Micropayments - Are they good or bad for IP?

November 13, 2007 by Jessica Catton

On August 27, 2007, the International Herald Tribune published an article by Dan Mitchell titled “Micropayments arrive on the Web.” This piece examined the evolution and reemergence of the use of small user fees, known as micropayments, in exchange for content on the internet.

After reading Mitchell’s article, the main question that comes to mind is: What do all these second generation forms of micropayments mean for the world of IP? Essentially, are they a good thing or a bad thing for each the users and the right holders of the IP?

From a purely economic perspective, micropayments make sense. In line with the objectives of IP law, right holders should be entitled to compensation for their works. An online user should not have free access to download songs, pictures or articles from the web while a non-internet user is required to pay for the exact same goods.

Unlike IP, the Internet itself is not a public good. As a website’s popularity rises, the site is required to pay for increasingly large amounts of bandwidth. Micropayments can help artists recoup their costs and/or make a profit from their work. Accordingly, if an artist is able to live off their work then they may be able to devote more time to creating credible content.

Additionally, micropayments can assist the creation of more content driven and credible websites. If a site relies on advertisers as its sole source of revenue, such advertisers may require the website to disseminate its content in a certain manner. The problem – whoever pays has the control. The website may be loaded with banners and content which clog the site making it less intelligible and attractive for the user. With micropayments, a website can chose to post only user-wanted content since essentially; the users are the ones paying for the page. Charging for content may lend more credibility to the site, which is good for both the IP holder and user.

There are some obvious positives for IP with the implementation of online micropayments; however, there is another side to the micropayment coin. In addition to the “operational challenges” pointed out by Mitchell, there are several other IP issues.

With respect to online content, micropayments seem to have little impact on the fostering of innovation, one of the main purposes of IP. Information on the web has been thriving since the dot-com boom. Artists, writers, videographers and musicians have and will continue to create regardless of micropayments. As noted by Mitchell, systems such as iTunes have had great success; however the websites implementation has not created a large increase or decrease in song production by musicians.

Additionally, micropayments create an inconvenience to content users. As quoted by Mitchell, Shirky wrote in 2000 that “there is a certain amount of anxiety involved in any decision to buy, no matter how small.” Although each micropayment may be insignificant, say $1 per item of desired content, the user may be burdened by the cumulative effect of wanting to access multiple items. This creates two large problems for IP. The user may be forced to shop around or they may be entirely excluded from accessing the content if they lack the financial means to do so.

This in turn creates another problem for IP, namely pirating. Websites such as torrentz.com allow users to download multiple forms of media at no charge. Of course the content is not guaranteed but there is also no benefit to the right holder of the IP. The band Radiohead recently tried to address music pirating by allowing users to download their CD on a donation basis. This could be considered a ‘micropayment by choice’ system. Similarly, abc.com has recently posted a new section on their website which enables users to download their hit television shows free of charge.

So where does this leave the relationship between micropayments and IP? As insinuated by Mitchell, micropayments are here to stay – and this is a good thing. Even though there are some clear drawbacks to charging users for content, micropayments are necessary to uphold the fundamental intent underlying IP law, namely granting the right holder the exclusive power to distribute the IP and to collect fees for such distribution if so desired. Further developments in hybrid micropayment systems could help to strike an even better balance between access to information for the user and just desserts for the right holder.