In Copyright Law, 200 Is a Magic Number

3 March 2014

From Copyright and Technology:

An occasional recurring theme in this blog is how copyright law is a poor fit for the digital age because, while technology enables distribution and consumption of content to happen automatically, instantaneously, and at virtually no cost, decisions about legality under copyright law can’t be similarly automated.  The best/worst example of this is fair use.  Only a court can decide whether a copy is noninfringing under fair use.  Even leaving aside notions of legal due process, it’s not possible to create a “fair use deciding machine.”

In general, copyright law contains hardly any concrete, machine-decidable criteria.  Yet one of the precious few came to light over the past couple months regarding a type of creative work that is often overlooked in discussions of copyright law: visual artworks.  Unlike most copyrighted works, works of visual art are routinely sold and then resold potentially many times, usually at higher prices each time.

A bill was introduced in Congress last week that would enable visual artists to collect royalties on their works every time they are resold.  One of the sponsors of the bill is Rep. Jerrold Nadler, who represents a chunk of one of the world’s largest concentrations of visual artists: New York City.

Of course, the types of copyrighted works that we usually talk about here — books, movies, TV shows, and music — aren’t subject to resale royalties; they are covered under first sale (Section 109 of the copyright act), which says that the buyer of any of these works is free to do whatever she likes with them, with no involvement from the original seller.  But visual artworks are different.  According to Section 101 of the copyright law, they are either unique objects (e.g. paintings) or reproduced in limited edition (e.g. photographs).  The magic number of copies that distinguishes a visual artwork from anything else?  200 or less.  The copies must be signed and numbered by the creator.

. . . .

Under the proposed ART (Artist Royalties, Too) Act, five percent of the proceeds from a sale of a visual artwork would go to the artist, whether it’s the second, third, or hundredth sale of the work.  The law would apply to artworks that sell for more than $5,000 at auction houses that do at least $1 million in business per year.  It would require private collecting societies to collect and distribute the royalties on a regular basis, as SoundExchange does for digital music broadcasting.  This proposed law would follow in the footsteps of similar laws in many countries, including the UK, EU, Australia, Brazil, India, Mexico, and several others.  It would also emulate  ”residual” and “rental” royalties for actors, playwrights, music composers, and others, which result from contracts with studios, theaters, orchestras, and so on.

. . . .

The Office had previously looked into resale royalties over 20 years ago.  Its newer research found that, based on evidence from other countries that have resale royalties, imposing them in the US would neither result in the flight of art dealers and auction houses from the country nor impose unduly onerous burdens for administration and enforcement of royalty payments.

Yet the Copyright Office’s report doesn’t overflow with unqualified enthusiasm for statutory royalties on sales.  One of the legislative alternatives it suggests is the idea of a “performance royalty” from public display of artworks.  If a collector wants to buy a work at auction (anonymously through middlemen) and display it privately in her home, that’s different from a museum that charges people admission to see it.  Although this would mirror performance royalties for music, it would seem to favor wealthy individuals at the expense of public exposure to art.

. . . .

As an outsider to the art world, I have no opinion.  Instead it’s that 200 number that fascinates me.  That number may partially explain why the Alfred Eisenstaedt photograph of the conductor Leonard Bernstein hanging in my wife’s office, signed and numbered 14 out of 250, is considerably less valuable than another Eisenstaedt available on eBay that’s signed and numbered 41 out of 50.

It begs the question of what happens when more and more visual artists use media that can be reproduced digitally without loss of quality.  Would an artist be better off limiting her output to 200 copies and getting the 5% on resale, or would she be better off making as many copies as possible and selling them for whatever the market will bear?  The answer is unknowable without years of real-world testing.  Given the choice, some artists may opt for the former route, which seems to go against the primary objective of copyright law: to maximize the availability of creative works to the public through incentives to creators.

Link to the rest at Copyright and Technology

Explaining Australia’s Fair Use Publishing Conundrum

3 March 2014

From Publishing Perspectives:

The Australian Law Reform Commission (ALRC) recently released a report proposing that a ‘fair use’ exception be introduced to Australian copyright law, moving from a closed list of exceptions to the open-ended fairness test which has characterized US copyright law since 1978.

. . . .

Australian law currently provides for a number of exceptions to copyright law, collectively known as ‘fair dealing’ rules. These rules relate to uses of copyright material for the following:

  • Research or study
  • Criticism or review
  • Parody or satire
  • Reporting news
  • The provision of professional advice

Limited use of copyrighted material for any of these purposes is permitted without a licence, so long as it passes a ‘fairness test.’ The ALRC’s fair use proposal is aimed at simplifying this system by providing that any use which meets a four-step fairness test — almost identical to that in US law — will be protected.

. . . .

Australia is a tiny publishing market, so why is this debate being followed so closely by the international publishing community? Part of the reason is that it may presage coming changes to the law in other jurisdictions: recent copyright reviews in the UK and Ireland have also expressed support for fair use. Fair use principles underpin the business models of companies like Google and Facebook, too, which may lead users of their services to favor their expanded applicability.

Publishers are also concerned that introducing fair use to a country they see as having no experience in the concept will be problematic. This argument deserves attention: Australian copyright law is built on a different foundation and aimed at different purposes than US law. However, Australian judges are becoming increasingly comfortable with citing international authorities, and they would doubtless draw upon the substantial body of US case law to establish Australian fair use principles.

Indeed, there is a trend towards increasing international uniformity within every area of the law, but it is particularly strong within copyright law – which may not be an altogether bad thing. These days, it isn’t just large publishers who have to worry about foreign countries’ laws: any publisher distributing ebooks on the global market is vulnerable to the legal quirks of far-flung territories. In this respect, a greater degree of international uniformity will reduce publishers’ transaction costs.

Link to the rest at Publishing Perspectives

Passive Guy will point out that the standard warranties of almost all publishing contracts make the author liable to pay all costs arising from the publication of a book that violates the laws of any other country regardless of whether the author has any knowledge of the laws of another country.

Rights Grabs and Copyrights

26 February 2014

Passive Guy put together the following for the IndieReCon online writers conference which continues through today:

Let’s discuss the rights authors own under their copyrights to their books.Although we could talk a long time about what copyright is, for the purpose of this post, we’ll call it the exclusive legal right of the author of a literary work to reproduce, publish and sell a book for the period during which the copyright is in force. Copyright also includes the right of the author to permit others to do the same thing.Copyright is a collection of different rights. Some of these are called derivative works.

Here’s a definition from the United States Copyright Office:

A derivative work is a work based on or derived from one or more already exist­ing works. Common derivative works include translations, musical arrange­ments, motion picture versions of literary material or plays, art reproductions, abridgments, and condensations of preexisting works. Another common type of derivative work is a “new edition” of a preexisting work in which the edito­rial revisions, annotations, elaborations, or other modifications represent, as a whole, an original work.To be copyrightable, a derivative work must incorporate some or all of a preexisting “work” and add new original copyrightable authorship to that work. The derivative work right is often referred to as the adaptation right. The fol­lowing are examples of the many different types of derivative works:

•   A motion picture based on a play or novel
•   A translation of an novel written in English into another language
•   A revision of a previously published book
•   A sculpture based on a drawing
•   A drawing based on a photograph
•   A lithograph based on a painting
•   A drama about John Doe based on the letters and journal entries of John Doe
•   A musical arrangement of a preexisting musical work
•   A new version of an existing computer program
•   An adaptation of a dramatic work
•   A revision of a website

Note that a derivative work includes uses for the work that are developed in the future. Authors who wrote novels long before ebooks were invented still have copyright protection for their work in the form of ebooks.

So, what is a rights grab for the author of a book?

Here’s Passive Guy’s own definition: A rights grab happens when a publisher demands more rights than to print, publish and sell hardcovers, paperbacks and license ebooks.

Of course, many publishers ask the author to grant many more rights than those three. Common additions are motion picture, television and dramatic rights.

Why does PG not like this?

Does Penguin make movies? Does HarperCollins create stage plays?

Those sorts of things are done by people whose principal business is something other than publishing. Publisher like these sorts of things because all they have to do is contact someone, usually a Hollywood agent, and ask the agent to sell performance rights. Quite often, the author even pays some or all of the agent’s fee through royalty deductions.

That’s a lot less work than editing, printing and promoting books.

An analogous set of rights are translation rights. The right to translate a book into German, French, etc., and sell those books world-wide. There are some exceptions, but quite often, the process is similar to performance rights. The publisher contacts a German publisher or agent and the German publisher does all the work.

Of course, the publisher takes a cut of all of these subsidiary rights, sometimes a very large cut. The author gets what’s left.

So, PG’s standard for what rights an author should grant to a publisher are those that the publisher has the in-house capability of exploiting without involving third-party agents, producers or publishers.

If a book sells well, it will attract people in the movie business and foreign publishers on its own, without the involvement of the US publisher and, if the author retains these rights, he/she keeps all the money.

How does the author know what to do with these non-book rights? Hire an attorney or agent to help. They will charge much less than a publisher will to handle those types of licenses. And the author will be in control of negotiations and the contract terms, not the publisher.

What does rights grab contract language look like? Here’s a short one from a real publishing contract (but not a contract that involves one of PG’s clients):

The Author hereby grants the Publisher the exclusive, worldwide rights to publish, display, reproduce, license, grant subsidiary rights, distribute, and sell the Work, in any and all forms currently, or in the future, known for publishing such material.

Here’s that same contract provision with key terms highlighted:

The Author hereby grants the Publisher the exclusiveworldwide rights to publish, display, reproduce,licensegrant subsidiary rights, distribute, and sell the Work, in any and all forms currently, or in the future, known for publishing such material.

Often grants of right are significantly longer than this, but this gives you the idea of the kinds of things to look for.

Why does a publisher need worldwide rights if it only publishes in the US?

Why does a publisher need subsidiary rights if it’s never produced a movie or sold rights to a movie?

Why does a publisher need rights to some unspecified future use of the work when the publisher doesn’t even know what that might be?

If you’re looking for a compromise between a rights grab and PG’s absolutist position about hardcover, paperback and ebooks, here are some ideas:

1.      The publisher has the right to seek movie, TV, etc., deals for a period of time – three years, for example. If no deal is consummated during that time, those rights revert to the author.

2.      The first $1 million derived from the sale or license of any subsidiary right is divided 50/50 between author and publisher and any revenues above that are paid to the author.

3.      The publisher has rights in any countries where it presently has offices and operations with the author retaining rights everywhere else. The countries should be listed.

Federal court in Utah sides with broadcasters against Aereo

20 February 2014

As an intro, Areo is fascinating for copyright geeks. It’s a company designed around the copyright law relating to public performances.

From The Los Angeles Times:

Aereo’s streak of legal victories over the broadcasting industry has come to an end.

The startup company, which sends broadcast television signals to consumers via the Internet, will have to shut down its operations in Utah and Colorado thanks to a ruling by the U.S. District Court in Utah.

The ruling, which covers the 10th Circuit, grants a request for preliminary injunction against Aereo that was sought by Fox Broadcasting Co. and other TV station owners.

. . . .

The decision comes about two months before the Supreme Court is scheduled to hear arguments from the major broadcast networks that Aereo should be shut down because it illegally steals their copyright.

Broadcasters are asking the high court to overturn an earlier decision by the U.S. Court of Appeals for the 2nd Circuit in New York, which said that Aereo’s transmissions and recordings are not “public performances” of copyrighted material.

. . . .

Broadcasters argue that they need to be compensated by Aereo otherwise it is engaging in copyright theft. The fear is that if Aereo grows in popularity it could threaten distribution fees broadcasters get from pay-TV distributors including cable and satellite companies.

Link to the rest at The Los Angeles Times and, for more background on Aero, check here, here and here.

Piracy, Saviour of the Book Industry

30 January 2014

From Forbes blogs:

Piracy is portrayed as many things by many people. For the content industries, it’s portrayed as theft, despite that being legally inaccurate. For a subset of the free culture movement, piracy is just an expression of the adage that “information wants to be free”. For many, it’s a moral outrage. For some, it’s the only practical way they can access content, either because the item is not available any other way, or it costs far more than they can afford. And for others, it’s a protest against the evil hegemony of the film, music and book industries.

. . . .

Unfortunately, too many people across the publishing world have learnt the wrong lessons from the music industry and Hollywood. They focus on scaring people away from piracy, or suing them, or getting into a technological arms race with the DRM crackers — a race they are doomed to lose, by the way.

Instead, we need to face facts. Piracy’s here. It’s staying. We can’t stop it. So we need to find inventive and attractive ways to work around it.

. . . .

We need to think about what offers we can make to readers to encourage them to buy legitimate copies of our books, rather than download them for free. Is this bundling ebooks with paper books? Or special editions? Or box sets? Or merchandise? So many obvious opportunities for experimentation that pirates simply couldn’t match.

We need to create direct relationships with readers — and by ‘we’, here, I mean both authors and publishers — so that we can give them a reason, many reasons, to buy from us and not download illicit copies. We need to enable direct sales channels that we control, so that we get the benefit of all the data and intelligence that produces.

. . . .

I suspect that most people who go into publishing have a bit of an allergy when it comes to numbers, so hire in a statistician or analytics expert to help turn numbers into actionable intelligence. Stats by themselves aren’t the goal; improving your businesses’ bottom line is the goal. Data can help but only if you treat it with respect, understand its limitations, and talk its language.

Link to the rest at Forbes blogs and thanks to Kathlena for the tip.

Story Surgeon: An App For Copyright Infringement

24 January 2014

From Victoria Strauss at Writer Beware:

Here at Writer Beware, we love the weird stuff–the nutty, fring-y, even, dare I say, totally freaking insane things that are always cropping up at the boundaries of the publishing world, often spawned by people who haven’t really taken the time to think things through.

Or maybe they’re just idiots. Hard to tell sometimes.

So…playing now on Kickstarter, a project called Story Surgeon (I’ve embedded a screenshot at the bottom of this post to immortalize the concept). Created by aspiring author Ryan Hancock, Story Surgeon is:

An eBook notation app that saves your personal edits as a separate file, and can be shared with anyone who owns the original eBook.

In other words, Story Surgeon is an app that enables anyone to alter a published book in any way they like, and spread the alterations around at will.

Although it will be a complicated app to develop, the idea is simple. Buy an eBook in ePub format and download it to your iPad. Download the Story Surgeon app. (It will be free on release day and probably many days thereafter.) Then you can use the app to read the original eBook (booooring) or make your own person [sic] changes to the text. (OH YEAH!)

Use the “find and replace” tool to substitute bad words, cut out whole portions of the book you thought were lame, or completely rewrite the novel with you as the main character.

Once your filter is perfect, you have the option to upload it into Drop Box and post your link on the Story Surgeon General Blog. (As we grow we’ll get our own servers and streamline the sharing process.)

The filter is kept separate from the eBook and no copyrights will be infringed upon. Anyone who uses your link and downloads the free filter will have to have purchased the original eBook. Filters will always be free.

As an author, I’m so very relieved to know that even if random people use an app to create altered versions of my books and post links to them on the Internet, my copyright won’t be infringed upon.

Link to the rest at Writer Beware and thanks to Jeanne for the tip.

In updates, Victoria acknowledges that some believe that this would be fair use under US copyright law.

PG was reminded of a company called CleanFlicks, started to remove content that was not child-friendly from DVD and VHS versions of popular movies – sexual content, profanity, etc.

The service was structured so that CleanFlicks bought and paid for a separate copy of the DVD or tape of the motion picture in its original form for each copy CleanFlicks sold so the movie studio received full compensation for the copy of the movie licensed for home consumption. CleanFlicks used its technology to doctor the movie to remove the nasty bits and sold or rented the the cleaned-up movie to consumers.

The Directors Guild of American and Hollywood studios were preparing to file suit when CleanFlicks filed a preemptive lawsuit. CleanFlicks lost.

Here’s a short summary of the court decision:

“[Moviemakers'] objective…is to stop the infringement because of its irreparable injury to the creative artistic expression in the copyrighted movies,” the judge wrote. “There is a public interest in providing such protection. Their business is illegitimate.” [Judge Richard P.] Matsch ordered CleanFlicks and the other defendants to hand over their entire inventory of scrubbed flicks to the five major Hollywood studios and stop “producing, manufacturing, creating” and renting the cleaned-up material within five days or face possible court action, including the likelihood of massive penalties.

Here’s more on the case from The New York Times and an article saying the judge was wrong from Reason.

One of the concepts that floated around in the CleanFlicks matter and is present with Story Surgeon is the moral rights of creators in their works. Moral rights are generally protected under European law, but receive less (or no) recognition under the laws of the US, UK and other common law jurisdctions.

Here’s a definition:

The term “moral rights” is a translation of the French term “droit moral,” and refers not to “morals” as advocated by the religious right, but rather to the ability of authors to control the eventual fate of their works. An author is said to have the “moral right” to control her work. The concept of moral rights thus relies on the connection between an author and her creation. Moral rights protect the personal and reputational, rather than purely monetary, value of a work to its creator.

The scope of a creator’s moral rights is unclear, and differs with cultural conceptions of authorship and ownership, but may include the creator’s right to receive or decline credit for her work, to prevent her work from being altered without her permission, to control who owns the work, to dictate whether and in what way the work is displayed, and/or to receive resale royalties. Under American Law, moral rights receive protection through judicial interpretation of several copyright, trademark, privacy, and defamation statues, and through 17 U.S.C. §106A, known as the Visual Artists Rights Act of 1990 (VARA). VARA applies exclusively to visual art. In Europe and elsewhere, moral rights are more broadly protected by ordinary copyright law.

In the United States, the term “moral rights” typically refers to the right of an author to prevent revision, alteration, or distortion of her work, regardless of who owns the work. Moral rights as outlined in VARA also allow an author of a visual work to avoid being associated with works that are not entirely her own, and to prevent the defacement of her works. 

Link to the rest at Moral Rights Basics

Google Image Search makes it easier to sort results by licensing rights

15 January 2014

From Engadget:

Google Image Search has allowed users to filter results based on how they’re licensed since 2009, but the option remained hidden under an advanced options menu where few users ever look. Now, a request by law professor and Creative Commons founding member Lawrence Lessig has changed that.

Link to the rest at Engadget and thanks to Joshua for the tip.

Here’s how you might use this to discover photos of castles you can use for your next book cover without violating the creator’s copyright.

First, search for castles with Google Image Search, selecting the Labeled for Commercial Reuse Option. You choose Commercial Reuse because you want to use the image for a commercial purpose – on a book cover to promote a book you’re going to sell.




When you find an image you like, go to the image’s information page (on Wikimedia Commons in this case):


This file is licensed under the Creative Commons Attribution-Share Alike 3.0 Unported license.


Check the use and attribution rules for the image on the same page (see below).

In this case, you can share – copy distribute and transmit the photo – and remix – adapt the work – that is, modify it.

You can do this if you attribute the work as designated by the original creator – – and, if you alter the work (as you probably would for a book cover), distribute the resulting work under the same or similar license - the Creative Commons Attribution-Share Alike 3.0 Unported license.




Include the attribution on the copyright page of your book. Something like this should work:

The cover image of Bodiam Castle is licensed under the Creative Commons Attribution-Share Alike 3.0 Unported license. Attribution:

And you’re set.

Why can’t my biography of Shel Silverstein quote the works of Shel Silverstein?

12 January 2014

From Slate:

For the last few years I’ve been writing a scholarly book about Shel Silverstein’s life and work. Yet, after five years of labor, I’ve recently come to realize that my book will very possibly never be published.

Why not? Well, certainly not because there’s a glut of other books about Silverstein.

. . . .

Silverstein’s an important figure, is what I’m getting at. He lived an interesting life, and he produced more than his fair share of aesthetically and commercially successful art. So why has there been so little critical attention paid to such a provocative and prolific character, so little scholarship striving for the Big Picture? And why might my attempt to write this very kind of work potentially never appear in print? Put simply: because of Shel Silverstein’s estate. Because it’s so damned difficult to get permission to quote from his poems and songs, to illustrate claims with reproductions of his art—even a tiny black-and-white reproduction of a comic panel or three or four lines of a song. I’m not the only biographer of an important figure who has this problem. It has to change.

It comes down to this: the Silverstein estate is especially reluctant to give out what’s called “permissions,” the right to quote from (or reproduce parts of) work protected by copyright. Last year an academic journal asked me to obtain permission to reproduce some of Silverstein’s material in an essay of mine they were about to publish. Most of the required images first appeared in Playboy; the magazine gave me an email address belonging to Silverstein’s nephew, who evidently handles this kind of thing for the estate. I wrote this nephew several times, and after a handful of attempts over the course of months, I heard back from a law firm whose name seemed to come straight out of a Shel Silverstein poem: Solheim, Billing, and Grimmer.

Sadly, I can’t reproduce their letter because it’s protected under copyright. (Recipients of letters own the letter, but the content of the letter—or scans of the letter itself—cannot be reproduced without the permission of the letter writer. You can imagine how frustrating this is for biographers.) Still, SB&G’s five-sentence missive is easy to summarize: it forbade me not only from reproducing images for this one article, but from ever reproducing any of Silverstein’s work—song lyrics, poems, images, whatever—in any context. Ever.

. . . .

And so I came up against the hard truth of the literary biographer: It’s crucial to establish friendly relations with the estates of deceased (and more rarely, living) artists whose work is protected by copyright. You see, scholars have to request permission to reproduce more than a few lines of a copyrighted poem or song lyric. Or, more precisely, we don’t have to, but our publishers (largely academic, nonprofit university presses) tend to insist that we ask permission in order to protect themselves from lawsuits. You may have heard of something called “fair use.” One would think fair use was custom built to protect scholars and artists who want or need to reproduce excerpts from copyrighted work in the service of education or art or scholarship—and one would be right. But whether we’re protected or not, most presses prefer to play it safe and make scholars request permission.

This situation is disastrous for serious scholarship for a number of reasons. Instead of simply writing what our research tells us, quoting what we need to quote, scholars are put in the position of hunting down permissions, a process that can take months. More absurdly, it puts our research and our conclusions at the (not so) tender mercies of the subjects of our scholarship (or, worse, the mercy of their estates).

Link to the rest at Slate

Passive Guy is not familiar with the details of this case, but he suspects Silverstein’s estate is overreaching on the copyright front. And he can’t imagine any attorney using a copyright claim to forbid the recipient of a letter from reproducing it with a straight face.

PG would buy a plane ticket to see a court hearing in which an attorney tried to convince a federal judge that copyright prevented the recipient of the attorney’s demand letter from posting it online or emailing copies to a bunch of friends.

No books for you: U.S. starves public domain for another year

3 January 2014

From GigaOm:

A new year means a new batch of copyrights expire, and works like The Chronicles of Narnia and The Bell Jar become as free to use as Charles Dickens or Shakespeare. Unless you happen to live in the United States, that is.

As Duke University notes in its mournful annual report, no books will enter the public domain this year, or next year, or the year after that.  This situation is the result of Congress’s decision to add another 20 years of protection for long dead authors, which means that no new works will become public until 2019.

As a related Duke article points out, famous 1957 titles like On the RoadAtlas Shrugged and The Cat in the Hat would have entered the public domain if the US had retained its pre-1978 copyright system, which granted protection for up to 56 years. Canada, meanwhile, has stuck with a “life of the author plus 50 years” rule, which means the public there — starting January 1 — can print or perform works by C.S. Lewis and Sylvia Plath (both died in 1963)

So why has the public domain dried up in the United States? The technical answer is a 1998 law that increased copyright terms to 95 years or more for works published after 1923 (you can get specifics from this excellent chart). But the more subtle answer is that the US government succumbed to lobbying efforts by Walt Disney and other powerful content owners that demanded ever-longer monopolies for their intellectual property.

Link to the rest at GigaOm

A Look Back At How The Content Industry Almost Killed Blockbuster And Netflix (And The VCR)

29 December 2013

From TechCrunch:

In 1977, the first video-rental store opened. It was 600 square feet and located on Wilshire Boulevard in Los Angeles. George Atkinson, the entrepreneur who decided to launch this idea, charged $50 for an “annual membership” and $100 for a “lifetime membership” but the memberships only allowed people to rent videos for $10 a day. Despite an unusual business model, Atkinson’s store was an enormous success, growing to 42 affiliated stores in fewer than 20 months and resulting in numerous competitors.

In retrospect, Atkinson’s success represented the emergence of an entirely new market: home consumption of paid content. It would become an $18 billion dollar domestic market, and, rather than cannibalize from the existing movie theater market, it would eclipse it and thereby become a massive revenue source for the industry.

Atkinson’s success in 1977 is particularly remarkable as the Sony Betamax (the first VCR) had only gone on sale domestically in 1975 at a cost of $1,400 (which in 2013 U.S. dollars is $6,093). As a comparison, the first DVD player in 1997 cost $1,458 in 2013 dollars and the first Blu-ray player in 2006 cost $1,161 in 2013 dollars. And unlike the DVD and Blu-ray player, it would take eight years, until 1983, for the VCR to reach 10 percent of U.S. television households. Atkinson’s success, and that of his early competitors, was in catering to a market of well under 10 percent of U.S. households.

While many content companies realized this as a massive new revenue stream — e.g. 20th Century Fox buying one video rental company for $7.5 million in 1979 — the content industry lawyers and lobbyists tried to stop the home content market through litigation and regulation.

The content industry sued to ban the sale of the Betamax, the first VCR. This legal strategy was coupled by leveraging the overwhelming firepower of the content industry in Washington. If they lost in court to ban the technology and rental business model, then they would ban the technology and rental business model in Congress.

. . . .

While Sony won at the district court level in 1979, in 1981 it lost at the Court of Appeals for the Ninth Circuit where the court found that Sony was liable for copyright infringement by their users — recording broadcast television. The Appellate court ordered the lower court to impose an appropriate remedy, advising in favor of an injunction to block the sale of the Betamax.

And in 1981, under normal circumstances, the VCR would have been banned then and there. Sony faced liability well beyond its net worth, so it may well have been the end of Sony, or at least its U.S. subsidiary, and the end of the VCR. Millions of private citizens could have been liable for damages for copyright infringement for recording television shows for personal use. But Sony appealed this ruling to the Supreme Court.

. . . .

After an oral hearing, the justices took a vote internally, and originally only one of them was persuaded to keep the VCR as legal (but after discussion, the number of justices in favor of the VCR would eventually increase to four).

With five votes in favor of affirming the previous ruling the Betamax (VCR) was to be illegal in the United States (see Justice Blackmun’s papers).

But then, something even more unusual happened – which is why we have the VCR and subsequent technologies: The Supreme Court decided for both sides to re-argue a portion of the case. Under the Burger Court (when he was Chief Justice), this only happened in 2.6 percent of the cases that received oral argument. In the re-argument of the case, a crucial vote switched sides, which resulted in a 5-4 decision in favor of Sony. The VCR was legal. There would be no injunction barring its sale.

The majority opinion characterized the lawsuit as an “unprecedented attempt to impose copyright liability upon the distributors of copying equipment and rejected “[s]uch an expansion of the copyright privilege” as “beyond the limits” given by Congress. The Court even cited Mr. Rogers who testified during the trial:

I have always felt that with the advent of all of this new technology that allows people to tape the ‘Neighborhood’ off-the-air . . . Very frankly, I am opposed to people being programmed by others.

On the absolute narrowest of legal grounds, through a highly unusual legal process (and significant luck), the VCR was saved by one vote at the Supreme Court in 1984.

. . . .

In 1982 legislation was introduced in Congress to give copyright holders the exclusive right to authorize the rental of prerecorded videos. Legislation was reintroduced in 1983, the Consumer Video Sales Rental Act of 1983. This legislation would have allowed the content industry to shut down the rental market, or charge exorbitant fees, by making it a crime to rent out movies purchased commercially. In effect, this legislation would have ended the existing market model of rental stores.

. . . .

As Jack Valenti, president of the Motion Picture Association of America (MPAA), explained before Congress in 1982:

We are going to bleed and hemorrhage, unless this Congress at least protects [our industry against the VCR]. . .we cannot live in a marketplace. . . where there is one unleashed animal [the VCR] in that marketplace, unlicensed. It would no longer be a marketplace; it would be a kind of a jungle, where this one unlicensed instrument is capable of devouring all that people had invested in…

Valenti’s comments were stark and designed to scare Congress to act: “I say to you that the VCR is to the American film producer and the American public as the Boston strangler is to the woman home alone.” Jack Valenti even threatened that if Congress didn’t regulate the VCR then movie producers may cut their movie production in half.

. . . .

One year after the Sony case, with the legal issues on less precarious grounds, David Cook opened the first Blockbuster store in in Dallas, Texas, in 1985. Within two years it became one of the top 10 video-rental chains with 67 stores. Blockbuster expanded outside the U.S. with over 1,000 stores in 1989. And by 1992, Blockbuster was the undisputed video-rental leader with over 2,800 stores worldwide.

. . . .

Marc Randolph and Reed Hastings founded Netflix in 1997 with a completely different market model. As Larry Downes explains in the Harvard Business Review:

The scrappy start-up built a distribution model that relied exclusively on mailing DVDs to customers through the low-cost U.S. postal service. It was almost as convenient as a neighborhood retail store but at a fraction of the price—and without the late fees that annoyed Blockbuster customers.

Reed Hastings has explained that the idea of Netflix came to him when he was forced to pay $40 in overdue fines after returning Apollo 13 past its due date.

In 2002 Netflix went public. Early on the bandwagon of streaming video, by 2010, Netflix went from “being the fastest-growing first-class mail customer” to being the “biggest source of streaming Web traffic” during peak evening hours. The old brick-and-mortar-style rental market was being disrupted at an incredible pace, and Blockbuster was ultimately unable or unwilling to adapt. By the time Blockbuster realized these market trends and disruption, it was too late.

Link to the rest at TechCrunch

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