June 29, 2005

The Great MP3 Debate… Are We Going To Jail?

The Great MP3 Debate…
"Are MP3 Files Illegal?"

This information (below) is in response to a press release (along with comments made from the stage by the creators at Carl Galetti’s "Internet Marketing Super Conference":
http://www.prweb.com/releases/2005/6/prwebxml253053.php

The information below is purely my opinion and should not be construed as legal advice. If you have a question or a comment, feel free to post it on my blog (please do not email me).

Streaming Video
Are MP3 Files Illegal?
Video - 15:10′

Are MP3 Files Illegal?… Are We Going To Jail?…

The great "MP3 Debate" has begun…

In this piece we’re going to discuss a very important topic and it’s something that has come up recently as a result of going to a conference in Las Vegas.

Here’s the story…

Not too long ago a sort of well-known marketer and an attorney I’ve never seen before (and a copywriter I’d never heard of before) got up on stage and basically told everybody that "MP3 files can get you thrown in jail!"

I’m not exaggerating! I heard it with my own ears.

They said that there are people who are going to get sued and can potentially get put in jail because they are selling MP3 files without properly licensing them and paying royalties to the company that holds the patents on MP3 technology.

I’ve had a lot of people e-mailing me as a result of half-truths and rumors going around about what’s actually the case with MP3 files and proper licensing.

Here’s my take on this situation…

First of all, are we going to jail for selling MP3 files?

Well, I would assume for selling stolen MP3 files then that you could potentially go to jail…

But I doubt that the people who are looking for licensing fees would want to put you in jail if you’re selling your own recordings!

That’s like debtors prison — it’s hard to make money to pay someone you supposedly owe money to when you’re making 25-cents an hour making license plates!

Are there police officers waiting outside your door to arrest you?

My question is: "I don’t know, are you a threat to national security?"

I doubt MP3 files that you make are a threat to national security (but I guess it depends on how creative you are with your MP3 files)!

And finally, is the world coming to an end on Friday, June 31?

I don’t know, but you ought to check your calendar and see what might happen on Friday, June 31st!

Now, here’s the bottom line…

What has come to light is the fact that, all along, allegedly some people should be paying licensing fees to the people who created and patented the technology that it takes to create MP3 files.

Oddly enough this company is based in France (and that certainly creates an interesting picture in your mind based on recent events)… a French company causing problems… go figure.

But anyway… apparently they own the patent on all MP3 technology and some people who are using MP3 technology are supposed to be paying them licensing fees and royalties.

Now, instead of just guessing what they’re saying, why don’t we go to their site and take a look at what they have to say.

So you go to www.MP3Licensing.com and click on the "royalty rates" and they’ll tell you what their royalty rates are as far as a what you need to pay based on what you’re creating.

Now, I honest to God do not know the difference between MP3 and MP3 Pro, so please don’t e-mail me and ask (I don’t know).

But here www.MP3Licensing.com they list off what you must pay if you’re creating a decoder or encoder for MP3s.

You must pay them a certain amount if you create any hardware that does stuff with MP3.

You gotta pay them a certain amount per unit if you’re making video games. (By the way, let me know! I love video games and I’d love to preview your video game).

Here is the one that information marketers need to pay special attention to:

http://www.mp3licensing.com/royalty/emd.html

Here they give a definition of who has to pay the royalties.

You gotta pay 2% of related revenue.

By the way, I’m not an attorney nor do I play one on TV… but I would have to assume the related revenue is revenue that’s related to the MP3 that you are either selling or giving away and using on your web site.

Down here it says you gotta pay them $2,000 per calendar year plus 2% of related revenue.

Now down here, it says

"Note: No license is needed for private, non-commercial activities (e.g., home-entertainment, receiving broadcasts and creating a personal music library), not generating revenue or other consideration of any kind or for entities with an annual gross revenue less than US$ 100 000.00."

So if you’re a little company on the Web selling information that’s utilizing MP3 technology, or selling MP3s, or streaming MP3s, or using MP3s and are making less than $100,000 (again I’m not an attorney) it would pretty much makes sense that this is not something to worry about.

Okay now the question on your mind is, "Jim what should I do next?"

… and the answer I have for you is, "I’m not 100% sure right now!"

I called the people www.Camtasia.com and I asked them what the deal was with their software specifically (since I use it so much).

I talked to two different people and basically they told me that that their software is licensed properly when it comes to all the different Mp3 stuff and that how the person uses it (i.e. you and I who used Camtasia) by publishing our videos with a version that uses MP3 audio, it’s up to us to police ourselves.

Now, what I want to show you is something that may help put all this into perspective.

Again, I’m not giving legal advice (I can’t give legal advice).

If you go to a web site called http://www.nosoftwarepatents.com (choose which language you want to read the site in).

This is some very interesting stuff!

Side NOTE: It’s also interesting to see a lot of these problems are coming out of Europe and out of the World Trade Organization (I will just leave that alone).

But the one page I do want to point out is http://www.nosoftwarepatents.com/en/m/basics/webshop.html

Go to this URL and they start talking about how software patents make it virtually impossible for the Internet to work if people tried to enforce these things.

Now, if you look at this page, http://www.nosoftwarepatents.com/en/m/basics/webshop.html , the key issues are 20 different things on a single page that somebody can claim to own a patent on.

If you click this http://webshop.ffii.org/ it takes you to a page where it lists off all the things that someone on owns a "quote unquote" patent to.

If you click through on that it shows who owns the patent on each issue question.

As a reasonable human being, if any of this was enforceable that would mean that every single person who ever sold anything using a client and server (i.e. somebody’s computer and the server, which is where I have this file you are reading) would owe that person a royalty.

This reminds me of the joke I tell everybody about "Hey, you said ‘I gotta tell you’ so pay me two dollars! I’ve trademarked ‘I gotta tell you’ so anyone who says is anywhere in the world owes me two bucks!"

So if you did say "I gotta tell you" then you can paypal me the money!

Another one on there http://webshop.ffii.org/ basically says that anybody who orders anything over cell phone on has to pay these people, a Mr. Ritter Rudolph, allegedly, on what we owe him.

If you order something over a cell phone (and a lot of people are being encouraged order over a cell phone) then you owe some money to this guy… (Yeah right, you bet! Go ahead and try and collect!)

Another good one is "electronic shopping cart."

So everybody who uses a shopping cart could potentially pay these people a royalty (or anybody who created a shopping cart).

Patents on CDs… films… books… pictures… paying using credit card via the Internet…

This is really… really… really ludicrous!

Now, what does this mean to you? What should you do next?

Again I’m not an attorney, but I can tell you what I think.

You should not freak out about this MP3 thing… and the last thing you need to do is go buy something from the people who are causing people to freak out.

Side NOTE: Frankly, at the conference I attended, I personally found it very distasteful that "legal information" was given in this format — in conjunction with a pitch for a piece of software. It’s fine to sell the information and give out the advice, but not to use it as leverage in this manner to scare people into buying software.

I would not freak out and stop using MP3 files altogether at this point… but that is only my opinion and you need to talk to your attorney and make your own decisions as to what you should do next (I can’t do that for you).

But I did have an interesting conversation with a number of the top marketers on the Internet about this situation and here is where I’m going with this…

"Free MP3s" are starting to become as prominent and as pervasive as "free e-books" were two or three years ago.

Everybody and their brother has a free e-book / free mp3 they’re giving away from their site.

Well, what about a CD-ROM that you put in a regular CD player?

Does an audio CD not have a higher perceived value than a free MP3? I think it does!

And so my suggestion is that, instead a given away free MP3s, why not give away free CD-ROMs that people can put into a regular CD player?

Instead of doing what everybody else does, get everybody listening in to your CD!

Your CD shows up in a nice case and, even if you’re using it to generate a lead, all you’re doing is giving people extra value in differentiating yourself!

So maybe all this bruhaha over "MP3 files" will force everybody to do something better.

Also, what it’s going to do is stimulate what’s called "open source" software… and what that means is that there’ll be some alternatives coming down the pike. (Just make sure your alternate source isn’t poised to get sued by the people who own the patents on MP3s)

One existing alternative that you can use is what’s called the WMA (Windows media audio). This is basically Microsoft’s audio.

And so there are all kinds of alternatives…

My advice also would be that if you’re making under $100,000 a year as a result of your Internet business (of which MP3s are part) I wouldn’t freak out at all!

So I guess the bottom line is that:

… the sky is not falling
… I think they (MP3 patent owners) may go after some people they can get a lot of money from.
… I guess maybe now that everybody knows what the deal is with MP3 patents, maybe they should go after them.

But I also think that now is NOT the time to be all freaked out!

It is time to think about how you can turn this to your advantage by serving people better (not by using this to come out with something that will just force people to buy because they’re all freaked out and don’t know the facts).

I think that this is something that has been coming for a while because the MP3 licensing site copyright is 2002. So it’s not like this hasn’t been around. It’s not like this information hasn’t been out there. It’s not like they haven’t had three years to start going after people.

If you’re doing over $100,000 a year in business and use MP3s, then I would say what you ought to do is talk to your attorney or talk to an attorney that knows about this kind of stuff. Maybe there’s something you can do to lower your liability on for this type of thing. I know I’ve contacted my attorney and we’re thinking about some possibilities on this.

But the bottom line is just to stay calm, see what happens, and put it all into perspective.

Also, I’d encourage you to come and read these sites because ignorance is what’s driving a lot of this panic and fear.

Thank you for listening in, reading, and watching and I hope that this has helped you to understand the issue a little bit better.

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