Legal Pad: Cloud Computing

by | Jul 7, 2011 | Music Contracts & Law

Cloud Cover: The Legal Battle Over the Newest Face of the Music Industry

OVER THE PAST FEW MONTHS, APPLE, GOOGLE, AND AMAZON have each rolled out their own unique versions of online locker or “cloud” storage. The direct impact of these services has yet to be recognized, but one thing is clear: this new music distribution format represents a sea-change within the industry.  Yet with every new innovation comes an attempt by the old regime to strike it down, and the legal storm surrounding cloud music services is no exception.

The Basics: Locker or “cloud” storage allows a music listener to buy, download or burn music on to their computer, then upload the data to an online server, where a user will be able to access it anywhere (cellphones, other computers, iPads, etc).  With the advent of the cloud, you are no longer tied to the device from which you purchased or uploaded music, nor are you stuck relying on the laborious process of backing up each technology on external hard drives.  Gone are the days where spilled coffee on your laptop equals death to your music collection.  All in all, clouds are a great thing for the consumer.  The music business, however, has seen this advent not as a savior, but rather as another strike against an already depleted industry.

The Battles: Cloud storage has been in development for years, but legal setbacks have – and continue – to provide roadblocks to its success.  As far back as 1999, developed a service allowing remote access for content downloaded from users.  This effort was successfully thwarted, however, by Universal Music Group, who sued the company on the basis of copyright infringement.  UMG argued that was copying users’ music from its original form onto the company’s servers, an illegal act without proper licenses.  In a landmark decision analyzing time-shifting v. space shifting v. “virtual” space-shifting and its relationship to copyright law, the court agreed with UMG. For more, see UMG Recordings, Inc. v., Inc.

Over the last 10 years, several smaller companies have tried, unsuccessfully, to launch cloud storage.  But with the recent launch of giants Google and Amazon’s “Music Beta” and “Cloud Drive” respectively, the pot is likely to get stirred once more.  This issue again revolves around licenses, however, several legal and technological developments have occurred since the UMG/ case which may alter the landscape moving forward.  Because Google and Amazon’s negotiations with labels reportedly fell through for a number of reasons (mostly regarding the labels’ cut of locker revenue), the companies are trying their luck at moving forward without licenses or industry partnerships.  While record labels continue to argue that companies need licenses to run their operations lawfully, Google and Amazon are taking a different approach.

Recently, Amazon stated that “the functionality of saving MP3s to Cloud Drive is the same as if a customer were to save their music to an external hard drive or even iTunes.” Essentially, as technology has exceeded developments within the copyright law itself, the companies are looking to set new precedent when the inevitable legal battles ensue. Remember, the terms “download,” “streaming,” and “digital” are not textually found in copyright law and may only be determined implicitly through judicial interpretation.

Google and Amazon may be banking on a new set of lawyers (and judges) to create a new loophole to prosperity.  And they may not be far off:  as recently as 2009, the Supreme Court ruled in favor of a “cloud” service as it related to television DVRs and programs uploaded to centralized servers (see CNN v. CSC Holdings, Inc).  However, some experts argue that the holding in CNN won’t apply to Amazon and Google, as the opportunity for copyright infringement is sufficiently higher where user uploads and multiple devices are in play.

The Future: On June 6, 2011, Apple announced “iCloud,” a locker storage service developed with cooperation and licenses from major labels.  Of course, with Apple’s clout as the world’s largest record store, it is not surprising that they had the ability to attain licensing deals with major labels to use their expansive catalogues in their service.

Apple’s service differs from Amazon or Google for several reasons. First, iCloud’s partnership with labels will likely shield the service from legal entanglements that would otherwise lead to disruptive service.  Second, is usability: with iCloud, Apple has the ability to scan a user’s hard drive for music purchased legally through iTunes (and obtained independently) and store it to servers.  With Google and Amazon, users are required to upload their individual collections, one by one.  From there, the companies are burdened with the storage costs, etc.  iCloud’s inevitable success is also based on its built-in consumer base: the service will be free for five gigabytes of storage for music downloaded using iTunes.  But its not all clear skies ahead for Apple:  the company reportedly stiffed indie labels from an advance in launching iCloud (Majors were paid approximately $100-150 million) and have negotiated significantly lower shares of revenues than their major label counterparts, which has caused speculation of an indie revolt for equal treatment.

The cloud may be launched, but its future remains up in the air.

Adam Barnosky is a practicing attorney and writer specializing in entertainment law and business development. He has worked with musicians, actors, and playwrights in Boston and New York City. Find him on Twitter @adambarnosky.

DISCLAIMER: The information contained in this column is general legal information only. Any use of this column does not create or constitute an attorney-client privilege. Consult your attorney for all specific considerations.