[...I]nnovators who want to innovate in this space can safely innovate only if they have the sign-off from last generation's dominant industries. That lesson has been taught through a series of cases that were designed and executed to teach venture capitalists a lesson. That lesson—what former Napster CEO Hank Barry calls a “nuclear pall” that has fallen over the Valley—has been learned.Interestingly, Lessig doesn't directly point a finger of blame at the RIAA in his book. Of course, it is our dysfunctional copyright laws that enable the RIAA's behavior, and this is his focus. Whereas the maximum fine for a doctor that amputates the wrong leg in an operation is $250,000, the maximum fine for each and every song you download illegally is $150,000. And so he continues:
Consider one example to make the point [....]
In 1997, Michael Roberts launched a company called MP3.com. MP3.com was keen to remake the music business. Their goal was not just to facilitate new ways to get access to content. Their goal was also to facilitate new ways to create content. Unlike the major labels, MP3.com offered creators a venue to distribute their creativity, without demanding an exclusive engagement from the creators.
To make this system work, however, MP3.com needed a reliable way to recommend music to its users. The idea behind this alternative was to leverage the revealed preferences of music listeners to recommend new artists. If you like Lyle Lovett, you're likely to enjoy Bonnie Raitt. And so on.
This idea required a simple way to gather data about user preferences. MP3.com came up with an extraordinarily clever way to gather this preference data. In January 2000, the company launched a service called my.mp3.com. Using software provided by MP3.com, a user would sign into an account and then insert into her computer a CD. The software would identify the CD, and then give the user access to that content. So, for example, if you inserted a CD by Jill Sobule, then wherever you were—at work or at home—you could get access to that music once you signed into your account. The system was therefore a kind of music-lockbox.
No doubt some could use this system to illegally copy content. But that opportunity existed with or without MP3.com. The aim of the my.mp3.com service was to give users access to their own content, and as a by-product, by seeing the content they already owned, to discover the kind of content the users liked.
To make this system function, however, MP3.com needed to copy 50,000 CDs to a server. (In principle, it could have been the user who uploaded the music, but that would have taken a great deal of time, and would have produced a product of questionable quality.) It therefore purchased 50,000 CDs from a store, and started the process of making copies of those CDs. Again, it would not serve the content from those copies to anyone except those who authenticated that they had a copy of the CD they wanted to access. So while this was 50,000 copies, it was 50,000 copies directed at giving customers something they had already bought.
Nine days after MP3.com launched its service, the five major labels, headed by the RIAA, brought a lawsuit against MP3.com. MP3.com settled with four of the five. Nine months later, a federal judge found MP3.com to have been guilty of willful infringement with respect to the fifth. Applying the law as it is, the judge imposed a fine against MP3.com of $118 million. MP3.com then settled with the remaining plaintiff, Vivendi Universal, paying over $54 million. Vivendi purchased MP3.com just about a year later.
That part of the story I have told before. Now consider its conclusion. After Vivendi purchased MP3.com, Vivendi turned around and filed a malpractice lawsuit against the lawyers who had advised [mp3.com] that they had a good faith claim that the service they wanted to offer would be considered legal under copyright law. This lawsuit alleged that it should have been obvious that the courts would find this behavior illegal; therefore, this lawsuit sought to punish any lawyer who had dared to suggest that the law was less restrictive than the labels demanded.
The clear purpose of this lawsuit (which was settled for an unspecified amount shortly after the story was no longer covered in the press) was to send an unequivocal message to lawyers advising clients in this space: It is not just your clients who might suffer if the content industry directs its guns against them. It is also you. So those of you who believe the law should be less restrictive should realize that such a view of the law will cost you and your firm dearly.
This strategy is not just limited to the lawyers. In April 2003, Universal and EMI brought a lawsuit against Hummer Winblad, the venture capital firm (VC) that had funded Napster at a certain stage of its development, its cofounder ( John Hummer), and general partner (Hank Barry). The claim here, as well, was that the VC should have recognized the right of the content industry to control how the industry should develop. They should be held personally liable for funding a company whose business turned out to be beyond the law. Here again, the aim of the lawsuit is transparent: Any VC now recognizes that if you fund a company whose business is not approved of by the dinosaurs, you are at risk not just in the marketplace, but in the courtroom as well. Your investment buys you not only a company, it also buys you a lawsuit. So extreme has the environment become that even car manufacturers are afraid of technologies that touch content. In an article in Business 2.0, Rafe Needleman describes a discussion with BMW:
"I asked why, with all the storage capacity and computer power in the car, there was no way to play MP3 files. I was told that BMW engineers in Germany had rigged a new vehicle to play MP3s via the car's built-in sound system, but that the company's marketing and legal departments weren't comfortable with pushing this forward for release stateside. Even today, no new cars are sold in the United States with bona fide MP3 players. . . ."
This is the world of the mafia—filled with “your money or your life" offers, governed in the end not by courts but by the threats that the law empowers copyright holders to exercise. It is a system that will obviously and necessarily stifle new innovation. It is hard enough to start a company. It is impossibly hard if that company is constantly threatened by litigation.
The point is not that businesses should have a right to start illegal enterprises. The point is the definition of “illegal.” The law is a mess of uncertainty. We have no good way to know how it should apply to new technologies. Yet by reversing our tradition of judicial deference, and by embracing the astonishingly high penalties that copyright law imposes, that uncertainty now yields a reality which is far more conservative than is right. If the law imposed the death penalty for parking tickets, we'd not only have fewer parking tickets, we'd also have much less driving. The same principle applies to innovation. If innovation is constantly checked by this uncertain and unlimited liability, we will have much less vibrant innovation and much less creativity.
While of course I agree fully that the law is out of whack, I also think it is wrong for companies to do evil, even if the law allows it. Just as there's something wrong with Nike using sweatshop labor, and something wrong with companies dumping toxic waste into a river, it is wrong, even evil, for RIAA to use the law as a weapon to punish grandmothers, 13-year-olds, mp3.com, venture capitalists, lawyers who don't share its interpretation of the law, and Jesse Jordan. For it is apparent that legality and morality are sometimes at odds in the modern world--especially when the RIAA itself has a hand in writing many of today's bills.
[...] This wildly punitive system of regulation will systematically stifle creativity and innovation. It will protect some industries and some creators, but it will harm industry and creativity generally. Free market and free culture depend upon vibrant competition. Yet the effect of the law today is to stifle just this kind of competition. The effect is to produce an overregulated culture, just as the effect of too much control in the market is to produce an overregulated- regulated market.
The building of a permission culture, rather than a free culture, is the first important way in which the changes I have described will burden innovation. A permission culture means a lawyer's culture—a culture in which the ability to create requires a call to your lawyer. Again, I am not antilawyer, at least when they're kept in their proper place. I am certainly not antilaw. But our profession has lost the sense of its limits. And leaders in our profession have lost an appreciation of the high costs that our profession imposes upon others. The inefficiency of the law is an embarrassment to our tradition. And while I believe our profession should therefore do everything it can to make the law more efficient, it should at least do everything it can to limit the reach of the law where the law is not doing any good. The transaction costs buried within a permission culture are enough to bury a wide range of creativity. Someone needs to do a lot of justifying to justify that result.
Oh, about Jesse Jordan. Lessig tells his story in Chapter 3:
We're glad to help you out, Jesse.
In the fall of 2002, Jesse Jordan of Oceanside, New York, enrolled as a freshman at Rensselaer Polytechnic Institute, in Troy, New York. His major at RPI was information technology. Though he is not a programmer, in October Jesse decided to begin to tinker with search engine technology that was available on the RPI network.
RPI's computer network links students, faculty, and administration to one another. It also links RPI to the Internet. Not everything available on the RPI network is available on the Internet. [...] The idea of “intranet” search engines, search engines that search within the network of a particular institution, is to provide users of that institution with better access to material from that institution. Businesses do this all the time, enabling employees to have access to material that people outside the business can't get. Universities do it as well.
These engines are enabled by the network technology itself. Microsoft, for example, has a network file system that makes it very easy for search engines tuned to that network to query the system for information about the publicly (within that network) available content.
Jesse's search engine was built to take advantage of this technology. It used Microsoft's network file system to build an index of all the files available within the RPI network.
Jesse's wasn't the first search engine built for the RPI network. Indeed, his engine was a simple modification of engines that others had built. His single most important improvement over those engines was to fix a bug within the Microsoft file-sharing system that could cause a user's computer to crash. With the engines that existed before, if you tried to access a file through a Windows browser that was on a computer that was off-line, your computer could crash. Jesse modified the system a bit to fix that problem, by adding a button that a user could click to see if the machine holding the file was still on-line.
Jesse's engine went on-line in late October. Over the following six months, he continued to tweak it to improve its functionality. By March, the system was functioning quite well. Jesse had more than one million files in his directory, including every type of content that might be on users' computers.
Thus the index his search engine produced included pictures, which students could use to put on their own Web sites; copies of notes or research; copies of information pamphlets; movie clips that students might have created; university brochures—basically anything that users of the RPI network made available in a public folder of their computer.
But the index also included music files. In fact, one quarter of the files that Jesse's search engine listed were music files. But that means, of course, that three quarters were not, and—so that this point is absolutely clear—Jesse did nothing to induce people to put music files in their public folders. He did nothing to target the search engine to these files. He was a kid tinkering with a Google-like technology at a university where he was studying information science, and hence, tinkering was the aim. Unlike Google, or Microsoft, for that matter, he made no money from this tinkering; he was not connected to any business that would make any money from this experiment. He was a kid tinkering with technology in an environment where tinkering with technology was precisely what he was supposed to do.
On April 3, 2003, Jesse was contacted by the dean of students at RPI. The dean informed Jesse that the Recording Industry Association of America, the RIAA, would be filing a lawsuit against him and three other students whom he didn't even know, two of them at other universities. A few hours later, Jesse was served with papers from the suit. As he read these papers and watched the news reports about them, he was increasingly astonished.
“It was absurd,” he told me. “I don't think I did anything wrong. . . .
I don't think there's anything wrong with the search engine that I ran or . . . what I had done to it. I mean, I hadn't modified it in any way that promoted or enhanced the work of pirates. I just modified the search engine in a way that would make it easier to use”—again, a search engine, which Jesse had not himself built, using the Windows file- sharing system, which Jesse had not himself built, to enable members of the RPI community to get access to content, which Jesse had not himself created or posted, and the vast majority of which had nothing to do with music.
But the RIAA branded Jesse a pirate. They claimed he operated a network and had therefore “willfully” violated copyright laws. They demanded that he pay them the damages for his wrong. For cases of “willful infringement,” the Copyright Act specifies something lawyers call “statutory damages.” These damages permit a copyright owner to claim $150,000 per infringement. As the RIAA alleged more than one hundred specific copyright infringements, they therefore demanded that Jesse pay them at least $15,000,000.
Similar lawsuits were brought against three other students: one other student at RPI, one at Michigan Technical University, and one at Princeton. Their situations were similar to Jesse's. Though each case was different in detail, the bottom line in each was exactly the same: huge demands for “damages” that the RIAA claimed it was entitled to. If you added up the claims, these four lawsuits were asking courts in the United States to award the plaintiffs close to $100 billion—six times the total profit of the film industry in 2001.
Jesse called his parents. They were supportive but a bit frightened. An uncle was a lawyer. He began negotiations with the RIAA. They demanded to know how much money Jesse had. Jesse had saved $12,000 from summer jobs and other employment. They demanded $12,000 to dismiss the case.
The RIAA wanted Jesse to admit to doing something wrong. He refused. They wanted him to agree to an injunction that would essentially make it impossible for him to work in many fields of technology for the rest of his life. He refused. They made him understand that this process of being sued was not going to be pleasant. (As Jesse's father recounted to me, the chief lawyer on the case, Matt Oppenheimer, told Jesse, “You don't want to pay another visit to a dentist like me.”) And throughout, the RIAA insisted it would not settle the case until it took every penny Jesse had saved.
Jesse's family was outraged at these claims. They wanted to fight. But Jesse's uncle worked to educate the family about the nature of the American legal system. Jesse could fight the RIAA. He might even win. But the cost of fighting a lawsuit like this, Jesse was told, would be at least $250,000. If he won, he would not recover that money. If he won, he would have a piece of paper saying he had won, and a piece of paper saying he and his family were bankrupt.
So Jesse faced a mafia-like choice: $250,000 and a chance at winning, or $12,000 and a settlement.
The recording industry insists this is a matter of law and morality.
Let's put the law aside for a moment and think about the morality. Where is the morality in a lawsuit like this? What is the virtue in scapegoatism? The RIAA is an extraordinarily powerful lobby. The president of the RIAA is reported to make more than $1 million a year. Artists, on the other hand, are not well paid. The average recording artist makes $45,900. There are plenty of ways for the RIAA to affect and direct policy. So where is the morality in taking money from a student for running a search engine?
On June 23, Jesse wired his savings to the lawyer working for the RIAA. The case against him was then dismissed. And with this, this kid who had tinkered a computer into a $15 million lawsuit became an activist:
"I was definitely not an activist [before]. I never really meant to be an activist. . . . [But] I've been pushed into this. In no way did I ever foresee anything like this, but I think it's just completely absurd what the RIAA has done."
Jesse's parents betray a certain pride in their reluctant activist. As his father told me, Jesse “considers himself very conservative, and so do I. . . . He's not a tree hugger. . . . I think it's bizarre that they would pick on him. But he wants to let people know that they're sending the wrong message. And he wants to correct the record.”
Just so this story has a happy ending, it is worth mentioning that the RIAA doesn't win every lawsuit. In 1998 they sued Diamond Multimedia for selling a portable MP3 player. The RIAA lost, allowing us to enjoy the iPod and other music players. Can you imagine how the world would look if they got everything they wanted? Or perhaps there is a more interesting question: what sorts of new technologies and businesses would exist if the law didn't side so eagerly with them? Until the law is changed, I suppose we'll never know.
P.S. While you can read Free Culture for free online, I highly recommend a paper copy.