GBS: Two Online Symposia

Two online magazines have posted symposia on the Google Book Search settlement. There’s original writing from some of the top scholars working in the area. Unfortunately, both of these magazines feature gated access! Big frowny face.

First, the Economists’ Voice has:

It’s just like reliving the K is for Keynote panel from D is for Digitize, only in highly articulate written form. Courant approaches the problem as the economist he is, moving quickly through background and summary, then focusing on the monopoly issues around the orphan works. He ends with an endorsement of making the settlement nonexclusive, but not at the cost of scuttling the whole thing:

Thus a revised settlement (as suggested by the U.S. Department of Justice, p. 25) that provided competitors with the ability to use the orphan works on the same terms as Google, or legislation with similar consequence, would be an unambiguous improvement over the original settlement. The great benefit of a new market in electronic versions of the literature of most of the twentieth century could be realized with reduced risk of monopoly and without enriching unrelated parties with the fruits of orphans’ labor. In contrast, scuttling of the settlement or greatly limiting the volume of works to be covered would put us back to where we started—the only people with good access to the scholarly and cultural record of the twentieth century would be people with physical access to research libraries, and even for them, that literature would be more difficult to access than most works published before or since.

Samuelson’s reply is more far-ranging, touching on pricing, privacy, reader rights, class-action abuses, and orphan works. She’s less optimistic that the settlement can be patched in a way that addresses all of these concerns—particularly given that many of these “fixes” would stretch the class action procedure even further:

Even if the amended settlement accommodated core objections, I question whether the class action settlement process can be used to achieve such a massive restructuring of the market for digital books as the GBS deal would bring about. Typically such settlements resolve only the specific dispute between the parties after the judge has assessed the merits of the lawsuit and determined that the class representatives and their lawyers adequately rep- resented the interests of the class as a whole. The broader the settlement’s scope, the greater the size of the class, the more forward-looking are its terms, and the more the agreement releases the defendant from liability for future conduct, especially conduct different in kind from the issue in litigation, the less likely it is that a judge will or should approve it. The GBS deal is troublesome on all of these grounds, so the parties should be seeking a legislative, not a judicial, blessing for it.

Meanwhile, GCP: The Online Magazine for Global Competition Policy, has a five-article symposium issue:

So far, I’ve only been able to get my hands on the Elhauge (via our librarians’ bag of tricks) and the Picker (via SSRN). The Elhauge is a nice 8-page version of his (pro-settlement) analysis, in case you found the 60-page version or the 32-page version too much to take in. He repeats his point that the output of orphan works will expand:

Thus, the settlement would clearly increase the output of orphan books from zero to something, and lower the price from infinity to something lower, even under the worst case assumptions that no rivals will ever enter, no rightsholders of orphan books will be found, and the algorithm price will be supracompetitive. The effects on orphan books are thus entirely beneficial to consumer welfare even under worst case assumptions. In fact, the benefits to consumer welfare are even greater because there is some chance rivals could enter this market, it is implausible no rightsholders would be found, and the algorithm price is (we shall see) designed to mimic competitive prices. Further, with the settlement, rightsholders in orphan books will get some royalties, and thus will also be better off than without the settlement.

Of course, the United States’s brief largely rejected this view, so Elhauge closes with a reply to it:

To support the assertion that the settlement forecloses Google rivals, the DOJ brief cites almost exclusively to a series of barriers to rival entry that were not created by the settlement and would apply equally without any settlement. The only exception is that the DOJ mentions the settlement’s most favored nation clause, but its brief never explains how having the same costs as Google for unclaimed books could discourage a rival from entering a market that (by hypothesis) would have supracompetitive prices. Nor does the brief explain how equal costs for unclaimed books could matter if the brief were right that rivals could not offer unclaimed books at all given other entry barriers that the settlement didn’t create.

He finishes with the hope that the Department of Justice’s “tentative” views will be rethought as the revised settlement is presented. He cites the fact that the brief was signed by Deputy Assistant Attorney General William Cavanaugh, rather than his boss, Assistant Attorney General Christine Varney. I somehow doubt that a filing of this significance got out the door without her acquiescence—and besides, it’s featured prominently on the Antitrust Division’s home page, which presumably she checks now and then.

The Picker piece, on the other hand, is entirely new work, and it’s very good. His central argument is that the output-expanding aspects of the settlement can’t be allowed to provide a blanket immunity from antitrust review of the anti-competitive aspects. Once again, he’s managed to articulate something I was thinking but had never been able to phrase clearly:

Start with a hypothetical to frame the analysis. It is 1974 and we are approaching the dawn of the VCR. At a point before any VCRs have been sold, the potential manufacturers come together and put in place a price fixing regime for the new VCRs. Cartelization at birth. When faced with an antitrust challenge to the price fixing, the manufacturers defend their action on the ground that output has risen relative to the pre VCR baseline. Given the output expansion, their behavior is clearly pro competitive and therefore insulated from antitrust liability and remedies. How should we assess that claim?

We should have in mind social welfare in four states of the world: (1) the pre VCR world; (2) a world with VCRs and price fixing; (3) a fully competitive VCR world; and (4) finally, a world with an antitrust remedy that blocks VCR price fixing. Welfare clearly increases as we move from world 1 (no VCRs) to world 2 (price fixed VCRs) to world 3 (competitively priced VCRs). The question for an antitrust enforcer is whether blocking price fixing pushes us to competitively priced VCRs or relegates us to a world without VCRs. If price fixing was actually marginal for the sustainability of VCRs, we would clearly be better off to permit the price fixing.

Note how misleading it is to just focus on output. On the first day of a new antitrust class, you tell your students the central message of antitrust: Monopolies reduce output and thereby harm consumers. When you look at an antitrust problem, look for the output reduction. Now flip the proposition: If we see an increase in output, should we think that there are no antitrust concerns? That proposition almost certainly turns out to be wrong and not a meaningful guide to how we do or should implement antitrust policy. Prior to the creation of the cartel, VCRs were not offered at all. In some fundamental sense, the cartel will clearly expand output of VCRs as there were none before. Is that output expansion a good defense to the price fixing case? I think the black letter response to that is no, as price fixing is per se illegal.

Why might that make sense? Because of what we think will happen when we block the price fixing. We don’t compare the before and after worlds; that is, the world before the VCR cartel with the world with the cartel. Instead we focus on what we believe will happen if the cartel is blocked. Antitrust assumes that the price fixing isn’t essential to the creation of the new good. Blocking the proposed deal doesn’t mean that VCRs will go away but rather, instead, we will direct the innovative instinct in a different direction, namely, competitively priced VCRs. That is the world that we think will emerge when we use antitrust to intervene to block the VCR cartel. The relevant comparison isn’t the before and after worlds as to the cartel but rather the worlds with and without the antitrust remedy.

I also particularly liked this passage:

Try a second hypothetical. Suppose two firms got together to form a pro competitive joint venture in market X but at the same time planned to fix prices in an unrelated market, market Y. The firms don’t try to hide this collusion, indeed quite the opposite. They argue that their new arrangements are net pro competitive, that is that the benefits to consumer in market X far exceed any losses that consumers will suffer in market Y. Should the government ignore the price fixing in market Y?

No. We do not let firms assemble bundles of projects and justify anticompetitive projects based on the notion that, on balance, the sum of the benefits of the new projects remain pro competitive. The opposite rule would mean that firms would routinely seek to bundle anticompetitive projects with pro competitive projects.

Government regulators should and do separate projects when firms present a bundle to the government. If the joint venture in market X actually makes sense, we should expect the firms to move forward independent of whether their anticompetitive effort in market Y is blocked. We will not let pro competitive benefits in one market operate as a protective shield for anticompetitive behavior in other markets or in that market. We maximize competitive benefits by not allowing private firms to spend their pro competitive benefits on anticompetitive behavior.

I’ll comment on the other papers as I get my hands on them.

Ian Forrester, a lawyer at White and Case, is a master of understatement. The summary of his article notes his view that You Tube for the book industry is “a bit startling” and that “opinions are sharply divided” on the GBS. He acknowledges that “peer to peer sharing takes alot of money away from the” rights holders. His analysis notes that copyright enforcement should be tempered by “the demands of teenagers.” This nightmare, given expression in the GBS, certainly seems echoed in Ken Auletta’s current book in which , alas, Google appears as a company of teenagers, by teenagers and for teenagers. This morning Fox Business was hosted at the Google Campus, where the head of Google Map waxed eloquent on the benefits of that feature, and its planned wiki applications. In addition to helping with travel plans, the Fox anchor noted that it will help locate celebrity residences Fox’s shocked on site reporter then quickly hushed him up,showing how Google and its big media partners continue to display total disdain for legitimate and serious user and public privacy concerns.