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Web Videos Test the Limits of Feeds, Uploads & Time-Shifting

Web-based videos, through links, feeds or user uploads, are generating significant legal and commercial interest these days. Advertisers are also quick to recognize the potential “buzz” marketing opportunities enabled by the use of the Internet and digital audiovisual technology. User-generated content draws consumers to websites, powerful magnets for advertising messages targeted to those consumers. But beware: Simply because a consumer creates the content, doesn’t mean it is immune from standard legal tests for advertising, endorsements, publicity and product liability.

A lawsuit has recently been filed against one online video-sharing network—Veoh—alleging it allowed video works owned by an adult entertainment company to be viewed through Veoh’s website without authorization. The claims of copyright infringement could be an important test of how the courts view sites that enable sharing or feeds of audiovisual works. Although there are a growing number of popular user-generated content sites such as IFILM, YouTube, Guba, Yahoo! and Google, these sites often have very different policies and some, but not all, of them review user-generated content before it is posted—either to ensure it meets guidelines or to confirm that the user’s tags are accurate.

Earlier this month, the New York State Consumer Protection Board published an official warning about content available on Google Video, the new Google site for user-generated content. Because videos are uploaded by users, Google Video relies on tags (labels which describe the content) which are input and generated by the users. Since the content is not indexed or catalogued by Google, a search will turn up whatever the user submits—and that is what has irritated the New York authorities. As with many websites that allow user-generated content to be uploaded for viewing, Google warns users about uploading obscene or illegal material or items protected by copyright, but currently has no mechanism for filtering it out.

In a move widely viewed as adding an air of legitimacy to these sites, Warner Bros. agreed to allow Guba to distribute some of its television shows and motion pictures, online. NBC is allegedly planning to make clips of some of its most popular programs available to YouTube to promote its fall programming lineup. NBC’s decision is reportedly coupled with advertising commitments for both companies in broadcast television medium and the Internet. That should come as no surprise since advertising is what is usually at the root of all of these revenue models—a fact that has not escaped broadcast network executives.

Also this month, a number of leading television production and motion picture companies joined forces in filing suit against Cablevision, one of the largest cable television companies in the United States. The action asks the U.S. District Court in New York to declare the time-shifting service Cablevision has announced, but not yet offered, in violation of U.S. copyright law. Cablevision has countered that time-shifting of programming by consumers is legal. Unlike an “on-demand” service which would record everything and replay programs when selected by the consumer, Cablevision intends to offer subscribers a specific amount of allocated storage space on the network. Analogous to an outsourced set-top box or digital video recording device that a consumer might purchase, Cablevision will offer consumers an opportunity to buy storage space and use it to record and play back programs and then erase them to free space for new programs—no different than if the storage medium was sitting in their living rooms. Stay tuned.

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Who Could Have Known?

Last month we teased you about legal issues that apply to interactive, web-based digital video games. How could we have known those sexually explicit scenes hidden in the game Grand Theft Auto: San Andreas would have been exposed just in time for our July Legal Bytes issue. Wow. Although the Advertising Review Council has an Entertainment Software Rating Board (“ESRB”)—a self-regulatory group that in May 2001 promulgated widely followed and accepted Principles and Guidelines for Responsible Advertising—the inability of the industry to effectively police itself, whether in connection with sexually explicit images, profanity, violence or otherwise, is coming under increasing fire as these incidents are uncovered. You all know what that means, right? Legislation, regulation and full employment for advertising attorneys who know their way around interactive, web-based digital gaming…and we have lots of those folks. You thought we were only concerned with product placement. Questions?

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The Internet Arrives at the Supreme Court (Again)

The U.S. Supreme Court will help decide how content providers will operate on the Internet. The first case, involving more than 20 entertainment companies with names like Viacom, Disney and Time Warner, involves the sharing of content such as movies, videos and music by computer users who download the content from the Internet. This case involves the issue of whether copyrighted material can be shared by users on peer-to-peer networks and, if the court follows the reasoning in the Betamax case which was decided back in 1984, there is a chance the court will decide that because these networks have substantial non-infringing uses, the network operators cannot be held liable for contributory infringement based on the conduct of individuals who use the network. Stay tuned—film at 11:00!!

The Supreme Court is also deciding a ‘gatekeeper’ case related to broadband service delivery by cable operators. Today, cable operators control the broadband portal or gateway that customers can use, and while a user can go through the portal and log on to another website (say Yahoo! or AOL), they still must first go through the cable provider’s designated broadband operator. The case coming up challenges that gatekeeping role and seeks to require cable operators to give consumers the right to pick the broadband connection they wish to have through the cable. We will keep you posted as developments unfold.

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Music On Hold—-Capitol Records, Inc. v. Naxos of America, Inc.

In a decision sure to be appealed but hailed as groundbreaking, the New York Court of Appeals, on April 5, 2005, held that rights to performances recorded before 1972 are protected under state common law, even after they have been put on the market. The ruling extends, until 2067, common law copyright protection for recorded music to companies that own rights to pre-1972 recorded performances. They can now prevent others from releasing their own versions. Since Congress did not extend statutory protection to recordings created before February 15, 1972, the court held there is common-law copyright protection in New York for sound recordings made prior to that date (i.e., since sound recordings made before 1972 are not covered by the federal copyright act, common law protection remains in place). In this case, Capitol’s claim against Naxos (who had remastered the recordings and began selling CDs) for infringement of common-law copyright in the original recordings was upheld. Common-law copyright traditionally has protected only unpublished works, but the New York holding concludes that the musical performances were unpublished, even though commercially sold to the public for decades. Go figure.

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Film, Tax and Videotape

In an attempt to lure film and television production back to New York from cheaper or more tax-advantaged locations such as Canada and Europe where they have been headed in recent years, New York has passed a bill offering tax cuts to benefit films and television shows produced in New York, although the bill does not extend to commercial productions. The Empire State Film Production Credit Program, signed into law on September 28, provides a tax credit for 10 percent of the production costs of feature films and episodic television programs produced by companies that spend 75 percent or more of their facility-related production costs at a qualifying production facility within New York. The law also allows New York City to offer additional incentives, including a 5 percent tax credit on projects, credits for outdoor media marketing, and assistance with story development, scouting, vendor discounts and consulting.

In a related development, the UK has enacted new permanent and more generous tax relief for small British films to replace the old Section 48 relief, which is scheduled to expire in July 2005. The new tax relief applies to 100 percent of a film’s UK production and raises the “small” film budget for qualifying purposes from £15m to £20m. Qualifying films will be entitled to government subsidies worth up to £4m per film under the new law, and film productions with budgets of up to £20m will receive a tax waiver on their production costs, including overseas costs—subject to the condition that the film actually makes a profit. The government subsidies, worth up to 20 percent of the film’s budget, will be paid directly to the producers on completion of the film. Under current Section 48 regulations, subsidies went to third parties who funded the films. Now they will be paid directly to the film makers.

The British tax relief announcement comes on the heels of a recent (February 10, 2004) clamp-down on some of the UK’s largest tax equity film funds. Set up as sale-and-leaseback deals, these funds allowed British investors to acquire marketing rights to studio films in Britain, the United States and Canada, and enabled investors to write off the cost as an upfront tax loss and lease the films back to the studios for periodic payments over 15 or 20 years. The deals often provided an option for a studio buy-out after a shorter period of time, but those exit strategies were banned by the UK’s Inland Revenue in what has come to be referred to in the film industry as “Black Tuesday.” On that day, the Inland Revenue issued a tax rule change closing a loophole that allowed these funds to operate outside the existing Section 48 film tax break and permitted claiming production costs as tax losses. As if intent on delivering a one-two punch, in March the UK followed this with a prohibition against print and advertising funds that were bankrolling distribution of features from some of the major motion picture studios.

Critics point out that the consequences of these bans could be a dramatic decrease in films produced and shot in the UK, already reeling from a strong pound sterling and increased competition for film financing. We can only assume the newly announced Section 48 incentives, with its direct production credits and other attributes, scheduled to take effect in July 2005 when the current scheme expires, are intended to attempt to repair some of the tax damage done. Combining our poor sense of humor, film and legal expertise, we can only say, “The jury is still out; stay tuned: film at 11:00”!

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Internet Streaming Media—-The FCC Just Says Yes

Last month we reported the Ninth Circuit Court of Appeals found that Grokster and Streamcast Networks were not violating copyright laws by making software that allows people to swap digital content. Just a few days ago, over the objections from the motion picture, broadcast and professional sports industries, the FCC approved technology allowing digital recording services like TiVo to transmit television programming to subscribers over the Internet, allowing programming, for example, to be viewed anywhere an Internet connection was available. Digital recording services and streaming programs remotely threatens local advertising relevance and revenue, while still allowing viewers to edit out commercials. Advertisers are you paying attention??

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Can You Grok This? Fans of Robert Heinlein Smile

In what may be a momentous ruling and certainly a setback to the music, film and entertainment industry’s effort to fight illegal on-line downloading and file swapping, on August 19, the three judges of the Ninth Circuit Court of Appeals upheld a lower court ruling that found that Grokster and Streamcast Networks were not violating the copyright laws merely because they made software available that allows people to trade digital content (e.g., movies, music). To be clear, the decision in no way condones copyright infringement, nor changes the law relating to the illegal use or theft of copyrighted materials, nor authorizes anyone to ignore the intellectual property rights of others. But harkening back to cases which look and feel (pun intended) much like the Sony Betamax cases years ago, the court ruled that this particular type of software—referred to as “file sharing” software—was designed in such a way that it could not be held illegal.

It is noteworthy that this is the same court that essentially brought Napster to its knees a few years ago with an exactly opposite conclusion. While critics will argue that the ruling is a descriptive guide to designing software that can avoid being caught in the web (another pun) of the Copyright Act, many others welcomed the ruling for bringing clarity to a murky area of the law and focusing on the distinctions which make some software and systems infringing, while others are not. For you technical gurus in the audience, the court found it significant that neither Grokster nor Streamcast used centralized databases or computer systems with programming file directories pointing to files on individual users’ computers—in other words, these systems didn’t direct other people (and couldn’t even intercept or prevent people) to actual or potentially pirated music, film or any other content. As with the Betamax cases, the court also found that although there were plenty of arguments (and evidence) provided in entertainment industry briefs noting that the vast majority of content exchanged by these programs was illicitly copied, the software Grokster and Morpheus (the software licensed by Streamcast), had other substantial non-infringing uses and thus could not be held illegal as a matter of law.