The U.S. Commerce Department released its long-awaited White Paper on fixes to copyright law yesterday and it's a pretty mixed bag. It includes some good recommendations on how Congress should change the law, but punts on some crucial enduring problems.

This paper grew out of a series of hearings in 2013 and 2014 in which EFF and other public interest organizations and academics gave evidence, along with people from the media and publishing industries. The Commerce Department panel deserves praise for inviting many different viewpoint. It covers three issues: remixes, the ability to re-sell and lend digital goods (called “first sale” rights), and copyright's civil penalties (called “statutory damages”). The paper makes some recommendations to Congress that will help promote innovation and free speech, and will hopefully help begin a conversation about other needed fixes. And the Commerce Department panel did a good job of inviting and hearing many different viewpoints. Still, their recommendations in these three areas don't go far enough to fix the problems they identify.

Legal Protection for Creative Remixes

The term 'remix' has come to stand for a wide range of creative activities that are disfavored by the current copyright regime because they rely on cultural works that are owned by others. The category includes photomanipulations, fan fiction, mashups of music and video, fan edits, redubs, video game modifications, and many other forms of expression that are ubiquitous on the Internet. Technology has made it easier than ever before for the average person to remix blockbusters and other pop culture, and remix is common way for people to highlight or critique the way they are represented or excluded in mass media—a tradition stretching back to Star Trek fanfic writers who told stories about Captain Nyota Uhura commanding the Enterprise rather than being its communications officer or stories that described Kirk and Spock in love.

These activities require copying or imitating aspects of a copyrighted work, leading some rightsholders to send cease and desist letters to remixers who criticize them, whose politics or aesthetics they disagree with, who depict adult content, or who commercialize their remix even in a way that has no impact on the market for the original.

But many remixes would be protected by the doctrine of fair use—assuming the remixer had the financial means and wherewithal to take a risk in court. Facing the risk of statutory damages and the time-consuming nature of resolving fair use cases, most remixers back down instead.

Thus, the current regime of expansive rights for copyright holders, a lack of clear safe harbors for important speech activities, and astronomical statutory damages gives copyright owners the de facto power to censor remix. The effect is aggravated by private arrangements such as YouTube's ContentID or Facebook's copyright monitoring system. ContentID, for example, uses a computer algorithm to detect copyrighted works and enables rightsholders to censor or divert profits from the speech of others, even when copyright law gives them no right to do so.

The fact that copyright law represses a crucial channel for ordinary people, including underrepresented minorities, to speak and be heard reflects a serious problem in the law. This problem should be taken just as seriously as it would be in other areas of law where certain speakers or media are chilled by government regulation.

The Commerce Department undertook to solicit public input and make recommendations regarding how copyright law could be changed to accommodate remix. We explained [PDF] the chilling effect copyright has on important remix speech and suggested a clear and narrow delineation of copyright owners' ability to restrict derivative works like remixes. The ability to control derivative works would only cover faithful adaptations such as translations, novelizations, or abridgements, and would not reach creative works using the original as inspiration or raw material. The Commerce Department panel did not discuss our recommendation in its comments.

The Task Force instead focused its discussion of remix on three categories: the creation of a remix 'safe harbor,' the development of a compulsory licensing regime for remix, and encouraging voluntary licensing practices. It concluded that no binding measures should be adopted, but that voluntary licensing and education for remixers to know their fair use rights would be valuable.

While it certainly would be valuable for all remixers to know the extent of their rights, artists who know the state of the law are often more chilled than those who assume that online norms around shared culture are reflected in the law. More knowledge about a broken system is not a great fix.

Similarly, we have little hope that licensing regimes will address the chilling effect of an overly restrictive copyright system. The trend has been for rightsholders to seek an expansion of rights to generate revenue from every use of copyrighted works that they can detect, and in the Commerce proceeding many spoke of a desire to censor uses they found offensive (a right they do not have under existing US law). Existing licensing practices can be a death knell for entire art forms: commercial sampling, for example, was decimated when artists believed they had to license samples and those licenses were not forthcoming on reasonable terms (or sometimes on any terms at all). Similarly, licensed online music was barren for years because of unwillingness to license on reasonable terms.

Although we are disappointed that the panel didn't recommend stronger protection for remixes, we will continue to advocate for the rights of ordinary people to express themselves using elements of popular culture and push back against copyright law when it sabotages the creation of new cultural works.

Re-Selling Digital Goods – the “First Sale” right

Another topic that the White Paper talks about is people’s ability to re-sell, lend, or give away digital goods. The legal term for this is “first sale” or “exhaustion of rights.” EFF and consumer groups told the Commerce Department panel that the freedoms we take for granted with physical goods, like loaning a book to a friend, selling used DVDs, or renting video games, are under regular assault in the world of digital downloads. Digital goods like ebooks, downloaded movies and games can’t easily be re-sold or given away. That’s mostly because of the fine-print “license agreements” that come with digital goods. The agreements say that we don’t actually own those downloaded goods, even after paying for them and clicking a “Buy” button. And we can lose access to “purchased” digital goods entirely when online stores and servers shut down.

EFF recommended that Congress should change the Copyright Act to make it clear that “lawful possessors” rather than “owners” have the right to sell or give away their copies, and to prevent sellers of digital goods from taking away important buyers’ rights in the fine print.

The White Paper acknowledged these problems, but also talked about newer DRM-based “family plan” and “rental” business models, and subscription-based services like Netflix and Spotify. According to the panel, these new business models “provide[] some of the benefits traditionally provided by the first sale doctrine,” but not the ease of selling or lending copies. Unfortunately, the panel concluded that it was too “difficult . . . to evaluate what consumers have lost” when the freedom to sell, lend, or give away digital goods without permission is taken away. And the panel seemed to be swayed by complaints from the movie and publishing industries that they should not have to compete with legally purchased and re-sold copies of their works.

This is disappointing. The freedom and privacy that come from having full ownership over the things we buy may be difficult to put a price tag on, but that doesn't make them unimportant. There’s lots more that can be done to preserve first sale rights for digital goods and protect buyers, particularly by making the most abusive clauses of fine-print license agreements invalid and protecting customers’ investments. The White Paper did say strongly that words like “Buy,” “Own,” and “Purchase” are misleading when all the customer gets is a “license” and some ephemeral permission to use their downloads. We hope that consumer protection agencies like the Federal Trade Commission and state consumer bureaus take notice of that.

Statutory Damages – Copyright's Broken Penalty Regime

The White Paper also called out copyright law’s massive and unpredictable civil penalties (called “statutory damages”) as a problem that needs a legislative fix. (We agree!) Copyright allows courts to impose damages of up to $30,000 per work, or $150,000 if the infringement is willful, without the copyright holder ever having to prove that they were harmed. That sort of giveaway to plaintiffs doesn’t exist in almost any other area of law, and most countries don’t allow it for copyright.

The White Paper quoted evidence that EFF and many others submitted about the unfairness of statutory damages and the chilling effect they have on innovation. It shows that damages awards often have little or no connection to the actual harm caused by infringement. It also shows that damages amounts for the same type of conduct vary widely and often exceed even large corporations’ ability to pay, making copyright lawsuits a game of financial Russian roulette. And the White Paper mentions how the threat of massive statutory damages fuels the abusive behavior of copyright trolls.

The big media and entertainment companies don’t want rational and predictable copyright penalties, because the current regime gives them a big club to wield against technology companies and innovations in digital media technology that they don’t control. The White Paper quoted their stonewalling responses as well, but didn’t give in to them.

The panel heard lots of proposals for how to fix statutory damages. It recommended three of them:

• Add guidelines to the statute to help judges set the amount of statutory damages.

• Strengthen the “innocent infringer” defense so that those who rely on fair use and other important limitations to copyright won’t risk massively large damages; and

• For online businesses whose users interact with many different copyrighted works, allow judges to calculate damages as a whole rather than per work.

These recommendations are welcome, but they don’t go far enough. The “innocent infringer” defense only lowers the minimum amount of damages that judges can award per work—it doesn’t affect the maximum (schools, libraries, and archives get a bit more protection). That means that an artist or innovative business that relied on fair use in a reasonable way could face ruinous penalties of up to $30,000 per work if a court ultimately disagreed with their fair use rationale. It means that artists and innovators in digital media would still face unnecessary risks. Even the “innocent infringer's” minimum penalty of $200 per work may be disproportionate and unfair if the copyright holder suffered no actual harm.

A better approach would be to eliminate statutory damages entirely when a defendant reasonably relies on fair use or on copyright’s other limitations. That would avoid a chilling effect on speech and innovation. Congress should also separate compensation and punishment into two different damages calculations, the way that most other areas of the law do. And Congress should change the definition of “willful” infringement to something more like the one used in patent law. Today, even relying on a good-faith fair use rationale is sometimes called willful infringement, and that must stop. The White Paper doesn’t rule out these approaches, but only says that more discussion is needed.

We welcome that discussion.  Let's hope this long-awaited document helps move it forward.