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Part 47: Intellectual Property

January 17, 2012

I'm still working on internationalization issues and I'll write that up when it works. Supporting multiple platforms is, as usual, a huge nuisance. I got it mostly working under Windows, and then decided I'd done it all the wrong way and needed to redo it.

I was trying to decide whether to have the site go dark on Wednesday as a protest against the PIPA/SOPA legislation making its way through the U.S. Congress. Since this site doesn't have enough traffic to really make an impact, I decided to write something about the issue instead.

I'm sure everyone is familiar with the standard arguments on both sides. Publishers and other copyright maximalists say "you can't compete with free" and think all the content industries are being destroyed by piracy.

On the "information wants to be free" side, you get arguments about copyright extension, the damage being done by patent litigation, complaints about restrictions to free speech, and calls for publishers to experiment more and stop hanging on to old-fashioned business models.

Some people try to reason this out from basic principles. They usually talk about the rights of creators and end up going down the maximalist route. If you think of ideas as "property" and creators as "owners", then it's hard to limit copyright or patent rights in any way.

Personally, I think copyright, patents and free speech rights have always been legislative compromises, a mix of principles, practicality and politics. I don't think it's very productive to argue these things from first principles or try to come up with some ideal system. It's more interesting to look at what is changing.

Business vs. Hobbyist culture

There have always been two worlds when it comes to "content creation". There were artists, musicians, writers, programmers, etc. who created for fun or the love of it. They did it for free, so call them "hobbyists". And there were businesses that made money off that same kind of creation.

Back before the internet, businesses could safely ignore hobbyists. Because distribution was expensive, hobbyists couldn't do much of it. If a hobbyist did want to get into mass distribution, they had to become a business. Once you were a business, you had to play by business rules. If you didn't (say by counterfeiting or theft), you were subject to lawsuits, fines or even arrest.

The cost of distribution created gatekeepers who had the money to fund the upfront costs. A musician might have had a great sound, but to put his music in record stores, he needed a record company. To sell a million records, first you have to print a million records, which costs a million dollars. So you couldn't get rich off your music unless you were already rich enough to do distribution. Musicians don't have that kind of money, so they were at the mercy of the record companies that did.

Even in the 1970s, when I was a teenager, there was tension over this business vs. hobbyist split. At that time, it was due to cassette tapes. People would buy an album (those vinyl disks that played on a turntable) and then make a tape of it for friends. The music industry hated this, because it was seen as a lost sale.

Some tapes undoubtedly were lost sales, but it's hard to know how many people would have bought the album if they couldn't get a tape from a friend. It's also hard to know how many people bought an album because they heard it on a tape first and wanted better quality.

Just as today, there was another side to it. It wasn't just the cost of albums, but their lack of flexibility. You could make a "mix tape" with songs from several albums. You could tape a live concert with a portable recorder. You could carry a tape (or a whole box of them) to a party. You could play a tape in a portable player or in your car.

So it wasn't just a matter of stealing music. It was also people getting a product they wanted that the record company simply couldn't supply. Record companies did eventually produce (annoyingly expensive) pre-recorded tapes, but people still made their own. The same sort of issue cropped up again with VCRs and home taping of movies, and later with DVDs and copies burned on a home computer.

What's different now is that distribution costs have disappeared. Suddenly, hobbyists have the same reach as businesses and are seen as real competition. Unfortunately, hobbyists don't distribute for the same reasons and don't play by the same rules. That's a fundamental problem.

A business is run for money, even if it does creative things. It has expenses and investments. It has a physical location and distribution channels. A business has to play by the rules in order to keep earning money, and because they are vulnerable -- to lawsuits, regulations, taxes and police.

A hobbyist is doing it for love, not money. He has almost no expenses -- just put your music up on YouTube and promote it online, all for free. Since there is no monetary investment, no payroll, no building, no sales channel, the hobbyist does not have a lot to lose.

If a business breaks the law, it can be sued or a government can close it down. There aren't that many businesses in a given field, so it's relatively easy to police them. There are millions of hobbyists and they require no money to do their thing. Even if you sue them, you can't recover your costs because they have no money. And there are too many to shut them down individually.

On top of that, the internet is global, so many of the people a business wants to sue or arrest aren't even within its jurisdiction. The internet didn't just drop distribution costs, it made it possible to evade restrictive laws passed to protect publishers.

Viewing this as hobbyists vs. businesses makes a difference. The current story from publishers is that everything was fine until the internet came along and pirates started to steal all their products. The reality is that it's not just about piracy.

Hobbyists have always been there, creating art, music, books, comics, open source software, etc. The internet has just forced these two worlds into collision. Even if all the piracy disappeared, publishers would still be in trouble.

Who Needs a Publisher?

The internet has dropped the cost of distribution to the point where some creators don't really need publishers. My game project was inspired by Minecraft, which was distributed without any publisher and made millions. There are more and more stories of writers doing without publishers, musicians selling without record companies, movies distributed on the net, or promoted via the net.

Publishers will claim they do more than just distribution -- editing, proofreading, marketing, producing music, etc. I'm not really noticing the lack of polish in some of these direct-to-net efforts. It may also be that it just doesn't matter to many consumers.

Baen Books releases what they call Advance Reader Copies of their books. These are the versions submitted by the author, before proof-reading. Baen actually charges more for these editions than for the final versions. For the readers buying these copies, having it first means more than having a clean copy.

I've also read that there's increasing discontent with the academic publishing industry. Academics who write research papers are not paid by scholarly journals -- just the opposite. Their universities or research labs pay to place the paper in a journal. Peer reviews are done for free by other researchers. The final result is a printed copy of journal that costs a fortune for a subscription. For academics, it's clear that a completely electronic system where work is distributed free or at cost would be a big improvement.

Any type of content created by a small team doesn't need as much up-front investment. The publishers in those industries will be under increasing pressure. In another generation, you may have to explain to kids what a record company or a book publisher was, and why anyone needed them.

To the extent that artists want the editors, proof-readers and producers currently employed by publishers, they can hire those people themselves. They don't need to be hired by publishers and then sent to work with artists.

This is not to say that all publishers are doomed. Making a movie or a TV program is still expensive and requires cash up front. But as publishers lose control of the distribution channel, I would expect to see more independent efforts. The drawback is that when fewer people are watching each movie or TV program, there just won't be the budget for multi-million-dollar actors and special effects.

Advertising is Changing

Back before cable TV, there were only three big TV networks in the U.S. It was very hard (and presumably expensive) to get something on television. TV was also notorious for lack of variety. One famous report called it "a vast wasteland." Costs were lower and there were more outlets for music, so you saw many musical styles, even back in the days when everything had to be put on vinyl records. Book and magazine publishing was the most diverse of all.

The lower the distribution costs of a particular medium, the lower the barriers to entry. This means more companies in the field and more diversity in the products. The U.S. movie industry only makes around 600 movies in a year, so it can't possibly chase small niche audiences. A book publisher can afford to do that, since it costs so much less (opportunity cost and manufacturing cost) to produce a book.

Now that the internet has dropped barriers to entry and distribution costs to nothing, we see the same trend. Sites exist for every bizarre topic imaginable.

However, since TV created a huge audience for a single show, advertising could support the entire production cost. Now that same audience is split into a thousand different niches, and no one site or program can capture enough audience for advertising to pay the bills.

The internet has also affected the advertising itself. It used to be that the purpose of an ad was to get the consumer into a store, where a salesman could work on them. Now, ads are being used for a different purpose -- to lead you to a website full of information about the product.

The difference is that consumers can easily jump to another website for a competitors product, once your ad has caught their interest. They can also jump to a review site that talks about all similar products. They can see user comments on sites like Amazon about your product. It is as if every company suddenly is surrounded by competitor store fronts, and the streets are filled with critics.

I don't have any numbers, but this has to be decreasing the effectiveness of ads. That in turn means they are worth less to companies, and will support less content production. The increased number of ads I run into is a symptom of this. Companies have reacted to loss of ad power by just running more ads.

Publishers complain that "you can't compete with free", but forget that the entire TV industry before cable was free to the consumer. Advertisers paid the bills. Their complaint now should be that advertising just isn't as valuable as it used to be. Internet banner ads just aren't worth as much as TV commercials.

Consumers aren't paying for content, but they never did. What's changed is that advertisers aren't paying the bills either.

Intellectual Property Doesn't Scale

Calling ideas "intellectual property" is of course a way to justify ownership of ideas and use of the same rules for ideas as we use for physical objects. Critics have pointed out that the two are very different. If I have a car and you take it, I no longer have it. If I have an MP3 file and you copy it, we both have it.

I understand the distinction, but for the publisher, it makes no difference. What you've taken isn't the idea, it's the sales. They are right that if no one pays, creators have to do it all for free, and society suffers.

A more basic problem for me is that ideas don't have clear boundaries.

A physical object has a boundary and is unique, and property rights flow naturally from that. I can identify my car, and if you take it, I know that you have my car, not something similar. If two cars look the same, they can easily be made unique with serial numbers or some other irreversible alteration. We can all agree that my car is a distinct object and not somehow attached to similar cars. I can also easily defend my property by putting it in a safe place.

Ideas have none of these convenient aspects. Ideas blend into one another, making it unclear where "my" idea stops and "yours" begins. People can't always agree on whether two ideas are even distinct or if one is derived from the other. Ideas can be locked up in a safe place, but only if you don't want to use them. Take an idea out in public for a spin, and you've lost control over it forever.

To enforce "intellectual property" rights thus requires a lot of judgment calls. These end up in courts of law. As the number of creators increases and the amount of "intellectual property" increases, the number of combinations of creators and consumers and property -- and possible disputes -- increases exponentially.

Publishers have lobbied for increased rights, broader powers for trademarks, longer copyrights, and lower standards for patents. All of these increase the legal complications of disputes over ideas, and make those disputes more likely. The result is that companies are constantly suing one another, decisions take longer and longer, and the expense involved continues to increase.

This will only get worse as more countries join in defending their intellectual property. The complications of different legal systems will mean trying the same cases in multiple jurisdictions. The expense will be astronomical. At some point, it becomes a crisis.

Many software companies already ignore patents and just hope no one sues them. In my own work, it is a practical impossibility to comply with patent law. Every time I used any non-trivial technique in a computer program, I would have to search existing patents to make sure that technique was not patented. With tens of thousands of software patents and a dozen claims on each (written to be as broad and vague as possible), it's simply not possible to do these searches and get any work done.

Even if you did all those searches, the legal system is so slow and expensive that an independent developer or small company simply has no defense against patent lawsuits. I've read estimates that patent litigation can cost each party over a million dollars per dispute.

TechDirt illustrates the problem in smart phones with this diagram of which companies are suing which over smart phone patents.

The system will eventually break down. If nothing else, courts will become so clogged that decisions simply aren't made in a timely manner. Even big companies will stop suing if it means spending millions and not getting a decision for years. Both technology and popular culture move too fast for that to be useful.

I also expect that when some country outside the U.S. gets a patent lock on a new area of technology, then American companies will lose their taste for strong intellectual property laws. If China controlled a basic nanotechnology patent and refused to license it, businesses would run to Congress and whine about how unfair it all is.

Until something like that happens, I don't expect support for broad patent, copyright and trademark control to change. It's too good a way for entrenched large companies to threaten and control smaller rivals.

The Legislation

The reaction of publishers to change has been predictable. As the internet has become more important, publishers are using the political system to try and restrain it.

Businesses have lobbied government to increase their rights and increase penalties under law. They've threatened people with lawsuits. To cut their legal costs, they've sent out these "settle-or-else" letters demanding money. From what I've read, there's no evidence it has had any effect on piracy or even netted them enough money to pay their legal bills.

Now, with the PIPA and SOPA legislation, they want the ability to shut down internet sites with an accusation. They want the site dropped immediately from the DNS system and from search engines, making it hard to reach. They want the government to penalize advertisers and payment processors who deal with the targeted site. I suppose that after you win an expensive, time-consuming trial, you could get back online. Until the next complaint.

The opposition says these things will damage the internet itself, and they are right. Whether supporters know it or not, that's the goal of the legislation. The cheap distribution enabled by the internet is the target. Politicians will talk about piracy, but it's the entire world of hobbyists distributing their works for free that is the enemy of traditional publishing.

Supporters might reply that nothing in the legislation touches free distribution, only piracy. But the legal penalties are so high, and the consequences of a charge by publishers are so severe, that it puts all sites taking user contributed content at risk.

As TechDirt reports:

Under SOPA, you can be found "dedicated to the theft of US property" if the core functionality of your site "enables or facilitates" infringement. The core functionality of nearly every internet website that involves user generated content enables and facilitates infringement. The entire internet itself enables or facilitates infringement. Email enables or facilitates infringement. They have significant non-infringing uses as well, but the definition leaves that out entirely. Under SOPA, there's also a risk if you take "deliberate actions to avoid confirming a high probability" of infringement on a site. Of course, it's not at all clear how one takes deliberate actions to avoid taking action. The only way to read this clause from a tech company perspective is that it requires proactive monitoring, which is effectively impossible for a user generated content site. PROTECT IP's definitions are equally broad, again using the "enabling" or "facilitating" language.

How could YouTube exist if any publisher could shut it down and scare away all of its advertising if they see a pirate video there? How can any commercial site take the risk of user-contributed material? How can any blog?

With enough noise from the public, the publishing industries will back off a bit and Congress will delay the legislation. It's only a temporary victory however. The people who lobby Congress (the RIAA and MPAA) are paid to do this. As long as money is coming their way, laws like this will continue to pop up.

What Works

All the criticism of this legislation won't satisfy publishers. They want an answer to their question: "How am I going to make money?"

For some publishers such as record companies, I think the answer is "You aren't. And good riddance." There are constant stories about how poorly they treat artists and fans and I don't think they would be missed.

For the publishers that do something useful rather than just control access to distribution, I think the Netflix model has some promise.

I pay Netflix a monthly fee for access to their entire library. The psychology of this is interesting. I may go weeks without watching a movie, but I still don't drop my subscription. That's because I know that something interesting will come along soon, and I'll want the subscription again. In the meantime, I'm paying them for nothing. Anyone who has let one of their DVDs sit on a desk for a month knows the feeling!

Consumers may not like paying a high price for a single movie, but they will pay a high price for a service. This applies to Netflix but also to cable TV bills or phone data plans. I think many of the traditional publishers could re-invent themselves with this kind of pricing. Perhaps Sony could offer all of its music and movies on a single site for a monthly fee. Perhaps a game distributor like Steam could offer all its games for a flat fee.

With all that content, and more appearing every day, subscribers know they are getting something of value, without having to choose which thing to pay for. Yes, they could get bootleg copies, but at some point, the convenience of just subscribing and getting it all, whenever you want, with no hassles, is overwhelming.

A second point is also worth mentioning. Too many times, there's some content I want -- a movie, a TV program, a book -- and no way to buy it. The movie hasn't finished its run in theaters, the TV program hasn't been released on DVD and the book hasn't been put out for the Kindle. And so it's very tempting to just go to BitTorrent and get what I want for free.

Before companies lobby Congress about lost sales, they might try giving us a way to buy what we want!

The Internet is a Moving Target

Finally, I should point out something basic that is frequently ignored. Legislation is based on what businesses complain about and what legislators understand about the problem. These are all reactions to the internet as it stands. But the internet is a moving target.

The lowest layers of the internet are point to point. It connects any two machines in the world with a stream of bytes. Everything else, from the web to MMO games to Skype to BitTorrent to streaming video, is built on top of that layer. And it's all built in software.

This means the internet can redefine itself in reaction to laws. If censorship becomes extreme, new protocols can be invented to circumvent it. There are plenty of programmers willing to do this, and plenty of demand still for privacy, security, and free flow of information.

I'm tempted to make some utopian statement about the power of the internet to overrule governments and preserve freedom. I don't think it's that simple. There are clearly drawbacks to completely unrestricted communications. However, I would warn the supporters of this legislation about the risks.

Cut off legitimate websites like YouTube, and underground, encrypted, anonymous sites will spring up to take their place. Right now, you have an internet that can be somewhat regulated. Push hard enough, and it will all move out of your reach.

You call the internet the "wild west" and want to tame it down, so that your business can continue without change. Get this legislation passed and something much worse for you could emerge. On a "dark" internet, hobbyists will continue to distribute their work for free, pirates will continue to distribute your products for free. Only legitimate businesses will suffer.

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