September 2005

I don’t know, I just felt a compulsion to ‘blog about this article.

Innovation under Attack

by on September 22, 2005

Publishers have sued to stop Google Print, a search engine for books, on the theory that it’s an infringement of copyright to make digital copies of copyrighted books, even if they never show those copies in their entirety to anyone.

The publishers’ position is anti-innovation in a very fundamental way. In the analog world, there’s a clear distinction between “using” a copyrighted work (say, reading a book) and “copying” it (say, using a photocopier). Copyright law says that you’re allowed to use a book you legally own, but generally speaking, you can’t make copies, at least not in a commercial product.

But the “physics” of the digital world are different. Every “use” of content involves the creation of a copy of that data. When you read this web page, dozens of copies of the document were created as it was passed across the Internet. If making a digital copy is a copyright infringement, that means that no one can use their copyrighted content on digital systems without the explicit permission of the copyright owner.

Fortunately, that’s not how the courts have ruled in the past. In 1984, the Supreme Court held that it was a fair use to make personal copies of TV shows for the purpose of “time shifting.” In the 1999 Diamond decision, the Ninth Circuit held that “space shifting”–making copies of music for listening on an MP3 player is a fair use. And in 2002, the Ninth Circuit held that displaying thumbnails of copyrighted images is a fair use. In each case, the court appreciated that new technological realities made the copying involved in these uses fundamentally different than the copying prohibited by traditional copyright law.

Unfortunately, judges have not always been so clear-sighted. In the 2000 case, a stubbornly literalist district judge held that storing copies of CDs on’s servers for future transmission to customers (all of whom had shown they were legal owners of the CDs) was not a fair use. Unfortunately, that case was settled before it could be appealed.

The courts need to clearly say that the mere act of making a digital copy is not a violation of copyright. What matters is how those copies are used. Fortunately, I think the folks at Google understand what’s at stake, and they know that the future of their business may depend on this issue. They are in the business of organizing the world’s information, most of which is owned by other people. If they have to get permission from each individual copyright holder, many of the innovative things they’d like to do with that information will become logistically impossible. So I’m crossing my fingers and hoping that Larry and Sergei fight this thing all the way to the Supreme Court.

When Is a Market Not a Market?

by on September 22, 2005

. . . When it’s regulated!

TechDirt has a post and (first) comment about FCC reform yesterday afternoon that epitomizes a problem with debates about regulation: Speaker complains of practices in a particular industry, posits increased regulation as the solution. Existing regulation is ignored, while “the market” is blamed for problems. Because of various beefs with telecommunications service (today, under regulation), the consensus (of two people, anyway) on TechDirt is that there should be more telecommunications regulation.

Gang, it’s sort of definitional that, in heavily regulated industries, regulation predominates over market forces. Where there is little or no regulation, market forces predominate. Take medical marijuana in San Francisco which, due to differences of opinion among the local, state, and federal governments, is about as little-regulated a market as we know of. There is plentiful, high-quality product with a variety of providers in friendly competition. No one is getting ‘screwed’ and, in fact, the providers of medical marijuana are as committed as patients and care-givers to providing palliative care. Elsewhere in the country, where marijuana (medical and otherwise) is very heavily regulated, to the point of prohibition, people are getting screwed: high prices and low quality (on down to bunk) – and they’re getting robbed, shot, and stabbed sometimes too.

Verizon has called for real FCC reform, under which, perhaps, market forces will predominate. The argument against, as I pointed out on TechDirt, is: We’re unhappy with the status quo so we want more of the same.

P.S. I don’t smoke pot – so save it.

ICANN Vote on .xxx Delayed

by on September 21, 2005

CNET reports that the vote to create a .xxx top-level domain has been delayed–again. This is the second delay, no doubt for the same reason as the initial delay in voting–political pressure from the U.S. government.

In a previous post, I ranted about the dangers of governments getting into the business of Internet governance. There are serious censorship concerns, folks, when there is political intervention in the Internet’s core technical administrative functions. And that’s why I urge you to read and sign this online petition by the Internet Governance Project.

Is the delay in approving/denying the .xxx application really the start of Internet governance gone bad? That’s my fear, and combined with (1) a controversial “Declaration of Principles” wherein the US argued that in order to preserve the “security and stability” of the Internet and the economic transactions that take place on it, it would exercise unilateral control over the DNS, and (2) a World Society of the Information Summit meeting this November where the international community will want to wrestle control from the U.S. and assert UN dominance, and we may have a battle royal in the making. Fellow TLF member Adam, in an article with Solveig Singleton, agrees that this fight could become bitter given the current global environment of anti-Americanism. Stay tuned….

It’s amazing that small companies can compete in today’s regulatory climate. We all know about the way that Steve Jobs and Stephen Wozniak created the first Apple computer in the Jobs family garage . Such small business success (now a big corporation of course) happens despite the disproportionate regulatory burden they share compared to their larger competitors. A study released last week by the Office of Advocacy of the U.S. Small Business Administration shows that small firms bear the largest per employee burden.

According to the study, firms with fewer than 20 employees annually spend $7,647 per employee to comply with federal regulations, compared with the $5,282 spent by firms with more than 500 employees. Thus small business faces a 45 percent greater burden than their larger business counterparts.

This is to be expected. The regulatory overhead required for attorneys, accountants, and HR to interpret and implement federal regulation is enormous. The fixed costs of regulatory compliance become increasingly dispersed with each employee hired. Even with employment law carveouts for companies under 50 or so employees, the burden of overall compliance is high.

Businesses with less than 500 employees generate 60 to 80 percent of net new jobs annually over the last decade. Many of these are in the tech industry. Here on the Tech Liberation Front, we often focus on tech-related regulatory burdens on the tech and telecom industries. As the SBA study shows, the burden is also tax, environmental, workplace and general economic-related laws.

In previous posts earlier this year, I warned that efforts by the Federal Trade Commission (FTC) to block the proposed acquisition of video rental firm Hollywood Video by Blockbuster Inc. would likely lead to the demise of both companies in the long run. Well, excuse me while I toot my own horn for a moment, but it appears that I was likely right, and sooner than I expected.

Joe Flint and Kate Kelly report in today’s Wall Street Journal (“New Signs of Strain for Blockbuster” p. B5) that “Blockbuster Inc. is facing new pressures as signs increase that a sharp decline in the video-rental market is putting a strain on the company’s finances.” The company’s stock prices fell by 9.7% on Friday, hitting a 52-week low of $4.60 per share. This came on news that Movie Gallery Inc., the industry’s #2 firm, was reporting that sales at many of its stores were expected to drop by 8-10% this quarter.

What’s happening is clear: technological and market evolution are finally catching up with this old business and is about to wipe it from the face of the Earth. With all the new sources of competition out there–Netflix and cheap DVDs at WalMart, online movie download services, cable and satellite movie channels plus video-on-demand, telco entry into the video business, all sorts of handheld mobile media gadgets like the PlayStation Portable, and so on–its no wonder that Blockbuster and others in this sector are struggling.

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While you have been . . .

by on September 19, 2005

. . . paying attention to the Supreme Court nomination of Judge John Roberts or decrying the foremath and aftermath of Hurricane Katrina – or perhaps dissecting the latest draft telecommunications regulation – Congress has been not doing its work.

October 1st is the start of the federal government’s new Fiscal Year, and Congress has not passed most of the spending bills for the year. More than $14,000 per U.S. family will be allocated by Congress hastily and ad hoc. Again.

[cross-posted from the PFF Blog]

The House of Representatives’ Energy & Commerce Committee released draft legislation yesterday aimed a cleaning up the nation’s telecom and cable laws. A revision of the Telecom Act of 1996 has been in the works for some time and is very much needed, so most parties welcomed this news.

Here at PFF, of course, we’ve been working hard with a group of respected academics and experts to provide a new framework for communications policy reform. That project is called “DACA,” which stands for Digital Age Communications Act.

One thing we largely left out of DACA effort was any in-depth discussion of video regulation. That is, the extensive “public interest” regulatory regime that currently covers the broadcast sector and to some extent cable and satellite services. There were several reasons we left it out of the DACA project; most importantly, we simply felt that most of these rules could easily be sunset in light of growing competition in the multi-channel video marketplace and the media universe more broadly. Under our DACA framework, any “market power” problems that might develop in the future video / media marketplace would be handled with simple competition policy principles borrowed from antitrust law.

So Much for “Hands Off the Net”
Unfortunately, after looking through the House Commerce Cmmt. draft legislation last night, I realize that not everyone shares our opinion about the growing media market competition alleviating the need for extensive “public interest” regulation of the video marketplace. Specifically, Sec. 304 of the bill (which begins on pg. 41 of the discussion draft) is entitled “Application of Video Regulations to Broadband Service Providers.” Section A which immediately follows is appropriately labeled “Comparable Requirements and Obligations,” and then goes on to not how “each of the following provisions of the 1934 [Communications] Act, and the regulations under each such provision, that apply to a cable operator shall apply to a broadband service provider under this title in accordance with regulations prescribed by the Commission…”

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I would like to draw everyone’s attention to a wonderful new blog on the media industry and media economics. “Rebuilding Media” features the musings of some of the brightest minds in the field of media analysis, including my friend Ben Compaine.

Thanks to a link on the “Rebuilding Media” site, I’ve also stumbled upon the excellent “On Demand Media” blog too. Some very interesting essay on that site on the same issues. Check ’em both out when you have time.

[cross-posted from the PFF Blog]

Well it seems that the eBay acquisition of Skype is the hot high-tech issue du jour on the PFF blog, so let me add just a few thoughts to what Kyle and Ray have already said. Specifically, I want to pick up right where Ray left off when he ended his essay wondering what ramifications this alliance might have for the debate over ‘net neutrality’ regulation.

But first, let me just say that I can immediately think of a few ways that this deal will benefit consumers. In fact, as an avid eBay-er who has moved his last 4 cars on the site, I can give you a perfect real-world application. When I am selling or looking to buy a car on eBay, I often trade quick e-mails with others to get or send info about the vehicle. But I sometimes think it would be a heck of lot easier to just pick up the phone and call the person to get the job done. Few people, however, want to put their cell or home phone on the site. But what if eBay offered a secure way for buyers and sellers to make auction-specific phone calls? Now that would be very, very cool. With Skype, eBay can now make that happen. For example, I’m about to sell a BMW that I bought on eBay four years ago. As part of that auction, I would love to be able to provide an VoIP phone number just for this specific auction that bidders could use to contact me for more detailed information about the vehicle. That way, when I get a call on that Skype phone number, I know it’s about the specific car I have for sale, not anything else. And when that auction ends, that specific phone number could disappear or perhaps I would use it for a future auction.

Anyway, that’s just one potentially interesting way that eBay might be able to use Skype to augment its already wonderful auction services. I’m sure they will find many other innovative ways to use the service.

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