Stuart Shieber's New Blog - Occasional Pamphlet

Stuart Shieber, Professor and Director of the Office of Scholarly Communication at Harvard,has started an open access blog, The Occasional Pamphlet. Stuart was responsible for shepherding the Harvard Faculty of Arts and Sciences Open Access policy through the process. Stuart cares deeply about getting the architecture right for digital scholarly communication, and he has a number of creative ideas about how to move to a more open and productive environment for scholarly communication. Welcome Stuart!

Lessig on Helprin

There's a cottage industry of naysayers who seek attention by deriding all things Internet. A member of this crew, Mark Helprin, has put together a collection of pages bound together under the title Digital Barbarism which was printed by Harper Collins. I say printed rather than published because the book could not have passed through any meaningful peer review or editorial process. It appears that at least in this case, Harper has decided that its future is as a vanity press.

In the book, Helprin presents a largely fictional account of copyright law and takes some pot shots at Creative Commons along the way. If you happen to come across someone who has been taken in by Helprin's account, please refer them to Larry Lessig's meticulous refutation of Helprin.

Please Don't Use .docx

If you, like me, work in an organization that has switched to Microsoft Office 2007, please be alert to two problems and their solutions.

Problem 1: They changed the interface big time. Microsoft says it's an improvement based on user data. If you, like me, value your time relearning a new menu structure that is in no way intuitive is not an improvement.

Solution: There is an easy solution - OpenOffice, the free office suite that is interoperable with Microsoft Office let's you stay with largely the same interface as MS Office 2003.

Problem 2: They changed the file format. For reasons nicely explained by Brian at Teach Them Well, this is not an improvement. It's an attempt to break the standard that Microsoft established with earlier versions of Office. The new file formats end in x (.docx, .pptx, .xlsx). These are not compatible with earlier versions of MS Office. When you instruct MS Office 2007 to use the older file formats (.doc, .ppt, .xls) the window announces that you are operating in "Compatibility Mode". Draw the inference - when you are using the new MS Office 2007 formats, you are operating in "Incompatibility Mode". Why would you want to do that?

Solution: Switch to OpenOffice or, if you must use MS Office 2007, use these instructions to change the default file formats to the standard ones.

Urgent - The Fate of Internet Users' Rights in the EU

Readers in Europe who care about keeping the Internet relatively neutral need to express that opinion to policymakers in the European Parliament by April 29. In particular, it is inexplicable why the Green Party is on the sidelines and not actively supporting the Citizens' Rights Amendments that have been tabled to restore users' rights that were in an earlier version of the gargantuan Telecoms Package making its way through the European Parliament. Erik Josefsson is a leading proponent of these amendments, and he is hosting PDF versions of the amendments Part I, Part II and Part III on his site.

The magic numbers in this debate have been 138 and 166. These are the two amendments that initially were hailed in the US press as recognizing access to the Internet as a fundamental right, countering French President Nicolas Sarkozy's campaign to require service providers to impose the Internet death penalty on users found to have infringed intellectual property rights three times.

Lobbying by representatives of corporate and professional rights owners - remember there is no group dedicated solely to lobbying on behalf of the millions of amateur creators who also are rights owners under copyright - has led to a reversal of this position As Monica Horten reports, the current versions of Amendment 138 and Amendment 166 would allow for imposition of the Internet death penalty and non-neutral network management.

The Citizens' Rights Amendments have been tabled to reverse these back-room deals and to clarify the original position concerning users' rights.

While it is of course up to European citizens to decide for themselves what regulations they want to live under, as a participant in a global network, I hope that those who support the cause of citizens' rights will mobilize to establish those rights in law.

Can IP Law Save Newspapers?

The news that the Associated Press is going to rely increasingly on copyright and trademark law to staunch losses to its newsgathering business and its client/member newspapers does not bode well for the level of creative, entrepreneurial thinking needed in the Fourth Estate right now.

Robert Scoble has a nice post reflecting on the challenges facing the industry as currently structured and does a nice functional analysis of the assets news organizations still have to work with.

Open Access - Where is Columbia?

On Wednesday, April 8, I gave an open access presentation at Columbia University, and I asked the question why the university as a whole was not interested in demonstrating greater leadership in this area. The University Librarian, Jim Neal, has been a strong and important open access advocate for years. He has brought on Kenny Crews to help those on campus sort out the copyright issues. But, where is the rest of the campus?

Well, the good news, at least, is that two days later we saw that some of the students get it. Kudos for a very well done piece!

Physicists and the Harvard Mandate

Congratulations are due to the American Physical Society and the Harvard University Office of Scholarly Communication for working out an understanding about how Harvard plans to exercise its rights under the copyright license granted to it by the Faculty of Arts and Sciences. The press release is here.

This is further evidence that open access to authors' final manuscripts is consistent with the mixed subscription and page-charges model to fund the costs of publication and dissemination of research.

Open Access Events - American and Columbia

The momentum for campus-wide action on open access is building. Tomorrow, I'll be speaking at American University Library's Digital Futures Forum. On April 8th, I'll be participating in one of Columbia University Library's series of programs on scholarly communication and open access. In a trying time for many, it's nice to see at least one trend that's positive!

New Position

I'm delighted to share the news that I'll be permanently joining the faculty at American University's Washington College of Law and will be the new director of the Program on Information Justice and Intellectual Property (PIJIP). The press release is here: http://www.wcl.american.edu/news/michaelcarrollPIJIP.cfm.

Harvard Kennedy School Goes Open Access

This is a very good week for open access. Perhaps there is something in the water in Cambridge, Mass. because now the Kennedy School of Government at Harvard also has adopted an open access mandate. Who's next?

MIT Open Access Policy

Big news at MIT. By unanimous faculty vote, MIT adopted the first University-wide OA mandate in the United States for faculty authors. The driving force for this initiative on the faculty was Hal Abelson, with whom I have the honor to serve on the CC Board. I've also had the pleasure of working with the Director Libraries and the MIT Press, Ann Wolpert on various projects, who also played a central role and who, I am sure, will enthusiastically implement the new policy. Congratulations MIT!

Copyright in Databases

I'm going to have more to say about data, databases, and intellectual property rights in the coming months. This longish post provides a basic primer on how U.S. copyright law applies to databases.

A. Copyright

Copyright attaches to an original work of authorship that has been embodied in a fixed form. The “work” to which copyright attaches can be the structure of the database or a relatively small part of a database, including an individual data element, such as a photograph. It is therefore possible for a database to contain multiple overlapping copyrighted works or elements. To the extent that a database owner has a copyright, or multiple copyrights, in elements of a database, the rights apply only to those copyrighted elements. The rights are to reproduce, publicly distribute or communicate, publicly display, publicly perform, and prepare adaptations or derivative works.

1. Standards for obtaining copyright

a. Originality

Copyright protects only an author’s “original” expression, which means expression independently created by the author that reflects a minimal spark of creativity. A database owner may have a copyright in the database structure or in the user interface with the database, whether that be a report form or an electronic display of field names associated with data. The key is whether the judgments made by the person(s) selecting and arranging the data require the exercise of sufficient discretion to make the selection or arrangement “original.” In Feist Publications, Inc. v. Rural Telephone Service Company, the United States Supreme Court held that a white pages telephone directory could not be copyrighted. The data—the telephone numbers and addresses—were “facts” which were not original because they had no “author.” Also, the selection and arrangement of the facts did not meet the originality requirement because the decision to order the entries alphabetically by name did not reflect the “minimal spark” of creativity needed.

As a practical matter, this originality standard prevents copyright from applying to complete databases – i.e. those that list all instances of a particular phenomenon – that are arranged in an unoriginal manner, such as alphabetically or by numeric value. However, courts have held that incomplete databases that reflect original selection and arrangement of data, such as a guide to the “best” restaurants in a city, are copyrightable in their selection and arrangement. Such a copyright would prohibit another from copying and posting such a guide on the Internet without permission. However, because the copyright would be limited to that particular selection and arrangement of restaurants, a user could use such a database as a reference for creating a different selection and arrangement of restaurants without violating the copyright owner’s copyright.

Copyright is also limited by the merger doctrine, which appears in many database disputes. If there are only a small set of practical choices for expressing an idea, the law holds that the idea and expression merge and the result is that there is no legal liability for using the expression.

Under these principles, metadata is copyrightable only if it reflects an author’s original expression. For example, a collection of simple bibliographic metadata with fields named “author,” “title,” “date of publication,” would not be sufficiently original to be copyrightable. More complex selections and arrangements may cross the line of originality. Finally, to the extent that software is used in a databases, software is protectable as a “literary work.” A discussion of copyright in executable code is beyond the scope of this entry.

b. Fixation

A work must also be “fixed” in any medium permitting the work to be perceived, reproduced, or otherwise communicated for a period of more than a transitory duration. The structure and arrangement of a database may be fixed any time that it is written down or implemented. For works created after January 1, 1978 in the United States, exclusive rights under copyright shower down upon the creator at the moment of fixation.

2. The Duration of Copyright

Under international treaties, copyright must last for at least the life of the author plus 50 years. Some countries, including the United States, have extended the length to the life of the author plus 70 years. Under U.S. law, if a work was made as a “work made for hire,” such as a work created by an employee within the scope of employment, the copyright lasts for 120 years from creation if the work is unpublished or 95 years from the date of publication.

3. Ownership and Transfer of Copyright

Copyright is owned initially by the author of the work. If the work is jointly produced by two or more authors, such as a copyrightable database compiled by two or more scholars, each has a legal interest in the copyright. When a work is produced by an employee, ownership differs by country. In the United States, the employer is treated as the author under the “work made for hire” doctrine and the employee has no rights in the resulting work. Elsewhere, the employee is treated as the author and retains certain moral rights in the work while the employer receives the economic rights in the work. Copyrights may be licensed or transferred. A non-exclusive license, or permission, may be granted orally or even by implication. A transfer or an exclusive license must be done in writing and signed by the copyright owner. Outside of the United States, some or all of the author’s moral rights cannot be transferred or terminated by agreement. The law on this issue varies by jurisdiction.

4. The Copyright Owner’s Rights

The rights of a copyright owner are similar throughout the world although the terminology differs as do the limitations and exceptions to these rights.

a. Reproduction

As the word “copyright” implies, the owner controls the right to reproduce the work in copies. The reproduction right covers both exact duplicates of a work and works that are “substantially similar” to the copyrighted work when it can be shown that the alleged copyist had access to the copyrighted work. In the United States, some courts have extended this right to cover even a temporary copy of a copyrighted work stored in a computer’s random access memory (“RAM”).

b. Public Distribution, Performance, Display or Communication

The United States divides the rights to express the work to the public into rights to distribute copies, display a copy, or publicly perform the work. In other parts of the world, these are subsumed within a right to communicate the work to the public.

Within the United States, courts have given the distribution right a broad reading. Some courts, including the appeals court in the Napster case, have held that a download of a file from a server connected to the internet is both a reproduction by the person requesting the file and a distribution by the owner of the machine that sends the file. The right of public performance applies whenever the copyrighted work can be listened to or watched by members of the public at large or a subset of the public larger than a family unit or circle of friends. Similarly, the display right covers works that can be viewed at home over a computer network as long as the work is accessible to the public at large or a subset of the public.

c. Right of Adaptation, Modification or Right to Prepare Derivative Works

A separate copyright arises with respect to modifications or adaptations of a copyrighted work so long as these modifications or adaptations are themselves original. This separate copyright applies only to these changes. The copyright owner has the right to control such adaptations unless a statutory provision, such as fair use, applies.

5. Theories of Secondary Liability

Those who build or operate databases also have to be aware that copyright law holds liable certain parties that enable or assist others in infringing copyright. In the United States, these theories are known as contributory infringement or vicarious infringement.

a. Contributory Infringement

Contributory copyright infringement requires proof that a third party intended to assist a copyright infringer in that activity. This intent can be shown when one supplies a means of infringement with the intent to induce another to infringe or with knowledge that the recipient will infringe. This principle is limited by the so-called Sony doctrine, by which one who supplies a service or technology that enables infringement, such as a VCR or photocopier, will be deemed not to have knowledge of infringement or intent to induce infringement so long as the service or technology is capable of substantial non-infringing uses.

Two examples illustrate the operation of this rule. In A&M Records, Inc. v. Napster, Inc., the court of appeals held that peer-to-peer file sharing is infringing but that Napster’s database system for connecting users for peer-to-peer file transfers was capable of substantial non-infringing uses and so it was entitled to rely on the Sony doctrine. (Napster was held liable on other grounds.) In contrast, in MGM Studios, Inc. v. Grokster, Ltd., the Supreme Court held that Grokster was liable for inducing users to infringe by specifically advertising its database service as a substitute for Napster’s.

b. Vicarious Liability for Copyright Infringement

Vicarious liability in the United States will apply whenever (1) one has control or supervisory power over the direct infringer’s infringing conduct and (2) one receives a direct financial benefit from the infringing conduct. In the Napster case, the court held that Napster had control over its users because it could refuse them access to the Napster server and, pursuant to the Terms of Service Agreements entered into with users, could terminate access if infringing conduct was discovered. Other courts have required a greater showing of actual control over the infringing conduct.

Similarly, a direct financial benefit is not limited to a share of the infringer’s profits. The Napster court held that Napster received a direct financial benefit from infringing file trading because users’ ability to obtain infringing audio files drew them to use Napster’s database. Additionally, Napster could potentially receive a financial benefit from having attracted a larger user base to the service.

6. Limitations and Exceptions

Copyrights’ limitations and exceptions vary by jurisdiction. In the United States, the broad “fair use” provision is a fact-specific balancing test that permits certain uses of copyrighted works without permission. Fair use is accompanied by some specific statutory limitations that cover, for example, certain uses in the classroom use and certain uses by libraries. The factors to consider for fair use are: (1) the purpose and character of the use, including whether such use is of a commercial nature or is for nonprofit educational purposes; (2) the nature of the copyrighted work; (3) the amount and substantiality of the portion used in relation to the copyrighted work as a whole; and (4) the effect of the use upon the potential market for or value of the copyrighted work. The fact that a work is unpublished shall not itself bar a finding of fair use if such finding is made upon consideration of all the above factors.

Countries whose copyright law follows that of the United Kingdom, a more limited “fair dealing” provision enumerates specific exceptions to copyright. In Europe, Japan, and elsewhere, the limitations and exceptions are specified legislatively and cover some private copying and some research or educational uses.

7. Remedies and Penalties

In general, a copyright owner can seek an injunction against one who is either a direct or secondary infringer of copyright. The monetary consequences of infringement differ by jurisdiction. In the United States, the copyright owner may choose between actual or statutory damages. Actual damages cover the copyright owner’s lost profits as well as a right to the infringer’s profits derived from infringement. The range for statutory damages is $750 to $30,000 per copyrighted work infringed. If infringement is found to have been willful, the range increases to $150,000. The amount of statutory damages in a specific case is determined by the jury. There is a safe harbor from statutory damages for non-profit educational institutions if an employee reproduces a copyrighted work with a good faith belief that such reproduction is a fair use.

A separate safe harbor scheme applies to online service providers when their database is comprised of information stored at the direction of their users. An example of such a database would be YouTube’s video sharing database. The service provider is immune from monetary liability unless the provider has knowledge of infringement or has control over the infringer and receives a direct financial benefit from infringement. The safe harbor is contingent on a number of requirements, including that the provider have a copyright policy that terminates repeat infringers, that the provider comply with a notice-and-takedown procedure, and that the provider have an agent designated to receive notices of copyright infringement.

Case Examples

In cases arising after the Feist decision, the courts have faithfully applied the core holding that facts are in the public domain and free from copyright even when substantial investments are made to gather such facts. There has been more variation in the characterization of some kinds of data as facts and in application of the modicum-of-creativity standard to the selections and arrangements in database structures.

On the question of when data is copyrightable, a court of appeals found copyrightable expression in the “Red Book” listing of used car valuations. The defendant had copied these valuations into its database, asserting that it was merely copying unprotected factual information. The court disagreed, likening the valuations to expressive opinions and finding a modicum of originality in these. In addition, the selection and arrangement of the data, which included a division of the market into geographic regions, mileage adjustments in 5,000-mile increments, a selection of optional features for inclusion, entitled the plaintiff to a thin copyright in the database structure.

Subsequently, the same court found that the prices for futures contracts traded on the New York Mercantile Exchange (NYMEX) probably were not expressive data even though a committee makes some judgments in the setting of these prices. The court concluded that even if such price data were expressive, the merger doctrine applied because there was no other practicable way of expressing the idea other than through a numerical value and a rival was free to copy price data from NYMEX’s database without copyright liability.

Finally, where data are comprised of arbitrary numbers used as codes, the courts have split. One court of appeals has held that an automobile parts manufacturer owns no copyright in its parts numbers, which are generated by application of a numbering system that the company created. In contrast, another court of appeals has held that the American Dental Association owns a copyright in its codes for dental procedures.

On the question of copyright in database structures, a court of appeals found that the structure of a yellow pages directory including listing of Chinese restaurants was entitled to a “thin” copyright, but that copyright was not infringed by a rival database that included 1,500 of the listings because the rival had not copied the plaintiff’s data structure. Similarly, a different court of appeals acknowledged that although a yellow pages directory was copyrightable as a compilation, a rival did not violate that copyright by copying the name, address, telephone number, business type, and unit of advertisement purchased for each listing in the original publisher’s directory. Finally, a database of real estate tax assessments that arranged the data collected by the assessor into 456 fields grouped into 34 categories was sufficiently original to be copyrightable.

Copyright and Linking

Periodically, I am asked to explain some feature of copyright law. When I do this in an email, I'm going to make it a practice of also posting the explanation here in case it's of use to others.

I was asked about what the copyright issues are with hyperlinks on the web. So, in US law, generally there is no copyright issue with linking because the link causes the person clicking on it to load a copy of the web site, but the person who posts the link is not making a copy, or displaying a copy, or distributing a copy so there's no copyright issue for the person posting the link. (And therefore, there's generally no legal theory that a site can use to stop someone from linking to their site, even if it's a so-called "deep" link or an in-line link). See Perfect 10 v. Amazon, Inc., 487 F.3d 701 (9th Cir. 2007).

The one exception is if the target site has material that infringes copyright on it. In that case, even though the person linking to the site is not directly infringing, they could be liable on the theory of indirect infringement - helping someone else to infringe copyright.

The one law that specifically deals with this is Section 512(d) of the Copyright Act, which creates a "safe harbor" for search engines and others who link to "online locations" with copyright infringing materials. As long as the search engine removes the link after receiving notice of the infringing materials, the search engine does not owe the copyright owner any money.

For more information, see the Chilling Effects site.

YouTube Tests Creative Commons Licenses

Very exciting news, as reported by Eric Steurer on the CC Blog:

Eric Steuer, February 12th, 2009

YouTube just made an incredibly exciting announcement: it’s testing an option that gives video owners the ability to allow downloads and share their work under Creative Commons licenses. The test is being launched with a handful of partners, including Stanford, Duke, UC Berkeley, UCLA, and UCTV.

We are always looking for ways to make it easier for you to find, watch, and share videos. Many of you have told us that you wanted to take your favorite videos offline. So we’ve started working with a few partners who want their videos shared universally and even enjoyed away from an Internet connection.

Many video creators on YouTube want their work to be seen far and wide. They don’t mind sharing their work, provided that they get the proper credit. Using Creative Commons licenses, we’re giving our partners and community more choices to make that happen. Creative Commons licenses permit people to reuse downloaded content under certain conditions.

Visit YouTube’s blog for information. And if you’re are a partner who wants to participate, fill out the YouTube Downloads - Partner Interest form.

Renewed Attack on Open Access in Congress

As Peter Suber reports, yesterday Rep. John Conyers (D-MI) re-introduced the Fair Copyright in Research Works Act. This year it's H.R. 801 (last year it was H.R. 6845), and co-sponsored by Steve Cohen (D-TN), Trent Franks (R-AZ), Darrell Issa (R-CA), and Robert Wexler (D-FL).

The bill language has not changed. Neither has the fact that there is no reasonable basis in law or in fact to support this legislation. The NIH Public Access Policy is working. Although publishers have made vague assertions, claims that there are legal problems with the NIH policy have been discredited. Similarly, there is no evidence to support the policy - with its allowance of an unduly long 12 month delay - that scholarly communication in the biomedical sciences has been harmed.

Indeed, it's really time to turn this conversation around. The United States' economy needs more than increased consumer spending to recover. We need to innovate, and innovation in basic research happens quicker and in more diverse directions in an open, networked environment. In a word, research should be linkable.

Wanna see? Do you have breast cancer or is there a woman in your life who does? Want to know more about the statistical risks? Thanks to the NIH Public Access Policy, I can simply suggest that you click here because your tax dollars supported the study.

Now that's just using the freedom to link to help quickly point you to an article or scientific letter you might want to read. But the real power of linkable science is that scientists would be able to use their computers to study the network of links to find otherwise hidden patterns in the research and to find otherwise hidden linkages between results in related but distinct fields of research or even in different disciplines. It's the power to process links that has made Google the leading search engine for the web. So why can't web technologies do for scientists what they do for web searchers looking to buy electronics or shoes? Because scientific information other than NIH funded research articles is not generally linkable!

So the path to linkable science and the innovations that will follow from processing the links is to release journal articles and associated data from the paywalls that surround them - either immediately through supply-side funded journals or after a short delay for subscription-based journals.

So, Chairman Conyers, with all due respect, the policy question is not whether Congress should act to deny scientists and taxpayers access to research funded by NIH, but rather, why should NIH-funded research articles be the only articles reporting federally-funded research that scientists and taxpayers like me can link to?

Author Deposit Mandates for Government Grantees

The NIH mandate is succeeding. Shouldn't all federally funded researchers who produce research articles with federal support have to deposit a copy of those articles in a federal repository or otherwise make them openly accessible?

That question will be discussed at a Public Symposium on Author Deposit Mandates for Federal Research Grantees at the National Academies in Washington, D.C. tomorrow afternoon, January 29, 2009. The symposium, which is open to the public and will be netcast (audio only), will begin at 4:30 EST (Washington, DC time) on the afternoon of Thursday, 29 January. Comments and questions from remote participants will be possible. Information about the symposium is available under "Upcoming Events" on the upper right corner of the website of the newly formed Board on Research Data and Information (BRDI), of which I'm a member.

Access Econ - Big Step for Open Access in Economics

The first thing a student learns in a microeconomics class is that "There ain't no such thing as a free lunch."

This lesson is emblematic of the deep skepticism that economists trained in liberal democracies harbor about any business model that relies on providing goods or services for "free".

So when economists decide to go open access and build a service business on the basis of free content, pay close attention. That's what economists John Conley and Myrna Wooders at Vanderbilt University have done with Access Econ.

Not only are they willing to host new open access journals in economics, they also are willing to provide the journal management software they've written to do the job. This creates some competition for Open Journal Systems, which is currently the dominant open source solution for open access journals. I think OJS is a great project, and I salute all the developers who worked on it and who maintain it. But, we're too early in the evolution of open access publishing to lock in on a standard. So the competition from Access Econ should be welcome as it should spur further innovation in this field.

There are plenty of proprietary packages for journal management software, so why did these smart economists pass up the opportunity to charge and offer their services for "free"? Here's their explanation to their skeptical colleagues:

Why “Free” is a good business model

As economists, you should be asking: why is “ free” a sensible business model? There are several reasons. First, our purpose in writing this software to begin with was to support JPET, APET, and EB. Thus, we would have incurred the fixed cost of creating this software in any event. There are very few additional fixed costs to recover. Second, the marginal cost of allowing others to use the system is very close to zero. We are good enough public economists to know that the efficient price is zero in this case. The only marginal costs to us are the time it takes to help get others started on the system. This is the reason for the “ mutual support” condition. Third, after careful reflection, we realized that we simply are not business people. The cost in terms of time away from research of shilling, billing and advertising is just not worth the potential financial benefit. To mangle the old joke about arbitrage: if there are five dollar bills lying on the ground it must cost ten dollars to pick them up. Finally, because of our experience at JPET and EB, we sincerely want open-access to spread as rapidly and widely as possible, especially in economics. To nickel and dime people who share this vision seems completely self-defeating.

Well said!

Intellectual Property and Price Discrimination - iTunes

There's a lot of debate about whether allowing or encouraging price discrimination - charging different people or classes of people a different price for the same good - is good policy with respect to goods that embody copyrighted works of authorship or patented inventions. The general population seems to have different reactions to different kinds of price discrimination schemes. On the one hand, most people don't seem to have a problem with senior citizen discounts at movie theaters, even though some seniors are quite wealthy. But, if Amazon chooses to customize the price of DVDs for each consumer, an uproar ensues.

I am very interested to see what happens with the recent deal between Apple and the recording companies to allow variable pricing on music files distributed by iTunes. This may or not be price discrimination depending on whether the good is "music" or particular songs because everyone will still pay the same price for particular songs.

Here, I just want to make two related theoretical points about the way that economists and legal scholars who use economic models talk about price discrimination.

Point 1. Most economic or law-and-economic analysts who talk about price discrimination say that the policy goal is to maximize people's welfare. I'm at the Penn Law Review symposium on the Foundations of Intellectual Property, and just watched Christopher Yoo make this point about his paper with John Conley on intellectual property and impure public goods.

For these analysts, whether price discrimination is good or bad for society depends on who wins and loses and by how much. But they model this trade off using people's willingness to pay for intellectual property goods as a signal for how much having a copy of a song or book or movie is going to improve their welfare. And these models get pretty complicated quickly, but they all are built on this foundation.

The problem is the gap between ability-to-pay and willingness-to-pay. If you care about welfare, ability-to-pay is a poor proxy for utility or welfare because the marginal value of a dollar depends on how many dollars you have. When iTunes charged you 99 cents a song, how does a consumer decide when it is worth paying that price? Imagine two people who value owning a legal copy of a particular song exactly the same, but one is wealthy and the other is struggling. At certain values, the wealthy person buys the song and the struggling person won't even though they both would get exactly the same amount of pleasure from the song because the relative cost to each person is quite different. So their respective decisions to buy or not are not really telling you how much they value owning a copy of the song.

So, in my view, analysts need to defend the proposition that their models tell us something about the effect of variable pricing on people's welfare when they have not accounted for the gap between wealth and welfare in the model. (Of course, this is a more general point about neoclassical economics, but it has particular salience in this context.)

Point 2. Those who have a reflexive antagonism to price discrimination need to be careful about form and substance. Some folks who have this reflex are reacting to the underlying market power that gives a seller the ability to engage in variable pricing without losing all of its customers to a competitor. I agree that market power is something to watch.

But firms with market power also engage in uniform pricing, as Apple has done with iTunes. In such a case, uniform pricing functions as a form of value discrimination or cost discrimination. Because the marginal value of a dollar varies across people, the price may be the same, but the relative cost of the song from the buyer's perspective varies. So if you want greater equality in the market place, you may actually want to encourage variable pricing if it has the economic effect of equalizing relative cost. I agree that this is very difficult to do in practice, but remember this is a theoretical point. In practice, though, this point about variable cost is what progressive taxation is all about.

So, if copyright is a tax on readers, should it be a progressive tax?

Can You CC License Music and Still Make Money?

Yes. Nine Inch Nail's Ghosts I-IV was released under a CC license and was the best selling album in 2008 on Amazon's MP3 store. As Fred Benenson writes on the Creative Commons blog:

NIN’s Creative Commons licensed Ghosts I-IV has been making lots of headlines these days.

First, there’s the critical acclaim and two Grammy nominations, which testify to the work’s strength as a musical piece. But what has got us really excited is how well the album has done with music fans. Aside from generating over $1.6 million in revenue for NIN in its first week, and hitting #1 on Billboard’s Electronic charts, Last.fm has the album ranked as the 4th-most-listened to album of the year, with over 5,222,525 scrobbles.

Even more exciting, however, is that Ghosts I-IV is ranked the best selling MP3 album of 2008 on Amazon’s MP3 store.

Take a moment and think about that.

NIN fans could have gone to any file sharing network to download the entire CC-BY-NC-SA album legally. Many did, and thousands will continue to do so. So why would fans bother buying files that were identical to the ones on the file sharing networks? One explanation is the convenience and ease of use of NIN and Amazon’s MP3 stores. But another is that fans understood that purchasing MP3s would directly support the music and career of a musician they liked.

The next time someone tries to convince you that releasing music under CC will cannibalize digital sales, remember that Ghosts I-IV broke that rule, and point them here.

A Thought on the Theory of the Firm

While participating in a conference at Vanderbilt Law School on "user generated content," the following thought occurred in the context of discussions how platform providers such as YouTube, Wikipedia, Facebook, derive value from user contributions.

Here's what's familiar to some. In a famous article, Ronald Coase suggested that in a capitalist economy, productive activities are organized either by a hierarchically-managed firm or through market exchange. The firm manager has to decide whether to "make or buy" a resource, and that choice will be guided or governed by the relative transaction costs associated with each option. See http://en.wikipedia.org/wiki/Theory_of_the_firm.

Recently, Yochai Benkler, generalizing from the experience with Linux and other large-scale free or open source software projects, argues that a third mode of production - "commons based peer production" - has been made feasible by the Internet and is superior to the firm or market exchange for the production of information and cultural goods.

Benkler acknowledges that projects such as Linux and Wikipedia have hierarchical structures, but these are more flexible and are designed to manage contributions from a large set of producers who need not have a relation to the project that is governed either by an employment or purchase contract.

I see a hybrid development in which the boundaries of the traditional, hierarchically managed firm are becoming more porous. While there is nothing new in firms' soliciting suggestions from consumers or responding to unsolicited suggestions, the scale of this activity has increased noticeably and the economic theory of these kinds of transactions has become more sophisticated.

On the economics, Eric von Hippel's book Democratizing Innovation moves us in the right direction. He points out that users face an innovate-or-buy decision when they need/want customized products. In his concluding chapter, he remarks about the failure of managers who rely on user innovation to acknowledge these inputs and a corresponding failure in management training to formalize processes for soliciting and managing user contributions to product development. Kathy Strandburg is doing interesting work on how patent law should respond to these insights.

I think we need to generalize von Hippel's insight further. User generated inputs extend beyond product development. How about marketing? Should the brand manager hire an advertising firm to develop a campaign, to manage a user-generated campaign, or should the campaign be fully outsourced to consumers? Are "consumers" inside or outside the boundary of the firm in options 2 and 3?

It seems to me that forward-looking firms are co-opting Benkler's and von Hippel's insights, and I suspect the future of management training will not limit the manager's choice to make or buy, but instead to extend the choices to make, buy, receive (user contributions) or collaborate (with user innovators). The last two options come with their own transaction cost structures, and so the initial Coasean insight remains valuable. Since many of these user contributions are likely governed by copyright, and reliance on user contributions may be incompatible with some firms' trade secret or patenting strategies, there is plenty of room for those concerned about the role that intellectual property law plays in managing these transaction costs to take these into account more explicitly in discussions about how to adapt/tailor IP law in these settings. (Paul Heald and Dan Burk also have done good work on the transaction cost perspective on IP).