Zookz: A license to infringe?

Companies that offer downloadable movies and music online without licenses from the copyright holders typically wind up answering lawsuits from the Hollywood studios and the major labels. So it was odd to see a news release announcing the impending launch of Zookz, a site that offers unlimited music or movie downloads for about $10 a month, or both for $18. That's a bit like waving a red cape in front of a couple of bulls, isn't it? But Zookz believes it's in the clear, legally, thanks to the World Trade Organization. It's a far-fetched argument, but you've got to give Zookz credit for nerve.

The main differences between Zookz and most online outlets for bootlegged goods are that it's not a file-sharing network and that the content isn't free. Instead, it's just insanely cheap. The company's impossibly low prices reflect the fact that it doesn't pay for most of its inventory or share revenues with copyright holders. All the proceeds go to Zookz, its 10-person staff in St. Johns, Antigua, and (through taxes) the Antiguan government.

How can it get away with this, you ask? I'm not sure it can, but here's its argument....

The governments of Antigua and the United States battled for several years before the WTO over whether U.S. restrictions on online gambling discriminated against foreign firms. The WTO sided with Antigua in several preliminary stages, but the U.S. kept contesting the body's findings. So to increase the pressure, Antigua asked WTO arbitrators to give it permission to suspend its obligations under sections of the TRIPS (Trade-Related Aspects of Intellectual Property Rights) agreement related to copyrights, trademarks, patents, industrial designs and trade secrets. The arbitrators agreed in December 2007, finding that Antigua could request the WTO's permission to suspend its obligations up to a value of $21 million annually.

Citing that ruling, a company in St. Johns called Carib Media -- led by a prominent local attorney and entrepreneur named Hugh Marshall -- came up with the idea for Zookz. A preliminary version of the site went live last week with a relatively bare cupboard: about 50,000 MP3s and 1,500 movie files in a DRM-free MP4 format. (A spokeswoman for the company said it's adding 10,000 songs and 300 movies a week, but at that rate it will take decades to catch up to the inventory at iTunes and Amazon.com). Among the tracks it offers, though, are ones you can't find on any legitimate online music service, including songs by The Beatles.

Copyright holders say the WTO ruling doesn't give companies in Antigua a free pass to violate the copyright laws of Antigua or any other nation, or other international copyright treaties that Antigua has agreed to. The Office of the U.S. Trade Representative contended in an e-mail, “There is no website anywhere in the world that has WTO authorization to engage in copyright piracy. Any representation to the contrary is false, and should be dealt with by the appropriate domestic authorities.”

It's not clear what, in fact, the ruling would let Antiguan firms do. According to Neil Turkewitz, an executive vice president at the RIAA who specializes in international issues, the first step would be for the government of Antigua to seek the WTO's approval for a method to impose the $21 million worth of sanctions. "There’s been no request, and there’s been no consent granted to proceed in this manner," Turkewitz said. And even if the WTO did permit a downloading service, he said, it would have to be confined to Antigua and limited to U.S. intellectual property. No Beatles songs, in other words.

That's a total misreading of the WTO's ruling, argued William Pepper, the company's legal counsel. "There is no burden on Antigua to go back and do anything with anyone," he said in an interview. He claimed that the ruling is much more expansive than the USTR or Turkewitz acknowledge, trumping all other intellectual property laws and agreements and imposing no limits on where Antiguan firms can do business online. The only restriction set by the WTO, he said, is that companies in Antigua can take in no more than $21 million a year through the sale of copyrighted material. Zookz is the only one so far, he said, but if others launch, they'll have to work together to observe that limit. And if Zookz nears the $21-million threshold on its own, Pepper said, it may have to start giving away movies and music.

There's something illogical about that stance. It suggests that if a company didn't charge anything for the downloads, there would be no limit to the quantity of intellectual property infringed. It seems much more realistic that the WTO was imposing $21 million worth of pain annually on U.S. industries, measured by the market value of the intellectual property distributed. A single trade secret could be worth well more than that sum. Nor does it make sense that the WTO would allow Antiguans to exploit intellectual property from countries other than the U.S. -- French movies, say, or Canadian rock -- when Antigua's beef is with Uncle Sam alone.

Pepper said the whole mess could have been avoided had the U.S. taken seriously Antigua's complaints that it was discriminating against offshore betting houses. Antigua has a point about that; Congress allowed some U.S. operations (e.g., race tracks) to take bets online, but barred offshore operators from getting into the game. Rather than complying with the WTO's findings on that issue or finding a way to mitigate the harm to Antiguan gaming businesses, Pepper said, the U.S. government effectively ignored them. "The Americans want to deal with this issue? Fine, they have to come and talk. The movie industry wants to deal with this issue? Fine, they have to come and talk."

The attorney also said the company was concerned about the effect on "creative artists" and would be happy to discuss ways to keep individual artists from being affected by Zookz. But he added, "There's no way we can surrender the right and the opportunity to create more jobs, to generate more revenue up to $21 million, and to benefit the consumers of America."

Naturally, the MPAA doesn't see Zookz as a modern-day Robin Hood. Said spokeswoman Elizabeth Kaltman in an e-mail, "The suspension of intellectual property rights is not an action this pirate Website can undertake on its own. It is, pure and simple, another example of a movie pirate, stealing movies from creators, and attempting to profit from its theft."

-- Jon Healey

Healey writes editorials for The Times' Opinion Manufacturing Division.

Comments

[David Colker]

That's fascinating. Opens the question: will the feds make it illegal for U.S. citizens to be involved with efforts such as Zookz? That's the case with offshore gambling -- a co-owner of a gaming site in Antigua was arrested when he came back to the U.S. for a visit, and served some prison time.

[Jon Healey]

@David Colker -- That's a really good question, and IANAL. The amount of copyright infringement involved here would certainly exceed the threshold set for a federal crime (see section 506 of Title XVII -- it's copying or distributing $1,000 worth of material within 6 months). But those actions are in Antigua, not the U.S., so I don't think anyone could be prosecuted here for that. If the feds really wanted to crack down on Zookz, they'd have to take an indirect route similar to the one used with the offshore gambling guys, who were charged with violations of federal money-laundering laws -- they were accused of transferring money out of the U.S. to promote illegal activities offshore. Yet again, Zookz's lawyers would undoubtedly argue that it's not money-laundering to collect subscription fees from Americans because, in their view, what they're doing is perfectly legal in Antigua.

[Dr. William Pepper]

Re: "According to Neil Turkewitz, an executive vice president at the RIAA who specializes in international issues, the first step would be for the government of Antigua to seek the WTO's approval for a method to impose the $21 million worth of sanctions. `There’s been no request, and there’s been no consent granted to proceed in this manner,' Turkewitz said. And even if the WTO did permit a downloading service, he said, it would have to be confined to Antigua and limited to U.S. intellectual property. No Beatles songs, in other words."

This is erroneous on two counts. Once the WTO arbitrator ruled, no additional “permission” is needed to enforce a judgment. Not in this, or any other ruling. And all members are bound by the ruling of the WTO. This specific ruling exempted Antigua from TRIPS and its international copyright convention.

Re: your hypothesis, “It seems much more realistic that the WTO was imposing $21 million worth of pain annually on U.S. industries, measured by the market value of the intellectual property distributed. A single trade secret could be worth well more than that sum.”
The ruling deals with compensation for Antigua that is based on revenue. The WTO did not rule on “perceived value” of an item, just the inbound revenue. It leaves that up to the entity to determine pricing of its products.

[Neil Turkewitz]

Dr. Pepper offers an interesting theory of life in an alternative universe. The underlying case involved the US and Antigua in which the US was found to be operating in violation of its WTO commitments. Does Pepper seriously mean to suggest that the WTO approved retaliation against ANY WTO party? Wow would the trading world quickly grind to a halt if this was the case. And of course the WTO ruling did not address Antigua's obligations under international treaties other than those administered by the WTO, and it would lack jurisdiction to do so. Antigua's obligations under other treaties--the Berne Convention for example, remain unaffected by the WTO ruling.

His theories about compensation are similarly flawed. Antigua did indeed win the right to retaliate against the US by suspending TRIPS benefits. But it can do so only to the extent that it results in the loss of benefits of no more than $21 million. The revenue generated by the unauthorized party is not relevant.

Finally, let me add that while there are a few instances of countries who have thought about it, no country that I know of has ever proceeded in this manner, nor do I expect that the Antiguan Government has done so in the instant matter. I doubt that the Antiguan Government endorses the activities of ZookZ, and I suppose that we will soon know the answer to that question. There is a reason that no country has withdrawn IP rights as part of WTO retaliation--it is a terrible idea. Unlike other commitments in trade agreements which primarily reflect the conditions under which goods and services may be traded, the suspension of IP norms would require the suspension of domestic civil and criminal laws. In instances where countries have determined that acts should be subject to criminal prosecution--such as the commercial use of recordings and films as undertaken by ZookZ, it undermines the fabric of society to allow otherwise criminal activities.

[Amit]

Nice article explaining how they can do what they're doing. There's a lack of detail on the ZookZ website compared to the background info that you've posted. What happens when the WTO and Antigua resolve their issues? Will it be bye-bye ZookZ?

[dc]

I agree with Mr. Healy. ZookZ's reading of the ruling is flawed.

I would just add that the 'Hugh Marshall' referred to must be Hugh Marshall, Jr. While his prominence is growing in Antigua, he isn't nearly as well known as his father was. That's right, "was" -- Hugh Marshall, sr. died a few years ago and was a very well known union leader, politician and, later, lawyer. Internet references to a 'Hugh Marshall' in Antigua up until 2004 or so (he wasn't referred to as 'sr.' until near his death and even then not universally) refer to the father.

[legal monkey]

lol@drpepper

First of all...the ruling gives the _government_ authority to suspend its TRIPS obligations. That doesn't mean that private entities organized under that government can just begin levying against that judgment.

Let's say the company you work for sues IBM and wins a judgment.

1) That judgment doesn't allow your company to take anything from IBM that you choose to take. The court orders IBM to pay, and if IBM does not have liquid assets to settle the debt, the court orders the sheriff to seize some portion of IBM's assets to settle the debt. Very controlled, very official, very much under the supervision of the court and not the least bit permissive on the part of the party collecting the debt to choose which assets to sell.

2) That judgment does not allow you (personally) to begin ripping off IBM in an attempt to collect the debt owed to your company (you being analogous to Zookz and your company being analogous to Antigua). Zookz is a private entity that has no particular standing in WTO to begin assuming control of the $21MM judgment against the US...just like you as a separate entity under your employer would have no right to collect on a debt owed to your company by IBM.

Moreover, the valuation of the assets is not clear. Under Zookz reading, they apparently believe they can value the assets at whatever they wish (even zero, if they so choose) and their valuation is what makes up the $21MM judgment. There isn't a more asinine position on the face of the planet. The reasonable position seems to me to be that value of the goods is the value of the goods in the market prior to removal of the restraints on copyright infringement.

So, yes, Zookz does need to get the government's approval to levy on its judgment. Antigua needs to get permission from the WTO to figure out what it can levy its judgment against. And the value of of the goods is not some arbitrary number that Zookz pulls out of thin air. Other than that, Zookz is on solid legal ground. *rolleyes*