Thursday, November 10, 2005

Intellectual Property v. The Internet

Intellectual Property v. The Internet

Asif Ahmad Khan

Commercial Law



Technology has brought periods of discontinuity in various industries as far back as the industrial revolution. Farm work became far easier and as result, farms needed fewer workers. Manufacturing experienced a similar discontinuous change with the introduction of the assembly line. For the most part during the twentieth century, technology meant efficiency. This was until the advent of the single most important advancement in our country’s history, the internet. Initially the internet was an efficient way for the US military to transfer information regarding our defense. ARPA, Advanced Research Projects Agency, created a network connecting military defense systems across the United States. This technology was then passed onto US educational institutions, the main purpose being the sharing of information of various university libraries. This free sharing of information was later coined, “The Information Superhighway,” by Vice President Al Gore. The decade of the 1990s brought the most rapid technological change in the history of the US and global economies. Investors were buying up every last website startup they read about, because, “they were the next big thing.” Investors claimed the internet would cause the telecommunications industry to crumble, and in 1999 the first signs of this paranoid fear manifested itself.

Its name was Napster, and it had come to change how music was heard forever. College campuses became rampant with downloading of music. But how different was this behavior from teenagers and college students in the 1960’s becoming addicted to their favorite radio stations? Napster users were able to download a digital file of any artist that any online user had in their collection, with the same information that one would find as a track on a compact disc. It would seem that Napster was another “radio-like” means of hearing music for free with the proper technology, but its intention was to allow users to share files. “Musical compositions have been protected by copyright since 1831 (17 U.S.C. sec. 102(a)(2)) and sound recordings – the reproduction of sounds as opposed to musical notation – have been protected by copyright since 1972 (17 U.S.C sec 301(c)). Copying of sound recordings constitutes unfair competition” (A&M Records Inc. v. Heilman, 75 Cal. App. 3d 554, 560 n.6, 564 (1977)). It seems as though Napster was enabling users to knowingly download illegally reproduced songs for free. What is quite puzzling to the illegal downloaders of the world is the question of exactly who is the artist competing with, themselves? There is no reselling of the songs going on, Napster was a free service, and if anything, there is more exposure for the artist because before the invention of the mp3 format, the only ways to be heard were on the radio or on television. No one was busting down people’s doors when they were taping radio broadcasts and Napster-like programs could have been looked at in a similar light as radio, but instead of embracing the internet as a new medium to reach the masses, all industries in media looked at this movement as lost profits. A similar period of discontinuous change was Sony’s Betamax debacle.

In 1984, VCRs became considerably more affordable. In fact many people had two with which they were able to record anything from one VCR to the next. The parallels to Napster are that both companies offered a product that could be used for illegal activity, but neither product was designed or intended for that. The question presented in the Betamax case was whether the sale of copying equipment was in violation of the Copyright Act. Copyright protection “subsists… in original works of authorship fixed in any tangible medium of expression” (17 U.S.C. B 102(a)(1982 ed.). This protection has never accorded the copyright owner complete control over all possible uses of his work. Rather, the Copyright Act grants the copyright holder “exclusive” rights to use and to authorize the use of his work in five qualified ways, including reproduction of copyrighted works in copies (Sony Corp. of America v. Universal City Studios, 464 U.S. 417 (1984)). Ultimately Sony’s defense was that although their hardware was used for copyright infringement, there was a substantial amount of non-infringing users. “The Betamax is, therefore, capable of substantial non-infringing uses. Sony's sale of such equipment to the general public does not constitute contributory infringement of respondents' copyrights…” (Sony Corp. of America v. Universal City Studios, 464 U.S. 417 (1984)) This sets an extremely important precedent which is readdressed in the MGM Studios v. Grokster case.

In 2005, the concept of secondary copyright liability was brought up again. This was because of a Napster-like program that enabled downloading of copyrighted files illegally, by now the internet’s bandwidth and the expansion of hard drive space on computers made it possible to even illegally download copies of movies, which is why MGM stepped in. The US Court of Appeals for the Ninth Circuit had ruled that Napster was guilty of infringement and must stop trading in copyrighted material. Four years later, the same problem had arisen, and the Betamax ruling was in play. Once again the Supreme Court had to make a decision regarding online peer to peer file sharing programs and their responsibility. Grokster, which developed software such as Kazaa, was under siege for enabling copyright infringement, and this time the decision was less difficult. MGM claimed that Grokster was aware of illegal activity and encouraged it within their advertising scheme. This program was free to users, but they would have advertisements at the bottom of the screen, this is how file-sharing software can generate revenue. In his opinion, Justice Souter claimed that “Sony did not displace other secondary liability theories… (Grokster’s actions are) a classic instance of inducement… by advertisement or solicitation that broadcasts a message designed to stimulate others to commit violations. MGM argues persuasively that such a message is shown here.” On November 8, 2005, Grokster settled with MGM. “Under the settlement, filed in federal court in Los Angeles, Grokster agreed to pay $50 million to the Recording Industry Association of America, an industry group based in Washington, D.C., that represents music labels. It also agreed to a permanent injunction prohibiting infringement of the music companies' copyrighted works. It may no longer distribute Grokster software, and must cease running ads on its site or engaging in any type of profit-generating activity” (“For Grokster, It's the Day the Music Died,” 11/08/05, McBride, Wall Street Journal).

The damage from Grokster has already been done as millions of people continue to use the software. Many of the ongoing forms of online piracy are based in other countries where there is weak copyright enforcement. This would mean that someone could download a Napster-like program and proceed to share any digital files they please. The internet exists in every country in the modern world, and for there to truly be a way to hold infringers liable, there must be an overarching international statute regarding copyright, and strict enforcement of such a law.



One of the last pieces of legislation passed by President Clinton was the Digital Millennium Copyright Act, or DMCA. This addition to the Copyright Act addressed the issue of international piracy. “The WIPO Copyright Treaty (WCT) and the WIPO Performances and Phonograms Treaty (WPPT) each require member countries to provide protection to certain works from other (WTO) member countries or created by nationals of other member countries. That protection must be no less favorable than that accorded to domestic works” ( The problem is not in the law, but in the enforcement.


A development in technology that seems to have gone under the radar is the explosion of digital video recorders. With a “DVR” one can copy any show that is available on your cable service. It would seem that people who “tivo” a show are behaving in a way similar to those who were illegally copying shows in the Betamax era. The Tivo/DVR concept is not addressed anywhere in the DMCA. “Interestingly, media giants like CBS and NBC are among TiVo's investors. Perhaps media companies have accepted the fact that technology must go forward and that they must adapt to viewers' changing habits. Furthermore, hackers have already made available software that allows DVR users to take compressed copies of TV shows and swap them on the Internet”

( Perhaps technology is forcing some media corporations to realize that this is just another period of discontinuity and that there is a whole new market ready to be tapped into.


Where Tivo only gives the user a copy of the show, a more accessible form of watching copied shows is gaining popularity in China, part of the WTO. “This new twist turns an ordinary computer receiving the TV channel into a rebroadcaster of video streams, feeding the next computer, which feeds the next. The signal, which is taken live off TV systems mostly in China, is delayed by about a minute before it shows up on computer screens in Microsoft Corp.'s Windows Media or RealNetworks Inc.'s Real Player program” (“Newest Export from China,” 9/2/05, Fowler, Wall Street Journal). Now, a member nation of the World Trade Organization seems to be doing exactly what the DMCA claims it prohibits. In fact, infringers using this Chinese service are not just limited to the People’s Republic. A hacker in Europe was able to open the site for fellow Euros to watch a soccer match that would have otherwise been blacked out. Once again the problem is not with the statute regarding online piracy, but the lack of enforcement. “Cable channel HBO Asia, whose greater-China feed is featured on many of the services, says it, too, is aware of the systems and ‘very vigilant about shutting them down’ but it declined to give details” (Fowler, 9/2/05). Partners of HBO, and other US media companies have not commented on the ongoing investigation of this new form of online piracy.

This concept of having users stream television shows to and from each other simultaneously is called torrents. This phenomenon reached the US in 2004 and is now the most common way to pirate anything, from software to full-length films. The torrent users are the only ones that are liable here, because they are the ones sharing the files. There is no company that media companies can hold accountable, and there are legal torrents being used to disseminate information without eating up supplier bandwidth. Oddly enough, the first conviction of someone using a torrent to illegally share a file occurred in Hong Kong. “This past January Chan Nai-ming was arrested in Hong Kong for distributing films over the Internet via BitTorrent, and today he was convicted of that charge in court… he is looking at four years in a Chinese prison for his conviction” ( It seems as though the People’s Republic needs to take a look in the mirror. This man is going to jail for 4 years while the rest of the country continues to watch shows that the government has pirated! If he is guilty, is not the rest of the country to be held liable for watching US shows that they have not paid for? This double standard is a prime example of how the enforcement of intellectual property rights on the international level is flawed and requires oversight.


Google has become quite a force in the realm of intellectual property. The search engine recently decided to index written works into a virtual library. Of course copyright law rears its ugly head again, even with regards to works that are out of print. “At its core, the two sides are scrapping over the online application of ‘fair use,’ a legal doctrine allowing the use of copyrighted material for certain purposes, including teaching, research and news reporting. Some lawyers believe at least one of the lawsuits against Google could make its way through the legal system to the higher courts, eventually setting a precedent for fair use in the Internet age” (“Google Will Return to Scanning

Copyrighted Library Books,” 11/1/05, Delaney, Wall Street Journal). Google’s main source of revenue is through advertising. Companies pay to be part of the featured advertisements on the right side of the search results. The parallel to the Grokster case is that Google will be providing copyrighted material to searchers for free, and in turn they will make money on the side. Exactly how fair is Google’s use of the material? The indexation process is being done in conjunction with the University of Michigan and Stanford University, both educational institutions protected by the “fair use” clause. Google is not an institution of learning by the conventional sense of the term, but many people when in an argument turn to Google to shed light on any subject. It would seem that such a resource is extremely similar to the concept of sharing library information between universities that was born at the beginning of the internet. The difference is that there is revenue being generated from the service. This puts Google in a situation similar to Grokster, and this time publishers are the plaintiffs. “Paul Aiken, executive director of the Authors Guild, said his trade group doesn't intend to withdraw the suit it filed in September against Google in U.S. District Court in New York alleging that the search company is violating copyright” (Delaney, 11/1/05). This completes a powerful triad of industries terrified by the power of the internet.

SONY’S ROOT DIR (the conglomerates strike back)

Instead of adapting to changes in technology, Sony decided to attack DVD hackers in a more malicious way. They created a technology that installs a hidden directory (rootkit) with masked files onto your hard drive any time you insert a Sony DVD. “If you look at the Sony rootkit, it does several things: It strips you of your rights, potentially causes your computer harm, breaks your computer if you remove it, and eats your CPU time” ( What the rootkit does behind your back is quite stunning. Upon the unannounced installation, the rootkit renames your DVD ROM’s driver file, and hides it in the rootkit, while monitoring any attempts at piracy. If a computer user is savvy enough to locate the rootkit, upon removal, your DVD ROM ceases to function. This is not only a breach of our right to privacy, but it is by all definitions a virus. The ALCEI-EFI (Association for Freedom in Electronic Interactive Communications - Electronic Frontiers Italy) filed a complaint against Sony on November 8, 2005. “It claims that knowingly distributing code which damages computer systems is subject to penal law and an 'indictable offence'… It claims that Sony's actions to offer a patch and instructions on how to remove the software component, which installs itself without the express consent of the user, reveals the company's complicity in the 'crime'” (

This is a prime example of how far out of control the concept of internet piracy prevention has gotten. The “mal-ware” rootdir installs on all computers presented with a Sony DVD, this in effect hurts the non-infringing Sony viewers as well as the pirates. There is no sense in such actions and this is yet another case that will set a much needed precedent regarding the intellectual property laws of the internet.


Betamax and the VCR revolution led to decreased sales of videos. At the same time the rental industry was booming, so the movie producers’ logic was that their demand for videos had shifted from the consumer to the renter. The production companies reacted by raising the prices of the videos. Rental companies had to buy the movies to rent, so increasing the cost of each tape was the best way that video producers could adapt to the discontinuous change brought by VCR dubbing. In doing this, the revenue stream shifted (producers now get a percentage of renter’s revenues), and most companies weathered the storm.

A similar procedure could have been adopted by the RIAA and the MPAA. The MPAA has introduced a few ideas. Recently movies have started being released on DVD the same day that they come out in theaters. This is to prevent those who post torrents of bootleg films shot by camera in the movie theater from detracting from ticket and movie sales. It is too early to see if it is working, but it is not too early to evaluate how far we have come since Napster.

There is more online piracy today than there has ever been. For every Napster or Grokster stopped, there is another different form of piracy born. Most of the time the enablers of infringement are in countries that don’t enforce the DMCA, and the people being arrested for infringement are the downloaders. Hobbes once said that the state of human nature was anarchy. This point has never been manifested anymore clearly than on the internet. The virtual nature of the internet allows people to feel that they are not part of any country, and in turn do not need to abide by any rules. For the internet to remain what it was initially intended to be there needs to be enforcement of some sort of rule. I believe that lowering the amount of damages awarded to the copyright holder would motivate some countries to enforce the laws of the WTO. “Mandatory statutory damages of as much as $150,000 per work infringed… a single iPod filled with infringing songs could give rise to more than half a billion dollars in damages” ( I believe that part of the reason that such a law isn’t enforced as stringently as it could be is that most of these infringers don’t even have $150,000 and if they did, they probably would have bought whatever it was they were infringing.

In my interview with Manuel Gomez, an attorney in Miami, we discussed the future of the internet and intellectual property. The main theme of our discussion was how the Supreme Court has dealt with technology. In each of the cases that have been described, the court attempted to rule on the most specific possible conflict. The fear, as Mr. Gomez put it, is that they don’t want to act too soon regarding a topic that may look completely different in the future. The laws need to catch up with technology in a sense. Regarding Google’s book project, Mr. Gomez felt that fair use is a stretchable doctrine, but the fact that Google would make revenue off the project eliminates the defense, although not completely. Google’s library project, if it goes to court, will address something new regarding the internet, parallels of such a case could be drawn to the Microsoft anti-trust suit.

The Department of Justice sued Microsoft before it grew out of control, but in doing so, it is a common belief that technological development has been thwarted. The technology is available to combine computers with televisions and phones, but obsolete industries screamed bloody murder. An innovative product that replaces multiple industries should not be viewed as a monopoly, but as change. Google’s library project is innovative in a different way. The biggest problem in this country is the divide between the haves and have-nots. The haves are able to get a good education, where the have-nots may not. This divide transfers to the digital world, but now even poor people can afford dialup internet. Google and other services that provide knowledge to people that could not find it otherwise are aiding in the closing of that divide.

The United States is losing its financial dominance to Asia, mainly China and India. The disparity in public education in the US is a main reason. Adding the constant thwarting of innovative ideas regarding the dissemination of information to an already weak educational base gives our newfound economic rivals even more of an advantage. China has made leaps and bounds in stem cell research, while the right wingers hold that up in the states. If we were to let Microsoft develop the products it truly could, we would have created a new dominant design for media by now. If we let Google finish their library project, it could be the greatest compilation of writings ever! It is important for the US to measure the benefits of innovation along with the costs.

Instead, I foresee more lawsuits. TiVo is setting itself up to be sued by not producers, but advertisers. When someone “DVRs” a show, they are able to skip through all the commercials. Eventually, data will be compiled showing that TiVo decreases the effectiveness of advertising and in turn, TiVo could be held liable for lost Nike sales, for example. This is an upsetting but very realistic way to look at the future of the internet. Already the MPAA and RIAA are working on a new sub-internet called Internet2, which claims to eliminate piracy. As I stated above, the problem of piracy goes beyond fixing one problem that lets people pirate, it requires seriously looking at the big picture.

We live in a world with countries that cannot get along. To think that the internet is free of these problems is foolish. If we are to eliminate piracy, or even enforce laws properly, we need every country to be on board. This is not the case, and if it ever is, that is a condition of world peace, a concept that is virtually impossible to accomplish. Perhaps achieving virtual harmony on the internet can lead to harmony in the world, but it is most likely necessary for that to happen the other way around.