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MASTER THESIS Ivan G. Angelov

Tilburg University

Faculty of Law

Law & Technology

LAW & TECNOLOGY 2011 - 2013 Master Thesis

Topic: How to guide creative industries towards adopting new business models?

Ivan G. Angelov ANR: 569597 Thesis Supervisor: Dr. mr. ir. M.H.M. Schellekens Faculty of Law, Law & Technology Tilburg University

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Table of Contents

• INTRODUCTION ….………………………………………………………………………………….4 • METHODOLOGY ……………………………………………………………………………………..9 1. CHAPTER I: Enforcement Failure.………………………………………10 1.1 Internet Changed Everything ……………………………………………………10 1.2 – The Beginning of the Copyright Wars ……………………….11 1.3 ’s Lawsuit ……………………………………………………………………12 1.4 , Kazaa and …………………………………………….13 1.5 RIAA’s Litigation Campaign ………………………………………………………14 1.6 The Legal Campaign in Europe …………………………………………………16 1.6.1 Pirate Bay ……………………………………………………………………….16 1.6.2 Individual Users ……………………………………………………………..16 1.7 Copyright Enforcement ……………………………………………………………17 1.7.1 Aftermath ……………………………………………………………………….17 1.7.2 The Problems Behind the Enforcement …………………………..18 2. CHAPTER II: New Business Models: New Opportunities for Copyright Holders …………………………………………………………………………………………………20 2.1 The Alternative ………………………………………………………………………..20 2.2 New Business Models Work …………………………………………………….22 2.2.1 iTunes …………………………………………………………………………22 2.2.2 Subscription Based Models …………………………………………24 2.2.2.1 ……………………………………………………………..24 2.2.2.2 Movies ……………………………………………………………24 2.2.3 Ad Based Models …………………………………………………………25 2.2.4 Target Advertisement …………………………………………………25 2.2.5 Music Models ……………………………………………………26 2.3 Provide Users With What They Want ……………………………………….26 2.3.1 Experience ………………………………………………………………….26 2.3.2 Reasonable Prices ……………………………………………………….27

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2.4 Provide Copyright Holders With What They Want: Better Exercise of Their Rights ……………………………………………………………………………….28 2.4.1 Greater Control …………………………………………………………..28 2.4.2 New License Strategies and Effective Competition Models………………………………………………………………………………….30 2.5 Smaller Labels Benefits …………………………………………………………….32 2.6 Artists Benefits …………………………………………………………………………33 3. CHAPTER III: CREATING AN ENVIRONMENT FOR THE NEW BUSINESS MODELS ……………………………………………………………………………………………….34 3.1 Guidance Required …………………………………………………………………..35 3.2 The Four Modalities …………………………………………………………………36 3.3 Law: Smarter Enforcement ………………………………………………………37 3.3.1 Changing the Vision on Enforcement-Reasons …………….37 3.3.2 Government’s Actions-Materializing the New Vision on Copyright Enforcement ………………………………………………………..37 3.3.2.1 Directions of Reconsidering ……………………………37 3.3.2.2 Providing Legal Offerings Online …………………….40 3.3.2.3 HADOPI ………………………………………………………….43 3.3.2.4 Incentives for Copyright Owners …………………….46 3.4 The Market: More Effective Licensing System ………………………….47 3.5 Social Norms: Educating Consumers ………………………………………..53 3.6 Architecture: Better Designed Platforms ………………………………….54 • CONCLUSION ………………………………………………………………………………………..56 • BIBLIOGRAPHY ……………………………………………………………………………………..59

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Introduction

The fast development of the Internet and its unlimited capabilities to distribute information basically to every corner of the earth, brought one of the most complex issues modern law must solve - online . The levels of online copyright infringement are skyrocketing, because of the perpetual technological development of the Internet and this worries music companies, movie companies and other copyright owners. 1 The copyright holders fear, and not without a good reason, that they cannot prevent this process and furthermore they are concerned that in the near future it will become even more burdensome. For the main direction copyright holders adhere to, is copyright enforcement, which gives them the opportunity for tracking and suing individual Internet users that infringe their rights. However, until now these efforts seem to yield the necessary results as the copyright piracy continues to form a serious problem. Copyright holders are struggling in this battle feeling unable to protect their own property. All the legal measures adopted in combating this infringement turn out to be just temporary or lack effect at all. Organizations such as Recording Music Associations of America (RIAA) and Motion Picture Association of America (MPAA) are specifically created to protect copyright owners’ rights. Protecting is the essential mission of both organizations. 2 RIAA has greatly contributed in shutting down the pioneer in peer-to-peer (P2P) networking Napster in 2001. Subsequently with joint efforts, RIAA and MPAA closed Grokster. However, the fight against decentralized servers continued and legal battles against KaZaa, Gnutella and MegaUpload followed. Creative industries succeeded to shut them down, but the piracy rates continued to increase dramatically. New and more sophisticated P2P networks emerged, as “Bit Torrent” giant is one of the most notorious. During the litigation campaign initiated by RIAA thousands of individual users were monitored and sued in United States’ courts. At the beginning, the lawsuits resulted in positive direct effects, like the decrease of the individuals who illegally download, as well as in indirect effects, like the raise of “ the public consciousness about the illegality of downloading ”. 3 It was thought that lawsuits will manage to cut off file impetus of the file swappers. However, it was not the case as this strategy did little to deter this illegal activity. 4 Thus, RIAA’s litigation

1 Steven Seidenberg, ‘Copyright in the age of You Tube’ ABA JOURNAL (posted on Feb 1, 2009), available at: http://www.abajournal.com/magazine/article/copyright_in_the_age_of_youtube/ (accessed 08.01.2012) 2 RIAA.com, About us, available at: http://www.riaa.com/aboutus.php?content_selector=about-who-we-are-riaa ; MPAA.org, Content Protection, available at: http://www.mpaa.org/contentprotection (accessed 08.01.2012) 3 Kristina Groennings, ‘An Analysis of the Recording Industry’s Litigation Strategy Against Direct Infringers’, Vanderbilt Journal of Entertainment Law & Practice’ (2005), p. 391, available at: http://www.jetlaw.org/?page_id=8558 (accessed 10.01.2012) 4 Ibid, p. 390

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campaign lasted 5 years and was abandoned in 2008 due to lack of results. 5 Copyright holders realized that fighting online piracy by filing lawsuits was not the solution. A litigation costs a large amount of funds, could last years and it does not guarantee that the court will find the defendant liable. The court decision in Lenz v. Universal Music Corporation showed that copyright owners in their efforts to limit the online copyright infringement file unconsidered lawsuits against the Internet users, which as a consequence leads to not just wasting money and time, but also to users’ dissatisfaction. 6 Thus, rather realizing the problems caused by piracy rates, consumers saw creative industries as their enemy. Such a frustration is further justified due to lawsuits such as vs. Thomas . This trial, supported by RIAA, did not bring any notable success in diminishing the online copyright infringements, as well as the other previous trials. It seems that the enormous damages claimed by the plaintiff are rather aimed at terrifying the illegal downloaders, as a deterring method, then an actual expected resolution of the case. 7 This thesis explores enforcement in terms of legal proceedings only. Other enforcement mechanisms such as site blocking and cutting funds to allegedly infringing were not taken into account. The reason is that such mechanisms could be unambiguous. For instance, site blocking could be applied in an oppressive manner and could affect negatively the freedom of Internet provides. 8 Its application could result into imposing censorship. 9 Site blocking is further part of the mechanisms proposed in the Stop Online Piracy (hereinafter SOPA). 10 Cutting funds to infringing websites is another tool SOPA envisages. 11 Considering the wide public debates against this bill as well as the mass protests, including the unprecedented Wikipedia blackout, analyzing such enforcement measures could shift the focus of the current thesis. As there are many debates and fears against imposing censorship on free speech in Internet, 12 the current thesis sticks to less controversial and debated enforcement mechanisms, avoiding any analyses far from its research idea.

5 Marcia Keyser, ‘Napster, Grokster and the RIAA lawsuits’, ConneXions (last edited on Dec 14, 2011), available at: http://cnx.org/content/m41469/latest/ (accessed 01.07.2012) 6 Seidenberg, note 1 7 William Henslee, ‘Money for Nothing and Music for Free? Why the RIAA Should Continue to Sue Illegal File – Sharers.’ John Marshal Review of Law (2009 – 2010), p. 22, available at: http://www.jmripl.com.php5-10.dfw1-2.websitetestlink.com/issues/article/21 (accessed 10.15.2012) 8 Kate O’Flaherty, ‘Web site blocking is oppressive and won’t work’, The Inquirer (published on Dec 2, 2011), available at: http://www.theinquirer.net/inquirer/opinion/2129699/web-site-blocking-oppressive-wont (accessed 05.07.2012) 9 Ibid. 10 Jared Newman, ‘SOPA and PIPA: Just the Facts’, PC World (Jan 17, 2012), available at: http://www.pcworld.com/article/248298/sopa_and_pipa_just_the_facts.html (accessed 20.01.2012) 11 Ibid. 12 Matt Peckham, ‘SOPA Won’t stop online piracy, would censor everyone else’, Time Techland (published on Nov 17, 2011), available at: http://techland.time.com/2011/11/17/sopa-wont-stop-online-piracy-would-censor- everyone-else/ (accessed 20.01.2012)

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The contemporary framework of combating online copyright infringement does not respond to the constant evolving of the technologies and the Internet network. 13 The current approaches are chaotic and the measures adopted contradictory. In order to concentrate the efforts towards better results in solving this issue, we need to focus the actions of the copyright holders towards adopting new attractive business models that respond to the changing market environment, influenced by Internet instead of the ineffective and contradictory copyright enforcement. The need for promotion of such alternative has risen in the last few years when it turned out that the stakeholders do not realize the changes that digital technology has brought upon and the copyright law became less capable in protecting their rights.14 It seems that none of these interested parties consider that the enforcement capabilities of copyright law are outdated and easily contested, as well as it cannot fit the current state of socio-cultural and technological sophistication and obstruct innovation. 15 This possible alternative for combating online piracy might prove better than relying solely on enforcement. Since the introduction of Apple’s iTunes and other similar initiatives such as , it was shown that such platforms could achieve desired outcomes and are worth considering by copyright holders. They will provide them with new and better ways for exercising their rights and if applied properly they should acquire greater control over their property in the digital environment. New business models will deploy not only more options for control, but also could give them the opportunities to shape a market with numerous purchasers. Furthermore, digital platforms might allow copyright owners to reach even more purchasers than they could ever reach in the offline market. New business models are worth to be taken into account, because they could meet consumer’s demands. They could provide them with greater experience and at the same time the opportunities of creative industries to provide diverse content could satisfy purchasers demand. The thesis describes a list of business models, which is not exhaustive. There are other kinds, as well as such under construction. However, the reason why concrete business models are presented here is to reveal that they imply great potential for gaining revenues and attracting consumers. Their description serves as an example only. The recommendations for innovation of such business models are aimed to complete and improve them. Copyright industries’ actions are involved mainly on imposing political pressure over governments to enact more severe copyright enforcement in order to create better protection for their property and to prosecute more effectively perpetrators of copyright infringements. 16 However, shifting the actions of the content industries and making them rethink the way copyright enforcement has been applied is not an easy task. Among other things, copyright gives

13 Ian Hargreaves, ‘Digital Opportunity. A Review of Intellectual Property and Growth’, (May 2011), p 3, available at: http://www.ipo.gov.uk/ipreview-finalreport.pdf (accessed 20.04.2012) 14 Lawrence Lessig, ’In Defense of Piracy’, The Wall Street Journal (published on Oct 11, 2008), http://online.wsj.com/article/SB122367645363324303.html (accessed 20.01.2012) 15 Hargreaves, note 13 16 Bruce Gain, ‘Special Report: Music Industries’ Lavish Lobby Campaign for Digital Rights’, Intellectual Property Watch (published on Jan 6, 2011), available at: http://www.ip-watch.org/2011/01/06/special-report-music- industrys-lavish-lobby-campaign-for-digital-rights/ (accessed 02.01.2012)

6 | P a g e certain exclusive rights to the owners and they possess the legitimate power to decide how to enforce and dispose those rights. Every copyright holder may rely on existing enforcement mechanisms in order to protect his property, as well as to lobby for better protection of the rights he has been awarded with. In this sense it does not seem reasonable to require creative industries to seek new business models as an alternative just because the contemporary enforcement framework is ineffective. Thus, copyright enforcement should not be abandoned entirely, but it could have a new role and serve different objectives. A flexible enhanced framework will be established where copyright holders will exercise their rights through the new business platforms and the enforcement will be there to facilitate the legal exploitation of the works. Copyright enforcement should be no longer used as a tool for gaining revenues from individual users, but as a tool that guides them to the new business platforms. Realizing that the key factor in stopping online piracy might be fighting with no excessive enforcement, but with new business models responding to the current realities puts the question - how to bring copyright holders to the conclusion that a radical change in the strategies is required and a new alternative model is needed?

The aims of this Thesis are to describe how could we guide creative industries through legal means towards adopting new attractive business models without restricting and interfering with their copyrights ? In the following Chapters the opportunities to adopt such legal review will be analyzed. Certain legal alternatives will be proposed in order to convince copyright holders to change the course from the falling behind copyright enforcement to the probably more effective and attractive business models. This analysis will explore an inventory of possible measures, based on the Lawrence Lessig’s four modalities of regulation, and the possibilities copyright holders to shift the course. Once governments have realized that greater enforcement is not the solution in fighting online copyright infringements, they can initiate actions in order to start applying the enforcement wiser, because it would be better to support than to oppress. If they stop passing laws that strengthen the enforceability of copyright that could serve as an incentive for creative industries voluntarily to turn the side towards new business models, it might be a valuable step further. Hence, balanced new legal rules that in the same time lessen the unwanted effects of too much enforcement as well as providing a proper mechanism for acting against the infringers is required. This new role should guide consumers to purchase from the digital shops and not to gain revenues by suing them. In this sense Graduated response, also known as “three strikes and you are out” may possess the aforementioned characteristics. Enforcement should have its proper role in supporting the legal exploitation of the content through the online digital shops. Thus, copyright holders might stop to rely only on the existing methods of prosecution of the potential infringers, but look at the new alternatives. The imposition of such smarter way of enforcing copyrights would result into indirectly forcing creative industries to shift their course towards new business models. However additional incentives should be provided in order to attract them. If copyright holders are presented inexpensive ways to create such business platforms, they might be willing to exploit them. A

7 | P a g e further incentive could be the greater control they might have over their property, if operated through such business platforms. This could be achieved by amending the current laws, which will create these incentives. An environment equally fertile for platforms outside the European Union, such as iTunes, as well as for platforms having their business seats on the territory of the EU should be established. On the other hand, in order to grant copyright holders additional support, certain initiatives should be aimed at guiding consumers to these digital shops. These emerging markets, developed by the business models, might be promoted by providing educational campaigns targeted to the consumers of these copyright protected works might promote the emerging market developed by the business models. Such educational initiatives could be another incentive for the content industries to elaborate such market alternatives, instead of solely relying on ineffective enforcement. In order to answer the research question, this thesis shall set out the flaws of the current copyright enforcement and thus describe the urgent need for introducing new alternatives. Furthermore, new business models’ opportunities shall be analyzed as well as the benefits they could provide copyright holders with. The role of the copyright enforcement, as important supportive instrument in this model will be set forth. The last chapter of this thesis will propose some solutions that could manage to guide copyright holders without restricting their copyrights.

This thesis is divided in three chapters: • In Chapter I the ineffective copyright enforcement will be described reasons will be demonstrated why we need to seek for new alternatives. Major legal battles against P2P facilitators as well as the notorious legal campaign against the individual users will be analyzed. Piracy rates statistics shall be provided to prove the skyrocketing percentage of pirated content rise and creative industries failure to manage this issue. • Chapter II is aimed at revealing the positive side of new business models. It will analyze the benefits new platforms will provide copyright holders with as well as the consumers. Existing platforms such as Apple’s iTunes shall be covered, evidencing that new business models are alternatives that could meet all stakeholders’ expectations. • Chapter III will present and inventory of measures based on the Lawrence Lessig’s four modalities of regulation. These measures will provide opportunities for transforming the current copyright enforcement to a level which would support the new alternative in the face of the new business models and at the same time will remain capable enough to discipline online pirates. Then some more legislative proposal would be taken into account that would establish cheaper options for initiating such business and a greater post-sale control over the content so as to stimulate copyright holders. The architecture of the new business platforms and the market where they will operate will be discussed. Educational

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campaigns as important tool for guiding individual users towards new digital shops will be analyzed as well.

Methodology

To give answer to the research question I will use Lawrence Lessig’s four modalities of regulation. By applying these modalities of regulation a strong framework of measures guiding creative industries could be created. The importance of these measures is revealed by the fact that they encompass the interests of the governments, right holders, society and those who shape the digital environment through its architecture. Each of these modalities is structured in a manner providing an inventory of measures. This inventory could provide an effective guidance for the content industries to apply the new business platforms, rather than continuing to rely on the existing copyright enforcement, which seems falling behind in its’ attempts to deter copyright infringers. The analysis describing the beneficial effects of the new business models is revealed in Chapter III. Its role is to show that this alternative is plausible and could reasonably be used as a starting point for this research. This shall be achieved by extracting the necessary information from books, articles, websites, blogs and case law, as well as from the current and proposed legislation. The benefits and the flaws of the proposed measures, the means they provide towards shifting creative industries’ strategies for fighting online copyright infringement to new business models will be evaluated and compared. The purpose of this evaluation is aimed to prove that the current model needs revision. As a result certain judicial proposals and their possible influence over copyright holders shall be presented.

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Chapter I

COPYRIGHT ENFORCEMENT FAILURE

In this chapter an analyses will be presented sustaining the thesis that the present copyright enforcement fails to secure digital space. Major legal successes for creative industries against P2P facilitators such as Napster, Grokster, KaZaa, Gnutella and MegaUpload will be explored, revealing that although such websites no longer exist, online piracy 17 continues to present a serious problem. Shifting the course from suing platforms to prosecuting individual users did not achieve plausible results. Statistics prove that piracy rates are growing like never before. 18 Thus, after assessing the facts, this chapter will conclude that copyright enforcement is ineffective and there is need for an alternative.

Describing and proving the ineffectiveness of the copyright enforcement is relevant, because it will convince us why we need to guide creative industries towards new business models. Furthermore, this will prove that piracy is a business model issue and not an enforcement issue. 19

1.1 INTERNET CHANGED EVERYTHING

When the world entered into the digital era we discovered its unique abilities to overcome distances in a matter of seconds. This system for data transferring facilitated by Internet brought unlimited opportunities for costless and instant distribution of information of all kind. During the technology evolution through the years, online emerged into peer to peer networks (P2P). Files- sharing through P2P networks is growing ever since the society discovered its benefits and especially the cheap distribution it offers. P2P of the internet traffic is substantial and since 2005 it is estimated that more than 50% of the individuals has used these networks. 20 However, this system was not only

17 Online piracy represents unauthorized use or reproduction of copyrighted or patented material. It further refers to the act of illegal downloading of games, music, , movies (i.e.) without paying for them. 18 Go-Gulf.com , ‘Online Piracy in Numbers – Facts and Statistics’, (posted on Nov 1, 2011), available at: http://www.go-gulf.com/blog/online-piracy (accessed 13.03.2012) 19 Terry Hart, ‘Is Copyright Enforcement Necessary?’, Copyhype (published on Nov 28, 2011), available at: http://www.copyhype.com/2011/11/is-copyright-enforcement-necessary/ (accessed 02.04.2012) 20 David Price, ‘An Estimate of Infringing Use of the Internet’, Envisional (published on Jan 2011), p.47, available at: http://documents.envisional.com/docs/Envisional-Internet_Usage-Jan2011.pdf (accessed 20.06.2012)

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meant to facilitate peoples’ lives, but it also brought copyright infringements to levels never imagined before. Soon after the emerging of Internet, the growing penetration of the during the first steps of the World Wide Web led to the first cases regarding copyright infringement.

1.2 NAPSTER - THE BEGINNING OF THE COPYRIGHT WARS 21

Napster emerged in the late 90-s and it provided possibilities to the growing online society at that time with the opportunities to find and share digital music in an easy way. This project, which initially had been created to help friends to find music online, consequently grew into a system operating with huge amount of content, satisfying the demands of millions of online consumers. 22 This sharing of copyright protected content, however, was quickly spotted by content industries. In December 1999 the Recording Industry Association of America (RIAA) brought a case before the court against Napster for illegal P2P file sharing. This was to become the first lawsuit of its kind.23 In A&M Records, Inc. v. Napster, Inc., the District Court for the Northern District of California analyzed owners’ rights in terms of reproduction of a work and the distribution of copies. This is what the court considered as the bases of the file-sharing. 24 Napster’s system for requesting and transmitting copies from each individual computer to another was further observed in terms of possible reproduction and distribution. 25 Considering the requests by the individual users as a technological means of making copies, the court stated that the function of Napster basically results in copyright infringement.26 In its defense, Napster claimed that such requests basically were aimed at familiarizing users with the content and at a later moment to decide whether to purchase it. 27 Denying these arguments, the court argued that such activities represent a commercial use and consumers were already supplied with such samples by the right holders.28 The court further ruled that the files disseminated by Napster do not represent fair use. 29 In addition, the court found Napster vicariously liable for copyright infringements, as its users were uploading and downloading files, which constitutes violation of copyrights. 30 This kind of liability

21 Peter K. Yu, ‘The Escalating Copyright Wars’, Drake University Law School, Research Paper No. 01-06 (Aug 21, 2003), available at SSRN: http://papers.ssrn.com/sol3/papers.cfm?abstract_id=436693 ; See also John Tehranian, ‘Copyright Wars’, Oxford University Press (2011), available at SSRN: http://papers.ssrn.com/sol3/papers.cfm?abstract_id=1944654 (accessed 20.06.2012) 22 Keyser, note 5 23 Ibid. 24 Kenneth D. Crews, ‘Case Summary: A&M Records, Inc. v. Napster, Inc.: Implications for the Digital Music Library’, National Science Foundation (Sep 18, 2001), p.3, available at: http://www.dml.indiana.edu/pdf/AnalysisOfNapsterDecision.pdf (accessed 01.07.2012) 25 Ibid. 26 Ibid. 27 Keyser, note 5 28 Ibid. 29 Crews, note 24 30 Ibid.

11 | P a g e basically means that “the defendant has the right and ability to supervise the infringing activity and also has a direct financial interest in such activities .” 31 After the court claimed Napster liability in facilitating illegal file sharing, it resulted in its’ closing in 2001. The following settlements with RIAA obliged Napster to pay millions of dollars in the form of reparations and future subscription fees. 32 Soon after these events, Napster declared its bankruptcy in 2002.33 Closing Napster was a major win against P2P file sharing for the creative sector. It gave them the conviction that they will manage to preserve the current status quo. The millions they received in form of damages sent a warning message to other such initiatives. However, Napster turned out to be just the beginning of what some analysts call copyright wars. 34

1.3 GROKSTER’S LAWSUIT

In 2001, one year before Napster officially stopped operating, a new form of P2P file sharing entered digital space. Grokster maintained the idea Napster pushed through and released an enhanced file sharing system. The difference was that Grokster operated without central server system and it provided its users the opportunity to communicate with each other. 35 This communication was possible through innovative software, which when installed on each PC, allowed consumers to share files with each other. Thus Grokster was not involved in the file sharing between the users, but only facilitated its realization. 36 Like Napster, Grokster became very popular and it did not take long for creative industries to stand it before the court. In 2003 a lawsuit was filed before the Los Angeles Federal Court, but this time RIAA was accompanied by another major label association- MPAA. 37 They claimed that Grokster should be held liable for facilitating services allowing illegal sharing of copyright protected content. 38 However, it was the US Supreme Court that finally had to rule, unanimously, that Grokster was liable for violating copyright laws. 39 The decision among other things expresses the fact that an enterprise could be held liable when it does not commit any infringements, but makes it possible for others to commit such infringements under certain circumstances. Grokster not only did that, but also actively advertised its’

31 Keyser, note 5 32 John Borland, ‘Napster Reaches Settlement With Publishers’, CNET News (published on Sep 21, 2001), available at: http://news.cnet.com/2100-1023-273394.html (accessed 30.04.2012) 33 Benny Evangelista, ‘Napster Files for Bankruptcy’, SFGate (published on Jun 4, 2002), available at: http://www.sfgate.com/business/article/Napster-files-for-bankruptcy-2813933.php (accessed 30.04.2012) 34 Yu, note 21 35 Keyser, note 5 36 Ibid. 37 Ibid. 38 Jane C. Ginsburg, Sam Ricketson, ‘Inducers and Authorizers: A Comparison of the US Supreme Court’ Grokster decision and the Australian Federal Court’s KaZaa Ruling’, University of Melbourne Law School, Research Paper No. 144 (Mar 2006), p.2, available at SSRN: http://papers.ssrn.com/sol3/papers.cfm?abstract_id=888928 (accessed 01.07.2012) 39 Keyser, note 3

12 | P a g e activities, inducing users to undertake violation of copyright protected content. 40 Subsequently the US Supreme Court in its decision, ruled in June 2005, declared Grokster liable and ordered the to be closed down. 41 MGM Studios, Inc. v. Grokster, Ltd . decision was all over the news and was presented as a major win against online copyright infringements. 42 However, soon after that case, labels indicated that piracy rates were not decreasing, but skyrocketing up, more than ever before. In 2005, the United States content industries observed an impact of losses over $20 billion dollars together with the retailers’ losses of this products equivalent to $2 billion dollars. The damages are not only measured in lost funds, but also in lost jobs. During this period in United States online piracy caused 12 000 unfulfilled job opportunities in the USA.43 According to RIAA, the annual damages in lost revenues exceed $12.5 billion dollars and 70000 jobs.44

1.4 GNUTELLA, KAZAA and MEGAUPLOAD

After having dealt successfully with Napster and Grokster, creative sector went after KaZaa. Yet, its faith was not that unfortunate inasfar as it was not shut down, but got a settlement with the record industry. The owners of this platform were obliged to pay $100 million dollars compensation to the record industries. Therefore, in order to continue to exist, KaZaa now offers legitimate music under subscription. 45 Yet, this was not the end of online sharing. At the time US Supreme Court was shutting Grokster down, Gnutella, the new alternative of KaZaa and Napster already had millions of users. Gnutella’s developing continued and in 2007 it was the most successful platform facilitating P2P file sharing. 46 Likewise Grokster, Gnutella was P2P system operating with decentralized server, allowing users to share files through Internet. 47 Gnutella’s success did not last long and after a court injunction in 2010 it stopped operating. Creative industries gained another victory over a popular P2P website and cut its services. 48

40 Ginsburg, Ricketson, note 38 41 Keyser, note 5 42 Krysten Crawford, ‘Hollywood Wins Internet Piracy Battle’, CNN Money (published on Jun 27, 2005), available at: http://money.cnn.com/2005/06/27/technology/grokster/ (accessed 01.07.2012) 43 Daniel Castro, Richard Bennett, and Scott Andes, “Steal These Policies: Strategies for Reducing Digital Piracy’, Information Technology and Innovation Foundation (Washington, DC: 2009), p.3, available at: http://www.itif.org/files/2009-digital-piracy.pdf (accessed 05.04.2012) 44 RIAA.com, Piracy, available at: http://www.riaa.com/physicalpiracy.php?content_selector=piracy_details_online (accessed 20.01.2012) 45 BBC News, ‘Kazaa site becomes legal service’ (published on Jul 27, 2006), available at: http://news.bbc.co.uk/2/hi/science/nature/5220406.stm (accessed 30.06.2012) 46 Eric Bangeman, ‘Study: Sees Big Growth, LimeWire #1 P2P App’, Ars Technica (published on Apr 22, 2008), available at: http://arstechnica.com/uncategorized/2008/04/study-bittorren-sees-big-growth--still- 1-p2p-app/ (accessed 30.06.2012) 47 Technopedia , ‘What is Gnutella’ , available at: http://www.techopedia.com/definition/445/gnutella (accessed 30.06.2012) 48 Thomas Mannecke, ‘LimeWire Shuts Down-Injunction Ordered’, Slyck (published on Oct 26, 2010), available at: http://www.slyck.com/story2107_LimeWire_Shuts_Down_Injunction_Ordered (accessed 30.06.2012)

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Creative industries were also successful in closing down websites based outside the territory of United States. This was the case with the world giant in P2P services- MegaUpload. This website was based in Hong Kong and it had millions of users like previously discussed platforms. However, after a court decision on 19 of January 2012 it was closed down and the founder of the website was arrested. Although creative industries were very successful in shutting down these major P2P websites, it seems that it did not make any progress regarding the main problem of copyright infringements. In 2010, the same year Gnutella was shut down, Australian researchers conducted a survey describing that 89% of the torrents they analyzed were infringing copyright.49

1.5 RIAA ‘S LITIGATION CAMPAIGN

The efforts of the creative industries appeared to be successful since they managed to close down major P2P platforms. However, all these successes against the facilitators of P2P networks eventually did not yield the desired results. From the year 2000 on online copyright infringements have been escalating and they increased rather than declined. The announcement of the RIAA’s legal campaign in 2003 marked a three year period of decline in the sales of music CD’s, from $13,2 billion to $11,2 billion respectively. 50 RIAA probably found that one of the aspects that had caused this large scale of illegal downloads is the perception that music and software swappers have regarding copyrights. They thought that they were doing something legal. 51 A survey found that among the children participated in the poll, 43% said that music downloading is not something wrong. 30% considered that there is nothing wrong in swapping pirated software as well. 52 This might be the reason why RIAA, observing the situation at that time and relying on statistics describing the expected impact of illegal sharing, in 2003 embarked on a new course regarding legal suits against individual infringers. 53 The success of the effort was substantial, because individual infringers till that moment had been considering themselves as untouchable 54 , as the first 261 lawsuits filed against alleged violators changed that perception. 55 In 2004 the benefits from these lawsuits seemed to give notable results. A survey showed that 38% of the music downloaders at that time were

49 Robert Layton, Paul Watters, ‘Investigation Into The Extent of Infringing Content on Bitorrent Networks’, University of Ballarat (2010), p.1, available at: http://torrentfreak.com/static/bt_report_final.pdf (accessed 30.06.2012) 50 David McGuire, ‘Report: Kids Pirate Music Freely’, The Washington Post (published on May 18, 2004), available at: http://www.washingtonpost.com/wp-dyn/articles/A37231-2004May18.html (accessed 10.11.2012) 51 Ibid. 52 Ibid. 53 Keyser, note 5 54 Sudip Bhattacharjee, Ram D. Gopal, Kavepaan Lertwachara, James R. Marsden, ‘Impact of Legal Threats on Online Music Sharing Activity: An Analysis of Music Industry Legal Actions’, University of Chicago, Journal of Law and Economics, Vol. XLIX (April 2006), p.92, available at: http://digitalcommons.calpoly.edu/cgi/viewcontent.cgi?article=1009&context=mgmt_fac (accessed 05.07.2012) 55 Keyser, note 5

14 | P a g e less using pirated content due to RIAA’s suits. 56 More important data showed that 14% of the swappers who had downloaded files reported that they no longer did any downloads.57 Another survey conducted among university students showed that after 2003 there were decline in downloaders. An increase in legitimate sales has been observed in 2005 (28%) compared with 2003 (7%). 58 Furthermore, the announcements about RIAA’s campaign tend to decline the usage of pirated software as 70% of those students who heard about the court actions or the news about unlicensed software, reported they were less willing to download illicit content. 59 RIAA’s bases for initiating litigation against alleged downloaders were the provisions of Digital Millennium Copyright Act (hereinafter DMCA) and more particularly the opportunities this bill provides for the plaintiff to require revealing the identity of the suspected wrongdoer. Such a revealing is possible under section 512 of the DMCA. It allows a subpoena to be sent to the ISP, requesting classified information about an individual user. As a result, ISP identifies the infringer and supplies music companies with the opportunity to seek damages. 60 This was promptly corrected, as in 2004, after a court ruling in RIAA vs. Verizon, the opportunity to acquire individuals’ identities was cut off. 61 From that time on, content industry began the attacks against the so called “John Doe”- anonymous users. Although litigation was against anonymous users, this new legal strategy brought some success, such as that shown by Sony Music Entertainment, Inc. vs. Does 1-40. 62 However, together with the successful litigations there were also failures, which seriously put under question the objectives of this strategy. In Lenz v. Universal Music Corporation the creative industries strategy has been seriously contested. The court actions have been instigated by Stephanie Lenz who claimed misrepresentation in Universal’s take down notices. In the 30-seconds video representing her little son dancing on the music of , Universal found violation of their copyrights. Consequently, after Mrs. Lenz got aware about these actions she, as the DMCA allows, sent counter notice in which she asserted her view that this video uploaded in YouTube fell under the protection of fair use and there is no violation of the Universal Music Corporation’s rights. In this case the ruling of the court was in favor of Mrs. Lenz, as the judge motivated his resolution with the argument that Universal should have considered fair use before sending take down notices. 63 Thus, unreasonably attacking every user as a result brought back counter reaction from the consumers. This situation made RIAA’s efforts

56 Lee Rainie, Mary Madden, ‘Pew Internet Project and Conscore Media Metrix Data Memo ’, Pew Internet (Apr 25, 2004), p.4 available at: http://www.pewinternet.org/~/media/Files/Reports/2004/PIP_Filesharing_April_04.pdf.pdf (accessed 10.11.2012) 57 Ibid, p.1 58 Michael Gross, Higher Education Unlicensed Software Experience – Student and Academic Survey’, Alliance (May 23, 2005), p.2, available at: http://www.bsa.org/country/Research%20and%20Statistics/~/media/CFEE35E8F4134C66A29F386F4381EC57.ashx (accessed 10.11.2012) 59 Ibid. 60 David W. Optderbeck, ‘ Peer – to – Peer networks, Technological Evolution , and Intellectual property Reverse Private Attorney General Litigation’, Berkley Technological law Journal 1685 (2005), p.1702, available at: http://www.btlj.org/data/articles/20_04_05.pdf ; (accessed 10.11.2012); See also Marcia Keyser, ‘Napster, Grokster and the RIAA lawsuits’, ConneXions (last edited on Dec 14, 2011) 61 Ibid. 62 Sony Music Entm't, Inc. v. Does 1-40, 326 F. Supp. 2d 556 (S.D.N.Y. 2004). 63 Lenz v. Universal Music Corp., 572 F. Supp. 2d 1150 (N.D.Cal.2008).

15 | P a g e more complicated, because this campaign was time consuming and extremely expensive and as a result they were still losing lawsuits. Moreover, they sue their own customers, which could bring reflux of potential incomes. However, during the campaign 35 000 lawsuits were filed and in the most cases it ended with settlements favoring RIAA. 64 Though, in 2008 RIAA declared it had decided to abandon this strategy. 65 After its end, statistics unambiguous showed that the legal campaign did not have the effect RIAA was probably expecting to achieve. Although in 2005 a jump has been observed in sales of legally downloaded music, estimated to $1billion, for the same period it has been further found that the illegal file sharing remained unchanged. 66 Notwithstanding that legitimate downloads climbed up, a serious drop in the overall music sales has been observed. For the period 1999 – 2009 sales plunged from $14.6 billion to $6.3 billion. 67 The crash of this initiation might have been further dictated by the fact that it was based on intimidating of RIAA’s own potential customers. Harassing music fans, like the 21 – year old student Casey Lents, as wringing their hands for money, ultimately resulted in the opposite effect. 68 Further failure of this strategy was revealed by RIAA’s intentions to use the lawsuits as a teaching tool. 69 The usage of higher levels of penalties increases the deterrence effects, but at the same time it also increases the frustration of the individuals. 70 This dissatisfaction contradicts the claims that stronger enforcement will educate. 71 However, one statement might be true more than the others- content industries got a bad name after this legal campaign. 72

1.6 THE LEGAL CAMPAIGN IN EUROPE

1.6.1 Pirate Bay website launched in 2003 was probably the most famous platform using the Bit Torrent protocol. 73 After a couple of letters addressed to the website by companies (Electronic Arts (EA), Dream Works, Apple, Web Sheriff) claiming alleged infringements of their copyrights, Pirate Bay was

64 Keyser, note 5 65 Michael Santo, ‘RIAA Gives Up on Piracy Lawsuits’, Hothardware (published on Dec 19, 2008), available at: http://hothardware.com/News/RIAA-Gives-Up-on-Piracy-Lawsuits/ (accessed 15.07.2012) 66 Simon Crerar, ‘Illegal File-sharing as Popular as Ever’, The Times (published on Jan 19, 2006), available at: http://www.thetimes.co.uk/tto/arts/music/article2418137.ece (accessed 10.11.2012) 67 David Goldman, ‘Music’s Lost Decade: Sales Cut in Half’, CNN Money (published on Feb 3, 2010), available at: http://money.cnn.com/2010/02/02/news/companies/napster_music_industry/ (accessed 10.11.2012) 68 David Kravets, ‘File Sharing Lawsuits at a Crossroads, After 5 Years of RIAA Litigation’, Wired (published on Apr 9, 2008), available at: http://www.wired.com/threatlevel/2008/09/proving-file-sh/ (accessed 10.11.2012) 69 Optderbeck, note 60, p.1709 70 Ben Depoorter, Alain Van Hiel, Sven Vanneste, ‘Copyright Backlash’, Southern California Law Review, Vol. 84:1251 (2011), p.1271, available at SSRN: http://papers.ssrn.com/sol3/papers.cfm?abstract_id=740184 (accessed 10.11.2012) 71 Ibid. 72 Keyser, note 5 73 Michael A. Carrier, ‘The Pirate Bay, Grokster and Google’, Journal of Intellectual Property Rights, Vol. 15 (Jan 2010), p. 8, available at SSRN: http://papers.ssrn.com/sol3/papers.cfm?abstract_id=1481854 (accessed 01.05.2012)

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stand on trial. It was held liable in “ assisting copyright infringement ” and “ making available of copyrighted works ”. 74 The court analyzed that the seeding and the consequent obtaining of the files by the users constitute “ making available to the general public ”. 75 The court further clarified that the platform has been provided with “ easy uploading and downloading facilities ” as well as the ability to “put individual file – sharers in touch with one another .” 76 The trial ended with the imprisonment of the convicts together with a fine of 2.7 million euros.77

1.6.2 Individual users In Europe, the illegal downloaders are also under prosecution. Supported by the International Federation of Phonographic Industries (hereinafter IFPI) music industry engaged court actions against 200 infringers. 78 There were trials in Denmark, Germany and Italy. Some of these cases were already settled in favor of the music industry, as the perpetrators had to pay damages estimated at several thousand euros. 79

1.7 COPYRIGHT ENFORCEMENT

1.7.1 Aftermath The outcome, after these years of litigations, shutting down websites and prosecuting alleged infringers, shows the ineffectiveness of the copyright enforcement. Surveys conducted among the territory of the European Union prove that statement. It is expected that the piracy rates tend not to decline, but to increase drastically. The French MEP- Michelle Gallo in her official report predicts that till 2015 the losses on the territory of the European Union will be devastating. It is expected that the negative impact will grow to 250 billion EURO of financial losses and 1.2 million people unemployed. 80 This indicates that copyright enforceability struggles to cope with online copyright infringements. The creative industries legal victories have been mentioned, but it was also revealed increasingly growing piracy rates have been observed. The reason why copyright holders cannot be freed from this burden might be because the enforceability of copyright law is not the champion they expected to be. Copyright framework is wrongly applied and it leads to ineffective results. When applied to matters that concern

74 Ibid, p.9 75 Ibid. 76 Ibid. 77 Ibid. 78 BBC News , ‘Song – Swappers settle out of court’ (published on Jun 8, 2004), available at: http://news.bbc.co.uk/2/hi/entertainment/3786547.stm (accessed 15.10.2012) 79 Ibid. 80 Marielle Gallo, ‘Report on enforcement of intellectual property rights in the internal market’, European Parliament session document, Committee on legal affairs (03.06.2010), available at: http://www.europarl.europa.eu/sides/getDoc.do?pubRef=-//EP//NONSGML+REPORT+A7-2010- 0175+0+DOC+PDF+V0//EN (accessed 20.01.2012)

17 | P a g e the new digital realities, brought by the new technologies, the current regulation principles tend to result into disparaging effects. 81 This changes the focus and the question can be made whether we should rely only on enforcement as the only alternative against online piracy. We can observe that all the efforts copyright holders and the legislators made simply do not work. Their actions actually are rather firmly criticized than approved. Online piracy is a serious issue, requiring flexible framework, balanced enough to have a chance against online copyright infringements. Copyright enforcement simply does not work and it is not able to cope with copyright infringements, because copyright holders use it, as a tool for gaining revenues from the alleged infringers. 82 Thus, it seems piracy is an enforcement issue as well as business model issue. 83

1.2.7. The problems behind the enforcement Although successful, these trials against the online intermediaries, however, revealed the real problems behind the copyright enforcement. The consequences are not estimated only by the increased online piracy rates, but also in raising additional social problems. In Grokster, the court was straightforward regarding the choice whether to ban or not the software facilitating illegal downloads. 84 In an environment, where legal and illegal content is circulating it is hard to judge. Simply posting illegal content by the individual users is easy to trace and deter. However, Grokster software makes it hard to distinguish between lawful and unlawful conducts. This hinders the courts’ judgment. They must either restrict certain lawful conducts to reach the unlawful, or have to let infringing content to remain online in order to protect the legal one. Thus, judgments could vary significantly in the different courts. 85 In Napster case, the percentage between the unlawful content and that allowed by the law was taken into account. Since the number of infringing files exceeded the non-infringing once, the court judged in favor of closing the platform, because this way far more illegal content would be stooped instead of legal. 86 A second problem is revealed by the capacity of P2P offers. By terminating such network, creative industries are depriving themselves of the chance to use a network through which they could more easily reach their customers. P2P will provide endless computer resources serving the trade of the copyrighted works. 87 Moreover, suing facilitators and banning P2P networks together with the new

81 Rebecca Giblin, ‘Physical World Assumptions and Software World Realities (and Why There are More P2P Software Providers Than Ever Before), Columbia Journal of Law & the Arts, Vol.35, No.1 (2011), p.64, available at SSRN: http://papers.ssrn.com/sol3/papers.cfm?abstract_id=1992711 (accessed 15.01.2012) 82 Keyser, note 5 83 Hart, note 19 84 Mark Lamley, R. Anthony Reese, ‘Reducing Digital Copyright Infringement Without Restricting Innovation’, Stanford Law Review Vol. 56 (2004), p. 135, available at SSRN: http://papers.ssrn.com/sol3/papers.cfm?abstract_id=525662 (accessed 20.09.2012) 85 Ibid. 86 Ibid, p.136 87 Ibid, p.137

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devices and programs developed by the intermediaries hinders the innovation. 88 The severe prosecution is likely to deter innovative initiatives, which could be legal. 89 Another disadvantage of the enforcing mechanisms is relying on the facilitators to police. The attempts to redesign Napster order to restrict illegal content and provide only genuine contetn failed. 90 Napster further could impose control over the materials, because it operates with central directory. However, Grokster and Bit Torrent are decentralized servers and such a monitoring would technically impossible. 91 Further problems have been raised by the provisions of the DMCA. When ISP receives an order to remove certain alleged infringing material, they automatically comply with such requests. However, since they bear no pecuniary consequences for removing content, which is lawful, the enforcement of the copyright law in such a manner works in apparent favor of the copyright holders. 92 Ineffective enforcement and the attempts for its enhancement cause significant damages to the ordinary consumers and it does not prevent the theft of the property of creative industries. Generally, in the current realm the sentence of Robert Sherwood reveals most properly why copyright enforcement is not able to deter online piracy: “until judicial systems in developing countries and transition countries are upgraded, it will matter little what intellectual property laws and treaties provide”. 93

This chapter described why there is a need for rethinking the current methods of combating online piracy. In the next chapter an alternative to these methods in the face of the new business methods will be provided.

88 Ibid, p.141 89 Ibid, p.142 90 Ibid, p.139 91 Ibid. 92 Ibid, p. 141 93 Robert M. Sherwood, ‘Some Things Cannot be Legislated’, University of Cardozo Journal of International & Comparative Law, Vol.10:37 (2002)

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Chapter II

NEW BUSINESS MODELS: NEW OPPORTUNITIES FOR COPYRIGHT HOLDERS

In this chapter an analysis will be provided sustaining the thesis that new business models are requiring serious consideration. It will be discussed that business models provide a better chance for harnessing P2P potential rather than attempting to terminate such networks and at the same time their absence obstructs enforcement making it meaningless. Apple’s iTunes model as well as other platforms will be described more precisely in order to reveal the potential for success of the business models in general. The chapter sets forth the necessity for establishing new improved platforms capable to attract consumers by providing experience similar to this provided by pirated websites, as well as reasonable prices. Further, it indicates that a greater control over their property, as well as new and better ways for exercising their exclusive rights would be placed by applying new business models.

The analyses in this chapter is undertaken to prove that new business models are worth considering as a better alternative, compared with ineffective copyright enforcement. Its aim is to convince us why creative industries should be guided towards implementation of new business models in the digital environment.

2.1 THE ALTERNATIVE

Copyright holders should adopt new business models, because this way they could compete with the pirated content online. They should try to compete with pirated content, because recent data show that these legitimate services help diminishing piracy rates. Services, such as Spotify, cause a dip in the pirated usage. 94 According to Musicmetric, illegal downloading rates are higher in countries with no legitimate services. These rates tend to decline where authorized services have been provided. 95

94 Mike Masnick, ‘More Research Again Shows: Good, Authorized Services Compete With Piracy’, TechDirt (published on Oct 5, 2012), available at: http://www.techdirt.com/articles/20121004/12260720596/more- research-again-shows-good-authorized-services-compete-with-piracy.shtml ; See also Alex Pham, ‘Legitimate Service Streaming Services Cut Down on Piracy, Report Suggests’ Billboard.bz (published on Oct 3, 2012), available

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It is further concluded that in half of the countries where Bit Torrent usages is declining this was due to the influence of Spotify. 96 Millions of tracks offered for streaming and supported by ads for a small monthly fee turned out to be a serious competition to music piracy. 97 This indicates that copyright holders are able to compete with free. Spotify and other similar service activities appear to result in piracy decline. However, in order to compete effectively with free the services need to be “ good, convenient and easy ”. 98 Furthermore, the enforcement mechanisms are ineffective. This might be an indication that the existing methods for deterring online copyright infringements should be reconsidered, as the new business models seem a viable alternative for taking advantage over piracy. These new alternatives could make use of Internet’s unlimited abilities to distribute content almost instantly to basically every corner of the world, while at the same time using its’ openness to reach consumers, located far from the seller’s business district. Once one realises that enforcement itself is not the solution in order to achieve fertile results in this battle, we should explore other alternatives. Through online business models, a market should be established, competitive enough to the illicit content, disseminated in the Internet, and which market should be supported by appropriate legal framework in order to enable access to lawful content of the consumers. 99 More than a decade ago when Napster was closed it was described as a victory over P2P networks. 100 However, creative industries have shut this system down without realizing its potential. They saw in file sharing something destructive for their market and hastened to get rid of it. Yet they were not able to realize the opportunity Napster offered to them at that time. This platform had millions of subscribers willing to explore the new options Internet can provide them with. Labels however did not see these subscribers as potential customers and did not see the platform as a way to expand their business. These potential clients were condemned as criminals and infringers of copyright property. Nowadays, long after Napster has been closed down, there is slow but growing awareness that new business models can provide better opportunities and they are gradually becoming an alternative worth to be considered. 101 The opportunities for interacting with numerous consumers around the globe

at: http://www.billboard.biz/bbbiz/industry/digital-and-mobile/bittorrent-share-shrinks-in-countries-that- 1007966012.story (accessed 20.09.2012) 95 Ibid. 96 Ibid. 97 Torrent Freak, ‘Music Piracy Continues to Decline Thanks to Spotify’ (published on Sep 28, 2011), available at: http://torrentfreak.com/music-piracy-continues-to-decline-thanks-to-spotify-110928/ (accessed 01.10.2012) 98 Mike Masnick, ‘Yes, You Can Compete With Free, But It Has to be Done Right’, TechDirt (published on Oct 31, 2011), available at: http://www.techdirt.com/articles/20110930/02532116147/yes-you-can-compete-with-free-it- has-to-be-done-right.shtml (accessed 28.10.2012) 99 Rene Summer, DR Nicolas Suzor, Patrick Fair, ‘Copyright Enforcement in the Networked Society’ (2011), p.2, available at: http://www.ericsson.com/televisionary/sites/default/files/Guiding%20Principles%20to%20Copyright%20Enforcem ent%20in%20NS.pdf (accessed 20.05.2012) 100 BBC News, ‘Napster Rivals Celebrate Ruling’ (published on Feb 13, 2001), available at: http://news.bbc.co.uk/2/hi/business/1167508.stm (accessed 20.04.2012) 101 Managing Intellectual Property, ‘Agreement Will Create New Business Models for Online Music’ (Apr 12, 2012), available at: http://www.managingip.com/Article/3010766/Agreement-will-create-new-business-models-for- online-music.html (accessed 12.07.2012)

21 | P a g e and at the same time collecting small revenues from every purchaser could lead to ever more outcomes for the copyright owners. Considering every user as a possible purchaser of certain creative works might prove a better strategy instead of attempting to impose restrictions upon them and to prosecute them. 102 Yet, in the current realm file sharing is considered by the labels more as a problem that requires a solution, than as an opportunity worthwhile exploring. The roots of the problem might be caused exactly by that very failure to realize the P2P potential. Nowadays the demand for music, movies, games, etc. is probably higher than ever, but the way it has been distributed till now is outdated and no longer serves the needs of the consumers who want easy and fast access to all of the desired content. The time consuming and expensive distribution of content as well as the lack of digital platforms, where consumers can obtain the required goods, are not currently available.103 This market failure to supply the consumers with lawful content via Internet resulted in illegal downloads from other platforms that are able to meet the online demand. This situation actually puts copyright enforcement in a disadvantageous position, because enforcement itself cannot solve creative industries failure to provide what the people want. 104 Moreover, it is obvious that copyright enforcement is not the “silver-bullet” and it cannot play that role in the current situation. Its role, which will be described more comprehensively in chapter III, should not be towards suing online users to get compensation from them, as the content industries business initiatives were. Its’ role must be to guide the purchasers towards obtaining lawful content via such online platforms. However, it will be extremely difficult because such widespread are lacking online platforms are missing and the enforcement is not able to meet the market demand.105

2.2 NEW BUSINESS MODELS WORK

2.2.1 iTunes Soon after it’s relies, iTunes became extremely famous as being an attempt for supplying the digital environment with lawful content. It seems that this platform meets consumers’ expectations for musical works on the Internet and it is worth describing it, because it shows the potential of a well created business model that is able to provide lawful content. Apple’s platform for content delivery seems to be an extremely successful new business model. Their platform proves how new opportunities brought by Internet can be used for new alternatives for business development. Their iTunes’ program that offers playing and organizing digital music and video files together with the iTunes store appears to have provided a decent stand to pirated content and paved the road for future developments. 106 The

102 Eric Priest, ‘Why Emerging Business Models and not Copyright Law are the Key to Monetizing Content Online’, University of Oregon School of Law (May 8, 2008),p.11, available at SSRN: http://papers.ssrn.com/sol3/papers.cfm?abstract_id=1233782 (accessed 12.07.2012) 103 Summer, Suzor, Fair, note 99, p.4 104 Ibid. 105 Ibid. 106 Edward L. Turner, ‘The Key Success Factors Behind Apple’s Platform Strategy with iTunes’, Fox School of Business (published on Jul 6, 2011), available at:

22 | P a g e crucial success behind iTunes seems to be dictated by the attractive pricing of the works offered on the platform and the ease of use of its content. The attractive pricing model allows the purchaser to buy songs for relatively low prices, while iTunes at the same time the program offers the advantages of P2P networks- fast searching and relevantly rich range of songs. 107 The iTunes store monetizes users’ demands for easily accessible content, although paid, but for an attractive price, while offering music , exclusive tracks, audiobooks as well as many other features. Big success of Apple’s iTunes service platform is that it managed to provide content from the five main labels and it does not ask a subscription fee. 108 Another important contribution to Apple’s success are fertile deals with copyright holders. At the same time it was shown how a precise business model aimed at harnessing the Internet’s market opportunities could overcome copyright issues and attract millions of purchasers who prefer buying instead of illegal downloading. Hence, creating a safe way of downloading content and incentivizing individual users to search for that safe way is the real benefit of having iTunes. 109 Apple’s iTunes is a bright example of how business models are worth to be considered as a viable alternative to copyright enforcement as a sole tool for preventing online copyright infringements. The capabilities for offering attractive prices to the consumers and especially implementing a safe path for downloading files in an environment where every user daily violates copyrights without even realizing it, is the real value of this business model. Yet iTunes store is not the only business model currently circulating in the World Wide Web. There are other examples revealing new capable alternatives for effectively competing with the illegal file sharing -“”, “Prince”, SpiralFlog free model, “Radiohead” and “” pay what you want variants or “ AmieStreet ” pay by popularity. With the changing circumstances such business models seem to become more and more accepted and also seem to become better applicable nowadays. Some of the major labels in the creative industry already started shifting their actions towards such alternatives. For instance, giant Warner Music entered into contractual negotiations with YouTube, which platform has been attacked numerous times due to offering of illicit content. 110 Soon after the move of Warner Music move, another major label in the face of “Universal Music” looked for cooperation with YouTube, although it has been involved in litigation for millions of dollars. 111 The recently signed agreement between RIAA, the National Music Publishers Association (NMPA) and the Digital Media Association (DiMA) is indicative for the value of the new business models. This agreement manifests label’s actions to elaborate more effective business models and to enhance the licensing process of musical works. This agreement will bring new online

http://community.mis.temple.edu/mis5801sum2011/2011/07/06/the-key-success-factors-behind- apple%E2%80%99s-platform-atrategy-with-itunes/ (accessed 29.06.2012) 107 Green Paper v.1.0, ‘iTunes: How Copyright, Contract, and Technology Shape the Business of Digital Media- A Case Study’, The Berkman Center for Internet & Society at Harvard Law School (Mar 30, 2004), p.10, available at: http://cyber.law.harvard.edu/media/uploads/53/GreenPaperiTunes03.04.pdf (accessed 29.06.2012) 108 Ibid. 109 Turner, note 106 110 Brennon Slattery, ‘You Tube, Warner Music Close to Licensing Deal’ , PCWorld (published on Sep 29, 2009), available at: http://www.pcworld.com/article/172798/youtube_warner_music_close_to_licensing_deal.html (accessed 15.06.2012) 111 Neil Weinstock Netanel, ‘Introduction, Copyright’s Paradox’, Oxford University Press Research Paper No. 08-06 (2008), p.9, available at SSRN: http://papers.ssrn.com/sol3/papers.cfm?abstract_id=1099457 (accessed 23.01.2012)

23 | P a g e services such as mixed service bundles, paid locker services, purchased content lockers, subscription- based services with limited music genres or playlists, and music bundles. 112 When approved by the Copyright Royalty Board this initiative is expected to contribute to the relationships between labels, online consumers and inventors of new business services. 113

2.2.2 Subscription based models

2.2.2.1 Music Apple’s iTunes is not the only business model through which copyright holders can exploit their copyrights. The subscription based model of obtaining music services is becoming more and more popular. The numbers show that more than 13 million consumers used such services in 2011, which is a big increase compared with the previous years. 114 On the European market such business models are well expanding. The use of these services is increasing in Scandinavian countries, such as Sweden, but the same also happens in France. 115 One famous subscription model is Spotify. This platform has 2.5 million subscribers worldwide. 116 The real success of Spotify though is that it managed to spread its business model in Europe as well as in the USA market. The intention of the people behind it is to expand the service globally. 117 The way subscription based models work changes the experience of the consumers. Now they can enjoy better designed platforms with new ways of paying for tracks and albums. 118 Another beneficial effect is that more consumers could be reached. The partnership between Spotify and Facebook ensured large numbers of users. 119 Of course it is a profitable trade move by Spotify and it does not indicate that other platforms based on subscription would manage to achieve it. Recently more subscription based services emerged. Deezer in France, Rhapsody in US, Galaxie in Canada, and launched in Germany and Austria, etc. 120 All these services have emerged since 2007 and their potential is undeniable.

2.2.2.2 Movies Netflix is a business model that allows the consumers to watch TV shows and movies. This platform operates internationally and has more than 30 million subscribers. The numbers say that Netflix is the world’s leading service for movies and TV shows. 121 In terms of revenues it is the largest

112 Managing Intellectual Property, note 101 113 Ibid. 114 International Federation of the Phonographic Industry, ‘Digital Music Report: Expanding Choice. Going Global’ (2012), p.10, available at: http://www.ifpi.org/content/library/DMR2012.pdf (accessed 20.09.2012) 115 Ibid. 116 Ibid, 11 117 Ibid. 118 Ibid. 119 Ibid, 12 120 Ibid, 11 121 Netflix.com , Company Overview, available at: https://signup.netflix.com/MediaCenter (accessed 01.10.2012)

24 | P a g e online service in US. 122 Thus, the subscription model seems to work well for both the music and the movie industries.

2.2.3 Ad based model This business model was initially introduced by radio and TV operators. They received revenues from the companies promoting their products to the large audience by means of ads.123 Consequently, with the growth of the Internet, the advertising model has been used to promote services available at certain sites. The Web provides for the advertisers chance to reach particular niche of consumers. 124

2.2.4 Target Advertising This model is based on a strategy that provides certain consumers with the products they are interested in. Advertising certain products to a non - selected group of purchasers would yield more views, but as a result not all of them would buy it. Target advertising is aimed at promoting products to a selected group of consumers, who could be interested in purchasing the product.125 The choice, which products will be brought under the attention of group of consumers, is determined by their online behavior. The individually delivered advertisements are based on the websites visited, location, age of the user, as well as any other available information. 126 Promoting novels to consumers who like reading or advertising TV shows to those who enjoy sitting in front of the screen is a model likely to increase the sales of certain products. Yet, this target advertising model raises some concerns whether the privacy of the consumers has been respected. 127 It would be important for the future business digital shops to avoid privacy interference, because this is important for consumers and they could withdraw their interest from certain platforms.

122 Dan Cryan, ‘Netflix Surprises Apple to Take Lead in US Online Movie Business in 2011’, iSuppli (published on Jun 1, 2012), available at: http://www.isuppli.com/Media-Research/News/Pages/Netflix-Surpasses-Apple-to-Take- Lead-in-US-Online-Movie-Business-in-2011.aspx (accessed 28.08.2012) 123 Alan Gleeson, ‘Examples of Well – Known Business Models’, Bplans, available at: http://articles.bplans.co.uk/starting-a-business/examples-of-well-known-business-models/1040 (accessed 14.07.2012) 124 Ibid. 125 Curiosity.com, ‘What is Target Advertising’, available at: http://curiosity.discovery.com/question/targeted- advertising (accessed 20.10.2012) 126 Ayman Farahat, Michael Bailey, ‘How Effective is Targeted Advertising?’, Conference.org (Apr 16 – 20, 2012), p.111, available at: http://www2012.wwwconference.org/proceedings/proceedings/p111.pdf (accessed 20.10.2012) 127 Caitlin Fitzsimmons, ‘Does Targeting Gays With Facebook Ads Push the Limits of Privacy?’, AllFacebook.com (published on Oct 21, 2010), available at: http://allfacebook.com/facebook-targeted-ads-privacy_b20940 (accessed 20.10.2012)

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2.2.5 Music Video Models Although many songs are downloaded online, consumers also like to download music videos. The numbers of watched videos worldwide is increasing. 128 VEVO is a platform that provides such video services. It distributes music videos to more than 415 million users worldwide. 129 This number shows that this business model is definitely a successful one. This application, like Spotify, collaborates with Facebook hence it reaches numerous individuals worldwide. 130

2.3 PROVIDE USERS WITH WHAT THEY WANT

2.3.1 Experience In order to meet consumers’ demands it is necessary for these new business models to provide a wide variety of music, movies or other content and to do this timely and lawfully. Providing online users such opportunities that offer the same experience as the illegal websites is the only reasonable way to reduce online copyright infringements substantially.131 These platforms could have a twofold effect, as they will influence the consumer’s willingness to purchase lawful content and at the same time they will establish an environment where copyright holders could exercise their copyrights. Websites like Pirate Bay or Bit Torrent offer not only illegal content. Such websites have a whole system of features that provide users with the possibilities to explore that content and at the same time to be part of the community there, as it is possible for them to leave comments under each item they want. Furthermore, users are enabled to create personal profile pages and to join groups. 132 It is not only commenting movie’s actors or musical performers that are interesting in such platform, but also the live communication between the users that are part of this website, also improve the quality of the services offered by the platform, as every participant has the chance to set out his views about particular content. However, the major value of such platforms for their users is the fact that they provide timely and effortless access to the content they want and this happens while sitting at home. Using the search engine in these sites can lead the user immediately to the product they are searching for. Yet such opportunities have not been provided by any of the major labels and instead they still rely on their obsolete business models where distribution of goods consumes time and money and this is not likely to be in their favor if they want to attract consumers. Online users access such sites not only because the content exhibited there is for free. It is the experience such platforms offer and the

128 IFPI, note 114, p.13 129 Ibid. 130 Ibid. 131 Summer, Suzor, Fair, note 99, p. 11 132 Gal Oestreicher-Singer, Lior Zalmanson, ‘Paying for Content or Paying for Community? The Effect of Social Computing Platforms on Willingness to Pay in Content Websites’, Tel Aviv University-Faculty of Management (Jul 26, 2011), p.13, available at SSRN: http://papers.ssrn.com/sol3/papers.cfm?abstract_id=1536768 (accessed 20.10.2012)

26 | P a g e availability of the content they seek. 133 Thus this is the failure of the copyright holders who are unable to uptight the consumers interests and to supply them with better alternatives. In the current situation where copyright infringement may lead to severe penalties, many users will decide to avoid any breaches of someone’s copyrights and will prefer to obtain content lawfully if such platforms existed. However consumers are deprived from such supply by the creative industries and they continue to download from the platforms capable enough to satisfy their demands. Therefore, when the copyright holders manage to provide users with such better experience and available lawful content, it could attract many of the Internet users. 134 Hence, it is at the hands of content industries to create and of policy makers to support implementation of such new business models in the online space. It depends on them as well as on the level of innovativeness of such business alternatives whether they will succeed to control piracy. 135 In order to attract consumers, copyright holders should follow certain steps in order to stand a chance to shift their attention to the new business platforms. 136 Labels should provide users with the opportunities for effortless acquisition of music, movies, games, software or other content. Moreover, if copyright holders want to be competitive enough with the illegal platforms, their business models should be able to supply users with a greater amount of different content. Pirate sites, as they might possess plenty of content, are not capable of acquiring and consequently of supplying everything. As these new business models would be run by the owners of the content or their representatives, it could be easier for them to offer a wider choice of products. Furthermore, services such as , which make discovering of certain song easy and the buying process simple, might win the attention of purchasers. The services it provides are similar to those offered by Apple’s iTunes and attract millions of visitors, as the market success of Shazam is calculated of 250 000 tracks per day.137

2.3.2 Reasonable prices Another important feature to attract consumers, are the reasonable prices.138 Apple’s iTunes implemented this requirement well, because consumers can download the content without any effort and against low prices. However, it may not be that easy to offer attractive prices. Let us take as an example the music business where we observe a “dual layer” of copyright owners 139 consisting of the copyright owner who created the musical work and the sound recording copyright owner.140 Because

133 Glyn Moody, ‘DMCA Takedown Service Tells Copyright Companies: ‘Adapt Your Business to the New Digital World’, Techdirt (published on Feb 17, 2012), available at: http://www.techdirt.com/articles/20120213/12340217748/dmca-takedown-service-tells-copyright-companies- adapt-your-business-to-new-digital-world.shtml (accessed 22.08.2012) 134 Ibid. 135 Mohit Agrawal, ‘Business Models to Fight Music Piracy’, Telecom Circle (published on Feb 21, 2010), available at: http://www.telecomcircle.com/2010/02/digital-music/ (accessed 15.07.2012) 136 Ibid. 137 Ibid. 138 Ibid. 139 Lydia Pallas Loren, ‘Untangling the Web of Music Copyrights’, Lewis & Clark Law School Review Vol. 53 (2003), p.698, available at SSRN: http://papers.ssrn.com/sol3/papers.cfm?abstract_id=424701 (accessed 15.07.2012) 140 Anthony Reese, ‘Copyright and Internet Music Transmissions: Existing Law, Major Controversies, Possible Solutions’, University of California Irvine School of Law Research Paper No. 26 (Apr 26, 2001), p. 265, available at SSRN: http://papers.ssrn.com/sol3/papers.cfm?abstract_id=276333 (accessed 11.07.2012)

27 | P a g e two copyright holders may have to be paid, this might increase the costs. An endless chain of right holders is observed- beginning from the inventor of the work, passing through publishers, another bundle of licensing among them, collective rights organizations such as ASCAP, SESAC and BMI are also involved, then we have musicians, artists as most of them are RIAA’s members, etc. The result of too many right holders operating on the market is that offering attractive pricing could become problematic. Though, if labels have enough will, they could harness Internet opportunities to deliver content for basically no price and its ability to eliminate the middle man will reduce the costs of the products, thus consumers would be more interested.141 Attractive prices will definitely influence the willingness of the online purchasers, as they would prefer to pay a small amount, but to keep away from possible legal troubles if operating with illicit downloading. These are the steps creative industries should undertake to attract online users on their side. They should create a cheap market that offers great variety of lawful content and it must be easily accessible. That however will only become a reality if labels are willing to shift towards new business models. The success of iTunes and Shazam shows that it is not impossible to win consumers and to compete with piracy. Yet, users desire to have a similar experience as they have with pirate websites, in order to achieve that the aforementioned steps should be taken into account. Since the current severe enforcement proved unable to terminate the supply of content in the digital world, it is up to copyright holders to meet the purchasers’ expectations. If met, consumers will be willing to go shopping from such lawful platforms. In doing so, it would bring many of the individual users, who download illegally now, back to the legitimate digital shops.142

2.4 PROVIDE COPYRIGHT HOLDERS WITH WHAT THEY WANT: BETTER EXERCISE OF THEIR RIGHTS

2.4.1 Greater control Such new business models could make it possible for the copyright holders to better exercise their exclusive rights better. Copyright holders denying to rethink their current policies and to shift into the business models, actually obstruct the enforcement on which they so much rely. Their failure to use file sharing and to supply users with lawful content throws them into pirate sites where copyright enforcement has been proved ineffective. 143 New business platforms can help copyright holders by providing them with a ground where they can better exercise their rights and have greater control over their works before and after they have been purchased. After 2000 file sharing became the dominant form of distribution and moreover it emerged on a brand new environment, which Internet can supply the consumers with. Thus, it is time for the creative industries to adjust their business models and transform them into models reflecting the current digital transformation. However, creative industries saw a threat in this new technology and decided not to

141 Agrawal, note 135 142 Jonathan Langton, ‘New Business Model Required’, Wordpress.com (published on Mar 21, 2012), available at: http://jdlangton.wordpress.com/2012/03/21/new-business-models-reqd/ (accessed 11.07.2012) 143 Summer, Suzor, Fair, note 99, p.4

28 | P a g e take advantage of it, but to fight against it. Though, as the above analyses described, harnessing the opportunities of the Internet and bringing them to a new business models might be the only possible solution thus far for diminishing the levels of pirate content distribution. Creative industries must understand that digital content, disseminated through the new online platforms will give them better chances to handle their property in the Internet space. Digital music for instance is easily stored, reproduced, transformed, searched and found.144 This could give copyright owners a greater control over the creative works. That will deploy in their hands opportunities otherwise not possible in the offline world. In this sense, for the copyright owners it would be easy to modify files, which consist of musical or other creative works in order to supply their customers with additional extras such as images of artists or song lyrics. 145 Moreover, these new business models will allow their owners or their licensors to implement various pricing strategies. Options provided by the pay-per-track model (“Subscribers pay a one time fee to download individual tracks or an album”) or the subscription model (“Subscribers pay a regular fee for a limited or unlimited number of downloads or streaming services”)146 might attract consumers with reasonable pricing of the products and at the same time encourage copyright owners to develop more and better strategies in order to monetize consumers interests. The music in form of digital file makes it possible this content to be sampled or remixed by the users themselves. These features create an opportunity for copyright holders, when implement proper business platforms, to offer the very same experience that pirate sites supply its visitors with.147 New business models will give in the hands of the copyright holders more opportunities to control their works. Once uploaded and disseminated through the online digital shops it will be easier to find who bought a certain musical record or movie. Furthermore this content can be easily identified ex- post, because it can be supplied with identification signs such as watermarking for example. 148 Thus, it will be possible to track and detect the usage of artists’ copyrights. It would also be possible to monitor whether the content has been subject of legitimate downloading or unauthorized use after purchase. Embedding such identification marks could even play a motivation role for the consumers, because this simple marking of the content located in these digital shops could increase the consumers experience as well as copyright holders’ convenience for greater ex-post control of their property. 149 The Shazam model proves that providing customers with the opportunity to easily identify content is successful for their business platform. The Shazam application directs users upon request to a library of millions of

144 Jesse C. Bockstedt, Robert J. Kauffman, Frederick J. Riggins, ‘The Move to Artist-Led Online Music Distribution: Explaining Structural Changes in the Digital Music Market’, Hawaii International Conference on System Science (Sep 12, 2004), p. 15, available at: https://www.misrc.umn.edu/workshops/2004/fall/jesse.pdf (accessed 20.09.2012) 145 Ibid. 146 Shailendra Pandey, ‘Effective Monetization of Music on Mobile’, MidemNet (published in 2010), p.2, http://www.midem.com/RM/RM_Midem_v2/pdf/industry- insight/library/effective_monetisation_of_music_on_mobile.pdf (accessed 29.09.2012) 147 Bockstedt, Kauffman, Riggins, note 144, p.15 148 Digital Watermarking Alliance, ‘The Case for Content Identification: Supporting New Business Models and Effectively Managing Key Business Assets’, White Paper, pp.3-4, available at: http://www.digitalwatermarkingalliance.org/docs/papers/DWA_WhitePaper_Case4ContentID.pdf (accessed 10.07.2012) 149 Ibid, p.5

29 | P a g e songs where each song is supplied with unique digital signature. Thus, when a user likes a certain song, but the performer is unknown to him, it suffices for him to send a short record of the tune. Then, the system of Shazam by using fingerprints of each performance, easily detects and consequently delivers the request to the consumer. 150 However, watermarking or the other tools for content identification have their downsides. Even though we supply the content with an identification marker, how will it differ from the previous attempts to protect content? Watermarking for instance exists since the 1990s and it still has not decreased the stealing of copyright protected works. After all, the reason for that might be because it has not been used in an environment driven by new business models. The purpose of content identification will be different when files are provided through digital shops. Their purpose will be not to restrict users from using the file, but simply being identifiable by the consumer and its path monitored by the provider. The file will carry the mark in order to supply its seller with information about who owns it or how it has been used.151 Trying to evade the watermark will be meaningless for the purchaser who would anyway pay for the content. Consumers have no reason to do so, because they have decided to purchase the content instead of acquiring it illegally. 152 Moreover, as noticed above, such marking will also be meant aimed to serve as an incentive for consumers, because it could increase their experience when searching and purchasing products and for more accurate “audit in real time by the provider”.153

2.4.2 New license strategies and effective competition models At the time being there are barely platforms in the Internet, which could serve as a tool for better exercising the rights of copyright holders in the Web. Usually, when exercising their rights, owners of the copyright grant a license to the licensee allowing a certain way of usage of these rights. Thus, through licensing owners can control the way of exploitation of their work through licensing- whether to grant it for free or for a certain price, whether to stipulate exclusive or non - exclusive license with the other contracting parties. 154 However, this way of exercising the exclusive rights granted by the law is mainly used in the offline world and not widespread in the realm Internet created. When in 2003 Steve Jobs managed to create iTunes, it was a success because for the first time record labels supported certain business model directed to the online consumers. Thus, the foundations of lawful digital music in the Web were established, because before that time the creative industry was reluctant to grant licenses to the online musical market. 155 Yet, almost a decade after the creation of Apple’s

150 Farhad Manjoo, ‘That Tune, Named: How Does the Music-Identifying App Shazam Work Its Magic?’, Slate (posted on Oct 19, 2009), available at: http://www.slate.com/articles/technology/technology/2009/10/that_tune_named.html (accessed 01.07.2012) 151 Digital Watermarking Alliance, note 148 p.7 152 Lawrence Lessig, ‘Free culture’ (2004), p. 301 153 Digital Watermarking Allience, note 148, p.5 154 Richard Raysman, Edward A. Pisacreta, Kenneth A. Adler, Seth H. Ostrow, ‘Intellectual Property licensing: Forms and Analysis’, Law Journal Press (1999), pp. 1-3 155 Emma Barnett, ‘Steve Jobs ‘single-handedly’ Created the Digital Music Market’, The Telegraph (published on Oct 6, 2011), available at: http://www.telegraph.co.uk/technology/steve-jobs/8811311/Steve-Jobs-single-handedly- created-the-digital-music-market.html (accessed 25.06.2012)

30 | P a g e iTunes, it is a rare occasion for the creative industry to allow licensing of their property to online platforms and it is still not their policy. 156 Still unable to see the digital music and new business models contributions, copyright holders have refused to explore the huge market offered by the World Wide Web. However, the existence of such digital platforms will increase the license agreements between the owners of the copyrights and the providers of the service. Thus, the more licenses granted the more royalties received. If creative industries decide to spread their license policies in the online space, it would allow them to manage the Internet market. 157 They will establish a status quo where there is a clear line between the lawful and illicit digital content. Inasmuch as there is demand, but not supply of legitimate content in the Internet, such licensing policies would increase the number of platforms, hence the individual users will be provided with a larger range of choice. At the time being, consumers are illegally downloading, because they simply do not have a choice. The music and movies they seek are only available through pirate websites. If consumers are provided with platforms allowing them to “get legit” and avoid court proceedings it will be a key success. 158 After all, consumers, in the face of the excessive enforcement, cost litigations and severe penalties would rather prefer to pay a reasonable price for the products they want to have from the digital stores and not risk falling under the strikes of the law. 159 The importance of providing legitimate content is crucial for diminishing piracy and it is not necessary to be free to effectively compete with it. When NBC suspended its business relations with iTunes, it led to NBC’s content removal from the online catalogues. As a result, shortly after that, an 11.2% increase in piracy of their content has been observed, which ultimately resulted in 53.000 illegal downloads per day.160 This shows the importance of lawful content being available online and the need for platforms to provide it. Satisfying the demand of the consumers will give creative industries the unique advantage to shape and dictate the future development of the Internet market. 161 Thus, by licensing their products to the new business platforms, copyright holders will be provided not only with a new environment to exercise their copyrights, but also with the opportunity to effectively compete with the illegal downloads. Furthermore the digital environment where these licenses are supposed to operate actually facilitates their proliferation. This is because Internet is an open space where communication between individuals is a matter of single click of a button. Such an environment, where users can reach anybody in the world, while just sitting in front of their PCs, will facilitate the contact between licensors and licensees. The provisions through these new business platforms of an automated way of signing

156 Ibid. 157 Hargreaves, note 13, p.26 158 Electronic Frontier Foundation, ‘A Better Way Forward: Voluntary Collective Licensing of Music File Sharing’ (Apr 1, 2008), available at: https://www.eff.org/issues/file-sharing?f=collective_lic_wp.html (hereinafter EFF) (accessed 10.09.2012) 159 Peter K. Yu, ‘P2P and the Future of Private Copying’, Drake University Law School Research Paper No.02-08 (Sep 23, 2004), p.714, available at SSRN: http://papers.ssrn.com/sol3/papers.cfm?abstract_id=578568 (accessed 25.06.2012) 160 Brett Danaher, Samita Dhanasobhon, Michael D. Smith, Rahul Terang, ‘Converting Pirates Without Cannibalizing Purchasers: The Impact of on Physical Sales and Internet Piracy’, Carnegie Mellon University, Research Showcase (Nov 1, 2011), p.5, available at: http://repository.cmu.edu/cgi/viewcontent.cgi?article=1056&context=heinzworks (accessed 10.11.2012) 161 Hargreaves, note 13, p.26

31 | P a g e contracts and payment, will bring interested parties together with basically less efforts than before and will facilitate the proliferation of the services. 162 In this sense, we might reasonably expect that new licensing strategies will emerge 163 . The individual user, seen as a potential customer and no more as an alleged infringer will contribute towards building even better license policies in the digital space. 164 Consequently fighting against the distribution of files in the Internet will rather hamper the future growth of the creative industries. Providing proper business models will allow them to monetize the behavior of the majority of the individual users. It could help creative industries to harness the digital environment. Moreover such strategies will not only contribute to the better exercising of their exclusive rights, but will give them also options for new ways of exercising them.165 Through the new business models, copyright holders would be able to disseminate their products in the digital environment by signing license agreements. Thus, copyright holders will receive royalties from a market they consider as a threat. Moreover, as aforementioned, opportunities to fully exploit the digital market, which is perpetually growing, eventually will bring ever more customers. As a result, creative industries will be able to entice the clients to come back to them back, clients they sent away by using the enforcement mechanisms. 166 When Napster was created, it answered to the consumers’ demand for easily accessible digital music. This was a missed opportunity for the labels. They had their reputation and sufficient funds for advertising and at that time, they could have created the digital market for their needs, instead of Napster and its successors. Moreover, the creative industries had even a bigger advantage compared with the P2P networks, because they have access to a larger amount of content, as it is their property. 167 The vast spread statements that the only incentive for the obtainers of illegal content is because it is for free is a not fully sustained argument. The NBC’s content became object of increasing piracy not because it was too expensive for the consumers, but because it was removed from iTunes. Individuals were deprived from access to content, for which they actually had paid. As a result, the only way to acquire such content was only offered by pirated services and consumers took advantage of that. 168 Thus, free content is not the driving power behind individuals’ behavior in the digital environment.

2.5 SMALLER LABELS BENEFITS

New business models could become a very convenient way of offering and distributing content by the smaller labels. The transportation and the supply of tangible content carriers are costly and usually can be managed only by the largest record companies and are quite burdensome for those who

162 World Intellectual Property Organization, ‘Copyright licensing in the Digital Environment’, available at: http://www.wipo.int/copyright/en/activities/copyright_licensing.html (hereinafter WIPO) (accessed 12.10.2012) 163 EFF, note 158 164 WIPO, note 162 165 Ibid. 166 EFF, note 158 167 John Tehranian, ‘Optimizing Piracy: The Uses and Limits of Intellectual Property Enforcement in the Cyberspace’, p.56, available at SSRN: http://papers.ssrn.com/sol3/AbstractNotFound.cfm (accessed 20.06.2012) 168 Danaher, Dhanasobhon, Smith, Terang, note 160, p.5

32 | P a g e cannot afford it. Consequently, small labels suffer when trying to reach potential customers, because their products are not available enough. 169 Thus, the arguments for adopting new business models by those labels situated on the lower step of this chain. Since the Internet offers unlimited capabilities to disseminate information basically to everywhere for essentially no cost, it is quite possible for such small labels, if they open certain web shops or other forms of digital platforms, to reach customers otherwise impossible for them. 170

2.6 ARTISTS BENEFITS

New business models could have beneficial effects on the artists. It could help them to manage the “do – it –yourself approach ”. 171 In the developing digital world artists have been given a chance to produce and distribute their own works without depending on the big labels. The works made available online by the artists, increase the chances of the audience to get familiar with their works. Moreover, artists are able to supply their consumers directly without any intermediary assistance. This places them in a favorable position to compete with the big labels. 172 ArtistLed is a bright example of what independent artists could achieve alone, using the opportunities Internet offers.173 This company provides online space for the artists where they are able directly to offer their works directly to the public. The musicians have control over the whole process of recording and offering the song to the potential purchasers. 174 In this way, new business models are capable to protect artists’ interests without being dependant from big music companies. Considering this, the whole bargaining process with the digital music retailers would be done by the artists themselves. 175

Following the natural processes evolving in every society for more accessible and quickly obtainable information and goods, it is only reasonable to state that when Internet offered its capabilities for digital dissemination, people would benefit from it. 176 The labels wasted their chances by fighting against this opportunity rather than trying to get profit from it. Yet, it might not be too late for them. New business models nowadays could be the last safe harbor to ensure the existence of creative industries in the digital world. Harnessing the chance given to them will supply them with an environment where music, movies, software, games and any other content would thrive in the same way as in the offline markets.

169 Patryk Galuszka, ‘Attitudes of Polish Record Labels Towards the Digital Music Market’, University of Lodz institute of Economics Vol.4, No.2 (Jan 2009), p. 43, available at: SSRN: http://papers.ssrn.com/sol3/papers.cfm?abstract_id=2016421 (accessed 29.03.2012) 170 Ibid. 171 Bockstedt, Kauffman, Riggins, note 144, p.14 172 Ibid. 173 ArtistLed.com, About us, available at: http://www.artistled.com/About.html (accessed 20.09.2012) 174 Ibid. 175 Bockstedt, Kauffman, Riggins, note 144, p.15 176 Danaher, Dhanasobhon, Smith, Terang, note 160, p.5

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Generally, obstacles caused by illegal file sharing could be diminished if the digital environment is used wisely. Establishing a legitimate market that offers lawful content together with the opportunities for shaping and dictating the online market by content industries, could be a competitive approach against piracy. Moreover, new license strategies will emerge in favour of the copyright holders thus not only a better way for exercising their rights would be found, but also new ones. Eventually it will bring more customers to their digital shops, because through the Internet they will have unlimited access to numerous purchasers around the globe and as a result they will collect ever more revenues. In this sense it will not be unreasonable to consider that the digital revolution could bring ever more profit to creative industries than before. Everything they should do is to start relying on business models instead of enforcement.

The chapter focused on describing and proving that is worthwhile to consider new business models as an alternative to the copyright enforcement. The following chapter will provide the answer to the research question and more specifically how to create an environment where business models and enforcement, as a flexible method, will successfully compete with the online piracy. These measures will guide copyright holders with incentives to start seeking for new business platforms.

Chapter III

CREATING AN ENVIRONMENT FOR NEW BUSINESS MODELS

The current chapter will explore possible solutions regarding the research question. The proposals that will be described represent certain legal enhancements, aimed at creating a better environment, which should be attractive enough for the copyright holders. Lawrence Lessig’s four modalities of regulation will be used as a base for composing an inventory of possible solutions that might contribute to the aims of the thesis. Thus, through indirect measures copyright holders will be guided towards new business models, without interfering with their exclusive

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rights. These legal measures are supported by educational campaigns, focused on bringing consumers to the new online platforms, which should work as an additional incentive for the creative industries.

The proposed solutions regarding the objectives set by the thesis unveil the relevance of this chapter.

3.1 GUIDANCE REQUIRED

The previous chapter analyzed and described how new business models can effectively compete with online piracy. Some of the recent developments, such as the success of iTunes, prove that business models are a viable alternative to the obsolete and currently ineffective copyright enforcement. This old model of fighting against illegal downloaders is costly, time consuming and its excessiveness only increases the consumers’ frustration. We further revealed that there are indications that creative industries want to move away from the approach solely based on enforcement. Their current engagements initiated into elaborating new market strategies prove that.177 However, acceding to one or another business initiative is part of the sole will of the creative industries. There are indeed certain movements observed towards shifting from enforcement to business models, but yet it is too fragmented and agreements such as the one between RIAA, NMPA and DiMA are isolated occasions. 178 Moreover, it has been negotiated only between two players in the content industry, while other influential labels from the music and movie sector are missing. At this moment, there is no regulation guiding creative industries and the other involved players to look for more effective business models, which imply better opportunities for preserving their property. Copyright provides his owner with certain sets of exclusive rights. According to the provisions enshrined in the Copyright Directive, copyright holders are awarded with the rights for reproduction, distribution, making the work available to the public, etc. 179 Basically, those rights denote that any copyright holder can exercise his exclusive rights or dispose of them at his will, including the decision whether to license or to save them all for himself, without granting any authorizations.180 Given that, it is part of the sole will of any right holder to choose how to contract his copyrights, including the choice to offer them through online digital platforms. At the same time, although copyright gives sets of exclusive rights to his owners, governments are under international obligations to provide copyright protection. 181 Member states should provide measures that will ensure that copyrights are effectively protected. Thus, on the one side, creative

177 Managing Intellectual Property, note 101 178 Ibid. 179 Directive 2001/29/EC of the European Parliament and of the Council on the harmonization of certain aspects of copyright and related rights in the information society (hereinafter Copyright Directive). 180 Copyright Directive, Articles 2-4. 181 Agreement on Trade – Related Aspects of Intellectual Property Rights, Article 1 (hereinafter TRIPS)

35 | P a g e industries need guidance to start relying on new business models and on the other hand, governments are obliged to provide adequate protection of their copyrights. Governments should implement such mechanisms for protection, which would incentivize copyright holders to choose one or another business model. They must not serve as a restriction of their copyrights. In order to find a balanced way for guiding creative industries without interfering with their property rights some initiatives will be discussed which could indirectly guide them without unreasonably restricting their rights.

3.2. THE FOUR MODALITIES

In seeking guidance for the content industries, Lawrence Lessig’s four modalities could contribute to provide an adequate inventory of solutions required for incentivizing them to shift the course. The idea behind this is that cyberspace is being regulated by these four modalities together. 182 Law, social norms, the market and architecture are the constraints that regulate behavior in the digital environment. 183 Each of these modalities regulates behavior by different means. Law tells individuals not to breach copyrights both in the physical and the digital world. It regulates through ex post sanctions by imposing legal penalties for those individuals who violate the statutes. Social norms regulate a in certain way similarly to the law, but the ex post sanctions are different. They tell individuals how to behave in a particular situation or how to act among the members of the society. Sanctions for behaving outside the conventional standards are not enforced by governmental authorities, but by the society itself, as disapproval of the unsuitable actions of the individuals. 184 The market is the third modality and it regulates by price. In the tangible world as well as in the intangible, market prices influence the availability of the services. Investments in one website result in increasing its popularity and price and vice versa. 185 Architecture or the code in Internet consists of the hardware and the software that predetermines the way individuals can behave in the digital environment. 186 Just like the offline world where the road renders the possible directions to the driver, online world renders the possible operations users can do. Whether any operation requires a password or a certain language that the recipient has elected to speak depends on the code writers and the way they have designed the architecture. 187 The way four modalities work could match well with the elaboration of inventory consisting of possible measures for incentivizing copyright holders to shift the course. These constraints represent a good model for the governments to follow in order to provide effective measures for guidance of the creative industries.

182 Lawrence Lessig, ‘Law of the Horse: What Cyberlaw Might Teach’ (Mar 12, 1999), p.507, available at: https://edtechpolicy.org/Lessig/lessig-horse.pdf (accessed 14.06.2012) 183 Ibid, p.506 184 Ibid, p.507 185 Ibid, p.508 186 Ibid. 187 Ibid, p.509

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3.3 LAW: SMARTER ENFORCEMENT

3.3.1 Changing the vision on enforcement - reasons The vision on enforcement should change at least because of two important reasons. Currently copyright enforcement is not able to diminish the piracy. Cleaning the online environment and then making free space for the new business initiatives is a difficult task (see Chapter I). Thus, new business models, as they might be the key to the future success of content industries in the digital era, should be implemented and supported by enforcement. In this sense, there will be a shift in the focus from the current role enforcement has to its future important new one. The system requires a flexible alternative where more than one model is aimed at fulfilling this goal. 188 Yet, copyright enforcement could play a crucial role in this new alternative for deterring online copyright infringements. The second important reason consists of the fact that consumers are estranged from the products they would love to buy due to the severe enforcement. 189 Enforcement is now focused predominantly on monitoring individual Internet users’ actions and when they are exposed in possessing or disseminating illegal digital works, the law comes down on them in all its severity. Yet, it is the wrong way, as it reduces the range of potential purchasers and in the end it will result in frustration. This exact frustration could be converted to serve the new business models in the same way it served online pirates. The enforcement role here should be focused on ceasing the experience illegal platforms offer to the online consumers.190

3.3.2. Government’s actions – materializing the new vision on the copyright enforcement

3.3.2.1 Directions of reconsidering The first step that should be undertaken if the governments want to start applying the existing copyright enforcement smarter is to reconsider certain actions. In order to let creative industries change their current strategies, the existing severe penalties should be amended and replaced by less rigorous ones. That could leave no choice for the copyright holders, but to seek for existing business alternatives. Such a policy might even force copyright holders to spend more resources in elaborating new competitive business models than the contemporary ones. A world where states favor smarter copyright enforcement could be fruitful for the development of the market and for fostering innovation. Reason for that would be the copyright holders’ need for new means to cope with online piracy, thus on the market could emerge business sectors offering special business models designed especially for certain creative industries. An important step towards diminishing rigorous effects from copyright enforcement is for the future governments not to adhere to agreements such as ACTA. The civil and criminal enforcement this

188 Glyn Moody, ‘EU Commissioner Kroes: Copyright is ‘A Tool to Punish and Withhold’; New Business Models, Not More Enforcement Needed’, Techdirt (published on Nov 21, 2011), available at: http://www.techdirt.com/articles/20111121/07305616860/eu-commissioner-kroes-copyright-is-tool-to-punish- withhold-new-business-models-not-more-enforcement-needed.shtml- (accessed 12.04.2012) 189 Keyser, note 5 190 Moody, note 188

37 | P a g e bill offers will not bring any improvement, but instead could lead to disastrous results. 191 Thus, terminating initiatives such as ACTA is the right step. The now acting severe penalties for illegally downloaded files need to be revised, as well as the practices for intimidation through court trials. The case with Jammie Thomas- Raseth who was sentenced to pay $1.5 million dollars remuneration to the record industry for only 24 downloaded songs 192 reveals the tactics of intimidation by the Record Industries.193 Sony BMG Music Entertainment v. Tenenbaum is another example of rigorous damages claimed by the record industries. Joel Tenenbaum was sentenced to pay $675 000 damages to various recording companies led by RIAA. 194 Paying such amount of damages for only 30 songs puts the constitutionality of such ruling into question. 195 Although, the Joel Tenenbaum verdict was drastically cut by a federal judge, 196 RIAA’s campaign aimed at “teaching people a lesson” might continue.197 Not only the high damages awarded to the plaintiffs, but also the way record labels use the enforcement, as a method to intimidate users is problematic. Hence, a further step for the governments is to ensure that any user’s actions that have resulted in a perpetration, would be judged in accordance with the weight of their crime and being constitutional. The strategy of intimidation is applied in Europe as well. In 2004 IFPI announced that the litigation campaign will target music swappers in France, Germany, Italy, Sweden, Switzerland and the U.K. File sharers will be prosecuted in 16 European countries overall.198 The average amount of damages paid by those infringers is estimated at $3,000 each. 199 This is quite low compared with the huge remunerations that US infringers have been sentenced to pay. The reason can probably be found in the different methods for damages calculation. European countries do not have statutory damages,200 which are used in USA. In Europe, right holders should prove their actual damages. 201 The little amount of damages, seized from the infringers, as well as the growing piracy rates in Europe forced some big US

191 Peter K. Yu, ‘Six Secret (and Now Open): Fears of ACTA’, Drake University, Research Paper No. 11-12 (Oct 24, 2011), p. 175, available at SSRN: http://papers.ssrn.com/sol3/papers.cfm?abstract_id=1624813 (accessed 28.01.2012) 192 Steven Musil, ‘Jammie Thomas hit with $ 1.5 million verdict’, CNET News (published on Nov 3, 2010), available at: http://news.cnet.com/8301-1023_3-20021735-93.html (accessed 28.01.2012) 193 Henslee, note 5, p.22 194 Stephanie Weiner, ‘Sony BMG Music Entertainment v. Tenebaum’, JOLT digest (posted on Aug 12, 2009), available at: http://jolt.law.harvard.edu/digest/copyright/sony-bmg-music-entertainment-v-tenenbaum (accessed 10.11.2012) 195 Ibid. 196 CBS Boston, ‘Boston Judge Cuts Penalty in Song – Sharing Case’ (posted on Jul 9, 2010), available at: http://boston.cbslocal.com/2010/07/09/boston-judge-cuts-penalty-in-song-sharing-case-4/ (accessed 11.10.2012) 197 Weiner, note 178 198 Mark Hefflinger, ‘IFPI Sues 2,100 Internet Song – Swappers in Europe’, Digital Media Wire (posted Nov 15, 2005), available at: http://www.dmwmedia.com/news/2005/11/15/ifpi-sues-2-100-internet-song-swappers-in- europe (accessed 11.10.2012) 199 Ibid. 200 Jean Murray, ‘Statutory Damages’, About.com, available at: http://biztaxlaw.about.com/od/glossarys/g/statutorydamages.htm (accessed 10.11.2012) 201 Katie Linsell, ‘Losing 13.5 Billion to Piracy Spurs Europe Law Reformers: Tech’, Bloomberg (posted on Oct 18, 2011), available at: http://www.bloomberg.com/news/2011-10-17/losing-13-5-billion-to-piracy-spurs-microsoft- led-europe-legal-push-tech.html (accessed 11.10.2012)

38 | P a g e companies to start lobbing for more stringent penalties. 202 For instance, Microsoft giant already addressed the European Commission some proposals for increasing the enforcement measures. 203 Pressure has been further exerted by Adobe Systems, Apple Inc., Siemens AG – all part of the Business Software Alliance. 204 Therefore, the excessive damages paid by Thomas and Tenenbaum might soon affect European file – swappers as well. For the time being, the legal campaigns applied in USA (RIAA) and Europe (IFPI) seem to be using the intimidating effects as a primary weapon. However, the high damages awarded in USA could soon become a reality in Europe. All the practices, explained above, should be reconsidered. However, if we cease using these methods or stop increasing the enforcement severity and even this leads creative industries directly to adoption of new business models, it is true that states have the duty to protect Intellectual property. Although, online copyright infringement is an enormous issue and governments should help creative industries, illegal downloading represents a violation of the law and as such it must be regulated by the governmental authorities. Furthermore, rationale 12 of Copyright Directive unambiguous renders to the Member States the importance of “adequate protection of copyright works and subject-matter of related rights…” 205 IP Enforcement Directive stipulates that “measures, procedures and remedies necessary to ensure the enforcement of the intellectual property rights” should be provided by the Member States. 206 Probably the resolution is to adjust copyright enforcement to a reasonable level in order to operate between the new business models and the potential consumers. This behavior could be successfully harnessed through implementation of bills that will make penalties not too excessive and at the same time will allow governments to adhere to their obligations to protect Intellectual property. Thus, the new smarter application of the copyright enforcement is probably the only way governments could meet the expectations set forth in the mentioned directives. Further, the governments could elaborate on limiting the enforcement mission to sustain the new competing business market. 207 Enforcement shall serve to promote the exploitation of the works lawfully offered through these new platforms. Creating a legitimate market for legal dissemination of these products will also create a place in the digital environment where copyright holders would have the opportunity to enforce their copyrights. Currently, enforcement is aimed at prosecuting individuals who are sharing illegally obtained content at basically no cost. 208 It was analyzed that file sharing between individuals is not only caused by the zero cost of these products, but because of the lack of such content that is accessible online. Their products are not presented at the audience through this

202 Ibid. 203 Microsoft.eu, ‘Response of Microsoft to the European Commission ‘s Consultation on the enforcement of Intellectual Property Rights’ (Mar 31, 2011), available at: http://www.microsoft.eu/Portals/0/Document/Technology%20Policy/Microsoft%20Response%20to%20EU%20Co nsultation%20on%20the%20Enforcement%20of%20Intellectual%20Property%20Rights%20-%2031Mar11.pdf (accessed 10.11.2012) 204 Linsell, note 201 205 Copyright Directive, Rationale 12 206 Directive 2004/48/EC of the European Parliament and of the Council on the enforcement of intellectual property rights, Article 3(1) (hereinafter Enforcement Directive) 207 Tehranian, note 167, p.7 208 Ibid.

39 | P a g e market hence if there are no platforms for lawfully obtained music, movies or games what actually are creative industries actually enforcing? Is it then worth to litigate against your prospect purchasers only, because you have failed to supply them with the goods they seek? Instead of relying on legal prosecution, which after all was proved to be the unreliable approach, creative industries should better focus on offering their copyrights through the business models. Consequently, when such platforms begin to operate, the role of the enforcement should be focused on protecting the interests, part of this competing market. Refraining from prosecution of potential customers and guiding them to avoid illegal websites could be a step towards. This might clear the way for the digital shops effectively to compete effectively with online piracy. More efforts that should be made by the governments have to be focused on terminating the experience pirate websites provide. Since current platforms are not able to provide a similar experience, consumers are looking for those that are able to meet their demands. In this case, the illegal platforms are the only option. If the governments’ actions result in inabilities for those illegal websites to fulfill the expectations of consumers, it is very possible that these efforts will lead the consumers to the legitimate ones. Thus, legislators should elaborate solutions, which will allow copyright enforcement not to act against individuals, but will only obstruct finding free and illegal content apart from the business platforms run by copyright holders. Hence, it is likely that consumers could find that lost experience via legitimate digital stores. Subsequently, copyright enforcement will use that frustration in favor of copyright holders. In this way, while enforcement role is to obstruct development of such illegal platforms, copyright holders have been given the opportunity to build their new business models in the digital environment and to flourish. 209

3.3.2.2. Providing legal offerings online In this section the importance of the legal offerings online will be described and certain measures that Member States could provide will be investigated. If creative industries establish a strong market chain in which various business models operate they will provide lawful products, which have an authentic and genuine character.210 Once platforms similar to Apple’s iTunes or Spotify begin to provide lawful and authentic content, other forms of digital content will be considered nothing more than mere substitutes of that content. Then we can rely on enforcement to act against these substitutes. Enforcement role will increase towards supporting such authentic products if they penetrate digital markets. Be that as it may, pirated products are the predominant way for the consumers to obtain desired content.211 Such illicit content in fact serves the digital market in the absence of authentic ones, thus enforcement is meaningless, because in its current form it does not serve any market protection, but depriving individuals from the only channels where they can acquire the products they search. 212

209 Moody, note 188 210 Ibid, p.8 211 Ibid. 212 Ibid.

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As a measure against this tendency, governments could sanction creative industry’s omission to supply the online market with lawful and genuine content. Thus, in cases of infringements, right holders claims should be reduced due to that exact failure to provide legal offerings online. In this sense governments, realizing the importance of the legally offered content online, should elaborate on incentivizing the creative industries to supply the online market with such genuine and legally offered products. This needs to be done, because of the future more effective enforcement application. When a copyright has been infringed online, the damages, caused by such an act, need to be calculated in order that the owner can be fairly compensated. While calculating the amount that has to be awarded to the owner, many factors should be taken into account before compensating him. 213 Considering this, another additional factor could be taken into account and it might serve as a circumstance that will mitigate the amount of damages due to the right holder. This factor will be expressed in the fact that the amount of damages will depend on whether the right holder has a legal offer of the same work online. Thus, it would be stated that if a right holder does not maintain legal offerings online, pirated copies do not replace any legal online sales, hence the damages suffered by him are lower. Contrary, if a certain work has been offered legally through the new business platforms, the damages that the right holders could claim would be higher. It could appear to be plausible, because it will negatively affect the amount of damages copyright holders could claim and consequently might force them to supply the online market with legal offerings. Facing the thread of lower compensation, creative industry might think of supplying first and then seeking damages. Such a proposal could be justified, considering the differences between online and offline markets. The conventional ways of marketing and doing business through websites differs in many aspects, such as the access the customers have, how you approach them, the promotion of products, the need of personnel, the time services need to reach the clients and their search costs, expenses, profit and return of investment, etc. 214 Both markets have their pros and cons. However, these disparities tend to shift the preferences to the online market. For instance, the sales in online market in terms of e - commerce for the period 2002 – 2008 are lower compared with the offline for the same period. Nevertheless, the online sales grew with 120% while offline increased with 30% for the same period. 215 Moreover, companies such as Macy’s declared that for 2011 its offline store revenues growth is 6.7% while online it is 45%. Some big retailers already declared their intention to relocate their main business activity and start relying on the online market mainly. 216 Furthermore, almost every company running offline business has already provided its customers with the online option as well. Their products offered online compete with the same offered offline, as the results are convincing. Thus, online sales could slowly displace certain business niche or even cannibalize those who are less

213 Enforcement Directive, Article 13 214 DWSmg.com, ‘Difference Between Online and Offline Marketing’ (posted on Nov 18, 2008), available at: http://www.dwsmg.com/difference-between-online-and-offline-marketing.html; See also Ethan Lieber, Chad Syverson, ‘Online vs. Offline Competition’ University of Chicago (Jan 2011), p.8, available at: http://home.uchicago.edu/syverson/onlinevsoffline.pdf (accessed 11.10.2012) 215 Ethan Lieber, Chad Syverson, ‘Online vs. Offline Competition’ University of Chicago (Jan 2011), p.2, available at: http://home.uchicago.edu/syverson/onlinevsoffline.pdf (accessed 11.10.2012) 216 Barney Jopson, US Retailers Shift to Online Sales’, Financial Times (posted Nov 7, 2011), available at: http://www.ft.com/cms/s/0/6f89db2a-096a-11e1-a20c-00144feabdc0.html#axzz2CIGn9AMz (accessed 11.10.2012)

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responsive to adaptation. Since the importance and proliferation of online market is increasing then supplying this market with legal offerings will grow. Considering this importance, it would be unjustified for the creative industries not to supply it with more legal offerings. So, their reluctance for adapting their businesses to the online market and at the same time claiming high damages must not be tolerated. However, the Enforcement Directive in its article 13 (1)(a) and (b) does not envisage such limitations for right holders. “ On application of the injured party ”217 the relevant authorities are obliged “to order the infringer…..to pay the right holder damages ”218 It further envisages “appropriate aspects ” that the relevant authorities should take into account in order to calculate the real damages, caused to the party that suffered the infringement. Limitation for the injured party to claim the damage, he considers he has suffered, has not been provided.219 The Directive also does not regulate any obligations to the relevant authorities to take into account whether certain work has legitimate offering online, as a form of circumstance that mitigates the amount of the damages due to the right holders. 220 Although there are no explicit rules in the Directive about diminishing right holders’ claims for damages under the described circumstances, such might be possible to be extracted through adequate interpretation. In Article 3 (2) of the Enforcement Directive is enshrined that “ those measures, procedures and remedies shall also be effective, proportionate and dissuasive .” Under the principle of proportionality “ the content and the form of the action must be in keeping with the aim pursued ”221 Thus, no infringer can be sentenced to pay more damages than he actually caused. Provided that, in the current situation, where most of the content existing online is pirated and the Internet is poorly supplied with lawful content, the ordinary consumer might not have another way to acquire certain work except by using pirated ones. Given that right holders did not provide an alternative for the consumers to buy authentic and genuine content online, is it then lawful that owners to have right of full restitution of their suffered damages? In fact infringers have not caused the levels of damages, as they are usually accused for. After all, the right holders are those who failed to supply the Internet with legal offerings of their works, hence they are those who created a realm in which ordinary consumers conduct violation of the law, because it is the only way to acquire the products they seek for. Further, the measures that Member States should provide in order to ensure adequate protection of intellectual property have to be effective. 222 Providing such rules that can limit the claims for damages, in case right holders fail to supply the online space with lawful offering of their works, might fall under the requirement for effectiveness envisaged in article 3 (2). If right holders face the chance to receive less compensation when their rights are infringed, they might begin to supply more actively the online market with their works. This could incentivize creative industries to start relying on new business models, which will allow them to step on the online digital market. Once business platforms begin to increase in Internet, the new vision of the copyright enforcement could also be

217 Enforcement Directive, Article 13 (1) 218 Ibid. 219 Enforcement Directive, Article 13 (1)(a) 220 Enforcement Directive, Article 13 (1)(a) and (b) 221 Europa.eu, Legislation summaries, Glossary, available at: http://europa.eu/legislation_summaries/glossary/proportionality_en.htm (accessed 28.09.2012) 222 Enforcement Directive, Article 13 (1)(a)

42 | P a g e applied. Thus, the requirement for effectiveness of the measures that has to be provided by the Member States would be fulfilled as well as grounds would be found on which to implement this restriction over copyright owners. Yet, the above analysis describes an interpretation of article 3 (2), which is not approved by any official body. These requirements for effective and proportional measures could be with no doubt put into different interpretation disproving the above statements. Thus, the role of the governments as well as the Court of Justice of the European Union (hereinafter CJEU) here would be crucial for implementing such rules. Admittedly, proportionality is an open norm and as such gives some discretion of the Member States in implementing it. This openness could be observed in Article 5 (4) of the TFEU where it is said that “ Under the principle of proportionality, the content and form of Union actions shall not exceed what is necessary to achieve the objectives of the Treaties” 223 This broad wording of the text could imply uncertainty in Member States as of whether their actions are compatible with the European legal framework. Thus, in order to have certainty they could initiate a preliminary ruling procedure before CJEU. The CJEU would have the duty to pronounce whether the measures, adopted after the relevant interpretation of the proportionality, are compatible with the European law. 224 As a result, it would be declared whether Member States could find grounds for implementation of such limitation of the right holders’ claims under the proportionality principle. In view of this fact an application of the proportionality and effectiveness enshrined in article 3 (2) in a manner described above is of governments’ powers. Moreover, in supporting the supply of lawful content and its effective protection through the enforcement mechanisms, drafters of the Enforcement Directive could initiate an amendment, which would implement unambiguous rules regarding this matter. In this way, the aim of rationale 3, part of the directive, could begin to be effectively applied. 225

3.3.2.3. HADOPI HADOPI or as it is more famous “the three strikes and you are out” seems to offer certain solutions. It could be this bill that provides smarter application of the enforcement against online copyright infringements. Recent studies on its effects show a positive picture. In 2011 it has been observed that illegal file sharing of copyright protected works fell with 43% in France. 226 However, more important data show that under HADOPI influence, not just illegal file sharing has been diminished, but also that iTunes store sales of songs and music albums increased by 22.5% and 25% respectively. 227

223 Consolidated Version of the Treaty on European Union 2010/C 83/15, Article 5 (4) 224 Europa.eu, Summarize of EU Legislation, available at: http://europa.eu/legislation_summaries/institutional_affairs/decisionmaking_process/l14552_en.htm (accessed 01.11.2012) 225 Enforcement Directive, Rationale 3 226 Aymeric Pichevin, ‘France’s HADOPI Study Shows Decrease in Piracy’ , Billboard.biz (published on Apr 2, 2012), available at: http://www.billboard.biz/bbbiz/industry/legal-and-management/france-s-hadopi-study-shows- decrease-in-1006647352.story (accessed 20.04.2012) 227 Brett Danaher, Michael D. Smith, Rahul Telang, Siwen Chen, ‘The Effect of Graduated Response Anti-Piracy Laws on Music Sales: Evidence From an Event Study in France’ (Mar 2012), abstract, available at SSRN: http://papers.ssrn.com/sol3/papers.cfm?abstract_id=1989240 (accessed 20.04.2012)

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These data show that under the right proportions, a smartly applied enforcement could increase the sales of new business platforms. This could serve as an incentive of other copyright holders, apart from Apple entrepreneurs, to seek for such new business alternatives. Graduated response law, as HADOPI is also known, is a product of tight cooperation between the creative sector, ISPs and the French government. First presented before the French senate in June 2008 it was not before October 2009 that this bill was finally adopted and put into effect. 228 During that period of time HADOPI underwent certain amendments apart from its initial draft proposed by the stakeholders, but notwithstanding that at the end of 2010, HADOPI agency started the first wave of infringement notices sent to alleged infringers. 229 The “three strikes and you are out” approach was the first initiative of its kind not only in France, but it was new for every other state. 230 The basic principle of this approach is the warning and sanction system. When Internet users’ actions result in infringing activity, governmental authorities, instead of bringing down the entire heaviness of the copyright enforcement and its penalties, are sending a warning letter to the users. Then, users are given even another chance if they conduct another infringement, as the HADOPI agency will send them a second warning notice. However, the third time when a user commits a violating actions, the authorities impose a sanction, which is expressed in temporary depriving the infringers from Internet access. 231 The enforcement mechanisms enshrined in HADOPI law give several chances to the alleged infringers to reconsider their behavior. In the environment that Internet offers, ordinary users could easily infringe copyright protected content without even realizing that. Internet is full with young people who do not understand what copyrights are and the consequences of their violation. The unconscious breaking of the rules in the Web is common even for users aware of the sanctions, which copyright law could impose on them. Thus, such a warning system could protect users from their mistakes. The above shows that this bill operates with enforcement that allows governments to tie in with their public obligations, and at the same time is smart enough to promote consumers to purchase from platforms such as iTunes. This is how the new smarter role of the copyright enforcement should operate. Instead of acting against individuals, it would act as a tool incentivizing consumers to buy lawful content and to obtain licenses from the new legitimate platforms. Basically, graduated response has a deterring effect over those users who otherwise would continue to infringe copyrights 232 despite the opportunities that the business platforms offer and at the same time serves as an educational approach, because consumers have two chances to realize that are involved in infringement and to fix their actions. 233

228 Senat, ‘Loi favorisant la diffusion et la protection de la creation sur Internet’ (published on June 3, 2012), available at: http://www.senat.fr/dossier-legislatif/pjl07-405.html ; See also Brett Danaher, Michael D. Smith, Rahul Telang, Siwen Chen, ‘The Effect of Graduated Response Anti-Piracy Laws on Music Sales: Evidence From an Event Study in France’ (Mar 2012) 229 Mike Masnick, ‘Hadopi Already Up To Sending Out 25, 000 ‘First Strike ‘ notices Per Day’, Techdirt (published Oct 25, 2010), available at: http://www.techdirt.com/articles/20101022/16414511552/hadopi-already-up-to- sending-out-25-000-first-strike-notices-per-day.shtml (accessed 20.04.2012) 230 Trisha Meyer, Leo Van Audenhove, Luciano Morganti, ‘Graduated Response Initiatives in Europe. An analysis of Initiatives and Stakeholders Discourse’, (Aug 15, 2009), p.6, available at SSRN: http://papers.ssrn.com/sol3/papers.cfm?abstract_id=1996030 (accessed 20.04.2012) 231 Ibid 232 Danaher, Smith, Telang, Chen, note 227, p.6 233 Meyer, Audenhove, Morganti, note 230, p.6

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Graduated response does not adopt penalties that would cost alleged infringers much in financial terms, but gives them a chance to terminate their actions so as to avoid any unwanted results. Another aspect is that through its mechanisms it increases the purchases of iTunes, which as observed above, is a progressive business model. Motivating consumers to buy legitimate products is an important step towards promoting new business models and it seems that laws such as HADOPI can contribute to that effect. Deprived from the opportunities excessive enforcement allows, the creative sector could turn to the business model. However, HADOPI has been attacked, because, according to its critiques, it violates the freedom of expression enshrined in Article 10 of European Convention of Human Rights (ECHR). The opponents of graduated response contest it, because it restricts Internet access, which right to access, a right that, according to them, represents a human right. 234 Bases for these considerations can be found in a United Nation’s report where the right to internet access is deemed as a fundamental right. 235 Although recognized by the United Nations, the idea that internet access represents a human right is not shared by everyone. 236 In fact it rather represents rather a fierce discussion than an officially recognized civil or human right. 237 This discussion inevitably affects HADOPI because it intends to punish the wrongdoers by depriving them from Internet access. The proponents of the idea for Internet access as a right, support their arguments with the claim that Internet has become an indispensable part of the individuals’ daily life. They go further considering that Internet is inseparable from the right of freedom of expression and even overlaps with the right to family and private life outlined in Article 8 of ECHR. 238 The other side of the discussion expresses the opinion that technology is more likely an enabler of rights, not the right itself. 239 However, till the time being none of the disputants has prevailed significantly, because this dispute has been led on the bases of philosophical arguments and its resolution seems far from settled.240 It is true that graduated response will ban the Internet of those who infringe the law. Under the current lively discussion amongst scholars and inside the society about whether Internet access should be deemed as a civil or fundamental right, HADOPI seems controversial. The advocates of this bill suffered further negative strikes when after its first steps it received 34% support and 29% negative views by the parties at stake. 241 However, these bill positives should be seriously taken into account.

234 Olivia Solon, ‘Berners-Lee: HADOPI Law is ‘so out of whack it’s ridiculous’ Wired.co.uk (published on Apr 19, 2012), available at: http://www.wired.co.uk/news/archive/2012-04/19/hadopi-out-of-whack (accessed 20.04.2012) 235 Frank La Rue, ‘Report of the Special Rapporteur on the promotion and protection of the right to freedom of opinion and expression’, Human Rights Council, Seventeenth session Agenda item 3, United Nations General Assembly (16 May 2011), available at: http://www2.ohchr.org/english/bodies/hrcouncil/docs/17session/A.HRC.17.27_en.pdf (accessed 01.05.2012) 236 Adam Wagner ‘Is Internet Access a Human Right’, (published on Jan 11, 2012), available at: http://www.guardian.co.uk/law/2012/jan/11/is-internet-access-a-human-right (accessed 20.04.2012) 237 Ibid. 238 Ibid. 239 Vinton G. Cerf, ‘Internet Access is not a Human Right’, The New York Times (published on Jan 4, 2012), available at: http://www.nytimes.com/2012/01/05/opinion/internet-access-is-not-a-human-right.html/?_r=1 (accessed 20.04.2012) 240 Ibid. 241 Meyer, Audenhove, Morganti, note 230, p.7

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Among other things this bill implies a multi-stakeholder support and this initiative was especially encouraged by the ISPs and the government. 242 The wide support for this statute might be a positive call for implementing a smarter way to enforce copyrights. By enacting HADOPI - like with legislations, we could push through the new role of the enforcement without fear that copyright holders’ rights would be restricted. The positive influence will affect the consumers as well, because the sanctions will be imposed after the infringer has been warned for its deleterious actions. These warnings, as part of the HADOPI mission, could serve as educational tool, which shapes the understandings of the society about online copyright infringements at earliest possible opportunity. 243 Notwithstanding the negative side of HADOPI, we should consider that it is just a possible model for further developing of a law that could be capable to support the new business models effectively. There are other graduated response laws such as the Digital Economy Act in Britain. Little is known whether this bill promotes legal sales online in the same way HADOPI did. Graduated response might not have the same effects in Britain, as it has in France. However, the revealing of HADOPI serves only as an example. What matters is to take into account its positive influence that promotes legitimate services online.

3.3.2.4. Incentives for copyright owners New business models should be fostered as a viable alternative to enforcement and one should depend on them as being competitive enough to online piracy. Though the introduction of more accurate legal rules and remedies should be taken regarding the market. The need for such online platforms to comply with every member state’s legislation is costly and if we want to promote such business initiatives, legislators should diminish the initial costs. 244 As contract law and copyright law will interfere in operating such business models, more efforts should be made towards a better harmonization among member states should be achieved. Moreover, tensions between contract and copyright doctrines should be resolved. Which copyright provisions are absolute and which are deemed as default need a better clarification. 245 The Copyright Directive gives too much leeway for the member states to choose which exceptions enshrined in article 5(3) they may implement into their national legislation. This allows member states to have different regimes of copyright, a situation that will have negative effect on local initiatives, as well as on transatlantic ones such as iTunes. 246 Furthermore, legal remedies should be elaborated for local as well as for foreign online platforms which implies the idea of the new business alternative. There are certain gaps in the provisions of the E-Commerce Directive and the Directive on Distance Contracts. When they apply their rules to platforms such as Apple’s iTunes, which is located in

242 Ibid, p.8 243 Torrent Freak, ‘Kids to Get 3 Strikes and Copyright Education in Paris’ (published on Jun 18, 2012), available at: http://torrentfreak.com/kids-to-get-3-strikes-and-copyright-education-in-paris-120618/ (accessed 20.04.2012); See also Brett Danaher, Michael D. Smith, Rahul Telang, Siwen Chen, ‘The Effect of Graduated Response Anti-Piracy Laws on Music Sales: Evidence From an Event Study in France’ (Mar 2012), abstract, available at SSRN: http://papers.ssrn.com/sol3/papers.cfm?abstract_id=1989240 244 Green paper v.1.0, note 107, p.23 245 Ibid, p.21 246 Ibid, p.19

46 | P a g e the United Sates, we can observe issues arising as of whether these directives regulate products or services. 247

3.4 THE MARKET: MORE EFFECTIVE LICENSING SYSTEM

The market, as Lawrence Lessig states, regulates by price. 248 The price of the products predetermines whether a product would be purchased by solvent or less solvent consumers. The lack of certain goods or the existence of obstacles for their efficient supply on a market where the demand for these goods is high, affects the price rates; this could lead as well to a situation where the demanded product is supplied by illicit means. The insufficient efforts by creative industries to supply the online market with lawful content, ultimately led to the growing scale of online copyright infringements. Furthermore, the attempts of the collecting societies to provide accessible ways for obtaining online licenses for musical or other works is still undeveloped and territorially restricted.249 Thus, in order to compete in an effective way with the pirate content, an enhanced licensing system should be established, which would allow copyrighted content to be distributed through new digital markets. At the time being the collecting societies are those who represent and grant licenses on behalf of the right holders.250 These collecting societies are established by authors, performers or other right holders to collectively manage their rights. They carry out the collective management of their rights like granting licenses to TV channels, radio channels, online music service providers or other commercial users, and in the same time they collect royalties, which they redistribute to the right holders they represent. 251 Collecting societies make it more practical for the commercial users to obtain licenses directly at one single body instead of searching every creator separately. 252 In this way, an advantage has been given to the creators that are part of such collecting society, in their negotiations with the users. 253 Both users and authors benefit from the collecting societies activity. For the users dealing with one negotiation body lowers the transaction costs. Such common bodies are also of crucial importance for the authors. This way they are ensured that they will receive their royalties and they will further have a significant bargaining power against the users with more power, which would otherwise dictate the negotiation process. 254

247 Ibid, p.20 248 Lessig, note 182, p.508 249 Giuseppe Mazziotti, ‘New Licensing Models for Online Music Services in the European Union: From Collective to Customized Management’, Columbia Law School Research Paper Number 11-269 (Apr 2011), p.2, available at SSRN: http://papers.ssrn.com/sol3/papers.cfm?abstract_id=1814264 (accessed 13.05.2012) 250 Europa.eu, ‘Proposed Directive on Collective Management of Copyright and Related Rights and Multi-territorial Licensing- frequently asked questions’ (published on Jul 11, 2012), available at: http://europa.eu/rapid/pressReleasesAction.do?reference=MEMO/12/545&format=HTML&aged=0&language=EN &guiLanguage=fr (accessed 20.06.2012) 251 Ibid. 252 Ibid. 253 Thomas Hoehn, David Lancefield, Sarah Horsfield, ‘Music Collecting Societies – Evolution or Regulation? Assessment of Recent Proposals on the Reform and Regulation of Collective Rights Management in the Music Industry’, Price Waterhouse Coopers (Jun 2005), p. 13, available at: http://pwcplus.pwc.de/fileserver/EmbeddedItem?docId=e5021b4f91a7ed8&componentName=pubDownload_hd &title=PDF:+Verwertungsgesellschaften:+Evolution+oder+Regulierung?+%28Music+Collecting+Societies.pdf%29 (accessed 28.06.2012) 254 Ibid.

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However, although collecting societies play an important role for both users and creators, they also have significant downsides. A major issue is formed by the restricted territory on which they operate. Most of the countries on the territory of the European Union have such collecting societies, which, however, are deprived from the ability to grant cross-border licenses. 255 It is true that there are reciprocal agreements between the different collecting societies, through which they grant each other the rights to license their own repertoires as well as the repertoires of other collecting societies.256 However, there are restrictions which forbid each collecting society to grant licenses outside the territory it operates on. These restrictions refer to the own repertoire, as well as to the repertoire, granted according to a reciprocal agreement. 257 Further restrictions ban the possibilities of any author or composer to be able to license the exploitation rights of their work to a collecting society different than their home one. 258 This territorial restricted licensing system as a result obstructs the online market development. It is an obstacle for the fully proliferation of the new business models in the face of the online digital shops. The need for obtaining licenses from each country on the territory of the union together with the complexity of the agreements between the different collecting societies as a result negatively affects the legitimate online services. 259 At the time being the online service providers want to operate their business activities on multiple territories while at the same time they want to acquire large musical catalogues. This is a necessary precondition for them if they want to meet consumers’ expectations and effectively compete with pirate websites. 260 Currently, collecting societies are not able to meet these demands. They need modernization in order to be able to respond to the fast evolving online market and the urgent need for entering the new business models in the online environment. 261 Enhancing the licensing system across the European Union could create a flourishing market environment where creative industries would develop their new business platforms. Following the European Commission recommendation for the Draft Directive on the collective management of copyright and related rights and multi–territorial licensing of rights in musical works for online uses in the internal market (hereinafter Draft Directive), could bring the desired improvement of the current model. The draft directive sets forth four main principles regarding the multi–territorial licensing: 1. “Collecting societies will only be permitted to grant multi-territorial licenses for online rights in musical works if they meet minimum conditions concerning their capacity to process the data needed for the administration of such licenses (draft Article 22). This derives from concerns that certain societies are unable to accept detailed digital sales data from online service providers, making them harder to do business with and compromising accurate accounting to right holders. The conditions include the collecting society being able to identify accurately the repertoire that it is authorized to license, and the rights and right holders in that repertoire in each of the Member States to which the authorization applies. Collecting societies granting multi-territorial licenses

255 Peter Brownlow, Helene H. Miksche, Emily Forsyth, ‘Collective Licensing of Online Music in Europe’, Bird & Bird (published on Nov 2008), p.69, available at: http://www.iam-magazine.com/issues/article.ashx?g=b38269c1-42e0- 4b05-8bf6-07452042a6d5 (accessed 01.07.2012) 256 European Commission, note 250 257 Brownlow, Miksche, Forsyth, note 255 258 Ibid. 259 Mazziotti, note 249, p.2 260 European Commission, note 250 261 Ibid.

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must also provide to members and users up-to-date information, by electronic means, on the repertoire they represent and must provide timely payments to members. 2. A collecting society may outsource services relating to the multi-territorial licenses it grants, so long as it does not affect the liability of the society to its members, users, and to other collecting societies (draft Article 27). 3. One collecting society may mandate another to grant multi-territorial licenses on a non-exclusive basis and the mandated society must manage those rights on non-discriminatory terms. The mandated society must comply with the requirements of the Directive for multi-territory licensing (draft Article 29(1)). 4. Societies may team up to create joint licensing entities to represent their repertoire for multi- territory licensing .” 262 Further provisions such as Draft Article 29 (2), ensures that if a collecting society is not able to meet the above described requirements for multi-territorial licensing, it can require other societies, which already grant such licenses, to offer their repertoire on their behalf. Obliging bigger collecting societies to license smaller societies’ repertoire will protect them from being excluded from the market. 263 The multi-territorial licensing of the works is ensured also by the possibilities of the individual authors to license their own works through another collecting society or by themselves. This would be possible if the collecting society that represents the right holders in question does not do any multi territorial licensing under the four conditions described above. This proposal has significant value, because it protects any repertoire to remain locked in to only one territory. 264 The four principles envisaged in the Draft Directive are further aimed at fixing the current lack of efficient licensing by the collecting societies or in some occasions even the refusal to be granted at all. Closely connected with this Draft Directive is the idea to establish one common licensing organization. This unified organization might significantly ease online service providers in their attempts to obtain licenses in a simple way. It could simplify the usage of numerous works owned by different authors. Further, it could be of great benefit especially for digital platforms such as iTunes, which are based outside Europe. It is well known that, although being part of the European Union, each country still has different legislation and thus different rules in contracting. It remains a fact that before acceding to any agreement with the local collecting societies, online service providers should explore the local copyright regulation. This refers to those service providers, situated outside EU Member States that still have no collecting societies on their territory. This is an expensive and time consuming process, which should be enhanced, if we want to create a better environment in which new business models can thrive and compete effectively with the online pirated content. This process would be avoided if the entrepreneurs could turn to a unified organization, which has the knowledge beforehand on different national rules that must be complied with. It will grant licenses on behalf of the other collecting societies, which could further be the bodies that would give information about the different legal regimes.

262 Bird & Bird, ‘Music Licensing and Collecting Societies – Draft EU Directive’ (published on Jul 2012), available at: http://www.twobirds.com/English/News/Documents/Music_Licensing_and_Collecting_Societies_Draft_EU_Directi ve.htm (accessed 01.07.2012) 263 Ibid. 264 European Commission, note 250

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The competition based relationships between the different collecting societies represent further problems. They express the need to establish one unified agency to manage these rights. Currently collecting societies’ activities are regulated by the Competition law. 265 Furthermore, the possibility for competition between the different collecting societies is envisaged in the European Commission Recommendation on the management of online right in musical works. 266 It is essential to say that collecting societies constitute an “ undertaking ” according to the provisions of articles 101 and 102 part of the Treaty on the Functioning of the European Union (TFEU). 267 These undertakings are part of the commercial services exchange and with no doubt exercise a monopoly position in the states they operate in. 268 Thus, it could be considered that they have a dominant market position contrary to article 102 TFEU. 269 This dominant position occurs in two markets. First each collecting society manages the rights of the right holders who are its members. Second, these rights are offered for licensing to the users. 270 Considering this, the users situated on the territory of a certain state have their options to obtain licenses limited to one single agency. 271 On the other side right holders are supplied with only one service provider who is able to manage their copyrights. Both users and right holders have no alternative except then to rely on the collecting society in the state they are situated in. 272 Activities of the collecting societies further constitute a threat for breaching article 101 TFEU. The reciprocal agreements they sign, grant the rights of their repertoire to be explored between each other on a non–excusive bases. 273 The reciprocal agreements themselves do not imply thread for the competition. They actually enhance the contracting relations between the different collecting societies in Europe. 274 The problem arises from the fact that these relations are based on the contract law and as such, they are voluntary. They could be applied in a manner, which more or less creates grounds for a monopoly position of a certain collecting society. It is fair to consider that certain collecting societies would possess a repertoire of greater interest than others. For instance, British society will manage more rights than a society based in Eastern Europe. In order to preserve its superior position, the British society might refuse to allow exploration of its repertoire through reciprocal agreement. It could also refuse to offer the other society repertoire, providing in this way the chance for its right holders to have a certain territory supplied by their works only. Hence, refusing to allow another society to explore a certain repertoire or to accept to offer that society’s repertoire, would affect negatively the trade and the competition. In their nature, reciprocal agreements represent a threat and their application could

265 Consolidated Version of the Treaty on the Functioning of the European Union 2010/C 83/01, Articles 101 and 102 (hereinafter TFEU) 266 Commission Recommendation of 18 October 2005 on collective cross – border management of copyright and related rights for legitimate online music service, Official Journal of the European Union No L276 (2005), p.54 267 TFEU, Articles 101 and 102 268 Lucie Guibault, Stef van Gompel, ‘Collective Management in the European Union’, University of Amsterdam Research Paper No. 2012 – 08 (2010), p.5, available at: SSRN: http://papers.ssrn.com/sol3/papers.cfm?abstract_id=1984015 (accessed 29.06.2012) 269 Ibid, p.4 270 Josef Drexl, ‘Collecting Societies and Competition Law’ (2007), p.5, available at: http://193.174.132.100/shared/data/pdf/drexl_-_crmos_and_competition.pdf (accessed 25.06.2012) 271 Guibault, Gompel, note 252, p.4 272 Ibid. 273 Ibid, p.10 274 Ibid.

50 | P a g e result into a concentration of huge repertoires in the hands of one single organization. Moreover, such a refusal would not even constitute a breach of any statute since acceding to agreements is part of the sole will of any undertaking. 275 However, the Draft Directive in its proposed version mitigates the risk described above. The Draft Article 29 (2) imposes obligations of the collecting societies who already offer a repertoire of other societies not to refuse a request from other societies for granting licenses on their behalf. 276 This prohibition ensures that the smaller societies, who cannot compete with the large ones, would not be excluded from the market. Thus, this unusual provision of the new Draft Directive would safeguard the future existence of the collecting societies who are less competitive. 277 Not only restraining from granting repertoire for licensing to other collecting societies would represent a disadvantage. These agreements could be drafted in a very restrictive manner. In the CISAC case, the CJEU to deal with an agreement provided by the undertaking in question, which contained territorial restrictions. 278 In other cases such as GVL, as well as the decisions in GEMA and Tournier, the court dealt with issues regarding membership discrimination and restricting users from other countries from obtaining licenses. 279 All these complications could be avoided if one single agency was able to manage the rights of the right holders. Having one unified organization for the entire territory of the European Union would stop the problems caused to the right holders and the users by the severe competition between the different collecting societies. The restrictive manners in which certain reciprocal agreements are drafted would be avoided, because no such would be needed. The danger that certain territories would not be supplied with content because of the refusal by a collecting society would be terminated. The one single collecting society would be obliged to license its entire repertoire upon request by the users. Furthermore, when there are relations based on the competition, there are also disputes between the involved parties. A unified body would make such troubles meaningless, because it would not compete with another organization. However, the explicit creation of such a common organization has not been envisaged in the Draft Directive. The reasons: possible grounds for creating an organization with huge monopoly power; possible “restrictions to competition, such as customer allocation and price fixing”. 280 Though, the establishment of a unified body is rejected, because of the possible “ restrictions to competition ”281 , these concerns are already a reality. As it was analyzed in the previous paragraphs, possible grounds for anti-competitive behavior already exists and this is a major issue. This behavior could be governed by the mechanisms the new Draft Directive would provide. On the one hand, the legal rules consisted in the Draft Directive are directed to modernize the way collecting societies operate in order to meet the demands the fast–evolving digital world offers. 282 Important methods for monitoring the anti–competitive behavior is the increased transparency as well as the fact that greater

275 Ibid. 276 Bird & Bird, note 262 277 Ibid. 278 Guibault, Gompel, note 268, p.14 279 Ibid. 280 European Commission, note 250 281 Ibid. 282 Ibid.

51 | P a g e control would be exerted over the collecting societies’ management. 283 Basically, the collecting societies should abide to rules that are aimed to provide more efficient services and together with the monitoring that would be imposed over their activities further violations over the competition rules could be deterred. 284 On the other hand, a form of competition could be necessary in order to make it possible for the different collecting societies to continue their development. The idea of the Recommendation could be, however connected to the possibility of establishing one such a common organization. It could be formed and consolidated by natural processes such as the competition and the abilities of each collecting society. Such a common body will emerge naturally not being envisaged in any statute, combining huge repertoire, which will allow it to grant licenses on behalf of all other collecting societies.285 However, when one wants the new business models to thrive, it is essential that the current model of licensing is enhanced, one way or the other. This means that a more accurate licensing system is connected with the implementation of the working of a multi territorial licensing. To establish such a system through the new Draft Directive would be of great importance for the online service providers who operate on the territory of more than one Member State. 286 Moreover, providing such a new licensing model is essential for the entrepreneurs who want to initiate their online projects. If passed, the Draft Directive will provide an environment with greater availability of licenses, which could meet the needs of the online service providers. 287 The Draft Directive represents a significant effort in enhancing the cross-border licensing system in the European Union. There are however drawbacks that rise questions whether it can open its full potential. It is unlikely that, although desired by those who elaborated the bill, any of the collecting societies will create a position where it would offer licenses on behalf of the all other collecting societies. An effect from the increased regulation could that it gives rise to an increased number of disputes between the collecting societies. 288 So, although there may be certain doubts, the idea of the European Commission’s Directive could give these reliefs, which digital shops entrepreneurs desire. Online service providers would be able to offer or use large amounts of musical works under one single license. Thus, the aim of simplifying the licensing process would be achieved and the costs for obtaining a license from each collecting society could be avoided. This would create a situation where stakeholders would enjoy faster procedures in obtaining the required license. Furthermore, the aggregation of rights would lead to fewer licenses needed to be obtained by the online service providers and more territories would be covered. 289 Hence, this would serve as those required incentives for the entrepreneurs to initiate new online services such as the new business models. 290

283 Ibid. 284 Ibid. 285 Bird & Bird, note 262 286 European Commission, note 250 287 Bird & Bird, note 262 288 Ibid. 289 European Commission, note 250 290 Ibid.

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The efforts of the European Commission to enhance a competition environment are further unraveled by its support for the Apple’ announcement for equalizing the prices for music downloads from iTunes in Europe. 291 This would be a positive step towards establishing a single market for downloads. 292 This initiative takes into account some cross–border issues consumers experience regarding purchasing content through iTunes. They are only given the chance to purchase through the iTune store in their home country. This constitutes a restriction in terms of territory, price and the kind of music available. 293 iTunes efforts are aimed at equalizing the prices for downloads in the United Kingdom with the other Member States. The Commission favors such proposal, because consumers would benefit from less restrictions and enjoying a single market. 294 However, the Commission states its worries about the future application of such a proposal, because the current licensing practices, supported by the big record companies and collecting societies, could hinder the establishment of a single European online store. 295

3.5 SOCIAL NORMS: EDUCATING CONSUMERS

Social norms are important for regulating users’ actions offline as well as online. These norms predetermine individuals’ behavior in different situations and the reaction of others when someone acts not under the commonly accepted way. Many of those norms emerged through natural processes, when individuals interact with each other. Some of them however have been taught in school or by individuals’ parents. The knowledge what is wrong or right and the way how to act in certain situations has more or less been provided to the individuals. Thus, norms could play an important role in creating a strong attitude against those users who work with pirated content. In a later moment, it would be possible for individuals to distance themselves from those who violate the law and obstruct the legitimate usage of content online. Educating consumers is important, because copyright law is an unfamiliar area for the majority of them. It is neither widespread nor appreciated. 296 It is true that the recent debates surrounding the Stop Online Piracy Act (SOPA) and the Protect IP Act (PIPA) as well as the Anti - Counterfeiting Trade Agreement (ACTA) protests, grabbed the public awareness.297 However, copyright law is a quite complex area and the increased discussion regarding it is not able to clarify consumers’ understanding. Though, we must realize that simply providing youths with education about what copyright is, will not create a

291 Europa.eu, 'Antitrust: European Commission Welcomes Apple’s announcement to equalise prices for music downloading from iTunes in Europe’ IP/08/22, available at: http://europa.eu/rapid/press-release_IP-08- 22_en.htm#PR_metaPressRelease_bottom (accessed 10.11.2012) 292 Ibid. 293 Christina Angelopoulos, ‘Apple’s announcement to equalise prices for music downloading from iTunes in Europe’, IRIS Merlin (published in 2008), available at: http://merlin.obs.coe.int/iris/2008/4/article101.en.html (accessed 10.11.2012) 294 Ibid. 295 Ibid. 296 Committee on Intellectual Property Rights in the Emerging Information Infrastructure and National Research Council, ‘The Digital Dilemma: Intellectual Property in the Information Age’, National Academy Press (2000), p. 304 297 David A. Fahrenthold, ‘SOPA Protests Shut Down Websites’, Washington Post, available at: http://www.washingtonpost.com/politics/sopa-protests-to-shut-down-web- sites/2012/01/17/gIQA4WYl6P_story.html (accessed 20.10.2012)

53 | P a g e better judgment of their actions online. Furthermore, educational efforts must not be focused on directly advertising new business models. After all, if using educational campaigns only to promote digital shops could result in even greater mistrust and increase the frustration against creative industries. Probably the right model to educate users, strongly supported by creative industries, is to work towards changing the perception what young people think of piracy. At the time being social norms allow downloading pirate content and it is not considered as something wrong. 298 This is one of the issues educational campaigns should be focused on. It will not be an easy task to change that perception, but it might give positive results with young children, who are still not familiar with the Internet opportunities. Teaching them to respect authors and the works created by them could put the grounds for future change in the social norms. 299 After all, a society that values others’ creative works might establish a strong social attitude for its preservation and prosperity. This would benefit not only copyright holders’ business platforms, but it would also result in lower infringing activity. Social behavior is important and if creative industries want to bring more customers to their e - shops, they must begin to provide accurate education to the youngest members of the society. It is true that it is easier said than done, but after all todays’ behavior came into existence, because of creative industries’ late respond to the problem. If a well performed campaign among youths is provided this could change social norms in the near future. A second important step should be to explain the exceptions and a fair use doctrine. This would be targeted mainly at the adult individuals who are already aware what Internet can provide them with. We said that teaching copyright law will not make consumers lawyers, but certain aspects of it could be of special interest to them. Since many consumers use content acquired online and then reproduce it into theirs’ own creations, it will be useful to educate them how to perform such acts lawfully. Many students have a wrong understanding about what fair use allows and how to apply it. 300 Thus, clarifying the rules to the individual users as much as possible to understand copyright exceptions, will protect them from wrongful activities. Moreover, copyright holders’ digital platforms would also benefit, because if individual users are aware about the manners purchased work can be used afterwards, it will prevent further lawsuits. 301 The close connections between creative industries and the young people could make these industries trustworthy to them.302 Currently considered as enemies to the ordinary users they could only change that through close connections with their potential clients. Such educational campaigns initiated among young people, are the right approach to win consumers trust.

3.6 ARCHITECTURE: BETTER DESIGNED PLATFORMS

The way things around us are designed predetermines our options for potential actions. When individuals are moving on through the streets of a town, whether as drivers or pedestrians, their

298 John Palfrey, Urs Gasser, Miriam Simun, Rosalie Fay Barnes, ‘Youth, Creativity, and Copyright in the Digital Age’, Berkman Center Research Publication No. 2009-05 (Jun 2009), p.89, available at SSRN: http://papers.ssrn.com/sol3/papers.cfm?abstract_id=1552415 (accessed 13.10.2012) 299 Ibid. 300 Ibid, p.90 301 Jacqui Cheng, ‘UK Men Pirated More Than Women; Everyone Confused Over Rights’ Ars Technica (posted on Jul 22, 2009), available at: http://arstechnica.com/business/2009/07/uk-men-pirate-more-than-women-everyone- confused-over-rights/ (accessed 01.07.2012) 302 Palfrey, Gasser, Simun, Barnes, note 298, p.96

54 | P a g e possible directions are based on what the architecture around them allows them. The traffic lights are part of the architecture that regulates the daily life of every individual. According to the color it shows, one or another action is allowed or forbidden. This is valid with the same effect for the online world. The architecture of the digital environment dictates the possible actions of its users. They can do only what the designers of the digital space has envisaged to be possible. Thus, the creators of the websites on the Internet, pursuant to the needs of the users and the state of the art, make available more and more options for them to operate. In the same time, users demand to have the services they require - more options and easier to operate with. Online consumers are searching for music or other content and once they have found what they have been searching for, the platform should offer simple access and should make it simple to obtain the desired song: this will make inviting for users. The simpler it will be to pay and the simpler the process of obtaining the content is, the more attractive the platform will be. Therefore, when the creative industry wants to attract more consumers through the new digital stores, it needs to ensure a platform that will provide a simple way to obtain licenses. They should consider certain enhancements in their online platforms, which will provide their customers with simplified mechanisms for licensing.303 It is important for the new platforms to grant licenses in such a way, which will respond to the customers’ needs. The adaptation of the licensing system to the specific demands of the different purchasers would be of great value for the digital shops. 304 When searching for a platform designed to simplify the licensing processes, the Thinkmap Web Site seems to provide such a proper architecture. This website has been created by the mutual collaboration between Sony Music Online and Plumb Design and was released with the idea to facilitate licenses obtaining. 305 This website simplifies the processes and is designed to operate easily. To start, every consumer needs to create his own account, which provides him with access password. This account provides users with a personal space within the Thinkmap website where they can pick various songs just for listening or combine them in lists. 306 In this way, every chosen song or list of songs, including CDs, can be submitted for licensing where the licensing process starts without any further operations. The system also offers options to offer ideas to the relevant purchaser according to his preferences and can supply him with entire lists of appropriate materials that could be submitted for licensing upon the consumers’ request.307 The Thinkmap platform has been designed by its creators with the idea to facilitate the process of searching the desired information. It is equally suitable for users who know exactly what are looking for, as well as for such who are not entirely aware about their preferences. 308 This platform combines the licensing interface together with a rich catalogue of content. 309 The potential of this service is an example of the direction towards creative industries. Such a state – of – the - art technology that Thinkmap provides to its’ users is an important step towards a successful implementation of the new business models. 310 In short, this platform innovativeness consists of its ease of use and personalization element. The software is simple and it makes every user capable to obtain the required license. A further element

303 Smart LM Whitepaper, ‘Architectural Overview of the SmartLM Innovative License Management System’ (Jul 2010), p.4, available at: http://www.smartlm.eu/fileadmin/SmartLM/user-data/whitepaper/Whitepaper.pdf (accessed 01.07.2012) 304 Ibid, p.5 305 Thinkmap.com , News, ‘Sony Music Online Debuts New Licensing Web Site” (2012), available at: http://www.thinkmap.com/pressrelease.jsp?id=72 (accessed 01.07.2012) 306 Ibid. 307 Ibid. 308 Thinkmap.com , Benefits, available at: http://www.thinkmap.com/benefits.jsp (accessed 20.10.2012) 309 Thinkmap.com, News, note 305 310 Ibid.

55 | P a g e that makes it easy for being used is the ease of implementation. This is important, because it would allow the consumer to adjust the software to the needs of his business model has. 311 Providing every consumer with a personal space, expresses the personalization element of the offered services.312 That space makes the licensing of the preferred content easier. The personalization element allows the software to offer consumers additional content, according to his preferences. 313 Although, the project of Sony Music Online is a good example of a platform providing a simple licensing system and rich content choice, it is just one of the many possible options. In order to improve the architecture of the digital platforms, in the near future new ways of browsing and obtaining content and the required licenses for it. Furthermore, it would be convenient for the companies providing online services to easily obtain licenses in an easy way.

Conclusion

This thesis presents the beneficial effects new business models could offer to solve the global issue of online copyright infringement. These new business models are worth to be considered as an alternative to the current approaches that are used to fight online piracy. The core ideal of this thesis is that new business models should be implemented and that creative industries should start using them. The research takes into account the nature of the copyrights and the set of exclusive rights they give to the copyright holders. The protection right holders have been granted by the Software Directive, as well as by any national constitution, is further observed. Hence, this describes the need for guiding creative industries to look for new business models. That conclusion mainly comes from the fact that any disposal with the exclusive rights copyright grants is part of the sole will of its holder. 314 Therefore, shifting the vision of creative industries from the current to the new business approaches, must be accomplished without interfering and restricting those rights. Once we clarified that new business models could be a viable alternative, capable to fight against online copyright infringements, and once we had shown that the creative industries need guidance in order to start relying on them, the groundwork of this thesis is revealed – How to guide the creative industries towards adopting new business models?

In order to provide an adequate answer to this question, this research applies Lawrence Lessig’s four modalities of regulation. Thus, an inventory of measures, capable to provide effective guidance is elaborated. The measures provided by this inventory should encourage creative industries to adopt new business models as an alternative. The first modality – law, is applied in a way to reveal the necessity of a new smarter application of the copyright enforcement. The reason to change view on the enforcement come from the fact that now it seems impossible to handle with this serious issue in an isolated way. It currently fails to ensure a

311 Thinkmap.com , Benefits, note 308 312 Thinkmap.com, News, note 305 313 Ibid. 314 Copyright Directive, Articles 2 - 4

56 | P a g e secure environment for the new business initiatives beforehand. Thus, a flexible approach where enforcement will support new business models might appear to be more plausible. Another reason is that currently the severe enforcement estranges the consumers from the products they should love to buy. The view itself should be altered in several directions. First, the enforcement mechanisms should be made less rigorous. The solution might be to reduce copyright enforcement to more reasonable levels. A second important direction could be the limitation of the enforcement mission itself. Based on the fact that file-sharing is not caused by the zero cost only, but probably due to the lack of lawful content online, enforcement could be used to promote lawful platforms. Third, enforcement could be used against the experience pirate websites provide. Once this experience is terminated, the frustration of the consumers could be guided towards the new digital shops. Providing legal rules, which could incentivize right holders to provide legal offerings online, represents a legislative attempt digital space to be supplied with lawful content. When a genuine and legal content begins to prevail in Internet, the application of the enforcement will be more effective. The HADOPI statute is provided as an example of what the vision of the smarter application of the enforcement should be. A strong reason to analyze graduated response is the fact that in the host country where it is used, a serious 43% decline in piracy rates and increasing up to 25% of legitimate sales can be observed.315 The second modality – market, is analyzed in terms of providing of more efficient licensing system. This system is linked with the enhancements of collecting societies’ activities. On the territory of the European Union are these organizations that grant licenses on behalf of right holders and that carry out the collective management of their rights. 316 Yet, the restricted territory they operate in, and more specifically their national monopolies, obstruct the full proliferation of the works and therefore the improvement of the improvement of the cross – border licensing system is essential. A solution for this situation is provided by the Draft Directive. Its’ provisions ensures the cross – border licensing, as well as due to the four principles enshrined there, it would fix the inefficient licensing in terms of refusing such rights to be granted at all. The third modality – social norms, is expressed here in terms of educational campaigns. These campaigns are important, because the perception of the consumers regarding piracy should change. Social behavior is important, because once a strong attitude against piracy has been established as being something wrong and unworthy, society would start to respect other’s creative works. If proper efforts are spent by the governments and creative industries in the short term could result in a lower number of lower infringing activities. Supported by proper clarifications about legal matters, concerning the ordinary user, such as the exceptions and fair use doctrine, it is reasonable to consider that consumers will refrain more often from illegal conduct. The last part of this inventory used the fourth modality called architecture. On the basis of this modality, this research provides the idea for better designed platforms. These platforms should make it easy for consumers to obtain licenses. The main aim is different consumers’ needs to be met by adapting the platforms to respond in an effective manner to the various purchases. A good example of such platform is by the Thinkmap Website. It is easy for being used and implemented according the different needs of the consumer. It further implies a personal element, which assists users in their search for content and its timely licensing.

The research in this thesis provides an inventory consisting of possible measures against online piracy. Hitherto, the efforts spent at deterring online copyright infringements seem not giving any

315 Pichevin, note 226 316 European Commission, note 250

57 | P a g e plausible results. There is also no indication that in the near future an effective resolution would be discovered. The proposed inventory however claims to provide possible solutions. These measures contribute by encompassing new applications of the copyright enforcement, the enhancement of the cross - border licensing system and improving the design of the digital shops. The fourth recommendation will support by changing consumers perception of piracy and copyrights through education. They all aim at ensuring the implementation of probably the only possible tool against the effective deterring of the online piracy rates – the new business models.

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2. Lawrence Lessig, ‘Free Culture’ (2004)

3. Richard Raysman, Edward A. Pisacreta, Kenneth A. Adler, Seth H. Ostrow, ‘Intellectual Property licensing: Forms and Analysis’, Law Journal Press (1999)

4. Robert M. Sherwood, ‘Some Things Cannot be Legislated’, University of Cardozo Journal of International & Comparative Law, Vol.10:37 (2002)

Articles:

1. Anthony Reese, ‘Copyright and Internet Music Transmissions: Existing Law, Major Controversies, Possible Solutions’, University of California Irvine School of Law Research Paper No. 26 (Apr 26, 2001), available at SSRN: http://papers.ssrn.com/sol3/papers.cfm?abstract_id=276333 (accessed 11.07.2012)

2. Ben Depoorter, Alain Van Hiel, Sven Vanneste, ‘Copyright Backlash’, Southern California Law Review, Vol. 84:1251 (2011),available at SSRN: http://papers.ssrn.com/sol3/papers.cfm?abstract_id=740184 (accessed 10.11.2012)

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4. Brett Danaher, Michael D. Smith, Rahul Telang, Siwen Chen, ‘The Effect of Graduated Response Anti-Piracy Laws on Music Sales: Evidence From an Event Study in France’

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11. Giuseppe Mazziotti, ‘New Licensing Models for Online Music Services in the European Union: From Collective to Customized Management’, Columbia Law School Research Paper Number 11-269 (Apr 2011), available at SSRN: http://papers.ssrn.com/sol3/papers.cfm?abstract_id=1814264 (accessed 13.05.2012)

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38. Sudip Bhattacharjee, Ram D. Gopal, Kavepaan Lertwachara, James R. Marsden, ‘Impact of Legal Threats on Online Music Sharing Activity: An Analysis of Music Industry Legal Actions’, University of Chicago, Journal of Law and Economics, vol. XLIX (April 2006), available at: http://digitalcommons.calpoly.edu/cgi/viewcontent.cgi?article=1009&context=mgmt_fa c (accessed 05.07.2012)

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Reports:

1. Ian Hargreaves, ‘Digital Opportunity. A Review of Intellectual Property and Growth’, (May 2011), p 3, available at: http://www.ipo.gov.uk/ipreview-finalreport.pdf (accessed 20.04.2012)

2. International Federation of the Phonographic Industry, ‘Digital Music Report: Expanding Choice. Going Global’ (2012), p.10, available at: http://www.ifpi.org/content/library/DMR2012.pdf (accessed 20.09.2012)

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4. Frank La Rue, ‘Report of the Special Rapporteur on the promotion and protection of the right to freedom of opinion and expression’, Human Rights Council, Seventeenth session Agenda item 3, United Nations General Assembly (16 May 2011), available at: http://www2.ohchr.org/english/bodies/hrcouncil/docs/17session/A.HRC.17.27_en.pdf (accessed 01.05.2012)

Legal Sources:

1. Agreement on Trade – Related Aspects of Intellectual Property Rights.

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2. Consolidated Version of the Treaty on European Union 2010/C 83/15.

3. Consolidated Version of the Treaty on the Functioning of the European Union 2010/C 83/01

4. Directive 2001/29/EC of the European Parliament and of the Council on the harmonization of certain aspects of copyright and related rights in the information society.

5. Directive 2004/48/EC of the European Parliament and of the Council on the enforcement of intellectual property rights.

Cases:

1. Lenz v. Universal Music Corp., 572 F. Supp. 2d 1150 (N.D.Cal.2008)

2. Sony Music Entm't, Inc. v. Does 1-40, 326 F. Supp. 2d 556 (S.D.N.Y. 2004)

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