United States: Digital Rights Management Debate May Have Unexpected Implications for Telecom, Hardware and Semiconductor Companies

Originally published in Technology Transactions and Licensing on May 22, 2002

It is widely recognized that the digitization of popular media - films, records, TV programs, books - increases the risk of copyright piracy while, at the same time, lowering the cost of distributing such works to new markets via the Internet. As yet, however, there is no general cross-media scheme for copy protection on-line or off, since copyright safeguards typically vary by media and market. There is growing concern in Washington, though, that the failure of private industry to agree upon a comprehensive regime for managing digital copyrights - digital rights management (DRM) for short - is hurting the Internet economy and especially consumer spending for broadband, media-rich services.

But just what, if any, new legislation is needed to protect digital works on the Internet is hotly debated. In the past, the main protagonists have been the entertainment industry and software producers, on the one hand, and consumers and "gray market" file sharing ventures (MP3.com, Napster, Morpheus), on the other. With some exceptions, companies that merely transmit digital information (telecommunication carriers, ISPs) or manufacture interactive devices to process the content (chip makers, computer vendors) have only been indirectly involved. That could soon change.

In the months ahead, a much broader group of industries may be impacted by Congressional proposals for DRM. Absent new industry standards, Congress is debating whether to require mandatory copy protection controls for almost every interactive digital device (computers, digital TVs, DVD players, Palm Pilots) and data networks - controls that may crimp manufacturers' options, impose new liabilities on network service providers, and limit how people can watch and listen to digital video and music files.

The financial stakes surrounding the DRM debate are high for everyone. With the IT and telecom industries facing a serious economic slump, and the entertainment industry struggling for advertising revenue, the creation of a vibrant on-line market for digital content is seemingly in everyone's interest. Indeed, in Washington stimulating the broadband economy - and the market for digital content on which widespread broadband adoption appears to depend - is now a top priority for both political parties. The question is how to bring that about in a way that all the stakeholders find acceptable.

The remainder of this e-lert profiles the most far reaching DRM bill now before the Congress: S. 2048 - the proposed "Consumer Broadband and Digital Television Act (CBDTA)." We also provide some background on the copyright law debates underlying this bill and the ongoing efforts of various industry groups to adopt voluntary DRM standards to facilitate the distribution of digital content.

In brief, S. 2048 seeks to ban the sale of digital media devices and on-line access services that do not deploy copy protection technologies approved by the Federal Communications Commission (FCC). The bill was introduced in March 2002 by Senator Ernest (Fritz) Hollings, the Chairman of the Senate Commerce Committee. Once enacted, S. 2048 would give the private sector, with input from consumer groups, one year to "adopt security system standards and encoding rules" to reliably bar the unauthorized copying and redistribution of copyrighted digital content. After that, the bill requires the FCC to start a rulemaking proceeding to accomplish this goal. However, if the industry agrees upon standards and the FCC finds that, in consultation with the U.S. Copyright Office, the standards meet certain minimum conditions detailed in S. 2048, then the industry's approach must be written into the FCC's rules.

Under S. 2048, all "interactive computer service[s]" - a category that covers most Internet Service Providers (ISPs) - must store and transmit any security measure associated with the FCC approved copy protection technologies. Further, after the FCC adopts its own copy protection standards (or codifies the standards adopted by private industry), it would be unlawful for any manufacturer, importer or seller of a "digital media device" to transport or sell the device in interstate or foreign commerce unless the device uses the standard security technologies endorsed by the FCC's new rules. A "digital media device" is defined by S. 2048 as any hardware (e.g., a computer) or software (e.g., a media player) that "reproduces copyrighted works in digital form" or "converts" copyrighted digital works into a visible or audible form, or which "retrieves or accesses" copyrighted works in digital form and transfers them to hardware or software.

The extraordinary reach of S. 2048 - it would arguably cause the FCC to set or endorse security standards applicable to digital content that is used worldwide and mandate the installation of compliant software and hardware by any ISP or digital device manufacturer doing business in the U.S. - has already generated much controversy.

On the one hand, the entertainment industry claims that the type of peer-to-peer (P2P) or computer-to-computer file sharing which presents the greatest risk of copyright theft (such as Napster) cannot be stopped without adopting an end-to-end approach. And that means implementing uniform security measures for every network that distributes digital works and any interactive digital device connected to the network, which requires federal intervention.

On the other hand, the computer industry and many electronic device manufacturers believe that copyright security is best left to the private sector. They note that current copyright laws already bar the unauthorized sharing of digital works and the 1998 Digital Millennium Copyright Act (DMCA) bars anyone from circumventing the private copyright security measures that may be embedded in CDs or DVDs. Beyond that, the industry contends that a "one size fits all" Government mandate would not accommodate many of the unique copyright protection issues raised by different media and market segments. Accordingly, many manufacturers believe that any new FCC approved security standard would be overbroad and retard innovation, eliminate competition among alternative security measures and create a single point of vulnerability for copyright pirates to exploit.

As well, device manufacturers and consumer groups believe that, unless a federal DRM scheme is flexibly applied, it will reduce the freedoms consumers now have. For example, some DRM schemes prevent a buyer from creating a duplicate audio cassette of a digital CD for use in her car; or fast-forwarding through advertisements on a DVD; or paying for a song online, downloading it to a CD, and then playing the CD on a home stereo system. Thus, the Association for Competitive Technology maintains that, at a minimum, no DRM model should be endorsed by Congress unless it allows consumers the ability "to rent, buy, timeshift and playshift any piece of lawfully acquired music." Similarly, to moot continuing legal uncertainty, some venture capitalists have urged the Congress to confirm that consumers can time-shift, space-shift and make back up copies of any digital work they legally acquire.

It is too early to judge whether the copy protection measures proposed in S. 2048 will come to a vote during this election year. A similar bill is likely to be introduced to the House, however, and could generate wider support.

But even if Congress defers action until 2003, it would be a mistake for electronics manufacturers and network providers to become complacent. Whether or not Congress mandates a new DRM scheme for the Internet economy may depend largely on what industry standards groups do in the interim. Moreover, one important message of S. 2048 is that today's voluntary private standards may well become tomorrow's public mandates - which makes participation in industry standards groups more important than ever.

Some leading groups working on DRM issues are:

• The Broadcast Protection Discussion Group (BPDG), which is working on standards for tagging (and then filtering) over the air digital television programs that may later be distributed on-line. It works under the auspices of the Copy Protection Technology Working Group (CPTWG), which was primarily organized by the motion picture and consumer electronics industries. The Group has previously addressed copy protection for DVDs.
• The Moving Pictures Expert Group (MPEG) operates within the ISO/IEC (the International Standards Organization/International Electrotechnical Commission) headquartered in Geneva. It develops international standards for compressing and processing video, audio and multimedia files. The wide scope of MPEG's work and cross-industry representation have made it an informal venue for discussion of DRM standards, such as those built upon extensible rights markup language (XrML), a common programming language that can be used to specify particular rights (permissible uses) for contents and can track implementation along the distribution chain. The XrML standard is formally overseen, however, by another standards group, OASIS (Organization for Advancement of Structured Information Standards), the Internet's main source for extensible markup language (XML) specifications.
• The Digital Media Device Association (DMDA) is a California-based group that wants to develop content protection standards for portable digital entertainment devices. According to the DMDA's website, its "Interoperability Working Group (DMDA-IWG) was formed to develop or otherwise adopt one or more specifications for the lawful consumption and exchange of music in digital form on portable and networked audio devices that encourages competition and allows customers freedom of choice."
• The Secure Digital Music Initiative (SDMI) includes over 200 recording and technology companies. SDMI was expected to create a broadly based standard for music files using a "watermark" approach, but a secure technology proved elusive. The five major record labels are now each pursuing their own copy protection standards as evidenced, for example, by new on-line music services such as Pressplay and MusicNet.

Note: No single industry group has been formed to create an Internet-wide security standard for protecting digital works from being illegally copied via P2P software or otherwise. Rather, to date, standards groups have sought to provide copy protection technologies for the original medium in which a work is fixed (e.g., a CD or DVD).

The debate about the best approach to DRM involves numerous complex technical and legal issues - issues on which device manufacturers, content providers, consumers and networking companies can reasonably differ. Vinson & Elkins will continue to monitor this debate in Washington as well as before the industry standard setting groups listed above. If you would like more detailed information or advice on any of the issues discussed here, please let us know.

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