The University of Chicago Law School Faculty Blog

Amended Google Book Search Settlement

If you are following this issue, I have a quick new paper on the amended Google Book Search settlement. You can download the paper here.

DOJ Filing in Google Book Search

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).)

Google’s Search Auctions and Market Power

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 Journal editorial 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.

The Associated Press: Selling the Public Domain?

James Grimmelmann has been having some fun with the Associated Press (here, here and 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 terms of use that put a variety of restrictions on how he could use the content 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.

Is There Really An Antitrust Anachronism?

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 Microsoft-Yahoo!.

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.

Microsoft and the Browser Ballot

The newspapers reported Saturday that Microsoft and the European Union are edging toward a browser ballot deal. Both the EU and Microsoft 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 scientists.

The Kindle Fiasco?

The deletion 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 here),while 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 on Offense, Google on Defense

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 presentation generally. 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.

The Mediated Book

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.

Antitrust Updates: Google Book Search; Section 2 Symposium; The Mediated Book

Three quick items of interest:

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 4^th on Section 2 of the Sherman Act and the DOJ’s recent report on Section 2.

3. Finally, I will be attending a symposium next week at George Mason on Online Markets v. Traditional Markets. I will be discussing “The Mediated Book.”