MS. PETERS
Good morning.
I'm MaryBeth Peters. I'm the Register of Copyrights, and I would like to welcome all of you to our California hearing in the Section 1201 Rulemaking.
This hearing is a part of the ongoing triennial rulemaking process mandated by Congress in the Digital Millennium Copyright Act.
Section 1201(a)(1) provides that the Librarian of Congress may exempt certain classes of works from the prohibition against circumvention of technological measures that control access to copyrighted words for three-year periods.
The purpose of this rulemaking proceeding is to determine whether there are particular classes of work as to which users are, or are likely to be, adversely affected in their ability to make noninfringing uses of works if they are prohibited from circumventing the technological access control measures.
After the Copyright Office's initial Notice of Inquiry in this rulemaking, published in the Federal Registrar on October 6, 2008, the Office has received 20 comments proposing exemptions to the prohibition on circumvention. We received 56 response to these proposed exemptions, all of which are available for viewing from the Copyright Office's Web site.
In addition to the hearing today, the Copyright Office will also be conducting hearings in Washington, D.C. next Wednesday, Thursday, and Friday, the 6th, the 7th, and 8th of May.
Information about the Washington, D.C. hearings is available on the Web site. We intend to post all transcripts of all hearings on our Web site within a few weeks of the hearings.
The comments, responsive comments, and the hearing testimony will form the basis of evidence in this rulemaking, which, after consultation with the Assistant Secretary for Communications and Information of the Department of Commerce, will result in my recommendation to the Librarian of Congress.
The Librarian will make a determination by October 28th, 2006 [sic], on whether exemptions to the prohibition against circumvention should be instituted during the next three-year period and, if exemptions should be issued, what particular classes of works should be exempted from the prohibition on circumvention.
The format of the hearing today is divided into three parts. First, witnesses will present their testimony. This is your chance to make your case to us in person, and we want you to make it as fully and as energetically as you can.
And remember, this is a rulemaking that's based on the evidence that we hear. So, you have to put the evidence in front of us.
After you basically make your statements, then we will be asking questions. Hopefully, we'll be asking some tough questions in an effort to try to define and refine the issues and the evidence that's presented on both sides.
This is an ongoing proceeding. No decisions have been made. They won't be for a while.
With respect to any of the critical issues, in an effort to fully obtain relevant evidence, the Copyright Office reserves the right to ask questions in writing of any participant in these proceedings after the close of the hearing.
And those of you who have participated in the past know that we fully avail ourselves of that opportunity. And obviously those questions and response to those questions also appear on our Web site.
Now, let me introduce the members of the Copyright Office who are here. To my immediate left is David Carson, who is General Counsel of the Copyright Office. To my immediate right is Rob Kasunic, Principal Legal Advisor, Assistant General Counsel in the Copyright Office. And to David's left is Ben Golant, also Assistant General Counsel and Principal Legal Advisor in the Office of the General Counsel.
Before actually turning to the witnesses, I would like to thank Paul Goldstein, Jillian del Pozo, and the Stanford Law School for extending their hospitality once again in providing a venue for our California hearing.
So, let's get started, and I understand, Gary, that you are going to be the first presenter.
MR. HANDMAN
Right.
MS. PETERS
Yes. Thanks.
MR. HANDMAN
Well, good morning.
My name is Gary Handman, and I'm the Director of the Media Resources Center at Moffitt Library at UC Berkeley. This is a position I've held since 1984.
I also serve as a lecturer in the Film Studies and Media Studies Programs at UCB, as well as a periodic lecturer in other departments and programs, including English, History, American Cultures, Rhetoric, and Theater.
I'd like to thank the committee, Copyright Office, for the opportunity to speak here this morning in support of broadening current DMCA circumvention.
If you'll refer to the formal comments I submitted late last year, you'll see that I am speaking here today on behalf of a large group of professional colleagues in libraries and archives across the country who sign their support for that document.
I'd like to focus my comments this morning on three basic points. First, I'd like to discuss the almost universal increase in the use and importance of video in classroom teaching and learning across academic disciplines.
I'd like to discuss the types of videos commonly used in the classroom, the specific ways in which these materials are incorporated into classroom activities, and the ways in which the current DMCA strictures are seriously and consistently impeding this work.
Secondly, I'd like to respond briefly to the comments made by the association of American Publishers and others regarding possible alternative to circumventing of DMCA encryption.
And lastly, I'd like to offer a few observations and opinions about present and future realities in regard to media use in teaching, learning, and research on university campuses.
In developing these comments, it occurred to me fairly early on that the media center that I administer at UCB provides some excellent general insights into the ways in which video is typically collected and used in higher education contexts.
MRC was opened in 1979, a few years after the introduction of home video technologies. The Center is currently one of the two or three largest video collections in a US academic library.
The MRC collection includes about 40,000 pieces, half of which are on tape and half on DVDs. The collection comprises documentary and educational works, primary source materials, such as news, television programming, as well as a research-level collection of collection of international feature films.
The vast majority of the materials in the collection have been commercially acquired. We're not an archive; we're a college-acquired collection.
These resources support and are used by virtually every discipline on the Berkeley campus, and I'd say that well over 90 percent of every video shown in a classroom on the Berkeley campus is borrowed from MRC.
Last academic year, the Center circulated over 90,000 items. That's over four times more use than a decade ago.
Almost one-hundred percent of these materials circulated were either watched for specific course assignments in the Media Center, or used for screening in the classroom. About 3- to 4000 items went to classrooms across campus last year.
So, which departments and programs are the biggest users of this collection? The casual outside observer might think it would be Film Studies or Mass Communication Studies.
Well, the casual, outside observer would be wrong. In fact, it's my impression that on most campuses that support centralized video libraries like mine, Film and Media Studies are almost always relatively minor users of such collections, if for no other reason than the fact that these departments tend to be pipsqueaks in terms of faculty size and student enrollments.
Now, that isn't to say that film isn't intensely used or a vital part of these programs. In terms of number, however, the big users are often heavily enrolled social sciences programs.
Disciplines that I'm referring to include Cultural and Ethic Studies, Women's Studies, History and Political Science, Public Policy, Development Studies, Environmental Studies, Education and Psychology.
And I've brought with me about two weeks of reservation requests if you're interested. They show which classes on my particular campus are using this stuff.
Courses in these departments use video for a number of reasons. They use video to focus on the various ways in which movies and TV both shape and reflect cultural and political notions, norms, and fantasies.
In other words, they view film as a kind of cultural artifact or text that can be read and interpreted as historical or sociological documents.
These courses are equally interested in nonfiction films, including documentary film and primary source materials such as broadcast news to spur discussion and to provide concrete visual evidence and examples of the issues being discussed.
Now, underlying the use of both fiction and nonfiction film in most of these courses is the goal of making students critical, media-literate viewers, rather than simply passive receivers of the images which increasingly bombard our lives.
I should also mention that along with the social sciences, big users of video also include the language departments on campus -- and my colleague, Mark Kaiser, is going to be addressing that in a second -- and English departments, which regularly look at the relationship between film and literary texts and authorship in both graduate and undergraduate classes.
Over the 25 years that I've been Director of MRC, I've witnessed significant changes, not only in the intensity of media use, but also in the ways in which these media have been incorporated into teaching.
It's clear to me that the vast majority of faculty users of MRC, including Film and Media Studies faculty, and those in other disciplines, have, for a number of logistical and pedagogical reasons, gravitated toward using portions of video in class, rather than screening whole works.
From a logical perspective alone, this trend isn't surprising. A large number of courses are shoe-horned into 50-minute slots, and showing an entire film in class simply isn't feasible, let alone screening it and discussing it.
From a pedagogical perspective, the ability to compare sequences or scenes in the same or multiple works, to zero in on a sequence that addresses a specific point being made in class, and to incorporate a clip into the context of a PowerPoint presentation has become central to teaching.
Many of the strong pedagogical arguments offered last year by Professor Decherney which lead to the expansion of circumvention allowances for Film Studies and Media Studies are, in effect, the ones I'm making her on behalf of other academic disciplines.
I have three PowerPoint slides I'd like to show, if it's acceptable. They will give you an idea of the ways that I use clips in courses -- social science courses outside of film studies.
(Presentation of PPT slides)
MR. HANDMAN
Another clip. Movies basically formulated formed stereotypes. They formed the image of race that most Americans came to know.
This is from a very early Porter film called "In the Tunnel," which is very strange. This guy makes a pass at the white woman on a train. They go into a tunnel, and it's found that he's actually kissed the black woman who is a white woman in black face.
So, again, the movies fairly early on became ways in which the immigrants and minorities in the United States could be viewed as cultural others. And, you know, this goes and, you know, I finally end up with -- you know, there are other films. And then the ultimate here.
Let's see now. I'm not getting any sound. Well, I'll do my Scarlett O'Hara imitation.
MR. KASUNIC
We can hear.
MR. HANDMAN
You can hear?
So, again, the movies basically developed a stock group of racial caricatures and stereotypes that have continued actually to the present day.
I end this by showing clips from Spike Lee's "Bamboozled," which is basically a critique of these images that were formulated in the first quarter to half of the century.
So, that's that. All right. I'll leave Scarlett up there. What the hell.
So, in the days of VHS -- that's interesting. In the days of VHS, almost everyone I know who used video in the classroom in classroom teaching routinely exercised fair-use rights to excerpt a limited number of short clips for these purposes.
Current DMCA strictures against circumventing DVD encryption have, in a sense, trumped those fair use rights and have left the majority of academic users of video out in the cold.
At a time when academic scrutiny and media in the classroom continues to skyrocket, the law has basically prevented us from doing our jobs effectively and legally, or from taking advantage of new technologies.
Now, it's the Association of American Publishers and others who have suggested that there are workable alternatives to circumvention. It's clear to almost anyone who has stood behind a lecturn that shuffling multiple DVDs in order to show various clips, or fumbling with a remote control unit to find clips on a single discs, are simply not viable options. They're both enormously disruptive and time-consuming in the class.
The AAP suggests that filming clips off a monitor or TV screen is an option. It's not. Access to the equipment needed to pull this off is seldom readily available to faculty, and the time and technical expertise required to do this effectively are prohibitive.
A great deal of what goes on in the classroom is spontaneous and responsive to the kinds of discussion and questions that arise organically in the process of teaching. The decision to use a group of clips is often spurred by discussion that occurred in the previous class. The AAP's cumbersome film-off-screen gambit is not amenable to this type of responsive, creative teaching.
Perhaps most significantly, the resulting low resolution image and poor sound quality from off-air filming -- off-screen filming are simply not acceptable in most teaching contexts. Clarity of image and sound are almost always central to clarity of teaching and understanding, regardless of discipline.
More to the point, students are much too media savvy to put up for long with images in the classroom that look like something the old proverbial cat dragged in.
Finally, I'd like to offer just a few observations about the real world of academia. With all due respect, I'd like to suggest that regardless of whether the circumvention allowances are expanded or not, faculty will continue to do what they do.
Moving images have become too universally engrained in world culture, too much and almost a genetic part of student life, too central to the teaching and research across the disciplinary board to even vaguely ignore.
Limiting circumvention allowances to formal academic programs known as "Film and Media Studies," and limiting the exemption to the use of materials and departmental or campus libraries is completely unrealistic in light of current teaching practice, current institutional resources, and evolving trends in education and scholarship.
Faculty will continue to use the cultural and academic materials available to them in ways which best support their teaching goals. These are not 18-year-olds holed up in dorm rooms wantonly ripping off content and P to P sharing that stuff for free. These are individuals engaged in socially significant work using legally acquired videos for the types of limited and noncommercial uses historically covered under fair use.
I urge that the Librarian of Congress and his advisers to consider expanding current exemptions in order to support the work of teachers and the interest of students, rather than encouraging an almost unavoidable and inevitable disrespect of the law by committed and responsible individuals.
Thanks.
MS. PETERS
Thank you very much.
MR. KAISER
I want to thank you for the opportunity to testify today. My name is Mark Kaiser. I am the Associate Director of the Berkeley Language Center, Director of the Language Media Center, and a lecturer in Russian language at U.C. Berkeley.
My testimony widely reflects the views not only of my colleagues in Language Centers, but also those of foreign language instructors.
To appreciate the importance of foreign language film to the teaching of foreign languages, one must understand the changes underway in the field of foreign language pedagogy.
In particular, I would draw your attention to the Modern Language Association's 2007 report entitled "Foreign Languages and Higher Education: New Structures for a Changed World." This report, written by seven experts in the field of foreign language pedagogy, calls for a restructuring of foreign language departments and the curriculum to meet the needs of an educated citizenry in a flat and shrinking world.
It calls for a language curriculum that generates a specific outcome, namely -- and I quote from the report -- educated speakers who have translingual and transcultural competence, the ability to operate between languages. This kind of foreign language education systematically teaches differences in meaning, mentality, and worldview as expressed in American English and in the target language. Literature, film, and other media are used to challenging students' imaginations and to help them consider alternative ways of seeing, feeling, and understanding things. End quote.
It is against this methodological backdrop that we must understand the desire of language instructors to incorporate film into the curriculum. Film is unique in that it is not only a cultural artifact, reflecting and reproducing the values embedded in the -- embodied in the target culture, it also produces new language and new ways of understanding the culture.
It serves as a social commentary on a particular culture at a particular time. It is also significant in that it is practically the only source of oral speech emulating the natural conversation available to instructors of foreign languages.
Film clips offer instructors the ability to model language and culture. When the language textbook introduces all the vocabulary associated with marriage, wedding, to be married to someone, to exchange rings, et cetera, et cetera, et cetera -- all of this nest of vocabulary, it leaves the student assuming that the only differences between a Russian and American wedding, this cultural rite of passage, is the way we pronounce the words.
However, when the instructor brings in clips from four to five Russian films, scenes where the bride is ransomed, where the crowns are held high over the head during the church ceremony; scenes where the wedding motorcade tours the city visiting the Tomb of the Unknown Soldier and other city sites, the student begins to grasp that each culture has its own traditions comprising the wedding ceremony, and that these traditions have particular meanings for the participants.
In more advanced classes, an analysis of the differences between the spoken language of the original and the English subtitles might be used to sensitize students to differences in languages, and that often, ideas and cultural values are lost in translation.
Now, it might be suggested that there are alternatives to ripping a DVD to obtain clips. Let us consider some of those alternatives from the point of view of the language instructor.
Instructors, it might be argued, can simply bring the DVD to the classroom. This is a possibility and is done widely today, in particular when instructors show extended scenes from films.
However, there are significant drawbacks when instructors want to use short clips from a DVD. For one, the instructor loses too much time queuing the DVD to the scene that she wants to display. This is tolerable when one has one scene to show and it can be primed before the class begins.
However, when one wants to show more than one clip so as to compare behaviors, uses of languages, cultural artifacts, or simply show many examples of a particular language use or cultural artifact, we simply lose too much time inserting and queuing the DVD to make it a feasible alternative in a 50-minute language class.
For instance, when teaching beginning Russian, I would like to show multiple clips from films demonstrating the different ways Russians greet each other, with colleagues at work, amongst family members; how they might address a neighbor's child, between boss and subordinate, teenagers amongst themselves, et cetera, so as to demonstrate how language varies depending on social environment, and, I might add, how textbooks simply -- how textbooks oversimplify even something as basic as greetings.
In such a lesson on greetings, I might want to show five to six different clips. No language instructor will take the time or waste students' time by fiddling with five or six DVDs.
A second alternative, one might say, would be to use VHS, and instructors still do, but it is increasingly difficult to make due with VHS tape. Players are disappearing from classrooms, but more important, new films are not issued on VHS anymore. It is a disappearing technology.
It has been suggested that instructors film the DVD. Not only is the procedure time-consuming, the quality of the ensuing product, in particular the audio component, is unusable.
Foreign language students already have sufficient difficulty understanding the spoken language, and an audio track that has been contaminated by ambient room noise will do nothing to help the comprehension of the text. Moreover, the distortion in the picture results in text that can no longer be read, facial expressions lost, colors distorted.
With your indulgence, I would like to demonstrate for you how language instructors, or how I in my language classes, would like to use short segments of video in their language classes.
Imagine you are at the end of the first week of a beginning Russian class. You have been learning the alphabet, learning greetings -- how to greet your instructor, your classmates -- and you are learning Russian names -- nicknames, first names, and patronymics -- and when to use one and when to use the other.
All of this is disorienting, foreign, and strange to the students. And on the last day of that week, that first week of class, I would show these two clips.
Now, this first clip is from a film called -- translated as "Prisoner of the Mountains." Its Russian title is "(Spoken in Russian)," or "The Caucasian Prisoner."
And I would point out to my students before watching this clip that the title echoes back in Russian literature. Alexander Pushkin, the Russian poet, wrote a poem about -- entitled, "The Caucasian Prisoner." Tolstoy modified that poem into a short story, made it more realistic, whereas Pushkin's was somewhat romanticized and so forth. And here we have a contemporary film director addressing this.
And I would ask my students, "Why do think they didn't translate this as "Caucasian Prisoner"? Why didn't they translate it as "Prisoner of the Mountains"?
And that would create some discussion around difficulties with the word "Caucasian" and maybe what might be implied in English from that versus the Russian. And so, then we would watch this clip.
(Showing clip)
Let me just explain. So, a doctor is asking a Russian recruit here to read the eye chart. The recruit is pronouncing his letters very, very distinctly. And we would maybe pause this clip and have the students actually practice their knowledge of the alphabet by also reading the chart. It takes this abstraction of alphabet and makes knowing how to pronounce the letters something that becomes real for the students.
I would go on and I would ask the students, after they've seen this clip, What is familiar in this clip for you and what is strange.
And of course, what they would respond is, Well, the eye chart, the induction exam, and so forth, that's very familiar, but being paraded around by a young nurse, naked in the barracks, this is something that is quite strange.
And so, we can start talking, even in this first week of class when their knowledge of Russian is quite limited, about the differences in cultures and why maybe they're paraded around naked, but this -- what is strange in studying Russian and what is familiar, and that they're going to be encountering this throughout their studies of Russian -- aspects that are strange and different and aspects that seem, at least on the surface, as being familiar.
The second clip that I want to show is from "Moscow Doesn't Believe in Tears." It won the Academy Award for Best Foreign Film in 1981. And this character that we see here has been sent out in search a friend's boyfriend who is on a bender.
(Playing clip)
MR. KAISER
So, he asks -- and he names all of these different nicknames from the Russian name Gyorgi (phonetic) -- (Speaking Russian), et cetera -- all of these different nicknames, and I might have the students pause, we might watch that portion of the clip several times, and have the students write down as many of these nicknames as they possibly can remember or catch in this audio.
And I would ask my students, "Why does he greet the old woman in the corridor, but he didn't greet the person who is painting? What's going on there?"
Now he's found the person he's looking for.
(Playing clip)
MR. KAISER
And I would ask my students, "Why did the one use the nickname Gosha (phonetic), and why did the other use the full form Nikolai?"
And, of course, the answer is, the one has proven himself a worthy male by downing the whole glass of vodka and smelling the fish and not eating it. But this introduces all sorts of other issues that we can talk about: Male bonding, the role of vodka, food, and habits of eating when you're drinking vodka and so forth.
Foreign language educators must choose between teaching in an efficient, engaging, and meaningful manner, enlivening the dry abstractions of textbooks with material that shows language in action in a rich cultural environment, or forego that material and obey the law.
Make no mistake, instructors will not use DVDs to illustrate brief scenes from films. There's too much hassle, and students won't tolerate it.
Just two weeks ago, a professor of Scandinavian Languages told me that their department has seen student comments on course evaluations to the effect, The instructor needs to learn how to use clips.
Using short extracts of copyrighted material in the classroom used to be something instructors could do under fair use. The DMCA took that right away from educators. We urge you to restore that right.
MS. PETERS
Thank you.
Ms. De Kosnik.
MS. De KOSNIK
Good morning. Thank you very much for taking the time to hear our perspective as university faculty and archivists today.
My name is Abigail De Kosnik. It's good to be back at my alma mater. I graduated from Stanford in 1994 with my bachelor's and master's degree.
I'm the Assistant Professor at U.C. Berkeley in the Berkeley Center for New Media and the Department of Theater, Dance, and Performance Studies.
In addition to teaching courses in the fields of New Media and Performance, I also led a Freshman Seminar earlier this year on the films of Academy Award-winning director Ang Lee, who also visited the campus this term.
Last year, before joining the Berkeley faculty, I was a member of the faculty of the Cultural Studies program at Columbia College Chicago, the largest private arts and media college in the United States. Prior to that, I was a Ph.D. student at Northwestern University, in the Department of Comparative Literary Studies, and sometimes taught courses that I designed in the Asian-American Studies program.
I did not receive my Ph.D. from a Film Studies department, nor have I ever taught a course for a Film Studies department.
However, in the classes for which I have been the lead instructor between 2006 and 2009, a total of ten college courses, I have screened approximately 65 films and television series for my students, in part or in their entirety, an average of 6.5 media texts per course.
I could not have taught any of my courses without using clips from films and TV series. I will give just a few examples of how crucial media screenings have been to my teaching.
For my Spring 2006 course on remix culture and artistic appropriation, I used Baz Luhrmann's "Romeo + Juliet," a postmodern adaptation of Shakespeare's famous play about star-crossed lovers. Luhrmann's film translates the tale of two feuding families in 16th-century Verona into a 20th-century turf war fought by two mob families.
Luhrmann uses MTV-style quick cuts, pop music, and designer fashion to update a Renaissance text for contemporary teens. His "Romeo + Juliet" illustrates perfectly the idea of artistic appropriation, which is the act of revising and altering an earlier work in such a way that brings out new dimensions of meaning in the original text. Screening Luhrmann's adaptation for my class allowed my students to immediately grasp the cultural importance and artistic value of appropriation.
For my course on Techno-Orientalism, which explores the way that the United States and Europe have constantly drawn upon Asian imagery to represent the hi-tech future, a course which I taught once at Northwestern and once at Columbia College, I screened films and television shows spanning nine decades, from Fritz Lang's 1927 silent masterpiece, "Metropolis," to Ishiro Honda's 1954 genre-defining classic "Gojira," better known in this country as "Godzilla," to more recent productions such as the 2002 Joss Whedon sci-fi television series, "Firefly," and Korean auteur Chan-Wook Park's 2006 romantic comedy, "I'm a Cyborg, But That's OK."
I bring up these examples of courses that I have taught on cultural theory, aesthetics, transitional history, and styles of representation and performance -- none of which were taught in Film Studies courses -- in order to demonstrate that professors in departments other than Film Studies departments teach film and television, and need to use high-quality DVDs in order to effectively instruct our students.
We use media as examples and points of discussion, as historical artifacts and evidence of certain worldviews, and as art objects that correspond to theoretical concepts.
We professors in Cultural Studies, New Media, Performance Studies, Asian-American Studies, and Comparative Literature need to use film and television as much as film and television departments need to use books.
And we do not always need or want to show films or television shows at great length. We very often need to show only a scene or two of each movie or program.
In the case of "Metropolis," I need only show that the Robot Maria is dancing in a nightclub called the "Yoshiwara," the name of the red-light district in Edo, now Tokyo, to make my point that Asian references have populated Western science fiction for a very long time.
When analyzing a film at greater length, I often need to show several clips from the same DVD, or clips from several DVDs during one class session.
In my freshman seminar on the films of Ang Lee, I needed to show several clips from each film in quick succession in order to point out the recurrence of certain themes and stylistic devices in Lee's work, such as his frequent use of the mid shot, his fondness for setting scenes about psychological or social freedom in the desert, and his penchant for scenes without any dialogue at all.
I also frequently assign my students the responsibility of bringing in their own movie or TV clips to show to their classmates, usually as part of required class presentations, and my students usually want to show several clips from one TV show or clips from several TV shows as part of their brief presentations.
Because my time as an instructor is limited, and because I impose time constraints on my students' presentations, my students and I need to extract clips from DVDs and "cue" them to show one after the other, in quick succession, rather than fast-forwarding through two-hour films or one-hour television episodes, or fumbling with a DVD player to switch out discs.
Ripping DVDs and extracting clips is by far, without question, easier and more utile for instructional purposes than either of the two options just mentioned. As teachers, we hope to do everything possible to create smooth transitions from one object of study to another over the course of a class session without unnecessary waiting or disruption of discussion.
The capacity to extract clips and pre-cue them for our lectures and class discussions will greatly enhance our ability to use our classroom time effectively and efficiently, and will enable us to provide our students with the best possible conditions for their learning.
I would also like to mention that in my experience, every time I screen clips from a film or TV series, at least one or two students from my classes buy the DVD of those media tests. In other words, I believe that by teaching media, I market media.
I allow students to sample and develop an interest in media productions to which they have never been previously exposed. Every time I screen media clips for students, in other words, I increase the profits of the media industries.
In conclusion, there is no reason that extracting high-quality clips from DVDs should be an acceptable practice for Film Studies professors, and not for professors in other fields. I support broadening the current DMCA exemptions for circumventing DVD encryption in connection with classroom teaching.
Thank you very much.
MS. PETERS
Thank you.
MR. KASUNIC
Is Barbara Baraff here?
(No response)
MR. METALITZ
Thank you very much. It's good to be back here. It's good to see all of you here again so youthful and energetic, and I appreciate seeing all of your -- of this.
I'm actually quite fascinated to hear about a lot of the exciting pedagogical uses of the products of -- mostly one of my clients, the Motion Picture Association, but also potentially the other clients that I'm representing, and how they're being used in higher education today.
I am here on behalf of nine copyright organizations, alphabetically listed starting with the Association of American Publishers, but I suppose for this -- for this segment we're mostly talking about audiovisual material.
And the particular exemption that is listed on the agenda today, Proposal 4(A), does deal with face-to-face classroom teaching by college and university faculty, including teachers in K through 12 classroom. I don't think we heard any testimony about K through 12.
And one point I did want to make is that this proposal, unlike some of the others that have been put forward, wasn't limited to clips, but most of the testimony we heard earlier was about clips. So, let me focus on that, and really on the issue of the existing exemption that is in effect now until October, 2009 and what should come after that.
As you know, the Joint Commenters are -- copyright industry groups are not opposed to a recognition of an exemption along the lines of the existing exemption for film and media professors.
We did have some narrowing proposals to make, and I will, just for the record, call your attention first to page 8 of our submission where we speak generally about some of the narrowing that would need to be carried out, in our view, if, as the Office proceeds down the road, the path that it first blazed three years ago, of defining or at least refining an administrative exemption based on characteristics of the use or of the user, which is a new -- new interpretation, a reinterpretation by the Office of the statute.
Those -- and this would be a theme that you'll be hearing throughout the next few days at these hearings, where we think that many of those narrowing principles ought to apply across the board.
And then with particular respect to Proposal 4(E), we have some more specific proposals for narrowing that I found on, I believe, pages 29 and 30 of our submission. But I'm not going to go into those today. I think that would be more focused in Washington. And instead look, really, at 4(A) as it's been presented here this morning.
As I said, the question is not about the validity or the value of the kinds of uses that my colleagues from U.C. Berkeley have talked about. That's really not in question here.
It's really -- the issue before this Panel is the prohibition on circumvention under Section 1201(A)(1) of Title 17 impeding these types of uses in the sense that Congress intended when it passed this statute, and in the sense that the Copyright Office and the Library of Congress have applied that standard over the past nine years.
There's a threshold question among the burdens that the proponents of the exemption have to meet. One is, of course, to establish that the uses we're talking about are noninfringing. And I certainly didn't see anything here that would cause me to question that in terms of the clips that were shown and so forth. So, that's not really the issue.
The issue primarily is whether it is necessary to circumvent the access controls such as CSS on DVDs in order to achieve those -- advance those objectives and make those noninfringing uses.
And the standard that the Office is applying has been quite clear since the beginning of this -- since the first of these proceedings in 2000 based on a host of precedence in the copyright law, which is that it's not simply a question of what's most convenient, or what is simplest or most attractive necessarily to use, but whether the noninfringing use can be made without circumvention in a manner that meets the -- that meets the pedagogical needs.
As the Office put it in its 2006 recommendation, it found that as far as the film and media professors were concerned, they had made the case that the alternative methods that were then available were wholly insufficient for pedagogical purposes. They had shown that in their teaching they had to demonstrate what only may be revealed by use of the DVD version by stripping away the access control and extracting clips from the DVD version.
So, the burden that the proponents have to meet this time is really to establish that in their uses, the uses that they want to make -- using film as a historical or sociological document, as Professor Handman indicated; using it in the language teaching settings that Professor Kaiser indicated; showing it as an art object, as Professor De Kosnik indicated -- are those objectives -- is it wholly insufficient to use other means to display these clips in their classrooms, other than circumventing CSS or whatever access controls apply and displaying the resulting clips.
Now, I don't -- I think it's worth pointing out a couple of things with regard to this question of alternative means, alternative methods, alternative formats, which is really the key question here, and, of course, that is a changing world.
I think the proponents are absolutely correct that it's less and less viable going to VHS, for example, as an alternative that's readily available to faculty in many of these situations.
At the same time, there is -- are certainly new formats and new channels that can be utilized for at least some of the material that the proponents are talking about. Increasingly, audiovisual material, particularly current television shows, but also other material, is available online, through sources -- Web sites such as Hulu, where it is quite possible, as we explain in our submission, to pre-mark particular segments of a television program and then simply call them up and display them in the classroom without having to do any circumvention. Whatever. So, in many cases, there would be alternative formats available.
I'd also want to say that the alternatives that have been deprecated here regarding copying off a screen or a monitor to achieve these clips and then manipulate them and then do, really, all the things that the proponents are talking about in terms of showing clips in quick succession, jumping back and forth from one title to another -- all of those things certainly can be done by filming off the screen.
And I think the Panel would be aware -- and we'll hear testimony next week in Washington -- that those techniques are more and more readily available; the equipment is getting better; the quality of the images is getting much better. And you'll see some demonstrative evidence of this in the Washington hearing.
So, certainly equipment that is well within the scope of the Media Center at Berkeley, but, in fact, is probably in the living rooms of many of the faculty members that we're talking about, can be used to create -- to extract clips without circumvention that I think would -- I think it would be very -- it would be difficult to show -- and I think the evidence will show this in Washington -- it would be difficult to show that those are wholly insufficient for the pedagogical purposes that are described here.
I can understand the frustration here, because obviously the Copyright Office is not an expert in the dividing lines between academic disciplines, and those lines are never as clear perhaps as they seem to be from the outside.
So, what Professor De Kosnik says about the kinds of uses that she's making, even though those courses are not in the Media Studies department, that's certainly a valid point. But, I think, that the question that the Panel will have to -- or, that the Office will have to deal with in its recommendations is looking at all of these uses.
And we've looked at all of the uses that are stated in the submissions, and of course I'm seeing these for first time, but they're really quite similar to some that have been stated in the submission.
And when you're using film as an historical and sociological document -- when you're using it to illustrate the language points that Professor Kaiser talked about -- you obviously need a certain level of quality, but it strikes me as quite intuitively obvious you don't necessarily need the same level of quality that the Office found was needed by the Film and Media Studies professors three years ago, and that made any other alternative wholly insufficient for their pedagogical purposes, that those classes were teaching something that simply could not be taught except by exacting clips through this method of circumvention.
So, I don't think the case has been made that that is true for any of the examples that have been given here that are merely talking about the content of the film, putting it in context, looking at it from different angles, repurposing it in some very creative, innovative, and, I'm sure, some educationally valuable ways.
But the real question is, Is the existing prohibition that's been in place since 2000 on the circumvention of access controls on DVDs impeding those uses to the extent that the Office has found in the past is necessary in order to justify an exception.
Again, based on what we've seen in the submissions and what we've seen this morning, I would certainly have to say in our view, the answer is no.
But I also recognize that some of this is dependent on what you will hear -- testimony you will hear in Washington, both as to alternative means, and also I should mention as to other ways of -- consensual ways of gaining access to this content that don't involve circumvention. I think you'll hear some testimony about that as well. But I think that's the standard, really, that the Office will have to continue to bear in mind.
Okay.
MS. PETERS
Thank you.
Okay. Let's start the question-and-answer. We're going to go over here.
David is suggesting that -- is there anything that anyone here wants to respond to given what Mr. Metalitz has said?
MR. HANDMAN
Well, just very briefly, I would like to point out that at U.C. Berkeley, one of the preeminent universities in the United States -- an old, established school, which I think is very similar to other universities of its size and age -- there are virtually no institutional resources to do the kind of alternative that Mr. Metalitz is talking about.
There are no cameras available to faculty, and even if there were cameras available to faculty to do the kind of filming suggested, the kinds of spontaneous need, the kind of responsiveness to teaching, in almost every case, I think, would preclude doing that.
There's a vast difference between using a desktop machine to extract a clip very quickly perhaps at home or other places and assembling this equipment, which would again at Berkeley have to be personal equipment, because it just isn't there to pull this off.
So, that's all.
MR. KAISER
And I would just add, even if Berkeley has the resources to go out and purchase such equipment, all of your local high schools would not have such capabilities, and they would then suffer. Language instruction at high school -- at the high school level would be precluded from this kind of use of film in their classes.
MR. METALITZ
Can I respond to that?
MS. PETERS
Yes.
MR. METALITZ
I think you will have testimony, and we will submit some information, about the resources that are available. We don't know what's available at Berkeley, because their Web site is so out of date on this, but certainly at City College of San Francisco, equipment that's comparable to the equipment that you will see -- the demonstrative evidence that you will see next week is readily available, at least according to the college, and, in fact, that seems to be true of most institutions of higher learning. Obviously, I can't speak to the situation at Berkeley.
And with regard to spontaneity, I guess everything is relative, and I'm not sure if you're suggesting that you would do this on the fly in the classroom; somebody would say, Gee, what about that issue and that film, and you would then decrypt a DVD and show a clip in real time that hadn't been suggested until that class came.
I would suggest that obviously there's preparation involved in any of these things, and I'm not sure that it's a legally -- if there's a difference whether it's happening at home in your den or in the Media Center at the university.
Spontaneity obviously is a factor in determining fair use, but I'm not going to question whether any of these uses are fair use. I would just think that the kinds of thoughtful, intriguing uses that you've talked about here are probably things that you think about before you walk into the classroom.
So, some preparation -- the fact that some preparation is needed shouldn't be a disqualifying factor.
MS. De KOSNIK
I have a response to the earlier comment.
On the point of Hulu, which is a free, online archive of some television shows, I'd like to say you cannot edit Hulu videos. You cannot construct several clips, a series of clips from different shows using Hulu.
Not all television programs are available on Hulu by any means. I've shown Flash Gordon television series, you know, episodes from the 1950s, which are on DVD and not on Hulu. I've shown Japanese-animated television series not available on Hulu.
In terms of -- in response to the filming-off-the-screen, filming-off-the-monitor alternative means proposal, this is a problem comparable to locking the book. You cannot ask students to flip through a locked book.
As a teacher, one could copy entire passages of a book onto a blackboard and ask students to copy those words onto their notebooks, but this would simply be highly inefficient and not the most rapid means of teaching or learning available today. Asking us to film off a monitor is akin to going back to copying whole passages to a blackboard, as my mother had to do in the Philippines in her village in the 1940s.
In terms of not needing the same quality in non-Film and Media studies courses as Film and Media studies professors and students require, this institute -- if that were accepted, this would institute a second-class citizenship for non-Film and Media Studies students, and it would shortchange the education of all but a handful of students on university campuses.
In other words, only the hundred or so students taking Film or Media Studies courses in any given semester would therefore be able to, as part of their education, view high-quality, best-quality film and video, and all other students on a campus the size of Berkeley -- 30,000 students -- would not be able to access that quality of instructional text.
That's my point.
MS. PETERS
Thank you.
MR. KASUNIC
Well, let's start with a general question. This applies to anybody, but I think it would be most focused to Berkeley professors.
One of the issues that was raised, and it was important in the exemption three years ago, was that that quality wasn't necessary for the pedagogical purposes.
Now, we understand that there could be quality differences in other ways of obtaining material, but why is that -- is there any reason why the quality is necessary to the particular -- to the particular pedagogy of the class?
MR. KAISER
Well, certainly for foreign language instruction, having as clear an audio track as possible is essential for the students to be able to understand and differentiate between the sounds of a language that they are in the process of learning. Sounds that they don't even recognize as phonemes, because they're not phonemes in English or in their native language.
To take that audio that is in digital form, run it through a speaker, capture that again, and then play it back out through a speaker a second time is going to denigrate that audio track significantly.
MR. HANDMAN
I'd also like to suggest that a large portion of materials used in classrooms outside of Film Studies are subtitled. And subtitling is really an iffy proposition. Sometimes it's okay, but very oftentimes it's difficult, even with a high-resolution image -- a primary, high-resolution image. And filming that stuff off screen is going to degrade the image even more. So, that's one issue.
The other issue, which has just flown out of my head, but I'll remember, um -- I forgot.
MS. De KOSNIK
While you're thinking about that, I'd like to say that critical understanding and analysis of any text, including a media text, depends on close observation. As professors, we call it "close reading."
We would never ask art history students to closely observe a painting -- a representation of a painting or a sculpture that was blurry around the edges. They could not sufficiently observe or analyze that painting or sculpture, which would be represented to them in a slide, if there were any kind of loss of clarity of the image. Nor would we ask students to analyze closely and interpret any film or video image that had some amount -- some quantity of loss in the quality of the image.
MR. HANDMAN
Well, one of the things I'm a bit concerned about is that a lot of this discussion seems to focus, I think, on feature films, on movies, the movies; right. The kinds of stuff that Film Studies uses.
In fact, the vast majority of materials used on the Berkeley campus and other campuses that I know of are documentary in nature. They're either primary-source material, things like news reels, news, or produced documentary stuff. Produced documentary stuff almost always includes primary source footage in it. In other words, it includes archival material in it. The quality of archival material in nonfiction film, again, just like subtitles, varies radically depending on the filmmaker's expertise, what he or she could get his or her hands on, or whatever.
So, if you show a primary-source document embedded in a produced documentary and cram it through a third generation, you're going to get a pretty bad-looking image, an image that's very hard to -- as Abigail said, it's hard to read.
It's a primary -- it's as if you took a photograph of a micro form, a photograph of a primary-source New York Times from the 1890s, and then filmed it three times again. You're going to get -- you know, you're going to get a kind of loss of clarity that makes teaching very difficult, I think.
MR. KASUNIC
And do those types of works -- the documentary clips and the other works that you're trying to use -- do those generally contain access controls?
MR. HANDMAN
Yes.
MR. KASUNIC
On the DVD?
MR. HANDMAN
Yeah.
MR. KASUNIC
Well, to get some understanding of the relative differences in time and effort and what it takes to obtain material and not having had the -- I don't think that any of us have had the expertise in terms of actually decrypting a DVD, so can you just give us generally some kind of understanding of what it takes, how you would go step-by-step to get a clip from a DVD.
MR. HANDMAN
You mean, if it were not illegal.
MR. KASUNIC
If it were not illegal. Hypothetically speaking.
MR. HANDMAN
Okay.
I would do it in one of two ways: I could do this at home. I could do it after dinner. I could do it anytime. I would, on my Macintosh, use a software that rips chapters out of the DVD, and I would use an editing package like iMovie or Final Cut to excerpt the clip.
It would take me -- to excerpt the three clips or four clips up there would take me under a half an hour, under 15 minutes, maybe. The most difficult thing is getting to the piece that you want.
MR. KASUNIC
Well, just break that down a little bit more for us.
MR. HANDMAN
How would I actually do it?
MR. KASUNIC
Well, in steps. In terms of, you got the DVD and you got the software.
MR. HANDMAN
You take the DVD. You put it into your computer. You crank up the software page and you say, Give me Chapter 3. So, it rips Chapter 3 out and puts in on your desktop. This is hypothetically speaking, of course. It rips Chapter 3 out and puts it on your desktop. You invoke it into your editor and you say, I want from this point in to this point out. And that's it. Okay. You're through.
There are other ways of doing it. I mean, one could play the DVD through a converter into your machine and catch it on the fly and then edit it that way. But in any case, you know, you can do it anywhere. I could do it at the -- there's a café in the library, and I do stuff there. I take my Macintosh and do it while I'm having a latte.
MR. KASUNIC
Hypothetically.
MR. HANDMAN
Hypothetically. Hypothetically.
MR. KASUNIC
Now, there was also testimony that doing it in other ways -- obtaining those clips, for instance, with the video would be excessively cumbersome and difficult and expensive.
In order to assess that, what would be the steps necessary, what would be the cost, what would be the inconveniences in terms of doing it in that manner?
MR. HANDMAN
Well, I've never done this myself, but I would imagine it would be getting your hands on a fairly high-quality video camera, and getting your hands on a tripod or some stabilization mechanism; getting yourself a monitor that was high enough resolution, large enough, so that it made sense to do; getting the lighting right so that you didn't get shadows; taking time to set up the camera precisely so that it was focused on the image and the image was clear in your field; capturing that and getting to the point in the DVD that you wanted to capture; and playing precisely that and making sure that you synchronize the record function with the play function. Taking that file after you've done it in the -- assuming that you capture it on the DV, on the digital video, and then basically playing that through a converter into your machine, capturing the output --
(Technical problems with audio equipment)
MR. HANDMAN
So, I think one of the points to be made is that a faculty person could pull the former -- even a tenured faculty could pull the former operation off. Faculty can be trained. It's not generally known, but you can train a faculty to do new tricks. A faculty person can do this with minimum software and a minimum amount of training.
The other method takes not only abundantly more equipment, but a kind of expertise that most -- and time that most faculty simply don't have.
And again, I can't speak to every university. I know for a fact that community colleges are generally better equipped for various historical reasons than places like ours. You simply couldn't do this at Berkeley -- I mean, if you wanted to, unless you own your own --
MR. KASUNIC
Now, you said that you never did use a video camera.
Is there anyone here who did?
MS. De KOSNIK
Yes.
I've had students assist me with taping off of monitors, which involved checking out equipment from the Northwestern cage, which is the repository of all audiovisual media equipment, and it requires the steps of communicating to a student assistant what you need done; having the source video in some capacity; the student making a reservation at the cage; checking out the equipment under your EGIS (phonetic), your sign-off; bringing that equipment to wherever the monitor is that is going to be filmed; relinquishing the audio, although I know that you could do an audio out into the camera, if that's the kind of recording equipment that you have.
And even after you filmed the portion of the film that you need, you would still have to feed that file into some kind of editing equipment, usually, because you want to do a bit of testing, you want to make sure the image is captured.
So, regardless, there's no sort of scenario in which you extract the -- exactly the clip that you need in the format that you have it on your digital video camera and are able to just simply screen that. You would still need to do the intermediary steps of editing software.
MR. KASUNIC
Didn't Gary mention that after you extract the DVD, you would put it into --
MR. HANDMAN
Well, it's on your desktop. You just fire up your editor and suck it in there. I mean, just import the file that you just -- yeah.
MR. KASUNIC
But you would have still have to go through that --
MR. HANDMAN
Right.
MS. De KOSNIK
The latter part would be the same, but it's the difference between sitting at your desk; using your thumb and your forefinger to open a DVD, open a piece of software just like Word, but a different kind of editing software, an audiovisual editing software; import the DVD files into that software, which takes some time.
The software pumps out a file that appears on your desktop -- usually an AVI file -- importing data to something as simple as Quicktime Pro, which you can upgrade Quicktime for $30, and using two arrows to move across that DVD extract to find the clip that you need.
That's -- so, it's a very basic -- it's a three- or four-step maneuver.
MR. KASUNIC
Well, then let me -- in terms of thinking about that and the difficulty, then the problem is -- it's bringing -- capturing it outside the computer, bringing it into the computer.
Now, this is something that my demonstrative evidence -- and I wanted to get opinions from professors, and I also want to get some information from Steve about whether this is problematic in any way.
I've used, for sometime, a program that -- capturing software, and so, for screen captures -- I guess I won't use the particular software name at this point, but I have -- it seems to be used in a similar way from what capturing the screen with a video camera would be. It's getting the analog output after the DVD has been decrypted, and is being rendered in analog form to be used by I [sic]. So, this -- and there's no changes to the setting.
So, I've done -- captured a couple clips, and there just happens to be no specific choice in terms of what the DVD was. It was the one that had not been returned to Netflix yet. And it was, "O Brother, Where Art Thou?"
And so, let's just see if --
MR. HANDMAN
Again, how was this done?
MR. KASUNIC
It was capturing software that can capture individual images, or it can capture video clips from the output of the screen.
MR. HANDMAN
So, it's like Snapz, or something like that?
MR. KASUNIC
Snapz, SnagIt. Many other types of --
MR. HANDMAN
Yeah.
Well, this looks like crap compared to what you can do with other stuff.
MR. KASUNIC
Well, thinking about some of the different issues, because in terms of being able to view subtitles, being able to view audio quality...
(Playing clip)
MR. KASUNIC
And now, just for some other image, I also, on the same DVD, just captured some of the previews and thought it included the warning screen. And again, no selection here. It's just what was available.
MR. HANDMAN
This is the same software?
MR. KASUNIC
Yes.
(Playing clip)
MR. HANDMAN
So, are you suggesting that this is not bypassing circumvention because it's recording off the screen?
MR. KASUNIC
Well, I will leave that to Steve. My sense is that this is obtaining it from the screen output in exactly the same way that a video camera would obtain that same screen output, except you're not using a camera.
So, my sense would be that it is not -- I don't know -- I'm open to other people having different views of this.
This is just the other preview. And I think we can probably stop that now. Thanks.
And one thing I have been requested to expose is that this was, in fact -- SnagIt was the program used. So, just -- it's available for purchase. It's not a free download, but it cost for this particular version. I think there may be a number of other ones. It's 49.99.
MR. HANDMAN
Can I suggest that there are other ways besides the ripping that I mentioned. And I'd be very curious to see whether Mr. Metalitz feels that this is a bypassing circumventrical [sic] way.
The way in fact that I personally would do this if I were to do -- if I were to do it, would be to play the DVD on a standard DVD player through an analog-digital/digital-analog box, AD/DA box, which converts the signal to an analog signal and then resends it out as digital, and capture it with iMovie or Final Cut.
So, I'm not ripping anything off. I'm playing the work through a box that converts it into a different type of signal, and not really -- I mean, technically not decrypting anything. I'm simply playing it through this thing and sucking it up on the machine end.
MR. KASUNIC
That sounds like that's part of the problem that was being presented before -- is there's a number of different steps. Here, you're not leaving your computer at all, and it's --
MR. HANDMAN
Well, you need three pieces of equipment, rather than one piece of equipment. You need a player or a box and a computer. But it's still easier than filming off screen, because you don't have to focus anything. You just play it, capture it, and edit it.
MS. De KOSNIK
But in terms of this, which is using some kind of screen capture technology -- well, there is some artifacting, as you can tell. I mean, in both sound and image there is a stutter. And also, especially in the green screen in the previews and even in here you can see some artifacting, some pixelation.
So, there is sort of an element of asking students to read a book with pages torn out or read a book with blurry words or something. I mean, it's not illegible, but students are used to viewing video of a certain quality, and it is strange for them and sort of hurts their eyeballs to not have that quality.
But I will say that if this is not decryption, I mean, if screen-capture technology is permitted, um, sure. I mean, great.
Then let's say that we can capture clips using SnagIt. You didn't rent a camera and position it in front of your monitor. Why didn't you do that? Because it's a pain in the behind. You would rather do a screen capture using software on your existing machine than get a different machine and position it in front of your monitor.
MR. KASUNIC
Well, the reason I did it was so I could bring it here and show you, but yeah.
So, Steve, do you -- I know that this is -- that you aren't necessarily -- or, at all prepared to address this particular technology, but -- and we'll have another opportunity to do it in Washington, but do you have any reactions to this in terms of -- and certainly there is a somewhat diminished quality, but again, as we started off talking about, that just because students may expect -- I teach, and I know students expect many things that I don't give them.
And the expectation in terms of what is important to us is not necessarily just what their expectation is, but the pedagogical importance of that, or the particular use, if it's not completely insufficient for the purposes.
So, is there any -- do you have any views in terms of whether capturing just the screen output would be a problem?
MR. METALITZ
I'm certainly not going to give an opinion on that on the fly, but I'm sure you'll give us a copy of what you've just put in the record here, and hopefully we'll get to deal with that next week.
I'm not disputing that some means of accomplishing this goal are more convenient than others. It's quite clear that mere inconvenience is not the test that the Office can apply. It's not the test that Congress wanted the Office to apply, and neither was hurting the students' eyeballs.
So, everything exists on a spectrum, but the relative level of inconvenience, I'm not disputing that some methods are much more convenient than others.
MR. KASUNIC
But if this was using a similar method to a video camera of obtaining that, then the fact that it was more convenient wouldn't really be an issue, if it's capturing in the same general manner, basically an analog hole issue.
MR. METALITZ
Well, I think -- I can understand why the faculty -- and it's perfectly reasonable that they want to use the most convenient, legal method that's available.
MR. KASUNIC
Let me ask one question, and this will come up again in the next panel as well, but there was an interest in providing students with the ability to decrypt.
Is there any reason for concern, given the fact that we know not to -- not to cast dispersions on students generally, but given the fact that we have seen many students not have a certain amount of respect for copyright, if there is encouragement for decrypting for one purpose, is there necessarily going to be any differentiation between encouraging decryption of DVDs and -- you said that, I think, Abigail -- that this actually enhances the market. It's almost a marketing device for DVDs.
Well, if they're getting this through decryption, isn't there the danger that in terms of that marketing device they won't be enhancing the market, but will just be decrypting?
MS. De KOSNIK
Well, fortunately, we don't have to show our students how we acquire media of any kind in order to teach with that media.
So, we are not giving classes on how to decrypt or pirate or anything, or even how to use editing software. If anything, you can look to Film Studies departments for those classes.
So, in Performance studies and in Cultural studies, you know, there's no knowledge of technological tools that we're making available to students.
And DVDs -- acquiring DVDs legally by purchasing them is still by far the most -- the easiest, most convenient way for students to get a hold of media that they like in a world of multiple, multiple media channels today.
There's a problem of how to market new media, a different media to young people, and school is a great place for students to learn about new products they would never have otherwise encountered.
So, I definitely believe in terms of the influence that we have, just how we influence student behavior, for sure we influence students directly to go out and acquire these collections for themselves, and I don't think that we've ever influenced students to behave in any illegal fashion.
MR. KAISER
I would also echo Abigail's comments. Students in foreign language classes learn about foreign language film. It is not something that they have a great deal of exposure to for the most part.
And they become much more interested in foreign language film. They want to learn the names of the films. They want to go out and rent the films or buy the films. I see this all the time in my classes.
They are not interested in going out and making clips from these films. They have no purpose for those clips. There's no real reason for them to create clips. And so, I don't think that would be a particular problem.
MR. KASUNIC
I guess the point was that the same software that you make the clips can also make reproductions of the -- can also decrypt the entire DVD; right?
MR. KAISER
Yes.
MR. HANDMAN
Yeah, but -- yeah. I mean, I guess that's true.
One of the things also that I think goes on in -- or, should go on in most of these classes is, you know, a discussion of what media is about these days and what it means to be a responsible citizen in a media-soaked environment.
And I think -- you know, again, what I said about faculty, I think, is the same about students. You know, they're going to do -- they're basically going to do what they do. I don't think asking them to show a clip in a classroom or encouraging them to show clips as part of their student work in a classroom is going to open floodgates that wouldn't have been there before.
It's like the forbidden fruit thing. You show them something and suddenly they go wild and de-encrypt everything. I just don't think that's the case.
I'd also -- by the way, yesterday I was talking to Professor Schoeler (phonetic) -- Jeffrey Schoeler, who teaches in Film Studies, and this echoes these two comments.
I told him -- I said, I don't get what the deal is. But he said there's not a case in which I don't -- he teaches an avant-garde -- sort of an arcane, avant-garde film class.
He said, "There isn't a class that I don't teach in which I use clips in which I don't get a half a dozen people coming up after class saying, 'Show me -- Can I see the case, because I would like to go out and buy this stuff.'"
MR. METALITZ
Well, of course, this proposed exemption that is on the agenda today does not refer to students, but it's certainly true now that the Copyright Office is deciding to go down the road in defining exemptions in terms of users and uses -- specific users and uses, there's a much greater comfort level of how this exemption would be used in the hands of responsible faculty members than it might be if it were open to students in all these areas as well.
And so, I guess I'll just leave it at that.
MS. PETERS
Okay. Good.
MR. CARSON
I think you've acknowledged that the end result of what the three protectors are doing is something you've got no problem with, which is fine, good. You've also acknowledged there are ways in which they could do it that doesn't involve decryption.
Let us know, then, what's the problem with them decrypting in this case? You've told us there are other ways. Why do we care? Why do you care that they shouldn't be able to use what they think and what we might all agree it's the optimal way to do it. Why make them leap over a couple of other hurdles --
MR. METALITZ
Well, I think there's two reasons. One is, we're not here to exercise our personal preferences as to what the rules ought to be. Congress set the rules. Congress gave you certain authority to recognize exceptions and set up the standards for what those would be. Obviously you have to apply those based on the evidence, but we're not just talking here about our personal preferences. We're -- or institutional preferences necessarily with my clients.
I think the other point is that there is a -- I don't think anyone -- especially when you are defining exemptions in terms of uses and users, there's obviously some leap-through to other types of users and enforcement issues.
And we don't have -- we can't really assume that everyone will -- that every specific issue will always be observed in all instances.
The whole -- I think one of the main reasons why Congress was concerned about this area was to try to discourage the development and proliferation of markets and certain inventions of tools. And that's certainly -- I don't know if that answers your question.
MR. CARSON
Well, you've got remedies against circumvention tools; right?
MR. METALITZ
Yes.
MR. CARSON
What I'm really getting at is, one of the things we certainly considered is what the -- the exemption in front of us is, if this exemption were to be granted, what would be the harm to the copyright?
I'm trying to understand.
What would be the harm to the copyright in this particular case if the exemption that's on the table now were granted?
MR. METALITZ
Well, I think you will hear some more about licensing and permissions markets in Washington. And that might be -- that could be part of it, but I think the other concern is simply the proliferation of exemptions that allow the use of these tools.
MR. CARSON
Okay.
MS. PETERS
I don't have any questions, so we're actually sort of on time. We're going to take a five-minute break.
MS. PETERS
Okay. We're going to start with the second proposed class, and the second class is "Audiovisual works released on DVD, where circumvention is undertaken solely for the purpose of extracting clips for inclusion in noncommercial videos that do not infringe copyright."
We'll start with Fred von Lohmann representing EFF, and then move to Steve Metalitz, representing a variety of copyright owners.
So, if you are ready.
MR. von LOHMANN
I will be, as soon as I find my notes. Here we go.
Good morning. Thanks to the Copyright Office for having these hearings in California. It certainly makes things easier for those of us on who are on the West Coast.
The proposed class, as Register Peters mentioned, is "Audiovisual works released on DVD where circumvention is undertaken solely for the purpose of extracting clips for inclusion in noncommercial videos that do not infringe copyright."
So, let me begin by saying a few words about what I think the problem is that this proposal intends to address.
So, we have today astronomical growth of what many people have called "remix culture." And of course, remix culture is not new. We have had fans, members of the public creating derivative kinds of fan-driven works for a very long time. One need only think about things like fan fiction and the long history of fan fiction to realize that.
But what is new is the dramatic move of this remix creativity into video. And of course, one need only look at a site like You Tube and the rise of all of its competitors to see this.
And so, as we put in -- in our submission, together with this proposal, there's a considerable amount of evidence to suggest that remixing video, including video from DVDs, is now a mainstream activity and likely to only become more so.
So, the "Pew Internet & American Life Project" in 2007 had a survey that already showed that over 25 percent, 1 in 4, online teenagers, teenagers who use the Internet, had already remixed content in creating their own. And that was in 2007. I think we can only imagine that that number is even greater today.
We have the evidence submitted by Professor Wesch from Kansas State University. He is probably the leading ethnographer of You Tube. He and his team at Kansas State have been looking at large numbers of You Tube videos to understand what people on You Tube are doing.
And he found that roughly 2- to 6,000 remix videos are being uploaded each day on You Tube on the basis of his research. Those are remixes that include clips that are or are likely derived from DVD. So, particularly, video remixes from sources that appear to be movies or television released on DVD.
We, of course, have evidence of entire genres of remixed videos that are now in place. So, Professor Wesch points to things like the trailer mash-up genre where he estimates more than 13,000 videos on You Tube in this genre of mixing new trailers essentially, or movies. We have examples of those cited in our submission.
Over 10,000 videos on You Tube of film analysis. I personally think this is a very exciting category where people actually are doing film criticism with the movies they are reviewing. So, rather than we write our review, you go watch the movie, and then you come back and think about what we said, you can actually see the review on top of the movie as it proceeds.
And then of course we have the example of vidders, which we mentioned. I think you'll be hearing from some of the vidding community in Washington, D.C. next week. Over 10,000 videos that community has created, all of which are built on remixing video from movies and television shows.
And of course also Mimi Ito's submission in support of our exemption, citing more than tens of thousands -- actually, 30-, 40,000 videos a year in the so-called anime music video genre where books are creating new videos to go with music that are taken from anime films, largely Japanese-animated movies on DVD.
So, we have this activity. There's really, I think, no question that that's going on.
The problem we really have here is inadequate knowledge regarding the legal strictures on how one takes clips from DVDs.
I think we actually had an illuminating little exchange as a result of Mr. Kasunic's example just moments ago about exactly what is or what isn't legal for taking a clip from DVDs.
If those of us who are well counseled and steeped in this have a hard time figuring that out, one can only imagine what the teenagers who are engaging in this remix activity must face.
In fact, it's bizarre in many ways, and certainly in talking to members of this community, they have been flummoxed at the notion that it is illegal to rip a clip from a DVD, but that it would be legal to do a cam of a screen, and it would be legal to use screen cap, maybe, or, in fact, it is more legal, at least from a circumvention point of view, to actually download the entire movie from the Pirate Bay and take the clip, discarding the remainder of the movie -- that that, at least from a 1201 point of view, is far preferrable. All of this seems very confusing to lay people. And I think you'll have more testimony next week from Professor Cappa (phonetic) on that as well.
So, the problem really is that 1201 has become a trap for the unwary for this particular category of new creators. It has become a situation where they have no awareness of the law when they create the videos, and yet that awareness can become palpably obvious when they are either sued, or as is frankly quite a bit more common, they see their videos taken down by a DMCA takedown request, or there is a cease-and-desist letter delivered to them if they try to use or distribute their remixed creativity.
At that point, perhaps they do call an attorney. Often they call me. And at that point they do become aware that they have unintentionally, and for purposes that I would argue are entirely noninfringing, nevertheless crossed the legal trip wire that they had no awareness was there.
What that means for them is, it becomes very difficult for them to avail themselves of the DMCA counternotice procedure that is contained in Section 512, because certainly if they talk to an attorney, the attorney will tell them, "You run the risk that you could be sued for a 1201 violation, even if you think your activity would otherwise be of fair use," therefore making it more dangerous for you to essentially tweak the tail of a rights holder by sending counternotice or otherwise insisting on your fair use right.
In other words, by the accident of having taken a clip by ripping DVDs, the method that is, as we just heard, the most convenient, and quite frankly the most widely used method, you've suddenly found that you are, in essence, less able to assert your fair-use privilege because of the fear of 1201 liability. So, that's the problem.
So, the proposed exemption designed, intended to address that problem as narrowly as possible.
So, as the Copyright Office invited in 2006, we began with a general class of works, audiovisual works on DVD, and then we refined it with reference to the use and users to avoid over-breadth. So, we specifically said noncommercial uses.
Here I'm sensitive to the fact that it is precisely the noncommercial user, the amateur creators who are the least likely to have the legal sophistication or the access to the legal knowledge to get this right in the first instance.
One might imagine, for example, that a commercial video producer, say, the "Daily Show," for example, if they wanted to take a clip from a DVD -- and presumably their attorneys would advise them to set up a camcorder to do that -- that obviously is not the case for most noncommercial creators.
We also cabined it here up to just noninfringing uses. Surprisingly, from my point of view, the Joint Commenters, and several others who have opposed this proposal, have sort of risen up to complain specifically about our records of cabiness [sic] to noninfringing uses.
It seems to me that is exactly the kind of refining that would avoid over-breadth. So, if, in fact, a user turns out to have crossed the line beyond fair use, and is found to be an infringer, this exemption would not protect them from 1201 liability.
Then, of course, we also cabined this to only apply to DVDs. And here in particular, as I'll mention in a moment, I'm sensitive to the four factors the Copyright Office is instructed to consider in this Rulemaking. In particular, the effect on the market for copyrighted works.
DVDs, as we've demonstrated in both the 2006 Rulemaking and also again this time, there is really, given the widespread availability of circumvention tools for years for DVDs -- there is really no plausible argument in my view, and certainly no evidence produced by those who oppose this proposal, that permitting noncommercial users who are noninfringing copyright to circumvent will somehow undermine the market for DVDs protected with CSS. If the widespread availability of those tools hasn't done so already, it's hard to imagine how this incremental change would make a difference.
So, again, the intent here really is to afford this community of creators their day in court, their ability to assert their free speech rights, their fair-use rights. To do so in a way where they don't face liability under 1201 before ever reaching that question.
Now, the Joint Commenters determined this from the other legal questions the Copyright Office is going to have to answer here, Are these uses noninfringing. Well, the Joint Commenters themselves concede that some of these uses certainly are.
And, in fact, considering the tens of thousands, hundreds of thousands of works we're talking about here, there's really no question that a large number, certainly in absolute terms a very large number, are going to be noninfringing.
It's hard to know in advance which will and which won't, but we can be quite sure that some are, and, of course, the proposed exemption is cabined to only apply to those that are.
These are noncommercial works, they are transformative in nature. They generally use only a small portion of the original.
I don't believe there is any evidence that this use is likely to harm any existing or potential market. In other words, under the four factors there are certainly many of these videos that would qualify.
So, the question becomes, Well, who should be responsible for separating those that do qualify as fair uses from those that don't.
And our argument is, it's the same entity that was always charged with doing that, namely the courts, and it is only by granting this exemption that those courts will have the ability to reach these questions, because otherwise, many of the creators would be found liable under 1201 and, of course, therefore have really little reason to reach the fair-use question.
In fact, copyright owners would have almost no reason to sue under their exclusive rights under 106, when, in fact, they would have an easier time of it under 1201.
So, turning to the statutory factors very quickly, the availability for use of the works, ironically while the Joint Commenters and Time Warner and DVD, CCA and others have repeatedly made the point that CSS, at least from their point of view, has increased the availability of audiovisual works for watching, the same CSS has also, in my view, reduced the availability of works for remixing, precisely because it has created this barrier, TPM, around the ability to take those clips.
The alternatives are inadequate. Under this factor, the Copyright Office has asked, Well, could you do something else.
And to return to the some of the themes that were touched on in the last panel, that certainly other alternatives exist, but from my perspective, certainly from the perspective of this category of users -- noncommercial, remix video creators -- the problem with those alternatives is they are not fairly accessible because -- not a lack of possibility, not that it can't be done, but that this category of creators don't know, and really have no realistic way of finding out, that this is what is required.
It also, of course, requires additional equipment, which I think the vidding community has submitted some information. I think you'll hear more next week about purchasing hundreds of dollars worth of additional equipment is not very realistic as well. And finally, those alternative are inadequate, because at least in many cases, video quality matters.
Lest we focus too much on You Tube here, the vidding community has for many years, rather than putting their videos online, preferred to show their videos at live conferences where video quality matters quite a bit.
And, in fact, even in the online computer context in our comments, I point out a video by a vidder named Luminosity called "Vogue." And I have links in our proposal to both the full-resolution version, as well as the version that's hosted on You Tube. And I would again urge the Panel to watch both of those versions and ask for yourself whether or not there has been a serious loss of creative impact of the point of that video when, in fact, that it's shown in a low-resolution, pixelated version.
So, the other issue -- and again, to return to a point I mentioned earlier, the harm to the market factor, in my view, is not here favoring the copyright-industry position.
As we have said repeatedly, there has been a widespread availability of free, easy-to-use, DVD-ripping tools for years. Those are mainstream tools.
In fact, as we point out in our proposal, those have been reviewed in the Fort Worth Star Ledger, USA Today, Mac World, PC World -- hardly the stuff of sophisticated computer hackers.
If the widespread availability of those tools hasn't eroded the incentives and reduced the availability of DVDs, it's rather difficult to imagine how permitting this category of users is going to make any difference.
And, in fact, if anything, I think this factor should cut the other direction, because we have a situation here where as to these remix videos, new works of creativity, the granting of this exemption will support, will help the availability of those works.
And in my view, there's nothing in the legislative history or in the statute that suggests that the works created by members of the MPAA ought to count more in terms of their value and their availability than the new works being created by these noncommercial, amateur creators.
And, of course, finally, I think the Copyright Office has said there are additional factors that you can consider, and I think one factor that really matters here that the Office should consider is the legitimacy of copyright law general. I think we should hesitate to embrace a view of the law that would turn all of these tens of thousands of people who take clips from DVDs to make these kinds of remixed videos -- to turn them all into lawbreakers, which in the absence of the exemption, based on the comments of the Joint Commenters, I think, would be the alternative.
So, I think I will stop there. I will just say finally that the Joint Commenters and some of the others who oppose this proposal have emphasized the importance of avoiding consumer confusion.
Quite frankly, consumer confusion is what reigns in the marketplace today, particularly vis-à-vis this category of creators. If one really cares about minimizing consumer confusion, the best thing you can do would be to grant the exemption, which would once again create the much more simple, much more straightforward proposition that if what you have done is a fair use -- if it is noncommercial, if it is not harming the market, if it's short excerpts -- if you pass on that, the legal outcome will not suddenly be altered based on which tool you may or may not have used in order to make your creation.
That's a rule that quite frankly I think the creators can understand, and more to the point, is a rule that we need the courts to address.
I think what we -- what copyright law, I think, could really use right now is some court precedence about exactly how we think about fair use for this new category of creativity. There are no court rulings on point.
And what I'm concerned about is that the use of 1201 to threaten folks who engage in this kind of creativity will actually leave us without judicial guidance for even more time.
MS. PETERS
Okay. Thank you very much.
MR. METALITZ
I'm surprised that Fred didn't start by talking about the new standard that he wants the Copyright Office to apply, because -- in judging whatever exemptions meet the qualifications of the statute.
Because I think he would probably agree that if that standard is not adopted, it's virtually impossible for his proposed exemption to become -- that standard is basically the standard that Congress considered and rejected in 1998.
There are many, many other opportunities that Fred's organization and others have advocated for in the ensuing eleven than years. That standard is, Go ahead and circumvent, and if we end up with what the end product turns out to be in fair use, then you have no liability for circumvention.
And in other words, there is no 1201(1)(A) liability in the absence of copyright. And that is not the law. It has never been the law.
Congress, it was presented with the option to make that the law. It declined it. It has consistently declined it ever since. And the Copyright Office, if it's going to follow the law, can't possibly adopt that interpretation. But that's really what his exemption boils down to.
He's saying, There's a bunch of activity going on here. Some of it is noninfringing. We agree that some of it is probably noninfringing, but, of course, it's defined so broadly, that whether we're talking about absolute numbers or relative numbers, there's also probably quite a bit of infringing going on. And if it turns out to be noninfringing, then all is forgiven as far as your violation of the law in terms of using -- in terms of circumventing an access control, which it's clearly specified should be protected.
I'm also -- I mean, it's really a question of whether we're here to talk about what copyright law needs, which was Fred's last -- or, what copyright law now says, what Title 17 now says, and the way the Offices consistently interpret it, which is not to say, If it might be, if it plausibly could be fair use, if there is any combination of possible worlds in which it would be fair use, this is the one -- then circumvention is okay, unless and until it can be proved to not be fair use. And that's just not the way the law reads, that's not the way the Office has applied the law.
The Office has said, and it said it in the -- it said that the proponent has to show that the use they're talking about is, in fact, noninfringing.
He can't show that, because in such a broadly described class, there's obviously going to be a lot of infringing uses, as well as potentially some noninfringing uses.
I've got to say also that this whole argument about the DMCA notices is -- and this is a trap for the unwary. It's one that's a red herring that I haven't been able to follow quite as closely perhaps as I should have. I'm not sure who's been caught in this trap for the unwary, but the idea that people who get takedown notices under Section 512 for material that is noninfringing would be inhibited somehow from asking for them to be put back under 512.
Given the experiences that everyone has had under 512, which is the put-back notices, when they are generated, are very rarely followed by lawsuits. And the fact that you can't face a takedown notice from the DMCA on a 1201 violation -- it's only for copyright violations. So, that can't be the basis for a valid takedown.
People who feel that their material is noninfringing have the put-back readily available to them. Very few of them use it, and there might be a lot of reasons why that's true, but it certainly is available.
And I'm sure that the EFF is helping to instruct people in when they should be using it and encouraging them to use it. That's how that is supposed to work.
It really doesn't have anything to do with the issues that we're talking about here. So, I think that threshold question really is pretty determinative of this exemption.
Yes, there's a lot of creativity. Some of the links that are in the testimony. Some of the examples. There's clearly -- there certainly is not infringing activity. There's clearly also a lot of infringing activity perhaps in some of the ones I've seen. Less, though, for the audiovisual, which is the only thing that's covered by the exception.
The sound recording is usually copied in its entirety, and so, we may have a different outcome there, but that's not -- I -- granted that's not really the focus of the proposed exemption.
The real focus of the proposed exemption is to try to persuade the Copyright Office to recommend to the Library of Congress to do what Congress decided not to do and what it clearly didn't want the Library to do, which is to say no circumvention liability, except when there's copyright liability. That isn't the law. That shouldn't be the law. And that's why the exception shouldn't be granted.
MS. PETERS
Thank you very much.
MR. von LOHMANN
Could I briefly respond?
MS. PETERS
Yes.
MR. von LOHMANN
I would just like to point out, we are not asking for what Congress considered and rejected in 1998. Of course, I will say I would have preferred if Congress had adopted the amendment at that time, but I fully understand and agree with Mr. Metalitz, that that is not something that the Copyright Office can amend retrospectively itself. Maybe we will get Congress to reevaluate that.
But what we've proposed here is considerably narrower than that, and it's narrower in exactly the ways that the rulemaking authority of the Copyright Office would permit.
So, rather than saying that for any noninfringing work, for any class of works, for any category of users, there can be no liability absent infringement, which is, I think, what the amendment would have done, and that is, I would agree, not within the Copyright Office's power to grant, what we have asked instead is for a class of works exactly as the statute conceives that has been refined with respect to particular users and uses, which is exactly what the Copyright Office itself said was within its power in 2006.
And particularly in here, I think, the most important point, after a consideration of the four statutory factors, I believe, with respect to DVDs protected by CSS -- we have made our point that this will not harm the market, given the widespread availability of circumvention for many years now.
So, we have not asked, for example, for this same exemption to apply to the Blu-ray or this same exemption to apply to other protected media forms where perhaps that record is not as vividly clear.
So, I would merely respond that we are not -- to use the colorful language from the Joint Commenters -- launching the Copyright Office down the slippery slope.
We are, in fact, asking for a specific, much narrower category in light of the realities of the evidence that's out there. There's nothing in the statute that says that is not appropriate. There's nothing that says that that is outside the Copyright Office's purview. In fact, so long as it does not infringe copyright caveat is something that Congress itself did in 1201(F). So, this is hardly the kind of thing that's unprecedented.
And certainly as to the 512 point, I think we're largely in agreement. I'm not saying that sending a 512 notice is appropriate for a 1201 violation.
What I'm saying is, if you have engaged in new remix creativity, and you are -- you do receive the attention of the rights-holders' attorneys, if you have legal representation that is qualified, that person will have to warn you that you have potentially created a liability under this other statute by accident, in essence, that may create a liability that would prevent you from wanting to insist on your rights.
So, as to Mr. Metalitz' question about, where does this happen in the real world, this happens at EFF all the time. We hear from folks who create remix videos who we're absolutely certain upon reviewing, that it's a fair use. I have no question about it whatsoever.
And yet I have to ask the question, "So, where did you get those clips? Did you rip those clips from the DVD, or did you set up a camcorder?"
And then after I get the answer, I'm often forced to say, "Well, you have to understand that while I think you have an iron-clad case on fair use, there are statutory damages available for the fact that you ripped the DVD, and if the copyright owner wanted to come after you, they don't have to sue you for infringement. They can just sue you for circumvention."
And after that conversation is completed, I certainly have had clients decline to insist on their free-speech privileges.
MS. PETERS
Thank you.
MR. KASUNIC
Well, I am struggling with some of these issues, but in particular I guess there's a number of things I want try and to touch on.
Let's start with where Fred left off in terms of the 512 issue, because this seems to be -- I don't think this has come up before in terms of the interrelationship between 512 and 1201.
We do know that there are many videos. Some of the ones that were cited in EFF's comments related to remixes like the "Brokeback Mountain" and "Back to the Future," and the others that are essentially using trailers or other portions of the DVD, and where there seems like there's been some acceptance that -- or, at least acquiescence in terms of not bringing an action against those. They're still up on the Internet. So, there appears not to have been a takedown notice since.
But this raises the issue that then in -- for many of these where there seems to have been a sense that these are noninfringing uses of that or acceptable uses of it, there really would -- if copyright owners decided to send takedown notices, there would be no recourse.
So, right now we may be relying on acquiescence, but all of the videos that have received a lot of popular attention -- now, copyright owners decided that they did not want those on You Tube or any other source on the Internet.
They could send takedown notices and there would be no recourse for that; is that true?
MR. METALITZ
I don't understand what you're saying. There's always recourse to takedown notices and put-back procedure.
MR. KASUNIC
But weren't you just saying that you cannot have a counternotice based on any circumvention violation?
You can only --
MR. METALITZ
You can't have a takedown notice based on a circumvention violation.
MR. KASUNIC
But if there is a claim that there that is an infringing use, can there be a request for counternotice? because this would -- I mean, this would all be based on the underlying --
MR. METALITZ
You're assuming that the creator of this remix says, Yes, I'm a copyright infringer, but I'm not going to be -- the 1201 violation, so I'm want it put back.
MR. KASUNIC
I think the claim would be that, I'm not infringing. It's a fair use.
MR. METALITZ
Well, that's different.
MR. KASUNIC
So, you can send the counternotice, and if it was put back up, then there would be the anticircumvention.
MR. METALITZ
Has that happened?
Have we seen lawsuits against these individuals for 1201(A) violations because they dare to put back something that they thought was fair use and that the copyright owner improperly issued a takedown notice for?
MR. von LOHMANN
I'm not aware of a suit in that context. All I'm aware of is clients who have chosen not to tread that path for fear of that outcome.
Now, just to clarify this, as Mr. Kasunic points out, there are plenty of these videos up there, but I don't agree that there is universal acquiescence on the part of rights-holders.
In fact, in our proposal we point out that several of those trailer remixes have been the subject of takedowns. So, the acquiescence here is spotty.
There have been plenty of examples of this kind of creativity being taken down. We've highlighted some in our proposal. There are certainly many others I'm aware of as well.
And often the creators, then, are sort of hounded off of one site, post on another, and sort of -- there's this hopping around, losing audience at each hop. It is certainly far from ideal.
And of course, in the case of You Tube, if you receive more than two DMCA takedown notices, they cancel your entire account, which will then take down all of your videos. Whether they are remix or original or not, they're all gone.
So -- but this is somewhat -- I will agree with Steve, this is somewhat separate. We could have a long and fruitful debate about the flaws in 512 with respect to protecting fair use, but I just want to again point out, my argument is simply that the overlay of 1201 liability makes it very intimidating for anyone who might want to insist on a noninfringing use. And certainly, Steve's clients have been uniform in insisting that fair use is not a defense to a 1201 violation.
In fact, just this week here in the Real DVD case, they were renewing that same argument. So, if we take them at their word, then we do have the very dilemma I pose, which is the courts may never get to these interesting fair use and -- I think later today we'll also hear some debate about the scope of Section 117 -- courts may not be able to reach some of these unresolved, jurisprudential questions if, in fact, there's 1201 liability that would come down on these folks if, in fact, the court would ever reach these other questions.
MR. KASUNIC
And part of your argument was that we need courts to begin to address that, but the courts aren't going to even have the chance to address it if there's no counternotification sent and the willingness to litigate the issues. So, if --
MR. von LOHMANN
Well, there's willingness to litigate the issue. Don't get me wrong. I'm more than happy to bring those cases.
What I'm not willing to do is bring those cases where my client would be 100 percent certain to lose, at least that's the position of the Joint Commenters and the MPA and others. If my clients would be certain to lose on the 1201 claim, then it would be much less attractive to get into that litigation.
And I think that's what you're going to see from this category of activity that draws from DVDs, which, again, is huge.
MR. KASUNIC
And that must, then, be the only response you're getting. You said if you ask potential clients how they did this, if they could bring that argument without that specter of 1201, had they used the video camera or used some other way of getting that, but that's just not happening.
MR. von LOHMANN
Right.
Here the hurdle is one of lack of knowledge of legal sophistication. That, I think, is the biggest barrier to the alternative options that the MPA and others have urged. It's not that it's infeasible.
Now, it may well be infeasible for some of these creators, but it's just something that it takes quite an advanced copyright lawyer to distill the difference between the cam, the screen cap, the download from Pirate Bay, and the ripping of DVD.
In the real world -- certainly this is what I've heard from folks in the vidding community and others who I've spoken to -- the easiest thing to do, the thing you discover if you type the words "How do I take a clip from a DVD" into Google, is to use a program like HandBrake or DVD Shrink or any of the number of others that are there. You just heard in the panel before us that even the Film Studies people understand that that is the easiest, simplest, cheapest mechanism to use.
MR. KASUNIC
Well, doesn't that argument, in terms of the unsophistication of users, in some ways cut both ways, that if there is the creation of an exemption, are they going to be sophisticated enough to understand it?
MR. von LOHMANN
And here again, my argument is not that I think the law is going to teach the world. I'm a little -- I'm not quite that naive.
So, the goal here is -- the creators are going to do -- they're doing what they're doing now. They're going to continue to do what they're doing in the future. They are, perhaps sadly for them, going to be unaware of our very erudite discussions on this subject matter.
The place that will matter is when there is, as you point out, a lack of acquiescence on the part of a copyright owner, and that copyright owner decides to bring the matter into court or to send a cease-and-desist letter or send a takedown. That will be the point where someone with legal sophistication will become involved.
So, that's -- it's not that I think the decision one way or the other here will change behavior as much as it will change the risk profile and the ability of people to actually, you know, fight against -- against a copyright owner who objects.
Obviously, there's no problem in all the circumstances where no rights-holder ever objects. The problem arises where a rights-holder does object, and essentially 1201 gives them a trump card for fair use.
MR. KASUNIC
Well, Steve, do you think that that -- is that problematic where the law isn't changing the behavior, but is just fitting behavior so that -- I mean, does this lead us to potential problems in terms of having to just accommodate whatever people feel like doing?
MR. METALITZ
Um, well, I think that's certainly the signal that would be sent if this exemption were to be adopted, which is, it's okay, go ahead. If you're noncommercial and if you're using a DVD, those aren't the type of -- I mean, it's not just us saying it, but the courts have said it too regarding a 1201 violation.
But the question again is, persons who are users of copyrighted work -- if such -- in a particular class, such persons are or are likely to be adversely affected by virtues of prohibition and their ability to make noninfringing uses.
So, there haven't been any cases in which the scenario has played out, and the scenario is, you post the remix online, the copyright owner sends you a takedown notice, you send a put-back notice, the copyright owner sues you, and -- for infringement or -- and has a count of 1201 violation, which you will lose.
That's the scenario that Fred is spelling out. It hasn't happened. Is it likely to happen? Is it more likely than not to happen in the ensuing three-year period? What is the evidence for that?
This is really tied into the standard that you set, the reason that Congress says it has to be a noninfringing use that is or is likely to be impeded.
So, you first have to have a very, very high level of certainty that it's a noninfringing use. I don't think this class comes anywhere close to that, but even if it did, you'd have to say, Well, here's the scenario in which that noninfringing use will be impeded.
How likely is that to happen?
MR. KASUNIC
But can't the prohibition be impeding the noninfringing use just by, in fact, chilling the user from going forward to --
MR. METALITZ
Well, the evidence from the person who's counseled these people is that it's not impeding that use at all right now, because they're doing it.
In fact, 100 percent of them are doing that, rather than using other methods, which, as he points out, could be infringement. That's his testimony, and I really have no firsthand knowledge on this from -- well, I don't have "no," because I counsel clients too. Not all my clients are people I'm representing here today.
So, these questions do come up, but I'm not sure that you could -- I just think it's a rather tenuous link that's being portrayed here to show -- to try to meet this statutory standard of, have been or is likely to be -- is now being impeded or is likely to be impeded in the next three years.
MR. von LOHMANN
Of those millions, I think there are without question going to be hundreds of thousands, tens of thousand -- either way, a very large, absolute number that are going to be noninfringing.
According to the position of the Joint Commentators and those who publish commercial DVDs, all of those noninfringing uses over the next three years will per se be unlawful. If that's not an adverse effect, I don't know what is.
MR. KASUNIC
In terms of determining whether that use is noninfringing or not, isn't one of the considerations going to be -- or, isn't a relevant consideration going to be, was it -- as we've seen in the comparative context from others, Did you use more than what was necessary to fulfill the purpose if there were alternative means of obtaining the same point, as with in the pedagogical uses, in this case, of making some kind of prerogative use, a -- whatever the particular point of the fair use is -- comment, criticism -- whatever that is -- and it could be done without circumventing -- isn't that going to be a relevant consideration in terms of the fair-use question as well?
MR. von LOHMANN
I don't think it is. I think that inflates two separate questions.
You're absolutely right that a court, in evaluating the fair-use assertion, will have to consider the question of, How much did you use, Did you use more than was necessary.
But I'm unaware of any fair-use case that has ever asked the question of, What mechanism did you use in order to get the piece you used.
In other words, I'm not aware of a court saying, for example, to, you know, Mr. Koons, that, Well, you got it by clipping it from a magazine, and it would have been different if you had gotten it by clipping it from a coffee table book.
I don't think that --
MR. KASUNIC
But isn't that in part because we haven't seen the actions relating -- or, that involve both issues?
So, we haven't seen the 1201 fair-use issue come up yet in court cases. When we do, that could be a significant consideration for a court to determine whether -- in that context whether using more than necessary in that context also had some relationship to, what else was available in order to make this film.
MR. von LOHMANN
Right. Or how it was done, as it were.
You may well be right. I would warmly welcome the opportunity to brief and argue that subject in front of an Article III judge.
MR. KASUNIC
Well, I --
MR. von LOHMANN
Unfortunately, if you accept -- there is no defense along those lines to a 1201 violation. I'm unaware of any court -- and I'm sure the Joint Commenters would say that, you know, if you've circumvented the TPM, you've circumvented the TPM.
MR. KASUNIC
But if there's an exemption in place, wouldn't it moot that point?
I mean, there would be no issue of, would there be circumvention of 1201 because the exemption would exist. So, the only way to raise the point is with the specter of 1201.
MR. von LOHMANN
I'm not sure I agree with that. I'm not ready to -- I'm not saying I wouldn't make that argument if the opportunity arose, but I could certainly imagine someone saying under the fourth factor that the mechanism you use might be relevant under a fourth-factor analysis relating to the impact it might have the on market.
Again, I'm not saying I would agree with that, but I could certainly imagine it coming up. And all of this just underscores the point that we need jurisprudence in this area in order to answer many of these questions.
We're getting interesting, various jurisprudence in cases like Blanch v. Koons, in the J.K. Rowling Harry Potter Lexicon case. We're getting valuable contributions from the courts.
It would be a shame if we couldn't make progress in that on the very questions you raise, because 1201 violations are per se and there is no fair-use defense.
Now, I will say also for the record I am not conceding that there is no defense. I'm merely pointing out that that is the position of many who oppose this.
And I will point out that cases like Chamberlain and Storage Tech, I think you can make an argument that a nexus with infringement is now required under existing case law.
But again, let's set that aside. The exemption would, of course, be much clearer.
MR. KASUNIC
I guess I wanted to give some opportunity to -- I had mentioned to both of you before that there were a couple of arguments. I think we've addressed some of the issues related to Fred in terms of the standards we applied, but it was mostly in the context, I think, of how Steve characterized that.
So, there are two issues: One being how we should look at fair use in this rulemaking, and whether we should give the benefit of the doubt where there is uncertainty as to whether a particular use is or is not a fair use -- to give the benefit of the doubt to the user in order to allow that to be determined by an Article III court ultimately.
Do you have anything that you want to add or explain in terms of discussion about that particular issue, or is that the summary of it?
MR. von LOHMANN
Not very much more than is contained in our two submissions already.
Again, I'll merely reiterate the point: We are not asking for a per se -- an exemption that says any time there is a benefit of the doubt, there is no 1201 liability. We are saying that that standard, as applied through the four statutory factors that the Copyright Office is required to consider, means that for noncommercial creators who again lack the relevant legal sophistication to, you know, do differently, and who are more likely to qualify as fair users, and for DVDs protected with CSS where the protection measure has already been so thoroughly compromised that any impact on the market is difficult to imagine -- in that narrow area, the benefit of the doubt should be granted in order for these questions to get to the Court.
So, you know, it is -- we are not saying -- and I think we make this clear in our original proposal -- that the benefit-of-the-doubt test should trump the rest of the rulemaking analysis.
You would still have to do the statutory four-factor analysis. You'd have to ask whether or not the class was adequately defined. And in our view, we've done that for this particular proposal.
MR. KASUNIC
Well, in that same context -- and if you have any responses to that, but also maybe incorporating Steve into your thoughts -- to what extent, if you took issue with some of the refinements in the Office's and the Librarian's determination in 2006 of how a class of works could be defined, is this -- are we seeing a problem in relation to this particular proposal, and maybe more generally in terms of proposals of where we're beginning to expand a particular class of works to the extent where it's becoming some of the early things that we had for -- or, early proposals for exemptions we had for fair use --
MR. METALITZ
I think that's exactly the concern. That's the bottom of the slippery slope, I guess, if you want to get all the way down the hill.
And we saw this morning that, you know, the one area where the Office decided to define in terms of the use and user, you know, there's pressure to change that -- let's have some more users, let's have some more users, let's have some more users. They're similar, meaning, they do or don't have the same pedagogical needs.
I think that's a margin -- a question at the margin. Your -- this proposal is much -- obviously it goes much farther than that. I mean, it may be now, but it certainly is -- the question of the benefit of the doubt -- it's -- the rulemaking must grant exemptions for activities that a court might find to be noninfringing.
(Reading) Disqualify the exemption only if the Librarian concludes that no reasonable court could find that the activity in question would constitute a fair use or fall under any other statutory exemption.
So, it's basically saying, Go ahead and do it, and if a court decides it's not fair use, then you can have 1201 liability as well. It's not "benefit of the doubt" standard.
What you've been applying over the last nine years has been, in fact, noninfringing standards. And I recognize there's a little wiggle room there. You can't anticipate every single use of all -- you know, a lot of these are -- but that's also the reason why, I think, the Office has been particularly reluctant to rely on Section 107 fair use as the basis for determining noninfringing use.
It's much more comfortable with what you can see in 108, or can see in 110, or by association with 110 with the classroom use. I recognize the copying isn't covered by 110, but it's obviously very closely linked to the public performance exception in 110.
These are exceptions where it's a little bit easier to predict in advance and with a high level of confidence that, you know, that's going -- that's going to be noninfringing. You've got a high level of confidence, a high level of certainty. It's not a hundred percent, but it's a high level of certainty.
Fair use is not like that. And it's not like that in general, and it's certainly not like that when you have a very broadly defined class of all audiovisual works on DVD, whether -- well, whatever they are. What kind they are. And clips -- clips not defined. This -- this could be one minute; this could be X minus one minute.
You know, it's a very broad group, and I think your level of confidence in being able to predict that this is going to be found noninfringing, I just don't think you have that level of confidence, and for that reason, it's not appropriate for an exception.
MR. KASUNIC
I want to yield so that some other people can ask questions.
One last quick thing, though, that you also, in addition to taking issue with how the copyright or how the Registrar had refined a scope and class of works, you argued in the alternative that in every case we should apply that standard, but apply it more rigorous.
So, can you -- is there a way to fashion this particular exemption that would more adequately refine and restrict beyond saying noncommercial fair use is for -- I mean, is there a way that we could use that refinement?
MR. METALITZ
I think it really depends on the evidence that you have if this is impeding the use -- you know, the scenario we went through hasn't occurred, but what is the evidence of a particular targeted, focused use that would be noninfringing in a very high percentage of cases.
Yes, we did give you several -- I think there were six or seven points that we suggested be applied in the context, excepting your decision from three years ago that you would refine the categories using characteristics of uses or users -- some principles that ought to be applied, or yardsticks that ought to be used in order to try to make sure that it was focused and it was -- is it the sole purpose, and is this the sole effect, is the noninfringing use the sole effect of circumvention. And there were several others, which we can go through there; right --
MR. KASUNIC
Yes.
MR. METALITZ
-- and that could be applied.
We don't have an alternative to propose that could apply.
MS. PETERS
Okay.
Ben.
MR. GOLANT
I have a question about our weighing of the factors.
I was wondering, is this an unlimited kind of consideration, or do we somehow try to look at it in sole copyright, or should we maybe adopt something like the FCC publication standard?
I'm just looking for the scope and what it all means in consideration of all other factors we have to consider.
MR. von LOHMANN
Well, the statute makes it clear, and the Copyright Office has also found, that the list of statutory factors is nonexclusive. The Copyright Office is entitled to consider other factors, and it has. In the '06 ruling we've done so with respect to phone unlocking exemption, which we'll be turning to shortly. So, I think there isn't a rigid definition.
I would suggest that with respect to this exemption, I think we meet -- we -- our burden on the statutory factors, obviously this would help availability of these works for critical and commentary uses -- the third of the four.
Again, I think it has no adverse impact on the copyrighted works of the Joint Commenters. It does, however, have an adverse impact, if this exemption is not granted, on the new creators that we mentioned.
On the second statutory factor regarding availability for use for nonprofit and educational uses, I don't really see this proposal as having sort of a neutral factor. I don't see it as diminishing or increasing the availability for use of works for that category. That obviously goes more, I think, to the Panel you heard earlier this morning.
And so, I think, that's, you know -- I would urge the Copyright Office to consider the public interest here, not -- I mean, both in the sense of looking as they consider the statutory factors, but also as a separate factor, as I think the Copyright Office did in connection with the phone unlocking exemption in 2006.
And from my point of view, the important public interests here are squaring practice among noninfringing users with the law; restoring a rule that is more comprehensible, more sensible; and also the public interest in allowing the Court to develop this jurisprudence in an area where quite frankly we're working without good judicial guideposts.
And just to cap one of the things that Steve mentioned a few moments ago, I would emphasize the Copyright Office has premised exemptions in the past on fair use. Both the eBook exemption and the Film Studies professors exemption were premised in part in 107. There is -- and in both of those cases, I think there's no clear precedence out there that says that those are fair uses.
The case that is -- in my experience I've never seen a published opinion that has said that film professors using clips in class, including reproductions made thereof, is a fair use. I also don't think in that circumstance we had an example of actual lawsuits, as Steve seems to suggest is somehow part of our burden.
It is not as though film professors were being threatened routinely and hauled into court routinely for this. And nevertheless, the fact that all of that activity, which is socially valuable, would otherwise be unlawful was viewed as an adverse effect.
So, I think the proposal is not so at odds with the historical practice, as Mr. Metalitz suggests.
MR. CARSON
Let me say what I think I heard from you and give you a chance to tell me why I think I heard it right.
What I think I heard from you is that while there may be alternative means for -- well, the fact of the matter is, the vast majority of people are prima facie violating 1201, and that we really need to correct that, because there's no way we're going to teach them how not to violate Section 1201.
Is that more or less your message, or is it part of your message?
MR. von LOHMANN
Well, I would put it this way: There are three reasons I think those alternatives are not realistically available for this category of users. One is, as you point out, a lack of legal knowledge and sophistication. And I do think that's not going to change.
I'm not saying that that somehow excuses unlawful behavior. I'm saying that as to the users who are not infringing, this is exactly the category that Congress needs to shield from the adverse effect. If you are not infringing, then the circumvention should not be impeding your noninfringing use.
So, as to those who are infringing, nothing about this proposal would excuse them from either circumvention liability or copyright infringement liability. So, that's the first answer.
But I would emphasize there are two other answers as well that I think are equally important. One is, there are categories and creators here for whom video quality matters in the same way -- or, to the same degree that it matters with Film Studies professors.
And again, I urge you to bring up this line of questioning with the Organization of Transformative Works, which will be testifying before you next week in Washington.
So, that is a separate reason why these alternatives don't meet the needs of this creator community.
And finally, I'd also say the third reason is the additional expense involved; right? These are noncommercial creators for whom this activity is not something they are generally paid for, and to that extent, it's a relatively delicate, fragile, if you will, form of creative activity. One that nevertheless copyright law should value as much as anything.
In fact, arguably, copyright law should try to give incentives to get the creation of these works accomplished. They are original works of authorship.
But if you are saying to that community that you have to spend hundreds of dollars on equipment in order to engage in this, a very large number, I think, would say, Well, you know, I've got hundreds of dollars for other things, and I won't engage in that creativity.
So, to the extent the University of California system just a few minutes ago told you that it's too much money for them to go out and acquire this equipment, I would urge you to consider how much more of a barrier that would be to people who are doing this as a hobby in their spare time.
So, three separate reasons why those alternatives are not realistically available to this category of users.
MR. CARSON
Is $49 to acquire the software that Rob has too much of an expense?
MR. von LOHMANN
I am very curious to hear from Mr. Metalitz and his clients whether they think that is a non -- that is not in violation of 1201.
MR. CARSON
We're all very curious.
MR. von LOHMANN
Yes.
In fact, I will point out the Copyright Office itself in its Section 104 report suggested in a footnote the use of a similar product would violate Section 1201, or in the alternative, that Congress should amend the law to make that a violation.
MR. CARSON
What do they know.
MR. von LOHMANN
So, I think if we can get clarification on that, then perhaps we can revisit that question.
MR. CARSON
That would be very helpful.
One more thing, I guess. Just looking at the statute, as it sometimes helps to do --
MR. von LOHMANN
I have the same one you do.
MR. CARSON
Then go to page 236.
And Section 1201(A)(1)(B) -- and actually, Steve did recite this earlier, but I pulled it a couple of minutes before he recited it. It's the same thing that was occurring to me.
So, what we have to do here is figure out whether there are users of a particular class of copyrighted works -- let's take it in two parts -- who are being adversely affected by the prohibition -- to me, your whole case is they're not being adversely affected, because they're just going ahead and doing it.
MR. von LOHMANN
Well, my point is, they are being adversely affected when, in fact, they face an objection from a copyright owner. At that point they are adversely affected, because their options to insist on their fair use privileges are limited by the operation of 1201 as a sort of real world reality.
So, it's not a -- I mean, yes, I think people are going to continue to do this, and to the extent copyright owners don't mind, then we don't have a problem.
But copyright owners do mind, as -- in the proposal we point out a number of these videos that have been the subject of takedowns. I quite frankly think it's only a matter of time before one or more of these are the subject of litigation. I mean, just look at what we've seen.
Viacom and others have publicly said that they send hundreds of thousands of takedowns to You Tube on a regular basis. I think there's a real adverse effect when they are confronted with an objection by a copyright owner, whether in the form of a cease-and-desist letter or in the form of a 512 takedown.
So, that's one concrete form of adverse effect. It may only affect a small proportion of the total number of creators, but I think it's an important portion. It is the portion where, I think, fair use is most critical to mediate that dispute.
And the second, I think, adverse effect is, all of this creativity is, at least if you believe the position of the Joint Commenters, per se unlawful. And I think that's an adverse effect, even if, you know, it doesn't divert all of them -- right? -- in the same way that I think it was an adverse effect for the Film Studies professors.
I mean, the reality is -- I think you've either heard this or will hear it, I'm sure -- many professors engage in this practice and engaged in it before the exemption was granted. And many of them continue to engage in it now, even if they're not Film Studies professors.
That doesn't change the fact that declaring all of that creative activity to be unlawful is, in my view, an adverse effect. I mean, the -- if that's not an adverse effect, then literally until the copyright owner files the first lawsuit, one could never qualify for an exemption. And that seems, to me, to be particularly unfortunate where the -- short of filing a lawsuit, they can deliver cease-and-desist letters and such all they like.
So, I would love it if I could somehow tap the nationwide database of all the cease-and-desist letters ever sent for videos. In fact, I've urged You Tube to make even their own DMCA takedown database available publicly, and of course, no one will do that.
So, based -- I only have anecdotal evidence, but based on what I have seen, a large number of these videos are being taken down. These creators are being silenced. And I think that's an adverse effect.
MR. CARSON
But do you know for a fact that the people whose videos are being taken down are electing not to send the notice out of fear of -- that they'll be held -- sued for violation under 1201?
MR. von LOHMANN
Again, I have purely anecdotal evidence, a few examples, mostly because that's -- getting a window into that -- it's the heart, but it seems to me clear that if in the next three years somebody makes one of these videos, they find themselves the subject of an objection from a copyright owner, they obtain reasonable, you know, qualified legal counsel, that is the advice they're going to get.
I didn't hear anything from Steve or anyone else to suggest that that's not the advice you would get from someone who understood how the law operates.
MS. PETERS
Okay.
Thank you both very much. We will see both of you this afternoon.
You're on all day long, Steve.
And we start again at 1:45. Thank you.
(Luncheon recess taken at 12:11 p.m.)
MS. PETERS
Okay. Good afternoon.
For those of you who were not here this morning, all of the material is on our Web site. The material from the hearings will be on our Web site shortly, in a couple of weeks.
And the way that we're doing this is the witnesses get to make statements, and then Copyright Office personnel get to ask questions, hopefully such questions that help us move forward.
And later we may submit to people who testified additional questions that either come up as a result of this hearing today or next week in Washington, or later as we consider the exceptions and what has been submitted.
You can see our names up here. I'm Marybeth Peters, Register of Copyrights. To my left is David Carson, General Counsel. To my right is Rob Kasunic, who has been involved in every one of the 1201 proceedings. They probably call him "Mr. 1201." He was hoping not to hear that. And he is Principal Legal Advisor and General Counsel in the General Counsel's Office, obviously. To David's left is Ben Golant, who is also an Assistant General Counsel, Principal Legal Advisor.
And so, we will now basically focus on a variety the classes of works that deal with computer programs. They're labeled (5)(B), (5)(C), (5)(D), and -- okay.
Who's going first on this side?
MR. LURIE
I am.
MS. PETERS
Okay. Peter Lurie is starting.
MR. LURIE
Thank you very much.
My name is Peter Lurie. I'm General Counsel and co-founder of Virgin Mobile USA. I appreciate the opportunity to participate this evening.
With me is Christian Buerger, who is Senior Director of Mobile Devices, and he'll be testifying about the more technical aspects. He'll be speaking more intelligently about them than I can.
A quick background on Virgin Mobile USA: We founded the company for a single reason, and that was to offer an attractive, competitively priced, prepaid, pay-as-you-go service in the U.S. Before we got into the market, prepaid was what you got if you didn't pass a credit check or if you were unwilling to commit to a one- or two-year contract at 40 or $50 a month.
We think that our success has proven the concept. We're the sixth largest wireless carrier in the U.S. We've got over 5 million customers. Our handsets are available at over 45 stores including Best Buy, Target, Wal-Mart, Radio Shack, and over 140,00 locations -- grocery stores and gas stations.
We did not set out to build a network. We did not set out to build bricks-and-mortar stores.
We focused on the customer experience. We designed a service plan; pricing; the Web site; the content on the phone, which is very important; the Web site customer care experience; the marketing materials. Anything the customer experiences or touches, we designed and we built.
And we've also pioneered the grab-and-go model of handsets where you can go into a store that doesn't necessarily focus on wireless, such as a Wal-Mart or a Best Buy, and without too much salesman help, walk out with everything you need, call us up, get online, activate the service. That means dramatically lower pricing for our customers.
We -- although we say a value or reduced product, it's not a bare-bones product. So, it's a rich, multimedia product. The device has messaging, text messaging, picture messaging, music, games, ring tones, and an array of copyrighted content.
As I said, we don't impose credit checks as a part of long-term commitments. And what we've found is that this service is particularly attractive to low-income customers. About a third of our customers are from households with an income of less than $35,000 a year. Half of them are new to wireless.
When they leave, interestingly enough, half of them who leave don't leave for a competitor. They're not taking their phone elsewhere. They are leaving because they can't afford wireless, which is really interesting, because our service is very inexpensive.
You can spend as little as -- as low as $10 a month on service. And it's troubling, because wireless does have real social benefits.
The MIT Center for Development found last year in a study that wireless provides low-income consumers with increased job retention rates, personal security, access to emergency services. Real specific benefits that they lack when they are priced out of the wireless market.
And we think that we play a broader role in increasing access to wireless service to low-income consumers. In fact, our success has really -- I don't think it's an overstatement to say that we've revolutionized wireless in the U.S.
All of our competitors now have very attractive and very competitive prepaid services, whether it's Verizon or -- they have these products. We've created prepaid as a growth area and expanded access to wireless service.
Let me talk a bit about handsets very briefly. We sell our handsets at a substantial discount. We pay for it, we manufacture it, and we sell them to the consumer. We subsidize them.
The subsidy is greatest for the least expensive handsets that we market. We sell them at substantial losses. To do that, we expect that those handsets are used with our service.
We -- we are able to provide this, because the handsets have security software that protects an array of copyrighted content, and also limits the use of our service.
And again, we don't require long-term commitments. We can't rely on a two-year contract to ensure that we get our investment back. We have to make sure that our service is competitively priced every day.
The handsets are packaged with terms of purchase. Right on the package it says you can't alter the software. You can't alter the hardware. You must use it with original service. The terms of service are on the package, on the Web site. Again, these are critical aspects for the business model, and critical in protecting the copyrighted content on the phone.
If we were forced to sell handsets without that security software, handset prices would at least quintuple. So, what we think is that -- we think there's a lot at stake with this proceeding.
We don't think that the fact that the exemption has existed for three years without handset pricing increase -- having increased is indicative of what will happen in the future.
We've had to make substantial investment in the security software in our handsets to protect the copyrighted content and to protect our handsets against reflashing. We have launched over 30 lawsuits against an array of networks that purchase our handsets in bulk, hack them, and sell them overseas at a price -- the market pricing that handset. So, they're capturing their subsidy.
We've won all those cases, because the practice is frankly unlawful. It violates our rights.
And what we think is at stake here is not a legitimate customer who wants to take their handset to another competitor. That's not actually what's going on. There may be isolated instances.
Consumers have a view of how long their handsets are attractive to them. Handsets are expensive. They get more and more expensive, and they improve in functionality and design.
We find our customers -- our best customers actually are buying handsets every six 6 or 8 or 12 months at a substantial loss to us, because we don't charge them more simply because they're a customer.
There are a number of reasons why customers don't want to take their handsets to another service, one of which is that they like getting new handsets. Handsets are relatively inexpensive. And another is that in the U.S., a lot of different carriers have a lot of different technologies, where we use Sprint's CDMA network.
You could take our handset and use it on the Sprint network, but you couldn't take it and use it on the Verizon CDMA network, because we use different frequencies.
You certainly couldn't take it and use it on an AT&T GSM network, and presumably it would not -- the request is not to offer a very, very expensive quad band handset that would work on all networks.
Let me just run through the other arguments. The first is that the proponents of the exemption argue that the handset security software doesn't protect copyright interest. That's false. The handset security -- the handset software -- the security software directly protects music, graphics, ring tones, the operating system.
The request for the proposed exemptions are themselves directed at noncopyright purposes. This is not a request to -- for a legitimate use of copyrighted content. This is simply a request to use this proceeding to enable free-riding schemes.
There are those who would take the investment that we're making, the handsets that we're selling at a loss, and repurpose them for use with their business, and effectively increase handset prices for everyone, for low-income consumers.
Again, I do not believe that this is about consumers taking a handset for use on another service after using it with one service.
Again, there are certainly isolated incidents of that, but this is really about using the proceeding to protect the business model that's free riding, that's illegitimate, and would be damaging to a broad array of consumers in the U.S.
Our handsets are not just pieces of hardware. It's not a toaster. It's not a garage-door opener. It's a sophisticated, multimedia device with an array of copyrighted content. The security software is akin to CSS that protects DVDs. There is no logical difference between the two functions.
And again, this is -- this is really -- I think that this is about enabling a business model that would increase prices across the country.
Finally, the proponents argue that there will be environmental benefit. That also is untrue. We are actually the first, and remain the only carrier in the country to offer prepaid return envelopes with every package with all of our handsets. So, if you don't need your handset, you want to return it, you want to recycle it, send it back to us, we'll recycle it. California has a recycling -- the provider of the device has to to accept it back.
Again, there's no evidence, no evidence that repurposing handsets would lengthen their use in service. Again, consumers have a view of how long those handsets are attractive.
And number two, because what's really happening here is not in allowing presumable customers to repurpose handsets, but enabling free riders to highjack a subsidized phone for use on their network.
You're still starting on day one in that you -- the handsets start on day one, and -- it's not a -- there's no second life to that handset, because it isn't being repurposed by a company that's already using it on one network. It's being activated for the first time on a network for which it was not designed.
Let's talk about our copyright interest in the handsets. Again, although we have a value-oriented product, it's not a bare-bones product.
We deliver our phones with preloaded ring tones, games, software, a user interface that we designed and have a copyrightable interest in, and an operating system that the handset manufacturer designed and owns that we are obligated deeply to protect.
In fact, our agreement with, say, major music companies to provide music on the phones requires that we protect the content on the phone. If it became unprotected, they would terminate our agreement and we wouldn't be able to deliver their content.
There's been a suggestion that instead of using the security software to protect all the content, we should invest in much more expensive, much more complicated DRM that would attach to each piece of content. That's not feasible for us.
Our chipsets and our lower-end handsets don't support DRM. If you don't support DRM, you use the handset security software to protect the copyrighted content. And, in fact, I don't believe -- and Christian will talk in more detail -- that DRM would protect Java-based applications.
If you unlock our handsets, you have access to all the copyrighted content on the handset. You can repurpose it for use on another network, if it were to work on a network, but you would also be damaging -- it is the DRM, but it is the handset security software on the phone. And again, our more basic chipset doesn't support that type of complex DRM.
The proponents argue that the 2006 exemption has increased the availability of handsets and not reviewing exemptions would lead to a decrease of their availability. Actually, the reverse is true.
Because we have been able to stay one step ahead of -- it's like who walks the talk. So, it's a significant investment on our part. We are able to sell our handsets at a substantial discount -- $10, $15 in the marketplace -- without requiring customers to enter into two-year contracts and spend $50 a month on them. What that means is that a customer can by a $10, a $50 handset, use it for a period of time, and buy another one. That is increasing the availability of the handsets.
If we were unable to secure our handsets and we were unable to stay -- if our technology were superior to what -- the handset unlocking technology, our handsets would quintuple in price. The number of handsets would decrease and consumers would have to -- would probably either have to spend more up front for a prepaid service, and if -- assuming they could afford it, or engage in a postpaid service.
I remind you that there are an array of unlocked handsets out there. If you're a postpaid carrier and you offer a postpaid service, you could offer a lot of handsets, because you know that with a two-year contract, you're going to recover your investment.
You could offer the same device at two different prices: A higher price that's unlocked without a contract, and a lower price, subsidized price, unlocked with a contract.
We don't have that luxury. We're very focused on this model, on this area of the market, and we serve them very well.
We think that a company that is trying to prevent free riding is not chilling access to wireless services. We think that we are -- we've been -- as I said before, I think we've revolutionized access to attractive wireless services in this country.
The proponents also argue that we are not protecting any copyrighted interest -- ring tones, graphics, games. We offer an array of downloadable content. It's all copyrighted content, and it's all protected by the handset security software on the phone.
Finally, again the proponents argue that there are environmental benefits. And I noted that we have a comprehensive recycling school, and there is no evidence that repurchasing handsets increases the handset life and means that a handset ends up in a landfill if it were not recycled any faster.
That summarizes our position here. And I'll turn it over to Christian.
MS. PETERS
All right.
MR. BUERGER
Thank you for listening to, I think, three points that I'm going to talk about. My name is Chris Buerger. I'm the Engineering Manager at Virgin Mobile.
I'm going to talk about three points. One is, I'm going to describe the handsets and the technology that we use and the technical protection measures. Secondly, I'm going to describe the copyrighted materials on the phone -- on the real phone using the information on the screen. And then thirdly, I'd like to describe the consequences of unlocking a handset, both from the perspective of sharing the copy -- those copyrighted materials, as well as any other consequences that might be about the functionality of the -- the core functionality of the phone.
Virgin Mobile uses CDMA handsets, which are technically quite different to a GSM-based handset. There's no SIM card. The concept of a SIM card doesn't exist.
For many core functions of the -- the key technical protection measure that's being used is called an "MSL," Master Subscriber Lock. And that Master Subscriber Lock is essential in protecting a number of functions on the handset.
One is, certainly it's used to protect the handset from any kind of attempt to be reflashed. The second core protection measure, or purpose of the Master Subscriber Lock, is the access to the Embedded File System. And the Embedded File System is really the location of all the copyrighted materials. And if I could draw your attention to either the screens or the handout, that would great.
(Screen projections displayed)
(Document attached)
MR. BUERGER
So, as Peter described, some of the handsets are a combination of software content and hardware. And Virgin Mobile's devices really are a combination of content that's either generated by the handset manufacturer, the OEM, such as Samsung or LG; Virgin Mobile, which could be graphical assets, sound assets when the phone boots up; or third parties. And third parties could be anything from Google Maps to electronic art, Tetris, any kind of game or ring tone or wallpaper. And all of these components are created and combined to create the device binary.
If you look at the screen, the file structures that are used really vary by OEM. Every manufacturer has slightly different file structures, and the screen shots below are really just for reference, but I think they provide you with an illustration of what the memory locations of where the copyrighted works reside really look like. And they look very similar to what you might see in a Microsoft Windows kind of environment.
So, in the first screen shot you actually see the directory of any kind of preloaded Java applications. This typically includes the Java file for the application, or the PNG file, which is an image file for the thumbnail to identify the application.
On the next screen shots, you see directories of preloaded screen savers. Again, Virgin Mobile owns the copyright to a lot of these materials. All preloaded wallpaper.
One of the key points that Peter made earlier as well is, we have extensive relationships with content vendors to ensure that the content that a user might download or purchase through the handset is adequately protected.
And there are hundreds of thousands of pieces of content, whether it's ring tones, wallpapers, screens, games, et cetera. All of that content is also freely accessible in the Embedded File System.
So, on these screen shots you actually see the directory of preloaded ring tones, which are just plain MP3 files. And the same applies to the directory of purchasing ring tones.
So, all of this information that you can see here can literally be dragged and dropped onto your PC, and then you can -- any kind of malicious user could choose to share this content through a peer-to-peer network or through any kind of Internet-based distribution system. You could even E-mail it to other people.
One of the points that Peter mentioned before is that because of the economic model of Virgin Mobile, many of our handsets use technology that falls more within the value tier of chipset manufacturers, and these types of chipsets really do not support kind of extensive Digital Rights Management software or any kind of protection mechanisms that are outside of the industry-standard MSL mechanism.
The other point to make is that DRM technologies in the mobile world really focus on only specific types of content, specifically around single-track music and single-track video.
However, there's no comprehensive DRM technology out there for wallpapers or Java games. So, you know, one set of technology cannot be used to protect every single type of copyrighted content.
Another type of copyrighted content that is on our phones are all graphical assets that represent the Virgin Mobile brand. DRM mechanisms simply do not apply.
So, adding, you know, additional software-based or hardware-based security features would certainly mean for us to purchase much more expensive devices, and would also have an effect that we would limit the number of phones that we would be -- that we could sell.
One of the key points that we wanted to make is that -- and this is really talking about the consequences of using copyrighted works after the phone has been unlocked and made available to a different -- to work on a different carrier. Should this happen, and a phone has been unlocked, the copyrighted works, particularly for me and you, Virgin Mobile USA assets are still being used in conjunction with the new information or software that is put onto the phone.
So, even though the phone is now being reprogrammed to work on a new carrier, the existing Virgin Mobile assets, both those that we license, as well as those that we own, are still being used in that context.
So, let me give you a concrete example. Just because you reprogram the phone to work on a different network operator, your version of Tetris will still work, will still run. The phone will still play a jingle when you power it up. It will still show all the Virgin Mobile assets, all the graphical assets.
The last point that I'd like to make is also the functionality of security that could be compromised once a handset is unlocked. In the Cricket testimony, there's actually a very clear statement that as part of the unlocking process, both the PRL, Preferred Rolling List, as well as memory locations would be affected, and those memory locations are the exact repositories of all of the copyrighted works.
And changing a number of these locations could also mean a loss of functionality of the handsets, because content that a user may have invested in and purchased from Virgin Mobile may no longer work. Other functions such as MMS may no longer work.
And the final point that I also wanted to make, one of the consequences that may create -- and it's outlined in the Metro testimony -- is that unlocking a handset will almost -- could potentially invite the user to illegally or unlawfully use a handset.
One of the key things that would be very hard to enforce afterward is, once a phone is unlocked, to prevent the user from actually stealing air time on the new carrier's network.
It also -- as Peter would make the point earlier, it would be very difficult to actually create technology, once a phone has been unlocked, to prevent it from being sold in India, for example, which is a popular destination for companies that are engaging in bulk-buy purchases of handsets.
Okay. Thank you.
MS. PETERS
Thank you very much.
Ms. Granick.
MS. GRANICK
Thank you very much for having me here to testify about this exemption. It's nice to be back before the Copyright Office.
I am Jennifer Granick. I'm the Civil Liberties Director at the Electronic Frontier Foundation, and I'm here today representing three handset recyclers: The Wireless Alliance, Recellular, and Flipswap.
The Wireless Alliance is a Colorado Limited Liability Corporation that recycles and resells used, refurbished, and new cellular products. That client sells between 40- and 60,000 phones per month.
Recellular is the world's largest recycler and Recellular -- reseller of used cellular phones and accessories. Recellular is a partner with CTIA and with Virgin, and worked with the Wireless Foundation of CTIA on its original Donate-a-Phone charitable program.
Recellular donates millions of dollars to charity and recycles or uses tens of millions of phones. Almost 6 million phones last year.
And Flipswap is a company that offers fast and free ways for consumers to trade in their handsets in exchange for cash, gift certificates, or store credit.
We are here seeking a renewal of the exemption the Copyright Office granted in 2006 for phone unlocking, but with a change.
CTIA in its filing recognized that an exemption is warranted because customers have good cause to want to unlock their phones. So, the question is not whether to renew the exemption, but what the scope of that exemption should be.
And we are here today asking for something very simple: If I own a phone and it is compatible with a particular network provider, and that provider wants me as a customer, I should be able to use that phone on that network.
This is a no-brainer, when you think about going and getting your car serviced somewhere. But because a handset is both a hardware and a software device, the DMCA inhibits this customer choice. And to vindicate the civil right, the Wireless Alliance asked for the exemption in 2006.
Now we're here asking for the Copyright Office to remove the clause of that exemption that allows the unlocking solely for noncommercial purpose.
And the reason why we're asking for that is because a few district courts have misconstrued that aspect of the exemption to not apply if the unlocker has some kind of financial interest in the unlocking. And this is very problematic to my clients, because my clients, while they're in the business of doing good, also want to do well. They sell these handsets on the secondhand market.
And it's also problematic for the consumer, because the consumers have many legitimate, economic reasons why they might want to unlock their phone, either to save money because they bought a secondhand phone, because they want to resell their phone, they want to save money while travelling internationally to save money by switching to a new plan.
So, the idea that only where there's no commercial purpose whatsoever is unlocking okay, is basically emasculating the exemption that was granted in 2006. And that's why we ask the Copyright Office to remove this limitation.
Now, CTIA accepts the need for an exemption, but proposes even narrower language than was granted in 2006. And this language would eliminate the existing safety valve that -- what we have, and would limit it only to individual customers who unlock solely for a noncommercial purpose, who comply with all contractual obligations, and then only if the provider does not also use the network lock to control access to other works. And unfortunately, this formulation of the exemption doesn't help my clients or your average consumer.
We talked about why the noncommercial clause is a problem. But the contractual obligation clause is also a problem.
First of all, my clients and other recipients of secondhand phones don't have contractual obligations with a provider. So, it's not clear under CTIA's formulation whether the exemption could apply to us, because there's no contractual relationship.
Further, it's very difficult for courts analyzing 1201 claims to determine whether to grant motions to dismiss in unlocking cases without doing fact-finding on the contractual issues.
Also, these contractual issues are not the interests that the copyright law seeks to vindicate. Those are business model interests that the Office recognized in 2006 are separate.
And finally, whether or not the customer or the possessor of the phone has fulfilled their contractual obligations is probably not known at the time of circumvention or unlocking since when you do have other contractual relationships, it lasts over a period of time.
I think the comment by eBay in support of this exempting indicates one of the kinds of problems that their customers' secondhand phone sellers have when you have an uncertain applicability of an exemption hanging over their head. And they pointed out in their Verified Buyer Program that they get a lot of improper and potentially chilling claims through that program that interfere with the market for secondhand phones.
Then finally, the idea that the TPM controls access to no other work is a severe limitation that basically takes away the benefit of the exemption, because first of all, there's no way for the average phone unlocker to know whether the lock controls access to other works or not.
Most people who unlock their phones don't have any way of telling whether something like Virgin, MSL, or the usual SPC or SIM lock is related to TPMs on other content.
And also, it means, as we discussed during the 2006 Rulemaking Hearing, that network providers are able to construct the phones in such a way that the same TPM that locks the phone to a network also controls access to any other code and that the exemption doesn't apply, putting the question of whether the safety valve exists totally within the power of the manufacturers and providers and not in the purview of the Copyright Office and the Librarian. So, there are even more compelling reasons to grant this exemption than there were in 2006.
One reason is that recycling has grown, but not nearly enough. The estimate is that there are 125 million phones per year retired, and 80 percent of those phones are serviceable and work, and would work on networks.
My client, Recellular, which is the largest phone recycler, recycles about 6 million phones. So, that leaves almost 120 million phones, 80 percent of which were perfectly fine but end up in landfills.
And what you need to do -- what we can do to try to make the life of these phones longer -- the idea that, If you unlock a phone so that it can be used on another network unless there's that many more customers who can purchase it and who might be interested in buying it, but that does nothing to keep the phone out of the landfill, is simply false.
And I provided to the Copyright Office the report from Recellular about its program for phone reuse and recycling, and these companies basically do everything they can to try to keep the phone in an active life, and give it to a person who wants to use it and satisfy that need.
(Document attached)
MS. GRANICK
And only at the very end of the phone's life when it can't be used anymore do they recycle it. That's -- reuse is the best way of recycling a phone, and only later is trying to chop it down into it constituent parts and metal, the next most environmentally friendly method.
Second, there are basically two kinds of locks that we're talking about in 2009. One is the locks that are on CDMA phones, and the other is the locks that are on GSM phones that lock the SIM card.
Now, we can talk -- and maybe I'll leave it to questions that the Panel might have about how the unlocking works -- but one thing we know is that under some circumstances, most of the providers of CDMA service do unlock their phones, so they don't have concerns in those circumstances that there are other copyright interests at stake.
They unlock the phones for their customers under certain narrow circumstances. And I want to talk a bit about what that means when the customer unlocks the phone for themself, because we know that providers will do it in their narrow situation.
So, I provided you with a printout from the Virgin Australia Web site that's just that kind of compendium of different methods for unlocking phones, and I just want to run through the two main ways that people do it.
(Document attached)
MS. GRANICK
So, one way is when you know what your SPC code is. And when you know what the SPC code is, you do it, depending upon the model of the phone, according to this printout that I provided, and you type something into the keypad of the phone to bring it to the service screen, and then you type in the SPC code, and then the phone is unlocked.
And the question is, Well, how do you know what the SPC code is. And people are able to buy SPC codes for various phones over the Internet or to calculate the SPC code based on the algorithm that the carrier uses.
So, very often the codes are built off the unique serial number on the phone, and there's an algorithm that changes that into a particular code number, and when you type that code number in, the phone becomes unlocked. So, this is -- this is one way.
Another way is to use a tool to read the data that's on the phone and to clear the SPC value that's stored on the phone and put another value in. For example, all zeros. And that is another way that people can unlock their phone.
Now, in both of these situations, basically what you're doing is you're finding the place in the phone's data registry where the SPC code resides, and you are either entering the correct code or altering that piece of data to a code that you know.
Okay. This is not changing the binary of the software on the phone any more than when I type my PIN number into the ATM, I'm changing the binary on the ATM machine.
This is a registry of data that is something that is stored in there, that the software on the phone looks to and acts on, but it's simply a number, a piece of data. And when I change that piece of data, it allows the user to change other parameters, other data sets on the phone, like the Preferred Roaming List, which is the list of towers or services for the handset to look for.
And if you have other questions about that, I can try to answer them.
And then the final method is the method of reflashing, which is basically a total rewrite of everything on the chip where I just put an entirely new operating system, entirely new software on the chip. And many providers give that software away for free. And what it does is it takes the existing software and it's gone, and there's a new thing there.
Also, since the last Rulemaking, we have some policy statements from the FCC about open devices and open wireless networks, and the acting FCC chairman Copps has made a statement that open applications and open device requirements for broadband stimulate innovation for both Internet and for wireless providers, and that the FCC will continue to look for ways to promote open-access conditions and to monitor spectrum acquisition and anticompetitive practices in the wireless market.
And I would direct your attention to the comment submitted in support of our exemption by the Public Interest Spectrum Coalition on this point.
And then finally, since 2006, a very important point is that we have seen no evidence of infringement or harm to copyright interests as a result of this exemption. And if you look at all of the submissions from all of the opponents, nobody is saying that copyright interests have been compromised by this exemption.
Virgin says there's been no handset cost increase. The problem that they have is really a problem with people who are the bulk purchasers and unlockers. And in Virgin's case, they bring lawsuits against these people.
I don't know, and I'd be interested in hearing, whether those lawsuits made a 1201 claim or not.
I know that in the Tracfone lawsuits, those lawsuits do make 1201 claims, but those claims are one of a set of claims including trademark infringement, contract violations, unfair competition, and other legal remedies that Tracfone has found also very useful in pleading in those lawsuits.
So, specific responses to filings by Virgin or CTIA, first I would point out that courts have not held that unlocking phones is an infringing activity. In the cases cited in these oppositions -- in Tracfone versus Dixon, that's a case where the defendant admitted their liability. There was no dispute and no finding.
The Thomas case is a default judgment case. And the Bitcell case is a consent judgment case. So, there are no cases where courts have looked at the technology of unlocking and found that practice to be infringing.
Next, in terms of the copyright interest, what our exemption is asking for is for a class of works that are works that control -- that the handset uses in order to connect to the local networks. We are not asking for an exemption for access to classes of works that are ring tones or wallpaper, or even to the user interface that a company like Virgin puts on the phone.
It's not clear from the submission why it is the -- or, how it is that Virgin places -- these are copyright interest that are at stake.
What their submission basically says is that because customers are supposedly subject to some kind of sale license, whether it be shrink-wrap or click-wrap license, that they will stay with Virgin and use the device on Virgin's network, that when they fail to do so, they are somehow infringing copyright.
I think there's a serious question as to the enforceability and interpretation of those Terms of Sale or Terms of Use. But even if there is a valid contract here, this is an entirely noninfringing activity under Section 117.
The phone purchaser is an owner of the phone. Under Krause versus Titleserv, the purchaser has the right to lawfully use and keep the phone forever. He can throw it away. He can put it in the trash. He can give to somebody else. And these are the extent of rights that owners have that give them the rights under 117.
Now, if the firmware is stored on the device and the provider has no right of repossession, and even when the relationship is terminated, then 117 should apply to further use of that firmware, and probably also of those purchased ring tones and even the operating system.
And there is no wireless provider that I'm aware of that tells users that when they sell you the phone, you have to give the phone back to them or you're not allowed to dispose of it, or any of those kinds of limitations. That means that the normal customer is not a 117 owner. So, 117 applies in probably every case of sales of phones.
Furthermore, fair use applies. I could go through the fair-use factors, but I think one of the most important things to point to is there is no market for this firmware outside of the handset. The handset and the firmware go together, and the value of the firmware is pretty much entirely with the functionality that it provides for the handset.
On the issue of whether it is a satisfactory alternative for carriers to unlock, first of all, Virgin doesn't unlock their phones. And carriers only unlock under certain very narrow circumstances. Carriers don't have an incentive to unlock, because they get a volume discount from manufacturers, which means they want to move new product.
Customers report that they have had trouble getting phones unlocked. Carriers tell you that they only unlock when you are an active customer, and then only if you've met certain circumstances, not always clear from their Terms of Service.
And those circumstances simply don't apply to people like my clients who are not customers of these providers. They are bona fide, secondhand owners of these devices, and they get tens of thousands of phones a month, millions a year, and they get them from Best Buy. They get them from Wal-Mart. They get them from Virgin. They get them from AT&T. They get them from CTIA.
And they can't go through these tens of thousands of phones, figure out what network they were originally on, and then walk into the AT&T or the Sprint store and say, "Will you unlock this for me? I'm not a customer." That just simply isn't what's happening here.
And just to give you some sense of the scale of this in terms of the interest, Virgin has 5 million customers, Verizon has about 80 million customers, AT&T, I believe, has a comparable number, and AT&T and Verizon together are about 60 percent of the wireless market.
The recycling industry estimates that about two-thirds of those phones are replaced every year, and that the average life span of a phone is about 18 months. So, if you look just at Verizon, they are -- they are needing to recycle or reuse about 54 million phones just from that one carrier every year.
So, there is a huge gap between Virgin and the rest of the industry, and a huge gap between what recycling is currently being done and what could and should be done.
And for some more information about the recycling issue, I gave you the year-end report from Recellular so you could see the kinds of programs they have, the volume that they're dealing with, and also the amount of the phones that still are ending up in landfills.
So, just one other point on that, if you look at Verizon's recycle and reuse program, HopeLine, they collect 1 million phones per year. That's 1 million out of the 54 million phones that Verizon customers probably stop using every year.
There is a huge need for companies like my client, and that's because carriers simply don't fulfill the reuse/recycle need. They don't have any incentive to. There's no reason for them to -- there's no -- frankly, there's no economic incentive for them to do so.
And my clients are trying to step into and fill that gap. And the reuse of these phones is greatly promoted by increasing the number of potential customers that could be on these phones.
When you have a phone, you don't know what network it can be used on, and you don't know what customers will want to buy it and can unlock that phone. And most of these phones, once unlocked, will be compatible on any CDMA or any GSM network. That greatly increases the chance that somebody somewhere will be able to get some use out of this item instead of it ending up in the landfill.
So, I'd like to be available to answer any questions that you have, but I also have some questions about -- some questions that I think that the submission from Virgin really doesn't answer about what -- you know when they -- they don't unlock. Where do they think those handsets that are retired go if they don't unlock them?
And they're selling new handsets to customers less than -- pretty much a new one every year. I wonder whether they are bringing 1201 claims in their cases or not, and why they think that they have the growth that they had, even though the exemption has existed for the past three years, and why some CDMA carriers do unlock if they're saying that that's so closely tied with the copyright infringement of the ring tones and wallpaper and those other works.
We know that they unlock, and they do so because they -- they do so in narrow circumstances that are not adequate for the reuse or recycling reasons, but then that begs the question of why they think that this lock is required for protecting other interests.
MS. PETERS
Thank you.
Mr. Metalitz.
MR. METALITZ
Thank you very much.
It's a pleasure to be here with several witnesses who know a great deal about this technology and about these markets, and for that reason, I'm going to try to be very brief, because I don't know as much as either -- as any of them do about those questions, and they obviously have a long disagreement, although I'm not sure how many of them are directly relevant to the task that's before you.
What I would just like to add on behalf of the Joint Commenters is to say first of all, we're not either supporting or opposing the principle -- this -- an exemption in this area. It depends on whether the clients meet their burden of showing -- meeting the statutory standards for an exemption.
But I do want to just bring to your attention a couple of areas where I think the record is quite different this year than it was three years ago, and it may require you to have some inquiries to handle this a little bit differently than three years ago.
And a lot was derived from Exhibit A to the NPRM comments that EFF put in in the second round which provide a more detailed explanation of some of what's going on here after circumvention.
Back in 2006 -- if you look at page 51 of your recommendation -- you basically concluded that there's nothing in the record that has any -- that gives any suggestion that there's any infringement involved here, and nothing that could -- can't reasonably be understood as infringement, what people are doing as a result of circumvention.
Now, without regard to whether -- that characterization of the 2006 record, the 2009 record, it seems to me, is quite different. There certainly is suggestion of infringement, and we've heard that from Virgin Mobile, and it's in some of the other papers.
And on this issue -- I think last time -- it's -- my recollection is that the reason you reached that conclusion may have been because a lot of what was going on was what Jennifer Granick described, which was entering new values into databases, and the question was whether that was a creation of a derivative work, or was that something else just like inputting a PIN code into the ATM, that was used as an example.
And if you look at the submission from Cricket, they make the same argument, and this argument is made by several of the proponents.
But if you look at Exhibit A, page 13, it seems pretty clear that what is happening here in installing a patched version of Apple's-based band firmware, using the Apple, for example -- and this is about unlocking, not jailbreaking, if you will; this is about access to the network, and it states that this is basically identical to Apple's code, except -- and then there are some differences.
So, it seems to pretty clearly to make the case that a derivative work is being prepared, or an adaptation is being prepared.
So, the Section 117 issues that are described here -- let's talk about it -- are quite relevant here. I'm not going to get into the merits of the argument one way or another, but as I read the 2006 decision, you didn't even reach that. You didn't even touch 117, because there was not, in your view, any evidence in the record that there was any adaptation being made.
That's not the case now. There certainly is evidence of it. It's obviously for you to decide how credible that evidence is, but I think the 117 issues may have to be joined.
And the second area where I think the record is quite different is on this question of access to works other than the firmware that controls access to the network. In your decision and your recommendation in 2006, you reviewed the evidence, and you said, really, it's just speculation that there might be some access to these other works.
As I recall, we said on behalf of the Joint Commenters, This could happen. And there was some evidence that, no, it probably wouldn't happen because of the structure of where DRM would come in, and the -- others would come in, and your conclusion was that our concern was really speculative, and therefore, it was not really a factor in the decision.
But again, I think if you look at Exhibit A on page 13, you find -- what I thought was interesting was that it's exactly -- the same tool that is used to circumvent access controls leading to applications is also used to circumvent the access controls with regard to network access.
It's this P-W-N-A-G-E Tool -- and I think it's Welsch that has W as a vowel, so I don't know how to pronounce that, but it's the same tool. And it strikes me if the same tool is being used in the same way with these objectives, maybe it's not just a speculative issue anymore. And of course, you also heard testimony from Virgin Mobile on this.
And so, this is obviously -- again, I'm just pointing out this is another area in the record. And you said on page 53 of the recommendation, quite properly, I think, that you want to make sure to avoid any unintended consequences of this.
You now have a record that, I think, is a little more than speculation about whether there would be this impact. And so, I think you have to take that into account.
Let me just conclude by mentioning three areas where we looked at the proposals from (5)(B),(C), and (D) and had some concerns about the wording. And then there is now -- this is a joint proposal, but if I'm not mistaken, maybe -- I don't think your clients have signed on to that proposal. I'm not sure of the status of that, but the other chief proponents did.
So, first of all, for the reasons I just stated, I think it is very important to retain this language about the sole purpose being accessed to the upper network, because, again, there's some evidence that it would accomplish access to a lot of other things, and that obviously is of very great concern to the Joint Commenters, the music industry, and others -- the video game industry and others whose content we're talking about here to some extent.
I think we would also recommend, as we do in our general list of limiting factors on page 8 of our submission, that this really would be limited to access circumvention that solely have the effect of enabling access to another network, regardless of having to prove the purpose or the intent. That's always difficult, but you can sometimes look more objectively at what the effect is.
Second, there's been a proposal to move from language dealing with wireless telephone handsets and wireless telephone communications network to more capacious language about wireless communications devices, wireless communications networks.
I think I understand the motivation for this, but I think you have to look very carefully again what might be the unintended consequences of this.
If you look at the MetroPCS submission, they're talking about wireless broadband cards that might be used in your laptop, might be a component of the video game console, and would qualify as a wireless communications device. Perhaps the whole console would qualify as a wireless communications device. Perhaps every computer which is capable of gaining access to a wireless network would be considered a wireless communications device. So, we're concerned about the breadth of this.
We don't know also whether the factual issues that we're debating here about telephones really apply in that context.
For example, how common is it that a wireless broadband card used in connection with one of these devices will only allow access to one particular network. I know, fortunately, the one in my laptop accesses all kinds of networks.
So, again, I don't know -- that may be a factual question, but certainly the factual case that's being made here may not be the same in that environment.
And we also would have different behaviors as far as switching costs. There's a lot of discussion about whether people would actually swap out their phones more quickly anyway when the subscription period is over. It might be totally different if you're talking about a much wider range of wireless communications devices -- laptops, video game consoles, and everything else. So, you can't just assume that the same conditions would apply there, so you'd have to again look at the commercial behavior.
And finally, the commercial purpose issue -- and I see that the other proponents dropped that phrasing. I would say they didn't feel they needed that phrasing, if I recall correctly, in the exemption. I gather that the wireless lines and others still want to have that phrasing in the exemption, regardless of commercial purpose.
MS. GRANICK
Or that it be made clear that just because there's some financial aspect to it, it doesn't mean that it's not solely for connecting to a network.
MR. METALITZ
Well, see, our concern about "sole" is a little bit different, because it's about what else it does, rather than why you're doing it.
But I think it is important to note that some of the submissions have said that really, many of the proponents of these -- not all, but many of the proponents are entities that are offering circumvention services to consumers, and I think that has to be taken into account.
So, I just wanted to add those brief observations about the state of the record that I think are important for the Copyright Office to look at. And I'd be glad at this point to defer to the people that are more expert than I am on some of the particulars.
MS. PETERS
Okay.
I'm going to turn back here to Virgin Mobile.
Do you want to add anything based on what you've heard?
MR. LURIE
Sure. I'd like to respond to Ms. Granick's questions for Virgin Mobile.
First, with respect to recycling, the idea that our company is doing anything to inhibit recycling specifically by Recellular is preposterous. In fact, the first deal that we had after we signed the handset agreement or purchase agreement with the handset manufacturer, was to go to Recellular and sign a recycling agreement with Recellular.
And here's what we asked them to do, and they do do this: They take our trademark off the phone. We give the -- they reflash our phones. They take all the copyrighted content off, and they take the -- they may take the operating system off.
They then, for whatever they have the right to do, whatever software that they have the right to put on the phone, and they can -- they either -- they wouldn't do that if they're recycling the phone and breaking it down -- or they can resell it to someone who wants to use it.
That's the proper business model for Recellular. That's, in fact, what they do. And nothing that we do inhibits that model.
And as I've said, we were the first carrier to offer prepaid packages. We actually -- we were very involved with teen homelessness in the country.
November was National Teen Homelessness Month, because we lobbied Congress. And one thing we do is we redistribute refurbished handsets to homeless youth, or a million homeless teenagers in the country, which is also outrageous, but they actually have no -- this is their best way of communicating -- communications device.
So, we have been at the forefront of the recycling efforts in the industry, and so we -- the copyright -- the protections we put on the phones to protect copyright and to protect use of the phones do not in any way inhibit recycling in the country.
Second, Ms. Granick discussed -- wondered why we've enjoyed such growth despite the exemption. In fact, we didn't have the opportunity to, of course, participate in the first proceeding.
When the exemption was granted, we were hit with a rash of bulk buying that decimated our earnings for the year. They even had the -- or that year -- it would have exceeded our earnings for the year.
What happened was, people went out; they bought ten handsets at Wal-Mart, ten handsets at Target. They cleaned out the stores of our handsets so legitimate consumers couldn't buy our handsets. They reflashed them and they shipped them overseas, and they pocketed the subsidies that we invested.
They violated an array of rights. It was an expensive 40- or $50 million for us. We then had to increase our investment in software security on the phone. At that point we recovered our footing and enjoyed the growth.
If that were to happen again, and these bulk purchasers could rely on this exemption as to what they were going to do, as Ms. Granick proposes it, this could happen at any time. It's simply a matter of -- it's a race, it's a like an arms race where we are trying to improve the software security faster than the unlocking software that gets released every month. And we're totally vulnerable, primarily because of this exemption.
Ms. Granick distributed this -- asked why some carriers will unlock. Well, clearly, a more sophisticated handset that has a chipset that has four separate DRM where you can unlock the phone for purposes of the network without risking the copyrighted material, the carrier is free to do that. We're not.
We may be -- you know, there may be different circumstances, but other carriers that -- as I said, they sell -- with a two-year contract, you can subsidize very, very sophisticated handsets fully. You can offer it for free, and you can unlock it, because you're sure that -- you're assured of your revenue. And then because the DRM is separate from the handset security, you can be sure that the copyrighted content will be protected.
This handout really is completely unrelated to Virgin Mobile in the U.S. Virgin Group is a federation of companies. We license the Virgin brand. They're a shareholder. They're not a controlling -- they have a minority stake in our company.
This is for a GSM. These are for the GSM network.
The GSM business model that exists overseas is very, very different. Because almost all the carriers in a market will use GSM, the handsets are sold, generally, separate from the service, so the entire model is different, and this is actually what you have to do to activate the phone with a Virgin Mobile Australia service to begin with. And it's a really -- I think it's totally inaccurate with what we're discussing now.
I think that -- I think that is the -- I'm not sure if there was something else.
Thank you.
MS. PETERS
Okay. Thank you.
Do you want to say anything else?
MS. GRANICK
Yes.
First of all, the problem with bulk purchase and resale predated this 2006 exemption. Virgin had lawsuits against bulk purchasers and resellers before the 2006 exemption, as did Tracfone. So, it was not the exemption that caused the problem.
The problem is caused by the fact that they sell their handsets with a huge subsidy, and people find that if they can technologically unlock those handsets, they can sell them for more. That's their business model, and that's what the problem is caused by.
Now, if they have a higher quality TPM that's more expensive to break, that eats into the profit that the bulk purchasers can obtain, but it is not the -- and so, they find it useful in practicing that business model to invest money in the TPM. But that is not the result of the 2006 exemption.
So, my question to Virgin was whether or not they raised 1201 as a claim in their lawsuit against the bulk -- the bulk purchasers, and I don't think we got an answer to that.
MR. LURIE
We did not. Because of this exemption, we couldn't.
But I will say that --
MS. GRANICK
But -- but -- you can respond, maybe, to -- Tracfone raises the 1201 claim in their cases against bulk resellers.
MR. LURIE
Because of the exemption, we have a stronger argument, we have stronger claims of trademark and contract. After the exemption, we would have much stronger claims against the bulk purchasers.
But this entire proceeding is, in fact, about a business model, because what Ms. Granick -- there's no question that this is -- this unlocking the handset, as the proponents want to do, is not about accessing copyrighted content -- it is not about the copyrighted material. It is simply about a business model that allows people to free ride on an investment that other companies make. That is what is at stake here. It is not a copyright issue at all.
Second, Ms. Granick discussed Section 117. 117 does not apply. 117 requires the owner of the copy of a computer program -- allows them to make a copy, and that copy is an essential step in the utilization of that program.
And the CONTU report says that that essential step has to be one that is necessary to enable the use for which it was both sold and purchased. So, here, making a copy is not an essential step for legitimate use of the program. It's very clearly an illegitimate use and an unlawful use of the program. So, 117 is clearly unapplicable here. It doesn't provide any protection -- it doesn't support that argument.
MR. CARSON
Let me ask you about --
MS. GRANICK
But -- I'm sorry.
MR. CARSON
Just a moment. I want to get something out of the way.
You have filed a lawsuit. You have not made allegations under Section 1201.
You've made trademark allegations and what else?
MR. LURIE
Because of the exemption, we focus on the use of the trademark, because what happens is that our handset -- it says "Virgin Mobile" on it -- again, we're not a manufacturer of handsets.
We offer a service. We offer the Virgin Mobile service. It says "Virgin Mobile" on it. It has our logo on it. It's sold with enforceable Terms of Purchase, just like -- it's very clear. It's written in very clear, large letters, and it's easy to understand, and our customers certainly understand it.
And, in fact, it's not our customers who are seeking to reflash our phones. It's free riders who are seeking to reflash our phones. And what happens is, the handset with the Virgin Mobile trademark gets used on another network, and then it doesn't work, and then the -- there's a fair amount of confusion about whose phone it is, why doesn't it work.
It doesn't work because it wasn't designed for use with that other service, or it doesn't work as well as it should, certainly.
So, we make an array of contract and trademark claims.
MR. CARSON
Okay.
Which contract?
MR. LURIE
We haven't lost a case yet, but the exemption is -- has substantially weakened --
MR. CARSON
How has it weakened it, if you haven't lost a case?
Why is it even relevant?
Why is the exemption even relevant if you've asserted these other claims and apparently you've been successful?
MR. LURIE
Well, in fact, MetroPCS has now sued us. They sued us about a month ago saying they wanted an exemption -- that the exemption specifically permits the use.
MR. CARSON
Who cares?
MR. LURIE
Well, we certainly care.
MR. CARSON
Hold on.
If you're asserting suits, including trademark claims and contract claims, and you're succeeding on this, why does it matter if you've got 1201 claims as well?
It's surplus; isn't it?
MR. LURIE
Yeah.
As I said, MetroPCS is suing us claiming that the exemption permits reflashing of our handsets.
MR. CARSON
You can override the trademark contract --
MR. LURIE
I should say, actually -- I'm sorry.
In fact, we did well in an array of suits a couple of years ago. Most recently, MetroPCS, in a lawsuit that they launched against Virgin Mobile, is seeking a declaratory judgment that the exemption at issue here prevents reflashing. So, it is very much at the heart of the matter.
MR. CARSON
You're arguing an exemption preempting trademark and contract claims?
MR. LURIE
There's a separate claim. That's what we've asserted --
MR. CARSON
That's my point.
You've got separate claims that are viable regardless of the exemption; isn't that true?
MR. LURIE
Ideally, you'd be adjudicating a case, but we don't know. We don't know how we'll do in that case. It hasn't been decided.
MR. CARSON
So, you're afraid that a court might conclude that this exemption somehow misused your claim to trademark and contract claims?
MR. LURIE
Absolutely. And that is exactly what --
MR. CARSON
And we should take that seriously?
MR. LURIE
We certainly take it seriously.
MR. CARSON
Okay.
MR. LURIE
It's a critical lawsuit for us.
MetroPCS certainly takes it seriously. Those are the claims that they're asserting.
MR. CARSON
All right.
MR. LURIE
I appreciate the confidence in our position. I wish I shared the confidence.
MS. PETERS
Okay.
I'm going to start the questioning with Ben.
MS. GRANICK
May I -- I asked him a question and he kind took over, and if you don't mind, I will be very brief.
MS. PETERS
Fine.
MS. GRANICK
The claim is that bulk unlocking is the problem. And they have trademark and copyright claims against bulk unlockers. The issue is, when the customer wants to go to a MetroPCS and wants to sell the phone to somebody else, can they unlock their phone and use that phone on a different network.
And this is not infringing. Virgin depends upon the idea that that's somehow a contract violation to make it infringing.
But as I said -- and I think everybody accepts -- that this changing of the value in the registry is not a modification of the binary in the vast majority of cases.
Now, Mr. Metalitz pointed out some technology specific to the iPhone and that we're going to talk a lot more about the iPhone later on this afternoon, so I'm not going to say too much about that, but that is a 117, that that adaptation to use the firmware of the phone on a different network would be protected by 117.
I don't even think that that adaptation occurs in most of the cases, because all you're doing is changing the lock value, whether it be an SPC of the SIM lock. That's all you're doing.
And that allows you to change other data variables so that you can use the phone on the network. There is no adaptation, there's no copying, there's no infringement. There's nothing.
And to the extent that there is, as I said, I believe that it's covered by 117 and Krause versus Titleserv, which allows people to make those adaptations, even when the original seller doesn't like the use that the owner is making of them. That's why we have the 117 right.
So, in terms of the question of there being access to works other than the firmware, we're just talking about a circumvention for the purpose of accessing that firmware so that you can connect it to another network. It's not clear to me from the testimony today how unlocking the phone so that it can go on another network and you can change something like the preferred roaming list gives you the ability or some kind of newfound ability to do any kind of infringement.
But what is clear to me is that in the vast majority of cases with providers who have a much, much, much greater market share than Virgin -- is they don't have that concern, because they unlock their phones, sometimes voluntarily.
And then just one comment about Mr. Metalitz' point about sole purpose. We agree with the idea that the purpose should be to access a network. It's just that companies like mine that unlock phones, or customers who unlock phones and also maybe are reselling those phones or want to save money, or something like that -- that that financial part of the transaction doesn't mean that they don't enjoy the benefits of the exemption.
What I think it is, is merely just clarifying something about the 2006 exemption, as opposed to making something different, and I think that the limitation of saying it's not -- of mutating the exemption so that it's not about the purpose of the exemption is to connect lawfully to another wireless network, but that that is the sole effect.
Again, I would point out that the average consumer cannot know prior to the unlocking whether removing that lock or zeroing it out is going to allow access to other content on the phone.
The customer is not even asking that. They just want to know, What do I need to do to take my phone from one network to another network.
So, that's why I think that the exemption needs to be phrased in terms of the user's purpose and activities, as opposed to what the technological effect of that unlock might be.
MR. METALITZ
Could I just add one point on that?
Then that's a question of who should bear the risk of the consumers' ignorance. And I don't see why the copyright folks should bear the risk if consumers don't know, may not know, may find out later. That, again, if this testimony is to be credited, that this whole -- you know, all of these ring tones and all of these wallpaper and so forth, and games, is accessible in a way that it was prior to circumventing. If that's the case, then I think -- I don't think it's unreasonable to craft the exemption in the ways that cover that.
MR. BUERGER
I just have one comment on the technical aspects. Most CDMA phones, as soon as you enter the SPC, if you try to reflash it working the way that's actually described in the Cricket testimony on page 7, it's updating the Preferred Roaming List and the memory locations of the phone. So, you absolutely have access to all of the copyrighted works. Period.
MR. CARSON
Can I follow up, then? because one thing wasn't clear to me.
I heard one statement that reflashing gets rid of the software; is that right?
MR. BUERGER
Not necessarily.
So, there are two methods for a binary reflash: One that will completely wipe out all of the binary -- the code binary on the memory. There are also reflashing methods that actually keep the content in the embedded file. So, if you bought a game before or a ring tone before, you can reflash it with a new binary and keep the old ring tones that you bought.
MR. CARSON
Okay.
So, at least one form of reflashing would basically wipe out everything on the phone?
MR. BUERGER
Yes. That's one method.
MS. PETERS
Okay.
Ben.
MR. GOLANT
Okay. Well, I have a number of questions, but first, I'll direct these Virgin Mobile.
Are you a member of CTIA?
MR. LURIE
We are an associate of CTIA.
MR. GOLANT
I was just wondering, because they had submitted an exemption request, and we were wondering what you thought about that.
MR. LURIE
We are filing separately, because we don't agree a hundred percent. We didn't resign from the organization in protest.
MR. GOLANT
Now, tell me, we've heard about eBay today.
Have you read eBay's comments?
MR. LURIE
I have not had the opportunity.
MR. GOLANT
Because that was an interesting argument that I heard that I'd like to --
MR. LURIE
We'll respond in a written -- I'll respond to that. I'll look at that. I appreciate the opportunity to do that.
MR. GOLANT
Thank you.
Now, as we've heard also, there was new narrow language proposed by the proponents.
Do you have anything to add with regard to that new language that we have before us now?
MR. LURIE
We do not at this time. Again, we can submit -- we'll submit a written response telling our view of it.
MR. GOLANT
Thanks.
Now, Jennifer, what are your views on early termination fees?
So, in other words, if a request is granted and it's warranted, isn't it also true that in most respects -- that the consumer would have to pay the carrier for terminating the contract early if they wanted to move to another carrier?
MS. GRANICK
Yes.
Those contractual remedies that the carrier has would remain intact.
MR. GOLANT
In other words, they're bound by the contract and they have to live with it, and once they get done with that, they can go on to whoever they want.
MS. GRANICK
Yes. The contract terms remain.
And nothing about this -- and I think there might be a little bit of a misapprehension.
Nothing about this is saying that the carrier cannot hold customers to contracts. And I'm not even saying that carriers are now hereby obligated to unlock phones for their customers. Just that customers -- or, owners of the phones can unlock them for themselves. And if I chose to go to a different carrier and breach my contract, then I'm liable for those contract remedies just the same as I would be normally.
MR. GOLANT
That would be a disincentive to some --
MS. GRANICK
I think it's a huge disincentive, and I think it's the appropriate disincentive, because the contract remedies are where the parties decide what the economic relationship is worth to them.
And the problem with the DMCA applicability is that there are statutory remedies that are separate from that, and also potential criminal penalties, and that adds an entirely different level of disincentive that is -- that could very well be excessive, given what the economic relationship is. And that is one of the reasons why maybe carriers like it, but it is one of the reasons why it's not appropriate for this market.
MR. GOLANT
Now, there's also other legal remedies that could lead someone to bringing an antitrust suit or a trade suit as well.
MS. GRANICK
In terms of remedies for the users?
MR. GOLANT
For the users, exactly.
MS. GRANICK
Yes.
And I think that the filing by the Public Interest Spectrum Coalition says that there are other things -- other policies, and perhaps other changes in telecommunications law that might be necessary to really bring United States policy into a situation where there really is a very open and vibrant market for these types of services.
But this is not -- so, this is certainly not that. This is simply one small aspect of giving customers that kind of choice.
MR. GOLANT
Well, speaking of the FCC, I know that they recently opened for comment a proceeding -- it's -- it was filed by the Rural Cellular Association.
Are you familiar with that at all?
MS. GRANICK
Is it the Carterphone for wireless?
MR. GOLANT
Yeah.
MS. GRANICK
I'm mildly familiar.
MR. GOLANT
I'll read it into the record. It says:
"The Rural Cellular Association requests that the commission initiate their rulemaking to investigate the widespread use and anti-competitive effects of exclusivity arrangement between commericial wireless carriers and handset manufacturers, and as necessary, adopt rules that prohibit such arrangements when contrary to the public interests..."
So, my question to you -- so, if the Commission goes down that road, does that somehow moot any exemption we may get, or is it complimentary to --
MS. GRANICK
I think that the exemption leaves space for that agency to make those kinds of rules. I think that, you know, basically this is clearing the way for that agency to make the decisions about wireless competitiveness that are appropriate given its jurisdiction and its purview, and that they make those decisions because that's something that they do all the time. And I do think it's needed.
Just as an example, when AT&T took over Cingular and absorbed all the Cingular customers, AT&T would not let the Cingular customers unlock their Cingular phones and put them on the AT&T network. They just simply refused to do so, because they saw the merger as an opportunity for them to sell new phones to the millions of Cingular people.
And it may very well be that this is contrary to United States policy, and that we should have rules and regulations that prohibit that kind of thing.
And I think that in the meanwhile, we shouldn't have rules that constrain those Cingular customers from exercising those kinds of self-help and unlocking those phones and then getting them on an AT&T network or leaving and going to a different network.
MR. GOLANT
Okay.
Now, speaking about other factors that we can consider, I read recently that in France, the French Fair Competition Council had asked to initiate an exclusive agreement between Orange and Apple. And I was wondering if that is something that we can consider as factor, another response in relation to this case in question --
MS. GRANICK
I think that is another factor.
And what I would -- you know, I think it's hard to give an exclusive list of what other factors might be, but competition policy being formulated by other United States agencies and by other governments is certainly something, I think, the Copyright Office is well entitled to consider when deciding what the scope and purview of copyright regulation ought to be.
MR. GOLANT
Okay.
And one last question.
Is it possible, if we granted the exemption you've requested, that I could take my phone and use Skype, and then avoid any kind of wireless charges all together?
In other words, I can take my phone -- I bought my phone -- and I don't have to pay for service ever again.
MS. GRANICK
Not -- this exemption for unlocking to use on another network is -- would not do that in and of itself. You would first of all have to have a phone that could run the Skype application on it, which many of the CDMA -- the phones were talking about, and --
MR. GOLANT
The iPhone does that.
MS. GRANICK
But the iPhone -- and this exemption in combination, or even just the -- you know, the jailbreaking exemption alone, which would allow you to run applications on a phone that's capable of running those applications, in that case, I could grant you that exemption, would allow customers to put Skype on their phone and use wireless, put Firefox on their phone and avoid the Safari browser, put a different mail client on their phone and avoid using Apple Mail and all of those things. And this exemption and the way that it's phrased, I think, alone would not accomplish that.
MR. GOLANT
And this question came up because I read in The Wall Street Journal about using the iTouch with Skype, and that was an interesting thing. I don't know how many more people will start buying -- buy an iPhone if you can get communications going between friends and family. That's great.
MS. GRANICK
Yes.
And I think the iTouch has that capability.
MR. GOLANT
Well, thanks. That's all the questions I have.
MS. GRANICK
Thank you.
MS. PETERS
Okay. Thank you.
MR. CARSON
First of all, I think I misheard something you said, but I want to make sure.
At one point did you say that your clients purchased some of the phones for resale --
MS. GRANICK
My clients are partners with Best Buy and their recycling effort.
MR. CARSON
Oh, okay.
Now, we've heard -- and this is a question for anyone -- we've heard about the problem of some people who actually do go to Best Buy and Wal-Mart and scoop up the cheap phones that people like Virgin Mobile offer for sale, and then strip them of what's on them and resell them.
Assuming that's a problem that is the consequence of the existing exemption that we'd like to avoid, and if -- but assuming it is something we'd like to avoid, does anyone have any ideas on how, if we were to apply the continuing exemption along the lines of what we already have, we could we fashion it in such a way that it would not include that kind of conduct?
MR. LURIE
What you could do, you could allow the exemption -- and we would submit something in writing later. But for legitimate customers who previously used the service for which the device was intended, could themselves reflash the phone.
You know, and if they needed to go to some type of other store to do so, that might be something, but it has to be a consumer who has previously used that service for some sufficient period of time, that the carrier -- in our case, that would allow us to recover our investment.
Once that consumer has used the phone in the way that is clear, our -- whatever it might be, and we have -- we don't have -- we haven't specified -- but allows us to recover our investment, then that customer might be able to. But again, that's just not what's happening.
What's happening is that bulk purchasers -- MetroPCS also is taking -- saying, Go buy a phone, don't ever use it for the purpose for which it was intended, and reflash it for this other purpose. And that's, in fact, what's happening here.
I also -- if that's a satisfactory answer, I would like to just address a couple of other issues that I think may be clouding the view.
I think the idea that we're a reactionary, anti-open technology company, I think, is inaccurate. We view ourselves as one of the most entrepreneurial and innovative companies in the wireless field.
The discussion about open networks that accompanies the new spectrum that the FCC is considering opening, we don't have a problem with that. We think open networks -- someone should run an open network, and people should sell open devices.
What we object to is taking -- or, forcing us to sell open devices. Again, open networks, that may be -- it may be a great business to sell unlocked devices. We just haven't been able to make it work and don't want to be forced to do so.
Also, the discussion about phones and the exclusivity arrangement, we don't have a strong view about that either. If a -- whether a carrier and a handset maker -- we won't read into it, frankly, but we think that's actually a separate issue.
But in terms of exclusive arrangements between a wireless provider and a manufacturer, we think they can be useful, and we think they can create marketing opportunities to drive down prices. But again, it's not an absolutely critical issue for us.
So again, open networks, the Carterphone proceeding, you mentioned the Orange and the Apple, none of those really -- even the use of Skype by a network, there will be a time when people will take data chargers for the use of Skype, rather than voice charges, for example, for the use of minutes. And if a handset is Wi-Fi enabled, they may not need a cellular network.
Again, we think that those are separate issues than what we're seeing here. And we're not offering a view. We're not saying we're categorically against any of those developments at all.
MR. CARSON
Let me go back to your response to my question. I'm wondering whether that response would mean that Ms. Granick's clients would be unable to take advantage of the exemption. I think the answer would be yes, but I'd like your reaction to that.
MR. LURIE
I'm sorry. I didn't follow.
MR. CARSON
Okay.
As I understand it, your response to my question is, how might we refashion this exemption in a way that prevents the bulk purchasers, slash, resellers from going to Wal-Mart and just cleaning them out and reselling them -- was -- required -- the exemption, I think, to people who have actually purchased it and used the phone for some period of time.
MR. LURIE
Right.
MR. CARSON
I gather that would mean that Ms. Granick's clients would not be able to take advantage of the exemption; is that correct?
MR. LURIE
I'm not sure. We are worried about bulk purchasers. But we're also very much concerned about companies like MetroPCS who are encouraging -- let's say, Buy this handset and repurpose it; never use it for the purpose for which it was intended. That's not necessarily about bulk purchasing. That is totally relying on this exemption.
And so, I think what we need to do is allow customers who have used the phone legitimately for a period of time that is acceptable to the seller as well, and say, Now, if you want to take it with you, and you've used it for a period of time, then that would -- and when you talk about her clients, I don't see how it would -- it wouldn't be a problem for Recellular -- I'm not sure I understand the Recellular issue, actually. I look forward to reading that brief in more detail.
MR. CARSON
Let me ask Ms. Granick.
Do you understand what he just suggested?
Would that work for you?
MS. GRANICK
No, because my clients are not customers of these providers. And my clients haven't previously used these phones. My customers get phones from a variety of sources.
One of those sources is Virgin, but frankly, the amount of phones that Virgin provides to my customers or to my clients is a fraction of the total number of phones that my clients process in a year. And it's an even a tinier fraction of the total number of phones that are eligible or qualify for reuse and recycling each year in the United States.
So, we need an exemption that allows us to get phones from a church or a school or from a user that just sends it in in exchange for a credit or for a contribution to Cell Phones for Soldiers or any of the other charities that Recellular or that my other clients run, and not have to determine whether it's been activated before and on what network, but we can just refurbish that phone and make it available on the secondhand market.
And that's the only thing that's economically feasible that keeps the recycling companies as a feasible business.
MR. CARSON
Okay.
Can you come up with any way that would allow your clients to continue to do what they are doing without also opening the door for these bulk purchasers, slash, resellers who are doing what they are doing?
MS. GRANICK
Well, first of all, I think that the bulk purchase is a concern, and is a concern I'm very sympathetic about. I've written about the concern that, in particular, Tracfone has with the bulk purchasers, and that I understand the position they're coming from.
I don't think that is a copyright concern. I think it's a business model concern. I think it's a trademark concern. I think it's a contract concern, and an unfair competition concern, but I don't think it's a copyright concern.
But I have spoken with a lawyer for Tracfone who does their bulk lawsuits, Jim Baldinger. We became friendly after he deposed me in one of his lawsuits where the defendant listed me as an expert in the case.
MR. CARSON
It's a common way to make friends.
MS. GRANICK
You know, lawyers are weird people, and that's how we get to know each other. And he and I, to be frank, before this Rulemaking, we talked about this issue of whether there was some idea we had, and maybe more intelligent people than me can come up with.
If the Office thinks that this is a copyright concern and wants to address it, maybe you can come up with something, but even I couldn't come up with something that helps people like my clients who get a phone in the mail, or more accurately, get tens of thousands or million of phones in the mail -- something that works for them.
MR. CARSON
Okay.
MS. GRANICK
And I couldn't come up with a solution to that problem.
MR. METALITZ
It's possible that we could help in this process in, I think, coming up with an exemption that kind of walks that line.
But I think we're really getting into the other point here which is it picks up on the whole question of the other factors that you take into account.
I think it's important to again look back at the statute from time to time. And the other factors only enter into your determination of whether a noninfringing use is being impeded. And I'm paraphrasing here, but it's not necessarily a warrant for all the public interest --
MR. CARSON
Understood.
I can see how a case can be made in the first place, but then if we had, it might be appropriate to try to make sure --
MR. METALITZ
Absolutely. I mean, obviously, there's no way -- this isn't hermetically sealed from all these other issues, and perhaps there's some way to deal with it that would help to satisfy all concerns.
MR. CARSON
I want to follow up on the question that I asked earlier about the reflashing.
I gather there's, at least in some circumstances, a way to deal with this by reflashing, which basically wipes everything off the phone.
My first question is, if that's all you are allowed to do, would this serve your purposes?
MS. GRANICK
Um, no, it would not, because for customers -- most directly for customers who want to unlock their own phones and use them on a different network, they have their music or ring tones, the manufacturer operating system that they're a legitimate licensee of, and the phone is designed to work on a different network.
All they want -- instead of getting rid of all of that stuff, all they want to do is change this one parameter so that they can go on a different network.
Same with the GSM phone. I may love my phone here in the United States and want to maintain my relationship with my carrier, but I'm going overseas for a month, and I don't want to reflash my phone or get rid of everything. I just want to unlock it so I can put a different SIM card in it so that while I'm in Europe, I can use it there, and when I come back, I will continue my contractual relationship with my regular provider. So, that would not resolve the problem.
MR. CARSON
All right.
Okay. Steve, you may or may not be in a position to speak for the copyright owner whose content Ms. Granick just mentioned for -- she's speaking about might want to take with them, but would your clients who are the copyright owners of that copyright -- the ring tones, whatever -- would they have a problem with someone who decided to leave Virgin Mobile or Tracfone or whatever, and take their phone to some other carrier -- would they have a problem with that person taking a ring tone or whatever it is with them -- beyond having a problem, because that's only the first question -- you'd also have to explain why they think they have a legitimate right to right to complain about it.
MR. METALITZ
Yeah. I think I'm going to have to get back to you on some of that, but my concern would be not so much, can you continue to use that ring tone on your phone on the new network, because presumably whatever the deal was between the copyright owner at the original network would kind of cover that, but my concern is this exhibit (Indicating), the "Embedded File System View," and whether this facilitates other uses of that that were not contemplated when the content was behind the access control and it could be used to generate the ring tone, but not necessarily to send to 50 of your friends or used for other purposes. That's where I think the concern will arise.
I don't know the answer as to whether this -- how much this increases the likelihood of that, but that's the reason why we think that the record this time actually has a little bit more to it perhaps for you to look at as far as what the impact is going to be.
I think on the reflashing question -- I think we did talk about this three years ago. There's a footnote in your recommendation that suggests that if all you're doing is reflashing -- is wiping out the -- what's on there, that's not -- that's not an act of circumvention.
By the way, we raised this argument three years ago in the Sony rootkit context, and you did not actually see fit to engage us on that or make a decision on that, but we still think if you're eliminating something, if you're eliminating the content, you're eliminating the copyrighted material, it's hard to see how that's actually an act of circumvention, because you haven't gained access to anything that you otherwise have.
The problem is, as I understand it from the description in Exhibit A, what happens in reflashing the Apple setting anyway is, yeah, they wiped out everything, and then they put in a patched version which is identical except for allowing access to things where access wasn't allowed before.
MR. CARSON
We'll worry about that in a half hour.
MR. METALITZ
The problem is that a derivative work is being created and an adaptation is being created, and then you get into whether or not that's --
MR. CARSON
Is there a consensus -- would everyone agree that the kind of reflashing we've been talking about does not involve circumvention, or does anyone think it does?
MR. LURIE
You are wiping out the entire --
MR. CARSON
Yeah.
Is that circumventive to access control?
You're getting rid of it, and you're getting rid of what it's protecting as well.
MR. LURIE
Well, I would need to give it some more thought, because I think that we've invested in this -- we've loaded copyrighted content and software on a device for a specific purpose. If you're wiping it out, then we sold it to no benefit; right?
MR. CARSON
Well, you got the price for it, presumably.
What other benefit were you expecting to get from it?
MR. LURIE
We were expecting our customer to use it for our service.
MR. CARSON
Okay.
You're operating system and your software. Let's just move on to that, then.
I think, if I understand you correctly, you said that while it's possible to have more sophisticated access controls that might separately protect your operating system, your firmware on the one hand, and then separately protect things like ring tones and audiovisual content and so forth, that's just not feasible to your business model.
Is that a fair characterization of what you said?
MR. LURIE
Mm-hm.
MR. CARSON
Okay.
So, basically you're stuck with having this security software that protects everything, and you can't discriminate; is that the notion?
MR. LURIE
(Nonverbal response)
MR. CARSON
Do you have the technological ability with the software you have to put the part of the firmware or whatever it is that controls access to the telephone network on the other side of the security software?
In other words, could you choose -- I know why you wouldn't choose, but could you choose to have that security software protect all the copyrighted content, and, in fact, protect everything except what a person would need to get to in order for them to say, I want to switch from Virgin Mobile to another network?
MR. BUERGER
So, in perpetuity, no, because we don't know what other attack methods might be developed in the future to create a fence now between the copyrighted works and execution -- executable code. We don't know how good that fence is going to be a year from now or two years from now.
And so, for our purpose, it's much easier to have one very, very strong protection mechanism that protects everything than to try to split it out.
Also, if we start to develop different protection mechanisms by content type, which it would involve, it's hard to predict, you know, whether certain content type that might be more desirable, such as games, would become really the focus of the attack -- the group force attack to crack that protection mechanism.
MR. GOLANT
Are you the only company that does this, or are there any other cellular companies that also protect everything at once?
MR. BUERGER
So typically, CDMA --
MR. GOLANT
Verizon uses that; correct?
MR. BUERGER
Yeah. And Sprint works in exactly the same way, so...
MR. CARSON
You obviously don't protect everything at once. In other words, if I get a cell phone from you, there's certain information I can put into that cell phone, and your security software isn't going to prevent me from doing that.
MR. BUERGER
Sure.
MR. CARSON
Why is it that your security software necessarily has to protect me from punching in a new code so I can connect to another network?
Why does it have to work that way?
In other words, if you chose not to protect that ability, if you chose not to basically force me to stay on your network to operate that phone, what is it technically, if anything, that prevents you from letting me do that?
MR. BUERGER
So, there's also some hardware-based limitations based on the chipset that we use that are not capable --
MR. CARSON
Okay. I sort of understand what you're saying, but you haven't given me enough information to evaluate what you're saying.
MR. BUERGER
So, typically the chipset that we use are a different class than what you might get on an Apple iPhone. So, they're very low-end, inexpensive chipsets that simply do not have any kind of secure file or DRM mechanism.
MR. CARSON
I'm not sure if what I'm about to say is responsive to what you said, because I'm not sure I entirely understand what you said, but I guess what I'm saying is, if you chose not to make that secure, if you chose not to secure the ability to switch to another network, if you wanted to chose to, would you be constrained from exercising that choice by the technology you're using?
MR. BUERGER
You know, it's going to be an engineering problem. If you put enough engineers on it, you could probably resolve it over time. But it's the cost of the chip and the cost of the engineering effort that would raise -- or, have an economic impact on our business.
MR. LURIE
We buy chips at a certain price, and those chips are less sophisticated than maybe the ones that Verizon uses, and they're more sophisticated devices -- and we haven't -- it would be -- we'd have to by a more expensive chip. Handset prices would rise, and that's not our customer segment.
MR. CARSON
How much more expense would it be?
MR. LURIE
I'm not sure.
MR. BUERGER
Double or more.
MR. CARSON
Double or more the price of the chip?
MR. LURIE
Yes.
MR. CARSON
Well, what's the price of the chip right now?
MR. BUERGER
It depends. It might be confidential information.
MR. CARSON
Are we talking single digits? double digits?
What?
MR. BUERGER
Double digits.
MR. CARSON
Ms. Granick, do you have anymore questions?
MS. GRANICK
Yeah.
Just to point out, for example, Verizon doesn't lock its handsets. Verizon no longer locks its handsets. Yeah, Verizon disabled certain functionality like Bluetooth, and Verizon protects its content.
So, there's nothing special about network locking that relates it necessarily in any way to content protection. And it is -- I still haven't heard anything -- and that's the way it is for the vast majority of phones.
I think that the -- there may be some technological differences in the iPhone, which you'll talk about later, and I can't compare to -- these guys presume to be an expert on Virgin's engineering, but I don't see any reason why they can't allow the customer to change the Preferred Roaming List and a few other variables that are required to connect a CDMA phone to another CDMA network and yet have their Master Subscriber Lock control access to the file system that they showed in their demonstration. It is what other CDMA and GSM providers do.
MR. LURIE
I think what is happening, just so you understand, there are customers who can't afford it. And Verizon offers sophisticated, unlocked devices with two-year contracts that it heavily subsidizes that are completely different from what we're talking about.
You're saying, yes, the Mercedes has 16 air bags, but the Kia has 2. And if you want us to put 16 air -- the customer might be safer, but it's a different car, and the customer would be bicycling because they can't afford that car. That's really what we're talking about here.
The other part is -- getting back -- I'm thinking about where we might reach a compromise. And the idea that recyclers don't know where the handsets are coming from is mostly -- is highly unlikely. They do know where the handsets are coming from, and they know in good faith whether they're coming from people who have reflashed the phones, whether they're coming from bins where legitimate customers are depositing them.
And something like a strong, good-faith requirement might be a solution to some of Ms. Granick's clients, because they do know. They know when they're getting handsets from us. They know when they're getting handsets from a bin in the Best Buy store. They know where they're coming from. The origin is never -- I would say, rarely unclear, and they know what to do with the handset --
MR. CARSON
Well, how do we know that, because Ms. Granick tells us they don't. He's saying they can; he says they can't; and we're here saying, How do we know.
MR. LURIE
We routinely get inquires from people saying, There's a shipment out there, I'd like to buy it. And we know where those handsets are.
Handsets are very traceable. They all have security identifiers. We know exactly where we shipped it the first time, where it ended up, who bought it. There's no mystery, actually, when people who make handsets -- where it came from.
MR. CARSON
So, if one of her clients told you, "I've got the following 500 handsets. Would you please let me know if they're legitimate or not," how are you going to know?
MR. LURIE
I think what's actually occurring is that you're trying to enable a free-riding scheme, and they know that those handsets are coming from maybe a company that is encouraging customers not to use -- to repurpose the handsets for purposes on a network for which they're not intended. Then they're getting the handsets from that carrier.
And so, they know -- they know how old the handsets are, when they were sold -- it's highly unlikely they were ever used, for example, with the Virgin Mobile service.
If it's an eight-month-old handset and it came from a network that actively encourages customers to buy phones and repurpose them for a use for which they're not intended, and then they get recycled, they get sent to Recellular, they know that those handsets were never used properly.
They're experts. It's not a mystery.
MR. CARSON
Okay.
Let's get to what this is all about, which is, it's about Section 1201, and it's about technological measures that control access to copyrighted works.
Now, my questions for the most part talked about defending access to copyrighted works.
Let's focus on Virgin Mobile's copyright issues here, because I'm not quite sure I know what it is. So, if you can tell me what copyright interests of Virgin Mobile's are be being protected by your technological measures, that would help me understand the basis for your opposition to this exemption much more effectively right now.
MR. LURIE
We sell, for example, ring tones that we buy under license from a music company. And we are required to protect those ring tones and make them not freely tradeable or copyable. We've had a couple problems with piracy, and we don't want a piracy a problem in the mobile -- if the handset security is compromised, the security of the ring tone is compromised, and will we be in violation of an agreement.
Because we know -- see, it's not a mystery to us. We know that the handset is being repurposed. We know, for example, that if customers were -- we know when we sell 10,000 handsets that don't get activated on our network, the people aren't using them as paperweights. They're getting them repurposed. We know that it's happening.
And then we would know -- we would have to go tell -- go tell the content owners that, Hey, it's open. We can't protect it. Those are -- that's one part of the copyright interest that -- legitimate copyright interest that we're trying to protect.
MR. CARSON
Is there any of your own copyright work that's being protected by this?
MR. LURIE
Yes.
The user interface we developed. We also prewrote ring tones that we proposed, graphics that we design. We have copyright interests, and when a security software is compromised, those are open and they can be copied.
MR. BUERGER
We also have applications that we wrote internally that run on the handset, like an address-book backup application.
MR. CARSON
And obviously you've got a record where a lot of people have gone ahead and cracked through this stuff and resold phones.
Are you aware of any cases where there has been, in fact, illicit copying of that content for perhaps redistribution to other people, apart from just the use of the copy on that particular handset?
MR. LURIE
I'm not, but we haven't --
MR. GOLANT
In other words, import it out to something else that someone else would use for another purpose.
MR. LURIE
I'm not aware of specific widespread trading, other than -- but it's certainly possible.
MR. KASUNIC
Is there any reason why you have to preload it?
MR. LURIE
Well, we don't want to sell -- we like to sell a product that's attractive. You turn it on and it has a ring tone that someone likes to listen to without having to buy another one.
MR. KASUNIC
Without having service with Virgin?
I mean, once you connected to Virgin service for the first time, couldn't you --
MR. LURIE
Could we -- if the question is, could we configure -- like, put an over-the-air configuration of the phone where we download over the air, and we were talking about that earlier.
I think earlier we said it would cost 6 million dollars every time we did it. So, the answer is we could, but that's a different business model that our customers couldn't afford.
I'm not even sure we could, but it seems possible.
MR. CARSON
Is it your position that when someone does crack the security and takes the cell phone and uses it on another network and continues to use your user interface -- your ring tones or whatever -- that they're infringing your copyrights?
MR. LURIE
They are.
Are they infringing --
MS. PETERS
Your copyrights.
MR. CARSON
Again, I'm trying to figure out what copyrights you have here, and so far I don't know what copyrights that you have. I know that there are third parties that -- I'm trying to figure out yours.
MR. LURIE
Okay.
They're ring tones. They're graphics. Some of which are designed by third parties. Some of which we design. Some of which are third-party -- like, we -- but just taking the ones we design, we sell it -- we invest in that copyrighted content, we sell it. If the consumer doesn't use it with our service, they're infringing on our copyrighted interests.
MR. CARSON
Would that be exclusive rights that they're infringing on when they do that?
MR. LURIE
Well, they're not using the content for the purpose that it was intended.
MR. CARSON
Which of your exclusive rights under Section 106 of Title 17 of the U.S. Code are being infringed when the customer takes that handset, switches to another service and uses the user interface, listens to the ring tones, whatever?
MR. LURIE
I'd like to have this filed under written submission.
MR. CARSON
Good idea.
MR. METALITZ
I don't know the situation of Virgin Mobile, but in general, when you have a license, it covers use of the copyrighted material, reproduction right, usually in the case of the software, and your use of this in violation of that license.
MR. CARSON
I might have expected to hear him talk about a license, but I haven't so far.
MR. METALITZ
I don't want the record to show that if there's a use in violation of the license -- that that wouldn't necessarily --
MR. CARSON
I can conceive of things, but I'm trying to be told what they actually are in the real world, as opposed to what I might imagine.
MR. KASUNIC
Just picking up with that question about the licenses, I have a couple questions about your comment, or responsive comment related to those licenses.
First of all, is it your position that this, quote/unquote, Terms of Purchase agreement is a binding contract?
MR. LURIE
Yes.
The Terms of Purchase -- we use the term Terms of Purchase to refer to the handset packaging, and the Terms of Service -- and that's just a short statement that says it's for use with our --
MR. KASUNIC
And the difference between those two, the Terms of Purchase, is something that, again, is just on the packaging. It doesn't have anything to do with any service, but in order to own that piece of hardware, no matter what you are doing with it, you're saying that you think this language of, This phone is sold exclusively for use with service with Virgin Mobile and not for commercial -- and you may not alter any of the hardware -- so, all of that language is imposed on the purchaser just by purchasing that physical item.
MR. LURIE
I think it's a sentence or two, but yes. It simply says that the handset is for use with our service.
Again, we're not -- we don't manufacture the handsets. We provide a service. And that's what it's for.
MR. KASUNIC
Well, then I'm confused, because you also have the term "service agreement," and you say that Virgin Mobile customers who activate their handset with Virgin Mobile also agree to the Terms of Service. And then you go on to say that the Terms of Service constitute a binding contract.
Well, that seems to suggest to me that wasn't referenced in the first part, and I actually had some questions about that in terms of the binding nature of the purchase of the device. I can understand the binding contract once you connect with the service and you click through or agree to that.
And in relation to that, I guess one of the things that I wanted to address was that your way of limiting this exemption was that if -- that the user -- it would have to be someone who had used your service before.
Now, that creates the problem of once you use the service, then you do have a binding contract, and all of those terms of that contract then live with that customer forever after in relation to that.
So, doesn't that create sort of a Catch-22 if you force someone on the basis of the limitation to actually connect with your service and use it, then all of a sudden all of the licensing restrictions that you may impose in that Terms of Service then become binding on the user?
MR. LURIE
Well, one, it's simply a shrink wrap that's on the package. It says if you are buying the handset with the intent to use it, you must use it with our service. That's the purpose of the product. And you can't alter it.
Once you've activated the service, at that point you have an opportunity to read more detailed terms. And that's where the difference is.
MR. KASUNIC
Isn't that the same kind of -- I seem to remember another Terms of Purchase Agreement like that that was placed inside of a book a long time ago, and the Court in that situation found that you could not just impose based on purchase.
MR. LURIE
That's exactly why we don't. The Terms of Purchase are very simple. The device is intended for use with our product. When you activate the service, you have a more -- you're in a position to -- your education about the service increases.
Our Terms of Service are mostly involved with how the service offers work and the pricing and what you're charged. And at that point, when you activate the service, you are -- you're agreeing to those terms.
I don't see any inconsistency. I think we're simply trying to make it very clear to the consumer that -- on the package -- this is intended for use with the Virgin Mobile product. I just wouldn't put a more complicated service agreement on the package.
MR. KASUNIC
Jennifer, do you see any problem in terms of those different contractual terms?
MS. GRANICK
I think I briefly mentioned that I have real questions about the enforceability -- about the formation and the enforceability of contracts as a result of this. I mean, I think that if you look at the case law -- and the cases aren't coming to mind right now, but there are cases that say there's a real difference between box top or package terms and click-through licenses where the purchaser has the requirement of making a manifestation of a assent.
And so, these terms that are -- I'm not clear whether they're on the box or in the box, or what the situation is, but there's no manifestation of assent, and I think that you have a -- if you have a purchase agreement that says when you purchased it, you agreed, there's a real question -- I think under case law there's a real question of whether that is a legitimate, contract formation.
And then also, aside from -- aside from my thought that that's not a real contract, I also -- looking at the Terms of Service, it's not clear to me that the language in the Terms of Service that a user might click through tells the user that they can't use the phone on another service.
What this says to me is you can't use the service with another phone. And that is different -- that's -- you cannot use our service with any other phone or device or on any other network. That maybe that means you can't use -- you can't use the service on any other network. I don't know what that means.
But I do have some real questions about this being a legitimate contract and, you know, one sort of dragoons the person into something that they're not really aware of and they haven't really consented to.
MR. KASUNIC
Well, do you think when the consumer pays whatever the cost is of the phone, that they believe -- or, do you have any different view that the customer then owns that phone?
MR. LURIE
Under 117, the customer is not the owner of the software. They have a license to it.
You know, I'm having a hard time correlating two different aspects of this discussion. On the one hand we're being told that as long as we've got contract rights, why are we worried about the exemption. On the other hand you're saying, That contract is no good anyway.
Actually, it's a very simple Terms of Purchase. That's never been an issue for us. It's written -- it's one sentence. I think it might be -- there might be two.
And the Terms of Service in the agreement are not written in a lawyerly fashion. I know, because I wrote them. And they're written in a very conversational way. And enforceability of those terms, I hope, is not an issue, because we clearly don't have --
MR. KASUNIC
Those contractual terms would never apply to third parties who didn't have any relationship, because -- so, when David was asking the questions about, what are the remedies -- we were talking about trademark -- other kinds of remedies outside the contract, there's no privity between other parties who may end up with this device to these particular contract provisions. So, that was never an issue in those particular cases.
But getting to the question -- leaving aside the question of the analysis, then, of whether a -- this is -- well, let me ask Jennifer, actually, just your view of, do you think the purchaser of that phone has a reasonable expectation of ownership of that device?
MS. GRANICK
I think the purchaser is an owner. And the purchaser has the rights that are associated with the control that owners have.
There is no requirement to return the device. There's perpetual possession. They may throw the device away. They have -- there's no -- there is no limitation or continued relationship -- persistent relationship between the licenser -- or, the seller and the purchaser.
And if you look at Krause versus Titleserv and the kind of rights that the person had -- or, that the purchaser had there or -- you know, those are the -- that's the language. So, if you just -- pardon me for a second, and I can read what the case says.
So, this is -- Krause is the case talking about what owner rights are under 117, and it is not whether or not a license comes along with the product or not, but what the nature of the rights associated with the purchase are.
And in Krause, the Court says:
"It's anomalous for a user whose degree of ownership of a copy is so complete that he may lawfully use it and keep it forever, or if so inclined, dispose of it, throw it in the trash, to nonetheless be unauthorized to modify it under 117."
And this is the situation of a cell phone owner.
MR. LURIE
We agree with Krause, but that's not what the case holds. In Krause, the customer used customized software that the customer needed to change for it to be used for its intended purchase. They paid substantial consideration. That's not an issue.
MR. KASUNIC
Well, that's what I want to get to, because you make in these responsive comments -- make the point that 117(A)(1) entitles the owner of a computer -- copy of a computer program to make or authorize the making of another copy or adaptation provided that such a new copy or adaptation is created as an essential step in the utilization of the computer program.
And then the argument is made in relation to the CONTU report that the key criteria is for an essential step is whether the copy or adaptation was necessary to enable the use for which it was both sold and purchased.
Now, the question I have there, and what's highlighted, is "the purpose for which it is sold."
Now, is -- you can go to different levels of abstractions, I guess, and get to the point of what the purpose is and what in specific for Virgin may have had additional purposes, but isn't, in a general sense, the purpose for which this computer program is sold and purchased just to operate the phone?
MR. LURIE
We respectfully disagree. We are not a device manufacturer. Our phones bear two logos. One is Virgin Mobile for the service, and one is generally the logo of the manufacturer.
The purpose for which we sell the device is for use with the Virgin Mobile service. It is not an essential step -- 117 is not an essential step to make a copy to repurpose the device for use on another network. That's just not -- that's not an essential step.
MR. KASUNIC
It is an essential step to adapt it to put it to another network, though right?
MR. LURIE
But that's not the purpose.
MR. KASUNIC
That's not your purpose, but it may be the purpose for which the consumer bought the phone.
MR. LURIE
And that's why we, in bold letters on the phone, say, The purpose of this phone is for use with the Virgin Mobile service.
MR. KASUNIC
Just one other thing. I know we're running into our time for the next panel, and there may be some other questions.
MR. LURIE
Can I -- there are open handsets that consumers can buy that are sold by manufacturers. If the consumer wanted to buy an open handset and use it and activate it, they have every right to do so. We think that's wonderful. We don't have any problem with it.
What we object to is being forced to increase the cost of our handsets to consumers who can't afford it. And, again, I still disagree that there is a copyright interest in the proponent's case, because they're trying to defend a business model and not an interest in the copyrighted content.
MR. KASUNIC
Well, that's what we're trying to get to, as well as Virgin, is to whether some of this goes beyond a business model choice and actually involves underlying copyrighted work -- the copyrighted works that are there.
And we're sort of operating in the blind here, because I know that there are certain maybe trade secret information and other which will prevent you from exposing some of the prices of the chipset and some of these other factors, but it makes it hard for us to evaluate, then, what the additional cost is for different ways of doing things, to evaluate to what extent this business model is necessary to serve these low-income, or whatever -- the people who are -- desire this phone, as opposed to others.
But one of the main points that we need to clarify, I think, is in relation to some of the questions David was raising and whether these can be the copyrighted work that may be contained on the phone or other ones that may be downloaded onto the phone.
Is there any reason why these have to be -- aside from business model interests, costs, concerns that you're trying to achieve -- why these have to be protected in a bundled form?
And could they -- could the -- could the Master Subscriber Lock that's placed on there in terms of getting access to the network be protected in one bundle, and then have a protection for all the other potential copyrighted -- is it possible to do that?
MR. LURIE
If we bought more expensive handsets and had more expensive chips on the order of double the -- again, we operate on margin of dollars. We negotiate every last, literally, penny on the per-unit handset cost. So, a change of $20 in a handset price on a per-unit basis is dramatic.
MR. KASUNIC
Is that how much of a change it would cost?
MR. LURIE
We're talking about a point where -- we said double digits, and it would be that, so -- that's even at the lowest point. But I really can't talk about chipset cost, and I can't talk about the wholesale cost and the --
MR. KASUNIC
Well, you just have to understand if we can't make progress to evaluate it, then --
MR. LURIE
My point is that if it's double, and it's in the double digits, and the lowest change might be $20, that is a dramatic difference for a business that negotiates handset prices by the penny.
So, the answer is, we could buy more expensive handsets and more expensive chips and distinguish the DRM from the network lock, but that's a different product.
MR. METALITZ
Can I mention one thing?
MS. PETERS
Yes.
MR. METALITZ
I understand the thrust of this question, but I think there would be a concern with conditioning the degree of protection for -- technological protection measure on how expensive it is and saying that the Cadillac is protected and the Kia is not.
And I can understand. It's certainly a factor worth taking into account, because obviously Technological Protection Measures may work in different ways, and they may have different impacts as far as how they impede noninfringing use.
So, that's certainly a legitimate factor here. But I think Congress was pretty clear. Again, it resisted a number of efforts to say, Well, your Technological Protection Measure has to meet this certain standard. It has to be effective, but that's not a really demanding standard in terms of how robust it has to be or how descriptive it is.
MR. KASUNIC
But we are operating in a situation where we had an exemption three years ago. I think the testimony was that you had to change your system in order to have more robust DRM in order to protect it in light of that exemption.
And in doing so, then you chose to do it in such a way that the only way that someone could get -- move the phone to another provider, they would have to expose the copyrighted content as well, that's contained in that phone.
So, you've created the environment in which -- while you may have contractual provisions to protect that, you're doing it in a way that seemed to have -- if another exemption were to go forward, would necessarily expose that other contract.
MR. LURIE
I can say that none of the -- there was never a conversation between the engineering team that developed the security lock and the legal team that was examining the exemption to develop security software that somehow got around the exemption. That never happened. That conversation never took place.
MR. KASUNIC
That was a mistake.
MR. LURIE
But I think that's what the implication is; right? -- that we're somehow putting everything in one closet so we can make a clean argument for the U.S. Copyright Office. That's not the case. What we're striving at is the technological capacity of the chipset and the cost of that chipset.
MS. PETERS
Okay.
We are 55 minutes behind schedule. I'm going to let Ben ask the final question.
MR. GOLANT
This is just a follow-up. We were talking about SIM cards. I read it in an article from The Register when I came here on April the 24th. It says:
"T-Mobile USA has announced plans to use embedded SIM chips in devices making use of its GSM network, preventing punters from using them on other networks by switching the SIM."
I'm just wondering if you know about this and what your feelings are about it.
MS. GRANICK
I don't know about it. I'm not familiar with what that Technological Protection Measure might be where you would be unable to take a SIM out and put another SIM in.
I know that many GSM phones are locked to a particular SIM card and that you can unlock them and put in any other SIM card, but this particular situation, I don't know.
MR. GOLANT
It seems like trying to obviate that ability --
MS. GRANICK
Yes.
And I think these phone companies have a lot of reasons why they want to do it.
They may want to lock people in to avoid bulk resellers. They have legal remedies against that.
They may want to lock people in because they don't want other companies like a competitor to get their customers to buy a subsidized handset and then move over without ever buying any kind of service. They have remedies against that in terms of competition law and inducing breach of contract.
But that leaves the vast majority -- you know, multiple, multiple times that a company's 5 million users versus an industry where we have -- I don't know how many we have -- at least 125 million cell phones that are retired every year, and it leaves open the question of what those owners and the recyclers who want to do something productive with those phones can do.
MR. GOLANT
Right.
MS. PETERS
It does appear that we still have some questions, so we may well be submitting some questions to you after this.
We are going to, because we've been here for quite a while, take a 15-minute break, and so, in 15 minutes, we will start the last panel.
MS. PETERS
Okay. We're starting.
It's all yours, Greg.
MR. JOSWIAK
Thank you very much.
My name is Greg Joswiak. People call me "Jos." If you hear David or somebody refer to me as that, you'll know who they're talking about.
I'm the Vice President of iPods and iPhone products and marketing. And maybe to give you a little snippet of what that means at Apple product marketing is, we're the folks who work with our executive team and our engineers on the products we're going to create, the decisions we're going to make about those products, the price points, feature sets, et cetera.
I'm responsible for the iPod and iPhone business, and of course, as such, have a very senior role in the App Store and the App Store's creation and the policies that are created.
So, today, just to give you a bit of an overview of what all we discuss -- and of course, being an Apple guy, I'm going to use slides -- I want to talk about first of all, of course, what we've created with the iPhone and the App Store.
(Showing slides)
MR. JOSWIAK
We've created a revolutionary mobile platform and ecosystem. We've unleashed unprecedented creative development with the apps and the App Store, and the iPhone is at the heart of this entire ecosystem.
And jailbreaking hacks and modifies the OS, and by doing such, infringes upon Apple and third-party software. And this destabilizes what is otherwise a vastly beneficial ecosystem. That's because when you modify and hack the iPhone OS, anything can go wrong.
So, first of all, the iPhone, as a little bit of background, is a revolutionary device. It's been, of course, a revolution in the aspects of being a great phone, a great iPhone, and it puts the Internet in your pocket.
And it's a phone that appeals to regular people by allowing them to use a device without having to be very technical, and allowing them to do things they never dreamed they could do on a phone before. And this is a product that our customers love.
In fact, we were just awarded the J.D. Power award for the phone with the highest customer satisfaction. That was just awarded this week. And that goes along with the award that we got from J.D. Power last year for the phone with the highest customer satisfaction in business.
So, indeed, it is the phone that has forever changed all phones in lots of different ways. And one of those ways is the App Store. And the App Store provides a safe and reliable way for our customers to extend the capability of the iPhone, and has become a key part of the iPhone experience.
It is in and of itself a revolution. It provides a revolutionary way for developers to create and then distribute applications, and, of course, allowing our customers to do things with their mobile device that they never dreamed they could. And it, again, has changed the industry.
As a piece of history, this all started a little over a year ago in March of 2008. That's when we first launched our software development kit for the iPhone OS. And the iPhone OS, it's worth adding, is the operating system that controls both the iPhone and the iPod Touch. And this software development kit contains the same APIs and tools that Apple uses to create our applications for the iPhone and the iPod Touch.
In July of this past year -- so, in the summer -- July 11th to be specific -- we launched the App Store. A revolutionary marketplace for developers to distribute the apps that they were able to create with our revolutionary tools and APIs.
And this had a very innovative model. This is a model that existed for our developers. One is, they get to pick the price. And 70 percent of that price goes directly back to the developer. And out of the remaining 30 percent, we cover all other costs.
So, to the developer, there's no credit card fees. There's no hosting fees. There's no marketing fees. And of course, we run the store out of the remaining dollars that are left as well. And free apps remain free.
We wanted to have a provision so that if developers wanted to deliver applications free to their -- to our customers, that Apple would bear all the cost of that. There would be no cost whatsoever for either developers or customers. So, again, the App Store has been quite the revolution.
So, we want to create a superb experience for our customers at the App Store. And as such, there are certain things that we don't think belong within the App Store. We think that a lot of them, you know, make a lot of common sense.
We didn't want to have porn up there. We didn't want to have illegal apps, apps that could violate a customer's privacy, et cetera -- or bugging apps, even for that matter.
The good news is that 96 percent of the apps that are submitted are approved, in our most recent data. As a matter of fact, we've gotten faster than ever in approving those apps. A full 98 percent of those apps are actually now approved within one week.
And we've allowed our developers, for the very first time on any mobile platform, to reach every customer. And that's because the App Store exists on the device. It exists on the iPhone. It exists on the iPod Touch. Every single device we sell has that App Store, and that, then, gives the developers access to every customer. And it has produced absolutely historic results.
We have had over 800,000 downloads of our free software development kit in just the first year, from March to March. We have over 50,000 individuals and companies in our iPhone developer program. Obviously, this number speaks for itself.
The developers love what we've created. And that's further underscored by this number. In nine months of having the App Store, there have been over 35,000 apps created and posted in that App Store. This makes it the world's largest application marketplace.
And we just passed a very giant milestone. We have had our one billionth customer download in just nine months. That's one billion downloads of copyrighted software applications through the App Store.
Again, no one could have ever envisioned this when we started this less than a year ago. So, the App Store, again, has been an historic and revolutionary creation.
And of course, we've created a revolutionary mobile experience for our customers as a result. And our competitors have been scrambling to emulate the success that we've created with the App Store.
And we've removed the barriers of success for our developers. And this -- it's probably worth adding -- has worked for both little developers and big developers. It levels the playing field. Again, they all have access to every customer.
And the tools that we've given them have allowed them to create very innovative apps. And as I've mentioned, we provide efficient distribution to every single customer.
How did this all come about? Well, Apple had a pretty ground-breaking idea, but we couldn't do it alone, quite honestly. To do it, we had to establish trust. We had to establish trust, first and foremost, with some of our key partners, which include the carrier partners around the world, because we were about to unleash thousands of applications on their network. And without the trust that those applications that would be running on their network would neither damage or cripple their network, this would not have happened.
And of course, for our developer partners, we had to create the trust with them that we would have a secure and safe place for them to have their commerce to sell their apps, and in order for them to create business.
And of course, that trust also extended to customers -- that they too, would have a safe and trusted place to acquire their software. And the interactions between all these constituencies have to be protected. And we do that at the App Store.
So, the App Store, as I mentioned, has become a key part of the iPhone experience. The entire iPhone experience, really, the heart of it is run through the iPhone operating system, the iPhone OS.
In fact, the iPhone OS is at the heart of the entire iPhone ecosystem and experience. The iPhone OS controls the interaction with the App Store, the user interface, the software development kit, the developers and theirs business, the applications they create, obviously the functionality of the product, the interactions I mentioned with the network, and the interaction with iTunes and the media that our customers own.
Jailbreaking attacks that OS at its heart. And jailbreaking -- another way of saying it is hacking the iPhone -- hacking the iPhone OS. And those aren't just our words. These are their words. This is a snippet from a program recently held by the community of hackers who hack the iPhone. And you can see how they refer to themselves. And I'm going to come back to them in just a minute.
So, why do we secure the iPhone? Why do we have these security mechanisms in it? Well, one is we want to protect the product from modification and copying, protect our software from being modified and copied, because these OS modifications can cause damage. And we want to secure the user's data. Again, their E-mail, their context, their pictures, et cetera. And we want to defend from piracy of both Apple and third-party software. And ultimately, of course, we want to protect a very high-quality iPhone experience for our customers.
So, how do we do this? Well, it all starts with the secure ROM. Secure ROM is, in and of its nature, read only. It contains a lot of information that's necessary for starting up the iPhone, for instance.
It also has some hidden keys down in it. And those crypto keys, which again are buried down into the hardware, are obtained and used to validate and establish a root of trust, which then allows us to load in what's called a "boot loader."
A boot loader contains information necessary for initializing the hardware, and maybe even more importantly, is what validates the OS signature so that we can actually load in a qualified OS, operating system. And that OS does everything to run the iPhone, as well as to validate each of the apps through a signature each time that they're launched.
I referred to that program a minute ago about hacking the iPhone, and I thought it's worth -- provided our audio agrees with us here. We were having a few technical issues earlier -- maybe to hear in their own words, a clip that shows a slide that they've presented in their own words about what their goals are when it comes to hacking the iPhones.
(Showing clip)
(Voice from clip) "So, our goal here is to sort of subvert this and to, you know, modify the operating system so that we can run our own code."
MR. JOSWIAK
Again, that entire presentation they have, by the way, is available on the Web. I believe it's actually cited in the EFF papers, so you can certainly, if you're so moved, go hear the whole thing, but I think this says it pretty clearly as to what their goals are.
So, how do they do it? How do they hack the iPhone and the iPhone OS? Well, the first thing they do is they trick the system so that they can bypass the validation that comes from the secure ROM and in essence severing that root of trust.
That then enables them to load a modified boot loader. They falsely sign it. And again, the system will load it.
That then gets them to what they want to do, which is to install a hacked and unqualified version of the operating system which gets them to their end-all, which is to disable the signature validations for apps so that they can run any app that they want.
Well, what are the consequences of doing something like that? Well, when you hack the OS and remove all protection, anything can happen. As I mentioned, the OS runs everything. And this allows any app, regardless of its functionality, its reliability, or even its safety, to run.
And this also, which has been a big issue for our developers, allows pirated apps to run, because the signatures are not checked when they're launched. As a matter of fact, there are far-reaching risks, and threats, and damages that can be caused when this happens. And I thought it's probably worth mentioning a few of those.
Now, again, I say "a few of those," because when you do modify the OS, anything can happen, and there are certainly things that can happen beyond what I'll describe to you today, but I'll start by giving you the risk and damages in each of the three key areas.
Number 1, let's start with consumers. Crashes and instability. As I mentioned -- or, again, hacking the OS, bad things can happen. One of the things that we've found is that jail-broken iPhones crash a lot.
As a matter of fact, jail-broken iPhones represent far less than one percent of all iPhones that are out there, yet they're responsible for the overall number-one crashing bug on the iPhone. Imagine if that was allowed to be more widespread.
Malfunctioning and safety. The iPhone OS, as I said, controls everything, including things like how quickly you can charge the battery safely, the volume control. And again, when you hack the OS, whether -- there are unintended consequences and there can be intentional consequences that can cause safety issues with the products.
Invasion of privacy. One of the things we check for in the App Store process is to make sure that apps aren't violating customers' privacy. For instance, stealing customer data. Again, whether that's contacts, E-mails, pictures, et cetera. To make sure it's not turning the camera or the microphone on without the user knowing, or even tracking the customer with the GPS.
Jail-broken apps wouldn't have those kind of checks. And again, it would run a very serious risk as to violating the customer's privacy.
Exposing children to age-inappropriate content. We right now reject offensive content, and we are continuing to enhance our parental controls on the product.
As a matter of fact, we have significantly enhanced parental controls with the iPhone OS 3.0 delivering this summer.
Jail-broken apps would, of course, bypass any of this process for these controls, which, again, would risk exposing children to age-inappropriate content.
Viruses and malware. No one likes viruses and malware, period. You certainly don't want it on your phone. How bad would it be if you wanted to make a critical phone call and you were denied service on your phone because of some virus or malware you got from downloading a software application for your phone.
Inability to update the software. Again, when you hack the software, you may, in fact, make it so that we can no longer update the software, because it's been damaged in some way that no longer allows it to be updated. This, indeed, has already happened.
Let's talk about now risks and damages to our partners.
As I mentioned, we never could have done this without the trust of our carrier partners around the world. And we currently work with about 30 of them and -- and significantly more than that.
And again, unleashing thousands of applications on that network without any concern as to how they might damage or cripple that network would be a huge issue, because this network isn't just a network that iPhones use. This is a network that all phones use regardless of who the manufacturer is.
Piracy of developer's applications. As I mentioned, this has become a huge issue. What happens in the jail-broken process is, again, they can run any apps without checking the signature.
And what happens is, there are a number of people in this community who have taken apps; they're able to strip the DRM off; they put it up on their Web site; and then people who have jail-broken phones can then download the software without any compensation back to the developer. And the jail-broken phone will run it, because there's no validation check that it's indeed a legitimately purchased app.
And, you know, I speak to developers all the time. For them this is a big issue. And although there may be others who can find exceptions, anybody who tells you that the general developer community is in favor of jail-broken phones is either misguided, misinformed, or misrepresenting the situation.
Instability of developers' applications. I talked about the fact that jail-broken phones tend to be very unstable phones. And that can be reflected in the crashing of legitimate developers' applications through no fault of that developer, which, again, can create support issues for that developer, as well as, of course, you know, people just reflecting badly on that developer and their application.
Finally, let's get to risks and damages to Apple. I said earlier that one of the ultimate goals for us is to have a great iPhone experience for our customers.
You've heard some of the risks and issues I've mentioned just for customers and developers. That, of course, is very detrimental to the iPhone experience, and ultimately, that's the value proposition we have for our customers, is a great experience. An experience that we try to create better than anything they can get anywhere else.
And of course, hand in hand with that, if you damage the iPhone experience, you risk damaging Apple's brand. You risk damage that can go far beyond the effect on the iPhone and the iPod Touch.
You certainly again can damage the goodwill and reputation that we've built up with our customers for years, if they start to have a bad experience for -- with our product. And the sad thing for people who have jail-broken phones, they don't even oftentimes realize that the problems that they have trace back to having jail-broken phones.
Increased support burden. As I mentioned, jail-broken phones represent far less than one percent of the iPhones that are out there, and yet they contribute to the overall number-one crashing bug, or they represent the overall number one crashing bug for iPhones. And this one is a small niche. Imagine if it were to become widespread. Imagine what would happen as far as both customer problems, and of course, our support burden and cost would just explode.
Partner relationships. Again, both the carrier relationships and the developer relationships, the effect of bad applications on a network, the effect of pirated apps from our developers are big issues.
And our partners in this, through that established trust, look for us to manage the situation. And if this, again, were to become widespread, these would be very difficult relationships to manage. As a matter of fact, it would have a severe limitation on our ability to innovate.
We never could have achieved the App Store, the revolutionary way of distributing apps that we did, without that trust from these partners. If that trust were to be eroded through allowing jailbreaking to become widespread, this would severely limit our ability to continue doing what we're doing, as well as, of course, innovating into the future.
So, as I mentioned, the iPhone OS is at the core of what we do. If the iPhone OS were to become compromised, then indeed, every single element of the iPhone ecosystem and experience would become compromised. This would be a very, very bad thing.
And that's why I would urge you to please say no to the request for the waiver to any exemption that is being requested by the EFF.
MS. PETERS
Thank you very much.
MR. von LOHMANN
Thanks very much.
I know the hour is getting late. I will try to focus on the points that I think are likely to be the core disputed points and leave a lot of the things I might talk about that have already been raised in our written submissions -- and I will try to leave that there.
Let me just start by pointing out that I have an iPhone. I'm a big fan of Apple products and the iPhone in particular.
This is not about trying to argue that point. This is also not about arguing that anyone would be forced to jailbreak their iPhone. Many of the paternalistic concerns that you have just heard, if they are accurate, then great. Many users will opt not to jailbreak their phones in light of the very concerns that have just been highlighted for you.
No doubt Apple and its many partners can further highlight those concerns in the market. No one is talking about hoisting jailbreaking on unwilling or uninformed consumers.
I will point out, moreover, that we have heard arguments like this from incumbents in other contexts many times. Those who are familiar with the telecommunications history, a lot of this should remind you of the old pre-Carterphone debates, when AT&T told you that consumers shouldn't be allowed to have any equipment in their homes, because it would compromise the network. It might, in AT&T's words, electrocute customers if shoddy equipment were used. Again, it turns out that wasn't the case once competition emerged.
Similarly, my auto manufacturer -- I have a Toyota. Toyota would, of course, prefer that I use nothing but authentic Toyota parts and Toyota dealers for service, and that they would also prefer that I not modify my Toyota in ways that might be dangerous to me. I appreciate all that, but it is my automobile at the end of the day. And we haven't in other contexts opted for a different legal regime, other than free-market competition and consumer choice.
In 2006, the Librarian, on the recommendation of the Copyright Office, granted an exemption for phone unlocking. We just obviously heard quite a bit about that.
In that recommendation, the Copyright Office pointed out that, quote:
When application of the prohibition on the circumvention of access controls would offer no apparent benefit to the author or copyright owner in relation to the work to which access is controlled, but simply offers a benefit to a third party who may use Section 1201 to control the use of hardware, which as is increasingly the case, may be operated in part through the use of computer software or firmware, an exemption may well be warranted. It's our view that this is exactly in that wheelhouse.
So, the question here is whether, of course, as you know, that prohibition has or is likely to have a substantial adverse effect on noninfringing uses. Not whether it might undermine consumer experience for those who unwisely chose to jailbreak and perhaps regret their choice. Not other business model concerns, many of which were just discussed.
Let me give you a few additional facts that I think may be helpful. Contrary to the testimony you just heard, our facts submitted in the records suggest that there are at least 1.8 million jail-broken iPhones currently out there, constituting roughly 10 percent of iPhones in release.
These are numbers that have been submitted by Jay Freeman who runs the leading independent App Store called "CEDIA." In his submission he said 1.6 million iPhones.
I have since corresponded with him just earlier this week to ask for updated numbers. He said just in those few months, based on his numbers, it's at least 1.8 million iPhones, of which roughly 400,000 appear to be located in the United States.
Again, he gets these numbers, because when someone jailbreaks an iPhone, generally one of the pieces of software that they installed is this alternative App Store, an alternative marketplace for applications, again, known as CEDIA.
There continue to be apps that are excluded. That's obviously not news. We pointed out several applications that have been excluded in our comments. Of course, we have now the support of Mozilla and Skype who have talked about why their applications either have been excluded.
In the case of Mozilla, Apple does not permit alternate browser frameworks on the iPhone. And in the case of Skype, they now have an application in the App Store, but it is not allowed to use the 3G data network in order to place calls. That is also a limitation imposed by Apple.
In February, some of you may have seen the television show called "South Park." It had its application rejected from the App Store, because apparently it was deemed to racy for the App Store.
I am not saying that Apple should be forced to carry applications in its own Applications Store that it finds objectionable, no more than I would suggest that Best Buy should be forced to carry products it doesn't want to carry. That's not the point.
The point is that in the case of Best Buy, as a consumer, I can go across the street if I want to find an application, a product that Best Buy doesn't carry. That's what we're talking about here. Not forcing Apple to carry Mozilla. Not forcing Apple to carry "South Park." Not forcing Apple to carry the baby-shake application that created such a controversy this last week, but rather allowing customers to have those apps if others would like to make them available.
So, let me give you one other example that I discovered since we submitted our last written submission.
This is an example that is on a blog called "Egopoly" that was brought to my attention by another independent app developer. And here the title of it is "iPhone Ring Tones, SMS Alerts and Physicians."
Quote:
I'd like to buy an iPhone for my wife. She has a RAZR, and it's such junk. She doesn't get very much E-mail, so the simple iPhone E-mail app would be great for her to get E-mail and check her voice mail.
But there is one huge hurdle that is blocking me. It's a big problem and it's extremely frustrating, because it could be solved so simply. It's really just a tiny little thing, and it sucks that it's stopping me from buying that shiny, shiny new phone.
My wife is a physician, and part of that means being on call. What happens is this: Patrons call the office at 2:00 in the morning, they leave a message, and the phone system sends an SMS message to her phone. Currently it's her RAZR. So, I set up her RAZR to have the longest, loudest possible SMS alert sound. It's important, because if she happens to be at home and her phone is in the kitchen, and she's in the other room, you want to hear it so she can call you back and prescribe your meds. But if she does happen to be way down at the other end of the house and the kids are yelling and she doesn't hear the loud, long alert, the RAZR has a persistent page. So, five minutes later when she's back near the phone, she'll hear a little 'beep.' Then she'll know she has a page and she can return it.
The iPhone fails this use case in two ways: First, the selection of tones is pathetic. Apple has decided that there are only ten or so sounds that are suitable for an SMS alert, and they are all quiet and short little dings and beeps. Second, there is no persistence. The iPhone won't beep every five minutes until you at least look at the screen and see the message indicator.
I even bought a custom ring tone in the hope that it would be selectable as an SMS alert. No dice. Wasted 99 cents.
I don't see how any physician can use an iPhone as their sole device. Apple has basically forced all of them to also carry a pager or RAZR or BlackBerry. Why? I don't get it."
And it continues, and in the comments it's pointed out that there are jailbreak applications for jail-broken phones that cure this very problem. That's just one example of an enormous array of applications the consumers want.
Now, don't get me wrong. I think the 35,000 applications in the App Store are great. It's an enormous selection. But there are a variety that are not there because app developers are unable to write them; they're not there because Apple's own arbitrary terms prevent them from being there, either because they find them objectionable, or in the cases that we point out in our comments, they duplicate functionality, quote/unquote. In other words, Apple would prefer to have the functionality to itself, or because they use APIs that Apple reserves solely for its own code, but no one else.
There are many reasons, many kinds of apps that we're not getting. And again, I'll refer you to many that are referred to in our comments.
Now, in addition, the iPhone is not all we're talking about here. The Google Android T-Mobile G1 phone has similar restrictions.
And in fact, it's come to our attention that one great set of applications that is impossible to put on the G1 phone without a similar jailbreak is enabling multitouch. The same squeeze, pinch, drag that is common on the iPhone can be enabled on the G1, but only if you jailbreak that phone, presumably in part because of T-Mobile's concerns about Apple's set the patents on that technology.
But whatever the patent rationale might be, there's clearly no copyright reason why multitouch couldn't be enabled, other than those restrictions imposed in the store and on the G1 phone.
So, let me turn to the legal aspects that I think would be disputed, very quickly. First, it's undisputed that the iPhone is protected by an access control subject to the 1201. Now, obviously we have general agreements on that point.
I will note that the Joint Commenters suggested that 1201(F) may deal with this. I think that's flatly incorrect.
When an individual end-user jailbreaks a phone, they are not identifying and analyzing those elements of the program that are necessary for interoperability.
I do think 1201(F) may apply to the iPhone Dev Team, the so-called hackers that Apple mentioned. They of course are doing exactly that, but I think there is no way in which a person who is jailbreaking their own phone in order to run an application of their choice could be deemed to be identifying and analyzing elements of the software. So, I don't think 1201(F) addresses this area.
Even if it did, I don't believe that the existence of a statutory exemption in the neighborhood of what we're talking about should disqualify the Copyright Office from considering something else.
This is what I would call the "Congressional infallibility principle," that somehow in 1998, Congress knew everything there was to know about these questions. I believe the rulemaking is there specifically to allow the Copyright Office to say, You know, Congress didn't think about this thing back then. It now appears clear, and we can grant the exemption.
But in any event, I don't think 1201(F) applies.
So, it seems to me the core legal dispute we're going to have here is whether jailbreaking is noninfringing. Let me run through quickly -- and we can follow this up with questions if you have additional questions that I don't answer here -- I have three answers to that.
First of all, there's no reason to think that all jailbreaking would necessarily create a derivative work in the first place. I think the Pwnage Tool, which we mentioned in our comments, that is currently the most common and popular jailbreaking tool available -- it's free, as these things so often are, and can easily be downloaded. I will concede that that does create a modified version of the firmware, and, in fact, does so in order to do exactly the process that was just described. And we described it in more detail in Exhibit A.
They essentially -- because the boot ROM does not do a signature check before loading the initial boot-loader component, they basically go in there and have an altered boot loader in that position. The boot ROM then loads. And once you have an altered boot loader, as the slides show, you can load altered versions of the operating system itself.
It does not do signature checking, and that's the key to getting applications of your choice to run. So, that is a derivative work, or at least plausibly is a derivative work.
But let's not make the mistake of assuming that's the only jailbreaking mechanism, or that that will be the exclusive jailbreaking mechanism for the next three years.
So, it's easily possible that future jailbreaking technologies could run by running separate code and injecting different code into memory while it's running. And in fact, I say this because that's exactly how the unlocking of the iPhone works currently for these latest model Apple 3G iPhones, by, in fact, rather than modifying Apple's baseband code, it instead runs a separate piece of code essentially bedside it that injects changes values in memory as the code is running. And I would submit there is no derivative work there, just as we were discussing in the last panel.
But -- so, let's take for a moment at least the popular extant jailbreak code. Let's say it does create a derivative work, or at least arguably a derivative work. If that's the case, then I think that's expressly covered by Section 117(A).
There's no contention -- in fact, Apple's comments do not argue that iPhone owners do not own the code within the meaning of 117. They appear to concede that point. If they hadn't conceded it, I would have pointed out that their own license agreement says, You own the media on which the software is delivered, which is, I think, the definition of owner of a copy that is laid out in 117. But in any event, it's not contested there.
So, what Apple does say is, one, the 117 privilege can be negated by contract. I don't agree with that.
Apple in a footnote admits that there's no case law to support that proposition. They cite the CONTU report. I've read the CONTU report.
As I'm sure you all know, the entirety of the discussion of this provision is contained on page 13 of the CONTU report. It's not terribly illuminating. Nothing therein suggests that contracts can strip users of their 117 privilege.
Perhaps more to the point, there is nothing in the Apple contract that would appear to do that. In fact, I'm a bit confused about how a contract would strip you of your 117 privilege, other than to say something like, You are hereby licensed to use the code on the condition that you waive any 117 or other privilege you might have under existing law.
I've never seen a license agreement say that, and certainly the iPhone software license agreement, which is publicly available if you want to read it, doesn't say anything like that. So, I don't think we have a contractual negation of 117 here.
Secondly, Apple suggests that the adaptations must be created by the user, rather than by third parties. Fine. If that's the case, still no problem here. That's exactly how the Pwnage Tool operates.
The iPhone Dev Team that created, again, this most popular jailbreaking tool, built the tool very specifically so that it does not contain any Apple code period. Modified or otherwise. Not in there.
Every user, when they jailbreak their phone, uses the Pwnage Tool to, on their own machine, compile their own altered version of the code. So, in other words, it is precisely the user that is making the adaptation just like 117(A) envisioned.
And finally, I guess there are two other arguments Apple makes in their papers. First, it says that adaptations may not harm the copyright owner. And that is taken again from the CONTU report.
And if you look at the CONTU report, the gloss in the report there really focuses on the private nature of the use of any adaptations made under 117. There, clearly CONTU envisioned that if you make an adaptation of a piece of software, you are not entitled to then redistribute it, go out in the market, and compete with the copyright owner.
That's the kind of harm to the copyright owner that CONTU was concerned about and, frankly, that cases like Krause versus Titleserv have carried forward. Not harm to a business model that the copyright owner might have in which this is a component, but rather, harm in the sense of the use -- the adaptation must remain a private use.
And of course, again, that's exactly what we have here. When you've jail-broken your phone, there's nothing about the process that requires or even encourages you to distribute the resulting adaptation. You put it on your phone. That's the end of the story.
Finally, the -- Apple's submission suggests that 117(A) requires that the adaptation must be used in no other manner -- or, the copy.
Quote:
As an essential step in the utilization of the computer program in conjunction with a machine, and that it is used in no other manner.
Absolutely there is nothing in the case law that suggests that what we're talking about when a user jailbreaks their own phone, uses the code in any other manner than to run that machine. Perhaps the running of that code results in your ability to then run other software, but that's not Apple's code. That's not running it -- the firmware in a different manner. That's getting third-party software.
So, I would again point the Court to Krause versus Titleserv where in that case the Second Circuit specifically said not only was using the software all right for the Defendant, Titleserv in that case, but, in fact, the Defendant extended that software to allow dial-up access to their mainframe. And the Court found that too was all right.
So, the idea here is, is the code being used to run the machine and in no other manner. That's exactly what the resulting adapted Apple firmware is being used for here.
Finally, I'll say that I also believe that to the extent it's not covered by 117, it would be covered by fair use. I'll not review that. Obviously, you all know the four factors. We've laid out the argument in our papers. I don't have anything new to contribute on that here.
The statutory factors, again, I think they are largely neutral just as they were in 2006 with respect to the unlocking exemption.
I would point out that there's certainly no harm on the market for the firmware. As Apple itself in its written submission points out, they do not view the firmware as being a separate product at all. They view the firmware as being a necessary, constituent part of the hardware device.
And there's certainly nothing about jailbreaking that makes the hardware less attractive. In fact, if anything, jailbreaking makes the hardware more attractive, at least to that small segment of users who have -- like the user who has the physician as a wife for whom the jailbreak actually makes the phone more valuable.
And again, if a user decides that they jail broke and they regret it, they obviously can return to the original software, if they so choose.
So, finally, a couple of last points. First, nothing about granting this exemption will deprive Apple of any legal or market lever that they might have to protect their business model. Obviously, they believe that they can have some contractual claim just as we heard in the last panel. There's nothing about the exemption that would strip them of any of their other legal rights that they could use to protect their business model.
Apple is certainly not the first company, and the iPhone is certainly not the first product that has tried to build a closed ecosystem as a business model. It's been done before. I'm sure it will be done again.
The point here is I don't believe Congress meant, when they passed the DMCA, to somehow make the fact that you use firmware in your device take you out of the traditional legal world of building closed ecosystems and put you into a new box where suddenly new rules apply.
In fact, the case law, such as the Chamberlain case and the Lexmark case, and the Copyright Office's recommendation in 2006 regarding unlocking, all underscore that point over and over again.
Let me briefly address the problem of application piracy, something that Apple has raised here. That is certainly cause for concern, but I need to emphasize, the applications are protected by separate Technological Protection Measures. The apps -- at least the ones you pay for -- this is not true for the free apps, but the paid applications -- the paid applications are separately encrypted and have separate keys that are tied to the particular phone in question.
The iPhone couldn't be more different than the Virgin Mobile phones that you were talking about just a few hours ago. We are not talking about a phone that is so primitive or a chipset that is so cheap that you cannot run multiple different Technological Protection Measures on it.
In fact, Apple does exactly that. The apps are separately protected.
Now, that protection has been compromised for some applications and that is certainly a problem, but I would submit that the fact that the lock on running other applications happens to also block certain pirated applications is really no different than a car manufacturer saying, Well, the lock on the door of the car happens to protect the CDs in the glove box, and therefore, it's a DMCA protection and it deserves the full protection of the law.
No. The fact that no applications, other than those approved by Apple can run on the iPhone, is the result of Apple's desire to protect its closed ecosystem as they mentioned. It is not the DRM scheme used to protect the apps. As I said, there is a separate scheme for that.
And finally -- I think you'll hear this next week when you hear from an independent iPhone applications developer -- if you're worried about a security for the application, one of the best things that could happen is a world in which individual application developers can develop their own TPMs to use to protect their own applications, something that's already happening where independent apps are at stake. Right.
People who sell applications -- and they do sell applications through alternate marketplaces like CEDIA -- are in the process of figuring out, how do we do a better job protecting our apps than Apple has done for the apps in the App Store. And I think that's a healthy process.
Some app developers may find other mechanisms that protect their business interests. Some sort of authentication. Who knows. Let's let a thousand flowers bloom. If there's anything we've learned in the last ten years, security flourishes when there are lots of competitors trying to provide it, rather than one provider that everyone has to count on together.
I think I'll leave it at that, and leave the rest for questions.
MS. PETERS
Thank you.
David.
MR. HAYES
Thank you.
I'm David Hayes from Fenwick & West, outside counsel to Apple.
Can you hear me okay with this speaker? Okay.
I'd like to begin with just a word about the legal landscape in which this proposed jailbreaking exemption has to be judged.
Fred wants a world in which all applications can be run on the iPhone, as opposed to some of them needing to run on other phones. I understand that that's a world he would prefer for reasons that he mentioned.
You heard a lot in his remarks about competition, and he's concerned with what he believes will enhance competition.
This exemption process was not designed to be a free-wheeling forum for marketplace design or restructuring of business practices or debates about competition in the marketplace. It has a very narrow technical focus: Whether an access control is at issue at all, and if it is, whether it has a significant adverse effect on noninfringing uses of a particular class of works. That is what the Copyright Office is here to decide, and it's a very narrow focus.
Congress established, in Section 1201(A) and (B), a clear right of companies to protect their copyrighted works with Technical Protection Measures, TPMs. And it said in the legislative history, the reason it did that was to incentivize the creation and protection of works in a digital environment by allowing owners to protect them with TPMs.
As Jos' presentation exemplifies, the creation of copyrighted works that's been enabled by the TPMs that protect the iPhone and its OS and its ecosystem has done exactly that: 35,000 applications in nine months. That's a lot of creative copyrighted works that have been incentivized by the ecosystem protected by the TPMs.
The fundamental rule here in the law is that TPMs are protected against circumvention, unless the proponent of an exemption meets a very heavy burden to show specific harm, and even then only access controls, circumvention, can be exempted, not circumvention of copy controls.
Now, EFF has not put forth any specific evidence of harm to meet that burden. There's a lot of talk about competition and so on. No data, for example, which or how many third-party applications outside the App Store users would like to run on their own iPhone, or whether those applications might be available to run on other phones, which is something that in every previous hearing this Copyright Office has focused on.
And you have said in your decisions that it may be true that it's more inconvenient for someone to use a copyrighted work in some other way, but that is not relevant, as long as that work can be used in some other way. Fred would prefer that it be used on the iPhone, but that is not something that this exemption process requires.
So, that's the legal landscape within which these exemptions must be judged.
Now, I'm going to draw on my high school speech class, and I'm going to now tell you the first fundamental rule of giving a speech; that is, tell them what you're going to tell them, then tell them, and then tell them what you just told them. So, that's what I'm going to do.
Here's what I'm going to tell you: I want to make three specific points.
By the way, the second rule from speech class was never make more than three points in a speech. So, here we go. Only three points.
First point: The proposed jailbreaking exemption that they are making is really an exemption for circumvention of copy controls, not just access controls. Those are prohibited by 1201(B), and the Copyright Office and the Library cannot grant exemptions to the protections of 1201(B).
Second point: The proposed jailbreaking exemption is an interoperability exemption, and Congress has already comprehensively legislated the boundaries of circumvention for interoperability in 1201(F). And so, the interoperability exemption should be an even higher burden in this process to be granted.
Third point: Even if the jailbreaking exemption is deemed to be properly considered under the process of 1201(A)(1), it has to be denied, because the uses that would be allowed by the exemption are infringing. Each of these three things is a fundamental show-stopper. So, now let me elaborate on it.
As a footnote, by the way, the third and final rule from high school speech class: Never make a presentation without graphics and visuals.
I wanted to do that. I asked Jos if I could use his Mac. He said, "Nobody touches my Mac or my iPhone." So, here we go. Sorry.
Okay. So, let me elaborate now on the first point. Exemptions cannot be granted for the prohibitions of Section 1201(B) that relate to copy controls.
The EFF is really asking for an exemption that would allow circumvention of copy controls under 1201(B) under the guise of the 1201(A) exemption process that's for access controls. This is not permitted by the statute.
EFF's submission -- and Fred said just now that he characterizes these TPMs solely as access controls, that there's no debate about that apparently on the ground that they prevent access to jail-broken applications running on an iPhone. That's an incorrect characterization of what these TPMs are.
Access controls are technical measures that prevent the use of a copyrighted work in its unmodified form in which it was distributed. For example, encryption that requires a password to unlock access to a movie that the user has paid the usage fee. That's an access control. You use the work in its unmodified form once you gain access to it.
The TPMs on the iPhone do more than this. Jos' testimony makes clear that the iPhone TPMs are essentially, quintessentially copy controls. They were designed to prohibit modification of the OS. That's why he spent so much time in his slides describing to you the role that the OS plays in the iPhone and why it is the central heart of the iPhone -- its functionality, its ecosystem, and the App Store.
And those TPMs were put in place from the very beginning. The engineers designed them into the phone from the very beginning, long before the App Store was online or the SVK was released publicly. Why? Because they were concerned with modifications to the OS, so they protected it in a way that it could not be modified. Those copy controls are protected by 1201(B), and this process under 1201(A)(1) cannot grant exemptions for copy controls protected by 1201(B).
Now, there's really two devices here that the EFF, I believe, would like to see protected by this exemption process, both of which fall under 1201(B). The first one is Pwnage Tool itself and similar tools like it. If those tools cannot be distributed for end users to use, then obviously the exemption does not achieve what Fred would like to see, which is to jailbreak the iPhone.
And the second thing that this exemption would permit is a device to be established in the iPhone itself in the form of a modified boot loader, which is also a 1201(B) device. Now, let me just elaborate very briefly.
First, with respect to the Pwnage Tool itself. You heard Jos play an example from that hackers' convention. These were the authors of the Pwnage Tool, and they said in their own words the tool was designed specifically to circumvent the security on iPhone and create a modified OS. That's what they said was their purpose.
So, distribution of that tool is trafficking in a copy control circumvention that is prohibited by 1201(B). And it cannot be exempted under 1201(A)(1).
Jos, would you bring up that slide that you had on the jailbreaking phone?
MR. JOSWIAK
Yes.
(Showing slide)
MR. CARREON
The second thing that this exemption device -- that would be permitted under 1201(B) -- it's improper -- is the -- you see in the red, the boot loader. It's red because it's been modified. And that boot loader has -- that modified boot loader has only one purpose, and that's to bypass the copy controls on the OS that prevent it from being modified.
1201(B) says that no person shall manufacture a device whose purpose is solely or primarily to circumvent copy controls. That's what that modified boot loader in red is, and it is a violation of 1201(B) that cannot be exempted under 1201(A)(1).
Thank you, Jos.
So, the fact that the TPMs at issue here are there to protect against modifications is what distinguishes this requested exemption from the one that you just heard on the previous panel, and that was the subject of your 2006 decision with respect to unlocking. Those unlocking exemptions were all argued in terms of access to the software to make use of it in its unmodified form.
Ms. Granick from EFF made that point several times in her presentation, that we are not asking to modify the binary code. This is just to modify a piece of data and get -- allow binary code to run as it would normally run.
That is not what is going on here. Jailbreaking modifies the OS. End of first point.
Second point: Congress has already comprehensively addressed interoperability issues in its statutory provision, so this exemption process isn't the appropriate forum to address those issues. The EFF's proposed exemption is worded as, quote, For the sole purpose of enabling interoperability.
If you look at 1201(F) and its legislative history, its literal language says it addresses acts, quote, necessary to achieve interoperability.
Now, this reflects Congress considered decision about interoperability issues, and so, the Copyright Office needs to be extremely cautious in recommending an exemption that is in the interoperability area when Congress has already spoken.
There is a high burden on anyone for an exemption. And in fact, you said in your 2006 decision that the granting of an exemption is extraordinary. It is unusual. I think the burden is even higher when Congress has spoken.
Now, Fred referred to the Congressional infallibility principle. I'm not arguing that just because we're in the zone, Congress is infallible and they can never do wrong. We all know better than that.
However, Congress did, as the result of a very hotly contested legislative process, consider a number of exemptions which people were proposing to be written right into the statute. And some of them they wrote in, and some of them they didn't.
They wrote one in for interoperability. They wrote one in for law enforcement. They wrote one in for security study. And they addressed this very carefully in several areas. So, the Copyright Office needs to be very careful about acting in an area where Congress made these balanced choices.
End of second point.
Third point: Even if this exemption is properly considered under 1201(A)(1), it has to be denied, because the proposed uses that would be enabled by the exemption are infringing. As you saw from Jos' testimony, this tool -- Pwnage Tool creates an unauthorized, modified version of Apple's copyrighted boot loader and the OS.
Now, you had heard Fred say it's possible that there are other methods coming that will work differently and will not be infringing, will not create modifications to the OS.
Well, first of all, those are not before us now. The ones that they have rested their exemption on are Pwnage Tool and Quick Pone and some of the others that are in the marketplace, about which EFF says in its submission, page 7, and I'm quoting:
"Decryption and modification of the iPhone firmware appears to be necessary for any jailbreak technique to succeed on a persistent basis."
That's their words.
Well, it looks to me like what's going to be enabled by this -- in their own words -- is tools that will be necessary to modify the OS. These modifications are not covered by Section 117 or the fair use doctrine.
I'm going to go through this briefly, because our submission elaborates more, and so I'm not going to spend time to do every point.
First of all, Section 117 rights, I do believe, can be negated by contract.
The CONTU report, there are about 10 or 12 decisions which we've cited in our papers that have faced the question of whether the CONTU report is the legislative history of the DMCA.
And all but one of those decisions have said either that it is the legislative history, or they have looked to it to interpret it -- the DMCA. And two of those decisions have quoted the passage on page 13 that Fred referred to in the CONTU report that says, If copyright owners are concerned about these rights to make modifications and adaptations, they can address it by contract.
I think it's pretty clear that CONTU had in mind that you could take this right away. Fred says he doesn't know how you would do it.
It's very simple. Apple has done it. In their iPhone license agreement it says it prohibits modification of the software. How else would you say it?
We want to prohibit modification for any purpose. Not just for Section 117 purposes. Not just because, you know, you want to do something else with it. It's prohibited. And that's what it says.
Fred raised the 2005 Second Circuit case of Krause versus Titleserv. I'm glad he raised that, because we think that case actually strongly supports us. That case says that modifications under Section 117 are permitted only so long as they don't harm the interests of the copyright owner and are used as intended in the creation of the program.
Now, Fred said the Court there found, Hey, these were not harming the copyright owner, and intended within the original use. That's true, because that was a program that was custom created for a particular business to operate its business. And it was very clear that the purpose for which that program had been created was to run that business.
And so, when a dispute arose between the original author, there was a question about whether the person who paid all this money could enhance it in a way that they needed to do to keep running their business while they tried to recover from the dispute. For example, by writing their own replacement.
It's not surprising that the Court said that was clearly contemplated within the original uses. Here, Apple put out a phone that they intended to have integrity in the operating system, and not be modified for all of the reasons you heard from Jos. And this was very important to set up this level of trust that you saw in the diagram among the consumers, the partners, and Apple.
This ecosystem wouldn't have existed if the carriers had not been comfortable that these bad applications would not be out there to run free rein on their networks.
So, there is clearly harm to the owner of the operating system here in a way that was not present in Krause v. Titleserv.
In addition, you heard Jos talk about crashing the applications, increased support burdens, piracy. Those are all things that are going to flow from jailbreaking the OS, and they certainly have a tremendous effect on the value of that copyrighted work.
All right. Fair use. Let me just say briefly -- and I also will refer you primarily to our papers for this, as did Fred -- the burden of establishing fair use is on EFF, not on us.
Congress gives us the right to put these anticircumvention measures in, and if they want to claim that these uses are blessed by the fair use doctrine, the burden is on them.
They've submitted no specific data to carry that burden as to why Apple's copyrighted OS or the market for developers' applications would not be harmed by jailbreaking. That's their burden.
By contrast, Jos gave you a host of reasons why Apple will be harmed as the copyright owner by these jail-breakings: Problems with safety, security, operation of the iPhone, pirating of Apple's own applications and its developers' apps.
EFF argues in its papers there's no harm to the market for the OS, because Apple makes this available free and it does not sell it separately.
That's an incorrect characterization. The OS software is not free, first of all. Apple sells the iPhone, and the price of the iPhone covers the hardware, it covers the OS, it covers the updates of the OS. And they certainly don't give it away for free.
Second, the value of the OS cannot be assessed independently of the iPhone itself. The fact that people don't buy the iPhone OS without buying the iPhone doesn't mean that it has no independent value. Of course it has value. Its value is it's the center of the iPhone.
The OS, as Jos showed you, is the center of the ecosystem, and the value of the iPhone is directly dependent on the value of the OS. It certainly has value. So, under the fourth fair use factor, that harm is enough to stop the fair use analysis.
As to the other three factors, I will just refer you to our papers. I'm also going to refer you to our papers on statutory factors, because I suspect -- I mean, the debate is very clearly laid out there. I suspect you're going to have a lot of questions about those.
Okay. So, I've told you what I was going to tell you. I've told you. I'm now going to tell you what I told you.
In conclusion, the jailbreaking exemption is really about circumvention of copyright controls on the iPhone -- sorry -- copy controls on the iPhone, which the Librarian has no statutory authority to grant exemptions for. So, we're out of that process. That alone should stop the show.
We've seen from Jos' presentation that those copy controls protect many copyrighted works from unauthorized modification, copying, and piracy. This is not just about protecting a business model. What you may believe or not believe about those arguments in the unlocking panel, whether you accept them or not, that is not this case.
This is a case about protecting the OS and the boot loader and Apple's copyrighted applications against modifications. It's not just protecting a business model.
And that protection against modification is the very thing that Congress intended in setting up the anticircumvention provisions. They in turn have enabled an engine of innovation that you saw Jos describe -- 35,000 new works in nine months, tens of thousands more to come in the next nine months.
If jailbreaking is approved as an exemption, serious, harmful consequences are going to flow, not just to Apple, also to its consumers and its developer partners and its carrier partners. We urge the Register to reject this exemption.
Thank you.
MS. PETERS
Okay.
Steve.
MR. METALITZ
Thank you very much.
In view of the time, I was inspired by David to try to come up with three points, but actually, I think I have only one point that I wish to make very briefly, and then we can open it up to questions. 1.2 intensifiers, so I guess it adds up to three.
Here's my point: You have seen all of this before. This is not a new exemption proposal by any means. This is the same proposal basically that you have rejected at least 15 times in the previous three rounds. You rejected it, I believe, five or six times in 2006.
Some people want to be able to run certain applications on a particular platform. A platform is not designed to do that through a business choice that was made by, in this case -- well, Apple, but this isn't just about Apple. There's obviously a lot of other phone systems to which this applies.
But they're frustrated. They want to run it on this -- perhaps they think that their spouse would be better off having it run on a different platform so that they can hear the alarm. I noticed it was the husband who thought that the RAZR phone was a piece of junk, and not necessarily the wife.
But in any case, they want this to run on different platform. And the only way they can do it is to circumvent. And you have told them time and time and time again that that is not a sufficient reason to recognize an exemption.
You told them in 2006 -- you know, when you granted six exemptions, you rejected eleven, and most of them fit this description. What you call "space shifting" was exactly an example of this. They wanted to run it on different platforms, different formats. DVDs cannot be viewed on a Linux operating system. This is almost exactly the same point. It's not exactly the same, and I'll get to why in a minute. Region-coded DVDs. We want to run it on a Region 1 machine. It won't run on a Region 1 machine. You said that's not sufficient because you can find another way to run it.
Computer programs protected by mechanisms that restrict their full operation for a particular platform or operating system. Is that a good, capital summary of what we're talking about here? I think it is. You rejected it, because you said there were alternatives for making this noninfringing use.
And there are several other examples here, but my point is, this is not a new claim. This is the same type of claim that you have rejected several times before. It's not exactly the same for two reasons, and they both are reasons why you should definitely reject this proposal.
The first one, which David has mentioned, is that -- the situation with 1201(F): the existence of a statutory exemption that Congress adopted to comprehensively regulate the circumstances under which circumvention would be allowed for the purposes of interoperability of computer programs. That's what this is about. Interoperability of computer programs.
Congress explained when it should be allowed, when it should not be allowed. And at the very least, the burden has to be on the proponent of the exemption to demonstrate to you that they're not asking you to permit something that Congress specifically chose to outlaw, or that they're not asking you to make a decision that would in effect outlaw something Congress simply chose to permit. If this is already covered by 1201(F), then obviously you can't grant an exemption here, because there's no -- the basis for granting the exemption would be absent.
Now, you have grappled with this before in 1201(J), context in the security testing field. I think this is actually a much clearer case, because Congress really set out to resolve the problem that we're talking about here and decided the ground rules under which circumvention would be allowed for purposes of interoperability.
So, at the very least, it's the burden of the proponents to demonstrate that they can't bring their conduct within the scope of Section 1201(F). If they can do that, then you can start to consider whether there should be an exemption recognized.
So, today for the first time, seven months, eight months after you began this proceeding, EFF has given its analysis, I guess, of why 1201(F) doesn't apply, but I think the burden is on them to show that it doesn't.
And that distinguishes it from many of the proposed exemptions that you rejected in the past, because they didn't deal with interoperability of computer programs. They didn't deal with issue that Congress had already thought about and decided and set the ground rules for in 1998.
And the second intensifier that I would point out is -- really has to do with the effect of the circumvention that we're talking about here. No one seems to contest that one thing that will happen if this circumvention is allowed is that a very widespread platform would become a venue for infringing activity through playing pirated applications, pirated games which can't be run on the iPhone today, can't be run on a lot of these other phones that are using Technological Protection Measures, but will be able to be run on those platforms if the exemption is granted.
So, basically, the impact is going to be to open up vast new fields for the manufacturers and purveyors of pirated software, pirated games of other -- pirated forms of other copyrighted materials.
That in itself seems to me is a pretty strong argument that it's going to be very difficult for the proponents to overcome that burden to show that not only is the use that they want to make it noninfringing, but that what they want you to accept is not going to lead to a proliferation of platforms for piracy.
And I think -- I don't believe they've met that burden. But that, again, perhaps more than some of these other exemptions that you considered and rejected in 2006 and 2003 and in 2000, is another reason to reject this proposed exemption.
Thank you.
MS. PETERS
Okay. Thank you.
MR. CARREON
Thank you.
I'd like to address this -- I don't have three points; I don't have one point. I have two points. And my two points are that -- addressing the issue of whether the exemption would enable noninfringing uses.
And I am going to argue that copying the iPhone boot loader and making changes to the iPhone OS are, neither one, infringing. And I'd like to address this from the viewpoint of how reasonable consumers expect their machines and their media to work and to be regulated.
There's a common-sense distinction between products that do things -- like garage-door openers, printer/toner cartridges, computers, desktops, laptops, notebooks, handheld -- and protectable expression -- visual art, music, books, motion pictures, graphic designs. And as Judge Merritt observed in his concurring opinion in the Lexmark case, auto manufacturers could control the entire market for replacement parts by using lock-out chips.
We're well accustomed to the idea that there's a distinction between the brand of a computing machine that we buy and what we see when we turn it on. We like that distinction. We fought hard to have it. You turn on an Acer, an HP, you get access to Windows or Linux. You can launch your Web browser. You can launch Firefox. You can launch Explorer. You can launch Opera. And there was a time when you might launch Netscape.
Software straddles the line between machines and media. There was a time when there was a big question about whether software was copyrightable.
At the most fundamental level, software programs are written in machine language. Binary code that only machines can read. And, of course, machines do not read. Machines execute. Execution is action. Not understanding. Not comprehension.
The only people who read machine code are people who write instructions to control program execution. They are computer engineers who create digital machines that operate logic gates on microchips. They are engineers, and they can be creative.
They can create -- engineers create in two ways: Engineers may create devices of metal, plastic, genetic materials, and they can obtain patent protection for that. And if they use linguistic tools to create original, tangible expressions that control electronic logic gates on microchips, they can obtain copyright protection for those works.
From a common-sense perspective, the idea behind a program cannot be copyrighted. To shoot a basketball through a hoop on a screen, to cause a guitar cord to play, to steer the image of a car around the image of a racetrack, those are concepts. Those are ideas that cannot be copyrighted.
When it comes to the iPhone, the idea that cannot be copyrighted is: Turn on the phone, run an application. Any alternative way of doing those functions, of performing those activities would be noninfringing, if there were an alternative way of doing them.
But suppose there is no alternative way of doing it because of external factors. The operating system itself with which the boot loader must interact; the applications; the APIs that must be activated -- if there is no alternative way to do it, then the Lexmark Court says -- and of course, all of the cases that it cites, saying that idea and expression have fused, and to copy that work is not infringing. Instead, it is simply the legitimate opening of a lock-out code.
Now, I am depending, for my argument, on the assertion by Apple that the boot loader is a, quote/unquote, small program. This is relevant. I don't have a copy of the program. I didn't think to request a copy of the deposit in time to get one, and other efforts to obtain a deposit from other sources were unsuccessful.
However, if a program is small, the Lexmark Court said -- and it has a limited number of ways of doing a function -- that all goes toward the conclusion that idea and expression are beginning to fuse, and if they fuse, then you do not have -- even though it may have been issued -- and it certainly has been issued -- a registration by the Office, still, it is not protectable.
So, the boot loader on the iPhone, if it is indeed just a small code that can only perform this function in one way or in a very small number of ways, if the variations of which wouldn't constitute real varied expressions, then we have a machine powered by an unoriginal expression: It's just a lock-out code, and to copy the boot loader is not infringing.
And the next topic, because I only have two, is changing -- making changes, derivative versions, to the operation system.
Now, it was interesting listening to the Virgin folks talking about how they wanted to separate the piece of plastic and metal that was the medium for the display of images and ring tones, and suggesting that somehow -- that the sale of that object did not also result in the sale of those copyrighted works. It struck me that it was kind of like the publisher saying, You own the paper. You own the ink, but the significance of these words is not yours.
I see no distinction, because it is the medium in which the expressions was fixed. It seems to me absolutely clear that if the operation of the iPhone is dependent -- it is just a machine. It is an -- it doesn't have an operating system. If the operation of it is essential, and the only reason you would buy that machine is to buy its operation, then you own the operating system as well.
17 USC 117(A)(1) allows the owner of a program to change a program if it is an essential step in the utilization of a computer program in conjunction with a machine.
Again, looking at the reasonable expectations of consumers and protecting the copyrights of creators, we can see how the dividing line -- examine how the dividing line between the executable versus the expressive characteristics of software can help the Office to make a decision that's an appropriate assertion of its authority.
117(A)(1) reflects Congress' decision that people and companies buy programs to run machines. Not to appreciate the artful composition of hexadecimal code. And the machines are meant to be altered, adapted, improved, and developed further.
To freeze a program's function at the original level of expression does something that is, excuse me, un-American. It stops progress. The idea that the right may be relinquished, that what is stated in the CONTU report is that the right may be altered, that the relationship between the purveyor of a copyrighted work and the consumer -- that that can be altered by contracting, exactly what that means, we're not sure. But we can be absolutely sure, A, that the Apple license is to be interpreted under California law, and, B, that under California law, there cannot be the implied removal of a statutory right by implication.
Contracts are not written so that one party can read an unexpressed intention into it later. The only way you can get an implied right out of a California contract is if that implied right is, quote, indispensable to effectuating the expressed intentions of the parties.
And the intention to relinquish the right under 117(A)(1), which is very, very fundamental, is certainly nowhere expressed there, and it would not be necessary to effectuate the intentions of the parties, one of whom only wanted to get a phone.
Nor is this a hobbyist exemption, which I think Apple argues in its papers. I would just call it a "hobbyist exemption," because if I understand them correctly, they say that the 117(A)(1) exemption is confined to people who retool their software personally. That's how they would interpret Krause.
And I have two reasons for why that does not work. One, there is no rational place to draw the line. Everyone uses tools to deal with software. Software owners should be able to use tools obtained from third parties to make planned, tested changes in software to enhance the operation of the machine.
They shouldn't have to find some way to hook up their iPhone, see the machine language, make alterations in it, and then repackage it up however people do that sort of the thing. Nobody knows how. You have to use tools.
It's -- and so, there's really no place to draw the line. As Apple says, they've created the SDK, the Software Developers' Kit. They have to give you tools. So, in order to make those changes, it's not just rational, because the rational process for deciding what would be too much tool-making can be used.
A person should be able, if they desire -- the question is, do they desire to make a change to their operating system so that they can alter the operation of their machine. And the idea that this is a copying -- that this is copying protection does not seem right to me, because as the Panel -- I forget which member of the Panel, and maybe it was more than one of you -- pointed out, and Virgin was arguing, is there any market for cell-phone operating systems free from cell phones. Is there any market for ring tones free from the individual machine.
No. Nobody is going to say, I made 35,000 iPhone operating system copies today, and I'm selling them, and I'm going to make a lot of money. And they only want the one that runs their machine, and they have a right to change it.
And the second reason why I would argue against a hobbyist exemption under 117(A)(1) is because quite simply, it grants more rights to corporate owners of software than it grants to people, because a company like Titleserv, in Krause versus Titleserv, can own vast numbers of machines, vast numbers of programs, and they can hire as many people as they want to make changes. In other words, a corporate owner can bring in employees and contractors to make these changes to the software that it owns, but an individual -- a poor, unfortunate individual who only has the protection of the Fourteenth Amendment, they cannot clone themselves and create another self that is smart enough to work on software.
So, it's just one of those things that if you try and apply it, it doesn't work in the first place, because there's no rational place to draw the line. How many tools do you get to use. And then if you apply it that way, it's -- it's going to give corporations more rights than people, and I think that's unfair.
Finally, I think that the term "ecosystem" is a very, very misleading term. But if we examine it, it shows us exactly what is not happening in the iPhone development unit, because an ecosystem is not the product of a single command and control, brilliant top-down insight about what kind of life forms are going to appear in an ecosystem.
An ecosystem appears from the wild collaboration and competition among all kinds of organisms operating in an environment that they actually have an effect on. They enrich it. They change it. They deplete it. They consume it. They consume each other. That's an ecosystem.
It is messy, but it isn't the purpose of copyright law to impose order on that. The purpose of copyright law is to protect the rights of the creators. And in this case, I think, again, just to return to my original idea, if we look at that dual nature of the executable nature and the expressive nature of software, you can see the line.
And it is expressions that are to be protected. And that is -- and executable is protectable only to the degree that it's also original and not fused with its purpose, or that Congress, with respect to 117(A)(1), has given the owners thereof the right to make changes to.
Thank you.
MS. PETERS
Thank you very much.
Mr. Hayes, I'm going to ask you -- I'm not going to ask about Section 117, because the case law is what it is, and I know that. But could you respond to Charles' allegations that the work that was registered in the Copyright Office may not be original or expressive or entitled to protection, and also the argument about the license and the fact that under California law, you really can't basically suggest that a license can override what law may provide?
MR. HAYES
Sure.
Well, first of all, on the boot-loading point, the answer is pretty simple. He referenced Lexmark v. Static Control and that a program there was found not protectable. And that was the toner-loader program. I'll refer you to 387 F 3rd of page 529 where the Court says:
"The toner-loader program for one of the printers that was at issue comprises 33 programming instructions and occupies 37 lines of memory. The other one for a different printer was 45 programming instructions and 55 lines of memory."
If you know anything about programming, that is a less-than-miniscule program. The boot loader is 10,000 lines of code. So, there's no question this is -- has originality here. It controls a number of functions. It is not merged with its functionality. It's a million times the size of the programs, or whatever the math works out to be, that were at issue in Chamberlain case.
With respect to the California law point that was raised, first of all, I don't share his interpretation of California law, and I think an awful lot of licensing lawyers would be very surprised by that interpretation, and do indeed believe that prohibitions on modifications can eliminate the Section 117 rise.
But the broader point is, this exemption process is not here to argue about what California law is or what Kentucky law is or what New York law is.
What the process is about is that they have -- the proponent of the exemption has to satisfy a burden that the uses that would be enabled by the exemption are noninfringing. We think they are not under 117 and under fair use.
They have argued it's why they are, but at a minimum, this is a very contested issue. And the Office should be granting exemptions only where it is very clear that the uses that are being prohibited are noninfringing. It is far from clear here that these uses are noninfringing, and that should stop the inquiry.
MS. PETERS
Okay. Thank you.
David.
MR. CARSON
One question.
Explain to us why you believe we are, in fact, talking about an access control followed by 1201(1)(A).
MR. von LOHMANN
Yes. This is simple.
I think, quite frankly, David has misconstrued what it is we're asking -- what the Technological Protection Measure that we are asking to circumvent protects. We are not saying that we need to circumvent in order to access applications. This is circumventing access controls that apply to the firmware.
So, the simplest answer to your question: Apple's firmware is encrypted when it is distributed. It uses an archetypal access control measure.
In order for the Pwnage Tool to create altered portions that can then be loaded in order to allow the phone to use other applications, it must decrypt the firmware, which again is distributed in an encrypted block, in order to make the modifications. That decryption is obviously not authorized by Apple.
This is obviously a 1201(A)(1) issue. I think the notion of this copy control is a complete red herring. That's for starters.
And then, of course, more to the point -- to pile on top of what should already be obvious, of course -- then each key-checking operation of the chain controls access to the next layer of code. If that key check is not performed, the firmware is not decrypted and made available to the iPhone itself.
So, we are not talking here about a CD-copy-protection situation where the material is made freely available. There's just a measure that prevents copying or, you know, something that would stop performing, or something like that.
We're talking about a work that starts its life encrypted, and to which keys must be applied in order to decrypt it, both to adapt it and, in fact, to load it into memory.
So, in my view, that's straightforward, you know, getting a red herring here. So, creating the modified firmware requires access, and it's encrypted.
Yeah. I guess that's the clear answer.
MR. CARSON
Okay.
David or Jos, is there anything to add here to help us?
MR. HAYES
Well, it's just incomplete.
How do people usually protect works against modification? They encrypt them. They put a password on them. They put a handshake on them. There's all kinds of different methods.
We're not saying this is not -- that it's only a copy control. Things can be both copy controls and access controls. But the way you prohibit modification is you encrypt something or you put a password on it, and that's exactly what Apple did.
Fred himself in his explanation just now said, What we want is to gain access to the operating system so we can modify it.
That's the whole point. These things are encrypted so they can't be modified.
MR. CARSON
Well, then anytime you use encryption at least in part to prevent people from modifying your code -- then would anyone who hacks through that encryption be violating Section 1201(B), regardless of whether their ultimate intent was to modify it?
MR. HAYES
I wouldn't go that far, but in this particular instance, what is being requested is jailbreaking. And what that necessitates -- in their own papers they admit -- is modification.
So, the reason they are gaining access to this OS, and the reason they have proposed an exemption for Pwnage Tool, is so that they can gain access to that OS to modify it. That is clearly a copyright issue.
MR. CARSON
Well, then were we wrong -- have we been wrong for the past several years, that this -- this is an access control? because I believe probably every use that anyone has come to us about with respect to circumventing ultimately ends up being copied -- I mean, most of them have been anyway.
So, by your reasoning, I would gather, it was wrong for us whenever -- when we -- where we have come up with an exemption for the contents on DVD, we have enabled people to make copies. I gather by your reasoning we were wrong to do that, because that, in fact, was stripping the copy control and the purpose of the people who wanted a -- who wanted to make copies -- I -- I guess we were wrong.
MR. HAYES
Well, I was not involved in the CSS copy control hearings. I don't know exactly how that was argued and whether 1201(B) was even raised. So, I didn't come in fully prepared to say you got that wrong.
I just say if you grant something here that was put in place from the very beginning -- that's the reason it was there -- it -- Apple's concern is that this OS get modified in ways that cause all of these things to happen. In the case of VCSS, there's content out there that people want to use and unlock. That's ultimately what they're trying to get. And that's sort of a quintessential access control, because ultimately they want to make a copy of something.
Apple put this here because this is an OS. Your average purchaser of the iPhone is not interested in taking a look at the OS and saying, "God, what a beautiful thing. I want to copy this." That's not what they're interested in doing.
What the exemption is orienting toward is modifying it. Changing the way it behaves, the way it functions, and that's why it was encrypted in the first place.
It's an OS. We don't want to have its functionality be changed. It's the heart of the phone.
When its functionality gets changed, lots of things happen. The phone gets gripped sometimes. That has happened. It crashes in ways that people don't understand. It's the number one cause of crashes in Apple's log support system right now. And so, that's why they set it up as a copy control.
MR. von LOHMANN
And of course, they use an access control to accomplish that.
Just to clarify here, there's a little bit of confusion as well. We are not with this exemption seeking to legalize Pwnage Tool, the trafficking of which may argue -- we certainly -- I'm sure, Apple would argue -- would violate the trafficking issues which the Copyright Office is not entitled to grant an exemption to.
I personally think the tool is probably covered by 1201(F), and therefore can be trafficked, but none of that is with the Copyright Office.
We are asking that end users who use tools like Pwnage Tool not be exposed to circumvention liability for doing so. And that is a very different question.
As you all know, there is no bar on a user circumventing a copy control. Congress deliberately left no prohibition on circumventing a copy control. There's only a prohibition on circumventing an access control. That's what we're talking about.
The work is encrypted. That's an access control. Certainly that's what everyone who's told you this has assumed. It is encrypted exactly the same way DVDs are. So, we're talking about users' ability to use the tools, and that's precisely what this exemption would be necessary for.
And to the question which I think David sort of touched on, that, Well, but the tools are illegal, so an exemption would be useless, because the tools are illegal, of course, that argument didn't stop the Office from granting an exemption for the film professors, nor, in my opinion, is it illegal to download and use -- or, to be clear, it is not a violation of 1201(A)(2) to download and use a circumvention tool. That is not trafficking a circumvention tool.
So, it is not, I think, obvious that users are not allowed to have tools without violating the law, even if it may be illegal for people to distribute tools in a similar circumstance.
And in particular, many members of the iPhone Dev Team are not located in the United States. And so, if they are distributing the tool from abroad, they may not be violating any laws. Even if they're distributing here, I think they may not be violating any laws in light of 1201(F).
But in any event, the user does not violate any law by simply using the tool -- or, doesn't violate 1201(A)(2). The question before us is whether they need an exemption under 1201(A)(1).
MR. HAYES
So, can I just make two responses?
First of all, we are concerned that the granting of this exemption will lead to massive infringements to 1201(B) in the form of users who say, "Great, I can jailbreak my phone," and so it's going to result in the trafficking of something that's illegal.
But let me make a more important point. Fred is very focused on the end user and the end user having the right to do this stuff. As I argued, that the modified boot ROM that the user creates in the phone is itself a device that is there only for the purpose of circumventing the copyright controls on the OS. The user is doing activity in 1201(B). Not just the makers of the Pwnage Tool.
MR. von LOHMANN
But there is no bar in 1201(B). 1201(B) only prohibits trafficking. Nothing we're talking about -- a user won't be trafficking, and therefore that question --
MR. HAYES
That's missing the point.
1201(B) prohibits the manufacturer of the device whose sole purpose is to circumvent. This was a prophylactic measure. It's the same kind of prophylactic measure Congress puts in in all of the piracy statutes. They want to reach not only the act of the distribution and the trafficking, but also the manufacturer that leads to the trafficking.
So, if somebody does the manufacturing, even if they never distribute it, they're still in violation.
And this is not the only case where Congress has set something up that way. You know, they've done it in the movie space. They've done it in the recording space. Those industries have urged them to outlaw manufacturing as well as distribution. So, distribution it not the only thing that triggers 1201(B).
MR. CARSON
To be clear about what you're saying, you're saying that when an individual essentially creates these circumvention tools solely for his own use -- he never gives it to anyone else; creates might even be an overstatement -- gets some help in the software; when he loads it, it does it -- that's a violation of 1201B.
MR. HAYES
When it creates -- when it does it in this way and creates that modified boot log, the user is creating a circumvention component. If you look at 1201(B), it talks about devices, technology, and components. They're creating a component whose only purpose is to then circumvent copy controls on the OS.
MR. KASUNIC
But that just doesn't really fit, because the problem -- I'm trying to put this in some perspective. 1201(B) would only cover the trafficking services of circumvention that protect the rights of the copyright owner.
So, in this situation, the only things that could fit that situation -- and the individual user who wanted to hack that is free to, because Congress left that space open. So, the only person who could be liable then would be somebody trafficking in a device or service. And in this case, perhaps that could be Pwnage as the tool.
Have there been any lawsuits against devices or services that circumvent this use -- or, use of these access controls?
MR. HAYES
Have there been lawsuits under 1201(B) against services? Yeah. In the phone industry.
MR. KASUNIC
Is it true that Pwnage is the most widely used tool specific to jailbreaks?
MR. HAYES
(Nonverbal response)
MR. KASUNIC
And so, has there been any action against that device?
MR. HAYES
I didn't come prepared to answer that.
MR. KASUNIC
And then -- because then -- the harder question, then, is, if under something like that, a particular tool is created that falls within 1201(B) -- if that is then used by an individual to accomplish what is not prohibited by an individual act of circumvention, so the space that the individual act of circumvention of a use control, is -- there is no prohibition on that. If that was the only problem, then if there was nobody to stop the tool, then that tool could get out to an individual, and the individual could use that to hack through the measure that protects the rights of the copyright owner.
But what it can't do, is it can't -- it can't protect access to the copyrighted work. And so, the question here is, What kind of tools are these? What kind of Technological Protection Measure is it that it's protecting?
And I heard that you were at least willing to say that this is -- and as the question that David asked -- that this is perhaps both, in your view, like some -- it has the purpose of protecting the rights of the copyright owner by encrypting, by essentially being an access control.
MR. HAYES
Well, I'm not saying that this is an access control that happens to protect the rights of the copyright owner. I'm saying that this thing was designed from the very beginning to be a copy control. That's why it was designed into the iPhone. Prohibit modification.
Let me just -- I don't think we should get too lost in this 1201(B) label of trafficking, and so maybe it's not useful. Let me just be clear to the point that I'm making.
The point is that when you use the word "trafficking," if what you mean by that is just distribution, then I would say that 1201(A)(2) and 1201(B) both prohibit more than just distribution. They also prohibit manufacture. Now, I'm not aware of any cases that have construed the term "manufacture" under 1201(B).
MR. KASUNIC
But the individual who uses a device that was manufactured is not trafficking -- or, manufacturing. They're just using that to accomplish circumvention. But maybe we shouldn't get too caught up in that.
MR. von LOHMANN
Let me just point out that this is frankly irrelevant to the question before the Copyright Office today, because obviously the Copyright Office cannot grant exemptions to a nonexistent prohibition on circumventing copy controls, nor can it grant an exemption to 1201(B), the actual 1201(B) we have.
MR. KASUNIC
Because if there isn't any access control, then we shouldn't even be sitting here.
But we're assuming now that there is an access control, that this is protecting access to the copyrighted work, and that then the question is, if somebody's using another tool to do that, there isn't a -- Congress did create a bar of prohibition on circumvention of an access control.
So, that would be a problem within the scope of this Rulemaking, of whether an individual could use something like Pwnage or some other tool to circumvent.
One other --
MR. HAYES
Can I just make one last point? Then I will stop.
What I don't want to get missed here is that the way the exemption is worded, it could cover activity by the end user that is prohibited by 1201(B), and the Office is not empowered to do that.
MR. KASUNIC
We wouldn't purport to.
MR. von LOHMANN
And nor are we asking you to.
MR. KASUNIC
In terms of -- well, let me ask one basic question.
Fred, do you believe that once someone jailbreaks a phone -- that Apple should still respect the warranty?
MR. von LOHMANN
No. And I don't believe they owe them any support, nor do I believe people what make apps in the App Store owe them any support. None of that is at issue here, just as I wouldn't expect my Toyota dealer to respect a warranty after I added a turbo charger to my car.
MR. KASUNIC
So, essentially, users are on their own if they jailbreak their phone, and Apple owes them no further duties or obligations.
MR. von LOHMANN
And in fact, Apple has made that repeatedly clear. In fact, it's well known that Apple stores will refuse to service or replace iPhones that have been jail-broken. That's a standing policy.
MR. KASUNIC
There was some question -- I saw some discussion in a comment that this was creating a substantial financial problem for Apple, because, I guess -- is there not a way to quickly be able to identify a jail-broken phone?
MR. JOSWIAK
There's not. That's why that may work if somebody can actually walk in the store and see that. It's not always clear. It's not always clear to the customer why they're having a problem either.
And the phone doesn't filter whether they're -- you know, the telephone call to Apple doesn't have any way of filtering whether that phone was jail-broken.
It's still a support call. And that customer expects support, because again, they have no idea that what they did has made their product as unstable as it is.
Why should they? There is nothing that came from the Pwnage people that said, By the way, your phone is going to crash a lot when you do this.
MR. KASUNIC
But just one thing.
It may fail to -- you may not be able to update the iPhone after, but wouldn't maybe one step be to just verify that it was -- before going any further, verify that is was -- there was a problem or the integrity of the system had been compromised?
MR. JOSWIAK
Well, that can happen at the time of the software update, if the software was damaged by the tool. Pwnage wasn't a specific example I was referring to for the damage. That was done by some other software that actually, you know, in trying to unlock the iPhone it damaged the software, again, in a way that couldn't be updated.
But again, Pwnage is just an example of software that goes through these types of steps to hack the iPhone and modify the OS. Once you modify things, again, anything can happen. And it's hard enough when we modify.
This is, as you know, a very sophisticated product. It's hard enough when we modify things in a very intended way to make sure that we're managing and not regressing and not causing problems in other areas. There's a lot of work necessary to do that.
As soon as hackers start doing it, all bets are off, and that's why the phone becomes as unstable as it does. And again, there's just no denying that. And customers don't realize that.
It still looks like an iPhone to them, but they've damaged it in some way that certainly affected the performance and stability of that phone.
MR. KASUNIC
So, if there's no denying that, do you deny that?
MR. von LOHMANN
No one accidently jailbreaks their phone. So, the users are well aware that they have jail-broken their phone. And Apple and everyone is welcome to explain to them the risks.
MR. KASUNIC
But can Apple find out easily and quickly if a phone has been jail-broken?
MR. von LOHMANN
Apparently they can, because in their own comments they point out, The following number of calls have been from jail-broken phones. The following number of crash reports have been from jail-broken phones.
MR. KASUNIC
Although it may take them a very long time --
MR. JOSWIAK
Exactly. Exactly the right -- it takes a lot of cost to get that. And again, these are disproportionately high rates of crashing.
And the customer doesn't realize that that's why the problem they have is the problem they have. "My phone crashes a lot. Damn Apple."
That goes back to the whole point of damaging -- they have no idea that what they did just to install this app to get this SMS to ring multiple times, which by the way, we do.
(To Mr. von Lohmann) I think you should update your user. We actually have that functionality.
But anyway, they don't realize the problems it causes.
MR. von LOHMANN
So, you just heard the basic point. This is about protecting a branding concern, not about saying that this is infringing, not about protecting the copyright interest in the firmware. This is about a branding concern, and frankly not relevant to the DMCA.
Apple has many other avenues available to it. In fact, when asked about this very issue, Steve Jobs, the CEO of Apple, answered, Well, you know, we play a cat-and-mouse game with the folks who develop these things. We update the code. It disables versions that are jail-broken. This has happened repeatedly.
So, it's not as though Apple is left powerless to control their support costs. They, in fact, are engaged in very real efforts to, you know, minimize this. And I don't -- you know, again, let's have that. That's the traditional market when you try to create a closed ecosystem.
MR. KASUNIC
But that wasn't what I heard. I think what I heard was that they currently don't have an easy way of identifying that.
So, if we put these together, that, okay, you admit that they should be able to jailbreak and that would void the warranty -- if we could have that clear at that point and Apple knew they wouldn't have to touch it anymore, then perhaps that would simplify this problem and some of the other concerns, because there are a lot of other concerns.
Cash and instability, the malfunction, safety and privacy, offensive content, viruses, the inability to update may affect copyright. But many of those other ones, while laudable goals, are probably not copyrightable interests in terms of those do have more to do with the market.
But if Apple has no way of identifying that that is -- then there is significant cost to the copyright owner in terms of continuing to try to service what they only much later on identify as a jail-broken phone.
MR. von LOHMANN
Yeah.
The simplest way to determine this is ask the user, "Did you jailbreak your phone?" No iPhone owner accidentally jailbreaks their phone. It's a relatively involved process.
So, if the owner lies to the support call, then I don't really have an answer to that. But that's no different than if you ask the person whether or not their phone was still in warranty and they lied to you. Right.
The quickest way -- if you can physically examine the phone, that's easy. You will see there are applications that are not from the App Store -- CEDIA being the most obvious one, the alternative App store.
If the person is calling, you can just ask him.
MR. KASUNIC
But there are easy ways to find out whether something is still under warranty; right?
MR. JOSWIAK
If it's under warranty, sure. We know that. That part being, you're saying, aside from being jail-broken, absolutely.
MR. METALITZ
Can I add one point on this about whether these are copyright injuries or market injuries or all the other things that were mentioned there?
I think maybe we just haven't gotten to this yet, but it's clear what Congress was intending to do in enacting 1201, was to encourage copyright owners to use Technological Protection Measures in order to, among other things, increase the -- promote of development and dissemination of copyrighted works.
I think the evidence you've heard from Apple is that it is succeeding in that role, and some people don't think 35,000 applications is enough, or that it's the wrong application, or something like that, but I think if you look at it in the broader context, is this market developing the way Congress intended and wanted, facilitating Technological Protection Measures to be promoted, and did it direct the Copyright Office to allow the exemption to allow the circumvention of these highly successful, if you accept this evidence, use of facilitated Technological Protection Measures...
So, you can characterize that as protecting the brand and the ecosystem, and so on and so forth, but those don't necessarily sound like copyright terms.
But if you look at the intent of the statute and what Congress asked the Copyright Office and the Library to do with it that fits it pretty well, that this type of harm, this type of injury, may be a strong argument against recognizing the exemption.
MR. KASUNIC
Well, since this is an operating system essentially in this device, would any computer company be able to prevent somebody from putting particular programs that were not preapproved on their computer or not be able to utilize some --
MR. METALITZ
Can they do that technologically, or can they do that legally? The answer is yes in both cases.
MR. KASUNIC
Legally and technologically.
Then why is it different?
This is a modified -- on the iPhone is a modified Apple OS operating system; right?
So, really, we have a little computer. And why is a phone more vulnerable to all these problems that computers and laptops are pretty robust as well, and could cause many of these other problems?
If it's all legal to do on a computer, why is it illegal to do on a computer that's --
MR. METALITZ
Well, if it impacts -- that's what the practical impacts have been. That's the way that marked was developed.
But the real question is, Did Congress intend when it adopted the DMCA and gave you authority to recommend exemptions that it was hostile to the idea that a copyright owner would be allowed to determine which applications could interoperate with its software? To the extent it was concerned about that, it enacted 1201(F).
MR. KASUNIC
But could they -- you said it was legal and technologically feasible to do that with a laptop, so is it only legal because there's no Technological Protection Measures that's preventing people from doing it on laptops or --
MR. METALITZ
If I wanted to come up with an operating system for a laptop today that did not open and did not allow a lot of interoperability, I could certainly do that if I wished. But it might not be a very smart market position, but I certainly could do it.
Is there a legal impediment to my doing it? No. There might be a marketing impediment, something that would make it a bad idea the way the market for computers has developed.
Well, I agree that it's been a little harder to draw the line between the phones and the computers, and we talked about this earlier -- in your earlier session, but the fact is, the markets are different.
MR. JOSWIAK
And protecting the OS from modification is not unique to the iPhone. Again, PCs, other phones protect their OS from modification.
MR. HAYES
And I want to make a point that I hope isn't getting lost. Apple did not put these measures in simply to protect their brand.
I mean, this is not all about protecting a brand or something. Somebody has said that. We put up those as examples of damage that is going to flow from undoing the protection that Congress entitled us to have. Those are examples of what's going to ensue.
And you, in your Notice of Inquiry and every hearing that you've had, have said we have to balance the benefits of the protection measure against the harm and the benefits of the exemption against the harm. All of those were in play.
We're trying to let you know there's some real harms here that you need take into account. That does not negate the fact, though, that there's still a modification going on here. That's a copyright interest. It's a derivative work. It's an unauthorized modification that we believe is infringing. It is a copyright issue.
MR. CARREON
Only if 117(A)(1) is not, in fact, to protect the owner from making the modification.
MR. KASUNIC
One other thing we have to look at is what the likelihood that during the next three-year period, is this going to be a problem.
To what extent have problems existed that -- or, that the desires that people had, are they affected by the market in terms of somebody wants a particular feature on an iPhone within some period of time, and perhaps within a three-year period of time that feature becomes available on the iPhone?
Does that happen?
MR. JOSWIAK
Do we introduce new features that customers want?
MR. KASUNIC
Right.
MR. JOSWIAK
Clearly, and in Fred's example, we've addressed that customer's need of having the repeating SMS. And actually, it was written by doctors who requested that.
We've added literally, you know, hundreds of features since we've introduced the iPhone. The iPhone OS 3.0 that we're introducing this summer has over a hundred customer features. It has over a thousand developer APIs coming out this summer. So, clearly we keep moving this forward and addressing the needs of our partners and our customers.
MR. HAYES
And a larger point here is that Fred had some anecdotes of some people who wanted a particular feature, but he hasn't satisfied the showing, is this widespread? Are there tens of thousands of people, you know, that want --
MR. von LOHMANN
There are hundreds of thousands. We have a showing in the record. There are 1.8 million jail-broken phones, over 400,000 in the United States. There are obviously a large number of users involved here. That's in the record.
So, sure, Apple does introduce new features. Some of those features they reserve solely for their own software in order to prevent competition on the iPhone.
Some of the new APIs -- there may well be over a thousand APIs for developers coming out this summer. There will, however, continue to be other APIs that will only be available to Apple developers.
This is -- you know, again, it's not directly copyrighted. I think the thing to underscore here is, what are we talking about. Unlike what Mr. Metalitz suggested, this is not the "you want to play your DVD on a -- in a toaster problem," as he suggests.
The work that is being protected by the access control is the firmware. Are there alternatives to the firmware on the iPhone? No. There is not a, "I can go find a firmware somewhere else to use on my iPhone." You can only use the firmware that is available, particularly the boot loader and all, you know, all the OS components that Apple has provided.
So, there is not an alternative in the sense that you could play your DVD on a different player. You could go get the same movie on VHS.
The work that is being protected is the operating system, and there is not -- there are not other alternatives for the operating system. There may well ultimately be applications that are available on other things, but that's not what this exemption is about.
We're not asking for an exemption to circumvent access controls on applications. We're asking for an exemption to circumvent access controls on the operating system.
MR. METALITZ
The only reason we're asking -- I mean, it's to run applications on this platform. You could play your DVD on -- if you can't play your DVD on Linux, you can play it on a CSS-compliant machine.
MR. von LOHMANN
Okay.
MR. METALITZ
Every time -- every three years, people come in and say, "We should be allowed to circumvent so we can run applications on the platform we want to run it on instead of the platform it's designed for." That's what this is about.
MR. von LOHMANN
That is not true.
All of those exemptions have sought exemptions to circumvent access controls on those copyrighted works -- the movies, the video game. That is not what this exemption is about. This exemption is about circumventing access controls on the operating system.
MR. METALITZ
So, you would presumably support the exemption if it was conditioned so that it didn't apply to running any applications on the operating system that you --
MR. von LOHMANN
Absolutely.
I don't need an exemption to run applications. The applications don't have access controls on them.
MR. METALITZ
But in other words, if you circumvented for the purpose of running an application, that would be outside the scope of the exemption. So, if that's the case, then that probably would be acceptable.
MR. von LOHMANN
We're not asking -- the exemption process is not about the purpose. It is about the access control on the work and whether there are alternatives.
MR. JOSWIAK
I'm a little confused as to Fred's point that there is no alternative for the customers on the operating system.
We represent less than two percent of the market share of phones in the world. Customers have other choices.
We are abundantly clear as to what the rules are on the iPhone and how we've gone to market. There are alternatives. It seems to be working for a lot of customers.
And again, the iPhone, as I talked about, is number one in customer satisfaction. It seems to be working, but they do have alternatives.
MR. HAYES
And let me just follow up.
Fred just justified to you his showing of harm by saying there's 1.2 million or -8 million, or whatever it was, customers who have jail-broken their phone because they want to run apps on the iPhone. That was the whole showing he said they've made.
This is being justified on the ability to run the apps on the iPhone as opposed to another phone. That's where the 1.8 million comes from.
And in all of the -- and Steve is correct. In the other exemptions that you guys have considered, you have noted that if the ultimate use, the noninfringing use of the work that someone wants to make can be done on another platform, that inconvenience is not a reason to grant an exemption. They've said that many times.
And the same applies here. There are other phones on which these apps can be run. It's just that Fred would prefer, and many of the people out there would prefer a world where they can run those apps on the iPhone.
But nothing -- nothing about copyright policy or the DMCA policy says that a copyright owner is required to open up the use of its copyrighted work to the entire world, if -- to use it in ways that were not intended requires you to infringe the copyright, that's why the DMCA exists.
MR. von LOHMANN
And if it were the case that this were infringed copyright, Mr. Hayes, would be correct.
This is not infringed copyright, and the whole purpose of the Rulemaking is to permit exemptions where noninfringing uses -- in this case, the creation of an adapted version of the operating system for an obviously noninfringing purpose. No one here has suggested running legitimately acquired software from unauthorized -- you know, from places other than the App Store is somehow infringing.
So, I'm happy to engage on this question of whether or not jailbreaking your iPhone infringes. I think we've already talked about this in the context of 117, but from my perspective, it is noninfringing. We disagree about that. But assuming that that's the case, it's exactly in the heartland of what the Rulemaking process is.
MR. HAYES
But you made a point about, it's not infringing for the end user to make the mod. We disagree on that. But then the end user has to take the modified OS, load it into RAM, and run it.
And I can cite you a slew of cases that have said it. Let's start with MAI versus Peak. There's a whole lot of authority that says when you load a copy -- an unauthorized copy into RAM and run it, you are copyright infringing.
MR. von LOHMANN
That would make 117(A) a dead letter, because every time you adapt code under 117, you --
MS. PETERS
We will analyze it --
MR. HAYES
Of course. Of course.
MS. PETERS
-- the cases in Section 117.
Unless you want to dedicate yourself to spending Friday evening with us, I think Rob has one more question and Ben has one more question.
MR. KASUNIC
And just to follow up. Last question.
You can be rest assured that you will, without question, get further questions.
That the -- in terms of 117(A), Fred, just explain to me how this works in terms of this situation, because the way I read that is that in terms of making the adaptation of that computer program, that such a new copy or adaptation of that program is created as an essential step in the utilization of the computer program -- that computer program in conjunction with a machine, and is used in no other manner.
So, this would be adapting the program so that it would work on the machine; right?
And it's not a question of whether it would work on a -- it would make other computer programs work on the machine. It's to -- if you purchase --
MR. von LOHMANN
Right. That's absolutely right. I agree.
The point here is, the adaptation is made in order to run on the machine with which it was originally intended to run, namely the iPhone. And that right there --
MR. KASUNIC
What is the computer program?
MR. von LOHMANN
The operating system. The firmware.
MR. KASUNIC
Okay.
And how does the other app fit into this equation that's created by the third party?
MR. von LOHMANN
It doesn't. It's not relevant; right.
The point is, the only arguably infringing event occurring here is the creation, possibly, of a derivative work from the operating system, as you saw on the screen the creation of a modified boot loader and a modified version of the operating system.
That is the only arguably infringing act involved here, and so 117 excuses the creation and use of the adaptation of the operating system. There is no infringement when you go and purchase an application from an independent app store.
MR. KASUNIC
But that doesn't envision the fact that the computer program would not work with that machine or device in the first instance, which is why you have to adapt it. So, here, the operating system and boot loader works perfectly well with the machine or device. It's just that you wanted to do other things.
MR. von LOHMANN
Right.
And 117(A) is intended to accomplish exactly that, as Krause versus Titleserv makes clear. They had software that they needed to adapt to do other things, and that's what the Second Circuit said was all right.
MR. HAYES
Yeah. Obviously, we disagree with that interpretation in Krause versus Titleserv.
The whole -- Fred's initial argument proves way too much. He said, Look, as long as you're adapting this thing to work on the same machine for which you purchased it, it's under 117.
Well, if that was true, we wouldn't have had Krause v. Titleserv. That's not what the Second Circuit held.
There are some boundaries around the scope of the adaptations you can make under Section 117. And just because you're using it on the same machine is not a talisman that says, I'm in 117. End of argument. That's not --
MR. von LOHMANN
And I don't dispute that, and I'm sure you will all read pages 13 and 14 in the CONTU report as we both have, and I trust you'll come to your own conclusions.
MR. CARSON
Everyone agree that Krause is good law, whatever it is?
MR. von LOHMANN
Yes.
MR. HAYES
Yes.
So, less than four years old now and --
MR. von LOHMANN
For that matter, you know, sort of the only case to fully ventilate those sections of the statute, so we don't really have much else to go on.
MR. GOLANT
Let me ask you -- I'll direct it to Apple. This is about your relationship with AT&T.
I would just like to know, does AT&T require you to prohibit certain applications?
MR. JOSWIAK
They do have certain rules to their -- they do have certain rules to their customers in their Terms of Service and what kind of applications are allowed.
We have tried to be sensitive, certainly, to our partners. And again, as I mentioned, there's 30 of them, at last count, around the world. So, again, make sure that the applications that we're allowing in continue to allow their networks to be viable.
For example, you saw in my slide that we don't allow bandwidth box. Well, generally the nice thing is, what that results in when we find an application that gets submitted that is using too much bandwidth, most of those are fixed in conversations with the developer as to how to use things more efficiently.
But again, the important part to realize is these networks are shared by everybody, whether you have an iPhone or not, and we have to be sensitive to how the phone uses and the iPhone applications use that network.
MR. von LOHMANN
Can I just point out that there are plenty of GSM networks that permit mobile devices that are capable of running any application. It is not the case that GSM operators live in fear of general-purpose computing devices that happen to have mobile phone radios built into them.
One need only look at the BlackBerry, all the Windows mobile devices, none of which have the same, "You must only run approved applications requirements." And those phones run fine on other GSM networks.
Obviously, the G1 phone is much more open -- not as open as we'd like, but much more open, and T-Mobile doesn't appear to have a problem with that.
So, there are -- those are --
MR. JOSWIAK
The big difference is -- and again, why this has been such a revolution, as I've mentioned, is the fact that we deliver the App Store on every single device through every single carrier, you know, whether it's an iPhone here in the U.S. or in Europe or in Asia, and that delivers -- has the ability to deliver those applications to every customer the developer as access to.
Before the iPhone and the App Store, what had happened is that applications were very difficult to get through the carriers, because carriers are the gateway to what can run in their network.
When you bought a phone, you know, completely unlocked and away from their network, then certainly, yeah, there were things you could do. But the phones that were delivered through that carrier, it was very difficult to get applications.
But again, it was us establishing that trust, that we could deliver this App Store without them being the gatekeeper, because they are not the gatekeeper, we are. We control the product. We control the products that we sell through the App Store. Not the carrier.
That, again, has been very different than what has existed in the mobile industry before the iPhone and the App Store.
MR. GOLANT: Tell me this
I read somewhere that you can't get an iPhone in Vermont or in Alaska.
Is that true?
MR. JOSWIAK
Vermont and one of the Northeast states doesn't have a GSM network, doesn't have the towers. I'm not sure if that's still the case or not.
MR. HAYES
Now that Justice Seuter retired, he'll have it.
MR. JOSWIAK
If that's important, I can follow up.
MR. GOLANT
All right.
You also said that Apple gets 30 percent of the revenue from the apps that are sold.
Do AT&T or any of your other partners get any cut in what's sold?
MR. JOSWIAK
No.
MR. GOLANT
And this is a three-part question, then I'll concede my time.
Tell me the process of approving --
MR. JOSWIAK
And part of that, I'll tell you, there's not a whole lot left over by the way.
MR. GOLANT
-- the process of approving an application, of rejecting an application, and of removing an application.
MR. JOSWIAK
Say that again.
MR. GOLANT
So, approving an application, do you tell your people you have a standards and practices manual that --
MR. JOSWIAK
Yeah. We have reviewers that have a checklist of the guidelines as to what can be approved and what's not.
MR. GOLANT
And that goes through the chain of different people to make sure that people make the right decision?
MR. JOSWIAK
It does.
MR. GOLANT
And so, when you reject an application, you said that you accept 96 percent. So, you reject 4 percent.
But can you tell me in real numbers how much is 4 percent?
Is it a million? Is it 100,000?
MR. JOSWIAK
Well, if you do the math, we have 35,000 up there.
Now, certainly again, we -- you know, one of the important parts to add, by the way, that is the fact that when we reject an app, oftentimes -- or, one of -- the number one reason, by the way, is it crashes, but in nearly every case, we try to figure out how we can get that application approved for the developer.
The developer will go back to the developer and tell them why it's denied, and we're willing to work with them to figure out what do they have to do to fix that application to get that application approved, because again, it's in all our interests to get applications up on the App Store. It's in our customers' interest. It's in our developers' interest. It's in ours. We just got to make sure that it adheres to the rules.
MR. von LOHMANN
Let me just point out, there are a number of rules that mean certain categories of applications don't get submitted at all, because it's clear from the rules, Apple will not accept them, and that's part of what prompted Mozilla and Skype to file on our side.
MR. GOLANT
So, I've read somewhere in an article in one of the journals that you have nondisclosure agreements for people who get rejected, that they're not supposed to say anything about why they got rejected.
MR. JOSWIAK
Well, the program itself has a nondisclosure rule, but I don't have anything specific to a rejection letter.
MR. GOLANT
I have an article. That's why I was asking.
And lastly -- and this is a three-part question -- are removing -- how do you determine when to remove a program?
I'm speaking about the controversy from last week about the shaking-baby application.
Who decides that and how --
MR. JOSWIAK
Well, again, it's a similar process. Obviously, there's escalation when something has been found to be approved, you know, and it shouldn't have.
That was a good example last week. You know, it was something that we regretted having seen get approved. It was -- we were unaware of it at a -- at senior levels, until we became aware through the press. Of course, we immediately had that withdrawn.
There aren't many cases of removal.
MR. GOLANT
So, if there's consumer anger, then you take a look at it a second time?
MR. JOSWIAK
There could be multiple reasons. I think one of the things that EFF cited in their paper was that somehow we were giving Google preferential treatment. They were using a private API, which is probably worth even another quick aside.
Private APIs -- generally, our APIs that we're still working on, they're not done, and we haven't published them. And the reason for that, again, is, you know, we test our APIs, you know, under lots of use cases.
When we're developing an API for a developer and it's not fully tested or not fully -- we don't release it. If a developer uses that private API, that's against the rules.
They cited that there was a Google application that had used the private API, and somehow that was okay, because they were a friend of ours. It wasn't okay. Unfortunately, we didn't realize that when the app was approved. We went back to them, they fixed it, and resubmitted the app in a way that everybody was happy.
MR. GOLANT
And this is just an overall thing, and I'll follow up later.
Is there any First Amendment issues that we should be concerned about in the sense that if we granted an exemption to these applications --
MR. HAYES
Well, I didn't come here prepared to engage you on the First Amendment or constitutional issues, but what I would say is that that has nothing to do with the criteria that Congress has told to you --
MR. GOLANT
Well, we should consider other factors such as --
MR. HAYES
Yeah. Bit the primary criteria is, Are these uses infringing, and, Are they even --
MR. METALITZ
And is that question whether they're a --
MR. GOLANT
No.
I'm saying, we -- right now there's no constitutional issues, because there's no government involvement. But we are now in the steps of, you know, approving or rejecting an exemption, and I was wondering if that step that we take has something to do with speech involved in --
MR. METALITZ
Well, there is a speech provision in the DMCA, and that would be applicable to this case, so if there were some First Amendment problem with a 1201(A)(1) case that, let's say, Apple brought, I think that you would look to that to see whether -- it's not a question of the exemption. It's just a question of the underlying laws.
MR. HAYES
Ben, if you do have a specific question on that, seriously, I didn't come in to talk about the First Amendment.
MR. GOLANT
I see.
MR. HAYES
So, I'm unprepared to answer that.
If you have a question about that, and you think it's relevant to the decision, and can tell us why, well, put it to us and we'll respond in writing.
MR. von LOHMANN
Let me just point out on your last question about the APIs that was brought up here, while it may well be the case that Apple sometimes holds APIs until they're fully tested, that's certainly not always the case.
One API that independent developers and authorized developers have complained about from the outset is Apple reserving the right to run applications in the background solely for its own application.
So, I'd encourage you -- next week, you'll have the opportunity to talk an actual app developer who can answer some of those questions.
MR. JOSWIAK
And since you brought that up, I'll address that, if that's okay.
We hate background applications in general, because they suck battery life from the product. Background applications can take as much as 80 percent of your standby power away, not to mention they compete for performance with the foreground applications, again, in a way the customers don't understand.
One choice to answer that is to present customers with a task manager, some way for them to manage the applications they're running. But as I've said earlier, we try to create product that's for regular people.
So, we've given another way to solve that with our iPhone OS 3.0, which again is to give them what's called "push notification" systems so that the developer can solve 80 percent of their needs at the very least with this system, and again, notify customers through a much more battery-efficient single pipe that we provided to the iPhone.
MR. von LOHMANN
Until then, only Apple applications will have the right to run in that mode, and that's the problem.
MS. PETERS
Okay.
Well, this has been the end of a very long day. And you're the last panel, and I thank each and every one of you for helping us try to get through with the proposed exemption.
I think you will be getting questions, and especially -- even maybe not right away -- after next week when we learn more and crystalize our thoughts a little bit more.
But again, thank you, and enjoy the rest of the evening.
(Whereupon, at 6:57 p.m., the Rulemaking Hearing was concluded.)