Statutory Damages In Copyright Law Make It More Appealing To Sue Than To Innovate

from the problem-in-a-nutshell dept

There are all sorts of problems with copyright law today, but one of the biggest is the farce that is statutory damages. This is what allows everyone who sues someone for a single instance of copyright infringement to threaten them with the possibility of a $150,000 fine. Of course, even in situations where the $150,000 isn't available, we still end up with rulings that seem totally disconnected from any actual "harm." Defenders of the statutory damages provisions in copyright law come up with all sorts of twisted rationalizations for why ridiculously high statutory damages rates make sense, usually along the lines of saying that there's simply no reasonable way to calculate actual damages. This is, of course, silly. Even if you can't calculate exact damages, you can come up with something that at least approaches a reasonable level.

However, the completely unrealistic statutory damages have created other problems as well -- and defenders of the statutory damage rates may want to pay attention here, since it actually makes life a lot worse for the content creators copyright law is supposedly supposed to "protect." It's highlighted in some comments from Pandora's CEO Joe Kennedy, noting that it's tough to build a legitimate online music service these days because it's a better business model for copyright holders to sue:

"The statutory damages clause (of copyright law) creates a moral hazard... It's too attractive to sue. It's a better business model than saying, 'I'll partner with you and build a business.' The lawyers in the music industry spent too much time suing and fighting, in lieu of developing better business partners."

While he goes on to say they're better about it today than in the past, it's still very much true today as well. As we've highlighted, the recording industry has a long history of suing first and negotiating later. In fact, there was a time when pretty much any halfway respectable music startup was being sued by a record label. The labels recognized that hanging that liability over the startups' heads was a way to force them into a negotiating corner. That's no way to build innovative music services. And, of course, even when the labels did end up negotiating, they would use those huge statutory damage threats to wring ridiculous rates out of the startups -- rates that made it impossible to build a real business.

So isn't it about time that we dumped these statutory damage rates? Or drastically lowered them? Unfortunately, you hear no movement in that direction.

The rest of Kennedy's interview is interesting as well. He notes how it's difficult-to-impossible to build a global internet music company due to different copyright laws around the world, and the ridiculous royalty rates demanded by holders in each country. And, he notes that copyright law, itself, needs a massive rethink in the age of computers:

"There is a really fundamental problem that's going to keep coming up over and over again. Computers, in the digital world, work by making copies. I think that we're going to continue to trip over this very fundamental issue. This is the frustration of a computer-science guy in a roomful of lawyers. Until there's some conception of what a copy is in a digital world... there are going to be a whole bunch of cases that are going to be kind of a crap-shoot."

Filed Under: copyright, innovation, statutory damages
Companies: pandora

10 Industries That Are 'Dying'? Or 10 Industries That Are Changing?

from the i'd-argue-they're-changing... dept

A few folks sent in variations on a recent report about "10 Dying U.S. Industries," which lists out and discusses ten industries in the US that have already gone through serious declines and are facing even more declines: The discussion at the link above summarizes the key points as being that most of these were taken down by either technology or global competition:

Six of the 10 are clearly getting killed by technology: wired telecoms (i.e. landlines); newspapers; game and video rental; video postproduction; record stores; and photofinishing (i.e. photo printing).

Two of the 10 are clearly getting killed by global competition: apparel manufacturing and mills. (Mills, in this context, basically refers to what we think of as textiles — it includes textile mills, textile mills, apparel mills and carpet and rug mills.)

It goes on to note that the "formal wear rental" situation is really due to global competition as well, since cheap foreign production means that people are more willing to buy their own formal wear these days, rather than rent it.

Of course, I'd argue that the issue here may be more about how you define "industry." If we define them at a wider level -- for example "communications" rather than down to the specific level of "wired telecommunications carriers," it's easy to see that the industry is rapidly changing, but not at all "dying." I think this is a problem that we come across a lot. People look at a group of companies and falsely define them as an "industry," when they're really not. It's the old marketing myopia problem all over again, where people in the train business don't realize they're in the transportation business, and thus do little to adapt. I think it does everyone a disservice to call these business lines "industries," when they're really just a temporary piece of an ever-changing industry.

Filed Under: change, industries, innovation

Harvard Business Review Explains How Big Content Is Strangling Innovation

from the good-for-them dept

John Anthony was the first of a whole bunch of you to send over this excellent article by James Allworth at Harvard Business Review, talking about how the big record labels and the big movie studios are strangling innovation with their braindead, backwards-looking, protectionist approach to anything that changes the market they've been in for years. There isn't necessarily much new in the article for folks who regularly read what we talk about here, but it does a nice job pulling the pieces together, and it's great to see HBR publish such a piece:

Many in the high technology industry have known this for a long time. Despite making their living relying on it, the Big Content players do not understand technology, and never have. Rather than see it as an opportunity to reach new audiences, technology has always been a threat to them. Example after example abounds of this attitude; whether it was the VCR which was "to the American film producer and the American public as the Boston strangler is to the woman home alone" as famed movie industry lobbyist Jack Valenti put it at a congressional hearing, or MP3 technology, which they tried to sue out of existence. In fact, it's possible to go back as far as the gramophone and see the content industries rail against new technology. The reason why? Every shift in technology is difficult for them. Just as they work out how to make money using one technology, it changes.

The sensible thing for them to do would be to learn how to deal with the change. Instead, their approach to every generation of technology is either to attempt to stymie it so badly that nobody wants it, or to stop it altogether through their influence with lawmakers in Washington DC.

Allworth goes on to note that while it was bad in the past, now it's reaching really dangerous levels with things like COICA and other attempts to alter basic technology and cut out the "heart of innovation," by driving innovative startups -- the companies creating the technology and services "Big Content" really needs -- to start and grow outside the US rather than at home.

The result of laws like this? Startups -- the engine of America's growth -- will just go elsewhere. China and India are creating environments extremely conducive to disruptive innovation. Even Europe is benefiting -- one of the most promising recent music services, Spotify, is hosted in Europe. It's still not available to American consumers.

[...] If you're the next YouTube, would you want to locate here in the US and risk having the government simply switch off your site at the behest of Big Content? Or might it not be easier to find a more benign environment to create your business in?

The ultimate irony in all of this is that if we stop giving the content industries what they want -- sweeping, blanket protections -- we may actually be doing them a favor. They wanted the VCR banned. It turned out to be one of the most profitable technologies for the movie industry in its history. Ignoring their requests may turn out to be cruel to be kind -- instead of focusing on trying to fight the technology, they'll be forced to find ways of profitably embracing it.

Of course, this is the same point many of us have been making for years. I'm curious if now that it's in the Harvard Business Review, we'll hear about how this is all a part of the "free content astroturfing pirate conspiracy" that people have been accusing me of being a part of lately.

Filed Under: copyright, innovation

Does It Really Make Sense For Silicon Valley Companies To Make Friends In DC?

from the politics-is-a-dangerous-game dept

The common wisdom around Silicon Valley for the last twenty years or so, has been that companies here need to be much more active in Washington DC, and really should be more active on the lobbying front. The classic example of a tech company that didn't pay much attention to lobbying was Microsoft. And, more recently, it was joked about how Google was late to the game, and not very good at it when it started (I remember the stories of Sergey Brin showing up in DC in silver mesh sneakers and a t-shirt and finding it hard to get meetings with Congressional reps). Yet, with reports that Facebook is trying to buck this trend with a strong DC presence (including possibly hiring former Obama press secretary Robert Gibbs), DCer Adam Thierer makes the case that tech companies "normalizing relations" with DC is a bad, bad idea, because when you get into the lobbying game, inevitably, you become focused on using politics to limit others, rather than on your own ability to innovate.

It's the same basic argument that Andy Kessler discussed in his recent guest post (and in his new book, Eat People) concerning the difference between entrepreneurs who create value... and those who use politics to lock up value.

In an essay I penned for the Cato Institute last November entitled “The Sad State of Cyber-Politics,” I reiterated arguments made a decade earlier by two brilliant men: Cypress Semiconductor CEO T. J. Rodgers and the late great Milton Friedman. Rodgers penned a prescient manifesto for Cato in 2000 with the provocative title: “Why Silicon Valley Should Not Normalize Relations with Washington, D.C.” in which he argued that, “The political scene in Washington is antithetical to the core values that drive our success in the international marketplace and risks converting entrepreneurs into statist businessmen.” A year earlier, Friedman penned another Cato essay called “The Business Community’s Suicidal Impulse” in which he lamented the persistent propensity of companies to persecute one’s competitors using regulation or the threat thereof. What both men stressed was that coming to Washington has a tendency to change a company’s focus and disposition, and not for the better — if you believe in real capitalism, that is, and not the abominable crony capitalism fostered by Washington.

As Adam notes, the companies like Facebook seeking greater attention in DC certainly aren't doing so with the explicit purpose of trying to limit others and seeking regulatory capture of some sort. For the most part, as he says, they're in "cover your butt" mode. But, once you get established, there certainly is a temptation to make use of that situation to limit innovation, limit competition, and push for policies that simply benefit a single company.

To be honest, I'd always gone with the conventional wisdom, that building up better relationships with folks in DC was a good idea. But Adam (and the others he links to) make a good point that's worth considering as well. Perhaps I'm too idealistic in that I believed that perhaps more people explaining and demonstrating how innovation really works, would get the message through to politicians. Instead, it seems there may really be a risk that the opposite happens: and how DC politics works is the message that gets through to tech companies. And that may not be a good thing.

Filed Under: government, innovation, lobbying, politics, regulations, silicon valley, washington dc
Companies: facebook, google, microsoft

Big Media To Innovative App Maker: Stop Innovating Without Our Permission!

from the permission-nation dept

There are a bunch of different newsreader type apps out there, and for years there have been all sorts of apps that let you aggregate content into personal collections. A new one, which recently hit the market for iPads, is called Zite and, apparently, it's getting pretty good reviews. Basically, it can look at what you follow on things like Twitter and Google Reader and formats an algorithmically chosen aggregation of that content to look something like a magazine. If you're familiar with Flipboard, it's somewhat similar, but the implementation is a bit different. I remember when Flipboard came out, there were copyright questions concerning how it scraped various websites.

However, for whatever reason, this new service Zite has really set off pretty much everyone in the traditional newspaper business. A list of who's who in the newspaper/magazine world, including the Associated Press, the Washington Post, Dow Jones, Scripps, Gannett, McClatchy, Time and even National Geogrpahic, all teamed up to send a nastygram (embedded below) that effectively says "hey, we're all for innovation, but you can't innovate without first paying us."

Now, to be clear, technically these newspapers may have a point concerning the fact that Zite displays their content. But if you start to go down that path, you suddenly realize that so does a browser. Zite is really just a form of a browser, that tries to make their content more useful. Again, some may point out that Zite strips some ads from publications, but, again, so do many browsers that have ad blocking extensions installed. When viewed that way, how is Zite really anything other than a specialized browser? If they're claiming that's infringing, then is it really that different from claiming that other browsers/aggregating tools are infringing.

And, honestly, if creating an app that makes it easier to read your content is a threat to your business, you're doing business wrong.

I will say I'm a bit surprised to see the NY Times missing from the list of angry publications, since they've gotten upset about similar apps in the past, but really, this just seems like another example of publications thinking that anyone making their content more readable has to first get permission. If someone wants to make Techdirt content more readable, please go right ahead.

Filed Under: copyright, flipboard, innovation, permission, zite
Companies: associated press, down jones, gannett, mcclatchy, scripps, washington post, zite

Felix Dennis: Ideas Without Execution Are Nothing

from the a-great-idea dept

Well this is getting a little repetitive, but it's always nice to add another voice to the (growing) crowd of people, who recognize that execution is much more important than the idea. We've discussed this many times and have pointed out people, such as Scott Adams, who have made similar points. The latest such example comes to us courtesy of the Capitalist Lion Tamer, who highlights a brief excerpt from Maxim and The Week creator Felix Dennis' new book, in which he makes the identical point about ideas and execution. He notes that an idea is not enough. It may be important, but ideas are more "like Nike sports shoes," in that they can be a tool that can be used by someone to accomplish great things, but in the end it's the actual execution that matters:

I have lost count of the number of men and women who have approached me with their “great idea,” as if this, in and of itself, was their passport to instant wealth. The idea is not a passport. At most, it is the means of obtaining one. In some instances, a fixation on a great idea can prove hazardous, distracting your attention from the perils and pitfalls you will inevitably encounter on the narrow road.

If you never have a single great idea in your life, but become skilled in executing the great ideas of others, you can succeed beyond your wildest dreams. They do not have to be your ideas — execution is all. When confronted with a great idea, your reaction should be to scrupulously analyze its commercial potential in the context of your own ability to transform that potential into triumph.

Ideas don’t make you rich. The correct execution of ideas does.

Doesn't it seem odd that so many people (and very, very successful people at that) recognize this basic concept... and yet our entire public policy around innovation focuses solely on rewarding the idea, at the expense of the execution?

Filed Under: execution, felix dennis, ideas, innovation

Hulu Realizing That Taking Orders From Every Entertainment Company Boss Isn't Effective

from the streamlining? dept

We've discussed in the past how Hulu really is in a somewhat impossible predicament, in that to be truly innovative, it needs to disrupt the classic TV business model. But the "classic TV businesses" are the ones who own Hulu -- and who want to cripple the service. We keep hearing that the folks at Hulu really do understand what they need to do to be successful, but they're seriously held back by their ownership. So it's interesting to see that Hulu is planning to downsize its board of directors, potentially getting rid of Disney's CEO and News Corp's COO in order to, as they say, "streamline decision-making." That's pretty clear code for "our board is killing us." Will be interesting to see if Hulu can actually get enough separation from its ownership to do what it clearly needs to do.

Filed Under: board, disruption, innovation
Companies: hulu

HP And RIM Produce Similar Device... Don't Freak Out

from the man-bites-dog? dept

ChurchHatesTucker points us to a recent story about how RIM's Playbook tablet device and interface looks incredibly similar to HP's TouchPad tablet device interface (using WebOS), but rather than get all freaked out about "copying," the two companies seem to handle this maturely, noting that it's just the nature of innovation. HP's initial response more or less suggests that RIM copied HP, but uses it as an opportunity to position itself as a leader in the space, rather than a follower:

From HP:

"It's a fast innovation cycle and a fast imitation cycle in this market, so we just know that we have the creative engine here to continue to build on what we have, and we'll keep innovating, we'll keep honing and those guys hopefully will continue to see the value in it and keep following us by about a year."

RIM (Blackberry) responds.

"Well, when you’re trying to optimize user experience that juggles multitasking, multiple apps open at once and on a small screen, you’re going to get people landing on similar kinds of designs."

Notice no legal threats. No claims of intellectual property violations. Some might claim this is a "non-story," but in an age when the default so often seems to break out the lawyers, cease-and-desists and threats (if not outright lawsuits), it's nice to see a response like this. In some ways it's more of a story, since it seems so rare.

Filed Under: competition, copying, innovation, interfaces, tablets
Companies: hp, rim

USPTO Director Admits Patents Do Not Equal Innovation; So Why Is He Pushing For More Patents?

from the questions-to-ponder dept

We've been pretty disappointed with David Kappos as the head of the US Patent Office. He came into the office with plenty of praise from people who insisted that he also recognized the serious problems with the patent system, and would try to fix them. Instead, to date, he's simply massively ramped up the number of patents approved. I had hoped to go see Kappos speak this past weekend at SXSW, but unfortunately his talk was scheduled at the same time as one of my own panels. Thankfully, Greg Ferenstein was able to sit down with Kappos, and was able to get Kappos to open up on some important issues, including admitting that patents are not the same as innovation "by any stretch" -- and that the USPTO was really spending a lot of effort to understand how to measure innovation, rather than just patents.

Ferenstein also got Kappos to talk about some of the work that economist Stuart Graham is working on. We were one of the very few publications to mention that the USPTO had hired Graham last year, noting that Graham seemed like a good hire, with a background in looking at what the data actually said about the impact of intellectual property on development, something that's been missing in many policy debates. It appears that Graham is continuing to do that kind of work for the USPTO and that Kappos is paying attention to what Graham is uncovering. While Kappos still seems focused on getting more patents through (and also apparently wants to stop copyright infringement -- which is outside of his basic mandate, so I'm a bit confused as to how that came up...), it's nice to see that he's at least open to more realistic views of what's going on.

Filed Under: david kappos, innovation, patents