NBA 600 Session 13 Digital Goods and IP

NBA 600: Session 13 Digital Goods and IP 4 March 2003 Daniel Huttenlocher

Today’s Class § Intellectual property – What intellectual property (IP) is • Primary focus on copyright, most relevant to digital goods and services – Laws governing IP – Impact of Internet on laws and use • When illicit copying becomes easier than buying § Protecting digital content – Technological means • E. g. , CSS system used for DVD’s – Why protection technology not viable solution 2

Announcements § BOOM: Student Digital Projects and Applications – Weds 4 -6 pm Upson 4 th floor § Group case write-ups due March 13 th 3

Protecting Intellectual Property § Most digital goods are intellectual property – Profitable business requires understanding rights – Review related legal issues § People have strong expectations from prior experience – Years of taping radio, television – Sharing recordings § Technology provides new abilities both to distribute and to control content – Balancing what is possible, legal protection and consumer preferences 4

Intellectual Property Law § Three distinct areas of intellectual property protection – US law, but considerable effort to align laws of major countries through international treaties § Patent protects inventions (last class) – Products or processes “reduced to practice” • Not texts, films, music (creative works) § Trademark protects names or symbols – Reputation and name of firm or product § Copyright protects creative works – Original works of authorship 5

Trademarks § A word, name, symbol or device used to identify and distinguish goods from others – Servicemark same for services not goods • Terms "trademark" and "mark" commonly used to refer to both § May be used to prevent others from using a confusingly similar mark – Not selling same thing under different mark • Generally restricted to type of good or service – Must be actively maintained § US just adopted international (WIPO) law 6

Copyright § Protection provided to authors/owners – Original works: literary, dramatic, musical, artistic, and certain other intellectual works • Automatic: both published and unpublished – Generally gives owner exclusive right to • Reproduce the copyrighted work • Prepare derivative works • Distribute copies • Perform or display the copyrighted work publicly § Limited term – works enter public domain after some time period or upon declaration – Owner loses exclusive rights 7

What Copyright Protects § Works embodied in some fixed form – Not a performance, but a script or a recording • Recording recently expanded in 1995 law § Actual expression not thing described – E. g. , in a computer program copyright protects the actual code not the problem that it solves • Other implementations are not protected – However, derivative works are protected • If someone takes code and modifies it or copies substantial portions § Copyright holder has right to control how material is distributed or reproduced 8

Limitations of Copyright § Fair use of copyrighted works – Quotation or reference • E. g. , reviews, scholarly works, articles – Parody • 1994 supreme court decision – “Pretty Woman” - Roy Orbison vs. 2 Live Crew – Copies for personal use – so-called fair use • 1984 supreme court decision – video taping - Universal Studios vs. Sony § Lists of facts are not creative works – 1991 supreme court decision – phone directory • Note: 5 years after NYNEX CD ROM 9

Determining Fair Use § Defense against infringement not a right – Open to judgment – and thus litigation § Four factors in determining fair use – Purpose and character of use • Commercial versus non-commercial – Nature of copyrighted work • How “creative” is the original work – Amount and substantiality of portion used • Both quality and quantity of copied material - E. g. , characters, scenes or other aspects may be substantial even if small portion – Effect upon potential value of copyrighted work • Reducing need for people to buy original 10

Changes in Copyright Term § First US copyright act (1790) – 14 years plus renewable for 14 years § Has slowly increased over time – 1976 law set term to life+50 years for individuals, 75 years for corporations § Substantial change in 1998 – Large corporate interests • E. g. , Disney facing loss of Mickey Mouse rights – Now life+70 years, or 95 yrs for corporations § Was challenged in courts but supreme court recently found in favor of Congress 11

DMCA § Digital Millennium Copyright Act – Passed in October 1998 in response to Internet § Main feature over prior copyright law – Ban on creating technological tools that can be used to violate copyright • Rather than just ban on copyright violation itself – Substantial implications for “fair use” • No person shall circumvent a technological measure that effectively controls access • While certain copying may be allowed, not possible with copy protected digital goods § Also part of WIPO copyright treaty 12

Copyright and Digital Goods § A fundamental premise of copyright protection is challenged by digital goods – Any access to digital information involves making a copy – although generally temporary • E. g. , copying from DVD or CD to memory in order to view/play content - In computer may be from CD to RAM to D/A buffer memory - In dedicated device from CD to D/A buffer • Downloading from Web may make cached copies on disk drives - On local computer or intermediate proxy server - More permanent than RAM 13

Example Digital Data Copies Processor Disk Drive Memory (RAM) CD Drive Video D/A Network Interface Audio D/A Music: CD to RAM to Processor to Audio D/A Web: NI to RAM to Processor to Disk and Video D/A 14

Some Copies OK Others Not § Has become widely accepted that systems make copies as part of their operation – Computer memory, D/A, and disk caches – Web proxy servers (e. g. , AOL and other ISP’s) – Digital consumer devices § Digital goods industries challenged with how to get paid for copies – Given copying inherent part of experiencing digital goods – Easier copying makes usage more flexible for consumer 15

Digital Goods: Music and Movies § Music and movie industries have become purveyors of digital goods – Introduction of music CD and video DVD § Digital media provided attractive economic alternative to prior media types – Cheap to reproduce, easy to distribute § Music CD’s initially provided no threat to dominant business model – Distribute content for free in temporary forms – Charge for permanent copies • For most, easier to buy than make illegal copy 16

Digital Goods: Music § Two technologies changed the balance – CD readers and writers in most computers • Writers important for playing on other devices - Also dedicated players such as Ipod – Widespread internet connectivity • Sharing became easy • Focus on file sharing software (e. g. , Napster, Kazaa) but connectivity made inevitable - Search plus access § Most music CD’s have no restrictions on accessing data – Can be freely played or copied on any device 17

Digital Goods: Movies § Video DVD’s are protected – So-called Content Scrambling System (CSS) – Encrypted so not viewable/playable except on pre-approved “trusted” device § CSS prevents content from being accessed – Control how/when it is experienced • E. g. , only allow players sold in certain countries to play a DVD • E. g. , do not allow viewing on Linux computers § CSS does not prevent copying – However standard burnable DVD’s differ from video DVD’s 18

CSS § Each trusted device has a secret key that is used to identify it – Such valid devices don’t allow decrypted (viewable) content to be copied • E. g. , consumer DVD players okay but not computer DVD drives • Microsoft media player okay but not most software – Less capable than general purpose computers § Each DVD stores encrypted device keys of trusted devices – Playing DVD requires match to device key 19

Breaking Trusted Devices § Any device must decode content in order for it to be experienced – Consumer electronic devices “safer” • Closed: not documented or broadly understood • Still subject to reverse engineering – General purpose computers must copy decrypted version to D/A converter • Can be intercepted at this point • Possible to create D/A converter that does decoding but restricted functionality – Can always be intercepted in analog form § Can also crack encryption scheme 20

Flawed DVD Encryption § A fundamental problem with CSS made it relatively easy to duplicate keys – The keys were supposed to be stored encrypted so they could not be copied • A manufacturer accidentally released an unencrypted key - Should have been okay because single compromised keys can be “revoked” – A flaw in the scheme made it quite easy to create many keys given a single key • de. CSS - keys and software for de-scrambling DVDs were rapidly distributed on the Internet 21

DMCA and de. CSS § The web site for 2600 magazine linked to a Norwegian teenager’s site – He had published de. CSS program for decoding DVD’s on his web site § Major studios sued 2600 under DMCA – Accused them of video piracy simply for linking to the Web site • Court found against 2600 - Upheld on appeal in May 2002 § Proponents of tools like de. CSS decry decision as prohibiting fair use 22

DMCA and Freedom of Speech § Princeton CS professor Ed Felten found holes in a copyright protection scheme – Secure Digital Music Initiative § Recording Industry of America (RIAA) threatened Felten with a lawsuit – If he presented at academic conference § Felten backed down – But media outcry led to RIAA saying it never intended to block him from speaking • So he presented in August 2001 conference § Injunction was sought against DMCA – Judge threw out because no case at issue 23

DMCA and E-Book Reader § Russian company Elcomsoft and programmer sued by US Attorney in S. F. – First criminal application of the law • Programmer taken from conference in handcuffs § For reverse engineering Adobe’s E-Book reader software – Permitting users to decrypt electronic books – Adobe dropped its support of case against programmer after protests § Jury acquitted company in Dec. 2002 – Based on company’s speedy removal of offending software upon Adobe’s request 24

DMCA Hasn’t Prevented Piracy § Bigger problem is easy distribution of plain (un-encrypted) digital content – Sharing of audio or video files • Via file sharing networks: Kazaa, Morpheus • Via web sites – Generally more compressed and hence lower quality than original • DVD video and even CD audio too large to share easily over internet § This content comes from many sources not just directly decrypting protected data 25

Serving the Consumer § The variety of content protection schemes is beginning to cause consumer unrest – Bills being discussed in congress that would require clear labeling • Devices and goods would have to disclose how they restrict copying or access § Consumers value flexibility § Device producers want to provide flexibility § Content producers focused on control which is in direct conflict with flexibility 26

Challenge for Digital Goods § Copying may not be preventable – Difficult to distinguish “legitimate” from “illegitimate” – Tends to result in restrictions that drive consumers towards illegitimate copies § How to make illegitimate copies more expensive than legitimate ones – Expense in time and risk rather than money • Trusted sources without risk of viruses – Disrupt content of illicit distribution networks • Flooding file sharing with damaged content 27

Summary of Sears Papers § Arguments for outsourcing to Amazon – Sears not well positioned for e-commerce • Shut down catalog operations – unprofitable – Lands’ End no demonstrated ability to handle many SKU’s • Focused apparel business – Amazon’s low fulfillment costs and wide range of goods – Amazon’s personalization tools § Arguments for presence on Amazon site – Lands’ End brand needs wider audience 28

Sears Papers Cont’d § Arguments against outsourcing – Amazon has not demonstrated expertise in Sears’ key appliance business – Sears tightly integrates appliance Web site with in-store pickup and delivery – Installation and service important for appliances and not for Amazon’s goods – Lands’ End has better customization tools § Arguments against Amazon site – Sears brand may not compete well head-on against Target 29