NBA 600: Session 13
Digital Goods and IP
4 March 2003
Daniel Huttenlocher
Today’s Class
 Intellectual property
– What intellectual property (IP) is
• Primary focus on copyright, most relevant to
digital goods and services
– Laws governing IP
– Impact of Internet on laws and use
• When illicit copying becomes easier than buying
 Protecting digital content
– Technological means
• E.g., CSS system used for DVD’s
– Why protection technology not viable solution
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Announcements
 BOOM: Student Digital Projects and
Applications
– Weds 4-6pm Upson 4th floor
 Group case write-ups due March 13th
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Protecting Intellectual Property
 Most digital goods are intellectual property
– Profitable business requires understanding
rights
– Review related legal issues
 People have strong expectations from
prior experience
– Years of taping radio, television
– Sharing recordings
 Technology provides new abilities both to
distribute and to control content
– Balancing what is possible, legal protection and
consumer preferences
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Intellectual Property Law
 Three distinct areas of intellectual
property protection
– US law, but considerable effort to align laws of
major countries through international treaties
 Patent protects inventions (last class)
– Products or processes “reduced to practice”
• Not texts, films, music (creative works)
 Trademark protects names or symbols
– Reputation and name of firm or product
 Copyright protects creative works
– Original works of authorship
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Trademarks
 A word, name, symbol or device used to
identify and distinguish goods from others
– Servicemark same for services not goods
• Terms "trademark" and "mark" commonly used
to refer to both
 May be used to prevent others from using
a confusingly similar mark
– Not selling same thing under different mark
• Generally restricted to type of good or service
– Must be actively maintained
 US just adopted international (WIPO) law
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Copyright
 Protection provided to authors/owners
– Original works: literary, dramatic, musical,
artistic, and certain other intellectual works
• Automatic: both published and unpublished
– Generally gives owner exclusive right to
• Reproduce the copyrighted work
• Prepare derivative works
• Distribute copies
• Perform or display the copyrighted work publicly
 Limited term – works enter public domain
after some time period or upon declaration
– Owner loses exclusive rights
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What Copyright Protects
 Works embodied in some fixed form
– Not a performance, but a script or a recording
• Recording recently expanded in 1995 law
 Actual expression not thing described
– E.g., in a computer program copyright protects
the actual code not the problem that it solves
• Other implementations are not protected
– However, derivative works are protected
• If someone takes code and modifies it or copies
substantial portions
 Copyright holder has right to control how
material is distributed or reproduced
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Limitations of Copyright
 Fair use of copyrighted works
– Quotation or reference
• E.g., reviews, scholarly works, articles
– Parody
• 1994 supreme court decision – “Pretty Woman”
 Roy Orbison vs. 2 Live Crew
– Copies for personal use – so-called fair use
• 1984 supreme court decision – video taping
 Universal Studios vs. Sony
 Lists of facts are not creative works
– 1991 supreme court decision – phone directory
• Note: 5 years after NYNEX CD ROM
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Determining Fair Use
 Defense against infringement not a right
– Open to judgment – and thus litigation
 Four factors in determining fair use
– Purpose and character of use
• Commercial versus non-commercial
– Nature of copyrighted work
• How “creative” is the original work
– Amount and substantiality of portion used
• Both quality and quantity of copied material
 E.g., characters, scenes or other aspects may be
substantial even if small portion
– Effect upon potential value of copyrighted work
• Reducing need for people to buy original
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Changes in Copyright Term
 First US copyright act (1790)
– 14 years plus renewable for 14 years
 Has slowly increased over time
– 1976 law set term to life+50 years for
individuals, 75 years for corporations
 Substantial change in 1998
– Large corporate interests
• E.g., Disney facing loss of Mickey Mouse rights
– Now life+70 years, or 95 yrs for corporations
 Was challenged in courts but supreme
court recently found in favor of Congress
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DMCA
 Digital Millennium Copyright Act
– Passed in October 1998 in response to Internet
 Main feature over prior copyright law
– Ban on creating technological tools that can be
used to violate copyright
• Rather than just ban on copyright violation itself
– Substantial implications for “fair use”
• No person shall circumvent a technological
measure that effectively controls access
• While certain copying may be allowed, not
possible with copy protected digital goods
 Also part of WIPO copyright treaty
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Copyright and Digital Goods
 A fundamental premise of copyright
protection is challenged by digital goods
– Any access to digital information involves
making a copy – although generally temporary
• E.g., copying from DVD or CD to memory in
order to view/play content
 In computer may be from CD to RAM to D/A
buffer memory
 In dedicated device from CD to D/A buffer
• Downloading from Web may make cached copies
on disk drives
 On local computer or intermediate proxy server
 More permanent than RAM
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Example Digital Data Copies
Processor
Disk
Drive
Memory
(RAM)
CD
Drive
Video
D/A
Network
Interface
Audio
D/A
Music: CD to RAM to Processor to Audio D/A
Web: NI to RAM to Processor to Disk and Video D/A
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Some Copies OK Others Not
 Has become widely accepted that systems
make copies as part of their operation
– Computer memory, D/A, and disk caches
– Web proxy servers (e.g., AOL and other ISP’s)
– Digital consumer devices
 Digital goods industries challenged with
how to get paid for copies
– Given copying inherent part of experiencing
digital goods
– Easier copying makes usage more flexible for
consumer
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Digital Goods: Music and Movies
 Music and movie industries have become
purveyors of digital goods
– Introduction of music CD and video DVD
 Digital media provided attractive economic
alternative to prior media types
– Cheap to reproduce, easy to distribute
 Music CD’s initially provided no threat to
dominant business model
– Distribute content for free in temporary forms
– Charge for permanent copies
• For most, easier to buy than make illegal copy
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Digital Goods: Music
 Two technologies changed the balance
– CD readers and writers in most computers
• Writers important for playing on other devices
 Also dedicated players such as Ipod
– Widespread internet connectivity
• Sharing became easy
• Focus on file sharing software (e.g., Napster,
Kazaa) but connectivity made inevitable
 Search plus access
 Most music CD’s have no restrictions on
accessing data
– Can be freely played or copied on any device
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Digital Goods: Movies
 Video DVD’s are protected
– So-called Content Scrambling System (CSS)
– Encrypted so not viewable/playable except on
pre-approved “trusted” device
 CSS prevents content from being accessed
– Control how/when it is experienced
• E.g., only allow players sold in certain countries
to play a DVD
• E.g., do not allow viewing on Linux computers
 CSS does not prevent copying
– However standard burnable DVD’s differ from
video DVD’s
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CSS
 Each trusted device has a secret key that
is used to identify it
– Such valid devices don’t allow decrypted
(viewable) content to be copied
• E.g., consumer DVD players okay but not
computer DVD drives
• Microsoft media player okay but not most
software
– Less capable than general purpose computers
 Each DVD stores encrypted device keys of
trusted devices
– Playing DVD requires match to device key
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Breaking Trusted Devices
 Any device must decode content in order
for it to be experienced
– Consumer electronic devices “safer”
• Closed: not documented or broadly understood
• Still subject to reverse engineering
– General purpose computers must copy
decrypted version to D/A converter
• Can be intercepted at this point
• Possible to create D/A converter that does
decoding but restricted functionality
– Can always be intercepted in analog form
 Can also crack encryption scheme
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Flawed DVD Encryption
 A fundamental problem with CSS made it
relatively easy to duplicate keys
– The keys were supposed to be stored
encrypted so they could not be copied
• A manufacturer accidentally released an unencrypted key
 Should have been okay because single
compromised keys can be “revoked”
– A flaw in the scheme made it quite easy to
create many keys given a single key
• deCSS - keys and software for de-scrambling
DVDs were rapidly distributed on the Internet
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DMCA and deCSS
 The web site for 2600 magazine linked to
a Norwegian teenager’s site
– He had published deCSS program for decoding
DVD’s on his web site
 Major studios sued 2600 under DMCA
– Accused them of video piracy simply for linking
to the Web site
• Court found against 2600
 Upheld on appeal in May 2002
 Proponents of tools like deCSS decry
decision as prohibiting fair use
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DMCA and Freedom of Speech
 Princeton CS professor Ed Felten found
holes in a copyright protection scheme
– Secure Digital Music Initiative
 Recording Industry of America (RIAA)
threatened Felten with a lawsuit
– If he presented at academic conference
 Felten backed down
– But media outcry led to RIAA saying it never
intended to block him from speaking
• So he presented in August 2001 conference
 Injunction was sought against DMCA
– Judge threw out because no case at issue
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DMCA and E-Book Reader
 Russian company Elcomsoft and
programmer sued by US Attorney in S.F.
– First criminal application of the law
• Programmer taken from conference in handcuffs
 For reverse engineering Adobe’s E-Book
reader software
– Permitting users to decrypt electronic books
– Adobe dropped its support of case against
programmer after protests
 Jury acquitted company in Dec. 2002
– Based on company’s speedy removal of
offending software upon Adobe’s request
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DMCA Hasn’t Prevented Piracy
 Bigger problem is easy distribution of plain
(un-encrypted) digital content
– Sharing of audio or video files
• Via file sharing networks: Kazaa, Morpheus
• Via web sites
– Generally more compressed and hence lower
quality than original
• DVD video and even CD audio too large to share
easily over internet
 This content comes from many sources
not just directly decrypting protected data
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Serving the Consumer
 The variety of content protection schemes
is beginning to cause consumer unrest
– Bills being discussed in congress that would
require clear labeling
• Devices and goods would have to disclose how
they restrict copying or access
 Consumers value flexibility
 Device producers want to provide
flexibility
 Content producers focused on control
which is in direct conflict with flexibility
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Challenge for Digital Goods
 Copying may not be preventable
– Difficult to distinguish “legitimate” from
“illegitimate”
– Tends to result in restrictions that drive
consumers towards illegitimate copies
 How to make illegitimate copies more
expensive than legitimate ones
– Expense in time and risk rather than money
• Trusted sources without risk of viruses
– Disrupt content of illicit distribution networks
• Flooding file sharing with damaged content
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Summary of Sears Papers
 Arguments for outsourcing to Amazon
– Sears not well positioned for e-commerce
• Shut down catalog operations – unprofitable
– Lands’ End no demonstrated ability to handle
many SKU’s
• Focused apparel business
– Amazon’s low fulfillment costs and wide range
of goods
– Amazon’s personalization tools
 Arguments for presence on Amazon site
– Lands’ End brand needs wider audience
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Sears Papers Cont’d
 Arguments against outsourcing
– Amazon has not demonstrated expertise in
Sears’ key appliance business
– Sears tightly integrates appliance Web site
with in-store pickup and delivery
– Installation and service important for
appliances and not for Amazon’s goods
– Lands’ End has better customization tools
 Arguments against Amazon site
– Sears brand may not compete well head-on
against Target
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