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How Copyright Law Suppressed Innovation

Fascinating series of articles about how bumbling and aggressive assertion and use of copyright law by the music industry distorted and suppressed innovation, using the Napster situation as a case study. (One of my first articles on IP was a response to the dispute between the copyright terrorists and Napster: “In Defense of Napster and Against the Second Homesteading Rule,” LewRockwell.com (Sep. 4, 2000).) Carrier’s piece is thorough and excellent, and Masnick, as usual, hits the nail on the head. Marks, an RIAA shill, is full of it.

The original paper that kicked this off is: Michael A. Carrier, “Copyright and Innovation: The Untold Story,” Wis. L. Rev. (2012).

This led to three replies, and a response by Carrier, in the online version of the Wisconsin Law Review.

From the introduction to Carrier’s 2012 article:

PDF link Copyright and Innovation: The Untold Story

By Michael A. Carrier

Copyright has an innovation problem. Judicial decisions, private enforcement, and public dialogue ignore innovation and overemphasize the harms of copyright infringement. Just to pick one example, “piracy,” “theft,” and “rogue websites” were the focus of debate in connection with the PROTECT IP Act (PIPA) and Stop Online Piracy Act (SOPA). But such a debate ignores the effect of copyright law and enforcement on innovation. Even though innovation is the most important factor in economic growth, it is difficult to observe, especially in comparison to copyright infringement.

This Article addresses this problem. It presents the results of a groundbreaking study of 31 CEOs, company founders, and vice presidents from technology companies, the recording industry, and venture capital firms. Based on in-depth interviews, the Article offers original insights on the relationship between copyright law and innovation. It also analyzes the behavior of the record labels when confronted with the digital music revolution. And it traces innovators’ and investors’ reactions to the district court’s injunction in the case involving peer-to-peer (p2p) service Napster.

The Napster ruling presents an ideal setting for a natural experiment. As the first decision to enjoin a p2p service, it presents a crucial data point from which we can trace effects on innovation and investment. This Article concludes that the Napster decision reduced innovation and that it led to a venture capital “wasteland.” The Article also explains why the record labels reacted so sluggishly to the distribution of digital music. It points to retailers, lawyers, bonuses, and (consistent with the “Innovator’s Dilemma”) an emphasis on the short term and preservation of existing business models.

The Article also steps back to look at copyright litigation more generally. It demonstrates the debilitating effects of lawsuits and statutory damages. It gives numerous examples of the effects of personal liability. It traces the possibilities of what we have lost from the Napster decision and from copyright litigation generally. And it points to losses to innovation, venture capital, markets, licensing, and the “magic” of music.

The story of innovation in digital music is a fascinating one that has been ignored for too long. This Article aims to fill this gap, ensuring that innovation plays a role in today’s copyright debates.

As Masnick writes in his reply:

Innovation is a difficult thing to measure or spot at the moment it is occurring. There are so many moving variables, and any innovation, inevitably, unseats an incumbent of some sort, and often that incumbent fights back against innovation, sometimes making compelling arguments that the innovation will cause more harm than good. But holding back innovation is rarely an effective long-term strategy. At the moment innovation occurs, it is often derided, and rarely is it seen for the benefits that eventually emerge. Measuring it directly is equally troublesome. If Craigslist, for example, leads to the collapse of the newspaper classifieds business, do we measure that as anti-innovation, destroying a multi billion dollar business and replacing it with a hundred million dollar one? Or do we rightfully celebrate all the new things that Craigslist has enabled, and the ability for many more people to make use of such forum-based advertising, often for free, such that they are left with more money to spend elsewhere?

Because of this, innovation is often best judged in retrospect, rather than in the moment. Given a chance to look back and understand the various factors at play, we can look not just narrowly at its impact in one small area of a wider market. With time and perspective, it is often easier to view the entire market, to see the wider impact—the push and pull, and the action and reaction—and to see how innovation happened. Or didn’t happen.

Michael Carrier’s detailed and thoughtful article, “Copyright and Innovation: The Untold Story,”1 is an excellent and well-needed addition to the research and history concerning the negative impact on innovation created by the major record labels and their attack on a variety of internet attempts at innovation, starting with the successful legal attack on Napster. Carrier talks to many of the leading players in the digital music space—innovators and investors on one side, and those representing the labels on the other—and crafts a useful narrative and history highlighting just how much innovation has been held back by the legacy players in the recording industry over the past couple of decades.2 The stories within Carrier’s article have been told, repeatedly, among friends within the startup world, at conferences, and (all too frequently) at bars, lamenting the lost world of opportunity and possibility. To have it put together nicely in a well-researched article, pulling together the key findings from so many of the key players who were in the middle of it all, is an invaluable addition to the literature and understanding of how overbearing copyright laws have been a major hindrance on innovation.

As for the article by RIAA attorney Marks, Masnick responds at “RIAA: There’s Been No Innovation Stifling Here!,” Techdirt (May 30, 2013) (he also responds briefly to Picker):

Basically, the paper tries to paint a rosy picture, rewriting history left and right — where the labels were dragged kicking and screaming very, very, very slowly into the future by various tech services, often having to fight expensive and damaging legal battles. The RIAA describes this as a “success” story, one “of vigorous licensing of new models by large and small record labels, large investments in music services and related technology, and a vibrant digital market that dwarfs the growth in other media industries.

This is kind of hilarious if you actually lived through any of this. Every new service got threatened or sued. The “authorized” services from the RIAA were purposely designed to be awful, expensive and fragmented. Yes, the music industry has moved forward, by inches, over the past 15 years, but never willingly and never with the kind of speed and embracing of innovation that was necessary. Marks also, somewhat ridiculously, pretends that Carrier ignores the content side of the equation. He did not. He repeatedly made it clear from the various interviews that everyone understood the importance of content, which is why they all desperately wanted the recording industry to move forward with them, which it resisted at every turn.”

As Carrier writes in his response article, quoting Masnick:

Rather than embracing new business models that could raise all boats, large copyright holders have often cried that the sky is falling.103 Masnick synthesizes that “nearly every innovation that the entertainment industry has warned would destroy it due to piracy”—including “radio, television, cable television, the VCR, the DVR, the MP3 player, and Internet video”—has “later turned out to be a huge boost to the bottom line.”

The same story played out in the digital music arena. As one respondent explained, “the labels ‘fought cassettes, eight-track tapes before that,’ and CDs.” They “fought every one of those things every step of the way until later they adopted them.”106 And “[i]ronically . . . the labels ‘made billions more by reselling the same music that was on vinyl’ on eight-tracks and then cassettes and CDs.”

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To the extent possible under law, Stephan Kinsella has waived all copyright and related or neighboring rights to C4SIF. This work is published from: United States. In the event the CC0 license is unenforceable a  Creative Commons License Creative Commons Attribution 3.0 License is hereby granted.