Dean Hansen visited my Ethics class today for a discussion about copyright in the digital age (which is also the topic of my independent study). We discussed a progression of cases that worked through the courts and helped establish current law: from Cherry Auction to Napster to Grokster to YouTube.

The central issue we discussed was whether third-parties bear any responsibility in copyright infringement situations. It is a difficult question with no clear answer, but since most MBA’s tend to fall in the “all property rights are sacred” camp, it is worth articulating the other side.

Property rights for intellectual property can be extended too far. Media companies that control content often react slowly to advances in technology in order to protect their natural monopolies. So when new companies challenge the structure of the industry (say, by introducing file sharing software), they serve as a natural check and balance, forcing existing industry players to innovate and evolve (and keep prices in check).

Example from class: Dean Hansen suggested that one reason cable prices in NYC are kept in check is that stealing cable in NYC is relatively easy. While that doesn’t make stealing moral, it does reveal an economic effect of black markets (one which most users would agree is beneficial).

By the same argument, black markets created by Napster and YouTube have had a significant economic effect…one that is changing the world for the better. Napster (and technologies like it) revolutionized the way we listen to music, and paved the way for one of the best inventions of all time: the iPod. YouTube (and technologies like it) are finally freeing video content from the television. “Legitimate” services that sprang out of these black markets (think iTunes) are positive for consumers and society.

Does this end (iTunes) justify the means (copyright infringement at Napster)?

It is very hard to answer “yes” with a completely clean conscience. I see 3 possible justifications for software that makes copyright infringement so easy:

1. when there are significant legitimate uses (such as time-shifting with a VCR, or sharing of non-copyrighted works)
2. when one protests the underlying ownership rights
3. when the copyright holder is extremely unreasonable about making content available

Argument 1 brings up age-old issues about technology and responsibility. Guns are a technology that have “illegitimate” uses (murder…in case it isn’t obvious) but also legitimate uses (hunting, protection, balance of power, etc.). Technologies like P2P open up exciting (legitimate) possibilities for anyone interested in a truly free and open marketplaces of ideas, but is often used for illegitimate purposes like copyright infringement.

Argument 2 is much more difficult to defend. Without ownership rights, there is little incentive for individuals to do much of anything. Our entire society is founded on the idea of sacred property. But is intangible property the same as tangible property? Some would argue that in a truly open society that values freedom of speech, there should be no restrictions whatsoever.

Finally, Argument 3, my thesis: in order to “promote progress” we need to maintain a balance between free expression and property rights. Sometimes that means that disruptive innovations will emerge which create black markets that threaten existing copyright holders. These markets are not necessarily “evil.” The Internet is a world-changing technology and the media companies had little incentive to maximize that technology for consumers. So entrepreneurs innovated.

So how should existing media companies respond to the threat of Napster and YouTube?

Certainly a legal strategy is part of it. But new entrants will constantly replicate these technologies. So figure out how to innovate to provide more value to consumers.

Consumers want to watch high-quality content online, whenever we want. We want it to be easy. In some cases, we want to interact with the content. So figure out where the market is heading, provide value, and come up with a business model. A copyright is only one form of protection…it was never intended to hold back innovation and provide a perpetuity to copyright holders.