24 December 2004

Secondary Meanings

Over at Cyber Divide, Jim Lai has a long, thoughtful piece on the "proper" scope of vicarious and contributory copyright infringement. It's a well-considered piece, but…

I have had some unique opportunities to discuss the issue with attorneys from both sides from the issue and I think I've come up with the beginning of a test that I could support.

  • If a technology has a present, commercially significant noninfringing use, then its developer is not liable for secondary copyright infringement. That's the easy part.
  • If the technology does not have such a use, but is capable of commercially significant noninfringing uses, then its developer will not be liable for secondary infringement unless it derives most, if not all, of its present value from acts of infringement.

"BitTorrent and Secondary Copyright Infringement" (20 Dec 04) (reformatted for clarity). I think he's partway there, but I think he's fallen into a couple of traps that are not so obvious until one considers the actual creator's (not the patron's) viewpoint.

The critical failure of this test—and it's amazing that it doesn't occur until the last clause—is "derives most, if not all, of its present value from acts of infringement." This short phrase has two fatal conceptual flaws. The first, and most obvious, is how one measures "present value." The major stumbling block in all of vicarious and contributory infringement theory is the point of view. Almost everyone pays attention to the "benefit to the infringer" prong as the proper measurement. This is entirely understandable, as it at least has some numbers attached to it. (Arguing over accounting standards, though, leads only to the distinction between Ellison and Fonovisa on "direct financial benefit".) That makes it attractive to a court or other decisionmaker. The problem is that copyright infringement actions are supposed to rectify a harm to the holder. Certainly, "seizing unjust profits" is one measure of such a harm—but it is not the only one, and certainly not the most important one. The difficulty for most actual creators is the ability to sell or resell one's material in the first place; and the potential income from such a practice has no discernable relationship to the unjust profits of a secondary infringer.

Let's remove this from the copyright context for a moment and consider it as a matter of "more traditional" law, ignoring for the moment the whole "con-tort" issue. While the amount that an interloper profits by interfering with a contractual relationship is a valid measure of the harm party's loss, it is not the only one. "Settled expectations," "face value," and "consequential" theories are equally important. Mr Lai's test explicitly rejects them. Returning to the copyright creator's perspective, this means that the loss of the creator's ability to profit from authorized use(s) of his/her material is, under Mr Lai's test, completely irrelevant. If the resale value of, say, a short story drops from $500 to $300 as a result of secondary infringements, isn't that $200 a proper measure of damages? Not under Mr Lai's test. That, however, is an admittedly theoretical and rather amorphous objection. I think it points out more than adequately that it may well be impossible to develop a bright-line test of any kind for secondary infringement. I think this is actually the correct result; the whole point of secondary infringement theories is to prevent infringement by those who would weasel their way through loopholes that were not considered at the time whatever version of the Copyright Act is in force was passed. I think this is an argument for a far greater role for the Copyright Office in establishing substantive copyright law, pursuant to the Administrative Procedures Act; but that is for another time.

I also have a fundamental objection not to just how "activity" is measured, but to the threshold at which "infringement" was set: "most, if not all, of its present value." I think this an inappropriate measurement. It enables too much gaming of the system to evade responsibility through sham or "Japanese real estate" transactions involving a few big-ticket items that never really change hands. However, there is a relatively seasoned—if not entirely objective—analogy available that provides a better yardstick. Keep in mind the distinction between the technology itself and the fora that use that technology. A key-cutter, for example, certainly has the legitimate use of making duplicate keys for rightful owners (and I need to go make a duplicate of a car key this afternoon anyway!). However, some key-cutters exist in dubious fora; and those fora have other problems. I refer, of course, to pawnshops. My alternate test is that if the relative volumes of transactions in a virtual pawnshop would reasonably be expected to result in prosecution for trafficking in stolen property if they occurred in a physical pawnshop, then the pawnshop is a secondary infringer. In other words, if you're a fence, you can't save yourself by having some legitimate business on the side; and if you're a legitimate reseller, you don't have to face jail time for the occasional hot stereo.

It's not just about the business model; it's about the business attitude. And, in the end, that's why I think Mr Lai's test does put some necessary considerations out for discussion, but ultimately doesn't provide much, if any, real assistance in distinguishing between "infringing" and "noninfringing" uses of copying technology, despite its quantitative attractiveness.