Michael A. Einhorn, Ph.D., is the author of Media, Technology, and Copyright: Integrating Law and Economics (2004) and senior adviser to an international consulting firm. Bill Rosenblatt is president of GiantSteps Media Technology Strategies (www.giantstepsmts.com), managing editor of the newsletter DRM Watch, and author of Digital Rights Management: Business and Technology (2001).

Executive Summary

The term "peer to peer" (P2P) refers generally to software that enables a computer to locate a content file on another networked device and copy the encoded data to its own hard drive. P2P technology often attracts people who use it to reproduce or distribute copyrighted music and movies without authorization of rights owners. For that reason, the short history of P2P technology has been one of constant controversy and calls by many in the content industry to regulate or even ban P2P-based networks or software.

As a general preventive measure against copyright infringements through digital technologies including P2P, copyright owners often use digital rights management (DRM) techniques to encrypt content or otherwise restrict access. Depending on the access or compensation arrangement, content owners may differentiate prices and limit use by the number of plays, duration of access, temporary or partial uses, lending rights, and the number of devices on which the file may be accessed. The potential level of use control may go beyond the expectations of consumers accustomed to a broader range of uses enabled by analog technology. Consequently, many consumer advocates now contend that DRM is harmful to consumers because it tilts the balance of control in favor of copyright holders. For their part, rights owners respond that DRM merely offsets grave dangers made possible by digitization and Internet distribution.

This study argues that the basic functions of DRM and P2P can be quite complementary and that innovative market mechanisms that can help alleviate many copyright concerns are currently blossoming. Government should protect the copyrights of content owners but simultaneously allow the free market to determine potential synergies, responses, and outcomes that tap different P2P and DRM business models. In particular, market operations are greatly preferable to government technology controls, on the one hand, or mandatory compulsory licensing schemes, on the other. Recent court decisions regarding the liability of P2P networks or software providers may force the Supreme Court to revisit its own precedents in this area. In the absence of an efficient resolution by the Court, Congress may pass legislation that may interfere with both technological evolution and free-market processes.

Introduction

This study examines how digital rights management (DRM) may complement peer-to peer (P2P) technology and help solve many of the intellectual property problems now hotly contested in the current policy arena. From a popular vantage point, Napsterthough not a pure P2P network (because it relied on a central server to direct users to sought content)illustrated the mass appeal of P2P file sharing.^[1] The Napster phenomenon gave rise to networks built on FastTrack, Gnutella, and other software, which have been designed without central servers and have so far avoided Napsters legal fate.

P2P services are potentially beneficial for a number of reasons. They allow users to search for and download content files located anywhere in the network. That could make it much easier to find works in the public domain, assist new artists who can publicize their abilities, and widen the audience for political speech otherwise confined to a few listeners. However, the costs are sobering; most users simply engage the software in order to find music and movies that have been ripped and uploaded to network nodes for free taking by others.^[2] That threatens the content industries by displacing unit sales and licensing opportunities, and thereby undermines their business models for delivering content.

Though the content industries prevailed in litigation against Scour^[3] and Aimster,^[4] industry attempts in California to close down Grokster and Streamcast failed in district and circuit courts,^[5] In the Grokster and Streamcast cases, the courts ruled in summary judgment that the particular programs in question had significant, noninfringing uses that qualified for legal protection under the Supreme Courts 1984 landmark decision in Sony v. Universal City Studios, which upheld the legality of the videocassette recorder.^[6] The district and circuit courts also found that neither software provider had the requisite knowledge of actual infringement or the ability to curtail immediate use to qualify as a contributory or vicarious copyright infringer. Thus, at least for the time being, and contrary to the wishes of industry, decentralized P2P operations remain in business and free of contributory and vicarious liability for copyright infringement.

Meanwhile, the industry continues to look to DRM technologies to stem the tide of unauthorized file sharing. Legally different from copyright itself,^[7] digital rights management refers to technological tools and capabilities that monitor content use and shield against unauthorized uses or distributions. DRM can then go some way toward protecting intellectual property by helping content owners to stop copying, enforce use restrictions, and otherwise assert property rights to copyrighted material. In contrast tpo the views of many critics, DRM is an important facilitating mechanism for protecting copyrights in a free market.

Moreover, by preserving property rights made possible through new market techniques, DRM encourages producers to innovate because they are more certain of eventual reward. That facilitates the process of creative destructionthe new ideas, products, processes, and organizational modes that are hallmarks of dynamic capitalism.^[8] Government intervention in this competitive process could be harmful.

Notes

^[1] A&M Records, Inc. v. Napster, Inc., 114 F. Supp. 2d 896 (N.D. Cal. 2000); 239 F.3d 1004 (9th Cir. 2000).

^[2].David Lange, Recognizing the Public Domain, Law and Contemporary Problems 44, no. 4 (1981): 147; Yochai Benkler, The Battle over the Institutional Ecosystem in the Digital Environment, Communications of the ACM 44, no. 2 (2001) 84; and Lawrence Lessig, The Future of Ideas: The Fate of the Commons in a Connected World (New York: Vantage Books, 2002), pp. 24961.

^[3] Benny Evangelista, Scour Expands Napster's Concept beyond Swapping Music, San Francisco Chronicle, May 18, 2000, http://www.sfgate.com/cgi-bin/article.cgi?file=/chronicle/archive/2000/05/18/BU84030.DTL&type=tech_article (retrieved August 22, 2004). Scour filed for bankruptcy after the record and movie industry filed suit against it.

^[4] Relevant papers can be viewed at http://www.riaa.com/news/filings/aimster.asp (retrieved August 22, 2004).

^[5] Metro-Goldwyn-Mayer Studios et al., v. Grokster, Ltd., et al., 259 F. Supp. 2d 1029 (C.D. Cal. 2003); 2004 WL 1853717; ---F.3d---- C.A.9 (Cal.), 2004, http://techlawadvisor.com/docs/mgm-grokster.html.

^[6] Sony Corp. v. Universal City Studios Inc ., 464 U.S. 417, 453 (1983).

^[7] The district court in Universal City Studios v. Reimerdes held that users may not break access protection even to enable fair use protected in the Copyright Act. Defendants are not here sued for copyright infringement. They are sued for providing a technology designed to circumvent technological measures that control access to copyrighted works. . . . If Congress had meant the fair use defense to apply to such actions, it would have said so. Indeed, as the legislative history demonstrates, the decision not to make fair use a defense to a claim under Section 1201(a) was quite deliberate. 82 F. Supp. 2d 211 (S.D. N.Y. 2000).

^[8] Joseph A. Schumpeter, Capitalism, Socialism and Democracy(New York: Harper Collins, 1947).

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