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RIAA Litigation Insurance: A (Very) Speculative Solution
Posted by Steven Wu on Monday, October 20 @ 01:57:19 EDT File Sharing
Imagine your average filesharer, too timid to Fight the Man, who is wondering what to do in light of the RIAA's most recent round of litigation, especially given the RIAA's announcements that these lawsuits will now be rolling out weekly. Chances are, if your average filesharer is sued, he'd rather settle than risk the ridiculous $750 to $150,000 fine per song for copyright violation. But even settling is expensive, from $2,000 (if you're twelve years old) to $17,000 or more--far more than most people are capable of paying (or willing to pay) at just a moment's notice.

A couple of solutions to this problem have appeared, from personal pleas to a peer-to-peer donation system that connects people who are sued to people who wish to donate. But all of these solutions rely upon the altruism of people who are upset about the RIAA and who have some extra money to spare.

Why rely on altruism? You have a very large group of people, a very small number of whom will face fairly serious consequences. Nobody knows whether he'll be forced to face those consequences, but it is fairly certain that everybody finds some value to eliminating the impact in the event that such consequences attach to him. How much would you be willing to pay for a guarantee that, if you're sued, your settlement costs would be paid in full? If you're willing to pay a little bit, and enough people are willing to pay a little bit, then you have a market for private litigation insurance.

The Basic Idea

Right now filesharers are essentially required to self-insure for the possibility of a suit: that is, if they're afraid that they'll be hit by the RIAA, they'll have to start saving money now to pay off the settlement costs later. There are at least two problems with this. First, there is a natural trade-off to accumulating enough money fast and not having to save too much (i.e., forego spending). Let's say you want to build up a sufficiently large nest egg in one year: if you're insuring against a $2,000 settlement, that's $170 per month, which is no small change; if you're insuring against a $17,000 settlement, that's a whopping $1,400 per month. Over five years (a ludicrously long time-scale, but this is for educational purposes only), insuring for the $2,000 settlement falls to a much more reasonable $34 a month, but you'd be unprepared to pay settlement costs until five years after today. And preparing for the $17,000 settlement still requires saving almost $300 each month--not easy, unless you're rich enough to be buying overpriced CDs in the first place. Second, because of this trade-off between speed of accumulation and amount of savings, people are unlikely to self-insure: each person is likely to think, "It's not worth that much money every month to avoid the miniscule risk that I'll be sued." As a result, when the lawsuits hit a tiny fraction of filesharers, almost everybody breathes a sigh of relief--but that tiny fraction is completely out of luck, and funds.

The answer to this dilemma: litigation insurance. Litigation insurance isn't a novel concept: the analogous patent infringement liability insurance is "[a] form of professional liability insurance for manufacturers, users and sellers accused of infringing a patent holder's rights." The idea is that a potential defendant pays either a fixed sum or a smaller regular sum in exchange for the promise that, if they are hit with a suit, insurance will pay the cost of the settlement. Large-scale litigation insurance works when self-insurance (i.e., saving) doesn't because people who aren't willing to pay $50 per month to prepare for a relatively small settlement several years from now may be more than willing to pay $20 per month (or $200 right off the bat) to prepare for a very large settlement immediately. Now it's true that litigation insurance against the RIAA's suits would only reimburse a few "lucky" defendants--but even those who aren't sued buy peace of mind by paying the one-time or regular fee.

[Note: I'm assuming here, of course, that the only thing people care about is paying settlement costs.]

Pros/Cons

There are at least two nice things about RIAA litigation insurance. First, people will join it out of self interest, which is always more reliable than altruism: the price is worth the peace of mind. Second, such a scheme could actually be profitable if enough people join, meaning that there is also a incentive for somebody to set up such an insurance scheme.

But there are also some problems. First, a litigation insurance scheme requires a critical mass of participants before it breaks even. It's possible that, even with the RIAA's recent suits, people consider the risk of a lawsuit so small that they're unwilling to pay even a nominal fee to avoid that risk. This first problem can be solved by publicity and, paradoxically, by more regular lawsuits from the RIAA, which will raise people's perceptions of the risk of being sued.

The far more serious problem (suggested by James Grimmelmann) is that the RIAA could adjust its litigation strategy to account for the presence of insurance. For instance, it could only settle if people pay all of their insurance proceeds, in addition to some additional fine. It could be more subtle and simply refuse to settle until the defendant discloses the amount of his insurance. Or it could simply raise the settlement cost per case to such a degree that insurance would become unprofitable.

This second problem is somewhat more difficult to overcome. Whoever runs this private insurance could keep the list of beneficiaries secret: it's unclear to me what power the RIAA would have to force the insurance provider to divulge that list. I'm not entirely sure whether the RIAA can only agree to settle if some amount is paid in addition to insurance proceeds--after all, it'd be analogous to the RIAA only agreeing to settle if a defendant pays the settlement out of pocket, rather than from donations. While I wouldn't put such a move beyond the RIAA, hopefully by that point the publicity against it will be so bad that it will simply allow insurance to pay for the settlement costs.

This is only a tentative proposal, and perhaps a largely theoretical one. But it's one way to strike back at the RIAA's lawsuits, through perfectly legal means. Comments and suggestions are welcome.

 
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Copyright Liability Insurance for File-Sharers: An Idea Whose Time Has Not Come (Score: 1)
by Ernest_Miller on Monday, October 20 @ 07:43:17 EDT
(User Info | Send a Message) http://importance.typepad.com/
I think this is a bad idea ... and I've written about it on my new blog:

Copyright Liability Insurance for File-Sharers: An Idea Whose Time Has Not Come [importance.typepad.com]


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An Arbitration Alternative? (Score: 1)
by Preston on Wednesday, October 22 @ 02:37:59 EDT
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Although insurance poses all of the problems discussed above, the fundamental problem is that it does not level the playing field by limiting litigation costs. One method that may be more workable: click-wrap an encrypted network in a licensing agreement that conditions access to the network to agreeing to the license -- and expressly prohibited access to the network on any other terms for any other reason. This kind of "click-wrap" should be adequate to bind users to the terms of the licensing agreement. See Specht v. Netscape Communications Corp., 150 F. Supp. 2d 585 (S.D.N.Y. 2001). If the **AA were somehow able to access the network without agreeing to the licensing agreement, it would incur liability under 18 U.S.C. 2701 [www4.law.cornell.edu]. See Konop v. Hawaiian Airlines, Inc., 262 F.3d 972 (9th Cir. 2001), aff'd 302 F.3d 868 (9th Cir. 2002) (management's unauthorized access of password-protected website with "borrowed" passwords could trigger liability under Stored Communications Act). Likewise, it could incur liability under 18 U.S.C. 1030(g). See EF Cultural Travel v. Zefer, 318 F.3d 58 (1st Cir. 2003) (Computer Fraud and Abuse Act provides private right of action). Hell, if the **AA constructed some sort of emulator that circumvented the licensing agreement there would probably be sort of half-baked [www.eff.org] DMCA [www4.law.cornell.edu] claim [www.eff.org].


It seems likely that you could construct a network that 1) could not identify specific users 2) without being subject to copyright liability 3) provided the network does not maintain any type of control over the activities of the users. See In re Aimster Copyright Litigation, 334 F.3d 643 (7th Cir. 2003); Metro-Goldwyn-Mayer Studios Inc. v. Grokster, Ltd., 269 F. Supp.2d 1213 (C.D.Cal. 2003). Assuming that the **AA can't bring suit against specific users without accessing the network to identify those users, and cannot bring suit against users without consenting to the licensing agreement without incuring substantial liability itself, we may be able to force the **AA to consent to the licensing agreement to bring copyright suits. The licensing agreement could incorporate an arbitration clause prohibiting litigation and requiring arbitration regarding all intellectual property disputes that concern use of the network. Further, the licensing agreement could incorporate a limitation of remedies clause that eliminated some of the worst aspects of copyright claims (statutory damages, impoundment, etc.) Finally, the licensing agreement could prohibit unauthorized (i.e., unlicensed) access, transfer of access rights (passwords), or behavior which impedes or impairs other users' access to files on the network (i.e., fake files a la Madonna's "What the fuck do you think you're doing?"). But see Sega Enterprises Ltd. v. MAPHIA, 948 F. Supp. 923 (N.D. Cal. 1996) (ECPA complaint against copyright owner by pirate BBS fails where all users are anonymous); see also Olan Mills, Inc. v. Linn Photo Co., 23 F.3d 1345 (8th Cir. 1994) (indemnity agreement executed by private investigator in the course gathering evidence of copyright infringement by photo shop for copyright owner

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Re: RIAA Litigation Insurance: A (Very) Speculative Solution (Score: 0)
by Anonymous on Monday, October 27 @ 00:12:38 EST
Couldn't this be prosecuted as some kind of conspiracy? If a bunch of criminals got together and created an insurance pool to spread the risk of punishment, would that not be culpable? Isn't there a basic element of good faith in patent litigation insurance that is lacking in file sharing insurance?


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Re: RIAA Litigation Insurance: A (Very) Speculative Solution (Score: 1)
by tompoe (tompoe@studioforrecording.org) on Thursday, October 30 @ 23:19:50 EST
(User Info | Send a Message) http://www.studioforrecording.org/
Why not just move away, once and for all? Bury the RIAA, not in a boycott, but by simply discarding them like the back alley, two-bit crooks they are?

LawMeme needs to get the students to start their independent artists support group. The group then needs to seek out independent artists that rival the marketing of the RIAA by being the talented artists they are. Simple. Guaranteed the contest for popularity will go to the talented independent artists every time.

Need playlists? They're all over the place. Creative Commons is beginning to address the tagging technology. The explosion is coming. Maybe LawMeme needs to be the one to make it happen?

Here's a plug: SONG STORM has a pledge page for its Farewell to the RIAA Party at Burning Man in 2005. Sign up now:
http://www.ibiblio.org/studioforrecording/php/testpledgeplaylist.php


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Re: RIAA Litigation Insurance: A (Very) Speculative Solution (Score: 0)
by Anonymous on Friday, October 31 @ 16:21:33 EST
You state:
Whoever runs this private insurance could keep the list of beneficiaries secret: it's unclear to me what power the RIAA would have to force the insurance provider to divulge that list.

I am not a lawyer, but the RIAA can require you to reveal whether you have insurance, and the amount. This is routine in auto traffic suits. They would not have to ask the insurance company, because there may be more than one provider.


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