The process of digitalisation experienced over the past few decades has aided the phenomenon of digital piracy.
The spread of the internet and broadband internet access, the dawn and the development of both digital media and compression technology are all key factors in the astonishingly rapid rise in the use of illegal file-sharing systems and online copyright infringement.

Since the emergence of Napster over a decade ago, courthouses have become the battlefields of copyright anti-piracy activity.

Despite the music and film industry's efforts to end all illegal use of file sharing – and its well-known victories against Napster and Grokster – the behaviour of users remained unaffected until the recent Pirate Bay litigation.

When digital rights management (DRM) technologies came into the mainstream, rights owners began to switch the battlefield from law to technology. The answer to copyright piracy was seen to be a technological one. However, due to interoperability problems and to the fact that these technological protections on copyrighted works have been systematically compromised, DRMs have failed to have any sizeable impact on piracy.

The debate then shifted to questions of net neutrality and net diversity. Some people suggested that internet architecture should be modified to create a highway for lawful file-sharing systems and an obstacle course for non-authorised systems. On the face of it, this seemed to offer an effective weapon in the fight against copyright piracy. But will it prove successful, and how will new forms of copyright infringement stemming from social networks and multi-user virtual worlds such as Second Life impact the fight against piracy?

The process of digitalisation

The internet, with the rapid growth of the world wide web (www), hyper text transfer protocol (http) and hyper text marking language (html), has become the world's most efficient information distribution mechanism.

At the same time, it hosts a large number of websites that make it easy for users to illegally download copyrighted works.

Digital technology has dramatically influenced, spurred and revolutionised the quantity and the quality of information now available to internet users.

According to Piet Bakker, four interrelated technological innovations have been involved in shaping the particular forms that digitalisation has taken in respect of the entertainment industry:

• The development of audio and video compression formats, which allowed vast amounts of information to be compressed into manageable sizes;
• The spread of flat rate and high bandwidth connections;
• The introduction and development of multi-media computers with increased storage capacity, soundcards, CD players and speakers; and
• The development of usually free and relatively easy-to-use software which allow copyright counterfeiting.

It is widely known that after two decades of litigation, file sharing remains the main threat to the potential revenues of owners of copyrighted works and represent the clear result of how digitalisation affected both the contents market and the IP system.

The DRM solution?

Whenever DRM technologies were developed, they were seen as the natural response to copyright counterfeiting. It felt natural to fight a technological revolution such as file sharing by the means of a technological tool.

The term DRM is an umbrella definition for a range of technological protection for digital content.

DRM has been defined by Burk and Cohen as "the management of rights to digital goods and content, including its confinement to authorized use and users and the management of any consequences of that use throughout the entire life cycle of the content".

The position of DRM was both favoured and strengthened by the provisions of the Digital Millennium Copyright Act (DMCA), which in the US made it illegal to produce and disseminate technology, devices or services intended to circumvent DRM systems.

However, although DRM systems had an impact on copy protection, after a decade of efforts to use these technological tools to fight copyright counterfeiting, they have proved to be almost completely ineffective against illegal file-sharing systems. The reason could be found in the unbalanced advantages/disadvantages ratio for consumers, mainly deriving from interoperability problems among different systems. In addition, DRM systems have been systematically circumvented, which creates concerns among users about their lack of security.

In conclusion, as long as an interoperable DRM system is put in place, such a technological tool will be ineffective against copyright counterfeiting.

Peer-to-peer networks

Together with the failure of DRM systems, attempts to alter the internet architecture by extending net diversity merely confirmed what happened to be the natural development of file-sharing systems.

As the astonishing spread of peer-to-peer networks has showed, file-sharing is the natural distribution channel of intellectual creations which, in contrast to other products, can be and are likely to be completely separate from their creation, distribution and fruition.

In this scenario then, it is not feasible to fight against file-sharing systems; on the contrary, it is essential that their huge potential is exploited.

Only a couple of months ago (on February 24 2010), the most famous on-line music store (iTunes) hit the impressive number of 10 billion downloaded songs, clearly confirming a growing trend for legal downloading.

Making ISPs liable

During these two decades of fighting peer-to-peer networks involved in copyright piracy, lobbyists from the intellectual content industries moved their efforts towards switching liability from the user to the ISP (internet service provider) as a possible countermeasure to illegal file-sharing platforms.

It is clear that fighting a single real entity is much easier than fighting thousands of unknown users.

According to both European court rulings and new legislation, it appears that ISPs will most likely be held accountable for copyright violations to a larger degree than the initial framework outlined by the E-Commerce Directive.

A key role will most likely be played by the Anti-Counterfeiting Trade Agreement (ACTA), a proposed plurilateral trade agreement for establishing international standards on intellectual property rights enforcement throughout the participating countries. It would be interesting to follow the next rounds of negotiation of the mentioned agreement on this issue.

Future success

On the basis of what is outlined above, the internet, coupled with the same elements that made digitalisation the engine of copyright counterfeiting activities, can be now used as a tool to channel the potential of file sharing into a lawful and very profitable business.

Several elements have to be regarded as fundamental in such an analysis. First, the cultural shift related to the recognition of non-authorised file-sharing networks as illegal activities play a key role in consumers' perception. As showed by the US example, the recognition of the illegality of non-authorised downloading is the first step to transform copyright piracy in lawful profits and revenues.

Secondly, the digitalisation of the entire entertainment industries' value chain is both a profitable cost-cutting tool and an opportunity for such industries to compete with illegal file-sharing networks.

It has been proved that the dematerialisation of the entertainment industries could have dramatic impact, among other things, on the cost of both distribution and marketing, which together represent more than 70% of the industries' total costs.

Finally, measures in ACTA that harmonise the rules on piracy may be fundamental for the present and future of copyright anti-piracy work.

New challenges

As previously anticipated, copyright holders are now facing new forms of copyright infringement stemming from so-called community environments.

The rise of social networks as a new platform for content sharing and the emergence of new internet-based devices pose new challenges for rights holders.

What seems most relevant is that social networks and virtual communities will gain more and more space in the field of content sharing and rights owners must look at this phenomenon to understand how to react to potential harmful trends.

What appear to be important in the development of multi-user virtual environments such as Second Life are the real economic activities associated with the virtual world. In fact, virtual residents may file an abuse report if they see any other resident making unauthorised use of infringing material in Second Life.

However, it is unclear whether use of copyrighted real world contents by an avatar in a virtual world constitutes real use, which is a necessary element of infringement.

Although it could be premature, rights holders in general should not underestimate both the opportunities and challenges related to their intellectual assets in virtual worlds.

We are acknowledging both the emergence of infringing activities related to the use of real IP rights in the virtual world and both the use and the marketing of real goods in virtual worlds, as, for example, the marketing of fashion collections through Roiworld.com, a virtual space where users can try clothes on their avatars and click through to purchase them. This is one of a small number of situations in which retailers are using virtual worlds to sell real-life goods. That trend is only set to continue.

It is vital that rights owners grasp both the technological and the related cultural trends to exploit their potential. In this way the music and film industries should be able to secure their financial rewards.

Marilena Garis

Marilena Garis is an Italian and Community trade mark and design attorney with Metroconsult. She was born in 1976 and has a DrJur from the University of Turin. She is fluent in English and French and has knowledge of German. Before joining Metroconsult she was an assistant lecturer at the University of Turin in the Faculty of Economy from 2003 to 2006. Garis is a member of the IP working group www.ip-italjuris.it directed by Stefano Sandri, which offers summaries and comments on Italian IP case law and contributes to www.marchiocomunitario.it, which offers comments on European IP case law. She is a member of LES, the AIPPI, ECTA, MARQUES and INTA and has authored articles and lectured on a wide range of IP matters.