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BitTorrent: Legal Nightmare or Future Business Model?

Michael A. Carrier is a Professor of Law at Rutgers University School of Law, Camden. He has published and spoken widely on the antitrust and intellectual property laws, and is one of the leading authorities in the country on the intersection of these laws. His new book, Innovation for the 21st Century: Harnessing the Power of Intellectual Property and Antitrust Law, looks at how innovation has been threatened by the United States legal system and seeks to reverse the trend, offering ten revolutionary proposals, from pharmaceuticals to peer-to-peer software, to help foster innovation. In the post below Carrier reports on a Swedish court decision which will affect BitTorrent sites.

A Swedish court today found four operators of the high-profile website The Pirate Bay guilty of assisting in making copyrighted content available and sentenced each to a year in jail and roughly $900,000 in fines.

At issue is the revolutionary BitTorrent protocol, which allows users to easily download large files such as movies by breaking up the files into many pieces. The availability of pieces from numerous sources speeds up transfer as compared to retrieving the file from one source. Information on these pieces is provided by small files called “torrents,” which are indexed and tracked on The Pirate Bay website. Many of the downloaded files are copyrighted.

The court found that the defendants were liable for “making available” copyrighted works, which occurs when the “work is transferred to the public.” The court also concluded that the defendants “provid[ed] a database linked to a directory of torrent files, making it possible for users to search for and download torrent files as well as to provide functionality through which the users who wanted to share files could have contact with each other by sharing the service tracker function.”

To be clear, The Pirate Bay does not directly infringe copyright holders’ rights. It does not even host copyrighted material on its website. And it is far from the only website engaging in much of the activity for which it was punished. Numerous search engines, for example, can be used to locate torrent files. But rather than focusing on the merits of the court’s decision, which could have far-reaching consequences for search engines, individuals, and any others “making available” copyrighted materials, let me focus on an even larger issue: the difference between litigation and innovation.

The entertainment industry is effective in litigating. But if it was as effective in innovating, there might be less need for litigation.

Copyright holders have reacted with alarm to new technologies for quite some time. John Philip Sousa bemoaned the introduction of the player piano, which would lead to “a marked deterioration in American music.” Jack Valenti warned that the market for copyrighted movies would be “decimated, shrunken [and] collapsed” by the VCR. And the recording industry, lamenting a decline in CD sales, sued numerous peer-to-peer (P2P) file-sharing services.

But in fearing the potential of the new business models, copyright holders offer a classic example of market leaders that fail to appreciate disruptive innovation. Clayton Christensen famously showed that, when faced with a new technology that threatens to upset a profitable business model, market leaders tend not to appreciate the full potential of the new paradigm.

A decade ago, for example, the recording industry responded to Napster, which was striving to be “the online distribution channel for the record labels,” not by striking a deal that would have seamlessly transported the industry into the digital era, but by suing it. While the record labels may have won the battle in shutting down Napster, they began to lose the war, as former users migrated to other P2P networks.

Today’s Pirate Bay ruling is likely to have similar effect. Like the proverbial whack-a-mole game, it is not possible to sue into oblivion every website and search engine providing access to torrents.

What, instead, could a new business model look like? Numerous musicians have offered examples. Just to pick one, look at Trent Reznor of Nine Inch Nails. As Mike Masnick (editor of TechDirt) explains, Reznor has creatively offered ways to connect with fans and give them reasons to buy – limited edition packages, treasure hunts for hidden tickets, and aggregation of concert photos and videos, to name just a few.

The entertainment industry will predictably trumpet its win in (at least the initial stage of) this litigation. But again, litigation is not innovation. Even the plugging of one leak on the Titanic of a 20th-century business model will not transport the industry to a new and innovative 21st-century model.

Recent Comments

  1. Mike Cane

    They can plug as many leaks as they like. The Internet will create new holes.

  2. Mike Cane

    They can plug as many leaks as they like. The Internet will create new holes.
    BTW I love your blog!

  3. DC

    Some interetsing thoughts but at heart you suggest that if many people transgress then why should you try to stop one? Thus, you would consider that we should leave thieves alone because we’ll never stop the crime of theft? I don’t think so. As for “the victims” being required to innovate to stop Pirate Bay et al, why? PB’s “technology” is purely a destructive technology which enables theft. You can see PB as the bloke on the street corner who wears an advert and takes a fee from a 3rd party while directing you to the nearest drug dealer. Hey, he’s not dealing himself, he’s not (necessarily) in possession and the money comes from legitimate companies but we all know it stinks to high heaven (anybody have a view if PB directs people to porn? or worse? – worth thinking about…). Sorry, but PB is organised crime. They are involved in theft of property and they earn money from it. They can portray it as modern day Robin Hood but next time you pay a ridiculous amount for legal software, remember the thieves who bump up the cost.

  4. [...] After Cipro permalink buy this book Posted on Thursday, April 29th, 2010 at 2:49 pm Michael A. Carrier is a Professor of Law at Rutgers University School of Law, Camden. He has published and spoken widely on the antitrust and intellectual property laws, and is one of the leading authorities in the country on the intersection of these laws. His new book, Innovation for the 21st Century: Harnessing the Power of Intellectual Property and Antitrust Law, looks at how innovation has been threatened by the United States legal system and seeks to reverse the trend, offering ten revolutionary proposals, from pharmaceuticals to peer-to-peer software, to help foster innovation. In the post below Carrier reports on today’s decision in the Cipro case.  Read Carrier’s previous post here. [...]

  5. [...] This book, “Innovation in the 21st Century” is written by Rutgers law professor Michael Carrier. Taking a year to write, the book contains a mixture of case studies, ranging from the last few years, to decades past. The most recent case study though, that of the Pirate Bay trial, is obviously not in the book, but was addressed by Prof Carrier on the OUP blog. [...]

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