Legal actions by the RIAA and MPAA are important to the digital media industry. Criminals must be punished, and copyrights enforced. But there are other reasons why the RIAA and MPAA should pursue actual infringers.

In a recent article, Professors Mark Lemley and Anthony Reese argue that enforcing direct rather than secondary copyright liability is more conducive to innovation and social welfare. Reducing Digital Copyright Infringement Without Restricting Innovation, 56 Stan. L. Rev. 1345 (2004). They argue that sweeping both beneficial and harmful activities under contributory and vicarious liability can unduly “[reduce] social welfare by the net social value of [the] innovation” sanctioned; whereas going after actual infringers enables enforcement without such potential costs.

An implicit argument in the paper is that copyright policy and copyright enforcement are important for innovation and social welfare, and that infringement needs to be curbed to a level where copyright holders can recoup costs and lost profits. Within the digital environment, the ease of illegal copying-communication of copyrighted works, and the collapse in distinction between counterfeiters-end users, copyright policy may be even more critical than before. Lemley and Reese state: “the public goods problem gets worse... the ratio of the cost of creation to the cost of imitation approaches infinity.”

Lemley and Reese posit that copyright owners should be given economic incentive to pursue actual infringers through solutions such as levy payments or a dispute resolution process. It is critical to note that they do not argue that the indirect liability doctrines of contributory and vicarious liability have irreparably stifled innovation to any measurable extent, nor that recent P2P case law should be overturned.

To arrive at their proposition to provide incentives for copyright owners to pursue actual infringers, Lemley and Reese modify a deterrence economic model by Professor Gary Becker. Becker hypothesized that rational actors will adjust behavior in response to likelihood of capture and severity of sanctions in relation to expected gains from a criminal act. Their modified model addresses: (1) raising the sanctions actually imposed on large-scale infringers and (2) lowering the costs of copyright enforcement against those infringers.

Lemley and Reese point out that the possibility of substantial civil and criminal sanctions already exists for copyright infringers, but that suits have not been pursued sufficiently to act as deterrences. The scholars conclude that the primary tool to enhance the benefits of copyright enforcement is to make it more cost worthy for copyright holders to pursue infringers for direct liability.

A fascinating aspect of this paper is that Lemley and Reese argue secondary liability suits would naturally decline if copyright holders are given incentive to go after actual infringers. Note that the scholars do not contend copyright holders should be barred from pursuing secondary liability suits. Such actions may be important even if copyright holders find it cost worthy to pursue actual infringers. The scholars may be withholding some sympathy for the likes of Napster and Grokster, which they state were informed and well aware of illegitimate transactions on their networks. Thus, secondary liability actions should not be made unavailable to copyright holders.

Economic theory suggests that copyright owners should be indifferent among these approaches (direct and secondary liability enforcement) at some level; the level of sanction or enforcement can in theory be set to achieve any particular level of deterrence. As we have seen, however, social welfare is not indifferent between these approaches. Suing facilitators imposes collateral social costs that can be avoided either by raising effective sanctions or by lowering the cost of enforcement.

The goal in making it more cost effective for copyright holders to chase individual criminals is not to stop infringement, but to affect a sufficient and credible deterrent to illegal activity. Lemley and Reese argue that the number of cases necessary to achieve this end may be relatively small. Copyright holders can target a select population to meet their intended effect. Copyright holders can avoid “over-deterrence” by focusing on individuals that surpass a threshold of illegal transactions, although it may be expected that some suits may be filed by mistake.

The RIAA and MPAA may be seen as too powerful, or too assertive, by some; however, the do more for our culture and society than those who would have our media industry turn into a vast wasteland only they would envy.