Adam Thierer's Blog, page 56

Mel Watt proposes true Internet radio fairness

Over the past year, as the debate over internet radio royalty rates has raged, I have been a lonely voice calling for the repeal for compulsory licensing of digital performance rights altogether. I did so at the Cato event for my book, Copyright Unbalanced, in January at a State of the Net panel, and in my Reason column. The reaction I often received was either one of outrage by the Pandoras of the world, or condescension for my naive optimism. Well, optimism can pay off. Yesterday Rep. Mel Watt, ranking member of the House Judiciary Committee’s Subcommittee on Courts, Intellectual Property and the Internet, introduced the “Free Market Royalty Act,” which among other things gets rid of compulsory licensing.

The problem with the compulsory licensing scheme is twofold: Not only does it rely on federal bureaucrats to set the rates that artists must accept for their music (rather than allowing a free-market negotiation take place between copyright holders and those who want to broadcast their songs), but it also allows Congress to pick winners and losers by assigning different royalty rate standards to different users. As I explained in Reason:

While AM, FM, cable and satellite radio, and Internet radio services like Pandora can all opt for compulsory licenses, they each pay different royalty rates. The rates are set by a panel of government lawyers called the Copyright Royalty Board, and they have the effect of favoring some business models over others. Internet radio services pay over 60 percent of their revenue in royalties, while Sirius XM, the only satellite radio company, pays only 8 percent. AM and FM radio aren’t subject to a digital sound recording right, so it pays zero.

Watt’s bill would blow all this up, making terrestrial broadcasters, Internet radio services, and the rest to give up their price-fixed compulsory licenses and have to negotiate in a market the rates they pay. This truly levels the playing field, especially vis-a-vis interactive music services like Spotify and Rdio that have never benefited from compulsory licenses.

Whether you talk to supporters of Rep. Chaffetz’s Internet Radio Fairness Act or Rep. Nadler’s Interim FIRST Act, they each will say their bill is the true fre market approach, and that their rate-setting standard would best approximate a market. To them I say, nothing better approximates a market than the market itself, so if they are truly concerned about ensuring a free market level playing field, here is the way to do it.

One advantage of compulsory licensing is that it can reduce transactions costs. The Watt bill retains some of this advantage by designating SoundExchange, a nonprofit agency, as the common agent for copyright owners to facilitate negotiations, but allowing labels and artists to retain the right to opt-out and negotiate on their own. If this bill passes, I think we’ll see some very interesting experimentation with business models on the part of both the artists and the radio stations.

Finally, looking at the) press coverage of this bill, what has gotten the most attention is that it would, for the first time, require terrestrial AM/FM radio stations to negotiate and pay royalties for the sound recordings they broadcast. The way I see it, it’s not clear to me why broadcasters deserve yet another subsidy, so I shed no tears for them if this bill passes. Broadcasters argue that they provide promotional value for the songs they broadcast, that this benefits copyright holder, and that they should therefore continue to pay nothing. If it is indeed the case that airplay provides substantial promotional value, that will be taken into account in the course of negotiations and we should expect the ultimate rate to reflect that. Indeed, you can even imagine an outcome where the free market rate for terrestrial stations would remain at zero, or even that copyright holders would want to pay the stations. That’s the beauty of the market, so let’s unleash it.

Randall Stross on Y Combinator

Randall Stross discusses his recent book: The Launch Pad: Inside Y Combinator, Silicon Valley’s Most Exclusive School for Startups. Stross’s behind-the-scenes look at Y Combinator details how the seed fund has been able to produce young entrepreneurs and successful startups such as Dropbox and Airbnb. Stross also discusses Y Combinator’s early history, the typical Y Combinator participant, the fund’s rate of return, the gender gap in the program, and the reason Silicon Valley has become the epicenter for startups.

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Related Links





Randall Stross home page, Stross
The Launch Pad: Inside Y Combinator, Amazon
Q&A: Randall Stross on the World of Y Combinator, Gannes
What’s coming out of Silicon Valley?, Stross

California Eraser Button Passes

California’s continuing effort to make the Internet their own digital fiefdom continued this week with Gov. Jerry Brown signed legislation that creates an online “Eraser Button” just for minors. The law isn’t quite as sweeping as the seriously misguided “right to be forgotten” notion I’ve critique here (1, 2, 3, 4) and elsewhere (5, 6) before. In any event, the new California law will:

require the operator of an Internet Web site, online service, online application, or mobile application to permit a minor, who is a registered user of the operator’s Internet Web site, online service, online application, or mobile application, to remove, or to request and obtain removal of, content or information posted on the operator’s Internet Web site, service, or application by the minor, unless the content or information was posted by a 3rd party, any other provision of state or federal law requires the operator or 3rd party to maintain the content or information, or the operator anonymizes the content or information. The bill would require the operator to provide notice to a minor that the minor may remove the content or information, as specified.

As always, the very best of intentions motivate this proposal. There’s no doubt that some digital footprints left online by minors could come back to haunt them in the future, and that concern for their future reputation and privacy is the primary motivation for the measure. Alas, noble-minded laws like these often lead to many unintended consequences, and even some thorny constitutional issues. I’d be hard-pressed to do a better job of itemizing those potential problems than Eric Goldman, of Santa Clara University School of Law, and Stephen Balkam, Founder and CEO of the Family Online Safety Institute, have done in recent essays on the issue.

Goldman’s latest essay in Forbes argues that “California’s New ‘Online Eraser’ Law Should Be Erased” and meticulously documents the many problems with the law. “The law is riddled with ambiguities,” Goldman argues, including the fact that:

First, it may not be clear when a website/app is “directed” to teens rather than adults. The federal law protecting kids’ privacy (Children’s Online Privacy Protection Act, or COPPA) only applies to pre-teens, so this will be a new legal analysis for most websites and apps.

Second, the law is unclear about when the minor can exercise the removal right. Must the choice be made while the user is still a minor, or can a centenarian decide to remove posts that are over 8 decades old? I think the more natural reading of the statute is that the removal right only applies while the user is still a minor. If that’s right, the law would counterproductively require kids to make an “adult” decision (what content do they want to stand behind for the rest of their lives) when they are still kids.

Third, the removal right doesn’t apply if the kids were paid or received “other consideration” for their content. What does “other consideration” mean in this context? If the marketing and distribution inherently provided by a user-generated content (UGC) website is enough, the law will almost never apply. Perhaps we’ll see websites/apps offering nominal compensation to users to bypass the law.

Goldman also notes that it is unclear why California should even have the right to be regulating the Internet in this fashion. It is his opinion that, “states categorically lack authority to regulate the Internet because the Internet is a borderless electronic network, and websites/apps typically cannot make their electronic packets honor state borders.” I’ve been moving in that direction for the past decade myself since patchwork policies for the Internet — regardless of the issue — can really muck up the free flow of both speech and commerce. I teased out my own concerns about this in my January essay on “The Perils of Parochial Privacy Policies” and argued that the a world of “50 state Internet Bureaus isn’t likely to help the digital economy or serve the long-term interests of consumers.”  Sadly, some privacy advocates seem to be cheering on this sort of parochial regulation anyway without thinking through those consequences. They are probably just happy to have another privacy law on the books, but as I always try to point out not just in this context but also in debates over online child safety, cybersecurity, and digital copyright protection, the ends rarely justify the means. I just don’t understand why more people who care about true Internet freedom aren’t railing against these stepped-up state efforts (especially the flurry of California activity) and calling it out for the threat that it is.

In an essay over on LinkedIn entitled, “Let’s Delete The ‘Eraser Button,’” Stephen Balkam points out another mystery about the new California law: “It’s unclear why this law was even proposed when there exists a range of robust reporting mechanism across the Internet landscape.” Indeed, in this particular case it seems like much of the law is redundant and unnecessary. “What this bill should have been about is education and awareness, about taking responsibility for our actions and using the tools that already exist across the social media landscape,” Balkam says. “Here are three key actions that can already be taken:

Delete – you can take down or delete postings, comments and photos that you have put up on Facebook, Twitter, YouTube and most of the other platforms.

Report – anyone can report abusive comments or inappropriate content by others about you or other people and, in many cases, have them removed.

Request – you can ask that you be untagged from a photo or that a posting or photo be removed that has been uploaded by someone else.

In addition there are in-line privacy settings on many of the leading social media sites, so that you or your teen can choose who sees what.”

Balkam is exactly right. The tools are already there; it’s the education and awareness that are lacking. As I have pointed out countless times here before, there is no need for preemptive regulatory approaches when less-restrictive and potentially equally effective remedies already exist. We just need to do a better job informing users about the existence of those tools and methods and then explain how to take advantage of them. Just adding more layers of law — especially parochial regulation — is not going to make that happen magically. Worse yet, in the process, such laws open the barn door to far more creative and meddlesome forms of state-based Internet regulation that should concern us all.

And now for the really interesting question that I have no answer to: Will anyone step up and challenge this law in court?

Why the FCC should stay out of cell phone unlocking

Earlier this week NTIA petitioned the FCC to adopt a rule requiring wireless carriers to unlock the cell phones of customers and former customers who request it, and today the New York Times editorialized in support. While such a rule would solve the immediate problem of cell phone unlocking, it would be a band-aid solution that avoids dealing with the real problem: the DMCA’s anti-circumvention provisions.

As I’ve explained before, the cell phone unlocking issue is just one symptom of a greater problem, namely that it is illegal for you or any third party you contract to unlock content that you own. This affects not just phones, but also e-readers, music and video players, and even garage door openers and printer cartridges in the view of some. So I have to disagree with CDT when it says, “Perhaps the best feature of the NTIA’s approach is that it skips the absurd debate over copyright and DMCA exemptions and treats phone unlocking as what it is – a telecom issue.”

Cell phone unlocking, despite what the name might lead you to think, is not a telecom issue; it’s a DMCA issue. You can see this if you think about all the restrictions that remain in place even if the FCC were to adopt the NTIA’s proposed rule. For example, the rule forces carriers to unlock your phone at your request, but it would still be illegal for you to unlock your own phone, or to have a third party (such as a competing carrier that wants your business) unlock your phone.

Bottom line: It’s really strange to solve a problem created by Section 1201 of the DMCA by turning to the FCC to force carriers to give up their rights under the DMCA. Indeed, it removes a contractual possibility from the market because under the rule a carrier could no longer contract with a consumer to keep the phone unlocked for the duration of the contract. That’s an option that should be available to carriers and consumers. Any fix to this DMCA-created problem must leave the freedom to contract alone. The better way to address cell phone unlocking is to have the FCC stay out of what is an issue that Congress needs to address. Rep. Lofgren’s Unlocking Technology Act, for example, does just that.

Bob Goodlatte is on a quest to slay trolls, but will he crush the source of their power?

The new discussion draft from Rep. Goodlatte is now circulating publicly. Here is a good summary from the EFF of what the legislation would do:

Heightened Pleading: Requiring a patent holder to provide basic details (such as which patents and claims are at issue, as well as exactly what products allegedly infringe and how) when it files a lawsuit.
Fee shifting: Requiring the loser in a patent case to pay attorney’s fees and costs. This would make it harder for trolls to use the extraordinary expense of patent litigation to force a settlement.
Transparency: The draft includes strong language requiring patent trolls to reveal the parties that would actually benefit from the litigation (called the real party in interest).
Joinder: If the plaintiff is a shell-company patent troll, the defendant could require the real party in interest to join the litigation. Even better, a prevailing defendant could collect attorney’s fees from the real party in interest if the patent troll can’t or won’t pay.
Staying customer suits: Requiring courts to stay patent litigation against customers when there is parallel litigation against the manufacturer.
Discovery reform: Shutting down expensive and often harassing discovery until the court has interpreted the patent. This should make it easier for defendants to dispose of frivolous cases early before the legal fees and court costs really add up.
Post-grant review: The bill expands an important avenue to challenge a patent’s validity at the Patent Office (known as the transitional program for covered business method patents). While this procedure is still too expensive for many of the trolls’ smaller targets, we support efforts to make it easier to knock out bad patents.

These are excellent steps forward in the fight against patent trolls, but I’m still hoping for more. The explosion in patent litigation, both troll and non-troll, is due to the astonishing increase in the number of software patents. Software patents now make up over half of all patents! Software patents are more likely to be litigated than other kinds of patents, including four times more likely than a chemical patent.

Given the extent to which the problems with our patent system are caused by software patents, it is unfortunate that none of the patent reform bills under consideration in this Congress contemplate simply excluding software from the set of patentable subject matter. By all means, slay the trolls. But also go after the source of their power.

Seriously Uncompromising

Many “serious people” are beginning to make the case that it’s time for the outrage and indignation over the NSA’s mass surveillance to subside and give way to a “national conversation” about how much privacy and liberty we are willing to trade for security, which they argue is a “choice we have to make.” Today at Reason I argue that until we have good reason to trust the oversight mechanisms that we are told will keep the system honest—or indeed trust the mechanisms for formulating such an oversight regime—civil libertarians have no reason to feel sheepish about obstinately refusing to make that “choice we have to make.”

Does search lead to piracy? Here’s why the new MPAA report isn’t clear

Yesterday the MPAA issued a report commissioned from the global PR firm Millward Brown looking at "the role of search in online piracy." This coincided with the RIAA's Cary Sherman testimony before the House IP subcommittee that search engines are not doing enough to protect his industry from piracy. Here are some thoughts on the new report and the issue generally.

The report tries to ascertain how much of the traffic to infringing content is sent there by search engines. To measure this, the report employs "a customized, hybrid approach" that doesn't merely look at whether the visit to an infringing URL came from a link on a search page. Instead, it looks at whether a user searched for a "qualifying" search term within 20 minutes of reaching the infringing URL. "Qualifying" search queries, the report says, are associated with attempts to find illegal content and include "domain terms like '1Channel' and 'sidereel', generic terms like 'watch movies online' and movie and TV title-based terms like 'Dark Knight Rises'." As the report puts it, "This holistic approach contrasts with a more narrow definition that counts search only when a visit is preceded by a visit to a search engine."

The report is clear that "this method did not seek to indicate the degree to which infringing content appears on search engine results pages themselves," but merely sought to show that search engines "influenced the path" users took to reach infringing content. It concluded that "approximately 20% of all visits to infringing content were influenced by a search query from 2010-2012."

I have a couple of concerns with this methodology. First is that it implicitly puts search engines on the hook not just for linking directly to infringing content (for which there is a notice-and-takedown process available), but also for "influencing the path" that a user takes on their web travels. As we all know, correlation is not causation, so it's not clear to me that because I searched for "transformers" 15 minutes before I visited the URL for a pirate stream of Game of Thrones that necessarily means that the search engine influenced me in any way, and much less should be responsible for my behavior.

Second, I'm concerned that "qualifying search queries" include generic terms like "watch movies online" and title-based terms like "Dark Knight." That means that if you searched simply for the title of any movie or TV show, then the clock started ticking and, if you hit an infringing URL within 20 minutes, you're path to that URL was deemed influenced by the search engine. I don't know about most users, but I probably visit a search engine more than once every 20 minutes. If one is a film and TV enthusiast, I wonder if the influence shot clock wouldn't be constantly ticking.

It's therefore not surprising that, according to the report, 58% of all visits to infringing URLs that were "influenced" by a search engine came from queries for either generic or title-based terms, not from the more-clearly suspicious "domain" terms. As the report points out, this "indicat[es] that these consumers did not display an intention of viewing content illegally." So the question is, why did these consumers who had no illegal intent end up at infringing sites? Could it be that they did not have a legal alternative to accessing the content they were seeking? That would not excuse their behavior, and it's the movie industry's prerogative whether and when to make their content available. Indeed release windows are part of its business model, although a business model seemingly in tension with consumer demand as evidenced by the shrinking theatrical release window. That all said, it's not clear to me why search engines should be in the business of ensuring other industries's business models remain unchanged.

Finally, the report looks at whether Google's change to its search algorithm last summer affected referrals to infringing content. The change penalizes a site in Google’s search results based on the number of copyright removal notices received for that site. According to the report, the new algorithm did not really change the percent of direct referrals from Google to sites in Google's own transparency report—remaining at around 9%.

That's very interesting, but what might be more interesting than the percent of direct referrals is the total number of direct referrals. After all, the percent of referrals could remain at 10%, but if the total traffic to those sites decreases as a result of the algorithmic change, that would be a success. Indeed, even if traffic to those sites increases, but the share remains the same, it could also be considered a success given the potential counterfactual situation in which but for the change the Google's share of referrals would have been bigger.

Also, as Google explained when it announced the algorithmic change, penalized sites would appear lower than they otherwise would in search results, not be blocked altogether. So it may well be the case that a search for something like "dark knight free download divx pirate bay" will still return links to infringing content high in the search results even though they have been algorithmically demoted because there is no other content that beats it even with the demotion. I don't think anyone can seriously expect Google to display links to Amazon and Netflix and Warner Bros. as the top results for that search.

So, what might be more interesting is to figure out the effect that the algorithmic change had not on the share of referral traffic broadly, but on direct referrals from search results for generic and title-based searches made by "consumers [that] did not display an intention of viewing content illegally." I wonder if the algorithmic change has not had an impact there.

Pakistan’s Statement on NSA Surveillance, Human Rights, and Internet Governance

Last month, I wrote at The Guardian that NSA surveillance is harming our Internet freedom efforts. Now we have tangible evidence of that. Speaking at the UN Human Rights Council on behalf of Cuba, Venezuela, Zimbabwe, Uganda, Ecuador, Russia, Indonesia, Bolivia, Iran, and China, Pakistan delivered the following statement (video, starts around 52:25). Pay special attention to the last two paragraphs:

Mr. President,

Freedom of expression is a fundamental human right. The right to privacy is an essential element of the right to freedom of expression as defined in the ICCPR. At the last session of the Human Rights Council, the Special Rapporteur on Freedom of Expression presented his report which focused on the right to privacy and freedom of expression and opinion in the context of states surveillance of communications systems.

We believe that this is an area of great concern, particularly in light of recent revelations regarding the use and abuse of advanced surveillance technologies by some states. These involve unilateral unauthorized access to private data and performing extensive, in-depth surveillance on live communications and stored information with examples including email, voice chat, videos, photos, file transfers, and social networking details. The extent of recent events of mass data collection has been far greater than the global community knew and is a serious violation of the right to privacy as well as domestic and international law.

Much of the world’s electronic communications pass through only one country because electronic communications data tend to follow the least expensive route rather than the most physically direct route, and the bulk of the world’s Internet infrastructure is also based there. This provides an opportunity for intercepting the private communications of foreign nationals as their electronic data pass into or through that one country.

This situation is further aggravated when we see several major international internet and telecommunication technology companies overstepping in privacy and information theft including companies like Microsoft, Yahoo, Google, Facebook, YouTube, AOL, Skype and Apple. Some of these entities have been developing and executing their own surveillance capabilities and intruding into the private space of their customers around the globe without their knowledge or consent. As the Special Rapporteur has mentioned in his report, the private sector corporations often facilitate some states in their surveillance of individuals and states are increasingly adopting legislation requiring communications service providers direct access to the communications data. This is a disturbing development because this is intrusion of privacy on a mega-scale. It means that states can use these technologies and data against persons who are not their citizens and do not reside in their borders. This has complicated legal and human rights implications.

Article 12 of the Universal Declaration of Human Rights, and numerous international statutes and treaties forbid such systems of massive, pervasive surveillance. More importantly, the international community needs to take urgent action to protect individuals from such violation of their fundamental freedom.

A transparent international system with adequate international framework of internet governance including appropriate safeguards is all the more important in such circumstances. The internet is too big, too international and too much of a household thing to be left operating by a few who have misused it without any international legislation and monitoring of these abuses.

The existing mechanisms like the Internet Governance Forum established under the paragraph 72 of the World Summit on Information Society (WSIS)-Tunis Agenda have not been able to deliver the desired results. A strategic rethinking of the global internet governance mechanism is inevitable. Further development of an international mechanism in the context of ‘Enhanced cooperation’ within the WSIS Tunis Agenda can be a concrete way forward. However we will need to be sincere in our efforts to ensure a transparent, free, fair and respectful international intergovernmental mechanism of internet governance and one that also ensures the right to privacy.

Securing Copyrights Through Voluntary Cooperation?

It’s been over five years since Congress passed major legislation addressing copyright protection, but this hasn’t stopped copyright owners from achieving real progress in securing their expressive works. In cooperation with private-sector stakeholders, rights holders have made several deals aimed at combating copyright infringement and channeling consumer demand for original content toward legitimate outlets. These voluntary agreements will be the subject of a hearing this afternoon (9/18) before the House Judiciary Committee’s Subcommittee on Courts, Intellectual Property and the Internet. This panel marks the latest in a series of hearings the committee launched earlier this year to review the Copyright Act, much of which dates back to 1976 or earlier.

Copyright consensus may sound like an oxymoron, especially in the wake of last year’s bruising legislative battle over SOPA and PIPA. But in reality, there’s no shortage of common ground when it comes to copyright protection. Despite all the controversy that surrounds the issue, copyright isn’t so much a “conflict of visions”, to borrow from Thomas Sowell, but a conflict of tactics, as I argued earlier this year on Cato Unbound.

Indeed, with some notable exceptions, most scholars, business leaders, and policymakers accept that government has a legitimate and important role in securing to inventors and creators the fruits of their labors“. Unsurprisingly, the devil is in the details, where genuinely tough questions arise regarding the government’s proper role in policing the Internet for copyright violations. Should the law hold online intermediaries accountable for their users’ infringing acts? What remedies should the law afford rights holders whose works are unlawfully distributed all over the Internet, often by profit-generating foreign actors?

Although Congress has struggled mightily with these questions, business leaders from a variety of sectors have worked together to devise several approaches to the problem of copyright infringement that go above and beyond the Copyright Act. Perhaps most notably, in February 2013, a coalition of five major ISPs and several trade associations representing filmmakers and artists announced the launch of the Copyright Alert System (“CAS”). Administered by the Center for Copyright Information, the CAS aims to educate users about copyright law—and deter them from violating it—by delivering Copyright Alert notices to ISP subscribers found to be sharing infringing files on peer-to-peer networks.

It’s too early to render a verdict on the CAS’s effectiveness, but as data accumulates in coming months and years, researchers will surely examine how the system has impacted user behavior. Similar approaches to infringement by ISP subscribers have been tried in other countries such as France—albeit on a mandatory, not voluntary, basis—and several studies have found that these so-called “graduated response” systems have indeed reduced infringement in nations where they’ve been implemented. But other studies have reached the opposite conclusion, so more research is needed in this area. Whether or not CAS succeeds, however, experimentation involving novel approaches to copyright protection is crucial for the future of creative expression, as is experimentation among business models to monetize content.

Speaking of voluntary approaches to copyright protection, Google last week unveiled a report describing its anti-piracy efforts. As Google’s Fred von Lohmann explained:

[W]e are releasing a report, “How Google Fights Piracy,” bringing together in one place an overview of the programs, policies, and technologies we have put in place to combat piracy online.

The report discusses how Google penalizes websites that receive a high percentage of DMCA takedown notices in Google’s search results, hopefully thereby directing users toward legitimate sources of content. It explains the “Content ID” system pioneered by YouTube, which enables rights holders to identify potentially infringing videos posted to the site, and gives copyright owners the choice to monetize such videos in lieu of removing them altogether. And the report points out that in 2012, Google voluntarily disabled ad service to 46,000 websites dedicated to infringement. Check out the full report for much more information on these efforts and many others that Google has taken to better secure copyrights—and for another perspective, check out a MPAA-commissioned study released today critiquing the role that Internet search engines play in helping users find infringing websites.

After today’s hearing, I’ll have more thoughts on the state of voluntary cooperation to protect copyrights, and on the debate about whether file lockers and search engines ought to do more to combat infringement.

How intellectual property rights are like ethanol credits

No doubt I won’t be the only one to point out how funny it is that today’s New York Times front page exposé on the excesses of the Renewable Fuel Standard puts the blame on Wall Street firms trading in the market for ethanol credits. But I also want to make a comparison to intellectual property.

As the headline puts it, “Wall St. Exploits Ethanol Credits, and Prices Spike,” Yet ethanol credits are a thing that affect the price of gasoline only because the government created them out of thin air and mandated their use. Having created a new commodity–and a mandatory one for many refiners–it’s no surprise speculators entered the market. Yet this is how the NYT describes it:

The banks say they have far less influence in the market than others are suggesting, and are doing nothing wrong. But the activities, while legal, could have consequences for consumers.

See that? It’s the perfectly legal activities of the banks that will have consequences for consumers. I’d say it’s the entire program itself, created out of thin air by the government, that allows for these activities in the first place.

Because Congress and the EPA didn’t accurately predict future gasoline consumption (shocker that) they set the amount of ethanol that refiners must blend into gasoline too high. Refiners are on the hook to use more ethanol than possible, which forces them to buy ethanol credits instead. So of course commodity speculators are going to play in this made-up market, but it’s not the players we should be hating, it’s the game.

And for the record, I don’t mean to excuse the banks. I don’t know enough about this issue, but it wouldn’t surprise me if the banks had a hand in getting the government to create this market. If they did, then that’s par for the crony capitalist course.

The analogy to intellectual property, although imperfect, should be clear. Ethanol credits, like patents and copyrights, are property. Unlike traditional forms of property (say, in land or chattels), they are property rights created by statute out of thin air in order to incentivize creation of a public good. More renewable fuels in the case of ethanol credits, more creative works and inventions in the case of IP.

Creating new property rights can be a very healthy exercise and it’s generally preferable to government production of the public good. As the ethanol credits mess show us, though, getting right the design of the new property right is crucial, yet something regulators are bound to screw up for all the reasons that Hayek and Buchanan and Tullock pointed out.

As I mentioned, the analogy is not perfect. Government requires that refiners buy ethanol credits, while there’s no such law about IP. And yet, if you think about software and process patents, it plausible to make a case that there might as well be a requirement. Given how broadly these patents are interpreted, you might find that you have to pay tribute to a patent holder to be in a particular line of business. This is why we have patent trolls.

It’s funny, then, that diagnosing the ethanol mess the NYT falls into the same trap many do on patents. Namely that they confuse a symptom (trolls) for the disease (the scope of software patents). “[B]y allowing anyone to trade, including those with no real interest in energy, the E.P.A. encouraged speculation, the critics say,” the NYT tells us. But again, the problem is not the players, but the game.

So despite the fact that some find it surprising, it’s perfectly logical and ideologically consistent to be a strong defender of property rights, yet be a proponent of scrapping statutory property rights regimes that don’t work. If you are a conservative or libertarian who would feel some sympathy for abolishing the Renewable Fuels Standard, then you have some insight into why so many of us are sympathetic to abolishing some kinds of patents.