November 11, 2004 | WebMemo on Regulation
If exit polls can be believed, issues of moral values were among the most important factors in last week's presidential elections. Pundits are still weighing the meaning of that vote and what it means for public policy. Yet buried beneath the election news, the values issue was also raised last week in a much different context, the fight against the theft of intellectual property on the Internet. Ironically, the motion picture industry-rarely seen as a hotbed of traditional morality-is leading this fight. It announced that it will file lawsuits against individuals found illegally trading copyrighted movies over the Internet.
At issue is the unauthorized downloading of copyrighted material off the Internet, without payment to the owners. Typically, such downloading is done through "peer-to-peer," or P2P, networks, such as "eDonkey." These networks allow users to share files on their individual PCs with other network users. In this way, music, movies, and virtually anything else that is digital can be quickly and costlessly distributed to millions of other P2P users. According to one estimate, as of June of this year 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 more easily downloaded. 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 over 30 percent of all P2P files transmitted in March 2004, up from 16 percent 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.
On Thursday, however, the Motion Picture Association of America (MPAA), the trade association for the movie studios, announced that it would file civil lawsuits against individual offenders. The first suits will be filed on November 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 demagoging has already begun-for example, as one MPAA opponent put it, "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 or 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 will not 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. However, suing individuals engaged in theft of intellectual property through file swapping is not one of them.
James L. Gattuso is Research Fellow in Regulatory Policy in the Thomas A. Roe Institute for Economic Policy Studies, and Norbert J. Michel, Ph.D., is a policy analyst in the Center for Data Analysis, at the Heritage Foundation.
 John Borland, "Survey: Movie-Swapping Up; Kazaa Down," CNET News.com, July 13, 2004 at http://news.com.com/2100-1025_3-5267992.html.
 Motion Picture Association of America figures, as cited in Congressional Budget Office, Copyright Issues in Digital Media (August 2004), p. 18.
 "Movie Makers Plan to Sue Internet File Swappers," Washington Internet Daily, November 5, 2004, p. 1.