There's been an ongoing discussion between the US and Europe (and other countries as well) about the US's demands that anyone flying to the US should have all sorts of data passed along to the US first. And while an agreement has been made, apparently the rapporteur in charge of examining this issue of sending passenger data to the US, Sophie in't Veld, is now urging the EU to reject the agreement. The key issue appears to be that the details of the current agreement violate existing European rights and rules -- including the fact that the US will retain this data forever (contrary to some claims that it would just be held for 15 years -- which was already problematic). Apparently, the agreement goes so far as to give US law enforcement a direct login to European computer systems, so they can sift through reservation data at will. Basically, this is yet another case of US law enforcement overreaching in what it wants to be able to spy on, and just assuming that everyone will go along with it, despite a lack of clear reason for why. Now, what remains is whether or not EU officials will give in.

Technology has come a long way in the last few decades. Just about every computer (or smartphone) we use now is vastly more powerful than the primitive electronics that helped put astronauts on the surface of the moon. Gadgets are getting so cheap that toys are becoming impressively advanced. Here are just a few examples.

• Imagine a remote-controlled robot spider that shoots projectiles and wears explosive plastic armor. Help name this toy here. [url]
• Kids used to play with everyday objects and use their "imagination" to interact with simple toys. Now there are "augmented reality platforms" -- so kids don't need to use their imaginations anymore. [url]
• The Kackel Dackel is a crappy German toy. What kid wouldn't want to clean up the plastic pooh that came out of a toy dog? [url]
• Satoshi Furukawa took 2 hours out of his busy day on the International Space Station (ISS) to build a Lego replica of the ISS. They just completely ignored the second rule of making scale models. Do not nest. [url]
• To find some more bizarre/cool stuff, check out some things that other StumbleUpon users have found. [url]  

By the way, StumbleUpon can also recommend some good Techdirt articles, too.

Remember how EMI sued the Irish government for failing to pass a SOPA-like law that will force ISPs to act as copyright cops and censor and block access to websites that the entertainment industry doesn't like? Well, apparently, the end result is that the Irish government has now signed the bill into law. This happened despite widespread protests in Ireland against the bill.

The Irish Minister for Research and Innovation, Sean Sherlock, is insisting that the final version of the bill is much more limited than earlier proposals, and that it took guidance from recent EU Court of Justice rulings that say ISPs shouldn't have to be proactive about blocking. That still means that copyright holders can petition to force ISPs to block all access to various websites, and as we've seen in other countries in Europe, you can bet that the major record labels and studios will be doing just that very soon (if they haven't already) -- though their track record on properly calling out infringement isn't very good.

Sherlock, apparently realizing just how bad this looks to the citizenry, is trying to balance this announcement out by also saying that he's launching the "next stage" of the process to review copyright in Ireland, with the goal of "removing barriers to innovation." This is an ongoing process that we first wrote about last year, when the country realized that existing copyright law was holding back innovation.

Of course, the end result is that the government appears to be trying to move in two different directions at once. On the one hand, it's catering to the legacy entertainment industry interests and hindering the internet as the platform that enables new business models... while at the same time paying lip service to how it has to increase such innovation. Here's a tip: the first thing towards increasing innovation in business models online is not putting misplaced liability on service providers, not setting up a censorship regime, and not removing the incentives for the entertainment industry to actually embrace innovative business models.

We just wrote about Yahoo admitting to the world that it was done and cooked as an innovative company when it chose to threaten to sue Facebook over patents. Plenty of other commentators wrote similar stories. We've all seen this pattern before: Company that used to lead the market, but has become an also-ran, suddenly pops up with patents to sue the hot new thing. It's a sad statement of a company that just can't compete any more. However, in a really, really bizarre screed, hedge fund investor Eric Jackson seems to suggest there's a crazy conspiracy of hypocritical bloggers making these statements.

It should be noted that Jackson has a bit of a reputational stake here: four months ago, he specifically called on Yahoo to do exactly what it's doing now. So, now he seems to want to defend this turf, but his argument is bizarre and nonsensical. It starts off with a crazy conspiracy theory about how Silicon Valley bloggers have a special "clubby" relationship with VCs:

If you’re a blogger, you play nice to keep future sources happy (unless you’re someone like Kara Swisher and reached another level of appreciation/admiration). If you’re a VC, what makes your $10 million check more valuable than the next guy’s? Of course, you’re going to be nice. It’s all about access for these non-engineers. If you’ve been black-balled in Palo Alto – whether you’re a VC, blogger, or PR person — what advantage do you have?

Considering that I am a "Silicon Valley blogger" and have been around and doing this longer than anyone he mentions, I find this curious. I know it's become a popular talking point lately -- this supposed close relationship between VCs and bloggers -- but I seem to get by just fine without such relationships (yeah, I know some VCs, but I don't recall ever using one as a source, other than on information they stated publicly -- so not as a "scoop"). As for "what advantage" you have, if you don't have VCs feeding you information, that's a ridiculous question. Plenty of blogs have advantages in the community of readers they have and the analysis and insight they provide. Jackson seems to believe that the way a blogger can provide value is by being first. He's wrong.

He follows this up with an argument that doesn't make any sense at all -- something about the fact that new nominees to Yahoo's board are all from New York... and that means something crazy about the "negative reputational effects" it would have on anyone in Silicon Valley to serve on Yahoo's board. I have no idea what this means. I can't think of any negative reputational effect it could possibly have. He also mentions the "open secret among Silicon Valley elites that Yahoo! is in great need of reform." Wait. That's an "open secret"? How about it's not a secret at all. It's common sense to anyone who has watched Yahoo fade from glory and fail to actually keep up in the marketplace. Suggesting all this stuff about "open secrets," "Silicon Valley elites," and "reputational effects" just makes it sound like there's a conspiracy going on where there's none. Someone has hit the paranoia sauce hard.

What does all of this have to do with patents? I have no freaking idea. And neither does Jackson, who transitions with the grace of a rhinoceros ballerina, by simply switching to the patent question and insisting that this somehow "proves" the nonsense he just spouted.

But the vocal, nonsensical, and hypocritical response this morning to Yahoo! serving Facebook notice that it’s in violation of 10 - 20 key patents by several Silicon Valley watchers takes this clubbiness to new heights.

A bunch of veteran Silicon Valley observers, who know damn well what Yahoo's move is a sign of, isn't evidence of any "clubbiness." It's evidence that a bunch of people who know this space have seen this train wreck before. He then attempts to explain the "two big problems" with people pointing out that Yahoo's actions are a bad sign.

The merits of their assertion that anyone claiming intellectual property rights is somehow a “troll” and “not innovating.” When did we decide that IP is reprehensible? I missed that lesson at blogging school.

Er. It's not "blogging school." It's just Silicon Valley (and history) in general. We believe in innovating in the marketplace, not fighting in the courtrooms for the most part. A study last year suggested that somewhere between 70% and 80% of folks in Silicon Valley are generally distrustful of patents. I learned that by paying attention to reality. Not blogging school.

Should no company be able to “innovate” something without it immediately being copied by dozens of other firms? Is mass copycatting preferable to having rule of law saying someone should be able to come up with a new idea — as recognized by an impartial third party — and then have that idea protected for some period of time (not forever)?

Actually, there have been studies and research that suggest that despite Jackson's mocking rhetoric, indeed, yes, the ability to copycat is preferable to monopolies on ideas. Why? Because merely being a copycat isn't particularly effective. First movers have an advantage, and you win in the marketplace not by copying, but by out-innovating and providing something better. Even better, as others copy you and try to out innovate you, you get to learn from them too. And thus, innovation accelerates. That's a good thing.

If Sarah Lacy et al. find IP so reprehensible, I would ask them: are you arguing for Silicon Valley to be a place much closer to China where Internet firms can engage in mass copycatting immediately as a normal course of business? Is that what you want? Is that what your sources at Facebook, LinkedIn, Digg, and all the other great Web 2.0 companies of the future want?

It's already the normal course of business for the most part. We see copying happen all the time, and history has shown that's where much of Silicon Valley's innovative nature comes from. And I have no idea what the sources at these companies want -- but in general, yes, most of the folks I know in Silicon Valley seem to prefer to compete in the marketplace. I was at a roundtable of entrepreneurs not too long ago, meeting with some federal officials, discussing patents, and the officials seemed to expect that everyone would talk about the importance of more patents. Instead, every single entrepreneur talked about how patents were a distraction and a hindrance to their business. Multiple entrepreneurs talked about how they didn't care if people copied them, because they understood their own customers better and were already ahead in the market. Jackson seems to ignore all of this.

The obvious hypocrisy between these Valley-types criticizing Yahoo! and yet whistling past the Cupertino graveyard with Apple is what’s really galling to me. If all of you are so incensed by a company protecting its IP rights, why are you not picketing in front of Tim Cook‘s house? Hasn’t Apple pursued this line of defense/offense for its business most aggressively of anyone in the Valley?

Er... we've criticized Apple's patent strategy plenty and have done done so for years.

It goes back to clubbiness. One of the rules of the Valley is that no one criticizes Apple (or Google for that matter).

Geez. I guess all those blog posts above don't exist. And, honestly, that's just crazy talk. I know tons of "Silicon Valley bloggers" who criticize Apple (and "Google for that matter") all the time. Just for the hell of it, since all the links above are about Apple, here are some criticizing Google too, for "that matter."

Does Jackson even read the blogs he's slamming?

And for those saying that Yahoo! caved to Wall Street pressure to launch a patent fight now against Facebook prior to its IPO, this avoids looking at some key facts. Starting in 2005, Yahoo! began to make a concerted effort to develop its patent portfolio. According to PatentVest, Yahoo! was granted 20 patents in 2002 by the US PTO, 50 in 2006, 80 in 2008, 300 in 2010, and 325 in 2011. One of the key IP lawyers at Yahoo! in 2006 left the company shortly thereafter to take a more senior job at Google doing the same thing.

All companies in Silicon Valley recognized this trend and began investing in protecting their IP starting in 2006. Yahoo! was one of many doing this. When Yahoo! began growing its portfolio, it was before anyone realized Facebook was going to be the size it is today. Of course, Yahoo! famously tried to buy Facebook for $1 billion in 2006 — which was seen as an outlandish number to pay at the time by the blogosphere.

This is a convenient rewriting of history. While he's right that many companies in Silicon Valley started investing heavily in obtaining patents around that time, it wasn't to use them as an offensive weapon -- but as a defensive weapon against silly lawsuits from dying companies... like what we're seeing with Yahoo today.

Which brings us to today. Yahoo! has a case against Facebook. It might have cases against others in the future. Yahoo!’s owned by its shareholders – not the clubby bloggers of Silicon Valley.

Let the bloggers do what they need to do to protect their self-interests. Yahoo! will do the same.

But that's the thing: this strategy never works. That's what the bloggers were saying. Because we've seen it. The companies that start suing more nimble, more successful competitors over patents, always end up failing in the long run. That's why it's a clear indicator of a company that's done innovating. Breaking out the "sue over patents" folder is a key sign of a company that knows it can't compete. Because when you can beat the competition by innovating, suing over patents is always seen as a waste of time.

Shareholders in Yahoo -- and Jackson admits that he is one -- may get some short term benefits, if it happens to get a chunk of cash from some company, but when a company that fits Yahoo's profile starts suing over patents, it's a clear, clear sign that it's time to short that stock. The company has given up.

And I'm still wondering when I get invited into this supposed "club."

It still really amazes me that anyone takes the major labels or the RIAA seriously when they make claims about how they're doing what they do to help artists. The labels have a long and detailed track record of screwing over artists at every opportunity. We're seeing some details around that in some of the recent lawsuits we've covered. But, as we've heard time and time again from various artists, it goes much further than just fancy RIAA accounting.

The major labels tend to pick ahead of time just a few "winners" that they're going to put any real effort behind. If you're signed to a label, but aren't one of the chosen few, you're pretty much screwed. The label still owns everything, but you get no real marketing support, and you're limited in what you can do. So your album "flops" even though it was destined to do that from the beginning. To some extent, this is the nature of the business model that the majors have set up, where they only make money on a very small number of big hit albums, that they spend a ridiculous amount of money promoting. Everything else just isn't worth it for them. Of course, that doesn't mean those albums are bad, or that they might be quite profitable if they weren't locked into the majors' obsolete way of doing things. But for the artists who get the short end of one of those types of label deals it can be incredibly frustrating.

Take, for example, the situation of KiD CuDi, a hip hop artist who's been considered one of the bigger up and coming acts these days. However, he recently decided to go in a slightly different direction, and put together a more rock-influenced album, citing inspiration from Pink Floyd, Nirvana, the Pixies and ELO. That album came out yesterday, and apparently Universal Music decided that it wasn't going to support the album much at all, leading CuDi to unload on Universal via Twitter for its lack of support. Put together, his tweets read:

Ok so just a heads up, my weak ass label only shipped 55k physicals cuz they treated this like some indie side project tax right off. So i apologize on behalf of my weak ass major label. And I apologize for the lack of promo, again, my weak ass major label. They tried to rush me thru this so i can just give em another MOTM, but guess what? Fuck that, next album is WZRD. MOTM3 on hold til 2014. who mad??? not me and @DotDaGenius. So its def gonna be tough to find one in the stores guys, I'm sorry about that. I gotta go out and find one too, becuz my weak ass label never even gave us a copy of our own album. FAIL!!! Im lettin Universal Republic have it, fuck it. What they gon' do, spank me?? hahahaha. AND Teleport 2 Me, Jamie aint on the radio!!!! like helloooooooooo????? HIT HIT HIT!!!

Obviously, Universal Republic made a decision not to support this album, because they don't think it'll bring back what they want it to. And that's their decision -- but that's one of the risks of signing with a major label, and it's one of the reasons why more artists should really think twice about giving so much control to an entity that might just decide to stop supporting you. I don't begrudge Universal making this decision, but it again highlights that the major labels aren't looking out for the best interests of the artists at all. They're looking out for their own best interests.

This isn't to say that all labels are bad. Artists can find some smart and innovative independent labels that still give the artists plenty of say and control, but the majors are the majors, and to think they represent the artists is clearly a joke. So when it comes to public policy debates, why do politicians and the press still continue to assume that the RIAA and major label view is what's best for the artists?

JPMorgan Chase CEO Jamie Dimon, who made approximately $23 million last year, apparently doesn't like the press picking on the salaries at big banks like his. So, he's telling them that they're the ones who are overpaid. To be fair, the context is that he's mocking reporters for focusing on the compensation ratio statistic that some have brought up in questioning how much banks pay their employees, by noting that the same ratio -- which he rightfully calls a "stupid ratio" -- doesn't necessarily look good for the newspaper industry either. Of course, most journalists just buzz right by that context and point out how ridiculous it looks for Dimon to complain about how much journalists make, coming from where he's sitting:

Dimon himself took home roughly $23 million in 2011, about the same as the year before, according to Bloomberg. Compare that to newspaper reporters, who earn an average salary of $43,780 according to the Bureau of Labor Statistics, or between $20,000 and $60,000 per year according to Payscale.

For fun, let's just compare a bit more. The average reporter at The New York Times earns about $93,000 per year, according to Glassdoor.com. The New York Times Company reported an operating profit of $56.7 million in 2011.

Dimon's salary not only dwarfs that of us media-folk; he's also making millions more than most of his employees. The average JPMorgan employee made $341,552 last year, according to Bloomberg News.

The key point, here, is really that if you're trying to convince the press to stop focusing on stories about reasonable employee pay, you probably should not then directly state that their pay is "just damned outrageous," while then defending bank employee payments by saying, "We are going to pay competitively.... We need top talent, you cannot run this business on second-rate talent." The implication that the press gets from that -- perhaps on purpose -- is that the media shouldn't pay competitively, doesn't need top talent, and can run its business on second-rate talent. Some might argue that's already the case... but it's unlikely to get those "second-rate" reporters to drop the issue...

It appears that the same arguments that many of us have been fighting for many, many years are suddenly playing themselves out again in the National Review Online. It started with a really fantastic article by Reihan Salam and Patrick Ruffini arguing that legislating to deal with "piracy" doesn't work and is the wrong approach anyway, because innovating and providing better solutions simply works better. If you're a regular Techdirt reader, you won't be surprised by the Salam/Ruffini piece -- it hits on many of the key points we've raised. However, it is nicely packaged up in a single article that should be required reading for anyone trying to understand why fighting piracy through legislation is the wrong approach.

In response, Robert VerBruggen, an associate editor at the National Review decided to write a rebuttal that isn't so much a rebuttal at all. As Tim Lee rightly points out, the two sides appear to be arguing totally different things. Salam and Ruffini are pointing out that enforcement isn't working (and isn't workable), while also leading to collateral damage. But, at the same time, innovating and providing solutions that people want do seem to work -- and create new opportunities for content creators and consumers alike. VerBruggen, on the other hand, is pulling out the famed "but... but... piracy!" argument we've seen too often -- as if the fact that "piracy exists" suddenly makes all logic pointless. As Lee notes:

VerBruggen responds by insisting that piracy is wrong. He’s right, but this doesn’t get him as far as he thinks it does. This isn’t just an abstract exercise in moral philosophy. The government has limited resources, and a long list of problems to deal with. The question isn’t “should the government try to stop piracy,” it’s “how many resources should the government devote to combatting piracy as opposed to other problems.”

And VerBruggen never really grapples with this question. He seems to believe that the right amount of enforcement is more than we already have, but he doesn’t offer any principled basis for deciding how much more, or how to tell when we’ve passed the point of diminishing returns. Without such a principle, we’re just going to have this debate over and over again, as each new anti-piracy measure fails and Hollywood comes back for still more restrictions.

This is a key point, and I don't know if VerBruggen is just new to this debate and therefore trotting out silly, long-dead tropes because he doesn't know any better -- or if that's just the best the "other side" can do these days. Either way, I wanted to dig a bit deeper into a few of VerBruggen's really questionable claims.

When brick-and-mortar bookstores complain about the threat they face from Amazon.com, they are complaining that customers will leave them for a superior alternative; when Hollywood complains about piracy, they are complaining that customers have left them for an illegal alternative. They have stopped paying for Hollywood products yet are still consuming them. These are not even remotely similar situations — morally, legally, or economically.

VerBruggen says this as if "an illegal alternative" and "a superior alternative" are mutually exclusive. They're not. And that's the issue. History has shown, time and time again, that infringement is a way for consumers to express that they're not satisfied with the official versions and have found "a superior alternative." That the said alternative is "illegal" is an issue, but it doesn't necessarily mean that the best response is a legal one. Why VerBruggen makes these assumptions is unclear.

With this distinction in mind, one might find it rather odd for Salam and Ruffini to insist that the solution to piracy is “innovation” rather than law enforcement. By “innovation,” they mean primarily that Hollywood should make it easier and cheaper for customers to buy their content digitally, citing studies indicating that when digital content becomes readily available through legal channels, piracy goes down. But even assuming Hollywood can discourage piracy by cutting prices and offering its content in different ways, since when do we tell crime victims to appease their tormenters?

As far as I can tell, this is the craziest part of VerBruggen's argument. It is, effectively, "so what if everyone can be better off by innovating out of this mess, this is wrong wrong wrong!" As we've pointed out for years, if you have a solution where everyone is better off, there is no moral argument. It seems silly to be arguing what VerBruggen seems to be arguing, that it's more moral to have everyone worse off with no piracy, than to have everyone better off with some piracy. It just doesn't add up.

Moreover, in no other industry do we allow consumers to force prices down by taking products for free whenever they, personally, think the legal versions are too expensive or inconvenient. Any customer may refuse to buy a product that’s undesirable, or even organize a boycott — but then that customer needs to go without the product.

The problem here is easy to spot. It's in the word "take." That's not what's happening here. The truth is that, as in every other industry, consumers force down prices by finding "a superior alternative" as he suggested earlier. Taking implies something is directly taken from the creator and they no longer have it. That's simply not true.

Salam and Ruffini provide no justification for singling out industries that sell intellectual property — and little evidence that these industries’ disproportionately young, bratty, and entitled consumers are better equipped than the free market to decide what a “fair” price is for an album or movie that cost thousands or even millions of dollars to create and market.

I won't even bother discussing the fact that he appears to be calling the industry's customers, who they're supposed to be trying to win over, as "young, bratty and entitled," and just focusing on his bizarre definition of "free market." He seems to miss that this is the free market. Setting up a centralized government-granted set of artificial monopolies over non-rivalrous, non-excludable goods is a price restriction on a free market. A "fair price" is what the actual market sets -- and that means the market of everyone, not just the customers that VerBruggen likes.

For starters, while making content widely available for low prices does seem to reduce piracy, it hardly eliminates it.

Er. Enforcement and new laws every two years has hardly eliminated it either -- in fact, it's been shown to increase the rate of piracy. So, I'm at a complete loss here. If VerBruggen is arguing that the only proper solution is the one that "eliminates" infringement, well, then he's living in a fantasy land, because no such solution exists. The argument that Ruffini and Salam made (which is backed up with pretty significant evidence) is that innovating and providing "a superior alternative" does a better job to reduce piracy than enforcement (which doesn't appear to work at all beyond an initial hit until people scramble and find alternatives). Again, we're back to VerBruggen basing his entire argument on "piracy is wrong wrong wrong," without taking into account what his preferred solution actually does compared to Salam and Ruffini's alternative.

Spotify’s payment formulas are not public, but various leaks indicate that on average, artists and labels are paid around one-third of one cent every time a user listens to (“streams”) a song. By way of comparison, artists and labels make 70 cents when a song is purchased for 99 cents from iTunes. Thus, a user has to listen to a song on Spotify more than 200 times before earning ad revenue for the artist and label that’s equivalent to a sale.

Comparing a Spotify play to an iTunes purchase is meaningless, because they're not the same thing by any stretch of the imagination. I mean, why not compare Spotify to radio? In some ways, that may be more comparable. In the US, musicians get paid a big fat nothing for radio plays. Yet, somehow, it's been pretty damn important for artists to get on radio. Because it helps them make money elsewhere. Looking at Spotify in isolation misses the point... but VerBruggen does that again and again:

But piracy does “put pressure on profit margins,” as Salam delicately put it on National Review Online recently. By one estimate, per capita, inflation-adjusted spending on recorded music has fallen 64 percent since its peak in the late 1990s, and is lower today than at any time since at least 1973, despite the fact that every other person you pass on the street is wearing earbuds.

Again, he's looking at one small aspect of the music business in isolation: how much is spent on recorded music. But he leaves out every other aspect of the music business -- including things like live -- which has grown at an incredible rate over the same time. More importantly, he leaves out that artists earn a larger chunk of revenue from live than they do from recorded music sales -- most of which go to the labels, not the artists. Why focus on that anyway? It's like complaining that automobiles are terrible for transportation because fewer buggy whips are selling. When you have dumb metrics, you're going to get silly results.

The numbers change little when one uses total rather than per capita revenue, and home-video sales are falling as well.

Oh come on. Home video wouldn't even exist if Hollywood had its way and banned the VCR 30 years ago, so I'm sorry if I find complaints about the home video market shrinking as evidence of a problem. As we saw with the VCR, new markets develop, and they seem to develop against Hollywood's own wishes -- and then become a huge revenue driver for Hollywood. The best solution, if we look historically, is to get Hollywood out of the way and just let those new models develop to save Hollywood from itself.

That in itself should be troubling to anyone who thinks the profit motive matters — with less profit, presumably, will come less creative output.

Thing is, we don't need to "presume" anything. We have data. And the data shows that more music is being created and released and monetized than ever before. And the data shows that more films are being created and released and monetized than ever before. You can presume all you want until the cows come home, but if reality says you're wrong, it's difficult to take those presumptions seriously.

As commentator Eduardo Porter noted in the New York Times, while the total number of music-album releases rose between 2005 and 2010, releases of albums that sold at least 1,000 copies — a rather low standard by which to judge whether an artist is making a significant contribution to the world of recorded music — declined about 40 percent. Of course, like Salam and Ruffini’s, Porter’s data are highly debatable — he relies on the Nielsen sales database, which excludes some independent releases and does not count sales of single songs.

It doesn't just exclude "some" independent releases. It excludes tens of thousands (potentially hundreds of thousands) of independent releases. If you just look at TuneCore and CDBaby alone, you'd realize how silly relying on SoundScan is as a proxy. And, once again, this is only looking at "recorded music" sales in isolation. The fact that fewer albums sold 1,000 copies ignores the massive explosion of new music (which just paragraphs earlier, VerBruggen "presumed" was impossible), meaning that there's a ton more competition. Furthermore, it ignores that recorded music is not the main way that many artists monetize these days, and looking at it in isolation is pretty pointless. Finally, many of those artists who sold less than 1000 albums would have made a big fat $0 under the old system, because no major label would have bothered with them and they wouldn't have had any other outlet. Aren't we all (including, most importantly, the musicians) better off in a world where a whole bunch of artists get to make something rather than nothing? But, again, the "but... but... piracy!" argument blinds VerBruggen to this reality.

The finer points of entertainment economics aside, if widespread and increasingly popular illegal behavior is costing American companies business, and possibly reducing artists’ creative output, it is first and foremost a law-enforcement problem, not an “innovation” problem. It is entirely reasonable for Hollywood to petition the government for better anti-piracy efforts, even if the industry has lobbied for bad legislation in the past.

Almost nothing in this paragraph is supported by... anything. If law enforcement doesn't work, how is this possibly a law enforcement problem? This is yet another example of someone trying to be right rather than realistic. It's a recipe for disaster, but it's the same recipe that the legacy entertainment industry has been cooking up for decades to no effect. Who would ever double down on that strategy?

We've discussed for many years how the Olympics has a ridiculously overaggressive approach to attacking free speech for those who criticize or mention aspects of the Olympics without permission. In most locations that host the Olympics, special extraordinary laws get passed against specific expressions around the Olympics that go beyond ordinary restrictions on speech. London, it seems, has been particularly willing to bend over backwards to appease the International Olympic Committee.

Take, for example, this story of a simple parody video about the 2012 Olympics that has been taken down over claims it violates the Olympics' IP rights. The video is clearly a parody, making use of the 2012 Olympics' creepy mascots, Wenlock and Mandeville, to show them in what appears to be a London riot (using some computer graphics work). The original video got about 90,000 views before being taken down. As the link above notes, there is no right to parody in the UK, so while it may be legal to have the video taken down, it's still ridiculous. The site linked above, LiberalConspiracy.org, insists that it'll keep posting the video if it gets taken down. But, as of the time I write this, I'm embedding the working version of the video, though I wouldn't be surprised if it's gone before too long. Honestly, the video seems pretty tame. Perhaps the Olympics thinks it hurts its "brand" to have such a video, but it sure seems like censoring parody videos does a hell of a lot more reputation damage to the Olympics than a silly parody video of its mascots.

One of our most vocal (yet anonymous) critics posted an off-topic comment on a totally unrelated story mocking us for not having covered the story of how Hollywood has been saved (saved!) thanks to the shutdown of Megaupload. Of course, the reason we hadn't covered the story was because we didn't know about it. He referenced a couple of French news reports, which I hadn't seen until I had some time just now to catch up on some old comments. He could have submitted the stories, but he insisted that it would be a total waste of time because we ignore any story that we disagree with. That's pretty funny, considering many, many of the stories here are ones that challenge our views. And, I'm especially interested in reports of actual data, even if it conflicts with other data we've seen in the past. In fact, I'm especially interested in such stories, because my focus is figuring out what's really happening and understanding what's actually best for culture and society. So data that actually challenges my assumptions is some of the most useful data around.

Unfortunately, the stories don't actually have any data. The first one is totally anecdotal, concerning a guy who now goes to the movie rental store to rent (physical) movies since the shutdown of Megaupload, and the second one is about claims from TV stations that their websites are getting more traffic since the shutdown of Megaupload. Both are anecdotal, not data based, and really just seem to scream out the obvious: man, does the entertainment industry do a horrible job giving consumers what they want. If Megaupload's website was offering a better experience than the TV networks' own offerings... they should be firing their web designers and starting again. As for the guy renting videos... we'll see how long that lasts.

The same commenter then left a comment with some bullet point claims. He doesn't source them, so I have no idea how accurate they are, but they seem to indicate the same point in that second article. In the few weeks after Megaupload got shut down, TV station websites got more traffic. Again, this seems to simply show how bad a job they must have been doing in the past to attract viewers to their own websites. It also means that as soon as something better comes along (and it will), people will split. Ignoring that the market is telling you something is no way to build a long-term business.

Of course, we've also seen significant other data from firms that have access to a much wider view of internet traffic, which suggested that Megaupload traffic pretty quickly shifted to other, similar sites. Of course, some of those sites have since shut down or changed models, but anyone who thinks that more such sites aren't springing up (with some keeping a lower profile) simply hasn't been paying much attention to how the internet works.

The feds domain name seizure powers seem simple enough (if of extremely questionable legality, seeing as domains involve speech which requires a higher standard to seize), so it really amazes me how badly they seem to regularly screw up in using them. The latest is the seizure of Bodog.com as well as the indictment of Bodog boss Calvin Ayre. While there's been lots of attention paid to the seizures of sites having to do with copyright and trademark infringement, the same feds (ICE and the DOJ) have also been using the same powers gleefully to stop you from playing poker online. You may recall that they seized PokerStars, Full Tilt Poker and Absolute Poker last April, followed up by 10 more domain seizures in May (which was especially bizarre, since the key thing that's illegal is processing payments, but in that case, the federal government set up its own fake payment processor for those sites...).

Bodog, however, has been considered the "big dog" of online poker for quite some time, raising some questions as to why it wasn't included in last years' busts. Of course, in typical fashion, the feds seem to have targeted the wrong domain. Bodog gambling sites moved off of Bodog.com ages ago -- first due to a patent dispute, and later to avoid having the sites on US controlled domains. For quite some time the company has mainly relied on bodog.eu, and more recently has been offering a different domain called Bovada.lv for US-based players.

As for Bodog.com? It had become the face of the "Bodog Brand" and was used for licensing the Bodog name, but wasn't itself a gambling site in ages. The affidavit for seizure (pdf and embedded below) claims that federal agents set up accounts and gambled on Bodog.com, but I really wonder if they didn't miss the fact that they were redirected to another site. Checking the internet archive, it certainly looks like Bodog.com was pretty much out of commission long before the feds claimed to have set up and used accounts there. Either way, the seizure seems unlikely to do much to stop gambling on Bodog sites, considering that the actual gambling was happening on sites, other than Bodog.com, which likely are still perfectly operational.

As for the actual indictment (pdf and embedded below) against the individuals, it's more or less what you'd expect. They focus a lot how Bodog moved money around, but much of that was only necessary because of the (relatively recent) decision by some politicians in the US to sneak an anti-online gambling bill into a bill about protecting our ports and harbors. Ever since then there's been a growing effort in Congress to actually make online gambling legal again -- in part because the big casinos who mostly supported the original ban have now changed their minds and want in on the action. In other words, while it is likely that Ayers and his team did violate the law, there are a lot of questions about the law itself, and there's a half decent chance that what he was doing will be perfectly legal before too long.

Kinda makes you wonder why the feds are spending their time and taxpayer-funded resources on such a thing, doesn't it?

As for Ayers, he sounds pretty defiant, suggesting that this is really just the feds acting in the best interests of large casinos who don't like the competition:

I see this as abuse of the US criminal justice system for the commercial gain of large US corporations. It is clear that the online gaming industry is legal under international law and in the case of these documents is it also clear that the rule of law was not allowed to slow down a rush to try to win the war of public opinion.

These documents were filed with Forbes magazine before they were filed anywhere else and were drafted with the consumption of the media as a primary objective. We will all look at this and discuss the future with our advisors, but it will not stop my many business interests globally that are unrelated to anything in the US....

The whole thing seems like a big waste of time by some federal officials who like big headlines, but don't seem particularly focused on stopping crimes that actually cause real harm.

One of the key points in the SOPA/PIPA debate involved Hollywood -- and the MPAA's Chris Dodd and Michael O'Leary in particular -- dismissing the worries of folks in the tech industry about the rather fundamental changes that these laws would make to both the technological and legal frameworks of the internet. Anytime such a thing was brought up, it was dismissed out of hand. This was most noticeable during the original SOPA hearings in November, where a number of experts were pointing out their concerns with how SOPA would undermine basic internet security principles... and O'Leary dismissed them with a simple statement about how he just didn't believe those concerns to be true.

What shocked many folks in the tech community was just how easily the MPAA sought to dismiss some pretty massive fundamental changes to both the internet and the legal framework around the internet. However, apparently if you dare touch the "fundamental" parts of Hollywood's business, the same MPAA throws a hissy fit. The EU recently had a public consultation on a variety of copyright-related topics, some of which were more interesting than others. One of the topics was on the question of movie release windows, and whether or not they made sense any more. As we've noted there have been many, many studies that suggest that these release windows are actually a big part of the problem for Hollywood, and they're leaving a ton of money on the table by not making movies available in as many convenient ways as possible.

In fact, many of the (non-Hollywood) respondents to the consultation made this point. There's BEUC (a consumers' group) that sees (pdf) "both platform and territorial release windows as outdated." GSMA called for (pdf) support for "flexible and shorter release windows." And EuroISPA was the most stringent (pdf), pointing out that:

the current windowing system is obsolete and seriously damaging the objective of the Digital Agenda, because it hampers the circulation of digital works and discriminate amongst platforms, to the detriment of more innovative technologies and business models

But you get a totally different story when you hear the MPAA's international arm, the MPA, tell its story (pdf). You see, to Hollywood, release windows are a "fundamental" part of its business model, and how dare anyone think of touching it.

The MPA submits that the freedom to set the exact timing for the release of films in various media and various countries is a fundamental feature of the film industry’s business model

Perhaps Hollywood is right, even if so many studies disagree. But, really, if it thinks it can just claim a certain feature is a "fundamental feature of the industry's business model," why does it then feel that there's absolutely no problem to leap into a totally different industry, and muck around with the "fundamental features" of that "industry's business model"? What an incredible sense of entitlement. The MPAA wants the law to keep its business model in place permanently... but if anyone else even dares to ask why Hollywood is trying to muck with their own business model, everyone gets attacked as being misinformed shills.

Some of you youngsters may not remember what really kicked off the big "net neutrality" fight over the past few years. It was back in 2005, when then AT&T CEO Ed Whitacre suggested that internet companies should pay a second time to reach users. This was particularly nefarious. What Whitacre was suggesting was actually that AT&T get to double charge everyone. That's because the way it was (and still) is that everyone pays for their own bandwidth -- including the big internet services like Google. However, the way Whitacre was describing it, the bandwidth you got only paid for half the transit. That is, you only paid for your bandwidth from your premise to "the cloud" but not back out to any end machine. That that bandwidth was paid for by whoever owns those end machines was entirely ignored. So the plan was not just that Google would pay for its own bandwidth, but that Google would also pay for your bandwidth to get Google to your computer (ignoring that you already paid for it).

That didn't go over so well with people, and got particularly ridiculous when Mike McCurry, running an AT&T lobbying effort, insisted that Google didn't pay a dime for its bandwidth. For rather obvious reasons, he refused my proposition that he agree to pay Google's bandwidth bills.

Either way, it appears that the brilliant minds at AT&T have been trying to devise a new way to present such a plan that doesn't leave them so open to charges of being greedy double chargers -- and they may have found it by focusing on the mobile world, with their new love of "tiered" and "capped" plans that limit how much bandwidth you actually get. What they're going to do is charge app makers a fee to offer their services to you in a way that the data doesn't count against your cap. They describe it as an "800 number for the mobile internet."

"A feature that we're hoping to have out sometime next year is the equivalent of 800 numbers that would say, if you take this app, this app will come without any network usage," Donovan said on the sidelines of a mobile-industry conference here. It's far from clear how willing technology companies would be to pay wireless carriers for data use. Mr. Donovan said there was interest from companies who could use the feature to drum up new business from customers wary of using data-heavy services like mobile video.

This is nefariously brilliant. People associate 800 numbers with toll-free phone calls, so it's kind of like that... except it isn't anything like that at all. It's just a way to get companies to pay for the data connection you're already paying for. But the end result is exactly like what Whitacre wanted five years ago: get the app providers to pay double for bandwidth. Karl Bode summarizes the whole ridiculous plan as only he can (via that link above):

The end result is the same, with AT&T imposing bizarre tolls on content companies to obtain preferred customer status, picking winners and losers while retaining power in the wireless ecosystem.

It's an idea we're sure AT&T will pitch as a cost-saving endeavor for consumers, but given this is AT&T, you'd be naive to think cost savings will be in the equation. You'll still pay the same data rates, content companies will now just pay a fee to obtain preferred "reduced cap impact" status, then pass the higher development costs on to you. It's a ridiculous and dangerous idea, and the fallout will likely be similar to AT&T's "free ride" comments. AT&T executives either don't care how bad these ideas make them look, or don't realize it thanks to too many isolated meetings at headquarters packed with telco-think yes men.

Eventually you start to think that AT&T executives should just stop thinking before they hurt someone or themselves. If AT&T put half as much energy into running a top-flight network with quality support as they did cooking up hare-brained troll toll schemes -- they might just stop coming in last place in all major customer satisfaction studies.

This is really just another reason why the telcos are pushing so hard to move users into unnecessary tiered plans -- because they can't pull off scams like this on unlimited data plans nearly as easily.

For a while now, we've been covering the gradual legal assault on the First Sale doctrine and beyond. The First Sale doctrine, of course, is what lets you resell a legally purchased book without having to first obtain permission from the copyright holder. Of course, copyright holders generally hate the First Sale doctrine, because it often means that their products have to compete against "used" versions of their own products as well. Of course, this view is very shortsighted and economically ignorant. A healthy used or resale market has been shown to increase the amount people will pay for new items -- because they recognize that there's a secondary market and they can recoup some of what they paid for the original. Thus a healthy secondary market, contrary to what some believe, can often improve the health of the primary market.

But, there have been a few very questionable lawsuits that are chipping away at the first sale doctrine, starting with the infamous Omega case, in which the watchmaker exploited the phrase "made under this title" to argue that any goods made outside the US were not subject to first sale rights under copyright law, because they were not "made under this title." That 9th Circuit ruling (which remains in place after the Supreme Court split down the middle -- with Kagan abstaining due to her earlier involvement in the case) was one thing, in that there were some limitations. But then the 2nd Circuit went to loony town in suggesting that some books that were legally purchased in Asia could not be resold in the US without permission (i.e. an expensive license). While the district court who reviewed the Omega case on remand recently rejected Omega's claim as copyright misuse, there is a lot of fear over this issue as the courts sort things out.

The risk of the Omega case goes even further, since it could wipe out the used goods market not just for "content," but for physical goods as well. That's because Omega didn't just exploit the "under this title" part of the law, it exploited copyright law itself. Remember, it sells watches. What do watches have to do with copyright? Absolutely nothing. But Omega's trick was to create a little design drawing, which it then got a registered copyright on... and then engraved that drawing in a tiny tiny spot on the back of the watch where almost no one will ever notice it. It serves absolutely no purpose... other than to make a physical object subject to the crazy excesses of copyright law. Thankfully the district court saw through that and recognized it was copyright misuse, but who knows what the higher courts (or other circuits) will say.

Of course, all this fighting in the courts over this might be moot if the Trans Pacific Partnership Agreement (TPP) is approved. We've been covering the incredibly secretive negotiations over that agreement, including last year's leaked draft of the IP section. However, we didn't quite realize the extent to which the US Trade Representative (USTR) and the big industry interests were seeking to use the TPP process to wipe out the used goods market.

In a fantastically detailed post, John Mitchell walks through how the USTR is seeking to effectively neuter any used goods sales by more or less locking in these rulings that makes it effectively against the law to resell copyrighted goods that were legally bought abroad back into the US without purchasing a new license to do so. He goes through (in much more detail than I did above) the history of first sale, as well as the two key cases above, but then digs into what the USTR is trying to do according to the leaked draft:

Here is where the aid of the U.S.T.R. in negotiating the Trans-Pacific Partnership Agreement (TPP) would come in, nullifying any potential adverse ruling by the Supreme Court while concurrently protecting against liability for copyright misuse. After all, if our own treaties require us to allow copyrights to be used to suppress price competition, it can hardly be a misuse of the copyright to do just that. The current draft would require the parties to codify the outcome from the 9th Circuit’s self-maligned interpretation. And, if the U.S.T.R. is successful, even if the Supreme Court were to reverse the Kirtsaeng holding, Congress would have an international obligation to amend Section 109(a) to apply only to copies either made in the U.S. or authorized by the U.S. copyright holder for sale here – authorized, no doubt, only at a minimum resale price rather than the true market price.

The current draft of the TPP has a provision that the major college textbook publishers could not have drafted any better themselves, as it mirrors the outcome advocated in their briefs. It would require treaty parties to codify the Ninth Circuit’s damaging ruling, thereby creating a huge loophole for U.S. copyright holders to take control all secondary markets for their works, as well as to control primary markets, by requiring all retailers to obtain a copyright owner’s “license to sell” in addition to outright ownership of noninfringing copies – if those copies are made abroad.

The fear, then, is that as companies recognize how this works, they can effectively ban almost any resale, just by having some of the product "made" outside the US. Mitchell highlights the case of the iPhone:

The iPhone, for example, comes pre-loaded with copyrighted computer programs, making it a noninfringing “copy” of many works, lawfully made in China (albeit by the U.S. copyright owner). Under the Ninth Circuit ruling, you may lend you iPhone to a friend without the copyright owner’s consent, because Apple sold it here (assuming Apple is the owner of all of the copyrights) in pre-installed works. Under the Second Circuit ruling, you cannot, simply because the copies were all made in China. Under the proposed TPP provision, the outcome might differ depending on whether there is a market for iPhones without the operating system (iOS) and related application software.

There is also a flip side to all of this which Mitchell only briefly touches on. Copyright holders might not want to be so excited about arguing that works made outside this country are not subject to US copyright law... because that could mean that all of these US copyright holders might not be able to make use of their copyrights abroad:

If a copy is not “lawfully made” under the U.S. Copyright Act solely because the Copyright Act does not apply abroad, then the other part of the exclusive right in Section 106(1) – to “authorize” the reproduction of the work into copies or phonorecords – would be limited to the exclusive right to authorize reproductions in the United States alone. In other words, anyone in the United States would be free to authorize reproductions abroad without infringing upon the U.S. copyright owner’s exclusive right to authorize reproductions.

Of course, I'm sure they would argue against that, or in a cognitively dissonant manner, seek to make use of the fact that various countries have agreed to recognize each others' copyrights to argue that when abroad, those copyrights are automatically converted to the local copyrights within those countries (just don't ask why first sale doesn't then apply too...).

Either way, this is yet another reason to be quite worried about the USTR and TPP, and how seemingly "simple" changes to these rules and "international obligations" could have massive market-changing impact.

A couple of weeks ago, Techdirt wrote about a surprising initiative by the Netherlands to introduce new flexibilities into its copyright law. Given that leadership from the Dutch government, it's probably no surprise that a few days later, the Dutch Parliament also showed itself in the political vanguard by voting not to ratify ACTA for the time being.

The full text of the Dutch minister's speech is now available, and it's well worth reading for its clear analysis of the problem facing European copyright, and its suggested solution:

The big question, however, is whether copyright law currently provides enough opportunities to allow an effective response to these technological changes and other developments in the future. In my view, this is particularly relevant in the case of the closed list of exceptions to copyright in the European Information Society Directive. These exceptions are designed to allow new products and services to be developed through creative or transformative use of copyrighted work. They also allow copyright to be restricted in the case of work used for educational purposes, in academic research or in news reporting, as well as work used for libraries and archives.

As the minister mentioned in his talk, those exceptions are explored in some depth in a report by Professors Hugenholtz and Senftleben, entitled 'Fair Use in Europe. In Search of Flexibilities.' The conclusion gives an idea of just how much scope there is within existing European law to introduce a wide range of copyright exceptions:

As our analysis has demonstrated, the EU copyright acquis [body of law] leaves considerably more room for flexibilities than its closed list of permitted limitations and exceptions prima facie suggests. In the first place, the enumerated provisions are in many cases categorically worded prototypes rather than precisely circumscribed exceptions, thus leaving the Member States broad margins of implementation, as is confirmed by actual legislative practice in various Member States. In the second place, the EU acquis leaves ample unregulated space with regard to the right of adaptation that has so far remained largely unharmonized.

A Member State desiring to take full advantage of all policy space available under the Information Society Directive, and thus maximize flexibilities available at the EU level, might achieve this by literal transposition of the Directive’s entire catalogue of exception prototypes into national law. In combination with the [Information Society Directive's] three-step test, this would effectively lead to a semi-open norm almost as flexible as the fair use rule of the United States. For less ambitious Member States seeking to enhance flexibility while keeping its existing structure of limitations and exceptions largely intact, we recommend exploring the policy space left by distinct exception prototypes.

The ability to add all kinds of flexibilities to copyright law without breaching the Information Society Directive is clearly a real boon for EU governments who want to update their legislation for the digital age. But there is another notable advantage to taking this approach, as the authors note:

Member States aspiring to introduce flexible copyright norms are advised to take advantage of the policy space that presently exists in EU law, and not wait until initiatives to introduce flexibilities at the EU level materialize -- a process that could easily take ten years. In this way, national models can be developed and tested in practice that may serve as a basis for more flexible future law making at EU level.

The hope there seems to be that forward-thinking countries like the Netherlands might be able to set an example for Europe's future copyright legislation, and move it towards greater flexibility. A good place to start in that respect would be for the European Parliament to emulate the Dutch politicians and to ditch ACTA, one of whose pernicious effects is to limit the freedom of signatories to modify their own national copyright laws.

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