New York Court sets legal framework for cloud-based music services

A partial victory by MP3tunes in a copyright infringement lawsuit brought by major record companies may set a precedent for the legal validity of cloud-based digital music "lockers". Other internet companies, including Apple, Google and Amazon, have also launched cloud streaming services and are watching the recent developments closely.

EMI and 14 other record companies sued MP3tunes, alleging that the company's website allowed users to illegally copy their songs. MP3 tunes offers a music locker service, that allows customers to upload there music to a cloud-based account and subsequently access their music from any (mobile) device and any location. A feature that kept one copy of a music file on MP3tunes' servers and made it available online to users who had an identical version on their hard drives, is of particular concern to the record companies. When cloud players were first introduced it was not yet clear whether these platforms merely host user content or whether they also store files for their own purposes. There has also been fierce debate over the question whether one needs licenses from record companies in order to offer this service lawfully. Furthermore, the music producers in this case are of the opinion that cloud players should monitor for the circulation of pirated songs on their service.

The District Court of Manhattan acknowledged these concerns but ruled that platforms like MP3tunes are not responsible for copyright infringing behavior of their users and can only be liable for "contributory" copyright infringement in cases where rights holders notified them of infringement and the platform failed to act appropriately. So if a music locker has an adequate notice-and-takedown procedure, it cannot be held responsible for user generated content. MP3tunes was indeed found liable for copyright infringement with regard to notifications that were not followed up. The damages related to this liability can add op to millions of dollars. The Court also ruled that individual users of the platform can be held liable for pirated content.

"While a reasonable person might conclude after some investigation that the websites used by MP3tunes executives were not authorized to distribute EMI's copyrighted works, the DMCA does not place the burden of investigation on the internet service provider," the judge wrote.

Despite the financial blow as a result of this lawsuit, MP3tunes was happy with this part of the ruling, establishing a safe harbour for cloud services under the DMCA copyright act: "Users can still download songs from publicly available websites and store them without a separate license fee, so long as MP3tunes complies with takedown notices. The main takeaway is that MP3tunes' fundamental business model has been upheld," a representative of the music locker said.

Google and Amazon may also benefit from the ruling, as both companies launched their digital music locker services this spring, without renegotiating specific licenses for music streaming. Apple, on the other hand, did secure licensing with major record labels before they presented their new iTunes Match service. Match resembles the MP3tunes' strategy of maintaining one centralized copy of a song. Considering the license agreement, it seems Apple will share revenues from iTunes Match with rights holders, although it's not clear exactly what kind of revenue split was agreed upon.

References:  Reuters, The New York Times, thunderfeeds.com, Dazz Wireless, Digital Digest