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>>Chilled Innovation v. Balanced Evolution: Reflecting on Indirect Copyright Liability in the Digital Age

Chilled Innovation v. Balanced Evolution: Reflecting on Indirect Copyright Liability in the Digital Age

Prof. Peter S. Menell, School of Law, University of California at Berkeley
Director, Berkeley Center for Law & Technology
July 24, 2009

Following the Supreme Court’s Grokster decision four years ago, Professor Lawrence Lessig predicted that the decision would gravely hamper innovation in digital technology.  See Robert Hof, “Ten Years of Chilled Innovation,” Business Week (June 29, 2005).  This prediction reflects plausible logic.

If those who develop technology that can be used to infringe copyrights are exposed to potentially crushing liability – such as what befell Napster, MP3.com’s MyMP3 music locker service, ReplayTV’s digital video recorder, and Grokster – it seems reasonable to surmise that digital technology innovators would, certainly at the margin, invest their resources and energies elsewhere.  Such concerns tap into deeply held values and profound beliefs of our society: the role of innovation in driving social and economic progress, the belief in the unfettered search for knowledge, and freedom of expression.

Since the time of that prediction, however, digital innovation and commercialization that could potentially contribute to copyright infringement has been far from retreat.  Each month brings new digital technologies – iPod, image search engines, MySpace, YouTube, Facebook, Google’s Book Search, BitTorrent, iPhone, Twitter, Kindle 2.0 – many of which could be (and have been) portrayed as facilitating copyright infringement.  The development and commercialization of these technologies suggest that the cloud of liability has not throttled the digital innovation pipeline.

This conclusion makes intuitive sense as well.  The upside of developing the next “killer app” is massive and well publicized.  Many teenagers today dream less of “Be[ing] Like Mike [Michael Jordan]” than of becoming the next Larry and Sergei (Page and Brin, founders of Google), Shawn (Fanning, founder of Napster and now several profitable ventures), or Mark (Andreesen, founder of Netscape and angel investor; or Cuban, founder of Broadcast.com, which he sold to Yahoo! for more than $5 billion; or Zuckerberg, founder of Facebook).

Upon reflection, there are important conceptual and structural reasons for questioning the view that indirect copyright liability of the type established by the Supreme Court in Grokster (holding that inducement is actionable) or even a reasonable alternative design standard (cf. Perfect 10 v. Amazon.com, 487 F.3d 701 (9th Cir. 2007) (holding that indirect liability may be imposed for failure to take simple measures that could significantly reduce copyright infringement)) will choke off valuable innovation.

On the conceptual level, the question of whether indirect copyright liability inherently chills technological innovation requires consideration of a broader range of social balances, market mechanisms, and roles for mediating institutions.  In all fields, tort law, governmental regulation, and industry self-governance seek to guide technological advance in ways that harmonize social goals.  Indirect copyright liability plays one of the key roles in effectuating such a technological balance in media markets.

On the structural level, several countervailing forces, such as relatively modest capital requirements associated with innovation in digital distribution technologies, research and social norms, risk and liability-insulating institutions, and the importance of technological advance in fields unaffected by copyright liability suggest that the effects of indirect copyright liability on innovation will be less dire and more complex than the “chilled innovation” conjecture suggests.

Moreover, the chilled innovation conjecture downplays the beneficial effects of indirect copyright liability on the development of balanced technologies (those that tend to balance incentives to create copyrighted works with advances in information dissemination) while ignoring the adverse effects of broad immunity, which fosters deployment of parasitic technologies that tend to drive out balanced technologies.

In the case of several of the next-generation technologies and business models – YouTube, imeem, and Google Book Search – technology firms pushed ahead with services that raised copyright liability risks and copyright owners in fact sued.  But even here, the threat of liability did not deter the innovators/commercializers.

In all three of these cases, the litigation channeled technology in ways that did not so much squelch innovation as it balanced competing societal interests and policies and fueled other areas of technological advance.  For example, the litigation over YouTube spurred innovation in content identification technology.  The effects on technological innovation and development were complex, but it would be difficult to conclude that innovation or commercialization was derailed.

To the extent that the chilled innovation conjecture has force, it is not at the basic research and development stages of the innovation pipeline, but rather at the commercialization stage – which is where in the innovation process such effects are most appropriately focused.  This limits the effects of choking innovation in its infancy while providing society with a view to what is possible.  Such a policy enables entrepreneurs, investors, company strategists, policymakers, and jurists to balance the risks and benefits of different commercialization paths.

A preliminary look at academic research and patent data indicates that the NapsterAimsterGrokster trilogy has not derailed technological innovation in the peer-to-peer field.  See Peter S. Menell, “Indirect Copyright Liability and Technological Innovation,” Columbia J. Law & the Arts (forthcoming 2009), available at: http://papers.ssrn.com/sol3/papers.cfm?abstract_id=1415804.

The challenge of balanced technological evolution calls for less rhetoric and more scholarship about the relationship between the contours of copyright liability and technological innovation.


Comments From Our Readers

Peter Menell: Professor Menell responds: Fred von Lohmann does not seem to be aware of the vast amount of distributed computing research that is going on.

This is a vibrant field of research.  The lack of new entrants into the Grokster-type business model does not reflect less innovation.

The safe harbors are serving valuable purposes.  But even here, indirect copyright liability has encouraged innovation in content identification — a promising, more balanced technology.

The proposed settlement of the Google Book Search controversy points in the direction of more balanced platforms that both promote access to copyrighted works and encouragement of creativity through the development of new revenue streams for authors and publishers.  See my earlier commentary: Welcome Google 3.0 -Ushering Professional Content Into the World’s Leading Search Environment <https://www.mediainstitute.org/2009/02/24/welcome-google-3-0-ushering-professional-content-into-the-worlds-leading-search-environment/>. This is not the exception.  The iMeem controversy resolution also points in that direction.  It remains to be seen how these experiments will play out, but the key point of my commentary was that the Grokster decision as well as others appear to be supporting a more balanced ecosystem for technological innovation and creative expression.

Fred von Lohmann: Prof. Menell makes interesting points, but his empirical examples actually lend little support to them. While he is right that there has been a great deal of innovation from online intermediaries in the 4 years after Grokster, he fails to mention that most of this “Web 2.0” innovation has occurred in technology fields covered by the DMCA safe harbors (iMeem, YouTube, MySpace, Facebook).

This undermines Prof. Menell’s thesis. If innovation has been crowded into the safe harbors, it suggests that investors and entrepreneurs do fear indirect copyright infringement liability. After all, we haven’t seen any serious innovation in P2P technologies since Bit Torrent.

And as for Google Book Search, that’s not an indirect infringement case in the first place, and it’s the exception that proves the rule — that only a few deep pocketed giants can afford to gamble on innovation when the statutory damages stakes are so high (when I suggested that the statutory damages from Book Search could bankrupt Google, a Google attorney calmly walked me through the numbers, demonstrating that Google could likely meet such a judgment out of their monumental cash reserves!).

By |2018-07-04T10:45:47+00:00July 24th, 2009|Intellectual Property Issues|Comments Off on Chilled Innovation v. Balanced Evolution: Reflecting on Indirect Copyright Liability in the Digital Age