Posts Tagged ‘Copyright’

Tokens, Branding and Digital Assets

June 19, 2017

“Art loves Chance, Chance loves Art”
Agathon

This article is about how content access cryptocurrency tokens may help diversify an artist’s branding portfolio and also raises some legal issues to consider before an artist takes the leap.

What is a token?

For purposes of this discussion, I am not going to address how people are raising money selling tokens as a crowdfunding venture (like an initial coin offering or ICO). Rather, I am going to address how artists can use tokens to sell and market existing art and music. In addition, I am going to limit my points to using a token as a “key” which permits users to access often exclusive digital content and assets.

According to Balaji S. Srinivasan, CEO of 21.co:

“[A] token is a digital asset that can be transferred (not simply copied) between two parties over the internet without requiring the consent of any other party.”

Mr. Srinivasan goes on to explain that when people purchase tokens they are purchasing the equivalent of private keys which can permit access to specified digital assets.

Private keys are part of an encryption or cryptographic strategy to ensure that information is only made available to those who have established a particular identity or permission to access that information. Private keys are intended to remain confidential to its owner. A public key is one that can be viewed on a directory or repository which lists public keys.

An application programming interface or API can be used by web developers to control an interface between an application and an operating system. As an example, mobile phone use is supported by APIs most commonly in the form of Java programming language. If you use an Android phone, you are using Java APIs. [See recent case Oracle v. Google, where a jury found that Google’s use of Java APIs was fair use under Copyright law.] Using a token can, therefore, be likened to an API when the token is designed for access to digital assets.

So what do you get when you buy a token? What your token can and cannot do is often unclear. The reason for this is because the technology and its uses are evolving minute-by-minute. How the token can be used may be defined by the platform on which it is being used. It may be defined by the artist or musician. The rights to use certain content is often fluid. The content to which the token is associated may vary from day to day.

In addition, access to particular content may not be guaranteed since it depends on the arrangements with the token issuer and the artist or musician. It could be possible, for example, that a content owner could add or remove content, block individual or blanket access to content as well as delete the content entirely.

In other words, it is an ongoing and living experiment.

I can’t emphasize enough that artists, musicians and fans understand the relationships between the art, the technology, and the token terms. There are powerful uses for this technology and it could bring significant income to artists as well as developers.

But first, it is necessary to look at the kind of assets an artist is likely to use in a token-enabled environment and how to incorporate those assets into a brand.

Branding

Brands are comprised of reputation, trademarks, copyrights, and other elements of “goodwill” that are often difficult to define. Most brands are recognizable due to their trademarks which are:

“[A]ny word, name, symbol or device or any combination of them that serves to identify and distinguish the source of one party’s goods or services from those of another party.”

Trademarks can be brand names, such as Coca-Cola® brand soft drink, a service mark, a certification mark or a collective mark. Superman® is a registered trademark of DC Comics covering several goods and services.

Several million dollars in revenue come from licensing brands in the form of trademarks. Trademarks rights are the exclusive rights to use a mark in commerce to distinguish your goods and services from another. Whether a product can be protected depends on whether the work has the qualities that would entitle it to trademark protection. However, you will not obtain trademark protection is your mark is “generic” or incapable of becoming a trademark.

Copyrights and trademarks are distinct intellectual property types, even though there are often design or illustrative elements in each. Copyrights protect original work of authorship that are:

“[F]ixed in any tangible medium of expression, now known or later developed, from which they can be perceived, reproduced, or otherwise communicated, either directly or with the aid of a machine or device.”

So, even a work in digital or electronic form which can be communicated via a machine or device would qualify as being “fixed in any tangible medium of expression” and potentially entitled to copyright protection. A scanned image of your work or a digital rendering of any component, would be a sufficiently tangible medium if it can be communicated with the aid of a machine and otherwise capable of being protected by copyright laws.

The works which could be potentially covered by copyright include: literary, musical and dramatic works; pantomimes and choreographic works’ pictorial, graphic and sculptural works; motion pictures; computer programs and compilations of works or derivative works.

What is crucial to remember is that copyright only protects the expression of ideas – not the ideas themselves – this is called the idea-expression dichotomy. Why is this important to understand? Because perhaps the most litigated aspect of copyright law is determining whether an author is trying to protect the expression of an idea (a thing fixed) or the idea itself.

The rights received, once copyright has been asserted, include the exclusive rights to reproduce, prepare derivative works, distribute, display and perform publicly and authorize others to do these things.

Once you have created and fixed a work in a tangible medium of expression, the work you created automatically enjoys federal copyright protection. If you register (submit an application) your work with the Copyright Office, in the event of an infringement on your work, you will be able to ask for actual damages, statutory damages, treble damages, profit, attorneys’ fees, and an injunction. If the work is not registered, and your work has been infringed upon, you will only be able to seek actual damages, which are those losses you can prove were the result of an infringement.

Another element of personal branding is the “right of publicity” which may be the subject of trademark protection, but usually is a right enforced by state courts where misuse of someone’s identity is an unfair trade practice or fraud. According to International Trademark Association (INTA):

“The “right of publicity” is a form of intellectual property right that protects against the misappropriation of a person’s name, likeness and perhaps other indicia of personal identity for commercial benefit. In the United States, the right of publicity has not been recognized at the federal level by statute or case law, although a related statutory right to protection against false endorsement, association or affiliation is recognized under federal unfair competition law.”

 The combination of intellectual property types, as well as the right of publicity, form the elements of successful personal and corporate branding. Below is a discussion combining tokens and copyrights as digital asset forms.

First Sale Doctrine and Digital Assets

In a nutshell, in order to prevent copyright owners from having an interest in subsequent sales of physical objects where the copyright is manifested, and where the rights holders could control all secondary markets of these goods, the first sale doctrine was adopted. This doctrine was originally explained in the Supreme Court case Bobbs-Merrill Co. v. Straus, 210 US 339 (1908) and was later codified in the Copyright Act of 1909 which said:

“[T]he copyright is distinct from the property in the material object copyrighted, and the sale or conveyance, by gift or otherwise, of the material object shall not of itself constitute a transfer of the copyright, … but nothing in this Act shall be deemed to forbid, prevent, or restrict the transfer of any of a copyrighted work the possession of which has been lawfully obtained.”

Under the first sale doctrine, when a consumer buys a physical book, for example, the consumer cannot copy the book and sell the copies without violating U.S. copyright laws. [See the recent Supreme Court case Impression Products, Inc. v. Lexmark International, Inc., 581 U.S. ____ (2017) regarding “patent exhaustion” and compare the similarities to the “first sale doctrine” for copyrights which may be instructive:  “The Patent Act grants patentees the “right to exclude others from making, using, offering for sale, or selling [their] invention[s].” 35 U. S. C. §154(a). For over 160 years, the doctrine of patent exhaustion has imposed a limit on that right to exclude: When a patentee sells an item, that product “is no longer within the limits of the [patent] monopoly” and instead becomes the “private, individual property” of the purchaser. Bloomer v. McQuewan, 14 How. 539. If the patentee negotiates a contract restricting the purchaser’s right to use or resell the item, it may be able to enforce that restriction as a matter of contract law, but may not do so through a patent infringement lawsuit.” [Emphasis added.] Syllabus] However, the consumer has a personal property interest in the book itself and can sell the physical copy without worrying about the copyright owner alleging that the consumer has violated the author’s rights to the book.

Once computer programs were covered under copyright law in 1980 and where those who bought physical copies of computer programs could make an archival or electronic copy of the program without violating copyright law, an unanticipated problem of digital downloads was ushered into the music industry as well as the software industry.

The most recent version of the Copyright Act under 17 USC 109 (b)(1)(A) says:

“[U]nless authorized by the owners of copyright in the sound recording or the owner of copyright in a computer program (including any tape, disk, or other medium embodying such program), and in the case of a sound recording in the musical works embodied therein, neither the owner of a particular phonorecord nor any person in possession of a particular copy of a computer program (including any tape, disk, or other medium embodying such program), may, for the purposes of direct or indirect commercial advantage, dispose of, or authorize the disposal of, the possession of that phonorecord or computer program (including any tape, disk, or other medium embodying such program) by rental, lease, or lending, or by any other act or practice in the nature of rental, lease, or lending. Nothing in the preceding sentence shall apply to the rental, lease, or lending of a phonorecord for nonprofit purposes by a nonprofit library or nonprofit educational institution… .”

As a result, rights owners have updated the terms and conditions related to digital downloads and sales (whether music or software) and called such sales “licenses to use” which circumvents the first sale doctrine permitted for physical personal property. In this way, most rights to downloaded digital assets are retained by the copyright owner, since consumers are buying licenses.

Licenses are personal property under U.S. law, but the license terms are usually unknown or unread by consumers. As compared to the Napster days when peer-to-peer distribution was frowned upon, successful and legitimate business models have been built around licensing instead of sales, which is reflected in the proliferation of music streaming services. Unknown to most users is the multi-layered licensing terms services such as Spotify and iTunes have to navigate before music or podcasts reach consumer eyes and ears.  According to Anthony C. Eichler:

“Most people probably assume that when they “purchase” a song on iTunes, they “own” it. Of the roughly 800 Million iTunes accounts, it is likely that very few consumers actually took the time to sit down and read the daunting and lengthy Terms & Conditions that they agree to with the click of a button. [Footnote omitted.] This agreement, however, states that they do not actually own anything they pay for via iTunes. [Footnote omitted.]  To the contrary, they have been granted a limited license to access the digital asset only on their account, and only on a limited number of devices linked to the account. [Footnote omitted.] Further, the limited license granted by the User Agreement is non-transferrable in nature.”

Any consumer transparency in this industry is an astounding marketing and sales feat. For a typical song advertised, sold and performed on a music website, there are publicity rights (if you use a photo of an artist, for example, you have to have permission from the photographer as well as the artist to post the artist’s image); music rights (both performing and mechanical licensing rights have to be negotiated); cross-platform playing permissions if the player is using proprietary technology; the list goes on.

Although there is no nationwide definition of a digital asset, for purposes of comparison, here is the Delaware Code’s definition:

(7) “Digital asset” means data, text, emails, documents, audio, video, images, sounds, social media content, social networking content, codes, health care records, health insurance records, computer source codes, computer programs, software, software licenses, databases, or the like, including the usernames and passwords, created, generated, sent, communicated, shared, received, or stored by electronic means on a digital device. “Digital asset” does not include an underlying asset or liability that is governed under other provisions of this title.

Unfortunately, the Delaware Code’s definition appears under Title 12, Decedents’ Estates and Fiduciary Relations, Chapter 50. Fiduciary Access to Digital Assets and Digital Accounts. In other words, the definition only applies if the digital asset owner is dead.

In the case Capitol Records v. ReDigi, the court made it clear that the first sale doctrine does not include digital assets when a company is attempting to purchase and resell them on a digital domain. In its conclusion, the United States District Court for the Southern District of New York said:

“At base, ReDigi seeks judicial amendment of the Copyright Act to reach its desired policy outcome. However, ‘[s]ound policy, as well as history, supports [the Court’s] consistent deference to Congress when major technological innovations alter the market for copyrighted materials. Congress has the constitutional authority and the institutional ability to accommodate fully the varied permutations of competing interests that are inevitably implicated by such new technology.’ Sony, 464 U.S. at 431, 104 S.Ct. 774. Such defense often counsels for a limited interpretation of copyright protection. However, here, the Court cannot of its own accord condone the wholesale application of the first sale defense to the digital sphere, particularly when Congress itself has declined to take that step.”

It may be worth considering a few things regarding artists using tokens for branding and work distribution. Specifically, whether:

  1. The token itself, if used to access existing content, may be considered a digital asset;
  2. If token access is to copyright protected material, whether that copyright protected material may be sold depends on how and what rights the artist chooses to sell, e.g., whether the artist is granting rights to use in the form of a license; and
  3. Whether the token or key can be sold or made available separately from the copyright or other intellectual property protected work.

To be a successful artist, whether a visual artist or a musician, requires an increasingly complex array of knowledge that was just not the case when you had a friend design your mixtape sleeve to sell at shows.

My prediction:  Token use as described above may become a threshold test case for establishing digital assets as a federally permitted statutory exception to the “first sale” doctrine under copyright law.

Thank you for reading.

[This article is derived in substantial part from a booklet prepared for an “Art on the Blockchain” MeetUp event I co-hosted with Jeff Clarkin held on June 13, 2017 at The Black Cat in Washington, DC. It is intended for educational and informational purposes only and is not intended to substitute for legal advice.]

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What’s Happening Now in Technology, Arts, Small Business & Contracts – November 2015

November 2, 2015

Arts News

Copyrights and Fair Use: Lenz v. Universal Music Group, et. al.

In this appeal from the U.S. District Court for the Northern District of California, the U.S. Court of Appeals for Ninth Circuit’s panel held that the Digital Millennium Copyright Act (“DMCA”) requires copyright holders to consider “fair use” before sending a takedown notification. If a copyright holder fails to do this, it introduces a triable issue regarding whether the alleged infringing use was not in accordance with the law. The copyright owner’s determination whether the use is fair use or not is subjective. This subjective “good faith belief” test required under the DMCA can be determined under two analysis methods: 1) the actual knowledge theory and 2) the willful blindness doctrine, both of which the 9th Circuit held could be used under the DMCA.

Actual knowledge theory says that the there must be some actual knowledge of the misrepresentation on the part of the copyright holder. Generally, in order to be held liable for any damages due to misrepresentation, the court will look to whether the person making the statement was negligent in making false statements. The distinction between this and fraud is that to be held liable for fraud, the speaker must have intended that there be reliance on the false statement made.

The “willful blindness doctrine” means that the speaker materially misrepresented that it had a good faith belief that the offending activity was not a fair use. The plaintiff would have to show that the defendants subjectively believed that the use of the copyright protected work constituted fair use. The lower court in this case determined that Lenz could proceed under the actual knowledge theory, but not the blindness doctrine because “because she did not show that the defendants subjectively believed there was a high probability that the video constituted fair use.”

Background: On July 24, 2007, Stephanie Lenz filed a lawsuit under 17 U.S.C. § 512(f)—part of the DMCA against Universal Music Corp. (“UMG”) and its subsidiaries. She claimed that UMG misrepresented in its takedown notification that her 29 second video containing Prince’s song “Let’s Go Crazy” and to which her children danced, was not lawful. The court determined that “the statute requires copyright holders to consider fair use before sending a takedown notification, and that failure to do so raises a triable issue as to whether the copyright holder formed a subjective good faith belief that the use was not authorized by law.

Lenz uploaded her video named “Let’s Go Crazy #1” to YouTube in 2007. UMG monitors YouTube videos and one of its employees found Lenz’s video. The employee checked to see if the video “embodied a Prince composition” and made “significant use of . . . the composition, specifically if the song was recognizable, was in a significant portion of the video or was the focus of the video.” If the song is the focus of the video, UMG’s procedure required that they notify YouTube to take it down. The procedures did not explicitly say that UMG considered application of the fair use doctrine. The notice included a good faith statement which: “We have a good faith belief that the above-described activity is not authorized by the copyright owner, its agent, or the law.”

YouTube took down the video, and Lenz protested. YouTube brought the protest to UMG’s attention and UMG responded that Lenz did not acknowledge that her statement was made under penalty of perjury and that there was no record that YouTube or Lenz had licenses to use the song. Lenz protested again, and YouTube reinstated the video. Lenz brought a lawsuit regarding UMG’s alleged misrepresentation under 512(f), among other reasons, including tortuous interference. Only the misrepresentation claim was before the Ninth Circuit for this decision.

Under the Digital Millennium Copyright Act, service providers, such as YouTube, can avoid copyright infringement claims under certain conditions. Infringement liability can be avoided if the service provider disables or removes the alleged infringing content “expeditiously.” DMCA sets forth the copyright holder’s requirements to support removal: 1) identification of the copyrighted work, 2) identification of the allegedly infringing material, and, 3) a “good faith” statement regarding the copyright holder’s belief that the infringing use was not authorized by the copyright owner, an agent, or the law. If a copyright owner misuses the takedown notice requirements, the owner is subject to liability under 512(f) misrepresentation.

Fair use analysis was codified in the Copyright Act in 1976, under 17 U.S.C. § 107. Fair use considerations are:

(1) the purpose and character of the use, including whether such use is of a commercial nature or is for nonprofit educational purposes; (2) the nature of the copyrighted work; (3) the amount and substantiality of the portion used in relation to the copyrighted work as a whole; and (4) the effect of the use upon the potential market for or value of the copyrighted work.

Universal argued that fair use is a “defense” to otherwise infringing activity, e.g., unless proven otherwise, any use of copyright protected works without permission is an infringement. This court stated that fair use is a right, and not an excuse for otherwise infringing content. However, the court quoted Bateman v. Mnemonics, Inc., 79 F.3d 1532, 1542 n.22 (11th Cir. 1996) which said: “Regardless of how fair use is viewed, it is clear that the burden of proving fair use is always on the putative infringer.”

The court provided some guidance as to how a copyright holder could use computer programs to identify content which could be subject to a takedown notice and determine fair use: “For example, consideration of fair use may be sufficient if copyright holders utilize computer programs that automatically identify for takedown notifications content where: “(1) the video track matches the video track of a copyrighted work submitted by a content owner; (2) the audio track matches the audio track of that same copyrighted work; and (3) nearly the entirety . . . is comprised of a single copyrighted work.” Brief for The Org. for Transformative Works, Public Knowledge & Int’l Documentary Ass’n as Amici Curiae Supporting Appellee at 29–30 n.8 (citing the Electronic Frontier Foundation website (link unavailable)).” [CMG link here.]

The court concluded, however, that copyright holders must consider fair use before submitting takedown notices under the DMCA and that the plaintiff, Lenz, could move forward at trial under the actual knowledge theory regarding plaintiff’s misrepresentation allegation. In addition, the plaintiff could seek nominal damages for injuries due to the misrepresentation, if proved.

In my opinion, there are two things worth noting regarding this decision. First, Lenz had filed a tortuous interference claim which was dismissed. In her second amended complaint, only misrepresentation under § 512(f) was the only claim. The tortuous interference with her contract with YouTube claim suggested that the plaintiff’s insistence in reposting the video had a purpose other than making available an innocent video about her children. Indeed, how many children [49,659,075 YouTube views as of October 22, 2015] have been launched to fame after videos were posted on YouTube and subsequently interviewed by television personalities [100,795,145 YouTube views as of October 22, 2015] or had the opportunity to meet the musicians or vocalists the children were imitating? Second, M. Smith, Circuit Judge, concurring in part, dissenting in part, and concurring in the judgment, had the better analytical approach to this case: “In sum, I would hold that parties must individually consider whether a work is a fair use before representing that the work is infringing in a takedown notice. If they do not, and the work is a non-infringing fair use, they are subject to liability for knowingly misrepresenting that the work is infringing.”

If you have copyright protected work which you want to monitor online, Gayton Law can help you with developing policies and procedures for your businesses’ infringement monitoring activities.

Contracts

Terms of Use and Arbitration Clauses. Berkson,et. al. v.Gogo LLC and Gogo, Inc. This consumer fraud case came before the U.S. District Court for the Eastern District of New York. The class action plaintiffs alleged that the defendants, Gogo LLC and Gogo, Inc., fraudulently charged Wi-Fi services on air flights, specifically, that the defendants “improperly increased their sales and profits by misleading customers into purchasing a service that charged a customer’s credit card, on an automatically-renewing continuing monthly basis, without adequate notice or consent.” According to the complaint filed for this case, between 2008 and 2012, the defendants fraudulently advertised that purchasers were only buying single one month subscription to the Wi-Fi service, but the defendants were making recurring charges on the plaintiffs’ credit cards. The defendants said that the plaintiffs agreed to the recurring charges and they also agreed to a mandatory arbitration clause. The named plaintiffs, representing a nationwide class, claimed that the defendants committed “common law breach of the implied covenant of good faith and fair dealing, common law unjust enrichment, and violation of various consumer protection statutes.” On April 8, 2015, the court made decisions on defendants’ procedural motions, specifically, motions to (1) transfer venue; (2) compel arbitration; and (3) dismiss for lack of standing.

The motions to transfer venue and compel arbitration was based on Gogo’s terms of use. Plaintiffs’ claim that Gogo’s terms and conditions were hidden, and, therefore, unenforceable. Gogo is a dominant player in the in-flight Wi-Fi market, where more than 80% of North American flights use Gogo’s services. Gogo’s website advertised a daily rate of $10 and a monthly rate of about $40. Plaintiffs used Gogo’s services during air plane flights. The plaintiffs’ claimed that there was nothing to indicate that if they registered for the monthly service that they would be billed on a recurring basis. The service was only canceled once the subscribers noticed the fee and contacted Gogo.

The court determined that because the terms and conditions were hidden and users were not given sufficient notice to inquire about the terms (which included language regarding the recurring fee and the arbitration clause) the court denied the defendants’ motions to transfer venue and compel arbitration. The defendant’s motion regarding standing stated that the plaintiffs had not shown the particularized and concrete injuries required to meet the requirements to bring a lawsuit. The court found that just because one plaintiff was reimbursed by a credit card company for the charges when Gogo refused to do so and that another was reimbursed when that plaintiff informed Gogo of the class action lawsuit. The standing motion was also denied.

Although this case was before a New York federal district court, the issues it addresses are nationwide. More and more transactions are being conducted online. This case is instructive with regard to providing transparency about your business’s online contract terms and conditions. Contact Gayton Law to ensure that your online agreements are in compliance with your jurisdiction’s click-wrap, sign-in-wrap and browse-wrap laws.

What’s New at Gayton Law

Posts

The FTC’s Supreme Court Victory: A Rare Win for Both Libertarians and Regulators. Guest post by Theodore A. Gebhard, J.D., Ph.D.

The Federal Trade Commission’s (FTC) recent Supreme Court victory in the North Carolina State Board of Dental Examiners (NCSB or Board) case brought together in common cause both economic libertarians and federal antitrust regulators — groups often at odds with each other respecting important philosophical and policy principles. The FTC’s win, however, gave both groups much reason to celebrate.

See the rest of the post here.

Even in a Knowledge-Driven Economy – Things are Still Kings by Cynthia M. Gayton, Esq. posted on Vienna Woods Law & Economics blog.

From September 30 – October 1 of this year, I attended a conference entitled “The IP Platform: Supporting Inspiration and Innovation” that was sponsored by George Mason University School of Law’s Center for the Protection of Intellectual Property.  The extensive and impressive speaker’s list included a keynote speech by David Kappos, law professors from around the country, and innovators of all stripes.

See the rest of the post here.

Programs and Publications

Cynthia Gayton co-created a 3-part workshop, the third of which was held on Saturday, October 24, entitled “Theseus’ Paradox” at The George Washington University’s Alexandria campus. This workshop focused on strategies to manage innovation.

Learn more about the program here.

Caroline Norbury was a featured guest speaker at the second National Creative Economy Summit. Cynthia Gayton had the distinct honor and privilege of interviewing her at DC’s own WLVS Studios on October 6, 2015. Watch the interview here.

The “Guide to Creating and Protecting Fictional Characters” Second Edition by Cynthia Gayton was released in May 2014 and is now available for the Kindle.

Legal Aspects of Engineering. 9th edition by Cynthia Gayton is available through the publisher, Kendall-Hunt publishers and on Amazon.com. This book is used in several engineering courses and is a useful reference for anyone interested in contracting, intellectual property, engineering practice, and other general legal issues.

The information contained in this newsletter is for general guidance on matters of general interest only. The application and impact of laws can vary widely based on specific facts. The information contained in this newsletter should not be construed as a substitute for consultation with professional advisors. Certain links in this newsletter connect to other websites maintained by third parties over whom Gayton Law has no control. Gayton Law makes no representations as to the accuracy or any other aspect of information contained in other websites.

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