Tech.gov: Paying for Piracy in Advance

The entertainment industry continues to cry foul over music and movie piracy. Although some of the furor stems from loss of distribution control by content owners, the chief complaint is far more simple: They're angry because they're presumably losing money as potential customers turn to free or lower-cost pirated copies of their movies and music instead of the real deal.

To recoup these losses, content owners can sue copyright infringers for monetary damages. But many countries, including the United States, have at various points adopted a different and far more direct solution: A levy or fee on the sale of recording equipment and/or blank media that could be used to copy protected works.

You and I never see those fees spelled out--they're rolled into the price of the products we buy. (So are many less controversial royalty fees, such as those paid to patent holders for technologies used in a given product.) Manufacturers hand over the fees to an agency that then distributes the funds to musicians, composers, and record companies. Which groups collect, and how much they get varies by country and by agency.

In the U.S., such fees are essentially collected only on certain digital audio recording devices and media such as blank digital audio tapes, analog tapes, and CD-Audio discs. (You can read the gory details in the actual law, Title 17, Chapter 10 of the U.S. Code). In other words, the rules are meant to protect music, not movies or digital books. Canada and many European nations levy fees on other blank media; Canada, for example, includes flash memory and hard disks in MP3 players on its list. In October, Israel became the latest country to consider adding these fees to some blank media.

But is this the best way to handle the problem? No--and what happens overseas can impact your wallet here.

The Shotgun Approach to Royalties

Fees, when properly set and administered, do return to artists and other content owners at least some of the income they may have lost due to piracy. (Canada's copyright board estimates that country's fees generated about $28 million in 2002.) Such fees are fairly difficult to evade; they're invisible to users; and they don't require complicated additional technology. They don't invade anyone's privacy in an attempt to monitor usage for criminal behavior. They don't break or disable other products. They don't restrict what you do with your music.

But unlike digital rights management technologies, they're not device- or service-dependent; they apply to everyone. And therein lies the rub.

Fees don't discriminate based on what people intend to do with media they get. That means someone who downloads only from legal music services and plays by the rules, burning to CD only what they're allowed, is penalized along with the person who copies every one of their neighbor's discs or downloads and burns hundreds of copyrighted songs illegally available from a peer-to-peer network. And, of course, it penalizes people who aren't burning music at all: for example, those who buy media to archive photos and files. Everyone is presumed guilty of music piracy; and everyone must pay the costs.

What I find particularly irksome about royalty fees is the apparent underlying assumption that the most important thing is to reimburse content owners for losses due to piracy, even if it means charging people who have not engaged in any such activities. Such reimbursement also comes at the further expense of fair-use rights: Fees don't prevent me from creating a compilation CD of music I own, or from transferring music I have purchased from one medium to another (both of which are arguably allowed under fair use); but to do either, I must pay extra. Fair use should not involve additional payment.

Moreover, in this global economy, it's quite possible that manufacturers will raise prices wherever they sell their goods, not just in countries with royalty rules. If vendors are forced to cut their own profits in order to pay royalty fees while keeping product prices affordable, they may be tempted to raise prices for customers in countries without royalties.

That means I may end up paying more for burners and media, even if the U.S. Congress hasn't okayed royalty fees for items imported to or sold in this country.

What's more, fees don't replace other copy protection methods. I still have to deal with copy-protected DVDs and CDs, restrictive download services, and the threat of lawsuits from the Recording Industry Association of America.

Peer-to-Peer Royalty Fees?

Some P-to-P software groups have proposed user fees to compensate copyright holders for losses due to file sharing over P-to-P networks. Fees could be imposed on equipment and services that P-to-P users might use, such as the blank media and burners (for which fees already apply) and high-speed Internet access. Another approach would be to charge radio-style licensing fees for the use of the content.

With such fees would come the right for P-to-P services to distribute copyrighted works over their networks--and legal amnesty for having done so without proper authority in the past. And that's precisely why the plan won't fly.

Such an amnesty-for-fees program would reward companies that tacitly allowed piracy to run rampant on networks created by their software--at some expense to the legitimate music services that have struggled to build a customer base. True, the new fees would effectively diminish the appeal of the networks that now allow users to trade digital entertainment files for free; I doubt even ad-laden client software could keep a P-to-P network free to users if the network had to pay royalties. But any palliative effect of imposing user fees would be only temporary, until users found other means to trade pirated goods. And they would find those means, moving from well-known sites to new, smaller, networks in order to evade prosecutors.

Piracy is a serious problem that, realistically, will never be eliminated. At best, it will be reduced to tolerable levels. Consequently, we undoubtedly will have to live with some level of digital rights management in order to protect content owners.

I hope that DRM will also allow me the flexibility to use the protected media throughout my home and on any device that I own. That may also mean that CD and DVD movie prices will rise as content owners build in what they feel are acceptable costs to allow me the freedom to use digital entertainment in the way that I want. I'll have to wait and see if their notion of what's acceptable tallies with my own.

In the meantime, sticking the wrong people with the bill for piracy is not the right answer.

Copyright Updates

In July, I discussed the Inducing Infringement of Copyright Act (S. 2560), proposed by Senator Orrin Hatch (R-Utah), among others. The act would criminalize technologies or products that intentionally induce copyright violations. Although the legislation is targeted mainly at P-to-P networks, opponents argue that as written, it could apply far more broadly and stifle innovation. Though that bill is still in committee, and probably will not be voted on this year, it is likely to return next year. A version of it may yet become law.

The lawsuit that in part prompted the bill is not yet settled. The Motion Picture Association of America and RIAA have pressed for Supreme Court review of the Circuit Court's decision in the Grokster, Streamcast Networks, and Musiccity.com case, in which those companies were not found liable for piracy that users of their software committed. The plaintiffs expect to learn whether the court will hear the case in November; if the defendant P-to-P companies file for an extension, that determination may not come until January of next year.

The Senate is also looking at a long, consolidated bill (H.R. 4077) that has already passed the House of Representatives. It contains several copyright protection measures, including one that would make it illegal to videotape a movie in a theater, make it easier to prosecute criminal copyright violations, and stiffen penalties for infringement. It also promotes consumer education on piracy issues and the harm associated with them. The bill may come to a vote before year's end.

The Digital Media Consumers' Rights Act (H.R. 107) proposed in January 2003 by Representative Rick Boucher (D-Virginia), which would help consumers regain their fair-use rights, is still in committee and may have to be reintroduced yet again.

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