TOC What is wrong with property laws? Your Turn

June 5, 2012

In my last fillip I promised to examine the conflict between "the exclusive and absolute" aspect of property and the reality that it is to be shared.

We must not make too much of the fact that this conflict characterizes the Information Age. Sure data is its main source of added-value and sharing it is technically costless. But in past ages, from the Incas to the Soviets, sharing had been shown to apply to all forms of property. The conflict at hand is but an aspect of the ever lasting need for every society to balance the two forces which power its economy, human greed and solidarity.

It is up to each society to agree to its own general solution. The current travails of Europe show how difficult this can be. Fortunately our focus here is narrower. I dared a few years ago to make a proposal which applies to intellectual property and will cover personal information, once our right to it is finally recognized. Critiques are welcome, meanwhile, I feel entitled to claim the freedom to criticize the current status quo.

According to Eduardo Porter's convincing indictment (*), this status quo is simply broken. Commenting upon the increasing frequency with which high-tech companies resort to law suits to settle patent disputes, he warns us that "regardless of the legitimacy of their claims, the aggressive litigation could have a devastating effect on society as a whole, short-circuiting innovation". And he correctly casts the underlying issue as a dilemma.

"It's not that we don't need to protect intellectual property at all. But the protections must take into account that innovation is often a cumulative process". Like victory, the fruit of innovation has many legitimate fathers. If all are to enjoy exclusive and absolute rights, how can justice triumph?

Absent a new Solomon, some advocate abolishing intellectual property. No owners, no plaintiffs. No plaintiffs, no problems. No wonder we are denied property rights over our personal data. But in such a bonfire worthy of Savonarola, copyrights should be burnt too. Pirates would triumph throughout and steal the fruit of creation, leaving its would-be fathers with burdens only. Wouldn't it stifle innovation just as effectively?

To tackle this dilemma, we must start with the need to reward property creation. For in order to be shared, property must first be created and, as the strongest incentive known to humankind, greed is good indeed. And how else can one reward the production of infinitely transferable property except through a monopoly? If one were entitled to duplicate it without the owner's consent, the owner would own nothing at all.

There are many important issues associated with such monopolies. What is an original? What is a copy? Are there circumstances when a copy should be allowed? The crux of the matter though is that monopolies inevitably lead to blackmail, a very inefficient way to handle negotiations.

Take Aereo, a service which lets users receive and store television broadcast signals "in the cloud". It has been sued in federal court for violating "the fundamental principle of copyright law that those who wish to retransmit Plaintiffs' broadcasts [...] may do so only with Plaintiffs' authority" (**).

My point is not on the merit of the case but the tactics used by Aereo against its adversaries, "NBC, ABC, CBS, Fox and a unit of Univision Communications Inc.". Quoted by Christopher S. Stewart and Merissa Marr, Barry Diller declared: "if the court says [Aereo] can't do it, it's over". In other words, he does not want to negotiate with the broadcasters because he suspects the broadcasters would make his venture unprofitable.

Instead of preventing success from happening, infringement can be used to milk it, once proven. Matthew Garrahan thus reports SightSound "is squaring up to Apple in a Pensylvania courtroom over whether its patents were infringed when Apple launched its iTunes platform" (***). Note that "SightSound and senior Apple executives corresponded several times when the patents were first secured and again [before] the launch of iTunes".

No wonder companies would rather avoid negotiations altogether. This is how the system got broken. Not only monopolies are turned into a costly game of chance, decided by the courts, not the parties, but companies have a perverse incentive to reinvent the wheel. Why else Facebook would contemplate designing a smartphone? Nick Bilton shares an employee's confidence: "Mark is worried that if he doesn't create a mobile phone in the near future that Facebook will simply become an app on other mobile platforms" (****).

Mark Zuckerberg is not paranoiac. Like Google before, Facebook is subject to the diabolo effect. To be an app is to live on sufferance, dependent on the platform owner's discriminating taste and business interests. Naturally Facebook would rather be the platform than the app and this requires to be present on at least one popular smartphone without having to beg for permission. Wasteful perhaps, vertical integration is imperative.

Autarcic systems may bypass the need for negotiations in the short term, in the longer term this benefit is self-defeating. The more complex the offer one has to build, the higher the chance one will infringe on past inventions.

From a technical point of view, computer science has of course a ready made solution, interoperability, whether by standardized data formats or published interfaces with promises of backward compatibility. From a business perspective, this is not enough as one must still negotiate with the owner of any closed system. Thus Apple controls access to its app store. But published interfaces are also an issue in themselves today.

Judge William Alsup "must still rule on whether or not application programming interfaces, or A.P.I.'s, can be copyrighted", reports Quentin Hardy (*****). What may appear as a coda to the recent lawsuit between Google and Oracle is in fact its most crucial element. Make the API free and the platform below becomes a commodity, deprived of any monopolistic power unless further protected by patents juries do not find wanting.

A good API, which makes vertical integration and duplication of effort technically unnecessary, is obviously a type of property to be encouraged. The investment behind the Java platform should benefit Oracle, its current owner. But making it copyrightable would force Google to negotiate with Oracle and raise the prospect of more blackmail. Google may be bigger than Aereo, the existential threat is the same.

Judge William Alsup's particular case is but an example of our general dilemma. What Eduardo Porter calls the "cumulative process" of innovation is based on integration. Yet how can ease of integration be encouraged when the very means to do so may sterilize it.

Since monopolies are at the root of the problem, perhaps we should look at how electric utilities are managed in the US. By nature, distribution companies are monopolies too. See how laws compel them to open their network to competing energy providers and manage any competitive venture of their own at arms length. Indispensible monopolies are thus regulated. Here are three suggestions to help you build strong, efficient rules. Use size and success as triggers. Eliminate conflicts of interest. Find standard ways to share future spoils ahead of time. Greed is good up to a point.

A lasting solution to the property dilemma must include a mechanism to eliminate blackmail from negotiations involving monopolies.

Philippe Coueignoux

  • (*) ......... Tech Suits Endanger Innovation, by Eduardo Porter (New York Times) - May 30, 2012
  • (**) ....... High Noon for Diller's Aereo, by Christopher S. Stewart and Merissa Marr (Wall Street Journal) - May 25, 2012
  • (***) ..... Web pioneer sues over iTunes, by Matthew Garrahan (Financial Times) - May 24, 2012
  • (****) ... Worried About Its Mobile Future, Facebook Looks to Build a Smartphone, by Nick Bilton (New York Times) - May 28, 2012
  • (*****) . Jury Clears Google of Infringing on Oracle's Java Patents, by Quentin Hardy (New York Times) - May 24, 2012
June 2012
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