Late last night, the Antitrust Division filed its
statement in the pending Google Book Search case. Once it became clear that DOJ
would participate in the case, everyone understood that the filing would
receive a great deal of attention. Filing at 10pm on a Friday—and a Jewish
holiday to boot—sounds like DOJ was trying to hide the filing, but I suspect the
timing reflects the reality of the real complexities of the case. DOJ’s bottom line
is that the proposed settlement agreement should be rejected “in its current
form” with the parties encouraged to modify it to comply with “Rule 23 and the
copyright and antitrust laws.” (Early commentary on the DOJ filing is available by
Danny Sullivan (here)
and James Grimmelmann (here).)
I have a plan of market division for The Wall Street Journal: I’ll write about antitrust; they will stop
writing about it and will instead write about other topics where the local
knowledge runs deeper.
Today’s topic, like last week’s,
is the proposed Microsoft-Yahoo! search deal. L. Gordon Crovitz addressed
this last week in his commentary in a way that I thought was particularly
thoughtless (see my post here
and Josh Wright’s
post as well). Today’s Wall Street
at least recognizes that the original deal was Google-Yahoo! though they still
fail to connect the dots to see that Microsoft-Yahoo! is only possible because
of the prior review by Justice of Google-Yahoo!. They continue to believe that
Microsoft-Yahoo! is pro-competitive, as did Crovitz, as do I, but none of us
has done a serious antitrust analysis. Monday morning quarterbacking is fun and
easy even in antitrust.
So what is my beef with today’s editorial? The Journal has drunk the Google Kool-Aid on
pricing in search markets: “search providers like Google and Bing also don’t
determine ad prices, which are set through auctions.” This is wrong. From the
perspective of the auctioneer, the whole point of auction design is to figure
out how to make more money from the auction. I gave a quick seven-minute speech
on this as part of as debate hosted by Intelligence Squared in New York in
November and you can watch that
but let me describe the highlights quickly.
James Grimmelmann has been having some fun with the
Associated Press (here,
The AP participates in the icopyright content licensing system in an effort to monetize their
content. James bought a license through the system to a well-known quote from
Thomas Jefferson for $12. That came subject to icopyright’s elaborate
in his blog. The Jefferson quote of course has long been in the public domain.
In response to a furor over the last day—spurred by a post
on BoingBoing, discussion
on Slashdot and a tweet
by Tim O’Reilly to his 878,907 followers on Twitter—thereby hitting the Holy
Trinity of the digital world—the AP has revoked the license and returned the
$12 with the AP duly chastised.
It would be nice if the AP had the courage of its
convictions. The AP has issued a
statement backing away from its practices in this case. We should review how
the public domain works. The public domain is sold every day. Every time you
buy a copy of Hamlet you are paying
for a public domain work. I do H.G. Wells’s The
War of the Worlds in my copyright class on this starting with Project
Gutenberg—free, of course—and then heading to Barnes & Noble and Amazon,
where the prices range from $2.50 to $13.95 (see slides 3 to 13).
That is precisely the nature of the public domain: anyone can use it for whatever
they want, including selling it. The AP is fully within its rights to sell
public domain content just as Amazon does every day.
L. Gordon Crovitz, a Wall
Street Journal commentator, has a piece
in the paper this morning, “The Antitrust Anachronism,” discussing the proposed
Microsoft-Yahoo! search deal. Crovitz sees the deal as an arrangement between
two weak 2-3 competitors against a dominant Google and clearly sees the deal as
pro-competitive. Crovitz seems to conclude that antitrust regulators should
simply exit the field in markets like search—he calls the Sherman Act “a legal
relic”—and notes the ways in which benefits to consumers can be delayed as
regulators review deals.
This misses of course one key point: absent antitrust review
of search deals, this deal would not be taking place. This deal is only
possible because the prior proposed deal between Google and Yahoo!—a 1-2 deal—was
effectively blocked by precisely the same antitrust review process that Crovitz
decries. (Disclosure: I consulted for the opposition to the Google—Yahoo!
deal.) Absent that review, Google and Yahoo! would have done their deal and
Microsoft would have been left on the sideline.
You can criticize whether the regulators should have blocked
the Google-Yahoo! deal. That view would seem consistent with most of what
Crovitz says about the difficulties of regulating these highly dynamic markets
and the hope that Schmupeterian competition will suffice. But what we cannot do—and
this I think is the error implicit in Crovitz’s piece—is to criticize the
business review process for Microsoft—Yahoo! when it was precisely that process
for Google-Yahoo! that made the new deal that Crovitz likes possible. Do
reviews, don’t do reviews, but no selective criticism of this review without
acknowledging the role that the review process played in creating the
foundation for this deal. No reviews at all would have meant Google-Yahoo!, not
I say all that while sharing Crovitz’s instincts that this
deal probably improves competition in the search market. My expectation,
without a lot of analysis to be sure, is that the regulators will approve this
deal after doing the appropriate regulatory due diligence. But they seemingly
were going to challenge Google-Yahoo!— as I thought that they should—and that
is the deal that Crovitz needs to be prepared to defend if he really thinks
antitrust is an anachronism.
The newspapers reported Saturday that Microsoft and the
European Union are edging toward a browser ballot deal. Both the EU
have confirmed that they are in discussions over this. Microsoft has yet to
release details on this, but the basic notion is that Windows users in Europe
would be presented with a screen, presumably on first use of Internet Explorer,
to help them install competing browsers. The details on this matter enormously,
but without those in hand, we should focus on the big picture.
I confess to mixed feelings. On the one hand, this is precisely
the remedy that I proposed in a 2005 paper. I
called this remedy adding rather than subtracting. If Windows really was the
best distribution platform on the planet, you might come closest to restoring
ex ante competition in browsers by insisting that Microsoft itself distribute
competing browsers. Yes, we can all just download more browsers—I current have
four on my desktop—but the behavior of industry insiders suggests that they
think that there are competitive advantages to being preinstalled in some
fashion. Of course, it isn’t clear that the browser ballot will do that, hence
the need for details.
But it sounds as if I should claim victory and leave the
field, so why the mixed feelings? The computer market has changed dramatically
in the intervening years. The emergence of Google, netbooks and smartphones
have changed the core competitive landscape for computing. That change was
precisely what Microsoft feared from Netscape and what Bill Gates described in
his Internet Tidal Wave memo, but it is really happening now.
That means that a remedy that may have made perfect sense in
2005—I couldn’t have been wrong then certainly?—may no longer make sense in
mid-2009. I haven’t thought that through yet. Of course, the empiricist within
me is eager to see the browser ballot test run in Europe, but presumably our
regulators aren’t running the world just to provide data to lawyers and social
yesterday by Amazon of e-books versions of George Orwell’s 1984 and Animal Farm is a
shocking and depressing example of ... law enforcement? Almost all of the
commentary is genuinely shocked and appalled at what Amazon has done (try here, here and
only Peter N. Glaskowsky at CNET focuses
on the importance of copyright enforcement and understands what Amazon was
doing in that framework.
The Kindle is Amazon’s e-book reader and is by far and away
the leading version of what I have called mediated books. In a recent paper, I discuss the ongoing
control that Amazon can exert over the Kindle and the books that it has already
distributed. We saw this once before when Amazon turned off the read aloud
function in the face of contentions by the Authors Guild that that
impermissibly created derivative works. My focus in the paper is more on how
mediated books change the advertising opportunities associated with
books—actual in-book advertising—given the print-on-demand nature of e-books.
Two Amazon patent applications subsequently came to light making clear that
Amazon is heading down this path.
Control at a distance isn’t a new issue either. I talked
about it in my 2005 paper
“Rewinding Sony: The Evolving
Product, Phoning Home and the Duty of Ongoing Design” which focused on exactly
these issues of copyright infringement for networked products. The rule that we
might apply to the Sony Betamax—a locked-down product that can’t evolve in
place—might be very different from the rules that we would apply to products
such as Napster and Grokster that can be designed in an ongoing fashion and
that can exercise control at a distance.
Here is what seems to have happened with 1984. Amazon allows firms to upload
e-books for distribution on the Kindle platform. It appears one of its
publishers uploaded versions of 1984
and Animal Farm that violated
American copyrights in those works. Once Amazon learned that it had distributed
infringing works, it recalled those works, meaning that it reached out and
deleted those books from the Kindle sitting in your house. Amazon refunded the
money for those purchases and there are other e-book versions of 1984 available
on the Kindle, but anyone who had annotated the pirated 1984 e-book version probably lost those annotations.
This is a question of designing remedies for copyright
infringement. I have made this point in posts
here before: Do we want low-cost readily enforceable versions of our
laws—including the copyright laws—or do we instead prefer versions that can
only be enforced through an expensive typically court-based system? High cost
or low cost?
To be sure, there is something genuinely Orwellian about
what Amazon has done; that is the great irony of the situation apparent to all.
Amazon has announced that it won’t do this anymore, meaning I take it that it
isn’t going to take copyright infringement of this sort seriously anymore.
Presumably Amazon will invest more in ex-ante screening to ferret out copyright
infringement and will rely less or not at all on ex-post deleting as a solution
to copyright infringement.
Nonetheless, the central question of enforcement strategy
remains and will become increasingly important as we move to an always-connected
cloud architecture. But Amazon clearly has the ability to design a system that
allows it to engage in ex-post copyright enforcement. The precise point of my
2005 paper was about the circumstances under which the legal system should take
into account the ability of system builders to design in copyright enforcement
in their products and making sure that they had the right incentives to do so.
Google and Microsoft are all over the news yesterday and
today (I get confused: does the news happen on the day it happens or on the
next day when my paper newspaper shows up on my stoop?). Three quick stories.
1. Google announced
that it is going into the operating system business. In May, 1995, Bill Gates wrote his famous
Internet Tidal Wave Memo. What scared Gates?: “One scary possibility being
discussed by Internet fans is whether they should get together and create
something far less expensive than a PC which is powerful enough for Web
browsing.” Of course, now this is about more than just surfing the Internet; it
is about moving the functionality of the desktop and more into the browser.
2. David Pogue likes
Bing, Microsoft’s new search engine. I go each day for the pretty picture—even Baltimore looks good on Bing—but Pogue likes it as a search engine.
3. Google is getting bounced around
over how transparent it is over its efforts in targeted advertising. Google
apparently has been giving a presentation in Washington on its approach to what
it calls “interest-based advertising.” The presentation is labeled Google
Confidential, even though it consists mainly of screen shots from Google
websites. Google has rethought that approach and has now released the
I guess information really does want to be free.
My most recent draft article, Online Advertising, Identity
and Privacy (abstract here and
you can download from there) addresses exactly these issues. It is very much a
work in progress, so if you have comments, please email them to me.
Amazon announced today
a bigger and better Kindle (but still black & white). I am giving my new draft
“The Mediated Book” tomorrow at a symposium at George Mason on Online Markets v. Traditional Markets.
The paper addresses the new book mediation—devices like the Kindle and services
like Google Book Search. You can download the paper here; the
abstract is below the fold.
1. The judge extended the deadlines in the Google Book
Search settlement by roughly four months yesterday. That means that the new opt-out
deadline is September 4, 2009 and the Fairness Hearing is scheduled for October
7, 2009. Also yesterday, there are a number of reports (NYT)
that the Antitrust Division at DOJ is now taking a serious look at the
settlement. This is hardly surprising, since the most obvious parallels to the
settlement are ASCAP and BMI and we have engaged in nearly 70 years of
antitrust “regulation” of them. You can read my paper on the antitrust issues
in GBS here
(and I have a short
version this week on the Washington Legal Foundation’s website). Fred von
Lohmann at the Electronic Frontier Foundation has a nice update post on
GBS. (And if you want more on ASCAP and BMI, you might try this.)
Google itself explains the benefits of the deal today
on its Public Policy Blog.
2. The folks at Truth
on the Market are planning an online symposium starting on May 4th
on Section 2 of the Sherman Act and the DOJ’s recent report on Section