Lentis/Intellectual Property in the Internet Age

The Internet provides users an unprecedented ability to access almost any content they desire with the click of a button, but sometimes this convenience allows users to obtain material to which they do not have legal rights. While some stand by these actions as just and others view it as theft, the Internet has undoubtedly added a new dimension of difficulties to the protection of intellectual property.

A Brief History of Intellectual Property and Technology

Home Taping is Killing Music. This slogan and logo were used by the British Phonographic Industry as part of a campaign to fight copyright infringement.

The dichotomy of producers and consumers is not a new one, and the introduction of new technologies always acts to shift the balance of power between the two groups. At various times, radios, VCRs, cassette tapes, and portable mp3 players have all enabled consumers to access content in new ways that concerned content producers. Similarly, producers have fought to protect their rights through legislation and marketing. Ultimately, however, producers tend to adapt to, and find opportunity in, new technologies.

Intellectual property (IP) is a creation of the mind for which exclusive rights are reserved and recognized. IP can be a variety of intangible asset such as music, literature, art, words, etc. Many different types of intellectual property exist, though the three most common ones are copyright, trademarks, and patents. Copyright prevents illegitimate duplication, display, distribution, and performance of a work. Trademarks are distinctive signs or indicators used by businesses to distinguish themselves from competitors to the consumers. Patents are exclusive rights for inventors of inventions (or assignees of patents) to use that invention for a limited period of time (i.e. 20 years). Copyright infringement overwhelmingly makes up the majority of intellectual property infringement found on the internet.

Before the Internet

Sony's Betamax VTRs

A precursor to the IP debate today is the Sony Betamax case. In the late 1970s, Sony introduced the Betamax, a videotape recorder (VTR) that allowed owners to record television shows on videotapes and watch them at a later, more convenient time. This phenomenon is known as “time shifting”.

Many film production companies and broadcasting companies were concerned about the Betamax’s recording capabilities. The film industry didn’t take any measures right away because Congress was working on a major revision to during that time, but Congress failed to include any new protection for the film industry in the final version of the act.

Shortly after the new Copyright Act of 1976, Universal City Studios sued Sony over the Betamax, alleging that because the Betamax could be used for copyright infringement, Sony would be liable for any copyright infringement committed by Betamax owners.

Courts' Decision

The Universal City Studios, Inc. v. Sony Corp. of America case was heard in the District Court of California in 1978. The court ruled in favor of Sony on the grounds of non-commercial home use was deemed “fair use” under the new Copyright Act of 1976.

Universal City Studios appealed the case to the Ninth Circuit Court where the ruling was reversed. The appellate court said that Sony was indeed liable for contributory infringement and further went on to claim the Betamax is not a staple article because its main purpose was copying.

Eventually, the case was heard by the U.S. Supreme Court [464 U.S. 417 (1984)] which ruled that Sony was not liable for contributory infringement. The major issue the Court faced was establishing a general test to determine if a device had substantial non-infringing use, which introduced interpretative challenges for courts to rule on future cases involving new technologies and the internet.

Intellectual Property and the Internet

The Pirate Bay is a popular source for infringing material.

Unlike innovations such as the radio or the cassette tape, the Internet does not represent a singular threat to the content industry. Rather, the Internet enables a wide array of technologies that can be used for infringing activities. These include websites dedicated to streaming music or videos, services allowing users to directly share files (including the popular BitTorrent protocol), and websites representing large collections of files available for download. However, such services are not always illegal. Popular music streaming site Pandora maintains legality through deals with the rights holders of the music it makes available. Television networks such as NBC and CBS make some episodes of their shows freely available to stream online. It can also be unclear at times whether something constitutes copyright infringement. When an individual remixes a song to which he or she does not own the rights, arguments can be made that this is a violation of copyright law or a legitimate act of creation. The same is true when an individual records their own commentary over a video owned by somebody else and claims that it is an act of parody.

Social Response

This uncertainty has led to a new dichotomy that is less well-defined than that of producers and consumers. On one side are those who strongly support the rights of copyright holders to defend what may be called their property. These generally include the copyright holders themselves (e.g. MTV and Warner Music Group) and organizations representing copyright holders (e.g. the Motion Picture Association of America or the Recording Industry Artists of America). While most such companies have embraced the Web as part of their business model, at the same time, they also resent the piracy opportunities provided by the Internet. Senior executive vice president for the Motion Picture Association of America, Michael O’Leary, expressed the general feeling of people in this set: “There’s no reason we can’t get together and work together, but it’s difficult to do business with a business model that is based on theft.”

A parody of BPI's marketing campaign commenting on the perceived detrimental effects of Digital Rights Management methods.

On the other side are people who seek to take advantage of the opportunities provided by the Internet, such as internet users accessing content freely online, musicians freely releasing their music online, and lawmakers looking to embrace the new culture created by the Internet rather than criminalize it. The result of a survey, in which 7000 people who admitted to have illegally downloaded content online participated, showed that convenience and zero-cost are the two elements about internet piracy that attracted them the most. President of the Pirate Party Australia political group, David Crafti, responded that “People aren't just looking for a free ride. They're living in the modern world and expecting business models to keep up with them…what it comes down to is freedom. They just want to know that they've got the data, they can watch it whenever they want, on whatever device they want.”

Prevention Methods

The approaches to dealing with the problems surrounding intellectual property have been varied. Some have turned to legislation or marketing campaigns to try to combat online piracy. Others seek to address the causes of infringement. Some research suggests that copyright infringement is often a response to copyright holders removing value from products with things like Digital Rights Management methods, or even to the difficulty of obtaining a product legally or at all. Others have suggested that copyright infringement ultimately leads to increased legal sales, and that it is therefore not a problem.

Legal Response

Digital Rights Management

Protesting DRM

Digital Rights Management (DRM) is a technological mechanism used by IP owners to limit the use of digitally distributed content or devices. DRM technologies are most commonly seen on video games (prohibiting unauthorized copying and distribution), computer software, electronic reader (e-readers) and tablets, and VHS tapes, DVDs, and Blu-ray disc.

DRM was not well received by the public. Many organizations, individuals, and software developers opposed DRM, claiming that there are many ways to profit off of non-DRM works.

A major flaw of DRM is that there are numerous ways to bypass DRM technology, leading to DMCA, which criminalized the making any technology designed to circumvent protection techniques.

Digital Millennium Copyright Act

In 1998, the Digital Millennium Copyright Act (DMCA) was signed into law in the United States. This law sought to update U.S. law in response to growing questions about digital technologies. Perhaps the two most important provisions introduced by the DMCA in relation to the Internet are those of safe harbor and takedown notices.

The concept of safe harbor is established in Title II of the DMCA. This provision protects online service providers, from liability in claims of copyright infringement. The intended effect of safe harbor is to have disputes about infringing activities settled between the rights holders and the users who are accused of infringement.

The DMCA creates takedown notices as a means by which copyright holders can assert their rights. A content owner can submit a takedown notice to a website if they believe that some content on the site infringes on their copyright. It then falls to the website in question to remove the content or to the user in question to challenge the takedown request. The DMCA's takedown notices have drawn some criticism, however, with suggestions that this provision makes it too easy for websites to get away with infringement and that false takedown notices can be used maliciously.

The Stop Online Piracy Act & The PROTECT IP Act

The Stop Online Piracy Act and the PROTECT IP Act are two similar bills proposed in the United States Congress to address the issues of Internet-enabled copyright infringement. These bills would introduce several measures by which copyright holders could seek to protect their rights, including cutting off funding to foreign websites, barring search engines from indexing infringing sites, ordering Internet service providers to block access to infringing sites, and making it a felony to stream copyrighted material online.

Anti-SOPA

These bills have proven divisive, with myriad organizations voicing their support or opposition. Some groups in favor of these bills are the Motion Picture Association of America, the U.S. Chamber of Commerce, the Better Business Bureau, the AFL-CIO, and the Screen Actors Guild. Some groups opposed to the bills are Google, Yahoo, Facebook, the Electronic Frontier Foundation, and the Consumer Electronics Association.

Much of the opposition to these bills focuses on three primary issues. First are concerns about broad definitions and vague wording in the bills. If copyright holders were to misuse the provisions in these bills the way DMCA takedown notices have been misused, the result could be a relatively simple means by which a website can be shut down without opportunity for recourse. This has led to concerns that these bills could be used to force non-infringing sites offline. A second primary concern surrounding these bills is the effect they could have on the infrastructure of the Internet. The bills allow for courts to order Internet service providers to block certain websites, but the means by which they do so could threaten the stability and reliability of the entire Internet. Third, opponents of these bills voice their concerns that these bills would take the United States too far down the road of censorship.

Online Protection & Enforcement of Digital Trade Act

The Online Protection & Enforcement of Digital Trade Act (OPEN Act) is a bill proposed in Congress as an alternative to the recently dismissed SOPA and PIPA bills. The OPEN Act's primary goal is to stop the transfer of money to foreign websites that specialize in piracy and counterfeiting, to stop the cash flow to these rogue sites and to cut off the profits for the people who are illegally distributing copyrighted materials behind these sites.

International Response

Current globalization trend, coupled with digitization, is steering the world toward a new era of intellectual property theft. Despite new laws and regulations aimed to mitigate the situation, internet piracy has in fact been growing continually all over the world.

After copyright infringing videos were forcibly taken down from websites such as YouTube and Dailymotion, China has grown to be the world’s piracy haven on the web. From September 2007 to September 2008 alone, the number of copyright infringing videos, often full TV shows and movies, uploaded onto Chinese sites such as Youku and Tudou has experienced a six-fold increase. Clearly, purging of western websites does not solve the problem of internet piracy; it only leads to a massive migration of infringing content to sites based in foreign countries.

In 2010, Midem placed South Korea as the world’s number two online music pirate, only after China, with 60% of internet users having downloaded music from illegitimate online sources for free. One cause for this high piracy rate is the emphasis that Korean government places on turning the nation into the world’s most “wired” country, with mobile penetration exceeding 100% and access to a high-speed internet in virtually all households. Despite the pass of three-strikes legislation, which gave authorities the power to cut off internet access to persistent file sharers for up to six months, in 2009, the digital-distribution infrastructure is inevitably affecting recorded-music sales while facilitating online piracy.

These high online piracy rates in foreign countries are clearly cutting into the profits for companies in the United States and at the present, the United States does not seem have any effective way to prevent it.

Technological Response

The rise of internet piracy has created a market for innovators to reinvent the way that copyright holders are compensated for their products.

Spotify

Spotify allows users to stream millions of songs to their desktop for free. Using a “freemium” model, the software presents users with the option to pay for the removal of advertisements, or more playback capability. It also offers social features, allowing users to share music with friends from within the application or on Facebook.

Originally founded in Sweden, Spotify was invented specifically with piracy in mind. In the words of CEO Daniel Ek “I was born in Sweden, and in Sweden we are known for the piracy services…I decided I wanted to create a product that was better than piracy.” Studies show that the launch of Spotify in Sweden was responsible for a 25% drop in music piracy after only two years.

Spotify has seen success in the music industry, with 20 million free subscribers and 5 million paid users globally. In 2012, Spotify became the second largest revenue source for music labels with $3.2 billion paid to music publishers in 2011. With plans for a web client, and alternate payment models, Spotify seems intent to offer an attractive alternative to piracy.

Pandora

Heralded as one of the first two technologies to reduce music piracy, Pandora is an ad-supported internet radio website that allows users to discover new music.

Unlike Spotify, Pandora does not allow users to replay songs for licensing reasons. Although it has 100 million users and saw revenue of over 100 million this past year, Pandora is in financial trouble. This is partially because Pandora pays over 70% of its revenue back to the industry.

In an attempt to make it easier to profit, Pandora is lobbying for Congress to pass the Radio Fairness Act, which would lower the rates that internet radio services are required to pay for the music they stream. Pandora sees this as an evolutionary change, and hopes to ride the same wave of internet activism that halted the Stop Online Piracy Act in 2011.

Hulu

Hulu is an online video streaming service that gives free and premium users access to popular TV shows. Like Spotify, Hulu is based on a freemium revenue model which relies on ads and paid services rather than charging per episode of a show. This model has been very successful in combating piracy, as users find it easier to use Hulu than to pirate TV shows. A study by TorrentFreak indicated that the launch of Hulu in 2008 reduced the piracy of many TV series by one third.

In 2011, Fox delayed the availability of TV shows on Hulu by 8 days, which resulted in a surge in piracy for many shows. This indicates that many people were using Hulu rather than pirating online TV shows. Now, Hulu "Plus" offers a premium service that removes that delay, and has 2 million subscribers.

Conclusion

The issues surrounding intellectual property and the Internet have no obvious solution. Hasty action on the part of legislators and rights holders risks sacrificing the myriad opportunities afforded by the Internet, but disregarding the rights and concerns of copyright holders risks undermining the entire concept of intellectual property. Copyright holders, consumers, legislators, Internet users, and more all have a stake in the outcome, and will have to strike a balance between their conflicting interests for these issues to be resolved. However, recent success in combating online piracy through reinvention of business model has shed some light on effective solutions to such problem for the future. Technology will continue to progress, potentially raising new questions, but ultimately, only those that have identified the precise customer value proposition of the time will succeed.