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“Creative Culture” Is Not Cause For Tech, Antitrust Break-Ups

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Former music and film producer Jonathan Taplin, now director emeritus of the content industry’s Annenberg Innovation Lab, waxes poetic on faux antitrust policy in the continuing promotional tour for his book Move Fast and Break Things: How Facebook, Google and Amazon Cornered Culture and Undermined Democracy. Appearing in DC a few weeks ago, Taplin morphed a thin veneer of anti-Trump rhetoric and some self-selected statistics into this remarkable non sequitur: “Facebook, Google and Amazon have created powerful monopolies that now control the economic success of the journalism, music, video and book industries.” Taplin is way out of his element, merging two distinct issues into a superficial “#resistance” meme that contradicts the central tenets of U.S. antitrust law.

The headline of Taplin’s speech at that New America event in Washington — “Have Internet Giants Taken Over Creative Culture?” — is illuminating. Creative culture and antitrust bear no relation to one another. Taplin’s thesis that Internet platform providers are monopolies is factually inaccurate and devoid of real antitrust analysis. His call to break up these supposed “monopolies” is not only “spectacularly wrong,” it turns the political wars in America over “fake news” and the like on their head. In an odd juxtaposition, Taplin explained that because Google and other digital platforms have experienced unprecedented revenue growth over the past decade, while content creators witnessed a decrease in their own earnings, users should mount a “#resistance” to YouTube “for what it has done to the music business” and punish Facebook “for the election of Donald Trump.”

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Music Licensing Explainer, Part III: The Uncertain Impact on Antitrust Law

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This post assumes you’ve read the previous two, if you haven’t you can find them here and here.

It is indisputable that the performing rights organizations (“PROs”) have played an important and procompetitive role in making the music industry what it is today. The benefits that PROs provide are mainly that they offer “unplanned, rapid, and indemnified” access to the songs in their catalogue. Nearly all music users, until recently, have been able to get immediate access to public performance licenses for the music they need simply by taking blanket licenses from the major PROs of the time.

The full work licensing question has never definitively been answered, but it has at the very least historically been assumed by the DOJ, Supreme Court, and music users that the PROs effectively offer full work licenses. The language the Supreme Court uses to describe the service provided by the PROs – “unplanned, rapid, and indemnified access” – implies full work licensing. However, the reason why there is still even room for debate is that it’s never really mattered. Most music users take licenses from the three major PROs (ASCAP, BMI, and SESAC) and pay these PROs based on fractional market shares. In exchange, these music users have never worried that they do not have the rights to play the songs in these PROs’ catalogues. The question only becomes relevant when music publishers wish to fragment music licensing and move rights out of the PROs.

For the purposes of this post, I will assume that – despite the findings of the DOJ – it is debatable whether the PROs have offered full work licenses to date. Even still, the historical assumption of a full work licensing environment has great implications for how the courts and the DOJ have treated the music industry under the antitrust laws.MORE »

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Consent Decrees and the Music Industry: An Antitrust and Copyright Explainer

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As DisCo has covered before, a major legal battle is being waged in the music industry. The battle concerns the intersection of music copyright and antitrust law, and it could dramatically change how consumers interact with music. On May 18, the Department of Justice (“DOJ”) is expected to file its opening brief in an appeal of a district court decision rejecting its interpretation of a consent decree entered into in 1941 (and amended since). The outcome of this appeal could have major and long lasting repercussions for Internet radio and music streaming.

How the Music Industry Historically Worked Out Its Issues

The music industry joins a handful of other industries, like major league sports, which have a unique relationship with antitrust laws. These industries all have very significant and unique problems that are solved through competitor coordination, but competitor coordination is normally illegal under the antitrust laws. These industries generally operate under some kind of exception to the antitrust laws, because the problems outweigh the competitive concerns in a limited coordination. In the case of the music industry, a complicated basket of rights extended across millions of songs would make it nearly impossible for music services to exist without some market intervention. Every recorded song is covered by two copyrights, one for the recording and one for the composition, and every copyright can have any number of owners. This leads to a counter-intuitive relationship between buyers and sellers where buyers want the smallest number of sellers possible, as long as those sellers are required to play fair. This leads to the lowest search cost and the easiest way for buyers and sellers to find each other.

Enter the performance rights organizations (“PROs”). These PROs gather many composition licenses together and offer them at a blanket rate to music buyers. This is, of course, called price fixing in antitrust terms. However, the DOJ recognized the benefits of PROs and negotiated a settlement that would allow the PROs to continue to operate unchallenged by antitrust laws as long as they were bound by certain rules that ensure the PROs played fair and didn’t abuse their immense power. This assessment of the PROs was later endorsed by the Supreme Court. The set of rules the PROs operate under is called the consent decrees, which cover the two largest PROs in the music industry – ASCAP and BMI. These consent decrees provide a floor of protections for music buyers.

Today, virtually all music services take blanket licenses from the major PROs. The PROs in turn gather composition rights primarily from large publishing houses like Sony and Universal Music Publishing Group.

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Android, iOS and Market Power – What Does Mobile Platform Competition Really Look Like? – Part II

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A while back I wrote about the European Commission’s competition investigation into the Android operating system (OS) and today’s mobile platform competition. The main argument of my previous post was that competition in the mobile economy is best conceived as competition between mobile ecosystems with Android and iOS being by far the two most popular which, in my opinion, stand in clear competition with each other. All mobile OSs have to serve and balance the interests of a variety of parties to keep them attractive (or even alive) — that is the nature of a multi-sided platform like a mobile OS. The ‘Apple factor’ should be part of the Commission’s investigation into Android at the stages of determining dominance as well as potential abuse. It is very hard to imagine that Google can act ‘independently’, in the competition law sense of the word, of Apple in the market for mobile OSs. In that sense the Commission’s market definition of licensable smart mobile operating systems, which leaves Apple’s iOS outside that market, appears peculiar (you can read more on that point in my previous post). MORE »

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No, Every Big Internet Company Is Not a Monopoly

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Earlier this week, Hollywood veteran Jonathan Taplin’s misleading op-ed in the New York Times did us the favor of compiling the most common misconceptions about online competition in one convoluted package.  Unfortunately, Mr. Taplin’s piece tracks with recent zeitgeist, as some commentators and armchair economists increasingly reach for the “monopoly” label when beginning an analysis of Internet companies, rather than upon concluding it.  

Commentators like Mr. Taplin are wont to pick a major Internet company (or all of them), apply the monopoly label, and call for antitrust regulators to right some perceived wrong – never mind that the complaint often has nothing to do with competition law.

This isn’t competition law; it’s industrial policy.  In Mr. Taplin’s case, the evil that industrial policy must address is the alleged, unjust transfer of wealth from traditional content companies to “free-riding” Silicon Valley firms that do nothing for society (except being the leaders in research and development spending, which is a key driver of productivity and job creation).  And judging by the hyperbolic title of his forthcoming book, he appears to blame them for destroying culture and democracy as well.  Very subtle.

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On Heels of DOJ Antitrust Contempt Action, Congress Told to Roll Back Antitrust Protection in Music Licensing

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Less than a week after agreeing to pay $1.75 million to the Department of Justice to settle an investigation into antitrust misconduct, the American Society of Composers, Authors and Publishers (ASCAP) was on Capitol Hill yesterday, asking lawmakers to roll back the consent decree to which the performing rights organization is bound.  

On May 12, DOJ had asked a federal court to hold ASCAP in contempt, stating that the PRO had “undermined a critical protection of competition” and violated its federal commitments.  Concurrently, DOJ and ASCAP filed a settlement relating to the alleged misconduct.  

As DisCo has previously covered, two federal courts found “troubling coordination” among ostensible competitors in the music publishing industry, which contributed to Justice’s recently concluded investigation.  The 7-figure settlement is a stark reminder of the continuing need for antitrust protections, even as Congress is being asked to relax those commitments.

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Senate Hearing Set to Explore Antitrust Priorities

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This afternoon, U.S. Government antitrust policies will come under the microscope as a Senate Judiciary subcommittee holds an antitrust oversight hearing, with testimony from Assistant Attorney General William Baer from the Department of Justice’s Antitrust Division and Federal Trade Commission Chairwoman Edith Ramirez.

The Administration is coming into the hearing fresh off a highly publicized win over Apple, as the Supreme Court refused Monday to hear Apple’s effort to overturn rulings that it engaged in unlawful e-book price-fixing with major publishers (DisCo coverage of DOJ’s win here.)  With that issue put to bed, attention may turn to other antitrust priorities.  For example, just in the area of technology, a number of major DOJ and FTC merger reviews and enforcement actions have recently concluded, and the FTC has had a long-running review of dubious practices by patent assertion entities.  

Another issue that may appear on the antitrust radar is the ongoing DOJ review of consent decrees governing collusive practices by performing rights organizations (PROs) licensing of musical compositions.  The consent decrees – the product of antitrust suits against music publishers and rightsholders – are credited with enabling the development of new lawful music delivery services, even if transparency concerns persist.  Exactly one year ago today, DisCo covered a previous Senate hearing on PRO practices under these rules, noting that DOJ’s review of PRO practices has the potential to increase transparency in the notoriously opaque music licensing landscape.  Currently, licensing uncertainty and gridlock are some of the most significant barriers to a robust and viable music marketplace.  Courts have previously found that this uncertainty has been weaponized for use in licensing negotiations.

Likely in response to findings of licensing misconduct in private litigation, DOJ’s attention turned to the problem of so-called “fractional licensing” by PROs and their constituent publishers.  Fractional licensing deals with the question of when multiple parties hold an interest in a copyrighted work. How many co-owners’ permission must one obtain?  (I.e., If nine co-owners agree to license a work and the 10th says ‘no,’ can the licensee proceed?)  Conventional copyright law says yes, and the authorizing owners have a duty to account for profits to remaining owners.  One co-owner can’t hold up all the others.  Music industry practices attempt to reverse this rule, however, such that everyone can say ‘no,’ but no one rightsholder can unilaterally authorize a licensed use of a work.  The rationale for challenging this practice is that it magnifies market share in an already concentrated market.  With just a 10% interest in a work, a rightsholder can dictate usage of the entire work.  Although the practice is a prescription for gridlock, the possibility that the Justice Department might weigh in on this particular practice nevertheless produced much “unhappiness” in the music publishing industry, as Mike Godwin wrote last year for Techdirt.  

PRO oversight is not necessarily the top issue on the Judiciary committee’s agenda, and it may not receive sufficient attention in the hearing.  Nevertheless, the outcome of DOJ’s investigation into PRO practices under the consent decrees will have a significant impact on music delivery services nationwide.

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Reich’s Attack on Tech is Short on Facts, Law

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There’s no sense in beating around the bush: Robert Reich’s NYT editorial on Friday, “Big Tech Has Become Way Too Powerful” indicates that when it comes to intellectual property (IP) and antitrust law, he doesn’t know what he’s talking about.  This isn’t a normative critique of Reich’s antitrust views, but rather an objective assessment of Reich’s limited grasp of the basic facts and law here.

The thrust of Reich’s argument is that large Internet platforms are misusing intellectual property rights to maintain unfair advantages in the marketplace, and this needs to be reined in.  He begins with the premise that the “most contested policy issue” in regulating Internet platforms is intellectual property, and that “information and ideas are the most valuable forms of property.”  

Quite simply, Reich doesn’t know what intellectual property is.  Neither information nor ideas are — in themselves — IP.  Ideas have to be “reduced to practice,” which may earn you a patent, or expressed in a work of authorship, which will get you a copyright.  Mere ‘information’ doesn’t qualify for either.  (Closely held information might rise to acquire trade secret protection, but Reich doesn’t consider that.)  More to the point, Reich incorrectly states “without government decisions over what [intellectual property] is, and who can own it and on what terms, the new economy could not exist.”  

While Reich is correct that governments define the boundaries of intellectual property, the relationship between IP and the new economy is not what Reich thinks.  He suggests that the temporary monopolies granted by the U.S. Government in the form of IP rights are the secret to U.S. Internet platforms’ historic success.  They’re not.  If there’s any lesson to take away from Internet competition, it is that openness, not exclusion, characterizes the historic successes of the Internet.  The growth of the Internet is often attributed to the fact that Internet pioneers made conscious decisions not to claim IP rights in their respective contributions.  Today, anyone can enter an Internet market, and competition is always a click away.  Highly successful Internet platforms aren’t maintaining their market positions by enforcing their government-granted rights to exclude the competition.  Instead, they’re providing compelling services open to all, upon which others may build and innovate, which are in many cases free to the user.  

In fact, anyone following intellectual property politics for the last 10 years would know that the Internet industry has been at the forefront of efforts to reform a widely criticized, out-of-control patent system and an imbalanced copyright system — with limited success due to entrenched opposition from more politically seasoned sectors like Hollywood and Pharma.  On many days, headlines in the New York Times will frame the relationship between IP and the Internet sectors as a fractious, often adversarial one.  Yet reading Reich would leave you thinking that Internet platforms are in the Church of St. Patent, praying the rosary to Our Lady of Perpetual Copyright Term Extension.  MORE »

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Is the Justice Department taking a stand against music licensing gridlock?

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Yesterday Billboard wrote that the Department of Justice was reportedly taking a position against a major source of gridlock in music licensing: so-called “fractional licensing.”

As readers of DisCo may recall, the Department of Justice has been investigating alleged anticompetitive activities by the nation’s performance rights organizations (PROs).  Two of the major PROs, ASCAP and BMI, are already governed by long-standing consent decrees originating from previous antitrust cases.  In the course of efforts to update those consent decrees, DOJ has reportedly said that it will look disfavorably on contractual terms that gridlock musical compositions.

This is a crucial development, because gridlock is one of the greatest impediments to more viable options for music delivery, and, one federal judge has already found, has been used anticompetitively in an effort to extract supra-competitive prices.MORE »

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Quote of the Day: The Apple eBooks Decision, On Windowing

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Today a federal court of appeals in New York upheld an antitrust judgment against Apple, affirming a trial court’s finding that the technology company had coordinated a price-fixing scheme among five major publishers when launching its ebook store in 2010.  DisCo has covered the antitrust aspects of the ebook case before [1], [2], but there is a non-antitrust thread in the opinion, regarding windowing, that deserves attention.

As I noted in a previous post, windowing is a content distribution strategy of releasing the same content in different formats and venues at different times. By delaying consumer access to digital content as long as possible, rights holders aim to maximize returns from more traditional distribution outlets.  My previous post explored windowing in the motion picture industry, but windowing is practiced in the ebook market as well, with publishers holding back the digital distribution of their catalogue in the hopes that consumers would purchase hardcovers.  One of the problems with this windowing business model is that it induces copyright infringement.

Today’s decision by the appeals court notes that publishing executives knew this quite well, but couldn’t bring themselves to break the practice.

Ultimately, however, the publishers viewed even this [windowing] strategy to save their business model as self‐destructive. Employees inside the publishing companies noted that windowing encouraged piracy, punished ebook consumers, and harmed long‐term sales. One author wrote to [a publishing executive] in December 2009 that the “old model has to change” and that it would be better to “embrace e‐books,” publish them at the same time as the hardcovers, “and pray to God they both sell like crazy.”

(emphasis mine)

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