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Washington – Recent controversies over file-sharing and copyright policy have spawned hot debate in the courts and the halls of Congress, but a study issue today by the Cato Institute argues that government interference in Peer-to-Peer (P2P) networks would hinder technological evolution. A better solution, according to the report, would be for government to step aside and allow the market to find a solution through digital rights management (DRM).

In “Peer-to-Peer Networking and Digital Rights Management: How Market Tools Can Solve Copyright Problems,” Michael A. Einhorn and Bill Rosenblatt illustrate how P2P technology and DRM can coexist peacefully in a market system, essentially quashing the complaints of consumer advocates who argue that DRM puts too much control in the hands of copyrights holders.

“By preserving property rights made possible through new market techniques, DRM encourages producers to innovate because they are more certain of an eventual reward,” the authors argue. As evidence, they offer the case of iTunes, Apple’s pay-per-download music service that launched in 2003. “The percentage of U.S. downloaders who actually paid for a song at one point or another increased from 8 percent to 22 percent in the first 12 months after the launch of iTunes,” they write.

Einhorn and Rosenblatt argue that these market operations are greatly preferable to government technology controls or mandatory compulsory licensing schemes for both producers and consumers. They write that “an overly protective system of copyright is a detriment in the eyes of consumers who have grown accustomed to a range of copying capabilities, legally fair or not.”

Ultimately, the authors conclude that “the government should act to protect property rights, including copyrights, but it should not pick winners or discourage any technology from competing in the new marketplace.”

Einhorn is author of Media, Technology, and Copyright: Integrating Law and Economics.Rosenblatt is president of GiantSteps Media Technology Strategies.

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