Publishing Trendsetter is a production of Market Partners International and Publishing Trends.

A DRM Primer for a VAT World

This article was originally published on our parent site for the book publishing industry, Publishing Trends

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The ongoing and increasingly heated debate over the use of Digital Rights Management (DRM) in digital publishing has recently received more press attention because of the EU ruling to charge VAT (value-added tax) on ebooks.

For those in need of a reminder, Digital Rights Management refers to the protections  that are in place on many copyrighted digital products like video games, smartphone apps and ebooks that make illegal downloading more difficult.

In the beginning of March 2015, France and Luxembourg lost their court case to reduce VAT rates for ebooks to those of print editions, Reuters reported.  The countries tried to convince the court to consider ebooks goods rather than digital services so they could charge the same reduced VAT rates as print books.  The ruling against France and Luxembourg means that tax rates on ebooks will rise from 5.5% to 20% in France and from 3% to 17% in Luxembourg.

This ruling comes a little less than two years after the French government’s move to reduce the VAT rate, specifically for the benefit of non-DRM-protected ebooks.  French Deputy Isabelle Attard originally distinguished between DRM-laced ebooks as services and non-DRM ebooks as goods on the theory that “Everything that goes against interoperability, or imposes reading constraints would be subject to a VAT of 19.6%, in the capacity of services, and not sale of a book, therefore of a product,” Attard said at the time.  This motion failed to pass, so the country decided to give all ebooks the same reduced VAT rate.

DRM systems are often controversial because while they protect copyright, they also prevent people from converting ebooks into different formats, from sharing with multiple users or between different devices, and from printing the ebook. Although there are some movements to eradicate DRM completely, none seem to propose a viable alternate solution to protect against piracy, thereby protecting author and publisher income.

In an interview with the anti-piracy company Rightscorp, Good e-Reader learned that there will be an estimated 700 million pirated ebooks in 2018.  According to Rightscorp, approximately 300 million ebooks were pirated in 2013. Based on these numbers, it seems this method isn’t preventing piracy.

When Macmillan’s Tor moved to the DRM-free model in 2012, it cited its customers’ annoyance with the system as its reason. There was “no discernible increase in piracy on any of our titles,” Ars Technica reported UK Editorial Director Julie Crisp saying a year after the change.  When Tor announced its initiative, Hachette UK responded that its authors and any publishers publishing its authors in other territories were required to use DRM.  Hachette UK’s CEO Ursula MacKenzie said that the company was enforcing this rule “because [DRM] inhibits file-sharing between the mainstream readers;” although she also recognized that it would not stop determined, technology-savvy pirates.

One of the primary reasons many consumers are against the use of DRM for copyright protection is the platform restrictions DRM formatting impose.  A prime example is that Amazon-purchased ebooks can only be used on Kindle apps and devices, a fact that alienates Nook users and vice versa.  Barnes & Noble also redesigned their DRM recently so that consumers can only download their ebooks to their devices using the Nook apps, whereas before a person could open the book if B&N had their credit card information.

However, no company can prevent a consumer from using the ebooks on a different platform.  The precedent for this was decided in Europe’s High Court court a little over a year ago when Nintendo lost its case against PC Box.  Nintendo was suing the company because it created software that would allow consumers to use other company’s games on Nintendo devices.  The result is that Nintendo (and other companies) can use a DRM format to prohibit piracy but can’t use it to make using alternate software on its devices illegal.

So what alternatives to DRM are there? Ebook users were hopeful that the answer to the platform sharing problem was in the EPUB format, which should allow readers to transfer ebooks from one platform to another.  However, since not all publishers use EPUB, some ebooks have to be converted.  For example, to read Kindle ebooks on a different device, users have to convert the .mobi file to EPUB, stripping the Amazon DRM before they can transfer to a different device, which is illegal.  It’s unlikely that non-EPUB companies will change their formats in the near future.

Another option proposed is digital watermarking, which The Digital Reader called a “milder type of DRM.”  Digital watermarks could theoretically protect copyright without interfering with platform compatibility, but even that has its drawbacks.  Digital watermarks can include the customer’s name, email address, and/or IP location to help identify original owners in piracy cases.

However, these watermarks can alienate consumers if too overt.  The traceable information can be included subtly as file additions, but it isn’t always so.  For example, Verso Books has used digital watermarks that “constantly reminded not to pirate the ebook” through notices appearing in the footer of every page of the ebook, each including the buyer’s name and email.  Users felt these reminders were accusatory and the company needed to trust its consumers.

Some authors have joined the efforts to convince publishers to leave DRM behind, chief among them being Cory Doctorow.  Doctorow has been working with The Electronic Frontier Foundation on the Apollo 1201 Project, which hopes to eradicate DRM completely, not just for ebooks but for all DRM system users.  The name references Apollo, a decade-long plan to go to the moon and Section 1201 of the Digital Millennium Copyright Act (DMCA), which prohibits unlocking access controls like DRM.

The Apollo 1201 Project would most likely end with ebooks having similar protection to music downloads.  Another Good e-Reader article pointed out that Apple removed DRM in favor of open files for mp3s in 2009.  When it did this, music downloaders were happy because they could use iTunes-purchased music on multiple devices.  Meanwhile, the company noticed an increase of sales for obscure music and less of an incentive for piracy.  But clearly, “less of an incentive” isn’t the same as stopping it completely.

A perfect solution doesn’t yet exist.  There will always be digital piracy, because digital goods are a prominent part of the marketplace now.  However, the way we protect these goods will continue to shift until the best possible solution is found though whether the best is DRM or digital watermarking or open files or something else will probably only be decided after many years of trial and error.

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