I. Prior to the passage of the Copyright Act of 1976, copyright in the United States was granted through a system of procedural mechanisms designed to maintain an important balance: the equilibrium of economic incentives for original authorship and the preservation of a robust public domain for derivative work.  Known as “formalities,” these mechanisms were abandoned for many reasons, but chief among them was the intent to eliminate hurdles for creators and thereby establish greater incentives to create. As intellectual property (IP) represents part of our gross domestic product, the elimination of copyright formalities represented a significant “win” for creators: their rights are granted as soon as their work is fixed into a medium and protected from that moment until the end of a defined term. Eliminating formalities—for example, one that required creators to register their works before receiving any rights—in 1976 was not only good for creators, but for the public as well, because it supported the United States’ transition from an industrial economy to an information economy and was critical to the economic and cultural successes of new network technologies and new media.

While ending copyright formalities in the 70s was good policy, it does not follow that formalities are inherently bad policy. There are several key benefits that formalities provided when they were in place, and they hold potential new benefits if they were to be reinstated somehow in new copyright law. Current international agreements, however, restrict the possibility of reevaluating formalities in the United States. The Berne Convention and the Trade-Related aspects of Intellectual Property rights treaty, for both of which the US is a signatory, ban formalities outright as conditions of copyright.

This paper will identify the practical benefits that statutory formalities could provide today and propose an argument for their reinstitution in US copyright law. First, I will analyze the historical precedent for a system of formalities, evaluate the potential benefits of such a system, provide an overview of some popular proposals for reinstating formalities, and finally discuss the implications of updating copyright law so drastically.

II. Berne and the End of Formalities

The Berne Convention for the Protection of Literary and Artistic Works is the primary international agreement governing copyright. Originally developed in Switzerland in 1886, the agreement defines copyright as necessary to promote innovation and artistic creation for the advancement of culture, identifies the types of works that are copyrightable, and describes the specific rights conveyed to authors. The primary purpose of the convention is to require every signatory to recognize the rights of authors from other member states in the same way that it recognizes the copyright of its own citizens. Another notable aspect of the convention is that it defines the minimum term of copyright as the life of the author plus fifty years.

The agreement has been amended or revised eight times, most recently in 1979. Article five is where the preclusion of formalities is found: “The enjoyment and the exercise of these rights shall not be subject to any formality.” By ensuring formality-free initial protection, any sufficiently original work automatically enjoys exclusive rights in all member states of the Berne Union. Before signing the treaty, the US had an established system of copyright requirements, including the use of a printed copyright notice, the registration of the work with a local copyright office, and the mandate for physical publication of the work.

These formalities were founded upon some of the earliest State and Federal copyright laws, which were modeled on the Statute of Anne (enacted in Great Britain in 1709). The Statue influenced the inclusion of article I, section 8, clause 8 in the US Constitution, where Congress is given the power to “promote the progress of science and useful arts, by securing for limited times to authors and inventors the exclusive right to their respective writings and discoveries.” Also modeled on the Statute of Anne, the Copyright Act of 1790 was the first federal legislation to address the Constitutional copyright clause, and it formalized the terms and conditions of copyright until it was amended twelve years later. The Act granted an American author the exclusive right to publish maps, charts and books for a term of 14 years, with the option to renew for another 14 years if the author was still living. The law did not include provisions for musical compositions or newspapers and explicitly stated that rights only applied to US citizens, and not foreign authors.

Also present in the Act was the caveat that protection was only extended to a work if a copy was provided to the local clerk’s office, where a written record would be made of the title, publication date, and author’s name. The author was also responsible for making public notice of the copyright in one or more newspapers for four weeks. Any work not meeting these conditions was either subject to a fine, or was dumped into the public domain with full forfeiture of the aforementioned protections. Further formalities were imposed in federal copyright law’s next major revision, the 1802 amendment to the 1790 Act. Some of the existing formalities were modified, and one was added: the requirement of a copyright notice within the published work. The notice was to immediately follow the work’s title page, and contain specific language noting the published date, author, and physical location of the deposited copy.

Formalities survived another 100 years amidst other subtle alterations of copyright law, which included adjustments to registration procedures. In 1909, Congress passed a new act that extended the terms of copyright to 28 years (plus an optional 28-year renewal after the first term expires); added lectures, musical compositions, newspapers, and other works to the list of copyrightable content; and formalized the registration process to include a classification of the protected work. Though the Berne Union was forming as of the passage of the 1909 copyright act, the US initially withheld itself from membership. At the time, altering existing copyright law to comply with Berne, particularly the passages regarding terms based on the life of the author and the ban on formalities, would have required major revisions to federal and state legislation. Also, the concept of automatic copyright was met with some skepticism and outright opposition from copyright-exploiting industries, “particularly the league of motion picture theaters and the producers of phonograph records and piano rolls, for whom formalities combated expansive assertions of authors’ rights and formed a bulwark against unanticipated liability” (Ginsburg, 19). Therefore, the United States maintained its system of formalities and was unable to join the Berne Convention, though it did eventually sign an international copyright treaty in the Universal Copyright Convention in 1954.

Two decades later, emerging technologies prompted Congress to consider a new revision to copyright law, bearing in mind the economic implications to intellectual property by new forms of mass communication. In 1976, President Ford signed the Copyright Act of 1976, which dramatically altered the fundamentals of copyright protection in the US. Notably, the doctrine of Fair Use was established and codified, the terms of copyright were extended to life of the author plus 50 years, and the exclusive rights granted to creators were redefined. The Act also removed formalities as a condition of copyright: its passage guaranteed authors protection from the moment their work was fixed in a medium, without any requirement imposed on them.

The concept of registration was not totally eliminated, however: the requirement to register was removed, but the option to do so remained, and authors who chose to register their works were then eligible to file infringement lawsuits. Participation in the Berne Convention was possible at this point, due to the new provisions regarding terms and formalities, and the US formally entered into the Berne Union in 1989 with the passage of the Berne Convention Implementation Act. Today, the US continues its participation in Berne, and further refinements to copyright law have only addressed formalities insofar as to remove the requirement to renew a copyright for the second term (Copyright Renewal Act of 1992) or update the procedures for optional registration.

III. Utilitarianism vs. Natural Rights

In every revision to copyright law, legislators have had to address the conflict between natural rights and utilitarian approaches to copyright, and that conflict is integral in the issue of copyright formalities. Like the length of copyright terms, the issue usually separates people into two distinct groups: those with a natural rights approach defend copyright protection to its fullest, and those interested in greater access to creative works take a utilitarian approach. Generally, the natural rights defenders lobby for more exclusive rights for authors, stricter rules regarding Fair Use, and longer terms. The elimination of copyright formalities and the concept of automatic copyright was a significant step towards a natural rights doctrine, since the ratio of public works to private works was drastically altered. When the law favors natural rights, as it does currently, there are fewer works in the public domain because no action is required by authors to achieve protection.

Perhaps the best illustration of the battle between utilitarian and natural rights doctrines unfolded in the court case of Eldred v. Ashcroft, which challenged the constitutionality of the 1998 Copyright Term Extension Act (CTEA). The CTEA extended copyright term of single-authored works to 70 years after the death of the author, and for that reason is regarded as one of the most controversial amendments to copyright law in the US. Supporters of the Act claim that a term extension was necessary given rise of human life expectancy and an interest in compliance with similar copyright term adjustments in the European Union. Opponents are quick to point out that the Act’s supporters were primarily large entertainment empires like Disney and the Motion Picture Association of America (MPAA), whose commercial interests are aligned with acquiring as much protection as possible. Eldred v. Ashcroft was an attempt to obtain an injunction on the enforcement of the CTEA, on the grounds that it violated the “limited times” for which Congress was empowered to assign copyrights. The attempt ultimately failed in the Supreme Court, on the grounds that as long as the term limit was not “forever,” Congress had the power to extend copyright as they saw fit.

While most would agree with the logic of the decision, Justice Breyer’s dissent points out that the case was really about a separate line in the Copyright Clause: the stipulation that copyright must be used to “promote the progress of science and useful arts.”

“It is easy to understand how the statute might benefit the private financial interests of corporations or heirs who own existing copyrights. But I cannot find any constitutionally legitimate, copyright-related way in which the statute will benefit the public. Indeed, in respect to existing works, the serious public harm and the virtually nonexistent public benefit could not be more clear” (Breyer).

While Eldred v. Ashcroft was a battle over term extensions, the questions that arose from the case can easily be applied to copyright formalities. Does the continued ban of statutory formalities represent the right balance between private protection and the public good? Is current policy on formalities adequately promoting the progress of science and the useful arts?

IV. The Case for Formalities

Many scholars and advocates for a utilitarian approach to copyright would claim that under the current legislative system, copyright protection significantly benefits the individual author over the collective good of society. Reinstating formalities as a requirement of protection is one way to restore the balance intended by the framers of the Constitution. The following paragraphs will evaluate two potential benefits of one specific formality: that works need be registered and logged (along with relevant information, such as author, medium, publication date, etc.) with the U.S. copyright office before protection is granted. First, voluntary registration is a step that would separate authors into two categories: those who intend to commercialize their work or would otherwise prefer to restrict its use by the public, and therefore need protection; and authors with no commercial incentive or need for protection, and would be satisfied with their work falling into the public domain. Arguably, much of the copyrighted content being produced today would fall into the latter category.

The Internet has facilitated the creation of more information since it’s inception than had ever been produced before it: as of 2008, Google had indexed over one trillion web pages (Google). With the doctrine of automatic copyright in place, every piece of content is protectable, whether or not the author intends for or requires such protection. Some effort has been made by the Creative Commons to encourage authors to begin waving some of their exclusive rights in order to increase the amount of reusable content on the Web. If an author, for example, wanted to retain all rights except that which precludes derivative works, he/she could assign it a customized Creative Commons license to alert potential collaborators that derivative work is welcomed. The burden, though, is on the original author to be proactive and license the work accordingly, even when no real incentive exists (other than making the Web a more creative, collaborative space).

A requirement to log works in a copyright registry, though, would accomplish the same goal and reassign the burden to the authors who prefer to reserve their rights. The copyright registry could even absorb Creative Commons’ doctrine of “some rights reserved,” by letting authors pick and choose which rights they want to reserve, and which they want waive, and log those choices into public record. Second, a central repository for the collection of information on copyrighted works would make copyright research much easier for the public and authors. Without such a collection today, determining the author and copyright status of a work can be troublesome, particularly if the work is missing a copyright notice (which was removed as a formality requirement in 1989).

If, for example, someone were to find a work that he/she wanted to modify or reproduce, the burden of ascertaining the author and publication date is on them. The work could very well be in the public domain, but if no information can be found about it, current copyright law would label it an “orphan work,” and render it unusable. With a Government-maintained, searchable copyright registry, it would be significantly easier to identify those works that are protected, the terms of their protection, and whether they are free to modify, reuse, or build upon. Works not appearing in the copyright registry would be considered public domain and free for public consumption, reproduction, and reinvention. Authors would also benefit from such a system: infringement suits would be easier to pursue, because proof of authorship and publication date would be fixed and unquestionable. Also, a clear record would create easier means for potential licensees to find the owner of a copyrighted work.

V. Proposals to Restore Formalities

In the past ten years there have been several noteworthy ideas for returning formalities in some form to copyright law. The following sections describe three of those efforts, and analyze the merits of each.

Lessig: the Public Domain Enhancement Act

Lawrence Lessig, founder of Creative Commons and the lead legal counsel for Eric Eldred in Eldred v. Ashcroft, argued vehemently for the unconstitutionality of copyright term extension. In the wake of losing the Eldred case, Lessig drafted a new piece of legislation called the Public Domain Enhancement Act, which was an attempt to remedy the momentum of copyright terms becoming perpetual. The key proposition in the Act was a new tax to renew a copyright after the initial term expires, which had two intended outcomes: make it easier to determine the holder of a copyright (because the payment of the tax, as well as the name of the work’s author, would be entered into public record), and allow copyrighted works with no remaining commercial value (at least, not enough to justify paying the tax) to pass into the public domain. The tax itself would have been an insignificant amount—one dollar for every ten years after the expiration of the initial term—and was intended to be non-burdensome: the point was to add a step for authors who wanted to retain their rights for a second term, and to enlarge the public domain with a myriad of works whose authors failed or decided not to renew.

According to Lessig’s estimation (based on a study by the Congressional Research Service), the works that authors would choose to renew would be only those with remaining commercial value at the end of their copyright term, which he suggests is very small percentage: “If you look at the work created in the first twenty years (1923 to 1942) affected by the [the CTEA), 2 percent of that work has any continuing commercial value. It was the copyright holders for that 2 percent who pushed the CTEA through. But the law and its effect were not limited to that 2 percent. The law extended the terms of copyright generally” (Free Culture, 221). The remaining 98 percent, he contends, could find value instead in the public domain, where a new author could remix, adapt, or build upon it.

The Public Domain Enhancement Act was introduced into the House of Representatives in 2003, but subsequently died in subcommittee. Part of the bill’s failure can be attributed to fierce opposition from copyright protectionists like the MPAA, who claimed that a renewal process and $1 tax would be burdensome for authors, particularly those with hundreds of copyrighted works. Lessig offers a different reason for their digression: “to assure that the public domain will never compete” (Free Culture, 255) with private work. Copyright law indeed exists to protect a type of monopoly, which is the exact opposite of fair competition. Lessig, however, points out that the terms of those monopolies must be diligently controlled, pursuant to the welfare of the public, and a formality to register and pay for copyright renewal would offer a clear path to those means.

Sprigman: New-Style Formalities

IP scholar Christopher Sprigman has another take on copyright reform: a system he calls new-style formalities. Explains Sprigman: “The simplest solution would be to preserve formally voluntary registration, notice, and recordation of transfers (and reestablish a formally voluntary renewal formality) for all works, including works of foreign authors, but then incent compliance by exposing the works of noncompliant rights holders to a ‘default’ license that allows use for a predetermined fee. The royalty payable under the default license would be low” (Sprigman, 555).

The new-style formalities idea is dissimilar to Lessig’s, in that it would not reestablish any mandatory requirements: registration, recordation of transfer, and renewal would all still be voluntary. Authors choosing to disregard the formality would still be offered the current protections offered by copyright, but their work would be subject to a default compulsory license. That license could potentially be modeled after the Creative Commons Attribution-ShareAlike license: along with attribution and the requirement to share it similarly, derivative authors would be able to reinterpret a work and the original author would also be able to collect licensing fees. The author, of course, would still be able to reserve all rights to his or her work by complying with the registration formality. The new-style formalities proposal enjoys similar benefits to the Lessig plan: additional options for authors, protection for works with commercial value after their initial terms, and a likelihood that many works would be allowed to lapse into the public domain.

Landes and Posner: Indefinite Renewals

Another idea to reintroduce copyright formalities was presented by William Landes and Richard Posner: a system of indefinite renewals, which would compel many authors to allow their work to pass into the public domain after commercial value had waned (“Indefinitely Renewable Copyright”). Similar to Lessig, Landes and Posner point to a mandatory renewal of copyrighted works at the end of the first term; their idea, however, proposes to allow copyright owners limitless opportunities to continue renewing (potentially into perpetuity, if the original author passes the copyright along to another owner, and that owner passes it along, and so on). “The composition of the public domain might well differ under an indefinite renewal system, because there would be better sorting of works into two categories: (1) valuable works, where the benefits of property rights may exceed the costs, and (2) works of little value, where the costs of administering copyright protection are very likely to exceed the benefits and a stiff renewal fee would discourage the owner from seeking continued copyright protection.” (Landes and Posner, 482).

The proposal is win/win: those who want to keep their works private forever (such as Mary Bono, who shepherded the CTEA through Congress) can do so, and the public domain would still likely be expanded with a plethora of abandoned works. Present also in this idea is the benefit of creating a record for every copyright renewal, making it easier to know who owns a work. Landes and Posner use the incentive of limitless renewals to offset the author’s burden of the tax and registration, which could conceivably address concerns like those addressed by the MPAA above. Kevin Goldman lends further credence to the indefinite renewal system in Limited Times: Rethinking the Bounds of Copyright Protection by suggesting a complimentary modification to the doctrine of fair use. “An emphasis on the fourth fair use factor would strengthen the economic incentive to create new works by providing stronger financial protection for those works, while simultaneously expanding the public domain by permitting any and all creative appropriations of those works that do not act as market substitutes” (Goldman, 733). The fourth factor referenced here is “the effect of the use upon the potential market for or value of the copyrighted work.” Essentially, the factor supports fair use of a work if it has little or no commercial impact on the original creation, and the Supreme Court has nominated it as the most important test of the fair use doctrine (Harper & Row, Publishers, Inc. v. Nation Enters).

Goldman’s theory is that if copyrights are renewable indefinitely, some owners would choose to renew for non-commercial reasons, beyond the point of commercial viability. While current IP law poses that the work would pass into public domain 70 years after the author’s death, the owner might choose to make it untouchable for much longer—possibly forever, assuming the law is not altered in the future. Applying the fourth factor of fair use, however, reinstates the possibility of derivative and transformative work, provided the new creation is sufficiently original and does note affect the commercial activities of the first. Therefore, works with continual economic value (Mickey Mouse, for example, which might always be worth something) could be renewed into perpetuity; works with limited economic value could be renewed similarly but accessible within the scope of fair use.

VI. The Challenges of Restoring Formalities

The ideas proposed above by Lessig, Sprigman, and Landes/Posner would encounter significant obstacles before actually challenging the copyright paradigm in the US. Each would be subject to a turbulent political climate and the likelihood of fierce opposition from copyright protectionists. Even excluding those externalities, the proposals would have to overcome the possibility of being deemed unconstitutional and violating international treaty. The first important question when considering the viability of restoring copyright formalities is whether such a move would require amendment to the Constitution. Lessig and Sprigman avoid challenging the Copyright Clause, but Landes and Posner’s idea of perpetually renewable rights is potentially a problem. If Congress only has only the capacity to grant copyright for “limited times,” how could any new legislation allow for indefinite renewals? While at first the two concepts seem to contradict, we might suppose that use of the word “times”—plural, as opposed to “time” in the singular—suggests that while the length of individual copyright terms are meant to be fixed in number of years, there is no limit on the number of those terms (Sprigman, 734).

This literal reading of the Constitution, however, would likely be challenged in court on the grounds that the Copyright Clause clearly implies that Congress should not be able to confer endless copyrights. While possible, passing a Constitutional amendment to allow indefinite renewals is unlikely and would require strong political willpower and public buy-in. Lessig’s and Sprigman’s proposals, absent the same conflict with the Copyright Clause, might find easier paths to legislation. Article five of the Berne Convention, however, offers it’s own rebuttal: formalities that impede the “enjoyment and the exercise” of copyright are expressly prohibited.

While there is strong likelihood that the Lessig-sponsored PDEA would have violated Berne—in that it “contains a ‘formality,’ namely an obligation to register, with the consequences of not acting being forfeiture of copyright” (Ross, 7)—Lessig contends that it his proposed tax would have complied. If not, he suggests: “If there is a formality problem with structuring this as a tax, then the proposal could be structured to apply only beyond Berne’s minimum term” (Lessig, The Eric Eldred Act FAQ). Adjusting the PDEA to apply formalities after the Berne minimum term would have been a major concession, however, because conceivably the work could pass into the public domain at that time anyway (so long as the longer term created by the CTEA were repealed).

Sprigman tackles the conflicting ideologies of the Berne Convention and his idea for reinstating formalities with the following conjecture: “the default licenses attending new-style formalities do not threaten to interfere with the exclusive rights of any rightsholder who does not consider the use of a default license to be in his interest” (559). His argument supposes that insofar as article five of the Berne convention is intended to protect the enjoyment and exercise of rights, his proposed formalities would not be an infringement of that protection similar to reasoning behind fair use: that is, if the doctrine of fair use exists to create exceptions to exclusivity for a logical purpose, a default license would do precisely the same thing while retaining an author’s right to exclude.

VII. Conclusion

The unfortunate reality of copyright law is that change is an uphill battle. All of the ideas above, despite their creator’s objections, would most likely be considered violations of the Berne Convention. As such, each proposal could face significant opposition if ever officially pursued (with the defeat of the PDEA as an example). Instead of attempting a legislative reinstitution of formalities outright, then, it makes more logistical sense to amend Berne first to remove the formality ban. Amending the treaty might not be easy, but it certainly is feasible considering the history of changes made in the past century. The United States also has exhibited no problem flexing its political muscle in international intellectual property negotiations, evidenced recently in its pressuring other countries to make the American approach to statutory damages an international standard in the proposed Anti-Counterfeiting Trade Agreement (Gibson). Still, a formal challenging of the Berne convention would require politicians with the will to enact reform, and with voices loud enough to overcome the inevitable opposition from those seeking to prolong the imbalance of private welfare and the public good. This act, I believe, is critical for the future of creativity, originality, and the progress of democracy in the United States.

I. The closure of financial crisis in the United States has ushered in a period of extensive research by economists, journalists, and legislators to determine the missteps taken to create the collapse, as well as predict the long-term repercussions. Already, there is no shortage of scholars claiming to have the answers, even though traditional research methodologies suggest we won’t have the full story for some time—after years have passed, the data has been collected, and debate has ensued. The information and communication technology industry is realizing significant predictions in the aftermath of the financial crisis, including some polarized viewpoints on the future of the “freeconomy.”

Chris Anderson, editor of Wired magazine and author of Free, coined the term “freeconomy” as a description of the paradigm shift enabled by the underlying technologies powering the Internet. His definition mostly described on-line applications, like Google’s Gmail and Facebook, which give services or information away for free to some users. For the purposes of this research paper, the definition of the freeconomy will include other types of transactionless Internet exchanges such as Internet television, piracy, online newspapers—any kind of online product or service for which some Internet users don’t directly pay. Freeconomy models have existed since the commercialization of the Web, but it should first be established that the word “free” in this context is a slight misnomer. For any exchange, there is a cost to the parties involved, even if costs are redistributed so that one party pays nothing directly. In the context of the Web, for example, a service like e-mail might be offered for free to a user. While the user may not see a direct cost for sending messages, he most likely pays for an Internet connection, and he may have purchased the device on which mail is downloaded. He might also be allowing third parties to advertise in the margins outside his inbox.

Anderson argues that in light of the crisis, “free” is the future of business. Recent catalysts like open-sourcing and creative commons licensing have stirred up some serious debate about the future of intellectual property, ownership, and the pricing of goods, which queues up Anderson’s main point: the Internet can bring costs so close to zero that firms would be foolish not to factor “free” into their business models. Anderson’s critics (Malcolm Gladwell and Andrew Keen among them) contend that today’s economic climate will eliminate open source projects—and the concept of the Web 2.0 free economy—including services like Wikipedia and YouTube, because people are now less willing to create, contribute, or innovate for free. The debate gets even more interesting when you factor in the financial collapse. Rupert Murdoch would agree, and has aggressively pursued the end of the free era of online news. Taking the opposite stance, freeconomy advocate Jim Whitehurst predicts the open source market will emerge stronger than ever, perhaps even stronger than the market for proprietary software. Given these polarized viewpoints, we’re left to wonder what the data might actually show.

This paper will present research into the following questions: what effects has the financial crisis unloaded on different segments of the freeconomy? Are people more or less willing to create content to distribute freely today? How might the freeconomy look in ten years? My main hypothesis is that each segment of the freeconomy has seen a different overall effect from the financial crisis: some for the better, others for the worse. First, to narrow down the scope of this study, this paper will define four separate, distinct segments of the freeconomy: open sourcing, journalism, cloud computing, and online video. Each section that follows will provide meaningful metrics for each segment and establish a detailed picture of how they have reacted to changing economic conditions.

II. Segment 1: Open Source

The concept of open source is itself an economic puzzle. Though the open-source philosophy has existed since the beginning of computing, it has become popularized with the widespread adoption of broadband Internet. Open-source consists of a set of production and distribution practices at the software layer of computing, but the term “open-source” itself refers to the distribution of the source code powering a piece of software: if the source code is “open,” then the nuts and bolts of that software are freely accessible. However, to be truly considered open source, accessible means three specific things: first, the software’s code must be available in it’s un-compiled source code format—the way it looks before the various scripts and bits of code get translated into a functional application. Second, that source code must be distributed freely, alongside compiled versions of the software. Third, and most importantly, the software’s creator gives up many of the copyright privileges normally associated with authorship; that is, the code must be free for others to use, study, modify, and even sell under certain license requirements.

Therein lies the conundrum of open-source: companies like Microsoft and Adobe have built empires from authoring and selling computer software. Their applications, for the most part, stay proprietary and locked down, with no access to the source code except by their own teams of developers. Why, then, would an independent software developer, after authoring an application with potential worth, distribute it freely instead of selling it? At the level of single developers, it’s difficult to identify those incentives. At the macro level, however, we can identify a few different business models that allow firms to profit from open source.

Direct Cross-Subsidies and Three Party Markets

The most popular option available to open-source software makers involves distributing software for free, while selling a related product or service. In direct cross- subsidy models, the product for sale could be technical support, hosting, consulting, or something else. For the open-source blogging platform WordPress, for example, the parent company Automattic offers all three of the aforementioned services for a fee, while running WordPress.com and distributing the WordPress application free to users. In Automattic’s case, their for-fee services directly subsidize their free services. This formula is replicated across the open-source community in variations of scale, even down to the small projects of individual developers.

The three-party-market model is similar. However, instead of selling services to the same customer, firms set up a system where one customer group subsidizes another. The model is seen across the economy: broadcast advertising is an example. Consumers are able to enjoy free programming as long as they sit through commercials, while the broadcaster subsidizes their viewers by selling airtime to advertisers. Though open-source projects are not commonly ad-supported, many firms are able to subsidize software development by separating users into free-use customers and paying customers.

Open-Source and the Recession

Open-source is being touted as one of the only “winners” in the recession. Firms have been faced with cutting costs dramatically to quell downturn in revenue, and switching from expensive proprietary systems to open-source software seems like a natural move. Higher adoption, however, doesn’t necessarily mean that open-source providers will stay profitable. Though the models above allow many firms to profit while distributing free software, many open-source initiatives rely on the contributions of unpaid developers. Some projects do so more than others, and there are several initiatives that are totally engineered from within the community, in the free time of a handful of developers. Unemployment reached almost seven percent in the height of the economic recession, leading some to point to an emerging cultural shift where Americans reconsider the value of their work. If developers on open-source projects suddenly decide their efforts are worth more than $0.00, what are the implications on the industry? Even if every firm in America replaces their software with an open-source equivalent, they would switch right back if developers lose interest in contributing to open-source. Author and entrepreneur Andrew Keen says this:

“Mass unemployment and a deep economic recession comprise the most effective antidote to the utopian ideals of open-source radicals. The altruistic ideal of giving away one’s labor for free appeared credible in the fat summer of the Web 2.0 […], but as we contemplate the world post-bailout, when economic reality once again bites, only Silicon Valley’s wealthiest technologists can even consider the luxury of donating their labor to the latest fashionable, online, open-source project.”

If Keen’s theory holds weight, we should already be able to see a noticeable shift downward in developer activity around open-source initiatives. To measure that activity, we should look at two sets of data for open-source projects over the past three years: number of updates and number of contributing developers. A lot of open-source activity is localized around a few Internet communities like Sourceforge, GitHub, and Google Code, and there is no central repository for all open-source project data. Instead of looking at the whole spectrum, then, we can look at three specific products with different functions. The graphic below plots out developer activity for Apache (a web server), Subversion (a versioning system), and Thunderbird (a desktop e-mail client).

Source: Ohloh.com

Based on this data, there are no significant trends in either updates or contributors among the three products. Apache’s activity has remained somewhat steady over time, whereas Subversion and Thunderbird have seen spikes and lulls of activity. There is one noteable sharp decline of updates shared by Thunderbird and Subversion in Q3 of 2009, following a sharp increase. Could this have been the “bite of economic reality” referenced by Keen: the moment at which developers decided their efforts were worth more than $0.00? Not likely, since the data reveals activity picked up again in Q4. The spike more probably indicates the flurry of activity leading up to scheduled software updates. Indeed, the data shows no evidence whatsover that open-source activity is slowing in these three initiatives, and repeated modeling of other open-source projects (such as the Firefox, Ubuntu, and OpenOffice applications) reveals similar findings.

If unpaid developers are still enthusiatically supporting their open-source projects, the industry will continue to compete with proprietary sofware firms. Whether Americans are reevaluating the value of their work after the recession is uncertain, but open-source most likely has a future.

III. Segment 2: Journalism

Earnings reports for the nation’s newspaper industry for Q1 of 2010 were released last month, and despite the encouraging news of higher net incomes for some of the largest publishers, advertising revenue continues to see a decline. The information is just a reiteration of the ongoing crisis for newspapers: readership is diminishing, profits are thinning, and a future without them is looking more and more probable. The current status quo is a reflection of several factors, and one of them relates to the freeconomy. Specifically, newspaper firms have not collectively settled on how to present their content in new media: while the business model for the print editions of their newspapers has remained static for over a century, none of them seem to agree on an economic model to address Internet readership. While some publishers maintain that the old way of running things—charging readers a subsidized cost for subscriptions while selling print space to advertisers—is replicated well on the web, others are looking at new options.

Many industry experts point to Craigslist as the main driver of economic downfall for newspapers. Classified advertising had long been the “cash cow” of publishers, being their most profitable type of advertising. Craigslist, of course, offers the same service for free. Once the site had expanded to the New York City region, the tipping point had been reached: sellers abandoned the visibility offered by newspaper classifieds for the bottom-line offered by the Internet. Craigslist won’t go down in history as the “newspaper killer,” though: other free Internet-based ideas are doing equal damage. Citizen journalists, blogs, social media applications—they are all contributing to the free media landscape that is draining the newspapers of capital.

When examining the way consumers engage the news today compared to twenty years ago, there stands a simple, critical difference: disaggregation. Aggregating or bundling content into packages is an effective method of selling a product to a wide audience. The newspaper is a perfect example. The average newspaper subscriber isn’t interested in reading every bit of content available: he might read the articles related to world events, sports, and business—and then he’s finished. Whether he read the whole paper is irrelevant to the price of the subscription, because the news is bundled together and sold as a package. The Internet is a fundamentally different vehicle. Publishers have disaggregated their content on the web, such that users can pick-and-choose what they want to view for themselves. In Mass Media and American Politics, Doris Graber describes the scenario as on-demand consumption: no longer do news-seekers have to watch a full-length episode of the network news to find information they want. Instead, the information can be available to them at any time, day or night, in a format of their choosing (Graber, 331). Finding new business models, then, has become a crisis for the news industry in the freeconomy.

Advertising, Subscriptions, and Freemium

Some newspapers, in order to stay competitive and engage younger readers, are keeping their content free—wholly ad-supported—on their web sites. The New York Times fits this model: it reproduces its print edition wholly online, and doesn’t offer any sort of restriction on access. Although some content requires user registration, the process is entirely free. The same strategy is followed by The Washington Post, CNN, Huffington Post, and too many blogs to name. Other news providers sell online subscriptions as well as advertising. Subscribing consumers might have access to a full database of older articles, among other premium services. This model of charging for extra services while giving away some content for free has earned the nickname “freemium.” As in the third-party-market subsidy, one customer group is subsidizing the rest.

The Recession: End of Free News?

How successful have the ad-supported, subscription, and freemium business models been for the journalism industry over the past few years? To isolate the impact of the recession on free news, we could look at factors such as online advertising revenue, subscription rates, and readership. We could also look for any changes to a news site’s model: have they changed strategies over the past few years? How many content providers switched to or from a freemium model? Have any publishers shifted more of their content behind a subscriber paywall?

The first meaningful metric to examine is the success of online advertising. If advertising on the Internet can pull in enough revenue to offset the cost of creating and distributing the content, then we should be able to document a shift towards more free news on the web. Logically, if a publisher can make enough money by only selling ad space, there wouldn’t be any reason to establish a subscribers-only barrier, which would limit viewership and limit the price of that ad space. How, then, does online advertising compare to traditional print advertising? The answer unfolds as the “ten percent problem.” For a typical newspaper with print and online editions, there is a remarkable disproportionate relationship between the ad revenues generated by each. If, for example, a national newspaper has one million readers of its print edition, it should have around ten million unique online readers. The ratio of online readers to print readers is roughly ten to one, which is a ratio seen across the industry.

Compare the advertising revenues of both editions, and you would probably see the same ratio of ten to one—but with a surprising twist. The same newspaper’s print edition might generate $50 million in advertising revenue, whereas the online counterpart could see as little as $5 million. The online edition makes only ten percent of total advertising revenue, even though the print edition claims only ten percent of readers (Karp). The ten percent problem, then, reveals that the worth of online advertising space is far less than the worth of print space. The graphic below, based on data representing approximately 2,000 newspapers in the U.S. and Canada, depicts ad revenue from 2006-2009.

Source: Newspaper Association of America

Despite the relative worth of online advertising, no major newspaper retains all of their content for subscribers. The four major national newspapers—the New York Times, Washington Post, Wall Street Journal, and USA Today—all have free news content available on their websites. Of the four publications, only the Journal employs a subscription-based model for only some content. Many of their articles give readers a few paragraphs for free, then encourage them towards subscriptions to finish reading. Also available to subscribers are various freemium services. USA Today goes the freemium route also, whereas the New York Times and Washington Post exhibit all their available content for free download. The strategy for each publisher has been in flux, however, since before the recession. The Times, for example, began charging $49.95 a year, or $7.95 a month, for online access to pieces by columnists and archived stories in 2005. In September of 2007, however, they opened that premium content to all readers, officially ending their experiments with online subscriptions. Just recently, however, the New York Times Corporation announced a return to freemium strategy. “Starting in January 2011,” says the newspaper,  “a visitor to NYTimes.com will be allowed to view a certain number of articles free each month; to read more, the reader must pay a flat fee for unlimited access” (Perez-Pena).

The Fate of the Times

Arthur Sulzberger, chairman of The New York Times Company, maintains that the shift to a metered strategy isn’t a reaction to the low relative worth of online advertising space. Instead, he cites the need to rebuild an “emotional connection” with the Times’ most faithful readers—brand loyalty, in other words. Despite the fact that the newspaper’s readership and revenue have been in the decline for years, it posted a profit for Q1 of 2010: earning $83.3 million compared to $16.4 million in the Q1 of 2009. The company’s reported advertising revenues are of particular relevance to this paper, with a surprising growth of online ad revenue to $80 million, approximately 18 percent. Revenue from print advertising, on the contrary, continued to suffer and fell 12 percent. Their online ad business now makes up more than a quarter of the company’s total advertising revenues.

The fact that Internet ads in the online version of the New York Times increased in value does not preclude an argument that giving news away for free is good for business. The fate of free news may very well depend on the outcome of the Times’ new direction—if they’re able to restore their profit by switching to the new, metered system, other newspaper publishers will likely follow. Likewise, blogs and other non-newspaper sites would have incentive to create subscriber paywalls too. After that, a future without free news on the web seems more likely: with a proven model that consumers will pay for subscriptions, content providers will gradually decrease the quantity or quality of their free offerings. Whether this is likely is unclear, but the willingness of newspapers like the Times to consider such drastic measures proves that the recession has made a profound impact on the culture of free news.

IV. Segment 3: Cloud Computing

The emergence and pervasiveness of “the cloud” represents a significant paradigm shift in the way people, businesses, and organizations share information, pool resources, and communicate. The term cloud computing refers to the use of the Internet as an on-demand provider of computing resources, which is a departure from standards of client-based activity. Whereas users have, until recently, expected their data or applications to reside on a desktop computer, today we see more people using Web-based services to store their data or run specialized software. Such a shift could have dramatic implications on economic interaction, business organization, and the day-to-day economies of average people. For all the cost savings that cloud computing promises, it has yet to take hold in large enterprises with their own vertically-integrated data centers and IT departments. Small to medium enterprises, though, have been quick adopters of cloud resources, and for obvious reasons: low startup costs, low transaction costs, and device and location independence.

Many of the services offered in the cloud are fee-based, but becoming increasingly less expensive due to the their popularity. Firms offering cloud services are able to leverage remarkable economies of scale with infrastructures built around automation. However, this section will focus primarily on those cloud services that give away something for free, of which there are many. Free cloud services include word processing, e-mail, networking, video conferencing, and more—and services are expanding as broadband adoption grows.

Cloud Models

When considering how firms are able to offer cloud services for free, the best example to look to is Google. The IT giant started as a simple search engine in 1998, but today it exists in many other markets. Aside from it’s search engine service—which is considered a form of cloud computing since the “searching” is performed in one of Google’s many data centers—the most popular cloud service they offer is Gmail, which boasts over 30 million users worldwide. After launched Gmail only four years ago, it is now the fourth most frequently-used e-mail service on the Internet behind AOL Mail, Yahoo Mail, and Windows Live Hotmail.

Google finances Gmail through a combination of three-party market and freemium strategies. Advertising forms the majority of the firm’s revenue: by selling context-sensitive and highly relevant advertising alongside search engine results, Google is able to charge a premium to advertisers. Because of advertising, their search engine’s cost-to-profit ratio is so huge that Google is able to offer many other services at the price of $0.00. Why does Google default to free? “Because it’s the best way to reach the biggest possible market and achieve mass adoption. [Google CEO Eric Schmidt] calls this Google’s ‘max strategy’” (Anderson, 123). Put in a different way, Google is capitalizing on network effects: by keeping their products free to most users, they increase adoption. As the number of adopters increases, so too does the perceived value of the product.

In addition to selling ad space, Google and other cloud services offset the costs of free computing with the previously mentioned freemium model: having a small group of users pay for the rest by charging them for premium services. In the case of Gmail, those extra services take the form of additional storage space, greater security, or technical support. Other firms in the cloud let personal users in for free while charging businesses or commercial clients a fee. Twitter, the popular microblogging service, recently adopted a business strategy that involves letting corporations make “sponsored tweets” that appear within search result pages. By starting business as a free service with no advertisements, they were able to build a large user base and leverage the network effects of their service’s popularity with a young demographic. Now that Twitter has firmly established itself, it will attempt to make itself profitable—something it has not yet achieved.

Facebook, the social media precursor to Twitter, has attempted other strategies to subsidize its free services. One of its first trials at establishing a revenue stream beyond simple banner advertisements was the Facebook Beacon System. By syncing users’ Facebook accounts with those of other web services, Beacon attempted to create a system for highly-targeted advertising, for which it could charge higher rates. For example, someone who accessed Facebook from their personal computer might also shop on Fandango.com for movie tickets. By recognizing a browser cookie installed by Facebook, Fandango would be able to associate that user with his or her Facebook account. Once that connection was established, Fandango could assign specific advertisements for that user to see while on Facebook, and publish ads on his profile page. Beacon was hugely controversial for reasons of privacy and potential exploitation, and was terminated by Facebook following a class-action lawsuit.

The Recession and the Cloud

A reasonable assumption, when considering the effect of financial meltdown on cloud computing, would be that adoption rates have increased dramatically. It makes sense that firms, when faced with cutting costs to survive tough economic times, would jump at any chance to shift their computing costs from their own shoulders to the cloud. Why maintain an expensive data center internally, when you can host it virtually for a fraction of the cost? Even better, why continue paying for expensive software licenses when comparable applications can be found for free on the Web?

The first major flaw in that assumption, however, is not considering that cloud services have operating costs as well—and those costs must be paid by someone. We have already established that online advertising has decreased for the newspaper industry, and if the same could be said for the cloud, those firms could be facing serious downturn in revenue.

Source: Internet Advertising Revenue Report, PricewaterhouseCoopers

The data reflected here, however, reveals little cause for consternation amongst cloud computing service providers. Online advertising revenue has climbed steadily throughout the recession, except for a 5 percent drop in 2009. The fortunate outcome, however, heavily favors firms like Google and Yahoo, who host high-traffic search engines. Sponsored advertisements in search results contribute almost 50 percent of the $22 billion total in 2009 pictured above. Net income for Google increased by 37 percent from the beginning of 2009, and Yahoo’s net income nearly doubled in the same amount of time. Clearly, for the firms with established search traffic, the recession doesn’t seem to have had lasting effects.

Other cloud services without the resources of Google are facing challenging times, however. The freemium model couldn’t sustain Ning, the Web 2.0 website where users could create their own social networks or communities of practice. Once signing up for the service, a customer could build a space around an idea, topic, or interest: from there, the creator would invite friends or colleagues, and the space would facilitate dialogue, foster community, and share information. The firm’s model from the beginning had been one in which the paying customers subsidized those who joined for free. The free version of the service limited networks to a maximum number of users, and restricted access to some premium features. Ning announced last week that they would be ending their free version of the service, and have encouraged all users to either upgrade or move on.  They also cut 40% of their staff. The change represents a stunning shift in direction for one of Web 2.0′s most promising ventures, but this isn’t the end of Ning—on the contrary, the service is still seeing its traffic grow. Whether it continues to see profits after phasing out free services will depend on how well they’re able to retain customers, and—perhaps more importantly—if they’re able to reintegrate advertising into their subscriber services. Online dating services are some of the few social networking services supported solely by subscribing customers, but if Ning continues turning a profit, other cloud services may consider leaving the freemium model.

V. Segment 4: Video Content

Television programming has long included “free” into its business model. Broadcasters use the airwaves to distribute their content to consumers wholly free-of-charge, with advertisers paying the cost. Television networks in America have employed the model since the 1930′s, and it wasn’t until cable programming was delivered to homes that subscription charges were introduced into the television profit model. Cable providers combine subscriber fees with traditional advertising—because they aren’t able to reach the audience size that broadcasters can, advertising space is not as valuable. However, they also are not limited to the space available on the airwaves, so they can offer paying customers more content options.

New Models for New Media

As broadcasters and cable television providers have created an online presence, they have increased the availability of programming by offering it in a variety of new formats. Recently many content providers have embraced on-demand downloading of video through their websites and third-party marketplaces like Apple’s iTunes. There still remains a mix of business models: some television content is wholly ad-supported but free to viewers, some must be purchased, and some is a combination. The freemium model is used also. By selling high-definition or enhanced video content, the consumers who are willing to pay subsidize the ones only who are not. With many tools available to them, networks and cable stations use the model that best fits a particular program.

A discussion of free video on the web should not leave out amateur content. Faster Internet connections and cheaper recording equipment has made it easy for anyone to upload and share their own niche video. Websites like YouTube and Vimeo have created large communities to facilitate the sharing of user-generated programming of various genres, and together they attract over  $10 million unique users on an average day. The video on these sites is typically shorter than standard television programming, and authors don’t generally see any income from sharing their content. Video sharing sites have also facilitated another type of free online content: pirated video. Indeed, one of the factors in YouTube’s early success was the availability of “stolen” programming or content that was infringing copyright law. This fact made YouTube the target of lawsuits by Viacom Inc., a firm owning much of the illegally-traded video on the website. YouTube, of course, wasn’t the instigator of online piracy: illegal file sharing preceded the site by several years. Peer-to-peer networks like Napster had established an easy venue for trading stolen or copied video content in the 1990s, and its successors like BitTorrent allow just as much freedom to access free films, television shows, and other video.

The Recession’s Impact

For a quick snapshot of the changing nature of free when it comes to online video, we could look at Hulu. Established in March 2007, Hulu is a joint venture owned by several of the big broadcasting companies: NBC Universal, News Corp., and the Walt Disney Company. By initially coming together and offering free, easily-shared content online, the broadcasters used Hulu as a platform to reduce Internet privacy. If they gave users what they wanted—free television—they could take power away from pirates, and ultimately recapture control of the distribution of their content. Programming on Hulu is ad-supported, and ads appear as frequently as they do if viewers were watching live television. Hulu’s deals with content owners center on an advertising revenue split; the owners usually receive 50 to 70 percent, with Hulu keeping the rest (Stelter). Users have responded to the model with high traffic volume. The company has recently begun seeing profit, as it reported $100 million earnings in the past two quarters.

Independent research conducted by the Nielsen Company reveals that advertisements accompanying online video outperforms their broadcast counterparts. Nielsen used “key brand impact metrics of ad recall, brand recall, message recall and likeability to determine the effectiveness of ads” (April 19), and determined that online commercials created deeper brand impact. The environment in which viewers download online video is different than that of traditional television: according to the research, people are more engaged because online content is more difficult to access than television. More steps are required, and viewers actively seek out specific programs, so the likelihood of an attentive audience is high.

Despite the recent revelation that online advertising is more effective, Hulu is going to start testing other models soon. Before the end of May, they plan to start offering a premium service at a subscription, which would allow users to pay extra for more content. The change is a direct result of changing economic conditions, and exposes the revelation that although advertising might be more “effective” online, effectiveness has not yet translated into higher revenue for content providers. There have been other recent developments at Hulu to cause concern for the future of free video: Viacom recently pulled two of their biggest properties: Comedy Central’s The Colbert Report and The Daily Show With Jon Stewart. Unable to settle on a price for these shows, Viacom removed them from Hulu entirely—reflecting a concern over the shows’ relative worth compared to the ad revenue it earned through the streaming service. The shows remain free on Comedy Central’s site, however, where Viacom retains total control over ad placement, targeting, and sales. Some content providers are being less cautious over free video, and even reformatting their content to facilitate its appeal online. NBC Universal’s Saturday Night Live, for example, recently introduced the “digital short,” a variation on sketch comedy that is intended for an Internet audience. By keeping these videos short and self-contained, NBC can capitalize on their potential to “go viral”—in other words, to be shared quickly by users across a variety of platforms. The nature of the digital shorts also makes it easy for viewers to download them freely to mobile devices. Without attaching ads to the online shorts, however, NBC is exhibiting a different strategy than Viacom—one that attempts to regenerate interest in the live show and increase the value of advertising space in that context.

VI. Conclusion

Cory Doctorow of The Guardian newspaper points out one of the biggest problems with the freeconomy in a review of Free: The Future of a Radical Price:

“Free suffers from the same fate as many other recent business books: it describes a business-climate that no longer exists. The anecdotes and evidence come largely from the era of the cheap money bubble […] [that had] the side-effect of funding much of free’s underpinnings. Indeed, there’s something eerily Marxist in this phenomenon, in that it mirrors Marx’s prediction of capitalism’s ability to create a surplus of capacity that can subsequently be freely shared without market forces’ brutality.”

That “surplus of capacity” has characterized itself as millions of freely available YouTube videos, blog posts, and free Web services. The research presented in this paper attempts to address the question of whether the surplus can sustain itself in today’s economic climate. One of the problems that the freeconomy faces today is that recent events have caused firms and consumers alike to reevaluate all of their economic interactions. In every case, the costs of free content must be paid, and the networked economy ensures that every actor sees some sort of impact. Dan Ariely in Predictably Irrational states the problem as such: “the critical issue arises when free becomes a struggle between a free item and another item—a struggle in which the presence of free leads us to make a bad decision” (52). It might have been a misstep for newspapers to offer free content on the web in the first place. By pricing their articles for free, they contributed to the devaluation of online advertising. Newspapers also created the consumer expectation that news should be free, which may come back to haunt them as they start asking subscription fees of their readers. Likewise, consumers perhaps made bad decisions by valuing free, pirated video on YouTube over iTunes downloads. By doing so, they could be partially responsible for creating a new paradigm for online video—one that might cost.

By studying separate segments of the freeconomy, we can conclude that the future of free will be different across the Web. Whereas newspapers and broadcasters are clearly struggling to find the right mix of free and not-free content on the web, the future of cloud computing and open source is more or less obvious: free works. With a plethora of successful models available, it will be interesting to see how other firms leverage the freeconomy as they move their services and products into the Web.

I.

“The immediate effect of our copyright law is to secure a fair return for an `author’s’ creative labor. But the ultimate aim is, by this incentive, to stimulate artistic creativity for the general public good.”

Justice John Paul Stevens delivered the above words in the majority opinion of the Supreme Court ruling on Sony Corp. of America v. Universal City Studios, Inc. in 1984. The outcome of the lawsuit, know popularly as the “Betamax Doctrine,” is regarded by some as the most important judicial ruling regarding intellectual property (IP) and copyright in recent history, as well as one of Justice Steven’s most significant contributions during his tenure in the Supreme Court. After the first oral arguments in the case were made, a Court majority was leaning towards affirming a decision made by the Ninth Circuit Court of Appeals: an outcome that would hold Sony liable for contributory infringement by selling its Betamax technology. Betamax, the precursor to the video cassette recorder and the modern-day digital video recorder, was the first device allowing consumers to record and play back television broadcasts, a practice named in the lawsuit as “time-shifting.” Justice Stevens, in favor of reversing the Ninth Court’s decision, successfully and remarkably (Litman, 10) convinced two other Justices to side with Sony, based on the argument that there were non-infringing uses of time-shifting technology, and that the plaintiffs could not prove time-shifting was causing harm to their industry.

Justice Stevens’ sentiments, and those embodied by majority ruling of the Betamax case, are the foundation for Nate Anderson’s “100 years of Big Content fearing technology—in its own words.” By chronicling the efforts of “Big Content” to throttle profit-threatening technological innovations in court and in Congress, Anderson asserts that every new technology with a capacity for copyright infringement is met with absurd hyperbole that never plays out in reality. With each case study, he essentially makes three points:  first, when a new technology pops up, copyright holders (or parties representing them) go to the Government to regulate or restrict the technology instead of innovating or adapting alongside it. Second, the claims used in copyright holders’ arguments for Government intervention—that a particular technology would reduce profits for artists—are ridiculous and historically unproven. His third main point, though not specifically stated but implied in his antagonistic rhetoric, is that when Governments step in to regulate a new technology—whether to control its infringing uses or somehow mitigate potential damages—the intended balance of copyright law is unfairly tipped towards content holders, and the public loses. The remainder of this paper will analyze each of those points and reaffirm them with additional evidence.

II. As Anderson points out, history is full of examples of copyright holders lobbying for protection from disruptive technologies. By citing case studies from as far back as 1906, the implication is that if copyright is meant to balance the public good with the incentive to create new content, the public is out-gunned in the battle to tip the scales. Indeed, even in high-profile IP lawsuits, the plaintiffs were usually copyright holders, but the defendants weren’t necessarily representing the public: in the Betamax case, Sony wasn’t defending fair use or the public good. They had an appliance to sell, and though Justice Stevens’ interpretations of fair use and the burden of proof represented an advocacy of the public interest, Sony would never have constructed a defense without an explicit commercial interest to do so.

Who, then, petitions the Government solely on behalf of the public? Are there any organizations in the world with the resources of the MPAA and RIAA but also a political agenda to keep the scales balanced? The Electronic Frontier Foundation (EFF), a non-profit organization devoted to defending civil liberties in the digital world, is one such group. The EFF has lobbied Congress and the Federal Communications Commission (FCC) on key IP issues, and has been involved in several IP court cases as plaintiff and defendant. Most notably, they defended StreamCast Networks, the company that created the Morpheus file-sharing application, which was sued by MGM and 28 other entertainment companies for their users’ infringements (commonly known as the MGM vs. Grokster case). While the EFF lists their defense as a “legal win” on their website, Grokster and Morpheus definitely lost by unanimous agreement of the Supreme Court. One other noteworthy public advocacy group for IP issues is Public Knowledge, who’s primary goal is to “stop any bad legislation from passing that would slow technology innovation, shrink the public domain, or prevent fair use.” In addition to lobbying the FCC and Congressional Representatives directly, Public Knowledge often speaks through the press to raise public awareness of IP issues. Though neither of these groups, being donor-funded, has the resources of the MPAA or RIAA, they maintain a strong presence in Washington, DC, and represent the public interest in the work that they do.

III. Anderson’s second point is that copyright holders invent inaccurate claims about new technologies and their effect on the market, authorship, and creativity. Whether their contentions are “absurd,” or have some initial credibility, Anderson points out in all his examples that the damage projected by rights holders never actually materialized. True, cassette taping didn’t end the market for recorded music, but peer-to-peer platforms combined with broadband Internet access have created the legitimate need to thoroughly consider if the Betamax decision is still applicable today. But just how much damage is being caused by illegal file-sharing? In Grokster’s case, the damage caused by their users’ infringement was priced at $50 million, but how was the amount settled on? The Government Accountability Office (GAO), tasked with determining the economic effect of piracy in the United States by the Prioritizing Resources and Organization for Intellectual Property Act of 2008, released a recent report with no clear answer to those questions. Says the report:

“Generally, the illicit nature of counterfeiting and piracy makes estimating the economic impact of IP infringements extremely difficult, so assumptions must be used to offset the lack of data. Efforts to estimate losses involve assumptions such as the rate at which consumers would substitute counterfeit for legitimate products, which can have enormous impacts on the resulting estimates” (1).

Basically, the report concludes that the damages of IP piracy are unknowable. While examining prior studies from various Government agencies and industry organizations, the GAO found that data conflicted frequently, that figures could not be verified, and that methodologies varied widely. An estimate conducted by the MPAA through consumer surveys estimated the damages caused by pirates to be $6.1 billion in 2005: the GAO, however, could not substantiate those claims with its own research. An even more interesting conclusion of the report is that piracy could potentially have economically beneficial effects: “increased sales of legitimate goods based on consumer ‘sampling’ of pirated goods” (15) is one of the possible positive outcomes, according to the GAO’s researchers. Another is an increased level of brand awareness, due to the wide dissemination of pirated material.

IV. Anderson makes one final, over-arching point: Government regulation of new technology, pushed for by rights holders and intended to restrict infringement, presents a danger to innovation, progress, and ultimately the public good. If, hypothetically, Jack Valenti got what he wanted when he lobbied Congress to protect the movie industry from the “ravages” of VCR technology, would the TiVo have been invented? If the RIAA had successfully crippled the DAT format for recording audio, how could Apple have created the iPod? These are important questions, which Anderson and other public advocates would answer with a “no”: regulating technology in the manner that rights holders have pursued would stifle incentives to invent new technology, cripple creativity, and throttle the capacity for new markets to emerge. However, Anderson neglects to acknowledge the benefits of regulating new technology. In the case of MGM vs. Grokster, copyright holders weren’t the only benefactors of the Court’s decision. Indeed, music artists and their distributors were validated in their claims of infringement. The Betamax doctrine, though, was not overturned: where Sony’s defense could sufficiently prove the potential non-infringing uses of their technology, Grokster couldn’t muster the same evidence. Their users, and those of other abolished file-sharing applications like Napster and Morpheus, established a ratio of infringement and non-infringement that was legitimately harming artists. The outcome of the case was not only necessary; it was in the best interest of maintaining a fair balance between the rights of authors and the public good.

I. The era of Web 2.0 and peer production have created a serious problem for privacy policy in the United States. The technological advancements that have enabled faster information exchanges have also made it easier for organizations to use and distribute personal information about individuals. However, policy regarding the privacy of those activities has been reasonably well-developed: the more concerning dilemma is that the same generative uses of communications technology are being used by individuals—friends, relatives, or total strangers—to share and misuse our personal information, the implications of which are largely unarticulated in modern privacy law.

Most privacy law in the United States was developed to protect citizens’ information in the contexts of interaction with businesses, the Government, health organizations, and other institutions. Modern tort law comes the closest to addressing the peer-to-peer problem, but in the era of e-mail, discussion forums, and Facebook, the traditional application of the tort framework is troublesome. For example, tort law identifies one category of privacy invasion as public disclosure of private facts. To prove harm in the case of public disclosure has been historically difficult, because the newsworthiness of the disclosed information is always considered, and has often led to successful defense. The following paper addresses the peer-to-peer problem in three sections: the first will explore one proposed solution that would expand existing online reputational tools. Part two proposes a solution based on the intellectual property framework in the United States, and discusses how specific aspects of copyright law might be applied to the peer-to-peer privacy problem.

II. The Limits of Reputational Tools

Because United States law does not adequately address the peer-to-peer problem, many scholars have developed ideas for different solutions. One aspect of the problem, tackled by Jonathan Zittrain, relates to the control of reputation: how do we continue to maintain the projected image of ourselves, when the risk of unwanted exposure via peer-to-peer production is so great? Zittrain points to the emergence of reputation systems on the Web, with specific examples from Google and online merchant sites like eBay and Amazon, which feature integrated reputational tools. Google’s method of ranking search results, for example, is based on an algorithm that factors in the quality of a page’s content: i.e., whether the content is original, recently updated, and contextually relevant to the query string (Zittrain, 87). A site with a higher “reputation,” according to Google’s standards, will see its content ranked higher within search results, and would likely see more visitor traffic as an outcome.

Amazon and eBay have similar expressions of online reputation, with the added emphasis of quality of product and/or transaction. eBay invites its registered users to rate the overall interaction with another user, either a buyer or a seller, and provide feedback on different aspects of a sale. Sellers with faster shipping times, accurate listing pages, and low prices would likely receive high marks from their buyers, which would be reflected in the seller’s “rank,” appearing alongside his other product listings. The eBay ranking, then, is left for users to interpret into a level of trustworthiness. Likewise, a seller can either reward a good buyer—one who pays quickly, is courteous, or otherwise leaves a positive impression—or punish a bad buyer with the appropriate feedback, which also appears as a “rank” alongside the buyer’s activity. Amazon has a similar method of establishing merchant reputation, and also adds the feature of product rankings where users can return to the Web site after purchasing a product and rate their experience with it: whether the product met their expectations, whether it was a good value for the price paid, etc.

These models of reputational management can be applied to other in-person activities, claims Zittrain:

“These reputation systems now stand to expand beyond evaluating people’s behavior in discrete transactions or making recommendations on products or content, into rating people more generally. This could happen as an extension of current services—as one’s eBay rating is used to determine trustworthiness on, say, another peer-to-peer service” (218).

Zittrain points out the potential flaws, however, in expanding existing reputation systems to encompass more day-to-day activities: the possibility of “gaming” the system (using hacks or workarounds to artificially inflate one’s own rank) opens the door for open manipulation and deception; the unregulated, proprietary nature of the current systems leaves the interpretation of privacy values in the hands of private actors (Google, for example, keeps the particulars of its search result ranking algorithm tightly guarded); and the likelihood of “outlier” judgments—feedback based outside the scope of the transaction or activity being rated—opens the door for unfair reputations based on racism, bias, or other unrelated criteria (219).

One other major flaw, missed by Zittrain, is the difficulty of scaling this type of reputational tool. Imagine, for example, a state-run system that allows citizens to rank the quality of one’s “neighborliness”: a person’s capacity to be a courteous, respectful, and cheery next-door-neighbor. The utility of such a system is easy to fathom: disgruntled neighbors would have a way to register complaint with the loud occupants of the house across the street (short of an extreme measure, like calling the police); newcomers to a city could comb through reputational data to determine a nice neighborhood; and people with a high “neighborliness ranking” can bask in their achievement. Scalability, though, creates avenues for unfair judgment and persecution. Should the reputation apply to an entire household? If so, the residents would be subject to judgment not only according to their own actions, but those of their family/housemates. Would home sellers consider a person’s neighborliness ranking when putting their property on the market? If so, the potential harms (for example, not being able to find a place to live) are much higher compared to the potential harms of the eBay reputation system (such as receiving a marginally lower price for your auctioned goods).

III. Privacy as Intellectual Property

Intellectual property permeates and defines much of today’s information-driven society. The concept traces its earliest beginnings to philosophers like John Locke and David Hume, whose conceptual definitions of ownership were formalized in the first copyright laws in the Statute of Anne (enacted in Great Britain in 1709). The Statue influenced the inclusion of article I, section 8, clause 8 in the United States Constitution, where Congress is given the power to “promote the progress of science and useful arts, by securing for limited times to authors and inventors the exclusive right to their respective writings and discoveries.” This article, known commonly as the “copyright clause,” is the basis for intellectual property in the United States, and the foundation for such laws as the Copyright Act of 1790, the Copyright Act of 1909, the adoption of the Berne Convention, and the Digital Millennium Copyright Act of 1998.

The similarities between intellectual property rights and privacy rights are numerous. First, and perhaps most importantly, both are based upon the concept of ownership: the notion that your have exclusive right to your ideas and expressions, as well as the details of your life, and they can be owned by no one else until you share them. As with physical property, a person’s ownership over ideas and information are privy to a certain amount of formal protections for the mutual advantage of the individual and society. In the case of intellectual property, a limited monopoly is granted to the owner of the expression, to promote originality and creative thought. With privacy, the balance between personal and social interests is apparent in the dichotomy between public and private information: the right to withhold information is balanced by the socially constructed norms surrounding the context, and that private information should be made public when considered appropriate and the societal benefits outweigh any personal value (Nissenbaum).

Another important similarity between intellectual property and privacy is that both are concerned with the notion of control. With both concepts, there is a near-absolute way of maintaining exclusive ownership over your idea or your information: do not share it. In the case of intellectual property—the lyrics to an original song, for example—the most secure way to see that no one else misappropriates it is to keep it in your head: do not sell it, do not sing it in public, and do not tell anyone you have it. You can do the same to keep private facts private; i.e., if you prefer that no one know your voting history, the best way to maintain the secret is to keep it solely to yourself. However, most reasonable people do not want to be the sole audience of their original work or personal information, because there is economic incentive to share and distribute it. So it comes down to control: the owner of an expression or a personal fact ought to have the right to regulate its flow (Solove). In the case or privacy, there is an additional complication that removes the possibility of absolute exclusive ownership, and that is the fact that a lot of personal information is recorded and kept by multiple parties, therefore necessitating a formal means of control beyond the act of simply keeping the personal information secret.

One final similarity between intellectual property and privacy is the peer-to-peer problem. The ease of information exchange provided by the Internet and social networking has facilitated the widespread infringement of copyright, and the same is now true of privacy. Because intellectual property law has been addressing the peer-to-peer problem for more than a decade, and because the challenges in maintaining control are so similar, privacy law regarding peer-to-peer production should leverage existing elements of the intellectual property rights model. Specifically, privacy policy should implement the doctrines of automatic protection, fair use, and infringement.

IV. Intellectual property law abolished statutory formalities, the system of procedures for enacting copyright on an author’s work, with the Copyright Act of 1976. Copyright, now, is automatic, and granted to an author at the moment his expression is fixed into a medium. A copyright notice in books, for example, was once required, but today is wholly unnecessary: unless the author states otherwise, he reserves all right to the book’s reproduction, sale, and display. If privacy policy took on an intellectual property approach, private information should be handled similar to authored works, and privacy rights would be granted if the information met certain criteria. With copyright, a work must be sufficiently original to warrant protection. The criteria for determining protectable information, then, could follow along the same lines: if a fact is sufficiently original—that is, it is not apparent, obvious, or easily discerned by another person—it would qualify for exclusive rights. To return to the earlier example, a person’s voting history would be considered his property, even once shared. He would be granted the same protections that an author would have (sole right of reproduction, appropriation, etc.), because the information is sufficiently original and would not be independently obvious to others. Once shared, then, a peer might consume the information (as a person would read a book), but would have no right to tell someone else, post the information on a Web page, or include it in a public blog post. Of course, exclusive rights would be limited, as they are in copyright. A copyright owner, for example, is granted monopoly on his work for a set term (the length of his life, plus 70 years). A similar limitation could be applied to private information, and proportioned according to the type of information and how personal it might be.

Another limitation on a person’s privacy rights would be similar to the copyright doctrine of fair use. In intellectual property law, fair use is the counterweight to copyright, balancing the scales between public and private welfare. Unauthorized reproduction or derivation of an author’s work can be legally performed if it meets the criteria of fair use, and this is how the media, satirists, and educators are able to use protected works without royalties or being subjected to infringement claims.

There are four factors in determining whether appropriation of a copyright work should be considered fair use: 1) the purpose and character of the use; 2) the nature of the copyrighted work; 3) the amount and substantiality of the portion taken; and 4) the effect of the use upon the potential market (Stim). The same four factors could be used to determine fair use of private information. The most important factor, in a peer-to-peer context, would be the nature of the information. The reason the second factor is the most important to privacy policy pertains to one fundamental difference between intellectual property and private information: there can be a vast difference in the range of importance among private facts. For instance, a person’s middle name and his sexual orientation could both be considered private, but the latter would generally be more guarded than the former. Therefore, the nature of the information is critical when determining fair use: the less guarded a fact is, the more likely the use of it would be considered fair. The first factor—the purpose and character of the use—follows as the second most important when considering fair use. This is the criteria relied upon by newspaper publishers, teachers, and comedians, because it protects informative, educational, and parodied uses of intellectual property. Returning to the previous example and the context of privacy, a professor in a university health class might be able to discuss a person’s sexual orientation, so long as the information was important and appropriate within the educational setting. The final two factors of fair use can be appropriated to peer-to-peer privacy policy just as easily.

What happens if, whether through misapplication of fair use or outright defiance of the aforementioned rights, a person’s privacy is violated by a peer? The same question is asked of intellectual property, and the answer is not only straightforward, but also easily translated into a privacy policy context. With intellectual property, when an author’s work has been unfairly copied or misused, the violation is considered infringement, and the author has a specific right to claim damages in court. One important (and relatively recent) development in intellectual property policy is the institution of a “safe harbor” for telecommunications companies and online service providers. When infringement occurs over a network or through an Internet service, the organization maintaining that network or service is protected from secondary liability, so long as they provide a reasonable reaction to the infringer’s activity. The safe harbor clause, defined in the Digital Millennium Copyright Act, allows YouTube to continue its service even while many of its users engage in copyright infringement, for example. The producer of a video can contact YouTube if he believes the video is being illegitimately shared, and YouTube would respond by removing the material. These “takedown requests,” while not executing the full punitive measures of an infringement claim, are an effective way to manage the problem of peer-to-peer production as it relates to intellectual property.

Similar to infringement, the breach of privacy rights is termed violation or invasion. Though the legislative scaffolding exists for privacy violation (within modern tort law), the missing elements that could address the peer-to-peer problem are the concepts of safe harbor and takedown requests. Applied to the privacy context, a safe harbor could guarantee online service providers a measure of security, while requiring them to concede some control to individual users. Facebook, for example, would be protected from secondary liability of privacy invasion, if they respond to privacy complaints in the same way that YouTube does for copyright claims. Imagine a scenario where Person A shares a private detail with Person B, and Person B posts that information to his Facebook page. Person A, after unanswered requests to Person B to remove the post, would be able to contact Facebook, state his case for privacy violation, and Facebook would be compelled to remove the post. If Facebook chooses not to comply, Person A’s recourse could be to take both Person B and Facebook to court: Person B for violating of privacy, and Facebook for secondary liability.

V. Conclusion

There are some obvious challenges to modeling peer-to-peer privacy policy after intellectual property law, the most significant of which would be the magnitude of the paradigm shift: individual liability would expand dramatically. People would need to re-frame their conceptions of privacy, and some would have to change their online and day-to-day behavior drastically. The past decade has been a tumultuous time for intellectual property owners, and tighter constraints on authors’ rights have been met with fierce opposition, and the same would likely be true if privacy policy adopts a similar framework. However, legislators in the United States would be wise to consider instituting characteristics like automatic protection, fair use, and infringement into the country’s privacy framework; success would lead to a formalized concept of peer-to-peer privacy that could even be applied to other aspects of privacy law further in the future, establishing a fair, balanced, and safe environment for the exchange of information.