Sentence First, Verdict Later

Horace Cooper
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Posted: Jul 12, 2005 12:00 AM
Reminding one more of the Queen of Heart's court in Alice in Wonderland rather than the highest court in our land, the Supreme Court ended its 2004-2005 term critically crippling the property rights of red state America while dramatically augmenting the rights of blue state America.

In one case the Supreme Court eviscerated the time honored principle of property rights that your home is your castle. Instead it embraces in its place an ancient Carolingian-like doctrine that might best be described as "wealth ultimately returns to its rightful owner."

In the other case the Court greatly expanded the rights of digital and intellectual property holders far beyond what history and the founders would have anticipated. In fact, the Court went so far in doing so it was forced to rely on a discredited vicarious liability doctrine. The court applied a remedy similar to that of holding gun manufacturers responsible for criminal misuse of a firearm. In practice this result will lead to holding third parties responsible for infringements that they never engaged in.

Two decisions: one red and one blue. In the blue case, MGM v. Grokster, the Supreme Court ruled that if a manufacturer creates a product which can be said to "induce" an individual to illegally duplicate copyrighted material, new remedies will be allowed.

Essentially, damages will no longer be limited to just the individuals who actually make the illegal copies. Now, the manufacturer of the product or technology that the infringer used can also be held liable.

Guess who's likely to have more financial assets and thus more likely to get sued?

Such a decision-ostensibly to protect videos, rap music and the like from illegal copying-which departs from copyright precedent and tradition will ultimately rip apart the synergistic relationship between innovation and copyright protection. Why? Because by holding third parties accountable for the actions of law breakers without evidence of complicity, it raises the cost of protection higher than is efficient imposing on the technology industry duties and responsibilities that will discourage investment and innovation. Ultimately this ruling will lead firms to exit the digital technology arena as corporate counsels determine the surest way to protect a firm from these vicarious liability claims is to stay out of this field altogether.

On the other hand, in Kelo v. New London the Court moved us further away from the "red state" view of property rights by giving virtually carte blanche to local governments to seize, and demolish any person's home.

Unlike the Grokster decision, this ruling dramatically under-protects owners of "real" property. In Kelo, the Court declared that the involuntary transfer of property from you to any corporation, shopping mall or other business interest can be a lawful exercise of government power. Our founding fathers who argued that "all men are created equal, that they are endowed by their Creator with certain unalienable Rights" would be astounded by this outcome.

Although both cases ostensibly involved property rights, similarities end there. In fact, these two cases represent a culmination of a radical revision of property rights. One case breaks faith with the time tested virtues of red state America, and the other affirms the avant garde progressive philosophy and values of blue state America. The New London case involved real estate-which is what most Americans think of when the term "property rights" is mentioned.) Over the course of the last 50 years, the Court has taken us away from this accepted maxim: "The poorest man may in his cottage bid defiance to all the force of the Crown. It may be frail; its roof may shake; the wind may blow through it; the storms may enter, the rain may enter--but the King of England cannot enter; all his forces dare not cross the threshold of the ruined tenement." Sadly with the latest Court ruling, as Justice Sandra Day O'Connor noted in her dissent, "the specter of condemnation hangs over all property."

On the other hand, the Grokster case involved "intellectual property" which are rights involving intangibles such as movies, books, music and the like. And while the rights of Hollywood moguls to their movies and music is important and in most instances should be protected, this decision accelerated the modern trend of bolstering intangible property rights in ways that go well beyond the founder's intent. Ironically, this trend completely fails to understand the external costs it creates by raising barriers to innovation and development and perhaps just as importantly, to acknowledge any of the cultural consequences of such a trend.

As an aside, it is worth noting that the very vicarious liability standard now imposed on the high tech community has been frequently rejected by the music and motion picture industry (when they were the targets of legal claims that the coarseness of their product contributed to the loss of life, limb or property of others.)

But perhaps there is a form of cosmic justice associated with this new remedy for intellectual property claims. You see it threatens the very industry it is supposed to protect both by giving Hollywood monopoly pricing power (which will reduce demand for their products) and creating significant disincentives for other manufacturers to develop new, less expensive and more innovative means of distributing Hollywood's digital products for fear of litigation. One wonders why in the midst of a significant slump in box office revenues, the industry would continue advocating its restrictive distribution model.

Frankly this isn't new. Even though Congress and the Courts have expanded protection for much of the 20th century for individuals and companies holding patents, trademarks, and copyrights, intangible rights holders have continually argued that their property rights were not being fully protected. But the pendulum has swung so far today that even some musicians, actors and other beneficiaries of intellectual property rights protection have come to realize that the restrictions in many instances hurt their fans (also known as customers) as much if not more so than it does the potential infringers.

But the Supreme Court embraces the ethos of blue state America and eschews that of red state America. In red state America, homeownership is a positive value to be encouraged, not decried. In blue state America, the coarse rap music or video of the last hour is so important that protecting it no matter the cost must be done even past the point of alienating fans and consumers.

Decrying the surge in home buying in the U.S. as a potential bubble, while lamenting the sizeable drop in moviegoers and CD buyers, blue state elites in America (and it seems those on the Court) have misread the needs and interests of America.

With today's Court, paying off your home is no key to your personal security. Your use of your property can be cavalierly second guessed by a local or state government which disapproves of your low- or moderate- income housing choices. It can instead replace it with upscale housing, an international coffee bar, a new gym or even a new video store. What you'll do in the interim is of little consequence.

On the other hand, the Court indulges Hollywood's concerns regarding the fleeting value of intangible property by rejecting both the common law and the U.S. Constitution's requirement that the purpose of legal protection of these rights is to benefit society, not the rights holder.

It boils down to this: today's Supreme Court believes protecting intangible property is so important that if you use a Panasonic digital video recorder to illegally duplicate pornographic copyrighted materials, Panasonic can get sued. But if Panasonic or some other firm wants to relocate into space that includes what was once your living room in order to operate a porn distribution center, the Court's concluded that your property rights are negligible.

Unfortunately this is part and parcel of a shift from a near universal consensus that real estate should hold a treasured status in law and instead placing intangible property in its place. Today's tattered state of property rights protection is a case study in the boiled frog theory of policy making. Over time this revolution has been steady and lately accelerating reaching the point where the founding fathers would no longer recognize it today. Not even the Queen of Hearts could understand this state of affairs.

Horace Cooper is a professor of constitutional law at George Mason University