Legal Threats of an Online Music Retailer - Essay Example

Consider an online music retailer trading in the UK that provides downloads and CD/DVD and the facilities to sell to national and international customers. Evaluate the legal threats that face this business with a full justification and recommendations of how these threats can be overcome or managed and any implications for the business. It is claimed that 81.5 million people or about 4.98 per cent of the world’s Internet users illegally download music and that this has led to the monthly loss of $450 million to copyright holders from 2003-2004. (Jewkes 2007, p. 98) The emergence of mp3s and the wide-scale Internet file-sharing is mainly responsible for this and as a result, the music industry has been working to combat the perceived threat to its merchandise. The recording industry’s desire for control on music downloading sites and applications have led the industry to favor a technological lockdown of Web assets including music, video files, software, digital photographs, and e-books. For instance, the American music industry – the dominant producer of music globally - was able to set in place a legal structure that makes this possible: the 1996 Telecommunications Act, the Digital Millennium Copyright Act (DMCA), and the Sonny Bono Copyright terms Extension Act, the latter two passed in 1998. These laws set terms for the punishment of copyright outlaws in the United States that extend internationally through the World Intellectual Property Organizations, a division of the World Trade Organization. Licensing Bottleneck Since these laws were passed and the Recording Industry Association of America’s (RIAA) success in closing down Napster, the recording industry has sought to move its digital content to the internet through a system analogous to pay-per-view TV. It continually seeks to control its content by developing lockbox technology. This technology, according to Burkart and McCourt, allows the music labels to control their catalog and refuse to share them with independent retailers. (p. 89) The strategy for achieving all this was through exclusive ownership of the digital-music spigots, which would allow them to bypass traditional promotional media and physical market. And so, the ability to obtain legally recorded music online directly from a label poses a problem for independent online retailers. Even with the passing of the American legislation called Music Online Competition Act (MOCA), requiring major music companies to make terms and their catalog available to independent online music distributors, the licensing bottleneck still persisted. MOCA forced the big recording labels to enter into agreements with independent retailers but that these contracts were terminated one by one through the years. From 2005, Itunes alone have dominated 70 percent of all music distributed legally through the Internet via its agreement with the big music companies. (Burkart & McCourt, p. 90) These labels indirectly control their content by choosing an independent retailer Itunes to broker the content of their catalog. Performing Rights Groups Fortunately, online music retailers could turn to independent performing-rights organizations such as the Broadcast Music, Inc., American Society of Composers and Publishers (ASCAP), Society of European Stage Authors and Composers in the United States and the Mechanical Copyright Protection Society-Performing Right Society in United Kingdom (MCPS-PRS). These organizations represent songwriters, musicians, composers and music publishers and that they license and collect royalties from those selling their members’ music and distribute royalties to the owner of the music copyrights. In Britain the MCPS-PRS is the leading organization to turn to in licensing digital music for retail. On January 2005, MCPS-PRS issued a licensing scheme for the provision of online and mobile music services to the public for private use. This scheme takes the form of a legal license agreement or the “Online Agreement” as it is termed by the MCPS-PRS, covering online music sales in the UK, Northern Ireland, the Channel Islands and the Isle of Man. There is also the possibility that it would cover the music sales overseas as the system develops. Now this aspect, including a slated operation of online agreement for one year, makes it unstable and subject to change. This is problematic because MCPS-PRS may, in the future, revise provisions in the licensing agreement and in regulations on the downloading and use of the songs licensed. For example, it could raise the royalties for each sale. Or that it could limit the geography where a song would be allowed to be sold. Presently, the MCPS-PRS has a working agreement with online music download services that define the manner the downloaded music are used. There is a watermark technology embedded in each music that allows the monitoring of the song’s use. The business becomes liable for a customer’s illegal usage of the downloaded content if it fails to sufficiently inform the customer about the terms and conditions of the downloaded content’s use. According to Andrew Sparrow, the prescribed terms and conditions for customers downloading in the business’ website include provisions for the purchase of the content, the express warning about offensive contents, the warning about private use. (p. 22) E-Commerce Regulations In addition, United Kingdom’s E-Commerce (EC Directive) Regulations 2002 apply to music download service and, hence, all the necessary information demanded by those regulations must be set out. Essentially, this Act transposes the main requirements of the European Union’s E-Commerce Directive in 2001 into UK law. The law covers a number of aspects of electronic trade including provisions for the national law that will apply to online services. Non-compliance for the regulations prescribed will be meted out with penalties in addition to the financial consequence. The E-Commerce Regulations also cover the question in regard to whose law will apply to cross-border trade. The Regulations liberalize the online service in two ways: 1) the requirement for UK-established business to comply with UK laws even if it is providing music download services to clients from other European country. In consideration of the above mentioned legal factors, the online business, therefore, needs to: 1) ensure that the online music download website has properly drafted legal terms and conditions; 2) set-up in place a system that would allow for a click-wrap confirmation of the said terms and conditions; 3) consider a restriction of online activity to be confined to certain geographical location, especially overseas; 4) ensure that a governing law clause is included in the terms and conditions; and, 5) underscore the differences between the terms and conditions that govern, CDs, DVDs or their burned counterpart as well as the traditional formats offered in the music download service. References Burkart, Patrick and McCourt, Tom 2006, Digital music wars: ownership and control of the celestial jukebox. Rowman & Littlefield. Jewkes, Yvonne 2007, Crime online. Willan Publishing. Sparrow, Andrew 2006, Music distribution and the Internet: a legal guide for the music business. Gower Publishing, Ltd. HMSO 2002, The Electronic Commerce (EC Directive Regulations) 2002. London: Her Majestys Stationery Office (HMSO). Read More