Reducing Digital Copyright Infringement Without Restricting Innovation

Abstract

Suing actual infringers is passe in copyright law. In the digitalenvironment, the real stakes lie in suing those who facilitate infringementby others. There is of course a good reason copyright owners are filingsuch suits. They see themselves as under threat from a flood of cheap, easycopies and a dramatic increase in the number of people who can make thosecopies. The high volume of illegal uses, and the low return to suing anyindividual, make it more cost-effective to aim as far up the chain aspossible. From the perspective of the movie industry, it's easier and moreeffective to shut down Napster than to sue the millions of people whotraded files illegally on Napster. So far, the courts have been willing togo along, shutting down a number of innovative services in the digitalmusic realm.In this article, we argue that unrestricted liability for anyone who is inany way involved with copyright infringement is a bad idea. Indirectliability is a continuum, in which acts most closely related toinfringement and with the fewest affirmative benefits are the easiest tocondemn. Going after makers of technology for the uses to which theirtechnologies may be put threatens to stifle innovation. The fundamentaldifficulty is that while courts can make decisions about directinfringement on a case-by-case basis, lawsuits based on indirect liabilitynecessarily sweep together both socially beneficial and socially harmfuluses of a program or service, either permitting both uses or condemningboth.Optimal digital copyright policy would do two things: stop deterringinnovators, and permit cost-effective enforcement of copyright in thedigital environment. In this paper, we suggest at least two possiblealternatives that might provide ways out of the digital copyright morass.Both alternatives stem from the basic economics of copyright enforcement.It is not currently cost-effective for copyright owners to sue individualinfringers, because there are tens of millions of them, because lawsuitsare expensive, and because each infringer would be liable only for minimaldamages. They are happy to sue facilitators instead, because there arefewer of them and both damages and the benefits of injunctive relief aresubstantial. Copyright owners have no incentive to permit optimalinnovation by facilitators, because they do not benefit from thatinnovation except indirectly. Individual infringers in turn have noincentive to change their behavior or to subscribe to fee-based services,because they suffer none of the costs of infringement.One solution is to change the incentives of individuals. Because individualusers of peer-to-peer (p2p) networks know that it is extremely unlikelythey will be sued, economic theory suggests that the only way toeffectively deter infringement is to increase the effective sanctionsubstantially for those who are caught. Were the government to begincriminally prosecuting selected users of peer-to-peer services - or werethe RIAA to sue end users in earnest - it could have a substantialdeterrent effect on many illegal users. Selective prosecution has otheradvantages as well - the government could target the relatively fewkeystone providers of illegal files on p2p sites, and those are preciselythe users who are least likely to be engaged in fair use. While particularprosecutions won't stop illegal file trading altogether, copyright ownershave never been able to prevent all piracy. All they need to do is reducepiracy enough that they can make a return on their investment.Another solution is to change the incentives of copyright owners to sueindividual infringers by reducing the cost of such a suit. One suchapproach would be a levy system. Levies on equipment or services have thevirtue of permitting automatic collection of royalties, reducing theenforcement cost dramatically, but at the cost of taxing legal as well asillegal uses. A levy solves the enforcement problem at the front end, butit is similar in many ways to the current approach of suing facilitators.The main difference is that under a levy system the copyright owner isprotected by a compulsory license rather than a property rule.An alternative proposal to reduce the cost of enforcement is to create somesort of quick, cheap arbitration system that enables copyright owners toget some limited relief against abusers of p2p systems. The existing domainname trademark arbitration system is a model in some respects - its speedand low cost - but a cautionary tale in others - its lack of processprotections. Such a system would permit low-cost enforcement of copyrightinfringement against direct infringers, reducing the need for contentowners to sue facilitators. Relative to levies, an arbitration system wouldtrade off some increase in cost for accuracy, targeting only those makingillegal uses rather than all users of computers or p2p networks. It wouldbe fairer than selective criminal prosecution, because the burden wouldfall more evenly on each wrongdoer, rather than imposing stark punishmenton a few in order to serve society's interest in deterring the rest. Thesystem could also be designed to improve accuracy relative to the binarychoice the courts face in indirect infringement cases today. We coulddesign the system so that it is limited to clear cases. We could also buildin a defense for arguable fair uses, so that a user who could prove theywere space-shifting CDs they already own would have a defense.

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