Online Piracy – Innovation not Legislation: What We Can Learn From The Past

Pink_Pigeon_Technology_Faster_Than_LegislationTechnology moves faster than legislation. The moment Napster is sued for its centralised file-sharing service, technology allows users to move to non-centralised file sharing. The moment users of non-centralised file sharing are attacked, technology allows them to disappear; Hide My Ass enables users to surf the web anonymously.

Legal attacks on individual users only compound the problem for the copyright-holders. Analyst Don Labriola, citing work by Princeton Professor Joel Cooper, points out that “The harder you push the more you fail … applying an overly harsh remedy to even one community member can have undesired effects on the entire group”.

Some now see the error of this legislation. CEO of management company the Firm, Jeff Kwatinetz, believes that suing Napster “was the moment that the labels killed themselves”. More recently, ISPs in England have lashed out against the new Digital Economy Act, which forces them to suspend the internet connection of file-sharing users; branding it “draconian” (Andrew Heaney, TalkTalk’s director of strategy and regulation).

In Sweden, ISPs are rebelling. As in England, a new law—based on the European Union’s Intellectual Property Rights Enforcement Directive (IPRED)—allows copyright-holders to obtain a court order forcing ISPs to provide the IP addresses identifying which computers have been sharing copyrighted material. Swedish ISP ePhone has successfully appealed a court order demanding it hand over the IP addresses of P2P users. Significantly, the case is now destined for the European Courts of Justice; which will mean a review of how the IPRED law is used in Sweden. Meanwhile, broadband ISPs Tele2, Bahnhof, and Alltele all reacted by deleting consumer IP data; rendering the law somewhat useless.

There was a moment, in the not so distant past, when sense prevailed in a similar dispute between new disruptive technology and a threatened established industry:

In 1984, rather than criminalise the millions of users who already owned VCRs, the US Supreme Court found in favour of technology (Sony) over the copyright-holders (Universal). Universal Studios and Disney Productions owned copyrights on television shows and feature films broadcast by television networks. When Sony introduced the VCR, it suddenly enabled users to record (read ‘Download’) their copyrighted content to watch at more convenient times. This disrupted the prevailing commercial business model by allowing users to fast-forward the commercial breaks. Fearing loss of advertising revenues, Universal and Disney claimed that Sony contributed to large-scale copyright infringement by selling their VCRs. The Court ultimately resolved the conflict by extending “fair-use” to include the practise of time-shifting, recording a programme or film for non-commercial use.

In the end, of course, both Sony and Universal came out the winners; Sony by being allowed to sell VCRs, and Universal by inventing a more efficient and profitable business model – the movie-rental market. In 2009, sell-through video on physical media was the largest single revenue source for film in the UK.

So what are we to make of the recent news – the cracking of the content protection system for Blu-Ray? Are we to expect even tougher, harsher laws to protect the content owners?

If only we could learn from the lessons of the past, if only the content owners would understand the negative effect of harsh laws, if only the law were used effectively to help bridge the gap between established industries and new technologies.

Everyone involved could learn a thing or two from Donald Labriola’s illuminating work Dissonant Paradigms and Unintended Consequences: Can (and Should) the Law Save Us from Technology? Published in the autumn 2009 issue of the Richmond Journal of Law & Technology.

Labriola’s article highlights some of the problems of rationalist legal analysis in dealing effectively with illicit file sharing. By failing to recognize both parties in the dispute, the content owners and the online file sharing community, “rationalist analysis encourages a one-sided perspective that casts disruptive technology and new-paradigm communities as villains.”

Turning to the theories of social psychologist Leon Festinger, Labriola seeks to explain why seemingly rational solutions fail to work. By revealing the underlying motivations of both communities, he strives to add a level of subtlety to existing legal models used to understand and resolve such issues, pointing out that “[new communities] may be acting in accord with norms that the law will one day recognise.”

While it is reasonable that content owners should look to the law to protect their investments, appreciating the effect of their actions would help them avoid unintended consequences.

The [record] labels … have reinforc[ed] their schoolyard-bully image with high-profile lawsuits that threaten small-time music downloaders with extraordinary fines.

Record companies might instead try to understand the online music community’s shared beliefs and behaviour – as, for example, Apple has done with their iTunes Music Store. “Apple CEO Steve Jobs has made it clear that Apple is one of them, openly challenging the labels’ hardline anti-piracy stance.”

Labriola makes the point that “the courts have rarely done more than delay the inevitable.” Further, are the lawmakers’ efforts to shield established industries from new technology even desirable? “Technology that fosters more efficient and flexible ways of working, playing, communicating, or transacting business serves the public good and is essential for survival in a global economy.”

Instead the courts could help by working to build bridges. Rather than taking one side, force parties to submit to mediation or arbitration. “Consider how much healthier the music industry might be today had the A&M v. Napster court ordered it to negotiate joint ownership of Napster and work together in good faith to transform the site into a legal and profitable downloading service. Napster’s founders were clearly amenable to a merger but the labels could not risk alienating their … partners, such as CD retailers and distributors, by voluntarily undertaking such an effort. Had they been forced to do so under court order, however, they might have been relieved of much of that pressure.”

It is worth remembering that the Sony Court arrived at its ruling through conventional reasoning, by considering the relative effects of their actions on both parties.

Over 25 years on, “the lesson of Sony … is still being relearned to this day.”

3 Responses to “Online Piracy – Innovation not Legislation: What We Can Learn From The Past”

  1. Jean-Luc Renaud

    Hello Will,

    It’s great to see intellectual meat being served on such a new plate. Whether it is cooked “à point” or “saignant” is left to everyone’s palate.

    You make too much of the Sony case. The Supreme Court in what is know as the “Betamax case” extended “fair use” to “time-shifting.” It did not grant the right for users to make videotaped recordings and give them around, which is more correctly the equivalent of “downloading.” The Supreme Court has always protected the right of content holder.

    When it comes to P2P download, the more appropriate case is MGM Studios, Inc. v. Grokster, Ltd. in August 2004 where the Supreme Court sided with MGM.

    For the record, in the Betamax case, the divided Supreme Court ruled 5 to 4 for Sony

    Incidentally, Sony did not sell much VCRs, at least in the early years, as Betamax lost to JVC’s VHS technology. I would be careful to “relearn” 25 years on Sony’s lesson after losing once again, this time to Apple’s iPod and soon iPad :o (

    It’s always easy to call for reasonableness with other people’s content :o )

    Let’s keep talking, I love it.


    October 11th, 2010 at 6:34 pm

  2. Will

    Hi Jean-Luc,

    Great to have the first comment from the Founder and Editor-in-Chief of industry leading resource DVD Intelligence. You make some valid points and, after a hard week authoring Bruce Lee – The Ultimate Collection Box Set, I will do my best to answer them :-)

    The main point to reaffirm is that technology moves faster than legislation therefore it is not possible to stop illicit downloading. Given this reality, the question is how to make money from this behaviour?

    As Clayton Christensen points out in his book The Innovator’s Dilemma the “more productive route . . . is to understand the natural laws that apply to disruptive technologies and to use them to create new markets and new products.”

    The interesting point about Sony v. Universal is that the resolution accommodates two opposing worldviews. It protects the rights of the content holder, while accommodating the behaviour of a new community. 7.6 million VCRs were sold in 1984, and a further 11.9 million the following year, giving market penetration of 30% in the US. This an important point because it shows the creation of a sizeable community holding different beliefs (videotaping is ok) to those of the established industry (videotaping is not ok).

    Rationalism assumes that more severe penalties have greater deterrent effect, this is true when perpetrators share values and behavioural norms. “A legal system is valid in a particular community only if ‘the bulk of the inhabitants of [that community agree to] comply with the … rules’“, mentions Labriola, citing British Philosopher H.L.A. Hart. However, Rationalism falls down when you have two sizeable communities with incompatible worldviews. When this happens, favouring one worldview over the other can produce counterintuitive results. Both in the Sony case and today with file-sharing, we have two sizeable opposing communities who do not share the same values.

    When I say “the lesson of Sony … is still being relearned to this day,” I mean, of course, the lesson of the Sony Court. Perhaps ‘relearn’ is not the right word as it implies that something has been forgotten, instead we are learning the lesson of the Sony Court through today’s better understanding of the inarticulate and unconscious thinking behind it. Don Labriola refers to Oliver Wendell Holmes whose “two most important jurisprudential works, The Common Law and The Path of the Law, incorporate a view of individuals as intuitive beings whose rational faculties can be overcome by deep-seated instincts and unconscious passions.

    You correctly point out that the case is known as the “Betamax case”, and that Sony lost the format war to JVC’s VHS. I think it is slightly misleading to refer to the case as the “Betamax case” because it had implications for all manufacturers of VCRs, including JVC. Betamax is known as being the format that lost to VHS, I’m not sure that connotation is relevant here. To say Sony came out the winners by being allowed to sell VCRs is true, they sold millions of the more expensive Betamax players (there was one in my house) and then sold VHS players from the late 1980s after Betamax’s decline. They made money.

    You define “downloading” as file-sharing and therefore question the analogy with videotaping. I think there are behavioural parallels to be drawn between the two. Defining downloading as downloading rather than file-sharing (uploading and downloading), content is taken (recorded or downloaded) from a central source (broadcast television or website). By incorporating recording into the definition of fair-use, new and successful business models emerged. Likewise, legal downloading services exist, iTunes for instance. Even legal file-sharing services exist, Spotify allows users to share their favourite music tracks with each other. The service is free in return for listening to a few adverts, or pay a small fee to remove the adverts.

    In the case of MGM Studios, Inc. v. Grokster, Grokster and others profited from advertising revenues whilst encouraging users to share copyrighted material without paying the content owners. Both iTunes and Spotify also make money from copyrighted material however, crucially, they give money to the content owners. This is why both services are legal. In the case of Sony v. Universal had users been videotaping content from a broadcast service that paid no money to the content holders, then it would be a better comparison with MGM Studios, Inc. v. Grokster. Doubtless it would also have had the same outcome.

    It is impossible to stop illicit downloading. We would much rather get something for free if we could. Businesses have to come up with attractive alternatives, create reasons why someone would choose to use their service instead. iTunes, Spotify and, another example I haven’t mentioned, Love Film, do this. Of course people are still downloading illegally. Get over it, move on and innovate.

    Businesses, like mine, in the entertainment service industries have had to innovate too. Deluxe for instance have spent two years adapting their business to cope with the new landscape, diversifying from DVD authoring to multiple services including developing iPhone apps. My company, Pink Pigeon, is soon to launch an online duplication service. Recognising that DVD authoring is no longer the core service it was in 2002 when I started my business, we are catering to a world in which individuals have more creative tools available. Whilst continuing to educate and up-sell the value we offer in our creation services.

    October 16th, 2010 at 5:09 pm

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