CHAPTER FIVE: “Piracy”
There is piracy of copyrighted material. Lots of it. This piracy comes in many forms. The most significant is commercial piracy, the unauthorized taking of other people's content within a commercial context. Despite the many justifications that are offered in its defense, this taking is wrong. No one should condone it, and the law should stop it.
But as well as copy-shop piracy, there is another kind of “taking” that is more directly related to the Internet. That taking, too, seems wrong to many, and it is wrong much of the time. Before we paint this taking “piracy,” however, we should understand its nature a bit more. For the harm of this taking is significantly more ambiguous than outright copying, and the law should account for that ambiguity, as it has so often done in the past.
Piracy I
All across the world, but especially in Asia and Eastern Europe, there are businesses that do nothing but take others people's copyrighted content, copy it, and sell it—all without the permission of a copyright owner. The recording industry estimates that it loses about $4.6 billion every year to physical piracy[1] (that works out to one in three CDs sold worldwide). The MPAA estimates that it loses $3 billion annually worldwide to piracy.
This is piracy plain and simple. Nothing in the argument of this book, nor in the argument that most people make when talking about the subject of this book, should draw into doubt this simple point: This piracy is wrong.
Which is not to say that excuses and justifications couldn't be made for it. We could, for example, remind ourselves that for the first one hundred years of the American Republic, America did not honor foreign copyrights. We were born, in this sense, a pirate nation. It might therefore seem hypocritical for us to insist so strongly that other developing nations treat as wrong what we, for the first hundred years of our existence, treated as right.
That excuse isn't terribly strong. Technically, our law did not ban the taking of foreign works. It explicitly limited itself to American works. Thus the American publishers who published foreign works without the permission of foreign authors were not violating any rule. The copy shops in Asia, by contrast, are violating Asian law. Asian law does protect foreign copyrights, and the actions of the copy shops violate that law. So the wrong of piracy that they engage in is not just a moral wrong, but a legal wrong, and not just an internationally legal wrong, but a locally legal wrong as well.
True, these local rules have, in effect, been imposed upon these countries. No country can be part of the world economy and choose not to protect copyright internationally. We may have been born a pirate nation, but we will not allow any other nation to have a similar childhood.
If a country is to be treated as a sovereign, however, then its laws are its laws regardless of their source. The international law under which these nations live gives them some opportunities to escape the burden of intellectual property law.[2] In my view, more developing nations should take advantage of that opportunity, but when they don't, then their laws should be respected. And under the laws of these nations, this piracy is wrong.
Alternatively, we could try to excuse this piracy by noting that in any case, it does no harm to the industry. The Chinese who get access to American CDs at 50 cents a copy are not people who would have bought those American CDs at $15 a copy. So no one really has any less money than they otherwise would have had.[3]
This is often true (though I have friends who have purchased many thousands of pirated DVDs who certainly have enough money to pay for the content they have taken), and it does mitigate to some degree the harm caused by such taking. Extremists in this debate love to say, “You wouldn't go into Barnes & Noble and take a book off of the shelf without paying; why should it be any different with on-line music?” The difference is, of course, that when you take a book from Barnes & Noble, it has one less book to sell. By contrast, when you take an MP3 from a computer network, there is not one less CD that can be sold. The physics of piracy of the intangible are different from the physics of piracy of the tangible.
This argument is still very weak. However, although copyright is a property right of a very special sort, it is a property right. Like all property rights, the copyright gives the owner the right to decide the terms under which content is shared. If the copyright owner doesn't want to sell, she doesn't have to. There are exceptions: important statutory licenses that apply to copyrighted content regardless of the wish of the copyright owner. Those licenses give people the right to “take” copyrighted content whether or not the copyright owner wants to sell. But where the law does not give people the right to take content, it is wrong to take that content even if the wrong does no harm. If we have a property system, and that system is properly balanced to the technology of a time, then it is wrong to take property without the permission of a property owner. That is exactly what “property” means.
Finally, we could try to excuse this piracy with the argument that the piracy actually helps the copyright owner. When the Chinese “steal” Windows, that makes the Chinese dependent on Microsoft. Microsoft loses the value of the software that was taken. But it gains users who are used to life in the Microsoft world. Over time, as the nation grows more wealthy, more and more people will buy software rather than steal it. And hence over time, because that buying will benefit Microsoft, Microsoft benefits from the piracy. If instead of pirating Microsoft Windows, the Chinese used the free GNU/Linux operating system, then these Chinese users would not eventually be buying Microsoft. Without piracy, then, Microsoft would lose.
This argument, too, is somewhat true. The addiction strategy is a good one. Many businesses practice it. Some thrive because of it. Law students, for example, are given free access to the two largest legal databases. The companies marketing both hope the students will become so used to their service that they will want to use it and not the other when they become lawyers (and must pay high subscription fees).
Still, the argument is not terribly persuasive. We don't give the alcoholic a defense when he steals his first beer, merely because that will make it more likely that he will buy the next three. Instead, we ordinarily allow businesses to decide for themselves when it is best to give their product away. If Microsoft fears the competition of GNU/Linux, then Microsoft can give its product away, as it did, for example, with Internet Explorer to fight Netscape. A property right means giving the property owner the right to say who gets access to what—at least ordinarily. And if the law properly balances the rights of the copyright owner with the rights of access, then violating the law is still wrong.
Thus, while I understand the pull of these justifications for piracy, and I certainly see the motivation, in my view, in the end, these efforts at justifying commercial piracy simply don't cut it. This kind of piracy is rampant and just plain wrong. It doesn't transform the content it steals; it doesn't transform the market it competes in. It merely gives someone access to something that the law says he should not have. Nothing has changed to draw that law into doubt. This form of piracy is flat out wrong.
But as the examples from the four chapters that introduced this part suggest, even if some piracy is plainly wrong, not all “piracy” is. Or at least, not all “piracy” is wrong if that term is understood in the way it is increasingly used today. Many kinds of “piracy” are useful and productive, to produce either new content or new ways of doing business. Neither our tradition nor any tradition has ever banned all “piracy” in that sense of the term.
This doesn't mean that there are no questions raised by the latest piracy concern, peer-to-peer file sharing. But it does mean that we need to understand the harm in peer-to-peer sharing a bit more before we condemn it to the gallows with the charge of piracy.
For (1) like the original Hollywood, p2p sharing escapes an overly controlling industry; and (2) like the original recording industry, it simply exploits a new way to distribute content; but (3) unlike cable TV, no one is selling the content that is shared on p2p services.
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sp; These differences distinguish p2p sharing from true piracy. They should push us to find a way to protect artists while enabling this sharing to survive.
Piracy II
The key to the “piracy” that the law aims to quash is a use that “rob[s] the author of [his] profit.”[4] This means we must determine whether and how much p2p sharing harms before we know how strongly the law should seek to either prevent it or find an alternative to assure the author of his profit.
Peer-to-peer sharing was made famous by Napster. But the inventors of the Napster technology had not made any major technological innovations. Like every great advance in innovation on the Internet (and, arguably, off the Internet as well[5]), Shawn Fanning and crew had simply put together components that had been developed independently.
The result was spontaneous combustion. Launched in July 1999, Napster amassed over 10 million users within nine months. After eighteen months, there were close to 80 million registered users of the system.[6] Courts quickly shut Napster down, but other services emerged to take its place. (Kazaa is currently the most popular p2p service. It boasts over 100 million members.) These services' systems are different architecturally, though not very different in function: Each enables users to make content available to any number of other users. With a p2p system, you can share your favorite songs with your best friend—or your 20,000 best friends.
According to a number of estimates, a huge proportion of Americans have tasted file-sharing technology. A study by Ipsos-Insight in September 2002 estimated that 60 million Americans had downloaded music—28 percent of Americans older than 12.[7] A survey by the NPD group quoted in The New York Times estimated that 43 million citizens used file-sharing networks to exchange content in May 2003.[8] The vast majority of these are not kids. Whatever the actual figure, a massive quantity of content is being “taken” on these networks. The ease and inexpensiveness of file-sharing networks have inspired millions to enjoy music in a way that they hadn't before.
Some of this enjoying involves copyright infringement. Some of it does not. And even among the part that is technically copyright infringement, calculating the actual harm to copyright owners is more complicated than one might think. So consider—a bit more carefully than the polarized voices around this debate usually do—the kinds of sharing that file sharing enables, and the kinds of harm it entails.
File sharers share different kinds of content. We can divide these different kinds into four types.
A. There are some who use sharing networks as substitutes for purchasing content. Thus, when a new Madonna CD is released, rather than buying the CD, these users simply take it. We might quibble about whether everyone who takes it would actually have bought it if sharing didn't make it available for free. Most probably wouldn't have, but clearly there are some who would. The latter are the target of category A: users who download instead of purchasing.
B. There are some who use sharing networks to sample music before purchasing it. Thus, a friend sends another friend an MP3 of an artist he's not heard of. The other friend then buys CDs by that artist. This is a kind of targeted advertising, quite likely to succeed. If the friend recommending the album gains nothing from a bad recommendation, then one could expect that the recommendations will actually be quite good. The net effect of this sharing could increase the quantity of music purchased.
C. There are many who use sharing networks to get access to copyrighted content that is no longer sold or that they would not have purchased because the transaction costs off the Net are too high. This use of sharing networks is among the most rewarding for many. Songs that were part of your childhood but have long vanished from the marketplace magically appear again on the network. (One friend told me that when she discovered Napster, she spent a solid weekend “recalling” old songs. She was astonished at the range and mix of content that was available.) For content not sold, this is still technically a violation of copyright, though because the copyright owner is not selling the content anymore, the economic harm is zero—the same harm that occurs when I sell my collection of 1960s 45-rpm records to a local collector.
D. Finally, there are many who use sharing networks to get access to content that is not copyrighted or that the copyright owner wants to give away.
How do these different types of sharing balance out? Let's start with some simple but important points. From the perspective of the law, only type D sharing is clearly legal. From the perspective of economics, only type A sharing is clearly harmful.[9] Type B sharing is illegal but plainly beneficial. Type C sharing is illegal, yet good for society (since more exposure to music is good) and harmless to the artist (since the work is not otherwise available). So how sharing matters on balance is a hard question to answer—and certainly much more difficult than the current rhetoric around the issue suggests.
Whether on balance sharing is harmful depends importantly on how harmful type A sharing is. Just as Edison complained about Hollywood, composers complained about piano rolls, recording artists complained about radio, and broadcasters complained about cable TV, the music industry complains that type A sharing is a kind of “theft” that is “devastating” the industry.
While the numbers do suggest that sharing is harmful, how harmful is harder to reckon. It has long been the recording industry's practice to blame technology for any drop in sales. The history of cassette recording is a good example. As a study by Cap Gemini Ernst & Young put it, “Rather than exploiting this new, popular technology, the labels fought it.”[10] The labels claimed that every album taped was an album unsold, and when record sales fell by 11.4 percent in 1981, the industry claimed that its point was proved. Technology was the problem, and banning or regulating technology was the answer.
Yet soon thereafter, and before Congress was given an opportunity to enact regulation, MTV was launched, and the industry had a record turnaround. “In the end,” Cap Gemini concludes, “the 'crisis'. . . was not the fault of the tapers—who did not [stop after MTV came into being]—but had to a large extent resulted from stagnation in musical innovation at the major labels.”[11]
But just because the industry was wrong before does not mean it is wrong today. To evaluate the real threat that p2p sharing presents to the industry in particular, and society in general—or at least the society that inherits the tradition that gave us the film industry, the record industry, the radio industry, cable TV, and the VCR—the question is not simply whether type A sharing is harmful. The question is also how harmful type A sharing is, and how beneficial the other types of sharing are.
We start to answer this question by focusing on the net harm, from the standpoint of the industry as a whole, that sharing networks cause. The “net harm” to the industry as a whole is the amount by which type A sharing exceeds type B. If the record companies sold more records through sampling than they lost through substitution, then sharing networks would actually benefit music companies on balance. They would therefore have little static reason to resist them.
Could that be true? Could the industry as a whole be gaining because of file sharing? Odd as that might sound, the data about CD sales actually suggest it might be close.
In 2002, the RIAA reported that CD sales had fallen by 8.9 percent, from 882 million to 803 million units; revenues fell 6.7 percent.[12] This confirms a trend over the past few years. The RIAA blames Internet piracy for the trend, though there are many other causes that could account for this drop. SoundScan, for example, reports a more than 20 percent drop in the number of CDs released since 1999. That no doubt accounts for some of the decrease in sales. Rising prices could account for at least some of the loss. “From 1999 to 2001, the average price of a CD rose 7.2 percent, from $13.04 to $14.19.”[13] Competition from other forms of media could also account for some of the decline. As Jane Black of BusinessWeek notes, “The soundtrack to the film High Fidelity has a list price of $18.98. You could get the whole movie [on DVD] for $19.99.”[14]
But let's assume the RIAA is right
, and all of the decline in CD sales is because of Internet sharing. Here's the rub: In the same period that the RIAA estimates that 803 million CDs were sold, the RIAA estimates that 2.1 billion CDs were downloaded for free. Thus, although 2.6 times the total number of CDs sold were downloaded for free, sales revenue fell by just 6.7 percent.
There are too many different things happening at the same time to explain these numbers definitively, but one conclusion is unavoidable: The recording industry constantly asks, “What's the difference between downloading a song and stealing a CD?”—but their own numbers reveal the difference. If I steal a CD, then there is one less CD to sell. Every taking is a lost sale. But on the basis of the numbers the RIAA provides, it is absolutely clear that the same is not true of downloads. If every download were a lost sale—if every use of Kazaa “rob[bed] the author of [his] profit”—then the industry would have suffered a 100 percent drop in sales last year, not a 7 percent drop. If 2.6 times the number of CDs sold were downloaded for free, and yet sales revenue dropped by just 6.7 percent, then there is a huge difference between “downloading a song and stealing a CD.”
These are the harms—alleged and perhaps exaggerated but, let's assume, real. What of the benefits? File sharing may impose costs on the recording industry. What value does it produce in addition to these costs?
One benefit is type C sharing—making available content that is technically still under copyright but is no longer commercially available. This is not a small category of content. There are millions of tracks that are no longer commercially available.[15] And while it's conceivable that some of this content is not available because the artist producing the content doesn't want it to be made available, the vast majority of it is unavailable solely because the publisher or the distributor has decided it no longer makes economic sense to the company to make it available.
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