CNET's Declan McCullaugh points out a chilling news story about the convergence of TV and information services...from 1980:
Net neutrality, as I first wrote in 2006, is a complicated issue at the accident-prone intersection of technology and policy. But some of its most determined—one might say desperate—proponents are increasingly anxious to simplify the problem into political slogans with no melody and sound bites with no nutritional value. Even as—perhaps precisely because—a “win-win-win” compromise seems imminent, the rhetorical excess is being amplified. The feedback is deafening.
In one of the most bizarre efforts yet to make everything be about net neutrality, Public Knowledge issued several statements this week “condemning” Fox’s decision to prohibit access to its online programming from Cablevision internet users. In doing so, the organization claims, Fox has committed “the grossest violations of the open Internet committed by a U.S. company.”
This despite the fact that the open Internet rules (pick whatever version you like) apply only to Internet access providers. Indeed, the rules are understood principally as a protection for content providers. You know, like Fox.
OK, let’s see how we got here.
The Fox-Cablevision Dispute
In response to a fee dispute between the two companies, Fox on Saturday pulled its programming from the Cablevision system, and blocked Cablevision internet users from accessing Fox programming on-line. Separately, Hulu.com (minority owned by Fox) enforced a similar restriction, hoping to stay “neutral” in the dispute. Despite the fact that “The Simpsons” and “Family Guy” weren’t even on this weekend (pre-empted by some sports-related programming, I guess), the viewing public was incensed, journalists wrote, and Congress expressed alarm. The blackout, at least on cable, persists.
A wide range of commentators, including Free State Foundation’s Randolph May, view the spat as further evidence of the obsolescence of the existing cable television regulatory regime. Among other oddities left over from the days when cable was the “community antenna” for areas that couldn’t get over-the-air signals, cable providers are required to carry local programming without offering any competing content. But local providers are not obliged to make their content available to the cable operator, or even to negotiate.
As cable technology has flourished in both content and services, the relationship between providers and content producers has mutated into something strange and often unpleasant. Just today, Sen. John Kerry sent draft legislation to the FCC aimed at plugging some of the holes in the dyke. That, however, is a subject for another day.
Because somehow, Public Knowledge sees the Fox-Cablevision dispute as a failure of net neutrality. In one post, the organization “condemns” Fox for blocking Internet access to its content. “Blocking Web sites,” according to the press release, “is totally out of bounds in a dispute like this.” Another release called out Fox, which was said to have “committed what should be considered one of the grossest violations of the open Internet committed by a U.S. company.”
The Open Internet means everything and nothing
What “open Internet” are they talking about? The one I’m familiar with, and the one that I thought was at the center of years of debate over federal policy, is one in which anyone who wants to can put up a website, register their domain name, and then can be located and viewed by anyone with an Internet connection.
In the long-running net neutrality debate, the principal straw man involves the potential (it’s never happened so far) for Internet access providers, especially large ones serving customers nationally, to make side deals with the operators of some websites (Google, Amazon, Microsoft, Yahoo, eBay, perhaps) to manipulate Internet traffic at the last mile on their behalf.
Perhaps for a fee, in some alternate future, Microsoft would pay extra to have search results from Bing given priority, making it look “faster” than Google. That would encourage Google to strike a similar deal and, before you know it, only the largest content providers would appear to be worth visiting.
That would effectively end the model of the web that has worked so well, where anyone with a computer can be a publisher, and the best material has the potential to rise to the top. Where even entrepreneurs without a garage can launch a product or service on a shoestring and, if enough users like it, catapult themselves into being the next Google, eBay, Facebook or Twitter.
What does any of this have to do with Fox’s activities over the weekend?
As Public Knowledge sees it, any interference with web content is a violation of the open Internet, even if that interference is being done by the content provider itself! Fox has programming content on both its own site and on the Hulu website, content it places there, like every other site operator, on a voluntary basis.
But, having once made that content available for viewing, according to Public Knowledge, it should be a matter of federal law that they keep it there, and not limit access to it in any way for any consumer anywhere at any time. It's only consumers who have rights here: “Consumers should not have their access to Web content threatened because a giant media company has a dispute over cable programming carriage.” (emphasis added)
On this view, it’s not content owners who have rights (under copyright and otherwise) to determine how and when their content is accessed. Rather, it is the consumer who has an unfettered right to access any content that happens to reside on any server with an Internet connection. Here’s the directory to everything on my computer, dear readers. Have at it.
The “Government’s Policy” Explained
Indeed, according to PK, this remarkable view of the law has long-since been embraced by the FCC. “We need to remember that the government’s policy is that consumers should have access to lawful content online, and that policy should not be disrupted by a programming dispute.”
Here’s how Public Knowledge retcon's that version of “the government’s policy.”
Until this spring, the 2005 Federal Communications Commission (FCC) policy statement held that Internet users had the right to access lawful content of their choice. There was no exception in that policy for customers who happened to have their Internet provider caught up in a nasty retransmission battle with a broadcaster.
Said policy statement that was struck down [sic] on April 6 by the U.S. Appeals Court, D.C. Circuit, when Comcast challenged the enforcement of the policy against the company for blocking users of the BitTorrent [sic].
The policy statement was based on the assumption that if there were a bad actor in preventing the consumer from seeing online content, it would be an Internet Service Provider (ISP) blocking or otherwise inhibiting access to content. In this case, of course, it’s the content provider that was doing the blocking. It’s a moot point now, but it shouldn’t matter who is keeping consumers away from the lawful content. (emphasis added)
Where to begin? For starters, the policy statement was not “struck down” in the Comcast case. The court held (courts do that, by the way, not statements of policy) that the FCC failed to identify any provision of the Communications Act that gave them the power to enforce the policy statement against Comcast.
That is all the court held. The court said nothing about the statement itself, and even left open the possibility that there were provisions that might work but which were not cited by the agency. (The FCC chose not to ask for a rehearing of the decision, or to appeal it to the U.S. Supreme Court.)
Moreover, there is embedded here an almost willful misuse of the phrase “lawful content.” Lawful content means any web content other than files that users want to share with each other without license from copyright holders, including commercial software, movies, music, and documents. None of that activity (much of what BitTorrent is still used for, by the way--the source of the Comcast case in the first place) is “lawful.” The FCC does not want to discourage—and may indeed want to require—ISPs from interfering, blocking, and otherwise policing the access of that unlawful content.
Here, however, PK reads “lawful content” to mean content that the user has a lawful right to access, which, apparently, is all content—any file on any device connected to the Internet.
But “lawful content” does not somehow confer proprietary rights to consumers to access whatever content they like, whenever and however they like. The owner of the content, the entity that made it available, can always decide, for any or no reason, to remove it or restrict it. Lawful content isn’t a right for consumers—it just means something other than unlawful content.
Still, the more remarkable bit of linguistic judo is the last paragraph, in which the 2005 Open Internet policy statement becomes not a policy limiting the behavior of access providers but of absolutely everyone connected to the Internet.
The opposite is utterly clear from reading the policy statement, which addressed itself specifically to “providers of telecommunications for Internet access or Internet Protocol-enabled (IP-enabled) services.”
But that language, according to Public Knowledge, is just an “assumption.” The FCC actually meant not just ISPs but anyone who can possibly interference with what content a user can access, which is to say anyone with a website. When it comes to consumer access to content, it “shouldn’t matter” that the content provider herself decides to limit access. The content, after all, is “lawful,” and therefore, no one can “[keep] consumers away” from it.
The nonsensical nature of this mangling of completely clear language to the contrary becomes even clearer if you try for a moment to take it to the next logical step. On PK’s view, all content that was ever part of the Internet is “lawful content,” and, under the 2005 policy statement, no one is allowed to keep consumers away from it, including, as here, the actual owners of the content.
So does that mean that having put up this website (I presume the content is “lawful”), I can’t at some future date take it down, or remove some of the posts?
Well maybe the objection is just to selective limitation. Having agreed to the social contract that comes with creating a website, I’ve agreed to an open principal (enforceable by federal law) that requires my making it freely and permanently available to anyone, anywhere, who wants to view it. I can’t block users with certain IP addresses, whether that blocking is based on knowledge that those addresses are spammers, or residents of a country with whom I am not legally permitted to do business, or, as here, are customers of a company with whom I am engaged in a dispute over content in another channel.
But of course selective limitation of content access is a feature of every website. You know, like the kind that comes with requiring a user to register and sign in (eBay), or accept cookies that allow the site to customize the user’s experience (Yahoo!), or pay a subscription fee to access some or all of the information (The Wall Street Journal, The New York Times), or that requires a consumer see not just the “lawful content” they want but also, side-by-side, advertising or other information that helps pay for the creation and upkeep of the site (Google, everyone else).
Or that allows a user to view a file but not to copy and resell copies of it (streaming media). Or that limits access or use of a web service by geography (banking, gambling and other protected industries). Or that require users to grant certain rights to the site provider to use information provided by the user (Facebook, Twitter) in exchange for use of the services.
Paradise Lost by the D.C. Circuit’s Comcast Decision
Or maybe just when Fox does it?
Under PK’s view of net neutrality, the Web is a consumer paradise, where content magically appears for purely altruistic reasons and stays forever to frolic and interact. Fox can’t limit, even arbitrarily and capriciously, who can and cannot watch its programming on the Web. It must make it freely available to everyone and anyone, or face condemnation by self-appointed consumer advocates who will, as prosecutor, judge and jury, convict them of having committed “the grossest violations” possible of the FCC’s open Internet policy.
That is, if only the law that PK believes represents longstanding “government policy” was still on the books. For the real tragedy of the Fox-Cablevision dispute is that the FCC is now powerless to enforce that policy, and indeed, is powerless to stop even the “grossest violations.”
If only the D.C. Circuit hadn’t ruled against the FCC in the Comcast case, then the agency would, on this view, be able to stop Fox and Hulu from restricting access to Fox programming from Cablevision internet customers. Or anyone else. Ever.
That of course was never the law, and never will be. More-or-less coincidentally, the FCC has limited jurisdiction over Fox as a broadcaster, but not to require it to make its programming available on the web, on-demand to everyone who wants to see it.
Fox aside, there is nothing in The Communications Act that could possibly be thought to extend the agency’s power to policing the behavior of all web content providers, which these days includes pretty much every single Internet user.
Nor did the Open Internet policy statement have anything to say about content providers, period. If it had, it would have represented an ultra vires extension of the FCC’s powers that would have shamed even the most pro-regulatory cheerleader. It would never have stood up to any legal challenge (First Amendment? Fifth Amendment? For starters…)
Not only does it matter but it certainly “should matter who is keeping consumers away from lawful content.” When the “who” is the owner of the content itself, they have the right and almost certainly the need to restrict access to some or all consumers, now or in the future, without having to ask permission from the FCC.
And thank goodness. An FCC with the power to order content providers to make content available to anyone and everyone, all the time and with no restrictions, would surely lead to a web with very little content in the first place.
Who would put any content online otherwise? Government agencies? Not-for-profits? Non-U.S. users not subject to the FCC? (But since their content would be available to U.S. consumers, who on the PK view have all the rights here, perhaps the FCC’s authority, pre-Comcast, extended to non-U.S. content providers, too.)
Not much of a web there.
No one Believes This—Including Public Knowledge
The wistful nostalgia for life before the Comcast decision is beyond misguided. No proposal before or since would have changed the fundamental principal that open Internet rules apply to Internet access providers only.
Under the detailed net neutrality rules proposed by the FCC in 2009, for example, the Policy Statement would be extended and formalized, but would still apply only to “providers of broadband Internet access service.” Likewise the Google-Verizon proposed legislative framework. Likewise even the ill-advised proposal to reclassify broadband Internet access under Title II to give the FCC more authority—it’s still more authority only over access providers, not just anyone with an iPhone.
(Though perhaps PK is hanging its hopes on some worrisome language in the Title II Notice of Inquiry that might extend that authority, see “The Seven Deadly Sins of Title II Reclassification.”)
Public Knowledge has never actually proposed its own version of net neutrality legislation. So I guess it’s possible that they’ve imagined all along that the rules would apply to content providers as well as ISPs.
Well, but the organization does have a “position” statement on net neutrality. And guess what? It doesn’t line up with their new-found understanding of the 2005 FCC Policy statement either. Public Knowledge’s own position on net neutrality addresses itself solely to limits and restrictions on “network operators.” (E.g., “Public Knowledge supports a neutral Internet where network operators may offer different levels of access at higher rates as long as that tier is offered on a nondiscriminatory basis to every other provider.”)
So apparently even Public Knowledge is among the sensible group in the net neutrality debate who reject the naïve and foolish idea that “it shouldn’t matter who is keeping consumers away from the lawful content.”
Did the rhetoric just get away from them over there, or are those who support Public Knowledge’s push for net neutrality really supporting something very different--different even than what the organization says it means by that phrase? Something that would extend federal regulatory authority to every publisher of content on the web, including you?
I’m not sure which answer is more disturbing.
"On the whole, the results certainly seem to suggest that patent trolls with software patents do very much view the system as a lottery ticket, and they're willing to use really weak patents to try to win that prize. That is not at all what the patent system is designed to do, but it's how the incentives have been structured -- and that seems like a pretty big problem that isn't solved just by showing how many of these lawsuits fail. The amount of time and resources wasted on those lawsuits, as well as the number of companies who pay up without completing a lawsuit, suggest that there is still a major problem to be dealt with."
So writes the always-thoughtful Mike Masnick at Techdirt. He is referring here to a newly-published article by John R. Allison, Joshua Walker and Mark Lemley, released as a Stanford Law and Economics Olin Working Paper. Mike has written frequently about patent trolls—companies that buy up patents from inventors and then make money by litigating or threatening to litigate against potential infringers—and never with much sympathy.
The Stanford Study
I have a less extreme view of patent trolls, about which more in a moment. First, a few words about the study.
The Allison/Walker/Lemley paper, working with a couple of different databases of patents and litigation involving them, did a number of interesting regressions that revealed some counter-intuitive findings about the current state of patent lawsuits.
The study found that patents litigated most frequently—that is, whose holders bring lawsuits against multiple alleged infringers—are often the least likely to stand up in court. “Once-litigated patents win in court almost 50% of the time,” the authors found, “while the most-litigated – and putatively most valuable – patents win in court only 10.7% of the time.”
Which is to say that when a patent lawsuit actually goes to trial (few do), the most frequently-asserted patents were nearly always found to be invalid in the first place. Such patents should never have been granted by the Patent Office, either because they are obvious, non-novel, or otherwise fail to meet the criteria for a patent. (Invalidity of the patent is a complete defense to a claim of infringement.)
The worst offenders in the study are software patents (see “Bilski: Justice Stevens’ Last Tilt at the IP Windmills”), which accounted for almost 94% of the most often asserted patents in the study and yet were upheld as valid less than 10% of the time they actually went to trial.
Yet in most cases these patents are asserted against multiple defendants, most of whom pay settlements to avoid the time, expense, and uncertainty of a trial. That decision, the study suggests, is a mistake. Defendants who take these cases all the way through trial usually win; that is, they pay nothing.
Well not exactly nothing. Even a successful litigant must pay the costs of defending her case, and that cost can run into the millions. (In some situations, the loser must pay the winner’s costs, but under the Patent Act, fee shifting only occurs in “exceptional” cases.)
As the authors note, “It appears that as a society, we are spending a disproportionate amount of time and money litigating a class of weak patents. Our results may also have implications for our models of patent value and of rational behavior in litigation, since it appears we know quite a bit less than we thought about what makes patents valuable.”
Toward a Modest Defense of Trolling
Masnick and others take this study as further evidence—if any was needed—that patent trolls are a drain on society offering absolutely nothing but headaches, interference with innovation, and enormous wastes of money, both from litigants and the taxpayers, who underwrite the court system. Patent trolls or “Non-Practicing Entities” (NPEs) as the authors call them, win only 9.2% of their lawsuits that go to trial. (Only about 10%, however, go to trial, and the terms of settlements are kept confidential by both sides.) Clearly their patents, especially the ones they assert the most frequently, are junk.
(Why would the most frequently-asserted patents be the most likely to fail a validity challenge at trial? The broader the patent, the easier to assert it against a wide range of potential infringers, and the more likely they will be, given the breadth, to settle. But at trial the value of a broad claim shifts—what looks scary to a defendant for the same reasons looks most dubious to the trier-of-fact. Claims that are too broad are rejected, precisely because they represent the grant of a monopoly over too much otherwise productive economic activity.)
As I wrote in “The Laws of Disruption,” I don’t have much sympathy for patent trolls, but I don’t go quite as far as their harshest critics. Put another way, I’m not sure I share Masnick’s conclusion that the findings of the study lead to the conclusion that “there is a still a major problem to be dealt with,” or in any case that it ought to be dealt with by reforming trolls out of the system altogether.
(For a spirited defense of trolls, see this multi-part posting. Unfortunately the author never gives his name!)
Why the hesitation? Even if every patent troll is a low-life individual or entity, and even if nearly all of the patents they assert are ones the patent office should never have granted in the first place, there’s still a positive benefit to society from the existence of patent trolls.
To understand why, consider how a troll becomes a troll.
Patents are granted to inventors, and the intent in giving them a 20-year monopoly on the use of their invention is to provide a market biased in their favor. They can either commercialize the invention themselves without fear of competition, or sell or license the invention to others to do the same.
Keeping competitors away, albeit for a limited time, gives the inventor the chance to recover their up-front investment in making the invention. In some cases, inventors toil at their own expense for years before coming up with anything new (if ever), and even then the potential market for their invention may be small or non-existent.
Granting a patent goes against the otherwise free market orientation of capitalist economies, but is thought to be a necessary evil. If inventors don’t believe they’ll have protected markets, they may not undertake the risk and cost of inventing. And if they don’t, important inventions may be delayed or lost. If that happens, everyone loses. That, in any case, is the theory behind patents.
But a patent troll, by definition, has done no inventing and has no intention of commercializing the inventions they buy. They simply sue or threaten to sue companies they believe are using the invention (intentionally or, more likely, unintentionally), extracting tribute in the form of forced licenses or other damages.
So what positive role do they play in the system?
Consider how a troll gets a patent in the first place. In the simplest case, an inventor finds they cannot afford to commercialize their invention, or doesn’t have the risk or managerial profile necessary to try. Perhaps they try to sell the invention to a company in the industry who can make use of it, or offer to license the invention to several such companies. The inventor may be rebuffed or ignored or offered a price too low to keep her in the business of inventing. Maybe the invention isn’t worth the investment already made, or maybe the company fails to evaluate its potential accurately or even at all.
Or maybe the company, knowing that the inventor lacks the resources not only to commercialize but also to protect her invention, takes the chance of ignoring the patent and continues to operate as before, even if that means infringing the patent.
Well, why not? The inventor’s claim may be no good, or may not cover the company’s behavior. But even if there is infringement, the road to proving it is long, expensive, and requires a skill set in litigation, negotiation and the substantive law of patents the inventor almost surely doesn’t have and, perhaps, can’t afford to engage.
So as a last resort, the inventor sells the patent to an NPE. The NPE may buy up many patents, perhaps for related inventions, in the hopes that the combined pool includes at least some that are both valid and cover some unlicensed behavior in industry—or at least that a threat that they do will be credible. They assert these patents against whatever defendants will most likely be induced to settle, balancing the potential settlements against the probability of incurring the costs of litigation, perhaps all the way to a trial.
As the Stanford paper suggests, in the vast majority of cases the authors studied the asserted patents were in fact junk, at least as determined at trial (judge and jury may have their own biases, of course). The inventors shouldn’t have gotten anything for them, either from the defendants or from the patent troll, because the patent never should have been granted in the first place. Again, the trolls may know better than the study suggests the real value of their holdings, and may be betting that the transaction costs of litigation will encourage defendants to settle anyway.
That bet is a game of chicken, for if the defendant chooses to litigate then both sides must absorb heavy litigation costs no matter who wins—the troll bets that the defendant will simply pay them to go away.
Patent trolls may make most of their money, in other words, from arbitraging the inefficiencies and failings of the current patent system.
But even if this is so, there is still value to the system and to society from the existence (if not the individual behaviors) of patent trolls. For without them, potential defendants have no incentive to deal with inventors who want to sell or license their inventions, even valid ones. Absent patent trolls, the companies would conclude the inventor can’t litigate regardless of the validity of the claim, a reality the inventor always would know.
Without the existence of patent trolls as a buyer of last resort, there’s no credible threat the inventor can make, and a rational defendant will simply carry on knowing the patent can’t be successfully enforced. Knowing this set of facts, inventors at the margins may not undertake their research in the first place.
So even if every non-practicing entity is a troll, and even if every troll-asserted patent is garbage, the role in the system played by the existence of trolls is an important one.
Whether it justifies its cost today is another matter, one tied hopelessly to the other weaknesses and dysfunctions of the overall patent system. Speaking generally, the authors conclude that “it is important to recognize that software patents and patents asserted by NPEs are both taking disproportionate resources in patent litigation, and that the social benefit from those cases appears to be slight.” But they stop well short of calling for reforms that would eliminate the incentives that keep NPEs in the game.
That caution, for now, seems sensible.