You're probably quite familiar with the famous Charging Bull statue (also known as the "Wall Street Bull") which is found in Bowling Green Park right off Wall St. in lower Manhattan. The statue was originally placed there as a "guerilla sculpture" by artist Arturo Di Modica without permission.
Eventually, because New Yorkers seemed to like the damn thing, the city granted a "temporary" permit allowing the statue to remain (a little ways away from where it was originally placed) -- and so it's remained there, "temporarily," for 28 years. Of course, there have been some conflicts over the bull. In 2009, we wrote about Di Modica suing people for copyright infringement, which seems kind of nutty given that he originally just dumped the statue in the street without getting permission.
But, now, Di Modica is taking the copyright craziness up a notch. As you hopefully heard, last month, State Street Global Advisors placed a "companion" statue of a young girl facing down the bull. The statue, called Fearless Girl, was created by artist Kristen Visbal, and was put in place on the eve of International Women's Day, as a reminder that Wall Street doesn't exactly have a history of hiring women or treating them well. Originally designed to be temporary (not unlike the bull), after lots of New Yorkers spoke up, the girl has been given a one-year permit, and many expect that (like the bull) it will remain longer.
There have been some criticisms of the statue, but the latest is the most surprising. Di Modica is claiming that it violates his copyright and he's going to do... something about it.
The Italian-born sculptor Arturo Di Modica said the presence of the girl infringed on his own artistic copyright by changing the creative dynamic to include the other bold presence.
That is... not how copyright generally works (in the US), of course. Adding another piece of art next to a piece of artwork isn't a copyright violation. Except that in this case, it's unfortunately a bit more complicated. While most of the rest of the world recognizes a form of "moral rights" alongside copyright, the US has (smartly) mostly rejected moral rights. However, in order to officially ratify the Berne Convention on copyrights, the US was supposed to recognize moral rights, and we did so in a half-assed way, passing a law called VARA -- the Visual Artists Rights Act of 1990 -- now 17 USC 106A, which gives moral rights to visual works such as paintings and... sculptures.
Uh oh.
Yeah, so under VARA, the artist:
shall have the right to prevent the use of his or her name as the author of the work of visual art in the event of a distortion, mutilation, or other modification of the work which would be prejudicial to his or her honor or reputation
So... the question here would be whether or not placing another statue nearby, staring down the bull and making a point about diversity (1) modifies the bull statue in a way that is (2) "prejudicial to" Di Modica's "honor or reputation." Or, there's the more objective way to look at this which is: this is all insane. Di Modica dumped his bull statue on the street nearly 30 years ago to make a point. That he is now looking to use a stretched definition of copyright law to block someone else from doing the same thing referencing his own iconic statue is... just kind of crazy.
Importantly, though, this is interesting timing as it relates to moral rights. The US has been correct in (mostly) resisting putting in place a moral rights regime, and focusing on copyright as an economic right. Unfortunately, at this very moment, the Copyright Office is "studying" the issue of whether or not moral rights should be expanded. The first round of public comments has closed (you can read those comments if you'd like), but response comments are open until May 15th. Given this example of moral rights gone mad, perhaps it might be useful for the Copyright Office to be reminded of how moral rights might be used to stifle and stamp out important expression.
Update: Law professor James Grimmelmann points out that Di Modica probably has no legitimate moral rights claim either, seeing as the statue predated VARA, and that he "transferred the title by accession when he installed it." Which makes sense, but is still a reminder that we should be concerned about moral rights overreach.
Techdirt first wrote about corporate sovereignty four years ago -- although we only came up with that name about a year later. Since then, a hitherto obscure aspect of trade deals has become one of the most contentious issues in international relations. Indeed, the investor-state dispute settlement (ISDS) measures in both TPP and TTIP played an important part in galvanizing resistance to these so-called "trade" deals, and thus in their defeat, at least for the moment (never say "never".)
Both mines would require huge quantities of cyanide and threaten watersheds used by millions of people for drinking water. One would damage a unique, legally protected ecosystem and the other would destroy an ancient, UNESCO-nominated settlement. Both have been opposed by scientific bodies, protested by tens of thousands of people, and restricted by domestic courts.
The use of corporate sovereignty to trump health and environmental concerns is nothing new. What is noteworthy here is the following:
Both ISDS claims are being funded by the same Wall Street hedge fund -- Tenor Capital Management. Tenor helps cover the companies' legal costs in exchange for a cut of any award. These speculative ISDS bets have already paid off for Tenor. The hedge fund won big in April 2016 when it secured 35 percent of a $1.4 billion ISDS ruling against Venezuela, a return of over 1,000 percent on the $36 million that Tenor had provided for the legal costs of the company that brought the case.
That is, the rewards of winning a corporate sovereignty case are so great that hedge funds are starting to fund them speculatively with no direct connection to the ISDS dispute other than providing money to initiate and pursue the claim. As the Sierra Club points out:
The risks of such arrangements, known as "third-party funding," are clear: When Wall Street speculates on the outcome of ISDS cases, it inflates the number of corporate suits against governments, leading to higher costs for taxpayers and higher risks for policymakers that challenge harmful investments.
Doubtless, defenders of the corporate sovereignty system will claim that the hedge fund's willingness to invest money is actually a good thing, since it means that even impecunious companies can enjoy their "right" to sue a government. But the new interest of Wall Street in ISDS underlines the unfair asymmetry of the system:
Because only corporations, not governments, can launch ISDS cases, governments have no equivalent funding sources, as they have no potential winnings to leverage. In Costa Rica -- which is also on the receiving end of a third-party-funded ISDS case relating to an environmentally destructive gold mine -- the Attorney General's office has an annual budget of only $17 million. In Bolivia -- one of the poorest countries in the Western Hemisphere, which faces a third-party-funded ISDS case relating to a silver mine -- the Attorney General's office has a budget of $12 million.
This is a crucially-important point about corporate sovereignty: governments never win ISDS cases; at best, they just don't lose them. All the upside is with the corporates that bring the claim, and all the downside with nations that are defending their actions and regulations. The new wave of third-party funding will accentuate that skewed nature, and make corporate sovereignty even more of a scourge than it is today, regardless of whether it is ever included again in any new deal.
We've been discussing how despite all of the "populist" rhetoric on the Trump campaign trail, the President Elect has nominated several cozy telecom industry insiders to guide his telecom policy and select a new FCC boss. Both Jeffrey Eisenach and Mark Jamison have lobbied and worked for large ISPs, spending most of the last decade vehemently fighting against any and every consumer reform in telecom. Both have made it abundantly clear they not only want to roll back net neutrality and new broadband privacy rules passed under current boss Tom Wheeler, but they want to dismantle the FCC entirely.
With every indication that the government will be significantly more friendly to telecom giants in the new year, Wall Street has quickly gotten to work giddily daydreaming about mergers that were previously unthinkable in the space. Most commonly that involves predictions that Sprint will finally merge with T-Mobile (blocked under the current FCC because it would have reduced overall wireless competitors), or that Comcast and Charter will try to buy either Sprint or T-Mobile as part of a broader cable industry attempt to push into wireless.
But in a research note to investors this week, UBS analyst John Hodulik dreamed notably larger, arguing that the incoming Trump administration could possibly even allow a merger between telecom giants Comcast and Verizon:
"Densification of wireless networks required to meet the needs of video-centric subscribers increases synergies of cable-wireless combinations and provides the springboard for 5G-based services," he proclaims. "A roll-back of Title II re-classification could further increase incentives for cable," he adds, casually citing the likely dismantling of net neutrality and the FCC under Trump.
He put forth a number of models that include Dish fusing with T-Mobile or other variations. But he noted that a Comcast or Charter merger with Verizon would create "significant synergies" and "integrated products" while being "accretive to revenue and EBITDA growth."
While a Comcast Verizon merger may create "significant synergies" in the eyes of Wall Street, it could be downright fatal for broadband consumers. Verizon FiOS is among the only real competition Comcast sees along the east coast; so much so that the region is the only part of the country Comcast is afraid to expand its unnecessary usage caps into for fear of competitive repercussions. Eliminating that competition not only would result in caps and higher prices, but less motivation than ever for Comcast to improve its abysmal customer service.
Now it's entirely possible that Verizon and Comcast don't want to merge, but it's clear that Wall Street sees a huge new wave of consolidation looming for the already uncompetitive broadband industry all the same. Since Trump's telecom advisors don't believe telecom monopolies exist, believe that regulatory oversight of said nonexistent monopolies should be virtually nonexistent, and can't even acknowledge that the sector's competitive shortcomings are real -- what could possibly go wrong?
Trump, of course raged, against megamergers on the campaign trail to drum up populist support, not only claiming he'd block AT&T's $100 billion acquisition of Time Warner, but claiming he'd somehow dismantle the already merged Comcast NBC Universal. Based on his telecom advisors' own words and policy positions, there's virtually no chance of either actually happening. In fact, Wall Street, Trump's own advisors, and most of the telecom sector clearly expect the exact opposite.
Between the Trump "populists" realizing they've been taken for a ride, and the net neutrality activists annoyed at the demolition of broadly-popular net neutrality rules and other broadband consumer protections, we're looking at quite a storm of megamerger dysfunction in the new year.
So far the cable and broadcast industry has had a three pronged approach to the threat of cord cutting and the rise of Internet video. One, remain in stark denial about the changes in its sector, refusing anything more than the most superficial evolution (and if anybody notices, just use the word innovation a lot). Two, a relentless dedication to annoying its customers further at every turn, whether that's blocking ad skipping technology or inserting more ads than ever into every viewing hour. And three, a total refusal to ever, ever compete on price. Ingenious, right?
So it was interesting to see Time Warner admit last week that the company would need to make some changes if it hoped to appeal to younger generations, for many of whom traditional cable is a utterly foreign concept. According to Time Warner, the company says it's actually going to limit the number of ads shown on some of its networks:
"Time Warner’s TruTV is testing a new advertising model: It wants to charge sponsors more money by running fewer commercials. Starting in the fourth quarter of 2016, the network, which is devoted to comedic reality programming, will fill less of its time with advertising and promos and more of its air with actual programming. In all, TruTV should run just 10 minutes to 11 minutes of national commercials and promos, compared to 18 minutes to 19 minutes at present..As a result, episodes of shows that air under the new model could run as long as 25 minutes.
“We have a generation that has grown up with access to content that does not have commercials,” said Chris Linn, president and head of programming at TruTV, in an interview. “In order for us to remain relevant to them, we have to deliver the most premium experience possible.”
And while that's only half the battle, it's at least a step forward for an industry that's been comically in denial. Time Warner basically admitted the company needed to address the quality of its product and the delivery of it, accept that the existing TV cash cow is not immortal, and push harder into online streaming. But after Time Warner CEO Jeff Bewkes made the mistake of admitting this on the company's earnings conference call last week, near-sighted Wall Street was sent into absolute hysterics:
"Media stocks faltered during Time Warner's call with analysts to discuss its third-quarter earnings. Chief Executive Jeff Bewkes said his company -- which owns HBO, CNN, TBS, TNT and Warner Bros. -- expects adjusted earnings of about $5.25 a share next year, well below the $5.60 a share forecast by analysts.
One reason for the lower earnings, Bewkes said, was because the company is investing more in new programming for its streaming service, HBO Now, and other digital initiatives. He cited HBO's recent deals with Jon Stewart and "Sesame Street" as well as Turner Broadcasting System's plans to launch a new digital studio, Super Deluxe.
The problem is that offering a better experience is only half the battle. In the face of inexpensive streaming and skinny bundles, the cable and broadcast industry is also going to have to compete on price, something that cable operators and broadcasters alike have treated like the Bubonic plague. So far the cable industry hasn't quite realized that its precious cash cow is dead and current profits are unsustainable. And those that do have this revelation (and begin the much-needed process of adaptation) are punished by Wall Street's total and often painful obsession with the six inches in front of its collective nose.
Tons of people seem (quite rightly) concerned about the Trans Pacific Partnership (TPP) agreement. As we pointed out last week after the final text was finally, released, the agreement has a lot of really big problems. But if you want to understand just how bad the agreement is, perhaps you should just look at the industries that like it. Vox notes that Big Pharma and Hollywood love the agreement while The Intercept notes that Wall Street loves it.
It should be noted that, actually, Big Pharma is apparently a bit disappointed that the TPP doesn't go far enough in locking up exclusivity for biologics.
That said, talk about three of the most hated industries around: Hollywood, Big Pharma and Wall Street. But, more importantly, talk about three of the most protectionist, anti-free trade industries around. We've been repeating over and over again that the TPP is not a free trade deal and this should be more confirmation. Hollywood, Big Pharma and Wall Street are probably three of the biggest industries to rely heavily on government regulations as a way to limit competition, limit innovation and to use that exclusivity to artificially increase prices at the expense of the public.
And they like the deal.
That's because it's not a free trade deal at all. It's not about "taking away" barriers to trade, it's about building bigger barriers in the form of protectionism to protect big, legacy industries from innovation and competition. Of course, it's no surprise that Hollywood, Big Pharma and Wall Street are also three of the most powerful lobbying industries in Washington DC, because when you can no longer innovate, and you rely on government protectionism, you focus your efforts on "political entrepreneurship" -- better known as getting the government to protect you from real entrepreneurship. So, no wonder the USTR went this direction. They only hear from these kinds of industries, and the end result is a fake free trade agreement that is designed to do the exact opposite. It's designed to build up barriers to protect old, stodgy industries who have relied on protection from competition from decades, and don't want to see that dissolve against foreign competition.
Most of the cable and broadcast industry's cord cutting denial is aimed at investors, who -- if you've yet to realize -- may not always have the firmest understanding of the technology they're investing in. While many investors have been buying the cable industry's argument that cord cutting either doesn't exist or is only something done by losers and nobodies, the recent sharp decline in ESPN viewership appears to have finally woken the investment community from its adorable slumber.
As we recently noted, ESPN has lost 7.2 million viewers in the last four years, and a little more than three million in the last year. Since ESPN is annoyingly force-bundled with most basic cable subscriptions a lot of these users are cord cutters. Many more are being lured away by the new realm of "skinny" cable options that may not include ESPN -- options ESPN has been suing to stop to "protect innovation." ESPN is stuck in legacy industry purgatory: offer a standalone streaming service and accelerate cord cutting -- or refuse to offer a standalone streaming service -- and accelerate cord cutting. Either way, the train has left the station.
When Disney earnings last week indicated ESPN's fortunes are getting worse, investors in all of the major cable and broadcast companies suddenly became notably nervous as they collectively realized ESPN is no longer the untouchable television juggernaut it wanted everyone to believe it is:
"In the old days — basically, up until a month ago — most people in the video world assumed ESPN was untouchable. It commanded the biggest subscriber fees from traditional pay TV providers, and even if you imagined that one day people would start buying TV over the Internet from people like Apple, it seemed as though it would do just fine in that scenario, too."
And ESPN's been one of the more solid performers. Children's programming has been absolutely demolished by services like Netflix. Investors and cable executives have tried to argue that they can make up for cord cutters and ratings drops by endlessly raising subscriber TV rates, though they'd quietly been warned for years that this wasn't a winning long-term strategy. The ugly truth is that cable and broadcast is going to have to compete on price if it wants to adapt to the internet video revolution, and that's a message that's hard to hear when your head is planted squarely in the sand.
Just wait until Wall Street realizes (perhaps in 2018?) that there are tens of millions of young Americans who've never signed up for a cable subscription and have no intention of ever doing so.
As we've noted more than a few times, the broadband industry was in dire need of a swift kick in the posterior, and Google Fiber has done a wonderful job highlighting this fact on a daily basis. The company's decision to jump into the broadband market and offer symmetrical 1 Gbps connections for $70 a month (with no obnoxious fees) quickly resulted in thousands of cities all over the country falling over themselves to get Google's attention. In the process, Google was able to not only highlight the overall lack of broadband competition, but also other notably less-sexy (and therefore overlooked) issues like state protectionist community broadband bans. The free marketing in every paper nationwide is of course just an added perk for Google.
Of course, not everybody's so easily impressed. Telecom industry analyst Craig Moffett, who has made a name for himself being rather wrong about things (whether that's predicting the collapse of the wireless industry or pretending cord cutters don't exist), this week poured cold water on Google's efforts by highlighting just how few subscribers Google actually has. In a research note, Moffett notes that Google Fiber has just 30,000 subscribers, and this is somehow proof positive that Google Fiber isn't a big deal. Like, you know....Ebola:
"To Cable & Satellite investors, Google Fiber is a bit like ebola: very scary and something to be taken seriously," telecom industry analyst Craig Moffett wrote in a research note to investors this week. "But the numbers are very small, it gets more press attention than it deserves, and it ultimately doesn't pose much of a risk (here in the US at least)."
The unfortunate tasteless use of a bad metaphor aside, Moffett's not really seeing the big picture when it comes to Google Fiber's impact. As we've noted previously, Google Fiber isn't just about deploying faster, cheaper broadband connections (though Google has made it clear it wants a sustainable business). Google Fiber's been largely about highlighting a lack of competition and lighting a fire under all-too-comfortable duopolists. As the project has expanded, Google has made a point of offering cities a checklist (pdf) helping to make deployment easier, whether it's Google or somebody else doing the building.
Moffett looked to the U.S. Copyright Office to get the total subscriber counts (it tracks video subscribers because of compulsory license fee requirements). It's worth noting however that the USCO doesn't track broadband subscriber totals, and most Google Fiber customers are likely to be skipping traditional video and embracing over-the-top video services, so the actual numbers are likely higher. It's also worth noting that Google's on the cusp of a major new expansion into Raleigh/Durham, Charlotte, Atlanta, and Nashville, with potential Portland, Phoenix, Salt Lake City, San Antonio and San Jose launch announcements later this year. It's a slow drum beat, but it's a steady one.
In other words, while it's true Google Fiber has probably seen some overhype and most incumbent ISPs don't face an immediate competitive threat, looking at subscriber totals and declaring it a non-starter for the telecom industry is pretty narrow thinking. Google Fiber not only shines a spotlight on the lack of meaningful broadband competition, it has sparked the public's imagination and fueled a national conversation about how we can do broadband better.
A few weeks ago, after it was more or less confirmed that the FCC was going forward with full Title II reclassification of broadband, we noted that the stocks of the big broadband companies actually went up suggesting that Wall Street actually knows that reclassification won't really impact broadband companies, despite what they've been saying publicly. Perhaps this is partly because those same companies have been telling Wall Street that the rule change won't have an impact.
However, for the Wall Street Journal -- which has become weirdly, obsessively, anti-net neutrality -- this is an abomination. The newspaper has spent months trying to whip everyone into a frenzy about how evil net neutrality is, using some of the most blatantly wrong arguments around. Just a few days ago, the WSJ turned to its former publisher, now columnist, L. Gordon Crovitz to spread as much misinformation as possible. This is the same L. Gordon Crovitz who a few years ago wrote such a ridiculously wrong article on the history of the internet that basically everyone shoved each other aside to detail how he mangled the history. He, bizarrely, insisted that the government had no role in the creation of the internet. Crovitz also has a history of being wrong (and woefully uninformed) about surveillance and encryption. It's difficult to understand why the WSJ allows him to continue writing pieces that are so frequently factually challenged.
In this latest piece, Crovitz suggests that Ted Cruz didn't go far enough in comparing Obamacare to net neutrality, arguing that net neutrality is even "worse."
The permissionless Internet, which allows anyone to introduce a website, app or device without government review, ends this week.
Um, no, actually, the reverse. The rules say that no website or app needs to get permission. The government isn't going to be reviewing anything, other than anti-consumer practices by the large ISPs.
Bureaucrats can review the fairness of Google's search results, Facebook's news feeds and news sites' links to one another and to advertisers. BlackBerry is already lobbying the FCC to force Apple and Netflix to offer apps for BlackBerry’s unpopular phones. Bureaucrats will oversee peering, content-delivery networks and other parts of the interconnected network that enables everything from Netflix and YouTube to security drones and online surgery.
None of this is true. The BlackBerry thing isn't real. It's a stupid political stunt cooked up by the telcos to try to make the new rules look bad. But the rules do not, in any way, apply to Google's search results or Facebook's news feed or any other content online. It covers internet access services, and all it does is put in place some straightforward rules against discrimination.
Still, all this fear mongering isn't working. Following yesterday's decision by the FCC, the folks over at Quartz noticed that the big broadband stocks have actually had a pretty damn good month:
Which brings us back around to the Wall Street Journal. The paper of record for Wall Street, which normally likes to suggest that markets are "right" about everything, is absolutely positive that the markets are wrong about this. And it's furious. It has an article demanding that broadband investors need to "wake up" to what's happening with net neutrality:
Investors actually seemed to breathe a sigh of relief when FCC Chairman Tom Wheeler unveiled his proposal on Feb. 4, sending cable stocks higher. Investors were cheering the chairman’s assurance that the commission wouldn’t invoke the Title II power to regulate prices.
But investors, beware: Broadband’s new status opens the door to the possibility of a future that is far less lucrative and more uncertain for the companies that provide it.
Bullshit. Frankly, things can always change in the future, in either direction, so claiming that things might change is meaningless FUD. At the end of the article, the WSJ pretends that maybe the reason why stocks are up is because investors expect that the broadband players will win an eventual court battle, but that seems like wishful thinking on multiple levels. Let's go with Occam's Razor on this one. The market is up because everyone knows that Title II won't make a huge difference at all for the prospects of broadband companies. Multiple Wall St. analysts have been saying this for months, as have the big broadband companies to the analysts themselves.
The Wall Street Journal should take a page from its own playbook: maybe the markets do know best.
We've written a few times about Elon Musk and Tesla's decision to open up all of Tesla's patents, with a promise not to sue anyone for using them. We also found it funny when some reacted to it by complaining that it wasn't done for "altruistic" reasons, but to help Tesla, because of course: that's the whole point. Musk recognized that patents frequently hold back and limit innovation, especially around core infrastructure. Since then, Musk has said that, in fact, rivals are making use of his patents, even as GM insists it's not.
However, as some may recall, when Musk made the original announcement, the terms of freeing up the patents were at least a little vague. It said that Tesla "will not initiate patent lawsuits against anyone who, in good faith, wants to use our technology." That "in good faith" claim had a few scratching their heads, and pointing out that still gave Tesla an out. We were a little disappointed that the company didn't make the terms entirely clear, believing that the "in good faith" line would likely scare away some companies from actually using the patents. However, recently, at the Detroit Auto Show, when questioned about this, Musk clarified that he really meant to make them completely free for anyone to use, no questions asked, no licensing discussions needed:
Around the three-minute mark someone asks how many automakers have taken Tesla up on the offer to use its patents, and Musk notes:
Musk: We actually don't require any formal discussions. So they can just go ahead and use them.
Reporter: Is there a licensing process?
Musk: No. You just use them. Which I think is better because then we don't need to get into any kind of discussions or whatever. So we don't know. I think you'll see it in the cars that come out, should they choose to use them.
In other words, Musk is saying what most of us assumed all along was the point. Hoarding the patents and blocking others doesn't help him at all. Letting others expand the market does. And licensing discussions are unnecessary friction and a waste of time.
All good, right?
Well, no. It appears that clueless Wall Street types are absolutely flipping out over this (possible registration wall). Some outfit called "Technology Equity Strategies," which doesn't seem to understand the first thing about how innovation actually works, posted an insanely long and ridiculously misguided note on how this is horrifying for anyone invested in Tesla. The descriptions are hilarious, where you can almost hear these Wall Street types pulling out their hair over this idea of *gasp* actually letting others use Tesla's patents. First, it notes that Musk called them "open source" patents, and spends way too much time detailing the "official" definition of open source, and then says that the patents are now "public domain" (apparently not recognizing that public domain and open source are not the same thing -- though in this case it might not matter). Technology Equity Strategies is very upset about this.
The restrictions in the June 12 blog of "good faith" and "we will not initiate" are over with. They are finished. These patents are either in the public domain, or they have at minimum been rendered unenforceable against all users, "good faith" or not.
Why? Because in their non-innovation minds, all they care about is how do you best value the stock, and giving up patents is giving up an asset. The note first (mistakenly) argues that many areas of the tech industry rely on patents as barriers to entry and that's where their advantage comes in (rather than execution, which is the truth). And so, it thinks now some other company will just come in and eat Tesla's lunch:
Is it possible that the massive capital and labor needed to attain leadership might not be eroded in by imitators in Asia, by large companies with resources to buy market share, by companies whose strengths are manufacturing process, global footprint and scale?
If so, the embedded option on a leader in a new niche in the auto industry and on a shift in the competitive dynamics in the auto industry might indeed be a valuable option.
But Mr. Musk was not interested in that. He is happy to give away the advantages that actually provide great profitability in some sectors of technology. He wants to compete as an auto company, in the brutal and capital intensive way that auto companies compete. More fundamentally, he is willing to eliminate the possibility in the future of competing as a technology company, which depend on the IP protections of patents, copyright, and trade secrets.
Of course, the reality is that Musk recognizes what many in this sector recognize: that sharing the ideas helps speed along innovation, creating greater and greater opportunities, which you can realize by executing well. Musk is confident in Tesla's ability to execute and (as we noted earlier) recognizes that sharing the patents actually helps Tesla by getting more electric vehicles on the market, meaning more overall infrastructure that makes Tesla cars more valuable.
This is the ridiculousness of Wall Street: sometimes it simply can't understand the nature of a non-zero sum game. Giving up any "advantage" is seen as helping others, without recognizing that helping others can also help you out tremendously. Instead, these investor types believe in the myth of intellectual property, that it's patents that make a company valuable:
Intellectual property is an important foundation for valuation technology companies. Funds that own Tesla may not be the same institutions who own GM or Ford, but many will be familiar with Qualcomm and ARM.
IP goes a long way in explaining why Qualcomm has a market cap of $110 billion, and ARM has a valuation of 23 billion (18x trailing revenues) while Nokia and Dell were sold for less than two times revenues. Nokia and Dell did fine work for a while as manufacturers and product companies. There was a time when they too looked like winners based on product execution. But they didn't own core IP, and so when product cycles shifted, they were left with little value.
Yes, ARM and Qualcomm are both patent-focused companies (that dip their toes into trolling all too often). And, yes, companies that don't execute well can lose out in the end, but cherry picking a few companies that have flopped on execution, while pointing to a few trollish companies as success stories, doesn't make a very strong argument. It's basically saying "yes, invest in the companies that don't believe in their own ability to execute, who have a fallback as a patent troll." That's not exactly a strong endorsement. Tesla believes in its own ability to innovate -- and these Wall Street guys think that's a bad thing.
And then there's the rewriting of history:
Let's look at Apple. Apple and Steve Jobs learned the hard way. Some of us will recall that an early Apple (believing that IP wasn't important) opened up its IP to the basic Mac interface with a royalty free license to Microsoft.
This resulted in Microsoft Windows taking nearly the entire PC market from Apple, and nearly bankrupting Apple. In his second chance, Steve Jobs learned about the importance of IP. This is a lesson that Mr. Musk failed to absorb.
Except, that's totally incorrect. While Apple had licensed a few aspects of its UI, that licensing agreement became meaningless by the time of Windows 2.0. Then Apple sued Microsoft and lost, because it was trying to use copyright law to claim things that could not be covered by copyright law. And that's not why the PC took over the market. So this isn't a lesson that Musk failed to absorb, because it never happened.
The Grand Gesture shows the worrisome sincerity in Musk's repeated statements that he is primarily on a mission to get other companies to sell a lot of electric vehicles, not to make money.
A worrisome sincerity? No, it's showing that Musk recognizes that if the market for electric vehicles does not grow massively, then he won't make money. He very much wants to make money, and a good way to do that is to build out the overall market for EVs, allowing Tesla to thrive. And these Wall Street folks first mock the idea that Musk might first invest to grow the market, by then... claiming that Asian makers might do the same thing:
No doubt Mr. Musk believes that if the industry embraces EVs, then Tesla will succeed as part of it. But is this plausible, that everything will just work out for the best. Is it plausible that Musk can succeed as a manufacturer in the U.S. competing against manufacturers in Asia who may take zero margins to grow a business, using Musk's proven designs? U.S. companies have learned over and over that IP is necessary to get a sustained profitable return on their innovations.
Actually, no. Plenty of tech companies don't think that IP is "necessary" to get sustained returns -- they think the opposite. Patents get in the way of profitability. They require lots of lawyer time and threats of lawsuits.
Frankly, Tesla opening up its patents seems like a move that shows how confident it is in its execution abilities, and makes the company a lot less likely to rest on its laurels and become nothing but a "licensing" company down the road. The fact that people who don't understand what a mess patents are and how they slow down innovation are now jumping in making ridiculous claims like Tesla's decision is why Apple can now jump into the EV car market just shows how little some people understand patents. The "myth" of patents as a powerful tool of innovation is still out there, and that's a shame.
For all the hubbub from the big broadband players about how having the FCC regulate broadband connections under Title II would kill off investment and harm their ability to innovate, Wall Street has always known that's hogwash. While saying scary things to the press, all the big broadband companies were quietly (and sometimes not so quietly) telling investors that Title II wouldn't really change anything. In the last couple months, I've seen a few different Wall Street analyst reports all basically saying that they don't think the FCC's rules will really have any impact at all on the bottom line for broadband players.
Now, you could argue that the market was already pretty sure what the FCC was going to do and had priced that into the stock prices -- and it's a fair argument as many of the stocks did see some decline at the beginning of the year as the likely rules became clear. But the idea that this was going to create some sort of bloodbath for investment and the internet doesn't seem to be supported by the folks investing in those companies.
