Understanding Intellectual Property as Property

Member states of the World Intellectual Property Organization (WIPO) celebrate every April 26 as World IP Day. 

On April 25, Richard Epstein Distinguished Adjunct Senior Scholar at the Free State Foundation and NYU Law Professor spoke at the Institute for Policy Innovation's World Intellectual Property Day Forum in Washington, D.C., on the "Rule of Law and the Net."

In early 2011, FSF published "Property, Regulatory Policy, or Hybrid? The Elusive Status of Intellectual Property," a Perspectives from FSF Scholars paper by Professor Epstein. That paper contains some bedrock insights regarding intellectual property that are worthy of consideration on World IP Day. Here's a short preview:

At the methodological level, the best way to understand intellectual property is to treat it as a part of the broader class of property relationships that embraces land, chattels, animals, and, yes, intangibles. Once the generic features of property are well understood, it becomes possible to tackle the narrower question of how to make the appropriate doctrinal and institutional adjustments that capture the distinctive features of intellectual property.  

A Balanced Look at Lifeline and Its Reform - Part II

The House Energy & Commerce Committee' s Subcommittee on Communications and Technology is holding a hearing tomorrow entitled, "The Lifeline Fund: Money Well Spent?"

For a long time I've maintained the Lifeline fund provides an important "safety net" for those low-income persons who otherwise might go without communications service. Most recently, I wrote about this in "A Balanced Look at Lifeline and Its Reform." 

A balanced look at Lifeline means recognizing that it is important to root out fraud and abuse in the program, while also recognizing the positive role the program plays in today's society when being "connected" is more important than ever. 

We know this intuitively, and the hard evidence abounds. But an article in today's Wall Street Journal online, "How Your Smartphone Could Get You a Job," drives the point home again, especially with regard to the value of wireless phones made available to low income persons through Lifeline's subsidies. The article details how job-hunting is rapidly moving to mobile devices. Indeed, it refers to the IDC study predicting "that mobile devices will overtake desktop and laptop computers as Americans preferred method for accessing the Internet by 2015." 

Interestingly, there is now a lot of data available indicating that minorities are more likely than non-minorities to own smartphones, and this phenomenon has helped to close the so-called "digital divide." No doubt Lifeline's subsidies that allow low-income persons to obtain mobile devices has played a role in this regard. 

My FSF colleague, former FCC Commissioner Deborah Taylor Tate, has been a steadfast supporter of Lifeline. With the hearing tomorrow, her earlier pieces, "A Vital Lifeline" and "FCC's Lifeline Reforms Should Keep Low-Income Consumers Connected," are worth reading again. 

Like me, former Commissioner Tate recognizes the need for Lifeline reforms, such as implementation of a functioning, accessible, and accurate eligibility database, to prevent abuse of the program. But past problems regarding screening and enforcing eligibility requirements are not a reason to ignore the program's value.

Finally, like me, Commissioner Tate recognizes that the existence of a healthy Lifeline program means policymakers, if they are truly reform-minded, should focus on curtailing growth in other parts of the program, such as the high-cost fund, where the subsidies to rural telcos are distributed on a more indiscriminate, less targeted basis. 

As she put it in "A Vital Lifeline": 

"And here's an important point about the Lifeline program that should be emphasized: The fact that the program exists, as a means of targeting subsidies to those truly in need, makes it easier to argue convincingly that those parts of the overall USF program which distribute subsidies in a much more indiscriminate fashion, such as the high-cost program, should be subject to hard caps and gradual reductions.

So, when the House subcommittee convenes tomorrow, I hope it takes a balanced look at the Lifeline program, which over many years now, has enjoyed bipartisan support.

Unshackle Copyrighted Video and Music Content from Compulsory Licensing

Suppose you wanted to employ your creative talents through modern media art by making a video or composing music. As a creator, how would you like it if the government compelled you to make your copyrighted work available to others at prices set by the government? For some copyright holders, such a scenario is an all-too-real experience.

The ongoing dispute in WPIX v. ivi exhibits the problematic nature of current copyright policy's compulsory licensing and royalty fee scheme for retransmitting video. On March 18, the U.S. Supreme Court declined to review a federal appeals court's ruling that ivi's Internet-based streaming service is a "cable system" under the Copyright Act. As a result, ivi cannot invoke Section 111's compulsory licensing rights to retransmit copyrighted TV broadcasting content. Instead, ivi must negotiate for retransmission rights.

Aside from the merits of the Second Circuit's interpretation of Section 111, this dispute over definitions and their regulatory consequences is a reminder of current copyright policy's problematic forced access and price controls. These provisions are applied selectively depending on the underlying transmission service. Selectively-applied compulsory licensing and royalty rate standards are also imposed on copyrighted music. Market-based reforms to copyright policies for video and music should be a component of broader reforms to communications policy that are needed to comport with the realities of the digital age.

Compulsory licensing and government rate-setting for both video and music content need to be part of the public policy conversation concerning digital age reform. Either right away or in steps, public policy for copyrighted video and music content should be realigned more closely with rule of law and free market principles. Policy reform should ultimately seek to foster a truly free market in which video and music copyright holders can freely negotiate with potential licensees for retransmission or public performance rights. And those negotiations should take place under a system of impartial laws.

From a copyright standpoint, the question of whether ivi meets the definition of a "cable system" is a big deal. Significant market and financial consequences follow, depending on the answer. A "cable system" has a statute-based right to retransmit copyrighted live TV broadcast programming according to Copyright Act § 111’s compulsory licensing provision. In exchange for retransmission rights, a cable system is then obligated to pay copyright holders royalty rates set by the Copyright Royalty Board.

The Second Circuit's ruling means ivi cannot invoke statutory compulsory licensing rights to retransmit copyrighted TV broadcasting content live via the Internet. Nor can ivi claim compulsory licensing rights as an affirmative defense to copyright infringement claims by WPIX or other copyright holders. Should ivi seek to retransmit copyrighted live TV broadcast content, it must bargain at arm's length with copyright holders for licensing rights.

It's no wonder that services like ivi prefer the benefits of Section 111's compulsory licensing and royalty fee payment scheme as opposed to negotiating directly for retransmission rights in a free market. Forced access and government price controls typically present terms more favorable to potential copyright users than copyright holders. It is equally evident why copyright holding TV broadcasters would seek to avoid losing control over their content. Internet streaming services may fragment and reduce their TV viewing audiences, undermining their bargaining position with advertisers.

As a matter of principle, compulsory licensing and government rate-making run counter to a free market. Compulsory licenses are a forced access mandate that undermine copyright holders' control over their own work. Royalty fee schedules or rate standards established by statute constitute government price controls on exchange. What's more, compulsory licensing is typically administered in arbitrary ways. Different types of media services and platforms are treated differently, depending on their respective transmission technologies or business models.

I drove these points home with respect to current copyright policy for music content in my FSF Perspectives paper "Putting Music Copyright Policy on a Free Market Footing." When it comes to copyrighted music content, copyright holders who fail to negotiate terms with such media service providers must instead accept public performance royalty fees set by statutory formulas and applied by the Copyright Royalty Board. And different royalty rate standards apply to the same copyrighted music content, depending on the type of media service or platform involved. Music content royalty rate standards for cable and satellite services are subject to the § 801(b) standard, which by its terms seeks to "minimize any disruptive impact on the structure of the industries involved and on generally prevailing industry practices." Non-interactive subscription-based webcasting is subject to a "willing buyer/willing seller" that at least attempts in theory to replicate genuine market prices. And AM/FM commercial broadcasters enjoy compulsory licensing rights but are not required to pay copyright holders any royalties for over-the-air public performances.

Continuation of current policies, over time, may well undermine the incentives of creators and other copyright holders to produce video or music content. Incentives would also likely be undermined for establishing new service and delivery models and technologies to serve consumers in better ways.

Also bearing significantly on the need for reforming copyright policy for both video and music content is the transformative impact of the Internet. Both types of content are now being distributed through what the Second Circuit described in WPIX v. ivi as "'cloud-based systems,' or virtual platforms where content resides remotely on a distant server." Internet-based alternatives for distributing video and music content to consumers render even more unjustifiable arbitrary forced access mandates accompanied by price controls.

Since compulsory licensing and government-set royalty rates or fees are deeply problematic in principle, efforts to reform copyright policy ultimately should include both video and music content. And because of the transformative impact of the Internet and other digital communications platforms, copyright policy reforms for video and music should take place within the broader context of necessary reforms to communications policy, all of which should be guided by the same set of free market principles.

In the case of video copyright policy, there is a complex but especially close connection to communications policy. Cable and DBS providers must contend with an added layer of regulatory burdens imposed by the must-carry and retransmission consent regime. Those regulations are based on the Communications Act and enforced by the FCC. "Must-carry" regulations give local TV broadcast networks – who are not necessarily the copyright holders for programming content – the ability to require cable systems or direct broadcast satellite (DBS) providers to carry their programming on a basic tier channel. Alternatively, TV broadcasters can invoke statute-based retransmission consent rights, requiring cable or DBS providers to negotiate with certain local TV broadcasters. But other FCC rules – such as network non-duplication and syndication exclusivity rules – restrict the ability of cable and DBS providers to negotiate for retransmission of signals from non-local TV broadcasters.

I have previously called into question the problematic forced access implications of must-carry in previous blog posts. FSF President Randolph May has criticized the unduly restricted context for FCC-enforced retransmission consent negotiations in respective FSF Perspectives papers and blogs. And FSF Board of Academic Advisors member Bruce Owen has likewise written about the "The FCC and the Unfree Market for TV Program Rights."

In short, Copyright Act-related restrictions on video retransmission and Communications Act-related restrictions on video transmission should be reformed in accordance with fundamental free market principles that better reflect the realities of the broadband Internet age. Efforts to unshackle music content from compulsory licensing and rate-making previsions should also be considered with the same market principles in mind.

Eliminating compulsory licenses and rate-making is critical to restoring a free market environment that fosters creative new ideas in content, business models, and technology. And fostering a vibrant free market for copyrighted video and music content should be a critical element in overall digital era communications policy reform.  

Google Goes to a Dollar Store

Last week Google went shopping at a dollar store – and came away with a fiber system. 

According to the April 18 Associated Press lead: "Google Inc. will pay $1 for a municipal fiber-optic system that cost $39 million to build, according to terms of the Internet company's agreement with Provo." 

That's Provo, Utah. 

The Provo acquisition looks like a good deal for cash-rich Google, which, by the way, said last week that it earned $3.3 billion during the first three months of this year. According to the AP: "Even as Google takes ownership of the municipal network, Provo will have to pay off loans for its construction for another dozen years, according to agreements released Thursday by city officials." 

In exchange for Provo selling its city-owned fiber network for $1.00, Provo's citizens will get upgrades to the current system and, supposedly, offers to subscribe to high-speed broadband services at reasonable rates. In the case of slower, basic service (5/1 Mbps), after payment of a $30 installation charge, the service will be free for a number of years. 

Late last week I wrote about the highly problematic nature of government-owned municipal telecom networks. In "Observing Troubled Government Telecom Systems," I chronicled the troubled history of some of these systems. The Provo municipal system is just one more example, among many. The Provo officials said the Google deal was a good one for the city "because the system hasn't been able to support itself." 

Of course, there are lessons here to be learned. Foremost, as I said last week in the "Observing" piece: 

"Governments should not enter the telecom marketplace with government-owned systems when private sector providers, with their own capital at risk, are willing to provide service. With the government systems' financial backing and subsidies from taxpayers - even if such backing and subsidies often are extracted unwittingly - along with various special privileges and benefits, it is exceedingly difficult for private sector companies to compete on an equitable basis with government providers." 

But with Google entering the local broadband marketplace in a few carefully selected cities, there is another important lesson as well. Just as private sector providers should not have to compete against government-owned providers – with their tax subsidies and other special privileges – so too should private providers not have to compete against other private firms like Google which are beneficiaries of government-conferred privileges.
  

When Google announced it was entering the Kansas City, Missouri market with its high-speed fiber service, in that case in competition with Time Warner Cable, it became evident that Google would be granted, as inducements, an array of special privileges and benefits extended by the city government.
  

According to compilations from various press reports, here is a list of some of the special privileges: 

•    Free space in city facilities for installation of central office equipment and for additional network facilities 

•    Free power for network equipment at city locations 

•    Free access to city “assets and infrastructure,” including conduit, fiber, poles, rack space, nodes, buildings, facilities, and land 

•    Right to build out only to neighborhoods demonstrating high demand for the service through pre-registrations 

•    Right to terminate the agreement for convenience at any time up to two years after actual construction commences on the fiber network 

•    Ability to build “fiber huts,” which are small buildings that house equipment, on city land at no cost 

•    Waiver of city permit and inspection fees 

•    Lower pole attachment rates than Time Warner Cable was paying 

•    Cooperation from city in efforts to allow Google to gain access to poles and rights-of-way owned or controlled by third parties 

•    Cooperation from city to obtain settlement-free interconnections with anchor institutions in city that have existing fiber and/or network connections 

•    Free access to detailed GIS data and computer tools, including location information on all facilities owned by city and, to the extent available, those of third parties 

•    Access to rights-of-way on property owned by city

•    Provision by the city of (1) an “Executive Sponsor” for the project at most senior management level of the city; (2) a single point of contact; and (3) a team of city officials to work with Google employees 

•    Regular (at least weekly) status meetings between city officials and Google for coordination of all matter relating to the project 

•    City approval of all applications and documents within 5 days 

•    Marketing support and education programs regarding the network, including direct mailings and community meetings 

I cannot vouch for the accuracy of the reports regarding each of the above privileges and benefits, but, for my purposes here, that is not necessary. The point is that municipal governments, whether in Kansas City, Austin, Provo, or wherever, should not offer one private sector provider government-conferred benefits that are not available on the same terms to other private competitors. While I am not certain of this, it is my understanding Kansas City may now have agreed to make the same terms available to Time Warner Cable, and others, as it is making available to Google. And press reports indicate Austin appears prepared to treat all private providers the same regarding city-conferred inducements.

I certainly am not opposed to Google entering the broadband marketplace in selected localities as long as the company does not receive special government-conferred privileges and benefits that are not available to its private sector competitors. Of course, this point applies not only with respect to local and state government-conferred benefits, but to any special privileges conferred at the federal level as well. 

More private sector competition is a good thing. What is decidedly not a good thing is for more governments to enter the telecom business with their own networks.

High Court Case Highlights FCC's Need to Settle VoIP Status Now

On April 15, the U.S. Supreme Court granted a petition for certiorari in Sprint v. Jacobs. The case is on the docket for the next term the Supreme Court. Under review will be a September 2012 ruling by the 8th Circuit Court of Appeals that applied the Younger abstention doctrine and ordered a stay on Sprint's federal lawsuit pending the outcome of related litigation in Iowa state court.

The underlying issue in dispute is the Iowa Utilities Board's order requiring Sprint to pay intrastate access charges to Windstream for Voice over Internet Protocol (VoIP) calls. As the 8th Circuit's opinion explained: "[t]he determination of that issue will turn on whether Sprint's VoIP traffic is an intra-state 'telecommunications service' subject to IUB regulation… or whether…the calls at issue are included within the definition of 'information service'…which classification remains largely unregulated and exempt from access charges."

Based on the "Questions Presented" for the case a future ruling in Sprint v. Jacobs will focus on the parameters of the Younger doctrine. The FCC's reluctance to make any classification decisions regarding VoIP makes it even less likely that the Supreme Court's ruling will answer whether VoIP is a "telecommunications service" or an "information service."

Prof. Daniel Lyons, a Member of FSF's Board of Academic Advisers, made the case for why the FCC should classify all VoIP traffic as a Title I "information service" in his Perspectives paper, "The Challenge of VoIP to Legacy Federal and State Regulatory Regimes." By settling the status of VoIP, the FCC would thereby keep disputes like Sprint v. Jacobs from arising in the first place.