at DG Internal Market of the European Commission, who has been there for many years and is doing a great job, who has been actually been involved on the Trade Mark Directive1 and Regulation2 from an early stage. Graeme Dinwoodie will give us some talking points for the panel to address, and then we will move into the panel discussion. PROF. DINWOODIE: Thanks, Hugh. The narrative for the morning session has asked us to look forward, and Hugh has asked me to briefly frame the questions for the panel and identify challenges that might arise in the next ten years of trademark law. If you look at the different studies that are referenced in the program narrative, you may find there is actually very little reference in any of those studies to trademark law, which may make you think that all is quiet and stable on the trademark front. But trademark law has always got to adapt and deal with changes in commerce, and that is going to inevitably raise new questions over the next ten years. I want to start by putting on the table two sets of questions that reflect two changes in commerce, one of which is perhaps very obvious and the other a little more speculative. The obvious one first. Producers are increasingly looking to sell goods internationally, and thus to extend their brands and their trademark protection internationally. So the general question is: Is there room for further modification of the territorial nature of trademark law to reflect less nationally defined markets; or will trademark law resist the global nature of commerce? To make that question a bit more concrete, by what legal or policy devices will any such modification occur? Let me raise at least three possibilities. First, the adoption of substantive international norms. The adoption of the Uniform Domain-Name Dispute Resolution Policy (UDRP)3 effectively pursued this approach, developing an international cybersquatting norm without regard to territorial limits. But U.S. courts have in the recent past not been consistently hospitable even to existing international exceptions to territoriality. For example, the Federal Circuit in In re Rath4 says that it wasn’t all that concerned with whether U.S. law complied with Article 6 of the Paris Convention;5 and ten days ago the Second Circuit held that there was not a well-known marks rule in U.S. federal law, despite international provision on the subject.6 So, is there work to be done with international substantive norms that create exceptions to territoriality? A second way to modify the territorial model is in the acquisition of registered rights. We have the Community Trade Mark (CTM) and we have the Madrid Protocol.7 Are there improvements that can be made to make those systems more attractive to producers 1 First Council Directive 89/104 (EC), Dec. 21, 1988, 1989 O.J. (L 40) 1 (to approximate the laws of the Member States in relation to trademarks), available at http://eur-lex.europa.eu/LexUriServ/site/en/consleg/ 1989/L/01989L010419911223en.pdf. 2 Council Regulation (EC) 40/94, Dec. 20, 1993, 1994 O.J. (L 11) 1 (on Community Trademark), amended by Council Regulation (EC) 422/2004, Feb. 19, 2004, 2004 O.J. (L 070) 1, available at http://oami.europa.eu/ en/mark/aspects/reg.htm. 3 ICANN Uniform DomainName Dispute Resolution Policy, available at http://www. icann.org/udrp. 4 In re Rath, 402 F.3d 1207 (Fed. Cir. 2005). 5 Paris Convention for the Protection of Industrial Property, July 14, 1967, 21 U.S.T. 1583, 828 U.N.T.S. 305, available at http://www.wipo.int/treaties/en/ip/paris/trtdocs_wo 020.html. 6 ITC, Ltd. & ITC Hotels, Ltd. v. Punchgini, Inc., 482 F.3d 135 (2d Cir. 2007), available at http://www.kenyon. com/files/tbl_s10News/FileUpload44/10074/Opinion%20(US%20Court%20of%20Appeals%20for%20The% 20Second%20Circuit).pdf. 7 Protocol Relating to the Madrid Agreement Concerning the International Registration of Marks, June 27, 1989, WIPO Doc. MM/DC/27 Rev. (1989), available at http://www. wipo.int/madrid/en.
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selling internationally? My sense is the large U.S. mark owners are not presently making as much use of Madrid as we might have expected. A third way of ameliorating the costs and challenges of territoriality would be to make enforcement less burdensome. This was, of course, one of the other achievements of the UDRP. We technically already have CTM courts, but will the proposed change in cross-border patent litigation offer any models for similar developments in trademark law, or are such innovations simply not needed for trademark law? A second change in commerce — and this time I’m being much more speculative — is that many innovators are seeking to generate profits not by asserting rights in the primary content that they generate and distribute, but by offering content free and instead building business models around the provision of complementary or affiliated goods and services. In this climate, the ability of competitors to reference the mark affixed to primary products, and thus compete in the complementary and service markets, will depend, on the one hand, upon whether the scope of trademark rights will extend to preclude even very loose senses of affiliation that consumers might develop between the different goods; and, on the other hand, whether trademark law will directly and expressly privilege certain referential uses that enable competition in the complementary markets. Question: Does current trademark law adequately preserve the ability for competitors to make such referential uses, whether through Article 6 in the EU Trademark Directive or through fair use in the United States? If not, should it in order to keep those kind of markets competitive? Trademark law has not seen much clamor for the mandatory limits on rights that is now the rage in copyright law. Maybe this is the place where we might see some of that in trademark law. Hugh also asked us to address the political climate. On this point, I want to suggest that representatives of user groups are becoming much more visible in commenting on the development of trademark law. Will the political battles that we have seen in copyright over the last decade, and to some extent in patents, define the next decade of trademark lawmaking? If that is the case, what exactly is the political economy of trademark law? Just as some large technology companies have fought against content providers in copyright battles over the last few years, so too there are big players on both sides of trademark issues. Google may like to protect its own trademark, but its advertising business model may depend to some extent upon the capacity to make certain unauthorized uses of the marks of others. The recent Dilution Act,8 just passed in October in the United States, contains a somewhat odd provision — that I think is actually completely unnecessary, which is why I think it is odd — that is inserted to expressly limit the liability of intermediaries, which I think reflects some of the complex interests that are now at play in trademark law. And then, how does that political economy then transfer to the international level? Since TRIPs,9 we in the trademark side have had the Trademark Law Treaty10 and the 8 Trademark Dilution Revision Act of 2006 (TDRA), Pub. L. 109-312, 120 Stat. 1730, 15 U.S.C. § 1051 (Oct. 6, 2006), available at www.informationtechnologylaw.com/mate rials/tmda.pdf. 9 Agreement on Trade-Related Aspects of Intellectual Property Rights, 33 I.L.M. 1197, in General Agreement on Tariffs and Trade: Multilateral Trade Negotiations Final Act Embodying the Results of the Uruguay Round of Trade Negotiations, Apr. 15, 1994 (333 I.L.M. 1125, Annex C) [hereinafter TRIPs Agreement], contained in an Annex to the WTO Agreement, available at http://www.wto.org/english/tratop_e/trips_e/trips_e.htm. 10 World Intellectual Property Organization Trademark Law Treaty, adopted at Geneva Oct. 27, 1994, available at http://www.wipo.int/treaties/en/ip/tlt/trtdocs_wo027.html.
20 S E S S I O N I : P L E N A R Y SE S S I O N Singapore Revised Trademark Law Treaty.11 But both of these were procedural treaties about formalities. Is there any prospect for substantive trademark treaties, and is there any need for substantive trademark treaties; or is trademark law sufficiently harmonized already? To the extent that harmonization of substantive norms is desirable but hard to achieve because of a harder political climate, might “soft law” be an option? The UDRP and the non-binding recommendations that came out of the Standing Committee on Trademarks in the late 1990s12 may turn out to have been the greatest, if a little quieter, achievement of substantive harmonization during the last decade. Indeed, it is kind of ironic when you read the Second Circuit decision from ten days ago,13 saying that it is not really relevant what the Paris Convention or the TRIPs Agreement say on the subject of well-known marks, that they then reference and send a reference to the New York State Court of Appeals to define the meaning of “fame” under New York state law, saying, “Why don’t you take a look at the Joint Recommendation on Well-known Marks?”14 So is soft law the way to go actually to achieve harmonization? On the subject of devices that seem to fly under the radar, is there a trademark bilateral agenda? Do we need really to be ensuring that Korea protects scent marks, as we do in the recent bilateral agreement?15 Finally, can trademark harmonization be achieved through the courts? I have already mentioned the strange inconsistency in the U.S. courts’ attitude to treaties. Of course, the greater role for ensuring harmonization really is the European Union, where the European Court of Justice (ECJ) has that as one of its explicit duties. But is the ECJ getting so involved in the details of trademark law under the rubric of harmonization that we are simply getting a mass of very unhelpful doctrinal detail? Is there not an argument that the core trademark norms need to play out in national courts for a while before we get intervention from a supervisory court trying to harmonize? PROF. HANSEN: That was an excellent introduction. One issue Graeme raised concerned harmonization and some of the problems in achieving it. What is the need for harmonization? Of course, in Europe that is a form of harmonization in the Directive and the Regulation. As Graeme mentioned one of the roles of the European Court of Justice is to achieve harmonization in construction of directives and regulations. He indicated he thought the ECJ might be falling short on this. But even if they were doing a perfect job, would the Member State courts follow it or interpret the ECJ decisions through the prism of their own trademark culture? Would there remain disparity between the ECJ and the EU Court of First Instance, and the Community trademark office–OHIM’s Boards of Appeal, and OHIM’s examinging division? To what degree is harmonization working now in the EU? Anyone from Europe want to address that? Sir Hugh? 11 World Intellectual Property Organization Singapore Treaty on the Law of Trademarks, adopted at Geneva Mar. 27, 2007, available at http://www.wipo.int/treaties/en/ ip/singapore/singapore_treaty.html. 12 World Intellectual Property Organization Standing Committee on the Law of Trade-marks, Joint Recommendations, available at http://www.wipo.int/trademarks/en/sct.html. 13 ITC, Ltd. & ITC Hotels, Ltd. v. Punchgini, Inc., 482 F.3d 135 (2d Cir. 2007), available at http://www. kenyon.com/files/tbl_s10News/FileUpload44/10074/Opinion%20(US%20Court%20of%20Appeals%20for%20 The%20Second%20Circuit).pdf. 14 World Intellectual Property Organization Joint Recommendation Concerning Provisions on the Protection of Well-Known Marks, adopted September 1999, available at http:// www.wipo.int/about-ip/en/development_ iplaw/pub833.htm. 15 U.S.-Korea Free Trade Agreement, Apr. 1, 2007, available at http://www.bilaterals. org/article.php3?id_ article=7757.
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PROF. LADDIE: Well, after a fashion, yes, there is harmonization. My view is, of course, that harmonization makes sense, because if you have a uniform system of IP law, whether it is trademark, copyright, or anything else, amongst different states, you don’t have artificial barriers to the flow of goods and services between countries, and so obviously having the same system in different countries makes sense. That is what we have aimed for in Europe. After a fashion we have achieved harmonization through the ECJ, in particular on very contentious areas, like how similar marks have to be before one could be said to infringe another. There have been really profound differences, for example, between the common law approach and the civil law approach, particularly reflected in differences expressed by the judges in The Netherlands and the United Kingdom. That has been harmonized by court decision, or at least that is what we are told. The trouble with harmonization through the courts is the courts have to be competent. There are differing views as to whether or not the ECJ is competent to do the job that it has been given under our Trademark Directive and Regulation. Personally, I think it is incompetent. I feel sorry for it, insofar as one can feel sorry for a court. I feel sorry for it because most national trademark systems have grown up over a long period, and so there is an accumulated body of understanding. PROF. HANSEN: Hugh, let me just say we do have a session on the Court of Justice at which you can address your ECJ concerns.16 PROF. LADDIE: Fine. It’s a good idea, but I’m not sure it is being done. PROF. HANSEN: Okay. Let me ask this question. You are a trademark owner. Your trademark is being infringed in the United States as well as all over Europe. Just as a practical matter, which forum would you choose that would be most hospitable to you winning the case? MR. LLEWELYN: How much money do you have? PROF. HANSEN: All right. Do it first as if money doesn’t count. PROF. LADDIE: Well, if you want to get the correct decision, you of course go to the High Court in London. If you want it this decade, then you go to certain courts. If you don’t, you go to Greece. If you want a quick decision, which may be right, may be wrong, you go to Holland. I mean it depends. It is a very, very complicated question. PROF. HANSEN: No, it is not complicated. PROF. LADDIE: It is. PROF. HANSEN: If you are a trademark owner, you don’t go to the United Kingdom; you have a relatively low-protection view of trademarks. You go to The Netherlands; it has an expansive view. That’s the short answer. PROF. LADDIE: You are quite wrong, Hugh. Let me give you an example of the great thing about going to the United Kingdom. If you get an injunction in the United Kingdom and then somebody breaches it, you can cart them off to jail. That’s pretty good. PROF. HANSEN: You have to win to get the injunction. PROF. LADDIE: I know, Hugh, you have a rather off view of what happens in the U.K. courts. If you’ve got a good enough case, it is a very good court to be in. But David is right. I know you’re a purist, Hugh, and that you think that all rights owners are good and all alleged infringers are really pirates and bad. But there are occasionally people who have rights that are not very strong. If you have rights that are not 16
See infra Session I, Part F, Next Ten Years in IP Law at the European Court of Justice.
22 S E S S I O N I : P L E N A R Y SE S S I O N very strong, the last place you want to go to litigate is where they will look at your rights carefully. So you choose a country where either you will not get to a trial for ten years, or where you will get to a trial but it is like Russian roulette as to whether or not you win. So you choose: If you have lousy rights, go to a slow, unpredictable court; if you have good rights, go to a fast, predictable court. It is quite simple. It’s pure economics. What outcome do you want, and you choose your court accordingly. The fact that Europe allows this is a disgrace, but there we are. We live in a disgraceful environment. PROF. HANSEN: Anyone else want to comment? Erik? MR. NOOTEBOOM: Well, I do agree with some of the things Hugh [Laddie] said. I also think that everybody is happy about the situation in Europe, except Hugh [Laddie] maybe. We have not received any complaints, as far as I’m aware of, about the functioning of the litigation process in Europe with regard to trademarks. That was basically what I intended to say at the very start of my intervention. I do not see any major new developments coming up to deal with trademarks in Europe because everything seems to be pretty well under control. Moreover, as you know, Hugh [Hansen], with regard to new legislation in Europe, the tendency nowadays in Europe is not to legislate, rather to withdraw legislation that appears to be unhelpful. So also in that respect it is a better regulation program in Europe. There is very little to be expected, I think, from the legislature, unless there are really burning problems popping up in the internal market that need to be urgently tackled. But in the field of trademarks, contrary to patents, I don’t think there is any major political issue coming up in the next ten years. So we will rather focus, I think, on three issues in the field of trademarks: The costs of acquiring trademarks and enforcing trademarks; the efficiency of the trademark system; and the quality of the trademarks granted. I have some comments on each of these three issues. On costs, as many of you know, in Europe we have considerably reduced costs for applicants recently by a very significant fee reduction, in the order of 30 percent. And we haven’t yet reached the bottom. It has appeared that the management by OHIM of the European Trademark system has been very efficient and highly appreciated by business. That will allow us probably to deliver Community Trademarks at a much lower price in the future than we are doing already today. We are about to launch yet another exercise in Europe to further lower prices. Now, this may sound good for businesses and for IP departments around the globe if they seek protection in Europe, but it also raises, of course, an issue about how cheap can we offer trademarks to business and is there not a bottom line which we should not cross in order to make acquisition of trademarks too cheap for just anybody. On efficiency, we witness ever more use of software, of computers, to examine trademarks. They assist examiners to a large extent. It has been suggested to me recently that maybe in the next ten years, let’s say in 2015, the whole trademark process might be automated, not only examination, but even also maybe opposition. For sure, these computers and software tools may to a large extent come into the trademark examination process and litigation. The last point is very important, about quality. Some concerns have been expressed recently about the quality of the trademark system. Because the process is so simple to handle, because in many EU Member States there is no opposition procedure available under the national trademark system (contrary to the Community Trademark system in Alicante), the question has been raised whether we should not have a closer look at
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quality, for example by allowing competitors to come in at an early stage to prevent the Registration of frivolously applied trademarks. On the litigation, as I said, I think everybody is happy for the time being with the litigation system on trademarks, which would certainly not be the case if we were talking about patents. We have a patent session later on and I will comment on patents in that session.17 But on trademark litigation I don’t see any major changes coming either in Europe. So we will have to do it with the system as we have it. Note, however, that Paul Maier and his Boards of Appeal at Alicante will create very important jurisprudence in Europe on trademark law, I think. PROF. HANSEN: Paul Maier, you are Head of the Boards of Appeal. You are making decisions about trademark law constantly in appeals from the examining division. What do you look to? Are you looking to Member State law? Obviously, you’re looking at the ECJ and CFI. Or are you really just in charge — basically, you’re the man; they’re not the experts, you’re the experts? I know it is hard for you to say these things. But I think there is a tendency of people who do it day-in and day-out to think the rest are dilettantes. They maybe will say something about it, but we are really the core. With all that, Paul, just a “yes” or “no” answer to that question. [Laughter] MR. MAIER: Usually questions that are asked with the request to be answered by “yes” or “no” require very long replies! I will try to be short. Last year, the Boards of Appeal of OHIM made 1,657 decisions on trademark registration, opposition or cancellation cases as well as designs. These decisions have ended up in 142 appeals to the CFI. In other words, the Boards of Appeal of OHIM are a major filter for trademark and design registration in the EU system. The Boards of Appeal, even if they are a part of the OHIM (from an administrative and organizational point of view), decide independently. The President of OHIM cannot give instructions to the Boards or their individual members and the Boards are not bound by decisions of the President (e.g., the Boards are not obliged to apply the examination guidelines). What do we look at and what are the “precedents” or the “jurisprudence” that we follow? Well, we look at our own decisions or “jurisprudence.” In their ten-year history, the Boards have taken more than 8,000 decisions. We also look, of course, at the CFI and the ECJ. Their decisions are binding on us. It is true to say, however, that the CFI case law is not always easy to reconcile with earlier decisions. It is true that there is a general perception that we have a problem of coherence in trademark decisions in Europe. There is no doubt about that. This applies to all decision-making bodies, and I think even judges of the CFI recognize that and would acknowledge that if you asked them. Is this “coherence” or “perceived coherence” problem due to the fact that a number of the judges are not really trademark law specialists? Yes, there is no doubt about that. However, I think that Supreme Court judges do not have to be trademark law specialists. Their role is too broad for that. Furthermore, I think that the work is going in the right direction even if occasionally there are contradictory judgments. Remember that ten years ago we did not really have European trademark law. The progress achieved in this relatively short time is not bad. So there are some contradictory decisions, there is no doubt about that. However, if you ask the lawyers, they say, on the one hand, “You need more coherence in the system”; but on the other hand, they also say, “But you need a real second chance when you go to the CFI.” This means that they are really happy to see decisions being overturned there as well, even if this may mean less global coherence! 17
See infra Session I, Part D, The Next Ten Years in Patents.
24 S E S S I O N I : P L E N A R Y SE S S I O N The answer to this coherence question is not an easy one. However, the statistical reality is that 80 percent of the OHIM Boards of Appeal decisions are confirmed in Luxembourg. That shows that the so-called incoherence is not that blatant, frankly. I mean you know where you go when you file a Community Trademark application in terms of absolute grounds, and to a large extent this applies to opposition cases too. This can be demonstrated by the fact that the Boards of Appeal confirm more than 80 percent of First Instance decisions taken by the examiners in the office refusing a trademark on absolute grounds. And in inter partes proceedings more than 62 percent are confirmed. So the system as such works, but I am ready to admit that a lot of progress still needs to be made. What I want to say here on the Boards of Appeal is that we also need to be more efficient. I want to come back on what Erik said before, because we feel part of this as well as a part of the OHIM. We need to be faster in the decisions we make, and we have actually quite substantially reduced the time before the Boards already (less than five months to take a decision once the file is ready). We need to require less means to do the same sort of work too. In the Office actually we have multiplied by two the volume of work that we did over the years with the same number of people. I think that was not to the detriment of quality. Quite to the contrary. I think you simply cannot be good if you don’t work enough to start with. The second thing is that in the huge volume of decisions that we take and that push things forward, we still need to improve on quality. I think the level that we have reached in the Office, the level of professionalism, is good. But I am ready to listen to people who say this is not true at all. You will always find wrong decisions. In more than 1,600 decisions some have to be wrong decisions. But we hope to get it more harmonized and are actually working on it. One of the answers is in the use of the Grand Board. It is composed of nine persons (the Chairperson and five Members of the Boards). We make decisions that bind the Ordinary Boards of OHIM. We have taken three decisions until now. This may seem a small number, but not so many subjects actually qualify for this procedure. PROF. HANSEN: Let me just say one thing that ties into the United States. I think the difference between the United Kingdom and The Netherlands — and especially Hugh, and David for that matter — is the United Kingdom has a view of trademarks as just an indication of source. In the United States, in The Netherlands, and in other places, they are also very concerned about protection of goodwill, however it is used, even if there is not confusion. Depending on how you go at it, you are going to have two different results. The Arsenal case I think is a very good example: Hugh Laddie with one view,18 the ECJ with another,19 and then, actually surprisingly, the U.K. Court of Appeal,20 which seems to be moving in that direction. Bringing that to the United States, since we are also discussing the United States. Unlike copyright and patents, where it is difficult to get anything substantive, it seems 18
Arsenal Football League plc v. Matthew Reed, [2001] R.P.C. 922 (Laddie J.) (finding no infringement). Case 206/01, Arsenal Football Club plc v. Matthew Reed, 2002 O.J. (C 333) 22 (suggesting that only use that jeopardizes the essential function of a trademark is an infringing use. Reference made in a preliminary ruling by the High Court of Justice (England & Wales), Chancery Division, by order of that court, May 4, 2001). 20 Arsenal Football League plc v. Matthew Reed, [2003] EWCA (Civ) 696 (May 21, 2003); [2003] E.T.M.R. 73 (CA) (on remand from ECJ) (reversing Laddie J. and finding infringement), available at http://www.hmcourtsservice.gov.uk/judgmentsfiles/j1751/ arsenal_v_reed.htm. 19
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that trademark legislation on a substantive level, with very strong protection — although now some amelioration of that —seems to be able to move through Congress when nothing else is going through. For example, the TDRA revisions.21 Why do you think there is a difference in trademarks from copyright and patents, or do you think there is? Anyone, one of the U.S. panelists? PROF. LEAFFER: I think that there is more of a consensus on trademarks than the kinds of politically charged issues that arise in copyright. In trademark law, you have nothing analogous to the kinds of battles that have taken place in copyright, such as the Digital Millennium Copyright Act (DMCA),22 term extension, and file sharing. These copyright issues become front-page stories in newspaper because they are perceived as affecting a large number of people. I also think that also the participants in the political process, at least for trademark issues, are skewed in favor of the big trade-mark owners who have the ear of Congress. In the trademark context, you have no analogue to the vigorous activity of user groups and content owners who are locked in mortal combat in the political arena, even though in the end content owners have been effective in protecting their interests. PROF. HANSEN: Sounds right. Jane? PROF. GINSBURG: I would like to get back to some of Graeme’s points, if you will permit me to depart from your question. I identify three issues in recent U.S. developments that may continue to percolate for the next ten years: one of them is domestic and relates to your question about legislation; the second is international; the third is comparative. The first one is the TDRA, which incorporates — indeed, codifies — copyright-like fair use in trademark law. As a result, the legacy of the TDRA may not be strengthened protection against non-confusing use of trademarks, but rather protection for the persons or entities making the kinds of referential uses that Graeme is referring to. The consecration of a copyrightesque fair use doctrine in trademark law is an important development and something that is likely to grow in importance in the next ten years. The international development, which Graeme also referred to, is the incoherence in the federal courts about famous marks. Graeme referred to the Second Circuit’s unfortunate decision in the Bukhara Grill case.23 The Second Circuit is not the only court to think that the Paris Convention doesn’t actually apply in the United States. It is just a rather gross iteration of that claim. The suggestion that we can fulfill our obligation to protect famous marks by referring the matter to the state courts strikes me as highly undesirable. If the state courts all adopt World Intellectual Property Organization (WIPO) norms or other “soft law,” that’s great. But to remit the interpretation of terms used in international intellectual property treaties and trade agreements to the fifty separate states makes very little sense. Some of the famous marks problem might be overcome by reference to a different development in the federal courts, the Fourth Circuit’s decision in the Monte Carlo Casino case,24 in which the Fourth Circuit came up with a somewhat inventive and very extensive 21
See TDRA, supra note 8. Digital Millennium Copyright Act of 1998, Pub. L. No. 105-314 (codified at 17 U.S.C. § 512, Oct. 28, 1998) (DMCA), available at http://www.copyright.gov/title17. 23 ITC, Ltd. & ITC Hotels, Ltd. v. Punchgini, Inc., 482 F.3d 135 (2d Cir. 2007), available at http://www. kenyon. com/files/tbl_s10News/FileUpload44/10074/Opinion%20(US%20Court%20of%20Appeals%20for%20The%20 Second%20Circuit).pdf. 24 International Bancorp, LLC v. Société des Bains de Mer et du Cercle des Etrangers à Monaco, 329 F.3d 359 (4th Cir. 2003). 22
26 S E S S I O N I : P L E N A R Y SE S S I O N notion of what it means to “use” a trademark in “commerce.” The famous marks doctrine would have protected a famous foreign mark that is not used in the United States. But if we don’t have the famous foreign marks doctrine, maybe we can decide that all those well-known marks have actually been “used” in United States commerce anyway (at least if U.S. citizens purchased goods or services under those marks abroad), and protect the marks that way. Finally, on the comparative law development, the disparity between the treatment in the United States and in Europe of such entrepreneurial advances as the Google AdSense program, which in effect is not a classic trademark-infringing use but may be a kind of free riding off of trademark goodwill — I disagree with you, Hugh, about protecting against free riding. I think our courts so far have been, outside of dilution, pretty scrupulous about not protecting against free riding. PROF. HANSEN: Oh, you can’t be serious about that, Jane. PROF. GINSBURG: Yes, I am serious. Most of those ad cases have not favored the plaintiff trademark owners. Admittedly not unanimous, but I think that it is at least half, if not more.25 By contrast, if you look at what has been happening in France with the very same sorts of controversies over Google AdSense and similar sorts of referential uses of trademarks for advertising and commercial purposes, there the French courts are holding either that the uses are trademark infringement, or at least that the ad placements are unfair competition (under a notion of unfair competition far broader than anything we have in the United States).26 This divergent approach is setting up a conflict on the global commercial scale because, even if Google complies and doesn’t engage in those sorts of practices on Google.fr, it will continue to do it on Google.com, which is of course accessible in every country that might have a more restrictive notion of what is permissible competition. Then I think we are going to have an interesting clash. PROF. HANSEN: Let me respond to your saying that courts in the U.S. don’t protect goodwill as such. We obviously protect goodwill when there is no confusion. Initial interest confusion, secondary confusion, subliminal confusion — all these are doctrinal devices to protect goodwill when there is no confusion. Moreover, we have courts, especially in the promotional products or, what they call in England, badge of allegiance cases, find likelihood of confusion where there is none. They do this purely to protect goodwill in trademarks that others borrow, use or take without payment or authorization when the purpose is to benefit from the goodwill of the trademark owner. 25 Compare 1-800 Contacts, Inc. v. WhenU.com, 414 F.3d 400 (2d Cir. 2005); U-Haul Int’l, Inc. v. WhenU.com, Inc., 279 F. Supp.2d 723, 727 (E.D. Va. 2003); Wells Fargo & Co. v. WhenU.com, Inc., 293 F. Supp.2d 734, 762 (E.D. Mich. 2003) (all finding no actionable trademark use by defendant Internet service provider or its advertising customers), with 800-JR Cigar, Inc. v. GoTo.Com, Inc., 437 F. Supp. 2d 273 (D.N.J. 2006); Playboy Enters., Inc. v. Netscape Commc’ns Corp., 354 F.3d 1020, 1024 (9th Cir. 2004); GEICO v. Google, 330 F. Supp. 2d 700 (E.D. Va. 2004) (finding actionable use when Google linked trademark to advertisements for competitors); see also J.G. Wentworth, S.S.C. Ltd. P’ship v. Settlement Funding, LLC, 2007 U.S. Dist. LEXIS 288 (E.D. Pa. 2007) (finding no actionable use,and granting motion to dismiss). 26 See, e.g., Tribunal de grande instance [T.G.I.] [ordinary court of original jurisdiction] Paris, October 11, 2006, Citadines/Google, Inc & Google France, available at http://www.legalis.net/jurisprudence-decision. php3?id_article=1765 (unfair competition); Tribunal de grande instance [T.G.I.] (3e ch.) Paris, July 12, 2006, Gifam et autres/Google France, available at http://www.legalis.net/jurisprudence-decision.php3?id_article=1712 (unfair competition); Cour d’appel [CA] (4e ch.) Paris , June 28, 2006, Google France/Louis Vuitton Malletier, available at http://www.legalis.net/jurisprudence-decision.php3?id_article =1661 (trademark infringement); Cour d’appel [CA] (12e ch.) Versailles, March 23, 2006 Google/Cnrrh, available at http://www.legalis.net/jurisprudence-decision.php3?id_article =1613 (trademark infringement).
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I agree with you that there is a difference in the digital setting. As for interest–initial confusion, some courts have not found it I think because there are no transaction costs in switching to the right website after realizing the true source. As for the ad use cases, I think it is too early to make broad statements. The Second Circuit has gone one way. I am not sure how much that will be followed. But in the non-digital agenda the United States protects goodwill without confusion in many contexts. The badge of allegiance cases are a prime example of finding likelihood of confusion where there isn’t any. If someone buys a tee shirt with Yankees on it, they are doing so because they want to be associated with the goodwill of the team. If you want to see source or maker of the shirt, everyone knows that you look at the tag on the neck inside the shirt. If you want to actually see the source, you’ll look for the tag. Nine out of ten courts in the United States find likelihood of confusion when it is clear from the tag or otherwise that the shirt is not authorized by the trademark owner.27 That’s also the result in the English Arsenal case. Even the English are moving to protect goodwill when there isn’t confusion. The analysis is as simple as that in misappropriation cases. A team, for instance, has built up tremendous amount of goodwill in its product or organization. A tee shirt with the Yankees on it is sold for $20.00. The shirt would cost around $3.00. Should someone who had nothing to do with building up the goodwill be able to sell $17.00 of the Yankees’ goodwill or should it only be the Yankees? Misappropriation is not a favored doctrine, especially among academics. Courts avoid the problem by finding likelihood of confusion. In the digital arena, I think you are right, they are rethinking that, but only on the fringes. The Yankees case would go the same way analogue or digital. I am not surprised that France ruled the way it did in the Google case. They are high protection and probably technophobic and anti-Google to boot. I would like Graeme to address some of the issues on the substance, and then we will go to other panelists. PROF. DINWOODIE: First of all, Jane is right and you are wrong on that last point. I think there certainly was a period where I think your view would be correct, but I think if you look at the last couple of years, there has been a retrenchment on a bunch of issues, both in the definition of what confusion is actionable and in the trademark use cases in the Second Circuit. You even see it in traditional confusion cases. KP Permanent28 is not a digital case; it’s about quasi-permanent make-up. That is a case where the court actually goes so far as to say “we can even live with some confusion and we are not willing to protect the goodwill.” So I do think Jane is right. PROF. HANSEN: Are you talking about the Supreme Court? PROF. DINWOODIE: Yes, the Supreme Court. PROF. HANSEN: I think the Court did not make any strong statement and punted in that case. Moreover, there was no freeriding by the defendant. In any case, lower courts don’t traditionally follow the Supreme Court in trademark cases. PROF. DINWOODIE: They are. The Ninth Circuit. They largely are. The only comment I want to quickly make was actually to ask a question of Sir Hugh. When you were going through the forum-shopping options and you said it’s a disgrace, do you think it is a disgrace because there is such choice in terms of forum shopping, and therefore there are procedural reforms in terms of jurisdiction that are needed; or is it the differential treatment by national courts of common norms that actually is the problem? 27
See Dastar Corp. v. Twentieth Century Fox Film Corp., 539 U.S. 23 (2003). KP Permanent Make-Up, Inc. v. Lastingimpression I, Inc., No. 04-409, 543 U.S. 111 (2004), vacated and remanded, 328 F.3d 1061 (Slip op.), available at http://www.law.cornell.edu/supct/html/03-409.ZS.html. 28
28 S E S S I O N I : P L E N A R Y SE S S I O N PROF. LADDIE: Oh no, it’s procedural. I happen to believe that it is not flattering of the European system that you can have very, very slow and unpredictable litigation in one country over the same dispute where you get a fast and predictable outcome in another. It is more procedural. But I must tell you, listening particularly to Jane and to you, it seems to me that there is really quite an important point that comes out of the title for this session. Most of you were not here yesterday for a wonderful talk given by Eiji Katayama on patent trolls.29 There was some suggestion that patent trolls are a problem in jurisdictions where there are more and more patents over more and more areas, more pro-patent courts, greater awards of damages, and so on and so forth. You end up with vast numbers of rights that can be used to hinder competition. I have a concern about trademarks. It may be that the United States is retrenching, but still in Europe we are in a phase of widening the number of trademarks that can be obtained. I heard Erik’s talk about reducing the cost of getting trademarks in Europe. You are going to get more and more and more trademarks with wider and wider protection. What you are allowed to do in comparative advertising gets narrower and narrower. The worry is that we are going to have a proliferation of rights that will hinder business. I think that’s a bad thing. PROF. HANSEN: Marshall, are you raising your hand? PROF. LEAFFER: I would like to elaborate on a critical issue concerning the development of a more harmonized trademark system, one that has a centralized international trademark registration system by the use of international and regional agreements, such as Madrid and the Community Trademark, as well as technological developments, such as electronic filing. Certainly, legal and technological mechanisms made life render the multinational filing of trademark applications less costly. But there is a downside to these obvious efficiencies, the major one of which is the ever-increasing burden in clearing rights for new trademarks. The uncomfortable fact is that good trademarks for products are scarce resources. As anyone who has tried to find an appropriate trademark for a given product will tell you, the process gets harder all the time. One reason for this is that trademark rights have constantly expanded in recent times. With the widening of those rights, you create tension on the system that can only be alleviated by allowing a wider ambit of third-party use of trademarks. Unless you do that, the efficiencies that allow larger and faster filings will be offset by the ever-greater costs of finding good trademarks and clearing trademark rights. I am somewhat pessimistic about a solution because there seems to be no movement to curtail expansion of trademark rights by developing doctrines to allow more third-party use. In fact, the opposite has occurred. Thus, trademark practitioners must be forewarned: Those of you who wish to make an international launch will have your work cut out for them. PROF. HANSEN: I see people still raising their hands, and that shows the great interest in these issues. But unfortunately, our time is up. Thank you very much for a great panel.
29 Eiji Katayama, Partner, Abe, Ikubo & Katayama, Japan, Patent Trolls – Have Patents Will Sue: Using Patent Litigation as a Strategic Tool, Presentation Before Fourth Annual Asian IP Law and Policy Day: The Future of IP in Asia — Bridging the East-West Divide, Fordham Univ. School of Law (Apr. 11, 2007).
SESSION I: TEN PLENARY SESSION PART C: THE NEXT YEARS IN COPYRIGHT
SESSION I: PLENARY SESSION
The Next Ten Years in Intellectual Property Law: What Should Happen? What Will Happen?
Part C: The Next Ten Years in Copyright
Moderator PROF. HUGH C. HANSEN
Fordham University School of Law
Panelists PROF. JANE GINSBURG
Columbia Law School (New York)
Prof. John G. Palfrey Jr. Executive Director The Berkman Center for Internet and Society, Harvard Law School (Cambridge, MA)
PROF. P. BERNT HUGENHOLTZ
SHIRA PERLMUTTER
Director, Institute for Information Law, University of Amsterdam
Executive Vice President, Global Legal Policy, IFPI (London)
FRED VON LOHMANN
MARYBETH PETERS
Senior Intellectual Property Counsel, Electronic Frontier Foundation (San Francisco)
Register of Copyrights, U.S. Copyright Office (Washington)
TILMAN LUEDER
THOMAS C. RUBIN
Head of Unit, Copyright and Knowledge-based Economy, DG Internal Market (Brussels)
Associate General Counsel, Copyright, Trademark and Trade Secrets, Microsoft Corp. (Redmond, WA)
30 S E S S I O N I : P L E N A R Y SE S S I O N PROF. HANSEN: We are now going to discuss the next ten years in copyright. Let me briefly introduce the panelists. We all know Jane Ginsburg from Columbia. Bernt Hugenholtz is a tremendous leader in the European Union in intellectual property, especially copyright. Fred von Lohmann you saw in the first panel. Tilman Lueder is the head of copyright for the European Commission. John Palfrey is a Professor at Harvard and the Executive Director of The Berkman Center for Internet and Society. Shira Perlmutter, who previously was at the Copyright Office and Time Warner, is now Executive Vice President of Global Legal Policy at IFPI in London. Marybeth Peters, as we all know, is the Register of Copyrights. Tom Rubin is Associate General Counsel for Copyright, Trademark, and Trade Secrets at Microsoft. In terms of giving us some talking points for discussion, we are going to start with Jane Ginsburg. PROF. GINSBURG: Good morning. My assignment is to produce talking points for the next ten years of copyright — what should it be, what will it be? I am going to invert those, what will it be, what should it be? I brought my crystal ball here (formerly a vase) so we can look into its empty future and figure out where we are going to go from here. I have identified three possible futures. I am sure there are many more, but it will give me an opportunity to group things into gross overstatements. The first two address what will the future be, and the third addresses what should the future be. One possible view of the future is that copyright in the next ten years will be increasingly consumer-oriented, so that we will see the maximization of consumer interests, both politically and translated into either legislation or court decisions, or simply just de facto pressures by virtue of consumers availing themselves of technologies which may resist effective policing. As a result of that, we may be drifting towards a future in which compulsory licenses or, since compulsory licenses are limited by international treaties, “voluntary” global licenses will predominate. Since I believe in moral rights, I have to credit Tilman Lueder with that particular vision, and I think he may say a little more about that. So that is one view of the future. Another view of the future is its equally extreme opposite, which is that in fact we will see a tremendous amount of corporate concentration and dominance, with the effective, as opposed to ineffective, wielding of technologies in a way that will give greater control, rather than lesser control, over works. Now, I just want to take a small parenthesis from the overstatement to make a, I think, slightly more reasonable statement about digital rights management (DRM) and the future. In the apocalyptic view, we will have digital lock-up. In the non-apocalyptic view, and one which may be slightly more representative, I think one can imagine that some kinds of DRM, particularly the type that everybody loves to hate, like the self-destructing DRM on Sony CDs and DRM on pre-retention downloads, may well be in the way of extinction. On the other hand, copy protection, whether you call it DRM or something else, when we are talking about digital delivery of works in various forms of streaming, I think will be very much present, and probably proliferating, in the future. The final vision, what the copyright world should look like in the next ten years, is one in which copyrights are owned and exploited by authors and performers, by creators, rather than by corporate entities, or for that matter by consumers. One can hope that in the future much of this digital technology will be distributed not only among corporate entities, but among authors who will be able to use it effectively, and while intermediaries will not disappear, we may come to see different types of intermediaries who will be less grasping of authors’ copyrights in the future. That’s the Utopian vision.
PART C: THE NEXT TEN YEARS IN COPYRIGHT 31 To articulate these visions, I have unilaterally, and without prior consultation, grouped our speakers into the following categories: first, the Olympian view of our distinguished representatives from government, Tilman Lueder from the European Union and Marybeth Peters from the Copyright Office; then the representatives of the consumer maximalists, here in the guise of Fred von Lohmann and John Palfrey; the representatives of the corporate technological world, Shira Perlmutter for IFPI, Tom Rubin for Microsoft; and finally, in the most Olympian role of all, Bernt Hugenholtz, who I think is sui generis. They are, of course, absolutely free to resist, reject, discredit, and spit upon these characterizations PROF. HANSEN: Thank you. That’s interesting. Jane certainly took the bull by the horns and the panelists are all now in their little boxes there. You will be allowed out after the panel, apparently. Let me just ask you. The first question is: Do you agree with Jane’s characterization of what the choices are for the future? Marybeth? MS. PETERS: I think those are the three top categories. I was not looking at it this way, but I have been reprogrammed. I am okay with it for this session. PROF. HANSEN: If you weren’t reprogrammed, would you agree with that? MS. PETERS: I’m not sure. PROF. HANSEN: Let me just ask if there is someone who does agree with it and then we’ll move from there. MR. LUEDER: I agree with the first version. PROF. HANSEN: What about the first version? MR. LUEDER: I agree with the first prediction because it’s my own, and I have to show a minimum of consistency, as opposed to ten minutes ago. So yes, I agree with what I said ten minutes ago to Jane. The first prediction is that ten years from now copyright will be a part of social policy. It will be artists’ and performing artists’ and authors’ social security schemes that will prevail. I think that we will move away from dealing with copyright as a property right, as an intellectual property right, or as any form of property. It will be social policy and not intellectual property in the future. PROF. HANSEN: That is driven, in part, by the people who run the collecting societies, which have a pot of money to distribute to whomever they want, but are not necessarily actually getting it to creators whose works had been performed or copied in any organized, systematic fashion. MS. PETERS: That is the dark side. I am on the light side. That’s my nightmare scenario, and so I am not going to go there. I think in the United States in the next ten years there will be a fight, and it probably is exclusive rights versus compulsory licenses and schemes of equitable remuneration. I think that, from my perspective, the fight should be about exclusive rights and authors. I am more like the Utopian, with Jane. As I have tried to get rid of compulsory licenses in the United States, what basically came and hit me over the head was when the songwriters said, “But without them we wouldn’t get any money.” Then I realized that authors in this country really were not empowered and they really did not exploit their rights themselves. They went through other means and they signed contracts that later they regretted. I would hope that in the next ten years that one of the things that we could do in the online environment is reinvigorate authorship. Basically, I think it is going to take a commitment to teach authors about their rights and to come up with schemes that allow them to be in the driver’s seat.
32 S E S S I O N I : P L E N A R Y SE S S I O N There will always be corporations that have a function, and a very large function. There will always be consumer expectations. But I would leave with the fact that if we do not have creative energy in this country, if we do not have creators and they are not incentivized, and if they do not feel part of the system, I think that we lose substantially. I do not want that to happen in the next ten years. So I certainly am going to do everything I can to make sure we do not have my nightmare vision come into play here. PROF. HANSEN: Fred. MR. VON LOHMANN: I think I am far more optimistic than Register Peters regarding this future. I agree that we need to reinvigorate the author sector. What I see, though, empirically is that new technologies, like MySpace and YouTube, are doing far more to bring the benefits of authorship to more people than ever before than the old copyright system has or is accomplishing. So I think there is great hope there. It is in that area that we are going to see the flowering of new modes of remuneration, new business models. We will not have just one model. We will not have a world where song-writers have to depend on a unitary compulsory license. Instead, we will have many different kinds of business models that small authors will pursue. You are already seeing that happen thanks to new technologies — not thanks to DRM, not thanks to the kinds of exclusive rights that have been passed in the last ten years. But I think the upside here extends beyond just the citizen creators. I think that ten years from now, certainly in the music space, we will have a collective licensing solution, not a compulsory license solution. I agree with Register Peters that compulsories have a number of very serious downsides. But in the United States you see collectives, like BMI and ASCAP and SESAC, that have developed competitively on a nonexclusive basis and have been able to harness revenue from distributed, otherwise-very-difficult-to-enforce user communities, including bars, restaurants, performance halls — you name it. It is no accident that, at a time when the record labels have seen their revenues decline, BMI and ASCAP have enjoyed record revenues every single year since the Napster phenomenon began. I think the record labels will recognize that and will organize collectives. You will have a situation where you will pay a fee, perhaps through your ISP, perhaps through a software vendor, perhaps through other methods you choose. In that environment, I think ten years from now we will be struggling with very different questions: How do we have collectives that are transparent, that are competitive, that are responsive to the authors that they represent, rather than collectives that are opaque and not accountable? Fortunately, I think in the United States we have a pretty good set of examples in our performing rights organizations (PROs), a set of examples that may not be perfect, but are much better than the sorts of entities that Europe has traditionally had. Of course, Europe has some encouraging new initiatives in this area as well. I think that ten years from now there will be a lot of attention there. However, I do not think DRM is going away — not because DRM is going to be used to empower the kinds of business models and anti-piracy goals that we were promised, but because it will be increasingly used by technology companies and by major incumbent entertainment industries to control innovation. You will have to sign a license in order to access the content. That license will dictate how your technology can work and what features it can offer. Those terms will be set by a cartel that is empowered to do that, thanks to the combination of legal protection of technological protection measures (TPMs) and relatively lax anticompetitive norms, especially in the United States. I hope that Europe does not fall into that trap. I am hopeful that Europe’s rather more
PART C: THE NEXT TEN YEARS IN COPYRIGHT 33 vigorous antitrust enforcement will contain those anti-competitive and anti-innovation implications of DRM. But I do think those will be the two issues that will be foremost ten years from now: How do we get a good collective licensing system that fairly pays authors; and how do we prevent DRM from being used in anticompetitive ways? PROF. HANSEN: A couple of things. One is, in terms of antitrust systems, it is the U.S. antitrust system that brought ASCAP into line to be transparent.1 The European competition system has done very little with the collecting societies, for political and other reasons. So I do not think it is as simplistic as their having a better system than the United States. In this area I think they have a weaker system. MR. VON LOHMANN: Antitrust enforcement has changed since the days of the ASCAP antitrust litigation. PROF. HANSEN: But not in a way that would affect that result. One other thing is that your vision helps those who remix and do other things like that, or perhaps write and perform their own works. But someone like a country music composer relies very much, not just on performance rights and BMI, but also on record sales and other things. So under your vision maybe a certain group will be well off, but the other group is pretty much ignored. MR. VON LOHMANN: No. I am not proposing that we have collec-tives only for performance rights. I think historically that is where we have been. But I think the future envisions a world where you have collectives that administer the full range of range of rights — reproduction, performance — because, frankly, I think we can all see ten years from now compact disks and unit sales of product will not be the dominant segment of the music industry. People will be downloading. Hard-drive manufacturers will tell you that ten years from now you should be able to hold all the world’s recorded music — all of it — in the palm of your hand in a device that will probably cost less than $200 or $300. PROF. HANSEN: Okay, Fred, thanks. Shira, let me call on you to respond. MS. PERLMUTTER: Where I definitely agree with Fred is in his vision that we are just at the outset of a phenomenal explosion and flourishing of diverse models and exciting creativity. I think there is no question about it. Where I differ from him is in the idea that that might require rethinking existing copyright and the idea of exclusive rights enabled by DRM. I think the answer is you need to have freedom of choice and the ability to put out every possible option anyone can think of to disseminate content to consumers, to let people create new content and then disseminate it. That will include things like YouTube. That will include models that do not involve the use of DRM. That will also include some models that build on DRM protection used in flexible ways that are acceptable to the public. We are at the infancy of this explosion of change and development. What we are seeing is a huge amount of experimentation. But we have a copyright system in place that in its basic framework has served creators very well for a very long time and is continuing to enable this vast variety of new creativity. There will be those who choose to use it in different ways, who choose to manage their rights collectively, because that will make sense for them. There will be a role for DRM because many business models will depend on the use of DRM. DRM has been used as a code word generally, including this morning, to mean 1
See Broadcast Music, Inc. v. Columbia Broad. Sys., Inc., 441 U.S. 1 (1979).
34 S E S S I O N I : P L E N A R Y SE S S I O N some sort of restrictive lock-up, but in essence digital rights management just means technologies that are used to implement terms and conditions for use and may also be used to allow for royalty payments to be made appropriately. So it is a very broad term, and in its broadest sense it is an enabler of different business models, including streaming models as well as all kinds of subscription services and many things that no one has thought of yet. It is true that everyone is exploring different revenue streams. It is important that individual creators be empowered, and all of this technology holds tremendous promise for that. But we should not be rushing to make major changes in a system that has been very effective as a seed bed for change and creativity, and instead focusing on how to get past the glitches in this period of experimentation and work toward finding solutions that consumers will be happy with and that will reward creators. I think it is a bit of a red herring to focus too much on what it is that corporations do, in the sense that corporations should be there to provide what value they can provide in this new world. I believe there will be value that can be provided in terms of selection, marketing, promotion, dissemination. There are many things that corporations can do. Their value will consist of continuing to do that. But again, we will see a tremendous variety and diversity. PROF. HANSEN: Thank you, Shira. Tom? MR. RUBIN: I agree with a lot of what Shira said. I frankly agree with a fair amount of what Fred and others have said. I think what I disagree with more than anything is just at the very beginning, respectfully, Jane, pigeon-holing people into these categories, because I think that we are going to see, and we are seeing, a very heterogeneous world right now, where authors are being empowered as never before, where original content is being created, and where content providers are able to control their content in a way that actually provides tremendous benefits to consumers. I think that is the world that we are in and that world is going to accelerate. In order to think about where we are going to go, I think you have to look at where we are and where we have been and why we are here. There has been, obviously, a tremendous pressure on the system, in part because of widespread digital piracy that has led to all kinds of reactions, some good, some not good. But I think we are really at a point where the promise of technology is allowing us to realize these new business models that are making available high-quality content at very affordable prices from legitimate sources, and those are going to ultimately be something that consumers are going to want. They are going to be a great alternative to the piracy that we have seen. That being said, there is a very important role that technology is playing, and is going to play in the future, to create new business models that are not just the result of what large companies want to do. The ability of technology to identify works and automate rights management, including rights freedoms, is actually an area that has received a lot of investment lately, and there are a lot of technologies that are on the market or will soon be on the market that will empower everyone from individual creators to companies to decide how their content should be seen and redistributed on the Internet. PROF. HANSEN: Tom, let me move on so we get to everybody here. Bernt, do you have any thoughts on this? PROF. HUGENHOLTZ: Sure. Some of them already have been expressed. I believe the democratization of authorship, as it is sometimes called, will actually lead to a reappraisal of copyright, or actually of authors’ rights, which I would really like. That is Utopian, but possibly realistic at the same time.
PART C: THE NEXT TEN YEARS IN COPYRIGHT 35 Look at the enormous success of Creative Commons, and the main license applied by the hundreds of millions of users of Creative Commons licenses. The main license type reflects that, no modification and attribution. These are moral rights reconstructed through private ordering. So I think authors’ rights are up. Consumers’ rights are also up. That may be worrying for some in the copyright industries, but I believe it is not a bad thing to have consumers given some protection against oppressive end-user terms in boilerplate language. Certain freedoms to copy I think are also a good thing. In fact, that does in the end increase confidence in the copyright industries. PROF. HANSEN: Is that like thieves breaking in and stealing things having increased confidence in the property? PROF. HUGENHOLTZ: Yes, sure. It’s exactly the same. PROF. HANSEN: So they have confidence that the property protection becauuse people are fooled into thinking it will be protected? PROF. HUGENTHOLTZ: I think it is more like people buying a car and expecting a certain speed to be attained, not just have the car stuck in first gear. But anyway, we will see it either in copyright or outside. I think there may be a difference here between the European and U.S. approaches. In the United States, you see an attempt to fit the consumers’ interests into the copyright framework. I think that is understandable in light of the constitutional mandate here. In Europe, you see it more develop outside copyright. In fact, you see a string of cases in France and other countries where consumer unions have quite successfully demanded certain basic functionalities in information products and services. That is not particularly bad. I think it is actually a good thing. Third point: There is also one type of rights that will definitely be on the decline in the next ten years, at least — and that is wishful thinking, I must admit — intermediaries’ rights, or possibly neighboring rights if you look at it through the European lens. I think the political climate is increasingly hostile to demands for increased protection of investment, as opposed to true creation. As the costs of production and distribution decline thanks to the Internet, so does the economic justification for such rights. So what we shall not see, I hope, is an extension of the term of sound recordings. I do not think we will see a WIPO Broadcasting Treaty either, at least not a treaty that will amount of anything. Is that really bad? I don’t think so. I actually think intermediaries can do a lot of good business, as has been said before, without foolproof protection. I think EMI dropping DRM is actually a very good example of that. There can be more confidence in a world without perfect IP. PROF. HANSEN: Good. Thanks. John? MR. PALFREY: Thank you, Hugh. I should start with a confession, which is I am really bad at predictions. I remember teaching the Napster case2 in 2001, which was recorded, unfortunately for me. I made a prediction that said the recording industry will never be dumb enough to sue its consumers directly; they will just sue the intermediaries. Of course, the next year I was teaching the same class, and I had a co-teacher who went back and looked at that recording and called me on it. I said, “Ha, ha, ha, yes, I was wrong,” because, obviously, we know how history went. I said, “But the European 2
A&M Records, Inc. v. Napster, Inc., 114 F. Supp. 2d 896 (N.D. Cal. 2000).
36 S E S S I O N I : P L E N A R Y SE S S I O N recording industry won’t be so dumb as to sue.” So take this with a grain of salt, that I am probably wrong. I am most focused for the next ten years on the generation of young people who are learning to use technology in a really different way right now, good and bad. Kids now are born digital in a way that we have learned to be digital. I think that brings with it social norms that are really quite different. I think that the area of focus for the law and for law reform is going to be dealing with what is a global generation of digital natives and how they interact with information. I think one of the primary trends is the blurring of lines across these different types of media. Talking now about music, as most of this panel has, I think music and movies and text and gaming and second lifing, whatever you want to call it, all sort of get blurred, which is one sort of difficulty/ opportunity. The second one is, of course, it is so easy to do over international lines. I think that the stovepiping of rights is going to come under pressure in that zone. I think that the challenge from a legal reform perspective is to say: How do we continue to ensure that authorship is rewarded, but also rethink what authorship means? I respectfully disagree with the Register of Copyright about what that sense of the author is and how that is going to play out moving forward. But I certainly agree with some of the suggestions for how to handle it. I think that some of the suggestions for collective licensing, not compulsory licensing, of the sort that my colleague Terry Fisher has proposed,3 in an entertainment co-op type mode, is a very strong suggestion. I think focusing on how derivative works get thought about, and particularly across international lines, is a very important area. I think that building on top of the Creative Commons system ways of private ordering to convey rights very simply by consumers, one to the next without transaction cost, is super important. I think coming all around that is really one thing that Jane Ginsburg has focused on importantly for a long time, which is: How do you think about moral rights in this context when it really is a different environment and people are interacting with rights in such a different way in a digital age? I am concerned. PROF. HANSEN: Moral rights are dead, aren’t they, John? You can be frank. They kill all the nuanced compromises that might be made in the digital environment between copyright owners and users to make these wonderful knew social and technical advances work?. MR. PALFREY: I think there is a better expert on this in Jane Ginsburg. PROF. HANSEN: Unfortunately, we are out of time for this session. Jane, thanks for setting up the discussion. That was great. And thank you very much to the panel.
3
William W. Fisher III, Promises to Keep: Technology, Law, and the Future of Entertainment (2004).
SESSION I: PLENARY SESSION PART D: THE NEXT TEN YEARS IN PATENTS
SESSION I: PLENARY SESSION
The Next Ten Years in Intellectual Property Law: What Should Happen? What Will Happen?
Part D: The Next Ten Years in Patents
Moderator PROF. HUGH C. HANSEN
Fordham University School of Law
Panelists LORD HOFFMANN
RON MARCHANT
Law Lord, House of Lords, Parliament (London)
Former CEO, UK Patent Office (London)
CHARLES ELOSHWAY
HON. PAULINE NEWMAN
Attorney-Advisor, Office of International Relations, U.S. Patent & Trademark Office (Alexandria, VA)
Judge, U.S. Court of Appeals, Federal Circuit
HON. ROGER HUGHES
ERIK NOOTEBOOM
Judge, Federal Court of Canada (Ottawa)
Head of Unit, Industrial Property Unit, DG Internal Market, European Commission (Brussels)
RT. HON. LORD JUSTICE JACOB
PROF. TETSUYA OBUCHI
Court of Appeal, Royal Courts of Justice (London)
Faculty and School of Law, University of Tokyo
HON. RANDALL R. RADER
Judge, U.S. Court of Appeals, Federal Circuit
38 S E S S I O N I : P L E N A R Y SE S S I O N PROF. HANSEN: Now we will move on to “The Next Ten Years in Patents.” Let me briefly introduce our very distinguished panel. Lord Hoffmann is considered by many, if not all, as the leading Law Lord in the U.K. Of course, the House of Lords in Parliament is considered the supreme court on all civil cases in the United Kingdom and in criminal cases in England and Wales. Charles Eloshway is Attorney-Advisor for the Office of International Relations at the U.S. Patent and Trademark Office. Judge Roger Hughes, prior to becoming a Federal Court judge in Canada, was a patent and IP practitioner. The Rt. Hon. Lord Justice Jacob is on the Court of Appeal (England and Wales) at the Royal Courts of Justice in London. Ron Marchant is the former CEO of the U.K. Patent Office. Judge Pauline Newman is one of the stars of the Federal Circuit. Erik Nooteboom is Head of the Industrial Property Unit at the European Commission. Professor Tetsuya Obuchi is a former judge and a very well-respected professor at the University of Tokyo. He is a tremendous leading light in the Japanese intellectual property scene. Finally, Judge Randall Rader, is well known by all, teaches patent law and,of course,is on the Court of Appeals for the Federal Circuit. We are very lucky to have Lord Hoffmann start us off with some thoughts on the future of patent protection. LORD HOFFMAN: I have a rather distant view of patents. It is like one of these comets that swoons into my sight about once every two years or so. So, therefore, it may be very different from those on the panel who come across it more frequently. My impression is that over the next ten years or so there isn’t going to be a great deal of movement on what one might call the substantive law of patents. Roughly speaking, I think it has settled down in a way which is pretty well okay. I know that there are, for example, pressures from the pharmaceutical industry over the twenty-year term. They say that, what with having to develop the product and having to go through all the clinical trials and so forth, they aren’t left with enough to make them money. Whether they get enough political sympathy for that I really don’t know. It is a pragmatic issue on which I am not in a position to express a view. As to the requirements, the validity of patents, I know that there is a certain amount of disquiet in the United States about the level of inventive step, which is the present requirement. To some extent, that may be a resources matter for examination within the Patent Office, rather than any difference in principle. It may be that it needs to be ratcheted up a bit, but again I leave that for others to discuss. On the question of the scope of patents, there are certain differences at the moment between the United States and Europe in the way we approach these questions. There are even possibly differences within Europe. But again, I had the impression that when we are talking about the scope of patents, the interpretation of what the patent covers, when it comes down to it, these are intuitive matters of impression on the part of the tribunal that is deciding the matter, and they then think of the reasons for them afterwards. So whether you have a doctrine of simply trying to find out what the patent means, or whether you have a doctrine of equivalents, such as they have in the United States, which I think is their problem, that is something which I think is ex post facto, after the initial judgment on whether there is actual infringement. So leaving the substantive part aside, clearly there is an enormous problem of resources for patent examination. It seems to be obvious that there is going to have to be among the various patent offices — the European Patent Office (EPO), the Japanese Patent Office (JPO), and the Patent Office of the United States (PTO) — greater cooperation in being able more efficiently to employ the resources that they do have for examination. Again, that is something I leave people like Ron Marchant to tell you about.
PA R T D : T H E NE X T TE N Y E A R S I N PA T E N T S
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The real problem that I foresee for Europe is the question of jurisdiction. That is really a serious matter, because everybody agrees that something has to be done. Nobody can agree on what it is that has to be done. The reason why something has to be done is because, while it is very nice to have the EPO in Munich, where you can take your application and have a patent issued for whichever number of the Convention states you nominate, and it is the same patent in each of them; then, when you actually come to enforce it, you have to bring separate proceedings in each country, and you may get different results. That is on the face of it a ridiculous situation. Well, what can be done about it? Originally, the idea was — and it seemed perfectly fine in theory — that we would have a Community Patent. That proposal, as far as I can see, has run into the sand. The latest Communication that we have had from the Commission makes virtually no mention of it. It is not really on the table. It is not on the table because we cannot get agreement among the Member States on two matters. One is how many translations there ought to be into the various European languages (I think we are now up to about twenty-three). Secondly, we cannot get agreement on what tribunals ought to be able to deal with the validity and infringement of European patents. The notion that you could have a domestic court in, say, Romania or some Member State revoking an important patent for the entire European Community is simply not acceptable to industry. So it fails on that ground as well. There is a lot of talk about political will and so forth, but from the point of view of a small country that does not have a lot of patent business, on this language question I rather sympathize with them. If you are the government of, say, Bulgaria, do you want a headline in the Bulgarian Sunday news papers saying “here you have this Bulgarian who has been held liable for an enormous sum of damages brought by a court which consists of a British, a Dutch, and a German judge for infringement of a patent that he could not possibly have read because it was published only in French, German, and English?” It doesn’t make good headlines. For that reason, I rather sympathize with their not going along with it. The same applies to the idea of having a specialized patent court. Now, having got to that position, and seeing that the prospect of a European Community Patent is pretty well dead, the Member States of the European Patent Convention had the idea of what is called the European Patent Litigation Agreement (EPLA). Forget about having a Community Patent, but at least let’s have a Convention court to which you can go and receive decisions that will be binding on all those members who belong to it. That made some progress. A Draft Convention was produced.1 In fact, some patent judges got together and produced a framework set of rules as to how that court might operate.2 That is running into two difficulties. One is there is a European feeling, emanating from the European Parliament and the Commission, that it is contrary to the rules for the Member States of the European Patent Convention, which are not exactly the same as the European Union — at any rate, don’t fall into the mechanism of the European Union — that it is wrong for them to set up any kind of international jurisdiction on their own. 1 European Patent Organisation, Working Party on Litigation, Draft Agreement on the Establishment of a European Patent Litigation System (EPLA) (2004), available at http:// www.european-patent-office.org/epo/ epla/pdf/agreement_draft.pdf. 2 In November 2006, an informal panel of judges from several European countries met in San Servolo, Italy, and adopted rules of procedures for the EPLA court. They signed a Resolution, the so-called “Second Venice Resolution.” See IPEG, European Patent Judges Agree on Rules and Procedures for New EU Patent Court (Nov. 7, 2006), available at http://ipgeek.blogspot.com/2006/11/european-patent-judges-agree-on-rules.html.
40 S E S S I O N I : P L E N A R Y SE S S I O N They have gotten a legal opinion of amazing pedantry that says this is the case; it simply cannot be done.3 The other objection is that some of the Members even of the European Patent Convention do not like it. They have reasons of their own. Although we seem to be getting along quite nicely with the Germans and the Dutch, the French, as I understand it, are unhappy about the arrangement and they want to pull out of it. The latest view of the Commission, which was published only within the last fortnight or so,4 is that we should compromise by getting an equivalent set up within the Community organization and have an appeal to the Court of First Instance, and then set up under that, roughly speaking, the kind of setup which the European Patent Litigation Agreement was trying to do, but within the general embrace of the European Union. That will require agreement from everybody to go along with that. The Commission says, “As long as there is the political will, then we can do it.” Well, that’s a big “if.” For the reasons I have already given, I do not really see that coming along. The Commission reminds me of the generals in the First World War who said, “If only we just have one more push, start a battle on the Somme, then we will win and we’ll get through.” I think what we need, if I can just stick to the military metaphor for the moment, is what the President of the United States would call “a coalition of the willing.” What we want is that those countries that want it should go ahead and do it. Now, if one looks at the Commission document’s statistics, 90 percent of the patent litigation in Europe takes place in the United Kingdom, Germany, The Netherlands, and France (I am not sure that France makes up an enormous number of that 90 percent). If we could get a single patent court for, let’s say — leave out the French — Germany, The Netherlands, and the United Kingdom, which I would have thought was perfectly feasible, wouldn’t that be an enormous advance? But we are told, “No, this is not communautaire, and therefore not allowed.” Well, we have a proverb, “The best is the enemy of the good.” I feel that is what is holding us back now. That is the point I want to throw open for discussion. PROF. HANSEN: Thank you very much. There is certainly a lot of food for thought there. Let’s go through some of the points. One that I want to start out with is patent quality. Let’s just talk about that. We have both the U.S. Patent and Trademark Office and the U.K. Patent Office represented. Just quickly, does low patent quality exist; and (2) is it harming competition and innovation? MR. MARCHANT: I’ll come in first. I think it does exist, but it is not as widespread as people often think. There are confusing thoughts about what is low patent quality. Some people say low quality is related to the scope or the nature of patentability, particularly as applied to the United States. Many people say it is the flood of vague business method and software patents that is damaging competition. Others say that in fact it is the quality of the stuff coming across all of the technology — insufficiently searched inadequate examiner expertise. And certainly on the latter you do get instances where we all could have done better. But I think it is fair to say that certainly nationally offices are taking big steps to look at regimes of ensuring and improving patent quality. 3 Interim Legal Opinion SJ-0844/06 D(2006)6511, Interim Legal Opinion (Feb. 1, 2007), available at http:// www.ipeg.com/_UPLOAD%20BLOG/Interim%20Legal%20Opinions%20Legal%20Service%20EP%20Feb% 201%202007.pdf. 4 Communication from the Commission to the European Parliament and the Council, Enhancing the patent system in Europe, COM (2007) 165 final (Brussels, Apr. 3, 2007), available at http://eur-lex.europa.eu/LexUriServ/ LexUriServ.do?uri=COM:2007:0165:FIN: EN:PDF.
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With the Patent Cooperation Treaty (PCT)5 quality initiative two years ago or thereabouts, and the current European initiative to set up a quality regime in Europe, we are taking active steps to mange and ensure quality. Discussions between the EPO, the PTO, and the JPO in relation to work sharing, which comes back to resources, which I’ll come to later, has an implication for quality. So all of these activities are working roughly in the right direction. There are difficult points at leading-edge technologies, where people who go into government service in patent offices probably cannot stay at the leading edge in terms of their expertise. That is why the Gowers Review,6 amongst other things, said there needs to be a greater scope for third-party intervention, modifying the U.K. Section 21 observations, also following the PTO initiative of the Community Patent Review, which is an unfortunate phrase to use in the European context. The United Kingdom will be implementing a pilot program on this in the light of the Gowers Review’s recommendation. So it is an issue. I think there is evidence that poor patents will hinder innovation, but it is not as widespread as people say. PROF. HANSEN: Thank you. Did you want to say anything about anything? MR. ELOSHWAY: From the PTO perspective, as Ron mentioned, quality is often in the eyes of the beholder. Sometimes the debate gets clouded in terms of issues, not so much regarding quality, but things like subject matter eligibility. In other words, the debate gets shifted from “was the patent issued properly?” to “should the patent have been issued at all in view of the subject matter involved?” That is, again, a debate that needs to be argued on different grounds. In terms of some of the other issues that the PTO is confronting, I think, as Ron mentioned, all offices believe that we can do a better job in terms of search and examination. Some of the main problems that the offices are facing are: The ever-expanding volume of prior art that has to be searched, making sure that the search tools that the examiners have available to them keep up with the volume of material to be searched; and then, particularly for the PTO, we have a very acute problem in terms of staffing. As most of you know, we have significantly increased the examining corps over the past couple of years. We are hiring at a pace of about 1,000 examiners a year. That raises all sorts of questions, not the least of which is proper training and quality review for the thousands and thousands of additional pieces of work that are going out the door. To confront some of these issues, the PTO is looking at a number of different approaches. One is we have instituted multiple layers of quality review. Second, we are looking at ways to increase the quality of output by increasing the quality of input. Many of you have seen some proposed rules from the PTO on claims and continuations, among other things. These are just some of the ideas that have been circulating. Third, as Ron touched upon, is the idea of expanded work sharing, the idea that an office can capitalize and exploit work done by another office on a corresponding application. I think we’ll talk about that in a bit more detail later. I will leave it at that. 5 WIPO Patent Cooperation Treaty, Done at Washington on June 19, 1970, amended Sept. 28, 1979, modified Feb. 3, 1984 and Oct. 3, 2001 (effective Apr. 1, 2002), available at http://www.wipo.int/pct/en/texts/articles/atoc.htm. 6 U.K. Treasury, Gowers Review of Intellectual Property (December 2006), available at http://www. hm-treasury.gov.uk/media/6/E/pbr06_gowers_report_755.pdf [hereinafter Gowers Review].
42 S E S S I O N I : P L E N A R Y SE S S I O N PROF. HANSEN: One of the issues you raised was subject matter, which gets merged sometimes with the quality. Perhaps the most controversial issue here is business method patents. Some are against, Others say they might be okay if there had been accessible prior art for examiners to make reasoned judgments on patentability. Others think matters are fine as they are. But compared to new subject matters decisions in the past, these are much more controversial. For instance, the early 1980s Supreme Court decisions in Diamond v. Diehr7 for software and Diamond v. Chakrabarty8 for biotechnology, in effect, created new patentable subject matter. There was generally favorable reaction and had impact not only in the United States but in the JPO and in the EPO. Business method patents have not had the same reaction in the U.S. and certainly not abroad. What do you think the future is for business method patents, especially if the Supreme Court gets to a case? For our panelists from Japan and from Europe, do you think there is any chance of business method patents having any resonance over there? Do you want to first address that, Charles? MR. ELOSHWAY: Yes. In terms of the PTO, we are in a reactive position, where whatever Congress and the courts determine are the boundaries of subject matter eligibility, we have to examine on that basis. Certainly, business methods have created a number of difficult issues for the PTO to address, not the least of which is: What exactly is the landscape for subject matter eligibility; what are the outer boundaries between an abstract idea and something that falls within subject matter eligibility? Then again, in terms of quality in examining, the problem that we have been battling over the last several years is how to get the best prior art in front of the examiner. Now, that presents issues in terms of work sharing, because the United States is practically the only jurisdiction that is granting patents on business methods, so it is very hard to capitalize on non-existent work from another office. But I do not see that business method patents are going to go away any time soon. I think that the Office has done a commendable job in terms of improving the tools and access to the appropriate prior art. PROF. HANSEN: Anyone else from a different jurisdiction have a view on that? LORD JUSTICE JACOB: As many of you know, Albert Einstein was a Patent Office examiner for a time. I have always wondered what happened as he looked at the files — “obvious,” “obvious.” PROF. HANSEN: Have you ever used that before, Robin? I’m just curious. LORD JUSTICE JACOB: No. I made it up on the way up from Virginia. PROF. HANSEN: That’s good. I like that. LORD JUSTICE JACOB: It is fairly evident that today’s Patent Office examiners are not Einsteins. PROF. HANSEN: Well, few of us are actually. LORD JUSTICE JACOB: The problem sometimes described as low quality is, I think, not going to go away. It is going to get bigger. The level of patenting around the world is getting bigger. The Chinese are now going to go in for it in a big way. One of the interesting questions for the next ten years is: What is the reaction to that going to be? There will be a lot of “duffy” patents out there. I think the answer is going to be that the courts are going to respond by saying: “Well, these patents are no good.” I think you will find various responses in various ways. In the 7 8
450 U.S. 175 (1981). 447 U.S. 303 (1980).
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United States, the presumption of validity will weaken. In a number of places people will start saying, “We need courts with greater expertise. We cannot leave this, in effect, to the old German system, where you could rely pretty well on the patent office and just use the courts for enforcement.” You are now going to have to have the courts looking much more at validity. So I think one of the developments over the next ten–fifteen years is going to be dealing with the inescapable fact that quite a lot of patents are not very good. I will not respond yet to Lord Hoffmann’s “little European problem.” This problem I think will be a worldwide problem. You can see it sometimes in the courts. For example, the Australians are struggling like mad with obviousness, and making a fine old mess of it, if I may say so, deciding to follow the Americans, when the Americans might be changing directions. You see it in the recent Supreme Court case, KSR, re-looking at the standard of obviousness.9 All of which I think is expressing a concern that the pendulum of protection, which seems to be a very regular thing going one way and the other, has now swung so far and is going to swing back a bit. PROF. HANSEN: Roger? JUDGE HUGHES: Hugh, can I take a run at a couple of the points you have made? It’s not the quality, it’s the quantity. From Canada’s point of view, 95 percent or so of the patents issued are issued to foreigners — Fortress America, Fortress Europe, Fortress Asia. So anybody with an innovative spark has got to face 95 percent of patents owned by somebody else and cannot really get into the business. So what do they do? They take a run at it, they go underneath it, they go around it, or they do something. But the real problem is to try and figure out how, in effect, to limit the number of patents that are issued for trivial stuff — I think people have used words like “patent thicket” and things like that. The ones that end up in court, as Sir Robin said, are sort of the marginal ones, the trivial ones, and so on, and those are the ones we have to deal with. You are going to find reactions. We find reactions already in our drug industry, people fighting patents on yet another form of a drug and so on. And you will find the courts are now reacting to that when people bring patents that are marginal. PROF. HANSEN: So basically it’s Fortress Canada protecting its businesses from outside competitive forces. JUDGE HUGHES: Yes. PROF. HANSEN: Okay. Professor Obuchi, what do you think? PROF. OBUCHI: According to current Japanese patent law,10 even a computer program as such can be patentable subject matter, and a so-called business method can be 9 KSR Int’l v. Teleflex, Inc., 127 S. Ct. 1727 (2007). [Note: After the conclusion on the Conference, the Supreme Court decision was handed down Apr. 30, 2007 (holding that Graham v. John Deere Co., 383 U.S. 1 (1966), controls obviousness; that “the results of ordinary innovation are not the subject of exclusive rights under the patent laws”; and warning that a rigid application of the teaching/ suggestion/motivation (TSM) test as a litmus test for obviousness is inconsistent with the Graham framework, but stopped short of rejecting the TSM test outright. Simply put, the TSM shortcut for an obviousness analysis is no longer available. The Court’s decision focuses the obviousness spotlight back onto the framework that has controlled the issue for more than forty years, forcing everyone who has grown comfortable with the TSM litmus test shortcut (including the Federal Circuit, the PTO, and the patent bar) to return to full Graham analyses when assessing the obvious-ness of patent claims. The Court’s opinion also touches on several other issues, including the roles of “hindsight bias” and common sense in an obviousness inquiry, a question about the rationale for affording a presumption of validity to the patent-in-suit, which avoided a Graham analysis during prosecution, and a rejection of the rigid rule that “obvious to try” is per se insufficient to show obviousness. Decision available at http://w w w.supremecourtus. gov/opinions/06pdf/04-1350.pdf.] 10 Patent Act of Japan, Law No. 121 of Apr. 13, 1959, as amended. WIPO English version available at http://www.wipo.int/clea/docs_new/pdf/en/jp/jp006en.pdf.
44 S E S S I O N I : P L E N A R Y SE S S I O N patentable as a “computer program related invention,” while a so-called pure business method without using computer programs and so forth cannot be patentable because it is not a computer program-related invention. I am very much interested in the question of whether more patent protection for programs in places such as the United States and Japan, or less patent protection in places like Europe, will really better serve the promotion of innovation for programs. PROF. HANSEN: Let me ask both of you. You have a case before you. To what extent do you look at law outside of your jurisdiction — U.S. EU, EPO — at all in deciding your cases? JUDGE HUGHES: The United Kingdom yes, the United States yes, the EPO no. PROF. HANSEN: Professor Obuchi? PROF. OBUCHI: We are always very much interested in the law all over the world, especially the U.S. and European law. LORD HOFFMANN: If the Canadians look at the United Kingdom but not at the EPO, they are getting the EPO second-hand, because we pay a lot of attention to the EPO. JUDGE HUGHES: Well, I’ve kept my Eighth Edition of Copinger,11 because all the rest of the editions after that go Belgian or something. PROF. HANSEN: One thing on harmonization of litigation that Lord Hoffmann raised is that it is crazy to have to be suing in all the different places. What about the “coalition of the willing,” of harmonizing? We do have trilateral harmonization talks between Japan, the European Union and the EPO, and the United States on issues, because it is impossible to get effective harmonization through the multinational organizations. What about on that level, or a “coalition of the willing” on the litigation level? Erik? MR. NOOTEBOOM: I thought you were hinting at a “coalition of the willing” within Europe to create a uniform patent jurisdiction. It was not explicitly mentioned in our recent Communication on how to restructure the patent landscape in Europe, but it is clearly in our mind, given that we all know very well that the chance that Europe will move forwards on a unanimous basis is quite small. As you know, the current text of the European Treaty provides the possibility to work on reinforced cooperation, and that is basically cooperation between the willing. The problem that we will be facing is what the subject of that “coalition of the willing” should be. Evidently, under reinforced cooperation, one will have to define the subject of that project. Since we have very opposed views within Europe, even within the group of highly patent-minded countries, it is at this time very difficult to predict what the direction would be that this coalition would take. We have the German views, which clearly plead for an EPLA construction, a court that would work under the aegis of the European Patent Office basically. And there is the French coalition, so to say, which very much insists upon a Community jurisdiction. The main purpose of our paper is to launch this debate, to filter out all these different positions, and to see whether there is common ground to make progress. As always, we at the Commission try to develop good compromises that can, if necessary, be interpreted by anybody as he likes, but mostly at the end of it we come to a conclusion. Now, if you ask me what is going to happen in the next ten years, I think we will probably be discussing this issue for the next ten years. Whether we will achieve results remains to be seen. Whether that is dramatic, I don’t know. I think there is a much bigger threat to the patent system as a whole, which is very close 11
W.W. Copinger & F.E. Skone James, Law of Copyright (8th ed. 1948).
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to us and which has not yet been tackled, and that is the perception of the patent system by the politicians in Europe and by the public, plus the immense workload, the hundreds of thousands of patent applications that are pending all around the globe — in Washington, in Tokyo, in Beijing, and also in Munich — which all are a threat to those who want to innovate further on existing inventions. That is what we need to tackle. That is, I really think, a very, very important issue. On that issue, the next ten years will be crucial for the patent system. It may very well implode under the existing weight of all these hundreds of thousands of patents that are pending, patent applications that can very often not even be understood by examiners because they are so complex and so lengthy and so cumbersome to read through that they hardly have any clue whether they are patentable subject matter or not. We need to work on that. In that respect, the coalition also refers, I think, to global collaboration between the Japanese, the U.S., and the European patent offices in order to do away with duplication of examination work and search work. We should work very hard to come up with a united approach to patenting on a global scale. Last but not least, we should not forget about the Chinese and the Koreans, who in the meantime have to cope with many more patent applications than our own European Patent Office. They will be big players — they are already big players — and they should also be brought on-board in this coalition. PROF. HANSEN: Polly, do you have something to say? JUDGE NEWMAN: I always have something to say. I’ll be glad to comment. I was thinking as I was listening to these comments that what we need to have in mind is something that everyone in this room takes for granted and most everyone else doesn’t really stop and think about. The criticism, for instance, of the quality of patents is not so much the quality of the examination; it is the kinds of patents that are being granted — for instance, the big joke in the press of a peanut butter sandwich.12 What needs to be understood by all of us, and particularly by the lawmakers and by the judges, is the role of incremental change in the advancement of science and technology. As compared with even twenty years ago when the Federal Circuit was formed, today economists tell us that over half of the domestic and international product of the world is based on advances of technology, many of it on new technologies but also advances in existing technologies, as compared with 10 or 15 percent twenty years ago. This is a dramatic difference. This is certainly a contribution to the overload of the Patent Office, and certainly a contribution to all of the concerns that we are wrestling with here. It raises the fundamental question: What in fact is the kind of technological advance that the patent system can protect? We all know that almost every invention proceeds in small incremental steps, each one building on what has come before, until ultimately there is a breakthrough to commercial use and public benefit. So many of the advances of biotechnology, nanotechnology, and the information and knowledge industries have been developed in very small steps, such steps that might be excluded from today’s view of subject matter that is appropriate for a patentable invention. We need to understand what that means for the economy, for the advance of science and technology. This is what worries me about the popular noise about a broken patent system. Perhaps we have not modernized the law as rapidly as needed to adjust to changes in technology, 12 In December 1999, two independent inventors, Len Kretchman and David Geske, were granted U.S. Patent 6,004,596, “Sealed Crustless Sandwich,” for an improved peanut butter sandwich that would have a long shelf life. 13 eBay Inc v. MercExchange, L.L.C., 126 S. Ct. 1837 (2006).
46 S E S S I O N I : P L E N A R Y SE S S I O N although a great strength of the law, particularly the common law, is that it moves pedantically, slowly, methodically, not in a rush. What I want to encourage us to do, as in the panel’s comments, is to think about what these changes mean and what in fact it means to the society and the economy. PROF. HANSEN: Thank you. Randy? JUDGE RADER: I think we are missing three of the major directions of the next ten years. One big direction will be a panel here at the Fordham Conference in 2017 that will entirely consist of international trade commission administrative judges. That will be a growing area of litigation. You get a sure injunction post-eBay,13 and it will be available for any international corporation with a U.S. patent. Regardless of whether they are from Japan or the United States, they can get an exclusive grasp of the entire U.S. market. The second big panel that will be here at the Fordham Conference that is not here today will be an entire panel of Chinese and Indian officials, both of them recognizing that their competition with each other, which is going to control the international marketplace of the next decade, is probably going to be decided by intellectual property. I have been to both countries three times in the last six months. They each want a Federal Circuit. They need institutions to improve their ability to beat the other in the intellectual property game. The third panel that you will have here in 2017 will be an entire panel of FDA lawyers telling you that the interface between drug policy and patent policy needs rewriting; there needs to be a revision and reexamination of the Hatch-Waxman Act;14 and that that interface is the key. Meantime, we Federal Circuit judges will be here saying, “With all the policy shifts, we are just trying to maintain some continuity.” PROF. HANSEN: Very good. Let me turn to our Canadian and Japanese panelists again. Looking at non-obviousness and an inventive step, our Supreme Court is going to be dealing with it15 and everyone is interested in it. Looking from afar, how would you characterize your law? What is it, and is it closer to the United States or the European Union on this issue? PROF. OBUCHI: I should say that our basic point is almost the same as in terms of inventive step. But I think that on this issue application on each concrete case is important. Such applications could be different in the States or in Europe or in Japan. Actually, in Japan some argue that the Japanese inventive step generally is too strict, the U.S. non-obviousness is too lenient, and the European inventive step stands in-between. That is a rather common perception among some Japanese patent lawyers. I am not quite sure whether this general statement is right or not, but it is really difficult to generalize the issue of inventive step because the issue is very fact-specific and may vary according to each technological area, even each case. Application is very, very important. PROF. HANSEN: That’s good. Roger? JUDGE HUGHES: I tend to agree with Lord Hoffmann that obviousness or inventiveness is really a matter of individual impression to the trial judge. While we do have a set of rules that are not different from the U.S. or the U.K. set of rules, it really boils down to 14 Drug Price Competition and Patent Term Restoration Act of 1984, Pub. L. No. 98-417, 98 Stat. 1585 (codified as amended at 21 U.S.C. § 355 and 35 U.S.C. §§ 156, 271, 282 (1984)) (also known as the Hatch-Waxman Bill for Patent Restoration). 15 For a discussion of the KSR International decision, see supra note 9.
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the judge sitting on the original panel. Courts of appeal can take a second look at it and the House of Lords can take a third look at it, but this sort of gut instinct that you have sitting as a trial judge is what seems to drive the day. PROF. HANSEN: So what does that mean actually, that everything is a crap shoot? JUDGE HUGHES: No. You do it on a principled basis. I mean you just don’t sit down there and do it. PROF. HANSEN: A principled crap shoot. And, of course, then when you throw in juries, it just really goes all amok, doesn’t it? JUDGE HUGHES: We have no juries. PROF. HANSEN: I know. The United States does, though. MR. ELOSHWAY: I wanted to jump in here on one point. This gets back to the discussion that we were having earlier about substantive harmonization and this question of inventive step. It is true that across the major jurisdictions the notion of what constitutes an inventive step is pretty similar. The methodology may be somewhat different, though. In the studies that we have done, the results that we have seen have indicated that there is not a great degree of difference even in the methodology. However, one objective difference as far as inventive step is applied in different jurisdictions, and one that I think ought to be taken, which policymakers in these respective jurisdictions ought to take a closer look at, is this question about the use of inventive step and secret prior art. Secret prior art refers to the earlier filed conflicting applications published later. In the United States that’s called “Section 102(e) prior art.” In most of the rest of the world, those conflicting applications are used for novelty only. Now, it seems to us that if a problem or a policy concern that is being expressed is patent thickets, the lack of an inventive step approach for secret prior art necessarily would create patent thickets. Yet, in our harmonization discussions nobody has seemed willing to seriously investigate that question. We have just been told, “Oh well, it’s not a problem in our jurisdiction because people just cross-license and things like that.” Well, they do that in the United States too, but I think that the concern is more widespread and needs to be more broadly addressed. PROF. HANSEN: Thank you very much. We have one minute. I want to ask the panelists to pick one of three answers. In the next ten years is the patent system going to improve, remain the same, or get worse? JUDGE RADER: Improve. PROF. OBUCHI: Slightly improve. MR. NOOTEBOOM: Improve. JUDGE NEWMAN: Slightly improve. MR. MARCHANT: Stagnate. LORD JUSTICE JACOB: I think it will look much the same. JUDGE HUGHES: I’m going to say get worse because the United States is going to feel the hot breath of China and India and they are going to start finding patents obvious. MR. ELOSHWAY: Maybe that’s an improvement. I would say improve. LORD HOFFMANN: No change. PROF. HANSEN: Thank you very much. A great panel.
SESSION PLENARY SESSION PART E: THE NEXT TEN YEARSI:OF IP LAW IN THE U.S. SUPREME COURT
SESSION I: PLENARY SESSION
The Next Ten Years in Intellectual Property Law: What Should Happen? What Will Happen?
Part E: The Next Ten Years of IP Law in the U.S. Supreme Court
Moderator PROF. HUGH C. HANSEN
Fordham University School of Law
Panelists DIMITRIOS DRIVAS
PROF. JAY THOMAS
White & Case LLP (New York)
Georgetown University Law Center (Washington)
PROF. GRAEME DINWOODIE
HON. PAULINE NEWMAN
Chicago-Kent College of Law (Chicago)
Judge, U.S. Court of Appeals, Federal Circuit (Washington)
LORD HOFFMANN
HAROLD C. WEGNER
Law Lord, House of Lords Parliament (London)
Foley & Lardner LLP (Washington)
PROF. TIMOTHY WU
Columbia University (New York) PROF. HANSEN: We will now look at intellectual property law in the U.S. Supreme Court. Let me introduce our panel. You all know Graeme Dinwoodie, an important and productive professor from Chicago-Kent College of Law. Tim Wu, from Columbia Law School, previously clerked for Justice Breyer. Dimitrios Drivas is at White & Case. I heard him give a review of Supreme Court cases in David Llewelyn’s IP Academy conference in Singapore, which was a fantastic talk. Lord Hoffmann of the House of Lords and Judge Pauline Newman of the Federal Circuit return from the previous session. Jay Thomas, a patent professor at Georgetown, is a real star in the firmament. Hal Wegner, now at Foley
50 S E S S I O N I : P L E N A R Y SE S S I O N & Lardner, previously at George Washington University, has an incredibly useful blog that keeps people informed. Hal usually doesn’t have strong opinions, but he might today. One overriding issue, which we will address at the end: Does it really matter what the Supreme Court says? In reality, does anyone follow it? What do we foresee that Supreme Court jurisprudence will bring us on copyrights, patents, and trademarks in the next ten years? We will then discuss the institutional issues, the extent of the impact of Supreme Court decisions, then anything else anyone wants to discuss. Let’s look at copyright first. Tim, do you want to tell us what you see in your crystal ball? PROF. WU: I looked at how often the Supreme Court takes these cases. Over the last fifteen years, it has taken about eight cases, which suggests about one every two years. So we should be due for a couple. I will give you my guess as to what might be the most likely kinds of cases running through the system that might get up to the Court. The Supreme Court, in my experience — and that is limited to clerking there for a year and reading hundreds of cert. petitions — has formal criteria for why it takes cases. There are 10,000 cases. Obviously, it chooses about eighty to a hundred, so it is not going to take every case. It tends to take cases where it feels that there has been some disturbance in the force. In an area like copyright, which is not a bread-and-butter Supreme Court case, it takes a case because it thinks (a) there is something strange going on here, and (b) it thinks it might be a fun, or even a sexy, case to get involved in, in some way or another, that it might be exciting. That’s my guess as to why the Supreme Court wants to get involved in a particular case. Now, that is based on the old Rehnquist Court, and maybe this Court is different. But you can only extrapolate from what you know. Based on those criteria, I would guess the leading candidate, if we look at the current cases, if it makes it through appeal, would be Google Book Search,1 a case of which everyone in this room is no doubt aware. It seems to have all these elements that make the Supreme Court interested in a case. The Supreme Court has become more interested in technology. Some of the Justices have computers now, or actually most of them. A few of them have that email or something that they can coordinate with basketball games. So there is now the idea that maybe this whole computer revolution thing might be important. Obviously, in Grokster2 they were excited about that. Google Book Search has these kinds of classic elements: authors and publishers, the virtual library, the start-up company. It has the narrative elements that excite the Supreme Court, in my experience. So I would put that near the top. Other likely cases: Some kind of Section 512 case, if they survive appeal and non-settlement. We have one ongoing litigation case, Viacom v. YouTube,3 but that is not the only ongoing Section 512 case. The Supreme Court has not looked at that part of the Digital Millennium Copyright Act (DMCA)4 yet, so I imagine there is some interest in trying to leave its own stamp on what Section 512 means. Another case, which may seem a little less likely to some people in the audience, is I can imagine the Supreme Court might eventually get involved in the Bridgeport sampling cases.5 I say that because in my experience one way in which a court is more likely to be 1 See Author’s Guild v. Google Inc., No. 05-CV-8136 (S.D.N.Y. Nov. 30, 2005); McGraw-Hill Cos. v. Google Inc., No. 05-CV-8881 (S.D.N.Y. Nov. 8, 2005). 2 MGM Studios v. Grokster, Ltd., 545 U.S. 913 (2005). 3 Viacom Int’l, Inc. v. YouTube, Inc., Case No. 07-CV-2103 (S.D.N.Y. Mar. 13, 2005). 4 Digital Millennium Copyright Act (DMCA) of 1998, Pub. L. No. 105-314 (codified at 17 U.S.C. § 512 (1998)), available at http://www.copyright.gov/title17. 5 Bridgeport Music, Inc. v. Dimension Films, 383 F.3d 390 (6th Cir. 2004).
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noticed by the Supreme Court is when it says, “We are going to do something different than the rest of the law.” In Bridgeport they basically say that “the de minimis rule for sampling is going to be different here than it is in the rest of, not only copyright law, but even the rest of law at large.” As we have seen in a lot of cases, the Supreme Court is interested when a court says, “We think this law or this statute is going to work different than the rest of common law.” That is something that piques their interest. They may have something to say about that. I will end here with less likely things but possible things. I think it is possible that the Supreme Court will take some kind of preemption case. If you look carefully, there is a lot of strange state law floating around that is vaguely copyright-related, often written for a single author or for one work. If you get pushed into it, there is a lot of funny state law that is around, and maybe related to telecom or whatever. The Supreme Court likes preemption cases, because it is all about the federal courts and state courts. They love that stuff. Then, finally, there is a remote chance that a DMCA Section 1201 case having to do with protection of digital rights management (DRM) would get up to the Court, although I think, after garage doors and print cartridges, those questions seem to have fizzled and they do not seem as exciting. That’s all I am going to say. PROF. HANSEN: Their age group is such that they are not very digitally adept. To what extent in a digital copyright case would they rely more on a clerk? PROF. WU: That is a good question. I think they rely a little bit on the clerks to tell them the facts, but they definitely have their opinions, even when it is a digital case. The way a clerk might make a difference is if the clerk knows a lot, he will maybe convince the Court that the facts are different than the way the parties are seeing them, or something like that. They have had enough Internet cases. Justice Stevens, who was around and active before radio, is the man who wrote ACLU v. Reno.6 Particularly he, and also Breyer, felt quite comfortable. Souter, of course, wrote Grokster.7 So once they’ve done one, I think they feel they are competent to do more. PROF. HANSEN: Now that you’ve mentioned some individuals, how would you assess the Justices in terms of — I know this is very broad, but this is all we have time for — pro IP, neutral, or anti IP? I know that’s not a sophisticated analysis. PROF. WU: I think there are a couple people who are anti. I will just use the terms you used. On the vaguely anti-IP front, you would have most clearly Breyer and Stevens, occasionally joined by Scalia. Neutral, I would guess Thomas. Kennedy is an unknown element because he loves the First Amendment and he loves big First Amendment cases, and some of these fair use cases tend to have a First Amendment aspect, and you can talk about pamphleteering and the early republic. So you don’t know where he is going to end up. I don’t know anything about Roberts, although I know he likes P.G. Wodehouse, so he might have a taste for the absurdity of the fair use doctrine. PROF. HANSEN: Very interesting. Thank you. Let’s move to trademarks. Graeme? PROF. DINWOODIE: I think that the most revealing thing to do in looking at the Rehnquist Court in trademarks is to look at the cases they took and the issues that were 6 7
Reno v. ACLU, 521 U.S. 844, 117 S. Ct. 2329, 138 L. Ed. 2d 874 (1997). MGM Studios v. Grokster, Ltd., 545 U.S. 913 (2005).
52 S E S S I O N I : P L E N A R Y SE S S I O N raised, and then compare the way those cases were decided. In a lot of cases, constitutional or quasi-constitutional issues were raised, to be sure, in part, because many of them were trade dress cases, with which the Court has been fascinated for a while. But you also had Dastar.8 In every single one, they ducked the constitutional issue. The Court did not want, in my view, to be making large pronouncements about where it wanted trademark law to go. It was essentially resolving circuit splits in almost every single case. They came out with a relatively narrow statutory interpretation, a pretty minimalist approach to the way of resolving trademark cases. In fact, the main values that informed the Rehnquist Court, and I assume will still inform the Roberts Court because the changes I don’t think are that significant — in fact, Roberts argued TrafFix9 successfully — were prudential values. They were values such as certainty, which you see stressed in almost every single case; values ensuring that defendants are able to get rid of cases that are nuisance cases with summary judgment where the standards are clear enough. These are pretty small. I don’t mean they are unimportant, but there is not grand vision for what they want to do with trademark law. But the signal, to the extent there is a signal that the lower courts have taken, is that the Court is skeptical of overprotection. This is particularly true on trade dress, but I think you can see it more generally. You see it even in what I think was the tortured statutory interpretation in Victoria’s Secret.10 The signals that they were sending, and have been consistently sending, are likely to continue for a while: a caution against overextension of trademark law, but not based upon some real grand vision of what trademark should be doing; more based upon pretty small lower-order set of values, such as certainty, certainty for competitors in particular. PROF. HANSEN: Excellent. Thank you Who wants to start off on the next ten years in patents? Hal? MR. WEGNER: I would like to echo what Tim Wu said. First, I would like to touch on which is pro business and which is pro patent. First of all, Breyer and Stevens are very anti-patent, however you slice it. I had a debate with Rob Merges in Dennis Crough’s blog a while ago and he was pointing out how pro business the current Court is. I said, “Well, that might be anti patent in the classic sense, because if you don’t need an injunction, maybe you don’t want strong patents.” I think that is a matter that is open for discussion. I have three points. First, patents have become very important in the economy, and they are perceived as important in the economy. I think if you turn the clock back to 1982 and ask if patents were as important then as they are now, I do not think the Supreme Court would have tolerated the creation of a Federal Circuit for patents; they would have wanted to have it all for themselves. That is just my offhand remark. They are going to take patent cases from time to time. They get very visible press. I have no connection to the Vonage case,11 but this whole field of technology might get shut down. It is in the newspapers every day.
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Dastar Corp. v. Twentieth Century Fox Film Corp., 539 U.S. 23 (2003). TrafFix Devices, Inc. v. Marketing Displays, Inc., 532 U.S. 23 (2001). 10 Moseley v. Secret Catalogue, Inc., 537 U.S. 418 (2003). 11 Verizon Servs. Corp. et al. v. Vonage Holdings Corp. et al., No. 06-CV-0682 (E.D. Va. June 12, 2006); Verizon Servs. Corp. et al. v. Vonage Holdings Corp. et al., No. 07-1240 (Fed. Cir. Apr. 25, 2007), available at http://www.ll.georgetown.edu/Federal/ 9
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KSR,12 the problem of bad patents. The previous panel talked about bad patents. It is not a question of how many hours examiners spend. If you have a few hundred thousand patents that go through the Patent Office every year, you are going to get a handful of really bad stinkers, things that should be weeded out. Until the United States gets a good, solid, post-grant administrative revocation system to weed out the KSRs of the world, the Federal Circuit and the Patent Office are both going to be blamed for having a bad standard of patentability, which has nothing to do with why these patents are out there. We need to have that. I am not optimistic we will get that. PROF. HANSEN: What is the Supreme Court going to do in KSR? MR. WEGNER: They are going to reverse. PROF. HANSEN: And do what? MR. WEGNER: I don’t know. They are troubled by it. There will be at least two opinions. PROF. HANSEN: They just want to slap around the Federal Circuit a little bit. MR. WEGNER: No, I don’t think they want to do that. They are going to probably say that motivation is one of the factors to consider. PROF. HANSEN: It’s hard to tell. MR. WEGNER: That’s what’s fun. For people who enjoy chaos and making new predictions, this is the Hal Wegner Full Employment Act of 2007. Another area — I don’t see in the near future — is that we get a Federal Circuit of the future that has a diversity of judges, Last week, Don Dunner defended the Federal Circuit — he didn’t have to — at the twenty-fifth anniversary celebration of the court. He said, “The judges are all extraordinarily qualified.” Well, that’s a non sequitur. Sure they are qualified, but there is no diversity at that court. There are only two trial judges, both from the Court of Claims, and there has never been a single federal district court judge elevated to the Federal Circuit. There is virtually no patent litigation experience there. You are going to get wildcard rulings that go here, there, and everywhere. And above all, the biggest problem right now at the Federal Circuit is its failure to resolve its balkanized precedents through en banc review. PROF. HANSEN: Hold on, Hal. Let’s not focus too much Federal Circuit. There is going to be a whole session on Federal Circuit.13 Let’s stick to the Supreme Court. MR. WEGNER: That is where the Supreme Court is going to be going, wiping the behinds of the Federal Circuit for failure to clean up their act. PROF. HANSEN: Jay, what do you think?
12 KSR Int’l v. Teleflex, Inc. et al., 550 U.S. ____, 127 S. Ct. 1727 (2007). [Note: After the conclusion of the Conference, the Supreme Court decision was handed down Apr. 30, 2007 (holding that Graham v. John Deere Co., 383 U.S. 1 (1966), controls obviousness; that “the results of ordinary innovation are not the subject of exclusive rights under the patent laws”; and warning that a rigid application of the teaching/suggestion/motivation (TSM) test as a litmus test for obviousness is inconsistent with the Graham framework, but stopped short of rejecting the TSM test outright. Simply put, the TSM shortcut for an obviousness analysis is no longer available. The Court’s decision focuses the obviousness spotlight back onto the framework that has controlled the issue for more than forty years, forcing everyone who has grown comfortable with the shortcut TSM test (including the Federal Circuit, the PTO, and the patent bar) to return to full Graham analyses when assessing the obviousness of patent claims. Importantly, the Court’s opinion touches on several other issues, including the roles of “hindsight bias” and common sense in an obviousness inquiry, a question about the rationale for affording a presumption of validity to the patent-in-suit, which avoided a Graham analysis during prosecution, and a rejection of the rigid rule that “obvious to try” is per se insufficient to show obviousness. Decision available at http:// www.supremecourtus. gov/opinions/06pdf/04-1350.pdf. 13 See, infra this issue, Session V, Part C, Courthouse Relationships: The Federal Circuit and the Supreme Court; the Court of Appeal and the House of Lords; and Member State courts and the Court of Justice.
54 S E S S I O N I : P L E N A R Y SE S S I O N PROF. THOMAS: Following Hal is always a challenge, but I will try to match his eloquence of expression. There is no doubt about it that if you are having a panel on intellectual property in the Supreme Court, plainly patents is where the action is, Hugh. Thanks for saving the best for last. There is no question the Supreme Court is taking more patent cases. From 1950–1982, the Court took about one case per term. With the advent of the Federal Circuit — again, that is our court of second instance, which has mostly exclusive jurisdiction over patent cases — they took five patent cases from 1983–1994, with only one actually involving a core patent law issue. From 1995–2005, there were twelve patent cases in eleven terms, with seven of those involving core patent law issues. Now we are seeing two, three, four patent cases per term, with two or three of those involving core patent law issues. I think that trend will continue. I think the era of a patent specialist or a patent lawyer arguing cases before the Supreme Court is over. We have seen that already, and I think it is basically done. So we will see general Supreme Court specialists arguing before the Supreme Court. The sense is that arguing before the Federal Circuit and the Supreme Court are two different tribunals, and you need different skills and different kinds of briefs. One upshot of that is if you read a transcript of the argument and you consider yourself steeped in patent law, it is best not to eat or drink during that experience because you may be choking or spitting things out, during that period of time. PROF. HANSEN: I agree. So you think this is not a good trend, I’m sensing, Jay? PROF. THOMAS: I think it will change the voice of progressive patent policy and the ability of the Supreme Court to act in that capacity. Two other quick trends. The Solicitor General is playing a powerful role. The United States runs a big law firm, called the Department of Justice, and one of the entities in that law firm is the Solicitor General. That person argues before the Supreme Court. The Supreme Court will often ask the opinion of the Solicitor General about whether a case should be heard. In patent cases, it seems that the opinion of the Solicitor General is given great weight. So one thing that private industry is trying to do is recruit the Solicitor General, essentially to act like a fourteenth circuit, an alternative voice of patent law that can be compared to the Federal Circuit rulings. The last point, quickly, is we have a Chief Justice who likes unanimous opinions. So I think reading Supreme Court opinions for the United States is going to be more like reading European Court of Justice opinions. They will be unanimous, opaque, and ultimately unsatisfactory. PROF. HANSEN: Yes, I think there is a trend. It is true in copyright and trademarks too. If you read the oral argument transcripts, it’s the blind leading the blind. But it is a basic policy approach rather than any sophisticated, innovative policy that you get out of that trend, I think. Judge Newman? JUDGE NEWMAN: I hadn’t thought that I would be here disagreeing with three of the people whom I admire so much, who have been stalwarts in our business. Let’s look at a bit of the reality of what has been happening in the Supreme Court. The Supreme Court just took another case from our court, a tax case. The Supreme Court has taken as many tax cases from the Federal Circuit as patent cases. There has been in the last year or two a spike — I call it a spike — in the absolute number of patent
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cases that have been taken by the Court from the Federal Circuit, following several years where no cases were taken. In contrast, last year and the year before, the Court took more Native American appeals from our court than they did patent cases, or in fact than they did tax cases. Now, what are we to make of that? Is there something dramatic happening in the American Indian community that has the attention of the Court? Cases come before the courts in the fullness of the evolution of the issues. I mentioned in the prior panel that about half of the nation’s economy involves intellectual property of various sorts. That is very new. The Supreme Court Justices are, despite most of them being younger than I, still not unaware of what is happening in the world and what is happening with the development of national and international economies. At the same time, a few of the issues which have been before the Federal Circuit have been percolating up and down, still in our court, but with majority and dissenting opinions airing and exposing some of the most difficult questions in our field that have come to the courts. We had one a year or two ago, where a panel of our court thought that the Supreme Court’s holding about the presumption of monopoly was binding upon us and was probably wrong. The Supreme Court took that at the urging of our court to liberate the courts and the public from their own precedent going back over the years. So it is interesting to see what happens. The Court is, it seems to me, affected by the amount of attention, by how much they are told of the implications of a particular decision. The Court may have been reading in the press — and I won’t get into who is behind all of this press exposure — that there is something wrong with the patent system, that patents in certain fields shouldn’t exist. As someone said earlier, there are statutes, there is precedent; if changes are to be made, they need to be made either by the Supreme Court — they cannot be made by us; we are bound by Supreme Court decisions — or by the legislature. It is notorious that our Congress has not reached consensus, any more than the business communities have reached consensus, in many of the areas that we have been talking about. So I for one, and I think my entire court, very much welcome the attention that patents and other areas of intellectual property have been getting from the Supreme Court. We don’t see it as an attempt to straighten us out, correct us, slap us down, or anything else. These are issues that are extremely important to the nation and that benefit very much from the attention that a case gets when it reaches the Supreme Court — the amicus briefs, the vested interests, the powerful public exposure. It is what this field of law at this stage in time in the evolution of science and technology needs. PROF. HANSEN: Polly, how many Supreme Court decisions in patents have you agreed with? JUDGE NEWMAN: Well, of course, there have been those that have adopted my dissent. That’s most of them. PROF. HANSEN: That is probably all of them really, isn’t it, frankly? JUDGE NEWMAN: I agree with all of them. I agree with the MedImmune decision,14 for instance, although the implications are going to be extremely difficult. I have always felt it should be easier to challenge patents, that patents should not be treated differently than any other commercial asset. I don’t know of any that I disagree with. I don’t know what is going to happen in KSR.15 It is extremely difficult. I know how 14 Medimmune, Inc. v. Genentech, Inc., 427 F.3d 958 (2005), vacated and remanded, 127 S. Ct. 764 (Jan. 9, 2007), available at http://www.supremecourtus.gov/opinions/06pdf/ 15 See KSR, supra note 12.
56 S E S S I O N I : P L E N A R Y SE S S I O N hard my court wrestled to try and find objective standards for obviousness. I hope the Supreme Court can do better. PROF. HANSEN: Thanks. Dimitrios, do you want to hold forth here a little bit? MR. DRIVAS: Yes, thank you. I think in the last twenty years we have seen a strengthening of the patent system in the United States, and uniformity, and a lot of that has to do with the Federal Circuit. At the same time, we have seen a transformation of the industries that really are important to our economy — financial services, information, biotechnology, and the like. With that change, I think there is a reaction, first in the business community, then in the public at large, and the Supreme Court takes note of that. There is some measure to bring things back to some middle point that pleases everyone. I think that is what has happened in the last two terms. We have seen seven cases, one appeal dismissed, LabCorp.16 We are awaiting two more important decisions. What I expect after KSR and Microsoft v. AT&T 17 is that the Supreme Court will probably step back and see what happens, see how everything falls back into place, especially with the decision on obviousness out of KSR. Maybe they will look to see if that solves the business method problems they seem to be having. If you look at the dissent in the dismissal of LabCorp and Justice Kennedy’s concurrence in eBay,18 you will see there are a lot of troubling aspects to the business method expansion on the Supreme Court. Now, even the greatest advocates of business method patents will say that there are some business method patents that just should not be issued; we just don’t understand why they are there. But they are also very important to our new economy because they protect some sort of innovation that needs patent-type protection. What that balance is I don’t know. So that is where I expect that the Supreme Court may have an interest. But otherwise I think things will somewhat slacken. PROF. HANSEN: Lord Hoffmann, do you have any comments from afar, from across the pond as we say? LORD HOFFMANN: I was listening with fascination to this discussion of the Supreme Court, mostly about what kinds of cases is it likely to take, what its agenda is, what are the views of the individual Justices, and so forth. The European Court of Justice you cannot sensibly ask any of those questions. It has a great deal in common with the Delphic Sybil. For one thing, the Delphic Sybil had no control over her docket, so she had to answer the question if you sent it. The rule in Europe is that if we have any question that is in the slightest bit of doubt and that involves a question of European law, like the Trademark Regulation, we have to bundle it up and send the question to Luxembourg. No further dispute about the matter. PROF. HANSEN: How many have you sent to Luxembourg? LORD HOFFMANN: Oh, quite a few personally. I sent one about a week ago about arbitration. PROF. HANSEN: In IP how many have you sent? LORD HOFFMAN: Two on trademarks. Then, like the Delphic Sybil, it takes a long time to get an answer. 16 Lab. Corp. of Am. Holdings v. Metabolite Labs., Inc. et al., 548 U.S. ___; 126 S. Ct. 2921, slip op. (June 22, 2006) (Breyer, Souter, and Stevens, J. dissenting), available at http://www.supremecourtus.gov/opinions/ 05pdf/04-607.pdf. 17 Microsoft Corp. v. AT&T Corp., 550 U.S. ____ (2007) [Note: Subsequent to the Conference, the case was decided Apr. 30, 2007, available at http://www.supremecourtus.] 18 eBay Inc. v. MercExchange, LLC, 126 S. Ct. 1837 (2006).
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PROF. HANSEN: We are doing a whole half-hour on the European Court of Justice later in this session.19 My thesis on the Supreme Court is that, to the extent that people actually listen to or follow it, stare decisis is dead, if it ever existed. It is really what respect they have for that institution, and also whether the institution actually polices its decisions. The Supreme Court has not policed its IP decisions up until recently. By that I mean if something goes wrong, if they say one thing and all the lower courts say something else, they do not grant cert. and correct it. Constitutional law they would do in a second. But they haven’t done that for IP law. They are starting to police their patent decisions. A judge on a circuit court, other than the Federal Circuit, would realize that only one IP case out of a million gets granted cert. by the Supreme Court. Even then it would only be for an issue they haven’t addressed before. So, I am pretty free to do whatever I want and not have to worry about being reviewed, let alone reversed, by the Supreme Court. So if I want to reach what I consider the right decision in the case, if the Supreme Court precedent leads in that direction, then fine, if not, then I go my own way discretely. For example, the 1964 decisions in Sears20 and Comco21, two companion cases concerning trademarks and unfair competition, were never followed by lower courts, or for that matter, by the Supreme Court thereafter. So, in terms of the future, to what extent does it matter as a practitioner, on the ground, what the Supreme Court says in an IP case? MR. WEGNER: I think the big impact is there are so few Supreme Court decisions — like let’s take KSR.22 It will be a reversal and it won’t be understood at the lowest levels, at the Patent Office, at the examiner level. But it will be taken as a message, “We are not being tough enough.” It will have a reaction that way. I do not think it will have much impact at the trial level, but it will have a huge impact at the Patent Office level. It will take them a dozen years to figure out what is said. PROF. HANSEN: Tim, I can see you are upset over this. PROF. WU: No. I am not upset about that. I was going to say I don’t see that trend you are talking about as much in copyright. It seems to me the trend — and I’m not a patent person — is strongest in patent and trademark, where courts, like the Federal Circuit, who take more ownership over patent, are slowly, quietly moving away from Supreme Court precedent, in software for example. I just don’t see it in copyright, but maybe you see things that I don’t see. PROF. HANSEN: Which particular case are you thinking of ? PROF. WU: Let’s say Feist.23 PROF. HANSEN: Feist is an example where the Court at least in one case directly on point was not followed. Feist was in 1991. At the same time, the Fourth Circuit was hearing an appeal in the Payphone case.24 They specifically delayed their decision until Feist was decided because both were sweat of the brow cases. By the way , Lewis Powell, retired Supreme Court Justice, was on the panel. After Feist came down and the Fourth Circuit decided Payphone. It was a per curiam, unpublished decision, that was not to be cited. It then became a sweat-of-the-brow case in selection and arrangement clothing. One one page for each state the plaintiff listed all the requirements to operate a payphone. There was no selection as everything was included. There was no arrangement other than 19 20 21 22 23 24
See, supra this issue, Session I, Part F, The Next Ten Years of IP Law in the European Court of Justice. Sears, Roebuck & Co. v. Stiffel Co., 376 U.S. 225 (1964). Compco Corp. v. Day-Brite Lighting, Inc., 376 U.S. 234 (1964). See KSR, supra note 12. Feist Publ’ns, Inc. v. Rural Tel. Serv. Co., Inc., 111 S. Ct. 1282 (1991). U.S. Payphone, Inc. v. Executives Unlimited of Durham, Inc., 18 U.S.P.Q. 2d 2049 (4th Cir. 1991).
58 S E S S I O N I : P L E N A R Y SE S S I O N a simple listing on the page, no particular or even minimally creative arrangement. The 4th Circuit nevertheless found copyrightable selection and arrangement. It emphasized the amount of effort even when discussing selection and arrangement. In one conclusory sentence it said that the evidence suggested an original selection and arrangement without detailing in any way why that was so. And they only said that the evidence “suggested” an original selection and arrangement. Of course, the civil law standard is proof by a preponderance of the evidence not that the evidence suggests something. In short, despite Feist the Fourth Circuit protected sweat of the brow. And Lewis Powell was on the panel! Part of the problem is that Feist was a sweat of the brow case where there was neither sweat of the brow nor free riding. Compiling of white pages phone directories used to require sweat of the brow but now the computer does all the work when the person signs up. Moreover, the defendant offered to pay for the listings and, in fact, paid other phone companies for their listings. So it was an easy case for the Supreme Court on the facts. Where you have cases with tremendous effort and free riding, it is much more difficult and I think courts have and will find a way to find a violation. The misappropriation underpinnings of the sweat of the brow doctrine I think still controls. Keep in mind that in Feist, Justice O’Connor said twice you could look to state unfair competition law to protect sweat of the brow. What effect Feist did have was to remove the more extreme versions of sweat of the brow doctrine such as not being able to take any facts from a compilation. But this is because courts agreed with that part of it. PROF. WU: I don’t think people will be asking for a database protection law — which obviously they haven’t been asking for too strongly lately — if people thought Feist had no impact or they could get what they wanted anyways. I think the Copyright Office will not give you the registration and the pure set of facts that you might have wanted. My sense is that the trend you are talking about feels a lot stronger in the patent context, and maybe in trademarks. And software is the one I think about. MR. DRIVAS: I wouldn’t say that. I mean take the MedImmune decision,25 which on a declaratory judgment criticized the Federal Circuit’s “reasonable apprehension” test in a footnote.26 I did not read that as overturning. I did not see any other proposed test in the MedImmune opinion. But the Federal Circuit now in Sandoz27 has totally thrown it out. So somebody took notice of a footnote. PROF. THOMAS: I had the same comment in mind. I agree. I believe the Federal Circuit has responded to Supreme Court rulings. But I also agree with Hal that we have to be realistic about whether a Supreme Court non-obviousness standard will actually have any effect on patent grants. The Patent Office examining corps is a very transient population, 1,000–1,200 people hired every year, and increasingly working out of home offices. PROF. HANSEN: First of all, I am not saying the Federal Circuit, or other circuits, never reaches the same result as the Supreme Court. I am saying these courts when they reaches the same results do so probably because they agree with the Supreme Court, rather than because it is precedent. And more recently, the Federal Circuit might also be following the Supreme Court as a way of laying low to get the Supreme Court off its back. Unfortunately, we actually are out of time. I want to thank our panel for a great session. 25 Medimmune, Inc. v. Genentech, Inc., 427 F.3d 958 (2005), vacated and remanded, 127 S. Ct. 764 (Jan. 9, 2007), available at http://www.supremecourtus.gov/opinions/06pdf/ 26 Id. n.11. 27 Savient Pharms. v. Sandoz, No. 07-1081 (Fed. Cir. Dec. 28, 2006).
I: PLENARY PART F: THESESSION NEXT TEN YEARS OFSESSION IP LAW IN THE ECJ
SESSION I: PLENARY SESSION
The Next Ten Years in Intellectual Property Law: What Should Happen? What Will Happen?
Part F: The Next Ten Years of IP Law in the European Court of Justice
Moderator PROF. HUGH C. HANSEN
Fordham University School of Law
Panelists PROF. GRAEME DINWOODIE
WILLIAM ROBINSON
Chicago-Kent College of Law (Chicago)
Freshfields Bruckhaus Deringer (London)
LORD HOFFMANN
HON. KLAUS GRABINSKI
Law Lord, House of Lords, Parliament (London)
Presiding Judge, District Court (Düsseldorf)
PROF. SIR HUGH LADDIE
PROF. ALAIN STROWEL
Rouse & Co. International; University College London
Covington & Burling LLP St. Louis University (Brussels)
RT. HON. LORD JUSTICE JACOB
Court of Appeal, Royal Courts of Justice (London) PROF. HANSEN: Now we are going to look at the future of IP law in the European Court of Justice (ECJ). Let me introduce the panel. We have William Robinson from Freshfields Bruckhaus Deringer in London; Graeme Dinwoodie who seems to be on every panel of this conference, and I am glad of it; The Honorable Klaus Grabinski, Presiding Judge at the District Court of Düsseldorf; Lord Hoffmann; Lord Justice Robin Jacob; Professor Sir Hugh Laddie; Alain Strowel, a practitioner at Covington & Burling and a professor at St. Louis University in Brussels. We will start off with William Robinson, who worked for the UK Judge on the ECJ, Judge Edward, who was one of the best judges on the Court. William spent four years at
60 S E S S I O N I : P L E N A R Y SE S S I O N the Court. We are lucky to have someone who has seen it all from the inside. William will give us some talking points for the ECJ discussion. MR. ROBINSON: Top-line points. I think the Court of Justice has and will continue to struggle with IP and its role within the EC legal system in the next ten years. I don’t think it should come as much of a surprise that the ECJ is trying to forge, whether with legislation or without legislation, a more harmonized EC IP system. That is part of its mission. That is what it is asked to do by the EC Treaty.1 At the same time, it should not come as any surprise that that has created tensions throughout the system, particularly with national courts. Now, given that it is in its infancy, let me look back over the last ten years and try to find some pointers for the next ten years. I am going to give you the top four points and then see how far I can get into the detail. 앫 Point 1: Making European Community legislation work is going to be a major task in the next ten years, in particular in respect of the Enforcement Directive.2 앫 Point 2: Resolving the tension between the ECJ and national courts in the IP arena. There has to be some sort of way of working this out. 앫 Point 3: I believe there are a whole series of institutional issues that will arise for the ECJ in the next ten years. I will go into those in a little more detail. 앫 Point 4: The fourth area where I see enormous developments over the next ten years is in respect of the IP/antitrust overlap. It seems to me that that is an area that is bound to develop for a number of reasons. Let me take these in order. As to making Community legislation work, the ECJ has not been blessed with the legislation it has to interpret. It has been passed a series of hospital passes by the Community legislators, which has pitted it against various national interests over the last ten years. One only has to look at the phrase “likelihood of confusion,” including “likelihood of association,” in the Trade Mark Directive,3 to see that the Court was bound to run into problems. To my mind, the Enforcement Directive is going to create similar types of problems. I think it is a fantastic attempt by the Community legislature to try to harmonize enforcement. There have been a number of references this morning about the importance of enforcement. The problem is that national judges, if they are wedded to national IP substance, will be even more wedded to their national procedures. Whereas you have substantive forum shopping, on the one hand, you are now going to have claims that the IP Enforcement Directive provides a counterpoint to national procedure. Whereas a claimant might choose a “slow” jurisdiction because they particularly want to make use of the procedures in that country, the defendant will argue some sort of direct effect or interpretation of the 1 Treaty Establishing the European Economic Community, Mar. 25, 1957, 198 U.N.T.S. 11, 1973 Gr. Brit. T.S. No. 1 (Cmd. 5179-II) [hereinafter EC Treaty], amended by Single European Act, 1987 O.J. (L 169) 1, [1987] 2 C.M.L.R. 741, in Treaties Establishing the European Communities (EC Off’l Pub. Off. 1987). 2 Directive 2004/48/EC of the European Parliament and of the Council of 29 Apr. 2004 on the enforcement of intellectual property rights, 2004 O.J. (L 195) 32–36, available at http://europa.eu.int/eur-lex/pri/en/oj/dat/2004/ l_157/l_15720040430en00450086.pdf. 3 First Council Directive 89/104 (EEC) of 21 Dec. 1988 to approximate the laws of the Member States in relation to trademarks, 1989 O.J. (L 40) 1, available at http://eur-lex.europa.eu/LexUriServ/site/en/consleg/1989/L/ 01989L0104-19911223-en.pdf.
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Enforcement Directive to try and speed things up. And that extends to injunctions, to evidence, and to costs of the proceeding. This is an area fertile for debate between national courts and the ECJ. That brings me on to my second point: What can be done about the difficult relationship between national courts and the ECJ? Having worked within the ECJ, I believe it is fair to say that the IP area has been particularly problematic in terms of this relationship. Other areas of Community law have not been so heavily imbued with conflict between national courts and the Community Court, or at least “creative tension” at its highest. To my mind, there is going to have to be some sort of redefinition of these roles. There has already been reference earlier to the Article 234 process, national courts making references, and the instances within which they should be making references. Secondly, Advocate General Sharpston in her recent opinion in Boehringer,4 yet another repackaging case, has talked about the need for national courts to get on and apply high-level principles, and not to allow clever national lawyers to force more questions into the ECJ, thereby essentially turning a generalist court into a minutiae-dealing IP court. So there is a real need to work out that relationship. Where does the ECJ see itself ? Is it just going to set the high-level principles, or does it want to be a proper, fully-fledged IP court? My third concern, institutional issues. The ECJ has suffered with its internal inconsistency in IP cases. This has been both within the ECJ’s own case law and between the various chambers of the Court of First Instance (CFI). The ECJ is going to have to find a way of trying to get the answer right the first time, rather than going round and round the issues until it gets to a decision that it is in fact comfortable with. Linked to that is whether or not the proposal for a specialist IP tribunal should be taken forward. The CFI put forward that suggestion back in 1998, on the back of an estimation of between 200 and 400 IP cases coming from Alicante every year. That has not happened. They are at about 140 cases a year. But it still makes up 25 percent of the CFI’s caseload. Is there a reason, on the back of that and on the back of the consistency issues, to look at the development of a third level of jurisdiction — that is to say, an IP tribunal? Turning very, very quickly to the Community and European Patent jurisdiction that was mentioned earlier, there may be a concurrence of wills, but is it possible legally? If it is within the Community framework, is the ECJ going to take a robust position, as it did in respect of the European Convention on Human Rights accession proposal? Lastly, in antitrust there is a whole series of unresolved issues. National courts are playing a greater role in antitrust enforcement in the European Union. They are required to do so under the modernization rules. There is a Community Green Paper to try and improve the role of national courts in enforcement through damages actions.5 PROF. HANSEN: Thank you very much, William. Whatever you have to say further we can do in the discussion. I know that sounds brutal. That was fantastic. You have given us more food for thought than maybe we can even chew on in this. 4 Case C-348/04, Boehringer Ingelheim and Others v. Swingard; Boehringer Ingelheim and Others v. Dowelhurst, E.C.J. (Opinion of Advocate General Sharpston, Apr. 6, 2006), available at http://curia.europa.eu/jurisp/ cgi-bin/form.pl?lang=EN&Submit=Rechercher$docrequire=alldocs&numaff=C-348/04&datefs=&datefe=&no musuel=&domaine=& mots=&resmax=100. 5 European Commission, Green Paper on Damages Actions for Breach of EC Treaty Antitrust Rules, COM(2005) 672 (Final) (Dec. 19, 2005), available at http://eur-lex.europa.eu/LexUriServ/LexUriServ.do?uri= CELEX:52005DC0672:EN:NOT.
62 S E S S I O N I : P L E N A R Y SE S S I O N The first thing I will ask you is: What about enlargement? Doesn’t that make the ECJ almost unworkable? MR. ROBINSON: No, I don’t think it does make it unworkable. The ECJ has reorganized itself into chambers in a way that it can still manage its caseload, it can still manage the language issue, and it can still manage the consistency issues. PROF. HANSEN: By the way, enlargement has gone to twenty-seven members of the European Union and they each have a judge on the Court. That is a massive number of people. They have no legal or judicial background. And they have to speak French. Isn’t that a nightmare. MR. ROBINSON: The language issue is difficult. French is the internal working language. The ECJ still essentially works in an hourglass system: everything comes in the twentythree languages, gets channeled through French, and then comes out in twenty-three languages. It is about as efficient in the middle as it can be. It is now moving towards English and French in the middle part. But the language issue is not an overriding issue for the Court. There isn’t the issue of cross-translation that you get in the political institutions. So that is one point. The second point is you would hope that with more personnel they could create more specialist chambers. I am sure there will be a strong drive for an IP specialist chamber. Now, that partly goes back to the power of the President of the Court in deciding which judge should be the Judge Rapporteur for a particular case. The Judge Rapporteur is the lead judge on the case, and it is that choice that will often focus the direction of the case. PROF. HANSEN: Of course, the Court did that informally, because it chose both Judge Gulman for a great number of IP cases (he didn’t start with IP expertise, but he developed it) and Francis Jacobs as the Advocate General. They worked as a team, creating a fairly consistent body of law. Do you agree with that? MR. ROBINSON: I agree with that. LORD JUSTICE JACOB: I don’t. I agree they worked together and I agree they produced a body of law. I just don’t agree with the word “consistent.” PROF. HANSEN: Well, actually you just disagree with the results, don’t you, Robin? LORD JUSTICE JACOB: No, I don’t. I think it is inconsistent. PROF. HANSEN: Okay, then you disagree. We can discuss that. I think the European Bar Association just filed a letter with the Court in which they say that they are arguing before five-judge panels and two or three of them are sleeping through the entire argument. I just spoke with someone who argued before the Court of Justice and said that two of the judges slept through the entire argument. I’m not sure why that should happen. PROF. LADDIE: They don’t do any damage that way. PROF. HANSEN: By the way, these were judges from the new Members. Actually it doesn’t matter, because the oral arguments don’t count anyway, do they? Isn’t that true? MR. ROBINSON: A smaller role. PROF. HANSEN: I like that. MR. ROBINSON: The book-dropping tradition in the middle of oral pleadings isn’t limited to the ECJ. PROF. HANSEN: William raised a number of interesting issues. Anyone want to speak to any of those? Hugh? PROF. LADDIE: I would like to say something. There has been talk about the tension between the ECJ and national courts. I know that there certainly was some tension between the ECJ and me when I was a national judge. I think one of the things that is not really properly appreciated is the really difficult job
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the ECJ has. In most judicial systems — but there is an exception here in the States — the supreme court consists of judges who have risen through the ranks and are the best and most experienced judges in the system, so they really know their stuff. What happened in Europe, of course, because of its political structure, is that each country appointed somebody to the ECJ. Lots of them were not judges at all. They were then presented with an extraordinary job of trying to make a cohesive legal system from zero. Poor dears. It would have been difficult even if they had all been judges. So it is not surprising that there are some problems created by this. That is why I think actually one of the most encouraging things about the ECJ is the creation of the CFI and its expansion and the possibility of creating specialist tribunals. That way you will end up, perhaps belatedly, getting some courts who understand what they are talking about. I feel very sorry for the ECJ particularly in the field of trademarks. Trademarks is a horrendously difficult area of IP law. It is made all the worse in Europe by having legislation that is internally inconsistent. Resolving those inconsistencies is the sort of job that needs the best and most competent IP-savvy court, and the ECJ does not fit that description. They are not good enough for the job. PROF. HANSEN: So would you say you are neutral in this issue, Hugh? PROF. LADDIE: Yes, sure. PROF. HANSEN: Judge Grabinski? JUDGE GRABINSKI: I would like to add this is not only true with trademark law. At the moment, trademark law is in the domain of Community law; therefore, the ECJ has competence to decide on these matters. At the moment, this is not the case with regard to patent law. Patent law is still national law or law under the European Patent Convention,6 and therefore not Community law. But just imagine for a second that patent law would be also in the domain of Community law. At the moment, as long as it is national law, we have in Germany on all three levels — on the level of the district court, on the level of the court of appeal, on the level of the supreme court — judges that practiced patent law for a long time, who are experienced, who know what they are doing, at least most of them. If the ECJ would have competence to decide on these matters, there is none of all the twenty-five judges who has any experience at dealing with patent law. Just imagine that this would be the last instance, the court that would finally decide, for example, how to interpret the scope of protection, what is equivalence, what is obviousness, and so on. Probably it will come down that they have a certain référendaire, who will be perhaps a specialist in patent law, and he will then decide and determine how to, for example, define equivalence. I think this perspective is not very promising. Therefore, I am quite content in this respect with the situation as it is right now. LORD JUSTICE JACOB: I agree with every word of that. The Community Patent, if it includes proposals for these judges to be deciding patent cases, will die because industry will simply say no. Their record in trademarks — and I agree they had a terrible piece of legislation to start with — is that they have had at least seventy trademark cases in the last ten or eleven years go to the ECJ, and trademark law is now more uncertain than it was when they started. If they got hold of patents, there is no reason to suppose that exactly the same thing would not happen. For that reason, I remain utterly opposed to the ECJ being involved in 6 Convention on the Grant of European Patents, signed at the Munich Diplomatic Conference for the Setting up of a European System for the Grant of Patents on Oct. 5, 1973, 13 I.L.M. 270 (1974), 1160 U.N.T.S. 231.
64 S E S S I O N I : P L E N A R Y SE S S I O N patent law. I see no useful purpose in it being involved in patent law. The European Patent Litigation Agreement (EPLA) proposal,7 where you borrow national judges and create a supernational patent court, is the way forward. As far as I can see, it is perfectly lawful, providing it is gone about in the right way. By way of an advance notice, the next edition of European Intellectual Property Review (EIPR) will contain an article mainly written by Tony Arnull, with a few additions by me, saying exactly why it will be lawful and that the European Parliament’s little provisional opinion that came out saying EPLA is not lawful can be bypassed readily.8 PROF. HANSEN: I think there has been inconsistency on trademark matters in the ECJ. Just to clarify, when Francis Jacobs and Claus Gulmann were both on a case, I don’t think there was inconsistency. You may disagree with it, but I think the decisions were consistent. LORD JUSTICE JACOB: The man who thinks that BABY-DRY and DOUBLEMINT 9 are consistent one with the other has got very special vision. They were guilty on both of them. PROF. HANSEN: I don’t think those cases were consistent. But Claus Gulmann was not the judge rapporteur on either case. And my point was that when he was the judge rapporteur and Francis Jacobs was the Advocate General, the case law was consistent. In any case, Baby-Dry and Doublemint were more the exception than the rule. Finally, I think the furor over the Baby-Dry case was ridiculous and hysterical. Professor Strowel. PROF. STROWEL: I don’t think that the ECJ will be one day a fully-fledged IP court, because it does not have the possibility to rule on many substantive IP issues, except in the trademark field. Many core IP issues, such as subject matter and conditions of protection and infringement in the fields of copyright or patent, largely remain outside the ECJ’s competence. Last year, eight out of the ten cases for referrals to the ECJ concerned trademark. This focus on trademark will continue. We might expect some fine-tuning of the trademark case law and some inconsistencies will probably disappear. It is quite surprising that we do not have that much case law in the copyright field. So far, although there is a very substantial legislative body, with seven copyright directives, we mainly have decisions on the exhaustion issue. That is not much. Sometimes the ECJ is too prudent, and that limits the impact of its decisions. The ECJ was very prudent on the interpretation of the communication to the public right, for instance. But that changed recently. The kind of U-turn from the decision in EGEDA v. HOASA10 to SGAE v. Rafael Hoteles11 is a very interesting development. In the SGAE v. Rafael Hoteles case, decided last December, the Court decided what “communication to the public” means, while it had previously considered it as a matter for national law. I think the ECJ will remain a court on “IP versus other bodies of law.” On the interface with other bodies of law, the ECJ will bring something substantial. For instance, the relationship between IP and competition will be a hot issue this year.
7 European Patent Organisation, Working Party on Litigation, Draft European Patent Litigation Agreement (EPLA), Draft Agreement on the Establishment of a European Patent Litigation System (2004), available at http://www.european-patent-office.org/epo/epla/pdf/agreement_draft.pdf. 8 Anthony Arnull & Robin Jacob, European Patent Litigation: Out of the Impasse?, 2007 Eur. Intell. Prop. Rev. 209 (2007), EIPR 2007, 29(6), 209-214. 9 Case C-383/99 P, Procter & Gamble v. OHIM (Baby-Dry), [2001] E.R.R. I-6251; Case T-193/99 Wrigley v. OHIM (DOUBLEMINT), [2001] E.C.R. II-417. 10 Case C-293/98, EGEDA v. HOASA, [2000] E.C.R. I-629. 11 Case C-306/05, SGAE v. Rafael Hoteles SL, E.C.J. (Third Chamber) (Dec. 7, 2006), 2006 O.J. (C 331) 3.
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The CFI decision in the Microsoft case will be issued before the Fall.12 There are other forthcoming decisions in the pharmaceutical field, on the relation between IP and patents, and those decisions will have an important impact. There are other areas of the law that will be considered by the ECJ. The interface between, for instance, copyright and privacy, or data protection, is as well in the pipeline of the ECJ, with the Promusicae case.13 So the ECJ case law is quite important, but not as much for ruling on the standard IP issues as for delineating the relation between IP and other bodies of the law. PROF. HANSEN: Lord Hoffmann. LORD HOFFMANN: I agree entirely with what Klaus Grabinski said about the horrors of the thought of the ECJ dealing with patent cases for the whole of Europe. I think there is an institutional problem, and that is the reference under Article 234 of the Treaty, the way in which cases get to the ECJ, which is that if there is doubt you have to refer it to the ECJ, and they then deal with it and they give an answer to the question. It would be much more acceptable if the ECJ were a supreme court for Europe, in which, if they wanted to give leave to appeal because they thought we were getting out of line with the Germans or the Italians or something like that, they could. The cases would come up through the system. National courts would deal with questions of European law. At the moment, we do not deal with any European law because we send it off to the ECJ to deal with. They, in turn, never refer to what the national courts say. So there is no European jurisprudence being built up in the national courts, where there is a certain amount of judicial expertise that you might think the ECJ could avail itself of. Therefore, it is the institutional change that I think is necessary. I would also take away their law clerks so that you could actually see what they were like when they wrote their opinions. You would then have a system under which occasionally we could even bear the possibility of the ECJ being a supreme court for patent matters because then they wouldn’t have to deal with them all the time. They could decide whether they were going to intervene or not. They could be like the House of Lords during the Napoleonic Wars, who in the song did nothing in particular and did it very well indeed. PROF. HANSEN: Graeme has not spoken yet. PROF. DINWOODIE : I am actually intrigued by Advocate General Sharpston’s comments about the minutiae that she sees at the national court level. One of the intriguing things, at least in trademark cases, is that the Court is feeling the need to intrude upon a lot of issues that I think properly should be treated as fact issues. This is perhaps because it has a harmonization impulse, and, of course, when you make them fact issues, it is quite natural in some instances for one national court to reach a different factual conclusion from another. I think, in fact, one of the lessons the ECJ probably has to learn is to live with is fact issues. We do not have a uniform European trademark law. Notwithstanding the Regulation and notwithstanding the Directive that harmonizes national law, you have discrete national markets with discrete national rights. I think the ECJ has to learn to live with the 12 Case T-201/04, EC Commission v. Microsoft [2004]; all case documents available at http://curia.eu.int/ jurisp/cgi-bin/form.pl?lang=EN&Submit=Rechercher$docrequire=all docs&numaff; decision available at http://ec.europa.eu/comm/competition/antitrust/cases/decisions/37792/en.pdf. 13 Case C-275/06, Productores de Música de España Promusicae v. Telefónica de España SAU, E.C.J. (Opinion of Advocate General Kokott, July 18, 2007), available at http://eur-lex.europa.eu/LexUriServ/LexUriServ.do?uri= CELEX:62006C0275:EN:NOT.
66 S E S S I O N I : P L E N A R Y SE S S I O N fact that certain issues are fact issues and a lot of the national courts make determinations on those, and not feel the need to try to turn them into rules into law, but instead allow them to make a sort of European override of the national court determination. PROF. HANSEN: I see we have two seconds. Thank you to the panel for a lively and frank discussion. And thank you, William, for that great introduction.
SESSION II: PART A: LEGALITY OFCOPYRIGHT UNAUTHORIZED USE
SESSION II: COPYRIGHT
Unauthorized Use of Works on the Web: What Can Be Done? What Should Be Done?
Part A: Legality of Unauthorized Use
Moderator MORTON DAVID GOLDBERG
Cowan, Liebowitz & Latman, P.C. (New York) Speakers ALEXANDER MACGILLIVRAY
PROF. JOHN G. PALFREY JR.
Senior Product and Intellectual Property Counsel Google, Inc. (Mountain View, CA)
Executive Director, The Berkman Center for Internet and Society, Harvard Law School (Cambridge, MA)
DONALD B. VERRILLI JR.
Jenner & Block LLP (Washington, D.C.) Panelists SANDRA ASTAIRS
PROF. BRIAN FITZGERALD
Assistant General Counsel Time Warner, Inc. (New York)
Queensland University of Technology (Brisbane)
MICHAEL A. EINHORN
THOMAS C. RUBIN
Ph.D., Senior Consultant; Advisor, CONSOR Intellectual Asset Management (New York)
Associate General Counsel, Copyright, Trademark and Trade Secrets Microsoft Corp. (Redmond, WA)
MICHAEL SCHLESINGER
Smith, Strong & Schlesinger LLP (Washington, D.C.)
68 SESSION II: COPYRIGHT MR. GOLDBERG: Good afternoon. If you are looking for the panel on “Unauthorized Use of Works on the Web: What Can be Done? What Should be Done?” you are in the right place. The first segment will be “Legality of Unauthorized Use.” Let me first introduce everybody. I am Mort Goldberg of Cowan, Liebowitz & Latman in New York. I am your moderator. As I have had occasion to say in the past, the moderator is like the body at the Irish wake: you are needed for the thing to take place but you are not supposed to say very much. I do not plan to say to say very much. My primary job is to enforce brevity on both those on the dais and those in the audience. As Henry VIII said to each of his wives, “I won’t keep you long.” Let me now introduce you to the dais. They are, from left to right: John Palfrey, Professor at Harvard Law School and Executive Director of The Berkman Center; Don Verrilli, a partner at Jenner & Block in Washington; Alexander Macgillivray, Senior Product and Intellectual Property Counsel at Google. We then have the panelists who will participate in a panel discussion at the end of each segment of the presentation: Michael Einhorn, Senior Consultant, Advisor to CONSOR Intellectual Asset Management; Professor Brian Fitzgerald, Queensland University of Technology in Brisbane; Tom Rubin, Associate General Counsel, Copyright, Trademark and Trade Secrets, Microsoft. The speakers who are in the segment that will follow this are Sandra Aistars, who is Assistant General Counsel at Time Warner, and Michael Schlesinger, of Smith, Strong & Schlesinger in Washington. We will now start with John Palfrey talking about legality of unauthorized use. MR. PALFREY: Thank you so much, Mr. Goldberg. That was an impressive quick introduction. I will try to cede some time back also, given the quality of the panel. This is obviously a huge topic. In the context of an intellectual property conference that has many people in the audience who are also panelists, I thought I would just tee up what I think are the key issues and then Mr. Verrilli and Alex Macgillivray no doubt will take it on, and probably spar a little bit at that point. The title of this session is Unauthorized Use of Works on the Web and what could or should be done about it. It seems to me that the first thing is to take issue, of course, as you do in law school, with the topic. There is a whole lot that is in unauthorized use of works that is just fine and, in fact, that we want to encourage. In the last panel about copyright in the future, there was a lot of discussion about the value of democratization of creativity and so forth. I think we should bear in mind that many, many uses of works that are not copyrighted are great. There are uses of copyrighted works that, in fact, are unauthorized but also are great. Those are the classic limitations like fair use and implied license, things that the Technology, Education, and Copyright Harmonization Act (TEACH)1 protects in the United States. Just as an opening salvo, I would say it is critical, with any legal reform or any business reform, to note that we do not want to chill those kinds of unauthorized uses of works that are lawful — a “do no harm” starting point. Then I would say there are three categories from there in terms of issues that we might take up here. One is the set of probably not-all-that-controversial changes or approaches that might get us to a better place, as well as another set of approaches that are relatively
1 Technology, Education, and Copyright Harmonization Act of 2001 (TEACH), Pub. L. No. 107-273, 116 Stat. §§ 1758, 1912 (amending §§ 110(2) and 112 of the Copyright Act), available at http://www.copyright.gov/legislation/pl107-273.html.
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controversial. I will end with one that I think probably is the most controversial, to tee up the speakers to follow. In terms of the least controversial, I think one key thing that ought to happen and that we all — sort of the collective “all of us” — agree we should to have is better education of individuals. I think we have gotten to a place where the Internet overall is, in some quarters and by some people, thought of as an unlawful place where you can do anything; you can break the law and not be held accountable for it. The effort that we all make toward making the Internet just as accountable as the real space is important. I think we give lip service to this as a global community and then nobody really does anything about it. More responsibility should fall to schools or to parents to think about copyright education as a relevant part of what a young person learns today, not only because they might become a defendant if a case is brought, but also because, as you think about the democratization of creativity, young people are also the rights holders at the point at which they create something that is meaningful. So I would point to education as something that may be simply lip service and overlooked, but is actually super-important. Related to that, of course, in the accountability zone, people who are direct infringers and who clearly infringe copyright ought to be held liable for it. Efforts to enforce the existing laws make a lot of sense. This seems uncontroversial, but important. A second issue is the conversation around improving licensing schemes. I think one of the undisputed successes — or at least, I hope, undisputed successes — of the copyright space has been Creative Commons and the extent to which 150 million people deciding to license their works in specific ways to other people have taken some of the uncertainty out of the equation. There is a chance to build on top of this — perhaps a commercial set of licenses on top of the Creative Commons zone, or perhaps just the continued addition of this licensing scheme. Related to the licensing scheme are new business models. I understand that Sandra Astairs, our colleague from Time Warner, and others will be discussing this later in the panel. There is a ton of innovation that can be done by the private sector that would reduce the amount of unauthorized use of copyrighted materials that is going on. The third approach that I would say is in the “not that controversial” zone is to work towards developing further best practices, in terms of how people can reuse works, helping to define where the line falls between authorized and unauthorized. Peter Jaszi and Pat Aufderheide have done great work on this in the context of filmmaking.2 I think the articulation of what is a best practice for the creative reuse of materials by different sectors could be an extremely helpful approach to preventing more unauthorized works from occurring. So I would put those three forward as not controversial. Moving on to the more controversial proposals, the first is related to the conversations we had this morning about new licensing regimes. One is the notion of a collective form of licensing based on a subscription model that is voluntary — I know Tilman Lueder talked about this. There have been some concerns expressed about that resulting in a collecting society model in which this potentially competitive set of compulsory licensing is done on a non-compulsory basis, as in what Terry Fisher has proposed in his book,
2 See Pat Aufderheide & Peter Jasza, The Good, the Bad, and the Confusing: User-Generated Video Creators on Copyright, (Center for Social Media, Apr. 3, 2007), available at http://www.centerforsocialmedia.org/files/pdf/ good_bad_confusing.pdf.
70 SESSION II: COPYRIGHT Promises To Keep,3 in the last chapter, the entertainment cooperative and so forth. There is a lot in that zone that might be helpful. A second proposal that might be more controversial and might be helpful is further articulation of the exceptions and limitations, making clear what the rights are, the unarticulated rights, which are on the other side of the equation and which could well give greater clarity, and therefore reduce the incidence of the unauthorized uses. This is something that the non-governmental organization (NGO) community is very much in favor of in the international context The third one that I would say is in this category of somewhat controversial is technological protection measures (TPMs). Much of this will be discussed in the next panel.4 But it does intersect with the legal regime. Clearly, the way in which digital rights management (DRM) is put in place is clearly relevant. This has a lot to do with the legal background, in our context in the United States in Section 1201 of the Digital Millennium Copyright Act (DMCA),5 as well as its analogues elsewhere. But the most controversial, and the key one I think, that we will talk about here is the nature of secondary liability in copyright on the Internet. There are two classes of issues, obviously tightly related: One, relatively settled, the class of cases of Napster 6 and Grokster,7 which Mr. Verrilli and others have been instrumental in clarifying; but more recently, and more on the table, the interpretation of secondary liability on the Internet in the context of DMCA Section 512 — the YouTube-Viacom case8 being but one of many examples, DailyMotion in France,9 and so forth. The question is: How much liability do we place on the intermediaries that are providing the service? A lot hinges on the definition of these services. But where a third party does an unauthorized use of a copyrighted work online, I think this is where most of the action falls. I think the big question in the United States is: How will we interpret the DMCA, which was passed, roughly speaking, ten years ago? What did the Congress mean? How will it apply on a going-forward basis? There are lots of ways to look at this. One of the things that I would urge us to think about is: What will be the effect on further innovation after this interpretation? What are the effects of requiring the intermediaries to have some amount of liability if they are following what they perceive to be the letter of the law? I take this to be the position of most of the intermediaries who seek Section 512 protection, which is to say: “If every time we get a cease-and-desist letter, we in fact take it down, and we are honest about the process by which we do this, and if someone is a repeat infringer we kick them off the service, and we follow various rules — even if there are things that remain on the server, we get the safe harbor altogether.” On the other side, there is a complaint about this, which basically says, “You ought to know that there are lots of other ones up there and you have some further affirmative 3
William W. Fisher III, Promises to Keep: Technology, Law, and the Future of Entertainment (2004). See, infra this issue, Session II, Part B, Unauthorized Use of Works on the Web: What Can Be Done? What Should be Done? Non-Copyright Legal Solutions; Session II, Part C, Copyright Issues in Online Music. 5 Digital Millennium Copyright Act of 1998, 1998), Pub. L. 105-314, codified at 17 U.S.C. § 512 (Oct. 28, 1998) (DMCA), available at www.copyright.gov/title17. 6 A&M Records, Inc. v. Napster, Inc., 114 F. Supp.2d 896 (N.D. Cal. 2000). 7 MGM Studios v. Grokster, Ltd., 545 U.S. 913 (2005). 8 Viacom Int’l, Inc. et al. v. YouTube, Inc. et al., Case 1:2007cv02103 (S.D.N.Y. filed Mar. 13, 2007). 9 Christian C, Nord-Ouest Production c/ SA DailyMotion, SA UGC Images, Tribunal de Grande Instance de Paris, 3ème chambre, 2ème section, 13 July 2007, available at http:// www.juriscom.net/documents/tgiparis 20070713.pdf; see also http://www.juriscom.net/actu/ visu.php?ID=949. 4
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obligation.” Variants of the argument say, “If you are making some money from it somehow in the service, there should be a parallel to the vicarious infringement standard.” DMCA tracks this to some extent. A great deal hinges on this. Clearly, the extent to which you can provide services of the sort that are being challenged now hangs in the balance. But I think also we should think about what kinds of services have been able to go forward. GeoCities is the classic example, with ads and so forth, which clearly has infringing material, and where they have survived on the basis of the safe harbor. But what about things like email? What about things like the Amazon model? What are other models? If we restrict the meaning that, at least in the GeoCities model, one has ascribed, what will the effect on innovation be? So as we try to solve the copyright issue, we need to think about what the concerns are at a broader society level that also be implicated. MR. GOLDBERG: Thank you very much. I neglected to mention that, although I gave you the IDs for the various people in the dais, their impressive credentials are in the binders that you have. I urge you to look at them. Our next speaker will be Don Verrilli. MR. VERRILLI: Thank you, Mort. John made this all sound so calm and reasonable. I live in the part of the space that he described as more controversial, so probably it will seem less calm and reasonable ten minutes from now than it does now. I should say at the outset — because I don’t think the biographical materials make this clear, and I think it is only fair that you know this to evaluate my comments — I am representing Viacom in the current litigation against Google and YouTube,10 and did work on the Grokster case in the Supreme Court,11 and I have done other work for content companies. In the interest of full disclosure, that is where I am coming from on this. Obviously, as John said, there are lots of types of unauthorized use, including lots of different types of unauthorized use of copyrighted works. The unauthorized use that, as a practical matter, is problematic for content owners is not the creative or transformative unauthorized use. It is, from the perspective of the content owner, the unauthorized acquisition of digital copies and the unauthorized distribution of digital copies of copyrighted works and, more recently, the unauthorized acquisition of access to performances of copyrighted works through businesses like YouTube. As this breaks out, there have been efforts in the academic community, which I quite applaud actually for their honesty, to try to defend those types of unauthorized use as being beyond the reach of the copyright laws. I vigorously disagree with them, but I think they confront the problem honestly — in a way, frankly, that I think a lot of the litigation posturing hasn’t so far. You have that form of unauthorized use. And then you have business models that are designed to, and effectively do, generate very significant profits by exploiting the ability of digital technology to make those forms of unauthorized personal use available and occurring on a massive scale. There really are, when you think about it, three ways to defend that regime. They are all going to be implicated, I think, in the YouTube/Google litigation: 10 11
Viacom Int’l, Inc. et al. v. YouTube, Inc. et al., Case 1:2007cv02103 (S.D.N.Y. filed Mar. 13, 2007). MGM Studios v. Grokster, Ltd., 545 U.S. 913 (2005).
72 SESSION II: COPYRIGHT 앫 One is to follow the lead of the academic work and say the underlying use ought to be deemed to be beyond the reach of copyright. 앫 The second, as John mentioned, is to think about this in terms of the liability of the businesses and the business models, and to then defend on the ground that whatever the users of this technology are or are not responsible for, we, as the people running the businesses with this technology, should not be on the hook. 앫 The third is the other point that John made about the DMCA and whether the safe-harbor provisions of the DMCA allow people who run these kinds of businesses to say, “Yes, it might be infringement, and yes, we might otherwise be responsible for it, but so long as we abide by the terms of this statutory safe harbor, we are off the hook for any damages liability.” All three of those issues, I think, are going to be fought through in the litigation between Google and YouTube on the one hand, and Viacom on the other. I think, in the time I have, I would like to focus on the third one, because it is an important question. John identified it correctly as a controversial question. I think it is one that merits some attention. Some of what we have seen so far — I am certainly not trying to put any words in Alex’s mouth — from Prof. Lessig on the op-ed page in The New York Times12 and in some of the other rhetoric we have seen coming out as a result of the lawsuit13 has been the notion that there was a compromise cut in the DMCA in 1998, where content owners got certain protections (i.e., in particular, anti-circumvention protections) and, on the other hand, Internet service providers got very broad safe harbors, and that the point of this litigation was to try to recut that deal. I want to talk about the statutory basis for that argument in a minute, but before I do I would like to see if we could step back and think about that. If that is right, if the DMCA really does provide that kind of safe harbor, conditioned only upon a business responding promptly and effectively to a valid takedown notice, then you have a situation in which a company like YouTube — not YouTube, but a company like YouTube — could have on its Web site a banner across the top that says, “We are endeavoring to assemble a complete set of The O.C. episodes for this year. Please upload them to this site.” Then the next line could say, “And we really think you will enjoy this year’s O.C. Please view all of the uploaded episodes.” You could surround all that with advertising and generate revenue from the advertising. Someone could then sue you for copyright infringement. Your defense would be: “Well, as soon as the person who owns the copyright in The O.C. tells me to take it down, I will take it down. Until then, no damages liability.” It doesn’t seem possible that Congress actually could have intended to enact a statute like that in 1998. Yet that is the statute, according to what we have heard so far, that our friends on the other side are suggesting Congress did enact. When you actually go and look at the statute, I think it is not a surprise to see that the statute itself and the safe-harbor provisions themselves in Section 512 of the DMCA embody a balance within the provisions between the interest of the copyright owner, on the one hand, and the interest of the Internet service provider, on the other. It is not the case, for example, that the sole means by which a company would lose the benefit of the 12 Lawrence Lessig, Make Way for Copyright Chaos, N.Y. Times, Mar. 18, 2007, available at http://www. nytimes.com/2007/03/18/opinion/18lessig.html?ex=1331870400 &en=a376e7886d4bcf62&ei=5088&partner= rssnyt. 13 Viacom Int’l, Inc. et al. v. YouTube, Inc. et al., Case 1:2007cv02103 (S.D.N.Y. filed Mar. 13, 2007).
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damages safe harbor is by failing to respond to a valid takedown notice. There is an entirely separate subsection of the provision which says that if you have knowledge of infringing works on your service, or there are facts and circumstances from which that knowledge should be readily apparent, or that knowledge can be fairly imputed to you, you have an obligation to remove or disable access to the infringing works to sustain your entitlement to the safe harbor. That is completely apart from whether you get a takedown notice. So it seems obvious from that provision in the statute that Congress did more than just say, “You guys are fine unless you don’t respond to takedown notices.” There is another subsection in the same provision that says: if you achieve a direct financial benefit as a result of the infringing works and you have the right and ability to control their presence, you lose the benefit of the safe harbor. So, once again, Congress seemed quite concerned with the notion that there would be business models that would exploit the presence of infringing works and do nothing about them. It seems to me quite clear that Congress said that in that circumstance safe harbor does not apply. There is an even more basic point, I think, which is that, the way the statute is written, Internet service providers don’t get safe harbors. There are four specifically defined safe harbors for specific functions that an Internet service provider can provide: (1) routing and transmission; (2) caching; (3) linking; and (4) storage. It is only when you are sued for infringement by reason of one of those functions that you can claim entitlement to the safe harbor under the statute. None of these terms are very well defined in the courts. Google is going to have a view of how they ought to be defined. We have a view of how they ought to be defined. But one thing that I hope is clear from what I am saying so far is that the notion that there was a deal cut in 1998 that said, “You guys get anti-circumvention and you guys get an expansive safe harbor that keeps you protected under any circumstances, so long as you comply with takedown notices,” is just not what the statute says. As I tried to suggest earlier, it cannot really be what the statute was intended to say, because it would then become a shield for the most flagrant kinds of intentional infringing activities. When you get to a situation where you have a business and the business is about providing content to consumers — when it is a consumer media business — it seems to me the right answer here is going to have to be that you have certain responsibilities. Just to go back to John’s point, when you are running a consumer media business and you are making money from providing access to content, the responsibility ought to lie with you; that it ought to be your cost of doing business to prevent the infringement; that it ought not be that the cost of preventing the infringement, which can be a massive cost, gets shifted to the copyright owner. MR. GOLDBERG: Thank you, Don. Now we will hear from Alex Macgillivray, who I’m sure agrees with everything Mr. Verrilli has just said. MR. MACGILLIVRAY: It is always easy to agree with someone who is talking about hypotheticals, as opposed to the person that he actually sued. First and foremost, I want to get to something that happened this morning that I thought was quite a good thing and a relatively optimistic thing to me as a copyright lawyer. We had Marybeth Peters up here with Fred von Lohmann, and they were agreeing about something.14 The thing that they were agreeing about was the potential in the next ten years to really have a space where authors are empowered and where we could take 14
See infra Session I, Part C, The Next Ten Years in Copyright.
74 SESSION II: COPYRIGHT creativity and the ability of authors to actually get their material out there to the next level, and authors having the power to get their material out there, to get it seen by lots and lots and lots of people, to have the media companies be involved when it’s a good idea for the media companies to be involved, and yet to have a space for the creation of lots of different types of content and to make content creation be a part of everyday life. I want to show some videos. One of the reasons I want to show the videos is to talk specifically to Mr. Verrilli’s point about knowledge. I think, jumping into that third point — not the first, whether some things are just beyond the law; or the second, whether there is any liability there to begin with — the question is: If there is some liability there to begin with, does the DMCA provide what certainly everybody in the tech world thinks it provides, which is a safe harbor for the fact that some of your users may use your tools to in fact infringe, to put stuff up there that nobody really wants up there but that is infringing? Does that safe harbor actually apply the way we think it does, the way it has led to a bunch of different innovations in this space, and the way it lets us have somebody who is an author or a creator upload their material, without having to worry about Viacom turning around and saying, “Hey, the fact that you provided this ability for people to upload material means that you are now subject to a $1 billion lawsuit?” I am going to show a few videos. What I would like to do is, with your permission, play a little game about whether the particular videos are unauthorized use or not. Imagine that these videos are complete and that they are appearing on YouTube. My question for you is whether that appearance would be unauthorized. Here is the first one. [A video was shown.] Now I will switch to another one. Again, imagine that we have the whole thing there. [A video was shown.] Finally, this is the Clinton Fox News interview. Again, imagine that we have the whole thing there. [A video was shown.] I have shown you three videos. I just want a show of hands as to whether the first video was authorized or unauthorized. If you think it was unauthorized, please put up your hand. Absolutely nobody believes the first one was unauthorized, not even anybody on the panel. PARTICIPANT: Why don’t you ask if people thought it was authorized? MR. MACGILLIVRAY: That’s what I was asking, whether it is authorized or not. PARTICIPANT: There is another alternative, which is that you can’t tell. MR. MACGILLIVRAY: That’s a great point. I love this audience. I really enjoy coming to Fordham because I can just stop talking and let the audience get to the punch line for me. So let’s jump right to that. The question is, can you tell? Who can tell? The first was a video by Brooker. She knows whether it was authorized or not. But we the audience, we Google, do not know. The second video was the “Stop the Falsiness” video. This is a video in the Viacom lawsuit. I am not sure if Mr. Verrilli is representing them for this as well. The argument by MoveOn is that it is fair use. Mr. Verrilli said that fair use and transformative are not something they are trying to catch. But again, there is a question that maybe, even if you are the copyright holder, you don’t know. The third one was the Fox clip, which looks like a pretty professionally produced clip. It turns out that that one, in fact, was something that Fox uploaded, not under some sort of separate content deal with Google, but just that there was a user, who was Fox, who uploaded it. So there is an authorized use. The question of what you know is really central to this case, as Mr. Verrilli said. One of the things that I think these three videos, and also the response of this extremely intelli-
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gence audience, show is that there was a reason why Congress made the decision that the copyright holders themselves would be responsible for telling you what is theirs, what is infringing, and what they would like taken down. I want to shift gears a little bit and talk about YouTube specifically, and not just these general notions. I think a lot of people maybe don’t understand why we created YouTube or don’t understand what we do in terms of notice and takedown or what we are doing in terms of working with copyright holders. PARTICIPANT: Didn’t you buy it, Alex? MR. MACGILLIVRAY: Yes, we did buy it. Sorry. We are like the Borg: When we assimilate, we talk of “we.” When YouTube was created, what they were trying to do was to have a place to be able to host and pass around videos to friends. The videos that they were thinking of were like Steve Chen’s first video, a video of his cat playing. He wanted a way to share that with people. Email apparently was too much of a problem; it was too difficult for the people he was trying to share videos with. The question was: How would you create such a service? They did a whole bunch of things. One of the things that you can easily point to is the ten-minute limit. There were things you would do if you were trying to create a service that was good for sharing short, homemade clips, and less good for sharing things like television shows. They also did some things early on that you wouldn’t necessarily do if you were, as Mr. Verrilli has accused, trying to go out there and make a business based on copyright infringement. First of all, the DMCA process that they instituted is among the best and the fastest of any company that I know of. We get DMCA notices. We are very quick to take them down. We have built up an automated process — not required by the DMCA — that allows copyright holders to send us DMCA notices in a more efficient manner. There is a whole industry now that has built up around monitoring copyright holder content, again with the copyright holder being able to tell which is authorized and which is not authorized, and then telling the technology industry, the different companies, what content is the copyright owner’s and what is not. We also developed a hashing technology. When a user uploads a video and then it is taken down by the copyright holder and then the exact same video is uploaded by another user, we have this technology that we have been able to develop that matches that exact same video. We are now doing research and working with a bunch of different companies to try to come up with better ways to help the content industry search for their videos and to mark them as theirs and to take them down. This is all within the context of a tool, this original DMCA tool, that was part of YouTube from the beginning and was very much part of the way they were thinking about their part of the Web. Of course it is knowledge. Part of what is interesting in these debates is the actual allegations of knowledge are. One of the issues that was in the Viacom complaint, and one of the questions really, is whether merely making private videos available to people in private would be enough to not only qualify you as having induced copyright infringement, but also to make you lose your protection under the safe harbor. That is one of the issues that is in the complaint. Another interesting one would be whether paying $1.65 billion is enough, in and of itself. But getting back to the private videos question, if that is the case, then it seems like every single email provider would be guilty. The email providers do not make the contents of your email readily searchable by the content industry to make sure that there are no
76 SESSION II: COPYRIGHT copyrighted videos in those emails. They host them. They put them in repositories. They show them to people. They certainly distribute them. We, in fact, do also have an email product. I should be clear. But you don’t have the idea, in the way this was characterized by Mr. Verrilli, that you are trying to build your business on copyright infringement. There are two things I want to say about that. First of all, that is not the standard under the DMCA. It is not that this is a law that has never been brought into court before. There are plenty of companies — eBay,15 Amazon,16 Google,17 CCBill in a recent case18 — that have been shown to have been doing the things required under the DMCA. It is not a brand-new wild frontier where we can just theorize about it. There is precedent, and we are comfortable with that precedent. Second, even if there was some sort of test, as Mr. Verrilli explains, where you were trying to build your business on copyright infringement, he would not be able to meet that test either, because that is not what we are trying to do. What we are trying to do is make a place where people can upload content that they have created and share it with the world for free. It is true that when you let people do things sometimes they do the wrong thing. But that doesn’t mean that you should shut down the system entirely. MR. GOLDBERG: On the logistics of what we are about, we will now have a discussion with regard to the first topic, “Legality of Unauthorized Use.” After the discussion, we will have the presentations on “Non-Copyright Legal Solutions” by Sandra Aistars and Michael Schlesinger, and then we will have discussion of that subject matter after those presentations. Let me first ask our panelists, Michael Einhorn, Brian Fitzgerald, and Tom Rubin, if you have any comments on what you have heard so far. I am asking for very brief comments, please. MR. EINHORN: I would focus on the relationship between monitoring costs and uses of copyrighted works. I would make a distinction here between the costs of detecting personal reproductions on a computer drive, which in and of themselves are often very difficult to determine, and the costs related to public performances, which are easily monitored for digital applications. With present technology, we can observe whenever works are being performed on a digital network, or even if they have been uploaded to a netork. The question is: Can we then design a license that makes it possible to use online works at a reasonable cost? And the answer is clearly yes. This is because the performance rights for online works, as well as the associated reproduction rights for uploads to a network, entails monitoring costs that are considerably below those of reproductions made for personal uses. MR. GOLDBERG: Let me see if Tom Rubin and Brian Fitzgerald have any comments at this point. No comment at this point is not a waiver. Go ahead. PROF. FITZGERALD: In preparing for this panel my thoughts focused on three questions — which John has covered in large part : (1) What is the role for new licensing models, such as Creative Commons? (2) How do we draw the boundary between authorized and non- authorized — and how will this continue to change? What do we do with highly transformative derivatives? Is fair use the exception, the benchmark, or the starting point? 15
eBay Inc v. MercExchange, L.L.C., 126 S. Ct. 1837 (2006). Corbis Corp. v. Amazon.com, Inc., 2004 WL 3092244 (W.D. Wash. 2004). 17 Parker v. Google, Inc., 422 F. Supp.2d 492 (E.D. Pa. 2006). 18 Perfect 10 Inc. v. CCBill. L.L.C., 481 F.3d 751 (9th Cir. 2007 Mar. 29, 2007), available at http://www.scribd. com/doc/267076/Perfect-10-v-CCBill-488-F3d-1102-9th-Cir-2007. 16
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(3) To what extent should the technology makers, Web site hosts, or intermediaries take responsibility? In the context of today’s discussion, may I add this very short comment? There has been some discussion around transformative use, and I think that is an issue that key people seem to be agreeing upon. It is an area that we need to consider more closely. In different jurisdictions, transformative use is still a significant legal issue in terms of copyright infringement. In the United States, you might have a more developed doctrine on transformative use than we do in other jurisdictions. The other point I would make is that the value of the social networking, the social value in what has been going on in this unauthorized space, is something that we need to assess more fully, and how we balance that with copyright enforcement is a critical issue in this debate. MR. GOLDBERG: Tom? MR. RUBIN: This is following up on some of the discussion earlier this morning. I think that what we are going to see is a world that is very heterogeneous, where there will be video uploaded sites, like YouTube, that have truly homegrown material or truly fair use content, which could indeed include the Stephen Colbert clip that we saw here. But the issue really is whether the user video sites should be homes for the showing of infringing content. There are means — and I didn’t hear this discussed so far in the panel — that content owners have and that they are pursuing to try to identify, for the sake of the technology company that is running the site, content that is infringing. I am talking about fingerprinting and the filtering that could accompany it. There are lots of ways that technology companies and content companies are working together now to ensure that the user sites are truly havens for users and other noninfringing material, and that commercial sites, which have much higher quality commercial content than even YouTube has, is the right place to have commercial content. I think that is the world where consumers and society benefit the most. MR. GOLDBERG: Thanks, Tom. I’m sure that there are no questions whatsoever in the audience. MR. MACGILLIVRAY: May I respond to Tom for one second? MR. GOLDBERG: I was being facetious. Go ahead. MR. MACGILLIVRAY: The only thing I would say is I completely agree with Tom. It is one of the things that we are doing in lots of deals with major content industry players. BBC, CBS, and others are using our service to get their professionally generated content out there. The only thing I would disagree with Tom on is that those need to be a totally separate service. I’m sure he didn’t mean that. MR. RUBIN: I didn’t mean that. MR. VERRILLI: Tom, let me follow up on that. I think it casts in a different light some of what we heard earlier from Alex. YouTube will filter for you now if you sign a licensing agreement with them. They have the technology. They will do it now. They will say, “Sure, we’ll filter, just sign the deal. If you don’t sign the deal, we won’t filter.” MR. MACGILLIVRAY: That’s just not true, though. MR. VERRILLI: So it is just not a matter of being in this world in which there is nothing that they can do. That is just not the reality that we face in this case. MR. MACGILLIVRAY: That’s just not true. What we are doing is working with a lot of people to try to figure out whether there are new search technologies that we can apply here, including fingerprinting, which Tom brought up. But we have never restricted our DMCA or any of our takedown tools to a deal or having some sort of partnership. We
78 SESSION II: COPYRIGHT will continue to not make those restrictions. I understand why that is a rhetorically interesting thing to say, but it is just not accurate. MR. GOLDBERG: Comments, questions? No comments? No questions? What you have heard is crystal clear and nothing has to be clarified and you agree with everything that you have heard? My God, this is a first! If there are no comments or questions from the audience, I’m sure, with a modest bit of encouragement, the people on the dais could force themselves to produce a few more comments. John? MR. PALFREY: Sure. One thing that seems interesting is: How do you think about the financial benefit issue? Does much hinge on whether or not you are making money generally on the service, versus making money individually on a clip that has been uploaded in some fashion? And how, if at all — not to get too much into statutory interpretation — does that relate to the vicarious liability standard? MR. VERRILLI: Obviously we are going to have a different view about that. One of the statutory safe harbor exits is if you achieve a direct financial benefit and have the right and ability to control the use. The notion of direct financial benefit, although Alex may feel it is very well-defined in the DMCA law, I think is something that the court in this case is going to have to decide, without a whole lot of precedent under the DMCA to guide it. But it does seem to me a matter of common sense that when you run an advertising-driven business, as YouTube is, that the ability to attract more users to your site drives up your advertising revenue. To the extent that the availability of copyrighted content is a driver of that traffic, it brings more people to your site than you would have at your site without the copyrighted material being so freely available, then I think it ought to be pretty clear that that is the kind of financial benefit that Congress is talking about, because it is not a matter of indifference. If the copyrighted material isn’t there, the traffic is not going to be as high and the financial benefit is not going to be as great. That is our take on that issue. MR. GOLDBERG: Michael? MR. EINHORN: By that standard, would you make any distinction between YouTube being a social networking site and Google being a search engine? MR. VERRILLI: I think in either situation, where the copyrighted material is making a significant difference in the level of traffic, that is a direct financial benefit. MR. EINHORN: By that standard, would search engines be liable for acts of infringement committed by Web sites or visitors ? MR. VERRILLI: It is very hard to think that it would make a significant difference. That is also only one part of the equation. MR. EINHORN: I understand. Should search engines be treated the same as social networking sites? MR. VERRILLI: You cannot answer that with respect to this question alone. There is a whole set of issues, things you have to answer to make that decision. You just cannot answer that in the abstract. But with respect to direct financial benefit, it seems to me more traffic equals more revenue; and if copyrighted material drives more traffic, it increases revenue. MR. MACGILLIVRAY: It is interesting that actually there is some legislative history talking about this point. I think that is the test that Mr. Verrilli just explained: if you are getting more revenue, in part, because there is some infringement there. That test is something that is discussed in the legislative history in an example that they use of something that would be not a financial benefit directly attributable. You will notice that they
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actually in the statute use different words than the words generally used in the vicarious liability test, the test that Don would like to adopt. The comment that they make is that if a particular Web site (they were thinking about Web hosts here) is hosting and charging for that hosting, then even the charging for the hosting of an infringing file — clearly, when you are hosting that file you are making some money from it — would not meet the DMCA’s test of financial benefit directly attributable. The reason is there are a whole bunch of hosting companies out there that were actually hosting material, a lot of it noninfringing, some of it infringing, and Congress meant to protect those companies. MR. GOLDBERG: Let me ask Sandra Aistars and Michael Schlesinger if they have any comments on what we are discussing now. MS. AISTARS: I am happy to comment generally on the discussion. I think there are a couple of points that were particularly interesting to me and relate somewhat to what I was planning to speak about in the next panel. I agree with the first point that John made, which was that he thinks it would be interesting to have a Creative Commons license expanded to commercial uses or adopted to cover commercial uses. I think it is an interesting thing to explore. It relates very closely to some of the issues that we have been discussing here, and also to some of the technology issues. Alex showed us a number of clips and asked can you tell which of these are infringing and which of these are not infringing. Of course, many of us sitting in the audience couldn’t immediately tell. But there are technologies that you can employ as an aid to tell whether they are infringing or not infringing. There are fingerprinting technologies so that you can identify a piece of content that has been uploaded to a Web site. If you combine that with some form of authorization, some sort of rules associated with how that content is authorized to be distributed by the content owner, I think you get a very interesting proposition. It is no longer a binary decision of take down or leave up, but it is a much more creative and engaging process, and one that I think is beneficial to consumers and beneficial to the companies involved on both sides. MR. SCHLESINGER: I would just add that it is clear that Google is in a process of riskmanagement in its approach to content. We are seeing the problems of an opt-out approach to copyright. The questions are myriad. Many of them are going to be answered in the lawsuit. One of the questions is: Why ten minutes? Why not five minutes? Why not one minute? If it’s Martin Luther King’s “I Have a Dream” speech, why not twenty seconds? Where is the nut of the copyright protection and why is it up to Google to decide how long or how short is acceptable to allow people to upload? I think that is one of the big issues. MR. GOLDBERG: I have seen some raised eyebrows in the audience at various times in the last half-hour. Hearing no comment, other than the rude interruption that I made and Dick Rudick followed up on during Alex Macgillivray’s presentation — MR. MACGILLIVRAY: That wasn’t rude at all. That was helpful. MR. GOLDBERG: In any event, are there any comments or questions? Fred. QUESTION [Fred von Lohmann, Electronic Frontier Foundation, San Francisco]: I have a question. It seems to me that there is a middle ground. Despite your valiant efforts to bicker, I actually think you have a lot more in common here than perhaps everyone is ready to admit. I hear, on the one hand, that there is no interest in attacking the kinds of new creative fair uses that these technologies allow, that the goal here is not to kill remix culture; the
80 SESSION II: COPYRIGHT goal here is to prevent the kind of piracy that undermines existing business arrangements. Okay, that’s very reassuring. On the other side, I hear Google and others, Tom as well, say, “We can do additional things. The tools are improving. We can create search tools that will allow rights holders to more accurately find and take things down faster.” Now, there is a big fight about whether that is required by the statute or not required by the statute, but it seems to me if there is this common ground, whether it is required by the statute or not, there are some private ordering opportunities here for Google and Microsoft and other players to roll out tools that go beyond what Section 512 requires. Presumably, some money may have to change hands in the course of finding the middle ground, as well. But I just do not see a fundamental difference here. I see content owners want to be able to take things down accurately, quickly, and make sure they do not go back up. The technology companies are saying, “We probably can get there and we want to get there.” On the other hand, I hear content owners saying, “And we don’t want to stop the creative stuff.” So is it just a matter of time until this is solved? MR. EINHORN: The devil is in the details here, and the details are the transaction costs of doing everything that you suggest could be done by users and content owners. It is not enough to say that the use is being used for commercial purposes. We know that in Campbell v. Acuff-Rose19 you did have a fair use for something that was used for commercial purposes. The next thing to do is to consider other factors besides the commercial purposes. I still make a crucial distinction between YouTube and Google. YouTube is allowing users to put works up on their server and then has immediate control and responsibility over the material. This is different from the Google search engine, which does not control the Web site that may infringe or to which infringers may link. Both Google and YouTube are, of course, commercial enterprises To find the devil in the details you must here focus on where the transaction takes place and who can monitor the system at lowest cost. Now, it seems very clear to me that you can make YouTube responsible for cleaning up material on its servers. But we have a different problem when we talk about finding stuff on the third-party Web site that the Google search engine links to QUESTIONER [Fred von Lohmann]: Alex is right. I don’t see any rational way you can claim that the service provider should know in advance every copyrighted work. So there needs to be an identification obligation. MR. EINHORN: Apparently, concerning a search engine. MR. GOLDBERG: We will come back to this. John Palfrey had a comment or a question. MR. PALFREY: I just wanted to not lose the issue that Brian Fitzgerald brought up, which I thought was intriguing, about transformative use. I didn’t mean to take it out of order, but it seems you left something out. MR. FITZGERALD: It was simply to echo what Fred has been talking about. To me one of the things we are going to do in ten years’ time is look back upon this great debate we are having and say, “Why did it take so long to get this solved?” On another front, one of the big problems we have in my jurisdiction is over transformative use. A fair amount of the content that is up on the Internet is transformative. 19 Campbell v. Acuff-Rose Music, Inc., 510 U.S. 569 (1994), available at http:// supct.law.cornell.edu/ supct/html/92-1292.ZS.html.
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So why can’t we clarify its legality with some certainty? It seems to me, as Fred highlights, that there is not a hell of a lot of distance to go on that one. I suppose the other thing that I would like to say, though, is that this compact around the DMCA, which we have a version of in Australia, which has been expanded under the Australia-U.S. Free Trade Agreement,20 is very much about the dynamic technology that is the Internet. We just can’t lose sight of that fact either. It is incredibly important to have an Internet that actually works in a very dynamic fashion. I think if we lose sight of the compact that we’ve got in the DMCA being related to that concept, then we might as well forget the dynamic nature of the Internet. MR. GOLDBERG: The lady over there has a comment. QUESTION [Maren Christensen, Universal Studios, Universal City]: We are obviously interested in this debate, although we are not a plaintiff in it, so I don’t have first-hand knowledge of it. I have tried to keep up on this in the press. Alex, I believe the press is reporting that you are treating differently the content owners who will enter into licenses with you from the content owners who will not when it comes to how you deal with the infringing content. But I understood you here to say that is not correct. I just wanted to be sure I understood what you were saying. There is no difference in the way you treat content owners who enter into licenses and those who do not? MR. MACGILLIVRAY: Our current technological solution that we have in terms of the DMCA is the notice and takedown process. The people who are partners versus the people who are not partners are not treated any differently. We are working, as Tom suggested, on experimenting with other ways of doing content identification. We are at the very beginning stages there. We are starting with some people with whom we have relationships. That is not something that is fully baked. We do not even know actually whether it will work. Nobody has done it in a large-scale way yet. But we are trying to make progress there, and we are trying to make progress because, as Fred says, it requires the content holders to help us with the identification. We are trying to make progress with some content holders that we already have relationships with and who already trust us. MR. GOLDBERG: Tom Rubin wanted to comment. MR. RUBIN: Just very briefly, I do want to make clear where there is a difference right now between Google’s approach and Microsoft’s, although, as Alex said, there is some common ground there. Microsoft has committed for our user-uploaded sites to institute filtering. That is something that we have committed to. We have also committed that when we do that it will be applied equally to people with whom we have commercial agreements and people with whom we do not have commercial agreements. There is an obligation on the content provider, of course, to use the database that is used as the match. That is a tool that is intended to be, and will be, open to all content owners. MR. GOLDBERG: Don, do you have a quick comment? MR. VERRILLI: Yes. Despite the denunciation of my position before on this issue, I think, in response to the question, Alex said that they are implementing technologies with their partners that they do not implement with people who are not their partners. MR. MACGILLIVRAY: No, that is not true. You probably do the same thing, right? You 20 See Australia-United States Free Trade Agreement (Jan. 1, 2005), art. 17, available at http://www.dfat. gov.au/trade/negotiations/us.html.
82 SESSION II: COPYRIGHT do tests with people that you know, and then after you get out of the testing phase you do other things. MR. GOLDBERG: We’ll go to Dick Rudick, who has a very brief question or comment. QUESTION [Richard Rudick, John Wiley & Sons, New York]: My comment follows on Fred’s version of a brave new world. You do need an identification mechanism, and you need it no matter where the responsibility lies, if we are going to have an efficient world. But you need a second thing besides an identification process, which you need regardless of where the responsibility lies. That is, you need something that facilitates efficient licensing. I know that is the topic of the next panel. Sandra alluded to it. There is the Automated Content Access Protocol (ACAP), which is an effort to develop an efficient way of processing licenses. That is the second thing you need to make this brave new world work. It is the kind of thing we should work on, and there is opportunity for collaboration. MR. GOLDBERG: Thank you. Andrew Bridges is next and then we will go to Bruce Lehman. QUESTION [Andrew Bridges, Winston & Strawn, San Francisco]: First of all, I should disclose that I represent Google in Perfect 10 v. Google 21 and MasterCard in Perfect 10 v. Visa and MasterCard.22 I would like to ask Mr. Verrilli about Perfect 10 v. CCBill,23 which was mentioned by Mr. Macgillivray. Recently, the Ninth Circuit held in a DMCA case that just because a Web site says it has stolen materials or just because it has passwords does not mean that the service provider definitely has knowledge, because it may be, as the Ninth Circuit pointed out, a salacious claim or a hoax and the like. The Ninth Circuit said the burden is not on the service provider but is on the complainant to police these types of sites. In your view, was the Ninth Circuit’s decision in Perfect 10 v. CCBill wrong? MR. VERRILLI: Well, the Ninth Circuit said a lot of things. QUESTIONER [Mr. Bridges]: On that point. MR. VERRILLI: I will get to that point in a second. One thing it said, though, was that the DMCA did actually adopt the common law test of vicarious liability. But on that point, it seems to me that this is another situation where the devil is in the details. You are talking about the situation in CCBill and comparing it to the situation we have here. I understand the strategy of going atomistic on the videos and looking at these three particular ones, but to draw from that the conclusion that there is a lack of knowledge is a little bit like being “shocked, shocked” that there is gambling going on in Rick’s Place. I just think that there is a practical, commonsense way in which you have to understand the term “knowledge.” When you have a situation like this, it is very hard in a practical, commonsense way to say there is knowledge. MR. GOLDBERG: One more question. QUESTIONER [Andrew Bridges]: Could I ask one very quick follow-up, please? Don, you mentioned an atomistic approach. The other approach is a constructive knowledge 21 Perfect 10 v. Google, Inc. et al., Case No. CV 04-9484 AHM (SHx) (C.D. Cal. 2007) (finding no infringement). District court ruling of May 16, 2007 available at http://www.cacd.uscourts.gov/CACD/Recent PubOp.nsf/0/3fdcaed8913a22018825711c005055a5/$FILE/ CV04-9484AHM.pdf. 22 Perfect 10, Inc. v. Visa Int’l Serv. Ass’n, First Data Corp., Cardservice Int’l, Inc., Humboldt Opinion Bank, Mastercard Int’l, Inc., No. 05-15170, D.C. No. 05-00371-JW (9th Cir. July 3, 2007), available at http://www.ca9. uscourts.gov/ca9/newopinions.nsf/ EF5B069 AA425BC38825730D00579E8C/$file/0515170.pdf?openelement. 23 Perfect 10, Inc. v. CCBill L.L.C., 481 F.3d 751 (9th Cir. Mar. 29, 2007), available at http://www.scribd.com/ doc/267076/Perfect-10-v-CCBill-488-F3d-1102-9th-Cir-2007.
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approach based on statistics. Was Betamax 24 wrong, and should it be overturned on that point? MR. GOLDBERG: Thank you, Andrew. Bruce? QUESTION [Bruce Lehman, Akin, Gump, Strauss Hauer & Feld, Washington, D.C.]: There has been a lot of discussion about notice and takedown. Of course, that implies that once notice is given the work will not be used at all. But it seems to me, just off the top of my head, that is not always in everyone’s best interest. The thing that has puzzled me about this from the beginning is these uses. We saw examples that were not whole works. In fact, there are serious questions about whether some of these uses might even be fair uses. So isn’t this made to order for collective licensing? I think Duck Rudick was suggesting that. Sandra Aistars would probably be able to answer that. Have you had discussions about collective licensing mechanisms? MR. EINHORN: Regarding fair use, let me suggest that the criteria for fair use should be independent of whether the medium is analog or digital. MR. GOLDBERG: The court holds time is up.
24
Sony Corp. of Am. v. Universal City Studios, Inc., 464 U.S. 417 (1984).
SESSION II: COPYRIGHT PART B: NON-COPYRIGHT LEGAL SOLUTIONS
SESSION II: COPYRIGHT
Unauthorized Use of Works on the Web: What Can Be Done? What Should Be Done?
Part B: Non-Copyright Legal Solutions
Moderator MORTON DAVID GOLDBERG
Cowan, Liebowitz & Latman, P.C. (New York)
Speakers SANDRA AISTARS
MICHAEL SCHLESINGER
Assistant General Counsel Time Warner, Inc. (New York)
Smith, Strong & Schlesinger (Washington, D.C.)
Panelists MICHAEL A. EINHORN
JOHN G. PALFREY JR.
Ph.D., Senior Consultant; Advisor, CONSOR
Executive Director, The Berkman Center for Internet and Society, Harvard Law School (Cambridge, MA)
PROF. BRIAN FITZGERALD
THOMAS C. RUBIN
Queensland University of Technology (Brisbane)
Associate General Counsel, Copyright, Trademark and Trade Secrets, Microsoft Corp. (Redmond, WA)
ALEXANDER MACGILLIVRAY
DONALD B. VERRILLI JR.
Senior Product & Intellectual Property Counsel, Google, Inc. (Mountain View, CA)
Jenner & Block LLP (Washington, D.C.)
86 SESSION II: COPYRIGHT MR. GOLDBERG: Now we will move into the next part of this session. In the previous panel we talked about unauthorized use and some solutions. We will now turn to noncopyright solutions, to be defined by the speakers. MS. AISTARS: I have foreshadowed what I am planning to speak about today by my comments in the previous panel. The title of our session is “Non-Copyright Solutions to the Unauthorized Use of Works on the Web.” I think that it was left to us to define for ourselves what is meant by that. Since this heading is broad enough to accommodate a variety of topics, what I have chosen to talk about is how, other than through copyright infringement lawsuits, content owners are dealing with unauthorized uses of content on the Internet. While I think it is true that we certainly do not stand idly by while others build commercial businesses on the backs of our copyrighted works, it is also true that we authorize, by way of license arrangements — or might be willing to authorize, subject to license arrangements — a far wider range of uses of our works than people commonly expect. At Time Warner, we take a multifaceted approach towards digital distribution and towards combating piracy and copyright infringement of our works on the Web. That consists of, I would say, three principal approaches.
앫 One is education and public awareness. John referred to educating users as something that is rather noncontroversial and something all of us should do. I agree; it is certainly something all of us should do, and something that each of us, whether in the academic community, or in copyright-driven businesses, should take seriously. Why is it important? I believe that most consumers do not intend to be copyright infringers. As new technologies emerge and expand a user’s technical ability to access and make use of works, it is partially our responsibility to put those uses in the proper context. While we embrace new technologies, we also need to combat the conditioning that sometimes occurs and that leads users to believe that any sort of use that one might be able to make of a work by using technology that is available in the marketplace is legal or fair or should be authorized. The only way we can do that is by educating consumers as to what the copyright law allows and does not allow. And, by the way, as services for exploiting and distributing user-generated content are becoming more and more popular, these education initiatives should include educating users about their rights as creators of works. 앫 Technology, which is the second approach we employ to deal with unauthorized uses of our works on the Internet, plays a part in that. The goal when we employ technologies to help distribute works digitally is not to lock up content, but rather to authorize the greatest and widest variety of uses of content that we can imagine, and to use Digital Rights Management (DRM) and other related distribution technologies to establish guideposts for consumers that allow them to understand the differences between the various options that they are being offered for a particular piece of content. My view on DRM systems is that they need not be perfect or impenetrable to work and to be useful. If part of the goal is to establish guideposts for consumers who want to use content legitimately, then what we first need to do is to ensure that the sorts of systems that we are implementing, the sorts of uses that we are authorizing, are ones that consumers are interested in taking advantage of. There is a lot of discussion in the media, and among critics of DRM systems, about the “cat and mouse” game that those deploying DRM solutions sometimes play with hackers. One way of limiting the damage a hacker can do to a DRM system is by seeking to meet
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legitimate consumer interests in deploying systems in the first place. Although it is probably true that every technology is hackable, and that those which are deployed by big companies are particularly attractive targets to hackers because of the mischief hackers can create and the publicity they can generate in hacking them, I think consumers conduct a cost/benefit analysis when they are determining whether or not to use a particular hack that might be available on the Internet. Even though a technology might have been compromised in some way, it still carries some value, to the degree that a consumer finds that it is not worth the added expense or added trouble to employ that hack in order to get access to the work in totally unprotected form. That argues for more transparent and more flexible protection measures being developed. I think those are being developed and are being deployed. I think some DRM systems will succeed better than others. Those are likely to be ones that are deployed with a broad amount of discussion among industries, so that there is a greater understanding of the types of technologies that are likely to be offered in the future by our colleagues in other Industries, and the technological landscape in which the DRM or other distribution technology will have to operate. 앫 I think all of these approaches are important, but equally important is to offer compelling and legal content offerings to consumers. This is the third prong of our approach towards battling infringement on the Internet. We at Time Warner have been, I think, at the forefront of offering some very interesting and compelling offerings to consumers. Everyone is familiar with Video on Demand (VOD) and Subscription Video on Demand (SVOD). That has been an enormously popular digital distribution method for consumers, whether it is delivered via cable or via the Internet. Roughly half a million buys of Warner Home Video content alone on services like CinemaNow and Movielink illustrate that consumers are not always interested in a permanent copy of a show or movie, and that they are willing to pay a different price to watch it once and not retain a copy for future watching. Those sorts of demarcations on DRM systems are valuable and useful to have. But we are not stopping with these sorts of basic offerings. We are exploring various other options and various other means of distributing content, including bundling e-copies of content with DVDs when they are sold as physical goods, at some incremental cost. We are doing a variety of electronic sell-through deals. Many of those deals allow for additional copies to be made of the content so that it can be moved to portable devices or moved to other devices in your home, so that you can take the content with you or view it in different rooms, at your convenience. We have done a variety of deals with technology providers, like BitTorrent and with mobile technology providers, which I think is important on a variety of levels. One, I think it illustrates that we, as well as our colleagues across the industry, recognize that technology is an opportunity for us and that a variety of technology platforms may serve our interests in distributing content. Even those technologies that in the past were associated primarily with infringing content. Warner Brothers was, I believe, the first company to partner with BitTorrent in developing the now-legal BitTorrent service, which offers both VOD and download models to consumers employing peer-to-peer technology on a day-and-date basis with the DVD release of the content. The offering that we are presenting allows the consumer to make a permanent copy plus three backups. It allows you to burn a disk that can be played on the PC to which you
88 SESSION II: COPYRIGHT downloaded it. You can stream the content around your house to watch it on other devices in your home. The pricing on certain of the offerings is as low as $0.99. A comparable deal is one that we did in Europe with In2Movies, which was a joint venture with Arvato Mobile, that also employs peer-to-peer technology to distribute the content. The model that we are using there allows the consumer to download, to own the content, and to obtain four additional copies for their PCs and for portable devices that they use. Again, it is available day-and-date with the DVD release. These are all models that we are exploring, and they are all models that rely heavily on the availability of DRM systems —first, to give us sufficient comfort to release content in digital form into the marketplace; and second, to distinguish for consumers the differences between the offerings that are made to them. I was going to close with a quick discussion on user-uploaded content sites and how we are viewing those, but I think that is something that was well handled already by the earlier panel, so I will cede the last minute and thirty-five seconds of my time back to Mort. MR. GOLDBERG: Michael Schlesinger. MR. SCHLESINGER: I have come to view copyright as an economic and social pie that can grow. It does not seem to me that it is a zero-sum game. That is why I think the economic studies that have been done over the years, both in the United States and in many other countries, and the ones now being conducted by the World Intellectual Property Organization (WIPO), are replete with data showing that strong copyright protection results in increased contributions from creative industries to national GDP, job creation, tax revenue growth, foreign sales and exports — all the positive commercial benefits. That is why legitimate right-holders are often in the best position to bring to market more culturally diverse materials and expand protection and promotion of great literary, artistic, cinema, and music software from around the world. We are also seeing that the copyright pie can shrink or become tainted. The starkest way to look at this is what I do every day. Those who espouse illegal uses of copyright I try to fight. We call it piracy. They view it, in many countries, as a legitimate business model. Again, it is risk management for them: The profits are far higher than any risk of ever getting caught. Of course, here I speak not of people in this room, but the commercial actors and markets around the world. They simply find the profits from unauthorized use of copyright so desirable, and such profits so outweigh the risks of getting caught, that it is an easy business decision. Ethics never really enters into it. But there are other ways that the pie can shrink. We heard this morning a discussion about democratization of creativity. I am the first to say that I love Google and I love to use Google for search. I love to see collaborative efforts that are authorized. But the question is: Can those who democratize collaborative works make a living at it, or do they work nine to five and then “communitize” or democratize after work? Does the communitization or democratization of creativity have the potential to shrink the pie? I do not have answers today; I am just asking the questions. I have seen all the economic studies on copyright. I just am noting it. Does the pie become tainted by unauthorized uses of copyright — for example, unauthorized adaptations? Mash-up culture is great, if everybody agrees and no one is hurt. What happens when not everyone agrees or when there are modifications made to content that can distort or mutilate it? I was very glad to hear John mention education in the schools in the previous panel. I think that is one of the most important things that our generation of teachers and
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lawyers need to do. WIPO will hold an Intellectual Property Day event on April 26, in which young high-schoolers will participate. One of the high schools that is featured, which I work with on a yearly basis, just completed a Concerto for Guitar and Orchestra that was performed by the Northern Virginia Community College Orchestra. I spend as much pro bono time as I can on copyright awareness. I believe that it is an extremely important part of what we are talking about here today. I think Thomas Rubin is also right, that the surround is more heterogeneous and that it is possible that all of these can coexist, that you can have a pie that both grows in terms of content owners and also is richer in terms of the number of people who are engaging in creativity. The heterogeneous surround requires heterogeneous approaches or solutions. Fred has mentioned some approaches; others at this table have mentioned others. There is even a place for litigation to deal with it when we cannot figure it all out, such as an opt-out approach to copyright, rather than an approach to copyright that views the rights as default rules, where the right-holder has the ability to decide whether to authorize or prohibit uses of copyright. I think that is at the crux of what this litigation is about. I applaud Fred’s attempt in his comments to try to bring the gap closer together. I think, in fact, that may be the case. On the other hand, I do think that there are fundamental issues involved in the litigation. I would like to point to a couple of examples of copyright and non-copyright approaches that seem to be working — or not working, in some cases. First, with copyright, I want to talk a little about the encouraging recognition that I see in the international decisions dealing with secondary liability. Commercial actors that generally exhibit more or less respect for copyright and who take steps to foster, or fail to take steps to prevent, infringement are being held accountable in these cases, whether or not they are infringers themselves. The clarification of secondary liability in the United States, in Australia, in Korea, in Japan, and in Taiwan demonstrates this trend. I think Australia KaZaA is a very good example of a reasonable approach to the issue. Of course, it led to litigation.1 If the Australia KaZaA folks had decided to engage in the kind of filtering that was available at the time, perhaps it would not have led to the end result, which is that the court said: “You, commercial actor, have the technology in front of you to help consumers do the right thing. Now do it. If you do not, we, the government, with an interest to protect authors and right-holders, not just those who have the capacity or wherewithal to step forward, will stop you.” I think the point in that parenthetical is very important. There are right-holders who are not in this room, and who do not have the capacity to come forward to a Google or to another service, but deserve to be protected just as much as the larger right-holders. Then there are non-copyright approaches to the issue of unauthorized use. I will just speak to the physical realm, which is the realm that I deal with most of the time. I suppose, just as a rhetorical question, I would pose this: Are there approaches in the online space that are similar? I deal with CD, DVD, and CD-ROM piracy on an everyday basis. I think the example is instructive, since, as in the online environment, it involves relatively finite legitimate demand — in this case, for disks — around the world, but rapidly increasing production capacity, and indeed massive overproduction. In order to protect those that have applied a roadmap to respectability, those plants that license and that produce legal disks, and do a great and important service, in fact, to 1 Universal Music Aust. Pty, Ltd. v. Sharman License Holdings, Ltd., [2005] F.C.A. 1242 (KaZaA), available at http://www.austlii.edu.au/au/cases/cth/federal_ct/2005/1242.html.
90 SESSION II: COPYRIGHT right-holders all over the world — not just right-holders that request that their rights be upheld, but all the time, as a default — mechanisms such as source identification and things similar to what we would view as a Rights Management Information (RMI) or a DRM approach have been introduced. Source identification is not a copyright concept, in a sense, because it is a relatively basic forensic tool. Like a DRM, it provides information: Where was the disk produced? Can it be matched to a legitimate license? What are the terms of the license? There are also cruder forms of identification, such as microscopic examination of evidence on disks. The point is that Source Identification Code (SID Code) works remarkably well at identifying plants producing unauthorized copies of copyrighted material. In addition, there are now measures in place to prohibit wrongful tampering with the SID Code. Again, all of these things in the physical realm look very similar to some of the DRMs. When I was asked to talk about non-copyright systems, I wanted to speak with you about something I know that possibly is applicable in the online environment. I think the optical disk area is one way to look at it. There are other forms of non-copyright approaches to protecting copyright, such as authenticity of labeling, the authenticity of holograms used by legitimate right-holders. There are also some other systems, like government-mandated holograms or stickers, which simply do not work quite as well. So as we work through these processes in the online environment, maybe it is instructive to take a look at the physical environment and see how some of these systems and approaches have worked. MR. GOLDBERG: Thank you, Michael. Before we go to the experts in our audience, what about the experts on the dais? Any comments, questions? Do you agree with everything you have heard? PROF. FITZGERALD: I would like to make a short comment. There is a certain theory by Joseph Schumpeter, who was an economist who wrote in the 1940s, which suggests our economies grow by being challenged by new ways of doing things.2 The whole theme of this panel to some extent — unauthorized use in the form of seamless access, someone sitting in front of a screen and with the click of a button being able to access content and reutilize it — is one of those challenges for our economy and asks us to consider how such a new way of disseminating knowledge and culture will be integrated into our business and legal frameworks. One of the critical things from a legal perspective is that we need to put in place appropriate and workable licensing models from the very commercial end to the very open end. One of the great challenges for us is to see how we can accommodate this new technology. In the next ten years we will no doubt see a completely different business and legal environment. And Schumpeter may well be right, that the innovation that we are being challenged with now will be the new business model of the future. A lot of the things that have been mentioned by Time Warner are things that five years ago we would have thought, “Why aren’t big businesses doing these things? Everyone one else wants them to do it.” Now they have actually started moving on a lot of those things. I just wonder what the next five years will show us in that space? MR. GOLDBERG: Sandra? MS. AISTARS: I would comment that one of the core reasons for us being able to do the 2 See, e.g., Joseph A. Schumpeter, The Creative Response in Economic History, Journal of Economic History 7 (1947); Joseph A. Schumpeter, Business Cycles: A theoretical, historical and statistical analysis of the capitalist process (McGraw-Hill Book Company) (1939).
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things that we are doing in the digital environment is the Digital Millennium Copyright Act (DMCA),3 as much criticized as it is by participants in this forum sometimes, and the support that it gives to DRM. I think people like to point to the DMCA and point to DRM technologies and say, “Look, it’s going to be a horrible world where all content is locked up,” and “The DMCA hasn’t served us well,” and “We haven’t rolled out the promised new opportunities.” I think that is not the case. Time Warner is not alone in this. Look at our colleagues in the movie industry. Look at our colleagues in the recording industry. Everyone is experimenting with new business models. MR. PALFREY: Just to be clear, Sandra, are you referring to Section 1201 in that context? MS. AISTARS: Yes, I’m talking about Section 1201. MR. GOLDBERG: Michael Einhorn? MR. EINHORN: The only thing I would add on this point is that law does not have to solve all the problems at the immediate moment. Markets have a way of working things out. For example, if we consider since 1914 how much infrastructure has developed to protect the performing right, we are tempted to ask: What made it possible for all that to happen? The law only did one thing to facilitate all this: it simply recognized the right of public performance. After that, everything was handled by private institutions — ASCAP, BMI, SESAC — as well as some licensing organizations formed by the users, such as the Radio Music Licensing Committee and the Television Music Licensing Committee. All this infrastructure arose because the law says “a performance rights exist,” end of story. The same thing here in connection with business models and collecting societies. A lot of work has to be done. A lot of it has to form, congeal, work things out. The important thing for Congress is to define the laws very clearly and establish the standards that can be used. MR. GOLDBERG: Is there a comment or a question from the audience?? QUESTION [Ed Lee, Moritz College of Law, Columbus, OH]: I wanted to push back a little bit on this. There seems to be a sentiment, especially in terms of the education, that in the online video space there is an easily definable category of infringing unauthorized uses of what we might call time-shifted clips. I do not think that category is actually that easy to determine. So, for instance, the CEO of CBS is on record basically saying that CBS wants to promote the mash-up culture and being able to use clips of CBS shows.4 CBS is in a partnership with YouTube and putting clips of CBS shows online. So that is one case where it is not clear that even the copyright holder has a problem with what people are doing on YouTube. The other case is involves Viacom’s “Comedy Central” shows.5 Stephen Colbert made several jokes about having his shows on YouTube. The producer of “The Daily Show” made a joke about it as well, and he specifically stated in an interview that they wanted to have a compromise where some of their shows would be okay to be put on YouTube. So I don’t know if the category of time-shifted shows or clips of shows is actually that easily condemnable. MR. GOLDBERG: Let’s see if we have some comments here. John? 3 Digital Millennium Copyright Act (DMCA) of 1998, Pub. L. No. 105-314, (codified at 17 U.S.C. § 512 (1998)), available at http://www.copyright.gov/title17. 4 See Leslie Moonves, Chief Executive Officer, CBS, Keynote Address Before Con-sumer Electronics Show (Jan. 9, 2007), available at http://www.cbscorporation.com/media/ pdf/CBS_CES_Moonves_speech_FINAL.pdf. 5 Viacom Int’l, Inc. v. YouTube, Inc., 2007 WL 775611 (S.D.N.Y. filed Mar. 13, 2007).
92 SESSION II: COPYRIGHT MR. PALFREY: Just to be clear, the point of raising the education issue was not that we can teach everybody to be really good copyright lawyers who all can analyze Section 107 perfectly. That’s not the point. There is clearly going to be a zone in which it is going to be tricky to know. I totally credit Les Moonves and others for what they are doing in that respect. What I was thinking about is a really simple idea. School kids, these digital natives, are all the time creating new stuff. Put them in the curriculum in that position of a creator. They will see the rights coming in, the shoulders of giants they are standing on, and then they will also be in the position of a rights holder and realize somebody else might reuse this at some point. I think introducing the tension and the basic facts could get us a long, long way, but not to perfection, in terms of understanding. To Alex’s point, the knowledge thing is going to be really tricky. MR. GOLDBERG: Alex? MR. MACGILLIVRAY: One thing that I would add is something that is somewhat underplayed in the DMCA. That is the flexibility that it gives content holders to figure out whether they want to have something up at a particular time, or a particular day, or from day to day. I think it really builds on that example. We have had lots of occasions where we have had a DMCA notice over something and then found out that the same company that sent us the DMCA notice was actually the user that posted it, that the DMCA notice was a mistake, that they didn’t mean to take down their own video that they had uploaded themselves. There are just as many examples of companies that believe, at least for the time being, that having this stuff up is a good idea. Again, one of the nice things about the DMCA is it gives the content holder that ability to give it a try for a little while, see what the results are; and if they don’t like it, they can always send a DMCA notice and get it removed quickly. MR. GOLDBERG: Don? MR. VERRILLI: I have two points in response. First, that is not the flexibility in the DMCA. That is just what any right-holder has, which is the option to enforce or not to enforce your rights. I don’t really think that has anything to do with the DMCA itself. It is just your option to decide what is in your interests as a right-holder. Second, going back to Professor Lee’s point — and what I think is troubling and does not really confront the issue — yes, you are right, there is some risk of the category being over-determined. But it seems to me that then you have to confront the issue that what that means is that, because of that fact, you are going to allow all of the other non-over-determined illustrations to go on and all of that infringement to occur. It is really not hard when you see the latest episode of a particular television show chopped up into three pieces on there in sequence. The fact that there may be some difficulty at the margin seems to me not to be a good enough answer to the question about “What about all that stuff that’s not at the margin?” MR. GOLDBERG: Sandra? MS. AISTARS: I think Don has pretty much made the points that I would have made. MR. GOLDBERG: Bruce Lehman? QUESTION [Bruce Lehman, Akin, Gump, Strauss Hauer & Feld, Washington, D.C.]: Is now the time for me to ask my question to Alex and Sandra? I think they represent the two sides of this issue. We hear all about DRM, and certainly I understand that, but certainly in the YouTube situation, the examples that we saw in the earlier panel, we are basically dealing with amateur video makers who want to assemble various kinds of
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content, some that they make, some that may be in the public domain, and some that may be under copyright. We certainly have seen the very effective use of collective licensing in other areas of copyright. Indeed, in the music business now, with regard to the new performing rights for sound recordings, we see the development of sound exchange and so on and so forth. Let me ask you, Alex, if that is something that you have looked into. Would you be willing to tolerate some kind of collective license, where maybe you would pay some kind of blanket fee that would be distributed among content owners according to the basis of use? MR. MACGILLIVRAY: We are not even waiting for the collective rights society to magically emerge. We are out there every day doing deals with content holders to get their content up and to have them also be able to authorize and get payment for the material that they believe is theirs but is uploaded by users. It is something that we are doing every day. We keep getting new partnerships there, and we have a whole fleet of lawyers that do that. QUESTIONER [Mr. Lehman]: Obviously, that is content owner by content owner. You still have holdouts. You still have a problem then, because you still have infringing material. Is there any discussion of a collecting society on either side or not, or is this something you are not interested in? MR. MACGILLIVRAY: Bruce, let me just segue to push it to the content owners. I think that the idea of forcing content owners into a deal is not something that we are typically concerned with. If the content owners want to do collective licensing, great. If the content owners want to do one-off deals, we’ve got the resources to help them with that. If they want to not have any of their content available on YouTube, that’s okay too. We really leave up to the content holder and what they want to do. MS. AISTARS: From the content owners’ side, we have been focusing on direct deals with companies, rather than on a collective licensing approach. The thing that is important to understand when we are thinking about user-uploaded content sites — and Fred alluded to this — is the fact that maybe there is a middle ground, maybe we can work things out; we’ve got technology that we can rely on. If you are talking about administering any sort of a licensing approach, there is a kind of two-step process. The first is identifying what is out there and whose it is so that you can deal directly with that person, or deal directly with the agent that they have authorized, whether it is a collective licensing agency or otherwise, to handle the approach to the content. The second part of the puzzle that is necessary is some effective form of actually having that license, or having information about the content attached to the content, such that the decision can be made on a technology basis and not by either the user-uploaded content side or the content owner employing huge staffs of people to sit and review clips that are appearing on a site on a daily/hourly/minute-by-minute basis. What that seems to require, at least from my perspective, is that, as a baseline, sites that are doing user-uploaded content employ some form of technology at the front end to be able to identify what is going up. Is it my video of my cat, or is it my favorite clip of something from “Adult Swim?” Once that technology is employed, then you can determine: Okay, if it is the “Adult Swim” content, does Turner authorize that content to stay up so long as whatever advertising that is associated with it is no removed? MR. GOLDBERG: We have another question. Fred? QUESTION [Fred von Lohmann, Electronic Frontier Foundation, San Francisco]: I want to add a little more context to Bruce’s point and sound another note of optimism. I
94 SESSION II: COPYRIGHT think we have the beginnings of a collective approach, de facto, already. You see the music industry licenses that were struck with YouTube, where Universal and EMI both essentially said, “When things go up that are ours, we will have the option to either send the takedown or participate in ad revenue that may be yielded.” Now, I know as a legal matter that is not a direct license to end-users, but as a practical matter it essentially sends the message to end-users that you can use their music in any way you like and, at least in many circumstances, they will happily accept payment. I think there is hope that some of these new original licensing approaches may yield what will operate very much like a blanket license. I think for many rights-holders the payment would be sufficient. Now, Sandra raised this issue, so I have to ask her: When you suggest front-end filtering, you say, “Sure, my ‘Adult Swim’ clip maybe shouldn’t go up.” But what if that “Adult Swim” clip is embedded in a parody, a satire, a mash-up, a who knows what? Are you suggesting that the kind of front-end filtering you are talking about would do more than simply block verbatim copies? MS. AISTARS: I am not suggesting one way or the other what the outcome should be once you’ve identified that it is ”Adult Swim” content. I think that is up to each individual. QUESTIONER [Mr. von Lohmann]: That it is that content or that it merely contains that content? MS. AISTARS: I think it is actually the same question ultimately, because the only way you are going to get to the question as to whether it is an authorized or an unauthorized use, whether it is something that is arguably a fair use, is to first identify what piece of content we are looking at. Also, do I need to look at it as Turner, for instance, with “Adult Swim?” Do I need to even review that clip to determine whether I am licensing it or not licensing it? I don’t want to throw cold water on this coming together of thinking on the topic here, but I think there is a very important question that we have been brushing under the table: Whose obligation is it to take the initial step to do the screening? Alex and Don discussed it. Alex was saying, “We don’t treat anybody who is not our partner differently in terms of the takedown tools we offer them, and the ‘claim your content’ tools.” I’m sure that is right, but that is not really what the debate is about. The debate is about whether something needs to happen on the front end, at Google or at YouTube, or whether the obligation is being shifted somehow to the content owner to monitor the site and to take things down. MR. GOLDBERG: John Palfrey has a comment or question, after which we will go to Dick Rudick. MR. PALFREY: Actually it turns out to be on roughly the same topic. I would be curious what those who are in the content-owning industry think about the collateral damage of the takedown process. I am troubled by this. I am not sure how to feel about it exactly, and Fred has done more work on it than I have. When Viacom sent 100,000 notices to Alex and YouTube saying “these things need to be taken down,” as I understand it, Google took them all down. I was told that in that mix at least sixty were found to be non-infringing. One of them was a close friend of mine in a ribs joint near here. It was really boring. It was thirty seconds of a couple of guys talking about OPML, some obscure technology. I don’t know why, but it got caught up in this. There certainly were many others of that sort. There is currently a back-and-forth with the NFL about a clip that Wendy Seltzer, who
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is a Fellow at our Center has put up, which has been up and down a few times, which she is using in her teaching as an example of a fair use case, for instance. So there are things that are sort of the collateral damage getting caught up in the cease-and-desist process. I wonder how we think about that. MR. GOLDBERG: Don? MR. VERRILLI: I’ll address that. You know, sixty out of 160,000 is pretty good. Remember that we are doing this approach because this is what YouTube told us we had to do to protect our copyrights. The whole point here is that YouTube says to us and the other copyright owners: “It is staying up there until you send a takedown notice.” When you are talking about the volumes of works that we are talking about hundreds and hundreds of thousands of them, you are talking about a very daunting endeavor. My sense of it is somewhat more optimistic in terms of the collateral damage. It really was a pretty small percentage of the overall activity, and it was, as I hope events will demonstrate going forward, something that Viacom had no intention of inflicting, and has tried to act responsibly once it has learned about it to try to get that material back up. MR. GOLDBERG: Thanks, Don. Dick Rudick? QUESTION [Richard Rudick, John Wiley & Sons, New York]: As the Director of the Copyright Clearing Center, I am very pleased at all the excitement and interest in collective licensing, which I think has to be part of the brave new world. I would like to take it to another place because it is as important for the efficient operation of search engines as it is for the efficient operation of operations like YouTube. I want to tie it in with something Marybeth Peters said this earlier morning. She talked about focusing on authors and on what I’ll call small producers (could be small publishers). It is not enough that Time Warner and Google can get together. For copyright to work in the interests of readers and society and the creative community, you have to have efficient mechanisms that work not only for large corporations, for their content, but for small providers, not all of whom are individuals — small companies, producers of documentaries. So I think we do need this universe of content collecting societies. I think, out of fairness to Google, if we want them to pay — and we have disagreements about what they should pay for and how it should all work — and if we want them to respect our vision as content owners of copyright, we need to provide efficient mechanisms and we need to cover the content of the small producers. MR. GOLDBERG: Very good. One last question or comment. We are running out of time. QUESTION [David Brennan, University of Melbourne]: I was just wondering how YouTube places obscene material on its site and whether that process is entirely complaint-reactive? MR. GOLDBERG: Who wants to respond to that? Alex? MR. MACGILLIVRAY: Very quickly, we do it in a similar way to the DMCA, where our users actually tell us when something is pornographic, as opposed to in copyright, where you cannot tell whether it is unauthorized or not on the face of it. If there happens to be naked genitalia, that is something that we mark as pornographic. But it is after the fact. Just be glad I didn’t say “ass.” MR. GOLDBERG: On that note, I want to thank very much the experts on our dais. Thank you very much.
SESSION II: COPYRIGHT PART C: COPYRIGHT ISSUES IN ONLINE MUSIC
SESSION II: COPYRIGHT
Part C: Copyright Issues in Online Music
Moderators ERIC J. SCHWARTZ
Mitchell Silberberg & Knupp, LLP (Washington, D.C.) PROF. SILKE VON LEWINSKI
Max Planck Institute for Intellectual Property (Munich)
Speakers ZOLTÁN BÁCSI
HOWARD P. KNOPF
Legal Advisor, European Parliament (Budapest)
Macera & Jarzyna LLP (Ottawa)
JACQUELINE CHARLESWORTH
TILMAN LUEDER
General Counsel, National Music Publishers Association (Washington, D.C.)
DG Internal Market, European Commission (Brussels)
ELLIOT PETERS
Vice President, Senior Counsel & Head of Digital Legal Affairs, Warner Music Group (New York)
Panelists DAVID O. CARSON
DAVID JONES
Associate Register for Policy & International Affairs, United States Copyright Office (Washington, D.C.)
Principal Program Manager Microsoft Corporation (Alexandria, VA)
98 SESSION II: COPYRIGHT MR. SCHWARTZ: We will continue the copyright issues, focusing now on digital music issues. Good afternoon. My name is Eric Schwartz, from the law firm of Mitchell Silberberg & Knupp. I will provide a brief introduction and an overview of the U.S. digital music copyright issues. First, let me briefly describe the setup of this panel. Silke von Lewinski from the Max Planck Institute, my co-moderator, will begin with an introduction of the European Union digital music issues. Then we will have Tilman Lueder, who needs no introduction, and Zoltán Bácsi from the European Parliament, speak on digital music and collective administrative issues in the European Union. We will then do a quick stage change and have three speakers speaking on the United States: Jacqueline Charlesworth from the Music Publishers Association; Elliot Peters from Warner Music Group; David Carson from the U.S. Patent and Copyright Office; and David Jones from Microsoft. Then, last and certainly not least, Howard Knopf will speak on Canadian issues. Todd Larson, who was going to represent Digital Media Association (DiMA) and the webcasters, was taken ill and is unable to be here this afternoon. Let me now turn the program over to Silke. PROF. VON LEWINSKI: Thank you very much. Good afternoon, everybody. One year ago we talked about the European Commission’s recommendation on online music licensing.1 Tilman Lüder presented the recommendation, and we had some panelists with controversial views about its possible consequences — since it is a non-binding instrument, one cannot easily know what the outcome will be. At the time, as has become usual at Fordham, we held our crystal balls in our hands and tried to predict what would happen. The only thing we were really sure of was that we would come back here one year later and know more. This year we know a little bit more, indeed — at least about what happened as a consequence of the recommendation. The recommendation aims at promoting competition between collecting societies as regards online music licensing in favor of the right owners, who are now enabled to choose one or several European collecting societies for online music licensing instead of having to address all of each country individually. I am very glad Tilman is here to tell us about the outcome of the recommendation to date from the European Commission’s point of view. MR. LUEDER: [Remarks here and throughout the following discussion deleted at request of Mr. Lueder. Please see related paper by Mr. Lueder in the Appendix at p 1031.] PROF. VON LEWINSKI: You know that, apart from the European Commission, we have other institutions in the European Union that dislike this instrument for many reasons, namely, the Member States, the Council, and the European Parliament. I am glad that we are able to have on this panel a representative of the European Parliament, Dr. Zoltán Bácsi, who is Legal Advisor to Mme. Lévai, the Member of Parliament who was responsible for a report on the recommendation of the Commission that was adopted by the Plenary of the European Parliament just in time for the Fordham Conference, namely on March 13th.2 1 Commission Recommendation of 18 May 2005 on Collective Cross-Border Management of Copyright and Related Rights for Legitimate Online Music Services (2005/737/EC), available at http://ec.europa.eu/internal_ market/copyright/management/ 2 European Parliament, Legal Affairs Committee, Report on the Commission Recom-mendation of 18 October 2005 on Collective Cross-Border Management of Copyright and Related Rights for Legitimate Online Music Services (2005/737/EC) (2006/2008(INI)), DOC A6-0053/2007 (Mar. 5, 2007), adopted at first reading, Mar. 13, 2007, available at http://www.europarl.europa.eu/sides/getDoc.do?Type=REPORT&Reference=A62007-0053&language=EN.
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This report takes a quite different approach. It focuses on issues that would probably not at all be issues in the United States, such as the consequences of the recommendation on cultural diversity and on the individual author, the importance of the cultural and social role of collecting societies, the importance of the work of smaller collecting societies, right owners, and of local repertoire, the solidarity function of these societies; and the unwanted effect of the recommendation, namely, to strengthen mainly the most profitable right owners. Even if the report is not legally binding, it has a political weight that should not be underestimated, all the more because the report was adopted by unanimity. After all, the European Parliament represents the voice of the people, so to speak, with this report. With this short introduction, I pass on the floor to Dr. Bácsi. DR. BÁCSI: Thank you very much. It is a great privilege to be here and to describe, I can say now, the position of the European Parliament. It was adopted by unanimous vote, not only in the plenary session, but in the Committee on Cultural Affairs and Committee on Legal Affairs as well. So there is strong support. I do not believe that the European Commission has the one and only solution, and not even the European Parliament, but we should avoid the threat of the wrong answer. I will talk about the resolution of the European Parliament and say a few words about the importance of the copyright sector in the European Union, not only its huge representation in the EU GDP, but the importance of making sure that the copyright and neighboring rights in this growing digital domain are managed properly to benefit all involved, not only for a few. You know the present license scheme, so I can skip it. You know the current system of music rights licensing, the flow of rights from the right-holders to the collecting rights managers, and the commercial users as well. It is typically European. You have the acquisition of local repertoire, on a basically national basis, and then, under step two, the acquisition of worldwide repertoire. It is a network of representation agreements, so-called reciprocal agreements. There are two main models in the new licensing sector. Actually, the difference is that the Commission advocates in its recommendations Model D with the so-called Option 3, while the Parliament has indicated a preference for Model E, not Option 2. It is a modified compromise between Option 2 and Option 3.3 I would like to stress just one aspect of the recommendation. The recommendation carries no force of law. It is a so-called “soft law.” It does not need the consent of the European Parliament or the Council. Nevertheless, this recommendation is having a very tangible impact in the market, equivalent to that of binding legislation. Theoretically, it is non-binding legislation; however, in practice it acts like binding legislation, but without the consent of the Parliament and the Council, the so-called “legislative triangle” of the European Union. As was mentioned, there are three options under the Commission’s recommendation. My first problem with the recommendation is with its impact assessment. I think it is a wrong simplification of this very important and very complex area of the copyright 3 The EC Study on a Community Initiative on the Cross-Border Collective Man-agement of Copyright, released in July 2005, proposed three options for the improvement of the current situation: (1) do nothing; (2) suggest ways in which cross-border cooperation between national collective rights managers in the 25 Member States can be improved; (3) give right-holders the additional choice of authorizing a collective rights manager for the online use of their musical works across the entire EU. European Commission, Commission Staff Working Document (2005): Study on a Community Initiative on the Cross-border Collective Management of Copyright (July 2005), available at http://europa.eu.int/comm/ internal_market/copyright/management/management_ en.htm.
100 SESSION II: COPYRIGHT sector. Ladies and gentlemen, you are the best experts of the copyright sector, so you know it is not easy to simplify this area and this very fast-developing domain. So I think it is a wrong simplification of this area. We do not support forcing one business model on the market. We would like to see that all the stakeholders are able to determine the best solutions in the different areas, find the best solutions for the different sectors of the digital online copyright area. I think that these are two conflicting concepts. Basically, we have to say that the European Parliament does not support Option 2. With the controlled and moderated competition, it is supported among societies, on the basis of the rights administration service, not underlying right royalties, and because it avoids a downward spiral of the royalties. The EMI Music Publishing approach could illustrate this. For example, EMI Publishing has rights from all existing European CRMs. I think it may be the first bad sign that these myths are not only myths but real dangers. Just a few words on the “soft law” approach. The European Union is unhappy with the “soft law” approach. By failing the Parliament and the Council, we think the Commission has bypassed the democratic process. Yet the recommendation is impacting the market as if it were binding law. Theoretically, as I mentioned, it is a non-binding act, but in practice it has the effect of binding law. The European Parliament’s report sent a strong signal to the Commission that it is unacceptable to ignore the legislative triangle on highly relevant issues such as this and calls for a framework directive, which is a legislative act, instead of the “soft law” approach. Some words on cultural diversity, which I do not think is only a myth. You know that it is a very important question in Europe. The motto of the European Union is “Unity in Diversity.” The European Parliament believes that the introduction of competition among collecting societies in the Internet and digital age is necessary and is compatible with the cultural diversity, but not in the rather rude manner proposed by the Commission. Our objective was to find a good balance. I think we found a good compromise between Option 2 and Option 3. This compromise aims to provide guarantees to rightholders and one-stop shops for the users of music, as well as to promote cultural diversity through introduction of controlled competition. The main elements of the European Parliament’s proposal: 앫 Prefers the reciprocal system of the collecting society in Europe. 앫 Encourages introduction of competition among collecting societies for the right-holders in a controlled manner — this is very important — and not the “big bang” approach of the Commission. 앫 Guarantees that individual right-holders can continue to join the collecting society of their choice. 앫 Promotes availability of the world repertoire — this is important — for all collecting societies, large and small. 앫 Argues for solidarity — this is important — and equal treatment between authors and publishers affiliated with collecting societies, important European issues. 앫 Prevents exclusive agreements between major publishers and a few large collecting societies, thereby creating an oligopoly situation in Europe. (I do not think this is only a myth.)
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앫 Introduces competition on the quality and efficiency of services provided, but prevents forcing down the level of the royalties. 앫 More important, the one-stop shop for users seeking to obtain a pan-European license. 앫 Calls for a directive reflecting these objectives to demonstrate the European Parliament’s support for strong cultural diversity in Europe. I think all these elements are important. PROF. VON LEWINSKI: Thank you very much. I believe that the last-mentioned element is probably the most important one, which directly leads me to a question for Tilman Lueder. The actual proposal by the European Parliament is that the European Commission should propose a legislative act — instead of a non-binding unilateral measure, such as the recommendation — in the form of a framework directive, setting some common standards on the operation of collecting societies in the European Union, in order to enable them to work under common conditions and, accordingly, to allow for preconditions of fair competition. This is the ball thrown from the Parliament to the Commission, which is the only body with the right to initiate directives and other legislative measures, followed later by the participation of the European Parliament and the Member States. MR. BACSI: Actually, I cannot answer your question about the legislative act. Is it possible that the European Commission will prepare or launch a directive with the participation of the stakeholders, and the European Parliament counsel as well? I think that was one of the main elements of the question. Mr. McGreevey has chosen, instead of launching a legislative act, the same old “wait and see.” But I am afraid it is time to have a legislative act in this important area, not only a “soft law” approach. Just some remarks on diversity. I do not think diversity is equal to inefficiency. I think European diversity is an important value. Different national values could add additional value to the common European values. I am afraid I cannot agree with this definition of diversity, that it is the main reason for inefficiency. On the other hand, competition is very important. But the subject of this competition is not simply Hoovers or freezers or some simple things. It is subjective — for example, “the art of Europe.” I think some regulation in the case of this intellectual property is necessary. So I do not agree to competition without any regulation. Those are the main points. PROF. VON LEWINSKI: Thank you very much. Very good points, indeed. Julie? QUESTION [Julie Samnadda, European Commission Legal Service, Brussels]: Can I comment briefly on the concept of controlled competition? There is nothing in EC competition law and there is nothing in the EC Treaty4 that would prevent collecting societies from applying the full force of competition law to collecting societies. There is no argument to date that has been successfully made that would say that collecting societies have some sort of special-interest undertaking within the meaning of the Treaty. The 2005 recommendation was based largely on one of the Four Freedoms of the EC Treaty, which was the provision of services. It was an attempt to enforce decisions that were taken several years ago in the area of competition law that had to do with 4 Treaty on European Union, Feb. 7, 1992, 1992 O.J. (C 224) 1, [1992] 1 C.M.L.R. 719, 31 I.L.M. 247, amending Treaty Establishing the European Economic Community, Mar. 25, 1957, 298 U.N.T.S. 11, 1973 Gr. Brit. T.S. No. 1 (Cmd. 5179-II) [hereinafter EEC Treaty], as amended by Single European Act, 1987 O.J. (L 169) 1, [1987] 2 C.M.L.R. 741.
102 SESSION II: COPYRIGHT rights-holders being able to choose their service provider. I refer to the GEMA decisions of the late-1970s/early-1980s,5 where rights-holders wanted to leave their collecting society in relation to the administration of certain rights. You may have read in the press recently about one or two high-profile competition cases that have to do with iTunes and CISAC.6 Whilst I can only refer to what has been said in the press about these cases, both cases have underlying them market integration and the way rights managers in the European Union administer rights. As you will see from those cases as they play out over the next few years, what is at stake is the crossborder provision of services between rights-holders in the entire chain. The idea that there could be controlled competition in this area is something that has no legal basis. PROF. VON LEWINSKI: So we are back to competition law. Maybe someone else wants to focus on a different issue? The recommendation touches upon so many different issues. QUESTION [Sarah Faulder, MCPS-PRS Alliance Ltd., London]: MCPS-PRS Alliance in the United Kingdom is one of the co-venturers of GEMA in the CELAS Project. I am just curious, Mr. Bácsi, as to how you believe that the value of music, of copyright, can be maintained in a situation where you are encouraging societies to compete against each other for users. That seems to be one of the things that comes through from the report. I know you say in the report that the value should be maintained, and yet there are other contradictory statements that it seems to me make that impossible to achieve. MR. BACSI: That is why I mentioned that some regulation is necessary, because we have to avoid the situation you have mentioned, a cost spiral in the royalties. So we have some proposals in our report, for example, to use different and fixed tariffs in each country that is the location of the download, which can prevent the competition for the users and for the cost spiral of the royalties. So I think a model of some regulation, some mixture of the so-called Option 2 and Option 3, could prevent these dangers and could save the limits of the royalties, and the value of the music as well. PROF. VON LEWINSKI: I call upon the public. I know that some of you here are insiders. QUESTION [Cees Van Rij, Buma/Stemra, The Netherlands]: I made a comment last year in the same context. I would like to reiterate part of that comment. The reality is that for the small and medium-sized societies in Europe — and I am not here to defend the system overall; I know there are flaws in the system — the reality is that five of the major publishers have written letters to all of the European societies withdrawing their repertoire for online exploitation. Fact. This is not a myth, this is a fact. Now, what does that mean? That means that between 70 and 80 percent of the repertoire currently available to those societies will not be available to those societies for online licensing. That is a fact. The reality is that then the cost base for those societies does not diminish by the same proportion, clearly, so the right-holders that remain with those societies will have to bear a larger burden of the costs of operating the society. In addition, you split up the repertoire no longer according to territorial boundaries; 5 See Joined Cases 55/80 & 57/80, Musik-Vertrieb Membran GmbH and K-tel Int’l v. GEMA (Gesellschaft für musikalische Aufführungs — und mechanische Vervielfälti-gungs-rechte), [1981] E.C.R. 147, 2 C.M.L.R. 44. 6 See, e.g., European Commission, Press Release, Commission sends Statement of Objections to the International Confederation of Societies of Authors and Composers (CISAC) and its EEA members, Memo/06/63 (Feb. 7, 2006), available at http:// europa.eu/rapid/pressReleasesAction.do?reference=MEMO/06/63&format= HTML&aged =0&language=EN&guiLanguage=en; Press Release, European Commission, Competition: European Commission confirms sending a Statement of Objections against alleged territorial restrictions in on-line music sales to major record companies and Apple, Memo/07/126 (Apr. 3, 2007), available at http://www. europa.eu/rapid/pressReleasesAction.do?reference=MEMO/07/126&format=HTML&aged=1&language= EN&guiLanguage=en.
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you split up the repertoire according to who owns the repertoire and which society has the exclusive mandate. Now, isn’t there something about exclusivity in competition law? That is just in brackets. By splitting up the repertoire in that way, you create a system that is similar to the system that you say you dislike, which is having to obtain licenses from a variety of sources in order to create the world repertoire. Now, those societies — which, by the way, according to a 2004 study, contribute many times more to the preservation of musical diversity than the European Commission spends on its entire culture budget — need the Anglo-American repertoire. There is no myth about this. This is reality. Those societies need the Anglo-American repertoire in order to make ends meet for the right-holders of the Anglo-American repertoire as well as for their local right-holders. If you take away 60, 70, 80 percent of their repertoire, that part of what we call cultural diversity will not survive. Now, what does the Parliament mean by “controlled competition?” Probably what it means is, as DG Competition said it would accept in the CISAC case,7 that we can apply the rates in the country of destination. Thereby you do not get a race to the bottom with respect to tariffs, but you allow societies to compete with each other with respect to their own margins, their own commissions. That will create the drive towards efficiency for these smaller and medium-sized societies. I am not sitting here today saying that in ten years’ time we will still be left with twenty-four or twenty-five musical societies for authors’ rights in Europe. But what we have always argued is that the basis of competition law is that you should start out with a much-coined phrase, a level playing field. You should allow each of these societies to come to the starting line and enter into competition with each other on a level playing field. Then there will be some small societies that will survive. I would even venture to say that there will be some big societies that will not survive because, funnily enough, some of those big societies take bigger margins than some of the small societies. Some of the smaller societies are actually more efficient than some of the big societies. That is another reality, not a myth. We are not here to discuss myths. We are here to talk about the facts of life. These are the facts that we are currently dealing with in the European environment. PROF. VON LEWINSKI: Thank you very much for this very useful comment from practice, from real life. I believe that the concept of cultural diversity, which may be somewhat nebulous for some of you, certainly has now become clearer to everybody. PROF. VON LEWINSKI: Do you have something to add, Zoltán? MR. BACSI: Yes, just two comments. Unfortunately, as you can see the controlled competition, I can see the possibility of preventing the “one-stop shop” for a worldwide repertoire in the model of the recommendation of the Commission. On the other hand, I would like to hear something about the proposed legislative act, which was proposed by a huge majority of the European Parliament. PROF. VON LEWINSKI: Thank you very much. I guess the controversy will go on. It is not yet finished. A big round of applause for both of the speakers! I now pass it on to you, Eric. MR. SCHWARTZ: Thank you. Let me now invite Jacqueline, Elliot, Howard, David Carson, and David Jones from Microsoft to the podium. 7
See id.
104 SESSION II: COPYRIGHT While we are resetting the panel, I would just say that, having had a similar panel last year on EU issues and being only an observer, I had a great sense of déja vu on the sharpness of the issues that remain unresolved on territoriality, cultural diversity, and collecting rights societies. Let me provide a three-minute overview of music licensing issues in the United States. There are really four fundamental, overarching issues – all very different from those in the European Union. There are also some issues that equally pertain to rights-holders in the European Union. 앫 The first issue entails a deciphering of rights — what has become known as “rights clarity.” The fact is that music licensing and online music services are currently in operation without an understanding of when in a particular instance only the reproduction right and/or the public performance right is/are implicated. For example, currently at issue in the ASCAP Rate Court is the matter of whether or not downloaded music services are public performances. Absent private contracts, or so-called “all in” agreements, it is difficult to know in any instance whether users and licensees need to pay for reproductions, public performances, or both. And yet these systems are operating. 앫 Deciphering rights leads to the second issue: namely, the application and distinctions between types of musical services. The vernacular of digital music uses terms such as permanent copying, downloading, subscription streaming services, non-subscription services, and hybrids of this terminology, like conditional downloads. These activities may or may not correspond directly to the rights that need to be licensed in each instance, such as the reproduction, distribution, and/or public performance rights. 앫 The various payment options are overarching issue number three. These include: questions about whether or not payments should be a percentage of the service or fees collected or made on a per-unit basis; whether or not and when there should be collective management; and the development of new business models. It was interesting listening this morning to the predictions of what will happen in the next ten years. I think if you had backed up the clock three years ago and said to this audience that one of the fastest-growing markets in the music industry would be poorquality, $4.00-each, partial copies of a song — we know them as ringtones — everyone would have laughed. And yet, ringtones have gone from zero three years ago to, I believe, $2 billion a year in the United States last year, and something like zero to $6 billion worldwide in that same period, according to a recent article in Billboard.8 앫 The fourth issue is public policy. Who is going to resolve issues one, two, and three — the Copyright Office; the Copyright Royalty Board, the new entity; the courts; or Congress? That is, who will resolve the questions of deciphering rights, and, where necessary, altering or reforming rights, especially as they pertain to the mechanical license and other reproductions of music? If you have not seen Marybeth Peters’ testimony before Congress that she delivered in March, I urge you to take a look at it. It is on the Copyright Office Web site.9 8 See Billboard PostPlay, Ringtone Popularity Soaring (June 17, 2005), http://billboard.blogs.com/billboard postplay/2005/06/ringtone_popula.html. 9 Reforming Section 115 of the Copyright Act for the Digital Age: Hearing Before the Subcomm. on Courts, the Internet, and Intellectual Property of the H. Comm. on the Judiciary, 110th Cong. 1st Sess. (2007) (statement of Marybeth Peters, The Register of Copyrights), available at http://www.copyright.gov/docs/regstat032207-1.html; see also Music Licensing Reform: Subcommittee on Courts, the Internet, and Intellectual Property, 109th Cong., 1st Sess. (2005), (statement of Marybeth Peters, The Register of Copyrights), available at http://www.copyright.gov/ docs/regstat062105.html.
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앫 Last, and certainly not least, is the matter of enforcement of rights, which, alas, we have no time today to discuss. Let me now turn to our two speakers: first Jacqueline talking from the music publishers’ point of view; then Elliot talking from the label point of view. MS. CHARLESWORTH: Good afternoon. I represent the National Music Publishers’ Association (NMPA). Given the time limitations, I decided to discuss the top five issues facing music publishers in the online world. The first issue is our rates. We have never had a rate-setting proceeding to set any rates in the online world. Eric mentioned that we recently began a new system for determining rights, the Copyright Royalty Board (CRB). We have a rate-setting proceeding, which commenced in February 2006, to determine rates for physical uses and the full spectrum of digital uses, full downloads and uses by subscription services. I think it is fair to say that there is a fairly large spread between where the music publishers are in terms of what our proposed rates are and where DiMA, on the other hand, and the labels, on the third hand, think their rates should be. A major issue that will be litigated in that proceeding is whether we will move, as the labels want, to a percentage-based rate structure. This makes publishers very nervous, at least in the physical world, because we do not, obviously, control the pricing decisions of the labels. So that is something that will be debated and that will play out during the course of this proceeding. Another very significant issue is the subscription service rates. There is a statutory rate for full digital downloads, which is currently the same as the physical rate, which is 9.1 cents. So publishers are paid for an Apple-style download. But for services like Napster, Rhapsody, and so forth, publishers have never been paid because no rate has been set. This is a problem that dates back to the launch of those services in 2001. At that time, publishers entered into an agreement, first with the record labels, and then with individual services. It is a use-now/pay-later agreement. In exchange for recognizing the publisher’s right to collect a mechanical fee for limited downloads and on-demand streams, under Section 115 of the Copyright Act, we agreed to grant a license. At the time, I think we thought we were operating on a horizon where rates would be set within two years. Now we are looking at late 2008 as the probable date before the CRB will issue its decision. So those services will have operated seven years without a rate, which is a long time. I will now move on to licensing reform. There are many in the room who have an interest in this. Eric mentioned Marybeth’s congressional testimony. I think the NMPA, music publishers, and songwriters fully agree that it is time to fix Section 115 and improve the licensing system for digital uses. It is how you do it where I think there is some difference of opinion. We believe that a collective or a blanket-style licensing system would be a good idea. Unfortunately, the DiMA representative is not here. I think there is a lot of sympathy and understanding on the part of the music publishers that it would be nice to file a piece of paper and have access to all repertoire. With that in mind, last year DiMA and NMPA took the lead in framing proposed legislation, which became known as the Section 115 Reform Act, (SIRA),10 which, 10 H.R. 5533, 109th Cong., Section 115 Reform Act of 2006 (SIRA), available at http://thomas.loc.gov/ cgi-bin/bdquery/z?d109:H.R.5553; see also U.S. Copyright Office Statement, available at http://www.copyright. gov/docs/regstat051606.html.
106 SESSION II: COPYRIGHT frankly, got pretty far in Congress. Insofar as the publishers and DiMA were concerned, there were large areas of agreement. It would have set up a general designated agent and, potentially, other designated agents to take blanket-license requests and issue licenses. As the legislative process moved on, various issues arose. There were governance issues, in terms of who would oversee the general agent. There were issues raised by the labels concerning how to continue to effectuate controlled composition clauses. The satellite radio services, which have devices on the market that are reproducing works, got into the mix. It was a typical sort of “Christmas tree” experience: we started out with what was already a somewhat complicated idea and it got heavier and heavier. Although it passed the House Subcommittee, it did not get through the full Committee. I think everyone learned a lot from that experience. I think there were large pieces of that that were breakthrough and would have helped solve many problems. I think we are somewhat back at the drawing board in terms of thinking about how to move forward with that. But there is a commitment to try to solve that problem. It is a very important problem to solve. Eric mentioned licensing clarity. In my outline, that is mechanical versus performance. The issues relating to services — say, streaming services, where copies are being made at the server level and then along the way, and they are being transmitted to users — are issues which have been long debated, really back to the late 1990s and early 2000s, when we entered into the agreement with the Recording Industry Association of America (RIAA). We believe that in passing the amendments to Section 115 in the 1990s, based on the actual text of the statute and the legislative history, on-demand streaming or interaction streaming is an activity that should be covered under Section 115.11 It is very clear that there are reproductions needed to stream works, including, as I mentioned, a server copy. That issue has been litigated. It is clear that you need a license for a server copy. It makes sense, in our view and, I think, in the view of DiMA — if I can speak for them — to include the server copy and all the incidental copies that are used in streaming in a license and to make sure that the users have everything they need to operate such a service. Similarly, with limited downloads and full download services, server copies are an issue. This was one of the issues that was addressed and resolved in the SIRA legislation. We hope that we can achieve a similar or the same result through a judicial process, or perhaps somehow solve the problem in the context of the CRB proceeding. So that is an issue that is out there. Eric mentioned the ASCAP proceeding regarding performance rights. In the United States, of course, we have separate institutions and separate ways that mechanical rights are licensed versus performance rights. DiMA has sought summary judgment on the issue of whether there is a performance in a download. The performance rights societies (PROs), as well as NMPA, have taken the position in an amicus brief in the ASCAP case that that right needs to be recognized.12 11 17 U.S.C. § 115(a)(1). Mirroring the statutory language, the provision’s legislative history states that the Section 115 license is “available to anyone as soon as ‘phonorecords of a nondramatic musical work have been distributed to the public in the United States under the authority of the copyright owner.’” See H.R. REP. NO. 94-1476 (1976). 12 See Press Release, DiMA, Digital Media Association Asks Court to Deny Music Publisher Double-Dip on Music, Movie and Television Downloads (Feb. 28, 2007), available at http://www.digmedia.org/content/ release.cfm?content=pr&id=7216; Amicus Brief in United States v. American Soc’y of Composers, Authors and Publishers (ASCAP), In the Matter of the Application of AOL, LLC, Yahoo! Inc., and RealNetworks, Inc. for the Determination of Reasonable License Fees, Civil Action No. 41-1395 (WCC) (S.D.N.Y. filed Feb. 28, 2007), available at http://www.digmedia.org/docs/DiMA%20AMICUS%20BRIEF% 2002-28-2007.pdf.
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I think there is a separate question of what the value is, but I believe that that is another decision. It will take a while, but probably within the next year we will at least have some federal case law on that issue. I think there is a lot of anxiety right now about how this is all going to play out. I wasn’t asked to predict the future, but three or four years from now we will probably have a much better sense and a much better system for dealing with these issues in law, and there will be much more clarity. Very quickly, we also have an issue regarding ringtones. There was a recent administrative ruling before the Copyright Office, where the publishers took the position that ringtones should be out of the compulsory license.13 We believe they are derivative works. We think that it is inappropriate to add more uses under the compulsory license. It is an unlevel playing field when we are under a compulsory license. Unfortunately, the Copyright Office disagreed with our view. That issue is on appeal. Just to give you an idea of the economics there, under the current rates, ringtone use would come under the compulsory 9.1 cents. But under the voluntary licenses that were negotiated prior to this decision, the publisher was getting 10 percent or more of, say, a $2.50 ringtone. That amounts to twenty-five cents. So this is a very big economic issue for publishers, given the numbers. Also there is a matter of principle. I will close by saying my fifth issue was enforcement, which was dealt with earlier. I will turn it back over to Eric. MR. SCHWARTZ: Thank you. Elliot, the floor is yours. MR. PETERS: I will respond to that. First of all, I think we always end up on these panels together where I am pitted as the label representative. But I work at Warner Music Group, which today has the second-largest music publisher catalogue in the world. MS. CHARLESWORTH: Feel free to agree with me. MR. PETERS: And I do, on a number of things. Let me comment quickly. You covered a lot of ground, some of which I was going to cover, so I thank you for that. On subscription, there should be a rate. One will come out of the rate-setting proceeding. I agree, it is long overdue. Copyright holders should be paid for uses of their works. In terms of SIRA and licensing reform, I think it would have accomplished a lot of good things. There were a lot of other constituents, like the Electronic Frontier Foundation (EFF). There was a lot of administrative complexity. I am not sure that everybody has abandoned hope. Clearly reform is necessary, and clearly we need to get subscription services launched, with clarity, so that they can be licensed for all uses, including streams. I found your comment on the performance versus download interesting, especially your comment about value. I understand there is subtext in the complaint. But I do think that will be one of the interesting ultimate determinations, not necessarily decided by the court. On Section 115 and whether ringtones are in or out, from the label perspective, clearly we do not feel that there is a fundamental change in the nature of a work just by truncating it. The Register of Copyrights agreed. And 9.1 cents versus the marketplace deals is the rate for the next year or so, but it isn’t the rate forever. The CRB will decide, and 13 See Docket No. RF 2006-1, In the Matter of Mechanical and Digital Phonorecord Delivery Rate Adjustment Proceeding, U.S. Copyright Office, Memorandum Opinion (Oct. 16, 2006), available at http://www.copyright.gov/ docs/ringtone-decision.pdf; Mechanical and Digital Phonorecord Delivery Rate Adjustment Proceeding, Order Granting in Part the Request for Referral of a Novel Question of Law, Docket No. 2006-3 CRB DPRA (Aug. 18, 2006).
108 SESSION II: COPYRIGHT they will take into account a number of factors, including the marketplace dynamics. So I wouldn’t cast it in such a negative way. The Register of Copyrights has spoken. But again, I wear two hats. MS. CHARLESWORTH: That she has. So either way you will win and either way you will lose on that issue. MR. PETERS: Exactly, which is nice. My name is Elliot Peters. I am head of Digital Legal Affairs at Warner Music Group. We are a music-based content company. We are working hard to innovate, using new technologies, to create new, rich musical experiences so fans can get closer to the music they like and the artists they love. Our goal is to make music a ubiquitous experience, so it can be experienced in the car, in the home, through home entertainment networks, gaming consoles, PCs, through the television, including Internet Protocol for Television (IPTV); interactive TV through fixed lines; on the go through cell phones; PDAs; MP3 players — through all kinds of transmission protocols, whether it’s Internet-based or extensions of the Internet, WiFi, WiMAX, digital broadcast. We really want music to be consumed everywhere. The record today, I think, enabled by new technology, is different than the record of years gone by. In years gone by, you put the record on a player, it played, you leaned back, you flipped through liner notes, and that was your musical experience. Today you can lean forward. You can be online. You can be in a virtual world. You can be in a Second Life type of environment. Your avatar self can be trolling around meeting people. You can set background music. You can invite people to go dance with you. You can personalize your cell phone. When my phone rings, I hear Dani California, and I know that I am identifying myself with the Red Hot Chili Peppers. When my wife calls me, I set the ringback tone so that she hears You’re Beautiful, James Blunt, and she gets a nice little welcome there. So we are looking to put music into every aspect of everybody’s life. But the legal landscape today poses some challenges. I will just speak quickly to a couple of those. One is the legal ambiguity. We already talked a little about the ASCAP proceeding before the Southern District of New York.14 Does the distribution of a download also implicate the performance right? ASCAP would argue that of course it does, because there is language in the statute that says that a work publicly performed includes the transmission of a performance, whether or not it is received. They would say: “Of course there is a transmission and the performance is the recorded performance. Artists went into the studio and recorded the song; that is the performance. So the conditions are met.” They feel that the language is clear and unambiguous. Opponents of their position would say, “Hang on a minute. You have to look at the definition of ‘perform.’ ‘Perform’ is to play or render. That’s very clear.” They would go further and say, “Look at the audiovisual definition. It has a further qualifier, the further qualifier being that it has to be capable of being heard.” I think there is some legislative history and reason that that same clause is not applied to the audio portion, which I, sadly, do not have time to get into. But I think opponents would also say that the “capable of being received” really is better understood in the context of terrestrial radio: Z100 in New York transmits its broadcast. If Elliot Peters does not have his radio turned on, that does not mean that it is not a public performance. 14
See id.
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So reasonable minds do differ on this issue. It will be resolved soon. We will hopefully have more clarity on that issue. By the way, the record of the case is fascinating. The amicus briefs are very well done. I invite folks to take a look at them. It is good reading and a good history lesson. The second thing I will note is that there are certain business models that seem to be beset with controversy. Let me just give you one example. At Warner Music we looked at the YouTube business model. We have licensed YouTube. We did our homework. We worked hard with YouTube to make sure that our business model respected intellectual property rights and returned value to creators of works. At Warner Music we are keen on innovating, rather than litigating, while at all times defending the rights of our authors, the artists, and defending our copyrights. So there is ambiguity, sometimes uncertainty, as to the rules of the game. I do think five years ago everything was rather murky, Jacqueline. Things are a little bit better today. People do not need to tread as cautiously. It is a somewhat more market-friendly environment today, from an understanding-of-rights perspective. It still needs to get better. Where we still need to improve is, now that we understand the rules of the game better, and as we continue to understand the rules of the game better, we need more efficient licensing mechanisms. The great promise of the digital space is the long tail, the fact that I go to Best Buy and find 10,000 records there that they are willing to stock on their shelves. As records begin to sell less well — Led Zeppelin IV will be there forever; The Beatles’ White Album will always be in Best Buy — it will not make sense for them to stock certain albums at some point. However, it will not make sense for a record company to manufacture and distribute certain albums in the physical space. In the digital space, you can have a virtual store in the sky with millions and millions of products. You know what? Records that sell only one or two a week, over millions and millions of units, really are an exciting opportunity for copyright holders and the digital stores. But the promise of the long tail is somewhat frustrated by our arcane licensing system for musical works that are licensable under Section 115. I do think we do need some kind of blanket licensing regime, akin to what we do under Section 114 for sound recordings, for Internet radio, or akin to — I am afraid to say it — the European system that is undergoing some change now. We do need one-stop shopping that will enable new products to come to the marketplace with greater efficiency and at lower cost. In sum, we need to keep our foot on the accelerator to ensure that there is legal clarity and that we can clear the rights so that we can put products out on the market. At Warner Music Group, we believe in music —that is why I am here — and we believe in the digital opportunity. MR. SCHWARTZ: Let’s now hear from our last speaker, Howard Knopf, who will talk about Canadian digital music issues. After his presentation, we have David Carson and David Jones interject their questions and comments on the EU, Canadian, and U.S. issues. Howard, the floor is yours. ***
110 SESSION II: COPYRIGHT ONLINE MUSIC 2007 Howard P. Knopf15 INTRODUCTION This paper will outline the situation in Canada regarding “online” music in this author’s view, along with some observations on the overall international scene. In the spirit of disclosure, I should point out that I have at various times acted for and against parts of the music industry. Lately, I have fought on behalf of various clients against private copying levies and against the attempts by the major record companies to sue alleged P2P downloaders and file sharers in Canada. I also wrote an amicus brief for KaZaA in the Grokster litigation in the U.S. Supreme Court. However, the view presented in this paper or in my presentation are strictly my own.16 I. THE OVERALL CANADIAN SITUATION A. THE COLLECTIVES
The major traditional collectives representing composers, authors, and publishers who have an interest in online music are: (1) SOCAN — for composers, authors and publishers. This is the counterpart of ASCAP + BMI + SESAC. There used to be two such collectives in Canada, but they were allowed to merge in 1990. (2) CMRRA — The Canadian Musical Reproduction Rights Agency is the counterpart of Harry Fox in the United States. (3) SODRAC is roughly the French Canadian counterpart to CMRRA. (4) CMRRA/SODRAC have combined for certain purposes as CMRRA/SODRAC Inc., or CSI. Canada now has neighboring rights; therefore, performers and producers want to be paid for everything online. Enter the NRCC (Neighboring Rights Collective of Canada). B. THE PRIVATE COPYING LEVIES
Canada has a private copying levy, which has generated probably close to $200 million since 1999. The figures for 2006 have not yet been publicly reported. This is collected by the Canadian Private Copying Collectives,17 which is a collective of music industry collectives. I mention this levy scheme because it is the elephant in the room of Canadian copyright in many respects and has a profound impact on copyright issues affecting the music industry in Canada. The levy scheme has effectively legalized P2P downloading.18 This is because Part VIII of the Canadian Copyright Act provides a quid pro quo: In exchange for the levy scheme, private copying is legal — and the Copyright Board has indicated that it doesn’t matter where the copy comes from, or whether the CPCC has chosen to ask for a levy on the 15 Counsel, Macera & Jarzyna, LLP, Ottawa, Canada; howard.knopf@macerajarzyna. com; www.excess copyright.blogspot.com. 16 Some of this material previously appeared in my blog, http://www.excesscopyright.blogspot.com. 17 See http://www.cpcc.ca. 18 See my discussion on the BMG v. Doe trial level and appeal decisions, wherein the Federal Court of Appeal stopped short of reversing in substance the much-commented-upon findings of the trial judge, available at http://www.macerajarzyna.com/pages/publications/ BMG%20Case%20-%20E-Commerce.pdf.
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particular medium which is being used to make the copy. So, in other words, copies made onto CDs are clearly legal because there is a levy on CDs. Copies made onto PC hard drives are very likely legal because the CPCC could probably ask for and receive a levy on PC hard drives.19 They have refrained from doing so for blatantly obvious practical and political reasons. The interesting gray area concerns things like iPods — which the Federal Court of Appeal has clearly ruled cannot be levied because they are devices and not “media” and are, therefore, outside of the scope of the levy legislation. However, the Court has gone further and suggested in obiter dicta that making copies on iPods may be infringing because an iPod does not fall within the definition of “blank audio recording medium.”20 In any event, the levy scheme is very controversial even within the music industry. It, along with Canada’s privacy legislation, has made it more difficult for CRIA to proceed in mass RIAA-type litigation. I say difficult, but not impossible. If CRIA were to put forward sufficient and reliable evidence that is not blatant hearsay (in contrast to the evidence that they used in the unsuccessful attempt), it might well succeed, at least against file sharers.21 But CRIA has chosen not to press forward and has used its partly self-inflicted loss in Canada as a means of attempting to convince law makers that it needs much tougher DMCA-type legislation in Canada. Only time will tell if this strategy will succeed. So — for the moment — there are no lawsuits against individuals underway in Canada for P2P activity and no tactics such a deposition of a ten-year-old child with a disabled mother living off medical benefits who was seven years old when the alleged infringement took place.22 And no lawsuits against twelve-year-old girls living in subsidized housing.23 The next major round in the levy controversy will be CPCC’s recent attempt to impose a $75 levy — or “tax” as it is commonly called — on iPods, Zunes, and other MP3 players. The Federal Court of Appeal clearly ruled in 2004 that this was not possible,24 and leave to appeal was denied by the Supreme Court of Canada in 2005. However, the CPCC is back attempting to do exactly the same thing in 2007. This would appear to be a clear instance of res judicata. In anticipating this point, the CPCC announced at the time of publication of the proposed tariff to have an opinion to the contrary from its law firm, but has not seen fit to publish it. The next levy round will also include an attempt by CPCC to impose a $10 levy on flash memory cards, which by its own figures are only used, at most, about 20–25 percent for the reproduction of music — and I suspect that the actual figure is only a fraction of this fraction. And much of that music has already been paid for at least once already, especially if the card is in a cell phone or an MP3 player. Finally, the private copying levies are a major complicating factor in copyright reform in Canada. The potential that Canadian WIPO treaty ratification will result in a doubling of the cost of the levies and outflows of hundreds of millions of dollars due to the 19
See http://cb-cda.gc.ca/decisions/c12122003-b.pdf, at 20–21. Canadian Private Copying Collective v. Canadian Storage Media Alliance et al., (2004) [2005] 2 F.C. 654, (2004) 36 C.P.R. (4th) 289 ¶ 147. 21 The BMG v. John Doe litigation in the Federal Court and Federal Court of Appeal is analyzed from various points of view in (2005–06) 6 I.E.C.L.C., available at http://www. macerajarzyna.com/pages/publications/BMG%20Case%20-%20E-Commerce.pdf. 22 Atlantic v. Andersen (Oregon), available at http://recordingindustryvspeople.blog spot.com/search?q= kylee+Andersen. 23 See http://news.com.com/RIAA+settles+with+12-year-old+girl/2100-1027_3-5073717.html. 24 Canadian Private Copying Collective v. Canadian Storage Media Alliance et al., (2004) [2005] 2 F.C. 654, (2004) 36 C.P.R. (4th) 289, ¶ 164. 20
112 SESSION II: COPYRIGHT national treatment requirement of the WPPT is an acknowledged issue and a major complication in the revision process. Everything would be much simpler if the levies were repealed — which Canada’s New Government pledged to do in its March 19, 2005 Policy Declaration,25 before the election in which it gained power — at least the power of a minority government. The Policy Declaration also promised to “to continue to allow an individual to make copies of sound recordings of musical works for that person’s personal and individual use.” II. CURRENT AND PENDING ONLINE TARIFFS IN CANADA A. SOCAN TARIFF 22 — PHASE I
In 1995, SOCAN started out on what it calls Tariff 22, which was an application to the Copyright Board to get paid for the use of music on the Internet. The Board early on wisely bifurcated the hearing into legal and quantum issues. Some, but by no means all, of the legal issues were finally determined by the Supreme Court of Canada in 2004.26 That decision held that ISPs as such are off the hook in their capacity as passive carriers of content and can rely on a particular exception in the legislation for the caching activity as a necessary aspect of providing the means of communication by telecommunication. In fairness to SOCAN, it appears that the issue of liability for caching arose from the bench in the Federal Court of Appeal — but, however, if it arose, it became the focus of a very complex appeal and resulting decision from the Supreme Court of Canada. In what may prove to be the most complex legacy of the initial round of Copyright Board hearings, and the resulting litigation, the Supreme Court of Canada held that liability could arise to SOCAN in Canada for activity abroad, thereby injecting an element of extraterritoriality into Canadian copyright law: [60] . . . A real and substantial connection to Canada is sufficient to support the application of our Copyright Act to international Internet transmissions in a way that will accord with international comity and be consistent with the objectives of order and fairness. [61] In terms of the Internet, relevant connecting factors would include the situs of the content provider, the host server, the intermediaries and the end user. The weight to be given to any particular factor will vary with the circumstances and the nature of the dispute.27 However, even after all of this, we still do not know definitively what the problematic phrase “communication to the public by telecommunication” means in Canada in terms of various architectures and modes of “online” delivery. B. RINGTONES DECISION OF AUGUST 18, 2006
The “communication by telecommunication” issue could be, and perhaps should have been, addressed squarely, but was not even substantively dealt with in the Copyright Board’s decision on August 18, 2006 on ring-tones.28 The reason it was not addressed was that the objectors to the tariff inexplicably conceded that the delivery of ring tones to members of the public involved a “communication by telecommunication.”29 They did not concede that it was to the public. 25 26 27 28 29
See http://www.conservative.ca/media/20050319-POLICY%20DECLARATION. pdf. SOCAN v. CAIP, 2004 S.C.C. 45. Id., ¶¶ 60, 61. See http://cb-cda.gc.ca/decisions/m20060818-b.pdf. Id. at 4.
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Now, on judicial review, the objectors have changed counsel and raised this argument for the first time. Again, in the spirit of disclosure, I had raised this argument at an earlier stage of the hearing, but my client, then known as MOVISO, the largest supplier of ringtones at the time, withdrew from the hearing, as have other large entities since then on other files at the Copyright Board. However, that is another story. It will be interesting to see how the Federal Court of Appeal deals with this new issue that is now being raised for the first time at the judicial review stage. Further, re ringtones, back on August 22, 2006 I wrote on my blog: 1. It’s not obvious that any or all of the various methods of delivering ringtones to customers involve a “communication to the public by telecommunication.” The remaining objectors conceded that there was a “communication by telecommunication” of a musical work — but disputed whether it was “to the public,” which is indeed an arguable point. The objectors’ strategy was to argue that the communication was not “to the public”— and, alternatively, if there was liability, the “communication” aspect is purely incidental to the reproduction right and should thus be valued accordingly. 2. But, actually, it’s not clear that the provision of ringtones to customers in the various ways that this is normally done even involves “communication” or “telecommunication” at all. There are many ways of moving music around on the Internet — and it is arguably erroneous to lump them all together as “communication” or “telecommunication” or both. For example, the transmission of a digital file that must be stored and may later be performed as a musical composition is arguably not the same thing at all for copyright purposes as real time on demand streaming that cannot be stored for later retrieval and amounts, in effect, to on demand radio or webcasting. 3. The problem with this decision lies in the result that effectively conflates and perhaps even confuses the communication right with the reproduction right. This goes back to the Board’s 1999 decision in SOCAN’s Tariff 22. Whether or not this should have been challenged following the 1999 Tariff 22 decision, or whether it should have been raised in this instance is a matter upon which reasonable minds may disagree. But the result, unless reversed, will likely compound the imposition of multiple layers of payment to multiple claimants for multiple rights involving the same activity and transaction. The concept of “double payment” will likely become “triple” or more. 4. Thus, ringtone users will eventually be making payments potentially for the communication right, the performance right, and the reproduction right to potentially three categories of claimants who sometimes wear multiple hats — composers/authors and their publishers, record producers and performers. The same will hold true for online music — i.e. iTunes. 5. In fact the Board itself even seems to hint in para. 12 of its decision that SOCAN could file a tariff for the “performance in public” of a ring-tone, which would compound the multi layering problem to a new level, i.e. SOCAN has not filed a tariff for the performance that may occur when a ringtone is played in a public setting. (Emphasis added) 6. The Board does more than hint in paragraph 7. It virtually lays down the red carpet for the recording industry to come and claim their share of the pie in respect of master tones (i.e., recorded performances). 7. Is this what Parliament intended? One would hope not. This would be the antithesis of efficiency and even the music industry has mixed feelings about it — witness the opposition even of CRIA to SOCAN in this hearing and to the music publishers in the CSI hearing on online music starting on September 6, 2006. 8. Even the Copyright Board cannot make the Internet cash pie expand forever, and the
114 SESSION II: COPYRIGHT current and future internecine battles in the music industry are mostly about how large the pie can grow and how it will divided before the growth boom finally gets corrected. 9. Note that composers and authors have always been paid for ringtones obtained though Canadian wireless providers or any other “authorized” sources, and access is tightly controlled in Canada. The essence of the transaction involves a reproduction, which has already been taken into account in the “behind the scenes” licensing. The question is how many more times and to how many more parties is the Copyright Board going to allow payments to be made? SOCAN doesn’t control reproduction rights here. But it represents the same composers, authors and publishers who do. If the Copyright Board is correctly interpreting the law, is Parliament going to stand by and let this multiple payment game continue? 10. This would not surprise me. The policy of Canadian Heritage is to support collectives in a variety of ways, including subsidies and legislation that creates new rights and the possibility of new tariffs and ever increasing revenues. Many of these officials probably see the prospect of multiple payments to multiple collectives for the same transaction as a good thing. Collectives do indeed serve an essential function — if not encouraged to excess. But the danger of the Canadian Heritage approach is that it appears to exemplify the old fallacy that that, if copyright is good, more of it must be even better. Lest we forget, we are dealing with the collective exercise of monopoly rights. 11. It was exactly this type of multiple payment problem arising from then-new technology (“talking pictures”) that led Parliament back in the 1930’s to put the brakes on SOCAN’s predecessor by establishing the predecessor of the Copyright Board. 12. The result of this decision is another blow to the concept of technological neutrality, as some would define it. Why should the efficient transfer of a file over the Internet trigger copyright liability for “communication” by “telecommunication” when the provision of the same file by much less efficient physical means (e.g. sending a CD by snail mail) does not? Quite apart from the spectre of multiple payments and layering, this amounts to a tax on efficiency. It could also spread to other businesses, even beyond the music business. If the Board is right, then it would presumably follow that e-books involve the “communication” of literary works. But I shouldn’t give Access Copyright ideas. ... 15. On the communication point, it strikes me that the Board hung its hat mainly on one word — the word “might” — from an obiter dicta passage in the Supreme Court of Canada’s decision in CCH v. LSUC. In that passage, Chief Justice McLachlin said that: “I agree with these conclusions. The fax transmission of a single copy to a single individual is not a communication to the public. This said, a series of repeated fax transmissions of the same work to numerous different recipients might constitute communication to the public in infringement of copyright. However, there was no evidence of this type of transmission having occurred in this case”(emphasis added). 16. The Supreme Court was not concerned in that case with the niceties of the various architectural permutations of how things happen on the internet, and the Copyright Board appears not to have delved too deeply even in this instance into how ringtones find their way from a composers’ pen to the intrusive and usually distorted cacophony that we too often hear during quiet meditative moments at the opera or in funeral parlours. 17. Moreover, a fax “transmission” — note that the Chief Justice does not necessarily equate the word “transmission” with the word “communication” — results immediately in something that is directly readable by the recipient. The transmission of a ringtone file does not immediately result in the conveying of any information — much less music — to any
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person. It must get properly loaded into the handset, paid for, selected, and is later activated only when the cell phone “rings.” 18. Nor, with respect, should the Copyright Board put too much reliance on paragraph 42 of the SOCAN v. CAIP decision in which Justice Binnie agreed with the Board that “a telecommunication occurs when the music is transmitted from the host server to the end user.” There is a potentially big difference between “the music” being “transmitted” and a file being copied that only later can be heard as music when it is played on a device. This may sound picky and even akin to sophistry — but that’s the nature of history of copyright law, which has always focussed on legal and technological niceties. 19. It appears that the objectors may have indirectly broached the “communication” point indirectly by arguing that the Board was really seeking to impose a “making available” right — which is required by the 1996 WIPO WCT treaty. But, as everyone knows, Canada has notably NOT YET ratified this treaty. And even if Canada does, the scope of the “making available” right is very uncertain and Canada would be wise to implement it in the most narrow and careful possible fashion. Ironically, the cursory 1998 analysis by Johanne Daniel and Lesley Ellen Harris, upon which the government relied for so long, concluded, without any stated reasoning, that Canada already complied with the WIPO WCT treaty in respect of the required “communication right” that included “a making available” right for composers and authors. The debate about whether Canada does or does not already have a “making available” right evidently is far from over. Some will see this decision as effectively confirming that we do, even if the Board says that we don’t. 20. The rate calculation issue will be even harder to review — the Federal Court of Appeal is very reluctant to interfere with the fact finding/ evidentiary aspect of any tribunal’s work. Much of the evidence was treated as confidential — which may be just fine for the parties, including interests not present, although this leaves the public very much in the dark. Consider the expurgated final conclusion, which will cause considerable frustration to anyone trying to understand what the Board was trying to say here: J. Ability to Pay[127] The Canadian ringtone market has grown very quickly in recent years. Mr. Sone estimated the revenues generated by ringtone retail sales in 2004 to be over $15 million, and predicted that revenues might reach $30 million in 2006. In addition, the costs associated with the production and sale of ringtones seem to be quite low. Those figures, which were not challenged by the objectors, are indications of a financially sound industry. Moreover, the rate we have set is low enough not to lead to XXXXXXXXXXXXXXXXXXX in the ringtone market. In other words, larger than the XXXXXXXXXXXXXXXXXXXXX amount of the royalties that will actually be paid. There should therefore be no consequence on market prices.30 21. This is a highly unusual way to conclude a decision of this importance that will set the stage for much to come in the future. Look at the actual decision — it at least indicates the amount of space of the expurgated portions. 22. Interestingly, the rate arrived at by the Board after 14 months of consideration ends up being effectively the average of the rate proposed by SOCAN (10%) and the rate proposed by the objectors (1.5%). The exact arithmetic average would have been 5.75%. The Board ends up with 6%, although they have an admittedly more complex way of getting to that conclusion. 23. It is difficult to guess whether there will be judicial review. We’ll know by September 18, 2006. Depending on how one reads between the lines, so to speak, of the final paragraph, 30
Footnote omitted. XXX = expurgated by the Board.
116 SESSION II: COPYRIGHT the 6% solution may not cause immediate serious pain to any of the remaining objectors. The Board seems confident that “There should therefore be no consequence on market prices” —for reasons that must remain confidential. We shall see. That’s a lot for the Board to assume, especially when the impact of the inevitable future multiple layer ringtone tariffs becomes apparent. 24. The public interest factor in this case may not be as obvious as in some other Board decisions. If kids want to spend lots of money on ringtones and buy new ones every week in order to be “cool,” that is their decision — and it may annoy their beleaguered parents who will foot the bill. Clearly, this is discretionary spending. The real public interest lies in the legal and rate making precedents that are being set here. 25. The absentee proxy for the public interest — who is mandated by law to watch out here — is the Commissioner of Competition — who has basically never become involved in Board matters, even though there are many situations where such involvement might may be warranted. Moreover, the Board itself could and arguably should look out more for the public interest and play a more proactive inquisitorial role. Instead, it treats most proceedings as adversarial. In the result, the administrative law process is often more adversarial than actual litigation. 26. If there is no attempt at judicial review, it may be because there is no immediate and direct cost/benefit advantage to any of the objector parties. If so, this will not be the first time that the public interest has been left behind by a simple cost/benefit analysis by the objectors and the unwillingness of the Board or the Commissioner of Competition to fully pursue their roles in the guardianship of the public interest. 27. The real danger is that this ruling on communication to the public by telecommunication will serve as a springboard — both legally and in terms of a quantitative proxy — for the forthcoming attempts by SOCAN and the music publishers and eventually others to add large amounts to the cost of online music obtained from iTunes, and other Internet music modes, etc. The current 6% solution is far from a “low” rate. Given the size of the ringtone industry, it will be a lot of money and an important precedent and building block in other files to come. 28. It is not known why it took the Board 14 months to render this decision. Meanwhile, the CMRRA/SODRAC (“CSI”) attempt to add 15% to the cost of online music is about to start hearings on September 6, 2006 and will hopefully confront some of the “double payment” issues that are now looming larger than ever. That hearing is based upon the reproduction right. The SOCAN attempt to ratchet up the price of paid downloads by 25%[31] based upon the allegedly applicable communication right is lurching along at full speed — albeit with several notable drop outs — including clients of mine once again. The SOCAN hearing in particular stands to be profoundly effected if there is successful judicial review of the current decision. 29. Finally, it’s frankly disappointing that the full Board did not hear this case. We had the benefit of the Chairman’s presence (he is a Court of Appeal judge from Saskatchewan). However, two of the most experienced Board members did not sit on this matter, which is potentially one of the most important that the Board has heard in a very long time. Since I wrote the above,32 the judicial review process is well underway and the memoranda have been filed. The issue concerning “communication” has indeed been raised.
31 32
See http://cb-cda.gc.ca/tariffs/proposed/ma20052006-b.pdf at 14. See http://excesscopyright.blogspot.com/16 2006/08/ringtones-observations-on-6-solution.html.
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In fact, this is how I compared the Canadian ringtones decision to the American one,33 which followed shortly thereafter, on my blog on October 18, 2007:34 Ringtones REDUX — US & Canada compared Here’s an update of my earlier posting and a brief take on yesterday’s American decision. The US Register of Copyrights has just rendered a very important decision on ringtones, which can be found here. The proceeding was commenced on August 1, 2006. After written submissions received on September 14, 2006 and a brief oral hearing on October 4, 2006, she yesterday issued a detailed 35 page single spaced decision with 137 footnotes, one of which refers to the recent Canadian decision on a small point. Bill Patry has a good analysis of the decision on his blog. Here’s my quick take on a very complex and very important decision, from Canada’s standpoint: Canadians should note: 1. Providers of ringtones in the USA may avail themselves of the compulsory license regime found in s.115 of the US Copyright Act. Canada, probably unwisely, abolished the compulsory mechanical licensing regime for musical works in 1988. Not only has the USA retained its compulsory license for mechanical reproductions — but has created a new compulsory license regime in the form of the Digital Performance Right in Sound Recordings Act of 1995, which was held to apply in most cases to the provision of ringtones as songs or portions thereof as a “digital phonorecord delivery” or “DPD.” The argument that the compulsory license applies only to a whole song and not a portion thereof was rejected. Generally speaking, it appears that there will be a one stop shop mechanism for ringtone providers to get a compulsory license for monophonic, polyphonic and mastertone ringtones, except in the presumably rare case that a ringtone comprises sufficient originality to be a “derivative work” under American law, or is an newly created composition and recording never before distributed to the public. 2. Although the actual rates are not yet determined, they will likely be MUCH lower than in Canada — where an initial 6% solution was imposed (essentially half way between SOCAN’s number and the objectors’ number). And Canada has not seen the end of ringtone tariff costs, because the 6% goes to SOCAN and the other “colleges” of rights holders will soon want their piece of the pie in addition. Some points worthy of note: 앫 Not everything about US copyright law is bad. Au contraire. This decision illustrates an example of what is good about it — namely it is much more technologically neutral in the result than we see in Canada in this instance. It may turn out as well that that Congress saw more clearly into the digital future in 1995 in some respects than Canada has yet managed to do. Canada is still grappling with some of the less desirable last century aspects of US law, such as the DMCA — while ignoring what is sometimes better and more prescient about US copyright law. 앫 The Copyright Office has shown its ability to deliver a very learned decision very quickly. The process — which involved referral of a question of law by the Copyright Royalty Board to the Register of Copyrights — started on August 1, 2006 and resulted in the ruling of October 17, 2006 — less than three months. The lengthy delay of 14 months in the rendering of the Canadian ringtones decision — this following a two year lead up of preliminary matters — will have a ripple effect on other Board hearings, especially since the Canadian decision is now the subject of judicial review and could be 33 34
See http://www.copyright.gov/docs/ringtone-decision.pdf. See http://excesscopyright.blogspot.com/2006/10/ringtones-redux-us-canada-com pared.html.
118 SESSION II: COPYRIGHT overturned. To be fair, the Canadian Copyright Board heard a lot of factual evidence that was apparently not dealt with in the American proceeding which was on certain legal issues only, and has determined a rate — which also has not yet happened in the USA. 앫 But it should be asked whether Canada’s Copyright Board should bifurcate more often Not every instance will turn out to be as much of a problem as Tariff 22. In fact, an early determination of some of the obvious legal questions in de novo tariffs — based upon a minimum evidentiary record if indeed needed — might save a lot of time and money overall. In some cases, tariffs have been so poorly conceived that the Board ought to find a way at the outset to say “try again next year” — and save everyone a lot of bother. 앫 The American case illustrates the ongoing complexities and ironies of internecine warfare in the music industry. However, Congress and the Copyright Office appear to have a good understanding of how this works. One can only smile that the RIAA also has been caught, yet again, sucking and blowing. It often deplores the concept of compulsory licenses when it is on the receiving end, but is apparently quite happy to take advantage of them when it suits its needs. 앫 The American decision is expected to result in falling prices to consumers in the “mobile industry” — whereas Canadian prices are clearly heading upwards due to high and layered tariffs. 앫 This decision illustrates by contrast that Canada has a much more costly and complex system. That seems to be the Canadian way. This renews the question about whether or not the Canadian Board can or should do something to stop this costly and complex layering of tariffs. Paying much higher tariffs overall to more parties in Canada — when most of the money will go the USA and Europe anyway — is not very obviously in Canada’s national interest, to say the least. 앫 Do we need another judicial commission to sort out what the bureaucrats, Parliament and the Copyright Board are all unwilling or unable to confront? … C. CSI ONLINE DECISION — MARCH 16, 2007
CSI (roughly the equivalent to the Harry Fox Agency) sought a tariff for online music based on permanent downloads, limited downloads and on-demand streams. The CSI decision has recently been rendered by the Copyright Board on March 16, 2007.35 This matter was heard by the Board in September, 2006 and the decision was rendered approximately six months later in accordance with the new benchmark announced by the Board’s Chairman in a speech last year. The six-month benchmark is based upon a comparison the Judge made in a recent speech with the pendency of Supreme Court of Canada proceedings.36 This is a significant improvement over the fourteen months it took to render the Ringtones decision. This is decision that will not likely provoke much controversy. Although the Board rejected much of the theory advocated by CSI for valuing its tariff rates,37 it gave CSI a goodly proportion of what it wanted in terms of actual numbers. For example, with respect to permanent downloads, which will surely prove to be the most important aspect of this tariff, CSI had asked for 15 percent of gross revenues with a minimum of 10 cents 35 36 37
See http://cb-cda.gc.ca/decisions/i16032007-b.pdf. See http://cb-cda.gc.ca/aboutus/speeches/20060823.pdf. In particular, CSI’s attempt to use the recently established Mastertone rate as a proxy.
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per download. The Objectors suggested 5.3 percent and 3.85 cents, respectively. In the result, the Board awarded 8.8 percent of gross revenues with a minimum of 5.9 cents for this category — better than half of what CSI had asked for. There appears to have been little discussion of legal issues, and in particular the question of double payments. The point of potential overlap with SOCAN’s Tariff 22 appears to have been made by the Objectors but dismissed in short order by the Board.38 The Copyright Board apparently took a very hands-on approach in devising wording for the tariff that it believes will be viable — which involved much communication after the hearing between the Parties and Board counsel. The final tariff wording is very different from what was published initially in the official Canada Gazette. One positive outcome is that the Board declined to incorporate any reference to TPMs or minimum security requirements, noting that Puretracks, a major Canadian provider, has begun to offer DRM-free music.39 D. SOCAN TARIFF 22 — PHASE II
In a few days, on April 17, 2007, the Board will resume hearings on SOCAN’s Tariff 22. There will be many uncertainties about this hearing. Mostly, there will be uncertainty about the “communication” right — because that is still pending before the Federal Court of Appeal. There will also be uncertainty because some parties that should be there won’t be there — including clients of mine and others. Here is part of the blog entry I posted on March 2, 2006: “Fallout” at the Copyright Board? Two significant players in Canada’s copyright scene have just conspicuously withdrawn in protest from two major Copyright Board hearings. They are Archambault (the Quebec music retailer) and Canoe (an internet portal), which are both part of the giant Quebecor empire. The hearings involved music on the internet. One is the decade old and still inchoate SOCAN Tariff 22 tariff. The other is the CMRRA/SODRAC (CSI) proposed webcasting tariff. Archambault had earlier withdrawn from the CSI proposed online music tariff. Efforts on the part of objectors to somehow consolidate or rationalize these three closely interrelated tariffs have proven fruitless. In an 8 page letter from their counsel, Me Jean-Philippe Mikus, Archambault and Canoe stated that they had to take: the least harmful path given the untenable constraints now being imposed on objectors wishing to express their point of view before the Board. Archambault and Canoe are compelled to withdraw because their participation in the Board’s proceedings would imperil their key financial information invaluable trade secrets critical technological information strategic information concerning development and marketing plans and projects, and a host of other information in respect of which the utmost secrecy is essential for their survival. They point out that “. . . the mere participation in the Board’s hearings is in and of itself a very considerable burden on a number of levels. The mass of information that collectives systematically seek to obtain from objectors brings about exorbitant costs both in terms of collecting the information and then processing it.” They suggest: When collective societies holding monopolies or quasi-monopolies are involved in infighting and then formulate grossly exaggerated claims and multiply instances before the Board, including unreasonable requests for disclosure of irrelevant or marginally relevant 38 39
See http://cb-cda.gc.ca/decisions/i16032007-b.pdf, ¶ 84. See http://cb-cda.gc.ca/decisions/i16032007-b.pdf, ¶¶ 134, 158.
120 SESSION II: COPYRIGHT highly confidential information, some measure of control must be exercised. The Board should be the first line of defense to avoid that exclusive copyrights established by Parliament and concentrated in the hands of collective societies be an instrument of oppression (to paraphrase Lord Justice Lindley in Hanfstaengl v. Empire Palace (1894) 3 Ch. I09). The experience of Archambault and Canoe leave the bitter impression that the Board is failing at this task and that this failure is already causing extremely serious harm to businesses that have had the courage to jump into untested waters. Significant reform is both necessary and urgent to end the abuses that threaten the very foundation of Canadian businesses offering legal alternatives for the use of music on the Internet. At this stage, it appears that such reforms can only originate from the government or Parliament; it is unfortunate to say that our clients no longer hold out any hope that the Board is able or wiling to address these concerns. They conclude by reserving the right to seek judicial review “on the basis inter alia that they have not been given the right, reasonably exercised, to be heard in these proceedings.” While none of this is particularly new to those experienced with Board practice, the letter is a potentially very important development. It was copied to the very long list of objectors in both files and to both Ministers responsible for the copyright file. The current Ministers may prove to be more sympathetic to the concerns of objectors than their predecessors, given this Government’s potentially different perspective on regulation and the costs thereof imposed upon business. The fundamental dilemma is that virtually all objectors have many issues to worry about other than fighting copyright tariffs. And almost all of them balk at the incredibly high costs of pursuing objections, which routinely run into the six figures and can go beyond. Resulting direct financial savings are often hard to quantify since most collectives overreach to an often absurd extent in the initial proposed tariff. For these and many other reasons, the economics of objecting are not alluring to many entities, even though they may be directly affected. And trade associations aren’t always the answer. In fact, the sad demise of the CCTA, after so many years of valiant and competent contributions to Copyright Board and appellate jurisprudence, shows the difficulties faced by even the most sophisticated and substantial of objectors. The collectives, on the other hand, have usually only one purpose on their mind, which is increasing Copyright Board tariffs and lobbying for the statutory rights that make this possible. Their costs are paid for — not surprisingly — from the Copyright Board tariffs that are paid by objectors. The more the collectives spend, the more they make — and vice versa and so on. This is classic asymmetrical warfare, in which a relatively small single purpose and highly strategic entity can win major victories against a much larger opponent. As the letter points out, it is very difficult for an objector to play a limited role in a hearing. It is basically all or nothing: The approach adopted by the Board so far is very much akin to an “all or nothing” approach. There is simply no way of participating in the Board’s work if a party wishes to both put forward its point of view usefully before the Board and be concerned about the confidentiality of its business information. Parties are expected to be subjected to a full inquiry by collective societies, in the presence of all their competitors. The issuance of confidentiality orders does not justify such inflexibility. There have been other withdrawals in the past, including MOVISO (for whom I acted), which was perhaps the largest supplier of ringtones in Canada and the world. It withdrew during the interrogatory phase from a major hearing on SOCAN’s proposed ringtone tariff, where staggering amounts of money and important legal issues were at stake. The Board and the Canadian public lost the benefit of their participation. ADISQ recently withdrew from the CSI Online Music Services Tariff proceedings. ADISQ is a professsional association
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which represents hundreds of independent Quebec undertakings working in various aspects of the record, entertainment and video industries, including record producers, distributors, publishing firms, performers’ managers, entertainment producers, booking agencies, playhouses, video clip production firms, etc. There are still many problems with SOCAN’s proposed Tariff 22. It is still inchoate and unfocused. As framed, it can lead to absurd results. Anyone who posts a tiny amount of music is liable for a minimum of $200 a month to SOCAN. That is absurd. Meanwhile, it is going forward. The Supreme Court of Canada has opened a potential Pandora’s box of uncertainty in terms of extraterritorial application of the tariff, as noted above. It will be interesting to see if SOCAN attempts to enforce its potential extraterritorial reach against major foreign providers, such as MSN, Yahoo!, etc. It is fairly safe to assume that SOCAN’s Tariff 22 quest will continue long into the future before there is any resolution. Meanwhile, we have no idea what webcasting will cost in Canada. Or how much SOCAN will add to the already existing costs of delivery of a song from iTunes, etc. Or how many more multiple payments we will see for the same transaction. And SOCAN’s Tariff 22 isn’t the end of the matter. We have yet to hear from CMRRA/SODRAC, whose webcasting tariff was withdrawn on March 22, 2006. I assure you that they have not gone away and that they will return. III. PROS AND CONS OF CANADIAN APPROACH The Canadian copyright landscape is probably more akin to a labyrinth, and is one of the most complex in the world. In the recent CSI hearing, the Board heard from the interestingly named Eddy Cue, head of the iTunes project worldwide for Apple. The Board found that: [58] Mr. Cue compared the way in which iTunes clears rights in Canada, the United States and Europe. In the United States, record labels generally provide all necessary rights for one fee, having secured the right to reproduce the musical work. In Europe, iTunes must purchase the rights for the sound recording and for the musical work separately, but is able to purchase the right to reproduce and communicate the work in a single transaction. In Canada, iTunes must licence separately the right to reproduce the musical work, the right to communicate the musical work and the right to reproduce the sound recording. And even this fails to point out the obvious — that Canada has neighbouring rights and a vast number of active collectives. The complexities in Canada have only started. Canada has about ten times the number of organized collectives as the United States. And the Government is encouraging this proliferation. This is not the fault of the Copyright Board. Canada’s Parliament has handed the Board a mandate that consists of some generally sketched and inevitably overlapping rights deliberatively designed to catch just about every activity anyone can imagine. Canada’s government has directly and indirectly subsidized many of the collectives — in ways ranging from direct subsidies of electronic activity to very favorable licensing deal that provided millions in start up cash flow in the case of Access Copyright. That said, the Copyright Board, however, has not done everything it can to confront the issue of double, triple and more payments. It tends to “value” each usage on its own, often reaching back for proxies based upon previous Board decisions. This shows the tremendous importance of inaugural tariffs.
122 SESSION II: COPYRIGHT There has been little or no interest on the part of the Commissioner of Competition in the activity of the Copyright Board, despite a clear role for the Commissioner that is set out in the legislation. This is in complete contrast to the approach of the European Union and the United States — where there is an innate antitrust-based skepticism of collectives. The Canadian approach is also highly inbred. In some cases, the same parties that form together to make one collective or coalition find themselves opposing each other in another hearing. This leads to interesting situations — such as the same law firm effectively acting both for and against the same client in different files before the Copyright Board. Odd coalitions of apparently sophisticated clients come and go — but I sometimes wonder if they all really understand just how small a world it has become in Canada. And it need not be this way. And from a public interest standpoint, it probably shouldn’t be this way — because some important arguments may fall by the wayside in this process. Canada’s Supreme Court may soon have something to say about this, in a pending and potentially landmark decision concerning alleged conflict of interest by a major law firm.40 This is especially worrisome in view of the increasing convergence taking place between content owners and users, and the decreasing level of competition — as evident in the recent rapid approval by Canada’s Competition Bureau of the merger of two major broadcasting entities, namely CTV and CHUM. There are also a number of problems concerning the way the Board deals with interrogatories, hearsay evidence and evidence from witnesses who may indeed have some expertise but little or no independence. However, these are issues for another day. IV. SLOW ROLL-OUTS BUT MUCH SUCCESS IN CANADA Canada has had a slower roll out of online services than the USA. There are many possible explanations for this and there has been a lot of finger pointing. However, certain music industry statistics are very interesting. According to Michael Geist: The success of the Canadian music industry is also being replicated online. Nielsen SoundScan Canada reports that digital download sales in Canada grew by 122 percent last year, well above the growth rates in both the U.S. (65 percent) and Europe (80 percent). Moreover, the Canadian market now features twice as many online music sellers as the U.S. when measured on a per capita basis.41 According to Nielsen Soundscan Canada, there was a 9.8 percent growth in music industry sales overall in 2006 based on units sold, including the spectacular 120 percent or so increase in online sales.42 Interestingly, CRIA’s Web site that normally reports such statistics is now several months behind.43 The Canadian statistics are clearly rather awkward for the music industry — since there is obvious success of online music in particular and the industry overall in Canada despite its protestations that the sky is falling. The need for urgent and draconian copyright revision based upon a ten-year-old American model DMCA approach seems even less compelling now — not that it ever was. 40 41 42 43
See http://205.193.81.30/information/cms/case_summary_e.asp?30838. See http://www.michaelgeist.ca/content/view/1856/159/. See http://excesscopyright.blogspot.com/2007/01/sky-isnt-falling.html. See http://cria.ca/stats.php.
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V. THE DRM DEBATE IN CANADA Speaking of DRM and DMCA, it is well known that the Canadian government is under much pressure from the international recording industry and the American government to ratify the 1996 WIPO treaties and implement tough DMCA-style legislation to force the acceptance of DRMs and TPMs. Much can be said about this — but Bruce Lehman has probably said it best and most eloquently at a recent conference at McGill.44 This is what he said, according to Michael Geist: The most interesting — and surprising — presentation came from Bruce Lehman, who now heads the International Intellectual Property Institute. Lehman explained the U.S. perspective in the early 1990s that led to the DMCA (ie. greater control though TPMs), yet when reflecting on the success of the DMCA acknowledged that “our Clinton administration policies didn’t work out very well” and “our attempts at copyright control have not been successful” . . . Moreover, Lehman says that we are entering the “post-copyright” era for music, suggesting that a new form of patronage will emerge with support coming from industries that require music (webcasters, satellite radio) and government funding. While he says that teens have lost respect for copyright, he lays much of the blame at the feet of the recording industry for their failure to adapt to the online marketplace in the mid-1990s. In a later afternoon discussion, Lehman went further, urging Canada to think outside the box on future copyright reform. While emphasizing the need to adhere to international copyright law (i.e. Berne), he suggested that Canada was well placed to experiment with new approaches. He was not impressed with Bill C-60, seemingly because he does not believe that it went far enough in reshaping digital copyright issues.45 I shall have more to say about the Canadian legislative environment in another panel at this year’s conference. VI. THE GLOBAL FUTURE It is clear that online music industry revenues have not yet replaced the declines in traditional sources of revenues for record companies. Is this bad news? If so, what is the cause? I would suggest that the music business is remarkably healthy — but the major record industry is wallowing in potentially suicidal self-destruction. People are still spending lots of money on music that frankly isn’t very good. And they are doing so in sprite of intense competition from DVDs, cable TV fees, video games, and other sources of competition for household entertainment dollars. Gone are the days when disposable income was dissipated only at the movie theatre and the record store. There is compelling econometric evidence and analysis from Oberholzer and Strumpf that P2P activity has at most a negligible effect on music industry revenues and may actually help the record companies.46 Perhaps the problem with the music industry — and particularly the major recording industry because the music industry is far from monolithic — is that it has come to 44 See http://mediasite.campus.mcgill.ca/mediasite2/viewer/Viewer.aspx?layoutPrefix= LayoutTopLeft& layoutOffset=Skins/Clean&width=800&height=631&peid=6e197c68-0b63-4474-ac3b-f770e220de0e&pid=2276 b8bb-0299-4f9e-9be8-d83d3539f313&pvid=501&mode=Default&shouldResize=false&playerType=WM64Lite. 45 See http://www.michaelgeist.ca/content/view/1826/125/.
124 SESSION II: COPYRIGHT assume that it is entitled to a constant rate of return and rate of growth. That is not so — unless it wishes to be treated as a government-regulated monopolist — and there are few of those left. In most competitive industries, it is clear that the road to success lies not in extracting the most possible monopoly rents but rather in acquiring inputs for the least possible price and selling outputs for the least possible margin that will suffice to undermine the competition and still yield a sufficient profit. A small margin on billions can be worth much more than a large margin on millions. That is the open secret of success of many of many clients in the retail sector today. It wasn’t always this way. Perhaps the record companies will learn this lesson before it is too late. However, I doubt it. VII. ALTERNATIVES? There is proverbial talk about “alternative compensation systems,” models involving “trusted Intermediaries,” and other systems that depend on the notion that the public will be willing — or at least obliged — to pay a little each that will add up to a lot overall. Two current variations on this theme emanate from credible sources. Both are preferable to traditional levies because they come closer to the mark in terms of exacting payment from those who actually engage in copying. However, both depend essentially on content owners being economic rationalists and acting in their best interests, which experience shows is unlikely to happen. A. THE EFF SCHEME
The Electronic Frontier Foundation (EFF) has a scheme that would involve voluntary low monthly payments that would give the right to a sort of “all you can eat” license to download copyrighted material. This is what the EFF calls “A Better Way Forward: Voluntary Collective Licensing of Music File Sharing.”47 In the words of the EFF: The concept is simple: the music industry forms a collecting society, which then offers file-sharing music fans the opportunity to “get legit” in exchange for a reasonable regular payment, say $5 per month. So long as they pay, the fans are free to keep doing what they are going to do anyway—share the music they love using whatever software they like on whatever computer platform they prefer—without fear of lawsuits. The money collected gets divided among rights-holders based on the popularity of their music. In exchange, file-sharing music fans will be free to download whatever they like, using whatever software works best for them. The more people share, the more money goes to rights-holders. The more competition in applications, the more rapid the innovation and improvement. The more freedom to fans to publish what they care about, the deeper the catalog. The problem with this is that, absent a more or less complete catalog, there is little incentive for either content owners or users to sign up. Users will not be immune from lawsuits for statutory damages if one of more of the litigious major record companies stay outside of the scheme. To the average user, it makes little difference if they are sued for one million or four million dollars. Either claim, if successful, will have the same result. So, why pay “insurance” to eliminate only part of this risk? 46 47
See http://excesscopyright.blogspot.com/30 2007/02/statistically-indistinguishable-from.html. See http://www.eff.org/share/collective_lic_wp.pdf.
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B. THE NOANK SCHEME
The Noank scheme emanates from Harvard and is led by Paul Hoffert and Terry Fisher. It would entail the payment by commercial ISPs, universities, etc. to a trusted intermediary — i.e., Noank — of small sums collected from each user — for the right to download ad libitum. Eighty-five percent of this money would find its way to the appropriate content owners. However, once again, this will only be attractive to anyone if virtually all of the major content owners in a particular category — such as music — are onboard. Noank claims to be making progress in China, with Canada next on the horizon. This effort seems to trace back in some ways to the mid-1990’s. In Mr. Hoffert’s own words: In the 1990s, I was director of CulTech Research Centre at York University, where I led teams that investigated digital content distribution on broadband networks. We followed both the technology and cultural impacts of the information revolution. In 1996, in Ontario, we undertook one of the most extensive digital communities trials to date. In Newmarket, a suburb of Toronto, we took 100 homes and spent approximately $100 million: so it actually cost us a million dollars per home to do the trial. We wanted to see what would happen, how these users would react to content. We gave them advanced digital devices throughout their homes and watched it become, on many levels, a highly integrated community — a community in the broadest sense.48 The Noank scheme would work as follows: In brief, here’s how the system works: In each country, copyright owners (record companies, music publishers, film studios, etc.) authorize Noank to distribute digital copies of their works. Noank, in turn, enters into contracts with major network service providers: broadband consumer ISPs; mobile phone providers; and universities. Noank provides the service providers’ end-users with unlimited downloading, streaming, and copying licenses. In return, each access provider pays Noank a fee on behalf of each of its end-users (consumers, students, employees). 85% of the money collected from these content fees is distributed to content copyright owners. A small software program on the users’ device counts the content use. That information (automatically aggregated to protect users’ privacy) is used to determine the amount of money paid to each copyright owner. Implementation of the system is currently most advanced in China and Canada. Once it is up and running in those countries, we plan to launch in other countries.49 Noank has the Harvard halo over it. Harvard is the largest shareholder. It has no government funding. Thus far, it has also no major Western content owners on-side. This may succeed to an extent in China, because China is quite eager to show respect for intellectual property and at least some enforcement activity. However, I suspect that this will be a much tougher sell in North America and the rest of the world. In addition to the Newmarket project, Mr. Hoffert led an earlier effort to simplify the licensing process for musical rights in Canada. It cost a lot of money; however, the music industry did not sign on. It exists now only as a demo Web site.50 Content owners and collectives were not really interested in simplifying transactions, and are certainly not interested in loss of control. 48 Hoffert, P., Action, Canadian Journal of Communication [Online], Jan. 1, 2002, at 27(4), available at http://www.cjc-online.ca/ viewarticle.php?id=741. 49 See http://www.noankmedia.com/index.html.
126 SESSION II: COPYRIGHT C. IF YOU BUILD IT, WILL THEY COME?
The problem with these approaches lies in the notion that the content industries willing be willing to accept small payments from large numbers of people in exchange for massive loss of control and loss of exclusive rights. This has never been the case and it unlikely to happen in the absence of severe coercion by Government and major revision of international treaties. In other words, it likely won’t happen. There will have to be major market failures before it happens. These utopian visions are unlikely, in my view, to work out. This is because these concepts must inevitably involve either or both of the “C” word and the “D” word, as I call them. More on this below. D. OTHER IDEAS THAT MIGHT WORK
In my view, the only future approaches that may work in the foreseeable future are either or both of the following. 1. “A Nickel a Schtickel” The first and most obvious is that of the Sandy Pearlman approach, namely lowering the price of an authorized download to a nickel or some other irresistible price point. Some New Yorkers and others may understand what I mean when I call this a “nickel a schtickel” approach. The idea is very simple. If one lowers the price, the demand will increase and the quantity sold could increase far more than the factor of price reduction. The price elasticity of demand of online music is very likely quite high. So, if Pearlman is right, the price can be lowered by a factor a twenty to a nickel and the quantity sold would increase by forty or more — a huge net gain. And the increase would be pure profit because the incremental costs for additional downloads are — or ought to be — or will be — close to zero. This is really simple Economics 100. But it won’t happen soon. In fact, it probably can’t happen in Canada in the foreseeable future. This is because the Copyright Board has set minimum royalties that already exceed the retail price of the “nickel a schtickel” model. The Canadian Copyright Board has been nothing if not consistent in rejecting “ad valorem” royalty rates in the digital context — with the result that Canadian pay almost twice as much for blank CDs than Americans — the difference being the $0.21 Canadian levy which is almost half the retail cost of the product in Canada. These minimum rates are effectively fixed for years at a time. In my view, the Copyright Board should not be setting minimum rates in an era where prices can free fall fast in a truly free market. For example, hard-drive storage is now less than $0.50 per gigabyte at the retail consumer level. It wasn’t long ago that PCs and laptops were sold with hard drives that measured in the few or few hundred megabytes and sold for much more than the price of today machines. Even in 2003, the CPCC was seriously proposing a levy of $21 per gigabyte on hard-drive memory in MP3 players. If it had succeeded, today’s 80-gigabyte iPod would presumably have a levy or “tax” on it of $1,680, when it now sells retail for less than $400. And we can now buy external terabyte hard drives for under $500, for example — US$350 here in NYC now,51 and even in Canada for less than $500.52 That is a lot of memory. It translates, in the words of one seller, to: up to 284,000 digital photos, up to 250,000 songs, up to 76 hours of digital video. The message ought to be clear — a free market with low royalty rates could result in 50
See http://www.rightsclearinghouse.ca.
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bountiful profits to everyone. Minimum royalty rates — either through regulation or industry price fixing to which antitrust authorities turn a blind eye — are a definite disincentive to efficiency in the digital age. 2. Wait and See Then, there is the “wait and see” alternative. It worked rather well in the movie industry — despite the efforts of Jack Valenti, who saw the VCR as analogous to the Boston Strangler. Governments resisted his efforts to get a rental right writte
