The Evolution of Private Intellectual Property Regimes in CyberspaceÊ
By Jason Soon
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The challenge to formal intellectual property law posed by digital technology and cyberspace arises at different levels. All intellectual works1 which currently exist at the level of ÔatomsÕ, whether literary text, audiovisual works or a combination, can be digitised and converted into ÔbitsÕ (Negroponte 1995).

Digital works can be easily replicated and transmitted (Negroponte 1995). They can be accessed by multiple users. Finally, they can be easily manipulated and modified. The latter characteristic illustrates vividly BarlowÕs contention that copyright is a relic of the predigital age when distinctions between text, music and audiovisual works made sense (Barlow 1996). These distinctions break down as different works can be combined with each other in manifold ways. They are no longer embodied in mediums with different physical characteristics.

When digital works are put on the Internet, this magnifies the possibilities for their transmission and mutation in ways uncontemplated and unmonitored by their creators. The Internet, being an unprecedented form of many-to-many communication, with its possibilities for anonymity (e.g. through anonymous remailing) will make it the bane of creators who expect levels of intellectual property protection in cyberspace similar to what they can get in the ÔrealÕ world.

Creators may choose not to release their works into cyberspace. To the extent that this is successful, it means loss of marketing possibilities and hence forsaking possibly higher revenues. However this strategy is likely to be unsuccessful. The proliferation of copying technology will allow more people to digitise works without the consent or knowledge of their creators.

However, there are emerging technological and marketing solutions to this issue which can both enhance the capacity of creators to profit from their works and, more radically, possibly render the formal apparatus of intellectual property law obsolete. The purpose of this article is to survey these developments and their implications for the future flourishing of the information economy.

New institutional technologies for the digital economy

Self-help systems

A self-help system enables a content provider to transmit content to potential users while preventing access without payment (Dam 1999). Most plans for implementing a self-help system involve Ôtrusted systemsÕ. A trusted system follows rules governing the terms, conditions and fees for using digital works. Users who want to access works under a trusted systems regime will need to subscribe to their own trusted systems.

The users access the providerÕs work through their trusted systems on terms and conditions negotiated via the two partiesÕ systems. Using cryptographic methods, the two systems would send each other verification messages as a security check to ensure that they are both authorised systems rather than impostors (Stefik 1997). After negotiation is completed, the work will be unavailable on different terms. Thus if the bargain did not include allowing the user to make a copy, attempting to copy will yield an error message.

The trusted system concept can be extended to a range of operations desired to be carried out on works. For instance, a provider could assign different digital property rights language to distinguish between viewing rights and printing rights. For musical works, a user could choose between paying a fractional amount everytime he plays the work or a higher fee to play it as often as he likes. Trusted systems can encompass automatic billing even of fractional amounts to make micropayments convenient. Of course, trusted systems only prevent copying of perfect digital originals. A printed work can still be photocopied and played music can still be recorded on audiocasette. However, these copies will decay with additional copying, unlike digital copies.

There are currently many examples of companies selling digital self-help systems. IBMÕs InfoMarket.html service, for example, consists of three elements: i) Plug Õn Publish toolkits which give publishers tools to help them securely package their content, set up billing and accounting mechanisms and customise how content is retrieved and displayed; ii) Cryptolopes or encrypted envelopes which store content being distributed to users; iii) a clearing-house which manages content access and payment processing.

The InfoMarket.html service allows users to search for and retrieve all forms of content. Users who want to buy specific content will get the contents in a cryptolope along with marketing details and a brief abstract. The user pays for a private key to open the cryptolope and the contents within can only be used in accordance with the terms of the abstract.

The user who transmits the work to others, rather than being a cause of lower royalties, becomes a marketing department of the creator (IBM 1995). This is because the work can be made to revert into the cryptolope when not being used. Revenue is made from interested recipients who pay for decryption during use.

Superdistribution

At its highest potential, self-help systems support superdistribution. Superdistribution was a concept originally invented for the software market. It builds on the insight that it is easier to make software count how many times it has been used than how many times it has been copied (Kelly 1995). As noted above, free for all copying is also encouraged as a marketing tool. Brad Cox (1994) also envisages that superdistribution can create an unprecedented environment for collaboration in software development.

The original concept required participating users to equip their computers with an S box, a protected module containing microprocessors and a real time clock (Mori and Kawahara 1990).

The S box has a metering program which enforces terms set by each participating software vendor for executing that vendorÕs products and usage monitoring of the relevant software. A payment file is generated from all this information. These files are encrypted and sent to a collection agency which processes the files, including the required payments, and send these to the providers. A clearinghouse keeps track of all fund transfers. The clock in the S box suspends all services other than transmission of payment files on default of payment. Transmission of details can also be offline (e.g., by sending over a memory card at regular intervals).

Digital libraries

Another grand conception aiming to encourage intellectual collaboration is the Xanadu digital library concept.

The Xanadu digital library is envisaged to be self-financing because authors will pay fees for renting space in Xanadu in which to place their works (Samuelson and Glushko 1993). They will do so because they will get royalties everytime someone accesses their works (e.g. reads their text). Royalties will be set on a per byte basis to minimise administrative costs.

Users who are not yet authors can earn revenues by creating derivative works, including writing commentaries on preexisting works or creating new versions of those works. This will be allowed because one condition of membership is that the author must consent to allowing others to make derivative works of whatever they have stored. This consent will in turn be induced by three incentives: the reciprocal right to make derivative works of other authorsÕ creations; the royalties that will be earned everytime a derivative work is made of their work; royalties made everytime their work is part of a hypertext link.

The second incentive arises because of the technological nature of Xanadu. The derivative work will be connected to the original underlying work such that bytes from both documents will be called up everytime a user calls up the derivative document. As for the third incentive, everytime users traverse a set of links, the link author gets royalties, as do the authors of documents on both ends of the link.

The Xanadu proposal has been criticised because of its inadequate incentives for producing high quality works (Samuelson and Glushko 1993). However, these factors can be refined at the margins in the light of trial and error over time. What would make this even likelier is if the system were able to compare itself to other digital library conceptions and this is possible. Digital self-help technology lends itself to the possibility of experimenting with a diversity of private copyright regimes. The results could be compared and contrasted, and out of this crucible of experimentation, better regimes for creating and distributing intellectual creations could be forged.

Restrictive contracts and the end of fair use?

The self-help systems discussed previously have prompted concern amongst some copyright scholars (see Cohen 1998; Samuelson 1996).

It is argued that the true consent of the user to such contracts is problematic because the userÕs ability to signify consent is limited to clicking or not clicking on whatever options the provider makes available (Cohen 1998). It is alleged that no real bargaining is involved in this process.

ÊHowever, for the outcomes resulting from these contractual arrangements to be so restrictive of user choices as to warrant legislative tampering, one must postulate a level of market failure and tendencies towards monopolisation in the cybereconomy unprecedented in the real economy. This is highly unlikely.

The charge levelled against such contractual arrangements, that they cannot be responsive to choice because of lack of actual bargaining, could also be levelled at all mass market contracts of adhesion (Friedman 1998). It is based on a fallacy.

Bargaining is not a costless good. We can make our preferences known either through voice or exit. In the economic sphere, voice translates to bargaining and exit translates to competition i.e. moving to another seller. Getting a better bargain must thus not be equated with engaging in actual bargaining which is only one means to that end.

As long as options for exit are not foreclosed: i.e., as long as there are no persistent tendencies towards monopolisation or abuse of market power, producers in the cybereconomy will have sufficient incentives to produce bundles of goods with the characteristics consumers prefer, spurred on by competition and reputational incentives (Friedman 1998). Where these conditions are absent, the proper response is the application of competition law.

Fair use provisions allow for any unauthorised use of a copyrighted work which does not displace potential licensing fees. Obviously such provisions would not be applicable to the outcomes of private contracts mediated by digital self-help systems (Cohen 1998).

Some copyright scholars are concerned with this and advocate imposing fair use restrictions on contractual outcomes. There are several problems with this proposal on a conceptual basis because it rests on the argument that: i) the balance of stakeholder interests arrived at by current copyright regimes is optimal; ii) the emergence of contractual arrangements shifts the balance towards content providers. While the first assumption is questionable, we can accept it and still proceed to reject the conclusions of fair use advocates by questioning the second assumption.

Fair use does not equal free use (Bell 1998). Costs are incurred by users even when they are exercising their fair use rights. These costs take the form of other opportunities foregone (in terms of time and other resources) in the act of searching for specific articles or quotes, browsing publications, making photocopies, etc.

While the loss of fair use may imply yet another foregone opportunity in terms of additional financial costs incurred by the user, there may be a quid pro quo due to lower costs incurred in searching, copying etc, for what was previously ÔfreeÕ (in the financial sense) fair use material, because of the possibilities of electronic distribution (Bell 1998).

ÊBits can flow more easily than atoms into homes and offices, automated search procedures may be instituted, text can be easily moved around through cut and paste etc. Thus it is not decisive that the loss of fair use means the balance of benefits has shifted to content providers at the expense of users.

Intellectual value approaches

Dyson (1997) argues that in practical terms intellectual property law is as good as dead and that creators should get used to this. Instead of relying on concepts derived from the law to make money from their works, they should think up new business models which allow them to leverage their investments in intellectual creations. This is likely to consist of distributing intellectual property free in order to sell related services and relationships.

While there are some new strategies behind this approach, there are other preexisting marketing models from the ÔrealÕ world which are applicable here.

Subscription-based models are a prevalent practice among content providers. Subscription involves paying for reliable delivery of content from a trusted source, and thus it relies a lot on reputation. Subscription can be through various meansøe.g., delivery of newsletters by email or restricted access to content on a website.

Works can also be used to promote real world performances and events. Famous consultants may give away free and updated works on their websites which also keep users informed about consultations for which entry fees are charged. The free content serves the purpose of arousing interest and keeping up a following. The reason this strategy might work is because ideas which are accessible for free on the Internet may be of little practical value until details are properly implemented. Tacit knowledge is as important as formal knowledge.

Product support has been a strategy for leveraging intellectual property long employed by software companies. As Dyson argues, the line between product and service is a very thin one in software. Many product companies may give away their software for free and make money from technical support, implementation and upgrades.

Free intellectual property can be used for facilitating the formation of virtual communities (Dyson 1997). These communities may be the site of lucrative business opportunities. Content on a Web site can be used to attract people of particular interests who are willing to pay to enter virtual communities which provide infrastructural and other support services devoted to these special interests. These may include putting people with these interests in touch with each other through chatrooms, messageboards and conferences. Members might be required to consent to the provider selling their email addresses or demographics to advertisers and marketers.

An intriguing possibility is the increase in the number of sponsored projects. Dyson points to this trend in the software industry with customers getting together to fund the development of software they need or customised versions of generic software for their workplaces. The boundary between service and product breaks down here. As Dyson (1997) puts it, creators will be paid for working rather than for their works.

It is possible to extend this model into the arts. Client-patron relationships in the arts used to be important and some persist to this day. The difference with the emerging client-patron relationships on the Internet is that the patrons are more likely to be ordinary peopleøthis arises from the competition for attention which Dyson sees the Internet with its varieties of content as fostering. This puts all the bargaining advantage on the side of the prospective viewer/user.

Advertising is still a prevalent strategy on the Net. A provider usually gives away intellectual property to attract visitors to its site and sells advertising space on the site to others. This principle underlies a lot of free email accounts and webspace, periodicals and search engines.

The attention economyÊ

The proliferation of content on the Internet is an accompaniment of its low barriers to entry. The content, however, is not necessarily of professional quality. This may change as the advent of digital self-help systems makes it possible for more people to launch a full-time or part-time professional career as an ÔartistÕ whether in literature, graphics, video, music or a combination of these.

Instead of trying to attract the attention of recording labels, for example, aspiring musicians need only incur the cost of composing, performing and making a mastercopy and the cost of engaging the services of a musical database/trusted system services provider to electronically distribute the resulting work (Volokh 1995). If technology proceeds apace, consumers may be able to buy blank recording mediums in which they store downloaded music or alternatively store them in the hard drives of their computer/digital home entertainment units. As discussed previously, the music would be delivered in a cryptolope and the user would need to buy a private key to open it.

Yet another possibility is that the cost of continuously replaying the work could be made so low that the demand for pirated music would drop substantially and there would be no need for protection measures after downloading. Is this possible? Consider the possibly lower advertising and marketing costs via electronic distribution and Internet promotions of works versus the cost of physical distribution, cost of recording mediums (remembering that the user would incur this cost and it might fall further); and the elimination of an intermediary (record company) with the exception of the musical database service which also provides automatic billing services and revenue collection. This would allow the artist to charge however low a mark-up she desires to compete while still making a profit (Volokh 1995).

Consider too, the economics of being able to sell individual songs while making a respectable return. This may become common practice as the user grows accustomed to downloading chosen songs into a personalised album of his own compilation. This opportunity exists now but it may be more lucrative in the cybereconomy because lower prices would lead to a bigger payoff in terms of additional customers won simply because of the size of the worldwide Internet user population (still growing) and the instant transmission of price changes.

These tendencies are more marked in the case of writing and journalism where the costs of production are considerably lower. Volokh (1995) cites the example of a daily column writer who charges each subscriber 1 cent a day for the column offering his unique political perspective on issues. If there are 100,000 willing subscribers worldwide (and this is by no means infeasible given the increase in the number of Internet users), he stands to make more than $300,000 a year.

Electronic distribution facilitated by automated billing and digital self-help systems will increase the number of people seeking other peopleÕs attention on the Internet. Seeking attention will be the new way of making money. The competition for attention may become more intense if Dyson (1997) is correct in her predictions that some may choose to give away their work for free in order to promote other things. Other attention seekers will become personal content editors and programmers offering subscription services to users who have little free time and are willing to pay someone else to search for and forward whatever things on the Net are likely to interest them.Ê

Conclusion

The death-knell of intellectual property rights on the Internet proclaimed by Barlow (1996) may be premature. New technologies may enhance rather than weaken creatorsÕ control over their works. But these technologies and the principles on which they are based, may also render intellectual property law obsolete and replace it with a diversity of private regimes enforced by digital self-help systems which can electronically and remotely enforce terms and conditions.

While the implications of these concepts and technologies work their way through at a slower level, new business models which use the free distribution of intellectual works to sell services and relationships may further undermine the applicability of the ÔpropertyÕ metaphor in cyberspace. The real source of value in the future cybereconomy, where every consumer also has the potential to be an entrepreneur, may be something as ethereal as ÔattentionÕ.

References

Barlow, J.P. 1996, ÔSelling Wine without Bottles: The Economy of Mind on the Global Net,Õ in P. Ludlow (ed.), High Noon on the Electronic Frontier: Conceptual Issues in Cyberspace, MIT Press, Cambridge, Mass.

Bell, T.W. 1998, ÔFair Use vs Fared Use: The impact of automated rights management on copyrightÕs fair use doctrine,Õ North Carolina Law Review 76.

Cohen, J.E. 1998, ÔCopyright and the jurisprudence of self-help,Õ Berkeley Technology Law Journal 13.

Cox, B. 1994, ÔSuperdistribution?Õ Wired, September, available at www.virtualschool.edu/cox/CoxWired.html

Dam, K.W. 1999, ÔSelf help in the digital jungle,Õ Journal of Legal Studies 28.

Dyson, E. 1997, Release 2.0: A design for living in the digital age, Viking, London.

Friedman, D. 1998, ÔIn defence of private orderings,Õ Berkeley Technology Law Journal 13.

Goldhaber, M.H. 1997, ÔThe Attention Economy: The Natural Economy of the Net,Õ available at www.well.com/user/mgoldh/natecnet.html

IBM 1995, ÔIBM introduces ground-breaking rights management and secure payment technology to bring commercial content online,Õ Press Release, available at www.virtualschool.edu/mon/ElectronicProperty/IBMInfoMarket.html

Kelly, K. 1995, Out of Control: The new biology of machines, Fourth Estate, London.

Mori, R. and M. Kawahara 1990, ÔSuperdistribution: The Concept and the Architecture,Õ available at www.virtualschool.edu/mori/ElectronicProperty/MoriSuperdist.html

Negroponte, N. 1995, Being Digital, Vintage Books, New York.

RightMarket.com website, available at www.rightsmarket.com

Samuelson, P. 1996, ÔThe Copyright Grab,Õ Wired, January.

Samuelson, P. and R.J. Glushko 1993, ÔIntellectual property rights for digital library and hypertext publishing systems,Õ Harvard Journal of Law and Technology 6.

Schlachter, E. 1997, ÔThe intellectual property renaissance in cyberspace: Why copyright law could be unimportant on the Internet,Õ Berkeley Technology Law Journal 12.

Stefik, M. 1997, ÔShifting the possible: how trusted systems and digital property rights challenge us to rethink digital publishing,Õ Berkeley Technology Law Journal 12.

Volokh, E. 1995, ÔCheap speech and what it will do,Õ Yale Law Journal 104.

Author

Jason Soon is  Assistant Editor of Policy. A longer version of this article with extended discussion of cultural implications is available at www.geocities.com/Athens/Ithaca/2564/ipnet.htm

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