Reich’s Attack on Tech is Short on Facts, Law
There’s no sense in beating around the bush: Robert Reich’s NYT editorial on Friday, “Big Tech Has Become Way Too Powerful” indicates that when it comes to intellectual property (IP) and antitrust law, he doesn’t know what he’s talking about. This isn’t a normative critique of Reich’s antitrust views, but rather an objective assessment of Reich’s limited grasp of the basic facts and law here.
The thrust of Reich’s argument is that large Internet platforms are misusing intellectual property rights to maintain unfair advantages in the marketplace, and this needs to be reined in. He begins with the premise that the “most contested policy issue” in regulating Internet platforms is intellectual property, and that “information and ideas are the most valuable forms of property.”
Quite simply, Reich doesn’t know what intellectual property is. Neither information nor ideas are — in themselves — IP. Ideas have to be “reduced to practice,” which may earn you a patent, or expressed in a work of authorship, which will get you a copyright. Mere ‘information’ doesn’t qualify for either. (Closely held information might rise to acquire trade secret protection, but Reich doesn’t consider that.) More to the point, Reich incorrectly states “without government decisions over what [intellectual property] is, and who can own it and on what terms, the new economy could not exist.”
While Reich is correct that governments define the boundaries of intellectual property, the relationship between IP and the new economy is not what Reich thinks. He suggests that the temporary monopolies granted by the U.S. Government in the form of IP rights are the secret to U.S. Internet platforms’ historic success. They’re not. If there’s any lesson to take away from Internet competition, it is that openness, not exclusion, characterizes the historic successes of the Internet. The growth of the Internet is often attributed to the fact that Internet pioneers made conscious decisions not to claim IP rights in their respective contributions. Today, anyone can enter an Internet market, and competition is always a click away. Highly successful Internet platforms aren’t maintaining their market positions by enforcing their government-granted rights to exclude the competition. Instead, they’re providing compelling services open to all, upon which others may build and innovate, which are in many cases free to the user.
In fact, anyone following intellectual property politics for the last 10 years would know that the Internet industry has been at the forefront of efforts to reform a widely criticized, out-of-control patent system and an imbalanced copyright system — with limited success due to entrenched opposition from more politically seasoned sectors like Hollywood and Pharma. On many days, headlines in the New York Times will frame the relationship between IP and the Internet sectors as a fractious, often adversarial one. Yet reading Reich would leave you thinking that Internet platforms are in the Church of St. Patent, praying the rosary to Our Lady of Perpetual Copyright Term Extension.
The patent strategies that Reich complains about —
(a) “making small improvements warranting new patents, effectively making their intellectual property semipermanent” (Reich’s description of evergreening, an IP strategy historically associated more with pharmaceuticals, but nevermind), and
(b) vaguely worded patents designed to “lay claim to whole terrains of potential innovation including ideas barely on drawing boards” (Reich’s attempt to describe ‘functional claiming’) — are phenomena that the tech and Internet sectors have criticized as contributing to litigation and demonstrating the need for reform.
This is why, as Reich observes, tech companies are spending prodigiously on patents, trying to keep vague patents out of the hands of non-producing patent trolls whose litigation strategies cost the economy billions each year. (I’m not the first to think that it might have occurred to Reich that his worrying about pricey patent purchases is in tension with his bare assertion that “the patent system is crucial to innovation.”) The good news is, if Reich wants to rein in patent abuses, he is likely to find the targets of his critique in violent agreement.
Upon this shaky discussion of intellectual property, Reich sets out his antitrust prescriptions. Unfortunately, his grasp of the relevant facts here is just as dubious. For example, after citing Amazon’s popularity as a proxy for its market power, Reich urges more interventionist government policy because when “markets become concentrated, consumers end up paying more.” Reich couldn’t pick a worse example than Amazon. The disjointed antitrust volleys leveled at Amazon (from the heavily concentrated publishing industry, no less) actually revolve around theories that Amazon keeps the prices consumers pay too low. (And note that in this situation, Reich’s hand-picked example, Amazon is not licensing out IP, which was the initial thrust of his column.)
In this general context, Reich’s casual dismissal of the idea that the American economy is “bubbling with innovative small companies” (and is instead dominated by Internet platforms, he thinks) is out of sync with the fact that the number of published books (and published authors) has drastically increased since ebooks took off, largely because the Internet marketplaces like Amazon have disrupted the traditional gatekeepers of the written word. This phenomenon, unsurprisingly to followers of competition law and economics, has been a boon for consumers and authors alike.
Reich also botches the baseline facts in regard to the Federal Trade Commission. In recycling the tired charge that the the agency let Google off the hook and did not follow the recommendations of its Bureau of Competition to bring an antitrust suit against the company, he states that “[i]t’s unusual for commissioners not to accept staff recommendations”. He fails to note that the FTC did in fact follow staff recommendations: that of the FTC’s Bureau of Economists, which recommended not bringing a case. And the FTC’s decision to side with the Economists over the Competition bureau was anything but “unusual”: as noted by several prominent legal scholars, when the FTC’s two Bureaus disagree, Commissioners actually do not bring a case in the vast majority of the time. What Reich thinks is “unusual” is in fact the norm.
Given all of this confusion, one should be wary of accepting Reich’s simple solution of cutting and pasting early twentieth-century competition policy into the twenty-first. When navigating the today’s competition policy landscape, this jumble of confused assertions about IP and antitrust will not provide a very helpful compass.