November 2010

[This guest post is by Joshua Wright (George Mason University) and Geoffrey Manne (International Center for Law & Economics), who blog regularly at Truth on the Market]

We’ve been reading with interest a bit of a blog squabble between Tim Wu and Adam Thierer (see here and here) set off by Professor Wu’s WSJ column: “In the Grip of the New Monopolists.”  Wu’s column makes some remarkable claims, and, like Adam, we find it extremely troubling.

Wu starts off with some serious teeth-gnashing concern over “The Internet Economy”:

The Internet has long been held up as a model for what the free market is supposed to look like—competition in its purest form. So why does it look increasingly like a Monopoly board? Most of the major sectors today are controlled by one dominant company or an oligopoly. Google “owns” search; Facebook, social networking; eBay rules auctions; Apple dominates online content delivery; Amazon, retail; and so on.

There are digital Kashmirs, disputed territories that remain anyone’s game, like digital publishing. But the dominions of major firms have enjoyed surprisingly secure borders over the last five years, their core markets secure. Microsoft’s Bing, launched last year by a giant with $40 billion in cash on hand, has captured a mere 3.25% of query volume (Google retains 83%). Still, no one expects Google Buzz to seriously encroach on Facebook’s market, or, for that matter, Skype to take over from Twitter. Though the border incursions do keep dominant firms on their toes, they have largely foundered as business ventures.

What struck us about Wu’s column was that there was not even a thin veil over the “big is bad” theme of the essay.  Holding aside complicated market definition questions about the markets in which Google, Twitter, Facebook, Apple, Amazon and others upon whom Wu focuses operate—that is, the question of whether these firms are actually “monopolists” or even “near monopolists”—a question that Adam deals with masterfully in his response (in essence: There is a serious defect in an analysis of online markets in which Amazon and eBay are asserted to be non-competitors, monopolizing distinct sectors of commerce)—the most striking feature of Wu’s essay was the presumption that market concentration of this type leads to harm.

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As he noted, Adam Thierer’s lead article in the most recent Cato Policy Report is called “The Sad State of Cyber-Politics.” It goes through so many ways tech and telecom companies are playing the Washington game to win or keep competitive advantage.

It’s a nice set-up to a Washington Post opinion piece from this weekend in which TownFlier CEO Morris Panner talks about the growing riches accruing to Washington influencers:

We are creating so much regulation – over tax policy, health care, financial activity – that smart people have figured out that they can get rich faster and more easily by manipulating rules on behalf of existing corporations than by creating net new activity and wealth. Gamesmanship pays better than entrepreneurship.

Thierer sees some hope for the tech sector, for a few reasons:

Smaller tech companies have thus far largely resisted the urge [to engage with Washington]. Hopefully that’s for principled reasons, not just due to a shortage of lobbying resources. Second, the esoteric nature of many Internet and digital technology policy discussions frustrates many lawmakers and often forces them to lose interest in these topics. Third, the breakneck pace of technological change makes it difficult for regulators to bottle up innovation and entrepreneurialism.

Panner’s broader piece calls for “a national campaign to create transparency in our legislation and a national moratorium on the creation of commissions, regulators and czars. It is time for Congress to do the hard job of saying what lawmakers mean in clear and easy-to-understand language.” He continues, “We should reject bills that are thousands of pages or that delegate vast authority to unelected regulators.”

That would be a start.

On November 18, the Senate Judiciary Committee unanimously approved the “Combating Online Infringements and Counterfeits Act” (COICA). The bill would enable the U.S. Attorney General to obtain a court order disabling access to web domains that are “dedicated to infringing activities.”

These “rogue websites” are a real problem, as the website Fight Online Theft explains, so it’s a good thing that Congress is working to address them. However, some of COICA’s provisions raise profound constitutional concerns, and the bill lacks adequate safeguards to protect against the unwarranted suspension of Internet domain names, as the website Don’t Censor the Net argues. The bill also doesn’t provide a mechanism for website operators targeted by the Attorney General to defend their site in an adversary judicial proceeding. This week, a group of over 40 law professors submitted a letter to the U.S. Senate arguing that COICA, in its current form, suffers from “egregious Constitutional infirmities.”

To address these concerns, CEI is urging Congress to amend COICA to provide for more robust safeguards, including: Continue reading →

When it comes to technology policy, I’m usually a fairly optimistic guy.  But when it comes to technology politics, well, I have my grumpier moments. I had at particularly grumpy moment earlier this summer when I was sitting at a hearing listening to a bunch of high-tech companies bash each other’s brains in and basically calling for lawmakers to throw everyone else under the regulatory bus except for them.  Instead of heeding Ben Franklin’s sound old advice that “We must, indeed, all hang together, or assuredly we shall all hang separately,” it’s increasingly clear that high-tech America seems determined to just try to hang each other. It’d be one thing if that heated competition was all taking place in the marketplace, but, increasingly, more and more of it is taking place inside the Beltway with regulation instead of innovation being the weapon of choice.

That episode made me think back to the outstanding 2000 manifesto penned by T. J. Rodgers, president and CEO of Cypress Semiconductor, “Why Silicon Valley Should Not Normalize Relations with Washington, D.C.”  I went back and re-read it upon the 10th anniversary of its publication by the Cato Institute and, sadly, came to realize that just about everything Rodgers had feared and predicted had come true.  Rodgers had attempted to preemptively discourage high-tech companies from an excessive “normalization” of relations with the parasitic culture that dominates Washington by reminding them what Washington giveth it can also taketh away. “The political scene in Washington is antithetical to the core values that drive our success in the international marketplace and risks converting entrepreneurs into statist businessmen,” he warned a decade ago. “The collectivist notion that drives policymaking in Washington is the irrevocable enemy of high-technology capitalism and the wealth creation process.”  And he reminded his fellow capitalists “that free minds and free markets are the moral foundation that has made our success possible.  We must never allow those freedoms to be diminished for any reason.”

Alas, as I point out in my new Cato Policy Report essay “The Sad State of Cyber-Politics,” no one listened to Rodgers.  Indeed, Rodgers’s dystopian vision of a highly politicized digital future has taken just a decade to become reality. The high-tech policy scene within the Beltway has become a cesspool of backstabbing politics, hypocritical policy positions, shameful PR tactics, and bloated lobbying budgets. I go on in the article to itemize a litany of examples of how high-tech America appears determined to fall prey to what Milton Friedman once called “The Business Community’s Suicidal Impulse“: the persistent propensity to persecute one’s competitors using regulation or the threat thereof.

It’s a sad tale that doesn’t make for enjoyable reading, but I do try to end the essay on an upbeat (if somewhat naive) note. If you are interested, you can find the plain text version on the Cato website here and I’ve embedded the PDF of the publication down below in a Scribd Reader. Continue reading →

I published an opinion piece today at CNET, calling on all tech stakeholders in Washington to stop the pointless quibbling and sniping about net neutrality, reclassification, and other side-show issues.  (I’m too depressed to list them here—but see “Fox-Cablevision and the Net Neutrality Hammer” for an example of just how degraded the conversation has become.)

Instead, why not focus on a positive message, one that has the potential for win-win-win-win?  For example, the National Broadband Plan, issued in March, eloquently made the case for a U.S. commitment to universal broadband adoption.  Not as a matter of gee-whiz futurism but in the interest of giving Americans “a better way of life.”

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Another day, [another cybersecurity bill](http://thehill.com/blogs/hillicon-valley/technology/129879-house-bill-would-give-dhs-authority-over-private-sector-networks). The Homeland Security Cyber and Physical Infrastructure Protection Act of 2010 has been introduced by House Homeland Security chairman Bennie Thompson along with Reps. Jane Harman and Yvette Clark. According to the [one-pager](https://docs.google.com/viewer?url=http://hsc.house.gov/SiteDocuments/20101117171905-26851.pdf) they’ve put out (I can’t find the bill) the Act would:

- Require DHS to determine which private assets should be designated “covered critical infrastructure” although there would be a reconsideration process for a firm to challenge such a designation.

- Require DHS to develop cyber security standards that would be enforceable on private sector networks determined to be critical infrastructure.

- Authorize DHS to recommend (Safety Act) liability protection for firms that comply with the standards.

Some questions come to mind: Is there any limit to what can be designated “critical infrastructure”? What evidence is there that the private sector is under-providing security for its networks? What exactly are the performance metrics that would be used to measure compliance? And what is the evidence that federal standards will be more effective than those developed by industry individually or collaboratively in industry groups? Again, as far as I can tell the bill is not cyber available yet, but if other bills in the House and Senate are any indication, these questions haven’t really been considered.

One thing that I think is new in this bill is liability protection for firms that comply with DHS security regulations. I’m afraid this can’t be good for firms’ incentives to innovate.

At the risk of pointing out the obvious, I’d like to remark that the [popular revolt](http://www.nytimes.com/2010/11/16/business/16road.html) against intrusive TSA searches would not have been possible without the internet and digital technologies.

- It was John Tyner’s cell phone video recording of his encounter with TSA, which he posted to his blog, that really galvanized folks to take action.

- The [Fly With Dignity](http://flywithdignity.org/) campaign was [conceived and organized](http://flywithdignity.org/about/) by folks collaborating on the Reddit community.

- It is through online social networks that the meme of Nov. 24 as [National Opt-Out Day](http://www.optoutday.com/) has spread.

Without the internet, we would have been at the mercy of the news media to get the word out about citizen frustration. Complaining would have been relegated to writing your congressman. And organizing a wide-spread protest would likely have been impossible.

Instead, we’ll hopefully see Americans engaging in peaceful civil disobedience comforted by the knowledge that they’re not alone. So with a nod to Evgeny Morozov’s critique, it makes me happy to see that the internet can still serve to empower the citizens of a democracy to tell its government, enough is enough. This moment should also remind us why we should not ever cede to government [the ability to control](http://www.nytimes.com/2010/11/17/technology/17wiretap.html) the flow of information.

Jeff Winkler of The Daily Caller was kind enough to call me for comment after seeing some tweets of mine about a new proposal floated by U.S. Transportation Secretary Ray LaHood to potentially mandate cell phone jamming technology be embedded in every car to minimize the risk of distracted driving.  While I am sympathetic to the concerns he and others have raised about the serious dangers associated with distracted driving, LaHood has been continuously upping the ante in terms of proposed regulatory responses to the problem.

Back in October, La Hood suggested that a ban on all cell phone communications in cars might be needed. He argued that even hands-free phone conversations are a “cognitive distraction” and should be prohibited and has also suggested that such a ban should extend to in-vehicle information and entertainment systems such as Ford Motor Co.’s Sync and General Motors Co.’s OnStar system. This means almost every conceivable in-vehicle technology could be regulated under LaHood’s “cognitive distraction” paradigm, including your car stereo and GPS system.  This week LaHood went further and suggested that it may be necessary to also mandate some sort of scrambling technology be embedded in all vehicles to completely block any potential wireless communications or connectivity.

My comments on that proposal appear in Winkler’s piece today, although Winkler notes that LaHood appears now to be backing off the idea.  However, just in case this idea (or the idea of banning all communications devices from cars more generally) pops up again, here’s what I find wrong with LaHood’s approach: Continue reading →

Kinect has been hacked, or has it? If you’ve been following the story about the release of Microsoft’s new controller-free interface for the XBOX 360, you’re probably a bit confused as to exactly has happened. But don’t worry, so is Microsoft.

Shortly—very shortly as a matter of fact—after Kinect was released last week, enterprising nerds snatched up the $150 device and started repurposing its exception hardware for all sorts of unintended purposes. Rather than waving their hands frantically in their living rooms and unintentionally injuring loved ones (HT Brooke Oberwetter), these geeks were using Microsoft’s innovative camera technology to create new ways of interacting with their computers, methods for capturing 3D objects, and iPhone-like image manipulation—and that’s just the beginning.

Microsoft’s reaction to an enthusiastic group of incredibly tech-savvy consumers taking such an interest in their products? First, Redmond issued a warning about the dangers of hacking.

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Inspired by thoughtful pieces by Mike Masnick on Techdirt and L. Gordon Crovitz’s column yesterday in The Wall Street Journal, I wrote a perspective piece this morning for CNET regarding the European Commission’s recently proposed “right to be forgotten.”

A Nov. 4th report promises new legislation next year “clarifying” this right under EU law, suggesting not only that the Commission thinks it’s a good idea but, even more surprising, that it already exists under the landmark 1995 Privacy Directive.

What is the “right to be forgotten”?  The report is cryptic and awkward on this important point, describing “the so-called ‘right to be forgotten’, i.e. the right of individuals to have their data no longer processed and deleted when they [that is, the data] are no longer needed for legitimate purposes.”

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