Friday, July 30, 2010

SkyRiver/III v. OCLC, Part II

In my previous post I covered what I saw as the stronger arguments made in the complaint. In this post I will cover points that either puzzled me or seemed to be off the mark.

The OCLC Number
The complaint states that
"This OCLC number has permitted OCLC to police its members to ensure that their records are not shared with unauthorized users." (p. 5)
Since anyone can add or delete an OCLC number from a MARC record in their own database, I don't see how this could be the case. I would like to see how this claim is supported.

The ILS Market
"OCLC is rapidly gaining market share in the ILS market by leveraging its monopoly power over its bibliographic database... " (p. 6)
Can they supply the figures to support this rapid gain in market share? They do state the number of WorldCat Local installations ("624", p. 22), but WCL is not an ILS (even though it may eventually become the basis for one).

Academic Libraries only
The complaint appears to only address academic libraries. (p.7) This could be because the evidence that they claim to have only relates to academic libraries, but both OCLC and III serve many public libraries. The complaint also states that:
"The relevant geographic market ... is the United States, because academic libraries cannot turn to suppliers of these products in other countries to meet their needs." (p. 10)
This may just be poorly worded, but if it intends to mean that there are no extra-US companies providing the service then it should have said so. The way it is worded it sounds like there are prohibitions on using non-US suppliers that pertain to academic libraries... could that be so?

New Products
In numerous places in the document, the complaint states that OCLC members are required to participate in product development as part of their membership obligation:
"Membership also obligates libraries to assist OCLC in developing new products and services to compete with for-profit firms." (p. 5)

"OCLC developed, and is still developing, WorldCat Local and WorldCat Local "quick start" through pilot programs in which many of its member university libraries have agreed to participate, without compensation, purportedly to meet the requirements of their membership in OCLC." (p. 20)
I have never heard of this requirement, and would be interested in hearing from institutions who did find themselves essentially forced to participate in pilots as part of their membership.

Acquisition of Other Companies
The complaint states that over time OCLC has expanded by acquiring 19 library industry companies, 14 of which were for-profit. (They fail to mention that at least some of those companies magically became non-profit when acquired by OCLC, cf. netLibrary.) The remainder of the sentence reads:
"... either to obtain software and other products that enable it to offer library services in competition with the remaining for-profit providers or simply to eliminate products from the marketplace." (p. 23)
These are strong words that the complainants should be prepared to prove. I'm not saying that it isn't true. However, in the few cases of which I am aware (WLN, netLibrary, RLG) the acquired company was in financial free-fall and OCLC's purchase was viewed at the time as a rescue that benefited the library community as a whole. In the case of netLibrary, OCLC had agreed to be the escrow agent for the ebooks purchased by libraries, to be called upon should netLibrary go out of business. In that case, OCLC was pretty much pre-obligated to rescue netLibrary or provide some service of its own. (I don't know what the monetary arrangements of the escrow were.) As for WLN and RLG, it's hard to know what would have happened if OCLC hadn't purchased those agencies. I suspect that the libraries using those services would have had to become OCLC members in any case in order to continue functioning as libraries. This only covers three of the 19, and may or may not be representative of OCLC's acquisitions.

[Partial list of acquisitions, gleaned from press releases and annual report:
Dewey Decimal System (1988), Information Dimensions (1993) [sold in 1997], Public Affairs Information Service/PAIS(1999), WLN (1998), netLibrary (2002, with MetaText eTextbook Division, a for-profit subsidiary), Openly Informatics (2006, OpenURL services), RLG (2006), EZproxy (2008), Amlib (2008, Australian web-based ILS), PICA (1997), Fretwell-Downing (2005), Sisis Information Systems (2005). Note: these may not be the same companies referred to in the complaint. This is my cobbled together list, and should only be seen as such.]

Another strange statement is about OCLC's use of head-hunters to hire staff away from other companies:
"In addition to acquiring for-profit companies, OCLC also uses headhunters to identify and recruit employees from for-profit firms. Plaintiffs are informed and believe and based thereon allege that OCLC is using its tax-free dollars to recruit employees of for-profit vendors of library services to eliminate competition and extend OCLC's monopoly to the ILS market." (p. 26)
There's obviously a story here, but I don't know what it is. Using headhunters is standard industry practice for a well-heeled high-tech organization. Has OCLC engaged in predatory hiring behavior? And can that allegation be proved?

Access to WorldCat
The strangest thing in this complaint is the repeated insistence that OCLC should give access to the WorldCat database to potential competitors.
"...As a result of OCLC's conduct... Innovative [and SkyRiver, in another paragraph] has suffered and will continue to suffer irreparable harm ... unless this Court orders defendant OCLC to provide access to the WorldCat database to Innovative and other competitors, on such terms as are just and reasonable." (p. 31; same but ref. to SkyRiver p. 29)
This argument comes as a surprise to me. I had always assumed that the goal was to allow libraries to provide their bibliographic records freely to anyone they wished, including for-profit companies. I see that as very different from giving competitors direct access to WorldCat. It seems to me that the former goal would be very easy to argue, but direct access to OCLC's own database seems much more difficult to justify. I'm quite puzzled by this, unless I am drawing the wrong conclusion about what it means.

There's a part of me that wants this to go to court so that we can get answers to these intriguing questions. There's another part of me that sees the possiblity that this could be a lose-lose proposition. Given the overall stress in the library community, both monetary and technological, in-fighting looks to be the worst thing we could do to ourselves.

There is no doubt that a large, union catalog of library holdings is key to providing the kind of web-scale (sorry, but I couldn't think of another word) services that libraries absolutely must provide today. That said, that database does not have to be WorldCat, although WorldCat performs that function at this moment in time. The main thing is that we must have a union/universal catalog that serves libraries and their users. It shouldn't be a limited access asset that is being fought over for market share. I don't have a solution to offer, but it's clear to me that the solution is: FREE THE DATA.

SkyRiver/III v. OCLC: the lawsuit

I have now had a chance to read the legal complaint that SkyRiver/III have filed against OCLC. Marshall Breeding does a good overview of the complaint in a Library Journal piece. I'm going to focus on highlights and lowlights, what I think works and what I think doesn't. The caveat is that I do not know enough about anti-trust law to understand whether the suit is convincing on that score. So what follows is my reading of the complaint today, and I welcome corrections, other views, and any commentary.

Smoking Guns

The complaint has what I see as two smoking guns:
  • the use of differential pricing to specifically prevent OCLC members from becoming SkyRiver customers
  • the claim that OCLC paid cash "inducements" to university officials and paid for "luxury trips to expensive resorts to obtain their commitments to promote OCLC products..." (p. 21)

Both of these are extremely damaging to OCLC if they are true. The latter is possibly not illegal on OCLC's part, although it may have been illegal on the part of the officials who accepted such favors in exchange for a contract with OCLC. This, however, should come to the attention of OCLC's members, who, if this is proven to be true, will undoubtedly find this activity unacceptable for their organization.

The arguments about differential pricing are less sensational but could be equally damaging. Differential pricing is a normal practice in business, often based on concrete aspects like volume of trade or length of contract. Whether or not it is normal for a non-profit I don't know. Member libraries have accepted that each one forges a contract with OCLC which is considered confidential (although I suspect that librarians discuss with each other informally about what they pay to OCLC). SkyRiver/III claims to have proof that OCLC has used this differential pricing to punish libraries that have moved their cataloging activity from OCLC to SkyRiver. (The MSU case, as one example.) They also claim to have proof that OCLC lowered cataloging charges for some libraries that were intending to move to SkyRiver, and thus kept them as customers. (See pp. 14-19) This alone may not be illegal, but in this complaint it is described as an unfair use of OCLC's current monopoly position on cataloging services.

[Note: There appear to be more libraries that batch load their records into OCLC than ones that catalog on OCLC. In the 2008/2009 annual report, OCLC states that it has 11,810 member libraries, and 72,035 participating libraries. (I'm not sure of the difference.) In that same time frame, "the number of items cataloged by batch loading increased to 241.8 million, up from 212.1 the previous year...." They also state (p.2) that the total of cataloged records plus batch loaded records was 278.3, meaning that batch loading accounted for 87% of the records added to OCLC that fiscal year.]

Solid Arguments

The complaint has a number of solid arguments about OCLC's behavior that may be significant should this go to court. Briefly, these are:

OCLC does not act like a non-profit or a cooperative. Throughout the document the complaint uses terms like "purported member-based cooperative" when referring to OCLC. In particular, it says:
"Plaintiffs are informed and believe and based thereon allege that OCLC is not a true cooperative in that its members do not share its revenues or control its management, operations or policies. A majority of its Board of Trustees is elected by the Board itself. ... Rather than operating with transparency as a cooperative would be expected to do, OCLC charges different prices to its members for the same services and conceals those differences from its members." p. 5

The complaint also speaks to OCLC's revenue:
"An insignificant percentage of OCLC's revenues come from membership, grants or charitable contributions." (p. 26)
This is followed by a table of revenues, expenses and corporate equity (in 9-digit figures).

It isn't clear to me that this is a convincing argument. Non-profits are not required to obtain their revenue through contributions, and there are probably many non-profits that receive considerable income from services. Perhaps OCLC's "mix" of revenues is off the normal curve? That's data that would be interesting to see. However, the degree of competitive behavior against for-profit companies does seem to belie the nonprofit status of the organization.

OCLC competes directly with for-profit companies. This argument is for a large part about OCLC's entry into the ILS market with its web-based services, but also relates to its inter-library loan (ILL) services, which compete with III's ILL. The main thrust, though, is that OCLC has announced that it will go into direct competition with the primary services of commercial vendors who serve the library market with library systems. The argument is that as a non-profit OCLC has an unfair advantage because it does not pay the federal taxes that are required of its for-profit competitors. Repeatedly the complaint refers to OCLC's "tax-free profits." (see p. 2, 9, 21)

OCLC is a monopoly, and is taking advantage of its monopoly position. I believe that the unfair use of a monopoly position is essential to the anti-trust aspect of this lawsuit. I also believe that this is a point that is hard to prove. To begin with, there is nothing illegal about having a monopoly position in a market if one has acquired that position with normal dealing. And some of the accusations in the complaint may not be anything other than regular business practices, such as providing some services for free (WorldCat Local quickstart, as an example) as a way to induce customers to buy into for-fee services, or to reward customers for their loyalty. The use of pricing to make it financially untenable for its own customers to contract for non-OCLC services is probably the most damaging argument in this area.

OCLC has used its position to avoid the public procurement process. As we know, most public institutions have to go through a cumbersome process in order to procure goods and services. This process is designed to make sure that public money is spent fairly and under controlled conditions that are designed to minimize corruption. The complaint claims that OCLC has obtained contracts for WorldCat Local with public institutions without going through that procurement process. (p. 20)

Trustees are also members. There is a claim of conflict of interest in the fact that high-level employees of OCLC member institutions also sit on OCLC's board. What isn't mentioned here, oddly enough, is that some of those members draw salaries from OCLC (in addition to the salaries received from their institutions -- see any recent IRS 990 form from OCLC, which lists salaried officers). The conflict of interest is that these same individuals may have decision-making roles in their institution for the purchase of library vendor services. "By agreeing to advance the interests and products of OCLC they are effectively excluding competitors." (p. 27) This may be an issue for OCLC, but it seems that it should also be an issue for the institutions that employ these folks.

Coming next: Some odd claims, and some misses

Thursday, July 29, 2010

SkyRiver Sues OCLC over Anti-Trust

(Full document now here! Thanks Marshall Breeding!)

The newly created competitor to OCLC's cataloging services, SkyRiver, is suing OCLC in federal court in San Francisco. (Press release, PDF) I have only seen the press release, so until someone figures out how to free up the actual legal document, what we know is:

SkyRiver is claiming that OCLC is attempting to "monopolize the the markets for cataloging services, interlibrary lending, and bibliographic data, and attempting to monopolize the market for integrated library systems, by anticompetitive and exclusionary practices." The press release refers to OCLC's "tax-free profits," and that OCLC has used those profits to purchase 14 for-profit companies.

The press release quotes Leslie Straus, President of SkyRiver, as saying:
“In the process OCLC has punished its own members who have tried to seek out lower cost alternatives like SkyRiver.”
Which undoubtedly refers to the Michigan State issue, which I reported on here. In that case, OCLC appears to charge MSU an unusually large fee for uploading records to WorldCat after MSU began cataloging on SkyRiver instead of OCLC.

Undoubtedly, a good part of the concern here is over OCLC's plans to provide Web services that comprise the full functionality of an integrated library system (ILS), thus competing with current ILS vendors. You probably know that SkyRiver was started by Jerry Kline, owner of Innovative Interfaces. If OCLC successfully launches a full-service option for libraries, Innovative and other ILS's will suffer. As the representative of a major ILS company explained to me a few years ago, the library market is a zero-sum game: every time one vendor wins, others must lose, because the number of customers is not growing. The library market is a pie that can be divided into any number of slices, but the pie remains the same. This makes the rise of any one company a threat to all. In the commercial marketplace, the vendors compete over functionality and price. With its non-profit status OCLC has a distinct advantage: it doesn't pay federal income tax on the revenues it brings in. That said, given its size and depth of its involvement in day-to-day library operations, it is plausible that even without its non-profit status OCLC would be a formidable competitor for ILS vendors.

I cannot comment on the charges of anti-trust because the press release does not give enough information. Hopefully we will get more details about this suit in the near future.

Sunday, July 04, 2010

Catching up: OCLC, GBS, LOD

Some short comments on recurring themes:

OCLC Record Use Policy

OCLC has finalized its record use policy. The content is substantially the same as it was in the previous draft, which I commented on. There is one important improvement, however: the text clarifies OCLC's claims to copyright.
While, on behalf of its members, OCLC claims copyright rights in WorldCat as a compilation, it does not claim copyright ownership of individual records.
Of course, claiming copyright and actually having the right are not the same thing, especially with databases. Here's what BitLaw says:
Databases as Compilations: Databases are generally protected by copyright law as compilations. Under the Copyright Act, a compilation is defined as a "collection and assembling of preexisting materials or of data that are selected in such a way that the resulting work as a whole constitutes an original work of authorship." 17. U.S.C. § 101.
Generally, carefully selected compilations may make the "original work of authorship" cut; I'm not convinced that a union catalog of library holdings does.

Google Books

We are still waiting to hear from the judge in the Google Books case. (Every time I write that I check to see if it hasn't been released in the last hour.) Meanwhile, GBS continues to function in Internet time. Google has many publishers on board with its partners program, enough that GBS is becoming a serious rival to Amazon. It has even announced that it will begin selling e-books. The opening screen is the exact opposite of the Google Search screen -- it loads up many dozens of book covers and requires significant scrolling to browse to the bottom. Google has added personalization options ("my library") and lets you create multiple "shelves" to organize your materials.

Google was first sued in 2005. Five years is a very long time where technology is concerned. In 2005 the ebook was considered dead; now with the Kindle and the iPad, ebooks are alive and well and everyone is trying to get into that game. In that time since 2005, Google has pretty much shown the publishing industry that they can benefit from the online presence that Google is providing. The settlement reads like it was written in another era, trying to solve problems that may not really be considered problems today. The only issue remaining is that of orphan works, and if we could do a decent analysis of copyright holdings, I suspect that the number of orphan works would not be all that large.

Linked Library Data

At ALA there was a one-day preconference on linked data, and a half day un-conference attended by about 50 people. There are notes from the un-conference, which broke out barcamp-style into 6 groups for discussion.

The World Wide Web consortium has an incubator group on linked library data. This group is tasked to spend one year figuring out how to jump-start the creation of linked data in the library world.

There are ongoing efforts at Library of Congress to produce vocabularies, and of course the RDA vocabularies are available (and almost finalized). Ross Singer has announced some of the MARC codes are available (I presume on his own site). FRBR is being defined in linked data form by IFLA.

We've got just about everything but ... linked data. I'm thrilled that things are moving forward, but frustrated that I still can't see usable results. Deep breath; patience.