David Siffert Thought Paper 1

Picker’s decision to regulate theft based on efficiency is incredibly problematic, because of difficulty making that calculation. It is entirely unclear whether piracy is even inefficient at all. Problems confounding the calculation include: 1) benefits to pirates, 2) long term effects of a lowered demand curve, 3) the ability of industry to shift focus to advertisement, viral, live, or merchandise-based revenue streams, and 4) the fact that artists are “compensated” by non-monetary value (the art itself, fun, fame, etc.) as much as by money. Attempts to rely on efficiency calculations will therefore fail.

My solution is to create a free market, bright-line rule such that parties will hopefully collectively bargain to internalize the diffuse costs. Last week, Andrea Greenblatt-Harrison proposed shifting the point of control for internet copyright from copying to receiving money. Physical copying is much easier to enforce as a point of control than sale—it alleviates the need to catch someone in the act. However, electronically, it is far easier to spot a credit card payment/bank transfer than it is to spot a copy or even a transfer.

Banning all money received by web-hosts, from banner ads to donation buttons, would mean that anyone hosting large amounts of files would quickly face high costs that will be difficult to meet. As it stands, even the lightest P2P clients link back to websites with banner ads, donation buttons, or both. There is a concern that a billionaire or university might be willing to withstand the financial burden of free hosting (though a university could not restrict the service to its students as tuition is a form of compensation). Books, which might be considered important enough to warrant the money-pit, represent the biggest risk.

The free market should deal with this problem via ad revenue sharing. These sites will get significant traffic, and so ad revenue would be tremendous. The ads, however, would be banned unless hosts negotiated with copyright owners for permission. As such, in order to obtain permission to host the files and maintain banner ads, groups would likely enter into contracts to share ad revenue. The government could even broker such a system, if transaction costs are otherwise too high.

Another difficulty is that we need to distinguish Geocities from Grokster. The trouble in the distinction is that it is likely that neither knows about any specific material but each knows in general that there exists copyrighted material on the site. The problem is that the distinction is not actually categorical—it is a matter of degree. The answer is whether the host acting reasonably to minimize copyrighted material. There can easily be bars set for per se unreasonableness such as a certain amount of infringing content on a revenue-making site. An alternative to “reasonableness” would be that if a certain quota of infringing material exists, one is considered willfully blind to such infringement. This example would probably immunize Youtube, if its top videos were all legal, but would block the Pirate Bay.