Bush Administration Technology Policy

Remarks delivered by Bruce P. Mehlman, Assistant Secretary for Technology Policy, United States Department of Commerce, delivered October 23, 2002 at the Heritage Foundation in Washington, DC:

Thanks for inviting me today.September 17, 2002, was a very important day for my family. On that Tuesday, Pixar’s Monsters’ Inc. first became available for home sale. I had known this day was coming for months, having visited the Monsters’ Inc. web site multiple times since the first of four theater visits my family attended. And like 80,000 others, I had pre-purchased my DVD from Amazon.com months earlier.

According to the Pixar, Monsters Inc. sold 11 million DVDs and video cassettes in its first 7 days on the market. Two weeks prior, I hesitate to admit, my wife and I were watching the finals of American Idol on Fox. Although we did not vote for our favorite performer over the phone or via Internet, Fox reports that over 100 million viewers did. Kelly Clarkson’s single, “A Moment Like This,” sold 236,000 copies in its first week, jumping farther in the charts – from #52 to #1 in one week – than any other single in history, with millions of visitors clicking on the American Idol web site and fueling the hype.

What these two stories illustrate, in my opinion, is that reports of the death of the movie and music businesses at the hands of the Internet are greatly exaggerated. They also touch upon one of the most intense and emotional policy battles out there right now, the one that brings us here today. The fight over digital content and rights management has it all – critical industries battling over billions, lobbyists and lawmakers maneuvering for position, disruptive technologies in a dynamic market, and self-professed consumer advocates gearing up for a great crusade. Moral absolutism abounds – you are either on the side of “freedom and innovation” or the “Eighth Commandment and the rule
of law.” And on an almost weekly basis, experts gather to assess the status
and issues relating to the questions at hand.

So is all of this sound and fury justified? I believe the attention is warranted, although the intensity is not always constructive. The issue of digital content and rights management is of great importance for several reasons. First, the industries implicated by the issue represent significant jobs and revenue with major league implications for our economy. The movie industry employs over 590,000 people. Software and computer service employment exceeds 2 million, while the IT industry employs over 5.5 million. Motion picture GDP was $34.9B in 2000, software and computer service $245.7B, with IT revenue at $796.7B, according to the Commerce Department’s Bureau of Economic Analysis. All three of these industries have been built on a foundation of intellectual property
assets.

Second, digital content is integral to broadband adoption. The President has declared that we must be aggressive about broadband deployment, since this critical enabling technology can improve and transform our economy and society. While users are adopting broadband very rapidly and in line with reasonable expectations for a new technology, the greater availability of movies, music and games from legitimate sources will be critical to more rapid and sustained consumer adoption. The content is already out there, but not in legitimate channels, which is a result that hurts everyone. Copyright owners are going uncompensated, mainstream companies can’t jump in and innovate for fear of facilitating piracy, and consumers end up confused.

Last but not least, this issue is important because it implicates consumers’ rights and technological innovation. Consumers love entertainment and electronics. They rightfully expect the government to protect patents, trademarks and copyrights to encourage further innovation in “science and the useful arts” and to ensure the pipeline for movies, music, games, and consumer electronics remains robust and vital. But incredible new technologies have disrupted our comfortable, old way of doing things. Call it convergence, call it the digital revolution – FCC Chairman Michael Powell calls it “the great digital broadband migration” – the Internet is changing everything, including our ability to create, protect and transmit intellectual property. This disruption offers great opportunities for society, yet it also puts extraordinary pressure on analogue systems, behaviors and business models. We face a particular challenge in protecting digitized, copyrighted content online. Unauthorized digital copies of almost every song and movie in existence can be found right now somewhere on the web, and that leads many to fear drastic reductions in future investments in new intellectual property. At the same time others worry that our efforts to “fix” these new vulnerabilities will eviscerate consumers’ fair use rights, curtail innovation in other areas, or inappropriately prevent business model evolution (and extinction). That is, the cure could be worse than the disease.

Suffice it to say, this issue is of great importance and great complication. But while disruptive technologies do present extraordinary challenges, I do not believe they will prove insurmountable. Disruptive technologies and the content community have collided before – we’ve read this book. For over one hundred years, every new technology has boosted the revenues of the creative copyright industries over the long-run. There’s no reason to think the Internet technologies will be any different. But getting there is not easy and will take great cooperation. To succeed I see roles for both the private and public sectors. Five of the most significant steps needed include:

Develop Digital Protections. Information technology creators need to work with the content community to develop technological solutions that protect digital content. Companies clamoring every day for government help to accelerate broadband adoption can make significant strides on their own and without government mandates by working with the content community to satisfy their concerns. DVD encryption stands out as a great example of using technology to protect digital content, with the DVDs bringing in 53% more revenue for movie creators than theater viewings in the first half of 2002 (Washington Post, 10/7/02). Copyright owners should also look for ways to use technology to defeat piracy, from high-tech watermarks to low tech spoofing.

Out-Compete Free. It is also critical for content creators to accept the reality that we will never be able to entirely eliminate online piracy, just as we have never been able to eliminate offline piracy. The Internet was built to connect, not to contain, and the battle against piracy will be won or lost based upon the quality of legitimate online consumer offerings. While encryption enticed content creators to adopt the DVD format, the real reason for their overwhelming consumer success is DVDs’ relatively low price and high value. Paid services can beat elusive and illegal peer-to-peer networks by offering greater features and selection at reasonable prices and in the formats consumers want (e.g. usable throughout a home network). They lose when they refuse to compete.

Prosecute and Discourage Illegal Activity. We need to pursue and punish violations of copyright that are clearly illegal. Here government needs to work aggressively to take down piracy rings, shut down illegal web sites and stop the most prolific file traders, as the Department of Justice is trying to do. We should actively tip the scales in the battle between “free but illegal” content and legitimate services.

Educate Consumers. Every panel discussion of piracy and copyright includes an
admission by some panelist that their teenager rips and burns music online. Clearly there has been a problem imparting digital do’s and don’ts to younger generations, largely because this digital generation uses more technology and understands it better than their teachers and parents. From security to privacy to respect for property, we need to impart greater digital literacy on our children. Universities, in particular, with their lightning fast intranets and voracious content-consuming-communities, need to do a better job of educating students about the importance of respecting intellectual property rights. But the education should not just be a one-way lecture. We should also take the opportunity to learn from the digital generation – their embrace of new Internet technologies should be telling us something about the kinds of legitimate services we should be building.

Cooperate. All of the sound and fury over digital content and rights management signifies something pretty important, although I am not certain the intensity level, finger pointing and emotional reactions are constructive. All fair use is not piracy, but neither is all piracy actually fair use. Progress may rove slow while parties stake out the extremes, but to succeed we will need far greater trust among the antagonists. While the biggest challenges are marketplace challenges demanding private sector leadership and solutions, I hope and believe government can play a constructive role. We are trying to do just that at the Commerce Department, in all five of these areas.

We are investing in new protection technologies – a company called Cinea just won a NIST grant to develop technology that prevents in-theater digital recording of movies.
We continue to try and help companies better understand the digital business environment. The Justice Department and trade representatives are going after piracy at home and abroad. In our discussions with students we emphasize the importance of protecting property, although we are looking for ways to do more on the education front, perhaps in partnership with others.

And we continue to convene the interested parties in periodic roundtables, trying to facilitate market-led cooperation on policy and standards issues and ensure that consumer fair use is duly considered in the discussions. While I believe government can help, I would caution interested parties to be careful what you ask for, since the only law that never changes in Washington is the law of unintended consequences. I greatly appreciate the chance to be here and apologize to those whom I disappointed by not solving the problem in my 10 minutes. This one is tough, it’s going to take time and it is going to take effort. But I am very confident we can and will succeed together.