Dozier Internet Law, by John W. Dozier

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Music Industry Record Labels Are In Trouble, by John W. Dozier

July 21, 2007

We've seen it for years. Disruptive technology disrupts business models. Disruptive applications of technology force innovative change. Some companies react and transition well when faced with innovation that threatens their businesses. Others (most) don't.

The music industry record labels were slow in reacting to the fundamental shift from CD to online distribution. Think about it. Artists used to dream of signing with a label. The label could be very selective in picking artists and controlling support for, and distribution of, the artist's work. And rightfully so, since their revenue was generally based on a percentage of CD sales. So, what happens when CD sales are replaced by online distribution? Merely changing the method of distribution shouldn't make much difference, you would think. Well, how would you feel if you owned a professional baseball team, and you only controlled the ticket prices? The parking, the concessions, the TV and radio rights, and all of the other related revenue streams were controlled, and revenue realized, by third parties? For a change, you, as the owner, would be calling for renegotiation of the player contracts. And, so, we find the same thing happening today.

Labels want to renegotiate their deals. They want a percentage of ALL revenue from CD sales, online sales, appearances, tours, product sales...they want to own a cut of the entire revenue stream. Quite smart. Too bad they didn't figure this out years ago and start transitioning to this new model in a more manageable way by educating the industry as to the coming challenges. Are labels going the way of stock brokers? Has the music industry finally succumbed to "disintermediation", another fancy term for taking out the middle guy? We'll have to wait and see. One thing is for sure, though. If the labels can't figure out how to add value commensurate with their compensation, they are in for a rough road ahead.

And here's the hard part. The online revenue streams today are complex, and negotiation on a case by case basis with artists will likewise by complex. Both sides need to understand all of the sources of revenue that exist today and are likely to exist in years to come. Relationships are less employer/employee-like, and more partner-like. For instance, if you are a label, and you agree to a revenue split for online record sales, I can easily imagine a business model that generates signficant non-sales revenue you don't get a cut of. And how about sharing online advertising revenue from streaming free video? There the parties need to decide who will take the lead on cutting deals. Are artists going to understand the online music world, and related revenue streams today and in the future, to make good decisions? How, as an artist, do you make sure revenue is accounted for fairly when your song is packaged with other artist's songs on a membership site? Your revenue share might be a percentage of membership dues, but is the percentage of dues fair, and what formulas can be put into play that will adjust compensation fairly? How do you make sure you are being paid fairly?

It is going to be an interesting process to be involved in over the coming months and years. Today, the artists are in a commanding position. They can opt to go it alone and distribute product directly online. Labels have to come to the table with a great value proposition. They don't seem to have any real options. My guess is that labels will try to treat the online music sites the same way they treated the brick and mortar music stores. We'll see if they can pull it off and control the distribution point. If they can, they'll be in control once again. It will take some remarkable strategic and tactical thought leaders working outside of the box to pull this off. Is it possible? I think so. Is it likely? Doubtful.

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The Law of Protecting Data, by John W. Dozier

August 04, 2007

In my former life, I was the architect of a high volume credit card account processing system allowing hundreds of businesses to conduct highly secure and reliable e-commerce with major financial institutions. Our clients were some of the largest banks and credit card issuers in the world. It was a hard sell to very conservative banks in the mid-1990's, to be sure. Data security and privacy concerns had to be overcome. Today, legislation in the banking and medical industries mandate security requirements surrounding data. But what laws mandate best of breed data security policies and practices for the typical online retailer? Some states have laws requiring disclosure of data losses. But, for the most part, legislators have stayed away from creating standards for data security. The reasoning is that Government can only go so far when it comes to dictating how companies operate internally. I like the concept of a "hands-off" approach to governmental intervention. I prefer to let the industry set and, most importantly, enforce data protection standards. And that is happening. Take a look at the PCI Data Security Standard from the payment card industry that everyone is required, by contract, to follow. Nothing about it seems particularly onerous. It includes logical steps a company should be taking already to protect systems and data, requires appropriate documentation, and it also mandates ongoing auditing. It looks a lot like the business requirements we worked with ten years ago.

And with the hands off approach so far of the federal government, everyone would be wise to implement the data protections standards and program voluntarily. Self regulation is critical to avoid the burden of another federal law that increases the cost of doing business. Once again, these regulations are part of the contract with all credit card issuers today, and the penalties for non-compliance are huge, and they apply to everyone accepting credit cards to varying extents.

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Silicon Valley Lawyer this Week, by John W. Dozier

August 17, 2007

Just got back from HostingCon in Chicago, and I'm off again to San Jose for SES this week. We'll be there to meet many of our Silicon Valley clients and everyone else who wants to drop by. It's refreshing to get out and get some face time with those innovating the latest and greatest web based business strategies. I've been in this industry since 1994, raised venture capital and gone through the Internet bubble of the late 1990's as an entrepreneur, and with the evolution of technology and the business of the web that seems a long time ago now. I cannot imagine how I could practice in this field if not constantly engaged in the latest and most exciting changes. You definitely need to live the web constantly to stay in touch with the legal issues.

We've been working with a lot of start-ups lately. Now that the VCs are investing aggressively again, things are really heating up. It's tough to draw the line between my Internet entrepreneur days and my lawyer's role today. Business decisions are for clients. Fortunately we are able to ask the right questions, I think, to help our clients avoid some really imprudent decisions. We have a lot of smart clients working on launching new businesses and with a little prompting they do a very good job of figuring things out and weeding out faulty business models or strategies. The market is so up and down right now that it is hard to say what the future holds, but VC money is back, and in a big way. With some luck we'll see some more successful IPOs, and with that will come higher valuations for clients and better VC terms. We'll see how that plays out.

One of the hottest areas right now is music industry sites. With all of the attention the music industry has been receiving lately, it's no wonder a lot more of these sites are being proactive in managing risk. It's really not rocket science to get protected from trademark, copyright, defamation, privacy, and 2257 liability, but I am not sure there are many law firms out there willing to stick their neck out to give a definitive opinion on what to do to protect yourself. I'll blog a bit about the Search Engine Strategies conference upon my return.

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SES Conference Update, by John W. Dozier

August 26, 2007

The search engine industry conference in Silicon Valley was quite a show. Several thousand attendees (many of the biggest names in online search). Keep an eye out for an interview I did with the main Search Engine Watch website on trademark infringement and related issues for the SEO industry. There will also be a video coming out on Youtube from an interview I did with another industry site.

My take is that the industry is maturing, but Google basically is in the driver's seat. The entire SEO and online marketing industry follows Google's lead in almost every arena. Remarkable to see the devout following. It's also interesting to watch Microsoft, Yahoo and others mimic many of the Google offerings and business models (months or years behind Google). If anyone questions the dominant role Google is playing in the online advertising space they probably weren't at the conference.

Also had the opportunity to spend some time at the Google HQ. Interesting place, obviously, and the reputation is seemingly deserved. I heard one young recent college grad explain to another Googler that he had been there three weeks, and it was like Disneyland and he never wanted to leave. I guess having employees who are enthused and want to work all the time is business justification for the unique and relaxed work environment.

Our Beverly Hills office is jumping with music industry work. This area is exploding. We met alot of people from the mainstream music labels and related businesses looking to leverage assets into online businesses. Legally most of the sites will be fine. The success will lie in execution, and it will be interesting to see how the artistic and creative types do in a technology and business environment with competition coming from all corners of the globe.

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"Internet Attorney": How We Work, by John W. Dozier

August 29, 2007

You go to a large firm, arrange a conference call, and tell the Intellectual Property lawyer that someone came to your site, ran a spider, took your content, and launched a competing site. That someone, you just found out, is a former business partner who is also defaming your company on blogs. The IP lawyer, adept at filing copyrights and trademarks, drafting licensing agreements, and all of the standard IP work, looks dazed. He sees a litigation issue, and reschedules the call so he can include the litigation team. The litigation team asks you to explain what a spider is to them, but instead opts to bring in a young lawyer in an unrelated department who "knows technology" to assist them. When the business partnership issue comes up, they call their corporate and business organization lawyer to see what actual legal obligations exist and the issues surrounding the business entity ownership. While they are doing this, the contract department lawyer is called to get his feedback on your site's user contract to see if the access was prohibited by contract, and then the post judgment remedies lawyer (bankruptcy and collections) will evaluate the ability of this ex-business partner to pay a judgment if monetary damages are pursued. And, of course, the IP lawyer is still involved to guide the team on the copyright issue, but he is busy getting the Ist amendment lawyer involved to see whether you can obtain an injunction prohibiting this former partner's blog attacks. You can envision a very funny Youtube video about this process, can't you? A week later you realize that the legal issues include contract, copyright, business organization, litigation, torts, freedom of speech, bankruptcy and collections.

Here is how we work. Our firm is organized by the nature of the client. But instead of having a general practice in which this would be difficult to manage, we only handle the law of the web. If your legal issue is outside this subject matter, we refer you to another firm. That way, we can organize our practice around the subject matter of the web, and not have to divide our expertise by legal category. In the example above, this meeting would have involved one lawyer with the expertise to explain to you the issues involved with the legal partnership entity, the terms of use, the copyright and related infringement, the unauthorized access under state and federal computer crimes statutes, litigation, first amendment, and debt collection if this ex-partner filed bankruptcy.

Yes, we work in a highly collaborative environment as a team, but one team working on the same type of issues every day. I think that makes a big difference to our clients, particularly when a quick answer is needed to a pressing need. Big firms struggle with this because their skill sets are spread out among many different departments. Small boutique firms with an intellectual property practice struggle because they often don't have the wide scope of experience necessary.

I am not sure that firms can ever move away from being organized by legal specialties because it adds significant value to the big client. Lawyers who organize and manage corporate filings and registrations are really good at that. Employment lawyers are really good at dealing with employment and personnel matters. Litigators are trial lawyers, and they are really good at trying cases. This creates an obvious benefit for most clients of the firm. But not for the Internet business client who is faced with a problem that requires expertise across multiple legal practice areas.

Our skills are very broad in nature, but highly focused in application. Holistic analyses of problems or issues are at the core of our value equation. So for all of you who wonder why we limit our practice so "narrowly" to the law of the web, that's why.

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HostingCon and Upcoming Conferences, by John W. Dozier

September 05, 2007

Summer is over. Time to look back, and look forward. Looking back on the past month or so, the HostingCon conference in Chicago stands out as an excellent opportunity to meet up with some old friends, meet some new ones, and learn the details about the next generation of hosting related services and related tech apps. I spent a lot of time with some EU based ISPs and a lot more time with clients in the hosting business. SES in San Jose (8,000 in attendance) was something else. I've already blogged on it a bit. Everyone involved in SEO and SEM was there in the heart of Silicon Valley.

Now, looking forward, San Francisco beckons in October at Online Marketworld, and then ISPCon will bring me back to Silicon Valley later that month, then to New York for Ad:Tech and to Vegas for Webmasterworld in December. I don't have everything ironed out yet, but the next conference is Online Marketworld and I'll be speaking about the strategies and tactics for protecting innovation outside of the context of traditional intellectual property rights. This is a really interesting subject, because if you cannot fit your innovations into the traditional IP categories of copyright, trademark, patent, or trade secrets, then how do you protect yourself? I'll be offering some food for thought along those lines.

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Start-Up Legal Evaluations, by John W. Dozier

September 14, 2007

The biggest problem I am seeing with start-ups, from a legal standpoint, is issue identification. For example, we are often told by a new client that it needs a "terms of use and privacy policy" drafted. Well, that is part of the equation for launching a low risk site. But is a client really knowledgeable enough to identify its legal needs? Rarely.

There are domain name and trademark issues, privacy matters, web development and hosting contract issues, and many other legal concerns that should be addressed. And, for those following the Web 2.0 movement to leverage user generated content, the risks escalate since the content is being created and delivered by third parties. How do you guard against a contributor's content using someone else's trademark, disparaging a product or service or company to the point of defamation, using someone else's creative content protected by copyright (registered or unregistered), or violating state privacy laws by disclosing private information?

The response I get when reviewing these issues is often surprising. Well, a start-up says, so and so is doing the same thing I want to do. My response after research is often that "so and so" has a lot of money and is not an easy target to sue, or "so and so" is owned by young kids with nothing to lose, or "so and so" is actually owned by a guy in a third world country. The point being that the legal liability that exists for any site has to be viewed in context in order to understand the true legal risks. And, of course, the fact that other sites are doing something wrong means nothing at all. Maybe they just got don't care, got bad legal advice, or no legal guidance at all.

I also find that most start-ups don't understand what they have to lose. Most think if they incorporate the only risks are with the corporate assets. Most lawsuits are suits against the individuals also, whether a corporation exists or not. So, when the new start-up thinks all it has to lose is its corporate assets and the personal bank accounts and home are protected, they should think again. I'm not a fan of overstatement, and this isn't intended to scare new online enterprises into seeking legal assistance. It's just good advice. We are litigators. We defend lawsuits. We deal with these misunderstandings and issues everyday.

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Dozier Internet Law Coming to The Big Apple, by John W. Dozier

October 21, 2007

Dozier Internet law has been on the road quite a bit lately keeping up with the business side of the web. After speaking at OnlineMarketWorld on Web 2.0 liabilities in San Fran, we just returned from ISPcon in San Jose. We'll get my interview with the Silicon Valley's KSRO Radio on blogger defamation on the Dozier Internet Law website at www.cybertriallawyer.com this week. Then it is off to Hollywood next week for DigitalHollywood, and then to Manhattan for ad:tech. Dozier Internet Law's last conference of the year will be Webmasterworld in Vegas in December. Not sure about the subject I will be discussing yet. For all of our clients across the country, come by any of the events and visit with us.

Dozier Internet Law will be announcing the opening date of another office shortly. We have added an interesting overview of the blogging industry on our site, a link to which you will find on our homepage right now. It lays out the different renegade blogger types we run into.

Dozier Internet Law continues to grow in leaps and bounds, and the growth is driven by an ever increasing demand from web businesses for IP and reputation protection, as well as risk management and evaluation services. We are now the second most visited intellectual property lawyer website in the world right behind Lessig. Expect to see us open two new offices very soon.

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Dozier Internet Law Review of Recent Legal Developments, by John W. Dozier

November 27, 2007

Dozier Internet Law is continuing to monitor proactively legal developments in the US and in other countries. In France, the 19% Value Added Tax for delivery by foreign (yes, US) businesses supplying software updates, electronic data, distance learning, online subscriptions, and other electronic services to French citizens, even if the US business has no other connection to the country, is authorized and supported by an EU directive. Also, an agreement has been reached between the French government, ISPs, and film and music rights owners that will punish illegal downloaders of copyright protected music and films by cutting off their internet access. "The Internet must not become a high-tech Far West, a lawless zone where outlaws can pillage works with abandon or, worse, trade in them in total impunity. And on whose backs? On artists' backs," the French President stated upon announcing the new anti-piracy program.

In Canada, on the tail of proposed legislation that could create a Canadian DMCA-like copyright infringement take-down notice tool, a defamation judgment has been entered against the director of the Canadian Association for Free Expression in the sum of $20,000 in compensatory damages and $10,000 in punitive damages for nine defamatory postings.

In the EU, and Antigua and Barbuda, sanctions are on the way against the US for banning online gambling in apparent violation of the World Trade Organization Treaty in which each member pledges not to institute a law or policy that would have a materially adverse economic impact on other members. Antigua and Barbuda claim that a huge percentage of their Gross National Product is generated from online gambling, which is illegal in the US and subject to stepped up enforcement measures here.

And in the US, the State of Pennsylvania is now requiring third party sellers on e-Bay to get auctioneers' licenses, and this requirement is not necessarily limited to in-state sellers. In Missouri, a town ordinance has been passed prohibiting cyberbullying after the suicide of a 13 year old after receipt of intentionally hurtful messages on MySpace. Expect this to be the first of many efforts at the local, state and federal level to address this perversion of free speech, and expect to see the ACLU, Public Citizen, and other "consumer rights" organizations attack the laws through lobbying and lawsuits. And in California, the use of another party's name in a chatroom to identify the "poster" almost resulted in criminal indictments after an FBI investigation. This form of "online identity theft" in chat rooms (and by implication in blogs, forums and websites) can result in criminal liability for impersonating another person under either forgery, fraud, or identity theft common law.

Dozier Internet Law continues to monitor and evaluate developments in the law of the web. Right now it looks like the laws and decisions are continuing to catch up with the "Wild West" mentality that is so prevalent among the "scofflaws" of the web. It's good to remember that some pioneers get arrows in their backs, I guess.

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Copyright Rights and Free Speech, by John W. Dozier

January 29, 2008

Some get it. Some don't. And some simply don't want to, or can't. I guess that is a fair assessment of the comments about our recent Press Release on the US District Court holding that copyright rights can arise in a lawyer cease and desist letter. As we reported, the Court confirmed the issuance of a subpoena aimed at identifying the poster, and found on a prima facie basis that copyright rights existed in the demand letter. Considering the fact that just months before Public Citizen had attacked our firm for asserting such ownership rights, and created a firestorm of comments attacking the very concept of a cease and desist letter being subject to copyright protection, it seemed appropriate to comment on the decision. It still does. The Press Release is accurate, but some of the blogosphere took the release, added words and associated meanings to the non-existent words, and then explained why what I had not said was incorrect. Others simply attacked the judge for erroneous logic and purported errors of law.

Okay, so here we go again. Let me explain the decision in plain terms. The Court found that a lawyer or client can have copyright protection in a Cease and Desist. First Amendment and Fair Use defenses were raised by the defendant, and despite such defenses the Court approved the subpoena. Some will argue he never considered those defenses, some will argue he did consider them and rejected them as not persuasive, and some will argue that it does not make any difference since such defenses are case specific and fact sensitive to each situation.

The impact of this decision is that the first requirement for establishing a copyright infringement claim against a party posting a lawyer cease and desist is supported. Many free speech commentators attacked this belief previously. Of course, those commentators are some of the same ones who claimed you had to have a registered copyright to assert copyright rights, and when they learned that was wrong then they fell back to the position this US District Court has now rejected. So, they now fall even farther back to the "fair use" defense. Get any idea in which direction this is going? Not much left after that to fall back on, frankly.

Some commentators have praised this decision. Others have attacked it. Others have attacked our interpretation of it, focusing on the "fair use" argument. I really get a bit of a chuckle out of the liberal "free speech" types who have never spent a day in their life in a business setting, never attended a board meeting, never had to make payroll for employees, and cannot tell you the difference between an income statement and a balance sheet. They couldn't see things from the eyes of businesses no matter what the situation. They can come up with all kinds of arguments and purported authority for the proposition that if you receive a cease and demand letter you can post it online without risk. They tell the blogosphere that it can do something that could lead to an award against them for $150,000 in statutory damages plus much more in attorney fees; do something that could lead to financial ruin for the gullible netizen and his family for the remainder of their lives. What they do not tell you is that asserting a fair use defense is going to be fact and case sensitive; in some matters you may succeed, in some matters you may not succeed, and that the Courts are still dealing with many of these issues for the first time.

Do the free speech groups really believe in free speech? No. Just speech they agree with. Free speech is a noble concept in their minds, but their minds are clouded by a bias and prejudice against businesses. Consider the irony of FREE SPEECH GROUPS PROTECTING TACTICS USED TO SILENCE CRITICISM. That is what their "fair use" defense does. Let's walk through this for a moment.

Your business is attacked viciously online with damaging lies. If your business lawyer criticizes the blogger, and demands a retraction, you know that there is a real possibility this blogger could publish your letter and create a "mobosphere" attack on your business that would far outweigh the damage to date. Your business is inhibited from voicing your criticism because of the fear of reprisal, and the primary fuel for this reprisal is the threat of publication of your criticism. Free speech groups actually encourage their constituents to post these demand letters, providing further high profile attention to the issue and participating in the "mobosphere" attack. Why are the letters published? To discourage businesses from voicing their criticism of the blogger criticizing the company. Since when did free speech protections not apply to businesses?

And so, from free speech comes a claim of "fair use". Is it fair use to publish a lawyer demand letter, even when the recipient is free to comment on the letter and issues surrounding it, and can likely even publish insubstantial parts of it? No, it is not. The "fair use" argument is a red herring, repeated so often that those who argue its applicability actually believe it. Let's not ignore the reason for the publication. It is not to inform the public. That can be done through comment and criticism. The first intended use is for it to chill the rights of businesses to speak without fear of a mob attack. It is often published to incite an overwhelming force to attack a business in many ways, both legal and illegal, and to intimidate businesses into submission. The publication itself, in this context, is an attack on our free speech rights. Chilling effect is an understatement.

The second is even more obvious. If the business decides to move forward, the recipient uses the threat of posting it to gain an advantage in the legal dispute. The threat is not one founded upon the public's right to know. It is founded upon a belief that the threat of publication of the cease and desist letter will get the recipient a better "financial settlement", which is often a nice way of saying that "if you pay me off I will stop the attacks and remove the postings about your company, and if not, well, you'll have to suffer the consequences ". That, my friends, smells of extortion. But it happens every day. These public interest and free speech groups know it, and I suspect they greatly appreciate the generous donations coming in. How important are donations? Reportedly important enough for Public Citizen to "fire" Ralph Nader when donations dropped after his presidential bid. Many suggest it has been slipping into mediocrity and irrelevance ever since, and Public Citizen is scrambling to keep the contributions coming in.

The equities weigh in favor of not recognizing "fair use" as a defense to this copyright infringement claim. The applicability of the First Amendment isn't limited to members of Public Citizen, the ACLU, or the Electronic Frontier Foundation. The most important aspect of free speech this issue implicates is the chilling effect visited upon businesses from the threat of a mobosphere attack. The lawlessness of the web is a big enough problem without having public interest groups pushing a self serving agenda that protects the scofflaws of the web.

Coming Up Soon: We're working on a piece that lays out the organization and dynamics at play in a "mobosphere" attack. You won't be surprised, unfortunately, to find out who is providing the legal support, on many different fronts, for these attacks, and we'll get into how the payoffs are solicited, who gets paid first, and how the bounty is shared among the participants. Fair Use? You be the judge.