The French have a wonderful saying, la plus ça change, plus c’est la même chose, which roughly translates to “the more things change, the more they remain the same.” That’s an apt description of current, high-profile wrangling in the United States about music licensing under federal copyright law. Despite all the jarring changes to the recording industry over the past decade — remember Tower Records? — it’s the same issues and (mostly) the same players as always, arguing over a Rube Goldberg-like system of arcane complexity.

Tomorrow the House of Representatives (specifically the Judiciary Committee’s Subcommittee on Courts, Intellectual Property and the Internet) will hold a second round of hearings on music licensing. This inquiry coincides with a recent announcement by the Justice Department that it will review — and solicit public feedback on — the 73-year-old antitrust decrees that govern ASCAP and BMI, two groups which act as licensing clearinghouses for a range of outlets that use music, including radio stations, websites and even restaurants and doctors’ offices. As the New York Times has observed, “billions of dollars in royalties are at stake, and the lobbying fight that is very likely to unfold would pit Silicon Valley giants like Pandora and Google against music companies and songwriter groups.” MORE »

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Amazon entered the smartphone scene in a major way today with its much hyped Fire Phone.  Although technology reviewers are furiously picking over the products new specs, such as its 3D screen, 13 megapixel camera and the dynamic perspective technology, I wanted to step back and examine how the tech embedded in this phone can accelerate the disruptive innovation already taking place in the tech ecosystem as we speak.  One particular feature of the phone deserving attention is the Firefly technology, which allows users to use their phone’s camera and microphone to directly identify objects, products, movies or songs in the real world and take actions based on that recognition.

I will take a more detailed look on what Amazon’s entry means for competition in the smartphone world in a follow up post, but without further ado, here are some disruptive aspects of the new Amazon smartphone:

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As the IP nerd vigil over Aereo continues, let us take a minute to survey what potential outcomes might look like.  So, if World Cup prognostication isn’t for you, this post should get you started on the next best thing: Supreme Court tea-leaf reading.

The Court’s Aereo decision will issue on a Thursday or Monday between now and June 30.  The case could be resolved as early as tomorrow morning, but the fact that it was argued so late in the term may produce a correspondingly late decision date.  I’ll assume you know how Aereo got to the Supreme Court; if not, try this post and infographic surveying the Aereo litigation. Below I describe how the most probable outcomes would look, plus a few unlikely results.

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As the England football team prepares for the 2014 football World Cup in Brazil there is much agonising over whether the structure of English football is what is needed to win the World Cup for the first time since 1966. At Project DisCo we are keen followers of the beautiful game (although our allegiance shall remain secret) both with regard to how the game is played but also how it is organised and paid for.

The United Kingdom is home to one of the most dynamic Internet, communications and media markets in the world. Whether we rely on the work of the Boston Consulting Group who proclaimed the UK top of the world’s ‘e-intensity’ index or Ofcom’s, the UK communications and media regulator, homegrown analysis, things are looking pretty good for consumers. There is choice, availability and price competition; mostly, that is.

The English Premier League competition has existed since 1992. In that period the quality of football (soccer for any North American readers), and associated infrastructure such as stadia, has improved considerably. In the same period we have also seen considerable improvements in the UK communications infrastructure, a blossoming of services and a considerable decline in prices. That is what competition does.

While there is robust competition in the market for communications and Internet services there is a corresponding lack of competition in the market for pay TV, which is driven by premium sports content, or more precisely Premier League football. One method of measuring the amount of competition in a market is the Herfindahl-Hirschman Index (HHI), with a score of 1000 indicating a competitive market and over 2500 being unusually highly concentrated. The 2012 report of the UK Competition Commission, “Movies on pay TV market investigation – A report on the supply and acquisition of subscription pay-TV movie rights and services,”shows that the HHI score for the UK pay-TV market was 5000 in May 2012. The report goes on to note that “Sky’s market share has been persistently above 60%”.

Such concentration often leads to a situation in which the consumer pays more.

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Back in May, Los Angeles-based startup Vyclone invited mobile users to shoot four-minute multi-angle videos of themselves dancing and lip-syncing to the Canadian artist Kiesza’s infectious pop hit “Hideaway,” and to upload the footage and share it with their friends on their other social media platforms.

Just a few years ago, this invitation from the collaborative social video startup would have been seen as an invitation to infringe upon Kiesza’s copyrights. However, this announcement is a partnership between the artist and the startup, and it’s part of a broader online social media strategy.  The Vyclone partnership attempts to integrate the artist’s work and her fans’ enthusiasm into one seamless experience – something that’s already happening on YouTube and elsewhere.

The promotion reflects the dramatically different media and technology landscape going into the second decade of the 21st century, as record labels and artists are finally figuring out how they might monetize the passion of their fans and their desire to reinterpret and share their multimedia opinions of artists’ and other kinds of creators’ work. “Hideaway” was published as a YouTube music video early this February. The counter reports that it’s been played 27.6 million times. Dozens of YouTube remixes with ads run against them, have proliferated.

None of this is accidental: The International Federation of the Phonographic Industry (IFPI), an international trade group that represents the recording industry, said in its 2014 digital music report that YouTube is “the most used music service in the world,” and that monetized user-generated content brings in more revenues than record labels’ official videos on the platform.

All this has developed after at least four decades of what historically had been underground fan activities – underground because these fans weren’t clear on what the legality of their re-interpreted works were.

One sub-genre of this fandom are “vidders,” people who splice portions of their favorite television shows and movie moments together and set them to music. According to an online fan wiki called Fanlore.org, the practice can be dated as least as far back as a 1975 recording of a musical slide show at a Star Trek convention.

Fast forward to today, and “vidding” is just one genre of multiple kinds of fan-generated activity online that mash up popular published works. Much of this activity today is legal in the United States in part because of legal advocacy by several digital rights advocacy organizations, one of which is the grassroots group the Organization for Transformative Works (OTW) founded in May 2007.

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There’s a famous old political adage — “where you stand is where sit” (also known as Miles’ Law) — meaning basically that government policy positions are dictated more by agency imperative and institutional memory than objective consideration of the public interest. A related concept is “regulatory capture,” where administrative agencies over time become defenders of the status quo and pursue objectives more for regulated firms as their constituency than consumers. Capture theory is closely related to the “rent-seeking” and “political failure” theories developed by the public choice school of economics. Or as Harold Demsetz put it well in his influential 1968 article, Why Regulate Utilities?, “in utility industries, regulation has often been sought because of the inconvenience of competition.”

That’s no longer limited to electricity companies and other public utilities these days. With the advent of rapid, low-cost entry into previously sheltered markets, powered by technology and the sharing economy, today’s incumbent industries are taking regulatory capture and politics as rent seeking to new heights. At DisCo we’ve written extensively about Uber, Lyft, Airbnb, Tesla and many other disruptive new start-ups that are facing a backlash from established industries (taxis, hotels and auto dealers, respectively) which use consumer protection as a Trojan Horse to disguise preventing or delaying competition on price, features and service. Politicians in locales as diverse as New York, New Jersey, San Antonio and Seattle (believe it or not!) have, wittingly it seems, gone along so far.

FTC Building

This is where what antitrust lawyers dub competition advocacy comes into play. Most antitrust policy in the U.S. is made in federal court as a result of merger, monopolization and horizontal collusion prosecutions launched by the Department of Justice (DOJ) and the Federal Trade Commission (FTC). But due to our federal-state system and a judge-made doctrine allowing states to exempt some markets from competition despite federal antitrust demands (government action, and private conduct to obtain such action, is challengeable in only relative narrow circumstances), much of the battle takes place in the legislative and regulatory arenas. Accordingly, competition advocacy is the primary tool available to antitrust enforcers in the U.S. to oppose state and local regulations favoring established firms over start-ups and parochially sheltering in-state companies from out-of-state competitors. The result is that for three decades the federal antitrust agencies have engaged in affirmative outreach to state and local legislators and regulators in the form of comments, letters and occasional lawsuits that seek to drive home the basic truths that competition outperforms regulation and the law should not pick winners and losers when it comes to evolving markets. (State attorneys general also undertake competition advocacy, principally through amicus briefs, as well.) MORE »

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Yesterday, after a 5-year legal battle, the Court of Justice of the EU (CJEU) concluded in the Newspaper Licensing Agency case that Internet users do not infringe copyright when their web browsers temporarily cache website files.

As DisCo covered last year, the news aggregation service Meltwater had been embroiled in litigation on both sides of the Atlantic.  When the U.S. litigation settled, it appeared at the time that there might be no answer on the outstanding question of whether a license was required for regular Internet browsing.  The European case proceeded, however, yielding yesterday’s decision that it is lawful to browse lawful Internet sites.

One might reasonably express some exasperation that the question was even an issue, but as the IPKat weblog explains, under European copyright law, every reproduction that is not covered by specific and narrowly interpreted exceptions is an infringement.  Here, the relevant exception is Article 5(1) of the EU Information Society Directive (ISD). MORE »

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As part of its on-going copyright review, the House IP Subcommittee held a hearing on Monday on the First Sale Doctrine. This was a “field hearing” held at the federal courthouse in Manhattan. I had the opportunity to testify on behalf of the Owners’ Rights Initiative, a coalition of associations and companies dedicated to protecting the first sale doctrine.

In his opening statement, Chairman Bob Goodlatte recognized the importance of the first sale doctrine to the U.S. economy. He stated that

Although some legal doctrines may be invisible to Americans, the first sale doctrine is not one of them. First sale has been such an integral part of our economy that entire businesses have been built upon it such as Blockbuster video stores and Netflix by mail. Consumer expectations have also been built upon this doctrine.

Ranking Member Jerry Nadler in his opening statement noted the importance of the first sale doctrine to libraries and consumers.

The testimony and the questions focused on three questions: the Supreme Court’s Kirtsaeng v. Wiley decision; digital first sale; and the right to resale products containing software essential to their operation.

1. Kirtsaeng. Stephen Smith, the President and CEO of John Wiley & Sons, the plaintiff in the Kirtsaeng case, testified that the decision is making it difficult for Wiley to sell text books in developing foreign markets for fear of arbitrage, i.e., that the books would be resold in the United States at lower prices. Smith acknowledged, however, that in some markets Wiley is selling through trusted distributors that do not resell in the U.S., and that it has started differentiating products (e.g., creating international editions) to discourage importation.

In my testimony for ORI, I underscored these concessions Smith had made. I stressed that post-Kirtsaeng, publishers still could engage in price discrimination against U.S. consumers, they just couldn’t rely on the copyright laws to do so. I added that the Supreme Court made clear that nothing in the Constitution suggests that copyright’s exclusive rights should include the right to price discriminate. I also emphasized that overturning Kirtsaeng would not help U.S. workers. Because most copyrighted products are made overseas, increased foreign sales would not lead to more manufacturing jobs in the United States. I reminded the subcommittee that this issue was not limited to books; the previous Supreme Court cases in this area dealt with a logo on a watch (Costco v. Omega) and a label on a shampoo bottle (Quality King v. L’anza).

Greg Cram, the Associate Director for Copyright and Information Policy at N.Y. Public Library, explained the importance of the Kirtsaeng decision for libraries. Many of the books and other materials in the collections of libraries were printed overseas, and Kirtsaeng ensures that libraries will be able to circulate these materials without obtaining an additional license.

The subcommittee members showed relatively little interest in discussing Kirtsaeng. Ranking Member Nadler asked Smith whether Wiley was seeking legislation overturning Kirtsaeng. Smith responded in the affirmative. Nadler then asked Cram whether overturning Kirtsaeng would require an exception for libraries, and Cram responded in the affirmative.

I regret not having more of an opportunity to respond to Smith’s criticism of arbitrage. It was as if he thought arbitrage was a dirty word. This was ironic given that the federal courthouse stands a few hundred yards from Wall Street, where thousands of traders engage in arbitrage every day. Arbitrage is a cornerstone of free trade and the free enterprise system (buy low, sell high).

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The Wall Street Journal published a story today on Facebook requesting that the European Commission, not individual domestic competition regulators, review its recent transaction to acquire WhatsApp.  The announcement came as a surprise as the acquisition already sailed through U.S. approval and, as the WSJ points out, the EC “wasn’t expected to review the deal because the acquisition is unlikely to materially boost Facebook’s revenues.”

Although Facebook’s request might seem strange on the surface, it follows on the footsteps of political pressure from European wireless companies to oppose the deal.  Given that these companies are powerful political forces in their respective states, fighting for merger approval in many individual countries against politically powerful local incumbents doesn’t seem like a great proposition.

As the WSJ notes:

European telecom executives have nevertheless railed against what they describe as the assault by so-called over-the-top companies that they believe are competing unfairly against traditional phone companies. At a conference in Brussels last month, some lambasted the EU antitrust agency’s perceived lack of interest in the WhatsApp merger.

It’s pretty clear why telcos are opposing this transaction.  Combining WhatsApp, which has “been hugely disruptive to the [telco’s] traditional text messaging business,” with a well-heeled market leader with a huge user base promises to make the new combination a stronger competitor for the telcos.  Therefore, it is not surprising that the telcos are pushing back: consumers saved $33 billion in texting fees in 2013 alone thanks to WhatsApp and similar messaging applications.  The problem for telcos: that savings came out of their pockets.  The other problem for the telcos: the very purpose of the European Commission’s competition policy is consumer welfare, not incumbent revenue protection.

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Last year I wrote on the question: ‘how long can copyright holders wait to sue?’  The issue animated a case decided by the Supreme Court today, Petrella v. MGM, where the plaintiff had waited 18 years to file her suit.

The quick answer, of course, is that copyright’s statute of limitations (17 U.S.C. 507(b)) is three years.  (A statute of limitations is what it sounds like: it is the part of the law that limits how long a plaintiff has to file a civil lawsuit.  After that time has elapsed, they are out of luck.)  The more complicated answer, at issue in this case, is that a copyright holder can wait a very, very long time, provided the infringement is ongoing.  Petrella inherited the rights to renew her father’s two screenplays and memoir about his friend, champion boxer Jake LaMotta, later adapted into the Academy Award-winning Scorsese/De Niro film Raging Bull, but then didn’t bring suit for nearly two decades.

MGM invoked laches, arguing that Petrella should lose since she unfairly delayed in bringing her claim.  Laches is an equitable doctrine, an ancient rule of fairness.  It represents the idea that plaintiffs shouldn’t be allowed to benefit from their own delay.  It isn’t part of the Copyright Act, but rather a general principle.  Two lower courts sided with MGM’s argument, but the Supreme Court reversed today in a 6-3 decision by Justice Ginsburg. MORE »

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