Electronic Commerce and Intellectual Property:
Protect Revenues, Not Bits

Branko J. Gerovac and David C. Carver

a pre-press version of the article that appeared in The Recorder, a San Francisco law periodical. April 1996.

Center for Technology, Policy and Industrial Development
Massachusetts Institute of Technology

As we publish and distribute material electronically, it is too easy to get wrapped up in technology and forget that the real purpose in the business of distributing material is to maximize income[1]. There is strong initial temptation to use technology to protect intellectual property by controlling access to material. This has been true whether the material is print, pictures, audio, video, or combinations. The attempt at protection can take several forms, such as, encrypting the material and carefully managing access to decryption, or limiting distribution to a specific location(s) on a communications network and then restricting access to the location only to authenticated and authorized individuals. The intent of the protection is to insure proper payment is received for the use of material and to prevent unauthorized use. Unfortunately, attempted barriers to unauthorized use become burdensome barriers to the legitimate user.

This is not to say that protection mechanisms are not important in some circumstances. Some material benefits from constraining its distribution, for example, personal information such as health records, proprietary information, and differentially priced information such as market research reports. But, these situations are inherently limited distribution and not mass media publishing.

From a technology perspective, there needs to be a distinction between property protection/policing functions and billing/payment functions. Many electronic commerce systems currently being proposed intermingle the two. Policing mechanisms incur an overhead cost in processing, storage, and communication. The mechanisms offer only relative, not absolute, protection. All mechanisms can be circumvented given sufficient motivation, for example, if the perceived intrinsic value of the material is greater than the inherent cost of breaking the encryption.

Electronic publishing and distribution would benefit more by making it easier to bill and pay for material[2]. Electronic commerce systems do not yet approach the full flexibility and utility of conventional commerce. Most existing and proposed systems can be characterized as either (1) a two party model (e.g., Lexus/Nexus, CompuServe), where the single provider brokers access to material, or (2) a three party model (e.g., NetBill, Cybercash), where the broker settles the transaction between the publisher and the consumer. Both of these models effectively partition the market to those publishers and consumers directly known to the broker -- this is an advantage to the broker, but not the publisher or consumer. For example, if I read a magazine article and pass it on to a friend who I think would be interested, if they are not registered with the broker, there is no easy way for them to pay for their use of the article -- non-compliance is easier than compliance.

What is missing is an open multiparty model, which promotes voluntary compliance, leverages existing practice, contract and copyright law, and civil and financial systems. Thereby, electronic commerce could mirror the conventional web of trust among consumers, publishers, and brokers. The key technology then is not encryption, but rather is how to attach information that describes permissible usage, the charges for that usage, how to make payment, and perhaps how to inquire about uses not listed. This information then becomes part of the material (perhaps along with other information) and moves with the material in the communications network[3].

In essence, this would redirect the focus of electronic commerce away from erecting barriers by protecting bits and toward easing distribution and payment.

Revenue is best protected by providing material that has value to customers, is priced appropriately, and where it is easy to comply with usage and billing.

The publishing industry (large and small, across media) is facing a dilemma. Success will go not to those who erect barriers and partition markets, but to those who figure out how to take advantage of the ease of electronic copying, distribution, and commerce.

For further information, email: bjg@mit.edu or dcc@mit.edu.