The Battle Between Tinseltown and Techville

Creativity and innovation aren't qualities you'd ordinarily expect to be at war with one another. Both involve a type of inventiveness, a vision of something new, a stepping outside of mental boundaries. Yet in America's courts, the companies that rely most on creativity and innovation are at each other's throats.

It's a battle of culture as much as law. It's Tinseltown vs. Techville, the glamour people vs. the geeks, those who admire their finished products and those who never finish tinkering. And for each one, an important principle is at stake.

The latest round of this fight features two small software firms, Grokster and Streamcast, vs. the entertainment giants, led by MGM and other studios, recording labels and artists' groups. In a case just argued before the Supreme Court, the entertainment firms say that Grokster and Streamcast, which help individuals copy movie as well as music files, must be shut down. The future of creativity is in jeopardy, they say. How will artists live if they don't receive copyright royalties?

The technology industry, some of which holds its nose at Grokster and Streamcast's failure to obtain licenses for copying recorded materials, has united to defend their principal arguments in court. The high-tech industry says the future of innovation is at stake. How can engineers prosper if they're constantly looking over their shoulders for approval from Hollywood?

Both sides in this clash have legitimate concerns. As with the original Napster, the music file-sharing service that taught the world to love free downloads, Grokster and its ilk don't pay licensing fees on the vast majority of songs and movies traded by their users. The musicians and recording labels are essentially being ripped off. But by whom? That's the essence of the question currently before the Supreme Court. And the overarching issue is: How far can the scope for digital copyright expand without threatening innovation?

This isn't the first time that Hollywood and tech titans have duked it out. Napster awakened the motion picture studios to the danger posed by piracy on the Internet. The recording industry then vanquished Napster in court -- and Napster now sells music under license agreements with major recording labels. But Walt Disney and Fox Entertainment strong-armed their fellow motion picture studios into taking on even bigger adversaries: Apple, Microsoft, Intel, Dell and Hewlett-Packard.

These computer and software companies were just as guilty as Napster because they refused to cooperate in the studios' efforts to lock down personal computers, according to the argument made at the time by motion picture lobbyist Jack Valenti. He and Disney CEO Michael Eisner enlisted the support of the then-chairman of the Senate Commerce Committee, Ernest "Fritz" Hollings (D-S.C.), who introduced legislation in March 2002 to force Silicon Valley to cooperate.

If high-tech didn't come up with some anti-copying "policeware" within one year, the draft bill said, federal government would require that every digital device include technology to stop the copying of digital movies and music. Such a mandate would be absurd and impractical, the high-tech companies countered. They lined up congressional supporters of their own, and the Hollings bill died without even a committee vote.

The entertainment executives are no longer fingering Apple or Microsoft. Instead, entertainment companies are suing Grokster for releasing "peer-to-peer" software that enables someone on the Internet to search millions of other computers for the digital songs and movies "shared" by other users.

Grokster doesn't copy anything itself, but the entertainment lawyers say it is guilty because its users abuse copyrights. By contrast, legitimate online services, like Apple's iTunes and Real Network's Rhapsody, negotiate royalties and licensing fees so that artists get their cuts. Hollywood and the recording industry are essentially saying to Grokster: It's our creative property and you need to shut down your brand of thievery.

Not so fast, reply Grokster and the electronics industry. The original Napster was nabbed for contributing to copyright infringement because it listed the names and whereabouts of unlicensed digital music files.

Grokster doesn't do that. It just releases software for individuals to use at their discretion. Echoing the "guns don't kill people" argument of those who oppose gun control, Grokster is effectively saying "peer-to-peer software doesn't steal music, people do." Hollywood calls that willful blindness.

To the average teenage music fan, Napster and Grokster may be a legal distinction without a practical difference. The recording studios estimate that about 90 percent of the files shared using Grokster are being shared illegally. Searching for a handle in the case after losing the first two rounds in lower courts, both the Recording Industry Association of America and the Motion Picture Association of America have resorted to filing lawsuits against the individual computer users, too.

The tech titans aren't worried about the teenagers and grandmothers being hauled into court. But with studios suing Grokster, the tech firms want to protect the Supreme Court's 1984 decision in Sony Corp. v. Universal City Studios.

That decision legalized Sony's analog videocassette recorder, the Betamax. At the time, the motion picture studios said that 91 percent of all the videotapes made by consumers were copied without permission. The 5-4 decision was unusual because Justice Sandra Day O'Connor switched sides late in the session, forcing the case to be reargued the following term. She eventually joined the opinion of Justice John Paul Stevens, who took vendors off the hook as long as their technology was "merely capable of substantial non-infringing uses."

It was a pro-innovation decision, and one very much on the mind of the current Supreme Court. Justice Stephen Breyer asked whether the Xerox machine, the VCR, the iPod or even the printing press could have moved forward with a more restrictive standard. He suggested "the monks had a fit when Gutenberg" invented his printing press.

"A very important part of the Sony analysis is that new information technology that benefits consumers is a presumptively good thing," says American University copyright law professor Peter Jaszi.

That's one reason the chief of the Consumer Electronics Association calls the decision "the Magna Carta for everyone who enjoys their iPods, TiVos, personal computers and electronic products." These companies see themselves as agents of capitalism's "creative destruction," vs. the status quo of Hollywood's existing means of distribution.

Back in the 1970s, Hollywood feared that the Japanese videocassette invasion would destroy theater and broadcast syndication revenues. But Valenti's rhetoric -- he said the VCR "is to the American film producer and the American public as the Boston Strangler is to the woman home alone" -- proved hyperbolic. Instead, studios adapted by creating new revenue streams like cable television and VCR rentals. Home video rentals now provide the studios with more money than box office sales.

A similar pattern happened earlier in the 20th century. The player piano, the phonograph, radio and television each forced changes in distribution. Often, Congress revised copyright laws to protect artists' royalties, but copyright holders also adapted successfully to innovations.

Digital technology, however, poses a unique challenge to copyright. The law gives creators exclusive rights to exploit their works' economic value. Authors sell manuscript rights to book publishers, for example, and publishers use copyright law to stop pirate editions that pay no royalties to publishers or authors. Before the computer revolution, copyright worked because it was relatively easy to find pirate printing presses or factories forging bootleg records or films. The inconvenience of making photocopies, or audio or video cassettes, kept copyright violations in check.

But the explosion of digital technology and the Internet has changed that equation. Digital copies are frequently higher quality than analog, and they don't degrade with each reproduction. And the Internet in all of its forms -- e-mail, the Web, peer-to-peer -- has slashed the cost of distribution. That erases one of the biggest advantages of the entertainment companies.

Can innovation be used to protect creativity? The recording industry made an attempt to control copying by designing a "serial copy management system" in conjunction with Digital Audio Tape. Under a 1992 law, audio recorders using DAT had to include this copy-protection system. These technological controls blocked individuals from using a taped copy of a song to make another copy. That angered consumers, however, and the medium never took off. Computers were exempted from the 1992 law, later enabling millions of people to "rip" compact discs into compressed digital MP3 music files on their hard drives. They loved that convenience, and they loved sharing those unprotected MP3 files.

This brings us back to the current conflict between creativity and innovation. Single-purpose devices can be retrofitted to stop copying relatively easily. Audio compact disc recorders, VCRs and cable television set-top boxes are all built with anti-copying controls designed to limit users to none or one copy of a song, movie or television program. But when Hollings proposed the same thing for general purpose computers, techies decried the constraint on their ability to program and build digital devices. It went against the tide of innovation, which was merging technologies not separating and limiting them.

This freedom to tinker is exactly what the techies fear they could lose if the Supreme Court sides with Hollywood and against Grokster. Why? Because every engineering decision and product design would be subject to legal review by entertainment industry lawyers.

Technology companies from Microsoft to Apple to Grokster say they have a better way to protect copyrighted content. It involves digitally scrambling songs, movies and video games with encryption software, like the technology used to create digital versatile discs. DVD encryption leaves much to be desired, however; it has been cracked by a Norwegian teenager who spent three years defending himself against Hollywood's lawyers.

Nonetheless, the approach has promise because it uses innovation to protect creativity, rather than using the courts to suppress innovation.

It doesn't hurt that user-friendly software like Apple's iTunes and Microsoft's Media Player stand to profit if they, too, can keep adapting to innovations and become intermediaries in a more orderly digital media marketplace.

Meanwhile, however, the entertainment industry will press forward, striving to extend the scope of copyright further into the digital world. No matter how the Supreme Court rules, we can expect the dispute to be back before Congress. When it is, Congress shouldn't forget that acting in the name of creativity could have dire consequences for innovation.

Author's e-mail: drew@drewclark.com

Drew Clark is the senior writer for the National Journal's Technology Daily, an online Web site, and covers the politics of telecommunications, media and technology at www.drewclark.com.