If the "making available" argument fails, does anyone feel there is any
realistic way for a copyright holder to prove infringement?

Any modern pirate system explicitly eliminates paper trails -- soon
they'll all use encryption and, if that's not enough, onionskin routing.
(Bandwidth is growing way faster than the size of MP3; eventually
onionskin will be perceived as cheap.) And if that doesn't work, I have
no doubt something else will be invented.

So it's safe to assume that any pirated tools in the future will, for
all intents and purposes, cause music and movies to just magically
appear on demand from an unknown, unprovable source.

In this world, even if widespread piracy is obviously occurring, would
there be any way to prove it without "making available"?

I'll take a stab at my own question and say "yes", but the shift will go
from pursuing distributors to pursuing downloaders. And I think they'll
next try some sort of "proof of payment" scheme, such as used by public
transportation:

In San Francisco, there are MUNI trains that you can board anywhere and
get off anywhere; there's no physical requirement to buy a ticket.
However, you're legally obligated to have one, and if you fail a spot
inspection by an officer of the law, you'll pay serious fine.

I wonder if that's the model they will attempt next if "making
available" fails. Basically, all stores will move to
individually-tagged songs and movies where proof of purchase is encoded
in the content itself. (This is impractical in the old world of
physical media distribution, but becomes more feasible as we move to
on-demand downloads).

One way to do this would be with watermarks: so long nobody has
incentive to remove them, they'll stick around fine. But then again,
you could probably do it with just ID3 tags and digital signatures (a
message "Bob has bought track <SHA1>" signed by Time Warner's public key
would suffice). Technically it's an easy problem to solve.

The problem will come in the audit: both how to audit the devices in
question, and when to do it.

As for how, the challenge (as always) is to distinguish between content
in the public domain and content you need permission from the copyright
owner to have. One possibility would be to build an opt-in waveform
fingerprint of all copyrighted works that elect to participate in this
proof of payment scheme. This won't truly catch everything (and won't
catch anything released before the scheme launched), but even if it
catches only the new releases with some regularity, that starts to make
an effective tool for general compliance enforcement.

So, auditors could conceivably have a device that has USB and iPod
connectors that plug into basically anything, scan all content for
waveform matches, confirms the file has a proof of payment certificate,
and alerts if not.

Ok, so all this could technically be built by a sufficiently incented
(or incensed?) party. This brings us to the next question: when would
the audit occur?

This is where it'd probably fail on constitutional grounds. A scan
under most circumstances would be "unreasonable search and seizure".
But one place that is notoriously exempt: border control. They can
basically take anything and do anything for as long as it takes.

Granted, this cedes the vast majority of domestic piracy. But their
goal isn't to eliminate the potential for piracy; their goal is to make
it such a pain that people still choose to buy. If they first make it
impossible to travel internationally without first cleansing all devices
of pirated works, this will start to bite. And after that, they'll find
other excuses to audit devices: airport security for domestic flights?
PCI and SOX compliance audits? Build auditing straight into the iPhone
itself?

The big question in my mind is whether everybody just gives up on
copyright before then and "just says no" to proof of payment and spot
copyright checks.

By and large, society as a whole has already given up on copyright, as
evidenced by overwhelming adoption of piracy. It's possible that if
pressed to make a decision that we'll simply refuse to pass any law that
allows for reasonable enforcement. Then businesses that depend on
enforcement will die and get replaced with those that don't, and
gradually the courts will limit the scope of copyright to where it can
be realistically enforced.

Anyway, so I see a copyright-free (or copyright-very-limited) future as
a legitimate possibility. And society might just refuse to allow the
proof-of-payment scheme to go into force.

So, let me conclude with my prediction: if "making available" fails (and
if they truly accept this -- not necessarily a sure bet), then major
copyright holders will marshal their forces and attempt to create a
"proof of payment" system with enforcement starting at border crossings
and gradually increasing from there. This will trigger a showdown with
society at large as it really begins to weigh how much it cares about
copyrights, and the people who hold them. And I think it's very
possible that society decides the cost of copyright enforcement
outweighs its benefit and essentially curtail copyright in all areas
where it stopped making sense, long ago.

-david