Transcript of the Debate

Polley McClure, Cornell Vice President of Information Technologies:

Welcome to "The Download Debate Strikes Back." The session tonight is sponsored jointly by The Student Assembly, The Dean of Students' Office, and The Computer Policy and the Law Program at Cornell. The purpose of this session tonight is for all of us to learn more about and sort out the complex issues surrounding digital music, movies, copyright and filesharing. I want to say thank you to the sponsors for supporting this session. Thanks to all of you for turning out tonight and engaging with us in the discussion and the topic. I'd also like to say a special thanks to our guests and presenters who appear on the stage for their trip to Ithaca and engagement on the topic. I'd like to say that this event is being streamed live on the Internet and say a special welcome to our Internet participants out there. Just a reminder that those of you not present in this room can submit questions by e-mail. Just send those by e-mail to tbm3 (That's Tom Boy Mac) @cornell.edu. They will be read into the record and hopefully answered.

It's my great pleasure to introduce Joseph Rudnick whose brainchild this event is. Thank you, Joseph, for an excellent job in pulling this all together. It really promises to be an excellent program. Joseph. [Applause]

Joseph Rudnick, Cornell Student Assembly:

Thank you very much. In the past year the ongoing debate surrounding filesharing digital and copyright and intellectual property rights has reached the doorstep of our nation's highest court and hit home to college students across the country, with thousands of lawsuits putting student music and movie enthusiasts on a state of alert and moving us all to want to better understand the issue at hand. It is in keeping in mind the need to educate and empower students with the information required to make informed decisions in securing digital music that the Student Assembly sought to organize this forum on digital copyright with The Office of the Dean of Students and The University Computer Policy and Law Program. This is part two of our three-part series on freedom with responsibility and it is our sincere hope that tonight we may break ground in seeking to look forward to solutions that will lessen the controversy and allow all involved parties the ability to legally and morally enjoy the creative work of artists of all kinds. To do this we have, in my opinion, assembled the finest panel of experts and academics to ever gather on a college campus.

Tonight we welcome to Cornell as part of our panel first, Fritz Attaway. Mr. Attaway is the executive vice president for government relations and Washington General Counsel for the Motion Picture Association of America. The MPAA is an assembly of seven of the world's largest producers and distributors of films, TV programs, and home video entertainment. In this capacity and reporting directly to the president and CEO of the MPAA, Mr. Attaway manages all federal and world wide public policy activities of the Association, including communications, copyright and international trade matters of concern to all member companies. Having received his Juris Doctor from the University of Chicago where he was awarded a national honor scholarship, Mr. Attaway is also a member of the Advisory Committee on International Communications and Information Policy of the US State Department.

Second, we have Alec French as Senior Counsel, Government Relations for NBC Universal. Mr. French participates in the development of NBC Universal policy on issues concerning intellectual property, trade, telecommunications, and broadcast issues. Mr. French is also responsible for advocating the positions of NBC Universal before the federal government and various industry groups. Prior to his role in NBC Universal, Mr. French served for five years as minority counsel to the House Judiciary Subcommittee on Courts, the Internet, and Intellectual Property, the subcommittee that oversees all copyright, trademark, and patent laws, along with the administration and rules of the US federal courts. Mr. French received his Bachelor of Arts from Duke University and his Juris Doctor from Georgetown University.

Next, Avery Kotler is the Senior Director Business and Legal Affairs at Napster. Mr. Kotler is a Cornell alumnus and received his JD from Georgetown Law. Following Law school, Mr. Kotler went to a major New York law firm where he helped found a new department dedicated to servicing emerging companies and technologies. He then went to work at Pressplay, a joint venture of Sony music and Universal music group. In 2001 Pressplay launched the first legitimate online music service, a precursor to the current crop of players.

Following Pressplay's acquisition, Mr. Kotler helped to launch the new Napster where he is today. In his current role, Mr. Kotler negotiates Napster's business, technical and content agreements. Mr. Kotler has also played a key role in developing Napster's University initiative including the current Cornell relationship that we enjoy here on our campus, of which he is particularly proud.

Fred von Lohmann is a senior staff attorney with the Electronic Frontier Foundation and specializes in intellectual property issues. Mr. von Lohmann seeks to educate policymakers regarding the proper bounds between intellectual property protection and the public interest and fair use, free expression and innovation. Most recently Mr. von Lohmann was heavily involved in the MGM v. Grokster case that was argued before the Supreme Court last month. He has already successfully represented Streamcast Networks, the developers of the Morpheus software, in a case on appeal before the ninth circuit. In 2004 Mr. von Lohmann was named one of 2004's 100 most influential lawyers in California by the Daily Journal and has appeared on CNN, CNBC, Good Morning America, The O'Reilly Factor and has also been featured extensively in leading news publications. Mr. von Lohmann received both his undergraduate and law degree from Stanford University.

Next, Cary Sherman is the president of the Recording Industry Association of America, a trade group of more than 350 member companies responsible for creating, manufacturing, and distributing 90% of all legitimate sound recordings sold in the United States. As president, Mr. Sherman represents the interests of the $12 billion US sound recording industry by coordinating the industry's legal, policy, and business objectives. The national Journal has described Mr. Sherman as an intellectual property guru and perhaps that is because he is also a graduate of Cornell University and Harvard Law school.

Finally, Siva Vaidhyanathan is a cultural historian and media scholar who currently serves as an assistant professor of culture and communication at New York University. Interestingly enough Mr. Vaidhyanathan engaged in the study of copyright through his love of music and has went on to publish the acclaimed book Copyright and Copy Wrongs: a Popular History of Copyright Law and has also written for the New York Times Magazine, MSNBC.com, salon.com and the Chronicle of Higher Education and has also appeared on National Public Radio and ABC's Nightline. Mr. Vaidhyanathan received a Ph.D. in American studies from the University of Texas at Austin.

That is our panel tonight and now it is my distinct privilege to introduce our moderator for the evening, Kent Hubbell, the Robert W. and Elizabeth C. Staley, Dean of Students and professor of architecture at Cornell University. In his capacity as Dean of Students, Mr. Hubbell is responsible for new student programs, student support, student activities, fraternity and sorority affairs, international students, and the oversight of the student union. Having received his Bachelor of Architecture degree from Cornell University, and a Master of Fine Arts degree in sculpture from Yale University, Mr. Hubbell served two years in the Peace Corps as an architect designing and building dispensaries, schools, and small hospitals in Micronesia. Mr. Hubbell is also a licensed architect and was president of Chrysalis Corporations Architects until 1984 when he formed K. L. Hubbell Architects. He is especially well-known in the area of fabric structures having completed a 5000 seat covered riverfront theater in Detroit and a Metro transit Park and Ride facility in Seattle. Before coming to Cornell, Mr. Hubbell was a professor of architecture and chairman of the architecture program at the University of Michigan and has also taught at Yale University. Ladies and gentlemen it is my pleasure to now introduce to you Dean of Students, Kent Hubbell. [Applause]

Kent Hubbell, Cornell Dean of Students:

Well thanks, Joe. Joe Rudnick has done a fantastic job of organizing this on behalf of the Student Assembly, and the Student Assembly is likewise to be congratulated for doing what Cornell students do best -- basically take the initiative around issues that are of extreme importance to themselves and to Cornell. Not least of course, I am referring to the whole business of filesharing, the p-to-p problem that we face currently. Admittedly there's a certain edge to our meeting this evening. Since last night the RIAA and the MPAA filed lawsuits at 18 schools to students for illegal filesharing. The RIAA said the 18 schools include Boston University, Carnegie Mellon University, Columbia, Drexel, Georgia Institute of Technology, Harvard, MIT, Michigan State, New York University, Ohio State, Princeton, Rensselaer Polytechnic Institute, Rochester Institute of Technology, Berkeley, U. Cal San Diego, UMass Amherst, University of Pittsburgh, University of Southern California. The MPAA sued students at Carnegie Mellon University, the University of Texas, Columbia, Georgia Tech, Rensselaer, the University of Oklahoma, the University of Rochester, Boston University, the University of Ohio at Cincinnati, the University of Ohio at Columbus, Ohio State University, and the University of Massachusetts Amherst. So, it seems as though the business of illegal filesharing has taken a different turn. We didn't know this when we organized this meeting and put it on the 14th, but I guess timing is everything.

So on behalf of the Cornell community, let me thank you for your willingness to participate and join us in this forum on digital downloading. That includes both panelists, the audience, and those of you who are out there on the Internet. As you know, Cornell is in the midst of a year-long digital music service pilot, in which Napster 2 has been offered free of charge to all students on the Ithaca campus. This has been an initiative led by students in the interests of enriching their college experience, recognizing the fundamental importance of music in their lives. Next fall, the Cornell Student Assembly will decide if the program should be continued. Of course, it's also been the occasion to examine the complex issues related to the downloading of music and movies from the Web. This forum will play an important role in educating our community about the appropriate use of intellectual property. Indeed, many of our most gifted students, in fact we have lots of them here, will need the protection afforded by copyright for their own work. While the debate is often characterized as one of establishing a new balance between incentive and innovation, it is also a matter of creating new relationships between artists and their audience, through the use of digital technology.

So, for the rules of engagement. In late March MGM versus Grokster was heard by the US Supreme Court. In this case, entertainment companies brought suit against the developers of the Grokster software product, which facilitates sharing of copywritten materials online. The arguments presented by these parties in this case clearly articulated the salient issues and what is at stake for those concerned. The court will render its opinion sometime later this spring, most likely in June, ending this hiatus, if you will, and opening a new chapter in the continuing saga of intellectual property law.

When the dust settles, however, there remains the compelling need for practical solutions that will afford a proper balance between incentive and innovation. We, who are the sponsors of this forum, invite the participants, the panel, and you in the audience, to propose and discuss practical solutions that would create a durable, fruitful, and legal relationship between those who create, enjoy, and profit from digital intellectual property.

So with that, I would like to invite the panel to present three no more than five minutes of information about their position with respect to this issue. Then after that we will begin with a series of questions starting with a few that I have, and then broadening out into the audience, and then to those of you who are with us on the Internet. So let me begin with Siva who is nearest me and we'll work right down the row here in hopes that within a half an hour or so, we will have a clear kind of disclosure of the various positions that this group takes with regard to this important issue.

Siva Vaidhyanathan, New York University:

Thank you, Kent. I'm very excited that we have such a lively opportunity to have a discussion about copyright, about each of our relationships to the copyright system. It's a complicated system, it's often an arcane system. It's not easy to translate into talking points, although I think we'll tend to try and reduce it to that on occasion. But five years ago, if we got together around the table, we wouldn't have had an audience like you to listen to us. In other words, it took massive filesharing to bring this issue into the public consciousness to this extent. For better or worse, I think that's ultimately going to benefit us along the way. I commend Cornell for making this a subject of student discussions, instead of making it a behind-the-door policy discussion among administrators and technocrats. This becomes a subject of deep discussion on the levels of ethics, on the levels of economics, on the levels of legality among the student body at large.

That's a vast improvement and that's something that could not have happened five years ago and certainly did not happen in the 90s when most of us could see that there was some sort of storm brewing. We weren't sure what the storm was actually going to look like. Back then, I hate to say, copyright was boring. Maybe you think it's boring now. We all thought it was kind of interesting, you know, you've sort of gotten on the same wavelength as us. Copyright is everything now. Because everything is in circulation. Because everything is available for sale or for free in some form. The terms of that deal are really what we are talking about. What are going to be the price points? What are going to be the modes of distribution? What are going to be the limitations on what you to with your own culture?

So my entry into this discussion actually comes in there. What do we mean by culture? What do we mean by being cultural? How do we act as cultural citizens? What powers and rights would we have as cultural creators and contributors, more than simply passive consumers? I'm offended by the notion that this discussion should happen on a one dimensional or two-dimensional level. It isn't about what we download. It isn't about what we listened to in the privacy of our own homes or our own heads. It's about how we share music, how we act as cultural beings, how we build upon the cultural products around us. How we comment on them, how we make them our own and how we distribute them. All of those are part of this question. The technological changes that we have witnessed in the last five years speak to each of those things.

Now I'm reminded of a friend of mine from college. Well, he was a friend in college but now he's too important now actually to return my calls or e-mails. Robert Rodriguez, the director. He's done Spy Kids, he's done Sin City. He's done all these amazing things. I knew him back when he was just a cartoonist. But he was not just a cartoonist, obviously, he had amazing skills. He also had an amazing videotape library. He had every movie copied in VHS and Beta on his wall in his apartment. He had the language of film, the dictionary of the language of film spelled out for him, so he could be a self taught student of the language and history of film. So when you see Sin City you see so many elements of that sort of access to this vast library of film. Now Robert Rodriguez grew up in San Antonio, Texas at a moment when somebody in San Antonio, Texas could have access to that kind of library. That's an amazing, amazing phenomenon because of the magnetic tape revolution, which I actually think is much more culturally significant than the digital revolution. Compare that to what it took a generation earlier to become a filmmaker with that deep sense of history. Martin Scorsese was lucky enough to grow up on the Lower East Side of New York so he had access to houses that would actually show films from the 30s and 40s. But across America it wasn't that easy. If you happen to go to a university like this you might be able to see the great films from the 30s and 40s on Friday and Saturday nights, but to actually be able to tap into the library in the way you wanted, to be able to pick and choose and make copies, that was something that Robert Rodríguez had going for him. That's how he entered the filmmaking business at the most democratic place. By spending a few thousand bucks, by maxing out his credit cards, and by using these democratic technologies that were available to him in the 80s and 90s, mostly videotape.

We should all be very grateful that the Supreme Court decided in 1984 that our own manipulation of magnetic videotape was legal. That was a five to four decision, we almost lost the ability to build our own libraries of videotapes. The Supreme Court is now considering how to revise that case, whether to revise that case, whether the next generation of filmmakers will have many more limitations on access to the language of film. We don't know if the Supreme Court is going to prevent the next Robert Rodríguez from coming online the same way the last one did. I hope not.

Kent Hubbell:

Thank you, Siva. [Applause] Fritz?

Fritz Attaway, Motion Picture Association of America:

Will we each have three to five minutes in order to get back on schedule, I have 30 seconds, so I'm going to have to move along.

Kent Hubbell:

The moderator's dispensation will give you three to five, after all, moderation in all things.

Fritz Attaway:

We just had an absolutely delightful dinner and we had a wonderful conversation, I did, with Siva and Fred. It's very difficult to be mean to them after such a nice dinner. But I'm going to do my best to do that! [Laughter] Just a couple points I'd like to make to you. One is that the entertainment industry is not anti-technology. Anyone that has seen a recent motion picture has got to appreciate the technology that goes in to making a motion picture today. It's phenomenal. We use technology not only to make motion pictures, but to distribute them. The DVD has been the most widely accepted consumer electronics device in history and a tremendous economic boon to both the consumer electronics industry and the motion picture industry. It's fabulous! But we do live in the real world where the laws of economics apply and a major studio motion picture today costs approximately $100 million to produce and distribute. Somehow that investment has to be recouped. The best way of recouping that investment is to get as many people as possible to pay a little bit to view the movie. That's what we're in the business of doing, getting our movies out before audiences who pay something for the privilege of viewing that movie.

Now free ridership is a great idea for the individual who downloads a movie on the Internet and doesn't pay anything. For that individual, it's a great deal. But think of a larger society. For every freerider, it means in order for that movie to recoup its investment, someone else has to pay a little more, either at the box office, or for the price of a DVD or for the cost of downloading a movie on Movielink. Free ridership is not good for society and what we are trying to do in the Grokster case is to cut down on the amount of free ridership by not outlawing technology. We have no problem with p-to-p. It's a great technology. We do have a problem with business models that use infringement as a basis of making money. That's what Grokster does. We are trying to shut down business models that are based on infringing activity. We are not trying to stifle technology. A lot of people think that it's a bad thing to shoplift a DVD at Blockbuster but it's not a bad thing to download a movie on the Internet. But there's really no difference in terms of the economics of the film industry. The master print of the film costs may be $50 - $130,000. Each additional copy is negligible. But somehow we've got to cover the cost of producing and distributing that movie. The only way we can do it is to get a large number of people to pay something for the privilege of viewing it. That's basically what we're trying to do. People who think that there's no cost to getting movies for free need to rethink that because there is a cost. There's the cost to everyone else that has to pay more in order to continue the supply of motion pictures that everyone wants to see.

[Applause]

Kent Hubbell:

Thank you. Avery?

Avery Kotler, Napster:

Let me say what a pleasure it is to be back at Cornell, after being a student here, in this capacity and to be on the panel like this. I work at Napster in legal and business affairs. Let me tell you what that means. I'm a lawyer but I've actually never litigated case in my life. While, when I was a law firm I took a case pro bono for the death penalty client and we lost it and that was really it for me and litigation. [Laughter]

Fritz Attaway:

Not to mention your client... [Laughter]

Avery Kotler:

He wasn't a pleasant fellow, nonetheless I felt bad. What I do do here is make deals. That's what the business affairs part of my job is. I enter into the contract and business relationships that Napster needs to create a legal legitimate music service that you guys can enjoy and I know a lot of you have. What does that mean? On the technology side we do deals with tons of companies to build a really robust backend that lets you get the file that you want when you want it. And make sure the file is clean and that doesn't have a virus, doesn't come with will any spyware. Make sure, more importantly that we are reporting back to all of the rights holders who have a stake in the file that you downloaded. There are a lot of them. There's musicians, there are record labels who promote the musicians, there are songwriters who are different sometimes from the people who are recording the song. A lot of people don't know that. They have their own representatives. So there's actually a ton of backend work that goes in to the music that you download from Napster. Hopefully soon, movies as well. And we have to do all those. We have to build the technology and we have to enter into the marketing relationships. Relationships with people like Cornell. So I guess what I'm here to do, I think a lot of people here tonight will give you a lot of legal positions on what should be what way under the law and try to moralize a bit about certain decisions that you might make. I will try and avoid that. I think my role here should be to give you the practical perspective of what it is like to do business in this environment and to try and build ultimately what I think everyone on this panel is trying to get to, which is a legitimate viable place for you to get content legally and to compensate the people who created it.

I've never sat on a panel with Siva but I did talk extensively with Fred once and I know that that's where he wants to get. At the end of the day, that's what we're trying to do. I think it's really important that you guys know that. And not just Napster, i-tunes and Rhapsody and Musicnet and M oka TV has something coming out. There are a lot of people out there trying to do this. This is where I take issue with some people on the panel and people who just say, well yeah these sites in these business models aren't perfect. So maybe we should just be using this free kind of system that's out there. I hate to call it stealing, but it's something close to it. You're getting something for nothing and are not really compensating the person who created it. So most people recognize that it's wrong, but say, "well this is really easy now. It's here. A lot of people are doing it, so .. and it will push people so maybe it's even good."

What I see is a lot of rationalizing going on there that might have made sense to some degree a few years ago when you didn't have sites out like what we're doing and what all of our competitors are doing. What AOL and Yahoo and tons of others and XM and Sirius and tons of other people who are now working with the record labels in the movie studios to get content to you. Maybe when the first Napster came out, everybody needed a little kick in the behind to get things going. But there are a ton of options out there now and were working really hard to make them really good.

I'll just end up by saying that I'm particularly proud of what we've done over here at Cornell and I want to share some numbers about how successful it's been. Just so you know, it wasn't easy for us to get here at Cornell. Your student government, we were talking with them, and they threw out more questions at us than most of our business partners. Where some people one to three test accounts, these guys asked for 25. They came back every week and said, "what about this? What about that?" In the end, decided that this was a good enough service to use here. I think they've been vindicated. We have 10,000 active users now at Cornell. Out of an undergraduate population of about 13,000, which is massive. Over the semester, we've streamed or downloaded 10 million songs. Again, a huge number. The number keeps growing. The schools that we are at, we are experiencing similar results. So I do know that there are flaws in that there are some devices that we don't work with. Important ones! I see some of them here. But I want to talk to that tonight and that's part of the reason that I'm here. It's again part of the reason that I look to everyone on this panel. It's easy to throw out the bombast about what's right or wrong or to say this is where we should be, especially if you work in academia, or at a think tank. But if you're in the real world, it's a lot harder to build a solution. Right now you guys, working with Napster, are part of the solution. Because when I get complaints about not being Mac compatible, or that certain songs are missing or this feature should be changed, you guys are the audience that we listen to most. It goes right up to our CEO and it goes up to the heads of the labels and the movie studios and anyone else. I would say to everyone here, try and be a part of the solution. Be constructive. That is, I think, what Dean Hubbell's theme was for this whole conference. I think this is a good start for it. Thank you.

Kent Hubbell:

Thanks Avery. [Applause] Next is Cary Sherman, class of '68.

Cary Sherman, RIAA (Recording Industry Associates of America):

Thank you very much for inviting me here. It's fun to be back on campus even though I arrived 10 minutes before this thing. You've obviously read a lot of headlines about the stuff that we've been doing, so I'm sure will have lots of opportunity to talk about that in the Q&A, so let me try instead in this opening to just step back a little bit and get in front of the headlines and talk about the perspective of the music industry on basically what's happened. We have in the US the most vibrant music community in the world. We've been putting out between 32,000 and 37,000 new albums of music every year. It's an extraordinary amount of creativity and it's a world leader in the music industry. And you know what? It's true for movies, it's true for software. Our copyright industries are among the most phenomenal in the world. We represent 6% of the GDP. We are either the number one or number two export of this country. What you have seen over the last several years is the gradual unraveling of the entire system on which that leadership is based. People are basically taking for free copyrighted works that they once used to buy. They feel completely entitled to do so. We've clearly lost the vocabulary war because it's called "sharing", which is a wonderful thing. When you were brought up you learned to share that was a wonderful thing. But I don't think that your mother had in mind this kind of sharing. The impact on the industry has been phenomenal. We've lost about 30% of our sales over the last five years. We actually had a better year last year at the end of 2004, we were up by about 2%. So far this year, were down by about 9%.

So, we can talk about the statistics there and figure out how much of that is due to piracy and so on and so forth, but I suggest you ask yourself what was the last time that you bought music. I'll bet that you're listening to more music than ever. How much of it have you actually paid for? That should really tell you a lot about the problem. More people than ever are listening to music. Fewer people than ever are paying for it or compensating the people who created it. It's impacting everybody in the food chain. The songwriters are earning 50% of the royalties that they did just a few years ago. In Nashville, half the songwriters are unemployed. [Laughter]

I guess you don't want to be a songwriter in Nashville! [Laughter] I'll tell you that the people there feel very strongly about it. Because songwriters in particular, they can't make up their money by selling T-shirts. Or by merchandising or by doing a deal with endorsements or so on or touring. They make their money just from royalties. When those royalties disappear, they can't make a living writing songs any longer. Artists are being dropped from labels, new artists are not being signed. Thousands and thousands of people in the industry had been laid off. Thousands of record stores have closed, especially around college campuses. It was Best Buy that bought Musicland a few years ago for $682 million. Musicland was a chain of a thousand retail stores. A year and a half later, two years later, they sold it for one dollar. That's the value of retail record stores today.

So, what has the industry been trying to do in response? The most significant thing was to basically get into the marketplace and offer legitimate alternatives that consumers will prefer. Get the music online as quickly as possible. I can explain maybe later in Q&A why that's a complicated thing in the industry. There are a lot of different rights holders. It's not as though there is one company that owns all the rights and can make decisions. But the fact is, there are now over a million tracks on most music services available. You can download them. You can do it a la carte. You can do it by the album. You can do it by subscription services like the Napster service where, for a monthly fee, you get to listen to anything you want, any time you want. There are so many options available now, where the artist or the songwriters or the producers are compensated. That's all because everybody understands that there needs to be a marketplace response to the issue.

But of course we've done more than that. We've been engaged in an education campaign. We've reached out to universities, in particular we've had a particularly effective collaborative relationship with universities who, believe it or not, really do feel that there are moral and legal and ethical lessons to be taught here. When you talk to university presidents, they don't like it when their networks are being used for illegal purposes. They don't think it sets the right image. They crack down at the slightest bit of plagiarism. When they don't do anything about illegal downloading that is occurring right in front of their eyes, what kind of message is that sending to the student population? Is there a moral obligation by university leaders to set a standard for you don't condone, you don't tacitly encourage and say well this kind of illegal behavior is socially acceptable. Then there's been the enforcement arm. Most of our enforcement was at the p-to-p operators themselves. It was the original Napster. It was Aimster. It was a few others. All of those went fine in the courts, as we expected, until the Grokster case when the court bought the argument that, well if they couldn't control the infringement at this specific time it was occurring, and so on and so forth, and they didn't know what was going on (even if they deliberately prevented themselves from knowing what was going on and the deliberately divested themselves of control or the ability to do something about it) then they're not responsible.

We thought that, as Fritz was saying, if you built a business that is based on infringement and that's really it's raison d'etre, that's not covered by the Betamax case and that's what the Supreme Court will be deciding and I'm sure we'll be having more discussion about that. But the message from the district court and the ninth circuit opinion was clear. That if you are going to enforce your rights, you have to do it against the individual infringers. So we began doing that. That's gotten a lot of headlines. We got a lot of headlines in the last couple of days when we announced a new set of lawsuits against users of I2hub on Internet2 because we decided that before Internet2 gets out of control the way the Internet has, we ought to send the message that you really aren't on a private network when you are engaged with tens of thousands of people who are on the network exchanging material. We had one student who was basically offering 13,600 mp3 files. That's more than a thousand CDs worth of music to everybody else on the Internet. Every one of those songs can be downloaded in less than 20 seconds. A movie can be downloaded in five minutes. This is a problem and we've got to address it and make it clear right at the beginning that it is illegal. If there's one thing that has become clear from the lawsuits, people now know that it's illegal. At the beginning, there was a lot of uncertainty about that. People don't know copyright law. That's completely understandable. If it's on the Internet, it must be legal if I can get it. There are lots of people who actually have gone out and paid money to scam sites, $29.95 and they basically refer them over to Kazaa so that they can then download illegally. People don't understand that when you use these products as directed, as intended, you are engaging in illegal behavior and putting yourself at risk - something that the p-to-p operators have been getting away with for years. We just think that's basically wrong and something ought to be done about it.

But in any event, the message has gotten out there. People are at least now thinking about the ethical boundaries here. What they're doing, whether it's right or wrong, there are discussions that are being had that were never had before. We found that the greatest awareness, believe it or not, was among that kids who were basically eight to 11 or 12. That was like a 90% awareness that it's illegal. Those kids don't read newspapers; they're hearing it from their parents. So the message is getting out there and that's why this enforcement program is really a large scale educational program.

The point of all of this, whether it's education, enforcement, technological measures that are being used, it's all designed to reinforce legitimate marketplace. We're always going to confront piracy. We confront physical piracy on the street every day. We're not going to eliminate people selling counterfeit CDs on a card table on the street corner. There's simply no way to stop it. We never will be able to. But we have it under sufficient control so that you still have legitimate investment. You still have a vibrant and creative industry where companies invest in culture and art, which is a very risky investment. If you look overseas at models, you'll find that when piracy overtakes a market, investment stops. The first people who are hurt are the local artists. Nobody signs them, nobody distributes them, their products don't get out there. So we need to bring this under sufficient control. We're never going to eliminate piracy, were not going to eliminate p-to-p., but we've got to have enough of a legal rule so that legitimate commerce can flourish. That includes a legitimate p-to-p commerce. Record companies are interested in licensing. Mashbox and Snowcap and World Media and other peer-to-peer services that will actually give you the benefits of p-to-p but where the creators are compensated. That is the ultimate objective here. We hope that that's was good to be best for music and for the people who love music. [Applause]

Kent Hubbell:

Fred.

Fred von Lohmann, Electronic Fronter Foundation:

So, as I look out at this audience it occurs to me that at least for those of you who are undergrads here, you probably were teenagers when the first Napster really exploded on the scene in 1999 and 2000. In some ways, I always think that we've never, at least for me as somebody who was quite stunned and amazed by the amazing amount of music Napster was able to put online, in some ways I always think that we're too quick to forget what an incredibly valuable thing these technologies made possible and continue to make possible. So Napster in the course of less than a year, built the world's largest library of recorded music. Ever. Did so for free, did so using the energy and spirit of fans, did so bringing to the world lots of music that was out of print. What many of you may not know was that over 75% of the world's music is out of print, not available at any price from any source. Napster managed to put all of that music, make all of that music available to everyone, harnessing volunteer power and the Internet, basically. And was met with in the end essentially a lawsuit that shut them down. Essentially we built the library of Alexandria for recorded music and then we burned it to the ground. Now the question is, well of course there was one big glaring problem with Napster as it was originally constituted and that was that artists and authors and rights holders were not being compensated. Avery is right. I agree. And that's a problem. I'm a copyright lawyer. I think copyright for the most part works pretty well. Now what we should have been focusing on for the last five years is how do we add the last piece of the equation to the amazing achievement that the first Napster represented, namely compensation. What have we done instead?

What we have done instead is that we have had five years of litigation to try and eliminate the technology from the Internet, essentially. Lawsuits against Napster, Aimster, Scour, Kazaa, Audio Galaxy, Morpheus… this was the first step. The second step that we've had in the last five years has been, we're going to try and punish the users. Over 10,000 lawsuits brought in the United States alone against filesharers. Average settlement, roughly $3000 apiece. Sure, maybe that's one way to make $30 million, but I would argue that that's also not the right compensation model either. So when it comes to the question of how do we fairly compensate people, the question that I think we've been putting off for far too long, the EFF has been pushing for over a year now what we think it's a pretty sensible model.

This is not the first disruptive technology to come upon the recorded music business. If you look back in the 1920s, there was an even more disruptive technology. It was called radio. Now granted, the current FM radio is not exactly your ideal utopia of music. [Laughter] but in the 20s, when the radio first came about, it was too a very great degree the Napster of its day. It brought music to millions of Americans who had never before been able to access music. Certainly not in the diversity and certainly not at the low price that they were able to enjoy it thanks to broadcast radio. Not surprisingly, the music industry of the day hated this and actually took up litigation against broadcast radio stations. In those days it was the songwriters that really led the charge. For a very long time, we had a long period of litigation that when all the way to the Supreme Court, and lost in the Supreme Court. The interesting thing is how that fight was result. In that case, radio stations ultimately were able to get what is called a blanket license. If you're a radio station today, and you want to play music, you can go to a few collecting societies, some of you may have heard of some of them, ASCAP, BMI, CSAT. They are private entities that were organized voluntarily by the songwriters of the day. We didn't amend copyright law. We didn't change the law or run off to government. This was a business model. It was adopted by the copyright owners, the songwriters of the day. Today, thanks to that model, if you want to start a radio station and play music, you go, you pay a fee, to these entities. Once you've done that you're allowed to play what ever music you like however often you like to play it on whatever equipment suits your fancy.

So the question I have today, 80 years down the road, is why can't the American people get the same deal that radio stations have gotten over the last 80 odd years? Why can't the music loving public, I agree with Cary, there is more music being listened to today than ever before. There's more access to more music than there has ever been before. Your tastes ought to be more eclectic than any tastes of any teenagers ever before. If they're not, you should look into that... [Laughter] So the question then becomes why can't we have a deal that lets us enjoy whatever music we like on whatever computer platform or an MP3 player we like and in exchange be able to offer a reasonable payment? I think a small payment. Certainly in most places I've gone, I've said would five dollars a month straight people as reasonable? Well, if you got five dollars a month from all the Americans that have been enjoying filesharing for the last five years, you'd be putting together over $3 billion a year in pure revenue profit. No CDs to ship, no trucks to fill, no gas tanks. None of that. Just pure royalty profit for the music industry.

So, our view is that yes, here I agree with Cary. You have to have a legitimate alternative. Filesharing is here to stay. We can talk about the Grokster case. I think the Grokster case has nothing to do with filesharing. The Grokster case is going to influence every technology other than filesharing. It will influence every company that is in the United States and subject to American copyright laws. Filesharing software can be built anywhere. There are already open source versions all over the world. Hundreds of millions of copies of the software have already been downloaded. If you were to put every one of the filesharing companies within the reach of American law out of business, you would make not dent one and filesharing.

So the question in my mind is what is the best legitimate alternative? How are we going to make people prefer a model where artists are compensated over going to filesharing networks and getting things there? Well I submit to you that the answer is not offering people limited inventory, where you can't to get among other things Led Zeppelin, the Beatles, the Rolling Stones. Not even to begin with the enormous catalogue of independent artists and not to even begin with the enormous catalogue of music that is out of print and not available anywhere. You don't offer it to people with DRM and other restrictions that mean you can't play it on an iPod, you can't use it with the Macintosh. It'll timeout. You can burn it only so many times. Every one of those restrictions is a reason for someone to use Kazaa instead. Why would you want, if your interest is to generate maximum compensation for artists, why would you have a business model that drives away a portion of your customers? No matter how small that portion is, why would that be the model you would adopt? So while I think that things like Napster, and i-tunes and Rhapsody are great baby steps, and by the way, let's note for the record, none of those would exist today but for the pressure brought to bear on this industry by filesharing. It's quite evident that there would be no i-tunes music store today in the form that it exists today, if there had not been a Napster in 1999.

Sure, that's progress. But frankly, it's too little too late. And I don't think universities are getting a terribly good deal, right? It feels free to you, Napster, and that's great. I think models that feel free are good models. They work for cell phone providers, they work for lots of different businesses. I think that's a sensible way to do it. But you are paying for it. Make no mistake. It's part of your tuition. One way or another, you're paying for it. Nothing wrong with that. I think that's the way it ought to be. But the question here is, "how do we maximize this so that people will use this and will hopefully not be sued for copyright infringement?" Your university pays millions of dollars to Napster, I'm guessing that they don't tell you exactly how many millions of dollars. They pay millions of dollars to Napster and in exchange, what do they get for it? We'll granted, 10,000 of you are registered users and that's great. But, many of the universities whose students were sued just yesterday, or universities that also had Napster or Rhapsody deals. So paying the millions of dollars doesn't apparently get the student body off the hook. Does paying the millions of dollars get the university off the hook? I'm afraid not. There is certainly no deal in Napster can to that will suddenly forgive any copyright infringement liability for the universities. So my question is, we should be striving for a structure that gets artists, authors, rights holders of compensated, but that also solves the problem that tries to get us up off the eternal cycle of, "is there anyway we can kill P2 P?" Which frankly the longer you're in that race, the more it starts looking like, "is there anyway we can kill the Internet?" Let's get people off of that, and instead align incentives so that the more people that have peer-to-peer, the more people have broadband access, the more people download, the more music they download, the more money the music industry makes. And that's where again, the model that BMI and ASCAP and CSAC have shown us, the more users are downloading music, the more money copyright owners would make, in a model like that. So I think, that's where we should be headed. Sure, Napster, Rhapsody great! But I think we can do as the politicians like to say, we can do better. [Applause]

Kent Hubbell:

Alec.

Alec French, NBC Universal:

First I want to thank Cornell for inviting me and actually agreeing to still have me when I think they invited me in my capacity as minority counsel for the House committee. In the last 10 days I've switched jobs, so they still want me which I appreciate and because I've only been in my new job for 10 days with NBC Universal, I'm going to try to keep my hat on as a committee staffer and give you a sense of how we looked at it, because frankly I can't probably advocate particularly well how NBC Universal looks at it. You know, I think one of the things that struck me about this whole panel that was really positive was, you know, that from right to left (not on the political spectrum but on a philosophical spectrum here), everyone agreed with some hoots from the audience aside, that infringement is a problem on the Internet. That taking stuff for free on the Internet right now is illegal and it's not a good thing.

The way that we looked at this when I was working for the committee was, we had an amazing plethora of different copyright owners coming in the door telling us it's a problem. You hear about Hollywood, because that's how the press likes to play it. Hollywood versus innovation. We heard from graphics designers. We heard from needlepoint designers. We heard from photographers. We heard from songwriters. All of whom a having their lunch eaten by people taking their works for free on the Internet. Little needlepoint designers who used to make a decent living selling their designs are seeing Internet affinity groups just literally deplete their industry. Songwriters, without a songwriter there is no song. So if you like music, and that's something that you want to see, you want to see the next song get created, there has to be a songwriter out there willing to spend their time creating it. The way they get paid, the way that they have a living, and by the way most of them aren't able to afford making their living just at songwriting, they have second and third jobs. The way they make their living is off of the payment per copy, in addition to some performance royalties. If there is no payment per copy, there is no career there for them.

Movie industry is actually the same. Directors and screenwriters, the people again who are the creators behind the films, make a lot of their living and rely in their old age on residuals that come from downstream revenue. In other words, not the theatrical release when the movie goes out in the theater, but the fact that someone, 20 years later is willing to pay to put that movie on TV. Without that residual, because people are downloading it for free and don't care to see it, the director and screenwriter see a major portion of their revenue disappear.

So I'm happy to see that most people agree that there's a problem. The solution, obviously there is some disagreement on. The way that I think I saw members of Congress look at this, is there is no silver bullet here. But the fact that no individual piece of the solution works to solve the whole problem doesn't mean that they're not worth pursuing. So there were a lot of different pieces that members of Congress thought were necessary. One was is education and that was discussed some. This kind of effort is important. Education by copyright owners, I know they're pouring a lot of money into educational efforts. Everything from the PSAs that you see in the theaters to websites. Government education is actually an important thing. Having our government explain to people why the copyright law does what it does and why it's important to protect in the Senate is important. Legal services. I really won't expand much on that but there are a key part of the solution. The marketplace works. You can take a look at PressPlay and MusicNet from two or three years ago and compare them to what Napster is doing now. It's light years away in terms of convenience, in price, repertoire and what consumers want. That's a continually evolving thing. The marketplace responds to what consumers want. Technology is another element. DRM is an important way to basically do something that is very important.

Price discrimination. You may want everything you could get, you may want to have a song that you can copy as many times as you want, and send to as many people as you want, the value of that song may be very high to you. Someone else, they may just want to listen to it once. Why should they have to pay five dollars to listen to a song once? They want to pay five cents. You may pay five dollars to be able to do anything you want with it. DRM enables the purveyor of that work, the distributor, to enable the five cent person to pay five cents to do the one thing they want to do. But to enable someone else to do what they want to do for a higher cost. DRM enables that, enables consumers to get what they want for the price that they want. Enforcement is key. Laws only provide meaningful protection if they are enforced against those who break them. So, any law is only that valuable. Copyright laws place the primary responsibility for their enforcement on the copyright holders themselves, unlike some other laws. Someone can't enforce the speeding limit against someone else, only the police can do that. But that's why you see lawsuits. It's by copyright holders because they're the ones who have the primary responsibility. There's also criminal copyright infringement, and that's important as well.

The point I want to get to mostly, which relates to the Grokster case, is that the laws have to provide adequate legal protection. I think that Congress and looking at this (and believe me we had hearing after hearing after hearing over five years on this issue.) And where Congress has come out on this is copyright laws right now are imbalanced. But the imbalance is that they don't provide enough protection. [Laughter] That the amount of piracy that is going on right now, today, means that effectively copyrights have less protection today than they did 10, 15, or 20 years ago. The reality is that more people are infringing copyrighted works today and there are more infringing copies out there and they're being distributed more broadly than they ever have in history. That means that there's not enough protection. And there are a lot of narrow ways, like a bill that might be on the House floor next week, to try and protect it that Congress has been looking at. Making camcording in theaters illegal because people who camcord in theaters are part of the distribution chain that has copies end up on the Internet. Then, the DVD is back on the street in the US.

But I want to get to the Grokster case, which is the point that if the Supreme Court upholds the Ninth Circuit in Grokster, I think it demonstrates another way in which current copyright law doesn't provide adequate protection. Basically, where the Ninth Circuit decision is right now, is it's encouraging commercial entities to build businesses that profit from infringement. It gives them every incentive to actively encourage infringement. In fact gives them a disincentive to control or in any way dissuade the infringement from which they profit. That's exactly the wrong set of incentives that should be provided by our legal system. So if that's where the Supreme Court comes out, it basically says the law ties our hands and we have to let these kinds of businesses continue to do what they do knowing that they are encouraging infringement, and saying that they, in fact, can't dissuade or control that infringement. If they do they incur liability. That is something that Congress, I think, needs take a look at. I guess I'll leave it there. [Applause]

Kent Hubbell:

Since we are running a little late, I'm going to invite Siva to make a reply at his request, and then I would like to open it to those of you who have questions in the audience. Siva?

Siva Vaidhyanathan:

When Alec pointed out that there is such a massive level of infringement in the world right now, that clearly there is not enough copyright, he wasn't really wrong. I was sort of chuckling inside, as well. But, he's not wrong. If you go to any street corner in Nigeria, any street corner in Hong Kong, any street corner in St. Petersburg, a couple of street corners in New York I can tell you about if you come visit, and you will see the level of copyright infringement going on in the world. In fact, the black market in culture is the chief source of media material for much of the world. This is where the real story is. Cornell students are not the problem. NYU students are not the problem. They are not even an interesting question when you compare it to what goes on in northern Nigeria, for example.

Northern Nigeria has no movie theaters. Northern Nigeria is filled with these little shacks of people who are constantly building broken VHS and DVD machines because things constantly break in northern Nigeria. So you get these hackers who put together these machines, and take them apart and fix them again, and they also happen to have these amazing libraries of pirated materials. They're the only source for these extremely poor people to get media materials. By the way, almost all of the pirated movies are from India, because Bollywood movies work really well in conservative Moslem areas of the world because nobody ever takes their clothes off and nobody ever kisses so it's really good in those markets. And you don't actually have to know the language to get what's going on. [Laughter] So that's where this story is. So Alec is not wrong.

Look, here's the paradox of copyright. In 1998, Alec's committee, Alec was working in the House, they got together and they made up a couple of new laws. I'm sure you were deeply immersed in all the details of those debates, right? You remember seeing them on the front page of every paper? You heard Tom Brokaw talking about them? Right, oh yeah. None of that happened because nobody was paying attention. Now Fritz's organization in Cary's organization, both basically wrote these laws and they made copyright longer and stronger and more pervasive than ever before. They started going into your machines and dictating these terms of distribution. They put the power of the federal government behind digital rights management, which people up here have been referring to as DRM. Now since that time, 1998, copyright covers more activities than it was ever supposed to. For a longer duration than it was ever supposed to. In fact, an unconstitutional duration, but the Supreme Court doesn't agree with me on that so that's another story. [Laughter] [Applause]

So that's 1998. So seven years later after they were so forward looking, that they were able to dial up copyright so much, what can't you get illegally? Nothing! They failed! The 1998 laws that extended copyright, the Digital Millennium Copyright Act, and the Sonny Bono copyright extension act were the greatest failures in legislative history until they passed the Social Security Boondoggle, but that's another story. [Laughter]

These things completely failed. They didn't solve any of the problems they were supposed to solve. They didn't change any of the behaviors they were supposed to change. What they did though, was deeply frustrate you and me. They eroded our faith in the system. They eroded our sense of what is proper, of what is just. So now, you've got several generations of people, Americans who just want to use their own culture, who are fed up with the restrictions that Hollywood is placing on them. Fed up with being told that they are thieves for loving their own culture. Being fed up with being told they are thieves for wanting to make their own culture with the tools that are offered to them through this amazing era of creativity. That's the situation we are in. So, Alec is right. We have this amazing amount of infringement. It might, in fact, be a problem. I think it's a problem in a lot of areas of life. But that's because dialing up the law has paradoxically failed spectacularly. [Applause]

Fritz Attaway:

One minute?

Kent Hubbell:

It seems only fair. [Laughter]

Fritz Attaway:

Thank you. And actually, I don't want to respond to Siva. I'm sure he had a point; I have no idea what it was. [booo] But I do want to respond to Fred because Fred did have a point and I think it deserves some serious consideration. Fred's thesis is that the answer to all of this is for government to tell you how much you should pay for music and to tell the songwriter and the performer how much he or she should receive for their work in creating music. That is a terrible idea! [Laughter] Why should my mother pay five dollars a month to listen to music? She hasn't listened to music since Lawrence Welk died! Why should government be telling songwriters how much their talent is worth? That is a terrible idea. [Laughter] The marketplace is the right theater for determining how much you should pay and how much creators should be paid.

Siva Vaidhyanathan:

So you're not going to lobby anymore to change any laws? [Laughter] [Applause]

Kent Hubbell:

This is getting good! I'm going to let Cary in for a moment and then I want to try to go over to the audience.

Cary Sherman:

I would like to respond mostly to Fred's points, but one quick response to Siva and that was a response from David Lang who is a very fair use oriented copyright lawyer out of Duke who basically said there is such a thing as loving a bunny too much by hugging it to death and I'm afraid that's exactly what were doing with our culture right now. Loving it too much. Let's talk about Fred's points.

Fred von Lohmann:

Gotta save the bunny [Laughter]

Cary Sherman:

I wish it were as easy as Fred makes it sound. That we all just get together and we'll have a licensing system like radio. The reason that radio actually worked as a volunteer licensing system was because the law was pretty clear that radio stations were infringers if they continued to broadcast stuff without paying. So it was pretty easy at that point for songwriters to get together and license them. Fred is, unfortunately, standing for the proposition that you shouldn't be able to go after, in this case Grokster, the equivalent of the radio station, so instead of licensing the operators, the businesses, the radio stations, the Groksters, he wants us to license every American. He wants us to collect money from every single person who listens to the radio. That doesn't make sense.

Fred von Lohmann:

Or their universities [Laughter]

Cary Sherman:

Some universities are charging students, some are not. I don't understand why. Cable TV is something that people offer in dorms and nobody thinks twice about it when they're paying for that, but music, which is obviously extremely important to students, somehow is in a different plane.

Fred von Lohmann:

I agree with you. They should pay; but they should get a good deal [Laughter] which they're not getting now.

Kent Hubbell:

I'm going to invite the audience to offer in an incendiary question or two. [Laughter]

Fred von Lohmann:

I've got to respond to Fritz here. Who heard me in my comments advocate the government setting the price? Anybody hear that? I didn't hear that, so just as long as we were all here. In BMI, ASCAP, and CSAC, the government...

Cary Sherman:

Who determines the five dollars? You?

Fred von Lohmann:

I think that you choose a market winning price. There will be a spot where you collect more money. Let's let the market do that.

Cary Sherman:

The way that has been presented is that ISPs would add five dollars to their broadband connection. Ask any ISP if they're going to raise their price by five dollars? And that's just for music. The reason that you're doing it

Panelist:

Mine just did it.[Laughter]

Cary Sherman:

They did it but to keep to themselves, not to give to us. And then if you think that that's what you need to pay for music, how much are you going to add to it for movies? Because the argument for doing this is that you can't control piracy of music, well, you can't control piracy of movies either. So now we have to add in some price for movies. We can't control piracy of software because it can be digitized and transmitted just as well, and video games and everything else. We're going to commoditize the entire creative culture of the United States and turn it into a utility. Do you think that's the best way to encourage investment? I don't think so.

Alec French:

Since everyone else had a minute, I think I'm going to need one too.

Kent Hubbell:

OK OK. [Laughter]

Alec French:

I actually didn't hear Fred say government, I heard him refer to ASCAP and BMI and what people have to understand here is what Fred is therefore advocating is antitrust violations. ASCAP and BMI are collectives that are under consent decrees by a federal court for the last 50 or 90 years because they got together to set prices and therefore are now under the aegis of the federal court. So what he's advocating is that the federal court set the prices for all the music and, as Cary said, for the movies and everything else that you want to watch and listen to. That is an endeavor that is just an unbelievably complicated process to think about undertaking. Talk to artists and see if they want that decision to be made by someone else or whether they want to have the ability to decide themselves. This whole conversation is all about, "were going to decide for the artist where and when their music, their movie, their needlepoint design, their software is listened to and what price." They have no say in it whatsoever. That's what you're talking about. Artist doesn't matter. We're going to have a court set the price.

Kent Hubbell:

Avery gets a minute and then we're going to go to the audience.

Fred von Lohmann:

ASCAP and BMI are owned by artists so I don't know what you're talking about. [Applause]

Avery Kotler:

They are songwriters, not artists. Not recording artists.

Avery Kotler:

Just to quickly counter a factual misstatement. If the deal I cut involved Cornell making millions, Dean Hubbell would be fired and I would be promoted. [Laughter]It's not even remotely in that park. And I definitely encourage you to talk to your student government. They took me to town… to the cleaners. [Laughter] we had to go back, in fact, to all of the record labels and say, "hey, this is what the students need to make this work. Can we do it?" They said, "yeah." So they were working with us. Going back to Siva, to say that the law failed, considering the success of the motion picture industry which has been doing incredibly, and the recording industry which has contracted a little but is still very vibrant. I think it's an $11 billion business. Independent labels are sprouting all over the place. I don't know how you can say that a law has failed. I do agree that a lot of it needs work. Give me a little bit here. Again, to go back to Fred, I think what he's really saying, because it's not the government setting the rate, and it's not a court. What he's really getting at is of kind of voluntary rate. I haven't found a market yet where that really works. There are a lot of things that I would like to pay less for. I want a flatscreen TV in my apartment, but my girlfriend (who lives with me) doesn't want me to get it because it would use up an enormous part of my budget. I would voluntarily pay a lot less for that TV. Hitachi, Sony, no one's going to give it to me.

Siva Vaidhyanathan:

I know street corner in New York you can get one of those, too. [Laughter]

Avery Kotler:

OK. My theme is, let's work within the law and let's come up with a real system that really works.

Siva Vaidhyanathan:

You made my point, exactly. There's no zero-sum in culture. Right, there can be massive piracy, and there is. And there can be massive profits, and there are. These don't count each other out.

Kent Hubbell:

Let's start on what would be on your right, one there. And then we'll go back and forth until we run out of questions.

Panelist:

Some of you should switch lines [Laughter]

Questioner:

It would seem to be the problem that this is a distribution issue. I'm old enough to remember when you guys were saying, "yeah, CDs are $18 now, but they are going to get cheaper once we pay off the development costs." [Laughter] and that has not happened. The movie industry is equally culpable in that you have this CSS system that allows you to distribute movies in different regions at different times, when you could be distributing them digitally and not… if you guys were willing to come up with the money to pay for the theaters to have the equipment to do that, which is a relatively small price compared to $150,000 a print, or whatever the number is that you circulated was. So it seems to be a distribution issue. It's not an issue, as you cast upon Fred, of wanting a system where everyone is paying nothing. It's an issue of being entrenched in this old system of everybody paying too much to distribute things in the modern world where distribution is cheap. So I would like you to address that.

Siva Vaidhyanathan:

I just want to know what the question was.

Fritz Attaway:

I think I understand the question and the question is, "why don't we find a new business model?" First of all, let me just say that the fact that you can buy 100 million-dollar motion picture at a video store for 15 bucks is a hell of a deal. I don't think that's overpriced. But that aside, everyone says we should find a new business model. Well, in television we're being pushed to a new business model because there are so many devices that allow people to skip through commercials. The commercial is the economic foundation of broadcast television. So what are people having to do? They are doing product placement. They are placing commercials within the entertainment content. Do you really want movies to be made on the basis of how many commercials can be inserted in the content rather than the entertainment value of storytelling? I don't think so.

Fred von Lohmann:

Did you see the last James Bond movie? [Laughter] You are already doing that, it's done!

Fritz Attaway:

It's done today, but it will be done a lot more...

Cary Sherman:

Can I respond on the CD thing? You need to understand that manufacturing is the most insignificant part of these businesses. At the beginning, yes, CD production is very expensive because you are building 20 and 30 million-dollar plants to produce them and so on. But once that manufacturing capacity is reached, costs began to come down. But that's never been a significant component. It's marketing, promotion, artist royalties that are the biggest components of the cost of recordings. And those have been going up exponentially. One of the big problems that we've got is even when you reduce prices, it really hasn't had much of an effect on volume.

You basically have had the biggest record company in the world do a major price reduction. Some retailers just made up the difference in terms of the retail price at the store, even though the wholesale price had gone down by three dollars. So there was no concomitant increase in volume and it did very little to actually stem the piracy problem. Free is a big difference. There's a big difference between free and whether it's nine dollars, $12, or whatever. But by the way, the NPD and other market research analysts have said the price of CDs has been coming down steadily at retail. And if you look at it actually since the inception of the CD, the price per song is way way lower than the price would be with inflation. It's gone way down. Think about how many songs used to be on an album, on an LP, versus what you get on the CD now. The average now is over 13 songs. It's averaging between 13 and 15 songs on a CD in the quality that you're getting in everything else and the price has basically been constant or coming down. So, this perception that prices are too high really ought to be put into context.

Kent Hubbell:

Next question.

Questioner:

With all due respect, gentlemen, I think you guys just demonstrated exactly the problem. It's a question of incentive. Dean Hubbell stated that the rule of this debate were three to five minutes and then we get to ask questions. Starting from the left, with the professor at NYU took more than three to five minutes, and Dean Hubbell said nothing. You each, then, took more than three to five minutes longer [Laughter] because you could get away with it for free. [loud laughter] [Applause] And then at that point, poor Dean Hubbell has lost control of the debate <> in each of you wants to add your own extra minute long rebuttal to your arguments.

Female Audience Member:

What's your question?

Questioner:

My question is how to address the issue of incentive? Because I know personally that my roommate is from Thailand and he'll go home over winter break and spend 30 bucks on 58 movies and come back with Thailand bootleg DVD copies of movies that haven't even come out yet in this country. Now my issue is that I prefer to buy the actual DVD in the United States because you get widescreen version versus not, all the special features. I will wait until Amazon.com is selling it for 10 or 12 bucks. Whereas, he will get the bootleg version that was subtitled with shaky camera angles. Now, movie business aside, the CD industry will then charge, the cheapest you can get in the CD for is $12. Given that the CD, say your 13 songs, 40 minutes of music versus two hours of content. For me the incentive is to buy the movie and not buy the CD. So the problem is we are all going to be smarter than you guys -- this debate can happen for 20 years. Where we suddenly are sitting up there and new younger people are here who are going to figure out ways to get around the legal system. There needs to be an incentive for us not to do that. The problem is that there isn't a good enough one. So can anyone speak to ideas on that?

Siva Vaidhyanathan:

That diagnoses the problem. For this reason I have to say, Avery's business is a great experiment and I'm all in favor of experimenting. I'd like to have Fred's idea taken more seriously as an experiment instead of being quickly dismissed, because that may address some of the very same disparities of incentive. I-tunes is an experiment. It seems to be doing well for them. Napster 2.0 is an experiment that seems to be doing well for them and maybe it's doing well for you. What we want to limit are forced policies, in other words we should be giving you, your roommate and everybody as many choices as possible in terms of format and usability. We have to keep asking, "Is this creating a healthier or less healthy cultural environment?"

Avery Kotler:

Let me just say in terms of our experiment, if we can call it that. I'm super optimistic because we keep making the service better and it keeps getting better and we keep growing. And every quarter we keep having to raise our guidance because we get more customers. I-tunes, our competitor keeps outselling, and Apple keeps doing well with it. So I don't think it's fair to say that this, the music industry, because we don't have movies yet, but pressure them, because we want them. [Laughter] When I'm not on this panel, I spend a lot of time fighting with these guys because I'm saying you guys want more, you want to do more with the music. You want more of our music. And I go to Congress, and I say listen, "We're having a hard time licensing some music, no matter what we do. Let's look at the laws and make them a little better." Not so that you don't need to license, but so that if there are some impediments to licensing you can help us to find the owners. If the owners not there, we can put something in escrow. But, again, let's do it in a way that works. Right now we have a million and a half songs in the system. A year ago we had 750,000, before that it was a lot less. It's kind of growing in leaps and bounds. Talking about Thailand, I signed that the Thai record label recently. We could barely talk to each other but they got the contract and we report to them and they get paid. So there are some pretty amazing things happening out there, and we're just an example (I keep wanting to stress that so it's not too sales-y), of what can happen. But when you identify problems in the system like interoperability, we don't work with the iPod. That's a big problem. I hate it! I would love to sell iPods for Steve Jobs, but all the iPod users, all the Apple faithful, look at where the problem is. Talk to Buddha, talk to Steve Jobs. [Laughter]

Panelist:

He doesn't return my calls.

Avery Kotler:

He doesn't return anyone's calls. [Laughter] He's trying to create a fixed system and he wants to force you to go to i-tunes. That's not in line with what you want (pointing) and is not in line with what you want (pointing). It's working in the short-term. It didn't really work for him in the long term with the 80s but, all I'm saying is look at where the problems are. Try not to behave too reflexively because it can lead to you pushing something that won't change or that I think breeds a bad result.

Panelist:

inaudible?

Panelist:

Will you give me a service?

Avery Kotler:

We want to work with everyone. We work with 70 players and we just came out with Napster Go which was a big complaint from Fred last year. He said, "You know what, your subscription, you can spend the money for it but you can't move it to an MP3 player." So we spent a lot of time to work with the manufacturers to come up with MP3 players that would respect subscription rights. You guys will see it here, hopefully next semester. It works and it's very cool. A ton of hot new players are coming out that will work with it. I'd love to show them here but I think it would be too sales-y, but they are awesome. And it's actually putting sales pressure on the iPod. My goal is not to stop selling iPods. My goal is for Steve Jobs to say, "great! Let's make the iPod compatible with Napster." There's a lot of talk about that now. But it's because the market forced that to happen. Or it is forcing it. Again, let's fix the system. Make it better. But try and do it in a way that's constructive.

Kent Hubbell:

Next question.

Questioner:

My first thing is a comment for Cary Sherman. I'm sorry that the RIAA lost 30% over the last five years but the reality is that the economy has been in the shitter for the last five years. [Laughter] Everybody has lost 30% in the last five years. I don't know if that's a good argument to use in saying that downloads are taking away from your profits.

My question though, pertains to Napster. Napster's got subscription services of $15 a month, all the music you can chew?

Avery Kotler:

It's $10 and 15 for Napster To Go. So that's right.

Questioner:

So, that's great. It's 15 bucks for all you can chew every month. And I think that's probably the best thing I've heard thus far. My question is, when everybody is suing everybody, and they're making these settlements for multiple thousands and thousands of dollars, the fact that you can now get music for $15 a month, does that mean that the actual pad of lawsuits is going to drop significantly because the value of the infringement has dropped significantly? [Laughter] [Applause] I'm curious what everybody thinks about that. The way that I look at it, there's a law that says it's $150,000 maximum fine for infringement. But I know that the courts and the jury's work to try to come up with a number that matches the crime.

Cary Sherman:

Well, actually, the most we've ever asked for is the minimum statutory damages which is $750. We only ask for that when the defendant doesn't even respond to the complaint and just basically ignores the court and gets a default judgment. That's when we asked for $750, otherwise, nobody is asking for that kind of money. Anybody who actually subscribes to Napster, and isn't using a p-to-p doesn't have to worry about being sued. The whole plan here is to get people to migrate to the legitimate marketplace. It's really no different than speeding. People are going to speed no matter what, but you need some enforcement so that they are discouraged from speeding and they go closer to the speed limit and that's what this is all about. As for the suits, we were encouraged to bring those suits by EFF. They said that's what we should do. They said, "don't go after Grokster, go after the people who are abusing Grokster and infringing." Well we did it and now they don't think it's such a good idea anymore.

Fred von Lohmann:

It's so nice to see Cary taking orders from me, isn't it? [Laughter]

Cary Sherman:

It wasn't just Fred. We had public knowledge, they all testified, go after the wrong-doers.

Fred von Lohmann:

That didn't actually happen that way but let's leave that aside. Both these questions, I think ask the right question. It's about incentives and frankly my answer is simple. More carrot, less stick. Right? We've seen what suing every peer-to-peer technology vendor for the last five years has given us. It's given us just as many file sharers as before. Tens of millions of file sharers. By some estimates more people are filesharing than voted for President Bush. [Laughter] Not joking. Literally true numbers. We've seen now what 10,000 lawsuits against individuals has done. It's been almost 2 years now, and same amount of filesharing as before. So my question is when are we to start focusing more on the carrot and less on the stick? When are we can have less insistence on DRM? More sensible pricing? Some decent inventory for a change? In this regard I'm on Avery's side. I am sure Napster would love to do more for you. As he points out, if you can get the music publishers, everybody all lined up. I think that's where you have to start looking for incentives. As the earlier question pointed out, he has his roommate bringing back all the movies from Thailand, and he's buying DVDs. Why? Because DVDs are giving him something that he wants. So it seems to me at the end, more carrot, less stick.Kent Hubbell:

Alec, are you prepared to cede your time or do you need your time?

Alec French:

I guess I was just going to reiterate the incentive thing. That's what all of these things do. Lawsuits provide an incentive. An incentive [Laughter] not to infringe.

?

Education, too.

Alec French:

Education is important. Education provides an incentive that you know what's going on. DRM provides an incentive because it becomes less convenient. And legal services, they are all part of the solution.

Cary Sherman:

I just want to make clear, that we couldn't agree more about the need for the carrot and that's where most of the energy has gone from the labels isn't offering these... you don't appreciate, when you're trying to deal with the Beatles, if they don't want to put their music online, there's no way you can make them do it. It's a great disappointment to the record companies that they can't get the Beatles to put their music online because they know that that's helping kill the attractiveness and the appeal of legitimate services and it drives people to Kazaa and it drives the labels nuts. They have done everything they can to license everything in their catalog to every platform, every online licensor. Everybody. They can't get certain superstar artists, Garth Brooks, for example. He will only do full albums. He will not do individual tracks. That's why he will not be on iPod, on i-tunes. You know, at some point, you have to respect the right of the creator to do what they think is their right to do. And I agree that it's an unfortunate thing but in terms of the record companies wanting that carrot, that has been their primary focus and we couldn't agree more.

Kent Hubbell:

Next question.

Questioner:

I'd like to dispute the assertion that the record and movie companies are not willing to move to a new business model. I think that the incentive is very obvious, that DRM is a very strong and desirable thing for content providers. But I am wondering why I, as a consumer, should be encouraged to use any technology that locks me into a specific platform, computer type, hardware, software, iPod. Why should I buy something today that I had to pay for again to use tomorrow? These are all very large concerns with digital rights management but I hear digital rights management being pushed over and over and over again very strongly by the recording industry and the movie industry.

Siva Vaidhyanathan:

...who really celebrate the failure of digital rights management are the companies that produce digital rights management. I've talked to the engineers in this industry and they love the fact that people hack into this stuff every six months because it means they have to go back and build another one and sell it again. You know, digital rights management put handcuffs, not incentives, handcuffs on people who aren't doing bad things and do nothing to stop the people who want to do bad things. They are punishing the wrong people. They're punishing the librarians, the researchers, the security researchers, computer scientists. Right? They're punishing people who want to make up backup copies of material they hold dear. They are preventing us from… right now I own three Macs and I had to reformat one a couple of weeks ago because there was a bad OS upgrade and I forgot to deregister my iTunes and now there's one fewer Mac I can use my computer... anyway... long story. But the point is, DRM is not good for anyone, right? I, unlike everybody else here, actually produce and sell copyrighted material. I am something close to an artist, although I wouldn't even pretend to think that my stuff is even of that level. But nonetheless, I produce and sell copyrighted material. That's how I make my living and the last thing I would want is to see any of my material locked behind DRM. I buy e-books on occasion and get deeply frustrated by the fact that I can't move them from one computer to another and I can't, apparently I can't read some of them out loud according to the user licenses. [Laughter] You know, you can buy Helen Keller's autobiography and maybe not be able to read it out loud? Think about that! So DRM is a huge failure.

Avery Kotler:

Siva, when I went to your site...

Fritz Attaway:

Let me answer. Once again, you are just wrong. [Laughter] The questioner, you must not have been here when I spoke initially because I answered your question but I'd be happy to answer it again. We are in the business of investing a lot of money in making motion pictures. The only way to recoup that investment is to get everybody that views those motion pictures to pay a little bit. DRM's allow us to do that. DRMs allow you, as a consumer, to have a choice to pay one amount of money to download a movie and keep it for the rest of your life and a substantially less amount of money to view it in streaming and not have a copy. DRMs are great because it gives you choice. Without DRM's, you have no choice.

Siva Vaidhyanathan:

It only works for as long as the software is supported. So how can you guarantee me that I can use it tomorrow?

Fred:

How can we guarantee that the TV you bought will last forever?

Fritz Attaway:

How can I guarantee that your eight-track recorder will still work?

Siva Vaidhyanathan:

... that the TV last forever, it's that the company that provided it will be there, which is a much different thing. They don't change their standard.

Avery Kotler:

Just to answer, if you bought a track, meeting the different levels of the DRM. Again, I spend most of my time fighting not necessarily to eliminate DRM, but to say give me the best rights I can get within the structure. As Fritz was saying, there are different levels of it. And if you go and actually make the purchase, you don't subscribe, you don't do the rental, the DRM actually lets you burn it and make an unrestricted CD of it. So you'll then have it in perpetuity and you can rip it back. So I think you're addressed.

One question to Siva. I went to your site, I mean you talked about your book. I saw a link to Amazon. I didn't see a link to an unauthorized kind of copy of it that I could just read.

Siva Vaidhyanathan:

Yeah, you go to a library for that. [Laughter]

Avery Kotler:

Is that right? People used to do that for music, too. There were listening libraries. Is that what you're saying? That is how I should be tied down? I should have to go to a library to read your book? How can I get it when I want it?

Siva Vaidhyanathan:

You know what, you can borrow it from a friend.

Avery Kotler:

I should have to go to a friend and borrow your book? I can't get it on demand when I want it? Right now I want to read it. Why should I have to wait?

Kent Hubbell:

Avery, I'll loan you my copy. Next question.

Questioner:

Speaking of DRM, I remember a time ago there was a band called The Ataris and they had a song called, a song for Kate on my mix tape, I am wondering now in the future if it's going to be a song for Kate on my $.99 DRM MP3 downloaded copyrighted song. I'm just wondering if that's what it's going to come to. Being an independent musician myself, and having MP3 as my lead source of promotion for my band and for just everything to just let people know who we are. I wonder if shutting down services like, you know, Kazaa and Morpheus, is going to really hamper us. I'm not saying that we should stop the pop industry, which I obviously don't like. [Laughter] Because, I mean these pop musicians, I don't consider them really musicians. The songwriters are the ones who actually make the song. For us, independent artists, we actually write a song, produce it. We make the music for it. We sing it. We do everything. Most of our profit comes from shows and from merchandise. So, for the recording industry it's completely different. But we use this software for us. We don't need incentive for people to buy our CDs. We give our CDs out for free anyway and we tell people, "Yes, get MP3s." A lot of artists do that. And I'm wondering what's going to happen.

Cary Sherman:

You have the right to do that. Absolutely. This is all about choice. You decide what is the best way to promote your stuff, and if you think peer-to-peer is good for that, by all means go ahead. But the president of Grokster shouldn't be making that decision for you or for anybody else. They should get to decide how they want to control their creative works. One of the biggest issues that some bands have is that stuff gets out on a computer before they've even finished it in the studio. I think it's leaked, and it's not the way they wanted it out there. Yet that is what is now out in the world as their work.

Alec French:

Can I answer as well? I think your question is a great question because any p-to-p company that wants to can go out there and start an organic business model of, "we are going to promote and put music on our p-to-p service of independent artists." We're actually not going to even charge. We are going to offer them great royalties. There have been some models like this in the past. 50% of anything gets paid.

Questioner:

I don't want royalties.

Alec French:

But the point is, even if you don't want royalties, it's free. You're going to promote it. But that's not what Grokster is. Grokster wants the pop. That's what attracts people there. You are an afterthought to them. If they want to start a real business model based on licensed music from people like you, who say we give you the rights, we are the owner, there is nothing in the law that says that that's illegal. But that's not what they are. They are pirate sites that want to have the legal stuff on there, not legal stuff.

Fred von Lohmann:

This is a total red herring. The entertainment industry is, to disagree with Fritz's earlier point, as he said, "we love technology." Yeah, they do love technology. Technology that they use. But entertainment industries have never loved you having technologies that allow you to make, copy, and distribute media. Look at history. The audio cassette tape was viewed with the whole home taping fights throughout the seven days. The RIAA said, "This is massive piracy." Of course, it is the analog cassette that actually allowed a lot of artists who couldn't afford to press albums on vinyl to actually get exposure. Peer-to-peer filesharing is today's form of the same thing. The technology is what has been attacked aggressively. Now, they'd say it today, "Oh no, we are only after bad business models." That's an interesting argument today, the first Napster didn't have a business model. That didn't save it from being sued into a smoking crater. BitTorrent doesn't have a business model.

Panelist:

inaudible

Fred von Lohmann:?

Yeah, in which you hacked off their trademarks and handed it to PressPlay. [Laughter/groaning ] so, let's be clear here. For the last century, the lawsuits brought by the entertainment industry against new technologies have been against technologies but in the end have helped new artists, the new creators to reach new audiences. The fact that those technologies also enable infringement, well, I'm sorry, but the arguments against radio and the VCR and all of those technologies turned out in every case, those new technologies not only created new opportunities for new artists but in fact expanded the pie and made more money for the very industries that fought against their inception.

Alec French:

I've got to respond to that because that is such a... Fred conveniently talks about 20 years ago, 30 years ago. The one word that you never heard in that whole little speech was DVD. DVD is the fastest adopting consumer device I think in history. At least consumer electronics device. And it was promoted by the movie companies. It wasn't fought. It wasn't resisted. There was division among some, Warren Lieberfarb of Warner is responsible for bringing that to fruition. Who fought it? The tech companies fired because they had a battle of themselves about which proprietary format they would foist on it. Now that's a format that benefits all of you, benefits anyone who wants to produce something on DVD. But, his whole history is the dinosaur history of 1984 that doesn't reflect what has happened in the last 10 years.

Avery Kotler:

One more correction to that history. Very quick. In the Napster case, and I am not as familiar with Grokster, but in the Napster case the labels that were suing it and Shawn, only asked that the infringing content be removed. Can you do that? They didn't say shut down the network. There is a ton of stuff on peer-to-peer that isn't infringing and the people want it there. They said, "We couldn't do it. We couldn't do it." But then they were able to do it. After that, the network, basically Napster let itself go. They had financial problems, but they had no incentive to keep it there.

Siva Vaidhyanathan:

They did ask for an injunction.

Avery Kotler:

But again, it was about dropping the content.

Fred von Lohmann:

That is just wrong. Cary, you can tell me, did you ever give up your damages claim against Napster? In fact, are you today seeking a damages claim against the investors and officers of Napster? Still today, years after the company closed?

Cary Sherman:

A class of songwriters has sued Bertelsmann and the Hummer Winblad for controlling, not just for investing in Napster, it is true. But to clarify, the injunction that was sought was to filter out the infringements, not to stop any non-infringing uses on the network.

Avery Kotler:

And Shawn Fanning is building a system that you referred to before that they're calling Snowcap that would be a legitimate version of peer-to-peer. I know it was a great question and I will tell you that most of my efforts now, time, in terms of music is spent with independent labels and artists. We've signed over a thousand from around the world. Obviously, those are people who want their music there, but it is a huge amount of our content and it's a lot of what we promote.

Kent Hubbell:

Next question.

Fritz Attaway:

Let me put in a plug for Larry Lessig and this is something that I'm not used to doing. But the Creative Commons is a great idea for exactly the type of thing that you describe. It's a fantastic opportunity for artists to showcase their works, whether they are a music artist or even young filmmakers. It's terrific. It's a great idea. We support that idea. The idea of showcasing art, artistic work, works on the Internet is good for everyone. What we object to is someone else making the decision whether your artistic creation is going to be shared with 300 million people. If you make that decision, that's great.

Kent Hubbell:

Next question.

Questioner:

Hi, my name is Lowell Cruz.(?) I want to thank you guys for coming tonight. I think this is a very stimulating conversation and I have to say a lot of its a little hard to sit through. A lot of us are shaking our heads. I don't think anybody in this room wants their stuff stolen. I mean, some people want to give it away for free, but the stuff we want to control, I don't think we want stolen. There just seems to be a lot of rhetoric around all of this. I'd like you to address this. I feel that there is this tyranny that you're running. It's a tyranny of fear with lawsuits. I think you're late to the technology party. You say things like, "were looking to embrace peer-to-peer." There are all these great peer-to-peer technologies out there and have yet to see anybody embrace them. I-tunes, Napster, it's all still very centralized. The reason that peer-to-peer has taken off because they are open standards and open source. You say you are trying to get music online, but there's lots of rights holders who have to be thought of, and therefore things are slow. I think that's because that's the copyright law that you have been pushing for. I think with all the rhetoric, just the lobbying, the lawsuits, saying that, excuse me, but you're trying really hard and are doing everything you can. You're not. Because these technologies have been out for a very long time. I'm somebody who writes programs, I'm a CS major, and these things are not hard to implement. Maybe it's a bit bigger than my CS project, for example. Had you expect us to stand behind you with this type of rhetoric just flying around all the time?

Cary Sherman:

The peer-to-peer thing is an example. Wayne Rosso is the former president of Grokster. He decided to go legit. So he is launching something called Mashbox and the first label that he signed is Sony BMG which is a very big label. And the idea was that everything could be traded except that it would have lower quality, and if you wanted to buy it after, you could either keep the permanent lower quality or you could buy it at higher quality. Another approach is to, allow it three plays, or a week of plays or whatever, so people can try it out and decide to buy. So on and so forth

The other p-to-p's said, "we're not going to do that! If we actually charged people, we would lose our user base. This is Michael Weiss of Morpheus who is quoted in the newspaper saying, "We would never go with a business model like that. We would never admit that we can control the filtering because then we would be liable under Betamax." That's why you are not seeing peer-to-peer used as a legitimate distribution model because right now the illegal p-to-p-er has their legal position that they've got to retain under the Betamax case. Unless you get all of them to move there, you're not going to have a legitimate peer-to-peer model. And it isn't because the companies aren't willing to do it, it's because the peer-to-peer companies aren't willing to do it.

Siva Vaidhyanathan:

There actually is a peer-to-peer model out there, and it's called the Internet. [Laughter] This is like Google. Resolves communications queries and send you the copyrighted material so you can make copies of it for yourself. There are millions of people who willfully post copyrighted material for mass consumption had no return on those particular sites. As Fred said earlier, if you have a problem with peer-to-peer, you have a problem with the Internet. Let's not pretend that this is some special device that lays on top of the Internet. Kazaa and Grokster are basically search engines.

Cary Sherman:

This is exactly the kind of argument that Google makes. They say we're no different than Google. Nobody has ever said a word of complaint about Google even though you can get illegal content on Google all the time.

Siva Vaidhyanathan:

Yes, I am pointing out the hypocrisy.

Cary Sherman:

What?

Siva Vaidhyanathan:

I'm pointing out the hypocrisy!

Cannot hear

Cary Sherman:?

I'm sorry, it's Grokster that says we are no different than a search engine. If you have a problem with us, you have a problem with the Internet, with Google. No copyright owner has complained about search engines or the like.

Siva Vaidhyanathan:

Actually, the Church of Scientology did. [Laughter] In fact, it got Googlescrub to scrub all the links to the Church of Scientology's material that was posted by critics.

Cary Sherman:

The Church of Scientology is a difficult plaintiff, I admit. [Laughter] They do bring some weird cases, but the fact of the matter is…

Siva Vaidhyanathan:

Actually many people have threatened Google.

Cary Sherman:

The notion that you are going to equate a legitimate business like Google which actually renders an unbelievably valuable service, most of which is non-infringing and legitimate.

Siva Vaidhyanathan:

Actually...

Cary Sherman:

Can I say something?

Siva Vaidhyanathan:

Yeah, go ahead.

Cary Sherman:

and equated with Grokster where the entire business motivation from the record, the whole thing was, we are going to get the Napster users when Napster closes down. We are going to change our architecture in order to work around the Napster decision. It's an entirely different thing. The notion that Grokster should be okay in order to preserve the legitimacy of something like Google which is not in question is just saying that there's no rule at all.

Questioner:

This is the rhetoric I'm talking about. You just said that nobody has ever sued Google or tried to, you know... here's a good example. You say things like, "we try to embrace p-to-p" "were trying to embrace this technology." But you've been around and you haven't done anything about it. You say things like, "the companies are doing poorly" and that gentleman made the point that the economy is down. I'm not saying that's the only reason but it just seems like there's so much rhetoric. If you guys just sat down and tried to figure out a way to make this work rather than throwing around all this stuff that makes us go, "come on guys! How are we ever going to join…"

Fritz Attaway:

I have got to defend rhetoric. All of us...

Fred von Lohmann:?

Of course you do, you're being rude to this poor gentleman.

Fritz Attaway:

We are all making a very good living spewing out this rhetoric, so don't knock it. [Laughter]

Siva Vaidhyanathan:

I don't make that good a living.

Questioner:

That's something that I can't stand for.

Panelist:

the funny thing is, if you want to set aside,

Fritz Attaway:

Your point is Why don't we change our business models? It just isn't that easy. I'll cede my time to Avery who is trying to create a new business model and he can tell you how hard it is.

Avery Kotler:

It's hard but it's working. I will tell you, this is an environment where you have a ton of time to listen to music. You're using your computer for school work but a lot of time your computer is paid for by your parents. They are not a corporation's computers. But a lot of the risks of peer-to-peer don't get to you as much in terms of the spyware, viruses you might get from it.

And frankly, in the marketplace for people, our target isn't the college user. That is not our target market. Our target is people who are in their 20s and 30s who are starting to work, and started to make some money and have a little more invested in their laptop and their personal time and want the file that they get to be the right one. They don't want any risk associated with it. But want the quality of having a massive library, good features that will steer them to new songs. All those things that I think we've been building and adding and listening to the feedback that we get. That's why Napster, my company, and a lot of our competitors are succeeding with peer-to-peer and we're growing. However, and I'm jumping in and moralizing and the rhetoric personally is that there is this equilibrium here and if it were just allowed to go untarnished and be out there and you could get everything for free and it was crystal clear and perfect. That's not an environment that we or any of our competitors who are here or have yet to even come could compete in. And so, it's not in an environment that has Cary said that people would really want to make music in.

Fred Von Lohmann:

This is, I think a good example of rhetoric trumping reality, here. Let's talk for a minute about the fact that you guys know well. You can today get perfect crystal-clear copies of everything for free on file sharing networks. You have been able to for the last five years and it doesn't appear that that's actually going to change any time real soon. That's the fact. Another fact is Napster, iTunes, these other companies, they have managed to compete with free. I hope that the entertainment industry help them do an even better job. We know how to do that and frankly I don't think suing lots of individual college students and relying on DRM that makes it impossible for you to choose what equipment you want to use. I don't think that's a good step in the right direction either.

While we are on the question of facts and crying crocodile tears for these industries, I would just like to point out that the motion picture industry right now for the last several years has had their most profitable years in history. They've had record-breaking box office, record-breaking home video sales. So when people like Alec here suggest that we're going to have to redo the whole copyright act if people adopt what the EFF is saying, I actually think there is no sign of emergency for the movie industry. I would ask Cary, "What are the profit numbers on your constituent companies?" It's not the volume because frankly I don't care how many people US Air carries, I care whether US Air is in the black. Because I just saw numbers in the paper that said BMG, for example, posted a tripling of operating profits this year. I saw that Warner is going to go IPO $750 million IPO on the stock market. So, let's start talking about what I think should matter to investors. Are you in the black? And if you're in the black, why is it necessary to sue thousands of college kids who maybe are not so much in the black?

Kent Hubbell:

Alec, make it quick and then I want a question. [Applause]

Alec French:

A couple points. I mean first try to answer directly what you're saying. You're asking about rhetoric. Well, we just heard the rhetoric. It's about these - no, from Fred -- we heard about these industries. These industries are profitable and it's about Hollywood. Again, copyright owners are songwriters -- go to Nashville, they are not doing well. They have to take second and third jobs. It's about photographers. It's about needlepoint designers. It's about directors and people trying to produce independent films. They are the people that are copyright owners. He likes to make it a Hollywood hegemony.

Fred von Lohmann:

They are not suing!

Alec French:

I'm talking Fred. I'm talking, Fred. You know what? And that's exactly right. Individuals can't afford to sue college kids. The needlepoint designer that we had before the subcommittee, the needlepoint designer that we had testifying before the subcommittee made the point that she makes so little money that she can't defend her rights. She can't go into the affinity groups, find out who's trading her stuff and bring a suit against them. The people in the affinity groups trading her stuff taught her about that. They sent her e-mails that said, "We know you can't do anything against us so we're going to keep on doing it. You can't sue us. We can defend ourselves more than you can sue us." So you need things like criminal prosecution to make that a realistic threat.

Secondly, your question about licensing and why they're not doing it. I thought Cary answered it pretty well. But I'll try and answer it again. There have been attempts to license. I've been on a number of panels with Ted Cohen from EMI who points out that AltNet that had this business model of we are going to have all the infringing stuff in blue files, and we are going to have the licensed stuff in gold files. I think it was Kazaa that they were part of. Ted Cohen said, "we'll license you. We'll do it. We'll give you EMI's content and you can put it up there in the gold files. Just tell us that shall disable the trading of the blue files. Here's their stuff, you can have it. Create a legitimate service with legal content, take out the illegal stuff. And the response which he got back was, "No, that's our draw. We can't do that. We want the illegal stuff on our network." So licensing has been tried but illegal networks don't want to go legal.

Kent Hubbell:

Alec, I think you made your point. Next question please.

Questioner:

Thanks, this all leads really nicely into my question which refers back to the idea of incentives and markets. I want to go back to the analogy of the carrot and the stick. Gentlemen, you can have a carrot and a stick but it doesn't make a donkey. [Laughter] The problem here is there is no longer a market. As soon as you move any kind of content into digital, it's automatically subject to the process of computer which is to copy. As soon as you have copies, you don't have scarcity. As soon as you don't have scarcity, you don't have the kind of economic environment that you guys were talking about in the old style ,if you want to say, capitalistic market that says the market will set a value for the items that are available in the marketplace. Instead, you're dealing with a system where there is no scarcity.

So I'm wondering, especially from the record and movie companies, what kinds of options, I don't want to say "alternative business models" but I do want to say you have two different economic paradigms at work here that are clashing in the same space. You have a space where there is one kind of economic reality and there is a space where there is another kind. And I'm wondering what other kinds of business models you could afford that will allow you to take advantage of the market where there is a market, say, something along the lines of the Google one click kind of advertising system, or something. What kinds of alternatives do you have when you can't fight this uphill battle where there is no scarcity and impose scarcity where it clearly doesn't exist.

Fritz Attaway:

I disagree with you. If I accepted what you just said, our only alternative would be to go out of business. [Applause] We are not going to do that because there is scarcity. There is scarcity because I believe that we will be able to provide you with a more attractive alternative than getting it free on p-to-p. At the same time...

Questioner:

if you want to talk about alternatives, then stop producing Diehard 3 [Applause] and I'll come.

Fritz Attaway:

So, if you don't like the movies that are produced, don't watch them.

Questioner:

[Laughter]

Fritz Attaway:

No one subpoenas you to go to the movies. I assume that you're here because you like to look at movies. If you didn't you wouldn't be here. Right? You wouldn't have anything to complain about. And you are complaining, right?

Questioner:

No, I'm a musician who is really interested in the issue of intellectual copyright and I'm interested in the economics, as well.

Fritz Attaway:

There is a marketplace and we will provide a product that people are willing to pay for. At the same time, we hope we will create an environment where there are some consequences to stealing. That's why we're filing the lawsuits.

Fred von Lohmann:

Let me actually agree with Fritz because this is such an unusual occurrence that I think it should be marked. I actually agree with Fritz because while I think that you're right, we are seeing a transition into what some have called the post-scarcity economic environment, I think that doesn't mean that markets stop working. Right, I mean there are lots of markets where there is no scarcity or little scarcity compared to traditional markets. This one being a favorite example, right, there are lots of markets where you can and in fact, we already have that in the media. Space, if you look at Napster 2.0 and Apple's iTunes and all of these things, despite what Alec would have you believe, that having the legit content next to the illegit content is daffy. In fact, that's how we've been living and Steve Jobs has been taking home a very big satchels of money with it. You can get everything that is available on Napster 2.0. Everything that is available on iTunes for free, right now, on a filesharing network. And yet, lots of people choose to purchase. And, I would argue, if we had even more attractive business models, even more would. You can get all of the MPAA movies released on DVD today downloaded from the Internet for free. And yet, DVD sales are through the roof. So I think there are lots of ways you can attract customers. The question is, when will the entertainment industry really take the kinds of steps necessary to recognize that's what they have to do, not protect the CD business. Not try to force people into the arms of Steve Jobs. But something that does actually give consumers a better choice. In a post-scarcity environment, it's all about more caring.

Siva Vaidhyanathan:

I want to agree with Fritz, too.

Questioner:

Wow! [Laughter]

Siva Vaidhyanathan:

That's what is really interesting about cultural products. Yesterday I spent $120 on CDs. For what?

Panelist:

Inaudible [Laughter]

Siva Vaidhyanathan:

I answered your question. Who is the last person, right? My tax return says that I spent nearly $1000 on iTunes last year.

Panelist:

And it was a write off?

Siva Vaidhyanathan:

Yeah, because I'm a professor of media studies so I get to deduct everything that I spend on iTunes! [Applause]

Fred von Lohmann:

He's giving us real world advice.

Siva Vaidhyanathan:

Right, I also deducted my LCD TV. [Laughter] So, but think about that. I spent $120 on CDs for a bunch of music that I could have gotten from peer-to-peer. I chose to do that instead of going to iTunes because I was sick of how iTunes keeps ratcheting up the DRM to the point where you can do less and less with it. Basically, they frustrated me back to CDs. So I'm paying more per song now, to be able to do what I want with the music. And that is how a consumer acts. Why do I spend any money on books? I live three blocks from one of the biggest collections of books in the world. Through interlibrary loan I can get any book published in the world within two weeks. I must be stupid to spend any money on books or any money on movies or any money on music. And I do. And every consumer out there does. There's always a mix with how you interact with these markets. None of this works out zero-sum. We are not talking about a two dimensional graph. We are not talking about a simple demand curve. We're not talking about widgets. Were talking about a variety of ways of experiencing culture at a variety of price points and we all have what were willing to pay for a given experience. So it's never as simple as any of the headlines want to make you believe.

Cary Sherman:

Just a couple of quick points. I think it's great that iTunes has gained as much traction as it has. And it's great that Napster has gained as many subscribers as it has but it is still infinitesimal compared to the market of people who are taking music for free. Just look at the numbers of people who are downloading on p-to-p versus the number bought from iTunes. So to talk about, "oh, all these people are buying 400 million songs" versus how many hundreds of millions, hundreds of millions are illegally downloaded.

In terms of the new business models that you asked about, I'm always amused when everybody says that they just have to change their business model. This is been going on since 1999 when Napster first emerged. You hear the same thing, "just change our business model." But nobody seems to a really come up with a very clear and easy example of how all of a sudden you're going to compensate the entire industry all over again. Thank God for the subscription services and so on and so forth that are actually bringing those new business models to market. But some of the business models we see, that we may not like that much, but which are realistic, are, you don't have record companies going out and scouting who they think are the best artists because basically record companies are venture capital firms. They invest in the riskiest of investments. Art. And they hope that an artist will find commercial appeal. If they're wrong, they lose their money. If they're right they make a lot of money, hopefully. That's the whole idea. Now they can make a lot of money because they only make their money from sales because they don't have other revenue streams because there is no right to be paid for radio play and other things like that. So, you could have McDonald's come in and they could decide on the next great artists and for a value to make their money entirely from sales.

The artist keeps all the money from the tours, the merchandise, the endorsements, the music publishing and so on and so forth. There was one deal that was struck in the UK with Robbie Williams who is a big artist there were they did a 50-50 split. Where they are just going to split all of the income. That is a possible way to go. Artists don't like that. They make a lot of money from tours. They basically regard the record company as making the investment that gives them the promotion that drives people to want to see them when they tour. Drives people to want to buy their T-shirts. Gets them endorsements for Jaguar or other products on TV. So they don't want to give that up, but there won't be record company money to invest if they can't make any money on sales. So yeah, there are different things out there that can be transitioned to gradually. You've got to decide whether that's going to be better than what we've got right now which really has created an unbelievable outpouring of fantastic music.

Kent Hubbell:

Cary, I think it's time for another question.

Questioner:

First off, thank you all for coming. This has been deeply entertaining. [Laughter] Panelist:

We'll do it again sometime.

Male Audience Member:

And free! [Laughter]

Panelist:

Nothing at Cornell is free [Laughter]

Questioner:

You got it. So basically, my understanding is that the entertainment industry has been advocating an active inducement standard for deciding what technologies would be unlawful. Mr. von Lohmann spoke about this a little bit earlier, but I waited in line, so I am going to ask it anyway. Basically, it was brought up, especially this last summer with Dean do sacked??? that there would be this standard that if industries were actively inducing people to infringe, then they would be held liable. And, as was brought up as a response, this would arguably give the content industries a large veto over any sort of new technology which was created. Given the track record of suing, VCRs, MP3 players, basically every sort of, barring DVDs I suppose, every sort of way of communicating content in the last very long time, obviously we may have reason to distrust your judgment in what exactly is a valuable future part of our culture.

I suppose the general question is, How do you justify or how do you balance the idea that you would be able to basically threaten to sue. (I do recognize that you would not always win these suits, but you also have to admit that the prospect of being faced with a multibillion dollar lawsuit is probably enough to distance anyone from coming up with too many new and interesting things), how do you balance that against the potential of things having value somewhat after they have been invented? Basically, that new technologies you can't immediately determine what they'll be used for in the future but you also can't immediately determine what their inventor intends them to be used for. So why exactly do we give you a large stick, again with the stick, I suppose, for squashing these things before they've had their opportunity to mature and become part of our culture?

Fritz Attaway:

Every developer of a new technology runs the risk of being sued for patent infringement. Patent infringement suits are filed all the time. Probably the majority of new technologies put out on the marketplace are threatened or actually sued for patent infringement. It's a risk you take. What we're suggesting is that developers of new technology should have some responsibility for preventing massive infringement. I admit, it is a difficult line to draw. Absolutely. It is a very difficult line to draw. But it has to be drawn. There can't be a situation where either there is no protection whatsoever for intellectual property in the digital environment or there's 100% protection. Either extreme is inappropriate and contrary to the public interest. But there is a middle ground. And that's what we're searching for. There has to be a middle ground, you can't have one extreme or the other.

Alec French:

Law is about incentive, right. That's what it's designed to do. It's designed to give the right incentives. To go back to what I said in the beginning, if Grokster is upheld, that means the law creates an incentive for a commercial business to set up a business model that primarily relies on illegal activity that gives them every incentive to maximize the amount of illegal activity that their business encourages and gives them a disincentive to engage in any attempt to reduce that illegal activity.

Panelist:

Like the Betamax.

Alec French:

No. I would say that they were talking to about business models and businesses versus products here. You have continuing services and Grokster and Morpheus. Another issue is that this kind of idea that I think I was hearing you express which is, any kind of innovation is meritorious in and of itself. And I would say the law has, for a long time, separated between good innovations and bad innovations and has created disincentives for coming up with bad innovations. For instance, I don't know, the law for instance disincentivizes the dissemination of computer viruses. Some of them are pretty innovative. Tremendously innovative. But the law says, "you know what, it's going to be illegal for you to distribute this type of software code." Another innovation, some people, up with some pretty amazing drug paraphernalia. Now maybe there is a great new bong out there, an innovative way of smoking marijuana, but the law says that that type of technology is illegal. The paraphernalia is because it is tied to a particular illegal activity and promotes that illegal activity. So it's not a radical idea for the law to balance, "Is this a good innovation? Is it a bad innovation? Are we giving the right incentives to innovators to create a new technology or business that is going to promote a socially beneficial behavior?

Fred von Lohmann:

Now wait a minute! The fact that we have the man who accused me of "letting the government set prices for songwriters "[Laughter] is now telling us that we should all trust government to decide what new technology... he's basically saying that the Soviet five-year plan is what we should have in America. Right? We should have government decide before each new invention comes out, "Is that a naughty invention? Or is that a good invention?" Given the relative power of the lobbying of the various approaches that you see up here, frankly I ask you, what kind of innovation environment does American high technology economy need? Does it need an environment where innovators invent first and then, if regulation is required, if, in fact, the new technology turns out to be the super bong of tomorrow [Laughter] as Mr. French suggests, then okay, fine, no one is suggesting, no one is suggesting that Congress does not have the power to regulate specific technologies if it feels that it is necessary.

Now, unfortunately, what the copyright owners are arguing in the Grokster case, what they are seeking, is the opposite rule - a rule that you ask permission first, before you innovate, and only after copyright owners decide they will allow it. In other words, they decide not to lower the hammer of multimillion dollar litigation costs. Only then do you get to invent. And I ask you just one question to close this hypothetical. If Mark Andreasen, the inventor of the first web browser, and Netscape, had to walk down to Hollywood and ask the assembled copyright owners, "I'd like to invent this world wide web thing, what do you think about that?" Or worse yet, had to go to Washington to ask permission. You know, I think it's quite clear and, contrary to Fritz's view, just because America's high-tech industries have to deal with lots of frivolous lawsuits, is no reason to pile on.

Cary Sherman:

This is just not an accurate...

[Applause]

That is not the position of the content community in the briefs filed in the Grokster case and I don't know where Fred has gotten that.

Fritz Attaway:

Where is our rhetoric guy?? Don't you object to this?

Male Audience Member:

No!Fritz Attaway:

I mean, this is ridiculous! [Laughter] [Applause]

inaudible

Fred von Lohmann:

That's encouraging! [Laughter]

Fritz Attaway:

That's an entirely different debate. What he said was wrong. That is not what we're trying to do. We don't want anybody to come to us for permission. We want a legal standard. That is what government does. It sets legal standards of behavior. It prohibits murder. It prohibits trespass. It prohibits a lot of things. We want government to set a standard for behavior dealing with intellectual property. We think [inaudible] no, absolutely not. We think that government should set a standard and that if anyone violates that standard, they are subject to legal remedy. They don't go to anyone for permission. They look at the law and they obey the law. That's what we want.

Fred von Lohmann:

Let me give you the actual test that was sought, again with some facts for you. The entertainment industry brief said, "So long as the use of a new technology is primarily for infringement, then the person who builds the technology should be liable." That was the test they asked for. Again, by that test, the Betamax itself would have failed that test. I'm quite certain that a number of Internet technologies would fail that test. I think the iPod is kind of close to the line by that test. That's the test they're asking for. After all, even with the more sensible Betamax test, these industries sued Replay TV for making a device that was capable of time shifting television, sort of an improved TiVo. It costs them $1 million a month to defend that case. In the end, the company went bankrupt. Right, so to say that this is just about going after bad actors and bad business models and thieves and pirates is a bit belied by the history of companies that have been sued under these theories. They are companies like Sony for the VCR, Sony for the digital audio tape recorder, replay TV for the personal video recorder. These are the companies that have been targeted with these theories. So as I said at the beginning, the Grokster case frankly in my view has nothing to do with peer-to-peer. It has everything to do about every other American innovator in our high-tech economy.

Fritz Attaway:?

We should have some responsibility for representing the truth here. Fred just crossed the line. The Betamax case did not say anything of the sort, that if the Betamax had not been capable of infringing use, it would have been banned. Justice Ginsburg in the oral argument of the Grokster case just pointed out that the Supreme Court went on for some 13 pages establishing that Betamax was used primarily for timeshifting and that timeshifting was a fair use, therefore non-infringing. Therefore the predominant use of the Betamax was for non-infringing purposes and therefore the Supreme Court said that Sony was not guilty of contributory infringement. That is the holding of the Betamax case.

Kent Hubbell:

Let's stop there. We have six more questions. I assume…let's end with those six. And let's have the next question.

Questioner:

This question is about the recording industry going after the original Napster. The original Napster I enjoyed it quite a bit, not just for their free music but because of all the volumes and volumes of music that you could find on there. I enjoyed it because it came as MP3s that I could do pretty much whatever I wanted with. I adjust the volumes of my songs so that they are all at the same volume so I don't have to change the volume level. Cut off annoying things at the end, all sorts of stuff. MP3s are wonderful for me to listen to music because I can adjust my music so I can have it however I like. Napster was wonderful for that. It was wonderful for the volume of music. And, I would certainly have been willing to pay for it. 10, 15 bucks a month. There were studies that suggested that most people would have been willing to pay that amount of money for it. It seems like if the recording industry and others had been able to work out a deal with Napster such that people paid that sort of money for the use of the service, artists would've been compensated, people would have had this wonderful service they could have used with all this music available, that sort of thing. It would have been a beautiful win-win universe for everyone. Bertelsmann I think sort of figured that out and made the deal with Napster. I can't understand why the other recording companies, at least in trying to work with other interested parties, didn't want to try and work out something similar. To me that strikes me as one of the most foolish business decisions ever made. I wonder if you could explain to me what the thinking was of the people who made this sort of decisions.

Cary Sherman:

In the first place, we tried to do a deal with Napster before we ever sued them. They were not interested in taking a license. They were not interested in doing anything that would require a license. They were taking the position that they could do what they wanted. What they really wanted to do was aggregate enough eyeballs that they could sell the company and make a lot of money. So we had to bring a lawsuit. There was an initial effort to do something licensed and legal that they turned down. Later on, when the venture capital people came in and they realized that they wanted to monetize the thing, they tried to do deal with record companies and there were lots of proposals, but the economics never worked out for any such deal. It wasn't as though there weren't ongoing negotiations to try and make something happen, but the economics of that deal just didn't make any sense for the record companies and the music publishers who were involved in the deal. But Napster was just not going to pay enough money, it wasn't going to make enough money to make it work, and that's why a business deal just couldn't be had.

Believe me, the record companies recognized this as something very interesting and very intriguing. And now we have a problem where if you don't establish the law that these kind of services are in fact violating the law, then anybody who tries to go legitimate will be faced with competition from a dozen other services that think that they can operate illegally and therefore you will always have a race to the bottom. That's why the Grokster case is important to us because we think you can only get a legitimate marketplace when you have a rule of law that everybody abides by. And the same thing is true of the radio stations. You wouldn't be able to license radio stations if there weren't a clear rule that they need to be licensed. That's why the Grokster p-to-p litigation is important.

Siva Vaidhyanathan:

Cary's account of what is going on with the original Napster is accurate and sincere. There was that back-and-forth. The people in the music industry weren't clueless, about this, as much as a lot of us like to laugh about how much frustration they had during that time. They actually understood what was at stake. They weren't always honest with us, about what was at stake, but they knew it. Basically, we shouldn't idealize the original Napster. It was a really stupid company. It burned through $20 million of venture capital money and didn't make a dime and it ended up with this most skeletal of assets. Basically its logo, which now a much more interesting and daring company has been able to take up. The current Napster is a much better idea and is run by much smarter people, basically. The other thing to remember about Napster is, while Napster was making all these headlines in attracting all of these eyeballs, lots of other people were doing more efficient peer-to-peer engineering, creating better interfaces, interfaces that don't have a corporate logo and corporate headquarters, therefore, basically, unsueable because you can't find them. That's why Fred says this is not about peer-to-peer because it doesn't matter if you take down Napster. It didn't matter that it went away. It doesn't matter if you take down Grokster. It doesn't matter if anybody else is dissuaded from throwing bad money after good to create another commercial version of peer-to-peer interface because basically, it's out there. We've got it. You can go to a variety of sources for this stuff. I want to end up with a cheap and unfair question for Cary. The other day, we learned in the New York Times that President Bush has been taking music from his staff and friends in the White House and loading it on his iPod. So, when are you going to sue President Bush? [Applause]

Cary Sherman:

We are only suing uploaders, not downloaders. [Laughter] [Applause]

Kent Hubbell:

We have a question from this side.

Cary Sherman:

I do want to address one thing, by the way, just because it's an interesting coda to this story. Shawn Fanning was the original Napster, is the guy who has developed this new company called Snowcap which is a backend for p-to-p's which will allow them to be legitimate. It will filter out anything that is infringing that has been claimed, only that has been claimed. So if there is some works that are in copyright but nobody even knows who the owner and nobody cares, that would not be filtered out. Only the works that are specifically claimed would be either filtered or retransmitted to a legitimate site where you can buy it. So Shawn Fanning is trying to move this business model. He can't, so long as the ninth circuit decision in Grokster is upheld.

Fred von Lohmann:

Let me just say, I agree with you. I think that the real answer is if the music industry knew in 1999 what it knows today, they would have found a deal. But I do think that it's the greatest missed opportunity of quite some time. Because I agree with Siva, they were better products etc. etc., but Napster in 2000 all the users and all the music was there. So I think that if that had gone legit, if there had been a mechanism to pay, I think people would have had very little incentive to jump to other services and other pieces of software. Of course, today, after five years of litigation and over 135 peer-to-peer file sharing applications by most counts, people now switch apps at the drop of a hat. So we've missed that opportunity which is why I think at the end of the day, I don't know any better solution, you have to actually license the individual end-users. Because software that horse is out of that barn.

Cary Sherman:

And when somebody doesn't take a license they're supposed to, we get to sue them.

Fred von Lohmann:

Yeah. I actually think enforcement is perfectly healthy.

Cary Sherman:

Hah!

Kent Hubbell:

Next question.

Fred von Lohmann:

I agree. I'm always reminded in Berlin for any of you who have a chance to go to Europe at some point, there are other places like this too, but in Berlin their subway system, you can get on and you don't have to show a ticket. You don't have to drop a token. You don't have to do anything.

Kent Hubbell:

You just have to pay when you get off.

Fred von Lohmann:

No! You don't pay when you get off. But they do spot checks in cars to see if you've got a ticket when they check, and if they catch you without a ticket, there's a fine. It is not $3000, it's like $70. It's enough to sting, to remind you that you're supposed to about a ticket. But the system works quite well and most people buy tickets. Most people have monthly passes, etc. etc. and it makes the whole thing a lot more efficient because you don't have turnstiles and guards and fences, all the paraphernalia...

Stephen:

Occasionally you'll see an American family on one of those trains complaining that "Nobody checked any tickets. [Laughter] We must be the only suckers who didn't pay."

Kent Hubbell:

Next question. I notice there's a Napster T-shirt there.

Avery Kotler:

He's not a shill. I don't know him.

Male Questioner:

Sure you don't! [Laughter] All right. Before I begin, I would like to say that this is a really good debate! I thought it was awesome. So, to start my question, I would just like to show my general side of the two arguments. If you actually noticed my shirt, you might already know my opinion. So, but one thing to point out is this shirt? It's like, it's my size. This shirt is the size that I was during Napster2 and if I was wearing the shirt when I was still young and when Napster1 was still booming, I think that this would be down to my ankles. But, the point is, I am for downloading music but not for illegally downloaded music. What about the other companies, like Kazaa? When Napster went down, the first one, why hasn't Kazaa been able to, how has it dodged all the extras, unlike Napster? Why is it still there?

Cary Sherman:

What they did was they took advice from certain lawyers [Laughter] who explained how to get around the Napster decision which basically said, well, because there was a centralized index where all the names were, they therefore had the ability to know that it request had been made for an infringing song, and they could have stopped it. So, Grokster and Morpheus, these were companies that were open nap servers at one time. They simply changed the architecture of their system. They went to the FastTrack system instead so that they could have a decentralized architecture and they outsourced the liability. Instead of having a centralized server, they just assigned to random computer users who had enough capacity, now you're the indexer. You don't even know that you're the indexer, but you're the one where the index is being kept. You don't know anything that's going on on the system. You have no control over it. And the Ninth Circuit bought it. That's why they're still in business.

Fred von Lohmann:

To give a slightly less biased view of that story, these companies developed filesharing software that allowed people to share whatever they want. Cary is exactly right. They don't control what you share, any more than Microsoft watches what you e-mail. I wish I could say, anymore than AOL watches which you IM, but they kind of do. So, it's just like any other piece of communication software. When Cary says that somehow my client tried to get around the law and threw out all these bits that created liability and kept those other bits. The reality couldn't be further from the truth. My client adopted a version that's relevant in the Grokster case, adopted Nutella which was an existing protocol that was invented by an employee of AOL Time Warner, for heaven's sake. That design is an open protocol design, and the protocol works the way it works. My client didn't design it, didn't change the way it works, didn't do any of these things to avoid liability. It's what was there that my client used and improved.

Cary Sherman:

He moved to it.

Fred von Lohmann:

After being kicked off of the FastTrack network. Hardly our desire or choice.

Cary Sherman:

Which has always been an interesting point. If they don't exercise control, how can they keep them off the network?

Fred von Lohmann:

Whoever exercises control, it sure isn't my client because he didn't exactly want to be kicked off FastTrack. Again, Kazaa, interesting question. I have no view of whether Kazaa is liable or not. Much of their technology has not been examined so we don't know whether they are more like Napster or more like Grokster. My point here is to say if you make a piece of software and that software happens to be used primarily for infringement at some given snapshot in time, that that should make you liable for every piece of copyright infringement that occurs. That's a rule that I think is devastating to essentially most Internet technologies. So, you know, to say because you designed your software in this particular fashion you can use for infringement, you should be liable.

That is a rule that the Supreme Court rejected over 20 years ago in the Betamax case when it was leveled at Sony. Same argument and frankly I just disagree with Fritz when he says, "Oh, but the VCR was used primarily for stuff that was ruled okay." I read their briefs. I encourage you. They are on our website. I read the briefs they filed in the Supreme Court in 1982 and in those briefs they said 75% of users of Betamaxes, they are archiving. They are librarying. They are not just timeshifting the watched ones and erasing them. They are keeping those TV shows. That's infringing. They also said that as many as 80% of people are skipping commercials. That's infringing. So if Fritz were right, if the Supreme Court had held that Sony was okay because it was predominantly used for non-infringing purposes, then we would have expected that the court would have addressed those other arguments. Each of which was, according to the movie industry, a predominantly infringing use. But no, the court didn't do that. The court said, instead, a rule that has served all of us quite well for 20 plus years now. So long as your technology is capable of good uses, you are not to be held responsible for bad uses. If Congress wants to change that rule, they can do it, but we the courts are not going to put every innovator in the hot seat just because their technology might be misused.

Fritz Attaway:

There he goes again! [Laughter] You cannot belief what this guy says!

Fred von Lohmann:

Read the briefs!

Fritz Attaway:

No one has even suggested that fast forwarding through a commercial is a copyright infringement!

Kent Hubbell:

We have just four more questions before this turns into a late-night event. [Laughter]

Siva Vaidhyanathan:

The chairman of Turner Broadcasting actually suggested that very thing.

Alec:

The key point is that there was a decision made at the point when Napster went down where Fred's clients and other companies that wanted to go to the p-to-p market had a choice. They knew that the vast majority of what was going on on Napster was infringement. They had a choice. They had a choice to design a system that would promote and allow legal uses, the gold files that Altman was talking about, or they had a choice to just try to engineer and work around the law and benefit from infringing uses. They chose the latter one. They chose not to create a system that would promote legal uses and create a network that would allow legal copies. They chose infringement. So when you think about these companies, and who we're talking about in the case, those are the companies that chose an illegal path.

Fred Von Lohmann:

Like Replay TV?

Siva Vaidhyanathan:

Like Xerox.

Panelist:

Like Sony for the Betamax?

Avery Kotler:

Fred, I want to dig into your solution a little bit.

Fred von Lohmann:

Just don't dig too deep.

Avery Kotler:

No, this is a question, legitimately. Because in terms of the peer-to-peer networks if you're saying they don't exercise that control necessary, or in some of them you don't know about, I mean that might be the case. But the solution you've been talking about it involves a deal with the end user. Someone is setting a price in someone's agreeing to it. But you're pretty firmly against saying that it was the government setting a price. It probably has to be someone central. Are you saying that it's the peer-to-peer service? Do they have that control? The only way that I can see a universal price being set, if it is universal, is with someone central. If it's the record labels and movie studios, then you have to get them to the table. Trust me, that's a lot of work. If it's the government, then we are really moving away from a capitalist kind of system and it doesn't sound like what you're advocating. If it's just the end user, it's really voluntary. I think that it goes back to the flatscreen TV example where, you know, we pay what we want, which isn't much. So I want to dig into what you're saying.

Fred von Lohmann:

I like the market solution. I actually think that markets generally, in most cases, do a pretty good job of finding a reasonable price. So, it seems to me that you have collecting societies, however many there might be. Maybe they'll be one. Maybe they'll be two or three like with BMI and ASCAP and CSAC. They will find a price point at which you maximize the number of people who are going to pay. So if they want to charge $100 a month for people to file share, well, that's going to be a stupid price because they are going to get a very small number of people who are going to pay it. The total take will be smaller than if they charged a lower price. There is a sweet spot somewhere on the price curve where you actually maximize total revenues. My guess is that the price point is quite low, on the order of maybe $5-$10 a month, at most. Because once you go much above that you create incentives for people to try to dodge and get out in all of this. If it's low enough that people barely feel it, they'll pay it. If you get enough people to pay it, that's a big chunk of money. So somewhere on the price curve there is a sweet spot where you maximize your total take and I trust the collecting societies to find that price point.

Avery Kotler:

Aren't a lot of their rates set in rate courts?

Fred von Lohmann:

Yes and no. CSAC's rates are not set by any court anywhere. They just choose their price. The smallest of the three. BMI and ASCAP, yes, their rates are submitted to a rate court. They choose their rates. The rate court doesn't choose them. The government doesn't choose them. They choose them. And the rate court reviews them. That is correct. Frankly, if your beef is with antitrust law, I would love it if Alec would go and lobby his former colleagues on the Hill to come up with a sensible antitrust exception that might apply. I'm all for that.

Avery Kotler:

I don't have a beef. I think what I'm trying to show is a consensus at least here, and not necessarily everywhere else, where currently that system is so complicated that there needed to be a rate that court with these collecting societies. There is no society that really... I guess you can talk to the RIAA but then you exclude massive amounts of independent labels that I still have to deal with all the time. That's in the current environment which has been set for a long time. I'm trying to find... I haven't heard anything put out by you or anyone else that doesn't involve the government kind of stepping in and setting up something universal that could actually work. I think you and I both think that the free market could get to it. I'm just trying to do that.

Siva Vaidhyanathan:

I actually think that it's not a bad idea to have the government set such a rate, as long as the government set such a rate without the elements of corruption, like certain lobbyists fly the majority leader to Bermuda on occasion, and actually take the public interest in mind which governments can do, on occasion. So it's not out of the question.

Avery Kotler:

Will they can, but a young woman here said we might have to avoid this old style capitalistic model. Maybe that's on the table. But if that's what you're saying, or somebody saying, then say it! I'm trying to talk to the gentleman who said cut through the rhetoric. What do we want? Do you want in this particular case not to have a capitalistic model? Did you want the free market to get to it but with a little nudging?

Siva Vaidhyanathan:

Look, the moment you have government allowing monopolies through intellectual property rights, you have the government involved. That's why you work in Washington, right? So let's not pretend that it's a purely free-market notion. Every industry is an interface.

Avery Kotler:

The government decided that copyrights were valuable and you're right. I just try to get positions here and frankly, again, being a representative of the free market, see what we can do with this current market to make it work. And look for suggestions from people that if they see problems try and identify where they are. If it's with interoperability, look at why there isn't interoperability. But if it's with content not being available, look at the artist. Maybe send them a letter. Send their representative a letter. When the Beatles' representatives get letters from thousands of college students, it means a lot more than when lawyers from companies call and want to do business with them. The holes are getting smaller, and the free market is doing what I think Fred wants it to do. I think we can make it move faster and I agree with some of the proposals are you guys might put forth in that regard and I'm working on Capitol Hill. I just think that you guys are saying some things. People are suggesting things that they don't really even endorse. You still buy CDs. You still sell books. You haven't really said anything otherwise. So don't walk away from here taking positions from them.

Siva Vaidhyanathan:

What is it that I don't endorse?

Avery Kotler:

Well, a lot of your statements have implied that peer-to-peer is great in that it should all be free and there shouldn't be any right to it. But again, you're not saying that you've been going and doing it, and I don't think it's for fear of retribution.

Siva Vaidhyanathan:

I do it on occasion.

Cary Sherman:

It actually said in the New York Times that you were going to do it and that I should come after you.[Laughter] but we resisted the urge. >

Avery Kotler:

I talked enough about I was trying to frame some of the perspectives that I saw.

Kent Hubbell:

Okay guys, we have four more questions.

Fred von Lohmann:

Yeah, let's get to the questions.

Questioner:

You mentioned this a couple times tonight and I want to ask a direct question about DRM. You keep bringing up iTunes and Napster2 which use these DRM formats. A lot of people use iTunes but they use it and complain about the DRM. They don't use it because of the DRM as somebody was saying that DRM is a great thing. They use it in spite of the DRM and sometimes they leave it because of the DRM. Sometimes they choose not to use it because of the DRM. I don't use iTunes. I don't use Napster 2. You couldn't pay me to use that because I don't get what I want in a digital music file. I do use e-music. I go there and I pay $.25 a song or you can pay less if you're buying more songs. And I get an MP3 that I can do anything I want with it. And I pay for this. It's not that I want to steal music. My concern is not getting music for free. It's getting music that I can use the way I want. So, if I want to pay the artists, then why won't you let me pay the artists for the features I want?

Cary Sherman:

What about the Apple DRM offends you? Is it that you are only allowed to make 10 burns of a playlist?

Questioner:

All of it.

Cary Sherman:

It bothers you that you can only copy your songs eight times?

Questioner:

Everything about it.

Siva Vaidhyanathan:

When I made wedding favors...

Cary Sherman:

And you think you should be able to give away as wedding favors other people's stuff?

Siva Vaidhyanathan:

Yeah!

Cary Sherman:

I'm sorry?

Male Audience Member:

Inaudible

Cary Sherman:

You've got to understand that it's not. Copyright is the property. The copy - you own the physical copy. What Apple is allowing is for you to transfer to any number of iPods, to five computers and to burn the same playlist …

Questioner:

I don't know. I don't use it.

Cary Sherman:

You can burn the same playlist eight times and then change one song and burn another eight playlists and on and on and on. I mean, I can't imagine any more consumer friendly DRM.

Questioner:

So, can I finish asking my question please?

Cary Sherman:

MP3s isn't that DRM, obviously. But the point is that you've got people who are taking stuff that is…

Questioner:

So I'm going to continue asking my question, anyway. [Laughter] [Applause]

Cary Sherman:

I'm sorry.

Questioner:

So, you asked when was the last time I bought music. What happens is I find music on the Internet on an MP3 blog. I think the last piece of music that I purchased I found in an MP3 on the Internet. I liked the artist and found out that she was available on e-music and bought two albums because I now have that music that I can do anything I want with. If all the music I was exposed to I could pay the artist for a while getting this DRM free stuff? I would pay for every single song I would ever listen to. So my question is, if you want me to pay you, then why are you crippling what you're trying to give me so that I have to go and get it somewhere else?

Cary Sherman:

So that everybody else doesn't put it up on the Internet so everybody else in the world takes it for free. That's the only reason.

Questioner:

I think we all want the artists to benefit from this. You're talking about, will we don't want to change our business model. I don't think DRM protects your business model. I think DRM hurts your business model.

Cary Sherman:

Well, actually the companies look at DRM as enabling new business models. I don't know why you find that funny. Subscription service, for example, where you can download onto your computer any of 1,000,000 1/2 tracks as long as you are paying a monthly fee, but that, when you stop subscribing, you don't get it anymore. That's only possible because of the DRM. That is a new way of getting music that you wouldn't have been able to have before. I don't understand why you don't see that as enabling a new business model.

Fred von Lohmann:

They could get it before and in fact, have been getting it before, for the last five years. If, in fact, there was any empirical basis for your claim, Cary, that DRM was actually keeping music off of filesharing networks and preventing it from being widely distributed among Internet users, then I can see some sense to it. But, the empirical reality is a glaring refutation, every single day, of that argument. In fact,…

The guy who runs BigChampagne who monitors file sharing networks for popularity of these tracks, has said that every exclusive track on iTunes, every track that is only available on iTunes, not available on CD anywhere, so in other words, this track was born DRM protected and there are no gaps in the armor because it's not available on CD anywhere, those tracks are available on Kazaa within four minutes of being released. [Laughter] I kid you not. So I agree completely with your question, at least where music is concerned. It's quite plain to me that DRM is not preventing any piracy. It's not catching any of the bad guys you're claiming to want to catch or prevent or limit. Instead it's doing nothing but irritating people who want to be legitimate customers. Sure, I buy tracks on the iTunes music store. Yes, I get very irritated when I have a limit of eight burns. In fact, the first thing I do when I get tracks from the music store is I burn it to CD and put it on a shelf so I know that if that copy crashes or the DRM fails or all of the irritation. But you have just added this big burden. I'm willing to put up with it because I buy a lot of music. I bought 86 CDs last year. I'm your best customer. I'm willing to put up with it. But there are a lot of customers out there who aren't. Why slam the door in their faces? Why not let it go? Because obviously that DRM is not containing the piracy problem.

Kent Hubbell:

Next question. We are on the third, going toward the second question.

Questioner:

I think the problem with the RIAA and the music industry is that you guys kind of have been consistently one step behind where everybody else is. So my question is, thinking outside of the box here, and thinking and that DRMs aren't going to work and iTunes isn't going to work and, let's face the facts, peer-to-peer is here to stay and is not going to go away, right? So it's going to be here forever. Now you guys are sitting here and saying this is hurting our industry. This year our profits are 30% down. But I honestly don't think it is. You had a big boom with the Backstreet Boys, 'N Sync and all the boy bands five years ago. [Laughter] You know, my eight-year-old sister bought 10 albums. That was a big thing for your business, but that kind of crashed. You have this little low, and you say were not selling albums. But when you are selling albums, I mean everybody just bought American Idiot. I mean, Rush of Blood to the Head, Songs in B-Minor, The Eminem Show. There are amazing albums that are coming out and selling big time. My question is, when are you going to embrace peer-to-peer? It's something that's here to stay and when are you going to use it to help develop your business model to sell these albums? Because there is a market for them. You're sitting here saying that there is no market, but there is and people are buying this album. I think the problem is within your own company and it's not with us.

Cary Sherman:

Those albums that you're describing that are selling like hotcakes are selling 50% of the levels they sold a few years ago. Why is that? You're saying they're great albums. Coldplay and the American Idiot. They're selling 50% of the levels they were selling before. Why is that?

Siva Vaidhyanathan:

American Idiot is actually selling better than their first album, I think.

Cary Sherman:

If you take a look at the top 10 albums, in 2000 they sold 60 million units. Last year there were 30.

Siva Vaidhyanathan:?

The Eminem Show, when it came out, and it came out a month earlier than anticipated, it was actually released on MP3 inadvertently a month early.

Cary Sherman:

You can look at an anecdote of one album...

Siva Vaidhyanathan:

Listen, I'm not looking at one album. The Eminem Show sold at the exact the same rate as a Marshall Mathers album which had not been released before. In other words, it didn't have that MP3 leak a month earlier. So even though everybody could get The Eminem Show for free -- in fact, it became the top download, according to BigChampagne -- even though anybody who would listen to Eminem, basically had access to it free, they went out and bought it anyway. I did!

Cary Sherman:

And imagine what it sales might have been.

Siva Vaidhyanathan:

It would've been like the previous album. Which they were. [Laughter]

Cary Sherman:

How do you know?

Alec French:

I want to switch things around here, and basically ask you a question. Because there's something that's striking me in everything being asked here. Is your question meant as a rationalization for illegal downloading or are you starting from the premise that that's wrong and I wouldn't do that, but why don't you give me this?

Questioner:

My rationalization is that you're up here and you're arguing why people shouldn't download illegally and why we need everybody to switch to iTunes, but I'm trying to say that it's not going away. You are up here saying, well it's cutting into my profits. Well, even if it is or even if it isn't cutting into your profits (and I don't think it is cutting your profits) is when are you going to learn to use that to help enhance your profits instead of fighting against it? Because you're not going to get rid of it.

Alec French:

What I can't get my mind around is the idea of until business models evolve to the point where you want them to evolve to, despite all the changes that have been made, are you saying people are justified to steal music?

Questioner:

I'm not saying people are justified?

Alec French:

I just want to make sure that we are all starting from a premise that we agree that what's going on is wrong, but here's how you cure it. Or are you saying we're defending what's going on?

Questioner:

You're looking at morality and I'm looking at reality. I think that's the issue. The reality is that this is going to happen whether it is moral or not. This is just how it's going to be. You are going to have to, and the RIAA is going to have to, and the music industry is going to have to learn to use this innovation. I know you hate innovation but you're going to have to learn to use this to further its business model and to sell more albums. You can't just sit up there and say, "You have to stop this. Everybody needs to stop downloading; it's illegal. Didn't your mama teach you not to do this?" [Laughter]

Alec French:

I think it's amazing to tell creative industries that they hate innovation. I think that if you look in the thesaurus, creativity and innovation are synonyms. Creation is innovation and to say to people who are making new inventions every day and doing the things Fritz described, amazing things with film technologies, computer animated live action, that they hate innovation is just incorrect.

Questioner:

Innovation is okay as long as it doesn't fall into that arbitrary limit that it infringes on your ability to share, to keep your own copyrighted materials. So, you know, what was that thing that you said that they said? [Laughter]

Alec French:

I said a lot of stuff.

Questioner:

The statement by the RIAA that all innovations are okay as long as it doesn't infringe on copyright laws?

Cary Sherman:

We never said anything like that! I don't know where this is coming from.

Questioner:

It's arbitrary.

Fred von Lohmann:

Is copyright law arbitrary or is it something that we all agree to?

Siva Vaidhyanathan:

It's not actually arbitrary, but is necessarily imperfect.

Panelist:

I agree with that.

Fred von Lohmann:

You have to give the public a reason to follow it. There are tens of millions of Americans who are downloading music through filesharing networks. You have to give them a reason to want to pay. You have to give them a reason, and again, I don't think more stick is your answer, and the carrot is still looking a lot like a parsnip from back here. [Laughter]

Alec French:

But again, to be sure the world playing on the same playing field, you're not trying to rationalize or justify illegal downloads, are you?

Fred von Lohmann:

I don't even know what that question means.

Alec French:

Do you think it's wrong?

Fred von Lohmann:

No. I don't think it's wrong. I think it's unlawful. They're not the same things. It's like asking me do I object to the fact that people sped when the speed limit was 55? Well, I understand that going over 55 was breaking the law and I also understand that it was a matter of social policy that didn't make any sense. Nobody was going to follow that law and in the end the speed limit was raised. So if you ask me, "Is it unlawful to download music solely because you don't want to go to the store and pay for it?" I will tell you, "Yes, that is unlawful." But I think the relevant question is how do we move from that factual statement, which frankly doesn't change anybody's mind, well few people's minds apparently, after a year and a half of lawsuits, apparently hasn't changed too many minds. How do we move from that to something that actually moves people to a world where artists and copyright owners are being compensated? I'm urging the folks in the copyright industry to try more aggressive experiments to try to lure people back.

Alec French:

I think part of the answer is the educational aspect which involves everyone understanding initially that illegal downloading is wrong and when people start with a message that, "No, it isn't wrong", then it's hard to build from there that we're trying to convert you from this that this when were saying that it's okay to do that.

Siva Vaidhyanathan:

If copyright were that simple you wouldn't have had to go to law school and I wouldn't have had to write two books about it. [Laughter] [Applause]

Kent Hubbell:

And with that let's move on to our penultimate question.

Questioner:

All right. I'm going to start off with something similar to an anecdote. I was surfing on eBay 2 days ago and I decided to search for Mr. Sherman. I came upon this eBay listing and I think the person who was offering the product for sale was from Malaysia. Mr. Sherman is an official bobble head doll from Malaysia... [Laughter]

Cary Sherman:

I am?? I didn't know that! Hey! [Laughter] [Applause]

Questioner:

... with a peace sign and a T-shirt painted on that says "you can click but you can't hide." [Laughter] [Applause] I wanted to point out that they made a big mistake about it because we know it's not really...

Fritz Attaway:

That's ours!

Questioner:

That's yours??! [Laughter]

Fritz Attaway:

Did you look for me? [Laughter]

Questioner:

I'm afraid I did not, but...

Fritz Attaway:

That's our PR slogan. We paid a lot of money for that. [Laughter]

Fred von Lohmann:

I think you should sue Cary. [Laughter] [Applause]

Questioner:

So I thought you might want to take issue with that. I wrote them an e-mail saying, "Your product is flawed." I digress. The reason I bring that up is because what I actually e-mailed the person, I got an e-mail back saying the person is not actually from Malaysia, they're from Australia, as the shipping cost is different. I was just curious. I wasn't actually planning on buying it, just so you know. After that, they said, the person was no longer in Australia but in Vanito. I thought that was interesting. I might be mispronouncing the island name.

Cary Sherman:

Vanuatu.

Questioner:

Vanuatu, okay, thank you. Well anyways, what I thought was interesting about it was that it reminded me of the entire thing of Kazaa about how Sharman Networks, the executives I think were Australian. Right? But the company was actually based in that island nation.

Cary Sherman:

They are incorporated in Vanuatu.

Questioner:

They are incorporated there. So, one thing I thought that I'd like you to maybe address is just the international aspect because, as you pointed out, I think the first person that questioned said his roommate was from Thailand, or over there. And I guess over the past years there has been a stronger movement towards harmonizing the intellectual property laws in the entire world. But what are we going to do if -- let's say we were in a utopian society in your view where no illegal filesharing existed that was based in the United States. You kept pursuing all the new technologies that would have allowed you to circumvent that or approach it from a different way and they all moved abroad the way a lot of technologies do because of the problem with jurisdiction. How would you feel that would affect innovation in the United States?

Cary Sherman:

Kazaa is an Australian company. It's incorporated in Vanuatu because Vanuatu is mostly known for drug laundering money. It's completely private. You can get no information about who owns what companies and so on and so forth. Record companies in Australia have sued Kazaa. The case will be decided probably within the next month or two, maybe May or June. It was discovered that the executives of Sharman were spiriting their assets, they were divesting their assets, they were selling off their homes and doing other things obviously expecting a bad decision. So the lawyers went into court to try and get a freeze on the assets, and they are now arguing about whether it would be a violation of Vanuatu law for them to disclose where their assets are and so on and so forth. I tell you that story only to let you know that these are not great technologists who have come up with great innovations who are really figuring out how to make things better for people. These are fly-by-night profiteers who are trying to make money on the thing while they can. Now,

Siva Vaidhyanathan:

The music industry founded itself exactly like the American film industry founded itself. [Laughter] This country was a fly-by-night pirate nation for most of its history. The American publishing industry was built upon stealing works from England! The American music industry was there to launder money from organized crime with quasi legitimate means while stealing a lot of labor and a lot of creativity from African-Americans. The American film industry was basically a pirated industry that still plots, characters, and stories from American novelists and British novelists for decades and made sure to escape the prying eyes of the Edison patent trust which had threatened to shut down innovation because Edison and his lawyers were so insistent that nobody sin in terms of intellectual property that they had to flee to Hollywood where they could be out of the line of sight of Edison's lawyers. That is an important element here. We were able to develop these amazing infrastructures because we didn't care about intellectual property laws of the rest of the world. [Applause]

Avery Kotler:

That's ridiculous. Where is the gentleman who asked about rhetoric? [Laughter] There are two people on this panel who essentially get paid to generate rhetoric. Three people that represent people who are creating things. I'll tell you that > … well, it's true. To get back to…

Fred von Lohmann:

We're all lawyers! We're all paid to generate rhetoric! [Laughter] Come on!

Alec French:

No, we try to

Fred von Lohmann:

Except Siva. Siva is an academic. He, too, is paid to generate rhetoric.

Avery Kotler:

We own the Napster. Part of the deal, we don't just have the trademark, we have the patents regarding filesharing and all the knowledge. We could set up that system very easily. It's a ton more challenging to build the reporting networks and the backend that automatically pay thousands of people all over the world. It's a lot more difficult to go to a company like Billboard and say, "we want your data and we want to license it so that people can search by what was hot in a certain year to program the music." To build the business is a lot harder and even you said that Grokster didn't build it, they borrowed the technology. I think what Cary was saying rings true in terms of innovation and how we want to create it. Don't get fooled by thinking that these companies are such innovators. If you want to foster a climate of innovation, I strongly think that we should try to do it within the current framework of the law.

Siva Vaidhyanathan:

Avery, by the way, did you disagree with anything I said?

Avery Kotler:

Yeah, absolutely! To answer her question, your question was about the international nature of...

Questioner:

Right, I wanted to know how you guys would feel an impact.

Alec French:

And it's sticky. The international nature of the Internet makes it troubling in a difficult problem. Part of the solution is what Cary talked about. When you harmonize, or when you have copyright protection in other countries and you go into those countries and you...

Questioner:

But that's imperialism, isn't it? [Chuckling]

Fred von Lohmann:

Amen.

Alec French:?

Laws are imperialism? No.

Questioner:

But when you go into other countries and try to enforce your existing system on them.

Alec French:

No. You go into other countries did you use their laws in that country to protect rights.

Questioner:

You just said you were harmonizing it.

Fred von Lohmann:

Yeah, let's be clear here.

Alec French:

It's a troubling problem also because answers like Fred's to the, "How Do You Do This? Issue" how do you create a solution to it mean that American consumers are essentially going to subsidize people elsewhere in the world. The Internet is international so American consumers paying for music here are going to be subsidizing the music that people elsewhere in the world get for free because you can't enforce those laws in other countries unless those other countries have laws and you can go into those other countries and enforce your rights there. So setting up a system like he's describing is basically putting on the backs of Americans the cost of music, movies and everything else worldwide.

Fred von Lohmann:

Well, first of all, let me clarify and correct a bunch of misconceptions here. First of all, to answer your question, yes the international question is very important. Different countries, if you take the notion of national sovereignty seriously, different countries should have the right to decide on their own intellectual property policies, just as the United States has done. As Siva points out, for the first hundred years of our history, we were known as the great pirate nation because we refused to recognize the copyrights of any non-American authors. So there was copyright law for American authors in the United States, but if you were an English author, you didn't get copyright protection. Well why was that? Because the United States at the time was a net copyright importer. American politicians and policymakers saw no reason that they should be emptying American taxpayers pockets and sending that money to England, a country we, after all, fought a Revolutionary war to kick out of the United States.

So the irony is, today, internationally, the United States (and this is an important issue that I'm glad you raised) is today going abroad and forcing our trading partners at the gun point of free trade. We love to talk about free trade and open access to markets, but when we go overseas and our trade representatives, your US trade representative, goes to countries like Singapore, like Jordan, like Chile and says to them, "You must import our entire copyright regime wholesale. You must enact the DMCA. You must enact a whole host of copyright - super maximum copyright regimes -- life plus 70 years for copyright term. A whole bunch of things that, okay granted, I don't think that was the right balance for the United States to strike at home. But I certainly don't think it's our right to tell the rest of the world what they are copyright regimes should be, after we used copyright as a development policy to build our own country. I think that's a serious problem and I think frankly there should be more focus put on the fact that the United States is, I think, exporting unjustifiably its one-sided view of copyright to countries that are in a very different position. Whether you think we need the DMCA or not, I guarantee you Jordan does not need the DMCA.

Cary Sherman:

(inaudible)... let's face the reality that copyright in this country has produced an extraordinary powerhouse that represents 6% of the GDP. So copyright has worked well, whatever the history is.

Fritz Attaway:

As long as we're on the subject of Vanuatu, if Fred and Siva are correct, that copyright is a deterrent to technological innovation, one would expect Vanuatu and Jordan and other countries that do not recognize intellectual property protection to be a hotbed of technological innovations. I suggest that you go to Vanuatu...

Fred von Lohmann:

You mean like Estonia, Moldova, Romania?

Siva Vaidhyanathan:

Like China, Russia?

Fritz Attaway:

China has very strict copyright laws for their own intellectual property.

Fred von Lohmann:

Just like the United States!

Alec French:

You go to those countries that don't protect intellectual property and you see, for instance, in China and Russia that their software industry, their movie and their music industry is virtually nonexistent and can't get up off the ground because there is no protection there. So, I'm sorry. It's true.

Fred von Lohmann:

That's just not the case. The reason those homegrown industries have a hard time getting off the ground is because they are flooded with American content that comes in and dominates their airwaves [Applause] their radio waves. This is not when American entertainment and multinational entertainment companies tell developing countries, "all of these laws we want you to adopt or for the benefit of your own home-grown creators." My answer is, you know, that is pretty hard to believe.

Questioner:

Would you also argue that the cultural perception of ownership and copyright also differs from country to country, so maybe this system that's good for the United States might not be fitting for a different culture, for instance.

Fritz Attaway:

I think that it really is a shame. I've had this conversation in France and I feel so sorry for the French people because we go there and we force them to watch our movies. We are polluting their culture. It's terrible! We force them to, isn't that awful? It's ridiculous! They watch our movies because they like our movies. They're good.

Panelist:

Diehard 3!

Fred von Lohmann:

I agree with all that, Fritz. My point was simply that strong copyright laws are not going to be the magical elixir that creates local contents bringing forth everywhere around the globe, which is the line I often hear from copyright owners.

Kent Hubbell:

Before this turns into a sleepover, [Laughter] let's take the last question.

Questioner:

This has been incredibly amusing. [Laughter] I've thoroughly enjoyed this whole debate.

Kent Hubbell:

Do you think this is ready for reality TV? Do we go into syndication next week?

Questioner:

Oooh! That sounds like a great idea. Anyway, I really liked the part where it just skimmed off of Google for a moment. I'd actually like to go back to that for a little bit. With the right search string, you can find pretty much anything that you can get off of a peer-to-peer network on the normal everyday Internet through Google. Not only that, the great majority of the material that's on the Internet that is searchable by Google, that any normal users sitting down on some computer can find, is illegal. It just is. And it's there. And then there is also the point that with a lot of the CD buying, you said CD sales decreased because people get tracks off the Internet. Sometimes there are CDs that will have, the stereotypical one track that is good and 12 that just suck. And when you go out I think it's a lot more efficient to be paying for a single track than it is to go and pay $13 for something where you are only going to use one track on it. And in that same sense, a lot of people get movies. For instance, I really enjoy Japanese animation and when something new comes out and I see it, I'm, all the time, I wait for it to come out here and then I buy the DVDs. Yes, I have it in my possession. It's in my archive and the quality is actually quite good, but I still go out and purchase the DVDs legally here because they have a lot more content. While yes, that content is available on the Internet, it just makes more sense to me to go out and get this disc where I can just have it and use it and it will always be available to me than it is for me to spend the effort to go out on the Internet and pirate.

Cary Sherman:

... respond to what I think were your questions?

Questioner:

Well the question was just to comment on that blanket series of observations that I made over the course of this debate.

Cary Sherman:

Okay. I'll do it very quickly in the hope we can end all this. On the Google thing, you're right. You can definitely get illegal content but nobody thinks that Google is building a business for the purposes of promoting infringement. [Laughter] Well, you can file the suit. But as a result, that's the distinction that we draw between legitimate businesses and people like Grokster. In terms of one track versus 12, good news, you can do it on iTunes. You can get the one track you want and forget about the other 12. And as for the promotional and that's you were talking about, sure, some people discover something on an illegal download or something that inspires him to go out and buy an album and that's great. The problem is that a lot more people keep what they discover and never go out and buy it, so we lose a lot more money than we make. But then again, if an artist or label things that this is a good way to promote, fine. It ought to be their choice, not Grokster's.

Alec French:

And to just narrow down the inquiry on Google, the very DMCA that Fred so loathes exempts Google from liability for that activity, unless a whole bunch of circumstances are met.

Fred von Lohmann:

Because, of course, the search engine companies had the lobbyists to get that. I think your question points up a very good bigger picture question. The reality is the technologies of the Internet and the technologies beyond the Internet are going to make it increasingly easy for anybody to find anything they want any time they want. If they don't want to pay for it, they won't have to pay for it. That's the technological reality that we are already living in and will continue to live in the indeterminate future. So, in that environment, going back to what I started this conversation with, we should develop a business model that aligns the incentives of content owners and creators with those technologies. We need a model that the easier it is for you to find any song you want on Google or whatever the next Google might be, great, use it, because you've paid for that already. We need a mechanism that's not about forcing consumers to have to choose between Napster 2.0 and the track they can't get on Napster 2.0 which then they have to go find on Google and all of this. We shouldn't put people in that bind. Because as long as we do, we create incentives that pit content industries against new Internet technologies because, as we've heard Cary and others on the panel say tonight, it's impossible for people like Napster 2.0 to compete if there's the other free alternatives out there. We need to take that collision out of the equation because as long as that collision is the heart of the battle, we're going to see content industries essentially against Internet technologies. That's why I like collective licensing. I'd like you to be able to pay five dollars a month...

Cary Sherman:

We're right back where we are right now.

Fred von Lohmann:

No! I think enforcement works and I think enforcement will work very differently in a situation where people have the choice to pay and get everything they want, as the earlier questioner pointed out, to get it in whatever format works for them, whatever content they like.

Cary Sherman:

If they think it's too expensive and they don't want to pay, they'll feel purely justified...

Fred von Lohmann:

There will be some enforcement. But my point is I think you find the sweet spot where you get most of the people who are willing to pay. Frankly, a lot of people will no doubt, as you guys probably would, pay through a university who could pay the fee on your behalf. ISPs could bundle it in. The market can choose any mechanism that works best to find the sweet spot and maximize using market mechanisms, the people paying. Now there will be a need for enforcement. I'm not adverse to enforcement. Copyright is always had some. But it's not an enforcement that involves suing thousands of people to 'make an example of them.' That's a very different kind of enforcement.

Kent Hubbell:

Fred, thank you. At the beginning of this panel, I thought I might have to worry about you getting enough air time. I think it's okay. So we are almost 3 1/2 hours into this panel. This has been a real marathon. You've been terrific. I think every member of the panel for wonderful insights. [Extended Clapping] I want to thank you too for staying out so long and asking such questions. And you think we should invite them back for Slope Day for Snoop? [Laughter] [Applause]

Cary Sherman:

I would like to return the compliment. I can't believe that you guys have sat here for 3 1/2 hours listening to us. So thank you! [Panelists clapping]