Google and the proper antitrust scrutiny of orphan books

Journal of Competition Law and Economics

Volumn 5, Issue 3, 2009, Pages 411-438

  Hausman, Jerry A ^a   Sidak, J Gregory ^b,c,d  

^a MASSACHUSETTS INSTITUTE OF TECHNOLOGY   (United States)

^b LLC   (United States)

^c TILBURG UNIVERSITY   (Netherlands)

^d The Coase Foundation for Law and Economics   (United States)

Author keywords

[No Author keywords available]

Indexed keywords

EID: 70349449329     PISSN: 17446414     EISSN: 17446422     Source Type: Journal    
DOI: 10.1093/joclec/nhp017     Document Type: Article

References (92)

1. See Phyllis Korkki, These Things Went From New To Much-Used, N.Y. TIMES, Mar. 8, 2009.
2. See David Chen, Google's Book Search Library Project Faces Legal Challenges, ILL. BUS. L.J., Nov. 21, 2007, available at http://iblsjournal.typepad.com/ illinoi_bussiness_law_soc/2007/11/googles-book-se.html.
3. On a personal note, Hausman has not been in a library at MIT since about 1994. All the economics journals are online, and Google Scholar is a valuable source for finding references. Indeed, Hausman wrote most of a paper while flying from China to Frankfurt a few years ago, using the internet and Google Scholar to complete the bibliography. Although economics differs from other subjects in its use of historical material, once many researchers recognize the advantages of using the internet for research, trips to the library may become a relatively rare occurrence. Around the same time that Hausman stopped entering MIT libraries, Sidak similarly abandoned his Marxian practice of using the reading room of the Library of Congress to conduct legal research.
4. Lady Antonia Fraser complained that she had to wait twenty minutes to enter the new British Library reading room and fifteen minutes to obtain a book. See Dalya Alberge, Frustration for authors as students hog British Library reading rooms, (LONDON) TIMES ONLINE, Apr. 21, 2008, available at http://entertainment.timesonline.co.uk/tol/ arts_and_entertainment/books/article3784828.ece With an internet-based approach, Lady Fraser could sit at home in Holland Park or in her London club, doing her research without having to accommodate the hoi polloi students she finds so bothersome.
5. Indeed, some book publishers complain that Kindle's prices for books are "too low" and that Amazon may be involved in a strategy to take over book publishing. According to one publishing executive: "The concern is they want to corner the book market." See Boris Kachka, The End, N.Y. MAGAZINE, Sept. 14, 2008, available at http://www.thebookofkindle.com/2008/09/ is-kindle-trick-for-amazon-to-control.html.
6. Settlement Agreement, Author's Guild, Inc. v. Google Inc., Case No. 05 CV 8136-JES (S.D.N.Y. Oct. 28, 2008) [hereinafter Settlement Agreement].
7. See Miguel Helft, U.S. Inquiry Is Confirmed Into Google Books Deal, N.Y. TIMES, July 3, 2009, at B3.
8. John R. Hicks, The Valuation of the Social Income, 7 ECONOMICA 105 (1940).
9. Jerry A. Hausman, Valuation of New Goods Under Perfect and Imperfect Competition, in THE ECONOMICS OF NEW GOODS 209 (Timothy F. Bresnahan & Robert J. Gordon, eds., University of Chicago Press 1997)
10. Jerry A. Hausman, Sources of Bias and Solutions to Bias in the CPI 17 J. ECON. PERSPECTIVES, no.1, at 23 (2003).
11. Jerry A. Hausman, Mobile Telephone, in HANDBOOK OF TELECOMMUNICATIONS ECONOMICS 585 (Martin E. Cave, Ingo Vogelsang & Sumit K. Majumdar, eds., North Holland 2002).
12. Jerry A. Hausman, Cellular, 3G, Broadband and WiFi, in FRONTIERS OF BROADBAND, ELECTRONIC AND MOBILE COMMERCE 9 (Russell Cooper & Gary Madden, eds., Physica-Verlag 2004).
13. See, e.g., Hausman, Valuation of New Goods Under Perfect and Imperfect Competition, supra note 9, at 213.
14. For the definitive legal analysis of the administration of the MFJ, see MICHAEL K. KELLOGG, JOHN THORNE & PETER W. HUBER, FEDERAL TELECOMMUNICATIONS LAW 199-247 (Little, Brown & Co. 1992).
15. See Paul L. Joskow & Nancy L. Rose, The Effects of Economic Regulation, 2 HANDBOOK OF INDUSTRIAL ORGANIZATION 1449 (1989).
16. Sharon Oster and John Quigley did find that regulation in the construction industry retarded diffusion of techniques, but they did not estimate the loss to consumer welfare from such regulation. See Sharon M. Oster & John M. Quigley, Regulatory Barriers to the Diffusion of Innovation: Some Evidence from Building Codes, 8 BELL J. ECON. 361 (1977).
17. James Grimmelmann, How to Fix the Google Book Search Settlement, at 1, available at http://works.bepress.com/cgi/ viewcontent.cgi?article=1022&context=james_grimmelmann.
18. See, e.g., Id. ("The public interest demands....that the settlement be modified.").
19. Id.
20. Randal C. Picker, The Google Book Search Settlement: A New Orphan-Works Monopoly?, 5 J. COMPETITION L. & ECON. 383 (2009)
21. Robert Darnton, Google and the Future of Books, N.Y. REV. BOOKS, Feb. 12, 2009, available at http://www.nybooks.com/articles/22281
22. Pamela Samuelson, Legally Speaking: The Dead Souls of the Google Booksearch Settlement, O'REILLY RADAR, Apr. 17, 2009, available at http://radar.oreilly.com/2009/04/ legally-speaking-the-deadsoul.html
23. Pamela Samuelson, Reflections on the Google Book Settlement, Presentation from OCLC/Kilgour Lecture, UNC (Apr. 14 2009), available at http://www.slideshare.net/naypinya/ reflections-on-the-google-book-search-settlement-by-pamela-samuelson.
24. Many books' copyrights are no longer in force. No problems arise with the copying or use of these books because they have entered the public domain. Indeed, GBS will permit a user to download a PDF copy of the book, much as a digital book reader or PC user can download an out-of-copyright book for free from Project Gutenberg.
25. Peter Hirtle, Why the Google Books Settlement is better than orphan works legislation, LIBRARY-LAW BLOG, May 27, 2009, available at http://blog.librarylaw.com/librarylaw/2009/05/ why-the-google-books-settlement-is-better-than-orphan-works- legislation.html. Professor Hirtle estimates that 54 percent of books published since 1923 retain copyright but are out of print.
26. Id.
27. Samuelson, Legally Speaking, supra note 17, at 1.
28. Id. Professor Samuelson fails to take account of the fact that a large proportion of publishers can be located as Hirtle explains.
29. We derive this estimate in the following way. Of the seven million works that Google had scanned as of the last report, about one million are in the public domain, one million are in print, and the remaining five million have an uncertain copyright status. Over 85 percent of copyrighted works before 1978 were not renewed and are now in the public domain. See U.S. COPYRIGHT OFFICE, REPORT ON ORPHAN WORKS 43-44 (2006). If we assume that an upper bound of pre-1978 books is 50 percent of the five million uncertain copyright books, we estimate the result that 41 percent are in copyright but out-of-print books.
30. See, e.g., Picker, supra note 17, at 386
31. Grimmelmann, supra note 15, at 14.
32. Darnton, supra note 17.
33. Id.
34. American Library Association Comments on the Proposed Settlement, May 4, 2009, at 3 [hereinafter ALA Comments].
35. Paul Courant, Google and Books: An Exchange, N.Y. REV. BOOKS, Mar. 26, 2009, available at http://www.nybooks.com/articles/22496.
36. Darnton, supra note 17 (emphasis added).
37. ALA Comments, supra note 26, at 2.
38. See, e.g., GEORGE J. STIGLER, THE THEORY OF PRICE 210-11 (Macmillan 4th ed. 1987)
39. see also Hal R. Varian, Price Discrimination, in 1 HANDBOOK OF INDUSTRIAL ORGANIZATION 597, 619-22 (Richard Schmalensee & Robert Willig eds., North Holland 1989).
40. See, e.g., DENNIS W. CARLTON & JEFFREY M. PERLOFF, MODERN INDUSTRIAL ORGANIZATION 294 (4th ed. 2005).
41. The terminology is credited to Pigou. See A.C. PIGOU, THE ECONOMICS OF WELFARE 240-46 (1st ed. 1920)
42. see also JOAN ROBINSON, THE ECONOMICS OF IMPERFECT COMPETITION 186-87 & n.1 (1933).
43. See, e.g., HAL R. VARIAN, MICROECONOMIC ANALYSIS 243-44 (3d ed. 1992).
44. See, e.g., CARLTON & PERLOFF, supra note 31, at 303.
45. Second-degree price discrimination involves nonlinear pricing (such as a classic two-part tariff based on access and usage), id. at 313-14, whereas third-degree price discrimination charges different groups different prices.
46. Id. at 303.
47. See Jerry A. Hausman, Gregory K. Leonard & Christopher A. Vellturo, Market Definition Under Price Discrimination, 64 ANTITRUST L.J. 367 (1996).
48. See, e.g., PHILIP E. AREEDA & HERBERT HOVENKAMP, ANTITRUST LAW ¶749a at 307 (3d ed. 2008). Quantity discounts are a form of second-degree price discrimination.
49. Grimmelmann, supra note 15, at 16.
50. Hausman first discussed the problem of the free option arising from asymmetric outcomes with regulation under uncertainty in Jerry A. Hausman, Valuing the Effect of Regulation on New Services in Telecommunications, 1997 BROOKINGS PAPERS ON ECON. ACTIVITY: MICROECONOMICS 1.
51. See also Jerry A. Hausman & J. Gregory Sidak, A Consumer-Welfare Approach to the Mandatory Unbundling of Telecommunications Networks, 109 YALE L.J. 417 (1999). This problem has now been widely recognized and discussed in a number of different contexts.
52. In 2003, in its Triennial Review Order, the FCC decided to refrain on a nationwide basis from requiring incumbent local exchange carriers to undertake mandatory unbundling of fiber-to-the-home (FTTH) loops. Review of the Section 251 Unbundling Obligations of Incumbent Local Exchange Carriers, 18 F.C.C.R. 16,978, 17,142 (2003) [hereinafter Triennial Review Order].
53. The FCC did so to preserve incentives for both incumbents and entrants to invest in new fiber-optic networks. Id. at 17,121-22, 17,141-53.
54. The U.S. Court of Appeals for the D.C. Circuit affirmed this aspect of the Triennial Review Order. See U.S. Telecom Ass'n v. FCC, 359 F.3d 554, 588 (D.C. Cir. 2004).
55. The academic literature on the economics of public utility regulation has recognized the risk of asymmetric treatment of regulatory outcomes since at least the publication of A. LAWRENCE KOLBE, WILLIAM B. TYE & STEWART C. MEYERS, REGULATORY RISK: ECONOMIC PRINCIPLES AND APPLICATIONS TO NATURAL GAS PIPELINES AND OTHER INDUSTRIES (Springer 1993).
56. Picker, supra note 17, at 397.
57. Id.
58. Id. at 398.
59. Id. ("Competition drives down prices to costs and does not have the effect of maximizing revenues to individual competitors.").
60. Picker, supra note 17, at 402-06.
61. See, e.g., Jonathan B. Baker, Vertical Restraints with Horizontal Consequences: Competitive Effects of "Most-Favored-Customer" Clauses, 64 ANTITRUST L.J. 517 (1996).
62. Samuelson, Reflections, supra note 17, slide 14.
63. Samuelson, Legally Speaking, supra note 17, at 3.
64. Samuelson, Reflections, supra note 17, slide 16.
65. Picker, supra note 17, at 408-09.
66. Samuelson, Reflections, supra note 17, slide 16.
67. Grimmelmann, supra note 15, at 14.
68. Picker, supra note 17, at 405
69. Grimmelmann, supra note 15, at 15.
70. See Picker, supra note 17, at 408-09.
71. See, e.g., Lance Whitney, SanDisk, Samsung renew flash memory pacts, CNET NEWS, May 27, 2009, available at http://news.cnet.com/8301-1001_3-10249949-92.html.
72. This price-reducing effect arises from economies of scope and does not require complementarity of demand between orphan books and books by active rights holders. Even with independence of demand, the ability to use a shared infrastructure to sell both orphan books and active books reduces the Authors Guild's profit-maximizing price for orphan books under conventional microeconomic pricing analysis. Of course, if orphan books and active books actually are demand complements, then the incentive for the Authors Guild to reduce the price of orphan books will be even stronger. See Dennis L. Weisman, Assessing Market Power: The Trade-off Between Market Concentration and Multi-Market Participation, 1 J. COMPETITION L. & ECON. 339 (2005)
73. Dennis L. Weisman, When Can Regulation Defer to Competition for Constraining Market Power?: Complements and Critical Elasticities, 2 J. COMPETITION L. & ECON. 101 (2006).
74. Grimmelmann, supra note 15, at 12-13.
75. See, e.g., RICHARD A. POSNER, ANTITRUST LAW 69-70, 75 (University of Chicago 2d ed. 2001).
76. Department of Justice and Federal Trade Commission, Horizontal Merger Guidelines ¶¶ 2.1-2.12 (rev. Apr. 8, 1997).
77. Id. ¶2.1.
78. Samuelson, Reflections, supra note 17, slide 20.
79. However, Professor Samuelson ultimately recommends the court not approve the settlement. Id. slide 21.
80. Grimmelmann, supra note 15, at 14.
81. Id. at 15.
82. Bias was claimed to arise when CRS owners listed their flights before the flights of their competitors. The Ninth Circuit ruled in favor of the CRS owners and against the complaining airlines in Alaska Airlines, Inc. v. United Airlines, Inc., 948 F.2d 536 (9th Cir. 1991), cert. denied, 503 U.S. 977 (1992).
83. ALA Comments, supra note 26, at 19.
84. See, e.g., Philip Areeda, Essential Facilities: An Epithet in Need of Limiting Principles, 58 ANTITRUST L.J. 841 (1990)
85. Abbott B. Lipsky, Jr. & J. Gregory Sidak, Essential Facilities, 51 STAN. L. REV. 1185 (1999).
86. Verizon Communications Inc. v. Law Offices of Curtis V. Trinko, LLP, 540 U.S. 398, 415 (2004) (discussing Aspen Skiing Co. v. Aspen Highlands Skiing Corp., 472 U.S. 585 (1985)).
87. Pacific Bell Tel. Co. v. linkLine Communications, Inc., 129 S. Ct. 1109, 1121 (2009).
88. Telecommunications Act of 1996, Pub L No 104-104, 110 Stat 56.
89. See Hausman, Valuing the Effect of Regulation on New Services in Telecommunications, supra note 38
90. Jerry A. Hausman, Competition in Long Distance and Equipment Markets: Effects of the MFJ, 16 J.MANAGERIAL & DECISION ECON. 365 (1995).
91. As an example, Judge Greene refused to allow the Bell operating cellular companies to provide their own long-distance service, but instead required cellular customers to purchase service from the long-distance companies that overcharged them by billions of dollars per year. Judge Greene applied the same restrictions to cellular networks as he applied to landline networks, which made no economic sense given the competitive framework of cellular telephony and the separation of cellular networks from landline networks. See, e.g., Hausman, Leonard & Vellturo, supra note 35
92. Hausman, Competition in Long Distance and Equipment Markets: Effects of the MFJ, supra note 70.