Tag: copyright infringement

Why Hayek Would Have Hated Software Patents

In his famous essay “The Use of Knowledge in Society,” Friedrich Hayek argued that the socialists of his day falsely assumed that knowledge about economy could be taken as “given” to central planners. In reality, information about the economy—about what products are needed and where the necessary resources can be found—is dispersed among a society’s population. Economic policies that implicitly depend on omniscient decision-makers are doomed to failure, because the decision-makers won’t have the information they need to make good decisions.

In a new paper to be published by the NYU Annual Survey of American Law, Christina Mulligan (who drafted a recent amicus brief for Cato) and I argue that the contemporary patent debate suffers from a similar blind spot. A patent is a demand that the world refrain from using a particular machine or process. To comply with this demand, third parties need an efficient way to discover which patents they are in danger of infringing. Yet we show that for some industries, including software, the costs of discovering which patents one is in danger of infringing are astronomical. As a consequence, most software firms don’t even try to avoid infringing peoples’ patents.

Patents are often described as “intellectual property,” and patent law provides for harsh property-like remedies against patent infringers. But a property system that is so convoluted that ordinary firms can’t figure out who owns what isn’t a property system at all. Genuine property rights enhance economic efficiency by bringing predictability to the allocation of scarce resources and thereby promoting decentralized decision-making. Software patents retard economic efficiency by subjecting software firms to a constant and unavoidable threat of litigation for accidentally infringing the patent rights of others. Hayek would not have approved.

Our paper is available from SSRN.

The Libertarian Case against the Google Book Search Deal

Five years ago, Google began scanning millions of books for inclusion in what eventually became Google Book Search. Google carefully designed the service to stay within the boundaries of copyright’s fair use provisions, at least as Google interpreted them. Still, some authors and publishers objected, and in 2005 they filed a lawsuit accusing Google of copyright infringement. The lawsuit dragged on for more than three years. Finally, in 2008, the parties announced a settlement of the lawsuit. Its text runs for 140 pages, not counting a secret termination clause available only to Google and its adversaries. The deadline for comments on the settlement was earlier this month, and on October 7 a federal judge must decide whether to approve or reject the settlement.

I was (and still am) firmly on Google’s side on the copyright claims at issue in the lawsuit. But the proposed settlement is another matter. The parties like to describe the agreement as a private agreement settling a legal dispute. But I agree with Librarian of Congress Marybeth Peters, who surprised almost everyone on Thursday when, testifying before Congress, she came out swinging against the agreement:

We realized that the settlement was not really a settlement at all, in as much as settlements resolve acts that have happened in the past and were at issue in the underlying infringement suits. Instead, the so-called settlement would create mechanisms by which Google could continue to scan with impunity, well into the future, and to our great surprise, create yet additional commercial products without the prior consent of rights holders. For example, the settlement allows Google to reproduce, display and distribute the books of copyright owners without prior consent, provided Google and the plaintiffs deem the works to be “out-of-print” through a definition negotiated by them for purposes of the settlement documents. Although Google is a commercial entity, acting for a primary purpose of commercial gain, the settlement absolves Google of the need to search for the rights holders or obtain their prior consent and provides a complete release from liability. In contrast to the scanning and snippets originally at issue, none of these new acts could be reasonably alleged to be fair use.

In the view of the Copyright Office, the settlement proposed by the parties would encroach on responsibility for copyright policy that traditionally has been the domain of Congress. The settlement is not merely a compromise of existing claims, or an agreement to compensate past copying and snippet display. Rather, it could affect the exclusive rights of millions of copyright owners, in the United States and abroad, with respect to their abilities to control new products and new markets, for years and years to come. We are greatly concerned by the parties’ end run around legislative process and prerogatives, and we submit that this Committee should be equally concerned.

The fundamental problem with the settlement is its audacious use of class action law. As my former colleague Mark Moller has argued, the aggressive use of class action law raises fundamental issues of fairness, due process, and the separation of powers. Rather than dozens of judges hearing individual cases and reaching judgments based on individual circumstances, class action law often asks a single judge to render justice on behalf of thousands of plaintiffs in a single decision. This arrangement opens the door to a whole host of potential problems. A single judge unlikely to have the knowledge required to render justice in thousands of individual cases simultaneously. And there’s a real danger that a nominally judicial proceeding will take on a fundamentally legislative character, reshaping the rights of thousands of people whose interests are not adequately represented by any of the parties before the judge.

This danger is especially acute in the Google Book Search case because of the incredibly broad scope of the class the plaintiffs purport to represent: all authors of books still under copyright in the United States. The settlement class doesn’t just include authors and publishers of still-in-print works, who are relatively easy to contact and can opt out of the settlement if they don’t like its terms. It also includes the copyright holders for millions of “orphan works” – works that are in copyright and whose authors cannot be located. These copyright holders are, by definition, difficult to find. The settlement effectively expropriates these absent parties for the benefit of Google and the large publishers leading the lawsuit.

The usurpation of the legislative function is especially clear in the case of orphan works because Congress has been actively considering legislation to deal with the orphan works problem. I have written in favor of an “orphan works” defense to copyright infringement. The leading orphan works proposals have two key features: they require prospective users of orphan works to make a good-faith effort to find rights-holders before using the works. And they are competitively neutral – everyone would have equal opportunity to use orphan works under the conditions set forth in the legislation.

The Book Search deal has neither characteristic. Using the legal fiction that the plaintiffs represent the interests of millions of absent copyright holders, the settlement would give Google carte blanch to use these orphan works without making a serious effort to contact their owners. This deprives some copyright holders of royalties to which they might otherwise be entitled. And it gives Google a permanent competitive advantage by giving Google an immunity to litigation that would not be available to competitors if they entered the same market. Not surprisingly, Google’s leading competitors, including Microsoft, Yahoo! and Amazon.com, have all urged the judge to reject the agreement.

Our system of government is based on the principle of the separation of powers. Congress, not the judicial branch, is responsible for making broad changes to rules of copyright. The Google Book Search settlement, if approved, would use the legal fiction of the class action lawsuit to re-write copyright law as it applies to the online book market. While the settlement includes some laudable provisions, it’s more important that the judge respect the separation of powers and reject the settlement.