TCS Daily

Digital Wrongs

By Sonia Arrison - February 27, 2003 12:00 AM

Silicon Valley's movers and shakers gathered in Santa Clara last week to debate intellectual property issues and demonstrate how laws like the Digital Millennium Copyright Act (DMCA) stifle innovation in the technology sector.

The "digital rights summit," hosted by Intel, the AEA, and, brought together a diverse group of high-profile tech executives, lawyers, and activists. "This isn't just about music and movies," said Joe Krause, co-founder of, "it affects the entire technology industry."

Krause put together a compelling panel of executives and venture capitalists to tell their stories of how the Digital Millennium Copyright Act (DMCA) has put a chill - or, worse, a stop - to their business plans. Perhaps most memorable was the case of Static Control Components, a producer of replacement toner cartridges for a number of printers, including Lexmark.

Static Control Components reverse engineered the code that instructs Lexmark's printers to print only with Lexmark cartridges so that Static Control's replacement cartridges would work. Lexmark filed a lawsuit claiming that this violates the DMCA because it "circumvents the technological measure" that the printer uses to verify the cartridge is from Lexmark.

The DMCA was meant to protect music and movies from being stolen, but as William London, Static Control's general counsel, complains, "this has nothing to do with movies or music, but solely to do with interoperability of hardware." Indeed, this case has attracted attention from many quarters, including the automotive parts industry where DMCA-protected chips could easily multiply and these types of suits could become commonplace.

Other speakers at the summit discussed how investment in new technologies often disappears because of legal fears. Hank Berry, former Napster CEO and partner with Hummer Winblad Venture Partners, said that because of the potential vulnerabilities under the DMCA, his firm recently refused to fund a new technology that would allow music streaming for cell phones. But the stories didn't stop there.

During the break, many of the attendees recounted similar tales, creating a frenetic atmosphere that harkened back to the days of the technology boom. Only this time, the energy won't go into creating new products, it will be spent fighting the unintended consequences of a law that stifles innovation in a sector that's critical for America's success. And it's not only the tech industry that suffers.

The entire economy is experiencing losses as a result of the DMCA chill. As SonicBlue's CEO Greg Ballard noted, the $3 million his company spends every quarter to defend itself against the movie studios and television companies could have been used to hire 120 new employees or make investments for new innovations. So what's the answer?

As is the case with software bugs, it's easier to see the problem than to find the solution. Music and movies should be protected from theft, but intellectual property protections shouldn't stifle innovation. Two suggestions for containing the nation's copyright expansionists were advanced, but neither proved particularly satisfying.

Stanford law professor Larry Lessig suggested instituting a program of compulsory licensing for copyrighted works, which he argues would help create more legitimate online content vendors who would then compensate intellectual property owners. "We have to buy them off," he said, "so they don't break the Internet in the interim." Presumably, if this system were in place, the DMCA's provisions wouldn't be invoked so often.

But the idea of the same government that created the DMCA taking on new responsibilities of regulating the market for IP didn't quite resonate with the crowd. And with good reason - replacing market forces with government controls has never been a good solution, especially when it comes to cutting-edge new services like streaming music or video.

Senator Ron Wyden (D-Ore.) offered a second suggestion, announcing that he will introduce a bill requiring consumer-electronics devices or media such as DVDs to be labeled with explanations of any anti-copying restrictions they contain. Wyden said he wants people to see "that the product they're about to buy has restrictions" so that the marketplace can rein in over-enthusiastic copyright holders. Given that Valley types believe that consumers are generally unaware of the restrictions that Hollywood wants to impose, this idea got a slightly better reception.

Of course, neither of these ideas invalidates the portions of the DMCA that unnecessarily stress the tech industry, but a Congress distracted by war is unlikely to pass legislation rolling back portions of the DMCA anytime soon.

Instead, the message participants took away was that the time has come to spread the word to consumers and other industry players that the DMCA has gone too far and needs to be reined in. At some point when there's enough support, Congress will be forced to act.

Sonia Arrison is director of the Center for Technology Studies at the California-based Pacific Research Institute.

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