In another example of Internet services investing greater resources in protecting content online, Google announced various changes today to search results involving movies and music.  Even as News Corp’s James Murdoch was complaining that Google was not doing more to fight piracy, the search provider was announcing further actions to fight piracy, detailed at length in its updated “How Google Fights Piracy” report.

New developments include Google’s testing of a new ad format to appear directly beneath its search box, which will point users to lawful, authorized platforms for content in the search (assuming, presumably, that there are any).  It has also created a new right-hand panel in search results that points to various options as well.  The company is also tweaking its algorithm to further downrank sites that receive high numbers of DMCA notices, and further limiting what terms and results might appear in “autocompleted” queries. MORE »


TV is finally catching up with the digital age and catering to new generations of consumers — those who rely on services like Netflix, Amazon, and YouTube for most of their video entertainment.  This week may have been a tipping point for online television, with HBO and CBS announcing over-the-top (OTT) services that don’t require a traditional TV subscription.  HBO’s announcement came on Wednesday, with a product launch expected for 2015, and CBS’s CBS All Access was announced and launched yesterday to 14 cities, with more on the way.  These new offerings should help encourage cord cutting and more competition with established broadcasters and cable companies.

The New York Times has a great run-down of the business and competition issues at stake, even pointing out the classic innovator’s dilemma of whether to cannibalize an existing revenue stream when faced with disruptive innovation and competition:

Television executives are eager to woo those viewers, who often are younger and represent their future audiences. But at the same time, these traditional television networks must perform a careful balancing act to not cannibalize the billions of dollars in revenue they generate each year through existing business models.

The Times also mentioned that this week’s announcements mean that “viewers have more options to pay only for the networks or programs they want to watch — and to decide how, when and where to watch them,” and quoted CBS CEO Leslie Moonves saying that their “job is to do the best content we can and let people enjoy it in whatever way they want.”  But they did not point out that this is the classic formula for reducing piracy.  As DisCo has said over and over (often quoting Kevin Spacey or Netflix executives), making content lawfully conveniently available in the format consumers want reduces piracy.  A stand-alone HBO service is likely to increase the amount of subscribers.  As The Oatmeal explained so well, there isn’t currently a lawful way to watch Game of Thrones for cord cutters.  Giving people what they want — piracy demonstrates market demand — should help convert pirates into customers.  Research confirms this, including studies of Spotify and Netflix entering the market in Norway and Spotify’s introduction in the Netherlands.

This week’s news demonstrates great potential in the market for OTT video, evidenced by Netflix’s meteoric rise and Aereo’s ongoing legal battle.  A recent update from Aereo shows that it is “still standing up for innovation, progress, technology and our consumers,” now willing to even accept MVPD regulation in order to lawfully enter the market for online television.  And on the subject of Aereo, the Times also noted that CBS had been planning this service for more than a year — which means the planning started during the Aereo litigation.  As Moonves told the Times, “I am the old broadcasting guy here,” adding, “I continued to poke holes in it for the last year.”  That’s certainly one way of putting it.


Even before the landmark United States v. Microsoft Corp. antitrust case, competition law was a bit schizophrenic when it came to the question of interoperability. Monopolists have no general duty to make their products work with those of competitors, but what about the situation where a dominant firm deliberately re-designs products to render them incompatible with others? That is the provocative question raised by several pending antitrust lawsuits filed against Green Mountain Coffee, manufacturer of the Keurig line of single-serve coffee makers and coffee “pod” products.

TreeHouse Foods alleged in a complaint last winter that after its patent on “K-Cups” expired in 2012, Green Mountain:

abused its dominance in the brewer market by coercing business partners at every level of the K-Cup distribution system to enter into anticompetitive agreements intended to unlawfully maintain Green Mountain’s monopoly over the markets in which K-Cups are sold. Even in the face of these exclusionary agreements that have unreasonably restrained competition, some companies, such as TreeHouse, have fought hard to win market share away from Green Mountain on the merits by offering innovative, quality products at substantially lower prices. In response, Green Mountain has announced a new anticompetitive plan to maintain its monopoly by redesigning its brewers to lock out competitors’ products. Such lock-out technology cannot be justified based on any purported consumer benefit, and Green Mountain itself has admitted that the lock-out technology is not essential for the new brewers’ function.

In the consolidated multi-district litigation that ensued, Green Mountain is specifically charged with designing a so-called “Keurig 2.0″ brewer which features technology that allows it to detect whether a coffee cartridge is one of Keurig’s K-Cups or is made by a third party that does not have a licensing agreement with the company. The machine will not brew unlicensed coffee pods.

The federal court overseeing the MDL cases denied the plaintiffs’ motion for an injunction on procedural grounds in September, issuing an opinion which reasoned that commercial success of the “2.0” brewers was uncertain and that coffee competitors would still have open access to some 26 million Keurig “1.0” machines for several years. In other words, the court did not reach the merits of the monopolization claim against Green Mountain.


So where does that leave Keurig? As Ali Sternburg observed before revelations of its new 2.0 technology, Green Mountain’s prior 20 years of patent protection allowed the company to build a competitive advantage by “cultivating its brand (which likely involves trademark protection), honing its supply chain efficiencies, and generally maintaining its dominance due to having the first-mover advantage.” More than ten years before those patents first issued, moreover, the federal courts had ruled that new product introductions by monopoly firms — in one well-known instance, Kodak — would not be considered an antitrust violation because “a firm that pioneers new technology will often introduce the first of a new product type along with related, ancillary products that can only be utilized effectively with the newly developed technology.”


{ 1 comment }

Drones are leaving the U.S. for greener pastures, according to several media outlets (e.g., WSJ and Bloomberg).  In response to slow-moving U.S. domestic policy on commercial drone use, innovators are moving abroad, to jurisdictions where regulations have been updated to delineate when drones may be used in the commercial context.  (Keep in mind, we are not talking about fixed wing Predator drones with Hellfire missiles, but aircraft that are already available commercially with much of the same technology already incorporated into our mobile phones.)  Besides smaller companies actually moving abroad to places where they can sell their wares, even the likes of Google and Amazon have moved their drone testing to Australia and India, respectively.

Making matters worse, export control policies are poorly targeted, and prevent some drones made with widely available technology built in the United States from being sold overseas.  In fact, according to the Wall Street Journal, 3D Robotics — a San Diego-based company that specializes in drones with video capability — was only allowed to resume selling some of its products in a number of countries because the drones were manufactured in Mexico:

Export rules prompted 3D Robotics to temporarily halt shipments to 44 countries this spring. It has since secured a new classification from the U.S. Commerce Department, in part because it manufactures its drones in Mexico, allowing it to resume foreign sales.

And for those inclined to view this as a minor development in a niche market, at least one study predicts that allowing commercial drone use in the United States could create 100,000 new jobs and $82 billion in economic impact over the course of the next decade.

A lot of smart people have already said a lot of smart things about the drone situation, so I won’t delve too deeply into the nuances of streamlining commercial drone policy making.  Clearly, there are good reasons why commercial drones can’t take to the sky without some rules, but it is imperative that regulators move efficiently to establish a framework where, for example, a real estate agent or a surveyor can survey a property with a drone (in the same way it is currently legal for a non-commercial user to fly an off-the-shelf drone in her backyard).  That is not happening now.  According to the Department of Transportation’s own Inspector General, the FAA is likely to miss its Congressionally mandated deadline in coming up with rules that allow for the expansion of commercial drone use.

There’s a general point here worth expanding on: even if a country does everything right, creating a fertile environment for research, investment, and innovation (aka the hard stuff), innovation will nevertheless move overseas if outdated regulations impede the lawful sale or use of a product or service.  It does not matter if the United States has the brightest minds, best expertise and easiest access to venture capital; if you can’t sell, test or export drones here, then we will see those jobs and that talent go overseas to more fertile ground.  In fact, this is already happening.  And even if the FAA eventually comes up with a workable set of regulations that allow commercial drone activity, in fast moving industries — where first mover advantage is enormous — bureaucratic delays can be terminal.


{ 1 comment }

A Few German Publishers Claim that Online Services Have No Choice But to Show a Short Extract… And Pay For It 

Can you violate someone’s rights by not infringing their rights? According to some German press publishers, this is precisely the case after Google’s announcement that it will no longer display snippets and thumbnails from content owned by publishers who are represented by VG Media, a collecting society. This follows the introduction of the Leistungsschutzrecht, a new ancillary copyright, by the German Government in 2013 (which this blog covered here, here and here).  Under the new ancillary copyright law, the display of news snippets in search is restricted — a departure from international copyright law, which provides for a right to quote.  VG Media, who represents some of the press publishers that most vocally lobbied for the law, has gone as far as saying that the search provider is now ‘blackmailing’ them. MORE »


The unintended consequences of well-meaning regulation is a theme we discuss frequently here on DisCo.  (Note: This is different than cynical, anticompetitive regulations that are pushed under the guise of well-intentioned “consumer protection”, which is another recurring DisCo topic.)

In that vein, I filed comments on behalf of CCIA discussing the potential impact of new proposed regulations by the Department of Transportation aimed at requiring airlines to disclose the full cost of travel up front (instead of playing hide the ball with a litany of added fees).

The aim of this rulemaking is noble and economically sound. Econ 101 tells us that competition works best when certain conditions are present.  One of those conditions is that “perfect information” is available to consumers and producers.   The principle is that markets work best when everyone involved knows the full price up front and can assess their options before purchasing.  (Obviously, “perfect” is an ideal on one side of a continuum.)  In fact, this is an area where all sides of the political spectrum should agree — at least in theory.  Narrow rules that increase pricing (and quality of service) transparency would help the free market work better, and decrease the need for regulation, as consumers would be better able to discipline market participants with their consumption decisions.  In English that translates to: if airlines are screwing consumers on price or quality, and consumers know that up front, they can purchase a ticket on another airline, making that airline less likely to screw customers.   Hence, the “disciplinary power” of a well functioning market.  (Now, it is an entirely different debate as to whether the airline market is competitive enough given the recent wave of airline consolidation and the market’s unique structure, but that is an argument beyond the scope of this post.  No matter how competitive that market is right now, it is difficult to argue with the contention that better pricing information up front will make it work better.)

However, while “open data” is a good thing, regulations that go further than requiring a standardized output of raw data, governing how data is displayed by third parties, would be unwise.  As the growth of the Internet economy has illustrated, the packaging and display of information to consumers is an important sector of economic activity where new participants and innovation currently abound.  Locking in a particular type of display or presentation would slow growth and harm competition in the metasearch market.



If you haven’t had your daily fill of irony yet, let me tell you about the Euro-skeptic, free marketeer news organization appealing to European regulators to guarantee “fair returns” in the wake of Internet-driven disruption.

On Wednesday, News Corp released a letter from its CEO Robert Thomson to the EU competition commissioner Joaquín Almunia, criticizing Google and championing regulators to act against the search provider, following similar demands by the news publisher’s European peers.  Unfortunately, Thomson’s letter received about as much fact-checking as a News Corp tabloid.  (Jeff Jarvis has already annotated the letter’s “staggering” “willful blindness to irony” on the News Genius platform).

News Corp publications have championed tech disruption before, but apparently those principles go out the window when News Corp is the one being disrupted.  In fact, News Corp’s own Wall Street Journal previously complained that Google had become its competitors’ “piñata,” who were demanding “a regulatory veto” notwithstanding the fact that they “haven’t demonstrated any economic harm” stemming from the search provider.  Yet this week, News Corp itself jumps into the piñata party, waving the European banner. MORE »


Wednesday’s hearing in the House Judiciary Subcommittee on Courts, Intellectual Property, and the Internet on section 1201 of the Digital Millennium Copyright Act was simultaneously disturbing and encouraging.  (A complete summary of the hearing can be found here.) It was disturbing because it revealed the conflation by some witnesses and subcommittee members of the effect of technological protection measures (“TPMs”) with the effect of section 1201’s ban on the circumvention of TPMs.  It was encouraging because many subcommittee members recognized that section 1201’s prohibitions may be too broad and the rulemaking process for additional exemptions too rigorous.

A Little Bit of History

In September 1995, the Clinton Administration’s Working Group on Intellectual Property (chaired by Bruce Lehman, then Commissioner of the Patent and Trademark Office), issued a White Paper that proposed a prohibition on the production and distribution of devices that circumvent anti-copying technology. The policy rationale for the prohibition was a series of assumptions. The Working Group first assumed that the availability of legal copyrighted content would be a critical driver of the development of electronic commerce on the “National Information Infrastructure,” as the Working Group described the Internet. The Working Group next assumed that the ease of infringement that digital networks made possible would encourage widespread disregard of the copyright laws. The Working Group assumed that this threat of infringement would inhibit copyright right owners from making their content available in legal online markets. The Working Group further assumed that TPMs could prevent this infringement. The Working Group, however, recognized that TPMs could be circumvented. Accordingly, the Working Group supported legal remedies against the circumvention of TPMs. But the Working Group concluded that prohibition of the act of circumvention would be insufficient if the technologies that enabled the circumvention remained available. Thus, the Working Group also supported legal remedies against the manufacture and sale of circumvention tools. Without such remedies against circumvention tools, the legal prohibition on circumvention would be ineffective, which would render the TPMs ineffective, which would lead to widespread infringement, which would prevent the development of legitimate online markets for copyrighted works, which would inhibit the development of electronic commerce generally.

Putting aside the economic assumption of the importance of legitimate online content markets to the development of electronic commerce, this concatenation of assumptions contains a fundamental logical flaw. If people would disregard a legal prohibition on reproduction and dissemination of copyrighted works, why would they respect a legal prohibition on circumvention of TPMs or the manufacture and distribution of circumvention tools? In particular, why would they respect a legal prohibition on circumvention when they could readily access the circumvention tools—typically software—using the Internet? The Working Group on Intellectual Property should have recognized that in the digital environment, a circumvention law would be no more and no less effective than the copyright law itself.



Last week I wrote about a phenomenon I referred to as ‘IP immigration,’ in which plaintiffs with non-IP injuries bring lawsuits making IP-based claims, usually due to the potency of IP remedies compared to what they can claim using more conventional claims.  Given the recent Celebgate debacle, in which compromising photos from celebrities’ iCloud accounts leaked onto the Internet, it is timely to think about whether IP ‘immigration’ is a desirable trend.

As I mentioned before, this phenomenon is not limited to copyright, but it seems to occur most frequently in copyright.  That makes sense; copyright does occasionally play what might look like a privacy-related function in relation to unpublished works.  Cases like Salinger v. Random House, which involved a biographer’s use of author J.D. Salinger’s unpublished letters, and the Supreme Court’s decision in Harper & Row v. Nation Enterprises, which involved a magazine reporting lengthy quotes from former President Gerald Ford’s memoirs using a leaked manuscript, show that copyright interests can be used control the act of first publication.  Still, many ‘immigration’ cases don’t involve unpublished works at all.

In that vein, consider legislation introduced in the 1990s which proposed granting the United States a copyright in the American Flag. (e.g., here and here).  The stated purpose was to prevent anyone from burning or otherwise desecrating flags, a subject of great interest in the early 1990s following court decisions holding that the First Amendment protected such acts.  By assigning a copyright to the government and extending a public license for anyone to sell, distribute, manufacture, and, under certain circumstances, display the flag, the legislation would have permitted the sale and display of flags, but empowered the U.S. Government to still bring criminal charges against flag burners to prevent mutilation of a flag.  (I’m indebted to Prof. Mark Lemley for pointing out these proposals.)  Confronted with the nearly insurmountable barrier of the First Amendment, these (ultimately unsuccessful) bills would have attempted a work-around by ‘immigrating’ to one of the few established First Amendment exceptions: copyright.   MORE »


Nearly six months before this week’s reveal of iPhone 6 and the Apple Watch, the Wall Street Journal reported that Apple was in talks with Comcast Corp. about “teaming up for a streaming-television service that would use an Apple set-top box and get special treatment on Comcast’s cables to ensure it bypasses congestion on the Web.” For content, the product reportedly would not only offer users access to on-demand movies, TV programs and other apps, including games, but also live Comcast cable programming. This raises a serious question whether such an arrangement would represent a procompetitive development or instead further delay a languishing 20-year federal effort to create a commercially viable retail market for cable set-top boxes (“STBs”).

There are three sets of obstacles potentially standing in the way of this initiative. First are business issues associated with customer control. As commentary noted at the time:

Back in February it seemed both Comcast and DirecTV were reluctant to allow Apple to develop a system where customers logged in using their Apple credentials instead of their pay-TV accounts. The fundamental question of who gets to have the primary relationship with the customer has played prominently in Apple’s negotiations with magazine and newspaper publishers in the past, so it makes sense that the issue would pop up again in a different medium. Given that Comcast has been investing in its own advanced set-top boxes, the cable giant is probably not ready to cede too much ground too quickly.

The second set of issues relates to whether Apple, or any content provider, should be permitted to pay for routing of its IPTV traffic as a managed service, receiving priority handling for the packets involved, from ISPs. That is a subset of the network neutrality debate, commonly referred to as “paid prioritization,” that continues to rage before the FCC and Congress. MORE »