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(Fake Headline, Serious Point:) Movie Studios, Blockbuster File Copyright Infringement Suit Against Customer For Failing to Return DVD Rentals

That’s obviously not true, but from the way people talk about Rhapsody and other music “rental” services, they believe that the story could happen, at least in principle.  This is part of yet another misunderstanding about how the DMCA reworked the nature of copyright.

Too often, people confuse defenses of DRM+DMCA based on their ability to prevent *infringing* uses and defenses based on protection of new business models predicated on preventing *non-infringing* uses. The former defense is about protecting copyright holder’s exclusive rights, the latter is in effect about expanding those rights. These days, this confusion typically involves online music rental subscription services like Rhapsody.

The DRM on Rhapsody songs can (in theory) prevent some infringing uses. But Title 17 grants the copyright holder several exclusive rights in 17 USC 106 (e.g., copying, distribution, public performance), and keeping songs after your subscription ends doesn’t infringe any of them. When the DRM prevents you from listening to the song, it’s limiting a private performance. The copy you downloaded was lawfully made, and you’re entitled to make fair use [*1]; to the extent the uses would be protected with a purchased copy, you can move this “rented” copy to a portable player or make a back-up copy of it [*1], for instance.

At first, this might seem strange to some, but consider a DVD you rent from Blockbuster. If you fail to return the movie, can the copyright holder or Blockbuster sue you for copyright infringement? No, they can’t; you can keep watching that movie for as long as you like. Put aside DRM+DMCA and focus on 17 USC 106 for the moment — if you rip a copy to your computer, it’s a fair use just like ripping a DVD you bought at Wal-Mart; to the extent that the latter is non-infringing, so is the former. The copyright holder could argue that this ripped copy of the rental threatens the market for the work and thus is not a fair use, but ripping the purchased DVD threatens the market in much the same way; after all, if you can rip your purchased DVD, then it threatens the market by making it harder for them to sell you a second copy for use on your computer or your portable player. [*1] You can apply the same reasoning to rented or purchased VHS.

To be clear, you could be violating your contract with Blockbuster. And services like Rhapsody could sue you for violating their Terms of Service. In principle, they could get an injunction and actual damages.

However, you aren’t infringing under 17 USC 106 and thus copyright holders couldn’t get statutory damages on that basis. The DRM and DMCA don’t change this analysis [*2], strictly speaking. If you use FairUse4WM to unwrap your Rhapsody WM DRMed songs, you may violate their ToS, you may violate the DMCA (17 USC 1201) and have to pay statutory damages, but you are not infringing (17 USC 106). The public is still technically entitled to fair use, first sale, and all your other rights under copyright, but in exercising them you might violate the DMCA.

So this suggests one way the distinction matters (the DMCA radically changes the available remedies), but there’s a bigger issue here. In reality, the people who support the DMCA’s protection of this business model are not supporting the protection of copyright holder’s limited exclusive rights, let alone supporting the prevention of “Internet piracy” — they’re supporting in effect an expansion of copyright holder’s rights.  The DMCA gives copyright holder’s essentially a broad, exclusive right to control any uses of the work and compatible devices.

Some people may still argue that we need the DRM+DMCA because it protects Rhapsody’s business model and thus this expansion of rights is a good thing. You return your rented DVDs not because Blockbuster will sue you, but because they’ll cut you off from renting again. Rhapsody has no similar threat to hang over your head, so you could download the entire catalog and unsubscribe.

I would dispute that the subscription models would go away for this reason, but let’s assume they wouldn’t offer downloads any more. The endangerment of a business model, by itself, is not a sufficient reason to extend the scope of copyright holder’s rights. Title 17 entitles copyright holders to certain rights, not to certain business models. There are a lot of old and new business models copyright holders would love to protect. For instance, the movie and television studios’ business models were ostensibly threatened by time-shifting, and they’d love to be able to limit it in many ways today in order to enable new revenue models. But that wasn’t and isn’t a sufficient reason to block time-shifting and creation of compatible devices via the DMCA, or to mandate DRM a la the broadcast flag.

A more valid argument here would be that the public benefits by protecting the rental model. Again, I would dispute that the DMCA+DRM really provides a lot of public benefit there. But, regardless, I think most would agree that there are many endangered business models that don’t need protecting. I think many dislike how protection of the rental model also involves inhibiting innovation and competition in the development of compatible music devices. I think many would agree that prohibiting time-shifting and backing-up of purchased media doesn’t benefit the public, even if it enables some new business models. And I bet there are many more ill-effects of the DMCA that they would disapprove of , as well.

On that basis, I think that even those who laud the DRM+DMCA’s role in protecting rental models would be, on the whole, unhappy with the DMCA. To be sure, there are those who like the DMCA because it acts as a general right to control use of copyrighted works and creation of compatible devices; they laud price discrimination and platform monopolies predicated on restricting non-infringing uses. But I think many don’t share that view, particularly when they see that those models aren’t about stopping infringement, let alone “Internet piracy.”

[*1 – Update: Initially, I also stuck first sale in here.  We’ve had an interesting back-and-forth
in the comments about how I may be wrong that first sale would actually apply to the DVD or to your hard drive with the Rhapsody file on it. Indeed, a court might actually view giving away your hard drive with the song as protected by first sale, but giving the away the DVD wouldn’t be, since you can keep a permanent copy of the WMA file and don’t have to return it, but you were just borrowing the DVD that perhaps Blockbuster itself had acquired under a revenue-sharing license agreement rather than as an outright purchase. Thanks
to my interlocutor, “analoghole” The possible problem there doesn’t affect my fair use analysis, however. Note that it also doesn’t change my point that you’re still entitled to first sale to the extent you were with a DRM-free, rented copy. Finally, since people are really getting up in arms about a person being able to keep the songs and use them past the subscription (that’s the biz model at stake), I figured I’d just pull the first sale analysis out, for clarity’s sake.]

[*2 – Update: see a minor clarification in the comments on this. If a copy is *only* non-infringing because of some implied or express license from the copyright owner that vanishes when you circumvent, then that could change the analysis.]

12 Responses to “(Fake Headline, Serious Point:) Movie Studios, Blockbuster File Copyright Infringement Suit Against Customer For Failing to Return DVD Rentals”

  1. analoghole
    September 18th, 2006 | 11:03 am

    Derek – Overall, you make a good point (or points), but in making the broad assertion that people who have lawfully-acquired (but expired) copies of Rhapsody tracks on their hard drive are free to make “first sale” of them seems to ignore the limitations of the “first sale” doctrine as codified in sec. 109. 109 provides fewer “first sale” rights or privileges with respect to software and music (as compared to books, movies, etc.), especially rental, lease or lending of such copies. An owner of a copy of a piece of software or music CD may be free to sell it, but is not free under 109 to rent it out to others.

    More important for purposes of your point, the “first sale” privileges of 109 don’t apply to someone who has (lawfully) acquired a copy of a copyrighted work (any – not just software or music) through rental, lease, lending. Sec. 109(d). So for example, someone who rents a DVD from Blockbuster (and doesn’t return it) is *not* permitted by 109 to make “first sale” of that DVD to others.

    When we’re talking about digital copies, the issue may be somewhat muddier. Microsoft and others have claimed that because they distribute their software subject to a restrictive license that the �purchasers� never acquire actual ownership of the copy (and thus have no first sale rights with respect to that copy). Some courts have agreed with this line of argument; others have disagreed (concluding basically that if it looks like a sale, it�s a sale for �first sale� purposes even if the fine print suggests otherwise). But where a copyright owner (or in this case, Rhapsody) makes it really clear that it�s subscription service is in the nature of a loan or rental of the tracks in question (that lasts only as long as the subscription is valid), it seems very likely that courts would characterize the arrangement between Rhapsody and its users as a �rental� or a �loan,� and thus, users would not be free to resell those tracks.

    You may disagree with that conclusion, or the likelihood that courts would interpret 109 that way, but the issue of what rights a user has in the context of Rhapsody and similar subscription services is far from clear � even without the DMCA being used to leverage even broader rights than copyright provides.

  2. Derek Slater
    September 18th, 2006 | 11:35 am

    Analoghole, thanks for commenting. I think you’re misreading 109(d) but let me know if you have a source to the contrary.

    109 (d) states: “The privileges prescribed by subsections (a) and (c) do not, unless authorized by the copyright owner, extend to any person who has acquired possession of the copy or phonorecord from the copyright owner, by rental, lease, loan, or otherwise, without acquiring ownership of it” (emphasis added)

    When you get a DVD from Blockbuster, you are not renting from the copyright holder. You are renting from an entirely separate party. Thus, this provision does not apply.

    You also point out the dissimilar treatement of software and music. Note that you can’t rent or lease a copy that you *purchased*. As I discussed, whether you “rented” or “purchased” the copy doesn’t really change the analysis under 109.

  3. joe
    September 18th, 2006 | 4:45 pm

    in the process of unwrapping a file with FairUse4WM, one does not make an “unauthorized copy”, thus an infringement?

  4. Derek Slater
    September 18th, 2006 | 5:20 pm

    Joe, if a RAM copy is per se non-infringing, it’s non-infringing regardless of whether you were circumventing. But remember 1201 applies *regardless* of whether the RAM copy is infringing — the act of unwrapping , rather than the act of copying, is the relevant violation.The way this analysis could get tricky is if the RAM copy is non-infringing *only* because you have an implied or express license to make it. An implied license might exist when you’re playing the song with the DRM wrapper still on, but it vanishes when you unwrap it and play it in a way that the copyright holder purposely tried to prevent. That’s the argument, at least. Similarly, the RIAA has said that ripping CDs is only allowed because they’ve authorized it. Thus, the RIAA believes that by posting on every CD tomorrow that ripping is infringement, they could revoke that license. both scores, I think copyright holders would be completely and utterly wrong. If all RAM copies are infringing, then a whole bunch of users and device manufacturers are in bad shape.See, note that the DMCA still wouldn’t change this analysis of whether it’s *infringing* or not, I think.  That is, following this line of argument, the DRM is an act to deny any license to make RAM copies after the song is supposed to have timed out.

  5. analoghole
    September 19th, 2006 | 1:12 am

    Derek – I’m not sure I get your second point regarding the disparate treatment of software/music as compared to other works (i.e. one is not allowed to rent them out). I merely mentioned it to help illustrate that 109 is more complex than a blanket “first sale” rule. As to the first point in your response to my comment, you’re right that Sec. 109(d) states that the privileges of 109(a) and (c) do not apply to someone who has acquired possession of a copy “from the copyright owner” through rental, lease, or lending. Are you really suggesting that the effect of 109(d) is to prevent a person who rents a copy of, say, a film directly from the copyright holder (Disney, let’s say) would not be allowed to dispose of the copy however he wishes, but that some who rents a copy of the same film from Blockbuster (i.e. not the copyrighter owner) could do whatever he wants (sell it to others, etc.)? Perhaps one *could* read 109(d) as saying that, but I can’t really see why Congress would have tailored the exception to first sale in this way (even considering that Congress has often concocted weird statutes that don’t seem to make much sense). But regardless of why it might have tailored 109 this way, such a reading of 109(d) doesn’t seem to be what Congress intended. Here’s the relevant leg history from the ’76 Act (discussing 109(c) — which is now 109(d)):

    Effect of Mere Possession of Copy or Phonorecord. Subsection (c) of section 109 [subsec. (c) of this section] qualifies the privileges specified in subsections (a) and (b) by making clear that they do not apply to someone who merely possesses a copy or phonorecord without having acquired ownership of it. Acquisition of an object embodying a copyrighted work by rental, lease, loan, or bailment carries with it no privilege to dispose of the copy under section 109(a) [subsec. (a) of this section] or to display it publicly under section 109(b) [subsec. (b) of this section]. To cite a familiar example, a person who has rented a print of a motion picture from the copyright owner would have no right to rent it to someone else without the owner’s permission.

    There’s that phrase again — “a person who rented … from the copyright owner…” But the explanatory text indicates the provision was meant to cover anyone who “merely possesses” a copy without ownership, i.e. through rental, lease, etc. That background is a fairly clear indication that 109(d) means that if you merely rent a copy from someone (whether or not they’re the copyright owner), you don’t get first sale rights in it, meaning that 109 won’t privilege you to distribute that copy to others.

    Of course, your original post mentions other rights, like fair use, which ought still apply, even to copies acquired through rental. It’s just that “first sale” under 109 may not allow quite so much (especially for users of services like Rhapsody) than it might appear at first glance.

  6. Derek Slater
    September 19th, 2006 | 2:44 pm

    analoghole:On the treatment of software and music, fine, 109 is more complex, but it treats rented copies of music or software the same as purchased copies wrt to the qualifications you talked about. As I said, to the extent 109 protects you wrt copy you bought from Blockbuster, it protects you wrt to the rented copy.And, yes, I am really suggesting that my reading is 109(d) is correct. It is completely consistent with the plain language of the statute, while yours is not. It is also entirely consistent with the purpose of 109.Copyright in the work is distinct from ownership of the material object, 17 USC 202. 17 USC 109 is part of what clarifies this.
    The material object is your property and you can alienate it as you please so far as Title 17 goes (subject to the limited rental constraints on software and music). 17 USC 109(d) simply clarifies that when the copyright holder has not released his property right in the physical object, 109 doesn’t apply in the same way. In the legisative history’s hypothetical, the copyright holder has his copyright in the work and retains some right in the physical object. In the Rhapsody hypothetical, the copyright holder has no property right in the file on your hard drive, though he does retain copyright in the underlying work embodied in that file.This distinction helps keep these separate bodies of law clear, spurs competition in market for distribution of physical objects (limiting downstream control from copyright holder), and blocks copyright from having excessive reach into control of our own property. According to your reading of the statute, if you loan me a book, and I rent that book to my friend, the copyright owner in the book can sue me. The Copyright Act does not intend such a result.What support do you have for your interpretation, beyond legislative history that you concede doesn’t really help you?

  7. analoghole
    September 19th, 2006 | 10:11 pm

    First off, wow, the lack of paragraph marks makes it really hard to read both what I wrote and the other comments. My typos aren’t helping either. I’ll try inserting some HTML.

    Second, I didn’t mean to suggest incredulity at your argument or that your reading of 109 was unreasonable, but I wasn’t totally sure that’s what you meant. From your follow-up, your position is clear.

    As for whether 109(d) is limited to rentals directly from the copyright owner, I think you may well be right. I am (or was) reading 109(d) in light of not only is legislative history (which actually does state in rather plain terms that mere possession doesn’t allow one to fall within 109’s exceptions), but also the first sentence of 109(a), which applies the sec. 109 “exception” to the distribution right only to the “owner” of a lawfully-made copy. A person who rents a copy is not the “owner” of the copy. While I think “owner” in this context is intended broadly, and would include more than just those persons holding unbridled legal title to a copy (and so would likely include purchasers of a copy of licensed software, even if the license stated it wasn’t really a “sale”), I don’t think that “owner” can be read to include those who have merely rented a copy, or borrowed it. (There is legislative history on this phrasing that I don’t have handy — the word “owner” was the subject of some debate). But the bottom line is that, for purposes of 109, “owner” means something more than mere “possessor.” 109(d) seemed to me to be essentially restating this rule. But as you rightly point out, it is worded more narrowly, applying only to the narrow case of someone who has rented a copy from the copyright owner.

    The problem is, even if 109(d) *is* narrower, there’s still the threshold of question of whether section 109(a) applies to a person who rents a copy from another. By its terms, it doesn’t appear to. That is, a person who rents a copy is not an “owner” of that copy, and so the privilege to redistribute the copy does *not* appear to extend to renters under 109. (But whether distribution of a copy by someone who merely rented that copy would be an infringement of the distribution right is a separate question regardless of what 109 says.)

    On the other hand, the *doctrine* of first sale as developed through case law prior to the codification of “first sale” doctrine in 109 is more definitive in stating that after a “first sale” of a copy has occurred, subsequent distributions of that copy are not limited by the distribution right. These cases characterize the first sale as “extinguishing” the distribution right with respect to that particular copy. But it’s not clear that the doctrine as codified in 109 preserves this sense of “extinguishing” the distribution right. The limitations that 109 puts on redistribution after “first sale” (such as the rental rights issues for software and music) certainly suggest that 109 isn’t intended to be as broad as the first sale doctrine was prior to 109.

    Also, please don’t get me wrong — I’m not advocating this reading as being the better *policy*. The “extinguishing” idea from case law certainly seems to be more in keeping with copyright’s original policy goals. Moreover, a narrow or strict interpretation (i.e. narrower than the first sale doctrine prior to 109) would lead to the kind of ridiculous examples (not being able to rent out a book that I had borrowed from the library) that you describe. I agree such results would be ridiculous, and that if someone asked a person in Congress in 1976, they’d say that’s not the result they intended. So yes, that’s probably not the result the “Copyright Act” (or the earlier progenitors of US copyright rules) intended. (Then again, if one were to ask someone in Congress whether they intended 109 to permit a person who “rented” digital tunes from Rhapsody to then turn around and sell those copies to someone else, they’d probably say no.)

  8. Derek Slater
    September 20th, 2006 | 3:19 am

    analoghole, please let me know if you know of any caselaw supporting that reading of 109(a) — to be fair, I haven’t researched it enough.  From what little I have seen, I see what you’re referring to with regard to Adobe Sys., Inc. v. One Stop Micro, Inc., 84 F. Supp. 2d 1086 (N.D. Cal. 2000) and Softman Prods. Co. v. Adobe Sys., Inc., 171 F. Supp. 2d 1075 (C.D. Cal. 2001). I don’t know if One Stop Micro is really on point in this context, if it’s even right to begin with.

    Reading 109(d) and 109(a) together, I think you get a pretty clear answer to that “threshold question.” That is, if “owner” does not include people renting from Blockbuster, 109(d) — particularly the words “from the copyright holder” — is entirely superfluous. After all, under that reading, 109(a) already doesn’t apply to that person. Indeed, 109(d) would seem to limit this sort of reading of 109(a); by adding “from the copyright holder,” that suggests that if it’s not from the copyright holder, 109(a) still applies. Why add the words “from the copyright holder” if 109(a) means what you say it might?

    Also, let me ask this: if I don’t “own” the physical copy on my hard drive, who does? Is Rhapsody the owner of the copy? If I’m not, and Rhapsody’s not, then who? No one?Again, the hypo is very different if the subscription music service was run by the copyright holder and I am effectively licensing that copy from him.  If Rhapsody entered into a licensing agreement with copyright holders and then turned around and sold its servers on eBay, that could violate first sale.  However, if I’m making a lawful copy from Rhapsody’s servers, that’s very different — I am not really acting as a licensee of the copyright holder. Right?(It’s also worth noting that the songs you “purchase” from an online store like iTunes could also be considered as merely licensed under certain circumstances, and thus first sale can be restricted in precisely this way.  Now iTunes looks a hell of a lot more like a sale, but the argument wouldn’t necessarily be a total stretch.)

    But like I said, that’s from my knowledge and if you have any sources that point to the contrary, please let me know.

  9. analoghole
    September 20th, 2006 | 9:17 am

    On the meaning of 109, yes, I think that reading 109(a) literally (i.e. not to include possessors-by-rental) would make 109(d)’s “from the copyright owner” superfluous. I just don’t know how courts would resolve that potential ambiguity, or even what was intended. Although rules of statutory construction disfavor readings that result in language being mere surplusage, Congress has been known to insert all sorts of superfluous (or at least difficult-to-decipher) “savings clauses” and the like into IP statutes (e.g. look at the Anticounterfeiting Amendments to 18 USC 2318 a couple years ago, about not affecting “fair use”).

    I’ll see if I can dig up some of the other cases relevant to licensing and first sale. They are all software cases (not music), IIRC. Wall Data, 447 F.3d 769 (9th Cir. 2006) doesn’t bode well for the idea that licensee “purchasers” of software are “owners” for 109 purposes (but it’s dicta in a footnote). Microsoft v. Software Wholesale Club, 129 F.Supp.2d 995 (SDTex 2000) is another district ct case in the same vein. On the other hand, Krause v. Titleserv, 402 F.3d 119, 123-24 (2d Cir. 2005) contains some helpful discussion of the debate over “possessor” vs. “owner” (although in the context of 117, not 109), and concludes that something less than formal title is required.

    There are others, but as I said, all the cases I’ve seen deal with software, not music, and let’s just say that few courts seem to have a full grasp on technology issues. From the dozen or so cases that have touched on this issue, it certainly seems that courts that actually analyze the issue tend to come out saying that if it looks like a sale, it’s enough for 109 purposes. Decisions holding that a licensing arrangement is not enough for 109 to kick in seem to involve mostly conclusory statements that licensing != sale.

    IIRC, one of the indicia of “ownership” or “sale” mentioned in a couple of cases (both Krause and Softman, I think) is whether the purchaser is entitled by the arrangement to keep the copy forever (as opposed to having to return/destroy it upon request or at the end of a term, I guess). Under that logic, iTunes sure does look like a sale, but I don’t know the terms of Rhapsody’s user license. If it says you can keep the copy forever, but it’ll only work as long as your subscription, then under the Krause/Softman logic it might well be a sale. If it actually styles the arrangement as a rental, or otherwise temporary or subject to a requirement to return or destroy the copy, then it would seem more likely that it’s a rental.

    It sure seems like many of the cases in which courts conclude that software licensing != sale are shaped by assumptions about how software is distributed — the courts think of software as different from other kinds of works. I think if the same courts were confronted with a case involving more traditional media like DVDs or music, they would be less likely to jump to the conclusion that license terms can destroy privileges or rights under 109. So, for example, even the Adobe court might decide that even if a copyright owner attempted to impose restrictive licensing terms on music CDs it sold to customers, the court might come out differently and conclude that the arrangement was a “sale” for 109 purposes.

  10. Derek Slater
    September 20th, 2006 | 11:07 am

    Interesting — not sure I’m wrong on the analysis, but as you argue
    it’s a closer call than I made it out to be. Thanks for the education
    and discussion!

  11. Derek Slater
    September 20th, 2006 | 3:26 pm

    analoghole, I finally had a chance to pull up Goldstein and you’re right that it is a bit more murkier than merely possessing a copy versus getting full transfer of title to the copy.  I still don’t know the answer to these hypos.  For instance, if Blockbuster bought the DVD outright and then lent it to you, it seems like you’re in pretty good shape if you resell it — however, if Blockbuster got the DVD under a revenue sharing license agreement with the copyright holder, and then rented it to you, you’re in less good shape. Anyway, thanks for the pointers.

  12. November 21st, 2006 | 5:15 pm

    What about territoriality issues, Derek? I’ve been having an ongoing thread on my blog about issues with foreign DVDs that may not be available in the U.S. and what copyright laws come into effect if a video store owner imports them personally and rents them.

    I’d greatly appreciate it if you could take a look and comment:

    Reader Mail: Starting a Video Rental Business