Congresswoman Mary Bono Mack (CA-45) presented the keynote speech at the 4th annual State of the Net Conference, the largest technology policy event in Washington. Bono Mack, Co-Chair of the House IP Promotion and Piracy Prevention Caucus and member of the House Energy and Commerce Subcommittee on Telecommunications and the Internet, addressed critical digital copyright protection issues, while noting the importance of fostering technological innovation.
I'd like to thank the Advisory Committee to the Congressional Internet Caucus for inviting me to speak today. It's an honor and privilege to be here. It is important to have a group like the Congressional Internet Caucus, where we can facilitate thoughtful discussions about policy matters relative to the Internet. That is why I believe the Caucus currently has, and will continue to have, a unique role when it comes to helping shape Internet policy.
As you may know, I sit on the Committee on Energy & Commerce Subcommittee on Telecommunications and the Internet. This gives me an up close and personal view of how this sector of our economy is growing, and how the technology itself is maturing.
I am passionate about the preservation and protection of intellectual property, especially digital intellectual property. As we discuss Internet policy matters, protecting intellectual property is one of my highest priorities. In fact, when I approach Internet policy decisions, the first thing I ask is how will this impact intellectual property.
Looking at our current economic landscape and the volatility of global and U.S. financial markets, a bright spot for growth that stands out is our technology sector - which obviously includes the Internet, both wireless and wireline, and all the digital creations moving across cyberspace.
However, I do see a potential vulnerability with the Internet's commercial potential in its digital content - the music, games, software, and audiovisual works. As you all know, digital creations are constantly being threatened by piracy and illegal file sharing.
Two of the fundamental economic challenges we face as a country are, "How do we protect digital creations online and how do we balance the role and powers of the private sector with those of the government as they relate to the Internet?" Whatever the solution, it must be effective because piracy, both global and domestic, is currently undermining America's economy and financial well-being.
- IDC an independent group that studies software piracy reported that 35% of the software installed in 2006 on personal computers (PCs) worldwide was obtained illegally, amounting to nearly $40 billion in global losses due to software piracy. In the U.S alone the amount was $7 billion.
-Piracy results in over $6 billion in losses to the American film industry annually; costing the United States an additional 141,000 jobs; and,
-According to the Institute for Policy Innovation, global music piracy causes $12.5 billion of economic losses every year, 71,060 U.S. jobs lost, a loss of $2.7 billion in workers' earnings, and a loss of $422 million in tax revenues, $291 million in personal income tax and $131 million in lost corporate income and production taxes.
Given this current scenario, I think it's important to take a step back and try to put the Internet into some sort of technological perspective. With all of the euphoria and all of the venture capital and buzz, this can be difficult. But the advent of cyberspace is an arc along technologies' vast frontier. Am I saying the Internet is not radical or magnificent? - Not at all, because it is. Am I minimizing the importance or promise of the Internet? Not at all. The truth is - digital technologies are changing the way we organize, work, get information, form political opinions, communicate, and unwind at the end of the day. But, as a Harvard economist writes, "the emergence of cyberspace is not an unprecedented event." The development of technologies like the printing press and the compass, telegraphy, railroads, steamships, and radio; all had jarring, long-term effects on human behavior and global economies. And, like the Internet, all of these technologies went through various cycles of innovation and commercialization.
So what does the history of these previous technological innovations teach us about the private sector and the role of government? And what does that mean for the continued development of the Internet? History has taught us that property rights, commercial acceptance, and a greater sense of certainty leads to greater investment and increased growth.
But what are the roles of government and the private sector?
First, we must admit that the formation of property rights is one of the most critical developments to establishing technologically oriented markets. These rights provide certainty, and give trend setting property owners and innovators a stronger sense of security in their investments and products.
Given this fact, we must acknowledge that there is a role for the state when it comes to property rights. One of the primary functions of governments is the preservation of its citizens' property. Our founders recognized this and put it in the Constitution. Other governments have taken similar steps. And as to those governments that haven't, I think Hernando de Soto said it best when he made the point that a lack of strong property rights, rather than poor economic management, has caused many of the world's economies to remain in poverty.
The issue of property rights becomes more complicated on the Internet because the property itself isn't tangible. Additionally, problems of nationality also surround the Internet, since property rights are generally territorial by design, while the Internet is not, although there are international agreements related to the issue.
Yet, even with this complexity and difficulty, there are competing forces at work fighting for the preservation of intellectual property rights. These forces largely come from those with commercial interest, and admittedly, are in the private sector. Firms like Microsoft and Amazon need property rights to preserve their incentive to develop software and improve services. Firms like NBC-Universal, Warner Music and Disney and bands like the Cowboy Junkies and The Who need property rights to give them legal recourse when digital pirates rip them off - literally.
But legal recourse and a legal property rights framework, while vital, are an after the fact answer. They are not solutions to the problem of digital piracy. When legal recourse is taken, the proverbial genie is already out of the bottle. There must be other mechanisms, more agile and flexible than government, allowed to be put in place to let those who own digital property or those who work in concert with digital property owners, to have the technological agility and flexibility to take the necessary steps to protect that digital property.
The primary means of illegally downloading movies and other copyrighted content is through peer-to-peer, commonly referred to as P2P, file transfers over broadband networks. As you are all aware, with the accelerating growth of P2P and broadband access, the Internet is becoming the dominant mechanism for content piracy.
In the early stages of the Internet's development, many broadband service providers were not as focused on online piracy as they probably should have been. However, if you have been paying attention to recent developments and stories being reported by the press you can almost feel a change in philosophy taking place. Is this because the service providers suddenly found religion and instantly "got" the issue of digital property rights? Maybe - but I'd be willing to bet it had more to with the congestion of their networks.
Depending on who you listen to, as much as 60 to 70 percent of traffic on the Internet consists of P2P file transfers by a very small minority - fewer than 5 percent of users. P2P thus outstrips every other communication and distribution protocol on the Internet and continues to grow exponentially. To put this statistic in greater perspective, perhaps 90 percent of P2P file transfers are in violation of our nation's copyright laws.
Back to the providers' motivations. The service providers are watching more and more of their network capacity monopolized by P2P bandwidth hogs who command a disproportionate amount of their network resources. This in turn is having a negative impact on their networks and the provision of core services for mainstream consumers, such as web surfing and sending email.
You might be asking yourself, why don't the broadband service providers invest more into their networks and add more capacity? For the record, broadband service providers are investing in their networks, but simply adding more bandwidth does not solve this dilemma. The reason for this is P2P applications are designed to consume as much bandwidth as is available, thus more capacity only results in more consumption.
So what is the private sector, particularly ISPs and digital content owners, to do? My answer is - I am a Member of Congress, not a technician or an engineer or a computer scientist or a corporate board member, so I don't have the answer. However, what I do believe is that the best chance we have for achieving any success against digital piracy, is to allow those entities and individuals who manage networks to have the flexibility and agility to take the lawful and necessary steps to stop piracy online before it starts. We must all understand that what works in one instance, may not be successful in another. The battle against digital piracy is a very fluid exercise, and as such, network operators and digital property owners should be free to experiment with and develop anti-piracy technologies. If we as policy makers allow this to occur and practice vigilant regulatory restraint when it comes to the Internet, it is my belief that we as a country can regain our digital footing and recoup the immense financial losses piracy causes. And when this occurs, there will be greater market certainty, which will bring larger investments, and this will likely cause the technology we call the Internet to continue to evolve and grow - potentially exceeding everyone's expectations.
Will this make everyone happy? Probably not; but what possibly can these days. I am sure an interest group here or there will complain - probably online - and they should have the opportunity to do so. This is after all the United States. However, we are talking about protecting property rights and the future of a great technology. In order to make thoughtful decisions that allow this technology to grow and benefit our national and global economy, we must not let political populism replace innovative practicality. Long before the Internet, our Founders understood the principle of protecting property rights. Today, it is our responsibility to understand and act in accordance with that principle.
I believe we can.
I know we must.