Civility and Economic Debate

by on October 2, 2006 · 32 comments

I got an email from Tom Giovanetti chastising me for the tone of my previous post about his organization’s study. And he has a point: the rhetoric of my post was unduly inflammatory, and for that I apologize. I should have thought twice before hitting the “post” button.

Mr. Giovanetti urged me to re-read the study, and I’ve done so. After further reflection, my opinion of the substance of the study remains unchanged: the study is poorly reasoned and its conclusion is misleading. The headline-grabbing $20.5 billion number is meaningless.

Also, this ought to go without saying, but since Mr. Giovaenetti brought it up: I believe that piracy is a serious problem, and I applaud the MPAA’s vigorous action to combat it. What I object to isn’t their anti-piracy agenda, as such, but the use of misleading statistics to promote it.

  • http://weblog.ipcentral.info/ Noel Le

    Tim, various industry groups and think tanks use misleading statistics to put piracy in a good light, and to belittle the contributions of the digital-entertainment industries.

    It scares me when these fanatical groups say they’re fighting for the consumer, when all they’re doing is badgering artists and programmers who work for a living. And what they propose, the “freedom to tinker,” is neither productive, innovative nor even useful. Its merely a way to stake claim on someone else’s work.

    The “freedom to tinker” is not diminished nor eradicated when a hobbyist does not have access to specific technologies, such as the XBox, iPod, etc. The concept of substitutions is well ingrained in the antitrust and patent literature, so I’m not going to get into it here, but will point out that tinkers should make their own products and content, and tinker with those.

  • http://www.techliberation.com/ Tim Lee

    Noel,

    Next time you see a think tank using misleading statistics to whitewash piracy, please email it to me and I’ll highlight it here. I’m opposed to misleading research no matter who’s pushing it.

    You haven’t said what you think of IPI’s methodology. Do you agree with me that it’s misleading?

  • http://weblog.ipcentral.info/ Noel Le

    Ahhh, economics. Nobody really understands it. Even economist acknolwedge that one of the most important aspects of their field is to agree to disagree.

    A remember an econ professor at my alma mater had just won the Nobel. There was a little ceremony in the University square. When one student asked if the new laureate could provide some stock tips, the professor said that the best way to do well in stocks is not to study economics.

    As far as the study, what you take as a concrete calculation of loss via piracy, Tim, I see as an economic projection. Thus, its not essential whether actual economic impact is exactly what IPI estimates, but whether their assumptions would drastically broaden the area between actual loss and projected loss. But your claim is the assumption that monetizes piracy costs is fallacious because consumers would not purchase a product absent their ability to pirate, is not quite right. Perhaps to some extent you have an insight, as the assumption may increase the difference between actual and projected losses, but it is a basic analytical tool to monetize activity falling in the economic space with which a study is concerned. Thus I would not call the study fallacious or misleading, but perhaps incomplete to those not used to reading the literature.

    I can look further at the study and comment in more detail, but not until the end of the week…

  • http://weblog.ipcentral.info/ Noel Le

    Tim, various industry groups and think tanks use misleading statistics to put piracy in a good light, and to belittle the contributions of the digital-entertainment industries.

    It scares me when these fanatical groups say they’re fighting for the consumer, when all they’re doing is badgering artists and programmers who work for a living. And what they propose, the “freedom to tinker,” is neither productive, innovative nor even useful. Its merely a way to stake claim on someone else’s work.

    The “freedom to tinker” is not diminished nor eradicated when a hobbyist does not have access to specific technologies, such as the XBox, iPod, etc. The concept of substitutions is well ingrained in the antitrust and patent literature, so I’m not going to get into it here, but will point out that tinkers should make their own products and content, and tinker with those.

  • http://www.techliberation.com/ Tim Lee

    But your claim is the assumption that monetizes piracy costs is fallacious because consumers would not purchase a product absent their ability to pirate, is not quite right.

    Did you read my post? I mentioned this issue in passing in the first paragraph, but the bulk of my post focused on the fact that they double-, triple-, and quadruple-count the same dollars in coming up with the $20.5 billion figure instead of the MPAA’s $6.1 billion figure. What do you think of that criticism?

  • http://weblog.ipcentral.info/ Noel Le

    Again Tim, economics deals with monetization, or at least quantification generally. Recall in antitrust/patent analysis, you have future innovation markets and damage calculations for products and injury that do not even yet exist. Just putting this in, although you admit it is a minor point in your critique.

    Look at page 8 of the report. Do you disagree with the breakdown of $20B.

  • http://www.techliberation.com/ Tim Lee

    Noel,

    Next time you see a think tank using misleading statistics to whitewash piracy, please email it to me and I’ll highlight it here. I’m opposed to misleading research no matter who’s pushing it.

    You haven’t said what you think of IPI’s methodology. Do you agree with me that it’s misleading?

  • http://www.techliberation.com/ Tim Lee

    My version of the study may be paginated differently, as I don’t see a breakdown on page 8. Do you have a figure or table number?

  • http://weblog.ipcentral.info/ Noel Le

    Ahhh, economics. Nobody really understands it. Even economist acknolwedge that one of the most important aspects of their field is to agree to disagree.

    A remember an econ professor at my alma mater had just won the Nobel. There was a little ceremony in the University square. When one student asked if the new laureate could provide some stock tips, the professor said that the best way to do well in stocks is not to study economics.

    As far as the study, what you take as a concrete calculation of loss via piracy, Tim, I see as an economic projection. Thus, its not essential whether actual economic impact is exactly what IPI estimates, but whether their assumptions would drastically broaden the area between actual loss and projected loss. But your claim is the assumption that monetizes piracy costs is fallacious because consumers would not purchase a product absent their ability to pirate, is not quite right. Perhaps to some extent you have an insight, as the assumption may increase the difference between actual and projected losses, but it is a basic analytical tool to monetize activity falling in the economic space with which a study is concerned. Thus I would not call the study fallacious or misleading, but perhaps incomplete to those not used to reading the literature.

    I can look further at the study and comment in more detail, but not until the end of the week…

  • http://www.techliberation.com/ Tim Lee

    But your claim is the assumption that monetizes piracy costs is fallacious because consumers would not purchase a product absent their ability to pirate, is not quite right.

    Did you read my post? I mentioned this issue in passing in the first paragraph, but the bulk of my post focused on the fact that they double-, triple-, and quadruple-count the same dollars in coming up with the $20.5 billion figure instead of the MPAA’s $6.1 billion figure. What do you think of that criticism?

  • http://weblog.ipcentral.info/ Noel Le

    Again Tim, economics deals with monetization, or at least quantification generally. Recall in antitrust/patent analysis, you have future innovation markets and damage calculations for products and injury that do not even yet exist. Just putting this in, although you admit it is a minor point in your critique.

    Look at page 8 of the report. Do you disagree with the breakdown of $20B.

  • http://www.techliberation.com/ Tim Lee

    My version of the study may be paginated differently, as I don’t see a breakdown on page 8. Do you have a figure or table number?

  • http://weblog.ipcentral.info/ Noel Le

    Figure 2. Its Adobe pg 11, actual study pg 8.

    The calculation in question, based on our discussion, is “lost output.” This is an aggregate among all concerned industries, only some of which are based in Hollywood.

    I see now your point, the same as Steve’s earlier, that outside of Hollywood, it does not matter where money goes as long as consumers spend; pirates would still buy hardware and other peripherals whether or not they buy content legally.

    But I would caution that we need to differentiate between “growth” and “activity.” Your approach is to downplay economic activity, and say that the only considerable impact of piracy should be its effect on growth, or overall economic status. I can tell you that fiew things have clear the cut cause-effect on our overall economy you imply needs to be found in piracy.

    A countering view to your arugment would be to highlight the detrimental effects on long-term sustainment if general economic activity is not legitimate.

    The importance in economic activity and capital flow is that they are, of course, necessary but not sufficient for industrial growth. This seems to be your disagreement with IPI.

  • http://techdirt.com/ Mike Masnick

    It scares me when these fanatical groups say they’re fighting for the consumer, when all they’re doing is badgering artists and programmers who work for a living. And what they propose, the “freedom to tinker,” is neither productive, innovative nor even useful. Its merely a way to stake claim on someone else’s work.

    Wow. Noel. First off, when you start by calling anyone who disagrees with you a “fanatical group” you’ve already set the level of debate at a pretty ridiculous level. It doesn’t make your argument any stronger. In fact, it suggests that you don’t have much of an argument and are going to hide behind insults, instead of informed debate.

    Second, I’ve seen very few of the people who support the idea of doing away with DRM doing so in order to “badger the artist.” Instead, it’s often (as I try to do) done using solid business and economic fundamentals — understanding the nature of the free market, competition and trend analysis. People aren’t “badgering.” They’re simply expressing what consumers want — which is not to be locked down.

    The fact that you repeatedly opine that there’s no way to make money when something is given away for free is so far off the mark, it’s hard to know where to start. Plenty of businesses are based on giving away stuff for free. It’s called promotions. The fact that plenty of people have figured out exactly how to apply that to both software and music — yet you continue to insist it’s impossible — raises even more questions about your analysis.

    Finally, the claim that the “freedom to tinker” is “neither productive, innovative nor even useful” shows a complete ignorance of the history of invention, innovation and progress. Nearly all useful innovation is based on improving on or “tinkering” with the ideas of others.

    If you’re such a believer in the free market, what is wrong with letting the free market sort these things out? Your complaint seems to be that those who successfully bring a product to market are taking someone else’s work. That’s not the case at all. They’re improving on someone else’s work in the manner in which the market approves. If the original creator of the idea or product was so good, then he or she should be able to market it effectively.

  • http://www.techliberation.com/ Tim Lee

    Noel, that’s not my point at all, and figure 2 doesn’t provide any information to illuminate the issue. The problem is that the $18.562 billion figure was arrived at by adding up the “lost output” from industries whose products are inputs to the product of downstream industries.

    In my concrete example: if Hollywood sends a $10 DVD to a Canadian and pays the manufacturer $7 and the shipper $2, the IPI methodology would conclude that this is a gain for the US economy of $19. But that’s not right. For example, the $7 that goes to the manufacturer is counted twice: once as “output” from the manufacturer, and again as part of the “output” of the studio. In fact, that $7 should only be counted once, and the total “lost output” from that one DVD sale is $1+$2+$7=$10.

    Is that more clear?

  • http://weblog.ipcentral.info/ Noel Le

    Figure 2. Its Adobe pg 11, actual study pg 8.

    The calculation in question, based on our discussion, is “lost output.” This is an aggregate among all concerned industries, only some of which are based in Hollywood.

    I see now your point, the same as Steve’s earlier, that outside of Hollywood, it does not matter where money goes as long as consumers spend; pirates would still buy hardware and other peripherals whether or not they buy content legally.

    But I would caution that we need to differentiate between “growth” and “activity.” Your approach is to downplay economic activity, and say that the only considerable impact of piracy should be its effect on growth, or overall economic status. I can tell you that fiew things have clear the cut cause-effect on our overall economy you imply needs to be found in piracy.

    A countering view to your arugment would be to highlight the detrimental effects on long-term sustainment if general economic activity is not legitimate.

    The importance in economic activity and capital flow is that they are, of course, necessary but not sufficient for industrial growth. This seems to be your disagreement with IPI.

  • http://techdirt.com/ Mike Masnick

    It scares me when these fanatical groups say they’re fighting for the consumer, when all they’re doing is badgering artists and programmers who work for a living. And what they propose, the “freedom to tinker,” is neither productive, innovative nor even useful. Its merely a way to stake claim on someone else’s work.

    Wow. Noel. First off, when you start by calling anyone who disagrees with you a “fanatical group” you’ve already set the level of debate at a pretty ridiculous level. It doesn’t make your argument any stronger. In fact, it suggests that you don’t have much of an argument and are going to hide behind insults, instead of informed debate.

    Second, I’ve seen very few of the people who support the idea of doing away with DRM doing so in order to “badger the artist.” Instead, it’s often (as I try to do) done using solid business and economic fundamentals — understanding the nature of the free market, competition and trend analysis. People aren’t “badgering.” They’re simply expressing what consumers want — which is not to be locked down.

    The fact that you repeatedly opine that there’s no way to make money when something is given away for free is so far off the mark, it’s hard to know where to start. Plenty of businesses are based on giving away stuff for free. It’s called promotions. The fact that plenty of people have figured out exactly how to apply that to both software and music — yet you continue to insist it’s impossible — raises even more questions about your analysis.

    Finally, the claim that the “freedom to tinker” is “neither productive, innovative nor even useful” shows a complete ignorance of the history of invention, innovation and progress. Nearly all useful innovation is based on improving on or “tinkering” with the ideas of others.

    If you’re such a believer in the free market, what is wrong with letting the free market sort these things out? Your complaint seems to be that those who successfully bring a product to market are taking someone else’s work. That’s not the case at all. They’re improving on someone else’s work in the manner in which the market approves. If the original creator of the idea or product was so good, then he or she should be able to market it effectively.

  • http://www.techliberation.com/ Tim Lee

    Noel, that’s not my point at all, and figure 2 doesn’t provide any information to illuminate the issue. The problem is that the $18.562 billion figure was arrived at by adding up the “lost output” from industries whose products are inputs to the product of downstream industries.

    In my concrete example: if Hollywood sends a $10 DVD to a Canadian and pays the manufacturer $7 and the shipper $2, the IPI methodology would conclude that this is a gain for the US economy of $19. But that’s not right. For example, the $7 that goes to the manufacturer is counted twice: once as “output” from the manufacturer, and again as part of the “output” of the studio. In fact, that $7 should only be counted once, and the total “lost output” from that one DVD sale is $1+$2+$7=$10.

    Is that more clear?

  • http://weblog.ipcentral.info/ Noel Le

    ***The fact that you repeatedly opine that there’s no way to make money when something is given away for free is so far off the mark, it’s hard to know where to start. Plenty of businesses are based on giving away stuff for free.***

    Mike, the group I call fanatical is mainly the Free Software Foundation. Then perhaps EFF (strangely, EFF’s spinoff lobyying group, CDT is very respected, hmmm) although I will say at times EFF seems genuinely concerned with consumers. So disagree if you will.

    Mike, are you really saying folks can live on promotions and selling trinkets. Selling one thing to profit off the complementary is one thing, but to have the exception subsume the whole is another.

    ***If you’re such a believer in the free market, what is wrong with letting the free market sort these things out? Your complaint seems to be that those who successfully bring a product to market are taking someone else’s work.***

    Yes, I argue for free markets, and in my view its working. The American innovation economy is the pride of the world. Let the artists and entrepreneurs have their DRM and IP rights so we can keep it that way.

    Where did you get the notion that I argue commercializers ripping off others?! That should not happen, and I’m not sure where you gather my viewpoint from. Unless you mean those who want to give others’ content away for free so they can sell ads. Yes, I’m guilty of calling these thieves.

    ***the claim that the “freedom to tinker” is “neither productive, innovative nor even useful” shows a complete ignorance of the history of invention, innovation and progress. Nearly all useful innovation is based on improving on or “tinkering” with the ideas of others.***

    You’re talking about incremental innovation. I’d personally characterize the software industry a bit less with this kind of innovation, but you have a point. I will scale back my claim though, and admit that tinkering has its value. However, I’d mark the history of technological innovation with many pioneering inventions at its outset, followed by small incremental improvements. Thats called maturing technologies. The fact that you argue the maturity phase of a technology as marking the entire innovation process is something we can discuss further if you’d like but will tell you that you might be generalizing a bit on your innovation theories.

    Tim, I have to look at the whole report, but absolutely don’t have time now. I will say this though. Is the measurement in terms of absolute dollars, dollar figures representing economic activity or some other metric.

  • http://weblog.ipcentral.info/ Noel Le

    ***The fact that you repeatedly opine that there’s no way to make money when something is given away for free is so far off the mark, it’s hard to know where to start. Plenty of businesses are based on giving away stuff for free.***

    Mike, the group I call fanatical is mainly the Free Software Foundation. Then perhaps EFF (strangely, EFF’s spinoff lobyying group, CDT is very respected, hmmm) although I will say at times EFF seems genuinely concerned with consumers. So disagree if you will.

    Mike, are you really saying folks can live on promotions and selling trinkets. Selling one thing to profit off the complementary is one thing, but to have the exception subsume the whole is another.

    ***If you’re such a believer in the free market, what is wrong with letting the free market sort these things out? Your complaint seems to be that those who successfully bring a product to market are taking someone else’s work.***

    Yes, I argue for free markets, and in my view its working. The American innovation economy is the pride of the world. Let the artists and entrepreneurs have their DRM and IP rights so we can keep it that way.

    Where did you get the notion that I argue commercializers ripping off others?! That should not happen, and I’m not sure where you gather my viewpoint from. Unless you mean those who want to give others’ content away for free so they can sell ads. Yes, I’m guilty of calling these thieves.

    ***the claim that the “freedom to tinker” is “neither productive, innovative nor even useful” shows a complete ignorance of the history of invention, innovation and progress. Nearly all useful innovation is based on improving on or “tinkering” with the ideas of others.***

    You’re talking about incremental innovation. I’d personally characterize the software industry a bit less with this kind of innovation, but you have a point. I will scale back my claim though, and admit that tinkering has its value. However, I’d mark the history of technological innovation with many pioneering inventions at its outset, followed by small incremental improvements. Thats called maturing technologies. The fact that you argue the maturity phase of a technology as marking the entire innovation process is something we can discuss further if you’d like but will tell you that you might be generalizing a bit on your innovation theories.

    Tim, I have to look at the whole report, but absolutely don’t have time now. I will say this though. Is the measurement in terms of absolute dollars, dollar figures representing economic activity or some other metric.

  • http://techdirt.com/ Mike Masnick

    Mike, the group I call fanatical is mainly the Free Software Foundation. Then perhaps EFF (strangely, EFF’s spinoff lobyying group, CDT is very respected, hmmm) although I will say at times EFF seems genuinely concerned with consumers. So disagree if you will.

    I’m not sure what “fanatical” means in this context. I am a member of neither. I have disagreed with both groups on occasions and agreed with both groups on occasions as well. I have found neither group to be unreasonable, and I believe both mean well. I don’t see why either deserves your scorn. I also don’t really see what good it does to even raise whether or not they’re “fanatical.” Why not focus on the actual issues raised rather than resorting to name calling?

    Mike, are you really saying folks can live on promotions and selling trinkets. Selling one thing to profit off the complementary is one thing, but to have the exception subsume the whole is another.

    I have never said that anyone should live on promotions and selling trinkets. I’ll forgive you if you’ve never read any of my discussions on the matter, but my argument has nothing to do with selling trinkets, and everything to do with being able to make much more money by focusing on using the content as a promotion. I’m not going to rehash it here, however. The point is, for you to even claim that the only thing someone can sell is trinkets shows a huge lack of imagination. There are HUGE businesses to be made out of giving away music, and selling trinkets has nothing to do with it.

    As for your claim that the “exception subsumes the whole,” that again makes me wonder what you’re talking about. We’re talking about basic economics here. There is no “exception.” Music and other digital goods are zero marginal cost items. In a competitive market their price gets pushed towards zero, and that frees them up to be used as free promotions. That’s a good thing. It’s called economic efficiency…

    Yes, I argue for free markets, and in my view its working. The American innovation economy is the pride of the world. Let the artists and entrepreneurs have their DRM and IP rights so we can keep it that way.

    Huh? How is a government mandated monopoly on a product with zero marginal cost the free market?!? In what world? It’s the equivalent of old school mercantilism and protectionism, making sure that a market is smaller than it should be. It’s the opposite of free market thinking. I have nothing against allowing an artist to use DRM should they choose — but I will argue that it’s a stupid business decision, and that as more musicians realize this, their economic prospects will thrive.

    By the way, your claim that the American innovation engine is the pride of the world makes a huge assumption: that it’s because of the IP system, rather than in spite of it. There’s increasing evidence that it’s the latter, not the former.

    You can’t just leap from the assumption to your conclusion.

    Where did you get the notion that I argue commercializers ripping off others?! That should not happen, and I’m not sure where you gather my viewpoint from. Unless you mean those who want to give others’ content away for free so they can sell ads. Yes, I’m guilty of calling these thieves.

    You said in the previous comment: “Its merely a way to stake claim on someone else’s work.” From that, I read that you believed that someone was being ripped off. I’m sorry if I misread that, but feel free to explain it again.

    As for your claim that those who give away others content and sell ads on it are thieves, you have a very warped view of thievery then — as even our Supreme Court has clearly noted the difference between infringement and theft. A big, big difference, of course, being that with infringement, nothing has been lost. But, you’ve studied economics, right? You do know the difference between rivalrous and non-rivalrous goods? If not, you might want to ask for your money back.

    Secondly, I question even the most extreme example of what you suggest above and wonder how it’s theft. If someone sells ads on content and is able to profit it from it where the original owner was not able to do so, isn’t that good for the economy? The second provider has added more value. I fail to see how a true free market economist could find that to be theft. There is no harm created, only benefit. While you might claim that it prevents the originator from making money, isn’t that the nature of competition? The originator should *compete* in the marketplace.

    You’re talking about incremental innovation.

    Well, I’d put forth that the vast, vast majority of innovation falls into this camp.

    However, I’d mark the history of technological innovation with many pioneering inventions at its outset, followed by small incremental improvements.

    Can you share the pioneering inventions that you speak of? The more you look at the history of innovation, the more you realize that almost every “big” innovation or inventor was simply the next in an incremental line. There are very, very few big inventions.

    The fact that you argue the maturity phase of a technology as marking the entire innovation process is something we can discuss further if you’d like but will tell you that you might be generalizing a bit on your innovation theories.

    You misread my statement, but since you seem to believe that innovation is powered by big inventions, that’s understandable. History shows, unfortunately, that’s it’s not true. The famous inventors of the past were often just mere innovators, but became famous as inventors for their ability to bring their products to market more successfully than those before them. They often made the incremental innovation that turned a small market into a big market — and that’s worthwhile to celebrate.

    However, in almost all of these cases, the rewards of the market alone were plenty to incent the innovation. There was no need to bring along additional IP protection. In fact, in many of those cases, the IP protection helped slow down those breakthrough innovations. There are plenty of such examples. The steam engine and manned flight being two huge examples.

  • http://techdirt.com/ Mike Masnick

    Mike, the group I call fanatical is mainly the Free Software Foundation. Then perhaps EFF (strangely, EFF’s spinoff lobyying group, CDT is very respected, hmmm) although I will say at times EFF seems genuinely concerned with consumers. So disagree if you will.

    I’m not sure what “fanatical” means in this context. I am a member of neither. I have disagreed with both groups on occasions and agreed with both groups on occasions as well. I have found neither group to be unreasonable, and I believe both mean well. I don’t see why either deserves your scorn. I also don’t really see what good it does to even raise whether or not they’re “fanatical.” Why not focus on the actual issues raised rather than resorting to name calling?

    Mike, are you really saying folks can live on promotions and selling trinkets. Selling one thing to profit off the complementary is one thing, but to have the exception subsume the whole is another.

    I have never said that anyone should live on promotions and selling trinkets. I’ll forgive you if you’ve never read any of my discussions on the matter, but my argument has nothing to do with selling trinkets, and everything to do with being able to make much more money by focusing on using the content as a promotion. I’m not going to rehash it here, however. The point is, for you to even claim that the only thing someone can sell is trinkets shows a huge lack of imagination. There are HUGE businesses to be made out of giving away music, and selling trinkets has nothing to do with it.

    As for your claim that the “exception subsumes the whole,” that again makes me wonder what you’re talking about. We’re talking about basic economics here. There is no “exception.” Music and other digital goods are zero marginal cost items. In a competitive market their price gets pushed towards zero, and that frees them up to be used as free promotions. That’s a good thing. It’s called economic efficiency…

    Yes, I argue for free markets, and in my view its working. The American innovation economy is the pride of the world. Let the artists and entrepreneurs have their DRM and IP rights so we can keep it that way.

    Huh? How is a government mandated monopoly on a product with zero marginal cost the free market?!? In what world? It’s the equivalent of old school mercantilism and protectionism, making sure that a market is smaller than it should be. It’s the opposite of free market thinking. I have nothing against allowing an artist to use DRM should they choose — but I will argue that it’s a stupid business decision, and that as more musicians realize this, their economic prospects will thrive.

    By the way, your claim that the American innovation engine is the pride of the world makes a huge assumption: that it’s because of the IP system, rather than in spite of it. There’s increasing evidence that it’s the latter, not the former.

    You can’t just leap from the assumption to your conclusion.

    Where did you get the notion that I argue commercializers ripping off others?! That should not happen, and I’m not sure where you gather my viewpoint from. Unless you mean those who want to give others’ content away for free so they can sell ads. Yes, I’m guilty of calling these thieves.

    You said in the previous comment: “Its merely a way to stake claim on someone else’s work.” From that, I read that you believed that someone was being ripped off. I’m sorry if I misread that, but feel free to explain it again.

    As for your claim that those who give away others content and sell ads on it are thieves, you have a very warped view of thievery then — as even our Supreme Court has clearly noted the difference between infringement and theft. A big, big difference, of course, being that with infringement, nothing has been lost. But, you’ve studied economics, right? You do know the difference between rivalrous and non-rivalrous goods? If not, you might want to ask for your money back.

    Secondly, I question even the most extreme example of what you suggest above and wonder how it’s theft. If someone sells ads on content and is able to profit it from it where the original owner was not able to do so, isn’t that good for the economy? The second provider has added more value. I fail to see how a true free market economist could find that to be theft. There is no harm created, only benefit. While you might claim that it prevents the originator from making money, isn’t that the nature of competition? The originator should *compete* in the marketplace.

    You’re talking about incremental innovation.

    Well, I’d put forth that the vast, vast majority of innovation falls into this camp.

    However, I’d mark the history of technological innovation with many pioneering inventions at its outset, followed by small incremental improvements.

    Can you share the pioneering inventions that you speak of? The more you look at the history of innovation, the more you realize that almost every “big” innovation or inventor was simply the next in an incremental line. There are very, very few big inventions.

    The fact that you argue the maturity phase of a technology as marking the entire innovation process is something we can discuss further if you’d like but will tell you that you might be generalizing a bit on your innovation theories.

    You misread my statement, but since you seem to believe that innovation is powered by big inventions, that’s understandable. History shows, unfortunately, that’s it’s not true. The famous inventors of the past were often just mere innovators, but became famous as inventors for their ability to bring their products to market more successfully than those before them. They often made the incremental innovation that turned a small market into a big market — and that’s worthwhile to celebrate.

    However, in almost all of these cases, the rewards of the market alone were plenty to incent the innovation. There was no need to bring along additional IP protection. In fact, in many of those cases, the IP protection helped slow down those breakthrough innovations. There are plenty of such examples. The steam engine and manned flight being two huge examples.

  • http://weblog.ipcentral.info/ Noel Le

    Its late, excuse my typos as I’m caught up with some stuff, so just a few brief comments. If you want to continue this discussion, email me or start a new thread somewhere as the topics are getting too broad.

    I will stand with my point that the FSF and EFF are fanatical groups though. I hold this generally of groups that seek “truths” rather than practical or even insightful goals.

    *** In a competitive market their price gets pushed towards zero, and that frees them up to be used as free promotions. That’s a good thing. It’s called economic efficiency…***

    Hmmm. This could be true, unless an inventor or creator continues commercializing with capital investment.

    I would be careful about stretching the term competitive market. Different industries naturally have different kinds of competitive markets, determined by cost and risk allocation (mostly ration of innovation v ease of imitation).

    Some would argue that “perfect competition” applies to the software industry. You have your programmers do their thing, save the work in digital format, then sell to consumers: the only remaining costs pertain to distribution, but with the Internet that’s pretty much zero.

    But what about the cost of production. I’ll argue that with some software technologies, FOSS is a good solution because its shown that it can create software with little capital and decentralized informal inputs. The lesson probably also applies to many digital business methods and Internet infrastructure technologies as well.

    But with goods like consumer technologies, that hasn’t occurred. In that space, capital intensive companies are still needed to innovate. And because they expend risk and money to do so, when the competitive market pushes their prices to marginal costs, it does not approach zero.

    ***How is a government mandated monopoly on a product with zero marginal cost the free market?!? ***

    Hmmm. Personally I subscribe to the Schumpeter model of innovation, with a twist of the tailored incentive theory of IP. That means IPRs are not a govt mandated monopoly, but a mechanism to achieving one through market dominance. These monopolies are granted to the extent they facilitate innovating activity, ensuring enough economic returns to keep investors ponying up the cash, and innovators planning careers in innovating.

    In the current technology industries, “monopoly” is a funny word. For one, many commentators have said that companies don’t compete in digital markets, they compete for those markets. If you’re totally against the concept of monopolies, you’re denying an inherent structural trait of the industry.

    You should look at an article published almost 10 years ago, by Harvard Business Review (I can forward the article later, can’t recall it off-hand) that the competition landscape in the technology industries will reward parties that gain proprietary control over platforms in industries with fast moving peripheral innovations. The genius of the article is that it basically used lessons in the early computer industry to project how the future of the industry would evolve.

    ***You said in the previous comment: “Its merely a way to stake claim on someone else’s work.” From that, I read that you believed that someone was being ripped off. I’m sorry if I misread that, but feel free to explain it again.***

    To clarify, I meant that “tinkers” often use natural rights arguments to justify their tinkering rights with others’ technologies. I haven no inherent disagreement with this, but wonder why fair use and other existing IP doctrines are not sufficient as these groups often call for the end to DRM or software patents in arguing their claims. These sound like radical views, reaching far beyond what seems necessary.

    The interesting thing, now that I think about it, is that “tinkerers” argue a natural rights view for their tinkering rights. This contrasts somewhat with American IP policy, which is shaped foremost by utilitarian considerations. Copyright have an inherent natural rights aspect, thus tinkers can argue down that road and mingle with other natural rights copyright gurus, but they have to recognize that their arguments have to balance against copyright’s utilitarian considerations. You can’t refute utilitarian arguments with natural rights perspectives, you can only seek balance. You don’t beat quantitative arguments with qualitative ones (and visa versa) do you? Moving over to patents, tinkers make the fallacious move of pitting their natural rights views against utilitarian patent policies. The better course, in my view, is for tinkerers to adopt utilitarian arguments (or at lest more effective ones).

    ***A big, big difference, of course, being that with infringement, nothing has been lost. But, you’ve studied economics, right? You do know the difference between rivalrous and non-rivalrous goods? ***

    I would ask whether the IP holder is involved in the market in which the “infringement” takes place. But I will disagree with your suggestion that “nothing has been lost.” If the IP holder is involved in the market, potential revenue, arising from a production/invention in which capital was invested, has been lost.

    You sure carry the rivalrous/non-rivalrous lesson a far way. But I would caution that “production” costs in information do no consist entirely of actual distribution mediums, they entail to large extent R&D, time to innovate, the ration of imitation v the cost of innovation, etc. Considering these variables, prices fall but stop well before reaching zero.

    ***If someone sells ads on content and is able to profit it from it where the original owner was not able to do so, isn’t that good for the economy?***

    So, you’re saying that its OK to use someone else’s content to lure ad sales. In other words, give someone else’s property away to sell your own. Why not use your own content, or content that really is free, to sell ads. The answer is that someone else’s content is valuable in attracting consumers, and thus is valuable to the owner.

    ***The more you look at the history of innovation, the more you realize that almost every “big” innovation or inventor was simply the next in an incremental line. There are very, very few big inventions.***

    Well, I don’t think we necessarily disagree here. Innovations do not arise in a vacuum. Complementary new innovations are required, as is the maturity of existing innovations. I would not say that innovation occurs small step by small step though: how do you account for R&D agendas that plan to develop a new invention over a span of years.

    As for groundbreaking pioneering innovations, the Internet is one: funded by the DARPA arm of the DoD.

    ***The famous inventors of the past were often just mere innovators, but became famous as inventors for their ability to bring their products to market more successfully than those before them. They often made the incremental innovation that turned a small market into a big market — and that’s worthwhile to celebrate.***

    YES, the commercialization aspect is more central to innovation than most folks realize.

    It is worthwhile to celebrate smart techies who turn out to be good businessmen, but again I would caution that your economic lesson may only apply to some industries.

    I don’t want to talk about incremental and cumulative innovation in the abstract but I will say that the USPTO and courts should consider the specific market, not just industry or technology, of an invention when granting or enforcing IP rights.

  • http://weblog.ipcentral.info/ Noel Le

    Its late, excuse my typos as I’m caught up with some stuff, so just a few brief comments. If you want to continue this discussion, email me or start a new thread somewhere as the topics are getting too broad.

    I will stand with my point that the FSF and EFF are fanatical groups though. I hold this generally of groups that seek “truths” rather than practical or even insightful goals.

    *** In a competitive market their price gets pushed towards zero, and that frees them up to be used as free promotions. That’s a good thing. It’s called economic efficiency…***

    Hmmm. This could be true, unless an inventor or creator continues commercializing with capital investment.

    I would be careful about stretching the term competitive market. Different industries naturally have different kinds of competitive markets, determined by cost and risk allocation (mostly ration of innovation v ease of imitation).

    Some would argue that “perfect competition” applies to the software industry. You have your programmers do their thing, save the work in digital format, then sell to consumers: the only remaining costs pertain to distribution, but with the Internet that’s pretty much zero.

    But what about the cost of production. I’ll argue that with some software technologies, FOSS is a good solution because its shown that it can create software with little capital and decentralized informal inputs. The lesson probably also applies to many digital business methods and Internet infrastructure technologies as well.

    But with goods like consumer technologies, that hasn’t occurred. In that space, capital intensive companies are still needed to innovate. And because they expend risk and money to do so, when the competitive market pushes their prices to marginal costs, it does not approach zero.

    ***How is a government mandated monopoly on a product with zero marginal cost the free market?!? ***

    Hmmm. Personally I subscribe to the Schumpeter model of innovation, with a twist of the tailored incentive theory of IP. That means IPRs are not a govt mandated monopoly, but a mechanism to achieving one through market dominance. These monopolies are granted to the extent they facilitate innovating activity, ensuring enough economic returns to keep investors ponying up the cash, and innovators planning careers in innovating.

    In the current technology industries, “monopoly” is a funny word. For one, many commentators have said that companies don’t compete in digital markets, they compete for those markets. If you’re totally against the concept of monopolies, you’re denying an inherent structural trait of the industry.

    You should look at an article published almost 10 years ago, by Harvard Business Review (I can forward the article later, can’t recall it off-hand) that the competition landscape in the technology industries will reward parties that gain proprietary control over platforms in industries with fast moving peripheral innovations. The genius of the article is that it basically used lessons in the early computer industry to project how the future of the industry would evolve.

    ***You said in the previous comment: “Its merely a way to stake claim on someone else’s work.” From that, I read that you believed that someone was being ripped off. I’m sorry if I misread that, but feel free to explain it again.***

    To clarify, I meant that “tinkers” often use natural rights arguments to justify their tinkering rights with others’ technologies. I haven no inherent disagreement with this, but wonder why fair use and other existing IP doctrines are not sufficient as these groups often call for the end to DRM or software patents in arguing their claims. These sound like radical views, reaching far beyond what seems necessary.

    The interesting thing, now that I think about it, is that “tinkerers” argue a natural rights view for their tinkering rights. This contrasts somewhat with American IP policy, which is shaped foremost by utilitarian considerations. Copyright have an inherent natural rights aspect, thus tinkers can argue down that road and mingle with other natural rights copyright gurus, but they have to recognize that their arguments have to balance against copyright’s utilitarian considerations. You can’t refute utilitarian arguments with natural rights perspectives, you can only seek balance. You don’t beat quantitative arguments with qualitative ones (and visa versa) do you? Moving over to patents, tinkers make the fallacious move of pitting their natural rights views against utilitarian patent policies. The better course, in my view, is for tinkerers to adopt utilitarian arguments (or at lest more effective ones).

    ***A big, big difference, of course, being that with infringement, nothing has been lost. But, you’ve studied economics, right? You do know the difference between rivalrous and non-rivalrous goods? ***

    I would ask whether the IP holder is involved in the market in which the “infringement” takes place. But I will disagree with your suggestion that “nothing has been lost.” If the IP holder is involved in the market, potential revenue, arising from a production/invention in which capital was invested, has been lost.

    You sure carry the rivalrous/non-rivalrous lesson a far way. But I would caution that “production” costs in information do no consist entirely of actual distribution mediums, they entail to large extent R&D;, time to innovate, the ration of imitation v the cost of innovation, etc. Considering these variables, prices fall but stop well before reaching zero.

    ***If someone sells ads on content and is able to profit it from it where the original owner was not able to do so, isn’t that good for the economy?***

    So, you’re saying that its OK to use someone else’s content to lure ad sales. In other words, give someone else’s property away to sell your own. Why not use your own content, or content that really is free, to sell ads. The answer is that someone else’s content is valuable in attracting consumers, and thus is valuable to the owner.

    ***The more you look at the history of innovation, the more you realize that almost every “big” innovation or inventor was simply the next in an incremental line. There are very, very few big inventions.***

    Well, I don’t think we necessarily disagree here. Innovations do not arise in a vacuum. Complementary new innovations are required, as is the maturity of existing innovations. I would not say that innovation occurs small step by small step though: how do you account for R&D; agendas that plan to develop a new invention over a span of years.

    As for groundbreaking pioneering innovations, the Internet is one: funded by the DARPA arm of the DoD.

    ***The famous inventors of the past were often just mere innovators, but became famous as inventors for their ability to bring their products to market more successfully than those before them. They often made the incremental innovation that turned a small market into a big market — and that’s worthwhile to celebrate.***

    YES, the commercialization aspect is more central to innovation than most folks realize.

    It is worthwhile to celebrate smart techies who turn out to be good businessmen, but again I would caution that your economic lesson may only apply to some industries.

    I don’t want to talk about incremental and cumulative innovation in the abstract but I will say that the USPTO and courts should consider the specific market, not just industry or technology, of an invention when granting or enforcing IP rights.

  • http://techdirt.com/ Mike Masnick

    I’ll agree that there’s too much here to respond to, and this thread is only going to get bigger and longer, but I do want to respond to a few specific points. I’m skipping the others for the sake of getting some sleep tonight, not that I’m ceding the points.

    1. I didn’t say “perfect competition.” I said competition. They’re different, and I don’t want anyone to think I meant one when I meant the other.

    2. You say: “And because they expend risk and money to do so, when the competitive market pushes their prices to marginal costs, it does not approach zero.” In other words, you’re falling back on the fallacy that fixed costs somehow do matter in marginal costs if those fixed costs are big enough. That’s simply false. Remember, just because price gets pushed to marginal cost, that doesn’t mean a company has to be able to profit from it. It just means that a company needs to figure out a new way to get some sort of advantage to profit. But, bucking the trend and pretending the competitive pressures on price don’t exist (or calling your favorite legislators to create special laws and monopolies for you) are not the way of the free market. They’re protectionism, and that’s inefficient for society. Don’t confuse fixed costs with marginal ones…

    3. I believe I know the HBR article you’re talking about, and amusingly enough, it has had plenty of influence on how I think about the net neutrality debate (looking at whether it does make sense to have a single monopoly for the network, since there’s so much innovation within the network.) However, there’s a big difference in what it talks about and what you’re talking about. We’re not discussing a single standard platform here, but many, many, many separate monopolies. It’s not about a platform, but giving a monopoly to each individual offering. That’s a problem.

    4. I believe you misstate the viewpoint of many who argue against you when you claim we want the end of DRM or software patents. In my case, and in the case of most of the folks I know who feel this way, we’re doing so for the sake of widening the market and improving the economic efficiency of the market, by removing monopolies, increasing the pace of innovation and generally helping promote progress. Neither I, nor most of the folks I know who make similar arguments, talk about banning DRM or disallowing its use. I believe, quite strongly, that DRM has hurt the music industry tremendously, and they would be vastly better off without using it. So your characterization is totally wrong. I don’t care if someone uses DRM, other than to point out the reasons why they’re hurting themselves in doing so. I’m not looking to outlaw DRM or mandate that no one should use it. I’m just trying to help everyone realize the harm they’re doing to themselves and they’re own market in focusing in on it. I think you’d find that an awful large segment of the anti-DRM crowd feel this way, despite your painting them with a very different brush.

    5. As such, I also disagree with your claim that I’m using a “natural rights” as opposed to utilitarian argument. I’m not. In almost everything I discuss, I’m focusing on the economic issues, and the likelihood of a more efficient market, a growing economy and an improved net impact on society. To me, that’s pretty utilitarian. I’m curious why you seem to think otherwise.

    6. I’m surprised you would actually argue that “potential revenue” has been lost. That’s not a reasonable argument in any economic realm. Potential revenue is not stolen. Potential revenue can only be lost by a failure to compete well enough. Potential revenue simply represents a choice by the consumer, and if they choose against you, it’s a failure of competition — it is not theft. Let me give you a simple example to make this clear: You own a deli. Next door there’s a pizza shop. Someone looks at both, and decides to go to the pizza shop because they’re having a lunch special. According to your reasoning, the pizza shop has now stolen from you, because they have taken your “potential revenue.” That argument is a non-starter.

  • http://techdirt.com/ Mike Masnick

    I’ll agree that there’s too much here to respond to, and this thread is only going to get bigger and longer, but I do want to respond to a few specific points. I’m skipping the others for the sake of getting some sleep tonight, not that I’m ceding the points.

    1. I didn’t say “perfect competition.” I said competition. They’re different, and I don’t want anyone to think I meant one when I meant the other.

    2. You say: “And because they expend risk and money to do so, when the competitive market pushes their prices to marginal costs, it does not approach zero.” In other words, you’re falling back on the fallacy that fixed costs somehow do matter in marginal costs if those fixed costs are big enough. That’s simply false. Remember, just because price gets pushed to marginal cost, that doesn’t mean a company has to be able to profit from it. It just means that a company needs to figure out a new way to get some sort of advantage to profit. But, bucking the trend and pretending the competitive pressures on price don’t exist (or calling your favorite legislators to create special laws and monopolies for you) are not the way of the free market. They’re protectionism, and that’s inefficient for society. Don’t confuse fixed costs with marginal ones…

    3. I believe I know the HBR article you’re talking about, and amusingly enough, it has had plenty of influence on how I think about the net neutrality debate (looking at whether it does make sense to have a single monopoly for the network, since there’s so much innovation within the network.) However, there’s a big difference in what it talks about and what you’re talking about. We’re not discussing a single standard platform here, but many, many, many separate monopolies. It’s not about a platform, but giving a monopoly to each individual offering. That’s a problem.

    4. I believe you misstate the viewpoint of many who argue against you when you claim we want the end of DRM or software patents. In my case, and in the case of most of the folks I know who feel this way, we’re doing so for the sake of widening the market and improving the economic efficiency of the market, by removing monopolies, increasing the pace of innovation and generally helping promote progress. Neither I, nor most of the folks I know who make similar arguments, talk about banning DRM or disallowing its use. I believe, quite strongly, that DRM has hurt the music industry tremendously, and they would be vastly better off without using it. So your characterization is totally wrong. I don’t care if someone uses DRM, other than to point out the reasons why they’re hurting themselves in doing so. I’m not looking to outlaw DRM or mandate that no one should use it. I’m just trying to help everyone realize the harm they’re doing to themselves and they’re own market in focusing in on it. I think you’d find that an awful large segment of the anti-DRM crowd feel this way, despite your painting them with a very different brush.

    5. As such, I also disagree with your claim that I’m using a “natural rights” as opposed to utilitarian argument. I’m not. In almost everything I discuss, I’m focusing on the economic issues, and the likelihood of a more efficient market, a growing economy and an improved net impact on society. To me, that’s pretty utilitarian. I’m curious why you seem to think otherwise.

    6. I’m surprised you would actually argue that “potential revenue” has been lost. That’s not a reasonable argument in any economic realm. Potential revenue is not stolen. Potential revenue can only be lost by a failure to compete well enough. Potential revenue simply represents a choice by the consumer, and if they choose against you, it’s a failure of competition — it is not theft. Let me give you a simple example to make this clear: You own a deli. Next door there’s a pizza shop. Someone looks at both, and decides to go to the pizza shop because they’re having a lunch special. According to your reasoning, the pizza shop has now stolen from you, because they have taken your “potential revenue.” That argument is a non-starter.

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