19 November 2009

Google Book Search Settlement

Tangent: A Short Gloss on Antitrust (1)

The Settlement (in essay form)
The Lawsuit (in essay form)

While I was in the midst of expounding upon the antitrust implications of the GBS settlement proposals — and, indeed, whether any settlement could pass antitrust scrutiny absent legislative approval — I realized that I was using a great many technical terms and concepts. As mysterious as the technical terms and concepts of publishing and of copyright can get at times, they're an order of magnitude clearer than those common in antitrust law. Before I make anyone's head spin any faster than 331/3 RPM, I suppose I should try to bridge that gap... particularly since storage devices these days tend to spin at 5400 or 7200 RPM...

Antitrust law is founded on the same principle as is the US Constitution: No one actor (or, as we'll see later on, group of actors acting together, intentionally or otherwise) should be allowed to obtain or maintain dominant power without challenge absent a specific grant and need to do so. In politics, we have the "three branch" system; in market economics, we have "antitrust and competition law." The political definition of "power" is parallel to the market economics definition of "power," but they're measured differently.27

I'm now going to try, using cross-platform HTML code, to display a block diagram that will (hopefully) illuminate what is going on when one is dealing with intellectual property in an antitrust context. Keep in mind that this is a general-purpose diagram that I redrew from several sources over a decade ago, and not something for GBS or even print publishing in general.

IP Creator
⇓  ⇑

Product Differentiation and Packaging
⇓  ⇑

Product Distribution
⇓  ⇑

End User

In this horribly simplified block diagram, the downward arrows represent the (anticipated) flow of intellectual property28 and the upward arrows represent the (anticipated) flow of compensation. In short, each pair of arrows represents an aggregation of binary market transactions. The key point is that each of the four blocks represents different perspectives on, and balances in, antitrust considerations.

The first thing to keep in mind, antitrust-wise, is that that lefthand arrow has been granted an exclusion from antitrust scrutiny unless it is "misused." Misuse is a shorthand term for a variety of sins, most of which concern attempts to exert power over rights not protected by the intellectual property using that intellectual property as a lever. This is most obvious in "tying" arrangements: "I will not allow you to buy or lease this protected-by-patent photocopier unless you also buy the paper, toner, and service contract from me, even though the paper, toner, and service contract are not protected by that or any other patent." In the entertainment/publishing end of intellectual property, this often appears as either unfair/excessive license fees for reuse (I'm talking to you, ASCAP/BMI!) or overassertion of rights (even louder), and sometimes as outright refusals to deal.29

The second thing to keep in mind, antitrust-wise, is that each block has both monopolistic and monopsonistic aspects. I can see a big "huh?" already... in short:

  • Although "monopoly" is often used to encompass the entire field of antitrust law, technically (and mathematically) a monopoly concerns only a one-providing-property-to-many situation. In the block diagram, the end user can never be a monopoly, because it doesn't provide property to many: It may receive property from many, but that is
  • A "monopsony." However, antitrust theory requires more than merely reception of the property; it also requires that there be no rational alternate means of exploiting the property, which is one of the areas in which antitrust theory and intellectual property theory are inconsistent.

Keep in mind, too, that superior practices and products are not antitrust violations, so long as there are acceptably low entry barriers to another potential market participant who comes along with even more superior practices and products.

Those of you who actually paid attention in sixth-grade math will, very soon now, begin to understand why it makes a difference whether one is considering a monopoly or a monopsony as an antitrust issue. That very soon, however, will have to wait for the next entry... which will be much more tightly tied to the GBS settlement.

  1. If you're wondering whether intellectual property laws somehow violate this principle, you get a gold star on your daily report. The distinction is that the US Constitution, with the IP Clause, gives a specific grant and states a specific need for allowing certain limited monopolies in intellectual property... and therefore falls outside of this objection for the initial owners (creators) of intellectual property. The problem, as we'll see down the road, is that the GBS does not concern the initial owners (creators) of intellectual property, but later market mechanisms for distribution of that intellectual property that largely ignore the interests of the initial owners; as Randy Newman says, "It's Money That Matters."
  2. Or, in many circumstances, derivative works based upon that property, possibly combining other intellectual property to create a single product. Consider, for example, a book, which might include the copyrightable expression of the text; a copyrightable index; copyrightable design elements; copyrightable cover design and illustration; and so on (ignoring, for the moment, whether the editorial contribution is itself copyrightable!).
  3. Although it's not relevant to the GBS situation, keep in mind that true transformation of the underlying expressive intellectual property (that is, copyright and/or trademark) is a completely different situation. That concerns not antitrust issues, but freedom-of-speech issues (see, e.g., Campbell v. Acuff-Rose Music, Inc., 510 U.S. 569 (1994) — the 2Live Crew case) that make this even more of a headache.