A Call to Arms on Record Industry Home Taping ‘Tax’

Those wonderful folks who sell you Guns N’ Roses, Whitney Houston, Bruce Springsteen and Milli Vanilli swear that their best customers--people like you--are cheats and thieves. So they’ve hammered out a “compromise” that will give you the privilege of paying extra for the opportunity to purchase the next generation of consumer audio equipment and tapes because they want a piece of all the “illegal” home taping action--such as making a personal tape for your car.

Two bills to turn this “compromise” into law are before Congress. So Congress will not only fine millions of Americans for their copying “crime,” it will also create a precedent that is guaranteed to cripple innovation in technologies. This strikes me as the sort of “compromise” that we should be able to live without.

For years, the record companies have aggressively tried but failed to win support for a tax--excuse me, “royalty”--on analog tape recorders and blank audiocassettes. But with the arrival of a new generation of digital audiotape and digital compact cassettes (using the same recording principle as CDs), the music industry finally had a fresh opportunity to stick it to their customers.

This July, amid a flurry of lawsuits and threatened litigation targeted against these digital audio technologies, the recording and the consumer electronics industries struck a deal. All digital audiotape recorders sold in the United States would be equipped with a special “serial copy management system” chip that would let owners make personal copies of songs but prevent them from making copies of copies that could be distributed commercially. That was OK.

However, the industry groups also agreed to a 3% “royalty” on blank digital audio tape and cassettes, as well as a 2% royalty on the sales of the digital audiotape recorders. Congress is being asked to ratify this “compromise” that you get to pay for.

“It was the only pragmatic solution available to us,” insists John V. Roach, the chairman and chief executive of Tandy Corp., who brokered the deal. “We had been at an impasse. . . . There have been some changes in the political environment . . . and the court cases were very much a lottery.”

That may be true. But just how pragmatic is it to set precedents that will come back and bite you? For all its glittering stars, lobbying clout and high-priced legal talent, the recording industry’s position is so intellectually inconsistent, so silly and so avaricious that it deserves to be destroyed on its merits. The music industry whines that it deserves a hardware/tape royalty because these technologies allow listeners to make personal copies. So what? By that logic, the electronics manufacturers are entitled to royalties from last year’s $3.45 billion in CD revenues because their technology enabled the record companies to make sales. If you look at the impact of new technologies on the music industry--LPs, speakers, MTV, CDs, etc.--any reasonable person will acknowledge that they have consistently created multibillion-dollar global markets for the copyright holders and the record companies. Are there marginal costs associated with these billion-dollar benefits? Sure. But why should consumers subsidize them?

By demanding royalties on technology, record industry moguls are behaving like parasitical ingrates. In the name of “intellectual property,” they essentially want to tax their customers and the people who create technologies that expand their customer base. (Ironically, several of the biggest manufacturers of digital technologies--Sony, NV Phillips and Matsushita--own record companies. So, one way or another, most of the money will find its way into corporate pockets.)

Now no one favors pirating records. People who make copies for commercial use should be punished. But intellectual property protection does not confer an absolute monopoly. The Copyright Act permits “fair use” of copyrighted material. Why doesn’t copying from one’s CD to one’s digital audiotape for in-car listening qualify as “fair use”? Why should everyone who buys a piece of digital audio equipment or tape be forced to pay a fee to copyright holders and the record companies? Fairness and pragmatism shouldn’t be mutually exclusive.

If you establish the principle of parasitism proposed by the music industry, what rational argument prevents other copyright holders from winning royalties on technologies that play and record such material? Why not have a royalty on the sale of personal computers? Or a 3% fee from the sale of the nearly 1 billion blank 3.5-inch floppy disks that were sold last year? Scanners often scan copyrighted material into computers, so let’s slap a royalty on them. Fax machines often transmit copyrighted material, so tax them too. Laser printers can print copyrighted documents, so why exempt them? When digital video finally arrives, let’s double that royalty on the PC. Hey, let’s put a fee on copier paper!

Indeed, why not create a “Human Capital Royalty”--say, 2% of gross income--on professionals who occasionally think copyrighted thoughts--you know, snippets from textbooks, movies, newspaper columns, etc.--and distribute that revenue to intellectual property holders? It’s only fair--or isn’t that pragmatic?

Instead of “solving” the audio problem, this dubious precedent assures that intellectual property rights holders will rack their brains and rent their lobbyists to procure similarly favorable treatment. This compromise will create more problems than it solves. “Will it give someone else the heart to try something else?” asks Tandy’s Roach. “Maybe.”

No, John, definitely. Consumers shouldn’t be forced to subsidize the intra-industry squabblings between hardware and software producers. Congress should confirm that there is a fundamental difference between the personal use of technology and its commercial application. Are there gray areas? Sure. But as a matter of public policy, let’s draw the line right here: People shouldn’t be forced to pay a single penny in royalties to copyright holders simply because a technology is capable of copying any more than I should pay a “parking ticket tax” when I purchase a car. This compromise represents bad precedent, bad policy and bad law. Kill it.