TOC The systematic destruction of value Your Turn

April 9, 2013

Grim faced, gripping a rifle, a young man sits in a well padded armchair. Incongruously his armchair is in the middle of a street, the latter littered with debris, the surrounding buildings pockmarked by bullets and shells. Welcome to Syria, courtesy of Reuters (*)

Photographs convey visceral meanings, subject to interpretation. This one shows tangible assets are hard to destroy. So many buildings, so few bombs, even on President Assad's side. It takes time and much treasure to sustain terror. Intangible value however may vanish quickly and cheaply.

What can "the Bristish Virgin Islands, the Cayman Islands, Liechtenstein" offer that, for instance, President François Hollande's ministers and friends fail to find in France? Absolutely nothing but confidentiality about their private fortune. And in our Information Age, such a state business model can be blown to bits in a matter of seconds. How difficult is it to publish "proprietary information about more than 120,000 offshore companies and trusts and nearly 130,000 individuals and agents, including the wealthiest people in more than 170 countries" (**)? Ask Pfc. Bradley Manning.

From another perspective, Andrew Higgins's news article is another illustration of what Pierre Collin and Nicolas Colin stated in their report on "Taxation of the Digital Economy (1). The normal cost of nailing suspect activities by respected citizens in tax havens should be evaluated according to the price Germany once paid its informant from Liechtenstein, 4,000 euros a name. Yet, although the data aggregated by "the International Consortium of Investigative Journalists" is worth a billion, this Washington-based group is likely to dump its secrets for much less cash value.

Regrets will be few if Justice becomes less expensive. But, as the report made obvious, no economic activity is immune to this deflationary trend.

"The [EdX] software uses artificial intelligence to grade student essays and short written answers, freeing professors for other tasks", i.e. shrinking the serried ranks of salaried teachers to a few stars. Writing on "the nonprofit enterprise founded by Harvard and the Massachusetts Institute of Technology to offer courses on the Internet", John Markoff thus betrays how deeply automation threatens the transactional value of education (***).

In principle though, intangible assets can be both sustainable and monetizable. The Information Age brings so much destruction only because the basis on which value is created has changed so radically while the legal framework within which value can be exchanged has remained so sclerotic.

I call Richard J. Sullivan as my first witness (2). He had to decide whether it is legal for ReDigi to enable its users to resell the digital music tracks they have lawfully acquired, as they would their old vinyl records.

"Because this is a court of law and not a congressional subcommittee or technology blog, the issues are narrow, technical and purely legal". The preamble to his decision on the ReDigi business model is a clever cover to wash his hands of the mess that is copyright law today and distance himself from his own opinion. But one may well wonder what value he adds that some MIT minded machine would not deliver at a much lower cost.

Because I am not a lawyer, I may not fully appreciate Judge Sullivan's reasoning. Still his starting point clearly rests on the fact that "ReDigi's upload process 'necessarily involves copying' a file from the user computer to [the ReDigi server]". So doing, he shares Capitol's perspective and backs its claims almost completely, for the US copyright law first sale doctrine does not allow buyers to sell a new physical copy, only the one they bought.

Judge Sullivan does acknowledge ReDigi's argument that this point of view "would render illegal any movement of copyrighted files on a harddrive, including relocating files between directories and defragmenting". But this is only to declare it "a red herring". Although "such reproduction is almost certainly protected under other doctrines or defenses", "it is not relevant to the instant motion".

The judge may actually be more than a match to an MIT minted programmer. Isn't he saying that the mistake of the ReDigi model is to combine into one two legal services, cloud storage and access right exchange? My original suggestion to ReDigi was along those lines. Base the market on USB keys where all sales are to, and all purchases from, ReDigi as the middleman, so that no file transfer is ever necessary during these transactions (3).

Judge Sullivan dares to write "ReDigi twists the law to fit its facts". I rather find the crafty judge not above twisting the facts to fit the law. Isn't the bundling of two legal services into one routinely legalized today? How else does Facebook justify selling their users' data to the highest bidder if not by bundling a "free" consent with its social network service? Less technically devious, why would ReDigi's combination be more legally dubious? As Ben Sisario reports, "digital rights advocate worried the decision effectively banned an online secondary market" (****). If it were that simple.

For my second witness, I call Judge Droney. Having to decide whether Aereo could legally store broadcasts on behalf of its users, Judge Droney agreed the Aereo cloud service was legal (4). He sees no problem when "Aereo's system creates a unique copy of that program on a portion of a hard disk assigned only to that Aereo user". He likes the cute little antenna Aereo gives each user. ReDigi should have given each a cute little key.

Even if I am no lawyer, I realize that copyrights owners sued Aereo for infringing their public performance rights rather than their reproduction rights. But one must assume their lawyers picked this line of attack as the more promising one. Now, according to Brian Stelter, "a group of plaintiffs, including Fox and PBS," is left to decry Judge's Downey decision as "a loss for the entire creative community" and vow to fight on (*****).

Since music and video files share the same digital nature, Aereo's many adversaries need only to hire the law firm of Capital Records and ask Judge Sullivan for his opinion. Conversely it follows all ReDigi has to do is to subcontract its Cloud Locker to Aereo and appeal to Judge Downey.

The only recent copyright decision to make sense came from the US Supreme Court (5). "In legal jargon, the court applied the first-sale doctrine to copyrighted materials from abroad", says Adam Liptak (******). And so global corporations such as John Wiley are themselves subject to geographic arbitrage. But wasn't clarity reached only because the case was about importing physical books, a feature of our passing Energy Age?

Value in our dawning Information Age must be based on digital content. As far as the latter is concerned, doesn't the present legal circus destroy real innovation, favor piracy and prevent money circulation from reflating? Bathed in blood in the past as is Syria today, Lebanon lost many assets but not all of them. Can the same be said of digital value creation, submitted as it is to a form of legalized gambling?

When the rule of the law comes out of a casino, let us not blame the employee who spins the roulette. I agree with Judge Sullivan on this one point.

Philippe Coueignoux

  • (*) ........... Syria's Insurgents Make Gains, Reuters photograph (New York Times) - April 4, 2013
  • (**) ......... Leak of Data on Offshore Account Holders Likely to Spread Fear and Anger, by Andrew Higgins (New York Times) - April 5, 2013
  • (***) ....... Software Subs For Professors On Essay Test, by John Markoff (New York Times) - April 5, 2013
  • (****) ..... A Setback For Resellers Of Digital Products, by Ben Sisario (New York Times) - April 2, 2013
  • (*****) ... Aereo Wins a Court Battle, Dismaying Broadcasters, by Brian Stelter (New York Times) - April 2, 2013
  • (******) . Justices Permit Resale Of Copyrighted Imports, by Adam Liptak (New York Times) - March 20, 2013
  • (1) Taxation of the digital economy, by Pierre Collin and Nicolas Colin - Jan 2013 - in French (English executive summary)
  • (2) Capitol Records versus ReDigi, US District Court, Southern District of New York - March 2013
  • (3) If a legal owner may legally move "the owned copy" of this owner from one disk fragment to another disk fragment
    ..... as "a move certainly protected" under other doctrines, such as fair use,
    ..... the nature of neither the whole system to which the two memory fragments belong nor the communication medium used should matter,
    ..... it must be legal to cut and paste (as opposed to copy and paste) music to, between and from, USB keys, even using Internet as the communication medium,
    ..... as long as during the copy operation both memory fragments concerned are owned by "the" legal owner of the file being moved,
    ..... while the first sale doctrine surely allows any owner to resell "the USB key" which contains "the owned copy" of "this current owner" to any third party.
  • (4) WNET versus Aereo, US Court of Appeal for the Second Circuit - April 2013
  • (4) Kirtsaeng versus John Wiley, US Supreme Court - March 2013
April 2013
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