After a six-year litigation, a federal jury in New York on Friday unanimously found Yahoo! not liable to Sony BMG Music Entertainment for copyright infringement. Billboard attended the closing arguments, and spoke with two of the six jurors after their verdict.
The jury had to decide whether Launchcast, which was acquired by Yahoo! shortly after the lawsuit was filed in 2001, was an "interactive" service or a "non-interactive" service. If an interactive service, Yahoo! would be liable for copyright infringement because it did not obtain licenses -- at negotiated rates -- directly from Sony BMG to stream the label's recordings. If a non-interactive service, then Yahoo! would not be liable for infringement because the service obtained compulsory licenses -- at rates set by law -- from SoundExchange.
As about 14 lawyers sat at tables representing Sony BMG and Yahoo! -- some taking notes, others listening, and a few others helping out with audiovisual displays -- the lead lawyer for each side summed up the evidence in their case on April 27.
Hadrian Katz, a partner with Arnold & Porter in Washington, D.C., argued for Sony BMG. Katz repeatedly argued that the standard to use in deciding if the service was interactive was whether the program was "specially created for you." He argued that Sony BMG proved in four ways that Launchcast specially created programs for users.
First, the patent for the service showed that the technology was intended to specially tailor programs for the individual, he argued. Katz went through several parts of the patent documents, highlighting sections on a large screen in the courtroom so the jury could read along with him.
Second, the source code for the technology supported the proposition that programs were specially created for users, he argued. The code indicated that every user had a user ID; the service depended on that ID to deliver music to the user; and the code expressly stated that it was "personalized."
The developers also wrote the code in a way to ensure that the service complied with copyright law, he argued. They wrote a way for the program to distinguish whether a song was subject to a compulsory license or whether it required a negotiated license, restricting certain songs from being streamed if a negotiated license was required, Katz pointed out. But someone at Yahoo! "frustrated" that source code and allowed Sony BMG songs to be played without a negotiated license, he claimed.
Third, the service was designed to be responsive to a user's selections, he argued. Katz showed still screen shots taken during a test of the system by an RIAA investigator. He argued that selecting favorite artists, favorite genres of music and other choices demonstrated that the system was designed to be responsive to the individual user.
Fourth, the statements by Launchcast and Yahoo! demonstrated that the service was interactive, he argued. The company promoted the service as allowing users to be put in command of their choices, influencing their own playlists. The higher an artist was rated, the more that song would be played.
Katz also argued several reasons why Yahoo! should pay statutory damages of
$100,000 for every album infringed (copyright law permits an award of up to $150,000 per infringement for willful copyright infringement). There were 722 albums involved in this lawsuit. The verdict could have reached $72.2 million if the jury found Yahoo! liable for infringement and awarded the damages requested.
Michael Elkin, a partner with Winston & Strawn in New York, argued for Yahoo!. The service was "arbitrary, random, unpredictable," he told the jury. Therefore, it was non-interactive, and the compulsory licenses were sufficient.
Elkin painted the Launchcast developers as music lovers who just wanted to find a way to help people discover new music. Using the large screen in the courtroom, Elkin displayed a colorful diagram of a blinking radio transmission while arguing that radio has always been an important promotional tool to sell records -- and that record labels don't receive any money for these broadcasts.
He pointed out that it wasn't until 1998 when record companies were able to have a law passed so that digital services would have to pay them for digital transmissions. But the legislative history of that law -- the Digital Millennium Copyright Act (DMCA) -- showed that Congress permitted a negotiable license for interactive services because these types of services could displace record sales. Elkin read a few emails from users of Launchcast, who said they bought more records after discovering music on the service.
Elkin argued that five categories of the service operated without any user input. Only three categories permitted user input to select songs. Even then, the input created more randomness, he argued.
To demonstrate this randomness, a depiction appeared on the screen in the courtroom showing a universe of stars. As the user makes more selections, Elkin argued, more data is added (and more stars kept appearing in the universe on the screen). A juror later commented that this demonstration helped show "randomness."
Elkin also argued that a user's selections are not streamed to the listener immediately; a user who selected a Natalie Imbruglia song and rated it as a favorite didn't hear it again for 3-1/2 hours. And even though a user listening to the service could skip to the next song (i.e., not be forced to listen to every song before hearing more favorites), this was the functional equivalent to a radio broadcast, he argued; it was no different than a radio listener changing stations on a radio.
During Katz's opportunity to rebut Elkin's arguments, he said that Elkin was simply trying to change the subject. None of the issues he raised mattered in this trial; all that mattered was that the service was specially created for the recipient. That meant the service was interactive and Yahoo! had to obtain negotiated licenses at negotiated rates.
After a break for lunch, the judge instructed the jury on the law that they must apply to the facts. In less then two hours, the jury returned a verdict in favor of Yahoo!.
In the hall outside the courtroom after the verdict, juror Erica Gallinelli, a high school teacher, told Billboard that the jurors believed that the service was interactive. But the judge clarified the law, she said, explaining that it was the spirit and intent of the law to protect record companies from the displacement of record sales. Since there wasn't any evidence of displacement and the service helped promote sales, she said, they found in favor of Yahoo!.
Another juror, who asked for anonymity, told Billboard that there was only a small minority of jurors who believed the service was interactive; most believed it was non-interactive. When asked what the jurors found unanimously (a federal court verdict must be unanimous), the juror responded, "We found for Yahoo!."
The juror then said that weighing the facts under the strict definition of interactive, the high level of randomness and the inability of songs to be heard when they were selected favored the service being non-interactive. There was vagueness in the law as to what interactive meant, the juror said, and the intent of the law -- set out in the legislative history -- made the service "far and away non-interactive." The juror also said that a second issue that weighed against Sony BMG was that there were no financial ramifications for Sony BMG - damages were non-existent.
In a statement released after the verdict, Sony BMG said it planned to appeal the verdict.