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New Laws Attempt To Regulate The Internet

Download: New Laws Attempt to Regulate the Internet.pdf

Article first appeared in the March / April 2004 issue of Sacramento Lawyer, the bi-monthly publication of the Sacramento County Bar Association.

Last year the Internet was front and center in a number of controversies and new legislation. Aside from the music and movie industries continuing struggle and court battles over content piracy, 2003 saw significant legislative activity in areas dealing with the Internet. California’s legislators spent a significant amount of time on Internet related legislation, including crafting extremely strong anti-spam laws (SB 186) only to have it preempted by a weaker federal act. What follows below is a wrap up of the more relevant Internet legislation, federal and state, passed last year.

The Federal CANSPAM Act
In the early days of December, 2003, the United States Congress enacted the Controlling the Assault of Non Solicited Pornography and Marketing Act of 2003, also known as the CANSPAM Act of 2003. Supporters of this act call it tough; it has substantial criminal penalties and fines for spammers. The chief co-sponsor of the Act, Senator Charles Schumer (D-New York), is quoted as saying: “With this bill, Congress is saying that if you are a spammer you can wind up in the slammer.” However, critics of the Act, which went into effect on January 1, 2004, complain that it does not go far enough and is not as tough as its supporters would like the general public to believe.

CANSPAM prohibits specific conduct related to electronic mail. Specifically, the Act prohibits the use of false headers, using false information to register five or more email accounts, and intentionally initiating multiple commercial email messages from any combination of these accounts; engaging in email address harvesting and “dictionary attacks”; using scripts or automated programs to register multiple electronic mail accounts for the purpose of transmitting commercial electronic mail messages; and relaying or retransmitting commercial electronic mail messages through a computer network which the person does not have access rights, as well as other tricks of the spam trade. The Act provides for substantial monetary fines and penalties as well as jail time up to five years. In addition, the Act provides for forfeiture of all property traceable to the gross proceeds obtained from the offenses, and any equipment or other technology used in committing the offenses.

The Act also requires the senders of sexually oriented material to place a warning label on commercial electronic mail that contains sexually oriented material. However, if the recipient of these messages has already provided his or her affirmative consent to continue to receive these messages, no warning label is required.

While the imposition of civil fines, forfeiture and jail time make the Act sound rather ominous, critics still complain it will not stem the flow of spam. Critics say the problem is that the new law lacks an opt-in mechanism. This, critics say, will allow spammers to continue to send unwanted spam, despite the Act’s harsh criminal and civil penalties, as long as the message contains an opt-out mechanism and a functioning return email address. Because the new federal law preempts state law that specifically regulates commercial email messages, provisions like California’s law, which requires express consent or a prior commercial relationship, will not apply.

The new federal law places enforcement with the Federal Trade Commission and allows civil actions by the various state Attorney General Offices. The Act also allows a limited private cause of action by internet access service providers. However, unlike California’s law, the new federal law does not provide a private cause of action by consumers. Still, most commentators believe that California consumers will be able to pursue a remedy under California’s unfair competition laws. (Bus. & Prof. Code, 17200.)

The preemption provision does leave some exceptions. The Act only supersedes state law that “expressly regulates the use of electronic mail to send commercial messages except to the extent that any such statute, regulation, or rule prohibits falsity or deception in any portion of a commercial electronic mail message or information attached thereto.” In addition it appears that states may still have the right to pursue claims that may arise in spamming situations, such as state trespass laws, breach of terms of service or use contracts, and actions under the Computer Fraud and Abuse Act.

On an international level, the new federal act places the United States at odds with Europe and its spamming legislation. In Europe, for the most part, spam is per se illegal. Ninety percent of Europe’s spam originates in the United States where spamming, after January 1, 2004, will be allowed. This is bound to cause tension between the United States and Europe as the two nations continue to attempt to harmonize intellectual property laws.

Outspoken critics of spam lament that the new federal law will do absolutely nothing to stem the growing tide of unwanted commercial email. Some critics note that spammers are deceptive by nature and, despite the new law, would not hesitate to use false or misleading email headers. In addition, the Act will do nothing to prevent serious spammers from opening up accounts in Bermuda or South Africa and continue to bombard the United States with spam from off shore.

Companies Now Required To Disclose Breaches Of Database Security
On July 1, 2003, a new law began requiring businesses to disclose to California residents any breach in the security of their databases when that breach results in or could reasonably result in the disclosure or acquisition by an unauthorized third party of personal information about California residents. This also applies to companies that maintain computerized data for others.

California Civil Code section 1798.82 applies to companies located both within and outside of California. While the new law was implemented as a measure to combat the increasing incidents of identity theft, it will also have sweeping implications for a wide range of businesses. While companies that encrypt all personal data will be exempt from the new law’s disclosure requirements, those that do not must begin to comply with the law or face penalties prescribed in the statute.

The new Civil Code section 1798.82 revolves around the unintended disclosure or acquisition of “personal information” due to a breach in the security of a computer database. The statute provides: “Any person or business that conducts business in California, and that owns or licenses computerized data that includes personal information, shall disclose any breach of the security of the system following discovery or notification of the breach in the security of the data to any resident of California whose unencrypted personal information was, or is reasonably believed to have been, acquired by an unauthorized person.” The section also provides that “Any person or business that maintains computerized data that includes personal information that the person or business does not own shall notify the owner or licensee of the information of any breach of the security of the data immediately following discovery, if the personal information was, or is reasonably believed to have been, acquired by an unauthorized person.”

A breach of the security of the system occurs when there is an unauthorized acquisition of computerized data that compromises the security, confidentiality, or integrity of personal information maintained by the person or business. The good faith acquisition of personal information by an employee or agent of the owner of the system for business purposes is not a breach of the security of the system, provided that the personal information is not used or subject to further unauthorized disclosure.

The type of personal information which triggers the disclosure requirement includes an individual’s first name or first initial and last name in combination with any one or more of the following:

(1) Social security number.

(2) Driver’s license number or California Identification Card number.

(3) Account number, credit or debit card number, in combination with any required security code, access code, or password that would permit access to an individual’s financial account.

Not included in the definition of “personal information” is publicly available information that is lawfully made available to the general public from federal, state, or local government records.

Upon discovery of a breach in the security of a business database, the business must notify California residents of the breach in “the most expedient time possible and without unreasonable delay.” Business may make these notifications through written notice. A business may also make these notices electronically, as long as the notice provided is consistent with the provisions regarding electronic records and signatures as provided in the Electronic Signatures in Global and National Commerce Act.

If the business required to provide notice to Californians regarding the breach of security can demonstrate that the cost of providing notice would exceed $250,000, or that the business must send out more than 500,000 notices, or that the business does not have sufficient contact information the business may provide substitute notice through e-mail notice, posting the notice on the businesses web site, and notification to major statewide media.

The new law applies to companies that conduct business in California, regardless of whether they are located physically within the state. The statute gives no guidance on the circumstances when a company is conducting business in California, and therefore subject to the provisions of the statute. This lack of guidance makes it extremely difficult for companies not domiciled in California to determine whether they must comply.

If an out of state company is subject to the provisions of the statute and does not know it, that company could be in for a rude awakening. The statute authorizes any customer injured by a violation of the statute to recover damages.

If they haven’t already done so, companies should take steps to comply with the new law. Companies should establish internal policies and protocols that would be implemented when a breach which would require notice under the statute is discovered. In doing so, the company should implement a means to retain all records dealing with the discovery of the security breach and subsequent notification if it is later challenged in a civil suit.

California Adopts An Online Privacy Policy
The California Online Privacy Protection Act of 2003, which goes into effect on July 1, 2004, requires the operator of a commercial website to maintain a privacy policy that meets certain requirements. The privacy policy must specifically provide the following information: 1) it must clearly identify the categories of personal user information (i.e., first and last name, street address, e-mail address, telephone number, Social Security number and any other information that would enable the user to be contacted either online or offline) collected through the website; 2) it must provide a description of the process by which a user can review and request changes to any personal user information; 3) it must explain how the operator will notify consumers of changes to the privacy policy; and 4) and it must provide the effective date of the privacy policy. The Act requires the commercial operator to “conspicuously post” such a privacy policy.

To be conspicuously posted, the privacy policy must either be posted on the home page or there must be an iconic or text hyperlink on homepage or the first significant page that links to privacy policy. The icon or text hyperlink must contain the word “privacy” and must be in a color an/or size which contrasts with the background and surrounding text.

The reach of the Act is longer than most might think. The new privacy policy requirements apply to operators of commercial websites or online services that collect personally identifiable information through a website from individual consumers who live in California, regardless where the website operator resides.

Scott Hervey is a shareholder with Weintraub Genshlea Chediak.

This article is the copyrighted property of the Sacramento County Bar Association and Sacramento Lawyer has given Weintraub Genshlea Chediak permission to publish this article in its entirety.

What’s the Big Deal About Copyright?

Sacramento News & Review
November 14, 2002

Sometime a musician will ask me, what’s the big deal about Copyright and why should I care about it? Shouldn’t I just focus on my music rather than worrying about all of this legal mumbo jumbo? Usually I respond by reminding the musician that the second word in music business is “business” and if they are serious about making the most out of their career, they should have a basis understanding of the area of law which governs the medium through which they express themselves. If that doesn’t work, I tell them that if they don’t have a decent understanding of Copyright law and its affect on how they get paid, they are bound to get the short end of the stick on many a deal. That usually catches their attention.

The Basics

Under the Copyright Act, copyright protection arises when an original work of authorship is fixed in any tangible medium. Ok, what does this all mean?

Only “Original” Works Qualify For Copyright Protection
The “originality” element for copyright requires only that the work was independently created by the author and that the work possesses at least a minimal degree of creativity. Selection, coordination and arrangement are elements of creativity.

What Constitutes A “Work Of Authorship”
Copyrightable works are books, musical compositions, multimedia works, original art, dramatic productions (including any associated music), motion pictures and other audiovisual works, computer programs, computer databases, Web pages and any other original expression that is fixed in some tangible medium.

In the music industry, the list of what comprises a work of authorship includes a “sound recording” and the composition. It is important that artists understand the distinction between the two, because they are treated very differently under the Copyright Act and in recording contracts. A sound recording is defined in the Copyright Act as works that result from the fixation of a series of musical, spoken or other sounds, regardless of the nature of the object in which the work is embodied. This means that every time an artist goes into the studio and lay down a track, a sound recording is created. And, when the artist or his producer puts all of these tracks together into a finished master, this is also a sound recording. The underlying composition, simply put, are the lyrics and composition that are recorded on the sound recording.

Fixed In Any Tangible Medium
The work of authorship must be fixed in a tangible medium of expression that may be perceived, reproduced, or communicated either directly or with the aid of a machine or device. A work is not fixed unless its embodiment in tangible form is sufficiently permanent or stable to permit it to be perceived, reproduced, or otherwise communicated for a period of more than a transitory duration. The understanding of a tangible medium is simple when it is a writing fixed upon the pages of a book, a painting fixed on a canvas, or a computer program fixed upon a compact disc. The mediums of paper, a canvas or a compact disc are obviously stable and non-transient.

Who is the Owner of a Copyright

Initial Ownership
Ownership vests initially in the author or authors of a work. Usually only the author, or those who derive the rights from the author, can claim copyright protection. Generally, the author is the person who physically creates the work. However, there are some exceptions to this rule: the work for hire doctrine, collective works and joint works.

Works For Hire
Employers are held to own the works of employees who prepare works within the scope of their employment, unless an agreement states otherwise.

The Act defines a “work made for hire” as:

1. A work prepared by an employee prepared within the scope of his or her employment; or

2. A work specially ordered or commissioned for use in at least one of certain enumerated way provided that the parties expressly agree in a written instrument signed by them that the work constitutes a “work made for hire.”

The work for hire doctrine addresses copyright ownership in a work created by an employee or a work commissioned from an independent contractor or other party. Under the work for hire doctrine, the employer enjoys the copyright ownership in the prepared work of an employee. However, an employer who hires an independent contractor does not automatically own an exclusive right in any work created by the independent contractor. To obtain the exclusive rights to the copyrightable work created by an independent contractor, the work must be one of a specific type of work. It must be either a work specially ordered or commissioned for use as a contribution to a collective work, as a part of a motion picture or other audiovisual work, as a translation, as a supplementary work, as a compilation, as an instructional text, as a test, as answer material for a test, or as an atlas. Secondly, there must be a written agreement between the parties which specifically states that the work is a work made for hire. Another way for an employer to obtain the exclusive rights to a copyrightable work created by an independent contractor would be through an assignment.

The work made for hire issue has large implications in the music industry because of the fact that contract musicians and record producers can be considered authors of the sound recording. Therefore, unless an artists wants a contract musician or producer to enjoy separate but equal ownership rights in the sound recording, the agreement employing these individuals should be in writing and should contain a clause which states that the work created by them is considered a “work made for hire.” The agreement should also contain a “back-up” clause which states that in the event the work is not considered a work made for hire, the independent contractor assigns all right, title and interest in the work to the party employing them.

Joint Works
A joint work is where there is more than one author to a copyrightable work. Under a joint work, both authors own the copyrights to that work equally. Each co-author of a joint work has an independent right to use or license the copyright, subject to a duty of accounting to the other co-author. A joint owner cannot be liable to a co-owner for a copyright infringement.

Community Property and Authorship
A non-author spouse in a community property state such as California may have a community property interest in the owner-spouse’s work(s). In one case the court held that under California’s community property law a copyright can be transferred by operation of law from the owner-spouse to the marital community.

As a Copyright Owner, What Rights Do I Have
The copyright owner owns, subject to certain exceptions and limitations, exclusive rights to the copyrighted material. The copyright owner has the exclusive right to the following:

1. To reproduce the copyrighted work; and

2. To prepare derivative works based on the copyrighted works;

3. To distribute copies of the copyrighted work to the public by sale or other transfer or ownership or by rental, lease or lending;

4. In the case of literary, musical, dramatic and choreographic works, pantomimes and motion pictures and other audio-visual works, to perform the copyright publicly;

5. In the case of literary, musical, dramatic and choreographic works, pantomimes and pictorial, graphic or sculptural works, including the individual images of motion pictures or other audio-visual works, to display the copyright publicly; and

6. In the case of sound recordings, to perform the copyright work publicly by means of digital audio transmission.

The Copyright Act also provides for specific rights to authors of works of visual art which are usually referred to as rights of attribution and integrity. While these rights aren’t applicable to musical works, it is not uncommon for musical performers to dabble (and in some cases become extremely talented) in painting or sculpture (John Lennon, Tony Bennett, etc.) Thus, a brief discussion is in order.

A author of a work of visual art is entitled to claim authorship of his work and also prevent the use of his name on works he did not create. The author also has a limited right to prevent modification or destruction of his work and is also entitled to prevent the use of his name on work that has been distorted to a certain degree. All of these rights can be modified or waived in their entirety by the artist if the artist so agrees in a written agreement

Limitations on Exclusive Rights
There are a number of limitations on the exclusive rights of copyright owners. These limitations effectively carve away at a copyright owner’s right to prevent others from exercising one or more of the exclusive rights reserved for copyright owners. A number of these affect the music industry and owners of a copyright inn either sound recordings or compositions.

The owner of the copyright in a sound recording is limited to the rights in 1, 2,3, and 6 above. The copyright owner of a sound recording does not enjoy the exclusive right of public performance. That right is exclusive to the owner of the copyright in the composition. The sound recording copyright owner does have the right to control the creation of derivative works in which the actual sounds fixed in the sound recording are rearranged, remixed or otherwise altered in sequence or quality. (This expressly covers sampling.) However, this would not include creating an independent sound recording which imitates the or simulates the music in the sound recording. (The owner of the copyright in the composition enjoys this right.)

What About All This License Stuff

When third party wants to exercise one of the exclusive rights reserved for a copyright owner, and there is no applicable limitation, this third party has to, essentially, ask permission. In the music industry, a musician asks permission to use other band’s music by obtaining a license. The type of license needed depends on how the musician intend to use the music. If the musician plans to re-record another band’s music then he must obtain what is called a mechanical license. But if the musician plans to perform the other band’s music at clubs, concerts, etc., then the musician needs to obtain what I like to call a performance license (it is really just called a license, but I like to call it a performance license to stress the difference between that and a mechanical license).

Obtaining a mechanical license is not a very daunting task. Because United State’s Copyright laws required that once a copyright owner has recorded and distributed a work (i.e., a song) to the U.S. public or has permitted another to do so, the copyright owner is required to grant a license (called a compulsory license) to another else who wants to record and distribute the song. A compulsory license is not free. The U.S. Copyright act provides for the compulsory license only upon payment of a licenses fee (called the statutory compulsory rate). Currently the rate is 8 cents per song for songs five minutes or less, or 1.55 cents per minute for all songs over 5 minutes.

If a musician wants to obtain a mechanical license, the first place to start is the Harry Fox Agency. (www.harryfox.com) The Harry Fox Agency represents publishers by licensing their work and collecting royalties on their behalf. The Harry Fox Agency web site provides a wealth of information and can even process applications for mechanical licenses if Harry Fox represents the artist whose work the musician wants to use.

If Harry Fox does not represent the artist who owns the work the musician wants to use, the musician should contact the artist directly to arrange for a license. If Harry Fox does not represent the artist and the musician either can’t get in touch with the artist or the artist refuses to grant a license the musician may still be able to obtain a “compulsory license” from the Copyright Office.

First, a compulsory license can only be obtained from the Copyright Office if the primary purpose is to make a “phonorecord” (statutorily defined as “material objects in which sounds, other than those accompanying a motion picture or other audio visual work are fixed”) for distribution to the public. A compulsory license will allow the musician to create a new musical arrangement of the work. However, such a new arrangement can not change the basic melody or fundamental character of the work.

The process of obtaining a compulsory license can be rather straight forward or complex, depending on a variety of factors.

Obtaining a performance license can be just as simple (or complex) as obtaining the mechanical license. There are a number of different agencies (called performing rights agencies) that license these performance licenses: BMI (www.bmi.com), ASCAP (www.ascap.com) and SESAC (www.sesac.com). Because the performance rights these organizations license vary (live performances, radio play, television, cable, Internet, bars, restaurants, hotels, shopping centers, etc) the rates charged will also vary. The license will have to be obtained from the agency that represents the artist who owns the work to be performed. The website for all three agencies allows users to search the list of artist each society represents.

Copyright Infringement and Remedies

Infringement Basic Definition
Anyone who violates the exclusive rights of the copyright owner is an infringer. However, the copyright owner must have an issued registration in hand prior to filing suit in federal court for copyright infringement. This is one reason why copyright registration is very important. Other reasons to register a copyright include: (a) the registration provides an official record of ownership and provides constructive notice to the public of the facts stated in the registration certificate; (b) if registration occurs within five years of first publication, this is prima facie evidence of the validity of the copyright and the information stated in the certificate; and (c) registration is required in order to be able to recover statutory damages (which requires no proof of actual damages) and attorney’s fees.

Copyright Registration
Registration is permissive and may be done at anytime during the life of a copyright. Registration is done with the US Copyright Office.

Application For Registration
Applications to the US Copyright Office for copyright registration require that a form be filled out that is appropriate to the type of work being registered. The forms appropriate to each work which the practitioner will most likely encounter are the following: 1) Form TX for textual works, such as books, transcripts, instruction manuals, computer programs, poems, documentation, essays and articles; 2) Form VA for visual arts works such as paintings, drawings, graphical works, photographs or sculptures; 3) Form SR for sound recordings such as tapes, records, and CDS; 4) Form SE for registering newspapers, serials, periodicals and magazines; 5) Form PA for performing arts works, including dramatic works, audiovisual works (movies, audio tapes) and multi-media products; 6) Form CA is used to supplement registrations, such as to correct errors in a prior registration and 7) Form MW is used to register computer chip designs know as “mask” works. These forms and others, as well as instructions for filling them out can be found on the Copyright Office website at http://www.loc.gov/copyright/forms/. After the form is filled out, the applicant must pay the filing fee listed on the form and submit two complete deposit copies of the published work as specimens of the work being registered. Unpublished works require that one deposit copy be submitted. Most registrations issue within 6-12 months of filing the application, and are accorded a date of issuance the same as the given initial filing date of the application form.

Scott Hervey is an entertainment lawyer with Weintraub Genshlea Chediak in Sacramento. He can be reached at 916-558-6065 or [email protected].

This article is the copyrighted property of the Sacramento News and Review and they have given Weintraub Genshlea Chediak permission to publish this article in its entirety.