A fascinating report delivered to a conference on “Digital Rights Management” yesterday. A group of Microsoft researchers presented a paper which concludes that all efforts to stop file swapping are in the long term futile and doomed to failure.

The Register summarizes the paper here. It looks at the history of file swapping, which started with people mailing files or handing CDs to each other, and evolved into Napster and the current file sharing programs – Kazaa, WinMX and the rest.

The first assault by the entertainment industry was waves of lawyers – but the paper presents technical reasons why the legal targets will only get more difficult to find over time.

The second assault is technical protection built into CDs and online data – watermarks, fingerprints, digital rights management, hardware IDs. And according to the Microsoft guys, all of those are going to fail or be broken – and the likely result is a continuation of today’s situation where the informal file swapping networks are effectively competing with the legitimate (but crippled) services from the entertainment industry. It’s not hard to figure out that the legitimate services will lose.

The conclusion of the paper is a bit surprising. Microsoft is working on its “Palladium” initiative to support DRM systems, but instead of delivering an advertisement for Palladium, the researchers concluded that the entertainment industry ought to give up their attempts to lock everything down and compete on the basis of price and convenience.

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