That’s Entertainment

Entertainment encompasses more than just music. The movie moguls know that they’re fated to follow in the record companies’ footsteps because in the information sector, there’s no real difference between audio and video.

Well, maybe that’s a bit of an exaggeration; songs and movies have two significant differences in the information sector. First, movies are longer. There are more bits in a movie than in a song. Movie files are thus harder and more expensive to transmit. Users with modems con­nected to telephone lines can transmit or download songs in a matter of minutes. Movies could take hours, even days. And if the computer dis­connects—for any reason—during the download, the user often must start again from scratch. Even users with broadband connections need patience to download movies. The files are just too big to flow smoothly through our current connections. So size, throughput, and bandwidth make the transaction costs inherent in movie swapping higher than those in song swapping. That buys the movie industry a bit of protection—but only a bit. The technological barrier to movie swapping on the Internet is dropping quickly, and the transaction costs for distribution are likely to soon fall close enough to zero to remove the protection that size affords.

The second difference is a matter of history. While the record compa­nies spent the 1980s and 90s filling our homes with digital content, the movie studios continued to circulate only analog versions of their prod­ucts. File size was responsible for part of this decision, as well. Movie files are simply too big to fit on a single CD. Had the studios wanted to use CDs, they would have needed to package stacks of them together in ways that forced consumers to essentially “change reels” multiple times during the course of a movie.

But even the wise and cautious studio heads knew that they couldn’t hold out forever. They knew that the question wasn’t whether they would ever release digital movies to consumers, but rather when, and using what particular technology. When DVDs arrived, they realized that they could stall no longer. They understood that if they continued to refuse to meet pent-up consumer demand for digital movies, some pirate oper­ation would fill the void—and that would be more of a headache than it was worth. There really isn’t much of a difference between a CD and a DVD. They both combine advances in chemistry, materials, and optics to encode information as tiny little holes in an otherwise solid disk. The key advance lies in density. DVDs are dense enough to hold a movie on a single, small disk.

The studios finally bit the bullet and developed a popular, digital, con­sumer good: the DVD movie. But they were more than a bit nervous about it. They understood that DVD technology would follow the same path as CD technology—and likely mature faster because the underly­ing engineering was already well developed. While electronics companies are still debating some of the standards that they want to include in their products, home computers are already available with DVD burners, and recordable DVDs are available in office-supply stores.

The studios chose to protect their valuable content with an encryp­tion scheme called the Content Scramble System (CSS). They licensed the decryption algorithm to companies that manufactured computers running either Windows or Mac software, reasoning that most con­sumers would then soon own machines containing legitimate decryption algorithms, or in other words authorized playback devices incapable of creating decrypted copies.

Now, if you read through that paragraph quickly, you may have missed a red flag. The studios themselves apparently missed it. The setup allows only Windows and Mac machines to become authorized playback devices. If you, for example, were a Linux user, you couldn’t watch movies on your machine. And hackers prefer Linux. The movie studios had announced to a culture dedicated to solving challenging program­ming problems: “You can’t watch our movies until you crack our code!” This ill-advised strategy created a truly perverse situation for the studios. In the vernacular, we call this sort of strategy “not smart.” It created a truly perverse situation for the studios. A Windows user could watch a pirated copy of their movies, but a Linux user who actually paid for an authorized, official, studio-released DVD couldn’t watch it. Of course, the hackers rose to the challenge and started an open-source project to decrypt CSS. In short order, they had completed DeCSS, circulated it, and made it possible to watch movies on Linux boxes—or, for that matter, on computers running still other platforms.

The hackers’ response to the red flag sent the studios into a white rage. They’d spent years avoiding the inevitable distribution of digital content. They’d finally found a situation that they considered workable, but a bunch of hackers quickly showed them just how silly they were. The studios fought back against this technological advance with the only weapon at their disposal—IP law. In a matter of weeks an army of Hollywood lawyers had filed suits seeking to block people from using DeCSS, from circulating DeCSS, and from telling other people where to find DeCSS. The hackers, they reasoned, had made their protective technology disappear, so they would respond by making the hackers’ invasive technology disappear. The studios trotted out a number of legal theories to support their goal, but in the clash between law and tech­nology, technology inevitably wins. The best that the law can ever do is make a cheap technology expensive. The record companies learned that lesson with P2P, but it doesn’t mean that they—or the movie studios, or the people who oppose stem-cell research or cloning or genetically modified organisms—will ever act upon that lesson. And so, the movie studios followed their musical brethren into war, fighting to halt their industry’s inevitable slide into the information sector.

Once again, though the point of the fight was plain, the lawsuit itself focused on some nuanced language buried in an IP statute. In this case, the key law was the anticircumvention provision of the DMCA, the 1998 law that made it illegal to distribute a program that cracks an encryp­tion system. This law—in its most draconian criminal form—landed Dmitry Sklyarov in jail for cracking Adobe’s encryption. The studios didn’t bother with the law’s criminal provisions, but they did ask the courts to find that DeCSS violated the DMCA, and therefore to ban it.

Judge Lewis Kaplan held a lengthy trial and received much useful input. The defendants argued that the fair-use doctrine protected DeCSS, and that the program served an important policy purpose.

One of the truly offbeat implications of this case—and one that no one was much considering—was what Congress actually did when it passed the anticircumvention provision. That provision was brand new for the DMCA in 1998. The DeCSS case was the first to really look at it. And Judge Kaplan did what he was supposed to do. He presumed that Congress knew what it was doing and meant what it wrote. And it’s certainly plausible that when Congress passed this law, it was trying to protect IP like the studios’ digital movies and Adobe’s eBook reader. But the law that it wrote may be much broader than that. The law as written sounds as though it may allow anyone to create an artificial barrier to entry by placing a technological roadblock in front of a copy­righted product. The technology doesn’t have to be good—encryption into the binary equivalent of Pig Latin should work. That’s a boon for producers looking to monopolize a particular niche, because it lets them create trivial artificial barriers to competitive entry.

If you’re skeptical, consider the Lexmark printers. Much to its chagrin, some of Lexmark’s customers prefer to buy replacement toner cartridges from competing suppliers. So Lexmark installed a chip in its toner car­tridges that sends a message to the printer verifying that it is, in fact, a Lexmark cartridge. The printer won’t work without an authentication message. In other words, Lexmark leveraged its strength in the printer market into the toner cartridge market—shades of Kodak! Static Control Components figured out how to mimic the Lexmark authentication message.

The courts are still busy sorting out Lexmark’s and Chamberlain’s claims. A trial court in Kentucky thought that Lexmark’s case looked strong and issued a preliminary injunction prohibiting Static Control Systems from selling its toner cartridges.³⁰ A trial court in Illinois found Chamberlain’s complaint lacking, ruling in favor of Skylink.³¹ Now the appeals courts must let us know what they think about these claims.³² And while it’s always hard to know where any given case will come out without knowing the inside details, the two-sentence summaries of Lexmark’s and Chamberlain’s claims don’t sound all that different from the one that the studios used to protect CSS. The information sector, courtesy of the DMCA, may soon swallow a toner cartridge and/or a garage door near you.

And so, we can chalk one up for the movie studios—just like we credited the record companies with a great victory when they shut down Napster. But we can also see a system coming apart at the seams. Technology keeps knocking down transaction costs and economics pushes consumers to do what comes naturally. Increasingly draconian laws may reimpose some of those costs and keep outdated business models in place for a while longer—but at tremendous cost. The DMCA’s anticircumvention clause alone already threatens to create both another “drug war” chasing criminal IP violators and a raft of consumer-goods monopolists using cheap encryption to leverage their monopolies outward. I don’t know how much more of this we can afford. We now have laws protecting technologies protecting IP rights that soon could inflict serious damage on the American economy—not to mention on American civil society.

If sounds like I’m blaming the record companies or the movie studios—I’m not. They, like Microsoft, are behaving in a completely rational manner to protect the property rights that Congress gave them and the business models that have been successful for their sharehold­ers. They’re doing exactly what they should do. Music executives should not be debating American IP policy. That work usually starts in the temples of academe, though the Constitution gave Congress ultimate responsibility. And if Congress can’t handle it by itself, it should enlist a bit of assistance from a regulatory agency or the federal judiciary. The “rule of reason” has served us well in antitrust law. Maybe we now need one for IP law as well, because our IP laws seem to be verging on a dan­gerous lack of reason. The current system just doesn’t work in the infor­mation sector. And the information sector is growing. Fast. Because while we were considering how it swallowed the music industry, it took a bite out of your printer and your garage door. Let’s just hope that we don’t end up with a case of national indigestion.