Category Confusion and Its Consequences:

January 1, 1998

BY:

Neil J. Rosini

Online Transmissions and the rights of Exclusive Use Under Copyright

(Originally published in “Entertainment and Sports Lawyer,” a publication of the American Bar Association, 1988.1)

From its beginning, “the law of copyright has developed in response to significant changes in technology.”2 What distinguishes current developments in copyright law is the speed with which a succession of new technologies has been adopted and widely used by the public. This has left changes in the law lagging far behind recent changes in technology, especially as they pertain to the internet and online transmissions.

In the early 1990’s, judges struggled to apply traditional copyright law to the new technological/environment. In late 1995, the Clinton administration joined in by issuing a 260-page White Paper3 offering controversial interpretations of existing law and proposed amendments to it. These have been debated but not yet adopted as law. (Bills in both houses of Congress to implement the White Paper’s proposals were introduced in 1996 but were stymied by controversy; though the legislation is apparently not being reintroduced in the current session, the rationales underlying its analysis and proposals are still being discussed.)

The international community considered some of the White Paper’s recommendations at the World Intellectual Property Organization (WIPO) Diplomatic Conference in December 1996. But the Special Agreement under the Berne Convention sometimes referred to as the WIPO Copyright Treaty,4 and the separate performances and phonograms treaty adopted at the conference took limited tacks respecting online transmissions.

Online transmissions raise significant challenges to existing copyright law. While case law has found willful, substantial, unauthorized online use of copyrighted works to infringe, the decisions are not consistent in identifying the exclusive rights that have been infringed.

Confusion Among Categories of Rights

Subject to certain statutory exemptions and compulsory licenses,5 the Copyright Act sets out five categories of exclusive rights in copyrighted works: the rights of reproduction, distribution, public display, and public performance and the right to prepare derivative works, sometimes called the adaptation right.6 Determining which of these categories of rights is implicated by online transmissions remains a confusing task.

The initial source of confusion is probably perceptual; direct experience using copyrighted works online offers little guidance when measured against statutory definitions. A user can “experience” a work by merely “calling it into the RAM of [a] … computer and accessing it.”7 This activity may constitute reproduction, performance, and display. The user may also adapt the work or send it to any number of friends with “the click of a few keys.”8 The result is that all “categories of copyright exploitation thereby collapse into uniform wholeness.”9 An act that the user may perceive as a public performance, such as a digital broadcast of a popular song, is also potentially a transmission of a reproduction to the listener’s computer. An act that the user may perceive as a reproduction, such as ordering the delivery of a document to a home computer’s screen and memory, is also potentially a public display by means of transmission.10 Both acts are, or may soon be, defined as distributions.

Not surprisingly, judges have no easier time than internet visitors in making these distinctions. While acknowledging that a plaintiff in a copyright action must prove ownership of a copyright and a violation of one of the five exclusive rights, a number of recent court decisions have indicated that keeping the categories distinct may not be worth the effort, following the nine-year-old lead of the Ninth Circuit in S.O.S., Inc. v. Payday.11 These judges have conflated all five categories by using the word “copying” as a “shorthand for the infringing of any of the copyright owner’s five exclusive rights.”12

Right of Reproduction

The reproduction right is the exclusive right to “reproduce the copyrighted work in copies or phonorecords.”13 “Copies” are material objects “in which a work is fixed by any method now known or later developed . . . , “with fixation defined as “embodiment in a copy … by or under the authority of the author” which is “sufficiently permanent or stable to permit it to be perceived, reproduced, or otherwise communicated for a period of more than transitory duration.”14

When electronic copies are stored without authorization, courts likely will find an infringement of the reproduction right. This result applies even when copies are downloaded temporarily into random access memory (RAM), in accord with the Ninth Circuit’s decision in MAI Systems Corp. v. Peak Computer, Inc.15 MAI held that copying occurs upon transfer from a computer storage system to RAM because, as the plaintiff argued, the representation created in RAM is “sufficiently permanent or stable to permit it to be perceived, reproduced, or otherwise communicated for a period of more than transitory duration.”16 It follows that a copy downloaded into RAM merely to review a file is sufficiently “fixed” to amount to a reproduction. The White Paper agrees,17 as do a string of decisions that follow MAI and offer similar rationales.18

That random access memory is transient does not, in the view of these courts, make its contents “transitory.”

The issue is not settled, however. Delegates to the WIPO Diplomatic Conference debated whether the reproduction right includes temporary copies in RAM, and after failing to reach agreement left the question unresolved.19

Recent amendments to the United States Copyright Act in the Digital Performance Right in Sound Recordings Act of 1995 are at odds with an absolute application of MAI. They imply that not every download into RAM creates a fixation sufficient to establish a reproduction.

The act provides for a compulsory musical composition license for “digital phonorecord delivery,” which is defined as “the delivery of a phonorecord by digital transmission of a sound recording which results in a specifically identifiable reproduction…” (emphasis added).20 This definition specifically excludes “noninteractive subscription transmission of a sound recording where no reproduction of the sound recording or the musical work embodied therein is made…in order to make the sound recording audible” (emphasis added).21 But even streaming technology22 — which is an apparent target of this exclusion — involves a fleeting reproduction in RAM. If a reproduction occurs every time a sound recording is downloaded into RAM, how can there be a transmission of a sound recording without a reproduction? And if a temporary reproduction in RAM is not “a specifically identifiable reproduction,” then in what sense it is sufficiently “fixed” to constitute a reproduction at all?23 Perhaps some downloads into RAM are to be deemed sufficiently “transitory” to avoid “fixation” while others are not. But the act does not tell us.24

When online transmissions result in relatively permanent copies, such as those stored in a computer hard drive, infringement of the reproduction right is more evident and less controversial. In Sega Enterprises v. MAPHIA,25 the court found that using a bulletin board service to make and distribute copies of a copyrighted video game infringed the copyright owner’s reproduction right. Simply loading the file into the downloading server’s hard drive may constitute an infringement of that right.26

Right of Distribution

The distribution right, defined as the right “to distribute copies or phonorecords of the copyrighted work to the public by sale or other transfer of ownership, or by rental, lease, or lending,”27 also raises more difficult questions. The definition seems to require the transfer of a material object in which a work is fixed. In the case of transmission of a file online, the recipient receives possession of a copy of the file, but there has been no transfer of a physical object. If the right of distribution contemplates dissemination of copies or phonorecords, how can an online transmission, which involves no “transfer of ownership” of the distributor’s copy, constitute a distribution?28

You can focus on this kind of question until your eyes cross, or you can raise your head, extend your vision, and spy a solution in the distance. This is what a district court did in Playboy Enterprises, Inc v. Frena.29 The defendant in Frena operated a subscription bulletin board that disseminated “high quality computerized copies” of photographs taken from issues of Playboy magazine without authorization. In finding liability for copyright infringement, the court resolved the distribution issue in two sentences: “There is no dispute that Defendant Frena supplied a product containing unauthorized copies of a copyrighted work. It does not matter that Defendant Frena claims it did not make the copies itself.”30 The circumstances of Frena were similar 25 to those in Sega Enterprises v. MAPHIA,31 where a copyrighted video game was carried on a bulletin board service without permission. The Sega decision found the infringement related to the right of reproduction but did not reach a similar conclusion with respect to the distribution right. The Frena decision found the infringing acts related to the right of distribution but not to the right of reproduction.

This confusion is acknowledged in the White Paper:

It is clear that a Frena subscriber, at the end of the transaction, possessed a copy of a Playboy photograph, but it is perhaps less clear whether, under the current law, Frena “distributed” that photograph and whether Frena or the subscriber “reproduced” it (and, if the latter, whether current law clearly would have made Frena contributorily liable for the unauthorized reproduction).32

The White Paper favors the view that an unauthorized transmission infringes both rights.33

The defendant in Frank Music Corp. v. CompuServe, Inc. conceded the same point in the context of musical works by agreeing to pay for “mechanical licenses” (the right to reproduce and distribute copies) as part of a 1995 settlement.34 In CompuServe, the music publisher plaintiffs alleged that CompuServe infringed copyrights in hundreds of musical compositions by permitting them to be uploaded, downloaded and maintained in CompuServe’s musical instrument digital interface files, which embodied plaintiff’s musical compositions. The case was settled when CompuServe paid $568,000 in damages and agreed to cause its managers to request electronic mechanical licenses” before furnishing online sound recordings in the future.35

Congress seems in accord here. By providing for a compulsory license to “make and distribute” phonorecords of a nondramatic musical composition by online digital phonorecord deliveries (as defined in the statute)36 the Digital Performance Right in Sound Recordings Act of 1995 affirms that the rights of both reproduction and distribution are implicated by digital transmissions, at least in the context of sound recordings.37

In considering the Digital Performance Right in Sound Recordings Act of 1995, Congress also had occasion to address the issue of whether an online transmission of a work which implicates the performance right could constitute a distribution of a musical composition as well. By making such transmissions the subject of a compulsory distribution license, Congress answered that question affirmatively,38 at least for the online transmission of sound recordings. As for other types of works, however, Congress intended to “express no general view on the subject,”39 deferring that question to some future date.40

With Congress finding the issue challenging enough to defer, it is small wonder that some judges have a difficult time sorting it out. In Marobie, the district court held that a distribution had occurred through the very “placement of the [infringing] files . . on the defendant’s Web page,” even accepting, as the defendant claimed, that no one “actually downloaded and received” any of the infringing files. A distribution occurred simply because the files were made “available for downloading”41 (emphasis added).” Similarly, the court in Playboy Enterprises v. Russ Hardenburgh, Inc., found that the defendants infringed the distribution right by disseminating “unlawful copies of [the plaintiff’s copyrighted works] … to the public by adopting a policy in which [the defendant’s] … employees moved those copies to the generally available files [where they were ready to be downloaded] instead of discarding them.”42 Other case law, however, simply follows Frena, and without analysis equates remote reception by online transmission with infringement of the distribution right.43

Rights of Public Performance and Display

The right of public performance applies in a limited way to digital transmission of sound recordings and generally to literary, musical, dramatic and choreographic works, pantomimes, motion pictures, and other audiovisual works. Its twin, the right of public display, applies to literary, musical, dramatic and choreographic works, pantomimes, and pictorial, graphic, or sculptural works, including the visual images of a motion picture or other audiovisual work. Both reserve for the copyright owner the exclusive rights to perform or display copyrighted works publicly.44 To display a work means to “show a copy of it, either directly or by means of a film, slide, television image, or any other device or process or, in the case of a motion picture or other audiovisual work, to show individual images nonsequentially.”45 As for sound recordings, the performance right has limited application because of a quirk of copyright history; except for certain digital audio transmissions, authors still possess no exclusive public performance right in sound recordings.46

For a performance or display to be “public,” it must occur “at a place open to the public or at any place where a substantial number of persons outside of a normal circle of a family and its social acquaintances is gathered,” or it must involve a transmission or other communication of a performance or a display to such a place, or to the public, “by means of any device or process, whether the members of the public capable of receiving the performance or display receive it in the same place or in separate places and at the same time or at different times.”47 A transmission of advertising slides on local cable is a public display. A television transmission of a movie is a public performance. But what about online transmissions?

The White Paper answers this question by drawing a distinction between transmissions of copies of works and transmissions of performances or displays of works. When a copy of a work is transmitted by wire, fiber optic cables, satellite signals or other modes in digital form but without the capability of a simultaneous “rendering” or “showing,” it is not performed. On the other hand, when a work like a motion picture is “rendered” by showing its images in sequence so that users with the right hardware and software might watch it with or without copying the rendition, then, says the White Paper, a performance has occurred.48Under this analysis, a work can be “transmitted” without being “performed.” And in the White Paper’s view, a performance that occurs over the internet will be considered public even if it is viewed by only one person at a time, each from a separate location, and each at a different time, such as by accessing a website.49

Because the public display definition includes the projection of an image on a screen or other surface by electronic or other means, like a TV tube or computer monitor, merely browsing through copies of accessible works or visiting a web site results in a public display.50 In the Frena case, the court found that the defendant infringed exclusive display rights as well as Playboy’s exclusive right to distribute those photographs. The court observed that “[t]he display right precludes unauthorized transmission of the display from one place to another, for example, by a computer system,” and that the display was public because the audience consisted of a substantial number of persons outside a normal circle of family members and social acquaintances.51

Right to Prepare Derivative Works

The fifth exclusive right of copyright owners, the right to prepare derivative works, may be less likely to be confused with the other rights. Thus far, it has seemed relatively clear when a work has been “recast, transformed, or adapted,” not merely reproduced, distributed, or displayed.

Consequences of Confusion Among Rights Categories

The confusion among categories of exclusive rights in the online environment, and the manner in which these category conflicts are resolved, have substantial economic implications. For example, as noted above, it is unclear whether the simple downloading of a web site onto a diskette in a consumer’s PC implicates the right of reproduction, the right of distribution, or both. If the online transfer constitutes a distribution, the copyright law’s limitation on the distribution right known as the “first sale” doctrine might apply.52

If the first sale doctrine applies to the download of, say, a novel onto a consumer’s diskette, the owner of that diskette might conceivably collect many more like it and rent them for a profit, as Blockbuster rents videos, at a per-use cost which is less than the author charges for a personal copy. The first sale doctrine is not triggered, however, until a distribution occurs; if an online transmission is deemed a reproduction but not a distribution, the first sale doctrine would not apply to the user’s copy. No rental for profit would then be permissible without the permission of the website copyright owner.

Category confusion also clouds claims of rights under copyright that are no longer held by the author. An author does not always retain all of the exclusive rights under copyright; many copyright owners parcel out the exercise and enforcement of different categories of rights among different licensees, assignees and representatives, who may each possess a claim of ownership for a single exclusive right. So, if transmissions turn out not to implicate one exclusive right, the author’s copyright will not be significantly undermined so long as the author still holds the entire bundle of exclusive rights, and the digital transmissions can be deemed to infringe another exclusive right. But because it remains unclear which categories are implicated by an online transmission, if exclusive reproduction rights and public performance and display rights pertaining to digital transmissions have been transferred to two different parties, then neither has a clear-cut exclusive right to disseminate copies of the work over digital networks. In addition to the risk of resulting litigation with and between its licensees, a copyright licensor also faces the reduction or loss of royalties from one or both.

Users of copyrighted works may find themselves with little practical choice other than to pay multiple rights owners, each with their hands extended for a single online exploitation, rather than pay the single owner of a single right. If digital communication implicates any or all of a reproduction or a public performance or display, the traditional distinctions between these separate rights become elusive. The holder of each right, if those rights holders are different, will be looking for a fee from the same transmission, and none of them will be able to claim exclusive rights for themselves either to collect license fees or to issue licenses.

This effect is illustrated by online downloads of recorded music. The musical composition performance right is often licensed nonexclusively to performing rights societies, such as ASCAP. ASCAP maintains that all transmissions of music online — including downloads that can only be heard after the transmission is complete and not during the transmission itself — constitute public performances for which royalties must be paid. (This claim is inconsistent with the distinction drawn by the White Paper, which claims that a work which is transmitted but not rendered results in a reproduction, not a public performance.)53 As for the rights of reproduction and distribution, it is now established that downloads of musical compositions require mechanical licenses that cover both rights.54 As a result, those who download musical compositions might be forced to choose between paying for two licenses — both the public performance license and the mechanical license covering reproduction and distribution — or litigating to determine if only one such payment is required.

The Limited Proposals of the White Paper

The White Paper offered little in the way of legislative recommendations to resolve these issues. Those legislative initiatives it did recommend respecting amendment of the distribution right have been allowed to die (apparently because intervening judicial decisions have not questioned the inclusion of transmissions within the distribution right). Nevertheless, the White Paper’s underlying premises, which have been relied upon in court decisions and are likely to influence both judicial and legislative policy decisions to come, still bear scrutiny in the context of category confusion. The underlying premise of all the White Paper’s advice was that creators, publishers and distributors of copyrighted works would be wary of the electronic marketplace unless the law provided them with the tools to protect their property against unauthorized use.55 The White Paper reflected the view that the best way of assuring online users access to the broadest variety of works would be to recognize the rights and commercial expectations of existing and potential authors with works in the online environment.56

The White Paper generally interpreted existing precedents in favor of copyright owners rather than copyright users.57 Its authors observed that implicating more than one right under copyright in an infringing activity is not necessarily something to avoid.58From the White Paper’s standpoint, there is little need to resolve category confusion in a comprehensive way as long as each owner of an exclusive right is compensated for an activity online which arguably transgresses that owner’s category.

As a result, the White Paper offered little toward the avoidance of category confusion. Its recommended legislation would have merely settled the question of whether a “transmission” to the public constitutes a “distribution” by expressly affirming that it does.59 It proposed to accomplish this by adding transfer by “transmission” to the definition of the exclusive right of distribution in Section 106(3), joining distribution by sale or other transfer of ownership, and rental, lease or lending, which the statute now recognizes. The definition of “transmit,” which currently covers only performances and displays, would be expanded to embrace distribution of reproductions “by any device or process whereby a copy or phonorecord of the work is fixed beyond the place from which it was sent.”60 The definition of “publication” would have been amended to “recognize that a work may be published through the distribution of copies of the work to the public by transmission.”61

The White Paper asserted that the proposed amendments did not represent the creation of a new right, but rather represented an express recognition that, as a result of technological developments, the distribution right can be exercised by means of transmission — just as the reproduction, public performance and public display rights may be.62 The proposed amendments thus underscored the relevance of the distribution right to online transmissions while leaving open the question of whether a transmission implicates other rights. The White Paper’s recommended amendments making internet transmissions part of the distribution right, even if enacted, would have done little to clarify the categorization of exclusive rights protected by copyright in an online environment.

Conclusion

Solving online category confusion is a daunting task. Anyone trying to apply existing categories of rights to online activity will find that technology is increasingly blurring the boundaries between those rights. Creating additional or substitute categories of rights or pursuing any other drastic alternative will be difficult because the stakes are so high. The results of efforts to create new categories of rights or resolve old boundary problems will determine who gets to collect fees for protected uses and what costs must be borne by technical innovators and content providers. The effects of these decisions will be wide-ranging and the financial consequences enormous.

With no legislative solution on the horizon and legislators’ apparent reluctance to get involved, a good threshold question is whether the legislative process should be employed in this dispute at all. One problem with the legislative approach is that the rapidly evolving nature of the technology may outpace any comprehensive effort to identify the best course of action, draft legislation, and enact it into law.

On the other hand, a legislative solution offers a number of distinct advantages. In an international context, legislation by treaty allows for harmonization of rights across borders. Domestically and internationally, legislative change brings a greater degree of certainty more quickly to a greater number of interested rights holders than slower evolution through case decisions. The legislative process also allows for a more comprehensive solution, including careful and deliberate assessment of the financial, social, and cultural effects on various constituencies in changing the law.

Current confusion leaves copyright owners and copyright users in a quandary. Those taking advantage of new digital technologies will probably try to avoid multiple rights payments by arguing with vigor (if not certainty) that their activities fall exclusively into one category or another. And much confusion will undoubtedly be sorted out in the marketplace by litigation-averse parties making prudent compromises. The balance of disputes, however, will be consigned to the courts. It could take years before copyright owners and copyright users know with any degree of certainty which unauthorized online uses are embraced by existing and future categories of copyright protection, and which are not.

Meanwhile, attorneys negotiating and drafting agreements on behalf those obtaining rights in others’ copyrighted works should assume that the rights of reproduction, distribution, “transmission” — in the sense employed in the White Paper — public performance and display, and (for good measure) adaptation, might be implicated in online uses, and acquire a license for each of them, particularly when all rights are easily acquired from a single source. Also, when commencing actions against online infringers, owners of rights under copyright should take pains to plead violation of each category of right that is arguably applicable, lest the finder of fact determine that the infringement implicates a right left out of the pleadings. Attorneys interpreting existing agreements that grant online rights in some exclusive categories but not others should be wary; an infringement could be waiting to happen. Those who hold exclusive rights in a work in some categories (such as the distribution right), but not others (such as the right of reproduction), might also contemplate what would be wrought by changes in the law that would eliminate their claims to royalties by favoring a category not in their possession.

To take a cue from the decision aptly known as S.O.S., we might all contemplate what form might be given to a new copyright law in which each of the five current exclusive rights gives way to a simple right of “copying.”63

ENDNOTES

1. Neil J. Rosini is a partner at Franklin, Weinrib, Rudell & Vassallo, P.C., 488 Madison Avenue, New York, New York 10022, (212) 935-5500, e-mail: njr@fwrv.com. This article, in a slightly modified version, first appeared in the Entertainment and Sports Lawyer, a publication of the ABA Forum on the Entertainment and Sports Industries, Volume 16, Number 1, Spring 1998.

2. Sony Corp. v. Universal City Studios, Inc., 464 U.S. 417, 430 (1984).

3. Working Group on Intellectual Property Rights & Information Infrastructure Task Force, Intellectual Property and the National Information Infrastructure (1995) (hereinafter White Paper).

4. Berne Convention for. the Protection of Literary and Artistic Works (WIPO Copyright Treaty, art. I) (Paris Act of July 24, 1971).

5. See the fair use defense, statutory exemptions and compulsory licenses in 17 U.S.C. §§ 102(b), 107, 110-112, 115-119 (1994).

6. See 17 U.S.C. § 106.

7. Melville Nimmer & David Nimmer, 8 Nimmer on Copyright 354 (1997).

8. Id.

9. Id.

10. See Jane C. Ginsburg, Putting Cars on the “Information Superhighway”: Authors, Exploiters and Copyright in Cyberspace, 95 Colum. L. Rev. 1466, 1482-1483 (1995).

11. 886 F.2d 1081, 1085 n.3 (9th Cir. 1989).

12. Id. See also Marobie-FL, Inc. v. National Ass’n of Fire Equip. Distrib., 1997 U.S. Dist. LMS 18764, at ‘5 n.1 (N.D. 111. 1997); Sega Enters. v. MAPHIA, 948 F. Supp. 923, 931-932 (N.D. Cal. 1996); Religious Tech. Ctr. v. Netcom Online Communication Serv., Inc., 907 F. Supp. 1361, 1366 n.7 (N.D. Cal. 1995); Ohio v. Perry, 1997 Ohio App. LFMS 453, at *4 n.7 (Ohio Ct. App. 1997) (citing no precedents).

13. 17 U.S.C. § 106 (1994).

14. 17 U.S.C. § 101, emphasis added.

15. 991 F.2d 511, 518-519 (9th Cir. 1993).

16. Id.

17. White Paper, supra note 2, at 28.

18. Marobie-FL, Inc. v. National Ass’n of Fire Equip. Distrib., 1997 U.S. Dist LEXIS 18764, at *28 (N.D. Ill. 1997) (holding that the fact that a copy is transmitted after it is created, or even as it is created, does not change the fact that once an internet user receives a copy, it is capable of being perceived and thus “fixed”); Religious Tech. Ctr. v. Netcom Online Communication Serv., Inc., 907 F. Supp.