A DisCo post last week described how Taylor Swift was using social media to promote her latest album, 1989. And previous DisCo posts have discussed the phenomenon of innovative artists embracing Internet platforms to reach new markets. Social media, however, has become far more than an alternative means for promoting and distributing entertainment content; often it is integral to the content itself.

Social media is a central theme of this summer’s sleeper hit, Chef. Chef Carl Casper, played by Jon Favreau, finds his career in trouble after engaging in a public dispute via Twitter with a food blogger, which he didn’t realize was public because he didn’t understand how Twitter operated. (His young son established the Twitter account for him.) Twitter also plays a critical role in the resurrection of his career, as his son tweets about his new food truck as they drive across the country. Further, Twitter helps reconnect the chef with his son. (Favreau insists that Twitter didn’t pay for the product placement.) Twitter is to Chef what AOL was to the Tom Hanks/Meg Ryan 1998 rom-com You’ve Got Mail.

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Despite inexplicable opposition from certain outliers, it’s becoming widely accepted that the Internet enables and democratizes creativity and its dissemination more than ever before.

Earlier this week, Taylor Swift released her new single, Shake It Off, complete with a music video, and announced the release date for her forthcoming pop album, 1989.  She did so in front of an audience, webcast live online.  In Ms. Swift’s own words, “they’re telling me we’re making history because this is the first ever worldwide live stream for ABC and Yahoo to get together and I’m so excited I can’t even!”  (It’s not clear whether she meant that it’s the first ever worldwide live stream for an album date announcement/single release party, or the first ever worldwide live stream for these companies together, or what, but her enthusiasm was contagious, and her fans didn’t seem to care.)  In the view of Claire Suddath, a writer for Businessweek, however, Taylor Swift followed all the rules and everything about this was completely expected.

This was contrasted with Beyoncé’s now-legendary promotion-free drop of her “visual album” Beyoncé on Instagram at midnight in December (which she later followed up with an equally unexpected promotion-free remix of ***Flawless, released over social media at midnight a few weeks ago).  “Weird Al” Yankovic did something similar this summer too, although he pointed out that he did it with his last album, before Bey, and that she was in fact ‘doing a Weird Al.’  While none of these examples involved displacing intermediaries and selling to fans directly like Louis C.K., Weird Al did notably take advantage of different video sites for each daily exclusive video release.

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Earlier this month, at the Black Hat 2014 conference, Yahoo announced that it would implement end-to-end encryption in its Mail service by 2015. This announcement came on the heels of Google’s June announcement of a Chrome browser extension that would make it easier to do the same for data leaving the browser for a specific recipient (Yahoo’s implementation is a fork of Google’s publicly released source code).

End-to-end encryption of message content through OpenPGP, even as implemented by the savvy engineers at Yahoo and Google, is by no means a privacy cure-all on its own. However, when end-to-end is viewed along with earlier developments, like an always-on secure connection (via HTTPS) for Gmail or multi-factor authentication, it’s becoming clear that the tech industry is taking improved consumer privacy seriously, both in word and deed. MORE »

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In June, when I wrote about the release of Amazon’s new smartphone, I promised a more comprehensive article about the competitive dynamics of the mobile ecosystem.  While tech journalists tend to fixate on new releases from household name companies such as Amazon’s Fire Phone, it is all too easy to miss the big picture.  Emerging markets pose the biggest threat to the current market leaders and promise to be incubators of disruptive innovations.

Although much of the focus in the developed world remains on the competition between Google’s Android and Apple’s iOS, a host of plucky competitors are targeting emerging markets.  And for good reason.  Not only is the smartphone adoption rate growing nearly twice as fast in emerging markets as it is in more established markets, certain characteristics make it easier for new platforms to establish a foothold in emerging markets, as the market research firm GSMA Intelligence stressed in a recent report:

Emerging markets represent the largest unrealised source of new mobile Internet subscribers.  Given that smartphone penetration is nascent, the take-up and use of mobile data is rising, lock-in mechanisms have yet to kick in for incumbents and subsidies are less prevalent, the markets present more fertile ground for challenger platforms.

In a nutshell, the advantages held by established competitors like Google and Apple don’t necessarily carry over into emerging markets.  The market structures and desired uses of mobile technology differ greatly in markets such as China, Vietnam and India than from those in the US, Europe, Japan and South Korea.

The most obvious reason for this is simply that the smartphone penetration rate is much lower in emerging markets, therefore less people are committed to a particular mobile platform.  Furthermore, characteristics such as price point and unique local content and services are the more important considerations for new users in those markets where lock-in factors, such as prior purchases, subsidized contracts and large mobile app suites, don’t factor in purchasing decision to nearly the same extent they do in more advanced markets.  Low price and local market customization are areas where smaller competitors can compete against industry leaders.

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DisCo readers may be familiar with a recurring theme pitting incumbents versus disruptive innovators. But new research seems to suggest that the relationship isn’t always adversarial.

The Knowledge@Wharton blog has an article about a soon to released paper by three professors, David Hsu, Matthew Marx and Joshua Gans, which illustrates that disruptive startups do not just compete with market leaders, but often partner with them as well.  The authors use the automated speech recognition (ASR) market as their test case, as the frequent technological disruptions in the field make it a paradigmatic industry to study; similar to Clayton Christensen’s disk drive market.

The study finds that 60% of the firms in the ASR market started out competing in the marketplace while 38% cooperated with market leaders (2% had a “hybrid” approach).  However, the blog notes that breaking it down by firms using a “disruptive” approach versus an “existing technologies” approach tells a slightly different story.

The researchers find that early adopters of disruptive technology were much less likely to cooperate with incumbents, with only 21% doing so, compared with 36% of start-ups whose businesses were based on existing technologies. But early adopters or disruptors were more likely to switch from a competitive to a cooperative strategy: 12.7% did so, versus 7.8% for non-disruptors. (The switch from a cooperative to a competitive strategy was not meaningfully different between the two groups.)

The authors use their research to give advice to startups: be open early on to the possibility that your competition/cooperation strategy could change over time.

The study’s authors also have advice for incumbents: it may be useful to let the disruptive startups slug it out among themselves and license/acquire/partner with the winner, rather than trying to develop the disruptive technologies in house.  As one of the authors of the study notes, predicting a winner is difficult:

You sort of have to predict the future. What we’re saying is, you don’t have to predict the future. There may be 30 start-ups out there trying different disruptive or potentially disruptive technologies. So, you can take this wait-and-see approach.

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Two weeks ago in Facebook’s Q2 earnings call, Mark Zuckerberg reiterated Facebook’s desire to become a more effective online “search” competitor, although in his description of the initiative it became clear that he was talking about becoming a more effective competitor in the “market for answers,” as the Wall Street Journal pointed out:

Facebook is trying to give people answers to what they’re looking for in hopes they’ll spend more time on the site or in the app, and in turn stealing searches away from Google or Microsoft’s Bing.

In fact, responding to an analyst’s question, Zuckerberg cited Facebook’s unique advantages in the answers market:

There is huge potential. There are a lot of questions that only Facebook can answer, that other services aren’t going to be able to answer for you. We’re really committed to investing in that and building out this unique service over the long-term. And I think at some point there is going to be an inflection where it starts to be useful for a lot of use cases. But that may still be years away. But we’re just committed to doing this investment and making this right.

Given our frequent musing here on the nature of competition online and its antitrust implications, Zuckerberg’s description of where Facebook is going was telling.  Namely, that the narrow market definitions that rely on colloquialisms (“search engines” and “social media”) do not reflect the true nature of competition online.

A fundamental tenet of antitrust law is that in order to figure out if a company is monopolizing a product market, one has to define what that relevant product market is.  Sounds simple enough, right?  Well, maybe not, especially in the online world.

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While reading Variety’s eye-opening article explaining how successful young performers are reaching a new generation through Internet platforms, you might have come across producer Kurt Sutter’s (potentially NSFW) open letter savaging Google about piracy allegations.  Sutter, who produces the FX drama “Sons of Anarchy,” announces the search company is “in the process of systematically destroying our artistic future.”

The attack is uncomfortably wedged between Variety’s impressive coverage of the rise of the Internet content creators, and stars on Google’s YouTube in particular.  In fact, Variety published a survey this morning which concluded that YouTube stars are more popular than “mainstream” celebrities among teens.  Hollywood, however, has no idea who these new stars are — a disconnect likely to widen as more young Americans cut the cord and trade the remote for the smartphone.  Amidst other coverage, one article concludes, “[Internet video brands] AwesomenessTV and Vice could very well be the next mega-brands; they demand our attention now”.

It’s difficult to square Sutter’s dire predictions that we will look back with regret on “the magical days when creatives flourished” when the several preceding articles highlight creativity flourishing on the Internet.  Situated as it is inside what might be called Variety’s Disintermediation Issue, Sutter’s f-bomb fusillade says nothing so loudly as ‘get off my lawn.’

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Last month a Paris appeals court annulled some €3.9 million (US$5.2M) in fines imposed on endive producers and their trade associations by the French Competition Authority (the Autorité de la concurrence). Not dissuaded, that French competition agency just slapped a €1.6M (US$2.1M) fine on Caribbean yogurt maker Societe Nouvelle des Yaourts de Littee (SNYL) for falsely questioning the safety and quality of a rival brand in Martinique and Guadeloupe, characterizing the practice as “abuse of dominance” in the marketplace. SNYL

This epitomizes a fundamental disconnect between antitrust law and competition policy in the U.S. and that of many other nations. (No, the French are not alone…) American antitrust principles and decisions generally limit the reach of competition law — aside from competitor collision like price-fixing cartels — to business conduct that uses market power in an exclusionary manner. As the Supreme Court emphasized in 1993, “[e]ven an act of pure malice by one business competitor against another does not, without more, state a claim under the federal antitrust laws; those laws do not create a federal law of unfair competition or ‘purport to afford remedies for all torts committed by or against persons engaged in interstate commerce.’” In sharp contrast, the FCA reasoned about yogurt that “the dissemination of misleading and disparaging remarks by a dominant operator against one of its competitors is a serious practice with regard to competition rules.”

“Between December 2007 and December 2009, SNYL broadcast information discrediting the sanitary quality of Laiterie de Saint-Malo products using the questionable results of bacteriological tests and questioning the irregular consumption deadlines affixed to its products,” the FCA reported in a (translated) statement. This led a number of retailers to pull Malo products from shelves for an extended period. “This behavior had the effect of limiting product sales of Laiterie de Saint-Malo in Martinique and Guadeloupe — an abuse of dominant position prohibited by Article L 420-2 of the Commercial Code,” the FCA concluded.

In the United States, legal standards for proving antitrust claims are rightly rigorous; they are strict in order to reduce the risk that enforcement of the antitrust laws may chill the very sort of vigorous, competitive conduct they are intended to encourage. It’s been true for at least 35 years that the Sherman Act “is not a panacea for all evils that may infect business life.” Legendary antitrust law scholars Phillip Areeda and Herbert Hovenkamp have advocated a nearly insurmountable presumption against deception and fraud serving as the basis for a monopolization claim, a presumption most courts have readily embraced. As one court of appeals cogently explained, “[i]solated tortious activity alone does not constitute exclusionary conduct for purposes of a [Sherman Act] § 2 violation, absent a significant and more than a temporary effect on competition, and not merely on a competitor or customer…. Business torts will be violative of § 2 only in ‘rare gross cases.’”

The difference is that between competition and consumer protection, which are quite distinct concepts in American jurisprudence. If a firm uses a monopoly to harm competition without business justification, that’s an antitrust violation. If a firm lies about a competitor’s products or runs false advertising, that’s a deceptive business practice. The two legal regimes are directed at different constituencies and conduct, which is why the Federal Trade Commission Act was amended in the 1930s to add a separate provision (Section 5) for “unfair or deceptive” business practices, and why the FTC accordingly is separated into its two principal divisions: the Bureau of Competition and the Bureau of Consumer Protection. Likewise, the Lanham Act specifically prohibits false advertising and provides a damages remedy for injured companies. Thus, false representations around a firm’s own, or it’s competitor’s, products can be legally actionable, as the Supreme Court again ruled this year in a case about beverage labeling (Pom Wonderful v. Coca-Cola). They’re just not an antitrust violation in the United States.

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SarahFeingold2012If you’re in the market for some original Aboriginal dot paintings, or an even more esoteric item, like a bed for your pet rat that’s shaped like a slice of cake, you’re in luck: It’s likely that Etsy, the giant, 24/7 online version of the weekend crafts market will have something on offer that will appeal to you.

Etsy, if you hadn’t heard, is one of the world’s fastest-growing ecommerce platforms that has successfully managed to tap into the latent market for easily-accessible, hand-crafted and vintage goods. Since its founding in Brooklyn in 2005 by Robert Kalin, Chris Maguire, Haim Schoppik and Jared Tarbell, it’s mushroomed into a global, 500-person company with more than 40 million members, more than a million shops selling more than $1.35 billion worth of goods in 2013. Etsy charges 20 cents for each item published on the platform for up to four months and a 3.5 percent fee on the sale of each item. Its current CEO is Chad Dickerson, the company’s former chief technology officer. Its investors include Accel Partners, Hubert Burda, Index Ventures, and Union Square Ventures.

Sarah Feingold, a jeweler and metalsmith who also happens to be a lawyer, is a member of Etsy’s core team who’s been through almost the whole journey. Feingold is from a family of artists and first became interested in copyright law when she wanted to find out more about how to protect her creations. That led to a professional interest, law school at Syracuse University, authoring an e-book for artists on copyright basics and what they should be doing to protect their works, and then eventually a job as an attorney at Etsy. Like a lot of startups, Etsy didn’t have an in-house lawyer in 2007. Feingold saw an opportunity, knocked on the company’s doors and managed to convince Kalin that she was the person that they didn’t know they were looking for. Today, Feingold is part of a team of four. She’s an in-house counsel who focuses on intellectual property issues, and works alongside Hissan Bajwa, another in-house counsel. Althea Erickson is the company’s public policy director, and Jordan Breslow is the firm’s general counsel.

Etsy has grown into an important avenue of sustaining livelihoods for creative people. At the same time, the open nature of the Internet, and the rise of entities in Asia that can quickly copy and mass manufacture designs by artisans have made copyright a burning issue of importance for many in the community. It’s not hard to find online discussions between various Etsy sellers debating the limits of fair use, or others sharing their experiences of receiving cease and desist letters.

However, like any other online platform that hosts third-party content, Etsy is subject to the Digital Millennium Copyright Act (DMCA). The company acts as an impartial conduit that does not get involved in the merits of the hundreds of infringement claims and counterclaims that flow into Etsy’s offices.

As the company’s chief in-house IP counsel, Feingold handles the DMCA takedown requests, and counter-notices, among other things. Her advice to sellers is to educate themselves as much as possible about copyright policy so that they understand both their own rights, and also understand the complexities of the factors at play when courts judge what is and isn’t fair use.

Below in an edited Q&A, Feingold discusses the DMCA and fair use.

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There’s been much press coverage of the travails of the AmLaw 100 — America’s largest law firms. Clients are aggressively pushing back against ever-increasing hourly rates and significant inefficiencies. Storied firms have been foldingmerging and laying off staff and even attorneys at unprecedented levels. Electronic discovery specialists and legal outsourcing are compressing margins for the litigation work that historically fueled big firm profits. Non-traditional legal providers are hardly faring better. Clearspire, a much-heralded pioneer of the virtual law firm concept, closed shop in June.

Yet at the same time — and perhaps as a consequence — the market for legal startups is booming. VentureBeat commented that the profession’s ongoing transition is “fueling innovation throughout the entire industry.” In 2009, just 15 legal services startups were listed on AngelList. There are now more than 400 startups and almost 1,000 investors. A whopping $458 million was invested into legal startups last year, a remarkable increase from the $66 million that went into the space in 2012. Legal entrepreneurs are focused on two different objectives: helping lawyers do their work better, faster and cheaper, and making the law more accessible, sometimes eliminating the need for lawyers altogether.

Law

It is the second, consumer-facing portion of this trend that portends a fundamental change in the legal market. By giving both individual and corporate consumers the resources to do it yourself, today’s crop of disruptive legal startups is laying the groundwork for an era in which software tools, social sharing and document comparison-assembly programs are positioned to replace attorneys’ stock in trade, namely reuse of contracts and other legal “forms.”

A century ago the bar protected itself with arcane Latin phrases and obscure judicial reporters. Two decades ago, it used the expense of private legal research databases like LexisNexis, an information barrier that is increasingly archaic in today’s era of Web-enabled courts and Google Scholar. With the present challenge to the largest traditional domain of legal practice — creation, revision and execution of legally binding documents — technology is breaking down walls that made have legal U.S. services unaffordable, and thus essentially unavailable, to many except the wealthy those at the opposite end of the economic spectrum who qualify for free and pro bono legal services.

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