The Digital Dilemma

Intellectual Property in the Information Age

Committee on Intellectual Property Rights and the Emerging Information Infrastructure

Computer Science and Telecommunications Board
Commission on Physical Sciences, Mathematics, and Applications
National Research Council

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The Digital Dilemma Intellectual Property in the Information Age Committee on Intellectual Property Rights and the Emerging Information Infrastructure Computer Science and Telecommunications Board Commission on Physical Sciences, Mathematics, and Applications National Research Council

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Page ii NATIONAL ACADEMY PRESS • 2101 Constitution Avenue, N.W. • Washington, D.C. 20418 NOTICE: The project that is the subject of this report was approved by the Governing Board of the National Research Council, whose members are drawn from the councils of the National Academy of Sciences, the National Academy of Engineering, and the Institute of Medicine. The members of the committee responsible for the report were chosen for their special competences and with regard for appropriate balance. Support for this project was provided by the National Science Foundation. Any opinions, findings, conclusions, or recommendations expressed in this material are those of the authors and do not necessarily reflect the views of the sponsors. Library of Congress Catalog Card Number 99-69855 International Standard Book Number 0-309-06499-6 Additional copies of this report are available from: National Academy Press 2101 Constitution Ave., NW Box 285 Washington, DC 20055 800-624-6242 202-334-3313 (in the Washington Metropolitan Area) http://www.nap.edu Copyright 2000 by the National Academy of Sciences. All rights reserved. Printed in the United States of America

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Page iii THE NATIONAL ACADEMIES National Academy of Sciences National Academy of Engineering Institute of Medicine National Research Council The National Academy of Sciences is a private, nonprofit, self-perpetuating society of distinguished scholars engaged in scientific and engineering research, dedicated to the furtherance of science and technology and to their use for the general welfare. Upon the authority of the charter granted to it by the Congress in 1863, the Academy has a mandate that requires it to advise the federal government on scientific and technical matters. Dr. Bruce M. Alberts is president of the National Academy of Sciences. The National Academy of Engineering was established in 1964, under the charter of the National Academy of Sciences, as a parallel organization of outstanding engineers. It is autonomous in its administration and in the selection of its members, sharing with the National Academy of Sciences the responsibility for advising the federal government. The National Academy of Engineering also sponsors engineering programs aimed at meeting national needs, encourages education and research, and recognizes the superior achievements of engineers. Dr. William A. Wulf is president of the National Academy of Engineering. The Institute of Medicine was established in 1970 by the National Academy of Sciences to secure the services of eminent members of appropriate professions in the examination of policy matters pertaining to the health of the public. The Institute acts under the responsibility given to the National Academy of Sciences by its congressional charter to be an adviser to the federal government and, upon its own initiative, to identify issues of medical care, research, and education. Dr. Kenneth I. Shine is president of the Institute of Medicine. The National Research Council was organized by the National Academy of Sciences in 1916 to associate the broad community of science and technology with the Academy's purposes of furthering knowledge and advising the federal government. Functioning in accordance with general policies determined by the Academy, the Council has become the principal operating agency of both the National Academy of Sciences and the National Academy of Engineering in providing services to the government, the public, and the scientific and engineering communities. The Council is administered jointly by both Academies and the Institute of Medicine. Dr. Bruce M. Alberts and Dr. William A. Wulf are chairman and vice chairman, respectively, of the National Research Council.

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Page v COMMITTEE ON INTELLECTUAL PROPERTY RIGHTS AND THE EMERGING INFORMATION INFRASTRUCTURE RANDALL DAVIS, Massachusetts Institute of Technology, Chair SHELTON ALEXANDER, Pennsylvania State University JOEY ANUFF, Wired Ventures HOWARD BESSER, University of California, Los Angeles SCOTT BRADNER, Harvard University JOAN FEIGENBAUM, AT&T Labs-Research HENRY GLADNEY, IBM Almaden Research Center KAREN HUNTER, Elsevier Science Inc. CLIFFORD LYNCH, Coalition for Networked Information CHRISTOPHER MURRAY, O'Melveny & Myers LLP ROGER NOLL, Stanford University DAVID REED, Cable Television Laboratories Inc. JAMES N. ROSSE, Freedom Communications Inc. (Ret.) PAMELA SAMUELSON, University of California, Berkeley STUART SHIEBER, Harvard University BERNARD SORKIN, Time Warner Inc. GARY E. STRONG, Queens Borough Public Library JONATHAN TASINI, National Writers Union/UAW Local 1981 Staff ALAN S. INOUYE, Program Officer JERRY R. SHEEHAN, Senior Program Officer MARJORY S. BLUMENTHAL, Executive Director MARGARET MARSH, Project Assistant NICCI T. DOWD, Project Assistant MICKELLE RODGERS, Senior Project Assistant

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Page vi COMPUTER SCIENCE AND TELECOMMUNICATIONS BOARD DAVID D. CLARK, Massachusetts Institute of Technology, Chair FRANCES E. ALLEN, IBM T.J. Watson Research Center JAMES CHIDDIX, Time Warner Cable JOHN M. CIOFFI, Stanford University W. BRUCE CROFT, University of Massachusetts, Amherst A.G. FRASER, AT&T SUSAN L. GRAHAM, University of California, Berkeley JAMES GRAY, Microsoft Corporation PATRICK M. HANRAHAN, Stanford University JUDITH HEMPEL, University of California, San Francisco BUTLER W. LAMPSON, Microsoft Corporation EDWARD D. LAZOWSKA, University of Washington DAVID LIDDLE, Interval Research JOHN MAJOR, WirelessKnowledge TOM M. MITCHELL, Carnegie Mellon University DONALD NORMAN, Unext.com RAYMOND OZZIE, Groove Networks DAVID A. PATTERSON, University of California, Berkeley LEE SPROULL, New York University LESLIE L. VADASZ, Intel Corporation Staff MARJORY S. BLUMENTHAL, Executive Director JANE BORTNICK GRIFFITH, Interim Director (1998) HERBERT S. LIN, Senior Scientist JERRY R. SHEEHAN, Senior Program Officer ALAN S. INOUYE, Program Officer JON EISENBERG, Program Officer GAIL PRITCHARD, Program Officer JANET BRISCOE, Office Manager MARGARET MARSH, Project Assistant MICKELLE RODGERS, Research Assistant SUZANNE OSSA, Senior Project Assistant DAVID (D.C.) DRAKE, Project Assistant DANIEL LLATA, Senior Project Assistant BRANDYE WILLIAMS, Office Assistant

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Page vii COMMISSION ON PHYSICAL SCIENCES, MATHEMATICS, AND APPLICATIONS PETER M. BANKS, Veridian ERIM International Inc., Co-chair W. CARL LINEBERGER, University of Colorado, Co-chair WILLIAM F. BALLHAUS, JR., Lockheed Martin Corp. SHIRLEY CHIANG, University of California, Davis MARSHALL H. COHEN, California Institute of Technology RONALD G. DOUGLAS, Texas A&M University SAMUEL H. FULLER, Analog Devices Inc. JERRY P. GOLLUB, Haverford College MICHAEL F. GOODCHILD, University of California, Santa Barbara MARTHA P. HAYNES, Cornell University WESLEY T. HUNTRESS, JR., Carnegie Institution CAROL M. JANTZEN, Westinghouse Savannah River Company PAUL G. KAMINSKI, Technovation Inc. KENNETH H. KELLER, University of Minnesota JOHN R. KREICK, Sanders, a Lockheed Martin Co. (Ret.) MARSHA I. LESTER, University of Pennsylvania DUSA McDUFF, State University of New York, Stony Brook JANET NORWOOD, Bureau of Labor Statistics (Ret.) M. ELISABETH PATÉ-CORNELL, Stanford University NICHOLAS P. SAMIOS, Brookhaven National Laboratory ROBERT J. SPINRAD, Xerox PARC (Ret.) NORMAN METZGER, Executive Director (through July 1999) MYRON F. UMAN, Acting Executive Director

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Page ix Preface The revolution in information technology is changing access to information in fundamental ways. Increasing amounts of information are available in digital form; networks interconnect computers around the globe; and the World Wide Web provides a framework for access to a vast array of information, from favorite family recipes and newspaper articles to scholarly treatises and music, all available at the click of a mouse. Yet the same technologies that provide vastly enhanced access also raise difficult fundamental issues concerning intellectual property, because the technology that makes access so easy also greatly aids copying—both legal and illegal. As a result, many of the intellectual property rules and practices that evolved in the world of physical artifacts do not work well in the digital environment. The issues associated with computerization are also amplified by the rise of the Internet and broader and more pervasive networking. These are the issues that inspired The Digital Dilemma. This project grew out of a long history of Computer Science and Telecommunications Board (CSTB) interest in the legal issues related to computer technology in general and to intellectual property in particular. In 1991, CSTB published Intellectual Property Issues in Software, the report of a strategic forum in which I participated, and in 1994, it published the report of its second strategic forum, addressing intellectual property and other issues, entitled Rights and Responsibilities of Participants in Networked Communities. Recognizing the growing questions about intellectual property in the networked environment, CSTB hosted a project-planning meeting in December 1994 chaired by Pamela Samuelson (now at the

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Page x University of California, Berkeley) and involving experts from the areas of law, computer science, technology, library science, and publishing. In spring 1996, the former Federal Networking Council Advisory Committee (FNCAC) recommended that CSTB be asked to undertake a project in this area. After clarifying a division of labor with another part of the National Research Council (NRC) regarding the issues related to scientific databases as intellectual property,1 CSTB transmitted a proposal in late 1996 to the National Science Foundation (NSF), which then administered the FNCAC; the project was funded in the fall of 1997, and CSTB empaneled the Committee on Intellectual Property Rights and the Emerging Information Infrastructure at the end of 1997. The course of this project reflected the circumstances of the time in which it was undertaken: the climate in the late 1990s for thinking about intellectual property policy reflected the early and mid-1990s history of public debates associated with attention to national and global information infrastructure, a period in which information policy (which includes intellectual property, privacy, and free speech issues) began to inspire unusually vigorous public-interest-group and commercial advocacy activity. CSTB's project was designed to assess issues and derive research topics and policy recommendations related to the nature, evolution, and use of the Internet and other networks, and to the generation, distribution, and protection of content accessed through networks. Box P.1 outlines the statement of task. Committee Composition and Process The study committee convened by CSTB included experts from industry, academia, and the library and information science community, with expertise that spanned networks, computer security, digital libraries, economics and public policy, public and academic libraries, intellectual property law, publishing, and the entertainment, software, and telecommunications industries (see Appendix A for the biographies of study committee members). It did its work through its own expert deliberations and by soliciting input and discussion from key officials from the sponsoring agencies, other government officials, technologists, legal experts, economists, social scientists, librarians, industry experts, and advocacy 1A concurrent NRC study produced A Question of Balance: Private Rights and the Public Interest in Scientific and Technical Databases (National Academy Press, Washington, D.C., 1999), which identifies and evaluates the various existing and proposed policy approaches (including related legal, economic, and technical considerations) for protecting the proprietary rights of private-sector database rights holders while promoting and enhancing access to scientific and technical data for public-interest uses.

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Page xi BOX P. 1 Synopsis of the Statement of Task 1. Assess the state of the art and trends in network and document or content technologies relevant to intellectual property rights management. The challenge is to sort out which trends are relevant, enduring, and promising, and how new communications and information technology may vitiate existing protection for intellectual property that the law offers to creators, users, and distributors. 2. Identify emerging opportunities and forms of publishing that have no precedents in existing media or current copyright law that may present new needs and opportunities for managing intellectual property rights. 3. Describe how electronic distribution is changing the markets (scaia, distribution, cost incidence for information products, whether they are available in alternative media or only electronically. This includes the rapidly changing structure of information and communications industries that operate and provide content for networks. 4. Assess the kinds, quality, and sufficiency of available data for measuring and analyzing relevant trends in the supply and demand for networked information services and associated electronic publishing of various kinds. 5. Review the characteristics of existing and proposed intellectual property law for both copyrights works and noncopyrightable databases, in the United States and internationally, and the potential impacts of the proposed legal changes on the nation's research, education, and federal networking communities as information providers, distributors, and users of content. 6. Consider the mapping of technology and content elements, their owners, and their rights and responsibilities (e.g., the changing nature of liability and responsibility for service providers). Given that understanding, develop recommendations on how new technology might provide new mechanisms and tools to protect both necessary to respond adequately to the changing networked environment, while maintaining a reasonable balance between the protection of property rights and public interests. group spokespersons (see Appendix B for a list of briefers to the committee). The committee met first in February 1998 and five times subsequently; it revised and strengthened its report during mid-1999. Central to the content and flavor of The Digital Dilemma is the fact that the authoring committee is, by design, a microcosm of the diverse community of interest. Because of the contentious nature of intellectual property issues, every effort was made to ensure that a broad range of perspectives was represented—on the membership of the study committee, in the solicitation of briefings and other inputs to committee meeting agendas, and in the materials distributed to the study committee. The contention was evident throughout the course of the study, beginning

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Page xv Acknowledgment of Reviewers This report was reviewed by individuals chosen for their diverse perspectives and technical expertise, in accordance with procedures approved by the National Research Council's (NRC's) Report Review Committee. The purpose of this independent review is to provide candid and critical comments that will assist the authors and the NRC in making the published report as sound as possible and to ensure that the report meets institutional standards for objectivity, evidence, and responsiveness to the study charge. The contents of the review comments and draft manuscript remain confidential to protect the integrity of the deliberative process. We wish to thank the following individuals for their participation in the review of this report: Stephen Berry, University of Chicago, Lewis M. Branscomb, Harvard University, Julie E. Cohen, Georgetown University Law Center, Charles Ellis, John Wiley & Sons, Edward W. Felten, Princeton University, Laura Gasaway, University of North Carolina, Chapel Hill, Jane C. Ginsburg, Columbia University School of Law, Stuart Haber, InterTrust, Trotter I. Hardy, College of William and Mary Law School, Peter F. Harter, EMusic.com Inc., Michael Hawley, Massachusetts Institute of Technology, James Horning, InterTrust,

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Page xvi Mitchell D. Kapor, Kapor Enterprises Inc., Kenneth H. Keller, University of Minnesota, Eileen Kent, Consultant, Andrew Lippman, Massachusetts Institute of Technology, Deanna Marcum, Council on Library and Information Resources, Michael Moradzadeh, Intel Corporation, Andrew Odlyzko, AT&T Labs-Research, Ann Okerson, Yale University, Harlan Onsrud, University of Maine, Bruce Owen, Economists Inc., Anthony Stonefield, Global Music One, Morris Tanenbaum, AT&T (Ret.), Hal Varian, University of California, Berkeley, Frederick W. Weingarten, American Library Association, Richard Weisgrau, American Society of Media Photographers, Steven Wildman, Northwestern University, and Kurt Wimmer, Covington & Burling. Although the individuals listed above provided many constructive comments and suggestions, responsibility for the final content of this report rests solely with the study committee and the NRC.

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Page xvii Contents Executive Summary 1 1 Emergence of the Digital Dilemma 23 An Enduring Balance Upset? 24 Scope of the Report 27 Origins of the Issues 28 Technology Has Changed: Digital Information, Networks, and the Web 28 Why Digital Information Matters 28 Why Computer Networks Matter: Economics and Speed of Distribution 38 Why the Web Matters 39 The Programmable Computer Makes a Difference 43 Technology Has Emerged into Everyday Life, Running Headlong into Intellectual Property 45 Intellectual Property Law Is Complex 47 Cyberspace Is an Odd New World 49 What Makes Progress Difficult? 51 Stakeholders' Interests Are Diverse 51 There Is a Variety of Forces at Work 52 Many Threads Are Intertwined: Technology, Law, Economics, Psychology and Sociology, and Public Policy 53 The Problems Are Global, with Differing Views, Laws, and Enforcement Around the World 54

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Page xviii Potential Solutions Have to Be Evaluated from a Variety of Perspectives 58 Road Map for the Report 60 Addendum: The Concerns of Stakeholders 61 Creators of Intellectual Property 61 Distributors 65 Schools and Libraries 68 The Research Community 70 The General Public 71 Other Consumers and Producers of Intellectual Property 73 Governmental Organizations 73 Private Sector Organizations 74 Journalists 75 Standards Organizations 75 2 Music: Intellectual Property's Canary in the Digital Coal Mine 76 Why Music? 77 W(h)ither the Market? 78 What Can Be Done? 79 The Business Model Response 79 Make the Content Easier and Cheaper to Buy Than to Steal 80 Use Digital Content to Promote the Traditional Product 81 Give Away (Some) Digital Content and Focus on Auxiliary Markets 82 The Technical Protection Response 83 Mark the Bits 83 Reattach the Bits 84 A Scenario 86 Constraints on Technological Solutions 87 Industry Consequences of the New Technology 89 The Broader Lessons 94 3 Public Access to the Intellectual, Cultural, and Social Record 96 Public Access Is an Important Goal of Copyright 97 Access: Licensing Offers Both Promise and Peril 100 Access and Technical Protection Services 104 The New Information Environment Challenges Some Access Rules 106 The New Information Environment Blurs the Distinction Between Public and Private 107

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Page xix Noncopyrightable Databases Present Access Challenges 109 The Information Infrastructure Is Changing the Distribution of and Access to Federal Government Information 111 Archiving of Digital Information Presents Difficulties 113 Fundamental Intellectual and Technical Problems in Archiving 116 Intellectual Property and Archiving of Digital Materials 119 Technical Protection Services and Archiving 121 4 Individual Behavior, Private Use and Fair Use, and the System for Copyright 123 Understanding Copyright in the Digital Environment 123 The General Public 124 Rights Holders 128 The Challenge of Private Use and Fair Use with Digital Information 129 The Wide Range of Private Use Copying 130 Arguments That Private Use Copying Is Not Fair Use 132 Arguments That Private Use Copying Is Fair Use 133 Private Use Copying: The Committee's Conclusions 135 The Future of Fair Use and Other Copyright Exceptions 136 Is ''Copy" Still an Appropriate Fundamental Concept? 140 Control of Copying 140 Is Control of Copying the Right Mechanism in the Digital Age? 141 What Can Be Done? 144 Addendum: Sections 106,107, and 109 of the U.S. Copyright Law 145 5 Protecting Digital Intellectual Property: Means and Measurements 152 Technical Protection 153 Encryption: An Underpinning Technology for Technical Protection Service Components 156 Access Control in Bounded Communities 158 Enforcement of Access and Use Control in Open Communities 159 Copy Detection in Open Communities: Marking and Monitoring 164 Trusted Systems 167 Protection Technologies for Niches and Special-Purpose Devices 171

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Page xx Technical Protection Services, Testing, and the Digital Millennium Copyright Act of 1998 171 What Makes a Technical Protection Service Successful? 173 The Role of Business Models in the Protection of Intellectual Property 176 The Impact of the Digital Environment on Business Models 177 Business Models for Handling Information 179 Traditional Business Models 179 Intellectual Property Implications of Traditional Business Models 180 Less Traditional Business Models 181 Intellectual Property Implications of Less Traditional Business Models 182 Business Models as a Means of Dealing with Intellectual Property 183 Illegal Commercial Copying 186 The Impact of Granting Patents for Information Innovations 192 6 Conclusions and Recommendations 199 The Digital Dilemma: Implications for Public Access 201 The Value of Public Access 201 Consequences of the Changing Nature of Publication and the Use of Licensing and Technical Protection Services 202 Publication and Private Distribution 205 Mass Market Licenses 205 Archiving and Preservation of Digital Information 206 Digital Archives 206 Preservation 209 Access to Federal Government Information 211 The Digital Dilemma: Implications for Individual Behavior 212 Perceptions and Behavior of Individuals 212 Fair Use and Private Use Copying 213 Copyright Education 216 Moving Beyond the Digital Dilemma: Additional Mechanisms for Making Progress 217 Technical Protection Services 217 The Digital Millennium Copyright Act of 1998 221 Business Models 224 The Interaction of Technical Protection Services, Business Models, Law, and Public Policy 225

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Page xxi Moving Beyond the Dilemma: A Call for Research and Improved Data, 225 Illegal Commercial Copying, 226 Research on the Economics of Copyright, Use of Patents, and Cyber Law, 227 Is "Copy" Still the Appropriate Foundational Concept?, 230 Content Creators and the Digital Environment, 232 The Process of Formulating Law and Public Policy, 233 Principles for the Formulation of Law and Public Policy, 235 Concluding Remarks, 239 Bibliography 240 Appendixes   A Study Committee Biographies 253 B Briefers to the Committee 261 C Networks: How the Internet Works 263 D Information Economics: A Primer 271 E Technologies for Intellectual Property Protection 282 F Copyright Education 304 G The Digital Millennium Copyright Act of 1998 and Circumvention of Technological Protection Measures 311 Index 331

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The Digital Dilemma T .

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