New media and the Copyright Act
by Joey Tamer
Is a new media CD-ROM title
like a book, a video or a software program?
Which parts of the Copyright Act, which governs legal protection for intellectual
property in the U.S., apply? Sitting as it does at the intersection of four publishing
industries -- books, records, film and video, and software -- new
media publishing contracts and Affiliated Label agreements are modeled on any
one of these industries, and borrow language and business practice from the others
as needed. The longer-term legal implications of this mix-and-match method had
not been considered until the rather simple marketing idea of rentals surfaced.
Recently new media distributors have announced their intentions to provide a limited
number of CD-ROM titles for rent through video rental retailers. They are obtaining
permission to rent these titles from the copyright owners, and in so doing have
opened the door to questions about how to categorize new media products for legal
purposes.
Do you license a title, or buy it?
Some new media titles are copyrighted as software, thus are "licensed" to purchasers
for "use" on computers. This is distinctly different from other new media titles,
which are simply copyrighted as entertainment products -- neither software
nor phonographic recordings -- and are distributed like any other book
or video. The exclusive rights of the copyright holder apply to entertainment
products: he can make the initial sale, reproduce the work, prepare derivative
works from the content, distribute copies for sale, and otherwise transfer the
ownership of the copyright for the purposes of rental, lease or lending. With
works that are literary, contain music or choreography, or are audio-visual in
nature, the copyright holder can further transfer the rights to have the work
performed or displayed publicly. At this point, the First Sale doctrine kicks
in. The First Sale doctrine, which is part of the Copyright Act, states that after
the initial sale by the copyright holder (if the product is not a sound recording
or a software program, in which case other restrictions apply), the buyer can
rent or resell the product, but cannot reproduce it or make derivative works from
it without permission of the copyright holder.
But you can't rent software.
An amendment to the Copyright Act, which applies to sound recordings or computer
software programs on tape, disk and other media embodying the program, prohibits
the rental of these titles and the gaining of direct or indirect profit from renting,
leasing or lending these titles, without express permission of the copyright owner.
However, this prohibition does not extend to a computer program embodied in a
machine or a product (for example, a Sega game machine, a talking doll, etc.)
that cannot be copied during the ordinary operation or use of the machine or product.
The amendment further maintains that this restriction does not apply to a computer
program embodied or used in a limited-purpose computer for computer games or other
purposes.
Not a book, not a movie in more ways than one
Again, the issue of categories arises.
CD-ROM discs cannot be easily copied (yet). So, is a new media CD-ROM title
like a book, a video or a software program? So far, distributors seeking rental
rights have always obtained a signed authorization, which implies they are treating
the title as software, even if it is published (like a book) with only a copyright
disclaimer and no software licensing agreement. Also, many new media titles
exist simultaneously as floppy-based software, and the rights to rent, lease
or loan are an extension of a previously signed software contract or an Affiliated
Label agreement for a new media title.
Caveat to the reader:
It is not the purpose of this short article to examine in depth the Copyright
Act and its application to new media. My only intent is to raise a warning flag
to all players in new media: Now is the time to get your legal act in order.
Through the chaos of merging the film, record, book and software industries,
it is critically important that developers and authors, publishers, distributors
and retailers understand the blurry edges of legal rights in these new media,
and how these rights affect distribution into retailing, rental outlets and
libraries. For example, distributors want to test the formula of "rent-to-sell-through"
in retail. The interest in this formula comes from the success of the purchase
of previously rented 8- and 16-bit Sega titles: three out of five titles purchased
were rented first.
Titles publishers started to argue among themselves about which category
the titles belonged to and whether or not they could be rented, and all were
correctly citing
the Copyright Act to bolster their various arguments.
The price of these games hovers around $49, which matches some CD-ROM titles
and which is the price anticipated for most titles within the next year or two.
And so the retailers, distributors and publishers are interested in putting
out titles for rent, to test the sell-through model experienced by Sega.
Some of the excitement around CD-ROM rentals began at the winter Consumer Electronics
Show in January when Compton's NewMedia announced that it would rent selected
titles through 20/20 Video.
Dissension arose when a regional sales manager of a new media distributor conducted
a small and legal test run of a title, pressing a limited number of special
discs marked "for video rental only" and distributed them through a small number
of video retailers in a single region.
Following the video rental model in retailing, the titles were rented, and if
not returned, the customer's credit card was charged with the suggested retail
price -- in this case, $99. These CD-ROM titles went out for rental, and,
basically, were never seen again.
This was a successful test for the publisher and the distributor, who both were
very happy. However, it caused the issues of copyright law, and today's categorization
of CD-ROM titles (software versus entertainment products), to come roaring out
of the closet.
The rental plans have raised dissension in the industry about the copyright
laws that might apply to CD-ROM titles. Titles publishers started to argue among
themselves about which category the titles belonged to and whether or not they
could be rented, and all were correctly citing the Copyright Act to bolster
their various arguments. Some CD-ROM titles are indeed considered software and
packaged with an end user license agreement. Thus considered, the end-user never
"owns " the product, but only licenses its intellectual property for use on
a single machine. Software is not allowed to be rented without the express permission
of the copyright holder.
Other titles are correctly packaged and sold as "finished goods" entertainment
products, protected by the Copyright Act only as far as the First Sale doctrine
applies -- in other words, copies can be made as long as they aren't for
commercial purposes, and purchased copies can be rented for individual, and
not commercial, viewing.
These are recent developments and new questions that are now being raised. Most
titles are published with careful copyright protection of the creative materials
that contributed to its content, either as "work for hire" or in the transfer
of the copyright to the publisher of the title.
With the variety of media used, the copyright of a new media title is actually
a complex bundle of copyrights. Distributors, publishers, retailers and copyright
attorneys maintain that there was too much else to do to create a market for
the new media industry to be concerned with copyright protection at the level
of detail that may now be required for rentals, leasing and loaning through
libraries. The finer points of law were often lost, or simply not considered.
Finding a path through the Copyright Act
The language and intention of the Copyright Act are clear: to protect the owner and/or creator of intellectual property. But its many amendments are dense with conditions, exceptions and inconsistencies across all four categories of products. It is into this thicket that new media products must descend and find their identity. This is not a hopeless situation, and if you're an author or developer, here's what you should do if you want to be able to rent out your CD-ROM titles.
Retailers should be patient with
the suppliers of their products, while these converging industries sort out
their legal practices. Retailers should also be careful that the rights to rent
or lease products have been legally obtained. All players should acknowledge
that the intersection of four publishing industries brings forward four distinct
cultures and historic business practices and language. Each culture will assume
that its language and practices carry certain assumptions of rights and behaviors,
but must remember that these cultural assumptions may not be understood by the
"foreign" player. And, speaking of foreign, the U.S. copyright action is not
automatically accepted as law in other countries. International issues are even
more complex than our own, from the moral rights of France to the country-by-country
customization of copyright law applied to each industry.
Learn to think about
long-term consequences
The emergence of a new industry and a new market that is the focal point of
four other entertainment industries is as exciting as it is chaotic. We must
take care in our business dealings, and constantly think ahead. Think ahead
to newer media, to new channels that are not understood yet, to technologies
not yet invented, to markets and applications not yet imagined. We must leave
ourselves the opportunity to expand into directions not yet conceived, and to
protect ourselves from restrictions not yet anticipated. And, of course, just
in case, everyone should indemnify everyone else. It's the American way.
Joey
Tamer refines the vision, strategy and success of companies --
Fortune 1000, capitalized start-ups and investment fund.
www.joeytamer.com
(310) 245 5310 joey @ joeytamer.com