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Archive for February, 2018

Thank You @RepGoodlatte for Getting the “Allow States and Victims to Fight Online Sex Trafficking Act (FOSTA)” Passed in the House

February 27, 2018 Comments off

As the Google Transparency Project reports, Digital Media Association heaveyweight Google and its incumbent cronies like the Electronic Frontier Foundation, Engine Advocacy, the Center for Democracy and Technology, NetChoice and the Consumer Technology Association are out for blood to keep the legacy Communications Decency Act from being dragged into the 21st Century.

FOSTA

Miraculously, Google’s lobbying millions were no match for strong grassroots support behind Chairman Bob Goodlatte that got the much needed reform legislation over the goal line.

Remember this tense exchange between ex-Executive Chairman Eric “Uncle Sugar” Schmidt, Google’s head lawyer Kent “Loophole” Walker and a whistleblower at the Google shareholder meeting regarding Google’s opposition to the campaign to deny sex traffickers the safe harbor in the ancient Communications Decency Act:

Here’s the press release from the House Judiciary Committee:

The House of Representatives today passed the Allow States and Victims to Fight Online Sex Trafficking Act (FOSTA), a product of the House Judiciary Committee. This legislation provides restitution for sex trafficking victims and enhances criminal penalties for websites that facilitate illegal prostitution or sex trafficking.

House Judiciary Committee Chairman Bob Goodlatte (R-Va.) has issued the following statement:

Chairman Goodlatte: “Over the past year, the House Judiciary Committee has worked directly with prosecutors to understand how new legislation could help them enforce existing laws and hold bad actors accountable for sex trafficking online. We have also explored changes to the criminal code that would disincentivize websites from knowingly promoting or facilitating illegal prostitution. The summation of the Committee’s investigative work is FOSTA, a bill that gives restitution to victims and creates harsher penalties for bad actor websites that facilitate horrendous criminal acts. I believe the provisions in this legislation will make the internet safer and give victims the criminal and civil means to punish wrongdoers and move forward with their lives.”

Background: 
What FOSTA does:

  • Holds Bad Actors Accountable: clarifies that section 230 of the CDA does NOT grant immunity to websites that facilitate sex trafficking.
  • Creates a New Federal Crime: websites that have the intent to promote or facilitate illegal prostitution can be prosecuted under the new 18 U.S.C 2421A created by the bill.
  • Increases Criminal Penalties:  prosecutors can seek higher penalties for websites who promote the illegal prostitution of 5 or more persons or act with reckless disregard for the fact that sex trafficking occurs on their website.
  • Enforces Existing Laws: allows state and local prosecutors to enforce sex trafficking statutes and the new 2421A.
  • Provides Restitution for Victims: gives victims of sex trafficking a pathway to sue bad actor websites for conduct violating the new criminal law, 2421A.

The House Judiciary Committee last year held a hearing to review the impact of the Communications Decency Act on sex trafficking online. In December 2017, the Committee approved FOSTA by voice vote.

The Music Modernization Act Could Make One Small Change in Favor of Songwriters: Put the Copyright Office on a Schedule — Music Tech Solutions

February 27, 2018 Comments off

There is one solution to the NOI loophole problem that is entirely within the power of the Congress to solve immediately–instruct the Librarian of Congress to require the Copyright Office to get the lead out on processing copyright registrations and create a rebuttable presumption that the Copyright Office has contact information for copyright owners.

via The Music Modernization Act Could Make One Small Change in Favor of Songwriters: Put the Copyright Office on a Schedule — Music Tech Solutions

How Shareholder Lawsuits Against Spotify May Have Just Gotten Easier

February 25, 2018 2 comments
maginot-line

The Maginot Line

The Digital Media Association is as obsessed with crushing the ability of independent songwriters and small publishers to sue companies like Spotify for copyright infringement as the industry negotiators are with presenting a new safe harbor for infringers like it was a fantastic give in the Music Modernization Act.  But at least where Spotify is concerned, as a public company they may be begging for the very statutory damages they are so anxious to eliminate.

Spotify lawyers like Christopher Sprigman and his compadre Lawrence Lessig have been trying to get rid of statutory damages and bring back 1909-style copyright registration for years.  (See also Pamela Samuelson and the list goes on.)

But now that the industry has acquiesced in both of those long cherished goals of the anti-copyright crowd, songwriters will have to look elsewhere to regain the kind of punch that they got with the statutory damages stick.  Why?  Because  a benevolent and patriarchal government is taking that stick away from the little guy and giving it to the largest corporations in commercial history.  (And recording artists and record companies–you’re next and you’ll know who to thank.  See Transparency in Music Licensing and Ownership Act that is quietly adding co-sponsors.)

But you say, what could be a bigger stick than statutory damages?  It might be shareholder derivative suits.  And Sprigman’s benefactor Google is a great example of what that means.

MTP readers will recall that we have written before about Google’s “dual class shares” that created 10 for 1 supervoting stock that is owned only by insiders like Eric “Uncle Sugar” Schmidt, Larry Page and Sergey Brin.  If you’ve ever watched the video of a Google shareholder meeting, you’ll have seen David Drummond (who has his own problems) reading out the news of how any shareholder motion that was not supported by the insiders was defeated–and massively defeated due to the supervoting stock.  The only thing that’s remarkable is that the shareholders keep trying.  Because while all shareholders are equal, at Google, some shareholders are more equal than others.  Ten times more equal if they give you voting stock at all.  Google shareholders give the right to be forgotten a whole new meaning.

That’s right–Google has what I call the “you break it, you bought it” class of stock that gives the insiders total control over all aspects of their corporation.  If you’re not an insider, your role is to shut up and enjoy the ride.  Don’t get me wrong–lots of people do.

But some don’t.  Most recently, a Google shareholder tried to question the company’s top executives about their pre-#metoo opposition to the Stop Enabling Sex Traffickers Act.

If you watch the video, you’ll get the idea.  Google is comfortable with their opposition to stopping sex trafficking in favor of profitable safe harbors, so sit down, shut up and count your money.  That should demonstrate two things:  First, the Alphas are not interested in anything anyone else has to say although they will go through the motions to tolerate the poor Epsilons.  Second, these policy positions and more importantly corporate actions are solely the responsibility of the insiders in the More Equal Than You system of corporate governance.

And guess what?  Bloomberg reports that Silicon Valley mogul wanna be Daniel Ek mimicked the Google model with the supposedly egalitarian Spotify.

Chief Executive Officer Daniel Ek and Vice Chairman Martin Lorentzon own a class of stock that assures their hold on the company after the shares begin trading, said the people, who asked not to be identified because the terms aren’t public. Another class will be tradeable by investors.

That means public investors will be able to own part of the world’s largest paid music service in the next couple of months, but won’t have much say about its future. Years after going public, some of the biggest technology companies, including Google parent Alphabet Inc. and Facebook Inc., remain under the control of founders who hold shares with super-voting rights.

Company founders employ so-called dual-class structures to take advantage of the perks of being publicly traded without surrendering control. Such owners can make acquisitions that dilute their economic interest without loosing their grip.

Ek, who co-founded Spotify about a decade ago in Stockholm, has looked to such companies for direction. He invited Facebook founder Mark Zuckerberg to his wedding and has publicly praised the leadership of Snap Inc., which gave its investors no voting rights in its initial public offering last March.

If the Google shareholder meetings are any guide, it’s not that investors won’t have much say, they won’t have any say at all.  Unless they are sued by their stockholders in what is called a shareholder derivative suit.  A shareholder suit is when a shareholder sues the corporation’s officers or board of directors for a cause of action against the corporation that isn’t being brought because it would require the board of directors to sue itself.  These are often based on breach of fiduciary duty.

Case in point:  Google’s sale of advertising promoting the sale and distribution of illegal drugs.  Google signed a nonprosecution agreement with the Department of Justice, second cousin to a plea bargain, after a four year grand jury investigation, producing four million documents to the investigators and paying a $500,000,000 fine.  Walking around money for Google, but nobody was fired and according to the U.S. Attorney bringing the case, the paper trail implicated Google’s senior management including Larry Page (which disclosure resulted in an apology to Google from the DOJ and the “muzzling” of the US Attorney,)

Shareholders were pissed and a pension fund brought a derivative case (read the complaint) against the Google board including Page, Brin, Schmidt, John Doerr and Sheryl Sandberg.  (Yes, that Sheryl Sandberg.)  This case resulted in a settlement that required Google to spend over $250,000,000.

Shareholder Suite

So this is the kind of thing that stockholders bring themselves when they know that the government never will and there’s a case to be made.  Shareholder suits are kind of like the “private attorney general” laws that used to be in the Copyright Act where the government avoided the burden of actually enforcing its laws itself and instead relied on the market to do so.  How did they do this?  By giving private actors a big stick like the statutory damages and attorneys’ fees (recent precedent notwithstanding) they are now taking away from songwriters in the Music Modernization Act.

But never fear–songwriters who are also Spotify stockholders will still have the stick of shareholder derivative suits to go after malfeasance in the boardroom.  Shareholder derivative suits are in a very broad sense kind of like class actions, something Spotify is very familiar with.  The class is stockholders and the defendants are often limited to the officers and directors of the company for doing things like, oh, say, committing massive acts of willful copyright infringement that probably could be criminally prosecuted if there were any prosecutors with the chutzpah to actually enforce the copyright law.

And once Spotify sells shares to the public, the insiders may control the infringement but they can’t control who buys their stock.

Since Mr. Ek seems to want to be just like Google, maybe he’ll be just like Google in another way, too.  And remember–this is just the beginning of the disclosure of the inner workings of Spotify that will start to dribble out as its SEC disclosures become due and payable.  And these supervoting stock classes are a very good way to demonstrate that you broke it, you bought it.

You want all the control?  Well, you got it.  And having all the control means having all the responsibility, too.  Just ask Uncle Sugar.

 

@musicanswersnow Says We Can Do Better on Music Modernization Act

February 22, 2018 Comments off

If you’ve been following the insiders spinning the controversial Music Modernization Act, you will probably have heard them say things like this about the closed door negotiations leading up to the introduction of the bill:  “Don’t blame us! Not everyone can be at the table! But…NSAI, SONA, ASCAP and BMI were at the table representing “creator interests” and  endorse the MMA as well as the Songwriters Guild, Society of Composers & Lyricists, NARAS, AIMP and A2IM. So trust me!”

Remember English 101 and logical fallacies?  This particular piece of rhetoric is a threefer–let’s start with the fallacy of reductio ad absurdum.  No one ever said that every songwriter should have been at the table, just that the negotiations for the bill should not have been behind closed doors.  How about getting public comments, consultations, or even posting a link to a copy of the bill that you were trying to get petitions signed in support of–before you sent the petition or introduced the bill?  Or maybe giving members of these august organizations a chance to comment or suggest changes before you ask them to sign a petition that is premised on a bunch of glittering generalities strung together in a cover letter.  (Remember the “glittering generalities” fallacy? Maybe it’s a four-fer.)

Then there’s that old reliable, the “bandwagon” fallacy.  This is the “everyone else is running off a cliff, why don’t you?” fallacy.

And don’t forget to ask exactly how these organizations were empowered to “represent” their members in a negotiation that the members knew nothing about that produced work product they never saw until it was too late.

There’s one more fallacy in the statement–extra points if you can spot it.

There’s a reason why you studied fallacies in English comp–logical fallacies are arguments designed to lure you into agreeing with something or in this case supporting a bill that you don’t really understand.

Fortunately, MusicAnswers is not afraid to speak truth to power and to take on the threats and whisper campaigns.  This video is fallacy free:

@musicanswersnow: The Music Modernization Act: We Can & Must Do Better

February 22, 2018 Comments off

By Phil Galdston & David Wolfert

“ANY LAW OF THIS KIND MUST FIRST AND FOREMOST PROTECT THE WORK’S CREATOR AND OWNER, NOT THE ADMINISTRATOR.”

The Music Modernization Act (MMA) is a huge piece of copyright legislation that would shape the way music creators are paid for the foreseeable future. As songwriters, composers and independent publishers, we join many of our colleagues in expressing our appreciation for the efforts of legislators and members of our community to find solutions to the serious problems facing music creators.

The MMA offers some true and constructive change, and we can accept the “grand bargain” that is its foundation: In return for a kind of immunity for past acts of infringement, digital music services would now pay for every single performance of every track, identified or not. That said, some crucial elements of the bill are of concern and some remain unresolved.

The developing trend in music writing, publishing and distribution is towards independence and market fragmentation. Instead of acknowledging and addressing this trend, the legislation embraces and enshrines some of the old practices of the music business. Today, tens of thousands of music creators control their own work, its exploitation and its administration, eschewing the old paradigms and larger institutions of the music business. So any law of this kind must first and foremost protect the work’s creator and owner, not the administrator. Here are some specific points we think merit clarification and amendment.

Read the post on Billboard

Get on the Bus! Could the Music Modernization Act be the Trojan Horse for Orphan Works?

February 21, 2018 Comments off

 

orphanworks-net

OrphanWorks.net from Internet Archive

When you read through the Music Modernization Act’s prohibition on statutory damages, “reasonably diligent search” and global rights database clauses, you can’t help but think of the orphan works efforts from years past by some of the same cast of characters that is around the MMA in the Congress.

Orphan works–if you recall–was a bill that went down in flames after a similar omnibus type effort (and when I first came to loathe these omnibus plans that can easily be hijacked).  It created a huge backlash from the broader copyright community including the Illustrators Partnership, photographer groups, authors and indie labels.  Brad Holland of the Illustrators Partnership has an extensive post on the subject published on The Trichordist.

Since there is such broad based “agreement” around the Music Modernization Act and since the MMA already has orphan works type provisions, this fact will not be lost on people from the copyleft (such as Spotify lawyer Professor Christopher Sprigman who has written extensively on these concepts).

Wouldn’t it be odd and kind of hysterically funny to find that the much ballyhooed Music Modernization Act ends up really haveing nothing to do with music or modernization and becomes just a trojan horse for those old yearnings to be realized.

Good thing the city fellers are in charge.

Who Owns What Under the Music Modernization Act and What Effect on Valuations?

February 19, 2018 Comments off

There are two imponderables under the Music Modernization Act that I think could have a significant effect on valuations and investment: the designation of the mechanical licensing collective by the Register of Copyrights and the contemplated global rights database.

First the initial and any re-designation of the collective by the Register.  It must be said that it would be nice to have the process by which the Register is selected be finalized in the pending legislation sitting in the Senate titled the Register of Copyrights Selection and Accountability Act (S. 1010).  The House version of the bill has already passed on a near unanimous vote so hopefully the Senate will get around to voting on it sometime soon.

It must also be said that the statutory requirements to guide the Register in selecting the collective make it almost inevitable that the selection process will be the sound of one hand clapping.  Given the bill’s supporters, it would only be surprising if that were not the case.  After all, who can forget the drafting contortions of the Section 115 Reform Act to avoid calling the general designated agent by its true name.

But the remarkable part is in the re-designation of a different collective, the “new entity”, assuming that  a latter-day Diogenes scours the countryside to discover that one can be found that meets the standards.  Here’s what’s supposed to happen then:

PERIODIC REVIEW OF DESIGNATION.—Following the initial designation of the mechanical licensing collective, the Register shall, every 5 years, beginning with the fifth full calendar year to commence after the initial designation, publish notice in the Federal Register in the month of January soliciting information concerning whether the existing designation should be continued, or a different entity….

If a new entity is designated as a mechanical licensing collective, the Register shall adopt regulations to govern the transfer of licenses, funds, records, and administrative responsibilities from the existing mechanical licensing collective to the new entity.

Now…I know that they don’t worry themselves too much about the details in Washington (which can always be fixed through ever more regulations after all), but what if the collective being replaced by the designated “new entity” has made a substantial investment in its operations.  This will be particularly true of the first collective.

Since the MMA doesn’t really state it, who will own the global rights database for example?  That database of databases?  The collective is going to have to manage that database and get it built (unless they outsource it to Google, I guess).  That database will be the core asset of the collective’s business in all likelihood.  Is it to have zero value?  Is the Register going to be able to just take it?  (There’s that word again.)

If you happen to be a publisher that has not been allowed to enter a direct license with digital music services, what assurances are there that there will be no interruption in your cash flow to be paid by the collective when the designated new entity takes over?  This will not be a trivial undertaking, especially since the collective will control the revenue for every song ever written or that ever will be written that is exploited in the US and is not subject to a direct license.

If you’re an investor in a publisher that is owed money by the collective, is this “new entity” risk likely to drive up your valuation or multiple?  Or drive it down?

And don’t forget that the MMA allows the collective to invade the black box for operating cost overages.  If the Congress doesn’t fix the black box invasion problem, what assurances to you have that your black box money once taken will be replaced properly and timely?  (Assuming the Congress will let the collective get away with what would very likely be a breach of fiduciary duty absent Holy Potomac Water being sprinkled on it.)

If you are the designated “new entity” what kind of indemnification against claims for improper accounting or audits will you be able to get from your predecessor?  If you’re the predecessor, why would you ever give such indemnification?  You’re likely out of business as there probably won’t be much of a market for former collectives.  And will any of the collective’s board members stand behind those indemnity claims?

And the lobbyists say but the MMA can get passed!  And that’s the most important thing!

 

 

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