Monday 16 April 2018

The COPYKAT: licensing, lawsuits, and legislative updates

Community Health Systems fails Microsoft check-up on licensing

Technology giant Microsoft has filed a suit against Community Health Systems for “willfully infringing Microsoft’s copyrights through unlicensed use of Microsoft’s software,” according to a lawsuit filed last month. Microsoft also alleges Community Health Systems is guilty of willful breach of its contractual obligations, and implied covenant of good faith and fair dealing.

Community Health Systems is a Fortune 500 private company based in Tennessee, USA. CHS is the largest provider of general hospital services in the United States in terms of number of acute care facilities. According to its website, CHS’s affiliates own, operate or lease 126 hospitals in 20 states with approximately 21,000 beds. 

Microsoft and CHS have a number of licensing agreements for its software, which prohibit CHS from distributing, sublicensing, renting, leasing, lending or hosting any Microsoft software. The products in question include Microsoft’s Windows, Office, SQL Server and Datacenter.

According to the 2013 Business & Services Agreement (MBSA) signed between the parties, Microsoft has “the right to verify compliance with the license terms” through an independent auditor, Deloitte. In late 2016, Microsoft notified CHS that it was exercising its contractual rights to verify licensing and contract compliance.

Around this time, CHS was in the process of selling off (divesting) various hospitals to new management. As reported by the Nashville Business Journal, CHS has sold more than 30 hospitals in the past 15 months, and plans to sell more this year. CHS is alleged to have sweetened the divestment deals by providing its buyers access to Microsoft Corp. software. The lawsuit states that “despite having no right to do so, CHS intentionally facilitated the continued use of Microsoft software by these divested entities.”

CHS has apparently missed numerous mutually agreed upon deadlines, and has failed to provide complete data to Microsoft. Microsoft insists that this demonstrates CHS’s “unwillingness to comply with its contractual obligation and/or with the independent verification process.” Microsoft’s lawyers charge CHS with being “largely not responsive to, if not obstructionist of” the Deloitte audits.

For reference the complaint, Case 3:18-cv-00291, was filed March 15th in the U.S. District Court for the Middle District of Tennessee, and made public several days ago in early April. According to the Docket, Microsoft’s legal team has been granted a case management conference in early June. CHS has until May 7 to respond to the complaint.

"Grande" victory on vicarious liability in RIAA piracy case

The Recording Industry Association of America’s legal battle against Texan internet service provider Grande Communications has been given the green light proceed to trial, although with the vicarious copyright infringement claim removed.

Pursuant to the Judge’s recent order, the matter continues on the contributory copyright infringement claim alone. This move is considered by Torrent Freak to be a partial defeat for the RIAA’s piracy lawsuit, as the vicarious copyright claim against Grande Communications has been dismissed. 

By way of background, several major record labels including Universal Music, Capitol Records, Warner Bros and Sony Music - represented together by the RIAA - brought action against Grande Communications for the copyright infringements of its customers. The original complaint, Case 1:17-cv-00365, was filed in April 2017 in the Austin Division of Western Texas District Court.

Grande denied these accusations, and filed a motion to dismiss the case. In respect of the vicarious liability aspect, vicarious liability is established when the third party (the ISP) has the right and ability to control the actions of the direct infringer, and the third party derives a direct financial benefit from the infringement. 

The RIAA claims Grande can be held liable for vicarious infringement, because the ISP has a “direct financial interest in keeping pirating subscribers on board.” 

As detailed in the lawsuit, piracy tracking company Rightscorp has provided Grande with notice of specific infringers who are using Grande’s high-speed internet service to infringe various copyrighted works. Through this process, Grande has been put on notice and informed of more than one million infringements. 

Grande admitted that while it received millions of takedown notices from Rightscorp, these notices based on flawed evidence and, as “mere allegations,” are not worthy of acting upon. In particular, the ISP explained that the notices of copyright infringement generated by piracy watchdog company Rightscorp are “so numerous and so lacking in specificity, that it is infeasible for Grande to devote the time and resources required to meaningfully investigate them.” 

Contrary to the RIAA’s allegations, Grande asserted that it was not failing to remove infringers for profit reasons.  Will the case turn on Rightscorp’s expertise, and the quality of its notices?

This case has considerable similarities to the legal battle between BMG Rights Management and internet service provider Cox Communications, in which a Virginia federal jury ruled that Cox was responsible for the copyright infringements of its subscribers. The Court of Appeals for the Fourth Circuit later threw out the $25 million piracy liability verdict.

EU-ser Created Content: draft Copyright Directive fails to hit the right note with artists

About 18 months ago, the European Commission announced its proposal for a Directive on Copyright in the Digital Single Market, currently in draft stages  Industry groups are keen to ensure their opinions are taken into consideration, especially in instances where consumers share content which belongs to artists, authors, record labels, and television channels. On 12 April, various trade groups representing Europe’s creators and creative content producers published an open Letter to the European Council about the proposed Directive. 

While the Letter’s authors support the primary objectives of the proposed legislation, they suggest that, far from ensuring legal certainty, the directive as currently drafted “could be detrimental to our sectors,” which include journalism, film and TV, music, and sport. 

In particular, the problems seem to arise with sections addressing the “use of protected content” by ISPs and other platforms which “store and give access to large amounts of works and other subject-matter uploaded by their users”. 

The E-commerce Directive states that EU Member States shall ensure that internet service providers are not liable for copyright infringements carried out by its customers, on condition that: (a) the ISP does not have actual knowledge of illegal activity or information; and (b) the provider “acts expeditiously to remove or to disable access” to the illegal content, once they become aware of it (see Article 14 of the E-commerce Directive). This article provides certain entities with a “safe harbour” from copyright liability.

Accordingly, many User Uploaded Content (UUC) platforms, like YouTube, argue that they are not responsible for any copyright infringing material uploaded by their users. This principle originates from the e-commerce directive and holds that platforms are not liable for their users’ infringement, provided that they enforce takedown procedures initiated by copyright owners. The copyright industries – such as those mentioned above – want the safe harbour reformed so that it no longer applies to user-upload sites (Complete Music Update).

This draws into question how online platforms hosting UUC should monitor user behaviour and filter their contributions, rather than by reviewing content after it has been published and reported or “flagged” as copyright infringement. This may, as has been discussed with Facebook’s proposed use of artificial intelligence in copyright and hate speech monitoring, “inevitably require an automated system of monitoring that could not distinguish copyright infringement from legal uses such as parody” (The Guardian).

The relevant sections of the draft Directive are Article 2, Article 13(1) and Article 13(4). 

Article 2 defines which services fall under liability, mentioned further at Article 13. The latest draft could leave most UUC platforms outside the scope, despite the fact they continue to provide access to copyright protected works and other subject-matter (for example, music playing in the background of a makeup tutorial on YouTube). 

The problem with Article 13(1) as currently written is that it risks narrowing the scope of the right and contravening CJEU jurisprudence. The letter’s authors argue that “any new EU law should secure that this right is broad,” and “contain no additional criteria which could change via future CJEU rulings.” 

As for Article 13(4) and its relevant recitals, the authors suggest the language is tantamount to a new safe harbour, which would both “seriously undermine fundamental principles of European copyright,” and pose “unwarranted liability privilege risks breaching the EU’s obligations under international copyright treaties.”

The Letter closes with the authors’ promise to “remain at the Council’s disposal to find solutions to these points.” For more information on the proposed Directive, be sure to check out the IPKat’s numerous posts on the subject.

House Judiciary Committee goes for a modern remix of US Copyright Law

Copyright legislation is getting an update on the other side of the Pond, too. The United States House Judiciary Committee voted unanimously today (32-0) to approve House Bill 4706, “to provide clarity and modernize the licensing system for musical works under section 115 and to ensure fairness in the establishment of certain rates and fees.” More commonly known as the Music Modernization Act, the bill now heads for consideration by the full House of Representatives. The act has received wide bipartisan support from Democrats and Republicans alike, and appears to be “on the fast track” for approval. 

Speaking to ABC news, John Simson noted that Americans “...have a 1909 statue trying to govern 2018 technology, and it doesn't work.” Mr Simson is a professor at the American University and founding member of Sound Exchange, a non-profit organisation set up to collect and distribute performance royalties.

Title I (the first section) of the bill seeks to address how modern digital music services operate, by creating a blanket licensing system to quickly license and pay for musical work copyrights. Another key aim includes discouraging litigation in favor of simply ensuring that artists and copyright owners are paid in the first place without such litigation. 

Title II, entitled “Compensating Legacy Artists for their Songs, Service, and Important Contributions to Society (CLASSICS) Act” will focus on public performance rights for pre-1972 recordings. In particular, musicians with pre-1972 recordings will receive royalty payments when their tracks are played on the radio, with royalties then allocated for recordings played on the Internet, cable, and satellite radio. 

Title III, the “Allocation for Music Producers (AMP) Act,” will ensure that record producers, sound engineers, and other creative professionals receive compensation for their work.

The Music Modernization Act will also create an American agency or “mechanical licensing collective,” that would house all music publishers under one roof. The digital streaming services will therefore pay the agency, which tracks and collects royalties on behalf of the artists.

IP Subcommittee Vice Chairman Collins noted that “the current music licensing landscape undervalues music creators and under-serves music consumers. Outdated copyright laws have produced unnecessary liabilities and inefficiencies within the music licensing system, and stakeholders across the music industry have called for reform. [...] This bill moves the music industry towards a freer and a fairer market, enabling it to leverage the present and future benefits of the digital age.” 

More statements from Judiciary Committee leaders on the their passage of the Music Modernization Act can be found on the committee website.

Spotify turns up the volume on licensing technology

On the topic of licensing, the day after the Music Modernization Act was approved by the Judiciary Committee (see above) Spotify announced plans to buy, a San Francisco-based company which provides licensing technology. The deal has been described by Reuters as the acquisition of a “cover song licensing firm to tackle copyright risks.”

As a company which offers “Big Data for Music Rights,” Loudr’s platform obtains mechanical licenses to distribute recordings as digital downloads, ringtones, CDs or vinyl records. Publishers are able to “digitalize their collection process and gain more insight into the rights they control,” and businesses are able to “discover and automate publisher payments for music content at scale.”

Spotify’s purchase of Loudr comes only months after being hit with a lawsuit seeking damages of up to $1.6 billion (£1.1 billion) by Wixen Publishing, the California-based company that represents Tom Petty, Neil Young, Rage Against the Machine, Missy Elliott and others. The Wixen lawsuit, like others, demonstrates the difficulty Spotify faces in tracking down the right publishers connected to songs, and ensuring the correct royalties finds its way to the appropriate rightsholders.

In its New York Stock Exchange listing document, Spotify disclosed that licensing and royalty payment problems are a key threat to its business model. To make its 35 million tracks available for listeners, Spotify requires licenses from the musicians and record labels who own the songs. Additionally, Spotify has a complex royalty payment scheme, and it is difficult to estimate the amount payable to musicians under their license agreements. Even if Spotify secures the necessary rights to sound recordings from record labels and other copyright owners, artists may wish to discontinue licensing rights, hold back content, or increase their royalty fees.

In a press release dated 12 April, Spotify explained the Loudr team of publishing specialists and technologists will join Spotify’s New York offices. “Loudr will contribute to Spotify’s continued efforts towards a more transparent and efficient music publishing industry for songwriters and rights holders.”

This update by Kelsey Farish

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