Monday, July 18th 2011

The Truth:  This Is Why We Can't Have Nice Things

The Record Industry’s War On Innovation, And What You Need To Know About It

By Skwerl

In 2000, I discovered MP3.com, which had what I thought to be one of the coolest features ever presented by a website up to that point. You could insert a CD into your computer, and MP3.com would quickly scan it to see if it matched any album in their library. If it did, you could then stream that album from anywhere. Free, of course, since you had obviously already paid for the CD. My entire CD collection followed me around as I toured cubicles as a temp. And it was good.

The slaughtering of MP3.com was a merciless act of biblical, scorched-earth retribution that sent a very clear message to Silicon Valley. MP3.com founder Michael Robertson called it a “campaign of terror,” and it went far beyond a lawsuit.

After less than a year of operation, five major record companies sued MP3.com, alleging willful copyright infringement. Four settled for large cash reparations, but Universal Music Group was after far more, and forced the case to court. When a federal judge in New York ruled in favor of UMG, finding MP3.com liable for $118 million in damages, Universal took a crippling $53.4 million in a settlement, but that was just the beginning. Universal then bought the service they had paralyzed, at a deep discount of course, of $5 per share ($23 below the IPO share price). Then, in 2002, the Universal-owned MP3.com brought a malpractice suit against its own lawyers, for being so irresponsibly incompetent as to argue that such a service was legal, which had directly led to significant monetary losses from the lawsuits brought against the company.

In other words, MP3.com was killed, resurrected by its killer just to be exploited, and then killed again just for daring to have ever fought back. For over a decade after MP3.com was buried by Universal, no remotely responsible startup would dare develop technology that might disrupt the music industry’s status quo. Paul Graham of investment camp Y Combinator compared the labels to a “rogue state with nuclear weapons,” a psychopath not to be crossed.

Then along came Cablevision. Taking television DVR technology one step further, Cablevision allowed its subscribers to use a “remote storage” system, in which programs were recorded to a server that could then transmit to any compatible device in the subscriber’s home. Content providers immediately shut Cablevision down with a lawsuit, but Cablevision appealed, and won a sweeping reversal that has since become the strongest legal foundation for a content locker service.

The key difference between MP3.com and Cablevision’s remote DVR technology is that MP3.com served out copies of copyrighted work that they had recorded and stored, while Cablevision made you manually record and store your own unique copy. Functionally, the end result was the same, and in fact the latter is considerably less efficient for all parties. But the groundbreaking 2008 Cablevision ruling determined that legally, there was a world of difference between providing someone with access to your copies of copyrighted works, and providing someone with the same access to their own copies of the same works. Ultimately, the decision paved the way for many of the services being rolled out by Apple, Google, and Amazon this year.

It’s because of the Cablevision ruling that Apple needed cooperation from all record labels for its forthcoming “magical” iTunes In The Cloud (part of their forthcoming iCloud service), which is virtually indistinguishable from MP3.com’s controversial My.MP3.com service that I used over ten years ago. It’s also the reason that Google and Amazon’s new music services only offer remote access to your own music files; you must upload every MP3 in your library, even if a million other users have already filled Google’s hard drives with identical copies of the same songs.

With that said, after the Cablevision ruling, Silicon Valley could dare to dream about bringing new ideas and technology to the entertainment industry. The major labels’ relentless and absolute suppression of the revolution proved to be less than invincible, bringing closer to a close an era Wired recently referred to as a “lost decade” for innovation.

Last year, a judge squashed a $1 billion copyright claim brought against YouTube by Viacom, reinforcing the “safe harbor” protections given to all user-generated entertainment providers by the Digital Millenium Copyright Act, ensuring that YouTube could not be sued for the actions of any bad apples.

Right now, as Viacom’s inevitable appeal winds through the system, MP3.com’s Michael Robertson finds himself at the center of another case we’ve been keeping an eye on. Just as MP3.com was a decade ahead of Apple, Robertson’s sequel, MP3Tunes, was quick to solve the legal problems MP3.com had faced: You can purchase songs for 88¢ each and then store them in an online locker for streaming to any of your devices. You can also upload your own music files obtained elsewhere, as well as “sideload” files from the web via a public search engine.

These features aren’t unique in 2011, but when MP3Tunes was unveiled in 2005, it received a collective stinkeye from labels still flying high on the notion that their business model was divine mandate, handed down from the Gods and defended by the state. In 2007, EMI demanded that MP3Tunes turn over the entire contents of all users’ private lockers. A court denied EMI’s request, shaking the labels out of their insular reality distortion field (to paraphrase TechCrunch). Despite an outraged force of well-paid lawyers insisting on it, the law held that EMI had no business digging through 125,000 users’ personal files just to see if they could find evidence of indefinite crimes they had only imagined. Go figure.

MP3Tunes was eventually forced to file a lawsuit asking the courts to declare their service legal under the DMCA, while EMI sued MP3Tunes for willful infringement of copyright. On January 28th of this year, both sides made their final oral arguments, and it is now up to a judge to make a final ruling, for which there is no deadline. In early February, Robertson posted a detailed summary of the filing hearing on his blog. “I think MP3tunes and Sideload are absolutely permitted under the DMCA,” Robertson told Antiquiet last week. “The DMCA provides a safe harbor for internet services providing storage and for search engines. The labels have fooled the world into thinking that a music search engine should be treated differently than a general purpose search engine and there’s no legal basis for this. The DMCA applies to all material, not just to text and photos.” Robertson admitted to being puzzled by the long wait for a decision, and notes speculation that the judge may be waiting for Viacom’s appeal to run its course. However, he remains bullish that the judicial system will continue to rule in favor of tech companies, as they did for YouTube and Cablevision. “This isn’t 1999,” Robertson said. “Courts are much more savvy about technology now.”