Barak Y. Orbach, Indirect Free Riding on the Wheels of Commerce: Dual-use Technologies and Copyright Liability

• Publication year: 2007

INDIRECT FREE RIDING ON THE WHEELS OF COMMERCE: DUAL-USE TECHNOLOGIES AND COPYRIGHT LIABILITY

Barak Y. Orbach^*

Recent years have witnessed explosion in copyright literature on potential indirect liability of providers of dual-use technologies-technologies that are capable of infringing and noninfringing uses. The existing literature, however, fails to identify several important characteristics of copyright disputes over dual-use technologies. This Article finds that attempts to impose indirect liability on providers of dual-use technologies tend to appear in multisided markets, which are business environments in which market intermediaries connect members of different, distinct groups. The Article shows that indirect network externalities that multisided markets generate are the value that stirs up disputes over dual-use technologies. The Article explains the nature of indirect network externalities and their significance to copyright law. It characterizes the properties of markets in which disputes over dual-use technologies tend to arise, offers criteria to differentiate among dual-use technologies, and examines the desirability of present copyright liability rules. The analytical framework advanced in this Article offers courts, policymakers, and scholars practical guidelines for distinguishing between socially desirable and undesirable dual-use technologies. The framework also exposes some limitations of present copyright law in addressing the problem of dual-use technologies.

INTRODUCTION .............................................................................................. 412

I. THE LEGAL FRAMEWORK ................................................................... 414

A. Doctrinal Elements of Indirect Liability ..................................... 414

B. General Justifications for Indirect Liability ............................... 416

II. INDIRECT NETWORK EXTERNALITIES AND DUAL-USE

TECHNOLOGIES ................................................................................... 418

A. The Prevalence of Multisided Markets ....................................... 419

B. Motivations for Indirect Connectivity ........................................ 422

C. Network Externalities: The Value of Connectivity and

Interactions ................................................................................. 423

D. Direct and Indirect Externalities: Definitions and

Illustrations ................................................................................ 424

E. Co-Existence of Direct and Indirect Network Externalities ....... 425

F. The Significance of Network Externalities to Copyright Law .... 427

III. TAXONOMY OF CONTENT MULTISIDED MARKETS ............................. 429

A. Marketplace Platforms ............................................................... 430

1. The Platform's Involvement in Individual Transactions ...... 432

2. Connectivity among Individuals or Groups .......................... 432

3. Connectivity and the Platform's Core Business ................... 433

B. Standard Platforms ..................................................................... 434

C. Advertising Platforms .................................................................. 436

1. The Basic Structure ............................................................. 436

2. Types of Advertising Platforms ............................................ 437

IV. DIAGNOSIS OF DUAL-USE TECHNOLOGIES ......................................... 441

A. Dual-Use Technologies Are Not All Alike .................................. 441

B. Properties of Alleged Indirect Infringers ................................... 442

1. Unauthorized Provision of Access to Copyrighted Works ... 442

2. Gatekeeping Capacity .......................................................... 443

C. Conventional Dual-Use Technologies ........................................ 446

D. Advanced Dual-Use Technologies ............................................. 446

1. Piggybackers ........................................................................ 446 a. General Characteristics ................................................ 446 b. VCRs: The Piggybacker Archetype ............................... 448

2. Freeloading Platforms ........................................................... 451 a. General Characteristics ................................................ 451 b. Freeloading Marketplace Platforms .............................. 452 c. Freeloading Content-Exchange Advertising Platforms.. 454

CONCLUSION .................................................................................................. 454

APPENDIX: A ROADMAP TO LEGAL IMPLICATIONS OF ECONOMIC

PROPERTIES OF DUAL-USE TECHNOLOGIES ................................................... 457

Undoubtedly a bare supposition that by a sale of an article which, though adapted to an infringing use, is also adapted to other and lawful uses, is not enough to make the seller a contributory infringer. Such a rule would block the wheels of commerce. There must be an intent and purpose that the article sold will be so used.¹

INTRODUCTION

The most controversial topic in copyright law in recent years has been the potential liability of providers of dual-use technologies for copyright infringements by users.²Dual-use technologies are devices and services that are capable of both infringing and noninfringing uses. Examples of dual-use technologies include file-sharing services, photocopiers, tape recorders, typewriters, and video-recording devices.

Copyright holders often attempt to remove from the market dual-use technologies with legal and political means when they believe that losses of revenues associated with the infringing uses of a particular technology are greater than the benefits of the noninfringing uses.³In response to such campaigns, providers of dual-use technologies warn that legal actions against their technologies constitute attempts to leverage copyright protection into control over technology that may block the wheels of commerce.

The source of the "wheels of commerce" argument is a 1912 patent case, Henry v. A.B. Dick Co.⁴Seventy-some years after A.B. Dick, in Universal City Studios v. Sony, copyright defendants successfully convinced the Supreme Court to import the argument into copyright law.⁵Sony's substantial- noninfringing-use test is the product of this import. Under this test, the sale of a dual-use technology does not create liability if the product is "capable of substantial noninfringing uses."⁶In adopting this test, the majority in Sony believed that it protected the motion of the wheels of commerce from copyright holders who attempted to restrict the sales of a dissemination technology. Thus, the majority absolved a videocassette recorder (VCR) manufacturer of liability for alleged infringing activities of VCR users.⁷

Justice Stevens, writing for the majority in Sony, noted that the plaintiffs' action was an "unprecedented attempt to impose copyright liability upon the distributors of copying equipment."⁸Nevertheless, subsequent providers of dual-use technologies, such as Napster, Aimster, and Grokster, had no success with the wheels-of-commerce argument.⁹

Despite the analytical and rhetorical exercises of copyright courts, the simple fact is that no clear legal rule differentiates between lawful and unlawful dual-use technologies. The existing literature does not accomplish better results and mostly focuses on arguments for and against the imposition of liability on providers of dual-use technologies, without distinguishing among technologies.¹⁰

This Article identifies neglected characteristics of copyright disputes over dual-use technologies and studies their significance. The Article shows that attempts to impose indirect liability on providers of dual-use technologies tend to arise in multisided markets, which are business environments in which market intermediaries connect members of different, distinct groups. For example, in disputes over video-recording technologies, television networks are market intermediaries that connect content owners, audiences, and advertisers. VCRs and digital video recorders (DVRs) alter the nature of this connectivity and affect financial interests of intermediaries and connecting parties. Similarly, in typical disputes over file-sharing services, the service providers are intermediaries that connect audiences and advertisers while providing the audiences with means to infringe copyrights of third parties.

The Article finds that, in multisided markets, disputes over dual-use technologies are related to indirect network externalities. Analyzing typical characteristics of content markets, the Article offers practical guidelines to courts, policymakers, and scholars to help distinguish between socially desirable and undesirable dual-use technologies. This inquiry exposes the flawed simplicity of the wheels-of-commerce argument that equates all dual- use technologies.

The plan of this Article is as follows. Part I introduces the legal framework of disputes over dual-use technologies. Part II explains the nature of indirect network externalities and why these externalities are central to disputes over liability of providers of dual-use technologies. Part III maps the types of multisided content markets in which litigation over the liability of providers of dual-use technologies tends to arise and explains the reasons for the prevalence of disputes in such markets. Part IV analyzes the characteristics of dual-use technologies and evaluates the justifications for imposing liability on the providers of each type of dual-use technology. Part V concludes. Finally, the Appendix indexes the concepts that the Article develops and their legal implications.

I. THE LEGAL FRAMEWORK

A. Doctrinal Elements of Indirect Liability

Under present law, providers of dual-use technologies may be liable for infringing activities by the technologies' users under theories of indirect...