We publish a subscription only monthly newsletter (called, strangely enough, MusicTechPolicy Monthly) that uses content that is not previously published on MTP. This month’s edition is on the PROTECT IP Act and includes opinion by Mike McCurry and Mark McKinnon, Robert Levine, Luke Ebbin, Terry Hart and Chris Castle.
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At the September 22 hearing of the U.S. Senate antitrust subcommittee (titled “The Power of Google”), Google rejected some good suggestions by the Chairman and members as to how the company could be more trusted. These good suggestions should be reprised when the House takes up the PROTECT IP Act given Google’s important role in fostering the intellectual property infringement that threatens American jobs—starting with the company’s advertising sales group (Adwords, AdSense, etc.).
As Chairman Kohl told Google’s Schmidt: “…[I]n a large measure [Google is saying] trust us that we are going to do, and we do do, and we will do, quote, ‘the right thing.’ Is merely trusting Google to do ‘the right thing’ sufficient given your clear business incentives to maximize the value of your company? Shouldn’t we be guided by the words of a great president, Ronald Reagan, who said ‘Trust, yes, but verify’?”
The Chairman not only set the tone for the hearing—he described the fundamental problem with Google and the path to fixing it. What lessons can we learn from the Chairman regarding the PROTECT IP Act?
Copyright Alert System Addresses a Different Problem Than PROTECT IP
Some may be under the misconception that the Copyright Alert System fixes the problems covered by the PROTECT IP Act. Nothing could be further from the truth. The voluntary cooperation agreement announced earlier this year demonstrates good progress in cooperation among willing ISPs, motion picture and record companies with the Copyright Alert System. However, that progress should not be understood as having addressed the public health, moral and economic hazards presented by rogue sites to be covered by the PROTECT IP Act. This is especially true of the provisions enhancing the responsibilities of companies like Google to control who profits from the advertising they serve to rogue sites.
It is well to remember that the Copyright Alert System (“CAS”) is a voluntary agreement by ISPs and content owners, large and small, to try to address the behavior of third parties who are committing bad acts. CAS seeks to achieve this through an escalating series of notices to direct infringers, along with so-called “mitigation measures” if users continue to engage in infringing acts after receiving several notices.
CAS is an important evolutionary step in enhancing both corporate and individual accountability in the online environment. It is, however, only a partial response to the problem of online piracy, and doesn’t address issues related to the operation of rogue sites–or to companies like Google that make deals with rogue sites to serve them advertising and split the profits. Google is not a part of the voluntary agreement underlying the Copyright Alert System (just like it was not part of the voluntary agreement of the User Generated Content Principles industry group).
What Did We Learn About “The Power of Google”?
At “The Power of Google”, the subcommittee presented both Eric Schmidt and Google’s antitrust counsel with many opportunities to accept the idea—just the idea—of Google’s voluntarily submitting to review by a special master or other authority to verify that Google is not using its monopoly power to profit itself. Google showed no interest in voluntarily submitting itself to that review and tried to employ the “Skippy” defense—spreading blame for Google’s wanton and willful acts of mismanagement around the entire industry, even though only Google was prosecuted by the United States for promoting the sale of counterfeit drugs.
Of course, anyone who has ever dealt with Google was not surprised by this lack of interest or failure to take responsibility for its actions. Take Google Books for one example—Google could very easily have submitted to a voluntary agreement at the outset, but preferred—preferred—to slug it out in court when they thought they just had a group of authors to roll over with Google’s bottomless litigation budget raised through monopoly profits (or “rents”).
It was only when the Google Books case was joined by the U.S. Department of Justice and several countries—Canada,France and Germany among them—that they began to back down a bit when confronted by four of the major world economies acting to protect the intellectual property rights of their citizens that were being taken without consent by Google. There’s a word for that….
And even though Judge Chin ruled against Google in the Google Books case, Google still have not stopped scanning books. Not surprising given the Judge’s opinion that “’[The Google Books settlement] would further entrench Google’s market power in the online search market.’”
Remember—Google Books is not even part of Google’s core business. If you think they resisted doing the right thing with book scanning, just imagine what they will do when the Congress wants them to explain themselves—even a little—about the advertising income that is Google’s primary source of revenue, an unknown amount of which is derived from selling advertising on rogue sites but all of which would be affected by PROTECT IP.
The Need to Oversee Google’s Advertising Sales
Yelp!’s CEO Jeremy Stoppleman told the subcommittee that Google was very much like the schoolyard bully who feign innocence when the Vice Principal discovers him assaulting others: “…[N]othing happened [to stop Google’s anticompetitive behavior toward Yelp] until there was some interest on the government side [in an antitrust hearing].”
At the “Power of Google” hearing, at least two issues revealed themselves that have a direct bearing on PROTECT IP and Google.
First, Senator Cornyn demonstrated that Google’s advertising sales group is completely out of control. When questioning Google Executive Chairman Eric Schmidt about the $500 million forfeiture Google just paid to the U.S. under a nonprosecution agreement to avoid indictment arising out of seven separate sting operations run against its advertising sales group, Schmidt acknowledged—under oath—that Google employees engaged in selling advertising for counterfeit drugs in violation of the criminal laws acted with his knowledge.
It is clear that Google’s advertising group requires government supervision for the sake of public safety. That may seem overblown, but how many more $500 million forfeitures will it take before the government “gets it”?
Second, in response to questions by Senators Franken and Lee, it became apparent that there was very little that Google could do voluntarily that the witness from Yelp! and others would be willing to trust. There are so many examples of a lack of trust for Google in the market, but consider one—Google has been unable to secure any licenses for its still-unlaunched music service after a couple years of trying.
Why? Basically because the music industry wants assurances that Google will not continue to nurture rogue sites and serve up access to infringing materials.
Yelp’s Jeremy Stoppleman identified the core problem: “So what can Google do? I think the key would be separating out distribution from its own properties.”
I wholeheartedly agree with Stoppleman’s statement regarding maximizing competition and consumer welfare by separating Google’s functional divisions. But because of the moral hazard involved, but I would start in a different place.
It is Google’s advertising group that continually causes problems for consumers. It appears that they will literally sell anything to anybody as long as Google makes its vig.
Google needs to voluntarily submit the oversight of its advertising group to an independent review body. Not because of the moral hazard—because of the criminal hazard. This is the group that failed seven different sting operations by the Department of Justice. This is the group that does business with rogue sites and suckles pirates around the world. When Schmidt told the antitrust subcommittee that Google “gets it”, that’s exactly right—the “it” that Google “gets” is monopoly rents from its advertising monopoly and Google’s advertising group is the rent collector.
It is hard to know how much of Google’s revenues are made up of revenues from illegal activities. As Santa Clara Law School Professor Eric Goldman told the New York Times, “’How much of Google’s overall revenues are tied to product lines that are questionable?’ he said. ‘For investors, I think they just got a little bit of a jolt that maybe Google’s profits are due to things they can’t ultimately stand behind.’” These potential misrepresentations are certainly a core claim in the stockholder suit filed against Google in San Diego.
If it weren’t for the fact that Google was prepared to spend $500 million of their stockholders’ money to stave off an indictment by the United States, this is the group that would be the star witnesses of the forestalled criminal trial.
As Guiliani Partners noted in their study of online drug sales: “Initially, this debate was framed around “re-importation” – in other words, the importation (from Canada) of medicines manufactured under U.S. Food and Drug Administration (FDA) oversight and now available at a lower cost via Canada. Under such a system, a patient could reasonably assume that the medicine was safely and properly manufactured under FDA oversight without corruption in the supply chain….Instead, U.S. patients are receiving medicines from foreign countries (albeit ordered through Canada or sources purporting to be Canadian based) that were manufactured or repackaged without any oversight by the FDA or Health Canada (the Canadian FDA counterpart).”
The Guiliani report echoed the findings of the National Center on Addiction and Substance Abuse at Columbia University, crystalized in this quotation from the CASA director, Secretary Joseph A. Califano, Jr.: “CASA [measured] the availability of controlled, dangerous and addictive prescription drugs like Percodan, OxyContin, Valium, Xanax, Ritalin and Adderall on the Internet. Our findings are alarming: these drugs are as easy for children to buy over the Internet as candy. Anyone–including children–can easily obtain highly addictive controlled substances online without a prescription from Internet drug pushers. All they need is a credit card.”
Secretary Califano directed this information to Google’s Schmidt in a 2008 letter–which CNN’s Dr. Sanjay Gupta reports that Schmidt ignored–and confirmed to Schmidt that the vile practice could be laid directly at Google’s door: “Although Google reports using [methods] to screen out rogue pharmacies, CASA was able to find prominent displays of ads for rogue Internet pharmacies in a Google search for controlled drugs in our analysis. This suggests that Google is profiting from advertisements for illegal sales of controlled prescription drugs online.”
What kind of a person ignores such a plea from as reliable a source?
After seven separate sting operations, there is little doubt that Google knew it was profiting from “corruption in the supply chain” and both endangering American children and promoting the infringement of American intellectual property to secure Google’s own profits.
Making money is clearly more important to Google than obeying the laws against the importation of controlled substances including counterfeit drugs sold to Americans indiscriminately online. Do you really think they will care about any other intellectual property?
There’s nothing wrong with making money, but hopefully Google and its employees can do it in a way that allows them to hold their heads up with their own children and not at the expense of the children of others.
I would suggest to Chairman Kohl that he is spot on, and that the time has come to stop trusting and start verifying, particularly where the Google advertising sales group is concerned. Or we could just wait until we find out how many consumers were harmed by Google’s support of the smuggling of counterfeit drugs. Not to mention that denying rogue sites access to Google’s advertising would go a long, long way toward reducing the theft of American intellectual property and preserving American jobs.
PROTECT IP can go a long way toward giving law enforcement the tools to begin answering Chairman Kohl’s question.
Staff picks for Monday!
1. Graham Wilkinson (Austin) “Focus” @gwilkinsonmusic
2. Apples & Eve (Brighton) “Night Ghosts”
3. Golden Silvers (London) “Please Venus”
4. Paper Crows (London) “Anomaly” @papercrows
5. Veronica Falls (London) “Starry Eyes” @veronicafalls
Every now and then I look at the search engine terms people enter to find this blog, and every every now and then I find one that’s particularly…funny. Or something.
Today it’s “o canada torrent”.
It’s “Oh, Canada”, not “o canada”. Just sayin.
Geist allows death threats on public officials in blog comments; What Happend to the Poker Prof’s Student Group?
Although I’m sure the Prime Minister’s security detail is on top of it, we have another stunning example of negligence on anti-copyright blogs perpetuating the worst sort of chilling speech this time in the form of detailed death threats and assassination advocacy on Michael Geist’s blog directed against the Prime Minister and the heritage minister.
This is the kind of speech-chilling behavior we have seen all too routinely on radical blogs that attract these extreme views. Geist should take it down and cooperate with prosecutors.
In other news, the Harvard-based Global Poker Strategic Thinking Society (advisors Lessig and Nesson) seems to have disappeared from the Web. Funny, it happened the same week that Harvard neighbor Rep. Barney Frank decided to disgorge campaign contributions from poker interests accused of bad stuff. Ah well, I hope that there’s still some honest work for the PartyGaming crew that spread money around Beantown.
Purely coincidental, I’m sure.
Blame Bing Strategy Crumbles: Eric Schmidt “takes the 5th” under questioning from Senator John Cornyn
I’ve knocked around Washington long enough to know that when somebody starts being really nice to you in a public hearing, your attack plan should go to DefCon 1 immediately–check your six and hold onto your wallet. I always think that the smartest guys in the room already know these things, but maybe not.
During Eric Schmidt’s Senate antitrust subcommittee hearing yesterday both Schmidt and Google outside lawyer Susan Creighton made mistakes, but two of particular note. Anyone who has experienced the Google culture first hand would probably agree that among the many groups of people Googler’s think themselves superior to, Texans and comedians must be on the list if not in the top 5.
Did Schmidt Take the 5th?
You can feel pretty confident that it would not be Googley for Eric Schmidt to actually invoke his right to protection from self-incrimination under the advice of counsel. And you can also feel pretty confident that Google would have tried and failed to reach an agreement with subcommittee staff to keep out any questions about the $500 million criminal penalties for promoting the sale of illegal drugs that happened while Schmidt was in charge. (Although judging by the way that Schmidt threw Marissa Meyer under the bus, “being in charge” means something very different to him than to me. Or to most people who have “been in charge”.)
So it’s hard to believe that Google lawyers had not prepared Schmidt for the question–and bear in mind that this was the one area of questioning all day that could have had some immediate criminal law downside for Schmidt, so it is the one line of questioning that probably scared him to death because it was a punishment he couldn’t buy his way out of.
This erudite reporting from the Huffington Post sums it up: “SCHMIDT SAYS HE KNEW ABOUT GOOGLE STEERING FOLKS TO ILLEGAL CANADIAN DRUG SITES – News was actually made at today’s hearing. Ten gallon hat tip to Big John Cornyn, who asked Eric Schmidt about the $500 million settlement Google reached with the Justice Department over illegally advertising Canadian prescription drugs to Americans…. ‘Was it the result of oversight or inadvertence or were there some employees in the company that were doing this without your knowledge or…’ asked Cornyn (R-Texas). ‘Certainly not without my knowledge. Again, I have been advised — unfortunately, I’m not allowed to go into any of the details and I apologize, Senator, except to say that we’re very regretful and it was clearly a mistake’ [Schmidt said].”
This quotation actually came late in the exchange, but includes the money line “Certainly not without my knowledge.” So did Schmidt mean what he said–that any actions by employes of the company were certainly taken with his knowledge? Or did he mean to say such actions certainly were not taken with his knowledge (given that the fine resulted from seven different sting operations, it seems like that would be a lie of the best kind, a provable lie).
In any event, Schmidt began his answers by saying he had very clear advice of counsel that Google’s nonprosecution agreement with the Department of Justice prohibited Schmidt from discussing the case so Cornyn would have to go to the Department of Justice for his answer. This produced an audible gasp from the audience and whispering of “that’s not true” floated up through the committee room.
Senator Cornyn asked Schmidt where that prohibition was found, was it in the nonprosecution agreement. Schmidt said yes. Cornyn then asked Schmidt if rather than not being able to discuss the agreement, wasn’t it the case that Google could not deny any of Google’s many admissions of bad behavior in the plea agreement–as Cornyn was told by his counsel. Which, of course, is spot on–that’s exactly what it says. Not only was there no confidentiality agreement, the $500 million forfeiture and nonprosecution agreement was actually announced to the public at a press conference. A rather bizarre press conference on very short notice to the press, but a press conference nontheless.
Schmidt said that he would confer with counsel–the only time he did so, I believe–and then said that he’d been advised not to answer any questions about the nonprosecution agreement.
What Senator Cornyn didn’t say about the nonprosecution agreement was what happens if Google did deny any of the assertions. The agreement is revoked, the government keeps the $500 million and they are then free to indict Google and Google executives–such as Eric Schmidt. Because none of the Google employees acted without Schmidt’s knowledge–I guess.
So I think Schmidt actually refused to answer the question on the advice of counsel. Now why would anyone do that?
But before we leave this topic, imagine what would have happened if Senator Cornyn had not done his homework? What would have happened if he didn’t know that nonprosecution agreement backwards and forwards? The world would think that Google could not be questioned about the agreement. Not because Google chose not to talk about it because it was a horrendous crime, but because well, shucks, you’ll have to talk to DOJ about that we are prohibited from talking about it.
Let’s score that exchange Trinity 1, Princeton 0.
Google’s Blame Bing Strategy Crumbles with Senator Franken
If you’ve ever wondered what it’s like to deal with senior partners in big law firms, you got a pretty good idea of it from Google’s outside litigation counsel, Susan Creighton. And a special subset of those are the partners who have done some big government prosecution job and who go to private practice to defend the same kinds of people they were prosecuting. Any moral qualms? As Henry Turner was told by his soon-to-be-former law partner Bruce, “It pays for this lunch.”
Creighton is well-respected otherwise but was probably not the right person for a panel of Senators who had that sneaking suspicion that someone’s scalp was there for the taking and maybe it was hers. She also invoked the “Skippy” strategy a bit too often for Senator Franken–meaning that she tried to excuse Google’s behavior by spreading the blame around to Bing and Yahoo!, and sometimes just Microsoft.
In fact, the theme that ran though the entire day was that somehow all Google had to do was prove they were different than Microsoft and they won–the Blame Bing strategy. I don’t want to give unsolicited advice, particularly not to people who probably don’t like me much, but I predict that this approach is very, very narrow, typical of the kind of group think that sets into the hot house atmosphere of Silicon Valley law firms with all that inbreeding, and I predict will contribute significantly to a serious rough patch with the government.
Among all the other differences between Google at its competitors, the biggest one has to be that none of them sold illegal drugs and had seven successful sting operations run on them proving they sold illegal drugs.
But as I always say, you can’t call yourself a CEO of a Fortune 100 company if you’ve never taken the 5th. So now Schmidt has gained admission to that club. I guess.
But if “Blame Bing” is the best they came up with, then this is going to be an interesting ride.
Fasten your seat belts, boys.
“Hold tight, we’re in for nasty weather…”
“Burning Down the House”
By David Byrne, Jerry Harrison, Christopher Frantz and Tina Weymouth
Largely due to YouTube’s dominance, artists and entrepreneurs with legitimate online music video platforms have it tough competing with YouTube. When Google Executive Chairman Eric Schmidt testifies before the Senate Subcommittee on Antitrust, Competition Policy, and Consumer Rights this week (9/21 2pm ET), we may find out why.
About five years ago a strange trend surfaced: Google searches by title or by artist for a Billboard Hot 100 single returned search results that looked extremely consistent—YouTube was the only video source listed in the all-important first page of search results. The YouTube links were so consistent they appeared to be “hard wired”—meaning not a natural result of an automatic algorithm, but suggesting human intervention and rigging.
Even rabid Google supporters believed that Google gave artists and music fans fair and unbiased search results as Google claims to do. (Setting aside the legality of how the videos got on YouTube to begin with.) So persuasive proof of rigging would be required to win them over, but that proof is impossible to get unless you have access to the algorithm—the most closely guarded of all Google’s secrets. Or you have a Google executive testifying under oath in a public forum that Google cannot cause to be subject to a protective order.
Over the years, this hard wiring perception has become more pronounced. Today, the order of Google search results for music videos is so repeatable that it is widely assumed to be rigged in my world.
If you search Google for a hit song by title, YouTube videos with the “thumbnail” of the video image will be returned in the first few search results appearing “above the fold” (meaning within the browser screen that you see without scrolling).
If you search for the artist by name, the top search result is usually the artist’s official site, followed almost immediately by a similar pattern of YouTube videos—even if the artist themselves have a video on the very artist site that was returned at the top of the search results.
Until recently, only the most cynical believed that this “hard wiring” of search results was actually happening.
Then a YouTube video began circulating of a speech by Marissa Mayer, Vice President of Geographic and Local Services, Google, Inc. The speech was made to a large audience at the Google Seattle Conference on Scalability (June 23, 2007). Vice President Mayer said: “[When] we roll[ed] out Google Finance, we did put the Google link first. It seems only fair right? We do all the work for the search page and all these other things, so we do put it first… That has actually been our policy, since then, because of Finance. So for Google Maps again, it’s the first link.”
After hearing that statement, even the biggest Google fans in the music video professional community began to believe that Google rigged the order of YouTube videos in Google search.
The same artist names and song titles in other search engines bring different results. So this phenomenon of the uniformity of YouTube search results is limited to Google search and its heavily subsidized subsidiary. (“Google CEO: YouTube Still Isn’t Profitable”, Wall Street Journal ,
Sept. 9, 2010.)
As The Wall Street Journal’s Peter Kafka put it four years after Google’s 2006 acquisition of YouTube, “[D]oes anyone want to guess when, if ever, Google will tell us that YouTube is actually profitable?” Or said another way, when, if ever, Google will stop subsidizing YouTube with profits from its dominance in search?
Those with competing businesses in the online music video marketplace resigned themselves to being “disappeared” by Google to favor its own businesses, which is only compounded by Google’s Android phone.
These issues deserve an answer under oath before the Senate Subcommittee. It is an important Sherman Act question if Google used its profits from its dominance in search to subsidize its dominance over online video through YouTube (which it clearly seems to be doing by Chairman Schmidt’s own reported admission). Google should honestly answer that question.
Google should honestly answer why it paid a billion dollar premium for YouTube—was Google’s plan to use YouTube to achieve market dominance over video search? Not to mention Google’s willingness to subsidize YouTube’s losses for five years—a loss that must be spectacular in its energy and bandwidth use alone (“Keyword: Evil” details the backroom deal for a gigantic Google data center in Senator Wyden’s home state where Google got special terms–if you catch my drift–for power on Oregon’s Columbia River). Dallas Mavericks’ owner Mark Cuban recently called the YouTube acquisition “crazy”—was the deal illegal because it was crazy or crazy because it was illegal? Chairman Schmidt should know the answer, he championed the YouTube acquisition to his board of directors.
Google should honestly answer if it required exclusive agreements with the companies it allows to be linked to its search results for YouTube as the price of admission for those links in order to create or extend Google’s monopoly over search? Do these agreements result in undisclosed paid search results?
And Google should honestly answer whether Google’s ownership of both the YouTube service and the means to find YouTube resulted in “hard wired” rigging of search results in a biased way.
After seeing Vice President Meyer’s public statement of Google’s policy of putting links to Google Finance and Google Maps first in search results, it is not surprising to observe the consistent dominance of YouTube links in Google search, which could raise legitimate concerns under the Federal Trade Commission Act as well as the Sherman Act.
Both the Sherman Antitrust Act and the Federal Trade Commission Act are in the jurisdiction of the Senate Subcommittee. Senators—and the music fans and artists they represent–deserve candid answers to these important questions that they are unlikely to get another way.
PS: Google will likely try to argue that it is not “dominant” in an antitrust sense. Aside from being counterintuitive to anyone who uses the Internet, the Department of Justice found that “[t]he Department’s investigation revealed that  Internet search advertising and  Internet search syndication are each relevant antitrust markets [in the US] and that Google is by far the largest provider of such services, with share of more than 70 percent in both markets.” So while Comscore found recently that Google’s share of search was around 65% (which ain’t exactly small) the Comscore number leaves out a bunch of stuff that probably should be counted.
Comscore is a measurement of apples to apples so it has to break out particular relevant data for comparison. It’s coM score as in comparison, not coN score as in…well, cons. It’s also not GRIFT score either, as in grifter.
So when you add in syndicated search, mobile devices (including tablets), Mac and Android platforms…well you get the idea.
Dominant at best.
And then of course there’s the Google Books debacle, where Judge Chin could not have been more clear with Google–you lose. Too much market power in general.
Or as my political theory professor said when giving advice for the final exam, “Don’t tell me Plato was a Greek philosopher.”