Cato Releases Report on P2P and DRM

Cato recently published Peer-to-Peer Networking and Digital Rights Management: How Market Tools Can Solve Copyright Problems by Michael Einhorn and Bill Roseblatt (link via PaidContent).  Rosenblatt has a nice summary up at DRMWatch.  The key grafs:

This
white paper takes a view of the controversy between content owners and
P2P networks that favors neither one nor the other.  Instead, it
favors an invisible third party: the “unseen hand” of the free
market.  The paper explains economists’ concepts of market
behavior such as versioning (creating different versions of products or
services to appeal to different market segments) and creative
destruction (emergence of new business models, through market forces,
which may be destructive to existing businesses or industries). 
It then cites various examples of how DRM technology is bringing these
concepts to life.

More
specifically, the paper posits that DRM and peer-to-peer networking are
complementary technologies — not mutually exclusive ones — that can
be integrated to form potentially attractive new content
services.  It provides some examples of nascent attempts to do
just that.  DRM-based services have been appearing that include
features inspired by P2P, such as MusicMatch’s
“share with your friends” feature and the increasing numbers of CD burns
that various services allow.  The paper asserts that it’s not just
the presence of illicit P2P networks that induce content owners to
license their content to more consumer-friendly DRM-based services;
other market forces such as vigorous competition and consumers’
reasonable expectations of content usage also contribute to current
developments.”

The paper as a whole is pretty good, and I agree with several aspects of it.  However, two key pieces are left ambiguous:

1. 
The paper supports allowing DRM implementation to continue and cautions
against government intervention.  However, it does not speak to
the role of the DMCA in protecting DRM.  The paper briefly
cautions against “relaxing access protection,” but it doesn’t say what
this amounts to.

This
has particular bearing on their discussion of DRM’s social costs and
benefits.  It is one thing to point ut how new business models
built on versioning and price discrimination may provide general public
benefits, as the authors do in this paper.  It is quite another to
say that, because DRM facilitates market transactions regarding
non-infringing uses, people should no longer  have the right to
continue exercising the rights which the Copyright Act reserves to
them.  It is quite different still to say that, because DRM may
provide certain social benefits, we ought to protect it with the DMCA.

The
authors actual feelings on these points is not entirely clear to me. I
hope to have more to say on these issues later, but, for now, see
this previous post on understanding DRM.

2.  The paper notes that Grokster
provided part of the impetus for new music services, including those
that leverage P2P (e.g., Weedshare, the forthcoming Mashboxx). 
Seemingly, the resulting innovation is a positive result. 
Furthermore, the paper states that new technologies should be allowed
to evolve and that the government should not intervene to stem the tide
of P2P. The authors specifically criticize the INDUCE Act. 
However, the paper seems to say that the Supreme Court should reverse Grokster
On pg 12, the authors only discuss possible Court resolutions that
would expand secondary liability.  The authors also state that “In
the absence of an efficient resolution by the Court, Congress may pass
legislation that may interfere with both technological evolution and
free-market processes.”  May?  Does that mean should? 
Indeed, if it’s right for the Court to intervene here, why would it be
wrong for Congress to do so?

Both
these points of ambiguity highlight an important aspect of the current
debate surrounding Grokster: what does it mean to support “market
forces” or the “free market”?  The paper’s conclusion is that
market forces will resolve copyright holders’ concerns and the
government should stay out.  Yet, many would say that the DMCA and
extended secondary liability are unfortunate interventions in the
market.  In
Free Culture,
Profesor Lessig treats these measures in protectionist terms, arguing
that “in a free society, with a free market, supported by free
enterprise and free trade, the government’s role is not to support one
way of doing business aginst others. Its role is not to pick winners
and protect them against loss” (127-128).  The Cato authors
similarly say that “Goverment … should not pick winners or discourage
any technology from competing in the new marketplace.”  So what
does it really mean to support market forces? Patrick Ross recognizes
this aspect of the debate in a
recent post.

It
seems that part of the distinction in usage of “market forces” comes
from different views of how and why we create a market for copyrighted
goods. Do we create a market through a property right essentially as we
do for physical goods?  If we do, then a well-functioning market
seems to rest on things like the DMCA or broader secondary
liability.  Or does copyright’s purpose allow conception of that
right that is more flexible, that does not demand extension into every
domain?  Market forces may drive copyright holders to adjust to
new technologies may be sufficient – through competition and
innovation, copyright holders may be able to achieve sufficient
compensation, sustaining creativity.  (Note: I am not
arguing about whether copyright is “property” or “policy.”  It’s a
kind of property.  But how far that right ought extend is an open
question.)

Much more to say about the Cato paper and these topics, but that will have to do for now.

[12:23 AM - edited for clarity]