In a ground-breaking report, Music Canada, a national trade organization, documents the scale of harm being caused by the Value Gap – defined as the significant disparity between the value of creative content that is accessed, particularly through user upload content services like YouTube, and the revenues returned to the people and businesses who create it.
“This is the story you will not hear from Google,” says Graham Henderson, President and CEO of Music Canada. “YouTube would never have emerged as the largest music service without distorting the use of safe harbour protections in copyright law that were created to protect ‘mere conduits’ or ‘dumb pipes.’ We now know that today’s digital platforms are the smartest pipes that have ever been imagined.”
Creators and governments around the world are taking notice, and taking action. In Canada, thousands of musicians, authors, poets, visual artists, playwrights and other members of the creative class, have urged the Canadian government to address the Value Gap in a campaign called Focus On Creators.
Late last month, Mark Zuckerberg wrote a brief post on Facebook at the conclusion of Yom Kippur, asking his friends for forgiveness not just for his personal failures but also for his professional ones, especially “the ways my work was used to divide people rather than bring us together.” He was heeding the call of the Jewish Day of Atonement to take stock of the year just passed as he pledged that he would “work to do better.”
Such a somber, self-critical statement hasn’t been typical for the usually sunny Mr. Zuckerberg, who once exhorted his employees at Facebook to “move fast and break things.” In the past, why would Mr. Zuckerberg, or any of his peers, have felt the need to atone for what they did at the office? For making incredibly cool sites that seamlessly connect billions of people to their friends as well as to a global storehouse of knowledge?
Lately, however, the sins of Silicon Valley-led disruption have become impossible to ignore.
Facebook has endured a drip, drip of revelations concerning Russian operatives who used its platform to influence the 2016 presidential election by stirring up racist anger. Google had a similar role in carrying targeted, inflammatory messages during the election, and this summer, it appeared to play the heavy when an important liberal think tank, New America, cut ties with a prominent scholar who is critical of the power of digital monopolies. Some within the organization questioned whether he was dismissed to appease Google and its executive chairman, Eric Schmidt, both longstanding donors, though New America’s executive president and a Google representative denied a connection.
Meanwhile, Amazon, with its purchase of the Whole Foods supermarket chain and the construction of brick-and-mortar stores, pursues the breathtakingly lucrative strategy of parlaying a monopoly position online into an offline one, too.
Now that Google, Facebook, Amazon have become world dominators, the question of the hour is, can the public be convinced to see Silicon Valley as the wrecking ball that it is?
These menacing turns of events have been quite bewildering to the public, running counter to everything Silicon Valley had preached about itself.
According to a recent civil lawsuit, a plaintiff is suing Google for violating the racketeering laws (aka “RICO”). (Attia et al v. Google et al, Cal. Sup. Ct. (Santa Clara) Case No. 1:14-cv-270143.) I’ve been waiting for this since 2012 when it dawned on me one day that Google is running a criminal enterprise (see “Google’s Guide to RICO“). So what does this RICO business mean?
If you’re even occasionally exposed to contemporary crime movies you’ll have heard of “RICO”. The “RICO” statute is the acronym for the Racketeer Influenced and Corrupt Organization Act which allows a criminal prosecution against the leaders of an “ongoing criminal enterprise”, particularly where the leaders of that organization order others to commit crimes, often called “RICO predicates”. The loophole was that leader didn’t do the crime, but ordered or assisted others in committing it. (Recall the Senate hearings in The Godfather II, and see the first major RICO criminal case, US v. Scotto, 641 F.2d 47 (1980) for those reading along.) You know, that thing that happened with those guys down at that place we used to go back in the day.
Often overlooked is the civil cause of action that may be brought either by the government or by private citizens under both the federal RICO statute and the 33 or so state law versions of RICO. This allows private citizens who have been harmed by corrupt organizations to sue for treble damages and attorneys fees. The Department of Justice civil RICO manual is also instructive for government action under the statutes:
Civil RICO, 18 U.S.C. § 1964(a), authorizes potentially intrusive remedies, including injunctive relief [typically sought by the government], reasonable restrictions on defendants’ future activities, disgorgement of unlawful proceeds, divestiture, dissolution, reorganization, removal from positions in an entity, and appointment of court officers to administer and supervise the affairs and operations of defendants’ entities and to assist courts in monitoring compliance with courts’ orders and in imposing sanctions for violations of courts’ orders.
RICO remedies are ample and were intended to be applied against white collar criminals as well as organized crime bosses. The statute was drafted by Professor G. Robert Blakey–remember that name–now the William J. and Dorothy K. O’Neill Chair in Law Emeritus at the University of Notre Dame School of Law. As Professor Blakey told Time magazine:
“We don’t want one set of rules for people whose collars are blue or whose names end in vowels, and another set for those whose collars are white and have Ivy League diplomas.”
Or whose collars are white, have Ivy League diplomas and live in Silicon Valley.
What is particularly interesting about the RICO filing is that it turns on the RICO intellectual property theft predicate (at p. 28):
1. Defendants [meaning Google and certain Google executives and affiliates] have a long history of theft of others intellectual property which continues to date and which constitutes a pattern of racketeering activity
112. Defendants have engaged in a pattern of racketeering activity, as defined in 18 U.S.C. § 1961(5), through the repeated, relentless, and purposeful theft of other companies’ IP and trade secrets.
113. Defendants have engaged, and continue to engage, in a pattern of activity whereby Defendants: 1) seek out inventors; 2) promise such inventors that Google will invest in, partner with and/or seek to acquire a license for any proprietary inventions of the investor; 3) sign a non-disclosure agreement (NDA) with inventors; 4) upon inducing inventors to reveal trade secrets and other confidential information, Google disregards the NDA and misappropriates the trade secrets; and 5) Google then subsequently attempts to box-out the victim inventors from the market by filing numerous patent applications which result in the unauthorized disclosure of the inventors’ trade secrets and the subsequent granting of a monopoly on the technology by the issuance of the patent. Where no NDA is required, Google has simply copied and criminally stole other inventors’ copyrights….
115. Google, Inc. and its executives—among others—have repeatedly had criminal and anti-trust investigations brought against them by governments around the world for their repeated theft. For example:
• Google was fined $500 million by the U.S. government for its role in the promotion of piracy through illegal online pharmacies;
• In June of 2017, Google was hit with a $2.7 billion fine from the European Union for its anti-competitive conduct in skewing search results. Google is still under investigation for its conduct with regards to its AdSense and Android software and business model which may lead the company to face even further fines;
• The U.S. Federal Trade Commission concluded that Google “used anticompetitive tactics and abused its monopoly power in ways that harmed Internet users and rivals”;
• Google was charged by the FTC with engaging in deceptive privacy practices for stealing and publishing consumers email contact lists and was ordered to submit to regular independent privacy audits for the next 20 years; and
• Google was investigated by numerous countries when it was learned that Google’s street-view illegally stole persons’ wifi information, passwords, names, addresses and emails among other personal information….
c. Theft of others intellectual property is the Google and Flux Factory Enterprise’s regular way of doing business
153. Violations of RICO predicate acts (e.g. theft of trade secrets and criminal infringement of copyright) are the regular way of conducting Defendants’ businesses. The previous non-exclusive list of acts of racketeering evidences a pattern of racketeering, the acts of which are related, not isolated, and continue to date by threat of further operation of Defendants’ business and through Defendants continued use of already stolen trade secrets for profits. Based on all of the following, Defendants have demonstrated that their regular way of doing business is through racketeering (e.g. by theft of trade secrets and criminal infringement of copyright) such that they are liable for harm done to others by their acts of racketeering under the Federal Racketeer Influenced and Corrupt Organizations Act, 18 U.S.C. §§ 1961, et seq.
6. Larry Page, Sergey Brin, Google, Inc., and its associates have participated in a criminal enterprise
154. Each Plaintiff is a “person” within the meaning of 18 U.S.C. §§ 1961(3); 1964(c).
155. Each Defendant is a “person” within the meaning of 18 U.S.C. §§ 1961(3) and 1962(c)….
168. Plaintiffs hereby incorporate in the pattern of racketeering shown in ¶¶ 112–153. This pattern of racketeering evidences an intent by Defendants to continuously conspire to make income from acts of racketeering (e.g. theft of trade secrets) and to invest and/or use those funds within the greater Google Enterprise.
169. Moreover, Google, the Individual Defendants, and Flux Factory, Inc., conspired with certain venture capital firms (Does 1, 2, and 3) in order to assist in the development of the Flux Enterprise.
Sound familiar? I’m not a RICO expert, but the RICO portion of the complaint seems to be very well-pleaded and a systematic application of the law and facts. It’s also important to remember that Eric Schmidt, Larry Page and Sergey Brin have absolute control over Google (and Alphabet, the holding company) through Google’s bizarre voting rules as explained by the Motley Fool:
Google prevents activist investors from pressuring the company to do anything via its share class system.
There are currently three classes of Google stock — A, B, and C shares. Everyday investors can only buy A or C shares on the open market. A shares (GOOGL) are entitled to one vote, while C shares (GOOG) are entitled to zero votes. The C shares split off the original class A shares last year during its 2 for 1 split. Google uses A shares to pay its employees and fund acquisitions. Meanwhile, B shares, which are entitled to ten votes each, are only owned by Google’s founders and their inner circle.
Simply put, B shares give Google’s top brass the power to defend against any shareholder revolt. Shareholders united against that plan at a previous meeting, casting 180 million votes in favor of the elimination of share classes. Larry Page, Sergey Brin, Eric Schmidt and others crushed the proposal with 551 million votes.
Not only does the voting structure mean that insiders can block any shareholder revolt, it also means that insiders are totally responsible for any of the company’s bad acts. That may explain why Eric Schmidt essentially “took the 5th” under questioning by Senator John Cornyn about Google executives’ narrow escape from criminal prosecution for violating and conspiring to violate the Controlled Substances Act. Schmidt later claimed neither he nor his legal team “understood” the Senator’s questions and were “confused.”
Google’s General Counsel shall be responsible for reviewing every situation in which a Google employee is convicted of a felony under U.S. federal or state criminal statutes in connection with his employment by Google and for reporting to the Board (or an appropriate committee of the Board) with respect to that violation. Presumptively, any employee convicted of a felony under a U.S. federal or state criminal statute in connection with his employment by Google shall be terminated for cause and receive no severance payments in connection with the termination. If the General Counsel determines that such termination is not warranted, he shall so recommend to the Board (or an appropriate committee of the Board), which will act upon his recommendation in its discretion.
Leave aside how strange it is to have such a requirement in the settlement of a shareholder lawsuit in the first place–if it turns out that any of the Google insiders have actually been or get convicted of felonies as part of the racketeering case, the shareholder settlement will require the company to terminate that insider’s employment and that will be that.
Where does it go? Before you laugh it off, remember this: If you had told a room full of MBAs in the mid 1980s that in a few years time Master of the Universe Michael Milken would be in prison and Drexel Burnham Lambert would be bankrupt, you would have been laughed out of the room as a quixotic buffoon. But on March 29, 1989, Michael Milken was charged with 98 counts of racketeering and fraud and was facing life in prison. That’s right–racketeering under the RICO Act. Milken copped a plea to six lesser included crimes of securities and tax fraud, paid a $600 million fine and served 22 months in a federal pen on a 10 year sentence.
He’s still rich, just not as rich as he was. But Drexel never would have claimed the “don’t be evil” brand. Even though unlike Google and the drug case, Milken paid his fine himself. Drexel’s stockholders didn’t pick up the tab.
Of course, Milken was being prosecuted criminally and Attia is a civil case. Different proof standards, no doubt, and different remedies, but otherwise, making a civil RICO case and a criminal RICO case are not wildly different.
[Editor Charlie sez: This is nothing compared to what Google has done to the music business–can you say “notice and shakedown”?]
In an explosive new allegation, a renowned architect has accused Google of racketeering, saying in a lawsuit the company has a pattern of stealing trade secrets from people it first invites to collaborate.
Architect Eli Attia spent 50 years developing what his lawsuit calls “game-changing new technology” for building construction. Google in 2010 struck a deal to work with him on commercializing it as software, and Attia moved with his family from New York to Palo Alto to focus on the initiative, code-named “Project Genie.”
The project was undertaken in Google’s secretive “Google X” unit for experimental “moonshots.”
But then Google and its co-founders Larry Page and Sergey Brin “plotted to squeeze Attia out of the project” and pretended to kill it but used Attia’s technology to “surreptitiously” spin off Project Genie into a new company, according to the lawsuit.
[Editor Charlie sez: Remember that most of these companies are in the MIC Coalition cartel that is colluding to destroy songwriters, and royalty deadbeat Facebook refuses to license at all.]
Until recently, it was easy to define our most widely known corporations. Any third-grader could describe their essence. Exxon sells gas; McDonald’s makes hamburgers; Walmart is a place to buy stuff. This is no longer so. Today’s ascendant monopolies aspire to encompass all of existence. Google derives from googol, a number (1 followed by 100 zeros) that mathematicians use as shorthand for unimaginably large quantities. Larry Page and Sergey Brin founded Google with the mission of organizing all knowledge, but that proved too narrow. They now aim to build driverless cars, manufacture phones and conquer death. Amazon, which once called itself “the everything store,” now produces television shows, owns Whole Foods and powers the cloud. The architect of this firm, Jeff Bezos, even owns this newspaper.
Along with Facebook, Microsoft and Apple, these companies are in a race to become our “personal assistant.” They want to wake us in the morning, have their artificial intelligence software guide us through our days and never quite leave our sides. They aspire to become the repository for precious and private items, our calendars and contacts, our photos and documents. They intend for us to turn unthinkingly to them for information and entertainment while they catalogue our intentions and aversions. Google Glass and the Apple Watch prefigure the day when these companies implant their artificial intelligence in our bodies. Brin has mused, “Perhaps in the future, we can attach a little version of Google that you just plug into your brain.”
More than any previous coterie of corporations, the tech monopolies aspire to mold humanity into their desired image of it.
We are pleased that Lyor Cohen says he is making it his mission to direct some of YouTube’s revenues back to the music creators who drive its success. His optimism is encouraging. But to be honest, we’ve heard pretty much the same claims and arguments from YouTube before. So while Lyor’s heart may be in the right place, the numbers and YouTube’s actions tell a different story.
Let’s be real about what we know:
1. Google’s YouTube is the world’s biggest on-demand music service, with more than 1.5 billion logged-in monthly users. But it exploits a “safe harbor” in the law that was never intended for it, to avoid paying music creators fairly. This not only hurts musicians, it also jeopardizes music’s fragile recovery and gives YouTube an unfair competitive advantage that harms the digital marketplace and innovation.
2. Lyor claims the focus on this safe harbor is “a distraction,” but it’s YouTube that seems obsessed with this legal pretext, probably because it’s the safe harbor that enables YouTube to drive down payments to creators, inappropriately. The safe harbor was intended to protect passive Internet platforms with no knowledge of what its users are doing, not active music distributors like YouTube. As Lyor acknowledges in his blog, “the majority of music…is coming from [YouTube’s] recommendations, rather than people searching for what they want to listen to.”
It’s no mere “distraction” when YouTube uses the safe harbor to skew negotiations with music creators in its favor; to offer a below-market rate and say “take it or leave it,” knowing that by “leaving it” music creators will have to spend countless hours and resources sending takedown notices when they find unauthorized copy after copy of their music on YouTube, only to find them pop right back up again.
That’s precisely why dozens of music organizations and thousands of individual creators across the entire global music spectrum have banded together to protest the existing laws — www.valuethemusic.com — or simply asked YouTube to be a better partner: YouTubeCanDoBetter. Their concerns are real, their indignation is genuine. To dismiss that is to turn a deaf ear to an entire creative community.
Many of us hope that you will be able to change the culture at YouTube to become more artist friendly and transparent. We understand that it takes time to shift corporate culture especially one as established as Google’s. Unfortunately, there are some entrenched alternative facts that are repeatedly regurgitated by YouTube and need to be corrected.