Category: Law & Policy

More Than 3Dimensions

WrenchOwnership is the subject of “On the Media’s” recent broadcast from WNYC, and the show’s producers talked to a variety of voices about the ever-shifting tensions between intellectual property rights and disruptive technologies.  One segment featured a conversation with Chris Anderson, CEO of 3D Robotics, and the theme was a familiar one — the inevitable disruption of manufacturing by 3D printing technology coupled with a preemptive criticism of federal regulation that would seek to mitigate said disruption as a protectionist move among traditional manufacturers.  Before this technology is anywhere near wide distribution, its proponents are already anticipating the kind of legal constraints that might naturally ensue, and they’re getting their message out early — namely that 3D printing is the next revolution in a DIY, permission-free lifestyle, and it will be great for all of us if lawmakers don’t mess it up.  But to what extent is this conversation purely academic?  In fact, host Bob Garfield’s example of printing a wrench is itself and indication as to why 3D printing may not be quite so universally disruptive, or at least not in the way many proponents assume.

Start with the premise that I bet I’m not the only one who has gone through at least a dozen or so ink jet printers in my life so far, and we all know why.  Because the printers are made to retail pretty cheaply in order to lock us into buying toner cartridges that are still quite expensive.  Over twenty years of desktop printing, and the price of a black toner cartridge is still $30 to $40 at Staples.

So now, it’s the future, and I have my 3D printer, which had to retail for maybe $500 or less in order to achieve market penetration; and I’m ready to print myself a new crescent wrench, something that has already been done by various printer advocates and entrepreneurs.  If black toner is $30, how much will it cost for, I don’t know, 30oz of whatever MagicGoo has been invented to enable printing a wrench that has enough structural integrity to truly fulfill its purpose (i.e. not break)? It’s going to have to be really cheap and really good (two things that often don’t coincide) in order to compete with the steel-alloy, nickel-plated Craftsman I can buy for about $30 and comes with a lifetime guarantee.  And of course my 3D printer better be a lot more reliable than my 2D printers have been because I’m sure many of us have lost whole days fighting with these delicate, cantankerous beasts, which is right around the time we give up and buy a new one.  Meanwhile, I’ve got bolts on the kids’ swing set that remain unbolted because my printer jammed half-way through making my stupid wrench, and my wife is telling me I’m an idiot for not going to the hardware store two hours ago. So, a lot more than downloading software and owning a printer has to align for this entire prospect to be superior to the current wrench acquisition paradigm that is neither cumbersome nor cost-prohibitive.  And that’s just a wrench.

Take something a little more complicated but still low-tech like a brake caliper, which has several components and retails for my car for about $60. In its present form, the caliper (like so many products) represents mining, petroleum production, rubber harvesting, commodities markets, international trade, shipping (which is protected by the US Navy), machining, assembly,  testing, and regulatory safety standards. And still, the part is only twenty dollars more than a black toner cartridge. But as this is a moving part complete with spring, I can’t just build it as one piece out of nothing but MagicGoo. Hence, are we envisioning a future in which individual consumers have affordable access to raw materials like copper, metal alloys, rubber, etc. all in some form that can be extruded through the 3D printer?  If so, that’s a pretty massive shift in the global supply chain; but even if the day comes when I can precision-print each component, I still have to assemble the caliper by hand (presumably with tools I’ve also printed), which brings us to another matter. . . . Guess what none of us has anymore — auto insurance.  Car parts are just one example of products that come with a liability chain, and I’m betting there isn’t going to be an underwriter willing to insure drivers who make and assemble their own parts.  By contrast the calipers on all our cars have a supply chain that can be traced, which provides a) relative assurance in reliability; b) absolves us consumers of personal liability; and c) provides insight into systemic problems when something does fail.

Just glancing across my rather cluttered desk at the moment, I recognize products that contain gold, silver, copper, silicone, steel, aluminum, rubber, and cotton, all assembled in very specific combinations either by hand or by robot.  In fact, the complexity of systems that put these things at my fingertips belies their affordability. Hence, my immediate instinct is that many of these preemptive policy statements by 3D printing champions make for very interesting conversation and TED Talks, but still belong in the realm of the academic.  A holistic contemplation of 3D printer disruption, taking into account what a pain in the ass common ink printers have been so far, shows it will take a lot more than building an object that looks like a product for the thing to actually be that product.

Technologists and inventors are supposed to dream big; it’s part of their job description. And the prospect of 3D printing to produce new products or new methods of certain types of production in the arts, in food, even potentially in housing, are very intriguing, but to proclaim imminent disruption across the entire manufacturing sector seems a tad premature. And the policy messages start to sound a little like people arguing for revised traffic laws in anticipation of that day we all have jet packs. All that said, I’d be very eager to use a 3D printer to print out new 2D printers and especially those damnable toner cartridges.

Strange Theater at the CATO Institute

“To keep up even a worthwhile tradition means vitiating the idea behind it which must necessarily be in a constant state of evolution: it is mad to try to express new feelings in a “mummified” form.”
– Alfred Jarry –

Legal expert and blogger Terry Hart and I had the chance to meet in DC this week, and we were discussing the likelihood that, although copyright is dispos’d in brawl ridiculous on the virtual battlefields of cyberspace, that most people neither know nor likely care much about the subject. This is probably a good thing as there are more serious matters at hand. Still, one of the reasons I personally do pay attention to this digital-age donnybrook is that, beyond concern for the rights of creators, the future of culture, and the economics of the creative industries, my sense is that there are some strange, ideological forces at play.

A couple of weeks ago, I wrote a post asking whether or not conservatives and libertarians are eager to take up copyright reform under the umbrella agenda of small government.  My post was in response to a somewhat haphazard brief, published and then retracted by the Republican Study Committee.  And last week, the libertarian Cato Institute hosted what I can only describe as a piece of absurdist theater entitled Copyright Unbalanced: From Incentive to Excess, so named for the book edited by Jerry Brito and co-authored by Tom W. Bell, who were the featured speakers

As usual, I’ll direct you to Terry’s blog for legal analysis of the presentation but offer my take from a broad perspective. The premise is that copyright law has expanded beyond it’s original intent (translation: an example of big government), and the conclusion proposed is that copyright law ought to revert back to its status of 1790 (translation: strict constitutionalism).  So, as a purely academic exercise, I get why this stage play might seem attractive to libertarians or conservatives; but as we contemplate taking these proposals seriously in the real world, we run headlong into some peculiar hypocrisies and contradictions.  Libertarians and conservatives looking to weaken the notion that intellectual property is property? Or even stranger, the same groups suddenly emphasizing the “public good” over the individual?

Now, I personally have come to reject most political labels, which seems only rational when liberals classify me as a conservative, and conservatives as a bleeding heart liberal.  But no matter what ideological alliance is being claimed, I’m always concerned when anyone makes a case that any law ought to remain static as of the 18th century.  I believe there is an inherent danger, somewhere between impractical and barbaric, to propose living too strictly according the gospels of ancient men. (Just look what happens when people try to cherry-pick the Old Testament for political purposes.) Hence other than selling a book (and no it doesn’t seem to be available through Creative Commons license), it’s a little hard to fathom what in any practical sense Brito and Bell are proposing with regard to “re-balancing” copyright.  There may be a rational conversation to be had about the present system and duration of terms, but Mr. Bell’s loftily presented assertion that it’s obvious we should simply erase 200 years of jurisprudence and reset the clock to a time before mass publication of books even existed doesn’t exactly have the ring of balance to my ear. On the other hand, I might be game for resetting the letter of the law to 1790, if we are willing to restore remedies from the same period.  I mean, who doesn’t want to bring back dueling or good old-fashioned belaboring one’s ideological foe with a cudgel? Or the word cudgel, for that matter?

Most of us recognize that technological innovation is a primary reason why copyright, not to mention quite a few other laws, has grown and evolved since the world was new. In the case of copyright, of course, technologies have created new media the framers could not have imagined, as well as new ways to consume media and new ways to steal media. Yet, Brito and Bell seem to want to ignore these and other realities and regress the law as an ideological principle to a time when the U.S. population, including slaves, was roughly 3.9 million. That’s about one million fewer people than visit just The Pirate Bay on a daily basis to enable mass copyright infringement. Shift this same academic argument about half a click toward the subject of patent protections, and I suspect that any conservative or libertarian support for the larger rationale will quickly vanish. And that’s part of what was so bizarre about the presentation — the fact that Brito and Bell seem to be weaving a very narrow and serpentine path through conservative and libertarian values, not to mention running smack into conflict with the preachings of Ayn Rand from a stage built partly in her honor.

Brito himself invoked the name of Rand, and all I could imagine was the smoky old tart choking on his assertion that copyright is not based in any kind of natural right of the individual.  By choosing to interpret the clause on copyright “To promote the progress of science and useful arts…” in the most collectivist sense, Brito and Bell would earn themselves an indignant tongue-lashing from Ms. Rand were she alive to hear them.  After all, even a half-stoned teenager forced to skim the novel Atlas Shrugged would be able to glean that Rand placed value solely on the individual’s absolute, natural right to exploit for profit any type of product of his own mind without restriction of any kind ever. She reviled the notion of performing work “for the common good,” even voluntarily; and she defined those who would profit from the work of others, either by design or by circumstance, as “looters.”  Hence, in the digital age, Rand would see the rise of “looters” among torrent sites, the users of these sites, Google, advertisers, payment processors, etc.  So, it’s odd enough to hear collectivist proposals about any property right at the Cato Institute, but it’s even more bizarre that these academic proposals would supersede a pragmatic discussion about the unmitigated expansion of “looting” in our times.

Of course, we shouldn’t be surprised that so many tech bloggers are swooning over the assertions of  Brito and Bell.  Those who aren’t working directly for the Internet industry have culturally bought into the premise that copyright stifles innovation and new business, so they’re thrilled to hear anyone propose rolling back copyright until it’s all but irrelevant.  Of course, I have yet to hear any “new business” concepts whose aims are actually stifled by copyright. Instead, we continue to hear the same kind of vague predictions that we’ve been hearing since Web 1.0, when investors were lulled into launching start-ups that had no foreseeable revenue stream. Hence, without real data on real businesses being held back, I have no idea what’s conservative about this basis for a discussion about copyright reform.

Pandora Isn’t Exactly Struggling

Yesterday, on Capitol Hill, the House Judiciary Committee held a hearing to discuss the Internet Radio Fairness Act, a bill largely backed by Pandora Media, Inc. and opposed by a growing number of musicians and songwriters.  In fact, I recommend Chris Castle’s excellent synopsis of the message taken to The Hill by a handful of songwriters.  If you want legal context for understanding the IRFA, I’ll direct you to Terry Hart’s Brief History of Webcaster Royalties, but if that’s more nitty and gritty than you want to know, consider this:

In defense of Pandora’s position that internet radio services should pay lower license fees to musicians and songwriters in the interest of “fairness,” you’re likely to encounter the bullet point that “Pandora isn’t even profitable yet,” conjuring an image of some fledgling, innovative enterprise trying desperately to survive within an outdated system.  But as a guy who grew up around the motion picture industry, knowing something about the shenanigans of some producers, I know that literal profitability ain’t necessarily the same thing as everybody making buckets of money.

Keeping in mind that Pandora, like so many internet-based services, is basically a means by which software delivers a product that someone else has invested to produce, I had to wonder what kind of costs other than licensing Pandora has to cover while it is supposedly staggering toward profitability. Not surprisingly, according to the income statement on Yahoo Finance, the Operating Expenses shows two lines:  R&D at a mere $130k and Selling General and Administrative at just over $249 million.  This is from January 30, 2012 against revenue of just over $274 million.  Presumably, the cost of licensing music is part of this second line item along with basic overhead like rents, servers, etc.  But the rest is salaries and bonuses.  What else do they have to pay for?

Now, when an ordinary entrepreneur thinks of a business that isn’t profitable yet, he thinks in terms of continually reinvesting in his business, keeping his own and any other founders’ salaries in check while growing that business and pouring in a ton of sweat equity.  It just so happens that this is exactly what a songwriter, performer, or emerging new band does most of the time.  But web entrepreneurs have a history of making money while losing value.  Remember the Dot Com bubble?  There was plenty of loss, but plenty of start-up founders also made out like bandits in the process.  Failing with a few million in one’s pocket would be an artist’s dream because the nature of the work is so fickle, but I digress.

The top five executives at Pandora, not including founder Tim Westergren, earn combined salaries of just under $3 million, although CTO Thomas Conrad had exercised stock options of $5.9 million as of the January 30 report.  Mr. Westergren is worth an estimated $100 million.  According to Pandora’s own statements, it paid “50% of its revenue in fees” last year.  Assuming this is true, that’s $137 million, plus the $3 million in top executive salaries, plus some unknown number to Tim Westergren, but let’s estimate that there’s at least $100 million or so left for other expenses, including the salaries of 530 employees.  Divided evenly, which of course it is not, that would be annual salaries of over $180k per employee.

So, there is a world of difference between a company being profitable and those in the company making lots and lots and lots of money.  If Pandora fails because, as it claims, the licensing fees are unfair, then many people involved with the company will walk away having failed upward.  Meanwhile, it won’t take long for a new internet radio service to appear — one that can be profitable without exploiting the people and companies who make the real investments in the products that make radio function in the first place.