Paper Draft: Napster Good? Welfare Economics Analysis of Music Infringement

I previously suggested that music copyright might be inefficient, because it prevents uses with a positive social welfare value and no social welfare cost. I've now expanded that idea into a paper, using public quotes about the level of filesharing to try to estimate its positive and negative effects:



In this drawing, the smaller checked rectangle represents the potential social welfare cost of filesharing, and the dotted triangle represents the social welfare gains from filesharing. As you can see, it's very possible that the gains outweigh the losses. (In fact, the balance is even more one-sided, because the gain recaptures what would otherwise be a pure deadweight loss, while the "loss" is actually a wealth transfer.)

To see how I got there, check out the paper here. (The footnotes are sparse and badly formatted at this point -- if anyone has pointers for stuff that should be in there, or other suggestions, I'd appreciate it.)

RIAA Incredibly Infuriating

We've talked before about the unreal damages for infringement of song files, which at a rough estimate might come to some 1.8 Quadrillion dollars per year.

Now I would think that damages amounting to 27 times the world GDP would be enough, but for the Recording Industry Association of America, that's just the beginning. Their platform for the future of music includes:

• Dramatically Increasing Copyright Damages: the PRO-IP Act the RIAA is pushing would treat each track on a duplicated CD as a separate infringement, increasing the damages for sharing a 10-track CD with your friends from $150,000 to $1.5 million.


• Grabbing A Bigger Cut: the RIAA is arguing before the Copyright Royalty Board that the fee paid to songwriters and publishers for each file sold in online stores should be reduced from 9 cents to 6 cents. (The artists themselves make about 5 cents on the dollar, of course).


• Taking Over Your PC: Wendy previously noted that the RIAA is asking ISPs to filter traffic -- an expensive and invasive technology that can be trivially defeated by the same technology that protects your credit card number in online purchases. Their solution would require every computer user to run special software in order to access the internet, constantly monitoring your traffic in case you do anything wrong.

Normally we talk about law and policy here, but I have to admit I didn't assemble those stories to make a coherent point. The fact that this Association has more voice in Congress on IP issues than, well, every music consumer combined? That physically hurts. That's all I wanted to say.

ISPs on Filtering

According to the New York Times Bits blog, Verizon Rejects Hollywood’s Call to Aid Piracy Fight. While AT&T was looking to work with copyright complainants to filter network traffic, Verizon expressed concern that voluntary filtering would lead to pressure to filter more and might lose the benefits of the DMCA safe-harbor.

Across the ocean, music companies represented by the International Federation of Phonographic Industries have sued Chinese search portal Baidu.

"Pirate Bay hit with legal action"

Don't know if this was mentioned in class already, but the International Federation of the Phonographic Industries (as well as the RIAA and MPAA) have been after a Swedish site, The Pirate Bay, that posts links to torrents of copyrighted material and receives advertising revenues. Now charges have actually been filed in Sweden for conspiracy to break copyright law, with major studios among the body of plaintiffs.

John Kennedy, chairman and chief executive of global music body, the International Federation of the Phonographic Industries, said: "The operators of The Pirate Bay have always been interested in making money, not music.

"The Pirate Bay has managed to make Sweden, normally the most law abiding of EU countries, look like a piracy haven with intellectual property laws on a par with Russia."

And for the personal touch, a BBC reporter goes Inside the Pirate Bay warship, where no major changes are expected as a result of the litigation. The Pirate Bay has even set up servers in other countries, just in case:

Some of these are within the EU but others are further afield - in case the EU decides to lend support to a Swedish ruling against The Pirate Bay - or other European nations come under pressure to take similar action.

Content Industry Conspiracy

So...I was reading through the article "Wired Shut" and came accross the point in the article that discusses how industry groups (content owners and technology manufacturers) got together to come up with a plan to protect digital broadcasts. The industries got together to discuss what would be the most advantageous plan for themselves, came to a self-serving agreement, and then presented that agreement to the FCC to endorse. I am doing my paper topic on the effect of the DMCA on fair use, and many of the articles/books that I have read have discussed how members of the content industry got together to come up with a plan to protect themselves from the great threat of "piracy". This group then presented this plan to Congress, which pretty much signed off on it, and it became the DMCA. I am just wondering who is looking out for the public during the planning and enactment of all of these schemes to change copyright law? It seems to me that it is Congresses' job to balance the public interest with the rights of copyright owners; after all the original purpose of copyright was to benefit the public. Congress seems to have done a poor job of protecting the public interest, but they have done a really good job of protecting industry interests.

The intersection of copyright and antitrust (paper topic)

To date, the RIAA has filed thousands of infringement suits against individuals who have allegedly downloaded or distributed copyrighted material.  The litigation strategy takes full advantage of the power of the Association, including ex parte discovery orders, settlement demands via letter with no opportunity for negotiation of terms, and pursuing default judgments for $750 per song alleged (a number over 750 times the amount which the song could have been purchased for.)  This litigation strategy is intuitively collusive, with high powered companies joining resources to protect their power.  The reality is that rarely is a monopolistic purpose articulated, and to date, these litigation strategies have been effective not only in winning at least one large jury verdict (i.e. Jammie Thomas), but in coercing many people into settling whose cases may have been much weaker.  

My plan is to look at the ways in which antitrust counterclaims and the affirmative defense of copyright abuse have been used in response to infringement suits filed by the RIAA.  My hope is to articulate the ways in which this sort of mass litigation feels like monopolistic activity, but falls outside the reach of antitrust law generally.  My thesis is that the overbroad grant of property rights under the current copyright scheme has led to an ability by multi-billion dollar companies to legally collude to maintain monopoly power without much legal recourse.  The state of the law and the difficulties in standing and proof, combined with the massive resources, both in litigation power and lobbying power, of the RIAA leave those accused of infringement without meaningful options beyond settlement, which is based generally on a statutory damages scheme which is massively out of proportion to the harm allegedly caused by any potential infringement.  What remains to be seen is whether there is a monopolistic benefit to enforcing copyright in this manner (litigation against individuals by a group of copyright holders), or whether they are simply using permissible litigation strategies to enforce their lawful copyrights.  In any event, I hope to shed some light on the breakdown, if not in the market for digital music distribution, at the very least in the statutory grant of rights and remedies for copyright holders.

So... what legal recourse is there for punishing piracy?

Still stumped on a paper topic--throwing the words "IP", "techology", and "anime" into a blender came up with nothing except a note on a company in Singapore trying to go RIAA on local illegal downloaders:

Odex has copyright owners' support

and the slightly more up-to-date

Crackdown on Anime Downloads in Singapore (this is, by the way, a rather misleading title, since Odex was only able to get access to accounts from certain providers; not really a crackdown so much as a flurry of letters to whoever was available.)

Tivo tricks

So, we all know that Tivo lets you time shift stuff on TV, lets you record things that you might like without knowing that you might like it, and so on.

But did you know that you could subscribe to online only shows and download them to your TV?

For example, the center-left blog Talking Points Memo does a show called "TPMTV" every day, where they do a short clip on the days news. You can access it here:
http://www3.tivo.com/tivo-tco/cds/info.do?mixId=tivo:mx.1267331

This sort of thing is another use of the Tivo system (and other digital recorders?) that most likely no one would have thought of a few years back, but seems really useful.

Ok, so this might have been better as a comment somewhere, but I didn't see an appropriate place...

Canadian DMCA

Happy snow day all! Since there's no class tonight, and I have a conflict with the make-up class on Friday, I thought I'd at least contribute to the DMCA/Anticircumvention discussion:

According to this article, Canada is hard at work on its own DMCA (much to the joy of many Canadians, I'm sure). Perhaps they'll at least take some lessons from our experience so far. . .

By the way, I have no idea how I keep stumbling across articles on what Canada's up to.

Paper Idea: An Efficiency Justification For Abolition of Music Copyright

This paper topic hurts my brain -- if you have any spare cycles, please jump in and help.

Should copyrights be narrowed? The debate often comes down to efficiency vs. fairness. Efficiency Point: legal protection for DRM permits fine-grained markets for various copy rights, leading to the most efficient generation of social welfare and incentive for creation. Fairness Counterpoint: absolute legal protection for rights-holding distribution oligopolies generates wealth only for those oligopolies, harming both artists and consumers. (For Westlaw subscribers, this law review article is an example of this view of the debate, taking the efficiency side.)

I want to argue something different: in the internet age, "securing for limited Times to Authors and Inventors the exclusive Right to their respective Writings and Discoveries" is no longer an efficient way to "promote the Progress of Science and useful Arts," and Congress should abstain from its power under the Copyright Clause.

The argument goes like this:

• "Property" is a legal creation, meaning "a government-granted exclusive, transferrable right to do something." For example, the right to drive a particular car, cross a particular bridge, sit in a particular movie theater or copy a particular mp3.
  
• Government creates property in order to generate wealth through efficient transfers. Creating a property right in cars generates a market for cars, which in turn ensures that producers will manufacture cars, and the ultimate owner of each car is the one who values it the most.
  
• However, exclusive rights lead to inefficiency in cases where the market leaves resources unused. For example, most movie theaters have empty seats in most screenings. If there are consumers who would pay something for those seats, but less than the $8 entry fee, then net wealth is lost each time they are excluded.
  
• Therefore, markets created by a government-granted property right should be judged along several efficiency axes: the wealth they generate through efficient transfers, and the wealth they destroy through over-pricing and under-using resources ("exclusion cost").
  
• Exclusion cost can be defined as the amount additional consumers would have paid for the product, minus the cost of serving each consumer. For example, if the additional seats could have been filled at $4 a ticket, costing the theater $1 per ticket for cleanup costs, the exclusion cost is $3 per seat. That $3 is forever lost to society.
  
• Exclusion cost will vary wildly from market to market. Property rights in oil have no exclusion cost; every drop gets sold. Property rights in theater seats have some exclusion cost; a few seats in each screening aren't used. What about property rights in song files?
  
• The internet changed the answer to this question dramatically. Post-Napster, an unlimited number of copies can be created at a marginal cost of $0. That means the exclusion cost can be defined as the total amount consumers would have been willing to pay for a copy of each song available on Napster, where those consumers are unwilling to pay the current market price. Based on the amount spent on music and the amount of music downloaded illegally, that net welfare loss is likely to be quite high.
  
• At the same time, with marginal cost declining to $0, the efficient-transfer justification for the property system loses force. Nothing is lost by providing a good to Consumer A, who values it at $.01, just because Consumer B values it at $10. Both of them can have the song.
  
• The efficiency analysis of the copyright system now seems to weigh against property rights, at least in the context of music. Lacking the efficient-allocation justification, the additional music incentivized by copyright is unlikely to balance out the exclusion cost of copyright.
  

So, that's where I've gotten so far. I have a ton of questions:

• I'm sure I didn't invent this idea, but I don't even know how to find what's already out there. What's the actual economics term for what I'm calling exclusion cost?
  
• If copyright was abolished for music, what system would replace it? Are there other, more efficient means to incentivize creation?
  
• Are there analogous markets and incentives out there, like lighthouses and roads and GPS satellites?
  
  
  
  • In the ones I can think of, it's not so much a problem when the government picks winners and losers.
    
  • Also, in the ones I'm thinking of, it's not 1) possible to add consumers at no additional cost (like GPS) AND 2) possible to try to exclude consumers unless they pay individual fees (like highways). Are there markets that have both features, like the music market does?
    
  
  

I know this is hard stuff, but like I said, it's hurting my brain, and I'll be super grateful for anything people can add.

Game modifications and the law (Paper Topic)

Some of you who are gamers may be aware of the concept of "game modifications" or "mods."

Mods are popular in the First Person Shooter category, with favorites such as Rocket Arena for Quake and Counterstrike for Half Life being notable examples. The Counterstrike mod became so popular that it is now a stand-alone product published by the creators of Half Life.

A game modification is defined on Wikipedia as "a software modification to alter a computer-game's appearance or play." Sometimes mods will add new weapons or characters, or alter gameplay in some manner. An example of a gameplay modification is "Instagib." In first person shooters, an "Instagib" mod alters gameplay so that players can only use the "Railgun" (or similiar weapon), and one hit kills. The game structure is otherwise unaffected (ie, you still run around killing each other), but this one change dramatically affects the pacing and strategy of a match.

The legal issue here is that mods are often made by consumers without the permission of the game publishers. Arguably, they are derivative works. Some issues I want to look at (although I will probably have to narrow down to a few) are:

The Copyright status of game modifications absent licensing (is there an inherent right- protected by fair use- to modify games? It can't hurt the market for a game, because you still need to purchase the game to use the mod.)

Licensing- The availability of mods can greatly enhance the value of a product, and so game companies sometimes license the creation of mods, giving developers access to code before the game even comes out, so mods are available at launch. How are game mods licensed, and what do different licenses look like? Are there categories? How does this interact with open-soruce licensing? (sometimes game code is publically released underopen-source or other licenses after the game has run its course. The code for Doom, Quake 1, 2, 3, was released years after the game was popular.)

The legality of mods that use another companies IP. For example, someone might modify a game so it has a "Star Wars" theme, so instead of shooting terrorists you shoot Stormtroopers.

Reverse engineering. If you make a mod without permission of the publisher, you might have to perform some reverse engineering to figure out how the game works in order to modify it the way you want. Is this reverse engineering a violation of copyright?

I also want to look at the legal issues surrounding mods that "unlock" content that the game maker specifically decided not to include in the final game, but nonetheless was still available somewhere on the disc. For example, in Grand Theft Auto San Andreas, it was possible to hack the game so that a sex scene would play. This scene was added by the programmers, but was not intended to be included in the final version. This ended up causing the company PR problems, and ultimately the rating was changed from "Mature" to "Adults Only." This likely cost the company millions of dollars, because many stores do not carry "Adults Only" games. Should the modder be liable? Or was the company at fault, because after all, even if they never intended the scene to be playable, it was included on the disc the modder purchased? How does the First Sale Doctrine apply? Should the modder be able to mod his own game to have the scene, but not to distribute the mod? A case that might be instructive here is Harper & Row v. Nation Enterprises, the Ford memoir case. Remember the discussion of unpublished works. Was the sex scene "published" in the GTA case? Is it possible for content on a disc I bought to but unpublished because it is inaccessible without modifying the game?

Editing software. Sometimes a game company will release editing software with the retail version of the game, allowing consumers to make their own levels. The roleplaying games Morrowind and Neverwinter Nights did this. What is the legal status of these levels- who owns them? May they be sold? Most likely these questions are handled by license, (ie, you agree to their terms as a price of using the editing software) but what if there was not a license?

Case studies on Counter-strike and Team-fortress. These particular mods became commercial successes, and I want to look at how the licensing and other legal issues worked out in practice. Who owns the mod? Did the mod-creator have any say in how and whether the mod was published commercially? If he or she did, was the publisher legally required to give the creator a say, or was this done merely to avoid antagonizing customers?