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Face Off: Studios Battle SAG-AFTRA Over ‘Digital Replicas’

Digital technology has given rise to a host of novel questions concerning the authorship, ownership, and exploitation of creative works, from the right to re-sell digital copies to the copyright status of works produced by artificial-intelligence agents. But a new legislative skirmish in New York State could take the debate beyond the realm of copyright into the realm of privacy and the right of publicity.

Cage, Nick Cage

Assembly bill A.8155B would create a new right of publicity for individuals concerning the use of their likeness in a “digital replica.” In what is believed to be the first such legislative effort by a state, the bill is meant to prohibit the use of “face-swapping” artificial intelligence technology to overlay an individual’s face onto another actor’s body without the individual’s consent, particularly for pornographic purposes.

According to the bill, “Use of a digital replica of an individual shall constitute a violation if done without the consent of the individual if the use is in an audiovisual pornographic work in a manner that is intended to create and that does create the impression that the individual represented by the digital replica is performing.”

The bill is strongly backed by the Screen Actors Guild-American Federation of TV and Radio Actors (SAG-AFTRA), which claims it is necessary to combat the growing scourge of “deep fake” videos, in which well-known individual are made to appear to be performing pornographic scenes.

“Individuals turn to image rights to sue corporations that use social media accounts or publicly available images to promote products or services without consent or compensation. These rights will also provide individuals, often women, relief if they are inserted into commercialized Deepfake sex scenes.,” SAG-AFTRA said in a statement supporting the measure.

With time in the legislative session running out, however, the major studios and the Motion Picture Association of America (MPAA) have mounted an all-hands effort to block the bill, according to the Hollywood Reporter, claiming the bill’s imprecise language could limit the production of biographical films of real-life individuals and chill technology innovation.

“If adopted, this legislation would interfere with the right and ability of companies like ours to tell stories about real people and events,” the Walt Disney Co. wrote in a letter the bill’s author. “Unfortunately, the proposed bill would transform New York from a jurisdiction that is friendly to and protective of such expressive endeavors to one in which they become encumbered by uncertainty and risk.”

In a separate memorandum, NBCUniversal warned, “The bill creates an unprecedented new category of protection for “digital replicas” of
living or deceased individuals. These provisions have potentially far-reaching implications, yet there is scant time left in the session for New York’s legislators to explore and consider them.”

The bill is still pending and it’s fate is uncertain at this point. Either way, though, it’s unlikely to be the last word in the debate over the uses (and misuses) of face-swapping technology and other forms of artificial intelligence in the creation of media content.

We’ll tackle some of those questions at the upcoming RightsTech Summit , at a panel titled What to Make of Machine-Made Art? Click here for more information on the summit, and for information on how to register.

 

SEC Chief on ICOs: Come See Us First

Securities and Exchange Commission chairman Jay Clayton on Wednesday offered some of his most definitive comments to date on whether the sort of crypto-tokens offered by many blockchain-based startups to fund initial development of their technology represent securities akin to stocks and bonds, and therefore subject to regulation by the SEC and other government agencies.

“A token, a digital asset, where I give you my money and you go off and make a venture, — you have some company you want to start or something –and in return for me giving you my money you say, I’m going to give you a return, or you can get a return in the secondary market by selling your token to someone, that is a security. And we regulate that,” he said in an interview on CNBC. “We regulate the offering of that security and we regulate the trading of that security.”

Asked whether that meant that, in his view, “most” initial coin offerings (ICOs) being marketed today are in fact securities Clayton replied, “correct.”

Clayton distinguished ICO tokens from cryptocurrencies like Bitcoin, which he said do not fit the legal definition of a security.

“Cryptocurrencies, these are replacements for sovereign currencies — replace the dollar, replace the yen, replace the euro with Bitcoin — these are not securities,” he said.

He was less definitive regarding crypto assets like Ether and Ripple, which can serve multiple functions, saying the determination of their status would be fact and circumstance dependent, but added “We are not going to do any violence to the traditional definition of a security that has worked well for a long time.”

Clayton’s comments hold obvious implications for many startups, including many rights-tech startups, that have issued virtual tokens in connection with their launch and initial capitalization strategy. In most cases, those tokens are offered via self-published “white paper,” which typically includes far less information about the issuer and the risk factors in the offering than in the registration statements companies issuing conventional securities are required to file with the SEC.

Token issuers also generally do not follow SEC rules regarding quarterly and annual financial disclosures.

Most crypto startups have sought to side-step the question of SEC registration by claiming their tokens are functional elements of their platform or application, such as by limiting access to their networks to token holders, or giving token holders a rule in network governance, and are therefore not equivalent to equity ownership in the venture. But many ICOs also carry at least an implicit promise of appreciation in value as network usage increases, which could bring them within Clayton’s definition of a security.

The SEC and the Commodity Futures Trading Commission (CFTC) have been wrestling with whether and how to regulate the issuing and trading of crypto assets, and the uncertainty around their status has both roiled markets and led to a mini-gold rush among ICO issuers looking to cash in before regulators come knocking.

The largely unregulated ICO market has produced a high failure rate even by the standards of startup enterprises, as well as instances of outright fraud. According to a tally by Bitcoin.com, 46 percent of ICO crowdsales in 2017 had already failed or vanished by February 2018.

That may start to change.

“If you have an ICO, or a stock, and you want to sell it in a private placement, follow the private placement rules,” Clayton said. “If you want to do an IPO with a token, come see us.”

 

Sony Bets on Music Publishing Market Share

Sony Corp. this week announced it will purchase an additional 60 percent stake in EMI Music Publishing from Mubadala Investment Company for $2.3 billion in cash, giving the Japanese conglomerate a 90 percent share of EMI’s portfolio of music copyrights, which includes works by Kanye West, Alicia Keys, Drake, , Pharrell Williams, Queen, and much of the Motown catalog.

The move comes as part of a broader strategy mapped out by Sony CEO Kenichiro Yoshida to shift the venerable hardware maker’s focus away from low-margin consumer electronics toward building a stable of diverse and stable revenue streams.

“In the entertainment space, we are focusing on building a strong IP portfolio, and I believe this acquisition will be a particularly significant milestone for our long-term growth,” Yoshida said in a statement announcing the EMI deal.

Beyond its strategic value to Sony, however, the deal also clearly has a clear financial predicate: As growth in paid streaming continues to revive the recorded music business, the value of music publishing rights is also growing. The $2.3 billion Sony is paying for 60 percent of EMI values the full EMI catalog at $4.75 billion, more than double its price in 2012 when Mubadala and Sony first invested in the company.

The deal will also make Sony ATV the world’s largest music publisher by far, with a roughly 30 percent  share of the market

Number two publisher, Universal Music Group, with just under 20 percent of the market according to IFPI data, is also feeling bullish about the value of its portfolio. UMG’s parent company Vivendi has been teasing the possibility of a sale or spin-out of the music company, which includes a record label group in addition to its publishing assets to cash in on the growing value of its catalog.

EMI’s financial value to Sony, however, could be even larger than the raw calculation of its increased market share. The music industry’s still-chaotic data environment results in a vast but unaccounted pool of publishing royalties generated by streaming and other uses that are never attributed to the proper rights owners. Those moneys are eventually distributed by the performance rights organizations to music publishers based on the publishers’ market shares.

Since larger publishers are in the best position to negotiate with the PROs, they almost certainly end up collecting a disproportionate share of the kitty. For Sony, a bigger market share will likely mean an even bigger share of the unattributed royalties.

With the Music Modernization Act poised to pass the Senate and head to the president’s desk, moreover, a new pool of unattributed publishing royalties created by the MMA’s new blanket license for mechanical rights is also slated to be distributed on the basis of market share, yielding another windfall for the largest publishers.

The MMA itself, however, could contain the seeds of the unraveling of the “black box” premium currently enjoyed by the largest publishers. The bill calls for creation of a new open music rights database, to be maintained by the U.S. Copyright Office, intended to reduce the amount of unattributable royalty revenue collected by better matching sound recordings to the rights owners of the underlying compositions.

In fact, the music industry is currently bubbling with similar initiatives, such as the pilot program recently launched by rights-tech startup JAAK in partnership with Warner/Chapel Music Publishing in BMG. Both Warner/Chapel and BMG are far smaller than Sony ATV and UMG and so benefit proportionately less from the market share based spoils system.

Both the efforts to tackle music’s “black box” problem, and the investment environment for rights portfolios and rights management generally will be hot topics at the 2018 RightsTech Summit in October. For information on how to register for the conference click here.

The Copyright Turing Test

As a formal matter, the litigation in People for the Ethical Treatment of Animals v. David Slater, the “monkey-selfie case” is now over. Although the parties nominally settled the lawsuit last year, the U.S. Ninth Circuit Court of Appeals put an exclamation point on it last month by issuing a formal ruling and opinion anyway upholding the district court’s ruling in favor of the human photographer Slater that was under appeal at the time of the settlement.

Naruto

While the court conceded that, under the Ninth Circuit’s peculiar precedent in Cetacean Community v. Bush, animals like Naruto, the crested macaque who took the famous photos and on whose behalf PETA nominally had brought the case, may have standing to bring a lawsuit in human courts, they do not have statutory standing under the Copyright Act to bring an action for infringement:

We must determine whether a monkey may sue humans, corporations, and companies for damages and injunctive relief arising from claims of copyright infringement…Our court’s precedent requires us to conclude that the monkey’s claim has standing under Article III of the United States Constitution. Nonetheless, we conclude that this monkey — and all animals, since they are not human — lacks statutory standing under the Copyright Act. We but therefore affirm the judgment of the district court.

So, case closed.

Yet as some legal experts have pointed out, the Ninth Circuit didn’t really settle the question of who does own the copyright in the photos at issue if not the monkey. Under the settlement between the parties, Slater, whose camera Naruto borrowed for his self-portrait, is free to license their use on the stipulation that he donate a portion of the earnings to a fund to protect crested macaque habitat — a sort of professional tip of the hat to Naruto — neither the district court nor the Ninth Circuit explicitly determined the copyright to be his. Each ruled on the issue of standing, but neither reached ruling reached the merits of the infringement claim.

Slater set up his equipment in the Indonesian forest where Naruto and his fellow macaques live and left it unattended to see how the monkeys might respond to it. But beyond that, he didn’t have any particular creative input to the photos they took. So on what basis would his copyright in them rest? Is mere ownership of the equipment sufficient? Was providing the opportunity for the monkeys to take the photos by leaving the camera unattended a necessary step? We don’t really know.

Another question not directly addressed by the litigation is what made the monkey selfie so compelling in the first place? Had Naruto managed merely to take a random photo of his foot, or the sky, it’s doubtful anyone would have bothered litigating its authorship.

What made the monkey selfie so compelling, I think, was its seemingly human-like intention. Serendipitously well-framed in the shot, Naruto seems to exhibit human-like self-awareness as he appears to smile into the camera, an effect Slater himself recognized  in titling the book in which it first appear Wildlife Personalities.

The whole case, in effect, functioned as a sort of photographic Turing test: Was the photo a creative act of original expression if perceived that way by humans, even if the law does not recognize its proximate creator? If so, how should the law regard it? Who, if anyone, should have an exclusive right to exploit it commercially, and on what would that claim rest?

While the issue may appear abstract and theoretical, those questions are getting less theoretical by the day, as researchers develop ever more machine-based systems capable of producing Turing-sufficient works of expression. Like monkeys, machines would likely lack standing to bring a claim under copyright law. But that doesn’t mean they can’t produce works that humans perceive as expressive.

In a paper published last month, researchers from Microsoft and Kyoto University describe how they trained a neural net to produce original poems, one of which was accepted for publication by the human editors of a literary journal based on a blind, online submission.

Last year, researchers from Google published a paper describing how they taught a neural net to recognize the aesthetic elements of photography. The artificial intelligence system then produced original works of landscape photography that professional photographers had trouble distinguishing from similar works produced by humans (take that, Naruto!).

Computer scientists as Italy’s Politecnico di Milano, last month submitted a paper describing how they used a two-stage artificial intelligence system to create new levels of video game play on the fly that even other A.I. systems could not distinguish from human-created levels.

Copyright law is designed to incentive creativity by giving legal force to the author’s claim on its economic value. Our systems of commercial licensing of creative works rest on exploiting the exclusive rights of authors spelled out in the Copyright Act.

But as the monkey selfie case has shown, works can have considerable economic value even where there is no obvious or legally recognized author.

How that value is to be realized through our existing author-based licensing systems, and how disputes over that value are to be adjudicated within our author-centric copyright law are questions we’re only beginning to grapple with. We’ll be grappling with some of them at the 2018 RightsTech Summit in New York.

Anyone interested in addressing them can contact me at paul@concurrentmedia.com.

 

Get Ready for the 2018 RightsTech Summit

This year’s RightsTech Summit will be held October 5 in New York City, featuring panel discussions, special presentations and keynote conversations with industry leaders. Today, the RightsTech Project released the preliminary lineup of panel topics.

For inquiries on speaking opportunities, or to propose additional topics, please contact Summit co-chair Paul Sweeting (paul@concurrentmedia.com). For sponsorship opportunities, please contact Andi Elliott (andi@rightstech.com).  For all other inquiries, please contact Tinzar Sherman (tinzar@digitalmediawire.com).

 

RightsTech Summit 2018

Preliminary Program

 

View From the Top: The Future of Machine-to-Machine Rights Management
Industry leaders from across the media spectrum discuss the current state of rights management from both the rights-owner and rights-user perspective. How well are rights markets functioning? Are the investments being made adequate to the challenge? Are they focused on the right problems?

Hands-Free Licensing: Rights Hubs and Online Exchanges
For consumers today, access to media content is often just a tap or click away. But securing the rights to distribute or use that content can be time-consuming, complicated and costly. This panel will examine efforts to bring the one-click shopping experience to the buying, clearing, and licensing of usage rights by establishing searchable rights hubs and online marketplaces.

The Enumerated Manuscript: Unique IDs and Registries
Machine-to-machine rights management requires machine-readable rights data. A look at how different media industries are tacking the challenge of assigning standardized, machine-readable identifiers and metadata to creative works, how those data are registered and made available, and the relationship between private registries and public records.

Provenance, Priority and Authentication
From photographs and paintings, to sculpture and collectibles, the value of many types of creative works lies in their authenticity and provenance. But the lack of reliable records of ownership and authorship makes buying and selling them digitally risky and difficult. This panel will examine how entrepreneurs are leveraging blockchain and other technologies to create verified records of a work’s history and their impact on the digital market for one-of-a-kind works.

View From the Top: Copyright Reform in the U.S. and Europe
Copyright legislation in the U.S. and Europe is poised to bring the most sweeping changes in decades to how media content is distributed, licensed, and used. Industry leaders, policymakers and legal experts will discuss how the changes will the changes affect artists, rights owners, content users, and consumers, and where the debate goes from here.

How Smart Are Smart Contracts?
Smart contracts enable secure, blockchain-based peer-to-peer commerce, but what are they and how do they work? Are they really contracts, or simply automated transactions? Are the rights and obligations they confer enforceable in court? Developers and legal experts weigh in.

Investing in Right and Royalties
Leaders from the worlds of finance, startups, and venture capital provide an overview of the M&A and investment climate for rights management companies, and discuss the valuation of rights and royalties and their potential as an asset class in their own right.

A.I.: What to Make of Machine-Made Art?
Courts say monkeys can’t own copyrights, but what about machines? As artificial intelligence systems increasingly are used to create music, photographs, news articles, and artworks, who or what owns the copyrights? If not that machine then whose creative input controls and how should it be credited? Can an A.I. system join a CMO?

One of a Kind: Engineering Digital Scarcity with Blockchain
Digital technology did away with scarcity, upending many media industry business models. But the economics of scarcity may be poised for a comeback thanks to blockchain. This panel will explore how artists, entrepreneurs and developers are leveraging blockchain technology to create new businesses around digital collectibles, limited editions and unique digital assets.

Show Me the Money: Bringing Transparency to Residuals and Royalty Payments
The music business has its notorious “black box” money problem, but creators and licensors in many rights-based industries lack effective tools to track the money their works generate as it makes its way back upstream. This panel will examine how entrepreneurs, developers, artists and agents are trying to bring greater transparency to the system of accounting and payments.

DIY Tools and Financing for Artists
Artists and entrepreneurs discuss how technology is enabling creators to manage and finance their own careers and retain control of their work.

Mixes, Mashups and UGC
Many uses of copyrighted works in mixes, mashups and user-generated content go uncounted and uncompensated. Others never happen because they can’t be licensed. This panel will explore how entrepreneurs and developers are tackling some of the most confounding and complex challenges in rights management.

Major Music Licensing Reform Bill Clears Committee

The House Judiciary Committee on Wednesday unanimously approved the Music Modernization Act (MMA), an omnibus bill that would bring the biggest changes to how music is licensed and paid for in more than a generation. The vote was 32-0.

The bill incorporates components of four other bills that were originally introduced separately. They include the original Music Modernization Act, which for the first time creates a blanket license for mechanical rights in the U.S. and establishes a new organization to administer the license and collect the royalties; the CLASSICS Act, which requires digital radio services to pay performance royalties for previously exempt pre-1972 sound recordings; the AMP Act, which codifies current industry practice of honoring so-called Letters of Direction by artists who wish to share performance royalties with producers and engineers; and a provision taken from the Fair Play, Fair Pay Act that establishes a new, “willing buyer, willing seller” standard for setting statutory royalties.

Left out of the bill were other elements of the Fair Play, Fair Pay Act that would have required terrestrial radio stations to pay performance royalties for sound recordings. That provision was strongly opposed by broadcasters and their opposition could have derailed the omnibus bill had it been included.

Although supporters of performance royalties for radio play, primarily the record labels, vowed to push ahead on those provisions their exclusion from the MMA leaves their fate far from certain. The National Association of Broadcasters has successfully resisted similar legislative efforts over many years, and without the cover of the broad coalition backing the MMA the labels’ efforts could be thwarted again.

National Music Publishers Association CEO David Israelite, a principal architect of the MMA, praised today’s vote.

“The House Judiciary Committee’s approval of the Music Modernization Act (MMA) is a critical step towards finally fixing the system to pay songwriters what they deserve,” he said in a statement. “There is unprecedented consensus and momentum behind this bill, and we look forward to seeing it soon pass the full House.”

Although no date has been set for the bill to be taken up by the full House, it is expected to get a vote within the next several weeks.

The Senate has yet to take up the bill in its current form, although individual elements of it have been introduced there. The Senate is not obligated to follow the House’s lead in combining the four individual bills, but the broad support for the bill from disparate industry groups, and the rare display of unanimous, bi-partisan support for it from the House committee is likely to create strong pressure on the Senate to follow suit.

“After years of compromise and collaboration across the music, tech and policy sectors to reach this point, the Music Modernization Act of 2018 will help songwriters to be better compensated for their work and positively impact how their music is licensed,” Copyright Alliance CEO Keith Kupferschmid said of today’s action. “We commend Chairman Goodlatte (R-VA) and Ranking Member Nadler (D-NY), Representatives Collins (R-GA) and Jeffries (D-NY), and all who demonstrated vigorous backing for this critical piece of legislation, enabling it to be passed through committee with decisive and overwhelming bipartisan support.”

Kupferschmid will lead a panel discussion on copyright and licensing reform, including the Music Modernization Act, at the RightsTech Summit on Oct. 5 in New York.

The Music Modernization Act: Making the Case for Open Data

The Music Modernization Act (MMA) has been scheduled for a vote in the House Judiciary Committee on April 9th, where it’s expected to pass with bipartisan support, committee chairman Bob Goodlatte’s (R-Va.) office confirmed Wednesday.

Still to be determined is whether it will go to the House floor as a standalone bill, or gets bundled into a package of music-related measures, including the CLASSICS Act, and the Allocation for Music Producers (AMP) Act. Either way, the MMA stands to be the most significant piece of legislation affecting music licensing in a generation.

“It’s also the only significant piece of legislation affecting music licensing in a generation,” quipped National Music Publishers Association CEO David Israelite during a panel discussion on Capitol Hill this week on music licensing issues.

In addition to being a rare example these days of genuine bipartisanship in congress, the MMA has proved an even more rare example of consensus among nearly all the (frequently warring) institutional voices within the music industry, including organizations representing digital service providers, publishers, songwriters, and record labels.

The bill is aimed at solving an enduring problem within the music industry that has grown more acute with the rise of streaming as the dominate mode of distribution for sound recordings: uncertainty and inefficiency in licensing mechanical reproduction rights for musical compositions.

Under U.S. copyright law, songs are subject to a compulsory mechanical license. Once a song is published, anyone can record it by notifying the songwriter or representative of their intent and paying the statutory royalty set by the Copyright Royalty Board. Unlike the performance right for songs, however, where a venue or service provider can obtain blanket licenses from ASCAP, BMI, SESAC, and GRD for their entire catalogs of works, covering nearly every song published in the U.S., and unlike other major territories, there is currently no blanket licensing facility here for mechanical rights. Instead, a service provider like Spotify or Apple Music, with upwards of 30 million or more sound recordings in their libraries, must locate, notify, and pay the songwriters or administrators for each of those recordings individually, many of which have complex, and often opaque fractional ownership structures.

Alleged failures to correctly locate and pay the appropriate rights owners have led to a raft of litigation against service providers for copyright infringement, including the $1.6 billion lawsuit currently pending against Spotify brought by Wixen Music Publishing.

The MMA would address that problem by creating a blanket license for mechanical rights and creating a new entity, selected by the Copyright Office, to administer it. Instead of having to pay each songwriters individually, service providers could write one check to the new entity, which would assume the burden of locating and paying the appropriate rights owners. The costs of operating the new entity would be paid by service providers, eliminating the need for the new entity to charge a commission to songwriters.

Songwriters and publishers would gain greater certainty of being paid, while service providers would be relieved of an enormous administrative burden and protected against the risk of litigation.

It is that alignment of interests that has led to the broad consensus in support of the MMA within the industry. But the MMA’s most important contribution could be to prove the case for open data and open protocols.

In addition to administering the blanket mechanical license, the new licensing entity envisioned by the MMA would, for the first time, create an open, publicly available database matching sound recordings to musical compositions and their authors and owners.

“We’re really changing the paradigm on data,” said NMPA’s Israelite, one of the MMA’s main architects. “Throughout the history of the music business databases have been regarded as proprietary. ..We want to encourage competition.”

By making critical ownership data public, MMA’s backers hope, entrepreneurs will be able to develop new applications and services beyond the current crop of streaming services, bringing new investment and new revenue into the music business.

“I don’t think streaming is the be-all and end-all in terms of business models,”  Panos Panay, VP for innovation and strategy at Berklee College of Music and a leader of the Open Music Initiative, said during the same panel discussion. OMI is working to develop open protocols for the exchange of music rights data, which could achieve some of the same effects as the proposed MMA database.

“With open protocols you can build an ecosystem, you can have innovation” Panay said. “The MMA, hopefully, will let this industry finally move beyond its past. If we get this right, we won’t have to stop at streaming. All sorts of new applications could be developed to create all sorts of new revenue streams.”

If that pans out, it could provide a valuable proof of concept for other rights based industries. An open and verified database of authenticity and provenance for images and artworks, for instance, could help unlock new licensing and e-commerce opportunities that are today held back by high levels of uncertainty and fraud.

Likewise, the lack of an open, comprehensive database of rights to published works makes it difficult for would-be developers to learn what works are available for license in which territories, holding back the creation of potentially new, digital applications and revenue streams for authors and publishers.

Much will depend on how well the new music rights database is maintained. There are companies in the market today, such as Music Reports and Loudr, that have already compiled comprehensive databases matching sound recordings to compositions and their rights owners, and they invest significant money and effort to verify the data and keep it current. Whether the administrators of the new open, non-proprietary database will have the same incentive to maintain it at a high level of accuracy and currency remains to be seen.

“Everyone will benefit from having this, and everyone is hurt by not having it,” Panay said of envisioned new database. “I think the important thing is that puts a focus on the data, and the importance of good data.”

 

Developing the Digital Marketplace for Copyrighted Works

The RightsTech Project served as an adviser to the U.S. Patent & Trademark Office on the program for its January 25th public meeting on Developing the Digital Marketplace for Copyrighted Works. Transcripts and video of the sessions are now available.

Video 1 includes the keynote presentation by Bill Rosenblatt of Giant Steps Media and the Panel Session 1, on creating globally unique identifiers for copyrighted works, moderated by Evan Sandhaus, Executive Director, Knowledge and Metadata Management at The New York Times

Video 2 includes Panel Session 2, on the role of registries in commerce, moderated by Jim Griffin, Managing Director of Hazen, LLC, and presentations by Lobster.media and the U.K. Copyright Hub Foundation.

Video 3 includes Panel Session 3 on licensing and monetization, moderated by Vickie Nauman, Founder of CrossBorder Works, and Panel Session 4, on global perspectives, moderated by Paul Sweeting, Co-founder of the RightsTech Project, along with closing remarks by John Morris, Assistant Administrator and Director of Internet Policy at the National Telecommunications Infrastructure Administration.

The full transcript of the event is available here. The agenda and speaker bios are available here.

 

New Storms Over Safe Harbors

CISAC, the international confederation of authors’ societies, this week released a study conducted by University of Texas economist Stan Liebowitz on the impact of the safe harbor provisions in the Digital Millennial Copyright Act and their counterparts in the European Union’s E-Commerce Directive on music rights holders.

Although Liebowitz gives it a scholarly gloss, much of his analysis will be familiar to anyone who has followed the debate over the so-called value gap, between what music rights owners earn from their music appearing on YouTube and other user-upload platforms, and what they earn from fully licensed platforms like Spotify and Apple Music: YouTube is given unfair negotiating leverage over rights holders because the protection from liability offered to service providers by the safe harbors mean it is effectively impossible for rights owners to withhold their content from the platform if they don’t like the terms, resulting in below market rates.

But Liebowitz ups the ante by emphasizing two dynamics not often highlighted by other analysts that he claims exacerbate the problem.

The first point — of particular note to RightsTech readers — is Liebowitz’s contention that YouTube could be making its much-touted Content ID system for identifying unlicensed copyrighted works on the platform less effective than it could be because a more effective filter would undermine its leverage with rights owners.

Although copyright owners should have a duty to provide YouTube with information about their copyrighted works before they could claim copyright infringement, once such information were provided, normal copyright law, without the safe harbor, would provide the proper incentives for YouTube to make sure that its Content ID worked better than any alternative…One of the main impediments to this solution, however, is Google’s incentive, which is to make YouTube’s voluntary filtering system only accurate enough to silence critics of its treatment of
copyright holders, as opposed to actually eliminating infringing files…

If Google wants to claim to be going above and beyond the requirements of the DMCA, it is merely necessary for it to provide a Content ID system that works moderately well, since any such system is voluntary. In fact, it would be surprising if Content ID worked as well as Google could make it, since such a Content ID system would weaken YouTube’s bargaining position with the copyright holders with whom it does business. If Content ID worked as Google suggests, meaning almost perfectly, copyright owners who thought they were being underpaid by YouTube would remove their material from YouTube since YouTube’s users would no longer have access to those copyrighted works, as Google claims in the above quote. As we shall soon see, however, the current Content ID system is insufficiently accurate to remove YouTube’s superior bargaining position, which is why YouTube is fighting to keep the safe harbor which it would not need with a more accurate Content ID system.

That comes pretty close to accusing YouTube of bad faith in designing Content ID (without citing any actual evidence of it apart from YouTube’s alleged incentive) — a potentially explosive charge if it were taken up by others as part of the broader value-grab argument.

Liebowtiz’s second (and less tendentious) contribution to the debate is his claim that YouTube’s below-market rates are actually a drag on all market rates, further undercutting compensation to rights owners.

[T]here are two sources of negative impacts of [user-upload content] sites on the revenues to copyright owners. The first, which is a static effect, is the lower direct payment to copyright owners by UUC sites because these sites do not need permission of the copyright owners to provide access to their works and if they get permission they pay below market rates. Second, and of a size that could be larger than the first, is a dynamic effect which is the reduction in revenues from the unfair competition that UUC sites impose on permission based sites, lowering their audiences and  revenues, and by necessity, reducing the payments that they make to copyright owners…

Thus, there are additional sources of harm to copyright owners caused by the advantage that safe harbors provide to UUC sites, and these sources of harm are usually ignored in discussions of safe harbors.

That’s an argument that could find favor with Spotify, Apple, and other fully licensed sites that have so far largely stayed out of the debate over the safe harbors.

The full report is available here.

 

Cat’s Paw: The Promise and Peril of Decentralized Creativity

When the developers behind the viral sensation CryptoKitties first turned their virtual cats loose on the blockchain they intended to hew closely to the blockchain ethos of decentralization. Accordingly, the only components of the game actually registered on the Ethereum blockchain are the ownership of the individual cats and the cats’ “digital DNA” that allows them to “breed” with other virtual cats to create new unique CryptoKitties.

The actually renderings of the kitties — the goofy, cartoonishly colored cat images that have seduced users into the world of crypto and virtual assets — were never added to the chain.

“The code is all open-source. I was really hoping that people would start to do their own renderings of the cats,” CryptoKitties Fat Cat Mack Flavelle told a packed house at the Digital Entertainment World conference this week. “If you wanted to go in and change the code so that your cat rendered with antlers you could do that. It’s your cat.”

Had the code for rendering the images been added to the blockchain it would have become immutable, which would have made modification of the code impossible.

“Decentralization meant decentralization,” Flavelle said.

That philosophy carried over to ownership of the intellectual property in the images as well. Part of goal in launching CryptoKitties, Flavelle explained, was to introduce people without a background in blockchain or cryptography to the concept of owning virtual assets, which mean Axiom Zen, the studio behind CryptoKitties, abjuring any interest of its own in the images.

“We we get questions from people asking whether they can make a t-shirt with their cat on it to give to someone, and we’re like, ‘knock yourself out.'” Flavelle said. “If you want to print up 800 t-shirts with your cat and sell them you can. It’s your cat.”

As a proof of concept, that approach has worked spectacularly. CryptoKitty owners have quickly become possessive toward their cat and put great store in its appearance, according to Flavelle. The vast majority of the buying and selling of the cats, along with their “breeding” rights, he said, has been transacted directly between owners, rather than through CryptoKitties’ own marketplace, implying that players indeed view the images of their virtual cats as having real value, independent of the platform they were born on.

To date, 10 CryptoKitties have sold for more than $100,000 each, Flavelle reports.

The success of CryptoKitties’ decentralized model, however, turns out to have a dark side. According to Flavelle, scammers have seized on the popularity of CryptoKitties to try to defraud people of money by selling them fake kitties. With no fixed code for the images on the blockchain, and no claim of rights in them itself, Axiom Zen has found itself with few technical or legal tools to pursue the scammers.

Flavelle said he is searching for ways to prevent scammers from infiltrating the CryptoKitties ecosystem without compromising its decentralization, but is yet to hit on a workable solution.

“It’s a problem we need to solve,” he said. And a possible warning sign for other entrepreneurs looking to democratize and decentralize the creative process.

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