Economic Report President

Box 5-2.—Electronic Commerce and Digital CopyrightProtectionMore than 70 million Americans now have access to the Internet,which they use in no small part for commercial activities, includingthe purchase of music, video, software, text, and other informationgoods that can now be sent directly from one computer toanother. The volume of this electronic commerce exceeded $10 billionin 1998 and is predicted to reach $300 billion within a fewyears. Electronic commerce provides unprecedented opportunityfor firms and individuals to sell and distribute such digital goodswidely and quickly. But with these benefits comes risk: the easewith which a recording company can deliver a new song to buyerselectronically is matched by that with which buyers can illegallycopy and resell it. For electronic commerce to reach its potential,sellers must be sure that their products are legally protected fromsuch piracy.New copyright legislation has taken steps to protect digitalgoods and so encourage innovative commercial uses of electronicmedia. The 1998 Digital Millennium Copyright Act makes it acrime to break the “digital wrappers” that protect electronicallyencrypted intellectual property, or to sell equipment designed topenetrate such encryption. This increased protection of digitalgoods will help spur commerce and innovation, but it may alsounduly restrict legitimate uses of copyrighted material. For example,the fair use doctrine allows free access to copyrighted worksfor limited personal, educational, and research purposes that donot compromise the work’s commercial value. What has traditionallybeen prohibited is not access to the copyrighted work, butrather its indiscriminate copying and distribution. An absoluteban on bypassing digital wrappers might allow publishers toimpose a per-use fee on publications in digital format. This wouldblock free access to such works and thus erode the fair use principle.The 1998 Digital Millennium Copyright Act attempts to balancethe need to preserve commercial incentives with the right tofair use by permitting anyone who cannot get access to materialsusually covered by the fair use doctrine to petition the Librarian ofCongress for an exemption from the statute.confer market power and that licensing of intellectual property is generallyprocompetitive. Licensing and other arrangements for transferringpatents or copyrights can help bring complementary factors ofproduction together and thus allow faster and more efficient use of newinventions. This benefits consumers by reducing costs and encouragingthe introduction of new products. Under the guidelines, the FTC and183