December 05, 2005
Intellectual Property Developments
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Jack Horgan - Contributing Editor

by Jack Horgan - Contributing Editor
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There has been a considerable amount of uproar over this issue. In response to pubic outcry Sony BMG has taken several actions. On November 18 they announced a mail-in exchange program for the same CD without the XCP software using pre-paid UPS shipment. They have pulled 4.7 million copy-protected disks from the retail shelves. They have posted a fix on their website with the statement: “This Service Pack removes the cloaking technology component that has been recently discussed in a number of articles published regarding the XCP Technology used on SONY BMG content protected CDs. To alleviate any concerns that users may have about the program posing potential security
vulnerabilities, this update has been released to enable users to remove this component from their computers.”

Critics have labeled the software spyware. Microsoft has declared the program as a security risk. Software security companies like Symantec have alerted its users. Several lawsuits have been filed. This demonstrates the trickiness of trying to protect one's intellectual property rights without offending customers and drawing the wrath of various advocacy groups.

Television and Movies

When I was young and wanted to see a movie I could go to the theater and buy a ticket to see a current film or watch old, often very old, movies on TV supported by commercials. Cable TV and the explosion in the number of channels give today's audience significantly more choices. Cable companies charge a monthly subscription fee for basic capabilities and extra for the “movie channels” and pay-for-view for recent films and events. People can record what they watch on a VCR and more recently using TiVo or a DVR (Digital Video Recorder). They can create a library which they can watch when they choose or loan to friends.

While one can record a show for future viewing even without being present, in the past one was limited to the schedule, i.e. what was being shown when. Today some cable companies, e.g. Comcast, have begun to offer on-demand service. You can select from hundreds of films and programs to view multiple times over a 24 period with the ability to pause, rewind and fast forward. The technology is here, the portfolio will only grow.

On October 12, 2005 Apple announced video versions of its iPod: 30GB for $299 and 60GB for $399. The device displays album artwork and photos, and plays videos including music videos, video Podcasts, home movies and television shows. The new iPod holds 150 hours of video for display on a 2.5 inch screen. Apple's iTunes Music Store now features 2,000 music videos, 6 Pixar shorts and select ABC and Disney television shows, e.g. “Desperate Housewives”, “Lost” and “That's So Raven”, for downloading for $1.99. While the selection is currently limited, one can easily see the potential.

In late September Disney announced Mobile ESPN, a mobile sports communication device and service that delivers ESPN anytime, anywhere. The service's ultimate mission is “to literally serve avid sports fans with one-touch, real-time access to immersive and personalized sports content from ESPN.” Nationwide rollout of Mobile ESPN is set for Sunday, February 5. Mobile ESPN will operate as a mobile virtual network operator (MVNO) utilizing Sprint's nationwide network for wireless voice and data service. It will take advantage of the Sprint EVDO (Evolution Data Optimized) service.

The Motion Picture Association of America (MPAA) and its international counterpart, the Motion Picture Association (MPA), estimate that the U.S. motion picture industry loses in excess of $3 billion annually in potential worldwide revenue due to piracy.

Pirate optical discs, which include Laser Discs (LD), Video Compact Discs (VCD) and Digital Versatile Discs (DVD), are inexpensive to manufacture and easy to distribute. In 2000, over 20 million pirate optical discs were seized, and by comparison, 4.5 million videos were seized worldwide in the same period. The sources for illegal coping include legal copies, theft from a theater, duplicator or editing firm, camcorder recordings taken in a theater, signal stealing from a cable company, legitimate advance copies used for screening and marketing purposes and so forth. In a well publicized case an actor gave a “friend” 60 screener tapes over a year claiming he was never paid any
money for the movies. It is now common for films to be available on the Internet near and even before the premier date and certainly long before the company has a DVD release.

In 2004, over 1,800,000 illegal movies and 3,059 duplicating machines (VCR, DVDR & CDR burners) were seized in North America. The MPA operates anti-piracy programs in 13 countries in the Asia/Pacific region, estimating that its Member Companies lost in excess of $718 million in potential revenue regionally in 2003. The predominant piracy threat in Asia-Pacific is optical disc piracy.

Again technology has on the one hand created a market and a delivery capability for pirated video content and on the other hand created an opportunity to market existing and future content in new ways.


The Business Software Alliance (BSA) is an organization dedicated to promoting a safe and legal digital world. Established in 1988, BSA has programs in more than 80 countries worldwide. BSA educates consumers on software management and copyright protection, cyber security, trade, e-commerce and other Internet-related issues. In 2004 BSA and IDC (International Data Corporation) performed a study of global trends in software piracy. Based on 7,000 interviews their report estimates that PC software piracy amounted to 35% of the total market in 2004. In 24 countries, the piracy rate exceeded 75 percent. Just over a third of the countries studied had a piracy rate under 50 percent. In
North America the piracy rate was 22% and in China it was 90%. The total value of pirated software in 2004 was around $34 billion, of this $6.6 billion was in the US and $3.5 billion in China. At flea markets, particular in Asian countries, one can purchase counterfeit versions of well known US software programs.

According to the Computer Software Copyright Act "It is illegal to make or distribute copies of copyrighted material without authorization. The only exception is your right to have a backup copy for archival purposes. You may possess one copy of the software for personal use, and one backup copy of the software. No other copies may be made without specific authorization from the copyright owner.”

Software firms have used physical devices (dongles) and license management systems for node locked and network licensing to provide security against illegal usage and copying. These tools are now fairly sophisticated allowing for the control of the use of differing numbers of multiple products including evaluation units, beta versions and different versions. However, there are firms that sell devices or software to circumvent these security controls. Software firms often employ an activation scheme that requires the end user to contact the vendor to obtain an encrypted key to use the software.

In the early eighties when Autodesk introduced AutoCAD, its 2D drafting package, without software protection. CAD systems at that the time (Cadam, ComputerVision, Calma, Applicon) had been selling at over $100K a seat for combined hardware and software. AutoCAD ran on the IBM PC and sold for $1,000. Despite the enormous difference in price, the piracy of AutoCAD was rampant. In 1998 Autodesk established its Piracy Prevention Program. Since then they have aggressively gone after software pirates. In testimony before Congress Carol Bartz, Autodesk CEO, characterized the Internet as the “Home Shoplifting Network.” Today Autodesk has more than $1 billion in annual
revenue mostly through dealer and VAR sales.

In the early days application software was sold as a perpetual license to use. The adjective “perpetual” is a misnomer. Over time end users will migrate by desire and by necessity to newer computers and newer operating systems or newer versions of operating systems which are not support by the application. The application will not be compatible with later versions of itself and with other programs. This makes it impractical to use a particular version of an application for more than a few years at best. Today time based licenses (TBLs) are in vogue.

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-- Jack Horgan, Contributing Editor.


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