Copyright Infringement AM RECORDS Inc v Napster Class

Copyright Infringement: A&M RECORDS, Inc. v. Napster Class 11

The Holding • “Napster has designed and operates a system which permits the transmission and retention of sound recordings employing digital technology. ” • “Napster facilitates the transmission of MP 3 files between and among its users…. [t]hrough a process commonly called ‘peer-to-peer’ file sharing…available free of charge from Napster’s Internet site”

The Circuit’s Holding • “Preliminary injunctive relief is available to a party who demonstrates …. the possibility of irreparable harm” • “[A] a majority of Napster users use the service to download and upload copyrighted music. . And by doing that, it constitutes…. direct infringement of plaintiffs' musical compositions, recordings. ” A&M Records, Inc. v. Napster, Inc. , Nos. 99 -5183, 00 - 0074, 2000 WL 1009483, at *1

• “[T]he district court concluded that Napster harms the market in ‘at least’ two ways: – it reduces audio CD sales among college students – it ‘raises barriers to plaintiffs’ entry into the market for the digital downloading of music. ’ Napster, 114 F. Supp. 2 d at 913. • The district court relied on evidence plaintiffs submitted to show that Napster use harms the market for their copyrighted musical compositions and sound recordings.

The Evidence • Dr. E. Deborah Jay, conducted a survey (the “Jay Report”) using a random sample of college and university students to track their reasons for using Napster and the impact Napster had on their music purchases. – The court recognized that the Jay Report focused on just one segment of the Napster user population and found “evidence of lost sales attributable to college use to be probative of irreparable harm for purposes of the preliminary injunction motion. ” • “[A] study conducted by Michael Fine, Chief Executive Officer of Soundscan, (the “Fine Report”) to determine the effect of online sharing of MP 3 files in order to show irreparable harm. – Fine found that online file sharing had resulted in a loss of “album” sales within college markets. ”

• Plaintiffs’ expert Dr. David J. Teece studied several issues (“Teece Report”), including whether plaintiffs had suffered or were likely to suffer harm in their existing and planned businesses due to Napster use. – Napster objected that the report had not undergone peer review. The district court noted that such reports generally are not subject to such scrutiny and overruled defendant’s objections. • “[T]he report of Dr. Peter S. Fader, in which the expert concluded that Napster is beneficial to the music industry because MP 3 music file-sharing stimulates more audio CD sales than it displaces. – The court decided the generality of the report rendered it ‘of dubious reliability and value. ’ The court …chose ‘not to rely on Fader’s findings in determining the issues of fair use and irreparable harm. ’”

• “We, therefore, conclude that the district court made sound findings related to Napster’s deleterious effect on the present and future digital download market. Moreover, lack of harm to an established market cannot deprive the copyright holder of the right to develop alternative markets for the works. ”

The Jay Report • Sample – random sample of college and university students to identify who uses Napster and why they use it • Causal framework? • Claim: internet sales are lower near college campuses • Measures ?

• Probative value? What is the relationship of the survey sample to Plaintiffs’ claim? • Limitations of sample – Not age-specific – Did not estimate Napster use from other communities • i. e. , no control group – What is estimated market share of record sales among college and university users? – “Identification of the relevant target population or universe constitutes one of the first steps in designing a survey

• Do objections go to probative value of survey or only to its weight? – Daubert implications of faulty methodology? 9 th circuit and several cases say yes – Other cases suggest that “failure to satisfy one or more criteria for trustworthiness of surveys may lead to exclusion of survey evidence • Court concludes that the Jay Report is probative of irreparable harm, but the court does not opine as to it is probative of damages

The Fine Report • Report establishes harm, not damages • Examined retail music sales in three types of stores in US – All stores located within one mile of college or university campus (4454 schools, 2099 stores) – Same, but for universities that have banned Napster use (67 schools and 48 stores) – Same as first parameter, but in ‘top 40 most wired colleges in 1999’ (40 schools and 44 stores) • Measures – point sale data from all stores and from ‘all college stores’ • Time series – Q 1 data from 1997 -2000, last year is when Napster went online (2000)

• Finding: national sales grew, but sales at stores near colleges and universities declined, with even sharper declines in the last category • Study limitations: – Didn’t control for sales in legal downloading and internet record sales – Decline was already underway by 1999 – Statistical problem in comparisons of national versus sample data (sampling weights and indexing) • but how big is this problem, if internet sales are very small relative to store sales? • Should court have excluded this evidence? – No, Court cites evidentiary flaws as more erroneous in damages determinations than harm determinations

The Teece* Report • Would Napster cause future harm by censoring ability of plaintiffs to develop their own internet distribution systems? • Method – extrapolation of existing literature and application to present case • Challenge by defendants that the report did not satisfy Daubert requirement for peer review • So what? * Mitsubishi Bank Professor of International Business and Finance, UC Berkeley

The Fader* Report • Defendants commissioned survey to show that file sharing technology would stimulate sales by acting as a de facto marketing mechanism. – Net gain for music industry by stimulating sales since consumers will be exposed to product more efficiently than through other media • Method – Analysis of existing studies – Survey – Alternate analyses by Fader of Jay and Fine studies * Frances and Pei-Yuan Chia Professor, Professor of Marketing, Wharton School, Penn

• “Centerpiece” was survey conducted by Greenfield Online – Internet survey of sample recruited from population of 500, 000 ‘registered’ members – Sample parameters (weights) derived from second source, Forrester Inc. – “Randomly selected, representative” sample of 35, 000 panel members – Sweepstakes incentive • N=12, 940 persons, but only 8, 517 were included in the report based on age, residence and filesharing experience • Validation of responses?

• Issues – No methodological footprints, no statistical presentation – Can’t assess validity of claims, no opportunity for independent assessment of relationship of method to results • Secondary analysis of other reports (Pew study on internet users), limited in scope and method – Balance of study findings? How many negative cases must there be to change the causal claim? • White swan problem?

Other Reports • Laurence Lessig, Stanford Law School – Status of IP and copyright law – “Editorial comment” – Excluded • Robert Hall, Professor Economics, Hoover Institute and Stanford – Economic analysis – Court objects because he failed to consider alternate hypotheses, and his claim of injury is based on a hypothetical – shutting down Napster – that is beyond the scope of the remedies sought

WWYD? • • • What type(s) of designs? What claim? Measures? Validation? How would you estimate damages? Think about time …. How much time must pass to get accurate estimate beyond initial impact of new technology?