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A Tale of Two Hearings

Yesterday, the House Subcommittee on Courts, Intellectual Property, and the Internet held a fascinating hearing on “Innovation in America: The Role of Technology.” This hearing was the matching bookend to last week’s hearing on “Innovation in America: The Role of Copyrights.”  The two hearings–part of the Subcommittee’s comprehensive review of copyright law–were less about innovation and more about business models. The witnesses at least week’s hearings represented entities that made money from copyrighted works the old-fashioned way: by selling copies or licensing rights. The business models of Getty Images, media photographers, and Yep Roc records are all based on the enforcement of copyrights.

In contrast, the witnesses at this week’s hearing represented entities that employed alternative models to profit from the creation of works. Indiegogo provides a crowd-sourcing platform that allows fans to support artists and their projects directly (while taking a 4 percent cut).  Rackspace developed with NASA an open source cloud computing system, OpenStack. Rackspace makes the OpenStack code and documentation freely available, and derives revenue from providing services built on OpenStack. SparkFun Electronics manufactures and sells 450 open source electronics components. For any component, SparkFun expects to have three months exclusivity before the component is copied by a competitor. Thereafter, SparkFun competes by improving the component and providing better customer support.  It incorporates innovations developed by competitors, and then adds its own. It maintains its market share through constant innovation rather than assertion of IP rights.

The policy message from the juxtaposition of these two hearings is clear. While copyright is important, it is not the only means of incentivizing the creation and distribution of works. Legislative changes to preserve the viability of the traditional copyright business model should not come at the expense of the technology that enables the new models: the Internet. Amendments that have the effect of increasing the exposure of providers of Internet services to copyright infringement liability would inevitably result in a less open Internet. To reduce their exposure, Internet service providers would engage in monitoring, filtering, and charging more for their services. This, in turn, would have an adverse affect on business models that rely on a low cost, ubiquitous Internet.

Some of the Subcommittee members did not understand this message. They thought the witnesses in the second hearing were calling for the weakening of the copyright system. While these Subcommittee members recognized (some perhaps for the first time) the value of open distribution models, they believed that the witnesses were seeking to impose open approaches on rights-holders and deny them the choice of using the traditional model.

In fact, the witnesses stated repeatedly that they supported rights-holders’ freedom of choice. Advocates of open models are not opposed to copyright; rather, they are opposed to the government favoring the traditional copyright business model over other models. This bias manifests itself in many ways.  Perhaps the clearest is the Congress in the PRO-IP Act (note the name) establishing the Office of the Intellectual Property Enforcement Coordinator in the White House.  The U.S. Trade Representative for decades has promoted the adoption of stronger copyright enforcement regimes overseas, while Congress has repeatedly lengthened copyright term, increased statutory damages, and adopted a host of other changes favorable to copyright owners.

Congress and the Executive branch also constantly call for more copyright education, which typically means teaching consumers about the penalties for infringement and artists about how to better enforce their rights. Indeed, at yesterday’s hearing, several members asked the Rackspace witness about how small rights-holders could better use the DMCA to remove infringing content stored on Rackspace servers. These members missed the point made by the Indiegogo and SparkFun witnesses that most individual creators may well be better off financially pursing open distribution models rather than the traditional copyright model. The government, at the urging of large media companies, has been educating artists about copyright enforcement, when it probably should have been encouraging them to explore alternative means of generating revenue.

Fortunately, the government’s bias is starting to change. In the Trans-Pacific Partnership Agreement negotiations, USTR has proposed language promoting the adoption of copyright exceptions. The Department of Commerce Green Paper on Copyright Policy, Creativity, and Innovation in the Digital Economy, released earlier this week, stressed the importance of a balanced copyright framework (including fair use) and recognized that via the Internet, “creators of all sizes can reach a broad audience without going through traditional intermediaries.”  The federal government is expanding public access to the results of federal funded research, thereby diminishing the subsidization of commercial publishers.   The structure of the IP Subcommittee’s hearings, giving alternative models equal time to the traditional model, reflects the growing awareness of the importance of these new models.

At the same, we still have a long way to go. Some Subcommittee members clearly do not see how current policy favors the traditional model, perhaps to the detriment of individual creators, and the danger of amendments that would further entrench that model. The Department of Commerce Green Paper devoted just a single short paragraph to open access and Creative Commons licensing, and mentioned open source software in passing in one footnote.  The U.S. government opposed reference to fair use—a fundamental feature of U.S. copyright law—in the recently adopted Marrakesh Treaty for the Print Disabled. Billions of federal and state dollars go to the purchasing of textbooks produced by commercial publishers, instead of the creation of open educational resources that would be more cost-effective, more current, and more adaptable to different educational needs.

Comprehensive copyright reform requires a sound understanding of the importance of copyright relative to other business models for incentivizing creativity.  Yesterday’s hearing was an important first step towards the Subcommittee gaining that understanding.

Jonathan Band is a DC-based attorney whose clients include Internet companies, providers of information technology, universities, library associations, and CCIA.

Intellectual Property

The Internet enables the free exchange of ideas and content that, in turn, promote creativity, commerce, and innovation. However, a balanced approach to copyright, trademarks, and patents is critical to this creative and entrepreneurial spirit the Internet has fostered. Consequently, it is our belief that the intellectual property system should encourage innovation, while not impeding new business models and open-source developments.