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Teksavvy vs Voltage Going to Appeals

Teksavvy has filed an appeal on costs in the latest legal battle over file sharing in Canada involving Voltage pictures.  Copyright Lawyer Howard Knopf has written an excellent blog regarding the privacy implications of what has taken place to date, and has a different take on the privacy implications of the previous court decision than Micheal Geist. Knopf worte:

I must respectfully and explicitly disagree, which I rarely do, with Prof. Michael Geist; however, I must do so about this case. He has been very supportive of TekSavvy throughout. He had a blog the other day entitled “Defending Privacy Doesn’t Pay”.  In my view, it would be more accurate to say that defending privacy can and does pay if done vigorously and out of principle – both in terms of legal costs and subscriber good will. Moreover, full indemnity legal costs are very rarely recovered in Canadian litigation. Responsible ISPs should expect to incur some non-recoverable legal costs for defending their customers’ privacy as part of their “cost of doing business”. Indeed, speaking generally and not necessarily about this case, it’s arguable that ISPs have a positive duty to actually oppose ill-founded motions for disclosure and that failing to do so could expose them to liability – but that’s another topic for another day.

Knopf’s blog is a must read for those who are following the case regardless of the position you have taken.  Knopf also points to an article in which lead legal council for Voltage is implying that Voltage may seek “actual” costs when going after downloaders which I find extremely interesting:

Zibarras explained that plaintiffs in piracy cases can opt for statutory damages or actual damages. The former are awarded automatically once it’s been proven in court the defendant actually did download the movie. The latter, actual damages, take into account how much money the production company may have lost due to the downloading and subsequent distribution.

In 2013 the US’s first file sharing case involving Jamie Thomas-Rasset made it’s way up the appeals process to the supreme court.  Thomas-Rasset was sued $222,000 for sharing 24 songs, in which her lawyer found that amount to be rather excessive and punitive, and wanted the case to be closer to the “actual” damages that occurred.  The Obama administration filed an interesting defense under which it defended the $222,000 ruling stating essentially that if actual damages were sought, than it would leave copyright holders unable to enforce their rights under law, and the US Supreme Court should not hear the case.  The Obama admin stated in the briefing:

“The public interest cannot be realized if the inherent difficulty of proving actual damages leaves the copyright holder without an effective remedy for infringement,”

The US Supreme Court decided not to hear the case and sided with the Obama admin.  This is why those following this case need to be properly informed.  Both Teksavvy and Voltage have their own interests, all of which seem to be trying to manipulate the public view to their advantage, which does nothing to properly inform those Teksavvy customers affected.  It’s an unfortunate situation, one I hope stops in the appeals process, or at least the courts can rise above all of this.

Judge Issues Scathing Decision on Costs in Teksavvy vs Voltage

March 18, 2015 1 comment

The judgement around costs in the Teksavvy vs Voltage court case is now in.  This is one of the first copyright file sharing cases in Canada to make it to the courts since our new copyright laws were passed.  As some of you may remember Teksavvy was asking for court costs of $346,480.68 for the disclosure of subscribers names, while Voltage was asking to pay Teksavvy for just under $900 for those names.  Both parties also brought up this blog in court.  Teksavvy added time in its costs docket for reading it, while Voltage couldn’t look past one post I had criticizing the costs associated with IP correlation. I had some choice words in December for both parties, and today the Judge in this case weighed in ordering Teksavvy only $21,557.50 in total costs.

Micheal Geist wrote today on the cases in a blog titled: “Defending Privacy Doesn’t Pay: Federal Court Issues Ruling in Voltage – TekSavvy Costs“:

With TekSavvy now bearing all of those motion costs (in addition to costs associated with informing customers), the decision sends a warning signal to ISPs that getting involved in these cases can lead to significant costs that won’t be recouped. That is a bad message for privacy. So is the likely outcome for future cases (should they arise) with subscribers left with fewer notices and information from their ISP given the costs involved and the court’s decision to not compensate for those costs.

I disagree with this statement when looking at the whole picture and decision.   This seems to be a balanced decision on how both parties acted in this case. I believe Teksavvy could have done a much better job at defending its customers privacy than it has to date.  This decision seems to be a rather scathing view from the courts on the evidence, merits, and costs argued by Teksavvy. I don’t see how defending hearsay evidence can be beneficial to promoting subscribers privacy in court by both parties!  The judge in my view acted in a very balanced way as a result of the evidence presented in the case and the law in place surrounding costs.

The full judges decision is here.  Below I will be posting some points I found interesting in the decision with some commentary.

The prosiding judge was Prothonotary Aronovitch.  In her opening statement on the decision Aronovitch wrote:

 [9] TekSavvy’s interpretation of the Order’s meaning is too expansive, Voltage’s too narrow. Neither position, in my view, is justifiable on the evidence or at law.

For it’s part, Teksavvy presented to the court as a defense of costs, that the case generated huge amounts of public interest.  Teksavvy wanted compensation as a result of their decision not to oppose the order, to which seemingly generated a huge uptake in calls into Teksavvy by angry subscribers:

[23] TekSavvy’s provides evidence to the effect that Voltage’s motion generated considerable interest and concern among TekSavvy’s then-current subscribers, potential subscribers, and the general public. This resulted in a massive increase in telephone and online inquiries, comments and complaints to TekSavvy. Gaudrault says that in the days before the December 17, 2012 return date of the motion, at one point TekSavvy was receiving 4,000 to 6,000 calls per day, of which 90 percent were related to Voltage, had as many as 200 telephone calls in queue for response, and had employees working overtime to field inquiries.

The above should be of concern to all ISPs.  Subscribers are very concerned about their privacy and how each ISP handles it.  It seems as though not opposing the court order really pissed off Teksavvy customers.  A wound in my opinion that was self inflicted.

Something that came out of this ruling as well, is that all three parties Teksavvy, Voltage, and Canipre were subjected to a DDoS attack on December 15th, 2012.  Teksavvy attributes this to the public interest generated in the case, thus has asked for compensation for it:

[24] Gaudrault attests to the fact that the attention and interest generated by Voltage’s motion was also manifested in a much more negative way. TekSavvy, Voltage, and Canipre were each victims of distributed denial-of-service (DDoS) attacks, in which hackers disable a website or online business by manipulating a huge number of computers to flood a targeted host with communication requests. Given the targets (TekSavvy, Voltage, and Canipre) and the timing of the attacks (which started on December 15, 2012), Gaudrault attributes the DDoS attack to the Voltage motion.

I strongly disagree with anyone who would use DDoS attacks to express frustration about this case.  Anyone disagreeing with the way all three parties have handled things, should speak up.  That’s what I’ve been doing throughout this whole process providing alternate views to the public on the case, which is something Openmedia started to do, then retracted.  I think those supporting Openmedia, should have voiced their strong concerns to this consumer group, and put this consumer group (who is supported by Teksavvy) in a position to negotiate with the ISP on it’s stance as it relates to public interest.  That is a much more proactive approach, and consumer groups need to learn they should not be influenced in any way by telecom providers!

The next bit is a bit of legalese.  From paragraphs 36-39 of the decision Teksavvy is trying to make an argument within law that they should be compensated for ALL costs associated with this case, not just the order to produce. Aronovitch stated:

[41] I find no support for that view in the jurisprudence or Prothonotary Aalto’s Order. More to the point, TekSavvy has produced no cases where, in similar circumstances, costs have been ordered to be paid, or assessed to be paid, on that basis.

So essentially Teksavvy’s lawyers didn’t convince the judge they should be entitled to all costs associated with this case within law.  On the now infamous Norwich orders, in which some Teksavvy supporters have stated publicly in the past was the reason why this case was different, and why Teksavvy could not oppose the motion (my emphasis added):

[49] While a Norwich order remains a discovery remedy that is out of the ordinary, orders requiring ISPs to provide contact information for their subscribers are not new or uncommon, whether in the context of the posting of defamatory materials (York University v Bell Canada Enterprises (2009), 99 OR (3d) 695 (Sup Ct) (York University); Pierce v Canjex Publishing Ltd., 2011 BCSC 1503, 27 BCLR (5th) 397 (Pierce)), or of alleged infringement of intellectual property rights (BMG; Voltage Pictures LLC v Jane Doe, 2011 FC 1024, 395 FTR 315 (Voltage 2011)). Indeed, TekSavvy acknowledges that the only uncommon aspect of Voltage’s motion is in the number of IP addresses that are identified.

Presumably, if the Norwich orders are not uncommon regarding subscribers information, there should be ample amount of case law out there to defend against them as well.

Paragraphs 54 – 55 the judge explains that the previous judge who ordered Teksavvy to disclose the information did not state that Teksavvy was entitled to full costs outside of the court order:

[54] I ascribe no special significance to the fact that Prothonotary Aalto identifies three heads of costs to be reimbursed. The legal costs, the administrative costs, and the disbursements he identifies are not independent costs, they are recoverable only insofar as they are directed to and incurred for the purposes of “abiding by this Order” to produce the requested subscriber information. There is no basis in the jurisprudence or in Prothonotary Aalto’s reasons to give any broader scope or meaning to the plain language of his order.
[55] Had Prothonotary Aalto intended TekSavvy to be compensated, in full, for any costs that it would have incurred “but for the motion” or “in connection with the motion,” I am confident he would have so ordered.

The judge goes on to explain that her decision on costs will than be based on evidence provided and what she deems as reasonable:

[56] I will proceed on the basis that the costs which Voltage is required to reimburse are limited to those incurred in abiding with the Order, that is, to locate and produce the required contact information of the subscribers identified by their IP addresses. It remains to be determined, on the evidence, what those costs are and whether they are reasonable, by which I mean “reasonably necessary” to give effect to the Order (Fontaine v Canada (Attorney General), 2012 ONSC 3552 at para 7).

Teksavvy provided notice to affected customers.  Teksavvy supporters noted that the notice provided was separate from what other ISPs were doing and the ISP should be patted on the back for it.  Well, Teksavvy tried to claim costs on those notices stating that it was essential to weed out any false accusations, and to let affected customers obtain legal council.  Based on the evidence the judge disagreed with Teksavvy, however awarded Teksavvy for the costs of “rechecking” the IP addresses only if the identity of the affected subscriber can be proven (my emphasis added):

[64] While the Court has the discretion to order a party to give notice, the Rules do not require TekSavvy to have provided notice of the motion to its affected clients. TekSavvy acted voluntarily and on its own initiative. Whether it acted out of altruism or self-interest is irrelevant.

[65] I do not accept the argument that the notice served to verify the correlation as it led to a more accurate identification of affected customers, and that the resulting costs should therefore Page: 19 be subsumed in the costs of abiding with the Order. This appears to be an explanation after the fact. Notice was not given to ensure the accuracy of the correlation. There is nothing in the notices or in the exchanges of counsel to suggest that the purpose of the notice was anything other than to inform subscribers of the motion and to provide them with an opportunity to seek legal advice, or to appear at the motion.

[66] That said, the costs incurred from rechecking and correcting information following the notice would be recoverable, if identified and proven.

Teksavvy should be applauded for notifying its customers, however the court disagreed that they should be awarded full compensation for such.  That’s going to have interesting results going forward with future cases.  This is the only privacy concern I can see, however what sets apart others from the rest of the pack (and the more noble thing to do) on privacy should be those that incur costs to do the right thing, rather than leaving their subscribers in the dark. Unfortunately the telecom industry is increasingly less likely to do that as a whole, so this does become a concern.

Regarding Teksavvy’s legal costs.  The judge took exception of how Teksavvy’s lawyers were billing, and award only $4,500 in legal fees (my emphasis added):

[77] Finally, I need not comment on the entries to Stikeman Elliot’s bill that are on account of “Reviewing draft and revised press releases,” “Reviewing and revising draft blog posts,” and “Review talking points; interviews; conference call re media lines,” to name a few. These and other similar items are irrelevant to the implementation of the Order and not recoverable.

I’m glad that the court agrees that Teksavvy isn’t entitled to costs for reading my blog!

[78] I also need not comment on the evidence of Philpott taking issue with the manner in which TekSavvy or its counsel allegedly drove up these costs as I have had no reference to the evidence.
[79] Having reviewed the bill of legal costs, I am satisfied that the following legal costs alone fall within the scope of the Order: the costs of McHaffie’s communication with counsel for Voltage concerning time zones or timestamp information necessary to carry out the correlation and those of reviewing and providing advice on Prothonotary Aalto’s Order. I fix these at $4,500.00.

The judge goes on to question the administrative costs associated with the order, citing only “estimates” were provided, and a lot of those costs were not related to the implementation of the court order.

[81] Gaudrault says that Tacit’s retainer by TekSavvy “in the relevant period” was monthly rather than hourly. Tacit did not himself provide a bill of costs or time sheets in relation to his services. Rather, Gaudrault attaches “estimates” of Tacit’s monthly costs for advice with respect to Voltage’s motion, including representing TekSavvy in the litigation as co-counsel, and giving advice related to customer communication, IT issues, call centre issues, and privacy matters. Neither specific tasks, nor the time at which they were performed or the length of time it would have taken to complete them, are identified.

[82] Most of the items identified are unrelated to the implementation of the Order. Tacit’s advice or involvement related to the performance of the look-up or correlation exercise required to locate accurate contact information for TekSavvy subscribers cannot be identified or determined on the evidence. I do not comment on whether any cost items might be excluded due to overlap with items also claimed by Stikeman Elliott. VI.

Voltage had objected to the “estimates” provided by Teksavvy on administration costs.  Teksavvy employee’s apparently didn’t submit time sheets (my emphasis added):

[97] On the first ground regarding hearsay, Voltage makes several points. First, Gaudrault and Tellier did not themselves do the work of correlating the IP addresses. As revealed on crossexamination, it was Misur, not the affiants, who created the appendix setting out the hours of work. Gaudrault’s and Tellier’s evidence is therefore inadmissible hearsay. Additionally, the times noted in the appendix as well as the hourly rates are merely estimates as TekSavvy employees did not keep time sheets or time logs of the work that was done. Finally, the individuals who carried out the work did not produce their own evidence even though they had direct personal knowledge of the facts.

Paragraphs 107 – 113 deal with the judge basically throwing out Voltages notion on the very low cost amount of administration costs of close to $900, stating that Voltages experts were not familiar with Teksavvy’s systems.  One of the main admin costs I objected to on this blog that Teksavvy filed for what was the purchase of a new computer system to handle the court order.  The judge on that:

[114] The Order does not distinguish between the correlation and the systems necessary to carry it out. The adaptations to TekSavvy’s look-up process were necessary to effect the required correlation and, in my view, its costs are thereby encompassed by the Order. Put another way, in this respect Voltage has to take TekSavvy as it finds it.
[115] While TekSavvy may have derived a benefit from the situation, TekSavvy will not be able to claim the costs of its upgraded correlation process again in the context of future requests. What’s more, if such costs are to be excluded, it is up to the parties to see that the cost order reflects their intentions.

Finally the court arrived at a sum of $17, 057.50 for administration costs provided to the court by Teksavvy, and flat out rejected the notion that Teksavvy be allowed to recover costs associated with not opposing the motion and having to deal with upset consumers.  The court finds that to be a regular business expense:

[118] In sum, having reviewed TekSavvy’s claim for technical administrative costs, I find that it has proven costs in the amount of $17,057.50. In arriving at this sum I have excluded costs of “Preparation of information for court” and one half of the costs of “Second check/QA verification” as these were not identified and supported by evidence. Moreover, at the hearing of the motion, TekSavvy failed to explain what was meant by “QA verification.”

A. The “operational” administrative costs of implementing the Order
[119] Under this heading, TekSavvy seeks to recover the sum of $81,524.12 for expenses incurred in communicating with affected and non-affected subscribers and the public; creating an online portal tool for the use of subscribers; and responding to a higher volume of inquiries and complaints. The claim, including overtime, is on account of the work performed by supervisors and staff in the e-services department, at the call centre, and in the marketing department.

[120] These tasks, which Gaudrault refers to as “work relating to TekSavvy’s reputational impact,” are, in effect, TekSavvy’s costs of marketing, promotion, and customer relations, which I consider to be TekSavvy’s costs of doing business. Consequently, I disallow these costs. I do not consider them recoverable as they are unrelated to the identification and production of the required customer information, and fall outside the ambit of the Order.

In conclusion the court has found that both parties were way out there on their costing of disclosure.  It’ll be interesting to see how or even if there will be an appeal and on what basis.  The court quite clearly called out Teksavvy here for the evidence provided for costs.  To my non-lawyer eyes, the judgement on costs (while low) seems to fit with the evidence provided in the case, and the decision seems balanced within that respect.

Indie Telecom Lobbying Efforts Putting Users at Risk

January 13, 2015 Leave a comment

I recently wrote about how BMG/Rightscorp have been providing false and misleading notices for ISPs to hand over to users suspected of downloading.  While most are focusing on the Government, questions have arisen on what role these ISPs have in the new copyright legislation yet again.  Those questions became quite the discussion in the comments section of Micheal Geists latest blog.  One poster identifying himself as an ISP insider from an indie ISP came out stating that most agreed the legal risk to ISPs on withholding these notices was minimal:

I think that most people would agree, including I suspect most lawyers, that if it were tested in court that ISPs would probably be exonerated for not forwarding these notices.

So why the public fiasco?  Well turns out after a lengthy discussion on Geists blog, that indie ISPs seem to want a zero risk approach when dealing with consumer related issues.  They wanted complete clarification within law, so that there was no inherent risk to the ISP for not forwarding these notices.  Not even a 0.01% risk.  So they piped up, made the issue public in an effort to use public discourse to essentially lobby government for a zero risk approach to protect their own business interests, rather than assuming a small amount of risk in these copyright complaints.

Openmedia has come out with an interesting tool today supporting those lobby efforts, asking people to sign a petition to get Government to stop misleading copyright notices in law.  The government has already responded, by posting information on those notices to consumers.  There are also reports that most if not all ISPs are not forwarding off these misleading notices with the governments blessing.

The problem for this Openmedia petition though, is the government is in the process putting in laws which may allow for the sharing of your personal information by Industry Canada under bill S-4.  Presumably, those who write in concerned about misleading copyright notices would be those that would be affected by those notices (ie. peer to peer users).  Bill S-4 proposes:

an organization may disclose personal information without the knowledge or consent of the individual… if the disclosure is made to another organization and is reasonable for the purposes of investigating a breach of an agreement or a contravention of the laws of Canada or a province that has been, is being or is about to be committed and it is reasonable to expect that disclosure with the knowledge or consent of the individual would compromise the investigation;

Government could very well disclose the information you provide through this tool to rights holders to some day identify repeat offenders, or even breach of an Internet providers contract without your knowledge or consent.  This tool is an inherent risk to users privacy as a result, and not a very well thought out process by Openmedia who should be putting internet users above the lobby efforts of it’s telecom financial supporters.  Openmedia should be very well aware of inherent risks this tool poses with proposed legislation in the pipeline.  Openmedia should also be re-thinking it’s approach to supporting a telecom sector, which has no intentions of sticking their necks out for consumers as long as there is risk involved in doing so.  To continue support for this sector, contravenes the very values this organization is fighting for.

Government Scolds BMG and Rightscorp Over Copyright Notices

January 12, 2015 Leave a comment

Last week I wrote about music publisher BMG and copyright troll Rightscorp sending threatening copyright notices to Canadians suspected of peer to peer downloading, and demanding payment.  On Friday, the government responded and isn’t very happy about the situation.  Jake Enright, a spokesman for Industry Minister James Moore stated in an interview with Reuters News Service on Friday:

These notices are misleading and companies cannot use them to demand money from Canadians

Enright also stated that the Ministry would be in contact with the ISPs and representatives of the entertainment lobby in the coming days to discuss the issue.  Internet law expert and U of O law professor Micheal Geist fired back in his most recent post on the subject stating:

While that is encouraging, the reality is that this is a mess of the government’s own making. In fact, according to documents obtained under Access to Information, the government previously dismissed calls for changes to the system from Internet providers. Moreover, Industry Canada officials conducted consultations that were designed to create reforms that might have stopped these practices. Moore decided to forge ahead with the notice-and-notice system without any additional regulations, however, a decision that lies at the heart of the current problem.

Geist also said that just stating that government disapproves of this practice is not enough, and the government should rectify the situation through legislation and a possible complaint into the Competition Bureau.

The NDP has chimed in as well on the issue of these false and misleading notices.  NDP Industry Critic Peggy Nash said:

The Conservatives are letting these companies send false legal information to Canadians in order to scare them into paying settlements for movies or music no one has even proved they’ve actually downloaded

With an election looming in the coming months, will the Government push through legislation to stop this practice?  What are the platforms all parties are committed to on this issue?  What I find very interesting about this situation politically, is that the Liberals so far have been largely silent on it.  I wonder why that would be?  Depending on how this all plays out, copyright may once again become an election issue in the near future.

York University Indoctrinates Rick Mercer In Law After Misleading Public on Copyright Law

October 16, 2014 Leave a comment

The night after Rick Mercer’s copyright rant aired in which he mislead the public in copyright law, York University felt fit to present Mercer with an Honorary Doctorate in Law.

Copyright Lawyer Howard Knopf last night put out a no holds barred blog on Mercer’s rant, and the need for the Competition Bureau to further investigate the “consortium’s” efforts as it pertains to law.  I don’t know how a University can indoctrinate someone who looks to be seriously involved in an effort to mislead the public on the law of that land at this point.  That looks very bad on an institution of education and learning, who also relies on fair dealing laws on a regular basis.  The timing seems very suspicious to me, and I just hope that the University is not part of a wider effort that would call the institutions independence into question.

In my view, Mercer’s Doctorate should be put on hold or stripped by York U until he corrects his points in law publicly to the nation.  I’m pretty sure the legal community itself will be weighing in on that in due time.

Expendables 3 Leak and Fall Out Example of Industry Use Of P2P?

Over the past several weeks, I’ve been following the Expendables 3 leak with interest. The music industry has become masters at manipulating industry sales figures through their use of P2P. The shift in income as a result of P2P use (which more than makes up any lost sales) comes in the form of live events for the music industry.

The film industry is impacted in a similar way regarding pre-releases of films and the impact it has on theater attendance which is doing quite well overall. There has been a lot of discussion centered around the impact the Expendables 3 leak has had on the film performance, in fact I believe that it’s very possible the film was intentionally leaked by the producers of the film to generate interest at the box office while facing a release date that would see this film pitted up against 2 other films (The Teenage Mutant Ninja Turtles, and Guardians of the Galaxy) which have a solid cult following, more so than the Expendables franchise. In in fact this promotional and intentional release of Expendables 3 becomes quite obvious after one has a solid understanding on how the entertainment industries are using illegal file sharing to their advantage all while taking a heavy handed approach to torrent site operators, and internet users for using these promotional materials.

To fully understand how the entertainment industry is using “illegal” file sharing to its benefit, one has to look at the economics of the situation and several economic studies that have occurred over the years. I dove deep into the trenches of this research, because a few years ago I was trying to understand what was taking place on an economic front, and how to use P2P as an avenue to promote musical talent in the industry. I was seriously thinking about opening up my own record label at the time. I witnessed a lot of industry use of P2P over my time in the music industry that couldn’t be actively proved until now. Researchers are starting to catch on, and with each day that passes, there are more and more examples of heavy industry presence in the file sharing culture to promote their works. Even though a lot of what I’m about to reveal in this post has to do with the music industry, the media industry on whole has been affected by the same shift in the digital paradigm in very similar ways. I’m going to outline all of this in this post with quoted research.

Back around 2007, there was an Industry Canada study down by two researchers, one of which was Bridget Anderson that showed the potential positive effects on music sales regarding a P2P download. Anderson was attacked by industry on that research, and she took to her blog to defend herself. What became more interesting to me, was not the response Anderson had made, but a comment by a senior researcher at the United Nations Conference on Trade and Development Zeljka Kozul-Wright, back in 2007:

The recorded music industry is rapidly undergoing a process of Schumpeterian creative destruction (Kozul-Wright, Z. and Jenner, P., “Creative Destruction in the Music Industry and the Copyright”, forthcoming). It is facetious to believe in perfect substitutability between downloaded (authorized or unauthorized) musical content and record sales. There is little empirical basis for such an assumption (see Oberholzer-Gee and Strump, 2004). Music consumers are rapidly switching from purchasing records (CDs and other more traditional formats) to a variety of alternative digital formats, such as mobile music devices and other digital formats (such as single track downloads, album downloads, music video online downloads, streams, master recording ring tones, full track audio download to mobile, ringback tunes, music video downloads to mobile and subscription income.).

 

Indeed, overall earnings of the industry are on the increase, not on the decrease (PWC, 2007). The broader music sector, is now worth more than $US 130 billion globally. Its economic importance extends far further than the recorded music sector, ranging from radio advertising revenue, record company revenues, musical instrument sale, live music sector, music retail sectors, portable digital payers, to music publishing (IFPI, 2007). The so called “demise of the music industry” is highly contentious; indeed and completely disingenuous, for example, Price Waterhouse Cooper argues that the media industry, including music, is in a strongest position since 2000; and predicts a 7.3 per cent growth annually up to $ 1.8 trillion in 2009 (PWC, 2005).
 
PWCooper (PWC) estimates that the broad entertainment and information sector already accounts for over one trillion us dollars globally and is likely to rise to $ 1.8 trillion by 2009 (PWC, 2006). While sales of recorded music (physical retail) have been on a declining trend since 2002, the sales of digital content have been on a notable increase (by 60 per cent since 2006, IFPI, 2007).
 
To hold file sharing uniquely responsible for the decline in record sales i.e., largely unauthorized downloading, is basically erroneous and far too simplistic. Moreover, such an assertion indicates a lack of understanding of the dynamics of the current process of creative destruction and transformation to the digital paradigm in the “recorded” music industry. The word “recorded” itself denotes a kind of backward looking perspective, as it may no longer be the primary technological format for the rapidly converging music-ICTs-entertainment-telecommunications industry in the third millennium.
 
However, it may not be possible to fully “test” this hypothesis econometrically, as we are really comparing apples and oranges. There is no reason to assume that the downloaders would have necessarily bought the equivalent volumes of products in records, CDs or other physical music formats. This assumption can be highly misleading and steers the whole debate in the wrong direction. The implication of such reasoning would be to hinder or even halt the process of technical change and innovation in the music industry, which is not only unadvisable but impossible.
 
Our own research would support the arguments made in the Andersen and Frenz Study , 2007, that indeed there may be a significant positive relationship between file sharing and purchase or greater use of various other formats containing music content (although not necessarily record sales per se). According to IFPI, legal downloads have risen significantly over the last 5 years and IPR-related earnings have also been on a significant increase at this time (IFPI, 2007; HFA, 2007). While record sales have declined, that does not imply that the entire industry in the decline. Indeed, other segments have risen in volume and in earnings, more than offsetting the decline in record /CD sales (IFPI, 2007; PWC, 2006; Kozul-Wright and Jenner, forthcoming).
 
The more recent, healthy overall industry earnings indicate the opposite of Liebowitz’ assertion that …”file-sharing appears to have caused the entire decline in record sales and appears to have vitiated what otherwise would have been a growth in the industry” (Liebowitz, 2007). There is no empirical basis for such a facetious assertion. Additionally, there may be many other reasons for decline in record sales (the white elephant in the room), other than increase in file sharing (e.g., transformation to the digital technological paradigm, excessively high prices of CDs, i.e., excessive mark up, standardized quality, decline in purchasing power for luxury goods, lower degrees of choice and diversity, etc).

File sharing and downloading not only increases market exposure but significantly reduces marketing and advertising costs. File sharing, as the imminent dominant mode of music consumption, is proving to be more “efficient” than simply purchasing pre-recorded music. Owing to diffusion of technical change, it is far cheaper, as it reduces the costs of intermediation and allows consumers greater choice over listening patterns; facilitating the growth of demand-driven patterns of consumption thereby enabling greater consumer participation, and more interactive modes of consumption. Global consumers as well as new producers can benefit greatly from the new P2P file sharing technologies that should be facilitated and legalised, rather than hindered.
 
Improved new technologies cannot be suppressed simply because they threaten vested industry interests. That would be against the logic of the market and the well known dynamics of technical change and innovation, as analysed by Schumpeter over 40 years ago. It is precisely this feature of innovation-led creative destruction that characterizes capitalist markets; explain their resilience, dynamism and ultimate superiority over other forms of production and consumption.
 
Zeljka Kozul-Wright,
UNCTAD
Geneva, November, 20, 2007.

 
About a year ago, I wrote a 3 part series on how the Electronic Dance Music sector has used piracy to its advantage throughout its history including in present day. Essentially these posts detail how the music industry uses pre-releases and pirated works to generate interest in the artist and try and bolster industry sales. I came to the conclusion that P2P is quickly becoming the test market for works, and labels are using P2P to generate interest in legal sales, and also generate interest in live events. A snippet of Part 2 of the series:

In 2012 a working paper was released by Robert G. Hammond of North Carolina State University on the impact of album pre-releases in file-sharing networks on physical and digital album sales. What they are essentially studying is industry’s test market, evolved from the white label days to the P2P file sharing networks, and it’s now industry wide. The report summarized:

The paper comes to the conclusion that album sales benefit from album leaks. “[A]n album that became available in file-sharing networks one month earlier would sell 60 additional units”. In addition the results also suggest that popular artists benefit more from file-sharing than newcomers and less establised artists.

That paper concluded (emphasis added):

Considering all model specifications, file sharing has a positive effect on physical and digital album sales. “[A]n album that leaked one month earlier will receive 59.6 additional sales” (p. 15). However, more established artists – with two previous albums, both of which sold at least 100,000 units – benefit more from file sharing than less established ones. The author speculates “(…) that artists with established fan bases are positively predisposed toward the [new] album” than younger and less established artists (p.19).

In respect of music genres the file sharing effect on more popular genres such as pop, country and hiphop/rap is larger on less popular or niche genres such as folk, metal, jazz. In addition, major labels benefit more from pre-releases on file sharing networks than major-distributed indie labels, which outperform pure independent labels. Among the major companies Sony Music Entertainment benefits most from file sharing, followed by Universal Music Group, EMI and Warner Music Group.

 

In 2013 a similar conclusion was reached by the researchers at the London School of Economics:

Entertainment industries are beginning to realize that the sharing of films and music online generates marketing benefits and sales boosts that often offset the losses in revenue from illegal sharing of content, the authors say.

The report points to the results of a consumer tracking study by the U.K. communications regulator Ofcom that found that file sharers in the U.K. spent more on content than those who only consumed legal content.

The growing use of streaming, cloud computing, so-called digital lockers that facilitate the sharing of content and sites that offer a mix of free and paid methods of getting content will, the study predicts, spur the entertainment industries to shift their focus from pursuing illegal downloading to creating more legal avenues for getting content online.

The LSE researchers urge countries like the U.K. and the U.S. to reform their copyright enforcement regimes, which they say are out of step with such developments and with online culture generally and do not necessarily even serve the interests of the creators they claim to be protecting.

“Insisting that people will only produce creative works when they can claim exclusive ownership rights ignores the spread of practices that depend on sharing and co-creation and easy access to creative works; this insistence privileges copyright owners over these creators,” the report says.

In 2014, the Electronic Dance Music sector released its annual numbers. This sector of the music industry now surpasses all other genres, and is the top money maker for the industry as a whole with a overall worth of $6.2 billion. The vast majority of this is coming from fan attendance at major live events. To go back to what Kozul-Wright had said in her comment:

Our own research would support the arguments made in the Andersen and Frenz Study , 2007, that indeed there may be a significant positive relationship between file sharing and purchase or greater use of various other formats containing music content (although not necessarily record sales per se). According to IFPI, legal downloads have risen significantly over the last 5 years and IPR-related earnings have also been on a significant increase at this time (IFPI, 2007; HFA, 2007). While record sales have declined, that does not imply that the entire industry in the decline. Indeed, other segments have risen in volume and in earnings, more than offsetting the decline in record /CD sales (IFPI, 2007; PWC, 2006; Kozul-Wright and Jenner, forthcoming).

There has been a dramatic shift in income as a result of the use of P2P. Recorded music is largely now being used by the industry as a promotional tool to get people out to events. The offset in digital sales lost, more than makes up in the amount of attendance at live events as a result. What the music industry has essentially found is that the selling of the music experience at live events is a much more profitable venture. The same goes for the film industry. For the film industry, there has been a steady incline year over year. To go back to the London School of Economics study:

“Despite the Motion Picture Association of America’s claim that online piracy is devastating the movie industry, Hollywood achieved record-breaking global box office revenues of $35 billion US in 2012, a six per cent increase over 2011,”

In 2013, box office attendance was again showing growth with attendance up 6% over 2012. The film industry numbers are showing an increase and substantial growth if you look at where the money has shifted, which is to the experience of watching a film in the theater. You can’t get that from a downloaded copy, or purchased DVD.
Now back to Expendables 3. Following the research that’s been conducted on the manner, leaked media has been known to bump up sales. The producers of Expendables 3 know this. They have a tremendous amounts of competition right now from the cult following of Teenage Mutant Ninja Turtles, and Guardians of the Galaxy, they get this mysterious “leaker” to release the film on P2P to generate promo for the film, all while this leaker played up the part on how bad he would be for leaking this film, which is a promotional technique I covered in Part 1 of my Business End of Piracy to generate interest in the release.

To make matters even more clear, one of the actors of Expendables 3, Kellan Lutz openly slipped the following on the leak (which I’m sure given time will be retracted if he wants another job):

“So for the people who downloaded it, I actually think they’re gonna wanna watch it in the theaters because it’s a good movie,”

From a promotional stand point, I can see the promotional team at Lionsgate go; “Okay, we have no chance at becoming number one at the box office due to the cult following of the films we are up against. We’ll release of the film on the torrent sites, hoping to generate interest in the release and see if our box numbers go up. If we don’t end up at number one than we can just blame the whole thing on piracy, get the films name out there in the press and recover profits we would have made if Teenage Mutant Ninja Turtles and the Guardians of the Galaxy. That’s how we’ll cover our losses.”

Not only is the research quite clear on how P2P is being used by the entertainment industry, it’s also quite clear on what offsets the lost sales. New wealth has been created as a result of file sharing, which more than offsets the amount lost in physical and digital copies. If all the torrent sites in the world were to shut down tomorrow, I would strongly suspect the entertainment industry would be at a significant net loss.

Now in Canada we are facing the prospect of a movie producer Voltage Studios on suing about 2000 people for downloading their content. If the film industry is using file sharing to bolster promotion for their films, along with copyright related lawsuits; is it fair, actually let me rephrase this, is it constitutional for movie studios to be suing active participants of a legal market place in which there is heavy industry presence? How can one determine what is a legal download, and what isn’t in this environment? Is the release of user data justified under public interest in this circumstance? Food for thought, and a lot more on this forthcoming.

The Price For Internet Providers To Look The Other Way On Privacy

March 11, 2014 2 comments

Do Internet providers profit from disclosure of subscribers information?  It shouldn’t cost very much to get a low wage data admin to search a database full of IP addresses and correlate those assigned IP addresses to a subscriber.  Being a qualified database admin myself, setting up such a system would be relatively easy, and extremely cost effective.  Most ISP’s should already have a system like this in place to ensure the normal day to day operations, so essentially all that would be needed would be to have someone search a database of the IP addresses to find assigned subscribers.  Let’s take Teksavvy for instance.

2000 IP addresses were searched through this database to find the matching subscribers.  Manually inputting the IP addresses shouldn’t take more than a few hours, however getting a digital list of IP addresses, and running an SQL script to automatically search the database should take no more than 15 minutes for the development of the script (assuming you’re not using MS SQL and manually inputting the script and running test searches).  It should only take a few seconds once the script is run to query the database and come up with subscribers tied to those IP addresses.

I’ll be conservative here with the numbers.  This can easily be done with 2000 records manually within one 8 hour working day.  At $20/hour x 8 hours = $160. This cost gets even lower when the database system gets automated.  An estimated initial cost of maybe $500 would be required to automate this type of database search, secure the database, and send e-mails out automatically.  After that, it should take maybe less then 10 minutes from receiving IPs in digital form to send notices out to customers.  I’ve actually developed this type of database system for a small business client over a decade ago to handle his account receivables on payment due and automatically notify his clients through e-mails and texts of past due accounts (by using businesses records not IP addresses).  This can be easily adapted to the copyright notice to notice regime, in fact most businesses, let alone telecommunication companies are already using this type of system.

What exactly are the legitimate expenses incurred by an ISP when having to search through their databases to identify subscribers?  This question should be kept in minds of Canadians when looking at the current situation within copyright law, and mass surveillance.  Torrentfreak did an excellent article today regarding getting a system like this in place for copyright in Canada, which will allow for copyright trolling, as long as the internet providers are paid a good profit out of the deal:

“The notice-and-notice law permits the government to set a fee for sending a notice that an ISP can charge. At the moment, it does not look like the government will establish a fee, preferring to wait to see how the system develops. Were this [business model] to come to Canada, the government might face increased pressure from ISPs to allow them to charge for their participation in the process,” Geist concludes.

Things get even scarier when looking at Telus’s response to the Teksavvy vs Voltage decision, comparing this with the prospect of future lawful access legislation:

“We respect our customers’ privacy and would not voluntarily provide such information,” said Telus spokesman Shawn Hall.  ”That said, we fully support law enforcement’s need to access information to conduct investigations, and would comply with proper court-ordered warrants or any changes in privacy legislation.”

In my opinion, upping the costs associated with identifying subscribers will not deter abuse of privacy rights of Canadians, in fact what we’ve learned with the NSA disclosures, is that technology companies seem to be looking the other way regarding net citizens privacy. At least in Canada it comes with a cost, however what would be way more effective, would be to strengthen our privacy legislation to deter abuse, and profitability of that abuse of subscribers rights and allow for more targeted investigations by law enforcement.

Profiting from the abuse of the legal system, and abuse of users rights should be the last thing on the minds of our telecommunications providers. As Edward Snowden suggested yesterday in his presentation, it erodes trust within our digital communications network, and makes us less secure when those who would profit on such activities, are thinking more about their bottom line than actively participating in the democratic values of the society they serve.  In order to build that trust back, those telecommunications and technology providers have to step up to the plate.  Many already have from Microsoft to Yahoo, however Canadians need to be comfortable this is not going to happen within our telecommunications companies considering their position within copyright laws, let alone positions they have taken regarding government surveillance.

The equilibrium will be established through emerging technology currently in development.  Technology innovation cycles are around 18 months, and we are now in the 10th month of the NSA disclosures.  This means that tools being developed to secure communications due to the failure of the communications industry to date, will be soon available with ease of use to the regular net citizen.  These tools will essentially force an end to mass surveillance used by governments and the copyright lobby.  Not even you’re ISP will know what you are doing.  The only way to route around that would be through installed spyware or malware, making it extremely hard to mass surveil anyone, and force law enforcement and government towards targeted investigations.

As a technology developer myself, I cannot wrap my head around technology companies not thinking about securing their customers information from abuse, let alone making a profit from such abuse.  That to me is a breach of the fundamental trust of the principles most developers and service providers are taught. It’s made us less secure,  and a huge uphill battle to regain that trust, when profitability and the bottom line comes first above everything else.

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