iTunes How Copyright, Contract, and Technology Shape the Business of Digital Media – A Case Study GREEN PAPER V. 1.2 Please send comments to [email protected] Please note that an updated version of this study is available at http://cyber.law.harvard.edu/media/itunes. This Green Paper provides an initial analysis of Apple’s iTunes Online Music Store. The exploratory case study presented in this document is research in progress. Comments and questions are encouraged. The paper analyzes relevant law to achieve deeper understanding of current shifts in the digital media landscape, but does not provide legal advice. Research Team This Green Paper is a case study developed by the Digital Media Project team at the Berkman Center for Internet and Society at Harvard Law School. Gartner|G2 served as our research partner in this venture. Particular thanks to Mike McGuire of Gartner|G2. Digital Media Project Principal Investigator William W. Fisher, III Hale and Dorr Professor of Intellectual Property Law, Harvard Law School Authors Urs Gasser, Derek Bambauer, Jacqueline Harlow, Charles Hoffmann, Renny Hwang, Georg Krog, Stephen Mohr, Ivan Reidel, Derek Slater, C. Lee Wilson, and John Palfrey Communications Director Mary Bridges Draft as of April 10, 2004 2 Contents Contents ................................................................................................................................................. 2 Introduction ........................................................................................................................................... 6 Abstract ........................................................................................................................................................... 6 A. Background................................................................................................................................................ 6 B. Objectives and Scope ............................................................................................................................... 7 C. Overview of the iTunes Music Store ..................................................................................................... 8 1. Pricing..................................................................................................................................................... 9 2. Song Catalog........................................................................................................................................10 3. Ease of Use..........................................................................................................................................10 4. Digital Rights Management System..................................................................................................10 5. Extra Features .....................................................................................................................................11 Part I: Contract-Copyright Interplay.....................................................................................................12 A. Summary: Where Copyright Permits, Contracts May Prohibit........................................................12 1. Copyright..............................................................................................................................................12 2. Contract................................................................................................................................................13 B. Effects of Contract versus Copyright Tension on iTunes................................................................14 C. Copyright versus Contract in the United States.................................................................................15 D. Copyright versus Contract in Europe .................................................................................................18 1. European Union..................................................................................................................................18 a. Copyright Regulation by the European Union ..........................................................................18 b. Contract Regulation by the European Union ............................................................................19 c. Contractual Modification of Copyright Entitlements in the European Union.....................21 d. Example: Copyright-Contract Interaction in Germany............................................................22 2. Summary of Business Impact............................................................................................................23 E. Copyright versus Contract in Asian Countries...................................................................................23 1. Japan .....................................................................................................................................................23 a. Copyright in Japan..........................................................................................................................24 b. Contract in Japan............................................................................................................................25 c. Contractual Modification of Copyright Entitlements in Japan................................................26 d. Business Impact of Contract and Copyright on iTunes in Japan............................................27 2. China.....................................................................................................................................................28 a. Copyright in China .........................................................................................................................28 b. Contract in China...........................................................................................................................29 c. Contractual Modification of Copyright Entitlements in China...............................................30 d. Business Impact of Contract and Copyright on iTunes in China...........................................31 F. Conclusion ...............................................................................................................................................32 Part II: Digital Rights Management .....................................................................................................33 A. Introduction ............................................................................................................................................33 B. How is DRM Protected by Law?..........................................................................................................33 1. United States........................................................................................................................................34 3 2. European Union..................................................................................................................................35 3. Asia-Pacific.............................................................................................................................................37 a. Japan .................................................................................................................................................37 b. China ................................................................................................................................................38 3. Future Implementers..........................................................................................................................38 B. The Interaction Between iTunes DRM and the DMCA ..................................................................38 1. Preventing Piracy ................................................................................................................................39 2. Reverse Engineering and Interoperability.......................................................................................42 C. Conclusion...............................................................................................................................................45 Part III: Digital First Sale Doctrine ......................................................................................................47 A. Introduction ............................................................................................................................................47 1. “Double Dutch Bus”..........................................................................................................................47 2. The Exclusive Right of Distribution and its Limitation: First Sale Doctrine ............................48 B. Potential Effects of the First Sale Doctrine........................................................................................49 C. Digital First Sale Doctrine? ...................................................................................................................52 1. Digital Works.......................................................................................................................................52 2. Digital Dissemination of Works .......................................................................................................53 3. Further Limitations.............................................................................................................................53 D. International Perspective