Several recent discussions suggest we are still struggling with understanding intellectual property and its not-too-distant relative, the value of ideas, in the context of the digital revolution.
Copying Software, Music
Last summer in Indonesia, I gave an ethics talk at the business school of a university in Jakarta, Indonesia. I raised the subject of intellectual property, and that led to the first question from a student: “We are not a wealthy nation, and in order to keep up we need access to software. Yes, we copy software for use at the university. But Microsoft is so wealthy and we have such a need, this seems like the only alternative. Further, many of our businesses regularly copy software for the use of their employees. Is this really wrong?”
Recently in a graduate ethics class I am teaching, the students presented a case where a school for underprivileged students was given 20 used computers. They had one copy of math tutor software, and the vendor would not offer them a special deal for other copies. The software was critical for developing math skills in the students so they could effectively compete in the marketplace. Was it OK to simply copy this software to the other computers so all of the students could benefit? The students presenting the case argued that this was probably acceptable.
In a discussion with U.S. undergraduate students, I asked if they exchanged digital copies of music with their friends, or downloaded pirated music from free sites. “It’s so easy,” many of them said. “And nobody gets hurt. We all do it.” One person acknowledged that it may be wrong, but admitted he did it anyway.
In the first two cases I responded with the same question: “If you had been given the software but needed the hardware, would it be OK to steal it?” The same concerns still apply. Indonesia is a poor country and needs the hardware and software to compete. The students are disadvantaged and need the hardware and software to build their skills. In the case of the students downloading music, I asked if they would steal a disk from a store.
Students in Indonesia and students in the United States saw these as different: Stealing physical things is wrong, but sharing digital files is OK. It is true there is something fundamentally different about these transactions. When something physical is stolen, the original owner no longer has it. When something digital is stolen, the original owner still has it.
So, is stealing the act of depriving someone else of what they have, or is it the act of acquiring something without authorization? In the world of atoms, the questions are the same. In the world of electrons, the questions are often different.
Before completing this story, I would like to consider a seemingly unrelated incident.
The Price of Pharmaceutical Drugs
Some time ago, I received a forwarded email from a trusted friend who is a professor and a consultant. The email he forwarded to me apparently came from the Department of Commerce, and discussed the outrageous prices of pharmaceutical drugs in America. Perhaps you also received it. This one said in part:
Did you ever wonder how much it costs a drug company for the active ingredient in prescription medications? Some people think it must cost a lot, since many drugs sell for more than $2 per tablet. We did a search of offshore chemical synthesizers that supply the active ingredients found in drugs approved by the FDA. In our independent investigation of how much profit drug companies really make, we obtained the actual price of active ingredients used in some of the most popular drugs sold in America.
The chart below speaks for itself.
xxxxxx 100 mg.
Consumer price (100 tablets): $130.27
Cost of general active ingredients: $.60
Percent markup: 21,712%
yyyyyy 10 mg.
Consumer price (100 tablets): $215.17
Cost of general active ingredients: $.71
Percent markup: 30,306%
zzzzzz 250 mg.
Consumer price (100 tablets): $157.39
Cost of general active ingredients: $1.88
Percent markup: 8,372%
It struck me as odd that anyone, let alone a Department of Commerce analyst, would really believe that the cost of a drug is the cost of its active ingredients. This ignores the cost of research and approval of the drug, the costs of manufacture and packaging, the costs of marketing, etc. etc. Whoever wrote this had no idea about the definition of profit.
That a professor/consultant would buy into such an email is also a bit surprising. Consultants have very few physical things to sell and are only in the market of ideas. I have never heard of a consultant who charges only for the cost of the raw material in the physical goods he or she distributes!
Identifying a Hoax
This email was signed by budget analyst Sharon Davis at the Department of Commerce and included her name, email, phone, and fax. So I called Sharon Davis at the Department of Commerce. The number given had no answer, but with a bit of checking I found another number for her and connected quickly. She is a real person.
She told me she had no idea who wrote the memo and affixed her name to it two years ago. But she has received so many calls and emails about it that she had to change her phone number and her email. Someone apparently wrote the memo and simply picked up her name to give it apparent authority.
“I didn’t write it. After two years of calls, I can do nothing to put a stop to it. Changing my phone number and my email only slowed the calls and emails for awhile. It has made me wonder if you can trust anything on the Internet! On some versions floating around, they even attached the seal from the Department of Commerce to the memo, something I would never do,” she said.
Here’s another observation about atoms and electrons: It is very easy to create a digital hoax. Before passing on some amazing find on the Internet, it is usually helpful to stop by your favorite hoax tracker. You can find lots of them by simply using your favorite search engine and looking for “hoax.”
Valuing Atoms and Electrons
Of course, the situations around the misuse of digital files and the story of vastly inflated prices for pharmaceutical drugs are closely related. Software and music are nothing more than ideas embodied in digital form. Sometimes they are also available in physical form such as CDs, but the CD itself is a very small portion of the true value or cost of the software or music. Pharmaceutical drugs are ideas embodied in physical form, but the physical ingredients are a small part of the true cost or value of the end product.
For a long time we have understood the value of atoms — physical things. But even though we have passed from an industrial era to a knowledge-based era, we are not as good at associating value with ideas. If someone were able to acquire the manufacturing plans for a computer, it would still be difficult to set up the manufacturing process and build our own computer. So we are willing to accept that we must pay for hardware. But because of the low cost of reproducing digital representations, too many believe they somehow have less value.
Ten years ago, Nicolas Negroponte wrote a book titled Being Digital. He explores this subject of living in a digital world in a creative, often humorous way, and it is still worth reading or rereading. In one situation, he is asked the value of his laptop, and tries to explain that it is worth millions of dollars. The person he was talking with is thinking about replacement costs for the hardware, and he is thinking of the value of all the ideas stored on it. It is easy to get confused in the digital world, and our roadmaps are still being developed.
We also have to gain clarity on what it means to steal in the digital world. Of course there are things like trade secrets, patents, and copyrights to protect ideas. And there are software piracy laws. But the ease with which software and music can be duplicated masks the problem of stealing it for too many people.
To be sure, I have concerns for the software costs that create a problem for many in the world. And I have concern for the costs of pharmaceutical drugs in America and the availability of them in some other places in the world. It is in the best interests of the software industry, the music industry, and the pharmaceutical industry to address these issues seeking a win for the customers as well as for themselves. But to build the value argument around the cost to reproduce these things is absurd.
Al Erisman is executive editor of Ethix, which he co-founded in 1998. He spent 32 years at The Boeing Company, the last 11 as director of technology. He was selected as a senior technical fellow of The Boeing Company in 1990, and received his Ph.D. in applied mathematics from Iowa State University.