The Layered Playing Field

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Recently Politico reported on Deutsche Telekom CEO Timotheus Hottges calling for “free competition” while reporting the company’s strong financial results, reliable dividend and strong free cash flow. But “free competition” in what? Mobile telephony?

Deutsche Telekom (DT) spokesman Philipp Blank clarified that “What we want are open platforms and inter-operability” apparently a reference to messaging applications such as WhatsApp, Apple’s FaceTime, Skype and Viber. DT wants such apps to be made interoperable with SMS. These demands have also been made by Telefonica and coincide with the European Commission’s recent release of the Digital Single Market strategy. Both companies want the European Union to bring about a ‘level playing field’.

Is this a good idea?

Rather than think about a level playing field, something the firms above have called for, a better way to approach this debate would be to think about a layered playing field.

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The New EU Trade Strategy Should Break Down Telecoms Access Barriers

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The European Commission is set to present its new Trade Strategy this autumn and the removal of digital trade barriers is expected to feature prominently.  As part of the strategy, the EU should seek to enable cross-border data flows, simplify customs and VAT rules, discourage forced data localisation and promote non-discriminatory access to networks.

The latter is an essential, but often overlooked, requirement for a vibrant digital economy as a competitive marketplace for communications services is a necessary condition for the growth of a vibrant Internet economy that is built on top of communications networks.  International corporate users rely on connectivity for networks in support of online business processes and communications.  Sensitive business information increasingly speeds across networks — including between cloud platforms and the sensor-driven Internet of Things.  Demand is rising for unfettered, cross-border movement of proprietary corporate information within a secure and fully reliable environment.  While this is all based on IP technology, those intra-corporate communications are not done over the public internet.

Despite existing trade agreements, some countries let dominant providers of wholesale transmission capacity exploit their market positions, driving up prices for communication and IT services and reducing competition and innovation.  Wholesale access (also called special access) is for instance not available in a pro-competitive way in many U.S markets.  This severely affects competition for end-consumers, but also the provision of business-to-business ICT services.  (However, the U.S. Federal Communications Commission is looking into the matter and strongly considering taking pro-active steps to address identified problems in the special access market.)

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What Does Jurassic World’s Opening Weekend Tell Us About International IP Policy?

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Jurassic World grossed over $315 million abroad last weekend, including more than $100 million in China. The overseas success of the Universal Pictures film – and the fact that for years overseas profits have outstripped domestic ones – calls into question the perpetual narrative that foreign IP laws are non-existent or inadequate. The matter is timely, since this narrative is made in support of the copyright section of the Trans-Pacific Partnership Agreement.

Although the text of the current draft of the TPP is still secret, the IP chapter has been leaked several times during the course of the negotiations, most recently in October 2014. The copyright section of the IP chapter has been discussed several times in this blog, including here and here. Throughout the TPP negotiations, the U.S. has attempted to export certain features of U.S. copyright law, some good, some not-so-good. The good include safe harbors for Internet intermediaries and language on exceptions inspired by the fair use doctrine. The not-so-good include the DMCA prohibitions on circumvention, a life of the author plus 70 years term of protection, and statutory damages.

The new language on exceptions may cause the TPP’s copyright subchapter to be more balanced overall than the copyright subchapters in the various free trade agreements the U.S. previously entered into with other TPP countries, including Peru, Chile, Korea, Australia, and Singapore. But why are copyright issues injected into trade agreements at all?MORE »

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Time to Stick a Fork in These Android Competition Complaints

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Here we go again.  Another Android antitrust drumbeat.  In April, the European Commission announced a formal investigation into Google’s Android operating system.  This is not the first time antitrust allegations have been leveled at Android.

Let’s take a short trip back in time.  In early 2014, a flurry of media reports emerged accusing Google of anticompetitive conduct surrounding its Android licensing arrangements.  The reports cited industry insiders and experts who had “examined” contractual arrangements that surfaced through an unrelated court proceeding between Google and Oracle on intellectual property claims.  Much of that early reporting was fueled by a detailed blog post and paper by longtime anti-Google “consultant” Ben Edelman which accused Google of leveraging its monopoly power through secret nefarious contractual arrangements with device manufacturers (most of which actually had nothing to do with the Android operating system itself).  Unfortunately, much of the reporting (and much of Edelman’s analysis) turned out to be misleading or just plain wrong. Industry followers, open source experts and academics followed on to poke skyscraper-sized holes in the initial reporting.  (I had my own take.)

FairSearch, an organization funded by Google’s competitors aimed at bringing regulatory scrutiny on the Mountain View company, used the Edelman claims as the basis for a complaint it filed in April 2013 with the European Commission — shortly after the original round of media coverage — claiming that Google’s below-cost distribution of Android (read: free, open source) was predatory pricing that made it difficult for Google’s competitors to compete.  It also claimed that Google’s practice of offering its suite of mobile applications in a package instead of a la carte (via so called MADA agreements) foreclosed competition in mobile platforms and applications.

In short, the claims were laughable.  The open source community cried foul, pointing out the dangerous implications such a precedent would set given that all open source software is available for free.  Furthermore, commenters noted the irony of a group funded by proprietary software companies attacking the free distribution of open source software as “predatory.”  Others pointed out that the MADA agreements are standard operating procedure for companies trying to build user friendly products and ensure that customers have an expected suite of services available to them “out of the box.”  At best, I thought, these claims were a sideshow.  A PR stunt orchestrated to keep Google’s PR and legal teams fighting on multiple fronts and that they would fade quickly.

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How Copying Promotes Creativity

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On Wednesday, NPR ran a story on composer Michael Giacchino that highlights the importance of fair use copying to the creative process. Giacchino won an Oscar in 2010 for his score for the film Up, and he has written the score for many other films, including the just-released Jurassic World, Tomorrowland, Mission Impossible 3, Dawn of the Planet of the Apes, and the recent Star Trek films.

Giacchino told NPR how he became obsessed with Steven Spielberg films as he was growing up:

“When I wasn’t able to get myself to a theater to re-watch, you know, E.T. for the hundredth time, or Raiders of the Lost Ark, or Star Wars, the only way to relive those movies was to listen to the soundtrack.” When he did go to the theaters, Giacchino would sneak in tape recorders so he could listen to the soundtracks later. “I still have all those cassettes,” he says. “I would just listen to Raiders of the Lost Ark over and over and over.”

As this anecdote reveals, artists don’t just spring into existence. They must learn their craft, and part of that educational process involves close study of the great works of the masters that went before them. As with Giacchino, this study may require the copying of works to get the necessary long-term access to them. Additionally, artists often train by copying other artists. A standard exercise in a creative writing class is to copy, by hand, several pages of prose by great authors such as Ernest Hemingway or William Faulkner. Similarly, studio art classes often require students to paint copies of important paintings in different styles (e.g., Impressionist, Modern, Abstract, etc.). Fair use is the legal theory that permits this copying of works not yet in the public domain.

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Why booking trains online is a pain, and how the Internet is fixing it

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I love travelling by rail. Last month work took me from Vienna, where I’d been for Eurovision, to Milan, for EXPO — so of course, I took the train. Why fly when you can watch the Alps trundle by and break your journey with gelato in Venice? In my view, rail is by far the most civilized way to travel for business — or pleasure.

Forget out-of-town airports, security queues, your mini shampoos splurging over your laptop in your hand baggage, cramped legroom and recycled air — and say hello to the dining car, Internet connection and a view from the office like this. But when it comes to booking, trains are stuck in the sidings compared to air travel (have you used the easyJet app? so handy). It doesn’t have to be like that.

How did we get here? As the European Union liberalized rail networks, existing systems of cross-border co-operation gradually fell out of use: former national monopolies were now competitors. At the same time, the growth of cheap flights (also liberalized by the EU) and easy online booking made flying more attractive. Gradually, rail operators introduced dynamic ticket pricing like airlines, with prices fluctuating according to timing, demand, and a host of other factors. But they were still strongly national in focus.

Enter the Internet. The first big online disruption, as so often, was information transparency — courtesy of Mark Smith, better known as The Man in Seat 61. His site contains a ton of workarounds, tweaks and tips for booking the cheapest train travel online, with clear steps for navigating the myriad different booking systems for Europe’s rail operators. He describes it as “hand-holding” for travellers: I’d say it’s behind some of my best holidays of the last decade. But you can’t book a ticket on Seat61 — it merely provides advice.

An efficient online booking system “is not going to come from operators themselves, they tend to work in their little silos,” Mr. Smith says. “And a product that is not online doesn’t exist as far as the modern generation is concerned.”

The solution: more Internet. As rail companies gradually share their booking information, allowing agents to sell tickets — just like airlines — third parties are filling the gap. Agencies like Loco2 and Capitaine Train access national operators’ systems. Simultaneously, companies like Amadeus and Travelport which provide back ends for airlines are eager to do the same for rail.

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The Public Costs of Private Distribution Strategies: Content Release Windows as Negative Externalities

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In a Bloomberg Businessweek interview last month, Megaupload founder Kim Dotcom talked extensively about copyright and business models.  Dotcom, who has been criminally charged in the United States in relation to copyright infringement, was asked by the interviewer if he “believed in copyright.”  Dotcom replied that he did, but argued that he did not believe in “copyright extremism” – a term he used to describe extended delays in content distribution, which often result in content reaching foreign markets months after it is released in the United States.

According to Dotcom, the solution to such “extremism” is a worldwide studio-run streaming platform rather than, as the Washington Post’s Brian Fung described it, “letting Netflix play the middleman.”  Essentially, “extremism” is another way of saying that piracy is more a business model problem than a policy problem.  Expensive and controversial copyright enforcement would be more efficiently supplanted with different business practices.

But this raises an obvious question: if there is a better way of doing things, why aren’t things done that way?  The answer is that different stakeholders bear the costs of different solutions.  Moving to worldwide online distribution entails risks borne mostly by industry stakeholders, who would be abandoning a time-honored content distribution strategy referred to as “windowing” or “release windows.”  On the other hand, the risks of the current windowing model are known, and the costs of this model fall at least in part on taxpayers.

Example of Release Windows

(click to enlarge)

What Are Content Release Windows?

The traditional approach to distribution of film and some other content involves selective release through different and often exclusive channels, in different markets, for different times.  This means content may only be available through a particular channel for a period of time.  This period is dictated by the license, and it may occasionally be mandated by law.  As a result, the availability of a given piece of digital content often appears to consumers to change arbitrarily.

The most sacrosanct window has always been that of initial theatrical exhibition.  This is the time frame during which newly released films are exhibited in traditional movie theaters.  Over time, the length and nature of this window has changed, and it has generally become shorter.  As data from the theater owners’ trade association shows, the theatrical exhibition window has contracted over the last decade, but it still stands at roughly 120 days in the United States, and can be far longer in other markets.

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The Solicitor General’s Peculiar Brief in Google v. Oracle

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Last week, the Solicitor General of the United States filed a very peculiar brief advising the Supreme Court not to hear Google’s appeal from the Federal Circuit’s decision last year that the Android application program interface (API) infringed Oracle’s copyright in the Java API. We previously discussed the Federal Circuit’s May 2014 decision here, here, here, and here; and the significance of the Court’s call for the views of the Solicitor General here.

The SG’s brief is peculiar in several ways. First, it reflects a profound misunderstanding of the Copyright Act subsection that codifies copyright’s “idea-expression dichotomy” by prohibiting protection for ideas, systems, and methods: 17 U.S.C. § 102(b). Second, it completely ignores the obvious “circuit split” between the federal courts of appeal, which has been exacerbated by the Federal Circuit’s decision. Third, it mistakenly concludes that Google’s “substantial and important” concerns about the impact of the Federal Circuit’s decision on “interoperability and lock-in effects” are better addressed through the fair use doctrine than the idea/expression dichotomy.

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Royalties Ruling Reflects Anti-Innovation Bias

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As the national press noted two weeks ago, Judge Louis Stanton in the Southern District of New York sided with BMI in a dispute with Pandora over royalty rates for public performance of musical compositions administered by BMI.  That ruling was finally unsealed yesterday, and it reflects another example of copyright law penalizing new technology.

The upshot of yesterday’s decision [PDF here] is this: while radio broadcasters everywhere pay 1.7% of their gross revenues in public performance royalties for musical compositions, Pandora should pay 2.5% of its gross revenue to BMI.

As I have noted in previous posts, Internet radio broadly gets a bad deal in the copyright regulatory framework.  The fact is that the current copyright system tends to discriminate against newer forms of technology, and in favor of existing technologies.  This isn’t a recipe for promoting progress.

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Bigger than Geo-blocking: How the European Commission’s Sector Inquiry Can Set E-Commerce Free

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Early this month the European Commission unveiled its Digital Single Market (DSM) strategy. The strategy has the very laudable goal of promoting the digital economy by furthering Europe’s integration in this sphere — something a borderless Internet is indeed ideally placed to do. It encourages European companies, citizens and institutions to think more digital and sheds some of the barriers that citizens and companies face when engaging in business transactions online.

While the DSM strategy’s vague discussion of online platforms and geo-blocking were among the issues that received most media attention, it is worthwhile to recall that a fully fledged competition sector inquiry into e-commerce is formally a part of the strategy. Expressed in competition policy terms, the sector inquiry will look at private barriers set up by companies that lead to territorial fragmentation and to restrictions of price competition.

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