Copyright (C) 1994 Fenwick & West and Sandy J. Wong. Permission is granted to distribute this article freely for educational and non-commercial purposes, provided that this copyright notice appears on all such copies distributed.

1995 Revised Version

MULTIMEDIA CONTENT AND THE SUPER HIGHWAY: RAPID ACCELERATION OR FOOT ON THE BRAKE?

June 18, 1994

Table of Contents

• I. RIGHTS ISSUES IN MULTIMEDIA CONTENT 
• • A. Ownership May Not be Enough 
  • B. General Rights Issues 
  • C. Use of Literary and Other Written Works 
  • D. Use of Photographs 
  • E. Use of Film Clips 
  • F. Use of Music Works 

• II. IMPORTANCE OF PATENT ISSUES 

   

• III. RELATED ACTIVITIES IN JAPAN 
  • A. Institute of Intellectual Property Report
  • B. Agency for Cultural Affairs Report

   

• IV. THE U.S. MULTIMEDIA CLEARINGHOUSE: A PROPOSAL  
• • A. Overview
  • B. Coalition Support Needed
  • C. Management and Administration

• V. CONCLUSION
  

A different type of highway builder may take us into the interactive future. News, entertainment, education and other productions are ready at the on-ramp and may eventually be carried across the U.S. by the information super highway network. Many of the productions will contain numerous and diverse digitized works, e.g., software, motion pictures, video, graphics, music and photographs. Intellectual property rights, particularly copyright, are critical to the creation of productions or titles that contain such multimedia content. Currently, in many instances, pre-existing works are not used in such content because obtaining such rights is costly and time-consuming. The greatest creativity and ultimate value in multimedia products will likely come from new creativity combined with the creativity of pre-existing works.

This paper summarizes the copyright and licensing issues involved in creating multimedia content, describes activities in Japan with respect to such issues, and proposes a U.S. multimedia clearinghouse. There is no U.S. clearinghouse for identifying who can authorize the right to use copyrighted content in a multimedia product. Eventually, such a voluntary clearinghouse could be a "one-stop" license shopping center where the content user pays a specified fee for a set of rights. The clearinghouse could provide a means to fairly compensate the owner of the pre-existing work while making it easier to secure license rights to such work.

The U.S. appears to have an initial worldwide, competitive advantage in multimedia productions and titles because of its lead in market-driven creativity in software, particularly in mass-market application software that fills a market need. For example, one key competitor, Japan, is weak in mass- market application software other than video game software. The availability or non-availability of a clearinghouse could increase the U.S. competitive advantage or provide the opportunity for others to catch up.

I. RIGHTS ISSUES IN MULTIMEDIA CONTENT

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A. "Ownership" May Not be Enough

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Even the outright purchase of a portfolio of works, such as motion pictures, may not provide the right of unrestricted use of the contents of such works in multimedia products. An assignment of all right, title and interest in a copyrighted work, i.e., a transfer of ownership, may leave residual rights to be dealt with such as:

-- Moral rights such as the right to prevent changes to a work that could harm the author's reputation or honor. In the U.S., the Visual Artists Rights Act, 17 U.S.C. § 106A, provides protection for moral rights for works of fine art only - paintings, drawings, some photographs. Moral rights in other countries are a more significant restriction on the use of content material.

-- Payments may be required for reuse rights under production agreements or union contracts.

-- Music sound track rights are a property separate from a movie itself.

B.General Rights Issues

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The general legal rule in copyright licensing is to assume that any right not expressly granted in the license language is reserved by the owner. Thus, if a specific right is not granted, you should assume you do not have it. If the right is needed it should be expressly included in the license language. The commercial rights needed for multimedia content may include copying, in whole or part; performance rights; public display rights; the preparation of derivative works (modifications); and publication and distribution by any variety of methods on all media whether now known or invented hereafter. Use as multimedia content may be only a portion of the original work or require changes to the original work. For example, in the case of a photograph, the entire work could be used while only an extract of the text of a book would likely be used.

Multimedia content use is not clearly covered in many existing traditional rights agreements such as publishing agreements. These imprecise agreements can be a source of litigation, as illustrated by a recent lawsuit. Ten freelance writers, backed by the National Writer's Union, filed suit in federal court against the N.Y. Times, Time Inc., Newsday, and two electronic publishers in December 1993 alleging that certain articles by the writers were made available on an on- line service and published on CD-ROMs without authorization or added compensation, Tasini v. NY. Times, 93-8678 (S.D. N.Y.). At a minimum, this case is causing a refocus on electronic rights in publishing agreements.

It is not always clear who owns rights in pre-existing copyrighted works. It is also dangerous to assume that a work is in the public domain. There is no U.S. clearinghouse for identifying who can authorize the right to use copyrighted content in a multimedia product. There is no required copyright registration system in the U.S. or elsewhere in the world so the absence of a registration in a centralized recording system, such as the U.S. Copyright Office, is not conclusive in terms of identifying owners. In addition, since March 1989, there has been no requirement in the U.S. to put a copyright notice on a published work as a condition of protection. Copyright protection arises when a work is fixed in any tangible medium of expression. 17.U.S.C. § 102(a). This has long been the case in most other countries. As a result, the fact there is no copyright registration for a work or that the work has no copyright notice, provides no assurance that the work is in the public domain. Use of such a work, without identifying and obtaining a license from the owner, may result in copyright infringement. The result is that the contents of many current multimedia products have been created as original works.

"Fair use" is a possible defense to copyright infringement but is unlikely to be available in a commercial transaction. 17 U.S.C. § 107. Fair use generally is limited to the private, noncommercial or educational use of a copyrighted work. Fair use is determined on a case-by-case basis and is based on an assessment of factors including the amount of the copyrighted material that is used and whether such use can potentially harm the copyright owner's market. For example, the fair use defense may be available for the personal use of copyrighted material but not for a commercial distribution of a multimedia work which contains part of a pre-existing work.

Privately-owned rights clearance agencies are available to attempt to identify the owner of a pre-existing work and negotiate a license on a work-by-work basis. Traditional license and fee schedules probably will not fit multimedia content usage because of the nonsequential nature of many such works. For example, there could be a branch back to a photograph with background music any number of times in the presentation of the content.

Content providers known as "stock houses" and media libraries are an alternative to obtaining the rights to specific works through rights clearance agencies. The "stock houses" maintain libraries of video clips, photographs, illustrations, music and sound effects that can be licensed for use in a multimedia product.

C. Use of Literary and Other Written Works

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The owner of a work has the following exclusive rights under the U.S. Copyright Act: copying, preparing derivative works (making modifications), distribution and for specified categories of works, public performance and public display rights. 17 U.S.C. §106. No one else may exercise these rights without authorization of the owner.

The Copyright Clearance Center, Inc. ("CCC") was established primarily to protect the rights of owners of printed materials against unauthorized photocopying. The CCC collects and distributes royalties to publishers. The CCC has also begun to address the electronic use of printed works protected by copyright. Thus, the CCC could be a candidate for the administrator of the multimedia clearinghouse discussed below.

A publisher of a book may hold rights only to publish the work in its original hard copy form. The publisher may not have the right to publish it a second time, let alone authorize its use as multimedia content. A license from the author may be needed in order to use any part of it as multimedia content. The "electronic rights" and other specific provisions of the publishing agreement are key.

D. Use of Photographs

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A book may also contain photographs of interest to the developer of a multimedia product. A publisher of a work that contains a photograph may have only a one-time use right rather than outright ownership of the photograph. The publication agreement may also impose additional restrictions on use of the photograph: minimum size, resolution, number of copies, time period, etc. Thus, a developer of a multimedia product may need to negotiate with the photographer to obtain rights to the photograph. The "stock house" may be an effective alternative for photographs in some cases. Fees still must be negotiated for the specific type of multimedia usage.

The American Society of Media Photographers has established a Media Photographers Copyright Agency to protect its member photographers' works, which they license specifically for electronic reproduction. This is part of the trend for rights owners to establish collective organizations to monitor possible infringements and sometimes help finance litigation against infringements.

A recently filed lawsuit illustrates an important copyright issue relating to photographs. In February 1994, a stock photography agency filed a $1.4 million lawsuit against New York Newsday for copyright infringement involving image sampling. The plaintiff, FPG International, which has a portfolio of stock photos available for licensing, asserted that Newsday scanned photos from an FPG catalog, and then electronically "sampled" parts of the images for use in a cover photo illustration. According to the complaint, because Newsday, an FPG customer, did not seek a license, its front-page photo illustration was an unauthorized derivative work of the copyrighted photographs.

E. Use of Film Clips

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Films and related works are loosely divided into motion pictures and other films. Film libraries other than commercial motion pictures often have fee schedules for traditional uses of content. The problem is that multimedia products generally do not fit into traditional uses. Thus, special negotiations may be required to cover the exact usage in the multimedia product.

The use of commercial motion picture footage is more complicated and expensive, assuming that rights can be acquired at all. A film distributor probably does not have the authority to grant multimedia content rights but could be helpful in identifying who has such authority. Use of any music rights, names and likenesses of actors/actresses in such content will require separate authorizations and payment of additional fees. Multimedia content use is not likely to be part of a normal fee schedule so fees will probably have to be individually negotiated.

F. Use of Music Works

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Music encompasses a number of different licensing rights. The good news is that procedures and policies for obtaining rights to use a musical composition are well established. It is also usually clear who owns the rights being sought. The bad news is that one normally has to negotiate with several different parties to obtain all needed rights for use as multimedia content.

-- A mechanical license is needed for the right to make and distribute material objects in which a recording of a musical composition is embodied such as a record, tape or CD. This license is authorization only from the composer of the work, not the performer. A compulsory mechanical license is generally available under the U.S. Copyright Act, 17 U.S.C. § 115.

-- A synchronization license is needed to authorize the synchronization of a musical composition with visual images of a multimedia work. No compulsory license is available for this right. Rights must be obtained through a clearing agency. Most synchronization licenses limit the number of seconds the composition can be used in a work. Because multimedia works are not sequential, a composition could be played many times in a given use. Thus, again, multimedia content does not fit into traditional fee schedules.

-- Another exclusive right of the owner of a musical composition is to control public performances. 17 U.S.C. § 106(4). A multimedia product may need a public performance license. Some licenses are available from ASCAP and BMI which are discussed below.

-- A master recording license is needed for the right to use a particular performance of a specific artist of the underlying composition. No compulsory license is available for this right.

The two major performing rights organizations, the American Society of Composers, Authors & Publishers ("ASCAP") and Broadcast Music Incorporated ("BMI") only grant public performance licenses, i.e., the rights to perform a copyrighted musical work in public. Neither of these organizations grants rights to use such works in multimedia products. There is one special clearance agency, the Harry Fox Agency ("HFA"), which is a clearinghouse for obtaining music rights. HFA reportedly provides licensing and royalty collection services to over 12,000 music principals, which is a substantial amount of the music rights in the U.S.

The first apparent lawsuit involving music available through a network is illustrative of the copyright issues and also of a general legal issue which the super highway administrator must face. Late last year, Frank Music Corp. filed a class action copyright infringement lawsuit against CompuServe in federal court in New York. The suit, filed on behalf of over 140 music publisher- principals of HFA and backed by the National Music Publishers' Association, alleges copyright infringement of Frank Music's works composition "Unchained Melody," and more than 500 musical compositions owned by HFA's other principals.

CompuServe offers a computer-based on-line information and electronic communication service. Subscribers can "upload" literary, graphic and musical works for storage in databases and also "download" such works. CompuServe was sued on the basis that its maintenance of the bulletin board from which musical compositions in the form of "MIDI files" are "uploaded" and "downloaded" constitutes copyright infringement. MIDI files are computerized information -- usually an arrangement of a popular song -- that can be played through a musical synthesizer. The complaint claims that CompuServe has control over the nature and content of materials and knew or should have known the nature and content of materials stored and downloaded.

MIDI/Music Forum is one of about 1,700 bulletin board services carried but not owned or managed by CompuServe. Such services are owned and managed by third parties from whom CompuServe obtains warranties against copyright infringement. The Forum's manager reportedly stated that subscribers who place songs into the database have been warned that they must have the legal right to do so.

CompuServe could be liable for approximately $70 million in damages and costs. The complaint also requests preliminary and permanent injunctions against further infringement; an order requiring CompuServe to purge the MIDI files during the pendency of this dispute; that CompuServe deliver for destruction all articles and devices in its possession from which infringing copies of the works can be made; and costs and attorneys' fees.

CompuServe argues that it is not responsible for any infringements because the Music Forum is managed by a third party. This argument does not address CompuServe's possible contributory infringement liability. CompuServe's position is that, when information is being provided at the price of a magazine subscription, you cannot review and censor such information, and that any copying or distribution originates with subscribers. CompuServe cites a 1991 federal court ruling which held that CompuServe was a distributor rather than a publisher with the result that CompuServe had no duty to screen a database for defamatory statements and was not liable for such statements because it did not know or have reason to know of them. Cubby, Inc. v CompuServe Inc., 776 F. Supp. 135 (S.D. N.Y 1991). See also the following decisions in which database providers were held liable: Playboy Enterprises Inc. v. Frena, 839 F. Supp 1552 (M.D. Fla. 1993) (summary judgment of copyright infringement granted against a bulletin board service that allowed its subscribers to upload and download the plaintiff's copyrighted photographs; lack of knowledge not a factor); Dun & Bradstreet v. Greenmoss Builders, 472 U.S. 749 (1985). These cases seem to indicate that the MIDI/Music Forum should also have been sued but, of course, targeting CompuServe which has the deep pocket will create the broadest precedent. The implications of this line of cases are potentially far- reaching. Unless Congress intervenes, these cases may establish the scope of the duty of the administrator of the super highway for policing data that flows through the network.

Another recent case discussed the test for substantial similarity when a digital sample of a copyrighted composition is used. In Janus v. A&M Records, 827 F. Supp. 282 (D. N.J. 1993) the court held there can be infringement if the portion copied is of great qualitative importance i.e., value, to the whole work even if the two works are not similar in their entirety. Thus, if a new music work is based on small digital samples of others' compositions there could be infringement if any sample used is of key value to the pre-existing composition.

II. IMPORTANCE OF PATENT ISSUES

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Patents are also important intellectual property in multimedia products even when the primary element is copyrighted content. There are many patent issues and potential disputes involving compression technology such as over the Unisys Welch patent relating to the GIF graphical format. In addition, while MPEG is an open compression standard, it is still proprietary and it remains to be seen if there will be adequate cooperation to ahve licensing at reasonable royalty rates. At least nine companies in three different countries have patents within the standard.

There may also be patented processes for presentation or retrieval that must be embedded in the content itself such as the now rejected Compton's patent. The Compton's patent was a basic technique for searching and retrieving information of all types of media from a CD-ROM and other storage devices. Another example is DeLorme's map generating system which is patented. Thus, even if clearances are obtained for copyrighted content, the process of presenting that content as part of a multimedia productr could infringe a patent. Content developers will have to deal with this issue.

Patents may also impact on electronic commerce. Interactive Gift Express has a patent that it claims could cover electronic commerce on the World Wide Web. Patent number 4,528,643 is titled "System for reproducing information in material objects at a point of sale location," and covers a technique in which a buyer receives copy of a product that is "unlocked" with a special code after payment.

III. RELATED ACTIVITIES IN JAPAN

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Japan is trying to create a communication infrastructure to parallel the U.S. super highway. In addition, several groups in Japan are studying various aspects of multimedia, including copyright clearance issues. The initial reports of committees of the Institute for Intellectual Property and Agency for Cultural Affairs are summarized below. No action has been taken to implement the recommendations of the reports.

In early 1994, the Ministry of International Trade and Industry ("MITI") and the Ministry of Posts and Telecommunications ("MPT") announced an objective to develop key technologies for a nation-wide information super highway. The intent is to connect homes and businesses in Japan with a rapid, interactive communications network (fiber optic cable) by the year 2010, which is ahead of the U.S. super highway target date. MPT acknowledged the U.S. lead in communications technology. MPT believes such a gap would place the Japanese economy "in a precarious position" in the 21st century.

A. Institute of Intellectual Property Report

The Multimedia Committee of the Institute of Intellectual Property (the "Committee") was commissioned by MITI to study multimedia intellectual property issues in Japan. In February 1994, the Committee distributed its initial report for worldwide comment. The Committee proposed the establishment of a collective administration center (the "Digital Information Center") in which information on copyrighted works could be readily accessible and clearance approval efficiently obtained. The Committee believes the Center would encourage the creation of new multimedia works by using pre-existing material. Copyright holders would register their work on a voluntary basis. The Center would store licensing information for works such as music, information and graphics. A description of the work, owner contact information, royalty fees and licensing conditions would be available. The report acknowledged the considerable expense of establishing and maintaining such a database. Developers would select and use works by paying royalties to the Center, which in turn would pay the copyright owners or their agents. The owner would set the amount and method of payment, such as a running royalty, a lumpsum royalty, or a combination of the two approaches. The owner would also impose licensing conditions, such as restricting a license to reproduction or internal use only.

The Committee believes that incentives other than royalties are needed in order to motivate voluntary participation. The Committee suggested that the Center be enabled to issue warnings of copyright infringement on behalf of registrants and to take other steps to prevent unauthorized exploitation of registered works. Dealing with the moral rights of an author requires more study, according to the Committee, in order to assure compliance with the Berne Copyright Convention. Clarification would be needed that an author may consent not to exercise the author's moral rights. Part of the database entry for a registered work could be that an author has consented not to exercise such rights or requires users to deal with the author on an individual basis with respect to proposed modifications to the author's work.

B. Agency for Cultural Affairs Report

In November 1993, the Subcommittee on Multimedia of the Copyright Council (the "Subcommittee") of the Ministry of Education's Agency for Cultural Affairs proposed an organization (the "Copyright Rights- Information Centralization Organization") for the clearance of rights in pre-existing works to be used as content for multimedia products. the Subcommittee believes such an Organization would be useful to both the creators of multimedia products and the owners of pre-existing works and would also contribute to the general public's enjoyment of cultural products.

According to the Subcommittee, formation of the Organization would result in the simplification of licensing procedures and is a precondition to the collective administration of rights. The Organization would centralize information on ownership administered by the respective organizations currently representing rights owners of various kinds of works and offer such information through a single channel. The Subcommittee proposed the following action steps:

-- The existing organizations representing rights owners should consolidate the contents of information on rights ownership and create information databases;

-- Common standards should be established for information elements, taking into account the needs of users and owners;

-- The Agency for Cultural Affairs should study how to promote the establishment of the Organization since it would lay the foundation for the creation and development of a multimedia society and would contribute to the enjoyment of cultural products by the general public.

The Subcommittee believed it would be difficult, at least at the outset, to create a single organization to administer rights for all kinds of preexisting works because of the different nature of the works and their ways of use. Therefore, the Subcommittee proposed that cooperation should be sought from the existing administration organizations to support the formation of the Organization. With respect to moral rights, at a minimum the identity of authors would be provided in the database so authors could be dealt with on an individual basis. A registered consent subject to compliance with licensing conditions was also discussed as a possibility.

The Subcommittee indicated that further study was needed to determine what entity and rules would govern the entire system of collective administration of such rights, including whether a general system is possible under which certain rights to royalty payments would be exercised exclusively through the Organization.

IV. THE U.S. MULTIMEDIA CLEARINGHOUSE: A PROPOSAL

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A. Overview

-- The clearinghouse would cover copyright interests only at the outset, probably with emphasis on only a subset of types of works, for example, works other than musical compositions and motion pictures.

-- Copyright owners would participate on a voluntary basis.

-- The initial phase would probably be only to establish a database of information without royalty payment administration. The eventual administration of royalty payments is possible.

-- "Routine" or standard license rights could be defined which reflect creative needs with associated royalty payments. The purpose of defining routine rights is to avoid ambiguity which could lead to litigation. Rights other than "routine" rights would be addressed on a case-by-case basis with the rights owner identified in the data base. Royalties would be set by the owner.

-- Registrants would offer nonexclusive licenses, priced differently based on the scope of rights, the geographical territory, the term of the license and other factors. To protect licensees, the copyright owner would warrant that he has the right to grant such licenses.

The overall strategy would be to start small and to build incrementally after launching the multimedia clearinghouse. The clearinghouse should initially deal only with copyrights and not patents. Dealing with copyright interests will be a difficult challenge by itself. In addition, other groups are working on patent clearinghouses. An example is the small coalition of seven companies which expect to form a "patent pool" for users of the MPEG-2 (Motion Picture Experts Group) video standard. This collaboration is the outgrowth of muddled intellectual property rights issues surrounding this standard. Implementation relies greatly on both voluntary participation and a collaborative spirit on the part of the patent holders.

Types of copyrighted works could be incrementally added to the clearinghouse, because of the wide variety of types of works, the different ways they are used and the difficulty of gaining support and cooperation of existing administrative organizations. In fact, some existing administrative organizations for certain types of works, such as musical compositions, may be adequate.

The clearinghouse could first function solely as a database search system. The basic elements of the database would include: (1) name of the work; (2) licensing conditions; (3) royalty fees; and (4) contact information on the copyright owner or agent. Nominal service fees would be paid by both copyright owners and licensees to use the clearinghouse.

Voluntary participation and pricing for certain defined routine uses could be early features of the clearinghouse. For example, there would be different pricing for internal use within a business as opposed to a public performance. "Routine" uses would add precision to the scope and nature of rights granted in order to avoid litigation since ambiguity has been a major source of lawsuits. "Routine" or standard uses would be defined by the type of work, but might be categorized based on some of the following factors:

-- Whether the work will be used internally only or distributed publicly on a CD-ROM, through a network or otherwise. License manager software could help measure use on all types of networks in both private and public networks.

-- The number of times a copyrighted work is used in a multimedia product, e.g., one time versus multiple times.

-- Whether the entire work is used or only a portion of the work and if only a portion, the size of the extract or sample, i.e., seconds or minutes, words or pages, etc.

-- Whether the work is used in its original form or is modified or otherwise transformed by the multimedia product The administration of royalty payments could be added at some point. Service fees would also be charged for collecting royalties and for clearance services. Actual delivery of a work could be made through the super highway as the clearinghouse evolves.

The clearinghouse should be pro-competitive rather than anti-competitive since it could be used by any rights holder or developer. The clearinghouse could request a business review letter from the antitrust division of the U.S. Department of Justice for added protection.

B. Coalition Support Needed

The success of the clearinghouse depends on substantial participation by both product developers and copyright owners. Both must perceive the clearinghouse as reliable and easy-to-use. Each group has its own economic incentives. Copyright owners can project generating greater royalties. Content users will favor the establishment of such a clearinghouse as a means to help create new products without having to create totally new content. The more extensive the choice of copyrighted works, the greater the use of the clearinghouse.

The economic incentives for participation would not likely be adequate at the outset to cause content owners to participate. A coalition of influential businesses, private industry and public trade groups would be needed to persuade copyright owners to participate in the clearinghouse. Over time, the clearinghouse would provide a greater opportunity for copyright owners to increase royalty revenues. The availability of a clearinghouse could also discourage unauthorized use of copyrighted content by making it easier to obey the copyright law.

Copyright licensing organizations are gaining momentum as a means to ensure that intellectual property owners do not lose royalties from the unauthorized electronic use of their works. The primary targets of the monitoring and enforcement actions are distributors and resellers. The clearinghouse could assist in such enforcement efforts.

Many groups could provide important support for the establishment and use of the clearinghouse, including the following: American Society of Journalists and Authors, American Society of Media Photographers, Artists Rights Foundation, The Authors Guild, Center for Creative Imaging, the Digital Audio-Visual Council, Interactive Multimedia Association, National Press Photographers Association, National Writers Union, and the San Francisco's Multimedia Development Group.

C. Management and Administration

The administrator of the multimedia clearinghouse could be the CCC, an existing private rights clearance agency or a completely new entity. Using an existing entity with clearance experience makes the most sense. The existing clearing agencies would be important at least through the startup phase and possibly indefinitely if a royalty administration function is not implemented or if the type of work is not generally included in the clearinghouse.

Some initial funding could come from the federal government's support of the super highway initiative. On-going funding could come from service fees associated with both owners and licensees use of the clearinghouse.

V. CONCLUSION

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Given the evolution of multimedia standards coalitions, drawing television closer to the computer and communications worlds via the identification of major interfaces and protocols needed for interactive applications and services, it is timely to complement this activity with a fair means of encouraging new creativity while fairly providing compensation for prior creativity - the multimedia copyright clearinghouse.

Multimedia content will be in the fast lane on the super highway. The U.S. appears to have an initial worldwide, competitive advantage in multimedia productions and titles because of its lead in market-driven creativity in software, particularly in mass-market application software that fills a market need. The availability or non-availability of a copyright clearinghouse could increase the U.S. competitive advantage or provide the opportunity for others to catch up.