<b><i>Commentary</b></i> Perspective On Anniversary Of RIAA File-Sharing Suits

Four thousand two hundred and eighty lawsuits and counting.

That's how many lawsuits have been brought by the major record labels against music fans for using peer-to-peer (P2P) file-sharing software (like KaZaA or Morpheus) to swap music over the Internet. The 1-year anniversary has just been reached in the recording industry's unprecedented litigation campaign against its own customers. The campaign appears to have hit its stride, with the Recording Industry Association of America (RIAA) announcing roughly 500 new suits each month.

Suing large numbers of “regular folks” is relatively unprecedented in the annals of intellectual property law. But we could be watching the makings of a new trend. DirecTV, for example, has in the last 3 years sent more than 170,000 demand letters to individuals who are allegedly “stealing” satellite TV. The letters deliver an ultimatum: pay $3500 or face a lawsuit. So far, DirecTV has filed more than 24,000 suits against people who have called their bluff.

So it looks like the recording industry may be lifting a page from DirecTV's playbook. But have the lawsuits worked for the recording industry?

As a matter of win-loss percentages, the lawsuit campaign has been wildly successful. Record industry lawyers have found that the defendants tend not to defend the suits at all, opting instead to settle for amounts ranging between $3000 and $11,000. Many other defendants default. After all, hiring counsel to defend costs more than settling, even setting aside the hassles of litigation and chances of losing. Reliable sources tell me that the recording industry is breaking even on the litigation costs, as well, with settlements from each round of suits paying the costs of the next.

Of course, for the recording industry, the lawsuits are not simply about batting average and covering the lawyers' bills. The campaign, coordinated by the RIAA, was a last-resort maneuver by the industry to stem the tide of P2P file-sharing, which had reached mammoth proportions. In fact, some estimates put the number of American music swappers at 60 million ' that's 9 million more than voted for President Bush.

Unfortunately, the evidence thus far suggests that the RIAA litigation campaign has had little, if any, effect on P2P file-sharing. Companies like Big Champagne and BayTSP that track the online P2P population have found that the number of U.S. file-sharers continues to grow. The global file-sharing population, moreover, is skyrocketing. A survey of Internet users undertaken by the Pew Internet and American Life Project did show a marked decline in file-sharing in the months following the highly-publicized first rounds of RIAA lawsuits, but Pew's follow-up reports have documented a rebound in the months since.

In the face of evidence suggesting that the lawsuits have been ineffective at curbing P2P music-swapping, the RIAA responded that “lawsuits are an important part of the larger strategy to educate file-sharers about the law.” Well, the “education by lawsuit” of American music fans is also off to a rocky start. Awareness of copyright law is certainly up. For example, an April 2004 survey revealed that 88% of children between 8 and 18 years of age understood that P2P music-downloading is illegal. Unfortunately, the survey also discovered that 56% of the children surveyed continue to download music anyway. So while many music fans are aware of the “stick” of lawsuits, they seem relatively unintimidated by it.

So what about the “carrot” of authorized music services like Apple's iTunes Music Store? In the words of the RIAA, the lawsuits are also intended to “encourage music fans to turn to these legitimate services.” Well, the news there is not terribly encouraging, either. While the authorized music services are attracting a modest number of customers, it is also clear that they together account for a trivial percentage of the total number of digital music files being downloaded today. In fact, it is fair to say that all of the authorized music services together do not yet amount to a drop in the digital music-downloading bucket. Apple, the most successful of all the authorized music services, sold a total of 100 million downloads in its first 15 months of operation. This sounds impressive until it is held up against the 5 billion files that move across the Kazaa network every month.

So if the RIAA lawsuit campaign is not working, what can the music industry do about P2P?

More and more observers are coming to the same conclusion: the music industry needs to give up its dreams of controlling distribution in favor of collecting fair compensation. In other words, we need a mechanism that collects a pot of money from file-sharers and divides it up among artists and copyright owners. Some (most notably Harvard Law School's Professor William Fisher) advocate a broad levy on Internet access and technologies, with proceeds payable to the copyright industries.

But there is a better way, one that keeps the government out of it. Known as “voluntary collective licensing,” the concept is simple: the music industry forms one or more collecting society, which in turn offer file-sharing music fans the opportunity to “get legit” in exchange for a reasonable regular payment, say $5 per month. So long as they pay, the fans are free to keep doing what they are going to do anyway – share the music they love using whatever software they like on whatever computer platform they prefer ' without fear of lawsuits. The money collected gets divided among rights-holders based on the popularity of their music.

In exchange, file-sharing music fans who pay (or have their ISP or other intermediary pay on their behalf) will be free to download whatever they like, using whatever software works best for them. The more people share, the more money goes to rights-holders. The more competition in file-sharing software, the more rapid the innovation and improvement. The more freedom to fans to share their favorite music, the deeper the global catalog of available music.

This has been successfully done before. Voluntarily creating collecting societies like ASCAP, BMI and SESAC was how songwriters brought broadcast radio in from the copyright cold in the first half of the 20th century. Some lawsuits would still be necessary, the same way that spot checks on the subway are necessary in cities that rely on an “honor system” for mass transit. But the lawsuits will no longer be aimed at singling out music fans for multi-thousand dollar punishments in order to “make an example” of them.

Perhaps most importantly, such a system would reinforce the rule of law – by giving fans the chance to pay a small monthly fee for P2P file-sharing, it creates a way for them to “do the right thing” in a way that is painless enough that the majority should realistically be able to live up to the letter of the law.

Four thousand two hundred and eighty lawsuits and counting.

That's how many lawsuits have been brought by the major record labels against music fans for using peer-to-peer (P2P) file-sharing software (like KaZaA or Morpheus) to swap music over the Internet. The 1-year anniversary has just been reached in the recording industry's unprecedented litigation campaign against its own customers. The campaign appears to have hit its stride, with the Recording Industry Association of America (RIAA) announcing roughly 500 new suits each month.

Suing large numbers of “regular folks” is relatively unprecedented in the annals of intellectual property law. But we could be watching the makings of a new trend. DirecTV, for example, has in the last 3 years sent more than 170,000 demand letters to individuals who are allegedly “stealing” satellite TV. The letters deliver an ultimatum: pay $3500 or face a lawsuit. So far, DirecTV has filed more than 24,000 suits against people who have called their bluff.

So it looks like the recording industry may be lifting a page from DirecTV's playbook. But have the lawsuits worked for the recording industry?

As a matter of win-loss percentages, the lawsuit campaign has been wildly successful. Record industry lawyers have found that the defendants tend not to defend the suits at all, opting instead to settle for amounts ranging between $3000 and $11,000. Many other defendants default. After all, hiring counsel to defend costs more than settling, even setting aside the hassles of litigation and chances of losing. Reliable sources tell me that the recording industry is breaking even on the litigation costs, as well, with settlements from each round of suits paying the costs of the next.

Of course, for the recording industry, the lawsuits are not simply about batting average and covering the lawyers' bills. The campaign, coordinated by the RIAA, was a last-resort maneuver by the industry to stem the tide of P2P file-sharing, which had reached mammoth proportions. In fact, some estimates put the number of American music swappers at 60 million ' that's 9 million more than voted for President Bush.

Unfortunately, the evidence thus far suggests that the RIAA litigation campaign has had little, if any, effect on P2P file-sharing. Companies like Big Champagne and BayTSP that track the online P2P population have found that the number of U.S. file-sharers continues to grow. The global file-sharing population, moreover, is skyrocketing. A survey of Internet users undertaken by the Pew Internet and American Life Project did show a marked decline in file-sharing in the months following the highly-publicized first rounds of RIAA lawsuits, but Pew's follow-up reports have documented a rebound in the months since.

In the face of evidence suggesting that the lawsuits have been ineffective at curbing P2P music-swapping, the RIAA responded that “lawsuits are an important part of the larger strategy to educate file-sharers about the law.” Well, the “education by lawsuit” of American music fans is also off to a rocky start. Awareness of copyright law is certainly up. For example, an April 2004 survey revealed that 88% of children between 8 and 18 years of age understood that P2P music-downloading is illegal. Unfortunately, the survey also discovered that 56% of the children surveyed continue to download music anyway. So while many music fans are aware of the “stick” of lawsuits, they seem relatively unintimidated by it.

So what about the “carrot” of authorized music services like Apple's iTunes Music Store? In the words of the RIAA, the lawsuits are also intended to “encourage music fans to turn to these legitimate services.” Well, the news there is not terribly encouraging, either. While the authorized music services are attracting a modest number of customers, it is also clear that they together account for a trivial percentage of the total number of digital music files being downloaded today. In fact, it is fair to say that all of the authorized music services together do not yet amount to a drop in the digital music-downloading bucket. Apple, the most successful of all the authorized music services, sold a total of 100 million downloads in its first 15 months of operation. This sounds impressive until it is held up against the 5 billion files that move across the Kazaa network every month.

So if the RIAA lawsuit campaign is not working, what can the music industry do about P2P?

More and more observers are coming to the same conclusion: the music industry needs to give up its dreams of controlling distribution in favor of collecting fair compensation. In other words, we need a mechanism that collects a pot of money from file-sharers and divides it up among artists and copyright owners. Some (most notably Harvard Law School's Professor William Fisher) advocate a broad levy on Internet access and technologies, with proceeds payable to the copyright industries.

But there is a better way, one that keeps the government out of it. Known as “voluntary collective licensing,” the concept is simple: the music industry forms one or more collecting society, which in turn offer file-sharing music fans the opportunity to “get legit” in exchange for a reasonable regular payment, say $5 per month. So long as they pay, the fans are free to keep doing what they are going to do anyway – share the music they love using whatever software they like on whatever computer platform they prefer ' without fear of lawsuits. The money collected gets divided among rights-holders based on the popularity of their music.

In exchange, file-sharing music fans who pay (or have their ISP or other intermediary pay on their behalf) will be free to download whatever they like, using whatever software works best for them. The more people share, the more money goes to rights-holders. The more competition in file-sharing software, the more rapid the innovation and improvement. The more freedom to fans to share their favorite music, the deeper the global catalog of available music.

This has been successfully done before. Voluntarily creating collecting societies like ASCAP, BMI and SESAC was how songwriters brought broadcast radio in from the copyright cold in the first half of the 20th century. Some lawsuits would still be necessary, the same way that spot checks on the subway are necessary in cities that rely on an “honor system” for mass transit. But the lawsuits will no longer be aimed at singling out music fans for multi-thousand dollar punishments in order to “make an example” of them.

Perhaps most importantly, such a system would reinforce the rule of law – by giving fans the chance to pay a small monthly fee for P2P file-sharing, it creates a way for them to “do the right thing” in a way that is painless enough that the majority should realistically be able to live up to the letter of the law.