I haven’t exactly avoided irony in these posts, but a couple developments in the past week just take the cake and (almost) deserve no further comment. Yet, I will comment.
The first is the RIAA’s assertion, in its suit against P2P service Limewire, that it is entitled to $75 trillion in damages, based on the statutory maximum $150,000 in damages applied to every infringing act. Judge Kimba Wood, who had earlier supported the RIAA’s contention that Limewire was “inducing” copyright infringement, had the good sense to call the claim “absurd.” $75 trillion, as Sarah Purewal at PC World notes, is about $15 trillion more than global GDP. I’m not going to get into the problems of current statutory damage practices here, but will note the broader dynamic. From Chapter 1:
Enforcement is, at all levels, a selective practice that picks and chooses targets from the ocean of infringing activity. This is inevitable in a context in which scarce enforcement resources confront ubiquitous piracy and is a source of many of the structural problems in its application. Enforcement, under these circumstances, has a strongly arbitrary character. At its worst, it is theatrical, politicized, and a tool of competitive advantage among businesses.
The counterpart to raid-based enforcement is the push for spectacular punishments in the handful of cases that do result in convictions. The punishment phase in such cases is often treated as an occasion for public education rather than proportional justice. High statutory penalties for individual acts of infringement in many countries mean that nearly any case can result in crushing penalties. In the United States, Joel Tenenbaum and Jammie Thomas-Rasset were sued by the RIAA for trivially minor acts of file sharing and fined $675,000 and $1.92 million, respectively. In Russia, a school principal, Aleksandr Ponosov, faced five years in prison when police discovered infringing software on twelve school computers in 2006. Cases against low-level suppliers or commercial intermediaries increasingly result in criminal charges and are periodically turned into media events by the industry groups themselves. In South Africa, the 2005 case against Johannesburg vendor Marcus Mocke became such an event. Mocke faced eight years in prison after the police seized four hundred pirated DVDs and PlayStation games in his home.
Whether such publicity does more good than harm for the industry enforcement effort is a matter of debate. Most observers view the Ponosov, Tenenbaum, and Thomas-Rasset cases as public-relations disasters for industry—with the former catalyzing a major open-source software movement in Russia and the latter two grounded in a mass-lawsuit strategy that has since been disavowed by all the major industry groups, including the RIAA. Although infringement is routinely found in such cases, the push for disproportionate penalties has made adjudication very difficult. The charges against Ponosov were eventually dismissed. Thomas-Rasset’s penalty was dramatically reduced by the judge (and then raised again in a retrial). Mocke received a fine rather than a prison sentence, which was later suspended. None of these penalties, so far, has been applied. None provide much evidence of achieving the “deterrent” penalty standard required by TRIPS—and if the continued prevalence of piracy is the criterion, then no countries meet the standard.
It’s hard to see a $75 trillion claim outside such theatrical purposes–though equally hard to see it as effective theater (much less effective legal strategy). But I’m sure these guys are playing out some strategy rather than a collective delusion about damages. Right?
The other development is Microsoft’s effort to pass a state law in Washington that would allow MS to bring companies into US court for damages related to the use of pirated software by other companies in their supply chain. How would you like that, US businesses with, say, Chinese suppliers? (The BSA estimates unlicensed Chinese software use at around 80%.) The potential expansion of liability here (and corresponding opportunity for enforcement shakedowns) is truly enormous, and about as likely to hold up as the $75 trillion claim. Maybe it’s worth revisiting the role of piracy in developing world software markets to provide some context for this strategy. Chapter 1 again:
For near-monopolies such as Microsoft in the operating systems and office software markets, network effects reinforce market power and increase the value of their products. Lock-in effects, in turn, ensure that customers are less likely to switch to competitors. As BSA piracy figures indicate, these dynamics in emerging economies are primarily (and sometimes overwhelmingly) a function of pirated-software adoption, not legal adoption. Piracy, in effect, has allowed the major vendors to dominate low- and middle-income markets (or, as they develop, market segments within them) that they have little financial incentive to serve. Perhaps most important for market-dominating firms, piracy acts as a barrier to entry for competition, especially “free” open-source alternatives that have no upfront licensing costs….
Enforcement representatives interviewed for this project generally disagreed with this view of how software markets work and held to the notion that piracy is first and foremost a loss of revenue and a disincentive for investment—both foreign and local. We call this elective blindness because the relationship between piracy and network effects appears to be well understood elsewhere in these firms—including among such industry leaders as Bill Gates, who has referred repeatedly to the importance of piracy in securing market share and undercutting Linux adoption in China. As Microsoft executive Jeff Raikes observed: “In the long run the fundamental asset is the installed base of people who are using our products. What you hope to do over time is convert them to licensing the software” (Mondok 2007).
The major vendors have done just that in the past decade in the institutional sectors of emerging markets, through a combination of price discrimination and enforcement. This strategy has focused on computer manufacturers and vendors, large businesses, school systems, and other public-sector institutions because they combine two things the software companies like—relatively high ability to pay and vulnerability to enforcement—with two things that they don’t like but must confront: sufficient market and/or political power to extract pricing concessions and sufficient technological capacity to make credible threats of open-source adoption….
The acceptability and even optimality of this approach can be weighed against the various alternatives available to business software vendors. All the major companies could adopt stronger online authentication measures, making it more difficult to use and maintain pirated software. All of them could create obstacles to the over-installation of licensed copies within businesses, which is routinely cited as the most prevalent form of infringement. But strong versions of these options go unexercised for a variety of reasons, including fear of alienating paying customers, fragmenting the installed-code base (which could increase security risks for licensed users), and diminishing the other positive network effects of widespread use….
Credible threats of open-source software adoption in Brazil, Russia, India, South Africa, and many other countries also place a sharp upper bound on business software enforcement strategies. Once again, the logic is simple but rarely acknowledged: the most likely consequence of the widespread enforcement of licenses in Russia or China would be the widespread adoption of open-source alternatives….
In the end, with growth rates around 30% and high-value network effects structuring key software markets, we see no strong evidence that there are any real losses to market leaders from business software piracy. But the enforcement effort does play an important role in defining the boundaries of vendor institutional-licensing strategies. (p.56)
Teeing up a bunch of deep-pocketed US corporate targets makes nominal business sense in this context, though its likely actual effect would be to just make the enforcement regime more arbitrarily punitive–and probably shift a handful of businesses to open source. But maybe we can make lemonade out of lemons here: why not go further and demand the right to enforce US minimum wage laws on those supply chains? Maybe there’s a new international supply chain liability principle that could do some good here.