Submission to the US Trade

Representative
Special 301 review, 2011
(docket USTR-2010-0037)

by Andrew Norton

Summary

As a researcher working extensively in matters relating to copyright infringement via the internet, I am
in a position to effectively gauge the impacts of said technologies on industries, through following the
details of the implementations, and their 'availability'. Having accurate direct observations and
knowledge of the 'problems' allows me to quantify them with a precision non-specialists can't match,
and others do not wish to approach.

The results of my research and investigations over the past year, have concluded that there is little-to-
no threat to the US economy from foreign nations – either directly, or indirectly through the non-
enforcement of laws – via the internet. However, there is an increasing threat to the US economy due to
actions, or the threat of actions, by either the US Government or major lobby groups, on foreign
countries. Such actions benefit the short term profit gain, at the expense of long term growth, while also
generating enormous ill-will, disinclining potential US trade.

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Background

The issues around copyright and patents can only be adequately discussed when the subject is
unambiguously understood. In the majority of my dealings on this topic, one of the most misunderstood
things about copyright and patents (which, when combined with trademarks, comprise the very
inaccurately named 'intellectual property', and which I will refer to as 'C/P/T') is that it's an inalienable
right, that must be protected at all costs. The basis for copyright and patent in the US is set down in the
US Constitution, in Article I, Section 8, Clause 8.

To promote the progress of science and the useful arts, by securing for limited times to
authors and Inventors the exclusive rights to their respective writings and discoveries..

That statement is often taken to assume that extreme enforcement of essentially limitless exclusive
rights in order to keep the profitability of those works is the goal. To that end, submissions like this
allow for 'confidential' submissions, and laws like the Copyright Term Extension Act of 1998, the
DMCA, the PRO IP Act and others emphasize it. However, those acts are, through increasing
enforcement, and increasing the potential punishment for anyone that does violate it, it provides a vast
disincentive to innovate, or create; in effect, such laws are acting counter to their very constitutional
intent.

International Markets

One of the greatest strengths of the internet is that it allows anyone to communicate, market, and ship
digital data internationally, with little cost. Previously, to ship 10,000 units of a music track from the
UK to the US would have required a massive investment to produce the physical copies, then a large
cost to ship them, dealing with all the paperwork that entails, then actually sell them. With the internet,
a low-cost server (or even, to start with, a simple home internet connection) can be used in the same
way for new creators to market and sell their products worldwide.

Now, the issue is that many countries have followed the US lead in creating C/P/T laws. Several
countries have even abandoned the traditional practice of judicial oversight in these laws (the UK's
Digital Economy Act springs to mind). These laws can be used to dis encourage the purchase of
products from overseas.

All it requires is a allegation made to an ISP, with little-to-no proof needed. After multiple allegations,
the user is cut off, or severely throttled. Now, completely fabricated complaints may be dealt with
through an appeals system, but there is no requirement that the person doing the complaining is
actually the rights holder. A company or trade association may make a claim about works that are being
distributed completely legitimately, by the rights holder. This would then push consumers away from
making purchases that would positively impact the US economy, presumably onto local purchases.

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While it might seem like a farfetched notion, it's already happened countless times already, from
associations like the IFPI1 or record labels like Warner Bros falsely claiming2 copyrights. Additionally,
there has been massive interest in the last year over 'speculative invoicing' methods, that were first
started in the UK several years ago by Davenport Lyons – the sole law firm still performing these
actions has been dealt3 with harshly for their actions, but the negative impact and publicity has already
happened.

Industry lobbying

There is doubtlessly going to be extensive lobbying and other submissions from members of various
industries speaking of the extensive losses that C/P/T infringement has caused. Unfortunately for them,
to date there has been precisely ZERO evidence to back any of this up.

The theory behind it goes 'a download is a lost sale, because people who download, do not then buy'.
This theory has been shot down countless times in practice, but two examples underscore this better
than anything else.

Books.
Libraries have been a part of American life for decades. They are a central, government funded
resource where people can go and read any book they want without paying for it. If the lobby groups
are to be believed, this sort of wholesale, widespread FREE use of copyrighted materials would kill the
book industry. However, public libraries have now been around for approximately 160 years, and the
publishing industry is still going strong. The 'download equals a lost sale' would only work if 'a library
rental equals a lost sale' as well.

There is additional evidence against it too. In 2000, the US book publisher Baen started a Free Library.
In 2000, author Eric Flint wrote4 that the free availability of digital format books has INCREASED the
physical sales of the same books. A point he reiterated in person to me just 4 months ago, at Atlanta's
Dragon*Con. In fact, Baen now often binds CD's into books with digital copies of the authors other
works, and allows people to distribute them non-commercially (an online copy of the CD's can be
found at TheFifthImperium5, a website that also previews snippets of upcoming books). Despite a
digital copy being legally available for free on the day of release, the latest such book was on the New
York Times bestseller list for 5 weeks, quite an achievement for a hard-scifi book in a series, with
minimal mass-market promotion.

The impact is more significant when the changes in technology mean that ebooks are becoming
popular, as android, kindle, nook, and Apple iOS platforms are becoming more popular for ebook
reading.

1 http://torrentfreak.com/travis-defends-fan-from-ifpi-threats-080731/
2 http://torrentfreak.com/copyright-drama-prevents-artist-from-sharing-music-on-myspace-091007/
3 http://www.bbc.co.uk/news/technology-12253746
4 http://baen.com/library/
5 http://baencd.thefifthimperium.com/

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So, a contemporary look at an emerging technology has shown a positive impact on sales. How about a
historical view?

VCR
In the late 1970s, the video cassette recorder was released to the general public. In the early 1980's,
strong debate was ongoing about the legality of them. One of the most famous points of this debate,
was the testimony of then MPAA head, Jack Valenti, who likened the VCR to the Boston Strangler
when testifying before Congress in 1982. His concerns were for the ability to advertise, for the
importation of the devices, and the impact on the movie industry and television due to time-shifting and
home recording. Had Mr Valenti and others got their way, VCRs would have been outlawed in the US,
but legal elsewhere. As it was, his protestations were ignored, and all of his prophesies of doom failed
to happen.

In fact, by 1987, the movie industry was obtaining approximately 55% of it's revenues from the new
medium of VHS tapes. Put another way, by being forced to adopt and adapt to a technology that they
claimed was going to kill their industry, they actually managed to double their income in just five
years. VCR's led directly to DVDs, and also to PVRs. Could the trade implications of only limited
television channels and limited overseas sales of their programs be less mentioned when it comes to
reflecting on infringing technology by those companies? No it could not. In fact, while the MPAA was
claiming a loss of $6.1B for 2005 in their LEK study6, Blockbuster alone had revenues7 of $5.86B.
That's almost six billion dollars to the US economy that the enforcement-heavy desires of the lobbyists
would have removed from the economy, and that's just from ONE company in the field.

Of course the same companies earlier worried about cable TV, and radio before that.
Unlike the story of the boy that cried wolf, though, everyone ignored them the first few times they
cried, and now they're coming to see, but there's still no wolf.

Industry Clean Hands

There is a principle in law called 'clean hands', where you can't really complain about someone acting
against you if you were already in the wrong. A prime example would be attacking a burglar. Any
assault and battery on the burglar is offset by his lack of 'clean hands' in that he had already broken in
to someones property.

Likewise, in dealings with copyright, many of these lobby groups have a lack of clean hands. The
location of Hollywood is due to patent infringement. Film studios moved west at the start of the 20th
century, to avoid paying patent royalties to Edison. More importantly, major record labels and industry
associations finally settled a massive copyright dispute in Canada last month. Using the damages
calculations that lobby groups routinely use in their claims, studies and submissions, they had
committed over $6 Billion dollars worth of infringement in Canada alone, 'pirating' over 300,000 tracks

6 http://www.ipi.org/IPI/IPIPublications.nsf/PublicationLookupExecutiveSummary/A6EB1EAC4310AF6F862571F7007C
B6AF
7 http://investor.blockbuster.com/phoenix.zhtml?c=99383&p=irol-newsArticle&ID=1326744&highlight=

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over the last 20+ years, for commercial gain. Last month, they agreed8 to pay just $45Million in
damages, to settle a lawsuit.

This more than anything should show the value of ACTUAL infringement. For intentional, commercial
use, it works out to about $150 per track, and it took over 2 years to get to it. The music industry
clearly doesn't see things as a major problem. It is especially ironic then that previous 301 reports have
mentioned Canada, as the biggest violators of C/P/T law in Canada, have been US companies.

Conclusion

Through excessive enforcement of rights, there is a real risk of undermining the true reason for
copyrights and patents. The emphasis must be on progress of the whole, rather than protecting the
short-term profitability of a few industries. If an industry is strong, is led by able people and has a
sound business plan, and most importantly, has a product that is both desirable to the public and sold to
the public in the way the public want, then there can be little need to worry. If a product is overpriced,
or with too many restrictions on the end user, then sales will drop and customers will turn to other
suppliers.

The job of the USTR is to ensure that countries laws are applied equally to products regardless of their
origin. What it should not be doing, is trying to subvert sovereign countries and their laws, to benefit
the desires of a few large US companies, even to the disadvantage of smaller US companies and the
industry as a whole, and attempts to do so are only diminishing the reputation of the US in those
countries.

8 http://www.newswire.ca/en/releases/archive/January2011/10/c9214.html

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