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December 5, 2001

The Great Chess Game

Business leaders need to be involved in the legislation and policy debates for copyright

By Nicholas Imparato

Managing the intelligent enterprise involves more than choosing the right configuration of boxes, wires, and software. A whole set of policy questions makes up the larger universe. Specifically, intellectual property (IP) issues are among those that executives and entrepreneurs should be thinking about. To paraphrase law professor Jessica Litman: Eventually someone else's copyright strategy helps shape your own information policy.

I offer the following analogy to make my point: Just as erecting a massive, state-of-the-art office building only to locate it on an active fault line doesn't make sense, adopting "brilliant" policies, strategies, and business models that fly in the face of the way the world is being shaped by regulators, judges, and legislators is also illogical. In both cases, disaster awaits.

OPPOSING SIDES

Allegedly, the first reality in the IP wars is that two camps are vying for position on the chessboard. The technology advocates are on one side, and the IP advocates are on the other.

The technology camp comprises hardware manufacturers and companies like Napster. Their ambition is to push technology as far as it can go to deliver the services and products that consumers want. The battle cry is that copyright and IP protections exist to ensure a public good. The objective is economic welfare for society at large, not just the copyright holders.

The opposition comes from content players such as Disney, record companies, and publishing houses. Their interest is in protecting the content they own or manage. They report that economic losses due to software piracy alone are in excess of $10 billion. Without the proper protections, content creators lose their incentive to create, and consumers and society lose. This philosophical underpinning of 200 years of evolution in IP, they claim, must now be effectively applied to the digital era. In effect, the Internet should not become a "copyright-free zone."

Of course, the contest is not all that rigid. Some people, economist Robert E. Hall among them, maintain you can be strong on both property rights and technology simultaneously. Hall has argued that Napster followed the appropriate law, the Digital Millennium Copyright Act (DMCA), in permitting users to copy music even though the copyright holders hadn't given permission. (Hall, a colleague at the Hoover Institution, filed an expert report on behalf of Napster when it was sued by the recording industry.)

Hall's argument turns on the music companies' failure to watermark their digital music. Because Napster didn't help users "circumvent an effective protection technology," Napster should have been in the clear. The burden was on the record companies first and foremost.

Fair enough, say some on the other side. But if so, then they want explicit permission to do the things that can safeguard their digital content — a host of copyright protection measures such as digital labels. They want the government to update DMCA in view of the technological developments since the law was passed three years ago. They want explicit, unambiguous, no-wiggle-room prohibition against anyone fiddling around or interfering with these protection measures.

And they think they deserve the cooperation of Internet service providers and computer manufacturers. Violation of copyright will hurt everyone eventually, goes the argument, so let's get together and work this out among ourselves, the enablers included, to avoid more government involvement than necessary. The position is that if any industry's copyright protection is under attack, then no other industry's protections are secure. And infringement is infringement is infringement, winks or no winks.

COMING MOVES

Already, some people are claiming that because government ultimately defines what IP rights are, it should develop policy and legislation that reflect the way the world is today and depend less on ad hoc regulations and judicial decisions driven by old law. Others complain there is no hard data to make informed decisions about the economic effect of a change in current law or any proposed legislation.

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Some people have even argued that a systematic and disinterested study of the public's attitudes is called for. And, given the increasing importance of IP in a new global economy, some worry most about the international trade implications of any policy that affects IP rights. All these are legitimate concerns.

In short, this debate will not end any time soon. The stakes are too high, and the environment is too dynamic. But it is foolhardy, even irresponsible, for business leaders of any company not to be involved. Except, of course, if you're in a business where information, ideas, data, democratic values, privacy, economic incentive, creativity, technology, and innovation are unimportant.

Nicholas Imparato [imparato@hoover.stanford.edu] is editor of Public Policy and the Internet (Hoover Institution Press, 2000).

RESOURCES

Robert E. Hall. Digital Dealing. W.W. Norton and Co., 2001