BusinessWeek just published a terrific article, exposing the giant telecom corporations as fraudulently winning regulatory support that will solidify its control over the Internet. In part, justification is to promote the technology, but the article shows their research commitment is minimal. Gimein, Mark. 2006. "The Phone Companies Still Don't Get It: They Block Competition and Charge Too Much." Business Week (31 July): pp. 51-3. http://www.businessweek.com/magazine/content/06_31/b3995070.htm

51-2: "In case you haven't been keeping score, after the original phone company, American Telephone & Telegraph, was broken up in 1984, the country was left with eight major regional telcos. Over the past decade these companies proceeded to gobble one another up. Now there are four: AT&T, Verizon, BellSouth, and Qwest .... The "new" AT&T is actually the rechristened SBC, based in Austin, Tex., which acquired the venerable name last year -- and it's in the process of buying BellSouth. That will leave two phone giants, Verizon and AT&T, and the much smaller Qwest. The biggest wireless carriers are Verizon Wireless, majority owned by Verizon, and Cingular, which is soon to be wholly owned by AT&T. It's not exactly the return of the old Ma Bell monopoly -- the world has gotten way too complicated for that -- but that's a lot of power in the hands of just two companies."

52: "One way in which these companies are very different from the old phone monopoly is that while the original AT&T had a world-class research operation, its successors don't. One of the signal facts of the communications revolution is that virtually all the new technologies that made it possible were developed outside the phone world. Last year, Verizon's revenue came in at nearly $80 billion. AT&T (without BellSouth or Cingular) had revenue of $44 billion. And yet while Intel Corp. spent $5.1 billion last year on research and development, AT&T spent just $130 million. The word "research" doesn't even appear in Verizon's annual report."

52: "The phone giants have even used "innovation" as a key justification for their aggressive merger wave. Last year, when SBC was buying the remnants of AT&T, SBC Chief Executive Edward E. Whitacre made sure to note that by merging, the combined company would have "the intellectual and financial resources to spur innovation"."

As Michele indicates in the previous post, we are looking for compelling examples (about three) that we can use in a book introduction to draw in the average reader - convince them that IP is a problem they should be concerned with. In the comments on Michele's post, Michael suggests that it would be helpful if we discuss some candidates. Here goes:

AIDS drugs in Africa

the invention of television (Sarnoff stole it from Farnsworth)

Diebold using the DMCA to cover up the fact their voting machines don't work

the Canadian (?) farmer sued because genetically modified crops got on his property

mp3.com put out of business by RIAA lawsuit

replay TV sued out of existence

destruction of the Italian pharmaceutical industry when patents are introduced

story of the movie Tarnation - cost 0 to make, $400K for music rights

near shutdown of Blackberry network

Quattro pro "look and feel" lawsuit - Lotus versus Borland

why DAT never caught on (due to legally mandated DRM)

why HD DVD probably will never catch on - delayed until obsolete by DRM disputes

the Sony Betamax case

RAMBUS's use of a submarine patent to blackmail the memory chip industry

theft of the telephone by Alexander Graham Bell

obstruction of the industrial revolution by James Watt

movement of the chemical industry from England/France/US to Germany/Switzerland due to strong UK type patent system - story of red dye, story of delivery of chemicals to US by U-boat during WWI

As I've indicated in other posts 1 2 I'm skeptical about laws concerning network neutrality. Needless to say, although I agree with Larry Lessig about a lot of things, we don't see eye to eye on this, and I don't like being lumped in with

entities that either never got the Net, or fought like hell to control it telecom, and cable companies.

I think Felten has this right - locking things in with regulation is likely to do more harm than good. It isn't that I want the internet dominated by telecom and cable companies - but the fact is that they have to compete except over the last mile. So the solution isn't net neutrality and more government regulation, but fighting for less regulation and more competition over the last mile.

Ed Felten brings attention to a good op-ed by Tim Lee pointing this out. Despite the ridiculous claims of the large telecos that it is horribly expensive to wire the last mile, the fact is that it is the monopoly granted by local (and generally corrupt) goverments to the telecos and cable operators that prevents entry. Roger Noll has this right: it is wireless that is probably going to break the back of the last mile monopoly. So at the Federal level let's stop worrying about the side issue of net neutrality and fight to open up a lot of spectrum for wireless.

http://www.businessweek.com/magazine/content/06_27/b3991401.htm

Nathan Myhrvold, Microsoft's first chief technology officer, has a plan for Intellectual Property. First he gathers leading scientists and patent attorneys to brainstorm and come up with ideas that his company, Intellectual Ventures, can license to others. They plan to produce nothing but patents. You know what comes next.

The company also offers to "immunize" corporations from patent suits for a $50 million fee. The company will go around and buy patents before other patent trolls do, thereby "protecting" the clients. Others, of course, will have to face the consequences of not having ponied up the $50 million.

Does the word "blackmail" have any relevance here?

So I'm mostly posting this because I can. According to the map on the screen in front of me I'm in between Salt Lake City and Denver at an altitude of 35,000 feet. For the ten and a half hour flight from LA to Munich, I'm paying a lump sum of $27 for a high speed internet connection. So what does this have to do with monopoly? At the moment, using skype, I can call - with pretty good sound - anyone with skype anywhere in the world for free, and anyone in the U.S. or Europe for about 2 cents a minute. Once I arrive in Munich and start using my cell phone, the price goes up to a dollar a minute. There is pretty clearly some lack of competition in international roaming rates - it can't cost fifty times more to call by cell than it does by skype. Fifty times - that is a high price to pay for monopoly.

Addendum: David Laibson was puzzling over the same thing in Munich. The problem is that neither of us can figure out where there is lack of competition. There are multiple US providers that offer overseas roaming, and multiple overseas providers with whom they can and do contract. So unless there is some government regulation here we don't know about, the market looks pretty competitive. My best guess is that what is going on has something to do with bundling - few people are going to switch U.S. providers just because of a small difference in international roaming rates. When T-Mobile offered much better rates than Cingular several years ago, Cingular lowered their rates to be closer to T-Mobile, but they didn't try to undercut them.

Robert Cringely has a nice article on pbs.org describing Google's secretiveness and unfair business methods in its advertisement services. A monopolist engaging in monopolistic practices is hardly surprising, and perhaps not worthy of mention even in this site. However I believe Google deserves special attention. Google is slowly but steadily working towards acquiring a dominant position in delivering human knowledge and information. Not only because it is the default search engine for most internet searches, but also because Google is actively storing all sorts of information. Take a look, for example, at its google base project, or at the more famous google library project. Google's chosen motto is "don't be evil", which many interpret to mean "we won't be Microsoft". Indeed, Google distinguishes itself from the software giant because it does thing just right. We all like its products, but this unfortunately increases its dominant position. For these reasons, I believe we should monitor Google's practices very carefully.

One of the most important forms of competition and protections against entrenched monopoly is immigration. Most economists recognize this, and a great many, myself included, signed an open letter arguing in favor of generous immigration policy. Matt Yglesias questions our sincerity.

I'll believe that this is all about altruism when I see an open letter from economists demanding that we scrap the complicated H1B visa system and instead allow unrestricted immigration of foreign college professors without all these requirements about prevailing wages, work conditions, non-displacement, good-faith recruitment of natives, etc. Obviously, there are many foreign born professors in the United States, but there could be many more, wages for academics could be lower, and college tuitions could be significantly lower. If there's really no difference between "us" and "them" economists should be leading the charge to disassemble the system of employment protections they enjoy.

I wouldn't argue that our views have to do with altruism. It is possible to selfishly believe that the overall benefits of improving competition outweight the negative impact on yourself. As far as personal self-interest goes - I think that the H1B visa system is pretty ineffective at preventing foreign competition. Yglesias is pretty naive if he thinks that the current system keeps people out. If you look at our economics graduate programs and assistant professors, it isn't clear that it is feasible to increase the percentage who are foreign born - that number can't go over 100%.

But regardless the current system is obnoxious and unjust. I would prefer that anyone who wants to come to the U.S. be allowed to do so with minimal paper work. I think there are two views one can have of competition. Mine is - bring it on.

My latest column in The Freeman, the magazine I edit, summarizes Michele Boldrin and David K. Levine's chapter on the world pharmaceutical industry in their book, Against Intellectual Monopoly. The column is here (pdf).

From Christine MacLeod's book Inventing the Industrial Revolution : The English Patent System, 1660-1800

...the [English] crown, desperate for new sources of patronage and revenue in the 1630's, was able to exploit [loopholes]. Industrial corporations were created or transformed to operate patents that conferred monopoly powers, at the price of an annual rent or pro rata payment to crown. Major items of consumption - salt, soap, starch, coal, for example - rose dramatically in price as monopolists sought to recoup the rents and premiums demanded by the government and to extract high profits while their political luck held. The practicioners of some trades were barred from exercising their legitimate occupation except on the payment of fines, or they paid harsh penalties for refusal.

The New York Times has an interesting article on a patent case making its way to the Supreme Court, LabCorp v. Metabolite Laboratories. The key issue is whether a patent can be granted for a procedure plumbing the relationship between between a substance in the body and a disease, or whether this is an unpatentable natural occurence.

As the article explains, court decisions have ruled against protecting natural laws and phenomena as well as abstract ideas; but in a 1981 case, Diamond v. Diehr, the Court decided for a patent on a rubber curing process using a chemical equation. An interesting aspect of the contest is that in the lower courts the plaintiff didn't raise the issue of patenting natural phenomena, instead arguing the case on other grounds, as the Burlington, N.C., firm doesn't wish to undermine its own patents, thereby hoisting itself by its own petard.

He who lives by the patent....