August 11, 2011 5:31 PM

Q&A: Incoming Recording Industry Chief Sherman Targets Piracy

Posted by Jan Wolfe

In September the Recording Industry Association of America (RIAA) gets a new leader, with Mitch Bainwol stepping down after eight years as CEO to make way for Cary Sherman, who has been the group's president for the past ten years after serving a previous stint as its general counsel. The Am Law Daily caught up with Sherman—a  former partner and head of the intellectual property and technology practice at Arnold & Porter—recently to discuss what lies ahead for the famously litigious organization as it continues its fight against widespeard copyright infringement.

As CEO, what initiatives are you most excited about?

One of the things that has excited me is that intermediaries in the "Internet value chain" have been willing to step up and play their part in doing something about the common problem that we all share, which is the illegal use of networks for piracy. We used to be in litigation with ISPs and now we are collaborating with them. Payment processors are beginning to take steps to ensure that their payment systems and their good will aren't misused by pirate sites to encourage illegal activity. We're talking with advertisers to discourage them from advertising on pirate sites because when they do so, they are basically making piracy more attractive. By getting all of those intermediaries to assist in a constructive way in the fight against online theft, we're actually making a difference in the marketplace. That's a sea change in attitude from the situation ten years ago.

What is the current focus of the RIAA's litigation efforts?

We choose our litigation strategies very carefully to try and make the most of our budget. We basically look to where the law needs clarification, so that the rules of the road online are clear and protect creators. Our most recent litigation was the successful conclusion of the LimeWire case, which required many years of effort. And we actually feel the shutdown of LimeWire has made a difference in the health of our marketplace. It's really quite amazing. The shutdown of LimeWire occurred in October 2010 and digital sales improved for the first time in a very long time in November. And since then, we've had better digital sales over the prior year consistently. 

You attribute this increase in digital sales entirely to the LimeWire settlement and not other causes?

You know, the truth is, we have tried to figure out what that cause is. We've looked at release schedules. We've looked at all sorts of activities. And there is no clear explanation for why in November 2010 sales started to improve. Everyone in the industry is wondering what is responsible for this change. And I think most people will acknowledge that the shutdown of LimeWire could actually have made a bigger difference than we expected. More people than we expected, once they felt that LimeWire wasn't going to serve their needs, went to the legitimate marketplace than to another illegal source.

Amazon and Google each launched cloud-based music storage services this year without striking licensing agreements with the major music labels. Do those services qualify as illegal marketplaces?

There will probably be different views among the different players about when a license is required for a cloud service. With these services, our focus has not been on clarifying the law. Rather, we are relying on the marketplace to see that all vendors of cloud services become licensed. It is simply not possible for unlicensed services to offer the functionality of licensed services. I think the Apple iCloud experience is a perfect example. They have "scan-and-match," which makes it effortless for users to put their music in the cloud. It will be very hard for unlicensed services to compete with that kind of functionality, and that is why this is ultimately a business, rather then a legal, issue.

The "Copyright Alert System,” which is designed to warn or penalize users when their account is suspected of copyright infringement, is built on a premise of cooperation with ISPs. Do you worry that ISPs might shy away from penalizing their customers?

This is a delicate balance. The truth is that 5 percent of ISP users are consuming 80 percent of the bandwidth. One downloader in a neighborhood can impact the web-surfing experience for lots of other households. The ISPs are trying to balance the legitimate needs of their subscribers with what is right in terms of a vibrant Internet economy and their interest in retaining subscribers.

There's already been an enormous growth in streaming online. Supporting that legal activity requires ISPs to invest enormous amounts to build their bandwidth infrastructure. Do they really want huge amounts of illegal activity on top of that? They have an interest in making sure that the growth of the Internet is based on legitimate commerce.

Is there data to suggest that coordination between the recording industry and ISPs will work to deter illegal downloading?

There have been a lot of surveys done in countries around the world about consumer behavior under these kinds of programs. And the data are very encouraging. People suddenly realize that their behavior is not anonymous. That's all the nudge some of them need to go legitimate. There will always be a hardcore group that feel like they have a right to free music and they will go to amazing lengths to get it. But most infringers are casual infringers. If we can convert them into legitimate consumers, we can make a huge difference to creators.

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