But with intellectual property, even more than with traditional goods, one encounters dissimilar products that are not substitutable. Shubha Ghosh, in The Fable of the Commons: Exclusivity and the Construction of Intellectual Property Markets, uses songs to illustrate this: one song is both the same as and different from another song, but they are not perfectly interchangeable. The same may be said for some chemical and industrial processes. As a result, the intellectual property market cannot allocate goods based on price alone, but also on other characteristics (like quality or type of product). This does not lead to efficient trades or distributional balance.

In addition, intellectual property markets are deeply concerned with the licensing of rights, such as royalties and similar pricing arrangements. The complexity — with dimensions going beyond simple price — means often there is an asymmetry in information and strategic behavior by creators and users. The result is inefficient and undesirable distribution.

As a final example, most analyses of ideal markets suggest that buyers and sellers will reach agreement, but such analyses typically ignore situations in which a customer’s life is at stake — leading to a tendency to pay any price to get a product. There is, notes Ghosh, “something troubling” about this situation. But it is not necessarily easy to select a better alternative to these market-oriented models — somehow justice needs to factor into the model, but how?

While this generally irks mostly customers  —  and not very many customers have even experienced this as yet, since the e-reader market is new  —  some publishers and authors feel this negatively impacts their customer relationship.

Now Amazon has made it easier  —  or at least made the choice more explicit  —  for small-scale publishers to decide what kind of relationship with their readers they would like to have:

Without a formal announcement, Amazon.com has started allowing authors to publish their ebooks for the Kindle without digital rights management (DRM), the technology that limits how consumers can use the ebooks they’ve bought.

via Amazon quietly lets publishers remove DRM from Kindle ebooks » Nieman Journalism Lab.

While this doesn’t impact the larger ecosystem, it’s a step that takes e-readers closer to where the behemoth of music sellers has already gone: last year Apple switched off DRM for music tracks purchased through iTunes.

Many publishers and authors fear the results of rampant copying and eagerly embrace DRM as a solution. I personally feel this is the wrong choice, and there is some limited data to back me up. Nonetheless, the real story here is that Amazon is making it easier for authors and publishers  —  at least small-scale ones  —  to choose, and putting that choice up front. At the very least, this forces a brief moment of thought, and hopefully it will generate additional data about whether DRM benefits or harms sales and customer relations.

William Styron may have been one of the leading literary lions of recent decades, but his books are not selling much these days. Now his family has a plan to lure digital-age readers with e-book versions of titles like “Sophie’s Choice,” “The Confessions of Nat Turner” and Mr. Styron’s memoir of depression, “Darkness Visible.”

But the question of exactly who owns the electronic rights to such older titles is in dispute, making it a rising source of conflict in one of the publishing industry‘s last remaining areas of growth.

via Authors and Publishers Argue Over Digital Rights to Older Books – NYTimes.com.

While the dispute is, in many respects, not really new, I still think its interesting that the courts so far seem to be on the side of authors (but remember, this is really about individual contract interpretations, not really about broad categories of disputants, although broad cases could influence future decisions):

In 2002, Random House sued RosettaBooks, an e-book publisher, for copyright infringement when Rosetta signed contracts with authors  —  including Mr. Styron  —  to release digital versions of previously published novels.

In its suit, Random House relied on wording in its contracts that granted it all rights to publish the works “in book form.” In its letter to agents on Friday, Random House invoked the same wording to defend its right to publish e-books of backlist titles.

In 2002, a federal judge in Manhattan denied Random House’s request for a preliminary injunction against RosettaBooks, ruling that “in book form” did not automatically include e-books. An appellate court similarly denied Random House’s request.

What I find most telling in this is the argument that authors and their estates are seeking alternatives to traditional publishers because those publishers are not offering a very competitive royalty rate on digital editions. After all, they argue, digital works costs less to produce and distribute  —  so publishers, who do less work, deserve a smaller slice of the pie.

Obviously traditional publishers do not like this, since it cuts into their potential profits  —  and backlist titles account for a significant amount of steady income for publishers.

Still, if the market can support paying authors more  —  isn’t that the “natural” path the book industry will take in the future? The Web certainly can support non-traditional publishing avenues, and while these leave off many of the benefits publishers provide (marketing and editing, especially), why couldn’t electronic editions find a different way to market? (This is especially true when the editing has already been paid for through earlier, hard-copy sales. And are publishers really pushing backlist publications enough to justify their payout?)

Can traditional publishers fend off this move through litigation and forceful contract negotiations? Or will we see increasing alternatives to traditional publishers in the e-book realm?

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The conventional rationale for copyright of written works, that copyright is needed to foster their creation, is seemingly of limited applicability to the academic domain. For in a world without copyright of academic writing, academics would still benefit from publishing in the major way that they do now, namely, from gaining scholarly esteem. Yet publishers would presumably have to impose fees on authors, because publishers would not be able to profit from reader charges. If these publication fees would be borne by academics, their incentives to publish would be reduced. But if the publication fees would usually be paid by universities or grantors, the motive of academics to publish would be unlikely to decrease (and could actually increase)  —  suggesting that ending academic copyright would be socially desirable in view of the broad benefits of a copyright-free world. If so, the demise of academic copyright should be achieved by a change in law, for the ‘open access’ movement that effectively seeks this objective without modification of the law faces fundamental difficulties.

via “Should Copyright Of Academic Works Be Abolished?” | Berkman Center.

An interesting proposal that I look forward to reading in more detail. My gut feeling is that, as an academic author, I would be comfortable with this, provided attribution was mandated (as with Creative Commons, which is really based on copyright). After all, while I do not expect to profit directly from any academic work I produce, I need the attribution to me to stay in order to survive in an academic profession that rewards publications and writings. If I lose the attribution, I lose that.

As I said, I look forward to reading Professor Shavell’s draft article in more depth.

This concern underlies my interest in distributive justice, limiting copyright and patent monopolies, open-source software and open-access publishing. I try not to fall too far to one side of the debate, but rather am a proponent of a balanced approach to these issues so that the “free market” can function effectively to grow GDP while protecting human rights, ethical values, and so on.

Chris Messina hits on this theme in The open, social web:

For me, openness is about freedom of choice and unfettered access to compete in an open marketplace. To that end, you still must protect against monopolistic threats, which can jeopardize entry to markets and therefore require regulation.

In the posting, he brings in some economic concepts from Beril Hatt’s Ph.D. work that, he believes, are necessary to “defeat monopolies in social networks and cloud-based markets”:

• data portability: related to switching costs; an example of this is phone number portability (which require government intervention to achieve)
• multi-homing: increasing reliability through parallelization; the example I used was ping.fm, which allows you to publish content simultaneously to multiple destinations, thereby defeating network exclusivity and lock-in
• roaming: have access to and using other people’s networks; I showed a text message that I received from AT&T explaining how they wanted to charge me $20/MB while roaming in Europe. Clearly networks don’t like it when their customers roam!
• disaggregation: service substitutability; in this case the photo-editing service Picnik imports photos from a multitude of sources, avoiding tightly coupling itself an any one particular service, unlike Facebook’s photo-sharing service, which can only be used and accessed on facebook.com.

• “I am not making money on it; it’s fair use.”
• “They should be happy with the free press.”
• “I’m making them money, it’s fair use.”
• “It didn’t have a copyright notice on it; it’s fair use.”

via Fair Use FAQ | BlawgIT.

Recommended reading for anyone who cites, quotes, or reuses other’s work – which is pretty much everyone these days.

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Michael Nielsen wrote a stellar piece dealing with disruptive changes that doom old business models – specifically, newspapers and science publishers, to mention his examples. He does a particularly good job at explaining how this could happen even without anyone doing anything wrong or stupid.

The problem is that your newspaper has an organizational architecture which is, to use the physicists’ phrase, a local optimum. Relatively small changes to that architecture – like firing your photographers – don’t make your situation better, they make it worse. So you’re stuck gazing over at TechCrunch, who is at an even better local optimum, a local optimum that could not have existed twenty years ago

via Michael Nielsen » Is scientific publishing about to be disrupted?

He goes on to describe the impact he sees ahead for scientific publishers, a group fighting against new trends like open access that is ultimately doomed by new economic and business realities enabled by the Internet and other disruptive technologies.

Highly recommended.

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Judge Richard Posner has recently suggested that copyright law might need to be expanded to protect the news industry, including barring linking to copyrighted content or paraphrasing it. I view such protectionism as effectively enabling “rent seeking” by the established news industry. Ultimately, such acts harm society more than they help it. Certainly, at times legal intervention is important to improve markets (banning monopolies, establishing and enforcing safety standards, regulating financial institutions), but this is one case where I am more in favor of a libertarian/”let me market decide” approach. Perhaps this is because I am more confident that alternatives to traditional newspapers will emerge to provide new venues for professional journalism, even if the exact form that will take is still unclear.

Posner, and many in favor of expanding copyright and intellectual property, are generally obsessed with the “free rider” problem: people other than the original creator (or owner) scooping up their labor and profiting by it., without adding any additional value. Free riders undercut the incentive to create.

Jeff Jarvis thinks Posner’s view of free riding in this context is backwards:

Schultz and the Marbergers complain about what they call the “free-riding” of aggregators, et al. But they simply don’t understand the economics of the internet. It’s the newspapers that are free-riding, getting the benefit of links.

These newspaper people are the ones trying to act as if they own the news and can monopolize it. Those days are over, thank God.

via First, kill the lawyers – before they kill the news.

I think, though, that Posner’s free rider worry is a indeed concern to be aware of, just as worrying about those who may seek to exploit welfare systems are cause for concern. But an over-obsession with this problem can lead to overly restrictive policies that stifle innovation and hamper new ideas, new approaches, and keep society stuck in place. This is good if you are a “have,” and bad if you are a “have not” – or if you’re an entrepreneur with a new idea.

I am not the only this troubling. There has been a vigorous reaction his idea that expanding copyright laws to protect newspapers “might be necessary” to avoid a duopoly on “news and opinion”:

Imagine if the New York Times migrated entirely to the World Wide Web. Could it support, out of advertising and subscriber revenues, as large a news-gathering apparatus as it does today? This seems unlikely, because it is much easier to create a web site and free ride on other sites than to create a print newspaper and free ride on other print newspapers, in part because of the lag in print publication; what is staler than last week’s news. Expanding copyright law to bar online access to copyrighted materials without the copyright holder’s consent, or to bar linking to or paraphrasing copyrighted materials without the copyright holder’s consent, might be necessary to keep free riding on content financed by online newspapers from so impairing the incentive to create costly news-gathering operations that news services like Reuters and the Associated Press would become the only professional, nongovernmental sources of news and opinion.

via The Becker-Posner Blog: The Future of Newspapers – Posner.

Economist Gary Becker instead argues that, while “the printed newspaper business is doomed,” this does not mean the end of independent and accurate news sources:

Although the printed newspaper industry is doomed, and will be missed by those of us that remember newspapers in their heyday, they are being replaced by good substitutes in the form of blogs, social networks like Facebook and Twitter, online news gathering by various groups, including newspapers, and other electronic forms of communication.

via The Becker-Posner Blog: The Social Cost of the Decline of Newspapers – Becker.

Mike Masnick at Techdirt responded to Posner’s idea by saying:

Wow. Now Posner has always been a stronger believer in the need for intellectual property to “solve” the “free rider problem,” but this is still stunning. He’s usually a lot more balanced in recognizing the downsides to greater IP protectionism. Here, he seems to ignore it completely, while also brushing off the ability of other sources of information to step into the void created by newspapers. Right before the statement above, he oddly assumes that there’s no way to support news production in an online only situation. His mistake, though, is assuming that it needs to have the same type of profits as monopoly newspapers used to have. For such an economically literate person, this is a surprising statement.

via Judge Posner Recommends Extending Copyright Law to Protect Newspapers | Techdirt.

And Erick Schonfeld of TechCrunch is highly critical as well:

Of all the misguided schemes put forth lately to save newspapers (micropayments! blame Google!), the one put forth by Judge Richard Posner has to be the most jaw-dropping. He suggests that linking to copyrighted material should be outlawed.

via How to Save the Newspapers, Vol. XII: Outlaw Linking.

As I suggested above, I am not in favor of Posner’s idea, but I do share some of the worry that quality journalism might be threatened, at least in the short term. I, however, do not blame “linking” or “paraphrasing,” but rather a combination of a rapidly changing business landscape with a certain reluctance by newspapers to adapt. Change is not easy, and protectionism always seems easier to hold on to what one already has. But radically changing long-establish legal precedent around the copyrightability and protection of “facts” is not the best way forward in the long term. A similar push against change backfired on American car manufacturers; I predict a similar fate for newspapers even if the law is changed to “protect” them.

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Although there are many groups involved in copyright lobbying, at the heart of the strategy are two organizations – the Canadian Recording Industry Association and the Canadian Motion Picture Distributors Association. CRIA‘s board is made up the four major music labels plus its director, while the CMPDA’s board is comprised of representatives of the Hollywood movie studios. Those same studios and music labels provide support for the International Intellectual Property Association, which influences Canadian copyright policy by supporting U.S. government copyright lobby efforts.

In addition to their active individual lobbying (described here), CRIA and CMPDA have provided financial support for three associations newly active on copyright lobbying – the Canadian Anti-Counterfeiting Network, the Canadian Chamber of Commerce’s IP Council, and the Ontario Chamber of Commerce (there are other funders including pharmaceutical companies and law firms). Those groups have issued virtually identical reports and in turn supported seemingly independent sources such as the Conference Board of Canada and paid polling efforts through Environics.

via Michael Geist – Unravelling the Canadian Copyright Policy Laundering Strategy.

Regardless of where you fall on the copyright debate, this is an important article, and one I recommend reading for useful background on classic “rent-seeking” behaviour by entrenched interests. Any fabricated or overly biased information reduces the chance we will make positive decisions that benefit society as a whole – which, at least in the British/American/Canadian tradition of IP, is a main point of copyright.

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Henry Blodget writes in the Silicon Valley Insider that:

Thus far, the TV industry has reacted to these changes [more ways to get simple entertainment at home, new ways to get TV content, fewer limitations on distribution] the way most people would: By trying to port its existing model to the new world and maintain its hold on power and money. This is why we’re getting so many ridiculous, consumer-unfriendly TV solutions, such as:

• Market-based control over what you can and can’t watch (thanks to contracts with local cable companies),
• No live-streaming of lots of popular video content despite the fact that this would grow the audience (same reason),
• Time-shifting of popular shows (don’t want to cannibalize more profitable TV audience)
• Hoarding of video libraries that could be easily available, watched, and monetized online
• Single episode downloads that expire after 24 hours
• $150/month “triple-play” solutions that come larded up with absurd taxes, fees, and service-charges, most of which go to pay for crap we don’t want.

All these Band-Aid solutions will eventually fail. Why? Because eventually the cable-satellite-airwave monopoly over TV content in local markets will be circumvented by simple, global Internet distribution.

via Sorry, There’s No Way To Save The TV Business.

I agree that the television industry is where newspapers were 10 years ago – in denial that they need to change their business model. They have tried, on occasion, to argue that skipping commercials is “stealing” and similar types of arguments. They are, as Henry points out, still making money – so they can afford to ignore the changes. I predict that, as inevitable as the death of their current business is, their attempt to legislate content protections is as inevitable (as newspapers have tried to do).

Thus, the current loose tolerance for Bittorrent sharing will evaporate in favor of dracionian enforcement attempts like the MPAA and RIAA. Rhetoric will escalate, and we’ll all (temporarily) become “pirates.” Hopefully services like Hulu will take up the slack quickly enough to provide alternatives before this happens – but don’t count on it.

Still, as I said earlier about newspapers, television production, like journalism, will not die. Only the distribution model will change. Those who adapt will thrive in the long term. So adapt now and succeed while your competitors fail.

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