Pirate Bay, eBay and IP-driven business models CLA 4 June 2009

Do we look at laws, markets or business models?

Different approaches If we want to understand the interplay of intellectual property law and competition, there are different ways we can do so: The legal approach: identify, analyse and synthesise the various bodies of law relating to IP and competition, producing a flow-chart which gives yes/no answers (or something less precise) to business questions The market approach: observe how players within a market (eg prescription pharmaceutical products, telecoms, fast-moving consumer goods) work, and match their conduct against the legal backdrop The business approach: study the manner in which a commercial organism adapts itself to business conditions, which may or may not fall within conveniently-defined markets, to see how it conforms with legal norms Hypothesis: the behaviour of a business is positively influenced by future opportunities caused by present change, but is inhibited by the way the legal superstructure has regulated the past

The Pirate Bay Key features Founded November 2003 as a website that indexes and tracks BitTorrent files Per Alexa: 106 th most popular website in the world Spun-off from the Swedish Piratbyrån in October Now (i) a business and (ii) “a long-running project of performance art” Users: 25m+ unregistered and 3.6m registered Operators convicted in Sweden of “assistance of copyright infringement”, but the site continues to function, with servers in Belgium and Russia Extent of profitability uncertain and contested

eBay Key features Founded in 1995, rebranded eBay in 1997 Business model was based on auctions, but is now driven by fixed price sales Attempts at brand extension have generally failed (eBay Express, eBay Wiki, Best of eBay) diversification, with difference types of synergy: eBay also owns PayPal, Skype Revenue 2008: US$ 8.46bn. Net income 2008: US$ 348m

Let’s look at two internet-based businesses What do The Pirate Bay and eBay have in common? No bricks, no mortar: they depend exclusively on internet services for their business They depend on large-scale critical mass customer involvement if they are to work at all (seeders and leechers; sellers and buyers) They currently have no effective competitors on the same scale as themselves They have been the target of constant complaints from IP rights owners that they either infringe IP rights or facilitate their infringement by their users

Let’s look at two internet-based businesses How do The Pirate Bay and eBay differ? TPB owns no intellectual property assets (no trade marks, patents, designs; takes licences to use open source-derived proprietary software); eBay has a portfolio of valuable trade marks and a worldwide portfolio of 556 patents/applications ― almost all of which appear to be for business methods or presentations of information. TPB has a unique name, while eBay does not. TPB denies infringing IP, but endorses user-generated infringement (UGI). eBay also denies infringing IP, but discourages UGI and runs its VeRO scheme TPB derives income from paid-for advertising (from some surprising if accidental sources) and donations; eBay derives income from paid-for advertising as well as payment by users

What does this mean in terms of competition law? A function of competition law is to protect competition where it exists and to create it where it does not. Points to note: TPB and eBay are both monopolists in terms of market share ― but market dominance is not of itself an abuse of a dominant position eBay’s requirement in some markets, and for some categories of sale, that transactions are settled by PayPal payments, has been criticised but has not led to intervention by the competition authorities Neither TPB nor eBay has erected a high barrier to market entry by means of IP rights in order to fortify its market position Neither TPB nor eBay is part of any IP pooling or cross-licensing group Er, not much else …?

The end, folks! For more information please contact Jeremy Phillips