FOOL ON THE HILL: An Investment Opinion
Intellectual Property Is an Oxymoron

Technology is forcing us to re-evaluate the legal notion of intellectual property. The original compromise struck for the good of society has become unbalanced, and the reactions from the situation's current beneficiaries to counter this unrest have only disturbed the situation more. Copyright as it now stands has outlived its original purpose, and is no longer clearly beneficial to society as a whole. New business models must emerge, and are already emerging, to replace the old.

By Rob Landley (TMF Oak)
August 14, 2000

The last time I wrote about the continuing evolution of intellectual property, a lot of people didn't get it. They thought I was defending Napster. I'm not. Napster isn't interesting. Before Napster there was (Nasdaq: MPPP). Before there was the search engine. A late July article from listed a dozen alternatives to Napster and commented on the surge of traffic they've received as users look for alternatives.

The point is that the Internet has changed everything. I know that phrase has been repeated so often it's cliche, but the Motion Picture Association of America (MPAA), the Recording Industry Association of America (RIAA), and the publishing industry in general just don't get it -- even though the public is trying to bash the concept through their collective skulls with a two-by-four.

On the Internet, publishing is so cheap it's effectively free. Creating copies is no longer a viable business niche. Literally anybody can do it almost effortlessly. There's no profit to be had in that space, just laws and business models left over from a previous age.

Copyright is a legal bargain made between users and authors (or more often publishers) of information, from which both theoretically benefit. Three hundred years ago when copyright laws were first passed, the height of information technology was printing books. Since most individuals didn't own their own printing press, telling people not to create copies of books was like telling them not to fly. It was something they didn't have the practical ability to do anyway, so they weren't really giving anything up.

At that time, copyright was clearly a good deal for most individuals, trading away a purely theoretical ability in exchange for a greater financial incentive for the small number of publishers in existence to increase the scant supply of valuable books.

Times have changed. Today, books have given way to all kinds of digital information from text files to CDs to DVDs. Creating copies is no longer an abstract theoretical ability nobody can really do, but an easy, even trivial, action for anyone with a computer. Once ordinary people gain the practical ability to make their own copies, it becomes something they actually want to do. The old bargain is no longer a good deal for individuals or society as a whole, because the price is now very real, and very high.

Richard Stallman, winner of a McArthur genius grant, founder of the Free Software Foundation, and grandfather of Linux (or GNU/Linux, as he prefers to call it), wrote an excellent piece about how the legal notion of copyright has outlived its usefulness to society. Ann Cockerham also wrote a nice informational piece for the American Library Association. Both are worth reading for more perspective on this issue.

There's an important difference between authors and publishers that the current intellectual property system ignores. Authors still perform a valuable service by creating intellectual property. Publishers perform an increasingly useless service, copying information that individuals who own computers connected by the Internet can copy on their own.

Creating copies is what computers do, every time you run a program the computer copies it into memory, every time you view a song the computer copies it through the network so it can display it. Publishers have become useless middlemen rendered obsolete by digital technology. The laws of supply and demand are driving their profit margins to zero, and their efforts to fight back only highlight how little people actually need them. Notably, nearly 30 states are now suing the top record labels alleging CD price fixing.

The situation is muddied because many types of publishers have gradually taken over the roles and rights of authors. They didn't do this with any altruistic motives: They were simply searching for greater profits at the expense of the artists. The end result is that artists get screwed, and this was happening long before the Internet.

A screed on the issue by Courtney Love (Curt Kobain's widow, lead singer of the band "Hole") published on the Salon website detailed precisely how musicians typically get screwed by their recording companies. The-artist-once-again-known-as-Prince has had a decade-long fight with his record label, and is generally upbeat about MP3 technology.

The music industry is by no means the only place where this happens. It's just a really easy target when looking for examples. In a year or two, computer storage and Internet bandwidth will have increased to the point that video files will be as easy to copy as sound files are now. This is why the MPAA is preemptively up in arms about it. If anything, they're more obnoxious than the RIAA.

My late-July article in this space was about the way corporations tend to get less creative the larger and more stable they are. This may explain why large corporate studios make so many derivative sequels, while small independent films like Clerks or The Blair Witch Project are becoming increasingly important to the industry even without the Internet.

Home Alone is an interesting example: The first one was an independent film made for $10 million dollars -- the catering budget of a Hollywood blockbuster). Once corporations got a hold of it, they gave us II and III. Oh, joy. And you wonder why the Sundance film festival is getting so much attention, or why gets so many new short films each week. Creativity resides with individuals, not with committees.

A system based on charging people for copies they can easily make for themselves for free is not a stable situation. It just doesn't make any sense. More restrictive laws can't substitute for the consent of the governed. King George tried that when the American colonies started grumbling. In the 1920s our own government tried it with prohibition. Restricting copying is no longer a viable model. The only way to deal with industries that refuse to change, and bet their existence on sustaining an obsolete status quo, is to hasten their destruction. Call it a mercy killing.

So what's the replacement? Authors, musicians, actors, and other creative people still need to eat. What new business model replaces pay-per-view? Several, actually. Producing content is still a valuable service people can be convinced to pay for.

You're using one such business model right now. The Fool website can't physically stop anybody from emailing our content around, but we try to be a convenient enough source for it that there's little incentive to do so. Fresh content appears here every day for free, and it's archived in perpetuity (still for free), and we'll even email out copies of it ourselves if you ask us via a mailing list or the "Email this article" button atop each article.

What do we get out of this? Advertising, of course. The more of our content you view from us, the more we get paid. Plus, we get a more-or-less loyal user base we might be able to sell other products and premium services to (like stock research, Soapbox reports, silly hats and T-shirts from Foolmart, books, and whatever else we can think of).

In theory, sorting and organizing content is still a valuable service. Sturgeon's Law applies to the Internet in spades. Companies like Red Hat (Nasdaq: RHAT) make money getting people to voluntarily buy stuff they can download for free because Red Hat does the work of sorting through the garbage to assemble a convenient and nicely polished package, sticking a brand name on it as a guarantee of quality.

But what about content that isn't created on a regular basis, such as movies or hit songs? The most prolific musicians or novelists can go months or even years between releasing a batch of the fruits of their labor. How do they eat? Well, I might suggest a simple concept our culture has had for centuries: tipping. Tip the artist. If what they did is cool beans and you'd like to encourage them to do more of it, send them a buck or two. Income from shareware software allowed some of its authors to quit their day jobs as far back as the 1980s.

The concept has since fallen out of favor because of the mindset that insists upon viewing intellectual property like software as a physical product, which (being infinitely reproducible) it simply isn't. Instead the real value is in creating intellectual property, a service. If the service is good, you leave a tip. Again, companies like Red Hat are bringing this model back into play. (The reason Red Hat has been so much more successful than, say, Caldera Systems (Nasdaq: CALD), is that Red Hat sees what it does as a service, and Caldera sees its intellectual property as a product it can control.)

This concept is totally at odds with the punitive approach large intellectual property corporations are taking, but it works. Once again, based on the consent of the governed, and it fits really well with the reality of the situation. Most creative people start out doing it as a hobby, a sideline to their normal day jobs. The vast majority see it as an interesting and possibly profitable hobby, not something most of them will ever do full-time even when they're successful. They simply haven't got the resources to sue people over breaches in existing intellectual property laws, so they must rely on common courtesy. Formalizing that makes things work more smoothly. Really.

This is why I feel sorry for the RIAA and MPAA, and hope their death struggles don't do too much damage. As they beat an upward retreat, they still have plenty of cash to lobby for new laws and hire lawyers to win precedent-setting court victories. The golden rule -- he who has the gold makes the rules -- still applies to our legal system. But all the gold in the world won't keep a manufacturer of buggy whips in business once the automobile has been invented. These companies must either adapt to the new business models, or inevitably die of old age.

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Related Links:

  • Disruptive Technologies in the Publishing Industry (Part 1), Rule Maker Portfolio, 12/13/99
  • Disruptive Technologies in the Publishing Industry (Part 2), Rule Maker Portfolio, 2/3/99
  • Reevaluating Copyright: The Public Must Prevail
  • Making Money in a Copyright-Free World
  • Intellectual Property in the Digital Age
  • Shiny, Aluminum, Plastic, and Digital
  • Courtney Love Does the Math
  • For the Love of Music