-------- Original Message -------- Subject: My Financial Times Op/Ed---Supreme Court & P2P Date: Thu, 31 Mar 2005 10:12:59 -0800 From: Travis Kalanick <travis@private> http://news.ft.com/cms/s/09cbb7aa-a089-11d9-a3ba-00000e2511c8.html Financial Times Comment: MGM v Grokster By Travis Kalanick Published: March 29 2005 21:58 | Last updated: March 29 2005 21:58 Today is an historic day for the media and entertainment industry. Today, the Supreme Court of the United States will hear the biggest media distribution case, MGM vs. Grokster, since the Sony Betamax (VCR) case of 1984. The fight is over what liability technology companies incur for the infringing behavior (a.k.a. piracy) by the users of their technology. The backdrop is an age-old battle. Media Industry vs. new media distribution technology. Copyright vs. Innovation. The recurring battle that has continued to be fought, over the phonograph, the photocopier, the tape deck, the VCR, and now P2P technology is a century old and is part of a bigger struggle to harmonize the goals of content ownership with those of technology innovation. Each time around, the battle cries get louder and the struggle seems to reach an ever greater fever pitch. But the outcome of the battle is as predictable as the battle itself. Each new innovation that is feared and fought is ultimately embraced and serves as a harbinger of prosperous new businesses and profits for the media industry. Each time, the foundation of innovation has continued to be held as the bedrock of our economy and likewise our culture. This recurring battle has a recurring theme. The entertainment industry sees the onset of a new technology, in this case file-swapping P2P technology, as a mortal threat to their industry. Today, there are billions of music and video files traded every month that are distributed without any license, without any payment to the owners of the content. For the media companies, this is the moral equivalent of a mob that barges into Blockbuster Video or a Virgin Records and ransacks the store taking all of the merchandise without even noticing the cash registers (or the cashiers) on their way out. Their claim is as follows: technology companies that build massive infringement tools should be held responsible for the infringement that their technology “induces”. With penalties of 10’s of thousands of dollars per infringement, even the largest technology company must think twice or face risk of bankruptcy if they deploy an infringement-“inducing” product. The technology industry and specifically the P2P technology companies see things quite differently. Their main defense is a famous Supreme Court ruling usually referred to as Sony. Essentially, it was a very similar battle as the one we see today, only it was 20 years ago, and it was over VCR technology. A famous quote from Jack Valenti, the head of the Motion Picture Association in 1982 congressional hearings was “the VCR is to the American film producer and the American public as the Boston strangler is to the woman home alone.” It was the Motion Picture industry’s primary goal to keep Sony from distributing the VCR because of the rampant piracy and illicit recording of movies broadcast over the airwaves. At the time there were very few non-infringing uses of the VCR (no video rental stores, no DVDs), and the studios claimed that a vast majority of its usage was for infringement. The Supreme Court in a 5-4 decision ruled that the VCR was a legal device because it was “capable of substantial non-infringing uses.” Today the movie industry makes twice as much revenue in home sales and rentals of its movies than it makes in box office. Grokster and their kin are quick to point out that the movie industry wouldn’t exist if the studios had gotten their way 20 years ago, and we are simply repeating history in this current court battle over P2P technology. The technology industry generally wants the status quo. The Sony ruling should stay intact, such that if their products are capable of substantial, non-infringing use then the “Betamax shield” that has driven the balance for innovation for the last 20 years should continue to act as the guiding light. They may be open to some strict language about the intent of the commercial entity building the potentially infringing product, ala Napster, Grokster, etc. but it must be strict enough that the mainstays of the industry are clearly not on the list of targets. Where does this leave us? Shockingly enough, the Supreme Court ruling we are all focused on will have very little if any positive effect for the technologists or the copyright holders. It is instructive to look at the potential scenarios and outcomes. The technology industry has a lot to lose if the ruling goes strongly against them. There are some concessions to be had but where do you draw the line? The technology industry cannot let its innovation be at the whim of a few copyright enforcement cops paid by the media industry. Certainly they wouldn’t want to incur trillions of dollars in damages for creating the next innovation that drives media profits for decades to come. Today, Apple’s IPod has sold over 10 million units, more than $2 billion in revenue. A majority of the tracks played on the IPod are likely infringing files (acquired without license or payment). Is the IPod an “inducing” technology? Microsoft’s Windows operating system has allowed peer-to-peer connections for well over a decade. Are they next on the list? A user can easily encode their music into MP3’s and then send an email to all of their friends with an attachment that includes all of their favorite music. Is your favorite email application or service safe from the entertainment industry? Should every technology start-up hire attorneys before they even begin to write code? For the technology industry, the best that they can hope for is the status quo, a strong opinion in favor of the Sony ruling. The more likely outcome, and candidly what most technology executives expect, is some degradation of their degrees of freedom to innovate. Too negative a ruling and they will find themselves having to reassess the risks involved with building potentially infringing technologies. It could be many years before the ground rules are clear, and there might also be a substantial export abroad of innovation businesses and the associated knowledge resources. If the Media conglomerates come home with a resounding victory, Hollywood will have a collective but very temporary sigh of relief. Piracy will not ebb but will continue to thrive through more distributed, more anonymous, less commercial P2P. Active development for years amongst a loosely coupled open-source development community distributed around the globe is succeeding in getting the nirvana of unencumbered, high-performance p2p file-sharing to the masses. There are no companies, there is no entity to sue or shut down, and jurisdiction simply doesn’t exist to go after individual developers living in countries with more “copyright-loose” legal structures than the United States. In the Internet era, the fight against inducing technologies is futile. The organic nature of networked technology and the speed at which innovation diffuses force the court room battles into obsolescence. Regardless of whether the media industry wins or loses, they are left in the same place, rampant piracy continuing to thrive. Fighting piracy will require serious efforts against actual infringers instead of technologies. It’s not all doom and gloom. When the studios regrouped following their loss in Sony, they turned their prodigious creative talent toward building business models around the VCR technology, and they found an entirely new billion dollar distribution window waiting for them, twice as big as all box office receipts combined. While strongly embracing non-infringing business models of VCR technology, entertainment companies fought the actual individuals stealing movies instead of innovators and piracy eventually faded to the background. An equally lucrative opportunity exists with non-infringing business models built on P2P.Over the coming decade, a vast majority of our content will be distributed via the Internet. The 10’s of millions of files transferred daily through file-sharing will be a rounding error and pale in comparison to 100’s of millions of households receiving several hours of television, video and audio content every day. Without P2P, the Internet will simply break under the load, too slow to watch, too expensive to deliver. With P2P, billions of dollars in network upgrades can be spared with higher quality services from on-demand education in the home to ubiquitous mobile information and entertainment. Distribution of on-demand content to the masses will be absolute, and the low-cost democratization of media to the industrialized world will be complete. The hundreds of millions of P2P users around the world are a testament to this. They are captive consumers that will be convinced to participate in the marketplace. A cohesive anti-piracy strategy that focuses on new businesses, evangelizes non-infringing uses of P2P, in addition to legal efforts against direct infringers is a winning strategy towards that effort. To their credit, in the 4 years since the Grokster suit was originally filed, the rights holders have come a long way. They are beginning to embrace the positive uses of P2P technology, and have seriously begun licensing content for online services. Perhaps this court case will mark an end of an era. Many years from now, we will all reminisce about those wild times with those high-pitched battles and big, bold headlines. Perhaps it is also the beginning of a new era. Let us all hope that we find copyright and innovation still in harmony. * Travis Kalanick is the founder and chief executive officer of RedSwoosh, a software company that specialises in digital media networks, and a World Economic Forum Technology Pioneer. travis@private 1800-2199 _______________________________________________ Politech mailing list Archived at http://www.politechbot.com/ Moderated by Declan McCullagh (http://www.mccullagh.org/)
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