<b><i>Commentary:</b></i> Comparing Collective Licensing Proposals For Internet Licensing of Copyrighted Content

Proposal 1: A Government-Mandated Public Right

Proponents of a government-mandated public right argue that Congress should amend the copyright laws to create a right to collect reasonable fees from all
Internet users at their point of access, in exchange for the ability to consume music and other copyrighted intellectual property on the Internet. Under the most publicized model, all U.S. ISPs and university networks would add a fee (figures around $5 are being proposed) to their usual charges and funnel the money collected to one or more existing, or newly formed, collective rights organizations (CROs). In order to collect their portion of the fee, artists and other rights holders would be required to join a CRO, and each CRO would be responsible for distributing the proceeds received from the ISPs among its members, based upon a formula reflecting the value of the works or the number of times the works are exploited by Internet users. The ISP's role in collecting fees would warrant retention of a small percentage of the fees collected to be used for investment in network capacity, and to pay for up-to-date content identification and monitoring technologies. According to some, the fees collected would create a pool as large as $20 billion annually to pay artists and copyright holders.

Proponents of a new digital right argue that moving to a compulsory-license fee system is necessary because relying on market forces to compensate rights holders has not worked. They argue that most files are shared on the Internet for free, and a compulsory licensing system would avoid the difficulty of sorting out contractual claims or renegotiating them. They propose that society at large would benefit from lower transaction costs and less litigation, because the sharing of content on the Internet would be legitimized and compensated. Finally, they claim that a marketplace of competing premium file sharing and streaming applications and ancillary services could develop in a legal, instead of illegal setting.

Issues with Implementation

Implementing a compulsory collective-rights licensing system would require revising the copyright provisions in Title 17 of the U.S. Code, an onerous process that could take years before the resulting language is adopted. The revisions would need to include a licensing scheme that authorizes ISP customers to copy, display and publicly perform works downloaded from, and uploaded to, computers on the Internet. The legislation also would need to describe in some detail the entity responsible for accounting to the rights holders, and possibly provide guidelines for measuring how much to pay particular rights holders. Theoretically, rights holders would retain their rights to sue Internet users for direct infringement if they fail to pay the fees or otherwise circumvent the system. Also in theory, ISPs would remain secondarily liable for copyright infringement if they failed to properly account to the CROs for all of the fees collected from their customers.

Fair Use

Other hotly contested questions remain. For example, whether or not rights holders would retain the exclusive right to create and authorize derivative uses of their works or otherwise retain control over how users manipulate their works. Also, whether a process to more precisely determine what constitutes fair use would be needed, because at least some of the material being downloaded could arguably fall into this definition and therefore not qualify for payment. Finally, given the judicial consent decree under which both ASCAP and BMI currently operate, Congress would need to remain alert to any antitrust concerns presented by one or more new or existing CROs assigned the task of collecting fees.

Opponents of compulsory collective licensing claim that a mandated right amounts to a tax for consumption of intellectual property on the Internet where the cost is allocated to all users equally regardless of their individual consumption level. Furthermore, consumers with strong moral and ethical positions might be forced to support financially content to which they are morally or ethically opposed.

Before a collective-rights licensing system could be implemented, a wide variety of technological problems would need to be solved with respect to data collection, use and measurement. There is a burgeoning market of Internet media tracking, usage measurement, security, royalty collection and related tools that use various methodologies to achieve accuracy. Proponents of collective licensing tend to gloss over the details of how to decide which of these has the most reliable data, or how the system that is finally used would be chosen.

Other Legal Issues

In addition to the many technology issues, there are practical legal concerns. For example, some argue that a new tribunal would need to be established to work out royalty payment disputes between multiple parties applying to be paid their collective licensing share. Furthermore, ISPs might become subject to additional duties to account, and might become more vulnerable to secondary liability for participating as middlemen in fraudulent or otherwise unauthorized transactions, whether voluntarily or involuntarily. ISPs would certainly not want to sacrifice any of their existing immunity under the Digital Millennium Copyright Act (DMCA; 17 U.S.C. '512) by participating in data collection or enforcement at the direction of third parties. Explicit statutory immunities would be necessary to reduce transaction costs and ensure participation by ISPs. Finally, data collection and use practices would need to conform to the requirements of the Electronic Communications Privacy Act (ECPA), so that users' private information and personal media consumption data would not be sold without users' consent.

Last, there are market disruption concerns. Rather than a gradual transition away from physical distribution technology, a mandatory system may unnecessarily accelerate the reduction in sales of physical media products, which still represent a substantial percentage of the world's current media sales market. Furthermore, the growth of new media services like Hulu, iTunes and Netflix, which many believe will represent billions of dollars, could be cut off at the knees if users adopt services covered by the mandatory license instead of continuing to use these premium services.

Proposal 2: Opt-in in Exchange For Covenant Not to Sue

The alternative proposal is a voluntary collective-rights licensing scheme implemented through a private agreement between rights holders and users. Rights holders would opt in to sign a covenant not to sue any user who opts-in to pay licensing fees for media they consume. Users opting into the agreement would get an unlimited ability to stream and download copyrighted content with immunity from legal prosecution. Users would agree not to share copyrighted content with anyone who had not opted in, or face monetary penalties. ISPs would receive an administrative fee in connection with the opt-in arrangement. Newly created CROs would be responsible for tracking media consumption by those opting-in and distributing royalties to rights holders.

Supporters of voluntary collective rights licensing contend that efficient, market-driven solutions to digital piracy should be preferred over top-down government regimes. They argue that a voluntary system would also be more respectful of subscriber preferences. Payment would come only from those who are interested in downloading or otherwise sharing entertainment on the Internet, and only as long as they are interested in doing so.

Benefits

The most striking benefit of a voluntary collective-licensing system is that copyright law need not be amended to implement it. Also, instead of relying on a government or collective industry board to set rates, CROs would set their own prices dictated by a free market. Commercial services could also develop which would boil the user opt-in agreement into the terms and conditions of the service, and then provide free, basic and premium services at different price points, including free, advertising-supported services. Proponents of opt-in licensing schemes argue that so long as the fee is reasonable, effectively invisible to fans, and does not restrict their freedom to download whatever they like using whatever software suits them, the vast majority of file sharers will opt to pay rather than engage in complex evasion efforts. They further contend that a compulsory license is not necessary, as artists would have an incentive to join a CRO because they might receive compensation for their works. Those choosing to remain outside the system would have no practical way to receive compensation for the file sharing that will inevitably continue. (See, Fred von Lohmann, “A Better Way Forward: Voluntary Collective Licensing of Music File Sharing,” www.eff.org/files/eff-a-better-way-forward.pdf.)

Proponents of a voluntary licensing system also argue that the distribution bottleneck which has limited the opportunities of independent artists will be eliminated, as legal, compensated digital distribution will be equally available to all artists. When it comes to promotion, artists will also be able to use any mechanism they like, rather than having to rely on major labels to push radio play. With more options from which artists may choose, recording contracts will be more balanced than the one-sided deals about which artists have complained in the past.

Issues with Implementation

In terms of practical implementation, many of the same problems that would plague a government-mandated, collective-rights licensing scheme would plague a voluntary one. Like a compulsory license, an opt-in license tends to flatten the market for sales of music and other media, which could accelerate the demise of physical media sales and potentially stifle innovation of new digital-media services due to the lack of an incentive to produce them. In addition, there is the problem of “free-riding,” whereby those who opt-out of paying the fee can still get free content from those who opt-in. Uncertainty also exists as to how far the covenant not to sue will go. Will copyright holders retain the right to sue an ISP for secondary liability if it allows, even unwittingly, a user to re-route his or her connection? Consumers may also be at serious risk in a world where authorized and unauthorized works are at their fingertips with no clear ability to distinguish between the two. Furthermore, what is to force ISPs to cooperate and take on the additional burdens of tracking and recording who is accessing which content, all while not demanding a higher fee? And, given the sheer volume of illegally downloaded files on the Internet ' and the lack of sufficient enforcement mechanisms to control it ' how can content holders be sure that enough people will opt-in to make the system worthwhile?

Finally, unlike a compulsory system enacted by law, a voluntary opt-in service would suffer from the same problem faced by any new product introduced into the market: getting users to try something new, regarding which the benefits are unclear and, further, enticing users to allow their names to be put on a list that may someday include people who are prosecuted for witting or unwitting copyright infringement.

Conclusion

A healthy free market requires an enforceable rule of law. The current copyright regime in the United States, developed over hundreds of years, works for our culture. It can adapt to new technologies and changing business models. If we choose to adopt a new compulsory collective license to apply to Internet downloading and streaming, the copyright law will adapt, but this is not the only possible solution. Past collective licensing systems, for public performances and radio, have been successfully applied. However, in these instances the market was seen as “broken” and in need of a fix.

The difference here is that the Internet is not a problem to be fixed; it is a set of opportunities surrounding instantaneous worldwide communication, interaction and commerce. A panoply of new businesses that take advantage of these attributes is rapidly developing. As lawyers, we should concentrate on providing the basic ingredients upon which a new market, which fosters innovation, can be built. The elephant in the room is adequate enforcement against copyright infringement. Perhaps strengthened enforcement provisions like the three strikes laws developing in France, Sweden, the United Kingdom and the European Union can work in combination with one of the proposals above. This remains to be seen.

What remains true is that any solution to the problem of uncompensated uses of intellectual property must take into account the environment of limited or nonexistent enforcement that currently exists, so that a healthy fraud-free market develops that provides good consumer value at reasonable prices.

Advances in digital distribution technologies and widespread use of the Internet have moved media distribution technology out of the control of rights holders and distributors, and directly into the hands of consumers or creative members of the general public. To address how U.S. copyright law should apply to new business models that take advantage of these technologies, some have proposed collective rights licensing at the Internet service provider (ISP) level. It is proposed that a fee for use and sharing of media accessed on the Internet should be applied at the ISP point of access.

While there have been many proposals for collective rights licensing schemes, most proposals fall into two camps: a legislatively introduced public right or a privately implemented opt-in arrangement. Under the former, the government-mandated public right is collected as a payment on a user's ISP or mobile phone bill and distributed through a third-party organization to rights holders. Under the latter, rights holders would sign a covenant not to sue any user who opts-in to pay licensing fees for content accessed by that user.

Collective rights licensing regimes have long existed in the United States. The American Society of Composers, Authors and Publishers (ASCAP), the first performance rights organization (PRO), was created to handle the collection and distribution of public performance royalties for its members' musical compositions. Another major PRO, Broadcast Music Inc. (BMI), requires a license for its rights-holders songs. SESAC, a third PRO, does so, too. ASCAP and BMI currently represent the majority of songwriters and music publishers, with SESAC licensing about 1% of all performance rights in the United States.

Proposal 1: A Government-Mandated Public Right

Proponents of a government-mandated public right argue that Congress should amend the copyright laws to create a right to collect reasonable fees from all
Internet users at their point of access, in exchange for the ability to consume music and other copyrighted intellectual property on the Internet. Under the most publicized model, all U.S. ISPs and university networks would add a fee (figures around $5 are being proposed) to their usual charges and funnel the money collected to one or more existing, or newly formed, collective rights organizations (CROs). In order to collect their portion of the fee, artists and other rights holders would be required to join a CRO, and each CRO would be responsible for distributing the proceeds received from the ISPs among its members, based upon a formula reflecting the value of the works or the number of times the works are exploited by Internet users. The ISP's role in collecting fees would warrant retention of a small percentage of the fees collected to be used for investment in network capacity, and to pay for up-to-date content identification and monitoring technologies. According to some, the fees collected would create a pool as large as $20 billion annually to pay artists and copyright holders.

Proponents of a new digital right argue that moving to a compulsory-license fee system is necessary because relying on market forces to compensate rights holders has not worked. They argue that most files are shared on the Internet for free, and a compulsory licensing system would avoid the difficulty of sorting out contractual claims or renegotiating them. They propose that society at large would benefit from lower transaction costs and less litigation, because the sharing of content on the Internet would be legitimized and compensated. Finally, they claim that a marketplace of competing premium file sharing and streaming applications and ancillary services could develop in a legal, instead of illegal setting.

Issues with Implementation

Implementing a compulsory collective-rights licensing system would require revising the copyright provisions in Title 17 of the U.S. Code, an onerous process that could take years before the resulting language is adopted. The revisions would need to include a licensing scheme that authorizes ISP customers to copy, display and publicly perform works downloaded from, and uploaded to, computers on the Internet. The legislation also would need to describe in some detail the entity responsible for accounting to the rights holders, and possibly provide guidelines for measuring how much to pay particular rights holders. Theoretically, rights holders would retain their rights to sue Internet users for direct infringement if they fail to pay the fees or otherwise circumvent the system. Also in theory, ISPs would remain secondarily liable for copyright infringement if they failed to properly account to the CROs for all of the fees collected from their customers.

Fair Use

Other hotly contested questions remain. For example, whether or not rights holders would retain the exclusive right to create and authorize derivative uses of their works or otherwise retain control over how users manipulate their works. Also, whether a process to more precisely determine what constitutes fair use would be needed, because at least some of the material being downloaded could arguably fall into this definition and therefore not qualify for payment. Finally, given the judicial consent decree under which both ASCAP and BMI currently operate, Congress would need to remain alert to any antitrust concerns presented by one or more new or existing CROs assigned the task of collecting fees.

Opponents of compulsory collective licensing claim that a mandated right amounts to a tax for consumption of intellectual property on the Internet where the cost is allocated to all users equally regardless of their individual consumption level. Furthermore, consumers with strong moral and ethical positions might be forced to support financially content to which they are morally or ethically opposed.

Before a collective-rights licensing system could be implemented, a wide variety of technological problems would need to be solved with respect to data collection, use and measurement. There is a burgeoning market of Internet media tracking, usage measurement, security, royalty collection and related tools that use various methodologies to achieve accuracy. Proponents of collective licensing tend to gloss over the details of how to decide which of these has the most reliable data, or how the system that is finally used would be chosen.

Other Legal Issues

In addition to the many technology issues, there are practical legal concerns. For example, some argue that a new tribunal would need to be established to work out royalty payment disputes between multiple parties applying to be paid their collective licensing share. Furthermore, ISPs might become subject to additional duties to account, and might become more vulnerable to secondary liability for participating as middlemen in fraudulent or otherwise unauthorized transactions, whether voluntarily or involuntarily. ISPs would certainly not want to sacrifice any of their existing immunity under the Digital Millennium Copyright Act (DMCA; 17 U.S.C. '512) by participating in data collection or enforcement at the direction of third parties. Explicit statutory immunities would be necessary to reduce transaction costs and ensure participation by ISPs. Finally, data collection and use practices would need to conform to the requirements of the Electronic Communications Privacy Act (ECPA), so that users' private information and personal media consumption data would not be sold without users' consent.

Last, there are market disruption concerns. Rather than a gradual transition away from physical distribution technology, a mandatory system may unnecessarily accelerate the reduction in sales of physical media products, which still represent a substantial percentage of the world's current media sales market. Furthermore, the growth of new media services like Hulu, iTunes and Netflix, which many believe will represent billions of dollars, could be cut off at the knees if users adopt services covered by the mandatory license instead of continuing to use these premium services.

Proposal 2: Opt-in in Exchange For Covenant Not to Sue

The alternative proposal is a voluntary collective-rights licensing scheme implemented through a private agreement between rights holders and users. Rights holders would opt in to sign a covenant not to sue any user who opts-in to pay licensing fees for media they consume. Users opting into the agreement would get an unlimited ability to stream and download copyrighted content with immunity from legal prosecution. Users would agree not to share copyrighted content with anyone who had not opted in, or face monetary penalties. ISPs would receive an administrative fee in connection with the opt-in arrangement. Newly created CROs would be responsible for tracking media consumption by those opting-in and distributing royalties to rights holders.

Supporters of voluntary collective rights licensing contend that efficient, market-driven solutions to digital piracy should be preferred over top-down government regimes. They argue that a voluntary system would also be more respectful of subscriber preferences. Payment would come only from those who are interested in downloading or otherwise sharing entertainment on the Internet, and only as long as they are interested in doing so.

Benefits

The most striking benefit of a voluntary collective-licensing system is that copyright law need not be amended to implement it. Also, instead of relying on a government or collective industry board to set rates, CROs would set their own prices dictated by a free market. Commercial services could also develop which would boil the user opt-in agreement into the terms and conditions of the service, and then provide free, basic and premium services at different price points, including free, advertising-supported services. Proponents of opt-in licensing schemes argue that so long as the fee is reasonable, effectively invisible to fans, and does not restrict their freedom to download whatever they like using whatever software suits them, the vast majority of file sharers will opt to pay rather than engage in complex evasion efforts. They further contend that a compulsory license is not necessary, as artists would have an incentive to join a CRO because they might receive compensation for their works. Those choosing to remain outside the system would have no practical way to receive compensation for the file sharing that will inevitably continue. (See, Fred von Lohmann, “A Better Way Forward: Voluntary Collective Licensing of Music File Sharing,” www.eff.org/files/eff-a-better-way-forward.pdf.)

Proponents of a voluntary licensing system also argue that the distribution bottleneck which has limited the opportunities of independent artists will be eliminated, as legal, compensated digital distribution will be equally available to all artists. When it comes to promotion, artists will also be able to use any mechanism they like, rather than having to rely on major labels to push radio play. With more options from which artists may choose, recording contracts will be more balanced than the one-sided deals about which artists have complained in the past.

Issues with Implementation

In terms of practical implementation, many of the same problems that would plague a government-mandated, collective-rights licensing scheme would plague a voluntary one. Like a compulsory license, an opt-in license tends to flatten the market for sales of music and other media, which could accelerate the demise of physical media sales and potentially stifle innovation of new digital-media services due to the lack of an incentive to produce them. In addition, there is the problem of “free-riding,” whereby those who opt-out of paying the fee can still get free content from those who opt-in. Uncertainty also exists as to how far the covenant not to sue will go. Will copyright holders retain the right to sue an ISP for secondary liability if it allows, even unwittingly, a user to re-route his or her connection? Consumers may also be at serious risk in a world where authorized and unauthorized works are at their fingertips with no clear ability to distinguish between the two. Furthermore, what is to force ISPs to cooperate and take on the additional burdens of tracking and recording who is accessing which content, all while not demanding a higher fee? And, given the sheer volume of illegally downloaded files on the Internet ' and the lack of sufficient enforcement mechanisms to control it ' how can content holders be sure that enough people will opt-in to make the system worthwhile?

Finally, unlike a compulsory system enacted by law, a voluntary opt-in service would suffer from the same problem faced by any new product introduced into the market: getting users to try something new, regarding which the benefits are unclear and, further, enticing users to allow their names to be put on a list that may someday include people who are prosecuted for witting or unwitting copyright infringement.

Conclusion

A healthy free market requires an enforceable rule of law. The current copyright regime in the United States, developed over hundreds of years, works for our culture. It can adapt to new technologies and changing business models. If we choose to adopt a new compulsory collective license to apply to Internet downloading and streaming, the copyright law will adapt, but this is not the only possible solution. Past collective licensing systems, for public performances and radio, have been successfully applied. However, in these instances the market was seen as “broken” and in need of a fix.

The difference here is that the Internet is not a problem to be fixed; it is a set of opportunities surrounding instantaneous worldwide communication, interaction and commerce. A panoply of new businesses that take advantage of these attributes is rapidly developing. As lawyers, we should concentrate on providing the basic ingredients upon which a new market, which fosters innovation, can be built. The elephant in the room is adequate enforcement against copyright infringement. Perhaps strengthened enforcement provisions like the three strikes laws developing in France, Sweden, the United Kingdom and the European Union can work in combination with one of the proposals above. This remains to be seen.

What remains true is that any solution to the problem of uncompensated uses of intellectual property must take into account the environment of limited or nonexistent enforcement that currently exists, so that a healthy fraud-free market develops that provides good consumer value at reasonable prices.