• 

By: Alex Arnts

Industry changing antitrust suits have become increasingly rare in recent decades, as this area of law has seen increasingly lax enforcement by the federal government. However, when major antitrust suits do occur, they often target the tech sector. Epic Games, the maker of popular video games such as “Fortnite” and “Gears of War,” has recently commenced antitrust suits against both Apple and Google which have the potential to reshape the distribution of mobile apps and videogames as a whole. 

Epic Games’ lawsuits target the practices of Apple and Google’s mobile app stores, as they each disallow direct in-app purchases to consumers. Instead, all in-app purchases must also go through the respective app stores where Apple and Google skim 30% from every in-app purchase. Epic Games opposes Google and Apple’s marketplace policies as they relate to Epic’s game Fortnite Mobile, which is free to play and derives all of its revenue from in-app transactions. Epic contends that Google and Apple are only able to take 30% of Fortnite’s in-app purchases because they exclude other marketplaces from distributing apps on their platforms, and that doing so is anticompetitive and illegal under the Sherman Antitrust Act, California’s Cartwright Act, and California’s Unfair Competition law. 

Despite the apparent similarity of Epic’s two suits, they may not necessarily share the same outcome. Epic faces a tremendous uphill legal battle in its suit against Google because Google allows its Android devices to purchase apps from third-party markets in addition to its own marketplace. Therefore, because there are other app marketplaces available on phones which use Google’s Android platform, it is thus unlikely that Google’s policies regarding app distribution will be ruled illegally anti-competitive.

Epic will also struggle to prevail in its suit against Apple, but it has a greater chance of success against Apple than Google. Unlike Google, Apple disallows apps from being loaded onto its devices from third party app stores. Thus, the only source of iPhone apps is Apple’s own application marketplace, which means Apple is forcing app developers to choose between having their apps excluded from iPhones altogether, or surrendering 30% of all in-app purchases. If Apple’s practice of disallowing software from third-party marketplaces was applied to other devices, such as computers, that alone would be considered illegally anticompetitive. However, whether courts will apply this rule to app-based devices such as cell phones and tablets remains to be seen.

A court ruling against Apple’s practice of limiting devices to software distributed on its own marketplace could have potentially far-reaching implications for antitrust in the digital sphere, most notably in the realm of videogame consoles. Similar to Apple, the companies behind major gaming consoles such as the Nintendo Switch, Sony PlayStation 5, and Microsoft Xbox Series X all limit their users to downloading apps and digital games from marketplaces run by the console’s developers, which each take a 30% cut from every transaction. If Epic prevails in its suit against Apple, future courts could potentially apply Epic’s logic to content distribution on video game consoles and rule that restricting users to software marketplaces run by hardware manufacturers is illegally anticompetitive in that sphere as well. 

Epic’s cases have been proceeding slowly, but there have been a number notable developments that indicate Epic is gaining momentum, especially in its case against Apple. Since filing its cases Epic has founded the Coalition for App Fairness alongside Spotify and other leading developers of mobile applications to lobby against Apple and Google’s unfair app marketplace practices. Furthermore, Facebook has also pledged to support Epic in its suit against Apple. Perhaps feeling the heat from Epic’s efforts, Apple recently reduced the percentage of in-app purchases it will take from small developers. These developments reinforce the notion that Epic’s suits have the potential to reshape antitrust in the mobile app industry and beyond.

• 

By: Kelsey Cloud

Allowing intellectual property owners control over their creations is a fundamental, constitutionally protected right in America. However, terrestrial radio, or stations broadcast by a land-based AM/FM radio station, is the only industry in the country that allows the usage of others’ intellectual property without permission or compensation. American terrestrial radio generates billions of dollars broadcasting advertisements to listeners without paying the creators of sound recordings, depriving musicians of vital compensation essential to creating music.

The Ask Musicians for Music Act (AM-FM Act), introduced by Congress last November, aims to alter copyright laws exempting terrestrial radio stations from distributing sound recording royalties and strives to compensate copyright holders for an estimated $200 million annually in royalties. If passed, the AM-FM Act would eliminate the provisions of the Copyright Act that limit sound recording royalties to digital performances, making the provisions applicable to all audio transmissions that require radio services to pay fair-market value for the music they play. Given the proliferation of technology, the exemption held by radio broadcasters is antiquated, illogical, and furthers economic inequality amongst music creators domestically and internationally.

The Current State of Music Copyright Law

Every track contains two separate sets of copyright ownership: the composition rights and the sound recording rights. Composition rights are for the lyrics and musical arrangement, while the sound recording rights are for the produced and recorded performance. While the copyright of the composition is generally held by the composer, lyricist, and/or songwriter, the copyright of the sound recording is typically owned by the performer and/or record label.

In 2018, Congress passed the Music Modernization Act (MMA), which implemented groundbreaking modifications to copyright law related to sound recordings. Title III of the MMA, known as the Allocation for Music Producers Act (AMP Act), establishes a procedure for distributing performance royalties to those who made a contribution to a sound recording. While the AMP Act provides royalty payouts for contributors when their recordings play on satellite and online radio, the Act does not apply to terrestrial radio. For example, when a song is played in someone’s car on SiriusXM or iHeartRadio, those stations must compensate sound recording rights holders, while AM/FM broadcasters are exempt ­– even though the same song plays out of the same speakers. As a result, the MMA perpetuates terrestrial radio broadcaster’s exemption from royalty obligations for copyrighted sound recordings and those owning the copyright are denied compensation for their work.

In response, Congress introduced the AM-FM Act in November 2019 which would extend sound recording performance royalties to terrestrial broadcast radio and close this loophole.

Advocates and Opponents of the AM-FM Act

The Senate Intellectual Property Subcommittee held a virtual online briefing on current music rights on May 27th,2020, in which advocates of the Act argued that by failing to provide sound recording royalties, copyright owners essentially subsidize the terrestrial radio industry against their will. Proponents of the Act testified that in the modern age, few differences exist between digital and terrestrial broadcasts, as most broadcasters simulcast online and already pay digital performance fees. Colin Rushing of SoundExchange, the company responsible for collecting digital performance royalties for sound recordings, argued that the “lack of terrestrial performance rights creates a loophole that distorts the market and creates an incentive to invest in [antiquated] technologies.” As the consumption of music continues to steer away from physical media such as CDs and towards digital media, performers become more likely to receive revenue from performances than traditional retail sales, furthering the importance of compensating them properly.

The National Association of Broadcasters argue that the exemption is justified by providing performers and labels with free promotion received through radio play intertwined with public service announcements. Terrestrial broadcasters contend that increased airplay translates to increased album sales, leading to compensation for performers and labels. However, providing a public service does not warrant profiting off musicians’ work for free. If the free market were to decide what the rates should be, any artists desiring to provide their work for free in exchange for promotion would have the power to make that decision. Instead of broadcasters exploiting artist’s works, artists should have the right to negotiate rates the broadcasters must pay in exchange for airing their music.

Moreover, the majority of leading countries distribute sound recording performance royalties for terrestrial broadcasters, making the U.S. one of the few industrialized countries that does not. While foreign terrestrial broadcasters compensate performers, the U.S. does not have that reciprocal right, leaving foreign performance rights organizations with no way to distribute these royalties to American performers. Consequently, an estimated $200 million in performance royalties owned by American performers remain in purgatory. $200 million that would otherwise be paid to them in any other country. Those performers hold a disadvantage in the international arena, discouraging international growth in the music industry and greatly hurting the U.S. economy.

The Bottom Line

According to Neil Portnow, President and CEO of the Recording Academy, terrestrial radio is the “only industry in America that is built on using another’s intellectual property without permission or compensation.” Terrestrial broadcasters use music to bring in listeners which allows them to receive $14.5 billion annually from advertising, while not paying performers a dime for the music that drew in listeners to their station in the first place. The AM-FM Act provides a solution by ending the distortion in copyright law that forces artists to subsidize the terrestrial radio broadcast industry worth billions of dollars and finally remedy a longstanding inequity in copyright law.

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• 

By: Katherine Czubakowski

The public is split into two distinct groups every December: those who eagerly await the universal presence of their favorite Christmas songs and those who dread the season in which the same old songs are inescapably played on rotation.  While variety and new releases drive success the rest of the year, at Christmas, musicians understand that profits lie in the classics.  But why the sudden switch?  The answer lies in the paradoxical role that copyright law plays during a season ruled by psychology.

Copyright Theory vs. Holiday Psychology

Although not explicitly based on the Constitution’s charge of “promot[ing] the progress of science and useful arts,” the United States copyright system is based primarily on a utilitarian approach to law.  Congress and the courts have attempted to balance incentivizing authors with the public interest in disseminating artistic works by providing authors with a limited monopoly over their works for a period of time before those works enter the public domain.  This theory rests on the idea that artists will only put effort into creative endeavors if they are guaranteed an economic reward for doing so and that providing a limited monopoly over artistic works is the appropriate and necessary economic incentive.  Current copyright laws probably do encourage a large portion of existing creative content as many creative endeavors rely on the financial motivation to secure the cost for their production. 

Ironically, this utilitarian, capitalistic theory seems most exemplified by the lack of new songs in the holiday music canon.  A majority of the favorite holiday hits originated in the 1940s and 1950s. The most recent Christmas song to gain popular acceptance is Mariah Carrey’s “All I Want For Christmas Is You,” which was released 25 years ago.  These older songs rule the airwaves during the holidays for two main reasons: the technological history of music dissemination and the psychology around the holidays.  The rapid rise in the popularity of radio meant that a majority of the population listened to the same songs during the 1940s and 1950s.  However, with the invention of rock ‘n’ roll, music listening audiences split into two distinct groups which continued to fracture as the number of radio stations and the variety of available music increased. 

Since the audiences now have such varied and specific tastes, it has become much more difficult to produce a universally liked song.  This motivates most radio stations to stick with the tried and true favorites rather than risk losing listeners by playing newer songs around the holidays.  In addition to the lack of exposure, new holiday songs face the challenge of overcoming the season’s nostalgic feeling.  The Christmas season is notoriously nostalgic, reflected in listeners’ preferences by the popularity of songs that their parents and grandparents enjoyed.  Songs like “All I Want For Christmas Is You” take significantly longer than non-seasonal songs to top charts because listeners need to form memories attached to those songs before they feel the same yearning to hear them.  Since holiday songs only have a 4-6 week timespan of general exposure, as opposed to the 8-20 weeks songs generally take to top charts the rest of the year, it takes much longer for the audiences to appreciate and recognize them.

A Little Holiday Hope

These current barriers to audiences accepting new holiday classics create an economic climate that actively discourages artists’ creative production of new Christmas songs.  Many artists believe that the “inclusion of new material is artistically and financially unnecessary” since covering an old classic is likely to be more profitable in the short-term and to remain profitable over multiple holiday seasons.  Artists are similarly reluctant to significantly invest in producing new original songs because the long incubation period requires them to gamble on whether or not an original song will be profitable in the long-term.  Success during the holiday season depends on audiences listening to a new song during the season in which it is released and returning to it in the following years, but copyright law’s purely capitalistic approach to incentivize creativity actually backfires by discouraging artist creativity in favor of covering Christmas classics for reasonably assured profits.

For those who dread the return of the Christmas standards, however, there is hope.  Just as the rapid rise of radios had a hand in creating our musical Christmas canon, the rise of streaming services like Spotify may help tear it apart by decreasing the economic risk to listeners.  Since streaming services became popular in the mid-2000s, listeners have more choice than ever for their music collection and more freedom to explore different genres and artists without risking the price of a cassette or CD that they won’t enjoy. 

Streaming services also release audiences from the seasonal schedule determined by their local music retailers and radio stations.  Spotify reports that the United States typically sees a significant number of listeners streaming Christmas music starting in mid-November, whereas most radio stations don’t start playing Christmas music until the day after Thanksgiving.  As a result, audiences have an extra two weeks to explore a greater variety of Christmas songs and those songs have longer to leave an impression.  The lower economic risk and greater choice for consumers change the utilitarian copyright equation to give artists wishing to release original songs a chance of reaping the economic benefits sooner and with more certainty.  Copyright law may function more effectively, in the Christmas context, when there is less economic risk to potential audiences.

• 

By: Shelly Mittal

Everyone has had their share of Zoom meetings, webinars, meetups, and happy hours in 2020. Zoom’s user base skyrocketed from 10 million in December 2019 to 300 million in April 2020 during the COVID-19 pandemic. The massive increase in popularity of the video conferencing platform also attracted the attention of security researchers, who discovered multiple security vulnerabilities. This discovery eventually led to an investigation by the Federal Trade Commission (FTC).

The FTC is responsible for the enforcement of Section 5 of the FTC Act, which prohibits unfair and deceptive practices in or affecting commerce. Following the media reports, the FTC launched an investigation against Zoom. The FTC’s complaint alleged that Zoom violated section 5 by falsely claiming to offer “end-to-end, 256-bit encryption” to secure user communications, when in fact it provided a lower level of encryption than promised. It did not disclose that, for most versions of its service, Zoom stored encryption keys that would also allow Zoom to decrypt user communications. Besides misleading claims about the end-to-end encryption, the FTC alleged that Zoom misrepresented the encryption status of recorded video calls stored in Zoom’s cloud service. Some recordings were allegedly stored unencrypted for up to 60 days on Zoom’s servers before being transferred to its secure cloud storage, which makes the data vulnerable to unauthorized access by a potential security breach.

Zoom’s allegedly false claims gave “users a false sense of security, especially for those who used the company’s platform to discuss sensitive topics such as health and financial information,” the FTC noted. It was further alleged that Zoom compromised the security of some users when it “secretly” installed software called ZoomOpener, which allowed Zoom to launch automatically on macOS and bypass safeguards in Apple’s Safari browser. This exposed Zoom users to potential phishing and remote code execution vulnerabilities. 

On November 9, 2020, the FTC announced a settlement with Zoom, requiring the company to establish and implement a comprehensive security program. The company is also “prohibited from making misrepresentations about its privacy and security practices,” including how it collects and uses customers’ personal data as well as “the extent to which users can control the privacy or security of their personal information.” As part of the settlement, Zoom is also required to have an independent third-party assessment of its security every other year and notify the FTC in the event of a data breach.

The settlement ensures that Zoom will make changes to its data security practices and obtain independent assessments of its program for 20 years after entry of the order. The specific compliance program, including the auditing process alone, creates significant technical, financial and administrative burdens for Zoom, as a reprimand. However, the provision of a comprehensive security program alleviates many of the security and privacy concerns for users going forward. Therefore, the proposed order reflects the FTC’s efforts to set tighter standards for security program assessments and impose requirements for managerial oversight. Additionally, the order says that Zoom would face fines of up to $43,280 for each future violation under the agreement. But the question is: does the settlement provide any relief to affected Zoom users? Unfortunately, the answer is no. The proposed settlement does not include any financial penalties for the company’s past practices or restitution for the affected users.

The FTC voted 3-2 to issue the proposed administrative complaint and to accept the consent agreement with Zoom. Two of the five FTC Commissioners heavily opposed the settlement, saying it was a disservice to Zoom customers. FTC Commissioner Rohit Chopra said in a statement, “Federal Trade Commission has voted to propose a settlement with Zoom that follows an unfortunate FTC formula. The settlement provides no help for affected users. It does nothing for small businesses that relied on Zoom’s data protection claims.” The company’s practices harmed consumers’ privacy interests, and a more effective order would require Zoom to address privacy risks (which, though intertwined, are different from data security risks) in its services. Despite the greater specificity in the Zoom order, Commissioner Chopra criticizes this settlement as a “status quo approach” that does not provide for direct notice or relief for Zoom’s customers.

The second dissenting FTC Commissioner, Rebecca Kelly Slaughter, also argued that the consent order should have required Zoom to improve its privacy practices (like Zoom’s inclination to prioritize some features over privacy protections), not merely its security practices, as well as provide recourse for Zoom’s paying customers. As many privacy advocates argue, the settlement feels like a message to Big Tech that they can make false claims about the security and privacy levels offered in their products without facing any real consequences for betraying the trust of their users.

The majority of Commissioners argued that the additional relief sought by dissenting Commissioners Slaughter and Chopra likely would not be approved in court, and it would delay the imposition of the injunctive relief contained in the order. However, we have seen past FTC orders, like Facebook’s, where the FTC imposed a $5 billion penalty and sweeping privacy restrictions for unfair and deceptive behavior, which were eventually upheld by the courts. Considering how the number of Zoom users skyrocketed during the pandemic, the use of the platform for sharing personal information, including health information, and the security claims by Zoom, it was justified for the public to expect, and for the FTC to grant a penalty and some restitution for its users.

Therefore, the settlement order is effective in putting companies on watch for claims about the strength of security protections in their products and services. The order sends the right message that software deployments that weaken or circumvent other security controls on users’ devices will likely receive a tough reception from the FTC. However, the absence of corporate penalties, restitution for affected users, and the lack of focus on privacy practices in the settlement raises concerns about the FTC’s efficacy as the protector of consumer interests. The dissenting opinions by Commissioner Chopra and Slaughter, though, provide hope for better enforcement efforts by the FTC to restore its credibility.