Don't Be Evil

by Rana Foroohar

  The shifts in the system that began a decade ago have come in a variety of ways.13 Starting even before the passing of the AIA, there were a series of Supreme Court rulings, such as eBay v. MercExchange in 2006, Mayo Collaborative Services v. Prometheus Laboratories in 2012, and Alice Corp v. CLS Bank in 2014, that, coupled with the America Invents Act passed under President Obama in 2011, have made patents in the United States harder for companies without enormous legal and lobbying power to secure—and harder to defend. Perhaps as a result, many companies now complain of “efficient infringement” on the part of larger rivals, which simply copy or take the intellectual property they want, then settle with aggrieved parties out of court for less than the full value of the IP. Few companies will go on the record with their travails, for fear of being blackballed within the tech community.

  How did we get here? Back in the early 2000s, when the dot-com bubble burst, many companies were left with nothing of value except their patents, which were then purchased by financial companies or larger tech entities that then tried to milk some cash from them. At the same time, the ecosystem of software suppliers that served the burgeoning commercial Internet and smartphone markets began to broaden. Pushing back on the ease with which patents could be obtained and defended was great for Big Tech, which, of course, has its own IP to protect, but which was also increasingly monetizing the data and IP created by others. The majority of those companies had legitimate technologies and ideas to protect. But some—so-called patent trolls—were playing a game of legal arbitrage, filing as many patents as possible in order to get larger companies to settle with them for the use of their technology.

  By the time Barack Obama took office in 2009, the patent troll narrative had reached a fever pitch. It was a story line supported by many Big Tech companies14 that individually and via lobbying bodies pushed for the America Invents Act. The law established a non-court adjudication body, the Patent Trial and Appeal Board. The idea was to save time and money with the non-court inter partes process, and indeed, patent claims went from taking three years and an average cost of $2 million to settle, to taking eighteen months and costing $200,000. The argument about patent trolls increasingly rang false. Yet the largest tech groups, particularly Google, lobbied hard for even more anti-patent legislation in 2013. Companies that supported that additional legislation said it would have cut out legal distortions around issues like the venue in which patent cases are heard, thereby cutting litigation costs.

  But some regulators and lawmakers who had originally supported patent reform began to feel that the entire process was being used to push an anticompetitive market agenda on the part of Big Tech. “It was shocking to see calls from some in the tech industry for a second round of drastic patent legislation immediately after all we did in the AIA, and before the AIA had even gone into effect,” says David Kappos, former head of the U.S. Patent and Trademark Office under Obama (who had supported the first round of legislation), who is now a lawyer with Cravath, Swaine & Moore. Kappos has, to be fair, represented Qualcomm, one of the critics of the current system, which only just settled a three-continent, multiyear patent dispute with Apple. But both he and the legal firm have also represented clients on the other side of the argument. “Ultimately, the real agenda sunk in,” he says. “This second round of drastic cutbacks to the patent system was a commercial ploy designed not to stop abuse but to cut supply chain costs by devaluing others’ innovation.”

  The new legislation was ultimately held up in Congress. Meanwhile, Michelle Lee, Google’s former head of IP, eventually took over as head of the USPTO. In 2013, the White House put out an alarming report on the prevalence of patent trolls and their destructive effects, blaming them for two-thirds of patent suits. Yet subsequent research done by the nonpartisan Government Accountability Office put that number at one-fifth, and other data showed that the number of patent defendants had been roughly flat before and after the AIA. “The historical trend in litigation rates relative to patents granted clearly does not support claims that litigation in the past decades has ‘exploded’ above the long-term norm,” wrote Bowdoin College professor Zorina Khan in a 2013 paper entitled “Trolls and Other Patent Inventions.” What’s more, she argued, a number of legislative changes seemed to address “the ephemeral demands of the most strident interest groups at a single point in time” and are “inconsistent with the fundamentals of the U.S. system of intellectual property.”15

  Indeed, some would argue that the system of adjudication for patents has become a shield for those accused of patent infringement. Most of the verdicts go against the patent holder, leading Randall Rader, former chief judge of the U.S. Court of Appeals for the Federal Circuit, the court in charge of patent appeals, to label it the “death squad” for IP. Another retired federal district court judge, Paul Michel, has become a vocal opponent of the system, arguing that excessive invalidations and the way in which the adjudication board has preempted court rulings are sapping both the strength of the patent system and American innovation itself.

  “The cumulative [anti-patent] effect of the Supreme Court rulings and the AIA was, together, stronger than it should have been,” he says, in part because of what he and others say was lobbying on the part of large tech firms. “Patent values are plummeting, and licensing and capital investments in many technologies are sinking. The AIA has done more harm than good.”

  I can’t tell you how many technologists and venture capitalists I’ve spoken to in the past several years who say that they simply won’t invest in areas that Google or Facebook or Amazon or Apple are likely to play in, because of the difficulties inherent in protecting open-source technology, and/or defending patents against the big guys, who inevitably have more time and legal muscle on their side. As technologist Jaron Lanier has pointed out, the most profitable assets, like Google’s own PageRank algorithms, or the closed system of the iPhone, are almost always proprietary, rather than open. “While the open approach has been able to create lovely, polished copies, it hasn’t been so good at creating notable originals,” says Lanier,16 a fact that underscores the way in which Big Tech firms push open-source to the extent that it aids their ability to profit from others’ innovation, but rarely let competitors anywhere near the code that powers their own key technologies.

  Or, as Gary Lauder, a venture capitalist and scion of the Estée Lauder family, once put it to me, “You need a patent system that induces the right behavior, which means one in which incumbents have to pay for innovations, not copy or steal them.” Lauder, a Silicon Valley–based investor who has poured more than half a billion dollars in funding into nearly one hundred companies and sixty venture capital funds in the past twenty-eight years, including GoTo/Overture (the online auction company from which Google copied crucial ideas—see chapter 2), has become an outspoken advocate for a stronger patent system. “We need to protect the larger start-up ecosystem, which is where the majority of jobs are created,” he says. “It’s an issue that’s really crucial for our economy. Today the incumbents are copying the innovators. Next both will be copied and displaced by cheap foreign knock-offs.”17

  Information Wants to Be “Free”

  Then there’s the way that Big Tech commodifies a different sort of innovation—the content that artists, writers, filmmakers, and others produce as part of their living. Consider the tactics deployed to weaken copyrights, which essentially could have stopped the rise of any of the Big Tech companies in their tracks, since they create almost none of the content that they so richly monetize. In fact, Google, Facebook, and other large platform players were the chief beneficiaries of the Digital Millennium Copyright Act, signed by Bill Clinton into law in 1998, which protected online service providers from being prosecuted over copyright infringement, assuming that the provider wasn’t aware of the infringement. Not surprisingly, it was supported by a number of the California-based politicians and liberals that Silicon Valley interests h
ad begun quietly funding.

  The law essentially allowed platforms to bully content creators—anybody putting things online, really—into giving up their work for free if they wanted to be searchable on the biggest platforms, while at the same time accepting the fact that the platforms would be the ones to benefit most from the content, monetarily, in exponential measure. After all, just as no small innovator with a patent could battle Big Tech, there was no way that an individual writer or musician, for example, could wage a legal battle to try to get royalties from the likes of Facebook or Google—or even to understand how much money the companies were making by linking to the content or leading advertisers to it as part of their search or social business models.18

  As an example, consider the decade-long battle between Google and myriad authors and publishers over the Google Print project, later renamed Google Books. Scanning every single page of every single book in the world had long been an obsession of Page and Brin—it was, after all, a typically Google-sized ambition. They knew that the majority of the world’s books were protected under copyright from such unauthorized copying and distribution. But the Googlers felt, in typical form, that such pesky rules didn’t apply to them. Plus, they couldn’t understand why anyone would think it was better for authors to make money on books than for the entire world to have free access to information. So in 2002, they simply began scanning pages, albeit covertly. As tech writer Steven Levy put it in his book, In the Plex, which devotes twenty pages to the book-scanning project, “The secrecy was yet another expression of the paradox of a company that sometimes embraced transparency and other times seemed to model itself on the NSA.”19 Schmidt, who had by then decided that “evil is what Sergey says is evil,”20 was all for the project, which he declared “genius.”21

  The publishing industry disagreed. In 2005, several publishers, represented by the Association of American Publishers, filed suit against Google’s “massive, wholesale and systematic copying of entire books still protected by copyright.” Soon after, the Authors Guild did, too, and the suits were combined. The publishers and authors wanted, understandably, for creatives with works still protected by copyright to be able to opt in or opt out of their books being scanned. But Google chief economist Hal Varian protested that this would kill the whole project, which, of course, depended on scale. Some three-fourths of the books that Google aimed to copy were still under copyright—and Varian and the other Googlers knew that many, if not most, of the authors probably wouldn’t opt in.22

  So, they decided to settle, ultimately agreeing to a compromise in which Google would agree to show only snippets of books that were under copyright for free in exchange for becoming the exclusive seller of digital copies of out-of-print books for the publishing houses and authors that agreed to the settlement. Google, which was earning about $10 billion in yearly revenue at that point, would pay the relatively tiny sum of $125 million to establish a registry of book rights holders and pay lawyers to organize the system and the payouts. It was a complete coup for Big Tech. Brewster Kahle, the head of the nonprofit Internet Archive, which wanted to do its own book-scanning project, claimed (not incorrectly) that Google had become an information monopolist. Even Lawrence Lessig, the digital law expert who favors many of the policies that the platforms support, said that Google’s deal was the equivalent of a “digital bookstore, not a digital library.”23 What he means is that even as Google was presenting the entire project as being done for the benefit of users, Google itself would ultimately benefit the most. More content meant more opportunities to sell advertising.

  Why did the authors and publishers ever agree to this initial settlement? Because they didn’t know any better. As with the people who took subprime mortgages from big banks, there was a huge information asymmetry in the dealings of the publishers with Big Tech, which was holding pretty much all the important inside information about just how valuable the digital monetization of searching such content could be. Google understood the new digital world that it was, in fact, creating and dominating. The publishers did not, and were desperate in the short term to stop the Big Tech behemoth from eating their lunch.

  Not only did they not have the information required to understand the long-term implications of content monetization via targeted advertising, they also didn’t have the time to think about it. They were on the defensive in a way that many more industries today are when dealing with Silicon Valley (witness the raft of quick mergers in, for example, the food industry after Amazon bought Whole Foods). Big Tech plays offense, while the rest of us are on defense. The problem is that, as any sports fan knows, that’s not a good strategy. Like most of us who were eager to use and be a part of the shiny new thing called the World Wide Web, authors and publishers didn’t fully internalize the truth—that they were becoming complicit in the idea that Silicon Valley wanted everyone to believe, which was that information should be free, and that the value created by others—be it books, music, or any other type of content—was a commodity that could be mined on the cheap.

  It was really only when other big companies like Microsoft and Amazon became outraged, too, that things began to change somewhat. The Google deal shut them out of a key part of the publishing market, and they wanted back in. (This paradigm has played out in a number of subsequent cases—Google and Amazon, for example, regularly do battle to try to gain more access to each other’s markets, and many of the most powerful groups that complain about monopoly power on the part of Big Tech are other corporate behemoths.)

  Eventually, under pressure from some 143 groups, both nonprofit and private-sector, the U.S. Department of Justice took on the issue, claiming it had granted Google too many anticompetitive rights, and that the book-scanning and -selling project was a monopoly issue. Larry Page called the legal challenge a “travesty to humanity,” while Sergey Brin wrote a sanctimonious piece in The New York Times defending Google’s efforts. At court proceedings in 2010, Google’s attorney Daralyn J. Durie argued that “copyright infringement is evil to the extent that it is not compensated and that it harms the economic interests of rights holders.” It was a clever argument, because it shifted attention toward the fact that Google was, after all, facilitating book sales—and away from the fact that Google itself was becoming the major beneficiary of a huge amount of copyrighted content. The judge ruled in Google’s favor, on the basis that the project offered “significant public benefits.” That Google would now have a monopoly on the digital sale of some thirty thousand books was deemed less important.24

  This commodification of content and transfer of wealth from creators to platform tech firms heated up further after Google’s acquisition of YouTube, which specialized in user-generated content, in 2006. It was a move that amounted to a kind of industrial policy that they were offering to the world (or at least that’s how one high-level Googler once put it to me).25 Instead of getting paid for their creativity via copyright, people could make money doing stuff on YouTube. The problem is that it takes about 2 million hits, according to Move Fast and Break Things author Jonathan Taplin,26 to make around $20,000 a year or so—not exactly a substitute for a middle-class job. You are either a YouTube star, or you are at the bottom of a pyramid of free labor, which critics like Taplin would say has become a zero-sum game for everyone but the technologists themselves.27 While it’s true that the new crop of tech companies makes it easier to slough off less productive tasks—driving, shopping, and so on—they also rely on “DIY” inputs, including user-generated content and open-source software. This is essentially unpaid work being done on a mass scale.

  Documents from the 2007 Viacom International v. YouTube lawsuit provide a window into how Google saw the creators of the content it was monetizing. Email chains back and forth from top leadership (including Schmidt, Page, and Brin) illuminate how Googlers pressured the entertainment company to keep as much content as possible outside of a paywall, making it free online, where the
platform could more easily make it searchable (and thus monetizable).

  Putting things online for free largely benefits the platforms, not the content creators, because it means more traffic, which means more revenue. Whatever press or publicity that a content creator can gain from the exposure is minuscule by comparison, and certainly doesn’t replace the revenue gained by more traditional channels of distribution; even today, it’s arguably easier to make decent money as a writer or producer working for a traditional print medium or television brand than for an online outlet, with a few exceptions. But that wouldn’t be completely clear to the studios (or the publishers) until much later. In the 2007 case, the major studios eventually decided it was better to be on YouTube than not, believing that the number of eyeballs involved would pay off. The courts ruled that as long as YouTube wasn’t given any “red flags” by content creators in advance of posting content, then the Digital Millennium Copyright Act allowed it to upload clips without worrying about copyright violations.28

  For Google, these cases amounted to tens of billions of dollars in revenue gained from the work of writers, producers, musicians, filmmakers, and ordinary people who were putting content online in increasing numbers. Free, user-generated data and content is the lifeblood of platform technology companies. All of them are built on it—every tweet, every like, every search (on Google or Amazon) is the raw material of Big Tech. That’s not to say that there aren’t benefits to this for users, content creators, and developers—it’s just that the benefits to the platform firms themselves so greatly outweigh them. Just imagine if GM or Ford had to pay for nothing but labor—no material costs, no factory costs, no cost for anything that it took to build their products, only the salaries that they paid to their workers. Then imagine that they needed a fraction of the workers that they currently have to create their products. That’s the difference between a digital business model and an industrial one.