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Korean Music Industry Puts Negative Value on DRM

April 3, 2006 by

The Korean music industry has negotiated a deal that puts a monetary price on the inconvenience customers experience due to Digital Restrictions Management (DRM) technology. According to a DRM Watch story:

In an agreement with the Korea Music Producers’ Association (KMPA), [the online service] Soribada will charge users KRW 500 (US $0.51) for DRM-protected music tracks and KRW 700 ($0.72) for non-DRM-protected tracks….

How should we interpret this deal? DRM Watch starts out on the right track but then goes terribly wrong:

The above figures can be read in a number of ways. Most importantly, they reflect the idea that users can do less with DRM-protected tracks than with unprotected ones, including some things that provide a better user experience and/or are allowed under Korea’s copyright laws.

But beyond that, those figures imply that KMPA is assuming a piracy rate for unprotected tracks of 40% relative to the piracy rate for DRM-protected tracks. Put another way, if KMPA assumes almost zero piracy for protected tracks, then it is assuming that for every unprotected track purchased, 0.4 tracks are illegally copied. We would be interested to know if there were any quantitatively analytic basis for that 40%.

To see what is wrong with this logic, let’s apply the same argument to an analogous situation. Suppose a first-class air ticket to Chicago costs $720, and a coach ticket costs $510. We cannot conclude that the airline expects 40% of first class tickets to be stolen! The price differential merely encodes the fact that customers value the first-class seat more than the coach seat.

In the same way, if non-DRM songs cost more than DRM songs, we can safely conclude that customers like non-DRM songs better.

It’s tempting to say that the 40% price difference reflects the value of the functionality that the average customer loses due to DRM. That’s more plausible than DRM Watch’s theory, but it’s still not quite right, because the price difference may be a price discrimination strategy.

Price discrimination by versioning is a standard tactic in information markets. For example, software companies often sell “standard” and “pro” versions of their products, where the standard version is just the pro version with some features disabled. High-end customers buy the pro version, and more cost-conscious customers buy the standard. By having two versions, the vendor can extract more revenue from the high-end customers, while still extracting some non-zero revenue from the cost-conscious customers.

KMPA’s two-tier pricing looks like a straightforward example of product versioning. The non-DRM version is for higher-end customers who know they like the song and are willing to pay for flexible use of it. The DRM version is for cost-conscious customers who might not be entirely sure they will like the song.

If this is a versioning strategy by KMPA, it may make sense for them to reduce deliberately the usefulness of the DRM version, even beyond the inherent limits of DRM. Think of the software vendor with standard and pro versions – the limitations of the standard version are not dictated by technical necessity but are chosen strategically by the vendor. The same may be true here – KMPA may have an incentive to make the DRM version less useful than it could be.

It’s worth noting that KMPA can rationally choose this versioning strategy even if it knows that DRM does nothing to stop copyright infringement. Indeed, the versioning strategy may even be rational if DRM causes infringement. All we can conclude from the KMPA’s pricing strategy is that DRM reduces customer value. But we knew that already.

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Conscientious Objection in P2P

March 31, 2006 by

One argument made against using P2P systems like Grokster was that by using them you might participate in the distribution of bad content such as infringing files, hate speech, or child porn. If you use the Web to distribute or read content, you play no part in distributing anything you find objectionable – you only distribute a file if you choose to do so. P2P, the argument goes, is different.

Today I want to consider what you can do if you want to use P2P to access files, but you want to avoid participating in any way in the distribution of bad files. When I say a file is “bad” I mean only that you, personally, have a strong moral objection to it, so that you do not want to participate in its distribution. Different people will have different ideas about which files (if any) are bad. Saying that a file is bad is not the same as saying that it should be banned or that others should not be allowed to distribute it – choosing not to do something yourself is not the same as banning others from doing it. So this is not about censorship.

The original design of BitTorrent was friendly to those who wanted to avoid distributing bad files. You could distribute any files you liked, and by default you would automatically redistribute any file that you had downloaded. But you wouldn’t find yourself distributing any bad files (unless you downloaded bad files yourself), or even helping anybody find bad files. Others could read or publish what they wanted, but you wouldn’t help them unless you wanted to.

This is unlike Grokster or Gnutella, where your computer would (by default at least) help to construct an index that would help people find files of all types, including some bad files. You might think that’s fine and choose to participate in it, but then again you might be unhappy if the proportion of bad files that you were helping to index was too high for your taste, or their content too vile. Because BitTorrent didn’t have a built-in index, you could use it without running into this issue.

But then, about ten months ago, a new “trackerless” version of BitTorrent came along. This version had a big distributed index, provided cooperatively by the computers of everybody who was using BitTorrent. After this change, if you were using BitTorrent, you were helping to index files. (Strictly speaking, you would be providing “tracker information” for the files; I’m using “index” as shorthand.) Some of those files might be bad.

To be precise, you would be helping to index a small, and randomly chosen, subset of all the BitTorrent files in the world. And if it came to your attention that one of those files was bad, you could choose not to participate in indexing it, by simply refusing to respond to index queries about that file. Standard BitTorrent software doesn’t support this refusal tactic, but the tactic is possible given how the BitTorrent protocol is designed.

Your refusal to provide index information for a file would not, by itself, make the file unavailable. BitTorrent stores index information redundantly, so other people could answer the index queries that you refused to answer. Only if all (or too many) of the people assigned to index a file refused to do so would that file disappear.

If lots of people started refusing to index files they thought were bad, this would amount to a kind of jury system, in which each file was assigned to a random set of BitTorrent “citizens” who voted (by indexing, or refusing to do so) on whether the file should be available. If too many jurors voted to suppress a file, it would disappear.

By now, some of you are jumping up and down, shaking your fingers at me. This is an affront to free speech, you’re saying – every file should be available to everybody. To which I reply: don’t blame me. This is the way BitTorrent is designed. By switching to the trackerless protocol, BitTorrent’s designers created this possibility. And the problem – if you consider it one – can be fixed. How to fix it is a topic for another day.

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The French DRM Law, and the Right to Interoperate

March 29, 2006 by

Thanks to Bernard Lang for yesterday’s discussion of the proposed French DRM law. The proposed law has been widely criticized in the U.S. press. Assuming Dr. Lang’s translation is correct, this criticism is mostly (but not entirely) off the mark.

Apple’s iTunes and iPod are good examples of the type of product that would be affected. Critics of the proposed law claim that (a) the proposal would increase infringement on record company copyrights, and (b) the proposal would strip Apple of its intellectual property.

The first claim is easily disposed of. iTunes songs are easily copied – everybody knows that iTunes lets you copy songs to unprotected CDs. And more to the point, record companies already sell all of their music in an unprotected format – the compact disc – which accounts for the vast majority of music sales. These songs are all on the P2P networks already, and any small difference in the difficulty of copying iTunes songs isn’t going to change that.

The second claim is the more interesting one. Some critics of the proposal claim that it would force Apple to publish the source code for iTunes. I don’t see that requirement in the proposed text. All the text requires is that Apple release enough information for other companies to make products that interoperate with iTunes. Apple can do this without publishing its source code. Apple can document the file format in which iTunes songs are stored, or it can create an interface that other DRM programs can invoke if they want to work with iTunes, or it can find another way to enable interoperation.

The key issue is whether third-party products can interoperate with iTunes. As Bernard Lang argued yesterday, current law does not give Apple the exclusive right to interoperate with Apple products. To change this, by creating such an exclusive right, would be a big change in public policy – one the proposed law would avoid, with its pro-interoperation provisions.

Interoperation was also a big theme in the important new DMCA white paper issued last week by the Cato Institute (and written by Tim Lee). Cato argues that the DMCA anticircumvention provisions have given incumbent companies an effective right to veto the development of interoperable products, and have thereby blocked innovation. France, wisely, wants to avoid this problem.

(Some commentators have argued that granting an exclusive right to interoperate can be efficient in some circumstances. Even if they’re right, it seems like bad policy to grant that right so indirectly, or to condition it on the presence of copyrighted content or on the use of certain kinds of access control technologies.)

But this is where the French proposal overreaches. Rather than simply protecting the ability of other companies to interoperate with iTunes, by keeping their path free of legal barriers, the proposal would require Apple to take affirmative steps to help rivals interoperate.

Imposing that obligation on Apple is not necessary, in my view. iTunes is not very complicated, so others should be able to figure out how to interoperate, for example by reverse engineering iTunes, as long as the law clearly allows them to do so. The disclosure obligation, though less onerous than critics say, won’t provide much extra benefit, so it’s not worth imposing its cost on Apple and others.

The best policy is for government to stay out DRM decisionmaking altogether. Let companies like Apple develop DRM schemes. Let others interoperate with those schemes, if they can figure out how. Ensure competition, and let the market decide which products will succeed, and which DRM schemes are viable. This is the essence of the Cato report, and of the USACM DRM principles. It’s my view, too.

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Bernard Lang Reports on the Proposed French DRM Law

March 28, 2006 by

[Bernard Lang, a prominent French computer scientist and infotech policy commentator, sent me an interesting message about the much-discussed legislative developments in France. It includes the first English translation I have seen of the proposed French law mandating open access to DRM technologies. He has graciously given me permission to post his message here, with some minor edits (mostly formatting) by me. Here is his report and commentary:]

The new French law on copyright (our own local version of DMCA), is called DADVSI for “Droit d’Auteur et Droits Voisins dans la Société de l’Information.”. “Droit voisins” stands for derived activities and works, mainly the work of performing artists – I translate it below as “adjacent rights”, not knowing a better or standard translation.

This copyright law is supposed to transpose into French Legislation the European Copyright directive of 22 May 2001.

The law was sent on a fast track procedure (meaning only one reading, rather than three, in each chamber), because it should have been passed a long time ago, and France may be fined by Brussels for being late. It has now passed the MP reading. This unique reading was supposed to take fifteen hours. It took sixty and got more publicity than the government wanted. It will be submitted to the senate in May. The current text and related documents are available online (just in case you read French and are interested).

I will not go into all details of that law, and keep to one aspect that is actually positive. The law also has many regressions that go beyond DMCA or anything accepted in other countries, such as the so-called “Vivendi-Universal” amendments, that have become articles 12-bis and 14-quater (this is temporary numbering) in the current text. These somewhat unprecise articles allow penal (12 bis) or civil (14 quater) suits against software authors whose software is “manifestly” used for illegal access to works.

The point I want to discuss is mostly in article 7, which essentially tries to turn any technical protection measure (TPM) into an open standard. We are lucky in that we have here a legal definition of what is an open standard, which specifies that the standard must be freely usable (including that it is not encumbered by IP).

One interesting fact is that this article 7 did not have most of these clauses when first voted during the debate. Then, on the last day (night ?) of the debate, after the last article, they reopened the debate on article 7 and voted the current version at 3h00 am. This was not a complete surprise, since it was known that several majority MPs were negotiating with the government.

Article 7 of the law (I am losing some technical legal subtleties in the translation, for lack of knowledge of legal vocabulary) actually creates a new article in the French Intellectual Property Code that states :

Article L. 331-5. –

Effective technical measures intended to prevent or limit uses unauthorised by the rightholder of a copyright or an adjacent right of any work, other than software, interpretation, phonogram, videogram or audiovisual program, are legally protected under the condition stipulated here.

Technical measures, in the sense of the previous paragraph, are understood as any technology, device, component, which, within the normal course of its operation, realizes the function intended in the previous paragraph. These technical measures are deemed effective when a use considered in the previous paragraph is controlled by means of an access code, a protection process, such as encryption, scrambling or any other transformation of the protected object, or a copy control mechanism, which achieves the protection objective.

A protocol, a format, a method for encryption, scrambling or transforming does not constitute as such a technical measure as understood in this article.

The technical measures should not result in preventing actual use of interoperability, not infringing copyright. Technical measures providers must give access to the information essential to interoperability.

By information essential to interoperability, we mean the technical documentation and the programming interfaces necessary to obtain, according to an open standard in the sense of article 4 of law n° 2004-575 of june 21st 2004 for trust in numerical economy, a copy of a reproduction protected by a technical measure, and a copy of the numerised information attached to this reproduction.

Anyone concerned may ask the president of the district court, in a fast track procedure, to compel a technical measures provider to provide information essential for interoperability. Only the logistic costs can be requested in return by the provider.

Any person desiring to use interoperability is allowed to proceed to decompiling steps that might be necessary to make essential information available. This disposition is applicable without prejudice to those of article L. 122-6-1. [note: this is the article regarding software interoperability that transposes into French law the part of the 1991 European directive regarding interoperability and some other provisions.]

Technical measures cannot be an obstacle to the free use of the work or the protected object within the limits of the rights set by this code [i.e. the French code of Intellectual Property] as well as those granted by the rights owners.

These stipulations are without prejudice to those of article 79-1 to 79-6 of law n° 86-1067 of September 30, 1986 regarding freedom of communication.

One cannot forbid the publication of the source code and technical documentation of independent software interoperating for legal purposes with a technical protection measure of a work.

No guaranties are offered for this translation, and I am not a lawyer 🙂

Some of the stipulations of this article are a little bit unclear, because of other articles (13 and 14) that may limit certains rights, especially in the 3rd paragraph from bottom. … It is not clear which prevails.

This text does not say that TPM must be open standards, but they they should be essentially like open standards, as long as they are not covered by patents … and we are not supposed to have software patents at this time, in Europe.

Now there have been strong international reactions to this text, some of which are reviewed on my web site, in English and/or French.

I was particularly interested in the comment by U.S. Commerce Secretary Carlos Gutierrez, in an article, “Commerce chief supports Apple’s protest over French law,” from America’s Network on March 24:

“But any time something like this happens, any time that we believe that intellectual property rights are being violated, we need to speak up and, in this case, the company is taking the initiative,” AFP quoted [Gutierrez] as saying [on MSNBC]. “I would compliment that company because we need companies to also stand up for their intellectual property rights.”

This is interesting, because I have been supporting for some time the view that DMCA-like legislation was actually attempting to create a new intellectual property right, a “DRM right”, that gives exclusive rights to the initial users of a DRM format to develop software interacting with it. Of course, no one, to my knowledge, would actually acknowledge the fact. [This is similar to what Peter Jaszi and others have called “paracopyright” in the U.S. – Ed]

Interestingly, one purpose of this new IP right is to prey on cultural creation and creators by controlling the distribution channels, while pretending to offer what seems to be mostly an illusion of protection.

The limitations of the French law just restrict technical measures to be what they are supposed to be: a protective device (for whatever it is worth), without giving any control to people other than the (rightful ?) rightowners of the work.

Without interoperability as required in the French law, DRMs (or TPMs if you prefer) behave pretty much like patents on formats and distribution models, without even requiring innovation, nor official application and examination, and without a time limit or compulsory licensing.

Now, I seem to recall that an obscure American legal document stating that:

The Congress shall have Power […] To promote Progress of Science and useful Arts, by securing for limited Times to Authors and Inventors the exclusive Right to their respective Writings and Discoveries

is the basis for the existence of IP in the United-States.

If indeed, as asserted by Mr Carlos Gutierrez, the French law will infringe on Apple’s IP rights, these rights can only be in Europe (no software patents, recall) the new “DRM rights” I have been discussing above, and that are the consequence of the DMCA.

But if that is the case, this “DRM rights” require no novelty, nor are they limited in time, even in a formal way. Hence they can only be unconstitutional.

There are other interesting comments in the press. My preferred ones are :

French on to something with iTunes law, say analysts
Reuters, ZDNet, March 20, 2006.

Analysts say the French are on to something that the rest of the world has yet to figure out: It needs to set rules for this new market now or risk one or two U.S. companies taking control of online access to music, video and TV.

France debates new tunes for iPod
Thomas Crampton, International Herald Tribune, March 17, 2006 .

The French government’s approach is bold and the only one that makes sense,” said Michael Bartholomew, the director of the European Telecommunications Network Operators’ Association, a trade group based in Brussels.

And apparently, some professional organizations are finally coming to understand on which side their bread is buttered :

France May Force Apple to Open Up iTunes as Bill Moves Ahead
Rudy Ruitenberg, Bloomberg, March 20, 2006.

“The music industry is in favor of interoperability, it would make music accessible on more platforms. It’s quite a technical and complex provision, so it’s not quite clear how it’s going to work in practice,” [Olivia] Regnier [European regional counsel for the London-based International Federation of the Phonographic Industry] said.

The irony of this is that it is the free software organizations, presented by the “cultural community” (read “those who make pots of money in the name of culture”) as the utmost evil, who have been fighting for this interoperability clause.

I remember that, while some partners and I were being auditioned by government officials, their faces expressed surprise that we worried that artists should be able to publish their work, possibly protect their work, freely and without having to submit to the technology leveraged market control of a few large companies. My feeling was that no one else had expressed that concern before.

And, as usual, France Is Saving Civilization. But for the first time, Americans recognize the fact 🙂

How France Is Saving Civilization
Leander Kahney, Wired, March 22, 2006.

Well, that is all. I still have to read the week-end developments and prepare for the senate hearing of the law.

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Apples, Oranges, and DRM

March 23, 2006 by

Last week mp3.com reported on its testing of portable music players, which showed that playing DRM (copy-protected) songs drained battery power 25% faster in Windows Media players, and 8% faster on iPods, than playing the same songs using the unprotected MP3 format. As more information came to light, it became clear that they hadn’t done a completely fair apples-to-apples comparison, and the story faded from view.

Critics pointed out that the story compared DRMed files at one level of compression to MP3 files at a different level of compression – the DRMed files were just bigger, so of course they would eat more battery power. It’s a valid criticism, but we shouldn’t let it obscure the real issue, because the battery-life story has something to teach us despite its flaws.

Different file formats offer different tradeoffs between storage space, battery life, and audio quality. And, of course, audio quality is not a single dimension – some dimensions of quality may matter more to you than to me. Your preference in formats may be different from mine. It may even be different from the preference you had last week – maybe you care more about storage space this week, or more about battery life, because you’ll be listening to music more, with fewer opportunities to recharge.

This is where DRM hurts you. In the absence of DRM, you’re free to store and use your music in the format, and the level of compression, that suits your needs best. DRM takes away that option, giving you only one choice, or at most a few choices. That leaves you with a service that doesn’t meet your needs as well as a non-DRM one would.

Grocery stores know the true point of the apples-to-oranges comparison. Apples and oranges are different. Some customers want one and some want the other. So why not offer both?

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