The New Properties of New Property

Arnold Schwarzenegger is a lefty, and he does not know it. Or maybe Arnie is one of those righty freedom fighters that end up so far off to the right they end up going full circle and re-emerging on the right. Or maybe the Governator is just a simple Hollywood movie star from a little village just outside Graz, who wants to apply some old-fashioned common sense to the way his state is run. That is the problem with new technology. It tends to mess up your old perspectives and makes it hard to tell up from down, or left from right.

It all has to do with the tiny little US$24bn deficit borne by the state of California. To help solve the problem, Arnie’s banned the buying of books for school, in the hope of saving a few bucks. This is his argument:

“Textbooks are outdated, in my opinion. For so many years, we’ve been trying to teach exactly the same way. Our children get their information from the internet, downloaded on to their iPods, and in Twitter feeds to their phones. Basically, kids feel as comfortable with their electronic devices as I was with my pencils and crayons.

So why are California’s school students still forced to lug around antiquated, heavy, expensive textbooks?”

Or rather, that is half his argument. The other half is that books are expensive and he can save money by giving students the tools to read digital content. Critics may scoff Arnie is cutting the budget for books but not spending on the electronic gadgets to replace them, but the argument itself is sound. Why spend money on textbooks if it is cheaper to give school pupils an electronic device with all the texts on them? Why keep replacing those books, if it is cheaper and easier to get new versions of texts by buying the content digitally, without wasting money by paying for unnecessary paper?

We live in cruel world. Books do not cost money because we value the fine words inside them. Books cost money because it costs money to make books, and because somebody wants to make a profit after going to the trouble of printing them. When you buy a book, you are not just paying for the paper it is printed on. You also pay for all those vehicles that were used to get them from the printer to you, and paying for all those warehouses and shops where it rested along the way, and paying for all those other books that nobody bought but were printed as part of a big run and which end up being pulped and recycled into paper. I nearly forgot – a tiny amount goes to the person who wrote the book. Zapping the words to you, without needing an actual book, cuts out a lot of costs. Yippee! That makes Arnie Schwarzenegger a lefty for taking on all those entrenched capitalist business interests and a righty for cutting budgets and advocating free competition at the same time. But it goes further than that.

“Possession is nine points in the Law.”

Listed as a common saying in 1616 by Thomas Draxe, Adages. Presumably derives from the legal principle where the satisfaction of ten points legitimated ownership; hence ‘nine points of the law’ was close to full ownership.

He may not know it, but Schwarzenegger is speeding up the process by which we change our views on what is property. People used to buy books, and they knew what they were getting. Even Baldrick knows what a book is…

Blackadder: Excellent. (to Baldrick) Nice fire, Baldrick.

Baldrick: Thank you, Mr. B.

Blackadder: Right, let’s get the book. Now; Baldrick, where’s the manuscript?

Baldrick: You mean the big papery thing tied up with string?

Blackadder: Yes, Baldrick — the manuscript belonging to Dr. Johnson.

Baldrick: You mean the baity fellow in the black coat who just left?

Blackadder: Yes, Baldrick — Dr. Johnson.

Baldrick: So you’re asking where the big papery thing tied up with string belonging to the baity fellow in the black coat who just left is.

Blackadder: Yes, Baldrick, I am, and if you don’t answer, then the booted bony thing with five toes at the end of my leg will soon connect sharply with the soft dangly collection of objects in your trousers. For the last time, Baldrick – Where is Dr. Johnson’s manuscript?

Baldrick: On the fire.

Blackadder: (shocked) On the *what*?

Baldrick: The hot orangy thing under the stony mantlepiece.

Black Adder III, Episode 2: Ink and Incapability

If you went to the bookshop and bought a book, you used to come out with a big papery thing. Not any more. Now you can buy disembodied words. Or do you? No, you rent them. You and only you. For example, Kindle’s licence agreement states you have a:

“…non-exclusive right to keep a permanent copy…solely for your personal, non-commercial use…

[Kindle users may] not sell, rent, lease, distribute, broadcast, sublicense or otherwise assign any rights to…any third party.”

Walk around a stately home, and chances are the library will be one of the finest rooms. That was when it cost a lot to acquire books, and a library would be a valuable inheritance, passed from generation to generation. The owner of the house owned the books within it. But with an e-book, you may only be renting the words. The intellectual property is owned by the publisher. When you die, the words have to vanish into the ether from which they came… anything else is stealing. The same applies to other kinds of intellectual property. Suppose you buy an app for your shiny new iPhone. The next day you get run over. Shame, but what everybody wants to know is: who gets your iPhone? It turns out that you left it in your will to your favourite nephew, Johnny. He receives the iPhone, thinks fondly of you, and is about to launch the app you downloaded… STOP!!! STOP, LITTLE JOHNNY!!! Johnny forgot to read the relevant bit of the licence that you agreed to when buying the app:

This license granted to you for the Licensed Application by Licensor is limited to a non-transferable license to use the Licensed Application on any iPhone or iPod touch that you own or control and as permitted by the Usage Rules set forth in Section 9.b. of the App Store Terms and Conditions (the “Usage Rules”). This license does not allow you to use the Licensed Application on any iPod touch or iPhone that you do not own or control, and you may not distribute or make the Licensed Application available over a network where it could be used by multiple devices at the same time. You may not rent, lease, lend, sell, redistribute or sublicense the Licensed Application. You may not copy (except as expressly permitted by this license and the Usage Rules), decompile, reverse engineer, disassemble, attempt to derive the source code of, modify, or create derivative works of the Licensed Application, any updates, or any part thereof (except as and only to the extent any foregoing restriction is prohibited by applicable law or to the extent as may be permitted by the licensing terms governing use of any open sourced components included with the Licensed Application). Any attempt to do so is a violation of the rights of the Licensor and its licensors. If you breach this restriction, You may be subject to prosecution and damages.

You, dead person that you are, bought a licence. Little Johnny did not. That licence is non-transferable. It died when you did. You can leave your iPhone in your will, but the apps expire when you do… or else little Johnny is a CRIMINAL.

Hmmm… not entirely satisfactory, is it? Somehow we went from lovely libraries that people cherished and added to over the centuries, to little Johnny breaking the law the second he launches Sims 3 on your old iPhone. Maybe that would not be so bad, if the cost associated with the intellectual property is really low. Johnny could just buy his own licence to play Sims 3, available for the reasonable price of… £5.99!!! Hold on!! The same device, the same data, no extra cost to Apple, or to the game’s authors, Electronic Arts, yet Johnny has to pay £5.99 for it. Does that seem fair…?

“If I were asked to answer the following question: What is slavery? and I should answer in one word, It is murder!, my meaning would be understood at once. No extended argument would be required . . . Why, then, to this other question: What is property? may I not likewise answer, It is robbery!, without the certainty of being misunderstood; the second proposition being no other than a transformation of the first?

Pierre-Joseph Proudhon, What is Property?

Now Proudhon was a pretty extreme lefty, so I am not blogging to suggest we start some collectivist binge, in case there is any doubt. However, Proudhon’s argument has some resonance in this digitized era. Just because we can pass a law to say something can or cannot be owned, does not mean we can morally defend that law. People used to own people. People used to be property. Not any more. If we can emancipate the slaves, might we not emancipate our intellectual content?

Right now, the business interests that want to rent you intellectual property, whilst never selling it to you, have the upper hand. They are taking full advantage. When you buy a book, a big chunk of your money goes towards covering the costs of making that book and getting it to you. In fact, there was a good chance that somebody made a loss on that book, somewhere along the way. If book makers and sellers could lower costs to compete with digital content, they would. Their trouble is they cannot. You could reduce the unit cost of making a book by making more, but then there would be higher risk of unsold books, or books being held longer in storage and on the shelves of stores, so the equation is far from perfect. The cost of making and selling books may have gone down over time, but the benefits were passed to the consumer. Making a profit from books can be very hard. Governments have previously been willing to intervene in the retail pricing of books, just to ensure the publishers would remain profitable. Otherwise, if some went bust, there would be fewer suppliers and, in the long run, either less books or higher prices. So, by and large, customers were paying an equitable price for what they got. Eliminating all the costs associated with physical products has blown a hole in the original equation. Now, only supply and demand determines the price of the product, yet we seem happy to be paying pretty much similar prices as before. Why are we not complaining, and shopping around for providers who take a far smaller cut?

The marginal cost of production is approaching nil, except in as far as the talent that writes a book or sings a song deserves a fair reward. However, prices are not coming down as they might, because there is insufficient pressure for them to do so. Remember, when you bought a book, or a vinyl record, you could resell it and recoup the cost, or you could give it as gift, or leave it somebody in your will. In contrast, we are renting digital content, and cannot gift it or sell it to anyone else. Many people could have owned the same CD, but everybody must buy their own individual licence for a song that has been downloaded. This alone should mean prices would come down if they are fair. Licences you cannot trade are of less value than equivalent goods that you buy and can sell again.

One problem is big business likes to moan, but it only moans about its rights, as if the legal person that is a company is deserving of more rights than the real, natural people they like to exploit. It is exploitation when they replace one product with an alternative, only to force you or little Johnny to pay twice for the same thing. You could argue big business would not be so unreasonable as to punish little Johnny in real life, but the fact that they are turning Johnny into a criminal lies at the heart of this problem. Only a morally corrupt law would make Johnny a criminal, even if, in practice, Johnny is not punished for his crimes. Only a corrupt law would suggest that Johnny had done something wrong. That law is still corrupt even when not enforced. From this one loose strand, this one obvious corruption that is so clearly morally offensive, so plainly wrong, we can unravel the rest of the legal fabric that has been wrapped around intellectual property.

You rent a licence, but if you lose your copy of your data then the supplier’s attitude is that is your tough luck. If you want the same content, you have to pay for the same licence again. Hang on, you think, you already have a licence. Why are you paying twice for a second licence? You just need a new download, not a new licence. Why is the supplier not charging you separately, one big fee for the (totally intangible) licence, one small fee for the work involved in supplying the download, if they really want to be fair and transparent? Why is the supplier not allowing you to buy one (non-transferable) licence and then allowing you to download more than once, should you set fire to your house and destroy all copies of your data at once? Because they do not want you to think about how much they make off the back of the original artist’s work, just for acting as middleman. They want to think like you still pay for something with substance, like a book, and not for something made from thin air. Selling licences is like printing money, but without the expense of the paper used to print actual cash. Just imagine walking up to a business and starting this conversation:

Shopper: Hey, I got a licence, let me have another copy of that song I downloaded last week.

Store: I don’t know you. Get outta here.

Shopper: (Holds up a copy of the licence) Look!! Here’s my licence! Somebody mugged me and stole my laptop. Now I want another download of that song I paid for last week. It’s legal – I got a licence!!

Store: You’re crazy. You could be anyone. How do I know you bought it?

Shopper: We signed a contract, that’s why. Don’t you know who you sign contracts with?

Store: No.

Shopper: Okay. Have it your way. If you don’t care then I’m going to give all my other music on my other laptop to my friends for free.

Store: If you do that, me and my lawyers are gonna make you real sorry you messed with us.

Shopper: But, but…

Store: You signed a contract buddy, you got to respect it.

Shopper: But you don’t even know who I am. And you don’t take any notice that I got this licence here…

Store: I don’t care who you are. I’m only interested in enforcing the terms of my contracts, not meeting any obligations you may or may not think should follow from them. That means you don’t do anything it says you don’t do. I don’t have to do nuttin’ to keep you happy.

We should be expecting prices of digital content to be a lot lower, or we should be demanding far better rights as licence holders, like being able to transfer them or at least having the right to obtain replacement copies of digital content at preferential rates. Instead, we get a terrible deal all round. Why is that? The answer is a ridiculous mix of consumers not realizing what a bad deal they are getting, and sour grapes about the illegal sharing of digital content.

The average consumer has failed to realize that just because they were willing to pay a certain amount for a physical book, does not mean they should be willing to pay a similar amount for the words. Yes, the customer gets the same pleasure, but one was far cheaper to make than the other, and the customer has not factored that in yet. Worse still, the suppliers are not giving any clues away by engaging in any meaningful price wars. They own their rights to their specific sequences of words or notes, so if you want a particular book, or a particular song, they can hold you to ransom because you cannot legitimately buy it from anyone else. The only person or business with a justifiable claim to avoid being screwed by competition is the person or business who actually made the original content. That means the person who wrote the words, or the group that recorded the song, or the team of people who filmed the film. Everything else should be open for competition. However, it is not. Middlemen saddle up to the source of content and attach themselves like limpets, so you cannot tell where the creator ends and the middleman starts. In short, they work to ensure there is no effective competition to drive down prices in supply and production. They do this by hiding behind laws that fail to distinguish what the middlemen actually do, affording them the same protections as the real people who made the content, whilst often giving little or no real protection to small, real, but disenfranchised creators of actual content. This is about law, and law costs money. Big business can afford it. Everyone else can go to Hell. Meanwhile, big business moans and moans about losing so much revenue from the illegal activity of those who just ignore the rules and do what they like.

The modern market for digital content is like shopping at a crazy supermarket. Half the people are paying well over the odds for what they put in their trolley. The other half are shoplifters, walking out of the door with their pockets overflowing. The supermarket owners moan about all the shoplifters, and how much they lose as a result, but they keep prices high to exploit the honest customer. Everyone can see at least one partial solution to their problem. Cut prices, and you remove some of the incentive to steal… but big business makes even less money that way. Which is why they would rather endure lots of stealing than give up on milking the most money possible out of the remaining honest people.

Imagine no possessions. I wonder if you can.

John Lennon, Imagine

So where does Arnie Schwarzenegger come in, I hear you say. Well, the market for digital content is dysfunctional. There is no genuine competition to drive down prices. Legal protection is all skewed towards the owners of the intellectual property. They moan and moan about theft, whilst the thieves think of themselves as Robin Hoods, morally justified criminals who rob the rich and give to the poor (aka themselves and their friends). The Governator, bless him, has just stumbled upon the one thing that might shake this market up. It is called consolidated bargaining. If he can make big purchasing decisions like not buying textbooks, he can also drive down prices of the electronic texts he will be replacing them with. The motive to cut costs works equally well for physical and virtual textbooks. The state of California has every reason to save every penny it can, when it spends money on intangible licenses. In the crazy supermarket, there were too many thieves and too many daft people happy to be overcharged. There was no hope of building consensus by sitting down, talking, and realizing they could force prices down by co-operating with each other. The Robin Hoods got what they want by stealing, and the Honest Joes had more money than sense. But Arnie is neither Robin Hood nor Honest Joe. Arnie cannot steal, but he has no money to waste, either. What he does have is a big budget. If he, and other big budget holders in governments all over the world, worked to bring down prices, we might all see the benefit. Imagine going to the bookstore and realizing your school got a 10% discount for the same book you bought. Probably you would be happy enough about that. Then imagine they got a 90% discount. You would feel like you were being exploited. If big buyers force down prices, retail prices for ordinary people must follow, at least part of the way.

Arnie is the Terminator. If the suppliers will not reach a deal, he can could always threaten to unleash the holocaust on them. If he bought the equipment for every schoolkid to read digital content, he could also sidestep the suppliers of digital content, by paying for new content to be made for those schoolkids. If margins on digital textbooks are excessive, it would make economic sense to pay an author to write a new textbook. This would cut out the middle man entirely. Instead of being forced to pay eternal licence fees, the Governator could simply pay an author a one-off fee, leaving the state of California owning its own intellectual property and not needing to pay anyone else to use it. It could happen. The argument is no different to arguments about healthcare providers paying unreasonably high margins to pharmaceuticals companies. At least pharmaceuticals companies can argue they reinvest in research and development. I cannot see how you could rework that argument for school textbooks, or most other digital content, especially where the content can be created at low cost by individuals or very small businesses backed by minimal investment.

Sometimes the only forces that can defeat big, powerful, vested interests are other big, powerful, vested interests. You and I, buying our MP3s or ebooks, cannot do it. Most authors and musicians cannot do it, or else they may get elevated to a level where they no longer see any self-interest in doing it. It takes exceptional artists, like Radiohead or Paulo Coelho to disrupt the cosy market that gives hefty rewards to a few creative types, whilst making slaves of the rest. It took a coalition of mutual interest between healthcare, insurance and government, and some very enterprising lawyers, to take on Big Tobacco. A similar coalition of educators and government has the chance to do something similar to Big Publishing.

Arnie Schwarzenegger is little Johnny’s best hope. The Governator is about to start a process that will so upset the logistics and legalities of digital content that future historians will long debate where to place Arnie on the political spectrum. The best part is Arnie does not even know he is doing it. Consolidated bargaining is rather like forming a trade union, or using big government to control big business, so you could put Arnie in the vanguard of the old-fashioned left. Eliminating corrupt monopolies and oligopolies, who buy political influence and use it to ensure the law suits them, that sounds like the kind of thing a libertarian or right wing neo-con would want do. Making intellectual property worthless, by implementing your own means of production and distribution, that sounds like communism or even anarchism. This is where you end up, when you start down a route that tries to preserve an outdated legal framework and apply it to property that is totally divorced from any physical substratum. The new properties of new property will inevitably force a rewrite of law, even if the lawyers and legislators have not worked that out yet. The intellectual property laws are now as lacking in moral justification as were laws that governed the slave trade at the time they were repealed. Intellectual property laws can and will be bent, broken, changed or made irrelevant over time. Human nature will see to that, just as human nature thankfully saw that human slavery need not and should not be perpetuated just so one man could profit at the expense of another. Governor Schwarzenegger is only starting this process, but he, and others like him, will be back. Budget pressures and the competition for popular approval from voters will see to that. Demands for less taxes, and better schools, will make it happen. Each time they come back, they will be wanting more for less. It is the beginning of the end for intellectual property as we know it. For intellectual property, judgment day is coming. The verdict? To terminate, of course.