Who should derive revenue from remote DVR systems? According to a panel of the Second Circuit Court of Appeals, the revenue should not go to the content providers. This decision, grounded in three very narrow interpretations of the Copyright Act, works a shift of potentially significant revenue away from content providers. Hopefully, it will be challenged and reversed on rehearing.

 

 The case seemed simple for the content providers, but with judicial panel sympathetic to the other side it became what is a potential nightmare for copyright owners in digital environments. 

 

A recurring issue today in court is who control or has an advantage in the newly emerging digital and elated markets. Are technologists like Google in control with a right to use any content any time without permission, or do we still value the content creators?   This is not a philosophical issue and the combatants are not professors or mavericks. They are large companies with billions of dollars at stake. This is the era of the information wars.

            In the Cartoons case, Cablevision implemented a remote DVR system, allowing customers to select, store, and later play cable broadcasts. In the system, when cable programs are received by Cablevision, they are routed through a buffer (buffer 1) and copied briefly while software checks if any customer had requested copying of the program for later replay. If there was a request, the program would be copied into a server (buffer 2) and held for later viewing by the customer. When the customer later desired to watch the program, the DVR system delivered a performance to the customer’s home video.  Variations of this system are widespread in the cable market and are a robust competitor to home recording systems.

            Cablevision did not ask for licenses from the content (program) providers for copying their programs or publicly performing them at times other than the original transmission. It simply implemented the system and charged customers who desired to use it. 

            The Second Circuit concluded that this was fine – a major corporation (a cable company) could reuse another company’s copyrighted product without permission or payment. This was a complicated decision, but fundamentally, a choice by the panel to turn potentially billions of dollars away from the creative parts of the industry to those who copy and retransmit. It was a wrong decision.

            First, the panel held that copying was not copying if the copied image lasted for only a second or two. So, the entire line of cases started in the Ninth Circuit’s MAI decision remains intact, but now seems to become a question of …..   I do not know what. 

            Second, the full content was copied into buffer 2 by Cablevision’s system. But, no, cablevision who charged for this service, did not make the copies – the customers did – at least if you believe the panel of he court!

            Strike 2.

            Strike 3 is when the court held that, when the customer who caused the copy to be made, eventually asked for it to be performed in the customer’s home – this was not a “public” performance.

            This may be among the worst appellate court decisions in copyright law history.

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Reverse engineering is not an inviolate right

      Actually, contracts control. I can have a privilege to do something, but then can waive that privilege. So too the privilege to make limited copies for purposes of some forms of reverse engineering.

Reverse engineering is not an inviolate right

      Actually, contracts control. I can have a privilege to do something, but then can waive that privilege. So too the privilege to make limited copies for purposes of some forms of reverse engineering.

            “Reverse engineering” is the process by which the owner of a copy or a product takes the product apart in order to discover how it works. This has been an important feature of business practice in industries where much technology is not protected by patents or copyrights – if I sell you a product and you can find my secrets by dismantling it, so be it. You are entitled to do so.

            But – what if the reverse engineering requires that you make copies of my copyrighted work? Different story. That is permitted only if the copies are fair use. It is fair use in some cases. But not all cases. There are cases on this, but I will leave discussion of them and that issue for another time. The cases allow making copies only if and as needed to obtain information not protected by copyright.

            What if the contract you agreed to says you can’t do it? Should that contract be enforced? Of course. If I can agree to waive my Constitutional privilege against self-incrimination, my right to speech, and other fundamental rights, certainly I can contractually waive the privilege to reverse engineer a product.

            While some lawyers, such as Jonathon Band, and some organizations, such as the EFF, claim that reverse engineering is an inalienable right, that viewpoint really comes from companies that need to do reverse engineering in order to stay competitive. Is Sun Microsystems listening to this?

           Several federal statutes protect limited reverse engineering, but they do not over-ride contractual agreements to the contrary. The recent Altera case Altera Corp. v. Clear Logic, Inc., 2005 WL 2233252 (9^th Cir. 2005). said the same thing in reference to the SCPA. The court held that a claim for interference with contract was not preempted because the contract itself provided an extra element. The contract here limited licensees to sole use of the chip, but the defendant allegedly induced a licensee to allow reverse engineering. The court commented: “If a state law claim includes an "extra element" that makes the right asserted qualitatively different from those protected under the Copyright Act, the state law claim is not preempted by the Copyright Act.Most courts have held that the Copyright Act does not preempt the enforcement of contractual rights.We find the logic of these cases persuasive here.”

        Furthermore, the court held that allegations of copyright misuse were not applicable to the contract claim:

      When copyright misuse applies, we do not allow enforcement of the copyright for the period of misuse. Because the remedy for copyright misuse is equitable, it makes little sense to allow Clear Logic to proceed on an independent claim for copyright misuse when there has been no allegation of copyright infringement. We have already rejected Clear Logic's copyright preemption argument. We cannot now void the license agreements under the pretext of refusing to enforce a copyright that has not been asserted. Copyright misuse is not a defense to the state law claims asserted by Altera.

      In this, the court set an appropriate boundary. We should pay attention to it.

The Davidson case and the Bowers case reach the same conclusion.

      It is time to recognize the difference between contract obligation and property rights. The only statute that addresses reverse engineering as a contract law issue is the 2002 Draft of UCITA.   It gives special protection for a limited range of reverse engineering notwithstanding contrary contract terms. But, like many political compromises, it was probably a mistake to do so.

The agreement should and does control in most modern law in the U.S.

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