Tuesday, December 30, 2014

Variety’s Top 20 Most Pirated Movies of 2014

Variety released a list on Sunday of the top 20 most pirated movies in 2014. “The Wolf of Wall Street” and “Frozen” were the two most pirated movies at roughly 30 million illegal downloads each.
The total number of illegal downloads from this list is almost half a billion pirated copies in 2014 alone. The rest of the list looks like this:
1. “The Wolf of Wall Street”: 30.035 million (Paramount, Dec. 25, 2013)
2. “Frozen”: 29.919 million (Disney, Nov. 27, 2013)
3. “RoboCop”*: 29.879 million (MGM, Feb. 12, 2014; and Orion, July 17, 1987)
4. “Gravity”: 29.357 million (Warner Bros., Oct. 4, 2013)
5. “The Hobbit: The Desolation of Smaug”: 27.627 million (Warner Bros., Dec. 13, 2013)
6. “Thor: The Dark World”: 25.749 million (Disney/Marvel, Nov. 8, 2013)
7. “Captain America: The Winter Soldier”: 25.628 million (Disney/Marvel, April 4, 2014)
8. “The Legend of Hercules”: 25.137 million (Summit, Jan. 10, 2014)
9. “X-Men: Days of Future Past”: 24.380 million (20th Century Fox, May 23, 2014)
10. “12 Years a Slave”: 23.653 million (Fox Searchlight, Oct. 18, 2013)
11. “The Hunger Games: Catching Fire”: 23.543 million (Lionsgate, Nov. 22, 2013)
12. “American Hustle”: 23.143 million (Sony/Columbia, Dec. 13, 2013)
13. “300: Rise of an Empire”: 23.096 million (Warner Bros., March 7, 2014)
14. “Transformers: Age of Extinction”: 21.65 million (Paramount, June 27, 2014)
15. “Godzilla”: 20.956 million (Warner Bros., May 16, 2014)
16. “Noah”: 20.334 million (Paramount, March 28, 2014)
17. “Divergent”: 20.312 million (Lionsgate, March 21, 2014)
18. “Edge of Tomorrow”: 20.299 million (Warner Bros., June 6, 2014)
19. “Captain Phillips”: 19.817 million (Sony/Columbia, Oct. 11, 2013)
20. “Lone Survivor”: 19.130 million (Universal, Dec. 25, 2013)
* Combines data for both 1987 and 2014 versions.
Take note that “The Expendables 3” does not appear on the list despite a massive pre-release piracy that occurred this summer. (See here and here for more information.) This list shows the size and scope of the problem with pirated movies, which is just a fraction of all pirated content, including music and other content.
More tools, such as WheretoWatch.com and Rightscorp, continue to emerge in efforts to diminish piracy and protect intellectual property rights. But everyone needs to do more because the protection of intellectual property is essential for encouraging more innovation, creative content, and economic growth.

Tuesday, December 23, 2014

The Sony Hack Attack

There are many dimensions to the hack of Sony that, by all accounts, now appears to be a North Korean cyberattack. Certainly, the attack ought to make us all aware that, regardless of debates about the niceties of the labels applied, the U.S. has entered a new era in which cyberwarfare (and response to cyberattacks) will constitute an important element of our national security strategy.

Here, I want to make just a couple of points – briefly.

It is easy, without having access to all the facts, to second-guess Sony’s decision to cancel the initial theater release of “The Interview.” For example, there is ongoing back-and-forth as to whether the theater owners (all or some large number of owners) made it clear that, in any event, they would not screen the film. For me, it is understandable enough that Sony (and/or the theater owners) would put threats to the safety of their patrons high in their calculations concerning whether to go ahead with the film’s release.

That said, I certainly hope Sony will find a way, and there seem to be several avenues, to get the film into the public realm without much further delay. Otherwise, an unfortunate precedent will be set. So, the film needs to be released, one way or the other.

Now, it must be said that it is unfortunate that some are taking pirated emails – emails that were seized through an illegal cybertattack – and are using them in an opportunistic fashion. And this goes beyond the mere gossip concerning Hollywood rivalries and personal sniping. I have in mind, for example, Google’s use of some pirated emails to and from film studio personnel and the studio’s trade association, MPAA, to raise fears that MPAA is trying to orchestrate a revival of the Stop Online Piracy Act (SOPA) legislation that had been intended to help curb the very real – and very costly – ongoing problem of online piracy.

Here is a December 18 blog posted by Kent Walker, Google’s SVP and General Counsel, claiming that MPAA is engaged in some type of “coordinated campaign” to revive the SOPA legislation that a Google-led effort defeated back in 2012. A quick perusal of the emails cited by Google (the Google blog itself refers to an article posted on The Verge on December 12) does not appear to me to support the claim that the MPAA is seeking to revive the SOPA legislation. Instead, it appears that Google opportunistically may be trying to use the pirated emails to divert attention from probes by state and federal authorities into its own conduct.

There can be legitimate debates concerning the merits of the actual SOPA bill that was withdrawn in 2012 or similar SOPA-type legislation. In my view, the attacks on the legislation, and the frenzied claims made concerning the impact of the legislation on the working of the Internet, were exaggerated. Be that as it may, there shouldn’t be any debate that online piracy – that is, the unlawful theft of someone’s intellectual property – is a real societal problem. And you don’t need to wade into a battle of estimates concerning the precise dollar size of the economic losses resulting from pirated content to know that they amount to many hundreds of millions of dollars and thousands of jobs each year.

At the end of the day, what is most disappointing about Google’s blog is that there is no acknowledgment that online theft of intellectual property – whether films, music, or other creative content – is a real problem that needs to be addressed by many different participants in the Internet ecosystem, including by online purveyors of content like Google.

Perhaps SOPA or SOPA-type legislation is not the right answer. But “SOPA” should not now be invoked as a ghostly mantra in a way that is intended to impede what ought to be a collaborative search for the right answers to combat piracy of intellectual property.

PS – I should add that theft of intellectual property is a problem that requires addressing for more than reasons relating to economic losses. The reason our Founders included the IP Clause in the Constitution had as much to do – really more to do – with an understanding that creators are entitled to realize and control the fruits of their labors than anything else. In that regard, and for a deeper understanding and appreciation of foundational principles of intellectual property rights, I commend to you the Free State Foundation’s series of papers on foundational principles of intellectual property:

The Constitutional Foundations of Intellectual Property – May 10, 2013

Reasserting the Property Rights Source of IP – June 13, 2013

Literary Property: Copyright's Constitutional History and Its Meaning for Today – July 25, 2013

The Constitution's Approach to Copyright: Anti-Monopoly, Pro-Intellectual Property Rights – August 26, 2013

Constitutional Foundations of Copyright and Patent in the First Congress – May 8, 2014

Life, Liberty, and the Protection of Intellectual Property: Understanding IP in Light of Jeffersonian Principles – July 8, 2014

Intellectual Property Rights Under the Constitution’s Rule of Law – September 26, 2014

Reaffirming the Foundations of IP Rights: Copyright and Patent in the Antebellum Era – November 20, 2014

Friday, December 19, 2014

Maryland Must Fix Its Budget Shortfall Before It Adds to the Long-Term Debt

Maryland’s Governor-elect Larry Hogan certainly has his hands full as he prepares to take office in January. Maryland tax revenues are expected to be $1.2 billion less than expenditures over the next 18 months, but this shortfall can be fixed, or at least reduced, before it adds to Maryland’s long-term debt.
This could be a tall task for Mr. Hogan since he promised during his gubernatorial campaign to cut at least some of the various taxes raised under Governor O’Malley. But Barry Rascovar said in a recent article in the Maryland Reporter that the task is “easy.” While not necessarily agreeing with Rascover’s general prescriptions, his suggestion that the Hogan Administration base the budget on the prior year’s revenues, rather than projections that often turn out to be overly optimistic, is worth considering. This method should provide a greater amount of certainty about how much money will be coming in and thus increase the chances of running a balanced budget. Although Maryland needs to run a budget surplus in order to decrease its current $48 billion debt, balancing the budget would at least be a step in the direction of addressing the shortfall.
If Mr. Hogan implements tax cuts as he promised, the previous year’s tax revenues could be less than the current year’s. Therefore, economic models could be used to estimate the amount the previous year’s tax revenues would have been if the Hogan tax cuts were already implemented. Then, the budget expenditures could be reduced to match that amount. Cecilia Januszkiewicz, a former Free State Foundation Senior Fellow and former Secretary of Maryland’s Department of the Budget, wrote a Perspectives from FSF Scholars in March 2008 entitled “The Illusion of Declining Revenues, Reduced Spending.” Ms. Januszkiewicz said that there is an illusion within Maryland (that still remains six years later) that tax revenues are decreasing with each year, but in actuality, it is only the growth rate of tax revenues that is sometimes decreasing. Therefore, keeping the reduced budget expenditures constant for a few years while revenues continue to grow is at least an admirable approach to eliminating the shortfall and lessening long-term debt.
Maryland’s Spending Affordability Committee is required “to limit the growth of State spending to a level that does not exceed the rate of growth of the State’s economy.” Cecilia Januszkiewicz criticized this “spending affordability” process in a July 2008 Perspectives from FSF Scholars entitled “Avoiding Structural Deficits in Maryland: Recommendations for Reform,” because it does not take into account the decreasing growth of tax revenues. She also suggested many simple ways to reform Maryland’s budget process such as: requiring fiscal estimates for each proposed law to be available to the public at least two days before the first hearing on the legislation. (See here for more valuable recommendations.)
There are many things Maryland officials should do in order to balance the budget over the next year without Mr. Hogan having to break his promise of cutting taxes. Ongoing budget deficits are detrimental to the economy and society, not only because government spending slows down economic growth by crowding out private investment, but also because a deficit today means a surplus will be needed in the future to offset the debt. This places the burden on future taxpayers, whether they are currently children, foreigners, unborn, or already paying taxes. Running a budget deficit is the definition of taxation without representation. 

Wednesday, December 10, 2014

CRomnibus Would Extend Ban On Internet Taxes For One Year

A new spending bill of $1.1 trillion was released on Tuesday and is being referred to as “CRomnibus,” because it is partially a continuing resolution and partially omnibus. CRomnibus includes a provision that would extend the ban on Internet taxes for a year. According to The Hill, Senator Ron Wyden (D-OR), who coauthored the Internet Tax Freedom Act the late 1990s, still remains one of the biggest voices in Congress supporting the elimination of Internet taxes. Senator Wyden said: “A fair and open Internet is an engine of economic growth in America, a launching pad for entrepreneurs and history’s most powerful tool of communication.” 
There have been several FSF blogs in recent months promoting the adoption of the Internet Tax Freedom Forever Act, which would permanently ban state and local taxes on Internet access, pending Senate action. (See here, here, and here.) Although a permanent ban would be preferable, at this point a one year extension of the ban is certainly better than nothing. However, supporters of an online-sales tax likely will push for opposing legislation next year.
If this bill passes (and it looks like it will), it will mean at least an additional year of Internet-driven and market-driven innovation, content, and economic growth.

Tuesday, December 02, 2014

Sony Is the Latest Victim of Online Piracy

Last week, Sony Pictures Entertainment’s email system and other internal systems were hacked by a group called “Guardian of Peace.” This week, five of the studio’s movies were leaked online, including “Fury” and “Annie.” Oddly enough, the two incidents may not be related because it is being reported that the movies, which have been uploaded to many “torrent” websites, were ripped from DVDs.
Online piracy is a serious problem with serious consequences. Two men were recently arrested in London for the their role in leaking the movie “The Expendables 3,” which had over 2.2 million views before it even hit theaters this past summer. The theft of these five Sony movies likely could cost the studio hundreds of millions of dollars before it is over, especially considering that four of the five movies have not been released in theaters yet.
Online piracy is very detrimental to encouraging creative content, so it is important that various groups work together to quickly reduce it. The Motion Picture Association of America recently released a new website, WheretoWatch.com, which helps consumers quickly locate legal content online, in stores, or at the movies theaters. Rightscorp is another good tool that notifies Internet Service Providers, content companies, and consumers when content is pirated online.
Although this recent Sony incident is a step in the wrong direction, hopefully more tools that help secure strong intellectual property rights, like WheretoWatch.com and Rightscorp, will continue to emerge. The protection of intellectual property is essential for encouraging more innovation, creative content, and economic growth.

The Net Neutrality Hybrid Proposals: They Definitely Are Not Comfortable

Let me ask you this: “If a man has one foot in a bucket of boiling water and the other foot in a bucket of ice, do you think that, on average, he would be comfortable?”

Answer: Not really.

Well, if the FCC, for purposes of pursuing further net neutrality regulation, puts one foot in the Title II bucket and the other in the Section 706 bucket, do you think that, on average, the agency is likely, as a legal matter, to comfortably succeed?

Answer: Not really.

Each time I think about the various so-called “hybrid” proposals that agglomerate various aspects of Title II common carrier regulation and Section 706 “commercial reasonableness” authority in the quest for some “compromise” version of Internet provider regulation, I am reminded of the poor rube with one foot in the boiling water bucket and the other in the ice bucket. In the main, the various hybrid versions are offered as a way to avoid the acknowledged adverse effects of applying Title II’s public utility-style regulation to Internet providers and as a way of bolstering the legally problematic case for invoking pure Title II or Section 706 regulation alone.

Initially, I must confess that, for the most part, the hybrid proposals are difficult to understand on their own terms, at least for me. And I’ve been involved with communications law and policy for almost forty years now. On average, the hybrid proposals make me very uncomfortable.

The proffered hybrids come in many varieties, but among them are these. Rep. Henry Waxman has a “springing Title II proposal” whereby the FCC simultaneously would subject Internet providers to net neutrality regulation under Section 706, while also declaring Internet access services to be a telecommunications service subject to Title II. Somehow, Title II regulation would only spring into effect if the FCC’s exercise of Section 706 authority were held unlawful. Rep. Waxman later offered a variation of his “springing” proposal whereby the FCC would classify Internet providers as common carriers but then immediately forbear from imposing all of the Title II provisions, while at the same time relying on Section 706 to adopt bright-line rules prohibiting blocking, throttling, and prioritization of traffic.

Mozilla has put forward a proposal urging the FCC to classify a so-called Internet “edge provider’s” remote delivery of content to a “retail” user endpoint as a common carrier service and then to forbear from any “inapplicable or undesirable provisions” of Title II. In somewhat of a mirror image of Mozilla’s proposal, Columbia law professors Tim Wu and Tejas Narechania propose that the FCC divide Internet access service into a “retail” end user’s request for data and an edge provider’s response to the retail user’s request. Under this hybrid model, the edge provider’s response (or “sender-side’” response as the Columbia professors call it) would be classified as telecommunications subject to Title II regulation, while the retail user’s request for data would not be. Again, the exercise of the Commission’s forbearance authority is invoked to avoid application of harmful regulatory requirements that the Commission may not wish to apply to the sender-side entity.

The various hybrid proposals obviously are complicated, and to some extent contradictory. In reality, so-called edge providers and end users can be one and the same individual and entity, depending on the way they are using Internet access service at any particular time. Indeed, during the same Internet “session,” the supposed roles may switch back-and-forth, depending on the way the Internet is used.

In any event, from a policy perspective, the hybrid proposals are problematical because, in essence, the objective of each is to apply some degree of public utility-style regulation to Internet providers in the absence of evidence of present market failure or consumer harm. In this piece, however, I wish to put aside pure policy arguments and focus on two principal legal defects that pervade the hybrid agglomerations.

To one degree or another, the hybrid proposals depend on the successful exercise of the Commission’s forbearance authority and/or its successful reclassification of Internet providers as regulated common carriers under Title II of the Communications Act rather than as information service providers outside of the public utility realm.

The exercise of forbearance authority: Given the constrained way the Commission previously has interpreted the forbearance authority provision adopted as part of the Telecommunications Act of 1996, it is highly unlikely the agency will be able successfully to forbear from applying some or all of Title II’s burdensome regulatory requirements to Internet providers. This is true even for requirements upon which there is widespread agreement that they should not be applied.

As FCC Commissioner Michael O’Rielly pointed out in remarks at the Free State Foundation’s recent “Thinking the Unthinkable” seminar, the Commission’s insistence on using intensely granular product and geographic analyses, which it has defended in court, requires “such an extraordinary showing of insufficient market power backed by very specific market data, that the forbearance process resembles little of its original intention.” I have made much the same point for many years. Thus, in an April 2011 piece titled “Rolling Back Regulation at the FCC: How Congress Can Let Competition Flourish,” I called on Congress to revise the forbearance provision in a way that would require the agency to more readily grant justifiable forbearance requests.

Furthermore, as Commissioner O’Rielly went on to explain:

“[T]he findings that the Commission would have to make to justify forbearance run counter to the arguments for imposing net neutrality in the first place: broadband providers seemingly have the market power to discriminate against other providers and consumers. In other words, the Commission would be forced to argue that imposing Title II is necessary because of the discriminatory possibilities that broadband providers may inflict on the marketplace but somehow the same broadband providers would be required to show that imposition of parts of Title II are not necessary to ensure just, reasonable and non-discriminatory practices, which is the first part of the statutory test for Section 10 forbearance….”

Harry Houdini has long since performed his last act of trickery, but were he alive, even Houdini couldn’t fool a panel of judges with such an inherently contradictory switcheroo.

Classification under Title II of parts of Internet access: The hybrid proposals put forward by Mozilla and Professors Wu and Narechania (and others) are more exercises in Aristotelian metaphysics than in law compliance. Aristotelian metaphysics “examines what can be asserted about anything that exists just because of its existence and not because of any special qualities it has.” Something like this is what is going on with regard to the proposals to simply declare as separable elements of Internet access service what the Commission previously declared to be a single integrated service. And not only did the Commission previously declare Internet access service to be a single integrated service, it successfully defended this position in the Supreme Court in the landmark Brand X case.

I don't think the integrated, inseparable nature of ISPs' service offerings, from a functional standpoint, and from a consumer's perspective, has changed since the Brand X decision, so it won't be easy for the Commission to argue that it is changing its mind about the proper classification based on changed consumer perceptions of the service offerings' functionality. And to the extent that the Brand X Court cited favorably to the FCC's claims concerning the then-emerging marketplace competition and the dynamism in the broadband marketplace, those factors, if anything, today argue even more strongly for a non-Title II common carrier classification.”

I understand that Tim Wu, Mozilla, and other hybridists suggest that either the “sender-side” portion of the Internet service or the “retail side” portion can be isolated and treated differentially for purposes of regulatory classification. They base this in part on assertions that consumer perspectives concerning the integrated nature of Internet access service have changed since the Commission’s 2002 classification decision. But I have seen no Commission findings in support of this assertion. Moreover, as Justice Thomas declared in the Brand X majority opinion: “The entire question is whether the products here are functionally integrated (like the components of a car) or functionally separate (like pets and leashes).” While Justice Thomas readily acknowledged the deference due to the FCC “in the first instance” under the Chevron doctrine, he said the classification of Internet access “turns not on the language of the Act, but on the functional particulars of how Internet technology works and how it is provided….”

The argument the hybridists now put forward is similar to the one accepted by Justice Scalia in Brand X – but unfortunately for them it was in a dissent. The majority rejected the notion that the “telecommunications” and “information” elements, or the “sender-side” and “retail” end user side, or the “wholesale” or “retail” elements – however cleverly characterized – are functionally separable for regulatory purposes. Should the Commission now attempt to cull out any element of Internet access for purposes of applying Title II regulation, the agency will bear an especially heavy burden. I submit that, upon judicial review, a proper understanding of the law will prevail over a particularly foggy exercise of Aristotelian metaphysics.

In sum, the hybrid proposals do not offer a viable solution for FCC Chairman Tom Wheeler, or others, who may be wary of offending the most fervent net neutrality advocates. To his credit, it now appears Chairman Wheeler, having in mind the difficulties of either a pure Title II or hybrid Title II approach, recognizes the need to take time to reassess the way forward.

It certainly makes sense for the Commission to hit the “pause” button. This is especially so when no one seriously claims that Internet providers presently are acting in ways that cause consumers or competition actual harm.

Mere conjecture concerning future potential harms is not a sufficient reason for the Commission to plow ahead with consideration of hybrid proposals – to put one foot in a bucket of boiling water and the other in a bucket of ice, all the while deceiving itself into thinking, on average, it feels comfy.