Another Wireless Carrier Starts to Hang Up On Subsidized Phone Prices

by Rob Pegoraro on December 6, 2013

Starting Sunday, phone prices will look a little less fake in the U.S. That’s when AT&T will follow the lead of its competitor T-Mobile in offering lower prices to subscribers who bring their own phones to the carrier—and giving existing subscribers a discount if they keep their old devices once they conclude their contracts.

AT&T’s announcement of this new Mobile Share Value option on Thursday came almost a year after its far smaller rival announced that it would scrap traditional subsidized phone pricing entirely.

You could easily forgive T-Mobile for gambling on blowing up its business model in late 2012: It was the fourth carrier in what often looked like a two-carrier market. AT&T, however, is not only the second-largest carrier in the U.S. after Verizon Wireless but the company that two years ago counted on buying T-Mobile.

But T-Mo’s seemingly foolish move to give up the easy money of service charges inflated to recoup subsidies on phone prices—a loan subscribers could only close out by buying a new phone and restarting the cycle—is working. The carrier grew faster than AT&T and Sprint in its last quarter, adding more than 600,000 postpaid users while narrowing its losses.

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Spotify Tries A Little Transparency

by Rob Pegoraro on December 5, 2013

In conversations and blog posts over the future of music, Spotify has often served as a convenient punching bag.

In concept, this Swedish startup can seem to threaten the entire existing music business model by letting people stream the songs of their choice for free in return for listening to the occasional ad, or without ads or a usage cap for a small monthly fee.

In specifics, it’s left people to guess what royalties it pays to artists–with some of the most public evidence being complaints by musicians such as Thom Yorke and David Byrne about how little they made on the service.

On Monday, Spotify offered new answers to the “when did you stop beating your wife’s CD collection?” query at a site called Spotify for Artists.

The first was a reasonably clear response about what it pays. There is no one per-stream rate–how roughly 70 percent of its revenue gets distributed to rights holders varies according to such criteria as listeners’ countries, how many Spotify users paid for access and particular contracts with labels–but it averages between .6 and .84 cents per stream.

Lest you think that’s a pathetic reward–if far more than the .007 cents per-stream rate Songwriters Association of Canada president Eddie Schwartz cited from an unidentified artist’s Spotify royalty statement at the Future of Music Summit in October–a subsequent section provides anonymized examples from July 2013.

Over that month, a “niche indie album” netted $3,300, a classic-rock album $17,000 and a “breakthrough indie album” $76,000. And with 40 million paid subscribers, instead of the current 6 million, those releases would have netted $17,000, $87,000 and $380,000–but Spotify has to get those other 34 million premium users first.

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Complexities Evident in Today’s Oral Argument in Oracle v. Google

by Jonathan Band on December 4, 2013

Today, the U.S. Court of Appeals for the Federal Circuit heard oral argument in Oracle v. Google. The complexities of the case were demonstrated by the fact that the oral argument lasted an hour and a half – thirty minutes longer than the extended time the court had already allocated for the argument.

In 2010, Oracle sued Google in federal district court in San Francisco, alleging that the Android Application Program Interface (API) infringed Oracle’s copyrights and patents relating to the Java API. Oracle owned the intellectual property in Java by virtue of its acquisition of Sun Microsystems. In 2012, a jury found that Google had not infringed Oracle’s patents. With respect to the principal copyright claim, Judge Alsup ruled that the elements of the Java API copied by Google – the method headers (a line or two of code at the beginning of each subroutine) and the organization of 37 Java API packages – were not protected by copyright under 17 U.S.C. § 102(b).

Oracle appealed to the Federal Circuit, asserting that Judge Alsup had erred by holding that the copied API elements were unprotectable methods of operation. Oracle further argued that Judge Alsup incorrectly found that program elements necessary for interoperability were not protected by copyright. Finally, Oracle asserted that Google had copied elements of the Java APIs not for the purpose of achieving interoperability, but rather to attract the community of  Java developers to the Android platform.

CCIA filed an amicus brief in support of Google, arguing that over the past 25 years, U.S. courts, Congress, and jurisdictions around the world have arrived at a consensus that copyright protection does not extend to program elements, including interface specifications, necessary for achieving interoperability. In the judicial and legislative battles that resulted in this consensus, both Sun Microsystem and Oracle consistently had supported the pro-interoperability position, until Oracle reversed itself in this case.

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2013 Brought Major Fair Use Wins for Tech, Entertainment

by Matt Schruers on December 4, 2013

The Oracle v. Google case goes before the Federal Circuit on appeal today (stay tuned for a first take of the oral argument here on DisCo).  Although the specific issue on appeal is the copyrightability of APIs, the question of copyright fair use has figured prominently in that dispute, as well as numerous other significant copyright cases this year.  In fact, 2013 has shaped up to be an important year for fair use and Section 107 of the U.S. Copyright Act, with both tech sector and entertainment industry constituencies scoring impressive fair use wins.  Arguably, these victories have strengthened the doctrine.

On the tech side, victors have included the DISH Hopper and Google.  Film and theatre litigants have prevailed in prominent fair use defenses as well — inconveniently timed, it turns out, as motion picture industry interests have actively resisted the fair use doctrine in Australia even as it is being successfully invoked in U.S. courts.  This post provides a chronological review of some of the more significant fair use decisions in 2013.

The Year in Fair Use

In a March decision that may have set the tone for the year, SOFA Entertainment v. Dodger Productions, 709 F.3d 1273 (9th Cir. 2013), the Ninth Circuit demolished the plaintiff’s arguments in a case involving a 7-second clip from a 1966 episode of The Ed Sullivan Show.  The clip, which depicts Ed Sullivan introducing the Four Seasons musical act, was used in the Broadway musical about the Four Seasons, Jersey Boys.  SOFA Entertainment, who owned rights to the show, sued the musical production company Dodger over the seven-second use.

Quoting and citing several Supreme Court decisions, the Ninth Circuit summarized fair use thusly:

The Copyright Act exists “‘to stimulate artistic creativity for the general public good.’” It does so by granting authors a “special reward” in the form of a limited monopoly over their works. However, an overzealous monopolist can use his copyright to stamp out the very creativity that the Act seeks to ignite. To avoid that perverse result, Congress codified the doctrine of fair use.

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How One Local Cable Monopoly Can Compete With Another

by Rob Pegoraro on November 26, 2013

Last Friday brought reports that Comcast had begun seeking counsel on the finer points of it possibly buying Time Warner Cable.

Comcast is the biggest cable operator in the United States and TWC is the second-biggest. And yet you could forgive an individual subscriber for saying “who cares?” — in most markets, one cable firm has a 100 percent share of the market for cable TV.

Giant firms like Comcast and TWC were built on locally-granted monopolies, and the 1990s dream of small “overbuilder” cable franchises providing direct competition to incumbents like Comcast and TWC dimmed and died years ago as the expansions of firms like RCN slowed and stopped.

Cable still has to contend with satellite and fiber-optic services, plus the more existential threat of cord-cutters switching to Internet streaming and over-the-air broadcasts. In the third quarter, cable operators lost 687,000 subscribers, leaving the subscription-TV business down 113,000 after gains by cable rivals.

But Comcast engulfing TWC — or carving it up with another cable firm, possible Charter Communications — would not add or subtract pay-TV choices in any of those firms’ markets.

Indeed, the big cable operators not only seem resolutely uninterested in poaching on each other’s territory, they’re sufficiently comfortable with one another’s company to give everybody else’s customers free access to their own WiFi.

But even companies that face no direct threat from each other can still take different paths in the market that, in turn, open or close other possibilities.

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OTT Disruption: Is the “Rockefeller Bill” the Answer?

by Glenn Manishin on November 25, 2013

We spend a fair amount of time at DisCo discussing how political, legal and regulatory processes in the United States are largely biased against disruptive innovators in favor of legacy incumbents. That’s typically just as true for Uber and its ride-hailing competitors as it is for Aereo, Hulu, Netflix and other streaming video — or over the top (“OTT”) — Internet television services. But perhaps no longer.

The Consumer Choice in Online Video Act (S.1680), introduced by Sen. Jay Rockefeller, chairman of the Senate Commerce Committee, aims to change things. The legislation’s stated objectives are to “give online video companies baseline protections so they can more effectively compete in order to bring lower prices and more choice to consumers eager for new video options” and to “prevent the anticompetitive practices that hamper the growth of online video distributors.” It does so by (a) requiring television content owners to negotiate Internet carriage arrangements with OTT providers in good faith, (b) guaranteeing such firms reasonable access to video programming by limiting the use of contractual provisions that harm the growth of online video competition, and (c) empowering the FCC to craft regulations governing the program access interface between online providers and traditional television networks and studios.

S.1680 is a remarkable legislative effort to predict where the nascent online programming market is headed. It anticipates that in order to fulfill their competitive potential, OTT video entrants will require similar legal protections to what satellite television providers have for years enjoyed. The bill applies the program access model developed several decades ago for satellite television to the new world of OTT video.

As Rockefeller explained:

[He] has watched as the Internet has revolutionized many aspects of American life, from the economy, to health care, to education. It has proven to be a disruptive and transformative technology, and it has forever changed the way Americans live their lives. Consumers now use the Internet, for example, to purchase airline tickets, to reserve rental cars and hotel rooms, to do their holiday shopping. The Internet gives consumers the ability to identify prices and choices and offers an endless supply of competitive offerings that strive to meet individual consumer’s needs.

But that type of choice — with full transparency and real competition — has not been fully realized in today’s video marketplace. Rockefeller’s bill addresses this problem by promoting that transparency and choice. It addresses the core policy question of how to nurture new technologies and services, and make sure incumbents cannot simply perpetuate the status quo of ever-increasing bills and limited choice through exercise of their market power.

Modeled explicitly on the controversial 1992 Cable Act (which itself passed only over a presidential veto), S.1680 appears to be the first piece of legislation embracing disruption as a procompetiitive form of market evolution, including as its initial congressional “finding” that OTT services have the potential to “disrupt the traditional multichannel video distribution marketplace.” That’s excellent. At the same time, the bill’s choice of solution is contentious, by subjecting vertically integrated cable and television providers (e.g., Comcast-NBCu) to another regime of program access and retransmission mandates. The legal standard fashioned for testing the validity of a television distribution contract in S.1680 is whether it “substantially deters the development of an online video distribution alternative.” Given the highly visible retransmission disputes that have arisen in recent months, such as the Tennis Channel and CBS, plus the lack of evidence that vertical integration in fact provides an incentive for exclusive dealing and content foreclosure, free market advocates are likely to object to this. Proponents of net neutrality rules, especially where data caps are concerned, have already spoken out in support.

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Promising Signs For Smarter Wireless: Better Cheap Phones, Smoother WiFi Substitution

by Rob Pegoraro on November 22, 2013

I have a crazy request for the wireless industry: I want to see the carriers provide a fast, reliable signal to my phone–and not much else.

I don’t need a wireless carrier to pick my phone for me, any more than I need my Internet provider to sell me a laptop. And if they can provide quicker, cheaper service over WiFi instead of leased mobile-broadband frequencies, even going as far as transmitting voice calling and text messaging as packets of data, that’s fine with me too.

A couple of recent developments suggest the wireless business’s slow movement away from its locked-down status quo is picking up speed.

One is the increasing quantity and quality of budget-priced phones. When T-Mobile announced almost a year ago that it would switch to unsubsidized pricing, my hope at the time was that a service that didn’t punish people who brought their own phones would goose the market for manufacturers selling directly to customers.

I can’t say the unlocked, unsubsidized business has blown up since then. But it is getting busier. With the Lumia 520, Nokia has built a good entry-level Windows Phone device that goes for only $100 and change; in the $300-and-up range, Google’s Nexus 4 (my own phone) and the new Nexus 5 compete effectively with smartphones that sell for twice as much.

And in January, Google’s Motorola subsidiary plans to ship the Moto G Android phone for only $179 unlocked. That’s an attention-getting price even compared to the fake, subsidized numbers you see in ads and some news stories.

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I Don’t Think That Means What You Think It Means, Part II

by Jonathan Band on November 22, 2013

As DisCo has previously reported, it’s not uncommon for copyright-related studies to be mischaracterized, even by their own sponsors.  The report and the accompanying press release just issued by the International Intellectual Property Alliance (IIPA) demonstrate another example of this.

The report, prepared by Stephen Siwek of Economists Incorporated, finds that the value added of the “core” copyright industries to Gross Domestic Product in 2012 exceeded $1 trillion dollars. The report itself does not in any way attribute the success of these industries to copyright protection. It simply states the contribution to the U.S. economy of industries whose primary business is to create, produce, distribute, or exhibit copyright materials.

The press release, on the other hand, has the following title: “Copyright Contributes $1 Trillion to the U.S. Economy.” Not “copyright industries,” just “copyright.” The press release then proceeds to assert conclusions not contained in the report. A lawyer affiliated with IIPA states that “In order to preserve and enhance jobs, exports and economic contributions, it is critical that we have strong legal protections for U.S. creativity and innovation in the U.S. and abroad.” The lawyer adds that “To foster continued growth of this dynamic sector, we need strong and modern copyright laws that take into account changes in technology and the continuing harm caused by copyright piracy, especially as legitimate digital distributors continue to emerge. Vigorous enforcement of those laws is also critical to ongoing efforts to create and preserve good U.S. jobs, reduce persistent trade deficits, and foster durable economic growth.”

To be sure, the copyright industries contribute significantly to the U.S. economy (although as the report shows, the exports of the software industry are three times larger than the rest of the copyright industries combined). But the press release just assumes without basis that to “preserve and enhance” these contributions, strong legal protections are necessary. Further, the press release asserts without foundation that “strong and modern copyright laws” and “vigorous enforcement of those laws” are critical to fostering continued growth of this sector.

Without doubt, copyright protection does play a role in the success of these industries. However, the exceptions and limitations to copyright also play a role in the success of these industries, and many others to boot. Contrary to the IIPA press release, the Siwek report itself provides no copyright policy prescriptions for Congress or trade negotiators.

Jonathan Band is a DC-based attorney whose clients include Internet companies, providers of information technology, universities, library associations, and CCIA.  He previously guest-posted on DisCo about the changing textbook industry.

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Disruptive Competition Policy Forum – December 10 in Washington, DC

by Daniel O'Connor on November 21, 2013

CCIA launched DisCo (the Disruptive Competition Project) almost a year and a half ago; our first post was June 1, 2012.  Since then, the project has grown, and we’re excited about all of the interesting news and views we’ve had to share with you.

And DisCo is now more than just a blog; we’re having our first event next month, the DisCo Policy Forum 2013, featuring speakers on a lot of the topics we frequently cover.  Please join us in person as we explore several topics, including local restraints on Internet-enabled competition, data policy and 21st century copyright.

The agenda is below.  RSVP on Eventbrite.  (There’s also a Facebook event; invite your friends!)

DISCO POLICY FORUM 2013

Tuesday, December 10th

Arent Fox LLP, 1717 K Street NW

9:45am: Registration Opens

 

10:15am: Welcome, Opening Remarks

Featuring: Stephanie Joyce, Partner, Arent Fox LLP

10:30am: Policymaker Keynote Address

Featuring: Joshua Wright, Commissioner, Federal Trade Commission

11:15am: “Breaking Barriers to Internet-enabled Competition”

The Internet has been a game changer for the average consumer. Its ubiquity and malleability empower entrepreneurs and enhance consumer choice by expanding markets and connecting producers and consumers from all over the world. However, it also displaces traditional middlemen and reshapes markets in ways that have engendered political pushback from traditional incumbents. In this panel, we hope to discuss this trend and policy responses, including the FTC’s recent advocacy focused on anticompetitive local regulations.

Featuring:

  • Jim Chen, VP of Regulatory Affairs and Associate General Counsel, Tesla Motors, Inc.
  • Michael McGeary, Co-Founder and Chief Political Strategist, Engine Advocacy
  • Corey Owens, Head of Public Policy, Uber
  • Patrick Roach, Attorney-Advisor, Office of Policy Planning, FTC
  • Chris Sagers, Law Professor, Cleveland-Marshall College of Law & Advisory Board Member, American Antitrust Institute

12:15pm: Lunch

 

1:15pm: Q&A with Rep Jared Polis (D-Co.)

Moderated by: Rob Pegoraro

1:45pm: “Planning our Data Future: Privacy and Innovation in the 21st Century”

Declining data storage prices, ubiquitous broadband connections and advances in analytical capability have sparked an economic and technological boom over the last couple of years. In fact, advances in data processing and analytics are at the heart of many of the most cutting-edge disruptive technologies and business models. As policymakers and trade negotiators across the world grapple with the 21st century data rules of the road, this panel will discuss not only how these technologies are changing the world around us, but also how lawmakers and regulators should approach these technological advances.

Featuring:

  • John Boswell, SVP, Chief Legal Officer and Corporate Secretary, SAS
  • Josh Galper, Chief Policy Officer and General Counsel, Personal, Inc.
  • Ross Schulman, Public Policy & Regulatory Counsel, CCIA
  • Adam Thierer, Senior Research Fellow, Mercatus Center

3:00pm: “Cutting Edge Commerce and Copyright”

Reflecting the persistent friction between copyright and modern technology, Congress is again contemplating copyright legislation. Increasingly, copyright functions in a regulatory manner, instead of a well-ordered system of property rights. It is timely to discuss how new products and services navigate the uncertain rights and the ever-present threat of litigation in order to bring consumers what they want.

Featuring:

  • Marvin Ammori, Principal, The Ammori Group (counsel to companies including Automattic)
  • Michael Carrier, Professor, Rutgers School of Law
  • Michael Masnick, Founder and CEO, Floor 64
  • John Ossenmacher, CEO, ReDigi

4:15pm: Industry Keynote Address

Featuring: Chet Kanojia, Founder and CEO of Aereo, Inc.

5:00pm: Post-Event Networking Reception

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The Changing Textbook Industry

by Jonathan Band on November 21, 2013

The Internet is transforming the $14 billion U.S. textbook industry. Although this market represents only 1% of overall education spending, the changes brought by the Internet could result in significant improvements in the quality of education as well as cost savings. Legislation introduced on November 14, 2013 by Senators Durbin and Franken would accelerate this process.

The textbook industry is divided into two sectors of roughly equal size: K-12 and higher education. Three publishers, Pearson, Houghton Mifflin Harcourt, and McGraw-Hill Education, control the majority of the K-12 market. Pearson, McGraw-Hill Education, Cengage, and Wiley dominate the higher education market.

According to the Bureau of Labor Statistics, the price of textbooks has risen more than 800% over the past 30 years, a rate faster than medical services (575%), new home prices (325%), and the consumer price index (250%). The average college student spends more than $900 a year on textbooks. Not surprisingly, textbook publishers have been highly profitable. In 2012, McGraw-Hill’s profit margin was 25%; Wiley’s was 15%; and Pearson’s was 10%. Moreover, the profit margin of firms in the publishing sector increased on average by 2.5% between 2003 and 2012.

The Internet, however, has begun to disrupt this market. First, the Internet has facilitated the purchase and rental of used textbooks. Although publishers have long had to compete with the sale of used textbooks at on-campus bookstores, online platforms such as Amazon and Half.com (owned by eBay) enable the selling of books between students at different institutions. This is particularly helpful when one institution has adopted a new edition of a textbook, while another institution is still using an older edition.

Moreover, the Internet has facilitated the renting of textbooks. Companies such as Chegg and Amazon allow the rental of textbooks for periods between 30 and 180 days, at a discount from the purchase price. While the publisher collects revenue from the first sale of the book, the subsequent rentals could deprive the publisher of additional sales of new copies.

This use of the scale of the Internet to achieve a more efficient allocation of surplus resources is similar to other online services, such as Airbnb, eBay, and RelayRides.

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