Napster Peer to Peer Technology

The latter half of the twentieth century has seen a dramatic decline in the price of reproduction technologies much to the displeasure of the copyright industry. The technological progression has been virtually unstoppable: the photocopier to the cassette recorder, the video tape recorder to the newly developed recordable CD. The spread of the Internet over the past 10 years has resulted in the new development of the abrupt decline in the price of distribution technologies. The Internet has permitted worldwide distribution at a rather insignificant cost. As the beneficiaries of the statutory copyright monopoly, the copyright industries have a strong interest in neutralizing the biting effect of these technologies on their monopoly over reproduction and distribution. It would seem that there exists two conceptions of the copyright laws. The first being the actual written interpretation of our current copyright law as defined by the courts and which is understood by industries that depend on the copyright monopoly and who have had a important role in its drafting. Secondly, there is the interpretation of the copyright law as understood and defined by consumers. This interpretation seems to be the unwritten adaptation of the copyright law, which is applied in the non-commercial/not for sale or profit/fair use world of consumers when trading homemade tapes or Cds, photocopying books or interesting articles to pass along (in attending University, I have noticed that this practice of copying required text books has become widespread among students) or simply posting articles on bulletin boards or office doors. These two conceptions of the copyright law have collided in full force with the current Napster case, not to mention all the numerous clone sites that have sprung up which could at a moments notice, swiftly replace Napster. The digital information wants to be free. If in the name of technology, digital information is granted free reign, this in effect will render the copyright law as dead. Copyright law simply cannot keep pace with technological revolutions being brought about by the Internet. The Internet is inherently so beneficial to the indiscriminant reproduction and distribution of information, and so hostile to all attempts to control either, that all efforts to enforce or police copyrights on the Internet are almost doubtfully doomed for failure. How do these new technologies effect the efficient allocation of resources in our society? According to the Coase Theorem, “When one activity interferes with another, the law must decide whether one party has the right to interfere or whether the other party has the right to be free from interference. Efficiency requires allocating the right to the party who values it the most. When the parties follow the law non-cooperatively, legal allocation of rights matters to efficiency. When the parties bargain successfully, the legal allocation of rights does not matter the legal allocation of rights does not matter to efficiency. Given successful bargaining, the use of resources is efficient, regardless of the legal rule”. (1) Allocating the right to technology which would seem is the side that values it the most judging by the overwhelming response from the public, would have some serious side effects (i.e. drop in sales, rendering copyright as a dead issue, record companies losing considerable control) but to what extent these side effects can be measured is yet to be seen. Although there have been research studies on both sides – one indicating that loss of sales has incurred and the other that sales have increased due to napsters presence – the absence of sound independent statistical research has yet to surface. People who claim that Napster creates net lost sales for artists are merely voicing a religious conviction about music copying and vice versa. I believe that this case has shown just one illustration of the growing control the record companies currently have in the industry. The airwaves, record labels and record stores, which are all a part of the system the record companies have pretty much succeeded in establishing.Collective pressure tactics, copyright misuse (enforcing their copyrights to achieve anti-competitive purposes) and higher prices when it can be offered at a lower price, are just a few of the examples that demonstrate that record companies may be evolving into a monopoly. Granting them the property rights outright would only be encouraging these tactics to continue.

What in essence is preventing, as Coase would term it, “successful bargaining”? Quite simply, the transaction costs of many owners (record companies, technology innovators and consumers) and the enforcement costs it would entail in policing copyright activities over the Internet. Record companies see a portion of their foothold on the record industry slipping away and realize there is revenue to be made in the area of peer to peer network (every computer in a sense becomes a server and a client looking for data). If a decision granted by the courts is given to the record companies, they will eventually in due time capitalize on the innovations of Napster which in turn would be an infringement on Napsters rights. Copyright law has always been a bargain (Italics added to stress the word) between the public and the copyright industries, a bargain that has been in constant need of adjustment in the face of changing technologies. Copyright conveys a legally enforceable monopoly, created for the instrumental purposes to create incentives for authorship that might not otherwise occur. As with legal monopolies, copyright is a necessary evil that should be tolerated to the minimum (Italics added to stress the word)extent necessary to ensure that the public receives the desired benefit. According to Demsetz, copyrights are needed. “If a new idea is freely appropriated by all, if there exists communal rights to new ideas, incentives for developing new ideas will be lacking. The benefits derivable from these ideas will not be concentrated on their originators. If we extend some degree of private rights to the originators, these ideas will come at a more rapid pace”. But does this idea extend to intellectual property as well such as music? (2) If digital information prevails in the Napster case, does this mean that eventually, musicians will no longer produce music because there is no gain to them because it can be distributed freely? Will not the economics of law and demand take over? If musicians stop producing, will not the demand, as can be seen by the current case, induce the musicians to produce?If the record companies prevail, will not black markets spring up? Do the record companies realize who is demanding Napster (their own consumers who purchase record companies CD’s)? I would suggest looking at the VCR technology case, in wake of that decision, which at the time was described as catastrophic by the copyright industry, it has become quite clear that both the public and the copyright industries have reaped enormous benefits.

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As copyright industries seek to impose the strictness of their view of copyright law on technology innovators, the courts and legislatures would do well to keep the lessons of the VCR case in mind. Napster represents a turning point for copyright. As these new peer-to-peer technologies emerge (as I am sure we have only seen the beginning), the copyright industries will be asking that their view of copyright be imposed on those unused to its strict ions, like noncommercial users and technology. This represents change. And before imposing it on members of society, the copyright industry might want to check whether people are willing to embrace it.

Demsetz also states, “Changes in knowledge result in changes in production functions, market values, and aspirations. New techniques, new ways of doing the same things, and doing new things – all invoke harmful and beneficial effects to which society has not been accustomed. Property rights develop to internalize externalities when the gains of internalization become larger than the cost of internalization. Increased internalization, in the main, results from changes in economic values, changes which stem from development of new technology and the opening of new markets, changes to which old property rights are poorly attuned”. (2)Given this statement, it would seem that based on the current progress of technology, new property rights will eventually emerge. No matter what the courts may rule today, given time, the way in which information and technology is being used today (i.e. Napster providing free music), the record companies will either have to internalize the externality (consumers desires and wants – which will be satisfied by peer to peer technology in light of what the courts may rule) and eventually see gains from doing so or give over the demand to other ways of satisfying consumer desires. Napster has shown a new way of doing things, a new technique. Record companies that follow a strategy based on controlling content are doomed for failure. The record industry needs to begin creating services providing the content the way consumers want it and by utilizing the formats and models consumers desire.

Considering the pace at which technology is evolving, a solution from the courts in order to put the copyright issue to rest (at least temporarily), would be to put the onus of proving copyrights on to the record companies through current digital technologies that supply digital envelopes, ” Copyrighted music or movie or video files can be sealed at the bequest of the copyright holders. These digital envelopes travel with the underlying digital file, refusing access to the goodies within until the consumer antes up a fee to the copyright holder. Since they continue to wrap the copyrighted files even after payment has been made, they can limit the number of times the consumer can open the file, can limit from copying”. (3) The Napster case is an increasing problem posing serious threats to the rule of law. It will change the way the copyright rule is viewed and followed. In dealing with this issue, drawing from articles I have read, I believe the possibility of the judges siding with the record companies is more likely. Not that this will be the most beneficial to society, but feel the judges seem to feel threatened by what Napster has been able to do. Judging from the first injunction granted to the record companies, I felt it was a judicial overreaction and not the best solution. If the court wants to render a more adequate decision and to preserve the rule of law, the courts must ensure adequate time to prevent the cases (which was not done in the first case) as well as effectively protecting the copyright law and at the same time, protecting the right of free expression.

Bibliography:(1) R. Coase, “The Problem of Social Cost “, The Journal of Law and Economics, Vol.3(October 1960)(2) H. Demsetz, “Toward a Theory of Property Rights”, American Economic Review, Vol. 57 (May 1967)(3) R. Parloff, “Despite the Napster sideshow – and in part because of it – intellectual property rights may soon be absolute”hhtp://

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Napster Peer to Peer Technology. (2018, Dec 29). Retrieved from