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Music Licensing—La Plus Ça Change?

The French have a wonderful saying, la plus ça change, plus c’est la même chose, which roughly translates to “the more things change, the more they remain the same.” That’s an apt description of current, high-profile wrangling in the United States about music licensing under federal copyright law. Despite all the jarring changes to the recording industry over the past decade — remember Tower Records? — it’s the same issues and (mostly) the same players as always, arguing over a Rube Goldberg-like system of arcane complexity.

Today the House of Representatives (specifically the Judiciary Committee’s Subcommittee on Courts, Intellectual Property and the Internet) will hold a second round of hearings on music licensing. This inquiry coincides with a recent announcement by the Justice Department that it will review — and solicit public feedback on — the 73-year-old antitrust decrees that govern ASCAP and BMI, two groups which act as licensing clearinghouses for a range of outlets that use music, including radio stations, websites and even restaurants and doctors’ offices. As the New York Times has observed, “billions of dollars in royalties are at stake, and the lobbying fight that is very likely to unfold would pit Silicon Valley giants like Pandora and Google against music companies and songwriter groups.”

ASCAP logo

According to the consent decrees, which were instituted in 1941 after federal antitrust investigations, ASCAP and BMI cannot refuse licenses to music outlets that request them. These two “performance rights organizations” (PROs) have operated under this structure for decades, but in recent years have lost important legal cases having to do with licensing. Earlier in 2014, for instance, ASCAP lost a rate-setting case against Pandora in which several prominent music publishing executives were criticized harshly by the presiding federal judge. In response, major publishers like Sony and Universal Music Group have begun to openly discuss withdrawing from ASCAP and BMI, a move that would further complicate the licensing process.

Continue reading Music Licensing—La Plus Ça Change?

Cybersecurity & Antitrust

Recently the United States federal antitrust enforcement agencies — the Federal Trade Commission and the Justice Department’s Antitrust Division — issued a joint policy statement designed to “make it clear that they do not believe that antitrust is, or should be, a roadblock to legitimate cybersecurity information sharing.” The release made headlines globally, but the real story is that the risk of antitrust exposure for exchange of cyber risk information, even among direct competitors, was and remains almost non-existent.

international business

That is because the U.S. antitrust laws (principally Section 1 of the Sherman Act) prohibit horizontal conspiracies and agreements among rivals, like price fixing, that harm competition. In some areas, information exchange can be competitively problematic, for instance where firms share non-public bidding or price data, or M&A transactions where the deal parties “gun jump” by acting as if they were already merged instead of continuing to compete independently. Yet as the policy statement confirmed, “cyber threat information typically is very technical in nature and very different from the sharing of competitively sensitive information such as current or future prices and output or business plans” and is thus “highly unlikely to lead to a reduction in competition.”

That’s hardly new. More than a decade ago DOJ said exactly the same thing in approving a proposal for cybersecurity information sharing in the electric industry, and Antitrust Division chief Bill Baer called the 2014 reaffirmation “an antitrust non-brainer.” But perceptions can have consequences, and some had voiced the fear that the exchange of IT security information among competitors could present a slippery slope, a forum for the kind of hard-core anticompetitive agreements the government loves to prosecute. At least that is what the White House, which called antitrust law “long a perceived barrier to effective cybersecurity,” reasoned in encouraging the FTC-DOJ clarification. So clearing away the underbrush of misinformation should help reassure business executives that companies which share technical cybersecurity information such as indicators, threat signatures and security practices, and avoid exchanging competitively sensitive information like business plans or prices, will simply not run afoul of the antitrust laws.

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Future Markets, Nascent Markets and Competitive Predictions

No one in government or business has a crystal ball. Yet predictions of what is coming in markets characterized by rapid and disruptive innovation seem to be being made more often by competition enforcement agencies these days than in the past. It’s a trend that raises troublesome issues about the role of antitrust law and policy in shaping the future of competition.

Take two examples. The first is Nielsen’s $1.3 billion merger with Arbitron this fall. Nielsen specializes in television ratings, less well-known Arbitron principally in radio and “second screen” TV. Nonetheless, the Federal Trade Commission — by a divided 2-1 vote — concluded that if consummated, the acquisition might lessen competition in the market for “national syndicated cross-platform measurement services.” The consent decree settlement dictates that the post-merger firm sell and license, for at least eight years, certain Arbitron assets used to develop cross-platform audience measurement services to an FTC-approved buyer and take steps designed to ensure the success of the acquirer as a viable competitor.

In announcing the decree, FTC chair Edith Ramirez noted that “Effective merger enforcement requires that we look carefully at likely competitive effects that may be just around the corner.” That’s right, and the underlying antitrust law (Section 7 of the Clayton Act) has properly been described as an “incipiency” statute designed to nip monopolies and anticompetitive market structure in the bud before they can ripen into reality. Nonetheless, the difference is that making a predictive judgment about future competition in an existing market is different from predicting that in the future new markets will emerge. No one actually offers the advertising Nirvana of cross-platform audience measurement today. Nor is it clear that the future of measurement services will rely at all on legacy technologies (such as Nielsen’s viewer logs) in charting audiences for radically different content like streaming “over the top” television programming.

Crystal Ball

The problem is that divining the future of competition even in extant but emerging markets (“nascent” markets) is extraordinarily uncertain and difficult. That’s why successful entrepreneurs and venture capitalists make the big bucks, for seeing the future in a way others do not. That sort of vision is not something in which policy makers and courts have any comparative expertise, however. Where the analysis is ex post, things are different. In the Microsoft monopolization cases, for instance, the question was not predicting whether Netscape and its then-revolutionary Web browser would offer a cross-platform programming functionality to threaten the Windows desktop monopoly — it already had — but rather whether Microsoft abused its power to eliminate such cross-platform competition because of the potential long-term threat it posed. By contrast, in the Nielsen-Arbitron deal, the government is operating in the ex ante world in which the market it is concerned about, as well as the firms in and future entrants into that market, have yet to be seen at all.

This qualitative difference between nascent markets and future markets (not futures markets, which hedge the future value of existing products based on supply, demand and time value of money) is important for the Schumpterian process of creative destruction. When businesses are looking to remain relevant as technology and usage changes, they are betting with their own money. The right projection will yield a higher return on investment than bad predictions. Creating new products and services to meet unsatisfied demand may represent an inflection point, “tipping” the new market to the first mover, but it may also represent the 21st century’s Edsel or New Coke, i.e., a market that either never materializes or that develops very differently from what was at first imagined.

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The Meaning Of the Clemens Mistrial

Clemens and attorney

Whatever one thinks of Roger Clemens’ veracity (let alone possible steroid use), the idea that his criminal trial ends without a verdict because the prosecutors blatantly disregarded the court’s instructions by showing the jury inadmissible evidence is just astounding. Brings to mind former Supreme Court Justice Benjamin Cardozo’s famous question from the 1920s — should the suspect go free because the constable has blundered?

From the reports I’ve read, this was either incompetence or intentional overreaching, as the U.S. Attorneys’ office played in open court a videotape of congressional testimony in which a member read aloud portions of an affidavit (from Andy Petti’s wife) the court had declared — correctly, in my view — could not be used (at least not until rebuttal, if the defense attacked Pettit’s credibility). Astonishing. The meaning of this fiacso is that the government, no less and perhaps more than any other litigant, cannot under our American system of constitutional justice avoid its responsibilities to ensure fairness in criminal prosecutions.

Posted via email from glenn’s posterous.


DNA, CODIS and Liberty

Last week, a federal district court ruled that mandatory DNA collection for all people facing federal felony charges is constitutional, dealing a setback to civil liberties. U.S. District Judge Gregory G. Hollows upheld the DNA Fingerprint Act, a 2006 statute which allows federal law enforcement agencies to collect DNA from individuals “arrested, facing charges, or convicted” of federal offenses, as well as those “detained” but not charged. Previously, states throughout the country had a variety of different laws on the books regarding DNA collection — with most mandating testing only after a suspect had been convicted of a crime. The Not-So Private Parts [True/Slant].

So to dub this a “criminal” DNA database is misleading, because the DNA collection — stored in a database known as CODIS, short for Combined DNA Index System — is not limited to convicted people and never goes away. Historically, until 2001 DNA was collected only from inmates who had been convicted of a small number of specified offenses defined in rules promulgated by the Justice Department. Then the USA PATRIOT Act, in Section 503, added three additional categories of qualifying federal offenses for purposes of DNA-sample collection: (1) an offense listed in 18 U.S.C. 2332b(g)(5)(B), for “acts of terrorism transcending national boundaries”; (2) a crime of violence; and (3) an attempt or conspiracy to commit any of the above offenses.

So this little-noticed piece of legislation not only expands infinitely, to any criminal offense, those eligible for DNA collection. It also expands the DNA database to people who are arrested but never indicted or “charged” but never tried, as well as those who are acquitted! That’s bad enough, in my view, to characterize this law as yet another step toward an Orwellian future for the United States, driven by the knee-jerk reaction to 9/11, led by conservatives such as Sen. John Kyl, well-known for spearheading the so VERY important battle to criminalize Internet gambling by U.S. citizens. Will the government require location-based service providers, cell phone networks and smart-tag toll technologies to hand over and archive location data on subscribers, so the government can track us? Will Amazon, eBay and other online retailers be forced to allow the government to troll their databases for purchasing patterns?

Maybe folks made the same complaints when fingerprints began to be collected on arrest more than 70 years ago. But the difference is that DNA has taken on almost mythical status as being indisputable. As Eric Goldman observed when the Act was passed:

Criminal jurors, charged with deciding facts in a trial, tend to be irreversibly swayed by DNA evidence, rightly or wrongly. Call it the “CSI effect,” but DNA evidence creates an irrefutable connection in the minds of most jurors. While this can be a two-edged sword when juries expect forensic evidence prosecutors just don’t have, jury allegiance to DNA evidence tends to harm defendants it is introduced against much more than it exonerates them.

This is a double-whammy. First the government gets DNA from anyone with even the most cursory involvement with the criminal justice system. Then it can utilize those samples to add a patina of irrefutability to its criminal prosecutions. Whether or not the CODIS database is extended again (maybe to all infants born in the United States, justified as a way to protect against kidnapping and Amber Alert lost kids?), I believe its application beyond individuals convicted or indicted for terrorism and violent felonies is unnecessary and irresponsible.

As Benjamin Franklin wrote in 1759, “Those who would give up essential liberty to purchase a little temporary safety, deserve neither liberty nor safety.” That’s a good lesson to apply to the DNA Fingerprint Act.

Small Isn’t Beautiful Anymore

SJM logo

I’ll let my op-ed in Sunday’s San Jose Mercury News speak for itself. Opinion: In the Tech Industry, Small Isn’t Beautiful Anymore. Might be a little narcissistic to blog about one’s own article, no?

Wrangling over the proposed Google-Yahoo advertising deal makes one wonder whether scale, a virtue in Silicon Valley, can also be a vice. Some have insisted that Google is too big. But with apologies to economist E.F. Schumacher — author in 1973 of the generational anthem “Small Is Beautiful” — big isn’t bad anymore, it’s good.

A mere 10 years old, Google so dominates Internet search that the company’s name has become a verb. Google has grown large because it is good and its engineers continue to design innovative new products. That is something Web aficionados and antitrust regulators should applaud.

Google has already changed the way businesses advertise. The advertising issue is one its critics point to as evidence that Google is so large, the antitrust laws should kill the Google-Yahoo advertising venture before it launches later this month. The idea, as some ad agents have said, is that a combined Google-Yahoo share of “Internet search advertising inventory” would be competitively harmful. This is mushy reasoning being peddled to spread economic paranoia.

Everyone agrees that the principal objective of antitrust law is economic efficiency. To assess Google-Yahoo, therefore, one must first define what market we’re talking about. References to Internet search “inventory” are analytically dishonest, disguising the fact that search advertising — of which Google holds a 63 percent share — competes directly with Internet display advertising. Online display advertising is commanded by MySpace, AOL and Microsoft, and Google’s presence is tiny. As the data on rapidly declining advertising revenues for newspapers, network television and other “legacy” media reveal, Internet advertising is also becoming a substitute for advertiser dollars that used to flow elsewhere.

The consequence is that the relevant market cannot exclude Internet display advertising or even be limited to Internet advertising. And once the market covers something more than search ads, all serious competitive arguments against the Google-Yahoo transaction fade away. Take just a few.

Microsoft insists the alliance is unlawful price fixing because it will increase search advertising prices. To the contrary, neither Google nor Yahoo will be able to dictate minimum bids or prices to the other and, since advertisers will have a greater supply of more valuable search ads to buy — the demographically targeted ads produced with Google’s famously secret algorithms — the relative price for Internet search advertising will go down. That’s simple supply-and-demand, and it’s a good thing.

Others argue that Yahoo needs to remain independent and cannot be allowed into Google’s orbit. But this is not a merger or acquisition. If Yahoo’s board of directors, having just finished a bruising battle with Microsoft, violated its duty to maximize shareholder value, that is hardly the same as eliminating a competitor from the market.

Some suggest the government must act quickly to nip the growing power of Google in the bud. But in our market system we do not punish a successful company because it might do something bad in the future. Microsoft should be especially ashamed for endorsing this suggestion, since its decade-long antitrust fights here and in the EU arose from its bad acts, not its bigness. And unlike a merger, there can be no problem here of “unscrambling the egg” if things go south.

That leaves the only real objection to the Google-Yahoo! alliance as consumer privacy. There may be valid privacy objections to Google’s activities; indeed, Google might someday become so big that its possession of huge troves of personal data alone creates a threat to privacy. But as the FTC decided in approving the Google-DoubleClick merger in 2007, antitrust laws are not a substitute for privacy regulations.

So even here, privacy and bigness are not enemies. Unless Google starts acting badly in the competitive marketplace, the government should just leave it alone.

Glenn B. Manishin is an antitrust partner with Duane Morris in Washington, D.C. He was counsel for ProComp, CCIA and other software competitors challenging the Bush administration”s antitrust settlement with Microsoft. He wrote this article for the Mercury News.


What A Screw-Up

Alaska Sen. Ted Stevens has been a fixture for decades on Capitol Hill, which means by definition folks are afraid of him. In this case it also mean’s he’s dirty. Now the federal government — prosecuting Stevens for omitting $250,000 in home improvements from his financial disclosure forms — has totally botched the case by itself failing to disclose evidence to Stevens’ defense team. Judge Threatens to Throw Out Corruption Case Against Ted Stevens [L.A. Times].

That’s a Brady violation, so named for the Supreme Court case requiring disclosure of exculpatory materials to a criminal defendant. Basic, basic. Here the Assistant U.S. Attorney disclosed only a “redacted” — incomplete — copy of the government’s interview of its star witness. Turns out the missing stuff was also the good stuff. Good for Stevens and now bad for the people. In think this sullied old crook should be hounded out of office by the Alaska electorate or banned by the Senate Ethics Committee. A long time ago, Supreme Court Justice Benjamin Cardozo asked whether “the criminal should go free because the constable has blundered.” The answer to that is yes, but it’s no solace that a crooked politician gets away with corruption for such a stupid blunder.

Not the Best & Brightest

Thirty years ago the U.S. Department of Justice, and its Honors Program for law school graduates, attracted some of the best-credentialed, smartest and most talented young lawyers around. It made DOJ a plum position for aspiring litigators, where one could "learn by doing" instead of watching others and — despite obvious financial sacrifices — allowed the federal government to recruit from the top law schools in the nation.

But now it seems the Bush Administration has totally politicized the Justice Department. As if firing U.S. Attorneys for political reasons — not being "loyal Bushies" according to internal emails — is not bad enough, now the DOJ Inspector general reports that senior political appointees at Justice have for six years been "using ideological reasons to scuttle the candidacy of lawyers who applied to the elite honors and summer intern programs."  So members of the conservative Federalist Society got a free pass, without the resume to warrant a position, while members of the Nature Conservancy were nixed without consideration at all for being too liberal.

That’s revolting.  It’s truly a sad end to a once impressive agency where I was proud to have stared my own legal career in 1982 after a judicial clerkship.