competition

As noted in our two preceding posts about the introduction of the “ancillary right” in Spain (here and here), Google announced it would discontinue operation of the Google News product in Spain, starting tomorrow, December 16.  (Wired UK cites a potential fine of up to €600,000 (~$746,000) for non-compliance after the January 1 deadline.)  In a statement, the Spanish Government shrugged off the company’s response to the “so-called Google tax” as a “business decision.”

Google’s decision surprised no one save perhaps the Spanish news publishers’ association (AEDE).  Responding to the announcement, the AEDE released a statement last week arguing that Google had a dominant position in the news market, and demanded that it not be permitted to exit the market.  Note that the data doesn’t seem to bear this assertion out; relying on data from Similarweb.com, it appears Google.news.es ranks 226th in Spain, miles behind Elpais.com at 16th, and elmundo.es at 18th.  If one limits the data strictly to news media, Google News Spain is still bringing up the rear (at 26th) behind yahoo.com (1st), elpais.com (3rd), msn.com (4th) elmundo.es (5th), and abc.es (7th).

In any event, the association’s about-face epitomizes its love-hate relationship with news search and aggregation: its members love the free traffic that they drive to publishers’ ads, but hate that news search providers and aggregators don’t pay for that privilege.

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Today we learnt that Google will shut down its ‘Google News’ service this year in Spain. This is just one consequence of the introduction in Spain of an ancillary copyright levy (known as the ‘AEDE levy’) affecting online services (apps and websites).

In a nutshell, if an online service uses short snippets to link to content which is deemed ‘news’, or enables internet users to do so, payment to the Spanish news publishers’ collecting society is mandatory. And by “news”, the law targets not just articles from major newspapers, but pretty much any blog or website that provides “information”, “entertainment” or content relevant to “public opinion” (see Art. 32.2 of the final text here).

There is no escape — even if a publisher does not want to be compensated when online services redirect substantial volumes of traffic to his site, even if they want to be included in the service, and even if their content is made available under a Creative Commons license, the law still obliges the publisher to charge.

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

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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 »

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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 »

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Two weeks ago in Facebook’s Q2 earnings call, Mark Zuckerberg reiterated Facebook’s desire to become a more effective online “search” competitor, although in his description of the initiative it became clear that he was talking about becoming a more effective competitor in the “market for answers,” as the Wall Street Journal pointed out:

Facebook is trying to give people answers to what they’re looking for in hopes they’ll spend more time on the site or in the app, and in turn stealing searches away from Google or Microsoft’s Bing.

In fact, responding to an analyst’s question, Zuckerberg cited Facebook’s unique advantages in the answers market:

There is huge potential. There are a lot of questions that only Facebook can answer, that other services aren’t going to be able to answer for you. We’re really committed to investing in that and building out this unique service over the long-term. And I think at some point there is going to be an inflection where it starts to be useful for a lot of use cases. But that may still be years away. But we’re just committed to doing this investment and making this right.

Given our frequent musing here on the nature of competition online and its antitrust implications, Zuckerberg’s description of where Facebook is going was telling.  Namely, that the narrow market definitions that rely on colloquialisms (“search engines” and “social media”) do not reflect the true nature of competition online.

A fundamental tenet of antitrust law is that in order to figure out if a company is monopolizing a product market, one has to define what that relevant product market is.  Sounds simple enough, right?  Well, maybe not, especially in the online world.

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Three high-level staffers at the Federal Trade Commission (Andy Gavil, Debbie Feinstein and Marty Gaynorare) are backing Tesla Motors Inc. in its ongoing fight to sell electric cars directly to consumers. As we’ve observed, Tesla forgoes traditional auto dealers in favor of its own retail showrooms. But that business model was recently banned by the New Jersey Motor Vehicle Commission — and is under fire in many other states as well — as a measure supposedly to protect consumers.

The ubiquitous state laws in question were originally put into place to prevent big automakers from establishing distribution monopolies that crowd out dealerships, which tend to be locally owned and family run. They were intended to promote market competition, in other words. But the FTC officials say they worry (as have we at DisCo) that the laws have instead become protectionist, walling off new innovation. “FTC staff have commented on similar efforts to bar new rivals and new business models in industries as varied as wine sales, taxis, and health care,” the officials write in their post. “How manufacturers choose to supply their products and services to consumers is just as much a function of competition as what they sell — and competition ultimately provides the best protections for consumers and the best chances for new businesses to develop and succeed. Our point has not been that new methods of sale are necessarily superior to the traditional methods — just that the determination should be made through the competitive process.”

As Tesla’s CEO Elon Musk noted earlier this year, “the auto dealer franchise laws were originally put in place for a just cause and are now being twisted to an unjust purpose.” Yes, indeed. It is pure rent seeking by obsolescent firms. State and local regulators have eliminated the direct purchasing option by taking steps to shelter existing middlemen from new competition. That’s not at all consumer protection, it is instead economic protectionism for a politically powerful constituency. Thanks to the FTC staff, some brave state legislators may now be emboldened to resist the temptation to decide how consumers should be permitted to buy cars.

Unfortunately, the issue is not limited to automobiles. I wrote recently about how in New York City, officials want to ban Airbnb because its apartment rental sharing service is not in compliance with hotel safety (and taxation) rules. The New York Times last Wednesday editorialized in support of that approach, arguing that Airbnb is reducing the supply of apartments and increasing rents. They’re wrong, of course, because short-term visits obviously do not substitute for years-long apartment leases. But the more important issue is that one economic problem does not justify reducing competition in a separate market. If New York actually has an apartment rent price problem, banning competition for hotels is no more a solution than prohibiting direct-to-consumer auto sales.

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At the end of 2013, Project DisCo hosted its first physical world event, The Disruptive Competition Policy Forum.  Over the next few days, we are going to post the videos of the great panels and keynotes here.

Details below. MORE »

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CCIA launched DisCo (the Disruptive Competition Project) almost a year and a half ago; our first post was June 1, 2012.  Since then, the project has grown, and we’re excited about all of the interesting news and views we’ve had to share with you.

And DisCo is now more than just a blog; we’re having our first event next month, the DisCo Policy Forum 2013, featuring speakers on a lot of the topics we frequently cover.  Please join us in person as we explore several topics, including local restraints on Internet-enabled competition, data policy and 21st century copyright.

The agenda is below.  RSVP on Eventbrite.  (There’s also a Facebook event; invite your friends!)

DISCO POLICY FORUM 2013

Tuesday, December 10th

Arent Fox LLP, 1717 K Street NW

9:45am: Registration Opens

 

10:15am: Welcome, Opening Remarks

Featuring: Stephanie Joyce, Partner, Arent Fox LLP

10:30am: Policymaker Keynote Address

Featuring: Joshua Wright, Commissioner, Federal Trade Commission

11:15am: “Breaking Barriers to Internet-enabled Competition”

The Internet has been a game changer for the average consumer. Its ubiquity and malleability empower entrepreneurs and enhance consumer choice by expanding markets and connecting producers and consumers from all over the world. However, it also displaces traditional middlemen and reshapes markets in ways that have engendered political pushback from traditional incumbents. In this panel, we hope to discuss this trend and policy responses, including the FTC’s recent advocacy focused on anticompetitive local regulations.

Featuring:

  • Jim Chen, VP of Regulatory Affairs and Associate General Counsel, Tesla Motors, Inc.
  • Michael McGeary, Co-Founder and Chief Political Strategist, Engine Advocacy
  • Corey Owens, Head of Public Policy, Uber
  • Patrick Roach, Attorney-Advisor, Office of Policy Planning, FTC
  • Chris Sagers, Law Professor, Cleveland-Marshall College of Law & Advisory Board Member, American Antitrust Institute

12:15pm: Lunch

 

1:15pm: Q&A with Rep Jared Polis (D-Co.)

Moderated by: Rob Pegoraro

1:45pm: “Planning our Data Future: Privacy and Innovation in the 21st Century”

Declining data storage prices, ubiquitous broadband connections and advances in analytical capability have sparked an economic and technological boom over the last couple of years. In fact, advances in data processing and analytics are at the heart of many of the most cutting-edge disruptive technologies and business models. As policymakers and trade negotiators across the world grapple with the 21st century data rules of the road, this panel will discuss not only how these technologies are changing the world around us, but also how lawmakers and regulators should approach these technological advances.

Featuring:

  • John Boswell, SVP, Chief Legal Officer and Corporate Secretary, SAS
  • Josh Galper, Chief Policy Officer and General Counsel, Personal, Inc.
  • Ross Schulman, Public Policy & Regulatory Counsel, CCIA
  • Adam Thierer, Senior Research Fellow, Mercatus Center

3:00pm: “Cutting Edge Commerce and Copyright”

Reflecting the persistent friction between copyright and modern technology, Congress is again contemplating copyright legislation. Increasingly, copyright functions in a regulatory manner, instead of a well-ordered system of property rights. It is timely to discuss how new products and services navigate the uncertain rights and the ever-present threat of litigation in order to bring consumers what they want.

Featuring:

  • Marvin Ammori, Principal, The Ammori Group (counsel to companies including Automattic)
  • Michael Carrier, Professor, Rutgers School of Law
  • Michael Masnick, Founder and CEO, Floor 64
  • John Ossenmacher, CEO, ReDigi

4:15pm: Industry Keynote Address

Featuring: Chet Kanojia, Founder and CEO of Aereo, Inc.

5:00pm: Post-Event Networking Reception

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Are copyright holders allowed to decide without legal constraint to whom they will license their content and on what terms? That is the issue facing Pandora and other new streaming radio firms, for whom music and its associated licensing fees represent the biggest hurdle to commercial success against more established broadcast radio competitors. The answer lies in the sometimes obscure interface between the Copyright Act and antitrust law in the U.S.

In Pandora Media, Inc. v. American Society of Composers, Authors & Publishers, an antitrust case currently pending in federal court in New York, the streaming company is suing ASCAP and some of the major record labels for “withdrawing” their content from the ASCAP joint licensing venture, thus forcing individualized negotiations. It’s a leading-edge dispute, scheduled for trial by year-end, that may help catalyze a new approach to the old question of whether — and if so to what extent — owners of copyrighted digital content are permitted to refuse to deal with competing distribution channels on dramatically different commercial terms.

Most Project DisCo readers likely know about Pandora, a prominent start-up in the Internet radio space — one of the hottest markets around these days, especially given the launch of iTunes Radio by Apple. What is less understood is that streaming music on the ‘Net is fraught with legal issues surrounding copyright, constraints that effectively function as a barrier to the more widespread adoption of such disruptive technologies.

Pandora's Box via Wikipedia

That’s not a lot different from the case of streaming Internet television pioneer Aereo, which as Ali Sternburg points out is caught in legal limbo between different rules (from conflicting judicial decisions) in different regions of the county: and a whopping legal defense bill as well. Copyright in addition plays a key role in the current exemption of traditional over-the-air radio stations from licensing music, an implicit subsidy the recording industry has been lobbying to change for years.

The Pandora-ASCAP fight represents a tricky issue at the intersection of intellectual property (IP) and antitrust. The ASCAP litigation actually dates to 1941, when the government entered into a consent decree settling a complaint that alleged monopolization of performance rights licenses.  The settlement, still in place more than 60 years later, requires the organization to license “all of the works in the ASCAP repertory.” A month ago, presiding District Judge Denise Cote (who also issued the decision finding Apple’s e-book pricing deals a violation of the antitrust laws) entered summary judgment for Pandora. She reasoned that the consent decree gave Pandora the legal right to a blanket license

even though certain music publishers beginning in January 2013 have purported to withdraw from ASCAP the right to license their compositions to “New Media” services such as Pandora. Because the language of the consent decree unambiguously requires ASCAP to provide Pandora with a license to perform all of the works in its repertory, and because ASCAP retains the works of “withdrawing” publishers in its repertory even if it purports to lack the right to license them to a subclass of New Media entities, [Pandora must prevail].

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The Commerce Department released a long-awaited green paper today, arising from a 2010 “Internet Policy Task Force” initiative, titled “Copyright Policy, Creativity, and Innovation in the Digital Economy”.  The paper weighs in at an impressive 112 pages, which the copyright bar will no doubt digest over some time.  It reflects an extensive discussion of various current copyright subjects, providing a useful study of the vast complexity of current copyright law and practice, reaching from the controversy over cell phone unlocking to digital first sale.  After an initial review, I am impressed that the importance of balanced copyright is identified throughout the paper; the Administration adds to the growing consensus around balanced copyright policy, and discusses both the importance of protection and reasonable limitations.

(An aside: I couldn’t help but notice the paper gets off on the wrong foot by suggesting that copyright was a response to the invention of the printing press.  This fosters the myth that early copyright was actually rooted in author’s rights.  It wasn’t.  William Caxton set the first English press up in Westminster in 1476.  The Statute of Anne wasn’t enacted until 1709 or 1710, however.  (Depends on how you count. It’s complicated.)  So, did it take over two centuries for the law to respond to technological change?  And people claim Congress can’t get things done?  In reality, something entirely different was going on.  As Prof. Ray Patterson pointed out long ago in his authoritative 1968 book, Copyright in Historical Perspective, early copyright had less to do with our modern intentions — promoting authorial creativity — and more to do with censoring seditious and heretical texts in England and abroad.  On this point, Patry’s ‘94 Copyright Law treatise points to the English governor of Virginia, saying in 1671: “I thank God there are no free schools nor printing, and I hope we shall not have these hundred years; for learning has brought disobedience, and heresy, and sects into the world, and printing has divulged them, and libels against the best government.”  The response to the press was not copyright; it was censorship and regulation.  Modern copyright is the nobler outgrowth of this dubious ancestry.)

But back to our scheduled programming: historical objections aside, the report’s descriptive components are worthy reading, sourced with the intensity generally reserved for footnote-fetishizing legal academia.  The study’s policy recommendations on online infringement, however, do not all reflect the same insight.

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