By Jerome John

Australian Copyright Council

Amazon, Google and Apple have each unveiled ‘cloud’ music services in the last three months, creating a frenzy of interest in how these new business models will work and posing a raft of questions about the legal implications of services which don’t have licences from music rights holders.

In January 2000, a user logging on to the website MP3.com would have been greeted by the offer of an intriguing new service called ‘Beam-It’. Once installed on the user’s computer, Beam-It software would match the songs on the user’s CDs with songs on MP3.com’s music database, and these matches would then be available for streaming back to the user.

MP3.com created its music database by ripping thousands of CDs and did so without any licences from record companies or publishers. Inevitably, a group of music publishers and record companies sued MP3.com and the matter was settled in court in June 2000, with a summary judgement against MP3.com and in favour of the rights holders.[1] MP3.com paid settlement fees and was eventually sold to Universal Music Group. The Beam-It service was taken offline and faded into digital obscurity.

Fast forward to 2011 and we see echoes of MP3.com in the new ‘cloud’ music services being rolled out by Amazon, Google and Apple. This time, though, the services are operating in a very different technological and business environment. A multiplicity of media devices, faster wireless internet speeds, and the search for new ways to commercialise digital music consumption have made cloud storage a hotly contested new business proposition.

What is the cloud?

The term ‘cloud’ is often used when referring to these services but what exactly does it mean? The cloud can be defined in many different ways and refers to a variety of theories and services. According to the US-based National Institute of Standards and Technology: “Cloud computing is a model for enabling convenient, on-demand network access to a shared pool of configurable computing resources (e.g. networks, servers, storage, applications and services) that can be rapidly provisioned and released with minimal management effort or service provider interaction.” [2]

What does this all mean? Basically, think of the cloud not as a particular technology but as a way of structuring the organisation and flow of data. The cloud can enable data (such as music and images) to be stored and processed in multiple, remote locations and done so independently of a particular computer or device. Now let’s look at the key competitors offering a cloud music storage service.

1. Amazon Cloud Player [3]

Unveiled on March 29th this year, the Amazon Cloud Player offers two different services:

o A copy of any music purchased through Amazon’s digital music store can be stored on Amazon’s Cloud Drive and the purchaser can stream or re-download this music at any time, to a variety of devices;

o Users can also upload their own digital music files (whether purchased through Amazon or not) to Amazon’s Cloud Drive and then stream or download them at any time, to a variety of devices.

Amazon has released cloud player software for the PC and Mac platforms, as well as a cloud player app for Android devices. The service gives users up to 5GB of storage free, and offers more storage space at a range of price points (e.g. $20 for 20GB, $50 for 50GB). Music purchased through Amazon’s digital music store does not count toward storage space.

Amazon launched its Amazon Cloud Player without signing any deals with record labels or publishers and the service continues to operate without any such licences. Amazon stated in a letter to record companies: “We are not looking for licences for Cloud Drive or Cloud Player as they exist today – as no licensees are required".[4] Further, an Amazon spokesperson told technology publication Ars Technica 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”.[5] In other words, Amazon asserts that the cloud is effectively the same as the user's hard drive, remotely located.

Publishers and record companies are yet to take legal action but a Sony representative was quoted in the LA Times as critical of Amazon's approach to licensing: “We are disappointed that the [digital] locker service that Amazon is proposing is unlicensed by Sony Music and we hope that Amazon will resolve the situation quickly by agreeing to a license with us. We are keeping all our legal options open." [6]

2. Google Music [7]

Google announced its Music Beta by Google (Google Music) service on May 10th 2011. The service allows users to upload their music files to Google’s servers and then streams these to their PC or to an Android device using Google’s Music Player, or an app for their mobile device. There are a number of added features, including the ability to create a playlist that syncs across devices and the availability of music offline across devices. The service is free at the moment but fees could be announced when the final version of the product is launched.

The key difference between Google’s service and Amazon’s Cloud Music player is that the user cannot purchase music through Google Music, so the only music they can access from the cloud is their own collection (this is currently capped at 20,000 songs per user). Like Amazon’s service, no licensing deals have been signed with record labels or publishers. Google had been in negotiations with music labels and publishers prior to the launch but agreements were not reached. [8]

Arguably, Amazon and Google have launched their services with limited features, reflecting the limit of what each company considers it can legally provide without licences from rights holders. Both companies have stated that negotiations with record labels and publishers remain on the cards for a later date when more features are available. New features may well require a more complicated engagement with the music content.

3. iTunes Match (iCloud)

On June 7, Apple announced it would launch a wide suite of services broadly termed ‘iCloud’.[9] Whilst Apple’s entry is the most recent in this space, its service is arguably the highest profile of the three. We focus here on the iTunes Match music service, which forms a key part of iCloud.

iTunes Match works differently from Amazon Cloud Player and Google Music services – largely because Apple has made deals with rights holders, enabling extra functionality and access to Apple’s music library. iTunes Match uses a process called Scan & Match, which scans a user’s music library, cross-checks the user’s list of music with Apple’s own music database, and then instantly gives the user access to Apple’s high-quality copies of matched songs on all of the user’s iDevices (iPhone, iPod, iPad, etc.). Apple’s iTunes database currently contains about 18 million songs, and where a user’s music cannot be matched in the Apple database, it is uploaded from the user to the cloud.

Unlike the Google and Amazon services, Apple does not stream the music – it saves a copy of the song to each user device. Because Apple uses its own licensed copy where there is a match with the user’s collection, it can sync the user’s collection more quickly and also replace lower quality music in the user’s collection with higher quality files.

The service costs $25 per year, which is split between the record labels and Apple.

A key point to keep in mind is that it doesn’t matter where a user’s music files come from: whether the files have been ripped from a CD, purchased at another digital music store or even illegally downloaded, they will be matched to Apple’s music database and the user provided with a legitimate version of that song from Apple. Rights holders receive the agreed royalties from distribution of the music.

The service has polarised the sector. Critics argue that it operates as something of an amnesty for pirated music, effectively legitimising large amounts of pirated content for a fraction of the revenue the music would have generated had it been paid. The counterpoint is that the scheme means that rights holders get at least some revenue from pirated material rather than none at all. As the service hasn't officially launched yet, economic data following a period of operation is still needed before any conclusions can be drawn.

The legal Issues

There are two core intellectual property issues at play with the cloud music services: firstly, whether there are any infringements when users uploads music to their cloud storage and secondly, whether permission is needed from the rights holder to stream users’ music back from the cloud. To further complicate matters, Amazon, Google and Apple’s services do not discriminate between legitimate and illegitimate content uploaded to their servers.

These legal issues are presently unsettled but stakeholders may not have to wait long to get some legal guidance in this area in the US, given the decision pending in Capitol Records, LLC. et al v MP3Tunes, LLC. [10]

MP3Tunes launched in February 2005, offering a service by which users can upload their digital music to MP3Tunes’ digital locker (i.e. the cloud) and then stream this music back to their computers and various other devices. There is an ad-supported, free service (limited to 2GB of space), as well as ad-free, paid options with more storage space. The site operates without licences from the rights holders and is quite similar in functionality to Amazon Cloud Player and Google Music. MP3Tunes also has a companion service called SideLoad, which aggregates links to free music files available on the web and allows users to save these files into their lockers.

EMI and its subsidiaries sued the operators of MP3Tunes (and SideLoad) in 2007, arguing that it was engaged in an unauthorised use of their music. The plaintiffs argued that MP3Tunes “does not own the music it exploits; nor does MP3Tunes have any legal right or authority to use or exploit that music...MP3Tunes does not in any way compensate the lawful owners of the music it exploits”.[11] MP3Tunes is relying on the US DMCA safe harbour provisions for its defence, as well as raising questions about whether the storage and streaming of files owned by users needs permission from rights holders in the first place.

This complex litigation has been running for four years and a decision is expected in August 2011. [12] The outcome may shine some light on the current legal grey areas associated with storage of content on the cloud.

The Australian context

Amazon, Google and Apple cloud services are not available in Australia and there has been no indication of when such services might arrive. If licensing deals are negotiated, then the services will follow the terms of those licences. But if we consider things at the more general level, interesting legal questions arise.

In Australia, copying a file is considered a use of the reproduction right and uploading or streaming a file is considered a use of the communication right. There are exceptions in the case of format shifting or space shifting for private use, and for temporary use as part of a technical process, but the legality of the uses in unlicensed cloud services is not clear. Also, there are particular distinctions in Australian copyright law between legitimate and illegitimate content for services provided by internet intermediaries. As cloud services develop, it is likely that there will be calls for greater legal clarity on the issues in Australia.

References:

[1] UMG Recordings, Inc. v. MP3.com, Inc. 92 F. Supp. 2d 349 (S.D.N.Y. 2000)

[2] Mell, P. & Grance, T. “The NIST Definition of Cloud Computing (Draft)”, January 2011, National Institute of Standards and Technology

[3] See details at http://www.amazon.com/b/?ie=UTF8&node=2658409011

[4] Christman, E. “Amazon Letter To Labels: Cloud Drive Locker Has Boosted MP3 Sales” Billboard 11/4/2011 at http://www.billboard.biz/bbbiz/industry/digital-and-mobile/amazon-letter-to-labels-cloud-drive-locker-1005126042.story

[5] Cheng, J. “Amazon on Cloud Player: we don't need no stinkin' licenses” Ars Technica 29/3/2011 at http://arstechnica.com/media/news/2011/03/amazon-on-cloud-player-we-dont-need-no-stinkin-licenses.ars

[6] Pham, A & Guynn, J. “Google Music launches without label deals” Los Angeles Times 10/5/2011 at http://latimesblogs.latimes.com/entertainmentnewsbuzz/2011/05/google-music-launches-without-label-agreements.html

[7] See details at http://music.google.com

[8] Bruno, A “Google Music Launched Today – Without Licenses” Billboard at http://www.billboard.biz/bbbiz/industry/digital-and-mobile/google-music-to-launch-tuesday-without-licenses-1005175782.story

[9] See details at http://www.apple.com/icloud/features/

[10-11] Capitol Records, LLC. et al v MP3Tunes, LLC., and Michael Robertson No. 07 Civ 9931 United States District Court Southern District of New York

[12] Clarke, G “Google and Amazon cloud music nears judgment day” The Register 27/5/2011 at http://www.theregister.co.uk/2011/05/27/robertson_predicts_cloud_music_victor/