TTIP: Time to Trade Up

by Ryan Heath on March 6, 2015

Trade across the seas dates back thousands of years, and trade deals nearly as long. Since the 17th century those deals have been brokered in secret by nation states; processes that no longer seem appropriate in the digital age.

Unsurprisingly, governments are struggling to keep up with how the internet has upended trade negotiations. Internet communities not only stopped the proposed Anti-Counterfeiting Trade Agreement in 2012, in 2015 most of organizing and coalition-building against TTIP – the proposed Transatlantic Trade and Investment Partnership – is also taking place online.

Researcher Matthias Bauer, for example, has found that 85 per cent of all TTIP-related positions in German online media are originally authored and spread by anti-TTIP groups. Germans and others are bombarded with opinions that TTIP is about lowering standards, privatizing public services and leaving Europeans at the mercy of voracious American multinationals. Some are happy to blur the lines between effects of trade and globalization, or prone to use anger at mass-surveillance as a reason to rule out such deals before they are drafted.

In this environment little credit is given to the European Commission for its efforts to increase transparency. This frustrates the Commission, while many activists consider it a case of ‘too little, too late.’ Putting the big P politics aside for a moment, it seems that one reason for the indifference from stakeholders is that the extra transparency is so insignificant when taken out of its specific trade negotiation context. Isn’t transparency what we expect of every leader and company today?

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VulcanSaluteCopyrightWhat does Leonard Nimoy’s “Vulcan salute” have to do with European newspaper headlines? They both might one day be regulated by new international intellectual property rules, if some have their way. One might think that what constitutes “intellectual property” is set in stone, but it isn’t.  Around the world, different interests are lobbying for governments to create new types of intellectual property all the time.

As DisCo has covered before, news publishers in Europe and elsewhere are currently pushing for the creation of new IP rights in newspaper headlines, so that online sites can be forced to pay for the privilege of quoting or linking to news coverage. Spain and Germany have already created these rights, and there is pressure in Brussels for a pan-European rule.

At the same time, for more than a decade there have been efforts within the World Intellectual Property Organization to create rights in “traditional cultural expression” (which, as explained below, may include the hand gesture on which Leonard Nimoy based the Vulcan salute). Some indigenous communities are distressed about the commercial exploitation of their folklore and other forms of cultural expression by “outside” entities. In a desire to (a) prevent uses that they believe are disparaging and (b) regain control over an important part of their identity, these communities have lobbied for a treaty that would require the creation of intellectual property rights in “traditional cultural expression.”

Concerns have been raised about the scope of the draft treaty. If adopted in its current form, critics say, the treaty could interfere with cultural life around the world, pulling out of the public domain material that is incorporated in countless novels, paintings, films, sculptures, operas, and other musical compositions. This is because these works are based on stories, legends, dances, rituals and other forms of expression that the treaty could protect without a limitation on term.

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This article explains how the ‘essential facilities’ concept in competition law can hardly be applied to online platforms. Online platforms can be very useful, but they are not ‘essential’ to other businesses.

As mentioned in James’ recent post on Europe’s policy debate around the concept of ‘platform neutrality’, online companies are increasingly becoming a discussion point for European regulators. Given the political nature of this process, it is more accurate to say that it’s primarily politicians who call for more regulation of online platforms. The best example is a common French-German letter signed by government representatives of both countries voicing concern about competition in the digital economy. The addressee of this letter is the new European political leadership gathered in the European Commission.

The interesting bit in this debate is how openly both governments mingle established concepts found in competition law with an ex ante regulatory agenda. Accordingly, the French-German letter talks about digital platforms becoming “essential intermediaries” or “gateways” for the provision of services and digital content. The two governments call on the Commission to organise a public consultation on the appropriate regulatory framework for “essential platforms”. The letter’s accompanying ‘non-paper’ goes into greater depth by pointing out that defining “essential” in congruence with the classic definition of an “essential facility” must be part of the debate.

The last point really is the crux of the matter. If one wants to define “essential” in congruence with the competition law concept of “essential facility”, one has to look at the Commission’s enforcement history and at the European Courts’ jurisprudence. Which online company could in theory meet this legal standard? Could the highly competitive and diversified online environment ever produce a digital essential facility?

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Last week, the House of Representatives adopted two inconsistent amendments to the Student Success Act, H.R. 5, the legislation reauthorizing the No Child Left Behind Act. The amendments are relevant to the topics we explore here because they illustrate different responses to the manner in which the Internet has changed education. One amendment, sponsored by Congressman Jared Polis (D-CO), would allow state agencies to use federal grants to develop open access textbooks and open educational resources. The other amendment, sponsored by Congressman Hakeem Jeffries (D-NY), would allow state agencies to use federal grants to develop educational materials for teachers, parents, and students “about the harms of copyright piracy.” The Polis amendment is forward looking and would introduce more competition and innovation in the K-12 textbook market. The Jeffries amendment is essentially a redundant subsidy for media companies’ advocacy efforts.

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Last week the American University Intellectual Property Brief hosted a symposium on 3D Printing at American University Washington College of Law (a topic previously examined in a variety of DisCo posts [1], [2], [3]). The speakers discussed many of the dominant policy and legal implications presented by this new technology.

The opening keynote speaker, Michael Weinberg of Public Knowledge, forecast some of the particular issues that the technology was sure to present. He began “3D printing is going to create legal and policy questions, to put it nicely; a lot of lawsuits to put it not so nicely.”  One of his main concerns was that people may begin to assume IP rights exist in objects where none may exist. He stated “the masses are now coming to patent,” and that the patent world should take note after watching their copyright counterparts “squirm” over very similar issues throughout the past decade. He warned against imposing copyright concepts concerning protectability onto patent, and that people should not inherently move to licensing when “maybe they don’t have to license at all.”

When Michael Carroll, the Director of the Program on Information Justice and Intellectual Property at WCL, introduced the first panel he stated from an IP perspective 3D printing was “Napster for patents.” Weinberg had earlier stated that “the lesson from recent history is the way you make money and succeed is to be the first person or first couple of people to come to terms with this new disruption.” He found the the best fiscal approach for companies moving forward might be to embrace the technology rather than file lawsuits. These statements forewarn against subjecting this new technology to the same knee-jerk overprotective reactions that new disruptive technologies have faced in the past. By embracing a more complacent and accepting approach all sides may be able to avoid costly litigation and prosper.

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The need for innovation and start-up cultures is a given in the tech world: tech companies that don’t innovate don’t last very long. Outside this environment many companies and governments prefer to paint themselves as victims of the intense changes wrought by Internet and high technology. These parallel cultures mean most companies, and especially governments, find it hard to disrupt themselves (examples like gov.uk are relatively few). Where many governments fight innovations, Estonia decided to embrace them.

In this small Northern European state, the government is fostering a start-up culture and marrying it with radical administrative disruption. The President is a geek and the job of the few bureaucrats that exist is to exploit the dynamic forces of private competition. Here digital technology breeds opportunity and jobs instead of chafing against red tape.

You’ve undoubtedly heard about Skype; perhaps Estonia’s 13 year old eID system is a flicker in your memory. But are there shared ingredients? Can it be copied?

The first ingredient is hard to copy. Estonia has a population of 1.3 million – a close-knit community half the size of Brooklyn, which is easier to shape than a decentralized Germany or a mammoth United States.

The second is a historical legacy of both tech and direct action. The Soviet Union’s Institute of Cybernetics (still running today) was founded in the Estonian capital Tallinn in 1960. It’s no coincidence that the parents of some of Skype’s founders worked there or that its headquarters is next door. Meanwhile citizens each year participate in “Let’s Do It” day – banding together to fix things in their community with their own hands.

That’s related to the third ingredient, the #EstonianMafia start-up scene – where names like Toggl and GrabCad are racing to be the next TransferWise.

But it’s the fourth ingredient that matters most: partnerships for achieving scale.

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The past few weeks have led to some interesting, and sometimes hilarious, news at the intersection of entertainment and IP. In case you missed it, Taylor Swift and Katy Perry may have bad blood in real life, but they seem to be aligned in their fierce IP enforcement strategy. Taylor Swift recently applied for several trademarks for lyrics from her recent album on various classes of goods. And even more recently, her fans have been receiving cease and desist letters on Etsy as she begins to claim these marks as her own. Katy Perry’s attorneys have sent a cease and desist to a man who is selling a 3D printed “Left Shark” model of Perry’s now famous background dancer from the Superbowl who had two left feet. There have since been a flurry of responses and claims in which Perry’s attorneys claimed several causes of action including copyright as well as misappropriation. The attorneys even filed a trademark for Left Shark, which they later abandoned (likely because they used a picture of the 3D sculpture, rather than the costume), but then instead of giving up they then filed several more with a new picture in the application.

These controversies have led to some really interesting questions on hot topics like 3D printing and how IP rights will be affected (a subject addressed in the space before). However, they also spark some other questions about the intersection of copyright and trademark protections and where the lines can get fuzzy. Can a musician use trademark law to protect otherwise uncopyrightable subject matter? There have been several articles discussing how costumes are not copyrightable, and it is well known that words and short phrases alone aren’t either. However, it appears these artists are reaching beyond the bounds of copyright to assert trademark rights in things that copyright has traditionally left unprotected. Left Shark, for example, derives much of its value not from its link to Katy Perry but its place as a cultural phenomenon created by the internet. In Swift’s case, she wrote the simple phrases “this sick beat” or “party like it’s 1989” in her lyrics to convey her artistic expression, not to market her brand.

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Jon Stewart’s announcement on February 10 that he will be retiring from The Daily Show later this year has been met with tributes to his comic genius and his impact on political discourse. But these tributes have overlooked the legal doctrine that has enabled Stewart to be so effective: fair use. (This is my second post this week about the importance of fair use to popular culture; on Tuesday I wrote about how the Fifty Shades of Grey trilogy was first written as fair use-dependent fan fiction based on the Twilight vampire series.)

Stewart’s most powerful critiques result from his juxtaposing clips of politicians and commentators on news broadcasts to demonstrate their hypocrisy. He’ll contrast a clip of a Fox News commentator expressing outrage at President Obama taking a particular action with a clip of the same commentator praising President Bush for taking a similar same action. Stewart also uses montages of clips from CNN and other news networks to demonstrate their simultaneously sensationalistic and superficial coverage of disasters and trials. But for fair use, Stewart’s rebroadcast of these clips would be willful copyright infringement, subject to statutory damages of up to $150,000 per clip.

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Last Wednesday, the White House released a report on “Big Data and Differential Pricing.”  The reason you have probably not heard much about it is that it was about as exciting as an Economics 201 lecture.  If you have heard about it (and you are not tenured faculty in an economics department), you may have meandered across an article such as this one, whose headline seems to imply that there is a problem that regulators need to solve.

However, if you take time to read the report, the conclusions (to the extent there are conclusions) are far more balanced and restrained.  In fact, the report notes that price differentiation is not widespread, usually beneficial, and certainly not unique to the online world.  Where differentiation is potentially problematic (not necessarily for economic reasons, but for matters of “fairness”) is in risk-based pricing markets (such as insurance, employment or credit-issuance).  But in risk-based markets, the takeaways are not unidirectional either.  In these scenarios, differential pricing is often a good thing, as it can discourage risky behavior upfront (and guard against adverse selection).  Indeed, the report recognized these types of benefits.  For example, if health insurance companies offer lower rates to non-smokers or generally healthy individuals who eat-well or exercise regularly, this can encourage healthy behavior upfront.  The report recognizes other benefits as well, such as expanding output.  To again use the health insurance market as an example, if health insurers couldn’t differentiate pricing and had to offer uniform prices, those who engage in risky behavior (e.g. smoking) would be forced to subsidize those who engage in non-risky behavior, causing fewer low-risk individuals to purchase health care plans.  Even in non-risked-based markets, differential pricing often leads to more efficient outcomes (particularly in high-fixed cost markets).

Real problems can arise when factors outside one’s control (genetic predispositions) or protected classes (race, sex, age, sexual orientation, etc.) are used to directly disadvantage consumers.  However, these problems are not unique to the online/big data world, and — as the report points out — antidiscrimination provisions of existing laws (such as the Fair Credit Reporting Act and the Civil Rights Act) already apply in these situations.

Nevertheless, some voice Orwellian fears that Internet-enabled big data might allow sellers to more precisely gauge individuals’ willingness to pay, thus transferring wealth (i.e. “surpluses” in economic terms) to producers.  This is “first degree” or “perfect” price discrimination in economic textbooks, which is hardly elaborated upon outside of theoretical models because it is virtually impossible in the real world, and — despite overblown concerns — still nearly impossible in the online world as well.

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A Neutral Economy?

by James Waterworth on February 12, 2015

It isn’t always necessary for catchy phrases to have a clear meaning, after all poetry as an art form depends on beauty and a certain mystery. Mario Cuomo famously quipped that in politics ‘You campaign in poetry; you govern in prose’. While there is much merit in this claim, the poetry must lead you in the right direction otherwise the outcomes will not be what has been claimed.

This is the case with the current European debate about “platform neutrality”: a seductive phrase, but with a true meaning few have considered.

The most recent winner of the Nobel Prize for Economics, Jean Tirole, has written extensively about ‘platforms’ or two-sided markets. Such markets include newspapers, shopping centres, estate agencies, video games, credit cards, TV networks and many more.  A market is two-sided when it brings together two-distinct groups, through a platform or intermediary, that benefit from each others’ existence.  Ebay buyers benefit from having more sellers (and sellers benefit from more buyers), stores in shopping malls benefit from more shoppers and shoppers benefit from more stores, and Xbox video game developers benefit from more Xbox owners (and vice versa).  The company the creates the platform (whether it is a online website, the seller of a video game platform, or the owner of a shopping mall) makes money by creating value for the other parties in the system.

The platform company often creates (or facilitates) a market. What is notable is that the “platform neutrality” discussion doesn’t recognize, as Tirole does, that these situations occur throughout the entire economy. As Tirole notes, “[m]any if not most markets with network externalities are two-sided.”  Instead, the “platform neutrality” debate only focuses on famous online platforms such as Apple, Allegro, Amazon, eBay, Facebook, Google, etc, and fails to recognize that these platforms are not unique to the online world.

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