Pierce O'Donnell
O'Donnell & Shaeffer LLP
and
John Shaeffer
O'Donnell & Shaeffer LLP

2. Issues Not Addressed by the Court

DISCLAIMER
Announcement

1. INTRODUCTION

2. ISSUES NOT ADDRESSED BY THE COURT.

While no one really disputed that the creation of the My.MP3.Com service required MP3.Com to create illicit copies of sound recordings, no one seemed to question whether the music industry had suffered any damaged by this infringement. Similarly, even though there seemed to be a consensus that MP3.Com should not profit from its infringement, should the music industry be entitled to receive an additional fee from consumers who have already purchased a right to listen to a piece of music simply because they now want to listen to that music in an MP3 format? The music industry's victory here is a respite from the slew of losses for content owners in the long running battle with content providers. This battle, however, is far from over, and we can expect not only continued legal challenges, but also legislative efforts to define the rules of the game.

3. SCOPE OF CONSUMERS' RIGHTS TO EXPLOIT CONTENT

Removing the Internet sheen from this dispute, the music industry's case against MP3.Com is a rather pedestrian case about the scope of consumers' rights to exploit the content they rightfully own. Over the past several decades, the entertainment industry has seen consumers demand even broader uses of their purchased content. For some time now consumers have repeatedly prevailed over the entertainment industry's effort to block this evolution.

Today, no one challenges consumers' right to make a cassette tape for personal use of a CD recording that they already own. Similarly, the United States Supreme Court already has held that the manufacturers of equipment that enables consumers to copy content do not run afoul of copyright laws. See, Sony Music Corp. of America v. Universal City Studio, Inc., 464 U.S. 417, 446-456, 104 S. Ct. 417, 78 L. Ed. 2d 574 (1984) (video cassette recorder that enabled consumers to shift the time for viewing broadcast shows fell within the ambit of fair use). Most recently, the Ninth Circuit similarly affirmed that equipment that enabled consumers to listen to music recorded in an MP3 format was not prohibited by the Digital Millennium Copyright Act. Recording Industry Ass’n of America v. Diamond Multimedia Systems, Inc., 180 F.3d 1072, 1079 (9th Cir. 1999).

4. BACKGROUND OF MP3.COM CASE

The Internet was created as a tool for the sharing of electronic data. As the Internet became more consumer-oriented, the Internet’s potential for distributing music was recognized. Even with broadband access available to consumers, however, the time it would take to send a music file over such systems undermined the potential economic viability of the Internet as a distribution system. MP3 technology addresses the problem of prohibitively large music files by compressing the size of a file at about a 10 to 1 ratio with minimal loss of sound quality. Some speculate that with continued advancements in such compression technology the need for bulky storage devices like CDs will disappear along with the complicated and expensive distribution system supporting that storage medium. In the near future, however, the music industry, while experimenting with the Internet as both a distribution and marketing tool, will continue to back CDs as the preferred method for getting its music to consumers. A good discussion of some of the practical and legal issues surrounding music and the Internet is found in the National Research Council's recent publication The Digital Dilemma, Intellectual Property in the Information Age.

Music compression technology like MP3 has caught the attention of not only those interested in the distribution of music to consumers but consumers themselves. Software available on the Internet enables any person to convert music stored on a CD to an MP3 format. Once converted to MP3, a person can listen to the song stored on their computer, or, with the ever growing number of portable MP3 players, listen to CDs on the go. The music industry has lost its challenges to such conversions as illicit copying violative of governing copyright laws. Even with its compressed format, MP3 files are still relatively large.

To avoid taking up space on their personal computers, many consumers upload files to large storage facilities on network servers. Many college and university networks have become clogged with such music files. A chief concern of the music industry has been that when a file is uploaded to a large network, like those of colleges and universities, the file becomes available to anyone who has access to that network. When the file is uploaded to a system accessible over the Internet, the file becomes available to anyone on the Internet.

5. MUSIC INDUSTRY ISSUES WITH MP3

The music industry is rightfully concerned about MP3's ability to dispense with the need for a bulky storage device like a CD. Where previously the music industry was faced with the risk that a consumer would share a CD with one or two friends who could make illicit copies, with MP3, consumers now can make copyrighted music available to thousands of "friends." In fact software exists that facilitate the transfer of MP3's throughout the Internet community - Napster. The ease with which illicit copies of music could be widely disseminated over the Internet has forced the music industry to take an aggressive, proactive role to protect its assets, which includes suits against MP3.Com and the creators of Napster.

My.MP3.Com provided a storage facility accessible over the Internet for the music owned by a consumer. Not only did this service free up storage space on consumers' personal computers, it also afforded them access to their music anywhere they have Internet access. By uploading their music to the Internet, consumers have access to the music anywhere in the world without having to lug around CDs. This ease of use adds value to the music industry's product. By the same token, however, such ease of use increases the risk of illicit copying.

My.MP3.Com dispensed with the need for consumers to first upload their CDs onto MP3.Com's servers (a process that could take a number of hours per CD). To avoid this hassle, MP3.Com purchased tens of thousands of popular CDs and loaded them on to its servers. In an attempt to avoid illicit access to CDs not actually owned by a subscriber, MP3.Com developed a system that could identify music CDs placed in a subscriber's computer CD Rom drive and then limiting the subscriber access to only those CDs so identified.

6. DAMAGES TO THE MUSIC INDUSTRY

The music industry's challenge centered around MP3.Com's copying of CDs they purchased to upload to its network for commercial purposes. The music industry did not dispute that consumers have the right to upload their CDs on to a computer and listen to them in an MP3 format, so long as they limit access to the files to their personal use. Here, however, MP3.Com was copying the CDs it purchased not for its own personal playback, but for the playback of others who owned the CDs. From MP3.Com's perspective, it was simply facilitating permissible conduct - consumers listening to music they own in an MP3 format. As the music industry pointed out in their briefing, there is a real difference between a CD that a subscriber may possess and one that they actually purchased.

Reviewing these facts, one may question how the music industry has been damaged by MP3.Com's conduct. MP3.Com did not charge consumers for use of the My.MP3.Com service. Like most Internet startup ventures, MP3.Com apparently intended to profit from the system through advertising revenues generated from the site. If, in fact, MP3.Com profited from the My.MP3.Com service, was the company actually profiting from the illicit exploitation of copyrighted material or was the value derived from providing yet another type of playback system to persons possessing the right to such playback? If the music industry did not have the right to charge consumers an additional fee for translating their CDs into an MP3 format, then how has the music industry been injured by MP3.Com conduct? The uniqueness of our copyright laws, however, makes this discussion somewhat academic. The music industry did not need to prove any injury to enjoin MP3.Com's conduct or obtain statutory damages, so if there was a lack of any actual damage, it would not insulate MP3.Com's conduct

7. "FAIR USE" ARGUMENT

MP3.Com did not dispute that its conduct violated copyright law. Instead, MP3.Com argued that its actions fell within the ambit of "fair use". Fair use is an equitable defense to what otherwise would be copyright infringement. Courts have struggled for years attempting to define the contours of the doctrine of fair use. The issues raised by the Internet can only add to the courts' difficulties. The copyright statute lists "factors to be considered" in "determining whether the use made of a work in any particular case is a fair use." 17 U.S.C. § 107. These factors, however, do not operate as "simplified . . . bright line rules." Campbell v. Acuff-Rose Music, Inc., 510 U.S. 569, 577, 114 S. Ct. 1164, 127 L. Ed. 2d 500 (1994). Rather they operate as examples "to be explored . . . in light of the purpose of copyright." Id. at 578.

The four statutory factors are as follows:
1. The purpose and character of the use;
2. The nature of the copyrighted work;
3. The amount and substantiality of what was used;
4. The effect on the market. 17 U.S.C. § 107.

The first three of these factors, as traditionally applied, tip decidedly in favor of the record industry. The purpose of My.MP3.com is wholly commercial and necessarily entails copying the entire copyrighted work. While an argument could be made that the conversion of the sound recording to an MP3 format is transformative, the transformation contemplated by the fair use doctrine is one that adds new insights and understanding to a work and not simply transforming from one media to another.

Although given short shrift by Judge Rakoff, the effect on the market element raises some interesting and not previously addressed issues. The Supreme Court has repeatedly reaffirmed that "to negate a claim of fair use [under this fourth factor] one need only show that if