Former TLF blogger Tim Lee returns with this guest post. Find him most of the time at the Bottom-Up blog.

Thanks to Jim Harper for inviting me to return to TLF to offer some thoughts on the recent Adam Thierer–Tim Wu smackdown. I’ve recently finished finished reading The Master Switch, and I didn’t have have my friend Adam’s viscerally negative reactions.

To be clear, on the policy questions raised by The Master Switch, Adam and I are largely on the same page. Wu exaggerates the extent to which traditional media has become more “closed” since 1980, he is too pessimistic about the future of the Internet, and the policy agenda he sketches in his final chapter is likely to do more harm than good. I plan to say more about these issues in future writings; for now I’d like to comment on the shape of the discussion that’s taken place so far here at TLF, and to point out what I think Adam is missing about The Master Switch.

Here’s the thing: my copy of the book is 319 pages long. Adam’s critique focuses almost entirely on the final third of the book, (pages 205-319) in which Wu tells the history of the last 30 years and makes some tentative policy suggestions. If Wu had published pages 205-319 as a stand-alone monograph, I would have been cheering along with Adam’s response to it.

But what about the first 200-some pages of the book? A reader of Adam’s epic 6-part critique is mostly left in the dark about their contents. And that’s a shame, because in my view those pages not only contain the best part of the book, but they’re also the most libertarian-friendly parts.

Those pages tell the history of the American communications industries—telephone, cinema, radio, television, and cable—between 1876 and 1980. Adam only discusses this history in one of his six posts. There, he characterizes Wu as blaming market forces for the monopolization of the telephone industry. That’s not how I read the chapter in question. Although Wu certainly suggests that market forces tended toward consolidation (which seems obviously correct), he also makes it clear that the government played an active role in the process, through the patent system, the Kingsbury Commitment, turning a blind eye to industrial sabotage, and later through explicit pro-monopoly regulation. Adam’s only specific quibble with Wu’s history is his failure to mention the nationalization of the telephone network during World War I. Maybe that’s an important oversight, but I’m not sure it would have changed Wu’s story very much. Certainly I think characterizing this section of the book as an anti-free-market screed is unfair.

The Master Switch takes an even more explicitly libertarian tone in its discussion of broadcasting. Wu makes it plain that everything about the radio (and later television) industries post-1927 was the result of heavy-handed government regulation. He tells how federal regulations robbed the inventor of FM radio of the opportunity to commercialize his invention, and how the FCC delayed the introduction of television by more than a decade to give RCA (then the dominant radio firm) time to perfect its own television technology.

It’s easy to imagine chapters 5, 9, and 10 being published by Cato or the Mercatus Center. Consider, for example, this passage describing the FCC’s decision to delay the introduction of television (p. 144):

Consider for a moment the oddness of this phenomenon in the putatively free-market economy. The government was deciding, in effect, when a product that posed no hazard to the public health would be “ready” for sale. Consider, too, how incongruous this was in a society under the First Amendment: a medium with great potential to further the exercise of free speech was being stalled until such time as the government could agree it had attained an acceptable technical standard. Rather than letting the market decide what a technology in its present state was worth, a federal agency—not even a democratically elected body—was to forbid its sale outright.

Whatever else you might say about this passage, it’s certainly not blaming anything on market forces!

One of Wu’s central points is that during the 20th century, the communications policy world was divided along different ideological lines. On one hand were the champions of monopoly and central planning—Wu chooses legendary AT&T president Theodore Vail as its intellectual father. On the other hand were champions of choice and competition. It’s worth emphasizing that Adam and Wu are on the same side of this ideological battle. In 1930, 1950, or 1970, all of us would have been teaming up to oppose monopolistic regulations.

We would have regarded AT&T, RCA, and other state-sponsored monopolists as our common enemy. If we’d submitted amicus briefs in the Carterfone or MCI proceedings, we would have made largely the same arguments. Of course, we wouldn’t have agreed perfectly on our long-term policy agenda, but we would have regarded that as a relatively minor area of disagreement compared to the pressing problem of repealing blatantly monopolistic government policies and bringing some degree of competition to communications markets. And for most of the 20th century we would have been the underdogs. In 1950, the monopolists were not only utterly dominant in Washington, D.C., but their ideology still had a great deal of cachet with the intellectual class.

Vail’s corporatist ideology has fallen so far out of favor that today it’s hard to find anyone who’s willing to defend it forthrightly. The remnants of the once-great monopolists have been forced to adopt the rhetoric of the free market and pretend to care about choice and competition. And it’s only in this new intellectual environment that Adam can plausibly portray Wu a “cyber-collectivist” at the opposite end of the ideological spectrum from me and Adam. The Master Switch reminds us that much less separates Adam from Wu than separates either of them from Theodore Vail and David Sarnoff.

Adam began his first post by stating that he “disagrees vehemently with Wu’s general worldview and recommendations, and even much of his retelling of the history of information sectors and policy.” This is kind of silly. In fact, Adam and Wu (and I) want largely the same things out of information technology markets: we want competitive industries with low barriers to entry in which many firms compete to bring consumers the best products and services. We all reject the prevailing orthodoxy of the 20th century, which said that the government should be in the business of picking technological winners and losers. Where we disagree is over means: we classical liberals believe that the rules of property, contract, and maybe a bit of antitrust enforcement are sufficient to yield competitive markets, whereas left-liberals fear that too little regulation will lead to excessive industry concentration. That’s an important argument to have, and I think the facts are mostly on the libertarians’ side. But we shouldn’t lose sight of the extent to which we’re on the same side, fighting against the ancient threat of government-sponsored monopoly.

My friend Kerry Howley coined the term “state-worship” to describe libertarians who insist on making the government the villain of every story. For most of history, the state has, indeed, been the primary enemy of human freedom. Liberals like Wu are too sanguine about the dangers of concentrating too much power in Washington, D.C. But to say the state is an important threat to freedom is not to say that it’s the only threat worth worrying about. Wu tells the story of Western Union’s efforts to use its telegraph monopoly to sway the election of 1876 to Republican Rutherford B. Hayes. That effort would be sinister whether or not Western Union’s monopoly was the product of government interference with the free market. Similarly, the Hays code (Hollywood’s mid-century censorship regime) was an impediment to freedom of expression whether or not the regime was implicitly backed by the power of the state. Libertarians are more reluctant to call in the power of the state to combat these wrongs, but that doesn’t mean we shouldn’t be concerned with them.

By casting every argument in terms of a Manichean struggle between “cyber-libertarians” and “cyber-collectivists,” Adam misses a lot of the value of The Master Switch. Many of the stories Wu tells are too complicated to fit comfortably at either end of the free-market-vs-regulation spectrum. For example, until I read The Master Switch, I didn’t realize how important, and harmful, patents were to the early development of communications markets. Should these stories make libertarians more skeptical of patent law? I’d be interested to hear Adam take, but he was too busy railing against Wu’s alleged cyber-collectivism to discuss the topic.

Adam Thierer recruited me to contribute to what became the Technology Liberation Front way back in August 2004, when I was fresh out of college and working as a writer at the Cato Institute. My first post was about DRM (I was against it). I remember going back and forth with Adam about whether there was really a demand for a libertarian tech-policy blog. I think the last five years have laid those questions to rest, as both our traffic and our list of contributors have grown steadily. The last year or so has gone especially well, as we’ve been joined by Ryan, Berin, and Alex and Adam inaugurated new features like his annual Best Tech Books series.

At the same time, I’ve been blessed with a steadily growing list of other blogging opportunities. I’m now nominally a regular contributor to at least 6 blogs. In practice, this has meant woefully neglecting all six of them. And at the same time, I’ve had a number of people complain that it’s impossible to follow my writing, scattered as it is in so many places.

So I’ve decided that now is a good time to “go solo.” I’ve launched a new blog called “Bottom-Up,” and I’m going to be ending or scaling back my involvement with all the other blogs to which I nominally contribute. This will be my last post at TLF, and starting tomorrow the vast majority of my blogging activities will be found at the new site.

Some of what I’ll be talking about will be familiar to longtime TLF readers. I did a post today on the decline of newspapers, a topic I’ve weighed in before. But I’ll also be covering some new ground. This post, for example, examines the why Darwin’s theory of evolution remains so controversial after 150 years. I hope you’ll check it out, and if it looks interesting, please subscribe.

In closing, I want to thank my fellow TLFers, with whom I’ve fought the good fight over the last five years. I’m excited to see what they come up with in the next five years.

Viva la (Technology) Revolution!

My friend Megan McArdle has a sharp post on the causes of the newspaper’s imminent demise:

Journalism is not being brought low by excess supply of content; it’s being steadily eroded by insufficient demand for advertising pages. For most of history, most publications lost money, or at best broke even, on their subscription base, which just about paid for the cost of printing and distributing the papers. Advertising was what paid the bills. To be sure, some of that advertising is migrating to blogs and similar new media. But most of it is simply being siphoned out of journalism altogether. Craigslist ate the classified ads. eHarmony stole the personals. Google took those tiny ads for weird products. And Macy’s can email its own damn customers to announce a sale… We’re not witnessing the breakup of a monopoly, in which more players make more modest incomes providing more stuff, and everyone flourishes (except the monopolist). We’re witnessing the death of a business model. And no one has figured out how to pay for hard news. Hard news stories take a great deal of time to write–more time than most amateurs can afford, which is why blogs tend to do opinion rather than journalism. Moreover, they are at least greatly improved when their authors are not worried about losing their jobs if what they write pisses off a local power broker.

I think there’s a lot to this: a key part of the newspaper’s business model was that economies of scale made them one of the very few efficient ways of distributing small pieces of printed information to a lot of people. So lots of different kinds of content—classified ads, personal ads, display ads, and various kinds of news reporting—got bundled together and sold as one package. The Internet makes it cheap to distribute information of all kinds, and so the newspaper is getting disaggregated. And so some of the cross-subsidies that supported the traditional newspaper are going away.

So the death of the classified is one important cause of newspapers’ worsening business model. But it’s also true that newspapers are “being brought low by excess supply of content.” The websites of mainstream media outlets run display ads, and these ads generate revenues. They don’t generate enough revenue to cover the costs of producing content, but that’s simply a function of supply and demand: if there were fewer online news sources, the ones that were left would be able to command higher rates. This is easy to see with the following thought experiment: imagine if the government granted the New York Times a monopoly in the news reporting business, so that no other media outlet were permitted to provide news online. Under those circumstances, the Times would be insanely profitable. They’d have tens of millions of daily readers and be able to charge outrageous amounts of money for their display ads.

Each traditional outlet that goes out of business makes the others a little more profitable. Eventually, the market will reach an equilibrium–if necessary, with dramatically fewer news outlets and higher revenues for each one. But there’s no “death of a business model” here. The newspapers have always given away content in order to sell ads. The news websites of the future will do the same thing. There just may be fewer of them than there were in the past.

The part I think Megan is ignoring is that the while it’s often true that hard news stories take a “great deal of time to write,” the Internet has made the process much easier for many types of news. Most obviously, the laborious process of editing and typesetting stories on strict deadlines is being replaced by much more flexible editing using web-based content management systems. Many primary sources (court decisions, regulatory filings, government data) that once required a physical trip to obtain can now be downloaded off the web. Reporters also have access to a vast new universe of primary sources from user-generated media that simply didn’t exist in the past.

It’s possible that the absolute number of reporters doing “hard news” in the future will be lower than it was in the past. And certainly the next decade will be a tough one for print journalists. But there’s nothing fundamentally broken about the “give away content, sell ads” business model. And we’re not heading toward a dystopian future in which no one produces hard news.

There’s been a lot of criticism lately of Chris Anderson’s Free. Malcolm Gladwell didn’t like it. Matt Yglesias had a sharp and critical response, and here at TLF Cord offered a strongly negative take on the book.

I haven’t read Free myself yet, but I think I know Anderson’s argument well enough to know the critics aren’t really engaging it. Two really important points seem to be getting missed.

First, when Anderson says “eventually the force of economic gravity will win,” he means eventually. So citing YouTube—a site that’s been in business for barely four years—doesn’t prove anything. Lots of Internet startups lost money for four years and then went on to make a killing.

Moreover, it seems to me that none of Anderson’s critics really address the heart of this argument. In any other competitive market, we know that competition pushes prices down toward their marginal cost. The PC industry, for example, is famous for its razor-thin margins. Given that the marginal cost of content is zero, basic economics would seem to tell us that—at least in highly competitive sectors like mainstream news—competition is going to push prices down to zero and keep them there.

Second, a lot of criticism seems to miss that “free” business models aren’t just about giving stuff away and hoping a miracle occurs. They’re about using free stuff to sell complementary goods. Obviously if YouTube just gives away a lot of free videos, as Matt suggests, that’s not going to make them any money. But their business model is to give away free videos and sell ads. This is a perfectly plausible business model that will almost certainly become viable in the next few years. YouTube’s primary costs are servers and bandwidth, both of which continue to fall in price at a prodigious rate. Advertising revenues have fallen somewhat in the last few months, but there’s every reason to expect them to pick up again when the recession is over. Therefore, the lines will cross in the not-too-distant future, and YouTube will become at least moderately profitable.

It’s important to note that Matt is absolutely right that these businesses may only be moderately profitable. As he says, this is precisely the point of free markets—forcing companies to compete against one another means better deals for us and lower profits for them. So if Anderson claims that “free-based” business models are going to be wildly profitable, he’s probably wrong. Many free-based business models will only be modestly profitable. But they’re not going to keep losing money forever.

Finally, Gladwell, Yglesias, and Blomquist all seem to miss the point about transaction costs: charging small amounts of money is expensive. It costs more than 10 cents to charge someone 10 cents. As a consequence, if the equilibrium price of your product is less than 10 cents, it’s stupid to charge for it because all the revenues will go to the credit card company. I think this is actually more important than the psychological effects Matt talks about. It’s not just that customers have an irrationally strong attachment to the concept of free. It’s that below a certain point the overhead involved in charging for stuff is too high to be worth the trouble.

What’s especially weird about these arguments is that we’re surrounded by examples of Anderson’s thesis. The overwhelming majority of news and commentary on the web is available for free. Online services like search and email are free, and many of them are extremely profitable. Red Hat and MySQL (before it got bought by Sun) built extremely successful businesses around free software. For that matter, let’s forget the Internet and computers entirely. The 20th century radio and television industries, and parts of the newspaper industry, were built on “free”-based business models. It’s obviously true that companies can earn profits while giving away content. And basic economics tells us that we should expect companies that give their content away for free to gradually push out companies that don’t. So why is Anderson getting so much flack for pointing out an obvious and inescapable trend?

I wrote a piece about PACER last week, which Katherine Mangu-Ward at Reason was kind enough to link to from Hit and Run. In the comments to her post, a reader asked a reasonable question about the fees you pay to access PACER: “Are you buying the data or paying the court’s bandwidth costs?”

Now I’m usually pretty sympathetic to the idea that the people who benefit from government services should pay for those services through user fees. But there are two reasons this doesn’t apply in a case like this.

First, there’s the math. As it happens, I’m working on a project that will involve hosting large amounts of content, so I’ve been researching hosting costs. One of the most popular managed hosting services is Amazon’s EC2/S3. You can see the pricing for that system here. It provides a good point of comparison for PACER’s fees.

To make the math easy, let’s assume you’ve got a lawyer who downloads 20 documents per week, each of which is 10 pages long and 1 MB in size. Over the course of a year, this lawyer will download around 1000 documents, and he’ll be charged 1000 10 $0.08 = $800 for those documents. (This is actually an underestimate because the lawyer also has to pay for search results) And because each document is about 1 MB in size, the total quantity of data transferred from PACER will be around 1 GB.

Now, if you click over to Amazon’s S3 pricing page, you’ll see that the going rate for a GB of data transfer in the private market is… 17 cents. In fairness, Amazon also charges for CPU time on the EC2 cluster, so if the courts actually built their system on EC2/S3, the marginal cost of a GB of data delivery might be more like 50 cents. But charging $800 is three orders of magnitude too much. Moreover, as the cost of bandwidth drops, the billing infrastructure is going to be a larger and larger fraction of the total cost of providing PACER. Credit card fees alone will eat up a significant chunk of a 50 cent charge. Hence, making PACER free might actually be cheaper for taxpayers than charging amounts so trivial that they can’t even cover the costs of collecting them.

Now, the courts would probably point out that 17 cents (or even 50 cents) per user wouldn’t come close to covering the full costs of running PACER. They have to run the CM/ECF system that lawyers use to file documents. They have to hire court clerks to organize, file, redact, and (in increasingly rare cases) scan the documents. And they have to hire employees to build and maintain their IT infrastructure.

But these are costs that the courts would have to bear whether or not they made public documents available on the web. Electronic filing of documents improves the courts’ efficiency whether or not those documents are put on the web. And the courts need to protect peoples’ privacy regardless of how the documents made available. It makes no sense to regard these as costs of providing PACER.

There’s also a more fundamental problem with this line of reasoning: the idea that the benefits of PACER flow primarily to the people requesting the documents. If I download some documents from PACER and use them to write a story about some court case, I clearly derive some benefit from that. I might get paid, and I’ll get the various benefits that flow from having people read my work. But I like to think that covering court cases has broader benefits too. Greater media coverage of the courts leads to better-informed voters, and it creates more incentives for judges and other participants in the legal system to behave themselves. In the long run, the largest benefits of journalists having easy access to court records flow to society at large, not to individual reporters.

The same point can be made about many other PACER users. Academics who study the legal system help to promote public understanding of the system and propose improvements. Public interest legal organizations like the Institute for Justice and the Electronic Frontier Foundation use PACER in their litigation, which helps to push the law in more beneficial directions. We would all benefit from the things Google or Microsoft could do to improve these documents with better search and organizational tools. Finally, public access to court record improves the ability of ordinary Americans to read and understand court documents themselves, which leads to greater confidence in the legal system’s reliability and a higher likelihood that malfeasance will be detected and publicized.

Public access to court records is a genuine public good. Given that taxpayers already spend several billion dollars a year to run the federal court system, it’s extraordinarily short-sighted to limit public access to these documents to save taxpayers a few million dollars. That would be true whether providing those documents to the public were cheap or expensive. Fortunately, if done right, public access can be extremely cheap.

I’m taking a course here at Princeton on IT Policy, taught by my advisor, Ed Felten. It’s been an interesting experience. I think it’s safe to say that I’ve spent more time thinking about the topics than the median member of the class, and the class has been an opportunity to re-acquaint myself with how these issues look for smart people who aren’t immersed in these issues every day.

The course has a blog, where each class participant is asked to contribute one post per week. I’ve been impressed by the quality of a number of posts. Here is a good post by “Jen C.” about the Author’s Guild’s implausible claim that text-to-speech software on the Kindle 2 infringes copyright by creating a derivative work. And here is a fascinating post by Sajid Mehmood about Jonathan Zittrain’s The Future of the Internet, which our own Adam Thierer reviewed here. Sajid points out that Zittrain’s prophesy is more likely to come true if it’s helped along by bad government regulations, an argument that I find persuasive (and not just because he quotes my DMCA paper).

One of the most interesting debates has been over the Google Book Search settlement. A couple of weeks ago, Sajid posted a tentative defense of the settlement, arguing that whatever its flaws, the Google Book Search settlement is a private agreement and the courts would be overstepping their authority to reject it. I responded with a pair of posts making the case that, thanks to the creative use of the class action mechanism, the settlement would have effects far beyond those that could be achieved by an ordinary private contract, and that the results of the settlement would be anticompetitive. Sajid responded with the reasonable point that the settlement will not be the only—or even necessarily the most important—barrier to entry in the book search engine market, and that its better to have one firm able to build a book search engine than zero.

We’ll all be blogging throughout the month of April, so I encourage you to check it out.

Like Berin, I tend to think a lot of anti-Google hysteria is over the top. But I think one place where some criticism is warranted is over the impending Google Book Search settlement. Reader Andrew W points us to his recent post on the Google Book Search settlement:

Google does not somehow become the exclusive copyright holder to orphan works. Other groups and companies are welcome to do the same thing and to also make money from it. And this particular monopoly is, contradictorily, limited and temporary. There will be well-funded competitors.

I’m not so sure. Thanks to the magic of the class action mechanism, the settlement will confer on Google a kind of legal immunity that cannot be obtained at any price through a purely private negotiation. It confers on Google immunity not only against suits brought by the actual members of the organizations that sued Google, but also against suits brought by anyone who doesn’t explicitly opt out. That means that Google will be free to mine the vast body of orphan works without fear of liability.

Any competitor that wants to get the same legal immunity Google is getting will have to take the same steps Google did: start scanning books without the publishers’ and authors’ permission, get sued by authors and publishers as a class, and then negotiate a settlement. The problem is that they’ll have no guarantee that the authors and publishers will play along. The authors and publishers may like the cozy cartel they’ve created, and so they may have no particular interest in organizing themselves into a class for the benefit of the new entrant. Moreover, because Google has established the precedent that “search rights” are something that need to be paid for, it’s going to be that much harder for competitors to make the (correct, in my view) argument that indexing books is fair use.

It seems to me that, in effect, Google has secured for itself a perpetual monopoly over the commercial exploitation of orphan works. Google’s a relatively good company, so I’d rather they have this monopoly than the other likely candidates. But I certainly think it’s a reason to be concerned.

Almost a year ago, I wrote about the newly-launched Seasteading Institute, which promises to break the cozy cartel of world governments by developing the technology required to found affordable autonomous communities on the open oceans. It’s an audacious plan, and I expressed some skepticism about whether it can be made to work. But the Institute, led by Patri Friedman, has made an impressive amount of progress in the last year. They’ve done preliminary engineering work on a small seastead design. They hosted a conference that was by all accounts well-attended. And they’ve generated an impressive amount of press coverage.

So I’m excited to see that Friedman will be giving a talk at Cato about his project on April 7. If I lived in DC, I’d definitely be there. I’m still not convinced Seasteading is the wave of the future, but I’m glad there are people giving it their best shot.

Yochai Benkler ponders the death of the newspaper:

Critics of online media raise concerns about the ease with which gossip and unsubstantiated claims can be propagated on the Net. However, on the Net we have all learned to read with a grain of salt between our teeth, like Russians drinking tea through a sugar cube. The traditional media, to the contrary, commanded respect and imposed authority. It was precisely this respect and authority that made The New York Times’ reporting on weapons of mass destruction in Iraq so instrumental in legitimating the lies that the Bush administration used to lead this country to war.

This is a fantastic insight, and indeed, it’s precisely the insight that we libertarians apply to the regulatory state. That is, just as a decentralized media and a skeptical public is better than the cathedral style of news gathering, so too are decentralized certification schemes and a skeptical public better than a single, cathedral-style regulatory agency “guaranteeing” that businesses are serving consumers well. Most of the time the regulators will protect the public, just as most of the time newspapers get their stories right. The problem is that no institution is perfect, and the consequences of failure are much more serious if you’ve got a population that’s gotten used to blindly trusting the authority figure rather than exercising healthy skepticism. Regulatory agencies are single points of failure, and in a complex economy single points of failure are a recipe for disaster.

Will Wilkinson makes the related point that journalists are prone to journalistic capture that’s very much akin to the regulatory capture that plagues government agencies.

Worried that decentralized news-gathering sources won’t be able to do the job the monolithic newspapers are leaving behind? Jesse Walker has a great piece cataloging the many ways that stories can get from obscure city council meetings to popular attention.

TLF reader mwendy points me to this Eben Moglen paragraph, presumably as evidence of his anti-libertarian agenda:

“…Moreover, there are now many organizations around the world which have earned literally billions of dollars by taking advantage of anarchist production. They have brought their own state of economic dependency on anarchist production to such a high level, that they cannot actually continue operating their businesses without the anarchists’ products. They, therefore, now begin to serve as founders, mentors, and benefactors, for anarchism. They employ our programmers and pay them wages. They assist our programmers in gaining additional technical skill and applying that skill more broadly. They allow me to heavily fund a carefully constructed law firm in New York, to train only lawyers to represent only anarchists on only the payrolls of the big companies which produce the money to pay for the legal representation of anarchism. They have to do that. They need anarchism to be legally solid. They do not want it to fail. They want the anarchist legal institutions that we have created to become stronger over time, because now their businesses depend upon the success of anarchist production. “In other words, we have reached a very important moment, a moment noticed some hundred years ago by my collaborators Marx and Engels. We have reached the moment at which the bourgeois power sources have turned the crank on invention to the point in which they are actually fueling their own downfall. They have created the necessary structures for their replacement and the forces which are speeding up that replacement are their own forces, which they are deliberately applying because the logic of capitalism compels them to use those new forces to make more money, even though in the long run it speeds the social transition which puts them out of business altogether. This is a very beautiful feeling…”

As I said before, Moglen is not the guy I’d pick to sell free software to libertarians. But I don’t think this passage is as outrageous as mwendy thinks. According to Wikipedia, anarchism “is a political philosophy encompassing theories and attitudes which consider the state, as compulsory government, to be unnecessary, harmful, and/or undesirable.” That certainly sounds like a laudable goal to me. I don’t personally think it’s possible to achieve a stateless society, but there are plenty of self-described anarchists who take fundamentally libertarian policy positions. Of course, Eben Moglen is not Murray Rothbard, and I’m sure there are plenty of issues where Moglen and I wouldn’t see eye to eye. But aside from his name-checking of Marx and Engels, there’s no evidence of that in this passage. It’s important to remember that libertarians’ objection to Marxism isn’t over Marxists’ desire for a classless society but their willingness to use violence to achieve it. But here it’s very clear that Moglen isn’t advocating the triumph of free software via violent revolution. The process Moglen describes is entirely peaceful and voluntary. Companies are funding the free software movement because it’s in their self-interest to do so. Maybe Moglen is right that in the long run this process will doom the proprietary software industry, but I don’t see how that would be a problem from a libertarian perspective.

I’ve written before that the world is full of left-wingers trying to achieve left-wing goals through peaceful means, and that this is something libertarians should celebrate. Many of these experiments will fail, of course, but the essence of a free society is letting these kinds of experiments run their course. Of course, we can all have opinions about the likelihood that any given experiment will succeed (I’m not expecting co-ops to topple commercial grocery stories any time soon, for example) but there’s nothing particularly libertarian about trying to predict in advance which forms of social cooperation will prove most successful.

When you strip out the left-wing rhetoric, that’s the process Moglen is describing here: a group of people decided to try a new way to develop software based on sharing rather than ownership, and it turns out that it out-performs proprietary alternatives in at least some sectors of the software industry. That’s an interesting result that we need to incorporate into our economic models. And it’s perfectly compatible with libertarianism provided that we understand that being a libertarian means being pro-liberty, not necessarily pro-business.

I recently subscribed to the Software Freedom Law Center’s podcast, and just finished listening to episode 5, in which SFLC director Eben Moglen talks about the history of copyright and patent law. It’s a bracing talk that’s bound to be controversial with a lot of people. And in particular, it’s framed in a way that’s not at all calculated to appeal to libertarians. With what I suspect is deliberate irony, he even uses the phrase “from each according to his ability, to each according to his needs” to describe what free software is all about.

Nevertheless, what struck me in listening to his talk was that even though Moglen’s rhetoric seems almost calculated to alienate libertarians used to aligning themselves with the political right, it’s awfully hard for libertarians to actually object to the substance of what the SFLC and the Free Software Foundation are doing. A quarter century ago, when Richard Stallman was upset with the trend toward away from free software, he didn’t run to Congress seeking legal changes. Rather, he sat down and started building an alternative. One that we know today as the GNU/Linux operating system. He did so without a penny of government support, and without expropriating any resources from his proprietary competitors.

And in the process, he provided a powerful counterexample to many of the standard tropes of copyright and patent debates. In a world where some of the most popular websites on Earth are built on the LAMP stack, it’s awfully hard to argue with a straight face that creativity will only happen if creators are given monopoly rights in their creations. The rest of us can argue until they’re blue in the face about what a world with weaker copyright or patent protections would look like, but Stallman and company have bypassed that debate entirely by offering an existence proof of what an alternative world would look like. It’s awfully hard to argue something can’t happen when it obviously has.

Which I think is what gives Eben Moglen the credibility to deploy what I might otherwise regard as absurdly overwrought rhetoric. Most revolutionaries preach about the utopia that will exist in the future. In contrast, Moglen is talking about a utopia that’s being built as we speak. And happily for libertarians, it’s a utopia that’s being built without a shot being fired, or a tax dollar being spent.

One of the recurring internecine debates in the world of libertarian tech policy is over the philosophical status of copyright. On one side, you’ve got the camp that regards copyright as no different from any other kind of property right. People in this category tend to regard peer-to-peer file sharing as simple theft, and they often support draconian measures to ensure peoples’ “property rights” are protected, just as we would do if there were a rash of burglaries. On the other side, you have libertarians who regard copyright as a limited government monopoly that’s been granted for the pragmatic purpose of encouraging innovation. Folks in this camp tend not to think that copyright deserves the same level of strong enforcement we give to tangible property rights, and they tend to be more ambivalent about file sharing. You’ll often hear people in this latter camp talk about the need for copyright industries to find new business models that will be more resilient in the face of competition from peer-to-peer networks.

During his time at the Progress and Freedom Foundation, Jim DeLong was probably the most prolific advocate of the “copyright as property rights” theory. He hasn’t been as active in copyright debates the last couple of years, but he’s back with a long article about the fate of the newspaper industry. In it, he warns that unless newspapers can establish “a property rights–based monetization model, based on subscribers or control of advertising or both,” the newspaper industry will become trapped in a “‘tragedy of the commons’ situation” followed by “both individual and collective death spirals.” What I find fascinating about this is that unlike most other industries, the newspapers don’t have a piracy problem. The recording industry’s problems are at least partly attributable to BitTorrent. But this is clearly not what’s killing the New York Times. People don’t go to peer-to-peer networks for illicit copies of today’s news. To the contrary, virtually everyone involved in the news business has followed copyright to the letter. News organizations may not like Google News, but their actions are likely fair use, and Google honors news organizations’ requests to be taken out of the index. Bloggers’ linking to and quoting from news organizations is indisputably fair use, and it’s hard to imagine news organizations—which derive revenue from advertising—want bloggers to stop linking to their stories.

DeLong asserts, without evidence, that “the Internet community seems unaware of the extent of its own dependence on the newspapers for raw material.” This is simply nonsense. I just skimmed the front page of Google News, and among the non-newspaper sources I saw were the BBC, CNN, CNet, Al Jazeera, MSNBC, ABC, Ars Technica, TheStreet.com, US News and World Report, Forbes, Chicago Public Radio, the Washington Independent, Slate, and Bloomberg. There’s no particular connection between owning a printing press and employing competent journalists. Many other kinds of organizations can and do employ journalists, with a variety of different business models.

In short, the newspaper industry is in the same death spiral as the recording industry, without the lawbreaking that’s commonly blamed for the recording industry’s troubles. And it seems to me that this poses a philosophical challenge to DeLong’s theory that the problem is a lack of respect for “property rights.” The decline of the newspapers is clearly a story of technological progress producing increased competition and entrepreneurship—precisely the sort of thing libertarians normally celebrate. The news business has gotten far more competitive over the last decade, and we’re now seeing a normal shake-out where the least efficient firms go out of business.

I think the fact that this is happening in an industry without a piracy problem should give us second thoughts about blaming the decline of other copyright industries on BitTorrent. The newspaper example suggests that even if we could completely shut down peer-to-peer networks, we should still expect the recording industry to decline over time as consumers gravitate toward more efficient and convenient sources of music. Piracy obviously accelerates the process, but the underlying problem is simply this: the recording industry’s core competence, pressing 1s and 0s on plastic disks and shipping them to retail stores, is rapidly becoming pointless, just as the newspaper industry’s core competence of pressing ink on newsprint and dropping them on doorsteps is becoming obsolete. Not surprisingly, when a technology becomes obsolete, firms who specialize in exploiting that technology go out of business. This is sad for the employees and shareholders of those firms. But it isn’t a problem for the broader society, and it certainly shouldn’t be of special concern for those of us who support markets and property rights.

Over at the New York Times “Room for Debate” blog, I’ve contributed my thoughts on the recent Facebook terms of service controversy.

Micropayments are an idea that simply won’t die. Every few years, there’s a resurgence of interest in the idea. Critics predict they won’t work. The critics are then proved right, as companies founded to promote micropayments inevitably go belly-up.

The latest iteration comes courtsey of Time magazine, which recently saw fit to run a cover story about how micropayments will save newspapers. And Shirky once again steps up to the plate to explain why micropayments won’t work any better in 2009 than they did in 1996, 2000, or 2003. (I wrote up Shirky’s arguments here and here) But for my money, the best response to the Isaccson piece is at the Abstract Factory blog:

Why did Time’s editors choose to run this article, rather than, for example, an article by Shirky or Odlyzko or any number of people who would write something more clueful? I hypothesize two reasons. First, Time’s editors themselves do not have a clue, and also do not have any problem publishing articles on a subject they have no clue about. Second, look at the author blurb at the bottom of the article (emphasis mine):

Isaacson, a former managing editor of TIME, is president and CEO of the Aspen Institute and author, most recently, of Einstein: His Life and Universe..

When you’re a member of the club, your buddies will publish any old crap you write; better you than some stupid professor nobody knows. We’ve seen this before. I mentioned irony earlier. Isaacson has filigreed the irony with extraordinary precision. His article is inferior to material produced for free online by people who draw their paychecks from other sources (Shirky and Odlyzko are both professors who also work(ed) in the private technology sector). Furthermore, it is inferior as a direct consequence of structural weaknesses of traditional magazines. Despite its inferior quality, it presumes its own superior status by ignoring or dismissing contributions to the discussion which occurred outside of traditional “journalistic” media. Finally, taking that superiority as a given, it argues, poorly, that people ought to pay money for products like itself, because (quoting Bill Gates) nobody can “afford to do professional work for nothing.” In short, Isaacson’s article not only fails to make its case, it actively undermines its own case while doing so.

Quite so. There’s more good stuff where that came from.

that’s very NSFW. But is it fair use?

I should probably say a bit more about the substance of Ben’s property rights post, which wasn’t primarily a critique of people with tacky property rights websites. Ben focuses on the conceptually sound idea that property rights are really bundles of rights to dispose of particular things in particular ways. He emphasizes the diversity of these rights:

Text and designs are obviously different from household objects, but we all knew that. In fact, automobiles are also different from household objects. So is land, and the houses built on that land, which differ from each other. Your kidney is also significantly different. Oh, and commodities such as corn, which differ from corn futures. Correspondingly, the rights associated with all of these things are different.

He lists a variety of different rights we can have in some but not all of these things: transfer, sale, use, modification, exclusion, etc. What I think doesn’t get enough emphasis, however, is the “things” part. That is, an automobile, a kidney, and a bushel of corn are all discrete, well-defined things with respect to which which one can have rights. Everyone understands what it means to say that I have the exclusive right to use, transfer, or sell my car. By their nature, cars have only one person driving them at any given time, and so there’s an obvious need for some way of deciding who gets to drive which cars.

Now, compare that to someone who “owns” a “method for managing the consumption risk costs of a commodity.” Ben’s right that we’ve got a bundle of sticks here just as we do with the car. Had Bilski’s patent been upheld, he could have kept the patent for himself or licensed, given, or sold it to others. The problem is that it’s totally unclear what the “thing” is to which the sticks in this bundle relate. Reasonable people can parse the language of the patent and come to radically different conclusions about the scope of the patent right, all of them plausible. A patent is not the ownership of a pre-existing thing that needs an owner. Rather, the things over which the patent system gives people ownership are the creations of patent law. And in many cases, it makes little sense to talk about them as “things” at all.

Unfortunately, the patent bar has developed terminology that papers over these difficulties. We talk of owning a “technology” or an “invention” in the same way we talk about owning a car or a bushel of corn. But in reality, a “technology” is not a discrete thing in anything like the same sense that a car or a bushel of corn is. If I build a website that allows my customers to purchase things with one click, I may technically be infringing Amanzon.com’s patent, but it strikes me as an abuse of language to say that I’m “stealing Amazon’s technology.” What many patents claim is not a specific “technology” or “invention” so much as a broad category of machines or processes that may be only loosely related to one another.

When we describe “inventions” or “technologies” as things that can be owned as property, that carries the implication that inadvertently writing software that’s similar to another company’s software is in the same moral category as stealing a car. I think that’s self-evidently absurd, and that adopting such morally loaded terminology impedes clear thinking. It’s important to remember that the “technologies” and “inventions” patents protect are more often loose categories of related machines or processes rather than sharply-defined entities. The language of property rights obscures, rather than illuminates, this point, and I think we’d all be better off if people stopped employing it.

Ben Klemens, whose work I’ve praised in this space in the past, has a new essay up that I found a little bit aggravating. It’s on the perennial question of whether it makes sense to describe patents and copyrights as property. I’ve been a critic of the term “intellectual property” for a few years. Ben’s on the other side.

What I disliked most about Ben’s piece was the condescending tone he takes toward property rights activists (like me). Klemens has little patience for property rights activists whose websites have “lots of clip art of flags and eagles,” and who are under the delusion that the holders of property rights have some kind of moral claim against government interference with those rights. Klemens also critiques neoclassical scholars who “will try to trip you up into thinking that society is built around natural, objective property rights rather than social construction.” Klemens concludes by arguing that “Sure, IP law is artificial, but physical property law is equally artificial; we’re just so used to it that we’ve forgotten.”

Now look, on some level this is indisputably correct. God doesn’t strike trespassers down with lightning; property rights are defined and enforced by fallible human beings. The problem is that Klemens argument proves too much. The same reasoning can undermine any moral or legal rights. On some level a woman’s right not to be raped is a “social construction,” but I don’t think that in any way diminishes the strong moral claim that each and every woman has not to be raped, regardless of what the rest of us regard as “socially optimal.”

The crack about the eagles and American flags seems to imply that only ignorant rubes believe that property rights could have a moral dimension. Sophisticated thinkers know that property rights exist by the grace of the legislature, and so if the government decides that the “socially optimal allocation of rights” involves taking your house and giving it to a wealthy developer so he can build a shopping mall, that’s too bad for you but it doesn’t raise any more profound moral issues.

The problem with this is that it completely ignores how our actual system of property rights came into being. Ben’s right that most people have forgotten how we got our modern system of property rights, but the things we’ve forgotten are almost precisely the opposite of what he imagines them to be. Traditional property rights are not and never have been the creation of governments. Indeed, government efforts to create new property systems from whole cloth tend to be abject failures. People ignore them, and the government lacks the resources to impose them on an unwilling population. This is the situation you saw on the American frontier during the 19th century, and it’s the situation you see today in many third-world countries with dysfunctional property systems. The formal property rules were and are radically out of step with the informal property rules that actually govern the day-to-day lives of ordinary people.

In contrast, successful systems of property rights tend to emerge spontaneously from the bottom up, and are simply recognized and reinforced by the government. Over time, consensus emerges among neighbors about who owns what and what people may do with their properties. The job of the courts and the legislature isn’t so much to decide who owns what (ordinary people already know that) but simply to record and ratify the already-existing social consensus and handle disputes at the margin.

To bring things back to the patent and copyright debates, I think the right lesson from the analogy to physical property rights is exactly the opposite of the legal positivism Ben seems to be defending. In reality, legislatures have very limited powers to impose property-like systems on an unwilling populace. When a property-like legal regime is widely ignored or evaded (think software patents or peer-to-peer file sharing) that’s a strong signal that the legislature needs to re-write the law to make it work “with the grain” of peoples’ existing attitudes and expectations.

In contrast, when the formal law is well-aligned with peoples’ expectations, it tends to attract the passionate support of ordinary citizens—the kind of people who like to adorn their websites with clip art of eagles and American flags. It’s not a coincidence that there are thousands of passionate property rights activists who are mobilizing against eminent domain and asset forfeiture, but surpassingly few pro-copyright or pro-patent activists who are mobilizing against fair use and the Bilski decision. (Patrick Ross doesn’t count.) Traditional property rights are an organic legal institution that emerge spontaneously from peoples’ day-to-day interactions. Software patents are an invention of the patent bar that has been vigorously rejected by rank and file software developers. I think it’s both philosophically misguided and rhetorically counterproductive to equate the two.

Steve Schultze and I don’t agree about network neutrality regulation, but he and Shubham Mukherjee recently gave a fantastic talk on public access to court records. By law, federal court proceedings are not subject to copyright protection. However, the federal courts have a byzantine web-based reporting system called PACER that offers 1990s-era search functionality and charges eight cents per page for access to court documents. Astonishingly, this includes search results. Run a search on PACER that turns up no results, and the federal judiciary will charge you eight cents for the privilege of learning that your search returned no results. Run a search on PACER that turns up a lot of results and you get charged as much as $2.40 for a single search. The system has no keyword search, and there isn’t a single, integrated PACER system: each district and circuit court maintains its own records, and so you must already know which court’s PACER web site to visit before you conduct your search.

The system generates about $60 million per year in revenues for the court system, at an incalculable cost to the rest of us. Access to these documents is essential to understanding the laws that govern us. They are not subject to copyright, and they should be made as widely and cheaply available as technically feasible. Twenty years ago, PACER was a great step forward when it was first implemented more than a decade ago, but it’s now painfully behind the times. Steve and Shubham are working on a paper on this topic, and I’m looking forward to reading it.

Slashdot user “flyingsquid” suggests why Blizzard has had such a winning streak in federal copyright cases:

You, know, this could just be a coincidence, but a couple of weeks ago I was in Northrend and I ran into an orc named “JudgeCampbell”. He had some pretty sweet weapons and armor he was showing off, including a Judicial Robe of Invicibility and a Judge’s Battle Gavel of The Dragon, which did an unreal amount of damage. Also, he had all these really powerful spells I’d never even heard of before, such as “Contempt of Court” and “Summon Bailiff”. To top it all off, he had like 200,000 gold. I asked where he’d gotten all this stuff and he said he’d just “found it all in some dungeon”. It sounded kind of fishy to me, but I didn’t think anything much of it at the time.

I demand an investigation!

Russ Roberts’s excellent EconTalk podcast had an especially good episode last week as he had Eric Raymond of “The Cathedral and the Bazaar” fame on his show. ESR does a great job of explaining the economics of free software. And he offers a take on the network neutrality debate that is more reflexively hostile to the telcos than I think is justified, but that nonetheless gets the big points right: network neutrality is important, but government regulation isn’t a good way to protect it. He discusses his views in more detail here.

One minor quibble I had with ESR’s presentation: he distinguished Wikipedia from free software projects by saying that software could be judged objectively (either it works or it doesn’t) while editing Wikipedia is an inherently subjective activity. He suggested that for this reason, Wikipedia doesn’t work as well as free software. I think this ignores the central role of verifiability in Wikipedia’s editing process. The truth may be a matter of opinion, but it’s usually not a matter of opinion whether reliable sources have or haven’t made some claim. And as long as most of the reliable sources agree, which they generally do, it’s possible for an impartial observer to compare a sentence in Wikipedia with the corresponding sources and see if the sentence is a fair summary of the source.

Of course, this doesn’t work in every circumstances. Some topics are so intensely controversial that there is wide divergence among reliable sources, or sharp disagreement about which aspects of a topic to focus on. There’s just no getting around the fact that the Wikipedia articles on George W. Bush or abortion are going to be the subject of perpetual edit wars for years to come. But these articles are a relatively small fraction of what Wikipedia does. There are lots and lots of topics that are not especially controversial, and in those context Wikipedia’s decentralized editing process converges on the “right” answer (as judged by comparison to reliable sources) remarkably quickly.

On the flip side, it’s worth remembering that the free software movement has had a few bitter rivalries of its own over the years. Most of the time, free software converges on a reasonable answer and people walk away happy. Sometimes they don’t. Both free software and Wikipedia work astonishingly well most of the time.

In the summer of 2000, while I was in college, I moved into a big house with 6 other guys. DSL was just coming on the market, and we were big nerds, so we decided to splurge on fast Internet access. Back then, “fast Internet access” meant a blazing fast (Update: 512k) DSL connection. We had to pay the phone company about $65/month for the line. And we paid our Internet Service Provider $55/month for the connectivity and 8 static IP addresses (thanks to local loop unbundling these were separate services). For $120/month we got to live in the future, enjoying connectivity 10 times faster than the 56k modems that almost everyone had at the time.

Adjusting for inflation, $120 of 2000 money is about $140 of 2009 money. So I was interested to see that St. Louis, MO, where I lived until recently, is about to get 60 mbps Internet service courtesy of Charter, the local cable monopoly. Had I stayed in St. Louis for another year, I would have been able to get 120 times the bandwidth for the same inflation-adjusted cost as the broadband access I had less than a decade ago.

It has almost become a cliche to lament the dismal state of America’s broadband market. There do seem to be countries that are doing better than we are, and we should certainly study what they’ve done and see if there are ideas we could adapt here in the states. But I also think a sense of perspective is important. I can’t get too upset about the possibility that in 2018 Americans might be limping along with 2 gbps broadband connections while the average Japanese family has a 20 gbps connection.

One of the most fundamental disagreements in the debate over software patents concerns the Supreme Court. Some software patent supporters like to cite the case of Diamond v. Diehr as the decision that legalized software patents. Many others argue that the Supreme Court’s classic trilogy of software patent decisions from the 1970s and early 1980s just weren’t clear enough to be of much use in the modern world.

In a new article for Ars Technica, I take a close look at these claims and talk to a couple of prominent patent scholars who make them. I find that like most Supreme Court decisions, the Benson, Flook, and Diehr decisions are hardly models of clarity. It’s possible to find passages in those decisions that could be cited in support of either side of the software patent debate.

However, I think that it’s hard to escape the conclusion that, at a minimum, the Supreme Court intended software patents to be far more limited than they are today. For the last decade, the Federal Circuit has been allowing so-called Beauregard claims, which claim software printed on a machine-readable media such as a CD. As I explain in the article, it’s hard to see a plausible interpretation of the Supreme Court’s precedents that would include these kinds of “pure” software patents. And it seems to me that the most reasonable interpretation of the high court’s decisions is the one Ben Klemens has articulated: that software by itself cannot be patented, and that “insignificant post-solution activity” (to quote the Diehr majority) such as displaying the results of a calculation on a computer screen, cannot transform an unpatentable algorithm into patentable machine.

There’s a lot more detail in my article, so I hope you’ll check it out.

Don Marti has some choice words for Braden’s post on Scott McNealy and government open source contracting:

Let’s say that one of those Rent-to-Own stores that sells electronics under a confusing, one-sided contract got a big idea. Hey, we’re going to get a piece of the government market for LCD monitors! Wait a minute, though. The government has a competitive bidding process for electronics, and no bureaucrat is going to commit to paying two grand for a $300 monitor. Even if you could bribe him, somebody is going to look at the books eventually. Looks like life is tough for our fine-print-slinging rent-to-own sales weasel. But all is not lost. Next step: hire a fake-Libertarian rent-seeking lobbying operation out of Washington, D.C. Now you can re-cast the corporate welfare you want as having the freedom not to get your rightful corporate welfare, I mean property, taken away from you. Put some Libertarian-sounding spin on the rent-to-own monitor plan, and now it’s: There’s a Regulatory Mandate to buy only Open Bid Monitors! Why can’t we have Fair Competition betwen the Open Bid model and our business model?

I don’t think the name-calling is necessary, but Don does raise some interesting points. My thoughts:

• I don’t think there’s really a matter of libertarian principle on either side of this debate. When the government is buying goods and services for its own needs, its primary obligation is to be good stewards of taxpayer funds. So if the evidence showed that buying free software tended to be a consistently better deal than buying proprietary software, it might make sense for the government to decide it was always going to buy free software.
• I don’t think the “regulatory mandate” language makes very much sense. Ordinarily, when libertarians talk about “regulatory mandates,” we’re talking about mandates that get imposed on private parties who are minding their own business. But there’s no getting around the fact that when government purchases software for its own needs, it has to “mandate” the criteria for purchasing the software. And licensing terms certainly seem like fair game to me.
• Freedom matters. That is, the advantage of free software isn’t simply that the government saves on licensing fees. When you adopt a proprietary software product, you’re locking yourself into that vendor’s products and services. If the vendor screws up, you can’t just fire the vendor and hire someone else to maintain the infrastructure. Firing the vendor means, at a minimum, switching software, and may require switching file formats.
• If the government is the primary customer for some category of software product, the case for requiring open source solutions is considerably stronger. The point of proprietary business models is to allow the vendor to spread the initial cost of development over multiple customers. But if the only customer is the taxpayer, then choosing a proprietary software product simply amounts to the government putting itself (and by extension, taxpayers) in a weaker position in future contract negotiations. Voting machines are a good example. There isn’t much of a private market for DREs, so it’s hard to see the argument for accepting bids from vendors who won’t provide access to source code.

With all that said, I think there are solid practical reasons not to exclude proprietary software from government contracting across the board. If a product like Office or Photoshop dominates a market, it doesn’t make sense to exclude that product from consideration. The government is a small part of those markets, and insisting on open source products is more likely to simply leave the government with inferior software and/or higher costs.

There’s also a basic Hayekian point that a certain amount of decentralization is critical to the success of any large organization. The head of IT for a large government agency isn’t necessarily going to know about all of the software being used within his agency, and excluding proprietary software from considerations could cause significant hardships for units within the agency that depend on particular proprietary software products. It probably makes more sense for the head of IT to make sure that the relevant decision-makers clearly understand the benefits of open source software and the problems of lock-in, but leave the final decision up to people doing the actual work.

I’ve been thinking a fair amount about software patents the last couple of weeks. I recently attended a Brookings Institution conference that focused pretty heavily on software patents, and since then I’ve interviewed several sharp patent scholars in preparation for a forthcoming article. In those conversations, I noticed the same cultural gulf I blogged about on Techdirt last week. You might say that on the subject of software patents, lawyers are from Mars and programmers are from Venus.

I think there’s a universal human tendency to over-estimate the importance of whatever you happen to be an expert on. I know lots of geeks who believe everyone and their grandmother should use Ubuntu, vi, git, RAID, and so forth. A lot of economists believe that the rest of the social sciences would be better off they all started using the methods of economists to do their jobs. When we develop human capital in some particular field, we tend to get a corresponding emotional investment in that field.

So when a programmer thinks about software patents, he’s interested in improving the software industry. Given how screwed up software patents are, a lot of us go straight for the most direct and elegant way to accomplish that objective: excluding software from patentability. In contrast, when a patent lawyers thinks about software patents, he’s interested in fixing the patent system. From that perspective, abolishing software patents looks like a horrible hack, because the underlying problems that caused software patents to be such a mess are probably responsible for problems in other industries too. Patent scholars tend to view the underlying industries that operate under the patent system as homogenous and interchangeable. From the perspective of the patent theorist, it doesn’t really matter if a patent covers an impotence drug, a one-click shopping website, or a method for managing the consumption risk costs of a commodity. They’re all “inventions” or “technologies” that a patent “protects.” And obviously, if your starting assumption is that “technologies” can be bought and sold like chunks of pig iron, then it’s going to seem weird and arbitrary when people suggest that certain categories of “technology” should be excluded from that process.

The problem is that in the real world doesn’t look very much like the patent theorist’s model. Actual patent-eligible industries are vastly different from one another, and it’s crazy to just assume that patent rules that work well for the pharmaceutical industry will also work well for the software industry. But of course, to appreciate this point it’s helpful to know a fair amount about the underlying industries. And if you spend a lot of time learning about particular industries, then you run the risk of looking like a business or computer science professor, rather than a law professor.

When you’re wearing your law professor hat, you fix the patent system by suggesting tweaks in patent doctrine. I’ve heard a dizzying array of proposals for fixing the patent system, ostensibly to fix the problems that have cropped up in the IT industry. These include changing the rules for obviousness, definiteness, and enablement, having more specialization in the courts, having less specialization in the courts, hiring more examiners at the patent office, giving judges more training, raising fees at the patent office, reducing damages for infringement, switching to a “first to file” system, limiting forum shopping, making injunctions harder to get, establishing an independent invention defense, and probably a lot of others. Each of these proposals are supported by lengthy, erudite law review articles laying out exactly how and why their preferred reform would improve the patent system’s performance.

I don’t doubt that many of these proposals would improve the patent system on the margin. Indeed, I support several of them. But they strike me as bizarrely circuitous ways to deal with what is really a pretty straightforward problem: patents aren’t well-suited to the software industry. Of course, patent scholars tend to object that defining software patents is difficult, and indeed it is. But patent law is chock full of hard-to-define concepts. No serious patent scholar would say that because obviousness is hard to fine, we should just stop trying to invalidate obvious patents. And a “no software patents” rule at least has the virtue of having an obvious and direct causal link to the software patent problem, which is more than can be said for most of the reform proposals now before Congress.

I was very interested to read Berin’s post about the Boxee, a device I had not heard about until today. I’ve been asking for years why there are no good video jukebox products on the market, so I’m always interested to see new entrants in the market.

If Wikipedia is to be believed, Boxee is a fork of the XBMC Media Center, which I first wrote about way back in 2006. The reason you may not have heard more about the XBMC Media Center is that it sits in an uncomfortable legal grey area. Thanks to the DMCA, one of its most inportant features—the ability to play and rip DVDs—is illegal. And there are probably other DMCA- and software-patent-related legal impediments to releasing a product like the XBMC. As a consequence, the major consumer electronics manufacturers have released relatively crippled set-top boxes that have not caught on with consumers.

Boxee’s wikipedia page suggests that Boxee uses libdvdcss, a cousin of the DeCSS library that the courts ruled to be an illegal “circumvention device” back in 2001. And the DMCA holds that someone who “trafficks” in a circumvention device “willfully and for purposes of commercial advantage or private financial gain” should be fined up to $500,000 and imprisoned for up to 5 years.

Now, the NYT article says that “Lawyers say that Boxee does not appear to be doing anything illegal,” although it doesn’t quote any actual lawyers, nor does it say which legal issues those lawyers examined. It’s possible that Boxee stripped out libdvdcss and replaced it with code that has been approved by the DVD founders. Moreover, it seems that Boxee’s strategy is to just build cool technologies and let the legal chips fall where they may:

Mr. Ronen said that like many start-ups, Boxee was definitely leaping without looking. “Don’t assume we have lawyers. That’s expensive,” he said.

This is a very risky strategy, both from a business perspective and for Ronen personally. But it’s also likely to pay off. If Ronen is able to get enough customers before the MPAA can be roused into taking legal action, they have a pretty good shot at winning the resulting PR war and forcing the MPAA to back down, even if the MPAA has the law on its side. And indeed, that may be the only way to break into this market, because if he plays by the rules he’ll never get the studios’ permission to build a set-top box the studios don’t control.

Fortunately, courts tend to be swayed by the perceived “legitimacy” of a technology’s designers. Remember, for example, that just 7 years after suing to keep MP3 players off the market, the recording industry insisted to the Supreme Court that everyone knew MP3 players were legal. There weren’t any changes to the law in the interim. Rather, MP3 players had become a familiar technology and so judges intuitively “knew” that any interpretation of the law that ruled out MP3 players must be wrong. If Boxee can grow fast enough, and can cultivate a “good citizen” image, it may be able to pursuade judges that any interpretation of the DMCA that precludes Boxee must be wrong.

The more fundamental point, of course, is that it’s ridiculous that Ronen has to worry about these legal issues in the first place. The copy protection technologies Ronen is circumventing haven’t stopped piracy, they’ve simply given Hollywood a legal club with which to bludgeon technology companies it doesn’t like. Had the DMCA not been on the books, we likely would have seen a proliferation of XBMC-like device and software on the market several years ago.

It has been suggested that the American wireless market is a “textbook oligopoly” in which the four national carriers have little incentive to innovate or further reduce prices. I’m more sympathetic to this argument than some libertarians, but over at Techdirt Carlo offers some evidence that competition is alive and well in the wireless marketplace. For a while, the national carriers have offered unlimited voice and text messaging services for around $100/month. Carlo notes that a couple of regional carriers that focus on the low end of the market and have less comprehensive coverage maps have started offering unlimited connectivity for as little as $50/month. The latest development is that Sprint’s Boost Mobile unit is joining the $50/month flat rate club.

Jim Harper has made the point in the wired broadband market, but it deserves to be made here too: competition happens along multiple dimensions. Consumers have different trade-offs between price and quality, and so products with different feature sets and price points often compete directly with one another. There may be only four national carriers, and the regional carriers may not be able to offer service that the typical consumer finds comparable to the offerings of the national networks, but that doesn’t mean the regional carriers are irrelevant. Offering a bargain option at the low end of the market really does put pressure on the margins of the tiers above them. As long as there are some AT&T and Verizon customers who would be willing to put up with spotty coverage in exchange for a lower phone bill, AT&T and Verizon will have an incentive to cut their prices over time.

Of course, we could use more wireless competition. But we also shouldn’t lose sight of how much good the spectrum that’s already been auctioned off has done. It’s hard to create competitive telecom markets. For all of its flaws, the mobile industry is a real success story. And the solution to the flaws is to continue what we started 15 years ago: auctioning off more spectrum and creating real property rights in the airwaves.

If you’re in the DC area (and not at Cato’s important counter-terrorism conference that starts this morning) I hope you’ll consider attending two DC-area events I’ll be participating in. First, tomorrow I’ll be tag-teaming with fellow TLFer Jerry Brito to give a Hill Briefing on network neutrality. The talk will be designed for Hill staffers, but it’s open to the public and you’re encouraged to come and ask us softball questions.

Then on Wednesday, I’m going to be a panelist at a Brookings Institution conference on the limits of abstract patents. Also on panels will be some of my favorite patent law scholars, including Ben Klemens (an organizer of the conference whose excellent book I discussed here), Jim Bessen (whose book I reviewed here), Peter Menell (whose Regulation article I discussed here), and John Duffy (with whom I often disagree: I criticized him here but loved his work on appellate competition). It promises to be a great conference on an important topic.

Don’t miss Jim Harper’s excellent post on the strange way people have responded to the failures of regulation on wall street. In a Meet the Press exchange, we learn that people reported Bernie Madoff’s suspicious books to the SEC, which chose not to do anything about it. And it was agreed around the table that the Madoff affair debunks “the idea that wealthy individuals and ‘sophisticated’ institutional investors don’t need the protection of government regulators.” “There’s no question we need a real regulator,” says CNBC’s Erin Burnett.

The problem is that we had a “real regulator.” Ponzi schemes and dishonest bookkeeping are already illegal. Had the SEC been so motivated, it had all the authority it needed to investigate Madoff’s books, discover the problems, and shut his firm down. In a rational world, this would be taken as a cautionary tale about the dangers of assuming that regulators will be vigilant, competent, or interested in defending the interests of the general public rather than those with political clout. Instead, we live in a bizarro world in which people believe that the SEC’s failure to do its job is an illustration of the need to give agencies like the SEC more power.

We of course see the same sort of confusion in debates over regulation of the technology sector. For example, the leading network neutrality proposals invariably wind up placing a significant amount of authority in the hands of the FCC to decide the exact definition of network neutrality and to resolve complex questions about what constitutes a network neutrality violation. Too many advocates of regulation seem to have never considered the possibility that the FCC bureaucrats in charge of making these decisions at any point in time might be lazy, incompetent, technically confused, or biased in favor of industry incumbents. That’s often what “real regulators” are like, and it’s important that when policy makers are crafting regulatory scheme, they assume that some of the people administering the law will have these kinds of flaws, rather than imagining that the rules they right will be applied by infallible philosopher-kings.

A couple of quick follow-ups to my last post: first, a commenter points out that Career Builder is an example of a successful spin-off from a major media company. (Actually, from three media companies; I bet having ownership by multiple companies helped insulate the company from any one firm’s internal politics). So it appears that the spin-off model can work.

Second, the always-interesting Tom Lee points to the Washington Post’s online operation as an example of the spin-off model. This is a really interesting example because it’s closer to the core of the WaPo‘s business than Career Builder is to Gannett’s. And by all accounts, it was relatively successful. I’m pretty sure I’ve read multiple people comment that the Post is a local newspaper with a national website, which is precisely what you’d want a successful spin-off news organization to do.

The problem is that washingtonpost.com is nowhere close to being a free-standing organization. They get tremendous benefit from having access to content from the print Post, and while I haven’t looked at their business model in any detail, I’d be willing to bet that there’s massive cross-subsidy going on. That makes it a better website, but the problem is that it relieves the web side of the business of the need to come up with new, lower-cost methods for generating news. Which means that if and when the print side hits an iceberg, the online side won’t be able to stand on its own.

Having recently read The Innovator’s Dilemma, it’s worth pointing out that the discussion Ezra Klein and Matt Yglesias are having about the decline of newspapers is a classic illustration of the principles Clayton Christensen laid out a decade ago. Internet news is a classic disruptive technology. At its outset, it was simple, dirt cheap, and in many ways inferior to established journalism. But it improved over time, and once it began to rival traditional journalistic outfits in quality around the middle of this decade, the “dirt cheap” part of the equation began to dominate. When your competition can produce a roughly comparable product for a small fraction of the cost, your days are numbered.

But here’s the really important point that Christensen made that is often missed in these kinds of discussions: it’s often close to impossible for an organization built around an older technology to retool for a new, disruptive one because their cost structures just don’t allow it. The New York Times is an expensive place to run. It’s got writers, editors, typesetters, delivery trucks, an ad sales force, a big building, travel budgets, and so forth. In order to recoup those costs, they have to make a certain amount of revenue per unit of output. The institutional structure of the New York Times makes it almost impossible for it to produce news the way TPM Muckraker or Ars Technica do. The need to make payroll and cover their rent makes it almost mandatory for them to focus on their traditional core competencies because even as those markets shrink they still offer better margins than the emerging businesses.

Matt’s suggestion of launching NYTList a decade ago illustrates the point well. It’s true that in the long run this probably would have made the Times more money. But in the short run this would have been a truly wrenching transition. At a time when other papers were enjoying fat margins from their classified business, the Times would find more and more of its classified customers switching to the new version. It would have had to start laying off the classified staff and trimming other parts of the budget to cover the lost revenue. And it would have been a huge gamble. It was far from obvious in 2000 that Craigslist would be as big as it has become. So yes, theoretically an enlightened NYT manager could have foreseen the growth of Craig’s List and countered it. But in practice doing so would have required super-human foresight and determination, and an extremely deferential board of directors.

Christensen’s conclusion is that the only way to avoid this grim fate is to spin off an independent subsidiary that can pursue new markets without worrying about fat profit margins or cannibalization of existing product lines. GM’s spin-off of Saturn in the 1980s is a good example of this model. This is still an extremely difficult thing to pull off. It takes a CEO with the foresight to see what’s coming and the political capital within the firm to shield the spin-off from the parent company’s politics. I’m not aware of any high-profile newspaper firms that attempted this, but I’m not sure we can really blame the newspaper managers. It’s a really hard thing to pull off. Christensen was only able to find a handful of firms—in any industry—that pulled it off successfully, and the CEOs who did it almost all said that it was one of the most difficult things they did as managers.

Companies are not big people. They change much more slowly than individual people do. And anyone suggesting that a firm should do things in a new way—even the guy at the top—is going to face strong pressures from traditionalists who want to continue doing things the old way. And in the short run, the traditionalists are almost always right. The old way of doing things is almost always going to be more profitable in the short run. So although I think those who predicted the newspaper industry’s decline are entitled to a certain amount of smugness, I think it’s absolutely not fair excoriate the managers who failed to move more decisively to address the problem. With the benefit of 20/20 hindsight, it’s easy to come up with scenarios that would have turned out better. But from an ex ante perspective, these trends were far from clear, and the people making the decisions were under tremendous pressure to continue the status quo.