What’s At Stake in the Aereo Case? Maybe the Future of the Cloud

On Tuesday, the Supreme Court heard oral arguments in a major technology case, ABC v. Aereo. The case attracted a huge amount of attention – “Aereo” was the #1 Google search on Tuesday. And that isn’t really surprising. What the Court decides in Aereo could have profound effects on the future not only of television, but of the Internet as well.

Aereo’s business model is clever and, potentially, very disruptive. As they have done since the dawn of television, the major networks – ABC, NBC, CBS, and FOX – broadcast their signals over the air. You can receive these signals with a digital antenna – the modern equivalent of rabbit ears – and millions of Americans who don’t subscribe to cable or satellite still do.

Aereo is nominally in the antenna business. Aereo owns thousands of tiny digital antennas – each about the size of a dime – on the roof of a building in Brooklyn. In exchange for a monthly fee that ranges from $8-$12, an Aereo subscriber can dial into one of these antennas to watch whatever she wants.

The Real Fake

Last week, we described how the famed U.K. street artist Banksy had set up a stand in New York’s Central Park selling real Banksy pieces – stenciled figures spray-painted on canvas – for $60. The art was worth a lot more than that, yet almost no one bought any. We asked how that could be – and got a lot of great reader responses in the comments. Thanks!

It turns out that there’s a second part to this story. One week after Banksy tried and failed to sell his art, a bunch of unrelated artists set up a stand selling fake Banksys for $60. The pieces were exact replicas of the ones Banksy had tried to sell in his stand.  But this time the artists told shoppers very clearly that the pieces were fake. And yet they sold out their stock in an hour.

Some Evidence on the Relationship Between Copyright and Profit

How do copyright laws affect creativity? Do stronger laws increase profitability -- and, therefore, do they increase creativity? If musicians/filmmakers/authors/software designers/etc. etc. etc. don't have the strong incentive of copyright protection, will they create less or inferior work?

These question are both broad and long; many great minds have wrestled with them, and will continue to do so. Our recurring guest bloggers Kal Raustiala and Chris Sprigman regularly discuss copyright; Levitt touched on it here, and we discussed copyright protection in this podcast.

Now, in a new working paper (abstract; PDF) called "Copyright and the Profitability of Authorship: Evidence from Payments to Writers in the Romantic Period," Megan MacGarvie and Petra Moser take up the argument: 

Scott Turow, President of the American Authors’ Guild, warned that regimes that weaken copyright, such as digital piracy may cause the “slow death of the American author” (Turow 2013). Empirical analyses of file sharing, however, reveal no significant effects on the quantity or quality of recorded music (Oberholzer-Gee and Strumpf 2009; Waldfogel 2013), which suggests that the importance of copyright protection may be overstated.

When a Fake Banksy Is a Real Banksy

Many news outlets this week carried the story that Banksy, the celebrated British street artist, had set up an innocuous-looking booth near Central Park that offered original signed works for $60 each—despite their value being much closer to $60,000 apiece.  Even with this astounding discount, only a handful were sold—as the video in the post, from Banksy’s website, shows.

What’s interesting to us is what this says about art and the role of copies. While copying is a huge concern in many art forms—especially music and film—in fine art, it is comparatively insignificant. In China, there are whole villages full of artisans devoted to copying the great masters of Western art, and certainly fakes and frauds are well known in the West as well. Yet there is not a thriving black market in Banksy knockoffs—or, for that matter, in the work of other major contemporary artists.  Why is that?

Does Copyright Make Books Disappear?

Copyright law has two main economic justifications. One is familiar—the idea that copyright promotes the production of creative work by ensuring that creators, and not copyists, gain the value of their creations. Yet production is not enough, since works also need to be distributed over time. And here lays the second main justification: copyright’s power does not end at the moment of creation, but instead provides a continuing incentive for creators (or their financial backers) to distribute and market works. Absent that incentive, creative works will not be readily available to the public.

In a fascinating new paper (available on SSRN) by Paul Heald analyzes this second claim. Here is a snippet from the introduction. We've bolded the most striking part of the study:

Influential copyright lobbyists presently circle the globe advocating ever longer terms of copyright protection based on this under-exploitation hypothesis--that bad things happen when a copyright expires, the work loses its owner, and it falls into the public domain. By analyzing present distribution patterns of books and music, this article tests the assumption that works will be under-exploited unless they are owned and therefore questions the validity of arguments in favor of copyright term extension… 

[Our research] collects data from a random selection of new editions for sale on www.amazon.com (“Amazon”) and music found on new movie DVD’s for sale on Amazon. By examining what is for sale “on the shelf,” the analysis of this data reveals a striking finding that directly contradicts the under-exploitation theory of copyright: Copyright correlates significantly with the disappearance of works rather than with their availability. Shortly after works are created and proprietized, they tend to disappear from public view only to reappear in significantly increased numbers when they fall into the public domain and lose their owners. For example, more than twice as many new books originally published in the 1890’s are for sale by Amazon than books from the 1950’s, despite the fact that many fewer books were published in the 1890’s.

The Multiplex Strikes Back

In The Knockoff Economy,we wrote about how turning products into experiences is one way to blunt the detrimental effects of copies. Products – especially digital ones – are often very easy to copy. But experiences can be highly copy-resistant.  Just think of music: it’s easy to pirate a song, but it’s very difficult to effectively pirate a live show. Or movies: it’s easy to pirate a film, but it’s impossible to pirate the experience of watching a movie at a premium theater like The Arclight Hollywood in Los Angeles.  You can’t cheaply copy the comfy reserved seats, the fancy food and drink, the great sight lines and sound.

All this, of course, comes at a price. But it helps justify the idea of going to a movie theater in an age when home downloads, on a widescreen computer monitor, can be pretty good.

Aaron Swartz Versus the Bankers

New Yorker article on Aaron Swartz, who committed suicide while under federal investigation for bulk downloading academic articles, leaves little to disagree with. But it missed a comparison that has troubled me: between Swartz and the bankers who tanked the world economy.

I have found myself unable to write about this topic until now. First, Swartz lived for many years in my apartment building in Cambridge, Mass., and many residents remember him as quiet and kind. Second, I share his belief in the free flow of information. Using the NonCommercial ShareAlike license from Creative Commons, MIT Press published and freely licensed my Street-Fighting Mathematics"One of the early architects" of Creative Commons was Aaron Swartz.

Swartz tried to free knowledge and expand the public domain. In contrast, the bankers took from the public domain.

A Brave New World for Copyright and the First Sale Doctrine

Arbitrage is defined as taking advantage of price differences between two markets. A few years ago Supap Kirtsaeng, a math major at Cornell, found that his textbooks could be purchased more cheaply in his native Thailand than in Ithaca, so he asked friends to buy the books there and ship them to him. He started selling them on eBay and soon cleared almost $40,000. Eventually a major textbook publisher, John Wiley & Sons, got wind of Kirtsaeng’s business and filed a copyright lawsuit.

That the suit involved copyright may seem odd, since Kirtsaeng wasn’t copying anything. He was just re-selling items that he’d already paid for — a time-honored way to make money in almost any economy.

But because the items were books, some special rules applied. The textbooks were foreign editions (i.e., printed abroad), and Wiley had inserted the following language into the title pages: “This book is authorized for sale in Europe, Asia, Africa, and the Middle East only and may be not exported out of these territories. Ex­portation from or importation of this book to another region without the Publisher’s authorization is illegal and is a violation of the Publisher’s rights.” Wiley argued that by importing the books Kirtsaeng was violating the copyright owner’s exclusive right under the U.S. Copyright Act to authorize distribution. 

A Soybean in the Supreme Court: Bowman v. Monsanto

The idea of patenting a living organism is strange to some people, if not frightening. Nonetheless, these kinds of patents have existed for decades. On Tuesday, the Supreme Court held argument in Bowman v. Monsanto, a case that will test just how far these patents reach. 

Vernon Hugh Bowman is a 75-year-old Indiana soybean farmer. Like pretty much every soybean farmer in America, Bowman is a regular purchaser of “Roundup-Ready” soybean seed from Monsanto. Farmers who plant the variety are able to kill weeds, but not soybeans, by spraying their fields with Roundup. Today, over 90% of the soybean crop in the U.S. uses Monsanto’s patented variety.

One special feature of a living thing is that it can grow and reproduce. And so farmers who buy Roundup-Ready soybean seed sign a contract with Monsanto promising that they will not replant any of the soybeans that they harvest. Monsanto wants farmers to buy a fresh batch of seed every time they plant a soybean crop — and not grow their own.

The "One-Hit-Wonder" Rule of Copyright Compensation

From a podcast listener named Ed Morgan, in response to our recent episode called "Who Owns the Words That Come Out of Your Mouth?":

While listening to your podcast on British copyright laws I was thinking you missed an important point. If you want to keep content providers producing, you can’t pay them too much. It’s what I call the “one-hit-wonder” rule. If a single piece of copyrighted work is so popular that fair compensation to the creator eliminates the incentive for the copyright owner to ever produce anything else. The same could apply to the creator’s heirs. Would Churchill’s descendants produce new and more content if they were not getting paid for the work their ancestor did?

I think Ed's observation is more relevant for the heirs than the creator him/herself. Thoughts?