December 22, 2003
Volume 2, Issue 12
Dutch Supreme Court Rules for KaZaA
Confirms Legality of P2P Software Companies
On Friday, the Supreme Court of the Netherlands reaffirmed that it is lawful for KaZaA, the world's most popular file-sharing software, to be distributed freely on the Internet. This represents the first national high court ruling on the legitimacy of peer-to-peer (P2P) technologies.
The progress of this case, brought in a counter-suit by music rights society Buma/Stera and backed by the International Federation of the Phonographic Industry (IFPI), had been closely watched by entertainment, technology, and consumer interest groups.
"This victory sets the precedent about the legality of P2P technology across the European Union and around the world," said KaZaA founders Niklas Zennström and Janus Friis, adding that the ruling will prove "historic for the evolution of the Internet and for consumers."
In February 2002, KaZaA's founders sold their file-sharing application to Sharman Networks, Ltd. (SNL) which in July 2003 became a Charter Member of the DCIA. Zennström and Friis have continued to develop new businesses around P2P technologies, their latest entry being Skype Internet telephony software that has been downloaded more than 4 million times in beta tests since August.
In the US, a federal judge already has dismissed entertainment industry lawsuits against rival file-sharing applications Grokster and Morpheus saying they could not be held liable for what users do with their software. That ruling has been appealed, with a decision expected in February.
A parallel case against SNL remains pending in a lower US court. SNL has also filed a countersuit accusing entertainment companies of violating antitrust laws by preventing distribution of licensed music and movies through KaZaA. A ruling on the countersuit is expected in early January.
The Dutch Supreme Court ruling upholds a March 2002 judgment of the Amsterdam Court of Appeal, which determined that offering KaZaA did not directly result in copyright infringement nor was it otherwise unlawful. The court decision did not address the issue of whether individual file-sharers may violate copyrights by abusing P2P technology for unauthorized distribution.
Report from CEO Marty Lafferty
 Happy holidays from all of us at the DCIA.
Hopefully, the final events of 2003 will help set the stage for a more productive 2004 in terms of industry participation in the development and implementation of viable business models for P2P distribution of music and other digital media.
We are here to help make that happen.
As planned, DCIA Member Claria Corporation met this week with the Center for Democracy and Technology (CDT) to discuss current business practices and explore opportunities for improvement in consumer privacy protection and disclosure.
The meeting was productive with an open and constructive exchange of information between Claria's Chief Marketing Officer Scott Eagle and CDT officials.
CDT and DCIA agreed that the term 'spyware' should be relegated to characterize "hidden software that people didn't ask for or know that they have" while 'adware' may be a more apt descriptor for software for which permission has been granted to accept advertising in exchange for using a desired application. Claria is the industry leader in 'adware.'
Claria's GAIN Network delivers advertising integrated with partner software applications, such as KaZaA. Claria's approach is to clearly obtain permission from consumers before installation, to ensure relevancy and fully disclose the source of delivered advertising, to minimize frequency while maximizing effectiveness of such advertising, and to give users control, including multiple ways to receive additional information. The GAIN Network removes itself automatically when the associated software application is uninstalled.
Claria has relationships with more than 900 advertisers, including many major mainstream consumer products and services as well as 80 Fortune 1000+ firms, with over 300 participating in any given month and a 92% retention rate. Click-through rates for GAIN ads run at approximately 14%.
The GAIN Network has 40 million active users who receive an average of 2 pop-up ads per week. 1/40 th of 1% (less than 10,000) users contact Claria monthly with complaints, and 98% of these are resolved to the consumer's satisfaction by e-mail.
CDT made several excellent suggestions, which Claria agreed to explore and which the DCIA encourages the industry generally to consider for adoption. Following are three examples.
First, during the installation of integrated adware, it would be helpful if, without complicating consumer communications, an explanation could be provided that related advertising may appear outside of the context of using its associated partner software application.
Second, during the display of advertising, it would be helpful to provide some type of co-branding, in addition to the exemplary job that Claria already does in providing both clear attribution of its ads to the GAIN Network as well as links for consumers to obtain more information.
Third, in institutional settings such as classrooms where PCs are shared by multiple users, it would be helpful to provide network administrators with adware installation blocking capabilities.
And finally, CDT recommended the joint development of the cyber-equivalent of a "nutritional label" that would serve as a standardized table-of-contents for listing imbedded applications (like Altnet and GAIN) that accompany master software applications like KaZaA Media Desktop (KMD) to include a simple declaration of any alternatives (such as the option to pay a fee in lieu of receiving advertising).
We plan to continue to work with CDT on the development of industry guidelines, including those derived from FTC-endorsed NAI principles, and to collaborate on enhancements in the areas of consumer privacy, notification, and control.
New Peer-to-Peer DRM Solution from DCI
Digital Containers, Inc. (DCI)
The DCIA is facilitating a series of meetings for DigitalContainers, Inc. (DCI) principals Chip Venters and Mike Farley with music companies and P2P software firms to discuss its patented digital rights management (DRM) system.
DCI's system allows music to be easily packaged in secure, commerce-enabled "digital containers" which can be continuously protected, tracked and paid-for by each new P2P user. It utilizes a "universal media player" that guarantees protected digital media can always be played on the end user's media player, regardless of its type.
With this approach, tens of millions of new customers can be served using the efficient distribution and sale of digital products and services via the Internet and P2P file-sharing software applications.
DCI's technology handles the creation, packaging, distribution, receipt auditing, copyright control, monetary transaction, and rules for redistribution and copying, making the container a complete e-commerce system.
The 'digital container' conducts secure credit-card transactions, allowing for its contents to be bought and sold in digital distribution channels. Working in concert with a patented payment gateway, revenue can be automatically distributed to all parties in the value chain.
Verizon Prevails on Consumer Subpoena Issue
US Court Blocks Tactic Against Music Pirates
The US Court of Appeals for the District of Columbia on Friday unanimously rejected the recording industry's use of the Digital Millennium Copyright Act (DMCA) of 1998, passed before the popularization of P2P, to compel Internet service providers (ISPs) to disclose names of subscribers suspected of illegally uploading music using P2P software applications.
"The court has knocked down a very dangerous procedure that threatens Americans' legal guarantees and violates their constitutional rights," said Verizon Communications' Vice President and Associate General Counsel Sarah Deutsch. "Today's ruling is an important victory for Internet users and all consumers."
While voicing concern for music rights holders, the ruling judges said it wasn't the role of the courts to rewrite the DMCA, "no matter how damaging that development has been to the music industry or threatens being to the motion picture and software industries."
Congressman Rick Boucher noted, "I was prepared to introduce legislation in the next Congress that would disallow the use of subpoenas in such cases. I am very pleased that now we don't have to do that." Senator Sam Brownback praised the court decision, and Senate Judiciary Chairman Orrin Hatch called for reform of the subpoena process.
This ruling overturns that of a US district judge who had approved the use of subpoenas by the Recording Industry Association of America (RIAA), which in turn had forced Verizon to reveal the names and addresses of dozens of Internet subscribers.
In addition to denying the legal arguments behind the subpoenas, the judges also dismissed the RIAA's claims that Verizon bore responsibility because music files were distributed through its network.
While the decision is unlikely to affect lawsuits already in process, it will make identifying defendants for future lawsuits more difficult. The RIAA will have to file copyright suits against 'John Doe' defendants, based on their Internet addresses, and then work through the courts to determine their identities.
"Regardless of this decision, we will continue to defend our rights online on behalf of artists, songwriters and countless others involved in bringing music to the public," stated RIAA President Cary Sherman. "We can and will continue to file copyright-infringement lawsuits against file sharers who engage in illegal activity."
In the DCIA's view, this decision, along with that of the Dutch Supreme Court, represents a strong indication that it is time for affected parties to come together to develop viable business solutions, rather than focusing primarily on litigious actions against one another.
We agree with Senator Norm Coleman's assessment, "It has always been clear that litigation wasn't going to provide the solution to the challenges the recording industry faces. I think this will accelerate a process that's already going on. There's got to be more conversation between the peer-to-peer folks, the technology folks, and the (music) industry."
The DCIA exists to provide a neutral forum for such discussions.
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