The Comeback (5 page)

But it was still wrong.

In 1979, a federal court in California rejected Hollywood’s claims. We breathed a sigh of relief. But then Hollywood appealed to the
Ninth Circuit Court of Appeals, which overturned the lower court’s ruling and held that the VCR was an illegal product. The fight then went to the Supreme Court.

Those of us defending the VCR immediately went into action and created the Home Recording Rights Coalition (HRRC). This group of manufacturers (including 3M, GE, and RCA), retailers (Sears and others), and consumer groups began meeting weekly to figure out how to reverse this legal action, which we all knew was fatal to a compelling new innovation.

The HRRC retained former Federal Communications Commission chairman Charlie Ferris and former senator Marlow Cook. Several companies hired their own lawyers. One group of companies hired a troika of then relatively unknown lawyers who since have each significantly changed America: Ron Brown, then a partner at Patton Boggs, later headed the Democratic Party and tragically died in a 1996 plane crash while serving as secretary of commerce; David Rubenstein, then in private practice but formerly the clever but self-effacing aide to President Carter, went on to create the Carlyle Group, the world’s largest private equity firm; and Former Justice Department lawyer Bob Schwartz, a brilliant legal writer and aspiring saxophonist, went on to found an independent record label and has been protecting innovation for three decades.

In 1981, this group of lawyers and strategists began meeting at least once a week to plot our legislative and legal strategy. The meetings were amazing debates on philosophy and strategy. Who could be our allies? Which legislators might be sympathetic? Who would talk to them? What approach would work depending on their party, known views, and constituents? With Democrats, the default was protecting consumers. With Republicans, it was protecting the free market, fledgling businesses, and innovation. We created charts of the 535 legislators and assigned responsibility for contacting them. We sought the aid of consumer groups, think tanks, retailers,
and even a sympathetic priest willing to put his name on letters. I became part of this inner circle almost immediately. Considering my notable lack of qualifications, other than my ignorant youthful confidence, in retrospect, it is amazing they accepted me.

Immediately following the Ninth Circuit’s decision, Congress sprang to action. Senator Dennis DeConcini, an Arizona Democrat, introduced a simple bill reversing the decision. But Senator Charles Mathias, a Maryland Republican, responded with a seventeen-page bill allowing VCRs to be sold if the manufacturers paid a royalty tax to the content providers. At the bottom of the Mathias bill was a paragraph stating that the “first sale doctrine” for video products would be repealed. That paragraph turned out to be a game changer.

The “first sale” doctrine means that the copyright owner can only control the “first sale” of a copyrighted work—from a bookstore to a consumer, for example. After that, the consumer can do what he chooses with that specific book—give it away, sell it, or trade it for another book.

After a little research, I discovered that this seemingly innocuous paragraph actually signified a radical change in the American concept of personal property. Unlike all other copyright holders, movie studios would now be permitted to control their product after the first sale. Simply, this provision, if made into law, would have barred video rentals.

Video stores were just appearing, and in several cities groups of owners had formed regional associations to protect their interests. I decided to travel the country to meet with the store owners and, well, stir them up a bit over Hollywood’s attempt to put them out of business. The result was the creation of the Video Software Dealers Association, which gave us the critical ability to create a real grassroots movement that could serve as a counterweight to Hollywood in the lobbying halls of Congress.

Amazingly, while developing and executing this strategy, I faced off against one respected lawyer who represented a major VCR manufacturer. She disagreed with my assessment that we had a very clear interest in video rentals and that it was an integral part of the case. I countered that we needed the grassroots support because the manufacturers and retailers of VCRs comprised a fledgling, exciting new retail industry, and that killing it with the oppressive hand of government went against everything we were fighting for. When she failed to convince me, she sought out my association client and asked that I be removed from representing the association. The feisty Jack Wayman, a WWII vet and Purple Heart recipient who headed the HRRC through his position at what was then the predecessor to the Consumer Electronics Association, not only stood by me, but he also asked me to join the association full time as its first in-house lawyer lobbyist.

This was a personal turning point. My mentor Ed Day cautioned me that associations were “where you go to retire,” implying a drop in status and possibly damaging my career in its infancy. But, in truth, the decision was easy. I had already attended my first Consumer Electronics Show and never felt such energy or seen so much innovation. I hungered to be part of the fledgling consumer electronics industry.

Moreover, I was captivated by the inner workings of innovation. What do I mean? Just this: Even when you have the most exciting new innovation on the market, that’s no guarantee it—or you— will be successful. Innovation by its very definition undermines the status quo. It can destroy jobs, markets, and entire industries. For every consumer who drooled at the VCR concept, there was a well-connected power broker determined to block it.

We like to think that the invisible hand of the free market works without our conscious intervention, but this is a fallacy. In truth, all sorts of artificial obstacles stand in the way of technological
progress—foremost among them the coercive hand of government. We might regret this, but we also should remember that one’s right to build the next great mousetrap is just as important as someone else’s right to vocally oppose it and lobby the government on his behalf.

In any event, in the middle of the VCR battle, I determined that I wanted to be on the side of innovation, of progress. I wanted to represent the technological pioneers of this great country as they went about their business of seeing further than anyone else—which is, I believe, the business of America.

Upon joining the association full time, I shifted from strategizing lawyer to decision maker, peacekeeper, and the outside face for the cause of innovation in technology. Although Wayman chaired the HRRC, I was made vice chairman, and given his frequent travels, I ended up running the HRRC weekly meetings and being chief spokesmen for the cause.

Those were heady days. I was leading an army of some of the top lawyers and lobbyists in Washington. More, we were up against the most powerful lobby in town, the Motion Picture Association of America (MPAA), headed by the legendary Jack Valenti. With his background as a top aide to President Johnson and his reputation for oration and influence, Valenti and the movie studios attacked us and the VCR as the death of American movies.

But in the end, Valenti and Hollywood lost. In a hair-raising 5–4 decision, the Supreme Court ruled in
Sony v. Universal Studios
(1984) that VCRs did not violate the Copyright Act of 1976. Importantly, the Court found that a recording did not automatically infringe a copyright on a broadcast movie even if it was used to make a full copy of the movie. The Court’s ruling was more than my first legal victory for innovation; it represented a major leap forward in the quickly expanding industry of consumer electronics. Although the battle shifted then from the Court to Congress, in the end we won for three reasons:

First, we were right. Although innovation can be a painful process, protecting the status quo industries would lead to even greater harm. Imagine if the horse-and-buggy industry had managed to block the automobile industry. Imagine if the locomotive industry had been able to block Orville and Wilbur Wright. Had one justice voted the other way, it would have signaled the death knell for an exciting new technology—one that presented challenges, yes, but one that also grew into one of the largest industries in the country.

Second, we were smart and strategic. We knew we couldn’t match the huge political fundraising of Hollywood or the plush MPAA screening room across from the White House used to show first-run movies and to lobby politicians. We weren’t sexy, so we had to be smart. We had a talented team, and we invested a huge amount of time developing a strategy and the intellectual framework for our cause. While our Hollywood opponents appeared overly confident, insular, with a top-down approach and a simple message—protect this great American industry from the devil’s technology—we were the entrepreneurial underdog, fighting for survival.

Third, we were underestimated. Our opponent was an established American industry, which in Washington always has the advantage. This forced us to create an intensely collaborative work environment, where all opinions could be aired. And what a group we had!

In addition to those named earlier, the frighteningly funny Wayne Berman, now chairman of Ogilvy Government Relations, lightened up our meetings, along with thoughtful former FCC lawyers Jeff Cunard and Bob Bruce and colorful former Food and Drug Administration counsel Nancy Buc. Also adding to our intellectual and strategic heft were the highly respected Washington lawyers Bruce Turnbull, Gary Slaiman, Jonathan Potter, and Jeff Turner, and our association strategist Michael Petricone. Economist Nina Cornell, executive director Ruth Rodgers, PR maven
Allan Schlosser, and grassroots entrepreneur Jack Bonner rounded out the team.

Our weekly meetings averaged over twenty people, and although I was privileged to lead them, I also couldn’t resist calculating that each hour of each meeting costs clients thousands of dollars in lawyers’ time. But the expense of the team was justified because so much was at stake—more than I even reckoned at the time. I thought we were just fighting for the survival of the VCR; it turns out that if we had lost, there would be no iPod, camcorder, DVR, PVR, and arguably only a limited Internet. The VCR was a gateway technology, and making sure that the doorway remained opened has led to more economic expansion than anything we could have predicted then.

It’s funny the way some moments in your life have the ability to change you, while others, seemingly more consequential, do not. Looking back thirty years later, I now realize that my experience in the VCR wars has shaped so much of the way I look at the world today, if only because the consequences of failure would have been so profound. But that’s the way of innovation: if we had lost we wouldn’t have known what we missed. We know now, and it’s the reason I’m writing this book.

But what do I mean by innovation? Clearly, as president and CEO of the Consumer Electronics Association, my experience with innovation has focused on the next great gadget—the VCR, computers, the iPod, HDTV, BluRay, smartphones, etc. A lot of people look at these things and dismiss them as high-tech toys—most ardently when the next “must-have” gadget first enters the market. They’re exciting but “not something I’ll waste money on.”

What many of those same folks forget is that yesterday’s toys
are often today’s tools; the novelty becomes necessary. When the first personal computers were introduced in the early 1970s, they were the things of hobbyists and techno-geeks (if they’ll excuse the term). Cool, interesting, but
what do you do with it?
Today, three out of four Americans own one. Twenty-five years ago, people dismissed cell phones. Clunky, poor reception, and
why do I need one?
Today, over 90 percent of U.S. households own one.

So to the question: What is innovation? Innovation is progress. Innovation is growth. Innovation is the engine of the free market. Above all, innovation is necessary. Ninety percent of U.S. households own a cell phone, not because the owners enjoy talking on a cell phone, but because they
need
it.

But there’s an ugly side to innovation, as well. Innovation destroys—in many cases, viciously. When was the last time you wrote on a typewriter or used a travel agent? Or used a phone booth?

But those phone booths and typewriters didn’t appear out of thin air. Someone had to make them, and he or she was employed by a company, which was owned by a board, which had an obligation to stock holders, who used their profits to provide for their families. All of it is gone today, destroyed because someone else invented a phone that at first fit in your briefcase. Now it fits in your pocket.

But that’s the way of innovation. It’s what the economist Joseph Schumpeter called “creative destruction.” Perhaps more so than in any other nation, it’s been an integral force in America since our very founding. When I think about story of America, I can’t help but remember James Earl Jones’ memorable speech in the movie
Field of Dreams
: “America has rolled by like an army of steamrollers. It’s been erased like a blackboard, rebuilt, and erased again.”

The point Jones was making was about the permanence of baseball and the importance of a true American heritage. But I’ve always liked the other point Jones was making, if not deliberately: America is not an idle nation, and Americans aren’t idle people. We are
restive. We are impatient. We want more, and we want it better. Our identity isn’t locked in an old cathedral built centuries ago. It isn’t preserved in scrolls dug from the ground or inscribed on ancient temples.

Our identity is preserved in the people who came to this continent to build a better life, and what they left us was a better country. Their ideas and their talents transformed our nation and pushed us from a ragtag bunch of farmer revolutionaries to the largest economy on earth. Each wave that reached these shores, each “army of steamrollers,” remade America with its creative energy and desire to live the American Dream.

As one army of steamrollers rolls by, erasing, destroying, it is also creating, rebuilding, progressing. And then the next army comes and starts the process all again. And it’s been going on for over two hundred years. Think of the breakthroughs: electricity, the telephone, the television, and the Internet. Each one by itself radically transformed life as people of that time knew it. These innovations changed our world.