By Matthew Nicholls
The rise of the Internet, and in particular peer-to-peer file sharing has had a significant impact on the incidence of copyright infringement, particularly in relation to works such as sound recordings and films.
Importantly, in Australia, a person who authorizes the infringement of copyright is treated as if they themselves directly infringed copyright: Roadshow Films Pty Ltd v iiNet Ltd (No 4) (2010) 269 ALR 606 [iiNet] (note the appeal in this case was heard by Full Federal Court in August; judgment is still reserved). Click here for earlier FR post on the case.
Justice Cowdroy at first instance in the iiNet case re-affirmed the traditional approach that:
- providing Internet access is not the same as “providing the means” to infringe copyright. In that case, the “means” by which the applicants’ copyright was infringed was not by the iiNet Internet service, but by the iiNet user’s use of the BitTorrent system;
- having regard to the factors set out in section 101(1A) of the Copyright Act, iiNet had not authorized the users’ infringements. Specifically, his Honour found that a scheme for notification, suspension and termination of customer accounts was not a relevant power to prevent copyright infringement pursuant to the Act; nor in the circumstances was there a failure to take reasonable steps within the meaning of the Act; and
- an ISP in iiNet’s position could not be said to formally or officially “sanction, approve or countenance” the copyright infringement.
The National Broadband Network
The Australian Government’s proposed National Broadband Network (the “NBN”) should it proceed, and Australia’s growing digital economy pose significant challenges to our system of copyright law.
The NBN will create unimagined opportunities for the infringement of copyright. Emerging digital technology and increased broadband capacity mean that the marginal cost of reproducing and disseminating exact copies of protected digital works is rapidly moving towards zero.
As the cost of reproduction moves towards zero, the cost of enforcement of copyright escalates. With sites such as YouTube boasting 24 hours of new video footage being uploaded every minute, the problems with identifying and pursuing individual copyright infringements make the value of copyright seem hollow. Click here for an earlier posting on Viacom v YouTube).
International Responses to Copyright Infringement – “Three Strikes” System
How Australia deals with online copyright infringement may be referred to the ALRC, but how have other jurisdictions dealt with this issue?
In recognition of the inability of traditional mechanisms of copyright enforcement to address peer-to-peer copyright infringement, several countries, including France, the UK and New Zealand have implemented (or have attempted to implement) a “three strikes”, or graduated response system. Essentially, the three strikes system shifts some of the onus of the enforcement of copyright onto Internet service providers (“ISPs”). (Click here for an earlier report on the UK three strikes system).
However, the three strikes system is highly controversial and has consistently been opposed by interest groups such as the IIA (the Internet Industry Association) and ISPs (such as TalkTalk, the second largest ISP in the UK).
In the Australian context, commentary surrounding the NBN has emphasized the fundamental importance of Internet access. In light of this, the question arises as to whether severance of a person’s Internet account is a proportionate response to copyright infringement. Note, for instance, the Australian Minister, Senator Conroy’s frequent references to the Internet as being as important as electricity.
Certainly, it is strongly arguable that disabling Internet access is not a proportionate response when one considers the impact that Internet disconnection may have on:
- students (where many resources are online or where studying by correspondence);
- the elderly or disabled (who use the Internet for services such as online grocery shopping and banking);
The issue is further complicated in cases of shared living or families where the entire household is disconnected, so it may not only be the person who commits the copyright infringement who is punished.
Does a 3-strikes system fit with iiNet?
Finally, the three strikes system does not sit comfortably with the Federal Court decision in Roadshow v iiNet. The IIA argues that
“The recent iiNet case established the principle that an ISP who is merely providing the means of access should not be liable for the acts of their users where those users abuse facilities to breach third party rights. ISPs believe they should not be required to act as enforcer of those rights.”
Is legal intervention the appropriate response? Changing business models and commoditization
“Commoditization” of copyright works refers to a phenomenon whereby the industry’s mode of competition moves away from innovation of the underlying product (the copyright work) and towards alternative methods of building value.
Under this analysis, as the market matures and barriers to entry erode, competition intensifies and prices for the underlying product are pushed down. As a result, rights holders look for new ways of leveraging the value work itself to create new revenue streams.
The IIA stresses the need to ensure that policy does not damage Australia’s capacity to innovate and compete in the global digital economy. It says, “to the extent that Internet users, mainly the young, engage in infringing activities, we suggest the causes may be rooted in market failure more than they are in any regulatory shortfall.”
A recent report by the UK Intellectual Property Office found that, “digital technologies have altered the value chain. Authors can publish directly in the online world: commercial rights holders can sell product in new ways, and consumers have an enormous quantity of legitimate content at their fingertips, both free and paid for. For many creative businesses, the changing value chain is making the situation more complex as it is more difficult to realise economic benefits with digital technology, but there may be new opportunities to do so.”
The IIA states that it, “supports the development of new models to facilitate maximum access to content and innovative content based services. Possible examples include; revenue sharing arrangements with ISPs, ‘hyperdistribution’ where, for example, advertising is embedded in the content, and arrangements like those between YouTube and Warner Music which now permit users (who now number in the tens of millions) to upload self created video content with commercial soundtracks, owned in this case by Warner, in return for a revenue share arrangement on advertising.”
Examples of commoditization of digital content
Not surprisingly, then, business models have emerged which allow the user to use a copyright work for free and rely on advertising, or generating a massive, loyal following (rather than the worth of the product itself), to create revenue.
These models may be contrasted with traditional revenue-generation models, such as buying a CD, or downloading songs from iTunes.
Google (including Gmail, YouTube, etc.) and Android phone technology
Essentially, under the Google model, advertisers pay to be the top hits (“sponsored links”) in any combination of search words (this is done through auction every time a search is conducted) as well as paying for ads in side bars.
This has proved to be a highly effective model, to the point where an estimated 60% of Internet users use Google. This has earned Google billions of dollars in annual revenue and being declared “an economy unto itself”.
And Google has taken the concept further with its Android technology, which is offered as “less than free” to phone companies. That is, Google actually pays phone manufacturers to use the Android operating system, because Google potentially makes money from every click on Google (as advertising is sold on every click).
Guvera – “paid for” (by advertisers) music downloads
Guvera is an Australian initiative (it is an unlisted Queensland-based public company).
Under the Guvera model, advertisers create channels for specified groups of consumers, and then pay for music on behalf of targeted consumers. The initiative is still in its infancy, but Guvera hopes that its website will be “a piracy killer”, emphasizing that its Website was designed in recognition that a whole generation of Internet users believes that downloaded music should be free. (Click here for AFR reportage).
Radiohead – free music downloads
In 2007, British alternative rock band Radiohead offered the entire album In Rainbows through their website: fans were asked to pay whatever amount they wanted to digitally download it.
According to Internet marketing blog DoshDosh, this “donation-style” system is significant because of Radiohead’s reputation and the size of their fan base, which easily reaches into the millions globally.
The band is able to offer their songs in a digital rights management-free mp3 format because they do not have a record label; hence they own complete distribution rights over their music. This essentially bucks the industry trend of reliance on record companies and marketing teams to produce, commercialize and promote music records.
Alongside the digital download of their album, Radiohead is also selling a £40 box-set which consists of the CD album, vinyl records, additional songs as well as artwork and lyrics. Whilst this “viral” marketing assault by Radiohead clearly resulted in massive foregone album sales revenue, it also reportedly resulted in enormous revenue in other areas, including a sell-out concert tour, as well as unquantifiable augmentation to their fan loyalty, reputation and brand awareness/strength.
Similarly, rock band The Smashing Pumpkins released their Machina II album for free on the Internet by sending 25 physical copies of it to fans active in the online music community, with explicit instructions for re-distribution.
This approach has been successful for a number of (already highly popular) bands and contrasts with the approach taken by rock band Metallica, who sued Napster in 2000, thereby distancing them from fans and leading to a major public relations disaster for the band.
The following table summarizes some of the models for commercialization of copyright material (music), both traditional and new. Of particular interest is the fact that not all successful (or potentially successful), non-traditional sales models involve copyright infringement (note that the copyright is held by the musician/record label etc):
|Licence to use paid for by…
||Encourages artistic innovation?
||Value lies in…
|Trad. online sales model (e.g. Sony, iTunes)
||The song itself
||Goes against developing social expectation that Internet materials should (and can) be free
|P2P file sharing
||No-one (no licence to use)
||Yes – by the person making the song available via P2P and by each person who downloads it
||Illegal; no reward for those who are creative
|New Model (Radiohead)
||Musician chooses to make music available for free but (in some cases) charges advertisers to place ads on the page where the song is available
||Yes – if the song is a success then people will pay more to advertise (analogous to ad breaks in a successful TV show)
||The sheer number of people d/loading (ad potential)
||Arguably will only work for bands that are already successful
|New Model (Guvera)
||Advertisers on behalf of consumer
||Yes – copyright owner still receives $$$
||The sheer numbers of people d/loading (ad potential)
||Untested as yet; needs industry support to succeed
Conclusion on protection of online copyright works
Policy in relation to the protection of online copyright works is currently in a state of flux. This is largely because the advent of broadband (and projects such as the NBN) is a game changing development and policy-makers are still in “catch-up” mode.
Legislatures and courts in Australia and abroad have so far taken a fairly traditional approach to dealing with the protection of online copyright works. Some novel measures (such as the “three strikes” approach) have been touted, although it is yet to be seen what impact such measures will have, and indeed what counter-measures might be adopted by ever-exuberant copyright users.
Ultimately, however, it is expected that creative creators will continue to think outside the square to develop new business models – and that this group will manage to stay “ahead of the curve” when it comes to generating value (and new revenue streams) from their creative efforts.
This paper is amended from a conference presentation given by Mr Nicholls at the CMCL Conference, Melbourne, November 25-26, 2010
Matthew Nicholls is a principal of Nicholls Legal, contact: firstname.lastname@example.org.
The assistance of Rebecca Measday, Law Clerk at Nicholls Legal, in preparing this paper is gratefully acknowledged.
(return to the top of this edition)