We've discussed in the past the odd idea that any government should be able to copyright anything it produces, but plenty of governments still do maintain things like "crown copyright" or other similar concepts for content they create. Yet, it looks like some countries have gone one step further. They copyright their money. Yes, Michael Scott points us to a blog post from an American law professor, Eric E. Johnson, who was on a trip to Canada and was surprised to discover that they have copyright notices on their paper currency. Of course, this should make you wonder: if you counterfeit some Canadian money are you also on the hook for copyright infringement violations? Or is there some other reason for the copyright notice. Are they afraid other nations might copy the design without compensation?
Finding the whole thing bizarre, but remembering that I have some Canadian currency from my last trip there, I checked -- and, indeed, in tiny print in the lower right-hand corner, there is a copyright notice. And then... bonus. Tucked in with my Canadian cash was a 5 euro bill as well... and it also appears to have a copyright notice on it right at the top in the center (though, it's tiny). I did a quick search, and indeed, it appears that the design of the euro is also covered by copyright with specific limitations on copying. Of course, I thought that was what counterfeiting laws were for -- so why even bother with copyright?
A few years ago, we noticed the troubling trend of private equity firms raising capital solely for the purpose of investing in patent lawsuits. Basically, these private equity guys saw the ridiculous awards being handed out to patent holders who did nothing, and realized they wanted in on the game. So they raised funds of hundreds of millions of dollars, and basically approached different small patent holders, examined their patents, and basically promised to bankroll lawsuits against companies who actually did stuff, in exchange for a cut of the winnings. One of the biggest players in this space (perhaps the largest outside of Intellectual Ventures) is Altitude Capital Partners.
Joe Mullin has uncovered some of the details of how Altitude works (and how some of these lawsuits work), because Altitude is upset with the amount of money it got back from one of the patent holders whose lawsuit it "invested" in. Note, here, that it does not appear that Altitude invested in the company in question, DeepNines, but specifically in the lawsuit. Altitude gave DeepNines $8 million for its lawsuit in the structure of a loan. DeepNines sued security firm McAfee and worked out an eventual $25 million settlement. How much did DeepNines actually get? Less than $800,000 -- and even that's in dispute. (Updated in the next paragraph).
Basically, because Altitude had a "model" of what it felt DeepNines should get in a lawsuit, and that model popped out a $200 million award, it felt that it didn't get enough. But the breakdown suggests it did fine. DeepNines paid back the loan at a 10% interest clip, plus another $700,000 as its "contingency fee" on the winnings, adding up to $10.1 million. Then DeepNines ended up having to pay its lawyers at Fish & Richardson over $11 million in fees, plus another $1.25 million to local lawyer (and former federal judge) Robert Parker. DeepNines also had to pay additional expenses for travel and other legal costs, adding up to another $2.1 million. In the end, it was left with less than $800,000. Doesn't seem quite worth the effort. (Update: Good discussion in the comments suggesting that the math here doesn't quite add up, and DeepNines may have actually ended up with about $8.8 million, because you have to add the original $8 million investment to the $25 million in counting in the inflow. That makes sense, so the numbers may be off. I was initially relying on the report claiming $800k was leftover, but it may have actually been higher. The rest of the story does make sense however).
Especially since Altitude is demanding another $5.3 million, saying that DeepNines should have calculated its contingency fee based on the overall award, not after subtracting legal fees. Of course, if it did that, then DeepNines -- despite having "won" $25 million, will have lost nearly $5 million on the overall deal. Be careful who you partner with. This should be a huge warning to any patent holders who think about accepting money from a firm like Altitude. Even a $25 million "win" can turn into a huge loss, if you're not careful.
A few months back, someone sent over some details about a legal battle involving Peter Boesen, who is both a convicted felon in jail and a patent hoarder who licensed his patents to a "patent troll" firm to assert against tons of tech companies, and Niro Scavone, the law firm representing the patent company (and the law firm famous for, among other things, having been the inspiration for the term "patent troll"). There wasn't much to write about directly, but it looks like Joe Mullin has been keeping on top of things (as always) and has found that via this lawsuit Boesen has exposed some of the underlying details of how much money patent trolls get:
Most intriguing is the sum paid by Apple to settle an SPT suit brought over the iPhone in the Eastern District of Texas in 2008: $865,000. Without any motions being filed after the intial complaint or any substantive discovery, a bit more than 30 percent of that amount, $271,817, went to Niro Scavone, which also billed $46,568 in expenses. Nearly $40,000 went to someone identified as "Ward"--most likely Johnny Ward Jr., who served as local counsel to SPT in the case. Of what was left, almost $109,000 went to SP Technologies, then owned by investor Courtney Sherrer, and $311,400 went to Boesen.
Also noteworthy: a full 10 percent of Apple's payout, $86,500, is marked as going to "LG"--an apparent reference to LG Electronics, which, according to the Boesen receipt, paid $834,964.01 to settle a separate SPT suit in 2006. Why would LG be getting a cut of the settlement in a suit to which it was not a party? And was Apple aware that a piece of that settlement might wind up with one of its competitors? Representatives from Apple and LG did not immediately respond to requests for comment.
There's a lot more in Mullin's post. Not sure how much is worth commenting on, but given that such patent holders and patent hoarding companies tend to be incredibly secretive about all of this stuff, it's still an interesting peek behind the curtain.
Oh yeah, as for Mullin's question about LG receiving 10% of the payout from Apple, that might not be all that surprising really. Last year, we covered how it was becoming increasingly common for patent hoarders to play this neat trick where they sue a bunch of companies and promise the ones who settle quickly a cut of what they can get from the others. This sets up a little an interesting game theory situation, whereby companies have extra incentive to settle quickly, which makes the patent holder very happy, and which they use to tout how "legitimate" their patents must be (yeah, right). It sounds like, perhaps, that's what happened here. Since LG settled earlier, perhaps part of the settlement was the right to 10% of a cut against others.
I was recently having a discussion with a friend where I pointed out one of the biggest mistakes that people make in trying to understand economics is to assume, incorrectly, that "marginal benefit" or "marginal cost" means money. And, yes, this is actually a mistake that many economists themselves make -- and, in part, it's because the marginal benefit is often measured in monetary terms. So, people seem to think that if there isn't a monetary component it doesn't count. This makes for silly statements like "economics doesn't properly understand how people act." Almost every time that's said, when you look at the details, it's wrong. It's just that people assume that because someone does something for a non-monetary reason, economics can't account for it. That's simply not true. If people do things for a non-monetary reason, it's because they're receiving marginal benefits in some other manner, whether it's attention, pride, happiness, joy or "just because I want to." Those are all marginal benefits.
In fact, Clive Thompson points us to a study that highlights this in a really strong way. It's a series of studies that show that when people overestimate the monetary benefits (or costs) and underestimate the nonmonetary ones, they often set up really bad incentives.
For example, they've found that fewer people give blood when they're paid for it. For someone who thinks only in terms of the monetary benefits, this would make no sense. Why would giving people money lead to less of the activity. But the reasoning is that the real marginal benefit that people get from giving blood is the belief that they're doing good in the world and helping to save lives. Getting paid for it, actually hinders that feeling, by making the whole thing feel like a transaction. And the money paid is apparently a lot less than the decreased "good feelings" from the marginal benefit.
On the flip side, other experiments showed that fining people over certain actions (such as picking up their kids from daycare too late), actually increased the number of tardy parents. Again, if you think of this solely in monetary terms, this makes no sense. It now costs more, monetarily, to be late to pick up a kid. But, in making it a monetary transaction, it removed non-monetary costs -- such as the "guilt" of being late. As the article notes:
The fine seems to have reduced their ethical obligation to avoid inconveniencing the teachers and led them to think of lateness as simply a commodity they could purchase.
This is really fascinating stuff that is important for people to understand in setting up any sort of incentive structure. Money -- either on the cost or benefit side -- is not the only incentive. And thinking that it is often leads to miscalculating a series of other, potentially more important, costs and benefits. That doesn't mean that economics is wrong. It can handle all of that. The problem is when people assume that it's only the direct monetary costs and benefits that go into the equation. It is, unfortunately, a common problem, and leads to all sorts of confused thinking both about business models, but also about the economics profession itself.
It's no secret that most of the traditional "recording industry" really is structured almost entirely to help the big name acts, but whenever we write about the collections organizations like ASCAP and BMI we get angry people sending in emails and comments insisting that it's unfair to lump those two in with the RIAA, since they're really out to help the actual musicians, even the small guys. Uh huh. Of course, we've already shown how ASCAP and BMI and their overly aggressive attempts to collect royalties from just about everywhere actually have been known to harm up-and-coming singers, such as by destroying the ability for many venues to host open mic nights. ASCAP has been particularly aggressive lately in making bizarre claims about how embedding YouTube videos requires a license (despite the fact YouTube already pays ASCAP -- so it wants to double count) and how ringtones represent a public performance. These are pure money grabs that make it that much more difficult for anyone to help promote up-and-coming musicians and songwriters. Is it any wonder, in the meantime, that the organization is spending time setting up efforts to try to push back against people who support open culture and content sharing? It apparently would prefer that the songwriters they "represent" not know about these efforts that actually do quite a bit to harm the vast majority of songwriters out there.
But, back to the original point. ASCAP, BMI and their supporters insist that they're not as bad as the big, mean RIAA, and that they're especially focused on providing important royalties to less well known artists. Except... even that may be questionable, at least when it comes to live performance royalties (admittedly, a smaller segment of overall royalties). Reader btr1701 sent in some email exchanges from a mailing list, which I won't share directly since I don't have approval, concerning a jazz musician trying to find out why she doesn't receive any live performance royalties, despite knowing that these organizations collect them, supposedly on her behalf. In response, she's told that ASCAP and BMI only distribute that royalty money to "the top 200 grossing US tours of the year." If you're smaller than that? Too bad. Except... they do have one minor exception. If you play "serious music" (no joke), then they'll pay you your royalties. So, the musician asks what is "serious music" and is told it's "generally considered to be classical music."
The musician tried re-registering her own (jazz) compositions as "serious music" but it "does not appear to have made any difference whatsoever" and she notes that she is "yet to receive a single penny... for any US performance or radio broadcast of any kind" despite the fact that her music has been performed in the US for almost ten years, and "the vast majority of performances of my music take place in the US."
I went looking for some more details, and it appears that, indeed, ASCAP and BMI have a policy in place to only provide performance royalties to the top 200 grossing tours in the US. If you're a "smaller" act, the only way to get paid is to be an opening act on such a tour. Otherwise? Too bad, you're on your own. Aren't you glad you signed with ASCAP or BMI? Update Good clarifications in the comments on this. Despite what the musician was told originally, it appears that it's not that ASCAP and BMI only pay the top 200 tours, but that they only monitor them (it's not explained how they know ahead of time which are the top 200) in order to figure out who to pay. The end result, of course, is functionally quite similar. If they're only monitoring the top 200 grossing tours, then the likelihood of them finding out about songs from less well known composers is close to nil. But those big names? They get more than their fair share.
A bunch of folks have been submitting the story about how Jammie Thomas' new lawyer, Kiwi Camara (a Charlie Nesson protege) and Nesson himself are apparently preparing to file a class action lawsuit against the RIAA in an attempt to get back the $100 million plus that they claim the industry "stole" in its settlements. This may be interesting from an academic standpoint (or from a PR/circus standpoint), but I have difficulty believing it will get very far in terms of actually succeeding. I do find the settlements distasteful, and bordering on extortion ("pay up or we sue" is really questionable), but earlier attempts at similar lawsuits haven't gone very far at all. Still, considering that the RIAA has always insisted that its entire legal campaign was part of a grossly misguided and ultimately self-damaging "PR campaign" perhaps it's okay that someone is effectively doing the same thing on the other side.
The various music collection societies keep insisting that they're just the important middlemen helping make sure artists get the royalties they're due. Except, for some reason, they keep getting caught not actually giving that money to artists, but hanging on to it themselves. Billboard reports that the Dutch collection society, Buma/Stemra, is happily telling people that revenue rose by 2% last year -- though, oddly, the Billboard report leaves out one rather interesting detail. Reader Marcel de Jong notes that Buma/Stemra invested a bunch of the money it collected for artists into the stock market and then lost a chunk of it, so it's paying artists less money than it collected for them. What's unclear is if Buma/Stemra would have paid out more if it had made money... and also why it's gambling on the stock market with money it supposedly collected for artists.
Your U.S.A. cellular phone bill, since the early 1990s, has had a fee levied on it by governments for E911 services. The fee differed from state to state, and was ostensibly to fund the upgrade of 911 call centers. The public safety call centers were to be readied to receive location information from cell phones, and to use that information to instruct emergency crews. The cellular carriers were required to collect this tax for the government, but were also separately required to design, create, and deploy the (much more expensive) systems that can determine where the caller is. The government basically required the carriers to fund a public safety system (which you may or may not agree with). One thing with which none of us could agree was that the E911 taxes on our phone bills were promptly squandered by governments, for years, on just about everything except 911 call center upgrades. Money was mis-spent on ballpoint pens, conference attendance, dry cleaning, and boots.
Most of that is history; much of the US is now ugraded. (Please don't rely on E911, as it only works when you have a good cell signal, battery power, and a few other things. Don't use it as a crutch or as a "safety device"!) So what do you think will happen to those monthly taxes that were collected for so many years? Time to cancel them, right? Not so fast, says the State of Hawaii, which gets 66 cents of E911 fees from every monthly bill. This article in the Honolulu Advertiser shows how various government agencies are trying to get their hands on the "windfall." A few examples of this include: the Honolulu PD wants a new dispatch system for $20m, the Board that manages the fund wants their mandate extended to spend on other tech like VoIP location, the State hired a new Executive Director of the E911 fund for $294,421/yr, the legislature is taking $16M from the fund to help balance the budget, and some are trying to build new cell towers with the money. The article predicts future raids on the funds, and given what we've seen nationwide, we would agree.
What is it about this country that we can't just call a tax a tax. We seem to have an addiction to tucking and hiding fees into a wide range of services, where over time the fees have little to do with the services. Dear government: If you're going to tax me, please just do it up front, talk to me honestly, and say it's a tax. I want to feel you reaching into my pocket, instead of having you just skim the till behind my back.
Derek Kerton is an expert at the Insight Community. To get insight and analysis from Derek Kerton and other experts on challenges your company faces, click here.
Venture capitalist Fred Wilson has laid out his reasons for why he believes the IPO market is about to come back. It's a worthwhile read if you're interested in the startup ecosystem. While I tend to agree with Fred on many different things, on this one I'm not at all convinced. I do agree that there are a growing number of companies who in the past would have gone public about now, but are held back by the near total lack of willingness to risk running the IPO gauntlet. The one thing that we agree on is that investors are going to start looking to put money into new investments sometime soon (there's way too much money being flooded into the market, and it needs to go somewhere). I'm just not convinced it will go into the traditional IPO market. I think it would be good if the IPO market opened up somewhat, but a flood wouldn't be good. It would create another bubble scenario. My guess (at this point) is that the money will go into something unexpected -- perhaps even new financial instruments. However, I'm curious: where do people think all the money that's being dumped into the economy will flow? What's the next bubble going to be?
We've talked about the ridiculousness of the various music collections societies being involved in the discussions on new music business models. To them, the answer is always the same: add another license and let us collect it. They're middlemen and they take in tons of money and would only be all too happy to take in more. Some got upset with us in the comments, by noting that some of these collections societies are non-profits. In fact, the new Choruss offering, which we've already explained why it's a bad idea that's more of a bait-and-switch than anything useful, has been described as a similar "non-profit" collections group.
But, as we've noted in the past, supposedly nonprofit collections groups such as SoundExchange (a spinoff of the RIAA) are notorious for not finding artists to pay -- even some of the biggest names in the business. Oh, and did we mention that if the royalties go "unclaimed" the recording industry (via SoundExchange) often gets to keep the money? Given that bit of info, it's perhaps no surprise at all that P2Pnet is noticing that SoundExchange's own tax returns note that the nonprofit was sitting on over $100 million at the end of 2007, a pretty significant leap over previous years, and a somewhat startling sum for a supposed "nonprofit" in charge of both collecting and distributing funds.
It seems like those musicians sure are difficult to find.
The P2Pnet report also points out that it will be interesting to see how much SoundExchange has spent on lobbying efforts. SoundExchange is actually barred from lobbying the government, but has been ignoring that for years by funding musicFIRST, a recording industry lobbying group that's trying to add a new license for radio stations to pay (collected by SoundExchange, of course) by claiming that radio is actually a form of piracy.
So, even if Choruss or these other collections societies seem to be designed with the best intentions in mind (and I'm sure they are), it seems that they're wide open to abuse -- which is yet another reason to be quite worried about simply handing over the entire industry's business model to such an operation.
Harlan Ellison may be a well-respected writer, but he's got something of a history of threatening and/or suing anyone who he believes is unfairly profiting off of "his" works. You may recall a while back that he mistakenly sued AOL when he discovered that fans of his (not that he'd call them fans) had posted some of his writings to Usenet. Yes, to Usenet. Not to any AOL property, but to Usenet. However, since he'd discovered it via AOL, somehow they were to blame... so he sued. And a court quickly explained to Mr. Ellison the DMCA's safe harbors and the fact that Usenet isn't AOL. Ellison appealed... and, amazingly, AOL eventually settled just to make him go away, knowing that even though the courts would reject such cases under DMCA safe harbors (and common sense), it was cheaper to just pay up.
This wasn't just a one-off misunderstanding. Ellison has a long history of being economically and technologically illiterate about these sorts of things, as was made clear in this video that made the rounds a few years back:
In the video, he talks about how he doesn't take a piss without getting paid, and screams about Warner Bros. Studios asking if they can use a video interview he did in the DVD for Babylon 5, which he worked on -- and he demanded payment for it. When the woman pointed out that everyone else was doing it for free, he called them all assholes and then went on a rant about people doing stuff for free, talking about how he doesn't do anything for free. Apparently, he missed the fact that the video was already recorded, so it wouldn't be about any "work for free" because he wouldn't be doing any work. The work was already done. Also, depending on who shot the video, it's unlikely that WB actually needed to get his permission (or to pay him) to use the video, because he probably doesn't own the rights to it, but that's a separate point.
Either way, that's all prologue to the news that Ellison is suing yet again. This time, he's suing Paramount Pictures and the Writers Guild because he wrote an episode of Star Trek that aired in 1967, and Paramount hasn't paid him for certain Star Trek books that include elements from that show or other merchandise like a (not making this up) talking Christmas tree ornament. He's suing the Writers Guild because it apparently told him that he was nuts and they weren't going to take on Paramount over this issue (he's accusing the Guild of too narrowly interpreting its contract).
And, in classic Ellison fashion, his statement on the matter is all about the money:
It ain't about the 'principle,' friend, its (sic) about the MONEY! Pay Me! Am I doing this for other writers, for Mom (still dead), and apple pie? Hell no! I'm doing it for the 35-year-long disrespect and the money!
Given these antics and ridiculousness, you have to wonder just how many folks won't be hiring Ellison in the future, knowing he's likely to blow up and potentially sue them, as well. You also should wonder how much "money" he's missing out on from folks like me who will never buy any of his works. If it's "all about the money" perhaps someone who writes sci-fi like Ellison can think about the future a little bit, and how many opportunities he kills off by demanding every penny today at the expense of dollars tomorrow.
There have been plenty of stories over the years about the people who buy from spam, with various studies showing surprisingly high percentage of people admitting to buying from spam. Of course, that's just seeing how many people have ever bought from spam, rather than how many people respond to a single spam campaign. I've seen estimates before (usually in the range of a quarter of a percent), but very little actual data, until now. The latest research on the topic comes from some computer scientists at the University of California (both Berkeley and San Diego), who actually took over a zombie network to send out bogus spam and watched the fake orders roll in.
Except that they didn't actually get that many orders. They sent out 350 million spam messages, and received a grand total of 28 orders. The fake pharma website they set up just returned an error message when someone tried to place an order, so the actual numbers could be even lower. If any of the credit cards were fake or stolen, then you could imagine that a real spammer would bring in even fewer orders. Though, the real spammer would also likely send out many more messages as well. But, even accepting the researchers' numbers, they found that the full zombie network they used could probably bring in about $7k per day, or about $2 million per year.
That actually seems fairly low for a massive spam operation, and suggests that spam might not be as profitable as it once was (assuming that earlier reports on spam earnings were accurate). It would make sense that spam is becoming less and less profitable, as users become more sophisticated, and less prone to ordering from spam messages. There are still plenty of suckers out there, but once someone is educated not to buy from spam (or has a bad experience buying from spam), the pool of suckers declines rapidly. Of course, we all know the real profit in spam these days isn't in selling fake drugs, but in pump and dump stock scams anyway...
For years, Europe has been trying to push data retention rules, that require ISPs to hang onto data much longer than it's needed for any business purpose. Such data retention has plenty of problems, from the likelihood of abuse to the chance of inadvertent disclosure to the simple fact that sifting through more data often makes it more difficult to find the data you actually need. However, the biggest problem is the cost involved with data retention. It's rather costly to retain all that data for many ISPs, and for years ISPs (especially smaller ones) fought to make sure that any data retention laws also included provisions that would make the government pay for retaining the data. While some politicians in the UK have tried to shrug off the cost issue as not a big deal, it looks like it may leave a loophole that makes data retention in the UK basically meaningless.
The Register is reporting on a meeting the UK government held with various ISPs that left many of the ISPs baffled. Basically, they were told that they needed to start retaining data to stay in compliance with the law, but that since the UK government couldn't pay for it, many of the ISPs could get away without actually retaining the data. In other words, it sounded as if they said that, yes, you need to retain the data, but since we don't want to pay for it, maybe you shouldn't actually retain the data (wink, wink, nod, nod). So they end up giving lip service to the public about telling ISPs to retain data, but then since they won't fund it, it won't actually happen.
Matthew Yglesias points to a paper by John Quiggin (of Crooked Timber fame) and Dan Hunter that looks at the growing importance of non-financial incentives for the production of information goods. They point out that efforts like Wikipedia, free software, and the blogosphere are organized in a way that's fundamentally different from traditional for-profit enterprises. Many contributors participate for reasons other than financial gain, and the overall project doesn't have a centralized decision-maker the way Microsoft and the Encyclopedia Britannica do. The authors advocate the reform of legal institutions, such as overly restrictive copyright laws, that implicitly assume that creative works are always produced for financial gain.
This all seems right to me, and indeed, Hunter wrote a Policy Analysis for the Cato Institute (for whom I'm an adjunct scholar) that made some of the same points. However, I think the authors overstate their case, as suggested by the title of their paper, "Money Ruins Everything." I assume they intended this to be somewhat tongue-in-cheek, but they nevertheless do seem overly hostile toward commercial efforts. It certainly is true that in many cases, adding money to a volunteer effort will create more problems than it solves. For example, I've argued in the past that Wikipedia should resist the temptation to accept advertising because arguing about what to do with the money could begin to overshadow Wikipedia's organic editing process. However, I think they go overboard when they denigrate the value of venture-backed startups. They suggest that the investments of the dot-com bubble "may have rewarded their promoters, but they produced little of lasting social value, at least by comparison to the vast sums that were invested." But I think that if anything, the exact opposite is true. As we've pointed out before, the dot-com bubble was great for the economy at large, because it allowed people to experiment with a lot of new technologies and business models on venture capitalists' dime. Investing in a bubble may be a bad investment strategy, but the results are often good for the broader society. So of course we shouldn't adopt policies that hinder the success of non-commercial projects like Linux and Wikipedia, but we should also ensure that the legal system remains hospitable to commercial development.
Timothy Lee is an expert at the Insight Community. To get insight and analysis from Timothy Lee and other experts on challenges your company faces, click here.
The RIAA and its associated organizations certainly have a rather long history of not sharing the windfall from various lawsuits and settlements with the artists the RIAA likes to claim it represents -- and now those musicians are getting angry. Torrent Freak points us to the news that various managers and lawyers representing some big name musicians are discussing filing a lawsuit against the record labels for keeping all of that money. The record labels claim either that they are distributing some amount (if required to contractually) or that they're still trying to figure out how to "split" the money. Of course, they're also giving the usual story about how "after legal fees" there really isn't that much left to give out. Remember, though, when it comes to talk to the press or politicians, they'll swear up and down that these lawsuits are all for the musicians.
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