The University of Chicago Law School Faculty Blog

Google: As Open and Neutral as It Wants to Be

I hope to return to blogging more regularly now that the college-hunting process is over for my high-school senior son—our family’s first time through what is an amazingly-daunting (and time-consuming) process—and I still have a backlog of other work to clear out, but I can’t resist jumping in to discuss one aspect of the new WiMAX deal announced yesterday between Sprint and Clearwire. As you may know, for awhile, WiMAX has been the next great wireless broadband technology. I say for awhile as it isn’t clear that it is going to ever succeed, but yesterday’s deal is another attempt to take a serious run at it.

That technology isn’t my focus. As part of the deal, Google is reported to be investing $500 million. Google has emerged as serious player in broadband, playing an important role in the last spectrum auction. Google clearly wants to see more broadband capacity and in a post yesterday on the deal, Google emphasized its desire to see an open Internet.

But only so open it seems. As reported in the WSJ yesterday and as is clear from the 9-page press release on the deal, Google’s investment buys it a preferred status on the network. To quote the press release: “Google will partner with the new Clearwire in the development of Internet services, advertising services and applications for mobile WiMAX devices. In addition, Google will be the search provider and a preferred provider of other applications for the new Clearwire’s retail product.” Four bullet points later, we are told that: “Sprint and Google have also entered into an agreement related to Sprint’s mobile services, whereby Google will become the default provider of web and local search services, both of which will be enabled with location information, for Sprint. Sprint will also preload several Google services - including Google Maps for mobile, Gmail and YouTube - on select mobile phones and provide easier access to other Google services.”

I am not sure what all of that means exactly. “The” search provider sounds like their will only be one search provider and a “preferred” provider makes it sounds as if other providers will be relegated to inferior positions. We also know, see Thaler & Sunstein in Nudge, that default settings are very powerful in determining behavior even if the setting can be changed at low cost.

Google has a public position on net neutrality that contemplates prioritizing based on the general type of application but not based on the ownership of the application. I shouldn’t over-read two paragraphs in a press release, but it isn’t clear to me that the positions that Google have bought with Clearwire and Sprint are consistent with its prior position on openness and net neutrality.

Is it Concerted Action under Section 1 of the Sherman Act when a CEO Conspires with his Alternate Online Persona?

I was at the American Bar Association’s Spring Antitrust meeting in Washington yesterday. The topic for the panel was to address old antitrust doctrines that are likely to go the way of the dodo. Henry Su of Howrey organized a good panel consisting of FTC Commissioner Thomas Rosch, Gail Levine of Verizon, Greg Werden of the Antitrust Division of the Department of Justice and me. We had a lively and fun discussion. Leading candidates for revision were the (nominally) per se rule against tying; the Supreme Court’s old merger cases; and cases at the intersection of patents and antitrust. I also got to see a number of former students who are putting their education to work doing antitrust law. That is always very nice.

I think that I can claim the funniest line of the day, which was the question I posed in the post title when we turned to a brief consideration of the Whole Foods/Wild Oats merger. (That is way too much antitrust inside baseball, I suspect, but if you want to know more, see this.)

(And if you want an answer to the question, one word: Copperweld.)

You can read my written contribution for the panel at SSRN:

Take Two: Stare Decisis in Antitrust - The Per Se Rule Against Horizontal Price-Fixing

Abstract: In this essay prepared for the American Bar Association’s 56th Antitrust Law Spring Meeting, I consider two issues that pertain to the overall question of what antitrust doctrines are up for retirement. First, we can’t consider that without understanding how the Supreme Court approaches stare decisis in antitrust. The Court’s 5-4 decision in Leegin identified some of the fault lines on this issue. The Court has suggested that it should approach stare decisis differently in statutory areas from the way it approaches it when it reconsiders constitutional decisions. I think that that is wrong and that the Court should apply its approach to stare decisis in constitutional cases to cases based on statutes, such as the Sherman Act. Second, I focus on the evil of evils: horizontal price-fixing. I don’t think that the Court is likely to retire the per se rule against horizontal price-fixing, certainly not directly. We might only realize that it had been overturned after the fact, after the Court had so chipped away at the doctrine that nothing remained. That said, as again Leegin itself suggested, we can’t be fully confident that horizontal price-fixing is always pernicious, especially when it might be implemented as part of a larger vertical arrangement.

Chicago Lawyers’ Committee v Craigslist: Yet Another Reason Newspapers are Dying

Friday’s decision in the Craigslist case in the Seventh Circuit offers yet another reason why newspapers are losing ground—and quickly—to their online competitors: newspapers face tougher laws than the online firms. As (our) Judge Easterbrook’s opinion makes clear, publish a “No Minorities Welcome” ad in the Chicago Tribune and the Trib violates the Fair Housing Act. But put the same ad on Craigslist and, after Friday at least in the Seventh Circuit, Craigslist faces no liability under the FHA given the protection given to it under the Communications Decency Act of 1996. We often talk about media neutrality—the idea that a particular set of rules should apply independent of the medium via which the content is delivered. This is just the opposite—media bias—but not the usual version; this is bias against one medium—classified ads in newspapers—in favor of another—the Internet.

Fair Use v. Fair Access

We are between quarters now, so the building is quiet (well, not actually, since the fountain replacement project is going full bore, but we are getting there). I am editing cases for my Spring Copyright class, but also just posted a new forthcoming copyright draft on SSRN. The paper is short and, I hope, readable. Comments welcome.

Fair Use v. Fair Access

Abstract

In this paper, I make four points.

1. The copyright act defines use rights, not access rights. That overstates slightly—especially with the Digital Millennium Copyright Act in the statute—but the core of copyright law addresses how works can be used assuming that legal access has been obtained. Other law addresses the circumstances under which works can be accessed.

2. Nothing in copyright itself suggests that use rights should trump access rights; indeed, our core access principles suggest just the opposite. We frequently speak of a fair use “right.” I am doubtful about that on its own terms but even if we find something there, a fair use right isn’t an access right. Fair use doesn’t equal fair access.

3. The scope of rights given to an initial author will effect the timing and scope of investment she will make in creating a work. For many works, those investments can be made in discrete lumps. As a society, we want investments to be made incrementally rather than as one large lump as doing so allows us to get feedback from the market on the value of a work. We don’t want to throw good money after bad, and if we learn that, say, the English version of a work is a failure, we don’t want to bother translating it into Mandarin. Plus we will delay the time that works reach the market if we create an incentive to do large, lumpy investments rather than a sequence of investments coupled with market feedback. Authors start with one monopoly: their unique access to the work that they have created. If we do not give authors control over these follow-on works, authors will overinvest upfront in the works, since that is the only way that the can gain a return on their initial monopoly over access to the work. In that situation, we are better off to hand the author a statutory monopoly over the follow-on work rather than see the author invest real resources in creating a property right over that work.

4. Fair use is a form of rights bundling. If we decide that, say, format-shifting is fair use or is otherwise a permitted use—you sell me a music CD and I have a use right to make a personal copy on a cassette or my iPod—we are making a decision about the rights that we are bundling together. The nature of bundles is that everyone gets stuck buying the same set of rights. These bundles can be inefficiently large. Consumers would often be better off if instead we allowed rights to be unbundled, so that consumers could buy just those rights that they wanted rather than being forced to take unwanted rights. Doing that requires a narrow conception of fair use.

Picker Comments II (Mobblog: The New Servitudes)

I’ll start with related housekeeping and then turn back to Molly’s paper.

There was a terrific conference on fair use Friday at Columbia Law School’s Kernochan Center. Uniformly good starting with Paul Goldstein’s keynote and working through the three panels. Rebecca Tushnet liveblogged it—yet another reason to have her at your conferences—and you can get her posts here, here and here. If you have found this mobblog interesting, you will probably want to read Rebecca’s posts. Mike Madison also has a post addressing the JK Rowling HP Lexicon situation, which received some discussion at the conference. (Mike also has a post on our mobblog discussion as well.) I have posted my slides for my talk at the Columbia conference and the slides for a more extended version of the talk that I gave Thursday at the Institute of Government & Public Affairs at the University of Illinois at Chicago. And all of that is based on a forthcoming paper for the symposium volume for the Columbia conference. I’ll post that on SSRN in a week or two but am happy to email the conference version to anyone who would like it.

I won’t say more about fair use here, but want instead to go back to Molly’s paper and talk about the way in which the new servitudes differ from the old ones. I think we should focus on static v. dynamic. The GNU public license and the Creative Commons licenses are viral and infectious. An explicit dynamic orientation. The point is subsequent use but also typically I think to create more stuff that shares the same licensing characteristics. Molly was on the inside on this on Creative Commons, so I am curious to get her perspective on this. This is about the battle of the commons, where the GNU and CC licenses are trying to bulk up their side against proprietary content and software.

I don’t think that the standard proprietary software or content EULA does this. These are much more static, in that they want to lock down how the recipient of the code or content uses it. These are first and foremost about restricting use. And I would say doing so equally on initial purchasers and subsequent purchasers. If I buy a Dell desktop with Vista, Microsoft wants to restrict my uses, but those same restrictions will attach to someone who buys that desktop and software from me. I confess that I don’t think that this is so much about notice, since the contracts that we all quickly click-thru don’t actually provide, I suspect, much actual notice in practice.

I don’t have a good sense of the dynamic vs. static qualities of the old servitudes. The ones that I know best are the chattel servitudes in cases like Bobbs-Merrill, Whiteman and Dr. Miles. Those are about price discrimination and minimum resale price maintenance and aren’t explicitly dynamic in the way that I think the GNU and CC licenses are.

Picker Comments (Mobblog: The New Servitudes)

I think that I will split up my comments a bit, doing some now and some in a subsequent post. For me, I start with wanting to understand why someone might want to impose a servitude and the kind of restrictions that are imposed. I don’t know that the paper offers a theory of use restrictions and those intrigue me.

In prior work, I have discussed two different sets of use restrictions. Molly discusses one of those, the turn-of-the-century limitations seen in early phonographs. You buy my phonograph, you have to play my cylinders on it. These are fairly conventional efforts at price discrimination in which the manufacturer is trying to sell the playing equipment for different prices to different customers and where the cylinders are used to measure intensity of demand. We can’t just assume that this sort of price discrimination is pernicious, and if we can’t do that, we may need to allow the use discrimination. (I lay out more of this in my Chicago L Rev piece, From Edison to the Broadcast Flag: Mechanisms of Consent and Refusal and the Propertization of Copyright (preprint version here).)

We can generalize that point, and I have done so in other work. There is certainly a class of servitude situations involving what we might call systems competition. Computer printers and toner cartridges are a good example of this. To the untrained eye, this looks like a pretty competitive market, and yet we have observed lots of use restrictions over time. Some of those have been contractual, but given the difficulty of enforcing those contracts, sellers have turned to technological lock-and-key systems. Efforts to break those systems have in turn taken us to cases under the Digital Millennium Copyright Act.

Consumers as a group can be better off if we make possible this sort of locked systems competition. Absent the lock, manufacturers will be forced to seek to recover all of their system development costs in the price of the printer and that can inefficiently discourage purchases of the printer. Better to recover more of those costs from heavy users and we can do that if we charge above marginal cost for the toner cartridge. But to do that, the cartridge needs to be locked to the printer. (I set this out in greater detail in my paper Copyright and the DMCA: Market Locks and Technological Contracts (preprint version here)).

In both of these cases, these use restrictions may enhance welfare. I don’t see how we assess old (or new) servitudes without understanding the circumstances under which use restrictions may be beneficial. I think that this is a general challenge for copyright law as it puts in play what role fair use should play. I will have more to say about that on Friday at a conference at Columbia Law.

 

Counting Bytes and Bandwidth Shifting

Yet another reason to come to the office: bandwidth shifting. Maybe not quite yet, but it is coming.

I am at the office and just downloaded Steve Jobs’s Macworld keynote address; when I work out, I’ll watch it on my iPod Touch (a delight, especially with last week’s software update). Video files are huge and this one clocked in at a hefty 891.8 megabytes. When it comes to size, there is no comparison between video and anything else. So the hour-long Supreme Court oral argument in the Leegin antitrust case—available on iTunes through Oyez—is 14.5 megs. And the written transcript in the Quanta case—on patent exhaustion and first-sale type rights argued in the Supreme Court last week—is only 237 kilobytes.

A Dirty Words Innovation Problem?

David Pescovitz at boingboing had a fun post yesterday about an auction of an 1898 baseball document that sets out “special instructions to players” regarding foul language to be avoided during games. As the recent story in the New York Times about fan behavior at Jets games reminds us, sporting events aren’t always the most family-friendly events.

But that isn’t the issue of interest. Instead, read the instructions and focus on dirty words and quickly count how many of George Carlin’s famous seven words you see. What will become clear immediately is that we are suffering from a serious deficit in dirty-words innovation. We have split the atom, put a man on the moon and now are sorting through the genome, but we are still stuck with the same $!@$# words that baseball players were using more than a century ago. Perhaps foul language is like classical music: we came up with all of the really good ones a long time ago, and now we are just condemned to repeating, combining and permuting.

Fun and games to be sure, but this matters more as we turn to the First Amendment and communications policy. In truth, it isn’t clear that new dirty words would help us. Having an agreed upon set of forbidden words may be arbitrary—that was George Carlin’s point after all in the monologue considered in 1978 in Pacifica—but is also useful in helping us sort through what can and can’t be broadcast over the airwaves. If Bono’s “fucking brilliant” is enough to throw the FCC for a loop—and read the Second Circuit’s divided June opinion reversing the FCC to get a sense of this—it is hard to know what we would do with a bunch of new, really bad words.

Privacy Externalities and Unraveling

I don’t smoke and if I went to buy life insurance tomorrow, I would want to disclose that fact to the insurance company. Insurance is priced based on a pool of risks, and as a nonsmoker, I want to be placed in a different pool than the smokers are in.

But when I reveal that I am not a smoker, I set in motion a chain of inferences which should, on average, have the consequence of revealing that smokers are smokers, even if they never say anything. This is a standard result in information economics—we call it unraveling—and creates what we might think of as a privacy externality: when I reveal information about me, it has the consequence of revealing something about you. My willingness to give up my privacy gives up your privacy too. This will bite most often when one group affirmatively wants to distance itself from a second group.

We might defend this in the smoking context on the notion that absent the waiver of privacy by the nonsmokers, we get pooled risks and non-smokers end up subsidizing the higher expected insurance costs of smokers. Smokers therefore won’t fully internalize the cost of smoking, and we will have too many smokers. Allowing nonsmokers to disclose information about their nonsmoking then turns out to be socially valuable in the way that it better channels the cost of smoking to smokers, but we need to figure out how to account for, if at all, the privacy loss of the smokers.

So a couple of questions. What are your preferences? Fewer smokers or more privacy for smokers? And, if you are a privacy fan, what is the best discussion in the literature of the way in which unraveling creates privacy externalities?

Microsoft Loses in the EU Court of First Instance

The European Union’s Court of First Instance issued its decision in the Microsoft case today upholding in most respects the March 23, 2004 decision of the European Commission. That decision had concluded that Microsoft had abused a dominant position by tying Windows media player to Windows and by refusing to make available to competitors information about protocols that would make it easier for third-party products in the work group server operating system market. That decision had also imposed a fine of roughly €500 million and had ordered a monitoring trustee going forward to ensure compliance with the decision. The Court of First Instance upheld everything other than the monitoring trustee.

The decision is a behemoth—the pdf runs 248 pages—and even the press release runs five pages. Serious analysis of the ins and outs of the case law will require some days, but I think we can offer a quick assessment of the likely market impact of the decision:

1. €500 Million Fine. This is a great deal of money, even in the world of Microsoft, but ultimately, this just knocks down their stack a bit. Market impact?: little to none.

2. Required Unbundling of Windows Media Player. The European Commission required Microsoft to offer separate with and without versions of Windows: one version that could include the Windows Media Player and one that would come without it. Microsoft and the EU tussled over the name of the reduced technology version—I think Microsoft wanted to call it “Windows, the Junky Version Required by the EU”—but as the European Commission did not require Microsoft to charge a reduced price for the reduced function version, it has had little market impact. I understand the logic of the EU position—indeed, published an article before that remedy was announced suggesting exactly that remedy—but the market response has been as what one might have forecast: very little adoption of the reduced technology version. That in part caused me to switch suggested remedies in a later paper (simple version: don’t subtract from Windows as the EU did, but add to it instead by requiring Microsoft to add competing products as part of its Windows distribution (the so-called must carry remedy)). Market impact of required unbundling: again little to none.

3. Required Interoperability Disclosure in the Work Group Server Operating Systems Market: This is the one that could matter. In some sense we might judge that from the fact that Sun and other competitors pushed the Commission to pry open the Windows communications protocols. Presumably that is some indication of their belief that they will benefit from greater access to those protocols. What that benefit is is less clear to me. John Frank, a Microsoft attorney, gave a talk to our students here at the Law School last Spring. I walked away thinking that I needed to have a greater technical understanding of the technology, particularly the multimaster replication technology. I hope the tech bloggers address this today. And this is one where we need to go both ex ante and ex post. Distributing Microsoft technology to its competitors will almost certainly enhance competition ex post, but a general policy of doing this will reduce investment incentives ex ante. Market impact of greater interoperability?: Best guess is positive given the existence of the technology, but we should hear from the tech guys.

As the EU press release notes, the next step for Microsoft is an appeal to the EU Court of Justice. For me, the next step is trying to figure out how to edit the 248 pages down to the roughly 20 we can do in my antitrust class (currently scheduled for class 25 this Fall). Perhaps I can just keep every 12th word?