pre-thanksgiving IP round-up

excerpts from this week’s splash article: the decline of brands by james surowiecki [wired nov 04] … could it be that information overload has become brand overload?

[T]here’s something strange going on in branding land. Even as companies have spent enormous amounts of time and energy introducing new brands and defending established ones, Americans have become less loyal. Consumer-goods markets used to be very stable. If you had a set of customers today, you could be pretty sure most of them would still be around two years, five years, ten years from now. That’s no longer true. A study by retail-industry tracking firm NPD Group found that nearly half of those who described themselves as highly loyal to a brand were no longer loyal a year later. Even seemingly strong names rarely translate into much power at the cash register. Another remarkable study found that just 4 percent of consumers would be willing to stick with a brand if its competitors offered better value for the same price. Consumers are continually looking for a better deal, opening the door for companies to introduce a raft of new products.

… [B]ecause consumers are more promiscuous and fickle than ever, established brands are vulnerable, and new ones have a real chance of succeeding – for at least a little while. The obsession with brands, paradoxically, demonstrates their weakness.

… Marketing types either don’t see this trend or choose not to talk about it. In the words of advertising legend Jim Mullen, “Of all the things that your company owns, brands are far and away the most important and the toughest. Founders die. Factories burn down. Machinery wears out. Inventories get depleted. Technology becomes obsolete. Brand loyalty is the only sound foundation on which business leaders can build enduring, profitable growth.” Similarly, in the new book Brands and Branding, Rita Clifton, chair of Interbrand UK, puts it this way: “Well-managed brands have extraordinary economic value and are the most effective and efficient creators of sustainable wealth.” These assertions claim that while factories, source code, and patents are ephemeral, brands are real.

… If a company must constantly deliver new value to its loyal customers just to keep them, those customers aren’t loyal at all. Which means, save for a few perennials like Coke, brands have little or no value independent of what a company actually does. “Brands have run out of juice. They’re dead,” says Kevin Roberts, CEO of advertising giant Saatchi & Saatchi and author of the new book Lovemarks. “Now the consumer is boss. There’s nowhere for brands to hide.”

… The truth is, we’ve always overestimated the power of branding while underestimating consumers’ ability to recognize quality. When brands first became important in the US a century ago, it was because particular products – Pillsbury flour or Morton salt – offered far more reliability and quality than no-name goods. Similarly, many (and arguably most) of the important brands in American history – Gillette or Disney – became successful not because of clever marketing, but because they offered something you couldn’t get anywhere else. (Gillette made the best razors; Disney made the best animated movies.) Even Nike first became popular because it made superior running shoes. Marketers looked at these companies and said they were succeeding because their brands were strong. In reality, the brands were strong because the companies were succeeding.

Over time, certain brands came to connote quality. They did provide a measure of insurance – which in turn made firms less innovative and less rigorous. (Think of the abominable cars General Motors, Ford, and Chrysler made in the late 1960s through the 1970s – remember the Pinto? – in part because they assumed that they had customers for life.) That sense of protection is eroding in industry after industry, and instead of a consumer economy in which success is determined in large part by name, it’s now being determined by performance. The aristocracy of brand is dead. Long live the meritocracy of product.

and excerpts from james boyle’s james boyle: a natural experiment [ 11/22] – all about how db protection demonstrates that the more-is-better school of IP [more-property=more-innovation=public-good] is flawed.

So how do we decide the ground-rules of the information age? Representatives of interested industries come to regulators and ask for another heaping slice of monopoly rent in the form of an intellectual property right. They have doom-laden predictions, they have anecdotes, carefully selected to pluck the heartstrings of legislators, they have celebrities who testify – often incoherently, but with palpable charisma – and they have very, very simple economic models. The basic economic model here is “If you give me a larger right, I will have a larger incentive to innovate. Thus the bigger the rights, the more innovation we will get. Right?” Well, not exactly. Even without data, the models are obviously flawed – copyrighting the alphabet will not produce more books, patenting E=MC2 will not yield more scientific innovation. Intellectual property creates barriers to, as well as incentives towards, innovation. Clearly the “more is better” argument has limits. Extensions of rights can help or hurt, but without economic evidence beforehand and review afterwards, we will never know. In the absence of evidence on either side, the presumption should obviously still be against creating a new legalised monopoly, but still the empirical emptiness of the debates is frustrating.

This makes the occasion where there actually is some evidence a time for celebration. What we really need is a test case where one country adopts the proposed new intellectual property right and another does not, and we can assess how they are both doing after a number of years.

There is such a case. It is the “database right.” Europe adopted a Database Directive in 1996 which both gave a high level of copyright protection to databases, and conferred a new “sui generis” database right even on unoriginal compilations of facts. … So here we have our natural experiment. Presumably the government economists are hard at work both in the US and the EU, seeing if the right actually worked? Umm…. No.

Despite the fact that the European Commission has a legal obligation to review the Database Directive for its effects on competition (they are three years late in issuing their report) no attention appears to be being paid to the actual evidence of whether the Directive helps or hurts in the EU, or whether the database industry in the US has collapsed or flourished. That is a shame, because the evidence is there, and it is fairly shocking.

… If the database right were working, we would expect positive answers to three crucial questions. First, has the European database industry’s rate of growth increased since 1996, while the US database industry has languished? (The drop off in the US database industry ought to be particularly severe after 1991 if the proponents of database protection are correct; they argued the Feist case was a change in current law and a great surprise to the industry.)

Second, are the principal beneficiaries of the database right in Europe producing databases they would not have produced otherwise? Obviously if a society is handing over a database right for a database that would have been created anyway, it is overpaying – needlessly increasing prices for consumers and burdens for competitors. This goes to the design of the right – has it been crafted too broadly, so that it is not being targeted to those areas where it is needed to encourage innovation?

Third, and this one is harder to judge, is the right promoting innovation and competition rather than stifling it? For example, if the existence of the right allowed a one-time surge of newcomers to the market who then to use their rights to discourage new entrants, or if we promoted some increase in databases but made scientific aggregation of large amounts of data harder overall, then the database right might actually be stifling the innovation it is designed to foment.

Those are the three questions that any review of the Database Directive must answer. But we have preliminary answers to those three questions and they are either strongly negative or extremely doubtful.

Are database rights necessary for a thriving database industry? The answer is a clear “no.” In the United States, the database industry has grown more than 25-fold since 1979 and – contrary to those who paint the Feist case as a revolution – for that entire period, in most of the United States, it was clear that unoriginal databases were not covered by copyright. … What about Europe? There is some good news for the proponents of database protection. As Hugenholtz, Maurer, and Onsrud point out in a nice article in Science Magazine, there was a sharp, one-time spike in numbers of companies entering the European database market immediately following the implementation of the Directive in member states. Yet their work, and “Across Two Worlds,” a fascinating study by Maurer, suggests that the rate of entry then falls back to levels similar to those before the Directive. Maurer’s analysis shows that the attrition rate is also very high in some European markets in the period following the passage of the Directive – even with the new right, many companies drop out. …

Now the second question. Is the Database Directive encouraging the production of databases we would not have got otherwise? Here the evidence is clear and disturbing. Again, Hugenholtz et al, point out that the majority of cases brought under the Directive have been about databases that would have been created anyway – telephone numbers, television schedules, concert times. A review of more recent cases reveals the same pattern. These databases are inevitably generated by the operation of the business in question and cannot be independently compiled by a competitor. The database right simply serves to limit competition in the provision of the information. … So what kinds of databases are being generated by this bold new right? The answer is somewhere between bathos and pathos. … [example of lame database] … The European Commission might ask itself whether these are really the kind of “databases” which we need a legal monopoly to encourage, and that we want to tie up judicial resources protecting. The point that many more such factual resources can be found online in the United States without such protection, also seems worthy of note. At very least, the evidence indicates that the right is drawn much too broadly and triggered too easily in ways that are profoundly anti-competitive.

Finally, is the database right encouraging scientific innovation or hurting it? Here the evidence is merely suggestive. Scientists have claimed that the European database right, together with the perverse failure of European governments to take advantage of the limited scientific research exceptions allowed by the Directive, have made it much harder to aggregate data, to replicate studies, and to judge published articles. In fact, academic scientific bodies have been among the strongest critics of database protection. But negative evidence, by its nature, is hard to produce; “show me the science that did not get done!” Certainly, both US science and commerce have benefited extraordinarily from the openness of US data policy. …

I was not always opposed to intellectual property rights over data. Indeed, in a book written before the enactment of the Database Directive, I said that there was a respectable economic argument that such protection might be warranted and that we needed research on the issue. Unfortunately, Europe got the right without the research. The facts are now in. If the European Database Directive were a drug, the government would be pulling it from the market until its efficacy and harmfulness could be reassessed. At the very least, the Commission needs a detailed empirical review of the Directive’s effects, and needs to adjust the Directive’s definitions and to fine-tune its limitations. But there is a second lesson. There is more discussion of the empirical economic effects of the Database Directive in this 2000 word column than there is in the 600 page review of the effects of the Directive that the European Commission paid a private company to conduct. That is a scandal. And it is a scandal that is altogether typical of the way we make intellectual property policy. President Bush is not the only one to make “faith-based” decisions.