The OECD study is also valuable because it stresses a point that I have long stressed--the importance of what the OECD calls "complements" in securing the economic benefits that improved IPR protections can produce: "Examples include policies that influence the environment for doing business, investment in research and development (R&D), development of human capital and entrepreneurial education (e.g. concerning the economic potential of intellectual property)."

This is a critical point. Intellectual property rights are intended to empower markets to promote the private production of social goods like expression, reputation for quality, and innovation. But these intangible or "intellectual" property rights seek to achieve these ends by granting exclusive rights. And while the exclusive rights granted by IPRs often differ in their details because intangible property rights always raise context-specific concerns, the exclusive rights granted by IPRs are, nevertheless, intended to produce--in markets for expression, reputation, and innovation--effects similar to those produced in markets for tangible goods by the exclusive property rights that we grant to producers of such goods. These observations thus suggest that we should expect to find what the OECD study actually found: A country can improve the efficacy of IPRs in producing economic growth by improving IPR protections and then by making improvements in the "complements" that will tend to improve both the efficacy of IPRs and the business climate generally.

Consequently, perhaps the most interesting OECD finding is that improved IPR reforms can trigger a "virtuous cycle" of complementary improvements. OECD notes that IPR reforms tend to trigger increases in foreign direct investment (FDI), that then trigger more general improvements in the "complements" that improve the general business climate. As OECD puts it: "[T]he significance of the results across the system of equations points to a virtuous circle, whereby improvements in the IPR environment are associated with improved economic performance - in particular with respect to FDI - and, in turn, further improvements in the IPR environment."

In short, this is a useful and generally cautious new multi-level analysis of the effect of improving IPR protections in developing countries. It should highlights the need for further research to improve our understanding of the roles of improved IPR protections and improvements in "complements" that improve both the prospects of both IPR-intensive enterprises and a country's general business climate. To the extent that improved IPR protections tend to generate improvements in complements important to businesses generally, then the true economic benefits of improved IPR protections may be far greater than even this new OECD study might suggest.

Jim's piece also highlights a fundamental problem with TechDirt's childish, copyright-hating worldview: TechDirt brews its venom from an ugly blend of hubris and cowardice.

Fine—but Masnick's preferred "business models" are ones that existing copyright law permits. As a result, if these "Masnick models" are superior means of production, then consumer-driven market competition between artists employing these superior models and artists employing other, inferior models, (like selling copyright-protected copies), should naturally have driven all those inferior models out of the market without resort to either piracy or government retraction of copyrights.

But that has never happened, and that suggests why TechDirt hates copyrights so venomously: Those wretched copyrights just keep on letting artists, (and those who make the risky long-term investments that let artists create), exploit creative works in ways that both artists and consumers insist upon prefering to those means of production decreed to be superior by TechDirt.

That is intellectual cowardice: There is no real problem if the "problem" with copyrights is that they let debates about the relative merits of subsets of the vast array of business models that copyrights permit to be settled by real consumers reacting to real works in real markets—rather than by the fertile imaginings of self-anointed Internet geniuses.

Perhaps that is why copyrights still tend to be strongly supported by both federal policymakers and most policy analysts—or at least those who retain the hint of personal humility required to admit that those who incur the risks inherent in creativity might be better situated than most pundits to decide how to exploit the rewards earned in the rare cases when those risks pay off.

I was also impressed that Brenner stressed a point that probably should be stressed more often during debates about technology policy: Antitrust and competition law exist to ensure that we do not need to do more harm than good by prospectively trying to identify and forbid every combination of property rights, new technologies, network effects, and circumstances that could lead to some Bad Thing happening.

This is an important point. Apart from the self-parodying sexist tirade in which William Patry denounced DRM as a Stalinist, Fascist chastity-belt-on-someone-else's wife, we really haven't seen much DRM doom-mongering lately. On the other hand, many former DRM-doom-mongers merely shifted to mongering other forms of allegedly impending Internet doom.

In almost every case, the hypothetical harms potentially threatened by the doom-of-the-week being prophesied would require multiple, sustained violations of antitrust laws—even those that were not being enforced too aggressively, as such laws often are. Nevertheless, properly enforced competition laws serve as a useful check against the need for the sorts of prophylactic restraints inevitably advocated by those hypothecating hypothetical horribles.

Judge Gertner's bizarre ruling thus makes no sense from any perspective. Her fundamental problem may be that her hand-picked defense counsel's trial strategy involved making jurors guess about actual harm and hoping that they would guess low. Under the dire circumstances of Tenenbaum, that choice may have been one of the less-deranged elements of the "defense strategy," but it was still a very high-risk tactic that could obviously backfire—particularly because statutory damages are intended to let juries deal with pirates who make them guess and the Plaintiffs did submit expert testimony about the cascade-effects of file-sharing and the probable (high) costs of a license to engage legally in file-sharing.

No doubt Judge Gertner, having become so personally involved in setting up Joel Tenenbaum to take the resulting $675,000 fall, would like to imagine that it is unconstitutional for her hand-pick defense counsel's high-stakes gamble to backfire. Appellate jurists are more likely to conclude that in a case like Tenenbaum, the proper remedy is not a reduced award, but for Tenenbaum to file a malpractice claim against Harvard Law School's Berkman Center for the Study of the Internet and Society.

• "[W]e found no evidence that large numbers of students use P2P for these legal purposes and not to transfer copyrighted material."
• "Most users are intensive users of P2P to transfer copyrighted material."
• "Some might suggest that there are many people who use P2P for the legal transfer of software, such as Linux, or for the transfer of adult material (which may or may not be copyrighted), but do not engage in the illegal transfer of copyrighted material. However, we found no evidence of this among college students."
• "[A]s for the legal transfer of software, the percentage of P2P users found transferring Linux out of those that do not transfer copyrighted media is not statistically different from zero."

Collectively, the findings of the Grokster, Digital Citizen, Fung, Sahi-Felten, Lime Group, and Internet Commerce Security Laboratory studies send a simple message with broad implications: "Decentralized" file-sharing networks, programs and indices have never really been "neutral" or "dual-purpose" technologies: They are so optimized for piracy that they are almost never used for lawful purposes because they are unsuited to the needs of lawful exchange. To see why, review the following hypothetical and then answer the question posed.

Hypothetical: Your friend Perry tells you that he is going out to buy some marijuana so he can get stoned, and some oregano so he can season his soup. You then see Perry slink into a dark alley where anonymous strangers wearing ski masks lurk in the shadows. Perry whispers to a masked stranger, and then receives from him a bag containing some dried, greenish herb that Perry immediately stuffs into his pocket before leaving the dark alley. Question: Do you think it more likely that Perry just tried to buy (A) the illegal marijuana or (B) the legal oregano? The circumstances of the exchange make the answer to this question really obvious.

Piracy-adapted "decentralized" file-sharing programs, networks, and tracker sites are much like Perry's dark alley: For example, a program like LimeWire program lets tweens, teens, and college students play Russian roulette with a notoriously deceptive program in hopes of getting files that may not be what they seem from anonymous strangers who can almost immediately become untraceable. The 98.8% infringement rate in Lime Group thus merely confirms what our common sense would already suggest: if some "innovator" like LimeWire's Mark Gorton creates an online analog of a dark alley full of masked strangers, people will studiously avoid it—when they are engaged in lawful exchange.

In light of these studies, and a parade of cases like Napster, Aimster, Grokster, UseNet, Fung, and Lime Group, litigating inducement cases against similar bad actors should get much simpler. There should be less need for complex discovery, because evidence of intent will be far easier to infer from simple data about how the service and its operator behave. The law infers that people intend the obvious consequences of their actions, and the consequences of distributing a program like LimeWire or operating a site like Isohunt are now really obvious.

Fortunately, the now-obvious consequences of dark-alley designs will usually be only one of many signs that a given file-sharing program or tracker site is a specialized piracy machine. For example, a program distributor's or site operator's efforts to affect what EFF called "plausible deniability" will provide a clear signal of intent. In other words, "innovators" who think that they are building lawful businesses should try hard to understand when, why, and how consumers are using their programs or services. Consequently, when "innovators" are instead trying hard to avoid knowing when, why, and how consumers are using their programs or services, they must know that they really, really don't want to know this information. The law infers intent from such conduct. Nevertheless, we just saw the nitwit CEO of LimeWire LLC try to convince us that throughout the last decade, his company never had a clue as to why its program became so popular, particularly after Grokster caused so many other distributors of functionally similar piracy machines to fold or filter:

Whatever the numbers of files authorized for sharing versus those that are not, LimeWire does not know those numbers. It did not in 2000 and it does not now. LimeWire's searching and sharing functions are entirely decentralized. After downloading and installing LimeWire on their computers, we currently have no visibility into what types of content users seek, send and receive with the software.

Not even EFF could still find that decade-long affectation of "deniability" to be "plausible." The good thing about intent-based inducement liability is that you cannot "design around it": The harder you try, the more clearly you reveal your malign intent.

N.B.: As always, the preceding discusses particular implementations of peer-to-peer networking technologies. That does not mean that ,em>all implementations of such technologies are suspect. For example, the growth of IPTV might very well result in the implementation of some sort of distributed or peer-to-peer distribution system--perhaps even one implementing the BitTorrent protocol. If that happens, I predict that we would have no difficulty distinguishing that productive implementation from some of the piracy-driven implementations discussed above.

But this Opinion will be reversed on appeal for at least two reasons. First, no judge can legally find something so daft as a civil safe-harbor for criminal racketeering lurking in the unspoken implications of the "tenor" of excerpts of legislative history. Second, no judge can legally hold that the DMCA adopted terms that judges used to convey the lack of any knowledge requirement in order to tell judges to impose an "item-specific" knowledge requirement. As singer Katy Perry might put it, unless the DMCA was "a [law] bipolar," it did not use "in" to mean "out" or "up" to mean "down...."

Consequently, the Viacom Opinion is not really a huge win for those who want foreign corporations to be able profit by intentionally inducing mass piracy. Indeed, apart from the usual applause from the usual suspect—and a switch-of-sides at Slate—no one seems to be praising or even defending the substance of Judge' Stanton's legal analysis. And with good reason—it is indefensible.

Granted, the Viacom Opinion could be a disaster for artists and creative industries. It adopts the most extreme version of what I have called the takedowns-and-daiquiris interpretation of the DMCA "safe harbors" for Internet hosting and information-location services. See 17 U.S.C. § 512(c)-(d). Consequently, the problem with the Viacom Opinion is not YouTube itself. However YouTube began, Google eventually turned it into what Google Video once was—a responsible and law-abiding service that uses the latest technology to protect its users, its operators and the copyrights of creators. Like other major UGC and social-networking sites, today's YouTube is now a true Internet success story.

Rather, the problem is that the Viacom Opinion, by creating a civil "safe harbor" that would protect even criminal racketeering enterprises, has ensured that—just as the original YouTube seems to have "won" the early streaming-video market by using "ubiquitous" piracy to marginalize law-abiding competitors like Google Video—so too will future online markets for works belong to the amoral "entrepreneur" most willing to break the law in order to use "unlawfully expropriated property… as part of the start up capital for his product."

But artists, creative industries, and policymakers should not worry too much about how bad things would become were the Viacom Opinion legally correct. It isn't. In fact, it is so riddled with obvious reversible errors that it will almost certainly be overturned on appeal. As in Grokster, thoughtful appellate jurists should again reject another trial judge's claim that federal law has created a civil "safe harbor" for massive and deliberate—and thus potentially criminal—wrongdoing.

For example, consider what may be the Viacom Opinion's two most blatant flaws. Together, they prove that a court adopting the takedowns-and-daiquiris interpretation of the DMCA safe-harbors must violate both of the two central principles of federal statutory interpretation—principles so fundamental that they can fairly be said to protect both the Constitution's structural premise of separated powers and the enterprise of representative democracy .

How the Viacom Opinion created a "safe harbor" for corporations that intend to profit by inducing massive copyright piracy.

The Viacom Opinion held that because the original founders of YouTube responded to takedown notices, they were protected from monetary civil liability for copyright infringement by § 512(c) of the DMCA—even if they intentionally induced, facilitated and were willfully blind to "ubiquitous" mass piracy that they "welcomed" because it "was attractive to users, whose increased usage enhanced defendants' income from advertisements." 2010 U.S. Dist. LEXIS 62829 at *14-15, *32.

The Viacom Opinion reached this conclusion by interpreting four of the duties that the DMCA imposes upon online service providers that want the protections from civil liability provided by the so-called "safe-harbors" for hosting-services under § 512(c) and information-location services under § 512(d). Both subsections deny protections if service providers 1) fail to promptly remediate infringing uses of their services of which they have "actual knowledge," 2) fail to promptly remediate infringing uses if they should be "aware of facts and circumstances from which infringing activity is apparent," 3) derive a "direct financial benefit" from infringing uses that they have "the right and ability to control," or 4) fail to respond expeditiously to takedown notices from copyright owners. 17 U.S.C. § § 512(c)(1)(A)-(C); id. at § 512(d)(1)-(3).

In effect, the Viacom Opinion reduced these four separate duties to a single duty to respond to takedown notices. Technically, this is a slight overstatement: the Viacom Opinion does presume that a hosting service that responds to takedown notices could lose its safe-harbor protection as to a particular infringing use of its service—if it could somehow obtain through some means other than a valid or invalid takedown notice "item-specific" actual or constructive knowledge that a given posting was both infringing and that the "copyright owner or licensee objects to its posting." 2010 U.S. Dist. LEXIS 62829 at *30; see also id. at *29.

But practically, this is a distinction without a difference—certainly as to any hosting service that strikes the pose of "See No Evil," the first of those three proverbial monkeys. Usually, the law treats such "willful blindness" to one's role in facilitating mass wrongdoing as proof of constructive knowledge, actual knowledge and criminal intent. See, e.g., In re Aimster Copyright Litig., 334 F.3d 643, 650 (7th Cir. 2003) ("in copyright law… as in the law generally" willful blindness to wrongdoing proves actual knowledge of it and criminal intent to facilitate it). But the Viacom Opinion repeatedly treats even willful blindness as a ticket to safe-harbor protections: "[A]wareness of pervasive copyright infringing, however flagrant and blatant, does not impose liability on the service provider." 2010 U.S. Dist. LEXIS 62829 at *32. "General knowledge that infringement is 'ubiquitous' does not impose a duty on the service provider to… search its service for infringements." Id. at *35. The Viacom Opinion thus concluded the original YouTube could claim § 512(c) safe-harbor protections even if its founders were intentionally inducing mass piracy within the meaning of Grokster, 545 U.S. 913.

To derive this conclusion, the Viacom Opinion relied on an unprecedented three-step method of statutory interpretation: (1) Judge Stanton quoted the text of Section 512, (2) he then quoted some excepts from the DMCA's legislative history, and (3) he then divined the intended meaning of the statutory text from his subjective impression of the legislative intentions implied by the unspoken "tenor" of the quoted legislative history. 2010 U.S. Dist. LEXIS 62829 at *29. The claim that the DMCA provides civil safe-harbors even to providers who intend to build businesses based upon mass piracy thus derives not from the text of the statute or its legislative history, but from one judge's divination of the implied meaning of the unspoken "tenor" of some legislative history.

For two reasons, there is little reason to believe that appellate review can or will sustain the crime-coddling conclusions derived from this odd means of statutory "interpretation."

The elephant in the mousehole: Did President Clinton and Congress really create civil "safe harbors" for corporations that they had just deemed criminal racketeering enterprises?

The first of the two central premises of federal statutory interpretation requires statutory terms and phrases to be interpreted in context: "It is a fundamental canon of statutory construction that the words of a statute must be read in context and with a view to their place in the overall statutory scheme." Davis v. Michigan Dept. of Treasury, 489 U.S. 803, 813 (1989).

This fundamental focus on context—on "the big picture"—thus has a critical corollary: "Congress, we have held, does not alter the fundamental details of a regulatory scheme in vague terms or ancillary provisions—it does not, one might say, hide elephants in mouseholes." Whitman v. American Trucking Ass'n, 531 U.S. 457, 468 (2001) (quoted in Gonzales v. Oregon, 546 U.S. 243, 267 (2006)). This corollary prevents judges from "finding" radical change lurking in mere ambiguities, vagueness or legislative history.

The Viacom Opinion violates this corollary blatantly. The Opinion hides a really huge elephant—one the size of the U.S. Criminal Code. And it hides this mastodon in a really puny mousehole—one constructed entirely from one judge's divination of the implied meaning of the unspoken "tenor" of excerpts of legislative history. Context makes the absurdity of this effort painfully clear.

Only acts that Congress and the President chose to punish with criminal sanctions violate the U.S. Criminal Code. If a business intentionally infringes copyrights, it commits one or more federal crimes. See 17 U.S.C. § 506; 18 U.S.C. § § 241, 307, 2319. If it intentionally induces others to infringe copyrights, then it is as guilty as if it had directly committed their infringements. Id. at § 2. And if a business intentionally commits or induces mass piracy, then it is a racketeering enterprise within the meaning of the Racketeer Influenced and Corrupt Organizations Act (RICO). See 18 U.S.C. § § 1961-68.

Tragically, many judges have now found that far-too-many Internet "entrepreneurs" were just would-be pirate kings intentionally building global for-profit piracy syndicates. For example, the distributors of the file-sharing program Morpheus, bragged that their "business model" gave them "no product costs to acquire music" and "the ability to get all the music." MGM Studios, Inc. v. Grokster, Ltd., 454 F. Supp. 2d 966, 981 (C.D. Cal. 2006). Justice Breyer correctly equated such conduct to "garden-variety theft." MGM Studios, Inc., v. Grokster, Ltd., 545 U.S. 913, 961 (2005) (Breyer, J., concurring). Even the Grokster Defendants themselves appear to have belatedly perceived this. Upon reaching the United States Supreme Court, they thus committed the civil-litigation equivalent of suicide: Citing their fear of "criminal investigation," they refused to let the Department of Justice review the record.

Today, there are now far too many cases involving far too many other garden-variety thieves who intended to facilitate mass Internet piracy. See, e.g., Arista Records, LLC, v. Lime Group, 2010 U.S. Dist. LEXIS 46638 (S.D.N.Y. 2010); Arista Records, LLC, v. Usenet.com, 633 F. Supp. 2d 124, (S.D.N.Y. 2009); Columbia Pictures Indus., Inc. v. Fung, 2009 U.S. Dist. LEXIS 122661 (C.D. Cal. 2009); Disney Enters., Inc. v. Delane, 446 F. Supp. 2d 442 (D. Md. 2006); In re Aimster Copyright Litig., 334 F.3d 643 (7th Cir. 2003). Similar holdings from other countries include Sweden's criminal prosecution of The Pirate Bay and Australia's KaZaA litigation.

As a result, inducement cases like Grokster, Fung, and Lime Group have now repeatedly held that any reasonable person reviewing evidence under a preponderance standard would conclude that internet enterprises had engaged in behavior that—if proven beyond a reasonable doubt—almost certainly constitutes both criminal conduct and criminal racketeering under existing U.S. law. See, e.g., In re Aimster Copyright Litig., 334 F.3d 643, 651 (7th Cir. 2003) (calling aiding-and-abetting "the criminal counterpart to contributory infringement").

Hence the elephant: The Criminal Code imposes severe penalties to deter very antisocial conduct. It is thus inherently implausible to imagine that any federal law would effectively encourage criminal wrongdoing by giving potential criminals a safe harbor from civil liability for their crimes—particularly if their crimes targeted private federal civil rights generally enforced except through civil litigation. That does something worse than just "alter the fundamental details of a regulatory scheme…." It sets the law at war with itself in a way that is sure to erode federal civil rights, encourage criminal wrongdoing, and disadvantage law-abiding commerce.

That is why, in Grokster, the Supreme Court unanimously reversed lower courts that had "interpreted" the Supreme Court to have protected from civil liability the intentional inducement of mass piracy, (a.k.a. "criminal racketeering"), through the deliberately vague capacity-for-commercially-significant-noninfringing-use defense created by the 5-4 majority opinion in Sony Corp. of America v. Universal City Studios, Inc., 464 U.S. 417, 442 (1984) (declining to answer "the question of how much use is commercially significant"). While the Grokster Court split 3-3-3 on the question of what this Sony-defense might mean, the Justices unanimously rejected claims that it protected intentional wrongdoers—no Justice found an elephant hiding in Sony's deliberate ambiguities.

Nevertheless, in his Viacom Opinion, Judge Stanton distinguished Grokster, by "finding" the same old elephant—the same sort of just-unanimously-rejected safe harbor for inducement—hidden implicitly in the "tenor" of the legislative history of the DMCA:

Grokster, Fung, and Lime Group involved peer-to-peer file sharing networks which are not covered by the safe-harbor provisions of the DMCA § 512(c)…. Fung was an admitted copyright thief whose DMCA defense under § 512(d) was denied on undisputed evidence of "'purposeful, culpable expression and conduct' aimed at promoting infringing uses of [his] websites."

Grokster addressed the more general law of contributory liability for copyright infringement, and its application to the particular subset of service providers protected by the DMCA is strained….

***

The Grokster model does not comport with that of a service provider who furnishes a platform on which its users post and access all sorts of materials as they which, while the provider is unaware of its content, but identifies an agent to receive complaints of infringement, and removes identified material when he learns it infringes. To such a provider, the DMCA gives a [civil] safe harbor, even if he would be held as a contributory infringer under the general law. In this case, it is uncontroverted that when YouTube was given the notices, it removed the material. It is thus protected "from liability for all monetary relief for direct, vicarious and contributory infringement…." Senate Report at 40, House Report at 50.

2010 U.S. DIST. LEXIS 62829 at *36-38. There are three fatal flaws in this illogic.

First, neither the text of § 512(c) of the DMCA nor the text of its legislative history provide any explicit support for claims that entities can intentionally induce mass piracy and remain eligible for the § 512(c) safe harbor. Indeed, on its face, the text of the DMCA forecloses protection for intentional wrongdoers by expressly denying protections even to less culpable entities possessing mere actual or constructive knowledge of infringements. See 17 U.S.C. § 512(c)(1)(A)(i)-(ii). Nor does the DMCA's legislative history cite any example in which its "harbors" would protect any OSP from liability for its own intentional wrongdoing. Consequently, the only remaining source for such protection is the divination of the implicit meaning of the unspoken "tenor" of the excerpts of legislative history quoted in the Viacom Opinion. See 2010 U.S. Dist. LEXIS 62829, at *29. That is a ridiculously "vague" and "ancillary" source for the inherently daft notion of civil protection for intentional and criminal wrongdoing. See, e.g., Whitman v. American Trucking Ass'n, 531 U.S. 457, 468 (2001).

Second, broader context further exacerbates the inherent absurdity of any such claim. The only thing more implausible than a civil safe-harbor for criminal wrongdoing implicitly hidden in the Supreme Court's deliberately vague Sony decision from the mid-1980s would be a civil safe-harbor for criminal wrongdoing implicitly hidden in the "tenor" of the legislative history of a statute enacted by President Clinton and Congress in the mid-1990s. In 1994, President Clinton and Congress committed to criminalize precisely what Judge Stanton found to be ubiquitous on the original YouTube: "copyright piracy on a commercial scale." See Agreement on Trade-Related Aspects of Intellectual Property Rights, art. 61, Apr. 15, 1994, 33 I.L.M. 81 (1994). In 1996, the increasing threat of computerized piracy and counterfeiting led President Clinton and Congress to designate willful trademark counterfeiting and copyright piracy as predicate acts of criminal racketeering under RICO. See Anticounterfeiting Consumer Protection Act of 1996, 104 P.L. 153, 110 Stat. 1386. In 1997, President Clinton and Congress again responded to threats arising from burgeoning Internet piracy by criminalizing even noncommercial Internet piracy. See No Electronic Theft Act of 1997, 105 P.L. 147, 111 Stat. 2678.

Yet the Viacom Opinion infers that in 1998—less than two years after President Clinton and Congress concluded that corporations intentionally inducing mass piracy were criminal racketeering enterprises—President Clinton and Congress created civil-safe-harbors that encourage corporations to build criminal racketeering enterprises based on intentional mass piracy. Something less "vague" than a guess at the implied meaning of the unspoken "tenor" of bits of legislative history would be required to sustain that bizarre conclusion.

Third, the Viacom Opinion's attempt to distinguish Grokster and its progeny is itself so "strained" that every assertion made is either wrong or misleading. Collectively, these errors leave the Viacom Opinion willful blind to its own implications: Quite literally, it holds that if the Internet's worst willfully-blind architects of the largest global copyright-piracy syndicates in history had just responded to takedown notices, then federal law would have let all of them sit safely in a civil safe-harbor, drinking daiquiris and profiting from piracy by intentionally inducing—that is, encouraging or duping—unprotected American consumers, students, and children into doing all of the strict-liability-generating dirty work required to let corporate racketeering enterprises profit from mass piracy.

To reach this conclusion, the Opinion first claims that some disconnect or "strain" exists between Grokster's inducement test and the DMCA's safe harbors. 2010 U.S. Dist. LEXIS 62829 at *36. Wrong: Fung refutes that claim and no reported case reveals even an overlap, much less a "strain" between inducement liability and §512(c). The Viacom Opinion concedes that § 512(c) limits civil liability only when the alleged liability-triggering act is mere "'storage' and allied functions…," and that liability for all other acts "must be judged according to the general law of copyright infringement." 2010 U.S. Dist. LEXIS 62829, at *40. There is thus no "strain": The sort of generally innocuous acts that the DMCA safe-harbors can protect—acts like mere "'storage' and allied functions" done "at the direction of a user"—have never triggered inducement liability under Grokster.

Grokster imposes inducement liability if a person or entity (1) intended to induce infringement, and (2) acted affirmatively in order to effectuate that intent. In no reported inducement case—including Viacom v. YouTube—has anyone held or argued that mere "'storage' and allied functions" either evinced intent to induce infringement or were the affirmative acts that effectuated an intent to induce infringement. For example, the Viacom Opinion concedes that the original YouTube founders intended to "welcome" even "flagrant," "pervasive," and "ubiquitous" infringing uses of their site because they attracted users and increased profits. Here are examples of some of the non-storage-related affirmative acts through which Viacom argued that these founders effectuated their intent to "welcome," induce and profit from such massive piracy:

• Disabling community flagging for infringement because its unexpectedly effective was generating too much willful-blindness-piercing actual knowledge of particular infringements.
• Carefully calculating which classes of infringing works should be taken down and which should be kept up in order to generate a façade of respect for copyrights while perpetuating aspects of the mass piracy that were attracting users.
• Creating "groups" to attract users to infringing videos.
• Choosing to keep distributing obviously infringing content in order to profit from piracy until the infringement was detected (by others), and a notice was generated, sent and received.
• Surveying the most popular videos on YouTube to see what how many contained copyrighted content, concluding that 70% did, and leaving them up.

As these examples suggest, Grokster and § 512 neither "strain" nor even overlap because the acts that the § 512(c) "harbor" protects—storing data "at the direction of a user"—are just not the sort of acts that either to evince intent to induce infringement or to effectuate a defendant's intent to induce infringement. Indeed, no subsection of § 512 protects any service provider from any of its own intentional acts.

The Opinion then says that "peer-to-peer file sharing networks… are not covered by the safe-harbor provisions of the DMCA § 512(c)…." That is probably wrong and clearly misleading: Napster, Fung and reality all suggest that distributors of peer-to-peer file-sharing programs can seek protection under the DMCA's § 512(d) safe-harbor for information-location services—if they obey constraints substantively indistinguishable from the § 512(c) constraints gutted in the Viacom Opinion.

The Viacom Opinion then fails to distinguish Fung by claiming that "Fung was an admitted copyright thief whose DMCA defense under § 512(d) was denied on undisputed evidence of "'purposeful, culpable expression and conduct' aimed at promoting infringing uses of [his] websites." Wrong: Fung never admitted that he was a "copyright thief" and he still denies that he intended for his Isohunt website to induce mass piracy—the district court just ruled that no reasonable person could believe him, even though Isohunt did respond to takedown notices as required by § 512(d)(3). Columbia Pictures Indus., Inc. v. Fung, 2009 U.S. Dist. LEXIS 122661, *61 n.27 (C.D. Cal. 2009). Consequently, the Viacom Opinion errs again when it claims that an inducement case like Fung can have "little application" when a service provider has "furnishe[d] a platform on which its users post and access all sorts of materials as they wish, while the provider is unaware of its content, but identifies an agent to receive complaints of infringement, and removes identified material when he learns it infringes" via a valid takedown notice. Viacom Opinion, 2010 U.S. Dist. LEXIS 62829, at *37. That sentence did not distinguish Fung; it merely summarized its facts.

The truth is thus clear: The Viacom Opinion implicitly held that Fung was wrongly decided. Compare Columbia Pictures Indus., Inc. v. Fung, 2009 U.S. Dist. LEXIS 122661, *68 ("inducement liability and the [DMCA] safe harbors are inherently contradictory"); Viacom Opinion, 2010 U.S. Dist. LEXIS 62829, at *36-38 (holding that Grokster addressed "the general law of contributory liability for copyright infringement" and that the DMCA protects a service provider responding to takedown notices "even if otherwise he would be held as a contributory infringer under the general law"). Consequently, the "logic" of the Viacom Opinion would thus assert that all of the Internet's most notorious architects of intentional mass piracy—including Napster, Aimster, Grokster, Morpheus, LimeWire, KaZaA, UseNet, Isohunt and The Pirate Bay—might have been criminal racketeering enterprises, but if they had just responded to takedown notices while affecting willful blindness, then they all could have kept on intentionally inducing mass piracy while enjoying the protections of the civil safe-harbor provisions of § 512(c) or § 512(d) of the DMCA.

For example, if the distributors of the LimeWire file-sharing program had just responded to takedown notices, then the Viacom Opinion would hold that the § 512(d) safe-harbor would have protected even their decade of mass piracy intentionally induced by distributors affecting willful blindness to the fact that 98.8% of the files that LimeWire users selected for downloading were highly likely to be infringing. See Arista Records, LLC, v. Lime Group, 2010 U.S. Dist. LEXIS 46638, *15 (S.D.N.Y. 2010). The Viacom Opinion would hold that even this 98.8% "statistical estimate of the chance that any particular posting is infringing… is not a 'red flag' marking any particular work." See Viacom Opinion, 2010 U.S. Dist. LEXIS 62829, at *32; but see Fung, 2009 U.S. Dist. LEXIS 122661 *66 (citing "Defendants own statistics" to show that "Defendants were certainly 'aware of a "red flag" from which infringing activity is apparent'").

That is absurd: An entire herd of rogue elephants like Aimster, Grokster, KaZaA, Morpheus, Isohunt, LimeWire and the Pirate Bay cannot hide in a mousehole consisting of the implicit, unspoken "tenor" of some excerpts of legislative history.

The "ordinary-meaning rule" forecloses any claim that Congress intended for the DMCA to mean the opposite of what informed legislators should have understood it to say.

The second of the two central premises of federal statutory interpretation is also just a corollary of the first. In effect, it says that when Congress writes laws, in English, to govern the citizens of a mostly English-speaking nation, courts cannot use their power of interpretation to conclude that Congress spoke in tongues to enact laws that do not mean what informed readers of English would think.

Indeed, the Supreme Court just re-confirmed yet again that courts must prevent such results by giving all undefined statutory terms their "ordinary meanings": "In patent law, as in all statutory construction, 'unless otherwise defined, "words will be interpreted as taking their ordinary, contemporary meaning.''" Bilski v. Kappos, 2010 U.S. LEXIS 5521, *15 (June 28, 2010) (citations omitted).

This ordinary-meaning rule's prescriptions are simple: if undefined statutory terms derive from legal "terms of art" that had developed specialized meanings under prior law, then they retain their specialized meanings; otherwise, undefined terms have their ordinary, dictionary-definition meanings. See, e.g., Neder v. United States, 527 U.S. 1, 21 (1999) (specialized meaning); Ardestani v. INS, 502 U.S. 129, 135-36 (1991) (dictionary-definition meaning). The ordinary-meaning rule protects representative democracy by giving statutes the meaning that should have been expected by any well-informed Representative, Senator, or President reading the proposed text against the background of related existing laws.

Nevertheless, while the Viacom Opinion never acknowledges that the ordinary-meaning rule exists, it does violate it ceaselessly. At its worst, it actually reverses the rule in order to conclude that statutory text was intended to mean the opposite of what any informed reader should have suspected.

For example, § 512(c)(1)(B) of the DMCA denies safe-harbor protections to any hosting site that "has the right and ability to control" infringement from which it derives a direct "financial benefit." Citing no authority, the Viacom Opinion decrees, "The 'right and ability to control' the activity requires knowledge of it, which must be item-specific." Viacom Opinion, 2010 U.S. DIST. LEXIS 62829, at *40-41.

But the DMCA was not enacted on Opposite Day. Consequently, no judge can conclude that Congress used language that judges had developed to convey the lack of any knowledge requirement in order to tell judges that Congress intended to impose an item-specific knowledge requirement. That is absurd; it is the definition of "speaking in tongues;" and this unprecedented interpretation of §512(c)(1)(B) is thus foreclosed by decades of binding Supreme-Court and Second-Circuit precedents.

All other courts concede that the text of § 512(c)(1)(B) adopts the language of the familiar judge-made test for "vicarious copyright liability." E.g., Perfect 10, Inc. v. CCBill, LLC, 488 F.3d 1102, (9th Cir. 2007). "When Congress codifies a judicially defined concept, it is presumed, absent an express statement to the contrary, that Congress intended to adopt the interpretation placed on that concept by the courts." Davis v. Michigan Dept. of Treasury, 489 U.S. 803, 813 (1989). Consequently, when Congress enacted in § 512(c)(1)(B) terms that judges had developed over decades, it obviously meant for those terms to retain their specialized, judge-developed meanings.

That refutes the Viacom Opinion's claim that "the 'right and ability to control' the activity requires knowledge of it, which must be item-specific." For nearly fifty years, binding Second-Circuit and Supreme-Court precedents have rejected that claim. See, e.g., Gershwin Publishing Corp. v. Columbia Artists Management, Inc., 443 F.2d 1159, 1162 (2d Cir. 1971) (holding that a defendant who had "the right and ability to supervise infringing activity" would be vicariously liable even though he "has no actual knowledge" of infringement); see MGM Studios, Inc. v. Grokster, Ltd., 545 U.S. 913, 930 n.9 (2005) ("vicarious liability… allows the imposition of liability… even when the defendant initially lacks knowledge of it") (citing Shapiro, Bernstein & Co. v. H. L. Green Co., 316 F.2d 304, 308 (2d Cir. 1963) (imposing vicarious liability "in the absence of intention to infringe or knowledge of infringement" in order to prevent businesses from "shielding their own eyes from the possibility of copyright infringement, thus creating a buffer against liability while reaping the proceeds of infringement")).

The Viacom Opinion's up-means-down interpretation of § 512(c)(1)(B) thus defies both common sense and decades of binding precedent.

Moreover, such violations of the ordinary-meaning rule pervade the Viacom Opinion. For example, it also holds that by denying safe-harbor protections to hosting-site operators having "actual" or constructive knowledge of infringing activity, Congress meant to signal its intent to protect hosting services that actually know that infringing uses of their services are "pervasive," "flagrant," and "ubiquitous,"—at least so long as they avoid knowing which uses infringe. The Viacom Opinion thus asserts, "awareness of pervasive copyright-infringing, however flagrant and blatant… furnishes at most a statistical estimate of the chance that any particular posting is infringing—and that is not a 'red flag'…." 2010 U.S. DIST. LEXIS 62829, at *32.

Yet again, "up" thus means "down": In both U.S. copyright law and U.S. law generally, actual and constructive knowledge are familiar terms of art that equate willful blindness to wrongdoing with both actual and constructive knowledge of particular instances of it. See, e.g., In re Aimster Copyright Litig., 334 F.3d 643, 650 (7th Cir. 2003) ("Willful blindness is knowledge, in copyright law… as in the law generally.") (quoted in Arista Records LLC, v. Doe 3, 604 F.3d 110, 118 (2d Cir. 2010); compare Tiffany (NJ) Inc., v. eBay, Inc., 600 F.3d 93, 109-110 (2d Cir. 2010) ("A service provider is not, we think, permitted willful blindness" that is "equivalent to actual knowledge for purposes of [indirect liability for trademark infringement]"), with Sony, 464 U.S. at 439 n.19 (noting that indirect liability for trademark infringement is narrower than indirect liability for copyright infringement); see also Gucci America, Inc. v. Frontline Processing Corp., 2010 U.S. Dist. LEXIS 62654, *41-46 (S.D.N.Y. 2010) (holding that willfully-blind credit-card processors can be contributorily liable for providing payment services to an Internet distributor of counterfeit handbags).

And again—with apologies to singer Katy Perry—nothing in either the text or the legislative history of the DMCA states that in this particular context, Congress intended for "in" to mean "out" or "up" to mean "down" or "actual knowledge" to mean "protect the sort of willful blindness that the law has always equated with 'actual knowledge' and 'criminal intent.'" The Viacom Opinion must have again conjured this "case of a [law] bipolar" from the unspoken "tenor" of legislative history.

Finally, applying the ordinary-meaning rule to § 512(c) creates no conflict with § 512(m), which states, "Protection of privacy. Nothing in this section shall be construed to condition the applicability of [ § 512(c)] on… a service provider monitoring its service or affirmatively seeking facts indicating infringing activity…." The Second Circuit just held that laws intended to protect privacy do not protect piracy. See Arista Records LLC, v. Doe 3, 604 F.3d 110 (2d Cir. 2010). Indeed, § 512(m) just confirms explicitly what the ordinary meaning of § 512(c) already implies: hosting-site operators can monitor their sites for infringement, but they do not have to do so to avoid violating the three constraints imposed by § 512(c)(1)(A)-(B). Even if willful blindness creates actual and constructive knowledge, ongoing monitoring is not required to avoid either actual or constructive knowledge of infringing use. Nor is monitoring required to avoid vicarious liability—the lack of either a "right and ability to control" infringement or a "direct financial benefit" from infringement will suffice. See also, e.g., Shapiro, Bernstein & Co. v. H. L. Green Co., 316 F.2d 304, 309 (2d Cir. 1963) (noting other ways that businesses can manage vicarious liability without "a fairly constant system of surveillance").

In conclusion, the preceding analysis is hardly exhaustive: it just summarizes the two most glaring of the many reversible errors of fact and law that litter the Viacom Opinion. As a result, artists and creative industries can fairly presume that the Viacom Opinion will be probably be reversed on appeal by the Second Circuit or, if necessary, by the Supreme Court. Federal statutes do not hide elephants in mouseholes—or safe harbors for criminal racketeering enterprises in ordinary-meaning-defying judicial speculation about implied meaning of the unspoken "tenor" of bits of legislative history.

Judges who remember this will promote the development of lawful internet commerce and reduce the risks of copyright enforcement against consumers by ensuring that as new online-markets for works arise, federal law will reward those service providers who adopt analogs of the commendably law-abiding, copyright-respecting approach that Google and Google Video brought to the early streaming-video market, and, eventually, even to YouTube itself.

But those who get their copyright news from the Internet might be shocked that the record labels have just dared to appeal Judge Gertner's allegedly brilliant legal analysis. After all, Public Knowledge hailed Judge Gertner's reasoning as a triumph of common sense. And at the blog TechDirt, Mike Masnick gushed, "Gertner knows this is going to be appealed, and she put a lot of effort into making the case for why this ruling was excessive, in hopes of having her reasoning help carry the later appeals."

Such fawning is silly. Judge Gertner's reasoning is far too profoundly flawed to have much chance of surviving appellate review. I will thus note three defects in Judge Gertner's analysis that should prove fatal. None is merely technical; all involve basic disregard for settled law, the facts, or reality itself.

If they gave a Darwin Award for Legal Reasoning, Judge Gertner's deterrence analysis would be a worthy nominee. Judge Gertner held that deterrence could not justify the Tenenbaum jury's verdict because people generally, college guys more specifically, and Joel Tenenbaum particularly are all irrationally "risk averse" when deciding whether to engage in probably rewarding conduct that creates a small risk of a very bad outcome. 2010 U.S. Dist. LEXIS 68642, at *87. Judge Gertner's theory of human nature thus predicts that college guys would avoid behavior like stair-diving, binge-drinking, file-sharing, and casual-sex-seeking: All these behaviors are usually gratifying in the short run, but they all create the sort of small, long-term risks of really bad outcomes that allegedly "risk averse" college guys avoid....

Meanwhile, back on Earth, self-reflective adults should know that Judge Gernter's claim is not just wrong—it gets reality backwards. In fact, real humans confronting such situations tend to be strongly "risk-seeking": we tend to seriously underestimate the odds that we will be unlucky when engaging in conduct that will probably produce short-term rewards, but also creates a small risk of a bad long-term outcome. Sadly, this indisputable reality complicates a vast array of policy debates. See, e.g., Cass Sunstein, Nudge, 32-33 (Yale U. Press, 2008); Nassim Nicholas Taleb, The Black Swan: The Impact of the Highly Improbable (Random House, 2007).

Moreover, most adults also know that this general human tendency towards situational recklessness soars in young people generally and young men in particular. See, e.g., Roper v. Simmons, 543 U.S. 551, 569 (2005) (holding that "any parent knows" what "scientific… studies" confirm: young people "'are overrepresented statistically in virtually every category of reckless behavior'"). Those who distrust the Supreme Court can derive the same conclusion from any insurance company's actuarial tables. Judge Gertner's "risk averse" claim should thus cause anyone who once was a college undergraduate to either laugh or cry. Most should laugh, but a few who were both very reckless and very unlucky should cry—including Susan Saxe, whose undergraduate decision to fund antiwar groups by robbing a bank put her on the FBI's Most Wanted List for the murder of a policeman and father of nine.

Nevertheless, Judge Gertner—the same 1960s-Counterculture radical who defended fellow 1960s-Counterculture-radical Susan Saxe—now relies on an absurd undergraduates-are-just-so-inherently-risk-averse premise to hold it unconstitutional for the Tenenbaum jury to impose even the minimum statutory-damage award needed to deter an economically rational defendant:

[The] shockingly high ratio between the jury's [$675,000] statutory damage award and [my lowball, inflation-ignoring $1,500 estimate of] Tenenbaum's non-pecuniary "profits" cannot be justified by the fact that there was some probability that Tenenbaum's file-sharing would not be detected. Since most individuals are risk averse, adequate deterrence can undoubtably be obtained with an award that is much, much lower.

2010 U.S. Dist. LEXIS 68642, at *87 (citations omitted). And do remember: while Judge Gertner was scribing those words, science-news sites were running stories like Adolescent Brains Biologically Wired to Engage in Risky Behavior. And mainstream news sites were running stories about a whole corporation of grown-ups who somehow under-prepared for the very small risk that something could go horribly wrong on a deep-water oil-drilling rig in the Gulf of Mexico…. Nevertheless, Judge Gertner's finding means that the $2,250/song award that she grudgingly allowed is "much much lower" than the minimum award needed to deter an economically rational Joel Tenenbaum.

Worst of all, even if a federal judge could rationally conclude that most stair-diving, binge-drinking college guys are irrationally risk-averse, that would only beg the real question: Could reasonable jurors reviewing the evidence in Tenenbaum conclude that Joel Tenenbaum—like Susan Saxe, but unlike most risk-adverse undergrads—was actually risk-rational or even risk-seeking?

Judge Gernter never denied that reasonable jurors could draw either conclusion. Indeed, the evidence showed that Tenenbaum repeatedly chose risk-seeking behavior. He ignored his own father's warnings. Even after he knew that he had been caught, Tenenbaum not only failed to keep his promise to delete infringing files—he also kept on "sharing" them anyway. He also lied under oath; he concealed evidence; and he falsely accused his own family of his own wrongdoing. Such behavior precludes any claim that reasonable jurors had to conclude that Joel Tenenbaum was just as inherently "risk adverse" as those other college guys who inhabit Judge Gertner's fertile imagination.

Consequently, Judge Gertner's reality-reversing illogic all but forecloses any hope that her "deterrence" analysis can be sustained on appeal. Using her own irrationally lowball estimate of the value of the benefits that Tenenbaum gained from his file-sharing ($1500), Judge Gertner held, in effect, that even a serial recidivist and family-blaming, evidence-concealing liar like Joel Tenenbaum would conclude that he faced odds of getting held liable for file-sharing no greater than 1-in-45. If any evidence in the Tenenbaum record even permits that conclusion, neither the Defendant nor Judge Gertner has identified it.

Consequently, the outcome of appellate review of the Tenenbaum jury verdict should thus turn on the answer to this question: Could reasonable jurors decide that a risk-neutral or risk-seeking Joel Tenenbaum could conclude that he could reduce the odds that he would be held liable to 1-in-450 by hiding in the crowd (which evidence showed would itself reduce the odds of getting caught to more than 1-in-1,000), lying under oath, concealing evidence, and falsely accusing his own family? If the answer to that question is "yes," (and it is), then even an economically rational Judge Gertner must concede the constitutionality of the Tenenbaum jury verdict.

Consequently, the odds that Judge Gertner's absurd deterrence analysis will survive appellate review are even less than 1-in-450.

Judge Gertner's "compensation" analysis dodged the real question: Could reasonable jurors conclude that Tenenbaum would have had to pay at least $22,500/song for global licenses to distribute permanent, perfect, and free digital copies of hit songs to all Internet users who wanted them?

Judge Gertner conceded that any statutory-damage award that merely compensates the Plaintiffs for Tenenbaum's eight years of willful mass piracy is constitutional. See 2010 U.S. Dist. LEXIS 68642, at *10. Moreover, the device of statutory damages exists to address the central challenge that arises in cases like Tenenbaum: Those engaged in willful mass piracy have the strongest incentives to make it difficult or impossible to estimate how much actual harm they willfully inflicted upon entrepreneurial creators and creative industries.

For example, Defendant Tenenbaum infringed copyrights by downloading and "sharing" files using the file-sharing program KaZaA, which was held courts in both the United States and Australia to have been a deliberately designed piracy machine. (The now-infamous program Grokster was just a branded version of KaZaA). Piracy machines like KaZaA and LimeWire are also technologically irrational: They are so woefully inefficient that their designs can be explained only as means to promote piracy.

When a KaZaA user begins "sharing" a copyrighted file, he or she can set off a "cascade effect" of infringing copying and distribution. At first, only about 150,000 KaZaA users could actually find and download that file, but as they begin doing so, then that file becomes accessible to an ever-larger subset of the entire FastTrack network. Eventually, after many thousands of tens of thousands of infringing copies have been made and "shared," perfect copies of a file once shared by only one user can be copied and re-distributed by almost any KaZaA or Grokster user. Consequently, in a case like Tenenbaum, the real question is this: What was the sum of all of the "cascades" of illegal copying that resulted from Joel Tenenbaum's eight years of "sharing" thousands of infringing audio files, particularly those specifically at issue?

File-sharing programs like KaZaA or LimeWire could have easily provided users like Tenenbaum with complete information about exactly how many copies and distributions arose from their own "sharing" of each given song. But they didn't: Piracy machines like KaZaA and LimeWire were deliberately designed to conceal this information and to make it essentially impossible to estimate just how much harm Tenenbaum or any other long-term, high-volume distributor of infringing files actually caused.

Fortunately, courts in copyright cases long ago devised a means to assess compensatory awards even when defendants have successfully concealed or refused to collect the evidence that could have proven the actual harm caused by their own wrongdoing: In such cases, fact-finders will estimate the reasonable royalty that the Defendant would have had to pay in order to engage legally in his or her infringing conduct. After answering this "reasonable royalty" inquiry, courts or juries will then award compensatory statutory damages equal to that amount, and then multiply that award several times to effect deterrence.

Judge Gertner acknowledges this reasonable-royalty approach to statutory damages and discusses many reasonable-royalty cases in which owners of bars or restaurants who would have had to have paid many thousands of dollars in order to legally publicly perform 30-or-so songs for patrons were required to pay tens of thousands of dollars in statutory damages. 2010 U.S. Dist. LEXIS 68642, at *73-75. But she never addressed the critical question that such cases raise: If Joel Tenenbaum would have had to have paid thousands for a license authorizing him to perform about 30 hit songs for less than 100 people, then how much more would he have had to pay for a license authorizing him to give free, permanent, perfect digital copies of about 30 hit songs to any of the 1.3 billion Internet users who might want copies?

Instead, Judge Gertner dodged this critical question by irrationally decreeing that the facts of the public-performance reasonable-royalty cases were just indistinguishable from those in Tenenbaum: "I cannot perceive of any plausible rationale for the discrepancy between the level of damages imposed in public-performance cases and the damages awarded [by the Tenenbaum jury]." Id. at *75. But Judge Gertner's inability to perceive the obvious is easily remedied. Obvious rationales for "discrepancies" between public-performance-case awards and the Tenenbaum award include the following:

• There is a "plausible rationale" for charging far more for a license to provide others with permanent, perfect digital copies of works—rather than mere ephemeral performances.
• There is a "plausible rationale" for charging more for a license to provide copies of works to 1.3 billion Internet users than a license to provide performances to less than 100 bar patrons.
• The license-fees in public-performance cases reflect mere "liability rules" arising from antitrust settlements that let most songwriters charge—not market rates—but only those rates that federal judges deem "reasonable."
• The public-performance cases involve the rights of songwriters who have full reproduction, distribution, and public-performance rights. Tenenbaum involved the rights of performing artists who have no general public-performance rights, and should thus place a greater economic value upon the reproduction and distribution rights that Tenebaum infringed.

In conclusion, Judge Gertner claimed that she could perceive no "plausible rationale for the discrepancy between the level of damages imposed in public-performance cases and the damages awarded [by the Tenenbaum jury]." But had such evidence been presented to reasonable jurors by Defendant Tenenbaum, the Tenenbaum Plaintiffs would have surely helped those reasonable jurors perceive the many "discrepancies" that Judge Gertner herself somehow could not. That illustrates one reason why valid judicial "re-view" of a jury verdict cannot rely upon evidence that a Defendant, perhaps wisely, chose to withhold from the jury.

In short, it may have been unwise for Judge Gertner's own hand-picked defense counsel to advise the Defendant to present no evidence controverting the Plaintiffs' evidence showing that someone like Tenenbaum would have to pay vastly more than $22,500/song for licenses authorizing him to share hit songs over file-sharing networks like KaZaA. Nevertheless, that was the choice that the Defendant and his counsel made. Their choice thus made it entirely constitutional for the jury to rely upon the only royalty-valuation-evidence actually presented to it.

Judge Gertner's usurpation of the jury's fact-finding authority was expressly unconstitutional.

Judge Gertner's review of the Tenenbaum jury's verdict also ignored the fact that two provisions of the Constitution govern judicial review of a jury verdict. One is the Due Process Clause of the Fifth Amendment, which the Supreme Court has clearly held to implicitly authorize judicial review of at least "grossly excessive" jury verdicts. The other is the Seventh Amendment, which states expressly, "[N]o fact tried by a jury, shall be otherwise reexamined in any Court of the United States, than according to the rules of the common law."

This explicit Seventh-Amendment constraint binds even courts reviewing jury verdicts for unconstitutional excessiveness. Cooper v. Leatherman Tool, 532 U.S.424, 439 n.12 (2001) (holding that "nothing" in a decision permitting excessiveness review of a jury verdict in an intellectual-property case should "suggest that the Seventh Amendment would permit a court, in reviewing a punitive damages award, to disregard… jury findings"). Courts reviewing jury verdicts thus use a familiar technique to respect jury findings: "[T]he factfinder's role as the weigher of the evidence is preserved through a legal conclusion that upon judicial review all of the evidence is to be considered in the light most favorable to the [verdict]." Jackson v. Virginia, 443 U.S. 307, 319 (1979) (emphasis in original); see, e.g., Evans v. United States, 504 U.S. 255, 257 (1992).

Judge Gertner neither admitted that this constitutional restraint exists, nor did she abide by it. To the contrary, Judge Gertner repeatedly made herself both judge and jury by adopting, for purposes of judicial "review, " interpretations of the evidence that were unfavorable to the jury's verdict and favorable to Tenenbaum. Two examples show how seriously such error affected Judge Gertner's analysis.

First, and most importantly, Judge Gertner conceded that Congress intended to severely punish willful and massive commercial piracy, but repeatedly held that Tenenbaum's file-sharing was "noncommercial." 2010 U.S. Dist. LEXIS 68642, at *54, *60, *93 ("Tenenbaum was an ordinary young adult engaging in noncommercial file sharing"). Reasonable jurors could have rejected such specious claims—as Judge Gertner herself did just a few months ago. Sony BMG Music Ent. v. Tenenbaum, 2009 U.S. Dist. LEXIS 112845, at *30 (D. Mass.) ("the commercial/non-commercial binary is a misleading one"). Reasonable jurors could thus have concluded that Joel Tenenbaum engaged in the worst sort of commercial mass piracy by acting as a willful paid-in-kind distributor for both LimeWire and KaZaA—the largest global for-profit and commercial copyright-piracy rings ever known.

Second, Judge Gertner also repeatedly deemed Tenenbaum's motives for file-sharing to be "non-pecuniary," and thus less culpable. 2010 U.S. Dist. LEXIS 68642, at *3, *9, *71, *84, *87, *91. Reasonable jurors could surely reject Judge Gertner's inane claim that someone who shoplifts a $5 item from a store is somehow less culpable than someone who steals $5 from the same store's cash register.

In conclusion, these are merely examples from the larger pool of reversible errors in Judge Gertner's attack on the reasonableness of the Tenenbaum jury's verdict. Nevertheless, Judge Gertner was wise to frame her ruling in a way that would produce a decision that the parties could appeal. The Tenenbaum Plaintiffs were also wise to accept her implied offer and file an appeal from an absurd ruling that pretends that college guys are just irrationally "risk adverse."

What inspired me about those calls to restore the rule of law was not that they were substantively controversial. For example, the World Bank estimates that intangible capital accounts for 80% of the wealth in the developed world, and that 57% of that intangible capital arises from the rule of law--including all those government-granted monopoly rights that most call "private-property rights" See The World Bank, Where Is the Wealth of Nations? 20, 87 (2006). (Education was the next-largest contributor; it accounted for 36% of intangible capital.) In effect, the World Bank thus concluded that the rule of law accounts for almost 50% of American wealth. Obviously, an Internet that fails to preserve rule of law will thus become a job-killing economic catastrophe for the United States.

At the Senate Judiciary Committee hearing, I was thus equally impressed that President Obama's Intellectual Property Enforcement Coordinator (IPEC), Victoria Espinel, sent precisely the same message. But when I attended USPTO and NTIA's joint Copyright Policy Symposium last Thursday, I did wonder whether other Administration officials would support the IPEC's call to action.

They did. Official after official supported the IPEC's message unequivocally: Because all American businesses ultimately depend on the rule of law, all American businesses need to cooperate to create a free-market-friendly Internet economy in which the rule of law prevails and counterfeiting and piracy do not. That is a bold, true, and inspiring message, and I commend the President and his team for--as the academes might say--for being united in "speaking truth to power."

[I]t's flat out wrong to say that copyright (or patents, for that matter) are about "allowing market forces" to act. By definition, copyright and patent laws are the opposite of allowing market forces. It's the government stepping up and providing monopoly rights because they believe (rightly or wrongly) that basic market forces don't work in those areas and, thus, the government needs to step in and "correct" some sort of imbalance.

This is all--as Masnick might put it--"flat out wrong...." Economists and the economically literate know that if we want "market forces" to encourage the consumer-driven private production of any resource (including expressive works) then we must grant exclusive rights to private producers of that socially valuable resource. In other words, property rights---government-granted, legally protected exclusive rights--are required to use "market forces" to encourage the production of any resource.

[Copyrights]... can equally be regarded as defining property rights. In a literal sense, if I have a property right to a particular piece of land, I can be said to have a monopoly with respect to that piece of land defined and enforced by the government.

Black's Law Dictionary makes the same point about property/monopoly rights. Consequently, Masnick merely re-confirms that he cannot grasp a basic premise of market economics when he says, "By definition, copyright and patent laws are the opposite of allowing market forces. It's the government stepping up and providing monopoly rights because they believe (rightly or wrongly) that basic market forces don't work in those areas...."

Again, Masnick is not just wrong, he has reality backwards. In real market economies, governments have long been "stepping up and providing monopoly rights" to a vast array of private producers of a vast array of privately produced resources--from computers, to iPads, to music--precisely because they want "basic market forces" to work in such areas. See, e.g., Murray N. Rothbard, Free Market, in THE CONCISE ENCYCLOPEDIA OF ECONOMICS (David R. Henderson, ed. 2002) ("the key to the existence and flourishing of the free market is a society in which the rights and titles of private property are respected, defended, and kept secure"); Robert Sugden, Spontaneous Order in 3 THE NEW PALGRAVE DICTIONARY OF ECONOMICS AND THE LAW 489 (Peter Newman, ed. 1998) (arguing that an economic system with markets "requires an ability to predict one's own property rights"); id at 491 ("a market system is one in which, as far as possible, all goods that people might want are private property"); id. at 492 ("the market cannot be expected to satisfy wants for goods in which private property rights do not exist"); Jack High, Competition, in THE CONCISE ENCYCLOPEDIA OF ECONOMICS (David R. Henderson, ed. 2002) ("The competitive process ... is governed by rules that, taken collectively, we call the market economy or the system of private property"); Armen A. Alchian, Property Rights, in THE CONCISE ENCYCLOPEDIA OF ECONOMICS (David R. Henderson, ed. 2002); Lester Telser, Competition, in THE MCGRAW-HILL ENCYCLOPEDIA OF ECONOMICS 181 (Douglas Greenwald, ed., 2d ed. 1994) ("Property rights are essential for competition."); Hearings on the Home Recording Act Before the Subcomm. on Patents, Copyrights, and Trademarks of the S. Comm. on the Judiciary, 99th Cong. (1983) (testimony of Alan Greenspan) ("For economic incentives to work appropriately, property rights must protect the rights of capital assets.... At present... severe economic damage [is being done to] the property rights of owners of copyrights in sound recordings and musical compositions....").

Moreover, though unbeknownst to Masnick and his benighted readers, governments that grant to private producers of potentially valuable resources these sorts of legally-protected private property/monopoly rights thus generate vast increases in overall social welfare. For example, the World Bank estimates that of the intangible capital that accounts for 80% of the wealth in the developed world, 57% of that intangible capital arises from the rule of law--including all those government-granted monopoly rights that most call "private property rights." The World Bank, Where Is the Wealth of Nations? 20, 87 (2006).

Of course, none of these realities will matter to unhinged copyhaters like Masnick and TechDirt. For example, I once wrote a paper Tragedy and Farce: A Review of the Book Free Culture. In it, I argued that Lessig's later-conceded excessive faith in the power of governmental control was apparent in the parts of his book Code that argued that the dictators of Communist Vietnam had bestowed upon terrorized citizens left with "barely any infrastructure" an "effective freedom" superior to any that we enjoy here in America.

Well. You would have thought that I, like Lessig, had driven a bus over Jesus. My critique of Masnick's own digital God thus inspired the "libertarian" Masnick to explain that I was wrong and Lessig was right; Vietnam's incompetent, terror-using communist dictators really did bestow upon their victims an "effective freedom" superior to any that we enjoy here in America:

The biggest difference in terms of freedom between Vietnam and America is the ability of the government to effectively execute its laws. Vietnam is, no doubt, far less efficient at executing its tyrannical laws than the United States, thus reducing many of them to being little more than bloviating as far as many average Vietnamese need concern themselves with the law.

Yes, that's right: according to the "libertarian" Masnick, the Human Rights Commission of the United Nations High Commissioner for Refugees won a Nobel Peace Prize only because hundreds of thousands of Vietnamese Boat People were abandoning their property and risking their lives to flee in the wrong direction.

I thought that I had refuted such nonsense here and here. But Masnick just could not agree. Eventually, I decided to refute his ceaseless toadying for totalitarianism even conclusively in Copyright-Skeptic Hypocrisy: A Belated Reply. Perhaps readers familiar with Masnick's TechDirt blog posts may join me in sensing something familiar in the voice of the first commenter on this post, "Jonny," who merely spouts conclusory nonsense--after somehow managing to mis-spell his own first name....

NB: To be clear, I realize that the higher transaction costs associated with intangible property rights like copyrights and patents merit special attention. I also realize that we can also use indirect or non-market-based means to encourage the production of expressive works. For example, like Masnick, I realize that creators could cross-subsidize their work by giving away copies and hoping to recoup costs by selling advertising or T-shirts. Fine: but in such cases, we are using "market forces" to encourage the private production of advertisements or T-shirts, and expressive works are just one of many means to that end. And if expressive works ever become a means to that end less efficient than all others, then "market forces" will collapse the cross-subsidization scheme. Those unsure about what that means can consult any newspaper or magazine journalist, editor or shareholder. Their misfortunes explain why copyright laws deliberately support a vast and diverse array of "business models," including both cross-subsidization schemes and actual sales or licensing of copies of works or access to copies of works.

Recently, Nate Anderson of Ars Technica published File-sharing has weakened copyright—and helped society. This story's title summarizes the thesis of a "new" paper by those Grokster-loving, Free-Culture-Movement Professors, Felix Oberholzer-Gee and Coleman Strumpf (collectively, "OGS"). Their "new" paper is entitled File-Sharing and Copyright. Fortunately, their non-sequitur thesis does not follow from their clown-car collection of factual, legal, economic, and historical errors that poses as "scholarship."

Indeed, I just published a blog post and a longer paper to show that those who listen to the likes of Oberholzer-Gee merely end up accusing the Government Accountability Office of decades of wrongdoing by celebrating the "positive economic effects" of criminal racketeering. The blog post is entitled, Why Copyright Industry Costs-of-Piracy Studies Correctly Ignore the "Positive Economic Effects of Criminal Racketeering; the paper is entitled, Punk'd: GAO Celebrates the "Positive Economic Effects of Counterfeiting and Other Criminal Racketeering.

• OGS exposed their unhinged biases by arguing that granting exclusive rights to creators of expressive works could create a "welfare program for artists."
• OGS claim to be unaware that file-sharing programs are technologically inefficient abominations explicable only as deliberately designed piracy machines.
• OGS claim to have no clue what copyrights are supposed to do, or how copyrights interact with other non-market-based systems of cultural production.
• OGS claim that copyright protection is meant to increase only the number of works produced—thus indicting James Cameron for infrequently releasing films like Titanic and Avatar.
• OGS are—again—deliberately concealing the fact that technological change ensures that the extent to which a downloaded file can substitute for purchased music has changed radically over time and will continue to do so.
• OGS pretend to be unaware that the legality or illegality of uncompensated file-sharing might affect people's propensity to engage in it.

Cumulatively, such farce often degenerates into clownish slapstick. For example, OGS assure us, (p.2), that file-sharing will not affect the future production of books because the "publication of new books rose by 66% over the 2002-2007 period." But that ditzy claim can comfort only Techdirt buffoons—not the 99%+ of literate Americans who can, like me, report that while they read no book on a computer or an e-reader between 2002 and 2007, they know that soon enough, they will almost never read any book except on some descendent of a computer, iPad, Kindle, or Nook. Consequently, no competent "scholar" would pretend that yesterday's book-publication data could tell us anything useful about whether digital piracy will affect the future production of digital books. Yet OGS gleefully peddle that silly pretense.

In this post, I will deal with the first two of these many fatal defects in the farce that OGS entitled Copyrights and File-Sharing.

OGS pretend that exclusive rights are "a welfare program for authors."

Most Free-Culture-Movement academes can still dimly perceive that outside of the Faculty Lounge, they should still affect the pretense of reasoned objectivity. Nevertheless, their instinctive hatred of exclusive rights and markets still produces rabid outbursts of snarling contempt for history's most successful system of audience-driven cultural production. For example, the "scholars" who wrote File-Sharing and Copyright offered this confession of their own rabid biases and ignorance (p.6):

It might seem curious to some of our readers that we do not consider the welfare of artists and entertainment companies in our calculus. Our approach, however, reflects the original intent of copyright protection, which was conceived not as a welfare program for authors but to encourage the creation of new works.

There are two separate flaws in this "reasoning." Each is fatal.

First, this statement records its authors' ignorance of history, reality and economics. In fact, neither copyrights in particular nor private-property rights generally have ever been conceived as means to do as little as possible to prod creators into entertaining self-aggrandizing Dorito-noshers like Matthew Yglesias. Copyrights, for example, have always been perceived as both the economic and human rights of authors. James Madison thought this. So does the United Nations, (art. 27(2)).

Moreover, exclusive rights are not price-or-production-fixing mechanisms. Yet OGS pretend that, (p.3), "[w]eaker copyright is unambiguously desirable if it does not lessen the incentives of artists and entertainment companies to produce new works." Here is an equally inane claim: "Counterfeiting and weaker personal-property rights are unambiguously desirable if they do not lessen the incentives of engineers and Apple to create innovative tablet computers like the iPad."

Such claims miss the point of the last century: If manipulating the scope of private property rights could reliably produce desired outcomes, socialism would have trounced capitalism, stock prices would be predictable, and we would live in a very different world. But such precise manipulations don't really work in the real world—a point that competent scholars would know has been confirmed by empirical experiments in which about 80 million people were murdered while billions more were impoverished and enslaved--all with the best of intentions.

Consequently, when competent governments informed by history define the scope of the exclusive rights of private producers of potentially valuable resources, they do not try to specify any particular price or level of production. Instead, they merely try to define the broad range of circumstances in which better outcomes are more likely to arise from bilaterally consensual exchanges between private producers and consumers than from governmental or scholarly diktats.

Second, only dishonest "scholars" would pretend that we enact a "welfare program" by granting producers of potentially socially valuable resources legally enforceable exclusive rights in the resources that they produce. Economically literate persons know that exclusive rights can attain or retain economic value only if consumers choose to value the resource to which the rights relate. That is why governments did not need to promote railroads and automobiles by narrowing the exclusive rights of operators of stage-coach lines or buggy-whip makers.

Consequently, the "calculus" of competent scholars must "consider the welfare of artists and entertainment companies"—at least if we want to keep using market mechanisms to encourage the private production of works that appeal to ordinary people, rather than wealthy or political patrons. In a market economy, human and financial capital are mobile. If we treat creating or financing expressive works as half-worthy activities, potential creators and investors will take the hint.

By contrast, if copyrights remain enforceable, they will continue to inspire not just competition among creators and financiers of expressive works, but the very sort of differentiated competition-by-innovation that economist Joseph Schumpeter correctly identified as the critical advantage of a market economy. In Capitalism, Socialism and Democracy, Schumpeter argued that the dispositive advantage of market economies based on private exclusive rights is not that they inspire a Punch-and-Judy battle to perfect competition among producers of fungible goods.

To the contrary, Schumpeter argued that markets inspire producers to make the risky investments required to innovate in order to differentiate their products and services. Schumpeter called this self-catalyzing process of productive competition-by-innovation "Creative Destruction." It is important— not because it explains why socialism failed—but because it explains why market economies have produced such steadily increasing standards of living for the masses. Copyrights inspire precisely this sort of differentiated competition-by-innovation among producers of expressive works.

Consequently, copyrights are the antithesis of a "welfare program for authors." More often than not, copyrights in even the most promising works turn out to be worthless. As a result, the same industrial structure emerges repeatedly in creative industries: authors tend to transfer copyrights to relatively large publishers/labels/studios that specialize in financing the production of works and promoting those successfully produced. These entitles tend to be large because they are entrepreneurial risk-shifters pursuing business models akin to those of the venture capitalists that fund high-tech start-ups: publishers, labels and studios all make risky, long-term investments in many promising works— knowing that most of those investments will fail, but that a few may be so successful that they may cover the costs of the failures and generate modest profits. See, e.g., Harold L. Vogel, Entertainment Industry Economics, 494 (7th ed. 2007) ("profits from a few very highly popular products are generally required to offset losses from many mediocrities"); see also id. at 133, 137 (discussing these principles as applied to feature films and concluding that "the business remains entrepreneurial and capitalistic").

In conclusion, enforcing copyrights cannot create "a welfare program for authors." To the contrary, some scholars advocate a right to taxpayer-funded welfare precisely because consumers—and the employers beholden to them—will inevitably value some people's exclusive right to allocate their personal productive capacities at an amount less than that required to sustain any semblance of a dignified lifestyle. Welfare programs exist because exclusive rights are not welfare programs.

To be clear, this does not prove that OGS were so economically ignorant that they mistook exclusive rights for welfare programs. It is also possible they were just being deliberately dishonest because they correctly assumed that TechDirt buffoons would never notice the many intellectual sleights-of-hand required to fling the stiletto of "welfare program for authors" at the concept of copyrights. Perhaps there may also be some third explanation that escapes my imagination.

OGS know less about file-sharing programs than they do about copyright law and economics.

Copyrights and File-Sharing creates the illusion of technological competence by droning on… and on… about how file-sharing programs evolved. Nevertheless, OGS either conceal, or feign ignorance of, the most obviously relevant characteristic of "decentralized" file-sharing programs: After Napster, these programs became—and they remain—technologically inefficient absurdities explicable only as calculated attempts to induce copyright piracy.

This brute fact reduces Copyrights and File-Sharing to low comedy. In this paper, Professors Bevis and Butthead try to convince us that even if sociopaths intentionally design blatantly inefficient programs and networks in order to usurp the rights of copyright owners, the resulting global piracy syndicates—the largest ever known—will still be unable to harm the copyright owners whom they were intended to harm. That's nuts—but that's also Copyrights and File-Sharing.

Nor is the technological absurdity of file-sharing programs debatable. Even Free-Culture-Movment academics who retain some trace of integrity admit that decentralized file-sharing programs are piracy machines. See, e.g., Tim Wu, When Code Isn't Law, 89 Va. L. Rev. 679, 717 (2003) ("P2P design shows that avoiding copyright requires important deviations from the optimal design for speed, control, and usability"); id. at 731-37 (describing efforts to "program around" copyright law); Tim Wu, The Copyright Paradox, 2005 Sup. Ct. Rev. 229, 239 (arguing that theoretically neutral programs like Kazaa and Grokster "have always been understood not just as a means of disseminating information, but as a way to get music and sometimes movies for free"); Tim Wu, Copyright's Communications Policy, 103 Mich. L. Rev. 278, 361 (2004) ("'peer-to-peer' filesharing programs['s]… advantage lies in the fact that they are designed to evade copyright's enforcement system, and therefore minimize the price of an essential input (copyrighted materials)"); but see Lawrence Lessig, Free Culture, 17 (2004) (pretending that file-sharing programs are "among the most efficient of the efficient technologies the Internet enables").

Honest technologists also admit that file-sharing programs evolved to become less effective and efficient. LimeWire developers certainly do. See Kevin Faaborg, Losing the Long Tail, LimeWire Blog (July 13, 2006) (explaining why LimeWire is less efficient than Napster: "here's modern p2p's dirty little secret: it's actually horrible at rare stuff"). So do others. See Gorton Haff, Whatever else it is, P2P is inefficient, (CNET Nov. 20, 2007) ("Tor's Roger Dingledine said that 'P2P is not good for anything you can do in a centralized way with the same properties.'"); see also Thomas D. Sydnor II, et al., Filesharing Programs and "Technological Features to Induce Users to Share", 59 & n.93 (USPTO 2007) (noting misrepresentations made to the Supreme Court about the "efficiency" of decentralized file-sharing programs).

Yet in Copyrights and File-Sharing, OGS pretend to believe that such programs are not piracy-adapted, (p.9): "LimeWire insists that it does not induce consumers to infringe copyrights." True, but Judge Kimba Wood just held that no reasonable person would believe such gibberish. See Arista Records v. Lime Group, 2010 U.S. DIST. LEXIS 46638 (S.D.N.Y. 2010). OSG thus prove that not even unanimous defeat in the Supreme Court can prevent piracy-cheerleaders as brainless as themselves from again swallowing the same old implausible baloney served up by the distributors of yet another Grokster-or-Morpheus clone.

Consequently, in Copyrights and File-Sharing, Professor Oberholzer-Gee-I'm-Slow still insists that LimeWire "software provides substantial legal uses. For example, the company operates a digital music store that offers 500,000 songs, many of them from independent bands." Wrong again: the LimeWire Store has nothing to do with the LimeWire file-sharing program or the Gnutella file-sharing network. Indeed, the LimeWire Store is a central-webserver-based system like iTunes. It thus proves only that after a decade of developing a Gnutella-protocol-based file-sharing program, LimeWire LLC knew better than to use it when distributing music legally. See Arista Records v. Lime Group, 2010 U.S. DIST. LEXIS 46638 at *14 (finding that the LimeWire program was used to infringe copyrights 98.8% of the time).

In conclusion, while these analyses highlight but a few of the many dumbfounding defects in Copyrights and File-Sharing, they may suffice to prove the critical point: Copyrights and File-Sharing is not a work of "scholarship." Rather, it is an amateur recording of a cheerleading routine badly performed by two biased, incompetent, cut-rate lobbyists publicly gratifying undisclosed clients—or, perhaps, no one but themselves.

Nevertheless, the blatant errors and biases of Copyrights and File-Sharing may serve a productive purpose. It may teach both potential MBA students and their parents that if they want even marginally competent instruction in business administration, they should avoid Harvard and UNC and enroll, instead, at an institution that hires more competent faculty. Phoenix University seems like an obvious "step up" from the clown-car demagogeury of Professors Oberholzer-Gee and Stumpf.

But so be it. I've seen this movie already. I think I know how its sequel ends.

In MGM Studios, Inc. v. Grokster, Ltd., a federal district judge held that a federal law--in that case, the Supreme Court's 5-4 decision in Universal City Studios v. Sony--created a "safe harbor" that protected from civil liability even corporations that intended to build Internet businesses based on mass piracy by using unprotected consumers as human shields against copyright enforcement so that mass piracy could become "start up capital for their product."

Personally, I never doubted that the district-court decision in Grokster would be overturned. It was absurd. Under then-existing law, corporations that intended to encourage or dupe even one consumer into infringing copyrights were committing federal crimes. See, e.g., 18 U.S.C. secs. 2, 241, 307, 2319. And corporations that intended to induce mass piracy were committing far more serious crimes by operating criminal "racketeering enterprises" within the meaning of the Racketeer-Influenced and Corrupt Organizations Act (RICO). See id. at secs. 1961-68.

Consequently, even though the meaning of the 5-4 majority opinion in Sony was deliberately obscure, one point seemed inarguable: it made no sense to imagine that Sony could have been intended to provide protection from civil liability to potential criminals or criminal racketeering enterprises. Predictably, in Grokster, every single Justice of the United States Supreme Court agreed that Sony had not created a "safe harbor" for any sort of potentially criminal conduct.

I would also suggest that the Court's unanimous decision in Grokster should have conveyed to federal district judges a message somewhat broader than the Court's actual holding. That message was simple: It is highly improbable that any federal law will ever create some "safe harbor" against civil liability for copyright infringement that protects any potentially criminal conduct. That result makes no sense whatsoever.

Alas, in Viacom Int'l, Inc. v. YouTube, Inc., another federal district judge has now held that another federal law--in this case, the hosting-site "safe harbor" codified in Section 512(c) of the Copyright Act--has created a "safe harbor" that protects from civil liability even corporations that intended to build Internet businesses based on mass piracy by using unprotected consumers as human shields to deter the enforcement of the federal civil rights of artists and mass piracy as "start up capital for their product."

Fortunately, this new decision is even less defensible than the district-court decision in Grokster that inspired the Grokster Defendants to disembowel themselves, (see n.1), when their case reached the Supreme Court. The 5-4 majority opinion in Sony was deliberately vague about the meaning of the rule of law it created. Section 512(c) is not--it is quite specific. For example, it expressly denies protections to any hosting site operator who "is aware of facts and circumstances from which infringing activity is apparent." 17 U.S.C. sec. 512(c)(a)(ii). As a result, in Viacom v. YouTube, Judge Stanton had to conclude that a hosting-site operator can actually know about and "welcome" "ubiquitous" mass piracy, yet be unaware of any "facts and circumstances from which infringing activity is apparent." The English language itself precludes that conclusion--as do all known principles of statutory interpretation.

Judge Stanton needs to certify his most implausible conclusions for immediate interlocutory review. He has accused Congress of speaking in tongues in order to create a civil "safe harbor" that protects even online racketeering enterprises that intend to endanger consumers so mass piracy can act as "start up capital for their products."

That is an extremely serious charge. If an unelected federal judge directs such dire accusations of misfeasance and malfeasance at the elected Members of the other two coordinate Branches of the federal government, immediate appellate review should follow as a matter of course.

That happened this morning at a hearing held by the Senate Committee on the Judiciary entitled Oversight of the Office of the Intellectual Property Coordinator. Unless I am mistaken, this hearing produced something that I would not yet have predicted: a politically risky, bipartisan, Legislative/Executive-Branch call for private copyright owners, internet-access-service providers and payment processors to work together to devise private solutions to the challenges of curbing digital piracy and internet counterfeiting.

That is a remarkable result. It reflects not only the political courage required to speak truth to the self-righteously self-centered, but also the re-affirmation of a point that Congress rather quietly encoded in the DMCA in 1998: the best solutions to the challenges of digital piracy are likely to be those developed as a result of cooperation between private parties with diverse interests. See 17 U.S.C. sec. 512(i)(2).

I thus strongly encourage rightsholders, access-providers and payment processors to heed this clarion call to cooperate and devise solutions superior to those that would require copyright owners to enforce their federal civil rights by suing tens of thousands of the constituents of the Members of Congress and the President. These representatives of the People appear to be recognizing the simple truth: It is utterly absurd to imagine that we, the citizens of the most innovative nation on Earth, can devise no better means to enforce the exclusive rights of artists.

Nevertheless, if this call for solutions is not headed, then the Supreme Court should reconsider the wisdom of any judicial decisions that might be creating the appearance that private cooperation to preserve the rule of law is simply unnecessary. The Court moved narrowly to correct such a failure of common sense in Grokster. If it is forced to do something similar again, broader remedial measures may be warranted.

Punk'd explains why these backfiring claims are the real "bogus junk." This post summarizes some of its arguments.

Actually, it was inane. This Observations Report can fairly be said to have reached the following conclusion: "[I]t is difficult, if not impossible, to quantify the net effect of counterfeiting and piracy on the economy as a whole." Punk'd explains why this partly non-responsive and partly unauthorized restatement of the obvious and irrelevant told us nothing while empowering the worst defenders of corporate piracy to blame copyright and trademark owners because counterfeiters and pirates tend to conceal their crimes.

Granted, this sad truth must be taken in context. Over the years, GAO has done many thoughtful analyses of intellectual property rights (IPRs) and their importance to the U.S. economy. But humans are fallible, and in the Observations Report--many things went very wrong.

But that outcome was not ordained. For years, GAO had argued that other federal agencies had failed to show the "leadership" and "accountability" required when dealing with something as important to the present and future American economy as IPRs. Consequently, in the PRO-IP Act of 2008, Congress convinced the President to direct GAO--not some other agency--to "conduct a study to determine how the federal government could better protect manufacturers by quantification of the impacts of... counterfeit goods on... the overall economy of the United States." See Punk'd at 2-3.

This mandate was narrow: GAO was not asked to report on copyright piracy, nor was GAO itself required quantify the costs of counterfeiting--just to assess how the government generally could best help to quantify the economic costs of counterfeiting.

Nevertheless, a series of errors--some internal and some externally driven--needlessly complicated this narrow mandate until the result was an Observations Report that re-imagined the PRO-IP Act's reporting mandate to be nothing more than an absurd call to restate the long-obvious and celebrate the "positive economic effects" of criminal racketeering.

GAO was never asked to report on whether we can precisely quantify the "net economic effects" of counterfeiting, piracy or other forms of criminal racketeering.

Estimating the annual effects of counterfeiting on the U.S. economy is challenging. But the Observations Report repeatedly and needlessly complicated this task until it fairly reported that the task-as-complicated had become essentially impossible. Punk'd shows that three errors led to this result.

First, the Observations Report doubled the complexity of GAO's assigned task by assuming that enacted statutes do not mean what they actually say. GAO presumed that when the PRO-IP Act ordered GAO to report the economic costs of "counterfeit goods," it meant that GAO should on report on both counterfeiting and all forms of piracy.

This violated the first principle of statutory interpretation, and it was a needless insult to Congress. A glance at the U.S. Code--or the TRIPS Agreement--should have proven that Congress knows the difference between trademark counterfeiting and copyright piracy.

Next, the Observations Report quadrupled the complexity of its assigned task by believing anonymous "experts" who argued that when estimating the costs of counterfeiting and piracy, we must calculate their "net costs" by offsetting the costs that illegal and criminal acts inflict upon those whose federal civil rights are being violated by the "positive economic effects" that violating the federal civil rights of others confers upon counterfeiters, pirates, and their associates.

That is absurd. Laws outlawing counterfeiting and piracy require law-abiding Americans to discount to $0 the "positive economic effects" that they could expropriate via counterfeiting or piracy. Presumably, those legally bound by this discount-to-$0 convention include those employed by the Legislative Branch that outlawed counterfeiting and piracy. Nor is this conclusion debatable: the remedial provisions of the Copyright Act, the Lanham Act, and the Criminal Code--particularly the Racketeer-Influenced and Corrupt Organizations Act (RICO)--foreclose any claim that Congress wants anyone to consider the "positive economic effects" of counterfeiting, piracy or other forms of criminal racketeering. Calculating the "net costs" of criminal racketeering is thus absurd--that is why no other GAO report has required cost-of-crime data to quantify the "positive economic effects" that crimes confer upon criminals. See Punk'd, at 3 n.8.

Finally, the Observations Report interpreted the PRO-IP Act to have asked GAO to answer an absurd question: Could the government precisely quantify both the economic costs and the speculative "positive economic effects" of both counterfeiting and piracy?

"No" is the obvious answer to even a quarter of that question. Indeed, the Observations Report correctly notes--like many GAO reports before it--that the economic costs of "illicit activities" can never be precisely quantified; counterfeiting and piracy are no exceptions. But we already knew that: Consequently, the PRO-IP Act cannot be interpreted as a demand to restate the obvious. For example the actual-damages and statutory-damages provisions of the Copyright Act show that the first Congress to recognize that the costs of copyright piracy often cannot be precisely quantified was--literally--the First Congress.

Moreover, past GAO handling of cost-of-crime data would have led Congress to expect that GAO would know that any practical "quantification" of the economic costs of counterfeiting would necessarily be a rough-but-reasoned estimate that would have to be extrapolated from either the best available data or new data that might be reasonably and expeditiously created. For example in its 2007 report Public and Private Entities Face Challenges in Addressing Cyber Threats, GAO noted that the precise costs of computer-crimes were unknown, but then reported cost-estimates derived from an FBI survey collecting industry data. See Punk'd, at 4 n.9, 13, 15 nn.44-45.

Cumulatively, these three errors made the Observations Report entirely unresponsive to the statutory mandate imposed by the PRO-IP Act. The Act required an answer to the following question: What should the federal government do to "better protect manufacturers" by the assisting with the "quantification" of the economic costs of counterfeiting? No answer to that question is expressed or implied in the Observations Report.

Claims that the Observations Report found that industry cost-of-piracy studies are "baseless," "bogus" and "false" are themselves baseless, bogus, false--and backfiring.

For the usual defenders of deliberate, for-profit piracy--trade associations the Consumer Electronics Association and "public interest" groups like Public Knowledge and the Electronic Frontier Foundation (EFF) the badly flawed Observations Report was merely a tool to be mischaracterized for political advantage. They thus argued that the Observations Report had found that copyright-industry cost-of-piracy estimates were all "baseless," "bogus," and "false."

Their claims were nonsense. The Observations Report had embarked on a pointless quest to confirm that it would be "difficult or impossible" to precisely quantify the "net economic costs" (costs-minus-benefits) of counterfeiting and piracy. Consequently, when the Observations Report or its anonymized "experts" critiqued three copyright-industry cost-of-piracy studies, they were merely explaining why those studies had not precisely quantified the "net" costs of piracy--something that none even tried to do. Nevertheless, those generally anonymous critiques did not even arguably find that those industry studies were "baseless," "bogus" or "false."

And we know this for a simple reason: the three copyright-industry cost-of-piracy studies discussed in the Observations Report may have provided only reasoned estimates of the economic costs of piracy, but they are superior in detail, transparency, and methodology to almost all data underlying cost-of-crime estimates relied upon for decades by GAO, FBI, DHS, and many other federal and private entities. See Punk'd at nn.8,45,48.

Consequently, those who argued that the Observations Report proved that the three discussed costs-of-piracy studies were "baseless," "bogus," and "false," necessarily accused GAO, FBI, DHS, and many other agencies of misleading Congress for decades with even more "baseless," "bogus," and "false" cost-of-crime data. Worse yet, when trade associations representing the computer, communications, or consumer-electronics industries, hurled such accusations, they almost certainly accused their own member-companies of submitting equally "baseless," "bogus," and "false" cost-of-crime data to the government.

And then, there is EFF. For nearly a decade, EFF has been urging the architects of internet piracy to affect willful blindness to conceal the scope of the harm that they cause. For example, so called "decentralized" file-sharing programs like Morpheus, Grokster, and LimeWire are technologically inefficient absurdities explicable only as means to facilitate piracy. See, e.g., Tim Wu, When Code Isn't Law, 89 Va. L. Rev. 679, 717 (2003) ("P2P design shows that avoiding copyright requires important deviations from the optimal design for speed, control, and usability.").

Nevertheless, in I Am a Lawyer: Peer to Peer File Sharing After Napster, EFF urged developers of such these obviously piracy-adapted programs to "plausibly deny knowing what your end users are up to" by building "a level of 'plausible deniability' into your... business model." EFF thus advised developers to engage in potentially criminal conduct in order to avoid civil liability. See, e.g, In re Aimster Copyright Litig., 334 F.3d 643, 650 (7th Cir. 2003) (willful blindness can prove criminal intent). Indeed, a former LimeWire executive has now testified that an EFF attorney advised him "to prevent... the preservation of incriminating evidence." Arista Records v. Lime Group, 2010 U.S. DIST. LEXIS 46638 at *27 n.15 (S.D.N.Y. 2010), amended in other part by Order of May 25, 2010, Arista Records v. Lime Group, 06 CV 5936 (KMW), (S.D.N.Y.)(informing the Plaintiffs that the Court would "benefit from more briefing" on the crime-fraud exception to the attorney-client privilege); see also Brief for the United States as Amicus Curiae at 3 n.1, MGM Studios, Inc. v. Grokster, Ltd., 04-480 (Jan 24, 2005) (noting that EFF's client refused to let the U.S. Department of Justice review the full record because it feared "criminal investigation") .

Such conduct reveals EFF's hypocrisy: In its Politico advertisement, EFF sanctimoniously wailed to Congress about the need for a "fact-based... copyright policy"--after a decade of urging the architects of copyright piracy to engage in potentially criminal conduct in order to avoid knowing how much harm they were causing. Fortunately, this hypocrisy also proves why GAO and many other federal agencies were right to have relied for decades on cost-of-crime estimates derived from industry data via methodologies less detailed, transparent, and restrained than those used in copyright-industry costs-of-piracy studies. Two factors were at work:

• First, because the economic costs of any concealed "illicit activity" can never be quantified precisely, we make do with imperfect data so law-abiding industries and law-enforcement agencies can direct their resources towards purposes more productive than a futile quest to precisely account for harm caused by criminals striving to thwart such accounting.
• Second, we do not want to reward criminals for concealing the effects of their crimes by blaming their intended victims for failing to precisely quantify those effects. That absurd result can be avoided by a simple presumption: When calculating the economic costs of illegal and criminal acts, uncertainties should be resolved against wrongdoers and criminals.

In short, cost-of-crime studies and data derived from lawful industries may be imperfect. But in the context of copyright piracy, the better-than-most industry studies represent the best data available--at least until EFF convinces pirates to stop averting their eyes in order to generate better data. Imperfect-but-reasoned estimates of the costs of any illegal or criminal activity are vastly preferable to prudish ignorance that empowers criminals and punishes victims during an eternal wait for the Godot of quantitatively precise cost-of-crime data.

Second, when pleading for mercy, it never helps to add insult to injury by presuming former victims to be stupid. Mr. Zaidi must know that LimeWire built its huge user base by gobbling up piracy-minded users migrating from other file-sharing programs whose distributors took the subtle hints in the Supreme Court's unanimous Grokster decision--such as Justice Breyer's reference to the Racketeer-Influenced and Corrupt Organizations Act (RICO). If LimeWire starts "filtering," its users will all desert in droves--many to existing or future "forks" of the open-source code that makes LimeWire particularly unfit to "go legit."

Third, until LimeWire cleans up its act, Mr. Zaidi cannot expect legitimate businesses to "partner" with an entity that has spent years displaying not only abject contempt for the federal civil rights of artists, but also abject contempt for public safety. If Mr. Zaidi is unacquainted with LimeWire's long history of appalling conduct that has compromised national, military, corporate and personal security while empowering pedophiles and identity thieves, a few of its consequences are summarized here. Analyses of the many "technological features to induce users to share" known to cause such disasters are summarized here, and detailed here, here, and here.

Consequently, if LimeWire was hoping to display some hint of long-overdue genuine respect for users of its program and the copyrights of artists, it has again failed to do so. The real question is this: Is there something--anything-- that LimeWire could do voluntarily that would actually display some potentially meaningful genuine contrition and belated respect for the rights of artists and public safety?

Interestingly, I believe that the answer to that question is "maybe." A good first step would be to comprehensively remediate inadvertent sharing by LimeWire users. This would be relatively easy to do.

LimeWire could release a new version of its program, and use all means at its disposal to aggressively urge or require all existing users of all prior versions of LimeWire to upgrade to it. This new version of LimeWire would NOT contain any sort of "filtering"--other than the inane off-by-default "optional" filter included in many prior versions of LimeWire. It would, however, contain some important changes:

• When installed, the new version would remediate all potential inadvertent sharing caused by any prior versions of LimeWire by halting all sharing of all files being shared by any installed or previously installed version of LimeWire. The user would then be informed that any sharing had been halted, and that they could access the appropriate interface to re-select any files that they wished to resume sharing.


• The new version would not "share" any downloaded or existing file unless the program's user (1) took affirmative steps to access the file through a dedicated sharing-related interface, (2) took affirmative steps to individually select the file through a process clearly indicating that the user intended to select that file for sharing, and (3) took affirmative steps to confirm his or her intent to share that file, after receiving a clear, concise warning about the potential legal and privacy risks of sharing that file.


• The new version would disable, by default, all "ultrapeer"or "DHT"-related capabilities. To enable either, users would have to make a clear, affirmative choice to enable them after receiving a clear warning about the performance issues and legal risks inherent in "playing Napster" for other users of a Gnutella-based file-sharing program and then confirming their intent to incur such risks.

Mr. Zaidi said, "The biggest challenge is changing the behavior of a generation of internet users to get them to pay for music..." That's wrong. LimeWire has done much to ensure that changing the downloading-related behavior of LimeWire users will be difficult. But LimeWire's own conduct strongly suggests that dramatically changing the sharing-related behavior of LimeWire users may be as simple as ensuring that they know how they are behaving.

This seems like the least that LimeWire could do--were it genuinely interested in belatedly displaying some potentially genuine contrition and respect for the rights of artists, LimeWire users, and public safety. Whether it would be enough to matter to the artists and record labels just held to have been the victims of a decade of deliberate wrongdoing is for them to decide.

In any case, I strongly urge the Lime Group Plaintiffs to consider including the preceding suggestions in a request for injunctive relief, perhaps as a first step preceding the implementation of a shut-down. Make Mark Gorton and LimeWire LLC clean up their mess before they shut it down.

Which brings me to LimeWire. In the aftermath of Judge Wood's Opinion holding Mark Gorton, the Lime Group, and LimeWire LLC liable for intentionally inducing mass piracy for a decade, all sorts of strange shenanigans have ensued. But none tops the campaign of self-destruction waged by the Lime Group's chatty CEO, Mark Gorton.

In court, Gorton's lawyers recently filed a Motion for Reconsideration informing Judge Wood that she misstated both the law and the facts when she held that Lime Group and Mark Gorton personally were both legally liable for the inducement of mass piracy perpetrated by LimeWire LLC, the company that distributed the LimeWire file-sharing program. In this motion, Gorton's lawyers make a mostly perfunctory and error-ridden attempt to argue that Judge Wood was just totally wrong to conclude that poor Mark Gorton should be personally liable for all those bad things done by those bad people at LimeWire LLC.

Meanwhile, back at Lime Group, Mark Gorton had another brilliant idea: While his lawyers argued in court that he was not really involved with LimeWire at all, he would argue the opposite case in the court of public opinion. The result was the aptly-titled New York Times piece, Idea Man of LimeWire at the Crossroads. In it, Gorton explains how he was always the driving vision behind the program that Judge Wood just held to have been a deliberately crafted piracy machine.

That may help further clarify the proper disposition of the Motion for Reconsideration arguing that the "Idea Man of LimeWire" had no idea what was going on in his corporate basement.

Meanwhile, back in the basement, LimeWire LLC CEO George Seale decided to find a friendly journalistic outlet to vent his own tale of woe. Naturally, he picked Billboard magazine. There, reporter Anthony Bruno broke with technology-journalist convention and asked some hard questions, including one that prompted the CEO of LimeWire LLC to explain that for the last ten years, neither he nor anyone else at LimeWire has had the slightest clue as to why people use their program:

Rather than address each point of evidence, let's focus on the most important one--that more than 98% of files requested on LimeWire infringe on copyrights.
LimeWire considers this an open issue still in litigation. I can't say that I agree with any of the expert reports that were submitted. Whatever the numbers of files authorized for sharing versus those that are not, LimeWire does not know those numbers. It did not in 2000 and it does not now. LimeWire's searching and sharing functions are entirely decentralized. After downloading and installing LimeWire on their computers, we currently have no visibility into what types of content users seek, send and receive with the software.