The first ten years of my practice saw a need to learn copyright law, while the second ten years required a working knowledge of patent and trademark law, and some privacy law, with a little international trade law thrown in for good measure (including U.S. export control laws and regulations). It was also the time when state and federal legislators were beginning to craft a specialized field of computer crime laws.

By the late 1980s there was a convergence of sorts between the computer and entertainment industries, primarily through videogames and CD-ROM titles. As a result, computer lawyers needed to learn about how the entertainment industry worked – again, primarily in the contracting area — but also with regard to trademarks, Hollywood guilds and unions (e.g., SAG, DGA) and right of publicity issues. It also required computer lawyers to learn a lot more about copyright and contract law in areas that had previously been limited to entertainment lawyers.

Since the 1990s we have seen the subject matter of computer law expand rapidly. We have had to learn telecommunications law, expand our knowledge of trademark law to deal with domain name issues, cope with the ever-expanding body of federal and state laws that deal with the financial laws and regulations underpinning e-commerce, privacy issues, cybercrimes, and a host of other fields that computer lawyers (now called IT lawyers) never thought they would need to deal with.

Now, cloud computing may require us to learn another body of law – admiralty law. Google has recently filed patent applications for ocean-going data centers that would be housed on large merchant ships and could be moored off-shore or sail blissfully in international waters – avoiding the problems arising from pesky local or national laws. These ships would generate their own power, provide their own cooling, have Internet connectivity (presumably from satellites or undersea cables) and generally be subject to no country’s laws. But underlying this concept is still the fact that we are dealing with ships. And ships are subject to both national and international laws – namely admiralty laws.

Dang. Just when I thought I was done learning new laws, I now find myself having to delve into the esoteric area of admiralty law. Ships containing data centers are no different than, and are subject to the same laws as, any other ship. Thus, they are subject to such things as piracy, salvage and seizure (arrest). Yet their cargoes may be infinitely more valuable than any previous ship that has ever plied international waters – the data of thousands or tens of thousands of corporations, millions of individuals, and numerous governments from around the world. How much would that cargo be worth if it fell into the hands of Somali pirates? And what if the assets of even one customer (or the ship owner itself) were subject to a seizure (arrest) order, and the entire ship was seized and the computers taken off the grid?

Far fetched? It was only a couple of months ago that the FBI, looking for assets of a company that had allegedly defraud the local telephone company, raided and seized all of the servers in several Dallas-based data centers – putting all of the data centers’ customers, not just the target of the seizure, out of business. Now multiply that by thousands of customers whose access to their data could be lost if the ship on which their servers and data are housed is arrested under existing admiralty law.

So to all of you IT lawyers representing clients that have or will be entering into cloud computing “solutions” to their data processing needs – start boning up on your admiralty law. It looks like you’re going to need it.

AP Chairman Dean Singleton, who spoke at the AP annual meeting in San Diego several months ago, was quoted as saying: “The news cooperative would work with portals and other partners who properly license content – and would pursue legal and legislative actions against those who don’t. We can no longer stand by and watch others walk off with our work under misguided legal theories.”

The main “misguided legal theory” that Singleton was referring to is the copyright concept of “fair use” — which allows others to quote from, refer to, and otherwise use portions (and in some cases the entire content of) another’s copyrighted work. While AP’s wrath is undoubtedly proper when focused on blogs and other websites that take AP’s news stories in their entirety, Singleton directs most of his anger at Google and other search engines, whom he claims are stealing AP’s copyright content by using its headlines and sometimes short snippets of an article in its search results. He is wrong on many fronts.

First, the technology developed by Google didn’t come free. Tens of millions of dollars have been invested by Google in technologies with no guaranty that they would work, or that anyone would care to use them. Content providers assume, somehow, that the complex platforms that make search engines, etc. work are free, or without risk. Google was willing to take that chance and has, so far, seen a good return on its investment. The newspapers have not been willing to take that risk.

Second, nothing is preventing newspapers (or other content providers) from building competitive platforms to compete with Google. They have chosen not to do so, but instead complain about Google’s willingness to do so. If Google is, as alleged, siphoning off money that should be going to the newspapers, then let the newspapers develop their own, competitive platforms and capture that “lost” revenue themselves. Every website can choose whether to allow search engines to index these site or not. It’s as easy as setting a “switch” in the robot.txt file. If AP, or any of its affiliates believe that Google or other search engines are unfairly exploiting their content by indexing it on their databases, it’s a simple thing to opt out of future indexing.

But to do so would be suicide for these websites, since search engines make their content accessible. Without them no website would be successful (and most would be invisible to users). Yet, Google doesn’t charge anyone for being indexed and made accessible. There is again an enormous cost for Google to continuously update its search engine database to make the most recent articles posted by the newspapers accessible.

Google provides the front end for newspaper websites so that users can find them for free. Snippets are how users find newspaper sites, and are not a substitute for those sites. Without the ability to use snippets in indexing news stories, users would find it difficult to locate the content they want on news sites. The fact that newspapers have not successfully exploited the free accessibility provided by Google is the newspapers’ fault, not Google’s.

Search engines are not AP’s enemy. Without them AP content would be inaccessible, and AP-affiliate websites would be invisible. While these are those who improperly repurpose AP’s content, and AP is well within its rights to stop such activities, AP’s focus on search engines is wrong-headed, and self-defeating.

The revenues generated by this scheme have not gone unnoticed by other copyright owners whose works do not have the ubiquity online of popular music. In the last few weeks, various news stories have surfaced that claim that some owners of copyrighted works have decided to tap into this revenue windfall by surreptitiously posting their own copyrighted works online, waiting until users download them, and then threatening a lawsuit unless the downloaders pay them off. One article claims that certain copyright owners are “priming the pump” by posting their own works online, and then threatening litigation in order to wrest fat settlements from those who download their works. A second article claims that an American pornographer hired a German company to post his videos online, and then hired a law firm to threaten downloaders with copyright infringement litigation unless they “settled” and paid a significant sum.

Some commentators have argued that if a copyright owner uploads its copyrighted content to a free downloading site, the owner should be deemed to have impliedly licensed the downloading of that content, and such license should preclude a later claim of copyright infringement. I agree with that view. The problem that I see with asserting that defense is that 1) the downloader has already been sued and will have to incur the legal fees necessary to establish the defense, and 2) it will be very difficult to prove that the copyright owner authorized the posting of the works on the downloading service.

The proof issue is the major problem with defending against these bogus claims. Copyright owners who choose to implement this scheme generally are not going to post the works from their own computer, nor use employees or third parties who can easily be tracked down and who have no incentive to lie under oath. Instead, they will take steps to hide their tracks, using anonymous posting services, public terminals or hackers to post the materials. That will make it virtually impossible to track the postings back to the copyright owner. In addition, most accused downloaders will not have the money or the expertise to track down the party who actually uploaded the works in the first place and establish the copyright owner’s complicity in the scam.

This scam seems almost unstoppable. You can be sure that more scammers will be using it in the future. As long as copyright law allows owners to extort huge sums out of individuals who download copyrighted materials for personal use, this scheme will proliferate.

This is a QuickTime video, so to view it in a larger window simply click “download” below instead of playing it in your browser. It will also be available in our iTunes podcast feed.

We’re also ramping up a new episode of our podcast for today. Episode 7: “The Global Perspective” will be available tonight, so stay tuned!

On October 28, 2008, Google and the AAP announced a settlement of the litigation. The agreement, stretching to 141 pages, provides that Google pay $125 million, plus establish a new licensing system with publishers. The system will allow any copyright owner to opt-out of the project, will require Google to pay 63% of all revenues generated by users’ access to the database to a “collection society” (the “Book Rights Registry”) for distribution to copyright owners, and will result in the implementation of a DRM/subscription model for full-text access, but not for search – which will be limited to short snippets for in-copyright works.

Who won?

While the copyright owners will receive compensation for the use of their works, the settlement (if approved by the court) will definitely work in Google’s favor going forward. First, the high settlement amount will discourage others from entering the field – giving Google a virtual monopoly on every book, periodical and other copyrighted work coming within the settlement. Second, it will be more difficult for others to claim “fair use” if they decided to compete with Google. While there was no determination of whether Google’s conduct was or is “fair use,” a judge in a subsequent case may look at this settlement as “evidence” that massive digitizing of copyrighted works is not a fair use – otherwise, why would Google, which claimed fair use all along, have settled for such a large amount? A decision in this case that Google’s use of copyrighted material was a fair use would have opened the door for many competitors who could have piggybacked on the court’s decision and built competitive databases protected by fair use. So a lack of a ruling on this pivotal issue plays into Google’s hands.

The settlement allows Google to charge for access to these millions of digitized works – something that previously would have been difficult for Google to do and still claim “fair use.” So the settlement establishes a legal business model for Google to monetize this huge and growing database of copyrighted materials with the copyright owners’ blessing. Google get 37% of all revenues generated, where previously it was getting nothing. (Much more than iTunes gets for their music downloads.)

The settlement agreement is, in essence, a compulsory license for Google to copy virtually any copyrighted work without having to negotiate individually with copyright owners. And it sets the “market rate” for any negotiations Google will have in the future with copyright owners who are not part of the settlement. While copyright owners are free to opt-out of the system, it would be foolish for most copyright owners to do so. They essentially have three choices – go along with the system, opt-out and forego the revenues they would get under the system, or try to set up their own system to monetized digitized version of their works (which hasn’t worked in the music industry and is unlikely to work here). A fourth choice — do a deal with another database developer — is unlikely, since this settlement sets up huge barriers to entry for any competitive service.

So, despite the price tag, I would say that Google is the big winner in this battle, and that the publishing industry may (no, I predict, WILL) live to regret the day they gave Google exclusive control over the online, worldwide distribution of their works.

Over the last 20 years we have seen a steady erosion of the balance that the copyright law was intended to establish between the rights of the copyright owner and those of the public. We have seen a series of laws, the PRO-IP Act being just the latest, where Congress has given copyright owners increasingly greater rights, with little consideration to their effect on innovation and on user rights.

As stated by Gigi B. Sohn, president and co-founder of Public Knowledge, a Washington, D.C.-based digital rights group, after the Senate’s passage of the bill: “The bill only adds more imbalance to a copyright law that favors large media companies. At a time when the entire digital world is going to less restrictive distribution models, and when the courts are aghast at the outlandish damages being inflicted on consumers in copyright cases, this bill goes entirely in the wrong direction.”

What is needed today is not an IP “czar” but an IP “ombudsman,” tasked with ensuring that legislation provides the proper balance between the rights of owners and those of innovators and users. We need someone who can speak for the public – a role that the Copyright Office abdicated years ago when it became a mouthpiece of copyright owners, and no longer the arbiter of a balanced copyright law. Yet, if we get a president that truly believes in a balanced approach, there is noting in the PRO-IP Act that would prevent him from appointing someone as IP “czar” that would provide a balanced approach to the development of copyright (as well as patent and trademark law). It’s a long shot, but one can only hope. . . .

Record companies also were saying just a few years ago that they would never sell music downloads since that would interfere with their current distribution networks. But, of course, Napster forced their hand (or some would say gave them an excuse for turning their backs on their distributors and retailers). Napster showed that there was an enormous demand for music downloads, and if there were not legitimate download sites, users would download music illegally. Now we have iTunes and many other legitimate download sites that are putting millions of dollars into the coffers of the record companies, leaving the traditional distributors to fend for themselves. The bankruptcy filings of Odyssey Records, Tower Records, and massive closings of Sam Goody stores and those of other CD retailers was not just a coincidence.

Now the television networks are starting to provide downloads of their hit shows on iTunes and other services and network affiliates are complaining. If viewers can download their favorite shows to their computers for viewing at the user’s convenience, fewer people will be watching the shows on their televisions, which will translate into less advertising revenues for the local stations. Local TV stations (and cable operators) are beginning to demand that they get a portion of the revenues generated from these Internet downloads.

And Disney and other movie studios are planning to allow users to download entire movies from the Internet. Pay-per-view cable channels who make their money by showing recent films are crying foul. They want studios to delay releasing movies online until their contractual window for showing the movies has expired.

All of these problems arise from the fact that record and movie companies are increasingly viewing the Internet as an efficient and profitable means of getting their products to users without having to deal with the hassles and cost of traditional distribution channels.

However, these actions are a two-edged sword. While it makes economic sense in the short term for these companies to utilize the ‘Net for distribution of their product, in doing so they are also creating a distribution channel for songs and movies over which the record companies and TV and movie studios have no monopoly. As the public begins to use (and accept) the Internet as a viable medium to receive entertainment content, it will become easier for independent content developers to distribute their content online as well.

Historically, musicians who have tried to buck the record industry’s monopoly over the distribution channels have found it difficult to create a following online. The public has just not been willing to go online for their music. They were used to getting it on shiny metal disks from a brick-and-mortar retailer. There was something “wrong” with a recording artist who did not use the traditional channels to distribute his or her music (i.e., if this guy is so good, why can’t he get a recording contract?). The same was true for independent film makers, who generally had to distribute their works for free on various “fan” sites.

But once the “big boys” legitimate the Internet as an “appropriate” medium of distribution for their creative content, they will also be legitimizing the Internet as a medium of distribution for everyone’s content. Indeed, a recent news report indicates that a song by the band Gnarls Barkley became #1 on the UK singles list based solely on its downloads online, not from traditional record sales. This is the wave of the future.

So go ahead big entertainment companies. Legitimize online channels for music, movies and TV shows. By doing so you make be sowing the seeds of your own destruction. Why will a band or film director need a major company to distribute their product, when they can do it just as well (and possibly even better) themselves? Once everything is digitized, creative talent will not need companies who produce shiny disks, or ship shiny disks, or warehouse shiny disks, or sell shiny disks from storefronts. The entire marketing and distribution function can be done digitally by an individual from a PC in his bedroom.

Fast forward three years. . . . In April 2006, someone (no one knows who) began posting the video all over the ‘Net. It appeared on Google Video, Youtube, and a number of other sites. Within about 10 days it was #2 on Google Video. And as of today, it has generated over 577,000 viewings on YouTube. Obviously, a flagrant violation of copyright laws. And yet. . .

As a result of all the buzz created by the postings, the boys have had development meetings with a film company, have been contacted by a major talent agency, etc. They are just finishing up a new short film (not a fan film) and have other projects in the works.

What are the lessons from all of this?

First, sometimes the value of a project is not in the copyright per se, but in the promotional value of having the work widely available. Lawyers often have an itchy trigger finger to blast everyone with a barrage of cease and desist letters. But probing deeper, the infringement may be a blessing in disguise. (Of course it helps that these postings were done as a homage to the great work these two did, and not to profit from their works unfairly.)

Second, it shows the power of these emerging collaborative content sites, where the website owner creates the framework and others fill it will content — some compelling, most not. Pre-Internet, a film maker would need to mail out copies of a videotape with a cover letter to anyone who might be interest. Most of these packages wouldn’t make it past the mailroom or would suffer an ignominious demise in the round file (trash can). Today, innovative companies are scouring web sites for new talent. These collaborative content sites have the potential to radically change the way that talented newcomers get in front of agents, publishers, music/movie producers, etc. It becomes less of a “who you know” model for getting to the right people, and more of a “how good are you” model.