UMG v. Veoh: Another Victory for Web 2.0

Legal Analysis by Fred von Lohmann

Over the holidays, video hosting site Veoh won another victory under the DMCA safe harbors, this time against Universal Music Group (UMG). The ruling should put to rest the argument that transcoding and other activities necessary for making content accessible on the web are not covered by the DMCA's Section 512(c) safe harbor for storing material on behalf of users (i.e., hosting user-generated content). This is good news not just for Veoh, but also for YouTube and every other site that hosts material uploaded by users.

Like many other companies that host content on behalf of users, Veoh has been bedeviled by copyright lawsuits. The copyright owners make the same argument in each of these suits: the hosting service should be liable for every infringing bit uploaded by naughty users and responsible for the full cost of policing for infringement. Fortunately, Congress enacted the DMCA's safe harbor provisions back in 1998 to protect service providers from exactly these risks, offering immunity from copyright damages to those who implement a notice-and-takedown system. In August 2008, Veoh won a big victory against adult video purveyor Io Group, relying on these provisions.

Veoh's latest victory was against UMG, which sued Veoh because Veoh users allegedly uploaded UMG music videos without authorization. The issue before the court was whether the DMCA safe harbor for hosting only covers the actual act of storing bits on a server, or whether it also covers related activities, such as:

1. automatically transcoding video files uploaded by users into Flash format;
2. automatically creating copies of uploaded video files that are comprised of smaller “chunks” of the original file;
3. allowing users to access uploaded videos via streaming;
4. allowing users to access uploaded videos by downloading whole video files.

Relying on the statutory language, as well as the legislative history, the court concluded that all of these activities are covered by the DMCA Section 512(c) safe harbor. Lots of online service providers will greet this ruling with relief. If the court had accepted UMG's arguments, every web host would lose the safe harbor as soon as it made web pages available to the public. The ruling should also help YouTube in its ongoing battle with Viacom, which also turns on the continuing strength of the DMCA safe harbors.

But the Veoh ruling also points out a surprising irony: while YouTube and Viacom are fighting their interminable litigation trench war, many interesting DMCA legal questions are being resolved in smaller, faster-moving cases involving companies like Veoh. At this rate, the highly-anticipated Viacom v. YouTube lawsuit may end up a footnote in the legal fights that define the rules governing user-generated content.

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Is it Patentable?

Legal Analysis by Michael Kwun

Two months ago, in In re Bilski, the Federal Circuit rejected the notion that anything that produces a "useful, concrete, and tangible result" is potentially patentable. Instead, to be patent-eligible, an idea must be "tied to a particular machine or apparatus," or it must "transform a particular article into a different state or thing." (To qualify for a patent, it also has to meet various other requirements, such as being novel.)

As to transformation, the court noted that not just any transformation will do. The transformation "must be central to the purpose of the claimed process," and the "articles" transformed must either be "physical objects or substances" or "representative of physical objects or substances."

Today, in a one-paragraph decision in Classen Immunotherapies, Inc. v. Biogen IDEC, the Federal Circuit put those words into practice:

In light of our decision in In re Bilski, 545 F.3d 943 (Fed. Cir. 2008) (en banc), we affirm the district court’s grant of summary judgment that these claims are invalid under 35 U.S.C. § 101. Dr. Classen’s claims are neither "tied to a particular machine or apparatus" nor do they "transform[] a particular article into a different state or thing." Bilski, 545 F.3d at 954. Therefore we affirm.

Here is a claim from one of the patents that was at issue:

1. A method of determining whether an immunization schedule affects the incidence or severity of a chronic immune-mediated disorder in a treatment group of mammals, relative to a control group of mammals, which comprises:
    
• immunizing mammals in the treatment group of mammals with one or more doses of one or more immunogens, according to said immunization schedule, and
• comparing the incidence, prevalence, frequency or severity of said chronic immune-mediated disorder or the level of a marker of such a disorder, in the treatment group, with that in the control group.

The claimed method is not tied to a particular machine or apparatus, but surely "immunizing mammals" transforms particular articles. Why, then, isn't this patent eligible?

The key is that the immunizing of the mammals is not "central to the purpose of the claimed process." While of course the mammals must be immunized in order for someone to ascertain whether the immunization schedule used is effective, that immunizing isn't the point of the claimed invention. Rather, the invention is directed to analyzing the results of the immunizing. The immunizing itself is (to borrow more language from Bilski) "insignificant extra-solution activity" or merely a "data-gathering step" that cannot convert the claim into patentable subject matter.

(As an aside, this decision was issued as a "non-precedential" ruling, which means the judges did not think it added significantly to the body of law. The Classen patents reminded many patent practitioners of the patent in Lab. Corp. of Am. v. Metabolite Labs., Inc. [pdf], the 2006 case where the U.S. Supreme Court agreed to consider the scope of patent eligibility, but then dismissed for technical reasons. Perhaps the Classen judges concluded that even if the legal issue was significant in 2006, post-Bilski it was an easy call.)

It's good to see that the Federal Circuit is taking steps to ensure that the Bilski machine-or-transformation test has teeth, and cannot be avoided by mere artful drafting.

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Remixers, Unlockers, Jailbreakers, Oh My!

Legal Analysis by Fred von Lohmann

Yesterday, EFF filed petitions (1, 2) with the Copyright Office seeking DMCA exemptions for three categories of activities that do not violate copyright laws, but that are still jeopardized by the DMCA's ban on bypassing technical protection measures used to control access to copyrighted works (i.e, DRM). The three exemptions are for:

• Noncommercial video creators (like YouTubers and vidders) who rip DVDs in order to use clips for fair use remixes;
• Cell phone owners who want to unlock their phones to use them on cellular networks of their choosing;
• Cell phone owners who want to "jailbreak" their phones in order to use applications of their choosing (e.g., iPhone owners who want apps from sources other than the iTunes App Store).

The exemption for remix video creators is necessary to protect fair use in a digital world where visual literacy (what Larry Lessig calls RW culture) is increasingly important. Today, if you rip a DVD, the MPAA takes the position that you've broken the law, even if you are making a video that comments on the latent racism in Disney films or the sexualized violence in 300. This is what free speech looks like in the 21st century, and a DMCA exemption is necessary if we want to avoid driving millions of amateur creators into the copyright underground.

The cell phone exemptions (unlocking and jailbreaking) are necessary to protect your "freedom to tinker" with products you own. Cellular carriers lock their phones not to protect their copyrights, but rather to discourage customers from switching carriers. This is not only anti-competitive, but puts millions of used cell phones into landfills each year. More recently, cell phone makers have started locking phones to a single source for applications -- which is why more than 350,000 iPhone owners have "jailbroken" their iPhones in order to get the apps they want, instead of just the ones Apple is willing to let them have.

Others are seeking exemptions for computer security researchers who want to investigate DRM on videogames (SecuROM, we're looking at you); documentarians, film professors, and media literacy educators who need to take clips from DVD; and consumers who have been left high and dry by vendors who retired their DRM authentication servers (e.g., Walmart, Yahoo, Microsoft). All of the proposals have been posted on the Copyright Office website. Comments supporting or opposing the proposed exemptions are due by Feb. 2, 2009. Hearings will follow in the Spring, and the Copyright Office will announce its final determinations in October 2009, as the last set of exemptions expire.

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Censorship in the 21st Century: Targeting Intermediaries

Legal Analysis by Matt Zimmerman

On November 12, 2008, a group of artists and activists unveiled a brilliant spoof of the New York Times, widely distributed to readers in New York and Los Angeles. This "July 4, 2009" version of the Times — which the real New York Times described as a "Grade-A caper" — boldly announced the end of the Iraq War, the nationalization of major oil conglomerates, the elimination of tuition at public universities, and the indictment of soon-to-be-former president Bush on charges of high treason. The poignant send-up, also available in an online version at www.nytimes-se.com, is a perfect example of parody in the 21st century. It certainly got its fair share of attention.

Could the lawyers be far behind? Not surprisingly, the corporate targets of the parody were not pleased. Now, in what is becoming an all-too-familiar trend, one of those corporations has attempted to shut down the site by putting pressure on what is often the weakest link in the online speech chain: the domain name registrar. Stymied by the First Amendment and other legal impediments, those who don't appreciate critical commentary and other "objectionable" online content have found intermediaries — providers of indispensable technical services like domain name registration and web hosting — much easier to intimidate.

This time, the complaining (and overreaching) party was the South African diamond conglomerate De Beers, the target of a critical fake ad on the web version of the New York Times spoof announcing that diamond purchases "will enable us to donate a prosthetic for an African whose hand was lost in diamond conflicts." Miffed by the criticism, De Beers responded not by confronting the authors (whose parody is protected by the First Amendment) but instead by threatening their Swiss-based domain name registrar, Joker.com. De Beers has demanded that Joker.com disable the spoof website's domain name or face liability for trademark infringement.

This certainly isn't the first time that a sore target of criticism has threatened an internet intermediary in order to take down content it didn't like. The motivation is simple: all too often, the intermediary will prove to be unwilling to stand up for the rights of its customers. For example:

• In September, 2008, the state of Kentucky initiated an ex parte proceeding aimed at seizing 141 domain names pointing to overseas websites permitting online gambling, arguing that the domain names were illegal "gambling devices" under Kentucky law. Without giving the domain name owners an adequate opportunity to defend themselves, the trial court ordered the registrars with control over the targeted domain names to transfer them to the state, a decision the court affirmed in October. Upon receipt of the court's order, some of the registrars (such as GoDaddy) who were likely outside of the court's jurisdiction nonetheless locked the domain names and purportedly transferred control to the Kentucky court. (EFF filed an amicus brief arguing that the orders were unconstitutional; the matter is pending appeal.)
• In January, 2008, Swiss bank Julius Baer filed suit against (among others) Dynadot, the domain name registrar with which the domain name wikileaks.org was registered. The Wikileaks website to which the domain name pointed — a self-styled "uncensorable Wikipedia for untraceable mass document leaking and analysis" — hosted (and still hosts) documents which anonymous third-party posters argue document financial wrongdoing. Instead of challenging the operators of the Wikileaks site directly, Julius Baer targeted Dynadot which quickly agreed to lock and permanently disable its customer's domain name. (In response to briefs such as the one filed by EFF pointing out the illegality of the court's order approving of the ill-advised agreement, the district court ultimately dissolved the permanent injunction, leading Julius Baer to dismiss its case.)
• In December, 2006, on behalf of its affiliate radio station KSFO-AM, media giant ABC sent a cease and desist letter to 1 & 1 Internet, the then-host of the blog www.spockosbrain.com, a site that criticized what its author argued was offensive and violent rhetoric broadcast by KSFO. Despite the fact that it had no risk of liability, 1 & 1 Internet promptly shut down Spocko's site in response to receiving the threatening letter. (EFF subsequently represented Spocko, successfully moving him to Computer Tyme, a web hosting company that promised to stand up to future threats.)

Intermediaries frequently argue (incorrectly) that they have no choice but to shut down domain names or sites when they receive a legal complaint. But they do have a choice, at least in the United States. As EFF has explained to De Beers, U.S. law provides ample protection for intermediaries, in large part to ensure that online speech and commerce continues to thrive. For example, in 1996, Congress passed Section 230 of the Communications Decency Act which immunizes internet intermediaries from most kinds of liability associated with the content that their customers place on their own sites. Similarly, the Digital Millennium Copyright Act (passed in 1998) provides a safe harbor from copyright infringement liability for intermediaries who follow straightforward procedures in response to valid takedown notices. With these strong legal protections, intermediaries can and should refuse to respond to pressure from companies like De Beers.

Will the poignant work of the New York Times parodists stay up for the world to see? Will other critical online speakers be silenced by improper threats against their virtual soapboxes? The answer may ultimately depend more on the ability of targets to intimidate domain name registrars than on the legality of the underlying speech itself.

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Apple Confuses Speech with a DMCA Violation

Legal Analysis by Fred von Lohmann

Slashdot reports that Apple has sent a "cease and desist" email to bluwiki, a public wiki site, demanding the removal of postings there by those who are trying to figure out how to write software that can sync media to the latest versions of the iPhone and iPod Touch.

Short answer: Apple doesn't have a DMCA leg to stand on.

At the heart of this is the iTunesDB file, the index that the iPod operating system uses to keep track of what playable media is on the device. Unless an application can write new data to this file, it won't be able to "sync" music or other content to an iPod. The iTunesDB file has never been encrypted and is relatively well understood. In iPods released after September 2007, however, Apple introduced a checksum hash to make it difficult for applications other than iTunes to write new data to the iTunesDB file, thereby hindering an iPod owner's ability to use alternative software (like gtkpod, Winamp, or Songbird) to manage the files on her iPod.

The original checksum hash was reverse engineered in less than 36 hours. Apple, however, has recently updated the hashing mechanism in the latest versions of the iPhone and iPod Touch. Those interested in using software other than iTunes to sync files to these new iPods will need to reverse engineer the hash again. Discussions about that process were posted to the public bluwiki site. Although it doesn't appear that the authors had yet figured out the new iTunesDB hashing mechanism, Apple's lawyers nevertheless sent a nastygram to the wiki administrator, who took down the pages in question.

Here are just a few of the fatal flaws in Apple's DMCA argument.

Where's the "technology, product, service, device or device"?

The DMCA provides that:

No person shall manufacture, import, offer to the public, provide, or otherwise traffic in any technology, product, service, device, component, or part thereof, that ... is primarily designed or produced for the purpose of circumventing protection afforded by a technological measure that effectively protects a right of a copyright owner....

The information posted on the wiki appeared to be text, along with some illustrative code. Nothing that I saw on the pages I was able to review would appear to constitute a "technology, product, service, device, component, or part thereof." In fact, the authors had apparently not yet succeeded in their reverse engineering efforts and were simply discussing Apple's code obfuscation techniques. If Apple is suggesting that the DMCA reaches people merely talking about technical protection measures, then they've got a serious First Amendment problem.

Who owns the copyrighted work?

The iTunesDB file is not authored by Apple, nor does it appear that Apple has any copyright interest in it. Instead, the iTunesDB file on every iPod is the result of the individual choices each iPod owner makes in deciding what music and other media to put on her iPod. In other words, the iTunesDB file is to iTunes as this blog post is to Safari -- when I use Safari to produce a new work, I own the copyright in the resulting file, not Apple.

So if the iTunesDB file is the copyrighted work being protected here, then the iPod owner has every right to circumvent the protection measure, since they own the copyright to the iTunesDB file on their own iPod.

Where's the access control?

The contents of the iTunesDB file is not protected at all -- any application can read it. So, as a result, the obfuscation and hashing mechanisms used by Apple to prevent people from writing to the file cannot qualify as "access controls" protected by Section 1201(a) of the DMCA.

Apple might argue that the checksum hash prevents people from preparing derivative works, which means that it's a "technological measure that effectively protects the right of a copyright owner" (as noted above, however, it's the user, not Apple, who owns any copyright in the iTunesDB file). The DMCA, however, does not prohibit circumvention of technical measures that are not access controls, although it does restrict trafficking in tools that circumvent these measures. But, as mentioned above, there are no "tools" on the bluwiki pages.

What about the reverse engineering exemption?

Apple's lawyers also appear to have overlooked the DMCA's reverse engineering exception, 17 U.S.C. 1201(f), which permits individuals to circumvent technological measures and distribute circumvention tools "for the purpose of enabling interoperability of an independently created computer program with other programs, if such means are necessary to achieve such interoperability, to the extent that doing so does not constitute [copyright] infringement."

Enabling iPods to interoperate with "independently created computer programs" (like gtkpod, Winamp, and Songbird) is precisely what the reverse engineering exception was intended to protect.

Where's the nexus to infringement?

Finally, Apple's DMCA theory fails because any "circumvention" that might be involved here has no connection to any potential copyright infringement. Two decisions by federal courts of appeal (1, 2) have held that without a nexus to potential infringement, there is no violation of the DMCA. And here, it's hard to see how reverse engineering the iTunesDB checksum hash can lead to any infringement of the iTunesDB file -- after all, the reverse engineers presumably aren't interested in making piratical copies of the iTunesDB file. Instead, they just want to sync their iPhones and iPods using software other than iTunes. No infringement there.

Of course, without more than the bare "cease and desist" emails sent by Apple's lawyers to bluwiki, we can't know for certain what other DMCA arguments they may have had in mind. But I certainly can't see any DMCA violation here based on Apple's nastygrams thus far.

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Judge Allows Bogus Jones Day Trademark Claims to Go Forward

Legal Analysis by Corynne McSherry

In a decision that could have significant negative consequences for online speech and commerce, Judge John Darrah of the Northern District of Illinois has refused to dismiss some of the most preposterous trademark claims we've ever seen (and that's saying something).

The defendant in the case, BlockShopper.com, provides information about recent real estate transactions, including publicly available information about buyers and sellers. After BlockShopper published articles referring to two Jones Day attorneys who had recently bought homes (with links to their bios on the Jones Day firm website), the law firm sued BlockShopper, alleging that using the term "Jones Day" to refer to the firm in a headline and linking to the Jones Day website could lead to confusion over the sponsorship of the site. With amicus support from EFF, Public Citizen, Public Knowledge and the Citizen Media Law Project, BlockShopper.com argued that the uses were fully protected by fair use and the First Amendment, and that no Internet user would imagine that Jones Day was affiliated with or sponsored BlockShopper based solely on a link or a reference to the firm in a headline.

This case was a perfect candidate for early dismissal. It is based on the erroneous belief that trademark owners can prevent others from using their marks, accurately, in the ordinary course of communication, to refer to the owners themselves. Trademark law has never given a mark owner veto power over all uses of its mark, and for good reason. Online and off, trademarks—words, symbols, colors, etc—are also essential components of everyday language, used by companies, consumers and citizens to share information. If Jones Day were correct, no news site or blog could use marks to identify markholders, or links to point to further information about the markholders, without risking a lawsuit. But that is not the law, and Jones Day should know it.

We're disappointed that a respected law firm like Jones Day started this outrageous litigation, but we're even more disappointed that the court didn't take this opportunity to nip it in the bud. The court said that it could not end the case at this stage because it is required to take Jones Day's allegations as true. That's not precisely so; on an early motion like BlockShopper's, a court is required to accept facts as true, but not (implausible) legal conclusions. That's because deciding the facts is up to a jury. But interpreting the law is exactly what the judge is supposed to do, and it's disheartening to see the court let this case go any further.

At any rate, by allowing the case to go forward, the court has made BlockShopper's defense much more expensive, even if BlockShopper is confident (as it should be) that it will win in the end. Thus, the court has sent a signal to news sites and blogs everywhere: no matter what the Lanham Act says, if you link to a trademark owner's site, or use a mark in a headline or post, you'd better have a pretty decent legal budget.

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Google Book Search Settlement: A Reader's Guide

Legal Analysis by Fred von Lohmann

As we reported earlier this week, Google has settled the lawsuit brought in 2005 by authors and book publishers regarding its massive book scanning and indexing project. Although the settlement must still be approved by the court and is unlikely to go into effect until sometime late in 2009, commentary has already been flooding the blogosphere. Generally, opinions are split between excitement for users ("better access to zillions of out-of-print books") and suspicion of Google ("one library to rule them all, and in the darkness bind them").

We are still digesting the ~300-page proposed settlement agreement (for those seeking a good overview, the 39-page notice to class members is a good place to start).

So far, two things are plain.

First, this agreement is likely to change forever the way that we find and browse for books, particularly out-of-print books. Google has already scanned more than 7 million books, and plans to scan millions more. This agreement will allow Google to get close to its original goal of including all of those books into Google's search results (publishers got some concessions, however, for in-print books). In addition to search, scanned public domain books will be available for free PDF download (as they are today). But the agreement goes beyond Google's Book Search by permitting access, as well. Unless authors specifically opt out, books that are out-of-print but still copyrighted will be available for "preview" (a few pages) for free, and for full access for a fee. In-print books will be available for access only if rightsholders affirmatively opt in. The upshot: Google users will have an unprecedented ability to search (for free) and access (for a fee) books that formerly lived only in university libraries.

Second, this outcome is plainly second-best from the point of view of those who believe Google would have won the fair use question at the heart of the case. A legal ruling that scanning books to provide indexing and search is a fair use would have benefited the public by setting a precedent on which everyone could rely, thus limiting publishers' control over the activities of future book scanners. In contrast, only Google gets to rely on this settlement agreement, and the agreement embodies many concessions that a fair user shouldn't have to make.

But the settlement has one distinct advantage over a litigation victory: it's much, much faster. A complete victory for Google in this case was probably years away. More importantly, a victory would only have given the green light for scanning in order to index and provide snippets in search results; it would not have provided clear answers for all the other activities addressed in the settlement, such as providing display access for out-of-print books, allowing nondisplay research on the corpus, and providing access for libraries. Litigating all of those fair use questions could easily have taken a decade or more. As University of Michigan head librarian Paul Courant points out, those are years that we would never get back. (University of Virginia's Prof. Siva Vaidhyanathan offers a differing view: "These claims are not convincing when one considers just how great an alternative system could be, if everyone would just mount a long-term, global campaign for it rather than settle for the quick fix.").

Conclusions beyond those two are harder to draw. Many devils are buried in the details of the 300-pages of legalese, and much will turn on how the agreement is implemented. Here are the 6 "big picture" concerns that I'm keeping in mind as I review those details:

Fair Use: How will this agreement impact future fair use cases involving book scanning? Others (like the Open Content Alliance) are scanning books, and they may not have Google's ability (or budget) to strike a deal with the world's publishers. UCLA Law's Prof. Neal Netanel has a few preliminary thoughts along this line at the Balkinization blog.

Innovation: It seems likely that the "nondisplay uses" of Google's scanned corpus of text will end up being far more important than anything else in the agreement. Imagine the kinds of things that data mining all the world's books might let Google's engineers build: automated translation, optical character recognition, voice recognition algorithms. And those are just the things we can think of today. Under the agreement, Google has unrestricted, royalty-free access to this corpus. The agreement gives libraries their own copy of the corpus, and allows them to make it available to "certified" researchers for "nonconsumptive" research, but will that be enough?

Competition: In the words of Prof. Michael Madison, "Has Google backed away from an interesting and socially constructive fair use fight in order to secure market power for itself?" Does this deal give Google an unfair head start against any second-comers to book scanning? The agreement creates an independent, nonprofit Book Rights Registry to dole out Google's royalties, and the parties clearly hope that the Registry will be able to license others on similar terms. But the Registry is empowered to cut a deal with Google on behalf of all rightsholders by virtue of the class action; in order to offer similar blanket licenses to others, it would have to independently acquire rights from each and every copyright owner individually. How long will that take? What about the Registry itself? It hopes to be a monopoly that fixes prices for the entire market of copyright owners -- precisely the kind of thing that landed ASCAP and BMI, which dole out blanket licenses for music, in antitrust trouble decades ago.

Access: This agreement promises unprecedented access to copyrighted books. But by settling for this amount of access, has Google made it effectively impossible to get more and better access? The agreement allows you to "purchase" digital access for out-of-print books, but does not include the right to download the book (unlike public domain books). So you can read the book, but only on Google's terms. Libraries get more access, but for an undisclosed price (OK, one computer for free) and still with a variety of restrictions. In the words of Harvard's head librarian, "As we understand it, the settlement contains too many potential limitations on access to and use of the books by members of the higher education community and by patrons of public libraries."

Public Domain: Early reports are that public domain materials are not regulated by the agreement. Moreover, Google has negotiated a "safe harbor" that protects it from liability for mistakes in evaluating the copyright status of a book. That should result in more willingness to forge ahead with the free PDF posting of books published between 1923-1963, where a public domain determination turns on checking government records to see whether the copyright had been renewed. But will Google impose restrictions on these "safe harbor" public domain works? Will the libraries that receive a digital copy of their own public domain holdings impose restrictions on those copies?

Privacy: The agreement apparently envisions a world where Google keeps all of the electronic books that you "purchase" on an "electronic shelf" for you. In other words, in order to read the books you've paid for, you have to log into Google. Google is also likely to keep track of which books you browse (at least if you're logged in). This is a huge change in the privacy we traditionally enjoy in libraries and bookstores, where nobody writes down "Fred von Lohmann entered the store at 19:42:08 and spent 2.2 minutes on page 28 of 0-486-66980-7, 3.1 minutes on page 29, and 2.8 minutes on page 30." If Google becomes the default place to search, browse, and buy books, it will be able to keep unprecedented track of what you read, how you read it, and collate that with all the other information it has about you. Does the agreement contain ironclad protections for user privacy?

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Federal Circuit Reins In Business Method Patents

Legal Analysis by Corynne McSherry

The Court of Appeals for the Federal Circuit yesterday issued a decision that imposes firm limits on business method patents. The ruling effectively overturns a key part of the court’s decision in State Street Bank and Trust v. Signature Financial Group, which opened the door to an explosion of patents on "methods" of doing business so long as the methods involved use of a computer and produced a "useful, concrete, and tangible result."

Bilski applied for a patent on a method of managing the risk of bad weather through commodities trading. Upholding the Patent Office’s rejection of Bilski’s application, the Federal Circuit held (in line with Supreme Court precedent) that processes can be patented only if they are implemented by a machine or transformed something into a new or different thing. The court found that Bilski’s method was not patentable because “transformations or manipulations of…business risks, or other such abstractions cannot meet the test because they are not physical objects or substances….” The court affirmed that business methods are still patentable, but explicitly rejected State Street’s “useful, concrete, and tangible result” test, which many believed had cleared the way for improper patents on fundamental principles and everyday activities that had no connection to technological innovation:

[W]hile looking for "a useful, concrete and tangible result" may in many instances provide useful indications of whether a claim is drawn to a fundamental principle or a practical application of such a principle, that inquiry is insufficient to determine whether a claim is patent-eligible under § 101. And it was certainly never intended to supplant the Supreme Court's test. Therefore, we also conclude that the "useful, concrete and tangible result" inquiry is inadequate and reaffirm that the machine-or-transformation test outlined by the Supreme Court is the proper test to apply.

EFF submitted an amicus brief (in conjunction with The Samuelson Law, Technology & Public Policy Clinic at UC Berkeley Law, Public Knowledge, and Consumers Union) supporting the rejection of Bilski's patent application.

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Hollywood Menaces DVD Rental Kiosks

Legal Analysis by Fred von Lohmann

Hollywood's distaste for disruptive innovation isn't limited to software products like RealDVD. Now it is targeting DVD rental kiosks, like the Redbox kiosk pictured here.

The idea couldn't be simpler, or the innovation more pro-consumer: Redbox makes DVD rental kiosks that rent authentic, Hollywood DVDs. It's just like Blockbuster, only without the trappings of the store, which means kiosk vendors can do it cheaper, quicker, and in more places. Simple $1 per night DVD rentals. Brilliant.

Hollywood apparently doesn't see it that way. According to a lawsuit filed by Redbox, the Universal Studios family of companies have demanded that Redbox sign a "revenue sharing agreement" that would require Redbox to:

• wait 45 days after a DVD's release date before renting it;
• pay a royalty of 40% of gross rental revenues;
• promise that prices never dip below $0.99 per night; and
• destroy all previously rented DVDs rather than offering them for purchase for $7, as Redbox currently does.

What if Redbox refuses? Universal Studios allegedly threatened to cut off the distributors (Ingram and VPD) who sell Universal DVDs to Redbox. I'm guessing this threat is meant to get Redbox cut off by its distributors -- obviously, Ingram and VPD aren't going to be thrilled to lose all of their other customers over the Redbox account.

This is a breathtaking attack on the first sale doctrine, which makes it crystal clear that once you've bought a DVD, you can rent and resell it at any price and on any terms you like. Universal Studios apparently would prefer a world where millions of DVDs are shredded and put in landfills to one where consumers can rent a DVD for $1. (Although this is an improvement over its former corporate sibling, Universal Music Group, which believes that throwing promo CDs away is illegal.)

Hat tip to Paul Sweeting at ContentAgenda, who brought this story to light.

CC licensed photo by Eddie Does Japan

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YouTube Responds to McCain Campaign's Letter

Legal Analysis by Michael Kwun

Yesterday, we wrote about the McCain-Palin campaign's letter to YouTube, highlighting how DMCA takedown notices can make online speech disappear from the Internet, even when the claims of infringement plainly lack any merit.

Today, we bring you YouTube's response. YouTube's response points out, much like we did yesterday, that the McCain-Palin campaign's proposed solution (human review of DMCA takedown notices targeting videos posted by political candidates and campaigns) favors speech from one particular class of users. YouTube says that it "tri[es] to be careful not to favor one category of content on [its] site over others, and to treat all of [its] users fairly, regardless of whether they are an individual, a large corporation, or a candidate for public office."

At the end of the day, we agree with YouTube that "[t]he real problem here is individuals and entities that abuse the DMCA takedown process." And we commend YouTube for taking action in some cases where it has identified false takedown notices.

Nonetheless, although YouTube may not be the source of the problem, that doesn't mean it can't do more to be part of the solution. YouTube notes that it can't always be certain whether a video qualifies as fair use, and that it can't know whether the poster has a license to the content. That's all true.

But just because YouTube can't always identify sham takedown notices doesn't mean it can't sometimes know the answer. Using a short excerpt from a news broadcast and commenting on it in a political commercial is clearly fair use. And there are many other examples of clear fair uses, as well.

We'd love to see YouTube take further action, so that takedown notices directed at clearly non-infringing videos can't be used to silence speech. As we said yesterday, stay tuned for more on this topic from us soon.

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