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Fate of Silicon Valley Movie Streaming Startup Illustrates Obama Admin’s Innovation Policy Balancing Act

Investors in internet movie-streaming startup Zediva initially worried about how net neutrality rules could affect its future as a business, but ultimately it’s copyright law that might do it in, and doom it as a business model.

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Photo courtesy of Uwe Hermann

Potential investors in internet movie-streaming startup Zediva initially worried about how net neutrality rules could affect its future as a business, but ultimately it’s copyright law that might do it in and doom it as a business model.

Not only did the Motion Picture Association of America sue the five-man Silicon Valley firm and its founder personally in California federal district court on Monday, but unauthorized streaming online might soon become a crime if President Obama’s administration gets its way.

A day before Zediva launched, the Obama administration’s copyright czar Victoria Espinel urged Congress on the White House blog to amend the law so that under “the appropriate circumstances infringement by streaming, or by means of other similar new technology, is a felony.”

Congress seems inclined to heed Espinel’s advice. A group of lawmakers from both the House and Senate Judiciary committees on Monday publicized the impact of “online infringement” on the U.S. economy, lumping together the online sales of counterfeit goods with digital piracy.

They said that online infringement and counterfeit goods cost the U.S. a staggering $100 billion a year. The lawmakers did not explain how they calculated the statistic in their press statement, and an e-mail to a Senate Judiciary Committee staffer was not returned at the time of the publication of this story.

A spokesman for Zediva said that the company couldn’t comment Monday afternoon.

“We have just been made aware of the lawsuit in the same way as you, through an online press release,” said Kenn Durrence in an e-mail. “Given that we just found out about it, we are currently reviewing it and don’t have a further response at this time.”

But Zediva has publicly justified its business model by saying that the service is just like a physical rental service the same way Netflix’s movie mailing service is.

In a December 2010 letter petitioning the FCC to safeguard net neutrality, Silicon Valley engineers and Co-Founders Vivek Gupta and Venky Srinivasan also compared their company to place-shifting company company Sling Media.

The company, a subsidiary of EchoStar, allows cable subscribers to access their television packages remotely from any device.

But the big Hollywood studios don’t see it that way, and they don’t buy the “really long cable” argument either.

Monday’s complaint says that Zediva’s online streaming service violates six major studios’ copyrights by streaming movies over the internet without authorization.

“Unlike Netflix and other licensed online services, Defendants’ business is based on infringing Plaintiffs’ rights,” reads the studios’ complaint, filed by the MPAA’s lawyers. “Defendants transmit performances of Plaintiffs’ copyrighted works to members of he public without Plaintiffs’ authorization.”

Under U.S. law, copyright owners have the exclusive rights to distribute their works in specific ways.

Zediva’s service offers movie buffs the ability to stream DVDs from a remote facility over the internet. The DVDs are physically located in a data center packed with DVD players, and thus offer viewers all the extra features that come with physical discs, unlike the digitally-stored streaming or downloadable movies on offer at other licensed services such as from cable companies, Netflix or Apple’s iTunes.

Moreover, since Zediva didn’t consult with the studios, the movies are not subject to the terms and conditions applied to all the other licensed movie services, such as windowing and 24-hour time limits on rentals.

The Sunnyvale-based startup is offering consumers $1.99 rentals, and packages of 10 movies for $10 — a rate that the MPAA says is less than half of the prices that the licensed services charge.

Ironically, the engineers wrote to the FCC because potential investors worried about the impact of cable and telecom companies’ network management practices, and how they might discriminate against Zediva’s packets.

There was no mention of copyright infringement lawsuits.

The company launched mid-March with cheeky brio and a lot of positive press coverage — as well as raised eyebrows at the legality of its service.

Founder and CEO Srinivasan lists himself as a former NASA rocket scientist. Both he and Co-Founder and Chief Technology Officer Gupta are graduates of India’s ultra-prestigious Indian Institute of Technology.

The MPAA has sued both Srinivasan’s company and Srinivasan personally, accusing him and the company of willful infringement.

The studios pointed to blog postings, statements in media interviews and a patent owned by Srinivasan as evidence of a deliberate business model based on infringement.

If the court finds in favor of the MPAA, the company and Srinivasan could be on the hook for hundreds of thousands of dollars.

Ivi, Inc., another online media streaming startup in Seattle, last year tried to argue that copyright law allows compulsory licensing, but a federal district court for the Southern District of New York disagreed in February, and ordered the service to stop rebroadcasting television channels.

The ultimate twist of drama in this story came at the end of Monday when the Obama administration threatened to veto a House resolution to roll back the FCC’s new rules on net neutrality.

It turns out that even though one of the administration’s policy decisions should ultimately protect Zediva, another set of decisions might end up killing it.

Editor’s Note: The Intellectual Property Breakfast Club will host a panel discussion on the cost of intellectual property infringement, and how it can be properly quantified on April 12 in Washington, D.C .  Join us!

Sarah Lai Stirland was Contributing Editor for BroadbandBreakfast.com until April 2011. She has covered business, finance and legal affairs, telecommunications and tech policy for 15 years from New York, Washington and San Francisco. She has written for Red Herring, National Journal's Technology Daily, Portfolio.com and Wired.com. She's a native of London and Hong Kong, and is currently based in San Francisco.

Copyright

Public Knowledge Celebrates 20 Years of Helping Congress Get a Clue on Digital Rights

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Screenshot of Gigi Sohn from Public Knowledge's 20th anniversary event

February 27, 2021 – The non-profit advocacy group Public Knowledge celebrated its twentieth anniversary year in a Monday event revolving around the issues that the group has made its hallmark: Copyright, open standards and other digital rights issues.

Group Founder Gigi Sohn, now a Benton Institute for Broadband and Society senior fellow and public advocate, said that through her professional relationship with Laurie Racine, now president of Racine Strategy, that she became “appointed and anointed” to help start the interest group.

Together with David Bollier, who also had worked on public interest projects in broadcast media with Sohn, and is now director of Reinventing the Commons program at the Schumacher Center for a New Economics, the two cofounded a small and scrappy Public Knowledge that has become a non-profit powerhouse.

The secret sauce? Timing, which couldn’t have been better, said Sohn. Being given free office space at DuPont Circle at the New America Foundation by Steve Clemmons and the late Ted Halstead, then head of the foundation, was instrumental in Public Knowledge’s launch.

The cofounders met with major challenges, Sohn and others said. The nationwide tragedy of September 11, 2001, occurred weeks after its official founding. The group continued their advocacy of what was then more commonly known as “open source,” a related grandparent to the new “net neutrality” of today, she said.

In the aftermath of September 11, a bill by the late Sen. Ernest “Fritz” Hollings, D-S.C., demonstrated a bid by large copyright interest to force technology companies to effectively be the copyright police. Additional copyright maximalist measures we launched almost every month, she said.

Public Knowledge grew into something larger than was probably imagined by the three co-founders. Still, they shared setbacks and losses that accompanied their successes and wins.

“We would form alliances with anybody, which meant that sometimes we sided with internet service providers [on issues like copyright] and sometimes we were against them [on issues like telecom],” said Sohn. An ingredient in the interest group’s success was its desire to work with everyone.

Congress didn’t have a clue on digital rights

What drove the trio together was a shared view that “Congress had no vision for the future of the internet,” explained Sohn.

Much of our early work was spend explaining how digitation works to Congress, she said. The 2000s were a time of great activity and massive growth in the digital industry and lawmakers at the Hill were not acquainted well with screens, computers, and the internet. They took on the role of explaining to members of Congress what the interests of their constituents were when it came to digitization.

Public Knowledge helped popularize digital issues and by “walking [digital information] across the street to [Capitol Hill] at the time created an operational reality with digitization,” said Bollier.

Racine remarked about the influence Linux software maker Red Hat had during its 2002 initial public offering. She said the founders of Red Hat pushed open source beyond a business model and into a philosophy in ways that hadn’t been done before.

During the early days of Public Knowledge, all sorts of legacy tech was being rolled out. Apple’s iTunes, Windows XP, and the first Xbox launched. Nokia and Sony were the leaders in cellphones at the time, augmenting the rise of technology in the coming digital age.

Racine said consumers needed someone in Washington who could represent their interests amid the new software and hardware and embrace the idea of open source technologies for the future.

Also speaking at the event was Public Knowledge CEO Chris Lewis, who said Public Knowledge was at the forefront of new technology issues as it was already holding 3D printing symposiums before Congress, something totally unfamiliar at the time.

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In Google v. Oracle, Supreme Court Hears Landmark Fair Use Case on Software Copyright

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Photo of Tom Goldstein from the Peabody Award used with permission

October 12, 2020 – The Supreme Court on Wednesday publicly struggled with the copyrightability of software in a uniquely contested case between Google and Oracle, the outcome of which could play a significant role in the future of software development in the United States.

The oral arguments were the culmination of a battle that started 10 years ago, when tech company Oracle accused Google of illegally copying its code. Oracle owns the copyright to the Java application programming interface that Google utilized to establish a new mobile operating system.

The company has sued Google for more than $9 billion in damages.

Yet Google claimed a “fair use” defense to its copying. Google copied less than 1 percent of the Java code. Even though the law generally treats computer programs as copyrightable, Google’s attorney before the Supreme Court, Thomas Goldstein, said that by adapting Oracle’s code to serve a different purpose, Google’s use was “transformational,” and entitled to fair use protections.

Goldstein said that this form of unlicensed copying is completely standard in software, and saves developers time and lowers barriers to innovation.

He referenced a famous Supreme Court precedent about public domain works, Baker v. Selden, which in 1880 declared that once information is published to the public, the public has a right to use it.

“Google had the right to do this,” said Goldstein.

Still, Oracle attorney Joshua Rosenkranz asserted that the Java code is an expressive work eligible for copyright protections. Rosenkranz further argued that Google’s use of the code was not transformational.

Justice Sonia Sotomayor appeared to suggest that jurors in the lower court case properly found Google’s use to be transformational because it took the APIs from a desktop environment to smartphones.

“Interfaces have been reused for decades,” said Goldstein. Google had to reuse Oracle’s code to respond to interoperability demands.

“It has always been the understanding that this purely functional, non-creative code that is essentially the glue that keeps computer programs together could be reused, and it would upend that world to rule the other way,” he said.

Supreme Court observers said that the high court appeared leaning toward upholding the 2016 jury verdict vindicating Google’s fair use defense.

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Copyright

Fair Use is Essential But its Enforcement is Broken, Says Senate Intellectual Property Subcommittee

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Screenshot of Grammy-winning recording artist Yolanda Adams from the hearing

July 28, 2020 — “Fair use” is an essential doctrine of copyright law that is unevenly applied, said participants in a Senate Intellectual Property Subcommittee hearing Tuesday.

The hearing, “How Does the DMCA Contemplate Limitations and Exceptions Like Fair Use,” saw participants discuss whether the Digital Millennium Copyright Act still permits fair uses of copyrighted content that would be otherwise infringing.

The DMCA, passed in 1998, criminalizes the manufacture, sale or other distribution of technologies designed to decrypt encoded copyrighted material. This ban on anti-circumvention tools does not appear to account for fair use.

The fair use exception to copyright law allows the republication or redistribution of copyrighted works for commentary, criticism or educational purposes without having to obtain permission from the copyright holder.

However, Joseph Gratz, partner at Durie Tangri, said that fair use often clearly applies but is not enforced, leaving users of the legally obtained content to deal with automated content censors.

“Fair use depends on context, and machines can’t consider context,” he said. “A video, for example, that incidentally captures a song playing in the background at a political rally or a protest is clearly fair use but may be detected by an automated filter.”

When an automated filter detects a song on a platform like YouTube, it redirects advertising revenue from the creator of the video to the creator of the song, often erroneously.

Rick Beato, who owns a music education YouTube channel with over one-and-a-half million subscribers, said that he does not receive ad revenue from hundreds of his videos.

“One of my recent videos called ‘The Mixolydian Mode’ was manually claimed by Sony ATV because I played ten seconds of a Beatles song on my acoustic guitar to demonstrate how the melody is derived from the scale,” he said. “This is an obvious example of fair use, I would argue.”

Grammy-winning recording artist Yolanda Adams testified that she sees the problems of fair use employment as about more than simply receiving money.

“As a gospel artist, I’m not just an entertainer,” she said. “I see my mission as using my gift to spread the gospel — so for me, fair use is not just about money. It’s about access.”

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