Robin Hanson, in the eyeforpharma podcast linked here earlier, mentions three benefits of prediction markets: they can provide accurate estimates of event probabilities, they provide numerically precise estimates, and they provide continuously updated estimates. While some caveats would emerge in a longer discussion, a well-designed prediction market can provide an accurate, numerically precise, characterization of the current expectation about the underlying event.

Question: If you run a prediction market, who owns the right to use your market output?

Prediction markets in the United States may want to consider a recent court decision in a copyright case, that, depending upon the prediction market’s business model, may impinge on its exclusive use of public prices or other market data produced by its systems. Be warned that I am not a lawyer – I don’t even play one on TV. I’ve just read the court decision, and now I’m sort of ‘thinking out loud’ about what it might mean.

In New York Mercantile Exchange v. IntercontinentalExchange, the New York Mercantile Exchange (NYMEX) sought to enforce a copyright in NYMEX oil and gas settlement prices against the IntercontinentalExchange (ICE). ICE uses NYMEX’s daily settlement prices to clear ICE’s customers’ trades. NYMEX alleged that ICE’s use of NYMEX prices infringes upon NYMEX’s copyright. So far, courts have sided with ICE.

I discuss the reasoning a bit in a long post available at Knowledge Problem: “What is a Price?” The decision itself is available online from the Second District of the U.S. Court of Appeals. I won’t repeat all of my KP discussion here, but rather get right to what I think might be of interest to the prediction market community.

The court ruled against NYMEX’s copyright claim, arguing that NYMEX’s settlement prices could not be disentangled from the idea of the prices.

The court explained that NYMEX’s prices couldn’t be disentangled from the idea of the prices, because (1) prices will be expressed as a number, (2) only a small range of numbers would adequately reflect the underlying market conditions. “Because any settlement price for a particular futures contract would be determined based on the same underlying market facts, any dissension would be exceptionally narrow,” said the court. In such a case, the court concluded, granting a copyright would frustrate access to anyone else who sought to express the same idea.

Because ideas cannot be copyrighted, the court said NYMEX cannot be granted a copyright in its prices.

I don’t think this has any implications for internal company prediction markets, the results of which are probably protected as trade secrets rather than by copyright. But if a prediction market’s business model relies upon a copyright claim in the market’s prices or other market data, such business model may be threatened by the court’s decision in NYMEX v. ICE.