Archives for May 2003

Big copyright owners have apparently had some degree of success in their efforts to flood file-sharing networks with decoy files, thereby frustrating users’ attempts to find copyrighted works. Conventional wisdom is that file-sharing systems will institute some kind of reputation-feedback system to help their users determine which sources tend to offer real files and which tend to offer decoys.

Reputation systems try to mimic the dynamics of real-life reputations, which are a powerful mechanism for inducing cooperative behavior, as anyone who has lived in a small town can attest. The best-known reputation technology is EBay’s, which allows everyone who transacts business with you to give you a score, and which aggregates those scores into a concise summary. EBay users are willing to pay more for an item when it is offered by a seller who has built up a good reputation over time. This system has generally worked pretty well.

If file-sharers had the same incentives as EBay users, we could be pretty confident that reputation systems would work for file-sharing vendors too. But the incentives differ in important ways.

For example, an EBay vendor wants to engage in more transactions, because he profits on each one. A file-sharer, though, doesn’t want to upload too many files, because each upload uses up part of his network resources. A file-sharer suffers if his reputation gets too good, so a reputation system may create a perverse incentive to behave poorly sometimes. Indeed, a group of friends might conspire to trash their own reputations, so as to ensure themselves unimpeded access to each others’ files.

There is also the question of who will do the record-keeping for a file-sharing reputation system. EBay is happy to keep track of the reputation reports for their users, because it boosts EBay’s business. The vendor of a file-sharing system may worry that keeping any kind of record of each transaction between users, and giving any kind of recommendation to users about where to get files, might bring the vendor one step closer to the kind of active participation in infringing transactions that got Napster in trouble.

Despite this, my prediction is that at least some file-sharing vendors will try adopting reputation systems, and that after a few false starts they will find a way to make those systems at least modestly successful to combating decoy tactics. But that’s only a guess – I won’t stake my reputation on it.

The RIAA has settled its lawsuits against four college students, dropping the suits in exchange for a payment of between $12,000 and $17,500 from each student. The settlements did not require the students to admit any wrongdoing.

The students had been accused of direct infringement (for allegedly offering copyrighted files directly from their own computers) and of contributory infringement (for allegedly running search engines that others used to find infringing files).

The RIAA spin appears to be that the students’ decision to settle on these terms indicates that the students expected to lose on the contributory infringement claim. This spin is, to say the least, implausible. Getting out of this lawsuit for $15,000 or so was a great deal for the students, considering the legal expenses involved in going to trial, and the very real possibility that the direct infringement claim alone would have led to a judgment for tens of millions of dollars.

In my view, these lawsuits tell us nothing new about the legal status of the kinds of general-purpose search engines these students were running. The lessons of these suits are simpler: (1) don’t be a direct infringer, and (2) getting sued by the RIAA is expensive.

Eric Rescorla, in response to my previous entry on music economics, offers an analysis of the politics of copyright.

Roughly speaking, there are two camps working to loosen (or at least prevent tightening) of intellectual property. For lack of better words let’s call them Idealists and Pragmatists. The Idealists really don’t want to have any kind of intellectual property at all. They see copyrights and patents as evil and want to do away them altogether. Richard Stallman and the Free Software Foundation are probably the best-known advocates of this point of view.

The Pragmatists tend to view Intellectual Property as a necessary evil. The traditional economic analysis of IP is that it’s required to incentivize people to engage in the kinds of intellectual effort that produce content. (Boldrin and Levine argue against this, but it’s still the majority point of view in economics). In the view of the Pragmatists, the amount of protection given to IP has gone beyond the point of efficiency and so should be reduced. See the “economist’s brief” in the Eldred v. Ashcroft case for a pretty good exposition of this view.

Both sides agree that protection for Intellectual Property is too tight currently, and so they’ve temporarily made common cause for the purposes of fighting the IP lobby (the RIAA and the MPAA primarily) who want to see copyright strengthened. Despite that temporary alliance, [] there are still a lot of people who don’t agree with Ed’s statement [about the need to pay creators somehow]. These people are quite loud (go check out Slashdot) and they naturally scare the hell out of the content producers, who fear a complete loss of control.

[Though I like Eric’s analysis, I’m not thrilled by his terminology. I would instead label the three factions (which he calls the IP Lobby, Pragmatists, and Idealists) as the “Big-IP”, “Small-IP”, and “No-IP” factions.]

So far, the Big-IPs have done a pretty effective job of cementing the alliance between the Small-IPs and the No-IPs, most notably by treating the Small-IPs as if they had taken No-IP positions. Perhaps this is because Big-IPs overestimate the numbers and influence of the No-IPs. Or perhaps it is because some Small-IPs are being cagey about their beliefs, so as not to alienate their No-IP allies.

If I were a Big-IP, I would be wanting all the allies I could get, and I would be looking for a way to pry apart the Small-IPs and the No-IPs. If the Big-IPs decide to do this, things could get very interesting.

Why should the Big-IPs care what the Small-IPs think, given that the Big-IPs can get their way in Congress without any help? Because Congress, by itself, can’t solve their problem. To solve their problem, the Big-IPs need cooperation from their customers, most of whom are still Small-IPs.