Copyright and New Technologies
Technology Providers as “New” Old Actors in
Copyright Law and Policy
Branislav HAZUCHA*
Abstract
This Article examines the role of technology providers as “new” old actors in thethree recent institutional turns within copyright law and its enforcement in thedigital environment. First, many international technical standards for reproduction or dissemination technologies, e.g. CDs, DVDs or Blu-ray Discs, have incorporated various proprietary technologies, including digital rights management
technologies, at the expense of other creators, technology providers and consumers. Second, many countries around the world have adopted or are currently planning to adopt so-called three-strike rule regimes requiring internet service providers to disconnect frequent copyright infringers from the internet upon three allegations being made by affected copyright holders. In some countries, the courts
have gone even further and have already imposed on internet service providers avariety of duties to monitor their networks under specific circumstances in orderto prevent acts of copyright infringement committed by their internet users. Finally, some internet or online service providers have recently entered into agreements with major record labels or other copyright holders to allow unrestricted
use of copyrighted works by their premium users. This Article enquires into theinteraction between individual institutions and norms within all three institutionalturns within copyright law and its enforcement in the digital environment, andtheir impacts on copyright law and the behavior of individual stakeholders at thepresent and in the future.

*

LL.M. 1999 (Comenius University); Dr. jur. 2002 (Trnava University); LL.D.
2005 (Kyushu University); Associate Professor, Hokkaido University Graduate
School of Law.
45

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Introduction
The last two decades in the field of copyright protection1 have been characterized by the mass disregard of copyright law by millions of individual internet users on peer-to-peer networks.2 The severity of this lamentable situation is, as claimed by major copyright holders, especially recordlabels, evidenced by the steady decrease in their revenues since the late
1990s due to peer-to-peer file sharing. 3 As the enforcement strategies
1

For the purposes of this Article, the term “copyright” is used in a broad sense as
it is used in common law countries, where it covers the economic rights of authors, performers, phonogram producers and broadcasting organizations. Accordingly, it covers the exclusive economic rights of author’s rights and neighboringrights as they are classified in civil law countries. In places where the analysis
exclusively deals with neighboring rights, the term “neighboring rights” is used
to make clear that it concerns only neighboring rights.
2See, e.g., MailOnline, Illegal File-Sharing Downloads ‘Costs UK £12.5bn andThousands of Jobs a Year’ (May 29, 2009), available at http://www.dailymail.
co.uk/sciencetech/article-1189509/Illegal-file-sharing-downloads-cost-thousandsBritish-jobs-year.html (last visited Feb. 5, 2010); BBC News, Seven Million ‘Use
Illegal Files’ (May 28, 2009), available at http://news.bbc.co.uk/2/hi/technology/
8073068.stm (last visited Feb. 5, 2010); guardian.co.uk, Illegal Filesharing: A
Problem the Government Can’t Solve? (Nov. 25, 2009) (written by Charles Arthur), available at http://www.guardian.co.uk/technology/2009/nov/25/illegalfilesharing-digital-economy-bill (last visited Feb. 5, 2010).
3
See, e.g., RIAA, 2008 Year-End Shipment Statistics, available at http://76.74.
24.142/D5664E44-B9F7-69E0-5ABD-B605F2EB6EF2.pdf (last visited Feb. 5,2010); IFPI, IFPI Digital Music Report 2010: Music How, When, Where You
Want It, at 6 (2010), available at http://www.ifpi.org/content/library/DMR2010.
pdf (last visited Feb. 5, 2010) (“Overall music sales fell around 30 per cent between 2004 and 2009.”); IFPI, The Impact of Illegal Downloading on Music Purchasing (2009), available at http://www.ifpi.org/content/library/The-Impact-ofIllegal-Downloading.pdf (last visited Feb. 5, 2010) (outlining surveys on theimpact of illegal downloading on music sales). See also Martin Peitz and Patrick
Waelbroeck, The Effect of Internet Piracy on Music Sales: Cross-Section Evidence, 1 (2) REV. ECON. RES. COPYRIGHT ISSUES 71 (2004); Stephen E. Siwek,
The True Cost of Sound Recording Piracy to the U.S. Economy (2007), available
at http://www.ipi.org/IPI/IPIPublications.nsf/PublicationLookupFullTextPDF/
51CC65A1D4779E408625733E00529174/$File/SoundRecordingPiracy.pdf?OpenElement (last visited Feb. 5, 2010).

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against organizers of peer-to-peer networks4 and individual internet users5 have, up to now, failed to persuade millions of individual internet
users to comply with the strict requirements of copyright law, the major
corporate copyright holders’ tactics have recently been slightly modified.
They have switched the main focus of their attention to increasing therole of diverse reproduction and dissemination technology and service
providers in copyright enforcement in the digital environment. In many
countries, the leading copyright holders’ campaigns for strengthening
copyright protection in the fight against the mass unauthorized sharing of
copyrighted works on peer-to-peer networks have already led to the imposition of numerous duties on technology or service providers in order
to induce them to play an active role in copyright enforcement.6
In general, three main recent policy changes, which are directly or
indirectly related to strengthening copyright protection and enforcementin the digital environment, can be observed within national copyrightlaws in several developed countries. The first change is presented by the4See, e.g., CNNMoney.com, Hollywood Wins Internet Piracy Battle: The U.S.
Supreme Court Rules against File-Sharing Service Grokster in a Closely
Watched Piracy Case (June 27, 2005) (written by Krysten Crawford), available
at http://money.cnn.com/2005/06/27/technology/grokster/index.htm (last visited
Feb. 5, 2010); The New York Times, Australian Court Rules Kazaa Has Violated
Copyrights (Sept. 6, 2005) (written by Wayne Arnold), available at http://www.
nytimes.com/2005/09/06/technology/06kazaa.html (last visited Feb. 5, 2010).
5See, e.g., wired.com, File Sharing Lawsuits at a Crossroads, After 5 Years of
RIAA Litigation (Sept. 4, 2008) (written by David Kravets), available at
http://www.wired.com/threatlevel/2008/09/proving-file-sh/ (last visited Feb. 5,2010) (by September 4, 2008 RIAA’s massive litigation campaign included“more than 30,000 lawsuits targeting alleged copyright scofflaws on peer-to-peer
networks”); CBS News.com, File-Sharing Mom Fined $1.9 Million (June 19,2009), available at http://www.cbsnews.com/blogs/2009/06/19/crimesider/entry
5097090.shtml (last visited Feb. 5, 2010); BBC News, Lawyers Target Thousands of ‘Illegal’ File-Sharers (Nov. 27, 2009) (written by Jonathan Fildes),available at http://news.bbc.co.uk/2/hi/technology/8381097.stm (last visited Feb.
5, 2010).
6
See, e.g., IFPI, IFPI Digital Music Report 2010, supra note 3, at 24-25 (outlining the adoptions of three-strike rules, also called “graduated responses,” in several countries around the world).

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mass deployment of technological protection measures and digital rights
management systems. Although the technological solutions and theirprotection had already been available to the copyright holders for sometime,7 the last decade has brought new developments and tensions concerning their use, especially where they form a part of the technicalstandards for consumer electronic devices controlled through essential
patents held by a few leading established manufacturers.8
The other two changes in copyright protection and enforcement
would have been unacceptable to the concerned stakeholders a couple ofyears ago, but their necessity has emerged as a response to recent failuresin the enforcement of copyrights directly against individual internet users
or indirectly against providers of the software applications necessary forthe operation of peer-to-peer file sharing networks. They are, more or
less, a reaction of one change to the failure of another. The first is the socalled three-strike rule or graduated response regime, which has been or
is to be adopted in several countries, such as New Zealand, France, theUnited Kingdom and the United States.9 Under the three-strike rule, in7

See, e.g., Branislav Hazucha, Hsiao-Chien Liu and Toshihide Watabe, Copyright, Protection Measures and Their Acceptance by Consumers, in GOVERNINGINNOVATION AND EXPRESSION: NEW REGIMES, STRATEGIES AND TECHNIQUES 271,
281-9 (Katja Weckström ed., Turku: University of Turku Press, 2013).
8
See, e.g., The Register, China’s DVD Format ‘Ready by 2008’: Blu-Ray Meets
the Red Way (Oct. 12, 2005) (written by Andrew Orlowski), available at
http://www.theregister.co.uk/2005/10/12/china_homegrown_dvd/ (last visited
Feb. 5, 2010) (“China produced about 70 percent to 80 percent of the world’s
DVD players. However, Chinese manufacturers need to pay licensing fees tooverseas patent holders in the DVD industry.”); The Australian, China Challenges Sony-Led Consortium in Blu-Ray DVD Market, available at http://www.
theaustralian.com.au/news/china-challenges-sony-led-consortium-in-blu-ray-dvdmarket/story-0-1225756134111 (last visited Feb. 5, 2010) (“In just a couple ofmonths since it was launched, the cheaper all-Chinese CBHD players are thought
to be outselling Blu-ray players at a rate of about three to one.”).
9See, e.g., Office of the Minister of Commerce, Cabinet Paper: Illegal Peer-ToPeer File Sharing (Dec. 14, 2009), available at http://www.med.govt.nz/upload/
71039/S92A-Cabinet-Paper.PDF (last visited Feb. 5, 2010) (New Zealand); The
New York Times, France Approves Wide Crackdown on Net Piracy (Oct. 22,2009), available at http://www.nytimes.com/2009/10/23/technology/23net.html

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ternet service providers are expected to disconnect repetitious copyright
infringers from access to the internet for a certain time period after two
previous warnings of alleged copyright infringements have been made.
As the trials and operation of such regimes have caused huge outrage
from internet service providers and their customers,10 some leading internet and online service providers have lately struck deals with several
major record labels or other corporate right holders under which the customers of their internet or online services are allowed to use copyrighted
content controlled by those right holders with limited or even no restrictions.11
This Article enquires into these changes in copyright law protectionand enforcement in digital networks, especially changes in the role
played by technology providers as “new” old actors in modern copyright
law and policy making. It also examines the role of various well(last visited Feb. 5, 2010) (France); guardian.co.uk, Digital Economy Bill Promises Action on Piracy, Games and ITV Regional News (Nov. 18, 2009), available
at http://www.guardian.co.uk/media/2009/nov/18/digital-economy-bill (last visited Feb. 5, 2010) (the United Kingdom); cnet news, A Year Out, Where’s RIAA’s
Promised ISP Help? (Dec. 23, 2009) (written by Greg Sandoval), available at
http://news.cnet.com/8301-31001_3-10420803-261.html?part=rss&subj=news&tag=2547-1_3-0-20 (last visited Feb. 5, 2010) (the United States); guardian.co.uk,
EU Urges to Crack Down on Internet Piracy (Jan. 10, 2010), available at
http://www.guardian.co.uk/technology/2010/jan/10/eu-illegal-internet-piracyfilesharing (last visited Feb. 5, 2010) (the European Union).
10
See, e.g., The Register, Kiwis Scrap ‘Three Strikes’ P2P Policy (Mar. 24,2009), available at http://www.theregister.co.uk/2009/03/24/new_zealand_delays_three_strikes_policy/ (last visited Feb. 5, 2010) (“controversial section 92a of
the Copyright Act was shown the door by Prime Minister John Key on Monday
following public and corporate protests and a well-organized internet ‘blackout’
campaign”); BBC News, Anger at UK File-Sharing Policy (Aug. 25, 2009),
available at http://news.bbc.co.uk/2/hi/technology/8219652.stm (last visited Feb.
5, 2010); BBC News, Warning Letters to ‘File-Sharers’ (July 3, 2008), available
at http://news.bbc.co.uk/2/hi/technology/7486743.stm (last visited Feb. 5, 2010).
11
See, e.g., BBC News, Anti-Piracy Music Deal for Virgin (June 15, 2009),
available at http://news.bbc.co.uk/2/hi/8100394.stm (last visited Feb. 5, 2010);
guardian.co.uk, HP Deal Strengthen Omnifone’s Position in Digital Music Battle(Jan. 25, 2010), available at http://www.guardian.co.uk/business/2010/jan/25/hpbundles-omnifone-music-downloads (Jan. 25, 2010).

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organized interest groups and the broader social atmosphere in designing
new institutions for strengthening the protection of copyright holders’proprietary interests in the digital age.
Section I sketches the relationship between copyright protection andthe provision of new reproduction and dissemination technologies whichcan, in some ways, endanger the revenues of incumbent content providers from their copyrighted content. It scrutinizes the mutual interdependency between content providers and technology providers. At the same, it
points out the frictions and tensions between the interests of both stakeholders in designing new reproduction and dissemination technologies.
Section II outlines the different ways in which human behavior canbe regulated. It relies on the modalities-of-regulation theory developedby Lawrence Lessig and shows the new insights this theory can provide
us with regard to copyright protection and the regulation of new reproduction and dissemination technologies. It also examines how theabovementioned changes in copyright law and its enforcement in thedigital environment employ different combinations of individual modalities of regulation.
Section III scrutinizes possible ways of regulating new reproduction
and dissemination technologies by the law while taking into account therespective likely responses of other affected modalities of regulation, i.e.
social norms, markets and technology. It enquires into the role of legislation, courts and markets in regulating new technologies. The analysis
also focuses on the role of interest groups in copyright policy making andthus examines possible biases which can occur during the copyright law
making process or court proceedings.
The Article concludes by calling for cautiousness with respect toimposing any broad duties on technology providers in order to inducethem to play an active role as gatekeepers in the protection of copyrightholders’ proprietary interests in the digital age. The reason for this is thatsuch regimes can place a considerable burden on other stakeholders, especially consumers and those technology providers who want to enter
into the market with new technologies and business models.

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1. Copyright Protection and New Technologies
The history of copyright protection is intertwined with the introductionof diverse reproduction and dissemination technologies which allowed
new ways of making commercial or non-commercial uses of copyrighted
works, such as the printing press, sound and video recording, radio andtelevision broadcasting, and internet communication. Technology providers have thus historically played an important role in creating the necessary technological and economic foundations for numerous types of
copyright-based entertainment industries. The latter’s emergence would
not have been possible without the abundant availability of essential
technologies which allowed for particular commercial exploitations of
copyrighted works. New technologies have steadily reduced the costs ofproduction or dissemination of copyright works so that their commercial
exploitation has become commercially viable for the concerned content
providers.
At the same time, the labor, time and other limited resource savingfeatures of reproduction and dissemination technologies have brought arecurring need to protect, by law, investors’ interests in the commercial
exploitation of literary, artistic and scientific works against those whowant to directly or indirectly benefit financially from their exploitation.
For instance, the invention of copyright was a response to the introduction of printing press technology and the need to set up a legal framework for the early market-oriented regulation of the printing industry.12
Similarly, the introduction of early sound and video recording technologies, as well as radio and television broadcasting technologies, led to an
12See, e.g., AUGUSTINE BIRRELL, SEVEN LECTURERS ON THE LAW AND HISTORY OF
COPYRIGHT IN BOOKS (Kessinger Publishing, 2008) (1899); L. RAY PATTERSON,COPYRIGHT IN HISTORICAL PERSPECTIVE 20-179 (Nashville, TN: Vanderbilt University Press, 1968); DAVID SAUNDERS, AUTHORSHIP AND COPYRIGHT 35-74(London: Routledge, 1992); BRAD SHERMAN AND LIONEL BENTLY, THE MAKING
OF MODERN INTELLECTUAL PROPERTY LAW: THE BRITISH EXPERIENCE, 1760-1911
11-42 (Cambridge: CUP, 1999); RONAN DEAZLEY, ON THE ORIGIN OF THE RIGHTTO COPY: CHARTING THE MOVEMENT OF COPYRIGHT LAW IN EIGHTEENTHCENTURY BRITAIN (1695-1775) (Oxford: Hart Publishing, 2004).

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economically significant broadening of the scope of authors’ and composers’ exclusive rights granted by copyright law, as well as to the grantof new exclusive rights to performers and entities involved in music,
video and other related entertainment production and its dissemination
through radio or television broadcasting.13 As threats to the commercial
exploitation of copyrighted works, which were brought about by new
reproduction and communication technologies, have significantly
changed several times, especially during the last 150 years, the group of
stakeholders in copyright policy making has also considerably changed
over the same time.14
The conventional view on copyright policy is that there are twomain groups of stakeholders: copyright holders and consumers of copyrighted works.15 The reality is, however, more complex than it may seemat first glance. The group of copyright holders is not only composed ofindividual creators, such as authors, composers and other types of artists,
but also from a variety of commercial entities, such as record labels, studios, radio and television broadcasters, as well as video game developing
and publishing companies, which arrange the delivery of numerous copyrighted works from their creators to consumers in diverse forms on acommercial basis. Over time, many of these content providers were once
new types of content providers who struggled with then established content providers. Hence, studios and record labels competed with publishing houses, authors and composers.16 Soon after, radiobroadcasting com13

See, e.g., PAUL GOLDSTEIN, COPYRIGHT’S HIGHWAY: FROM GUTENBERG TO THE
CELESTIAL JUKEBOX 49-61 (Stanford, CA: Stanford University Press, 2003);
MAKEEN FOUAD MAKEEN, COPYRIGHT IN A GLOBAL INFORMATION SOCIETY: THE
SCOPE OF COPYRIGHT PROTECTION UNDER INTERNATIONAL, US, UK AND FRENCH
LAW 24-279 (The Hague: Kluwer Law International, 2000).
14
See, e.g., MAKEEN, supra note 13 (outlining individual institutional switches
and stakeholders in copyright protection from the printing press to information
communication technologies).
15
See, e.g., L. RAY PATTERSON AND STANLEY W. LINDBERG, THE NATURE OF
COPYRIGHT: A LAW OF USERS’ RIGHTS 163-241 (Athens, GA: The University ofGeorgia Press, 1991) (traditionally distinguishing between authors, publishers
and users).
16
See, e.g., GOLDSTEIN, supra note 13, at 49-54.

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panies challenged record labels and collecting societies representing theinterests of authors and composers.17 Cable television operators contested
with broadcasting companies. 18 There exist many further examples ofsuch confrontations between incumbent and emerging content providers.
Similarly, the group of consumers is not homogeneous either. Individual consumers differ significantly in their preferred ways of consuming copyrighted works. Some consumers like to download sound recordings to their iPods or other types of MP3 players. Others like to listen to
their collection of music CDs, while there is still a group of consumers
who think that nothing can be compared to the joy of listening to oldgood vinyl LP records. Moreover, there are people who prefer watchingmovies or playing video games to listening to any sound recordings.
In addition to the heterogeneous groups of traditional stakeholders
in copyright policy, it has recently become more obvious that the providers of reproduction and dissemination technologies and services also
have something to say about copyright policy. Since the introduction of
the first tape recorders which allowed the public to record radio broadcasts,19 the claim has regularly been raised by copyright holders or theircollecting societies that consumer electronics manufacturers should design their technologies in a more copyright-friendly way.20 But it is only17

See id. at 57-60; MAKEEN, supra note 13, at 33-83.
See, e.g., MAKEEN, supra note 13, at 227-79.
19
The Grundig Reporter case, 1956 GRUR 492 (BGH May 18, 1955). See also
JAAP H.SPOOR, WILLIAM CORNISH AND PETER F. NOLAN, COPIES IN COPYRIGHT
24-26 (Alphen aan den Rijn: Sijthoff & Noordhoff, 1980); Dirk J.G. Visser, Copyright Exemptions Old and New, in THE FUTURE OF COPYRIGHT IN A DIGITALENVIRONMENT 49, 50 (P. Bernt Hugenholtz ed., The Hague: Kluwer Law International, 1996); ANDREAS DUSTMANN, DIE PRIVILEGIERTEN PROVIDER:
HAFTUNGSEINSCHRÄNKUNGEN IM INTERNET AUS URHEBERRECHTLICHER SICHT 4950 (Baden-Baden: Nomos Verlagsgesseschaft, 2001).
20
See, e.g., CBS Songs Ltd. v. Amstrad Consumer Electronics Plc. [1988] A.C.
1013, [1988] R.P.C. 567, [1988] 2 All E.R. 484 (a case dealing with the marketing of double-deck cassette recorder in the United Kingdom); Sony Corp. of
America v. Universal City Studios, Inc., 464 U.S. 417, 78 L. Ed. 2d 574, 104 S.
Ct. 774 (U.S. Sup. Ct Jan. 17, 1984) (a case dealing with the marketing of Betamax video tape recorder in the United States).
18

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in the last two decades that views have changed to the point that technology and internet service providers are expected to play a more active rolein copyright enforcement in the new digital environment.21
The actual role of technology providers in copyright policy has
gradually changed as the technology developed from one type of reproduction or dissemination technology to another. This has been affected toa certain degree by the fact that technology providers have often also
been content providers. The first copyright holders—printers and binders—were also technology providers. Gutenberg was not only the inventor of the modern movable type of printing technology but also the printer of the famous Gutenberg Bible, which was praised for its high quality
and relatively low price compared to those produced with previous printing methods. 22 Similarly, the first record labels, movie producers andradio broadcasters controlled essential patents for manufacturing gramophones, movie cameras and radio broadcasting devices.23
Although technology providers and content providers can be thesame persons, splits and reunions between these two commercial activities occur in many cases due to their sometimes conflicting but also moreor less mutually dependant interests. Tensions and mutual dependency
between their interests are caused by the direct and indirect networks

21

See, e.g., Pater S. Menell, Indirect Copyright Liability and Technological Innovation, 32 COLUM. J.L & ARTS 375 (2009); Alfred C. Yen, Torts and the Construction of Inducement and Contributory Liability in Amazon and Visa, 32
COLUM. J.L & ARTS 513 (2009); Alain Strowel, Internet Piracy as a Wake-Up
Call for Copyright Law Makers: Is the “Graduated Response” a Good Reply?,2009 (1) WIPO J. 75 (2009).
22
See, e.g., ASA BRIGGS AND PETER BURKE, A SOCIAL HISTORY OF THE MEDIA:FROM GUTENBERG TO THE INTERNET 13-9 (3d ed., Cambridge: Polity, 2009).
23
See, e.g., WILLIAM BODDY, FIFTIES TELEVISION: THE INDUSTRY AND ITS CRITICS
29 (Champaign, IL: University of Illinois Press, 1993); MAGNETIC RECORDING:
THE FIRST 100 YEARS (Eric D. Daniel et al. eds., New York, NY: IEEE Press,
1999); George Brock-Nannestad, The Development of Recording Technologies,
in THE CAMBRIDGE COMPANION TO RECORDED MUSIC 149 (Nicholas Cook et al.
eds., Cambridge: CUP, 2009).

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effects24 of adopting a particular technology for the purpose of reproducing or distributing copyrighted works. The more available the copyrighted content is for acquisition through a particular technology, the more
entities have incentives to buy or use such technology. For example, themore available DVDs or Blu-ray Discs are on the market, the more customers decide to buy DVD or Blu-ray Disc players. By increasing theavailability of complementary goods—in this case, copyrighted works—
by one unit, the value of each device held by consumers is increased. So
far, we can see that the interests of content providers and technology
providers are mutually supportive. This is also the reason why manytechnology providers have started to provide content which can be usedby their technologies.25
Yet, the experiences with the success of certain technologies on themarket show that a technology must be partially or completely open toother competitors in order to be able to acquire a sufficient market shareto be adopted as a leading technical standard by the market, be it a defacto, de jure or other formally adopted technical standard.26 Closed proprietary technologies rarely become widely accepted industry standards.
This is because the lack of competition between different manufacturersof compatible devices prevents consumers from benefitting from a variety of compatible devices with lower prices, which is what guarantees the
success of a technical standard on the market. Exceptions to this rule arepresented by a few closed proprietary technologies which benefitted froma sufficient variety of complementary goods and services provided byother competitors to such technologies.27
24

See, e.g., OZ SHY, THE ECONOMICS OF NETWORK INDUSTRIES (Cambridge: CUP,
2001).
25
For instance, companies such as Sony, Nintendo or Philips market copyrighted
content along with their consumer electronics devices. Their platforms are often
so unique that their prerecorded media can only be played or used on the devices
provided by them.
26
See, e.g., STANDARDS AND PUBLIC POLICY (Shane Greenstein & Victor Stangoeds., Cambridge: CUP, 2007); JEFFREY H. ROHLFS, BANDWAGON EFFECTS IN
HIGH-TECHNOLOGY INDUSTRIES (Cambridge, MA: MIT Press, 2001).
27
See, e.g., Neil Gandal, Shane Greenstein and David Salant, Adoptions andOrphans in the Early Microcomputer Market, 47 J. IND. ECON. 87 (1999) (ex-

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In addition to a sufficient variety of available copyrighted works to
be used by a technology, the utilities it provides also matter for its success on the market, especially when consumers are required to bear thecosts of switching from one technology to another, e.g. switching from
VCRs to DVDs and then to Blu-ray Discs. In this case, the higher the
picture quality is or the more utilities a technology provides, the higher
the chances are that more consumers will decide to invest their limited
financial resources into the acquisition of it. Accordingly, DVD and Bluray Disc technologies offer their consumers much greater durability andpicture quality than VCR technologies ever could. The latter utility wassignificantly increased in Blu-ray Disc technology in order to guarantee asmooth transition from DVD. These benefits allowed them to overcome
the fact that they considerably limited consumers’ ability to copy DVDsand Blu-ray Discs due to the use of digital rights management (DRM)
technologies or to buy prerecorded media in low-cost countries to use inhigh-cost countries due to the use of region codes.28 To persuade consumers to invest in them, each provider has an incentive to provide technologies possessing more utilities of higher quality than its competitors.
In the simple case of recording devices, there is always competition between manufacturers to put devices on the market which have higher
recording speeds and larger data storage capacities than those offered bytheir competitors. This was the case with double-deck cassette recorders,
and recently CD, DVD and Blu-ray Disc burners.
To close the circle, content providers are willing to place their copyrighted works only on media used by technologies which guarantee thehighest level of protection to their interests. To avoid the creation of ashortage of prerecorded media on the market, which would lead to consumers refraining from buying technology which uses that media, theestablished technology providers closely cooperate with major content
plaining the adoption of MS-DOS standard by availability of complementary
software).
28
See, e.g., Rostam J. Neuwirth, The Fragmentation of the Global Market: The
Case of Digital Versatile Discs (DVDs), 27 CARDOZO ARTS & ENT. L.J. 409(2009); Peter K. Yu, Region Codes and the Territorial Mess, 30 CARDOZO ARTS
& ENT. L.J. 187 (2012).

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providers when they design their new technologies. The Blu-ray Disc
Association, the industry consortium that has developed and licenses
Blu-ray Disc technology, thus includes among its members several major
studios such as the 20th Century Fox, Walt Disney Motion Pictures
Group, Warner Bros. Entertainment and Universal Studios Home Entertainment. The situation was similar with the competing HD-DVD format
developed by the HD-DVD Promotion Group.
Some technology providers have gone even further and have enteredinto the production of copyrighted content. In the past, as mentioned
above, it was quite normal for the manufacturers of new technologies
used for the consumption of copyright-based entertainment to also produce prerecorded media for their devices. For instance, the 1903 famous
movie The Great Train Robbery was distributed by the Edison Manufacturing Company for its Kinetoscope technology.29 Later, several purely
consumer electronics manufacturers also entered the entertainment business by acquiring established record labels or studios. Over the last three
decades, Sony Corporation as a leading consumer electronics manufacturer in the world has acquired several major record labels and movie
studios through its subsidiaries, Sony Music Entertainment Inc. and Sony
Pictures Entertainment Inc.30
On the other hand, many content providers have also begun to develop the necessary technologies on their own or in close cooperation
with major consumer electronic manufactures. This allowed them to control their design in a way that was beneficial to them. But combining the
production of technologies with the production of copyrighted content
often brings tensions and frictions, since the interest of content providers
is habitually to design technologies in such a way as to maximize thegains from the commercial exploitation of their copyrighted works. Thisfrequently results in such technologies preventing some uses of copyrighted works even though it would be technically and economically fea29

See, e.g., DAVID ROBINSON, FROM PEEP SHOW TO PALACE: THE BIRTH OF
AMERICAN FILM 80-82 (New York, NY: Columbia University Press, 1996).
30
See, e.g., JOHN NATHAN, SONY: THE PRIVATE LIFE 180-240 (New York, NY:
Mariner Books, 1999).

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sible for such uses to be allowed. One of most recent examples is the useof diverse DRM technologies which in various ways restrict the ability of
consumers to exploit digital copyrighted works for private noncommercial purposes.31
To sum up, there is a close relationship between technology providers and content providers. Many forms of copyrighted works have beencreated by technology providers just to guarantee the commercial viability and ample adoption of their technologies by consumers. At the sametime, many content providers have invested considerably in order toguarantee that new technologies are designed in the way that is mostbeneficial to their proprietary interests. Furthermore, both groups ofstakeholders in the copyright policy making process are heterogeneous.
Each of them is composed of various incumbent and emerging stakeholders. Copyright policy is thus shaped by the tensions between incumbent and new content providers within the same, or from different, fields
of cultural production, the frictions between content and technology providers, and the struggles between incumbent and new technology providers. The question which then arises is how new reproduction and dissemination technologies should be regulated in order to maximize aggregatesocial benefits within modern societies and to minimize the social costs
brought by such regulation.

31

See, e.g., June M. Besek, Anti-Circumvention Laws and Copyright: A Reportfrom the Kernochan Center for Law, Media and the Arts, 27 COLUM. J.L. & ARTS
385 (2004); John A. Rothchild, Economic Analysis of Technological Protection
Measures, 84 OR. L. REV. 489 (2005); Patricia Akester, Technological Accommodation of Conflicts between Freedom of Expression and DRM: The First Empirical Assessment (2009), available at http://papers.ssrn.com/sol3/papers.cfm?
abstract_id=1469412 (last visited Dec. 15, 2013).

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2. New Technologies and Four Modalities of Regulation
Lawrence Lessig in his seminal work Code and Other Laws of Cyberspace,32 which has been recently revised in its second extended edition
Code Version 2.0,33 distinguishes between four so-called modalities ofregulation: law, norms, market and architecture.34 He distinguishes thesemodalities of regulation pursuant to the way in which they constrain the
behavior of individuals. He puts it tersely: “Norms constrain through thestigma that a community imposes; markets constrain through the pricethat they exact; architectures constrain through the physical burdens they
impose; and law constrains through the punishment it threatens.”35
Individual modalities of regulation should not be seen in a vacuum
and as completely independent. The opposite is true. To regulate a particular activity, several modalities of regulation in combination are normally used. For example, content providers can regulate consumers’ activities through the prices they charge for their copyrighted works. If they
strike an agreement with technology providers, they can also restrict theways in which consumers can use their copyrighted works. They can doso through the use of technological constraints implemented into technologies, which are essential for such consumption. The consumers canthen be asked to pay more for copyrighted works with less restrictive
technological prevention measures than for works which they can watch
or listen to only once. For instance, the digital television broadcasting
system can contain so-called flags, which set up the ways in which theaudience can use the received television broadcast, i.e. whether the viewers can record it for later watching or whether they can further stream it
by devices such as LocationFree TV or Slingbox via the internet to any

32

LAWRENCE LESSIG, CODE AND OTHER LAWS OF CYBERSPACE (New York, NY:
Basic Books, 1999).
33
LAWRENCE LESSIG, CODE VERSION 2.0 (New York, NY: Basic Books, 2006).
34
See id. at 123.
35
Id. at 124.

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place where the users of such devices can access the internet.36 Likewise,
digital recording devices can incorporate the Serial Copy Management
System or any similar technological measure, which causes the quality ofcopies to gradually deteriorate, i.e. each digital copy has a lower quality
than the copy from which it originated.37
The level of regulation can become stronger if the law bans any
technology which circumvents such technological protection measures.
This is the current state of the law after the implementation of two 1996
WIPO Internet Treaties38 into national copyright laws worldwide. Law
can even require technology providers to implement a particular technological solution into their devices. The U.S. copyright law does so byrequiring the manufacturers of digital audio recording devices or digitalaudio interface devices to conform with the Serial Copy Management
System or any similar system.39 Similarly, in the mid-2000s there wereseveral attempts to incorporate, into the digital television broadcasting
system, various requirements to recognize flag systems by the manufacturers of consumer electronics, such as TV sets and recording devices
allowing the recording of digital TV broadcasts.40
A further aspect of Lessig’s modalities-of-regulation theory is thatthe system composed from individual modalities of regulation is not static but dynamic. Each modality of regulation is exposed to ongoing alterations, e.g. changes in statutory or case law, social norms, technologies
and prices. None of the modalities is immune to the impact of changes in
the other modalities, but rather they interact with each other. A change in
36

See, e.g., Randal C. Picker, From Edison to the Broadcast Flag: Mechanism ofConsent and Refusal and the Propertization of Copyright, 70 U. CHI. L. REV. 281(2003).
37
See, e.g., Stephen W. Webb, RIAA v. Diamond Multimedia Systems: The Recording Industry Attempts to Slow the MP3 Revolution – Taking Aim at the Jogger Riendly Diamond Rio, 7 RICH. J.L. & TECH. 5 (2000).
38
The term “WIPO Internet Treaties” is commonly used for the WIPO CopyrightTreaty and WIPO Performances and Phonograms Treaty adopted in Geneva on
20 December 1996.
39
See, e.g., 17 U.S.C. § 1002 (the U.S. Copyright Act).
40
See, e.g., Molly S. Van Houweling, Communications’ Copyright Policy, 4 J.
TELECOMM. & HIGH TECH. L. 97 (2005).

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one modality of regulation can lead to counteractions in any other modality. This causes further dynamism between individual modalities of regulation.41 The change in law can lead to a response in the form of alterations in prices or designs of technologies, and vice versa. The responsivechanges can strengthen or undermine the effect of original legal change.
Conversely, modifications to the law or social norms can cause the success or complete failure of a particular technology owing to their respective impacts on technology or content providers.
Applying Lessig’s modalities-of-regulation theory to changes in therole of technology providers in copyright protection and enforcement in
the digital environment, we can see the interactions between individual
modalities of regulation and their mutual counteractions more clearly.
Habitually, recording devices are more expensive than devices which can
only play media, since they provide their consumers with more utilities
and ways of using copyrighted works. As a reaction to the high level ofprivate copying by analogue reproduction devices, the major copyrightholders entered into the 1992 Athens agreement and also into consortia
and alliances, which developed several digital media storage technologies, such as DVD or recently Blu-ray Disc technologies. The digitaltechnologies developed in this way have incorporated a variety of copy
protection systems which technically prevent them from being used forcopying media which contain copyrighted audiovisual works. The reaction of consumers to many such technological prevention measures wasto quickly circumvent them. Although the law and technologies are employed to restrict certain types of uses of copyrighted works, many users
find these protective measures to be too restricting and consumerunfriendly. The counteraction from social norms has therefore been thatmany members of concerned social groups find it normal to disregard
such laws and to circumvent the technological protection measures buttressed by those laws.
For this reason, in the late 1990s corporate copyright holders did notwant to build any online service which would allow the downloading ofauthorized copies of sound recordings, movies or other types of copy41

See LESSIG, supra note 33, at 130.

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righted works before an effective technology was developed to sufficiently protect their proprietary interests. But the non-existence of any
lawful online service led to the development of peer-to-peer networks
where their users could share digital files containing copies of copyrighted works without any restriction. According to Napster’s founder Shawn
Fanning, a then student at the Northeastern University in Boston, themain reason for creating Napster was the lack of music files available on
the internet for downloading.42 Although several years after the introduction of the first peer-to-peer file sharing network the major record labels
attempted to build their own paid downloading services to provide theconsumers with lawful alternatives, they failed, because their businessmodels were unattractive and too expensive in the eyes of many consumers. The situation was finally changed when Apple launched its iTunes
service, which allowed its users to download a music track for less than
USD 1.43 The iTunes’ success therefore only confirmed several studies,
which were conducted before its official launch and showed that the consumers are willing to pay for lawful copies of copyrighted sound recordings, but not more than USD 1 per track.44
The emergence of authorized downloading services in the mid2000s created a new significant source of revenue for copyright holders,45 but these revenues have not yet been able to fully recoup the previ42

See, e.g., BBC News, The man behind Napster (Feb. 13, 2001), available at
http://news.bbc.co.uk/2/hi/1167876.stm (last visited Dec. 15, 2013) (“It was rooted out of frustration not only with MP3.com, Lycos and Scour.net, but also (thedesire) to create a music community…”).
43
See, e.g., Apple, Apple Launches the iTunes Music Store (Apr. 28, 2003),
available at https://www.apple.com/pr/library/2003/04/28Apple-Launches-theiTunes-Music-Store.html (last visited Dec. 15, 2013).
44
See, e.g., Rajiv K. Sinha and Naomi Mandel, Preventing Digital Music Piracy:
The Carrot or the Stick?, 72 J. MARKETING 1 (2008); Eric P. Chiang and Djeto
Assane, Estimating the Willingness to Pay for Digital Music, 27 CONTEMP. ECON.
POL’Y 512 (2009).
45
See, e.g., IFPI, Recording Industry in Numbers: The Recorded Music Market in2012 (2013); RIAJ, Statistics Trends: The Recording Industry in Japan 2013, at
8-11 (2013), available at http://www.riaj.or.jp/issue/industry/pdf/RIAJ2013.pdf(last visited Dec. 15, 2013).

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ous losses in music sales. The main corporate copyright holders blame
the use of peer-to-peer networks for sharing copyrighted works withoutobtaining any authorization from the concerned copyright holders as themain cause of their current lamentable situation. They have therefore
attempted to eradicate peer-to-peer file sharing by suing the commercial
entities involved in organizing such networks,46 as well as individual filesharers.47 These attempts have, however, failed due to the clash between
two modalities of regulation—law and social norms. The corporate copyright holders have thus been forced to change their enforcement strategies. They have started to campaign in many jurisdictions for theamendment of their national copyright laws in order to require internet
service providers to play an active role in copyright enforcement against
individual file-sharers under so-called three-strike rules, which combine
regulation by law with regulation by technology.48
Nonetheless, the first trial or actual operations of three-strike rules
have brought about huge opposition from both internet users and internet
service providers in several jurisdictions.49 As a solution, some internetor online service providers have struck an agreement with several major
record labels and other copyright holders to provide their premium users
46

See, e.g., A&M Records, Inc. v. Napster, Inc., 114 F. Supp. 2d 896, 2000 U.S.
Dist. LEXIS 11862 (N.D. Cal. 2000), aff’d, 239 F.3d. 1004, 2001 U.S. Dist.
LEXIS 5446 (9th Cir. 2001); In re Aimster Copyright Litigation, 2002 U.S. Dist.
LEXIS 17054 (N.D. Ill 2002), aff’d, 334 F.3d 643 (8th Cir. 2004); MGM Studios
v. Grokster, Ltd., 545 U.S. 913 (U.S. Sup. Ct June 27, 2005); Universal Music
Australia Pty Ltd. v. Sharman License Holdings Ltd. [2005] F.C.A. 1242 (Fed. Ct
Austl. Sept. 5, 2007); In re Winny, 65 Keishū 1380 (Sup. Ct of Japan 2011).
47
See text accompanying note 5.
48
See text accompanying note 6. See also, e.g., Strowel, supra note 21; Peter K.
Yu, The Graduated Response, 62 FLA. L. REV. 1373 (2010); Michael Boardman,
Digital Copyright Protection and Graduated Response: A Global Perspective, 33
LOY. L.A. INT’L & COMP. L. REV. 223 (2011).
49
See, e.g., The Guardian, BT and TalkTalk Lose Challenge against Digital
Economy Act (Mar. 6, 2012), available at http://www.theguardian.com/technology/2012/mar/06/internet-provider-lose-challenge-digital-economy-act (last visited
Dec. 15, 2013); BBC Newsy, UK Piracy Warning Letters Delayed until 2015
(June 6, 2013), available at http://www.bbc.co.uk/news/technology-22796723(last visited Dec. 15, 2013).

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with unlimited access to a broad array of music or other copyrighted
works for a moderate monthly fee. This approach attempts to combine all
four modalities of regulation in order to achieve a sufficient level ofcompliance with the law and to maximize benefits for all concerned
stakeholders while minimizing the social costs of such regulation.

3. New Technologies and Law
Contemporary markets for various kinds of entertainment, such as soundrecordings, movies, television programs or video games, are typicallydominated by a few companies which together control more than 80% of
their respective worldwide markets. To maximize the income streams
from their intangible assets protected by copyrights, the most importantworldwide corporate copyright holders frequently try to control any form
in which their copyrighted works can be exploited. They habitually challenge any new information or communication technology which can provide its users with a new way of exploiting copyrighted works for private,
non-commercial purposes without the need to obtain any authorizationfrom them—the holders of copyrights to the works being exploited. The
question then arises as to how the legislators or courts should strike a fairand just balance between the interests of all affected stakeholders in
regulating new information and communication technologies when they
are asked to serve justice and to protect the legitimate interests of affected copyright holders.
3.1. Three Ways of Regulating New Technologies by Legislation
There are three possible ways of regulating the provision of dual-use
technologies and online services through legislation. As the law frequently does not fit new information and communication technologies very
well, the first option is to keep the status quo and not to broaden thescope of copyright law’s application so as to cover new technologies
which are capable of substantial copyright non-infringing uses. In thisway, a safe harbor for the providers of new technologies and services can

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be created in order to avoid the stifling of innovation and technologicalprogress. This can significantly reduce the costs of innovative processes
that might be incurred through the copyright liability of the technology
provider. It is habitually difficult to predict all possible consequences andimplications of new technologies and online services with regard to their
possible misuse for copyright infringements by their users, especially theextent of penetration and the size and severity of their misuses and harmcaused to copyright holders. Any liability imposed on technology or
online service providers will therefore have a considerable negative impact on their incentives to innovate in new border areas which copyrightholders may view as clashing with their private interests in strong protection of their copyrighted works.
At the same time, the safe harbors for technology and service providers are regularly perceived by copyright holders as having been created and operated at their expense. They argue that the provision of many
new technologies and services would not be economically viable without
their mass use for the exploitation of copyrighted works by their consumers without authorization, explicit or implicit, from the concerned
copyright holders. The copyright holders therefore claim that the only
solution is to grant them broad exclusive rights which would allow themto control the design of technologies and online services.
Accordingly, the second option for the regulation of new technologies and online services is to grant broad exclusive rights to copyrightholders in order to allow them to control the utilities of new technologies
and services. Timothy Wu suggests that this model resembles a stewardship relationship.50 Copyright holders are deemed to be stewards of newtechnologies and services. The problem with the stewardship model isthat many of the main corporate copyright holders stress their privateinterests at the expense of those of other stakeholders. As they have personal stakes in maximizing profits obtained from the exploitation of their
copyrighted works, they frequently put aside business models which can50

See Timothy Wu, Copyright’s Communications Policy, 103 MICH. L. REV. 278,
329-31 (2004).

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be beneficial to the public, and in the long run also to them, but whichcome at their expense in the short run.
Major corporate copyright holders do not tend to pursue the necessary innovative approaches to business that will lead to new businessmodels. One of the main reasons for this is that they have already invested considerably in an incumbent business model which they have used
for some time. Any radical change from one business model to anotherwould lose them the resources which they have already invested in theobsolete model and impose the additional costs necessary to introduce a
new one. It is therefore not surprising that the main corporate copyrightholders are reluctant to adopt new business models, especially thosewhich are considerably different from the prevailing ones, i.e. thosewhich do not allow for the continuation of prevailing ones and whichbring the latter’s destruction and substitution.
In the ideal world where transaction costs approach zero, economists argue that how rights are originally distributed does not matterfrom an overall perspective. Through the operation of the market, rights
are supposed to be transferred to the party who values them the most.51
This leads to wealth maximization. Hence, at least in theory, if copyrightholders have the right to control the design of new technologies andonline services and if technology or service providers value the provisionof certain technologies or services in a consumer-friendly way that allows the exploitation of copyrighted works for various non-commercial
purposes more than the content providers value their non-provision, thetechnology or service providers can pay content providers for allowing
them to market such technologies or services. Conversely, if the technology or service provider is protected by a safe harbor and the content providers values change in such technologies or services in a copyrightfriendly way more than the technology or service providers value theirprovision as originally designed, the latter can pay the former to change
their design.

51

See generally, Ronald H. Coase, The Problem of Social Costs, 3 J.L. & ECON. 1(1960).

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However, the real world is not a world without transaction costs.
The converse is true. There are several factors which even increase transaction costs in such a way that the reallocation of originally distributed
wealth toward the person who values it the most is often impossible
through the operation of the market. The first factor is that not everyone
has complete information. There is a difference in the amount and accuracy of information held by individual stakeholders. The irregular distribution of information greatly affects individual stakeholders in their negotiation on the transfer of individual rights.
Although in theory the original allocation of wealth does not mattertoo much from the viewpoint of maximizing the wealth of society as awhole, it matters a lot from the viewpoint of individual stakeholders.
They can view a particular distribution of rights and other limited resources as unfairly allowing others to parasite on the fruits of their investment, labor, time and other resources. As shown above, the corporate
copyright holders habitually perceive safe harbors to be unfair to themand the same perception of unfairness can be found on the side of technology and service providers in cases where the broad liability for the
copyright infringement committed by the users of their technologies andservices is imposed on them. This gives them a sufficient incentive tolobby legislatures in order to tilt copyright law’s balance in favor of theirprivate interests. If the power of both industries is equal, the copyright
law more or less reflects the interests of both parties. But there might besome differences in the power of individual stakeholders. Moreover, thespecialized authority responsible for drafting copyright bills can be captured by one industry, often the main corporate copyright holders. Even
if an agreement is struck between both of the main industries, suchagreements may at the same time come at the expense of the general public—the consumers of copyrighted works and the respective technologies
or online services.
A further factor increasing transaction costs is the division of rights
and powers between too many parties. Hence, if there are too many technology providers protected by safe harbor, it will be too difficult for copyright holders to negotiate with all of them to restrain the provision ofcertain technologies or online services. While content providers can68Intellectual Property Law and Policy Journal

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strike an agreement with many of them, there will always be a technology or service provider which will reject the deal. In the U.K. Amstrad
case, 52 the British Recorded Music Industry (BPI) persuaded several
manufacturers of double-deck recorders to modify their products in thecontent providers’ favor by limiting the speed of copying from one cassette to another. Amstrad was the manufacturer who resisted and decided
to market its double-deck recorder with a higher recording speed thanother competitors provided at that time.
Similarly, when too many copyright holders can control the designof new technologies and online services, it is very difficult for technology or service providers to conclude an agreement with all of them. In the
U.S. Sony case,53 there were three main groups of copyright holders. The
first group was composed of those who agreed to allow the recording of
their television broadcast by Sony’s Betamax video tape recorder. The
second group represented those who were indifferent and did not mind
the recording of their copyrighted works by Betamax users. The thirdgroup encompassed those who were against the marketing of Betamax
and therefore decided to sue Sony for indirect copyright infringement.
We can thus see that it is often very difficult to find agreement in an
overly dispersed group of right holders. This leads to a creation of gridlocks which are hard to overcome. In the Napster case, the operator of
Napster’s centralized peer-to-peer network tried to obtain licenses fromthe concerned record labels for a reasonable license fee, but they ultimately failed.

52

Amstrad Consumer Electronics Plc. v. British Phonographic Industry Ltd.
[1986] F.S.R. 159, [1986] 1 F.T.L.R. 73; CBS Songs Ltd. v. Amstrad Consumer
Electronics Plc. [1988] 1 Ch. 61, [1987] 3 All E.R. 151, [1987] 3 WLR 144,
[1987] R.P.C. 429; CBS Songs Ltd. v. Amstrad Consumer Electronics Plc.
[1988] A.C. 1013, [1988] R.P.C. 567, [1988] 2 All E.R. 484.
53
Universal City Studios, Inc. v. Sony Corp. of America, 480 F. Supp. 429 (C.D.
Cal. Oct. 2, 1979); Universal City Studios, Inc. v. Sony Corp. of America, 659
F.2d. 963 (9th Cir. Oct. 19, 1981); Sony Corp. of America v. Universal City Studios, Inc., 464 U.S. 417, 78 L. Ed. 2d 574, 104 S. Ct. 774 (U.S. Sup. Ct Jan. 17,
1984).

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Consequently, the third option in regulating new technologies andservices is a continuum between the two abovementioned models. It attempts to strike a fair and just balance between the interests of copyrightholders, technology and service providers, and the public—consumers.
Under this model, the provision of new technologies or services is allowed under certain conditions. The regulation of new technologies orservices can be created by law or by agreement between individual industries or representatives of all the affected stakeholders. As the legislative process brings with it the additional costs of establishing such a system, well-organized interest groups will only campaign to change the law
when the interests of other stakeholders are not sufficiently organized.
The more the interests of other stakeholders are dispersed, the easier it isfor the well-organized interest group to tilt the balance of a new law intheir favor.
On the other hand, when the interests of the other main stakeholder
is also sufficiently organized, corporate interest groups will switch toprivate ordering in which the two different industries can come to anagreement beneficial to both sides at the expense of consumers, an unorganized group with dispersed interests. When the agreement is struck
between the two industries—copyright-based entertainment industry, on
the one side, and consumer electronics manufacturers or Internet service
providers, on the other—it is much easier to approach the legislature witha proposal to change the law in a way reflecting the content of theiragreement. This is also the main reason why the direct representatives ofconsumers’ interests are often missing in private ordering schemes. It isregularly said that their interests are already represented either by copyright holders or by technology or service providers. This is not always
true, however. As a response to this negative situation, movements forthe protection of users’ rights with regard to private, non-commercial
uses have recently emerged in several jurisdictions worldwide. We will
see to what extent this will help to change the current negative situation
concerning the representation of consumers’ interests in the future.
A further problem with an agreement between the representative organizations of individual industries is that they primarily represent themain stakeholders within a particular industry. There are always small-70Intellectual Property Law and Policy Journal

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and medium-size independent entities which are rarely members of such
elite clubs. Many of them are either new comers or do not agree with
policies adopted by the major players within the industry. Accordingly,
the agreements between representative organizations of individual industries can also come at the expense of independent companies and newentrants into the market.
3.2. Role of Courts in Regulating New Technologies
As mentioned above, the laws rarely sufficiently address new information and communication technologies which allow new ways of using
copyrighted works for private, non-commercial purposes. The question
thus arises as to what courts should do when a dispute occurs and they
are approached by one party to adjudicate it. Should they dismiss thecase due to a lacuna in the law, or should they reinterpret the law in a
way they think that the legislature would have if it had foreseen the dispute? Due to the division of powers between the legislature, administration and judiciary, the courts are supposed to interpret the law and not tocreate it. That is the task of legislature.
Nevertheless, it is often hard to say that there is no relationship between the provision of technologies which can be used for copyright infringing and non-infringing purposes, and the use of such dual-use technologies in committing acts of copyright infringement. This is the main
reason why the German federal courts have regularly found a causal nexus between the provision of dual-use consumer electronic equipment andtheir usage for copyright infringing purposes by customers.54
As the nexus between providing dual-use technologies and their use
for unlawful purposes can hardly be overlooked, special tests have been
designed by the courts in several jurisdictions to sort the good apples out
from the bad. The tort laws in many jurisdictions thus require that a technology provider must do something more than merely providing a dual54

See, e.g., the Grundig Reporter case, 1956 GRUR 492 (BGH May 18, 1955);
the Personalausweise case, 1965 GRUR 104 (BGH May 29, 1964). See also
DUSTMANN, supra note 19, at 52.

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use technology to be found liable for the wrongdoing of users of thattechnology. A closer relationship needs to exist between the technology
provider’s activities and the technology users’ wrongdoings. For thispurpose, the German courts have developed a so-called adequate causation doctrine (adäquater Kausalsammenhang).55 Accordingly, when themarketing of tape recorders which allow their users to record radio
broadcasts was examined by the German Federal Supreme Court (Bundesgerichtshof) in the 1950s in the Grundig case,56 the Court had no other option than to conclude that there was adequate causation between thetechnology provider’s activities and the copyright infringing activities of
the tape recorders’ users. The Court, however, thought that banning any
new technology at the early stages of its development could considerably
stifle further technological progress, which is essential for the development of modern societies. The Court therefore found a solution in thecreation of a safe harbor for technology providers under certain conditions. A technology provider can qualify for this safe harbor protection
only when it takes technologically and economically feasible precaution
measures to restrict the possibility that its technologies will be used for
copyright infringing purposes by users.57
Contrary to the German federal courts, the courts in common law
jurisdictions have habitually been reluctant to impose any duty of care ontechnology providers in order to induce them to prevent the use of theirtechnologies for copyright infringing activities by their customers. There
are several reasons for the common law courts’ stance and inactivity. The
most obvious reason stems from the traditional distinction between
common law torts and statutory law torts to which the copyright infringements belong. While the courts are quite active in common law tort
cases, their interpretation of statutory torts is commonly very limited. It
is quite literary and heavily dependent on the actual text of the relevant
statutory provisions and legislative history of their adoption.

55

See, e.g., the Grundig Reporter case, 1956 GRUR 49.
1956 GRUR 49.
57
See id.
56

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While the courts in the U.K., Canada or Australia have developed
the doctrine of authorization which originates from the copyright holders’ exclusive right to authorize others to use their copyrighted works inways specifically identified by copyright laws, the U.S. federal courts
several times have expressly stated that indirect copyright liability doctrines are derived from the common law. But this is only partially true.
Although the creation of indirect copyright liability doctrines by the federal courts were heavily inspired by common law tort doctrines, the indirect copyright liability doctrines have over time developed into independent doctrines which live their own lives now. This can be seen in the
courts’ refusing to recognize any duty of care imposed on technology
providers under the U.S. copyright law in cases dealing with dual-use
technologies, such as video tape recorders in the Sony case58 and decentralized peer-to-peer networking technologies in the Grokster case. 59
Similarly, the courts in the U.K., Canada and Australia reject any imposition of the duty of care on dual-use technology providers without theexistence of any closer relationship with their customers using such technologies to commit acts of copyright infringement, such as in the case of
double-deck tape recorders in the Amstrad case60 or recently in the KaZaA case61 with regard to a provider of decentralized peer-to-peer networking technology.
The traditional stance of courts in common law jurisdictions can also be supported by public choice theory. 62 As the political deals are
struck through the adoption of individual legislation, the courts should
accept them and should not considerably change the agreed solution
58

464 U.S. 417.
545 U.S. 913.
60
[1988] A.C. 1013.
61[2005] F.C.A. 1242.
62
See, e.g., George J. Stigler, The Theory of Economic Regulation, 2 BELL J.
ECON. & MGMT. SCI. 359 (1971); JAMES M. BUCHANAN AND GORDON TULLOCK,THE CALCULUS OF CONSENT: LOGICAL FOUNDATIONS OF CONSTITUTIONAL
DEMOCRACY (Ann Arbor, MI: University of Michigan Press, 1962); TOWARDS A
THEORY OF THE RENT-SEEKING SOCIETY (James M. Buchanan, Robert Tollison
and Gordon Tullock eds., College Station, TX: Texas A & M University Press,
1980).
59

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through broad statutory interpretation. At the same time, it should bepointed out that the public choice theory also shows the shortcomings ofthe legislative process. The problem occurs when groups of individual
stakeholders differ considerably as to their size and organization. Wellorganized and small interest groups of private industries can often prevailin shaping legislation in their favor at the expense of large, dispersed
groups of customers whose interests are rarely sufficiently represented in
the legislative process. This feature of the legislative process allows legislation which significantly affects the interests of a few powerful corporate players to be exposed to the so-called minoritarian bias.
Recent trends in the regulation of new technologies and online services under copyright law have even augmented the possibility of minoritarian biases in favor of extending the copyright holders’ entitlements
to various uses of their copyrighted works for commercial, as well as
non-commercial purposes. The legislatures in many countries are in favor of adopting, as statutory law, the previous private agreements between affected industries, i.e. between the representative organizations ofcorporate copyright holders on the one side and technology or online
service providers on the other. Although one may argue that technology
providers sufficiently protect the interests of customers, this is not always
the case. Technology providers constantly promote their own interests,
which can be many times inconsistent with those of their consumers.
The result is that many new technologies considerably restrict thepossible uses of copyrighted works for private non-commercial purposes
without remuneration being paid to copyright holders. In this regard thecourts, owing to their conservative nature, can play an important role inprotecting the public interest against such restrictions. As the courts areless open to any form of capture by narrow, opportunistic interest groups,
they can do so by adopting a minimal and very narrow interpretation of
the relevant statutory provisions or by striking down some such restrictions. For instance, the French Constitutional Council struck down inJune of 2009 the French law introducing the three-strike rule due to thepresumption of guilt and lack of judicial supervision over revoking an74Intellectual Property Law and Policy Journal

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individual’s internet access.63 Although in the end the three strike rule
was adopted in France in the same year,64 several important features were
implemented in order to guarantee the protection of internet users’ fundamental rights and freedoms in France. Nevertheless, after a few years
of its operation, the French three-strike rule regime was abrogated in the
middle of 2013 for failing to benefit the authorized services as originallypromised.65
The threat of opening the litigation floodgates is also one of the hidden reasons behind the common law courts’ unwillingness to recognizethat technology providers have any duty of care to prevent the use of
their technologies for copyright infringing purposes. This is in the linewith the general abstention of the courts, especially those in jurisdictions
closely akin to the English common law tradition, from interfering withcompetition on the market in ways that would create any market entry
barriers. Simultaneously, several courts consider the broadening of negligence liability which occurred particularly in the second half of thetwentieth century in many common law jurisdictions as having gone too
far and created too heavy a burden for third parties being held liable for a
principal’s wrongdoings.66
The burden placed on technology and service providers by the imposition of any duty of care can be seen in the change brought by new
63
See Conseil Constitutionnel decision No. 2009-580DC, J.O., July 10, 2009,
p. 9675 (Fr.), available at http://www.conseil-constitutionnel.fr/decision.42666.
html (last visited Dec. 15, 2013). See also Strowel, supra note 21, at 79-84.
64
See Loi 2009-1311 du 28 octobre 2009 relative à la protection pénale de la
propriété littéraire et artistique sur internet [Law 2009-1311 of 28 October 2009
on the Criminal Protection of Literary and Artistic Property on the Internet], J.O.,
Oct. 29, 2009, p. 18290, available at http://www.legifrance.gouv.fr/affichTexte.
do?cidTexte=JORFTEXT000021208046&dateTexte=&categorieLien=id (lastvisited Dec. 15, 2013). See also Strowel, supra note 21, at 80.
65
See, e.g., ZDNet, Hadopi: Watchdogs face-off over control of a dying threestrikes process (Sept. 13, 2013) (written by Valéry Marchive), available at
http://www.zdnet.com/hadopi-watchdogs-face-off-over-control-of-a-dying-threestrikes-process-7000020660/ (last visited Dec. 15, 2013).
66
See, e.g. CBS Inc. v. Ames Records & Tapes Ltd. [1981] 2 All E.R. 812,
[1981] 2 W.L.R. 973 (Ch.).

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digital technologies. Analogue reproduction technologies, such as audio
or video cassette recorders, did not provide technology providers withmany technologically and economically feasible precaution measures attheir advent. Accordingly, the judgment of the German Federal Supreme
Court in the Grundig case created a quasi-safe harbor for technology
providers at least for the meantime. The final result of the approaches
adopted in civil and common law jurisdictions for technology and service
providers was therefore almost the same at least during the analogue era.
Over time, the situation has, however, considerably changed. The
digital technologies allowing various technological protection measuresand digital rights management have again tilted the balance back in favorof copyright holders. The main problem with the new technological developments is that it is not clear who should adopt them and how. Should
copyright holders be the ones who do something to protect their privateinterests, or should technology providers be obliged to adopt them?
Should technology providers adopt state-of-art technologies or should
they do more? Where should the border line which determines what thetechnology providers are obliged to do be drawn?
The early approach at the beginning of commercial use of digitaltechnologies in consumer electronics was that it was the task of copyrightholders to adopt necessary technological protection measures. However,the problem of technological protection measures is that they do notwork if the technological equipment used for reading media or receiving
data containing copyrighted works (e.g., radio or TV broadcasts or theirstreaming via the internet) do not recognize them. In such cases theywould become completely obsolete. It is thus generally acknowledgedthat the technology providers should have at least some duties to adopt
technological protection measures and to recognize digital rights management technologies. Similarly, safe harbors were designed in many
jurisdictions for those internet service providers who just passively arrange communication on digital networks or provide storage facilities fortheir users. Although these laws require from technology or internet service providers some degree of cooperation with copyright holders in thelatter’s fight against mass copyright infringements committed by individual customers, the imposition of any ongoing duty to monitor and76Intellectual Property Law and Policy Journal

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filter on the technology or internet service providers was expressly or
implicitly rejected by the law at that time in many jurisdictions.
But this approach has been recently attacked on several levels andhas even been partially changed with regard to the duties of internet service providers by courts’ decisions in several jurisdictions. Although
there are minor nuanced differences between individual jurisdictions, ingeneral the courts in those jurisdictions require internet service providers
to adopt some available precaution measures. For instance, in order toimpose such a duty the Australian courts require the more active involvement of an internet service provider in the copyright infringing activities of its users than the mere provision of standard internet services.67
The U.S. Ninth Circuit also found that “a computer system operator canbe held contributorily liable if it ‘has actual knowledge that specific infringing material is available using its system,’ […] and can ‘take simple
measures to prevent further damage’ to copyrighted works, […] yet continues to provide access to infringing works.” 68 Likewise, the French
courts in several cases have found internet service providers liable when
they were notified several times about infringements of a particular copyrighted work and did not adopt any measure to prevent other occurrencesof copyright infringement with regard to the same work.69 In Belgium,the courts went a bit further and imposed an ongoing monitoring andfiltering duty on the internet service providers despite the fact that Article
15 of E-Commerce Directive70 explicitly bans the imposition of such a

67

See, e.g., [2005] F.C.A. 1242.
Perfect 10, Inc. v. Amazon.com, Inc., 508 F.3d 1146, 1172 (9th Cir. 2007) [references omitted].
69
See, e.g., Jane C. Ginsburg, Separating the Sony Sheep From the Grokster
Goats: Reckoning the Future Business Plans of Copyright-Dependent Technology Entrepreneurs, 50 ARIZ. L. REV. 577, 606-7 (2008) (outlining the French cases).
70
Directive 2000/31/EC of the European Parliament and of the Council of 8 June
2000 on certain legal aspects of information society services, in particular electronic commerce, in the Internal Market (“Directive on electronic commerce”).
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duty on internet service providers. The Court of Justice of the European
Union has therefore recently ruled out such practice.71
These changes in the position of internet service providers can considerably affect the position of entities manufacturing various consumer
electronics and communication devices. The question arises as to what
extent any duty of care should be imposed on technology providers. Is
there any limit of that duty? What should the relationship between technology providers and copyright holders be in the consumer electronics
industry?
3.3. Role of Markets in Regulating New Technologies
As pointed out by Lord Templeman in the Amstrad case in the analogue
era and as also explained in Section I above, there is a mutually beneficial relationship between consumer electronics manufacturers and copyright holders in the marketing of consumer electronics which allow consumers to exploit copyrighted works for various private non-commercial
purposes. Both parties considerably benefit from the network effects
caused by the broad penetration of particular technology within society.
To put it more bluntly, the more pre-recorded media are available on themarket, the more devices capable to play them the consumers will buy.
Conversely, the more consumers have such devices, the more they will
buy pre-recorded media. To achieve this stage, the devices’ utilities playa crucial role in persuading consumers to buy them. The more utilities
they have, the easier they can be marketed to their final users. The mutual dependence between the marketing of consumer electronics devices
and prerecorded media was also one of the main reasons why several ofthe main consumer electronics manufacturers habitually approached themain corporate copyright holders with their devices, on which development they were working at that time.

71

See, e.g., Scarlet Extended SA v. SABAM, C-70/10 (Court of Justice of the EU(Third Chamber) Nov. 24, 2011); SABAM v. Netlog NV, C-360/10 (Court ofJustice of the EU (Third Chamber) Feb. 16, 2012).

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Concurrently, copyright holders have conventionally attempted toinfluence the design of consumer electronics devices so that their interestin the maximal protection of their copyrighted works is reflected in the
final product as much as possible. This has worked, but only to somedegree. When the first video tape recorders were designed, various consumer electronics manufacturers approached the major studios and otherimportant corporate copyright holders affected by those technologies.
The responses from the copyright holders often were that the presented
devices did not sufficiently protect their interests in limiting the use of
their copyrighted works, particularly with regard to making copies. Objections of this kind forced some manufacturers to rethink and redesign
their technologies. With regard to the others, they did not work. In suchcases, some of the major corporate copyright holders often decided toprotect their interests before the courts. This was the case with Betamax
video tape recorders marketed by Sony in the late 1970s and early 1980s.
But the market organization and structure have already significantly
changed since the early 1980s. Some important consumer electronics
manufacturers, such as Sony and Technicolor (former Thomson Multimedia), have considerable stakes in the music, movie and other entertainment industries. This involvement extensively affects their stance on
the design of new consumer electronics devices in a more copyrightfriendly way. To avoid the doom faced by Betamax technology, the main
consumer electronics manufacturers regularly attempt to create new industry standards from scratch in agreement with other major manufacturers and corporate copyright holders. This was the case with CD and DVD
technologies, and more recently with Blu-ray Discs. Private agreementsof this kind between the main technology providers and corporate copyright holders have become quite frequent and have often even been supported by some national governments as best solutions to the problems
brought by new technologies and innovations to the protection of copyright holders’ legitimate interests in the digital environment.
As shown above, the problem is that these agreements are frequently made at the expense of consumers and new entrants. On the one side,
consumers are considerably restricted in their ability to use such technologies to make private copies of prerecorded media. On the other, newMARCH 2014

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entrants can be significantly restricted by the established technology providers which often control a huge number of essential patents for implementing such technical standards. The newcomers have only two options: either pay a considerable amount of royalties to the holders of essential patents or attempt to develop their own technical standards, which
can be almost impossible due to the network effects of technical standards in the field of consumer electronics. Accordingly, while the production of newcomers is extensively levied by the payment of royalties foressential patents, 72 the established technology providers rarely have to
pay anything to other holders of essential patents, since they often enter
into cross-licensing agreements.
This situation led China to threaten to develop their own format as a
response to demands that their manufacturers pay large royalties to theforeign companies controlling the essential patents for the implementation of the DVD format. The solution was found in reducing the royalties
demanded by the consortium controlling the DVD format. A similar situation with Blu-ray Disc technology has led China to develop its own
competing standard which is based on Toshiba’s HD-DVD format. Dueto the large size of the Chinese market and the lack of any regional restriction in the Chinese standard, this initiative was seen as a threat to theinterests of the main studios to the protection of their audio-visual works,
although it used a copy-protection system similar to that used in Blu-ray
Disc technology.73 At the same time, disregarding this standard would
mean the major copyright holders abandoning a considerable part of thehuge Chinese market, where the local technology has become the leading
standard.
To sum up, the markets play an important role in designing newtechnologies and determining their features. Nonetheless, the current
situation in the market, with significant concentration and integration
between industries, means that consumers’ interests are reflected only to72

See, e.g., The Register, supra note 8 (“The licensing fee accounts for 40 percent of the rough cost of each DVD player.”).
73
See, e.g., Michael Murphree and Dan Breznitz, Innovation in China: Fragmentation, Structured Uncertainty, and Technology Standards, 2013 CARDOZO L.
REV. DE NOVO 196, 210-2.

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a limited degree during the design of new technologies. This mainly happens when their interests are consistent with the interests of other major
players. A similar situation exists with regard to the interests of new entrants and marginal players on the markets.

Conclusion
In the history of copyright protection, technology providers have played
an important role in creating new types of entertainment industries basedon various forms of the commercial exploitation of copyrighted works.
They have significantly affected many key institutional turns within copyright law especially within the last 100 years. Although legislators andcourts have habitually rejected the direct or indirect imposition of any
duties on technology providers who have not directly commercially used
copyrighted works in the past, the situation has drastically changed in thelast two decades. This Article enquired into several such institutionalturns in copyright law, the tensions between concerned stakeholders andthe respective policymaking processes. It pointed out several flaws andshortcomings in those institutional turns. Although copyright plays animportant role in protecting certain results of human creative intellectuallabor, it can raise considerable barriers to designing new multimedia
communication technologies or can even completely stifle the progressof some information and communication technologies for several years.
This problem is even more amplified by the fact that there are anumber of minefields which have been created by several types of proliferated intellectual property rights. Each company who wants to introduce
an innovative product into the market must successfully pass through allof these minefields. On the one side, the patents essential for the implementation of technical standards are powerful tools in the hands of theirholders and allow them to shape the structure of the entire market for theaffected technologies. On the other side, there is a minefield created bycopyrights to works which can be exploited by using multimedia technology for private non-commercial purposes without any authorization
obtained from the copyright holders. The main problem is that any of theMARCH 2014

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powerful holders of intellectual property rights can completely doom a
new technology at its advent, especially when the technology can affectthe intellectual property right holder’s private interests in maximizing its
income streams from the use of its intellectual property rights.
As the analysis in this Article has shown, the cases which occur
when innovators attempt to get through these minefields are often hard
ones. They frequently become battlefields where the contravening public
and private interests of various stakeholders clash. Therefore, legislatorsand courts should be careful in broadening the scopes of individual typesof intellectual property rights and strengthening the level of their protection in order to settle these disputes and to serve justice within modern
societies. In each case, the policy makers should carefully balance theinterests of all affected stakeholders to promote creativity and technological progress not only in one economic area but throughout the entire
economy.