IPR Protection: Beyond Law and Enforcement

In the Hutong

Sore from power-walking

1635 hrs.

In conducting my technology and intellectual property rights (IPR) panel with the Notre Dame Medoza b-school students last week, I realized in the midst of Eric Priest's comments that the problem of IPR protection in China was too often painted as a two-dimensional issue.

Laws, cops, and jails

The first dimension is law, or the extent that China has on its books the statutes, treaties, regulations, and administrative procedures to protect patents, trademarks, and copyrights. I'm no lawyer, but I defer to the three attorneys on my panel (two of whom were Ph.Ds) who seemed to agree that the legal structure to protect intellectual property rights is in place in China.

The second dimension (and the one that gets all of the attention) is enforcement. Okay, China, the world seems to say, you have all of these wonderful laws to protect intellectual property of all kinds. So why are companies, individuals, and institutions violating these laws everywhere in China with seeming impunity?

And here we have the problem. The lawyers, organizations, and government negotiators fighting to protect intellectual property rights in China are focused on getting more cops to shut down more factories, arrest more people, jail them longer, fine them more, and prove to the rest of the population that messing with intellectual property law is a ticket to jail. They use that old logic "kill one to save a hundred."

As much as it might enrage some of those defenders of intellectual property rights to say this, there are not enough cops, jails, or judges in China to end the problem purely by judicial means. (In fact, I'd suggest that even in the most developed societies, the tools of enforcement were only ever meant to be used in the relatively rare cases of overt, commercial violation of patent, copyright, and trademark laws.) And there never will be.

The Law is Not Enough

Eric Priest, one of my co-panelists at the Notre Dame seminar, is a trained lawyer with two law degrees, and even he is impatient with those who leave the IPR to their attorneys:

"Both domestic and international entertainment companies have tried the litigation path in China with little success. Major Chinese search engines like Baidu.com and Yahoo.cn have deep pockets and are far and away the most popular channel for accessing free music files online in China, so they were natural targets for contributory infringement suits. But murky legal issues (Baidu won on appeal because the court found it only aggregated links to content but did not in fact serve the content itself, while Yahoo.cn was found iable for infringement under similar circumstances) and notoriously low damages for infringement available under Chinese law have left copyright owners with little recourse, and emboldened internet companies to continue to conspicuously serve up free, unlicensed content."

Eric suggests that the better approach is to create business models that ensure compensation for the artists and labels as well as the company profiting from their distribution. In the paper he lays out three potential business models that could be used in China. Without doubt, new models need to be created, tested, revised, and perfected, and therein lies a major part of the opportunity.

The problem with the model approach is that any new model hoping for adoption must deliver a experience that is superior for the consumer to the model it is replacing. A painful number of models fall short of that promise. Some of the largest companies in the world have failed to deliver a superior book-reading experience on a mobile device, and the jury is still out on Amazon's geographically limited (and still expensive) Kindle. Conversely, home video has taken off because it offers an experience that is in many ways superior to the cinema. And iTunes turned music downloads into a mainstream experience.

In China, technologists cannot stop at creating business models that satisfy the music supply chain: they have to offer something that is so much superior to free music that people will be willing to pay for it. And then the people will need to be sold. Ask Steve Jobs: even the best experiences in the world don't sell themselves. For all of its virtues, Apple had to market the hell out of the iTunes experience to drive uptake beyond an initial core of users. Success for any business model will require a greater effort still.

Win their hearts and minds and their wallets will follow

Which brings us to my point. As much as lawyers may wish us to believe that law and enforcement should be adequate, as much as engineers may wish us to believe that technology offers a silver bullet, as much as entrepreneurs believe that smart models are the solution, they are all ignoring one more important piece:

Compliance. Voluntary compliance.

I'll put that in short words: people have to want to do the right thing. Then you have to give them an opportunity (business model.) Then you have to make non-compliance inconvenient (DRM, or something better that replaces it). Then you have to make breaking the law downright costly (laws/cops/courts/jails/fines). You need every element in that chain if IPR is ever to have any value. Because you can put all of the technical and legal solutions in place that you want, but until you have convinced the consumer that compliance is in his best interest, too, he or she will find ways around it.

You make it personal. You make it meaningful. You make a civic and more importantly a social virtue out of compliance. You make that individual feel like he or she is doing something important every time they lay cash down for something they could get for free. No. I will not do that. It's not right.

Is doing that going to be easy? Absolutely not. This is what management texts refer to as "a big, hairy-assed goal." But the industry uses the size of the task to justify not undertaking it. They tell themselves "it is too hard. You cannot change Chinese culture, and anyway it is easier and cheaper to hire more lawyers and get our industry associations to talk smack about the Chinese government in congressional hearings."

Yes, it will be a long, difficult, and costly process, but so is the current effort to push for enforcement. The industry has spent millions pushing for better laws in China. It is spending tens of millions on enforcement and litigation. How much is it spending on getting people to want to pay for something they are used to getting for free?

It may take a generation or more to change the way people behave. But it can be done, and it must be done if artists - songwriters, composers, and performers - are ever to have a trade in China, and if the music business as a whole is ever to thrive.

And the time to get started is now, if not sooner.

Comments

[Jordan]

Great post. I totally agree that rightsholders have to think beyond courts as part of their strategy around their intangibles (including IPRs), not just in China but around the world (and beyond just music of course).

There is a lot to chew over here, but my immediate reaction:

Putting in place stronger enforcement mechanisms (statutory damages, specialized courts, judicial education, new IP laws, etc) seems to me to be more about controlling the market for disruptive innovation and not about the end user. The goals is often to create big sticks against the businesses that put the tools out there and to find ways to limit access to those tools by "ordinary consumers" (not power users, tinkerers, and hackers).

True that music and film industry players engage in suing consumers directly in the US, but the really interesting level of enforcement is in stopping new business models or controlling the type of innovation entrepreneurs produce -- take DVD-CCA and region coding or the RealDVD case for example. In the DVD-CCA case the controls around DVDs and formats are leveraged into controls over DVD machines and software developers for such things as region coding (which locks down DVDs from one region to be played only in that region) or format shifting.

By suing end users in the US and in other ways such as sponsoring biased "educational" materials in schools, the RIAA / MPAA are trying to change the culture more broadly (and taking the "generational view" you mentioned). Direct enforcement through lawsuits is one piece of the larger puzzle and in that they are reacting to what internet culture has become.

But moving forward to the next generations of technologies, these industries seem to be trying to place themselves in a spot where the culture around use more closely tracks their vision and allows revenue at the places they want revenue. They're trying to be more proactive in that space in shaping culture / voluntary compliance around their IP by managing innovation and they're taking the long view on how to do it.

[David]

Jordan, that was a thought-provoking comment. Thank you.

The one thing I do not want is for everyone in the world to check their brains at the door and swallow whatever rationale the legal battalions at the RIAA and MPAA are trying to cram down our throats. At the same time, we all have to acknowledge that the debate over IPR in China is taking place in a very different cultural context than in the U.S.

In the U.S., at least, there is a tacit appreciation that just because an intellectual product can be copied or shared does not mean that it should be. The debate is about what an artist or his agents (i.e., the labels) can or should do in defense of those rights in a rapidly changing world.

In China, we are fighting a more fundamental battle. Until there is popular (as opposed to legal/regulatory) acknowledgement of ownership of a work and the rights that such ownership grants, we cannot have the debate we are having in the U.S.

Until that happens, everything - from a song, to an artist's likeness, to that artists name - is fair game. The artist is stripped of everything that can secure him a livelihood in his art. Then what?

[Ed Wang]

David, on a more basic level (and presumably to tie in with the Guangzhou Trade Fair) this months issue of China Briefing is all about IPR Protection in China. It's a free download too: www.china-briefing.com - may be useful.

[gregorylent]

living in india the last dozen or more years, i see the huge benefit of violating ipr (wished-for) norms ... the entire country has benefited hugely from piracy ... i imagine the same is true for china ...

for me, ipr is just a kind of strong-arm protectionism, it is a kind of western idea, totally foreign to eastern cultures, and the argument at its base, that it is necessary so that innovation will continue, is disproved even in the west, with open-source for example ..

nothing can stop human innovation, it is the essence of being human ..

as to artist's livelihood, how did artist's make a living prior to mechanized distribution? they did, and that will continue. patronage and paying audience ...

here is a curious fact, showing the imbalance created by celebrity and the distortions of a music industry ... sting, some rock guy, is playing at the esplanade in singapore, tickets 600 bucks .. the london philharmonic plays in the same place for 200 ...

my point? manipulation is the basis of ipr, it has no value whatsoever for ordinary people ..

enjoy, gregory lent

[David]

Hi Ed - thanks for that. Very useful, especially on the trademark side of things. Cheers.

[David]

Greg, I have no doubt that India and China have benefitted immensely piracy of all forms. That suggests that piracy might not be wrong, but it does not suggest that piracy is right.

I agree that nothing can stop innovation, and I agree that some of the arguments used to justify strong-armed tactics to protect IPR are specious at best. My base principle is different: someone who creates something that delivers value or pleasure to others is entitled to realize value in return. IF that individual decides - as in the case of free and open source software - that their reward, their realized value, comes from the psychic or social rather than the material, that is their choice.

But that is the essence of the difference. People who work on OSS projects know they will not receive a reward for their work, and they choose to accept those terms. My friend Kaiser Kuo gives away the CDs for his band because he gets a different reward for it. But that is HIS choice as the creator and owner of that creation.

But to create or develop something with the implicit assumption, supported by law and practice, that its diffusion will result in compensation of some form, only to have that reward denied by people who "choose" not to pay is outright theft.

The difference is where the determination is made that something is free. It is up to the person creating it, not to the person who seeks to enjoy it, to set those terms.

Object to those terms at will. But make your case to Sting, Linkin Park, and the London Philharmonic. Don't support scofflaws. Because down that path lies danger. If you argue that these artists have no right to charge for their recorded music, they are left with only their performances or their likenesses to support them. But at some point, they cannot keep others from videotaping their performances and selling them to some local TV station. That makes it impossible for them to make anything on their music. Then people can start putting any of them in advertisements without their permission.

Don't laugh. I've seen all of these things happen here in China.

When you take on the overzealous defenders of IPR, use care in your arguments that you don't throw out the positive aspects of IPR protection along with the more nefarious practices in its name.

After all, the time is near at hand when China and India will want to defend their own IPR against others in order to ensure their own long-term development and to enrich their own peoples. Count on it.