[ Home | What We Do | Our Clients | Press & Events | Library | Contact Us ]
By Bill Zoellick
28 January 2001
If you are not in the publishing business it would be easy to think that the Napster case has nothing to do with you. You could easily conclude that paying attention to what Limp Bizkit, Metallica, and Chuck D. of the rap group Public Enemy have to say about intellectual property is of less lasting value to you than, say, the pronouncements from Alan Greenspan on the current state of the economy. You'd be wrong, at least for most businesses.
There is another case, less well publicized than Napster, but also important to our understanding of how we own and profit from intellectual property (IP). This case is perhaps even more strange and flamboyant than the Napster lawsuit, even with its retinue of rock stars. It involves a suit by the major motion picture studios against Eric Corley, editor of 2600: The Hacker Quarterly. Corley also goes by the name Emmanuel Goldstein, after the leader of the underground in George Orwell's 1984. His magazine is named after 2600 hertz tone that hackers used in the 1960s to gain access to operator mode in what was then the Bell Telephone network's long distance system. If you were looking for a lawsuit that represented "Hackers vs. The Establishment," this would be a strong candidate. All the same, the lawsuit offers insights about the future of publishing, content management, and the value of IP for business.
The core issue being dealt with in these cases is that counting, controlling, and selling copies is a silly way to protect ownership of digital content and to profit from it. Further, they suggest that the big value, going forward, may be in controlling the processes surrounding use of the content rather than worrying about the content per se. Showing you why that is so requires digging into the cases a bit.
The Napster lawsuit, brought by major music recording companies against the free music sharing service, is about many things, including the way that new recordings are promoted, the record industry's iron grip on retail distribution, the industry's slowness in moving to digital distribution, and established licensing practices. But the most obvious focus of the case is on something called "contributory infringement," which is to say that the recording companies are accusing Napster not of infringing on copyrights directly, but of enabling others to do so.
Contributory infringement is a complicated idea. Manufacturers of photocopy equipment are, arguably, contributing to infringement. But what saves them from lawsuits is the fact that photocopy machines have many other legitimate uses besides making copies of copyrighted works. If there are significant legitimate uses of some technology, then a company wanting to protect its copyright must go after infringers directly, rather than suing the company that makes the technology that the infringer is using.
One of the more famous contributory infringement suits involved the Sony Betamax, the first VCR. It has direct relevance to the Napster lawsuit because, in the 1970s, when the Betamax first came to market, about the only thing you could do with a Betamax was record movies and other programming from network TV, infringing on copyright. Motion Picture Association of America president Jack Valenti, speaking before the House Judiciary committee regarding the VCR, said that "the growing and dangerous intrusion of this new technology" threatened his entire industry's "economic vitality and future security." Driving his point home with a most striking analogy, he told Congress that the new technology "is to the American film producer and the American public as the Boston Strangler is to the woman alone."
Valenti was wrong about the VCR. Rather than being primarily a tool for stealing content, it opened up enormous new markets for movie distribution. But none of that was apparent when the VCR first came to market. The reason is that new markets and new ways of doing things take time to develop. VCRs, initially costing thousands of dollars, had to come down in price before there could be a mass market for new kinds of movie distribution. For that to happen there needed to be more demand for VCRs. That, in turn, required the growth of more interesting, easier uses for VCRs other than timeshifting (recording programs to be watched later) and making copies of movies. But distribution of new content on VCRs required a larger market, too ... which, cycled back to the original problem of the price of VCRs and the number of people using them. New markets proceed slowly, in this kind of chicken and egg fashion, revealing their direction and full potential only after many years.
What all of this means is that courts have good reason to proceed cautiously in responding to lawsuits that would truncate or redirect the slow, often fragile growth of new markets. Preemptive action by courts could lock us to current technology and markets. For that reason, the standard established by the Supreme Court in the Betamax case, where the Court ruled in favor of Sony and the VCR and against the studios, considers future, merely potential uses of new articles of commerce as well as their actual uses in early markets.
Applying the Betamax ruling to the Napster case is not straightforward. If it were, there wouldn't be much to argue about. But, for the purpose of learning from Napster, the questions raised by the Betamax precedent lead in the right direction. What would a successful, profitable business built around Napster's peer-to-peer music file sharing look like? What impact would this have on existing distribution channels? How would it provide incentives to artists? What controls could be placed on music use to ensure that the company received compensation for delivering content?
It is significant that even companies in the record business, and suing Napster, understand that these kinds of questions are not just theoretical. Most notably, Bertelsmann, the enormous German publishing conglomerate and one of the plaintiffs in the suit, has reached an agreement with Napster in which it has loaned Napster a sum estimated to be greater than fifty million dollars so that Napster can develop the technologies and business models required to recognize content ownership rights while still enabling digital music distribution. Bertelsmann will withdraw from the lawsuit and can turn its loan into an equity position in Napster if Napster is successful.
Imagine that we convened a panel of visionaries whose thinking is not tainted by familiarity with the past few hundred years of copyright law and practice -- perhaps a panel of reasonable, fair minded Martians. Suppose we asked them to make recommendations about how -- quoting from the U.S. Constitution -- "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" in a world where all work is in digital form.
As you know, one of the important things about digital information, unlike information on paper, microfilm, or some other physical format, is that it is cheap and easy to make a perfect copy. For example, if you want a copy of this article as it is being delivered to you on the Web, a couple clicks of the mouse will get you one. Your copy is indistinguishable from my original. You can make millions of them if you want. Times have changed from when making a copy meant making a photocopy, with its obvious degradation and difficulty, particularly for longer works. And the changes are even greater if you look back, say, only fifty years, when the only efficient way to make copies was to print more of them.
Broadly distributed and easily accessible digital networks also have an impact on the cost and value of making copies. Suppose that you know that I -- or perhaps someone else -- can guarantee that this article is always available on the Web. In that case, the value of making copies at all would go down. Simply saving the URL would be just as good as saving a copy. If you wanted to share a copy with colleagues, you would probably just point them at the URL rather than bothering with making and transmitting new copies.
So, making digital copies involves only microscopic costs and, if a copy is known to be available, provides little in the way of benefit. Given these facts, it seems extremely unlikely that our panel of Martian experts would consider counting and controlling of copies as a credible solution, much less the best approach, to our goal of promoting the progress of science and useful arts by providing authors with limited exclusive rights.
Yet, that is what copyright law attempts to do.
[ Home | What We Do | Our Clients | Press & Events | Library | Contact Us ]
