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Capitol Comment 291 – Innovation, Not Litigation to Secure Copyrighted Work

“Innovation, not litigation” has become a catchphrase among Citizens for a Sound Economy activists. While normally uttered in the context of the government’s antitrust case against Microsoft, the phrase captures a fundamental value with many applications.

For example, consider the proper enforcement of copyright in a digital world. The communications infrastructure of the Internet includes file-sharing software and portals that, when coupled with advanced compression technology, allow copyrighted works to be pirated at never-before-seen levels.

Piracy is a direct threat to copyright owners whose core business depends upon the sale of “intellectual property.” For these businesses the marginal cost of production—how expensive it is to produce an additional copy—approaches zero, but the fixed cost of creating the initial work can be quite high. So if a competitor can immediately reproduce a creative work, there is little incentive to provide the initial investment necessary to produce the work.

Article I, Section 8 of the U.S. Constitution addresses this concern by authorizing Congress to enact laws to grant copyright owners a limited monopoly to cover the cost of their original investment. However, if Congress does not speak to an issue directly, as is the case with the digital transfer of copyrighted works, the courts have the authority to interpret the law so as to recognize consumers’ interests and a right to “fair use.”

“Fair use” has been called “the most troublesome (doctrine) in the whole of copyright.”1 The “fair use” doctrine lacks any fixed criteria and represents a mélange of considerations such as how a particular use affects the market value of the work, the portion of the work used, and the purpose and charter of the use. All in all, the “fair use” doctrine serves as a countervailing force to the legal protections afforded to copyright owners.

In the case that settled the legality of videocassette recorders (VCRs), Sony Corp. v. Universal City Studios,2 the Supreme Court ruled that fair use rights include access to any technology that “is widely used for legitimate, unobjectionable purposes.” The court further ruled that the fair use standard protects any technology that is capable of being used in a way that does not infringe on copyrights.

The 9th Circuit Court of Appeals is currently deciding whether this decision is applicable to a recent suit filed by 18 record companies to shutdown the file-swapping service Napster. The suit, filed in December of 1999, accuses Napster of “vicarious and contributory copyright infringement.”3 On June 26, Judge Marilyn Hall Patel ruled in favor of the record companies and ordered Napster to cease copyrighted file-sharing operations. Two days later the 9th Circuit Court of Appeals overruled the decision and subsequently heard oral arguments on October 2, 2000. A decision in the case is expected at any time.

The Sony decision validated technological progress by defending the manufacturers and distributors of new products. It forced copyright owners to accept new technology—in this case the VCR—and to adapt accordingly.

The Napster case has similar potential. Napster’s software allows users to search for and exchange .mp3 (compressed music) files with other Napster users via the Internet. Although a majority of these exchanged files are copyrighted and not licensed for electronic distribution, there is a substantial quantity of legitimate files that are shared. The logic of the Sony decision has made Napster’s legality unclear and forced copyright owners to rethink the mechanisms by which they protect their “intellectual property.”

At the end of October of 2000, Bertelsmann A.G. (BMG) music, a party to the copyright infringement suit, announced that it reached agreement with Napster to create a subscription-based file-sharing service. The deal stipulates that BMG would withdraw from the suit against Napster if a secure file-sharing technology can be developed. According to a January 30 statement made by Bertelsmann CEO Thomas Middelhoff, the secure subscription-based service should debut in June or July of 2001.

On a similar note, in mid-January Microsoft announced that it will use “Product Activation Technology” to prevent unwanted duplication of its next version of its Windows operating systems and Office suite. Similarly, a coalition of major hardware makers, including Intel, IBM, Matsushita Electric and Toshiba, is promoting a new technology known as “Content Protection for Recordable Media” to defend against piracy. Both copyright owners and hardware manufacturers now seem poised to use technology instead of lawsuits to protect “intellectual property.”

These developments will allow consumers in the marketplace, instead of lawyers in a courtroom, to determine what constitutes “fair use.” Statutory law cannot contemplate the fair use considerations of technology that has not yet been introduced. Nor can the courts be expected to achieve the optimal balance in all instances: a judgment for the copyright owner could impair consumer freedom, while a judgment expanding fair use could discourage research, product development, or distribution.

The market is better able to balance these interests. If the anti-piracy technology proves too restrictive, consumers can refuse to purchase the products. The failure of DIVX – essentially a form of DVD that expired after a certain amount of time – is a prime example. Similarly, if the technology offers too little protection and piracy becomes rampant, copyright owners would be inclined to develop new technology to secure revenues.

“Innovation, not litigation” to protect copyrighted works allows the production of expressive works and software to thrive, while at the same time ensuring consumer autonomy is not compromised by government intrusion. Copyright owners should look to technology, instead of court-ordered injunctions, to preserve their revenue, while consumer preferences should dictate what level of technological protection is commercially practical.

1 Sony Corp. v. Universal City Studios, Inc., 464 U.S. page 417 (1984) (Justice Blackmun, dissenting).
2 Ibid.
3 A&M Records, et al. v. Napster, Inc. (C 99-5183).

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Citizens for a Sound Economy Foundation
Capitol Comment 291:
Innovation, Not Litigation to Secure Copyrighted Works
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