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Volume 2, Number 2 (Spring 2004) - page 3 / 30





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Vol. 2:2]

James Conley,

battle against those supporting the new paradigm.11 As recent observation of the recording industry suggests, the industry’s pursuit of legal protection of its rights without addressing the market drivers that made Napster, Gnutella, and KaZaA popular, has resulted only in the loss of public good will.12 Indeed, in its approach to addressing the P2P music-sharing phenomenon, the recording industry is engaged in an ever more elusive battle to protect its rights at the expense of criminalizing and alienating its customers. 13

Today, video game console manufacturers and game publishers find themselves at a similar juncture. They can follow in the footsteps of the music and film industries and use litigation to stifle and shut down the innovation that is emulation. This approach will be quite costly, and it will neither endear them to their customers nor ultimately stop emulator proliferation. In the opinion of longtime industry critic Timothy White, this will only delay the inevitable.14 Alternatively, they can take seriously the customer demands that fuel emulator popularity and chart a different course. Rather than making legal action the sole response, they can adopt a more nuanced, sophisticated approach in which they co-opt the market by entering the business of emulation themselves. By listening to their customers and thinking creatively about their business models, game console manufactures and software publishers can protect their markets, their brand equity, their intellectual property, and grow consumer good will.

This article examines the question of emulation technology from both perspectives and suggests that the solution for incumbent property rights holders requires more than vigorous litigation. We contend that the video gaming industry should undertake the coordinated management of strategy, pricing, and property rights if it is to be successful at harnessing emulation opportunities. Console manufacturers and game publishers should consider how to build their competitive advantage by responding to the unmet consumer demand that drives the emulation phenomenon, pricing their products reasonably and dynamically so as not to drive customers to emulators, and using the law judiciously to protect their intellectual capital.

Technology enterprises in Japan are well-positioned to provide a model for how companies can constructively manage intellectual capital in the video game industry. successful, such a model may be transferable to multiple information goods industries, including music and film. Sony Corporation, which has for six decades prided itself on industry leadership, has already started this process.16 Responding to customer demand 15


Recording Act of 1992, 17 U.S.C. 1001-1010 (2004). The Rio was not a “digital audio recording device” as defined by the AHRA, but “…the Rio is a device that makes copies in order to render portable, or ‘space-shift,’ those files that already reside on a user’s hard drive… Such copying is paradigmatic non- commercial personal use entirely consistent with the purposes of the [AHRA].” at 1079. The Ninth Circuit noted that manufacturers of audio recording and playing equipment pay a small per-unit royalty to the music industry to partially offset the threat of audio piracy; however, this same agreement did not cover

computer equipment. As a result, Diamond won its case and was allowed to continue the sale and

manufacture of its Rio.

Sony Corp of Am. v. Universal City Studios, Inc., 464 U.S. 417 (1984)

(holding that that private, non-commercial copying of television broadcasts is fair use). Recording Industry Ass’n of Am., 180 F.3d at 1081. 11 12 13 14 Matt Bal, , WIRED MAGAZINE, Feb. 2003. . Charles Mann, , WIRED MAGAZINE, Feb. 2003,

http://www.wired.com/wired/archive/11.02/dirge.html?pg=1 (last visited July 4, 2004). Sony, Nintendo, and Sega are all Japanese companies. SHU SHIN LUH, BUSINESS THE SONY WAY (John Wiley & Sons 2003). 15 16


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