[Ecommerce] Gregory Aharonian's notes from Cato Institute "Future of IP" conference
James Love
love@cptech.org
Wed Nov 28 10:35:01 2001
-------- Original Message --------
Subject: PATNEWS: Notes from the Cato Institute "Future of IP" conference
Date: Tue, 27 Nov 2001 17:11:05 -0800
From: clients@bustpatents.com
To: srctran@bustpatents.com
!20011127 Notes from the Cato Institute "Future of IP" conference
A few weeks ago I spent an interesting day at the libertarion Cato
Institute in Washington, DC, at their "The Future of Intellectual Property
in the Information Age conference". I spoke on the last panel dealing
with business method patents issues.
I took my usual notes, which follow, with the disclaimer that they
are not complete records nor the exact words spoken. Some of my notes
for afternoon speakers are shorter than the morning speakers, as I was
starting to get tired writing this stuff down. With that, enjoy what
follows.
At the end of my notes is a opinion piece written by one of the
conference organizers, Clyde Wayne Crews of the Cato Institute, in which
he writes critically of attempts to force licensing of music. Much of
the discussion at the conference dealt with the music industry, and how
truly horrible and greedy are the music companies. Ironically, business
newswires were reporting at the same time on the profit woes of the music
industry, starting with EMI. In the six months ending Sept. 2001, EMI
posted a loss of 2 million pounds based on 1.07 billion pounds in revenue
(contrasted with a profit of 59 million pounds for the same time period
one year earlier).
But first, a rather earthy bit of inventing sarcasm (that also
applies to many companies' software patents):
Inventions are like armpits, everyone has at least two,
and most of them stink.
Greg Aharonian
Internet Patent News Service
====================
MORNING KEYNOTE ADDRESS
Rep. Rick Boucher (D.Va)
IP has deep roots in our law, giving protection for a reasonable
amount of time, when products of creators are commercialized. I am a
strong defender of IP rights. American ingenuity has given us many
benefits. Only through compensation insurance can IP laws motivate.
But American law also protects rights of users. Users at public
libraries don't need permission to use/copy books under the "fair use"
doctrines of copyright. This prevents complete monopoly control, and
gives substance to First Amendment free speech rights. But "fair use"
is under attack and so is the way information is used.
DMCA - enacted in 1988 largely at behest of American creative
community. In my opinion, DMCA is a broad overreach that restricts
"fair use" rights. Industry claimed they needed additional protection
from new digital (copying) technologies, and broad global network
access. Unfortunately the DMCA billed passed with little debate and
modifications. DMCA Section 1201A1 - a dangerous section - the
anti-circumvention provision. It prohibits as a crime circumvention
no matter what the intent. Now record companies now getting ready to
to copy-protect CDs. Supreme Court held that time-shifting is "fair use",
so why not "space shifting" off a CD, for example, to produce a CD of
favorite songs from other CDs? Section 1201A1 is a broad overreach -
allows monopoly control by content owners. I intend to introduce
legislation to restrict 1201A1 just to where circumvention is done to
violate copyright. Issue is talked about much in the media, reflecting
more interest by the public, to make passage of bill more likely.
[Greg note: so far so good. Then he decides to jump off the deep end.]
Another area of users versus creators is business methods patents. I have
introduced a bill with Berman - we are the senior members of the IP
committee. Traditionally patents for mechanical inventions - you needed
physical manifestation. Many changes in technology since then, but
business methods too unphysical, walling-off business methods for industry
use when such patents issue [Greg note: a gross exaggeration]. Priceline
patent has proven detrimental to other companies [Greg note: another gross
exaggeration.] These types of patents are overreach. They make it
impossible for companies to compete [Greg note: a gross exaggeration].
Our bill will deny patents for simply computerizing know business practices
[Greg note: not needed except to raise donations - 103 takes care of this.]
Also we want to help the PTO get more prior art [Greg note: mostly lie -
Congress has never taken the issue of prior art problems seriously ever.],
by creating an opposition period for business method patents like the
Europeans and Japanese have for all patents [Greg note: hypocrisy - why
not have an opposition period for all US patents]. You have to go to
court now to challenge issued patents [Greg note: partly false - we have
a pseudo-opposition process independent of the courts - reexamination.]
It is RARE that patents are overturned in court [Greg note: nonsense -
didn't Lemley's data show a 50-50 kill rate in courts for patents?].
Also, all US patent applications should be prepublished at 18 months,
not just foreign filed or filing applicants.
Music over the Internet. In post-Napster world, people have expectations
that 1) there will be music downloadable to hard drives and 2) that digital
music will be portable. But there has to be reasonable fees for
compensation - public agrees with this. Record companies will have to
respond on the Internet to public's demand in light of even harder to stop
P2P systems. I don't think what the record industry is currently offering
will be enough.
We are introducing a bill to promote delivery of music over the
Internet - it allows people to make a back-up copy of downloadable music.
Important provision is non-discriminatory licensing - licensing terms
offered to one company must be offered to all other companies with the
same terms. Justice Department is interested in the activities of the
music industry [Greg note: after the Microsoft settlement, I am sure
that this interest has the music industry shaking in its boots.]
====================
The first panel was titled "Framing the great debate: what rights do we
have in out intangible creations?", with two speakers, James DeLong of
the Competitive Enterprise Institute and Prof. Tom Bell, Chapman Univ.
School of Law.
====
TOM BELL
How much IP protection should we have? Quantitative data doesn't
solely help decide the issue. I argue that a delicate balance between
public versus private interests is hard to achieve, but rather that it
will always be an indelicate political choice. IP rights are a form
of "federal welfare" programs for creators, a necessary evil.
A brief rejoinder to the natural rights argument for IP. Case law
(such as from the SUpreme Court) comments often mention that IP rights
were created by Congress, and are not natural. An extension of
Locke's labor creation defense might protect an original work, but not
the copies. Indeed, patent and copyright contradict Locke's theory
of property and personal rights. Judges, in practice, find the original
meaning of the constitution a good justification for IP rights.
Statutory failure of patents and copyrights. Patents and copyrights
provide emergency shelter to help homeless new inventions. It is an
analogy with welfare. Patents and copyrights do provide a fairly useful
solution to this problem, thus a utility defense for patents and copyrights.
Legitimacy of IP is based on real world need and use. It is hard to
measure economic impacts of patents and copyrights to optimally shape
policy. But if even if the data is there, politicians are prostitutes
(Greg note: OK, he didn't say this, but rather that politicans are paid
more to listen to lobbyists. OK, what he actually said is that politicians
pay more attention to lobbyists. You tell me why this isn't a semantic
equivalence chain). Thus an indelicate balance.
What to do? Don't use the word "property" so much - it demeans the
word, like when people say about Napster use that it is a "theft of
property" (Greg note: yes, he didn't use the words "about Napster use").
We need to prevent excessed like aspects of DMCA. (Greg note: former
Commissioner of the PTO Lehman had a much better for IP "property" -
"license to sue". Speaking of Lehman and lobbyists, apparently his
lobbyist paid off enough Congress-tutes because the House-Senate
compromise Commerce bill has million dollar funding for Lehman's IIPI
to do something pointless to help out thrid world IP. Fortunately,
someone is writing a paper showing Lehman knows less about copyright
than he does about patents, which I intend to get a copy of and send
to everyone funding Lehman - other than being obnoxious, why doesn't
anyone want to fund me :-).
We need to privatize some of these protection schemes, which is easier
to do with copyrights than patents.
====
JAMES DELONG
I agree - we need more privatization of IP, and things like DMCA are
excessive. Interestingly, there arguments on intangible IP are usually
divorced from those of tangible property. My interests in IP arose out
of the tangible property rights aspects of environmental issues (such
as the government using environmental concerns - insincerely - to take
private property). Many reasons why intangible property rights are similar.
If something takes effort to get (food, land, etc.= it is viewed as a
property historically. Russia has long not had many property rights -
and look at their misfortunes. Property rights needed for investments,
to make markets flow, to allow efficient administration. Property is a
way of diffusing power, enhances personal autonomy and power. Not easy
to define intangible property, to then decide policies. Even tangible
property (the prairies of the American West) get redefined in value
because of technology (the railroads).
Lot of opposition to intangible property (and tangible as well)
coming from academia - but why should it be free?
Fair use. Fair use arose because of high transaction costs for
copyright compensation (Greg note: i.e., does it make social sense to
write a personal check for a 1 cent royalty fee to make a copy when it
costs the bank 10 cents to process the check?). Use something like
micropayments, and there is no need for fair use (at least in the digital
world).
You have to separate free speech from free IP, they are not the same.
Napster/Gnutella a revolution in piracy to be able to destroy the
copyright system.
====================
The next panel in the morning was titled "Digital rights management,
fair use and compulsory licensing or where is copyright headed in the
post-Napster world: legal or market solutions?". Speaking were Mitch
Glazier of the RIAA, Robin Gross of the EFF, Stan Liebowitz - professor
of managerial economics, and Frank Hausmann - CEO of CenterSpan which
sells P2P software for legitimate purposes.
====
MITCH GLAZIER
Technology distribution capabilities are very intertwined with
content itself. With all of the technology changes in recent years,
it is a good time for digital rights management discussions. Some
piracy expected and tolerable to insure consumer convenience. Consumers
are fickle, so new services (such as for music delivery online) have to
be well thought out. Initially we offered same licensing rates for
electronic distribution as we did for CD-retailing. Webcasting, we
also offered similar rates for online licensing, something easier for
us to arrange because of the similarity with non-network practices
(modem lines and radio broadcasting being similar channels).
Now we are trying to offer consumers music when and where they
want iot - following in the footsteps of the greatly received, but
totally illegal test case - Napster. Now that the lawsuits are
settling some disputes, there are good grounds to start offering
subscription services. One clear constant - the consumer. We think
consumers will enjoy choosing from many services being launched.
====
ROBIN GROSS
COpyright should give artist fair return while benefitting public
desmination. Author's right is to promote learning, carefully balanced
with public's rights. Fair use is important component to public side
of rights. Supreme Court has said that not all copying is to be banned.
Hollywood's DRM provide powerful threat to fair use. Hollywood's fair
use DRM promises are not fair - they require authorization to engage in
fair use copying. Unchecked piracy is not completely true, but Hollywood
using piracy to achieve total control, even preventing entry into the
public domain. (Greg note: when will the EFF realize that maybe Hollywood
will be less anal in its' control attempts if the EFF would be less anal
in refusing to publicly concede that Napster's success was based not on
technological/business innovation but that of fostering global copyright
theft. Until then, Hollywood will wonder about EFF's integrity).
Not fair use for one side to take all the benefits but shirk all of
the responsibilities, such as the excessive DRM schemes which precent
entry into the public domain. Hollywood just sued the latest P2P
company, Morpheus, which more provides software and with less server
centralization of Napster, without Napster's copyright theft promotion
reliance (Greg note: OK, she didn't say this last clause, but if she
does get forwarded this PATNEWS and reads this section, I hope she will
notice how easy it is to say the truth at little expense to her psyche).
EFF has joined the Morpheus defense team. Industry in general is trying
to force developers to seek Hollywood's permission to develop content
access tools. Software should not be more regulated than guns (Greg note:
I admit, thowing Skylarov in jail was idiotic).
We are moving from information scarcity to information abundence, but
retaining the laws for the old conditions (Greg note: you know I wonder if
anyone in the electronic generation has ever stepped into a library, not
that anyone else in the IP world has. But "information scarcity"?
Librarians will laugh in your face if you say that to them - they have
been struggling for decades with trying to manage the physical information
abundence that does exist).
====
STAN LIEBOWITZ
I agree a bit with both previous speakers. I am concerned with
economic efficiency. Copyright owners have often cried "wolf" when facing
new technology. This time though, I think they are right with Napster,
which can harm copyright owners. If DRM can reduce much of copyright theft
combined with micropayments, that's good for everyone. For example, the
economic impact of papercopying (xeroxing) was mitigated by charging
libraries more for subscriptions (since most copying occurs at libraries,
the higher subscription fee being an unofficial license fee collection).
Same with time-shifting and affects of delayed advertising (which was
what industry greatly feared - people ignoring commercials, not people
copying TV broadcasts).
Audio cassette recordings copying handled by slightly raising prices
of records to cover copying losses. In all of these cases, you can
identify the copiers to alter the pricing schemes to compensate. But with
Napster, you can't identify original copiers to charge them more. So the
music industry is crying "wolf" correctly this time, though industry data
saying Napster caused sales losses is not backed up by analysis of such
data. Still, I think P2P will do harm, as it gets easier for non-hackers
and non-students to burn downloaded music onto CDs (Greg note: much like
biotech will do harm, as it gets easier for non-biotechers and non-PhDs
to download genetic information into kitchen-top chemical cookers).
Should pure P2P, or almost pure P2P, be shut down or tried to be shut
down? I think it is better to get a DRM that is crackable only in a
limited sense. Micropayments get you close to perfect price discrimination,
charging everyone proportional to use. Are you worried about digital
fair-use mechanisms? Fine, do what copiers did for centuries under fair
use. Get a pen or pencil to write down something off of the electronic
screen. (Greg note: a great bit of sarcasm.)
====
FRANK HAUSMANN
CenterSpan is NASDAQ listed. We have low cost high content
delivery network using P2P technology - mediated P2P. We have filed
for 17 patents, so we greatly value IP. Courts will strike a fair
balance. DRM, as a technology, can accomplish goals to make everyone
happy. We use Microsoft Media Platform's DRM technology. DRM -
Intertrust was first, creating a "Fort Knox" technology, with content
owners as their target customers. But they didn't focus on consumers
and their need for ease of use. We choose Microsoft because it is
secure, and it is consumer friendly. We are an infrastructure
company. Keep in mind that when it costs $3.99 to download a movie
over the Internet but $1.99 to rent a video, there will be low
consumer acceptance.
====================
At this point, we had lunch. The afternoon consisted of two keynote
speakers, and two more panels. The first keynote speaker was supposed
to be Senator Patrick Leahy, but he got called away, so one his chief
aides, Beryl Howell, spoke on his behalf.
BERYL HOWELL
For the copyright industry, it is the best of times and the worst
of times. Current troubles affecting IP, like patent issues involving
Cipro, make IP issues less esoteric. Good economic times for the
copyright industry - comprising 5% of the GNP. These facts Congress
takes notice of when shaping policy because it affects jobs and the
economy. They want to promote growth. Congress hears reports of piracy
losses, which provides impetus for DMCA and international treaties.
DMCA intended to promote electronic commerce of content. We
didn't specify technology, rather leaving that to industry. We did
specify anti-circumvention rules, and we tried to take the long view,
which would help consumers as well as content providers. We did
provide exceptions for things like encryption research. Indeed a
study done last year found little impact of DMCA on encryption research
(Greg note: I can agree - the prior art I have to sift through keeps on
getting bigger and bigger with encryption).
Senator Leahy is pushing an IP Protection Act to counter Supreme Court
decisions exempting states from patent and copyright infringement.
Patents and drug issues are important. Digital music file sharing
also important to Congress. Issue has many applications beyond music.
Initial threat of new technologies often prove false. Eventually
industry will find market models that are profitable and nice to
consumers. Question is how industry will make use of this technology
of P2P (Greg note: how sad, even Congress spouting this historic nonsense).
With regards to business method patents, Leahy is interested, though
we are not proposing legislation. More congressional oversight and
discussion with PTO needed first.
Question: Should DMCA be updated for new technologies that became
popular after DMCA was passed? Answer: This is always a problem when
drafting legislation. But DMCA did anticipate the problems of applying
laws to such new technologies.
Question: Did Congress anticipate the DMCA case against Felten?
Answer: We didn't expect DMCA to be used to infringe First Amendment
rights. Leahy is planning a series of Internet competition hearings
(first probably on Microsoft settlement), also on broadband as well.
Question: Applicability of DMCA to trademark infringement with cybersquatting.
Answer: Very legal question - I will have to look at the legislation.
"Notice of takedown" procedure in DMCA for copyright infringement - might
be useful for cybersquatting claims as well.
====================
The third panel was titled "Should codebreakers go to jail? The limits
of fair use and anti-circumvention." and had four panelists: Oren Kerr -
professor at George Washington University, Emery Simon - counsel for
Business Software Alliance, Julie Cohen - law professor at Georgetown,
and Mike Godwin of the Center for Democracy and Technology.
====
OWEN KERR
What would Hayek think of the DMCA? I think he would appreciate the
underpinnings of DMCA. He supported private contracting of property,
contracts which have to be enforceable. Internet technologies limit the
types of effective contract mechanisms. Paper copies easy to enforce
against agreed property contracts. Not on the Internet.
Technological problem has technological solution - access control
devices. So what's the problem? People circumventing access control
devices, which breaks down regime of private order by limiting contract
enforcement. Thus DMCA had to prevent circumvention devices. Is this
good or bad? Depends if you like Hayek's private order - if you do,
DMCA is good, otherwise bad. Though with regards to the criminal
provisions of DMCA, there have been a lot of criticisms, especially with
Skylarov's arrest. But Skylarov clearly violated provisions of the
DMCA. Is DMCA good or bad? Far too early to tell.
====
JULIE COHEN
I suspect that Hayek is spinning in his grave. DMCA asks how should
information markets work, and where will creative destruction come from.
I think DMCA addresses these questions poorly. Should codebreakers go
to jail? NO. First, DMCA anti-circumvention provisions extend IP
protection goals of the constitution by creating new IP rights. Second,
economically, copyright is to incent authors because it is easy to copy,
but these rights should be leaky to improve economic welfare. Most works
offer diffusive benefits that are not compatible with perfect control of
public uses allowed by DMCA.
Non-economically, information is not a commodity to be owned, especially
once ideas become public. So is widespread copying and sharing unfair?
Will excessive controls hurt future creativity in arts and sciences?
Publicness of information flows from decision to market the information.
DMCA reinforces private ordering with excessive sanctions. Codebreakers
should not go to jail for fighting back on behalf of future creators
(Greg note: look, Skylarov didn't make his ebook cracker available for
free to the masses, he sold it to make money - for his future comfort.)
DMCA is unconstitutional and bad public policy.
(Greg note: Once again, the excessive controls sought by industry are no
less excessive than the excessive defense of Napster by anti-DMCAers.
Until the anti-DMCAers publicly admit that Napster's success was due
solely to its reliance on promoting copyright theft (since all of its
technology and business methods were done years earlier by others), there
will be little compromise from the content industries on their desire for
excessive control. Both sides deserve criticism, and little progress will
be made on the public's behalf.)
====
EMERY SIMON
I am fascinated why DMCA is either good or evil, it is just legislation.
Limit my speech/research/freedom - (sarcasm) OOH OOH really bad. But it
is not about good or evil, but rather mismatched dialog levels, at two
levels. 1) What is a good law to protect and enable? (the academic argument).
2) What is a practical solution for the business world? Content industry
has been struggling for 20 years - it ebbs and flows. Look, there will
always be thieves everyone wants to stop. But you want to do so
conveniently for the consumer.
Cowboys were early open sourcers, roaming free with herds. Ranchers
with their fences are today's content owners. Same problem - two different
evolving economic models. (Greg note: which is fine with me, as long as I
end up with a fistful of dollars :-). Software industry has more experience
with controls and copying and has made more adjustments. Other content
industries will catch up.
P2P is good when it promotes collaborative efforts for new creation,
but bad when it promotes theft of new and old creations.
Skylarov is a sympathetic young programmer with a child arrested
by big federal police brutes (a nice Hollywood story), but he sold the
products aiding and abetting criminal acts (copyright theft). Should
he go to jail? Probably not, as jail is for really bad people. But
Skylarov wasn't a research, he sold his product, and insisted on hard
currencies - American and Euro dollars. He isn't pure. (Greg note:
there is a site for Skylarov, www.freeskylarov.org).
DMCA can work. Does it have problems? Yes. Is it evil? No.
====
MIKE GODWIN
Fears of copyright theft are overblown. Stealing music, movies,
e-books wil destroy these industries? I think not - companies with high
priced software (like Microsoft) doing fine and their products are just
as easy to copy. Balances in copyright law are being hurt by DMCA
provisions. DMCA anti-circumvention provisions don't reflect legitimate
uses available with copyright. DMCA can be fixed, but I don't see such
legislation anywhere right now. Where it is very easy to copy by everyone,
it is hard to sue them all or individuals. Rather, you shift enforcement
to other areas, like rest of the technology chain in the Internet.
====================
The second keynote speaker was John Perry Barlow, a former member of the
Greatful Dead and co-founder of the Electronic Freedom Foundation.
JOHN PERRY BARLOW
I think I can already write the history of the 21st century - a
struggle between open and closed systems. (Greg note: I would argue
that this struggle is a derivative struggle of the much-ignored
multi-century open-closed struggle between science and religion.)
Open systems breed closed systems, free markets breed monopolies. A
rapidly developing closed system is the world of media, concentrated
telecom after the telecom reform act. Five large institutions control
most entertainment, broadcast and cable media. I am not suggesting
re-regulation. Acts like DMCA give them additional control they don't
need, to levels of control that the Soviets achieved. Such power
creates a reality distortion field by the media over what people think
about. The worldview is created in Atlanta, Georgia (Greg note: home
of CNN, whose volatile finances don't reflect being a master of the
world).
Why are we willing to empower such entities, and monoliths like
Amazon.com? (Greg note: OK, he didn't say this last clause, but it
would be nice if Barlow started showing some support for local
retailing of books as well). When the principle item of commerce
(content) looks like speech, efforts to control content commerce is to
then control freedom of speech, such as Greg Aharonian's open source
Web site being sued for patent infringement to silence his criticisms
(Greg note: of course he definitely didn't say this last clause -
where are the righteous Web sites such as www.freeaharonian.org :-).
Books in e-book format have more restrictions than paper books. If we
are not going to regulate media powers, don't give them extra powers.
(Greg note: or just don't but their e-books, but rather go to a local
bookstore and buy a paper book). Ownership of ideas currently based
on industrial philosophy (scarcity of goods). But I doubt that this is
true for information economy, where there is no resource exhaustion.
Plus you get sharing of ideas.
Despite much theft of software, software industry is in the top five
industrial sectors, and rising. Initially, we at the Greatful Dead
prohibited taping of our concerts (though admittedly some of those taping
id a better job than our technicians). But we decided to give people a
break, the hippie kids, since the band wasn't making much money anyway.
Surprisingly, this decision lead to increased popularity for the band,
helping us to become the most successful concert touring band. Allowing
this copying was a good thing for the band economically (Greg note: but
this history of the Greatful Dead may be the exception of the 1970s and
1980s. Consider for example the movie, the Rocky Horror Picture Show,
which is one of the few successful midnight movies from the 1970s and
1980s. Its' success is much due to something unique it achieved -
becoming a mass audience participation movie, which few movies have
achieved since then.)
Interestingly, record sales rose as Napster use rose, and dropped
when Napster was shut down (Greg note: just think how much entertainment
industry sales would rise if we allowed gladiator battles to be fought
again). Hilary Rosen (of the RIAA) said, well the economy tanked while
these record sales were dropping. Well maybe, but the correlation
between Napster being shut down and dropped sales is tight. With regards
to videotape recorders, their availability didn't kill movies and sales
of tapes now a big income source for movie companies.
College kids don't have ethical problems with Napster philosophy,
the next generation. Do we want to criminalize such behavior, which
breed contempt for the laws (Greg note: why not, since the refusal of
people like Barlow to admit Napster's sole reliance on promoting
copyright theft for its success - breeds contempt for technology,
business and logic). So consider the longer range social impact when
extending industrial IP laws into the information era.
Coral reefs are information exchange between lots of entities.
Life grows out of energy differentials - photons, calories, etc. The
more connections the better. Same for ideas. But now five companies
are controlling information exchange (Greg note: I am sympathetic to
this criticism. I find it unethical that for all of the Salt Lake City
Olympics media coverage and sponsorship, no one in the mainstream media
has done much to highlight the undercurrents of racism in the Mormon
world and sacred texts. Bad for profits I guess.)
For example, I can't find Allen Ginsburg's works online because his
publisher strictly controls anyone doing so, which I think Ginsburg would
object to this treatment of his work (Greg note: I don't know how true
this. I did a quick google and in ten minutes found at least one site,
www.geocities.com/TimesSquare/4129/ginsburg.htm which has the text to a
bunch of Ginsburg poems).
Why do musicians sign contracts with record companies, losing all
rights and rarely being profitable for the musicians? It is because
they want to be heard, and it is the only way for them to be heard.
(Greg note: and because they want to make money.)
This control will halt the Internet becoming fertile ground for
innovation. So I ask you to consider your role as somebody's ancestor
and try not to forestall people's ability to express themselves. The
right to know is implicit in the right to speak.
Question: What should the government do?
Answer: I think the government should throw out the DMCA and the Sonny
Bony copyright extension act, and all copyright amendments in the last
four years.
Question: (this was my question) Why not form a music company to compete
with existing music companies will treating the musicians better?
Answer: The music is an interlocking business, with chain stores, and
wholesalers and distributors, making it hard to break into. For
example, a successful album takes 90 to 120 days for money from sales to
come back to the record company, but you need money to sell more records
before the first sales income comes in - a problem. There is lots of
vertical and horizontal integration to break into.
(Greg note: In short, his answer is that he doesn't believe enough in his
cause to fight this battle. Look, one of my business heroes, Herb Kelleher
of Southwest Airlines, for many years fought the good fight to break into
an industry even more interlocking and integrated than the music industry
- the airline industry. Now Southwest's stock capitalization is greater
than the aggregate of most of the other airlines. Why? Because Kelleher
and the people he hired believed strongly in what they were building and
the service they were offering to the public. Now with Barlow's wealth
and music industry friends and connections, if he was really serious about
correcting the imbalances of the music industry, he would do it the good
old fashioned American way - compete the good fight. It is an industry
with lots of money ripe for reengineering. If I had the money, I would be
doing it right now, partly make use of the Internet to break these chains,
and partly making use of things like DMCA. As one conference cracked
sarcastically:
Greg,
Re your comment on SW Airlines - a music industry critic was
laying the evil record companies rap on me and I responded:
"Why, those people are so greedy that if they could make any
money by treating artists well they would even stoop to doing
that."
)
====================
The fourth and final panel was titled "Business method patents: logical
evolution or radical break from the past?" and had four speakers:
Paul Misener - VP of policy at Amazon, Michael Nugent - now at Heller
Ehrman and formerly general counsel at Walker Digital, Peter Wayner -
author of a book on copyright and holder of a few patents, and myself
speaking last.
====
PAUL MISENER
Amazon has been grappling with business methods for two years. When
we asserted our 1-click patent against Barnes & Noble, we got lots of
complaints. Then when we got the patent on affliates selling, we got
more complaints. Jeff Bezos decided to engage in discussions with many
people, which led him to rethink his positions on IP - maybe business
method patents are different. He visited Washington to discuss these
issues. Proposed reducing the patent term - 20 years are too long.
Also suggested that they get more examination attention. We have responded
to the Internet community's complaints. So far there has been no
groundswell support for Amazon's proposals (Greg note: because most
people still think, given their naivety, that the proposals were little
more than the required corporate-fiduciary publicity stunt). We should
look at the patent laws less, and more the process of granting them.
Let's give examiners more resources to do their jobs.
====
MICHAEL NUGENT
Business method patents not much to worry about. They do fit
today's inventor needs. They reflect the changing nature of industry,
information products and services. Business method patents nothing new,
dating back the entire last century. Then there is Class 434 for
education and teaching products and methods - it is an old class, though
one could argue that these are business methods as well.
The Priceline patent was not on reverse auction, but rather on a
method to insure payment in an auction.
Are there lots of business method patents? Sure, but still a very
small percentage of all patents filed and issued. PTO giving them
special attention, which has led to higher quality.
Question: Do broad business method patents preclude competition?
Answer: Bravo if they really deserve it, otherwise narrower patents can
be worked around. (Greg note: Indeed, the Amazon judge said Barnes and
Noble had to do anything trivial beyond 1-click to avoid injunction, such
as B&N's using 2-click, which do their surprise proved quite popular).
Indeed, Priceline only temporarily discouraged competition.
====
PETER WAYNER
I am supposed to be anti- business method patents on this panel, but
I really am not opposed. I have patents as an employee of a company,
and one I did pro-se by myself to learn the system. Patents have
problems, but the system is well designed with coping mechanisms to adjust
to new technologies and their examination needs. Patents are a way for
the bureaucracy and the public to keep score.
====
GREG AHARONIAN
My comments were basically about a third of the above Greg notes,
since the other speakers on the panel summed things up quite nicely.
In general I think there are exaggerations and a lack of data on both
sides of these issues, and nothing special about these issues beyond
the regular types of political and business problems in changing times.
====================
In short, it was a nice day to spend in Washington, the speakers all
interesing. The Cato Institute will be publishing a book of all of the
speakers' papers in the spring. The conference was Webcast, so it should
still be available for playback at the Cato Web site.
====================
15 August 2001
MUSICAL MANDATES: MUST THE POP MUSIC
INDUSTRY SUBMIT TO COMPULSORY LICENSING?
www.cato.org/tech/tk/010815-tk.html
Cylde Wayne Crews
wcrews@cato.org
As famously illustrated in the Napster dispute, record companies have
been reluctant to allow consumers to download copyrighted music from
the Internet. That aversion has generated calls from Napster and other
digital media services for compulsory licensing: they want government
to force record companies to share music. Politicians such as Sen.
Orrin Hatch (R-Utah) have reluctantly warned that mandatory licensing
may be invoked as a last resort against stonewalling record companies.
A new and ominous step in this direction is the Music Online
Competition Act, introduced by Reps. Rick Boucher (D-Va.) and Chris
Cannon (R-Utah). The bill is aimed at MusicNet and pressplay, which
are competing record-company-backed consortia set up to offer their
catalogs over the Web in the coming months. MOCA represents compulsory
licensing-lite: If MusicNet or pressplay license songs to one another,
equal terms must be granted to everyone else.
The renewed embrace of forced licensing is entirely backward.
Digitization presents an opportunity, not to expand the already
extensive regime of compulsory licensing, but to move beyond it. As a
backdrop to the compulsory licensing debate, an academic dispute rages
today over whether intellectual property should be protected at all in
the digital age. But it ought to be easier to reject the idea that
politicians should take away the ability to manage one's intellectual
property through forcible sharing.
The five major record companies oppose MOCA's mandates. But
ironically, MOCA could benefit them. If widely applied to all future
licensing deals, the bill could thwart new companies that might
otherwise enter the music-making business, thus freezing today's
market structure. Regulatory interference with private licensing and
promotional arrangements could dissuade new, competing labels.
Compulsion should not be part of the mix as thousands strive to create
the "celestial jukebox" (and library and movie theater) of tomorrow.
Compulsory licensing-and the attendant regulatory price-setting-is
rooted in the idea of "market failure," the perception that it is too
difficult for scattered owners and licensees to agree on terms or to
gauge usage. But sometimes, private associations can overcome
licensing bottlenecks, as University of California, Berkeley,
professor Robert Merges has noted. Today, with electronic technologies
that make it easier to track files and communicate, compulsion is even
less defensible. Calls for compulsory licensing aren't based on market
failure in the sense of an inability of willing parties to come to
terms or to track files, but rather a desire to force unwilling
parties to relent. Adversarial lobbying frustrates what should be a
torrent of voluntary, diverse contractual business deals.
Already, 1998's Digital Millennium Copyright Act has created confusion
in at least one category of digital licensing-for Webcasters-because
of fights over royalties and terms permitted under its statutory
license. If there were no mandatory licensing in the DMCA, pressures
to negotiate genuine deals might have further advanced this market.
Few if any competitors would be panting for artificially created
markets, or forming trade associations to lobby Washington, provoking
opposition rather than partnerships.
The goal since the digital upheaval of copyright has been to get
artists and composers paid. Opposing factions agree on that, but
disagree over whether intermediaries (like record companies) should
get paid. But here especially, it's better to allow the market to work
(and perhaps even bypass the middleman as the Internet is famous for
doing) rather than risk locking in the existing order through forced
licensing merely so that agitators can get their hands on the existing
catalog of music.
Clearly there is no voice in the sky proclaiming that producers,
artists, composers, retailers, and consumers must deal with existing
record companies. If those companies' terms are as bad as many claim,
we'd be better off with a truly competitive infrastructure than with a
highly regulated version of the existing structure-even if that takes
time. Unfortunately, companies like MP3.com that could help create
that competition by focusing on tomorrow's artists and disgruntled
major-label refugees, are better known for seeking copyright
infringement immunity for hosting copies of users' music. They
directly provoked the wrath of the record companies, when emphasis on
the future might have spurred more favorable deals.
Ironically, voluntary collaborations by record companies to
cross-license digital music-which do represent a natural market
alternative to mandatory licensing-risk incurring antitrust scrutiny.
MusicNet and pressplay are now subjects of a Department of Justice
investigation of alleged monopoly power. Likewise, Boucher and Cannon
worry that MusicNet and pressplay together would own 80 percent of the
world's "music catalog," and thereby wield monopoly power over
distribution and cross-license content. But wait a minute: the
complaint of music lovers until now has been that record companies
wouldn't cross-license, which would force users to subscribe to more
than one network. (Recall that one-stop "shopping" was part of the
reason for Napster's popularity.) Why propose compulsory licensing
schemes, partly in the name of trustbusting, while suffocating
voluntary efforts that provide the universality so actively sought?
Besides, fears of an 80 percent market share are overblown. There's
little need to worry about a monopoly on entertainment, a
non-depletable good. And competitive licensing could cut that share
anyway.
In the final analysis, the foot-dragging of record companies may not
be due just to fear of "Napsterization," but the desire to wait out
broadband deployment. Most music is sold offline (at places like
Wal-Mart). That minimizes the urgency for record companies to embrace
the Web. Change will come naturally as broadband access becomes
universal, and record companies are forced to sell downloads and
streams, rather than plastic disks. Presumably that is what MusicNet
and pressplay anticipate.
But the licensing terms that define relationships in this emerging
marketplace need to evolve along with the Internet itself, not be
specified in advance by politicians. Record company reluctance to
digitize music catalogs is ultimately a transitional problem (setting
aside troublesome copy-protection issues). Government must not compel
sharing just because special interests are stamping their feet.
Otherwise, forced licensing won't likely stop with music; mandated
contracts for e-books and movies could be next.
It is pointless to set up an artificial digital marketplace grounded
in force and mistrust. Incentives for producers, composers, artists
and rights holders to distribute copyrighted materials won't always
mesh. Still, digital distribution and the market institutions it can
spawn (even "monopolistic" ones like MusicNet and pressplay) will
respond to incentives more efficiently and effectively than to
adversarial compulsory licenses. The "celestial" content of tomorrow
will be hampered if compulsory licensing discourages selective
partnerships, strategies, and competing business plans.
We should not ask Washington to coerce better deals for online content
than we might negotiate privately. Aside from the threat to
entrepreneurialism that would result, it's hard to make a case for a
right to be entertained, even in today's advanced welfare state.
Clyde Wayne Crews (wcrews@cato.org) is Director of Technology Studies
at the Cato Institute in Washington, D.C. To subscribe, or see a list
of all previous TechKnowledge articles, visit
www.cato.org/tech/tk-index.html. Also see: "When Rights Collide:
Principles to Guide the Intellectual Property Debate," Cato
TechKnowledge #10, June 4, 2001.
(c) 2001 The Cato Institute