Week 1: Microsoft: The

Desktop v. The Internet

1
2
Army/Air Force Technical
Manual, Feb 1952
 Bardeen & Brattain Point-
Contact Transistor Patent

3
U.S. Patent No.
2,524,035 (Oct 3, 1950)
 Patent Licensing

“The defendants are each ordered and

directed to grant or cause to be granted …
non-exclusive licenses under all claims or
any, some or all existing and future Bell
System patents … .”

4
AT&T Final Judgment
(Jan 24, 1956)
 Kilby Integrated
Circuit Patent

5
U.S. Patent No. 3,138,743
(June 23, 1964)
 Noyce Integrated
Circuit Patent

6
U.S. Patent No. 2,981,877
(Apr 25, 1961)
7
Intel 4004: Nov 15, 1971
8
Popular Electronics, Jan 1975
9
Paul Allen Tweet, Apr 4, 2015
 Homebrew Computer Club
10
Newsletter, Jan 31 1976
11
IBM Personal Computer,
Aug 12, 1981
12
US v Microsoft Licensing
Case, July 15, 1994
 Anticompetitive Contracts

“The United States of America, acting under the

direction of the Attorney General of the United
States, brings a civil action to prevent and
restrain the defendant Microsoft Corporation
(‘Microsoft’) from using exclusionary and
anticompetitive contracts to market its
personal computer operating system software.”

13
US v Microsoft Licensing
Case, July 15, 1994
14
Tim Berners-Lee Proposal,
March 1989, May, 1990
 “Our vision for the last 20 years can be
summarized in a succinct way. We saw that
exponential improvements in computer
capabilities would make great software quite
valuable. Our response was to build an
organization to deliver great software products.”

15
Bill Gates, Internet Tidal
Wave Memo, May 26, 1995
 The Windows Monopoly

“Microsoft possesses (and for several years has

possessed) monopoly power in the market for
personal computer operating systems.”

16
US v. Microsoft,
May 18, 1998
 Summary of Outcome
in Court of Appeals

“ … [W]e affirm in part and reverse in part

the District Court’s judgment that Microsoft
violated § 2 of the Sherman Act by employing
anticompetitive means to maintain a
monopoly in the operating system market.”

17
US v. Microsoft,
CADC, June 28, 2001
 Original Divestiture Remedy

“Not later than four months after entry of this

Final Judgment, Microsoft shall submit to the
Court and the Plaintiffs a proposed plan of
divestiture.”

18
US v. Microsoft, DDC,
June 7, 2000
 Actual Final Judgment

19
US v. Microsoft, DDC,
Nov 12, 2002
 EU Statement of Objections WMP

“Finally, the Commission also believes that

Microsoft may have acted illegally by
incorporating its new Media Player product into
its Windows PC operating system. … Microsoft
ties its Media Player to its ubiquitous Windows
operating system, a channel of distribution which is
not available to competing vendors of media players.”

20
European Commission, Aug 30, 2001
 European Commission on WMP

“The European Commission has concluded, after a

five-year investigation, that Microsoft Corporation
broke European Union competition law by
leveraging its near monopoly in the market for
PC operating systems (OS) onto the markets for
work group server operating systems and for
media players. …”
21
European Commission, Mar 24, 2004
 European Commission on WMP

“Microsoft is also required, within 90 days, to offer

a version of its Windows OS without Windows
Media Player to PC manufacturers (or when
selling directly to end users). In addition, Microsoft
is fined €497 million for abusing its market power in
the EU.”

22
European Commission, Mar 24, 2004
 “In the SO, the Commission sets out evidence and
outlines its preliminary conclusion that
Microsoft’s tying of Internet Explorer to the
Windows operating system harms competition
between web browsers, undermines product
innovation and ultimately reduces consumer choice.”

23
European Commission,
Jan 17, 2009
 24
[Link]
 Week 2: Google Emerges
(and the World Responds)

25
 AOL/Time Warner Merger

“America Online, Inc. [NYSE:AOL] and Time

Warner Inc. [NYSE:TWX] today announced a
strategic merger of equals to create the
world’s first fully integrated media and
communications company for the Internet
Century in an all-stock combination valued at
$350 billion.”
26
Time Warner Press
Release, Jan 10, 2000
 Unfair Methods of Competition

“That unfair methods of competition in

commerce are hereby declared unlawful. The
commission is hereby empowered to prevent
persons, partnerships, or corporations, except
banks, and common carriers subject to the Acts
to regulate commerce, from using unfair
methods of competition in commerce.”

27
Federal Trade Commission Act,
Sept 26 1914
 Paying for Search Results

“Your complaint alleges that when search engines

include Web sites in search results lists, on the
basis of ‘paid placement’ and ‘paid inclusion,’
such search results are advertisements.”

28
FTC Search Engine
Letter, June 27, 2002
 A Prototype Search Engine

“In this paper, we present Google, a prototype

of a large-scale search engine which makes
heavy use of the structure present in hypertext.”

29
Brin & Page (1998)
 Bias is Difficult to Evaluate

“Since it is very difficult even for experts

to evaluate search engines, search engine
bias is particularly insidious. A good
example was OpenText, which was reported
to be selling companies the right to be listed
at the top of the search results for particular
queries … .”

30
Brin & Page (1998)
 Data Model: Crawl, index, rank

Goal: Build a great product

Hoped for Result: Market power

(and no apologies for that)
31
Original Google Homepage, Nov 11, 1998
SCS

Ten Blue Links

32
33
Google Homepage, Oct 27, 2000
 PageRank Patent

34
U.S. Patent No. 7,058,628 (June 6, 2006)
 The Formula

35
U.S. Patent No. 7,058,628 (June 6, 2006)
36
Alice Corp. v. CLS Bank Int’l (U.S., June 19, 2014)
 Platforms as Two-Sided
Markets

P$
The Platform
Room

P$
37
 Marginal
Price v. Cost
In a two-sided market, it can be the best
outcome for one side of the market to
face prices less than marginal cost.
38
 Two-Sided Markets Hypo

Outcomes and Take Aways

1. When either side of the platform cares about

the presence of the other side, our usual
competitive pricing rules may go out the
window.
2. In this example, it is socially useful to price
below marginal cost to get the low-value
blue types to participate 39
 Market Power in Auctions
 Reducing slots—output—boosts profits to
search engine.
 Key Point
Exercise market power in auction markets by
controlling the number of things sold
Here that is the number of advertising slots

40
 3. No Competition:
Hardwired in favor of Google
1. Organic Search
Competition (no $)

4. Onebox result:
hardwired Google 2. Auctions (all $)
reviews; organic
competition? Google Hyde Park Restaurants
41
Search, June 25, 2012
 Closing of Search Bias
Investigation

“We issue this Statement to explain the Commission’s

unanimous decision to close the portion of its
investigation relating to allegations that Google
unfairly preferences its own content on the Google
search results page and selectively demotes its
competitors’ content from those results. Some parties
refer to this alleged practice as ‘search bias.’”

42
U.S. FTC, Jan 3, 2013
 Vertical Search

“The Commission will investigate whether Google

has abused a dominant market position in online
search by allegedly lowering the ranking of unpaid
search results of competing services which are
specialised in providing users with specific online
content such as price comparisons (so-called
vertical search services)”

43
EU Announcement, 30 May 2010
44
Google’s Proposed Commitment to EU, Apr 3, 2013
45
Google’s Proposed Commitment to EU, Oct 21, 2013
 Comparison Shopping

“The European Commission has sent a Statement of

Objections to Google alleging the company has abused
its dominant position in the markets for general
internet search services in the European Economic
Area (EEA) by systematically favouring its own
comparison shopping product in its general search
results pages.”
European Commission
46
Press Release, 15 Apr 2015
 A Different Data Model

“Organizing these types of data can be very different

from indexing the Web, because the information is often
not publicly available. It requires deep partnerships
with different industries—from financial services and
travel to merchants who sell physical goods.”

Google Commerce Blog,

47
May 31, 2012
 “The Commission is concerned that users do not
necessarily see the most relevant results in response
to queries – to the detriment of consumers and rival
comparison shopping services, as well as stifling
innovation.”

European Commission
48
Fact Sheet, 15 Apr 2015
Week 3: Smartphones

49
 Licensing by Federal
Government

“That a person, company, or corporation

within the jurisdiction of the United States
shall not use or operate any apparatus for
radio communication as a means of
commercial intercourse among the several
States … the effect of which extends beyond
the jurisdiction of the State or Territory in
which the same are made,”
50
The Radio Act of 1912
 Creation of FCC

“… there is hereby created a commission to

be known as the ‘Federal Communications
Commission’ … ”

51
Communications Act of 1934
52
U.S. Nat’l Telecom & Info Admin, Aug, 2011
 Allocate More Spectrum
for Broadband

“Recommendation 5.8: The FCC should

make 500 megahertz newly available for
broadband use within the next 10 years, of
which 300 megahertz between 225 MHz and
3.7 GHz should be made newly available for
mobile use within five years.”

53
FCC, National Broadband Plan, Mar 16, 2010
54
FCC Incentive Auction Staff Summary, Jan 16, 2013
55
FCC Incentive Auctions Website
 iPhone Launch

“Apple® today introduced iPhone, combining three

products—a revolutionary mobile phone, a widescreen
iPod® with touch controls, and a breakthrough Internet
communications device with desktop-class email, web
browsing, searching and maps—into one small and
lightweight handheld device.”

56
Apple, Jan 9, 2007
 Android Launch

“In one of those strange cosmic symmetries, here we

are a year later, and we’re once again very excited
about an upcoming release. I’m referring, of course,
to the first Android-powered device that our
colleagues at T-Mobile have just announced—the
T-Mobile G1.”

57
Android Developers Blog, Sept 23, 2008
 Smartphone OS Market
Shares, 2013 & 2014

58
Gartner, Mar 3, 2015
Pathologies in standard setting?
 Collective Adoption Defects
At least in theory, adoption of products with
network externalities can be frustrated through
collective action problems.
Excess inertia: an old standard should be
displaced, but isn’t.
Excess momentum: an old standard should be
maintained, but is not.
59
 Winner Take All Markets: Simple
Version
 What outcome will we get?
 Answer
Individuals enter sector 2 until expected return is
$10.
100 individuals in sector 2, 400 in sector 1
GNP is 400 * 10 + 1000*1 + 99*0 = 5000

60
 And Now the Problem
 Profits & Consumer Surplus  if 1 Holder
P 1 Holder P 2 Holders
1 1
Demand CS Demand
CS 0.67
Curve Π Curve
PM =0.5
Profits Π
QM=0.5 1 Q 0.33 1 Q
61
 Pricing Conclusions
 Key Ideas
Patent pools help solve “double marginalization”
problem
Benefit of cross-licensing is better “internalization”
of externality problem

62
 “This revision specifies technical corrections and
clarifications to IEEE Std 802.11 for wireless local
area networks (WLANS) as well as enhancements to
the existing medium access control (MAC) and
physical layer (PHY) functions.”

63
802.11 Standard
64
Wi-Fi Alliance
 “IEEE standards may be drafted in terms that include
the use of Essential Patent Claims. If the IEEE
receives notice that a [Proposed] IEEE Standard may
require the use of a potential Essential Patent Claim,
the IEEE shall request licensing assurance, on the
IEEE-SA Standards Board approved Letter of
Assurance form, from the patent holder or patent
applicant. The IEEE shall request this assurance
without coercion.”
IEEE-SA Standards Board
65
Bylaws: Patent Policy
 Is This a Market Power Problem?
No
1st Stage 2nd Stage
III IV
Possible Technologies SSO

Should expect first-stage competition to limit harms

of ex-post monopoly created through selection
66
 Is This a Market Power Problem?
Maybe/Yes
1st Stage 2nd Stage
III IV
Possible Technologies SSO

?
? ?
Uncertainty regarding potential patent claims is a
major concern. Lock-in without (F)RAND?
67
 “You have requested a statement of the Department’s
antitrust enforcement intentions with respect to a
proposed patent information policy that will allow
patent holders to publicly commit to specific
restrictions on their future licensing terms and
conditions for the use of patents that are essential to
IEEE standards.”

USDOJ Letter re IEEE/IEEE-

68
SA (Apr 30, 2007)
 Proposed Changes

“IEEE-SA has decided to change its policy to give

patent holders the option to publicly disclose and
commit to the most restrictive licensing terms (which
may include the maximum royalty rate) they would
offer for patent claims that are found to be essential to
the standard.”

USDOJ Letter re IEEE/IEEE-

69
SA (Apr 30, 2007)
70
U.S. FTC, Jan 3, 2013
 Nature of the Case

“Through this action, the Commission challenges a

course of conduct, whereby Google, and its predecessor
in interest, Motorola Mobility, Inc. (‘Motorola’),
engaged in unfair methods of competition by
breaching its commitments to standard-setting
organizations (‘SSOs’) to license its standard
essential patents (‘SEPs’) on fair, reasonable, and
nondiscriminatory (‘FRAND’) terms.”
FTC Complaint in Google/Motorola
71
Mobility (July 23, 2013)
 FRAND Uncertainty

“The last several years have shown wide divergence

between the owners of standards-essential patents
(SEPs) and the implementers of standards, particularly
over the meaning of ‘reasonable rates’ for potential
SEP licenses.”

72
IEEE Bus Rev Letter (Sept 30, 2014)
 Examples of FRAND Divergence

FN 21: “In re lnnovatio IP Ventures, LLC Patent Litig.,

No. 11-C-9308, 2013 WL 5593609, at *12 (N.D. Ill. Oct.
3, 2013) (patent holder’s proposed valuation would have
resulted in royalties on average of approximately $3.39
per access point, $4.72 per laptop, up to $16.17 per
tablet, and up to $36.90 per bar code scanner or other
inventory tracking device; implementer’s valuation
would have resulted in royalties of between .72 cents
and 3.09 cents per chip);”
73
IEEE Bus Rev Letter (Sept 30, 2014)
 Definition of Reasonable Rate

“The proposed policy therefore provides, for Essential

Patent Claims for which IEEE has an Accepted Letter of
Assurance, a definition of ‘Reasonable Rate’ as
‘appropriate compensation to the patent holder for the
practice of an Essential Patent Claim excluding the
value, if any, resulting from the inclusion of that
Essential Patent Claim’s technology in the IEEE
Standard.’”
74
IEEE Bus Rev Letter (Sept 30, 2014)
 Limits on Injunctions

“Consequently, the proposed policy provides that the

submitter (or its successor) of a Letter of Assurance is
not permitted to seek a Prohibitive Order unless … .”

75
IEEE Bus Rev Letter (Sept 30, 2014)
 App Store Launch

“Apple® today announced that more than 500 native

applications will be available on the iPhone’s App
Store when Apple’s iPhone™ 3G goes on sale
tomorrow. … .”

76
Apple, July 10, 2008
77
Apple Touch Interface Patents
78
Apple Design Patent
 Damages Award

Apple v Samsung Amended

79
Verdict Form, Aug 24, 2012
 Open Source, Led by
Google

“Android is an open-source software stack for a

wide range of mobile devices and a corresponding
open-source project led by Google. Here you can find
the information and source code you need to learn
more about the Android platform.”

80
[Link]
 Piecemeal Platform and Contracts

Google Play: “In order to distribute your apps on

Google Play and use the associated services, you must
agree to the Developer Distribution Agreement and
acquire a valid Developer Account.”

81
Android Legal Notice
 Google Contracts as Antitrust Violation

“The Commission’s in-depth investigation will focus

on whether Google has breached EU antitrust rules
by hindering the development and market access of
rival mobile operating systems, applications and
services to the detriment of consumers and developers
of innovative services and products.”
82
EU, 15 Apr 2015
 Week 4:
Nondiscrimination and
Neutrality

83
 Role of Mail System

“At this time, the necessity of adopting measures to

preserve our national mail system is forcibly
presented to our deliberations. Through no other
agency can the stated means of transmitting
intelligence be maintained co-extensively with
the population and settlement of the country.”

84
House Report, May 15, 1844
 Route Cross-Subsidization

“Where the mail system embraces unproductive as

well as productive routes, and is wholly sustained
out of the postage fund, it follows, that, in the
densely-peopled parts of the country, and on routes
of short distances between the large towns, the
postage charge (if a uniform one for a given
distance) must exceed the cost of transportation; as,
upon, the long routes, and in the sparse settlements,
it must fall short of it.”
85
House Report, May 15, 1844
 Sec. 9: Gov’t Monopoly

“That it shall not be lawful for any person or

persons to establish any private express or
expresses for the conveyance … between and
from and to which cities, towns, or other places
the United States mail is regularly transported,
under the authority of the Post Office”

86
The Postal Act of 1845
 Sec. 1: Pricing
By Distance

“For every single letter, in manuscript, or paper

of any kind by or upon which information shall
be asked for or communicated in writing, or by
marks and signs, conveyed in the mail, for any
distance under 300 miles, five cents; and for
any distance over 300 miles, ten cents.”

87
The Postal Act of 1845
 Sec. 2: Newspapers

“That all newspapers of no greater size or

superficies than nineteen hundred square inches
may be transmitted through the mail by the
editors or publishers thereof, to all subscribers or
other persons within thirty miles of the city,
town, or other place in which the paper is or may
be printed, free of any charge for postage
whatever.”
88
The Postal Act of 1845
 Sec. 4: Fast lanes?

“or to cause any considerable augmentation of

the cost of transporting the whole mail at the
present rate of speed, to provide for the
separate and more secure conveyance of the
letter mail, at a speed at least equal to that at
which the mail is now transported over such
route, taking care to allow in no case of any
greater delay, in the transportation of the other
matters and things to be transported in the mail”
89
The Postal Act of 1845
 Sec. 4: Fast lanes?

“on any such route, than may appear to be

absolutely necessary, regard being had to the
cost of expediting its transportation, and the
means at his disposal or under his control for
effecting the same.”

90
The Postal Act of 1845
 Railroads as Common
Carriers

Section 1: “That the provisions of this act shall

apply to any common carrier or carriers engaged
in the transportation of passengers or property
wholly by railroad.”

91
Commerce Act, Feb 4, 1887
 Just and Reasonable
Charges

Section 1: “All charges made for any service

rendered or to be rendered in the transportation of
passengers or property as aforesaid, or in
connection therewith, or for the receiving,
delivering, storage, or handling of such property,
shall be reasonable and just; and every unjust and
unreasonable charge for such service is prohibited
and declared to be unlawful.”
92
Commerce Act, Feb 4, 1887
 Unjust Discrimination

Section 2: “than it charges, demands, collects, or

receives from any other person or persons for
doing for him or them a like and contemporaneous
service in the transportation of a like kind of traffic
under substantially similar circumstances and
conditions, such common carrier shall be
deemed guilty of unjust discrimination, which is
hereby prohibited and declared to be unlawful.”
93
Commerce Act, Feb 4, 1887
 Interstate Information
Service

“In a Declaratory Ruling adopted today, the FCC

concluded that cable modem service is properly
classified as an interstate information service and
is therefore subject to FCC jurisdiction.”

94
FCC, Mar 14, 2002
 State of U.S. Internet
Access

“As of September 2001, 50.5% of U.S. households

had Internet connections. The vast majority of
them subscribe to “narrowband” service provided
over local telephone facilities. … We use the term
‘narrowband’ here to refer to Internet access service
that is designed to operate at speeds of less than 200
kilobits-per-second (‘Kbps’) in both directions.”
95
FCC, Mar 15, 2002
96
Brand X, 545 U.S. 967 (2005)
 Title II of the 1934 Act

“Title II of the Communications Act of 1934, 48 Stat.

1064, as amended, 47 U.S.C. § 151 et seq., subjects
all providers of ‘telecommunications servic[e]’ to
mandatory common-carrier regulation, § 153(44).”

97
Brand X, 545 U.S. 967 (2005)
 FCC Concluded
Exempt from Title II

“In the order under review, the Federal

Communications Commission concluded that
cable companies that sell broadband Internet
service do not provide “telecommunications
servic[e]” as the Communications Act defines that
term, and hence are exempt from mandatory
common-carrier regulation under Title II.”

98
Brand X, 545 U.S. 967 (2005)
 FCC Entitled to
Chevron Deference

“We must decide whether that conclusion is a

lawful construction of the Communications Act
under Chevron U.S.A. Inc. v. Natural Resources
Defense Council, Inc., 467 U. S. 837 (1984), and
the Administrative Procedure Act, 5 U.S.C. § 551
et seq. We hold that it is.”

99
Brand X, 545 U.S. 967 (2005)
 Bars VOIP Blocking

“According to the terms of the consent decree,

Madison River commits that it will refrain from
blocking VOIP traffic and ensure that such
blocking will not recur. The company will pay a
contribution of $15,000 to the United States
Treasury to settle this matter.”

100
FCC, Mar 3, 2005
 Four Principles

“The Federal Communications Commission today

adopted a policy statement that outlines four
principles to encourage broadband deployment and
preserve and promote the open and interconnected
nature of public Internet: (1) consumers are
entitled to access the lawful Internet content of
their choice;”
101
FCC, Aug 5, 2005
 Policy Limits

“In general, the Policy prohibits uses and activities

involving the Service that are illegal, infringe the
rights of others, or interfere with or diminish the
use and enjoyment of the Service by others.”

102
Comcast Acceptable Use Policy
 Comcast Content Blocking

“Specifically, the Commission found that Comcast had

deployed equipment throughout its network to
monitor the content of its customers’ Internet
connections and selectively block specific types of
connections known as peer-to-peer connections.”

103
FCC, Aug 1, 2008
 Anticompetitive Motive

“Indeed, the Commission noted that Comcast has

an anticompetitive motive to interfere with
customers’ use of peer-to-peer applications.”

104
FCC, Aug 1, 2008
 Did the FCC Have the Power
to Regulate Comcast? No.

“We therefore grant Comcast’s petition for

review and vacate the challenged order.”

105
Comcast v FCC
(CADC Apr 6, 2010)
106
FCC Open Internet
Order, Dec 23, 2010
 Three Key Rules:
Transparency

“Transparency. Fixed and mobile broadband

providers must disclose the network management
practices, performance characteristics, and terms
and conditions of their broadband services.”

107
FCC Open Internet
Order, Dec 23, 2010
 Three Key Rules:
No Blocking

“No blocking. Fixed broadband providers may

not block lawful content, applications, services,
or non-harmful devices; mobile broadband
providers may not block lawful websites, or
block applications that compete with their voice
or video telephony services.”

108
FCC Open Internet
Order, Dec 23, 2010
 Three Key Rules:
No Unreasonable
Discrimination

“No unreasonable discrimination. Fixed broadband

providers may not unreasonably discriminate in
transmitting lawful network traffic.”

109
FCC Open Internet
Order, Dec 23, 2010
110
Verizon v FCC,
CADC, Jan 15, 2014
 FCC Read of 706
is Reasonable

“The Commission, we further hold, has reasonably

interpreted section 706 to empower it to promulgate
rules governing broadband providers’ treatment of
Internet traffic, and.”

111
Verizon v FCC,
CADC, Jan 15, 2014
 The Virtuous Circle
of Innovation

“and its justification for the specific rules at

issue here—that they will preserve and
facilitate the ‘virtuous circle’ of innovation that
has driven the explosive growth of the Internet—
is reasonable and supported by substantial
evidence.”

112
Verizon v FCC,
CADC, Jan 15, 2014
 Meaning?: Only
Transparency Survives

“Because the Commission has failed to

establish that the anti-discrimination and anti-
blocking rules do not impose per se common
carrier obligations, we vacate those portions of
the Open Internet Order.”

113
Verizon v FCC,
CADC, Jan 15, 2014
 400 Page Download

114
FCC Open Internet
Order, Mar 12, 2015
 Three Problems (and Same
Rules for Fixed and Mobile)

“Because the record overwhelmingly supports

adopting rules and demonstrates that three specific
practices invariably harm the open Internet—
Blocking, Throttling, and Paid Prioritization—
this Order bans each of them, applying the same
rules to both fixed and mobile broadband
Internet access service.”

115
FCC Open Internet
Order, Mar 12, 2015
 Broad Classification
Authority Under Brand X

“Exercising our delegated authority to interpret

ambiguous terms in the Communications Act, as
confirmed by the Supreme Court in Brand X,
today’s Order concludes that the facts in the market
today are very different from the facts that supported
the Commission’s 2002 decision to treat cable
broadband as an information service and its subsequent
application to fixed and mobile broadband services.”
116
FCC Open Internet
Order, Mar 12, 2015
 Solves Problem of
Verizon Decision

“By classifying broadband Internet access

service under Title II of the Act, in our view the
Commission addresses any limitations that past
classification decisions placed on the ability to
adopt strong open Internet rules, as interpreted
by the D.C. Circuit in the Verizon case.”

117
FCC Open Internet
Order, Mar 12, 2015
 The Virtuous Innovation Cycle

“Four years ago, the Commission adopted open

Internet rules to protect and promote the ‘virtuous
cycle’ that drives innovation and investment on the
Internet—both at the ‘edges’ of the network, as well as
in the network itself.”

118
FCC Open Internet
Order, Mar 12, 2015
 Data Charges and Two-Sided Markets

“These services are simple and data efficient, so

operators can offer [Link] for free in a
sustainable way. Developers do not pay to be
included, and operators do not charge developers
for the data people use for their services.”

119
[Link] by Facebook
 Ad Blocking by Mobile
Carriers

The Financial Times, May 14, 2015: “Several

mobile operators plan to block advertising on
their networks, setting the stage for a battle with
digital media companies such as Google, AOL and
Yahoo.”

Robert Cookson, The Financial

120
Times, May 14, 2015
 Verizon Buys AOL for $4.4 Billion

“Lowell McAdam, Verizon chairman and CEO,

said: ‘Verizon’s vision is to provide customers with
a premium digital experience based on a global
multiscreen network platform. This acquisition
supports our strategy to provide a cross-screen
connection for consumers, creators and advertisers
to deliver that premium customer experience.’”

121
Verizon PR, May 12, 2015
Week 5: The Day the
Music Died?

122
 Era 1: One-by-One
Production

High, Symmetric
Copying Costs

123
British Library, Old English Bible,
Benedictine monk Aelfric (d. 1020)
 Era 2: Gutenberg’s
Asymmetry

1455: Gutenberg
Bible printed using
movable type

Died: Feb. 3, 1468

124
British Library, Gutenberg Bible,
Genesis
 U.S. Patent No. 2,297,691 on
125
Electrophotography (Oct 6, 1942)
 The Great Relocking?

Two Possible Paths

1. Lock content again using digital rights

management technology (DRM) and validate
that technology through law (DMCA)

2. Accept that content will be distributed virally

and change how we pay for content (switch
from fee-based content to free advertising-
supported content) (Subscriptions?)
126
Amazon Kindle
127
The Little Old Cabin in
the Lane, 1871
 Edison: Phonograph or
Speaking Machine

128
U.S. Patent No. 200,521
(Feb 19, 1878)
129
U.S. Patent No. 650,285
(May 22, 1900)
 Piano Rolls Aren’t Copies

“What is meant by a copy? … It may be true

that in a broad sense a mechanical instrument
which reproduces a tune copies it; but this is a
strained and artificial meaning. When the
combination of musical sounds is reproduced to
the ear it is the original tune as conceived by the
author which is heard.”

130
White-Smith, U.S., 1908
 ““§1 Exclusive Rights as to Copyrighted Works.
Any person entitled thereto, upon complying with
the provisions of this title, shall have the
exclusive right: (a) To print, reprint, publish,
copy, and vend the copyrighted work;”

131
1909 Copyright Act
 Sales and Distribution

Popular Mechanics, Nov.

132
1915 (via Google Books)
 Market Separation and
Price Discrimination

“This machine is not licensed for use for public

entertainments for profit; for a license for such
public use an extra license fee of ten per cent.
(10%) of the full royalty shall be payable.”

Victor Talking Machine Co. v. Strauss,

133
230 F. 449 (2nd Cir, 1916, reversed, 243
U.S. 490 (1917) (via West Publishing)
 Legends for Records

134
 More Market Separation
and Price Discrimination

“Congress has created the monopoly in exchange for

a dedication, and when the monopoly expires the
dedication must be complete. If the records were
registrable under the act, the restriction would
therefore certainly not limit the dedication.”

135
RCA v. Whiteman (2nd Cir. 1940)
 Federal Radio Commission

“That a commission is hereby created and

established to be known as the Federal Radio
Commission, hereinafter referred to as the
commission, which shall be composed of five
commissioners Appointed by the President … .”

136
Radio Act of 1927
 “Anarchy Reigned in
the Ether”

Federal Radio Commission,

137
1st Annual Report
 Type of Licenses

138
Federal Communications Commission,
1st Annual Report (1936)
 Understanding Public
Performance for Profit

“If the rights under the copyright are infringed

only by a performance where money is taken at
the door they are very imperfectly protected.
Performances not different in kind from those of
the defendants could be given that might compete
with and even destroy the success of the monopoly
that the law intends the plaintiffs to have.”

139
Herbert v. The Shanley Co. (U.S., 1917)
 Understanding Public
Performance for Profit

“It is true that the music is not the sole object,

but neither is the food, which probably could
be got cheaper elsewhere. The object is a repast
in surroundings that to people having limited
powers of conversation or disliking the rival
noise give a luxurious pleasure not to be had
from eating a silent meal.”

140
Herbert v. The Shanley Co. (U.S., 1917)
 History of ASCAP/BMI
Antitrust Litigation

“The U.S. Department of Justice, Antitrust Division,

is responsible for overseeing the enforcement of the
Final Judgments in United States v. ASCAP, 41 Civ.
1395 (S.D.N.Y.), and United States v. BMI, 64 Civ.
3787 (S.D.N.Y.) (“Consent Decrees”). The Consent
Decrees, originally entered in 1941,”

141
U.S. Department of Justice
 Is the Blanket License Always
an Antitrust Violation?

“The basic question presented is whether the

issuance by ASCAP and BMI to CBS of blanket
licenses to copyrighted musical compositions at fees
negotiated by them is price fixing per se unlawful
under the antitrust laws.”

142
BMI (U.S., 1979)
143
AHRA of 1992)
 Does the Rio Violate
the AHRA?

“In this case involving the intersection of computer

technology, the Internet, and music listening, we
must decide whether the Rio portable music
player is a digital audio recording device subject
to the restrictions of the Audio Home Recording
Act of 1992.”

144
Diamond (9th Cir. 1999)
 “‘With iPod, Apple has invented a whole new
category of digital music player that lets you put
your entire music collection in your pocket and
listen to it wherever you go,’ said Steve Jobs,
Apple’s CEO. ‘With iPod, listening to music will
never be the same again.’”

145
Apple iPod PR, Oct 23, 2001
 Knowledge, Control
and Failure to Act

“The record supports the district court’s finding that

Napster has actual knowledge that specific
infringing material is available using its system,
that it could block access to the system by
suppliers of the infringing material, and that it
failed to remove the material.”

146
Napster (9th Cir. 2001)
 Promoting Infringement

“We hold 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.”

147
MGM v. Grokster (U.S., 2005)
June 14, 2015 Copyright © 2009 Randal C. Picker 148
12 Songs
 Consumers hate the limitations

Sony probably could not have

implemented them transparently

Raises a variety of other legal issues (such

as the Computer Fraud and Abuse Act)

149 Sony BMG Litigation

Settlement, May 23, 2006
 “Apple® today introduced iPod™, a breakthrough
MP3 music player that packs up to 1,000 CD-quality
songs into an ultra-portable, 6.5 ounce design that
fits in your pocket.”

150
Apple iPod PR, Oct 23, 2001
 “Apple® today launched the iTunes® Music Store, a
revolutionary online music store that lets customers
quickly find, purchase and download the music
they want for just 99 cents per song, without
subscription fees.”

151
Apple iTunes Music Store PR, Apr 28, 2003
 DRM and Platform Interoperability
and Competition

“When Apple approached these companies to license

their music to distribute legally over the Internet, they
were extremely cautious and required Apple to
protect their music from being illegally copied. The
solution was to create a DRM system, which
envelopes each song purchased from the iTunes
store in special and secret software so that it
cannot be played on unauthorized devices.”
152
Steve Jobs, Thoughts on Music, Feb 6, 2007
 Alternative 3: Abolish DRM!

“The third alternative is to abolish DRMs entirely.

… Why would the big four music companies agree to
let Apple and others distribute their music without
using DRM systems to protect it? The simplest
answer is because DRMs haven’t worked, and may
never work, to halt music piracy.”

153
Steve Jobs, Thoughts on Music, Feb 6, 2007
 Types of Products

“Spotify account holders may access the Spotify

Service by any of our several Subscriptions:
• Free Service: an ad-based, free-of-charge
service;
• Unlimited Service: a subscription fee-based
service;”

154
Spotify Terms and Conditions of Use
 Types of Products

• “Premium Service: an ad-free, subscription fee-

based service which enables you to listen to
music while not connected to the internet,
among other features; or
• Mobile Service: via a supported mobile
handset.”

155
Spotify Terms and Conditions of Use
 Spotify Info Use and Sharing

“We may use the information we collect, including

your personal information, to: (i) provide, personalise,
and improve your experience with the Service and
products and services made available through the
Service, for example by providing customised or
localised content and advertising; … .”

156
Spotify Privacy Policy
 Subscription Rises, Digital
Downloads Decline

157
Joshua Friedlander, RIAA
 Apple Buys Beats

“Apple® today announced it has agreed to acquire the

critically acclaimed subscription streaming music
service Beats Music, and Beats Electronics, which
makes the popular Beats headphones, speakers and
audio software. As part of the acquisition, Beats co-
founders Jimmy Iovine and Dr. Dre will join Apple.
Apple is acquiring the two companies for a total of $3
billion … .”
158
Apple PR, May 28, 2014
 0% Market Share and Yet …

Bloomberg, May 5, 2015: “U.S. antitrust officials

are scrutinizing Apple Inc.’s efforts to line up deals
with record labels as it prepares to debut a new
version of the Beats Music streaming service,
according to people familiar with the matter.”

McLaughlin, Shaw & Higgins,

159
Bloomberg, May 5, 2015
 Week 6: Video:
Listening and Watching

160
 Blowing on the
Embers of TV

“The broadcast service that will be rendered

by these five stations in various locations of
the United States, augmented by the several
experimental stations that continue to make
limited broadcasts, should keep alive this
new art during the war.”

161
FCC, 8th Annual Report
(1942)
162
Life Magazine, Dec 30, 1946
 Lifting the Freeze

“The Sixth Report and Order lifted the

‘freeze’ on the authorization and construction
of new TV stations, assigned 70 UHF
channels (between 470-890 megacycles) in
addition to the 12 VHF channels (between 54-
216 megacycles) which were in use,”

163
FCC, 18th Annual Report
(1952)
 Lifting the Freeze

“promulgated a new nation-wide table of

TV frequency assignments making
available 2,053 assignments in 1,291
communities throughout the United States,
its Territories and possessions, and provided
for a change of frequency for 30 of the then
existing 108 VHF stations.”
164
FCC, 18th Annual Report
(1952)
 TV Channels: The
Checkerboard in the Sky

Green Bay
2, 6

Milwaukee
4, 10, 12 Managing Interference
• Co-Channel Interference
• Adjacent Channel
Chicago Interference
2, 5, 7, 9, 11

165
 Adopting a Broadcast
Standard for Color TV

“Upon a careful consideration of the complete

record in this proceeding, we are of the view
that the signal specifications proposed by
petitioners provide a reasonable basis for
the development of a color television
service in the public interest.”

166
FCC, Color TV Order
(1953)
 CATV: Broadcaster or
Viewer?

“Broadcasters perform. Viewers do not

perform. Thus, while both broadcaster and
viewer play crucial roles in the total television
process, a line is drawn between them. One is
treated as active performer; the other, as passive
beneficiary. When CATV is considered in this
framework, we conclude that it falls on the
viewer’s side of the line.”
167
Fortnightly Corp. (U.S., 1968)
 “By importing signals that could not
normally be received with current technology
in the community it serves, a CATV system
does not, for copyright purposes, alter the
function it performs for its subscribers.”

168
Teleprompter Corp. (U.S., 1974)
 1. Changed public performance right
to bring cable into the statute
2. Created statutory license regime for
secondary transmissions to ensure
cable access

169
Copyright Act of 1976
170 Senate Hearings on
Home Recording, 1982
171 Senate Hearings on
Home Recording, 1982
 Substantial
Noninfringing Uses

“Accordingly, the sale of copying equipment, like

the sale of other articles of commerce, does not
constitute contributory infringement if the
product is widely used for legitimate,
unobjectionable purposes. Indeed, it need merely
be capable of substantial noninfringing uses.”

172
Sony (U.S., 1984)
 Commercially Significant
Noninfringing Uses

“The question is thus whether the Betamax is

capable of commercially significant noninfringing
uses. … For one potential use of the Betamax plainly
satisfies this standard, however it is understood:
private, noncommercial time-shifting in the home.”

173
Sony (U.S., 1984)
 Commercially Significant
Noninfringing Uses

“It does so both (A) because respondents have no

right to prevent other copyright holders from
authorizing it for their programs, and (B) because
the District Court’s factual findings reveal that even
the unauthorized home time-shifting of
respondents’ programs is legitimate fair use.”

174
Sony (U.S., 1984)
 Alternative Remedies:
Royalty Payments

“Remedies may well be available that would not

interfere with authorized time-shifting at all. The
Court of Appeals mentioned the possibility of a
royalty payment that would allow VTR sales and
time-shifting to continue unabated, and the parties
may be able to devise other narrowly tailored
remedies.”
175
Sony (U.S., 1984)
 Consent Flag and Tech
Evolution

“Sony may be able, for example, to build a VTR

that enables broadcasters to scramble the signal of
individual programs and ‘jam’ the unauthorized
recording of them.”

176
Sony (U.S., 1984)
 Home Taping Isn’t
Productive

“The making of a videotape recording for home

viewing is an ordinary rather than a productive
use of the Studios’ copyrighted works. … It may be
tempting, as, in my view, the Court today is
tempted, to stretch the doctrine of fair use so as to
permit unfettered use of this new technology in
order to increase access to television programming.”
177
Sony (U.S., 1984)
 Sony/Philips/Pioneer
Patent Pool

178 1998 DVD Patent

Pool Request Letter
 Lowers the Transaction Costs of Licensing:
Both shoe-leather costs and strategic costs
(potential holdouts and double
marginalization)

Structures Platform and Creates

Competitive Level Playing Field:
Firms participating in the platform know that
they are getting the same royalty rates
179
One-Blue Patent Pool
 Nature of DVD Logo

180
DVD Format/Logo Licensing Corp.
181
FCC, 4th Report and Order
on Advanced TV (1996)
 Extra Spectrum I

Old Analog
New Digital
6 MHz Channel
Space between Channels 6 MHz Channel
to Reduce Interference
6 MHz Channel
6 MHz Channel

182
 Extra Spectrum II
Try This With DTV Spectrum Savings

6 MHz Channel xx MHz Channel Delivering

Delivering one Analog one DTV SDTV Signal
SDTV Signal 6 - xx MHz Channel Leftover

183
 Use Broadcast Spectrum
to Distribute Software?

“While we would anticipate that licensees would, at

the very least, continue to provide tomorrow what
consumers have come to expect today -- that is, at least
one free program per 6 MHz channel -- we also expect
to authorize its use to transmit, for example,
newspapers, stock market or sports data and,
perhaps of greatest significance, software
applications directly to computing devices.”
184
FCC, 4th Report and Order
on Advanced TV (1996)
 DTV Standard

185
FCC, 4th Report and Order
on Advanced TV (1996)
186
Rives, The Castaway (1904)
 Can’t Control
Subsequent Sales

“To add to the right of exclusive sale the authority

to control all future retail sales, by a notice that such
sales must be made at a fixed sum, would give a right
not included in the terms of the statute, and, in our
view, extend its operation, by construction, beyond its
meaning, when interpreted with a view to ascertaining
the legislative intent in its enactment.”
187
Bobbs-Merrill (U.S. 1908)
 First-Sale Doctrine

“Notwithstanding the provisions of section 106(3), the

owner of a particular copy or phonorecord lawfully
made under this title, or any person authorized by
such owner, is entitled, without the authority of the
copyright owner, to sell or otherwise dispose of the
possession of that copy or phonorecord.”

188
17 USC 109
 Netflix 1.0

“Launched in 1998, Netflix is the world’s largest

online movie rental service, providing more than one
million subscribers with access to a comprehensive
library of more than 14,500 DVD titles, with
generally next-day delivery to most subscribers,
and no late fees.”

189
Netflix Annual Report, 2002
 The VCR (Sony 1984) and The
Remote DVR (Cablevision 2008)

Aereo (2014)?

The Home Antenna Cable TV under the

(RCA 1949) 1976 Act
 Aereo Violates Public
Performance Right

“We must decide whether respondent Aereo, Inc.,

infringes this exclusive right by selling its
subscribers a technologically complex service that
allows them to watch television programs over the
Internet at about the same time as the programs are
broadcast over the air. We conclude that it does.”

191
Aereo (US 2014)
 Many Small Antennas
= One Large Antenna

“Given Aereo’s overwhelming likeness to the cable

companies targeted by the 1976 amendments, this
sole technological difference between Aereo and
traditional cable companies does not make a
critical difference here.”

192
Aereo (US 2014)
 Scalia: Volition Required
for Liability

“The Networks’ claim is governed by a simple but

profoundly important rule: A defendant may be
held directly liable only if it has engaged in
volitional conduct that violates the Act.”

193
Aereo (US 2014)
 Scalia: Good Lawyers Find
Loopholes and Exploit Them

“It is not the role of this Court to identify and

plug loopholes. It is the role of good lawyers to
identify and exploit them, and the role of Congress
to eliminate them if it wishes. Congress can do that, I
may add, in a much more targeted, better informed,
and less disruptive fashion than the crude ‘looks-
like-cable-TV’ solution the Court invents today.”
194
Aereo (US 2014)
195
FCC, 16th Video
Report, Apr 2, 2015
 Broadcast-Only Households

Broadcast Only % 2013-14: 9.84%

196 FCC, 16th Video
Report, Apr 2, 2015
From

To?

197June 14, 2015

FCC Incentive Auction Staff Summary, Jan 16, 2013
 Voluntary Reverse Auctions

198
P.L. 112-96 (Feb 22, 2012)
199
FCC Incentive Auctions
Week 7: The Mediated
Book

200
201
Google books, May 11, 2015
202
Google books: “thinking fast and slow”, May 11, 2015
203
Lewis Carroll, 1869 ed.
 Nevertheless …:
Use v Access

“Nevertheless, this work is expensive, so in order

to keep providing this resource, we have taken
steps to prevent abuse by commercial parties,
including placing technical restrictions on
automated querying.”

204
Google Usage Guidelines
205
The Author’s Guild
Lawsuit, Sep 20, 2005
 Permission Required

“Google knew or should have known that the

Copyright Act, 17 U.S.C. § 101 et seq. (‘the Act’)
required it to obtain authorization from the
holders of the copyrights in these literary works
before creating and reproducing digital copies of
the Works for its own commercial use and for the
use of others.”

206
The Author’s Guild
Lawsuit, Sep 20, 2005
 Settlement after 2.5 Years
of Negotiations

“Reaching final agreement turned out to be not so

simple, but today, after nearly two and a half
years of negotiations, we’re joining with Google
and the AAP and those publishers to announce the
settlement of Authors Guild v. Google.”

207
The Author’s Guild Lawsuit, Oct 28, 2008
 Three Types of Works

Public Domain: Free to use without

permission (but need access)

Works in Copyright with Active

Rights Holders: Need permission

Orphan Works: No active rights

holder: need access but what to do
about permission?
208
The Author’s Guild
Settlement Page
 Too Far

“The question presented is whether the ASA is

fair, adequate, and reasonable. I conclude that it
is not. While the digitization of books and the
creation of a universal digital library would benefit
many, the ASA would simply go too far.”

209
GBS Settlement Decision
(Mar 22, 2011)
 Fair Use and Transformative Works

“Although such transformative use is not

absolutely necessary for a finding of fair use, …
the goal of copyright, to promote science and the
arts, is generally furthered by the creation of
transformative works.”

210
Campbell (US 1994)
 “Highly Transformative”

“Google’s use of the copyrighted works is highly

transformative. Google Books digitizes books and
transforms expressive text into a comprehensive
word index that helps readers, scholars, researchers,
and others find books.”

211
The Authors Guild v Google
(SDNY 2013)
 Full Text Search
w/o Full Viewing

“It is not disputed that, in order to perform a

full text search of books, the Libraries must
first create digital copies of the entire books.
Importantly, as we have seen, the HDL does
not allow users to view any portion of the
books they are searching.”

212
The Authors Guild v
HathiTrust (2nd Cir. 2014)
 Full-Text Search is
Transformative

“Full-text search adds a great deal more

to the copyrighted works at issue than
did the transformative uses we approved
in several other cases.”

213
The Authors Guild v
HathiTrust (2nd Cir. 2014)
 Sec 107 Fourth Factor

“… (4) the effect of the use upon the potential

market for or value of the copyrighted work.”

214
17 USC 107
 “The HathiTrust Court understood the difference
between creating a searchable index of a book
and displaying the book itself, emphasizing that
“[i]mportantly, as we have seen, the HDL does not
allow users to view any portion of the books they
are searching.” HathiTrust, 2014 WL 2576342, at
*7 … .”

215 Authors Guild CA2 Reply Brief,

July 24, 2014
 “A comparison of HathiTrust’s index results and
Google’s snippet display shows how the latter merely
repackages the books’ content into digital form.”

216
Authors Guild CA2 Reply Brief,
July 24, 2014
 Introduction of Kindle

“[Link] (NASDAQ:AMZN) today introduced

Amazon Kindle, a revolutionary portable reader that
wirelessly downloads books, blogs, magazines and
newspapers to a crisp, high-resolution electronic paper
display that looks and reads like real paper, even in
bright sunlight.”

217
Amazon Kindle PR, Nov 19, 2007
 Important Changes to Inventory:
Never out of stock, always ready to
meet unexpected demand, infinite
shelf space

Print on Demand: Books are created

when needed and not a minute earlier

218
Amazon Kindle PR, Nov 19, 2007
 Data Gathering by Amazon

“Information Received. The Software will provide

Amazon with information about use of your Kindle
or Reading Application and its interaction with Digital
Content and the Service (such as last page read,
content archiving, available memory, up-time, log
files, voice information, and signal strength).”

219
Amazon Terms of Use, Sept 17, 2014
 “You provide most such information when you
search, buy, post, participate in a contest or
questionnaire, or communicate with customer
service. For example, you provide information
when you search for a product … .”

220
Amazon Privacy Notice, Mar 3, 2014
221
Picker, The Mediated Book (2009)
 On-Demand Printing
Allows for Ads

U.S. Patent No. 8,838,489

222
(Sept 16, 2014)
 Fixed E-Book Prices

“95. The conspiracy and agreement consists of an

understanding and concert of action among
Defendants and their co-conspirators to raise,
fix, and stabilize retail e-book prices, to end price
competition among e-book retailers, and to limit
retail price competition among the Publisher
Defendants, ultimately effectuated by collectively
adopting and adhering to functionally identical
methods of selling e-books and price schedules.”
223 U.S. DOJ Complaint, Apr 11,
2012
 Approach to Book
Pricing

224 Cue Email to Reidy, Mon,

Jan 4, 2010, PX-0021
 MFN would Push Publishers
to Agency with Amazon

“Apple fully understood and intended that the MFN

would lead the Publisher Defendants inexorably
to demand that Amazon switch to an agency
relationship with each of them.”

225 United States v Apple

(SDNY, Jul 10, 2013)
 But Violation Here

“That does not, however, make it lawful for a company

to use those business practices to effect an unreasonable
restraint of trade. And here, the evidence taken as a
whole paints quite a different picture -- a clear
portrait of a conscious commitment to cross a line
and engage in illegal behavior with the Publisher
Defendants to eliminate retail price competition in
order to raise retail prices.”
226 United States v Apple
(SDNY, Jul 10, 2013)
 April 2010: Prices at
Amazon Jump

227 United States v Apple

(SDNY, Jul 10, 2013)