Law and Information

Today, I attended a small, but really interesting conference chaired by my colleagues Professor Werner Wunderlich und Prof. Beat Schmid from the Institute for Media and Communication Management, our sister institute here at the Univ. of St. Gallen. The conference was on “The Future of the Gutenberg Galaxy” and looked at trends and perspectives of the medium “book”. I’ve learned a big deal today about the current state of the book market and future scenarios from a terrific line-up of speakers. It was a particular pleasure, for instance, to meet Prof. Wulf D. von Lucus, who’s teaching at the Univ. of Hohenheim, but is also the Chairman of the Board of Carl Hanser Verlag, which will be publishing the German version of our forthcoming book Born Digital.

We covered a lot of terrain, ranging from definitional question (what is a book? Here is a legal definition under Swiss VAT law, for starters) to open access issues. The focus of the conversation, though, was on the question how digitization shapes the book market and, ultimately, whether the Internet will change the concept “book” as such. A broad consensus emerged among the participants (a) that digitization has a profound impact on the book industry, but that it’s still too early to tell what it means in detail, and (b) that the traditional book is very unlikely to be substituted by electronic formats (partly referring to the superiority-of-design-argument that Umberto Eco made some time ago).

I was the last speaker at the forum and faced the challenge to talk about the future of books from a legal perspective. Based on the insights we gained in the context of our Digital Media Project and the discussion at the forum, I came up with the following four observations and theses, respectively:

Technological innovations – digitization in tandem with network computing – have changed the information ecosystem. From what we’ve learned so far, it’s safe to say that at least some of the changes are tectonic in nature. These structural shifts in the way in which we create, disseminate, access, and (re-)use information, knowledge, and entertainment have both direct and indirect effects on the medium “book” and the corresponding subsystem.

Some examples and precursors in this context: collaborative and evolutionary production of books (see Lessig’s Code 2.0); e-Books and online book stores (see ciando or Amazon.com); online access to books (see, e.g., libreka, Google Book Search, digital libraries); creative re-uses such as fan fiction, podcasts, and the like (see, e.g., LibriVox, Project Gutenberg, www.harrypotterfanfiction.com).

Law is responding to the disruptive changes in the information environment. It not only reacts to innovations related to digitization and networks, but has also the power to actively shape the outcome of these transformative processes. However, law is not the only regulatory force, and to gain a deeper understanding of the interplay among these forces is crucial when considering the future of books.

While fleshing out this second thesis, I argued that the reactions to innovations in the book sector may follow the pattern of ICT innovation described by Debora Spar in her book Ruling the Waves (Innovation – Commercialization – Creative Anarchy – Rules and Regulations). I used the ongoing digitization of books and libraries by Google Book Search as a mini-case study to illustrate the phases. With regard to the different regulatory forces, I referred to Lessig’s framework and used book-relevant examples such as DRM-protected eBooks (“code”), the use of collaborative creativity (“norms”), and book-price fixing (“markets”) to illustrate it. I also tried to emphasis that the law has the power to shape each of the forces mentioned above in one way or another (I used examples such as anti-circumvention legislation, the legal ban on book-price fixing, and mandatory copyright provisions that preempt certain contractual provisions.)

The legal “hot-spots” when it comes to the future of the book in the digital age are the questions of distribution, access, and – potentially – creative re-use. The areas of law that are particularly relevant in this context are contracts, copyright/trademark law, and competition law.

Based on the discussion at the forum, I tried to map some of the past, current, and emerging conflicts among the different stakeholders of the ecosystem “book”. In the area of contract law, I focused on the relationship between authors and increasingly powerful book publishers that are tempted to use their unequal bargaining power to impose standard contracts on authors and transfer as many rights as possible (e.g. “buy out” contracts).

With regard to copyright law, I touched upon a small, but representative selection of conflicts, e.g. the relation between right holders and increasingly active users (referring to the recent hp-lexicon print-version controversy); the tensions between right holders and (new) Internet intermediaries (e.g. liability of platforms for infringements of their users in case of early leakage of bestsellers; e.g. interpretation of copyright limitations and exemptions in case of full-text book searches without permission of right holders); the tension between publishers and libraries (e.g. positive externalities of “remote access” to digital libraries vs. lack of exemptions in national and international copyright legislation – a topic my colleague Silke Ernst is working on); and the tension between right holders and educational institutions (with reference to this report).

As far as competition law is concerned, I sketched a scenario in which Google Book Search would reach a dominant market position with strong user lock-in due to network effects and would decline to digitize and index certain books or book programs, for instance due to operational reasons. Based on this scenario, I speculated about a possible response by competition law authorities (European authorities in mind) and raised the question whether Google Book Search could be regarded, at some point, as an essential facility. (In the subsequent panel discussion, Google’s Jens Redmer and I had a friendly back-and-forth on this issue.)

Not all of the recent legal conflicts involving the medium “book” are related to the transition from an analog/offline to a digital/online environment. Law continues to address book-relevant issues that are not new, but rather variations on traditional doctrinal themes.

I used the Michael Baigent et al. v. Random House Group decision by the London’s High Court of Justice as one example (has the author of Da Vinci Code infringed copyright by “borrowing” a theme from the earlier book Holy Blood, Holy Grail?), and the recent Esra-decision by the German BVerfG as a second one (author’s freedom of expression vs. privacy right of a person in a case where it was too obvious that the figure used in a novel was a real and identifiable person and where intimate details of the real person were disclosed in the book.)

Unfortunately, we didn’t have much time to discuss several interesting other issues and topics that were brought up and related to the generation born digital and its use of books – and the consequences of kids’ changed media usage in a changed media environment, e.g. with regard to information overload and the quality of information. Topics, to be sure, that John Palfrey and I are addressing in our forthcoming book.

In sum, an intense, but very inspiring conference day.

Update: Dr. David Weinberger, among the smartest people I’ve ever met, has just released a great article on ebooks and libraries.

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 EU commission recently released an impressive 280+ pp. study on the economic impact of open source software on innovation and the competitiveness of the ICT sector in the EU. The report analyzes, among other things, FLOSS’ market share, and its direct and indirect economic impacts on innovation and growth. It also discusses trends and scenarios and formulates policy recommendations. Some of the findings that I find particularly interesting:

• Almost two-thirds of FLOSS is written by individuals, while firms contribute about 15% and other institutions 20%. The existing base of FLOSS software represents about 131.000 real person-years of effort.
• Europe is the leading region as far as the number of globally collaborating FLOSS developers and global project leaders are concerned. Weighted by average income, India is the leading provider of FLOSS developers, followed by China.
• The existing base of quality FLOSS applications would cost firms almost 12 billion Euros to reproduce internally. The code base has been doubling every 12-24 month. FLOSS potentially saves the industry over 36% in software R&D investment.
• FLOSS is an important growth factor for the European economy. It encourages the creation of SMEs and jobs and is unlikely to cannibalize proprietary software jobs. The FLOSS-related share of the economic could reach 4% of the European GDP by 2010.
• Europe’s strength regarding FLOSS are its strong community of active developers, small firms, and secondary software industry. In contrast, a generally low level of ICT investment and a relatively low rate of FLOSS adaptation by large industry (if compared to U.S.) are among its weaknesses.

As to policy recommendations, the report suggests a focus on the correction of existing policies and practices that currently favor proprietary software. Among the recommendations: support FLOSS in pre-competitive research and standardization; encourage partnerships among large firms, SMEs and FLOSS communities; provide equitable tax treatment for FLOSS creators.

I had the pleasure to chair a panel on new user habits and social attitudes at the OECD’s Rome conference entitled “The Future Digital Economy: Digital Content Creation, Distribution and Access.” On the panel was a wonderful group of experts:

• Dr. David Day, Nielsen’s/Net Ratings’ Director for Europe, the Middle East and Africa was presenting data on Internet use and online behavior with focus on the EU;
• Dr. John Horrigan, Associate Director for Research at the Pew Internet & American Life Project presented recent surveys on broadband usage in the U.S.;
• David Sifry, Founder, President and CEO of Technorati was talking about the development and measurement of weblogs as well as the overall evolution of the blogosphere
• Frieda Brioschi, President Wikipedia and Wikimedia Italy, shared thoughts about current trends and developments in peer-production projects like Wikipedia; and
• Dr. Jens Uwe Intat used the case of games to show how emerging user habits and social attitudes are changing the ways we consume entertainment.

From David Day’s and John Horrigan’s presentations I caught the following data points:

• More than 150 million W Europeans with Internet access and still growing.
• 95% of established Internet users are using the Net at home, 49% at work, 23% at educational institutions, 18% in the Internet cafe, 14% in public libraries.
• The top-device to access the Internet is the Pc/Mac (91%), followed by laptop (33%), mobile phones (18%), digital TV (5%), PDAs (4%) and game consoles (4%).
• Typical online behavior in a month includes: search (94%), general interest/portals (86%), web services/internet tools (75%), mass merchandisers (73%), auctions (66%), email (54%), online banking (53%) and community sites (53%).
• 36% of adult Americans have high-speed connections at home.
• The following percentage of the age group 35 & under has ever been engaged in the following activities: 20% blog; 39% sharing creative work online; 35% sharing any online content.
• A December survey by Pew shows that having a broadband connection at home continues to have a transformative impact on users. The three areas of impact are: (i) increased reliance on the Internet for news and information; (ii) heavy use of the Internet for gaming and entertainment; (iii) use of the Net to satisfy creative needs (amateur content production).

Here are my personal take home points from the panel discussion:

Empirical as well as anecdotal evidence (case studies) suggest fundamental changes in the way we access, use, create, and distribute information, knowledge, and entertainment.

(1) Access:

• Broadband has arrived and is creating a critical mass.
• In large part due to broadband technology, the Internet is increasingly embedded in our daily lives.

(2) Use:

• Technology matters, too, not only specific user demographics.
• We heavily use services that require some sort of content intermediaries (search engines, news aggregators, games).

(3) Creation:

• Weblogs play a key role in bottom-up content creation, both in the EU and the US.
• Peer-produced projects such as Wikipedia are prime examples of new modes of content production

(4) Distribution:

• Large-scale P2P file-sharing, for legitimate and illegitimate purposes, is persistent.
• Increasingly important is sharing of self-created content.

In conclusion, it seems to me that we are at the beginning of a long, multi-layered discussion that is likely to be increasingly centered on access and creation rather than (P2P) distribution.

Mike McGuire and Derek Slater have released an interesting Gartner/Berkman Center report entitled “Consumer Taste Sharing Is Driving the Online Music Business and Democratizing Culture” that analyzes the extent of peoples’ use of consumer-to-consumer recommendation tools such as playlists. Here’s their prediction:

Check also Derek Slater’s playlist on this topic, and his comments here.

I have the great pleasure to attend the Global Voices 2005 London Summit led by my Berkman colleagues and friends Rebecca McKinnon and Ethan Zuckerman. It’s fantastic what the Global Voices initiative has achieved. Currently, more than 300,000 people per month are visiting the site and read articles written by hundreds of users from around the world, and the growth rate is impressive. Also, GV increasingly attracts the attention from traditional media such as CNN, BBC, etc. Some statistics are posted here.

I can’t wait to learn more about the future editorial strategy of GV. I’m increasingly fascinated by the emergence of innovative editorial functionalities and their implications for cyberspace as a “message space” (sensu Charlie Nesson.)

Join us online!

In the past few weeks, I’ve been fortunate enough to participate in a series of exceptional workshops, panels and seminars. Today, I had the pleasure to contribute to an international legal seminar here in Ljubljana–one among other events to celebrate the launch of CC Slovenia. I had the honor to lecture on participatory culture and the future of information law and the pleasure to interact with Larry Lessig, Charles Nesson, Bernt Hugenholtz as well as Sacha Wunsch-Vincent and Ronaldo Lemos. It’s been an interesting conversation–I’m still thinking–about the empowerment of the individual, digital creativity, the future of copyright and, ultimately, governance of the Net. Charlie fascinated the audience with a videoconference from Poland and a wonderful contribution summarized here. Thanks, Charlie! Thanks esp. to Maja Bogataj and her team for making all this possible!

Back at the Berkman Center, I’ve been preparing for State of Play III, where I will be participating in a workshop entitled “Building the Metaverse: The Role of Property, Intellectual Property and Commerce.” It turns out that the workshop agenda, circulated in the last-minute, develops in a different direction than I expected, but anyway, here are some pre-conference thoughts (thanks to my friend and colleague James Thurman for research assistance):

1. Virtual worlds were originally considered to be communities of fantasy, but today equally constitute communities of interest, relationship, and transactions. Indeed, virtual worlds have developed their own economies with production, assets, and trade activities comparable to national economies in the offline world. At the core of virtual economies are marketplaces for virtual world goods, where citizens/users are increasingly engaged in creating, providing, and demanding digital items. Depending on the virtual world, between 20% and 70% of citizens/users are estimated to be engaged in smaller and larger transactions of this sort.

2. The first online games that provided an immersive experience and created a persistent environment as is now characteristic for virtual worlds debuted in the second half of the 1990s. It is noteworthy that first-generation virtual worlds such as Meridian 59 already enabled transactions—besides being based on killing and adventuring. However, transactions in this stage of technological evolution were rather simple and straightforward: Avatars had the ability to deal with computer-commanded merchants who bought and sold virtual items. Those items could then be further traded between avatars within the game.

3. More recently designed social virtual spaces are centered around creation, development, exploration, and engaging in transactions as opposed to simple “hack and slash” or playing out an overall adventure or storyline. EVE Online, for instance, enables users not only to buy and sell virtual items, but also to create and operate virtual businesses, to manufacture digital items, provide services, etc. In second-generation virtual worlds, in-game transactions have both increased in importance as well as gained in complexity. In addition, the locus of the marketplace on which digital items are traded has blurred: In many cases, large-scale in-game trades simultaneously take place with economically significant trades over platforms such as ItemBay or eBay.

4. The increased participation of users in the creation of virtual world items in second-generation worlds marks the transition from a hierarchical and centralized paradigm of production to a decentralized mode of peer-production of virtual worlds. In emerging third-generation virtual worlds such as Second Life, users are no longer engaged in the production and trade of particular virtual items aimed at eliminating scarcity in the economic sense, but become co-creators of the virtual world as such. Against this backdrop, transactions in virtual items are not only of economic relevance, but will increasingly become “part of the game” in the (different) sense that they are constitutive elements of virtual worlds.

5. Each of the three stages of market evolution as outlined above is associated with a distinct set of legal/regulatory problems and governance challenges. In first-generation games, the complexity of such problems is fairly limited due to the limited number of transactions and types of transaction that constitute the in-world marketplace. Governance problems in this phase may include phenomena such as digital looting or cheating. Second-generation virtual worlds, by contrast, increase the level of complexity of transactions dramatically by enabling users to become more creative and more interactive. As a consequence, virtual worlds of this generation are facing a series of legal/regulatory challenges, ranging from the question of ownership of digital property to disputes between market participants or fraud. In third-generation virtual worlds, these governance issues get even more important and complex due to ubiquitous creation and exchange of digital items as building blocks of the virtual world. The associated re-allocation of the roles of platform providers on the one hand and users on the other hand may ultimately result in many-faceted tussles over control, both vertically (between platform providers and users) and horizontally (between users and/or group of users.)

6. A tentative and non-comprehensive analysis of the governance regimes of several online worlds across the three generations suggests that the regulatory problems and challenges mentioned above have mainly been addressed by using two modes of regulation: Code and law. (NB: It appears that alternative regulatory mechanisms such as reputation systems prove less successful in this part of cyberspace than in others.) Code, of course, seems to be the first choice to regulate behavior on the marketplaces of virtual worlds. However, an initial analysis suggests that code, in this particular case, has much more an enabling function than a constraining function based on users’ demand to be able to do more things (including transactions) in virtual worlds. Further, code is limited to in-game regulation. Where problems occur at the intersection of virtual worlds and other worlds, code-based regulation seems to be much less effective. Finally, code can be and has been circumvented.

7. Law as a mode of regulation has mainly been applied in form of End User Licensing Agreements (EULAs) and Terms of Service (ToS). Most of the first-generation-virtual-worlds EULAs, as far as we can see, have not set forth specific governance regimes aimed at regulating transactions; rather, they look similar to general software licenses. Given the characteristics of these transactions and the low conflict potential at the early stage of development, this does not come as a surprise. The EULAs of second-generation virtual worlds commonly address (if not necessarily resolve) some of the conflicts outline above. The question of content ownership and copyright as the basis for virtual commercial transactions has got a fair amount of attention in EULAs. Overall, a notable feature of many second-generation EULAs is that they seek to establish control and possession over all of the content which appears upon their platforms. Further, many of the EULAs or ToS contain provisions which explicitly restrict the real world sale of digital items or avatars. However, it does not appear that such activities have ceased concerning those games which prohibit them. Some EULAs of second-generation virtual worlds also contain provisions aimed at regulating users’ behavior on in-game marketplaces, e.g. by establishing rules against trade scams or other forms of abuse. Finally, EULAs and rules of conduct, respectively, of some virtual worlds contain provision regarding trade disputes between users and corresponding disclaimers of liability. The EULAs of emerging third-generation virtual worlds—most prominently Second Life—tend to establish a less restrictive ownership regime, i.e., recognizing that players have copyrights in their virtual creations whenever applicable. (The potential problems associated with such an approach have been discussed elsewhere.) In other respects, EULAs of third-generation worlds appear to be similar to governance regimes of second-generation virtual worlds.

8. A high-level analysis of selected EULAs and ToS’s of three generations of virtual worlds suggests that sophisticated regimes aimed at regulating digital transactions (in the broad sense of the term) have not yet emerged. It appears that EULAs and ToS of contemporary virtual worlds are eclectically dealing with questions of ownership/copyright, while paying less attention to the regulation of other important aspects of the marketplace—despite indication that some form of regulation might be (or become) necessary due to in-world market failures. Further, the analysis suggests that virtual world governance regimes, as far as they have developed and as far as transactions are concerned, are largely replicating traditional institutional arrangements of the offline world. In this regard, one can not yet observe large-scale experiments with alternative governance approaches to market regulation.

9. It remains an open question as to what extent those second-generation virtual worlds in which transactions and markets play an increasingly important role will need, over time, a more advanced approach to governance in order both to organize and protect markets. A more comprehensive framework would probably also include some form of contract law, consumer protection laws, and rules ensuring competition on virtual markets. Even more interesting is the question of whether currently available institutional frameworks—such as rules and enforcement arrangements as established by contract or corporate law, for instance—are appropriate to deal with the potential challenges that emerge in peer-produced third-generation virtual worlds. Further, current governance regimes as established, in part, by EULAs and ToS’s still have a strong vertical orientation, heavily focusing on the interactions and transactions between users and platform providers. Complementary “horizontal” and peer-oriented governance approaches, by contrast, have not gained much visibility, although precursors exist (e.g. in form of new digital institutions such as in-world laws drafted and enacted by users as in the case of A Tale in the Desert.)

10. The analysis of existing and emerging governance regimes—here focusing on transaction frameworks—suggests that we are only at the very beginning of the often quoted competition among governance regimes of virtual worlds. Whether competing governance systems also emerge between virtual worlds on the one hand and the real world on the other, depends increasingly on the creativity of virtual citizens in peer-designing their own innovative governance regimes as we move from centralized to decentralized virtual worlds.

Larry E. Ribstein, Univ. of Illinois College of Law, offers on SSRN Initial Reflections on the Law and Economics of Blogging. After an overview of the technology of blogging, the author explores the economics of blogging, discussing private costs and benefits (such as self expresion and reputation, among others) on the one hand and social benefits and costs on the other hand. Personally, I’m particularly interested in the low-quality information argument as a potential social cost, since it links nicely to my research-in-progress on information quality on the Internet. Unfortunately, the quality argument made by Ribstein is indeed “initial” as the paper’s title suggests.
Ribstein then focuses on public choice of blogging, followed by a discussion of specific legal issues, including the journalists’ privilege, the application of election laws, copyright issues, media ownership restrictions, as well as defamation and licensing laws.
Overall, a nice and short Saturday morning “food-for-thought” read.

The Berkman Center for Internet & Society, the Journal of Law & Technology, and the Committee for Sports & Entertainment Law, all of Harvard Law School, are hosting Signal or Noise 2k5: Creative Revolution? on April 8, 2005, on the Harvard campus in Cambridge, Massachusetts.

The conference offers an exciting mix of performances, demonstrations and discussions examining how digital technologies are enabling new forms of creativity by a broader group of people. Cultural, business, legal and ethical implications of new genres and new forms of authorship will all be covered along with an artist’s interests and rights in downstream uses of original creations.

Scheduled conference participants include New York Times bestselling author Matthew Pearl, copyright scholar Terry Fisher, fanfic author Naomi Novik, David Dixon of Beatallica, innovative musician Dan the Automator, Paul Marino of machinima.org, and Wendy Seltzer of the Electronic Frontier Foundation.

Signal or Noise 2K5 is open to the public but pre-registration is needed. For more information
about the conference’s location, schedule and participants, click here.

On a personal note: Special thanks to Berkman Fellow Meg Smith for putting together such a terrific event!