Copyright meets digitization. Ever since equipment for home recording of radio programs was introduced in the early 1930s, it has been possible to make unauthorized copies of copyrighted works. As long as the technology for doing so was analog, the risk to copyright holders was minimal--a single copy was not as good as the original, and two or three generations later, the quality had deteriorated to the point where the discriminating listener would be seriously offended. No one really worried that the market for copyrighted works would be badly eroded. But digital recording--coupled with the Internet--changed all that. It is now possible to create perfect copies on computers found in most Americans' homes, and the Internet makes it easy to send them all over the world.

The music and motion-picture industries have suddenly seen their property placed at risk. But the public also has a lot to lose, for if artists cannot be compensated for their work, the Internet will never engender the worldwide burst of creative and artistic talent that the communication revolution has made possible. The current balance between producer and consumer has been struck by two centuries of evolution in copyright law. But seemingly the balance cannot be maintained. Technology that serves the interests of the consumer seems to jeopardize the rights of the producer, and vice versa. The National Academy of Sciences has called this the "digital dilemma." Digital rights management (DRM) is seen as a way out. It is a system that encrypts digital media content and limits access to only those people who have acquired a license to play the content.

Napster burst onto the scene in early 1999, and took off quickly. Within a year, the music industry was claiming a harm: CD sales within a five-mile radius of colleges declined by 4%, even as overall CD sales were increasing. The Napster CEO blamed this on the increasing market share of large chain retailers. Napster was effectively shut down in 2001, but users moved to peer-to-peer services such as Morpheus and Kazaa. Global sales of recorded music fell by 5% in 2001, and 10% in the United States, and sales declined a further 7% in 2002. The reasons for this are still a source of dispute, with different studies showing different causes, such as high prices or consumer interests shifting to DVDs. But whatever the impact, both sides are less concerned with the present than with the future, when a more pervasive Internet could allow anyone to become a global distributor of any recorded material--including television programs and movies, once faster broadband access becomes available. But protecting against intellectual-property theft is not easy, since it is well-nigh impossible for technology to differentiate legitimate copying from illegitimate. And stopping legitimate copying would gut consumers' fair-use rights, and also render whole electronic product lines illegal.

What technologists fear. The content industries are basing their hopes on a combination of legal action and technologies to make most copying impossible. This does not sit well with the computer and consumer-electronics industries, which fear technical problems from trying to accommodate evolving copy-protection standards, and reduced sales due to incompatibilities among devices. For example, the most secure way to prevent copying is to build checks into the hardware--storage drives and memory cards, for example. Intel and IBM were pursuing such an approach in 2001, while Microsoft and other software companies were working on software controls. Software, of course, is easier for a hacker to evade, since it is only necessary to trick the device into loading an altered version of the code. But that is also the advantage of software--if a bug in the code is discovered, or if standards change, it can be upgraded without shipping the device back to the manufacturer. As long as industries disagree about what the standard should be, manufacturers have to be concerned about the prospect of new standards. As a result, industry is prepared to live with software controls for the present.

A good example of this is CSS, the content-scrambling system used for DVDs. A program to break this encryption, DeCSS, is widely available on the Internet. It has been under legal attack from the Motion Picture Association of America, but in January 2003, one of the program's authors, Jon Johansen, was acquitted of charges by a Norwegian court, on the grounds that he wrote the program so that he could view his own DVDs on his Linux system. But usage in the US remains illegal, under the DMCA. In any event, the existence of DeCSS renders DVD copy protection insecure, and likely portends a change in the standard.

Moreover, the market for certain kinds of devices depends on the ability to download content to them. Most MP3 players have no copy protection built in, allowing consumers to copy CDs to them. That has caused the legal online music services to bar most transfers of songs to portable devices, creating a complicated set of rules on what can and can't be done with music downloaded through these services. This has led commentators to suggest that the adoption of copy-protection technology may cause entire lines of products, such as MP3 players and hard-disk recorders, to disapper. Consumers just won't pay to buy the same music three or more times--once to use in a home jukebox, once to use in a car CD player, and once to listen to while jogging.

Finally, the interplay between various copy-protection standards and a myriad of different hardware devices will inevitably lead to unanticipated incompatibilities, causing some media to play incorrectly, or not play at all, in some devices. Several California consumers filed suit against five major labels for defective products, alleging that their CDs would not play in many personal computers. Elevating these incompatibilities to matters of policy, several record labels have developed anti-piracy technologies that are designed to stop CDs from being played in personal computers.

Fair use and personal recordings. As we saw in the lecture on electronic copyright, copying is legitimate if it is permitted under "fair use." The most celebrated case defining fair use for home recording was was Sony Corp. v. Universal City Studios, decided by the US Supreme Court in 1984. The court found that the use of VCRs for time-shifting programs did not violate copyright. Previously, Jack Valenti, President of the MPAA, had argued, "This video cassette recorder and the blank tape threaten profoundly the life-sustaining protection, I guess you would call it, on which copyright owners depend, on which film people depend, on which television people depend and it is called copyright." Ironically, the motion-picture industry now makes more money from the sale of videocassettes than from movie tickets. Subsequently, the Audio Home Recording Act of 1992 (AHRA), which mandated copy protection for digital audio tapes, established that noncommercial use by consumers of digital or analog audio recorders for making music recordings did not violate copyright.

The Grokster case. Many content producers are seeing the Sony case in a new light now that peer-to-peer networks have proliferated, allowing any "fair use" copy to be disseminated worldwide. The Sony decision held that a distributor cannot be held liable for copyight infringement by users so long as its product is capable of substantial noninfringing uses. Peer-to-peer networks certainly are capable of noninfringing uses. However, their most publicized use is to share copyrighted material illegally. On this basis, MGM sued the peer-to-peer network Grokster, charging that they were complicit in users' copyright infringements. In 2005, the question came before the Supreme Court, which unanimously agreed. Because Grokster had taken such actions as trying to lure former Napster users and not taken any steps to filter out copyrighted content, the court ruled, Grokster was liable for copyright infringement. Electronics-industry and consumer groups expressed dismay, not so much at the decision itself, but because the Supreme Court did not lay down clear rules on what product makers should do to shield themselves from liability. Absent such rules, they said, companies promoting new technologies would have to factor in the monstrous legal bills that might result if they were sued by the movie or recording industry. This would make them less likely to bring to market products that might benefit consumers. However, other commentators noted, there are p2p services like BitTorrent and Gnutella that don't encourage piracy. In the long run, the Grokster decision could give them the ammunition to withstand legal challenges by the content industry.

The proposals. Of course, the law establishes only that consumers cannot be charged with copyright violations if they make personal copies. It does not require the content producers to allow them the ability to make copies. The content industries are developing technological defenses on their own. One important controversy revolves around what role government should take. The proposals run the gamut from having the government require copy protection to having the government ban it. Let us consider them in order of restrictiveness.

• The government mandates DRM technology. In 2002, former Sen. Ernest Hollings introduced the Consumer Broadband and Digital Television Promotion Act, which would have required copy protection to be embedded into all digital devices, from MP3 players to cell phones, fax machines, digital cameras and personal computers. Hollings said that producers were withholding content from the Internet precisely because of the lack of copy protection, and that only mandating copy protection could "unleash .. an avalanche of digital content on broadband Internet connections as well as over the digital broadcast airwaves."
  
  
• The market decides on DRM technology. The libertarian approach to DRM eschews both governmental mandates and governmental restrictions on its use. It says that markets do a good job of informing the consumer what devices a recording can be played on, and that consumers will just refuse to buy recordings that don't play where they're supposed to. The companies themselves will pay the price in lost sales and consumer outrage.
  
  
• Government guarantees certain fair-use rights.The Digital Media Consumers Rights Act, sponsored by Reps. Rick Boucher and John Doolittle, would require copy-protected disks to be labeled as such, and would guarantee consumers the right to bypass copy protection for noninfringing uses. The Consumers, Schools and Libraries Digital Rights Management Awareness Act, authored by Sen. Sam Brownback, would prohibit the Federal Communications Commission from forcing PC or digital video manufacturers from requiring specific copy-protection technologies, and allow the Federal Trade Commission to ban DRM technologies that limit a consumer's right to resell any "digital media product."

These developments raise important questions like the following:

1. Is fair use an inherent right of a free people, like the right to freedom of speech? Or is it an artifact of a bygone age, when technology did not exist for extracting micropayments for "micro-uses" of intellectual property?
   
   
2. Is it possible to design a copy-protection system that allows certain kinds of copies, e.g., the first-generation copies of digital audio tape permitted by the AHRA, but not unfettered multi-generation copying and unlimited redistribution? Would such technology succeed in guaranteeing the rights of the content owners?
   
   
3. Most free Web sites today are paid for by advertising. As intellectual property becomes a larger part of society's output, is it possible for the Internet to survive if the lack of copy controls makes all information "free," and the Web can be supported only by advertising of non-IP products?

An excellent discussion of the need for, and risks of, technological protection for digital content is contained in a March 2004 report from the Committee for Economic Development. They observe that approaches that limit consumers' rights too drastically will encourage disrespect for the law and encourage widespread circumvention activity. At the same time, the success of Apple's iTunes demonstrates that consumers are willing to pay for rights-managed digital content if the price is low enough. They opine that successful solutions will involve new business models, and oppose legal favoritism of existing business models over new ones. These new models will presumably involve DRM mechanisms, but the government should not mandate such mechanisms unless they are convenient for users and balance the interests of consumers against producers.

Intellectual property is like every other good: People will only create it in large quantities if they can be compensated in some way for doing so. The Internet has given us the technology to make copies of all information "for free," so it is not clear who will compensate the content providers. Technological solutions have been devised, but they are not foolproof, and they tend to cause incompatibilities which discourage consumers from using products that incorporate them. The digital world awaits new approaches to balancing the rights of producers against the rights of consumers.