The law, the business and…the law

Every semester's first week of class I use examples of some old or new e-business to explain to my students (who are business students and don’t want to be lawyers) why law is so relevant to business and is becoming even more relevant, and the YouTube valuation saga shows again what I refer to. The valuation of the company, calculated at U$S1,000,000,000 by its CEO, has had both the business and bloglosphere communities talking about it and trying to decipher whether he is right or wrong. So, starting with the law, the problem that might put YouTube valuation close to zero dollar is represented for being the conduit of copyright infringement at massive scale. However, it could be argued that since YouTube itself does not post material and does not participate in the postings, it should not attract liability for contributory and/or vicarious copyright infringement (as did the original Napster according to RIAA v Napster), and because it seems to take a quite aggressive stand on removing infringing material once a complaint is received, it would also not satisfy the requirements for inducement to copyright infringement established in MGM v Grokster. Furthermore, it can clearly say that it has non infringement uses (Sony Betamax case) and in any case still could use the defence of mere conduit or venue (as eBay does to get away with making money over huge trademark infringement in its site). Still, it seems very plausible that if any content producer buys YouTube the others will go to the throat accusing it of any possible form of copyright infringement, which would imply that the buyer would be buying a gigantic lawsuit (even though it might be winnable).
Now lets imagine that the copyright bits are sorted out (what probably could happen if Disney buys YouTube, because the US Congress will rapidly change the law to avoid a problem to such an important contributor to human culture as Disney ;-), and the business model problems will arise. Nobody has figured out how to transform the millions of YouTube users into customers that leave (directly or indirectly) some money in the company’s coffers and there is also a problem of costs. Regardless how cheap storing and bandwidth are becoming, hundreds of millions of users storing hundreds of millions of videos plus the technological measures that would allow the owners of the company to make some money, will represent a quite interesting amount of money that will make the company a cash thirsty one, what would make the price of the advertisement or the usage quite hefty. But again, let’s assume that one of the gurus-to-be designs an unheard of and really novel business method that allow to overcome those problems, then the law would kick in again.

As I was writing some days ago (and you need to read the comments left by a hearing impaired person), in addition of the inherent unfairness represented by the creation of sites and tools that at the same time enhance substantially the experience of some users and forbid others from using them at all, this trend of video-rich content without the proper accessible counterpart might be breaking the law, and, if somebody if going to make a billion dollars in the process, probably the authorities would ask for compliance, which will have a big impact on the costs and user friendliness, and will bring us back to the viability of the business model…

Nobel Prize exposes fallacy of profits motivating innovation

The award of the Nobel Prize of Chemistry to Professor Roger D. Kornberg of Stanford University School of Medicine represents not only a very good news for the Kornberg family (his father won the Nobel Prize too!), but it also has certain consequences for the IP discussion. One of the arguments of the knowledge industry (or those who seem to speak for them) is that strong IP rights are necessary to encourage innovation and accordingly stronger IP rights will bring more innovation, but there have been some counterarguments in the past pointing out that most of the relevant basic innovation is carried out with public funding and that the public health arguments of those supporting stronger IP rights are bogus ones, and this Nobel prize seems to confirm it (again). As reported in the New York Times, “Dr. Jeremy M. Berg, director of the National Institute of General Medical Sciences at the National Institutes of Health, said that honoring Dr. Kornberg showed the importance of taxpayer-supported basic research not focusing on a specified goal. The institute has financed Dr. Kornberg’s work since 1979, even when it was unclear whether the research would be successful, Dr. Berg said" and the Washington Post adds that "[u]nderstanding how gene transcription works mechanically in three dimensions -- a 30-year quest -- has no direct medical application", and thus should not be patentable, but it continuates saying "the events Kornberg studies are so central to the function of cells that understanding them will undoubtedly have practical uses." What it is probably clear is that Professor Kornber’s work would have not been supported by private institutions in need of profit to justify their innovation programs and, therefore, we are in front of yet another instance where innovation has non-economic incentives, which invalidates the whole idea of strengthening the IP system to guarantee profiteering rates to companies so they invest more in innovation and benefit society.

The problems (impossibility?) of surfing on two waves

The promotional website of Mylo, under communication, makes reference to the possibility of exploring your friend’s device and “view music play lists and stream selected music files on your device”, and to add even more controversy to the allegiance of Sony to the principles of copyright law, it is two links away from a Sony website that teaches how to rip music from “records, cassettes, eight-tracks, and other formats” so you can listen it on a portable device. So, isn’t Sony part of the RIAA that says that ripping music for your portable devices is not fair use?
It is not the first time that the dual capacity of Sony, as a producer of technology that enables copyright infringement and as media owner and producer, has make it to contradict its won goals, or pursue a line with one arm that the other arm is trying to stop. The storm of the already infamous rootkit circled around privacy and spyware issues, to then turn into a copyright violation one, but, probably because the consequences could have been far more dearer for Sony, the violation to the anti circumvention measures that the sneaking of the rootkit implied were mostly overlooked. The rootkit modified the CD driver so to not allow making illegal copies of Sony CDs but, if your CD driver already had a technological protection measure the Sony rootkit would be circumventing it, making DMCA to kick in (legislation that was promoted, between others, by RIAA).
In 1984, when it was only a technology company, Sony set the standard of what companies could do without being liable for secondary infringement (do you remember the Sony Betamax case?), but after becoming a content owner and producer has been participating in almost all actions against owner and promoters of new technologies that allow copyright infringement (as for example party in MGM Studios et al. v. Grokster et al; yes Sony was part of the first et al.). Now, the problem is that after MGM v Grokster, where the US Supreme Court ruled that "one who distributes a device with the object of promoting its use to infringe copyright, as shown by clear expression or other affirmative steps taken to foster infringement, is liable for the resulting acts of infringement by third parties", both the advertisement of Mylo and other Sony's websites would not pass the test and should be found liable of inducement...
So, the Sony dilemma is about what is the main market in the future: technology innovation or content ownership? If the later is the answer, Sony may well keep defending the extreme version of copyright protection with its pals of RIAA and MPAA, but if the future lies on being in the edge of technology development Sony will have to break ranks with the content owners by showing that the current IP system does not encourage innovation and, at least in the US, runs afoul with the constitutional requirement of promoting “the Progress of Science and useful Arts”...