YouTube Motions Highlight How Entertainment Industry Lawsuits May Have Slowed Useful Platforms

from the letting-business-models-develop dept

We've already written up an analysis of the motions for summary judgment in the Viacom/Google YouTube lawsuit, suggesting that Google's arguments seem stronger. It still seems unlikely that either motion will persuade the judge to skip a trial altogether, but the motions are certainly a bit of a preview of what to expect at any trial. Most of the analysis out there sort of reiterates the talking points in the two motions, but Eric Goldman highlighted an important point that got me thinking in that time is working against Viacom here, as YouTube becomes more and more entrenched as a useful platform by the day:

Perhaps more importantly, the intervening time has been good to YouTube as a business and as a brand. In this sense, compare Grokster to YouTube. At the time of the Grokster cases, it was still very much an open question whether Grokster would ever evolve into a tool where legitimate activity dominated. While we might still have had that same question about YouTube in 2006, by 2010 YouTube has answered that question resoundingly. YouTube's business practices have matured, everyone has had positive legitimate experiences with YouTube (even behind-the-curve judges), and it's clear that major legitimate players have adopted YouTube as a platform for their legitimate activities. For example, YouTube's brief makes the point that all of the 2008 presidential candidates published YouTube videos as part of their campaign. I'm guessing no 2004 presidential candidates used Grokster for campaign purposes.

So as time goes on, YouTube solidifies a brand as a legitimate part of our information infrastructure. As we learn that the YouTube story has a happy ending, I suspect judges become less interested in punishing YouTube for past practices. For this reason (and others), I thought a lot of Viacom's inducement arguments ran hollow because they ran counter to my brand impressions of YouTube. I would also note that Viacom appears to be giving up its litigation over activity after May 2008, so even Viacom seems to be happy with YouTube in its current form.

Goldman goes on to point out that this may bring up some challenges heretofore unfaced in determining how the "inducement" standard works -- but, to me, it brings up an even more important issue: similar lawsuits against Napster and Grokster moved faster. Lots of people have commented on the fact that this particular lawsuit has taken three years from filing just to get to the summary judgment motions to be filed -- and during that time, Goldman is correct, YouTube has had a chance to mature, refine its business model, and do many things that we now find to be quite beneficial to society.

The same thing likely would have happened to both Napster and Grokster, if they had been given a chance to live. Executives behind each company repeatedly laid out strategies to mature their business models and to work as partners with the industry. It's just that they never got a chance to put those into practice because these sorts of lawsuits and rulings from judges forced them (effectively) out of business. In YouTube's case, the slow pace of this particular lawsuit has allowed it to firmly establish tons of viable, useful, valuable non-infringing uses -- to the point that it's a platform used by tons of companies, politicians, individuals and more. If Napster and Grokster had been given half a chance, they likely would have been able to evolve similarly.

And this is what is so painful about watching all these attempts by the entertainment industry to kill off any new technology that disrupts an old business model. These lawsuits kill off those technologies before the natural progression and maturation is allowed -- and because of that, we all suffer.

Now, some will scoff and claims that Grokster was never going to turn into what YouTube is today, but you're saying that with the gift of hindsight. A large part of Viacom's motion tries to suggest that the two companies actually were quite similar -- but even Viacom is now admitting that YouTube's business model was able to mature and adapt. Considering that we still don't have music discovery, promotion and distribution tools as convenient as Napster was back in the day, this can be seen as a real shame. These lawsuits killed off a useful path of exploration for legitimate business models, and that's not only shameful but a waste of innovative effort. It's only through the random quirk of a slow court that YouTube may avoid suffering the same fate.

Filed Under: copyright, innovation, lawsuits, platforms, stifling
Companies: google, viacom, youtube

Harvard Law Prof's Poor Economic Analysis Used As Cover For Unnecessary Fashion Copyright

from the not-again dept

For many years, we've pointed to the fashion industry as a perfect example of how a creative industry can be incredibly innovative and fruitful, even without copyright protections. It's a great story, and studies have shown, in fact, that the lack of copyright protection for fashion designs has been key to the success of the industry. There are a few reasons for this: (1) Brand recognition still matters, so people still want the originator's work -- and thus the copies tend to spread the concept further, and actually increase desire for the "real" version. (2) Copying of designs helps better segment the market, and actually allows top designers to increase their prices. (3) Most importantly, the fact that copiers so quickly copy the works of top designers means that those designers can't rest on their laurels and have to quickly move on to next season's design. In other words, as we've seen in many other industries, as you remove monopoly protections, the incentives to innovate actually increase.

And there should be no question that things work fine in the fashion industry, as it is highly competitive, with many different players, and new designs hitting the market all the time. Considering that copyright's sole purpose is to create incentives to promote such innovation, it's hard to see how anyone would be justified in suggesting we need a new copyright over fashion.

And yet, as with other types of intellectual property, what happens is the incumbents all realize that with such monopoly rights, they would be able to block competitors, slow down their rate of innovation, and capture greater monopoly rents. So they push for them. And, tragically, politicians have been listening. Back in 2007, a bill was introduced to add copyrights to fashion. That bill went nowhere, but similar efforts were made in 2008 and 2009 (when designers tried to enlist Michelle Obama to help their cause).

This year, it looks like the plan is to hide behind an economically questionable law review article put out by a Harvard law professor, Jeannie Suk, and a Columbia law profesor, C. Scott Hemphill (who actually appears to have a degree in economics). A bunch of folks have sent over a Boston Globe article that focuses on how Suk is helping to craft this latest attempt at adding copyright to fashion design, using the law review article as economic proof that such a law is needed. This is troubling, as the economics in the paper are severely lacking.

Given the success of the industry today, combined with the studies showing how it benefits from a lack of copyright, I wanted to read the analysis to see why Suk felt so strongly about this, and I have to say that it makes highly questionable economic arguments with no basis in fact at all. Instead, almost every economic argument is a random assumption about things -- with provably false statements like "Obviously, people always want to purchase inexpensive copies of creative works or have them for free."

No, that's not obvious and it's not right. Studies have shown that people are more than willing to pay for scarce quality -- and recent studies proving that a huge number of buyers of counterfeit goods later buy the real goods suggest that people have no problem paying for the authentic versions when they can. The myth that "people just want stuff for free" has been debunked so many times, it destroys the credibility of this paper.

But, even worse, Suk seems to base her entire argument on one simple economically-illiterate pretense: that competition is bad, and without monopolies, people innovate less:

The reduced profits can be expected to have a negative effect on the amount of innovation; this is a standard result of economic theory.

No. No, it is not a standard result of economic theory. It is only the result in a market that is static, in which no additional innovation can occur. But in the real world, in a dynamic market, this is called competition and has been a part of every "standard" economic theory since Adam Smith, who he noted that if someone is making a profit, it will bring in competition. But this doesn't have a negative effect on the amount of innovation. Quite the opposite. Competition drives innovation by encouraging people to come up with something new. Monopolies decrease innovation by taking away competition and slowing down market innovation. That is what economic theory (and reality) says.

Basically, Suk's whole position is based on the fact that the monopoly rents of designers is decreased by a lack of copyright, but she fails to consider that this leads to greater and more frequent innovation (which we see all the time in the market). What's even stranger is that she flip-flops her argument in the middle of the paper. She talks repeatedly about how designers need big profits to have the incentive to innovate, but then says that big designers aren't the ones really threatened. Instead, she claims, it's the smaller designers. But, those designers didn't have those big profits to protect in the first place. They're out there trying to make a name for themselves by designing something new and cool -- so they have plenty of incentive to innovate. And if their design this year is copied, that's great for them because it gives them greater recognition and means the demand for their original products will be even greater the following season.

Now, we see bad economic reasoning all the time -- but it's troubling when it comes from a Harvard professor (law, not economics), whose mixed up work is being used as the basis of changing the law that could seriously harm an innovative creative industry that is currently thriving.

Filed Under: competition, copyright, designs, economics, fashion, innovation, jeannie suk

Microsoft Loses Yet Another Patent Lawsuit

from the how's-that-looking-now? dept

In the last few years, Microsoft has become a bigger and bigger supporter of patents, which is a bit ironic, given that Bill Gates once pointed out that the software industry never would have developed if there had been software patents back in the early days. But, proving that new companies innovate, while older companies litigate, Microsoft has become a big patent hoarder in recent years. But, to date, while it's used those patents to threaten lots of companies, it seems like Microsoft's decision to live by patents, is actually costing it quite a bit of money.

We've already covered Microsoft's big loss to i4i at the end of last year, for which Microsoft was told to pay nearly $300 million. And, now, Microsoft has lost a patent lawsuit in East Texas (of course) from a company that appears to have been set up just to sue Microsoft -- claiming patents over VPN technology. In fact, the company's business plan basically admits that its business model is to win these sorts of lawsuits. Hard to see how that's promoting progress or innovation in any way. Oh well. Live by the patent, die by the patent, I guess...

Filed Under: innovation, patents, vpn
Companies: microsoft, virnetx

Patent Attorney Highlights How Intellectual Ventures Syphons Money Away From Innovation

from the it's-not-about-innovation-at-all dept

It's amazing how many patent attorneys, when you talk to them, will actively volunteer how screwed up the patent system is. While there are still some who make so much money abusing the system that they don't care, those who actually got into the business because they believe in promoting actual innovation are increasingly admitting that the system is a disaster and widely abused, and rarely instrumental in actual innovation. Venture capitalist Brad Feld has convinced one such patent attorney -- who has decided to appear pseudonymously -- to write his response to the recent Nathan Myhrvold profile in the NY Times that, yet again, plays up Intellectual Ventures in a very one-sided manner. Feld's friend, who is writing as "Sawyer" rips the concept of Intellectual Ventures to shreds. The reasoning likely is familiar to our regular readers, as it's exactly what we've been saying for a decade, but it's nice to see a patent attorney speaking up.

First, he notes the lack of any evidence that patents promote innovation (he suggests there's an exception in biotech, but the studies there are actually quite mixed). From there, he notes that Myhrvold's goal has nothing to do with actual innovation or promoting progress, but about building a system that just gets him more money via patents:

Perhaps Mr. Myrhvold recognizes this, because in the article he says "I'm trying to get inventions that kind of respect as an economic entity." (Emphasis added). IV apparently incentivizes innovation on...inventions? "Inventions" are actually a term of art in patent law, they are the things for which one can legally be granted patent rights. IV, therefore, seems to admit that it wants to enforce patent rights so that we can...have more patents. Mr. Myhrvold wants to create an entire economic category based on payments to entitles that don't build, produce, sell, etc, any products, or create anything of value (i.e., that don't innovate, at least in any useful way that advances human progress), in exchange for not being sued on exclusionary patent rights.

Let's internalize that for a second. IV has collected over a billion dollars so that it can get more patents. They make no products. They apparently don't funnel ideas to anyone else who makes products.

This is a huge problem if the point of the patent system is to create incentives for actual innovation, as the Constitution requires. But what's the impact of a system that encourages patents for the sake of encouraging more patents? Well, it drives money away from actual innovation:

Now think about where this money would go otherwise. Microsoft, Apple, and Google, not to mention other large technology companies, have sizable legal departments with teams of attorneys focused full-time on managing the 50+ software patent cases they each are a defendant on. My guess is that they individually spend hundreds of millions of dollars defending and settling such suits per year. Most of the suits are backed by investment funds through shell entities. Many of these funds are backed (with no transparency) by traditional investment banks and hedge funds. What we have, then, is a net outflow, on a yearly basis, of at least several hundred million dollars, from technology companies who "make stuff" and unquestionably innovate, to speculators and investors who don't. I don't think that baseline fact is something anyone would question. IV dresses that up in the clothing of "invention," but they're really just out to capitalize on a broken patent system like every other non-practicing entity ("NPE" as we call them -- they hate being called trolls). What kinds of cool products and technologies would that money be used to develop? We'll never know, I suppose. At the very least we can presume that the pace of innovation in technology is being slowed by this net outflow of capital to non-innovating parties.

And, despite what the regular peanut gallery of patent system supporters will claim in the comments, these lawsuits aren't just focused on big companies, but the really innovative startups that are being strangled by patent lawsuits:

One thing I haven't mentioned is that it isn't just big companies who get sued. Startups, especially in software, are constantly targetted by patent suits, especially by pseudo-competitors who want to kill more innovative upstarts. How many great companies have been sunk by the costs of patent litigation? Think about it this way -- if Facebook had been sued on a social networking patent within a year of its existence, would it be around today? It's doubtful.

Sawyer also points out that, contrary to claims of the system's supporters, that "having a patent doesn't mean that you really invented anything, or that the person you're suing would actually infringe in a rational world." Some of you may have seen some of the regular commenters here claim that there the only way to prove you've invented something is if you get a patent on it -- and that anyone accused of infringing has clearly "stolen" the idea. Neither of those things are true. What Sawyer is pointing out is that getting a patent is just a sign that you were able to convince the USPTO (through a "pseudo-adversarial administrative procedure") that you deserved such a monopoly privilege. It doesn't mean you actually invented anything -- and it certainly doesn't mean you've done anything to promote the progress or innovation in general.

Filed Under: innovation, nathan myhrvold, patents
Companies: intellectual ventures

VC Explains How Damaging Software Patents Can Be

from the thank-you dept

Despite claims that no VCs would ever invest in companies without patents, we've been seeing more and more VCs moving over to the side of recognizing that patents are more often hindering their portfolio companies rather than helping them -- and these are some of the most respected VCs around these days. Brad Burnham, who has already called for an independent invention defense for patents has responded to Nathan Myhrvold's ongoing campaign to legitimize patent shakedowns. Burnham has written up a detailed post on how and why software patents are so damaging. It comes back to the same point that we've been making for years: truly inventive people don't need a patent as incentive to invent: they just need a need in the marketplace and they go and create. And, when there's a need, plenty of people are probably coming up with similar solutions -- but why do we limit the market to just one?

Burnham talks about the experiences with his portfolio companies. First, in explaining why the software industry took off, he points out that Myhrvold is wrong in suggesting that it was intellectual property protection that resulted in software becoming an industry:

The real reason the independent software industry emerged is that operating systems and APIs made it possible for independent software vendors to develop applications independently. They no longer had to ask permission of the hardware vendors. This same characteristic of permissionless innovation led to the explosion of independently created services on the internet. The rampant abuse of the patent system has created the opposite condition for the creators of software and web services today.

Not only is it becoming impossible to invent new services on the web without the permission of a patent holder who claims to own the intellectual property embodied in your invention, it is impossible to know who you need to ask permission of.

From there, he puts to rest the myth put forth by our favorite patent supporters in the comments that every tech company should just do a simple patent search and they'll be "safe" by pointing out how unrealistic that is. An entrepreneur, who Burnham knows, gave this example:

I hired several firms to search for patents that our service might infringe. Each of them came back with completely different patents and each time I sent them back to do it again, they came back with still more different patents. When I searched myself in the patent database, each time I entered the same search query, it would return different results. None of these patents seemed to cover what we did, so I eventually gave up.

But the real issue here is the total myth that tech companies infringing on patents are "stealing" ideas from others. Time and time again, the actual details of lawsuits have shown that it's almost never the case that a company accused of infringing ever actually knew about the original patent. Instead, it's almost always an independent invention. And yet, Myhrvold persists with the myth that techies are going out and "stealing" the ideas of others. Burnham points out how rare this seems to be:

I have been investing in software and web services since 1993 and have worked in venture backed startups since 1985. I have never met the people Nathan is describing here. I have never been a party to a discussion about ignoring someone's intellectual property rights for the sake of market share or to free up expansion capital. If anyone can point me to the clear cut abuses that Nathan is describing, I'd be grateful. My experience has been the opposite. As I described in this post, the companies I work with invest a huge amount of time and energy creating a service from scratch only to find after they have launched and become successful that a patent holder they have never heard of, operating (if they operate at all) in an entirely different market claims that our company has stolen their property.

Indeed. This is the key sticking point. Patent system supporters love to create this false imagery of the independent inventor who had his "idea stolen" by some big company. And, there's no doubt that there are very rarely stories of some company copying an idea from someone else -- but it's pretty rare -- and usually it just happens in the course of traditional competition. When McDonald's launches chicken nuggets, should that mean that Burger King cannot do the same? That's the nature of competition and it's what leads to greater and greater innovation. What Myhrvold is pushing does not lead to greater innovation at all, but to the hoarding of information and to the limitation on the necessary process of experimentation and competition that result in real, and necessary, innovation.

Filed Under: brad burnham, innovation, patents, software patents

Firefox Guys Admit That Competition Is What Drives Innovation

from the imagine-if-they-had-patents? dept

For years, we (and certainly plenty of other people) have pointed out that monopolies, like patents and copyrights, don't drive innovation -- competition does. In fact, having monopolies does the opposite of driving innovation, since the monopolists have fewer reasons to innovate and upgrade since they're not fighting against competitors. This point is made quite clear in an admission by Mike Beltzner, the director of Firefox at Mozilla, in an article at Slate discussing how much browsers have been innovating lately:

"Were there not other competitors who were just as interested in making Web browsers faster, I don't know if we'd be able to find the gains that we can find," he said. "Now it's a game of one-upping each other."

Imagine if instead of thinking that way, the concept of a browser had been patented way back when? Does anyone honestly think that we'd have as innovative a web world as we do today?

Filed Under: browsers, competition, firefox, innovation

Eric Schmidt On How To Encourage Innovation

from the don't-see-anything-about-stronger-copyright-laws dept

A bunch of folks have been sending in Google CEO Eric Schmidt's recent op-ed on how to encourage more innovation in the US. The suggestions make perfect sense and there's nothing in there that I disagree with. He says Congress should encourage more competition, and be careful not to pass legislation that favors incumbents over upstarts. This is absolutely true, but the likelihood of that happening is pretty dismal, given how big a role big company lobbyists have in drafting legislation, and given how campaign contributions work today. He also talks about more open information access and the importance of keeping talented skilled workers here, rather than pushing them to other countries.

Of course, it's notable that he says nothing about intellectual property. I'm guessing this is on purpose. Technically, the lever that the Constitution supposedly gives Congress to encourage innovation is intellectual property policy -- but these days, that clearly conflicts with Schmidt's first point about not passing laws that favor incumbents. These days, that's exactly what copyright and patent policy have become: protectionist measures to prop up incumbents at the expense of real innovators.

So, on that note, it's really refreshing to see recommendations for what Congress can do to encourage innovation that doesn't include ratcheting up IP laws -- though, it's disappointing that he didn't go so far as to suggest moving those laws in the other direction.

Filed Under: competition, eric schmidt, information, innovation