As Techdirt reported this morning, emails leaked from the Sony hack show MPAA CEO Chris Dodd campaigning to USTR Michael Froman against fair use.

As DisCo has previously covered, Sony Pictures Classics, a subsidiary of MPAA member Sony, successfully argued that its use of a nine-word Faulkner quote in the film Midnight in Paris was fair use, saying: “Fair use is an integral part of the Copyright Act. Without fair use, critics and scholars could not quote the very works they write about.”  Similarly, DisCo covered how the NFL and Baltimore Ravens also successfully argued fair use, with the MPAA filing an amicus brief in support of this doctrine.  After that brief drew media attention, MPAA’s Ben Sheffner wrote in a blog post that the MPAA’s “members rely on the fair use doctrine every day when producing their movies and television shows – especially those that involve parody and news and documentary programs. And it’s routine for our members to raise fair use – successfully – in court.”  And several years ago, Fritz Attaway, then a senior MPAA executive, explained to a National Academies review that the “beauty of fair use is that it is a living thing . . . like our Constitution . . . that can adapt to new technology.”

One would think that when USTR announced in 2012 its intention to promote U.S. limitations and exceptions like fair use in the TPP, the film industry would have supported codifying the exception that it both relies upon and celebrates. MORE »

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David Balto and Matthew Lane, antitrust attorneys, have authored a guest paper for DisCo on innovation in the music delivery sector.  David previously served as Policy Director at the Federal Trade Commission’s Office of Policy and Evaluation, and attorney advisor to the FTC chairman.

There is no doubt that we live in exciting times.  New technologies are constantly emerging that promise to change our lives for the better.  These disruptive technologies give us an increase in choice, make technologies more accessible, make things more affordable, or give us a voice.  However, disruptive innovations do not hit all areas of our lives equally.  There are some industries that are controlled by companies that don’t want to be shaken up and have the power to prevent it.  These consolidated industries are an anathema to disruptive innovation.  So how do we enable disruptive competition in these industries?

One answer is found in our competition enforcement agencies and the oversight they can achieve through antitrust enforcement and consent decrees secured when cases are brought.  The important role of consent decrees is often overlooked.  A properly constructed consent decree between the government and a company accused of anticompetitive behavior can restore competition and foster new competitive entry.  Permitting entry is vital to disruptive innovation because much of this innovation comes from start-ups and new entrants. MORE »

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We have been a little boozy here at DisCo.  A couple of years ago myself and my colleague Matt Schruers had a mini blog symposium of sorts where we used alcoholic anecdotes to illustrate larger policy points about the nature of competition and innovation.  Last week, fellow DisCo writer Ryan Heath used a Belgian beer example to illustrate the success of crowd funding.  In this post, I turn to U.S. beer regulation and market structure as an illustrative example of a phenomenon that has plagued the tech world: out-dated regulation that artificially props up legacy middlemen and harms innovative competitors.

Against that backdrop, let’s turn our attention to a fight brewing in Florida between craft brewers and beer distributors (and the major beer brands) in the state legislature.  At the end of last week, a Florida Senate Committee approved a bill that would allow craft brewers to sell 64oz growlers to their consumers.  Presumably, the bill will soon be voted on by the full Senate.  Similar legislation is also winding its way through the Florida House.  According to the Sarasota Herald-Tribune, the bills “could make it easier for grocery stores to sell hard liquor and brew pubs to sell more of their products.”

Currently, in Florida, it is unlawful for breweries to sell half-gallon size growlers — a staple product for craft brewers seen as the “industry standard” — to consumers.  This is because Florida, like all other states (except for Washington), utilizes a “three-tiered” alcohol distribution structure where (1) wholesalers are required to sell to (2) distributors who then sell to (3) retailers.

Florida has an exception to the three-tiered system, however: A law pre-dating the rise of craft breweries, which was designed to allow beer giant Anheuser-Busch to sell beer directly to consumers in the days when they owned the Busch Gardens theme parks, allowed craft brewers to pour pints and sell cans on their premises (thus avoiding beer distributors).  Under the complex and capricious Florida beer laws, craft breweries were able to sell quarts and gallon jugs of beer, just not the popular half-gallon size.  When legislation last year looked poised to fix this curious 96 ounce exception, it was derailed by language added at the behest of beer distributors.  The new language required, among other things, craft brewers to sell their wares to distributors who would then sell it back to them (at a healthy markup, of course) before they would be able to sell them to brewery visitors!  With their typically smaller profit margins, craft brewers — who often face a daunting journey just to turn a profit — saw this unnecessary layer of costs as a threat to their businesses.  In fact, “holding the growler hostage” was merely a strategy of “Big Beer” to attack the craft brewers’ right to sell directly to consumers.  (They said so themselves.)  The craft brewers — in good disruptive innovator fashion — turned to Indiegogo to fund their lobbying efforts against big beer.

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Big data, and its effects on online markets, has been thrust into the center of the tech policy chattering class debate.  In the last few weeks, events have been held on both sides of the Atlantic focusing on the concept of big data as an entry barrier.  (The topic has also come up in speeches by FTC Commissioners [and a paper], in discussions surrounding the EU’s forthcoming Digital Single Market strategy, and is the frequent topic of recent academic writing.)  Specifically, the concept being debated is whether the accumulation of data by Internet companies hinders competition because the new entrants will not be able to compete effectively with the first mover in the marketplace.  In this post, I will address why startups and entrepreneurs should not be overly concerned.

In a stylized view of the Internet economy, as a platform (such as Google, Facebook, Amazon, Pinterest or Twitter) achieves scale and gains users, it acquires more data.  This data leads to product improvement, which leads to more users and, subsequently, more data.  The process repeats.  According to proponents of the data as a barrier to entry theory, this leads to an unbreakable positive feedback loop that makes effective competition impossible.

However plausible this argument sounds, a review of the short history of the Internet economy, which has been characterized by intense competition and frequent disruption, seems to cast doubt on the soundness of the theory.  (See Andres Lerner’s discussion of the User Scale – Service Quality feedback loop.)  Besides the common examples of Facebook overtaking Myspace and Google overtaking prior search competitors (who, at the time, were predicted to be unassailable largely on account of the User Scale – Service Quality feedback loop discussed above), a casual look at online markets illustrates how competitive the market is.  Why are online markets so competitive even though some firms are believed to have an unassailable advantage in big data?

First, this view of Internet markets is extremely simplistic.  Data is just one input of many in the process of innovation and market success.  Second, unique economic characteristics of data — such as it being non-rivalrous and the diminishing marginal returns of data — mean that the accumulation of data, as opposed to other barriers to entry like intellectual property portfolios or high-fixed capital costs, in and of itself does not function as much of a barrier at all.  When you couple these characteristics with the fact that data, and the tools to use and analyze data, are readily available from numerous third party sources, the notion of an iron-clad data feedback loop falls apart.

I’ll break this down piece by piece.

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Tomorrow the Supreme Court will hear oral arguments in two intellectual property cases that could affect the technology sector: Commil USA, LLC v. Cisco Systems, Inc. and Kimble v. Marvel Enterprises, Inc. This blog attempts to summarize and preview the arguments for both cases. For disclosure purposes, CCIA filed an amicus brief in Commil in support of Cisco.

1. Commil USA, LLC v. Cisco Systems, Inc.

The issue the Supreme Court chose to focus on in Commil is “whether the Federal Circuit erred in holding that a defendant’s belief that a patent is invalid is a defense to induced infringement under 35 U.S.C. § 271(b).” Even though this is a patent law case, it may have implications for copyright as well because many patent standards for secondary liability are imported into copyright law (see Grokster). CCIA discussed this issue at length in its amicus brief supporting Cisco and argues that the culpable intent requirement in copyright law from Grokster should not be changed regardless of the holding in this case.

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IMG_8192In my part of the world, Belgium equals beer and beer equals Belgium. Nothing here is more traditional than the process of making beer – not even fries and chocolate.

But making beer is not rocket science. It is about mixing grain with water in the right conditions so that it ferments. There are different flavourings like hops, and there are different starches, but the biggest barriers to becoming a successful beer producer are not scientific or technical. They are often political barriers and attitude barriers.

The history of beer in Belgium cannot be separated from politics. Any Belgian beer you have heard of is almost certainly named after a town here. For centuries brewers were often a town’s biggest employer and held the post of mayor. Many bars and cafés are still owned by the large brewers, and the same companies are also vertically integrated with significant control of distribution.

AB InBev, the world’s largest beer company, is based in Leuven. They began as a local brewer, whose flagship brand Stella Artois dates back to 1366, and are now one of the world’s leading brands, with a 56% market share in Belgium and more than 2500 employees here. Mass brands at one end of the market are matched against traditionalists who argue companies should lose the right to a town name if they move extra production away from that town.

So it’s not easy for a new brewer to make a mark in Belgium: they are competing against 750 years of power, tradition and regulation. But one new venture – the Beer Project Brussels – is proving that it’s possible to redesign the meaning of beer, even in the home of beer. And it’s all digitally-enabled.

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Earlier this month, the Federal Trade Commission (“FTC” or “the Commission”) announced a new “Start with Security” campaign.  Announced in a speech by Chairwoman Edith Ramirez, the campaign she described will be centered on a series of resources and presentations that the FTC’s Consumer Protection Bureau will deliver to corporate groups to provide companies, especially small to medium sized businesses, with best practices and other guidance on specific data security topics.

This is a welcome development.  The “Start with Security” presentations are intended to fill a gap presented by the FTC’s current method of protecting consumers and ensuring good corporate data security practices, which embodies light-touch regulatory principles.  Today, the FTC’s primary tool for recommending and enforcing reasonable behavior in the data security space is through the enforcement authority granted to it by Section 5 of the FTC Act, which allows it to stop unfair or deceptive acts or practices.

With unfair practices, the FTC brings a case when a particular company’s data security practices caused, or were likely to cause, a substantial injury that consumers could not reasonably avoid and were not outweighed by benefits to consumers or competition.  In the case of deceptive acts, the FTC brings cases when it believes a company has failed to support a promise to keep information secure with reasonable and appropriate processes.

Through settlements and guidances informed by the last decade of data security cases, the Commission has developed a set of commercially reasonable security practices that companies should implement in a manner appropriate for their respective businesses.  This case-by-case approach allows for the flexible development of policy that reflects what companies are actually doing with consumers’ information and points to areas for improvement or minimum standards.

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At yesterday’s hearing on “The Internet of Things: Exploring the Next Technology Frontier” before the House Energy & Commerce Committee’s Commerce, Manufacturing, and Trade Subcommittee, Members of Congress questioned panelists about the impact of Internet-connected devices, now often referred to as the Internet of Things (IoT), on our economy as well as how Congress or regulators could protect consumers’ personal information.  Bijan explained two months ago how the IoT is garnering increased attention from regulators like the Federal Trade Commission (FTC).  An interesting aspect of the hearing concerned how IoT devices can improve the efficiency of local, state, and the Federal governments.  IoT devices can help us improve our daily lives, but they may have a greater impact on how governments deliver services.

Cities and states have made great strides in using Big Data to maximize services.  One of the most notable government executives to embrace Big Data was former Maryland Governor Martin O’Malley.  While serving as Mayor of Baltimore, his administration created a system called CitiStat to track all sorts of data on city government services like monitoring civil servant overtime and sick leave; response times for filling potholes and trash collection; and crime statistics.  (You can find out more about CitiStat in this report.)  CitiStat saved Baltimore an estimated $350 million during O’Malley’s mayoralty, and he later expanded the CitiStat model to the state level while Governor of Maryland from 2007 to 2015.  IoT devices provide the kind of data that could take such government data analysis and service delivery to the next level.

A 2013 Cisco study on how IoT technology could transform the public sector estimated that governments around the world could benefit to the tune of $4.6 trillion.  Consider some of the basic services that we often take for granted: roads, clean water, schools, parks, firefighters and police.  Citizens expect their governments to provide these services, but many governments are still reeling from the slow economic recovery and often struggle to provide these essential services while also maintaining balanced budgets.  The plethora of data from IoT devices could help governments reduce costs, improve deployment of resources, and promote economic development.

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Yesterday Austin-based Usenet provider Giganews was awarded more than $5.6 million in attorney’s fees and costs by a federal court in California, relating to its lengthy battle to exonerate itself of spurious infringement allegations from serial copyright litigant Perfect 10.  The court awarded fees in order to “discourage serial litigants from bringing unmeritorious suits and then unnecessarily driving up litigation costs in order to drive a settlement.”  (A statement by Giganews and link to the order are here.)

Represented by “high stakes” IP litigator Andrew Bridges of Fenwick & West, Giganews has been slugging it out with adult content purveyor Perfect 10 since 2011.

Perfect 10 is likely no stranger to copyright nerds; its litigation campaigns against a who’s-who of Internet properties in the previous decade yielded few victories for the company, but did lead to important precedents on intermediary liability and fair use, including search engines’ use of thumbnails.  (Some of these cases comprise the so-called Perfect 10 “trilogy”; including Perfect 10 v. Google, Inc., Perfect 10 v. Amazon.com, Perfect 10 v. VISA, Perfect 10 v. CCBill LLC.) MORE »

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An expert panel convened on Capitol Hill this morning, discussing new research on the detrimental effect that regulatory uncertainty has on Internet investment (as well as additional copyright law and policy challenges, which we live tweeted on @DisCo_Project).

The new research quantifies the impact of Internet regulations, including intermediary liability limitations, by showing their effect on early-stage investment.  A new report by Fifth Era and Engine finds that legal uncertainties for digital content intermediaries discourage early-stage investment around the world, reinforcing findings from a 2011 report that found early-stage investors in the United States were considerably less likely to invest in new online services exposed to legal risks.

In a similar vein, another 2011 paper found that changes in copyright policy changes could spur demonstrable investment in new online services.  Comparing investment in online services in the U.S. and Europe in the wake of the 2008 Cablevision case — a federal appellate court ruling widely heralded as giving additional legal certainty to online platforms — researchers found that U.S. investment increased considerably.  In contrast, a follow-up study by the same authors explored the impact of judicial decisions in Europe that increased legal exposure for online platforms, and found decreased investment when applying the same methods.

The Fifth Era report reinforces this conclusion, providing further evidence that additional risk and uncertainty in the online environment decreases investment.  This conclusion is not entirely surprising — but the authors’ specific findings provide impressive data on how severely risk can stifle early-stage investment.

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