Category Archives: Business and Economy

Going rogue

Posted on by

Wired’s Nate Anderson has a great write-up over at Ars Technica of the “Legitimate Sites v. Parasites” hearing before the U.S. House of Representatives Judiciary Committee today, and it’s not looking good for Internet intermediaries:

[T]he general mood of the hearing was that tough new steps must be taken. As Rep. Darrell Issa (R-CA) asked [Immigration and Customs Enforcement director John] Morton during his questioning, “What change in the law would allow you to pursue everyone?”

In his written testimony before the committee (PDF), Kent Walker, Google’s Senior VP and General Counsel noted that such an all-inclusive approach would be impossible and counterproductive:

When it comes to offshore rogue sites, no one should think that imposing additional obligations on search engines, social networks, directories, or bloggers beyond the DMCA [Digital Millennium Copyright Act] will be a panacea. If the site remains on the web, neither search engines nor social networks nor the numerous other intermediaries through which users post links can prevent Internet users from talking about, linking to, or referencing the existence of the site. These links or references will themselves appear in search results, and will enable users to reach the site. Simply put, search engines are not in a position to censor the entire Internet, deleting every mention of the existence of a site. If a rogue site remains accessible on the Internet, relying on search engines to try to make it “unfindable” is an impossible endeavor. [emphasis added]

I recommend reading Walker’s full comments for a robust defense of why the notice-and-takedown immunity provided by the DMCA is essential for innovation.

Additional coverage by Politico, Techdirt, CNET, TorrentFreak, RIAA Blog…

Tenenbaum oral arguments on YouTube

Posted on by

Having attended the oral arguments before the 1st Circuit Court of Appeals in Sony BMG Music Entertainment et al v. Tenenbaum yesterday and analyzed my initial impression here, I was pleased to see that the court posted (MP3) the audio of the oral arguments on its website.

Unfortunately, it is often difficult to tell who is speaking given the bare audio.  Therefore, I have decided to post the audio on YouTube and annotate it so that listeners can know who is speaking when.  I hope many find this helpful.

Here are the links, in 5 parts:

The argument was before a panel of three First Circuit judges:

  • Sandra L. Lynch, Chief Appellate Judge
  • Juan R. Torruella, Appellate Judge
  • Rogeriee Thompson, Appellate Judge

For even more fun, you can download the briefs here to follow along with the audio.  Happy analysis!

DIRECT REPORTING: Tenenbaum oral argument

Posted on by

A few hours ago, I attended oral arguments here in Boston before the First Circuit Court of Appeals in Sony BMG Music Entertainment v. Tenenbaum (Wikipedia backgrounder, appellate briefs here).  To summarize, several record labels sued Joel Tenenbaum for sharing music files on a peer-to-peer service, and Tenenbaum lost at trial.  However, trial court Judge Nancy Gertner reduced the jury verdict of $675,000 against Mr. Tenenbaum down to $67,500.

Both sides appealed.  The labels framed the sole issue on appeal as:

Whether the district court erred by holding that the jury’s award of $22,500 per work for willful infringement of 30 copyrighted works violated the Due Process Clause, even though that award is well within the range of statutorily prescribed damages awards for willful copyright infringement and even within the statutory range for non-willful infringement.

In contrast, defendant Tenenbaum framed the issues as:

1. Is the award of damages against the defendant unconstitutionally excessive?

2. Was the jury properly guided by the trial judge’s instructions?

3. Does the statute under which the defendant was prosecuted apply to individual noncommercial consumers?

4. Does 17 U.S.C. § 504(c) remain operative in the wake of Feltner v. Columbia Pictures Television, Inc., 523 U.S. 340 (1998)?

Today’s hearing took place before a three-judge panel consisting of Chief Judge Sandra L. Lynch, Judge Juan R. Torruella, and Judge O. Rogeriee Thompson.  In addition to the plaintiffs and defendants, the United States (as intervenor) and the Electronic Frontier Foundation (as amicus curiae) presented oral arguments.

Based on the judges’ questions and demeanor at oral argument, my impression is that Joel Tenenbaum faces an uphill battle and is likely to lose his appeal.  I don’t have a transcript of the proceedings, but the following stands out from my notes and memory.

Chief Judge Lynch clearly had no tolerance for the defense’s contention that “no one thought” the statutory penalties for copyright infringement would ever apply to “consumers”.  She pointed out that the statute appeared to apply to consumers, eliciting a concession from Tenenbaum’s counsel that statutory copyright penalties were not facial unconstitutional.  This left the defense with little more than a half-hearted argument that the jury verdict was improper here because the copyright statute originally contemplated damage calculations by judges.

Judges Torruella and Thompson seemed somewhat more suspicious of the record labels’ arguments, but it was unclear whether these suspicions would help Tenenbaum win his case.  Judge Torruella asked the labels’ lawyer whether “lost sales” would provide a useful measure of damages, to which he replied that damages should be commensurate with the “lost of value of the copyright”.  He argued that file-sharing in the aggregate caused enormous economic losses to the labels because it essentially put the music “in the public domain.”  (Why Joel Tenenbaum should be personally responsible for the actions of thousands or millions of other file-sharers remained the obvious question he never managed to answer.)

For her part, Judge Thompson questioned whether appellate courts could ever find that a jury for statutory damages in a copyright infringement action to be excessive if it fell within the statutory range ($750 to $150,000 per work infringed).  The labels’ counsel did concede copyright damage awards were “not immune from Williams [Philip Morris USA v. Williams, 549 U.S. 346 (2007)] review” but maintained that such a problem would be “rare” and that this was not that case.

We likely won’t have the First Circuit’s decision for several months, so there’s still plenty of time to speculate about what the outcome will be.  I’ll continue posting as I have additional thoughts.

Update 4/5/2011:

“Peak bandwidth”

Posted on by

Long-time readers of this blog know that we like to cover broadband and Internet issues wherever possible.  In the spirit of keeping everyone informed, I give you Public Knowledge’s  latest report, “Peak Bandwidth” (PDF):

Bandwidth was formed by the tech bubble of the late 1990s and is typically found in strands of “dark fiber.” The largest fibers are called “backbones,” many of which were discovered next to railroad tracks. Since then, smaller pockets of bandwidth have been discovered in “last miles,” in forms such as DOCSIS-enabled coaxial cable and FiOS brand fiber.

Increasing strains are being placed on our bandwidth reserves. “Hogs” such as young people and cord-cutters are placing an unbearable strain on our bandwidth supplies, and “over-the-top” service providers like Netflix, Skype, Amazon, and Google consume copious amounts of bandwidth free of charge, without providing any valuable services in return. In short, our tubes are being clogged with bits. While that may not seem like a major problem now, the long-term is bleak. We will look back fondly on the day our tubes were clogged. Once bandwidth is gone, it’s gone. Used up bits are gone forever. They don’t come back and can’t be replaced. As a result important marketing messages, ecards, and Facebook updates will be crowded out of the ever-shrinking supply of usable bits.

Hilarious, Public Knowledge.  And I think (hope?) you’ve made your point.

Patently ridiculous

Posted on by

It’s April 1st, so the jokes are out in droves all over the web.  Groupon has decided to post a fake patent for April Fool’s Day joke:

The present invention relates to performing jocular and misleading activities on an unsuspecting individual during a limited timeframe and, in particular, the present invention relates to a perpetrator generating a false statement based on false facts and informing an unsuspecting
individual of the particular false statement, and deceiving the unsuspecting individual into a false belief that the false statement, if true, would have a detrimental effect on the unsuspecting individual. Then, prior to said unsuspecting individual realizing that the false statement is not accurate, the perpetrator announces, usually in a high decibel voice and within the limited timeframe, that the unsuspecting individual has been deceived or mislead.

Ha ha, but isn’t this a little too close to home?  Groupon is currently (counter)suing a small competitor named MobGob, as TechCrunch reported back in November.  For infringement of patent no. 6,269,343:

The present invention provides a method and system that allows sellers to communicate conditional offers to potential buyers. The conditions include prices that depend on the aggregate amount of goods or services that buyers collectively agree to purchase by a given time and date.

The invention facilitates “demand aggregation”, that is, aggregating demand by potential buyers (who may or may not know each other), for products offered by sellers. This invention allows sellers conveniently to offer “Demand-Based Pricing”, that is, prices which go down as the volume of units sold in any given offer goes up.

A seller can therefor offer volume discounts to buyers acting as a group, even when the buyers may not have any formal relationship with one another.

Telling jokes and aggregating buyers.  Maybe this is why we need patent reform.

Small but taxing

Posted on by

Following up on Brian’s post yesterday on taxation, I just found a 3/29 Wall Street Journal story with some eye-opening tax numbers:

While it’s difficult for large businesses to keep abreast of changing regulations, small businesses pay a disproportionate amount to adjust to new rules. In general, the cost of tax compliance at smaller firms is $1,518 per employee, compared with big companies, which pay about $517 per employee, according to a 2010 study from the Small Business Administration’s Office of Advocacy. [emphasis added]

This throws a rather new light on the “benefits” of temporary, one-off tax breaks aimed at small businesses, doesn’t it?

In other tax news, “Tax Freedom Day” is April 12th this year, though this varies depending upon the tax burdens of your particular state of residence.  Congratulations to Mississippi, Tennessee, South Carolina, Louisiana, South Dakota, New Mexico, and West Virginia, whose residents are (statistically speaking) already through with taxes for the year!

The possible shifts in the foundations of tax bases

Posted on by

Governments are dependent on tax bases for revenue. Hopefully, the tax base meets financial expectations and if things are going well, the taxes bring increased revenues, leading to more spending (and saving?) possibilities. But what happens when tax bases decrease?

This is an issue facing a number of government bodies and a number of taxes are affected:

-I was reminded of this again by this piece (h/t Instapundit) which suggests that increasing income taxes on the rich may not work out in the long run as economic troubles can greatly affect the incomes of the rich.

-Property taxes are affected by the assessed value of properties. If property values are down, such as in this economic crisis where it appears housing prices will be depressed for quite a while, then tax revenue may go down. (Or they may not – can local communities really afford to have less money coming in through property taxes?)

-So called “vice taxes,” on things like cigarettes, may be self-defeating: as people smoke less, the revenue will slowly dry up.

-The gas tax will be interesting to watch in future years: as the government pushes for more electric vehicles and with higher gas prices, this could mean that less gasoline is purchased. Money to pay for new roads and maintenance will have to come from somewhere.

A couple of questions about these different taxes:

1. Is the uncertainty about tax revenues in the last few years really that different from other points in history? If not, what have people done in the past?

2. Might we expect to see some major changes in taxation in the coming years as governments look for different (perhaps more stable?) or more sources of revenue?

3. How are sales taxes or VATs affected by economic crises?

(The realm of taxes is not my area of expertise but I do know the importance of some of this to communities: limited or decreasing property and sales taxes lead to big issues with budgets which then affect services which then angers residents.)

A few comments by Joel (3/31/2011):

One way that cities and states are seeking to increase collection revenues is through enhanced sales tax enforcement.  As Amazon is finding out, for example, governments have their ways of pressuring online retailers.

Of course, to a certain extent, this is simply turning into an arms race, with businesses increasing their lobbying budgets and hiring more tax attorneys.

Pandora’s (copyright) box

Posted on by

It’s no secret that copyright law is ridiculously complicated and in bad need of reform.  In case anyone needed reminding, paidContent covered Pandora’s CEO Joe Kennedy’s recent speech at the NARM music conference in San Francisco.  The article’s headings say it all:

  • “The complexity of international copyright limits Pandora’s business.”
  • “How huge damages in copyright law have skewed business relationships.”
  • “Our definition of ‘copies’ might need to change for the digital age.”

That’s a pretty good summary of precisely where copyright law has gone wrong.  Be sure to check out the full article.

A proposal to rid European Union cities of cars by 2050

Posted on by

The European Commission, part of the European Union, recently proposed getting rid of “conventionally fueled cars” in all EU cities by 2050:

Top of the EU’s list to cut climate change emissions is a target of “zero” for the number of petrol and diesel-driven cars and lorries in the EU’s future cities.

Siim Kallas, the EU transport commission, insisted that Brussels directives and new taxation of fuel would be used to force people out of their cars and onto “alternative” means of transport.

“That means no more conventionally fuelled cars in our city centres,” he said. “Action will follow, legislation, real action to change behaviour.”

The Association of British Drivers rejected the proposal to ban cars as economically disastrous and as a “crazy” restriction on mobility.

“I suggest that he goes and finds himself a space in the local mental asylum,” said Hugh Bladon, a spokesman for the BDA.

“If he wants to bring everywhere to a grinding halt and to plunge us into a new dark age, he is on the right track. We have to keep things moving. The man is off his rocker.”

Mr Kallas has denied that the EU plan to cut car use by half over the next 20 years, before a total ban in 2050, will limit personal mobility or reduce Europe’s economic competitiveness.

This would be a radical change, even in countries with lower rates of car ownership and more mass transit use compared to the United States. I can only imagine the outcry if such a plan were introduced in the United States.

It is interesting to see that one British commentator brings up mobility and the economy. I would think mobility is more of a proxy for freedom, the ability for an individual citizen to hop into a car and drive wherever they want. This idea is particular prevalent in America where freedom is paramount and the suburbs are built around this idea of driving where one wants. I’m not sure about the economic issue: surely, cars and related industries (gas, maintenance, insurance, etc.) are an important part of the economy. But I am more skeptical that such a ban would lead to a “new dark age.”

Head in the cloud

Posted on by

Amazon launched its Cloud Player yesterday which, as Wired explains,

can stream your music library to any web browser or Android mobile device. Cloud Player also allows you to download files and create playlists through its web-based interface.

So Amazon lets you store your music on a remote hard drive and stream it to local devices?  Sounds pretty straightforward.  Of course, the record labels don’t think so.  From Ars Technica:

We wondered aloud how Amazon managed to strike such an impressive licensing deal with the record labels, given the fact that Apple seems to still be working out the details for its own digital locker service. It turns out that Amazon hasn’t struck a deal, and seems to be hoping that the record companies will be the ones to blink.

“[W]e do not need a license to store music in Cloud Drive,” Griffin added in an e-mail to Ars. “The functionality of saving MP3s to Cloud Drive is the same as if a customer were to save their music to an external hard drive or even iTunes.”

That’s certainly not what the music industry seems to think, though—at least in regards to Cloud Player. In an interview with Reuters, Sony Music spokesperson Liz Young said the company hoped for a license deal but that it was keeping its “legal options open.”

Amazon certainly has made a gutsy play here.  The major labels are currently embroiled in a lawsuit against MP3tunes for providing essentially the same service as Amazon.  According to an amici curiae brief (PDF) in that case, the primary legal issue turns on whether or not Internet streaming necessarily constitutes a “public performance” (which would violate copyright owners’ rights unless licensed).  There is a powerful argument that it does not:

MP3tunes does not transmit music to the general public, nor to all of its subscribers. A particular work in a particular locker will only be transmitted to a user who has placed it there—in other words, after he or she has averred to MP3tunes that she either legally owns the file and have uploaded it to her locker, or that she has legal authorization to access the file on the Web and has sideloaded it into her locker. The subset of MP3tunes users who have uploaded or sideloaded any one particular track (and thus have stated to MP3tunes that they are authorized to do so) still falls far short of the “public” required by the transmit clause.

Of course, the simple fact that it has become necessary to make this legal argument illustrates just how broken copyright law is.  The statute is long, complicated, and muddled enough to lend at least some plausibility to virtually any argument imaginable.  Even an argument claiming that storing one’s own music on a private, password-protected server for convenience violates the letter (if not the spirit) of copyright law.

Stay tuned…

Updated 3/31/2011: Ars Technica has a follow-up piece today that quotes from their interview with MP3tunes’ CEO Michael Robertson (bio from his blog):

The word “streaming” and the word “download” are nowhere in copyright law.  It may be a very logical, common sense position, but all that matters is what the law says. Can you store your own music? Can you listen from anywhere? What if your wife or kids want to listen to it? All those things are completely unchartered [sic] territory.

Of course, as we routinely point out around here, “logic” and “common sense” have absolutely nothing to do with the current state of U.S. copyright law.