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Dealing with de facto Powers in an Algorithmic Environment

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Abstract

While over the centuries Intellectual Property has been based on exclusivity, and therefore on the balancing between competing interests provided by legislation, in the last few decades a double metamorphosis of IP appears to have set in which replaces exclusivity with de facto powers of holders of informational resources over the content they control. A rebalancing of the asymmetry of powers thus created via regulation appears necessary but faces several obstacles. Antitrust and access regimes are municipal or, at best, regional, while de facto powers rest on global infrastructures. The paper suggests that, in quest for a rebalancing, we may also look at remedies based on private law and more specifically on the laws of contracts, torts and of collective action, to foster the emergence of countervailing powers and to contrast the exorbitant might of de facto powers, and to overcome their current fragmentation and dispersion.

Professor Marco Ricolfi, LL.M. (Yale), University of Turin, Department of Law; Partner, Attorney-at-Law, Weigmann Studio Legale.

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Notes

  1. 1.

    The emergence of de facto powers discussed in the text does not concern all IPRs across the board, but only those which are apt to give exclusivity over informational resources in digital format. Therefore trade mark law appears largely unaffected by the development and the same applies to large sections of patent law. The notion of informational resource is used here as an umbrella term or as a shorthand to cover all the entities, considered in this contribution, from Big Data, AI and ML to information held in websites, collected through smart devices or blocked through upload filters. The remarks made throughout this contribution are essentially based on European Union (EU) law and on European civil law systems, even though in many regards they may be extended to other legal systems.

  2. 2.

    See Kapczynski (2020), p. 1502; for further detail see inf. Sect. 4.1.

  3. 3.

    For a thorough discussion of this point see Noto La Diega (2023), p. 7, who goes beyond the commonly accepted notion of propertisation of intangibles, on which also for references see Cohen (2017), p. 133. For further detail inf. Sect. 4.1.

  4. 4.

    As underlined by Drexl, Hilty et al. (2021), p. 16 f. and Früh and Haux (2022), para. 2.2.1 where at para. 2.1.1. a recent overview of the multiple definitions of AI.

  5. 5.

    Pasquale (2016); for a recent overview of the definitions of Machine Learning Früh and Haux (2022), para. 2.1.2.

  6. 6.

    Indeed also in some of the most traditional IP settings de facto powers always played an important, if much more circumscribed, role. Consider trade secrets: also a secret may be effectively, and sometimes very effectively, guarded against propagation by means of technical protection measures set up by its holder directly, that is in a way which is self-enforcing in that it does not depend on the intervention of any legal system. Also software may be considered the locus where all modern de facto powers originate. Digital rights management (DRM) gave us already decades ago a foretaste of the developments to come, in that this technology is characterized by a self-enforcing feature, whereby third parties are de facto prevented from accessing a given informational resource. In either case, however, the legal system has retained a significant role to play. When the secret is revealed, the question arises on the availability of legal remedies against unauthorized access and use, so that the usual requirements set by the legal system (as to subject matter, access requirement, etc.) come again into play. Similarly, the legal system has a say on the issue whether circumvention of DRM is legitimate. It is arguable that total de facto control made its appearance as soon as software met digital networks, as users begun to employ it by accessing external servers on the basis of a service contract, in a form which would eventually be characterized as Software as a Service (SaS): for an early account see Hilty (2003), p. 5.

  7. 7.

    For an overview see Ricolfi (2022a), pp. 178 seqq.

  8. 8.

    For present purposes it is appropriate to include in the broad notion of competition law also the Regulation (EU) 2022/1925 of the European Parliament and of the Council on contestable and fair markets in the digital sector (Digital Markets Act)(DMA).

  9. 9.

    This is the factual setting for the decision of the ECJ of 15 January 2015, C-30/14, case “Ryanair”.

  10. 10.

    Fairfield (2017).

  11. 11.

    For a thoughtful illustration of the Digital Single Market Directive EU 790/19 (EUSMD) see the Opinion of the Advocate General Saugmandsgaard Øe of July 15, 2021, case C-401/19, case “Poland”, paras. 7 seqq.

  12. 12.

    As noted by Kapczynski (2020), p. 1471.

  13. 13.

    Opinion of the Advocate General Saugmandsgaard Øe of July 15, 2021, case “Poland”, para 148.

  14. 14.

    The notion of informational capitalism is discussed in Kapczynski (2020), p. 1486.

  15. 15.

    The European Commission defines online platform as an “undertaking operating in two (or multi)-sided markets, which uses the Internet to enable interactions between two or more distinct but interdependent groups of users so as to generate value for at least one of the groups”. This definition is adopted here as it also captures non-transaction markets; for a discussion of the available alternatives see Resta (2018), pp. 232–233.

  16. 16.

    This cutting point is accepted by many scholars (including Benkler (2016), p. 19).

  17. 17.

    Resta (2023), paras. 8–9; Balkin (2017), paras. IV–VII.

  18. 18.

    See inf. Sect. 5.

  19. 19.

    A disclaimer is in place here: the illustration and discussion of technical features should be understood as tentative and limited to the elementary notions which may be available to a lawyer and, more specifically, to a lawyer of my background and age group.

  20. 20.

    For present purposes the principle of territoriality “is understood to mean that the grant of an IP right by a particular country has effect only within the territory of that country” as suggested by Abbott, Cottier, Gurry (2015), p. 80.

  21. 21.

    As shown in greater detail in particular inf. Sect. 4.1.

  22. 22.

    In a way, Barlow (1996) was right when declaring that “ancient regulators”, that is traditional sovereigns, had no alternative to “leaving alone” the cyberspace.

  23. 23.

    On trade secret see sup. Fn. 6.

  24. 24.

    Fisher and Streintz (2022), pp. 931 seqq.; Kapczynski (2020), p. 1508 seqq.

  25. 25.

    Kapczynski (2020), p. 1508 seqq. There is some irony at work, here: as de facto powers replace IP, they still manage to enlist the services of the latter to ward off the risk of regulation.

  26. 26.

    Sup. Sect. 2.

  27. 27.

    A relevant example of this approach is to be found in Arts. 4, 5 and 28–29 of the Proposal for a Regulation of the EU Parliament and of the Council on harmonized rules on fair access to and use of data (Data Act), Brussels 23.2.2022 COM (2022) 68 final. A general treatment of access- and interoperability regimes is in Ottolia (2017). Conversely, Regulation (EU) 2022/868 of the European Parliament and the Council of 30 May 2022 on European data governance and amending Regulation (EU) 2018/1724 (Data Governance Act) appears to follow an incentive-based and facilitating, rather than mandatory-access, approach. In turn, Regulation (EU) 2022/2065 of the European Parliament and of the Council of 19 October 2022 on a Single Market for Digital Services and amending Directive 2000/31 (Digital Services Act) provides for hefty fines, Art. 74; but, as far as access is concerned, even for “very large platforms” it is mandated only “for data that are necessary to monitor and assess compliance with this Regulation”, the beneficiaries of such access specifically being the Digital Services Coordinators or the Commission (Art. 40).

  28. 28.

    Fisher and Streintz (2022), p. 896.

  29. 29.

    Fisher and Streintz (2022), pp. 869 seqq.

  30. 30.

    Fisher and Streintz (2022), p. 934, doubt on the possibility of “reasserting public authority not just over data but over infrastructure.”.

  31. 31.

    For a similar argument Kapczynski (2020), p. 502.

  32. 32.

    As noted by Picht (2022), p. 30. This difficulty does not seem to arise in connection with requests of access to personal data under data protection laws. In this latter situation the object of the access request is, so to say, “discrete” (data pertaining to a certain data subject); this is not the case for access request to the “lakes” of Big Data.

  33. 33.

    Heide (2000), para. 2.

  34. 34.

    Noto La Diega (2023), p. 7; Noto La Diega; Ottolia (2017), pp. 226 seqq. and 300 seqq.

  35. 35.

    Fisher and Streintz (2022), p. 896.

  36. 36.

    Fisher and Streintz (2022), p. 934. Some form of control over physical infrastructure is feasible (and sometimes practiced) in areas such as data protection, where sovereigns may require location of servers holding data concerning their citizens only within their own borders.

  37. 37.

    This conclusion would appear to once more to vindicate the bold assertions made by Barlow (1996).

  38. 38.

    See Drexl, Hilty et al. (2021), p. 22.

  39. 39.

    On which see Drexl, Hilty et al. (2019), pp. 8, 9, 10, noting at p. 9 that the developer of ML Model can commercialize it “without the need to disclose the data used or the training”.

  40. 40.

    Drexl (2016), p. 14. According to Drexl, Hilty et al. (2019), pp. 8–9, “training data is the most valuable element of the machine learning process”. In contrast, training algorithms may be standard and be “available online in open-source libraries in the form of prewritten software” (Drexl, Hilty et al. (2019), 8; similarly Fisher and Streintz (2022), p. 839).

  41. 41.

    Drexl, Hilty et al. (2019), p. 8.

  42. 42.

    Drexl, Hilty et al. (2019), p. 11.

  43. 43.

    This negative conclusion is reached quite apart from the not easily discountable consideration that all these entities would appear to enjoy trade secret protection: sup. fns. 23–26 and accompanying text.

  44. 44.

    Which arguably is the one of the user: the relevant acts are undertaken by her.

  45. 45.

    Scott Boone (2008).

  46. 46.

    See in this connection the provision of Art. 5 of the proposed Data Act and the comments in Drexl, Banda et al. (2022), para. II.

  47. 47.

    Sup. Fn. 12 and corresponding text.

  48. 48.

    Resta (2023), para. 2. This lack of interest in the specificity of the position of the passive side of private legal relationships is also attributable to the circumstance that classic Continental European private law was originally based on the paradigm of equality among parties engaging in private transactions (on which Böhm (1928), p. 26), which even today remains in the background of the general architecture of civil law even though in the meantime the paradigm in question has largely evaporated in important areas of the law, as shown by labor and consumer protection legislation, which both assume a fundamental weakness of one party vis-à-vis the unilateral power of the other: see Libertini (2021), p. 898 and the seminal work by Bianca (1977).

  49. 49.

    The different alternatives are discussed by Ullrich (2019), pp. 19 seqq.; Ottolia (2017), pp. 157 seqq.; Drexl (2016), para. 2.4 and Zech (2016).

  50. 50.

    For a much more nuanced and problematic characterization of AI and ML see Drexl, Hilty et al. (2021), pp. 16 seqq.

  51. 51.

    Even though in more analytical terms the relationship might be broken down into its component parts: the contractual relationship with the provider, the rights over software running the site and over the content posted on the website: sup. Sect. 2, lett. a) and for a discussion Quarta (2020), pp. 16 seqq.

  52. 52.

    Sup. Fn. 10. As noted, in most cases the holder of the de facto power also is in a position to redouble its claim by also invoking trade secret protection.

  53. 53.

    Bianca (1977).

  54. 54.

    In the broad meaning of the world, if not necessarily in the idiosyncratic characterization as “jural opposite” and “correlative” advocated by Hohfeld (1913), p. 30.

  55. 55.

    Balkin (2017), para. IV; in a similar vein the thought-provoking contribution, admittedly influenced by English common law, by Criscuoli (1983).

  56. 56.

    Olson (1965).

  57. 57.

    Compare the different views on the role of regulation of platforms of Balkin (2021) and Lemley (2021), pp. 330 seqq.

  58. 58.

    See Bensamou, Farchy and Schira (2020), para. 2.4.

  59. 59.

    For a thorough discussion of both clusters of issues see Quarta (2020), pp. 139, 202, 208, 331, 336, 338,

  60. 60.

    As to the former, see Council Directive 93/13 of April 1993 on unfair terms in consumer contracts and the subsequent amendments to it; as to the latter see Regulation (EU) 2019/1150 of 20 June 2019 on promoting fairness and transparency for business users of online intermediation services. In turn Directive (Eu) 2019/2161 of the European Parliament and of the Council of 27 November 2019 amending Council Directive 93/13/EEC and Directives 98/6/EC, 2005/29/EC and 2011/83/EU of the European Parliament and of the Council as regards the better enforcement and modernisation of Union consumer protection rules (“Omnibus Directive”) deals with both sets of rules. Finally, the Data Act currently under discussion in its Art. 8, par. 1, mandates that holders of data generated by smart devices, when making them available to a third party which qualifies as data recipient, “shall do so under fair, reasonable and non-discriminatory terms and in a transparent manner” and with a “reasonable” compensation (Art. 9). Under Art. 13, contractual terms which concern the access and use of data or the liability for the breach of data related obligations unilaterally imposed by a business on micro, small or medium sized enterprises as defined in Art. 2 of the Annex to Recommendation 2003/361/EC (art. 13) are considered “unfair” if they fall under parr. 2–4 of the same Art. 13, in which event they “shall not be binding” on the smaller enterprise.

  61. 61.

    Sup. Sect. 4.1. (and see Drexl, Banda et al. (2022), para. III, remarking at p. 38 that “Data holders can keep back the data”).

  62. 62.

    Sup. Sect. 3.2.

  63. 63.

    Sup. Fn. 60.

  64. 64.

    This instrument deals with online intermediation services and online search engines provided to EU traders which in turn offer goods or services on the European market with a view of facilitating direct transactions between the same traders and consumers. Next to specific provisions concerning transparency of the parameters used by platforms to determine ranking, including disclosure of remuneration (Art. 5, parr. 1 and 3) and disclosure of any “differentiated treatment” among traders (Art. 7), we find here more general provisions intended “to ensure that contractual relations between providers of online intermediation services and business users are conducted in good faith and based on fair dealing” (Art. 8). Again in connection with disclosure of parameters see also Art. 3 of the Directive (Eu) 2019/2161 (Omnibus Directive).

  65. 65.

    See also the reference to “fair, reasonable and non-discriminatory terms” in Art. 8 of the proposed Data Act.

  66. 66.

    Including Arts. 16, 47, 52 and 54 of the Charter of Fundamental Rights of the EU (CFR) (OJ C 326/391).

  67. 67.

    See sup. Sect. 4.

  68. 68.

    See for example Schwartz (1968); Fugate (1958), where abundant quotations of older case law and literature.

  69. 69.

    Sup. Sect. 3.2.

  70. 70.

    For a more thorough treatment see Ricolfi (2022b), para. 6.

  71. 71.

    Opinion of the Advocate General Saugmandsgaard Øe of July 15, 2021, case C-401/19, case “Poland”, para 192.

  72. 72.

    Spolidoro (2021), pp. 47 seqq.

  73. 73.

    ECJ of 26 April 2012, C-472/10.

  74. 74.

    In this connection see the Directive EU 2020/1828 of 25 November 2020 on representative actions for the protection of the collective interests of consumers and repealing Directive 2009/22 and the decision by the ECJ of 28 April 2022, C-319/20, case “Meta Platform”.

  75. 75.

    See Arts. 14 of Regulation (EU) 2019/1150 of 20 June 2019 and 7 of the Directive (EU) 2019/770 of 20 May 2019 on certain aspects concerning contracts for the supply of digital content and digital services (‘Digital Content Directive’).

  76. 76.

    See Regulation (EU) 2017/2394 of the European Parliament and of the Council of 12 December 2017 on cooperation between national authorities responsible for the enforcement of consumer protection laws and repealing Regulation (EC) No 2006/2004.

  77. 77.

    On the proposed creation of organizations of “trusted content creators” see Peukert, Husovec et al. (2022), p. 23.

  78. 78.

    Lukács (1923).

  79. 79.

    This is the other side of the coin of the approach advocated by Barlow (1996): de facto powers may well be beyond the reach of ancient regulators (up to a point: sup. §

    4), but the nether world of countervailing interests which may claim for rebalancing through regulations remains divided along national borders.

  80. 80.

    If there are reasons to be concerned that in the present environment governments may only (or mainly) be engaged in a race to obtain a geo-political upper hand or a shield against outside powers, then also the contribution from political theory would prove as necessary in order to reimagine ways in which civil society may regain influence over the political process.

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  1. Università degli Studi di Torino, Dipartimento di Giurisprudenza, Turin, Italy

    Marco Ricolfi

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  1. Rechtswissenschaftliche Fakultät, Universität Zürich, Zürich, Schweiz

    Florent Thouvenin

  2. Fachbereich Rechtswissenschaft, Goethe-Universität, Frankfurt am Main, Deutschland

    Alexander Peukert

  3. Institut für Europarecht, Internationales Recht und Rechtsvergleichung, Universität Wien, Wien, Österreich

    Thomas Jaeger

  4. Department of Law, Luiss University – Libera Università Internazionale degli Studi Sociali Guido Carli, Rom, Italy

    Christophe Geiger

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Ricolfi, M. (2024). Dealing with de facto Powers in an Algorithmic Environment. In: Thouvenin, F., Peukert, A., Jaeger, T., Geiger, C. (eds) Kreation Innovation Märkte - Creation Innovation Markets. Springer, Berlin, Heidelberg. https://doi.org/10.1007/978-3-662-68599-0_71

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