Category: Law

Arrow, Becker, and Levitt on Grokster

How is that for heavyweights?  You can add William Landes, Kevin Murphy, and Steve Shavell — among others — to the list.

Here is their Amicus brief on the Grokster case coming before the Supreme Court.  (Here is a more general list of amicus briefs on the case.)  Their bottom line, however, is general rather than concrete:

They argue that indirect liability often makes economic sense.  If a file-sharing service can distinguish and police illegal files at low cost, that service should not be able to hide behind the 1984 Sony Betamax decision (i.e., the mere existence of non-infringing uses for a technology implies no liability).  Furthermore we should consider whether P2P services offer real benefits above and beyond fully legal alternatives, such as iTunes.  They stress that previous courts have failed to ask these key questions.

I’ve argued similar points myself, but my doubts grow.  I worry we cannot find a standard of indirect liability with clear lines.  Just how easy must it be to monitor illegal behavior and how hard must Grokster try?  Most likely all the variables lie along a relatively smooth continuum.

And who else can be indirectly liable?  File-sharing through iPods, email, blogs, and instant messaging is larger than you think.  36 million Americans admit to having shared files in this manner. 

"All these internet technologies share this common mass-copying capability: e-mail, web servers, web browsers, basic hard drives," said Jason Schultz, an attorney with the Electronic Frontier Foundation, which represents StreamCast Networks. "There’s no principal distinction between (P2P) and other internet technologies in the way it’s designed.

Read more here

Is the question which level of technology can police illegal file sharing and copying most easily?  This might not be Grokster at all, since they have only an indirect link to the downloaded files.  Such a "least cost" approach might result in a monitoring chip put into all hard drives.  Yikes. 

Does Grokster supply any economically useful product that the legitimate services don’t?  Well, how about free files for those who wouldn’t otherwise pay for them?  If we approach the problem in a utilitarian manner, we can’t flinch from this conclusion.

My current best guess is that an economic approach — however correct in general terms — won’t come up with any new solutions we can live with.  We may be stuck with the Sony case after all.

The War on Drugs

Becker and Posner both argue against the War on Drugs.  Becker writes:

After totaling all spending, a study by Kevin Murphy, Steve Cicala, and
myself estimates that the war on drugs is costing the US one way or
another well over $100 billion per year. These estimates do not include
important intangible costs, such as the destructive effects on many
inner city neighborhoods, the use of the American military to fight
drug lords and farmers in Colombia and other nations, or the corrupting
influence of drugs on many governments.

The best economics piece on this issue is Drug War Crimes a short book by Jeffrey Miron published by Independent Institute where I am the director of research.  Miron demonstrates that the war on drugs greatly increases the violent crime rate (just as it rose during alcohol prohibition) and that the policy is not very effective in reducing consumption.

One interesting reason why the drug war reduces consumption less than people imagine is that prohibition reduces some costs.  Drug sellers, for example, do not pay social security taxes for their employees, they do not follow minimum wage laws and they do not obey costly FDA regulations.  On net prices are still pushed up by the threat of prosecution but the lack of taxes and regulations is a countervailing factor.

Tomatoes and the force of law

This last week my home state of New Jersey made the tomato the official state vegetable [NB: this is the same state that named an NJ Turnpike rest stop after Vince Lombardi].  But isn’t the tomato a fruit?  In defense of its action, the state cited an 1887 U.S. Supreme Court ruling that tomatoes were subject to tariffs on vegetables.  Supposedly tomatoes can qualify as a vegetable because they are served with dinner and not as dessert.

Here is the link.  I believe the blog is by Craig Newmark’s daughter, it is worth a look.

Copyrighting Storms

Writing in the Financial Times, James Boyle makes an interesting comparison between how Europe and the U.S. treat government produced data, everything from "ordnance survey maps and weather data, to state-produced texts,
traffic studies and scientific information."

On
one side of the Atlantic, state produced data flows are frequently
viewed as potential revenue sources. They are copyrighted or protected
by database rights. The departments which produce the data often
attempt to make a profit from user-fees, or at least recover their
entire operating costs….The other side of the Atlantic practices a benign form of
information socialism. By law, any text produced by the central
government is free from copyright and passes immediately into the
public domain.

Surprisingly, it’s the US which practices the "benign form of socialism."

Take weather data. The United States makes complete weather data
available to anyone at the cost of reproduction. If the superb
government websites and data feeds aren’t enough, for the price of a
box of blank DVD’s you can have the entire history of weather records
across the continental US. European countries, by contrast, typically
claim government copyright over weather data and often require the
payment of substantial fees. Which approach is better? If I had to
suggest one article on this subject it would be the magisterial study
by Peter Weiss called “Borders in Cyberspace,” published by the
National Academies of Science. Weiss suggests that the US approach
generates far more social wealth. True, the information is initially
provided for free, but a thriving private weather industry has sprung
up which takes the publicly funded data as its raw material and then
adds value to it. The US weather risk management industry, for example,
is ten times bigger than the European one, employing more people,
producing more valuable products, generating more social wealth.
Another study estimates that Europe invests €9.5bn in weather data and
gets approximately €68bn back in economic value – in everything from
more efficient farming and construction decisions, to better holiday
planning – a 7-fold multiplier. The United States, by contrast invests
twice as much – €19bn – but gets back a return of €750bn, a 39-fold
multiplier. Other studies suggest similar patterns in areas ranging
from geo-spatial data to traffic patterns and agriculture. “Free”
information flow is better at priming the pump of economic activity.

Link addded.  Thanks to Paul van Hoek for the pointer.

Why is the Eiffel Tower uglier?

The Eiffel Tower is uglier than ever before; it now has new and garish flashing strobe lights.  And why?

The Eiffel Tower’s likeness had long since been part of the public domain, when in 2003, it was abruptly repossessed by the city of Paris. That’s the year that the SNTE, the company charged with maintaining the tower, adorned it with a distinctive lighting display, copyrighted the design, and in one feel swoop, reclaimed the nighttime image and likeness of the most popular monument on earth. In short: they changed the actual likeness of the tower, and then copyrighted that.

As a result, it’s no longer legal to publish current photographs of the Eiffel Tower at night without permission.

Here is the story.  Here is my previous post on why the French take copyright so seriously.  We can’t blame it all on the French, however, "the cloud" a publicly owned  artwork in Chicago’s Millenium Park is also copyrighted and apparently protected from photographs by security guards.

Honesty about illegal file-sharing

The Supreme Court has been hearing a major case on file-sharing.  Should Grokster and other web-based file-sharing services be held liable for contributory copyright infringement?  Forget about the law, what does the economist say?  Yes "fair use" provisions are excessively stringent, but here are three reasons why I cannot accept the radical anti-copyright position.

1. In ten year’s time, what will happen to the DVD and pay-for-view trades?  BitTorrent allows people to download movies very quickly.  Note that DVDs already account for more than half of Hollywood domestic revenue.  Furthermore the process will be eased when TVs and computers can "talk" to each other more readily.  Yes, I am familiar with Koleman Strumpf’s excellent work showing that illegal file-sharing has not hurt music sales.  But a song download can be a loss leader for an entire CD or a concert tour.  Downloading an entire movie does not prompt a person to spend money in comparable fashion.

2. Perhaps we can make file-sharing services identify (and block) illegally traded files.  After all, the listeners can find the illegal files and verify they have what they wanted.  Grokster, sooner or later, will be able to do the same.  Yes, fully decentralized and "foreign rogue" systems may proliferate, and any identification system will be imperfect.  But this is one way to heed legitimate copyright suits without passing the notorious "Induce Act."

3. I question the almost universal disdain for the "Micky Mouse" copyright extension act.  OK, lengthening the copyright extension does not provide much in the way of favorable incentives.  Who innovates with the expectation of reaping copyright revenues seventy-five years from now?  But this is a corporate rather than an individual issue.  Furthermore economic research indicates that current cash flow is a very good predictor of investment.  So the revenue in fact stimulates additional investment in creative outputs.  If I had my finger on the button, I still would have pushed "no" on the Mickey Mouse extension, if only because of the rule of law.  Privileges of this kind should not be extended repeatedly due to special interest pressures.  But we are fooling ourselves if we deny that the extension will benefit artistic output, at least in the United States. 

Vioxx and Tort

We have two systems of drug regulation in the United States, the FDA and tort law.  Unfortunately, neither system works well.  FDA incentives push for excess delay and excess cost and the tort system appears random if not perverse in its operation with good claims receiving nothing and bad claims receiving billions.

Writing in the New Yorker, James Surowiecki discusses some relevant research from Kip Viscusi:

Merck would seem to have one big thing in its favor: the company
voluntarily withdrew Vioxx from the market. But while Merck executives
may have hoped to persuade people that they were acting responsibly,
plaintiffs’ attorneys have taken the withdrawal as an admission of
guilt…internal
company documents show that Merck employees were debating the safety of
the drug for years before the recall.

From a scientific perspective, this is hardly damning. The internal
debates about the drug’s safety were just that–debates, with different
scientists arguing for and against the drug….While that kind of weighing of risk and benefit may be medically
rational, in the legal arena it’s poison. Nothing infuriates juries
like finding out that companies knew about dangers and then “balanced”
them away. In fact, any kind of risk-benefit analysis, honest or not,
is likely to get you in trouble with juries….Viscusi has shown that
people are inclined to award heftier punitive damages against a company
that had performed a risk analysis before selling a product than a
company that didn’t bother to. Even if the company puts a very high
value on each life, the fact that it has weighed costs against benefits
is, in itself, reprehensible. “We’re just numbers, I feel, to them” is
how a juror in the G.M. case put it. “Statistics. That’s something that
is wrong.”…

Before a jury, then, a firm is better off being
ignorant than informed.

My Law and Literature class today

Today I start my Law and Literature class, my reading list is here.  If you are wondering what I am excerpting, from the Bible we are doing Exodus, Deutoronomy, and Job,
from Melville we are doing "Bartleby," and from Kafka we are doing "In
the Penal Colony."  All are favorites of mine.  Check out the list for
the rest plus five films.

By the way did you know the following?

Students asked to watch five seconds of soundless videotape of a
teacher in the classroom came up with evaluations of the teacher’s
effectiveness that matched those given by his own students after a full
semester of classes.

The link is here, already supplied by Alex immediately below.

The Time to Deduct

Congress has just passed a bill which lets taxpayers deduct this month’s donations to tsunami relief on their 2004 taxes.  I think this is a good idea but why stop at one month and why stop at tsunami relief?  Taxpayers can deduct IRA contributions from their previous years taxes up until April 15, why not allow the same thing for charitable deductions?

    Allowing deductions to be made at the same time as taxes are paid will help individuals to make better decisions because it is much easier to examine the donation-tax tradeoff when you are doing your taxes in April than in the previous year when you are making your donations.  Today, in contrast, you have to make your charitable donations at least 4 and a half months before the tradeoff becomes salient.