TCS Daily

The Billion-Dollar Question for E-Business: Who Owns the Data?

By James Lucier - April 24, 2000 12:00 AM

If knowledge is power in the information economy, then control of data can mean big money. More and more the issues at stake in precedent-setting litigation and major New Economy policy decisions come down to a single question: who owns the data?

Most recently, we've seen Judge Ronald Whyte of the U.S. District Court of San Francisco announce that he's preparing to issue a preliminary injunction against the auction enthusiasts' website Bidder's Edge, barring the site from reporting detailed information on pricing and objects for sale on eBay, the pioneer Internet auction site and still the largest Internet auctioneer with a commanding market share approaching 70 percent -- roughly twice the size of all its rivals put together.

EBay charges that the use by Bidder's Edge of a "spider," or automatic search program, to systematically extract from the eBay website information eBay intends for its online community of buyers and sellers constitutes a form of trespass in cyberspace. Furthermore, eBay calls it a misappropriation of eBay's proprietary information by another firm which seeks to profit from it. EBay does license its data to some auction reporting sites, but Bidder's Edge has declined such an arrangement. Moreover, when eBay tried to block the Bidder's Edge spiders, Bidder's Edge undertook elaborate efforts to break these countermeasures.

On one level we see here a conflict of business models. EBay charges a commission for each sale on its site, and by offering the largest and most liquid marketplace on the Internet it can charge a premium fee. Bidder's Edge offers attractive content -- including eBay's data -- and sells advertisements. But by aggregating eBay's data with that of other auction sites, making, for instance, Amazon auctions just as visible to potential purchasers as eBay's, Bidder's Edge also undercuts eBay's competitive advantage.

For the moment, we'll leave the finer points of the case to Judge Whyte, who must decide among other things whether this is a case about fair business practices or intellectual property rights. What is notable about cases of this type in general, though, is that firms being hit with intellectual property claims are hitting back with antitrust charges. And sure enough, Bidder's Edge went to the Department of Justice last fall with complaints that eBay was abusing its market power by withholding data it deemed to be proprietary.

Who's right? In the eyes of many observers, EBay has a strong case and should ultimately prevail, though the victory may not be as clean as it would wish. An entire nascent industry of "screen scrapers" who collect and aggregate data from other websites may have to sit up and take notice. Under what circumstances will this "scraping" be allowed to go on? And perhaps just as importantly, at what point would any search engine run into trouble under trespass doctrines if its business was to routinely visit and index all content published on the Web?

Once we go beyond fair business practices to focus exclusively on intellectual property rights, however, a new issue comes into view. Can one copyright a fact, and thus "own" that fact by being first to publish it on the Internet or elsewhere? More specifically, can one "own" a phone number, an NBA basketball score, a stock quote, or an address in a real estate listing? All these questions have been litigated.

Current law does not extend copyright protection to individual facts but rather to the selection, arrangement, and manner of presenting these facts. EBay, the National Association of Realtors, and commercial database vendors strongly support a proposal which has cleared the House Judiciary Committee to give intellectual property protection to particular facts and grant owners of databases a private right of action for redress in the courts against those who unlawfully infringe on database property rights.

But arrayed against this proposal is a powerful coalition including Yahoo and almost every New Economy company but eBay, who insist that transformative use of data to create new information products different from the source material is a vital function of e-business. These interests support a rival Commerce Committee bill that prevents copying of substantial parts of a database in ways that would directly compete with the original database vendor -- in fact with provisions that are not wholly unlike those of the Judiciary bill -- but without granting ownership of the facts within the database. Furthermore, enforcement authority would vest in the Federal Trade Commission, which would act on receiving complaints from aggrieved parties.

Consider the implications of owning and controlling data. If the New York Stock Exchange were to own the quotations of NYSE-listed stocks, it would have an advantage over competing stock exchanges that that may arise as securities trading increasingly moves to the Internet and all-electronic exchanges based on new technology. Similarly, financial publishing companies would be less able to offer stock analysis that the NYSE might deem to encroach on its territory. (For the record, though, we should note that the NYSE, an early supporter of the Judiciary bill, has determined that it could live with the Commerce Committee bill and now officially supports it, which is smart politics for them since Commerce and not Judiciary is the committee with oversight responsibility for securities industry regulation. NYSE may eventually need the Commerce Committee's blessing if it is to demutalize into a for-profit corporation.)

If you're like most people, you're probably wondering what these dot-com companies are really worth. To find the answer, you may need to look beyond technology and top-line growth and focus on court decisions and congressional committees.

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