Rethinking Intellectual Property in the Digital Age

by Steve Schear

Every 500 years or so Western history seems to reach a turning point: the founding of democracy (Athens, c. 500 B.C.), the death of Christ, the fall of the Roman Empire and beginning of the Dark Ages (c. 500 A.D.), the ascendancy of the Catholic Church and beginning of the Middle Ages (c. 1000 A.D.), and the Renaissance (c. 1500 A.D.).

The last turning point was catalyzed by information technology: the moveable type printing press, the first mass-production technology. By the mid-16th century hundreds of European printing presses had churned out over 20 million books. Early expectations were that the press would reinforce the Church and the use of Latin, but most Europeans were monoglot and few authors could compose satisfactory new Latin works. The rest, as they say, is history.

It has been another 500 years, and many think it's not unfair to characterize the Net as nothing short of an information revolution, comparable to the invention of the printing press. The WIPO treaty and other current global legislative attempts at reigning in the anarchistic aspects of the Net will almost certainly meet with the same fate as the Church's attempts to keep the press from undermining their interests. [The WIPO treaty deals with digital copyright--for more information see] Science and technology regularly shape the economy, law, politics, and even religion, and only rarely is the opposite true.

Most publishers and artists have a vested interest in the statist enforcement of intellectual property (IP) law, but it's not clear that in the new technological order citizens are best served by maintaining the status quo. Politicians believe that they can continue to grant the current franchise. But is this really true, or through hubris are they about to re-learn forgotten and painful lessons?


Cheap electronic distribution of "intellectual property" gives us a historic opportunity to completely rewrite how we interact with and compensate artists. Instead of working against human nature, trying to pound the round copyright-peg into the square hole-of-the-Net, we should focus on how to establish a new workable structure for encouraging the production of IP. A radical but obvious solution: to do away with copyright all together and replace it with a system where creators are paid before they produce works, so there is no need to prevent pirating. At least three approaches bear consideration: subscription, bounties and TeleRead on-line public libraries.


In today's distribution model very little of the money spent by consumers actually reaches the artist's pocket. As an example, take newspapers. We typically pay 25-50 cents for a daily paper even though it costs the publisher about $2.00 to write, edit, print and distribute each copy. The majority is paid by advertisers who want some of our eyeball time.

For some advertisers it's a good investment. But they probably waste their money on me. I read an average of less than 5 articles on a daily basis and very few ads. But, in order to put a few pennies into the hands of these authors, hundreds of people (clerks, drivers, printers, and sales reps) were required and more than a few trees.

However, it's now cheaper for us to get information via the Net. The falling costs of bandwidth makes it possible to engage in "disintermediation." As at factory and warehouse stores, we get to buy direct from the manufacturer (author), cutting out the middle men. When these intermediate layers of distribution collapse lower consumer prices result and manufacturers get to keep more of the revenue.

By distributing their works themselves, directly and electronically, authors could cut publishing costs to near nothing. Because it may be impossible for authors to keep their works from being copied, Esther Dyson recommends they give their works away free or for a very nominal amount in order to create "relationships" with their audience. Authors will earn their way by offering personalized services to customers. Alternatively, the audience can subscribe to creators with each paying a larger fee and receiving extra services (e.g., the invitation to occasionally communicate with the author and have questions answered).

Although the practicality of subscriptions and direct electronic distribution of works is by no means certain it is clear that some creators could earn at least a comparable living under such models with only a small fraction of the audience necessary via conventional publishing. A number of authors or small organizations have successfully made the transition to subscription, distributing their works via fax or the Net (e.g., sports, financial and regulatory news services). In order to be successful, creators will have to become entrepreneurs.


Bounties are market-based solutions which attempt to create an efficient way to direct the development of desired outcomes. Under a plan, first proposed by Eric Hughes, creators would propose what new or improved works they want to produce. Distributors would poll potential consumers as to which new works (in the case of authors, composers and producers) or product improvements (in the case of software) they want, and what they are willing to pay. The Bounty approach assumes that most consumers would pirate, but only those that really want the work or improvement would pay (the same as what we can assume will soon happen anyway) to get what they want and get it first.

David H. Rothman, points out that "...novels and other works aren't like software--it's hard to predict how they'll turn out. Bounties might discriminate against unknown writers without track records and they might not have another best-seller in them". Using bounties, the poor schnook would be up the creek.

However, the current system already discriminates against unknown writers. Anthony Burgess sold the rights to his masterpiece, A Clockwork Orange, for $600.

Under the current system, publishers often have only the return on their investment at heart. Consumers have little, if any, direct input and don't get to vote with their wallets until the product is shipping. Bounties would significantly shift the balance to favor the consumers and distributors.

David looks at the financial frustrations that sellers of shareware have faced, even with finished products. "Many might care for a look at novels and the rest, but not by paying much for them in advance."

That's precisely because they are finished and released, prior to financial participation from consumers, that payment is so dear. It's like consultants who try to collect fees from clients who have not been forced, contractually, to pay in advance for each segment of service. If software creators saw that by only proposing the product or improvement--and not creating it before funding--they would be made whole, the entire market relationship could change.

Under a Bounty approach, the pledged funds would be held in escrow until completion, according to agreement with the distributors. During and after the work, the creators would only get release of funds from escrow as prescribed under the agreement. An independent arbiter would specify if and when completion of the agreed work occurred. If the creator failed, a completion bond (much like Hollywood uses) would remunerate the distributors/consumers.

David thinks that even if Bounty approaches to IP creation became commonplace, we'd see less change than some anticipate. "Many of the distributors would hire editors or groups of editors to protect the distributors' track records, and the editors, in turn, might evolve into, gasp, publishers. And so you would still have all four elements. In fact, publishers might show up pretty early in the process. If nothing else, publishers would show up to do marketing as well as editing." Yet, unlike the current system no one would own works or software (except source which was held as a trade secret), so monopoly (if it occurred) would have to take entirely different forms.


Let's imagine we're executives at major publishers a few years from now. Despite the best efforts of law enforcement (with tough criminal penalties) piracy is racing out of control and threatening a collapse of copyright. What do we do? We could try and embrace Mr. Hughes' bottom-up system, but that would mean a complete loss of control and importance for publishers. Instead, we could entreat the government to step in and assure publishers and artists a continued revenue stream and role by taxing every citizen for use of private intellectual property. Enter David Rothman (again).

Rothman's TeleRead would also eliminate piracy since every citizen has already paid. Only the distribution of funds is in question. TeleRead is an ambitious nonpartisan plan to get electronic books and other educational resources into American homes-through a national digital library and small, sharp-screened computers that eventually could sell for under $100. The same idea could apply to many other countries.

According to Rothman, TeleRead could start very small--with a pilot project costing just $5-$10 million--and grow only as cost-justified. The first step would be a national digital library with a limited number of books covering a limited number of topics. Traditional books should be TeleRead's main focus, since they encourage sustained thought, and since they are the medium most vulnerable to digital piracy.

Most of physical databases would be privately owned and leased to the government--with many redundancies to allow for proper preservation of material. The Library of Congress, of course, could maintain its own digital archives as an added guarantee that material would be safeguarded. Many public and academic librarians, in many cities, would select books based on local as well as national needs. And librarians would be free to keep buying paper books or acquire electronic books not covered by TeleRead.

Publishers and writers could gamble money up front to qualify for payments under TeleRead if librarians rejected books and other works offered for publication for royalties. Writers and publishers would still be free to publish on the Internet, or by way of traditional paper books. What's more, the private sector could donate money for books and start its own collections linked to the main TeleRead library.

Publishers--or writers publishing directly--would be paid according to the number of dial-ups of their books or other offerings. For budgetary reasons, royalties per book would normally decline in the case of the biggest sellers. But publishers and writers could maintain these rates by risking money in stages, as the number of dial-ups grew. And so we could preserve the financial incentives of today's publishing world and pay for TeleRead books in part through the publishers themselves. In return, of course, the private sector would reap its fair rewards as justified.

There are many problems with TeleRead, but the most telling is its involvement of government and taxpayer funds in areas which go to the heart of our First Amendment. TeleRead would create a two-tier marketplace for IP: the politically correct, and everything else. Politics and liberty are seldom good bedfellows and the prospect of state or federal officials selecting winners and losers, by deciding which works will be available for 'free' download and which are not eligible for public funding, is abhorrent to free speech and a free society. Can you say National Endowment to the Arts?


The forgoing suggestions, even if logical, are admittedly pretty radical. Something simpler is needed to prepare industry and the public for the changes to come.

The US Constitution empowers Congress to pass laws "to promote progress of science and [the] useful arts." Congress has chosen to accomplish this constitutional goal by granting authors a limited set of exclusive rights in their works. The founding fathers wanted, through copyright, to encourage the useful arts and thereby offer to the public the fruits of these artists. Copyright protects all original works of authorship, including such things as personal letters and corporate memoranda, from the moment they are first fixed in a tangible form.

About 50,000 U.S. books go out-of-print each year. The lack of continuous availability of these works runs counter to the implicit balance sought by the founding fathers between the needs of the public and copyright holders. In the past copyright holders could reasonably maintain that economics prohibited keeping works in print. But with practical, economic and ubiquitous on-line means, this is no longer a barrier.

This being so, why should copyrights on "significant" (e.g., written works with a length greater than 20,000 words) commercialized works continue when the public cannot gain ready access to copies of them? This logic follows from the use-it-or-lose-it concept of trademarks. Changes are need to ensure the public that such "significant" commercialized copyright works are continuously available.

Under this recommendation the works must remain available from the copyright holder or their licensee. Specialty resellers (e.g., hard to find book locators) wouldn't count, but electronic publication would. If a copyright holder fails to keep a work continuously available, then after a brief interval (e.g., six months) the copyright would lapse.


Often, the owner of copyright (the author) is different from the owner of the privilege to publish of a book or item. This privilege is assigned by a contract between an author and publisher, mediated by an agent and editor.

Once signed, the author has little influence on the decision to keep a book in print (unless they are big-time authors, like Danielle Steele or Stephen King.) Furthermore, changes in editors, editorial direction, management, ownership, etc., can affect decisions on whether or not to support a book or keep it in print--none of which the average author can influence. Contracts between authors and publishers usually have rights reversion clauses, returning all rights to the author, once a book goes out-of-print. However, publishers have come up with a new term "out-of-stock-indefinitely" which fundamentally means "out-of-print" but doesn't trigger reversion of rights.

Therefore, a part of the provision might ban author-publisher contract clauses with these reversion changes. This would be similar to music copyrights/contract law which limit a composers right to sign over more than a certain percentage of their interest in a work to the publisher.


An author may sometimes seek to remove a work from circulation, perhaps the work becomes embarrassing or dated and needs to be revised.

So, another part of the provision might allow the author to irrevocably place the copyright for a work to be withdrawn in a state of "limbo" such that no one (including the author) could publish the work until the author's death (or the copyright's normal expiration date). Copyright for revised works would permit the author to replace one work with another by relinquishing the copyright for the former work (which cannot be republished until the copyright's normal expiration date.)


Copyrights are 19th-century relics of printing technology and the assembly-line production of the Industrial Age. It appears we are witnessing a paradigm shift which will fundamentally alter all media and the funding of intellectual property development and distribution, eliminating many/most of the middlemen (e.g., publishers) between artists and audiences.

Digital technologies enable flawless duplication of information. The exploding bandwidth and plummeting costs of the Net allows rapid communication of vast amounts of digital information for pennies. Lastly, commonly available cryptographic software and Net services enables simple anonymous/secret information dissemination. These technologies cannot be un-invented. The genie cannot be put back in the bottle.

As William Gibson says, "The street has it own uses for technology." Many Netizens routinely engage in exchange of pirated software, intellectual property or content illegal in some jurisdictions. Clever hackers have managed to circumvent most/all commercial copy and use protection features. Digital-rights management technology may raise the pirating bar a few notches, but there is little doubt that clever hackers will leap them, followed by common Netizens. The "main stage" battle over copyright changes is really just entrenched interests rearranging the deck chairs, while vast numbers of Netizens are disregarding copyrights and sinking the ship.

Steve Schear is CEO of First ECache, a firm specializing in digital cash technology.


from The Laissez Faire Electronic Times (originally appear in Laissez Faire City Times, Vol 2, No 16, May 25, 1998
Editor: Emile Zola     Publisher: Digital Monetary Trust