March 20, 2002
Disney and Intel Clash Over Solution to Digital Piracy
by William Baue
Entertainment industry executives called on Congress to enforce a solution to the digital piracy
problem, while the technology industry favors market incentives.
Late last month, Disney (ticker:
DIS) Chairman and CEO Michael Eisner fired the first shots in what could be considered the digital
rights management (DRM) war between the entertainment and technology sectors. These sectors are
popular with social investors due to their low environmental impact. Many social investors also
value the individual rights at stake, as this battle threatens to impinge on personal privacy and
"fair use" of technology rights.
In testimony before the U.S. Senate Commerce Committee, Mr. Eisner accused
information technology (IT) companies of ignoring if not outright encouraging digital piracy, or
the illegal duplication and transmission of copyrighted material. Commerce Committee Chair Senator
Fritz Hollings of South Carolina echoed Mr. Eisner's claim by characterizing the IT industry as the
police chief in "Casablanca" who feigned surprise that gambling occurred at Rick's.
weeks later, however, Senator Patrick Leahy of Vermont rebuffed Mr. Eisner's and Sen. Hollings'
accusations in comments at a hearing on DRM before the Senate Judiciary Committee, which he chairs.
"[T]hey are seeking congressional intervention to give the information technology companies a
limited time to find solutions or else turn the entire job of developing digital rights management
systems over to a government agency. This strikes me as wrong-headed," said Sen. Leahy.
Sen. Leahy favored marketplace solutions over a government-mandated technical solution, which
would result in "one-size fits all" technology that would fail to meet diverse demands in the real
world. In his testimony before the Senate Judiciary Committee, Intel (INTC) CEO Craig Barrett
expounded upon Sen. Leahy's analysis. He emphasized that the IT industry has developed solutions
to protect copyright content when technically possible. However, the IT sector cannot create
solutions that overstep its legal bounds.
Several pervasive forms of digital piracy, such
as peer-to-peer networks for "file sharing" over the Internet or recording movies off theater
screens with a digital camcorder, transcend technical solutions. Technologies that police the
Internet to inspect content sent between individual users invade personal privacy, Mr. Barrett
pointed out. Furthermore, government mandates place the financial onus of developing protection on
the IT sector without clearly defining what technology would solve the problem, and at what cost.
Most importantly, making IT companies jump through bureaucratic hoops might impede innovation.
Both sides made concessions to the other. Mr. Barrett allowed that specific, limited
government action solutions could prove useful. He cited the case of "watermark" technologies,
which can identify information imperceptibly imbedded in copyrighted material. For example,
viewers would be able to record digital television broadcasts, but a watermark in the original
material would prevent further copies from being made. The selection of a specific watermark
technology would require limited government action.
For his part, Mr. Eisner admitted that
there is no "silver bullet" solution. He also clarified that Disney did not intend to prevent
"fair use" applications of digital duplication technology. However, he did not elaborate on how a
technical solution could distinguish between legitimate and illicit use.
seized on this very dilemma to refocus the conflict on those ultimately affected by the outcome:
"The challenge is to permit the consumer flexibility and portability in his or
her home and personal environment, yet prevent unlawful reproduction and redistribution," said Mr.
Barrett. "Congress needs to give careful consideration to the question of how consumer
expectations for using technology and content, which developed in the analog era, will be preserved
in the digital era."
Entertainment companies claim that if the marketplace drives the
development of a solution, they will continue to take losses from piracy. If the government forces
the IT industry to develop a hardware-based solution, technology stocks may suffer and individual
rights may be eroded. As many social investors have holdings in both entertainment and technology
stocks, they may wish to stay tuned to how the issue is resolved.