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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.

Two 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.

Mr. Barrett seized on this very dilemma to refocus the conflict on those ultimately affected by the outcome: consumers.

"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.

 

 
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