|Photo credit: AFP
The rapid growth of the digital economy, enabled by
broadband penetration, and coupled with increases
in computing power and storage, creates global markets
for content and rights holders. But it also creates a
threat that — without adequate controls — piracy will
damage the creative industries. The discussion paper on
which this article is based, “Intellectual property rights
in today’s digital economy”, therefore focuses in particular
on the ways that the growing digital economy is
impinging on copyright.
Creativity versus piracy
Intellectual property rights provide the foundation
upon which innovation is shared, creativity encouraged
and consumer trust reinforced. But the digital world
poses a new challenge — how to manage the balance
when the consumer is the creator, when the marginal
cost of copying is zero, when enforcement of existing
law is extremely difficult, and when “free” access to information
and content is considered by many to be a
Estimates by Frontier Economics for the International
Chambers of Commerce suggest that digital piracy accounted
for about USD 75 billion in 2008, and project
that it will reach USD 215 billion by 2015. Music piracy
is at the forefront of this activity, but peer-to-peer
networks, coupled with higher broadband speeds, are
increasingly being used to share television programmes
Lost Series 5 was the most pirated show in 2010,
with over 2 million downloads in the first week and reports
of over 100 000 people sharing a single “torrent”
(metadata file for peer-to-peer sharing). Within 20 minutes
of the broadcast of the final episode of Lost, a
subtitled version in Portuguese reportedly appeared on
a pirate website.
Endemic copyright infringement facilitated by
broadband infrastructure is increasingly drawing the
telecommunications and Internet communities into the
debate on intellectual property rights. The film, music,
publishing and television industries are putting pressure
on Internet carriers and service providers to play a more
active role in addressing both commercial copyright infringement
and infringement by consumers.
Telecommunication regulators are increasingly being
looked to as the authority to implement rules that
protect copyright, while at the same time protecting
consumer interests and encouraging investment and
service innovation within the digital economy.
In the technology sector some companies have
evolved business models that are entirely based on inventing
new technologies, patenting the invention and
then licensing the rights without ever manufacturing
goods. Qualcomm, which has a market capitalization of
USD 96 billion, has a business model successfully founded
on creating and licensing intellectual property rights.
The company’s valuation is the result of an estimated
USD 12 billion investment in research and development
since its foundation in 1985. The value of patents was
also recently demonstrated when Google placed a USD
900 million bid for Nortel’s portfolio of 6000 patents,
only to lose to a USD 4.5 billion bid by a consortium
including Apple, RIM, Ericsson, Sony and Microsoft.
The protective power of patents can be abused. In
commenting on its bid for the Nortel patents, Google
stated, “The patent system should reward those who
create the most useful innovations for society, not
those who stake bogus claims or file dubious lawsuits”.
This concern about patent “trolls” is widespread.
Commenting on the United States 2009 Patent Reform
Act, the Coalition for Patent Fairness (whose partners include
Apple, Google, Cisco, Verizon, Dell, Intel and SAP)
stated that reform is needed to protect “inventors and
innovators from unjustified lawsuits and to allow them
to continue to make products and services that will help
the US economy grow”. In May 2011, Microsoft became
a member of a crowdsourcing service designed to
challenge and invalidate specious software patents and
to avoid litigation costs.
The rapid growth in the volume of patent applications
is creating patent “thickets”. These occur where
interrelated and overlapping patents result in a lack of
clarity of who owns the patent and, as a consequence,
where to go for the licence. The technology sector has
become increasingly litigious, which becomes a problem
when it stifles innovation or acts as a barrier to new
ITU’s Telecommunication Standardization Sector
(ITU–T), in conjunction with the International
Organization for Standardization (ISO) and the
International Electrotechnical Commission (IEC), have
been active in developing common patent policies.
These policies have been designed to ensure that
patents used in technology standards encourage patent
holders to share their intellectual property, in the knowledge
that their interests are protected.
Copyright — A closer look
Illegal copying and distribution of copyright materials
has had a hugely disruptive effect on a range of
copyright industries, including music, film, television,
publishing, games and software.
Digital technologies, the companies that exploit
them, and the business models they facilitate are all
potentially affected by copyright. So too is the vast
amount of user-generated content.
Social networking sites and user-generated content
Social networking sites are widely used for publishing
and sharing user-generated content. The opportunity
for users to post copyrighted material — whether
inadvertently or intentionally — is significant. For example,
there are now 750 million Facebook users,
one billion tweets are sent per week via Twitter, more
than 48 hours of video are uploaded every minute on
YouTube, Flickr hosts more than 5 billion images, and in
July 2011 the Apple App store announced that 15 billion
applications had been downloaded since the opening
of the store in 2008.
Under pressure from the creative industries, Google
implemented a number of policies in December 2010
to help dissuade people from searching for illegal copyright
material. MySpace has introduced a “take down
stay down” service that not only removes improperly
posted video or audio content, but also marks it with
a digital “fingerprint”. This prevents the user from simply
reposting the content under a different user name.
YouTube operates a similar content identification system,
which not only filters content, but also offers rights
holders the opportunity to monetize their content.
Commercial music piracy (generating income from
unlicensed sales) and private copying of music are responsible
for much of the copyright infringement. The
International Federation of the Phonographic Industry
estimated the number of files illegally shared at more
than 40 billion in 2008, a piracy rate of about 95 per
cent. Drawing on industry figures for retail pricing and
the volume of illegal downloads, Frontier Economics
has estimated the commercial value of all recorded music
digital piracy at between USD 17 and 40 billion in
2008, representing a commercial loss to the industry of
between USD 3.5 and 8 billion annually.
The commercial success of legal online film services
such as Netflix, LOVEFiLM, the Internet Movie Database,
iTunes and Blinkbox reflects the technological viability of
delivering film over the Internet. It also tempts pirates.
In July 2010, the United States government shut down
nine websites offering free access to films. The sites,
some providing access to films just hours after their offi
cial cinema release, had nearly 7 million subscribers
each month and — like many illegal music sites — made
money from advertising revenue and donations. In May
2011, it was reported that Voltage Pictures was suing
24 583 BitTorrent users, mainly in the United States, for
illegally downloading “The Hurt Locker”. The Korean
Film Council estimates that 50 per cent of households in
the Republic of Korea have illegally downloaded films,
representing a loss to the industry, particularly the DVD
market, of perhaps USD 1 billion.
Television and broadcast industries
study by Screen Digest for the World Intellectual
Property Organization highlighted four forms of “unauthorized
access to broadcast signals”: physical piracy;
hardware-based unauthorized access; unauthorized
re-broadcasting; and extra-territorial television access.
In Asia and the Arab States, unauthorized rebroadcasting
is a big problem.
Commercial streaming of “live” sports events by pirated
sites is an area of increasing concern for the industry,
as it technically becomes more feasible for the
pirates. They can now effectively transmit in real time,
using unicast (one-to-one) or peer-to-peer transmission
— they have the ability to compete directly with the
rights holder. For consumers, it can be difficult to differentiate
between legitimate and illegal services.
|Photo credit: Nokia
The development of e-readers offers a new distribution
channel for books and other published materials
but opens up the possibility of widespread sharing of
copyright material. The impact of piracy seems to be
less severe than in other media. Nigel Newton, founder
and chief executive of publisher Bloomsbury, recently
said “We should reflect on how lucky we are that we
are winning this war and that the public accept they
should pay something for e-books.” However, from
January to June 2011, the Publishers Association noted
copyright infringement online of 31 000 titles on more
than 80 000 web pages.
The software industry suffers from both physical
and digital piracy. The Business Software Alliance issued
7.5 million take down notices to peer-to-peer and
BitTorrent sites in 2009 in regard to the distribution of illegal
software online, and suggests that piracy accounts
for approximately 40 per cent of the global market. In
some countries, most of the software used is sourced illegally.
Under-licensing (where companies buy a limited
user licence and then install the product on many personal
computers or servers), counterfeiting and digital
piracy are all challenges for the industry.
Games and entertainment software have been reasonably
resilient to piracy, mainly because of the technical
difficulty of “hacking” games consoles. The games
industry has developed business models that are resistant
to piracy, for example through monthly subscriptions
and value-added services for games.
By opening up new marketing channels, the digital economy
offers wider scope for both the legitimate and counterfeit use
of trademarks. Closely related to trademark protection is the
management of domain names. The domain is the critical access
point for brands to market and to sell their services globally. The
ability to protect domain names and, where appropriate, recover
them is an increasingly important aspect of intellectual property
In 2010, trademark holders filed 2696 cybersquatting cases
covering 4370 domain names from 57 countries with the World
Intellectual Property Organization’s Arbitration and Mediation
Centre, an increase of 28 per cent over the 2009 level and
16 per cent over the previous record year, 2008. Since 1999,
20 000 cases covering 35 000 domain names have been raised,
with 91 per cent demonstrating evidence of cybersquatting.
Implications for regulators
For telecommunication regulators, copyright is a
new area. Endemic levels of piracy on the Internet are
placing significant pressures on existing business models,
legal frameworks and regulatory environments.
“Today our fragmented copyright system is ill-adapted
to the real essence of art, which has no frontiers.
Instead, that system has ended up giving a more prominent
role to intermediaries than to artists. It irritates the
public who often cannot access what artists want to
offer and leaves a vacuum which is served by illegal content,
depriving the artists of their well-deserved remuneration.
And copyright enforcement is often entangled
in sensitive questions about privacy, data protection
or even net neutrality,” said European Commissioner
Neelie Kroes in November 2010, summarizing the copyright
challenges in the European environment. Given
the global nature of the digital economy, many of these
challenges increasingly face policy-makers and regulators
in markets around the world.
Establishing an environment that fosters creativity
and innovation, enables competition, protects free
speech and exploits the transformative potential of
digital technology fully means finding a delicate balance
that both stimulates and protects all the different
Telecommunication regulators need to ensure that
all aspects of the digital economy are able to flourish,
so that the societal benefits can be realized. For now,
light touch nurturing of the digital economy still seems
a safer regulatory option than strong intervention.
* The GSR discussion paper on “Intellectual Property Rights in
today’s digital economy”, on which this article is based, was
written by A. Denton, Senior Telecommunications Expert.