Copyright, Piracy and Fair Use in the Networked Age a Cato Policy Analysis

New Internet-based technologies appear to threaten the ability of copyright owners to collect revenues for their intellectual creations, as epitomized by the recent public trials and tribulations experienced by Napster. As a response, new legislation against pirating and new technologies to protect intellectual products have arisen. These new technologies and counter-technologies have each attracted attention and analysis, sometimes bordering on the apocalyptic, from competing camps. The basic issue, whether technologies that enhance the ability to create unauthorized copying are destructive to the principles of copyright, is not a new one, however. Technologies that make it easier to pirate copyrighted materials have undergone economic examination for over two decades. Prior analysis, and prior experience, has indicated that the previous generations of copying technologies have not had dire consequences for copyright owners. This paper, after examining a history of previous copying technologies, examines the question as to whether new Internet copying technologies are actually likely to be different from the prior generations of copying technologies in being likely to destroy the value of the intellectual property rights, and concludes that the answer is yes, unless consumers are extremely law abiding. It then examines that evidence that has been put forward to support a claim that Napster was destructive of the revenues of CD industry, and concludes that the evidence does not support such a finding. I then explain why it is that the negative impacts of Napster were unlikely to have been felt at the time these examinations were undertaken. Finally, the analysis examines the impact of a possible market-based solution to this potential problem, based on new anti-piracy technologies known as digital rights management. This technology not only promises to make copying harder, but also allows the copyright owner to charge tiny micropayments for various degrees of use of the product. This extra control by copyright owners over the usage of the copyrighted material has set off a firestorm of controversy by individuals concerned that traditional 'fair-use' of a product will disappear and further claiming that digital rights management will lead to economic inefficiency. I show that digital rights management, contrary to these claims, does not eliminate fair use and is likely to enhance economic efficiency. Nevertheless, attempts by government to force the adoption of anti-copying technology appear misguided