Corporations and Copyright in Cyberspace: 'Hidden' Internet Regulation and the Corporate Director's Duty to Monitor - Umg Recordings V. Mp3.Com, Inc. Seen from the Perspective of in Re Caremark Derivative Litigation

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The Delaware Journal of Corporate Law, Vol. 27, No. 1, pp. 99-178, 2002

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Corey Field
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Despite their common origins in English law, Delaware corporate governance common law and federal statutory copyright laws operate under fundamentally different assumptions. Delaware corporate gover-nance law is decided initially in Delaware's Court of Chancery, which as the name indicates has its origins in English courts of equity. In matters of corporate governance the policy is to encourage corporations to maximize shareholder value. So long as business decisions are made via a process of informed decision making, anything not expressly prohibited is permitted. Federal copyright statutes, however, with their origins in fifteenth-century Royal decrees designed to protect the English book trade, grant exclusive rights under which anything not expressly permitted is prohibited. Because the Internet is a copyright-intensive medium due to its basis in software and multimedia, and because many corporations have developed an Internet presence, the benefits and risks of using copyright on the Internet, and the resulting potential liabilities, represent a newly developing area of corporate law and copyright law cross-practice. This cross-practice will need to address, if not resolve, the fundamental tensions in the approaches of these two disciplines. The central premise of this note is that a lack of understanding of copyright law on the Internet potentially exposes corporations, and their directors, to liability based on copyright infringement. Following a brief introdution of the basic concepts of corporate and copyright law for those "uninitiated" into either practice, two recent cases are examined that demonstrate a nexus of these disciplines in the age of the Internet. In re Caremark International Inc. Derivative Litigation is a 1996 Delaware corporate law decision that discusses the duties of corporate directors to monitor regulatory breaches that result in damage to shareholder value. UMG Recordings, Inc. v., Inc. is a recent copyright case that demonstrates the massive damages (reportedly over $150 million) and potential director liability that can result when corporations misuse copyright on the Internet. This note concludes that through a proposed Internet Regulations Compliance Committee at the board level, directors can meet their duty to monitor copyright and other intellectual property regulations in the brave new world of Cyberspace.