Are Rights Holders Unlawfully Claiming $2 Billion Through YouTube's ContentID?

In our video Counter-strike — Exposing ContentID Abusers: How YouTube’s ContentID system has become Google’s Achilles Heel & exposes rights holders to antitrust & class action lawsuits, we

• retraced the origins of Google’s decision to invest in ContentId (CID) on the heels of Viacom’s $1 billion lawsuit,
• chronicled how YouTube has evolved its interpretation and application of the DMCA over time,
• forecast on how YouTube has spent $100 million on CID while paying over $3 billion by 2016 (and we forecast $10 billion by the end of 2019) to rightsholders through it.
• outlined in painstaking detail how CID is abused.

Today we publish the analysis behind the second video in the series: Class-Warfare - How Can Creators Fight Back: Can Class Action Lawsuits Level the Playing Field on YouTube.

While WatchMojo’s had the know-how, willpower and resources to assert its rights and largely fight back, we explained how many channels were bullied and intimidated due to YouTube’s CID policies. In the video’s conclusion we outlined many options available to channels & creators on the receiving end of the abuse, one of which was Class Action Lawsuits. For a law firm to see the merits to pursue one, they look for a target defendant who’d not only be found guilty but also able to pay the damages.

With YouTube replacing television as the leading consumption platform, it’s important to understand the stakes as YouTube’s interpretation of the Digital Millennium Copyright Act (DMCA) is conditioning rightsholders to assume that CID is Copyright law, which it’s not.

Over the past decade, we’ve researched and written on fair use: the concept, cases and precedents, the commercial applications and limitations, common sense in navigating the fair use landscape, and specifically on ContentID, and the possible lawsuits the intermediaries could face. Last year’s It’s Time to Fight Back Against Those Who Abuse YouTube’s Content ID Copyright Tool served as the basis of Counter-Strike but in a visual format and published on YouTube, which is proving to be ground-zero for copyright, especially with the EU’s decision to proceed with Article 13 (renamed 17), which is essentially European media lobbyists trying to accomplish via regulation what they could not do in the markets, but which creates more questions than answers.

Later this month, we will publish a follow-up video on WatchMojo and ContextTV outlining our proposal for a resolution that will hopefully catch up copyright law with the technology without ignoring either side's rights and concerns.

Here is the model.

Step 1: ESTIMATING AGGREGATE COMPENSATORY DAMAGES

Using this Google post which cites 2014 and 2016 figures, we estimate the payouts from YouTube to rightsholders in 2015, 2017–19 to total an aggregate $13 billion. Note these would be Net Revenues to rightsholders after YouTube’s share of AdSense revenues. It’s important to state here that as a user-generated content (UGC) platform, YouTube doesn’t really care who claims the content (rights holders or channel uploading the content — if different) so long as someone claims it, so YouTube’s monetization can kick in. First, a look at the table, which may be self-explanatory for those accustomed to CID:

Table 1: Annual Payouts from ContentID to Rights holders

Fortunately WatchMojo has had a solid track record fending off claims, but it’s apparent that there’s a widespread systematic issue with CID where most channels lack the know-how to assert their claims let alone fight back. In this model, 16% of the monies paid out (2.1 billion out of $13.5 billion) is going to the “wrong” party; anyone who is on the receiving end of CID will state that that’s actually a low figure and likely much more. How much more depends on the type of channel in question which admittedly will determine who the best representative plaintiff is to represent the “class” filing the class action lawsuit.

As per the table above, we break down 4 scenarios/sequences (a cascade / waterfall of sorts representing the beginning and end of the claims process):

a) Claims the rightsholder legitimately should/could claim (not fair use). For our model. We assume that 60% of claims made in aggregate are legitimate claims (even though many would rightfully disagree, since CID automatically claims things depending on how aggressive a rights holder would set the policies).

b) Claims made by claimant that are prima facie Fair Use; this is simply the balance of A, so 100% — 60%, thus 40%.

c) Instances where either claimant accepts channel’s appeal, or ultimately through the DMCA process the claim “goes way” channel claims 100% of the revenues. We are using 60%.

d) Instances where claimant ultimately claims 100% of the revenues, i.e. “unlawfully claimed” monies (for the context of a class action lawsuit, these would represent the COMPENSATORY DAMAGES). This is simply the balance of C, so 100% — 60% = 40%.

(To avoid getting too “inside baseball” — a note here, since we’re using Aggregate forecast, we’re going with the 60–40% ratio in scenarios A and B; but then also using a 60–40% split in scenarios C and D as a coincidence. In theory: if we adopted a more rigid estimate for A — say 80% which is not implausible — then we would adopt a higher estimate for C — say 80–90% — because in this scenario rights holders would realize most claims may have triggered “false” claims).

Money Earned Held In Escrow During Claims Process

When the claims process begins with a rights holder making a claim on a video, if the channel issues an appeal within 4 business days, YouTube keeps any monies generated via AdSense in escrow, until the matter is resolved. However, this back and forth can take weeks, months, even years — especially if multiple claimants issue claims which a channel can fend off.

Either way, at those CID payouts from YouTube to rightsholders, using our estimates and assumptions for probabilities of legitimate claims vs meritless ones, and how they appeals made by channels are treated, then you see that the “monies collected unlawfully” by rights holders who ignore Fair Use by acting as judge & jury by abusing CID has grown from $160 million in 2014 to $560 million in 2019 — an aggregate sum of $2.1 billion. That is the amount that under our scenario represents what compensatory damages would represent, which is the money awarded to a plaintiff to compensate for damages, injury, or another incurred loss. Compensatory damages are awarded in civil court cases where loss has occurred as a result of the negligence or unlawful conduct of another party (i.e. rights holders who abuse CID and pay lip service to channels who claim fair use but are then ignored via CID’s interpretation of the DMCA). Note that in theory, nothing precludes YouTube from applying rules as it sees fit. The issue is CID is not the law. So rights holders need to take into account Copyright law, exceptions and exemptions via paragraph 107 with regards to Fair Use, and mainly precedents, many of which we’ve already covered previously on Medium, Linkedin and of course, our Counter-Strike video.

It’s a Trap! Winning the War by Giving up a Given Battle

Fortunately, through a mix of i) researching/understanding/applying /debating the law, persistence, masochism and willingness to fight back, WatchMojo’s has had a very high success rate fighting claims. I would say abnormally high, because we point out that our position is rooted in law and backed by precedents, and signaling that we will fight the fight. I’m the most diplomatic and courteous person until I am not.

But for us to ever sue someone, we need to show damages. So in a handful of instances , we’ve let a claim go the other way, to establish actual damages.

We’ve done this rarely, but notably in instances where a claimant’s IP is used in an immaterial portion of a video, say top 10 wedding songs where a rightsholder IP is used in 1–2 entries and even then, in short amounts and interlaced with our commentary.

Why Class Action Lawsuits — and not Injunction or even Antitrust — May Deliver Justice

While we highlighted in the Counter-Strike video how at least one rightsholder was caught red-handed using CID in clear anti-competitive behavior (raising Antitrust issues), the broader path to relief is more likely through a Class Action Lawsuit. For one, this is the lesser of many evils as the last thing creators want is for YouTube to be caught in the line of fire.  Second, rightsholders need an incentive to stop over-reaching because CID makes it too easy with no real punishment. That said, ironically,

i) as a fair use defense using the Impact test: the possible loss of some licensing revenue for a rights holder does not actually constitute “damages” in a copyright infringement case, it’s more about the Impact on the marketability and resale value of the underlying work. But in a class action lawsuit, compensatory damages would represent money for “another incurred loss,” meaning Adsense revenue that should have been collected by the channel producing a mashup, and not a claimant who abused CID to claim Adsense unlawfully. The single biggest misconception of fair use is that commercial use automatically nullifies fair use, it doesn’t (within reason, in some cases). Speak with a lawyer regarding specific cases.

ii) in the context of securing an injunction to prevent rights holders from abusing CID, the party seeking an injunction would need to demonstrate

1 — an apparent right

2 — merits

3 — balance of inconvenience

4 — irreparable harm

5 — urgency

The key term is irreparable harm, and not possible harm. So if eventually a financial amount could remedy the harm, it’s not irreparable. Irreparable harm comes into play if such CID abuse leads to a channel going down, since no amount of money would remedy that. But in the dynamic of class action lawsuits, letting a rights holder “prevail” in a given instance gives the representative plaintiff a specific instance where they can cite damages, and then can leverage the CAL process to have others (the “class”) piggy back and amplify the counter-strike.

Step 2: ESTIMATING DAMAGES PER RIGHTS HOLDER — 1ST APPROACH

In a 2016 study called “Convergence: The International Journal of Research into New Media Technologies, it was reported that “People & Vlogs” (vloggers/creators/influencers in everyday parlance) accounted for the largest category of YouTube videos, followed by Music, Gaming, Movies, etc. But when it comes to CID, music is far and away the largest Category. If we had to estimate the breakdown, we would break it down as such:

Table 2: Estimated Breakdown of ContentID Claims per Category

If you combine the total unlawfully claimed AdSense revenue from table 1 and multiply that by the proportion of claims by Music rights holders, you see that over the 2014–2019 period, we estimate that $650 million has been paid out to rights holders even though under fair use to music rights holders alone, those AdSense revenues should have plausibly gone to the channels. Recall, some commercial use does not automatically nullify fair use — for more on that read/watch the linked pieces. But that number is more than realistic since YouTube’s own numbers state that “YouTube paid $1.8 billion to the music industry from October 2017 to September 2018 [alone] in advertising revenue alone,” excluding downloads via Google Play but we presume, including CID claims and revenues on channels like VEVO that are managed by the labels/VEVO.

Now, the way class action lawsuits work is you cannot really sue a whole industry, you would want to sue a given party. Relying on Occam’s Razor, you can rely on market share breakdowns to divvy up which rights holder is claiming which amount.

Doing that suggests that of the total amount that is unlawfully claimed, close to $200 million is done by — allegedly and only for purposes of illustration — by market share leader Universal Music Group. Again, we’re not suggesting any impropriety here or inciting anyone to pursue a class action lawsuit, even though UMG as well as smaller BMG have been known to make frivolous claims. UMG v Lenz is one example; BMG’s DMCA takedowns against Mitt Romney is another (poor guy can’t get a break, ever, on anything). Now, another interesting detail, remember that company InGrooves that I called out in Counter-Strike? I emailed their investors at Shamrock and highlighted that they were vulnerable to a class action lawsuit (FWIW, I wasn’t the first one to suspect that). But they were recently acquired by Universal Music. CID is such a boom to the businesses of these rightsholders that they are willing to increase the inherent risk because no has dared call out these practices. InGrooves had been on the auction block for a year, so I doubt my Fall 2018 email mattered in Shamrock’s decision to unload it, but I’m sure it increased their willingness and eagerness to unload the asset. Considering that Vivendi is looking at unloading 50% of its stake in UMG - valued at $50 billion - perhaps the parent company may want to ask some questions with those managing CID, as its aggressive stance may pose a risk to that big payoff.

Will These Rightsholders Restrain Themselves?

In an ideal world, these esteemed corporate organizations who contribute much to society and their communities may now have a better appreciation of the point we’ve long tried to make (but which seems to fall on deaf ears): they are exposing their investors to massive legal exposure, not merely via Compensatory Damages, but also Punitive, especially based on the myriad assertions and previous behavior evidenced by exchanges I’ve had with execs, public statements, and actual use of the DMCA takedown process. In one exchange with a label, they brag about how CID allows them to circumvent the law.

“To the contrary, YouTube’s Content ID System will automatically and indiscriminately claim any proceeds of artists represented by BMG irrespective of who the uploading party is.It will for instance also do so if the music is used by a Bertelsmann entity. To conclude, this is no competition law case, but a commercial discussion on how and if the artists’ input you use to generate revenues is remunerated. We would like to encourage you to take up this business discussion with BMG.”

Just re-read that. That record labels are now bragging about how YouTube is part of the solution is a testament to how seriously YouTube takes copyright, even if it means creators get caught in the cross-fire.

When it comes to Punitive damages, in Canada (our jurisdiction, where Fair Use isn’t solely a defense but an extension of users’ rights thanks to a landmark 2004 Supreme Court case), it’s worth noting that punitive or exemplary damages are actually more common now in the context of consumer protection class actions. However, in no way do they reflect the type of awards that you’ll see in the States, where the majority of our views come from. I have spent 20 years studying Copyright law and the past 12 diving into the area and developed quite a lot of insight into the domain. I’ve also started to scratch the surface of Antitrust and increasingly, Class Action Lawsuits, which I now see as the true path to fight back abusive practices that have pushed things to the extreme. Part of the reason I am opening up in such a transparent manner is that we fought the fair use fights, outlined our positions quite publicly over the years, but we now largely focus on editorial where the rightsholders either explicitly approve out use, implicit support it, or reluctantly concede that it’s legal (let alone helpful).

Judge for Yourself: How Would a Class Action Lawsuit Work?

To determine if a matter can proceed to a Class action lawsuit, “a court will certify a class if:

• The class is so numerous that joinder of all members is impracticable (Numerosity).
• There are questions of law or fact common to the class (Commonality).
• The claims or defenses of the class representatives are typical of the claims or defenses of the class (Typicality).
• The class representatives will fairly and adequately protect the interests of the class (Adequacy of Representation).

These and other factors are most commonly the subject of extensive investigation, discovery, motion practice and, in some instances, trial.”

Finally, while “the U.S. Supreme Court has suggested that the maximum allowable punitive-to-compensatory award ratio is 4:1, state courts have nonetheless applied those guidelines to uphold ratios of 16:1.”

So if you take the music industry’s exposure and tack on a 5X or 10X punitive damage tab, record labels may be exposed to $10–20 billion in notional amounts including Punitive/Exemplary Damages. I am sitting on a decade’s worth of abusive emails from record label employees who threatened us with DMCA strikes if we didn’t retract our appeals, only for me to strike back and remind them of our rights and the fact they were over-stepping theirs.

I put my sword down in the fall of 2018 with the record labels. We have - through our own volition, without admitting any wrongdoing and without prejudice - de-emphasized editorial based on music IP; even though once we did the second and largest record labels asked us to reconsider that decision. Admittedly we’re exploring some frameworks with some. I’m open to it to the extent it makes sense. My goal, at this juncture, isn’t thus to threat let alone pursue a Class Action Lawsuit, it’s to ask “are you aware of this risk?” I won’t lie, because many righsholders including the labels think that CID = The Law, it takes an article and analysis like this and the Counter-Strike video for them to realize that no, CID is NOT the law.

I’ll be clear to state that:

1. We are not at this point willing to serve as a representative plaintiff even though given our vast catalog we represent the ideal proxy to become one. I will also add that I find it unsavory to ever be involved pursuing a rightsholder who is the owner of the IP, though admittedly some have grown so rigid and abusive due to CID’s unevenness, that it does cross one’s mind. In an ideal world, the targeted party would be an intermediary who is not the owner but merely overstepping their rights. There are many of those.

2. At the risk of deflating people, we may not even be eligible to be the Representative Class Claimant. But, we have a lot of evidence. We have the data.

My purpose here is to help rightsholders come to their senses and scale back their greed and abuse.

Step 3: ESTIMATING DAMAGES PER RIGHTS HOLDER — 2ND APPROACH

And - Record labels aren’t alone. They may simply be the most egregious example of the CID abuse.

Another way to approach this is by thinking of the Pareto princple, that 80% of claim volume is generated by 20% of claimants. We estimate for simplicity that the biggest abuser is responsible for 20% of claims, followed by 10% from the second abuser, and the remaining 20% of “bad hombres” generate 50% (adding up to 80%), the remaining 20% is by many parties which we ignore.

That suggests the following:

This approach suggests that the biggest offender is allegedly on the hook for $433M in compensatory damages going back 5 years, and up to $2B is use a 5X ratio for punitive damages. Based on my 10-year experience running WatchMojo, I can write down the names of 5 claimants and be fairly confident that the 3 worst abusers are on that list. For that reason, and given the challenges in a class action lawsuit, I would be surprised if a class action lawsuit came before a direct lawsuit against one of the more egregious abusers. They know who they are, and thanks to the pile of data we have collected, so do we.

Stay tuned for part 3: our proposal to align rights holders, creators who rely on fair use and hopefully, the most ardent fair use proponents.

Disclaimer: this does not constitute legal advice and is for information purposes only. Consult a lawyer.