Law and Information

Over the past few weeks, our graduate students at the Univ. of St. Gallen have done quite some heavy lifting in the three courses that I described here. In my own course on law and economics of intellectual property rights in the digital age, we’ve completed the second part of the course, which consisted of three modules dealing with digital copyright, software and biz methods patents, and trademarks/domain name disputes. We were very fortunate to have the support of three wonderful guest lecturers. Professor John Palfrey taught a terrific class on digital media law and policy (find here his debriefing and putting-into-context). Klaus Schubert, partner with WilmerHale, provided an excellent overview of the current state of software patenting in and across the EU, in the U.S., and Japan and made us think about the hard policy questions up for discussion. Last week, Professor Philippe Gillieron from the Univ. of Lausanne discussed with us the legal and economic aspects of domain name disputes and ways to solve them (the focus was on UDRP – in my view a particularly interesting topic when analyzed through the lens of new institutional economics theory, see also here for variations on this theme.)

In the last session before “flyout” week, Silke Ernst and I had a first cut at a synthesis aimed at tying together several of the core themes we’ve been discussing so far. At the core of the session was the question as to what extent the law & economics approach can help us to deal with the complex IPR-questions that are triggered while transitioning from an analog/offline to a digital/online information environment. The students contributed to the session by presenting their views on the promises of and limits on a law & economics approach to IPR in the digital age. Using the time while traveling from Oxford back to Zurich, my recollection of the in-class discussion looks as follows (alternative interpretations, of course, encouraged and welcome) – starting with the argument that the law & economics approach to IPR serves at least two functions:

• On the one hand, it provides a toolset that helps us to frame, analyze, and evaluate some of the complex phenomena we observe in cyberspace (such as, for instance, large-scale file-sharing over P2P networks or the user-created content), and enables us to gain a better understanding of the interaction among existing rules and norms and these phenomena. We might want to call it the “analytical function” of law & economics (this aspect gets close to – but is in my view not exactly identical with – what has traditionally been described as the “positive” strand of discussion in law & economics.)

• On the other hand, law & economics may guide us at the design level (again, this gets close to what has been termed “normative” law & economics. For reasons I don’t want to discuss here, I don’t want to work with this distinction in the present context.). First, it can help us to identify the need for law reform by showing that the existing rules have a negative impact on social welfare. Here, the design function intersects with the previously mentioned analytical function. Second, law & economics provides a consistent framework to evaluate the impact of alternative means of regulation on the (economic) behavior of individuals and compare costs and benefits of different approaches aimed at solving a particular problem.

At a more granular level, we might identify the following promises and limitations of a law & economics approach with regard to the respective functionality:
Analytical function

• Promises: coherent framework, consistent and shared set of criteria, rational and quasi-objective analysis, …
• Limitations: Bounded rationality/areas of non-rationale behavior, lack of transparency regarding underlying causalities, limited possibilities to quantify phenomena, lack of empirical data, …

Design function:

• Promises: Cost-benefits analysis of alternative policy choices, taking into account perspectives of different actors in an ecosystem, at least ideal-type predictions based on models, …
• Limitations: Complexity of real-life situations, non-economic perspectives, motives, and effects, non-economic values, …

We reached some sort of consensus that the law & economics approach indeed provides a great toolset to analyze at least some of the trickiest IPR-related policy questions in cyberspace. However, the large majority seemed also to agree that some of the limitations of such an analysis become particularly visible in the digitally networked environment with phenomena such as commons-based peer production of content based on intrinsic motivations. Most of us also agreed that it would be dangerous to attempt to answer the IPR policy questions only against the backdrop of law & economics theory. Indeed, many of the decisions to be made in this space ultimately include choices about core values of our society that do not easily translate into the frameworks of law & economics, like for example informational justice, equal access, participatory culture, or semiotic democracy.

I’m very much looking forward to continuing the discussion about the role of law and economics in the digital age with my colleagues, the teaching team, and – most importantly – with the wonderful group of students enrolled in this seminar.

The OECD has just released what – in my view – is the first thorough high-level policy report on user-created content. (Disclosure: I had the pleasure to comment on draft versions of the report.) From the introduction:

The concept of the ‘participative web’ is based on an Internet increasingly influenced by intelligent web services that empower the user to contribute to developing, rating, collaborating on and distributing Internet content and customising Internet applications. As the Internet is more embedded in people’s lives ‘users’ draw on new Internet applications to express themselves through ‘user-created content’ (UCC).

This study describes the rapid growth of UCC, its increasing role in worldwide communication and draws out implications for policy. Questions addressed include: What is user-created content? What are its key drivers, its scope and different forms? What are new value chains and business models? What are the extent and form of social, cultural and economic opportunities and impacts? What are associated challenges? Is there a government role and what form could it take?

No doubt, the latest OECD digital content report (see also earlier work in this context and my comments here) by Sacha Wunsch-Vincent and Graham Vickery of the OECD’s Directorate for Science, Technology and Industry is a must-read that provides plenty of “food for thought” – and probably for controversy as well, as one might assume.

The University of St. Gallen has been the first Swiss university that has implemented the principles and standards set forth in the so-called Bologna Declaration aimed at harmonizing the European Higher Education System (more on the Bologna process here.) As a result, the St. Gallen law school offers two Master programs for J.D. students: Master of Arts in Legal Studies, and Master of Arts in Law and Economics.

Recently, I have been heavily involved in the law and economics program (I should mention that St. Gallen doesn’t follow the rather traditional approach to law and economics that is predominant among U.S. law schools. Click here for a brief description of the St. Gallen interpretation of law and economics). Today is a special day for the program’s faculty and staff, because the first generation of students enters the final 10th semester of the Bologna-compatible Master program. Arguably, this 10th semester is rather unique as far as structure and content is concerned. Instead of providing the usual selection of courses for graduate students, we have designed what we call an “integrating semester” in which all students are required to take three (but only three) full-semester courses aimed at “integrating” the knowledge, skills, and methods they have acquired over the past few years. All three seminars – together worth 30 credits – are designed and taught by an interdisciplinary group of faculty members from the University of St. Gallen and beyond, including legal scholars, economists, business school profs, technologists, etc. The first seminar, led by Professor Peter Nobel, Thomas Berndt, Miriam Meckel and Markus Ruffner, is entitled Law and Economics of Enterprises and deals with risk and risk management of multinational corporations. The second seminar, led by Professor Beat Schmid and me, concerns legal, economic, and business aspects of intellectual property rights in the digital age. Professors Hauser, Waldburger, and van Aaken, finally, are teaching the third seminar entitled Law and Economics of Globalization, addressing issues such as world market integration of low-income countries, foreign investments, global taxation, and regulation of multinational enterprises.

My seminar on law and economics of IPR in the digital age starts with a discussion of basic concepts of economic analysis of intellectual property law and a stock-taking of the main IPR-problems associated with the shift from an analog/offline to a digital/online environment. It then follows a module in which we will explore three key topics in greater detail: digital copyright, software and business methods patents, and trademarks/domain names. Towards the end of the semester, we will then try to tie all the elements together and develop a cross-sectional framework for economic analysis and assessment of IPR-related questions in the digitally networked environment. In this context, we will also be visiting the Swiss Federal Institute of Intellectual Property (in charge, among other things, with working on IP legislation in Switzerland), where we will discuss the promises and limits of economic analysis of IP law with the Institute’s senior legal advisor and the senior economic advisors.

Clearly, we have a very ambitious semester ahead. I’m particularly thrilled that a wonderful group of colleagues from Europe and abroad is helping me to do the heavy lifting (of course, my wonderful St. Gallen team is very involved, too, as usual.). My colleague and friend John Palfrey, Clinical Professor of Law at Harvard Law School, the Berkman Center’s executive director, and member of the board of our St. Gallen Research Center for Information Law, will be discussing with us thorny digital copyright issues and future scenarios of digital media. Klaus Schubert, partner of WilmerHale Berlin, will be guiding us through the software patents and business methods patents discussion. Last but not least, Professor Philippe Gillieron from the University of Lausanne will be speaking about trademark law in the digital age, focusing on domain name disputes.

All sessions are (hopefully) highly interactive. The students will contribute, among other things, with discussion papers, term papers, group presentations, and will participate in mock trials (one on Google’s recent copyright case in Europe), Oxford debates, and the like. Unfortunately, the Univ. of St. Gallen is still using a closed online teaching system called StudyNet, but if you’re interested in the Syllabus, check it out here. Comments, thoughts, suggestions, etc. most welcome!

My colleague and friend Dr Ian Brown, co-leader of the EUCD best practice project (check out the wiki and the project report), has posted a great article written for the EDRI-gram on the International Intellectual Property Alliance’s (IIPA) recent recommendations to the US Trade Representative’s 2007 review of global copyright laws. Ian concludes:

It is not surprising that US companies lobby to change global laws that would increase their profits. On past performance, the US government is likely to take careful note of their recommendations. But European nations should robustly defend their right to shape copyright policy to meet the needs of their own citizens, and not just those of large copyright holders.

I hope the EUCD best practice project mentioned above and similar initiatives support European policy makers in identifying the leeway they have under the WIPO Internet Treaties and the EUCD when shaping their copyright and DRM frameworks.

Read this – no comments from my side… (find an inofficial English translation of the draft implementation here.) As my friend Mike puts it: Good luck, Switzerland, on the negotiations of the bilateral trade agreement with the U.S.

INTERNATIONAL INTELLECTUAL PROPERTY ALLIANCE 2005 SPECIAL 301 SPECIAL MENTION SWITZERLAND

The Federal Copyright Act of 9 October 1992 as amended is currently undergoing further revision in order to implement the WIPO Copyright Treaty (WCT) and WIPO Performances and Phonograms Treaty (WPPT) into Swiss law. IIPA is concerned with the way in which the two treaties are being implemented in the country. The Swiss Federal Institute for Intellectual Property continues to delay the implementation of the WIPO Copyright Treaties. In September 2004 a draft implementation was released, but is problematic in several respects: it has an overly broad private copying exception (indeed the current exception is problematic and certain groups argue that downloading infringing copies of copyright works from peer-to-peer (P2P) networks is legal in Switzerland); inadequate protection of technological measures (including over-broad personal use exemptions); and burdens on rightholders employing technological measures (including labeling obligations).

Furthermore, the Swiss government should seek to make the use of P2P networks for copyright infringement more difficult. SAFE (the Swiss Anti-Piracy Federation) continues to investigate portal sites, which are generally hosted by foreign providers. In March 2004, police (cooperating with SAFE and the German Anti-Piracy organization [GVU]) raided the home of the Swiss creator of an eDonkey portal offering an extensive number of links to movies, cartoons, PC and console games, software, books and pornography (averaging 220,000 visitors per day). This individual will be prosecuted for copyright offenses, the first such prosecution against the creator of a portal for a P2P network in Switzerland.

The Berkman Center’s Digital Media Project team has released one new and one updated report on the current state of the digital media ecosystem. One report is an update of the 2003 foundational White Paper by the Berkman Center and GartnerG2 on Copyright Law in a Post-Napster World. The updated edition includes the following:

• Updated business model section that includes new survey data and an overview of “legitimate” P2P stores like Wippit and Weed (Chapter 2)
• Updated and expanded analysis of legal cases and decisions relevant in the digital media space, including a brief discussion of Grokster and RIAA v. Verizon (Chapter 3)
• Revised subsection on international enforcement issues like jurisdictional questions among nations (Chapter 3)
• Updated section on regulatory developments like provisions related to the broadcast flag and digital radio, as well as proposed laws in the U.S. such as the INDUCE Act (Chapter 4)
• Expanded chapter on DRM systems including new standards, challenges, and policy issues related to the use of DRM (Chapter 5)
• Updated outlook for the future (Chapter 6)

In addition, we’ve written an International Supplement to the White Paper, which examines the transition from analog/offline to digital/online media from an international legal perspective. Here’s the abstract/overview of the Supplement:

Comments, as always, are most welcome.

Michael Geist notes in his weekly Toronto Star Law Bytes column (free registration required) that decades of international IP agreements “have failed to balance the interests of the developed and developing worlds and have led to annual outflows of billions of dollars from the developing world to the developed world.” As to copyright law in particular, Geist concludes that the WIPO’s development agenda provides “the first chance in years to fashion a global intellectual property policy that helps, rather than hinders, the developing world.” Let’s make sure that Geist’s vision comes true.

BTW, a new Berkman report on copyright law and digital media in Europe and the Asia/Pacific region will be released here within the next few days, togehter with an updated version of the foundational GartnerG2/Berkman Center White Paper “Copyright and Digital Media in a Post-Napster World.”

CNN.com and others report that the European Court of First Instance today dismissed Microsoft’s application for interim measures in its entirety, since Microsoft “has not shown that it might suffer serious and irreparable damage as a result of implementation of the contested decision.”

A recent ruling by a Belgian court addresses the obligations of an ISP in cases where its users infringe copyrights. The Belgian Society of Authors, Composers and Publishers (SABAM) instituted in June 2004 a prohibitory injunction in the court of first instance of Brussels against the Internet service provider Tiscali. Through this injunction, SABAM seeks to put an end to the use of P2P networks in Belgium. Reportedly, the court now ruled that Tiscali should disconnect customers if they violate copyrights, and block access for all customers to websites offering file-sharing programs. The court also ordered a technical investigation into the possibility of blocking access. While the decision has not been made public by now, EDRI raises the interesting question of the ruling’s conformity with the relevant provisions set forth by the EU Copyright Directive and the EU E-Commerce Directive.

In this context, two aspects are particularly interesting. First, it is puzzling how an ISP could detect possible copyright infringements on P2P networks by its users. Arguably, a “blocking access”-approach would also include a “monitoring”-element in order to be effective. Would such a duty to monitor imposed upon an ISP be consistent with Article 15 of the E-Commerce Directive? Article 15(1) reads as follows:

This clear statement suggests that it is contradictory to EU law if an ISP was obliged by a national court to monitor the information that it transmits on its network. However, things are getting more interesting once we take Recital 47 of the E-Commerce Directive into consideration, which states:

Thus, it seems clear that general monitoring obligations are not allowed, whereas monitoring in specific cases – arguably with regard to particular users and/or websites – is allowed. But the distinction between general and specific obligations gets blurred in Recital 48:

Against this backdrop, it is less clear that a general requirement to implement and operate a monitoring or filtering system imposed by national authorities – if reasonable from a technical and economic viewpoint – would be a priori contradictory to the E-Commerce Directive’s provider liability provisions. (At least where the ISP hosts information provided by the recipients of its service.)

Second, it is important to note that SABAM obtained a prohibitory injunction, since the broad wording of Recital 45 seems to include “preventive” injunctions:

This Recital suggests that the court verdict in question is unlikely to be in contradiction to the “limited liability” provisions of the E-Commerce Directive; in this regard, I tend to disagree with EDRI’s initial analysis. Read also Article 8(3) of the EU Copyright Directive (EUCD) and Recital 59 of the EUCD:

However, it remains an open question what the scope and burden of a potential ISP’s monitoring and blocking obligation imposed by a preventive injunction can be.

At the Berkman Center, we released today a paper on the current state of implementation of the EU Copyright Directive (EUCD), with emphasis on the transposition of the provisions on the legal protection of technological measures sections (such as encryption, digital watermarking, copy-control technologies, and the like.) In this study, we have taken a closer look at the relevant definitions, exemptions, sanctions and remedies associated with the national anti-circumvention laws. What are the key findings?

First, our analysis reveals that uncertainty over the scope of provisions aimed at protecting technological measures as well as the definition of crucial terms (such as ‘effective measures’) persists – even at a rather basic level. The question, for instance, as to what extent access control mechanisms fall under the definition of technological protection measures and, as a consequence, are protected by the anti-circumvention provisions has been contested.

Second, the study explores different ways in which national implementations have addressed the problem of privately applied technological protection measures vis-�-vis the traditional exceptions to copyright within the framework as laid down in the EUCD. As demonstrated in the paper, incumbent member states have not made broad use of the possibility to take measures ensuring that private copying exceptions will survive technological protection measures, and have gone different paths as far as the implementation of the public policy exception as set forth by the EUCD are concerned.

Third, a brief analysis of some approaches to sanctions and remedies taken by EU member states suggests that member states have interpreted the relevant provisions of the EUCD – calling for “appropriate sanctions and remedies” – in different ways. While all countries impose civil sanctions in the case of a violation of anti-circumvention provisions, differences remain with regard to criminal sanctions. The regimes range from significant criminal sentences for both acts of circumvention and trafficking in circumvention devices and services to copyright laws that stipulate modest fines, but no imprisonment in the case of a violation of the anti-circumvention provisions.

The project website also provides an interactive chart with a resource page containing international and national legislation on technological protection measures with focus on the relevant laws of EU member states for further research. We intend to update the site as soon as new anti-circumvention provisions have been enacted in a EU member state.