From Copyright and Technology:
There’s been lots and lots of talk about DRM for e-books over the years. Lots of controversy, debates, diatribes, conference panels, etc. Watermarking? Not so much. That’s despite the fact that e-book watermarking has been in use for much longer than most people realize, and that it has recently become very popular in certain geographies, such as much of Europe. The dramatic imbalance of information about DRM and watermarking — especially in the U.S. — is not doing the publishing industry any favors in properly evaluating content protection options.
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Watermarking is a technique for embedding information in e-book files — typically information about the purchaser of the e-book and/or the place where it was purchased. Technical publishers such as O’Reilly and Springer have been inserting purchasers’ email addresses on every page of their PDF e-books for many years. More recently, e-book distributors such as Pottermore (the distributor of J.K. Rowling’s Harry Potter e-books) have been embedding user or transaction IDs that are known to the distributor but not meaningful to the public.
Back in 2007, Bill McCoy — then General Manager of the e-book business at Adobe, now head of publishing at W3C — advocated a watermarking-style solution to replace DRM, which he called “social DRM.” He was referring to the idea that if your name or email address is embedded in a document, you’re less likely to “overshare” it. The term “social DRM” stuck; it also led some industry writers to refer to watermarking as a type of DRM and even to use the incorrect term “watermark DRM.”
Watermarking is not DRM. This is especially the case if you accept the definition of DRM that the Electronic Frontier Foundation, Free Software Foundation, and others use, “Digital Restrictions Management.” Watermarked e-books have no restrictions on their use in e-readers, and retailers can’t use them to construct the kinds of walled gardens that some of them have with DRM. Any e-reader that can read the e-book’s format (PDF, EPUB, KF8, etc.) can read a watermarked e-book.
Watermarking also does not apply to the same set of distribution models as DRM does. Watermarking generally applies to retail sales, as well as certain special situations such as pre-release distribution of review copies; it isn’t used (by itself) with models such as subscriptions and library e-book lending.
Nevertheless, a growing number of e-book distributors are now using watermarking instead of DRM. As the white paper explains, this is especially true in the Netherlands, Germany, Italy, and many Central and Eastern European countries. Watermarking techniques have evolved so that they are not as easy to remove from e-book files as they used to be; today’s watermarking providers use multiple redundant techniques, so that someone who tries to strip a file of watermarks can’t be sure that all of the watermarks are gone.
The lack of popularity of watermarking in the North American e-book market stems from a combination of factors. Major e-book retailers aren’t motivated to give up their DRMs because doing so would diminish their walled gardens, and publishers aren’t insisting on it in their negotiations with those retailers. But just as importantly, there’s a general lack of awareness of watermarking compared to that of DRM, particularly among authors and agents who can specify it in contracts with publishers. While more research is needed to discover the relative benefits of DRM and watermarking in curbing infringement, this is a logjam that ought to be broken.
Link to the rest at Copyright and Technology
The OP contains a link to the source of a white paper about watermarking ebooks.