If You Ask Me

Innovation, not the legal system, is a CEO's best defense

Amid the exciting but unnerving uncertainties accompanying the emergence of the Internet as a transforming force in world culture and commerce, an overriding truth has emerged. The companies that succeed over the long term will be those that can continually leapfrog ahead of the competition, both technologically and in their business practices, rather than those that get a good idea, obtain intellectual-property protection (copyright, patent, or trademark), exploit that protection, and then sit around to collect fees, royalties, and other profits.

That is not to say that intellectual-property protections won't continue to play an important role in helping to assure the hegemony of those with vast assets -- for instance, the moguls in the music and motion-picture industries. But such legal protection alone no longer will be enough to assure long-term domination. Moreover, recent efforts by some companies to gain intellectual-property protection for virtually any embodiment of every new idea -- and even to fight off new modalities by claiming infringement of established copyrights, trademarks, and patents -- threaten to damage existing protections by weakening the strong respect that legislative and judicial bodies historically have accorded to intellectual property.

Consider the recent spate of litigation over what the music and motion-picture industries assert is piracy of their intellectual property. Members of the Motion Picture Association of America (MPAA) have sued a number of young cyberspace innovators who have been posting on their Web sites copies of the program needed to break the anticopying encryption codes built into digital versatile disks (DVDs), which are rapidly replacing videocassettes. Breaking the code enables the owner of a DVD to make an infinite number of perfect digital copies of the original and to distribute those copies in an instant over the Internet. The movie industry, along with electronic behemoths Matsushita and Toshiba, reportedly spent more than $100 million developing and implementing the encryption code. The program that disables it was developed and posted online late last year by a 16-year-old Norwegian lad. His reward for such ingenuity was to be investigated by Norwegian prosecutors, under pressure from the motion-picture industry, and to be charged with copyright violations.

The MPAA folks' mistake was to develop and implement their encryption code in secret, according to cyberspace visionary John Gilmore, a cofounder of the Electronic Frontier Foundation, which has been leading the court defense of the Web-site defendants. If the MPAA had exposed the code to hackers and programmers, it would have discovered the code's flaws before using it on millions of DVDs.

Put more bluntly: instead of acting like a modern-day King Canute ordering the tides to recede, the MPAA should have tried to come up with a better encryption system than the one proved worthless by a 16-year-old. Or better yet, it should have developed an entirely new distribution strategy, considering that traditional copyright protection for digitized property may simply be an illusion. Recall that the advent of television and then videocassettes initially panicked motion-picture moguls, who eventually learned to live with and prosper mightily from both technologies by developing new distribution systems. The studios discovered the vast market for movies on television, thereby extending a film's life beyond its theater run. And they soon recognized that even the biggest bomb of a movie could have an endless afterlife on videocassette.

Unlike the movie moguls who learned how to go with the flow, the major record labels still appear to be swimming upstream, as evidenced by the lawsuits they've brought against MP3.com. MP3.com developed a service that allows its customers to access any song in the company's huge electronic-music database and to listen to it free on their PCs, as long as the users could prove that they had already bought a CD containing the song being accessed. The plaintiffs claimed that MP3.com infringed its copyrights by assembling the electronic library. The dot-com upstart, in response, asserted that it was simply allowing those who already owned the album to listen to it in a new format -- on their computers. MP3.com claimed, in other words, that it had come up with a superior distribution system for popular music, and that the music industry would be well served to join forces with it. At press time MP3.com had settled with three of the five record companies that had filed suits against it. MP3.com may not have been able to win those first three lawsuits, but the music industry won't be able to dodge every bullet. And interestingly, the settlements involved forging a new online distribution system, with MP3.com and the record companies working in tandem.

Even more recently, toy company Mattel, the developer and distributor of a software product called Cyber Patrol (designed to block children's access to Web sites that contain "sexually explicit, violent, and other objectionable content"), has obtained a temporary injunction barring any Web site from posting a program developed by two hackers that enables people to bypass the censor's function. (In addition to barring access to pornographic sites, Cyber Patrol appears to jam a vast array of entirely harmless and even educational ones, such as the site operated by Planned Parenthood.)

The notion of covering up a product's flaws by silencing the critics who expose those flaws runs afoul not only of common sense but also of the First Amendment's protection of free speech in the commercial realm. The federal judge in the Mattel case viewed the defendants' efforts as nothing more than an attempt to destroy a socially important product. But it is likely that further experience will reveal that it is free speech and not vandalism that is being squelched by such lawsuits, and that such suits are inevitably doomed to failure no matter what the courts do. The genie, quite simply, has escaped from the bottle.

And then there is perhaps the most distressing resort to the judicial trenches: the one by Amazon.com. The online merchant recently received a patent for its "affiliate programs," whereby other dot-coms provide a link from their Web sites to Amazon.com's in exchange for a slice of the company's resulting sales. Amazon.com is also proceeding to sue anyone, like Barnesandnoble.com, it believes is infringing its trademarked "one click" method of ordering goods over the Internet. Such actions run directly counter to the build-a-better-mousetrap mentality that enabled the company not just to snare its leadership position on the Internet but also to make substantial inroads in the markets of established brick-and-mortar behemoths like Barnes & Noble -- and even to beat back B&N's own less elegant Internet challenge. Clearly, if Amazon.com intends to maintain its market position, it had better come up with a steady stream of innovations rather than relying on the illusory protection offered by such lawsuits.

Regardless of whether industry powerhouses are able to tame this or that innovator in a lawsuit of the moment or whether first-to-market dot-coms are able to temporarily fend off newer kids on the block by adopting the established moguls' methods, it's virtually certain that new challenges will arise. At some point either the plaintiffs will lose a lawsuit or the challengers will be too numerous to control with court injunctions. Indeed, it is also possible that the courts will recognize that the free-speech guarantee protects the right to teach the world how to evade traditional intellectual-property protections and how to render a product vulnerable or even entirely obsolete in a keystroke.

After all, exposing ideas and innovations to what First Amendment lawyers call "the free marketplace of ideas" is the best assurance that a company will indeed build a better mousetrap. And once the company has that mousetrap, it shouldn't look back but should quickly begin working on the next one.

Harvey A. Silverglate, a partner in the Boston law firm of Silverglate & Good, writes about civil liberties. His latest book (with Alan Charles Kors) is The Shadow University: The Betrayal of Liberty on America's Campuses (Harper/Perennial, 1999). He is chairman of the Independent Privacy Board of Predictive Networks Inc.

Please e-mail your comments to editors@inc.com.

Published on: Sep 15, 2000