The Internet ThreatThe conventional wisdom is that governments respond slowly to technological change. In the case of the Internet, nothing could be further from the truth. In 1994 and 1995, "dot-com" was still a mystical term for many. Most stories about the Internet dealt with sexual predation rather than possibilities of extreme wealth. Internet commerce itself was barely an idea, and some of the most exciting sites on the Web had pictures of coffeepots in university departments far away. ("See," one would proudly say to a technological neophyte friend when introducing him to the wonders of the Net, "the pot is empty and we can see that live from here! This changes everything!") It was an innocent time. Yet the U.S. government was already turning the wheels of intellectual property policy to respond to the threat (and promise) of the Internet. More precisely, they were trying to shape the future of the cumbersomely named "National Information Infrastructure," the official name for the "information superhighway" that it was presumed would replace the "immature" technology of the Net. The government was wrong about that, and about a lot else. The blueprint for new intellectual property policy online came from the Patent and Trademark Office. That office promulgated first a Green Paper and then, after further hearings, a White Paper, on "Intellectual Property and the National Information Infrastructure."1 As policy and legal documents these are in one sense long out of date. Some of their legal arguments were successfully challenged. Some of their most important proposals were rejected, while many others have become law. But as a starting point from which to trace the frame of mind that has come to dominate intellectual property policy online, they are hard to equal. These documents contained proposals that nowadays would be seen as fairly controversial. Internet service providers were said to be "strictly liable" for copyright violations committed by their subscribers; that is to say, they were legally responsible whether or not they knew about the violation or were at fault in any way. Loading a document into your browser's transient cache memory while reading it was said to be making a "copy." There was more: the beginnings of what later became the Digital Millennium Copyright Act,2 making it illegal to cut through the digital fences which content providers put around their products. The attitude toward fair use was particularly revealing. At one point in the White Paper it was hinted that fair use might be a relic of the inconveniences of the analog age, to be discarded now that we could have automated fractional payments for even the most insignificant use.3 (It was noted, however, that some disagreed with this conclusion.) At another point, fair use was described as a "tax" on rights holders and a "subsidy" to those who benefited from it, such as educational institutions.4 The White Paper also suggested that while any potential loss to rights holders caused by the new technology needed to be countered with new rights and new protections, any potential gain to them through the new technology was simply theirs. Potential gain did not offset the need to compensate for potential loss. So what views of intellectual property were we carrying forward into the Internet age? Intellectual property is just like other property. Rights are presumptively absolute. Any limitations on them, such as fair use, are taxes on property owners, subsidies to the society at large. It sounds like a perfect time to administer the Jefferson Warning I sketched out in Chapter 2. After all, Jefferson was specifically warning against each of these errors two hundred years ago. To find them in a student paper would be disappointing--irritating, even. But this document was the blueprint for the intellectual property regime of cyberspace. But do these mistakes matter? How important is it that we get the rules of intellectual property right? To me, a number of my colleagues, some librarians, a few software gurus, the White Paper was more than just a bit of bad policy in a technical field--like a poorly drafted statute about the witnessing of wills, say. When you set up the property rules in some new space, you determine much about the history that follows. Property rules have a huge effect on power relationships and bargaining positions. Think of rules setting out water rights or the right to drive cattle over homesteaders' land in the American West. But they also are part of a larger way of seeing the world; think of the early-twentieth-century rules treating unions as "conspiracies in restraint of trade" or the Supreme Court decisions that dispossessed the American Indians on the theory that they did not comprehend the concept of property and thus did not "own" the land being taken from them.5 We were at a comparable point in the history of cyberspace. What was being set up here was a vision of economy and culture, a frame of mind about how the world of cultural exchange operates, and eventually a blueprint for our systems of communication. At this stage, the range of possibilities is extremely wide. A lot of different choices could be made, but subsequent changes would be harder and harder as people and companies built their activities around the rules that had been laid down. This was, in short, a tipping point where it was particularly important that we make the right decisions. Conventional political science told us there were a lot of reasons to fear that we would not make the right decisions. The political process was going to be particularly vulnerable to problems of capture by established industries, many of whom would (rightly) see the Internet as a potential threat to their role as intermediaries between artists and creators on the one hand and the public on the other. Intellectual property legislation had always been a cozy world in which the content, publishing, and distribution industries were literally asked to draft the rules by which they would live. The law was treated as a kind of contract between the affected industries. Rationally enough, those industries would wish to use the law not merely to protect their legitimate existing property rights, but to make challenges to their basic business plans illegal. (Imagine what would have happened if we had given the lamp-oil sellers the right to define the rules under which the newfangled electric light companies would operate.) There would be no easy counterweight to these pressures, as Jessica Litman points out in a wonderful set of reflections on copyright lawmaking, because the potential competitors to existing titans were just being born and could thus be strangled safely in their cradles.6 Certainly the public would have little grasp as yet of what was at stake. In any event, when had the public played a role in intellectual property legislation? That kind of law affected businesses with printing presses or TV towers, not normal citizens. It did not help that the legislators were largely both ignorant and distrustful of the technology of the Internet--which was, at the time, thought to be dominated by foreign hackers, suicidal cults, pirates, and sleazy pornographers. (Terrorists and Nigerian spammers would be added to the mix later.) Given an area of law that legislators were happy to hand over to the affected industries and a technology that was both unfamiliar and threatening, the prospects for legislative insight were poor. Lawmakers were assured by lobbyists a) that this was business as usual, that no dramatic changes were being made by the Green or White papers; or b) that the technology presented a terrible menace to the American cultural industries, but that prompt and statesmanlike action would save the day; or c) that layers of new property rights, new private enforcers of those rights, and technological control and surveillance measures were all needed in order to benefit consumers, who would now be able to "purchase culture by the sip rather than by the glass" in a pervasively monitored digital environment. In practice, somewhat confusingly, these three arguments would often be combined. Legislators' statements seemed to suggest that this was a routine Armageddon in which firm, decisive statesmanship was needed to preserve the digital status quo in a profoundly transformative and proconsumer way. Reading the congressional debates was likely to give one conceptual whiplash. To make things worse, the press was--in 1995, at least--clueless about these issues. It was not that the newspapers were ignoring the Internet. They were paying attention--obsessive attention in some cases. But as far as the mainstream press was concerned, the story line on the Internet was sex: pornography, online predation, more pornography. The lowbrow press stopped there. To be fair, the highbrow press was also interested in Internet legal issues (the regulation of pornography, the regulation of online predation) and constitutional questions (the First Amendment protection of Internet pornography). Reporters were also asking questions about the social effect of the network (including, among other things, the threats posed by pornography and online predators). There were certainly important issues within the areas the press was willing to focus on, and I do not mean to trivialize them. I worked with a couple of civil liberties groups in opposing the hapless Communications Decency Act, one of the most poorly drafted pieces of speech regulation ever to come out of Congress.7 It was a palpably unconstitutional statute, eventually struck down by a unanimous Supreme Court.8 Its proposals would have burdened the speech of adults while failing to protect the interests of minors. Reporters loved the topic of the Communications Decency Act. It was about sex, technology, and the First Amendment. It foreshadowed the future of online speech regulation. One could write about it while feeling simultaneously prurient, principled, and prescient: the journalistic trifecta. For law professors who worked on digital issues, the Communications Decency Act was an easy topic to get the public to focus on; we had the reporters and editors calling us, pleading for a quote or an opinion piece. Intellectual property was something quite different. It was occasionally covered in the business pages with the same enthusiasm devoted to changes in derivatives rules. Presented with the proposals in the Green and White Papers, the reporters went looking for opinions from the Software Publishers Association, the Recording Industry Association of America, or the Motion Picture Association of America. This was not bias or laziness--to whom else would they go? Who was on the "other side" of these issues? Remember, all of this occurred before Napster was a gleam in Sean Fanning's eye. Sean Fanning was in middle school. Amazon.com was a new company and "Google" was not yet a verb. In this environment, convincing the legislature or the press that fundamental public choices were implicated in the design of intellectual property rights for the digital world was about as easy as convincing them that fundamental public choices were implicated in the rules of tiddlywinks. My own experience is probably representative. I remember trying to pitch an article on the subject to a charming but uncomprehending opinion page editor at the Washington Post. I tried to explain that decisions about property rules would shape the way we thought about the technology. Would the relatively anonymous and decentralized characteristics of the Internet that made it such a powerful tool for global speech and debate come to be seen as a bug rather than a feature, something to be "fixed" to make the Net safe for protected content? The rules would also shape the economic interests that drove future policy. Would we try to build the system around the model of proprietary content dispensed in tightly controlled chunks? Would fair use be made technologically obsolescent? Would we undercut the various nontraditional methods of innovation, such as free software, before they ever managed to establish themselves? What would become of libraries in the digital world, of the ideal that access to books had important differences from access to Twinkies? After I concluded this lengthy and slightly incoherent cri de Coeur, there was a long pause; then the editor said politely, "Are you sure you couldn't make some of these points about a free speech issue, like the Communications Decency Act, maybe?" I finally placed the piece in the Washington Times,9 which was best known at the time as the only metropolitan newspaper owned by the Unification Church, familiarly referred to as the Moonies. This hardly counted as a direct line to the popular imagination (though the article's mild criticisms elicited an extraordinary reaction from the Clinton administration's lead official on intellectual property policy--throwing me for several weeks into a surreal world of secondhand threats, third-party leaks, and a hilarious back-and-forth in the letters page).10 Things were not completely one-sided. An unlikely group of critics had formed: librarians, a few software developers, law professors, some Internet libertarians. Of particular note was the Digital Future Coalition, which grew to represent a broad range of interested groups and industries thanks in part to the prescient analysis and remarkable energy of one of my colleagues, Peter Jaszi.11 Together with Pamela Samuelson, Jessica Litman, and a number of other distinguished legal scholars, Peter turned his considerable intellectual talents to explaining why writers, telecom companies, scientists, manufacturers of consumer electronics, and a host of other groups should be interested in the rules being debated. There had been a series of official hearings in which complaints were carefully collected and just as carefully ignored. This became harder to do as the critics became more numerous and better organized. Nevertheless, the currents were clearly running against them. It would be nice to say that this was merely because of the clubby history of intellectual property legislation, or the difficulty in getting press attention, or the various issues of industry capture and collective action problems. Yet this would be to miss a vital element of the situation. Conventional political science showed that there were structural reasons why the legislative process was likely to succumb to industry capture.12 The reality turned out to be much worse. The real problem was not a political process dominated by cynical power politics, nor an initial absence of critical newspaper coverage, though both of those factors contributed. The real problem was that most of the proponents of the White Paper's policies believed their own arguments so deeply and sincerely that they saw any criticism of those positions as either godless communism or hippy digital anarchism. (Frequently, in fact, they clung to their arguments even when there was fairly strong evidence that they would actually be harming themselves by putting these policies into effect. I will expand on this point later.) More importantly, they succeeded in getting their story about the threats and promises of the digital future accepted as the basis for all discussion of intellectual property policy. It became the organizing set of principles, the master narrative--call it what you will. The heart of the story is beguilingly simple. The Internet makes copying cheaper and does so on an unparalleled global scale. Therefore we must meet the greater danger of illicit copying with more expansive rights, harsher penalties, and expanded protections. True, as I pointed out before, some of these expansions may indeed have the practical effect of reducing rights that citizens thought they had, such as fair use, low- level noncommercial sharing among personal friends, resale, and so on. But without an increase in private property rights, cheaper copying will eat the heart out of our creative and cultural industries. I call this story the Internet Threat. It is a powerful argument and it deserves some explanation. Think back for a moment to the first chapter and the difference between Madame Bovary and the petunia. If the reason for intellectual property rights is the "nonrival" and "nonexcludable" nature of the goods they protect, then surely the lowering of copying and transmission costs implies a corresponding need to increase the strength of intellectual property rights. Imagine a line. At one end sits a monk painstakingly transcribing Aristotle's Poetics. In the middle lies the Gutenberg printing press. Three-quarters of the way along the line is a photocopying machine. At the far end lies the Internet and the online version of the human genome. At each stage, copying costs are lowered and goods become both less rival and less excludable. My MP3 files are available to anyone in the world running Napster. Songs can be found and copied with ease. The symbolic end of rivalry comes when I am playing the song in Chapel Hill, North Carolina, at the very moment that you are both downloading and listening to it in Kazakhstan--now that is nonrival. THE LOGIC OF PERFECT CONTROL My point is that there is a teleology--a theory about how intellectual property law must develop historically--hidden inside the argument I call the Internet Threat. The argument, which is touted endlessly by the content industries--and not without reason--can be reduced to this: The strength of intellectual property rights must vary inversely with the cost of copying. With high copying costs, one needs weak intellectual property rights if any at all. To deal with the monk-copyist, we need no copyright because physical control of the manuscript is enough. What does it matter if I say I will copy your manuscript, if I must do it by hand? How will this present a threat to you? There is no need to create a legal right to exclude others from copying, no need for a "copy right." As copying costs fall, however, the need to exclude increases. To deal with the Gutenberg press, we need the Statute of Anne--the first copyright statute--and the long evolution of copyright it ushered in. But then comes the Internet. To deal with the Internet, we need the Digital Millennium Copyright Act,13 the No Electronic Theft Act,14 the Sonny Bono Copyright Term Extension Act,15 and perhaps even the Collections of Information Antipiracy Act.16 As copying costs approach zero, intellectual property rights must approach perfect control. We must strengthen the rights, lengthen the term of the rights, increase the penalties, and make noncommercial illicit copying a crime. We must move outside the traditional realm of copyright altogether to regulate the technology around the copyrighted material. Companies are surrounding their digital materials with digital fences. We must make it a violation of the law to cut those digital fences, even if you do so to make a "fair use" of the material on the other side. We must prohibit the making of things that can be used as fence-cutters--a prospect that worries researchers on encryption. In the long run, we must get rid of the troublesome anonymity of the Internet, requiring each computer to have an individual ID. We must make click-wrap contracts enforceable, even on third parties, even when you cannot read them before clicking--so that you never actually buy the software, music, movies, and e-books you download, merely "license" them for a narrowly defined range of uses. We must create interlocking software and hardware systems that monitor and control the material played on those systems--so that songs can be licensed to particular computers at particular times. Uses that the owners wish to forbid will actually be impossible, whether they are legal or not. In other words, we must make this technology of the Internet, which was hailed as the great "technology of freedom," into a technology of control and surveillance. The possibility of individuals circulating costless perfect digital copies requires it. It would be facile (if tempting) to say we must remake the Internet to make it safe for Britney Spears. The "Internet Threat" argument is that we must remake the Net if we want digital creativity--whether in music or software or movies or e- texts. And since the strength of the property rights varies inversely with the cost of copying, costless copying means that the remade Net must approach perfect control, both in its legal regime and its technical architecture. Like any attractive but misleading argument, the Internet Threat has a lot of truth. Ask the software company producing expensive, specialized computer-assisted design programs costing thousands of dollars what happens when the program is made available on a "warez" site or a peer-to-peer filesharing network. The upstart computer game company pinning its hopes and its capital on a single new game would tell you the same thing. The easy availability of perfect, costless copies is a danger to all kinds of valuable cultural and economic production. The story of the Internet Threat is not wrong, it is simply dramatically incomplete in lots of ways. Here are two of them. Costless Copying Brings Both Costs and Benefits The Internet does lower the cost of copying and thus the cost of illicit copying. Of course, it also lowers the costs of production, distribution, and advertising, and dramatically increases the size of the potential market. Is the net result a loss to rights holders such that we need to increase protection and control in order to maintain a constant level of incentives? A large, leaky market may actually provide more revenue than a small one over which one's control is much stronger. What's more, the same technologies that allow for cheap copying also allow for swift and encyclopedic search engines--the best devices ever invented for detecting illicit copying. What the Net takes away with one hand, it often gives back with the other. Cheaper copying does not merely mean loss, it also means opportunity. Before strengthening intellectual property rights, we would need to know whether the loss was greater than the gain and whether revised business models and new distribution mechanisms could avoid the losses while capturing more of the gains. But wait, surely theft is theft? If the new technologies enable more theft of intellectual property, must we not strengthen the laws in order to deal with the problem? If some new technology led to a rash of car thefts, we might increase police resources and prison sentences, perhaps pass new legislation creating new crimes related to car theft. We would do all of this even if the technology in question gave car owners significant benefits elsewhere. Theft is theft, is it not? The answer in a word is no. Saying "theft is theft" is exactly the error that the Jefferson Warning is supposed to guard against. We should not assume that intellectual property and material property are the same in all regards. The goal of creating the limited monopoly called an intellectual property right is to provide the minimum necessary incentive to encourage the desired level of innovation. Anything extra is deadweight loss. When someone takes your car, they have the car and you do not. When, because of some new technology, someone is able to get access to the MP3 file of your new song, they have the file and so do you. You did not lose the song. What you may have lost is the opportunity to sell the song to that person or to the people with whom they "share" the file. We should not be indifferent to this kind of loss; it is a serious concern. But the fact that a new technology brings economic benefits as well as economic harm to the creation, distribution, and sale of intellectual property products means that we should pause before increasing the level of rights, changing the architecture of our communications networks, creating new crimes, and so on. Remember, many of the things that the content industries were concerned about on the Internet were already illegal, already subject to suit and prosecution. The question is not whether the Internet should be an intellectual property-free zone; it should not be, is not, and never was. The question is whether, when the content industries come asking for additional or new rights, for new penalties, for the criminalization of certain types of technology, we should take into account the gains that the Internet has brought them, as well as the costs, before we accede to their requests. The answer, of course, is that we should. Sadly, we did not. This does not mean that all of the content industries' attempts to strengthen the law are wrong and unnecessary. It means that we do not know whether they are or not. There is a fairly solid tradition in intellectual property policy of what I call "20/20 downside" vision. All of the threats posed by any new technology--the player piano, the jukebox, the photocopier, the VCR, the Internet--are seen with extraordinary clarity. The opportunities, however, particularly those which involve changing a business model or restructuring a market, are dismissed as phantoms. The downside dominates the field, the upside is invisible. The story of video recorders is the best-known example. When video recorders--another technology promising cheaper copying--first appeared, the reaction of movie studios was one of horror. Their business plans relied upon showing movies in theaters and then licensing them to television stations. VCRs and Betamaxes fit nowhere in this plan; they were seen merely as copyright violation devices. Hollywood tried to have them taxed to pay for the losses that would be caused. Their assumption? Cheaper copying demands stronger rights. Having lost that battle, the movie studios tried to have the manufacturers of the recording devices found liable for contributory copyright infringement; liable, in other words, for assisting the copyright violations that could be carried out by the owners of Sony Betamaxes. This, of course, was exactly the same legal claim that would be made in the Napster case. In the Sony case, however, the movie companies lost. The Supreme Court said that recording of TV programs to "time-shift" them to a more convenient hour was a fair use.17 The movie studios' claims were rejected. Freed from the threat of liability, the price of video recorders continued to fall. They flooded consumers' houses at a speed unparalleled until the arrival of the World Wide Web. All these boxes sitting by TVs now cried out for content, content that was provided by an emerging video rental market. Until the triumph of DVDs, the videocassette rental market made up more than 50 percent of the movie industry's revenues.18 Were losses caused by video recorders? To be sure. Some people who might have gone to see a movie in a theater because the TV schedule was inconvenient could instead record the show and watch it later. Videos could even be shared with friends and families--tattered copies of Disney movies recorded from some cable show could be passed on to siblings whose kids have reached the appropriate age. VCRs were also used for copying that was clearly illicit--large-scale duplication and sale of movies by someone other than the rights holder. A cheaper copying technology definitely caused losses. But it also provided substantial gains, gains that far outweighed the losses. Ironically, had the movie companies "won" in the Sony case, they might now be worse off. The Sony story provides us with some useful lessons--first, this 20/20 downside vision is a poor guide to copyright policy. Under its sway, some companies will invariably equate greater control with profit and cheaper copying with loss. They will conclude, sometimes rightly, that their very existence is threatened, and, sometimes wrongly, that the threat is to innovation and culture itself rather than to their particular way of delivering it. They will turn to the legislature and the courts for guarantees that they can go on doing business in the old familiar ways. Normally, the marketplace is supposed to provide correctives to this kind of myopia. Upstart companies, not bound by the habits of the last generation, are supposed to move nimbly to harvest the benefits from the new technology and to outcompete the lumbering dinosaurs. In certain situations, though, competition will not work: * if the dinosaurs are a cartel strong enough to squelch competition; * if they have enlisted the state to make the threatening technology illegal, describing it as a predatory encroachment on the "rights" of the old guard rather than aggressive competition; * if ingrained prejudices are simply so strong that the potential business benefits take years to become apparent; or * if the market has "locked in" on a dominant standard--a technology or an operating system, say--to which new market entrants do not have legal access. In those situations, markets cannot be counted on to self- correct. Unfortunately, and this is a key point, intellectual property policy frequently deals with controversies in which all of these conditions hold true. Let me repeat this point, because it is one of the most important ones in this book. To a political scientist or market analyst, the conditions I have just described sound like a rarely seen perfect storm of legislative and market dysfunction. To an intellectual property scholar, they sound like business as usual. In the case of the VCR wars, none of these factors obtained. The state refused to step in to aid the movie companies by criminalizing the new technology. There were equally powerful companies on the other side of the issue (the consumer electronics companies selling VCRs) who saw this new market as a natural extension of a familiar existing market--audio recorders. There was no dominant proprietary technological standard controlled by the threatened industry that could be used to shut down any threats to their business model. The market was allowed to develop and evolve without premature legal intervention or proprietary technological lockout. Thus we know in this case that the movie companies were wrong, that their claims of impending doom from cheap copies were completely mistaken. The public and, ironically, the industry itself benefited as a result. But the Sony case is the exception rather than the rule. That is why it is so important. If competition and change can be forbidden, we will get relatively few cases that disprove the logic that cheaper copying must always mean stronger rights. The "natural experiments" will never be allowed to happen. They will be squelched by those who see only threat in the technologies that allow cheaper copies and who can persuade legislators or judges to see the world their way. The story line I describe here, the Internet Threat, will become the conventional wisdom. In the process, it will make it much less likely that we will have the evidence needed to refute it. The Holes Matter as Much as the Cheese The Sony case is important in another way. The Supreme Court's decision turned on the judgment that it was a "fair use" under U.S. copyright law for consumers to record television programs for time-shifting purposes. Since fair use comes up numerous times in this book, it is worth pausing for a moment to explain what it is. The content industries like to portray fair use as a narrow and grudging defense against an otherwise valid case for copyright infringement--as if the claim were, "Yes, I trespassed on your land, which was wrong, I admit. But I was starving and looking for food. Please give me a break." This is simply inaccurate. True, fair use is asserted as "an affirmative defense"; that is the way it is brought up in a copyright case. But in U.S. law, fair uses are stated quite clearly to be limitations on the exclusive rights of the copyright holder--uses that were never within the copyright holder's power to prohibit. The defense is not "I trespassed on your land, but I was starving." It is "I did not trespass on your land. I walked on the public road that runs through it, a road you never owned in the first place." When society hands out the right to the copyright holder, it carves out certain areas of use and refuses to hand over control of them. Again, remember the Jefferson Warning. This is not a presumptively absolute property right. It is a conditional grant of a limited and temporary monopoly. One cannot start from the presumption that the rights holder has absolute rights over all possible uses and therefore that any time a citizen makes use of the work in any way, the rights holder is entitled to get paid or to claim "piracy" if he does not get paid. Under the sway of the story line I called the Internet Threat, legislators have lost sight of this point. So what is "fair use"? When I am asked this question by nonlawyers, I offer to show them the actual provision in the copyright act. They recoil, clearly imagining they are about to be shown something the size and complexity of the tax code. Here is the statutory fair use provision in its entirety
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