One thing I don't understand about Pattern Recognition is why some of the footage was watermarked in the first place. If they wanted to remain anonymous, why did they need to do that?

The justification was that the makers wanted to know where it was distributed.

The real reason is the author needed a subtle way to track the makers, and to include shadowy burned out intelligence people. And more unforgettable characters.

It could have been untraceable, but then there is no satisfactory ending.

There's a whole subtext here which is not mentioned, whether it's due to space constraints or lack of research I'm not sure...

Theoretically, an encrypted watermark could be 100% perfect. As a sequence of 1's and 0's XOR'ed on the least significant bit, you might conceivably be able to deduce the existence of a watermark (like if a gradient of color isn't 100-101-102-103 but 100-102-101-103...); but it appears merely as "some kind of noise". In order to be able to show that a watermark is definitely present and has a certain value you have to crack the encryption.

If the manufacturer used "military grade" PGP-like encryption with no back doors this would be (theoretically) impossible. But a U.S. firm putting in the watermarks isn't going to dare to use genuine full-quality encryption - whenever you look at the nitty gritty, U.S. firms always end up dumbing down their encryption to what is pretty easily crackable by a big computer. Like they advertise it has a 128-bit crypto key, but the last 88 digits are zeroes! The ways that this has been enforced typically involved export regulations imposed as "executive orders" under a "state of emergency" and repeatedly reenacted every six months, but I'm sure they have other ways.

So the result is that a consumer can believe that the process is perfectly secure, but it really isn't. It would make sense that a Russian guy would distrust his own government, but hope that the U.S. firm was being honest. But there's no penalty for the firm to be dishonest and every penalty, no matter what the regulations currently might suggest, for it being honest! Even so, after getting the information, Cayce still has to actually track the watermarks herself, which involves the NSA connection.

What's a little less clear to me is how the Russians hoped to track the footage. Sure, the watermark helps them spot whether a cropped-down or badly compressed form of the file is circulating somewhere if they have a way to look at it, but how do they look at it? It would seem that Gibson thinks the Russians have their own version of ECHELON recording all American Net communications - which is far from implausible!!!!

Yeah, bring on Operation Screaming Fist.

Although I'm fairly certain that was also a porno.