A Merger Challenge Not Worth Rating: The DOJ's Misguided Suit Against A Paltry Software Merger

from the doj-strikes-again dept

The following is a guest post from David Balto, former Federal Trade Commission Policy Director. Mr. Balto represented SunGard Data Systems in the US v. SunGard case described in this post.

Antitrust merger enforcement is a unique area of the law. It requires an assessment of whether a merger carries the potential of significantly harming competition. Courts are not very good at predicting the future and justifiably are very reluctant to prevent or unwind an acquisition without strong evidence of likely anticompetitive effects. Appropriately the antitrust enforcers rarely turn to the courts to try to stop business conduct that is typically procompetitive.

This cautionary approach is particularly necessary in software and other high tech markets. Antitrust analysis works best in traditional products, such as industrial products, that have existed for years in which the characteristics of products and the dimensions of competition are well defined. But in software the products are rapidly evolving, demand is ever changing, and the nature of competition can change overnight. Today's so called dominant firm may find itself an afterthought as the market turns to a whole different set of solutions. Not surprisingly, in the past decade the two litigated challenges to high tech mergers, Oracle's acquisition of PeopleSoft and SunGard's acquisition of Comdisco, resulted in stunning defeats for the Department of Justice's Antitrust Division.

That is why many observers were puzzled when the Antitrust Division sued to unwind the merger between Bazaarvoice, a social software and data analytics company, and PowerReviews, a small provider of online reviews that had less than $12 million in total revenues at the time of the transaction. (No one can seem to recall anytime the Division has sued to block a merger of a firm with an amount as paltry as $12 million in revenue). The merger involves the exciting software for providing ratings for products on the Internet, a product that did not exist a few years ago. Although the Division seems to highlight some documents that seem to suggest potential anticompetitive effects, the wooden analysis of the complaint reflects a simple structural view that overlooks the many dimensions of competition and the dynamic nature of the market. Rather than fully probing the likely competitive effects and dynamism of the online retail industry, the Division describes markets, consumer choices, and entry conditions that do not reflect reality. As a result the complaint is plagued by internal inconsistencies and fails to recognize the true price constraints that mitigate the potential for any harm the DOJ predicts as a result of this transaction.

The DOJ Fails to Articulate a Proper Relevant Market

Antitrust analysis may sound daunting, but it is very straightforward. The lodestar in any antitrust case is to define the relevant market – that is to determine what are the products that effectively compete with one another. In a merger challenge, if the government does not properly define the relevant market then the case is over. Defining the market can be very challenging, especially in dynamic markets such as software. Not surprisingly, the government's defeats in challenges to software mergers have typically been because they did not define the relevant market properly.

The DOJ defines the relevant market as "product ratings and review platforms," or "PRR platforms," and explains that these platforms "collect and display consumer-generated product ratings and reviews online." It is axiomatic that defining a relevant market establishes the boundary between products that do compete and those that do not, and determines the firms or products that constrain the relevant firm’s exercise of market power. As the Ninth Circuit has opined, "A relevant market is identified by considering commodities reasonably interchangeable by consumers for the same purposes. Put another way, the relevant market includes all sellers or producers who have actual or potential ability to deprive each other of significant levels of business." As the literature makes clear, if a putative relevant market is too narrow, and does not account for competitive forces that serve as a real price constraint on the parties, then the analysis risks condemning perfectly legitimate and competitive behavior by imputing market power where it does not exist.

On this count in Bazaarvoice, the DOJ does not get to first base. The DOJ's alleged PRR platform market is too narrow and falls prey to the mischaracterization of market power risk embodied in the literature. PRR platforms are one of many social-technological tools that retailers and manufacturers use to communicate with end-user customers. Bazaarvoice and PowerReviews compete against numerous firms that strive to empower the consumer's voice through social media to "collect, organize, and display consumer-generated product ratings and reviews online." Manufacturers may use popular network-driven social media tools such as Facebook, Twitter, Google+ and Yelp or more nuanced social media tools such as YouTube, Pinterest, and LinkedIn to give the consumer a voice in online product reviews. Alternatively, manufacturers and retailers can include social media tools that are similar, but not identical, to consumer reviews such as question-and-answer, and community forums.

These alternative platforms constrain Bazaarvoice, PowerReviews, and other companies that provide third-party review and aggregating services. When a retailer or manufacturer considers purchasing services from these companies, they do not look only at these two options, but also at the available outlets for consumer review generation provided by the ever-increasing array of social media platforms.

In defining markets, the courts rely on a wide variety of evidence including econometric price studies, other pricing evidence, win/loss data, and testimony of customers. None of this is present in the DOJ complaint. Instead the DOJ relies largely on the defendant's documents, but this is a thin reed indeed. Many of these documents are outdated and ignore the realities inherent in this fast-moving industry. It is debatable whether these documents reflected the true nature of competition at the time they were created. It is certain, however, that these documents no longer reflect the current state of competition. For instance, the DOJ twice references an April 2011 email in which a Bazaarvoice executive characterized the nature of the industry and opined that alternatives to Bazaarvoice are "scarce" and "low-quality." In the intensely rapid changing world of the Internet, documents from 2011 are about as relevant as a floppy disk. Instead of 1) demonstrating that this was in-fact true in 2011, and 2) reestablishing that this description remains accurate, the DOJ's complaint merely assumes that both are the case. However, this description does not align with today's online retail industry or its intersection with social media. These are industries highlighted by dynamism, and it would be incorrect to believe that the relationships between PRR platforms and other social media outlets for consumer reviews have remained stagnant.

Even If One Accepts the DOJ's Relevant Product Market, the DOJ Fails to Recognize the Dynamic Nature of Competition

As explained above, a product market of PRR platforms is not a proper relevant market for antitrust purposes. Even assuming arguendo that PRR platforms constitute a proper market, however, the DOJ's complaint fails to discuss adequately the nature of competition within these parameters.

Two fatal flaws plague the DOJ's analysis. First, the DOJ fails to offer any explanation for portraying the PRR platform market as consisting of just two meaningful competitors and numerous fringe competitors who offer no real constraint. The DOJ attempts to justify this portrayal by analyzing the nature of competition between Bazaarvoice and PowerReviews within the "Internet Retailer 500," but it is unclear why the government focuses so closely on this tiny market segment and it is even less clear whether an impact solely on that segment would violate the law. The DOJ even concedes that the PRR platform industry "can range from simple software solutions a company has developed with internal resources to sophisticated commercial platforms offering a combination of software, moderation services, and data analytics tools." However, despite this wide range of styles and services, the complaint analyzes only a small segment of the market and suggests that these large sophisticated companies have only two effective alternatives.

The Division has made this mistake in the past, and it did not end well. In Oracle the DOJ "failed to prove that there are a significant number of customers (the 'node') who regard Oracle and PeopleSoft as their first and second choices." Instead, the DOJ tried to make the unilateral effects argument with the unpersuasive facts that it had. Judge Walker admonished the DOJ, stating the "Plaintiffs' attempt to show localized competition based upon customer and expert testimony was flawed and unreliable. Moreover, plaintiffs' evidence was devoid of any thorough econometric analysis such as diversion ratios showing recapture effects." (A "diversion ratio" shows how much of one competitor's business will shift to another competitor if there is a price increase.)

The complaint against Bazaarvoice is equally flawed. The diversion ratios will simply not tell a story wherein a sizeable portion of all participants in the DOJ's (already flawed) market perceive only Bazaarvoice and PowerReviews as next-best options. If the evidence of diversion ratios were available, the DOJ would have presented it already. In fact, this is a consummated merger – the real-life data should show this effect if it is true. Instead, the data likely tells a story of widespread, dissimilar, and largely unpredictable cross-elasticity of demand. It is probably the case that no "node" in the PRR platform industry exists because the dynamic nature and subjective needs of clients dictate that there is no significant captive set of consumers choosing only between Bazaarvoice and PowerReviews.

Second, the DOJ completely ignores the concept of self-help in the social media consumer reviews industry. At its core, the products supplied by Bazaarvoice and PowerReviews are based on simple technology. These companies create software that appears on a retailer's website and enables consumers to provide first-hand product reviews. The companies also provide differing analytic and syndication services, both of which are a function of nothing more than intelligent use of data. There is nothing stopping retailers and/or manufacturers from creating the same service and extracting value from the data. Unsurprisingly, companies often perform some or all of these tasks themselves. Amazon stands out as a leader in providing consumer review platforms and uses the data to drive marketing and sale decisions. Zappos, the online shoe and apparel company from Henderson, Nevada provides its own consumer review platform on its website, and uses this information not only to improve sales and marketing, but to provide an added level of consumer care.

Like the question of the consumer "node," the DOJ has also failed to account for internal solutions as a price constraint. Once again the DOJ is forgetting an important lesson from a past defeat. In SunGard, the DOJ tried to block the merger of two firms that provided computer disaster recovery services, which sounded like tremendously sophisticated and complex services. But the court found that self-help ("internal hotsite solutions") was a perfectly adequate option for many customers. The DOJ had portrayed the notion of internal hot sites as expensive and difficult to create, and suggested that not enough customers would turn to internal solutions to prevent the merging parties from raising prices. Judge Huvelle disagreed, and pointed out that, not only did internal solutions exist in some capacity, but that the incentive to create internal solutions would increase alongside any increase in price. Furthermore, the evidence demonstrated that customers had varying needs, and "any generalizations regarding customer behavior cannot be arrived at with any certainty, since it depends on a host of factors, including the type of equipment a customer must duplicate, the particular circumstances and needs of the customer, and in some cases, the size of the customer's operations."

The same can be said for customers of social media consumer review -- any attempt to predict the future needs and behaviors of customers is nothing more than generalization and speculation based upon incomplete data, an uncertain technological future, and dynamic and varied customer needs.

The DOJ Fails to Account Adequately for Entry and Expansion, Both of Which are Likely

The DOJ asserts that anticompetitive harm resulting from this transaction will not be corrected by additional competitors entering the market or existing participants expanding. The rationale for this assertion lies primarily in the DOJ's contention that Bazaarvoice's syndication network creates an insurmountable entry barrier. This statement ignores the fact that PowerReviews entered the market and competed effectively without offering a syndication product on par with Bazaarvoice's. Furthermore, the DOJ makes no attempt to quantify the number of Bazaarvoice customers that take advantage of the syndication offering. In fact, many manufacturers and retailers choose not to utilize this service, instead preferring to outsource to another vendor or perform the analytics in-house.

Notwithstanding these factual oversights, the assertion that Bazaarvoice's syndication network is a barrier to entry fails. The aggregation of data through the creation of consumer reviews is a profitable endeavor, but it is also an easily repeated endeavor. Bazaarvoice's reviews and sophisticated analysis may make it a better competitor but it does nothing to cement Bazaarvoice as an enduring competitor in the face of an improved service. Allegations of network effects as barriers to entry are made far too lazily, and the DOJ would have the trier of fact believe that a piece of data can only be captured once, or is a zero-sum game. This is just not the case. There is competition for data just as there is competition for any other product. Finally, as the value of data continues to increase, retailers and manufacturers will have less incentive to continue outsourcing this portion of the business to Bazaarvoice.

Unsurprisingly, entry is already occurring in this alleged market. Reevoo and Yotpo are new entrants looking to disrupt competition, while Amazon and Google are established market participants looking to grow their profits at the expense of companies like Bazaarvoice. The DOJ's entire theory of harm is premised on a presumption of stagnancy that runs contrary to the nature of the high-tech and electronic commerce industries.

Conclusion

Antitrust enforcement in high tech markets poses special challenges -- to recognize the dynamic fast paced nature of competition, the fluidity of product markets, and the opportunities for new forms of rivalry. Unfortunately, the complaint in the Bazaarvoice case takes a static approach hinged to a few outdated documents. Without more it is unlikely a court will take the draconian step of unwinding this merger.

Filed Under: antitrust, doj, market definition, monopolies, reviews, software
Companies: amazon, bazaarvoice, google, powerreviews

Universal Music Claims Piracy Justifies Monopoly, Wants The Power To Control Digital Music Services

from the say-what-now? dept

In a short article discussing how European antitrust officials don't appear to be too keen on Universal Music buying up EMI, and turning Universal Music (already the largest music label) into a truly dominant player in the market, there's this little tidbit:

Unnamed sources at Universal have briefed journalists that the competitive threat of digital piracy means consolidation should be permitted. Critics have pointed out that the merged entity's 40+ per cent market share would make it the king-maker for digital music services – and that no service would then survive without Universal's catalogue.

We were just discussing how the labels were looking to turn the screws on Spotify to try to wrench even greater profits out of the still unprofitable company. But really, when you put these two sentences side-by-side, it just shows how ridiculous the major labels -- and particularly Universal Music -- are today. Because of "piracy," it needs to be able to merge to create an even larger aggregator of back catalog music... to restrict that same music from appearing on new and innovative digital music platforms, unless those platforms pay more than is reasonable.

Get it? Universal Music's response to piracy is to create more piracy and limit innovation. The geniuses at the company (and, remember, this is the company whose former CEO once admitted that he was too clueless to even hire someone who might explain how modern digital technology worked -- and who not only didn't get fired for this admission, but was able to leverage his cluelessness into a new job running Sony Music last year) are basically saying that the only way they can compete with "piracy" is to so dominate the market that any company offering a music service has to do a deal on their terms, or not include its catalog. In other words, it wants veto power (and the power to extract ridiculous and unsupportable rents) on music service innovations.

Of course, that's a really stupid plan for a bunch of reasons, but let's call out the two big ones. First, the company's problems are not caused by "piracy", but by a stubborn unwillingness to adapt to a changing market. Second, restricting innovation in the digital music space will actually increase the amount of infringement, by (1) making it unprofitable for most companies to be in that space and (2) limiting true innovation and the necessary competition among services that leads to the kind of new innovations that consumers want. Instead, it'll just drive them to go back to what works: open infringement.

Filed Under: digital music services, monopolies, music, recording industry
Companies: emi, universal music

Is Comcast A Threat To The Internet?

from the competition-is-the-thing dept

Tim Lee has written a long, detailed and really thought-provoking article for National Affairs Magazine, all about what it takes to keep the internet competitive. Lee, who has a reputation for being generally skeptical of regulation without real evidence that it's needed, actually comes down on the side of suggesting that certain key regulations probably make sense to keep the internet competitive, with a specific focus on limiting Comcast's power to directly impact the market, and to effectively disrupt the internet's decentralized nature. It's a persuasive piece that doesn't shy away from the fact that telecom regulations are incredibly complex, and anyone who argues that any change to the existing market is putting regulations where none existed before is delusional, since the whole space is already highly regulated -- it's just a question of how that regulation might shift around.

The key point in all of this is that the guiding star of anyone trying to keep the internet vibrant should be making the market truly competitive with no dominant power able to make significant shifts in the core underpinnings of what makes the internet work. Lee uses the Comcast/Level3 dispute from a few years ago to suggest that Comcast is potentially shifting the traditional contours of the internet's competitive market:

Comcast's large share of the broadband market, along with the fact that most of its customers have few if any comparable alternatives, gives Comcast significant leverage in negotiating with backbone ISPs. Comcast has traditionally been a customer of Level 3, one of the largest internet backbone providers. When a Comcast user exchanged data with a network that was not directly connected to Comcast's own network, Comcast paid Level 3 to carry that traffic.

But in November 2010, the two firms became locked in a bitter dispute. Level 3 had just won a contract to deliver content for Netflix, one of the internet's largest video services. Anticipating that Netflix would generate more traffic than the existing links between the Comcast and Level 3 networks could accommodate, Level 3 proposed installing additional links between the networks. Ordinarily, Comcast, as a Level 3 customer, would gladly accept what was essentially a free upgrade. Instead, Comcast refused to accept the new connections unless Level 3 agreed to pay Comcast for the additional traffic. And Level 3, after voicing strong objections, paid up.

There's a lot more to this -- and Lee highlights some of the more detailed nuances as well, so don't just go on this brief summary -- but he argues it's a sign of the power that Comcast has been building up. I highly recommend reading the full thing if you're thinking at all about the issue of regulations on broadband service providers, and the future of the internet.

Filed Under: antitrust, internet, monopolies, reguations, rights of way
Companies: comcast

How Monopolies Strangle Innovation: Record Label Demands Making Investors Nervous About Spotify

from the copyright-cartels dept

According to rumors reported by Business Insider, music streaming service Spotify is currently working on raising another round of funding at a valuation of about $3.5 billion—a figure that is making some major investment firms skeptical, despite the service's considerable success at growing its customer base. Over at TechCrunch, Josh Constine points out the most likely reason investors are reluctant: they know that the recording industry uses its copyright monopoly to exact a "tax on success" from innovative music startups.

Unfortunately, this is why investing in Spotify may not be wise and why firms like Andreessen-Horowitz may have passed. It’s a great service with a big lead on other music streamers. But as it scales and gains traction, the record labels will increase their tax. There’s no way Spotify will pay the same fees if it hits 15 million subscribers as it does now. That will make it harder for Spotify to return the multiple most investors want any time soon.

In most industries, if a partner charges you too high a licensing fee you can go to one of their competitors. That’s not how it works in music. You can’t get a cheaper equivalent to Michael Jackson or Lady Gaga like you could for enterprise software. If you want “Thriller” you have to pay whatever the labels ask. And even if it does, Spotify isn’t getting exclusive access to that content.

Though the specifics of the deals between record labels and music streaming services are secret, many details have been leaked over time, and it's long been known that they are onerous and one-sided. Last year, Michael Robertson of MP3tunes explained how the general structure of the deals make growth and innovation extremely difficult, while collusion among the labels eliminates any last shred of competition and ensures that a service like Spotify can never negotiate better terms. Investors know that music startups essentially live or die at the behest of the legacy industry, and investors are smart—they aren't about to bet millions on record labels making good decisions.

Economically speaking, none of this is surprising, because copyright is a monopoly and this is what monopolies do. They distort the free market and allow the monopolists to control the competition. Adding insult to injury, recording industry defenders like to tout streaming services as examples of how the industry embraces innovation, and RIAA CEO Cary Sherman recently said he was surprised that Spotify wasn't generating more revenue for the labels. To anyone who understands how difficult the labels have made life for these startups, claims like these don't pass the laugh test—and Spotify's difficulty securing funding is just more evidence of this fact. Its numbers would make it a hot investment property if it operated in any space other than music, but because it is shackled to a dying industry with a long history of technophobia, investors take their money elsewhere. Who can blame them?

Filed Under: control, copyright, economics, funding, innovation, monopolies
Companies: spotify

The Pirate Bay Press Release On SOPA: We Are The New Hollywood

from the history-repeating-itself dept

Given its general contempt for the repeated attempts to close it down, you wouldn't expect The Pirate Bay to be particularly worried by SOPA. But in its very own press release on the subject, it goes much further: it flings the ultimate insult at Hollywood by claiming that not only are the two of them spiritual kin, but that The Pirate Bay is the New Hollywood.

Here's why The Pirate Bay thinks Hollywood is exactly like itself:

Because of Edisons patents for the motion pictures it was close to financially impossible to create motion pictures in the North american east coast. The movie studios therefor relocated to California, and founded what we today call Hollywood. The reason was mostly because there was no patent.

There was also no copyright to speak of, so the studios could copy old stories and make movies out of them – like Fantasia, one of Disneys biggest hits ever.

So, the whole basis of this industry, that today is screaming about losing control over immaterial rights, is that they circumvented immaterial rights. They copied (or put in their terminology: "stole") other peoples creative works, without paying for it.

And here's why Pirate Bay thinks it's the New Hollywood:

The reason they are always complainting about "pirates" today is simple. We've done what they did. We circumvented the rules they created and created our own. We crushed their monopoly by giving people something more efficient.

At the end of its release, The Pirate Bay admits rather drolly:

Some facts (years, dates) are probably wrong in this press release. The reason is that we can't access this information when Wikipedia is blacked out. Because of pressure from our failing competitors. We're sorry for that.

In fact its potted history of Hollywood is not so far off the mark. Here's a rather more rigorously-researched description of the battle between Thomas Edison, along with his Motion Picture Patents Company (MPCC) – basically a group of suppliers that tried to enforce a monopoly over cinema equipment – and Carl Laemmle's Universal Pictures that refused to knuckle under:

what ultimately did the Edison monopoly in was the assumption that its legal/technological dominance over the trade, and its moral stance, would trump the public’s demand for ever more creative motion pictures. Unlike the independents, the MPCC system did not invest in its network. Consumers would simply have to watch Edison Trust fare, the monopoly’s principals figured.

They didn’t. Instead, they flocked to Laemmle and his fellow independents' "illegal" movies, which were longer and of better quality. Even the Trust's inner circle knew this. "We… pass on pictures we know will get us nothing but unfavorable comments and cancellations," one confided. "We haven’t the power to throw out the distinctly bad pictures, nor the courage, because as poor as they are, they represent a certain sum of money invested in negative production."

Edison and his cohorts never understood that they were involved "in much more than an economic battle to determine who would control the profits of the nascent film industry," Neal Gabler writes. This was a conflict between an older generation of Anglo-Saxon Protestant inventors and a new generation of immigrants.

The parallels with today's battle between the MPAA (complete with its "moral stance") and Net-based "independents" like The Pirate Bay (with its DRM-free content), are clear. Once again, this is not just about who gets the money, it's a conflict between the "older generation" of movie companies with their "legal dominance", and the "new generation" of digital immigrants like The Pirate Bay that give the public what they want.

Call it Hollywood 2: The Sequel.

Follow me @glynmoody on Twitter or identi.ca, and on Google+

Filed Under: disruption, history, hollywood, innovation, monopolies
Companies: mpaa, the pirate bay

Do We Really Want The First To Come Up With An Invention To Own The Market?

from the does-that-make-sense? dept

Tim Lee has another excellent post on the state of the patent system these days, taking on the claim by Michael Mace that software patents are good because it stops big companies from competing with him, by questioning whether or not there's a reasonable policy rationale for this. Lee's point is that it's not at all clear that letting the "first" own the market makes much sense:

Companies have other ways to protect their innovations. They can use copyrights, trade secrets, and the head start that any inventor has over copycats. Mace objects that these protections aren't adequate to guarantee that the original inventor will win in the marketplace. But that's the point: consumers benefit from the robust competition that results when inventors have only a limited advantage over competitors. The first company to enter some market shouldn't be able to simply rest on its laurels. Remember, Facebook was a "me-too competitor" in the social networking space; it's a good thing that Friendster and MySpace weren't able to stop Mark Zuckerberg from entering its market.

The function of the patent system isn't to maximize the profits of inventors. Rather, it's to provide inventors with sufficient incentives to ensure they continue innovating.

This is a big point that is all too often ignored in these debates. People seem to think that the entire purpose of the patent system is to maximize the benefit of whoever got their first. But that's simply not the case, and any argument based on that is faulty.

Filed Under: competition, first, markets, monopolies, ownership, patents, social benefit

Entertainment Industry Lawyer: The Public Domain Goes Against Free Market Capitalism

from the say-what-now? dept

We've been doing a series of posts about the Copyright Office's hearings on copyright for pre-1972 recordings, where we already noted with some amusement how the RIAA is suddenly afraid of federal copyright law, preferring the ridiculously more draconian state copyright laws that avoid both the public domain and termination rights. On top of that, we've pointed out that the RIAA's representative flat out claimed that there's no value in the public domain.

From Copycense's tweets, there was one other attendee who seemed to be even more extreme: Ivan Hoffman. Frankly, I'd never heard of the guy before, but you can visit his masterful website here, which looks like it was designed in the early 1990s and never updated. However, I must warn you that in the mind of Ivan Hoffman, you may be violating his copyrights just visiting the site. That's because, at the bottom of the website, it states:

© Copyright 1992-2011 by Ivan Hoffman. All Rights Reserved. No portion of this site, including this home page and any of the separate pages, may be copied, retransmitted, reposted, duplicated or otherwise used without the express written permission of the copyright proprietor. This site is the subject of registered copyrights.

A couple things on this. First, the statement borders on copyfraud (some might say it goes beyond the borders), in that copyright does not allow the rights he has claimed. You absolutely can copy portions of his website if you're using them (as I am here) in a manner consistent with fair use, or if the specific content copied is not actually subject to copyright (and one can make an argument as to whether or not the copyright statement above, itself, is actually subject to copyright). But, even more to the point, if you simply visit his website, you have "copied," "duplicated" and "otherwise used" his website without the express written permission. I'm sure someone could argue the retransmission and reposting too. After all, when you click on the link above (I hope that's not retransmitting or "otherwise using!") you are instructing your computer to make a local copy on your hard drive... all without his express written permission.

So, anyway, that gives you a sense of who we're dealing with here.

What did Hoffman have to say? Well, there were two separate points that seemed worth covering, which I've embedded below via Copycense's tweets, and assuming that Copycense's reporting is accurate (and I have no reason to believe otherwise), it makes you wonder why the Copyright Office would have someone like him speak at their hearings. Specifically, he appears to claim that there should be no public domain, that copyright should last forever, and the very idea of the public domain is anti-free market. The specific statements in Copycense's tweets:

Hoffman: We don't take houses or cars back, but we take back copyrights. Why?

Hoffman: All of this is contrary to free market capitalism

This is, of course, hogwash that anyone who actually understands either the history and intention of copyrights or basic economics would recognize makes no sense. On the reason for the public domain, there's a rather excellent book on the subject that Hoffman might want to read. But the shorthand reason should be clear to anyone who understands copyright: it was to "promote the progress of science," by which the purpose is to benefit the public by giving them access to more content. Arguing contrary to that is simply twisting copyright law away from its core purpose. Furthermore, the basic ingredients of culture and content are earlier works. If we locked up everything, we'd have a lot less content and culture, entirely contrary to the Constitutional reasons behind copyright law. That a copyright lawyer would argue otherwise, to the Copyright Office, no less, is stunning.

And don't get me started on the ridiculous suggestion that putting works into the public domain is "contrary to free market capitalism." Which sounds more like free market capitalism: a world in which there is no government monopolies and interference for people to create and build... or one in which there's a central authority granting monopolies and changing those terms at will?

I asked Copycense if he could clarify what Hoffman was saying, and if (maybe? please?) these statements were sarcastic. Copycense says he's positive they were not sarcastic, and thinks Hoffman just meant that changing the copyright terms on anyone violates the Constitution. In fact, in support of that position, Hoffman also provided this lovely nugget, apparently:

Hoffman: "I have a problem in abrogating contract rights that have been in place for 30, 40, 50 years"

He, of course, is talking about the idea of moving pre-1972 works away from their current status and over to existing federal copyright law. But... if he's so against abrogating contract rights, then, um, shouldn't he be hopping mad about all of the retroactive copyright extension out there? Shouldn't he note that the composition copyrights on all of those songs should be in the public domain? After all, the contract offered to the musicians, at the time those songs were written, was that they would be getting exclusivity on the work for 28 years, followed by another 28 years if they reregistered. In exchange for granting them this monopoly, the public would get the work at the end of that period of time. And yet... with the 1976 Copyright Act, the government totally "abrogated" the contractual rights of the public, and unilaterally extended the copyright. It's really quite incredible that one can claim, with a straight face, that lengthy copyright on old works through extension is fine, but a minor move to put certain works under copyright is somehow violating contract law.

So, it appears that he thinks copyright should last forever... and he's against changing the "contract" on copyright related terms... unless the change screws over the public and completely tramples the existing agreement they had.

Filed Under: capitalism, copyright, free markets, ivan hoffman, monopolies, public domain

Why Do We Let Those Who Benefit Most From Monopolies Write The Laws That Grant Them?

from the it's-a-problem dept

Rick Falkvinge's latest piece at TorrentFreak covers an important issue: the fact that all too often those who write our patent and copyright laws are lawyers practicing in the space. That is, they're the people who benefit the most from perpetuating the system and expanding it further. That's not to say that all copyright and patent lawyers always think expanding the laws are better, but it is pretty common -- and when you get to the folks crafting the laws, it's very common. The article highlights an all too common occurrence, in which a patent or copyright holder threatens or sues someone, and the person or company sued pays up because it's cheaper to pay than to go to court:

And so, another “license” is paid up, and copyright lawyers use it as proof to politicians that licenses are paid and the system works. It’s circular reasoning at its most insidious.

The danger here lies in the difference of perspective: lawyers and politicians regard court proceedings as having zero cost, as basically being a correspondence or a negotiation. In the reality entrepreneurs live in, however, the court cost of a monopoly lawsuit can easily hit a million euros.

Of course, it can be even worse than having them just write the laws. There's the infamous case of Giles Rich, the patent lawyer who wrote a large part of the 1952 Patent Act... and then went on to become a judge at CAFC where he ruled on the interpretations of the law he, himself, had written. People note that he's had more influence than anyone on patent law in the US in the modern era... and almost all of it was in one direction only. And this kind of thing happens all the time... because politicians think that the people to ask for how to write patent and copyright laws are the lawyers rather than the businesses and citizens who will be most impacted by these laws:

So the next time the monopoly laws need revision and redrafting, the politicians go to the monopoly lawyers with demonstrated understanding of the substance matter. Politicians note that the lawyers have been correct in their predictions that license money would start to flow, and take it as proof the system works; they can’t see or know money is flowing for all the wrong reasons.

And so, the monopoly lawyers get to expand and revise those laws yet again, when it was nothing but a legalized extortion racket from the start. The cycle continues.

Filed Under: copyright, laws, lawyers, monopolies, patent

FDA, KV Pharma Bend A Bit To Public Pressure; Lower Makena Costs, Allow Competing Drugs To Remain... For Now

from the public-pressure-works dept

We've been discussing how the FDA has been systematically banning drugs that have been on the market for years, and retroactively granting monopolies to particular pharmaceutical firms. The case that's drawn the most attention is that of Makena, a drug to prevent early childbirth which is provided on the market by a bunch of different firms, and was competitively priced around $10/dose. Yet, after the FDA stepped in and gave a monopoly to KV Pharmaceutical under the economically-clueless belief that this would help make the drug "more available," there was a massive public backlash when people discovered KV would increase the price of the drug from $10 to $1,500.

In response, it appears the FDA is backing down ever so slightly. Drew points us to the news that it has put out a statement that it will not stop other pharmacies from making and offering the drug. KV had been threatening others, but the FDA stepped in and said that, even though it's granted this monopoly to KV, it wouldn't enforce it against these other manufacturers. The FDA put up a statement explaining this:

In order to support access to this important drug, at this time and under this unique situation, FDA does not intend to take enforcement action against pharmacies that compound hydroxyprogesterone caproate based on a valid prescription for an individually identified patient unless the compounded products are unsafe, of substandard quality, or are not being compounded in accordance with appropriate standards for compounding sterile products.

Of course, it also says it may change its mind on this at any time (i.e., after the attention and backlash die down) and appears to have no interest in revisiting its other new monopolies.

Not surprisingly, with this news in place, KV Pharmaceutical has also announced that it is dropping the $1,500 price down to $690. Of course, that's still a lot more than $10 per dose, and this seems in response to the fact that (a) the public is blasting it at every turn and (b) the FDA won't really enforce the monopoly... for now.

How about we try to fix the underlying problem of monopolies, rather than just focusing on this one case?

Filed Under: drugs, fda, makena, monopolies, pharma
Companies: kv pharmaceutical