March 2006

Some people just can’t resist a David and Goliath storyline. That’s especially true of “consumer advocates” who see an underdog in the mirror no matter how big the hound is. Case in point: A site called consumeraffairs.com yesterday ran a story on the net neutrality battle with this lead paragraph:


There’s nothing virtual about the battle lines being drawn in the fast-developing
Net Neutrality War. Disney, Verizon and AT&T are among the superpowers developing
a shock and awe strategy intended to annihilate the rag-tag band of consumers and
non-profits working to keep the Internet playing field level.

Just for the record, the pro-regulation “rag tag band” at last count included the following: Amazon.com, Google, e-bay, Yahoo, the Consumer Electronics Associaton, Sony, and of course a small start-up called Microsoft. This band is not rag-tag. It’s an orchestra.

Opponents of regulation, of course, also have some heavy-hitters on their side, including Disney and Cisco in addition to phone and cable companies. But its hardly a David and Goliath struggle. Its more Goliath v. Goliath. Oh, and by the way, there are non-profits and pro-consumer groups on both sides (unless you believe you have to be pro-regulation to be pro-consumer).

Ultimately, the game of “who’s the underdog” simply obscures the real issues in policy debates. The real question is what is good for consumers. And, even wearing Underdog’s cape, net neutrality rules just won’t fly.

As I’ve mentioned several times before on this site, I’m finishing up a new book on the future of control controls in a world of media convergence. My thesis is simple: Content regulation is doomed. A confluence of social, legal and, most importantly, technological developments is slowly undermining the ability of legislators and regulators, at all levels of government, to control the nature or quality of media programming. The demise of content controls may take many years–potentially even decades–to play out, but signs of the impending death of the old regulatory regime are already evident.

A perfect example of this came today when the WB television network announced that it would be self-censoring several scenes from a new drama that was about to air on its broadcast television affiliates. The network claimed that in light of last week’s decision by the FCC to impose steep new indecency fines on certain broadcast television shows, it was unsure if it’s new drama (“The Bedford Diaries”) would run afoul of FCC indecency “standards.” So the network will be airing a self-censored version of the show next week.

But here’s what’s really interesting: Before that episode is aired on their WB broadcast television outlets, the network has decided to air the unedited version on their Internet website. Starting today, anyone can download the uncut Bedford Files episode and watch on their PC or portable media device for free. According to the New York Times, “It is the first time a network has offered on another outlet an uncut version of a program it has been forced to censor.” But, needless to say, it won’t be the last time this happens in a world of proliferating media platforms.

Continue reading →

Do I Hate Markets?

by on March 23, 2006 · 12 comments

Jim will have to stop needling PFF for ignoring my paper, as Patrick Ross has posted a truly epic three part critique.

I found his responses disappointing for several reasons.

First, he engages in a fair bit of name-calling, insinuating that anyone who agrees with EFF can’t possibly be a libertarian. (I wonder if Ross has actually bothered to peruse their site? While I don’t agree with every position they’ve taken, I would imagine that he, as a libertarian, would find a lot to like.) The entire critique is suffused with this kind of black and white, “us versus them” attitude. For example, he faults me for both criticizing and praising Apple, as though there’s something inconsistent about praising one aspect of a company and criticizing another. He also, bizarrely, argues that my comparison of DRM to a Maginot Line means that my “friends who like to breach DRM” are the Nazis.

Second, it doesn’t appear that he really engaged my central arguments. For example, he doesn’t make any effort to address the point that DRM hasn’t been an effective piracy deterrent. He doesn’t seem to have grasped my specific criticism of OpenCable–that the DMCA has put consumer electronics companies like TiVo at the mercy of the cable industry, thereby stifling the development of any devices that might be a competitive threat to cable companies. The analogy to the IBM BIOS case (a case in which a platform was opened against the will of its originator) seems to have made no impression on him. And most generally, the distinction between inter-platform and intra-platform competition appears to be completely lost on him.

Finally, throughout the paper, he makes statements like this:

The author also freely admits that some court decisions have not been in accord with his belief in this “balance,” yet we are told that we shouldn’t trust Congress or markets but rather unaccountable judges.

Note the question-begging use of the word “markets.” In point of fact, that’s precisely where we disagree: whether the DMCA is an interference with the free market. A free market is an economic system in which individual rights are protected, contracts are enforced, but people are otherwise left alone by the government. While a circumvention ban might be compatible with market principles, it certainly isn’t required by them. Yet whenever I point out problems that have been caused by the DMCA, he responds by accusing me of being hostile to markets. That’s a non-sequitur.

Mr. Ross and I have some serious policy disagreements about the real-world consequences of the DMCA, and we have some different opinions about whether some of those consequences are good or bad. I plan to address a couple of his specific criticisms in a subsequent blog post. But I wish he’d focus a bit more on engaging on those policy disagreements instead of constantly insinuating that I should have my libertarian card revoked.

The Darker Side of DRM

by on March 23, 2006

I’ve got a new op-ed in the Salt Lake Tribune. There won’t be anything in it that’s news to regular TLF readers, but here’s how it starts:

Did you know that it’s a federal crime to listen to your music on the wrong brand of portable music player?

It’s true. At least, it is if you buy your music online. Take Apple’s iTunes Music Store, which recently sold its billionth song. Apple talks a lot about the convenience and affordability of its music, but they don’t mention its darker side: it’s only compatible with Apple products. MP3 players from other companies aren’t supported.

In a free market, that wouldn’t be so bad. Manufacturers of competing MP3 players, such as Sony, Creative and Samsung, could provide software to automatically convert the music to a compatible format. But that would be illegal, thanks to a little-known law called the Digital Millennium Copyright Act, which Congress passed in 1998.

Middle of the Road

by on March 22, 2006

Liberal blogger extraordinaire Matt Yglesias on my DMCA paper:

I have no idea whether America is becoming a theocracy (probably not) but I do rather firmly believe that our government is, to a troubling extent, falling under the iron grip of copyright law run amok. My friend Tim Lee has recently published a Cato Policy Analysis paper on one aspect of this question, the Digital Millenium Copyright Act’s prohibition of any technologies that may be used to “circumvent” digital rights management (DRM). I’m more of a radical on copyright issues generally than Tim is, but his moderate posture helps highlight some of the more insidious expansions of intellectual property law we’re seeing right now.

Yesterday, the Cato Institute issued Tim Lee’s paper, Circumventing Competition: The Perverse Consequences of the Digital Millennium Copyright Act. Reaction has been swift and favorable.

  • Blog top-dog BoingBoing says “it takes sharp free-market types like the Cato characters to bust out elegant critiques like this one.”
  • Heavyweight SlashDot congratulates Lee and Cato for “putting into words what most of us know already.” (And the discussion threads prove that many slashdotters have trouble putting ideas into words.)
  • Our friend Instapundit quotes the money quote but does not say “read the whole thing,” as he does so often. No one ever reads the whole thing – that’s why we read blogs – so Glenn is obviously using reverse psychology.
  • Confessing to a personal relationship with the author, Julian Sanchez of Reason’s Hit and Run calls Tim’s a “sharp new paper.” Oh my, do the comments get testy quickly.
  • Mike of TechDirt gives the paper a shout. (We’re glad it wasn’t Carlo.)
  • Longtime champions EFF welcome the contribution of “free marketeers” to their effort.
  • PublicKnowledge welcomes this “voice on the right.” Only Kartoon Kato is “on the right” – Cato is neither left nor right, rather the best of both – but the welcome is welcome all the same.

These, and other examples, show that Tim’s paper, especially coming as it does from the Cato Institute, is enjoying enthusiastic appreciation. It’s a needed addition to the discussion of copyright law, protection, and business in the digital age.

I’m taking bets on when the paper is blogged on IPCentral . . . !

In my DMCA paper, I point out that consumers with non-typical hardware and software devices, such as Linux users and audiophiles with high-end audio systems, are harmed by the DMCA. Reader Ben Galliart writes to point out another marginalized group that is particularly harmed by the DMCA: the disabled.

The anti-competive nature of the DMCA also extends to hurting the disabled. The American Disablities Act was passed to force employers to provide the additional resources to disabled employees to give them an equal opportunity to accomplish a job. Or put another way, it uses legal requirements to encourage addressing the technical obstacles to assisting the disabled. But the DMCA does the exact opposite by legally enforcing artifically created obstacles.

For example, eBook access for the blind. The technical obstacle for using a text to speech software package is getting the book in a format that the software can read. While the ADA can require an employer to provide a sound card so that use of text to speech software is possible, eBook’s right management allows the author to disable access to the feature. Any further attempt by the employer to further assist the employee for use of the eBook via text to speech is criminalized.

A publisher of an eBook usually has little to loose by disabling the text to speech software. Most points of sale for eBooks do not provide information on what eBooks disable the feature. Instead, the advantage is provided that any future audio version of the book will not have to compete with the text to speech option. Even if the author then does choose to provide a CD version of the book, it does not provide the same degree of control over the reader voice (speed, pitch, inflection, etc).

Lastly, DMCA also allows the creator of the eBook reader software to restrict access to text to speech functionality to the built-in feature. While a third party might provide improved features (such as an improved text to speech voice), the author of the eBook software can lock out the third party from accessing the material. The DMCA creates an enviroment where it is to the software author’s advantage to lock out third party plug-ins as to avoid having to compete with it’s features. The software author then can require the customer to purchase an upgrade to get features that otherwise could have been provided by a third party for a version of the software the customer already owns.

An excellent point!

Championing “openness” is in vogue now, be it net neutrality (in the telecom sense) or what is occurring in France with its online copyright bill that would mandate the sharing of proprietary digital rights management systems (call it DRM Neutrality?). But do we really want openness mandated by government? What happens to the freedom to innovate via closed systems?

Being “open” sounds great in theory. But it seems to me that the notion of openness has been hijacked by competitors (and those politicians that receive Dollars or Euros from these competitors) of those successful companies that employ closed systems.

Why be pro-closed? Well, it is often closed systems that can deliver greater value to consumers and society. One of the benefits of closed systems is to take what appears to be separate parts and bundle them together into one easy to consume package.

Let me state the obvious. iTunes was designed primarily to play Apple’s proprietary, rights restricted media and to interoperate with Apple’s own iPod hardware device:and consumers love it! Unfortunately, many regulators overlook the benefits of bundling and tying products together. This was a subject of a recent article of mine.

Innovation prospers when we allow firms to engage in different cost recovery strategies. Check out this history of iPod–Apple has clearly been innovative to the benefit of consumers.

But we know that this really isn’t about consumers – in Europe, competition law is about harm to competitors whereas in the U.S. the legal standard refers to consumer harm. Sometimes, though, helping competitors in the name of competition may hurt consumers. How is iTunes going to convince the music and movie industries to license it content if there’s no assurance that Apple can make of down-the-line protection?

Interestingly, the French law addresses copyright, not competition law. According to a Reuters news article, a French politician said that this modification to copyright law “should prevent the emergence of a monopoly in the supply of online culture.” Why effectuate competition law through copyright law? If there is anticompetitive behavior, it seems to me that the more principled route is through direct enforcement of antitrust law, not broad-strokes legislation in a different (albeit related) area of the law.

One problem at the FCC–and most other regulatory agencies–is the difficulty of getting obsolete restrictions off the books. Even minor changes get bogged down in endless notices of proposed rulemaking and further notices of proposed rulemaking. This make good business for lobbyists, but not good policy. But a provision adopted in the ’96 Telecom Act–until recently rarely used–may change that. Known as “forbearance,” the provision directs the Commission to “forbear”–stop enforcing–regulations it finds are no longer necessary. And, if it doesn’t act within a year on a petition to forbear, the petition automatically takes effect.

That’s exactly what happened this Monday when the deadline for action on a Verizon forbearance petition expired. The petition has asked for deregulation of Verizon’s business broadband services–which operate in a fairly competitive market. It has now taken effect–freeing Verizon of common carrier requirements, line sharing requirements, and a raft of other unnecessary rules.

The exact extent of the change is a bit unclear, since there was no written decision implementing the change. But they are likely substantial, and given the competition in this area, well-justified.

Not all members thought this a good thing. Democratic Commissioner Jonathan Adelstein was apoplectic, saying the non-action “erases decades of communications policy in a single stroke.” That’s an exaggeration, but wouldn’t that be a good thing if true?

Congratulations to Chairman Martin and the FCC for getting unnecessary rules off the books. Hopefully, there will be a lot more to come.

Opining about French politics is difficult because I don’t speak French, and so I’m limited to third-hand reports by reporters that may or may not know anything about technology law. As a result, I’ve had trouble figuring out what the French copyright bill now under consideration actually does. In my prvious post, I assumed that it was a deregulatory measure similar to the DMCRA. But after reading this AP story, it appears that I was wrong:

According to the latest amendments, copy-protection technologies like Apple’s FairPlay format and Sony’s ATRAC3 must work with competing services and players. Companies that refuse to share all essential information with any rival that requests it would be ordered to do so by a judge, under threat of fines. The draft law could force Apple to let French iPod users buy their music from download sites other than iTunes. Owners of other music players would also be allowed to buy songs from iTunes France.

This is very different from reform proposals here in the United States, which have the much more modest goal of undoing the anticompetitive features of the DMCA.

Obviously, this is partly a reflection of France’s tendency to over-regulate everything in sight. But I think it may also be a cautionary tale for libertarian DMCA supporters. There is likely to be a backlash against DRM technologies when consumers discover that they lock them into using products exclusively from a single vendor like Apple. When that happens, there are two ways the law might be changed. One is the Boucher approach: reform the DMCA to allow (but not require) private companies to create software to enable interoperability. The other is the French approach: leave the DMCA’s regulations in place, and layer another level of regulations on top dictating that companies must ensure their DRM is interoperable with competing DRM.

I think that given the three choices (the DMCA, Boucher, or France) the French solution is clearly the worst. So not only is Boucher’s DMCA reform good policy, but it will also help to prevent a consumer backlash that could lead to bad legislation on the French model.