*[This article was first published by Knowledge@Wharton  on February 1, 2012]
Upraising social question about the gap between personal liberty in the internet and the interests of industries against web piracy.
Web piracy has long been a polarizing issue that has sparked plenty of debate, but few solutions. The matter came to a head recently as a result of the Stop Online Piracy Act (SOPA) and the Protect IP Act (PIPA), bills aimed at curbing online trafficking in copyrighted content and counterfeit goods. After several websites, including Wikipedia, protested by going dark, both pieces of legislation were shelved. Meanwhile, proponents of the two bills -- News Corp. CEO Rupert Murdoch among them -- rallied in support.
But the core issues addressed in the bills remain unresolved. The overriding question is how to regulate the Internet enough to protect intellectual property, while not violating individual freedoms and curbing innovation or job creation. "Content producers," including movie studios and record labels, backed SOPA and PIPA because they say online piracy eats into their revenues, stifles innovation and puts American jobs at risk. They also called for stiffer policing of the Internet for potential terrorist activity. But "content intermediaries," such as Google, Wikipedia and Facebook argue that a "closed" Internet threatens personal liberties and would be far more damaging to innovation and jobs.
Sponsors of SOPA and PIPA called for a more thorough public debate on the issue, and Wharton legal studies and business ethics professor Kevin Werbach  predicts that the next clash will be more sharply focused. "SOPA and PIPA may be dead, but the pressure to find new ways to go after online copyright infringement isn't going away." For example, the Motion Picture Association of America's angry reaction when some legislators withdrew support for SOPA "suggests that Hollywood intends to ramp up the political muscle, instead of looking for better business solutions," he notes.
As further evidence that the debate will remain in the public eye, Werbach points to the Anti-Counterfeiting Trade Agreement, which establishes international standards for intellectual property rights enforcement and will come before the U.S. Senate at some point for ratification. (The European Union signed the pact last October.) In addition, the Online Protection and Enforcement of Digital Trade (OPEN) Act, which was proposed as an alternative to SOPA or PIPA, is still up for debate in Congress. The bill's sponsors say the OPEN Act protects artists' rights like SOPA and PIPA aimed to do, but avoids calling for new Internet policing powers and protects legitimate Internet businesses and innovation.
According to Kartik Hosanagar , a Wharton professor of operations and information management, both Internet companies and copyright owners are to blame for the current impasse on how best to combat online piracy. As an example, he points to an experiment he ran in the summer of 2009. Two students uploaded a few copyrighted files to various video-sharing sites to study their rates of detection of infringement, and to compare how those rates varied across different websites. If the files were able to be successfully uploaded, the students deleted the material within a week to prevent additional downloads or views of the content. Of the four popular video-sharing websites selected, detection rates (based on the number of times the infringing files were identified and removed) ranged between 32% and 87%.
"Some firms are exerting greater effort in detecting infringement," Hosanagar notes. He also found that the website with the highest detection rate is owned by "a major media company with a significant content library," which, he says, explains why it was more stringent than the others in its enforcement. "Some websites, especially the ones with detection rates under 50%, are lagging behind and seem to be under-investing in better filtering and fingerprinting technology," he adds. "Clearly, content owners are upset."
Many of the defenders of the legislation are established players competing with new, technology-driven business models that did not exist 25 years ago, setting up a "generational battle," says Andrea Matwyshyn , a Wharton professor of legal studies and business ethics. SOPA advocates suggest that lax online piracy regulation hurts job creation, but Matwyshyn notes that "new generation" technology firms like Google and Facebook are contributing at least as much employment as older-generation, pro-SOPA companies like Sony, NBC or News Corp. "If anything, I would argue that the jobs cut toward the new economy players," she states. "As we shift towards a knowledge-based economy, it is only through innovation and crafting services the public doesn't even know it needs yet that we will generate new lines of revenue and new sources of employment."
The Unresolved Issues of Web Regulation
SOPA and PIPA had their roots in the shortcomings of the Digital Millennium Copyright Act (DMCA), which was established in the pre-Web 2.0 era in 1998. The Act protects Internet service providers and others with so-called "safe harbor" provisions that essentially limit a party's liability on the premise that it acted in good faith or in compliance with standards. When the DMCA was enacted, its architects didn't factor in the advent of user-generated content and video-sharing sites that came into being later, Hosanagar points out. Many user-generated content sites have been able to use the DMCA to escape some of the piracy lawsuits that have been aimed their way. Many content producers feel under-protected by the DMCA, which prompted calls for additional legislation.
But PIPA and SOPA had "too broad a scope and gave too much power to media companies that can claim infringement or piracy and bring down sites in little or no time," Hosanagar says. Had the legislation become law, sites found to carry pirated content could have been removed from the domain name system and from search engine indexes. "Although such sites would have continued to exist, it would have become very hard for users to reach them under PIPA or SOPA," he adds. "That is unfair to content providers, who will effectively be labeled guilty until they can prove their innocence."
The proposed new laws may also be unfair to sites powered by user-generated-content, such as Wikipedia and YouTube, Hosanagar notes. "Even the best filtering software cannot be 100% accurate, so some infringing content will get through." Further, SOPA would have regulated search engines and Internet service providers significantly by allowing a regulatory body to determine which websites they could index, he adds.
Before passing new legislation, Matwyshyn suggests that policymakers need to evaluate the effectiveness of laws currently on the books. They should also explore whether regulations, such as those governing banking, could be applied to achieve the desired effect, especially for cutting off funding to sites suspected of piracy. "Some countries aren't interested in enforcing our impression of IP laws," she says. "But when it comes to money flows, you sometimes only require cooperation from one point in the ... chain to cut off the flow of money."
Much could be achieved by fixing gaps in existing laws like the DMCA, Matwyshyn notes. For example, she finds fault in a provision that criminalizes not the actual act of copying, but that of merely removing copyright protection that would enable an act of copying. "Any time you attach criminal penalties to conduct, we need to do so very carefully, particularly when we talk about monetary harm," she says. She adds that the DMCA's notice and takedown provisions for websites are "sometimes used too aggressively and in ways that are not necessarily balanced." Content on a site is sometimes removed simply because the host doesn't want to become embroiled in a legal fight.
How Businesses Can Build Checks on Piracy
Werbach says the DMCA should be weakened, not strengthened. "It causes a great deal of confusion and chilling effects on innovation," he notes. The top challenge today is to establish the "safe harbor" concept of the DMCA more firmly internationally, he adds. "The DMCA and the Communications Act in the U.S. embody an important deal: Sites must be responsible in dealing with illegal material that is identified to them, and in return they are not forced into the impossible position of monitoring everything or facing liability," he says. "That model isn't yet enshrined in the law everywhere in the world."
Existing laws to protect intellectual property and check web piracy seem to be working in many cases, Werbach notes. As evidence, he points to two developments that occurred just as the fight over SOPA and PIPA reached a crescendo: First, a day before the bills were withdrawn, the U.S. government shut down Megaupload, a Hong Kong-based file sharing site, for profiting from the spread of huge amounts of copyrighted music, movies and software. Megaupload was one of the largest of the foreign sites suspected of piracy that supporters said SOPA and PIPA were necessary to combat, he says. The second development was Apple's announcement of "an astonishing" $13.1 billion quarterly profit, which Werbach views as a testimony that copyright laws are working. "Three quarters of Apple's business today is the iPhone and iPad, which are based entirely on licensed legal distribution of digital content: music, video and software apps."
Rather than heavy regulation and legal recourse, "simple business model changes" could be employed to curb Internet piracy, according to Hosanagar. Threatened by the rise in sharing of pirated material on peer-to-peer sites like Napster, the Recording Industry Association of America embarked on an extensive campaign of legal action against the sites and their users. "The saving grace for the industry was not the lawsuits, but ultimately the introduction of novel services that better addressed user needs, such as iTunes and Spotify," he points out.
Hosanagar calls for efforts to explore "a softer solution," and details how that could come about: The crux of the problem between user-generated content sites and content owners is that the sites' efforts to filter content and the quality of their fingerprinting software are private information, he notes. "Most media firms believe that video-sharing sites are not doing enough, and most video-sharing sites claim that they are doing what they can." If the industry could agree on some minimal standards for detection, websites could then annually share details of their performance and have it independently audited, Hosanagar suggests. In that setting, the auditor would review a video-sharing website's detection software and even conduct unannounced random testing to see that it is being used to its fullest capabilities. The auditor would then certify an annual report on the website's efforts to prevent copyright infringement. "The audit process has failed in instances, but the system largely works and allows financial markets to survive," Hosanagar says.
A broader issue than any new regulation "is the effort to establish a new global governance regime for the Internet that would give governments more power," Werbach says. He notes that some content owners support this because they believe it will allow stronger controls against copyright infringement. "However, the same techniques, if mandated by governments and incorporated into the basic technology of the Internet, could be used to restrict free speech and limit opportunities for innovation," he says. "We may see the emergence of an unholy alliance between certain private interests and restrictive governments that could quash the openness that makes the Internet so extraordinary."
*[This article was first published by Knowledge@Wharton  on February 1, 2012]
The views expressed in this article are the author's own and do not necessarily reflect Fair Observer’s editorial policy.