You Have To Distort The Facts Pretty Badly To Argue That Google & Facebook Are Worse For Consumers Than AT&T

from the just-sayin' dept

We've had our run-ins with Jonathan Taplin before. The quintessential OMYAC of the legacy entertainment industry, who is so obsessed with the nefarious things he insists Google and Facebook are doing (even though he's often flat out wrong), is back in the pages of the NY Times, arguing that regulators shouldn't be so concerned about AT&T, when they should be attacking Google and Facebook instead.

Taplin kicks it off by jumping on Mark Cuban's ridiculous comments from last week saying that AT&T should be able to buy Time Warner so that it can "compete" against Google and Facebook, and then takes it to an even more ridiculous level. The crux of Taplin's argument: Google and Facebook are big, and thus bad, and need antitrust treatment.

Look at the numbers. Alphabet (the parent company of Google) and Facebook are among the 10 largest companies in the world. Alphabet alone has a market capitalization of around $550 billion. AT&T and Time Warner combined would be about $300 billion.

Yup. They're big companies -- and certainly, like with all big companies, we should be wary about how they might abuse their powers. But big, by itself, isn't automatically bad. And the nature of antitrust is not that big is bad, but that abusing monopoly power is bad. And Taplin has no way to show either (1) monopoly power or (2) abusive behavior, so he just starts throwing numbers.

Alphabet has an 83 percent share of the mobile search market in the United States and just under 63 percent of the US mobile phone operating systems market. AT&T has a 32 percent market share in mobile phones and 26 percent in pay TV. The combined AT&T-Time Warner will have $8 billion in cash but $171 billion of net debt, according to the research company MoffettNathanson. Compare that to Alphabet’s balance sheet, with total cash of $76 billion and total debt of about $3.94 billion.

Nice cherry picking, Jonathan! The real scam in fake antitrust complaints is trying to define the markets in a way that looks much worse than it really is. Notice that Taplin focuses on "mobile search" (random?) as the market for Google and "mobile phones" for the market for AT&T. But he leaves out the simple facts: if you need an internet connection, in many cases AT&T is either your only option or one of two options. And if you do that, AT&T gets to see everything you do. And switching broadband providers or mobile phone providers is a complicated and often expensive process. Switching a search engine... is not.

Then, to get to the question of "bad behavior," Taplin falls back on the silly line that because Google and Facebook have made a lot of money, and his buddies in legacy entertainment companies have been making a lot less money, that somehow Google and Facebook have unfairly taken money from his industry. That's just silly.

In the past decade, an enormous reallocation of revenue of perhaps $50 billion a year has taken place, with economic value moving from creators of content to owners of monopoly platforms.

I reached this conclusion from the following statistics: Since 2000, recorded music revenues in the United States have fallen to $7.2 billion per year from $19.8 billion. Home entertainment video revenue fell to $18 billion in 2014 from $24.2 billion in 2006. United States newspaper ad revenue fell to $23.6 billion in 2013 from $65.8 billion in 2000.

And yet, by every available metric, people are consuming more music, video, news and books. During that same period, Google’s revenue grew to $74.5 billion from $400 million.

Sing it with me, folks: correlation is not causation. After all, the number of works of visual art copyrighted in the US similarly has an inverse correlation to the number of females in NY who slipped or tripped to their death (really!). It doesn't mean it's a causal relationship where more of one means less of the other.

The reason that Google and Facebook are making lots of money is because they're offering a product that people want and they're doing it for free and have come up with business models that work. The reason legacy entertainment companies are flailing (and, realistically, only some of them are), is because they tried to stick with their old business model that focused on basically ignoring or mocking and attacking competition from new sources.

The problem, in short: Taplin's whole world revolved around elitism and gatekeepers. The business models he celebrates are gatekeeper business models -- the ones that keep out the riff raff and the people that Taplin likes to insult because he thinks their "art" isn't good enough to be seen by the world. The world of the internet is the opposite. It's about enabling anyone to be a creator, and to open up new avenues to create, to share, to promote, to distribute, to build a fan base and to monetize. Those were all functions that Taplin and his friends used to control, with a strict lock on the gate, allowing them to artificially inflate the prices. When the new platforms came on the market and democratized every bit of the process of creating/distributing content, suddenly the "deal" offered by the gatekeepers didn't look so good. And that's why those busineses have struggled.

And it's why, comparatively speaking, most of the public likes companies like Google and Facebook, while they hate AT&T. Find me a list of consumer satisfaction or most admired companies where AT&T outranks either of the other ones. Antitrust should be about protecting consumers -- and the public is pretty happy with the services it gets from Google and Facebook... but not so much with AT&T.

But, of course, to Taplin, it all comes back to piracy, because he's absolutely sure that's why everyone uses Google and Facebook, even though he's wrong.

Every pirated music video or song posted on YouTube or Facebook robs the creators of income, and YouTube in particular is dominated by unlicensed content. Google’s YouTube has an over 55 percent market share in the streaming audio business and yet provides less than 11 percent of the streaming audio revenues to the content owners and creators. But Facebook, which refuses to enter into any licensing agreement on music or video, is challenging YouTube in the free online video and music world.

As we discussed a few months ago, when you look at the actual data, only 2% of music video views on YouTube are unauthorized. 2%. So, no, YouTube is not "dominated by unlicensed content." That's simply and utterly false. And, no, even those unauthorized videos are not "robbing creators of income." Many smart creators these days are using YouTube as a platform to get more fans and build a bigger support base, which they can take to platforms like Patreon or Kickstarter, rather than having to give up everything to sign with a major label run by one of Taplin's friends.

I recognize that Taplin's friends have struggled to understand and adapt to this new world. And I understand that they want to lash out at the big companies like Google and Facebook that have helped make this world a reality. But why does the NY Times keep letting him publish blatantly factually false information? Oh, and the kicker? After a long rant that is full of misleading buillshit... he asks for "an honest national conversation."

Perhaps in January we can have an honest national conversation on monopoly and our future.

If we were to have an honest conversation, it would have to leave out Taplin's lies.

Filed Under: access, antitrust, business models, correlation, internet, jonathan taplin, monopoly, social media
Companies: at&t, facebook, google

Appeals Court Reminds Everyone: Patent Infringement Is Good For Competition

from the so-why-isn't-it-encouraged-more? dept

A legal dispute that goes back in some form or another to at least 2001 has resulted in the 5th Circuit Appeals court thankfully reminding people that patent infringement is actually good for competition. To say that the details and background of this case are confusing and convoluted would be... quite an understatement. If you want to read the background in the full ruling, go ahead, but I'd recommend bringing along a white board, a compass and a large Thermos of coffee. Let's just say that two companies that make different versions of retractable syringes, RTI and BD, have been less than happy with each other for many years, and there have been some lawsuits covering a variety of different theories for why RTI doesn't want BD selling safety syringes (or, if not stopping the company from doing that, compelling it to fork over lots of money to RTI). There have been patent claims, antitrust claims, unfair competition, false advertising and some more. It's... convoluted. While the court's background explanation is convoluted as anything, where things came down recently was that RTI argued that BD's patent infringement (which had already been ruled on by the court earlier in this neverending saga) was also a form of an antitrust violation. Even this part is confusing, because RTI has a few different reasons for why it argues BD is violating antitrust law, with only one of them being its infringement of RTI patents.

Of course, if you're playing along with the home game, you should already be scratching your head. After all, patents themselves are monopolies. So, if anything, you'd think that any antitrust argument would be focused on the patent holder rather than the patent infringer. But, here, RTI is arguing that the patent infringement itself is a form of an antitrust violation, as it's part of BD's effort to foreclose competition. But... again, that makes no sense, and the appeals court rightly calls this out and notes that patent infringement doesn't block competition -- it actually increases competition:

Patent laws are designed to secure for patent holders a time-limited exclusive right to exploit their discoveries, but this is “not the kind of public purpose protected by the antitrust laws,” which seek to “protect the free flow of interstate commerce.”... That a patentee may anticompetitively extend its market power to products other than those covered by a patent, and thus violate the antitrust laws, is well settled... RTI, however, cites no case holding the converse: that antitrust liability may be founded in whole or in part upon patent infringement. By definition, patent infringement invades the patentee’s monopoly rights, causes competing products to enter the market, and thereby increases competition. RTI, in fact, persuaded another jury of exactly this procompetitive result when it proved patent infringement by BD’s 1mL Integra safety syringe. The judgment against BD, which was then forced to remove the competing product from the market, diminished competition but enforced RTI’s patent rights.

Of course, this doesn't mean that patent infringement is legal -- it's not. But at the very least, the court is shutting down the positively nutty argument that patent infringement might also be an antitrust issue, even though it increases competition rather than decreases it.

Filed Under: 5th circuit, antitrust, infringement, patents, safety syringes

Wall Street Is Dreaming Of Megamergers Under Trump -- Including A Verizon-Comcast Super Union

from the ill-communication dept

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.

Filed Under: antitrust, broadband, competition, doj, megamergers, monopolies, wall street
Companies: comcast, ubs, verizon

Be Careful About Turning Image Search Into An Antitrust Complaint

from the it-might-just-backfire dept

Have you ever used the internet to search for photos of a potential vacation spot? Or perhaps you've Googled some pictures of furniture you wanted to buy? Who hasn't, right?

But if Getty Images gets its way, you may have far fewer viewing options. That's because Getty recently wrote a letter to the Senate Judiciary Committee urging its members to turn a failed copyright claim into an antitrust issue.

Getty's main contention -- not antitrust-related at all -- is that internet-search results display images without authorization from the copyright holder, and thus infringe copyright. But the courts haven't agreed.

One reason we have the internet is that the Supreme Court back in 1984 held that making a home recording of a movie for personal playback without prior authorization is a "fair use" under the copyright law.

When the internet came into being, this consumer "fair use" determination opened the door of the internet to consumers, rather than limiting it to businesses and government exchanging data among themselves.

The courts ruled that consumers could also participate by searching for text and images. What this meant for online images and Google's search engine was decided 10 years ago in the court of appeals copyright case Perfect 10 v. Amazon. In that case, image search and display as carried out by Google was determined to be not infringing.

Getty's letter complains about enhancements that Google made back in 2013, to better allow consumers to compare the images in their search results. The letter claims that it is "anti-competitive" for Google now to allow users to inspect a variety of images more closely, to choose the best one, while the high-resolution images themselves remain only on the provider's -- not Google's -- site. (Would they have complained if Google had downloaded and offered these itself? Of course.)

A proprietor might consider this option to compare as "anti-competitive," but for a consumer, comparison is the essence of competition.

The evolution of image search reflects a better understanding of what users want and an effort to give it to them. Google, Yahoo and Bing's search engines all use a variety of signals to determine relevant and useful search results, including images. Dumbing down search is a bad deal for consumers, and is neither required by nor consistent with sound competition policy. And even though these searches are lawful, Google and other search engines provide a simple tool to opt any image out of search. Getty's letter acknowledges, but dismisses, this fact -- because as everyone knows, it is image search that drives business to Getty and its competitors.

Getty is a major player in its field, and its image collection is even bigger after recently locking up more content in the stock-photo market through an exclusive licensing deal with Corbis, once a rival stock-image company. But concern about new entrants (such as Adobe) is classic incumbent behavior, especially when threatened by innovation. (Google does not compete in the stock-photo market, and is not a rival player in this area.)

Search drives traffic to all photography websites, not just Getty's. Making search work better for users and creators is not a violation of copyright law, and we should be very cautious before we start claiming that facilitating competitive search is an antitrust violation.

Gary Shapiro is president and CEO of the Consumer Technology Association (CTA), the U.S. trade association representing more than 2,200 consumer technology companies, and author of the New York Times best-selling books, Ninja Innovation: The Ten Killer Strategies of the World's Most Successful Businesses and The Comeback: How Innovation Will Restore the American Dream. His views are his own. Connect with him on Twitter: @GaryShapiro

Filed Under: antitrust, copyright, fair use, image search, images
Companies: getty, getty images, google

The Senate Summoned The Wrong Time Warner To Talk About AT&T Merger

from the really-guys? dept

The big news earlier this week, of course, was AT&T's announced plans to purchase Time Warner. As we, and plenty of others, were careful to point out, Time Warner is a different and totally separate company from Time Warner Cable (which Comcast famously tried to takeover not that long ago). Yes, at one time they were the same company, but that was a long, long time ago. They've been separate since 2009. And yet, lots of people still get them confused. In fact, soon after the announcement of the deal, AT&T had to do a special filing with the SEC to clarify which Time Warner it was buying. Really. Apparently, the Senate didn't get the memo (literally). The Senate Judiciary Committee's top four members (from both parties) put out a press release from the antitrust subcomittee, saying that it was going to hold hearings on the merger, and that the CEOs of both companies would be testifying. But they named the CEO of Time Warner Cable, not Time Warner.

Despite striking an $85.4 billion deal with AT&T Inc. over the weekend, [Time Warner CEO Jeff] Bewkes was unceremoniously left out of a release from the Senate Judiciary Antitrust Subcommittee, which said the CEOs of both companies would testify at a hearing on the proposed deal.

The reason? The four top Republicans and Democrats leading the Senate Judiciary Committee and its antitrust subcommittee accidentally invited Time Warner Cable’s former CEO Rob Marcus instead.

“Both Randall Stephenson, the CEO of AT&T, and Robert Marcus, the CEO of Time Warner, will testify,” the release said. The hearing announcement was sent by Sen. Chuck Grassley, Sen. Patrick Leahy, Sen. Mike Lee and Sen. Amy Klobuchar.

You'd think someone would have checked that.

Oh, and it's even worse than it seems, because Rob Marcus isn't CEO of either Time Warner or Time Warner Cable. He left Time Warner Cable after Charter Communications completed its deal.

And this is why so few people trust Congress. Congress is quick to opine on stuff that it regulates without doing even having the most basic understanding of what's going on. Summoning the wrong CEO of the wrong company is a pretty impressive flub.

Filed Under: amy klobuchar, antitrust, chuck grassley, confusiong, jeff bewkes, merger, mike lee, patrick leahy, randall stephenson, rob marcus, senate, senate judiciary committee
Companies: at&t, time warner, time warner cable

AT&T's $85 Billion Time Warner Buy Could Be An Anti-Consumer Shit Show Of Monumental Proportions

from the synergies-ahoy dept

As fixed and wireless broadband growth crawls to a halt and cord cutting begins to hammer TV numbers, incumbent telecom giants have been trying to pivot into the media and advertising game with mixed results. Verizon so far has shelled out billions to acquire aging 90s internet brands Yahoo and AOL, believing this can somehow transform the stodgy duopolist into a sexy, sleeker Facebook and Google competitor. So far these efforts to woo Millennials have been arguably underwhelming and occassionally comical, highlighting how innovation and disruption is somewhat foreign to these companies' DNA.

AT&T has decided to follow a similar tack, over the weekend announcing a mammoth $85 billion deal to acquire Time Warner (not to be confused with Time Warner Cable) and its media properties (CNN, HBO). AT&T was quick to proclaim that the deal would be a "perfect match of two companies with complementary strengths," who can bring a "fresh approach to how the media and communications industry works for customers, content creators, distributors and advertisers." The deal comes not too long after AT&T decided to spend $79 billion to acquire DirecTV, adding notable debt for the already giant company.

AT&T's decision to announce the deal now signals that it believes, or has been directly told, that regulators (both the tail end of Wheeler's term and his replacement in the new year) would look kindly upon such a deal. But given AT&T's long, rich history of aggressive anti-consumer behavior (and just blatant lying to prop up past mergers), there's more than a few justified questions raised about AT&T growing larger.

This is, after all, a company that in the last four years alone has been fined for ripping off programs designed for low-income households, ripping off programs designed to aid the hearing impaired, actively aiding drug dealing directory assistance scammers, and making bills harder to understand to help crammers. It's the same company that fought viciously against net neutrality, and is busy using "zero rating" to begin giving its own content an unfair advantage in the market. Yes, what could possibly go wrong with letting AT&T grow immeasurably larger?

Letting one company control an ocean-sized portion of all progamming and the conduit to the home has always been controversial. And while regulators did set some conditions to Comcast's 2011 acquisition of NBC Universal, it was found that Comcast ignored many of those conditions, ultimately leading to regulators blocking its subsequent acquisition attempt of Time Warner Cable.

In this case, AT&T is making it clear that the acquisition is all about the company's upcoming launch of its DirecTV Now streaming video service:

"Both Mr. Stephenson of AT&T and Jeffrey L. Bewkes of Time Warner stressed that during nearly three months of deal negotiations, the idea driving the talks was that Time Warner could help AT&T build out its own video streaming service. That service, called DirecTV Now, is Mr. Stephenson’s response to the migration of consumers toward mobile and online video watching and away from traditional cable packages."

Owning that much content certainly makes licensing easier for AT&T. The problem, again, is that the current FCC has refused to seriously address zero rating (giving your own content a broadband cap exemption while still penalizing Netflix) as a potential anti-competitive weapon. AT&T, in response, has made it abundantly clear that zero rating will play a huge role in this upcoming service. Regulators could ban AT&T from using zero rating to favor Time Warner content, though history has shown enforcement of these promises is inconsistent.

And that's before you get to the spectre of AT&T almost certainly (based on past behavior) using its role as a broadcaster to hamstring the streaming services that hope to compete with it. Or AT&T's abysmal history on privacy issues, be that the use of stealth cookies to track user behavior without consent, or the company's attempts to charge users more money just to opt out of private data collection and sales. AT&T's also fighting tooth and nail against new FCC broadband privacy protections the agency is expected to vote on later this week.

In short, AT&T apparently believes that the best way to navigate a dramatically changing TV landscape that requires flexibility and innovation is to grow bigger and clumsier than ever.

The company has been losing broadband, TV, and postpaid phone subscribers the last few quarters. Executives apparently believe the best solution is to strike a series of massive traditional media deals (with valuations based on peak TV earnings and cash flow) just as the traditional TV sector prepares for a free fall. AT&T bought a satellite TV giant on the eve of the cord cutting revolution, and now aims to buy a traditional media giant just as the TV market begins truly entering an identity crisis. But there's absolutely no indication that any of these deals will make AT&T magically more relevant to Millennials, or that vertical integration between distributors and content producers is still a guaranteed route to success.

That doesn't mean AT&T won't engage in anti-competitive behavior to try and make it work. Once AT&T launches its new streaming service, the company could make it much harder than ever for competing streaming providers to license the programming necessary to compete with it. AT&T could also zero rate its own content, further penalizing streaming video providers trying to compete in the space. And again, that's before you get to AT&T's history on privacy or any other creative new efforts AT&T will cook up to use its significantly larger scale and broadband monopoly to unfair advantage.

This being election season, the Presidential hopefuls were quick to chime in (sort of). Hillary Clinton gave somewhat of a non-answer by saying that she "certainly thinks regulators should look at" the deal (as if regulators tasked to review a deal would do anything else). It was actually Donald Trump's camp that issued the clearest opposition to the deal:

"This oligopolistic realignment of the American media along ideological and corporate lines is destroying an American democracy that depends on a free flow of information and freedom of thought,” Peter Navarro, a senior economic adviser to Mr. Trump, said in a statement on Sunday.

Broken clocks, twice a day, etc. All told there's little to any indication that the deal would be good for consumers, AT&T competitors or small businesses. But there are also doubts that regulators under the (likely) Clinton administration would stop the deal, if her non-answer and the notable amount of telecom money headed in the Clinton camp's direction is any indication. Regardless of the regulatory response, history suggests it should at least be fun watching AT&T's lawyers, lobbyists, and armies of think tankers once again try to spit shine the company's latest attempt to become larger and more powerful than ever.

Filed Under: acquisition, antitrust, consumers, doj, fcc, merger
Companies: at&t, time warner

FTC Sues 1-800 Contacts For Restricting Competitors From Using Competitive Keyword Advertising

from the contact-lens-fight dept

This is a crosspost from Professor Eric Goldman's website.

For over a decade, I've blogged about 1-800 Contacts' campaign to suppress competitive keyword advertising, including its legislative games (e.g., those times when 1-800 Contacts asked the Utah legislature to ban competitive keyword advertising) and at least 15 lawsuits against competitors costing millions of dollars in legal fees. I've also marveled at its duplicity; 1-800 Contacts historically employed the same competitive keyword advertising practices it subsequently sought to suppress.

Things have been quiet on the 1-800 Contacts front for the past several years, after it suffered a major blow in the 10th Circuit's Lens.com ruling, but sometimes the machinery of justice keeps turning quietly in the background. This week, the FTC sued 1-800 Contacts for antitrust violations. I believe this is the FTC's first foray into keyword advertising issues, and it's left some folks scratching their heads.

The FTC's Allegations

Let's take a closer look at the FTC's allegations. (As you know, pleadings by government entities are usually a mixture of truth, half-truth and fiction). The complaint says 1-800 Contacts has 50% share of the online retail market for contact lenses. Facing emerging competition from lower-priced entrants, starting in 2004, 1-800 Contacts pursued trademark enforcement against advertisers engaged in competitive keyword advertising. 14 advertisers agreed to settlement terms; only Lens.com didn't give in. (The complaint redacts the names of the settling advertisers, but in a supplement to this blog post, I identify many of them). The settlement agreements barred the competitors from bidding on "1-800 Contacts" or variants; and 1-800 Contacts reciprocally agreed not to bid on the competitors' trademarks.

13 agreements also required the competitors to put "1-800 Contacts" on the negative keyword list. Thus, a search for "1-800 Contacts Cheaper Competitors" -- which strongly implies that the consumer sought competitive alternatives to 1-800 Contacts -- would not display these competitors' ads. The FTC provides a screenshot of that search, shown at the right. As you can see, 1-800 Contacts is the only keyword advertiser. However, the top organic result is a link to AllAboutVision.com, which claims to be "an unbiased source of trustworthy information on eye health and vision correction options" and possibly would be a helpful aggregator for consumers. The organic search results also link to some deep pages on 1-800 Contacts' site, none of which consumers would find responsive to the query. While these search results seem a little funky, the search term "1-800 Contacts Cheaper Competitors" is a VERY long-tail query that few, if any, consumers actually tried. The settlement agreements had reciprocal negative keyword obligations for 1-800 Contacts.

The complaint alleges that "1-800 Contacts has aggressively policed the Bidding Agreements, complaining to competitors when the company has suspected a violation, threatening further litigation, and demanding compliance."

1-800 Contacts' campaign to restrict competitive keyword advertising could potentially hurt three different marketplace players: (1) the competitors who are hamstrung in their efforts to reach interested consumers, (2) consumers who suffer from a less competitive market, and (3) search engines whose ad auctions are rendered less efficient (and less profitable) when interested bidders choose not to participate. The complaint recaps some of the harms allegedly caused by 1-800 Contacts' conduct, including:

• distorting the price-setting mechanisms of search engine ad auctions
• degrading the quality of search results pages by keeping them from displaying the most relevant ads to consumers
• preventing truthful non-misleading information from reaching consumers
• suppressing price and service competition among online contact lenses retailers, which causes "at least some consumers to pay higher prices for contact lenses than they would pay absent the agreements, acts, and practices of 1-800 Contacts"
• increasing consumer search costs to purchase contact lenses online

In other words, the FTC sees competitive keyword advertising as contributing to efficient search advertising auctions and, more importantly, improving consumers' choices and fostering vendor competition on price and quality. Viewing competitive keyword advertising as pro-competitive isn't novel, but it's satisfying to see the FTC embrace the view so enthusiastically.

Finally, the complaint enumerates the FTC's wish list of remedies, including:

• banning 1-800 Contacts from entering into contracts with competitors that restrict participation in search engine ad auctions or suppress the dissemination of truthful non-misleading information
• banning 1-800 Contacts from "filing or threatening to file a lawsuit against any contact lens retailer alleging trademark infringement, deceptive advertising, or unfair competition that is based on the use of 1-800 Contacts' trademarks in a search advertising auction. Provided, however, that Respondent shall not be barred from filing or threatening to file a lawsuit challenging any advertising copy where Respondent has a good faith belief that such advertising copy gives rise to a claim of trademark infringement, deceptive advertising, or unfair competition."

While the FTC's focus on keyword advertising is new, its interest in advertising restrictions is not. For example, our Advertising and Marketing Law casebook covers the FTC v. Polygram case from 2003, in which the FTC successfully pursued two competitors' agreements to restrict advertising of old stock in order to prop up a new product release.

Questions Raised

Why Is the FTC Acting Now? The FTC says 1-800 Contacts started its enforcement-and-settlement campaign in 2004. Why is the FTC acting now, a dozen years later?

Normally a complaint like this is instigated by a competitor's complaint, and it would make sense if Lens.com tipped off the FTC about its situation. (In addition to the trademark battle, Lens.com had a parallel antitrust lawsuit against 1-800 Contacts going back years). However, I assume Lens.com would have raised this issue with the FTC a long time ago. After all, Lens.com filed its antitrust lawsuit in 2011. Perhaps the FTC waited to see how that lawsuit would play out before deciding whether or not to intervene. The district court dismissed Lens.com's antitrust complaint in 2014; I then see a notice of appeal to the 10th Circuit but it's murky what happened after that.

Perhaps the FTC is acting now because competitive keyword advertising law has cleared up a lot over the years. As I've mentioned many times, lawsuits over buying competitors' trademarks haven't succeeded in court for about a half-decade; and even lawsuits over the inclusion of a competitor's trademark in the ad copy rarely make much progress in court any more. While I doubt the FTC could have confidently taken a strong stand on the legality of competitive keyword advertising in the aftermath of the Second Circuit's 2009 Rescuecom opinion, the jurisprudential dust has settled a lot since then.

It's also possible that the FTC finally appreciated how restrictions on competitive keyword advertising distort ad auctions. Auctions work really well to set market prices when all of the relevant bidders participate. I could see how the FTC Bureau of Competition folks, steeped in economics doctrine, had their interest piqued when they first learned about agreements among potential auctions bidders not to participate in the ad auction. Perhaps it took a while for the issue to find its way to the right folks.

Will 1-800 Contacts Accept a Big Fight Against the FTC? When the FTC conducts an investigation into a complaint like this and thinks there's a problem, inevitably it discusses settlement options with the investigated company before suing. Therefore, it seems very likely that 1-800 Contacts already refused a settlement offer from the FTC. I can understand why 1-800 Contacts might do so. Presumably, 1-800 Contacts believes that its actions over the past dozen years are justified, and it's willing to throw more money to defend that proposition (and, as discussed below, to try to maintain its above-market prices).

Still, fighting the FTC is a daunting challenge for any company. The FTC always says it's a small agency, but it's still the freaking U.S. government and has more resources than any company it targets. Further, it has an exceptionally strong batting average in litigation, and judges view the FTC as the voice of the consumer -- making it a more sympathetic litigant than a competitor trying to defend its profitable investments in competitive keyword advertising. Furthermore, the FTC has picked a friendly litigation venue. The FTC steered this case into its in-house adjudication process, so the case will be heard before an FTC administrative law judge with appeals going to the FTC Commissioners before this case can be heard in federal court. By keeping this litigation within the FTC, it will take years and lots of money before 1-800 Contacts can tell its story to an adjudicator not employed by the FTC.

I respect companies that have the fortitude and wealth to stand up to the FTC, but I often question their wisdom and logic.

Is Competitive Keyword Advertising Legitimate? The FTC's complaint assumes, but doesn't prove, that competitive keyword advertising is a legally legitimate practice. For example, the FTC alleges (para. 18) that "1-800 Contacts claimed—inaccurately—that the mere fact that a rival's advertisement appeared on the results page in response to a query containing a 1-800 Contacts trademark constituted infringement." I'm sure 1-800 Contacts (and all trademark owners) would love to see the FTC's citations for the "inaccurately" comment. Later (para. 32), the FTC says—again, without any citations—that agreements not to engage in competitive keyword advertising "exceed the scope of any property right that 1-800 Contacts may have in its trademarks, and they are not reasonably necessary to achieve any procompetitive benefit."

Now, as you know, I emphatically agree with this proposition. I've argued for over a decade that competitive keyword advertising is pro-competitive and should be legal; and I've chronicled the systematic failure of trademark owners' anti-keyword advertising lawsuits over the past half-decade. However, I acknowledge that this issue is still being hotly contested in the courts. Indeed, just last week I blogged about a ruling sending a competitive keyword advertising lawsuit (with the trademark used in the ad copy) to a jury because the defendant couldn't convince the judge that it was entitled to summary judgment. So while I wish the state of competitive keyword advertising law was definitively resolved, the FTC's implied factual claim is aggressive.

For those of us a little tired of the decade-long competitive keyword advertising battles, the FTC's move offers some tantalizing prospects. Because the FTC stacked the litigation deck in its favor, we could get some clean and powerful judicial pronouncements about the legitimacy and pro-competitive nature of competitive keyword advertising. Combined with developments like the Texas ethics opinion greenlighting competitive keyword advertising by lawyers, this case could help push the pendulum so decisively in favor of competitive keyword advertising that it permanently ends the debates.

What About Vertical Restrictions on Competitive Keyword Advertising? This case deals with horizontal restrictions between competitors. While those are relatively rare, it's quite common (at least in certain industries) for trademark owners to restrict keyword ad bidding by vertical channel partners such as affiliates and distributors. What implications does this lawsuit have for those vertical restrictions?

Usually, distributors can use manufacturers' trademarks for the goods or services they resell without a trademark license. In contrast, affiliates usually need a trademark license, in which case the trademark owner should be able to put conditions on its trademark license to affiliates. However, trying to impose those same conditions on distributors could be a legal overreach because they didn't need trademark permission at all.

The FTC might be signaling that it's a problem to restrict keyword ads by channel partners who don't need trademark permission in the first place. However, manufacturers have substantial power to control intra-channel conflicts (see, e.g., the modern deference to resale price maintenance), and restrictions on keyword advertising help the trademark owner manage the trademark and prevent channel partners from driving up the owner's cost of doing so. So vertical restrictions on keyword advertising bidding may have better competitive justifications than horizontal restrictions. My guess is that the FTC didn't intend to implicate vertical restrictions; but it probably wouldn't categorically greenlight them either because some vertical restrictions could indeed have anti-competitive effects.

What Does This Mean For Trademark Owners? Trademark owners, PAY ATTENTION. Effectively, the FTC is saying that 1-800 Contacts committed antitrust violations by making overreaching trademark demands. I can't recall when the FTC last implied that trademark overclaiming could create antitrust problems (nothing comes to mind immediately). Among academics, we've frequently discussed how trademark overclaims can hurt competition, so many academics probably think it's about time the FTC moved in that direction. However, if this lawsuit signals that the FTC plans to pay more attention to trademark owner overreaching, that would be a seismic event for the trademark owner community.

Two related notes. First, as I've said before, I think 1-800 Contacts is an exceptionally weak trademark because it's more a phone number than a source identifier. Just like trademark law won't protect [noun].[tld] domain names (when the domain name relates to the noun), "800 [noun]" also should be generic. It creates a lot of friction when we weaponize such highly descriptive terms, and it makes sense for the FTC to pay particular attention to those weapons deployments.

Second, I've observed before that owners of weak descriptive marks tend to be the most litigious and make the most aggressive interpretations of trademark law. They often use litigation to try to overcome the intrinsic shortcomings of the mark; and they are often paranoid about the so-called "policing duty" that makes trademark owners think they will lose the mark if they don't shut down other users of the term. However, the trademark policing "obligation" is often overstated; and the TTAB has expressly said there's no policing obligation against competitive keyword advertising.

Filed Under: antitrust, competition, competitive keyword advertising, consumer protection, ftc, keyword advertising, trademark
Companies: 1-800 contacts

DOJ Makes Smart Decision On Music Licensing... Music Publishers Completely Lose Their Shit

from the calm-down-people dept

For the past couple of years now, the Justice Department has been exploring the so-called "consent decree" around music publishing. This was an agreement, first made in 1941, and then reviewed in 2001, on how music performing rights organizations (mainly ASCAP and BMI) could operate without violating antitrust rules. Without such consent decrees, there was a quite reasonable fear that the performing rights organizations (PROs) would abuse their monopoly positions. This is not a theoretical argument. If you look around the globe, there are many, many, many, many, many stories of these organizations behaving badly.

In this case, ASCAP and BMI had been whining that because of those darn internet companies not paying enough, they need to get rid of the consent decree, mainly so that they can do more to jack up rates (there's more to it, but the end result is they want to be able to withhold rights to force rates up). Of course, in opening up this can of worms, they also got the DOJ to start looking more closely at other practices, including an exploration into so-called split works or "fractional licensing." The details here can get confusing, but in short: when a work has multiple copyright holders, many have argued that you need to get a license and/or approval from every copyright holder. But if you look at the legislative history of the 1976 Copyright Act, legislators made it clear that under the act, they intended to make it clear that any copyright holder in a work with multiple authors had the right to license the whole work.

And now... the DOJ has agreed. It issued an announcement with two key points: it would not take away the consent decree and it said that the law requires "full work" licenses, meaning a single copyright holder can grant a license for the entire work. This is a good thing. It's a very good thing. The DOJ's explanation for this is pretty straightforward:

In the end, the Division concluded that only full-work licenses could fulfill the purpose and meaning of the requirement in the consent decrees that ASCAP and BMI offer blanket licenses that provide users the ability to play all the songs in the PROs’ repertories. Importantly, this does not mean that ASCAP and BMI are required to provide a full-work license to a work when their members cannot grant them the ability to offer such a license. That is, we do not suggest an interpretation of the blanket license that is inconsistent with the Copyright Act. Rather, if the members of ASCAP or BMI are unable to grant to their PRO the rights to license their works on a full-work basis, those works are ineligible for licensing by ASCAP or BMI.

Both sides in this debate pointed to past practices they believed supported their view of whether ASCAP and BMI licenses were full-work or fractional. We think the evidence favors the full-work side. Our determination begins with the language of the consent decrees themselves, which unambiguously require ASCAP and BMI to offer licenses to all works or compositions in their repertories, and not to interests in works. For example, in the case of ASCAP, it must provide a license to perform “all of the works in the ASCAP repertory.”

Our view is also based on what is required for all participants in the industry to enjoy the substantial procompetitive benefits of the PROs’ blanket licenses – benefits that differentiate the PROs from joint price-setting entities that often present significant problems under the antitrust laws. The Supreme Court described blanket licenses in the BMI case as providing “unplanned, rapid, and indemnified access” to the songs in the PROs repertories. Fractional licenses would not offer the benefits the Supreme Court described.

A full-work blanket license from ASCAP or BMI allows the music user to publicly perform, without risk of copyright infringement liability, all works in the licensing PRO’s repertory. Particularly for music users – such as bars and restaurants – that cannot meaningfully control in advance the music they play in public, this feature of the PROs’ licenses benefits both the licensees as well as music creators in that it ensures that users can and will continue to play the creators’ music.

Fractional licensing would not offer the same benefits to users. If a PRO’s license granted a user something less than a license to play a particular song, music users seeking to avoid infringement liability would face the daunting task of identifying and ensuring they obtained licenses from all fractional owners – a challenge made more difficult by the lack of a comprehensive, reliable, and transparent catalog of rights. Under those conditions, even music users with control over the music they perform would have to curtail their performance of music until they were certain they had obtained licenses from all fractional owners. As BMI itself argued in a recent rate-court filing, a BMI license grants to a music user “insurance against copyright infringement . . . and immediate access to more than 10.5 million works in BMI’s repertoire.” A fractional license could not provide these benefits.

A lot of this was rumored a month or so ago, and a bunch of songwriters and publishers freaked out about it. They shouldn't be freaking out about it. This is actually good for them. Back when the expected result was leaked to the press, even Digital Music News, which frequently sides with the legacy industry, said directly that the songwriters' freak out was wrong and that this was a good thing for the music world -- and also notes that this could help finally create the holy grail in the music industry of a single database of published songs.

This should also help create more useful services that will get consumers to use authorized music sources, rather than unauthorized ones. As we've covered, ASCAP played some ridiculous tricks on music services like Pandora, and got slammed for it. But with full work licensing, such gaming will be even less possible, creating more openings for new music services to thrive.

Of course, the PROs, ASCAP and BMI, immediately lost their shit over this announcement and promised to fight back. BMI also announced that it will go to court to try to overturn this decision, while ASCAP has decided to focus on getting Congress to fix it through the legislative route (there's a reason for this bifurcated approach: in the cases involving both organizations, both BMI and ASCAP recognize that BMI has a judge that seems more willing to accept BMI's version of the story, whereas ASCAP's slimy behavior was so egregious that the judge covering its case actually understands the issues at play).

The end result, though, is the same old story: ASCAP and BMI want to abuse their monopoly position to try to jack up rates. Meanwhile, by not allowing that to happen, most songwriters will actually be better off, allowing more useful services to thrive, creating more opportunities for revenue. It's kind of insane that we have to point this out over and over again, but the legacy industry always fights against new innovations in the false belief that it will harm revenue -- yet when they learn how to embrace the opportunities, it turns out that a larger audience has been created and there are even more ways to make money. But ASCAP and BMI, like the RIAA on the recording side, are so focused on controlling their turf rather than seeing the big picture that they miss this entirely.

Filed Under: antitrust, consent decree, doj, fractional licensing, full work licensing, licensing, music publishing, songwriting
Companies: ascap, bmi

Trump Implicitly Suggests That His DOJ Would Take Down Amazon For Antitrust

from the oh-boy dept

There was a fair bit of coverage on Monday of the news that the Donald Trump campaign had removed the press credentials from the Washington Post because the campaign was upset with the Washington Post's coverage of the campaign. While it got a lot of attention, it was quickly pointed out that Trump has revoked or barred at least six other news outlets from receiving press passes, including Politico, the Huffington Post, the National Review, Buzzfeed and the Daily Beast. This issue is being discussed in lots of media circles. But what interested me much more was buried deeper in the full two paragraph statement that the Trump campaign later released. It included a weird and basically confused attack on Jeff Bezos, that again raises some serious questions about how Trump may use the Presidency to "settle scores."

The Washington Post unfortunately covers Mr. Trump very inaccurately. Today's headline, "Donald Trump Suggests President Obama Was Involved With Orlando Shooting" is a perfect example. We no longer feel compelled to work with a publication which has put its need for "clicks" above journalistic integrity.

They have no journalistic integrity and write falsely about Mr. Trump. Mr. Trump does not mind a bad story, but it has to be honest. The fact is, The Washington Post is being used by the owners of Amazon as their political lobbyist so that they don't have to pay taxes and don't get sued for monopolistic tendencies that have led to the destruction of department stores and the retail industry.

There are all sorts of issues with that statement, beyond the simple fact that there appears to be basically zero evidence to support it. Yes, Jeff Bezos runs Amazon and also owns the Washington Post. But I've seen basically no evidence that the Washington Post has done any stories that are somehow lobbying for Amazon's interests (for what it's worth, Amazon tends to stay far, far away from all sorts of policy fights). Perhaps I've missed it, but I don't recall any WaPo editorials advocating for letting Amazon avoid taxes.

But it's really the end of that last paragraph that's the most concerning. Claiming that Amazon has "monopolistic tendencies" and the ridiculous claim that it's "led to the destruction of department stores and the retail industry," is somewhat concerning. This is not the first time Trump has attacked Bezos. In fact, his original infamous statements about how he was going to "open up libel laws" were actually directed at Bezos. He first went on a tirade about Bezos owning the Washington Post, followed by:

If I become President, oh, are they going to have problems. They're going to have such problems.

Lots of people pointed out that Trump perhaps couldn't do too much to libel laws (the Supreme Court and the First Amendment has that covered), but he absolutely could have the DOJ or even the FTC go after Amazon for claimed anti-trust or anti-consumer behavior. And it seems pretty clear that he would gleefully do so. And not because of any actual evidence of problems, but because he doesn't like the coverage in the Washington Post which just happens to be owned by Bezos. Settling personal scores with the press by attacking a service that many in the public find extremely useful and convenient doesn't seem particularly presidential, does it?

Filed Under: antitrust, donald trump, monopoly, press credentials, retail
Companies: amazon, washington post