It's time to juxtapose the Kelo and Grokster decisions. I suggest that the upshot of the Kelo decision is very close to file sharing, and that ultimately the meaning of the Grokster is deeply twisted.
Kelo suggests that if:
- Able owns an asset for which part of the value is certain,
- An additional part of the asset's value is more uncertain, and
- Able is unwilling to commit to "crystalizing" that additional value at a price that is satisfactory to the interested buyer.
Then the government is entitled to:
- Take the asset from Able,
- Compensate them only for the certain part of the value,
- Transfer ownership of it to Baker who will "crystalize" the additional value, and
- Take a cut of that additional "crystalized" value in the form of additional taxes.
Now consider file sharing (yes, I know that the Grokster case wasn't really about file sharing itself, but let's be realistic and recognize that it is one brick in the foundation for an ultimate set of laws about file sharing). So anyway, how is the list below so different from the pair of lists above?
- Able Music Company owns a recording for which part of the value is certain,
- An additional part of the recording's value is more uncertain, and
- Able is unwilling to commit to selling the recording at a price that is satisfactory to the interested buyer (and which will "crystalize" that uncertain value).
So, the scorned buyer (Baker):
- Obtains a shared copy of the recording without the help of the government,
- Compensates Able Music Company for the certain part of the value,
- Takes ownership of it allowing Baker to "crystalize" the additional value, and
- Transfers no money to the government in the form of taxes.
Now, let's go down the two pair of lists bullet by bullet and see if there are any critical differences. Both the homeowner and the music company:
- Own an asset some of whose value is certain. For a recording, that might be something like a penny for each copy they burn.
- Have the option to sell it someone for even more value. For a recording, this might be between zero and (say) $2 a song.
- Are not willing to close the deal. The music companies are closing out lots of buyers who might pay less than the going rate of about $1 a song.
For file sharing, we have the following:
- The file sharer places no burden on the music company or the government, so this is a wash.
- The most obvious objection is with the lack of compensation to Able. But this is a lark - the only certain value that a recording has is its marginal cost of reproduction, which is zero if Baker copies the file without involving Able. This will bother some of you, but we must recognize that the recording itself is intrinsically useless - it is only copying it and transferring to people who want it that creates value.
- Certainly, it seems like the file sharer "crystalizes" the value of the recording in the same way as someone who buys the CD.
- The government gets nothing.
The last part is a little problematic, but has now been addressed by the tortured logic of Kelo. In that case, New London confirmed to Justice Scalia that increased tax revenue was one of their objectives, and the majority affirmed this as a reasonable goal. Without casting aspersions on the motives of government officials, the reasonable fear from Kelo is that if a locality is willing to use eminent domain to secure extra tax revenue, then it may be only a modest lateral shift to require tax compensation for performance of eminent domain procedures. If this is the case then it eviscerates the importance of the first and last bullet in the last sentence - if the government doesn't do anything, then it shouldn't get any compensation either.
Looking back over the points and arguments presented above, it is clear that the real difference between eminent domain cases after Kelo and file sharing is that consumers have gone and taken the music companies "uncrystalized" option value without the imprimatur of government.
Is anyone else out there bothered by the fact that the only difference between bad but legal "real estate sharing" and bad but illegal file sharing is the approval of a controlling legal authority that has blown this particular Constitutional precedent completely out of proportion?
Lastly, what does this argument imply about the Grokster decision? It is generally interpreted that what the justices ruled against was Grokster's encouragement of file sharing. This means that their crime was to encourage people to undertake new actions that didn't involve the government without seeking the government's imprimatur. Finding fault with that is something worthy of the French.
P.S. I adopted the word crystalization from a Tim Worstall post that trackbacked to my earlier post. I thought it was an excellent word for the fixing of the value of an option.