Archives For intellectual property

On Thursday, March 30, Friday March 31, and Monday April 3, Truth on the Market and the International Center for Law and Economics presented a blog symposium — Agricultural and Biotech Mergers: Implications for Antitrust Law and Economics in Innovative Industries — discussing three proposed agricultural/biotech industry mergers awaiting judgment by antitrust authorities around the globe. These proposed mergers — Bayer/Monsanto, Dow/DuPont and ChemChina/Syngenta — present a host of fascinating issues, many of which go to the core of merger enforcement in innovative industries — and antitrust law and economics more broadly.

The big issue for the symposium participants was innovation (as it was for the European Commission, which cleared the Dow/DuPont merger last week, subject to conditions, one of which related to the firms’ R&D activities).

Critics of the mergers, as currently proposed, asserted that the increased concentration arising from the “Big 6” Ag-biotech firms consolidating into the Big 4 could reduce innovation competition by (1) eliminating parallel paths of research and development (Moss); (2) creating highly integrated technology/traits/seeds/chemicals platforms that erect barriers to new entry platforms (Moss); (3) exploiting eventual network effects that may result from the shift towards data-driven agriculture to block new entry in input markets (Lianos); or (4) increasing incentives to refuse to license, impose discriminatory restrictions in technology licensing agreements, or tacitly “agree” not to compete (Moss).

Rather than fixating on horizontal market share, proponents of the mergers argued that innovative industries are often marked by disruptions and that investment in innovation is an important signal of competition (Manne). An evaluation of the overall level of innovation should include not only the additional economies of scale and scope of the merged firms, but also advancements made by more nimble, less risk-averse biotech companies and smaller firms, whose innovations the larger firms can incentivize through licensing or M&A (Shepherd). In fact, increased efficiency created by economies of scale and scope can make funds available to source innovation outside of the large firms (Shepherd).

In addition, innovation analysis must also account for the intricately interwoven nature of agricultural technology across seeds and traits, crop protection, and, now, digital farming (Sykuta). Combined product portfolios generate more data to analyze, resulting in increased data-driven value for farmers and more efficiently targeted R&D resources (Sykuta).

While critics voiced concerns over such platforms erecting barriers to entry, markets are contestable to the extent that incumbents are incentivized to compete (Russell). It is worth noting that certain industries with high barriers to entry or exit, significant sunk costs, and significant costs disadvantages for new entrants (including automobiles, wireless service, and cable networks) have seen their prices decrease substantially relative to inflation over the last 20 years — even as concentration has increased (Russell). Not coincidentally, product innovation in these industries, as in ag-biotech, has been high.

Ultimately, assessing the likely effects of each merger using static measures of market structure is arguably unreliable or irrelevant in dynamic markets with high levels of innovation (Manne).

Regarding patents, critics were skeptical that combining the patent portfolios of the merging companies would offer benefits beyond those arising from cross-licensing, and would serve to raise rivals’ costs (Ghosh). While this may be true in some cases, IP rights are probabilistic, especially in dynamic markets, as Nicolas Petit noted:

There is no certainty that R&D investments will lead to commercially successful applications; (ii) no guarantee that IP rights will resist to invalidity proceedings in court; (iii) little safety to competition by other product applications which do not practice the IP but provide substitute functionality; and (iv) no inevitability that the environmental, toxicological and regulatory authorization rights that (often) accompany IP rights will not be cancelled when legal requirements change.

In spite of these uncertainties, deals such as the pending ag-biotech mergers provide managers the opportunity to evaluate and reorganize assets to maximize innovation and return on investment in such a way that would not be possible absent a merger (Sykuta). Neither party would fully place its IP and innovation pipeline on the table otherwise.

For a complete rundown of the arguments both for and against, the full archive of symposium posts from our outstanding and diverse group of scholars, practitioners and other experts is available at this link, and individual posts can be easily accessed by clicking on the authors’ names below.

We’d like to thank all of the participants for their excellent contributions!

Nicolas Petit is Professor of Law at the University of Liege (Belgium) and Research Professor at the University of South Australia (UniSA)

This symposium offers a good opportunity to look again into the complex relation between concentration and innovation in antitrust policy. Whilst the details of the EC decision in Dow/Dupont remain unknown, the press release suggests that the issue of “incentives to innovate” was central to the review. Contrary to what had leaked in the antitrust press, the decision has apparently backed off from the introduction of a new “model”, and instead followed a more cautious approach. After a quick reminder of the conventional “appropriability v cannibalizationframework that drives merger analysis in innovation markets (1), I make two sets of hopefully innovative remarks on appropriability and IP rights (2) and on cannibalization in the ag-biotech sector (3).

Appropriability versus cannibalization

Antitrust economics 101 teach that mergers affect innovation incentives in two polar ways. A merger may increase innovation incentives. This occurs when the increment in power over price or output achieved through merger enhances the appropriability of the social returns to R&D. The appropriability effect of mergers is often tied to Joseph Schumpeter, who observed that the use of “protecting devices” for past investments like patent protection or trade secrecy constituted a “normal elemen[t] of rational management”. The appropriability effect can in principle be observed at firm – specific incentives – and industry – general incentives – levels, because actual or potential competitors can also use the M&A market to appropriate the payoffs of R&D investments.

But a merger may decrease innovation incentives. This happens when the increased industry position achieved through merger discourages the introduction of new products, processes or services. This is because an invention will cannibalize the merged entity profits in proportions larger as would be the case in a more competitive market structure. This idea is often tied to Kenneth Arrow who famously observed that a “preinvention monopoly power acts as a strong disincentive to further innovation”.

Schumpeter’s appropriability hypothesis and Arrow’s cannibalization theory continue to drive much of the discussion on concentration and innovation in antitrust economics. True, many efforts have been made to overcome, reconcile or bypass both views of the world. Recent studies by Carl Shapiro or Jon Baker are worth mentioning. But Schumpeter and Arrow remain sticky references in any discussion of the issue. Perhaps more than anything, the persistence of their ideas denotes that both touched a bottom point when they made their seminal contribution, laying down two systems of belief on the workings of innovation-driven markets.

Now beyond the theory, the appropriability v cannibalization gravitational models provide from the outset an appealing framework for the examination of mergers in R&D driven industries in general. From an operational perspective, the antitrust agency will attempt to understand if the transaction increases appropriability – which leans in favour of clearance – or cannibalization – which leans in favour of remediation. At the same time, however, the downside of the appropriability v cannibalization framework (and of any framework more generally) may be to oversimplify our understanding of complex phenomena. This, in turn, prompts two important observations on each branch of the framework.

Appropriability and IP rights

Any antitrust agency committed to promoting competition and innovation should consider mergers in light of the degree of appropriability afforded by existing protecting devices (essentially contracts and entitlements). This is where Intellectual Property (“IP”) rights become relevant to the discussion. In an industry with strong IP rights, the merging parties (and its rivals) may be able to appropriate the social returns to R&D without further corporate concentration. Put differently, the stronger the IP rights, the lower the incremental contribution of a merger transaction to innovation, and the higher the case for remediation.

This latter proposition, however, rests on a heavy assumption: that IP rights confer perfect appropriability. The point is, however, far from obvious. Most of us know that – and our antitrust agencies’ misgivings with other sectors confirm it – IP rights are probabilistic in nature. There is (i) no certainty that R&D investments will lead to commercially successful applications; (ii) no guarantee that IP rights will resist to invalidity proceedings in court; (iii) little safety to competition by other product applications which do not practice the IP but provide substitute functionality; and (iv) no inevitability that the environmental, toxicological and regulatory authorization rights that (often) accompany IP rights will not be cancelled when legal requirements change. Arrow himself called for caution, noting that “Patent laws would have to be unimaginably complex and subtle to permit [such] appropriation on a large scale”. A thorough inquiry into the specific industry-strength of IP rights that goes beyond patent data and statistics thus constitutes a necessary step in merger review.

But it is not a sufficient one. The proposition that strong IP rights provide appropriability is essentially valid if the observed pre-merger market situation is one where several IP owners compete on differentiated products and as a result wield a degree of market power. In contrast, the proposition is essentially invalid if the observed pre-merger market situation leans more towards the competitive equilibrium and IP owners compete at prices closer to costs. In both variants, the agency should thus look carefully at the level and evolution of prices and costs, including R&D ones, in the pre-merger industry. Moreover, in the second variant, the agency ought to consider as a favourable appropriability factor any increase of the merging entity’s power over price, but also any improvement of its power over cost. By this, I have in mind efficiency benefits, which can arise as the result of economies of scale (in manufacturing but also in R&D), but also when the transaction combines complementary technological and marketing assets. In Dow/Dupont, no efficiency argument has apparently been made by the parties, so it is difficult to understand if and how such issues have played a role in the Commission’s assessment.

Cannibalization, technological change, and drastic innovation

Arrow’s cannibalization theory – namely that a pre-invention monopoly acts as a strong disincentive to further innovation – fails to capture that successful inventions create new technology frontiers, and with them entirely novel needs that even a monopolist has an incentive to serve. This can be understood with an example taken from the ag-biotech field. It is undisputed that progress in crop protection science has led to an expanding range of resistant insects, weeds, and pathogens. This, in turn, is one (if not the main) key drivers of ag-tech research. In a 2017 paper published in Pest Management Science, Sparks and Lorsbach observe that:

resistance to agrochemicals is an ongoing driver for the development of new chemical control options, along with an increased emphasis on resistance management and how these new tools can fit into resistance management programs. Because resistance is such a key driver for the development of new agrochemicals, a highly prized attribute for a new agrochemical is a new MoA [method of action] that is ideally a new molecular target either in an existing target site (e.g., an unexploited binding site in the voltage-gated sodium channel), or new/under-utilized target site such as calcium channels.

This, and other factors, leads them to conclude that:

even with fewer companies overall involved in agrochemical discovery, innovation continues, as demonstrated by the continued introduction of new classes of agrochemicals with new MoAs.

Sparks, Hahn, and Garizi make a similar point. They stress in particular that the discovery of natural products (NPs) which are the “output of nature’s chemical laboratory” is today a main driver of crop protection research. According to them:

NPs provide very significant value in identifying new MoAs, with 60% of all agrochemical MoAs being, or could have been, defined by a NP. This information again points to the importance of NPs in agrochemical discovery, since new MoAs remain a top priority for new agrochemicals.

More generally, the point is not that Arrow’s cannibalization theory is wrong. Arrow’s work convincingly explains monopolists’ low incentives to invest in substitute invention. Instead, the point is that Arrow’s cannibalization theory is narrower than often assumed in the antitrust policy literature. Admittedly, Arrow’s cannibalization theory is relevant in industries primarily driven by a process of cumulative innovation. But it is much less helpful to understand the incentives of a monopolist in industries subject to technological change. As a result of this, the first question that should guide an antitrust agency investigation is empirical in nature: is the industry under consideration one driven by cumulative innovation, or one where technology disruption, shocks, and serendipity incentivize drastic innovation?

Note that exogenous factors beyond technological frontiers also promote drastic innovation. This point ought not to be overlooked. A sizeable amount of the specialist scientific literature stresses the powerful innovation incentives created by changing dietary habits, new diseases (e.g. the Zika virus), global population growth, and environmental challenges like climate change and weather extremes. In 2015, Jeschke noted:

In spite of the significant consolidation of the agrochemical companies, modern agricultural chemistry is vital and will have the opportunity to shape the future of agriculture by continuing to deliver further innovative integrated solutions. 

Words of wisdom caution for antitrust agencies tasked with the complex mission of reviewing mergers in the ag-biotech industry?

Shubha Ghosh is Crandall Melvin Professor of Law and Director of the Technology Commercialization Law Program at Syracuse University College of Law

How should patents be taken into consideration in merger analysis? When does the combining of patent portfolios lead to anticompetitive concerns? Two principles should guide these inquiries. First, as the Supreme Court held in its 2006 decision Independent Ink, ownership of a patent does not confer market power. This ruling came in the context of a tying claim, but it is generalizable. While ownership of a patent can provide advantages in the market, such as access to techniques that are more effective than what is available to a competitor or the ability to keep competitors from making desirable differentiations in existing products, ownership of a patent or patent portfolio does not per se confer market power. Competitors might have equally strong and broad patent portfolios. The power to limit price competition is possibly counterweighted by competition over technology and product quality.

A second principle about patents and markets, however, bespeaks more caution in antitrust analysis. Patents can create information problems while at the same time potentially resolving some externality problems arising from knowledge spillovers. Information problems arise because patents are not well-defined property rights with clear boundaries. While patents are granted to novel, nonobvious, useful, and concrete inventions (as opposed to abstract, disembodied ideas), it is far from clear when a patented invention is actually nonobvious. Patent rights extend to several possible embodiments of a novel, useful, and nonobvious conception. While in theory this problem could be solved by limiting patent rights to narrow embodiments, the net result would be increased uncertainty through patent thickets and divided ownership. Inventions do not come in readily discernible units or engineered metes and bounds (despite the rhetoric).

The information problems created by patents do not create traditional market power in the sense of having some control over the price charged to consumers, but they do impose costs on competitors that can give a patent owner some control over market entry and the market conditions confronting consumers. The Court’s perhaps sanguine decoupling of patents and market power in its 2006 decision has some valence in a market setting where patent rights are somewhat equally distributed among competitors. In such a setting, each firm faces the same uncertainties that arise from patents. However, if patent ownership is imbalanced among firms, competition authorities need to act with caution. The challenge is identifying an unbalanced patent position in the marketplace.

Mergers among patent-owning firms invite antitrust scrutiny for these reasons. Metrics of patent ownership focusing solely on the quantity of patents owned, adjusting for the number of claims, can offer a snapshot of ownership distribution. But patent numbers need to be connected to the costs of operating the firm. Patents can lower a firm’s costs, create a niche for a particular differentiated product, and give a firm a head start in the next generation of technologies. Mergers that lead to an increased concentration of patent ownership may raise eyebrows, but those that lead to significant increase in costs to competitors and create potential impediments to market entry require a response from competition authorities. This response could be a blocking of the merger or perhaps more practically, in most instances, a divestment of the patent portfolio through requirements of licensing. This last approach is particularly appropriate where the technologies at issue are analogous to standard essential patents in the standard setting with FRAND context.

Claims of synergies should, in many instances, be met with skepticism when the patent portfolios of the merging companies are combined. While the technologies may be complementary, yielding benefits that go beyond those arising from a cross-licensing arrangement, the integration of portfolios may serve to raise costs for potential rivals in the marketplace. These barriers to entry may arise even in the case of vertical integration when the firms internalize contracting costs for technology transfer through ownership. Vertical integration of patent portfolios may raise costs for rivals both at the manufacturing and the distribution levels.

These ideas are set forth as propositions to be tested, but also general policy guidance for merger review involving companies with substantial patent portfolios. The ChemChina-Syngenta merger perhaps opens up global markets, but may likely impose barriers for companies in the agriculture market. The Bayer-Monsanto and Dow-DuPont mergers have questionable synergies. Even if potential synergies, these projected benefits need to be weighed against the very identifiable sources for market foreclosure. While patents may not create market power per se, according to the Supreme Court, the potential for mischief should not be underestimated.

Truth on the Market is pleased to announce its next blog symposium:

Agricultural and Biotech Mergers: Implications for Antitrust Law and Economics in Innovative Industries

March 30 & 31, 2017

Earlier this week the European Commission cleared the merger of Dow and DuPont, subject to conditions including divestiture of DuPont’s “global R&D organisation.” As the Commission noted:

The Commission had concerns that the merger as notified would have reduced competition on price and choice in a number of markets for existing pesticides. Furthermore, the merger would have reduced innovation. Innovation, both to improve existing products and to develop new active ingredients, is a key element of competition between companies in the pest control industry, where only five players are globally active throughout the entire research & development (R&D) process.

In addition to the traditional focus on price effects, the merger’s presumed effect on innovation loomed large in the EC’s consideration of the Dow/DuPont merger — as it is sure to in its consideration of the other two pending mergers in the agricultural biotech and chemicals industries between Bayer and Monsanto and ChemChina and Syngenta. Innovation effects are sure to take center stage in the US reviews of the mergers, as well.

What is less clear is exactly how antitrust agencies evaluate — and how they should evaluate — mergers like these in rapidly evolving, high-tech industries.

These proposed mergers present a host of fascinating and important issues, many of which go to the core of modern merger enforcement — and antitrust law and economics more generally. Among other things, they raise issues of:

  • The incorporation of innovation effects in antitrust analysis;
  • The relationship between technological and organizational change;
  • The role of non-economic considerations in merger review;
  • The continued relevance (or irrelevance) of the Structure-Conduct-Performance paradigm;
  • Market definition in high-tech markets; and
  • The patent-antitrust interface

Beginning on March 30, Truth on the Market and the International Center for Law & Economics will host a blog symposium discussing how some of these issues apply to these mergers per se, as well as the state of antitrust law and economics in innovative-industry mergers more broadly.

As in the past (see examples of previous TOTM blog symposia here), we’ve lined up an outstanding and diverse group of scholars to discuss these issues:

  • Allen Gibby, Senior Fellow for Law & Economics, International Center for Law & Economics
  • Shubha Ghosh, Crandall Melvin Professor of Law and Director of the Technology Commercialization Law Program, Syracuse University College of Law
  • Ioannis Lianos,  Chair of Global Competition Law and Public Policy, Faculty of Laws, University College London
  • John E. Lopatka (tent.), A. Robert Noll Distinguished Professor of Law, Penn State Law
  • Geoffrey A. Manne, Executive Director, International Center for Law & Economics
  • Diana L. Moss, President, American Antitrust Institute
  • Nicolas Petit, Professor of Law, Faculty of Law, and Co-director, Liege Competition and Innovation Institute, University of Liege
  • Levi A. Russell, Assistant Professor, Agricultural & Applied Economics, University of Georgia
  • Joanna M. Shepherd, Professor of Law, Emory University School of Law
  • Michael Sykuta, Associate Professor, Agricultural and Applied Economics, and Director, Contracting Organizations Research Institute, University of Missouri

Initial contributions to the symposium will appear periodically on the 30th and 31st, and the discussion will continue with responsive posts (if any) next week. We hope to generate a lively discussion, and readers are invited to contribute their own thoughts in comments to the participants’ posts.

The symposium posts will be collected here.

We hope you’ll join us!

What does it mean to “own” something? A simple question (with a complicated answer, of course) that, astonishingly, goes unasked in a recent article in the Pennsylvania Law Review entitled, What We Buy When We “Buy Now,” by Aaron Perzanowski and Chris Hoofnagle (hereafter “P&H”). But how can we reasonably answer the question they pose without first trying to understand the nature of property interests?

P&H set forth a simplistic thesis for their piece: when an e-commerce site uses the term “buy” to indicate the purchase of digital media (instead of the term “license”), it deceives consumers. This is so, the authors assert, because the common usage of the term “buy” indicates that there will be some conveyance of property that necessarily includes absolute rights such as alienability, descendibility, and excludability, and digital content doesn’t generally come with these attributes. The authors seek to establish this deception through a poorly constructed survey regarding consumers’ understanding of the parameters of their property interests in digitally acquired copies. (The survey’s considerable limitations is a topic for another day….)

The issue is more than merely academic: NTIA and the USPTO have just announced that they will hold a public meeting

to discuss how best to communicate to consumers regarding license terms and restrictions in connection with online transactions involving copyrighted works… [as a precursor to] the creation of a multistakeholder process to establish best practices to improve consumers’ understanding of license terms and restrictions in connection with online transactions involving creative works.

Whatever the results of that process, it should not begin, or end, with P&H’s problematic approach.

Getting to their conclusion that platforms are engaged in deceptive practices requires two leaps of faith: First, that property interests are absolute and that any restraint on the use of “property” is inconsistent with the notion of ownership; and second, that consumers’ stated expectations (even assuming that they were measured correctly) alone determine the appropriate contours of legal (and economic) property interests. Both leaps are meritless.

Property and ownership are not absolute concepts

P&H are in such a rush to condemn downstream restrictions on the alienability of digital copies that they fail to recognize that “property” and “ownership” are not absolute terms, and are capable of being properly understood only contextually. Our very notions of what objects may be capable of ownership change over time, along with the scope of authority over owned objects. For P&H, the fact that there are restrictions on the use of an object means that it is not properly “owned.” But that overlooks our everyday understanding of the nature of property.

Ownership is far more complex than P&H allow, and ownership limited by certain constraints is still ownership. As Armen Alchian and Harold Demsetz note in The Property Right Paradigm (1973):

In common speech, we frequently speak of someone owning this land, that house, or these bonds. This conversational style undoubtedly is economical from the viewpoint of quick communication, but it masks the variety and complexity of the ownership relationship. What is owned are rights to use resources, including one’s body and mind, and these rights are always circumscribed, often by the prohibition of certain actions. To “own land” usually means to have the right to till (or not to till) the soil, to mine the soil, to offer those rights for sale, etc., but not to have the right to throw soil at a passerby, to use it to change the course of a stream, or to force someone to buy it. What are owned are socially recognized rights of action. (Emphasis added).

Literally, everything we own comes with a range of limitations on our use rights. Literally. Everything. So starting from a position that limitations on use mean something is not, in fact, owned, is absurd.

Moreover, in defining what we buy when we buy digital goods by reference to analog goods, P&H are comparing apples and oranges, without acknowledging that both apples and oranges are bought.

There has been a fair amount of discussion about the nature of digital content transactions (including by the USPTO and NTIA), and whether they are analogous to traditional sales of objects or more properly characterized as licenses. But this is largely a distinction without a difference, and the nature of the transaction is unnecessary in understanding that P&H’s assertion of deception is unwarranted.

Quite simply, we are accustomed to buying licenses as well as products. Whenever we buy a ticket — e.g., an airline ticket or a ticket to the movies — we are buying the right to use something or gain some temporary privilege. These transactions are governed by the terms of the license. But we certainly buy tickets, no? Alchian and Demsetz again:

The domain of demarcated uses of a resource can be partitioned among several people. More than one party can claim some ownership interest in the same resource. One party may own the right to till the land, while another, perhaps the state, may own an easement to traverse or otherwise use the land for specific purposes. It is not the resource itself which is owned; it is a bundle, or a portion, of rights to use a resource that is owned. In its original meaning, property referred solely to a right, title, or interest, and resources could not be identified as property any more than they could be identified as right, title, or interest. (Emphasis added).

P&H essentially assert that restrictions on the use of property are so inconsistent with the notion of property that it would be deceptive to describe the acquisition transaction as a purchase. But such a claim completely overlooks the fact that there are restrictions on any use of property in general, and on ownership of copies of copyright-protected materials in particular.

Take analog copies of copyright-protected works. While the lawful owner of a copy is able to lend that copy to a friend, sell it, or even use it as a hammer or paperweight, he or she can not offer it for rental (for certain kinds of works), cannot reproduce it, may not publicly perform or broadcast it, and may not use it to bludgeon a neighbor. In short, there are all kinds of restrictions on the use of said object — yet P&H have little problem with defining the relationship of person to object as “ownership.”

Consumers’ understanding of all the terms of exchange is a poor metric for determining the nature of property interests

P&H make much of the assertion that most users don’t “know” the precise terms that govern the allocation of rights in digital copies; this is the source of the “deception” they assert. But there is a cost to marking out the precise terms of use with perfect specificity (no contract specifies every eventuality), a cost to knowing the terms perfectly, and a cost to caring about them.

When we buy digital goods, we probably care a great deal about a few terms. For a digital music file, for example, we care first and foremost about whether it will play on our device(s). Other terms are of diminishing importance. Users certainly care whether they can play a song when offline, for example, but whether their children will be able to play it after they die? Not so much. That eventuality may, in fact, be specified in the license, but the nature of this particular ownership relationship includes a degree of rational ignorance on the users’ part: The typical consumer simply doesn’t care. In other words, she is, in Nobel-winning economist Herbert Simon’s term, “boundedly rational.” That isn’t deception; it’s a feature of life without which we would be overwhelmed by “information overload” and unable to operate. We have every incentive and ability to know the terms we care most about, and to ignore the ones about which we care little.

Relatedly, P&H also fail to understand the relationship between price and ownership. A digital song that is purchased from Amazon for $.99 comes with a set of potentially valuable attributes. For example:

  • It may be purchased on its own, without the other contents of an album;
  • It never degrades in quality, and it’s extremely difficult to misplace;
  • It may be purchased from one’s living room and be instantaneously available;
  • It can be easily copied or transferred onto multiple devices; and
  • It can be stored in Amazon’s cloud without taking up any of the consumer’s physical memory resources.

In many ways that matter to consumers, digital copies are superior to analog or physical ones. And yet, compared to physical media, on a per-song basis (assuming one could even purchase a physical copy of a single song without purchasing an entire album), $.99 may represent a considerable discount. Moreover, in 1982 when CDs were first released, they cost an average of $15. In 2017 dollars, that would be $38. Yet today most digital album downloads can be found for $10 or less.

Of course, songs purchased on CD or vinyl offer other benefits that a digital copy can’t provide. But the main thing — the ability to listen to the music — is approximately equal, and yet the digital copy offers greater convenience at (often) lower price. It is impossible to conclude that a consumer is duped by such a purchase, even if it doesn’t come with the ability to resell the song.

In fact, given the price-to-value ratio, it is perhaps reasonable to think that consumers know full well (or at least suspect) that there might be some corresponding limitations on use — the inability to resell, for example — that would explain the discount. For some people, those limitations might matter, and those people, presumably, figure out whether such limitations are present before buying a digital album or song For everyone else, however, the ability to buy a digital song for $.99 — including all of the benefits of digital ownership, but minus the ability to resell — is a good deal, just as it is worth it to a home buyer to purchase a house, regardless of whether it is subject to various easements.

Consumers are, in fact, familiar with “buying” property with all sorts of restrictions

The inability to resell digital goods looms inordinately large for P&H: According to them, by virtue of the fact that digital copies may not be resold, “ownership” is no longer an appropriate characterization of the relationship between the consumer and her digital copy. P&H believe that digital copies of works are sufficiently similar to analog versions, that traditional doctrines of exhaustion (which would permit a lawful owner of a copy of a work to dispose of that copy as he or she deems appropriate) should apply equally to digital copies, and thus that the inability to alienate the copy as the consumer wants means that there is no ownership interest per se.

But, as discussed above, even ownership of a physical copy doesn’t convey to the purchaser the right to make or allow any use of that copy. So why should we treat the ability to alienate a copy as the determining factor in whether it is appropriate to refer to the acquisition as a purchase? P&H arrive at this conclusion only through the illogical assertion that

Consumers operate in the marketplace based on their prior experience. We suggest that consumers’ “default” behavior is based on the experiences of buying physical media, and the assumptions from that context have carried over into the digital domain.

P&H want us to believe that consumers can’t distinguish between the physical and virtual worlds, and that their ability to use media doesn’t differentiate between these realms. But consumers do understand (to the extent that they care) that they are buying a different product, with different attributes. Does anyone try to play a vinyl record on his or her phone? There are perceived advantages and disadvantages to different kinds of media purchases. The ability to resell is only one of these — and for many (most?) consumers not likely the most important.

And, furthermore, the notion that consumers better understood their rights — and the limitations on ownership — in the physical world and that they carried these well-informed expectations into the digital realm is fantasy. Are we to believe that the consumers of yore understood that when they bought a physical record they could sell it, but not rent it out? That if they played that record in a public place they would need to pay performance royalties to the songwriter and publisher? Not likely.

Simply put, there is a wide variety of goods and services that we clearly buy, but that have all kinds of attributes that do not fit P&H’s crabbed definition of ownership. For example:

  • We buy tickets to events and membership in clubs (which, depending upon club rules, may not be alienated, and which always lapse for non-payment).
  • We buy houses notwithstanding the fact that in most cases all we own is the right to inhabit the premises for as long as we pay the bank (which actually retains more of the incidents of “ownership”).
  • In fact, we buy real property encumbered by a series of restrictive covenants: Depending upon where we live, we may not be able to build above a certain height, we may not paint the house certain colors, we may not be able to leave certain objects in the driveway, and we may not be able to resell without approval of a board.

We may or may not know (or care) about all of the restrictions on our use of such property. But surely we may accurately say that we bought the property and that we “own” it, nonetheless.

The reality is that we are comfortable with the notion of buying any number of limited property interests — including the purchasing of a license — regardless of the contours of the purchase agreement. The fact that some ownership interests may properly be understood as licenses rather than as some form of exclusive and permanent dominion doesn’t suggest that a consumer is not involved in a transaction properly characterized as a sale, or that a consumer is somehow deceived when the transaction is characterized as a sale — and P&H are surely aware of this.

Conclusion: The real issue for P&H is “digital first sale,” not deception

At root, P&H are not truly concerned about consumer deception; they are concerned about what they view as unreasonable constraints on the “rights” of consumers imposed by copyright law in the digital realm. Resale looms so large in their analysis not because consumers care about it (or are deceived about it), but because the real object of their enmity is the lack of a “digital first sale doctrine” that exactly mirrors the law regarding physical goods.

But Congress has already determined that there are sufficient distinctions between ownership of digital copies and ownership of analog ones to justify treating them differently, notwithstanding ownership of the particular copy. And for good reason: Trade in “used” digital copies is not a secondary market. Such copies are identical to those traded in the primary market and would compete directly with “pristine” digital copies. It makes perfect sense to treat ownership differently in these cases — and still to say that both digital and analog copies are “bought” and “owned.”

P&H’s deep-seated opposition to current law colors and infects their analysis — and, arguably, their failure to be upfront about it is the real deception. When one starts an analysis with an already-identified conclusion, the path from hypothesis to result is unlikely to withstand scrutiny, and that is certainly the case here.

Thanks to Truth on the Market for the opportunity to guest blog, and to ICLE for inviting me to join as a Senior Scholar! I’m honoured to be involved with both of these august organizations.

In Brussels, the talk of the town is that the European Commission (“Commission”) is casting a new eye on the old antitrust conjecture that prophesizes a negative relationship between industry concentration and innovation. This issue arises in the context of the review of several mega-mergers in the pharmaceutical and AgTech (i.e., seed genomics, biochemicals, “precision farming,” etc.) industries.

The antitrust press reports that the Commission has shown signs of interest for the introduction of a new theory of harm: the Significant Impediment to Industry Innovation (“SIII”) theory, which would entitle the remediation of mergers on the sole ground that a transaction significantly impedes innovation incentives at the industry level. In a recent ICLE White Paper, I discuss the desirability and feasibility of the introduction of this doctrine for the assessment of mergers in R&D-driven industries.

The introduction of SIII analysis in EU merger policy would no doubt be a sea change, as compared to past decisional practice. In previous cases, the Commission has paid heed to the effects of a merger on incentives to innovate, but the assessment has been limited to the effect on the innovation incentives of the merging parties in relation to specific current or future products. The application of the SIII theory, however, would entail an assessment of a possible reduction of innovation in (i) a given industry as a whole; and (ii) not in relation to specific product applications.

The SIII theory would also be distinct from the innovation markets” framework occasionally applied in past US merger policy and now marginalized. This framework considers the effect of a merger on separate upstream “innovation markets,i.e., on the R&D process itself, not directly linked to a downstream current or future product market. Like SIII, innovation markets analysis is interesting in that the identification of separate upstream innovation markets implicitly recognises that the players active in those markets are not necessarily the same as those that compete with the merging parties in downstream product markets.

SIII is way more intrusive, however, because R&D incentives are considered in the abstract, without further obligation on the agency to identify structured R&D channels, pipeline products, and research trajectories.

With this, any case for an expansion of the Commission’s power to intervene against mergers in certain R&D-driven industries should rely on sound theoretical and empirical infrastructure. Yet, despite efforts by the most celebrated Nobel-prize economists of the past decades, the economics that underpin the relation between industry concentration and innovation incentives remains an unfathomable mystery. As Geoffrey Manne and Joshua Wright have summarized in detail, the existing literature is indeterminate, at best. As they note, quoting Rich Gilbert,

[a] careful examination of the empirical record concludes that the existing body of theoretical and empirical literature on the relationship between competition and innovation “fails to provide general support for the Schumpeterian hypothesis that monopoly promotes either investment in research and development or the output of innovation” and that “the theoretical and empirical evidence also does not support a strong conclusion that competition is uniformly a stimulus to innovation.”

Available theoretical research also fails to establish a directional relationship between mergers and innovation incentives. True, soundbites from antitrust conferences suggest that the Commission’s Chief Economist Team has developed a deterministic model that could be brought to bear on novel merger policy initiatives. Yet, given the height of the intellectual Everest under discussion, we remain dubious (yet curious).

And, as noted, the available empirical data appear inconclusive. Consider a relatively concentrated industry like the seed and agrochemical sector. Between 2009 and 2016, all big six agrochemical firms increased their total R&D expenditure and their R&D intensity either increased or remained stable. Note that this has taken place in spite of (i) a significant increase in concentration among the largest firms in the industry; (ii) dramatic drop in global agricultural commodity prices (which has adversely affected several agrochemical businesses); and (iii) the presence of strong appropriability devices, namely patent rights.

This brief industry example (that I discuss more thoroughly in the paper) calls our attention to a more general policy point: prior to poking and prodding with novel theories of harm, one would expect an impartial antitrust examiner to undertake empirical groundwork, and screen initial intuitions of adverse effects of mergers on innovation through the lenses of observable industry characteristics.

At a more operational level, SIII also illustrates the difficulties of using indirect proxies of innovation incentives such as R&D figures and patent statistics as a preliminary screening tool for the assessment of the effects of the merger. In my paper, I show how R&D intensity can increase or decrease for a variety of reasons that do not necessarily correlate with an increase or decrease in the intensity of innovation. Similarly, I discuss why patent counts and patent citations are very crude indicators of innovation incentives. Over-reliance on patent counts and citations can paint a misleading picture of the parties’ strength as innovators in terms of market impact: not all patents are translated into products that are commercialised or are equal in terms of commercial value.

As a result (and unlike the SIII or innovation markets approaches), the use of these proxies as a measure of innovative strength should be limited to instances where the patent clearly has an actual or potential commercial application in those markets that are being assessed. Such an approach would ensure that patents with little or no impact on innovation competition in a market are excluded from consideration. Moreover, and on pain of stating the obvious, patents are temporal rights. Incentives to innovate may be stronger as a protected technological application approaches patent expiry. Patent counts and citations, however, do not discount the maturity of patents and, in particular, do not say much about whether the patent is far from or close to its expiry date.

In order to overcome the limitations of crude quantitative proxies, it is in my view imperative to complement an empirical analysis with industry-specific qualitative research. Central to the assessment of the qualitative dimension of innovation competition is an understanding of the key drivers of innovation in the investigated industry. In the agrochemical industry, industry structure and market competition may only be one amongst many other factors that promote innovation. Economic models built upon Arrow’s replacement effect theory – namely that a pre-invention monopoly acts as a strong disincentive to further innovation – fail to capture that successful agrochemical products create new technology frontiers.

Thus, for example, progress in crop protection products – and, in particular, in pest- and insect-resistant crops – had fuelled research investments in pollinator protection technology. Moreover, the impact of wider industry and regulatory developments on incentives to innovate and market structure should not be ignored (for example, falling crop commodity prices or regulatory restrictions on the use of certain products). Last, antitrust agencies are well placed to understand that beyond R&D and patent statistics, there is also a degree of qualitative competition in the innovation strategies that are pursued by agrochemical players.

My paper closes with a word of caution. No compelling case has been advanced to support a departure from established merger control practice with the introduction of SIII in pharmaceutical and agrochemical mergers. The current EU merger control framework, which enables the Commission to conduct a prospective analysis of the parties’ R&D incentives in current or future product markets, seems to provide an appropriate safeguard against anticompetitive transactions.

In his 1974 Nobel Prize Lecture, Hayek criticized the “scientific error” of much economic research, which assumes that intangible, correlational laws govern observable and measurable phenomena. Hayek warned that economics is like biology: both fields focus on “structures of essential complexity” which are recalcitrant to stylized modeling. Interestingly, competition was one of the examples expressly mentioned by Hayek in his lecture:

[T]he social sciences, like much of biology but unlike most fields of the physical sciences, have to deal with structures of essential complexity, i.e. with structures whose characteristic properties can be exhibited only by models made up of relatively large numbers of variables. Competition, for instance, is a process which will produce certain results only if it proceeds among a fairly large number of acting persons.

What remains from this lecture is a vibrant call for humility in policy making, at a time where some constituencies within antitrust agencies show signs of interest in revisiting the relationship between concentration and innovation. And if Hayek’s convoluted writing style is not the most accessible of all, the title captures it all: “The Pretense of Knowledge.

TOTM is pleased to welcome guest blogger Nicolas Petit, Professor of Law & Economics at the University of Liege, Belgium.

Nicolas has also recently been named a (non-resident) Senior Scholar at ICLE (joining Joshua Wright, Joanna Shepherd, and Julian Morris).

Nicolas is also (as of March 2017) a Research Professor at the University of South Australia, co-director of the Liege Competition & Innovation Institute and director of the LL.M. program in EU Competition and Intellectual Property Law. He is also a part-time advisor to the Belgian competition authority.

Nicolas is a prolific scholar specializing in competition policy, IP law, and technology regulation. Nicolas Petit is the co-author (with Damien Geradin and Anne Layne-Farrar) of EU Competition Law and Economics (Oxford University Press, 2012) and the author of Droit européen de la concurrence (Domat Montchrestien, 2013), a monograph that was awarded the prize for the best law book of the year at the Constitutional Court in France.

One of his most recent papers, Significant Impediment to Industry Innovation: A Novel Theory of Harm in EU Merger Control?, was recently published as an ICLE Competition Research Program White Paper. His scholarship is available on SSRN and he tweets at @CompetitionProf.

Welcome, Nicolas!

I recently became aware of a decision from the High Court in South Africa that examines an interesting intersection of freedom of expression, copyright and contract. It addresses the issue of how to define the public interest in an environment of relatively unguarded rhetoric about the role of copyright in society that is worth exploring. But first, a quick recap of the relevant facts, none of which were in issue.

A well known filmmaker, Ms. SE Vollenhoven, was hired by South African broadcaster, SABC, to produce a documentary film exposing certain governmental improprieties. In her contract with SABC, Vollenhoven transferred all copyright interests to SABC in exchange for compensation. SABC ultimately decided that it was uncomfortable with the product, and decided against releasing it. Vollenhoven initiated a discussion with SABC in an effort to buy back the rights to the film, but SABC refused, leading SABC to seek an injunction preventing Vollenhoven from engaging in any acts that would infringe their rights in the film.

For the purposes of this analysis, let’s assume that all equities are with Vollenhoven, and that the public would gain from the release of the film. I am not in a position to make such a judgment personally, but certainly my sympathies would be with a filmmaker whose own expressive work is relegated to the dustbins due to a decision by a business partner to keep the film out of the public eye. Her frustration is clearly understandable. Let’s further assume that the government pressured SABC into not releasing the film—not because in fact I assume this, but because it is certainly possible, and I want to examine the copyright questions in a light least hospitable to the assertion of copyright. There is an axiom in legal circles that “bad facts make bad law,” but sometimes bad facts allow us to observe legal principles without artifice or obstruction in ways that are useful for our understanding of fundamental principles of law and justice.

This is just such a case. Much as we might sympathize with Vollenhoven, the arguments presented by her counsel would require us to believe that the rejection of free will that undergirds freedom of contract and self-determination is a legitimate price in the quest for perceived freedom. I believe that is a fundamentally flawed proposition, and that willingness to constrain free will that allows a person to determine the scope of her consent undermines rather than advances the public good. The ends, even assuming that they are noble and just, do not justify a means that eliminates consent while seeking to improve the human condition. Vollenhoven and amici (we will get to them later)  ask us to reject free will to achieve freedom. But there is no freedom at the end of that road. As the Court brilliantly and succinctly observed: “a limitation of freedom is irreconcilable with the right of choice.

There are a number of equitable doctrines under which contracts may be vitiated, for example when they are the result of duress or where the consent required for formation of a contract is found to be absent. But here, no such equitable doctrines would apply. Vollenhoven was an accomplished filmmaker who freely negotiated a contract with SABC for her services. There is no suggestion from any party that the contract was somehow unfair, nor are we talking about the application of a non-negotiated provision of law vesting copyright in an employer or commissioning party. Vollenhoven herself does not assert anything different. Her unhappiness with the result of the contract is understandable, but doesn’t justify the attempt to circumvent it through a novel and dangerous mischaracterization of copyright laws and exceptions thereto.

This is where things get interesting. Since the contract under which SABC obtained the copyright in the documentary was unassailable, Vollenhoven and her supporters determined to “free the film” by asserting an implied exception to copyright laws to permit dissemination of information in the public interest. This took a variety of forms, all of which eventually defaulted to the proposition that the public’s interest in access superseded the copyright owner’s interest in protection. I take particular note of the participation of the Freedom of Expression Institute (FXI) on behalf of Vollenhoven since they most perfectly articulate the position that copyright is a form of censorship, having written in their 2015 copyright reform submission to DTI that: “FXI believes that copyright law and free speech are fundamentally in conflict. It should come as no surprise, at all, that both governments and the private sector use copyright law to suppress speech and dissent.” Vollenhoven’s counsel, as summarized by the Court, argued that the Copyright law exists, inter alia, “to promote the free spread of art, ideas and information, not to hinder it and to regulate copyright so as to enhance a vibrant culture in South Africa. Thus on a purposeful interpretation of the Act, so it is argued, it is not just to protect owners of copyright but to advance the public good.”

The Court was unimpressed, finding that: “There is nothing…to support the meaning of public good relied on by the Respondents. Their construction of public good or welfare is equated to dissemination of ideas and this is nowhere to be found or implied….The view that copyright aims to promote public disclosure and dissemination of works cannot be regarded as a true reflection of the purpose or intent of the Act and is not part of our copyright law. The Respondents’  conception of the purposes of the Copyright Act is overbroad. The Act by no means purports to regulate or promote the free spread of ideas although it undoubtedly is a mechanism by which this result may be effected. It is straining the proper limits of the Act to find some kind of implied condition of dissemination in the conferral of copyright.”

And of course, the Court is absolutely correct–enjoining the distribution of the film doesn’t prevent the distribution of the information/ideas contained therein, only the specific original expression of said ideas. Vollerhoven, or anyone else, remains free to tell stories through separate vehicles. As the Court explained: “[Vollerhoven] concedes readily that the respondents have right to tell the story in a different work and have not attempted to stifle this form of expression. In truth the respondents’ freedom of speech is not impinged at all. What is impinged is the use of the work which the respondents sold to the applicant and were substantially rewarded monetarily. The copyrights are vested by law in the applicants. This cannot be conflated with an infringement of freedom of speech. Vollenhoven shows that she is alive to the distinction between the work and the underlying story or idea and does not shirk from asserting her rights to exploit the story as she is well entitled to do.”

The contrary rule argued by her counsel and by FXI is untenable, and would require embracing the perverse logic that the protection of expression is itself a restriction on freedom of expression, a proposition worthy of Wonderland’s Red Queen. If the right of access enjoyed by the public always supersedes the individual’s right to control the uses of her property, then copyright is truly meaningless. FXI’s position essentially acknowledges this. While I think that FXI is mistaken, and fails to capture how copyright serves to democratize the production of original cultural materials for the benefit of society, I will at least give them credit for their directness. Perhaps they believe that state support for the arts is a better tool for sustaining creators. Perhaps they believe in private patronage. But unlike many of their copyright-skeptic peers in the west, they at least own their narrative and don’t feel the need to say that they believe in copyright while rejecting any modality for its protection. It’s a flawed vision that fails to reflect that the interests of the public are served by sustaining creators, and by protecting fundamental human rights in connection with the creation of original works. But it is a vision. Hopefully one that will evolve through an increased recognition that ensuring consent in a technological universe that celebrates lack of permission is central to advancing our humanity and retaining and celebrating our cultural differences.

My colleague, Neil Turkewitz, begins his fine post for Fair Use Week (read: crashing Fair Use Week) by noting that

Many of the organizations celebrating fair use would have you believe, because it suits their analysis, that copyright protection and the public interest are diametrically opposed. This is merely a rhetorical device, and is a complete fallacy.

If I weren’t a recovering law professor, I would just end there: that about sums it up, and “the rest is commentary,” as they say. Alas….  

All else equal, creators would like as many people to license their works as possible; there’s no inherent incompatibility between “incentives and access” (which is just another version of the fallacious “copyright protection versus the public interest” trope). Everybody wants as much access as possible. Sure, consumers want to pay as little as possible for it, and creators want to be paid as much as possible. That’s a conflict, and at the margin it can seem like a conflict between access and incentives. But it’s not a fundamental, philosophical, and irreconcilable difference — it’s the last 15 minutes of negotiation before the contract is signed.

Reframing what amounts to a fundamental agreement into a pitched battle for society’s soul is indeed a purely rhetorical device — and a mendacious one, at that.

The devil is in the details, of course, and there are still disputes on the margin, as I said. But it helps to know what they’re really about, and why they are so far from the fanciful debates the copyright scolds wish we were having.

First, price is, in fact, a big deal. For the creative industries it can be the difference between, say, making one movie or a hundred, and for artists is can be the difference between earning a livelihood writing songs or packing it in for a desk job.

But despite their occasional lip service to the existence of trade-offs, many “fair-users” see price — i.e., licensing agreements — as nothing less than a threat to social welfare. After all, the logic runs, if copies can be made at (essentially) zero marginal cost, a positive price is just extortion. They say, “more access!,” but they don’t mean, “more access at an agreed-upon price;” they mean “zero-price access, and nothing less.” These aren’t the same thing, and when “fair use” is a stand-in for “zero-price use,” fair-users moving the goalposts — and being disingenuous about it.

The other, related problem, of course, is piracy. Sometimes rightsholders’ objections to the expansion of fair use are about limiting access. But typically that’s true only where fine-tuned contracting isn’t feasible, and where the only realistic choice they’re given is between no access for some people, and pervasive (and often unstoppable) piracy. There are any number of instances where rightsholders have no realistic prospect of efficiently negotiating licensing terms and receiving compensation, and would welcome greater access to their works even without a license — as long as the result isn’t also (or only) excessive piracy. The key thing is that, in such cases, opposition to fair use isn’t opposition to reasonable access, even free access. It’s opposition to piracy.

Time-shifting with VCRs and space-shifting with portable mp3 players (to take two contentious historical examples) fall into this category (even if they are held up — as they often are — by the fair-users as totems of their fanciful battle ). At least at the time of the Sony and Diamond Rio cases, when there was really no feasible way to enforce licenses or charge differential prices for such uses, the choice rightsholders faced was effectively all-or-nothing, and they had to pick one. I’m pretty sure, all else equal, they would have supported such uses, even without licenses and differential compensation — except that the piracy risk was so significant that it swamped the likely benefits, tilting the scale toward “nothing” instead of “all.”

Again, the reality is that creators and rightsholders were confronted with a choice between two imperfect options; neither was likely “right,” and they went with the lesser evil. But one can’t infer from that constrained decision an inherent antipathy to fair use. Sadly, such decisions have to be made in the real world, not law reviews and EFF blog posts. As economists Benjamin Klein, Andres Lerner and Kevin Murphy put it regarding the Diamond Rio case:

[R]ather than representing an attempt by copyright-holders to increase their profits by controlling legally established “fair uses,”… the obvious record-company motivation is to reduce the illegal piracy that is encouraged by the technology. Eliminating a “fair use” [more accurately, “opposing an expansion of fair use” -ed.] is not a benefit to the record companies; it is an unfortunate cost they have to bear to solve the much larger problem of infringing uses. The record companies face competitive pressure to avoid these costs by developing technologies that distinguish infringing from non-infringing copying.

This last point is important, too. Fair-users don’t like technological protection measures, either, even if they actually facilitate licensing and broader access to copyrighted content. But that really just helps to reveal the poverty of their position. They should welcome technology that expands access, even if it also means that it enables rightsholders to fine-tune their licenses and charge a positive price. Put differently: Why do they hate Spotify!?

I’m just hazarding a guess here, but I suspect that the antipathy to technological solutions goes well beyond the short-term limits on some current use of content that copyright minimalists think shouldn’t be limited. If technology, instead of fair use, is truly determinative of the extent of zero-price access, then their ability to seriously influence (read: rein in) the scope of copyright is diminished. Fair use is amorphous. They can bring cases, they can lobby Congress, they can pen strongly worded blog posts, and they can stage protests. But they can’t do much to stop technological progress. Of course, technology does at least as much to limit the enforceability of licenses and create new situations where zero-price access is the norm. But still, R&D is a lot harder than PR.

What’s more, if technology were truly determinative, it would frequently mean that former fair uses could become infringing at some point (or vice versa, of course). Frankly, there’s no reason for time-shifting of TV content to continue to be considered a fair use today. We now have the technology to both enable time shifting and to efficiently license content for the purpose, charge a differential price for it, and enforce the terms. In fact, all of that is so pervasive today that most users do pay for time-shifting technologies, under license terms that presumably define the scope of their right to do so; they just may not have read the contract. Where time-shifting as a fair use rears its ugly head today is in debates over new, infringing technology where, in truth, the fair use argument is really a malleable pretext to advocate for a restriction on the scope of copyright (e.g., Aereo).

In any case, as the success of business models like Spotify and Netflix (to say nothing of Comcast’s X1 interface and new Xfinity Stream app) attest, technology has enabled users to legitimately engage in what was once conceivable seemingly only under fair use. Yes, at a price — one that millions of people are willing to pay. It is surely the case that rightsholders’ licensing of technologies like these have made content more accessible, to more people, and with higher-quality service, than a regime of expansive unlicensed use could ever have done.

At the same time, let’s not forget that, often, even when they could efficiently distribute content only at a positive price, creators offer up scads of content for free, in myriad ways. Sure, the objective is to maximize revenue overall by increasing exposure, price discriminating, or enhancing the quality of paid-for content in some way — but so what? More content is more content, and easier access is easier access. All of that uncompensated distribution isn’t rightsholders nodding toward the copyright scolds’ arguments; it’s perfectly consistent with licensing. Obviously, the vast majority of music, for example, is listened-to subject to license agreements, not because of fair use exceptions or rightsholders’ largesse.

For the vast majority of creators, users and uses, licensed access works, and gets us massive amounts of content and near ubiquitous access. The fair use disputes we do have aren’t really about ensuring broad access; that’s already happening. Rather, those disputes are either niggling over the relatively few ambiguous margins on the one hand, or, on the other, fighting the fair-users’ manufactured, existential fight over whether copyright exceptions will subsume the rule. The former is to be expected: Copyright boundaries will always be imperfect, and courts will always be asked to make the close calls. The latter, however, is simply a drain on resources that could be used to create more content, improve its quality, distribute it more broadly, or lower prices.

Copyright law has always been, and always will be, operating in the shadow of technology — technology both for distribution and novel uses, as well as for pirating content. The irony is that, as digital distribution expands, it has dramatically increased the risk of piracy, even as copyright minimalists argue that the low costs of digital access justify a more expansive interpretation of fair use — which would, in turn, further increase the risk of piracy.

Creators’ opposition to this expansion has nothing to do with opposition to broad access to content, and everything to do with ensuring that piracy doesn’t overwhelm their ability to get paid, and to produce content in the first place.

Even were fair use to somehow disappear tomorrow, there would be more and higher-quality content, available to more people in more places, than ever before. But creators have no interest in seeing fair use disappear. What they do have is an interest in is licensing their content as broadly as possible when doing so is efficient, and in minimizing piracy. Sometimes legitimate fair-use questions get caught in the middle. We could and should have a reasonable debate over the precise contours of fair use in such cases. But the false dichotomy of creators against users makes that extremely difficult. Until the disingenuous rhetoric is clawed back, we’re stuck with needless fights that don’t benefit either users or creators — although they do benefit the policy scolds, academics, wonks and businesses that foment them.

In a recent article for the San Francisco Daily Journal I examine Google v. Equustek: a case currently before the Canadian Supreme Court involving the scope of jurisdiction of Canadian courts to enjoin conduct on the internet.

In the piece I argue that

a globally interconnected system of free enterprise must operationalize the rule of law through continuous evolution, as technology, culture and the law itself evolve. And while voluntary actions are welcome, conflicts between competing, fundamental interests persist. It is at these edges that the over-simplifications and pseudo-populism of the SOPA/PIPA uprising are particularly counterproductive.

The article highlights the problems associated with a school of internet exceptionalism that would treat the internet as largely outside the reach of laws and regulations — not by affirmative legislative decision, but by virtue of jurisdictional default:

The direct implication of the “internet exceptionalist’ position is that governments lack the ability to impose orders that protect its citizens against illegal conduct when such conduct takes place via the internet. But simply because the internet might be everywhere and nowhere doesn’t mean that it isn’t still susceptible to the application of national laws. Governments neither will nor should accept the notion that their authority is limited to conduct of the last century. The Internet isn’t that exceptional.

Read the whole thing!