Digitization and Its Discontents:
Digital Rights Management, Access Protection, and Free Markets
Michael A. Einhorn, Ph.D.*
Senior Advisor
The Brattle Group
1. INTRODUCTION
Digital rights management and access protection entails the operation of software or hardware control that can monitor, regulate, and price uses of digital files that contain protected content or software. Electronic monitoring of a protected file is generally administered now through attached rendering software or containment that ensures access only to authorized users. Depending on the price that a user pays, protective owners may also limit use by number of plays, duration of access, temporary or partial uses, lending rights, and the number of devices on which the file may be accessed. Containment can also be complemented with watermarks or flags that signal whether the work is copy-protected. Finally, hardware programming can reduce the risks of tampering with vulnerable software by placing detection capabilities in the chip or processor rather than in the enabling software itself.
Digital rights management and related access control are protections in software or hardware code that are legally different from copyright, which entails the legal protection of underlying works from unauthorized reproduction, distribution, derivation, public performance, or display.[1] Copyright protection is principally limited by term duration,[2] fair use,[3] the first sale doctrine,[4] the idea-expression dichotomy,[5] and exemptions for libraries,[6] classrooms and distance learning,[7] and the blind and the handicapped.[8] In contrast, access protection entails technological protections that shield a copyrighted work from the attempt to copy, while DRM may limit or permit later use of an accessed work.[9] Both DRM and access protection then are technology protections that are akin to measures that disallow “black boxes” to decode scrambled cable signals or devices that circumvent the Serial Copy Management System. As such, access protection might not be subject to the same legal limitations and user rights now established in traditional copyright.
This article examines access protection and digital rights management from an economic perspective oriented around actual experience in free market behavior. In the paradigm of Schumpeterian economics (i.e., technological competition),[10] market processes enable the cadences of ‘creative destruction’ – new ideas, products, processes, and organizational modes. In an environment that is imperfectly understood but learnable, economic efficiency is here gauged more by its capacity to create, order, and resolve, rather than by static welfare measures common elsewhere in the economics profession. In integrating the institutions of law with a foundational base in economics and technology, we are then engaged as participants in a ‘science of the artificial’[11] – the attentive design of a process to accommodate system complexity when intelligence is widely distributed and information open-ended.
Examined as market facilitators, access protection and DRM may reduce the dangers of unauthorized reproduction and distribution of copyrighted works, and therefore provide greater incentive for digital presentation of new content and software. However, there is a positive side for economic consideration as well. By eliminating arbitration, DRM may also enhance the range of producer offerings, deepen service versions, and enable more market combinations and organizational modes. In particular academic and library uses, agents can then be expected to come to accommodative licensing arrangements and institutions that enhance transaction efficiency yet further. The upshot is that a free market may drive digital techniques toward beneficial ends in manner that the harshest critics might have not appreciated.
The general economic case for DRM should not be confounded with other matters related to copyright protection, such as duration and scope. With regard to term duration, the Berkman Center at Harvard challenged the Copyright Term Extension Act of 1998, which extended the duration of copyright an additional twenty years in a manner that had a contested economic justification.[12] Moreover, three Brace Lecturers (David Lange, Alex Kozinski and Pierre Leval) suggest that the scope of copyright be limited; i.e., Lange would extend fair use to a greater number of derivative works, while Kozinski and Leval would implement liability rules to accommodate easier access for secondary users.[13] As evidenced in the positions of self-described “copyright enthusiast” Jane Ginsburg,[14] these reservations regarding the extent of copyright are not inherently antithetical to support for DRM, which implicates only usage rights regarding digital media that are controlled during the proper range of protection.
2. CONSUMER CHOICE AND VERSIONING
A strong case for access protection and DRM was set forth initially by the Clinton Administration’s White Paper, Intellectual Property and the National Information Infrastructure, which argued for laws that would outlaw technologies that might circumvent it.[15] The White Paper was a key influence behind the subsequent Digital Millenium Copyright Act of 1998 (DMCA),[16] which Congress enacted to “facilitate the robust development and worldwide expansion of electronic commerce, communication, research, development and education” by “making digital networks safe places to disseminate and exploit copyrighted materials.”[17] In passing the DMCA, the U.S. more than met its treaty commitments that had been established under Article 11 of the WIPO Copyright Treaty, and Article 18 of the WIPO Performances and Phonograms Treaty, which specified that parties must provide “adequate legal protection and effective legal remedies against the circumvention of effective technological measures” used by authors, performers, or producers of phonograms “in connection with the exercise of their rights.”[18]
The nation's four national academies (National Academy of Sciences, National Academy of Engineering, Institute of Medicine, National Research Council) sounded a more cautionary note with their joint publication of The Digital Dilemma: Intellectual Property in the Information Age.[19] The report expressed concerns that access protection and DRM would create a ‘pay-per-use’ society, eliminate fair use of copyrighted works, and put into place a regime of superdistribution where copyright owners would attach fees to each subsequent copy of any original download.[20] Digital protection could also lead to loss of historic records, the deliberate non-sharing of content, constraints on audience activities and access times, and general difficulties that may result as digital presentation of information came to replace offline production.[21] Pamela Samuelson likened the outcome to fascism,[22] and Lawrence Lessig compared content owners to dinosaurs.[23]
Moving from polemics to economics, the technical ability to protect access and monitor use of software and content files may actually benefit consumers. While suppliers of content conceivably may attempt to use DRM to encumber desirable uses otherwise protected by “fair use” or “first sale”,[24] content providers who hinder user control necessarily reduce the value of their own product. Consequently, producers who institute restrictive rules or technologies, or otherwise fail to appreciate the importance of customer ease, actually reduce market demand and prices..
Moreover, DRM provides to content suppliers the ability to market different versions of digital product. For example, the right to download, copy, and lend a legally accessed movie or sound recording may be priced differently than the right simply to download content without making further transmissions or reproductions. Accordingly, a digital rights system presents different versions and optional rights[25] allows the rights owners to price individual components and extract varying payments from different kinds of users.[26] Overall, DRM then enables versioning – the offering of granular or more personalized options to individual users.[27]
The concept of versioning is not new in market economies. Magazine publishers make content available for both subscription and single copy, and studios make film available in first-run theaters, video stores, and television and cable channel specials.[28] With merchandise versioning, occasional readers can enjoy a magazine on a “pay per use” basis, while devoted buyers may become subscribers; intense movie fans run to first release theaters, while couch potatoes rent videos. Versioning then allows consumers the choice of a number of service options rather than the confinement of any one. This is scarcely fascism.
However, resale or arbitrage between low- and high-end markets cannot be permitted if versioning is to operate effectively. By stopping resale or redistribution of content from one market segment to another, access protection and DRM then enable producers to develop more versions. Besides stopping viral reproduction, access protection and DRM then may widen product diversity and consumer choice. Presenting the economic concept, William Fisher of Harvard University would write in 1988, “judges should watch for situations in which unauthorized use of copyrighted material undermines price discrimination schemes [i.e., versioning] and should be chary of holding such uses fair.” [29]
Versioning is profitable because producers can monitor varying customer demands differently. In so doing, discriminating producers who can extract greater revenue from across the user spectrum will have more incentive to produce and release more content and present more features. The prospective use of differing versions and prices is particularly defensible in content industries, where vast production costs are sunk upfront, but incremental production and distribution costs are modest.
The effect of versioning upon individual users is bifurcated. Economists would tend to agree that smaller users will assuredly gain. This is because producers may actually lower prices for “no frills” services to basic customers without worrying about losing revenues from high-end users, who can be expected to choose a different version. Content owners may also use personalization techniques to identify prospective first customers and extend to them free previews, time-limited rentals, and low-price introductory offers.
At the other end of the consumer spectrum, the most intense users of any product can be expected actually to pay more under versioning than otherwise.[30] This is because discriminating producers may extract incremental consumer value by charging higher prices for deluxe services, without worrying about attrition among less intense users. Despite the higher prices, the large customers may yet be better off, as suppliers also have greater incentives to innovate and present more deluxe features if they can be additionally compensated for their effort.
With the capabilities of digital technology, “an information goods producer can almost costlessly package these goods in a wide variety of configurations, opening the possibility for more complex product and pricing configurations.”[31] Moreover, version experiments provide new loads of undiscovered user information and technical process that can be refined in the market crucible.
3. THE MUSIC SERVICES
Nowhere are the potentialities of DRM made more evident than in the evolving market for music services. In the past year, a number of events have reordered the constellation of suppliers and services considerably, as market entrants now push early leaders for new customers and long-term market position. As a consequence of the market buildout in the past year, the percent of U.S. downloaders who actually paid for a song at one point or another increased from 8 percent to 22 percent.[32] Thirty percent of these downloads were from independent labels not owned by the five major music companies, in contrast with the counterpart in offline markets of 20 percent.[33]
Current Music Services
Reflecting the importance of new technology and organizational mode, the market in 2003 moved some distance from the original business models of the two music services – MusicNet and Pressplay – that were controlled by the major labels. Jointly owned, MusicNet (Warner, EMI, BMG) and Pressplay (Universal, Sony) largely rented music to listeners; i.e., they allowed full sampling through streams and downloads, but ended access to all previously downloaded music at termination of service. The label services attempted to version the market by price discrimination based on intensity of use (i.e., purchase volume), although Pressplay permitted a limited number of burns for an additional fee.[34] Roxio integrated Pressplay into Napster after buying it from Universal and Sony, while MusicNet has become increasingly marginalized as America Online engaged with iTunes and Real Networks bought up Rhapsody.
In contrast to the experience suffered at MusicNet and Pressplay, four alternative business models gained popularity in the year 2003: paid downloads complemented by the sale of enabling hardware, downloads complemented by the penetration of enabling software, downloads complemented by interactive radio, and streaming subscriptions complemented by paid downloads. While the market for each technology has grown, it is not clear which of these may actually survive, much less dominate.
1. Downloads plus hardware: IIn April, 2003, Apple Computer launched an innovative Internet Music Store, or or iTunes, that was to become the market leader in legitimate downloads by the end of the year.[35] Encoded with Advanced Audio Coding (AAC), individual songs at the Music Store cost 99 cents apiece.[36] With one-click purchase and no subscription fee, the Music Store does not include full track streaming service, but 30 second samples are available for free.[37]
The key innovation of Apple was its light-handed but elegant rights management system, called Fairplay, that allows buyers to transfer tunes to Apple iPod players, burn unlimited numbers of CDs, and transfer downloaded songs to up to three other hard drives.[38] The MusicStore now has a catalog of over 500,00 songs garnered from over 300 labels, including the five major record companies.[39] Apple has complemented its service by holding instore promotional events in New York and Los Angeles,[40] and has distribution deals with Hewlett Packard, which intends to make complementary iPod players. [41]
2. Downloads plus software: A competitive download service is Musicmatch, which now provides downloads that complement its popular music management jukebox, which is now installed on 37 million PCs.[42] With free jukebox software that can be monetized by advertising and personalization services, basic users may buy a 99 cent download, while deluxe users can choose an upgraded service at $19.99 per month that has faster burn speeds and no upgrade advertisements. With jukebox functionalities, Musicmatch also offers a complete personalization service (which Apple now lacks) that tracks an individual’s downloads in order to make subsequent personalized recommendations. Additionally, two radio services on Musicmatch now track user preferences to compose interactive “radio stations” with personal content. Though centered on the market position of downloads plus software, MusicMatch has a key distribution deal in place with PC leader Dell Computers.[43]
3. Downloads plus interactive radio: In legitimate relaunch since October, 2003, Napster offers a different combination of downloading and streaming services.[44] For 99 cents a track, Napster users may choose individual songs for download (and burn); over 5 million songs have been downloaded through the legalized service.[45]. Users may also purchase (for $9.95/month) an optional personalization service that enables streaming and tethered downloading of tunes supplied by 40 interactive radio stations.[46] Free complementary services for all Napster users include music videos, thirty second samples, online articles, Billboard charts, inter-user email, and browsing of playlists and recommendations. Napster as yet offers nono service to accommodate interactive streaming.
4. Interactive streaming plus downloads: At the moment, Real Networks’ Rhapsody offers the leading alternative model to downloads a la carte.[47] The key competitive feature of Rhapsody is “all you can eat” interactive streaming, which is made available for a subscription fee of $9.95 per month; individual burns at Rhapsody are available at 79 cents apiece. The Rhapsody service also offers access to 50 commercial free stations. As a primary attractive feature, the software (Real Audio 10) now accommodates music purchased from all formats, including iTunes.[48] However, Real may be confining itself by wrapping its songs in its proprietary DRM technology, which may limit the number of compatible playing devices.[49]
New Services
With the potential for more innovative business models, some players may transform the market with new offerings and business models in 2004. Key business models are “modified Music Store” (downloads plus hardware), “modified Rhapsody” (streaming and downloads), retail store traditional (downloads plus store merchandise), and food and music (downloads plus food).
1. Downloads plus hardware: Following the Music Store model of downloads and hardware, Sony now markets a competitive download service, called Connect.[50] As in Apple’s Music Store, tracks are available for 99 cents and albums for $9.99; all songs can be transferred to Sony Walkman portable devices, of which 2.5 million are now in use, as well as high-end Sony computers now sold in the company’s retail stores.[51] Sony also recently launched a “personalized radio service” that can be directly activated through cellular phones; the playlist is adaptive to consumer tastes, which can be registered by pressing a button that indicates approval or not.[52] Sony’s radio service has the evident potential of filling a considerable market niche that can surpass the appeal of PC-based services.
2. Interactive Streaming plus Downloads: A prospective entrant, Microsoft, aims to provide a music service to win customers back from Apple.[53] The company aims to implement an all-you-can-eat subscription service, Janus, which will operate similarly to Real Network’s Rhapsody. However, Janus will expand its functionality by enabling listeners to make temporary downloads to portable players. Microsoft will profit primarily by increasing the penetration of Windows Media Player. With Microsoft’s participation, the Janus model will provide a major test yet of the relative appeal of music streaming and downloading, as well as a direct battle with archrival Real Networks.[54]
3. Downloads plus Store Merchandise: From 1994 to 2004, Walmart, Circuit City, and Best Buy aggressively used CDs by popular artists as loss leaders to attract people to their establishments; the three have a combined retail market share that exceeds 50 percent.[55] They are now playing similar strategies in the digital marketplace. Walmart, which saw its share of CD sales grow from 13.4 percent in 1994 to market leadership in 2004 (34.8 percent),[56] now offers downloads at 88 cents apiece at its online site.[57] Since its test phase in December, 2003, Walmart.com has expanded its catalog by 50 percent; the service now features exclusive songs by top artists – Jessica Simpson, Shania Twain, Shakira, and Hilary Duff – [58] and has exclusive distribution deals with Curb Records, which records a number of prominent country stars.[59] For their parts, Circuit City recently bought up digital music platform MusicNow. (f.k.a. FullAudio), [60] Best Buy distribute MusicNow, and Target has a distribution deal with Napster. ?? Similar strategies to combine music and merchandise.will be heard from Amazon.
4. Downloads and Food: In combination with services, some brand name food distributors will use music downloads as promotional tools to promote sales and visits to their establishments. Pepsi instituted a promotional program to give away iTunes to its buyers; Miller Brewing Company, McDonalds, and Coca Cola plan similar ventures respectively with Napster, Sony, and Europe’s OD2.[61] Starbucks now sells customized CDs at a few stores. It is distinctly possible that brand building here could continue through corporate radio stations (e.g, AT&T Wireless and Gibson Audio), made possible through technology available from Loudeye and Microsoft.[62]
4. THE ECONOMICS OF THE MARKET
There are seven general points to be made regarding the state and process of market competition First, the spectrum is now quite wide; focused shoppers can locate favored downloads a la carte , listeners-at-large are attracted to non-interactive streaming and interactive radio, and dedicated browsers can insist upon full browsing enabled by interactive streaming. Differentiated service versions may combine alternative features regarding ownership rights, service length, pricing, personalization, and complementary components. With no abiding market certainty of where buyer tastes reside, rival providers will come to “learn by doing” the particular services and features that consumers want most. Under conditions enabled by decentralized markets, new ideas can come to market and challenge existing business models.
Second, the actual market experience proves that the use of digital rights management responds to consumer tastes. At their outset, MusicNet, Pressplay, and Rhapsody (f/k/a Listen.com) were all-streaming services that did not permit downloading and burning. As subscriptions trailed and illegal file-trading continued, the importance of music ownership and related portability became evident to all, particularly Steve Jobs (i.e., Apple). In the same respect, CD tracks, once battened down with strict anti-copying protections, now accommodate limited burning, temporary sharing, and additional “second session” content that provides a pleasant listener experience on the PC.[63] Influenced by ongoing feedback from a profit-driven market, DRM is improperly conceived simply as a guarddog operation that locks up content in a manner unfriendly to consumers. Rather, DRM prevents the “black market” trade that circumvents the present of diverse options that producers offer and the resulting choices that different buyers make.
Third, both sampling and personalization are essential if a digital market is to be the truly empowering “celestial jukebox” that Paul Goldstein conceptualized.[64] While a number of download services (including iTunes) now enable 30 second clips, only interactive streaming at Real Network’s Rhapsody now enables full track sampling. For $10 per month, an iTunes user can own 10 songs; for the same monthly amount, a Rhapsody user can listen to thousands.
The potential for streaming to grab a significant market niche was established by research at Listen.com (Rhapsody), where the average user listened to about 200 different songs per month, but only 13 percent opted for even one burn.[65] Interactive streaming with full track sampling, playlist sharing, and direct recommendation may then help t develop new acts heretofore deterred by the bottleneck of promotional radio and label finances.[66] The market for streaming will expand greatly with the availability of home entertainment and wireless telephone equipment that will enable distributed home access and remote portability.
Fourth, neither downloading nor streaming by themselves will prove particularly profitable. Download services now pay an estimated 79 cents per song for publisher and label royalties, and an additional 5 cents for credit card processing.[67] Bandwidth and operating costs account for some substantial amount of what remains. Accordingly, profit margins are quite narrow and competition from Rhapsody(79 cents), Walmart (88 cents), and Microsoft looks very tough. With per song royalties of about one cent, streaming services enabled through upfront subscription fees of $10 per month may initially have wider profit margins. Nonetheless, price competition may winnow down profit margins on subscription streaming to competitive levels if more of such services bulk up, as would seem likely
Fifth, each service provider will need to distinguish its services, attract a market base, improve brand, and innovate further to widen its overall appeal. Sales of player equipment, computers, software, store merchandise, food, and live concerts, as well as joint ventures in general, of crucial importance in in each of these respects.[68] To discourage competitive switching, service providers may attempt to lock in customers by providing loyalty programs, proprietary technology, or discounts based on volume or contract time. There is no evident way to predict what models will prevail without the hard “give and take” of the market itself and the information feedback that it enables.
Sixth, market lockup may indeed evolve if producers do not work out standards to enable “mix and match” compatibility between different service providers and player devices. Leonardo Chiariglione, who recently created a new international group to establish standards, came to the point: “Unless users can access content without all the hassle of dealing with different digital rights management systems, DRM is a nonstarter. The alternative is a digital media stalemate, where nothing moves.”[69] As a prime example of the danger, Apple’s iTunes now encoded in the Advanced Audio Compression format do not play on Microsoft’s Windows Media Player, and Microsoft’s WMA format is not accommodated in iPods.[70] Barring the option of government selected standards, there are four market resolutions for addressing the issue – converters,[71] market dominance, voluntary standardization, and trusted systems. This will take some time to sort out.
Seventh, unauthorized downloading can distort choices and reduce the immediate or prospective profitability and the related chances of success of other service applications.[72] While iTunes sold 50 million tracks in its first eleven months of business,[73] estimated pirate takings now exceed 5 billion tracks per day.[74] As a key illustration of how music piracy harms markets more profoundly than simply displacing purchases, the reader may ponder the fate of eMusic, an early service conceived by Robert Kohn.[75] For a monthly fee of $10, eMusic offered to intense aficionados and window-shoppers the great potential of unlimited downloads of unprotected MP3’s that could be freely exchanged. Tracks were made available from independent labels that sought to break new acts who could not get a major label deal. As technology personalization and interaction might have developed, eMusic would expectedly have had the potential to create better networks to communicate and transfer interest in its independent music. However, eMusic evidently played “second fiddle” to the more spectacular Napster, which attracted many of the customers to major label acts at no cost. Emusic performed poorly and was recently sold by Vivendi Universal; it has discontinued the unlimited service that once held great promise for independent music.[76]
5. GOVERNMENTS AND MARKETS
Finally, a number of governments have implemented levies on equipment ranging from MP3 players and blank disks to personal computers and peripheral equipment as a means of enabling free downloading and compensating artists. For its part, the Copyright Board of Canada in 2003 imposed a levy on the sale of digital audio recorders with non-removable memory, such as the Apple iPod,[77]but declined requests to tax blank CDs and DVDs, removable memory cards, blank audio tapes, and MiniDiscs. Apparently more impressed with the wisdom of government to impose costs on technology, Germany appears to be ready to impose a compensatory levy of a 16 percent value added tax per new computer sold to compensate music labels and artists; it is not clear whether unauthorized downloads would even be legal here.[78] Similar outcomes are possible in Austria, Switzerland, Belgium, Finland, Norway, Sweden, Luxembourg and France.[79] Entering the breach, some academics in the U.S. ( as well as P2P industry group Distributed Computing Industry Association) have advocated a copyright levy placed on internet service providers in order to permit file-trading[80]
While focused levies on dedicated playback equipment (e.g., music players) might reasonably be used to restore some fraction of depleted royalty income, general levying on peripheral equipment and connection to support free downloads is keenly distortive. First, the government would be placed in the difficult position of imposing levies on chosen devices and instruments that may include computers, cell phones, disks, and broadband connections used for far more applications beside downloading. The outcome of higher taxes may largely reduce consumer demand for state-of-the-art “high tech” equipment that is of prime importance to the growth of the network.
Second, the levy system subsidizes the download and therefore suspends its relation to extraneous market forces. While eliminating the need for litigation, such a subsidizing action would then simultaneously preempt market share from other business models, and organizational structures that may involve, inter alia, streaming, personalization, and related functionalities. that may be imaginatively conceived, combined, and readopted in an open market. A levy system to subsidize downloads would then deeply weaken the opportunities and incentives for new innovations and adaptations to developing tastes, and so may preserve technologies that a market should otherwise supersede.
As a practical political matter, a levy system would rather place federal administrators in high command to set royalty fees, respond to changing use patterns, and allocate the collection pot to contending rights owners. If levy amounts were not adjusted to keep up with growth in usage for reasons ranging from agency inertia to congressional “oversight” to simple vote counting),, the resulting fiscal stasis would compensate musical compositions and sound recordings at decreasing unit rates.[81] Moreover, such levies would additionally burden that part of the population that has no interest in downloading music, and thereby delay the buildout of connections that expand the network infrastructure.[82] Indeed, the German recording industry acknowledged that nearly half of the blank CDs sold in the country were used for entirely licit purposes. [83]
To illustrate the difficulty of levying, consider the economic consequences of a levy on broadband connection. A levy on broadband connection would increase subscription fees for upgrades and can be reasonably expected to stifle consumer demand. Now an average song, which subsumes 4 to 6 MB of storage capacity, can be downloaded in under one minute on a broadband line, and in 15-20 minutes on a 56 kbps dialup. If broadband is stifled, it is quite reasonable to expect consumers to be willing to invest less effect in building music collections, and no time in building video. This would impede infrastructural growth and the accompanying buildout of new devices and techniques.
7. CONCLUSION
From an economist’s perspective, computer code can be an efficient technology that enables property rights that law generally attempts to preserve in a free market economy. To restrict the exchange of legal property right by limiting code is to interfere with an enabling operative that lowers transactions cost and spurs greater investment.
While the duration and scope of copyright can reasonably be questioned, rights on protected material must be preserved if prices are to allocate resources efficiently to competing ends and provide the signals that direct future investments. More generally, the price system is a means for ferreting out impacted information and facilitating feedback and response:
From this economist’s perspective, it is then procedurally rational to affirm, rather than diminish, the application of property rights particularly in new market applications that are now evolving. Incrementalism in policy making is purposely and wisely limited -- restricting considerations, limiting classifications, forsaking measurement, leaving options open, and learning-by-doing; incrementalists forsake the spectacular imagined gains of ideological fix for the prosaic benefits of slow judgment and reversible errors.[84]
NOTES
* The author can be reached at mae@mediatechcopy.com, 973-618-1212. see also http://www.brattle.com
[1]17 U.S.C. § 106.
[2]For known works created after January 1, 1978, copyright endures for a term equal to 70 years after the death of the last surviving author. 17 U.S.C. §302(a)-(b). For anonymous works, pseudonymous works, and works made for hire, copyright endures for 95 years after first publication, or 120 years after creation, whichever expires first. 17 U.S.C. §302(c).
[3]Fair use is a complex subjective matter that requires consideration of four factors: the purpose and character of use, the nature of the copyrighted work, the amount and substantiality of the taking, and the effect of the use upon the potential market for or value of a copyrighted work. 17 U.S.C. § 107. The doctrine has been said to be “so flexible as virtually to defy definition.” Time Inc. v. Bernard Geis Assoc., 293 F. Supp. 130, 144 (S.D.N.Y. 1968).
[4]The first sale doctrine extends to a lawful private owner the right to sell or otherwise dispose of a copyrighted work. This does not include the right to make reproductions. 17 U.S.C. § 109(a).
[5]Per full statutory wording, copyright protection does not extend to any “idea, procedure, process, system, method of operation, concept, principle, or discovery, regardless of the form in which it is described, explained, illustrated, or embodied in such work.” 17 U.S.C. § 102(b).
[6]Libraries may reproduce or distribute single copies of works to interested readers and libraries, and up to three copies (including digital) for preservation of unpublished works or legitimate replacement or reformatting of published ones (so long as a replacement cannot otherwise be obtained at a fair market price). Digital copies may not be distributed outside the premises of the library, although physical copies derived from them may. A format is considered obsolete if the machine or device needed for rendering is no longer commercially available. 17 U.S.C. § 108.
[7]Performances or displays of lawfully made works by instructors or pupils in the course of face-to-face teaching activities are copyright exempt, as are transmissions of non-dramatic literary or musical works. Performances of non-dramatic works are similarly exempt for religious services, non-profit establishments, small eating and drinking establishments, government organizations, record stores, or uses for the blind and handicapped. 17 U.S.C. § 110.
[8]17 U.S.C. § 121.
[9]see 47 U.S.C. § 553a and 17 U.S.C. § 1002( c). See also M. Jackson, “Technology and the Changing Nature of Copyright Enforcement”, unpublished paper, Telecommunications Policy Research Conference, Alexandria, Virginia, September 23-25, 2000.
[10]Joseph A.Schumpeter, CAPITALISM, SOCIALISM, AND DEMOCRACY (New York: Harper Collins, 1947).
[11]See generally, Herbert Simon, THE SCIENCES OF THE ARTIFICIAL (Cambridge, Mass.: MIT Press, 1996).
[12]Related opinions and pleadings can be viewed at http://cyber.law.harvard.edu/openlaw/eldredvashcroft/ (retrieved January 26, 2004) For an amicus brief from a group of distinguished economists (including five Nobel Laureates) in support of the Berkman Center, seer Brief for George A. Akerlof et al. as Amici Curaie, U.S. Court of Appeals for the D.C. Circuit, Eric Eldred v. John D. Ashcroft, May 20, 2002
[13]P.N. Leval, Toward a Fair Use Standard, 103 HARV. L. REV. 1105, 1132 (1990) (“there may be a strong public interest in the publication of the secondary work [and] the copyright owner’s interest may be adequately protected by an award of damages for whatever infringement is found.”); A. Kozinski and C. Newman, What’s So Fair about Fair Use?, J. COPYR. SOC’Y 513, 525 (2000). (“The best way to promote production of valuable intellectual works is to give authors and inventors the ability to demand and receive compensation for the values they create…. The best way to do this is to grant property rights that give their products exchange value.”)
[14]J. C. Ginsburg, “How Copyright Got a Bad Name for Itself”, COL. J. of LAW & ARTS, 26(1) (2002).
[15]Information Infrastructure Task Force, Intellectual Property and the National Information Infrastructure: The Report of the Working Group on Intellectual Property Rights, U.S. Department of Commerce, Washington, D.C. 177 (1995).
[16]Pub. L. No. 105-304, 112 Stat. 2860 (1998).
[17] S. Rep. No. 105-190, 2 (1998).
[18]World Intellectual Property Organization, Copyright Treaty, Article 11; Performances and Phonograms Treaty, Article 18; adopted December 20, 1996, Geneva, Switzerland.
[19]The Digital Dilemma: Intellectual Property in the Information Age, National Academy Press, Washington, D.C. (2000).
[20]H.R. Rep. No. 105-551, pt 2, 26 (1998).
[21]Supra note 19, at 202-3.
[22]“The entertainment industry, [Samuelson] says, thinks it ‘should control every single copy, wherever and whenever it's played, and have a pay-for-use system so that no one can ever share anything again. …I think that's a fascist world. I wouldn't want to live in it.'' Quoted in E. Weise, USA TODAY: TECH REPORT, December 8, 2000, at http://www.usatoday.com/life/cyber/tech/cti950.htm (retrieved June 18, 2001).
[23]Business Week Online, “Lawrence Lessig: The ‘Dinosaurs’ Are Taking Over”, May 13, 2002, at http://www.businessweek.com/magazine/content/02_19/b3782610.htm (retrieved January 14, 2004).
[24]Initial Comments, M. M. Nisbet, American Library Association, et al., #162, Triennial Review, infra note 68, 6, 13, at http://www.loc.gov/copyright/1201/comments (visited May 19, 2001).
[25]17 U.S.C. § 106(1)-(6).
[26]W. Gordon, “Intellectual Property as Price Discrimination: Implications for Contract”, 73 CHI-KENT LAW REVIEW 1367.
[27]C. Shapiro and H. R. Varian, INFORMATION RULES, (Boston: Harvard Business School Press, 1999), 53-82
[29]W. W. Fisher, “Reconstructing the Fair Use Doctrine”, 101 HARV. L. REV 1661, 1742 (1988).
[30]A. M. Spence, “Optimal Nonuniform Price Schedules”, J. PUB. ECON. (1977). The resulting price schedule can usually be expected to be volume discounting. That is, producers will generally charge less money for each succeeding unit of production or day of storage.
[31]C. H. Brooks, R. Das, J. O. Kephart, J.K. MacKie-Mason, R. S. Gazzale, E. H. Durfee, “Information Bundling in a Dynamic Environment”, COMPUTING IN ECONOMICS AND FINANCE, Society for Computational Economics (2001).
[32]At http://www.ipsos-na.com/news/pressrelease.cfm?Id=2100 (retrieved April 10, 2004).
[33]MSNBC, “Independent record labels eye new group”, at http://msnbc.msn.com/id4631891 (retrieved April 10, 2004).
[34]For example, Pressplay users chose among Basic ($9.95 for 300 streams and 30 downloads), Silver ($14.95 for 500 streams, 50 downloads, and 10 burns), Gold ($19.95 for 750 streams, 75 downloads, and 15 burns), and Platinum services ($24.95 for 1000 streams, 100 downloads, and 20 burns).J. Borland, “Pressplay to Offer Unlimited Downloads”, Tech News, CNET.com, July 31, 2002. At MusicNet, service prices differed by provider. Basic listeners of MusicNet services purchased through Real Networks paid a monthly fee of $4.95 to stream 100 songs and download 100 more, $9.95 for a combined package with additional Net radio services, and $19.95 for a Gold Pass subscription with sports, entertainment, and news programming. By contrast, AOL offered basic MusicNet service (20 streams, 20 downloads) for $3.95 per month, unlimited streams and downloads for $8.95, and 10 additional burns for $17.95. J. Borland, “NetMusic Gets AOL Audition”, Tech News, CNET.com, February 26, 2003.
[35]J. Borland, “Apple Unveils Music Store”, Tech News, CNET.com, April 28, 2003; “iTunes Sells 1.5 Million Songs During Past Week: Five Times Napster’s First Week Downloads”, Yahoo!Finance, November 6, 2003.
[36]With Apple’s networking technology, Rendezvous, several Mac users on a wireless network can share collections through streaming. Id.
[39]“iTunes Music Stores Downloads Top 50 Million Songs”, at http://biz.yahoo.com/prnews/040315/sfm063_1.html (retrieved April 10, 2004)
[40]“Apple Holds In-Store Artists Events”, at http://www.grammy.com/news/newswatch/2004/0107.aspx (retrieved April 10, 2004)
[41]R. Shim, “Starbucks, HP queue up music coffeehouses”, Tech News, CNET.com, March 16, 2004.
[42]Forrester Research, “Commentary: Facing the Music”, Tech News, CNET.com, October 20, 2003. “Musicmatch 8.1”, Tech News, CNET Reviews.
[43]“Dell Dives into Digital Downloads”, at http://www.grammy.com/news/newswatch/2004/0107.aspx (retrieved April 10, 2004)
[47]Real Networks purchased Rhapsody in 2003 from Listen.com, which originally conceived the service as an all-streaming subscription service (i.e, a “celestial jukebox”) with unlimited monthly use. Rhapsody eventually came to enter into licensing agreements to permit downloading and burning as well. With 350,000 paying subscribers, Rhapsody now offers a catalog with over 400,000 songs with licensing contracts with all five major record companies and 200 independents. Infra note 49
[49]“RealNetowrks to Launch Online Music Stores”, at http://www.grammy.com/.news/newswatch/2004/0107.aspx (retrieved April 10, 2004).
[50]R. Shim, “Sony Unveils Music Store: Gadgets at CES”, Tech News. CNET.com, January 7, 2004.
[51] “Sony Corporation of America Will Launch Online Music Service in Spring 2004”, at http://www.connect.com/press_releases/01.07.2004.Launch.html (retrieved April 10, 2004).
[52]Reuters, “Sony to Launch Radio Service for Phones”, Tech News, CNET.com, March 17, 2004.
[53] J. Borland, “Microsoft Music Stores to Open Next Year”, Tech News, CNET.com, November 17, 2003. Antitrust becomes a key consideration, as the company bundled its way to dominance in the MediaPlayer market by resting control from the once-dominant Real Networks, for which Real Networks recently initiated a U.S. antitrust action.. E. Hansen and D. Becker, “Real Hits Microsoft with $1 Billion Antitrust Suit”, Tech News, CNET.com, December 18, 2003. Any advantage for a music service will widen with the adoption of Microsoft’s Windows Media Center, which would allow a PC interface with home TVs and stereos. S. Musil, “Week in Review: That’s Entertainment”, Tech News, CNET.com, January 9, 2004
[54]E. Hansen, “Microsoft’s Ipod Killer?” , Tech News, CNET.com, April 1, 2004.
[55]I. Austen, “Big Stores Make Exclusive Music Deals”, at http://www.boycott-riaa.com/article/9705 (retrieved April 12, 2004).
[56]“Big Retailers Feature Exclusive Offerings”, at http://www.grammy.com/news/newswatch/2004/0107.aspx (retrieved April 10, 2004)
[57]At http:musicdownloads.walmart.com (retrieved January 13, 2004)
[58]“Wal-Mart Officially Launches 88 Cent Online Music Downloads”, at http://biz.yaho.com/prnews/040323/datau019_1.html (retrieved April 10, 2004).
[60] “Circuit City Stores, Inc., to Purchase Assets of MusicNow, Inc.”, at http://biz.yahoo.com/prnews/040331/nyw057a_1.html (retrieved April 10, 2004).
[61]At http://www.grammy.com/news/newswatch/2004/0107.aspx (retrieved April 10, 2004)
“Big Brands Use ‘Free Music’ to Draw Teen Consumers”; “Coke to Launch Music Downloads Services in U.K.”; see also Reuters, “Want some Springsteen with that Big Mac?”, Tech News, CNET.com, March 22, 2004.
[62]“Loudeye, Microsoft Offer Digital Music Service”, at http://www.grammy.com/news/newswatch/2004/0107.aspx (retrieved April 10, 2004)
[63]J. Borland, “Copy Protected CDs Take Step Forward”, Tech News, CNET.com, September 12, 2003.
[64]Paul
Goldstein, COPYRIGHT’S HIGHWAY: FROM GUTENBERG TO THE CELESTIAL JUKEBOX,
Stanford, California: Stanford
University Press, 2003,
[66]E. Hansen, “Steve Jobs’ Half Note”, Tech News, CNET.com, May 21, 2003.
[67]Knowledge@Wharton, “Online Music’s Winners and Losers”, Tech News, CNET.com, December 27, 2003.
[68]To extend some points made in the text, Apple now has attractive joint market ventures with Hewlett Packard, America Online, which features iTunes buttons prominently on its display area, and Pepsi, which will provide to buyers one free download per purchased bottle. Forrester Research, “Commentary : Facing the Music”, Tech News, CNET.com, October 20, 2003. MusicNow has distribution arrangements with Best Buy, Clear Channel Radio, Dell Computers, and Microsoft’s WindowsMedia.com. “MusicNow Worrks With Top Digital Device Manufacturers and Best Buy for Launch of New Digital Music Store”, Yahoo!Finance, November 10, 2003. Rhapsody now teams with Comcast, Intel, IBM, and Gateway in intriguing combinations to facilitate buildout of cable delivery, local area networks, online storefronts and electronic payments, and PC sales. ( “Comcast to Deliver RealNetworks’ Rhapsody Digital Music Service to its Nearly Five Million Broadband Internet Customers”, Yahoo!Finance, November 10, 2003; “RealNetworks Teams with Intel to Bring Rhapsody Music Service to Consumers’ Home Stereos”, Yahoo!Finance, November 10, 2003; S. Olsen, “IBM, Real Forge Digital Media Deal”, Tech News, CNET.com, January 9, 2004. Napster has joint ventures with Samsung (music player), Gateway (personal computer), and Target Stores, which markets in its stores a one-stop shopping Napster Burnpak that includes pre-paid cards (from InComm), CD cases (from Case Logic), blank CDs and DVDs (from Imation), and burning software from Roxio). M. Hines, “Napster fills in the Blanks with CD Deals”, Tech News, CNET.com, January 7, 2004; “Napster Teams with Imation and Case Logic to Provide New Digital Music Experience for Consumers at Target Stores Nationwide and at Target.com”, Yahoo!Finance, January 7, 2004
[70]L. Rein, “Salon: The same old file format trouble with the ‘new’ legal online music services”, at http://www.onlinareinsradar.com/archive/new_music_busines._mo… (retrieved April 12, 2004).
[71]The conversion from WMA to AAC is now possible. Id.
[72]The potentially harmful effects upon future licensing appears to have been the focus of proprietary expert testimony submitted on behalf of the plaintiffs by Prof. David Teece, who confirmed the label plans to move in the digital market had been displaced by illegal file-sharing made possible through Napster.
[73]“Itunes Music Store Downloads Top 50 Million Songs”, at http://biz.yahoo.com/prnews/040315(sfm063_1.html (retrieved April 10, 2004).
[75]J. Borland, “Emusic sold; unlimited MP3 downloads nixed”, Tech News, CNET.com, (retrieved April 12, 2004).
[77]CBC News, “MP3 Players hit with Copyright Levy” . Fees are as follows: up to 1 gigabyte of memory: $2; between 1 and 10 gigabytes: $15; more than 10 gigabytes: $25. at http://www.cbc.ca/stories/2003/12/12/musiclevy_031212 (retrieved January 18, 2004)
[78]S. Vaknin, “Germany’s Copyright Levy”, at http://samvak.tripod.com/busiweb37.htmllevy (retrieved January 20, 2004).
[79]In an industry with thin operating margins, computer manufacturers claim that the levy will cost buyers some $80 million in Germany.
[80]J. Borland, “Should ISP subscribers pay for P2P?”, at Tech News, CNET.com, (retrieved April 12, 2004).
[82]"The evidence available at this time does not clearly demonstrate that these recording media are ordinarily used by individuals for the purpose of copying music". Supra note 86
[83]Supra note 87.
[84]Rational comprehensive analysis tries to weigh all factors, attempts to gather all relevant information, and is willing to jump to extreme positions if logically justified. For the classic discussion, see C.E. Lindblom, The Science of Muddling Through, 19 PUB. ADMIN. REV. 79 (1959)