Confab Tackles Digital Legal Issues

Attorneys and label executives mulled the cloudy present and uncertain future of online entertainment during the Digital Entertainment Distribution conference June 22-23 at the Park Hyatt Hotel in L.A

LOS ANGELES -- Attorneys and label executives mulled the cloudy present and uncertain future of online entertainment during the Digital Entertainment Distribution conference June 22-23 at the Park Hyatt Hotel in L.A.

The event was organized by the American Conference Institute.

While panelists reached few definitive conclusions, a wealth of opinion, some of it contentious, was offered.

During a panel on litigation against peer-to-peer services, Cary Ramos of Paul, Weiss, Rifkind, Wharton & Garrison predicted that the case against Grokster -- currently before the Ninth Circuit Court of Appeals -- would ultimately go to the Supreme Court or be resolved through congressional legislation.

Ramos' firm has represented songwriters and publishers in various suits against song-swapping services.

Senior staff attorney Fred von Lohmann of the Electronic Frontier Foundation, which has helped defend Grokster, Morpheus and other P2P companies, noted, "In a world where every college student is able to create P2P software, it is not in litigation that the solution lies."

Taking the opposing view, Dean Garfield, VP of legal affairs for the Motion Picture Assn. of America, said, "The liability for those who choose to profit on the back of technology is appropriate."

Also during the confab, Verizon Communications VP/associate general counsel Sarah B. Deutsch discussed her company's successful defense against a suit brought by the RIAA.

She characterized the RIAA's efforts to get the names of Verizon clients as an attempt to "twist the (Digital Millennium Copyright Act) into a new roving subpoena power" that would give private companies more clout than the Patriot Act.

"To us, there were very serious privacy and safety issues," Deutsch added.

During a panel on contributory and vicarious infringement, litigator Ramos looked at pending Napster-related actions involving Hummer Winblad, which invested in the P2P service.

"You should look to the investors," Ramos said. "They should be held responsible if they were actively involved in the (infringing) business ... They should be held responsible for their conduct."

Michael Page of Keker & Van Nest, who has defended Grokster and other P2P firms, said that if a third party's control of an infringer is the issue, "there is no end to the doctrine ... The courts are going to have to focus on what it means to have control."

Mark Radcliffe of Gray Cary said that the pending contributory cases have had a chilling effect on the investment community: "No venture capitalist will invest in anything that's P2P."

Moderator Ken Steinthal of Weil, Gotshal & Manges noted that in cases of contributory infringement, "The hard part here is drawing lines. Can you come up with any meaningful way, once you open those floodgates, to keep (litigation) from getting out of hand?"

Rapidly developing business models have created a thicket of legal issues for the music business, according to execs speaking during the online music distribution panel.

Universal Music Group senior director of business affairs David Weinberg noted that just a few years ago, "The issue was, for us, was it a good thing to put (music) up (digitally)? Today it's, How fast can we put it up?"

Getting people to pay for content is still a problem, Weinberg noted: "The No. 1-selling CD in '03 was a blank CD."

Some debated the virtues of subscription-based and computer-tethered music models. Sony Music senior VP of business affairs and new technology Mark Eisenberg said, "One of the outcries of the public was, 'It's not as good as a CD because I can't own it. I want portability.' "

William Growney, general counsel for Roxio (which operates Napster), called subscription services "the future of the business."

However, after only four people in the panel room acknowledged that they subscribed to online services, MusicNow general counsel Thomas Leavens noted, "The modest number of people who have subscriptions represents the challenge."

Publishing licensing for online distribution -- which often presents issues not addressed in traditional contracts -- remains a morass.

Jay Morgenstern, executive VP/general counsel for Warner/Chappell Music, quipped, "It's sort of like the guy who comes home, and his wife says, 'Sweetie, you want to come upstairs and make love?' And he says, 'I can't do both.' "

Acknowledging that publishing issues are a persistent problem, Morgenstern said an independent body would have to be formed to issue the kind of one-stop licenses the industry is seeking.

At a panel on wireless and mobile content, participants discussed some of the legal issues that will involve ringtones.

Milton Olin of Altschul & Olin said that providers would like to offer ringtone files as part of packaged pricing deals with full-track Internet downloads. However, he noted, "Labels want to keep these things separate with integrated pricing."

Jonathan Schreiber, CEO of Xingtone, said it is "hard to figure out the value chain" for payment in the mobile phone space, and that such packaged deals could be complex.

Future relationships with ringtone providers and labels may also be strained if labels try to enter the business on their own, said Robert Tercek, chief strategy officer for the Mforma Group.

Additionally, Schreiber said, ringtone providers will have to resolve legally "whether a ringtone counts as a public performance" of a song, in which case royalties would have to be paid out.

At a panel on digital music rights, Steinthal presented information about the two universes of music rights owners: owners of musical works and owners of sound recordings.

Rights in the new-media space are being debated. For example, Steinthal said that for musical works, "Some publishers say mechanical licenses should not apply to services selling monthly subscriptions which time out or terminate at the end of a subscription."

He added that for permanent downloads, "Some publishers say they are entitled to a statutory royalty rate on a per-copy basis."

Bobby Rosenbloum of Greenberg Traurig added, "The No. 1 problem facing the industry is that new business models are being developed daily without applying laws. There is no clarity."