On Intellectual Property Rights

Intellectual property rights issues are far more complicated than they appear at first glance. Though I think everyone can agree that "content creators" deserve to be compensated for the work they did, the discourse splits in a few places that complicate the issue. The first of these is between entertainment intellectual property and economic or health related intellectual property. Let's look at these in reverse order.

In International Affairs circles, the main intellectual property discussion is that of medicine and patents. Some background is needed. A (usually Western) firm spends a ton of money on R&D to develop a new drug. They then need to sell it to make back the costs incurred in its development. However, once the formula is discovered, basically any manufacturer can produce it (let's say pills, for easy conceptualization), and since they don't have a huge debt from developing the drug in the first place, they can sell at a much lower price. To protect the original firm, we created patent laws. The formula is protected by law so that the firm that created it has a monopoly on its use, for some period (I believe it's currently 20 years?). After that time, anyone can use it. Thus the rise of "generic" drugs. But there is always a period of time that the company that invented the thing can sell it for maximum profit, so they can afford to go on their next huge research project.

In theory, that's how it is supposed to go everywhere. In reality however, it is very different.

Say a drug exists that helps to fight some dangerous illness. It was invented a few years ago, so it is still under patent protection. If a generic manufacturer in the US tries to produce the drug for cheap, they can get sued, so no one does. However, in another country, one where this illness is a huge problem, a generic manufacturer produces it, and the government supports this intellectual property theft. Basically, national interest trumps international law in this case. This situation is not academic, it is actually very common in India and Brazil, among other places. New-ish cholesterol drugs, anti-virals, etc. are produced illegally there for public consumption, and the company that invented this drug can't really do much about it.

Why can't people in Brazil and India just suck it up and pay full price like the rest of us? The short answer is: They can't. The price for these drugs is simply too high for people in many poor countries to afford. So their governments are left with an ethical question: do we steal someone's idea to save our people? Clearly, the answer to date has been yes, and I think that morally, it is the right decision for them to make, they need to save their people. However, in the long term, it creates another problem. Say I, an American citizen, need long term medical care, with really expensive drugs. Do I pay for it here, or do I fly to Brazil and buy insanely cheap, just as good drugs there? Depending on how much I need, it could easily be worth the cost of a plane-flight. Now medical research companies are not making the money they expect to make from western nations, because of "legal" theft in the third world. Without the ability to recoup their investment, they cannot afford to develop the drugs in the first place, and then everybody loses in the long run.

There really is no good answer here, besides "make poor people less poor". In theory, if the situations weren't so desperate, they wouldn't turn to theft to solve their problems and would happily pay full price for needed drugs. But, of course, that isn't a real solution at all. Government subsidies could work, but many governments can't afford those prices either. What about getting rid of private research companies? I suppose all basic medical research could be done by publicly funded institutions that don't need to turn a profit, but at some point, someone is paying for this. A huge expansion of government all over the world to replace private companies in this industry does not sound feasible, and I would question whether it would work at all. The private sector tends to be far better than government at these sorts of tasks, and it takes them many years and many hundreds of millions of dollars to invent something new.

Now, on to the other half of intellectual property, of which the entertainment industry is perhaps the most well known. No one talks about "medical piracy" even if stealing a formula and a movie are basically the same thing.

IP Piracy is far more straightforward, with none of the ethical questions that plague the medical arena. Something is produced, (a movie, game, book, etc.) and people want it, but don't want to pay for it. The question is then, WHY do people not want to pay for it? I personally don't think it's because people are just thieves and don't want to pay for things. I think there is something else going on, and the industry response is only making it worse.

A blockbuster movie costs quite a bit of money to make, and if it's good, they deserve to make a profit on their endeavor. In theory, piracy takes away from that possible profit. But let's get more detail.

Though people can pirate a movie, they cannot pirate seeing a movie IN A THEATER. I actually think this is why 3d has gotten so big so fast, because seeing a 3d film in a theater is an experience that cannot easily be pirated. Of course, I think this also makes most movies bad, so the merits are debatable. Even without 3d, I don't own a 400 inch tv, with 32 speakers, so if I want to see The Avengers the way it was meant to be seen, I better go and pay money for the theater experience.

Where piracy starts to impact profits is in home sales. There are two sides to this as well. The first is bootleggers selling illegal DVDs, and the other is internet sharing. Both are symptoms of the same basically economic problem: supply is not meeting what people are demanding.

Imagine, if you will, a system like this. 4 months after a movie is released, it goes up for streaming from a website. It streams in HD, instantly. The price: 1 Dollar. You want to see a movie at home, the price is a single dollar, and a mouse click. I'd pay that, and I'm cheap as hell. I honestly feel that 99% of piracy would evaporate instantly. The issue is that with current distribution channels, this system is impossible. We are locked into a DVD model that people do not want anymore. The price of a disc is too high, and we do not have enough bandwidth to support everyone streaming all their movies all the time. Because people do not like the options they have to pay for their content, they end up stealing it. Of course, always online requirements for all movies has its own problems. If your internet goes down, well, I guess you're not watching any movies.

This leads into another other part of internet piracy, games. Gamers are endlessly frustrated with harsher and harsher DRM requirements (that pirates seem to get around anyway!) The new fad in DRM is an always online requirement for games: to play, you have to login to an account you made online. This means the game can't really be stolen, because each purchase creates one account, stored on the game companies server. Downloading the game from The Pirate Bay does not create an account, so you can't login, so you can't play. 

This sounds great in theory, but the practice of it is fraught with problems. First off, players seem to REALLY hate always-online requirements. At least some of these reasons are easy to understand. If I want to play a game whenever I do not have internet, I can't. On my laptop on a plane, no good. At home if the internet goes out, impossible. If I live in an area where the internet is no good, like the middle of nowhere Kansas or something, well, I guess I just don't get to play at all? I DON'T GET TO GIVE THE COMPANY MONEY EVEN IF I WANT TO.

This practice creates a lot of ill will from the players, and one has to ask what that is worth. Imagine a game is released with no DRM, for $50. It gets 100 paying payers, and 100 people who pirate it, for total sales of $5000. Now, imagine the game comes out with DRM instead. The corporate mindset seems to be that all the pirates will instantly become paying customers, so you will (in my example) double your sales. This of course is not true. In all likelihood, many of the pirates simply won't play it. Maybe a few will, let's say 10%. So, in the above example, now there are 110 paying customers, for total sales of $5500, and because of your annoying DRM, your customer base now hates you. Is 500 dollars worth that hatred? Oddly, this comes on movies as well. If I BUY a blu-ray disk, it comes with an unskip-able anti-piracy warning. Why am I, a paying customer, subjected to a commercial about piracy? I have to wait a full minute watching this thing that does not apply to me because I actually BOUGHT THE DISC. If I download it off the net, no anti-piracy warning. Isn't that perverse?

Again, the problem here is a fundamental mismatch between supply and demand. People will pay for what they want if they feel it is worth it. If they don't feel it is worth it, reduce the price until they do. Indie game companies have found that drastic reductions in price result in far larger than expected sales increases. Cut the price of a game to 1/10th of what it used to be, and sales go up not by 10, but by 100, resulting in overall INCREASED profits. Why does this happen? In my experience, when the price of something gets low enough, you'll buy it just in case you MIGHT want it in the future. I have bought games that I have yet to play, because they were part of a bundle of games that I paid 6 dollars for. That is money they would not have made otherwise. These games are DRM free. I could download them, for free from the internet right now. But I didn't, because I wanted to buy them, as long as the price was right. And given that the cost of an additional copy of a game (to the producer) is ZERO (downloading a game costs them basically nothing) It makes no sense to keep the prices really high. There is no cost of production for each additional unit, and if the price is higher than I want to pay, piracy is an option.

This is a worldwide problem, in that piracy is happening everywhere and rather than adjust their sales models to meet the new demand, they are protecting the old order with DRM and lawsuits. Should people steal their goods? Absolutely not, but they are GOING TO until content creators (really content distributors) accept reality and shake up how they deliver content in the 21st century. There is a global market for good entertainment, and we all really want to pay for it. We just want it delivered in certain ways and at certain price points. If suppliers refuse to meet that demand, rampant (and growing despite all the industry action) piracy will continue.