The Struggle Over Intellectual Property

It’s a high-stakes tussle between technology and the law,
highlighted by tens of millions of file traders thumbing their noses
at legal restrictions. True, Napster’s court imbroglio may have cost
it a third of its users in the last two months, but other
file-trading services that don’t rely on centralized servers have
found their business booming. Eight movie studios have sued a hacker
magazine for distributing a DVD-descrambling program that they claim
aids piracy. A federal panel of appeals judges in May seemed
sympathetic to their arguments and a decision is expected soon, but
hundreds of copies of the descrambler utility remain available on
the Internet.

Content owners, distributors, and publishers fret that the ease of
online distribution will encourage copyright infringement and reduce
sales. They have some reason to worry: As bandwidth increases and
distribution technology improves, the online price of intellectual
property may start to approach zero. Anonymous publishing systems
promise to accelerate this trend. Devotees of free content, on the
other hand, offer more varied arguments. They say piracy is
justified because of content owners’ unconscionably high profits,
because it may lead to increased sales of the work eventually, or
because record companies have not made it possible to readily buy
music online so piracy is justified.

Everyone likes stuff for free, of course, and piracy has always
nibbled at the edges of publishers’ and distributors’ profits. But
it’s far easier and cheaper to copy an MP3 file than photocopy a Tom
Clancy novel, and digital copies—unlike their analog counterparts—do not diminish in value. Every copy has the same quality, which
means that, if taken to its logical conclusion, widespread piracy
will destroy the incentives to create valuable content.

The Government’s Role

What should the government’s role be in this
dispute? Let’s start at first principles. The primary responsibility of
governments is to safeguard the rights of the governed, including
our physical selves and our tangible property. Intellectual
property, however, is a recognizably different species. (A copyright
gives its owner an exclusive right to copy, publish, or create
“derivative works” from the original. A patent allows its holder to
prevent others from making use of the patented invention.)

First, copyright or patent infringements do not deprive the creator
of his original copy. Justice Blackmun once wrote that: “The
copyright owner, however, holds no ordinary chattel. A copyright,
like other intellectual property, comprises a series of carefully
defined and carefully delimited interests to which the law affords
correspondingly exact protections.” Thomas Jefferson put it more
eloquently. “He who receives an idea from me,” wrote Jefferson, a
writer and inventor, “receives instruction himself without lessening
mine—as he who lights his taper at mine, receives light without
darkening me.”

Second, it is true that the U.S. Constitution provides for copyright
protection. It allows Congress “to promote the progress of science
and useful arts, by securing for limited times to authors and
inventors the exclusive right to their respective writings and
discoveries.” But the United States didn’t have what we’d consider to be
modern copyright protections until a century ago. Imagine America’s
westward expansion, homesteading, and the Gold Rush without property
rights protected in law! Yet that was the case for intellectual
property until 1909. In that year, Congress expanded the penalties
for unlawful commercial use of copyrighted works to include any type
of infringement. Previously criminal copyright law only included
unlawful performances, say of a dramatic work.

Third, the ways in which others can make legal use of your tangible
property—such as your home or your body—without your
permission are few. Copyright law, however, features a rabbit’s
warren of complicated rules, exceptions, and procedures. Because of
the First Amendment’s equal footing in the Constitution, we have the
“fair use” exception to copyright. It generally allows others to
expropriate portions of your work, within limits, even if you
object. Another example is the federal law requiring compulsory
licensing of music, something that Napster’s lobbyists are hoping to
extend to MP3 files on the Internet.

Fourth, intellectual property rights often conflict with not only
the idea of unfettered speech, but also with the use of tangible
property. Copyright laws tell us we must not use our computers or
printing presses in a certain way, lest we risk fines or prison
sentences. Patent laws restrict what we may do with the raw
materials we buy and seek to transform into products in our
factories or machine shops.

Fifth, traditional, tangible property is economically scarce. If you
buy a plot of land and build a house, nobody else can use that
space. Your use of it precludes others from doing the same. So
scarce resources can be used without eternal conflict over
ownership, John Locke proposed a reasonable rule of thumb: He who
mixes his labor with raw materials becomes the owner. But because
intellectual property is not economically scarce, the same rules
don’t apply. My enjoyment of a pirated MP3 file doesn’t deprive
anyone else of their copy. Just ask the Recording Industry
Association of America (RIAA), which is trying its level best
through litigation and legislation to remove pirated music from the
web—the modern-day analogue to Jefferson’s candle.

Testing the Digital Millennium Copyright Act

Claiming the threat of piracy demands immediate action, the RIAA and
its allies have persuaded Congress to enact increasingly restrictive
copyright laws. In December 1997, President Clinton signed the No
Electronic Theft Act, which makes it a crime to share copyrighted
content valued at over $1,000 with your family or friends—even if
there’s no money changing hands. A year later, Congress
overwhelmingly approved the Digital Millennium Copright Act (DMCA),
which outlaws most attempts to remove copy protection from books,
music, video, or other works.

In July, Dmitry Sklyarov, a Russian programmer and graduate student
visiting the United States, became the first person prosecuted under the
DMCA. The 27-year old programmer’s legal troubles began weeks
earlier, when his employer, a Russian software company called
Elcomsoft, began selling a program called the “Advanced eBook
Processor.” It allowed Elcomsoft’s customers to strip away the copy
protection from a proprietary software format that Adobe Systems
invented to encode electronic books.

To peeved Adobe executives, the decoder was a tool of software
pirates. They fired off a stiff letter to the Russian firm claiming
“unauthorized activity relating to copyrighted materials,” and
demanding that the $100 eBook decoder be taken off the market. After
Adobe contacted the FBI, federal agents arrested arrested Sklyarov
in Las Vegas on July 16. They charged him with one count of
“trafficking” in illegal copyright-circumvention software in
violation of the DMCA. He’s being held without bail and is facing a
five-year prison term and a fine of $500,000.

Like an increasing number other companies, Adobe is relying on both
the law and technology to protect copyrighted works. Their eBook
protection technology is a first line of defense: If that’s
circumvented, they can turn to civil suits and criminal prosecutions
to limit the fallout.

But academics, librarians, and computer programmers have criticized
both the Sklyarov prosecution and the DMCA itself. They say that
Elcomsoft’s descrambler allows its users to make reasonable uses of
the decoded eBooks. For instance, it permits someone to copy an
eBook from a desktop to a laptop computer for reading on the road,
which would be fine under existing “fair use” standards but not permitted by Adobe’s technology or contract with the user.

The Role of Technology

The Sklyarov case lies at the heart of an increasingly important debate over
what set of rules should govern advances in technology and digital
content. Should it be a criminal act to create software that
de-protects digital books, music, or DVDs? Should it be a civil
offense? More broadly, what’s the best way to protect digital works—by acts of Congress or with technology?

One way out of this seeming impasse is to encourage a scheme that
would replace, or at least supplement, statutory law with
technology. That would allow buyers and sellers efficiently to agree
on terms that would award a bundle of copyright uses that are
precisely what the buyer desires. A customer would not buy rights
that he would not need, and market forces would begin to replace
political ones. This scheme may involve higher transaction costs in
negotiating each exchange, but it seems likely that a set of
standard contract terms would emerge.

By now, it’s clear that copyright holders have concluded the law
alone isn’t sufficient to protect their work. Teenage pirates flout
legal restrictions, secure in the knowledge that there are too many
of them to prosecute and they have few assets at risk in a civil
suit. Overseas pirates are even less likely to be concerned about
copyright laws, which are generally not as strict as the ones in the
United States. Just as tangible property holders rely on not merely the law
but also technology in the form of fences, locks, and safes to
protect their property, copyright holders have started to do the
same.

Unhappy with the limited number of criminal prosecutions and
recognizing the futility of suing 50 million Napster users,
companies like Adobe, Microsoft, and Verance are turning to
technology instead of the law. They’re testing copy-protection
systems and watermarking methods that will become increasingly
widely used as technological protection schemes for copyrighted
works. It’s too early to say whether they will be successful, which
technologies will become standards, what kinds of licenses will
emerge as defaults, and what consumers will prefer. Perhaps the
market will reject digital rights management entirely as too
cumbersome or complex. This happened, after all, with the failed
DiVX pay-per-use DVD format. But content owners have strong
incentives to find a solution that will please customers.

Such systems work in varied ways. The group of companies that
invented the DVD format use a relatively weak encryption scheme
called CSS to deter pirates from copying movies. Adobe’s system
restricts the number of computers on which an electronic book can be
viewed. Microsoft is moving toward a piracy-limiting operating
system that checks a computer’s configuration and refuses to run if
too many components have been changed.

Critics of such approaches say, with some justification, that it may
become more difficult to make traditional “fair use” of copyrighted works if they’re locked behind digital gates. They have a point, but they tend to de-emphasize the costs associated with fair use. Currently those who wish to protect their ability to make fair use
of a work or reduce fair use of a work have the option of lobbying
Congress, focusing especially on the judiciary committees that
oversee copyright law. But the political system is a poor and
inefficient means of expressing economic preferences, and a large
body of work shows that legislators typically seek to advance their
personal interests, not the interests of the general public.

Tom Bell of Chapman University argues that technological systems
would create additional incentives for content owners to license
their works. Because content would increase in value and could be
licensed more efficiently, owners of photograph or magazine articles
would be far more likely to place their work online and in
searchable databases. By eliminating intermediaries by means of
Internet delivery, a contractual system could reduce transaction
costs.

But just because technological locks may be a good idea, it does not
mean that it makes sense to outlaw the creation or distribution of
devices or computer programs that can circumvent such schemes. Such
codebreaking is a necessary part of legitimate encryption research,
and its publication should be protected by the First Amendment. Just
as guns should not be outlawed because they can be used for harm,
software should not be banned because it could aid piracy. Wrong
acts should be punished, not the creation of a tool that can be used
for both good and evil. Besides, the impact of criminal enforcement
is limited and may offer businesses a false sense of security: For
every Russian hacker arrested by the FBI in Las Vegas, as Dmitry
Sklyarov was in July, there are hundreds more who will stay home.

These emerging technologies offer the benefit of reducing piracy, or
at least casual piracy, and thus reducing the cost of the product to
the consumer. If creating content becomes more attractive because of
reduced losses due to copyright infringements, both consumers and
producers will be better off. By taking the natural tensions between
creators, users, and pirates out of the political realm, it replaces
law with technology and lobbying with coding. Let the best
programmers win.