Against Intellectual Monopoly

Badische Chemical held a patent covering practically
all chemical-based textile-coloring products. Levinstein and Co. developed
a new and superior process to deliver the same product. Badische Chemical
sued and obtained a court restraint, preventing Levinstein from using the
new process to obtain the old product. Did Badische take advantage of
this legal victory to introduce the new and superior process in its own
business? No. In fact, Badische was apparently unable to figure out how
the new process worked, and so did not make use of it. Levinstein, on the
other hand, moved to the Netherlands, where the patent was not enforced.
Badische was less fortunate, as competition from Levinstein eventually put
the company out of business.37
    Lest one take away the lesson that narrow-mindedness was prevalent
among monopolists only prior to the First World War, because we know
many monopolists today who aren't so circumscribed in their thinking, we
draw attention to the recent behavior of the recording industry. The single
most important innovation in the movie industry has been the videotape -
today about 45 percent of all industry revenue is derived from the sale
of recordings, and though the videotape is gone, current video-recording
devices all evolved from that basic idea: record movies so that they can be
watched at home. Far from embracing this lucrative new technology when
it first appeared, the movie industry fought a long and costly legal battle
against it. Shortly after Sony introduced the Betamax, Universal and Disney
filed suit. Fortunately for them, when the court ruled in 1979, it ruled
against them. Foolish to the end, Universal appealed the decision, and was
"rewarded" in 1981 by an appellate court decision, overruling the original
decision. After further speedy actions by the court system, the U.S. Supreme
Court in 1984 finally reversed the appellate decision, finding that, as had
the original court, "time-shifting" - that is, recording a program to watch
later - constitutes fair use.
    The music industry, in the form of the Recording Industry Association
of America (RIAA), has also engaged in a series of legal blunders. In 1998,
RIAA filed a lawsuit against a small, relatively unknown company, Diamond
Multimedia Systems. Diamond's crime? It was engaged in selling a portable
electronic device capable of playing music in a compressed format not
widely known at that time - the MP3 format. RIAA not only managed
to lose the lawsuit, but the attendant publicity was an important factor
in popularizing the format among consumers. As newspapers gave the case enormous coverage, music aficionados rushed to their computers to convert
their inconvenient old CDs into convenient MP3 collections.38

    The massive conversion of CDs is largely responsible for the next chapter
in the sad saga of the RIAA - the peer-to-peer network. With the advent
of Napster in 1999, music lovers discovered that, especially with the advent
of broadband connections, MP3-formatted songs could be conveniently
shared over the Internet. RIAA lawyers sued Napster. The lawsuit did little to prevent the spread of the technology - though it may have helped
publicize it. Court filings indicate that at that time Napster had fewer than
500,000 users. By mid-2000, driven by the enormous publicity over the
case, Napster reported nearly 38 million users worldwide. By 2001, RIAA
prevailed on appeal, and an injunction against Napster began the effective
shutdown of the network. By 2002, Napster declared bankruptcy. 39 So effective has this shutdown been that it is now estimated that in the United States
alone, there are more than 40 million people sharing files using peer-to-peer
networks. 40
    "Being a monopolist" is, apparently, akin to going on drugs or joining
some strange religious sect. It seems to lead to complete loss of any sense
of what profitable opportunities are and of how free markets function.
Monopolists, apparently, can conceive of only one way of making money,
and that is by bullying consumers and competitors to put up and shut up.
Furthermore, it also appears to mean that past mistakes have to be repeated
at a larger, and ever more ridiculous, scale. Consider the ongoing controversy
over the Google Print project, which is now relabeled Google Book Search
and is fighting to survive the legal obstacles we summarize next. The Authors
Guild filed a lawsuit about two years ago trying to stop the