April 16, 2003

April 16, 2003 | Lecture on Internet And Technology

Pirates and Posses: The Battle over Digital Copyright

JAMES L. GATTUSO:
The debate over Internet policy, telecommunications policy at one time was dominated by questions of supply: How do you develop the technology? What technologies actually work? How do you get the incentives correct to deploy that technology?

Those are still very important questions and still critical to the future of the Internet, but more and more attention has been drawn to the other side of the equation: demand. How do you get people to use broadband and Internet technology? Do people want to use it? Is there something there for them to watch? Is the content there? How is the content going to be provided?

That has drawn us inexorably towards a debate over intellectual property. How do you protect that content? How do you provide incentives to provide that content? Conversely, how do you make that available enough so that people can obtain it?

The question of content is paradoxical, in a way, in the digital age. The blessing of the digital age is that you can make an infinite number of perfect copies of any one piece of content at a very, very low cost. The curse is that you can make an infinite number of perfect copies of any content without paying for it.

That's what we're dealing with today. It's a tough question for advocates of free markets. On the one hand, property rights are absolutely key to the functioning of any market, and we all know that property rights need to be protected. Here we're dealing with intangible intellectual property rights, but in an economy increasingly driven by intangible intellectual value, it has become even more important to protect those rights.

On the other hand, we know of the dangers of over-regulation, of a strong governmental hand restraining the development and use of technology. So it's a very delicate balance that has to be drawn. Perhaps we can find a way to protect both sides of the equation.

That's what we're here to debate today. This is more than a philosophical battle. The battle over digital copyright has become a prime-time struggle between some of the most powerful sectors in our economy and our society.

In one sense, it's a battle between the entertainment community and the digital community. It's a battle between Silicon Valley and Hollywood--not just powerful economically, but some of the most powerful cultural leaders in our society. As a Californian, I see it as a battle between Northern California and Southern California, which is a traditional battle. It's the World Series of public policy debates.

The stars are beginning to come out on this issue. Britney Spears devoted her considerable weight to a Public Service Council ad. Those of you who saw today's USA Today saw an op-ed by Janis Ian on this subject.

This is nothing new. Copyright, despite its rather boring reputation, has attracted stars for years. In 1906, there was a battle over copyright featuring, in congressional testimony, John Philip Sousa for the musicians and Mark Twain for the authors, who, as you might expect, had very strong views for his particular special interest.

Although Twain was a supporter of intellectual property, he had no illusions about the political process that we're facing and how the sausage-making machine works in Washington. I thought one quote from his writings on copyright was particularly apt for us. He said, "Whenever a copyright law is to be made or altered, then the idiots assemble."

We have no idiots here today, however. We have a good panel representing diverse views, diverse backgrounds: a speaker from the executive branch, a speaker from the Hill, from the private sector, and from the think-tank community.

We'll lead today with Bruce Mehlman, who is Assistant Secretary of Commerce for Technology Policy and in that role is one of the key leaders and key policymakers for the Administration on all aspects of technology policy, with a particular emphasis on issues such as copyright and broadband. It's a broad portfolio and one that he has become a real leader on. He recently served as policy counsel for Cisco Systems and is Policy Director and General Counsel of the House Republican Conference, led by J. C. Watts.

BRUCE MEHLMAN:
September 17, 2002, was a very important day for my family. On that Tuesday, Pixar's Monsters, Inc., first became available for home sale. I had known this day was coming for months, having visited the Monsters, Inc., Web site multiple times since the first of four theater visits my family attended. And like 80,000 others, I had pre-purchased my DVD from Amazon.com months earlier. According to Pixar, Monsters, Inc., sold 11 million DVDs and video cassettes in its first seven days on the market.

Two weeks prior, I hesitate to admit, my wife and I were watching the finals of American Idol on Fox. Although we did not vote for our favorite performer over the phone or via Internet, Fox reports that over 100 million viewers did. Kelly Clarkson's single, "A Moment Like This," sold 236,000 copies in its first week, jumping farther in the charts--from number 52 to number 1 in one week--than any other single in history, with millions of visitors clicking on the American Idol Web site and fueling the hype.

What these two stories illustrate is that reports of the death of the movie and music businesses at the hands of the Internet are greatly exaggerated. They also touch upon one of the most intense and emotional policy battles out there right now, the one that brings us here today.

The fight over digital content and rights management has it all: critical industries battling over billions, lobbyists and lawmakers maneuvering for position, disruptive technologies in a dynamic market, and self-professed consumer advocates gearing up for a great crusade. Moral absolutism abounds: You are either on the side of "freedom and innovation" or the "Eighth Commandment and the rule of law." And on an almost weekly basis, experts gather to assess the status and issues relating to the questions at hand.

Is all of this sound and fury justified? I believe the attention is warranted, although the intensity is not always constructive. The issue of digital content and rights management is of great importance for several reasons.

First, the industries implicated by the issue represent significant jobs and revenue with major league implications for our economy. The movie industry employs over 590,000 people. Software and computer service employment exceeds 2 million, while the IT industry employs over 5.5 million. Motion picture GDP was $34.9 billion in 2000, software and computer service $245.7 billion, with IT revenue at $796.7 billion, according to the Commerce Department's Bureau of Economic Analysis. All three of these industries have been built on a foundation of intellectual property assets.

Second, digital content is integral to broadband adoption. The President has declared that we must be aggressive about broadband deployment, since this critical enabling technology can improve and transform our economy and society. While users are adopting broadband very rapidly and in line with reasonable expectations for a new technology, the greater availability of movies, music, and games from legitimate sources will be critical to more rapid and sustained consumer adoption. The content is already out there, but not in legitimate channels, which is a result that hurts everyone. Copyright owners are going uncompensated; mainstream companies can't jump in and innovate for fear of facilitating piracy; and consumers end up confused.

Last but not least, this issue is important because it implicates consumers' rights and technological innovation. Consumers love entertainment and electronics. They rightfully expect the government to protect patents, trademarks, and copyrights to encourage further innovation in "science and the useful arts" and to ensure the pipeline for movies, music, games, and consumer electronics remains robust and vital. But incredible new technologies have disrupted our comfortable, old way of doing things. Call it convergence; call it the digital revolution--FCC Chairman Michael Powell calls it "the great digital broadband migration." The Internet is changing everything, including our ability to create, protect, and transmit intellectual property.

This disruption offers great opportunities for society, yet it also puts extraordinary pressure on analog systems, behaviors, and business models. We face a particular challenge in protecting digitized, copyrighted content on-line.

Unauthorized digital copies of almost every song and movie in existence can be found right now somewhere on the Web, and that leads many to fear drastic reductions in future investments in new intellectual property. At the same time, others worry that our efforts to "fix" these new vulnerabilities will eviscerate consumers' fair-use rights, curtail innovation in other areas, or inappropriately prevent business model evolution (and extinction). That is, the cure could be worse than the disease.

Suffice it to say, this issue is of great importance and great complication; but while disruptive technologies do present extraordinary challenges, I do not believe they will prove insurmountable. Disruptive technologies and the content community have collided before: We've read this book. For over one hundred years, every new technology has boosted the revenues of the creative copyright industries over the long run. There's no reason to think the Internet technologies will be any different, but getting there is not easy and will take great cooperation.

To succeed, I see roles for both the private and public sectors. Five of the most significant steps needed include:

  1. Develop digital protections
    Information technology creators need to work with the content community to develop technological solutions that protect digital content. Companies clamoring every day for government help to accelerate broadband adoption can make significant strides on their own and without government mandates by working with the content community to satisfy their concerns. DVD encryption stands out as a great example of using technology to protect digital content, with the DVDs bringing in 53 percent more revenue for movie creators than theater viewings in the first half of 2002, according to the October 7, 2002, Washington Post. Copyright owners should also look for ways to use technology to defeat piracy, from high-tech watermarks to low-tech spoofing.
  2. Out-compete free
    It is also critical for content creators to accept the reality that we will never be able to entirely eliminate on-line piracy, just as we have never been able to eliminate off-line piracy. The Internet was built to connect, not to contain, and the battle against piracy will be won or lost based upon the quality of legitimate on-line consumer offerings. While encryption enticed content creators to adopt the DVD format, the real reason for their overwhelming consumer success is DVDs' relatively low price and high value. Paid services can beat elusive and illegal peer-to-peer networks by offering greater features and selection at reasonable prices and in the formats consumers want (for example, usable throughout a home network). They lose when they refuse to compete.
  3. Prosecute and discourage illegal activity
    We need to pursue and punish violations of copyright that are clearly illegal. Here government needs to work aggressively to take down piracy rings, shut down illegal Web sites, and stop the most prolific file traders, as the Department of Justice is trying to do. We should actively tip the scales in the battle between "free but illegal" content and legitimate services.
  4. Educate consumers
    Every panel discussion of piracy and copyright includes an admission by some panelist that their teenager rips and burns music on-line. Clearly there has been a problem imparting digital do's and don'ts to younger generations, largely because this digital generation uses more technology and understands it better than their teachers and parents. From security to privacy to respect for property, we need to impart greater digital literacy to our children.

    Universities, in particular, with their lightning-fast intranets and voracious content-consuming communities, need to do a better job of educating students about the importance of respecting intellectual property rights. But the education should not just be a one-way lecture. We should also take the opportunity to learn from the digital generation: Their embrace of new Internet technologies should be telling us something about the kinds of legitimate services we should be building.

  5. Cooperate
    All of the sound and fury over digital content and rights management signifies something pretty important, although I am not certain the intensity level, finger pointing, and emotional reactions are constructive. Not all fair use is piracy, but neither is all piracy actually fair use. Progress may prove slow while parties stake out the extremes, but to succeed we will need far greater trust among the antagonists.

While the biggest challenges are marketplace challenges demanding private-sector leadership and solutions, I hope and believe government can play a constructive role. We are trying to do just that at the Commerce Department, in all five of these areas.

  • We are investing in new protection technologies. A company called Cinea just won a NIST [National Institute of Standards and Technology] grant to develop technology that prevents in-theater digital recording of movies.
  • We continue to try and help companies better understand the digital business environment.
  • The Justice Department and trade representatives are going after piracy at home and abroad.
  • In our discussions with students, we emphasize the importance of protecting property, although we are looking for ways to do more on the education front, perhaps in partnership with others.
  • And we continue to convene the interested parties in periodic roundtables, trying to facilitate market-led cooperation on policy and standards issues and ensure that consumer fair use is duly considered in the discussions.

While I believe government can help, I would caution interested parties to be careful what you ask for, since the only law that never changes in Washington is the law of unintended consequences. This one is tough; it's going to take time, and it is going to take effort. But I am very confident we can and will succeed together.

MR. GATTUSO:
Our next speaker is Alec French, who is Minority Counsel of the Intellectual Property Subcommittee of the House Judiciary Committee. In that role, he's been the point man for Representative Howard Berman's self-help bill on copyright and has done an admirable job, I think, explaining a much-maligned proposal. Alec is a 1999 graduate of Duke University, a 1995 graduate of Georgetown Law School and previously served as legislative counsel to the Interactive Digital Software Association.

ALEC FRENCH:
Before I begin, I want to make a disclaimer: As Minority Counsel on the subcommittee, I work directly for Representative Berman. However, I can't represent to speak for him on all matters, so anything I say that sounds smart, you can attribute to him. All my less intelligent comments are my own.

Intellectual property issues are generally nonpartisan because strong IP protection accords with the principles of Republicans, Democrats, libertarians, and everyone else. I don't mean to say, however, that IP issues are non-controversial. Intellectual property policy is the source of rancorous debate within Congress, and the public debate over H.R. 5211, Representative Berman's Peer-to-Peer Piracy Prevention Act, clearly demonstrates both the rancor that IP issues can engender and its nonpartisan tenor.

H.R. 5211 is a bipartisan bill with two Democratic and three Republican sponsors. However, the bill, as James noted, has generated more than its fair share of controversy.

I want to spend some time explaining the bill, but first, I need to explain why Mr. Berman thought it was necessary to introduce it. Public peer-to-peer networks represent a tremendous technological innovation. By taking the end-to-end architecture of the Internet to its logical conclusions, PTP networks make the on-line distribution of content exponentially more efficient and less costly than the predominant client-server model.

However, like almost any technology, PTP networks can be used for both good and ill. Unfortunately, theft of copyrighted works is the predominant use for public PTP networks today. This is a key point and needs to be re-emphasized, because it's subject to a frequent obfuscation.

Public peer-to-peer networks are primarily used today for the unauthorized public distribution and reproduction of copyrighted works. Such distribution and reproduction constitute copyright infringements, pure and simple, and there is no concept of fair use that covers it. Don't just take my word for it. This has been the consistent position of the courts and the U.S. Copyright Office.

To paraphrase the Ninth Circuit in the Napster case, public PTP users who upload filenames to the search index for others to copy violate a copyright holder's distribution rights. PTP users who download files containing copyrighted music violate a copyright holder's reproduction rights. Further, in a September 25 letter to Representative Berman, the Registrar of Copyrights wrote that making a copyrighted work available on a peer-to-peer network "constitutes an infringement of the exclusive distribution right as well as the reproduction right."

Peer-to-peer piracy occurs on a massive scale. While any estimates in this area are inexact, one study found that 2.6 billion files are being downloaded monthly through the most popular PTP networks. There is no doubt that the vast majority of these downloads are copies of copyrighted works for which the creators receive no compensation.

This massive piracy costs real people real money. Piracy profiteers often offer interesting if self-serving theories, claiming that illegal PTP downloading is either neutral or even beneficial to copyright owners. However, the plight of songwriters, needlepoint designers, karaoke tape companies, and recording artists who have contacted Representative Berman about peer-to-peer piracy is too real to theorize away.

Let me focus on songwriters in particular, because we can actually quantify their PTP losses. Songwriters write the music you know and love but typically are not the actual performer you hear on the radio or see in concert. Less than 10 percent of songwriters manage to earn a living by writing music, with the vast majority making less than $20,000 a year in royalties.

By statute, a songwriter is both entitled and limited to collecting eight cents for every digital download of a sound recording containing her songs. Each illegal PTP download of a song robs that songwriter of that eight cents. Those eight cents may not seem like much, but multiply eight cents by the reported 1.1 billion monthly downloads on KaZaA. It calculates out to $88,000,000 a month. Divide even one-tenth of that money among the 5,000 members of the Songwriters Guild of America, and you begin to see that peer-to-peer piracy robs songwriters on a massive scale.

In order to protect creators and promote legitimate uses of PTP networks, Representative Berman believes peer-to-peer piracy must be cleaned up. But how?

Representative Berman believes the solution to peer-to-peer piracy is multifaceted. As Bruce indicated, the solution includes effective digital rights management technologies, better on-line access to legal copyrighted works, prosecution of infringers, and increased respect for property rights in the minds of the public.

Representative Berman also believes the solution includes allowing copyright owners to use reasonable, limited self-help measures to thwart peer-to-peer piracy of their works. He introduced H.R. 5211 to facilitate the use of such reasonable, limited self-help.

The Peer-to-Peer Piracy Prevention Act is quite simple in concept. It says that copyright owners should not be liable for thwarting the piracy of their works on PTP networks if they can do so without causing harm.

You might reasonably wonder why Congress needs to pass legislation giving property owners the right to protect their property against theft. After all, if someone steals your bike and brazenly stores it on their front lawn, you're allowed to trespass on that lawn to take your bike back. The U.S. Supreme Court has held that

An owner of property who seeks to take it from one who is unlawfully in possession has long been recognized to have greater leeway than he would have but for his right to possession. The claim of ownership will even justify a trespass and warrant steps otherwise unlawful.

In light of this, why can't a copyright owner use self-help to thwart peer-to-peer piracy of their works? It's a reasonable question. The problem is that a variety of state and federal statutes may create liability for copyright owners engaging in otherwise justifiable self-help. That's not fair.

Copyright owners should have the same right as other property owners to stop the brazen theft of their property. The Peer-to-Peer Piracy Bill simply ensures that the law will no longer discriminate against copyright owners.

Obviously, it's critical that a liability safe harbor be appropriately limited. In drafting the Peer-to-Peer Piracy Bill, Representative Berman tried to ensure that only reasonable self-help technologies would be immunized, that the public would be protected from harm, and that over-reaching or abuses by copyright owners would be severely punished.

The most important limitation in the bill is the narrow breadth of the safe harbor itself. The bill says copyright owners get immunity from liability under any theory, but only for impairing the "Unauthorized distribution, display, performance or reproduction of their own works on public peer-to-peer networks." If the copyright owner's impairing activity has some other effect, like knocking a corporate network off-line, the copyright owner remains liable under whatever previous theory was available.

Some claim the bill is not limited in this way. Their claim appears to be that the bill gives copyright owners immunity for anything they do as long as it has the effect of stopping piracy on a peer-to-peer network. By their logic, the bill allows a copyright owner to burn down a peer-to-peer pirate's house if the arson stops the illegal file trading. Clearly, the bill says nothing of the sort, and no judge or disinterested party could read it that way.

The bill specifically states that a copyright owner cannot delete or alter any file or data on the computer of a file trader. Thus, a copyright owner can't send a virus to a peer-to-peer pirate; it can't remove any files from the pirate's computer; and it can't even remove files that include the pirated work.

The safe harbor does not protect a copyright owner whose anti-piracy actions impair the availability of other files or data within the network, except in certain necessary circumstances. Some folks have raised concerns about this provision, and I know Representative Berman is thinking about alternative language.

The bill denies protection to a copyright owner if his or her anti-piracy action causes any economic loss to any party other than the PTP pirate. The safe harbor is also lost if the anti-piracy action causes more than de minimis loss to the property of the PTP pirate.

Finally, the safe harbor is lost if the copyright owner fails to notify the Attorney General of the anti-piracy technology he or she plans to use or if the copyright owner fails to identify himself or herself to an inquiring file trader.

Obviously, these limitations would be meaningless if copyright owners did not have adequate incentives to obey them. The PTP Piracy Bill provides such incentives by subjecting transgressing copyright owners to more liability than they have under current law. This is a critical point. If a copyright owner falls outside the safe harbor, an aggrieved party could sue the copyright owner for any remedy available under current law, and for an additional civil remedy created by the PTP Piracy Bill.

The bill also gives the U.S. Attorney General new power to seek an injunction against transgressing copyright owners.

The potential for liability under this wide variety of remedies provides copyright owners with strong incentives to operate within the strict limits of the safe harbor. Representative Berman believes that H.R. 5211 provides a strong starting point for legislation that will help thwart peer-to-peer piracy. He recognizes it represents only a small part of the solution to peer-to-peer piracy but believes it's an important element nonetheless.

Representative Berman had hoped there would be relatively widespread support for the bill's approach in the technology, hardware, and computer industries. By enabling copyright owners to thwart peer-to-peer piracy through reasonable, limited self-help measures, the bill puts the burden of stopping peer-to-peer piracy squarely in the laps of copyright owners rather than third parties like ISPs or hardware manufacturers.

Further, H.R. 5211 frees technology to develop solutions to the problems that technology has created, rather than mandating technology or limiting technological development. As a result, the bill directly avoids the pitfalls that technology and computer industries have identified with other anti-piracy approaches.

While a number of technology companies and associations have expressed support for H.R. 5211, the reactions of other technology companies have been disappointing. Some have expressed opposition to the very pro-technology approach taken by H.R. 5211. It turns out that many have been developing business models that profit from peer-to-peer piracy, and thus disagree with the very premise that peer-to-peer piracy should be stopped.

Rather than stopping peer-to-peer piracy, some piracy profiteers propose that copyright owners simply hand over their property rights and let the government set the fee for PTP downloads of their works. Not only is this suggestion antithetical to the notion of property rights, but it's also utterly impractical.

As I noted, a compulsory license already covers PTP downloads of songwriters' works. But songwriters have yet to collect one red cent for these downloads. With that history, how can anyone really believe that another compulsory license for PTP downloads will generate any revenue?

Some piracy profiteers also blame copyright creators themselves for peer-to-peer piracy. They say that copyright creators have caused their own problem by failing to embrace technology and revamp their business models. They suggest that copyright owners allow free PTP distribution and downloading of their works and then generate revenue by selling advertising or offering enhanced services.

There are a couple of things that bother me about this line of reasoning. First, I thought the dot-com bust utterly discredited the free-content, aggregate-eyeballs business model. Second, it's utterly impractical.

As Phil Galdston, the respected songwriter, testified before the IP Subcommittee last month, no one is going to pay for a Phil Galdston T-shirt. Subscriptions to a Phil Galdston chat session are not likely to generate much revenue. Finally, no one is going to pay to go to a Phil Galdston concert where he performs the songs that he wrote but that Celine Dion made famous.

Songwriters like Phil Galdston earn their living by selling copies of their songs. If you take away that revenue, they have to find another career. For the average American, that means less music, or at least less musical choices.

Something else bothers me about the failed business model line of reasoning. It's based on the premise that copyright owners are too stupid to recognize that illegal PTP downloads demonstrate great untapped consumer demand for their works on-line. It posits that folks who've invested millions in the creation of a particular work don't want to capture new sources of revenue from that investment.

Those who propound this theory say they have evidence of past experience to support their theory. However, they always point to relatively ancient history and never point to the example of the most phenomenally successful consumer electronics products in history: DVDs and DVD players.

Movie studios themselves drove the creation and distribution of DVDs and DVD players. The studios, and Warner Brothers in particular, battled through innumerable obstacles, many put up by hardware technology companies, to ensure the transition from video cassettes to DVDs. There is no question that studios adopted the DVD format more quickly and wholeheartedly than almost any business analyst predicted. It's the widespread availability of movies on DVD that has in turn driven the huge consumer demand for DVD players.

Why isn't the DVD experience mentioned when copyright owners are accused of being dinosaurs who are afraid of new business opportunities? For that matter, why don't folks discuss the huge amount of legal content that's already available on-line? Today you can get easy, legal on-line access to video games, computer software, newspapers, E-books, music Webcasting, photographs, interactive streaming of music, sports programming, and even musical downloads from a variety of Web sites.

Are these legitimate options always this cheap or as consumer-friendly as they ought to be? No. But they exist and stand as concrete proof that copyright owners have in fact embraced technological change and are continuing to do so.

I want to wrap up by saying that Representative Berman continues to strongly support the need for legislation allowing copyright owners to use reasonable, limited self-help to thwart peer-to-peer piracy. However, he does not claim to have drafted a perfect bill in H.R. 5211.

Thus, he intends to significantly redraft the bill to accommodate reasonable concerns before reintroduction in the 108th. He welcomes suggestions for improvements from the public as long as those suggestions are consistent with the goal of stopping peer-to-peer piracy.

MR. GATTUSO:
Our next speaker is Gary Shapiro, who is President and CEO of the Consumer Electronics Association, a trade association representing over 1,000 companies in the consumer electronics industry. He also, in that capacity, chairs the Home Recording Rights Coalition. He's been a leader in the various fights over high definition television. He does not shy from controversy.

Gary previously served as an associate of Squire, Sanders and Dempsey. He has a Juris Doctor degree from Georgetown University Law Center. He has a degree in economics and psychology from the State University of New York. He's one of those people who has been able to bring his trade association into the center of quite a few debates in a helpful way. He is always informative, colorful, and provocative.

GARY SHAPIRO:
Bruce, I really want to thank you for your very thoughtful remarks. I think it's the kind of very thoughtful approach that government should take on these issues, because they are very important. I'll thank you, Alec, too for that. Actually, it was a very compelling and passionate defense of Congressman Berman's legislation.

I do want to just correct on thing before I go on. With respect to DVDs, we had all the manufacturers cooperating with two of the studios and begging the other studios to come along. I don't think there was any question as to whether this was a good thing for cooperation. It took a lot of time for some of the studios to jump on board, and it was a very painful few years. There was no resistance on the part of the electronics industry, I assure you, and all the media accounts will show that.

I want to talk a little bit about the past, because Bruce gave me license to when he started talking about all the resistance to change by copyright owners. What I find so refreshing about this issue is that, having spent 20 years on copyright issues and laboring basically with a few people on both sides out of the limelight, this is an issue that is today deservedly getting a lot of public attention.

Yesterday, there was a panel session that Michael Petricone spoke at about copyright issues in the context of digital television. Last week, we had a panel session in California, my own association. We had over 200 of our own industry attend and a lot of press. We're having four panel sessions at the International Consumer Electronics Show in January in Las Vegas on intellectual property issues, and Janis Ian is on one of them. So I'm very glad that she's getting some recognition for what she's saying.

But the bottom line is, having public scrutiny is very important because, for too long, this has been an inside-the-Beltway issue. The whole issue of intellectual property protection has basically been a battle between the content community and anyone who happens to stand up and oppose them, who is usually much less significant and much smaller, not as politically astute, or couldn't give as much money.

That's a very significant thing. Since I've been involved in this, I count 10 significant pieces of legislation: 1982, Piracy and Counterfeiting Amendment; 1984, Record Rental Amendments; 1988, Berne Convention of Limitation; 1988, Satellite Home Viewer Act; 1990, Computer Software Rental; 1992, criminal penalties for infringement; 1992, Audio Home Recording Act; 1995, Digital Performance Rights and Sound Recordings; 1998, Digital Millennium Copyright Act; and in 1999, my least favorite, the Copyright Term Extension Act.

Every one of those basically was a win for the content community. Every one of those took out things which the public had rights to and shrunk what was available to the public. It's been a very, very distressing trend.

In 20 years of history, there's only been one thing that I could point to that's happened, a really big win, and say it was great, and that's the Sony Betamax case. That case was a phenomenally big win for those that are interested in not expanding consumer rights, but just protecting what they already had. That case now is being chipped away in the courts, and the content community has put it under full attack in so many different fashions.

Just on Monday, the Consumer Electronics Association filed an amicus brief in MGM Studios v. Grockster, basically trying to protect the Sony Betamax case, because what's happening is that the motion picture studios, in that case, are trying to say that you have to have technology whose sole purpose, or primary purpose, is non-infringing, and then it's legal. But the court said so clearly in that case that if something is widely used for legitimate, unobjectionable purposes, or capable of substantial non-infringing uses, then it's legal.

So the content industry is doing everything they can to restrict that holding. They claim it's very narrow, that it only applies to VCRs, has little or nothing to do with today's technology. The fact is that, for us, that holding is the best thing that ever happened. It was a stance, and it is precedent. I applaud, especially, Congressman Boucher and others who are trying to protect it.

I think the motion picture industry should be praising that case every day, because the VCR obviously single-handedly created an immense new revenue stream, as did every other new technology they opposed, starting with radio and going on to television to cable to the VCR.

My first big recession in my professional life was 1981, and it seemed pretty scary at the time. At that time, the music industry was saying, "My gosh, our sales are down 10 percent, and it's all because of cassette tapes. You're killing us; you're killing us. Congress: Tax and restrict and regulate them."

The same thing happened again in 1991 with digital audio tapes. Someone said, "Our sales are down. There's a recession, we know, but it's not due to that. It has to do with the fact that there's this horrible thing called digital audio recording which makes perfect copies. Oh, my gosh. That's going kill us."

Of course, it didn't. So now we face another recession 10 years later. I'm seeing a trend. Every 10 years a recession; the music industry sales go down a few percent, and they panic.

We released some research last week. We went to a lot of consumers and asked them every possible way why they record what they do. It was actually Internet users, so it was the people most likely to download. It almost had nothing to do with downloading, with their not buying music. They didn't want to buy music for a whole range of reasons, but they were buying a lot of music if they downloaded.

Every study--including, I think, the Recording Industry Association survey--shows the same thing over and over again. The downloading isn't as bad as it's claimed to be. When you look at the studies themselves, they say consumers are interested in music, but the biggest downloaders are also the biggest buyers of music. My son is always downloading, and then he often buys the CD.

On Napster, there were 25,000 artists that wanted to be on there and they asked to be on there, and they're perfectly happy to go on there, and their music was copyrighted. But even those that aren't given permission and it's copyrighted are seeing additional sales. That's a point that, I think, Janis Ian has made on her Web site.

The Supreme Court argument two weeks ago was very, very instructive. The Supreme Court justices were struggling. They said that by extending the copyright term 20 years--it's been extended so many times since its original term, it's almost infinite at this point--it's almost a perpetual monopoly granted by Congress, and it probably wasn't what the framers of the Constitution intended. It's certainly bad public policy. But is it unconstitutional? We're struggling with that issue.

So that was clearly a mistake, and I think it's being acknowledged that it's a mistake. The way I view it now is that the content community should think long and hard, because right now, what's changed in the last month with the Supreme Court argument, with Congressman Boucher's brilliant legislation, with the other legislation that's been introduced, there has been a shift. Instead of being on defense, the user community is on the offense for the first time in 20 years, and it's making a big difference.

I think the content community should make a fundamental decision, and that decision is, do you want a term that goes on forever, or virtually forever? Almost 100 years is longer than most of us are going to live. Those people that you were talking about earlier on, Scott Joplin and Mark Twain, they'd be shocked if they thought their copyrights would last that long before the public would have their work.

The choice for the content community is, do you want an unlimited 100-year term or do you want strong, technological protection?

I think there's a choice that should be made. You can't have it both ways. Until now, the content community has had it both ways. They've pushed the copyright going on forever. It's been extended so many times in terms of term, and they've pushed technological restrictions. So now there's a big choice.

The other point I think is worth mentioning is that what's happening here today at The Heritage Foundation has happened in similar institutions like PFF [the Progress and Freedom Foundation] and Cato. There is a battle going on for the hearts and minds of the conservative pro-property crowd.

There's no question that intellectual property is, by definition, a property right, but it's not the same as real property. It's intellectual property. It's referred to in the Constitution as having a limited term. If that limited language has effectively gone away, what's the difference?

They always talk about stealing and theft. When you steal a dress, the person whose dress it is can't use it; they've been deprived of that opportunity to benefit from that dress. When you reproduce something on the Internet, or you copy something, you may be exercising fair use rights, but you're not hurting the copyrighter definitively. At worst, you're depriving them of a potential sale.

That's a huge difference. Intellectual property and real property are different in so many other ways, from how they're taxed, to how they can be sold, to the Constitution provision. To start equating this with real property, and start using words like stealing and theft and piracy, is totally shifting the debate.

Twenty years ago, we were talking about unauthorized reproduction. We were talking about copying, which sounded a little bit bad. Now every time you record, someone is telling you you're doing something wrong; it's now called piracy. Even though copyrights do expire, there are public domain copyrights; there is fair use; there is the First Amendment.

The Sony Betamax case also held that you can record something in full and it can be a fair use. Off a VCR, you copy something off the television, it's a fair use. So why is it that if you're using a computer and you're recording something, it somehow becomes illegal?

MR. GATTUSO:
Thank you, Gary. Our final speaker is Jim Delong of the Competitive Enterprise Institute.

He previously served as Vice-president and General Counsel to the National Legal Center for the Public Interest, and I guess also has been around Washington longer than he'd care to say.

He has a tremendous background of working in a variety of organizations and in government, at such diverse agencies as the Administrative Conference of the United States, to Federal Trade Commission, the Bureau of the Budget, and even had a stint as Director of Programs at the Drug Abuse Council.

Jim has, in his role as senior fellow at CEI, heads up and works on a variety of technology issues, but has in particular focused on property. Actually is, I think, one of the few people in Washington who has looked at not just intellectual property, but has a background on real property as well, tying the two together in a powerful way.

His 1997 book addressed property as a whole. It's called Property Matters: How Property Rights are Under Assault and Why You Should Care.

JAMES V. DeLONG:
About four years ago, I was at an organizational meeting of the Advisory Committee to the Congressional Internet Caucus discussing what issues to address during the session. I suggested that intellectual property might be important, and was met with a puzzled silence. The group said, "but nothing is going on there." However, in the style of all committees, eventually a subcommittee was created and I was made one of its chairs. Which proves only that times certainly to change.

Since Drew Clark is here, I'm going to use one of my favorite examples of intellectual property--Tech Daily. I, and I assume many of you, subscribe to Tech Daily, which is a truly excellent publication, well-written, well-reported, covers the tech issues like a blanket.

Subscribing to Tech Daily saves me tremendous amounts of time every day in figuring out what's going on in the tech world. But it is not cheap. Our site license costs us multi-thousands of dollars. But when you work it out, considering the number of people who use it in my office, it's only two or three bucks a day apiece and really is a true bargain.

Nonetheless, it would be nice to have Tech Daily for free. So suppose someone comes along and says, "information wants to be free. Tech Daily is ripping you off because, after all, once they put it together, it costs zero to distribute. And so what I'm going to do is take Tech Daily and I'm going to put it on my Web site every day and you can have it for free."

Well, it's perfectly clear that unless Drew is much more of a volunteer than I think he is, and is willing to do this reporting just as a public service, that Tech Daily will soon will go out of business.

This leads to several points. One, we are not talking just about entertainment or "those awful record companies" or Jack Valenti. We're talking about information generally. We're talking about books, for example, so just wait until the book publishers weigh in on this issue and the liberal establishment changes its views completely. We're talking about reporting. We're talking about all kinds of information.

The second point is, consumers should want to pay. As I said, I think Tech Daily is a real bargain for what it gives me. Someone who comes along and says, "I'm going to make them give it to you for free," is not my friend. In fact, they are actually doing me real harm because the outcome is that I will not be able to get the product

This sort of problem arises over and over and over, in that I am much better off as a consumer making a purchase in a market than I am depending upon somebody to supply me something for some purpose of their own.

A prime example: I subscribe to HBO simply because I like The Sopranos. I think that it is a much better TV show than anything I get on network television. The reason for its superiority is that the economic system is different. With HBO, I am a consumer paying for a product. With network television, I am the product; the network is selling me to an advertiser, and they can invest in the programming only my value as a consumer. If that is 10 cents--the profit they might make when I buy the next box of Tide, or whatever--then that is all they can spend to produce a show that I watch..

This creates the characteristics of network television. Mass markets directed at least common denominators, not tailored to particular audiences, all sorts of problems and all sorts of limitations. When a creators of programming can sell directly to the consumers, they can do a lot more.

Similarly, in a weird way, "fair use" is increasingly interpreted as being "free use." Fair use originally was based on the idea that there were some uses which were indeed in the public interest, which the copyright holder was not going to like.

Parody is one. I have yet to meet anyone who likes to see their work parodied. Reviews are another example. Creators would like to control these, so that they could control who got permission to review their books or movies or whatever.

Fair use is also directed at transaction cost problems. If you are trying to quote something, or if you're trying to use an excerpt from something, and especially in the pre-computer days, simply getting all the permissions necessary was virtually impossible. The transaction costs were just too high.

But fair use transmuted into a sort of free use in the Sony case in 1984. This is a problematical part of that case. The idea that somehow the consumer is entitled to more than he has actually bought is rather novel, and in my view, unsound.

It also unsound for the consumer whose interest is to have options.

An example that I quite like, and Rick Lane is in the audience, so I've got to give him credit. (If he weren't here, I could just steal this.) But his example is, should Blockbuster be illegal? If somebody argues that once you acquire a product you should have unlimited access to it, does this mean that you shouldn't have Blockbuster, which rents you the right to watch a video for a period of time, for two and a half bucks? Should this mean that videos can only be sold and only if they give you unlimited rights?

As they used to say in law school, to ask the question is to answer it. I am better off as a consumer to have the option. I buy an inordinate number of books, but I pass up a lot more because I do not want to spend $25. I would be much better off to have a variety of options so that I could buy one reading of a particular novel for a buck, or unlimited access for $50.

I also tend to buy a lot of classical CDs. I doubt if I listen to many of them 15 times. Again, I would be better off to buy a single listen for a buck. Then a few, maybe I'd wind up paying much more, but on balance, I would pay less. Of course also, you would also have lower prices generally and a tremendous increase in demand.

All these possible innovations are out there, but they really do rely on effective digital rights management, and on not having people who purport to be consumer advocates in control.

I agree completely with Gary that you really can't have technological mandates. Anyone who studies Tom Hazlett's account of the history of the Federal Communications Commission, if they are a telecom fan, gets very depressed. The FCC has been suppressing technologies for 70 years, uninterrupted. If we had government tech mandates, the same thing would happen in no time.

It would be extremely bad. That is one reason why I find the concept embodied in the Berman bill very interesting, except it may not go far enough. More might be needed.

I start from the premise that intellectual creations must be protected. And the question is, how do you protect them in the least intrusive way, in the way that least damages other interests, all of which are very important. I like the Berman concept of self-help, because it seems to me that this addresses the problem while doing the least damage to the other interests involved.

I also enjoy the Berman proposal because it is so much fun to have the staff member for a liberal democratic congressman come to Cato and Heritage and talk about the virtues of property rights, because this is a battle some of us have been fighting a long time. There is a continuity here. As Gary says, there's some important differences, but there is also a lot of continuity. A chapter I wrote in a book for Cato discusses this.

There is some irony here, too. I attended a panel of Hollywood content providers one time, and one of them was bemoaning the lack of proper respect for property rights exhibited by the Napster generation. Finally, I could take it no longer and I said, "aren't they just practicing what you Hollywood liberals taught them in the context of environmentalism and land use controls?" there was a long silence.

There has indeed been a general disrespect of property rights and a general lack of understanding of the very important function they serve in society. The current problems are one manifestation of this. So it seems to me that to the extent that the focus on intellectual property rights can revive a concern with the more general problem, it will be all to the good.

I think these problems can be solved. It's obviously going to take a mixture of measures, from education to digital rights management to law enforcement to private litigation. But I think it very important to all of us, in our roles as consumers, that they do get solved.

James L. Gattuso is Research Fellow in Regulatory Policy in the Thomas A. Roe Institute for Economic Policy Studies at The Heritage Foundation; Bruce Mehlman is Assistant Secretary for Technology Policy at the U.S. Department of Commerce; Alec French is Minority Counsel for the Subcommittee on Courts, the Internet and Intellectual Property of the House Judiciary Committee; Gary Shapiro is President and CEO of the Consumer Electronics Association; and James V. DeLong is a Senior Fellow at the Competitive Enterprise Institute.

About the Author

James L. Gattuso Senior Research Fellow in Regulatory Policy
Thomas A. Roe Institute for Economic Policy Studies