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IP & Creativity 2005

On March 16, 2005, the Consumer Electronics Association (ce.org) hosted a one-day conference at the Washington Convention Center in Washington DC. The name of the conference was IP and Creativity: Redefining the Issue. The conference was focused on the legal conflicts between the Consumer Electronics Industry and Content Industry over Intellectual Property, particularly MGM v Grokster. In pursuing Grokster to the Supreme Court, RIAA and MPAA are seeking to weaken the protections that CE enjoys from the Betamax decision of 20 years ago.

CE v Content

The Consumer Electronics Industry and The Content Industry need each other. Without delivery technology, the Content Industry would be much smaller. Without content, CE products would have much less value. These industries from time to time have become combative. This occurs when CE introduces new products which disrupt Content's business models. A CE company has a choice to produce disruptive products or not. Content companies do not have such a choice, unless they choose to go to the government in an effort to protect their practices from change. Historically, the Content industry has always lost such battles, and they have always benefited significantly from the loss. For the Content businesses, fear and uncertainty overwhelm potential profitability.

This time, there is a chance that Content will win the battle. Content has done a brilliant job of changing the language. The way questions are asked gives them a huge advantage no matter how they are answered. Content has done an effective job of lobbying the Congress. It appears that they can get from the Congress anything they can't get from the Courts. Content has also done an effective job of intimidating CE, turning DRM (an ineffective nuisance) into a business necessity.

It is now CE that is feeling fear and uncertainty. If Content gets the power to regulate change, then CE loses the ability to innovate and determine its own future.

The conference was about this conflict. It had two conflicting goals: to find a common ground between CE and Content (that is, to become more moderate), and to increase CE's advantage against Content (that is, to become more polarized).

Language

The Content Industry has carefully constructed the language of the debate. For example, they talk about Intellectual Property as though it has equivalence to Real Property. By doing so, they have increased their powers significantly beyond what is granted by copyright. For example, the criminal penalty for downloading a song can be significantly worse for than stealing a CD from a store. Shoplifting is a misdemeanor. Downloading is not necessarily a crime, but they have declared that it is theft, and that they suffer more greatly than they do from real theft.

Similarly, the term Piracy originally meant the hijacking of shipment of real goods. It was then corrupted to mean unlicensed manufacturing. It now means to share music on the Internet.

The propaganda campaign has been so successful that many consumers now believe that some legal home recording activities are illegal.

Gary Shapiro, the CEO of CEA, recommended that we change the language again, that we talk about Copyright instead of Intellectual Property, and Infringement instead of Piracy.

Polarization

The debate between CE and Content is becoming more political. In time the whole country may become polarized. It is not a Conservative v Liberal issue, which makes it unusual for these partisan times. On CE's side we have

The IT industry, which is also worried about losing the Betamax Decision protection.

The Gun Lobby, because if manufacturers become responsible for the crimes of their customers, then gun makers will be sued out of existence.

Young people, because they use the Internet.

On Content's side,

Parents and moral leaders who believe that stealing is wrong.

CE is in a difficult position politically because their position can be made to look like they are encouraging children to steal. Hollywood, however, is not on firm moral ground with the Religious Right.

Evidence

Since Internet filesharing has become popular, the Recording Industry has experienced a significant decline. The industry blames the decline on Napster and its followers. There are also other possible explanations: DVD and games are cannibalizing sales. The current music product is not very good and not as attractive to buyers. The evidence is cloudy. The Effect of File Sharing on Record Sales: An Empirical Analysis by Oberholzer & Strumpf and suggests that the Recording Industry's problems were not caused by downloading, but other studies show the opposite.

Hollywood has not experienced any problems yet, but they are worried. DRM is a manifestation of fear.

Congress

Rep. Rick Boucher (D-Va) is introducing legislation with Doolittle and Barton which would

Boucher has been pushing this kind of legislation for years. It is not clear that he can get enough support to get it passed. CEA is urging its members to support it.

Senator Norm Coleman (R-Mn) asked that CE and Content find common ground and compromise. Congress does not want to be drawn into the conflict, although it has already passed DMCA and other copyright law for the Content Industry.

MPAA is trying to attach Broadcast Flag authorization to the Analog Switchoff Bill.

DRM

DRM (Digital Rights Management) was presented as a means of settling the conflict without involving the Congress. However, there was still the agreement that DRM will be broken. It was agreed that the public will reject DRM that is too restrictive or too complicated. There were suggestions for things like micropayments and compulsory blanket licenses. There was agreement that surveillance of consumers should not be used for enforcement.

What Next?

It is not clear how this gets resolved. Both sides think that their very futures are at stake. Things have gotten so polarized and heated that neither side can back down. After all, trivial matters do not get to the Supreme Court.

I think that the best outcome will result from the passage of Boucher's bill. I think the Recording Industry is in danger from disintermediation, not from piracy. It is now possible for fans to have a direct relationship with the talent. The Recording Industry is no longer necessary. Congress should not be trying to protect extinct industries. The Recording Industry can survive if it transforms itself into Services for Musicians. I think that Hollywood will ultimately adapt its models to the new technologies. It will find that electronic distribution to theatres and same-day release to DVD will significantly increase profits and virtually eliminate piracy.

What will be the actual outcome? I can't predict.