WHITE PAPER: TOWARDS THE CREATION OF A DIGITAL CONTENT

EXCHANGE

I. Executive Summary. The Digital Content Exchange (DCE) is a patent-pending

(US Pat. 10591416, priority date March 4, 2004) method for facilitating an exchange of
copyright-protected digital media in a commercial transaction. It is also a method for storage
and enjoyment of media through on-line “cloud” access. The secure DCE on-line environment
verifies ownership of the digital item and rules out piracy before the item may be accessed by the
user from his cloud or, indeed, before it may be transferred from one user to another. The DCE
enables authors of media (including, but not limited to: books, music and video content) to
become their own direct distributors of the digital item. It allows consumers who buy books,
music and videos to aggregate their collections and, therefore, provide a marketplace more
powerful than Amazon, eBay, Netflix, RedBox, and the New York Public Library.

The DCE is owned by The Media Exchange Company, Inc. and includes the know-how
of the inventor, who developed the invention based on a lifetime of experience in efforts of just
this sort, including as founder of Bridge Data (now part of Thomson Reuters). The book, music
or CD item is carried on a fully-transparent board of exchange similar to stocks.

The DCE has a working application that has been successfully beta-tested at the
DCE.com and is fully functioning (in music media items only) among a small group of stores,
users and record-labels. Any interested party wishing to become a beta-tester may apply there to
do so. Inasmuch as the DCE is at the heart of the businesses of Google, Apple and all media
content providers, its value speaks for itself.

II. Target Market. In order to understand the value proposition in the DCE, one
first has to fully understand the value proposition for the target market. The target market can be
roughly divided up into five groupings:

1. Those who buy media (or who presently download media illegally).

2. Those who create media or distribute it.

3. Academic institutions that provide internet access for research purposes but in so
doing are required by Federal law to prevent their servers from being used for
illegal downloading.

4. Institutions that lend media such as libraries, video rental stores and kiosks.

5. Entities that have a commercial interest in web behavior or consumer electronics

such as Google and Apple.

III. Solving the fifteen-year old problem of how to monetize digital media. Since
the advent of the internet, the Music, Book, and Video (“media”) industries have been grappling
with the problem of how to make money through on-line distribution and to simultaneously stem
illegal file sharing. The results have been decidedly mixed. This is because the industries have
not been employing the DCE principle (see below) and its proprietary implementation.
 As many industry critics have observed, the key is to give consumers of media an on-line
experience that is completely devoted to allowing them to do everything they might desire with
the media item, and everything they can do now thanks to digital technology. Failing to afford
legal ways to do things that digital technology allows has been shown to induce illegal activity.

iTunes is a more user-centric experience, but still comes with some unnecessary
restrictions via the iTunes User Agreement, burn limits, computer transfer limits, the requirement
of downloading and using iTunes rather than having direct access to the download on the hard-
drive. Further, popular confusion concerning whether a buyer really owns an iTunes download
rather than rents it has resulted in trading site eBay forbidding the trading of iTunes downloads.
This is counterproductive and makes as much economic sense as prohibiting a trade of a share of
Proctor & Gamble. Of course, there are concerns that the seller will not rid himself of the song
once sold. Nevertheless, this is where the DCE’s method of immobilization and verification
enters the fray in order to abate those concerns.

YouTube has brought the user an “about them” experience in that YouTube is very easy
to use and its catalog is deep. However, YouTube has the following problems:

1. YouTube’s legality is fraught with gray areas.

2. There are incongruous “performance” royalty costs.

3. It does not allow ownership or collecting (YouTube videos can be “here today,
gone tomorrow” unless illegally downloaded and stored).

4. It is hampered by per-video size limits.

5. It is not a music site although it is often improperly used as a free “digital juke
box”.

6. It of course does nothing to address the problem of digital books.

IV. The DCE Principle. The DCE is built around the user and this is why it can
succeed while so many other well-funded ventures have failed.

1. The DCE creates analogs in the digital realm for every benefit the user
enjoyed in the physical realm.

2. It enables users who choose to own music to have cloud access to all their media
purchases, whether it is an item they have owned since the 1960’s or is an item
purchased instantaneously through the Exchange.

3. It provides users who choose to borrow a media item instead of buying it (and
adding it to their collection) a method of borrowing without needing to go to a
brick and mortar library, nor worrying about returning the item or paying late
fees.

4. DCE members who would like to sell, trade or lend their media are enabled to
make money from doing so. It is true “file sharing” and is no different than
 lending a physical CD, video or book to a neighbor because the lender is not able
to access it while the borrower is enjoying it.

5. The media made available to the user for borrowing or purchase is the widest
possible selection because it represents all the media owned by all the users in the
world, whether “orphaned” or in print, obscure or popular, long tail or broad tail.
The user will never experience “not available” or “out of stock”. Everything will
be available, although items that are rare or valuable may be priced high.

6. There is no fee to join the DCE. There is no monthly subscription “big decision”.
The user will just have to pay a small fee per transaction to the extent he buys or
borrows.

7. The DCE principle affords new ways of looking at old problems. Please note that
all the applications and nuances of the DCE principle have yet to be fully
developed. The ingenuity of developers will be important to the proper
implementation of the Exchange across broad platforms. (Applications of the
DCE principle marked tentative in this document are examples of applications
that are still in development).

V. Advantages for Copyright Owners. Even though the DCE was built around the
user experience, there are at least two important advantages built-in for the benefit of copyright
owners.

1. The DCE allows copyright owners the ability to vend media items on the
Exchange only on an “opt-in” basis (unlike the Google Book Settlement). Thus,
the DCE always respects the rightsholder’s right to decide when, where and if
new copies of the media item are to be sold.

2. Presently there is no system for accounting to copyright holders when a media

item is resold at a used store or loaned through a retail store or library. The DCE,
by tracking these transactions, can provide rightsholders a new source of income.

VI. The value to Google.

1. As a search company, Google can only benefit from being the provider of the
fulcrum through which all media is searched for and transacted.

2. Google can partake in a transaction fee for each transaction.

3. Google is involved in mass digitization and the DCE is a digitization project.

Therefore, Google and the DCE are natural partners. With books, the digitization
effort is especially valuable for Google. Once books are digitized, Goggle can
provide web searching “on steroids”. However, one of two conditions must occur
in order for unfettered full-text searching to be legal. The first possibility is for
copyright holders to have “opted in” to full text searching. The second possibility
is for Google to facilitate the borrowing of a copy of the book from a verified
owner (because then it is the lawful owner of the book who is allowing the search
 and who is being deprived of the use of that book for the length of the loan). The
DCE’s technology can facilitate both of these possibilities. Opting in would
occasion a fee to be paid to the copyright owner and borrowing would occasion a
fee to be paid to the book owner who is lending the book. Either these transaction
fees could be paid by Google or by the user (who in this case is a web searcher)
directly, depending upon which business model Google chooses.

4. Digitizing all the media items ever produced and having them on one central
server affords Google the opportunity to add supplemental information about each
item via metatags which will make searching more useful. Social networking
metadata may also be added. RateYourMusic.com, Amazon and MySpace Music
have attempted to collect user-generated content related to media, but suffer from
the lack of incentive for the user to contribute. Only the DCE provides a one-stop
activity center for a user to access and “do things” with her media collection.
With owners as the source of the items, the DCE will be able to do what many
thought impossible: create a digital database of “all the media items ever
produced.”

5. Google, which gets blamed for providing search results which aid pirates, can get
credit for taking great strides in reducing illegal file sharing.

6. Google can get credit for reinvigorating the entertainment industry (to the extent
that entertainment companies participate) by offering them the ability to sell
without a distributor, set their own pricing, participate in income from second-
hand media sales, participate in the income from library-lending, and, finally, by
eliminating the expensive overhead requirements of needing to vend and account
for items in the brick and mortar world.

7. Google will get credit for a “green” initiative, to wit: a) hastening the advent of
the “doing away with atoms” in physical media b) taking the physical media items
which are at present inefficiently housed in living rooms, and storing them more
efficiently in warehouses designed especially for media storage; and c) giving
future political leadership the option of declaring the warehoused items fully
credited to the owners and thus capable of being responsibly recycled.
(Tentative).

8. The DCE will enable Google to convert YouTube to a legal music-sharing service
and avoid paying performance royalties. How the DCE changes YouTube: A
user who wants to post user-generated video content meant to be synched with
music must first own the song and make it available for loan. The viewer must
select “listen with video” or “listen without video” (Thus, the video is construed
not to require a synch license). The viewer then must agree to instantaneously
borrow the music from a willing user at prevailing rates. If the viewer does not
agree to pay the rate, or if no loaned copy is available, the viewer can view the
video only, but the music will be blanked out (which YouTube already has the
mechanism to do). Note that the viewer is borrowing the music and playing it for
his own private one-on-one use, and it is not a public performance like radio and
television. (Tentative).
 9. The DCE will enable Google to run internet radio stations at cheaper rates than
Pandora, Last.fm, etc. As seen from the last example, an owner playing his
lawfully-bought-and-owned media via his cloud account is not occasioning a
public performance royalty. The popularity of the iPod Shuffle demonstrates that
a radio listener’s ideal radio station would probably resemble a mix of a radio
station and his or her iPod in “shuffle mode”. Even though Apple has for long
facilitated the streaming of a shuffle program, based on a proprietary algorithm,
no party in the debate over what is, and what is not, copyright “fair use” has
suggested that this facilitation by Apple constitutes a public performance which
requires a license from the copyright owners of the works which the iPod user has
legitimately 1 bought. If a user owns music, he should not have to pay to have that
music streamed back to him. The DCE radio mechanism would allow the
performance-royalty-bearing stream to drop out when an owned song is detected
in the playlist. This system will reduce royalty payments due for internet stations
offering what is essentially a traditional radio broadcast programmed by a
programmer or a DJ. However, it is also possible to have a “genius” stream
streamed to a user based on a user-activity algorithm (such as the human genome
project) and utilizing all-borrowed material, which would mean no performance
royalty but rather just a transaction fee per song borrowed. (Tentative).

VII. The value to Apple.

1. Apple may partake of all of the benefits of Google (listed above), except those
pertaining to search and YouTube.

2. Apple would be enabled to launch a better and cheaper competitor to YouTube if

it wished. This would tie-in seamlessly with its paid video (and music) content
vended for the iPod through iTunes.

3. Apple can increase the value of all its related "i" media products because
verification and immobilization will allow more music to be legally carried over
to a user’s iTunes account.

4. Apple can sell more media through the iTunes store because such media becomes
more valuable as it is 100% owned, indubitably transferable and fully-integrated
with a customer’s entire collection, both physical and digital, whether song or
video. It also adds books to Apple’s iTunes store inventory which ties-in with the
iPad.

5. Apple's planned “cloud” for media becomes more feasible and less legally “gray”.

VIII. The value to universities and colleges trying to thwart illegal file transfers
and implement the Higher Education Opportunity Act. Illegal downloading has caused
multifarious problems for college and university higher education administrators:

1
Although Apple hardware and iTunes software are agnostic as to how the songs were acquired, unlike the DCE.
 1. Providing internet access to their students represents a new obligation upon those
universities, an obligation that is both non-historic and quite complex.

2. It has become a great burden on staff to process Digital Millennium Copyright

Act (DMCA) notices filed with the college directed at incidents of alleged student
infringement.

3. Provision of internet services has become both an administrative burden and an

unprecedented source of tension between faculty/staff on the one hand and
students on the other.

4. In order to avoid accessory liability for copyright infringement, colleges are

forced to engage in traffic shaping, bandwidth throttling and other techniques for
ferreting out or discouraging illegal file sharing. This slows research in general
and may violate a student’s privacy. It punishes fully licensed high-bandwidth
activity along with illegitimate activity in one “swoop”.

5. All the situations above at best put administrators at odds with students and, at
worst, create a conflict of interest with students. Students who pay tuition have
the expectation that they be granted an environment of unfettered learning.

6. The Higher Education Opportunity Act (Public Law 110-315) (HEOA) was
enacted on August 14, 2008, at the behest of copyright owners, and requires
universities to get serious about this problem. 2

Fortunately, as specified by Congress and the Department of Education, colleges and

universities have a great deal of flexibility in determining how they will comply with the HOEA.
The HEOA allows compliance strategies to change as technology and business models evolve
and as experience accrues. There is thus no one-size-fits-all approach, now or in the future. The
DCE would put colleges and students on the same side again because it takes the burden off the
college to analyze its students downloading activity. The DCE mechanism verifies centrally
whether an item is owned or not. The DCE, with its grant of free cloud access to the user, plus
ability for the user to make money off his or her collection, greatly incentivizes the user to
conduct all of his or her media enjoyment through the Exchange. Under a system of positive
incentives, most transfers occurring outside the Exchange could be presumed to be related to
non-copyright controlled content and the number of illegal transfers would be de minimis.

Colleges and universities are made up of young people who are early-adopters of digital
technology, and see the value of cloud computing, yet at the same time are usually of modest
financial means and are rightly or wrongly assumed to be the people most prone to “steal” via
the internet or hand-to-hand transfer of illegally copied material. Therefore, a college or
university would be a perfect place to “scale-up” the current DCE beta-test.

IX. Costs and Risks. As the DCE scales up, there will be substantial web-application
development costs, the commitment to customer service necessitated by having millions of users,
and warehousing costs. Legal risks and costs are expected to be minimal because all copyright

2
It is beyond the scope of this document to analyze the HEOA’s provisions in depth.
owners have already been compensated when the title passed to the physical item; all uses of the
media item are ordered by the lawful owner thereof and are for his own personal use. The
copyright owner is in full control of whether and how any new copies of media are to be vended
or made available for lending. Borrowed items can be streamed only, never downloaded.
Therefore all uses are “fair” and there is no benefit to the user that is ill-gotten.

Admittedly, the DCE's method of verifying and immobilizing physical items involves the
legal areas of fair use and first-sale doctrine, areas that are famously lacking in case-law
precedents. Yet, technological advances, usually require some stretching of existing law,
otherwise they would not be “advances”. Fortunately, the DCE application sits so squarely
within the equitable confines of fair use, and its intent is so clearly manifested to be that of
fighting illegal file-sharing, that any prospective plaintiff contemplating a lawsuit against the
DCE would be essentially attempting to stand athwart progress and yelling, "Stop". There is not
likely to be anyone willing to play this “spoiler” role, once the value and benefits to the entire
media industry of the Digital Content Exchange are understood. The DCE is an economic
efficiency and all current players in the media industry are able to partake of this boon. There is
no known party with an economic incentive to sue.

X. Conclusion. The failure of the media industries has been to continue to resist
appropriate changes in their business plans to accommodate the significant changes in revenue
and costs brought about by the internet and digital content. As has been shown, the selling,
reselling and lending of copyrighted material, which used to happen in millions of brick-and-
mortar stores, can take place now on the internet and be monetized through this invention, which
is piracy resistant. Inasmuch as anyone with an internet connection anywhere in the world can
become a member and use the exchange on an almost-every-day basis, the social good of the
implementation of the Digital Content Exchange is readily apparent.