Their de facto takeover of CES is reflective of the explosive growth and intensifying competition that has besieged the voice assistant industry over the past few years. To understand this trend, and its trajectory, we examine another breakout technology whose ascent contains stark parallels: mobile.
Last week, in Ventura Content v. Motherless, the U.S. Court of Appeals for the Ninth Circuit issued a decision making clear that monitoring a site for infringing content did not strip a website operator of its protection under the Digital Millennium Copyright Act (“DMCA”). In so doing, the Ninth Circuit undid some of the damage inflicted by its decision last year in Mavrix v. LiveJournal.
Motherless operates a website (Motherless.com) that hosts pornographic material uploaded by users. Lange, the owner of Motherless, or a contractor, quickly reviewed each image or video to make sure it did not contain child pornography, bestiality, or copyright infringement. Not only did Motherless remove content when it received a notice claiming infringement, it also provided copyright owners with software tools to remove allegedly infringing material themselves, without sending a notice. Furthermore, Motherless used software to prevent users from re-uploading deleted material.
Ventura produces pornographic films. It claims that segments from 33 of its films were uploaded to the Motherless website. Rather than send takedown notices, it sued for infringement. Lange promptly removed the segments identified by Ventura in its lawsuit, and claimed that the DMCA sheltered him from damages. The district court granted Motherless’s motion for summary judgment.
Are people willing to pay more for a social experiment in antitrust policy in the interest of potential benefits that are hard to measure? That is the question facing proponents of the neo-Brandeis movement, named for the aggressive proponent of antitrust intervention and Supreme Court Justice Louis Brandeis. Neo-Brandeisians seek to replace the consumer welfare standard with a more nebulous standard that considers more (and often competing) factors. Although called neo-Brandeis, this movement is not new and was already rejected in the 1960s.
The consumer welfare standard has been the guiding principle of modern antitrust law for one simple reason: Antitrust enforcement under the consumer welfare standard produces a measurable benefit to consumers and is administrable by courts that need solid evidence on which to base their decisions. The consumer welfare standard asks whether the behavior being challenged leaves consumers worse off by making them pay more, get less, or miss out on innovation that they would otherwise have if the behavior did not occur. If consumers are worse off on balance, then the anticompetitive behavior can be challenged under the antitrust laws.
The consumer welfare standard means that antitrust laws punish anticompetitive behavior and not “big” behavior. Anticompetitive behavior will leave consumers worse off, but big behavior is different. When a company wants to win big, the most direct approach is to beat their competitors with better products, prices, or innovation. A company that is swinging for the fences is looking to wow customers with something amazing, and to capitalize on this success through earning a big market share. We’ve seen this repeatedly in technology industries in the form of leapfrogging rivals’ technology or figuring out ways to put out the same product at a dramatically reduced price – often free. Big behavior is encouraged by the consumer welfare standard as long as it doesn’t stray into anticompetitive behavior.
Ditching the consumer welfare standard means that consumers will inevitably pay more and get less quality and innovation as the result of the enforcement of antitrust law. That’s a tough sell. The problem comes from the fact that when you change from a standard with one clear goal to a more general standard with multiple goals, like a public interest standard, you will run into situations where pursuing one goal will come at the cost of another. Antitrust luminary Herb Hovenkamp puts the neo-Brandeis problem another way: “As a movement, [neo-Brandeis] antitrust often succeeds at capturing political attention and engaging at least some voters, but it fails at making effective – or even coherent – policy. The coherence problem shows up in goals that are unmeasurable and fundamentally inconsistent, although with their contradictions rarely exposed.” MORE »
Europe can minimize and prevent repeats of WannaCry, Heartbleed and other criminal exploitation of large-scale software vulnerabilities. The way to do that is to advance a norm encouraging governments to establish internal processes to review and share information which they have obtained about software vulnerabilities. The proposed EU Cybersecurity Act is a good place to start, with ENISA, the EU Cybersecurity Agency, supporting Member States in sharing and implementing best practices.
Today, European governments and their various departments and agencies come across software vulnerabilities in multiple ways, for example through their own research and development, by purchasing them, through intelligence work, or by reports from third parties.
Vulnerabilities – especially ‘zero-day’ ones – pose a serious cybersecurity threat in that they can also be exploited by cybercriminals to cause serious damage to citizens, enterprises, public services and governments, as witnessed in, for instance, the recent WannaCry, Petya, and Heartbleed cyberattacks.
Yet despite this reality, very few EU Member States have a proper process for these agencies and departments to review and disclose the vulnerabilities they discover to relevant vendors. This inhibits the possibility of affected companies to patch their codes and protect users’ systems before these vulnerabilities become known to other actors and weaponized against the wider public. The process for review and disclosure, usually referred to as “Government Vulnerability Disclosure” (GVD), is currently being discussed in a handful of Member States, and most European governments have yet to start this conversation across all responsible departments.
The breakup is something that has been normalized in our conversations about large companies. One may be forgiven for thinking that a breakup is a relatively simple and common remedy. However, the non-merger breakup is actually something we have little experience with. There are only three instances of a breakup being used in non-merger cases, with the last being the breakup of AT&T in 1982.
Breaking up a company is very difficult to do and the results could make everyone – not just the company – worse off. It’s a little like brinkmanship in global politics: the strategic threat of an extreme policy can sometimes get a country what they want but the plan is to always back away from the policy without executing. In antitrust, the threat of breakup could encourage good behavior from companies that have grown large. But actually executing a breakup could undermine efficiencies, stifle innovation, and harm stakeholders.
Breaking up a company for Section 2 violations, which are monopolization claims under the Sherman Act, is a dramatically different remedy than when applied to merger cases. Mergers create one company from two or more distinct companies, so it is far easier to see the lines where breakup should occur. But even the lines in merger cases are only clear for a limited time. This is why antitrust enforcement agencies fight so hard for injunctions to stay mergers pending judicial review. It can become very difficult to “unscramble the egg” of a consummated merger once the companies have consolidated operations. In a non-merger case, there are rarely clear lines between business units that allow an enforcer to break off a fully functioning company from the larger whole.
A U.S. district court in California recently issued a decision in Disney v. Redbox that solidifies the copyright misuse defense while avoiding controversy on digital first sale.
Redbox, the movie rental firm, offers an on-demand service that allows users to stream or download films. Redbox attempted to enter into a vendor agreement with Disney similar to its agreements with other studios, but Disney refused. Redbox responded by purchasing Combo Packs, removing the slips of paper with the codes, and then selling the slips of paper through the Redbox kiosks. Disney sued Redbox, alleging that the resale of the codes: 1) breached the contract Redbox entered into with Disney when it purchased the Combo Pack; and 2) constituted contributory copyright infringement in that it induced customers to make unauthorized copies of Disney’s works. The district court denied Disney’s motion for preliminary injunction, finding that it was unlikely to succeed on the merits of its claims.
Digital companies are not paying their fair share of taxes, the European mantra goes. The European Commissioner responsible for taxation, Pierre Moscovici, recently stated that “digitalised business models are subject to an effective tax rate of only 9% … Less than half compared to traditional business models.” Moscovici will, for this reason, on 21 March present new tax proposals aimed at companies’ “digital activities” (whatever that means).
The inconvenient truth is, however, that digital companies pay a higher effective corporate tax rate than traditional companies. Digital companies’ real effective corporate tax rates are many times higher than the Commission’s estimated 9%. Digital companies pay, on average, between 26.8% to 29.4%, according to a new study from the think tank ECIPE (see figure below).
The author of the Commission’s own research, Professor Christoph Spengel, also criticises Moscovici’s assertion; “It is not correct to state that the digital sector is undertaxed.” Other studies have previously come to a similar conclusion.
Yet, the European Commissioner seems dead set on imposing a new tax regime targeting (mostly foreign) digital companies. By doing so, the Commission also ignores its own expert group on taxation of the digital economy which concluded that “there should not be a special tax regime for digital companies.”
This week is Fair Use Week, so at first blush, the Second Circuit’s decision that TVEyes’s service was not a fair use might appear ironic. However, a closer read reveals that the decision does not in any way undermine the Second Circuit’s recent fair use jurisprudence.
As DisCo has previously covered, TVEyes continuously records the audiovisual content of more than 1,400 television and radio channels, imports that content into a database, and enables its clients to view, archive, download, and email to others ten‐minute clips. Fox News sued TVEyes for copyright infringement. In 2014, the district court granted summary judgment to TVEyes. Fox appealed, and now the Second Circuit has reversed the decision below.
The Second Circuit stated that distinct functions should be analyzed separately to determine whether each function is a fair use. The Second Circuit noted that TVEyes had two core offerings: the “Search function,” which allows clients to identify videos that contain keywords of interest; and the “Watch function,” which allows TVEyes clients to view up to ten‐minute, unaltered video clips of copyrighted content. The district court had found the Search function and most aspects of the Watch function to be a fair use. The Second Circuit stressed that Fox did not challenge the Search function finding; “Fox’s challenge is to the Watch function.”
In other words, Fox’s appeal did not question the Second Circuit’s findings in Authors Guild v. HathiTrust and Authors Guild v. Google that the copying necessary to create a search database is a fair use. Rather, this appeal concerned the amount of Fox content TVEyes displayed to its customers in its search results. And the Second Circuit concluded that the ten-minute clips TVEyes displayed exceeded fair use.
The 60-Second Read:
A network effect occurs when the value of a good or service increases the more people use it. Think of smartphones: It’s easier to connect with friends when they are already on the service you are using, and it’s easier for developers to release a mobile app on an operating system that already has a lot of users.
When belonging to a network creates this much value, users want to stay, and therefore some digital services seek to create these kinds of valuable networks to entice users to stick around. This means that network effects can impact how competition takes place.
Network effects can be used as evidence of monopoly power by showing that an industry has high barriers to entry. The question is how easily can a new network compete with an existing one. Additionally, a judge may find that more aggressive forms of competition are too effective due to network effects, making a borderline or normally lawful act a punishable anticompetitive act. But modern thinking and a number of counterexamples caution against using network effects to take high barriers of entry as a given without supporting evidence.
A while back we started our #CompetitionTalks interview series giving a place for competition policy experts to express their views on today’s hotly debated topics. In the second part of our series, we are proud to present to you Prof. Justus Haucap who heads the Düsseldorf Institute for Competition Economics (DICE) and who is the former Chairman of the German Monopolies Commission. We had the pleasure of interviewing Justus at the fringes of CCIA’s competition conference organized together the Lexxion and the Vrije Universiteit in Brussels. An economist by training, Justus gives his opinion on how well the current competition law framework works in digital markets and explains why the analogy of consumers ‘paying’ with their data is a bad one. Last but certainly not least, he clarifies why data protection and competition law enforcement don’t mix well.