Should ISPs be barred under net neutrality from discriminating against illegal content? Not according to the FCC’s draft net neutrality rule, which defines efforts by ISPs to curb the “transfer of unlawful content” as reasonable network management. This exemption is meant to ensure providers have the freedom to filter or block unlawful content like malicious traffic, obscene files, and copyright-infringing data.

EFF and Public Knowledge (PK), both strong advocates of net neutrality, are not happy about the copyright infringement exemption. The groups have urged the FCC to reconsider what they describe as the “copyright loophole,” arguing that copyright filters amount to “poorly designed fishing nets.”

EFF’s and PK’s concerns about copyright filtering aren’t unreasonable. While filtering technology has come a long way over the last few years, it remains a fairly crude instrument for curbing piracy and suffers from false positives. That’s because it’s remarkably difficult to accurately distinguish between unauthorized copyrighted works and similar non-infringing files. And because filters generally flag unauthorized copies on an automated basis without human intervention, even when filters get it right, they often disrupt legal, non-infringing uses of copyrighted material like fair use.

Despite copyright filtering technology’s imperfections, however, outlawing it is the wrong approach. At its core, ISP copyright filtering represents a purely private, voluntary method of dealing with the great intellectual property challenge. This is exactly the sort of approach advocates of limited government should embrace. As Adam and Wayne argued back in 2001:

To lessen the reliance on traditional copyright protections, policymakers should ensure that government regulations don’t stand in the way of private efforts to protect intellectual property.

That’s exactly right. As digital technology evolves, effectively enforcing intellectual property privileges will grow increasingly difficult for content creators. The traditional model for financing content creation — direct payments from consumers to producers — will remain viable only if there’s an economic incentive for consumers to fork over money in exchange for content. Voluntary filtering arrangements between network providers and content owners may prove valuable to this end because they discourage the unauthorized transfer of copyrighted files.

The best part about copyright filtering? It doesn’t necessitate the exercise of the state’s coercive power. In this way, it has the potential to help us move gradually toward a regime of intellectual property protection that’s reliant on the force of the market rather than the force of government.

Of course, there’s no guarantee that attempts to filter copyrighted content at the ISP level will turn out to be effective. That’s because end-to-end encryption, which enjoys growing popularity among savvy users, renders traffic impossible to digitally “fingerprint.” It amounts to a near-perfect foil to deep-packet filtering technologies. There are alternative methods of identifying infringing files — IP address blacklisting, for instance — but such methods tend to be notoriously imprecise and as such are unlikely to be met with acceptance by consumers.

As with all kinds of unsavory ISP behavior, in the long run, overly blunt copyright filtering is simply not a sustainable business practice. Users tend to expect the Internet will “just work,” and attempts by providers to interfere with access to content are invariably met with swift resistance. Consider the recent 4chan blockages by AT&T and Verizon, both of which lasted for mere hours but immediately sparked outrage that reverberated throughout the tech world.

To be sure, some providers may experiment with ineffective, overly aggressive copyright filters. But this sort of experimentation, while painful for those involved, is crucial if providers are to learn the valuable lessons that will signal to the market how to properly balance consumer interests with content creators’ interests. And since ISP competition is on the rise, as Obama’s Department of Justice recently explained, even in relatively uncompetitive markets like Rochester, New York it’s only a matter of time before some 4G LTE carrier deploys residential-grade broadband and shakes things up.

As I’ve argued before, the best way government can serve consumers in DRM disputes is by steering clear of them entirely. Markets may not be perfect, but they tend to efficiently balance competing concerns in a way government regulators simply cannot. In the same way, network-level copyright filtering should succeed or fail based on its own merits and how it impacts consumer welfare, not on how well it meets the invariably vague criteria of the FCC. If net neutrality rules are enshrined into law — and for the record, I hope they aren’t — regulating ISP efforts to curb illegal content should be off the table.

A couple weeks ago the Google Books Settlement fairness hearing took place in New York City, where Judge Denny Chin heard dozens of oral arguments discussing the settlement’s implications for competition, copyright law, and privacy. The settlement raises a number of very challenging legal questions, and Judge Chin’s decision, expected to come down later this spring, is sure to be a page-turner no matter how he rules.

My work on the Google Books Settlement has focused on reader privacy concerns, which have been a major point of contention between Google and civil liberties groups like EFF, ACLU, and CDT. While I agree with these groups that existing legal protections for sensitive user information stored by cloud computing providers are inadequate, I do not believe that reader privacy should factor into the court’s decision on whether to approve or reject the settlement.

I elaborated on reader privacy in an amicus curiae brief I submitted to the court last September. I argued that because Google Books will likely earn a sizable portion of its revenues from advertising, placing strict limits on data collection (as EFF and others have advocated) would undercut Google’s incentive to scan books, ultimately hurting the very authors whom the settlement is supposed to benefit. While the settlement is not free from privacy risks, such concerns aren’t unique to Google Books nor are they any more serious than the risks surrounding popular Web services like Google search and Gmail. Comparing Google Book Search to brick-and-mortar libraries is inapt, and like all cloud computing providers, Google has a strong incentive to safeguard user data and use it only in ways that benefit users and advertisers.

It’s worth noting that while Google has a reasonably strong track record of preventing data breaches and accidental disclosure of data to untrustworthy parties, Google generally does not challenge court-approved criminal or civil subpoenas of data associated with its users. I didn’t properly articulate this in my amicus brief, in which I stated incorrectly that “Google has a history of vigorously resisting government data requests if it deems them invalid.” In fact, Google usually does not attempt to quash subpoenas, although it has done so at least once before (in 2006, Google successfully fought a request from the U.S. Department of Justice seeking logs containing millions of user search queries).

Upon receiving a subpoena of a user’s data, Google typically informs the user that his or her data will be handed over in 20 days unless the user successfully moves to quash the subpoena. Most other cloud computing providers have similar policies. In certain rare circumstances, however, subpoenas are issued in secret. In such cases, Google is barred from telling the user about the subpoena, so the user doesn’t have a chance to challenge it in court.

While Google’s policy for disclosing user data is perhaps not as protective of privacy as it could be, it’s still quite reasonable in light of the economic realities of cloud computing. Sure, Google could challenge all subpoenas it receives as a matter of course (as CDT and others have urged) but such a policy would be prohibitively expensive considering the fact that Google that likely processes tens of thousands subpoenas each year (Unfortunately, Google does not disclose how many subpoenas it receives each year, much to my chagrin). Remember, the vast majority of Google users aren’t even paying customers! Expecting Google to bear the legal burden of defending its users — some of whom actually are criminals — from legal proceedings is hardly fair.

Instead of trying to persuade Congress, regulatory agencies, and the courts to regulate Google and other online providers, privacy advocates should focus on the underlying deficiencies in U.S. privacy laws. Under the 1986 Electronic Communications Privacy Act (ECPA), many kinds of potentially sensitive user data can be obtained by government authorities with a mere subpoena, rather than a search warrant. Compounding this problem is the refusal of courts to extend Fourth Amendment protections to sensitive information stored in the cloud on the basis of the seriously flawed “third party doctrine”  To remedy this, Congress should amend ECPA to strengthen privacy protections for sensitive data stored by remote computing service providers. Just as authorities are required to obtain a search warrant if they wish to get hold of files stored in one’s home, warrants should also be necessary to compel cloud computing providers to disclose individual information that users very clearly expect to remain private.

In the meantime, let’s not create burdensome new regulations on online data collection. As Berin, Adam, and others have documented with incredible thoroughness (1, 2, 3, 4), smart data mining has myriad benefits for consumers, and targeted advertising is among the most promising avenues for financing future content production.

It’s been a busy week in the Googlesphere. Google made headlines earlier this week when it aired a televised ad for the first time in the company’s history, and again yesterday when it unveiled Buzz, its new social networking platform. Today, Google announced bold plans to build an experimental fiber-to-the-home broadband network that’s slated to eventually deliver a whopping gigabit per second of Internet connectivity to 500,000 U.S. homes.

Google’s ambitious broadband announcement comes as welcome news for anybody who pines for greater broadband competition and, more broadly, infrastructure wealth creation in America. To date, Google has dabbled in broadband in the form of metro Wi-Fi, but hasn’t embarked on anything of this scale. Laying fiber to residences is not cheap or easy, as Verizon has learned the hard way, and Google will undoubtedly have to devote some serious resources to this experiment if it is to realize its lofty goals.

It’s important to remember, however, that Google is first and foremost a content company, not an infrastructure company. Google’s generally awesome products, from search to video to email, attract masses of loyal users. In turn, advertisers flock to Google, spending billions in hopes of reaching its gigantic, precisely-targetable audience. This business model enables Google to invest in developing a steady stream of free services, like Google Voice, Google Apps, and Google Maps Navigation.

So it won’t be too surprising if Google’s broadband experiment doesn’t initially generate enough revenue to cover its costs. In fact, I’m skeptical that Google even anticipates its network will ever become a profit center. Rather, chances are Google won’t be at all concerned if its broadband service doesn’t break even as long as it bolsters the Google brand and spurs larger telecom companies to get more aggressive in upgrading their broadband speeds (which, indirectly, benefits Google).

Google’s broadband agenda is great news for consumers, of course. Who can complain if Google is willing to invest in building a fiber-to-the-home broadband network and is willing to charge below-cost prices? Not me!

If Google can offer 1Gbps broadband for a “competitive” price — say, $50 a month, — then why can’t Verizon and Comcast? Well, unlike Google, neither of these firms — or most telecom companies, for that matter — has a substantial stake in the content business (not yet, at least). Selling data, voice, and video services above cost is how traditional telecom companies make money. But Google’s bread and butter is advertising, not infrastructure. Also, big ISPs serve tens of millions of homes, while Google only aspires to connect a mere half million. Even if Google’s broadband service were to run a $100 million yearly deficit, Google wouldn’t suffer much — the firm earned over $4 billion in net income last year alone.

As Google’s broadband plans illustrate, smart vertical integration in the content and infrastructure businesses has the potential to benefit consumers enormously. Creative arrangements between these two industries will likely be increasingly important in the years ahead as demand for faster broadband grows. But attempts by government to steer these arrangements in unnatural, politically-favored directions — by adopting open access mandates, for instance — threaten to thwart efficient, vertically integrated business models.

By the way, when are we going to hear comment from all the critics of the Comcast-NBC deal who cried foul on the grounds that content-infrastructure integration undermines consumer welfare? A recent Free Press report, for instance, argues that:

Because the merged entity would control both content and distribution, it would have both the incentive and the
market power to limit the access of competing content to the distribution platforms it controls.

There’s an equally compelling — or, more precisely put, equally unconvincing — argument to be made that Google would have a similar incentive to favor its own content on its broadband network. If we should be worried about Comcast-NBC favoring NBC-produced content on Comcast’s network, shouldn’t we also be worried about Google favoring its search engine over Bing on its broadband network?

No, in reality, the likelihood that either Comcast-NBC or Google has the market power to sustain a genuinely anti-consumer regime of preferential treatment is quite slim. Adam and others have already documented extensively here on TLF how choice in the media marketplace is abundant and continually expanding. And the broadband market, while certainly not as vibrant, is still fairly competitive and growing more so at a steady clip, as Google’s announcement today illustrates.

Fearing the evolution of the content and infrastructure industries — whether in the form of Googlephobia or Media Merger Hysteria — is fundamentally wrong-headed. To be sure, as integration occurs, mistakes will be made, mergers will fail, and consumers won’t always get exactly what they want. But these phenomena are normal, even necessary, elements of a dynamic, rapidly evolving market. We should celebrate, with due caution, Google’s entry into the broadband game. But we should not assume that the Google model is the end-all, be-all arrangement between content and infrastructure.

The Ticketmaster-Live Nation antitrust saga has come to a bittersweet end. Earlier this week the Justice Department finally approved the merger between the two firms, just shy of one year after it was announced.

While a number antitrust experts had speculated that the Justice Department might seek an injunction to block the deal outright, the DoJ ultimately opted to approve the deal while subjecting Ticketmaster-Live Nation to several conditions that are supposed to promote competition in the events marketplace. Under the terms of the consent decree, the combined firm will be required to license its ticketing software to competitor Anschutz Entertainment Group and divest Paciolan, a ticketing subsidiary of Ticketmaster. Ticketmaster-Live Nation also faces ten years of monitoring by antitrust officials to “prevent anticompetitive bundling of services.”

Ticketmaster has long been a controversial firm among concertgoers, frequently drawing consumers’ ire for charging hefty “convenience” fees and offering customer service that’s not exactly stellar. But it’s important to remember that today’s entertainment market is more fragmented than ever, and consumers have a huge array of choices for listening to music and viewing live events. Even YouTube is getting into the business of airing live events. The video site has broadcast several live events already, including U2’s Rose Bowl performance in October 2009, and is eyeing the pay-per-view live streaming market as well.

So it’s not hard to see why consolidation is taking place in the event ticketing and promotion markets. Economists have demonstrated that vertical integration, done properly, often results in sizable efficiencies, translating into overall welfare gains for consumers. Together, Ticketmaster and Live Nation are in a stronger position than before to offer value to event venues and promote concerts and shows. And as much we all hate service fees, in industries characterized by high fixed costs and declining marginal unit costs – like ticketing – big per-unit “markups” are often necessary to induce businesses to compete and innovate. While Ticketmaster may not be the most innovative company in the world, the firm faces an uncertain future as its contracts with venues come up for renewal. If Ticketmaster really is harming concertgoers – and by the way, there’s no clear evidence that it is – it will be disciplined not only by concert lovers, but by venues and artists as well. Derailing a potentially efficient business arrangement simply because it might not work out, whether in the event ticketing market or the cable television market, results in harm to consumers.

Interestingly, Susan Crawford, a law professor and former White House Special Assistant for Science, Technology, and Innovation Policy, tweeted yesterday, “Notice [the] unbundling conditions on [the] Ticketmaster merger.” It’s curious that Crawford chose the term ‘unbundling,’ which typically refers to essential facilities regulation whereby government forces utilities to share their last-mile facilities with competitors. Crawford happens to be a staunch advocate of local loop unbundling, which requires incumbent telecom providers to share their local facilities with competitive carriers at “just and reasonable” prices – as determined by regulators, of course. (The 1996 Telecom Act imposed local loop unbundling rules in the U.S., although subsequent FCC rulings relaxed unbundling requirements to a significant extent.)

Despite the seeming similarities between the Ticketmaster conditions and unbundling regulations, the two rules are rooted in distinct regulatory frameworks. Ticketmaster is only required to share a peripheral element of its business, ticketing software, with a single rival for ten years. But U.S. telecom firms governed by local loop unbundling rules must sell a core element of their business, last-mile access, to all comers, at rates that regulators deem reasonable. Ticketmaster acquired its market share by competing in the free market and, to a lesser extent, by acquiring smaller firms. Telecom incumbents have significant market share in no small part thanks to nationwide infrastructure established long ago by the long-dissolved Ma Bell monopoly. Moreover, forced unbundling of essential facilities is a network regulation, rather an antitrust regulation. U.S. antitrust laws are deeply flawed, but thanks in large part to the courts, at least antitrust regulation is fundamentally rooted in actual economics and aims to maximize consumer welfare. The FCC, on the other hand, assesses policies using the “public interest” standard, an ambiguous, arbitrary framework that incorporates economics only when convenient.

The legitimacy of merger licensing conditions is independent from the legitimacy of local loop unbundling. More to the point, bad antitrust laws are no justification for bad communications laws.

Last Wednesday, Holman Jenkins penned a column in The Wall Street Journal about net neutrality (Adam discussed it here). In response, I have a letter to the editor in today’s The Wall Street Journal:

To the Editor:

Mr. Jenkins suggests that Google would likely “shriek” if a startup were to mount its servers inside the network of a telecom provider. Google already does just that. It is called “edge caching,” and it is employed by many content companies to keep costs down.

It is puzzling, then, why Google continues to support net neutrality. As long as Google produces content that consumers value, they will demand an unfettered Internet pipe. Political battles aside, content and infrastructure companies have an inherently symbiotic relationship.

Fears that Internet providers will, absent new rules, stifle user access to content are overblown. If a provider were to, say, block or degrade YouTube videos, its customers would likely revolt and go elsewhere. Or they would adopt encrypted network tunnels, which route around Internet roadblocks.

Not every market dispute warrants a government response. Battling giants like Google and AT&T can resolve network tensions by themselves.

Ryan Radia

Competitive Enterprise Institute

Washington

To be sure, the market for residential Internet service is not all that competitive in some parts of the country — Rochester, New York, for instance — so a provider might in some cases be able to get away with unsavory practices for a sustained period without suffering the consequences. Yet ISP competition is on the rise, and a growing number of Americans have access to three or more providers. This is especially true in big cities like Chicago, Baltimore, and Washington D.C.

Instead of trying to put a band-aid on problems that stem from insufficient ISP competition, the FCC should focus on reforming obsolete government rules that prevent ISP competition from emerging. Massive swaths of valuable spectrum remain unavailable to would-be ISP entrants, and municipal franchising rules make it incredibly difficult to lay new wire in public rights-of-way for the purpose of delivering bundled data and video services.

FOXNews.com has just published an editorial that I penned about Monday’s net neutrality announcement from the FCC.

Does Obama Want to Control the Internet?

by Ryan Radia

The federal government may gain broad new powers to regulate Internet providers next month if Federal Communications Commission Chairman Julius Genachowski gets his way. In a milestone speech on Monday, Genachowski proposed sweeping new regulations that would give the FCC the formal authority to dictate application and network management practices to companies that offer Internet access, including wireless carriers like AT&T and Verizon Wireless.

Genachowski’s proposed rules would make good on a pledge that President Obama made in his campaign to enshrine net neutrality as law. The announcement was met with cheers by a small but vocal crowd of activists and academics who have been pushing hard for net neutrality for years. But if bureaucrats and politicians truly care about neutrality, they would be wise to resist calls to expand the government’s power over private networks. Instead, policymakers should recognize that it is far more important for government to remain neutral to competing business models — open, closed, or any combination thereof.

Consider the Apple iPhone. The remarkably successful smartphone has arguably been a game-changer in the wireless world, having sold tens of millions of handsets since its 2007 launch and spurring dozens of would-be “iPhone killers” in the process. If you listen to net neutrality advocates’ mantra, you would assume the iPhone must be a wide open device with next to no restrictions. You would be mistaken. In fact, the iPhone is a prototypical “walled garden.” Apple vets every single iPhone app, and Apple reserves the right to reject iPhone apps if they “duplicate [iPhone] functionality” or “create significant network congestion.”

Why, then, has the iPhone enjoyed such popularity? It’s because consumer preferences are diverse and constantly evolving. Most users, it seems, do not place openness on the same pedestal that net neutrality advocates do. Proprietary platforms like the iPhone have advantages of their own– a cohesive, centrally-managed user experience, for one– but have disadvantages as well.

In the battle between open and closed devices, wireless subscribers have voted with their wallets. So far, they have preferred the iPhone over open source devices like the “Google phone.” In the intensely competitive wireless market, the iPhone’s success shows that innovation can occur, and even thrive, within the confines of proprietary ecosystems like the iPhone.

But under the FCC’s proposed neutrality rules, the iPhone and similar devices that place limits on the content and applications that users can access would likely be against the law.

To be sure, the virtues that neutrality proponents espouse– open access, transparency, democracy, and the like — are all legitimate, even important values. Arguably, the open nature of the Internet has been instrumental in fostering many of the innovations that consumers enjoy today. But it is wrong to assume, as neutrality proponents do, that today’s “capital-I” Internet is the end all, be all network, and that the future of global communications ought not include some proprietary elements.

Technological innovation is an unpredictable beast. Networks for transmitting data that have yet to emerge — so-called “splinternets” — may well reshape the nature of global communications in years ahead. One need only look to the FCC’s widely criticized telephone and cable regulations to witness how rigid federal mandates can thwart high-tech evolution and steer the market in unnatural directions.

Fortunately, not all hope is lost for consumers. A group of Republican Senators, led by Sen. Kay Bailey Hutchison (R-Texas), have announced that they will lead a charge in Congress to thwart the FCC’s push for neutrality. And if the FCC bites off more than it can chew and enacts overly broad rules, network providers may well challenge the agency in court. Only two weeks ago, the FCC was sharply repudiated by a federal circuit court for ignoring the facts in its regulation of the cable industry.

If net neutrality ultimately goes through, the threat to infrastructure wealth creation is serious. When regulators gain new powers, they rarely cede them in response to marketplace changes without a fight. Under a neutrality regime, the telecom industry would likely retreat, take fewer risks, and divert investment toward more fruitful pursuits. It’s no coincidence that the Internet, a sanctuary of governmental restraint, has spawned such unparalleled innovation. In the relentlessly fast-moving digital age, regulatory intervention is a recipe for entrenching the status-quo.

Ryan Radia is an information policy analyst at the Competitive Enterprise Institute in Washington, D.C.

September 8 — this Tuesday — is the deadline for filing objections against the Google Book Settlement. A number of trade associations, corporations, authors, and advocacy groups have weighed in, including the Electronic Frontier Foundation and the American Civil Liberties Union. They argue that approving the Google Book Settlement in its current form, without explicitly spelling out data collection practices, would endanger user privacy. EFF and ACLU have threatened to file an objection to the Settlement unless Google commits to a stringent privacy policy for Google Book Search.

I think the privacy risks posed by Google Book Search are being blown out of proportion, as I explained in the Examiner Opinion Zone last month. While EFF and others have raised some legitimate fears about the possibility of government getting its hands on Google Book Search user data, these privacy concerns are not unique to Google Book Search, nor are they legitimate grounds for the court to reject the Google Book Settlement.

In a letter I submitted yesterday as an amicus curiae brief to U.S. District Judge Denny Chin, who is presiding over the Google Books case, I argue that privacy concerns should not determine the court’s evaluation of the Settlement:

Competitive Enterprise Institute Letter

A number of conservative blogs have picked up on reports that the Obama administration is looking to data mine users on social networking sites. Reports CNS News:

Anyone who posts comments on the White House’s Facebook, MySpace, YouTube and Twitter pages will have their statements captured and permanently archived by the federal government, according to a plan that the White House is now seeking a contractor to carry out.

Whenever government is collecting information about private citizens, we should be concerned. But this controversy smells a lot like privacy fear-mongering, even though it involves government. If you post a comment to an “official” Obama administration page on a social networking site, it seems only natural that it’s fair game for data mining. The same goes if you post a video response on a publicly accessible site.

If you’re posting controversial statements online under your real name for the public to see, what do you expect will happen? Anybody in the world who has an Internet connection can log your postings, so why shouldn’t government officials be able to do the same? Until government starts pressuring Facebook or Myspace to hand over data that’s being collected on an involuntary basis, I don’t see a whole lot here to worry about.

This controversy, and the flap over flag@whitehouse.gov from a few weeks back, raise another interesting question: should Congress reexamine the Presidential Records Act (PRA) of 1978? This is the law that governs Presidential record-keeping. According to some commentators, if the administration solicits data on its critics, it is obligated under the PRA to retain that data indefinitely. I haven’t read the law, but at first glance it appears that it may have some serious deficiencies. This is is hardly surprising, of course, given that the Internet — let alone social networks — didn’t even exist when the PRA was enacted in 1978.

You’d think that in 2009, when global networks are handling exabytes of data in a single day and OC192 fiber optic connections crisscross the planet, the FCC — the most important communications agency in the United States — would at least be able to use modern technology to stream its own public meetings.

Nope. The FCC is still streaming its webcasts with RealPlayer, a horrendous and arguably obsolete application that fell out of favor with techies years ago and has since been overtaken by superior streaming platforms like Adobe’s Flash Media Server.

Today’s big tech news item is the FCC’s “three-pronged probe” of the wireless industry, which was set to be announced today at this morning’s Open Commission Meeting.

Want to watch the FCC’s meeting and see what our “public servants” in Washington are up to? Good luck. The FCC’s streaming video server only supports 200 simultaneous connections.

In a nation of 270 million wireless users, why not offer, say, 1000 or even 10000 connections? Given the agency’s $339 million dollar budget that’s not too much to ask, is it?

It’s especially ironic that the FCC still struggles with streaming webcasts given that the FCC is launching an investigation of alleged “anti-competitive” practices in the wireless industry. Why isn’t the FCC investigating its own inability to accomplish relatively simple tasks, like stream live video or run a halfway decent website?

The FCC doesn’t just use RealPlayer for Open Commission Meetings. Even the FCC’s “Broadband Workshops” — which are supposedly going to guide the future of broadband deployment in America — are using the same tired streaming platform.

Of course, in the grand scheme of things, the platform the FCC uses for streaming video isn’t all that important. But it is a much-needed reminder that bureaucrats in Washington aren’t very good at keeping pace with modern technology. Unfortunately, many seem to have forgotten this fact.

ADDENDUM: Turns out the FCC does use a modern platform for streaming open commission meeting, Cisco Webex Webinar (accessible via www.broadband.gov) but only offers RealPlayer streams on the official FCC.gov website. Also, once meetings are finished, they are available online exclusively in the Real video format.

Seems like every week the tech rumor mills unveil some new smartphone that’s supposedly going to give the iPhone a run for its money. Over the past couple years, dozens of advanced handsets have been released with much fanfare — the LG Voyager, Palm Pre, Blackberry Storm, Samsung Omnia, to name a few — but time and time again, we end up with a device that can’t hold a candle to the iPhone’s amazing browser, massive app store, and sleek multi-touch interface.

But all this could change later this year. A number of handsets are due for release on several major networks over the next few months that run on Android, Google’s open source mobile operating system. Android is currently available on only a single device, the HTC G1. It’s a decent phone, but it lacks the polish of the iPhone and is only available with a contract from T-Mobile, which lags behind Sprint, AT&T, and Verizon in terms of 3G coverage.

I’m especially excited about the Android 2.0-based Motorola “Sholes,” a great-looking phone that’s supposedly due for release in November 2009 from Verizon. If rumors pan out, the Sholes should come with a slide-out keyboard, an extremely high-res display, a 5MP camera, and all-around solid specs. Via Android and Me:

The Motorola Sholes should include:

• OMAP3430 – 600 MHz ARM Cortex A8 + PowerVR SGX 530 GPU + 430MHz C64x+ DSP + ISP (Image Signal Processor)
• Dimensions 60.00 x 115.80 x 13.70 mm
• Weight 169 g
• Battery Li-ion 1400 mAh.
• Standby 450 hours, talk time 420 minutes
• 3.7-inch touch-sensitive display with a resolution of 854×480 pixels, 16 million color depth. Physical screen size is 45.72 mm by 81.34 mm.
• 512MB/256MB ROM/RAM
• microSD / microSDHC expansion slot
• Camera: 5.0 megapixel with autofocus and video recorder
• Connectivity: USB2.0, 3.5mm audio jack, Bluetooth 2.0 + EDR, Wi-Fi
• Supported audio formats: AMR-NB/WB, MP3, PCM / WAV, AAC, AAC +, eAAC +, WMA
• Supported video formats: MPEG-4, H.263, H.264, WMV
• GPS

Policymakers should take note of the coming onslaught of Android phones as a reminder that platform competition is alive and well in the U.S. wireless market — despite the claims of certain activists and academics whose definition of “consumer choice” encompasses only those devices that they deem sufficiently “open.”

Microsoft and Yahoo’s proposed deal faces a tough antitrust gauntlet. In today’s The Seattle Times, Jonathan Hillel and I have an op-ed in which we argue that trustbusters should let the deal go through:

MICROSOFT and Yahoo want to join forces in Internet search to better compete against Google. But first, they need the blessing of government antitrust enforcers. Senate Antitrust Subcommittee Chairman Herb Kohl, D-Wis., already has threatened “careful scrutiny” of the deal. But trustbusters should not go fishing for problems in the Internet search market. In the relentlessly fast-moving digital economy, government intervention contorts the market and ultimately harms consumers.

Under their proposed decade-long pact, Yahoo searches will be powered by Microsoft’s Bing search engine, which launched this June. The two search firms will maintain separate Web sites, but Microsoft will administer the technical side of both. Microsoft will also gain access to Yahoo’s vast volume of searches and query data. In exchange, Yahoo will receive 88 percent of ad revenues from searches performed on its own site.

[...]

Scale may make Microsoft and Yahoo more competitive, but it hardly guarantees them success. Indeed, history tells us that innovation, not scale, is the one true silver bullet in Internet search. Google earned its crown nearly a decade ago by revolutionizing search technology, devising the revolutionary PageRank system for indexing the Web and toppling AltaVista in the process. More recently, Microsoft’s Bing has made inroads by combining a clever cataloging system with alluring design.

Read the rest here.

We’ve discussed extensively the controversy that recently erupted when Apple rejected Google Voice applications from the iPhone App Store. With the FCC sniffing around and tech pundits around the blogosphere weighing in on the merits of possible government intervention, it’s important to remember that jailbreaking an iPhone may be illegal under the Digital Millenium Copyright Act (DMCA). In other words, if you use a hack or workaround that enables you to run banned apps like Google Voice on your iPhone, you could be violating federal law.

The DMCA hasn’t stopped millions of iPhone owners from jailbreaking their phones and installing Cydia, an unofficial alternative to the official iPhone App Store. Cydia, which lets users download banned iPhone apps like Google Voice, has been installed on a whopping one in ten iPhones, according to its developers.

But jailbreaking programs and applications like Cydia are in risky legal territory. Developers who circumvent the iPhone’s copy protection systems are at risk of being sued by Apple, as are users who run jailbreaking software. Apple maintains that jailbreaking software is illegal under federal law, though it has not taken legal action against any unauthorized iPhone developers to date.

To clear up the muddy legal waters surrounding iPhone jailbreaking, Fred von Lohmann of the Electronic Frontier Foundation has asked the U.S. Copyright Office to grant a legal exemption to iPhone jailbreaking on the grounds that users should be able to install apps of their choice on the phone without risking civil or criminal sanctions. In a recent DeepLinks post, von Lohmann argues that the FCC should throw its weight behind EFF’s call for exempting jailbreaking from anti-circumvention rules.

Von Lohmann has a point. Unofficial software that reverse engineers copyrighted software for interoperability purposes shouldn’t be illegal. As former TLFer Tim Lee puts it, “Because reverse engineering is so important in transforming closed standards into open ones, we should be especially worried about laws that stand in the way of that process.”

Jailbreaking should be legal, but that doesn’t mean that Apple should have to make it easy for iPhone owners to jailbreak their phones. Rather, iPhone owners should be able develop and use jailbreaking software free from undue governmental interference. If Apple manages to concoct a bulletproof method of locking down the iPhone, or if AT&T wants to ban jailbreaking in its wireless terms of service, that’s fine. But the burden rests on Apple and AT&T to design adequate technical countermeasures against jailbreaking. At worst, the penalties for jailbreaking should not exceed the contractual terms that users accept when they buy an iPhone.

On the flip side, however, if independent developers devise a method of jailbreaking iPhones that Apple cannot block or detect, that’s Apple’s problem — not government’s. As Ed Felten argues:

The best policy is for government to stay out DRM decisionmaking altogether. Let companies like Apple develop DRM schemes. Let others interoperate with those schemes, if they can figure out how. Ensure competition, and let the market decide which products will succeed, and which DRM schemes are viable.

Granting a DMCA exemption for iPhone jailbreaking is a good start. Fundamentally, though, the real culprit here is the DMCA itself. Congress should reform the DMCA by overhauling its ban on circumvention technologies. Doing so would allow developers to freely distribute iPhone jailbreaking apps without running the risk of getting in legal trouble.

A good example of what DMCA reform ought to look like comes from the Digital Media Consumers’ Rights Act (DMCRA), a bill which was introduced unsuccessfully in Congress in 2003 and again in 2005. The bill would re-establish the legality of breaking copy-protection schemes for legal, non-infringing uses. It would also protect scientific research into copy protection technologies. (The DMCRA also contains some troubling provisions that deal with CD labeling, but that’s a separate matter).

The recently proposed Microsoft-Yahoo deal has rekindled the debate over what role, if any, antitrust regulators should play in the high-tech sector. Adam and Berin have argued that decades-old (sometimes centuries-old) antitrust laws simply cannot keep pace with the relentlessly fast-moving digital economy. And Farhad Manjoo of Slate has concluded that antitrust action against tech companies does more harm than good — even when the facts favor government intervention.

For more on this, check out this excellent column on the future of antitrust enforcement by L. Gordon Crovitz in today’s The Wall Street Journal which quotes my colleague (and fellow TLFer) Wayne Crews:

Markets were so much simpler in the 1890s, when Sen. John Sherman got almost unanimous support in Congress to go after the Standard Oil Co. of Ohio. The Sherman Act and later antitrust laws were supposed to protect consumer interests. That’s not so easy when regulators have to deal with industries as different as oil, with its cartels and long product cycles, and technology, where fast change is a constant necessity for survival…

The bottom line is that by the time regulators can assess a technology market, the market has often moved on. Not long ago, Google was the upstart and the search leaders included names like AltaVista and Excite. “Regulatory intervention in the high-tech sector thwarts the natural evolution of the market,” argues Wayne Crews of the Competitive Enterprise Institute. “Worse, it distorts the response of competitors. Antitrust investigations steer the market in unnatural directions, creating instabilities in entire industry sectors.”

Read the rest here.

Just when you thought the FCC’s investigation of the wireless industry couldn’t get any stranger, TechCrunch reports that the Commission has sent letters to AT&T, Apple, and Google inquiring about Apple’s recent decision to reject the Google Voice app from the iPhone App Store (as Berin discussed yesterday).

It’s been over two years since the original iPhone was launched, but it seems the FCC still doesn’t get it: the iPhone is very clearly a closed platform — a prototypical walled garden — and Apple has the final say on what applications users can install. When you buy an iPhone, you’re not simply buying a piece of hardware, but actually a package deal that includes software, hardware, and a wireless contract. Is this anti-consumer? 26 million consumers don’t think so. The iPhone 3GS, the latest version of the phone, is selling so fast that Apple’s CFO says they can’t make enough to meet demand!

Of course, the iPhone model isn’t for everyone. I, for one, don’t own one because I’m an obsessive tinkerer and prefer a phone that’s as open as possible. But not everyone shares my preferences. As mentioned above, over 26 million iPhones have been sold since June 2007, so openness clearly isn’t make-or-break for a lot of consumers. Who knows, maybe some people actually trust Apple and like the comfort of knowing that every app they can get comes with a seal of approval from Cupertino.

The FCC’s letter to Apple demands an explanation for why Google Voice was rejected. If Apple’s explanation doesn’t satisfy the FCC’s criteria — which, by the way, are entirely unclear — then what? Will the FCC force Apple to accept Google Voice? Say what you will about Apple’s app store track record, but the prospect of federal regulators having the final word on which applications smartphone owners can install hardly seems pro-consumer. The FCC can’t even figure out how to run its own website!

In some ways, the iPhone has perhaps been too successful for its own good. It’s so popular that many consumers seem to no longer view it as just another product but instead as an item to which they are entitled. Thus, bureaucrats and Congresscritters in search of political points are making a big fuss over the fact that the iPhone isn’t everything to everyone. Why can’t it be wide open? Why isn’t in available on every carrier nationwide? Why is it so expensive to purchase without a service contract?

The answers to these questions lie in the rational self-interested decisions made by Apple and AT&T. The iPhone exists not just to make consumers happy (which it’s been exceedingly successful at doing), but also to make money for Apple and AT&T. And what’s wrong with that? Both firms arguably took a big risk on the iPhone, with Apple putting big bucks on the line to develop it and AT&T accepting an unprecedented arrangement with Apple to hand over a sizable chunk of wireless revenues.

Rewarding penalizing Apple and AT&T’s iPhone gamble with stricter regulations may make some iPhone owners happy in the short run, but it will also make phone developers wary about taking iPhone-esque gambles in the future. Why invest hundreds of millions to hopefully concoct the next big device if the price of success is political predation? (See Barbara Esbin and Berin Szoka’s paper, Should the FCC Kill The Goose That Laid The Golden iPhone, for more on this).

As we often say on TLF, if you don’t care for the iPhone’s App Store, get another phone! There are dozens of smartphones out there that compete with the iPhone. The Palm Pre, LG Versa, Samsung Omnia, and HTC G1 are just a few notable examples.

Want a phone that’s wide-open? Try the G1 — its Android OS is open source and even comes in an unlocked flavor that’s designed for developers. If you love Google Voice, then try a Blackberry — unlike the iPhone, Google Voice works great on Blackberries.

The FCC should stop wasting its time on futile attempts to make already-competitive markets even more so.  Instead, the Commission should be focusing on how to free up the airwaves, most of which remain out of reach of innovators because of outdated rules.

The FCC has less than seven months to complete and submit to Congress a “National Broadband Plan For Our Future.” Last week, CEI filed reply comments with the FCC on the broadband plan. One of our arguments was that network neutrality rules amount to price controls. ArsTechnica quoted our comments in a recent article and expressed skepticism toward our contention about neutrality mandates:

“In particular, [neutrality rules] require ISPs to offer content providers a price of zero, and to differentiate prices to consumers only in certain limited ways,” says CEI’s filing. “The disastrous consequences of price controls are all too familiar. And while neutrality may currently align with industry best practices, that fact limits the possible benefits just as much as the possible harm.”

Content providers pay for bandwidth on the competitive market, so it’s not clear what the line about “a price of zero” refers to (that money is passed along to other ISPs along the network path through the mechanism of “peering and transit“). But it is clear what groups like CEI want from a broadband plan: nothing at all.

Ars is correct in pointing out that pricing based on usage is already commonplace in the form of the well-established system of peering arrangements and transit pricing. But pricing needn’t be based solely on usage; it could also be based on priority levels or quality of service tiers. Such pricing schemes remain in a nascent stage, yet many of them would be prohibited or restricted by neutrality rules. This is because neutrality rules by definition set the price of many kinds of data prioritization at zero. Thus, even if an effective mechanism for differentiating between data streams at the network level were to gain traction, it would be subject to regulatory burdens if neutrality were to be enshrined into law.

Jack O’Connor expands on this argument over at OpenMarket.org:

It’s indeed unlikely that direct payments would be worth the cost to negotiate them. Net neutrality is targeting prices that would probably remain zero anyway, at least for the foreseeable future. But for the most dynamic marketplace in history, etching the business models that prevail today in stone would be unwise — especially considering how often inefficient, outdated regulations impede market evolution.

As Tim Lee explained in a Cato policy analysis last year, the Internet is a remarkably durable network, and any priority-based pricing systems that do emerge are unlikely to endanger the Internet’s underlying openness. Whether or not non-neutral pricing is actually workable, there is simply no case for encumbering it with legal restrictions aimed at averting theoretical harms (or alleged harms that, well, aren’t really harms at all).

In response to Professor Jonathan Zittrain’s op-ed in The New York Times last Monday about online privacy and open platforms (which Adam thoroughly refuted last week) I have a letter to the editor in today’s The New York Times:

To the Editor:

Re “Lost in the Cloud” (Op-Ed, July 20):

In discussing the privacy risks that have accompanied the growth of the Internet, Prof. Jonathan Zittrain rightly bemoans the willingness of governments to violate individuals’ privacy rights. Unfortunately, he proposes new legal restrictions that would stifle online innovation while doing little to enhance consumer privacy.

Mr. Zittrain proposes a “fair practices law” that would require companies to release personal data back to users upon request. Such a rule may sound workable, but purging specific data across globally dispersed server farms is no simple endeavor. Who is to pay for the implementation of such privacy procedures — especially for free services like Facebook or Twitter that have yet to turn a profit?

A better approach to online privacy is to educate users on safeguarding personal information. Ultimately, however, the only foolproof approach to protecting sensitive data online is to simply not disclose it.

To clarify my last point, I don’t think that universal nondisclosure of sensitive data online is necessarily a wise approach to privacy. Rather, my point is that it’s important to remember that transmitting data on the Internet — a very public network — entails some degree of risk, no matter how strong the encryption or how diligent the party at the other end. And free services like Facebook and Twitter are all about making personal information public — they simply aren’t designed to provide ironclad data security or anything remotely resembling it. Other online services, like bank websites or enterprise-grade Web collaborative tools, are able to offer far stronger privacy assurances backed by strong terms of service. Privacy is not a black and white matter. It involves shades of gray, which is one reason why legislation is such an ineffective means of dealing with privacy challenges.

Wired Magazine editor Chris Anderson has an important new book out, “Free: The Future of a Radical Price.” He focuses on the economics of free services, building on the excellent analysis of thinkers like Mike Masnick (whose 2007 essay, “The Grand Unified Theory on The Economics of Free,” succinctly sums up the concept).

Following up on his book, Anderson has a new op-ed up on CNN.com in which he explores how the emergence of free services in the digital age has raised new challenges for antitrust regulators:

Now Google has Microsoft-like dominance in search and search advertising. What should it not be allowed to do? That question may come to define this era of antitrust law. When [Christine] Varney was confirmed, she withdrew the Bush administration’s report setting relatively conservative standards of antitrust enforcement and declared, “The Antitrust Division will be aggressively pursuing cases where monopolists try to use their dominance in the marketplace to stifle competition and harm consumers…

Varney and her team of economists and lawyers are no doubt tangling with the question of how to enforce antitrust laws in a way that ensures an “even” playing field for competition without causing consumers to lose access to free services that are growing more abundant by the day.

But there’s a more important question that Varney should be asking: what actually constitutes market dominance in the age of free? Is the fact that a firm has a substantial share of a distinct marketplace a reliable indicator of dominance? And if the result of firms achieving high market share is an explosion of free goods and services, is it even in consumers’ interests for government to go after “dominant” firms?

Recent happenings in the tech world suggest that even markets often considered to be dominated by a single firm may be a lot more contestable than we think. Today’s hottest tech news item is that Google is “planning a direct attack” on Microsoft’s venerable Windows operating system. And just a few weeks ago, Microsoft launched its new search engine Bing, accompanied by a massive $100 million dollar advertising blitz.

Hold on a minute. Doesn’t Microsoft have a stranglehold of the operating system market? And isn’t Google in control of the search engine market? Antitrust regulators on both sides of the Atlantic certainly seem to think so, if recent investigations are any indicator.

Yet the top brass at Microsoft and Google must think otherwise, or else neither firm would be devoting such resources to breaking into the search and operating system markets, respectively. Rather than resting on their laurels, Microsoft and Google are competing aggressively, rolling out new and improved services all the time. Consumers are benefiting along the way — even from actions that are allegedly “anti-competitive,” such as Microsoft’s inclusion of bundled software with Windows or Google’s plan to digitize volumes of orphan works.

This dynamic is exactly the opposite of what one would expect from a market in need of “saving” by government trust-busters. In fact, despite Google’s 65% share of search and Microsoft’s 88% share of operating systems, both markets appear to be highly contestable.

Facebook has been at the center of a controversy involving its moderation policies and The Pirate Bay, a popular Bittorrent tracker that was found guilty of copyright infringement by a Swedish court last month. Since early April, Facebook has enforced a “site-wide” ban on links to The Pirate Bay – including those in private messages.

This practice may run afoul of federal wiretapping statutes that bar service providers from “intercepting” private messages, according to an article that appeared on Wired Threat Level last week. Wired quotes Kevin Bankston, a senior attorney for the Electronic Frontier Foundation, who explains that Facebook’s filtering raises “serious questions about whether Facebook is in compliance with federal wiretapping law.”

It’s important to draw a distinction between the traditional notion of “wiretapping” and Facebook’s “interception” of user messages, which doesn’t involve any human intervention. Regardless of how the courts may interpret ancient laws like the 1986 Electronic Communications Privacy Act, an automated computer system flagging and deleting certain strings from user messages simply isn’t comparable to a third party secretly listening in on a private phone conversation.

Besides, Facebook makes clear to its users from the get-go that their messages and postings are subject to a set of rules (which Facebook lays out in plain English). If Facebook believes a message or posting is against the rules, it can block or remove it. This is not an unreasonable rule; many online discussion forums have enforced similar policies since the Web’s early days. Such filtering is possible only if sites can “examine” messages to identify misconduct.

Critics of Facebook’s filtering policies have rightly pointed out that even legal Pirate Bay links are being blocked. While this is a valid argument, it belongs on the feedback section of Facebook’s Site Governance page – not in a court of law. It isn’t the role of government to second-guess content judgments reached in good faith by social networking sites. Facebook must weigh a range of competing concerns in deciding how to cater to its hundreds of millions of diverse users. The same message that one user might consider “spammy” or malicious might be seen in a totally different light by another user. Add into the equation concerns over reputation and even potential copyright infringement liability, and it’s easy to see why Facebook has to make tough – and controversial – decisions all the time.

While I agree with Bankston that the legal ramifications of Facebook’s practices are far from clear, I’m concerned about the prospect of wiretapping laws being used against websites that moderate communications between users. If filtering Pirate Bay links from user messages constitutes illegal wiretapping, then it would seem that any social network or discussion forum that monitors and removes content from user-to-user communications would be in violation of federal law.

What would it mean for the Internet if websites were barred from moderating messages sent between users? AOL might not be able to “kids only” chat rooms; instant messaging services might be even more spam-ridden than they already are; and yoursphere, a social-networking site “just for kids,” likely wouldn’t even be able to exist.

Decisions about how to operate private online ecosystems are best left to individual firms competing in an open marketplace. Prohibiting website operators from moderating user messages may not bother people who don’t mind spam or porn (or Pirate Bay links), but what about people who desire a social network in which certain kinds of speech are off-limits?

One of the best aspects of the Web is that choices are abundant. If you don’t like one social networking site’s policies, you can go someplace else. Users can already send around links to Pirate Bay torrents through countless other social networking sites, email providers, and instant messaging services. Gmail, AIM, Ning, and Skype are just some examples of free online services that do not censor Pirate Bay links. Heck, if none of these options are satisfactory, you can even build your very own social network with free software like BoonEx and spread around all the Pirate Bay links you want.

FTC Chairman Jon Leibowitz warned yesterday that companies involved in Web advertising face their “last chance” to “voluntarily” adopt stricter policies governing the use and collection of consumer information, Reuters reports. This isn’t the first time the FTC has threatened the advertising industry with regulation, but it signals a sense of immediacy that may pressure industry leaders to change their practices in coming weeks.

Leibowitz presumably wants to quell widespread concern that Internet companies like Google and AT&T have “excessive control” over consumer information. But what’s excessive about using information that individuals have voluntarily handed over for marketing purposes, subject to legally enforceable rules laid out from the get-go?

Users ultimately control their data, not firms. After all, only data that users transmit can be collected. When a user visits a website, their IP address may be recorded, and when a user submits a query to a search engine, the search term can be logged. This is how the Internet has always worked.

Not all consumers understand what information is gathered about them as they browse online. The best way to protect such users is not through regulation, but by educating — and, therefore, empowering — users. Volumes have been written on privacy and data security, and the ongoing TLF series “Privacy Solutions” offers a growing body of tips on how consumers can achieve the level of privacy that suits them.

Understandably, some people are uncomfortable with their queries being logged, and would prefer that websites simply not track any data. Some sites are willing to do just that — Cuil, a search engine launched in 2008, promises to never log IP addresses or even use cookies (as Jim has noted). Other anonymity solutions rely on secure virtual tunnels that can mask users’ actual IP addresses.

Still, no matter what the FTC does, transmitting data in plaintext over the Internet will never be truly “safe.” Robust end-to-end encryption is the only surefire method of ensuring information cannot be seen by anybody except the sender and the recipient. Even then, information is only as safe to the extent that the party at the other end of the line can be trusted.

Any new FTC mandates on data collection would almost certainly impose a privacy ceiling that would offer some, if not most, people too much privacy. This may sound impossible at first, but think of people who document their every move on Twitter, open for the world to see. Different people have wildly different privacy preferences, and there is no way a single set of rules-however well-conceived-could satisfy everyone.

Privacy mandates will place shackles on the still-young Internet advertising industry, stifling promising opportunities for making money from online content. Strict rules governing data collection will deprive publishers — especially small ones — of ad revenue at a time when it is sorely needed. Rigid mandates will also prolong “dumb” Web ads by delaying the evolution of targeting technologies capable of making advertisements more relevant and, therefore, more interesting to users.

Online advertising is the lifeblood of Web content, as Berin, Adam, and others have explained time and time again. The alternative to advertiser subsidies — charging consumers for access to content — has proven relatively unpopular with consumers. Who wants to take out their credit card when all content creators pine for is a pair of eyeballs?

Advertising will fuel the growth of online content, but only if regulators let the market work.

Earlier this month, Google made news when it announced that its cloud computing productivity suite Google Docs had suffered a technical glitch that temporarily compromised a subset of users’ shared documents. After becoming aware of this glitch, Google notified its users via email and posted an entry to the Official Google Docs Blog that offered a more detailed explanation of what happened.

It turns out that a bug in Google’s permissions code was causing certain documents that had been shared by their author with other users but subsequently unshared to remain visible to those users. By the time Google notified its users, the bug had already been resolved, and Google estimates that only around 0.05% of all documents were vulnerable due to the glitch. As to how many documents were actually viewed by unauthorized parties, it’s unclear at this point.

All in all, the Google Docs glitch, while troubling, seems relatively minor as far as bugs go. Nevertheless, the Electronic Privacy Information Center’s Mark Rotenberg jumped on the chance to attack Google, as he often does when Google makes news for anything privacy-related. Yesterday, EPIC filed a complaint with the Federal Trade Commission that called on the FTC to investigate Google’s privacy safeguards, order Google to shut down all cloud computing services—including Gmail, which has 26 million users—pending a thorough privacy evaluation, and force Google to pay $5 million to a fund that would be setup for “privacy research.”

Watchdog activist groups like EPIC can play a useful role in the public discourse on privacy, helping to publicize unsavory behavior by companies and educating consumers about keeping data secure. Unfortunately, however, these groups’ admirable focus on protecting privacy sometimes edges on the myopic, causing them to overreact to data breaches and sometimes even call for regulatory interventions that are decidedly anti-consumer. EPIC’s latest complaint about Google is a classic example of this.

How would it be in consumers’ interests for the FTC to shut down Google’s cloud computing services until Google can offer its users an ironclad data security guarantee? Gmail has been at the forefront of innovation in webmail, and was among the first providers to offer its users gigabytes of free storage and SSL-encrypted IMAP connectivity. And Google Docs is a wildly popular alternative to Microsoft Office that doesn’t cost a dime to use. Shutting down both of these services would be extremely detrimental to the millions of consumers and small businesses who find the service useful and valuable and are willing to accept the small risk of a bug or data breach. But Mark Rotenberg wants to deny consumers that choice. Concerned users can already close their Google account and switch to another productivity suite; Google even makes it easy for users to export their data in an open source format for painless migration.

It’s unrealistic to expect watertight privacy safeguards in a world in which information sharing is on the rise. As collaborative software and cloud computing grow in popularity, the number of potential avenues for breaches, bugs, and compromises will only increase. But closing every service that suffers a bug until federal regulators can comb through every line code isn’t the solution—the solution already exists. Companies like Google risk losing billions of dollars if consumers lose faith in cloud-based products.

Leaks of sensitive data did not begin with the invention of the Internet, and breaking agreements that promise confidentiality has long been a matter of civil liability. In other words, the proper venue for recourse against Google is not the FTC but the courts. Instead of EPIC complaining to the FTC, victims of the Google Docs bug should be taking Google to court. There’s no reason for the FTC to intervene every time there’s a security flub when existing liability laws combined with market pressures already give the Googles of the world a strong incentive to guard against breaches.

The ever-present threat of FTC action against firms can have extremely destructive consequences for online innovation. What EPIC is advocating — for the FTC force a company to shut down one of its product suites on account of a single, relatively minor bug — would be a case of harmful regulatory action.

Facebook sparked a major user uprising when it amended its terms of service earlier this month to grant the social networking site greater licensing rights over user-submitted content. The implications of Facebook’s amended Terms of Use were originally uncovered by The Consumerist this past Sunday in a story entitled, “Facebook’s New Terms Of Service: ‘We Can Do Anything We Want With Your Content. Forever.’” The title pretty much sums up what the controversy was all about: under Facebook’s amended Terms of Use, even after a user deletes his Facebook account, Facebook would retain its license to distribute nearly all types of user-submitted content including photos and videos.

Predictably, news of Facebook’s expanded licensing rights made many users angry, with several Facebook groups against Terms of Use modifications popping up, attracting thousands of members overnight. As is often the case with juicy reports like this one, news of the Facebook fiasco spread throughout the blogosphere rapidly, eventually making its way to major tech sites and even the main page of CNN.com. By yesterday afternoon, a snapshot of Mark Zuckerberg’s face was plastered on Fox News Channel, next to an excerpt of an entry he posted to Facebook’s blog in defense of the social networking site’s new terms.

Facebook’s explanation of its new terms seemed reasonable enough: even after a user quits Facebook, material that user has posted on friends’ walls and other messages the user has sent to others may remain available. Facebook also noted that its perpetual license only allowed the site to use material in accordance with departed users’ privacy settings (presumably at the time of their departure). Under the new terms, therefore, Facebook would still be required to respect albums marked as private–and ensure they stay that way.

But the seemingly stark contrast between Facebook’s attempts to justify the changes to its terms of use and, well, the actual language of terms themselves left many observers dissatisfied. In theory, if a user who had a Facebook photo album open to her entire network were to delete her account, Facebook would retain license to make those photos available to members of her network in perpetuity. And depending on how you parse the amended terms, Facebook could even use your profile pic in ads for the social network long after you terminated your Facebook account.

Would Facebook actually do any of these things? Probably not. As Zuckerberg pointed out, Facebook “wouldn’t share your information in a way you wouldn’t want.”  Taking this a step further, I think that even if Facebook saw a chance to earn a quick buck or two by selling departed users’ images, such a move would undoubtedly spur user backlash orders of magnitude more severe than anything the site has experienced before. Instead of thousands of users in arms, there’d be millions, and a mass exodus of users would be a very real possibility. Despite Facebook’s awesome success in the social networking arena, there are lots of robust alternatives to Facebook out there that would love nothing more than to provide a home to disaffected Facebook users. Facebook’s execs know all of this, which is why I highly doubt the site would ever commit any of the violations that some have speculated might be possible under the new terms.

Of course, none of these assurances–however comforting they may be–would hold up in court. Even though Facebook probably wouldn’t ever misuse its license to user content, it could under its new terms. That fact alone is unsettling to many users.

All these concerns were rendered largely moot this morning when Facebook announced that it had decided to revert to a previous version of its Terms of Use, thereby nullifying the changes responsible for the uprising. Facebook’s move isn’t especially surprising, nor is it unprecedented. Back in late 2007, Facebook unveiled an advertising service called Beacon that tracked the buying habits of Facebook users for advertising purposes. Beacon allowed your friends to see your purchasing habits, sparking privacy concerns and media scrutiny. After a few weeks, Facebook gave in to pressure and began allowing users to opt-out of Beacon entirely by changing their privacy settings.

The peaceful resolution of the latest Facebook fiasco further hammers home an argument that many of us TLFers have made time and time again: especially on the Web, companies have little choice but to listen to their users, and firms often find that they can’t get away with unsavory practices that might have flown under the radar in another era without spurring user backlash and, worse still, bad PR. As Bob Garfield aptly put it, when disputes between consumers and businesses arise in age of the Internet and the blogosphere, ” the Herd Will Be Heard.”

If Facebook had not relented, there’s a chance government would’ve gotten involved. Yesterday, the Electronic Privacy Information Center had announced it was “readying a complaint” against Facebook with the Federal Trade Commission. And even if that complaint hadn’t gone anywhere, chances are some member of Congress would have seen it fit to “investigate” social networking practices and send Facebook a detailed questionnaire about its content licensing policies.

But as the user uprising and Facebook’s quick reaction illustrate, markets are perfectly capable of resolving many kinds of disputes quickly and efficiently. Regulators are the dinosaurs of the digital era. Even if the FTC had acted on EPIC’s planned complaint, any regulatory ruling probably would not have emerged until long after the fiasco had been resolved–either by Facebook relenting, or by users ditching Facebook for a competing social network.

We’ll never know what would have happened had Facebook held firm, but if history is any guide, keeping regulators at bay may well have been a wise move on Facebook’s part.

Monday’s USA TODAY ran a long article discussing the tracking capabilities of the T-Mobile G1 smartphone, which is currently the only mobile device available that ships with Google’s Android operating system. I have a different take on the G1 phone, as I explain in a letter to the editor that appeared in today’s USA TODAY:

USA TODAY’s story on the G1 phone, which describes Google’s “surveillance” capabilities, does not do justice to the relationship that online service providers need to maintain with their users (“Feel like someone’s watching you?,” Cover story, Money, Monday).

Google cannot freely use the data it collects from owners of its G1 phone. Far from it, the G1’s privacy policy describes clearly what Google can and cannot do with user information. And the policy is legally binding. Google has everything to lose and nothing to gain from a data breach.

A single privacy flub can send consumers fleeing from not only the G1 but also from Google’s other online services. This is why Google maintains robust privacy safeguards.

Google’s innovations in search, mail and other applications have helped make the Web a far more accessible and useful resource. Online users need to be careful with their information, but hyping privacy fears is unwarranted.

To be sure, using the G1 phone is not without risks, and some especially risk-averse individuals might want to steer clear of Android entirely. But when you consider the privacy risks many of us live with every day, Android’s privacy risks don’t seem all that great. In fact, the ubiquitous personal computer is probably the most vulnerable device owned by the average person–Internet architect Vint Cerf  has estimated that up to 1 in 4 PCs worldwide is infected with malware. The G1 may be a marketer’s goldmine, but that doesn’t mean it can’t also offer strong privacy assurances.

Mozilla Foundation chairperson Mitchell Baker believes that Microsoft’s bundling of Internet Explorer with Windows represents an “ongoing threat to competition and innovation on the Internet.” But as Adam explains in an earlier post, and Ryan Paul argues over at ArsTechnica, Baker’s portrayal of the browser marketplace is way off base.

Perhaps the most interesting rebuttal to the Mozilla Foundation’s take on bundling IE with Windows comes from a surprising source: Mike Connor,  Firefox’s chief software architect. Here’s what he had to say a couple days ago in an interview with PC Pro:

Connor said, referring to Firefox’s ever improving market share, which now stands at just over 20% worldwide. “It’s asserting that bundling leads to market share. I don’t know how you can make the claim with a straight face,” he said.

“As people become aware there’s an alternative, you don’t end up in that [monopoly] situation. You have to be perceptibly better [than Internet Explorer],” Connor added.

Right on. It’s common knowledge that there are lots of alternatives to Internet Explorer out there. Firefox is a household name at this point, and anybody dissatisfied with IE can easily download FF–or any other competing browser.

One suggested remedy for Microsoft’s allegedly illegal bundling is to mandate that Windows come with multiple browsers pre-installed, not just IE. But Connor doesn’t think this is such a good idea:

Firefox architect Mike Connor said Mozilla is still considering its position in light of the ruling, but that he wouldn’t be in favour of Firefox being bundled with Windows. “My personal view is that it’s not the right outcome,” he said. “The choice [when installing Windows] would be weird. There’s no good UI [user interface] for that.”

In a separate interview, Connor also expresses concern that the way things are going, it may soon be Firefox–not IE–that is branded the monopolist in the browser marketplace:

Connor admits the prospect of achieving monopoly status – defined as two thirds of the market in the US – has been a topic of discussion at Mozilla HQ. “We are kind of worried about the monopoly thing,” Connor admitted in an exclusive interview with PC Pro. “We don’t want to kill everybody else.”

Adam raises some important questions below about the legislation introduced in Congress to ban silent cell phone cameras. Like many things Congress does, I wonder if the proposed solution might end up being worse than the perceived problem.

Is cell phone camera voyeurism actually a serious problem in the U.S.? Or is this just another problem being blown out of proportion by politicians? Some actual data on the incidence of camera phone “predation” would be useful in deciding whether digital voyeurism is a matter that demands Congress’s attention. The bill’s current language offers up only the vague statement, “Congress finds that children and adolescents have been exploited by photographs taken in dressing rooms and public places with the use of a camera phone.”

I also wonder why the legislation targets phones rather than silent compact cameras of all sorts. Ridding from the market all silent mobile phone cameras would just make bad guys switch to compact, silent cameras with memory cards. (That’s not to say that Congress should ban them, either).

There’s a case to be made that in some situations, it might actually be a good thing for people to have cell phones equipped with silent cameras. What about somebody who’s being assaulted, or mugged, or raped and wants to photograph their attacker but fears retaliation? Or someone who’s just witnessed a crime, unbeknownst to the perpretator, and is trying to get a snapshot of the fleeing suspect? Or a whistleblower who wants to collect evidence of illicit activity by snapping covert photos?

To be sure, these are all hypothetical, unlikely scenarios. But for all we know, incidents involving “cell phone predators” are just as unlikely. And the person with the “good” use for their silent cell phone camera is much more likely to be impacted by a ban, because the bad guys will just skirt the law by hacking their phones or buying regular cameras.

The European Commission may order Microsoft to strip Internet Explorer from certain versions of Windows, according to a preliminary ruling against Microsoft stemming from a complaint brought by Opera. Opera claims that Microsoft is “abusing its dominant position” by bundling IE with Windows, and consequently denying consumers “genuine choice” among web browsers.

If the European Commission upholds Opera’s complaint against Microsoft, it wouldn’t be the first time Microsoft has been found guilty of antitrust violations stemming from applications bundled with Windows.

Back in 2004, the Commission ruled that it was illegal for Microsoft to bundle its Windows Media Player with Windows and ordered Microsoft to offer a Media Player-less version of the operating system. Microsoft responded by unveiling the wryly named “Windows XP Reduced Media Edition.” Unsurprisingly, the European Commission rejected the name, so Microsoft renamed the OS “Windows N.”

Despite Windows N’s fairly neutral-sounding name, consumers showed little interest in Windows N when it hit the shelves. It’s quite obvious why Windows N was a flop–why would anybody want to run an operating system lacking useful components, especially when plenty of alternatives are available online at the click of a button?

The same reasoning is sure to relegate a browserless Windows (Windows: Reduced Internet Edition, perhaps?) to commercial irrelevance. Such a product would be placed on shelves solely to satisfy regulators convinced that they’re somehow “protecting” consumers by ensuring inferior products can be had.

How would the average user even select a preferred browser in the first place without a pre-installed browser? While OEMs could always pre-install a browser, anyone who wanted to install (or reinstall) a browserless version of Windows from scratch would need to jump through hoops just to get online.

More to the point, Opera’s claim against Microsoft looks downright absurd given the reality of today’s increasingly competitive browser marketplace. Despite IE being bundled with Windows, Firefox has gained significant ground on IE in recent years. Four years ago, IE had 91% global market share, while Firefox hovered around 3.5%. Now, Firefox is almost at 21% market share, and IE recently dropped below 70%.

Firefox’s ascent did not happen because of a mass exodus of users from Windows to other operating systems. To be sure, Windows has faltered a bit as of late, but Firefox has gained the following of a massive number of Windows users who elected to download and install Firefox as a replacement for Internet Explorer. This illustrates that users are perfectly willing to pick their favorite application for a given task, even if that means downloading a third-party app on the Internet. Plenty of other programs, like VLC and Google Desktop, have taken off among Windows users even though these apps largely duplicate the functionality of bundled Windows components.

Where does all this leave Opera? Unlike Firefox, Opera is still a laggard in terms of market share. Blaming Opera’s inability to gain a large user base on the bundling of IE with Windows, however, is entirely misplaced. The folks at Opera may feel that going after Microsoft might help them peel off a few users-or, at least, get Opera’s name out there in the press-but Opera’s biggest enemy is certainly not Internet Explorer.

According to Investor’s Business Daily, several major cable companies have launched an advertising start-up called Canoe Ventures that is developing the technology to record and analyze cable subscribers’ viewing metrics. As part of this plan, Comcast is reportedly building a “500 TB TV Warehouse” to store the aggregate habits of its 16.8 million digital cable customers.

Canoe has the potential to bring television advertising techniques up to par with their online counterparts, which have for years enabled websites to tailor ads to individual visitors. While cable companies haven’t used digital set-top boxes to collect viewing metrics until fairly recently, the concept of tracking television viewing habits isn’t new. For several years, TiVO set-top boxes have logged these habits without any ensuing privacy violations. And last May, Charter Communications began selling set-top box data to Nielsen Media Research so it could analyze the viewing statistics of Charter’s Los Angeles-area cable customers.

It’s a near-certainty that Canoe will have privacy activists up in arms, warning us that consumer privacy is under siege and calling for regulators—or Congress—to act. But as always, privacy risks must be balanced with the wealth-creating upside of targeted marketing. Data mining can indeed co-exist with effective privacy safeguards, and disciplined firms must be allowed to experiment with intelligent methods of matching buyers with sellers.

The initial details of the Canoe plan as explained by Comcast reveal a fairly tame system unlikely to pose much of a threat to viewer privacy. The system would collect data on an anonymous basis, meaning it wouldn’t be possible to tie a specific individual back to a set of viewing records, and logs would be purged after a year. The specifics of this plan are still being worked out, but Time Warner Cable said in a statement that Canoe will have anonymization built-in.

Why should we take the cable companies at their word? For one, the very real threat of insider leaks (and subsequent public backlash) means that cable companies are sure to think twice before being anything less than forthright about their plans. Besides, cable companies already learned their lesson about transparency when Comcast’s concealment of certain technical details surrounding the Sandvine network management system spurred a massive public relations fiasco.

Aside from the PR angle, a privacy flub would have serious legal implications. As a recent article in Multichannel news points out, the Canoe system will not diminish customer rights as enumerated in Comcast’s privacy policy. Comcast’s policy allows data logging only if done on an aggregate or anonymized basis, so sharing any data with third-parties that can identify specific individuals is verboten. Under this privacy policy, if an accidental leak or data breach were to cause sensitive data to end up in the wrong hands, users would have legal recourse against their cable company.

Anytime a new data mining system is put into place, there are always accompanying privacy risks. Yet the benefits of data mining can be quite significant, and displaying more relevant ads can be a boon for consumers and corporations alike. Some people are really worried about privacy, and they may wish to err on the side of safety and subscribe to television providers (like DirecTV) that can’t track viewing habits. Or perhaps cable companies might allow users to opt-out of data collection.

Either way, those of us who can live with a remote risk of our viewing records being compromised should be able to enjoy lower cable TV prices, less obtrusive ads, or better television shows—all of which are potential upsides to targeted advertising.

The FCC’s much-maligned proposal to create a free, filtered wireless broadband network seemed all but dead earlier this week after FCC Chairman Kevin Martin stated in an interview with Broadcast & Cable that the proposal’s chances of surviving a full FCC vote were “dim.”

Now, Ars reports that Kevin Martin has changed his mind about the filtering requirements, caving in to pressure from an array of interest groups to drop the smut-free provisions from the plan. These “family-friendly” rules, which would have mandated that the network filter any content deemed unsuitable for a five-year-old, ended up acting as a lightning rod for critics across the ideological spectrum, and raised serious First Amendment concerns (as Adam and Berin have argued on several occasions).

Even with the smut-free rules having been removed, the proposal remains a very bad idea. Setting aside 25 mhz of the airwaves—a $2 billion chunk of spectrum—to blanket the nation with free wireless broadband (as defined by the FCC) would mean less spectrum available for more robust services. At a time when wireless firms are experimenting with a number of strategies for monetizing the airwaves, allowing a single firm’s business model—especially one that many experts have suggested is simply not viable—to reign over other, more effective models would hurt consumers who yearn for more than basic broadband service.

The case for setting spectrum aside for free wireless broadband is predicated on the myth that there exists an elusive “public interest” that the marketplace is unable to maximize. We’ve heard the same line many times before. It goes something like this: The forces of competition that we rely upon to allocate finite resources in nearly every other sector of the economy are incapable of fulfilling consumer needs when it comes to broadband. Washington DC intellectuals have figured out that the public really wants a free nationwide wireless network—yet this amazing concept has been blocked by evil incumbents that are bent on denying consumers the services they most desire.

This is all baloney, of course. As a group of economists demonstrated in a research paper published a few months ago, there’s strong evidence that the broadband market is actually functioning quite efficiently, and imposing conditions on spectrum operation hurts consumers more than it helps them.

None of these facts have deterred M2Z Networks, a startup wireless firm responsible for much of the advocacy behind the proposal, from conducting a massive, multi-year PR campaign to convince people that free wireless broadband is a worthy goal. But if the proposed network does ultimately prevail, it will owe its success not to actual market performance, but to astute political maneuvering.

Currying favor with Washington regulators by trotting out public interest rhetoric and asserting market failure has worked out quite well for firms recent years. It’s no wonder, then, that M2Z decided to try its hand at persuading the FCC that its plan justified the imposition of special rules. In an open auction without conditions, the price of the spectrum would undoubtedly be higher, and investors would likely be willing to make bigger bets on more viable business models.

The FCC should scrap the free wireless broadband proposal and instead auction off the 2155-2180mhz band with no strings attached. That way, all business models will get a fair shake, and consumer demand—rather than political considerations—will determine who succeeds and who fails.

Will there ever be a place for a nationwide free wireless broadband service in America? More than likely, the answer is yes. As advertisers get better at translating eyeballs into dollars, and engineers continue to improve upon the spectral efficiency of wireless broadband, it’s a safe bet that someday we will see some sort of a nationwide network that offers free Internet access to anyone who’s willing to see a few extra advertisements. But now is not the time for such a network.

Claims that Google has abandoned its stance on network neutrality have been thoroughly debunked, as Cord and Adam note below. Over at Broadband Reports, Karl Bode explains that Google is seeking edge-caching agreements, not preferential treatment. Edge-caching involves Google housing its content on servers located inside consumer ISP networks, cutting bandwidth costs by allowing users to access Google content located just a few hops away.

Even though edge-caching doesn’t violate network neutrality as defined by Google, it’s still one of the many advantages that big players have over new entrants. Edge-caching isn’t a “fast track,” as the WSJ imprecisely terms it, but rather a short track—functionally, there’s a lot of similarity between the two. As Richard Bennett has explained time and time again, being close to end users is quite advantageous even without preferential treatment, as it eliminates the need to push vast amounts of data across the congestion-prone core of the public Internet.

We’ve heard about how edge-caching enables content providers and ISPs to cut their bandwidth bills and make more efficient use of finite network resources. Both of these are true, but there’s more—edge caching makes it much less likely that users will experience long load times or buffering hiccups while watching streaming video online. That high-def YouTube clip might take a few extra seconds to buffer if it has to make its way through congested central network exchanges—not so, however, if that video is housed just a few hops away, within your ISP’s network.

Of course, as Larry Lessig points out, there’s nothing stopping anybody from negotiating edge-caching arrangements with ISPs directly or with content delivery networks like Akamai. Like many network enhancing-technologies, though, edge caching costs money. But what’s wrong with that? A blog post over at NYTimes.com quips that Google has a “Treat All Rich Companies the Same” vision of net neutrality. The post goes on to point out that:

The reality today is that rich companies already get first class service, and most network neutrality proposals aren’t going to change that. Big sites buy faster Internet connections and get better service from their providers. Moreover, those with money can buy services content delivery networks like Akamai, or in the case of the superrich, they can set up their own networks, as Google is trying to do.

Neutrality supporters’ refrain—that the Internet must remain open to all, free from any arrangements that grant a leg up to established players at the expense of the little guy—would seem to go against edge-caching. This apparent disconnect between how net neutrality regulation is argued and how it’s actually defined is quite revealing, as ArsTechnica points out.

Wayne Crews argues on OpenMarket that arrangements such as those sought by Google benefit the Internet by making it a more valuable network than it would otherwise be:

Special deals like Google’s, as well as future proprietary services that use Internet technology, but may or may not ride the same pipes as the “capital-I” Internet, increase the Net’s overall functionality. Policy should not discourage the possible emergence of such a “Splinternet” by catering to the old-school model of infrastructure socialism and sleepy-headed “openness.”

And as Cord correctly states, efficient agreements that harness the Internet’s power to deliver rich content and give us greater access to information should welcomed, not shunned.

There’s much to discuss as Obama shapes his administration (more on this at OpenMarket.org) but arguably one of the most important unanswered questions is who Obama will pick to staff the Federal Communications Commission.

CNET reports that Henry Rivera, a lawyer and former FCC Commissioner, has been selected to head the transition team tasked with reshaping the FCC. This selection gives us a glimpse of what the FCC’s agenda will look like under Obama, and it’s quite troubling.

Rivera has embraced a media “reform” agenda aimed at promoting minority ownership of broadcast media outlets. A couple weeks ago, Rivera sent a letter to the FCC that backed rules originally conceived by the Media Access Project to create a new class of stations to which only “small and distressed businesses” (SDB) could belong. The S-Class stations would be authorized to sublease digital spectrum and formulate must-carry programming, with the caveat that only half of the content can be “commercial”. To avoid the Constitutional issues surrounding racial quotas, eligibility for SDB classification would be based on economic status, rather than the racial composition of would-be station owners.

The S-Class proposal, like other media reform proposals, falsely assumes that current owners of media outlets are failing to meet the demands of their audience for a diverse range of content. The proposal also ignores the fact that consumers already enjoy an abundance of voices from all viewpoints, as we’ve discussed extensively here on TLF.

The reason we aren’t seeing more of the programming that media reformistas desire is not because there’s a paucity of small and distressed station owners, but because most television viewers simply don’t care for the same kind of content as the folks at the Media Access Project.

Let’s hope Obama realizes that a nation that has just taken a “breathtaking leap…in terms of racial politics” is one that doesn’t need federal regulators dictating broadcast speech in the name of “diversity.”

As TLF readers may already have noticed, Alex Harris, a law student at Stanford and Adjunct Analyst at the Competitive Enterprise Institute, has joined us as a contributor to TLF.

Alex, who was a Google Policy Fellow at CEI this past summer, has done a lot of top-notch blogging over on OpenMarket.org. He also wrote a very interesting essay that appeared in The American Spectator recently which argued against the reimposition the Fairness Doctrine. Alex’s writing focuses on issues ranging from civil liberties to intellectual property reform to competition policy. Alex is also the man behind the hilarious “Liberty Lolcats” series.

I’m sure Alex will be a great addition to TLF—in fact, his first TLF post ever (discussing shrinkwrap contracts) generated heated discussion and was linked to by Reason Hit & Run (more on this issue from Tim Lee here).