Wake Forest Law Review

Weekly Roundup: 10/23-10/27
By: Hanna Monson and Sarah Spangenburg

United States v. Julian Zuk
In this criminal case, the Government appealed the district court’s sentencing of defendant Julian Zuk as being “substantively unreasonable” after he had pled guilty to possessing child pornography as part of a plea agreement. The Fourth Circuit vacated the sentence and remanded for resentencing, reasoning that the 26 month time served sentence was not sufficient “to reflect the seriousness of the offense, to promote respect for the law, and to provide just punishment.” 18 U.S.C. § 3553(a)(2)(A).

Campbell McCormick, Inc. v. Clifford Oliver
In this civil case, Campbell McCormick, Inc appealed an order of a federal district court that severed and remanded Oliver’s asbestos exposure claims against it. The Fourth Circuit dismissed the appeal for lack of appellate jurisdiction and also held that the elements for jurisdiction under the collateral order doctrine were not met.

SAS Institute, Inc. v. World Programming Limited
In this copyright case, SAS alleged that WPL breached a license agreement for SAS software and violated copyrights on that software. The Fourth Circuit agreed with the district court that the contractual terms at issue were ambiguous and that SAS had shown that WPL violated the terms. However, on the copyright claim, the Fourth Circuit vacated the district court’s judgment and remanded with instructions to dismiss as moot.

United States v. Shawntanna Lemarus Thompson
In this criminal case, Thompson pled guilty to a drug offense and being a felon in possession of a firearm. Thompson appealed his sentence after the district court increased his sentence when it found that Thompson’s previous state conviction for assault inflicting serious bodily harm constituted a “crime of violence” under § 4B1.2 of the U.S. Sentencing Guidelines. The Fourth Circuit affirmed the sentence because the residual clause of § 4B1.2 authorized the district court’s increased sentence.

By Blake Stafford

On June 23, 2015, the Fourth Circuit issued its published opinion in Humphreys & Partners Architects, L.P. v. Lessard Design, Inc.  In this civil case, architecture firm Humphreys & Partners Architects, L.P. (“HPA”) alleged copyright infringement of its architectural design of a high-rise condominium.  The District Court for the Eastern District of Virginia granted summary judgment in favor of the competitor, holding that there was no direct evidence of copying, and no reasonable jury could find that HPA’s building design and the competing building design were extrinsically similar.  The Fourth Circuit affirmed, holding that: (1) the extrinsic/intrinsic two-part test governs the “substantial similarity” inquiry in architectural copyright infringement claims; (2) HPA failed to present any direct evidence of copying; and (3) HPA failed to identify specific extrinsic-similarity evidence.

Factual & Procedural Background

In 2000 and 2001, HPA designed “Grant Park,” a 27-story residential tower with 11 units per floor.  The design features two separate elevator cores such that each floor has two elevator lobbies.  The units on a typical floor open directly into these lobbies—five units open into one lobby and six into the other.  Each lobby also provides access to a stairwell and either a trash chute or a mechanical/electrical room.  This dual-core layout is desirable because residents can travel between the lobbies through an unfinished service corridor, allowing all residents access to both utility rooms and both stairwells.  HPA registered the Grant Park design as an architectural work with the United States Copyright Office and received a certificate of copyright registration.  The building was constructed in Minnesota in 2004.

In 2008, a developer began planning a high-rise apartment building in Virginia to be called “Two Park Crest.”  In 2010, the developer solicited design proposals for this development from three architecture firms, including HPA and Lessard Design, Inc. (“Lessard”), a Virginia-based architecture firm.  HPA submitted illustrations of its Grant Park design and discussed the design with the developer.  Soon after, the developer informed Lessard that it wanted the Two Park Crest design to feature dual elevator cores connected by a service corridor, and emailed the Grant Park floor plan to Lessard to illustrate this concept.  Lessard responded with a final design for a 19-story building with 17 apartments per floor.  The Lessard design incorporated three elevator cores: two passenger elevator cores connected by an unfinished hallway, and a service elevator core accessible from that hallway.  Of the 17 apartments per floor, eight would open into one passenger elevator lobby, and nine would open directly into the other.  HPA lost the bid to Lessard.

In April 2013, HPA filed suit against the developer, Lessard, and other affiliates (collectively, “Appellees”) alleging copyright infringement under 17 U.S.C. §§ 101–122, arguing that Lessard copied the Grant Park design after receiving it from the developer.  The parties filed cross-motions for summary judgment.  Supporting Appellees, three expert reports filed by architects concluded that the two designs were not substantially similar.  Supporting HPA, one expert declaration by an architect identified nine characteristics that were shared by both buildings.  The district court granted summary judgment in favor of Appellees, determining that: (1) there was no direct evidence of copying; and (2) no reasonable jury could find that the two designs were extrinsically similar, as neither the nine features nor their arrangement were eligible for copyright protection, and no evidence was presented that indicated extrinsic similarity between the arrangements of features.  HPA timely appealed.

Governing Law: Architectural Copyright Infringement

The Fourth Circuit first summarized the law governing architectural copyright infringement claims.  To establish a claim for copyright infringement, the plaintiff must prove: (1) that it owned a valid copyright, and (2) the defendant copied the original elements of that copyright.

For the second prong, the plaintiff can prove the defendant’s copying of original elements through direct or circumstantial evidence.  Direct evidence includes party admissions, witness accounts, and errors that are common in both works.  Circumstantial evidence includes proof that the alleged infringer had access to the work and that the supposed copy is “substantially similar” to the author’s original work.

To establish “substantial similarity,” the Fourth Circuit expressly held (for the first time in a published opinion) that the “extrinsic/intrinsic two-part test” applies to architectural copyright infringement claims.  In this two-part test, the “extrinsic similarity” analysis objectively evaluates external criteria of substantial similarity between the alleged copy and the protected elements of the copyrighted work.  This analysis considers the protectability of the work’s individual elements as well as the overall arrangement of the individual pieces as assembled.  By contrast, the “intrinsic similarity” analysis implicates the perspective of the work’s intended observer and looks to the total concept and feel of the works.

HPA’s Three Arguments on Appeal

HPA claimed that the district court erred in three respects: (1) by considering the Appellees’ expert reports when resolving the motion for summary judgment; (2) by failing to credit HPA’s direct and circumstantial evidence of copying; and (3) by making various errors of copyright law.  The Fourth Circuit rejected each argument in turn.

(1) Expert Reports.  HPA first contended that Appellees’ expert reports were “inadmissible hearsay.”  Appellees responded that the district court appropriately considered the reports, as they offered evidence that the content of the reports would be admissible through the expert’s testimony at trial.  In affirming the district court’s consideration of the expert reports, the Fourth Circuit noted that, in a summary judgment proceeding, courts may consider inadmissible materials if the proponent of the materials submits evidence that it will be possible to put the information into an admissible form.  Here, Appellees submitted declarations made under penalty of perjury from the experts attesting that they would testify to the matters set forth in their respective reports.  Thus, these reports could be considered for the purposes of Appellees’ motion for summary judgment.

(2) Direct and Circumstantial Evidence of Copying.  Next, HPA argued that the district court failed to credit HPA’s direct and circumstantial evidence of copying.  HPA submitted that the development of Lessard’s sketches established direct evidence of copying, particularly when viewed in concert with the HPA expert’s deposition testimony.  In his deposition testimony, HPA’s expert stated: “It appears that rather than going through the normal iterative design process, that Lessard had a preconceived solution to the design.”  The Fourth Circuit held that this was not direct evidence.  While the fact that Lessard created the design with more speed and less revision than is customary may be consistent with HPA’s theory that Lessard copied its design, this fact does not itself establish copying.

As evidence of extrinsic similarity, HPA proferred—and the Fourth Circuit rejected—the following:

  • Declarations by HPA’s CEO and founder stating that “the Court can see that the two floor plans are very similar,” and that “the Court can see that [the two buildings] have a very similar appearance.”  The Fourth Circuit found that these conclusory statements were insufficient to create a genuine dispute of material fact to overcome the motion for summary judgment.
  • Declarations by HPA affiliates who worked on the Grant Park project.  The Fourth Circuit noted that none of these declarations contained any assertions about the similarity between the designs.
  • The declaration and deposition testimony of HPA’s expert that identified nine shared features, stating that these characteristics showed that the two designs arrange and compose both spaces and elements in a substantially similar manner.  The Fourth Circuit held that HPA did not claim any protectable interest in any of the nine individual features, and the assertion that their arrangement was extrinsically similar was unsupported by specific evidence, making it conclusory for the purposes of the motion for summary judgment.

(3) Misapplication of Copyright Law.  Finally, HPA argued that the district court erroneously applied copyright law.  The Fourth Circuit rejected the various points in this argument, finding each of them to be without merit.

Disposition: Affirmed

Because HPA failed to produce direct evidence of copying, or evidence adequately supporting extrinsic similarity, the Fourth Circuit affirmed the district court’s grant of summary judgment.

By Amanda Whorton

On June 18, 2015, the Fourth Circuit issued a published opinion in the civil case Copeland v. Bieber. The court held that, in a copyright infringement claim under the Copyright Act of 1976, a reasonable jury could find that the plaintiff and defendant’s songs are intrinsically similar.

Copeland and Bieber’s “Somebody to Love” Songs

In 2008, musician Devin Copeland (“Copeland”) and his songwriting partner wrote and recorded a song called “Somebody to Love.” He registered the copyright for the song later that year. In 2009, Copeland, in promoting his music, turned over copies of his song to Sangreel Media, a company that recruits artists for record labels. Sangreel Media showed Copeland’s music to Usher Raymond IV (“Usher”), among others. Usher’s manager and mom called Copeland, informing him that Usher liked the song and was interested in Copeland joining Usher on tour and re-recording the song. However, nothing materialized and Copeland never had any communication with Usher or his mom thereafter.

A few months later, Usher recorded and posted to YouTube a song also called “Somebody to Love.” Usher brought this song to his protégé, Justin Bieber (“Bieber”), and Bieber recorded and released the song himself. Usher and Bieber released a remix of the song together in 2010.

Copeland then filed suit for copyright infringement against Bieber and Usher. Bieber and Usher moved to dismiss the action under Federal Rules of Civil Procedure 12(b)(6) for failure to state a claim, arguing that no reasonable jury could find that the Copeland “Somebody to Love” and the Bieber and Usher “Somebody to Love” songs were “substantially similar.” The district court granted Bieber and Usher’s motion to dismiss, stating that the mood, tone, and subject matter of the songs were significantly different. Copeland appealed.

A Plaintiff Must Show That the Songs are “Substantially Similar” in Order to Prove a Copyright Infringement Claim

Under the Copyright Act of 1976, in order to establish copyright infringement, a plaintiff must prove that he or she has a valid copyright and that the defendant copied original and protectable elements of his or her work. While it is difficult to directly prove that the defendant copied the work, a plaintiff can use indirect proof to show that the defendant had access to the original work and that the copy is “substantially similar” to the original work.

Plaintiffs must prove both “extrinsic” and “intrinsic” similarity. “Extrinsic” similarity is an objective question and evaluates the copyright-protectable elements of the original work and the copy. Expert testimony is often used in this assessment. On the other hand, “intrinsic” similarity is a subjective and “aesthetic judgment,” looking instead to whether the intended audience of both works would see them as similar.

Bieber and Usher did not dispute that they had access to Copeland’s song, but rather that the songs were “substantially similar.”

Upon an Examination of the Lyrics, an Audience Could Determine That the Songs are “Substantially Similar”

The Fourth Circuit first determined that the intended audience of the works was the general public, as the general public is typically the consumer of popular music. Next, the Fourth Circuit listened to both the Bieber and Usher songs and the Copeland song for their differences and similarities.

The court reasoned that many aspects of the songs were different. The genres of both works were different: Copeland’s song was R&B and the Bieber and Usher songs were dance pop. However, genre is not dispositive. The songs also featured different beats, melodies, and lyrical content.

The Fourth Circuit reasoned that even though the points of dissimilarity may outweigh the points of similarity, other courts have found “substantial similarity” where the works share some of the same sequence of notes or lyrics. The court then focused mainly on the choruses of the songs. The choruses not only both contained the lyric “somebody to love,” but they were delivered in a similar rhythm and melody. This was enough of a basis for the court to view that the songs could have a similar overall effect on an ordinary audience.

Fourth Circuit Vacates and Remands

The Fourth Circuit vacated the district court’s judgment and remanded the case for further proceedings. The Fourth Circuit did not need to reach the question of whether the works were extrinsically similar, concluding that a reasonable jury could find that Bieber and Usher’s songs are intrinsically similar to Copeland’s song.

 

By: Edward Lee*

The Copyright Act of 1976 is nearing its fourth decade of existence.[1]  By historical standards, that longevity puts the 1976 Act “on the clock” for a major revision in the near future.  Indeed, given the incredible advances in digital technologies and the Internet—all of which were unforeseen by Congress back in 1976—the need for a major revision and modernization of copyright law may already be upon us.[2]

This time around, however, Congress faces a challenge it has never faced before.  In none of the five previous copyright acts did Congress have international treaty obligations effectively limiting the alternatives available for reform.[3]  The Berne Convention and the TRIPS Agreement—which the United States joined in 1989 and 2004, respectively—set forth numerous minimum standards of copyright law and restrict the scope of permissible copyright exceptions.[4]  Although these agreements do allow some flexibility for countries to shape their own copyright laws in some respects, in other areas the requirements are more fixed.[5]  A number of basic features of copyright law—a set of required exclusive rights including rights for derivative works, a ban on formalities for foreign works, and a term that lasts at least the life of the author plus fifty years—are now all set in Berne stone.[6]  TRIPS adds to the calcification of copyright by imposing additional requirements on countries.[7]

Of course, one way of dealing with the international copyright treaties would be to modernize them as well.  Indeed, some of the provisions of the Berne Convention, which date back to the early 1900s, if not earlier, may need modernizing more than the U.S. Copyright Act.[8]  Amending international copyright treaties, however, requires agreement by a consensus or the unanimity of member countries.[9]  Getting consensus among World Trade Organization (“WTO”) countries about a major copyright revision—such as abandoning some of the outdated Berne features—would be difficult, to say the least.  No doubt it would be more difficult than getting a simple majority of Congress to enact a revision of U.S. copyright law.

Thus, at least in the short-term, Congress may be better off exploring options for reforming copyright law within the current TRIPS/Berne framework, while working in the long-term with the Executive Branch and U.S. Trade Representative to modernize international IP agreements.  That way, the United States can begin to modernize its copyright law instead of waiting for consensus among WTO and Berne countries on copyright reform.  The downside, however, is that many U.S. reform proposals may face the same stumbling block: the Berne Convention and TRIPS Agreement may restrict, if not preclude, many copyright reforms in domestic law.  “Can’t do it because it’s a Berne violation” has become an all-too-common refrain to torpedo numerous ideas for improving or modernizing our copyright system.[10]  Because of these international requirements, the ability of WTO countries to enact new, innovative approaches to copyright law is circumscribed.

To deal with this problem, this Article offers a new alternative for copyright reform: tax law.  I call this approach the “tax fix” for copyright law, in that tax law is used to fix problems or inefficiencies in our copyright system.  Using the tax system as a way to modernize our copyright system offers several advantages.  Most important, tax law can fix problems in our copyright system without violating the Berne Convention or TRIPS Agreement, and without requiring amendment to either treaty.  Tax law can also be used to incentivize the copyright industries to adopt new, innovative approaches to copyright in ways that voluntary reforms like Creative Commons cannot.  The tax fix has the added benefit of offering, beyond the “one size fits all” approach, greater tailoring of copyrights by both industries and individuals—which may, in turn, lead to greater efficiency.

Part I discusses the need for a major revision of copyright law in the twenty-first century.  Past historical practice and new technological changes both suggest a major revision of copyright law is due.  Yet two major obstacles—political stalemate and international treaty obligations—dim the prospect for achieving the necessary modernization of copyright law.

Part II introduces the concept of the tax fix for copyright law and shows its possible advantages.  Tax is one method that is given a great deal of consideration in other areas where incentives are important, but, surprisingly, is discussed hardly at all in copyright law.  The tax fix is not a panacea for the inefficiencies and obsolescence in our copyright system.  Nor is it meant as the sole method of modernizing copyright law.  Instead, the tax fix is offered as another possible tool in the toolbox of options for Congress to modernize the copyright system.

Part III explains how the tax fix can address inefficiencies within our copyright system.  Two types of tax fixes are offered: (1) a “copyright gains” tax, which establishes a preferential tax rate for income derived from certain socially beneficial initiatives related to copyrighted works, and (2) a copyright tax credit that grants a credit for such initiatives.  For illustrative purposes, this Article shows how tax law can be used to reduce the problem and inefficiencies created by orphan works and the lack of copyright registration, lengthy copyright terms, and the lack of clear copyright exemptions.  It also illustrates how tax law can be used to help address the problem of spiraling costs of textbooks in schools.  Although the solutions offered by the tax fix are not perfect, they are second-best alternatives that may give Congress a more flexible way to address some of the inefficiencies of our copyright system, without requiring any change in our international treaty obligations.  Part IV addresses possible concerns.

I.  The Copyright Paradox: Modernizing Copyright
Law in the Twenty-First Century

This Part discusses the paradox copyright law faces today: a major revision to the Copyright Act of 1976 is needed more than ever, but it is even harder to achieve such reform today.  This paradox will plague Congress’s efforts to enact a major copyright revision that can deal with the advances in technology of the twenty-first century.

A.     Need for Copyright Reform

1.     Historical Practice: The Forty-Year Cycle of Revision

If historical practice is a guide,[11] then the U.S. copyright system is due for a general revision or major updating.  The Copyright Act has undergone general revisions roughly every forty years,[12] which means that the next revision should be made by 2016.

The pattern of revision is rather striking.  The 1790 Act, the first copyright act in the United States,[13] was replaced by the 1831 Act.[14]  The 1831 Act was replaced by the 1870 Act,[15] which was later replaced by the 1909 Act.[16]  Finally, the 1909 Act was replaced by the current 1976 Act.[17]  Although the 1976 Act took longer than forty years from its predecessor to enact, Congress began studies for copyright reform overseen by the Copyright Office starting in 1955, or forty-six years from the enactment of the 1909 Act.[18]  (In between and after these major revisions, other amendments were enacted to the then-existing Act.)

In each revision, Congress attempted to modernize copyright law to address the changing time period and new types of works and technologies.  From its inception, copyright law has struggled to keep pace with the advances in technology—for example, the printing press, pianola, camera, radio, film, television, VCR, computer, and now the Internet, digital technologies, and social media.  The history of copyright suggests that Congress should begin to study whether a general revision or major updating of the Copyright Act is needed for the twenty-first century.  The last general revision occurred more than thirty-five years ago, long before the incredible advances brought on by the Internet.  As Pamela Samuelson encapsulates, “the 1976 Act was passed with a 1950s/60s mentality built into it, just at a time when computer and communication technology advances were about to raise the most challenging and vexing copyright questions ever encountered.”[19]

2.     Inefficiencies of the Copyright System in the Twenty-First Century

The forty-year lifespan of previous copyright acts tells only half the story.  The more important reason a copyright revision is needed is that the current 1976 Act is showing its age.[20]  It has produced glaring inefficiencies, which have become more pronounced in our digital age.

a.  Notice Externalities and Orphan Works

One clear deficiency is the creation of a copyright system that grants relatively long terms of copyright for all works—for individuals, the life of the author plus seventy years—while allowing those works to go unregistered, meaning there is no public record or registry identifying titles or owners of most copyrighted works.[21]  Currently, copyright registration is required in the United States only to bring a copyright infringement lawsuit for works originating in the United States.[22]  Foreign works are not subject to this requirement because the Berne Convention prohibits the use of formalities by member countries in such instance.[23]  Copyright registration in the United States also entitles the copyright owner to elect possible statutory damages in lieu of actual damages and attorneys’ fees in successful litigation.[24]  However, because so few copyright lawsuits are ever brought,[25] the incentives for registration of U.S. works are modest and are probably more relevant to the major U.S. copyright industries, such as publishing, music, and movies.

The lack of an effective registration system for copyrighted works produces substantial “notice externalities,” to borrow a term coined by Peter Menell and Michael Meurer.[26]  These notice externalities impose huge external costs on the ability of the public to use and license copyrighted works.  Put simply, for many works, there is no way for the public to figure out who owns the copyright.

This combination of lengthy terms and lack of registration contributes to the so-called “orphan works” problem, meaning it is practically impossible for people to locate or identify the copyright holder of many copyrighted works, especially those published decades ago, in order to seek permission to use the works.[27]  Without registration or registry of owners, the works have become effectively “orphaned.”  And, because copyright law still protects these orphan works, people who wish to utilize the works cannot do so out of fear of being sued.[28]

A major reason for the orphan works problem is the lack of an effective copyright registration system—which is ironic with all the modern technology and vast databases we have.  Even with wondrous technologies at our disposal, our copyright system is stuck in the 1908 Berne Convention world of no formalities.[29]  In other areas of property, such as title to land, ownership of a patent, or trademark registration, a public registry facilitates transactions related to a property in the registry by enabling the public to locate the relevant owner.[30]  Because our copyright system lacks a comprehensive database of works under copyright,[31] the public may have no practicable way of locating the relevant owner of a work, particularly if the work was created long ago, such as in the 1920s or 1930s.

Empirical studies have identified an alarming number of orphan works both here and abroad.  In response to the U.S. Copyright Office study, Carnegie Mellon University (“CMU”) conducted a three-year survey of its own collection.  CMU determined that copyright owners could not be located for 22% of the books in its survey.[32]  The percentage of orphan works jumped to over 60% for older works published in the 1920s.[33]  Moreover, even when copyright owners were identified, 36% of them did not reply at all to CMU’s multiple letters.[34]  Cornell University Library faced similar problems and could not locate the copyright owners of 58% of 343 copyrighted monographs in its collection, while spending over $50,000 in staff time dealing with copyright issues.[35]  The Library of Congress estimated in 1993 that 80% of films created before 1929 were orphan works and were at risk of deterioration due to the inability to get permission to preserve the films.[36]  A study in the United Kingdom estimated that UK museums, galleries, and archives may have over 50 million orphan works.[37]  According to a British Library estimate, 40% of all printed works are orphan works, and more than 50% of sound recordings surveyed in its collection are orphan works.[38]

Congress is well aware of the orphan works problem, but, unfortunately, has failed to address it.  In 2006, after a year of studying the issue, the Copyright Office issued its Report on Orphan Works, which recommended that Congress enact a copyright provision to allow good faith users to use an orphan work without a license if they could not find the copyright holder of the orphan work after a reasonably diligent search.[39]  If the copyright holder later appeared, the user would have to pay reasonable compensation to the copyright holder for use of the work.[40]  Both the House and Senate held hearings, and several bills modeled in part on the Copyright Office proposal were entertained.[41]  However, Congress has yet to put any of the bills to a full vote.[42]  Congress’s inaction on the orphan works problem even appeared to draw thinly veiled criticism from the Department of Justice in its objection to the proposed settlement of the Google Book Search case, in which the private parties attempted to solve the orphan works problem on their own by setting up a Book Rights Registry.[43]

b.  Obsolescence in an Age of Digital Technologies

Another deficiency is the 1976 Act’s construction based on a model of printing and analog technologies—a framework that translates poorly with today’s digital technologies, which routinely make copies of works by their operation.[44]  Not surprisingly, the two most substantial studies on copyright reform to date—Samuelson’s Copyright Principles Project in the United States and Ian Hargreaves’s Review in the United Kingdom—both identified the advances in digital technologies as a major reason why reform of copyright laws is needed today.[45]

By their design, digital technologies produce digital copies of material incidental to their operation.  For example, a digital copy of a computer’s operating system is created in random-access memory (“RAM”) every time a person turns on the computer.[46]  Whenever a person views a website, a copy is downloaded onto the computer’s RAM and cache or temporary Internet folder.[47]  In order to access the website, copies of the webpage are transmitted internally through the Internet and an Internet service provider’s lines.[48]  When a person uses Google or another search engine to find a website, the ability to find the website was created by the search engine’s ability to create an index of websites with digital copies stored on the search engine’s servers.[49]  The 1976 Act does not directly address the legality of any of these digital copies but, instead, relegates them to potential infringement claims as a violation of the right to copy.[50]  Courts have struggled to make sense of when the use of digital copies (including ones internal to a machine) should be considered infringing or permissible fair use.[51]  This lack of clarity in the law can chill investment in and development of new digital technologies.[52]

Even when Congress has enacted updates to the 1976 Act to address digital technologies, the results have not been reassuring.  The Digital Performance Right in Sound Recordings Act of 1995 (“DPRA”) is, put charitably, a complete failure in legislative drafting.  As David Nimmer put it, “[T]his amendment was by far the worst thing that had happened to date to copyright law. . . . The DPRA is a masterpiece of incoherence.”[53]  DPRA recognized a right of digital public performance for sound recordings (relevant to webcasting of music) and amended § 114 to define limitations of that right.[54]  Yet the provisions defining those limitations are, to borrow the then-Register of Copyrights Marybeth Peters’s assessment, “utterly incomprehensible to most people.”[55]

The safe harbors afforded to Internet service providers (“ISPs”) under the Digital Millennium Copyright Act of 1998 (“DMCA”) have done a better job of modernizing copyright law.  The DMCA safe harbors provide ISPs immunity from copyright liability if they meet certain requirements, such as complying with the “notice-and-takedown” requirement for allegedly infringing material stored by their users on their servers.[56]  The notice-and-takedown procedure—although not without its abuses and deficiencies[57]—has provided a decent way to divide the burdens of monitoring possible copyright infringement online.[58]  Yet, even with their successes, the DMCA safe harbors have not kept up with advances in technology.  Drafted in 1998, the DMCA safe harbors did not anticipate social media and Web 2.0 technologies that encourage user sharing of and interactivity with material on the Internet.[59]  The billion-dollar lawsuit against YouTube, now on appeal, is a byproduct of the lack of clarity in the DMCA safe harbors’ application to new technologies.[60]

The many complex issues of copyright law raised by digital technologies demand a more comprehensive and coherent approach.  In 1976, Congress did not have the opportunity to devise a copyright system specifically for our digital age.[61]  In the next copyright revision, Congress will have that chance.

c.  “One Size Fits All” Approach

One of the lessons to draw from these examples is that copyright law must become more adept and flexible.  It must be revised and modernized to address the glaring, chronic inefficiencies in the copyright system, such as the orphan works problem and huge notice externalities.  It also must transform its monolithic approach to copyright into a more nimble approach that helps to foster innovation in both content production and technologies.[62]

A growing body of research indicates that applying a monolithic or “one size fits all” approach to copyright for all works is inefficient, in that the social benefit of many works is not ever realized.[63]  The orphan works problem provides one good example—granting all works the same long term of copyright protection leads to under-utilization of the works because some owners abandon them but are still protected by copyrights for their works.  By some estimates, only two percent of all copyrighted works are commercially exploited,[64] yet the Copyright Act grants all works copyrights as if they all will be commercially exploited for generations.  Another example of inefficiencies in our copyright system is the application of the long term of copyright (ninety-five years) to computer software, given the short shelf life of software.[65]

B.     Obstacles to U.S. Copyright Law Revisions

Although a revision of the Copyright Act is needed to modernize copyright law, two major roadblocks stand in its way: (1) politics, and (2) international treaties.

1.     Political Stalemate in Congress

Copyright issues have become intensely politicized and polarized in the United States.[66]  Copyright industries disagree with ISPs over the scope of liability or safe harbor protection for ISPs for infringing activity conducted by their users.  Copyright holders want more liability and duties imposed on ISPs, while ISPs want greater protection afforded to them by the safe harbors.[67]  Moreover, copyright industries typically want a broader scope and duration of copyrights and stronger enforcement provisions against infringers.[68]  However, public interest groups representing libraries, educators, and users typically seek a narrower scope of copyright and a greater recognition of exemptions or activities as fair use.[69]  The debates over copyright—too often called a “war”—have sometimes degenerated into name-calling and vitriol, even resulting in threats of bodily harm.[70]

Disagreement among copyright stakeholders translates into political stalemate in Congress because copyright legislation is drafted by lobbyists employed by the stakeholders, not by members of Congress or their staff.[71]  Under this culture in which copyright lobbyists control the shape and even the language of copyright bills, the passage of a bill may depend more on getting lobbyists to agree than on the actual merits of the bill.

The Copyright Act of 1976 took decades of study, hearings, and debate before Congress eventually reached an agreement.[72]  The agreement was, in part, facilitated by the Copyright Office’s oversight in conducting meetings with and brokering compromise among various stakeholders.[73]  In today’s even more polarized environment, one can only imagine how long it might take to reach a compromise among stakeholders on major issues needed for reform.  At the 2011 Annual Meeting of the Copyright Society of the U.S.A., former Register of Copyrights Marybeth Peters applauded the discussion of reforms to the Copyright Act, but soberly admitted that we are “not ready” to undertake such reforms.[74]

2.     International Obligations Under Berne/TRIPS

Even if politics were not a major obstacle to copyright reform, international treaties pose hurdles of their own.  The United States is a member of the Berne Convention and the TRIPS Agreement, both of which establish “minimum standards” or requirements for copyright law.[75]  TRIPS incorporates Articles 1 through 21 and the Appendix of the Berne Convention, so there is overlap between the two.[76]

Given the minimum standards required by Berne and TRIPS, copyright reform in the United States cannot be written on a blank slate.  Reforms must consider how a country’s international obligations will be satisfied, or the country may risk a challenge to its law before the WTO.  The minimum standards of Berne apply only to foreign works (i.e., how each country treats works from foreign countries), meaning each country has discretion to use a different approach for its own domestic works.[77]  More often than not, however, countries adopt a single approach under copyright law for both domestic and foreign works.[78]

So how do Berne and TRIPS limit the field of options for revising or modernizing copyright law?  They limit the field by codifying a particular model of copyright—what rights it entails, how long it should last, and what exceptions can be allowed.  These so-called “minimum standards” of copyright allow some flexibility, but typically do not allow a dramatic departure from the conception of copyright the treaties envision.

For example, several of the minimum standards of Berne, which are also incorporated into TRIPS, present obstacles for recent proposals for copyright reform.  In the debate over orphan works, some proposals seek to require registration of copyrighted works in order to create a public record of copyright owners, so that would-be licensees can seek permission from the copyright owner of a work.[79]  Article 5(2) of Berne, however, prohibits “any formality,” such as registration, being imposed as a condition on “[t]he enjoyment and exercise of” copyright for foreign works.[80]  To avoid this prohibition, Chris Sprigman proposes that unregistered works be subject to a “‘default’ license that allows [third-party] use [of the unregistered works] for a predetermined fee.”[81]  It is at least debatable whether Sprigman’s proposal violates Berne (or Article 13 of the TRIPS Agreement, which limits copyright exceptions[82]).

Likewise, in the debate over copyright terms, some proposals seek to shorten the term of copyright so that works that are not commercially exploited will enter the public domain sooner.[83]  Article 7(1) of Berne, however, requires a minimum term of the life of the author plus fifty years for foreign works.[84]  Unless Congress wanted to create shorter terms only for U.S. works, the proposal to reduce the copyright term below the Berne minimum standard is not a viable option.  Moreover, even if Congress adopted shorter terms only for U.S. works, thus complying with Berne Article 7(1), such an amendment could disadvantage U.S. authors abroad.  Article 7(8), also known as the “rule of the shorter term,” creates a default approach requiring, absent legislation to the contrary, that countries give foreign works a shorter term from their country of origin rather than a longer term that applies to domestic works.[85]  The rule of the shorter term thus puts pressure on countries to increase their copyright terms to whatever is the longest term of copyright recognized by a Berne country, in order to avoid having their citizens’ works subjected to a shorter term in the longest-term country in Berne.  The Sonny Bono Copyright Term Extension Act of 1998 (which extended the term of U.S. copyrights to life plus seventy years to match the European Union’s term) was justified precisely on this ground.[86]

In short, given the minimum standards of copyright under Berne and TRIPS, member countries do not have complete freedom to alter dramatically their copyright laws—at least not without potentially violating international treaty obligations.  The challenge for Congress is to figure out a way to modernize U.S. copyright law within the constraints set by these international agreements, or to have those agreements changed as well.

II.  The Tax Fix for Copyright Law

This Part lays out the theory for using the Tax Code to achieve copyright reforms and objectives.  Surprisingly, tax law has been underutilized in promoting the goals of copyright.  This Part explains why Congress should consider using tax incentives to further copyright objectives and reform.

A.     Using the Tax Code to Achieve Non-Tax Goals

Historically, Congress has used the Tax Code to achieve a variety of “non-tax” goals, meaning substantive policy goals outside of taxation.[87]  Indeed, the Tax Code is littered with provisions of this kind.[88]  Many of these provisions offer tax incentives through “deductions, credits, exclusions, exemptions, deferrals, and preferential rates,”[89] in order to incentivize certain conduct or activity.  For example, to encourage enrollment in higher education and to help offset some of its increasing costs, the Tax Code provides a modest deduction for certain tuition expenses.[90]  The Tax Code also offers a modest tax credit for eligible businesses to conduct research and development.[91]  Sometimes, the Tax Code imposes unfavorable treatment (commonly called Pigouvian taxes after the theorist who championed their use) to discourage people from certain activities, such as smoking or excess fuel consumption.[92]  Although the substantive policy goals are quite diverse, all of these “non-tax goal” provisions typically seek to incentivize activity or conduct through the Tax Code by creating either more or less favorable treatment under the Code.  When the tax incentives cost the government revenue (in terms of lost tax revenue), they are called “tax expenditures.”[93]

Using the Tax Code as a method to address important societal issues or initiatives has become a popular option for pursuing policy and reform proposals.  To address the epidemic problem of obesity in the United States, proposals to tax junk food and soda have been offered.[94]  To promote more environmentally responsible or “green” technology and energy consumption, the Tax Code contains several tax credits and incentives.[95]  The Obama Administration’s controversial individual health care mandate attempts to fix the problem of the lack of health care insurance for millions of people and escalating health care costs by taxing individuals who choose not to have health care coverage.[96]  Likewise, the preferential treatment of long-term capital gains in the Tax Code—which are taxed at a lower rate than ordinary income—is justified as a way to encourage entrepreneurial investments and risk-taking that might lead to innovation.[97]  The several tax benefits for homeowners are justified as serving “important non-tax policy objectives such as encouraging investment in commodity, enhancing the stability of neighborhoods, and increasing the willingness of property owners to fund local schools through property taxes.”[98]  In response to the recent housing crisis, Congress amended the Tax Code to provide tax credits for first-time and other homebuyers.[99]

Of course, some tax experts are skeptical about whether the Tax Code is the proper forum for pursuing non-tax policy objectives.  In his seminal article, Stanley Surrey argued that direct government expenditures to achieve a policy goal are preferable to indirect expenditures through the Tax Code because “a resort to tax incentives greatly decreases the ability of the Government to maintain control over the management of its priorities,” while complicating the Tax Code, reducing its overall transparency, and possibly entrenching certain tax exemptions that have outlived their usefulness.[100]  Surrey’s critique has generated a longstanding debate over the desirability of non-tax policy uses of the Tax Code,[101] a debate that is likely to intensify as national debt reduction continues to be a hot button issue.  This Article does not attempt to resolve this debate but will offer a response in Part IV to some of the concerns raised by tax expenditures.  Suffice it to say, Congress has frequently used the Tax Code to further important national objectives.  Using tax to further copyright objectives would not be an anomaly.

B.     Current Uses of Tax Related to Copyrighted Works

1.     Federal Tax Code

For whatever reason, tax incentives have rarely been used for copyright or other intellectual property objectives.  Royalties from copyrights are taxed as ordinary income at the general tax rates for that income earner.[102]  The Code excludes copyrights from being treated as a capital asset with its potential benefit of the lower capital gains tax rate.[103]  Copyrights are essentially an afterthought in the Tax Code, if a thought at all.

One small exception is the recent amendment in the Tax Code that allows sales of copyrights of musical works to be taxed at the preferential capital gains rate (currently fifteen percent[104]).  In 2005, Congress created an exception for musical works that allows songwriters to elect to receive the capital gains tax rate for sales of their compositions.[105]  The Nashville Songwriters Association lobbied for the capital gains treatment of sales of copyrights in musical compositions, under a bill originally titled the Songwriters Capital Gains Tax Equity Act.[106]  The Association argued that the new law would bring equity to the treatment of songwriters compared to music publishers who historically could invoke capital gains treatment for sales of their copyrighted songs.[107]  The Association also argued that the tax break could help save the profession of songwriting given the losses allegedly caused by music file sharing.[108]

The songwriter capital gains rate provides a poor example of using tax to achieve copyright ends.  The scope of the tax break is quite limited.  No other individual authors get the benefit of capital gains treatment except for songwriters.[109]  (By contrast, all patentees are eligible for the capital gains rate for the sale of their patents.[110])  Moreover, the policy behind the songwriter capital gains rate would appear to incentivize songwriters to sell their copyrights to others, instead of retaining their works and earning income through licensing.  Congress could use tax law far more comprehensively and sensibly to achieve copyright goals.

2.     State Tax Codes

The states have used their tax codes in ways that more directly incentivize the creation of copyrighted works than has the federal government.  That is somewhat surprising, given that copyright law for fixed works is exclusively governed by federal law.[111]  Most states and Puerto Rico have special tax incentives to lure film studios to create movies within their state borders.[112]  The primary goal of these state tax incentives is to spur the state economies with the money spent by film studios on location (e.g., food and lodging) and with the added tourism and interest drawn to the area.[113]  Yet an additional benefit is that the film industry receives, in effect, a state subsidy to create a film in a particular state.  With the savings in expenses made possible by the tax breaks, some movie studios can presumably afford to invest in the creation of other films.  As with most tax expenditures, however, the tax breaks for movies remain controversial, especially as many states face budget crises in the economic downturn.[114]

C.     The Theory of the Tax Fix for Copyright Law

The popularity of state tax incentives for film creation begs the question whether Congress should consider making greater use of tax incentives for copyrighted work under federal law.  Anecdotal evidence from the film industry suggests that movie studios are highly responsive to tax incentives to locate a movie production within a state to obtain a tax break.[115]  Although the jury is still out on whether the film tax incentives have succeeded in boosting state economies, the evidence indicates that film studios have utilized the tax breaks in various states.[116]  For example, New Mexico’s twenty-five percent tax refund for in-state movie production has reportedly brought in an estimated $600 million from 2003 to 2008 based on film productions of such high profile movies as No Country for Old Men, Terminator Salvation,Indiana Jones and the Kingdom of the Crystal Skull, and Transformers.[117]  Although these state tax incentives for film production are not copyright reforms or efforts to modernize copyright law, they do provide an example of how the tax system can be used alongside copyright law.  This Part explains why Congress should go one step further and use tax incentives as a way to achieve copyright goals.

D.    Innovating Copyright Law Within International Copyright

1.     Treaties

A major advantage of using the tax system to modernize copyright law is the flexibility the tax system offers.  By using the Tax Code instead of the Copyright Act, Congress has the freedom to consider a variety of copyright reforms that would not present any problems under international treaties.  Neither the Berne Convention nor the TRIPS Agreement speaks to, much less restricts, the ability of countries to impose taxes or create tax incentives related to copyrights.[118]

Moreover, the tax fix is better than the current way typically used to get around the Berne Convention—that is, treating domestic and foreign works differently.  Because the Berne Convention only regulates works of foreign origin, countries can impose requirements on domestic works that would otherwise violate Berne if applied to foreign works.[119]  For example, the U.S. Copyright Act requires registration as a precondition to bringing a copyright lawsuit for “United States works”—meaning works first published in the United States or, if unpublished, created by a U.S. national or resident.[120]  Foreign works have no registration requirement under U.S. law because of Berne’s ban on formalities for foreign works.[121]  Likewise, some recent proposals to shorten the term of copyright in the United States adopt the same limitation to U.S. works, in order to avoid Berne’s minimum standard of a term that lasts the life of the author plus fifty years.[122]

The differential treatment of domestic versus foreign works has several disadvantages.  First, it complicates the Copyright Act by having a two-track system: one for domestic works and another for foreign works.  Second, it has the effect of treating one’s own nationals worse than foreigners—a form of reverse discrimination that becomes less palatable as the disparities mount.  In addition, it may encourage strategic behavior among some copyright holders to publish first their works abroad, so their works will be treated as foreign works for the purposes of Berne.[123]  This strategic behavior might result in “off-shoring” of U.S. jobs and publishing resources for books, music, movies, and other works.

By contrast, the tax fix avoids these problems.  A two-track system is not created in the Copyright Act.  There is no reverse discrimination between nationals and foreigners.  Each group would be treated the same under both copyright and tax law.  Without any preferential treatment for foreign works under the law, the need for strategic behavior and off-shoring of jobs and resources outside the United States would be minimized.

2.     Incentivizing Greater Choices for Copyright Holders

Another advantage of the tax fix is that it will help to achieve greater tailoring of copyrights to particular individuals, industries, or circumstances.  As Michael Carroll and others have shown, the “one size fits all” model of our current copyright system (by which most works are treated under the same general approach) is inefficient: “In particular, this policy imposes uniformity cost on society by failing to supply fine-grained rights tailored to the economic circumstances of different classes of authors and inventors.”[124]  For example, copyright law treats computer software the same as a literary work, even though software is functional and extremely short-lived in terms of its use.[125]  Likewise, small-time authors who have no intention of commercially exploiting their works and who may not even care about copyright, receive, nonetheless, the same rights under copyright as those authors who commercially exploit their works.[126]

Instead of the “one size fits all” approach under the Copyright Act, tax law can give copyright holders a menu of options, with tax incentives, for how they might tailor their copyrights to their own particular circumstances.  Thus, instead of Congress deciding how best to tailor copyrights among copyright holders—a task that may be fraught with error, given the huge amount of information needed—each copyright holder, who arguably has the most information related to the copyright in question, can decide whether to elect from an assortment of self-tailoring options required for the tax benefits.  The tailoring by each copyright holder may lead to greater efficiency.  For example, instead of a ninety-five-year copyright, software companies may opt for shorter terms of copyright that correspond to the actual life span of software.  Although the Copyright Act already includes some modest tailoring with respect to sound recordings, architectural works, useful articles, and certain industry-specific exemptions,[127] tax law can provide even greater tailoring, individual taxpayer by individual taxpayer.  Presumably, each copyright holder is in a better position than Congress to make the most efficient choice of how to tailor a copyright to her own circumstances.

3.     Breaking the Political Stalemate Over Copyright Revision

A final reason Congress should consider a tax fix for copyright law is that enacting a set of copyright tax breaks may be more politically feasible than a major overhaul of the copyright system.  If history is a guide, we can expect any major overhaul of the copyright system to provoke an intense battle among stakeholders.  The Copyright Act of 1976 took decades of study, hearings, and debate before Congress eventually reached an agreement.[128]  The tenor of copyright debates today is even more divisive.[129]

By contrast, with completely voluntary options under the proposed tax fix, copyright industries would have no reason to object.  The Copyright Act would remain the same, and many copyright holders could benefit financially from the proposed tax breaks.  The tax fix has the potential of undoing the stalemate that has plagued copyright debates in the past.  Depending on the proposal, Congress could justify the tax breaks for copyright holders as a way to spur greater efficiency in the copyright system, as well as greater innovation in the production and use of copyrighted works.

III.  Proposal: The Copyright Gains Tax and
Copyright Tax Credit

This Part outlines several proposals that use tax incentives to further copyright reform objectives.  Two types of tax provisions are discussed: (1) a copyright gains tax and (2) a copyright tax credit.

A.     Copyright Registration as a Prerequisite to Tax Breaks

Before discussing the proposed copyright tax breaks, we should discuss a prerequisite that would apply in either situation.  In order to obtain the copyright tax break, the copyright holder would be required to register its work in the Copyright Office.[130]

This proposal would alleviate the growing orphan works problem and incentivize the registration of copyrighted works.  As the Copyright Office recognized, the orphan works problem “is, in some respects, a result of the omnibus revision to the Copyright Act in 1976,” which eliminated “the requirement that a copyright owner file a renewal registration in the 28th year of the term.”[131]  Under the 1909 Act, the renewal registration precluded an orphan works problem in two ways: (1) works that were not renewed in the twenty-eighth year automatically forfeited their copyrights, and (2) works that were renewed could be located (along with relevant information about the copyright owners) in the Copyright Office registry.[132]  Though renewal registration had been a feature of U.S. copyright law since 1790, Congress eliminated it in 1976 so the United States could join the Berne Convention.[133]  Joining Berne was perceived as a way for the United States to assume “a more prominent role in the international copyright community.”[134]  But, as the Register of Copyrights Marybeth Peters conceded, “there is no denying that [the changes in the Copyright Act of 1976] diminished the public record of copyright ownership and made it more difficult for the business of copyright to function.”[135]

The proposal addresses this problem by requiring copyright registration as a precondition for obtaining any copyright tax break.  A copyright holder would have to register its work in order to be eligible for the tax break.  In order to create added incentive to register the work early in the term of copyright, Congress could set a time period for registration, such as within five years of creation of the work.  The five-year window might encourage the owners of works that are not commercially exploited to register their works anyway, in the hopes of one day monetizing their creations.  Copyright holders that fail to register within the first five years of copyright would not be eligible to obtain a copyright tax break.  Having a uniform period for registrations of all works would make it easier to educate the public on when registration would be required to receive a tax break.  The incentive to register copyrighted works under the proposal might decrease the problem of orphan works by encouraging more registrations of works over time than under the current system.[136]  And it would do so without violating Berne’s prohibition on formalities.  In short, a voluntary registration to receive a tax break is not a copyright formality.[137]

B.     The Copyright Gains Tax

A preferential tax rate is one way to structure a tax incentive to pursue copyright reform objectives.  Similar to the capital gains tax rate,[138] the proposed “copyright gains” tax provides a lower tax rate for income generated from copyrighted works, provided the copyright holder satisfies whatever requirements set by the copyright reform measure.  I discuss below two different copyright reform proposals: (1) shorter copyright terms and (2) mass licenses of works to the public.  These proposals are offered for illustrative purposes; other copyright reforms can be substituted in their place.[139]  The key takeaway is seeing how tax can facilitate a more flexible approach to copyrights to achieve public ends—the constitutional goal of the Copyright Clause.[140]

1.     Proposal 1: Opting for Shorter Copyright Terms

Assume Congress decides to pursue the objective of encouraging shorter terms of copyright at the election of the copyright owner.[141]  This policy could yield three benefits.  First, encouraging shorter copyright terms might reduce the problem of orphan works.  Older copyrighted works, whose owners are more likely to have since died or become defunct, are more susceptible to becoming orphan works. Second, allowing copyright owners to choose their own copyright terms avoids the inefficiencies of the current “one size fits all” approach to copyright.  Numerous works are not commercially exploited at all, and some commercial works (such as software) are exploited only for a few years.  For these works, a copyright that lasts the life of the author plus seventy years (or ninety-five years in the case of works-made-for-hire) makes no economic sense.  Third, shorter terms of copyright can spur, much sooner, follow-on creations and innovation based on works that have entered the public domain.

a.  Basic Tax Structure

Instead of changing the copyright term itself in the Copyright Act, Congress could enact a special tax break for copyright holders who voluntarily shorten the length of their copyrights.  Under our current law, copyright holders always have the option of choosing to abandon their copyrights or donate their works to the public domain.[142]  Of course, few copyright holders ever do so because they have very little incentive to donate their works to the public domain under the current system.  However, the tax fix for copyright terms can provide that incentive by rewarding copyright holders who choose shorter terms of copyrights by their own initiative.

Imagine one possible scenario.  Congress enacts a tax break for copyright holders who elect to give up some of their copyright terms under the following graduated series of favorable tax rates on royalties.  Because the Copyright Act uses different metrics for copyright terms depending on whether the author is an individual or a corporation,[143] two tax tables are provided.

 

Table 1:  Copyright Gains Tax Rates for Shorter Terms

Corporate Author

Term of Copyright Chosen

Copyright Gains Tax Rate

Corporate Author elects a 1-year
copyright

5% of standard rate applies

Corporate Author elects a 5-year
copyright

10% of standard rate applies

Corporate Author elects a 50-year
copyright

50% of standard rate applies

Corporate Author elects a 70-year
copyright

70% of standard rate applies

Corporate Author keeps full term of
95 years

Standard rate applies

Individual Author

Term of Copyright Chosen

Copyright Gains Tax Rate

Individual Author elects a 1-year
copyright

5% of standard rate applies

Individual Author elects a 5-year
copyright

10% of standard rate applies

Individual Author elects life term

40% of standard rate applies

Individual Author elects a 50-year
copyright

50% of standard rate applies

Individual Author elects a 70-year
copyright

70% of standard rate applies

Individual Author keeps full term of
life plus 70 years

Standard rate applies

 

The proposed tax table attempts to treat individual and corporate authors the same in terms of the tax benefit gained.  The one difference is that the copyright terms for individual authors are defined by the life of the author plus seventy years, whereas corporate authors have a fixed term of ninety-five years from publication of the work (or 120 years from creation, whichever is sooner).  Thus, the tax table gives the option for the individual author to elect to receive a copyright for a work only during her lifetime.  Of course, the number of years in the life of the author varies according to when the work is created and when the author dies.

Under the proposal, an author can elect a one-year term of copyright and receive a tax rate of 5% of the standard tax rate for royalties for the copyright holder’s income tax bracket.  For example, as depicted in Table 2, if an author falls within the highest tax bracket of 35%, her copyright gains tax rate would be only 2% of income generated from the work.[144]  If the author elects a five-year copyright, her copyright gains tax rate would be 4%.  Electing a copyright for the life of the author would receive a tax rate of 14%.  A fifty-year copyright would receive a tax rate of 18%, and a seventy-year copyright would receive a tax rate of 25%.  If the copyright owner keeps the entire term of copyright, she would be taxed at her normal rate of 35%.  In each case, the copyright owner decides whether to lower her term of copyright and receive a tax break in return.

Table 2:  Copyright Gains Tax for Author from
Highest Tax Bracket of 35%

Term of Copyright Chosen

Tax Rate on Royalties

Individual Author elects a 1-year copyright

2%

Individual Author elects a 5-year copyright

4%

Individual Author elects life term

14%

Individual Author elects a 50 year copyright

18%

Individual Author elects a 70 year copyright

25%

Individual Author keeps full term of life
plus 70 years

35%

 

The tax break afforded to the copyright holder would apply or carryover for the remainder of the copyright term on the work in question.[145]  Congress could amend the general tax rates, which would affect the final copyright gains tax rate, but the discount percentages would remain at five, ten, forty, fifty, and seventy percent.  Of course, the tax rates above are merely illustrative.  The amounts can be lowered or increased, depending how much incentive Congress hoped to create.  The vital point is that Congress has considerable flexibility to incentivize copyright holders to shorten their terms of copyright.

b.  Advantages of Using Tax Instead of Copyright

The beauty of the tax fix is that it completely bypasses Berne.  First, Berne requires countries to recognize a copyright term of at least the life of the author plus fifty years.[146]  Thus, if Congress wanted to lower the copyright term to a shorter term for all works, Berne would forbid it.  A tax incentive, however, could help to achieve the same goal of shortening copyright terms without violating Berne.

Second, Berne establishes a default rule known as the “rule of the shorter term.”[147]  It states: “[U]nless the legislation of that country otherwise provides, the term shall not exceed the term fixed in the country of origin of the work.”[148]  The rule means that countries with terms longer than the life of the author plus fifty years (e.g., the European Union has a term of life of the author plus seventy years) can give a shorter term to a work whose country of origin only provides for such shorter term.  For example, before Congress enacted the Sonny Bono Copyright Term Extension Act, EU countries could give U.S. works the shorter term of life of the author plus fifty years—that is, “the term fixed in the country of origin of the work.”[149]  Even though the U.S. works in the European Union receive copyrights from EU countries, those European copyrights for the U.S. works received a copyright term shorter than what EU works received.[150]  The shorter term puts pressure on countries in the Berne Convention to raise their copyright terms whenever one country raises its term above the rest.  The United States did exactly that when the European Union raised its copyright term.[151]

The tax fix avoids the rule of the shorter term—and the disadvantage imposed on nationals from a country with a shorter term.  Even if U.S. authors elect to give up part of their copyright terms, the copyright term in the Copyright Act still remains the same.  Thus, the tax incentive for copyright holders to reduce their own copyright terms would not alter, in any way, “the term fixed in the country of origin of the work.”[152]  The United States could adopt the tax fix, without disadvantaging U.S. works abroad, while achieving shorter copyright terms through voluntary choice by copyright holders.

c.  Hypothetical Example: The Blair Witch Project

To illustrate how the copyright gains tax would operate in practice, consider a hypothetical example using the independent film, The Blair Witch Project.  The small budget movie became a surprise box-office mega-hit, earning over $140 million in 1999.[153]  The movie cost only $500,000 to $750,000 to make,[154] so most of the earnings constituted income subject to tax (assuming no clever Hollywood accounting was used[155]).

The high amount of income generated from the movie would put it at the highest tax rate.  For simplicity, I will use the current 2011 tax rate of 35% in this hypothetical, instead of the 1999 tax rate.[156]  Assuming the high-end estimate of the production expenses of $750,000, and applying the income forecast method of depreciation under § 167(g) of the Tax Code,[157] with an assumption that most of the movie’s earnings occurred within the first ten years of the movie’s distribution,[158] most of the costs (let’s say $724,100) can be deducted immediately.  The owner of the movie would have $139,814,999 in income, subject to a 35% tax—or $48,935,250 in tax.

Under the proposal, the copyright owner of The Blair Witch Project could elect to reduce its federal tax by agreeing to a shorter copyright term. The options would be as follows:

 

Table 3:  The Blair Witch Project Income
Under Copyright Gains Tax

Copyright Term

Tax Rate

Income Tax

Tax Savings

1-year copyright

2%

$2,796,300

$46,138,950

5-year copyright

4%

$5,592,600

$43,342,650

50-year copyright

18%

$25,166,700

$23,768,550

70-year copyright

25%

$34,953,750

$13,981,500

 

Although the copyright holder would have to exercise its business judgment in deciding which tax incentive to select, the copyright holder might prefer a five-year copyright over a one-year copyright, or a fifty-year copyright over a seventy-year copyright.  The tax savings afforded by a one-year copyright over a five-year copyright is only $2.79 million, while having four more years of copyright would enable the copyright holder to make a derivative work (e.g., a sequel) exclusively during that period.  If the copyright holder desired a copyright term longer than five years, a fifty-year copyright might be preferred because it provides close to $10 million in additional tax savings beyond a seventy-year copyright.  The present value of any income derived in years fifty-one through seventy of the copyright term probably would not compare to the $10 million in extra tax savings now.

In terms of mechanics, the copyright holder would have to register the copyright for The Blair Witch Project and also file notice of its decision to abandon its copyright after the chosen number of years.  The public notice would be contained in the copyright registration, all accessible online, similar to disclaimers in trademark registration.

The example illustrates how tax incentives might induce copyright holders to elect to have shorter terms of copyright, perhaps even as short as five years or less.  Although The Blair Witch Project provides an extreme example of massive profits from a work, it shows the attractiveness of a copyright gains tax.  Of course, the precise tax rates set for the copyright gains tax would require further study and debate.  The numbers above are meant for heuristic purposes.

2.     Proposal 2: Opting for Licenses for Public Use of a Work
a.  Basic Tax Structure

The copyright gains tax can also be used for other copyright objectives.  Imagine Congress wanted to encourage copyright holders to allow greater exploitation of their works, including in derivative works.  This initiative could spur greater follow-on creations, earlier in the term of the copyright.[159]  Instead of having to wait until the work enters the public domain, the public could exploit the works in ways greater than allowed currently under copyright law.  A copyright gains tax would apply if a copyright holder elected, within the first five years of copyright, to adopt a free, mass license to allow the public to make derivative works for the remainder of the copyright.  The mass license could be a Creative Commons license, which is a popular way for copyright holders to mass license their works.[160]  For example, the Creative Commons-By license requires the follow-on user to provide attribution to the original author in using the work.[161]  The election period might be set at the first five years of copyright for a work, in order to allow the public to use the work when it is recent and to maximize the amount of time afforded to the public to utilize the work in making new, derivative works.

The precise tax rates set would require further study and debate.  For illustrative purposes, the copyright gains tax for allowing derivative works could be set as follows:

 

Table 4:  Copyright Gains Tax for Copyright
Holders’ Mass Licenses

Election By Copyright Holder

Copyright Gains Tax Rate

Author elects derivative work (“DW”)
mass license, including commercial
and noncommercial uses

60% of standard rate applies

Author elects DW mass license, only for
noncommercial uses

90% of standard rate applies

 

Thus, the copyright holder receives a ten percent discount on the standard tax rate on income generated from a work for which it has authorized a mass license to the public to make derivative works only for noncommercial purposes.  Similarly, a copyright holder receives a forty percent discount on the standard tax rate on income generated from a work for which it has authorized a mass license on the public to make derivative works for both commercial and noncommercial purposes.  The greater discount is given to allowing commercial derivative works, in part because those works will possibly generate economic activity and further income subject to tax.  The added tax revenue could help offset the losses in tax revenue created by the preferential copyright gains tax rate.

b.  Advantages of Using Tax Instead of Copyright

As in the case of shorter copyright terms, the main advantage of using the Tax Code here is that it achieves greater flexibility without raising Berne Convention problems.  Articles 12 and 14 of Berne require countries to recognize a set of adaptation rights—commonly known under the umbrella of the right to make derivative works.[162]  Thus, the United States could not substantially diminish the right to make derivative works, at least not for foreign works, without violating the Berne Convention.  Moreover, the right to make a derivative work arguably serves a useful purpose in incentivizing authors to create not only a first work but also, potentially, a derivative work.  The copyright gains tax, however, could make the derivative work right more flexible.  The flexibility could incentivize copyright holders to promote socially productive re-uses of their works.  For example, the growth of noncommercial fan-fiction online—short stories created by third parties based on famous works like Harry Potter—currently occupies an uncertain status between possible infringement and fair use.[163]  One easy way to clear up this uncertainty is to encourage authors themselves to mass license their works.

c.  Hypothetical Example: The Blair Witch Project

Let us return to the example of The Blair Witch Project.  Imagine the copyright holder grants the public a mass license to use the movie in noncommercial derivative works, such as remix videos.[164]  The mass license would be recorded in the Copyright Office, along with the registration of the work.  Copies of the work could be required to indicate a mass license has been granted to the public for reuse of the work (such as by the Creative Commons symbols).  As shown in Table 5 below, under the copyright gains tax rate, the copyright holder would be taxed at 90% of the standard tax rate that applies—meaning the rate would lower from the highest tax rate of 35% to the discounted rate of 32%.  Applying the preferential rate would lower the tax from $48,935,250 to $44,740,800, a decent savings of $4.2 million.

The copyright holder can obtain an even larger tax benefit of 60% of the standard rate by opting to allow commercial derivative works as well.  In such case, the tax rate would lower from 35% to 21%, with a tax of $29,389,500—which equals a tax savings of $19.6 million.

Table 5:  The Blair Witch Project Income
Under Copyright Gains Tax

Mass Copyright License

Tax Rate

Income Tax

Tax Savings

Noncommercial DWs

32%

$44,740,800

$4,194,350

All DWs

21%

$29,361,150

$19,574,100

 

In essence, through the tax expenditure of the copyright gains tax, the government is investing in follow-on creations and innovation from copyrighted works.

C.     Copyright Tax Credits

1.     Structure of Copyright Tax Credit

Another way to use the Tax Code to further copyright objectives is through tax credits.[165]  Typically, a tax credit would provide a smaller tax benefit than a preferential tax rate.  Deductions reduce one’s taxable income and thus translate into different amounts depending on the taxpayer’s tax bracket; tax credits, however, offer dollar-for-dollar amounts reducing one’s tax liability, irrespective of tax bracket.[166]  A tax credit allows Congress to set fixed dollar amounts for reducing one’s tax instead of having the tax benefit fluctuate, such as in a tax rate, although the amount of the tax credit could be made to change to different levels of income.  For example, the child tax credit is up to $1,000 for each qualifying child under seventeen years old.[167]  Tax credits can also be made refundable, meaning if the amount of tax owed by the taxpayer in a given year is less than the amount of tax owed, the difference between the credit and tax owed is refunded by the federal government to the taxpayer.[168]  Alternatively, the tax credits can be nonrefundable but subject to “carry over,” or used in following tax year(s) when there is positive income.[169]

As in the case of the copyright gains tax, the proposed copyright tax credits would be dependent on copyright registration of a work by the same year the tax credit is sought.  The next step would be identifying a copyright objective worthy of a tax credit.

Imagine Congress wants to incentivize authors to allow more free uses of their copyrighted works in schools, in order to encourage learning with a greater diversity of materials and to help defray the rising costs of education.[170]  A tax credit could be awarded to any copyright holder for each school that requested and received permission to use its work in the classroom for free.  As shown in Table 6, the tax credit might be set at, let’s say, $50 per school to which the author granted free use—including copying, public performances, and adaptations—of part of a copyrighted work in the classroom or at school, and $150 for each school granted free use of an entire copyrighted work.  The tax credit could be in addition to any deduction allowed for donation of material to a charitable institution,[171] given that the donation here would encompass acts of copying, performing, and adapting not measured within the amount for donation of copies of works.  A cap can also be set on the maximum amount of copyright tax credits (e.g., $15,000) that a taxpayer can claim each year.

Table 6:  Copyright Tax Credit for
Free Educational Licenses

Free Educational License

Tax Credit

Cap

Part of work licensed

$50 per school

$15,000 total

Entirety of work licensed

$150 per school

$15,000 total

 

2.     Advantages of Using Tax Instead of Copyright Exemptions

Again, the main advantage of using the Tax Code instead of copyright law is to provide greater flexibility to copyright in a way that skirts any problems with international obligations.  Instead of creating broad copyright exemptions for schools that could be subject to international challenge in the WTO, Congress could use tax credits to promote the same objectives without raising any issue of compliance with the Berne Convention or the TRIPS Agreement.  In addition, the proposed copyright tax credits have the added benefit of promoting education and potentially helping to address the escalating costs of education, including textbooks, which are trending to an annual cost of $1,000 per college student.[172]

a.  Hypothetical Example: Open-Source Textbooks

To understand how the proposed copyright tax credit would operate, imagine Author creates an “open source” digital textbook free for others to use and copy.  Twenty schools adopt the textbook for use in their classrooms.  The digital copies are disseminated for free to the students in each school.  As depicted in Table 7, Author is able to receive a tax credit of $3,000 (20 times $150) for sharing her entire textbook with twenty schools.  To obtain the tax credits, Author would have to register the copyright, keep proper records of the names of the schools receiving the textbook (subject to audit), and indicate, on the tax form, her election of the copyright tax credits.  If the same schools use Author’s textbook the following year, Author would be entitled to the same tax credit.

 

Table 7:  Open Source Textbook with Free Educational License in 20 Schools

Free Educational License

Tax Credit

Schools

Total

Entirety of work licensed

$150 per school

20

$3,000

 

IV.  Addressing Concerns

This final Part addresses objections to the tax fix to copyright law.  Although the tax fix affords greater flexibility to copyright initiatives without raising any international treaty concerns, it may produce other side effects worth considering.

A.     Tax Concerns

1.     Tax Expenditures and Revenue Depletion

The biggest objection to the proposals above is their cost.  Congress must consider the costs and benefits of the proposals, informed by analysis by economists and policymakers.  To be sure, the debt crisis and economic downturn in the United States pose many challenges for U.S. fiscal policy.[173]  Some experts may question the desirability of tax cuts when the economy is weak and the federal government faces huge budget deficits.[174]  The issue is at least debatable.  In 2009, the Obama Administration cut taxes for the middle class in an effort to stimulate the economy.[175]  In 2011, Democrats and Republicans both were proposing different tax cuts as a way to boost the economy.[176]  In any event, Congress will not likely consider copyright reforms until later this decade, at a time when the U.S. economy is (hopefully) better.  Congress can always adopt smaller tax breaks as a part of an incremental approach to copyright reform.  And, to the extent the current debate over reforming the U.S. tax system will force Congress to make the tax system more transparent and with fewer loopholes, the current debate may pave the way for the kind of copyright reform proposed herein.  From an economic view, giving preferential tax rates in a way that incentivizes the creation of more copyrighted works makes sense, given how much the copyright industries contribute to U.S. GDP and exports overseas.[177]

The proposed copyright tax reforms may not necessarily lead to large tax expenditures over the long run.  Stimulating the creation of more works much sooner during the copyright term is one of the primary goals of the proposed copyright gains tax.  Copyright holders are incentivized, with a preferential tax rate, to allow their works to be used and adapted by many more people—including commercially—much sooner than before.  Instead of waiting ninety-five years to see the mass public exploitation of works, now such exploitation could occur in five years or less.  The potential proliferation of follow-on creations to existing, popular works could generate significant income—itself subject to tax—that would not have been created without the copyright gains tax incentive.

Indeed, one attractive feature of the copyright gains tax is that the works that would cost the most in terms of tax expenditures (meaning they generate the most income that is then subject to a lower tax rate at the election of the copyright owner) would also have the greatest potential of spurring commercial follow-on creations that can generate even more income.  The most popular works commercially are likely to be the most attractive for people to adapt and build on—and the most likely to lead to other income-generating derivative works.  In other words, popularity can be monetized—and then taxed.

While many follow-on creations or derivative works would not generate income subject to tax, it is likely that some would.  In the movie industry, Hollywood studios have routinely made large revenues from adaptations of public domain works—including the incredibly successful movies Snow White and the Seven Dwarfs (which grossed nearly $185 million in 1937), Pinocchio ($84 million in 1940), and Aladdin ($217 million in 1992).[178]  The proposal would enhance the possibility of income generation from derivative works because the underlying works would be more contemporary—which enhances the marketability of follow-on creations.  For example, a sequel to Harry Potter, Twilight, or Glee would likely be more marketable today than in the year 2081.

In addition, the copyright gains tax might attract new entrants—meaning new creators—into content production, which might in turn generate even more taxable income than would otherwise have arisen.  For example, the preferential copyright gains tax might make it more economically feasible for “starving artists” to make a living and pursue their passion as a profession.[179]  Among the new entrants to creative professions may be a few who become the next J.K. Rowling or Justin Bieber, in terms of their commercial success—again generating income subject to tax.

Even if the new entrants have only modest commercial success, the number of new entrants in the so-called “long tail”[180] may be large enough to yield a decent source of additional income subject to tax.  Also, the added incentives to register copyrighted works may lead to an increase in registrations.  People who might not otherwise register their works might be induced to register, in order to preserve the possibility of a tax benefit.  The fee for registration, although modest, could generate more revenues for the government in the long-term.[181]

The multiple ways in which new income streams might be generated under the copyright gains tax are arguably less prone to manipulation than under the capital gains tax.  The majority of capital gains are derived from sales of stocks, and of business and rental real estate.[182]  Thus, the problem of “lock-in” occurs with capital investments because investors may hold on to their stocks and other investments in order to avoid having to pay tax on gains accrued from their sale.[183]  By contrast, the copyright gains tax would probably not lead to a “lock-in” effect because most creators probably have an incentive to share and market their works commercially, instead of holding on to them.

The Blair Witch Project example shows how additional tax revenues might be generated from the copyright gains tax.[184]  Imagine that the copyright owner of the movie opted for the five-year copyright, thereby saving $43.3 million from the preferential rate of tax in 2011.  That $43.3 million represents the tax expenditure the federal government made in enacting the copyright gains tax as applied to the movie.  The tax expenditure by the federal government might be recovered in several ways.

First, the copyright owner might use part of the $43.3 million to finance a sequel.  The production of the sequel would very likely pump money into local businesses where the film is produced.  Even if the sequel performed only one third as well as the first movie and earned $46.2 million at the box office, the tax owed by the copyright holder could be over $15 million, depending on how much the sequel cost to produce.  Second, the creation of other derivative works of The Blair Witch Project—merchandise, video games, toys, and the like—by the copyright owner or third parties could also generate more income subject to tax.  According to movie industry expert Steven Gaydos, merchandising can generate between $50 and $200 million if the movie is popular.[185]  For example, in 2002, the Harry Potterfranchise generated $11.8 million simply based on sales of Harry Potter cookies, candy, and gum.[186]  In total, Harry Potter amassed a staggering $7 billion in merchandising sales and $1.5 billion in video game sales worldwide.[187]  Third, the financial attractiveness of the copyright gains tax for The Blair Witch Projectmight lure other creators to enter the field who might not otherwise have pursued creative professions.  To the extent those new entrants produce taxable income from their copyrighted works, some of the loss in tax revenue from copyright holders’ election of the copyright gains tax would be further offset.

Thus, the copyright gains tax can spur a greater number of creative works much sooner than under the current copyright system, without necessarily causing huge tax expenditures for the federal government.  The income generated from the follow-on creations would be taxed and help to offset the loss in tax revenue from the preferential rate.  Moreover, noncommercial follow-on creations provide a social benefit or positive externalities in their own right in a way that is not captured by income.

2.     Gaming the System and Tax Fraud

As with any tax provision, the proposed copyright gains tax and copyright tax credit will be susceptible to clever attempts by some taxpayers to game the system, if not commit outright tax fraud.  For example, in the past, some corporations have set up foreign companies in order to minimize or avoid U.S. tax exposure—a practice of expatriation that Congress attempted to discourage in 2004 by closing the tax loophole.[188]  Drafters of the copyright tax breaks must vet the provisions and attempt to formulate them in a way that minimizes the potential for similar gaming of the system.  But, as one court put it, “[e]ven the smartest drafters of legislation and regulation cannot be expected to anticipate every device.”[189]  Accordingly, the IRS should monitor the implementation of the copyright tax fixes to identify any gaming of the system, so Congress might close any loopholes.

3.     Unequal Tax Treatment of Other IP

The proposal for copyright “tax fixes” begs the question whether the Tax Code should be used in a similar way for the patent and trademark systems.  As Jeffrey Maine and Xuan-Thao Nguyen have identified, principles of horizontal tax equity demand consideration of treating the taxation of income generated from different intellectual property alike, if they are truly similarly situated.[190]  However, some of the problems addressed by the proposed tax fixes are idiosyncratic to copyright.  The optional registration system, lengthy terms, and problem of orphan works are not present in the patent or trademark systems.[191]  The potential benefits from incentivizing greater uses of IP, though, are relevant to both copyright and patent.  A similar tax incentive for patent holders authorizing mass licenses to create derivative inventions might also be considered.

B.     Copyright Concerns

Some may object to the specific copyright reforms proposed, particularly the incentives for shorter terms and more liberal licenses for derivative works.  Some copyright holders would argue that they need a longer term and even more rights and enforcement measures, given the ease of infringement on the Internet today.  On the flip side, some public interest advocates might criticize the copyright gains tax proposals because the copyright gains tax does not reward noncommercialproductions.  Each objection is discussed in turn.

1.     Need for Stronger Copyright?

No doubt some copyright holders may desire longer terms of copyright and even more rights.  The history of copyright in the United States has demonstrated that copyright industries have been incredibly successful in obtaining expansions and extensions of copyright over time.[192]

Whether or not these expansions and extensions should be ratcheted even higher in the twenty-first century is a policy debate that I do not undertake here.  One attractive feature of the tax fix proposal is that it leaves the current high levels of copyright protection and long copyright term completely untouched.  While the Copyright Act remains the same, the Tax Code adds greater incentives and flexibility to accommodate a diverse group of copyright holders—some of whom may prefer maximalist copyright protection, others of whom may prefer maximalist tax benefits.  Under the tax fix, the “one size fits all” approach of the Copyright Act is modified, but only for those copyright holders who want to modify it.  In popular parlance, the tax fix is an “opt in” system.[193]

It is also important to bear in mind that the particular copyright proposals offered above are meant as illustrations of how the Tax Code can be used to facilitate copyright objectives.  One need not agree with the copyright proposals in order to see the attractiveness of using the Tax Code to further copyright goals, whatever they may be.

2.     No Tax Help for Noncommercial Works?

Public interest advocates might criticize the tax proposals as biased against amateur creators and noncommercial works.  Creators of noncommercial works are not able to benefit from a preferential copyright gains tax rate.  If no income is derived from a work, there is no “gain” to tax.

The criticism is valid, but only to some extent.  Even noncommercial creators can benefit from the copyright gains tax if it is successful in inducing other copyright owners to allow their works either to enter the public domain sooner or to be mass-licensed for public use.  The noncommercial creators benefit directly by having more underlying material—both commercial and noncommercial works—from which to draw.  Moreover, under the copyright tax credit for educational uses of copyrighted works, the author does not need to generate income from her own works in order to benefit from the tax credit.  The tax credit applies whether or not the work has generated income.

C.     Administrative Concerns

1.     Complicating the Tax Code and Copyright Act

Another objection to the tax fix to copyright law is that it would further complicate the Tax Code and copyright law, both of which are already complicated, if not incomprehensible, enough.[194]  Using a tax fix—using tax law to further copyright objectives—would only exacerbate the difficulty for the public to understand tax and copyright.  It may yield a “double whammy” in terms of complicating both laws.

The criticism of complexity is valid.  The tax fix to copyright law will make things more complicated.  Drafters of the tax fix should strive to design a copyright gains tax and credit that will be easy to understand.  Also, the tax forms and schedules for the copyright gains tax and tax credit should be written in a user-friendly format.  Just as with any change to the Tax Code or Copyright Act, programs should be developed to educate the public about the changes.  To the extent that complexity is unavoidable, it may be a tradeoff for making the Copyright Act more flexible for the twenty-first century.  The tradeoff may be worth making if the potential social benefit is great, and the amount of complexity added is not too onerous for the public to understand.

2.     Coordination of Tax and Copyright Components

One final objection is administrative: the tax fix will require coordination between the Internal Revenue Service and Copyright Office.  Such interagency coordination may be difficult to achieve.  Yet the IRS is a relatively well-functioning agency in managing tax filings of millions of U.S. residents each year.[195]  The Copyright Office has not had as large an administrative responsibility as the IRS, but the proposals do not require the Copyright Office to do much more than overseeing the registration process—something it has historically done.  The key additional component would be ensuring that taxpayers who invoke the copyright tax breaks have registered their works and recorded the relevant information concerning their copyrights (e.g., shorter term, mass licenses to the public) in the Copyright Office.  But this burden can be handled by a requirement of disclosure of copyright registration on the tax form, plus the penalty of perjury that governs tax forms.[196]  Successful coordination among patent offices in the United States, Europe, and Japan in sharing information and reviewing patent applications under the Trilateral Review suggests that interagency coordination between the IRS and Copyright Office would be feasible.[197]  If three countries can coordinate their offices, then two agencies within the United States should be able to coordinate as well.

Conclusion

The U.S. Copyright Act of 1976 is due for a major revision to update copyright law and reduce the inefficiencies of the copyright system.  This Article proposes using the Tax Code as an alternative way to reform or modernize copyright law.  The main advantage of this approach is that it allows Congress much greater flexibility for reforms that do not implicate, much less violate, the international obligations of the Berne Convention or TRIPS Agreement.  The approach also may be more efficient in allowing copyright holders to tailor copyrights to their own situations and needs, instead of imposing a “one size fits all” approach on all copyright holders.


       *   Professor of Law, Director, Program in Intellectual Property Law, IIT Chicago-Kent College of Law, Norman and Edna Freehling Scholar.  Many thanks to Jonathan Band, Evelyn Brody, Stephanie Hoffer, and Thomas Shinnick for comments on earlier drafts, and to the participants of the Intellectual Property Scholars Conference 2011 and faculty workshops at Chicago-Kent College of Law and Marquette University Law School.  I benefited from conversations with Kathleen Courtney regarding state tax incentives in film production, David Jakopin regarding tax and IP, Bruce Nash regarding Hollywood accounting, and Pamela Samuelson regarding copyright reform.  Michael Johnson and James Baldwin provided excellent research assistance.  Tom Gaylord and Claire Alfus provided invaluable help in, respectively, tracking down sources and creating the tables.

      [1].   See Copyright Act of 1976, Pub. L. No. 94-553, 90 Stat. 2541.

      [2].   See Pamela Samuelson, Preliminary Thoughts on Copyright Reform, 2007 Utah L. Rev. 551, 553–54.

      [3].   See infra notes 75–86 and accompanying text.  The United States joined the Universal Copyright Convention (“UCC”) in 1955, but the UCC accommodated the former U.S. approach to copyright (with formalities) and lacked an enforcement mechanism to stop violations.  See Universal Copyright Convention, Sept. 6, 1952, revised July 24, 1971, 25 U.S.T. 1341, 943 U.N.T.S. 178; Robert S. Chaloupka, International Aspects of Copyright Law, 15 Int’l HR J. 18, 18–19 (2006); Tyler Ochoa,Protection for Works of Foreign Origin Under the 1909 Copyright Act, 26 Santa Clara Computer & High Tech. L.J. 285, 299–300 (2010).

      [4].   See Berne Convention for the Protection of Literary and Artistic Works, Sept. 9, 1886, revised July 24, 1971, 1161 U.N.T.S. 18338 [hereinafter Berne Convention]; Agreement on Trade-Related Aspects of Intellectual Property Rights arts. 9–14, Apr. 15, 1994, Marrakesh Agreement Establishing the World Trade Organization, Annex 1C, 33 I.L.M. 1125, 1197–1226, 1869 U.N.T.S. 299, 304–17 (1994) [hereinafter TRIPS Agreement].  The TRIPS Agreement incorporates Articles 1 through 21 and the Appendix thereto of the Berne Convention, thereby including them within the scope of WTO enforcement proceedings.  See TRIPS Agreement, supra, art. 9(1).

      [5].   Peter K. Yu, TRIPS and Its Achilles’ Heel, 18 J. Intell. Prop. L. 479, 483–84, 492 (2010) (“[M]ore than two-thirds of the provisions [in TRIPS] sought to introduce, in a single undertaking, new substantive minimum standards on which there was no prior international consensus.”).       See generally Graeme B. Dinwoodie & Rochelle Cooper Dreyfuss, A Neofederalist Vision of the International Intellectual Property Regime: The Resilience of the TRIPS Agreement to Technological and Social Change (forthcoming Mar. 2012) (arguing that TRIPS is best understood as allowing considerable flexibility for member countries to meet minimum standards); Edward Lee, The Global Trade Mark (unpublished manuscript) (on file with the author) (discussing extent to which TRIPS allows varied approaches among members).

      [6].   See Berne Convention, supra note 4, arts. 1–18, (setting forth minimum standards of copyright).

      [7].   See TRIPS Agreement, supra note 4, arts. 9–14.

      [8].   For example, the ban against formalities in Berne Article 5(2) dates back to 1908.  See Daniel Chow & Edward Lee, International Intellectual Property 96–97 (2006).  Some scholars question the continuing abidance to this early twentieth century rule, which makes it difficult to identify and locate copyright owners.  See Stef van Gompel, Formalities in the Digital Era: An Obstacle or Opportunity? in Global Copyright: Three Hundred Years Since the Statute of Anne, from 1709 to Cyberspace 395, 395–98 (Lionel Bently et al. eds., 2010); see also Stef van Gompel, Formalities in Copyright Law: An Analysis of Their History, Rationales and Possible Future 15–51 (2011) (discussing how formalities function in intellectual property systems).  Likewise, the rule of the shorter term in Article 7(8) requires countries to give, absent legislation to the contrary, foreign works a shorter term of copyright as set by their country of origin instead of the longer term granted to domestic works.  Berne Convention, supra note 4, art. 7(8).  This provision, which also dates back to 1908, was adopted to create a transition and an incentive for newly joining countries that had shorter terms to raise their terms to the minimum standard of the life of the author plus fifty years.  See Chow & Lee, supra, at 218.  Because all Berne countries are now required to have a term of at least the life of the author plus fifty years, the original reason for the rule of the shorter term is no longer relevant.  Yet, a negative effect of the rule is that it puts pressure on all member countries to raise their copyright terms to whatever is the longest term recognized by any member; otherwise, the other countries’ citizens might be disadvantaged with a shorter term in the country that has a longer term.  See id. at 219.

      [9].   See Marrakesh Agreement Establishing the World Trade Organization, art. X, ¶ 8, Apr. 15, 1994, 33 I.L.M. 1144, 1867 U.N.T.S. 154 (1994) (declaring that a consensus of members is required for amendment to TRIPS Agreement); Berne Convention, supra note 4, art. 27(3) (declaring that “any revision of this Act . . . shall require unanimity of the votes cast”).

    [10].   See, e.g., Jane C. Ginsburg, The U.S. Experience with Mandatory Copyright Formalities: A Love/Hate Relationship, 33 Colum. J.L. & Arts 311, 345 (2010); Ruth L. Okediji, The Regulation of Creativity Under the WIPO Internet Treaties, 77 Fordham L. Rev. 2379, 2391 (2009); Aryeh L. Pomerantz, Obtaining Copyright Licenses by Prescriptive Easement: A Solution to the Orphan Works Problem, 50 Jurimetrics J. 195, 203–04 (2010); R. Anthony Reese, Photographs of Public Domain Paintings: How, If At All, Should We Protect Them?, 34 J. Corp. L. 1033, 1052–53 (2009); Christina M. Costanzo, Comment, Have Orphan Works Found a Home in Class Action Settlements?, 83 Temp. L. Rev. 569, 586–87 (2011).

    [11].   Cf. Eldred v. Ashcroft, 537 U.S. 186, 200 (2003) (“To comprehend the scope of Congress’ power under the Copyright Clause, ‘a page of history is worth a volume of logic.’” (quoting New York Trust Co. v. Eisner, 256 U.S. 345, 349 (1921))).

    [12].   See        Samuelson, supra note 2, at 556.

    [13].   See Act of May 31, 1790, ch. 15, 1 Stat. 124 (repealed 1831) [hereinafter 1790 Act].

    [14].   See Act of Feb. 3, 1831, ch. 16, 4 Stat. 436 (repealed 1870) [hereinafter 1831 Act].

    [15].   See Act of July 8, 1870, ch. 230, 16 Stat. 198 (repealed 1909) [hereinafter 1870 Act].

    [16].   See Act of Mar. 4, 1909, ch. 320, 35 Stat. 1075 (repealed 1976) [hereinafter 1909 Act].

    [17].   See Act of Oct. 19, 1976, Pub. L. No. 94-553, 90 Stat. 2541 (effective Jan. 1, 1978) [hereinafter 1976 Act].

    [18].   See Legislative Appropriations Act of 1955, ch. 568, 69 Stat. 499; Howard B. Abrams, Copyright’s First Compulsory License, 26 Santa Clara Computer & High Tech. L.J. 215, 221 n.33 (2010).

    [19].   Samuelson, supra note 2, at 555.

    [20].   See Jessica Litman, Real Copyright Reform, 96 Iowa L. Rev. 1, 3 (2010) (“The statute was not well-designed to withstand change, and has aged badly.”).

    [21].   See 17 U.S.C. §§ 302–04, 408 (2006).  For U.S. works, registration is a requirement to bring an infringement lawsuit, but relatively few copyright lawsuits are brought each year.  See Edward Lee, Warming Up to User-Generated Content, 2008 U. Ill. L. Rev. 1459, 1476–77 (stating that in 2006, only 4944 copyright suits were filed, with most not ever going to trial).

    [22].   See 17 U.S.C. § 411 (2006).

    [23].   See Berne Convention, supra note 4, art 5(2).

    [24].   See 17 U.S.C. §§ 504–05.

    [25].   See Lee, supra note 21, at 1476–77 (stating that just roughly 5000 suits were filed in 2006).

    [26].   See Peter S. Menell & Michael Meurer, Notice Failure and Notice Externalities (Bos. Univ. Sch. of Law Working Paper No. 11-58, 2011), available athttp://www.bu.edu/law/faculty/scholarship/workingpapers/documents
/MenellP-MeurerM121611.pdf.

    [27].   See Joshua O. Mausner, Copyright Orphan Works: A Multi-Pronged Solution to Solve a Harmful Market Inefficiency, 12 J. Tech. L. & Pol’y 395, 398 (2007).

    [28].   See id.

    [29].   See Berne Convention, supra note 4, art. 5(2).

    [30].   See William M. Landes & Richard A. Posner, Indefinitely Renewable Copyright, 70 U. Chi. L. Rev. 471, 477 (2003) (“Equally immense tracing costs would be required to determine the ownership of a parcel of land if titles to land were not recorded in a public registry.  It is not perpetual property rights but the absence of registration that creates prohibitive tracing costs.”).

    [31].   See Mausner, supra note 27, at 412.

    [32].   See Letter from Denise Troll Covey, Principal Librarian for Special Projects, Carnegie Mellon Univ., to Jule L. Sigall, Assoc. Register for Policy & Int’l Affairs, U.S. Copyright Office (Mar. 22, 2005) (on file with Carnegie Mellon Univ. Libraries), available at http://www.copyright.gov/orphan/comments
/OW0537-CarnegieMellon.pdf.

    [33].   Id.

    [34].   Id.

    [35].   See Letter from Sarah E. Thomas, Carl A. Kroch Univ. Librarian, Cornell Univ. Library, to Jule L. Sigall, Assoc. Register for Policy & Int’l Affairs, U.S. Copyright Office (Mar. 23, 2005), available at http://www.copyright.gov/orphan/comments/OW0569-Thomas.pdf.

    [36].   See Librarian of Congress, Report on Film Preservation 1993: A Study of the Current State of American Film Preservation 5 (1993).

    [37].   See JISC, In From the Cold: An Assessment of the Scope of “Orphan Works” and Its Impact on the Delivery of Services to the Public 18 (2009), available athttp://www.jisc.ac.uk/publications/reports/2009/infromthecold.aspx; see also Katharina de la Durantaye, Finding a Home for Orphans: Google Book Search and Orphan Works Law in the United States and Europe, 21 Fordham Intell. Prop. Media & Ent. L.J. 229, 236–37 (2011) (discussing the results of various studies).

    [38].   See Gowers Review of Intellectual Property 69 (2006), available at www.official-documents.gov.uk/document/other/0118404830/0118404830.pdf [hereinafter Gowers Review]; The British Library Manifesto, Intellectual Property: A Balance 3 (2006), available at http://www.cpic.ru/news/IP
_Manifesto_final.pdf.

    [39].   Register of Copyrights, Report on Orphan Works 95 (2006) [hereinafter Orphan Works Report], available at http://www.copyright.gov
/orphan/orphan-report.pdf.

    [40].   See id. at 96.

    [41].   See Orphan Works Act of 2008, H.R. 5889, 110th Cong. (2008); Shawn Bentley Orphan Works Act of 2008, S. 2913, 110th Cong. (2008); see also The “Orphan Works” Problem and Proposed Legislation: Hearings Before the Subcomm. on Courts, the Internet, and Intellectual Property of the H. Committee of the Judiciary, 110th Cong. 131 (2008).

    [42].   See Betsy McKenzie, Orphan Works, Out of the Jungle (Apr. 18, 2011, 9:40 AM), http://outofthejungle.blogspot.com/2011/04/orphan-works.html.

    [43].   See Statement of Interest of the United States of America Regarding Proposed Class Action Settlement, Authors Guild, Inc. v. Google Inc., No. 05 CV 8136-DC (S.D.N.Y. Nov. 19, 2009), at 3 (“In particular, the rediscovery of currently unused or inaccessible works and the digitization of those works in formats that are accessible to persons with disabilities are important public policy goals.  The United States believes that, although the actions of private entities and Congress (if necessary), steps should be taken to advance these objectives.”), available at http://www.justice.gov/atr/cases/f250100/250180.pdf.

    [44].   See Samuelson, supra note 2, at 554–55.

    [45].   See Ian Hargreaves, Digital Opportunity: A Review of Intellectual Property 3 (2011) [hereinafter Hargreaves Review] available athttp://www.ipo.gov.uk/ipreview-finalreport.pdf; Pamela Samuelson & Members of the CPP, The Copyright Principles Project: Directions for Reform 2–3, 18–19 (2010) [hereinafter Copyright Principles Project], available at http://www.law.berkeley.edu/files/bclt_CPP.pdf.

    [46].   See, e.g., MAI Sys. Corp. v. Peak Computer, Inc., 991 F.2d 511, 518 (9th Cir. 1993).

    [47].   See John S. Sieman, Comment, Using the Implied License to Inject Common Sense Into Digital Copyright, 85 N.C. L. Rev. 885, 891 (2007).

    [48].   See Hannibal Travis, Opting Out of the Internet in the United States and the European Union: Copyright, Safe Harbors, and International Law, 84 Notre Dame L. Rev. 331, 362–63 (2008).

    [49].   See Sieman, supra note 47, at 889–91.

    [50].   See 17 U.S.C. § 106 (2006).  In 1998, Congress created the DMCA safe harbors for ISPs for certain activities of providing Internet access, caching, storage, and location tools.  See id. § 512.

    [51].   See Cartoon Network LP v. CSC Holdings, Inc., 536 F.3d 121, 139 (2d Cir. 2008); CoStar Grp., Inc. v. LoopNet, Inc., 373 F.3d 544, 546 (4th Cir. 2004); MAI Sys., 991 F.2d at 522–23 (RAM copies infringing); see also Edward Lee, Technological Fair Use, 83 S. Cal. L. Rev. 797, 801–02 (2010).

    [52].   See Hargreaves Review, supra note 45, at 3 (“Digital communications technology involves routine copying of text, images and data, meaning that copyright law has started to act as a regulatory barrier to the creation of certain kinds of new, internet based businesses.”).

    [53].   David Nimmer, Codifying Copyright Comprehensibly, 51 UCLA L. Rev. 1233, 1336 (2004).

    [54].   17 U.S.C. §§ 106(6), 114(d) (2006).

    [55].   See Ralph Oman, Going Back to First Principles: The Exclusive Rights of Authors Reborn, 8 J. High Tech. L. 169, 173 (2008).

    [56].   See 17 U.S.C. § 512 (2006).

    [57].   See Wendy Seltzer, Free Speech Unmoored in Copyright’s Safe Harbor: Chilling Effects of the DMCA on the First Amendment, 24 Harv. J.L. & Tech. 171, 176 (2010) (criticizing DMCA safe harbor process as chilling speech and raising First Amendment concerns); Jennifer M. Urban & Laura Quilter, Efficient Process or “Chilling Effects”? Takedown Notices Under Section 512 of the Digital Millennium Copyright Act, 22 Santa Clara Computer & High Tech. L.J. 621, 684 (2006) (discussing a study showing copyright holders file questionable takedown notices in 22.5% of DMCA notices surveyed).

    [58].   See Edward Lee, Decoding the DMCA Safe Harbors, 32 Colum. J.L. & Arts 233, 252–55, 259–60 (2009).  Several countries have adopted similar approaches to ISP safe harbors requiring a notice-and-takedown process.  See Broder Kleinschmidt, An International Comparison of ISP’s Liabilities for Unlawful Third Party Content, 18 Int’l J.L. & Info. Tech. 332, 337–53 (2010) (discussing approaches in the United States, European Union, Canada, Australia, and New Zealand).

    [59].   See Brandon Brown, Fortifying the Safe Harbors: Reevaluating the DMCA in a Web 2.0 World, 23 Berkeley Tech. L.J. 437, 437 (2008).

    [60].   Viacom Int’l Inc. v. YouTube, Inc., 718 F. Supp. 2d 514, 516, 518–19, 526–27 (S.D.N.Y. 2010); see also Lee, supra note 58, at 258–59.

    [61].   See Samuelson, supra note 2, at 551–54.

    [62].   See generally Joseph P. Liu, Regulatory Copyright, 83 N.C. L. Rev. 87, 102–05 (2004) (discussing regulatory copyright and its affect on industries); Timothy Wu, Copyright’s Communications Policy, 103 Mich. L. Rev. 278, 279 (2004) (“[T]he main challenges for twenty first century copyright are not challenges of authorship policy, but rather new and harder problems for copyright’s communications policy: copyright’s poorly understood role in regulating competition among rival disseminators.”).

    [63].   See, e.g., The Structure of Intellectual Property Law: Can One Size Fit All? (Annette Kur & Vytautas Mizaras eds., 2011) (collecting fourteen articles on intellectual property law); Michael W. Carroll, One Size Does Not Fit All: A Framework for Tailoring Intellectual Property Rights, 70 Ohio St. L.J. 1361, 1389–90 (2009).

    [64].   See Gowers Review, supra note 38, at 69.

    [65].   See Bruce Abramson, Promoting Innovation in the Software Industry: A First Principles Approach to Intellectual Property Reform, 8 B.U. J. Sci. & Tech. L. 75, 135 (2002).

    [66].   See Jessica Litman, The Politics of Intellectual Property, 27 Cardozo Arts & Ent. L.J. 313, 317 (2009); Copyright Principles Project, supra note 45, at 4.

    [67].   See Jessica Litman, War Stories, 20 Cardozo Arts & Ent. L.J. 337, 337 (2002); Copyright Principles Project, supra note 45, at 20.

    [68].   See Litman, supra note 67.

    [69].   See Laura N. Gasaway, Impasse: Distance Learning and Copyright, 62 Ohio St. L.J. 783, 810–14 (2001); Litman, supra note 66, at 315.

    [70].   See William Patry, Moral Panics and the Copyright Wars 11–14 (2009); Litman, supra note 66, at 315.

    [71].   See Litman, supra note 66, at 314.

    [72].   See Cmty. for Creative Non-Violence v. Reid, 490 U.S. 730, 743 (1989) (stating that the 1976 Copyright Act, “which almost completely revised existing copyright law, was the product of two decades of negotiation by representatives of creators and copyright-using industries, supervised by the Copyright Office and, to a lesser extent, by Congress”).

    [73].   Id.

    [74].   Marybeth Peters, Statement at Annual Meeting, Copyright Society of the USA, Panel on “To Reform or Not to Reform: That Is the Question” (June 10, 2011).

    [75].   See        Rochelle Cooper Dreyfuss & Roberta Rosenthal Kwall, Intellectual Property 218–20 (Robert C. Clark et al. eds., 2d ed. 2004).

    [76].   TRIPS Agreement, supra note 4, art. 9.  The key practical difference between the two is that TRIPS is subject to enforcement proceedings under the WTO’s Dispute Settlement Body, whereas the Berne Convention has no comparable enforcement body.  See Overview: The TRIPS Agreement, World Trade Org., http://www.wto.org/english/tratop_e/trips_e/intel2_e.htm (last visited Feb. 10, 2012).

    [77].   See Berne Convention, supra note 4, art. 5(3) (“Protection in the country of origin is governed by domestic law.”).

    [78].   See Chow & Lee, supra note 8, at 95–96.

    [79].   See, e.g., Christopher Sprigman, Reform(aliz)ing Copyright, 57 Stan. L. Rev. 485, 552, 555 (2004).

    [80].   Berne Convention, supra note 4, art. 5(2).

    [81].   Sprigman, supra note 79, at 555.

    [82].   See TRIPS Agreement, supra note 4, art. 13.

    [83].   See Lawrence Lessig, Free Culture: How Big Media Uses Technology and the Law to Lock Down Culture and Control Creativity 287–93 (2004).

    [84].   Berne Convention, supra note 4, art. 7(1).

    [85].   Id. art. 7(8).

    [86].   See Eldred v. Ashcroft, 537 U.S. 186, 205–06 (2003).

    [87].   See Stanley S. Surrey, Tax Incentives as a Device for Implementing Government Policy: A Comparison with Direct Government Expenditures, 83 Harv. L. Rev. 705, 707 (1970).

    [88].   See, e.g., I.R.C. §§ 21-26 (2006) (various personal credits); id. §§ 27, 30-30D (other credits); id. §§ 31-36A (refundable credits); id. §§ 38-45Q (business related credits); id. § 54 (credit to holders of clean renewable energy bonds); id. § 54A-54F (qualified tax credit bonds); id. § 54AA (credit for Build America bonds).

    [89].   Surrey, supra note 87, at 706; see also id. at 713.

    [90].   I.R.C. § 25A, 222 (2006); see also Bradley R. Palmer, Uncle Sam, Tuition Costs, and the Changing Economy: Tax Incentives for Education Expenses and How to Improve Them, 38 J.L. & Educ. 345, 345 (2009).

    [91].   I.R.C. § 41 (2006); see also Evan Wamsley, Note, The Definition of Qualified Research Under the Section 41 Research and Development Tax Credit: Its Impact on the Credit’s Effectiveness, 87 Va. L. Rev. 165, 166 (2001).

    [92].   See A. C. Pigou, The Economics of Welfare 192 (4th ed. 1932); W. Kip Viscusi, The Governmental Composition of the Insurance Costs of Smoking, 42 J.L. & Econ. 575, 581–83 (1999).

    [93].   See Surrey, supra note 87, at 706.

    [94].   See Jeff Strnad, Conceptualizing the “Fat Tax”: The Role of Food Taxes in Developed Economies, 78 S. Cal. L. Rev. 1221, 1224–25 (2005).

    [95].   See Richard P. Manczak & Jeffrey D. Moss, “Green” Tax Incentives, 90 Mich. B. J. 27, 28–29 (2011); see, e.g., I.R.C. §§ 45, 48, 136, 168 (2006).

    [96].   See Patient Protection and Affordable Care Act, § 1501(b), 124 Stat. 244 (codified at 26 U.S.C. § 5000A), amended by Health Care and Education Reconciliation Act of 2010, Pub. L. No. 111-152, 124 Stat. 1029 (2010); Florida v. U.S. Dep’t of Health & Human Servs., 648 F.3d 1235, 1255–60 (11th Cir. 2011) (explaining the individual mandate in the Tax Code).

    [97].   See Helvering v. Hammel, 311 U.S. 504, 509 (1941) (citing H.R. Rep. No. 67-350, at 8 (1921)) (justifying preferential rate for capital gains “as the means of encouraging profit-taking sales of capital investments”); Noël B. Cunningham & Deborah H. Schenk, The Case for a Capital Gains Preference, 48 Tax L. Rev. 319, 340–41 (1993).

    [98].   John G. Steinkamp, A Case for Federal Transfer Taxation, 55 Ark. L. Rev. 1, 32 (2002).  See generally Cunningham & Schenk, supra note 97 (discussing the arguments in favor of and opposing a lower tax rate for capital gains versus ordinary income).

    [99].   See The Homebuyer Assistance Improvement Act of 2010, Pub. L. No. 111-198.

   [100].   See Surrey, supra note 87, at 731–32.

   [101].   For more on Surrey’s view, see Stanley S. Surrey, Pathways to Tax Reform: The Concept of Tax Expenditures 30–31 (1973).

   [102].   I.R.C. § 61 (2006) (including royalties with gross income).

   [103].   See id. § 1221(a)(3) (stating that capital asset does not include “a copyright, a literary, musical, or artistic composition”).

   [104].   Jobs and Growth Tax Relief Reconciliation Act of 2003, Pub. L. No. 108-27, tit. III, sec. 301, § 301(a)(2), 117 Stat. 752, 758 (2002).

   [105].   See I.R.C. § 1221(b)(3) (2006) (“At the election of the taxpayer, paragraphs (1) and (3) of subsection (a) shall not apply to musical compositions or copyrights in musical works sold or exchanged by a taxpayer described in subsection (a)(3).”); Spencer Anastasio, Copyright Tax in the New Millennium, Ent. & Sports Law., Fall 2007, at 1, 24–25 (2007) (discussing the capital gains rate tax exception for sold musical compositions or copyrights in musical works).

   [106].   See Capital Gains Tax Equity Act Becomes Law, Nashville Songwriters Assoc. Int’l (May 11, 2006), http://legislative.nashvillesongwriters.com/news.php?viewStory=49.

   [107].   See Tax Cut Package Contains Breaks for Songwriters, Broadcast Music, Inc., (May 11, 2006), http://www.bmi.com/news/entry/334803.

   [108].   See Capital Gains Tax Equity Act Becomes Law, supra note 106.

   [109].   Xuan-Thao Nguyen & Jeffrey A. Maine, Equity and Efficiency in Intellectual Property Taxation, 76 Brook. L. Rev. 1, 25 (2010).

   [110].   I.R.C. § 1235 (2006); Nguyen & Maine, supra note 109, at 14.

   [111].   See 17 U.S.C. § 301 (2006) (describing preemption of state law).

   [112].   See Joshua R. Schonauer, Star Billing? Recasting State Tax Incentives for the “Hollywood” Machine, 71 Ohio St. L.J. 381, 386 & n.29 (2010) (discussing the benefits of low-cost destinations for film shoots); Producers Guild of America, http://www.filmusa.org (displaying a chart of states with tax incentives for movies) (last visited Feb. 10, 2012).

   [113].   Schonauer, supra note 112, at 387–91.

   [114].   See, e.g., Alan Wirzbicki, Is the Massachusetts Film Tax Credit Worth the Cost?, Boston Globe (Jan. 14, 2011, 5:11 PM) http://www.boston.com
/bostonglobe/editorial_opinion/blogs/the_angle/2011/01/film_tax_credit.html.

   [115].   See, e.g., Michael Cieply, Jitters Are Setting In for States Giving Big Incentives to Lure Film Producers, N.Y. Times, Oct. 12, 2008, at A26.

   [116].   See id. (discussing films made in Louisiana, Rhode Island, New Mexico, Michigan).

   [117].   Schonauer, supra note 112, at 398–99; Cieply, supra note 115, at A26.

   [118].   Although another WTO agreement does limit countries from using taxes that constitute “export subsidies,” the limitation is narrowly defined to subsidies that are “contingent . . . upon export performance.”  Appellate Body Report, United States—Tax Treatment for Foreign Sales Corporations, ¶ 3 WT/DS108/AB/RW (Jan. 14, 2002); Agreement on Subsidies and Countervailing Measures (“SCM Agreement”), World Trade Org., http://www.wto.org/english
/tratop_e/scm_e/subs_e.htm (last visited Feb. 10, 2012).  None of the tax incentives for copyright law contemplated by this Article would fall within this definition of export subsidy.  Moreover, the General Agreement on Tariffs and Trade (“GATT”) does prohibit some tax measures that discriminate against foreign goods (a violation of national treatment).  See General Agreement on Tariffs and Trade art. III, Oct. 30, 1947, 61 Stat. A3, 55 U.N.T.S. 188 [hereinafter GATT]; Alan C. Swan, NAFTA Chapter 11—”Direct Effect” and Interpretive Method: Lessons from Methanex v. United States, 64 U. Miami L. Rev. 21, 63–64 (2009).  The taxes proposed herein do not discriminate against foreigners.

   [119].   See Berne Convention, supra note 4, art. 5 (“Authors shall enjoy, in respect of works for which they are protected under this Convention, in countries of the Union other than the country of origin, the rights which their respective laws do now or may hereafter grant to their nationals, as well as the rights specially granted by this Convention.”) (emphasis added).

   [120].   See 17 U.S.C. § 411 (2006) (requiring registration for “United States work”); id. § 101 (defining “United States work”).

   [121].   See Berne Convention, supra note 4, art 5(1).

   [122].   Id. art. 7(1); see, e.g., Sprigman, supra note 79, at 554 (discussing the proposed Public Domain Enhancement Act, H.R. 2601, 108th Cong. (2003)).

   [123].   See Berne Convention, supra note 4, art. 5(4)(a) (stating that a work’s country of origin is the country in which the work was first published).

   [124].   See Carroll, supra note 63, at 1389 (emphasis omitted).

   [125].   1 Melville B. Nimmer & David Nimmer, Nimmer on Copyright §§ 2.04[C][2], 2.04[C][5] (Matthew Bender, rev. ed. 2011).

   [126].   See id. § 5.01[A] (stating that copyright vests in the author at the time of creation without qualification).

   [127].   See, e.g., 17 U.S.C. §§ 111, 113–114, 118–120, 122 (2006).

   [128].   U.S. Copyright Office, General Guide to the Copyright Act of 1976, at 1:1–1:3 (Sept. 1977), available at http://www.copyright.gov/reports/guide-to
-copyright.pdf.

   [129].   See, e.g., Cong. Budget Office, Copyright Issues in Digital Media, at viii (Aug. 2004), available at http://www.cbo.gov/ftpdocs/57xx/doc5738/08-09
-Copyright.pdf (“Because of the growing number and diversity of interests with a stake in the digital copyright debate, many observers believe that the Congress may need to legislate a balance in copyright law between private incentives and societal gains.”).

   [130].   Private registries could be also used if the Copyright Act is revised to include third-party registrations as some commentators have proposed.  See Copyright Principles Project, supra note 45, at 24.

   [131].   See Orphan Works Report, supra note 39, at 3.

   [132].   See 1909 Act § 23, supra note 16 (requiring renewal registration in the twenty-eighth year of copyright).

   [133].   See Orphan Works Report, supra note 39, at 3.

   [134].   See id.

   [135].   Register of Copyrights Marybeth Peters, The Importance of Orphan Works Legislation, U.S. Copyright Office (Sept. 25, 2008), http://www.copyright.gov/orphan/.

   [136].   The tax incentives would probably affect a much greater number of works because many more works are commercially exploited than are ever involved in a lawsuit (which requires registration as a precondition).  See Lee, supra note 21, at 1542–43.

   [137].   Cf. 1 Sam Ricketson & Jane C. Ginsburg, International Copyright and Neighboring Rights: The Berne Convention and Beyond §§ 6.107-6.108, at 328–29 (2d ed. 2005) (noting that countries may use “carrots” to encourage registration because Berne “merely bars making compliance [with registration] mandatory for non-domestic works”).

   [138].   See I.R.C. § 1(h) (2006).

   [139].   It goes beyond the scope of this Article to justify or debate the merits of the copyright reforms discussed.  For the purposes of this Article, the merits of a particular copyright reform are not essential to understanding the method of using the Tax Code to further copyright objectives.

   [140].   See Feist Publ’ns, Inc. v. Rural Tel. Serv. Co., 499 U.S. 340, 349 (1991) (“The primary objective of copyright is not to reward the labor of authors, but ‘[t]o promote the Progress of Science and useful Arts.’”).

   [141].   An extensive debate over the (de)merits of lengthy copyright terms followed the Supreme Court’s upholding of the constitutionality of the Sonny Bono Copyright Term Extension Act of 1998, which extended the terms of copyrights by twenty more years.  See Eldred v. Ashcroft, 537 U.S. 186, 222 (2003); see alsoGowers Review, supra note 38, at 52 (discussing the estimated economic effects of Eldred on the music industry); Marshall Leaffer, Life After Eldred: The Supreme Court and the Future of Copyright, 30 Wm. Mitchell L. Rev. 1597, 1599–1606 (2004) (discussing the Eldred decision and its consequences for Article I, Congress, and the First Amendment).

   [142].   See Nat’l Comics Publ’ns v. Fawcett Publ’ns, 191 F.2d 594, 597–98 (2d Cir. 1951).

   [143].   See generally Catherine L. Fisk, Authors at Work: The Origins of the Work-for-Hire Doctrine, 15 Yale J.L. & Human. 1 (2003) (describing the evolution of Congress’s treatment of corporate authorship under the “works made for hire” exception to the Copyright Act); see also Cmty. for Creative Non-Violence v. Reid, 490 U.S. 730, 737 (1989) (discussing the “works made for hire” doctrine).

   [144].   For simplicity, I have rounded all percentages in the tax rates to the nearest whole number.

   [145].   Alternatively, if Congress wanted to create a more limited tax benefit, it could limit the preferential copyright gains tax rate to one year or a few years.

   [146].   Berne Convention, supra note 4, art. 7(1).

   [147].   Id. art. 7(8).

   [148].   Id.

   [149].   Id.

   [150].   Lisa M. Brownlee, Recent Changes in the Duration of Copyright in the United States and European Union: Procedure and Policy, 6 Fordham Intell. Prop. Media & Ent. L.J. 579, 614–15 (1996).

   [151].   Michael Landau, Fitting United States Copyright Law into the International Scheme: Foreign and Domestic Challenges to Recent Legislation, 23 Ga. St. U. L. Rev. 847, 858–59 (2007).

   [152].   Berne Convention, supra note 4, art. 7(8) (emphasis added).

   [153].   See The Blair Witch Project, Box Office Mojo, http://www.boxofficemojo.com/movies/?id=blairwitchproject.htm (last updated Oct. 27, 2011) (stating total domestic gross of $140,539,099).

   [154].   See John Young, “The Blair Witch Project” 10 Years Later, Ent. Wkly., (July 9, 2009, 8:29 PM), http://popwatch.ew.com/2009/07/09/blair-witch/.

   [155].   For more on the questionable accounting methods used by Hollywood studios, see Bill Daniels et al., Movie Money: Understanding Hollywood’s (Creative) Accounting Practices 10 (1998); Roman M. Silberfeld & Bernice Conn, The Red and the Black, L.A. Law., May 2011, at 36.

   [156].   In 1999, the top corporate tax rate in the United States was forty percent.  See Chris Edwards, The U.S. Corporate Tax Rate and the Global Economy, Tax and Budget Bulletin, No. 18, Sept. 2003, at 2, available at http://www.cato.org/pubs/tbb/tbb-0309-18.pdf.  So, if I used forty percent instead of thirty-five percent, the amount of taxes would be even higher.

   [157].   See I.R.C. § 167(g) (2006).

   [158].   I assumed the movie made only $5 million in profit in the nine years following its release.

[159].  For more on how the derivative works right can retard follow-on creations, see Christina Bohannan, Taming the Derivative Works Right: A Modest Proposal for Reducing Overbreadth and Vagueness in Copyright, 12 Vand. J. Ent. & Tech. L. 669, 677–81 (2010); Glynn S. Lunney, Jr., Copyright, Derivative Works, and the Economics of Complements, 12 Vand. J. Ent. & Tech. L. 779, 782 (2010); Jed Rubenfeld, The Freedom of Imagination: Copyright’s Constitutionality, 112 Yale L.J. 1, 53 (2002).

   [160].   See Michael W. Carroll, Creative Commons and the New Intermediaries, 2006 Mich. St. L. Rev. 45, 47–48 (2006).

   [161].   See About the Licenses, Creative Commons, http://creativecommons.org
/licenses/ (last visited Jan. 17, 2012)       .

   [162].   See Berne Convention, supra note 4, arts. 12, 14.

   [163].   See Lee, supra note 21, at 1530–31.

   [164].   Id. at 1508–09.

   [165].   See generally Brian H. Jenn, The Case for Tax Credits, 61 Tax Law. 549 (2008) (describing the benefit of tax credits over deductions and exclusions).

   [166].   See, e.g., Jeffrey D. Moss, Solar Panels, Tax Incentives, and Your House, Prob. & Prop., Jan.–Feb. 2010, at 17, 18 (2010).

   [167].   I.R.C. § 24 (2006).

   [168].   Janet E. Milne, Environmental Taxation in the United States: The Long View, 15 Lewis & Clark L. Rev. 417, 443 n.131 (2011).

   [169].   See, e.g., Moss, supra note 166, at 20 (discussing carryover for North Carolina renewable energy tax credit).

   [170].   College tuition has risen, on average, over 136% during the past twenty years.  See Laura Meckler & Stephanie Banchero, U.S. News: Obama Plans to Curb Tuition, Wall St. J., Jan. 28, 2012, at A3.

   [171].   See I.R.C. § 170 (2006) (allowing tax deductions for contributions to charitable institutions).

   [172].   See Natsuko Hayashi Nicholls, Scholarly Publ’g Office, Univ. of Mich. Library, The Investigation into the Rising Costs of Textbooks 4–5 (2009), available at http://hdl.handle.net/2027.42/78553; see also id. at 5 (“[B]etween December of 1986 and December of 2004, textbook prices have increased at twice the rate of inflation, increasing by 186 percent, whereas tuition and fees increased by 240 percent and overall price inflation grew by 72 percent.  While increases in textbook prices have followed close behind tuition increases, the estimated cost of textbooks and supplies for the average four-year undergraduate student was $898 for the academic year 2003–2004, or about 26 percent of the cost of tuition and fees at four-year public institutions.”) (citation omitted).

   [173].   See Peter Coy, Why the Debt Crisis Is Even Worse Than You Think, Businessweek, (July 27, 2011, 11:05 PM), http://www.businessweek.com
/magazine/why-the-debt-crisis-is-even-worse-than-you-think-07272011.html.

   [174].   See The Fallacy of Using Tax Cuts to Fix Recession, NPR (Feb. 16, 2009), available at http://www.npr.org/templates/story/story.php?storyId
=100746977 (interview with David Cay Johnston).

   [175].   See Heidi Przybyla & John McCormick, Poll: Americans Don’t Know Economy Expanded with Tax Cuts, Bloomberg, (Oct. 29, 2010, 11:19 AM), http://www.bloomberg.com/news/2010‑10‑29/poll‑shows‑americans‑don‑t‑know‑economy-expanded-with-tax-cuts.html (“The Obama administration has cut taxes—largely for the middle class—by $240 billion since taking office . . . .”).

   [176].   See Opinion, An Inferior Tax Cut: A Temporary Payroll Break Won’t Help Growth or Hiring, Wall St. J., Aug. 20, 2011, at A12 (discussing Democrat payroll tax cut plan and Republican plan for tax cuts for individuals and businesses).

   [177].   See Int’l Intellectual Prop. Alliance (IIPA), Copyright Industries in the U.S. Economy: The 2003–2007 Report 5–7 (2009), available athttp://www.iipa.com/pdf/IIPASiwekReport2003-07.pdf.

   [178].   Brief for Peter Decherney as Amicus Curiae Supporting Petitioners, Golan v. Holder, 131 S. Ct. 1600 (2011) (No. 10-544), 2011 WL 2470832 app. A.

   [179].   See Jane C. Ginsburg, The Author’s Place in the Future of Copyright, 45 Willamette L. Rev. 381, 387–94 (2009) (arguing that the copyright system should be designed in part to facilitate professional authors).

   [180].   See generally Chris Anderson, The Long Tail: Why the Future of Business is Selling Less of More (2006).

   [181].   The fee in 2011 is $50 for paper registration and $35 for electronic registration.  Registering a Work (FAQ), U.S. Copyright Office (last modified Mar. 22, 2010), http://www.copyright.gov/help/faq/faq-register.html.

   [182].   See Staff of S. Comm. on the Budget, 110th Cong., Tax Expenditures 390–91 (Comm. Print 2008).

   [183].   See Nonna A. Nato, Cong. Research Serv., R41480, Raising the Tax Rates on High-Income Taxpayers: Pros and Cons 17 (2010).

   [184].   The Blair Witch Project is a rare example of a mega-blockbuster movie that cost very little to produce so the amount of potential tax savings for the movie may be larger than what would be typical in the “long tail” of creative productions.  See generally Anderson, supra note 180 (discussing how many, smaller-income-generating works may produce substantial income in aggregate).  As an example of a potentially large tax savings, it provides a good measuring stick to test the desirability of the copyright gains tax.

   [185].   See Emma Clark, How Films Make Money, (Nov. 12, 2001), BBC News, http://news.bbc.co.uk/2/hi/business/1646640.stm.

   [186].   See Allison Linn, Retailers Hope Harry Potter Proves Magical, MSNBC (July 16, 2007), http://www.msnbc.msn.com/id/19745297/ns/business
-us_business/t/retailers-hope-harry-potter-proves-magical/.

   [187].   See Ethan Smith, Michelle Kung & Robert A. Guth, Potter Studio Tries to Keep Profits from Going Poof!, Wall St. J., July 15, 2011, at A1.

   [188].   See Michael S. Kirsch, The Congressional Response to Corporate Expatriations: The Tension Between Symbols and Substance in the Taxation of Multinational Corporations, 24 Va. Tax Rev. 475, 505–07, 545 (2005); I.R.C. § 7874 (2006); see also id. §§ 951-65, 1291-98 (provisions governing tax treatment of controlled foreign corporations and passive foreign investment companies).

   [189].   ASA Investerings P’ship v. Comm’r, 201 F.3d 505, 513 (D.C. Cir. 2000).

   [190].   Nguyen & Maine, supra note 109, at 14.

   [191].   See Orphan Works Report, supra note 39, at 15.

   [192].   See, e.g., Prioritizing Resources and Organization for Intellectual Property Act of 2008, Pub. L. No. 110-403, 122 Stat. 4256.

   [193].   See Marc H. Greenberg, Reason or Madness: A Defense of Copyright’s Growing Pains, 7 J. Marshall Rev. Intell. Prop. L. 1, 27 n.137 (2007).

   [194].   See Lee, supra note 21, at 1539 (“This inherent uncertainty makes the Copyright Act even worse than the Tax Code, which, despite its complexity, provides millions of taxpayers at least with enough certainty for them to figure out how much taxes to pay each year—even providing the public with the option of electing the simpler, standard deduction.”); Michael J. Madison, Rewriting Fair Use and the Future of Copyright Reform, 23 Cardozo Arts & Ent. L.J. 391, 396 (2005) (“[T]he complexity of the copyright statute already compares unfavorably to the tax code . . . .”); see also U.S. Dep’t of the Treasury, Update on Reducing the Federal Tax Gap and Improving Voluntary Compliance 25 (2009); Tax Code Complexity: New Hope for Fresh Solutions: Hearing Before the S. Comm. on Fin., 107th Cong. 39–40 (2001) (statement of Richard M. Lipton, Chair, Section on Taxation, American Bar Association).

   [195].   See Statistics: Individual Tax, IRS Tax Stats (Apr. 18, 2011), http://www.irs.gov/newsroom/article/0,,id=238634,00.html.

   [196].   In addition, the IRS and Copyright Office can coordinate their electronic databases to match up a tax filing to a registered copyrighted work.

   [197].   See Significant Achievements, Trilateral, http://www.trilateral.net
/about/achievements.html (last visited Feb. 10, 2012).

Lee_LawReview_4.12

By: Andrew L. Berrier*

Licensed Application End User License Agreement

The Products transacted through the Service are licensed, not sold, to You for use only under the terms of this license, unless a Product is accompanied by a separate license agreement, in which case the terms of that separate license agreement will govern, subject to Your prior acceptance of that separate license agreement. The licensor (“Application Provider”) reserves all rights not expressly granted to You. The Product that is subject to this license is referred to in this license as the ‘Licensed Application.’

a. Scope of License: This license granted to You for the Licensed Application by Application Provider is limited to a non-transferable license to use . . . .[1]

Introduction

This is not likely to be the first time you have read an agreement such as the one above.  Given the sheer number of software applications and other digital content that many people interact with on a daily basis, an average person may be a party to an untold number of these sorts of agreements for items he uses every day.  A growing shift toward digitally transmitted content, such as eBooks, MP3s, software, and digital movies, has caused a shift in how consumers view their purchases—when a person downloads something from the Internet, is it no different from buying an analogous good from a brick-and-mortar store?  What then is to be made of the pop-up legal forms consumers often hastily agree to in order to access their new software?

For over a century, the body of copyright law called the first sale doctrine has worked to strike a balance between the rights granted to a copyright owner and the purchaser of copyrighted goods.  According to the doctrine, a copyright owner’s exclusive right to control distribution of a copy of a work ends with that copy’s first lawful sale or transfer.[2]  After the first sale, the new owner of the copy is generally free to sell or transfer the copy as he sees fit.[3]  Given the important balance it strikes, the first sale doctrine has been regarded with vital importance and has helped build legal foundations for institutions ranging from local second-hand bookstores to eBay.[4]  Today this venerable legal doctrine stands at an uncertain crossroads—the body of law is clear and well established with respect to tangible works, yet the new digital economy has thrown many of the past definitions of the first sale doctrine in flux.  As such, there exists legal uncertainty as evidenced by cases like Vernor v. Autodesk, Inc.[5] that attempt to clarify a growing legal problem—how should we treat our digital goods?

This Note analyzes the impact of the Ninth Circuit’s recent decision in Vernor and argues that while Vernor could hold many pitfalls for consumer protection in today’s market, as more sales move from transfers of tangible copies to models of digital distribution, decisions like Vernor could help foreshadow a new body of law for a new type of sale.  Part I provides historical background for the first sale doctrine and addresses some of the current market realities straining the idea of first sale.  Part II analyzes the factual landscape of Vernor and examines the rationale of the Ninth Circuit in crafting its groundbreaking three-factor Vernor test.  Finally, Part III discusses the different impacts the Vernor decision could have, the parties which might be most affected by different interpretations of Vernor, and what the future could and should hold for this decision’s impact on a century-old body of law.

I.  Background

To understand recent changes to the first sale doctrine, it is useful to gain some perspective on the history of this legal theory.  The first sale doctrine was initially laid out in the 1908 Supreme Court decision Bobbs-Merrill Co. v. Straus.[6]  In Bobbs-Merrill, the Court considered the scope of how far a copyright holder’s rights may extend.[7]  Specifically at issue was whether copyright law permits an owner to exert control over a purchaser’s resale of a copyrighted work, or if the rights of a copyright holder to control distribution were limited to the initial sale.[8]

A.            Bobbs-Merrill Co. v. Straus: First Sale By the Book

In Bobbs-Merrill, the plaintiff publisher sought to affect the resale market of its books by including the following phrase on the inside cover of every new book it sold: “The price of this book at retail is $1 net.  No dealer is licensed to sell it at a less price, and a sale at a less price will be treated as an infringement of the copyright.”[9]  Subsequently, the defendant sold plaintiff’s books for less than $1, and the plaintiff sued for copyright infringement based on the copyright holder’s exclusive right to vend.[10]

The plaintiff’s main theory was that the phrase inside the book’s cover controlled the resale of the book, creating a license with the purchaser—a right allowed within a copyright holder’s right to vend or otherwise sell its product as it sees fit.[11]  Discarding this argument, the Supreme Court held that the plaintiff’s note did not constitute a license agreement and that any exclusive right of an original copyright holder to vend extends only to the initial sale.[12]  In making its conclusions, the Court held that “copyright statutes, while protecting the owner of the copyright in his right to multiply and sell his production, do not create the right to impose, by notice, such as is disclosed in this case, a limitation at which the book shall be sold at retail by future purchasers . . . .”[13]  As such, the statutory right to sell did not also create a similar right to limit resale—the right to vend was limited to the first sale of the good.  This early explanation of the first sale doctrine would be codified one year later in the Copyright Act of 1909.[14]

Since the passage of the 1909 Copyright Act,[15] the first sale doctrine has undergone a notable degree of evolution.  The 1976 Copyright Act expanded the first sale doctrine to include not only any purchaser of a good, but also granted any “owner” of a lawfully made copy of a good the right “without the authority of the copyright owner, to sell or otherwise dispose of the possession of that copy. . . .”[16]  The 1976 statute also made clear that this doctrine does not apply when possession is a result of rental or loan, unless the copyright owner authorizes otherwise.[17]  Taken together, sections 109(a) and 109(d) of the 1976 Copyright Act outline that the determining factor applicable to the use of the first sale doctrine is whether the recipient has rightful ownership of a copy of the good.

However, while the 1976 revision clarifies that possession should arise from rightful ownership, and not from rental or loan, the first sale doctrine applies not only to the ability of the new owner to make subsequent sales of the copy, but also to the ability of that owner to subsequently lend the copy to others, such as with libraries or video rental companies.[18]  As noted in the 1976 Act’s legislative history, “[a] library that has acquired ownership of a copy is entitled to lend it under any conditions it chooses to impose,” similar to how a legitimate owner may choose to sell under any conditions it chooses to impose.[19]  Nevertheless, while the first sale doctrine limits the distribution right guaranteed to copyright owners, it does not limit the other guaranteed rights of a copyright holder over reproduction, public display, public performance, and the creation of derivative works.[20]

Finally, an ultimate concern remains with the first sale doctrine—defining what goods actually fall within the doctrine’s scope.  As the first sale doctrine deals with the selling or other disposing of a copy, it is vital to define what is and is not a copy under the Act.  Under the 1976 statute, copies are defined as:

[M]aterial objects, other than phonorecords, in which a work is fixed by any method now known or later developed, and from which the work can be perceived, reproduced, or otherwise communicated, either directly or with the aid of a machine or device. The term “copies” includes the material object, other than a phonorecord, in which the work is first fixed.[21]

As such, the entire statutory framework underpinning the first sale doctrine has generally worked well where copies are fixed in a material object such as a printed book, DVD, or CD, but this framework becomes muddled when the works are digitally transmitted, such as an e-book download, streaming online video, or MP3 purchase.[22]  This is largely because of the legal uncertainty as to whether the first sale doctrine applies to transactions that lack a material copy changing hands, or even sometimes, as Vernor makes an issue of, when a copy is an intangible object fixed in a tangible medium changing hands.

B.            Modern Sales

The last decade has seen exponential growth in digital content delivery.  Advances in file storage and broadband technology have met with copyright owners’ entrepreneurial efforts to generate new streams of revenue to satisfy consumer demand for convenience and choice.[23]  Digital-delivery business models that may have seemed outrageous only a few years ago have now become dominant players in their respective fields.  As a notable example, Apple’s iTunes music store has already surpassed ten billion song downloads in its eight-year history—in many ways supplanting traditional brick-and-mortar music stores—and iTunes’ software “app” sales have reached the 10 billion download mark in only two years.[24]

Without clear direction as to whether the first sale doctrine applies to digitally transmitted works, and because of the doctrine’s inapplicability where there is no transfer of ownership, copyright owners have increasingly stopped selling digital works outright. Instead, copyright owners have begun to offer digital works to consumers through a licensor/licensee relationship in order to impose restrictions on future use and transferability.[25]  Such attempts by copyright owners are seen most notably in the formation of End User License Agreements (“EULAs”), which generally create “clickwrap” agreements where a user must agree to any and all terms proposed by the copyright owner in order to use the purchased product.[26]  In many cases, the copyright owner attempts to retain full control over distribution rights by crafting an EULA that explicitly states the consumer is a licensee who has no ownership interest in the purchased copy of the work.[27]  Thus, while a book may be purchased outright and owned by a consumer, in the eyes of copyright holders a digital copy of the very same book is not owned but merely licensed to the consumer.

In some situations, this licensor/licensee relationship in digital media allows copyright owners to retain powers that far exceed ordinary restrictions on future use by deleting outright the consumer’s copy of the work when circumstances warrant.[28]  One of the most notorious examples of such an extension of a copyright holder’s powers occurred in 2009 when Amazon remotely deleted digital copies of the George Orwell novels 1984 and Animal Farm from Kindle users’ e-book devices after Amazon learned it could not offer digital copies of these works.[29]  In doing so, Amazon acted entirely in accordance with its terms of use in effect at the time and chose to take the extreme step of deleting every copy possessed by paying customers to avoid litigation with Orwell’s publisher.[30]

II.  The Case

As a result of the ambiguity between technological innovation and gaps in a century-old body of law, it is unclear what to make of the licensing practices of copyright owners who appear to use contract law to circumvent the first sale doctrine.  Given such ambiguity in the law, consumers are left frustrated.  With little recourse but to accept clickwrap agreements from copyright holders, consumers are moved to accept restrictive agreements without grasping the full implication of such action.  These uncertain waters are explored in the recent Ninth Circuit decision Vernor v. Autodesk, Inc.[31]

Adding to this complexity stands the fact that Vernor involved material copies of software fixed in CD-ROMs and not content distributed digitally.[32]  Despite this, the Ninth Circuit held that extensive EULA restrictions contractually imposed on the use of a material copy of software trump the first sale doctrine.[33]  In effect, the decision in Vernor breaks from century-long jurisprudence dating back to Bobbs-Merrill upholding the applicability of the first sale doctrine to the transfer of a material copy of a work, including past first sale cases involving software.[34]  Accordingly, Vernor extends the exploitable ambiguity of whether the first sale doctrine applies to digital copies back to material copies, merely because the copy in question is software on a CD-ROM.

A.            A Tangled Factual Web

Autodesk Incorporated is the creator of the computer-aided design software, AutoCAD, which assists architects, engineers, and manufacturers in drafting plans and schematics for various projects.[35]  As early as 1986, Autodesk began selling its AutoCAD software with a limited “software license agreement” (“SLA”) between Autodesk and the end user—an EULA.[36]  The version of Autodesk’s AutoCAD software at issue in Vernor is Release 14, a program that was put on the market in 1997.[37]  Autodesk holds registered copyrights for all versions of the software it produces, including Release 14.[38]  Customers are required to accept Autodesk’s SLA before they are permitted to use the program, or may choose not to accept the SLA and return the software for a full refund.[39]  Within the SLA are separate terms and conditions for different types of users, depending on the product a consumer has purchased.[40]

Autodesk’s SLA is, in many ways, ordinary to most software sales, in that it reserves the majority of rights to the copyright holder.[41]  Specifically, the SLA for Release 14 states that Autodesk retains title to all copies and that the customer has a nonexclusive and nontransferable license to use Release 14, creating the typical licensor/licensee relationship between vendor and consumer.[42]  Within the SLA are a number of transfer restrictions, prohibiting customers from renting, leasing, or transferring the software without Autodesk’s prior consent.[43]  Additionally, the SLA imposes geographic transfer restrictions on consumers, including an explicit prohibition on transferring the software outside of the Western Hemisphere.[44]  Finally, Autodesk’s SLA imposes significant limitations on how its product may be used by the consumer.[45]

Beyond merely stating all the rights reserved to Autodesk in the SLA, Autodesk also worked to preserve these rights by taking measures to actively enforce these SLA agreements.[46]  Autodesk works to ensure every copy of its software is legitimate, including assigning unique serial numbers to each product and requiring the customer to input “activation codes” within a month of installation to continue using the software.[47]  An activation code is only issued to a consumer after Autodesk authenticates the product’s unique serial number.[48]

In March 1999, Autodesk and Cardwell/Thomas & Associates, Inc. (“CTA”) came to a settlement regarding CTA’s unauthorized use of Autodesk’s Release 14 software.[49]  Autodesk had licensed ten copies of Release 14 to CTA, and CTA had agreed to the terms of the SLA packaged with the software.[50]  Shortly after this agreement, CTA upgraded from Autodesk’s Release 14 program to Autodesk’s AutoCAD 2000 program, and should have subsequently destroyed the copies of Release 14 as instructed by the SLA.[51]  Instead, CTA sold four copies of Release 14 and their activation codes to plaintiff Timothy Vernor.[52]

Timothy Vernor ran an eBay store where he resold a number of different products to consumers online, and after purchasing the four copies of Release 14 from CTA, Vernor listed the software for sale on eBay.[53]  Vernor was aware of the existence of the SLA, but, importantly, he never installed the software or agreed to the SLA’s terms.[54]  When Autodesk became aware of Vernor’s actions Autodesk issued a Digital Millennium Copyright Act (“DMCA”) take-down notice[55] to eBay claiming copyright infringement.[56]  In response Vernor filed a counter-notice challenging the validity of Autodesk’s claim.[57]  Finally, Vernor brought an action against Autodesk to establish that his resale of the Release 14 software did not infringe on Autodesk’s copyright, requesting that the court rule that his actions were noninfringing due to the first sale doctrine.[58]

Upon hearing Vernor’s claim the district court granted summary judgment in favor of Vernor, declaring that Autodesk’s copyright was not infringed.[59]  In making its ruling, the district court determined Vernor’s acquisition of the Release 14 software to be a transfer of possession rather than a license; therefore, the first sale doctrine applied and Vernor was not liable for copyright infringement.[60]  In its rationale, the district court used United States v. Wise,[61] a Ninth Circuit case which dealt with the transfer of movie prints pursuant to distribution agreements.  In Vernor’s case, the district court held that simply labeling something a license was not determinative because Wise dictated that all of the circumstances of the transaction must be analyzed.[62]  In viewing all the circumstances, the key fact appeared to be that Vernor did not pay recurring fees for the use of the software, but rather made a one-time payment for the software itself, which implied a right of perpetual possession favoring the finding of a sale instead of a license.[63]  Autodesk subsequently appealed this decision to the Ninth Circuit.[64]

B.            Vernor in the Ninth Circuit

On appeal, the Ninth Circuit took a markedly different approach—both to the district court’s decision and to the majority of precedent outlaying the century-old first sale doctrine.  Downplaying the district court’s focus on Vernor’s one-time payment for the software, the Ninth Circuit vacated and remanded, holding that the high level of specificity in Autodesk’s SLA license restrictions made Vernor a licensee rather than an owner of the software copies, despite a transaction of a tangible copy from producer to consumer that at first glance might appear to be a sale.[65]

1. Considerations of Wise and the MAI Trio, and a New Three-Factor Test

In order to determine whether a software consumer is an owner or a licensee, the court reviewed past Ninth Circuit decisions and created a new three-factor test, which it applied in Vernor.[66]  The Vernor court concluded that precedent from Wise asked a factfinder to consider “all of the provisions” of an agreement to determine if a consumer is an owner or licensee of a software copy.[67]  The court came to a markedly different conclusion than Wise, however, as to what provisions may do in such a licensing agreement and what weight to give to each.[68]

In addition to a discussion of Wise, the Ninth Circuit looked at three of its prior cases that also addressed issues of ownership or licensing of software, the “MAI trio.”  The MAI trio consists of MAI Systems Corp. v. Peak Computer, Inc.,[69] Triad Systems Corp. v. Southeastern Express Co.,[70] and Wall Data, Inc. v. Los Angeles County Sheriff’s Department.[71]  Each case involved the “essential step defense” codified in 17 U.S.C. § 117(a)(1), which requires a similar analysis to first sale doctrine cases because both defenses require the possessor to own the copy of the work rather than license it.[72]

As in its analysis of Wise, the Vernor court observed that the MAI trio also evaluated all of the provisions of the agreements in order to determine ownership versus licensee status.[73]  Thus, the Vernor court set out to create a rule that might similarly take a holistic view to the language and intention of EULAs.  Following this, the Vernor court developed the three-factor test to determine whether a software user is a licensee instead of an owner, and therefore, whether the user was entitled to invoke the first sale doctrine.[74]  Under this test, a court first considers whether the copyright owner specifies that a user is granted a license.[75]  Second, the court evaluates whether the copyright owner significantly restricts the user’s ability to transfer the software.[76]  Lastly, the court determines whether the copyright owner imposes notable use restrictions.[77]

2. The Ninth Circuit’s Application of the Three-Factor Test

Having promulgated this new three-factor test, the Ninth Circuit then applied the factors to the case at hand.  Regarding the first factor, whether the copyright owner specified that the user was granted a license, the court found that Autodesk’s SLA specifically reserved title to the copies of the software and sought to grant a license to the purchaser.[78]  Regarding the second factor, whether the copyright owner has significantly restricted the user’s ability to transfer the software, the court found that Autodesk imposed significant transfer restrictions, including the inability to transfer the software out of the Western Hemisphere.[79]  Turning to the third factor, whether the copyright owner imposed notable use restrictions, the court concluded that the license imposed significant use restrictions, including restrictions against modifying, translating, or reverse engineering the software.[80]  Therefore, the Ninth Circuit concluded that CTA was a licensee and not the owner of the copy of Release 14.[81]  In effect, because Autodesk had written its SLA in a manner that specifically reserved title to the copies of the software and imposed substantial transfer and use restrictions, Autodesk’s customers—including Vernor as a secondhand purchaser of a copy who only sought to turn around and sell it—were licensees limited by Autodesk’s terms.[82]  Accordingly, because the SLA prohibited the sale of Release 14 from the original licensee, CTA, to Vernor, the sale was invalid.[83]  Thus, Vernor and Vernor’s customers were not owners of their copies of the software, the first sale doctrine did not apply, and Vernor had no right to resell the software.[84]

3. A Potential Split in Krause v. Titleserv, Inc.

In crafting its Vernor opinion, the Ninth Circuit addressed a possible split with Krause v. Titleserv, Inc.[85]  Also dealing with computer software, the Second Circuit in Krause inquired into whether the defendant Titleserv exercised “sufficient incidents of ownership over a copy of a program to be sensibly considered the owner of the copy” even if there was no licensing agreement between the producer Krause and user Titleserv.[86]  In looking for “sufficient incidents,” the Second Circuit noted that the following indicia could together make the defendant the owner of the copy of the program: (1) the consideration paid by Titleserv to develop the programs, (2) that the consideration was for the benefit of Krause only, (3) that the software was customized to serve Titleserv’s operations, (4) that the copies were stored on a server owned by Titleserv, (5) that Krause never reserved the right to repossess the copies used by Titleserv, and (6) that Krause agreed that Titleserv had the right to continue to possess and use the programs forever.[87]  The Second Circuit concluded that Titleserv owned the copies of the computer program because all of the six possible factors favored Titleserv.[88]  The Ninth Circuit distinguished Vernor on the grounds that the parties in Krause did not have a written license agreement like the one between Autodesk and its consumers.[89]  The court reasoned that because there was no explicit EULA on which to make a determination, the Second Circuit had no choice but to evaluate such a collection of factors.[90]

4. The Ninth Circuit’s Conclusions

After making its observations and promulgating its test in Vernor, the Ninth Circuit remanded the matter for further proceedings.[91]  In coming to its findings, the Vernor court was not entirely ignorant of the possible ramifications of this decision, acknowledging the policy considerations and potential impact this decision may have on the distribution of works.[92]  As a century-old body of law, the first sale doctrine had worked to balance the rights of copyright holders and consumers, and the Vernor decision stood to radically reshape this landscape if interpreted to specific ends.[93]  Given this, the Ninth Circuit was mindful that strict judicial enforcement of EULAs—which often are contracts of adhesion—could eliminate the software resale market.[94]  Moreover, when crafting the three-factor test, the court was aware that its opinion left open the window that the licensor/licensee practices of software companies could be adopted by other copyright owners such as book publishers, record labels, and movie studios.[95]  In the end, while the Ninth Circuit was mindful of these implications, the court ultimately decided to leave the policy considerations to be clarified by the legislature.[96]

III.  Analysis

Following the Ninth Circuit’s decision in Vernor, some groups may have very legitimate concerns about the application of the first sale doctrine to their industries.  If the Vernor decision stands, consumer advocates fear copyright holders will have greater incentive to expand license-based content delivery and limit the rights of those who pay for such goods.[97]  To wit, under a reading of Vernor, all a copyright holder must do to retain almost total rights to its work would be an inclusion of “magic words” making clear that the copy’s distribution is a license and not a sale and accompany this lease with notable use and transfer restrictions.  Because Vernor’s three-factor test to determine whether the first sale doctrine applies sets such a low threshold for copyright holders, consumer advocates worry the Vernor test may be the death knell of the first sale doctrine.  Such a low license threshold coupled with restrictive limitations can understandably cause worry for a varied group of end users, but are these concerns valid?  Currently, there are a number of different groups beyond software producers and consumers who are intently watching the change that Vernor may bring.

A.            Worried Parties: Libraries, eBay, and Netflix

Perhaps the most notable group affected by this possible erosion of the first sale doctrine are libraries.  Since the inception of the first sale doctrine, libraries have relied on the freedoms the doctrine provides as the basis by which they lend books, magazines, CDs, movies, and other copyrighted material.[98]  As such, restriction-heavy licenses could limit the ability of libraries to freely lend works and give copyright holders the ultimate power to control the flow of knowledge.[99]

In the commercial realm, the change Vernor might bring could drastically affect resale sectors where companies like eBay have flourished by facilitating the buying and selling of secondhand goods, many of which are copyrighted works.[100]  As the resale market can engender a very lucrative business such as eBay’s, it is likely that copyright owners would be more willing to implement restrictions on resale in a commercial context rather than with libraries because of the opportunity for copyright holders to build additional revenue streams.  Resale companies fear that with Vernor, copyright holders could retain ownership rights and restrict any third party sales that would not benefit the original owner—effectively shutting down any unapproved resale markets.

Combining some of a library’s lending efforts and a reseller’s commercial concerns, the home video market has is worried that Vernor may allow copyright holders to restrict its business.  Because home video businesses, such as Netflix, Redbox, and even Blockbuster, rely on the first sale doctrine to purchase copies of movies from distributors and then rent them to customers.  If distributors are able to contractually restrict what consumers do with their copies of movies, copyright holders would effectively be able to dictate the terms by which video rental companies operate their businesses.  In the most dire of projections, copyright holders could outright monopolize the home video market, reserving all use and transfer rights for themselves.

Despite these concerns, it is still uncertain whether the effects of wide-scale restrictive licensing will be realized.[101]  In fact, some feel that it is possible a business model could emerge that would support the resale of digitally transmitted works that might appease many, if not all, of the current interested parties.[102]  However, whether or not any of these scenarios occur does not change the questions that remain about the viability of the doctrine for digitally transmitted works.  Despite the legal support the Vernor decision gives to expand the use of licensing agreements in a number of different transactions, copyright owners will have to weigh those possible advantages against practical and financial considerations.

B.            Vernor and Computer Software

Given the facts of Vernor, the most apparent group affected by its new holding appears to be the producers and consumers of computer software.  Following Vernor, software consumers have generally had one of two reactions.  There are groups who feel Vernor is the death knell of ownership of software and all other property.[103]  Opponents of the Vernor decision argue that now, by simply adding “magic words” into any licensing agreement, software developers can retain permanent ownership of their product and effectively stop any and all resale.[104]  Alternatively, there are groups who feel that the Ninth Circuit’s ruling correctly aligns with new trends of software ownership.[105]  As with most polar discussions in the law, it is likely that neither group is absolutely correct in its predictions of the legal ramifications of Vernor.  Nevertheless, it is undeniable that Vernor could have a very marked impact on the software community, whatever it may be.  Ultimately, the greatest change might not come through Vernor and the law, but in the changes inherent in a shift to greater digital distribution of software.

1. Traditional Software

At first glance, the immediate ramifications of the Vernor three-factor test could indeed serve as the death knell feared by consumer advocates.  As seen in numerous existing EULAs, it is not difficult to create a contract between a software seller and the consumer that purports to give the consumer a license only.[106]  After understanding the explicit steps needed to satisfy the Vernor test, software developers could very well include these “magic words” in their licensing agreements to reserve numerous rights and ultimately prevent resale of their software.[107]

Software producers may wish to prevent resale of their goods for many reasons.  The primary reason is that producers do not receive compensation when works are resold to other consumers.[108]  By limiting the software resale market, producers could encourage more new purchases of software, and therefore reap greater profits.  As mentioned before, resale companies like eBay currently make a large portion of their business from resale and distribution of software, and a restrictive license could handily give software producers control over this market.[109]  Without the protections of the first sale doctrine, Vernor could very well allow copyright holders to draft licenses that only give consumers the right to use the copy and not the right to resell software either individually or through retailers like eBay.  In effect, the most likely result of Vernor is that the decision could give copyright holders the power to eliminate the market for used software.

2. Cloud Computing

Given the traditional means of distributing software, the worries of consumer advocates hold some very real and immediate validity.  Nevertheless, the effects of Vernor on the first sale doctrine may be relatively short-lived—either through a legal reversal of the doctrine, or, perhaps even more profoundly, through a shift in the use and distribution of software itself.  As software and other digital media distribution changes from tangible CDs and DVDs to entirely digital transactions facilitated by broadband internet access, “cloud computing” might make the Vernor doctrine turn from a consumer nightmare to a reasonable path in a changing marketplace.

Currently the idea of cloud computing has a number of different forms and definitions, but the form that is particularly relevant to how Vernor may affect the future of software is the concept of Software-as-a-Service (“SaaS”).[110]  In SaaS, software programs are accessed by a consumer via the Internet, while the physical software remains stored remotely on a server.[111]  To access these programs, a software company provides a user the ability to use the software through a website or other interface located on a PC, smartphone, or other internet-capable device.[112]  In an SaaS model, the software user does not own or possess the program on his home computer, but instead pays for access to use the program on demand.  Some observers feel that SaaS is the inevitable future of software distribution.[113]  Currently, the major barriers to growth of SaaS are consumer access limits to internet bandwith, but as broadband accessibility continues to grow, so too could greater use of SaaS and other methods of cloud computing.[114]  SaaS is already being used by companies such as Google, Microsoft, and Netflix.[115]

Given the rise of cloud computing methods such as SaaS, it is likely that in the near future an even more significant proportion of software and other digital content will not be owned, or even possessed, by the user.  Since users will no longer own a copy of the software, neither the Vernor test nor the Krause test would fully be able to handle such situations—yet tests such as Vernor’s would serve as a very useful bridge between the old first sale model and a new model fit for the cloud.  In this manner, cases such as Vernor would guide the evolution of software license agreements into software use agreements that govern the conditions under which the user can remotely access cloud-based software.

C.            Raising the Vernor Standard

As a practical matter, it would not be difficult for a copyright owner to pass the current Vernor test.  Meeting the standards set by Vernor would be as straightforward as being mindful of the three-part test while drafting an EULA and ensuring that the copyright owner grants a license to a potential user.  Given the ease with which these types of agreements can be created and implemented, both in software and beyond, the addition of another factor to help heighten the Vernor standard should be implemented both to better interpret the intent of a copyright holder and to better protect consumers.  Given how much power is now given to these licensing agreements, courts should factor in how rigorously copyright holders enforce their EULAs and ensure that the licensing rights granted to users are not being violated.  In effect, if these “magic words” are to be given so much weight and reserve so much power to copyright holders, those same copyright holders must not be able to sleep on their rights only to later try to enforce every aspect of a restrictive license.

In Vernor, the Ninth Circuit found Autodesk took significant measures to enforce license agreements.[116]  Autodesk assigned serial numbers to each copy of AutoCAD and kept track of registered licensees.[117]  Using the serial numbers, Autodesk assigned unique activation codes to customers, which were necessary for the customer to use the software.[118]  For a customer to receive an activation code, Autodesk checked “that the serial number is authentic, that the copy is not registered to a different customer, and that the product has not been upgraded” for each request.[119]  In effect, Autodesk’s enforcement scheme resulted in a seemingly effective way to monitor the distributed licenses and showed to the Ninth Circuit that Autodesk was sincere about restricting the use of its software and retaining ownership.  Likewise, other copyright holders should also be required to make a similar showing.  In addition to stating the presence of a license and restricting use and transferability, copyright owners should be required to set up a sufficiently rigorous enforcement scheme to show they are serious about enforcing the stated rights in a licensing agreement.

In requiring copyright owners to set up a sufficient enforcement scheme, courts would effectively give the Vernor standard a much-needed boost in fairness.  Inquiring into the efforts a copyright owner takes to enforce his or her rights before a lawsuit would prevent copyright owners from relying purely on the frequently empty “magic words” of a licensing agreement to enforce their rights later in court.  In these EULAs, where the terms are all prepared by one party and the other party has the option to take it or leave it, there is no effective negotiation where a consumer may attempt to protect any of his or her rights in the product.  Therefore, most EULAs are contracts of adhesion that can deeply disfavor a consumer.[120]  In traditional contract theory, a party would have the option to seek out competing parties in order to obtain a better bargaining position, but nearly all software vendors provide similar types of contracts with their products.[121]  Without the freedom to bargain for more equitable terms, the customer is at a severe disadvantage and is left only to accept the unfavorable agreement.  In part, this severe disadvantage of boilerplate licensing agreements may be a reason so many consumers do not take these EULAs seriously, an entirely different and pressing problem in this field.

Given the leverage that copyright holders have in these contracts, and the additional support such agreements are given under Vernor, courts should consider inquiring into how strongly copyright owners enforce their license agreements as a way to counterbalance this leverage.  By requiring copyright owners to actively make efforts to enforce the terms of their licenses, courts limit the dangerous breadth of power than an overly-restrictive license might afford.  If copyright owners want to keep tight control over their property, they would no longer be required merely to say they want such power—instead, they must diligently make efforts to ensure their desired limitations are being kept beyond the paper such rights are written on.  While this does not remove the leverage advantage copyright holders may have in software EULAs, it does limit what rights copyright holders might want to retain, as they would now be tasked with actually making independent efforts to manage their rights before entering a courtroom.

In addition to its useful application to the Vernor test, requiring copyright owners to set up an effective enforcement framework would easily transfer into cloud computing applications.  Because much of the licensing language can easily evolve into a cloud-based use scheme, having cloud content providers actively manage their rights would be no different than software vendors under a modified Vernor test.  Like Autodesk and other future software vendors, cloud content providers would have to make efforts to manage their property and keep their rights enforced before seeking legal redress for an alleged violation.

Conclusion

Attempting to radically change a century-old body of law such as the first sale doctrine is not likely to come easily—nor should it.  Nevertheless, unless some changes are made, the tensions between copyright owners and consumers are likely to grow as copyright owners continue to push the limits of restrictive access to content via licensing frameworks.

The Vernor decision and its subsequent test will have immediate short-term effects on licensing agreements and the first sale doctrine.  If left unchecked, consumers may suffer a severe disadvantage as additional rights are withheld in restrictive licensing agreements.  Nevertheless, these feared effects could be mitigated naturally with an evolution toward cloud computing and other forms of digital content distribution that enable software developers and other copyright holders to keep possession of their works entirely.  In the future, it is likely that software consumers will no longer own physical copies of the content they access on their computers but will have the ability to use remote content governed by use agreements.  For better or worse, decisions like Vernor may paint an early picture of a new legal doctrine.

Given the potential foreshadowing of Vernor, ensuring that the balance set by the first sale doctrine persists means that every new change in the law should come with growing scrutiny toward where the doctrine is heading.  Vernor does not signal the last first sale, but it does issue a new charge for consumer advocates to make sure the longstanding rights of resale and distribution are not lost in a digital era.  In viewing the Vernor decision, courts should consider inquiring into the methods that the copyright owner used to enforce its agreements and licenses—to do so will help ensure the balance between producer and consumer that has evolved through the past century remains for years to come.


[1]. Licensed Application End User License Agreement, Apple, http://www.apple.com/legal/itunes/appstore/dev/stdeula (last visited Oct. 3 2011).

[2]. See Adam W. Sikich, Buyer Beware: The Threat to the First Sale Doctrine in the Digital Age, 14 J. Internet L. 1, 19 (2011).

[3]. See id.

[4]. Id.

[5]. 621 F.3d 1102 (9th Cir. 2010).

[6]. 210 U.S. 339 (1908).

[7]. Id. at 349–50.

[8]. Id. at 350.

[9]. Id. at 341.

[10]. Id. at 342.

[11]. Id.

[12]. Id. at 350.

[13]. Id.

[14]. See, e.g., Robert H. Rotstein, Emily F. Evitt, & Matthew Williams, The First Sale Doctrine in the Digital Age, 22 Intell. Prop. & Tech. L.J. 23, 24 (2010).

[15]. Copyright Act of 1909, Pub. L. No. 60-349, 35 Stat. 1075 (1909).

[16]. 17 U.S.C. § 109(a) (2006).

[17]. Id. (prohibiting “rental, lease, loan, or otherwise, without acquiring ownership”).

[18]. Sikich, supra note 2.

[19]. H.R. Rep. No. 94-1476, § 109, at 79 (1976), reprinted in 1976 U.S.C.C.A.N. 5659, 5693.

[20]. Sikich, supra note 2.

[21]. 17 U.S.C. § 101 (2006).

[22]. Sikich, supra note 2.

[23]. Id.

[24]. Josh Sunshine, App Store Beats iTunes to 10 Billion Downloads by 6 Years, Gigaom (Jan. 14, 2011, 10:30 AM), http://gigaom.com/apple/app-store
-beats-itunes-to-10-billion-downloads-by-6-years.

[25]. Sikich, supra note 2.

[26]. See, e.g., Rebecca K. Lively, Microsoft Windows Vista: The Beginning or the End of End-User License Agreements As We Know Them?, 39 St. Mary’s L.J. 339, 370 n.14 (2007).

[27]. See, e.g., Apple, supra note 1 (“The Products transacted through the Service are licensed, not sold, to You for use only under the terms of this license.”) (emphasis added); Amazon Kindle: License Agreement and Terms of Use, Amazon, http://www.amazon.com/gp/help/customer/display.html/ref=hp
_left_sib?ie=UTF8&nodeId=200506200 (last visited Sept. 30, 2011) (“Unless specifically indicated otherwise, you may not sell, rent, lease, distribute, broadcast, sublicense, or otherwise assign any rights to the Digital Content or any portion of it to any third party . . . .”).

[28]. Sikich, supra note 2.

[29]. See David Pogue, Some E-Books Are More Equal Than Others, N.Y. Times (July 17, 2009, 12:57 PM), http:// pogue.blogs.nytimes.com/2009/07/17
/some-e-books-are-more-equal-than-others.

[30]. Sikich, supra note 2.

[31]. 621 F.3d 1102 (9th Cir. 2010).

[32]. Id. at 1104.

[33]. Id. at 1116.

[34]. See, e.g., Krause v. Titleserv, Inc., 402 F.3d 119 (2d Cir. 2005) (holding that defendant was the owner of software program because defendant paid substantial consideration for development of the software, software resided on defendant’s computers, and plaintiff allowed defendant to permanently use the software); DSC Commc’ns Corp. v. Pulse Commc’ns, Inc., 170 F.3d 1354, 1360 (Fed. Cir. 1999) (“[A] party who purchases copies of software from the copyright owner can hold a license under a copyright while still being an ‘owner’ of a copy of the copyrighted software . . . .”); Softman Prod. Co. v. Adobe Sys. Inc., 171 F. Supp. 2d 1075, 1086 (C.D. Cal 2001) (“[A] single payment for a perpetual transfer of possession is, in reality, a sale of personal property and therefore transfers ownership of that property, the copy of the software.”).

[35]. Vernor, 621 F.3d at 1104.

[36]. Id.

[37]. Harrison Eiteljorg II, AutoCAD Release 14 – A Review, CSA Newsletter, Vol. X, No. 3, (Winter 1998), available at http://csanet.org
/newsletter/winter98/nlw9802.html.

[38]. Vernor, 621 F.3d at 1104.

[39]. Id.

[40]. See id.

[41]. See id.

[42]. Id.

[43]. Id.

[44]. Id.

[45]. Id.

[46]. Id.

[47]. Id.

[48]. Id. at 1104–05.

[49]. Id. at 1105.

[50]. Id.

[51]. Id.

[52]. Id.

[53]. In his course of business, Timothy Vernor has since sold over ten thousand items on eBay.  See id.

[54]. Id.

[55]. See 17 U.S.C. § 512(c) (2006).  “The take-down provision of Section 512 permits copyright owners to notify [Online Service Providers (“OSP”)] . . . that an infringing work is available on the copyright owner’s Web site. Upon receipt of a complaint notice, the OSP must ‘respond expeditiously’ and remove, or disable access to, the infringing material.”  Greg Jansen, Whose Burden is it Anyway? Addressing the Needs of Content Owners in DMCA Safe Harbors, 62 Fed. Comm. L.J. 153, 163 (2010) (footnotes omitted) (discussing the definition of a DMCA takedown notice).

[56]. Vernor, 621 F.3d at 1105.

[57]. Id.

[58]. Id. at 1106.

[59]. Id.; Vernor v. Autodesk, Inc., 555 F. Supp. 2d 1164, 1170–71, 1175 (W.D. Wash. 2008).

[60]. Vernor, 621 F.3d at 1106.

[61]. 550 F.2d 1180 (9th Cir. 1977).

[62]. Vernor, 621 F.3d at 1109.

[63]. Id. at 1106.

[64]. Id.

[65]. Id. at 1116.

[66]. Id. at 1108.

[67]. Id. at 1109.

[68]. See id. at 1111–12.

[69]. 991 F.2d 511 (9th Cir. 1993).

[70]. 64 F.3d 1330 (9th Cir. 1995).

[71]. 447 F.3d 769 (9th Cir. 2006).

[72]. See 17 U.S.C. § 117(a)(1) (2006).

[73]. Vernor, 621 F.3d at 1110–11.

[74]. Id. at 1111.

[75]. Id.

[76]. Id.

[77]. Id.

[78]. Id.

[79]. Id.

[80]. Id. at 1111–12.

[81]. Id. at 1112.

[82]. Id.

[83]. Id.

[84]. Id.

[85]. Id. at 1114; Krause v. Titleserv, Inc., 402 F.3d 119 (2d Cir. 2004).

[86]. Krause, 402 F.3d at 124.

[87]. Id.

[88]. Id. at 124–25.

[89]. Vernor, 621 F.3d at 1114.

[90]. Id.

[91]. Id. at 1116.

[92]. See id. at 1114–15.

[93]. See id. at 1115.

[94]. See id.

[95]. See id. at 1114–15.

[96]. Id. at 1115 (“Congress is free, of course, to modify the first sale doctrine and the essential step defense if it deems these or other policy considerations to require a different approach.”).

[97]. Sikich, supra note 2, at 21.

[98]. Id.

[99]. Vernor, 621 F.3d at 1115; see also, Brief of Amici Curiae, American Library Association et al., id. at 7–9.

[100]. eBay touts that in 2010 the total worth of goods sold on eBay was $62 billion.  Who We Are, eBay, http://www.ebayinc.com/who (last visited Sept. 30, 2011).

[101]. Sikich, supra note 2, at 22.

[102]. Id.

[103]. See Corynne McSherry, You Bought It, But You Don’t Own It, Electronic Frontier Found. (July 15, 2008), http://www.eff.org/deeplinks/2008
/07/you-bought-it-you-dont-own-it.

[104]. See id.

[105]. See Larry Downes, The End of Software Ownership—And Why to Smile, Cnet News (Sept. 20, 2010, 4:00 AM), http://news.cnet.com/8301-1001_3
-20016864-92.html.

[106]. For example, see the Apple, supra note 1; Amazon, supra note 27.

[107]. See McSherry, supra note 103.

[108]. See Nate Anderson, “Can I Resell My MP3s?”: The Post Sale Life of Digital Goods, Ars Technica (Dec. 17, 2008, 11:05 PM), http:// arstechnica.com
/tech-policy/news/2008/12/post-sale-life.ars.

[109]. See supra Part III.A.

[110]. See Cody Gillians, Is This Mine or Yours? The Effect of the Rulings in Vernor v. Autodesk and the Library of Congress on the Determination of Who Owns Software Copies, 12 N.C. J.L. & Tech. 205, 225 (2010).

[111]. Id.

[112]. See id. (describing different ways SaaS may be used).

[113]. See Downes, supra note 105.

[114]. See Gillians, supra note 110, at 226.

[115]. See id.

[116]. Vernor v. Autodesk, Inc., 621 F.3d 1102, 1104 (2011).

[117]. Id.

[118]. Id.

[119]. Id. at 1105.

[120]. See id. at 1115.

[121]. See Pratik A. Shah, The Uniform Computer Information Transactions Act, 15 Berkeley Tech. L.J. 85, 93 (2000) (“[G]iven the bargaining power of most licensors over licensees in the mass-market shrinkwrap context, where adhesion contracts are the norm, this apparent efficiency could come at the licensee’s expense.”).

* J.D. Candidate, May 2012, Wake Forest University School of Law.  The author thanks his wife Meghan for her ongoing patience and support.

Article in PDF Form

By: Lydia Pallas Loren*

Abstract

Copyright owners routinely obtain prompt removal of allegedly infringing materials from the Internet using takedown notices.  The Copyright Act’s takedown procedures are an attractive and powerful tool to combat infringement because they do not require filing a federal copyright infringement complaint, nor do they involve any neutral assessment of the copyright owner’s infringement assertion.  Because the takedown regime is embedded in safe harbor protections that immunize Online Service Providers (“OSPs”) from monetary liability for copyright infringement engaged in by Internet users, the statute creates an important incentive for Internet Service Providers (“ISPs”) to comply automatically with takedown requests sent by copyright owners.  Unfortunately, this prompt method for obtaining removal of material from the Internet lends itself to abuse by copyright owners seeking to silence critics or to obtain a far broader protection for their works than copyright law actually affords.

Congress attempted to provide a shield for lawful, noninfringing activity in the takedown regime itself: the statute permits individuals to send a counter-notice that can result in the allegedly infringing material being reposted.  The practices of most OSPs, however, make the counter-notice problematic and difficult to use, reducing its effectiveness as a true shield for lawful, noninfringing activity.  Congress also created a mechanism to deter abuse of the takedown regime: a federal cause of action for misrepresenting that posted material is infringing.  If taken seriously, the misrepresentation claim has the potential to shape the behavior of copyright owners who wield the powerful sword of the takedown notice.  To date, however, few misrepresentation claims have been brought, and the early interpretations of the provisions have limited their effectiveness in curbing abuse.

Because a complete understanding of the role of the misrepresentation claim within the statutory scheme should inform any judicial interpretation of its requirements, this Article first places the misrepresentation claim in the context of the takedown regime.  It then examines litigation dynamics as well as the statutory elements of a misrepresentation claim, offering suggestions on how these elements should be interpreted in light of the purpose and context of the statute.  If appropriately interpreted, the misrepresentation claim holds great promise for protecting both copyright owners and lawful users of copyrighted works.

 Introduction

Cheap digital computing exploded copyright’s industrial distribution model, sharply democratizing publication and dissemination.  At the urging of industrial copyright producers and distributors, Congress sought to bring some order to the digital copyright chaos of the Internet by creating a “takedown notice” regime as part of the 1998 Digital Millennium Copyright Act.  Merely by sending a proper takedown notice, a copyright owner can prompt an Internet Service Provider (“ISP”) to swiftly remove an allegedly infringing item from its servers; ISPs earn immunity from infringement liability if they provide that swift removal and thus are only too happy to comply.  At the same time, to avoid creating a runaway copyright enforcement engine that is all gas and no brakes, Congress tempered the takedown notice by conferring a misrepresentation claim on those whose Internet expression has been silenced by extravagant copyright infringement claims in groundless takedown notices.  But early testing of the misrepresentation claim brakes has shown some serious slippage.

Stories abound of individuals, companies, political campaigns, and even religious organizations using the considerable tools of the Copyright Act to seek removal of material on the Internet they find objectionable.  Diebold, Inc. sought to silence critics of its electronic voting machines prior to a major election.[1]  CBS News, Fox News, the Christian Broadcasting Network, and NBC News obtained removal of McCain-Palin campaign videos just weeks before the 2008 presidential election.[2]  The Church of Scientology attempted to silence its critics by sending out countless takedown notices.[3]  And Universal Music Group sought to have a mother’s thirty-second home video of toddlers running around the family kitchen removed from YouTube because of the copyrighted music playing in the background.[4]

In addition to the takedown notices that appear designed to censor particular speech that copyright owners find objectionable, takedown notices are also sent automatically and without verification that the entity being sent the notice in fact has engaged in any kind of activity that could remotely be considered infringement.[5]  In 2009, Joe Waz, Vice President for External Affairs and Public Policy Counsel at Comcast, acknowledged the existence of “an automated system that currently forwards between 1 to 2 million notices each year.”[6]  The use of automated detection software has resulted in takedown notices sent to individuals not engaged in any infringing activity,[7] including even notices sent to networked printers.[8]  Each year Google, which owns the video sharing service YouTube, processes three million takedown requests.[9]

Providing a means of effective enforcement of copyright owners’ rights in the digital environment, while at the same time ensuring protection for lawful Internet activity, is an undeniably difficult undertaking.  The significant magnitude of activity that constitutes prima facie infringement has led to a variety of efforts to facilitate enforcement of copyright owners’ rights.  Congress has increased the activity subject to criminal sanctions,[10] has increased the monetary penalties in civil enforcement proceedings, and has even provided legal protection for technology that copyright owners employ to protect their works.[11]  At the same time, balancing effective protection with permitting, and not discouraging, lawful activity has proved to be a daunting challenge.[12]

Takedown notices have proved to be an attractive mechanism for copyright owners to obtain the prompt removal of allegedly infringing materials from websites.  The takedown procedures are a powerful tool to combat infringement because they do not require the filing of a federal copyright infringement complaint, nor do they involve any court assessment of the copyright owner’s infringement assertion.  Because the takedown provisions are embedded in the safe harbor protections that immunize Online Service Providers (“OSPs”) from liability for copyright infringement engaged in by Internet users, the statute sets up an important incentive for ISPs to automatically comply with takedown requests sent by copyright owners.  Unfortunately, this prompt method for obtaining removal of material from the Internet lends itself to abuse by copyright owners seeking to silence critics or to obtain far broader protection for their works than copyright law actually affords them.

The Copyright Act defines many circumstances in which copyrighted material can be reproduced or used by another person without the authorization of the copyright owner.  The Act specifies that such uses shall not constitute infringement of the copyright.[13]  The Copyright Act grants a copyright owner only a set of limited rights, all of which are constrained by many different sections of the Act.[14]  For example, a fundamental constraint on the rights of a copyright owner is the fair use doctrine, codified in section 107 of the Act.[15]  This provision permits reproduction of copyrighted expression but depends on a weighing of four different factors to determine if the use is infringement or if it is “fair use.”[16]  One of the types of uses favored by the fair use doctrine is criticism.[17]  Yet it is in this context that a copyright owner might be most tempted to seek out ways to silence critics, using the Copyright Act’s powerful takedown mechanism as a tool to accomplish that censoring.

This powerful sword given to copyright owners was added to the Copyright Act by the Digital Millennium Copyright Act as part of a compromise worked out between ISPs and copyright owners.[18]  The abuse that this extrajudicial remedy can lead to has been cataloged in other articles,[19] and many have suggested reforms to the takedown procedures that would dull the edge of the sword.[20]  However, given the rampant infringement that exists on the Internet, rather than dulling the power of that sword, this Article proposes a means for providing a more effective shield for lawful activity and discouraging abuse of the takedown sword.

Congress tried to provide a shield for lawful activity in the takedown regime itself.  The statute permits individuals who believe their material has been wrongfully taken down pursuant to a copyright owner’s takedown notice to send a counter-notice.  That counter-notice may result in the allegedly infringing material being reposted.[21]  As detailed below, the practices of most OSPs make the counter-notice problematic and difficult to use, reducing its effectiveness as a true shield for lawful activity.[22]

Congress also created a mechanism to deter abuse of the takedown regime—namely, a new federal cause of action against one who misrepresents that material is infringing.[23]  This misrepresentation claim, if construed by the courts to achieve its central deterrent purpose, has the potential to shape the behavior of copyright owners as they decide whether to wield the powerful takedown sword.  To date, however, few have brought misrepresentation claims.  Worse, some courts’ initial interpretations of the misrepresentation claim provisions threaten to limit its deterrent power to curb abuse.  Because an understanding of the role of the misrepresentation claim within the statutory scheme should inform any judicial interpretation of its requirements, this Article first places the misrepresentation claim in the context of the takedown regime.  It then examines litigation dynamics as well as the statutory elements of a misrepresentation claim, offering suggestions on how these elements should be interpreted in light of the purpose and context of the statute.  If appropriately interpreted, the misrepresentation claim holds great promise for protecting both copyright owners and lawful uses of copyrighted works.

I.  Takedown Mechanics

A.            The “Safe Harbor” Provisions

The takedown provisions of the Copyright Act are codified as part of the “safe harbor” provisions of the Digital Millennium Copyright Act, passed in 1998.[24]  Congress created four separate safe harbor provisions to clarify the liability that OSPs[25] faced in the early years of widespread Internet usage and explosive growth of the World Wide Web.  Codified in section 512 of the Copyright Act, each of the safe harbors contains specific requirements that service providers must meet in order to gain and maintain the safe harbors’ protections from copyright infringement liability.[26]

The powerful takedown provisions are part of two of the four different safe harbors Congress created.[27]  If a service provider complies with the statutory requirements, the provider is protected from liability for monetary relief and, to a large extent, from equitable relief, as well.[28]  Any entity that operates an online service can avail itself of the immunities offered by section 512.  From services like Dropbox, that permit users to store personal files remotely, to blogging sites, the social network giant Facebook, and indexing sites like Google, a service provider that permits users to load content onto its equipment or provides indexes and links to other sites is eligible to obtain immunity if it complies with the requirements of the statute.  The safe harbors that do not involve takedown notices are applicable to providers of Internet connectivity, entities that are often referred to as ISPs.[29]  For clarity’s sake, the service providers that may gain safe harbor immunities involving takedown notices are often referred to as OSPs, i.e., Online Service Providers.[30]

The takedown regime employed by the safe harbor for “[i]nformation residing on systems or networks at direction of users”[31] and for “[i]nformation location tools”[32] is fundamentally designed to keep OSPs out of the middle of lawsuits between the copyright owner and the user who has posted the allegedly infringing material, i.e., the direct infringer.  To do this, the safe harbor provisions designate a specific course of conduct for the OSPs to follow.[33]  Initial qualifications for safe harbor protections require service providers to “adopt[] and reasonably implement[]” a policy that provides for the termination of the accounts of subscribers who are repeat infringers.[34]  An OSP interested in the protections afforded by the provisions that involve takedown notices must also designate an agent for receipt of such notices.[35]  This designation must be made by filing a form with the Copyright Office[36] and by making the contact information available on the provider’s website.[37]

The real meat of the safe harbor protections that involve the takedown provisions requires that the service provider not have actual or constructive knowledge[38] that material on the system uploaded by a subscriber[39] is infringing, and, “upon obtaining such knowledge or awareness,” the service provider must act “expeditiously to remove, or disable access to, the material.”[40]  When a copyright owner sends a notice of claimed infringement that meets the requirements of the statute,[41] in order to maintain the protection of the safe harbor, the service provider must “respond[] expeditiously to remove, or disable access to, the material that is claimed to be infringing.”[42]  Failing to respond expeditiously to an effective notice from a copyright owner eliminates the protection from liability that the safe harbor provisions offer.[43]  Thus, the takedown regime provides a powerful incentive for indiscriminate removal of material alleged by a copyright owner to be infringing.[44]  Courts have noted that ISP’s remove material “as a matter of course” in response to takedown notices.[45]

Congress sought to create “strong incentives for service providers and copyright owners to cooperate to detect and deal with copyright infringements that take place in the digital networked environment.”[46]  Congress also believed it was important to provide OSPs with certainty concerning their potential liability.[47]  The compromise between the content industry and the OSPs not only gave copyright owners a powerful tool by which to obtain prompt removal of infringing content, it also provided a clear mechanism for OSPs to stay out of the middle of an infringement lawsuit.

In addition to the removal of the material that the copyright owner asserts is infringing, a user may face additional consequences.  For example, a user’s account with that OSP may be suspended, which can result in all of that user’s content no longer being available online.[48]  The suspension of a user’s account can also be traced to the safe harbor’s requirement that an ISP implement a policy to terminate the accounts of repeat infringers.[49]  If an OSP does not have such a policy or does not “reasonably implement” such a policy, it loses the protection of the safe harbor.[50]

Whether multiple assertions of infringement by copyright owners—without court adjudication of infringement—can brand someone a “repeat infringer” is not clear.[51]  The trend toward using multiple assertions by copyright owners of infringement as means to trigger increased sanctions is known as graduated response.[52]  International intellectual property groups have been aggressively pursuing graduated response both through treaties and in privately negotiated arrangements with ISPs and OSPs.[53]  Other countries that employ a graduated response regime which results in a loss of Internet access for a “repeat infringer” have built in due process protections for individuals before termination of an individual’s Internet access.[54]

The possibility of losing access to one’s account based on mere notices of copyright infringement sent by copyright owners increases the importance of minimizing abuse of such notices.  Taking the claim of misrepresentation seriously and applying it to notices of infringement meant to trigger these graduated response systems, whether or not strictly within the takedown regime, would provide a strong incentive for copyright owners not to abuse the privilege of this extrajudicial enforcement of rights.

B.            The Takedown Notice

The statute establishes the requirements for an effective notification from a copyright owner.  The notice must be “a written communication provided to the designated agent of a service provider” and it must include “substantially”[55] the following:

(i) A physical or electronic signature of a person authorized to act on behalf of the owner of an exclusive right that is allegedly infringed.

(ii) Identification of the copyrighted work claimed to have been infringed, or, if multiple copyrighted works at a single online site are covered by a single notification, a representative list of such works at that site.

(iii) Identification of the material that is claimed to be infringing or to be the subject of infringing activity and that is to be removed or access to which is to be disabled, and information reasonably sufficient to permit the service provider to locate the material.

(iv) Information reasonably sufficient to permit the service provider to contact the complaining party, such as an address, telephone number, and, if available, an electronic mail address at which the complaining party may be contacted.

(v) A statement that the complaining party has a good faith belief that use of the material in the manner complained of is not authorized by the copyright owner, its agent, or the law.

(vi) A statement that the information in the notification is accurate, and under penalty of perjury, that the complaining party is authorized to act on behalf of the owner of an exclusive right that is allegedly infringed.[56]

These requirements for a takedown notice apply to both of the safe harbors—the safe harbor for “[i]nformation residing on systems or networks at direction of users”[57] and the safe harbor for “[i]nformation location tools,”[58] with one exception.  If the notice is aimed at material that refers or links to an online location containing infringing material, instead of a notice concerning the infringement material itself, the takedown notice must identify “the reference or link . . . that is to be removed or access to which is to be disabled, and information reasonably sufficient to permit the service provider to locate that reference or link” in place of the material to be identified in paragraph (iii).[59]  A compliant notice[60] triggers the obligation for the OSP to act “expeditiously to remove, or disable access to” the identified material or link.[61]

C.            The Counter-Notice

The safe harbor provisions create “strong incentives for service providers and copyright owners to cooperate to detect and deal with copyright infringements that take place in the digital networked environment.”[62]  At the same time, Congress sought to “balance the need for rapid response to potential infringement with the end-users[’] legitimate interests in not having material removed without recourse.”[63]  An important protection for users’ rights provided for in the statute is an ability for the user to request that the material be reposted through a “counter-notice.”[64]

Upon receipt of a takedown notice, in addition to expeditiously removing the material, the service provider is encouraged to notify the user that his or her material has been removed in response to a takedown notice from a copyright owner.[65]  The statute provides a counter-notice process by which alleged infringers can notify the service providers that they have a good faith belief that the material is not infringing.[66]

The counter-notice “must be a written communication”[67] that includes substantially the following:

(A) A physical or electronic signature of the subscriber.

(B) Identification of the material that has been removed or to which access has been disabled and the location at which the material appeared before it was removed or access to it was disabled.

(C) A statement under penalty of perjury that the subscriber has a good faith belief that the material was removed or disabled as a result of mistake or misidentification of the material to be removed or disabled.

(D) The subscriber’s name, address, and telephone number, and a statement that the subscriber consents to the jurisdiction of Federal District Court for the judicial district in which the address is located, or if the subscriber’s address is outside of the United States, for any judicial district in which the service provider may be found, and that the subscriber will accept service of process from the person who provided notification under subsection (c)(1)(C) or an agent of such person.[68]

Upon receipt of a counter-notice, the service provider is required to promptly provide the copyright owner with a copy of the counter- notice.[69]  If the copyright owner does not file a lawsuit against the subscriber seeking to restrain the subscriber from engaging in infringing activity and provide the service provider with notice of that pending action, then the service provider is encouraged to replace the material.[70]  Under these circumstances, the service provider is to put the material back on the Internet no more than fourteen business days following receipt of the counter-notice.[71]

D.            Takedown Notice Abuse and the Porous Counter-Notice Shield

While the counter-notice is, in theory, an important mechanism to shield lawful activity from abusive or overreaching notices, or even just as a mechanism to require court involvement in close cases, the statutory implementation of the counter-notice makes it an extremely porous shield.  Just as OSPs are not required to comply with a takedown notice, they are not required to comply with a counter-notice.  The statutory incentive to comply with the former, however, is significantly more valuable than the incentive to comply with the latter.

The incentive for service providers to notify the user that his or her material has been removed and to comply with the counter-notice request to put material back up comes in the form of a safe harbor from claims that the user might assert against the service provider.[72]  If the service provider promptly notifies subscribers when taking material down and complies with counter-notice requests to put the material back up, the service provider maintains immunity from such user-initiated suits.  However, the true risk of such a suit is often minimal due to limitations on liability that most service providers insist upon in their contracts with users.[73]  Thus, while the incentive to comply with a copyright owner’s takedown notice is high, because doing so provides immunity from copyright infringement liability which can be significant,[74] the incentive for reposting material when requested by a subscriber is significantly lower.[75]

One consequence of the largely insignificant incentive for OSPs to follow through with the counter-notice aspect of the takedown regime is that users often are unaware of the ability to send a counter-notice and may even be unaware that material they posted has been removed.  Alerting the user that material has been removed is only required if the OSP desires to maintain immunity from user-initiated suits.[76]  Additionally, the safe harbor permitting takedown notices for links in an index or search database does not contain any counter-notice provisions.[77]  However, in the current digital environment, not being listed in the major search engine, Google, has a significant effect on the visibility of content. Fortunately, courts have held that the counter-notice and replacement procedures apply to a takedown pursuant to the safe harbor concerning information location tools.[78]  Even if an OSP sends a notice concerning removed material or removed links, the statute does not require the OSP to inform the user of the counter-notice possibility.[79]

Congress established the takedown regime as a way to give copyright owners what they wanted—quick removal from the Internet of infringing material and links to infringing material—and at the same time to give ISPs what they wanted: protection from copyright infringement liability and from involvement in infringement lawsuits.[80]  The counter-notice was another manifestation of the ISPs’ desire to stay out of the middle of lawsuits.  The counter-notice facilitates this in two ways.  First, sending the counter-notice requires the user to identify himself or herself,[81] if, for example, the user was previously anonymous or using a pseudonym in his or her posting.  Second, the user must identify a jurisdiction in which he or she consents to be sued for copyright infringement.[82]

These required contents for the counter-notice will cause many individuals to pause before sending one.  Even if the material is clearly not infringing, many individual users would rather forego having their material reposted than face a lawsuit.  Of course, sending the counter-notice does not trigger a lawsuit.  In fact, a copyright owner who is attempting to use the takedown notice as a way to obtain removal of material that is clearly noninfringing will likely not file suit.[83]  That likelihood, however, may be lost on an individual who faces having to reveal his or her identity and sign a document consenting to jurisdiction in order to seek reposting.

At least one court has pointed to the counter-notice as the principal means of balance in the takedown regime.[84]   In the end, the counter-notice mechanism provides a weak shield for protecting lawful activity from abusive takedown notices.  Thus, it is important for courts to fully embrace the misrepresentation claim that Congress provided to deter abuse of the powerful takedown tool.

II.  Misrepresentation Claims

Currently, the risks for abusing the takedown procedure are not that great.  Bad press can follow an overzealous takedown request,[85] but it does not create the same kind of incentive to curb abuse that would be created by clear legal liability for inappropriate takedown notices.[86]  Congress recognized the risk that copyright owners would use this extrajudicial tool in a way that might run counter to the constitutionally mandated goal of the Copyright Act to promote knowledge and learning.[87]  Providing a counterbalance against the potential for abuse, Congress created a cause of action against misuse of the takedown procedures.  This cause of action was meant to “deter knowingly false allegations to service providers in recognition that such misrepresentations are detrimental to rights holders, service providers, and Internet users.”[88]

A.            Elements of the Claim

Section 512(f) provides a critical safeguard against false accusations of online infringement[89] by creating a federal cause of action for misrepresentation.  In its entirety, that section provides:

(f) Misrepresentations.—Any person who knowingly materially misrepresents under this section—

(1) that material or activity is infringing, or

(2) that material or activity was removed or disabled by mistake or misidentification,

shall be liable for any damages, including costs and attorneys’ fees, incurred by the alleged infringer, by any copyright owner or copyright owner’s authorized licensee, or by a service provider, who is injured by such misrepresentation, as the result of the service provider relying upon such misrepresentation in removing or disabling access to the material or activity claimed to be infringing, or in replacing the removed material or ceasing to disable access to it.[90]

As the text of section 512(f) makes clear, either a copyright owner or a subscriber may bring a claim for misrepresentation.  Thus, the standards established for prevailing on a claim of misrepresentation should apply against either a copyright owner who engages in a misrepresentation in a takedown notice or a user who engages in a misrepresentation in a counter-notice.

If section 512(f) is to fulfill its critically important role in preventing the abuse of the takedown regime, courts must interpret these requirements with an eye toward stemming abuse.  To date, the courts’ interpretations of these requirements have provided some helpful guidance, but in these decisions there are also the seeds of misunderstanding, as well as the potential to make misrepresentation claims so difficult to prove that this cause of action will fail to achieve what Congress intended.

B.            Case Law Interpreting Section 512(f)

To date there have been only three reported decisions addressing a claim of takedown misrepresentation in any depth.[91]  These reported decisions highlight the importance of the section 512(f) safeguard and further illuminate the ways in which a copyright owner might find itself on the defending end of a lawsuit as a result of inappropriate use of a takedown notice.  These decisions also help provide a context for discussing how best to interpret the required elements of a misrepresentation claim to fulfill Congress’ deterrent purpose in creating this cause of action.

1. Online Policy Group v. Diebold, Inc.[92]

Diebold, Inc. designs and manufactures electronic voting machines.[93]  In the fall of 2003, two students at Swarthmore College obtained a collection of internal emails exchanged among Diebold employees and posted those emails on various websites.[94]  The emails “contain[ed] evidence that some employees [had] acknowledged problems associated with the machines.”[95]  Diebold sent takedown notices to Swarthmore College because it provided Internet services for its students.[96]  Swarthmore College was advised that it “would be shielded from a copyright infringement suit by Diebold if they disabled access to or removed the allegedly infringing material.”[97]  Swarthmore subsequently required the students to remove the emails from their websites.[98]

In addition to the emails posted by the Swarthmore students, Diebold also targeted an article published by IndyMedia, an online newspaper that was critical of Diebold’s voting machines and that contained a hyperlink to the emails posted by the two Swarthmore students.[99]  Diebold sent a takedown notice to IndyMedia’s ISP, Online Policy Group (“OPG”) and Hurricane Electric, presumably because of the hyperlink to the emails, as contemplated by the safe harbors for “information location tools.”[100]  OPG provided Internet connectivity to IndyMedia but had difficulty responding to the takedown notice because it was simply leasing space for IndyMedia’s webservers and permitting IndyMedia to share its Internet connection, an arrangement known as “colocation.”[101]  Hurricane Electric provided OPG with that Internet connection.[102]  Thus, the only way for either OPG or Hurricane Electric to comply with the safe harbor requirement to expeditiously remove or disable access to the alleged infringing material was to shut down IndyMedia’s server completely.[103]  The court noted the significant free speech ramifications of Diebold’s takedown request given the technological arrangement at issue.[104]

The court concluded that Diebold had violated the Copyright Act by sending the takedown notices and was liable to the students who had posted the email exchange.[105]  While the copyright in the emails written by employees within the scope of their employment may have been owned by Diebold,[106] their reproduction by critics seeking to expose the machines’ flaws was clearly a fair use of that copyrighted expression.[107]  In addition to the lack of commercial value for the email archive to Diebold, the court noted that it was “hard to imagine a subject the discussion of which could be more in the public interest.”[108]  “If Diebold’s machines in fact do tabulate voters’ preferences incorrectly, the very legitimacy of elections would be suspect.”[109]

In determining whether Diebold was liable under section 512(f), the court focused on that section’s requirement that the copyright owner “knowingly materially misrepresented” that the material constituted infringement.[110]  The court concluded that “‘[k]nowingly’ means that a party actually knew, should have known if it acted with reasonable care or diligence, or would have had no substantial doubt had it been acting in good faith, that it was making misrepresentations.”[111]  The court’s use of “good faith” as a component of what it means to “knowingly” misrepresent material to be infringing pulls in the requirement that takedown notices must contain statements made in good faith.[112]  Turning to the second word, the court determined that “‘[m]aterial’ means that the misrepresentation affected the ISP’s response to a DMCA letter.”[113]

Applying these standards to the facts of the case, the court found:

No reasonable copyright holder could have believed that the portions of the email archive discussing possible technical problems with Diebold’s voting machines were protected by copyright, and there is no genuine issue of fact that Diebold knew—and indeed that it specifically intended—that its [takedown notices] would result in prevention of publication of that content.  The representations were material in that they resulted in removal of the content from websites and the initiation of the present lawsuit.  The fact that Diebold never actually brought suit against any alleged infringer suggests strongly that Diebold sought to use the DMCA’s safe harbor provisions—which were designed to protect ISPs, not copyright holders—as a sword to suppress publication of embarrassing content rather than as a shield to protect its intellectual property.[114]

Following the court’s ruling, Diebold subsequently agreed to pay $125,000 in damages and attorney’s fees.[115]

The plaintiffs in Diebold also asserted a claim of tortious interference with contractual relations.[116]  The court found that this claim was preempted by the Copyright Act.[117]  The court concluded that the DMCA itself provides an express remedy for misuse of the DMCA’s takedown regime: “Congress carefully balanced the competing interests of copyright holders, ISPs, and the public, by providing immunity subject to relief for any misuse of the statute.”[118]

2. Rossi v. Motion Picture Association of America[119]

While the Diebold court refused to entertain the plaintiffs’ claim for tortious interference with contractual relations, the Ninth Circuit entangled such a tort claim with the standards for misrepresentation under section 512(f).[120]  Michael Rossi operated a website promising on its home page that those who signed up for monthly membership would be able to download movies.[121]  The Motion Picture Association of America (“MPAA”), after viewing these promises of access to “full-length” motion pictures that were followed by graphics for a number of MPAA members’ copyrighted motion pictures, sent several takedown notices to Mr. Rossi and his ISP.[122]  When Rossi’s hosting service provider notified him that his website would be shut down, he moved his site to a new provider and filed a lawsuit against the MPAA.[123]  Mr. Rossi then filed suit against the MPAA for a variety of state law claims, including tortious interference with contractual relations and intentional interference with prospective economic advantage.[124]

Notably, Mr. Rossi did not assert a claim of misrepresentation under section 512(f).[125]  The Ninth Circuit, however, began its analysis of Mr. Rossi’s claim with a review of the takedown provisions of the Federal Copyright Act.[126]  Mr. Rossi asserted that the MPAA did not have sufficient information to form a “good faith belief” of infringement as required by the statute because it had not attempted to download any movies from Mr. Rossi’s website.[127]  The Ninth Circuit concluded that the existence of the good faith belief required by section 512(c) should be judged by a subjective standard, not by the objective standard urged by Mr. Rossi.[128]

The website contained statements that included the following:

‘Join to download full length movies online now! new movies every month’; ‘Full Length Downloadable Movies’; and ‘NOW DOWNLOADABLE.’  These representations on the website led the MPAA employee to conclude in good faith that motion pictures owned by MPAA members were available for immediate downloading from the website.  The unequivocal language used by Rossi not only suggests that conclusion, but virtually compels it. . . . In fact, Rossi even admitted that his own customers often believed that actual movies were available for downloading on his website.[129]

In reaching its conclusion, the Ninth Circuit opined on the required state of mind for a misrepresentation claim under section 512(f): “A copyright owner cannot be liable simply because an unknowing mistake is made, even if the copyright owner acted unreasonably in making the mistake.”[130]  Noting that “‘[g]ood faith’ is ‘[a] state of mind consisting [of] . . . honesty in belief or purpose,’”[131] the court concluded that a copyright owner should not be liable if an unknowing mistake is made.[132]  “Rather, there must be a demonstration of some actual knowledge of misrepresentation on the part of the copyright owner.”[133]

The relevance of the court’s DMCA analysis is not revealed until many pages later in the court’s opinion: to establish a claim under state law for tortious interference with contractual relations or for intentional interference with prospective economic advantage, Mr. Rossi was required to establish the absence of justification on MPAA’s part for its actions.[134]  The MPAA’s compliance with the statutory obligations for sending the takedown notice amounted to a justification.  Thus, the Ninth Circuit affirmed the district court’s grant of summary judgment for the MPAA on Mr. Rossi’s tortious interference claim.[135]  In the process, the Ninth Circuit provided a fair amount of unfortunate dicta concerning the requirements of a section 512(f) claim.[136]

The choice of a subjective standard for measuring good faith was unnecessary.  Even applying the standard used in Diebold, the MPAA would not have knowingly misrepresented the infringing nature of the defendant’s website.  A reasonable copyright owner acting with reasonable care and diligence would not have known that the defendant’s site did not contain the infringing movies it purported to contain.  Importantly, the Ninth Circuit made its statement concerning use of a subjective standard in the context of discussing the good faith requirement for takedown notices, not the standard for “knowingly.”[137]  At least one subsequent opinion, however, has taken the discussion of a subjective standard and applied it in the context of the misrepresentation claim.

3. Lenz v. Universal Music Corp.[138]

Stephanie Lenz’s video camera captured a scene familiar to many parents of toddlers: children engaged in exuberant energy burning by racing around the family kitchen.[139]  She posted the twenty-nine second video to YouTube to share the moment with family and friends.[140]  Subsequently, agents of the musical artist Prince sent a takedown notice to YouTube alleging that the video infringed the copyright in Prince’s song “Let’s Go Crazy,” which was playing in the background of the short video for twenty-one seconds.  After conducting research and consulting counsel, Lenz sent YouTube a counter-notice.[141]  YouTube eventually reposted the video about six weeks later.[142]

Even though the video was ultimately reposted in response to her counter-notice, Lenz filed suit against Universal, asserting claims under section 512(f), as well as claiming tortious interference with her contract with YouTube.[143]  Lenz alleged that the takedown notice was issued “only to appease Prince because Prince ‘is notorious for his efforts to control all uses of his material on and off the Internet.’”[144]  Focusing on the requirements for proper notice, the court determined that the question in the case was whether a copyright owner is required “to consider the fair use doctrine in formulating a good faith belief that ‘use of the material in the manner complained of is not authorized by the copyright owner, its agent, or the law.’”[145]

The court held that to proceed with a takedown request in good faith, “the owner must evaluate whether the material makes fair use of the copyright.’’[146]

The purpose of Section 512(f) is to prevent the abuse of takedown notices.  If copyright owners are immune from liability by virtue of ownership alone, then to a large extent Section 512(f) is superfluous.  As Lenz points out, the unnecessary removal of noninfringing material causes significant injury to the public where time-sensitive or controversial subjects are involved and the counter-notification remedy does not sufficiently address these harms.  A good faith consideration of whether a particular use is fair use is consistent with the purpose of the statute.  Requiring owners to consider fair use will help ‘‘ensure[] that the efficiency of the Internet will continue to improve and that the variety and quality of services on the Internet will expand’’ without compromising ‘‘the movies, music, software and literary works that are the fruit of American creative genius.’’[147]

Lenz teaches that a copyright owner must consider the fair use arguments of a particular user.  A full investigation to verify the accuracy of a claim of infringement is not required, but consideration of the fair use doctrine must be part of the initial review.[148]  However, if a copyright owner engages in that consideration and still determines that the material is infringing, it is only a bad faith determination that will result in liability.  The district court in Lenz suggests that the Diebold case is an example of a case in which a copyright owner asserted infringement when the use “unequivocally qualifies as fair use, and in addition there is evidence that the copyright owner deliberately has invoked the DMCA not to protect its copyright but to prevent such use.”[149]

In the context of discussing the required fair use consideration, the Lenz court twice referenced the “subjective” standard of Rossi.  Noting Universal’s arguments concerning the fact-intensive nature of the fair use inquiry, the court opined that “there are likely to be few [cases] in which a copyright owner’s determination that a particular use is not fair use will meet the requisite standard of subjective bad faith required to prevail in an action for misrepresentation.”[150]  Addressing the sufficiency of Lenz’s complaint, the court again referenced the “the subjective bad faith required by Rossi,” and suggested that following discovery, the plaintiff’s claims might be appropriate for summary judgment.[151]  While it is understandable that the District Court for the Northern District of California would heed the ruling of the Ninth Circuit in Rossi, the context in which the Ninth Circuit selected the subjective standard[152] makes it distinguishable.

III.  Taking Misrepresentation Claims Seriously

Taking the misrepresentation claim seriously means interpreting the statute to provide a real and robust guard against abusive uses of the takedown regime.  Whether seeking to silence critics or obtain removal of other types of noninfringing material, copyright owners must understand that abusing the privilege of the extrajudicial tool of the takedown notice is not without consequences.

A.            Elements of the Claim of Misrepresentation

The statute provides the following elements a plaintiff would need to demonstrate to prevail: (1) a qualifying misrepresentation; (2) the materiality of the misrepresentation; (3) the material misrepresentation was made knowingly; and (4) an injury suffered as a result of the misrepresentation.[153]

Each of these elements should be interpreted in light of the statutory context and purpose of the misrepresentation claim: discouraging abusive use of the powerful takedown tool.[154]

1. Misrepresentation

First, the statute requires that the notice contain a qualifying misrepresentation.  Two different misrepresentations are actionable: a misrepresentation that the “material or activity is infringing,” and a misrepresentation “that material or activity was removed or disabled by mistake or misidentification.”[155]  The fundamental misrepresentation at issue for a section 512(f) claim to prevent abuse of the takedown notice is misrepresentation that the content identified constitutes infringement.[156]  The lack of infringement is what makes a copyright owner’s assertion that the activity is an infringement a misrepresentation.  While this may seem like an obvious point, it is nonetheless an important element of a misrepresentation claim.

Many different provisions of the Copyright Act permit an individual to make use of copyrighted expression, either in whole or in part.  From the first-sale doctrine, which permits owners of lawfully made copies to resell those copies without violating the copyright owner’s right to publicly distribute the work,[157] to the fair use doctrine[158] that permits uses of entire works and portions of works for a variety of reasons ranging from news reporting[159] to indexing,[160] to illustration of a point in a coffee table book,[161] the Copyright Act is loaded with limitations on copyright owners’ rights.[162]  Mere ownership of a copyright in an original work of authorship does not entitle the copyright owner to insist that all uses of the expression be removed from the web.  Thus allegation and proof of noninfringement for the material that was the target of the takedown notice is a required element to prevail on a claim of misrepresentation.

2. Materiality

Next, the statute requires allegation and proof that the misrepresentation was material.[163]  In the context of a takedown notice, a misrepresentation certainly is material when it causes the ISP to respond by expeditiously removing the identified material.  However, a misrepresentation can also be material even if it does not result in the ISP taking any action to remove or disable access to the alleged infringing material.  For example, if the misrepresentation causes the ISP to investigate the complaint, that misrepresentation is material—it caused the intended target to undertake some action.

While it is possible that misrepresentations of other elements required in the takedown notice, such as the copyright owner’s address, phone number or email address, might rise to a level of “materiality,” they would not qualify because section 512(f) expressly requires that the misrepresentation be “that [the] material or activity is infringing.”[164]  Similarly, a material misstatement could be made concerning the “good faith” nature of the copyright owner’s belief that the material is infringing, such a belief being a required statement in a takedown notice.  Even if such a misstatement concerning belief was material in some abstract sense, the statute is clear in that the material misrepresentation must concern the infringing nature of the material.[165]  Thus, it is difficult to conceive of a qualifying misrepresentation that content is infringing that would not meet the required element of materiality.

3. Knowingly

Interpreting the element of knowledge in the statute presents some difficulty.  To ensure that the statute fulfills its role as a guard against abuse of the takedown notice regime, courts should interpret the requirement that the misrepresentation be made “knowingly” to require proof that the copyright owner (a) actually knew, (b) should have known if it acted with reasonable care or diligence, or (c) would have had no substantial doubt had it been acting in good faith, that it was making misrepresentations.  This is the standard employed by the first case to address this element of a misrepresentation claim.[166]  This standard expands the permissible ways to satisfy the requirement that the misrepresentation be made “knowingly,” beyond the sole means of demonstrating “knowingly” articulated by the Ninth Circuit in Rossi: evidence of actual subjective belief.[167]

Proof that the copyright owner had actual knowledge that the material was not infringing would clearly meet the statutory requirement.  Evidence of such actual knowledge may come in a variety of forms, including, for example, an email from the sender of the takedown notice explaining that the problem with the material is not copyright infringement, but trademark infringement.[168]  Often, however, direct evidence of a defendant’s actual knowledge may be difficult for a plaintiff to obtain given that it turns on the subjective state of mind of the copyright owner.  However, a plaintiff should be able to rely on circumstantial evidence in the form of the objectively unreasonable nature of a belief that the material in question was infringing.[169]  The use of such circumstantial evidence should be sufficient to withstand a defendant’s summary judgment motion, as it both provides sufficient evidence for a fact-finder to conclude the plaintiff has proven the element of knowledge in a civil suit[170] and, if the defendant testifies as to his or her subjective belief, the circumstantial evidence calls into question the credibility of such testimony.[171]  Nonetheless, the problems of proof inherent in requiring a misrepresentation plaintiff to demonstrate the copyright owner’s subjective belief[172] will result in the misrepresentation claim having very little deterrent effect in curbing abuse of the takedown notice regime if that is the only means by which a plaintiff can satisfy the statutory requirement of “knowingly” making a misrepresentation.  Such a requirement for proving a misrepresentation might also encourage willful blindness on the part of copyright owners concerning the nature of the content they are requesting be removed.[173]

While evidence of actual knowledge of the inaccuracy of the statement that the claimed material is infringing would certainly suffice under the statute, the statute should be interpreted more broadly.  Section 512(f) does not use the phrase “actual knowledge” while other subsections of 512 do require “actual knowledge,”[174] indicating Congress’ full awareness of the difference between a standard requiring “actual knowledge” and one requiring that an action be undertaken “knowingly.”[175]  Requiring that a plaintiff may only prove a misrepresentation was made “knowingly” by demonstrating the subjective belief of the copyright owner not only is inconsistent with the statutory language, but application of such a standard also would thwart the purpose of including the misrepresentation claim within the statutory scheme.

The poor fit of only using a subjective good faith belief standard is demonstrated by a situation in which an admittedly eccentric copyright owner in a comic book sends a takedown notice to an academic journal asserting that an article discussing black holes infringes his copyright in the comic book.  Except for the eccentric comic book copyright owner, there is no doubt in anyone’s mind that the article does not infringe.  The ISP’s incentives remain the same and, as discussed above, could lead to removal of the article.[176]  If the author of the article sued the comic book copyright owner for misrepresentation and a subjective state of mind test were employed, the comic book author would be able to defeat the lawsuit through an assertion of his subjective, albeit crazy, belief that the article infringed his comic book.  While the more objectively unreasonable his belief is the more his credibility will be in doubt, if he could convince the fact-finder of his entirely subjective belief there would be no remedy for the author of the article for the wrongful takedown that occurred.  Congress intended to provide a tool for copyright owners to obtain quick removal of infringing material, not for removal of legitimate content from the Internet because of wild assertions of infringement.  Responsible use of the powerful takedown tool is part of the regime established by Congress.  Insisting upon evidence of actual knowledge through a subjective belief standard for a misrepresentation claim threatens to permit wild assertions of infringement to go unchecked and fails to provide any incentive for copyright owners to wield the powerful takedown tool responsibly.

Instead, a standard for proving misrepresentation claims that requires the copyright owner to act in good faith with reasonable care and diligence, appropriately encompasses a large portion of the potential for abuse.[177]  Indiscriminate takedown notices sent without reasonable care or diligence should give rise to liability for the damages that they cause.[178]  Additionally, notices that are sent when a copyright owner acting in good faith would have had no substantial doubt that she was making a misstatement should result in liability.  This rule will encourage copyright owners to behave reasonably when wielding the powerful takedown tool.

4. Injury

The final element required to prevail on a misrepresentation claim is a qualifying injury.  Specifically, the statute provides that a person who knowingly makes a qualifying misrepresentation “shall be liable for any damages, including costs and attorneys’ fees, incurred by the alleged infringer . . . who is injured by such misrepresentation, as the result of the service provider relying upon such misrepresentation in removing or disabling access to the material or activity claimed to be infringing.”[179]  Thus, the injury element has a causation component: the injury suffered must be caused by the removal of material triggered by a takedown notice.  In addition to the causation element, the plaintiff would need to demonstrate damages that he or she incurred.

Importantly, the statute requires that for a user to prevail on a claim of misrepresentation, a takedown of material actually must have occurred.[180]  Thus, when a takedown notice is sent but the notice does not result in any removal of material, a claim for misrepresentation by the user is not appropriate.[181]

Qualifying damages should include not only the financial and personal expenses associated with responding to the claim of infringement (e.g., preparing and sending a counter-notice) but also the harm to free speech rights.  Qualifying damages should not, however, include attorneys’ fees for preparing and filing a misrepresentation claim.[182]  The damages need not be substantial economic damages, as Congress made clear that liability is for “any damages.”[183]

B.            Litigation Issues

1. Availability of Attorneys’ Fees

As noted above, the Copyright Act permits a prevailing party to recover its attorney’s fees within the discretion of the court.[184]  The Supreme Court has recognized the importance of this fee-shifting provision in creating an incentive for defendants to pursue meritorious defenses against claims of infringement.[185]  Similarly, in the context of a misrepresentation claim, if a plaintiff prevails, it would be appropriate for the court to permit recovery of attorney’s fees.  Interpreting the statute to provide for recovery of attorney’s fees will encourage meritorious claims of misrepresentation which, in turn, will ultimately shape the behavior of copyright owners.  If copyright owners understand that there is a real possibility of legal liability that involves the potential for a significant monetary award, they will be far less likely to send takedown notices targeting noninfringing material.

2. Standing and Personal Jurisdiction

A takedown notice that has resulted in material being removed from the Internet should carry standing[186] and jurisdictional consequences.  An initial but significant issue concerns obtaining personal jurisdiction over a copyright owner who is abusing the takedown provisions.  As detailed above, the sending of a counter-notice requires the user to consent to personal jurisdiction either in the judicial district in which his or her residence is located or in which his or her service provider is located.[187]  Similarly, the copyright owner should understand that sending a takedown notice has jurisdictional consequences.

In an infringement case, the sending of a cease-and-desist letter into a forum is generally not considered sufficient to establish personal jurisdiction under the “effects test” for purposeful availment in tort cases.[188]  However, as one court has noted, “it may be improper to import jurisdiction principles from one specific context—the creation and regulation of property rights—to a very different context for which those principles were not designed.”[189]

Courts should view the sending of a takedown notice as the necessary minimum contacts to justify subjecting the copyright owner to personal jurisdiction in the judicial district in which the ISP is located.[190]  By sending a takedown notice, the copyright owner aims his or her conduct at the ISP, seeking to cause a particular action on the part of the ISP, i.e., removal of material from the Internet.  This express aiming at the jurisdiction where the ISP is located should be sufficient to create personal jurisdiction.[191]

A more difficult question is whether the sending of the takedown notice would subject the copyright owner to personal jurisdiction in the district in which the user resides.  One court has analogized a notice of claimed infringement (“NOCI”) sent to the California auction site eBay, pursuant to eBay’s “Verified Rights Owner” policy, as similar to a bank shot in basketball.[192]  The NOCI caused eBay to suspend the Colorado plaintiffs’ pending auction.[193]

Thus, while . . . the NOCI formally traveled only to California, it can be fairly characterized as an intended means to the further intended end of cancelling plaintiffs’ auction in Colorado.  In this way, it is something like a bank shot in basketball.  A player who shoots the ball off of the backboard intends to hit the backboard, but he does so in the service of his further intention of putting the ball into the basket.  Here, defendants intended to send the NOCI to eBay in California, but they did so with the ultimate purpose of cancelling plaintiffs’ auction in Colorado.  Their “express aim” thus can be said to have reached into Colorado in much the same way that a basketball player’s express aim in shooting off of the backboard is not simply to hit the backboard, but to make a basket.[194]

Similarly, a takedown notice sent to an ISP is the means to further the intended end of removing a user’s material from the Internet.  The harm will be suffered by the individual.  In the case of a misrepresentation that the material is infringing, the copyright owner has aimed his or her conduct at the user, intending to cause that harm to the user.  This provides a strong argument that personal jurisdiction is in the judicial forum in which the user resides.[195]

3. Preliminary Injunctions and Temporary Restraining Orders

Section 512(f) claims can provide an important mechanism for users to prevent overzealous copyright owners from obtaining even initial takedowns.  For example, in Amaretto Ranch Breedables, LLC v. Ozimals, Inc.,[196] the court issued an order temporarily restraining the takedown of Amaretto Ranch’s virtual horses in the virtual world of Second Life despite Ozimals’ notice asserting the horses infringed on Ozimals’ copyright in virtual bunnies.[197]  The court found a likelihood of success on the merits of plaintiff’s section 512(f) claim.[198]

Using a claim under section 512(f) as a basis for granting a temporary restraining order or preliminary injunction is an important procedural tool to prevent the irreparable harm that can result from repeated takedown notices.  For example, eBay sellers can experience a downgrade in their reputational ratings based on repeated assertions of infringement.  If the assertions of infringement are false, the targets of those assertions should have a mechanism for stopping the assertions in the first place.[199]  Similarly, users can experience significant consequences if their business in a virtual world is compromised based on mere assertions of copyright infringement.[200]  And, as discussed above, mere assertions of infringement can result in the termination of the accounts because the user is branded a “repeat infringer” despite a lack of any court determination concerning infringement.  It is appropriate to use the misrepresentation claim as a mechanism for obtaining a court’s assistance in stopping abuse of the takedown regime.

4. Misrepresentation Claims for Infringement Notices Outside of the Section 512 Takedown Regime

The potential for abusive notices sent under the takedown regime of section 512 of the Copyright Act will be significantly reduced if courts take misrepresentation claims seriously.  However, notice by copyright owners to a variety of ISPs occurs outside of the constraints of section 512.  Some sites have separate programs meant to assist copyright owners in identifying alleged infringement, such as eBay’s Verified Rights Owner program.[201]  Other service providers have begun cooperating with copyright owners to respond to notices of infringement outside of the formal takedown regime—for example, in peer-to-peer file sharing—that do not fall within the safe harbor for “information residing on systems or networks at direction of users.”[202]  Sometimes these notices of alleged infringement are sent to ISPs employing a three-strikes or “graduated response” policy.

If a user’s rights are affected by a misrepresentation concerning the infringing nature of the user’s content in these contexts, the results can be identical to the result of a notice within the takedown regime: removal of lawful, noninfringing material.  Or, the result can be even worse.  For example, under a graduated response system the user may find his or her entire account suspended.  Courts should recognize a claim for material misrepresentation in these contexts as well.[203]

Plaintiffs have attempted to bring other state-law based claims but have encountered problems with such claims.  For example, Rossi involved an assertion of a tortious interference with contract claim that was thwarted by the justification of the copyright owner’s compliance with the requirements of section 512.[204]  In Diebold the plaintiffs asserted, in addition to their federal misrepresentation claim under section 512(f), a claim for tortious interference with contractual relations.[205]  The court held that the Copyright Act preempted the state law claim.[206]  In the context of a takedown notice sent pursuant to section 512, the court concluded that the sole remedy was one premised on misrepresentation as provided for in that section.[207]

At a minimum, outside of the context of the formal takedown regime courts should not find that the Copyright Act preempts state law causes of action.  Those state law causes of action can provide an important check on egregious assertions of expansive copyright rights that are not supported by the Federal Copyright Act.  Additionally, courts should consider permitting assertions of misrepresentation claims that result in removal of lawful material in contexts outside of the formal takedown regime established in section 512.[208]

5. Role of Nonprofit Organizations and Law School Clinics

A tempting calculation for copyright owners may be to consider the financial wherewithal of individuals who have posted material the copyright owners would prefer to see removed.  How likely is it that those individuals will invoke the protections of section 512(f)?  In this context, one must not underestimate the willingness of nonprofit and pro bono clinics to take on cases involving overzealous use of takedown notices.  The plaintiffs in both Diebold and Lenz were represented by the Electronic Frontier Foundation (“EFF”).[209]  Any copyright owner contemplating using the Copyright Act’s takedown provisions under questionable circumstances would be wise to consider the significant leveling effect provided by these nonprofit organizations and pro bono clinics.

Conclusion

The takedown provisions of the Copyright Act are a powerful tool that copyright owners may use to obtain prompt removal of infringing material from the Internet without judicial assessment of the assertion of infringement.  Congress provided a mechanism to deter abuse of this extrajudicial enforcement mechanism in the form of a new cause of action for material misrepresentation.  Courts should interpret the requirements for prevailing on a claim of misrepresentation with an eye toward fulfilling congressional intent.  This means using a standard that would hold copyright owners liable not only when they had actual knowledge that the material targeted for takedown was not infringing, but also when the copyright owner should have known if it acted with reasonable care or diligence that the material was lawful.  It also means interpreting the injury requirement broadly and awarding attorney’s fees to prevailing plaintiffs.  Taking the claims of misrepresentation seriously will shape the behavior of copyright owners who seek removal of material through takedown notices.


* Professor of Law and Kay Kitagawa and Andy Johnson-Laird Faculty Scholar, Lewis & Clark Law School, Portland, Oregon.  I thank Joseph S. Miller and Tomas Gomez-Arostegui, as well as participants at the University of Oregon Lectures & Awards series for helpful comments on this Article and Andrew McGinnis for his research assistance.

[1]. See Online Policy Grp. v. Diebold, Inc., 337 F. Supp. 2d 1195, 1198 (N.D. Cal. 2004).

[2]. See Wendy Seltzer, Free Speech Unmoored in Copyright’s Safe Harbor: Chilling Effects of the DMCA on the First Amendment, 24 Harv. J.L. & Tech. 171, 172 (2010).

[3]. See Joseph M. Miller, Note, Fair Use Through the Lenz of § 512(c) of the DMCA: A Preemptive Defense to a Premature Remedy?, 95 Iowa L. Rev. 1697, 1708 (2010) [hereinafter Miller, Fair Use Through the Lenz of § 512(c) of the DMCA].

[4]. See Lenz v. Universal Music Corp., 572 F. Supp. 2d 1150, 1151–53 (N.D. Cal. 2008).

[5]. Brad Stone, The Inexact Science Behind D.M.C.A. Takedown Notices, NY Times Bits (June 5, 2008, 11:18 AM), http://bits.blogs.nytimes.com/2008/06
/05/the‑inexact‑science‑behind‑dmca‑takedown-notices/?ref=technology.  Automated notices of infringing content are also being used outside of the Copyright Act’s takedown regime in private arrangements with major online content hosting sites such as YouTube.  See David Abrams, More Chilling Than the DMCA – Automated Takedowns, Chilling Effects Clearinghouse (Mar. 17, 2010), http://www.chillingeffects.org/weather.cgi?WeatherID=634.

[6]. Joe Waz, A Few Words About Copyright, Comcast Voices (Mar. 26, 2009), http://blog.comcast.com/2009/03/a-few-words-about-copyright.html; see also Chloe Albanesius, Comcast, Others Deny “Three Strikes” Piracy Plan, PCMAG.COM (Mar. 27, 2009), http://www.pcmag.com/article2/0,2817,2343977
,00.asp (noting that Cox has a similar policy, described by a Cox spokesperson) (“When we receive notifications from RIAA or any other copyright holders stating that their copyrighted material is being infringed by a customer, we pass that information along to the customer so they can correct the problem, or dispute the notice directly with the copyright holder if they feel the notice was sent in error.”).

[7]. See Abrams, supra note 5.

[8]. See Michael Piatek et al., Challenges and Directions for Monitoring P2P File Sharing Networks – or – Why My Printer Received a DMCA Takedown Notice at sec. 4, available at http://dmca.cs.washington.edu/dmca_hotsec08.pdf (last visited Sept. 18, 2011).

[9]. Joyce E. Cutler, Parties No Closer to Reconciling 13-Year-Old DMCA With Stakeholder Needs, 81 Pat. Trademark & Copyright J. 611, 611 (2011) (quoting Fred von Lohmann, counsel for Google).  The requests are in seventy different languages and must be handled by a staff of people who speak as many languages.  Id.

[10]. Congress passed the No Electronic Theft Act in 1997, expanding the reach of criminal infringement to include online reproduction and distribution of copyrighted works even if the defendant was not motivated by profit or commercial gain.  No Electronic Theft Act, Pub. L. No. 105-147, 111 Stat. 2678 (1997) (codified as amended in sections 17 and 18 U.S.C.) [hereinafter NET Act].  Prior to the NET Act, infringement was only criminal if there was a profit motive.  See Lydia Pallas Loren, Digitization, Commodification, Criminalization: The Evolution of Criminal Copyright Infringement and the Importance of the Willfulness Requirement, 77 Wash. U. L. Q. 835, 836–37 (1999).

[11]. Digital Millennium Copyright Act, Pub. L. No. 105-304, 112 Stat. 2860 (1998) (codified as amended in 17 U.S.C. §§ 512, 1201–1205, 1301–1332; 28 U.S.C. § 4001).

[12]. Even the recent Anti-Counterfeiting Trade Agreement (“ACTA”) recognizes the importance of protecting lawful activity.  Section 5 of ACTA obligates signatories to ensure “enforcement procedures” for intellectual property rights in the digital environment while at the same time requiring that the “procedures shall be implemented in a manner that avoids the creation of barriers to legitimate activity, including electronic commerce, and, consistent with [each] Party’s law, preserves fundamental principles such as freedom of expression, fair process, and privacy.”  Anti-Counterfeiting Trade Agreement 15 (Dec. 3, 2010), available at http://www.ustr.gov/webfm_send/2417.

[13]. For example, the section codifying fair use provides that “the fair use of a copyrighted work . . . is not an infringement of copyright”  id. § 107 (emphasis added), the section permitting libraries and archives to make certain reproductions and distribute copies states “it is not an infringement of copyright” for them to do so  id. § 108 (emphasis added), and section 110 details many different performances and displays of copyrighted works that “are not infringements of copyright.”  Id. § 110 (emphasis added).

[14]. Id. § 106 (granting rights to copyright owners “[s]ubject to sections 107 through 122”).

[15]. Id. § 107.  The Supreme Court has repeatedly recognized the fundamental importance of the fair use doctrine.  See, e.g., Eldred v. Ashcroft, 537 U.S. 186, 219–20 (2003) (pointing to fair use as an important balancing mechanism and potential fundamental contour of copyright law); Harper & Row, Publishers, Inc. v. Nation Enters., 471 U.S. 539, 549–60 (1985) (discussing the importance of fair use in balancing First Amendment interests).

[16]. 17 U.S.C. § 107.

[17]. Id.  See also Campbell v. Acufff-Rose Music Inc., 510 U.S. 569 (1994).

[18]. For one of the most comprehensive examinations of takedown notices see Jennifer M. Urban & Laura Quilter, Efficient Process or “Chilling Effects”? Takedown Notices Under Section 512 of the Digital Millennium Copyright Act, 22 Santa Clara Computer & High Tech. L.J. 621 (2006) [hereinafter Urban & Quilter, Efficient Process or “Chilling Effects”?].  See also Cattleya M. Concepcion, Beyond the Lens of Lenz: Looking to Protect Fair Use During the Safe Harbor Process Under the DMCA, 18 Geo. Mason L. Rev. 219 (2010) [hereinafter Concepcion, Beyond the Lens of Lenz]; Miller, Fair Use Through the Lenz of § 512(c) of the DMCA, supra note 3.

[19]. See Concepcion, Beyond the Lens of Lenz, supra note 18, at 232; Miller, Fair Use Through the Lenz of § 512(c) of the DMCA, supra note 3, at 1707–10; Urban & Quilter, Efficient Process or “Chilling Effects”?, supra note 18, at 636.

[20]. See, e.g., Urban & Quilter, Efficient Process or “Chilling Effects”?, supra note 18, at 688–92.

[21]. As described in more detail below, such a counter-notice will not result in a reposting of the material if the copyright owner files a federal infringement lawsuit within the statutorily proscribed period.

[22]. See infra Part I.D.

[23]. 17 U.S.C. § 512(f) (2010).

[24]. Digital Millennium Copyright Act, Pub. L. No. 105-304, 112 Stat 2860 (1998) (codified as amended in 17 U.S.C. §§ 512, 1201–1205, 1301–1332; 28 U.S.C. § 4001).

[25]. The four different safe harbors are for “[t]ransitory digital network communications,” section 512(a), “[s]ystem caching,” section 512(b), “[i]nformation residing on systems or networks at direction of users,” section 512(c), and “[i]nformation location tools,” section 512(d).

[26]. 17 U.S.C. § 512.

[27]. The takedown notices are implicated in the safe harbor for “Information residing on systems or networks at direction of users,” 17 U.S.C. § 512(c), and “Information location tools,” 17 U.S.C. § 512(d).

[28]. The limitation on equitable remedies is contained in section 512(j) and permits limited injunctions prohibiting a service provider from providing access to an identified subscriber or account holder, and injunctions restraining a service provider from permitting access to a “specific, identified, online location outside the United States.”  Id. § 512(j)(1)(B)(ii).  Without such immunity, the potential liability an OSP might face could be staggering.  See Alan E. Garfield, Calibrating Copyright Statutory Damages to Promote Speech, 38 Fla. St. U. L. Rev. 1, 16–18 (2010).

[29]. For example, the safe harbor protection involving “[t]ransitory digital network communications” defines a “service provider” as “an entity offering the transmission, routing, or providing of connections for digital online communications, between or among points specified by a user, of material of the user’s choosing, without modification to the content of the material as sent or received.”  17 U.S.C. § 512(k)(1)(A).

[30]. See, e.g., Urban & Quilter, Efficient Process or “Chilling Effects”?, supra note 18, at 621 n.2.  A service provider eligible for the safe harbors that implicate the takedown provisions is defined as “a provider of online services or network access, or the operator of facilities therefor” and also includes “an entity offering the transmission, routing, or providing of connections for digital online communications, between or among points specified by a user, of material of the user’s choosing, without modification to the content of the material as sent or received.”  17 U.S.C. §§ 512(k)(1)(A)–(B).

[31]. 17 U.S.C. § 512(c).

[32]. Id. § 512(d).

[33]. For a thorough account of the lobbying process that led to the legislation, see Urban & Quilter, Efficient Process or “Chilling Effects”?, supra note 18, at 631–39.

[34]. 17 U.S.C. § 512(i)(1)(A).  This seemingly straightforward requirement contains many ambiguities with which the courts have struggled.  For example: What constitutes reasonable implementation?  See, e.g., A & M Records, Inc. v. Napster, Inc., No. C 99-05183 MHP, 2000 WL 573136, at *9 (N.D. Cal. May 12, 2000) (holding grant of summary judgment on the applicability of section 512 inappropriate because genuine issues of material fact existed regarding the defendant’s compliance with section 512(i)); Corbis Corp. v. Amazon.com, Inc., 351 F. Supp. 2d 1090, 1101–04 (W.D. Wash. 2004) (holding OSP eligible to invoke section 512).  Who is a repeat infringer?  See, e.g., Perfect 10, Inc. v. CCBill LLC, 488 F.3d 1102, 1109–15 (9th Cir. 2007), cert. denied, 552 U.S. 1062 (2007).  The statute also requires that subscribers be informed of the policy, leading to questions of what type of efforts to inform subscribers is sufficient.  See 17 U.S.C. § 512(i)(1)(A).

[35]. 17 U.S.C. § 512(c)(2).

[36]. Id. § 512(c)(2)(A); see Ellison v. Robertson, 357 F.3d 1072, 1080 (9th Cir. 2004) (holding that a delay of approximately six months in updating agent contact information and whether the OSP should have known of the infringing activity raised triable issues of material fact regarding the OSP’s eligibility for safe harbor protection).

[37]. 17 U.S.C. § 512(c)(2).

[38]. Just what constitutes constructive knowledge is still being shaped by the courts.  The statute requires that the service provider “is not aware of facts or circumstances from which infringing activity is apparent.”  7 U.S.C. § 512(c)(1)(A)(ii).  Courts have interpreted this requirement in a variety of ways.  See, e.g., Perfect 10, Inc., 488 F.3d at 1113; Viacom Int’l Inc. v. YouTube, Inc., 718 F. Supp. 2d 514, 519, 523 (S.D.N.Y. 2010); Io Grp., Inc. v. Veoh Networks, Inc., 586 F. Supp. 2d 1132, 1148 (N.D. Cal. 2008)Full exploration of this topic is worthy of an entire article of its own.

[39]. The safe harbor only applies to infringing material stored on an OSP’s network when that ‘‘storage [is] at the direction of [the] user of material.’’  17 U.S.C. § 512(c)(1).

[40]. Id. § 512(c)(1)(A)(iii).

[41]. See infra Part I.B.

[42]. § 512(c)(1)(C).

[43]. This failure to respond does not necessarily mean that the service provider is liable for infringement; it merely means that the service provider cannot rely on the section 512 safe harbor as protection from liability.

[44]. See Alfred C. Yen, Internet Service Provider Liability for Subscriber Copyright Infringement, Enterprise Liability, and the First Amendment, 88 Geo. L.J. 1833, 1887–88 (2000).

[45]. Amaretto Ranch Breedables, LLC v. Ozimals, Inc., No. C 10-05696 CRB, 2010 WL 5387774, at *3 n.2 (N.D. Cal. Dec. 21, 2010).

[46]. S. Rep. No. 105-190, at 20 (1998).

[47]. Id. at 40.

[48]. See, e.g., Doe v. Geller, 533 F. Supp. 2d 996, 1002–03 (N.D. Cal. 2008) (stating that YouTube suspended a user’s account for more than two weeks after a takedown notice, resulting in all of the user’s videos no longer being accessible).

[49]. See 17 U.S.C. § 512(i).

[50]. Id.

[51]. See, e.g., Perfect 10, Inc. v. CCBill LLC, 488 F.3d 1102, 1109–18 (9th Cir. 2007), cert. denied, 552 U.S. 1062 (2007).

[52]. Annemarie Bridy, Graduated Response and the Turn to Private Ordering in Online Copyright Enforcement, 89 Or. L. Rev. 81, 81–85 (2010).

[53]. Id. at 86.

[54]. See Annemarie Bridy, ACTA and the Specter of Graduated Response, 26 Am. U. Int’l L. Rev. (forthcoming 2011) (manuscript at 563), available at http://ssrn.com/abstract=1619006.  For example, in the European Union, the Internet Freedom Provisions of the 2009 EU Telecoms Reform provide:

Any of these measures regarding end-users’ access to or use of services and applications through electronic communications networks liable to restrict those fundamental rights or freedoms may only be imposed if they are appropriate, proportionate and necessary within a democratic society, and their implementation shall be subject to adequate procedural safeguards in conformity with the European Convention for the Protection of Human Rights and Fundamental Freedoms and general principles of Community law, including effective judicial protection and due process. Accordingly, these measures may only be taken with due respect for the principle of presumption of innocence and the right to privacy.  A prior fair and impartial procedure shall be guaranteed, including the right to be heard of the person or persons concerned, subject to the need for appropriate conditions and procedural arrangements in duly substantiated cases of urgency in conformity with the European Convention for the Protection of Human Rights and Fundamental Freedoms.  The right to an effective and timely judicial review shall be guaranteed.

Press Release, Eur. Parl., EU Telecoms Reform: 12 reforms to pave way for stronger consumer rights, an open Internet, a single European telecoms market and high-speed Internet connections for all citizens (Nov. 20, 2009), available at http://europa.eu/rapid/pressReleasesAction.do?reference=MEMO/09/491.

[55]. 17 U.S.C. § 512(c)(3) (2010).  See Perfect 10, Inc., 488 F.3d at 1117–18; ALS Scan, Inc. v. RemarQ Cmtys., Inc., 239 F.3d 619, 625 (4th Cir. 2001); Hendrickson v. eBay, Inc., 165 F. Supp. 2d 1082, 1090 (C.D. Cal. 2001).

[56]. 17 U.S.C. § 512(c)(3)(A).

[57]. See id. § 512(c).

[58]. See id. § 512(d).

[59]. Id. § 512(d)(3).

[60]. Importantly, a compliant notice “includes substantially” the information identified; it does not require full, detailed compliance.  Id. § 512(c)(3)(A).

[61]. Id. §§ 512(c)(1)(C), 512(d)(1)(C).

[62]. S. Rep. No. 105-190, at 40 (1998).

[63]. Id. at 21.

[64]. See id. at 50–51.

[65]. While the statute requires the service provider to expeditiously remove or disable access to material when a copyright owner asserts it is infringing, the statute merely requires that the service provider “take[] reasonable steps promptly to notify the subscriber that it has removed or disabled access to the material.” 17 U.S.C. § 512(g)(2)(A).

[66]. Id. § 512(g).  As quoted below, the user notifies the OSP that “the material was removed or disabled as a result of mistake or misidentification of the material to be removed or disabled.”  The statute does not appear to permit the user to contest the copyright owner’s assertion that the material is infringing, but rather that a “mistake” or a “misidentification” has been made. Id. § 512(g)(3)(C).  Nonetheless, courts have interpreted this as permitting an individual to notify the OSP that the material is not infringing.  See, e.g., Lenz v. Universal Music Corp., No. C 07-3783 JF, 2010 WL 702466, at *3 (N.D. Cal. Feb. 25, 2010) (noting that the user’s counter-notice included the statement that she did not “believe that the video in question violated copyright or infringed on copyright in any way”).

[67]. 17 U.S.C. § 512(g)(3).

[68]. Id. § 512(g)(3).

[69]. Id. § 512(g)(2)(B).

[70]. Id. § 512(g)(2)(C).

[71]. Id.

[72]. Id. § 512(g).

[73]. For example, YouTube’s terms of service provide that it “may at any time, without prior notice and in its sole discretion, remove” user content.  Terms of Service, YouTube.com, http://www.youtube.com/t/terms (last visited Sept. 19, 2011 ) (emphasis added); see also Urban & Quilter, Efficient Process or “Chilling Effects”?, supra note 18, at 629.

[74]. See discussion supra explaining the value of the immunity from copyright infringement liability.

[75]. User dissatisfaction is probably the more significant risk if an OSP does not at least attempt to provide some notification that material has been removed and make at least some attempt to follow through in reposting material upon receipt of a counter-notice.

[76]. See 17 U.S.C. § 512(g).

[77]. See id. § 512(d).

[78]. See, e.g., Perfect 10, Inc. v. Cybernet Ventures, Inc., 213 F. Supp. 2d 1146, 1179–80 (C.D. Cal. 2002).

[79]. See, for example, the typical DMCA notice that was received by University of Washington researchers Michael Piatek, Tadayoshi Kohno, and Arvind Krishnamurthy in the study Tracking the Trackers.  A sample notice is available at http://dmca.cs.washington.edu/sample.html.

[80]. It is not at all surprising that both of these parties received what they wanted: the legislation was drafted through a compromise process between them.  See Urban & Quilter, Efficient Process or “Chilling Effects”?, supra note 18, at 631–41.

[81]. 17 U.S.C. § 512(g)(3)(D).

[82]. Id.

[83]. Filing a lawsuit requires complying with the standard for federal pleading as well as the requirements of Federal Rule of Civil Procedure 11.  Sending the takedown notice does not require compliance with these standards, which are meant to deter use of legal proceeding for harassment.  Also, the key statements in the takedown notice are not subject to penalties for perjury.  See id. § 512(c)(3)(A)(vi) (requiring only that the statement indicate “under penalty of perjury, that the complaining party is authorized to act on behalf of the owner of an exclusive right that is allegedly infringed”).  Instead, the Copyright Act requires that a copyright owner not knowingly engage in a material misrepresentation.  See infra Part II.

[84]. See Lenz v. Universal Music Corp., No. C 07-3783 JF, 2010 WL 702466, at *10 (N.D. Cal. Feb. 25, 2010).

[85]. A recent example involved Ralph Lauren’s photoshop disaster advertisement that depicted a model as impossibly skinny.  BoingBoing blogger Xeni Jardin flagged the ad by posting a copy of the image and noting that the model’s head was “bigger than her pelvis.”  Xeni Jardin, Ralph Lauren Opens New Outlet Store in the Uncanny Valley, BoingBoing (Sept. 29, 2009, 10:08 PM), http://www.boingboing.net/2009/09/29/ralph-lauren-opens-n.html.  Ralph Lauren then sent a takedown notice.  See E-mail from G. Roxanne Elings, attorney at Greenberg Traurig, to Priority Colo (Oct. 2, 2009), available at http://craphound.com/10-2-09LettertoPriorityColoinrePRLInfringement.pdf.  That notice did not have the desired effect.  Instead, renowned author and public domain defender Cory Doctorow picked up his metaphorical pen and drew far more attention to the photoshop mishap in an article entitled The Criticism that Ralph Lauren Doesn’t Want You to See!, BoingBoing (Oct. 6, 2009, 10:31 AM), http://boingboing.net/2009/10/06/the-criticism-that-r.html.  Doctorow pointedly defended the original post:

Copyright law doesn’t give you the right to threaten your critics for pointing out the problems with your offerings. You should know better. And every time you threaten to sue us over stuff like this, we will:

a) Reproduce the original criticism, making damned sure that all our readers get a good, long look at it, and;

b) Publish your spurious legal threat along with copious mockery, so that it becomes highly ranked in search engines where other people you threaten can find it and take heart; and

c) Offer nourishing soup and sandwiches to your models.

As one commentator for Forbes put it, “[w]hat had been an amusing critique instantly became an Internet cause célèbre.  Site after site reproduced the ad, portraying Ralph Lauren as a bully with bad taste.”  Virginia Postrel, Ralph Lauren: Still King of Glamour, Forbes.com (Oct. 22, 2009, 11:41 AM), http://www.forbes.com/2009/10/22/ralph‑lauren‑photoshop‑glamour‑opinions‑contributors-virginia-postrel.html.  Following the public attention, Ralph Lauren issued a press release acknowledging responsibility for the “poor imaging and retouching.”  Id.  In the end, Ralph Lauren’s desire to have copies of its advertisements removed from a blogger’s website backfired, likely leading to far more negative attention than if it had let the fair use criticism remain on the web unchallenged.

[86]. Some have suggested a “reverse three strikes policy” that would result in the company losing Internet access after three false accusations of infringement.  See Cory Doctorow, Warning to All Copyright Enforcers: Three Strikes and You’re Out, Guardian.Co.UK (July 1, 2008, 11:16 AM), http://www.guardian.co.uk/technology/2008/jul/01/Internet.copyright.

[87]. The Constitution grants Congress the power “[t]o promote the progress of science . . . by securing for limited times to authors . . . the exclusive right to their . . . writings . . . .”  U.S. Const. art. I, § 8, cl. 8.  “Science” at the time of the drafting of the Constitution meant, broadly, knowledge and learning.  Arthur H. Seidel, The Constitution and a Standard of Patentability, 48 J. Pat. Off. Soc’y 5, 12 n.14 (1966) (noting that the most authoritative dictionary at the time listed “knowledge” as the first definition of “science”); see also Edward C. Walterscheid, To Promote the Progress of Science and Useful Arts: The Background and Origin of the Intellectual Property Clause of the United States Constitution, 2 J. Intell. Prop. L. 1, 51 n.173 (1994).

[88]. S. Rep. 105-190, at 49 (1998).

[89]. Indeed, the House Report on the legislation indicates the importance of this safeguard.  H.R. Rep. 105-551, at 12 (1998).

[90]. 17 U.S.C. § 512(f) (2010).

[91]. The lack of reported decisions could mean that very little misrepresentation is occurring.  However, it may also mean that very few individuals whose work has been removed are aware that a claim of misrepresentation is possible.  It is also likely that the lack of clarity concerning the recovery of attorneys’ fees, discussed infra Part III.A.4, plays a role in reducing the number of valid claims that have been brought to date.  There are several additional cases in which a section 512(f) claim has been the basis of a request for a temporary restraining order or a preliminary injunction.  Those cases are discussed infra Part III.B.3.

[92]. 337 F. Supp. 2d 1195 (N.D. Cal. 2004).

[93]. Id. at 1197.

[94]. Id.

[95]. Id.

[96]. Id. at 1198.

[97]. Id.

[98]. Id.

[99]. Id.

[100]. 17 U.S.C. § 512(d) (2010).

[101]. Diebold, 337 F. Supp. 2d at 1198 n.2.

[102]. Id. at 1198.

[103]. Id. at 1198 n.2.

[104]. Id.

[105]. Id. at 1204.

[106]. The copyright in works made for hire is owned by the employer.  17 U.S.C. § 201(b) (2010).  The Copyright Act defines works made for hire as including those “prepared by an employee within the scope of his or her employment.”  Id. § 101.

[107]. Diebold, 337 F. Supp. 2d at 1204.

[108]. Id. at 1203.

[109]. Id.

[110]. Id. at 1204.

[111]. Id. (citing Black’s Law Dictionary (8th ed. 2004) (defining ‘‘knowledge,’’ particularly ‘‘actual’’ and ‘‘constructive’’ knowledge)).

[112]. The statute expressly contains the requirement of “good faith.”  17 U.S.C. § 512(c)(3)(A)(v) (2010).  Specifically, the statute requires the takedown notice to state “that the complaining party has a good faith belief that use of the material in the manner complained of is not authorized by the copyright owner, its agent, or the law.”  Id.

[113]. Diebold, 337 F. Supp. 2d at 1204.

[114]. Id. at 1204–05 (footnote omitted).

[115]. See Diebold Coughs Up Cash in Copyright Case, Electronic Frontier Foundation (Oct. 15, 2004), http://www.eff.org/press/archives/2004/10/15.

[116]. Diebold, 337 F. Supp. 2d at 1205–06.

[117]. Id. at 1205.

[118]. Id. at 1206.

[119]. 391 F.3d 1000 (9th Cir. 2004), cert. denied, 544 U.S. 1018 (2005).

[120]. See id. at 1006.

[121]. Id. at 1001–02.

[122]. Id. at 1002.

[123]. It was unclear for how long access to Mr. Rossi’s site was interrupted.  The Ninth Circuit noted that, according to Rossi, his website “was offline for ‘[a]pproximately 1 second to 72 hours,’ and the amount of money he lost due to the website’s shutdown was ‘unmeasureable.’”  Id.

[124]. Id.

[125]. Id.

[126]. Id. at 1003.

[127]. Id.

[128]. Id. at 1004.

[129]. Id. at 1005.

[130]. Id.

[131]. Id. at 1004 n.5 (quoting Black’s Law Dictionary 701 (7th ed. 1999)).

[132]. Id. at 1005.

[133]. Id.

[134]. Id. at 1006.

[135]. Id. at 1007.

[136]. While the court’s interpretation of the section 512(c)(3)(A) requirements for a takedown notice were a required part of its ruling on the MPAA’s defense, the interpretation of the requirements for the federal claim of misrepresentation, a claim that Rossi did not assert, were not necessary to the court’s decision.

[137]. Diebold, 337 F. Supp. 2d at 1005.

[138]. 572 F. Supp. 2d 1150 (N.D. Cal. 2008).

[139]. Id. at 1151–52.

[140]. Id. at 1152.

[141]. Id.  The section 512(g) counter-notification procedure is not without its own risks.  See supra Part I.D.

[142]. As of September 18, 2011, the video can be viewed at http://www.youtube.com/watch?v=N1KfJHFWlhQ.  The statute requires service providers to repost material within fourteen business days following receipt of the counter-notice.  17 U.S.C. § 512(g)(2)(C).  Why YouTube delayed longer is not known.  The consequence of its failure to comply with the time frame designated in the statute is potential liability for taking down the material initially.  See 17 U.S.C. § 512(g)(1) (2010).  However, as noted earlier, contractual provisions likely significantly limit such liability.  See supra note 73 and accompanying text.

[143]. Lenz, 572 F. Supp. 2d. at 1153.

[144]. Id. at 1152 (citing Petitioner’s Opposition Brief at 3, Lenz v. Universal Music Corp., 572 F. Supp. 2d 1150, No. C 07-3783 JF (N.D. Cal. 2008).

[145]. Id. at 1154 (quoting 17 U.S.C. § 512(c)(3)(A)(v)).

[146]. Id. (emphasis added).

[147]. Id. at 1156 (quoting Sen. Rep. No. 105-190, at 2 (1998)).

[148]. Id. at 1155–56.

[149]. Id. at 1155 n.5.

[150]. Id. at 1155.

[151]. Id. at 1156.

[152]. See supra note 136 and accompanying text.

[153]. 17 U.S.C. § 512(f) (2010).

[154]. See Johnathon T. Molot, The Rise and Fall of Textualism, 106 Colum. L. Rev. 1 (2006).

[155]. 17 U.S.C. § 512(f)(1)–(2).

[156]. Note, however, that section 512(f) also provides a cause of action against someone who misrepresents that material “was removed or disabled by mistake or misidentification,” assertions that must be made in a counter-notice.  17 U.S.C. § 512(f)(2) (2010).  See, e.g., Elmo Shropshire v. Canning, No. 10-CV-01941-LHK, 2011 WL 3667492 (N.D. Cal. Aug. 22, 2011) (concerning a claim by a copyright owner asserted against a user whose counter-notice resulted in material being restored to YouTube).  This Article focuses on misrepresentation claims that can be asserted against copyright owners for abuse of the takedown notices, not for the claims that can be asserted against infringers for abuse of the counter-notice procedure.

[157]. 17 U.S.C. § 109 (2010).  The first-sale doctrine is relevant for individuals posting pictures of merchandise they are selling that might be, or contain, copyrighted elements.  The resale of such items is expressly permitted under the first sale doctrine codified in section 109, but copyright owners have requested the removal of those listings from Internet sites such as eBay either through the takedown regime or through site-specific takedown procedures.  See, e.g., Dudnikov v. Chalk & Vermilion Fine Arts, Inc., 514 F.3d 1063, 1068–69 (10th Cir. 2008); Dudnikov v. MGA Entm’t, Inc., 410 F. Supp. 2d 1010, 1015 (D. Colo. 2005).

[158]. 17 U.S.C. § 107 (2010).

[159]. See Núñez v. Caribbean Int’l News Corp., 235 F.3d 18, 20 (1st Cir. 2000).

[160]. See Perfect 10, Inc. v. Amazon.com, Inc., 508 F.3d 1146, 1155 (9th Cir. 2007).

[161]. See Bill Graham Archives v. Dorling Kindersley Ltd., 448 F.3d 605, 607 (2d Cir. 2006).

[162]. Indeed, the rights granted to a copyright owner are expressly subject to limitations on those rights contained in sixteen separate statutory sections.  See 17 U.S.C. § 106 (2010) (providing that the rights granted in that section are “[s]ubject to sections 107 through 122”).

[163]. 17 U.S.C. § 512(f) (2010).

[164]. Id. § 512(f)(1).  “A material misrepresentation is one that ‘affected [the infringer or service provider’s] response to a DMCA letter.’”  Capitol Records, Inc. v. MP3tunes, LLC, 611 F. Supp. 2d 342, 346 (S.D.N.Y. 2009) (quoting Online Policy Grp., 337 F. Supp. 2d 1195, 1204 (N.D. Cal. 2004)); see also Arista Records, Inc. v. MP3Board, Inc., No. 00 CIV. 4660(SHS), 2002 WL 1997918, at *15 (S.D.N.Y. Aug. 29, 2002) (rejecting a misrepresentation claim based on general assertions of liability for infringement).

[165]. But see Shropshire v. Canning, No. 10-CV-01941-LHK, 2011 WL 3667492, at *8 (N.D. Cal. Aug. 22, 2011) (holding that plaintiff’s allegations that defendant misrepresented his good faith belief were sufficient to state a claim under section 512(f)).

[166]. See Online Policy Grp. v. Diebold, Inc., 337 F. Supp. 2d 1195, 1204 (N.D. Cal. 2004).  The court rejected a preliminary-injunction-like standard that the plaintiffs desired that would have required the copyright owner to have a likelihood of success on the merits of an infringement claim before sending a takedown notice because it would inappropriately chill copyright owners in protecting their rights.  Id.  At the same time, the court also rejected a frivolousness standard urged by the defendants.  Id.

[167]. In addition to the Lenz case discussed in more detail above, several lower courts in the Ninth Circuit understandably have followed the subjective good faith test articulated by the Ninth Circuit in Rossi.  See, e.g., Amaretto Ranch Breedables, LLC v. Ozimals, Inc., No. C 10-05696 CRB, 2010 WL 5387774, at *2 (N.D. Cal. Dec. 21, 2010); Design Furnishings, Inc. v. Zen Path LLC, No. CIV 2:10-02765 WBS GGH, 2010 WL 4321568 at *4 (E.D. Cal. Oct. 21, 2010), sub. opinion, No. CIV 2:10-2765 WBS GGH, 2010 WL 5418893, at *4 (E.D. Cal. Dec. 23, 2010); UMG Recordings, Inc. v. Augusto, 558 F. Supp. 2d 1055, 1065 (C.D. Cal. 2008).  One district court outside of the Ninth Circuit has also adopted the Rossi test.  See Dudnikov v. MGA Entm’t, Inc., 410 F. Supp. 2d 1010, 1012 (D. Colo. 2005).

[168]. See Smith v. Summit Entm’t LLC, No. 3:11CV348 (N.D. Ohio June 6, 2011) (denying motion to dismiss because defendant had acknowledged in email correspondence that its concern was based in trademark law not copyright law).

[169]. Others have urged that the belief of the copyright owner be judged by an objective standard.  See, e.g., Jordan Koss, Protection Free Speech for Unequivocal Fair Users: Rethinking Our Interpretation of the 512(f) Misrepresentation Clause, 28 Cardozo Arts & Ent. L.J., 149, 173 (2010) (arguing for an objective standard that would protect the speech of “unequivocal fair users”).  See also Miller, Fair Use Through the Lenz of § 512(c) of the DMCA, supra note 3 at 1725 (arguing in favor of an objective standard for judging good faith).  Others have acknowledged the problem of a good faith standard in copyright law.  See Alfred C. Yen, Internet Service Provider Liability for Subscriber Copyright Infringement, Enterprise Liability, and the First Amendment, 88 Geo. L.J. 1833, 1887–88 (2000) (“[C]opyright’s ambiguity assures that many statements of infringement can be made in good faith, even though a court may find that no infringement actually exists.”) (internal citation omitted).  It is important, however, to keep the requirements for the contents of the takedown notice separate from the statutorily specified elements of a misrepresentation claim.  Section 512(f) requires that the material misrepresentation concerning the infringing status of the work be made knowingly.  See Part III.A.2 supra, discussing the materiality requirement of section 512(f) in relation to the good faith requirement for the takedown notice.

[170]. The standard for a criminal violation that involves “knowledge” may be different.  See Susan Mandiberg, The Dilemma of Mental State in Federal Regulatory Crimes: The Environmental Example, 25 Envtl. L. 1165, 1179–81 (1995).

[171]. See Restatement (Second) Torts § 526 cmt. d:

The fact that the misrepresentation is one that a man of ordinary care and intelligence in the maker’s situation would have recognized as false . . . is evidence from which his lack of honest belief may be inferred.  So, too, it is a matter to be taken into account in determining the credibility of the defendant if he testifies that he believed his representation to be true.

See also United States v. Moran, 757 F. Supp. 1046, 1051 (D. Neb. 1991) (citing Cheek v. United States, 498 U.S. 192, 200 (1991)).

[172]. In a preliminary review of evidence for granting a temporary restraining order, one court held that “internal contradictions” in the copyright owner’s applications for copyright registration raised a “strong inference that defendant subjectively knew it did not have a copyright infringement claim when it” sent the copyright takedown notice.  Design Furnishings, Inc. v. Zen Path LLC, No. CIV 2:10-02765, 2010 WL 4321568, at *3 (E.D. Cal. Oct. 21, 2010).

[173]. But see Global-Tech Appliances, Inc. v. SEB S.A., No. 10-6, slip op. 2061, 2061 (May 31, 2011) (adopting a willful blindness standard as a way to demonstrate knowledge, noting that a defendant cannot escape liability for an offense that requires knowledge or willfulness by “deliberately shielding themselves from clear evidence of critical facts that are strongly suggested by the circumstances”).

[174]. See, e.g., 17 U.S.C. § 512(c)(1)(A)(i), (ii) (2010).

[175]. One unpublished opinion has indicated that an “actual knowledge” standard is appropriate, citing Rossi for support.  Cabell v. Simmerman, No. 09 CIV 10134(CM), 2010 WL 996007, at *4 (S.D.N.Y. 2010).

[176]. The takedown regime does not require the copyright owner to provide a copy of the copyrighted work to the ISP or even a description of the alleged copyrighted work.  One can imagine a comic book title that would be sufficient to lead a scientific journal to comply with a takedown notice.

[177]. Although the arguments articulated in this Article urge that such an interpretation is consistent with the context and text of the statute, congressional amendment to clarify this aspect of section 512(f) could be helpful.

[178]. In addition to Diebold, one other court has referenced a standard that looks to what a “reasonable copyright holder” would have believed.  See Project DOD, Inc. v. Federici, No. 09-213-P-H, 2009 WL 4910320, at *5 (D. Me. Dec. 13, 2009).

[179]. 17 U.S.C. § 512(f) (2010).

[180]. Id.

[181]. See Ground Zero Museum Workshop v. Wilson, No. DKC 09-3288, 2011 WL 3758582, at *19 (D. Md. Aug. 24, 2011) (granting judgment for defendant on section 512(f) claim because service provider did not take any action in response to defendant’s DMCA notice and thus plaintiff could not prove “that it incurred any damages as a result of the notice”).  Amaretto Ranch Breedables, LLC v. Ozimals, Inc., No. C 10-05696 CRB, 2011 WL 1753479, at *4 (N.D. Cal. Apr. 22, 2011) (granting defendant’s motion to dismiss the section 512(f) claim because no removal occurred in response to the takedown notice).

[182]. As the Lenz court has noted, if such expenses qualified then a plaintiff would be able to generate the necessary injury by bringing the misrepresentation claim.  See Lenz v. Universal Music Corp., No. C 07-3783 JF, 2010 WL 702466, at *10 (N.D. Cal. Feb. 25, 2010).  Note, however, that if a plaintiff prevails on a claim of misrepresentation, the Copyright Act permits a prevailing party to recover fees within the discretion of the court.  17 U.S.C. § 505 (2010).

[183]. See Lenz, 2010 WL 702466, at *10 (emphasis added).

[184]. 17 U.S.C. § 505 (2010).

[185]. See Fogerty v. Fantasy, Inc., 510 U.S. 517, 527 (1994).

[186]. See Online Policy Grp. v. Diebold, Inc., 337 F. Supp. 2d 1195, 1202 (N.D. Cal. 2004).

[187]. See supra Part I.C.  For an application of this consent, see Elmo Shropshire v. Canning, No. 10-CV-01941-LHK, 2011 WL 90136, at *5–6 (N.D. Cal. Jan. 11, 2011).

[188]. See, e.g., Accessories Ltd. of Me., Inc. v. Longchamp U.S.A., 170 F. Supp. 2d 12, 15 (D. Me. 2001).  See also Project DOD, Inc. v. Federici, No. 09-213-P-H, 2009 WL 4910320, at *6 (D. Me. Dec. 13, 2009) (holding that takedown notices are “in essence cease-and-desist letters”).

[189]. Doe v. Geller, 533 F. Supp. 2d 996, 1004 (N.D. Cal. 2008) (citing Andreas P. Reindl, Choosing Law in Cyberspace: Copyright Conflicts on Global Networks, 19 Mich. J. Int’l L. 799, 823 n.84 (1998)).

[190]. See Amaretto Ranch Breedables, LLC v. Ozimals, Inc., No. C 10-05696 CRB, 2010 WL 5387774, at *1 (N.D. Cal. Dec. 21, 2010).  But see Doe, 533 F. Supp. 2d at 1010 (determining that it would be unreasonable for the district court in California to assert jurisdiction over a British citizen even though he had sent a takedown notice to YouTube, located in California).

[191]. See Bancroft & Masters, Inc. v. Augusta Nat’l Inc., 223 F.3d 1082, 1087–88 (9th Cir. 2000) (ruling in the context of a domain name dispute that defendant’s letter, which meant not only to trigger domain name registrar’s dispute resolution procedures but also to interfere wrongfully with plaintiff’s use of its domain name and to misappropriate that name for its own use, was sufficient to show purposeful availment as to state in which alleged infringer was located, even though letter was sent to domain name registrar in a different state).

[192]. See Dudnikov v. Chalk & Vermilion Fine Arts, Inc., 514 F.3d 1063, 1075 (10th Cir. 2008).

[193]. Id. at 1067.

[194]. Id.

[195]. The argument may be weakened when it is not possible for the copyright owner to determine where the user is located.  Cf. id. at 1067 (noting that the copyright owner was able to determine the Colorado location of the user).

[196]. No. C 10-05696 CRB, 2010 WL 5387774 (N.D. Cal. Dec. 21, 2010).

[197]. Id. at *1.

[198]. Id. at *2–3.  Subsequent litigation resulted in a dismissal of the plaintiff’s section 512(f) claim because there had been no takedown.  See Amaretto Ranch Breedables, LLC v. Ozimals, Inc., No. C 10-05696 CRB, 2011 WL 1753479, at *3–4 (N.D. Cal. Apr. 22, 2011).  One court has concluded that because the only remedy identified in section 512 is damages, injunctive relief is unavailable for violations of section 512(f).  See Biosafe-One, Inc. v. Hawks, 524 F. Supp. 2d 452, 469 (S.D.N.Y. 2007).

[199]. See, e.g., Design Furnishings, Inc. v. Zen Path LLC, No. CIV 2:10-2765 WBS GGH, 2010 WL 4321568, at *5 (E.D. Cal. Oct. 21, 2010), sub. opinion, No. CIV 2:10-2765 WBS GGH, 2010 WL 5418893 (E.D. Cal. Dec. 23, 2010).

[200]. See Amaretto Ranch Breedables,, 2010 WL 5387774, at *2–3.

[201]. See Dudnikov v. Chalk & Vermilion Fine Arts, Inc., 514 F.3d 1063, 1068 (10th Cir. 2008).

[202]. See In re Charter Commc’ns, Inc. Subpoena Enforcement Matter, 393 F.3d 771, 777 (8th Cir. 2005); RIAA v. Verizon Internet Servs., Inc., 351 F.3d 1229, 1237 (D.C. Cir. 2003), cert. denied, 543 U.S. 924 (2004).

[203]. See UMG Recordings, Inc. v. Augusto, 558 F. Supp. 2d 1055, 1065 (C.D. Cal. 2008); Dudnikov v. MGA Entm’t, Inc., 410 F. Supp. 2d 1010, 1012 (D. Colo. 2005).  YouTube’s Content ID program currently allows a user whose YouTube video has been blocked through the automated screening to insist that the copyright owner employ the formal takedown notice of section 512 to obtain removal.  See Content ID disputes, YouTube, http://www.youtube.com/t
/contentid_dispute (last visited Sept. 18, 2011).  The formal takedown notice would then clearly be subject to misrepresentation claims.

[204]. Rossi v. Motion Picture Ass’n of Am., 391 F.3d 1000, 1002–06 (9th Cir. 2004), cert. denied, 544 U.S. 1018 (2005).  See discussion supra Part II.B.2.

[205]. Online Policy Grp. v. Diebold, Inc., 337 F. Supp. 2d 1195, 1205 (N.D. Cal. 2004).

[206]. Id. at 1205–06.

[207]. Id. at 1206; see also Amaretto Ranch Breedables, LLC v. Ozimals, Inc., No. C 10-05696 CRB, 2010 WL 5387774, at *3 n.2 (N.D. Cal. Dec. 21, 2010); Lenz v. Universal Music Corp., No. C 07-03783 JF, 2008 WL 962102, at *4 (N.D. Cal. Apr. 8, 2008).

[208]. Courts are beginning to confront claims under section 512(f) for notices sent outside of the section 512(c) takedown regime.  See, e.g., Rock River Commc’ns, Inc. v. Universal Music Grp., Inc., No. CV08-635 CAS (AJWx), 2011 WL 1598916, at *16 (C.D. Cal. Apr. 27, 2011) (claim for tortious interference not preempted because DMCA not applicable to the dispute at bar).

[209]. See Online Policy Group v. Diebold, Electronic Frontier Foundation,  http://www.eff.org/cases/online-policy-group-v-diebold (last visited June 17, 2011); Lenz v. Universal, Electronic Frontier Foundation, http://www.eff.org
/cases/lenz-v-universal (last visited Sept. 18, 2011).  Additionally, the Chilling Effects website that collects information concerning takedown notices is a joint project of the EFF and clinics at Harvard Law School’s Berkman Center, Stanford Law School’s Center for Internet & Society, Boalt Hall’s Samuelson Law, Technology and Public Policy Clinic, and other law schools across the country.  See Chilling Effects, http://www.chillingeffects.org/ (last visited Sept. 18, 2011).

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