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November 29, 2004

Hollywood, Values & P2P Lawsuits

By and

The debate over "moral values," first raised in the aftermath of Election Day, continues. Now it's the appropriateness of risqué ads for "Monday Night Football" and the popularity of TV's racy "Desperate Housewives" that's causing the latest heartburn.

Yet the values issue also was raised recently in a much different context: the fight against the theft of intellectual property. Ironically, it is Hollywood -- an industry rarely seen as a hotbed of traditional morality -- that is leading the fight, filing lawsuits against individuals found illegally trading movies over the Internet. While the move is unlikely to win the movie studios any friends, it is a justified, and perhaps necessary, step.

At issue is the unauthorized downloading of copyrighted material without payment to the owners. Typically, such downloading is done through "peer-to-peer," or P2P, networks, such as "eDonkey." These networks let users share files on their individual PCs with other network users. In this way, music, movies and virtually any other digital product can be distributed quickly to millions of other P2P users at no cost. According to one estimate, as of June 2004, some eight million users were on P2P networks at any given time, sharing 10 million gigabytes of data.

The result is a massive theft of intellectual property, as users obtain works without authorization from, or payment to, their creators. So far, the main target of P2P downloading has been music, for the simple reason that digitized songs are smaller than digitized movies and can be downloaded more easily. But the rapid proliferation of high-speed Internet access, combined with new technology to shrink the size of movie files, has put the film industry at risk as well. Video files accounted for more than 30 percent of all P2P files transmitted in March 2004, up from 16 percent at the same time in 2003. As many as 150,000 movies may be being traded on the Internet each day.

Starting last year, the music industry -- through the Recording Industry Association of America, its trade association -- has been filing suits against individuals using P2P networks to share music files. The movie industry, on the other hand, opted to focus on public-awareness efforts and launched a broad campaign to educate consumers that downloading copyrighted material without paying for it is wrong.

This did not solve the problem, however, forcing the MPAA to go to court. Its first civil lawsuits against individual offenders were filed on Nov. 16. If found liable, offenders face fines of as much as $30,000 for each movie copied or distributed over the Internet, or as much as $150,000 if the infringement is found to be "willful."

Filing lawsuits is a controversial strategy for Hollywood, and the demagoguery has already begun, with one MPAA opponent saying "suing 13-year-olds and taking their college money isn't the best approach." Yet few question the legal liability of downloaders under copyright law. And the stakes are high for the industry and consumers: the billions in revenue lost through Internet downloading could mean higher prices for law-abiding movie fans and could discourage production of financially risky pictures.

Moreover, direct legal action against infringers is far preferable to many of the other approaches to the P2P download problem that have been discussed in Washington. Many, for instance, have urged federal regulation of PCs, DVDs and other devices that could be used to copy movies and music, in order to make infringement more difficult. Other proposals would extend legal liability to manufacturers of these devices.

Policymakers, however, should be extremely wary of such a regulatory approach. Any regulation of the fast-changing world of the Internet and consumers electronics would likely hinder valuable innovation, as well as increase costs to consumers.

Of course, lawsuits by themselves are unlikely to solve the P2P download problem. Continued education also needs to be pursued so that potential file-swappers understand why the unauthorized downloading of copyrighted material, like other forms of theft, is wrong. Another part of the solution is likely to be development of new technologies that allow copyright holders to make copying protected works more difficult.

Stemming the tide of illegal downloading won't be easy. But going after the worst offenders now, before movie downloads surpass music downloads, could prove to be a wise choice. Protecting property rights without imposing undue limits on private markets will involve many difficult choices. Suing individuals engaged in theft of intellectual property through file swapping, however, isn't one of them.

James Gattuso is Research Fellow in Regulatory Policy in the Thomas A. Roe Institute for Economic Policy Studies, and Norbert Michel is Policy Analyst in the Center for Data Analysis, at The Heritage Foundation.

First appeared on Knight-Ridder Tribune.

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