The San Francisco Chronicle had this story yesterday about a new service for CD swapping. Although it doesn't refer to Section 109 of the Copyright Act directly, that is obviously the relevant section:
"Former Yahoo chief product officer Geoff Ralston's record collection ranges from Joni Mitchell to Jimmy Buffett, the Beach Boys to the B-52s. In the past few months, it's also expanded to popular but lesser-known groups such as Death Cab for Cutie, Fountains of Wayne and the New Pornographers."I've experienced more new music in the last six months than in the last 15 years," Ralston said. That's because Ralston is on the board of La la, a Palo Alto startup that is introducing a site it believes offers a legal alternative to sharing music online. It's a virtual place where consumers can come together and trade their used CDs, much like going to a used-record store.Part MySpace, Netflix, eBay and iTunes, La la incorporates pieces of each: Users list online the CDs they both want and have. In the process, they find others who share the same taste in music. Then, when one user requests a CD that another person owns, the owner drops it in the mail in a pre-paid envelope. The receiver is billed $1, plus 49 cents for shipping; the shipper pays nothing.The service, which is still being tested, comes as the music industry continues to wrestle with declining CD sales and illegal file sharing on the Internet. Just last week, the Recording Industry Association of America filed another round of lawsuits, going after 750 people who it says stole music online.In autumn, Sony created an uproar after customers found its CDs incorporated software meant to curtail excessive copying, but which opened their computers to spyware and viruses. Meanwhile, getting music online continues to grow, with the iTunes music store hitting its 1 billionth song download last month."There is a transition going on, from media that is hard plastic, that has weight to it, to all-digital media, where increasingly people are acquiring and listening to music without it being on a disc," said Ralston. "La la is taking advantage of both sides."La la offers customers access to about 1.8 million albums, more than what's available on iTunes and at local retailers. It also seeks to create online communities of users who enjoy the same music, providing connections to people who have similar record collections."This is meant to be better than iTunes," co-founder Bill Nguyen said. "If Apple had done it better, then we wouldn't have built this."La la avoids copyright issues because swapping used CDs is legal, while sharing copyrighted music online is not. For the $1 it charges a user to receive a CD, La la gives 20 cents to the artist.For every CD a user ships, the user receives one in return. An internal algorithmic system -- that the founders liken to karma -- tracks how often a person sends a CD, if it's sent on time and if the CD is in good shape. Someone with "bad" karma will probably not receive a CD as quickly as someone with "good" karma. Sending burned CDs, a big no-no, could lead to getting kicked off the site.La la can't, however, stop folks from receiving a CD, making a copy of it and then trading it again. That, in fact, is how about 30 percent of consumers get their music these days, according to the NPD Group, a market research firm in Port Washington, N.Y. A little more than 50 percent of consumers buy CDs, about 16 percent use illegal file-sharing networks and about 4 percent download music legally on services like iTunes."What's been a challenge for the industry is people swapping CDs and ripping and burning copies of them," said Russ Crupnick, an analyst with NPD Group. "It's a big piece of how people are acquiring music."La la said it doesn't condone users doing this, but it could prove to be one of the company's challenges. "I don't see how the RIAA is going to like it, but they don't have a choice because it doesn't infringe on copyright," Ben Bajarin, an analyst with Creative Strategies. Nguyen said the company has no plans to expand beyond music. Incidentally, another Silicon Valley startup, Menlo Park's Peerflix, uses a similar model to trade DVDs.La la is backed by Bain Capital and Ignition Partners, which pumped $9 million into the company. It also landed Anselm Baird-Smith, a former eBay architect, as one of its co-founders. Mr. Baird-Smith, who has two sisters and a brother who are professional musicians, opted to take a chance on La la."I didn't realize so many people loved me," he said. But "it's about music and about being good to the artist and me personally being able to bring something to La la."
The only possible hitch is the horribly mucked-up language of Section 109(b)(1)(a):
"Notwithstanding the provisions of subsection (a), unless authorized by the owners of copyright in the sound recording or the owner of copyright in a computer program (including any tape, disk, or other medium embodying such program), and in the case of a sound recording in the musical works embodied therein, neither the owner of a particular phonorecord nor any person in possession of a particular copy of a computer program (including any tape, disk, or other medium embodying such program), may, for the purposes of direct or indirect commercial advantage, dispose of, or authorize the disposal of, the possession of that phonorecord or computer program (including any tape, disk, or other medium embodying such program) by rental, lease, or lending, or by any other act or practice in the nature of rental, lease, or lending. Nothing in the preceding sentence shall apply to the rental, lease, or lending of a phonorecord for nonprofit purposes by a nonprofit library or nonprofit educational institution. The transfer of possession of a lawfully made copy of a computer program by a nonprofit educational institution to another nonprofit educational institution or to faculty, staff, and students does not constitute rental, lease, or lending for direct or indirect commercial purposes under this subsection."
This language was much clearer before software was added to it: in its original incarnation, dealing with record rental, it was much simpler to parse. Bottom line, from the description above of La la, it doesn't appear to run afoul of the section since there title to the copy is parted with and there is nothing like the wink-wink-nudge-nudge that led to the original record rental ban.