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2. 2 CPTWG MEETING #94 January 10, 2006 Legislative/Regulatory Update Jim Burger jburger@dowlohnes.com CPTWG MEETING #94 January 10, 2006 Legislative/Regulatory Update Jim Burger jburger@dowlohnes.com

3. 3 OverviewOverview n Legislation u Content Protection – Overview F Analog Hole (H.R. 4569) u Intellectual Property Rights Enforcement Act (S. 1984) u BALANCE Act (H.R. 4536) n Litigation u Storage Technology Corp. v. Custom Hardware Engineering & Consulting, Inc. u BMG Music v. Gonzalez u Freeplay Music, Inc. v. Cox Radio, Inc. et al. u Paramount Pictures Corp. v. Davis n Legislation u Content Protection – Overview F Analog Hole (H.R. 4569) u Intellectual Property Rights Enforcement Act (S. 1984) u BALANCE Act (H.R. 4536) n Litigation u Storage Technology Corp. v. Custom Hardware Engineering & Consulting, Inc. u BMG Music v. Gonzalez u Freeplay Music, Inc. v. Cox Radio, Inc. et al. u Paramount Pictures Corp. v. Davis

4. 4 Content Protection - Overview n Rep. Sensenbrenner formally introduced Digital Transition Content Security Act of 2005 (H.R. 4569) u “Analog Hole” legislation tracks closely to discussion draft circulated prior to House Judiciary Subcommittee hearing in November n Broadcast Flag, HD Radio legislation have not been introduced n Rep. Sensenbrenner formally introduced Digital Transition Content Security Act of 2005 (H.R. 4569) u “Analog Hole” legislation tracks closely to discussion draft circulated prior to House Judiciary Subcommittee hearing in November n Broadcast Flag, HD Radio legislation have not been introduced

5. 5 Digital Transition Content Security Act of 2005 (H.R. 4569) n Prohibits manufacturing of Analog Video Input devices unless u They respond to certain rights signaling information F CGMS-A and VEIL u Preserve rights signaling information u Do not circumvent rights signaling technology n Exempts Devices Manufactured Before Effective Date n Encoding May Be Used to Prevent or Limit Copying or Redistribution of Prerecorded Media, VOD, PPV, and Subscription on Demand u Cannot be used to prevent first generation copies of pay TV, non- premium subscription TV, and free conditional access n Gives PTO Authority to Evaluate Technology n Provides for Civil and Criminal Remedies n Prohibits manufacturing of Analog Video Input devices unless u They respond to certain rights signaling information F CGMS-A and VEIL u Preserve rights signaling information u Do not circumvent rights signaling technology n Exempts Devices Manufactured Before Effective Date n Encoding May Be Used to Prevent or Limit Copying or Redistribution of Prerecorded Media, VOD, PPV, and Subscription on Demand u Cannot be used to prevent first generation copies of pay TV, non- premium subscription TV, and free conditional access n Gives PTO Authority to Evaluate Technology n Provides for Civil and Criminal Remedies

6. 6 PenaltiesPenalties n Civil u $200 to $2,500 per n Criminal u 5-10 years, $500,000 to $1,000,000 n Civil u $200 to $2,500 per n Criminal u 5-10 years, $500,000 to $1,000,000

7. 7 Digital Transition Content Security Act of 2005 (H.R. 4569) (cont.) n Prescribes compliance rules – Devices must be able to u Detect the presence of CGMS-A and/or VEIL u Determine what CCI is to be transmitted when the video signal is output u Comply with the relevant recording, output and passing rules for such CCI n Prescribes compliance rules – Devices must be able to u Detect the presence of CGMS-A and/or VEIL u Determine what CCI is to be transmitted when the video signal is output u Comply with the relevant recording, output and passing rules for such CCI

8. 8 Intellectual Property Rights Enforcement Act (S. 1984) n Intellectual Property Enforcement Network u Includes Deputy Attorney General, Deputy Secretary for Homeland Security, and Under Secretary of Treasury for Terrorism and Financial Intelligence u Creates Coordinator for Intellectual Property Enforcement n Establish objectives for international intellectual property protection and enforcement n International task force u Countries with similar intellectual property theft problems u Exchange intelligence, conduct enforcement activities in cooperation with countries in task force n Introduced Nov. 9, 2005; no new action taken n Intellectual Property Enforcement Network u Includes Deputy Attorney General, Deputy Secretary for Homeland Security, and Under Secretary of Treasury for Terrorism and Financial Intelligence u Creates Coordinator for Intellectual Property Enforcement n Establish objectives for international intellectual property protection and enforcement n International task force u Countries with similar intellectual property theft problems u Exchange intelligence, conduct enforcement activities in cooperation with countries in task force n Introduced Nov. 9, 2005; no new action taken

9. 9 BALANCE Act (H.R. 4536) n Rep. Lofgren reintroduced the Benefit Authors Without Limiting Advancement or Net Consumer Expectations Act of 2005 (“BALANCE Act”) on Dec. 14, 2005, u Intent is to “safeguard the rights and expectations of consumers who lawfully obtain digital entertainment” u Would amend Copyright Act to F Permit consumers to reproduce, store, adapt and access legally obtained digital works for archival purposes and personal use F Apply First Sale Doctrine to digital works –Unclear whether First Sale Doctrine currently applies F Amend DMCA to allow consumers to circumvent technological measures if –Necessary to make non-infringing use of the work, and –Copyright owner has not made means available to make non- infringing uses n Rep. Lofgren reintroduced the Benefit Authors Without Limiting Advancement or Net Consumer Expectations Act of 2005 (“BALANCE Act”) on Dec. 14, 2005, u Intent is to “safeguard the rights and expectations of consumers who lawfully obtain digital entertainment” u Would amend Copyright Act to F Permit consumers to reproduce, store, adapt and access legally obtained digital works for archival purposes and personal use F Apply First Sale Doctrine to digital works –Unclear whether First Sale Doctrine currently applies F Amend DMCA to allow consumers to circumvent technological measures if –Necessary to make non-infringing use of the work, and –Copyright owner has not made means available to make non- infringing uses

10. 10 Litigation Overview n Four recent copyright cases decided by federal circuit and district courts u Storage Technology Corp. v. Custom Hardware Engineering & Consulting, Inc. (Fed. Cir. Dec. 14, 2005) u BMG Music v. Gonzalez (7 th Cir. Dec. 9, 2005) u Freeplay Music, Inc. v. Cox Radio, Inc. et al. (S.D.N.Y. Dec. 12, 2005) u Paramount Pictures Corp. v. Davis (E.D. Pa. Dec. 2, 2005) n Four recent copyright cases decided by federal circuit and district courts u Storage Technology Corp. v. Custom Hardware Engineering & Consulting, Inc. (Fed. Cir. Dec. 14, 2005) u BMG Music v. Gonzalez (7 th Cir. Dec. 9, 2005) u Freeplay Music, Inc. v. Cox Radio, Inc. et al. (S.D.N.Y. Dec. 12, 2005) u Paramount Pictures Corp. v. Davis (E.D. Pa. Dec. 2, 2005)

11. 11 Storage Technology Corp. v. Custom Hardware Engineering & Consulting, Inc. n Background u StorageTek developed “maintenance code” for use in connection with diagnostic testing of data storage devices it sells u Custom Hardware circumvented the encrypted code to provide service for its customers on StorageTek devices u StorageTek claimed this violated DMCA u Federal Circuit found no violation of DMCA because Custom Hardware’s underlying conduct did not violate StorageTek’s copyrights n StorageTek petitioned for rehearing and en banc rehearing u Content industry (including MPAA and RIAA) filed amicus in support of StorageTek n Fed. Circuit denied petition for rehearing on Dec. 14, but did not discuss DMCA issues n Petition for en banc review remains pending n Background u StorageTek developed “maintenance code” for use in connection with diagnostic testing of data storage devices it sells u Custom Hardware circumvented the encrypted code to provide service for its customers on StorageTek devices u StorageTek claimed this violated DMCA u Federal Circuit found no violation of DMCA because Custom Hardware’s underlying conduct did not violate StorageTek’s copyrights n StorageTek petitioned for rehearing and en banc rehearing u Content industry (including MPAA and RIAA) filed amicus in support of StorageTek n Fed. Circuit denied petition for rehearing on Dec. 14, but did not discuss DMCA issues n Petition for en banc review remains pending

12. 12 BMG Music v. Gonzalez n Background u Defendant Gonzalez downloaded more than 1,370 songs from P2P network u BMG sued her for direct copyright infringement F Gonzalez argued fair use, claiming downloads were used to sample music she might buy n Decision u 7 th Cir.: Downloading for “sampling” different than time- shifting under Sony F “A copy downloaded, played and retained on one’s hard drive for future use is a direct substitute for the purchased copy” –Under Sony, broadcasts were licensed for one transmission and one viewing, so time shifting was fair use –Here, copies Gonzalez obtained were posted in violation of copyright law; there was no license covering single transmission or use u Court also rejected sampling defense F Are other ways to sample music (e.g., radio, Internet streaming) that are legal because the broadcasters pay license fees to copyright owners u Gonzalez fined $22,500 based on statutory copyright damages n Background u Defendant Gonzalez downloaded more than 1,370 songs from P2P network u BMG sued her for direct copyright infringement F Gonzalez argued fair use, claiming downloads were used to sample music she might buy n Decision u 7 th Cir.: Downloading for “sampling” different than time- shifting under Sony F “A copy downloaded, played and retained on one’s hard drive for future use is a direct substitute for the purchased copy” –Under Sony, broadcasts were licensed for one transmission and one viewing, so time shifting was fair use –Here, copies Gonzalez obtained were posted in violation of copyright law; there was no license covering single transmission or use u Court also rejected sampling defense F Are other ways to sample music (e.g., radio, Internet streaming) that are legal because the broadcasters pay license fees to copyright owners u Gonzalez fined $22,500 based on statutory copyright damages

13. 13 Freeplay Music, Inc. v. Cox Radio, Inc. n Background u Freeplay owns copyrights in certain musical compositions u Radio stations broadcast Freeplay’s works as background music during commercials and promotional spots supplied by third parties u Broadcasters: we have right to play Freeplay’s songs under BMI license n Decision u S.D.N.Y.: Third parties that created recordings violated Freeplay’s exclusive reproduction right F But BMI license gave broadcasters right to perform the recordings, even if they were “tainted” by third parties’ infringement u Court also rejects claim that commercials were unauthorized derivative works not covered by BMI license F Copyright Act only covers creation of derivative works F Broadcasters only performed the commercials, which they had right to do under BMI license n Background u Freeplay owns copyrights in certain musical compositions u Radio stations broadcast Freeplay’s works as background music during commercials and promotional spots supplied by third parties u Broadcasters: we have right to play Freeplay’s songs under BMI license n Decision u S.D.N.Y.: Third parties that created recordings violated Freeplay’s exclusive reproduction right F But BMI license gave broadcasters right to perform the recordings, even if they were “tainted” by third parties’ infringement u Court also rejects claim that commercials were unauthorized derivative works not covered by BMI license F Copyright Act only covers creation of derivative works F Broadcasters only performed the commercials, which they had right to do under BMI license

14. 14 Paramount Pictures Corp. v. Davis n Background u Paramount hires third party service to monitor P2P networks for infringing copies of first run movies u Service discovers that Davis is distributing Lemony Snicket’s: A Series of Unfortunate Events over P2P u Paramount sues Davis for infringement; after service of suit Davis reformats hard drive F Paramount argues court should conclude that reformatting hard drive is evidence of Davis’s copyright infringement n Decision u E.D. Pa.: Davis’s reformatting of hard drive equivalent to destruction (“spoliation”) of evidence F But court unwilling to grant summary judgment to Paramount on this fact alone –Spoliation evidence only an “inference” of certain conduct, not a legal conclusion that court must reach n Background u Paramount hires third party service to monitor P2P networks for infringing copies of first run movies u Service discovers that Davis is distributing Lemony Snicket’s: A Series of Unfortunate Events over P2P u Paramount sues Davis for infringement; after service of suit Davis reformats hard drive F Paramount argues court should conclude that reformatting hard drive is evidence of Davis’s copyright infringement n Decision u E.D. Pa.: Davis’s reformatting of hard drive equivalent to destruction (“spoliation”) of evidence F But court unwilling to grant summary judgment to Paramount on this fact alone –Spoliation evidence only an “inference” of certain conduct, not a legal conclusion that court must reach