And What Market Failure Required The DMCA?

from the pray-tell dept

Of all the bizarre rationales given for the DMCA, we may have a new winner for the most ridiculous. Jerry Brito points us to an op-ed piece that does some “up is down/black is white” voodoo by claiming that this incredibly limiting and overbearing government regulation is an example of a free market situation, and that removing it would represent the government interfering with such a free market. Yikes. Brito’s own analysis (which is a worthwhile read) attacks the op-ed by noting the author’s view against fair use (which shouldn’t be surprising, since the author of the op ed once wrote an opinion piece suggesting that fair use stifles innovation). There are so many places where this article can be demolished, it’s hard to know where to focus, but we’ll stick with the ridiculous claim that the DMCA has created some perfect fair market. The author claims: “Congress should only alter the state of a market when there is a sign of market failure, and there are no signs of that here,” but fails to explain what the market failure was that required the DMCA. That’s because there was none. There was simply a threat to an old, obsolete business model and some powerful lobbyists.

Furthermore, the author of the piece gives the DMCA credit for the “flourishing digital content market,” ignoring of course that the industry has consistently used the DMCA to slow down or wreck attempts to move that market forward, and the flourishing (if you can call it that) has only occurred with them kicking and screaming in protest. There are also some wild claims about “tremendous competition in price, services and features.” That just doesn’t seem true. For example, in digital music, Apple owns the market with a dominant share. Price is $1 or nothing (if you use file sharing). It’s not clear where the “competition” is (well, in truth, the competition is with file sharing, but that’s clearly not what the author here is talking about).

The author also falls back on the old (and totally false) line that if producers were forced to sell goods at marginal cost, it would stunt the growth of the market — showing a total misunderstanding of the free market economics he claims to espouse. Price equaling marginal cost is what a competitive free market will push for, but what the free market allows is for you to be creative and innovative in your business models to differentiate yourself, attach your product to other products and to continue to produce profit above and beyond marginal cost — without the help of government regulations protecting an old business model. By the logic of the op-ed, any regulation that sets up any market (free or not) is somehow good. Air is abundantly available, but if the government only put in place an Air Protection Act and allowed the Air Industry to sell off pieces, we’d have a much more effective market, wouldn’t we? After all, those who really wanted to breathe would be able to do so much more with the air. Why, it would be positively flourishing…

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Comments on “And What Market Failure Required The DMCA?”

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Petréa Mitchell says:

Consider the source

This article is in a magazine published by a libertarian think-tank. American libertarianism, at least as practiced by its most visible adherents, springs from the principle that all laws are bad. If the hot issue were Congress considering introducing a law requiring DRM into a DRM-free market, it would also be considered interference with the free market. If the RIAA escalates to using armed SWAT teams to raid the houses of suspected downloaders and some lily-livered public official tries to put a stop to it, this is also interference with the free market. You see the theme here?

(Of course, in a pure libertarian world, you would be free to use any means, up to and including tactical nuclear weapons, to fight back once the RIAA sets foot on your property.)

Mike (profile) says:

Re: Consider the source

This article is in a magazine published by a libertarian think-tank. American libertarianism, at least as practiced by its most visible adherents, springs from the principle that all laws are bad.

Hmm. I don’t think that’s actually the case here. What’s being argued isn’t that all laws are bad, but the exact opposite. That any laws that create markets are good, no matter how ridiculous those markets are. It’s actually the opposite of the argument that all laws are bad.

Paul says:

Re: Consider the source

Erm, no offense but not only have you typed exactly the same character to make your pointless argument (what, you couldn’t find any point to refute in the argument so you had to attack the person for spelling their own name correctly??) , but…

Accents are standard on most European language keyboards. For instance, I’m English but live in Spain and so sometimes type in Spanish. If I want to type é on a keyboard, I make sure Windows is set to Spanish layout, press ‘ then e.

So, you just attacked someone’s logic on the basis that they pressed 2 keys. Clever.

Petréa Mitchell says:

Re: Re: Consider the source

All right, let me clear up the big mystery: I have a standard US keyboard, and a foreign name which I really like to spell properly when I get the opportunity. I started writing HTML way back in the Stone Age when you had to memorize the entity codes or you couldn’t have special characters, and so I have most of them memorized.

As for the libertarians: I did say “as practiced by its most visible adherents”, and I stand by that statement. If you ever catch the Libertarian Party nominating convention on TV, you’ll notice that practically everyone defines success in terms of cubic feet of government removed, regardless of what it was doing. If you read libertarian fiction, you will find that laws exist in it only to impede the actions of right-thinking people.

(One book I especially recommend avoiding is Bretta Martyn, by famously libertarian sf author L. Neil Smith, in which his dynamic, progressive, open, cooperative utopia owes its success to having only one law: starting an argument is a crime, punishable by immediate death. I hope this makes as little sense to most people as it does to me.)

Noel (user link) says:

reply to Masnick

Masnick, I suggest you read: Jane Ginsburg, Copyright and Control over New Technologies of Dissemination, 101 COLUMBIA LAW REVIEW 1613 (2001). I have a review of it somewhere here, but can’t find it at the moment.

Jerry Brito’s review of Patrick Ross’ article, which is more insightful and level-headed than other DMCA writings from TLF, raises a couple issue. My comments here:


I don’t find that Patrick conflates real and intellectual property. But to the point- Patrick’s article shows that he is amenable to changing current copyright policy if certain market failures indicate such a need. He argues that the current market is vibrant, benefiting both consumers and producers.

You are right that copyright policy provides structural enforcement for the creation of markets, and that once those markets arise, they may foreclose the creation of some other kinds of markets. However, lets not fall into “the road not taken” story too much when talking about serious policy.

Your argument that sales of digital goods fall under both contract and federal copyright policy seems a bit vague. I gather your point is that since Congress *chose* to grant copyrights, and because sales of digital goods are, in part, governed by copyright law, that Congress can simply *choose* to amend copyright policy when it feel like. Is this right? I’d opt for Congress to rely on messages from the market.

Your point about time-shifting so that consumers can only watch content during some hours and only on some days is also vague because it tries to raise an issue Patrick does not even address (being able to enjoy content only during some hours and only on some days). I see you anticipating that Patrick would argue for expanded copyrights, or more restrictions on (purported) fair use. That argument does not arise nor is it suggested in his article.

At the end of your critique, you raise the issue of government failure in not protecting fair use and thus Uncle Sam should try to fix its *mistakes*. This does not support the argument you later make for amending copyright policy to facilitate (perfectly) free markets however.

I would also like to see the DMCA’s anticircumvention provision aligned more with traditional fair use doctrine as you may agree with, however, lets be a bit cautious here. The TLF post you cite as support for your argument assumes that society should vie for perfectly free markets (as far as I know such a market has not been successful anywhere in the world), and that any instance of non-perfect competition is detrimental to innovation (as far as I know, perfect competition has proven itself the applicable model in almost zero industries).

The differences between perfectly free markets v free markets, and perfect competition v competition are important, because they all pose different economic models. If you ask me, they can be seen as reflecting another distinction; those who argue policy based on abstract principle v those who look towards the industry in question. I trust basing the market more than on abstractions, because the market reflects what actually happens.

I’m a strong supporter of fair use, perhaps as much as you are, and am often disappointed that more people don’t talk it about it since its an integral limitation to copyright policy (as is the public domain, time limitations on copyrights, and subject matter). See some writings I’ve done on reverse engineering and fair use- there is a bit more flexibility under the DMCA than some critics understand. You might also look up some stuff on IPcentral on the public domain. These seem to be issues you hint at as your concern.

Mike (profile) says:

Re: reply to Masnick


Did you read my post? You reply to Jerry’s points, but not mine. Your arguments against the free market are weird, and make me (again) question your economics.

You do not seem to recognize time as a variable here, and I believe that’s where you go off track. In a static view of a market, your argument makes sense, but it falls apart completely when you look at a market over time. That’s why I find it amusing that you seem to believe that your view (sitting in a think tank, as you do) is based on reality rather than theory. It’s that static view that’s based on faulty reasoning.

When you add in the time variable, what you discover is that the reason you don’t know of cases where there is a free market is that’s the WHOLE POINT OF COMPETITION. The competition continues to one up each other, and change the market so that they can create some sort of advantage (real or perceived) and profit from that advantage.

In other words, from a policy standpoint, what you should want to do is not CREATE a free market, but create the CONDITIONS that allow a free market, and then watch the competitors continually innovate to knock that market out of perfect competition into a state in which they can profit. In that world, everyone benefits.

By denying that free markets are good because of the lack of profit, you have missed the point completely.

Noel Le (user link) says:

Reply to Mr. Masnick

Yes, thanks Masnick, I do sit in a think tank. Nice office, great view. I’m trying to get the finance director to sign-off on a plasma TV for me.

I posted my reply to Jerry here so that readers can get two takes on Patrick’s article: TechDirt’s reading and my reading.

I’ll reply to your points, Masnick, later. We’ve had these discussion.

I did point you to the Ginsburg article, which describes how the DMCA is inline with historic amendments to federal copyright policy. The DMCA was not a reaction to “market failure” as you suggest, but an affirmative effort to allow a market to grow. Disagree with this if you want, but read Ginsburg’s article first.

I see your point about creating conditions for a free market, but I consider free markets as a guiding post, not an end-all goal. Nobody has proven that perfectly free markets are the best for innovation.

Mike (profile) says:

Re: Reply to Mr. Masnick


I’m afraid you may enjoy completely changing the line of argument, but that’s really a weak way of arguing. *I* didn’t argue that the DMCA was a reaction to market failure. Patrick did. I was responding to Patrick’s argument.

Let me make the point clear:

Congress should only alter the state of a market when there is a sign of market failure, and there are no signs of that here

Ok, where was the market failure that created the DMCA?

You can’t ask that question, because the DMCA wasn’t a response to market failure.

If that’s the case, you might want to walk down the hall and discuss with things with Patrick, as the two of you appear to disagree about when regulations are acceptable.

That’s certainly fine, but I find it amusing that you try to support Patrick by totally disagreeing with the basis of his argument.

Noel Le (user link) says:

As always, a reply to Masnick

Ahh yes, always nice to talk to you Masnick. You’re such a polite young man.

We’re disagreeing with the notion of *market failure*.

I argue that there was no real market failure with the passage of the DMCA because digital media markets did not yet exist (at least as we know them now). Congress wanted to help copyright owners create and tap a new market.

You take market failure to only signify the existing market at the time that Congress considered the DMCA.

I believe Patrick considers both my notion and your notion of market failure.

Mike (profile) says:

Re: As always, a reply to Masnick

We’re disagreeing with the notion of *market failure*.

Ok. I think I see what you’re getting at here, though I’m still quite bothered by it.

Please correct me if I’m wrong, but your argument is:

Congress needed to create the DMCA because without it, there would be no digital content market. So, the “market failure” was the fact that no such market existed — but the DMCA in setting up the framework of that market “corrected” that market failure. Now, removing it without evidence of *new* market failure would be a problem.

Based on what you say above, I believe that’s an accurate summary of your point. If it is not, I apologize, and please do clarify.

However, assuming that is an accurate statement, that’s TREMENDOUSLY problematic, and doesn’t change anything that I’ve said. By that reasoning, the point in my article still makes sense. There is no “market” for air right now. So, that market has failed. Why aren’t you fighting for such regulations to create a market?

More to the point, it makes some ridiculous assumptions, most of which can easily be disproved:

1. The DMCA is what created the market for digital goods (almost too laughable to know where to start).
2. That what would have been created absent the DMCA wouldn’t have been much bigger.

Now, you can say that on point #2, “no one knows” but if you say that, then your whole argument goes away. Because back when the DMCA was created “no one knew” either.

You can’t have it both ways. You can’t say that to create a future market you may need regulation, and then say you can’t change a regulation because no one knows what the future impact would be.

The logic doesn’t add up. Basically, what you’re saying is that it’s okay to regulate to create specific markets that you support, but, as soon as someone wants to take away the big gov’t monopoly granted via that regulation, well, you can’t do that unless there’s evidence of “market failure.”

What many of us have been arguing is that there’s tremendous evidence that the DMCA has created much more market failure by slowing innovation down, shrinking the market for digital content (and associated products) and basically making just about everyone worse off.

And your response is “well, you can’t know that for sure.”

Yet, why wasn’t that the proper response when the DMCA was created because “without it, there would be no market for digital content.”

You couldn’t know that for sure.

I’m trying to find the consistency in your argument here, and it doesn’t seem to exist. You seem to shift the purpose of the argument depending on who benefits, rather than on how to generate the greatest overall benefit. I find that highly problematic, both intellectually and practically.

Enrico Suarve says:

Lobby created unconstitutional crap

First – sorry Physics Guy I hadn’t refreshed before my last post and didn’t see that others had already pointed this out, I didn’t intent to join in on a flaming


The whole DMCA thing is screwed and used on the whole for evil from what I can tell

The attitude of this ‘think tank’ is typical from what I can tell – “we created a market using DMCA, we have no proof what would happen if we stopped it but we know best – so there” (they neglect to point out that a select few friendly companies are happy making a packet from this)

Somehow we as consumers are just supposed to accept that, go “ye’sir mis’ser thinker sir” and not object while they sue us for failing to understand a lengthy contract and downloading a tune to the wrong device?

Frankly my opinion is that DMCA is helping to stifle the market. It locks people into specific companies, reduces competition, increases concerns when downloading content reducing peoples ‘reasons to buy’ and generally creates a bad feeling with consumers (they may not know what DMCA is but they know that the services they get are shitty for some reason)

To sum up – I don’t care how it came into being or about free market economics at the end of the day (I’m not as big a believer in market forces as Mike). All I care about is that ANY law brought into being in this manner and used to stop such basic rights as freedom of speech ( should always be challenged

|333173|3|_||3 says:


maybe the DMCA should be simply modified by adding a provison which states that any fiar use is legal, no matter how the content was obtained. Thus, just as it makes no difference if I copy from a book thet I borrowed from a friend or bought myself, provided the copying itself is legal, it should make no diffreence if I reproduce a part of a film which I obtained by cracking the protection on it, provided I did solely for fair use purposes. then They would have to prove that I was not cracking solely for fair use.

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