Guest Post: Good News for Music Tech Startups: DLC Changes Fee Structure for Using Blanket Compulsory License

by Chris Castle

(This post first appeared on the Music Tech Solutions blog)

Title I of the Music Modernization Act established a blanket mechanical royalty license, the mechanical licensing collective to create the musical works database and collect royalties, the Digital Licensee Coordinator (which represents the music users under the blanket license) and a system where the services pay for the millions evidently required to operate the MLC and create the musical works database (which may happen eventually but which currently is the Harry Fox Agency accessed via API).

Title I also established another first (to my knowledge):  The United States became the first country in the world to charge music users a fee for availing themselves of a compulsory license.  The way that works is that all users of the blanket license have to bear a share of the costs of operating the MLC and eventually establishing the musical works database (and whatever else is in the MLC’s budget like legal fees, executive pension contributions, bonuses, etc.).  This is called the “administrative assessment” and is established by the Copyright Royalty Judges through a hearing that only the DLC and the MLC were (and probably are) allowed to attend, yet sets the rates for music users not present.

The initial administrative assessment is divided into two parts: The startup costs for developing the HFA API and the operating costs of the MLC.  The startup costs for the API, vendor payments, etc., were assessed to be $33,500,000; that’s a pricey API.  The first year MLC operating costs were assessed to be $28,500,000.  Because it’s always groundhog day when it comes to music publishing proceedings before the Copyright Royalty Judges, the method of allocating these costs are a mind-numbing calculation that will require lawyers to interpret.  With all respect, the poor CRJs must wonder how anything ever actually happens in the music business based on the distorted view that parades before them.  You do have to ask yourself is this really the best we can do?  Imagine that the industry elected to solve its startup problems by single combat with one songwriter and one entrepreneur staying in a room until they made a deal.  Do you think that the best they could come up with is the system of compulsory licensing as it exists in the US?  Maybe.  Or maybe they’d come up with something simpler and less costly to administer in the absence of experts , lobbyists and lawyers.

My feeling is that the entire administrative assessment process is fraught with conflicts of interest, a view I made known in an op-ed and to the Senate Judiciary Committee staff at their request when the MMA was being drafted.  The staff actually agreed, but said their hands were tied because of “the parties”–which of course means “the lobbyists” because the MMA looked like what they call a “Two Lexus” lobbying contract.  Not for songwriters, of course.

Yet, the DLC appears to have reconsidered some of this tom foolery and should be praised for doing so.  The good news is that the market’s gravitational pull has caused the allocation of the assessment on startups to come back to earth in a much more realistic methodology.  Markets are funny that way, even markets for compulsory licenses.  While still out of step with the rest of the world, at least the US precedent appears much less likely to have the counterproductive effects that were obvious before MMA was signed into law due to the statute’s anticompetitive lock in.  And the DLC should be commended for having the courage and the energy to make the fairness-making changes.  That’s a wow moment.

Hats off to the DLC for getting out ahead of the issue.  I recommend reading the DLC filing supporting the revisions (technically a joint filing with MLC but it reads like it came from DLC with MLC signing off).  It’s clearly written and I think the narrative will be understandable and informative to a layperson (once you get past the bizarre structure of the entire thing).  The DLC tells us the reasons for revisiting the allocation:

Since the Judges adopted the initial administrative assessment regulations, the Parties [i.e., the DLC and MLC since no one else was allowed to participate even if they had a stake in the outcome] have gained a better understanding of the overall usage of sound recordings within the digital audio service industry, as well as the relative usage of various categories of services. This information has led the Parties to conclude that the allocation methodology could have significant impacts on smaller Licensees, and that the allocation methodology should be modified to better accommodate these Licensees, and that such is reasonable and appropriate. This is particularly the case as these Licensees transition to the new mechanical licensing system set forth in the Music Modernization Act (“MMA”) and navigate new reporting requirements, and further as the country continues to generally struggle through the economic and health effects of the ongoing COVID-19 pandemic. While the cost, reporting requirements, and impacts of the pandemic are experienced by all Licensees, the Parties believe that it is reasonable and appropriate to modify the administrative assessment to better address the situations of smaller Licensees.

The “old” allocation resulted in this payment structure for services buying into the blanket license (setting aside download stores for the moment):

Old Assessment Alloction

It was that $60,000 plus an indeterminate share of operating costs that was the killer.  The new allocation is more precise applicable to other than download stores:

New Assessment Alloction

This makes a lot more sense and one can believe that some startups actually were asked what they think. Remember, David Lowery sent an open letter to the CRJs in 2019 raising this exact point reacting to the bizarre initial administrative assessment hearings:

The Judges should take into account that no startup has been present or able to negotiate the many burdens placed on them by this settlement. In particular, they have not been able to be heard by the Judges on the scope of these financial burdens that their competitors—some of the richest multinational corporations in history—have unilaterally decided to place on them with no push back.

This isn’t to say that any would be brave enough to come forward and challenge their betters if given a chance. But they should at least be given a chance.

There are some twists and turns to the new rule which was adopted by the CRJs as a final rule on January 8, 2021, and any startup should obviously get smart about the rules. But–these latest amendments have established two really great things: First, the DLC is paying attention. That is very good for the reasons David raises. The other is that the DLC is apparently actually talking to someone other than Google and Spotify and coming up with reasonable compromises. This is very, very good. Let’s hope it continues.

We’ll be watching.

Guest Post: Streaming and the Embarrassment of COVID Riches

By Chris Castle (first appeared on MusicTechPolicy)

We’re starting to see a narrative emerging from the digital music services in reaction to artists chafing under the misery of streaming royalties.  Streamers want lawmakers to focus attention on the allocation of current period revenue that they pay to creators and deflect attention from the company’s stock market valuation (or private company valuation).  That’s a grand deflection and misdirection away from the true value of artists, songwriters and their recorded music to streaming companies like Spotify.  But they can’t escape the embarrassment of riches by discounting the value of stock price through deflecting attention to loss-making revenues that companies like Spotify keep artificially low through a kind of Malthusian reverse pricing power to drive growth.  It may be rational for investors, but it’s not sustainable for the creators of the company’s sole or primary product.

We saw this with Pandora–lawmakers were told how much of Pandora’s monthly revenue the company paid out in royalties as though revenue was the primary metric.  The deflection worked until lawmakers started realizing that Tim Westergren was booking $1 million a month in stock sales.  Then it rang pretty hollow.  But the commoditizers are at it again.

No matter how much Big Tech tries to commoditize music, this is not about selling widgets at a deep discount–it’s about people’s lives.

“Get Big Fast”

Let’s be clear–companies like Spotify don’t get into business to eke out a profit.  They get into business to get their snouts into the trough of IPO stock as fast as possible and share that wealth with as few people as possible.  (And get out of corporate governance before the chickens come home to roost.)  So looking at revenue allocation without the accretive boost of stock market valuation is simply a grand deflection.  Abracadabra!

That deflection is particularly galling when the executives dip into current revenues to reward themselves like drunken sailors.  This is the profit fallacy—I would go so far as to say that in Silicon Valley, “profit motive” is very 1980 and long ago was replaced by the motive of  “get big fast.”  These companies seek to capture public stock market valuation, and share price valuation implies a belief in top line earnings and market share growth–not current period profit or–God forbid–dividends to shareholders.  And “get big fast” is working for Spotify.

share of streaming services

There is also controversy about a perceived “allocation” of music royalties payable by the streaming services particularly between record companies and recording artists or PROs and songwriters (especially the PROs and authors’ societies that Silicon Valley would dearly like to replace).  The allocation theory again focuses on revenue instead of the total value transfer. It goes something like this: Streaming services pay 69¢ of each dollar for royalties. When the artists or songwriters complain, it’s not because the saintly streaming services don’t pay enough, it’s because the greedy record companies or PROs take too much of that 69¢.

There is a lot that is not said with that fallacious allocation statement. I think a focus on revenue “allocation” is the wrong way to look at the royalty issue from a policy perspective.  The “allocation” focus presupposes there is an aggregate payment for music that is somehow misallocated.  

Pie-ism a la Mode

This allocation or “pie” fallacy is a very familiar argument in the U.S. It often comes from broadcasters fighting equitable remuneration for recording artists on terrestrial radio by attempting to limit their total payment for both sound recordings and songs to the amount that broadcasters historically have paid for songs only.  Instead of acknowledging the value of sound recordings, the platforms confound song performance royalties with “music”.  They say, “We pay $X for music, we don’t care how you allocate it between songs and recordings.”  This is like comparing apples to oranges and producing a pomegranate.

I call this thinking the fallacy of the pie, a derivative of the fallacy of composition.  It makes creative sectors fight each other in a kind of digital decimation.  

There is nothing particularly sophisticated about this strategy.  But the policy challenge for industrial strategists is to how to grow the pie, not to cut smaller pieces for everyone.  Growing the pie is particularly relevant when the platform seeks to monetize its valuation in the public financial markets. At that point, focusing solely on the allocation of revenue to the exclusion of the total valuation transfer is simply a kind of cruel joke.

Here’s the sad reality broken down to current per-stream rates that are entirely based on service revenue:

etude-ecoute-en-continu-streaming-montants-spotify-apple-music-google

This is front of mind as we see reports of Believe Digital (owner of the independent pre-pay distributor Tunecore) contemplating a €2 billion IPO drafting behind the reported COVID-fueled success of streaming and the Spotify public offering.  Government may play a role in requiring a share of riches transferred from the public financial markets to be shared by those artists and songwriters who gave the issuer its valuation, particularly when the issuer did not invest in the creative community.  

Get COVID Profitable Fast

If profit were really the target, one could make Spotify more profitable almost overnight by moving their U.S. headquarters to Syracuse, Cedar Rapids or even Austin rather than multiple floors of the World Trade Center in Manhattan.  One could cut executive compensation, one could do many things to reduce their Selling, General and Administrative costs.  But profit is not the issue for them.  Valuation is the issue and valuation is driven by bets on future growth.   In Spotify’s case, growth is often measured as subscriber growth and subscriber growth implies competing on price because Spotify offers more or less the same product as its competitors in a triumph of the commoditizer.  Which in turn implies keeping retail prices down (and Monthly Service Revenue) in a race to the bottom on subscription price and to the top on share price.  You may find that analyzing the economics of who wins in streaming is similar to who wins a gas war among price cutting petrol stations.

COVID has nearly destroyed the live music business that sustained the artists who previously tolerated their mils per stream Spotify royalties.  Far from being harmed by COVID, COVID has been rocket fuel for Spotify which adds to the unfairness of the “big pool” revenue share royalty system.  As the COVID Misery Index demonstrates, Spotify’s growth in valuation has outpaced its fellow oligopolists:

COVID Misery Index 1-8-21

Given the urgency of the COVID crisis, it is important to understand the difference between the creator community and other workers affected by COVID.  For example, restaurants are not failing while some other entity succeeds in extracting value from their customers.  As the COVID Misery Index demonstrates, Spotify’s stock price has more than doubled since the onset of COVID.

Again, Spotify’s success is largely predicated on keeping both royalties and prices low and bargaining for special royalty treatment.  I don’t object to the company’s pricing decisions so much as the complete failure of Spotify to share its success with independent artists who make up a significant amount of its offering but who are doomed to scrap at the decimal point in search of a positive integer.

Instead of launching billion-dollar stock buy-back programs to juice their share price, it would be a simple thing for Spotify to credit the royalty accounts of independent artists and songwriters with a cash infusion not connected to the revenue share deflection.  They have a direct billing relationship with thousands of artists and songwriters and they could simply deposit some thousands in these accounts which overnight would help balance the inequities and also provide an alternative to government support payments.  We have experienced government payments to creators in Austin, and one of the biggest problems was the mechanics of getting the money from the government’s account into the creator’s account. 

Spotify could just do it today as a thank you for doubling the value of their company while artists and songwriters suffered. Or perhaps Daniel Ek could just pay it out of his own pocket since he loves creators so damn much.

Whether it’s driven by the embarrassment of riches or a guilty conscience, the commoditizer’s grand deflection is back. Don’t let them fool you twice.

Guest Post: What is the Intention of Justice? Notice and Stay Down is the Government’s Responsibility

By Chris Castle

ARTHUR

Let’s get back to justice…what is justice? What is the intention of justice? The intention of justice is to see that the guilty people are proven guilty and that the innocent are freed. Simple isn’t it? Only it’s not that simple.

From …And Justice for All, written by Valerie Curtin and Barry Levinson.

Law out of balance is no law at all.  I suggest that the DMCA is just this imbalance and the unbalanced DMCA has created other imbalances that in turn transferred wealth from the many to the few.  One of the biggest dangers to our society currently and in the future is erosion of the third estate (or the “musician’s middle class”) into the concentration of wealth in fewer and fewer hands.  This erosion is accompanied by its inevitable trend toward authoritarianism enforced by the mandarin class of Silicon Valley.  Not to mention the policy laundering operations funded by transferred wealth like the Chan Zuckerberg Initiative (that’s the Chan Zuckerberg who asked Xi Jinping to name her then-unborn child).  

Serfing in the Apocalypse 

This kind of neo-feudal concentration of wealth is most obvious in the tech oligarchy, especially in companies like Facebook, Google and Spotify with their dual class supervoting stock that concentrates the corporate decision making and wealth not in the shareholders but in the hands of Mark Zuckerberg, Sergey Brin, Larry Page, Eric Schmidt, Daniel Ek and Martin Lorentzen.  And then there’s Amazon with the world’s richest man, Jeff Bezos—the future space mogul.  (Bezos’ Blue Origin and Google’s adventures in biometrics and AI in China are examples of the second order knock-on effects of the Internet oligarchy become defense contractors.) 

I also suggest that one of the driving forces that has accelerated this concentration of wealth and power over the last twenty years has been the 1998 Digital Millennium Copyright Act.  Unless substantially reversed, the DMCA will continue to accelerate the wealth transfer from creators to oligarchs.  It must also be said that state actors or near state actors like TikTok either profit from, promote or protect massive online piracy based in DMCA-type alibis.  This topic is another conversation, but anyone who has dealt with the huge pirate sites has felt the cold hand of truly bad guys with top cover.  In addition to the tech oligarchs, Russian oligarchs think the DMCA idea is really pretty groovy.

The DMCA Alibi

You’ve probably heard the expression “notice and takedown” applied to copyright online.  It was the DMCA that created the “notice and takedown” alibi regime for piracy and near-piracy.   These notices have come to be called “DMCA notices” and the Congressional plan that implemented that call and response has unambiguously failed.  You may have also heard the expression “value gap.”   The “value gap” is shorthand for illicit profits made from exploiting the DMCA loophole which itself is a prima facie case of law out of balance.  The “value gap” is the predictable consequence of “notice and takedown.”

Google alone has received nearly five billion DMCA notices just in the current reporting period.  That’s 5,000,000,000.  I’m still waiting to see the conga line of Members of Congress and Senators who say that was exactly what they intended (and many who were involved in drafting the DMCA are still serving).  I’m also waiting to hear lawmakers acknowledge that when something happens 5,000,000,000 times, it’s a feature not a bug just like the Ford Pinto’s exploding gas tank.  No one ever asked them until Senator Thom Tillis began a series of hearings before the Senate Judiciary Committee’s Subcommittee on Intellectual Property earlier this year.

If we’re lucky, in coming days Senator Tillis will be introducing a legislative overhaul of this gaping wound reflecting the many hearings he’s chaired this year to investigate the DMCA imbalance that created one of the biggest wealth transfers in history.  That wealth transfer is not only caused by the perpetual state of piracy or near piracy created by the DMCA, it is also caused by the cost of enforcing copyright that has fallen on all creators in all copyright categories.  Not to mention the sheer scale of the burden imposed by lawmakers on creators.  Hopefully Senator Tillis’s investigation will bear fruit and will right the imbalance.

And as we have exhaustively endured for over 20 years, law out of balance is no law at all.   In the music business, performers—like all creators—have been effectively powerless to stop this latest great imbalance in justice created by the copyright infringement safe harbor disaster and piracy force multiplier.  That value gap has hollowed out the performer community (as well as record companies) after 20 years of wealth transfer to the Big Tech oligarchs from commoditizing the recordings that performers created.  And Big Tech have used their DMCA-driven profits to hire even more lobbyists around the world to create even more loopholes in the human rights of artists in the endless maelstrom of Malthusian decline.  That decline manifests itself in the ennui of learned helplessness of creators around the world as companies like Google seek to impose Google’s version of notice and takedown around the world.

Notice and Staydown

But—there is a new term in our lexicon that hopefully will appear in new legislation from Senator Thom Tillis: Notice and stay down. What does it mean?  It’s a mid point between a pure negligence standard and the intent of the DMCA to provide a responsible alternative dispute resolution system.  Instead of the endless whack a mole iterations of catch me if you can posting and reposting of infringing works, online service providers would be required to actually do the right thing and keep the infringing work off of their service.  It’s really just a properly enforced repeat infringer policy.  It’s hard to believe that adults persist in this whack a mole but they do.  There’s big money in those moles that don’t actually stay whacked.

How in the world did we arrive at the status quo?  A page of history is worth a volume of logic to fully understand this leading edge of the Great Reset.  

The Great Copyright Reset

In the late 1990s, the large ISPs had a legitimate concern about this Internet thing. If ISPs (like Verizon or AT&T) are providing ways for the many to connect with each other over the Internet, they were inevitably empowering essentially anonymous users to send digitized property to each other by means of that same technology.  That property might take the form of an email file attachment (or link to a file) that contained a copy of a sound recording, movie or an image.  ISPs wanted to be protected from responsibility for things like copyright infringement they had nothing to do with.  (This knowledge predicate is where the games begin.)

The ISPs needed a zone in which they could operate, a zone that came to be called the “safe harbor.” The deal essentially was that if you didn’t know or have a reason to know there was bad behavior going on with your users, or didn’t have knowledge waiving like a red flag, then the government would provide a little latitude to reasonable people acting reasonably.

This safe harbor idea was a great privilege conferred upon online service providers and balanced the democratizing nature of the Internet with the need to enforce the law against bad actors.  Lawmakers were caught up with the idea of bringing people together.  What they didn’t realize sufficiently was some of those people previously only met on Death Row.

Artists’ rights to protect themselves were not entirely extinguished by this new safe harbor for big companies but were severely burdened. Record labels and film studios had to devote substantial resources to whack a mole that could have been spent on their core businesses–making records and movies.  If a copyright owner thought there was infringement going on that didn’t qualify for the safe harbor, then the intention was that individual artists shouldn’t have to file a lawsuit, they could just send a simple notice to the service provider. If it turned out that there was a bona fide dispute over the particular use of the work, then the parties could go to court and hash it out if necessary. The notice part of “notice and takedown” was perceived as an inexpensive remedy that would be available to artists who did not want to take on a lawsuit as well as ISPs with litigation budgets.  The Congress did not factor in the charlatans who would come later like Google and Facebook, neither of which existed in 1998.

This is documented in the legislative history from 1998, i.e., both before Google and and Facebook and before the Electronic Frontier Foundation discovered Morpheus or Mrs. Lenz:

This ‘‘notice and takedown’’ procedure is a formalization and refinement of a cooperative process that has been employed to deal efficiently with network-based copyright infringement.

Section 512 does not require use of the notice and take-down procedure. A service provider wishing to benefit from the limitation on liability under subsection (c) must ‘‘take down’’ or disable access to infringing material residing on its system or network of which it has actual knowledge or that meets the ‘‘red flag’’ test, even if the copyright owner or its agent does not notify it of a claimed infringement. 

Sounds very civilized, don’t it? Sounds like something that could be considered to be just. How could something that sounded so right go so wrong so fast?  Notice and takedown has become notice and shakedown after the charlatans arrived.

The Inevitable Notice and Shakedown

The one thing that nobody thought was that it was the intention of Congress that there would be ad networks, multinational corporations and international piracy rings whose business model is in large part built on exploiting the “notice and takedown” loophole in that safe harbor.  

These organizations ignored the DMCA’s knowledge predicate and repeat infringer requirements and adopted what is essentially a “catch me if you can” version that allows them to infringe until they get caught by the copyright owner and then continue to infringe if they are not sued–the exact opposite of what the DMCA intended.  What once was a reasonable exception was almost immediately tainted as a massive loophole that the government has done little to nothing to correct much less enforce.

The “safe harbor” is no longer a loophole, it has graduated to a full blown design defect as indiscriminately harmful as any exploding gas tank.  So now when artists ask that some common sense be applied to this grotesque distortion of the law-supposedly passed in part for the benefit of artists-some would tell artists that it’s not up to government to tell them what the law means. As Kafka-esque as that sounds.

Will You Believe Me or Your Lying Eyes?

Isn’t it obvious that having to send a notice for the same work on the same service hundreds of thousands of times an absurd burden? In other words — is the government actually defending whack a mole with a straight face? Did the government actually intend that 5,000,000,000 take down notices in a year are a new normal?  If they did, evidence of that intent is not in the statute or the legislative history.  Would Congress offer protection to an exploding gas tank after they already knew it was a threat because it was designed that way?

Whack a mole is not automatic-it requires human intervention. As we saw in BMG’s precedent setting and victorious lawsuit against the ISP Cox Communications over Cox’s grotesque failure to enforce its repeat infringer policy, a person has to decide to repost the infringing file even while knowing the file is or is very likely an infringement. Whack a mole actually defies the entire purpose of the safe harbor-whack a mole is not a little latitude for reasonable people acting reasonably.

Whack a mole is a design defect.  Is it just that Congress should protect any design defect?

Let’s get back to justice. Not only does the status quo require creators to tell lawmakers (including courts) what their law means, the U.S. Government has utterly failed artists with the fundamental justification for the Sovereign common to our jurisprudence and political theory. 

Crucially, it must be acknowledged that the government has failed to protect artists.  The government has failed to enforce the laws, essentially overseeing and giving legitimacy to one of the largest wealth transfers of all time from the hands of the many into the overflowing pockets of the few.  All based on an extreme interpretation by Google and its ilk of the government’s laws.  Direct challenges to these interpretations involve costly and protracted litigation — with the inescapable whack a mole continuing all the while.

It would not be unreasonable for artists to think that the whole thing smacks of crony capitalism, particularly when one of the biggest beneficiaries of the loophole is a major lobbying influence like Google. While some ISPs have at least tried to address the issue, the Googles of this world are noticeably absent.

So I would beg pardon here-I do not feel that it should be necessary for artists to tell the Congress what would be acceptable in the way of parameters for “notice and stay down”, at least not initially. I think artists have the undisputed right to ask-actually to demand-of the Congress, what was their intention?

Enter the Foxes

Don’t underestimate the knock-on effects of the DMCA wealth transfer that funds self-preservation for the DMCA beneficiaries.  Who can forget Google’s dominance of the Obama Administration?  It’s clear that like Google learned from Microsoft, Facebook has learned from Google (and both joined forces to try to defeat the European Copyright Directive, so expect more of the same foxes coming for the henhouse when Senator Tillis introduces his bill).  

We note the irony that the ethics czar for the Biden transition team is from Facebook, as is the director of legislative affairs a former Facebook lobbyist.  A former Facebook board member co-chairs the transition team and there is a sprinkling of other former Facebook board members in other roles.  Three transition team members are former Chan Zuckerberg Initiative employees.  And Google’s Eric “Uncle Sugar” Schmidt will have a leading role.  

Once they get into power, you can expect that DMCA reform will get exponentially harder, but the Tech Transparency Project will have even more work to do.

Senator Tillis Could Make Real Progress Toward Reversing the DMCA Cronyism

The safe harbor is the government’s law. They wrote it. They voted for it. They represented voters—including creators—when they did so. They presumably have some idea what it is supposed to mean. Many who voted for it are still in the Congress. The Congress needs to come clean on what they intended. Isn’t that the better place to start? Why should artists have to tell the Congress what the Congress’s intention was?

If it was the intention of the Congress (and President Clinton who signed the law) that the current state of whack a mole was the plan all along, then let them say that — and perhaps more importantly, point to where they told the electorate that was their intention at the time the DMCA was passed in the Congress and signed into law.  If it is not their intention, then it should be reversed with no daylight.

Google alone is on track to receive over five billion take down notices this year alone. If this was the Congressional intention, then let them say that. If their intention was there should be no upper limit on the number of takedown notices any one company could receive in a year, then let them say that. And explain themselves.

And let’s be clear-Google does not appear to view these billions of notices as a design defect, although that would be a perfectly reasonable conclusion. And neither do Facebook or Twitter. One has to believe that if a company the size of Google viewed billions of notices as a problem, they could fix that problem. They haven’t. In fact the number of notices grows exponentially every year. Perhaps they view billions of DMCA notices as a feature set.  Because along with the billions of notices comes a fortune for Google just like Facebook, Twitter and the rest.  Big Tech’s defenders would say of Pirate Bay and Megavideo, they’re just like Google.  Yes, that’s right.  Google is just like them and they are just like Google.  Serfing on the DMCA apocalypse.

What is the intention of justice? That the guilty are proven guilty. But if lawmakers won’t tell us what it means to be guilty much less prosecute the politically connected wrongdoers, then what justice is that?

Notice and stay down is a reasonable reaction to whack a mole, and one that is entirely consistent with the original intent of the DMCA notice and takedown regime that has gone so far wrong. Hopefully Senator Tillis will be leading the charge.

It might actually be that simple.  Notice and stay down.

As Arthur told the jury, “If he’s allowed to go free, then something really wrong is going on here.”

Guest post: Attention BrewBros: Internet Archive Announces Closing of National Emergency Library

By Chris Castle

The eponymous Mr. Kahle announced with the usual huge heaping rasher of sanctimonious twaddle straight from the mollycoddle mumbletank that the so-called “National Emergency Library” was closing early.  Not because Brewster Kahle did anything wrong, not because he got a Tillis-gram, no no no.  It’s because there are other resources for the “Internet bound.”

Internet bound.  You read that right.  Yet the crepuscular “National Emergency Library” is fading into the sunset according to an Internet Archive blog post.  Personally, I’ll believe it when I see it.

Today we are announcing the National Emergency Library will close on June 16th, rather than June 30th, returning to traditional controlled digital lending. We have learned that the vast majority of people use digitized books on the Internet Archive for a very short time. Even with the closure of the NEL, we will be able to serve most patrons through controlled digital lending, in part because of the good work of the non-profit HathiTrust Digital Library. HathiTrust’s new Emergency Temporary Access Service features a short-term access model that we plan to follow.

We moved up our schedule because, last Monday, four commercial publishers chose to sue Internet Archive during a global pandemic.

Yes, those heartless “commercial publishers”.  You see, the saintly Mr. Kahle is not motivated by money (having already enriched himself with his snout in the Silicon Valley cash tank).  Those commercial publishers were enforcing their rights.  And during a pandemic, no less.  Any self-reflection there?  Not a bit.  No thought that Mr. Kahle himself was taking advantage of a pandemic to engage in price gouging, which is just white-collar looting.  As someone who grew up with both hurricanes and earthquakes, I have zero sympathy for the dude.

But this is the usual running for the exits that these people all try to hide behind.  You sue them for bad behavior and they think that if they just stop doing the bad thing once they were caught and called out, you should welcome them back to humanity.

Not really.

As the IA blog post takes note:

[T]his lawsuit is not just about the temporary National Emergency Library. The complaint attacks the concept of any library owning and lending digital books,   challenging the very idea of what a library is in the digital world. [Not really…just Mr. Kahle’s provocation.  And…cue violins…] This lawsuit stands in contrast to some academic publishers who initially expressed concerns about the NEL, but ultimately decided to work with us to provide access to people cut off from their physical schools and libraries. We hope that similar cooperation is possible here, and the publishers call off their costly assault.

Not bloody likely.  When did Noah build the Ark?  Before the rain, get it?  You take precautions before you are forced to by circumstances.

If you get down on your knees and beg to be sued, don’t be surprised if you are.  And when you are, at least have the courage to own up to the begging.  But wait…I thought that there was all that stuff about fair use was his superpower? What happened to that?

 

CISAC and BIEM Suggestions to US Copyright Office on MLC Oversight Regulations

We often overlook the international dimension to the Mechanical Licensing Collective created by Congress in the Music Modernization Act.  We’re not the only ones.

One of the most insightful comments in the Copyright Office’s public request for suggestions for regulations to govern the MLC came from CISAC and BIEM.

CISAC stands for Confédération Internationale des Sociétés d’Auteurs et Compositeurs.  Founded in 1928, CISAC has been working on the data exchanges and standard identifiers for songs and other non-recorded works since 1994.  CISAC created the much discussed abd widely adopted International Standard Work Code (“ISWC”) for songs.

BIEM stands for Bureau International des Sociétés Gérant les Droits d’Enregistrement et de Reproduction Mécanique.  Founded in 1929, BIEM represents mechanical collecting societies in some 58 countries.

You may not recognize those acronyms, so here is how the two organizations describe themselves in their comment:

The International Confederation of Societies of Authors and Composers (CISAC), and the International Organisation representing Mechanical Rights Societies (BIEM) are international organisations representing Collective Management Organisations (“CMOs”) worldwide1. CISAC and BIEM members are entrusted with the management of creators’ rights and, as such, have a direct interest in the regulations governing the new blanket licensing system for digital uses as well as the activities of the Mechanical Licensing Collective (MLC).

Another way to say it is that the MLC was to a large extent modeled on these mechanical rights societies with some important differences, starting with governance.  The president of CISAC is Jean-Michel Jarre, the composer.  That’s right, a composer is the president.  Just sayin’.  You may remember Jean-Michel from the #irespectmusic campaign when he was all-in early:

jean michael jarre IRM 1

Photo by Helienne Lindvall

Here’s an excerpt from the CISAC/BIEM filing that we though was important, but you should take a few minutes and read the entire thing.  It’s not very long and it includes vitally important concepts that were never mentioned in Title I of the Music Modernization Act.  The comment is spelled out very politely from people who actually know what they’re doing.  Let’s just say that independent songwriters are not the only ones who may end up in the dreaded black box.

Remember that MLC is accountable (no pun intended) for identifying and paying potentially on all songs ever written or that may ever be written that are exploited in the US under the new blanket compulsory license in Title I of MMA.  This doesn’t mean that all songs will be exploited all the time, but it does mean that MLC has chosen to be responsible for identifying every song and paying royalties to every songwriter as and when exploited–so to speak.  All with the authorization of the U.S. Congress.  Starting next January.

Good times.

Comments on Section B: Data Collection and Delivery Efforts

The correct identification of copyright owners shall be a key objective of the MLC. Regulations shall ensure the appropriate onward distribution of royalties to copyright owners, whether national or foreign, and therefore that non-US [Collective Management Organizations (“CMOs”)] are entitled to make registrations and thus, claim royalties with the MLC.

 Support the Non-Discriminatory Treatment of Foreign Rightholders

In compliance with article 5.1 of the Berne Convention guaranteeing non-discriminatory treatment between national and non-national creators, the Office should promulgate regulations that ensure rightholders of “US works”
and “non-US works” enjoy the same rights and are equally treated when their works are exploited in the US territory.

 Provide adequate means for CMOs to submit rightsholder information
Outside the US and in particular in Europe, it is common practice for creators to entrust the administration of both performing and mechanical rights to CMOs. As the history of mechanical rights collective management in Europe shows, CMOs are indispensable in the process of establishing the correct ownership of musical works (and shares of such works) on behalf of individual right holders. Oftentimes non-US CMOs are also responsible for the registration of works information licensed in the U.S. that are only sub-published, or not published at all, in the U.S. In this regard, it is essential that non-US CMOs are also entitled to make registrations and, thus, claim royalties with the MLC. Importantly, non-US CMOs (in particular BIEM Members) are normally able to contribute data in relation to work identification and to the registration of work information in the MLC’s Database with a high degree of reliability; in many cases their contributions would be necessary to supplement data submitted by DMPs.

Therefore, the role of non-US CMOs in the identification of works should be expressly foreseen by the regulations. Likewise, the role of CMOs should also be expressly foreseen by the Regulations with regards tothe proper use and implementation of data standards such as ISWC that will ultimately support the proper identification of rightsholders.

Whose Idea was the RSC Memo on Copyright? Don’t ask Derek Khanna

Derek Khanna has been on a media blitz lately following the White House’s endorsement of a “We the People” petition to “make cell phone unlocking legal”. Khanna — who considers himself a “copyright reform” advocate (but in our opinion could more accurately be called a “Derek Khanna” advocate) — created a moral panic over cell phone unlocking as the first step in a sustained “war” against artists and creators, the goal of which is to strip them of their already weak legal protections.

Khanna, you may recall, first stepped into the spotlight last November after he authored a memo for the Republican Study Committee that called for severe and regressive changes to copyright law. The memo was filled with historical and factual errors (as well as numerous typos) but was considered one of the most eloquent writings to come from the copyleft; it was quickly withdrawn from the RSC’s website.

Earlier, we had noted that Khanna himself has publicly admitted of the memo, “No one requested it. I just thought it was a good idea.”

khannareddit

Interesting. Because just a few days ago, Khanna spoke about the memo to Ezra Klein at the Washington Post. His story was a little bit different this time. According to Klein:

It was November 2012 and Derek Khanna was working as a staffer in the Republican Study Committee, which acts as a kind of think tank for the conservative wing of the House Republican Conference. Khanna, whose job was to follow issues pertaining to technology, homeland security and government oversight, was asked to draw up a short brief on copyright law — something the group could hand out to House Republicans in the hopes of getting some legislation moving. “The memo wasn’t my idea,” he says.

(Tip to Derek Khanna: if you want to get into politics, you have to make your flip-flops a little less obvious.)

The Internet Radio Fairness Act’s Attack on Free Speech

In case you missed it: yesterday, the Future of Music Coalition held its annual summit, a full day’s worth of varied speakers and varied topics. The primary topic was the Internet Radio Fairness Act (IRFA) — Pandora’s Tim Westergren led off the summit with a “conversation panel” designed to drum up support for the bill. Senator Ron Wyden, sponsor of the Senate’s version of the bill, had the honor of keynoting the event, and his remarks centered around the legislation.

The Trichordist’s own David Lowery participated on a panel in between the two devoted to the bill. He was joined by General Counsel of the American Federation of Musicians Patricia Polach, SoundExchange General Counsel Colin Rushing, Consumer Electronics Association lobbyist Michael Petricone, and AccuRadio founder Kurt Hanson.

Lowery had earlier challenged Westergren on the free speech implications of Section 5 of IRFA. Westergren deflected: “I’m not going to get into a back and forth over legislative language.”

During the panel discussion, Lowery focused again on the chilling effect that Section 5 would pose to artists and artist organizations. The AFM’s Polach echoed his concerns.

When Senator Wyden took the podium, he attempted to address these concerns. With his voice raised, he conceded that “If the consensus in the legal community is that this restricts the First Amendment, it will be a very short-lived provision.” Techdirt’s Mike Masnick jumped to Wyden’s defense:

As we noted in our prior post, IRFA’s chilling effect on free speech is not a bizarre interpretation.

Satellite radio provider Sirius XM is currently suing SoundExchange and the American Association of Independent Music (A2IM) primarily because of blog posts expressing their opinion on direct licenses pursued by Sirius. It is seeking monetary damages, a permanent injunction, the dissolution of SoundExchange, and the invalidation of all copyrights licensed by SoundExchange — copyrights involving over 70,000 performers — because these organizations representing artists engaged in speech that Sirius disagrees with.

These groups have explicitly raised the First Amendment in defense. As A2IM argues in its memorandum supporting its motion to dismiss, filed last June, “a trade association’s mere recitation of facts and its opinion on an issue or standard cannot constitute an antitrust violation.”

Instead, such a recitation is protected free speech. … Sirius pleads nothing more than just such protected expressions of A2IM opinion.

Artists and artist advocates should not need to run things by their lawyer whenever they want to communicate to other artists their thoughts and opinions on deals offered by Sirius, Clear Channel, or any other business that relies on their music.

We don’t have to wonder if there is a free speech concern with Section 5 of IRFA — there is. We don’t have to guess if corporations will sue artist organizations for speaking up — they already are.

Section 5 would only codify and set in stone this suppresion of dissent.

That IRFA’s own authors, self-described defenders of the First Amendment, weren’t aware of the definite chilling effect of the bill until yesterday only reinforces the idea that Congressional tampering with artists’ royalties is not yet ready for prime time.

Muzzling Free Speech By Artists: IRFA Section 5 Analysis

The “Internet Radio Fairness Act” has a lot to concern artists. Today, we’re continuing our section-by-section analysis of the proposed legislation because knowing is half the battle. We’ve been looking at how the bill would affect current law: strikethrough text shows what the bill would remove, while underlined text shows what it would add.

SEC. 5. PROMOTION OF A COMPETITIVE MARKETPLACE.

17 USC § 112 – Limitations on exclusive rights: Ephemeral recordings

(e) Statutory License.—

(2) Notwithstanding any provision of the antitrust laws, any copyright owners of sound recordings and any transmitting organizations entitled to a statutory license under this subsection may negotiate and agree upon royalty rates and license terms and conditions for making phonorecords of such sound recordings under this section and the proportionate division of fees paid among copyright owners, and may designate common agents, on a nonexclusive basis, to negotiate, agree to, pay, or receive such royalty payments. Nothing in this paragraph shall be construed to permit any copyright owners of sound recordings acting jointly, or any common agent or collective representing such copyright owners, to take any action that would prohibit, interfere with, or impede direct licensing by copyright owners of sound recordings in competition with licensing by any common agent or collective, and any such action that affects interstate commerce shall be deemed a contract, combination or conspiracy in restraint of trade in violation of section 1 of the Sherman Act (15 U.S.C. 1).

17 USC § 114 – Scope of exclusive rights in sound recordings

(e) Authority for Negotiations.—

(1) Notwithstanding any provision of the antitrust laws, in negotiating statutory licenses in accordance with subsection (f), any copyright owners of sound recordings and any entities performing sound recordings affected by this section may negotiate and agree upon the royalty rates and license terms and conditions for the performance of such sound recordings and the proportionate division of fees paid among copyright owners, and may designate common agents on a nonexclusive basis to negotiate, agree to, pay, or receive payments.

(2) For licenses granted under section 106 (6), other than statutory licenses, such as for performances by interactive services or performances that exceed the sound recording performance complement—

(A) copyright owners of sound recordings affected by this section may designate common agents to act on their behalf to grant licenses and receive and remit royalty payments: Provided, That each copyright owner shall establish the royalty rates and material license terms and conditions unilaterally, that is, not in agreement, combination, or concert with other copyright owners of sound recordings; and

(B) entities performing sound recordings affected by this section may designate common agents to act on their behalf to obtain licenses and collect and pay royalty fees: Provided, That each entity performing sound recordings shall determine the royalty rates and material license terms and conditions unilaterally, that is, not in agreement, combination, or concert with other entities performing sound recordings.

(3) Nothing in this subsection shall be construed to permit any copyright owners of sound recordings acting jointly, or any common agent or collective representing such copyright owners, to take any action that would prohibit, interfere with, or impede direct licensing by copyright owners of sound recordings in competition with licensing by any common agent or collective, and any such action that affects interstate commerce shall be deemed a contract, combination or conspiracy in restraint of trade in violation of section 1 of the Sherman Act (15 U.S.C. 1).

(4) In order to obtain the benefits of paragraph (1), a common agent or collective representing copyright owners of sound recordings must make available at no charge through publicly accessible computer access through the Internet the most current available list of sound recording copyright owners represented by the organization and the most current list of sound recordings licensed by the organization.

This section is far more troubling than it first appears.

The effect of IRFA as a whole would be to reduce the amount of royalties that companies like Clear Channel, Sirius XM Radio, and Pandora have to pay to recording artists.

For most companies, arrangements between buyers and sellers are negotiated on the open market. But for a number of reasons, the Copyright Act establishes a compulsory license for certain uses of digital sound recordings with the license terms and rates set by the Copyright Royalty Board.

So companies like Sirius XM and Pandora already have an advantage that many businesses don’t have: government-guaranteed access to the content that drives their business at a rate set by law. Compulsory licensing is compulsory: there is no opting in or opting out for artists.

But compulsory licensing doesn’t preclude direct licensing under the current law — that is, without IRFA. Copyright owners are — and always have been — free to negotiate privately with copyright users. Sirius XM has been particularly aggressive in recent years in pursuing such direct licensing, and Clear Channel is right behind Sirius with their own direct deals.

What does this mean for artists? First of all, in practice, this means that the rates set by the Copyright Royalty Board act as a ceiling — no licensee is going to pay more than the compulsory rate. They are guaranteed access to every sound recording on the market at the CRB’s rates.

So why would recording artists or sound recording owners want to accept a deal that gives, say, Sirius XM more rights for less money?  (Bearing in mind that many artists own their sound recordings.)

Here’s one reason. During recent proceedings, Sirius XM Executive VP David Frear testified that “Among other things, [record companies] recognized that by entering into direct licenses with Sirius XM, they gained the potential for enhanced airplay and greater exposure for their recording artists.” Left unsaid was the corollary to this: refusing to enter into a direct license could mean less (or no) airplay.

Direct licensing, in conjunction with a compulsory licensing scheme, thus gives licensees all stick and no carrot. And when you’re terrestrial radio giant Clear Channel, or the only satellite radio provider, or Pandora — which accounts for 37% of all digital sound recording royalties — that’s a pretty big stick. (Pandora and Sirius XM together account for 90%.)

Section 5 of IRFA is perhaps the most pernicious part of the bill, for it would make it illegal for anyone to criticize digital sound recording licensees. If IRFA becomes law, artists and artist organizations will need to watch what they say in public in opposition to Sirius and Clear Channel’s direct licensing efforts.

This is not an exaggeration or hyperbole — it is already happening. The provisions of Section 5 seem to be a direct response to groups like American Association of Independent Music (A2IM), SoundExchange, and major record labels cautioning recording artists about the drawbacks to a push by Sirius XM to license recordings directly following the latest rate-setting proceedings.

In March 2012, Sirius XM filed a lawsuit against SoundExchange and A2IM alleging anti-trust violations for their efforts to resist what SoundExchange and A2IM saw as a raw deal from Sirius XM’s direct licensing push. Now, for starters, it might seem odd that a company with an effective monopoly on satellite radio is complaining that a non-profit nonexclusive collecting agency and a trade association representing hundreds of small companies are violating anti-trust laws.

But the allegations that Sirius made in the lawsuit should concern any artist. Sirius XM essentially argues that various public communications concerning its direct license program amount to anti-competitive behavior — not anti-competitive conduct, just speech.

One such communication identified in Sirius XM’s anti-trust suit includes this August 2011 blog post by A2IM. In its lawsuit, Sirius XM points specifically to a paragraph that states:

In general statutory licenses have been good for the independent music label community as statutory licenses insure that all music label copyrights, whether those of the major labels or those of independent labels or artists, are treated equally and paid the same rate amount for each stream (play) of that music. Under direct licenses there are cases where independents have received less than equitable rates.

And lest you think only industry groups would be caught in the crosshairs, it’s not unlikely that artist advocacy organizations could face legal liability. Sirius XM also refers to a statement made by the Future of Music Coalition, in its November 2011 newsletter:

Here at FMC, we want artists to get the money they’re owed for the use of their music on any platform. The statutory rate for digital performance plus direct payment via SoundExchange is an important piece of the compensation puzzle for creators. Bypassing it might benefit the bottom lines of major corporations in the short run, but it’s a dangerous thing for performing artists.

This is the type of explanatory speech — not conduct — that Sirius XM thinks is illegal and IRFA definitely would outlaw. Again, it would make it a violation of the Sherman Act for “any copyright owners of sound recordings acting jointly, or any common agent or collective representing such copyright owners, to take any action that would prohibit, interfere with, or impede direct licensing.” Whenever two or more artists are gathered, Sirius XM (and Clear Channel, and Google) will be there.

The statements above are already alleged by Sirius XM to violate existing anti-trust laws. To be clear, the allegations are absurd — these statements are clearly not urging an unlawful “boycott” against Sirius XM’s direct licensing, and even if they were, Sirius doesn’t lose out since it already has access to every sound recording on the market under the compulsory license. There’s also a much simpler and way less conspiratorial explanation to the public response that Sirius complains of: maybe the labels who spurned Sirius XM’s proposal just didn’t like the deal. But Section 5 of IRFA would ensure that the law explicitly prohibits any criticism of direct licensing deals.

So if IRFA becomes law, if you don’t like the deal, you better keep it to yourself.

IRFA Analysis: Section 2

Here at The Trichordist, we’re taking a look at the Internet Radio “Fairness” Act all week. As a service to readers, we’re firing up the LegalTron 3000 to take a closer look at the bill, analyzing it section by section.

Both the House version, H.R. 6480, introduced by Rep. Jason Chaffetz (R-UT), and the Senate version, S.3609, introduced by Sen. Ron Wyden (D-OR), are identical, so the following applies to both. The bills contain eight sections, though the first merely sets forth the title of the Act and the last specifies the effective date and transitional rules, so we’ll focus only on sections two through seven.

The bill mainly amends the current Copyright Act, so we’ve done our best to show how these amendments look in context. The text of the affected statutes follows; strikethrough text indicates current language that has been removed or altered by the bill, underlined text indicates new or changed language added by the bill.

SEC. 2. APPOINTMENT OF COPYRIGHT ROYALTY JUDGES AND QUALIFICATIONS.

17 USC § 801 – Copyright Royalty Judges; appointment and functions

(a) Appointment.— The Librarian of Congress President of the United States, by and with the advice and consent of the Senate shall appoint 3 full-time Copyright Royalty Judges, and shall appoint 1 of the 3 as the Chief Copyright Royalty Judge. The Librarian shall make appointments to such positions after consultation with the Register of Copyrights.

17 USC § 802 – Copyright Royalty Judgeships; staff

(a) Qualifications of Copyright Royalty Judges.—

(1) In general.— Each Copyright Royalty Judge shall be an attorney who has at least 7 not fewer than 10 years of legal experience and has significant experience in adjudicating arbitrations or court trials. The Chief Copyright Royalty Judge shall have at least 5 years of experience in adjudications, arbitrations, or court trials. not fewer than 7 years of experience in adjudicating court trials in civil cases. Of the other 2 Copyright Royalty Judges, 1 shall have significant knowledge of copyright law, and the other shall have significant knowledge of economics. An individual may serve as a Copyright Royalty Judge only if the individual is free of any financial conflict of interest under subsection (h).

(d) Vacancies or Incapacity.—

(1) Vacancies.— If a vacancy should occur in the position of Copyright Royalty Judge, the Librarian of Congress shall act expeditiously to fill the vacancy, and may appoint an interim Copyright Royalty Judge to serve until another Copyright Royalty Judge is appointed under this section. President of the United States shall act expeditiously to fill the vacancy. An individual appointed to fill the vacancy occurring before the expiration of the term for which the predecessor of that individual was appointed shall be appointed for the remainder of that term.

(2) Incapacity.— In the case in which a Copyright Royalty Judge is temporarily unable to perform his or her duties, the Librarian of Congress President of the United States, by and with the advise and consent of the Senate, may appoint an interim Copyright Royalty Judge to perform such duties during the period of such incapacity.

The primary effect of this section is to shift appointment of Copyright Royalty Judges from the Librarian of Congress (who is the head of the department under which both the Copyright Royalty Board and Copyright Office reside) to the President.

This past summer, the DC Circuit Court held that as then drafted, the then-current method of appointing Copyright Royalty Judges was unconstitutional under the Appointments Clause. However, rather than striking down the law altogether, the court remedied the matter by the simple fix of removing limitations on the Librarian’s ability to remove Judges. So while this section of IRFA might appear to be in response to that decision, it isn’t at all necessary from a constitutional standpoint after the DC Circuit’s ruling.

What’s interesting is that, until 1993, Judges were appointed by the President, and it was generally considered a failure — in the words of one Senator, the Board “was a dumping ground for unqualified people to whom the President owed a small favor.” So why do we want to go back to that? One theory is that the bill’s writers simply don’t like the decisions the current Copyright Royalty Judges have made; by removing appointment from an expert agency to the Executive branch, with the advice and consent of the Senate, the bill opens the door to political games and partisanship.  Not to mention delays.

The section also adjusts the requirements for Judges, bumping up the minimum experience required, but also, oddly, removing the requirement that any of the Judges have experience in economics or even copyright law. Why you’d want a Copyright Royalty Judge without requiring a background in copyright is beyond us. But more to the point, is there any evidence that current Judges aren’t qualified to hold their positions, or that an extra three years experience is necessary? Or are these provisions just more cover for a collateral attack on the Board’s prior decisions?

The last section of the bill provides that the new Judges will be appointed immediately. Current Judges will continue to preside over proceedings where a hearing on the merits has concluded, or where it has commenced, except that proceedings under Sections 112 and 114 (proceedings that affect Pandora) will only continue with “consent of all participants.” So Pandora gets a fresh slate to have its own judges decide how little it should pay musicians under its own rules.

A Kim Dotcom For All Seasons

Come on, guys, I am a computer nerd. I love Hollywood and movies. My whole life is like a movie.

That’s Kim Dotcom in an “open letter” to Hollywood that he penned last week. Dotcom is the owner and CEO of Megaupload and is currently facing federal criminal charges, along with six other individuals, for allegedly operating a “mega-conspiracy” that made him a very wealthy man using other people’s work without permission.

Since his indictment and arrest, Dotcom has been waging a PR campaign to cast himself, not as an opportunistic hack who exploited thousands of creators through his spammy, scammy website, but as some sort of internet freedom fighter — in his latest “music video”, he portrays himself as no less than Dr. Martin Luther King, Jr. Strangely, in the topsy-turvey world of the internet, Dotcom’s efforts appear to be working.

You can fool some of the people all of the time

The weirdest part of this story is that it is part of Dotcom’s modus operandi. For over two decades, he has portrayed himself as some sort of master hacker, or savvy businessman, or whatever else would garner the most press, no matter how far from the truth.

Here, for example, is his take on his first brush with the law in the early nineties:

By chance in 1993, Schmitz discovered a computer account that included the word “Pentagon”. “I connected to the computer, made myself a super-user on it and after five or six hours had access to 100 computers within the Pentagon. I found the main router and so could ‘sniff’ all the traffic and jump from computer to computer. Some had real-time connections with satellites that were taking photographs of [Saddam] Hussein’s palace – I had no idea that technology even existed. It was like Ali Baba finding the treasure cave.”

If you think this sounds more like Hollywood Hacking than real life, you’d be correct. Dotcom also claimed he “got into Citibank’s system and transferred $20 million (21.4 million euros) by taking tiny amounts from the accounts of 4 million customers and giving it to Greenpeace” around the same time period. This isn’t just like a movie, it is a movie — the 1992 film Sneakers, to be exact.

The truth? Dotcom was convicted in 1998 on multiple counts of computer fraud and data espionage. Court records don’t substantiate any of Dotcom’s amazing claims.

What he did do was steal phone calling card codes and conduct a premium number fraud similar to the recent rash of Filipino phreaking frauds. He bought stolen phone card account information from American hackers. After setting up premium toll chat lines in Hong Kong and in the Caribbean, he used a “war dialer” program to call the lines using the stolen card numbers—ringing up €61,000 in ill-gained profits.

If anything good could be said about Dotcom’s latest media blitz, it’s that he at least is picking better historical figures to compare himself to. From a 2001 interview:

Wasn’t Hitler writing Mein Kampf while being arrested? Not that I like Hitler hehe, it’s just that strange people can have strange ideas while being arrested.

Dotcom would next reinvent himself as a shrewd businessman-slash-entrepreneur. In 2001, he was claiming to the press that his net worth was $100 million, and his investment company would soon be making $553 million a year. Here, again, the reality was far less glamorous than Dotcom suggested.

A German court would hear later that he had pulled a textbook “pump-and-dump” move, borrowing money to buy Letsbuyit shares, and then quickly selling them to those who swallowed his investment story, gaining himself a quick profit of 1.1 million euros ($1.4 million).

But before facing justice, Dotcom was busy writing Act 2.

In the movies, whenever a protagonist gets away with a big heist, we invariably see him passing safely through customs in the Caribbean or southeast Asia as the credits begin to roll.

Perhaps this hackneyed Hollywood device was on Kim Schmitz’s mind when he chose Thailand as his hideout from German authorities curious about his KimVestor Ponzi scheme.

Add “bizarre” to the list of adjectives that could be used to describe Dotcom. As it turns out, prior to his arrest in Thailand, he had changed his website to announce that he would be livestreaming his own suicide. Said the site:

Enough is Enough. Kim Schmitz will die next Monday. See it on this website live and for free. When the countdown is over, Kim steps into a new world and wants you to see it.

But he would be arrested the Friday before. As the Guardian reported:

This proved to be a publicity stunt and visitors to the site are now informed that Schmitz wishes to be known as “King Kimble the First – Ruler of the Kimpire”.

A Kim For All Seasons

Schmitz’s claims follow a pattern. He takes bits of what he has been found guilty of, bits of other hackers’ publicised doings, even tales of hacker movies, and mixes them together to form his “personae”.

A con man par excellence.”

He was trying to make half a buck on every occasion.

On his way up, he fooled them all: judges, journalists, investors and companies.

Everything that entwines itself around Mr. Schmitz is, to say the least, somewhat dubious.

Over the past 20 years, Dotcom has worked hard to portray his life like a movie, seeing himself as, perhaps, a super-hacker from Sneakers, or the innocent man on the run from The Fugitive (Dotcom’s nickname “Kimble” is said to be derived from Dr. Richard Kimble, the lead character in that show/movie).

But it seems to us that the closest one can come to the movie that Dotcom has created of his life is A Burns for All Seasons, the fictional movie created by Mr. Burns in the animated series The Simpsons. In the film, the unapolagetic plutocrat portrays himself, in three separate scenes, as an outsourcing champion, the alien E.T., and Jesus Christ.

That there are those who buy into Dotcom’s latest self-cast role as champion of internet freedom and innovation is sad commentary. Dotcom’s “mega-empire” made him millions of dollars off the work of thousands of creators. There’s nothing innovative about exploiting artists. If this were really a Hollywood movie, the happy ending would see Dotcom finally facing justice.