April 20, 2014

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Business Model as Evidence of Intent

One interesting aspect of Justice Souter’s majority opinion in Grokster is the criticism of the business models of StreamCast and Grokster (pp. 22-23):

Third, there is a further complement to the direct evidence of unlawful objective. It is useful to recall that StreamCast and Grokster make money by selling advertising space, by directing ads to the screens of computers employing their software. As the record shows, the more the software is used, the more ads are sent out and the greater the advertising revenue becomes. Since the extent of the software’s use determines the gain to the distributors, the commercial sense of their enterprise turns on high-volume use, which the record shows is infringing. This evidence alone would not justify an inference of unlawful intent, but viewed in the context of the entire record its import is clear.

It’s hard to think of any conceivable business model for a software company under which an increase in use of the product does not lead to an increase in revenue. If you sell software, greater use allows you to increase the price, or to sell more units. Likewise if you sell software by subscription. If you give away the software and make money on auxiliary products or services, you’ll still benefit from increased usage.

Certainly Sony’s profits would have increased the more people used Betamaxes. The same is true for iPods, TiVos, photocopiers, and many other legitimate products. Profiting from use seems like pretty poor evidence of intent to cause infringement.

Comments

  1. Chris Smith says:

    It may be wise to think on the distinction between purchasing a device and using a device. Although Sony’s profits would go up if more people used Betamaxes, the volume of use by each individual has comparitively little effect on profits. Once you’ve sold that VCR, your profits aren’t going to go up or down depending on whether it is used one time or one thousand times.

    This is giving me a déjà vu feeling from the “walled garden” content models of cellular carriers. As long as the software provider maintains an economic link with the end user, they will be in a position to benefit from use. If they instead simply sell the software with no ongoing connection, their benefits will be relatively independent of use. When you tightly control your walled garden, it becomes hard to declaim knowledge of what happens inside it.

  2. Edward W. Felten says:

    But of course the sales price, and the number of sales made, both depend on how much the buyer expects to use the device. So if buyers have any ability to predict how much they will use the device, usage does translate into profits.

  3. Seth Finkelstein says:

    I think you’re being too hard on him – look at the next page:

    “This evidence alone would not justify an inference of
    unlawful intent, but viewed in the context of the entire
    record its import is clear.”

    “The unlawful objective is unmistakable.”

  4. Cube-Dweller says:

    The simple matter is that copyright infringment is rampant, and previous to days of Napster, there was Redline which was similar to FTP servers, and even before that people would just post the files on a website for people to view and download. If we shut down all the p2p software out there, there is still software freely available for people to chop up the .dat files of streaming media one can get using any free streaming radio or video play and allow them to save those files locally. As soon as we find one way to stop it, another more devious, and ingenious way springs up.

  5. Copyright Prophet says:

    “It’s hard to think of any conceivable business model for a software company under which an increase in use of the product does not lead to an increase in revenue.”

    Readers note: it is mind-boggling to me how a Princeton professor could be potentially committing intentional deception of the public, like Lessig with his voodoo stats in Free Culture. What both seem to disguise here, are the inverse-adverse effects that unfair competition has on indie composers: There is SO MUCH content out there, that no one has time anymoore to discover new composers, such the living Bach’s among us. Many were once earning money at (formerly) legit sites like mp3.com’s pay-for-play. But once mp3.com had to compete with “free” Napsters/Grokster’s out there, the very best indie artists on mp3.com, particularly classical ones, lost their livelihoods–to intentional piracy models like Grokster, and now YouTube.

    Yes, Postner should have everyone learn Linear Algebra: Particularly the Markov Matrix model of living Bach’s and living Einsteins, whose incentives were removed by everyone’s criminal disrespect for law of copyrights and patents. Most members of ASCAP, those who are BETTER than the pop stars out there, see zero earnings in their ASCAP reports. People are too busy pirating, than to discover new talent. YouTube purchased by Google at $1.5 billion presents clear evidence of intentional business models centered around inducement of pirating.

    This is not an argument of RIAA Big Business Consolidation vs. Innovation and Individual Privacy. This is an issue of Mass-Produced Public Minds being deceived by folk like Lessig, intent upon destroying the indie artists, the few who can compose like Bach. Their coffin is already sealed since everyone’s fetish is on Big Business, rather than the local artist who is starving because you pirates destroyed the mp3.com pay-for-play model. Felten’s quote shoud have instead went:

    “I can’t imagine a copy-sharing web-model that ISN’T intentional inducement of criminal pirating behavior for exclusive gain at the expense of the living Bach’s of this world, who now have no incentive to work hard to give us any more greatly inspired music. We are now all robots who don’t care about great living composers.”