Last week, the Commerce Department’s Internet Policy Task Force issued its White Paper on Remixes, First Sale and Statutory Damages, a 100-page report with nearly 600 footnotes, plus appendices. To paraphrase the opening voice over to the recently-canceled TV show, The Soup, I’ve read the report so you don’t have to. And just like the vignettes from the reality shows that were the main staple of The Soup, the White Paper, to paraphrase another long-running show, was mostly a long discussion about nothing – not that there’s anything wrong with that, as we’ll see.

Here’s the top line spoilers: (a) as to remixes, no changes in the current law were recommended but fair use guidelines would be helpful; (b) as to the first sale doctrine, the White Paper concluded that it shouldn’t be extended to digital deliveries; and (c) with respect to statutory damages for copyright infringement, the only recommendations were to amend the statute slightly to include mandatory factors for consideration, increase the applicability of lower damages for innocent infringement, and to allow online bulk users of copyrighted works (e.g., streaming services) to be assessed damages other than on a per-work basis.

The White Paper is the culmination of a the Task Force’s digesting a year’s worth of written comments and round table discussions among various stakeholders, including the usual suspects from the motion picture, recording, music, online media and software industries as well as academics, librarians, attorneys and staff from the Patent & Trademark Office as well as the Copyright Office. However, it appears that not many individual artists were among the participants.

A. Remixes

Remixes are works where a creator incorporates elements or portions of other pre-existing copyrighted works into his new creation. The White Paper broadly defines remixes to include a variety of audio and audio-visual samplings and mash-ups as well as physical and digital collage art. Some examples are user-generated content (UGC) such as fan videos with added audio tracks, fan fiction based on popular characters like those from the Harry Potter books and digital manipulation of photographic images.

The White Paper makes three recommendations regarding remixes:

– The development of negotiated guidelines providing greater clarity as to the application of fair use to remixes
– Expanding the availability of a wider variety of voluntary licensing options
– Increasing educational efforts aimed at broadening an understanding of fair use

Like mom and apple pie, it’s hard to argue against these.

The White Paper discussed various considerations and potential distinctions, including for-profit v. non-profit, amateur v. professional, as well as creating fair use exemptions or compulsory licenses for various uses types of remixes. However, the Task Force points out that whatever lines may be drawn for various distinctions are increasingly blurred. For example, many amateur musicians and filmmakers actively seek to become professionals and non-profit uses may be later monetized in for profit goods and services.

Moreover, certain industries, such as music, have well-established licensing schemes and technologies are evolving to make micro-licensing more feasible. Other stakeholders pointed out that a creator should still have the right to say “no” to uses of her work she finds objectionable, that may constitute hate speech or may devalue or denigrate her work, where fair use is not applicable. And it was the consensus view that fair use would apply to many remixes, such as those that offer political or social commentary.

However, fair use is notoriously difficult to determine. Accordingly, the White Paper proceeds to a discussion of guidelines regarding fair use and remixes, noting the distinction between “single sector” and negotiated guidelines. Single sector guidelines are those prepared by a community of either rights holders or users, such as software developers, librarians, record labels and the like. Single sector guidelines are of limited value if they are not accepted by all stakeholders. For example, if librarians promulgated a set of remix guidelines that the book publishing industry did not agree with or if documentary filmmakers issued guidelines that the music industry found objectionable. Such guidelines have been criticized as merely attempting to legitimize practices that a user group favors.

Negotiated guidelines, where both the rights holder and user communities agree, are more valuable but a consensus is often difficult, if not impossible, to achieve. And some commentators noted that any guidelines could be misconstrued by some users as being statements of the law. However, the White Paper did list several guidelines for the creation of fair use guidelines (meta-guidelines?) for remixes:

– Guidelines should be developed by both the owner and user communities
– To maximize legitimacy, the discussions should be facilitated by a disinterested but knowledgeable body such as a government agency
– Guidelines should be tailored to specific types of remixes
– The goal should not be a comprehensive code of guidelines
– Guidelines should be in plain English for use by non-lawyers
– Guidelines should be periodically reviewed and updated

The White Paper rejected any changes to the current law, such as specific remix exemptions or a compulsory licensing scheme. However, the Task Force did endorse increased development and availability of various voluntary licensing mechanisms, including micro-licensing, collective licensing (as is done with music performing rights) and intermediary licensing, such as YouTube’s providing a licensing scheme for UGC.

B. First Sale and Digital Transmissions

The first sale doctrine, codified in Copyright Act § 109, states that once a copy of a work is lawfully made and obtained, the owner of that copy can dispose of it at will without the copyright owner’s consent. It’s the reason why used book and record stores exist and why I can use a Justin Bieber CD as a coaster, lend it to a friend for target practice or simply toss it in the trash. But as the discussion on remixes would indicate, the first sale doctrine doesn’t apply to the creation of derivative works and, as discussed below, it doesn’t apply to transactions that look like, but aren’t actually, sales.

The doctrine has many benefits, including creating a secondary market for those who want the used copies (particularly if they can’t afford new ones), keeping the cost of new copies down and allowing owners of copies to upgrade to newer formats (e.g., LP to CD and videocassette to DVD) while potentially recouping some of their costs.

However, the first sale doctrine, at least according to one reported decision dealing with a service for selling used MP3 downloads, doesn’t apply in the online arena. One reason is the ability for a user to make unlimited perfect, non-degradable copies at virtually no cost. The other main reason is that when a user clicks “purchase” on a web site and downloads a song, a book or software, there’s no actual sale; rather the user is obtaining a license in accordance with some mind-numbingly long and dense end user license agreement (EULA) that one routinely agrees to but never actually reads.

The online licensing regime has been criticized as limiting the further legitimate distribution that consumers expect, such as transferring copies from one device to another and “lending” copies to family members and libraries have voiced legitimate concerns about the ability to lend ebooks. However, the White Paper noted that the distributors of books, films and music are increasingly incorporating mechanisms to allow digitally downloaded copies to reside on more than one device and are also continuing to work with libraries and other institutions to address their concerns. Moreover, the software industry relies on the license paradigm to be able to have an ongoing relationship with the customer such as providing automatic updates and patches to fix bugs and increase the security of devices against viruses.

The content community also pointed out that physical copies of books, movies and music remain available and the continuing growth of streaming services indicate a change in consumer preferences from ownership to access of works, obviating the need for the first sale doctrine in the digital space. The White Paper also noted the concern that applicability of a digital first sale could hamper the further development of new delivery methods and that current technology does not make a digital first sale feasible. However, the Task Force did recommend additional consumer education as to the applicability and meaning of EULAs regarding their online “purchases.”

There was some concern regarding the gifting of devices, such as laptops that contain files of licensed works, including music and software. As a practical matter, licenses are often tagged to a device rather than a particular individual and content owners would not have much incentive to track and go after subsequent owners of laptops and other devices where no further copies of the files on the devices are being made.

C. Statutory Damages

Copyright Act § 504 provides that a plaintiff can choose to recover either (a) the actual monetary damages sustained and the profits of the infringer, or (b) statutory damages between $750 and $30,000 per work infringed and up to $150,000 per infringement if the defendant’s conduct was “willful,” a term that is not defined in the Act. The main concern with the applicability of assessing statutory damages to online infringements is that, as with statutory damages for real-world infringements, there are no uniform standards and the range is wide. While model jury instructions exist, they are not uniformly used throughout the federal court system. Another concern with the current statutory scheme is the potential for being sued by “copyright trolls” who file many actions with the goal of extracting quick settlements.

The task force rejected any changes to the range of dollar amounts to the statutory scheme, such as a cap on damages. However, it did endorse a small claims forum, which would have expedited procedures and a ceiling on the damages it could award, as was described last year by the Copyright Office in its voluminous Music Licensing Report, which I summarized here. However, the Copyright Office noted that because of constitutional constraints, the small claims forum would have to be voluntary. I believe a voluntary small claims forum would not serve the purpose of allowing individual creators to protect their rights as a wealthy corporate defendant could simply refuse to participate.

The White Paper did note the potential chilling effect that per-work statutory damages could have on the launching of new online services as such awards against services that offer libraries of music, film and other works could be astronomical. Accordingly, it recommends that courts be permitted to assess statutory damages other than on a per work basis for these users. It also noted the extremely limited applicability of the “innocent infringer” provisions as they are inapplicable where the work involved includes a copyright notice. The Task force therefore recommended amending the statute to provide that a copyright notice is a factor to be considered, but not a bar to an innocent infringer defense.

Many commentators suggested that statutory damages must bear some proportion to actual damages. However, this defeats the purpose of statutory damages as actual damages are often nominal or difficult to prove. Imagine if an individual photographer had to sue a corporate defendant where a license for the use of the picture might be $100 or less.  Who would bring a claim for an award of four times the license fee? Deterrence is a necessary and reasonable component of statutory damages.

With these considerations the Task Force recommended that Section 504 be amended to include nine mandatory factors to be considered when determining a statutory damages award. They are:

1. The plaintiff’s revenues lost and the difficulty of proving damages
2. The defendant’s expenses saved, profits reaped, and other benefits from the infringement
3. The need to deter future infringements
4. The defendant’s financial situation
5. The value or nature of the work infringed
6. The circumstances, duration and scope of the infringement, including whether it was commercial in nature.
7. In cases involving infringements of multiple works, whether the total sum of damages, taking into account the number of works infringed and the number of awards made, is commensurate with the overall harm caused by the infringement
8. The defendant’s state of mind, including whether the defendant was a willful or innocent infringer
9. In the case of willful infringement, whether it is appropriate to punish the defendant and if so, the amount of damages that would result in an appropriate punishment.

Of course, the first two factors undercut the very reason for having statutory damages: that actual damages are difficult and costly to prove.

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The White Paper is a thorough and thoughtful discussion of the issues relating to remixes, the first sale doctrine and statutory damages in the digital environment. Ultimately, its authors concluded that no sweeping changes are needed at this time and recommended only the promulgation of guidelines and a few tweaks to the statutory damages provisions of the Copyright Act.