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 »
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.
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.
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.
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 »
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 »
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 , , 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.”
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.
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.
Data is often presented as the lifeblood of our digital economy (please see here why it should not be referred to as the ‘oil’ of the 21st century). Data is everywhere and is collected by Internet companies as well as more traditional businesses like banks. Data has been used by industries for years – think about grocery store reward cards – but advances in the speed of data analysis and the quantity of data available today brought new attention to its use. Of course, data analytics and processing help companies to better understand their customers, providing them with services and products tailored to their needs and preferences.
At the same time, it has been suggested that the possession and accumulation of big data ought to result in more rigorous competition law enforcement. But this argument fails to take into account the low barriers to entry in this market and the disruptive nature of Internet businesses that quickly allow a startup to topple even the most entrenched incumbents. One also needs to remember that the existence of barriers to entry does not in itself mean that competition authorities need to intervene. Competition law is concerned with anticompetitive conduct causing consumer harm. Hence, a competition law analysis of barriers to entry only becomes relevant in merger cases and in determining whether a given company is dominant in a relevant market. Traditional barriers to entry include for example exceptionally large capital investments into a sophisticated distribution network, economies of scale and even the need for large marketing investments (for a discussion of these traditional barriers to entry see the CJEU’s judgment in United Brands v Commission).