TLJ News from October 6-10, 2012

District Court Disposes of Authors Guild's Book Scanning Case Against Universities

10/10. The U.S. District Court (SDNY) issued its opinion in Authors Guild v. HathiTrust. one of several cases involving the mass scanning and digitization of books by university libraries and Google.

The District Court held that mass copying of library books for the purposes of full text searches, preservation, access for people with certified print disabilities, constitutes fair use. This is a defeat for book authors.

The District Court also held that the plaintiffs' claims regarding the defendants' planned full text free access publication of purported "orphan works" are not ripe for adjudication. Thus, there will be no court made law at this time regarding the creation of an "orphan works" exception to the exclusive rights of copyright.

Summary of this Article:

Background. This is the copyright infringement action filed by the Authors Guild (AG) and others on September 12, 2011, against the University of Michigan, University of California, the University of Wisconsin, Indiana University, and Cornell University.

The five universities are involved in mass book digitization programs pursuant to contracts with Google. Google scans books held by the defendant universities. Google retains digital copies, and gives digital copies to the universities. The HathiTrust is a name used by these universities, and others, for their aggregation of these and other digital copies.

Google is not a defendant in this action. However, there is a separate action brought by the AG against Google that is still pending.

Google has copied physical books in the defendants' collections, millions of which are under copyright, in many cases, without permission of the copyright holders.

Complaint. The original complaint [26 pages in PDF] alleged "systematic, concerted, widespread and unauthorized reproduction and distribution of millions of copyrighted books and other works". The complaint alleged that "approximately 73%" of the HathiTrust's collection is under copyright, and that this is "one of the largest copyright infringements in history".

An amended complaint added additional parties, including the New York based Authors League Fund. (The plaintiffs also include foreign author groups, and several individual authors, including James Shapiro, one of the leading scholars and authors on Shakespeare and other dramatic works.)

The complaint also alleged that four of the defendant universities have announced an "Orphan Works Project" to make available online "so called ``orphan works´´ -- works that are protected by copyright but whose rights holders theoretically cannot be located by procedures established by the HathiTrust".

The plaintiffs sought declarations that the "Defendants' systematic digitization and distribution of copyrighted materials without authorization constitutes unlawful copyright infringment", and "Defendants' distribution and display of copyrighted works through the HathiTrust Orphan Works Project will infringe the copyrights of Plaintiffs and others likely to be affected".

The complaint also sought an injunction barring the defendants from "systematically reproducing, distributing and/or displaying" plaintiffs' copyrighted works, from "providing to Google for digitization copyrighted works without authorization", and from "proceeding with the HathiTrust Orphans Work Project, including without limitation, from displaying, distributing or otherwise making available any so-called orphan work protected by copyright".

The complaint also sought impoundment of "all unauthorized digital copies of works protected by copyright".

The complaint did not seek damages. Four of the five defendants are political subdivisions of states, and therefore have 11th Amendment immunity from claims for damages for copyright infringement, pursuant an unfortunate series of Supreme Court's opinions. (See, 1999 Rehnquist opinion in Florida Prepaid Postsecondary Education Expense Board v. College Savings Bank, 527 U.S. 627, invalidating the Patent and Plant Variety Protection Remedy Clarification Act, and 1999 Scalia opinion in College Savings Bank v. Florida Prepaid Postsecondary Education Expense Board, 527 U.S. 666, invalidating the Trademark Remedy Clarification Act.)

Court Opinion. Judge Harold Baer wrote a sweeping decision in which he came down on the side of the universities on numerous issues.

He wrote that the defendants make available digital works in the HathiTrust for "full text searches" that do not provide access to the copyrighted text, for "preservation", and for "access for people with certified print disabilities". And, for the works labeled "orphan works" by the defendants, "for full view". He added that after the filing of the complaint the "orphan works" program was "temporarily suspended".

The opinion does not disclose that the University of Michigan (UM) had published a list of works that its deemed to be "orphan works", only to be confronted by evidence that it had improperly listed numerous works, under copyright, with a living rights holders, there were available for sale. The UM promptly withdrew the list from its web site, and published short statement in which it acknowledged "a number of errors, some of them serious".

Judge Baer added that the "UM has not yet provided a new process for identifying Orphan Works, or even a timeline for when that might happen".

Judge Baer first held that the "Associational Plaintiffs have satisfied Article III standing requirements and that the issues pertaining to the rights of their members are therefore justiciable. As a matter of statutory standing under the Copyright Act, however, the domestic Associational Plaintiffs are precluded from enforcing those rights."

Judge Baer next held that all of the claims regarding the HathiTrust "Orphan Works Project" are not ripe.

He wrote that "The claims here are not fit for adjudication. Were I to enjoin the OWP, I would do so in the absence of crucial information about what that program will look like should it come to pass and whom it will impact."

Given that there is no "orphan works" exception to the exclusive rights of copyright, under either the Copyright Act, or court created rule, there is no sets of facts under which the defendants could have prevailed on a asserted "orphan works" exception. Hence, Judge Baer could have both found ripeness, and granted summary judgment, on the "orphan works" issue.

However, one of the key consequences of this decision is that a ruling regarding the possible existence of some sort of "orphan works" exception to infringement will not come about in the near future, if at all, in this case. This eliminates one reason for the Congress to put off consideration of "orphan works" legislation. Some members of Congress are reluctant to consider legislation on a matter presently before a court. Some members of Congress seize upon a pending court action as a pretext for not considering related legislation.

Next, Judge Baer rejected the argument that the availability of Section 108 (an exception to the exclusive rights of copyright that allows libraries to make a copies of certain works for specified purposes) precludes a finding that Section 107 (an exception to the exclusive rights of copyright for fair use) allows infringement.

Then, Judge Baer made the most critical ruling -- that copying for the purposes of full text searches, preservation, and for access for people with certified print disabilities, constitutes fair use.

Judge Baer's decision on fair use appears to be based upon his policy objectives. He praised the defendants' activities, especially as they pertained to disability access. He then tailored his fair use analysis to meet policy goals.

For example, one of the four prongs of the fair use defense, which is codified at 17 U.S.C. § 107, is "the amount and substantiality of the portion used in relation to the copyrighted work as a whole". The book scanning program involves copying the entirety of books. Nevertheless, Judge Baer did not even find that this prong weighs in favor of the plaintiffs.

Reaction. The AG stated in a release "We disagree with nearly every aspect of the court's ruling. We're especially disappointed that the court refused to address the universities’ ``orphan works´´ program, which defendants have repeatedly promised to revive. A year ago, the University of Michigan and other defendants were poised to release their first wave of copyright-protected, digitized books to hundreds of thousands of students and faculty members in several states. The universities had deemed the authors of these books to be unfindable."

The AG continued that "Within two days of filing our lawsuit last September, Authors Guild members and staff found that the “orphans” included books that were still in print, books by living authors, books whose rights had been left to educational and charitable institutions in the U.S. and abroad, books represented by literary agents, and books by recently deceased authors whose heirs were easily locatable."

Paul Aiken, Executive Director of the AG, stated in this release that "The so-called orphan works program was quickly shown to be a haphazard mess, prompting Michigan to suspend it ... But the temptation to find reasons to release these digitized books clearly remains strong, and the university has consistently pledged to reinstate the orphan works program. The court’s decision leaves authors around the world at risk of having their literary works distributed without legal authority or oversight."

The defendant universities issued a statement praising the court's decision.

Data Security. Judge Baer wrote a few perfunctory and uninformed sentences about data security.

His opinion allows the scanning of books under copyright, and retention by the defendant universities of digital copies on internet connected servers. Moreover, Judge Baer's decision presumes that the defendants' statements regarding their purposes, intentions and security are sufficient to protect this collection of digital copies from theft by hackers or insiders.

If digitized works are stolen, and distributed via the internet by some entity that operates beyond the jurisdiction of the U.S. courts, the economic value of these works to the rights holders could be substantially destroyed.

First, university libraries lack expertise in cyber security. The mission of these libraries is to make stuff available, to many people, without any meaningful screening -- not to protect, exclude and secure.

Second, the defendants lack the incentive to protect digitized works from unauthorized access, copying, and further distribution. It is not their property. They do not stand to loose sales or licensing revenues if works are stolen.

Third, universities are vulnerable to insider theft. For example, the Massachusetts Institute of Technology (MIT), one of the world's leading technology universities, demonstrated its inability to stop a long running insider data theft scheme in 2010 and 2011. See, story titled "Grand Jury Returns Indictment for Unauthorized Downloading of 4.8 Million JSTOR Articles" in TLJ Daily E-Mail Alert No. 2,264, July 20, 2011.

Moreover, the history of the defendant universities' "orphans works" bodes ill for the security of scanned books. The defendants asserted that numerous books that are in fact are in print and on sale are "orphan works". Many of these assertions were promptly proven to be false. If university employees knew that such books were on sale, then they acted with dishonesty. If these university employees did not know that such books were on sale, then they are incompetent to operate a mass digitization program. One of the two possibilities must be the case. Regardless of which is true, it is evidence that the University of Michigan and other defendant libraries cannot be be relied upon to secure digital data and protect proprietary interests in digitized works.

Nevertheless, Judge Baer has allowed mass digitization, and not imposed any data security regime.

DOJ's Hesse Addresses Patents and Standard Setting Organizations

10/10. Renatta Hesse, a Deputy Assistant Attorney General in the Department of Justice's (DOJ) Antitrust Division, gave a speech [12 pages in PDF] in Geneva, Switzerland, titled "Six Small Proposals for SSOs Before Lunch".

She offered six non-mandatory proposals for standards setting organizations (SSOs) with respect to standards essential patents (SEPs) that she said would be beneficial to competition. She also said that the DOJ "is ready to enforce the antitrust laws against standard-setting activities that harm competition". And, she invited SSOs to take advantage of the DOJ's business review letter process.

Introduction. She began with this general statement about the antitrust laws and intellectual property. "Section 1 of the Sherman Act prohibits agreements that unreasonably restrain trade. Section 2 of the Sherman Act prohibits monopolization where monopoly power is obtained or maintained by suppressing competition through anticompetitive conduct, but not where it is obtained through superior skill, foresight, or industry. The Clayton Act prohibits mergers or acquisitions that are likely to lessen competition. When enforcing these laws where intellectual property rights are involved, the division identifies and seeks to prevent illegal collusive or exclusionary conduct while, at the same time, preserving the incentives to innovate created by those intellectual property rights."

She then said that the DOJ works to ensure that "competition, patent rights and collaboratively set standards" work together optimally "to provide consumers with high-quality mobile wireless products and services at competitive prices while preserving incentives for the innovation that creates and improves those products".

She said that patents "have long played a central role in promoting innovation and economic growth by encouraging individuals and companies to apply their knowledge, take risks and invest in research and development to create a new product or process".

In addition, "Interoperability standards enable the complementary products of diverse systems to work together. In so doing, they promote efficient resource allocation and production which encourages innovation."

FTC/DOJ 2007 Report. She continued with a discussion of a 2007 joint report of the DOJ and Federal Trade Commission (FTC). She said that "our findings remain highly relevant today."

On April 17, 2007, the FTC and DOJ released a report [217 pages in PDF] titled "Antitrust Enforcement and Intellectual Property Rights: Promoting Innovation and Competition". See also, story titled "FTC and DOJ Release Report on IPR and Antitrust" in TLJ Daily E-Mail Alert No. 1,566, April 17, 2007.

She explained that the DOJ and FTC found then that "standards serve the public interest" and that "firms benefit from participating in standard-setting processes". However, "collaborative standard-setting does not come without some risks to competition. In particular, when a standard incorporating patented technology (owned by a participant in the standard-setting process) becomes established, switching may become difficult and expensive. This lock-in may cause that particular technology to gain market power. Patent holders may seek to take advantage of that market power by engaging in one form of patent hold-up, such as excluding a competitor from a market or obtaining an unjustifiably higher price for its invention than would have been possible before the standard was set." (Parentheses in original.)

She noted that "most standards bodies have adopted patent policies that seek commitments from participants to license the patents they own that are essential to the standard (standard-essential patents) on ``reasonable and non-discriminatory´´ (RAND) in the United States or ``fair, reasonable, and non-discriminatory´´ (FRAND) terms in Europe and other jurisdictions", but that this leaves "inherent ambiguity".

Business Review Letters. She discussed two business review letters issued by the DOJ in 2006 and 2007 regarding RAND. She said that the 2006 letter to the VITA "noted that we would deem licensing activities used as a sham to cover up bid rigging by patentees or the price-fixing of downstream products a per se violation of the Sherman Act and prosecute them as such". See, October 30, 2006, letter to the VITA, and story titled "DOJ Approves VITA Patent Policy" in TLJ Daily E-Mail Alert No. 1,479, October 31, 2006.

She also referenced the 2007 letter to the IEEE. See, April 30, 2007, letter to the IEEE, and story titled "Antitrust Division Will Not Oppose IEEE's Standards Setting Process" in TLJ Daily E-Mail Alert No. 1,573, May 2, 2007.

She commented that "standards bodies have no affirmative duty to implement an ex ante licensing policy, and the VITA and IEEE policies are not the only way standards bodies could approach this issue. We are aware that, thus far, there has been little inclination among standards bodies to follow VITA's and IEEE's lead regarding ex ante licensing disclosures. We saw then, and continue to see now, the potential benefits to competition from the implementation of such an approach."

She encouraged "standards bodies that revise their patent policies to seek ex ante review through our business review procedures, as VITA and IEEE did, if the proposed revisions could impact competition."

The DOJ Antitrust Division's rules governing its business review process are codified at 28 C.F.R. § 50.6.

Also, the FTC issues advisory opinions on competition issues. Its rules are codified at at 16 CFR §§ 1.1-1.4. See also, story titled "FTC Releases Guidance on Requesting Advisory Opinions on Competition Issues" in TLJ Daily E-Mail Alert No. 2,252, June 30, 2012.

Six Proposals. She then listed six "policy choices that standards bodies could implement".

First, "Establish procedures that seek to identify, in advance, proposed technology that involves patents which the patent holder has not agreed to license on F/RAND terms and consciously determine whether that technology should be included in the standard".

Second, "Make it clear that licensing commitments made to the standards body are intended to bind both the current patent holder and subsequent purchasers of the patents and that these commitments extend to all implementers of the standard, whether or not they are a member of the standards body".

Third, "Give licensees the option to license F/RAND-encumbered patents essential to a standard on a cash-only basis and prohibit the mandatory cross-licensing of patents that are not essential to the standard or a related family of standards, while permitting voluntary cross-licensing of all patents".

Fourth, "Place some limitations on the right of the patent holder who has made a F/RAND licensing commitment who seeks to exclude a willing and able licensee from the market through an injunction." She elaborated that "a patent holder who participates in the standard-setting activities and makes a F/RAND licensing commitment is implicitly saying that she will license the patent claims that must be used to implement the standard to any licensee that is willing and able to comply with the licensing terms embodied in the commitment. Thus, it would seem appropriate to limit a patent holder’s right to seek an injunction to situations where the standards implementer is unwilling to have a neutral third-party determine the appropriate F/RAND terms or is unwilling to accept the F/RAND terms approved by such a third-party".

Fifth, "Make improvements to lower the transactions cost of determining F/RAND licensing terms. Standards bodies might want to explore setting guidelines for what constitutes a F/RAND rate or devising arbitration requirements to reduce the cost of lack of clarity in F/RAND commitments. VITA’s patent policy, for example, creates an arbitration procedure to resolve disputes over members’ compliance with the patent policy".

Sixth, "Consider ways to increase certainty that patent holders believe that disclosed patents are essential to the standard after it is set. The number of ``essential´´ patents encumbered by F/RAND licensing commitments at certain standards bodies has increased exponentially in recent years."

But, she added, "implementation of these proposals has not been mandated by any of the division's enforcement actions", and that what "policies to adopt is primarily a private matter for standards bodies".

There currently is no Assistant Attorney General (AAG) in Charge of the Antitrust Division. The last AAG was Christine Varney. She left the DOJ in July of 2011, and joined Cravath Swain. Sharis Pozen then became acting AAG. She has left to join Skadden Arps. Joseph Wayland is now the acting AAG. President Obama has nominated William Baer. See, story titled "Senate Judiciary Committee Approves Baer Nomination" in TLJ Daily E-Mail Alert No. 2,452, September 20, 2012.

More News

10/10. The Department of Commerce's (DOC) National Oceanic and Atmospheric Administration's (NOAA) Science Advisory Board released, and requested comments regarding, its draft report [21 pages in PDF] titled "A Review of NOAA’s Future Satellite Program: A Way Forward". The deadline to submit comments is 5:00 PM on November 9, 2012. See, notice in the Federal Register, Vol. 77, No. 196, October 10, 2012, at Page 61573.

Digital Advertising Alliance Rejects Microsoft Browser DNT

10/9. The Digital Advertising Alliance (DAA) announced in a release that it will seek to undermine the effectiveness of the Microsoft browser do not track (DNT) function in Internet Explorer version 10.

The DAA announced that "The DAA does not require companies to honor DNT signals fixed by the browser manufacturers and set by them in browsers.  Specifically, it is not a DAA Principle or in any way a requirement under the DAA Program to honor a DNT signal that is automatically set in IE10 or any other browser."

Browser makers can write their software in a way that enables consumers to select a DNT browser setting. They can make DNT the default selection. Moreover, standards setting organizations, such as the World Wide Web Consortium's (W3C) Tracking Protection Working Group (TPWG), can write a voluntary standard regarding what DNT means, and what web sites are expected to do, or not expected to do, in response to a user's DNT expression.

However, consumers can only realize the benefits of a DNT browser setting selection if web site operators honor statements sent by the browser, and follow the standard. The DAA now states that web sites may ignore DNT expressions sent by a consumer's browser. Microsoft and TPWG are powerless to legislate a mandate that web site operators honor DNT expressions.

The DAA explained that "The trade associations that lead the DAA do not believe that Microsoft's IE10 browser settings are an appropriate standard for providing consumer choice. Machine-driven do not track does not represent user choice; it represents browser-manufacturer choice. Allowing browser manufacturers to determine the kinds of information users receive could negatively impact the vast consumer benefits and Internet experiences delivered by DAA participants and millions of other Web sites that consumers value. In addition, standards that are different than the consensus-based DAA Principles could confuse consumers and be difficult to implement. A ``default on´´ do-not-track mechanism offers consumers and businesses inconsistencies and confusion instead of comfort and security."

At the same time, the Internet Advertising Bureau (IAB) announced in a release its "full support" of this DAA announcement.

See also, stories titled:

More News

10/9. The Federal Communications Commission (FCC) published a notice in the Federal Register (FR) that sets comment deadlines for its Notice of Proposed Rulemaking (NPRM) [50 pages in PDF] regarding spectrum aggregation limits and analyzing spectrum holdings. The deadline to submit initial comments is November 23, 2012. The deadline to submit reply comments is December 24, 2012. The FCC adopted and released this item on September 28, 2012. It is FCC 12-119 in WT Docket No. 12-269. See, FR, Vol. 77, No. 195, October 9, 2012, at Pages 61330-61350. See also, TLJ story titled "FCC Adopts Spectrum Aggregation NPRM" in TLJ Daily E-Mail Alert No. 2,455, October 1, 2012.

10/9. The Federal Communications Commission (FCC) published a notice in the Federal Register (FR) that sets comment deadlines for its Notice of Proposed Rulemaking (NPRM) [57 pages in PDF] regarding cable TV technical rules. The deadline to submit initial comments is December 10, 2012. The deadline to submit reply comments is January 7, 2013. The FCC adopted and released this item on August 3, 2012. It is FCC 12-86 in MB Docket No. 12-217. See, FR, Vol. 77, No. 195, October 9, 2012, at Pages 61351-61375. See also, TLJ story titled "FCC Adopts NPRM Regarding Cable TV Technical Rules" in TLJ Daily E-Mail Alert No. 2,421, August 5, 2012.

House Intelligence Committee Report Finds Huawei and ZTE Could Undermine US National Security

10/8. Rep. Mike Rogers (R-MI) and Rep. Dutch Ruppersburger (D-MD), the Chairman and ranking Democrat of the House Intelligence Committee (HIC) released a part of a report [60 pages in PDF] titled "Investigative Report on the U.S. National Security Issues Posed by Chinese Telecommunications Companies Huawei and ZTE". The HIC did not release a "classified annex" to the report.

This report finds that "the risks associated with Huawei's and ZTE's provision of equipment to U.S. critical infrastructure could undermine core U.S. national-security interests".

It recommends that "Private-sector entities in the United States are strongly encouraged to consider the long-term security risks associated with doing business with either ZTE or Huawei for equipment or services. U.S. network providers and systems developers are strongly encouraged to seek other vendors for their projects."

Huawei responded in a release that the HIC report "failed to provide clear information or evidence to substantiate the legitimacy of the Committee's concerns". The report "employs many rumors and speculations to prove non-existent accusations".

Huawei also wrote that "We have to suspect that the only purpose of such a report is to impede competition and obstruct Chinese ICT companies from entering the US market."

See, full story.

Go to News from October 1-5, 2012.