Archives For journalism

It’s almost impossible to read an article or blog posting today about patents that doesn’t complain that “the patent system is broken.”  It’s especially prevalent in reports on high-tech patents, software patents, or the “smart phone wars.”  (I’m not hyperlinking here, because there’s just too many examples to choose between.)  In fact, the din on the increasingly clichéd statement that “the patent system is broken” is really reaching histrionic proportions.  It’s even prompted Patent Commissioner David Kappos to appeal to “those reporting and commenting on the smartphone system patent wars” to “move beyond the flippant rhetoric and instead engage in thoughtful discussion.”

Although it’s tempting to think that Commissioner Kappos is engaging in his own bombastic exclamations in his criticism of “flippant rhetoric,” it’s unfortunately true.  Here’s just one relatively recent example from the venerable New York Times, called “Apple Now Owns the Page Turn,” by Nick Bilton.

In this brief article, Mr. Bilton decries that Apple “now owns the page turn” in ebook readers with its recently issued design patent (D670,713).  Proclaiming that this is proof of “how broken the patent system is,” Mr. Bilton informs his readers that this design patent “gives Apple the exclusive rights to the page turn in an e-reader application.”

No, Mr. Bilton, it does not, and the NY Times should be embarrassed that such ignorant proclamations continue to be published under its masthead, including the blatantly biased and equally ill-informed hit piece on software patents published by the Old Gray Lady last October.

When most people talk about patents, they usually are speaking about a utility patent, which do secure exclusive property rights in new technology and discoveries.  But there is an entirely different type of patent, called a design patent.  Despite legal requirements that superficially sound similar, such as requirements of novelty and nonobviousness, design patents are entirely different from utility patents.

If Mr. Bilton had bothered to do even the minimal amount of research that most college undergraduates do today, say by checking Wikipedia’s entry on design patents, he would have discovered that it is certainly not true that Apple has “exclusive rights to the page turn in an e-reader application.” Despite Wikipedia’s well-deserved reputation for ill-informed entries, it actually has a good, succinct summary of design patents, describing briefly the differences between design patents and utility patents, and it even cites some classic examples from 150 years ago, such as design patents on famous fonts, the design patent on the statue of liberty, etc.

So, if Mr. Bilton had bothered to take five minutes to check Wikipedia before writing his NY Times posting, he would have learned that design patents are not patents on functional technology, but rather secure only non-functional, ornamental designs. For the sake of this vaunted NY Times writer and the many people he has mislead, I’ll repeat the most important word here in the definition: non-functional. Thus, Apple does not own e-book page-turning technology nor does it own the function of turning pages in an e-book reader. What this design patent secures is the novel ornamental design Apple has developed for its particular e-book reader, and it’s limited to exactly this particular ornamental design — no more, no less. For anyone even semi-aware of Steve Jobs and Apple Computer — an innovative person and his company who recognized the fundamental role and value of artistic design in computer technology since 1984’s release of the famous Macintosh computer – it should hardly be surprising that it is protecting its IP rights in these innovative design features.

Instead, Mr. Bilton negligently suggests that Apple could sue other e-book readers for their page turning technology because it now has “exclusive rights to the page turn in an e-reader application,” but this is patently false (pun intended).  And Mr. Bilton is clearly negligent here and his mistake is entirely his fault, because in the second paragraph of his NY Times report, he explicitly identifies Apple’s patent as a “design patent.”  This is significant, because everything he writes in his report after saying “design patent” is 100% wrong by mere dint of this term, because everything he writes after this wrongly assumes that Apple’s patent is a “utility patent.”

(As an aside, this design patent might be invalid, but Mr. Bilton provides no information or facts to make this judgment, because all of his high-handed rhetoric is based on the assumption that it is a utility patent.  Of course, if this was a utility patent, it would be invalid, as ebook readers that change pages have been around for many years, but what of the particular ornamental design of this ebook reader? One will search in vain in Mr. Bilton’s report for any information on this all-important question.)

Admittedly, there is much confusion today about the patent system, and much of this confusion is caused by misleading reports like those written by Mr. Bilton.  Of course, there are some good reporters and bloggers, who are commenting sensibly on the “smart phone wars” and other issues in the public policy debates over patents today.  But, unfortunately, Mr. Bilton represents a far larger cadre of reporters and bloggers who spread confusion and misinformation about the patent system and about the “smart phone war” in particular.

The real problem with this “broken reporting” by Mr. Bilton and his ilk is that it is feeding a growing anti-patent frenzy among commentators, academics, and the public, who seem to think that your smart phones, tablets and other technological marvels just don’t exist because of a so-called “broken patent system” that has stymied software and other high-tech innovation at every turn. I’m glad to see that some people, like Commissioner Kappos, the Honorable Paul Michel, and the Honorable Randall Rader, are starting to push back against this “broken reporting” on the patent system.

The New York Times set hearts aflutter in the IP world yesterday with its hit piece on patents in the high-tech industry– I’m shocked, shocked to find the New York Times publishing biased articles on hot topics in politics and law — but Bloomberg also published an important article yesterday on the smart phone war, software patents and other topics raised by today’s so-called patent litigation crisis: Apple Phone Patent War Like Sewing Machine Minus Violence.

The Bloomberg article provides some much-needed perspective on the smart phone war, software patents, and other topics in what conventional wisdom today is painting in broad strokes as “Patents Gone Wild! (Special Geek Version!)”

Here’s a great snippet from the Bloomberg article:

In recent years, there have been fights over diapers, air fresheners, oil drilling equipment, and one over heart devices that has lasted more than a decade. None of those got the attention that’s being given to the smartphone wars, which have become fodder for late-night comedians or magazine covers. Still, the public interest isn’t unprecedented: patent battles were front-page news a century ago.

As bloggers are wont to say: Read the whole thing.

Even better from my self-promoting perspective, the Bloomberg reporter tracked me down and asked me about my research into the Sewing Machine War of the 1850s, and she has some nice quotes from me about the lessons we can learn from this first patent war.

In fact, I have another small contribution to make to the Bloomberg article’s important historical perspective on the current hue and cry over the patent system.  In my article on the Sewing Machine War, I quote a lot from old articles in Scientific American that I found in my historical research.  Some of the observations in these ancient Scientific American articles could very well have been published yesterday, which belies the tread-worn cliche (repeated in the New York Times article) that the patent system is experiencing all of these allegedly new problems today. In 1854, for instance, when Scientific American sensed the imminent explosion of the Sewing Machine War, it bemoaned that it is “to be regretted, namely, that whenever a patent becomes valuable, there seems to be no end, at least, for some time, to the troubles of the real benefactor—the one who has rendered it a public benefit.”

Scientific American had reason to complain, because the year before it covered Walter Hunt’s much-publicized challenge to Elias Howe’s patent on the lockstitch, a challenge that was exposed a few years later as being completely supported and bankrolled by the Singer Sewing Machine Co.  So, in 1853, when Hunt published lengthy newspaper advertisements, such as in the New York Daily Tribune, accusing Howe of being a pretender to the throne in first inventing the lockstitch, Scientific American leapt to Howe’s defense, “in order that the ear of the public may not be used as a kettle drum on which to beat the loudest tones for personal purposes.”

We may continue to hope that “the public may not be used as a kettle drum on which to be beat the loudest tones for personal purposes,” but, as the New York Times made clear yesterday, some things never change — in 1853 or in 2012.

The NYT on law teaching

Larry Ribstein —  20 November 2011

The NYT brings another David Segal story on legal education.  Today’s sermon: law schools don’t teach “lawyering.”

Boiling away the overheated journalism, here’s the indictment:  Law profs are richly paid for writing mostly useless law review articles rather than “the essential how-tos of daily practice.” Students study cases about contract law but not contracts.  Clinics get second-class status.  New lawyers need law firm training to figure out how to “draft a certificate of merger and file it with the secretary of state.” A law graduate isn’t “ready to be a provider of services.” Clients won’t pay for work by untrained associates.  Legal education is not worth its high price.

Well, yes, law schools should pay more attention to the market for lawyers and offer more value.  But as I’ve written in my article Practicing Theory, this doesn’t mean teaching what lawyers traditionally do.  Lawyers now don’t draft agreements from scratch.  There’s an app for that — software templates modified by user input.  A technological tsunami is sweeping over legal services.

Practicing Theory suggests that law schools should teach law students how to be architects and designers rather than mechanics.  The lawyers of the future will focus, more than today’s lawyers, on the building blocks of law. Computers and non-lawyers will handle the mechanical tasks. Training lawyers demands the sort of theoretical perspective that Segal disdains. 

Law students also will need business skills that law schools don’t traditionally teach.  Indeed, Segal himself notes that “graduates will need entrepreneurial skills, management ability and some expertise in landing clients” without considering the implications of this observation for legal education.

The real problem, as discussed in Practicing Theory, is not that law professors are teaching theory rather than the way to the courthouse, but that their choices of which theories to teach pay insufficient attention to the skills and knowledge today’s and tomorrow’s market demands. Segal’s article, like others in this series, ignores such nuance, preferring to string together well-worn criticisms and to eschew coherent analysis in favor of attention-getting quotes.

But, then, this is what journalists learn in journalism school.  Just as law professors swing for the law reviews, so journalists swing for the Pulitzers.  No wonder blogs are replacing the mainstream media as the source of cutting-edge information.  If you want to know what is actually ailing the legal profession and the law professoriate, you would do much better to read, e.g., Bill Henderson, Dan Katz, Brian Leiter, Brian Tamanaha, Steve Bainbridge and me.  It will save time and trees.

Yesterday at the Illinois Corporate Colloquium Steve Choi presented his paper (with Pritchard and Weichman), Scandal Enforcement at the SEC: Salience and the Arc of the Option Backdating Investigations.  Here’s the abstract:

We study the impact of scandal-driven media scrutiny on the SEC’s allocation of enforcement resources. We focus on the SEC’s investigations of option backdating in the wake of numerous media articles on the practice of backdating. We find that as the level of media scrutiny of option backdating increased, the SEC shifted its mix of investigations significantly toward backdating investigations and away from investigations involving other accounting issues. We test the hypothesis that SEC pursued more marginal investigations into backdating as the media frenzy surrounding the practice persisted at the expense of pursuing more egregious accounting issues that did not involve backdating. Our event study of stock market reactions to the initial disclosure of backdating investigations shows that those reactions declined over our sample period. We also find that later backdating investigations are less likely to target individuals and less likely to accompanied by a parallel criminal investigation. Looking at the consequences of the SEC’s backdating investigations, later investigations were more likely to be terminated or produce no monetary penalties. We find that the magnitude of the option backdating accounting errors diminished over time relative to other accounting errors that attracted SEC investigations.

As readers of this blog, and Ideoblog before it, will appreciate, this paper particularly resonated with me.  As I wrote in a large number of posts (e.g.) backdating was a molehill the media blew up into a mountain.  Now come Choi et al with evidence that while the SEC was spending its scarce resources on this overblown molehill it was ignoring real mountains (e.g., Madoff).

I found the paper overall quite persuasive.  I wasn’t entirely convinced by the evidence that the backdating cases were getting weaker.  In particular, stock price reactions may just indicate the market was learning about the which companies were involved before the investigations were brought, and was gradually figuring out that backdating was not such a big deal.  But I was convinced of the evidence of the opportunity costs of the SEC’s backdating obsession — the otherwise inexplicable decline in investigations of serious non-backdating accounting problems.

As we discussed in the Colloquium, the paper reveals that there are agency costs not just in the backdating companies that were investigated but also in the agency that was doing the investigating.  Although it’s not clear exactly what moved the SEC to follow the media, there is at least some doubt about whether the SEC’s resource allocation decisions were in the public interest.

This calls attention to another set of agents — the ones in the media.  Why did the media love backdating so much?  As discussed in my Public Face of Scholarship, there are “demand” and “supply” explanations:  the public demands stories about cheating executives and/or journalists like to supply these stories.  David Baron, Persistent Media Bias, presents a supply theory emphasizing journalists’ anti-market bias.

Whatever the cause of media bias, when the media is influential its bias can result in bad public policy. SEC enforcement isn’t the only example. As I discuss in my article (at 1210-11, footnotes omitted):

Where interest groups are closely divided, the outcome of political battles may depend on how much voter support each side can enlist. This may depend on how journalists have portrayed the issue to the public. For example, the press is an important influence on corporate governance. One factor in the rapid passage of the Sarbanes-Oxley Act, the strongest federal financial regulation in seventy years, may have been the overwhelmingly negative coverage of business in the first half of 2002: seventy-seven percent of the 613 major network evening news stories on business concerned corporate scandals.

It’s not clear what can be done to better align SEC enforcement policy with the public interest.  Incentive compensation for SEC investigators?  Perhaps the only thing we can do (as with corporate crime) is to try to keep in mind when creating regulation that even if corporate agents may sometimes do the wrong thing, people don’t stop being people when they go to work for the government.

Coding legal arguments

Larry Ribstein —  11 September 2011

The NYT writes about computerized journalism:

The company’s (Narrative Science) software takes data, like that from sports statistics, company financial reports and housing starts and sales, and turns it into articles. * * *

The Big Ten Network, a joint venture of the Big Ten Conference and Fox Networks, began using the technology in the spring of 2010 for short recaps of baseball and softball games. * * *

The Narrative Science software can make inferences based on the historical data it collects and the sequence and outcomes of past games. To generate story “angles,” explains Mr. Hammond of Narrative Science, the software learns concepts for articles like “individual effort,” “team effort,” “come from behind,” “back and forth,” “season high,” “player’s streak” and “rankings for team.” Then the software decides what element is most important for that game, and it becomes the lead of the article, he said. The data also determines vocabulary selection. A lopsided score may well be termed a “rout” rather than a “win.” * * *

The article says the company plans to move “further up the ladder of quality” and “open new horizons for computer journalism.”  Hammond, a co-director of the Northwestern lab that produced the software, predicts somebody will win a Pulitzer within five years for writing the code for a news story.

The NYT’s reporter asks (fearfully?) whether ”robot journalists’ [will] replace flesh-and-blood journalists in newsrooms?”  Clearly my close study of Gretchen Morgenson has equipped me to write the code for her weekly screed.

Which of course leads me to law. Yesterday I wrote about computers predicting future court decisions.  I concluded, however, that lawyers will still have to create the law that is being predicted “by making arguments and human judgments.”

But if computers can write journalism, why shouldn’t they be able to write briefs?  Both types of writing have the sort of predictability that enables production by even primitive artificial intelligence.   You could even say this type of predictability is what makes for a “profession” that can be taught and learned in schools and through apprenticeship.  (Which suggests that computers won’t replace bloggers.)

So now defending lawyers from computers requires retreating further uphill to someplace computers can’t climb.  Computers can write briefs, but they can’t decide what issues need to be briefed or legal strategy.

Even so, as I concluded yesterday, “future lawyers will have to learn to work alongside computers.”  I speculate in my article, Practicing Theory, on the implications of this new world for legal education.  It certainly won’t involve training for the sort of “real life law practice” that present-day lawyers think is so important but that computers will soon render obsolete.

The NYT story noted that Narrative Science resulted from a collaboration between the journalism and computer science schools at Northwestern. It would be nice if law schools explored similar collaborations.  Unfortunately, as I discuss in my article, they are saddled by regulation that doesn’t inhibit experimentation in other professions.

So while we may yet see productive partnerships between journalists and computer scientists, I wonder whether lawyers, stubbornly resisting the future, will simply find themselves on the cutting room floor (to borrow from another industry’s old technology).

I have blogged extensively about the waste and injustice of the overblown backdating scandal.  (The posts are collected in Ideoblog’s executive compensation archive).  Now we have an accounting of the opportunity costs of the SEC’s pursuit of this so-called scandal.  Here’s the abstract of Choi, Pritchard and Wiechman, Scandal Enforcement at the SEC: Salience and the Arc of the Option Backdating Investigations:

We study the impact of scandal-driven media scrutiny on the SEC’s allocation of enforcement resources. We focus on the SEC’s investigations of option backdating in the wake of numerous media articles on the practice of backdating. We find that as the level of media scrutiny of option backdating increased, the SEC shifted its mix of investigations significantly toward backdating investigations and away from investigations involving other accounting issues. We test the hypothesis that SEC pursued more marginal investigations into backdating as the media frenzy surrounding the practice persisted at the expense of pursuing more egregious accounting issues that did not involve backdating. Our event study of stock market reactions to the initial disclosure of backdating investigations shows that those reactions declined over our sample period. We also find that later backdating investigations are less likely to target individuals and less likely to accompanied by a parallel criminal investigation. Looking at the consequences of the SEC’s backdating investigations, later investigations were more likely to be terminated or produce no monetary penalties. We find that the magnitude of the option backdating accounting errors diminished over time relative to other accounting errors that attracted SEC investigations.

And the conclusion:

Our study shows that the backdating investigations crowded out alternative investigative possibilities. Moreover, it is reasonable to conclude that the investigations foregone were likely to have more substantial impact than the backdating investigations that were pursued. We find that the stock market reaction to backdating investigations declined over time as the scandal progressed. The SEC was less likely to include individuals in its investigations, and federal prosecutors were less inclined to pursue criminal investigations. We also find that the consequences of the SEC’s backdating investigations declined as the scandal wore on. The SEC was more likely to terminate later investigations, and the SEC was more likely to come away with no monetary penalty.

The most plausible explanation for this decline in the consequences of the SEC’s backdating investigations is case selection. We find that the SEC‘s backdating investigations focused on smaller accounting errors later in the cycle of investigations. Smaller cases produced smaller consequences. Our conclusions hold whether we focus on just accounting investigations as our baseline of comparison, which we argue is the most similar comparator, or the expanded set of all SEC investigations of public companies. The SEC is an independent agency, but its independence from the executive branch does not mean that it is independent from political currents. The SEC’s response to the option backdating shows that it is not immune to the political imperative to “do something” in response to newspaper headlines. We cannot know which accounting investigations were not pursued because the SEC was occupied with backdating, but our analysis makes clear that the opportunity cost of the backdating scandal investigations.

And the SEC’s opportunity costs are only part of the opportunity-cost story. Consider what the WSJ missed as it pursued its Pulitzer for backdating.

DSK and media bias

Larry Ribstein —  5 July 2011

Bret Stephens wonders why he and fellow journalists ignored the fact that “[a]lmost from the beginning, there was something amiss in the case of People v. Dominique Strauss-Kahn.” He speculates:

I did enjoy the thought of this mandarin of the tax-exemptocracy being pulled from the comfort of his first-class Air France seat and dispatched to Riker’s Island without regard to status or dignity. And I admired the humble immigrant who would risk so much for the sake of justice. And I smiled at the spectacle of France’s Socialists finding their would-be savior exposed by American prosecutors when they had been hypocritically observing a code of silence about his habits. And I liked seeing the IMF red-faced for whitewashing DSK’s previous escapades.

* * *

He adds that

this is as good an opportunity as any to ask where else we might be committing similar blunders. The climate change obsession, with its Manichean concept of polluting corporations versus noble eco-warriors? The Wall Street obsession, with its belief the boardroom boys were criminally guilty of the financial crisis? The China obsession, with its view that the Middle Kingdom is destined to overtake the U.S. in global economic and political clout? The Israel obsession, with its notion that if only Jewish settlements were removed from the West Bank peace would break out throughout the Middle East?

In each of these cases, the media (broadly speaking) has too often been guilty of looking only for the evidence that fits a pre-existing story line. * * *

But anecdotes are not data—which happens to be the world’s most easily neglected truism. Also true is that sloppy moral categories like the powerful and the powerless, or the selfish and the altruistic, are often misleading and susceptible to manipulation. And the journalists who most deserve to earn their keep are those who understand that the line of any story is likely to be crooked.

I discussed these issues five years ago in my Public Face of Scholarship. I found a rich economics literature analyzing media bias:

  • Michael Jensen observed that people “want sensationalist stories that present choices between good and evil and simple solutions rather than complex explanations.”
  • Core, Guay and Larcker studied the journalist coverage of executive compensation, noting that the press emphasizes sensationalism rather than realistic analysis of the extent of excessive compensation.
  • Gregory S. Miller, The Press as a Watchdog for Accounting Fraud, 44 J. ACCT. RES. 1001 (2006) found that the press emphasized sensationalist elements in stories about accounting fraud.
  • Gentzkow & Shapiro, Media Bias and Reputation, 114 J. POL. ECON. 280 (2006) argue that the news media seek to confirm what the audience thinks it already knows rather than risk being rejected. 
  • Mullainathan & Shleifer conclude that journalists feed audience biases.
  • David Baron reverses causation, arguing that media bias originates with left-leaning anti-market journalists rather than with an effort to serve the audience.

I discussed these theories by way of arguing that bloggers can help correct these tendencies.  That may have happened in this case, but being biased in favor of the accepted wisdom here I didn’t follow any bloggers who might have caught on. 

All of this shows that media and audience bias can be very sticky, and we need a lot of different information sources to combat it.  In other words, free speech is important.  This includes not only bloggers, but for-profit corporate speech, which can cut against some of the biases Stephens referred to.

Did you know that shareholders in US corporations are like oppressed citizens of corrupt governments?  Or that “say on pay” is their Arab Spring?

If not, you haven’t been reading Gretchen Morgenson.  Better that you read Christine Hurt’s excellent critique of Morgenson’s latest screed.

Gretchen Morgenson (with Louise Story), in today’s front-page NYT “newsatorial” reports on and complains about the fact that the SEC’s civil case against Goldman’s Fabrice Tourre (“Fabulous Fab”) in connection with the Abacus deal has not been accompanied by other civil and criminal prosecutions. 

The story notes that Tourre worked closely with others at Goldman and hints that Goldman is forcing Tourre to use its lawyers so that he alone and not one of his more prominent colleagues will take the fall. Morgenson/Story don’t explain why the SEC is collaborating with Goldman in this fall-guy strategy, and indeed provide a more innocent explanation:  that the SEC had incriminating emails on Tourre that it didn’t have for any others.  Nevertheless, Morgenson/Story imply that the fire of more prosecutions should in justice follow the smoke of the Tourre case. That, of course, assumes Tourre was doing something wrong, which is far from clear in the Morgenson/Story article.

I’m also disturbed by the Tourre case, but for entirely different reasons.  I discussed the suit’s weakness when it was filed and observed that its real motivation was to help push through Dodd-Frank’s regulation of derivatives trading.  I noted that “this could be the deal that saves financial regulation and brings down the derivatives business.”  I’ve also criticized here and here the use of these allegations to gin up a new broker-dealer fiduciary duty.

Oddly enough, Morgenson & Story end their article with a discussion of allegations that Goldman employees “tried to manipulate prices of securities used to bet against mortgages.”  This differs from the allegation against Tourre that he failed to disclose John Paulson’s involvement in constructing the reference portfolio of the security he was selling.  In other words, whether others should be sued or prosecuted for what Tourre did has nothing to do with whether somebody should be sued or prosecuted for different manipulation regarding other securities, or for any other financial misdealings in the last couple of years. 

By somehow gluing all this together into a big ball of wax, Morgenson is following her common practice of “leveraging” a story to make it look bigger than it is.  For more examples of these and other Morgensonian journalistic practices, see my extensive criticism of many of her weekly columns.

Cutting through Morgenson’s typical blustering and rhetorical flourishes, there’s a lot less to this story than meets the eye.  Fortunately for Morgenson and her co-author, there are no prosecutors or government agencies scrutinizing whether they are over-selling their product.

A Washington Post editorial last week reached the surprising conclusion that a series of vertical and horizontal acquisitions that led to a firm owning about 40% of the gas stations in the District of Columbia was procompetitive.  The editorial apparently concluded that the vertical integration efficiencies were more important than the adverse horizontal effects.  The editorial cited to an FTC report on the efficiencies of vertical integration.  This is a very counterintuitive conclusion for an allegedly liberal newspaper.   Even more counterintuitive, however, is the fact that the editorial also reports the results of a natural experiment that concluded that prices have risen as a result of the acquisitions.  The gap between prices in DC and Maryland/Virginia rose from 10 cents to 17 cents.  According to the numbers in the editorial, tax increases account for about half of the gap.  Does this mean that WAPO has bought on to the Aggregate Welfare Standard over the Consumer Welfare Standard?  Or, is this just one more example of skillful advocacy by the gas station owner combined with poor understanding of economics by the editorial board?  I vote for the latter.  Do others disagree?