Diginomics

Frequently Asked Questions

Some of our most frequently asked questions (FAQs).

Table of Contents

What is an open world?

An Open world is a world where all digital information is open, free for everyone to use, build on and share freely.

Where would the money for remuneration rights come from?

This depends on the sector and the country / geo-political region. Let's take pharmaceuticals and music as examples.

Example: Pharmaceuticals

There are already substantial sources of funding for medicines in the form of healthcare budgets, divided amongst direct grant and indirect funding through drug purchases. This funding comes from taxpayers, philanthropists, employers and insurers. In an Open world, the funds granted by government and philanthropists and money paid by insurers would be place in the remuneration fund.

Example: Music

If the music sector was Open every recording ever made anywhere in the wold would then be Openly available within that country – but with an electronic wall to prevent people in other countries accessing them (at least until those countries also became Open). Any citizen would be at liberty to listen to, share or remix any recording or composition. To pay for this, the government might, for instance, add a small charge to the data plan of everyone’s phone. Unlike Spotify’s fee, this would be very low. How low? Well, let’s examine how much it would take to pay creators as much or more than they receive today.

We'll take the example of the Netherlands where we have some good data. Currently, the total revenue for music in the Netherlands is around €150m a year. Of this, probably less than 60% goes to creators, but let’s err on the generous side and suppose that all of it does. With some 15 million adults in the Netherlands, a fixed fee per adult to pay for all current use of recorded music would be €10 per person per year. At 85¢ a month, this is less than a tenth of Spotify’s €10 a month. If the levy were payable only by people with internet subscriptions, the charge would be around €1.75 a month per connection.

Who would run the remuneration right fund and how would they allocate the funds?

The Open Revolution vision is for a more free, innovative and equitable world. No one wants to see a government committee deciding which authors or music-artists to support or what software should be written, but traditional, demand-driven market mechanisms can be used to allocate all or part of the money collected. Instead of the patent and copyright monopolies they have today, innovators and creators would be granted remuneration rights. These would entitle the owners to payment from a remuneration rights fund, according to the value that the information generates – for example, how much impact a specific medicine has on improving health or how many times a song is played.

Would the same entity that administers the remuneration fund also provide the service to the customer?

The Open Revolution vision will create a more innovative and entrepreneurial world. There is no intention or need for the entity that administers the remuneration fund to actually provide the service. Take the music industry as example. Companies/cooperatives would provide similar services to Spotify. These companies/cooperatives would provide the platform/product to listen to music, but instead of paying the labels/publishers for the right to use their music catalogue, they would pay the remuneration fund that would in turn would pay the labels/publishers and independents based on an agreed distribution (probably in function of number of plays). These companies/cooperatives could obtain revenue from users (or another software remuneration rights pool) to use their services but this would be a fraction of the current cost which largely reflects the cost of compensating rights holders for their monopoly right.

How would we decide how much money to allocate to each remuneration right fund, and who would decide that?

The basic question of how much of our financial resources (money) we should allocate to creating new information goods is hard to answer. Ultimately it depends upon an assessment of the relative value we derive from new medicines, new apps and new movies and how that compares to other things we need or like such as schools and roads or cars and holidays. But this challenge is neither new nor specific to information goods.

One starting point would be the size of the existing market (which is the current reflection of the value economically, socially and politically). The actual size of the remuneration fund would then be adjusted depending on societal preferences.

The body making this decision would need to be independent of producers and consumers as well being shielded from political interference (yet accountable democratically). There are many organisations that have been set up with this guiding principles (e.g. electoral commission in the UK, European Central Bank and Consumer Financial Protection Bureau (CFPB) in the United States) so there something to build on and learn from (as often ‘independent’ bodies have become politicised - this is an issue but one that is not unsurmountable).

The critically minded may argue that starting with the current market size is the wrong place to start; why would you use valuation of the old Closed system to determine the value ascribed to the new Open system? And that would be a good point!

It is possible to start with a blank sheet and determine remuneration rights for each sector. To do this properly we need to quantify the marginal value of spending, that is, the value derived from spending an additional dollar of public money in this way or that. Concretely at a high-level we are asking ourselves the value of 10 new schools versus a new hospital and at a marginal level, the value of one more desk at school or a bed in a hospital. A pseudo-price mechanism would need to be created and it would be used to allocate between areas. Essentially it would estimate the value to citizens of new schools versus new hospitals, or the value to users of listening to music compared to the value of pharmaceuticals. and then use that to allocate funds. This has the challenge of commensurability. Using the music versus pharmaseticals as an example whilst there is the agreed approach of Quality-adjusted life year as a sort of price mechanism to compare between pharmaceuticals it is not obvious at this stage what an agreed common yardstick that compares music to pharmaceuticals.

Whilst considering these important technical and philosophical challenges, it’s important to realise the current system does no better at ascribing value between and within areas - and we would argue a lot worse. Because of the nature of information goods (infinite economies of scale, complementarity, platform effects etc) combined with monopoly rights (which cause market distortions) we already have a broken system of market prices and misallocation of resources.

Deciding how much money to allocate to each remuneration right fund is not an easy task, but it is well within the bounds of human ingenuity and it is possible to implement in practice, and, crucially, the outcomes of an Open world would be far better than the current system.

How would the money (for the remuneration fund) be collected

There are different models available to fund the remuneration fund. Funding could be collected from both private and state sources.

The government could use taxation and levies on goods and services (similar to existing value-added taxes) to collect the monies. These levies would be best attached to specific goods or services, usually with a strong informational aspect, for three reasons. First, dedicating a particular levy to the creation of a specific type of information – a broadband levy going to fund music and movies, for instance – feels instinctively fair and appropriate. Second, open information makes digital devices such as computers and internet services more valuable, because the more information they can access, the more valuable they are. Third, demand for these services and devices is probably quite inelastic (i.e., demand does not vary so much with price), so a small tax or levy would be efficient, in that it would be unlikely to distort behaviour and so create deadweight losses (i.e. cost to society created by market inefficiency).

An open world would, no doubt, be partly funded from private sources. Some of these would anticipate no direct return, including large philanthropic bodies with existing funds (large Bill Gates donation to help cure malaria), and pro-bono contributions individual motivated either by specific interests, personal need (such as user-driven open innovation) or a concern for the general welfare. Wikipedia is an example of all three. Other non-government bodies would contribute to an open world in expectation of a private financial return, usually from selling some kind of complementary goods. Classic examples are open-source software, consulting and bespoke commissions.

How would the free-rider problem be solved?

If everyone can use information freely, how do we ensure that people help to pay for its creation? We are all familiar with the free-rider problem, though usually with regard to shared physical resources rather than the informational commons. The key is to ensure the net to capture is as wide and unobtrusively as possible.

If the State were to collect the monies, it would involve a combination of general taxation and levies similar to existing value-added taxes. These levies would be best attached to specific goods or services, usually with a strong informational aspect, for three reasons. First, dedicating a particular levy to the creation of a specific type of information – a broadband and 4G levy going to fund music and movies, for instance – feels instinctively fair and appropriate. Second, open information makes digital devices such as computers and internet services more valuable, because the more information they can access, the more valuable they are. Third, demand for these services and devices is probably quite inelastic (i.e., demand does not vary so much with price), so a (relatively) small tax or levy would be efficient, in that it would be unlikely to distort behaviour and so create deadweight losses (i.e. cost to society created by market inefficiency).

In sum, the levy should be associated with a related good or service - e.g. broadband and 4G levy going to fund music and movies or part of the VAT on electronic goods funding software. Providing the levy was set at the right level, this would have a net positive effect on the market and solve the free-rider problem (domestically) because most people would pay for broadband/4G to stream music or buy hardware to use software.

When we move to an Open world, what about the existing Patents and Copyrights?

There are a few options to deal with previous patents and copyrights granted:

The first is that existing monopoly rights such as patents and copyrights would be abolished, new remuneration rights would be available, and the new, open, model would go into operation. This is simplest but least plausible.

If there isn’t such a big-bang approach, the key question how would all the existing patents and copyrights be handled? One possible solution is that patents and copyrights would remain in place and remuneration rights would only be granted to new innovations.

If remuneration rights apply retrospectively, then previously awarded patents and copyrights need to be converted on an agreed basis. This could be done with or without compensation. Compensation would ensure major interest groups do not lose out from the transition.

The key to political feasibility here is keeping vested interests happy. The social gains from the change would be large, but given the lobbying power of big business in western democracies, at the beginning remuneration rights funding would need to be at at a comparable level to what they were earning with patents.

What about international obligations? How feasible would it be for a WTO signatory country to move to remuneration rights?

The US and many other countries are signatories to treaties such as the World Trade Organization’s TRIPs agreement (on trade-related aspects of intellectual property rights), which require provision and recognition of monopoly rights. How is this obstacle to be negotiated? First, experience shows that countries, especially large ones such as the US, can often change or work around their international obligations with surprising rapidity if it is in their interest to do so. Next, domestic companies can continue to obtain patents and other monopoly rights in countries that continue to recognize them. In return, the US would permit foreign firms to obtain remuneration rights on the same basis as domestic companies.

But what if it proved impossible to abolish monopoly rights fully? In this case, remuneration rights could existing in parallel to monopoly rights, with innovators having to choose one or the other. Remuneration rights could be made highly attractive relative to monopoly rights in a variety of ways. First, one would create a large remuneration rights fund which would mean the rewards under remuneration rights are high. Whilst this opt-in approach is less attractive than a full transition, it might be useful in cases where abolition of monopoly rights is not feasible in the short term, for political or legal reasons.