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E-Commerce News
Downloader Pays $750 Per Song; Federal Law Trumps Minnesota Wireless Statute
January 31, 2006
DOWNLOADER PAYS $750 PER SONG
Downloading copyrighted music through a peer-to-peer file-sharing network is direct infringement, which is neither fair use nor a form of permissible "time shifting" according to a federal court of appeals in Chicago.
BMG Music, among others, originally brought the suit against Cecilia Gonzalez. Apparently, Gonzalez was a prolific downloader, having used the KaZaA file-sharing software to download more than 1,370 copyrighted songs. The lawsuit concerned 30 songs that she downloaded and never paid for. For her defense, Gonzalez argued that her activities were a fair use under Section 107 of the Copyright Act rather than infringement.
Gonzalez contended that her downloading was nothing more than a form of time-shifting permitted under a 1984 Supreme Court case that found that video taping television shows on a Betamax (remember that thing?) was a permissible use. The appellate court, though, disagreed. "A copy downloaded, played, and retained on one's hard drive for future use is a direct substitute for a purchased copy--and without the benefit of the license fee paid to the broadcaster," it said. "The premise of Betamax is that the broadcast was licensed for one transmission and thus one viewing," the court said. "Betamax held that shifting of the time of this single viewing is fair use. The files that Gonzales obtained, by contrast, were posted in violation of copyright law; there was no license covering a single transmission or hearing--and ... Gonzalez kept the copies. Time-shifting by an authorized recipient this is not."
The court was also unimpressed with Gonzalez's claim that she was simply sampling songs to determine which ones she liked enough to buy at retail. According to Gonzalez, "try-before-you-buy downloading" was a fair use because it constituted "good advertising for copyright proprietors, expanding the value of their inventory."
In citing a recent case involving the Grokster peer-to-peer network, the court rejected this defense. According to the court, the 30 percent drop in sales of recorded music in the last four years is likely related to the increase in file sharing, because free downloaded music is a close substitute for purchased music. The court found that, even though BMG sought damages for only the 30 songs Gonzalez conceded she never purchased, "all 1000+ of her downloads violated the statute" because they all "created copies of an entire work" and "undermined the means by which authors seek to profit."
As a result of its ruling, the court affirmed the district court's award of $22,500 in statutory damages calculated under the Federal Copyright Act at the statutory minimum of $750 for each of the 30 works copied. Although Gonzalez argued that the court should deem her infringement "innocent", the court noted that BMG provided copyright notice on records and discs to which Gonzalez had access. Thus, according to the court, it was immaterial that the files Gonzalez downloaded lacked copyright notices. "Gonzalez readily could have learned, had she inquired, that the music was under copyright," the court said.
In retrospect, Gonzalez probably would have been better off paying for the music. At the rate of $1.00 per tune, she would have saved $749 per song.
FEDERAL LAW TRUMPS MINNESOTA WIRELESS STATUTE
A state law designed to protect consumers from changes in wireless contracts is preempted by the 1934 Federal Communications Act (ironic considering that in 1934 no one could have even imagined the concept of "wireless"), according to a federal appellate court sitting in Minnesota. The court determined that the state law was preempted because it had a direct impact on the rates that providers may charge subscribers.
In 2004, the Minnesota state legislature adopted a statute providing wireless communication service providers "must notify the customer in writing of any proposed substantive change in the contract." Under the statute, the change becomes effective only if affirmatively accepted. If a customer does not affirmatively opt in to a proposed change, then "the original contract terms shall apply."
Certain wireless providers brought a declaratory judgment action, asking the federal court to rule that the Federal Communications Act, which provides that no state may "regulate the ... rates charged" by commercial mobile service providers, preempted the state law.
Minnesota defended the statute, on the ground that the Federal Act does not prohibit states from "regulating the other terms and conditions of commercial mobile services." It argued that the statute is a consumer protection measure that "further[s] the underlying traditional requirements of contract law as a way to protect consumer interests," because it guards consumers against unilateral contract changes.
The appellate court thought this argument was too broad. "Any measure that benefits consumers, including legislation that restricts rate increases, can be said in some sense to serve as a 'consumer protection measure,' but a benefit to consumers, standing alone, is plainly not sufficient to place a state regulation on the permissible side of the federal/state regulatory line . . ." it said. The statute "effectively voids the terms of contracts currently used by providers in one industry, and substitutes by statute a different contractual arrangement," the court said.
Despite the fact that the Minnesota statute seems like a reasonable idea, the doctrine of federalism prevails!
This Newsletter is a periodic publication of Graydon Head & Ritchey LLP and should not be construed as legal advice or legal opinion on any specific facts or circumstances. The contents are intended for general information purposes only, and you are urged to consult your own advisor concerning your situation and any specific legal question you may have.