Policing Pirates in the Networked Age

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New Internet-based technologies appear tothreaten the ability of copyright owners to collectrevenues for their intellectual creations, as epitomizedby the recent public trials and tribulationsexperienced by Napster. That has resulted in newlegislation against pirating and has given rise tonew technologies to protect intellectual products.Both the new technologies and the counter-technologiesthat have followed them have attractedattention and analysis, sometimes bordering on theapocalyptic, from competing camps. The basicissue, whether technologies that enhance the abilityto create unauthorized copying are destructive tothe principles of copyright, is not a new one, however.Technologies that make it easier to piratecopyrighted materials have undergone economicexamination for over two decades. Prior analysis,and prior experience, has indicated that the previousgenerations of copying technologies have nothad dire consequences for copyright owners.

This paper examines whether new Internetcopying technologies are likely to be differentfrom prior technologies in their ability to destroythe value of intellectual property rights and concludesthat they are. It then examines the evidencethat has been put forward to support aclaim that Napster had a negative impact on thecompact disk industry and concludes that theevidence does not support such a finding. I thenexplain why it is that the negative impacts ofNapster were unlikely to have been felt at the timethese examinations were undertaken.

Finally, the analysis examines the impact of apossible market-based solution to this potentialproblem, based on new anti-piracy technologiesknown as digital rights management. This technologynot only promises to make copying harder,but also allows the copyright owner to chargetiny micropayments for various degrees of use ofthe product. This extra control by copyright ownersover the use of the copyrighted material has setoff a firestorm of controversy by individuals concernedthat traditional "fair use" of a product willdisappear and further claiming that digital rightsmanagement will lead to economic inefficiency.Fair use has historically allowed scholars and othersto use small amounts of copyrighted materialsfor research or study without being obligated tomake copyright payments. I show that digitalrights management, contrary to these claims, doesnot eliminate fair use and is likely to enhance economicefficiency. Nevertheless, attempts by governmentto force the adoption of anti-copyingtechnology appear misguided.

Stan Liebowitz

Stan Liebowitz is a professor of economics at the University of Texas at Dallas. This study is based on portions of his forthcoming book, Rethinking the Networked Economy, to be published by Amacom Press in 2002.