The Comeback (11 page)

Men like Benjamin Franklin and Thomas Jefferson, innovators themselves, and George Washington believed much of the young nation’s future depended on whether it could match Europe’s technological prowess. Until that occurred, Jefferson knew the United States had to rely on the European innovation. In 1821 he wrote, “In an infant country like ours we must much depend for improvement on the science of other countries, longer established, possessing better means, and more advanced than we are.”

Indeed, Jefferson himself, while Secretary of State, served as the nation’s first patent commissioner and patent examiner—there was no Patent Office at the time—and approved the first U.S. patent in 1790 to one Samuel Hopkins for an improvement in the making of potash.

In President Washington’s first address to Congress, he said, “I cannot forbear intimating to you the expediency of giving effectual encouragement, as well to the introduction of new and useful inventions from abroad as to the exertion of skill and genius at home.” In other words, let’s get innovating, Congress.

But despite the centrality of patent law—and the notion of intellectual property rights—in the founding of our country, there have always been challenges. Eli Whitney, for instance, and his cotton gin (patented in 1794) revolutionized the cotton industry. Today, were someone to invent a machine of equal importance, that person would be rich beyond his wildest dreams. But Whitney barely made
a dime because other farmers merely copied his design. Whitney sued and spent whatever profits he had made on legal fees, before going out of business in 1797.

Nevertheless, the founders had a vision of a nation where the government had a limited role in commerce but a significant role in protecting intellectual property. In fact, James Madison wanted to give rewards to innovators. The founders never tired of trying to get it right. The Patent Act of 1790 was replaced by the Patent Act of 1793, which in time was replaced by the Patent Act of 1836.
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As the nation grew, so did the number of innovators, whose filings kept revealing flaws in the current system. We don’t need to go through all the history of the Patent Office here. Needless to say, the founders’ vision of inducing American innovation seemed to be working.

But if the Constitution provided the framework protecting innovators, it was the Bill of Rights that created an atmosphere in which innovation could thrive. What if the VCR, the Internet, and computers had been banned in the United States because they allowed duplication of copyrighted content?

The First Amendment to the U.S. Constitution protects freedom of speech. Our founders did not know of movies or the Internet, obviously, but they were prescient. They were very much aware of the importance and power of the press, and the innovation of the printing press wasn’t so long ago that it was ancient history in the late eighteenth century.

The First Amendment is not only a broad legal protection; it is also the charter for our unique questioning culture. It molded our nation’s spirit of encouraging creativity and individual expression. The colonial pamphleteers, such as Thomas Paine and Samuel Adams, were today’s bloggers—amateur journalists and activists whose influence extended far beyond their meager means.

Not that the founders weren’t wary of a completely unfettered press—it had helped start and sustain a revolution, after all—but they weren’t about to limit the very thing that they had fought England to defend.

By making the very first change to the Constitution an express right to challenge the status quo, the founders helped maintain more than two centuries of American success. Today this means that blogs, movies, podcasts, and scientific theories can be created and publically shared freely and without fear of government censorship.

Fortunately for us, despite efforts to restrict these products, our Constitution allowed these new forms of expression and content delivery to exist. If patent and copyright protection weren’t necessarily American innovations, a free and independent press enshrined in a constitution certainly was.

Our diverse population has the legal and cultural capacity to express itself not only for political speech but for
any
reason. These not only encourage us to write and create, but they also protect our ability to share our creations on Facebook, YouTube, and on blogs.

Sometimes this innovation and creativity are for political purposes—surely sacred under the First Amendment. But often the views and the spirit of the First Amendment are what allow new businesses to be launched, such as Web sites like Craigslist or the Drudge Report.

If you think about how almost every successful new business or innovation challenges the status quo and creates competition, you realize that innovators need special protections. The First Amendment is an important protection in ensuring that innovators can try something new. It ensures that a government or existing business
cannot shut down an innovator by fiat. It allows an innovator threatened by government to make a plea to the courts of law and of public opinion. It encourages a culture where innovation can flourish.

The First Amendment has played a real but unheralded role in our national innovation strategy. It is our “special sauce.” It is easier to be creative when there is no fear of jail time for violating some censor or authority figure.

However, in America, the danger to innovation usually comes from the private sector, not government. Representing the technology industry, I often confront established industries threatened by innovation. These battles are fought over that No Man’s Land between copyright law and the First Amendment.

I recounted my experience in the VCR wars in
chapter 2
, but there was more at stake than whether a consumer could record his favorite television shows. As the controversy grew, the music industry joined the side of the movie industry in trying to restrict and put royalties (or taxes) on recording technology.

The music industry had a long history of opposing new innovation and of lobbying Congress to squelch competing technologies. Copyright law had evolved so that composers and performers as well as the record companies were paid through “compulsory licenses” (some would say taxes) on “talking” pictures, the jukebox, the player piano, and various other music services. Other than their inability to get radio stations to pay a fee to record companies and their artists, the music industry has had an excellent history of getting Congress to step in and do its bidding.

So in 1982, when the motion picture industry started to get traction in Congress against the VCR, the music industry saw an opportunity to once again exploit the situation. And it was initially successful. Soon legislation was introduced that would put royalty taxes on all audio recording equipment and blank tape.

The timing was perfect. Although the nation was in a recession,
a revolution in music listening was under way. In 1979, Sony introduced the Walkman, which completely changed the music industry because the Walkman allowed portable music. The CD was just being introduced as well, although we were a long way from portable CD players. (These were the bulky home stereo kind that cost a fortune.) But the music industry initially refused to produce quality pre-recorded cassettes or CDs. It wasn’t solely for anti-innovation reasons either.

Years earlier, a spasm of excitement had similarly surrounded eight-track cassettes. The format was novel and initially popular, but it required a heavy investment from the record companies. When sales fell off, the recording companies were left holding the bag. They didn’t want to get burned again by some new, flash-in-the-pan gadget like the Walkman.

The other reason was that the record labels didn’t want to lose control of their music, which the technology behind the VCR and recordable cassette tapes threatened to do. So it allied with the movie industry and sought restrictions on the new products. We faced an alliance of two great American industries with legendary lobbies and tons of money. Not exactly what I would call adhering to the founders’ spirit of innovation. (Then again, the founders did include the right to petition the government alongside freedom of speech in the First Amendment.)

And as I’ve already recounted, the innovators won the day at the Supreme Court in a 5–4 decision. But it still amazes me that if one justice had gone the other way we would be living in a different world. I am not sure what the world would be—but certainly it would have less innovation, less access to technology, and a different set of companies in control. Apple’s iPod would not have been possible, nor would a host of other products we take for granted today. The digital revolution, which began in the late 1970s, would look quite different today, if it had happened at all.

But thankfully we’ll never know what that alternate world would have looked like. The market was quickly validating the Supreme Court results. VCR prices were falling, and average Americans were buying VCRs and loving them. Hollywood may have lost in the Supreme Court, but its pre-recorded video cassette sales were growing and the innovation of the VCR—essentially creating personal movie theaters—greatly expanded the content industry as home movie-goers purchased or rented movies to watch at their leisure. Hollywood quickly adopted the new technology as its own.

The recording industry is another story. Although it eventually embraced CDs, its initial resistance to selling quality pre-recorded cassettes changed consumer behavior. Consumers responded by bypassing the major record labels and swapping cassettes with only the songs they wanted to hear—what the kids call “mixed tapes,” which amazingly are already a thing of the past. Music lovers made the technology work for them by going around the record industry, and they grew accustomed to avoiding the industry all together. This helped create the singles-based music economy—which soon destroyed the album-based revenue gravy train.

The long, slow decline continues to this day, when consumers can purchase a single song on iTunes for 99 cents. When people think of music, they think of iTunes, iPods, and MP3 players—devices that allow them to customize their listening experience. Can your teenager name one major record company?

Despite the Supreme Court decision, our battles with the content industries, such as Hollywood and the recording industries, go on. The music industry succeeded in controlling CD rentals and restricting the unfettered recording ability of non-computer consumer electronics products. The result is that few of these products are sold, and the entire concept of music recording has shifted to the Internet.

But for the music industry, these are Pyrrhic victories. It has never been able to recover from its decision, made thirty years ago, to
oppose innovation. The results are clear. Total revenue from music sales and licensing has fallen from $14.6 billion in 1999 to $6.3 billion in 2009. Music executives must look back on the late 1970s and early 1980s and ask themselves, “What were we thinking?” Perhaps the shift from albums to singles would have been avoided or delayed if the music industry had spent more time and money investing in new formats and less time asking Congress to restrict them.

But the music industry, along with other content industries, had their victories. Congress acted fourteen different times over the past fifty years to lengthen the copyright term. It is now roughly one hundred years. Ironically, the last extension was pushed by Disney, which has made billions of dollars using public domain stories like Snow White and the Hans Christian Andersen fairy tales.

Make no mistake; I’m not opposed to copyrights or patents. But I agree with Jefferson’s denunciation of what he called “monopolies of invention,” which is the jealous guarding of an innovation at the expense of further progress. In 1813, he wrote:

[O]ther nations have thought these monopolies produce more embarrassment than advantage to society; and it may be observed that the nations which refuse monopolies of invention, are as fruitful as England in new and useful devices.
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A content provider naturally wants to own the content for as long as possible, much as a monopolist wants to maintain the monopoly for as long as possible. After all, monopolists are first and foremost capitalists. But where would the DVD player be today if Universal Studios had refused to produce its movies on VCR tapes? Would cell phones be as widespread today if cell phone makers banned calling to competitors’ phones? Certainly if patents did not exist we would have fewer innovations, but if they were more than five times their duration—like the 100 years of copyright—we would have less innovation building on prior innovation.

Limiting patent and copyrights certainly doesn’t help the innovator, but it helps innovation. Building on originality is also innovation. Government-granted monopolies in copyrights or patents must neither be too long or too short. It’s difficult for an innovator to give up rights to the product of his or her work. And yet that’s the only way innovation can flourish.

The battles of the last thirty years have proven that to err on the side of technology is always good policy. Although we must always endure the painful disruptions innovation creates, we must never think that this is a good enough reason to ban progress.

And that’s because innovation is so much more than a boon to economic growth. It breaks boundaries, it connects people from distant lands, it fires the imagination, and it sends a message of hope to those who most need it. In a word, innovation is freedom.

The VCR and fax machine helped bring down the Berlin Wall. Radio and videotapes helped collapse the Soviet Union. Millions behind the Iron Curtain were able to listen to American rock music and to hear Ronald Reagan speak to them of an “evil empire.” And it continues to this day. The Internet is allowing millions of new businesses to be created in Africa and India. It reaches those in Communist China, which attempts to restrict access. Indeed it is no wonder that the most totalitarian and isolated countries in the world also most severely restrict access to technology.