The Need to Strike a Balance:
INDUCE Act Attempts to Protect the Content and Attack the Technology

By Michael Colangelo
August 2, 2004

The Inducing Infringement of Copyright Act of 2004, introduced on June 22, 2004, has stirred a lot of debate. The proposed bill, known more as the INDUCE Act, was introduced by Senator and Judiciary Committee Chair Orrin Hatch (R-UT). He claims that the legislation was designed to allow artists to successfully sue file sharing companies. It would do so by simply confirming that existing law should allow artists to bring civil actions against parties who intend to induce others to infringe copyrights. The dispute over the INDUCE Act is largely taking place between the content creators, which support the protection of their copyrights, and the technology industries, which fear that the bill attacks their current and future innovations. This article presents the issues as framed by supporters and opponents of the bill, as well as a report from the July 22 Senate Judiciary hearing on the INDUCE Act.

Promoters and Supporting Arguments

The proposed bill began with bipartisan support from key members of the Senate including Majority Leader Bill Frist, Minority Leader Tom Daschle, Judiciary Committee Ranking Democrat Patrick Leahy, and Senators Lindsey Graham and Barbara Boxer. Since its introduction, the bill has gained support by increasing its cosponsors to include Senators Hillary Clinton, Paul Sarbanes, Lamar Alexander, and Debbie Stabenow. Senator Hatch and his colleagues believe that the proposed legislation remedies the current threat to the security of copyrights and copyright holders. In particular, they claim that it protects the weakening music industry. Senator Frist explains, “The once vibrant music community is being decimated by online piracy. No one is spared. It is hitting artists, writers, record companies, performing rights organizations, and publishers.” They also believe that the INDUCE Act will protect other creative fields, such as the movie and software industries. In total, it is argued that a substantial sector of the U.S. economy would be protected: music, movies, books, and software contribute more than 500 billion dollars a year and support 4.7 million workers.

Another supporting argument for the INDUCE Act is that it should stop corporations that are operating by intentionally structuring their businesses to avoid secondary liability for copyright infringement. Businesses that survive by inducing others to commit piracy or any other crimes should not exist. Furthermore, this would remove the legal risks currently being shifted onto unsuspecting consumers, universities, and businesses.

In addition to these arguments, the proposed bill is also centered on moral issues targeting children. The INDUCE Actshould protect minors who are ill-equipped to understand the illegality or risks of their acts. Currently, many of the large-scale piracy violators being taken to court are children. According to the proponents, the legislation would shift the risk onto the businesses that are intending to induce minors to break the law. It is argued that the proposed bill would also largely limit access to pornography mislabeled to be appealing to children, as well as reduce child pornography and viruses.

The Recording Industry Association of America (RIAA) strongly supports the INDUCE Act. The RIAA, representing major labels, claims that the legislation has been crafted narrowly enough to target the bad actors and still uphold legitimate peer-to-peer uses. RIAA Chairman and CEO Mitch Bainwol explains, “As this legislation makes clear, the debate is... legitimate versus illegitimate. It’s iTunes, the Napster and Wal-Mart, Rhapsody and others versus the likes of Kazaa, iMesh and Grokster. It’s whether or not digital music will be enjoyed in a fashion that supports the creative process or one that robs it of its future.”

Challengers and Opposing Arguments

On the other side of the argument are the technology groups who largely oppose the INDUCE Act. They believe that the proposed legislation is overly broad and may hurt companies that have nothing to do with file sharing. They claim it has the potential to overturn the 1984 Supreme Court decision in Sony v. Universal Studios (“Betamax”), which states that technologies that have “substantial non-infringing uses” cannot be blocked just because they may be used for copyright infringement. This legal standard allowed for the use of the VCR and past innovations such as the personal computer, the Internet, and TiVo. Changing the legislation would cause a new and wide-ranging action for infringement, setting up a situation where technology companies would be vulnerable to expensive trials and detrimental publicity. Multiple current technologies could be targeted under the proposed legislation which holds liable “whoever intentionally induces any violation (of copyright law)” and vaguely defines ‘intentionally induces’ as “intentionally aids, abets, induces, or procures.”

In an attempt to illustrate the weakness in the proposed legislation, the Electronic Frontier Foundation (EFF) filed a fake complaint against Apple, Toshiba, and CNET for Inducing Infringement of Copyrights. Apple was chosen for its iPod because it may increase the appeal to use peer-to-peer networks to download music and because it can be argued that sharing songs from your CDs with friends is copyright infringement. Also, one could make the case that Apple’s ‘Rip, Mix, Burn’ campaign demonstrates its intent to induce infringement. Toshiba is named in the fake lawsuit for producing the iPod’s hard drive and CNET is included for educating people on how to move the iPod’s music files. The EFF argues that similar lawsuits could be just as easily filed against manufacturers of everyday products such as CD burners, MP3 players, and cell phones.

The INDUCE Act has great potential to hurt the development of new technologies because it decreases the incentive to innovate as well as the incentive for venture capitalists to invest. Such roadblocks to innovation could result in technological opportunities leaving the U.S. and going abroad to competing countries. Also, while supporters of the proposed bill claim that it will protect a substantial sector of the economy, opponents believe it will result in a loss of jobs and funds in the technology industries. However, while creative industries compose a substantial sector of the U.S. economy, it should be recognized that technological innovation has a more overreaching effect. Innovation is the heart of America’s competitive advantage; it is what separates us from other countries. Technological innovation in particular is the fundamental driver of growth in the New Economy: studies show that it is responsible for over two-thirds of our per capita economic growth. Thus, a threat to technological innovation would also be a threat to the U.S. economy.

Furthermore, a recent Harvard Business School study discredits the advocates’ claim that file sharing hurts record sales. It provides evidence that there is virtually no loss of sales from illegal downloading because it stimulates as many sales as are lost. Also, Senator Hatch and his supporters claim that the INDUCE Act will largely protect the livelihood of the music community and its artists. However, there are actually many independent musicians who appreciate and willingly use peer-to-peer file sharing networks as free promotion of their own music. Without such technologies the voices of those who are less well-known will be harder to hear.

Finally, consumers largely oppose the INDUCE Act. Several blogs have been created online to express their discontent with the proposed bill, many promoted by public interest groups. People are generally concerned that the legislation is too broad and thus will limit their access to information and decrease usability of technological devices. The average consumer may lose rights and conveniences that he or she has become accustomed to enjoying, such as photocopying, using Google’s image search capabilities, and copying videotapes, cassettes, CDs, and DVDs.

Results from Senate Judiciary Committee Hearing

Only after much persuasion and significant opposition did Judiciary Committee Chair Senator Hatch finally agree to hold a hearing on Thursday, July 22, 2004. The hearing, titled “Protecting Innovation and Art while Preventing Piracy,” was held by Hatch and Leahy, the original Senators who introduced the legislation. Representatives from the Consumer Electronics Association (CEA), the Business Software Alliance (BSA), the Institute of Electrical and Electronics Engineers – United States of America (IEEE-USA), NetCoalition, and the RIAA were present to deliver testimony.

RIAA's Mitch Bainwol repeatedly claimed that “97 percent of transactions on P2P networks are illegal” and that there are “about a billion downloads a month.” He strongly supported the proposed legislation in its current form and stressed the importance of not allowing the language of the bill to prolong the protection of copyrights.

Kevin McGuiness, Executive Director of NetCoalition, agreed that the law should allow copyright holders to seek relief from those who illegally download and distribute their work, yet he was concerned about the broad scope of the legislation. In particular, he was alarmed about the potentially severe repercussions on Internet companies, products, and services, all of which allow for efficient communication and access to information around the world. He explained “the Internet is basically one large copy machine,” and thus current legislation would pose a threat to the Internet and its applied technologies including email, instant messaging, search engines, web browsers, and broadband.

The IEEE-USA is unique in that its members include both technologists and content owners. Vice-Chairman of the Intellectual Property Committee Andrew Greenberg stressed his organization’s commitment to carefully balancing the interests of these two groups, as well as the recognition that any change to this balance can have serious consequences to U.S. competitiveness and economy.

Robert Holleyman, President and CEO of BSA, brought forth viable suggestions which would enable the legislation to address bad actors while avoiding limitation of technological innovation. First, to ensure that legitimate technologies are not threatened, it should be declared that technological services used for significant non-infringing uses are not liable for copyright infringement, thus clearly stating that the Supreme Court’s decision in the Betamax case is unaffected. Second, to guarantee that only bad actors are targeted, it should be shown that liable parties “have engaged in conscious, recurring, persistent and deliberate acts demonstrated to have caused another person to commit infringement.” Third, it should be stated that the mere knowledge by a developer or provider that someone is using their technology for infringing purposes does not exhibit intent to induce copyright infringement. Fourth, it should be affirmed that advertising or providing support to users does not create liability. Finally, a mechanism should be created that effectively deters “weak, harassing or frivolous lawsuits,” ensuring that such cases do not go forward in the legal system. Holleyman advised that these five key points be addressed through specific language in the legislation.

Senator Leahy summarized his concern in narrowing the legislation by saying, “We could write a piece of legislation today that would be specific to the mechanism, but I guarantee you that someone will soon find a way around it.”

Gary Shapiro, President and CEO of the CEA, summed up the general sentiment of the hearing by stating “the harm is so much greater than any benefit that will be derived.” At the end of the hearing, Senator Hatch extended a hand in asking for help from the represented technology groups in crafting the legislation. However, he warned, “If you help us, we might just get it right. But if you don’t, we’ll do it anyway.”

Conclusions and Recommendations

Regardless of how file sharing pirated materials may or may not affect sales, something should be done to protect copyrights. However, the currently proposed legislation is not the right way to deal with the issue. There is such strong opposition to the bill for good reason: it poses a greater threat than seems to be intended. Such a dramatic change in copyright law should be approached with extreme caution – the opposite mindset Senator Hatch and his colleagues had when they tried to move to a full vote shortly after the legislation’s introduction.

If the INDUCE Act does not pass as is, it may hurt the creative industries. However, if the proposed legislation does pass in its current form, it has the potential to hurt not only the technology industries but also the entire U.S. economy, the effects of which could extend to all Americans. Yet the current debate should not be a question of choosing one industry over another. Ideally there should be a way to protect the content without severely compromising the technology, and any legislation passed that does not balance the competing interests will likely have very negative long-term effects. Holleyman’s five key points appear to be a good starting point to address this complicated issue.

Finally, in attempting to protect copyrighted materials, such groups should be mindful of the potential for illegal file sharing networks based outside of the United States. How will any U.S. legislation prevent consumers from accessing overseas sites to download pirated files? Copyright infringement is a global problem and U.S. legislation alone will likely not be the absolute solution. A comprehensive package containing effective legal relief, consumer education, licensing of content to peer-to-peer services, and an affordable, convenient distribution system that makes it easy to legally download files, as well as additional measures, may be necessary.

At this time this article was written, Michael Colangelo was a senior in Policy Studies at Dickinson College, Carlisle, PA

Read FMC's letter to the Senate Judiciary Committee expressing concern about the INDUCE Act (August 4, 2004)

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