At Matthew Yglesias’s suggestion, I’m perusing the terms of the US-Colombia trade deal. As Matt points out, a lot of this stuff has little or nothing to do with trade. I’ve already pointed out the problems with including provisions in “free trade” agreements dictating changes in Colombia’s copyright and patent laws. But it seems to me that’s far from the only non-trade-related provision in the agreement. For example:
An Open and Competitive Telecommunications Market: Users of Colombian telecom networks are guaranteed reasonable and nondiscriminatory access to the network. This prevents local firms from having preferential or “first right” of access to telecom networks. U.S. phone companies obtained the right to interconnect with Colombian dominant suppliers’ fixed networks at nondiscriminatory and cost-based rates.
Now, it seems to me that when we force American telecommunications companies to provide “the right to interconnect” with competitors “at nondiscriminatory and cost-based rates,” many libertarians denounce it, with good reason, as “infrastructure socialism.” I don’t know anything about Colombia’s telecommunications market. Perhaps they’ve got a less competitive telecommunications market than we do, or maybe I’m misreading the details of the proposal. But the broader point is that this has absolutely nothing to do with trade, free or otherwise. Whether or not mandatory interconnection is good policy, a trade agreement seems like a lousy forum for deciding on it. At most, the rules should say that any interconnection policies Colombia might enact should apply equally to domestic and foreign firms, but it sounds like they’re going considerably beyond that.
There’s lots of other stuff in here that has nothing to do with free trade. There are the now-obligatory environmental and labor standards. There’s “Trade Capacity Building,” which appears to involve giving US taxpayer dollars to Colombian businesses. Even the stuff I’m inclined to think are good ideas on the merits, such as “Fair and Open Government Procurement,” don’t seem to have any obvious relationship to the standard arguments for free trade. If the Colombian government wants to squander Colombian taxpayer money on inefficient domestic contractors, that’s not a good thing but it’s also not a trade barrier.
Of course, there are some genuine trade liberalizations in there, and they may be significant. But as special interests pile more and more unrelated provisions into these agreements, I think it becomes harder and harder to expect people to support them simply based on fundamental arguments about comparative advantage. Whatever arguments might be made in favor of “state-of-the-art protections for digital products such as U.S. software, music, text, and videos” or “programs for small and medium-sized enterprises and farmers, and programs for improvements in transportation infrastructure and telecommunications,” they certainly have little to do with anything David Ricardo wrote.
Over at Ars, I’ve got a write-up of Rescuecom, an important trademark case that was heard by the Second Circuit last week. I shamelessly ripped off James Grimmelmann’s excellent first-hand write-up of the exchange:
Trademark law is designed to protect consumers by preventing companies from selling their products under false pretenses. The core issue of the Rescuecom case is whether choosing a competitor’s trademark as an advertising keyword is likely to confuse consumers. Rescuecom has argued that Google profits from consumer confusion by obscuring the distinction between organic search results and paid advertising. Google, in contrast, compares its advertisements to a grocery store that stocks a generic product on a shelf alongside its brand-name competitor—a use that courts have consistently upheld as legal.
Last week, the case was heard by a three-judge panel of the Second Circuit. Law professor James Grimmelmann was there, and he gives a thorough summary of the exchange. The argument focused heavily on dueling analogies. Google’s lawyers invoked the grocery-store-shelf analogy and suggested that the situation was akin to handing out flyers in front of a competing restaurant.
Rescuecom’s lawyer countered that there was no concept of “next to” on the Internet. He argued that a consumer entering “Rescuecom” into Google’s search box was expecting to be taken to Rescuecom-owned sites, not to those of Rescuecom’s competitors or critics. He preferred to analogize Google’s actions to a scenario in which a listener calls directory assistance and is read a paid advertisement for a competitor. A judge also brought up a scenario in which a customer asks a druggist for Advil and is given Aleve instead.
My favorite analogy, though, comes from this comment in the Ars forums:
IIRC there was a case like this regarding Pepsi and Coke, where one of them was going around threatening restaurants who provided the competitor’s product when the customer asked for their product. Except that the recommended alternative was for the restaurant to instead tell the patron, “we haven’t got Coke, how about Pepsi instead?” Which seems to be much closer to what Google is doing. When you type in rescuecom and hit “I’m feeling lucky” then you get rescuecom.com, not rescuecomcompetitor.com or any other advertisers. When you hit search, you get a long list of results like you’re supposed to. Some of them are competitors and critics as well they should be.
I don’t know what case this might be referring to, but it’s an excellent example for Google’s argument. Not only is this exactly the “ask for Advil, get Aleve” scenario, but there’s no question that both Pepsi and the restaurant are profiting from it. And I’m reasonably certain that this is not regarded as trademark infringement. So if Google does the automated equivalent—search for Rescuecom, get an ad for Geek Squad—I don’t see why that would be different.
I’m a big critic of the Bush administration’s foreign policy, so I was excited to see this plan, endorsed by 42 House candidates, to end the war. However, I was annoyed to find that this was part of the plan:
The lack of impartiality and skepticism on the part of the news media allowed administration claims to go unchallenged, and denied the American public a full examination of the arguments for and against going to war.
The consolidation of ownership of news organizations means that it doesn’t take long for a beltway- centric “conventional wisdom” to take shape. Due to the limited number of media outlet owners, this conventional wisdom is repeated over and over, through a variety of outlets…
This legislation would require the FCC to include greater public participation when changing regulations related to broadcast ownership, to do studies on the impact of such rule changes, and to establish an independent panel on increasing the representation of women and minorities in broadcast media ownership.
On one level, this is just empty grandstanding. Requiring “greater public participation” and writing more studies just isn’t going to have a significant effect on whether Fox News’s commentators are biased in favor of wars. As James and Adam have pointed out ad nauseum on this blog, the FCC’s decision-making process on media ownership has been glacial, and the media have been de-consolidating as well as consolidating.
But I think this proposal would actually be more worrying if it did have teeth. When you boil it down, what this plank of their plan is saying is that the bulk of the media reached a conclusion that these candidates didn’t agree with, and so they want to enact legislation that will shift the media conversation in a direction they would find more congenial. Liberals have been justifiably upset that Pres. Bush appears to be stacking the CPB with right-wingers in order to exert right-ward pressure on NPR and PBS. The same principle works the other way: if liberals don’t like the way the media have been covering the War in Iraq, the answer is not to get the federal government involved. The fact that 42 candidates for Congress frame the issue this way should concern everyone who takes freedom of the press seriously.
Here’s a great article on the recent history of the civil liberties debate, beginning with the CALEA battles of the 1990s. It gives some interesting details on the formation of CDT.
The big question the article asks is why it’s so much harder today to get the various factions in the FISA debate together in a room and work out a compromise, the way the parties did in 1994. It seems to me that the fundamental difference is that the previous administration accepted the fundamental premise that the government had an obligation to obey the law. So while the Clinton-era FBI pushed aggressively for statutory changes that dramatically expanded eavesdropping powers, and then litigated aggressively for interpretations of the law that expanded them further, it generally accepted that if Congress and the courts ruled against them, they had an obligation to defer to their judgments.
In contrast, the current administration believes, fundamentally, that the need to defend people from terrorism trumps old-fashioned concepts like the separation of powers and the rule of law. So while they’d certainly like Congress to rubber-stamp what they’re pleased to call the “War on Terror”, they’re prepared to ignore the law and peoples’ civil liberties regardless of what the other branches say.
Under those circumstances, negotiation is a waste of time because there’s no particular reason to think the administration will respect the outcome of the legislative process. Worse than that, pretending that the administration takes the law seriously, when it has made it crystal clear that it does not, serves the political ends of the White House by making it clear that contempt for the law has no consequences. When one side in the negotiations has made it clear they’ll do what they like regardless of what the law said, the only reasonable response is the one the House has taken: pass legislation that makes clear that the administration’s actions were and are illegal, and that increased scrutiny is needed. Not until we have a new president who re-affirms his (or her) commitment to the rule of law will it make sense to enter into serious negotiations with the White House.
…or in this case, you can’t stop the terrorists without occasionally letting a baby die while customs officials inspect his paperwork. I hope the people responsible for this spend some time in prison.
Ars has posted my review of Clay Shirky’s Here Comes Everybody, which is coupled with an interview I conducted with him a couple of weeks ago. Shirky’s a fount of interesting ideas. One of the central ideas in Here Comes Everybody is the concept of a Coasean floor:
Coase is the economist who asked and answered one of the most famous questions in all of economics: if markets are such a good idea, why have firms at all? Why do we have these sort of institutional and organizational frameworks? Why can’t you just have everybody offer their services to everybody all the time, and have markets and contracts put it all together? And his answer was that there’s a huge transaction cost in simply finding who’s available, what they offer, making some kind of deal. And so what firms do, in Coase’s answer, is they lower transactions costs for group effort. And that gives them an economic advantage over markets in certain situations.
Everybody has understood since that article was published in the mid-1930s that there’s a Coasean ceiling: a point past which, if a firm grows too large, it just breaks down. And we’ve seen this with giant conglomerates, whether it was ITT in the 1970s or InterActiveCorp today. The question is: when is it too big?
What we all missed, because it was never really an open question until now, is that there’s also a Coasean floor. Which is to say, there’s a set of group activities that would create some value but it isn’t worth forming an institution to create.
Read on to learn how the collapse of the Coasean floor affects abusive priests, Microsoft and Novell, Wikipedia, and businesses trying to make money in a changed technological landscape.
In his characteristically bullying style, Tom Giovanetti sent me this link to a Washington Post write up of the DataTreasury controversy. Apparently banks have, in fact, proposed an amendment to the patent bill that would be narrowly tailored to exempt themselves from DataTreasury’s patents. While I have zero sympathy for patent trolls (and don’t especially care if they “invented” the patents themselves or purchased them from a third party), carving out narrow exceptions for narrow interest groups is the wrong way to go about patent reform. What we need is broad patent reform that protects people in general, large and small, from abusive patents like the DataTreasury patents. To the extent that narrow carve-outs peel off potential supporters for fundamental patent reform, they might even be a bad thing.
Also, somebody from a PR firm sent me this link. (She was cagey about who she works for, but I assume it’s one of the banks behind the amendment—I wish PR people would just give me a straight answer) Apparently the CBO has, in fact, estimated that taxpayers would be on the hook, on the grounds that the amendment would constitute a taking under the Fifth Amendment. This seems wrong to me—narrowing the scope of a government monopoly isn’t the same as taking somebody’s land—but there it is.
A great comment by Lewis Baumstark:
The current software patents landscape is more akin to Bayer creating a cancer curing-drug and instead of getting a patent on their specific formula, they get a patent covering the general ability to cure cancer. Meaning anyone else who creates a different drug to do the same thing would be infringing.
Quite so. To unpack this analogy a little bit, the analog of the “specific formula” is software’s source code. If we wanted to create a sensible software patent system, the way to do it would be to require software companies to disclose their source code in their patent applications, and then grant patents that prohibit other companies from duplicating that source code, just as drug patents prohibit companies from exactly duplicating drugs. Except that, obviously, source code is already protected by copyright law, so such a patent system would be totally superfluous.
Instead, we have a system where a company with no employees and no products can claim a de facto monopoly on the ability to transmit email wirelessly and use it to extort hundreds of millions of dollars out of companies that are producing useful products. Nobody claims that RIM literally stole the technological designs NTP claimed in its patents. Rather, all NTP claimed was that RIM’s technology fell under the broad category of functionality claimed in NTP’s patents. “Curing cancer” might be a bit broader than “transmitting email wirelessly,” but not much.
Likewise, I have yet to see any evidence that the banks being sued by DataTreasury literally copied DataTreasury’s designs. Rather, DataTreasury’s patents are so broad that it’s simply impossible to develop a digital check-clearing system without running afoul of the patents. I don’t think there’s any serious policy argument for allowing companies to claim such broad patent monopolies.
Here is one of the two patents that the nation’s major banks have been “stealing” from DataTreasury. The first claim is as follows:
A system for central management, storage and report generation of remotely captured paper transactions from documents and receipts comprising: one or more remote data access subsystems for capturing and sending paper transaction data and subsystem identification information comprising at least one imaging subsystem for capturing the documents and receipts and at least one data access controller for managing the capturing and sending of the transaction data; at least one central data processing subsystem for processing, sending, verifying and storing the paper transaction data and the subsystem identification information comprising a management subsystem for managing the processing, sending and storing of the of the transaction data; and at least one communication network for the transmission of the transaction data within and between said one or more data access subsystems and said at least one data processing subsystem, with the data access subsystem providing encrypted subsystem identification information and encrypted paper transaction data to the data processing subsystem.
As near as I can tell, this patent covers the concept of scanning and security transmitting paper documents. If you build a system for scanning and securely transmitting images of paper documents, you’re probably infringing on this patent. Or to put it a different way, this patent would, if strictly enforced give DataTreasury a 20-year monopoly on the concept of electronic check clearing.
It’s absurd that our legal system allows companies to engage in this kind of rent-seeking. It’s even more absurd that people invoke the concept of property rights to justify it. Property rights do not and should not give companies monopolies over entire industries.
You may have read Tom Giovanetti’s piece on the plight of DataTreasury Corp. The op-ed is remarkable for its lack of specificity. For example, we’re informed that:
Worse, these banks also are asking Congress to make taxpayers pay the patent holder for their illegal actions. According to the Congressional Budget Office, the bailout would cost the federal government at least a billion dollars.
But Giovanetti never bothers to explain how this “bailout” would work, whose patents would be affected, or who would control the allocation of “taxpayer dollars” to patent holders. I’ve read quite a bit about the major provisions of the pending patent reform bill, and none of the coverage I’ve read mentioned any program that would allocate a billion dollars to pay off patent holders so that banks could infringe their patents. It’s possible that this provision has slipped below the radar. It’s also possible that Giovanetti is describing the debate in a somewhat misleading fashion. Any body know what he might be referring to?
In any event, here is a New York Times article that gives a more nuanced account of DataTreasury’s situation. We learn, for example, that “it is a company whose only business, other than one client, appears to be suing other companies.” It appears that they managed to get a broad patent on fundamental concepts in digital check-clearing, making it impossible for banks to participate in the new “Check 21” check-clearing process Congress approved in 2003. In other words, the story may not be so much about banks “using” DataTreasury’s “technology” as it is about extortion on DataTreasury’s part.
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