drone picToday, Ryan Hagemann and I filed comments with the Federal Aviation Administration (FAA) in its proceeding on the “Interpretation of the Special Rule for Model Aircraft.” This may sound like a somewhat arcane topic but it is related to the ongoing policy debate over the integration of unmanned aircraft systems (UASs)—more commonly referred to as drones—into the National Airspace System. As part of the FAA Modernization and Reform Act of 2012, Congress required the FAA to come up with a plan by September 2015 to accomplish that goal. As part of that effort, the FAA is currently accepting comments on its enforcement authority over model aircraft. Because the distinction between “drones” and “model aircraft” is blurring rapidly, the outcome of this proceeding could influence the outcome of the broader debate about drone policy in the United States.

In our comment to the agency, Hagemann and I discuss the need for the agency to conduct a thorough review of the benefits and costs associated with this rule. We argue this is essential because airspace is poised to become a major platform for innovation if the agency strikes the right balance between safety and innovation. To achieve that goal, we stress the need for flexibility and humility in interpreting older standards, such as “line of sight” restrictions, as well as increasingly archaic “noncommercial” vs. “commercial” distinctions or “hobbyists” vs. “professional” designations.

We also highlight the growing tension between the agency’s current regulatory approach and the First Amendment rights of the public to engage in peaceful, information-gathering activities using these technologies. (Importantly, on that point, we attached to our comments a new Mercatus Center working paper by Cynthia Love, Sean T. Lawson, and Avery Holton entitled, “News from Above: First Amendment Implications of the Federal Aviation Administration Ban on Commercial Drones.” See my coverage of the paper here.)

Finally, Hagemann and I close by noting the important role that voluntary self-regulation and codes of conduct already play in governing proper use of these technologies. We also argue that other “bottom-up” remedies are available and should be used before the agency imposes additional restrictions on this dynamic, rapidly evolving space.

You can download the complete comment on the Mercatus Center website here. (Note: The Mercatus Center filed comments with the FAA earlier about the prompt integration of drones into the nation’s airspace. You can read those comments here.)

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If there are two general principles that unify my recent work on technology policy and innovation issues, they would be as follows. To the maximum extent possible:

  1. We should avoid preemptive and precautionary-based regulatory regimes for new innovation. Instead, our policy default should be innovation allowed (or “permissionless innovation”) and innovators should be considered “innocent until proven guilty” (unless, that is, a thorough benefit-cost analysis has been conducted that documents the clear need for immediate preemptive restraints).
  2. We should avoid rigid, “top-down” technology-specific or sector-specific regulatory regimes and/or regulatory agencies and instead opt for a broader array of more flexible, “bottom-up” solutions (education, empowerment, social norms, self-regulation, public pressure, etc.) as well as reliance on existing legal systems and standards (torts, product liability, contracts, property rights, etc.).

I was very interested, therefore, to come across two new essays that make opposing arguments and proposals. The first is this recent Slate oped by John Frank Weaver, “We Need to Pass Legislation on Artificial Intelligence Early and Often.” The second is Ryan Calo’s new Brookings Institution white paper, “The Case for a Federal Robotics Commission.”

Weaver argues that new robot technology “is going to develop fast, almost certainly faster than we can legislate it. That’s why we need to get ahead of it now.” In order to preemptively address concerns about new technologies such as driverless cars or commercial drones, “we need to legislate early and often,” Weaver says. Stated differently, Weaver is proposing “precautionary principle”-based regulation of these technologies. The precautionary principle generally refers to the belief that new innovations should be curtailed or disallowed until their developers can prove that they will not cause any harms to individuals, groups, specific entities, cultural norms, or various existing laws, norms, or traditions.

Calo argues that we need “the establishment of a new federal agency to deal with the novel experiences and harms robotics enables” since there exists “distinct but related challenges that would benefit from being examined and treated together.” These issues, he says, “require special expertise to understand and may require investment and coordination to thrive.

I’ll address both Weaver and Calo’s proposals in turn. Continue reading →

DroneThe use of unmanned aircraft systems, or “drones,” for private and commercial uses remains the subject of much debate. The issue has been heating up lately after Congress ordered the Federal Aviation Administration (FAA) to integrate UASs into the nation’s airspace system by 2015 as part of the FAA Modernization and Reform Act of 2012.

The debate has thus far centered mostly around the safety and privacy-related concerns associated with private use of drones. The FAA continues to move slowly on this front based on a fear that private drones could jeopardize air safety or the safety of others on the ground. Meanwhile, some privacy advocates are worried that private drones might be used in ways that invade private spaces or even public areas where citizens have a reasonable expectation of privacy. For these and other reasons, the FAA’s current ban on private operation of drones in the nation’s airspace remains in place.

But what about the speech-related implications of this debate? After all, private and commercial UASs can have many peaceful, speech-related uses. Indeed, to borrow Ithiel de Sola Pool’s term, private drones can be thought of as “technologies or freedom” that expand and enhance the ability of humans to gather and share information, thus in turn expanding the range of human knowledge and freedom.

A new Mercatus Center at George Mason University working paper, “News from Above: First Amendment Implications of the Federal Aviation Administration Ban on Commercial Drones,” deals with these questions.  This 59-page working paper was authored by Cynthia Love, Sean T. Lawson, and Avery Holton. (Love is currently a Law Clerk for Judge Carolyn B. McHugh in 10th Circuit U.S. Court of Appeals. Lawson and Holton are affliated with the Department of Communication at the University of Utah.)

“To date, little attention has been paid to the First Amendment implications of the [FAA] ban,” note Love, Lawson, and Holton. Their article argues that “aerial photography with UASs, whether commercial or not, is protected First Amendment activity, particularly for news-gathering purposes. The FAA must take First Amendment-protected uses of this technology into account as it proceeds with meeting its congressional mandate to promulgate rules for domestic UASs.” They conclude by noting that “The dangers of [the FAA's] regulatory approach are no mere matter of esoteric administrative law. Rather, as we have demonstrated, use of threats to enforce illegally promulgated rules, in particular a ban on journalistic use of UASs, infringes upon perhaps our most cherished constitutional right, that of free speech and a free press.” Continue reading →

Driverless CarI’m pleased to announce that the Mercatus Center at George Mason University has just released my latest working paper, “Removing Roadblocks to Intelligent Vehicles and Driverless Cars.” This paper, which was co-authored with Ryan Hagemann, has been accepted for publication in a forthcoming edition of the Wake Forest Journal of Law & Policy.

In the paper, Hagemann and I explore the growing market for both “connected car” technologies as well as autonomous (or “driverless”) vehicle technology. We argue that intelligent-vehicle technology will produce significant benefits. Most notably, these technologies could save many lives. In 2012, 33,561 people were killed and 2,362,000 injured in traffic crashes, largely as a result of human error. Reducing the number of accidents by allowing intelligent vehicle technology to flourish would constitute a major public policy success. As Philip E. Ross noted recently at IEEE Spectrum, thanks to these technologies, “eventually it will be positively hard to use a car to hurt yourself or others.” The sooner that day arrives, the better.

These technologies could also have positive environmental impacts in the form of improved fuel economy, reduced traffic congestion, and reduced parking needs. They might also open up new mobility options for those who are unable to drive, for whatever reason. Any way you cut it, these are exciting technologies that promise to substantially improve human welfare.

Of course, as with any new disruptive technology, connected cars and driverless vehicles raise a variety of economic, social, and ethical concerns. Hagemann and I address some of the early policy concerns about these technologies (safety, security, privacy, liability, etc.) and we outline a variety of “bottom-up” solutions to ensure that innovation continues to flourish in this space. Importantly, we also argue that policymakers should keep in mind that individuals have gradually adapted to similar disruptions in the past and, therefore, patience and humility are needed when considering policy for intelligent-vehicle systems. Continue reading →

On Thursday, it was my great pleasure to present a draft of my forthcoming paper, “The Internet of Things & Wearable Technology: Addressing Privacy & Security Concerns without Derailing Innovation,” at a conference that took place at the Federal Communications Commission on “Regulating the Evolving Broadband Ecosystem.” The 3-day event was co-sponsored by the American Enterprise Institute and the University of Nebraska College of Law.

The 65-page working paper I presented is still going through final peer review and copyediting, but I posted a very rough first draft on SSRN for conference participants. I expect the paper to be released as a Mercatus Center working paper in October and then I hope to find a home for it in a law review. I will post the final version once it is released.

In the meantime, however, I thought I would post the 46 slides I presented at the conference, which offer an overview of the nature of the Internet of Things and wearable technology, the potential economic opportunities that exist in this space, and the various privacy and security challenges that could hold this technological revolution back. I also outlined some constructive solutions to those concerns. I plan to be very active on these issues in coming months.

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If there is one thing I have learned in almost 23 years of covering communications and media regulation it is this: No matter how well-intentioned, regulation often has unintended consequences that hurt the very consumers the rules are meant to protect. Case in point: “universal service” mandates that require a company to serve an entire area as a condition of offering service at all. The intention is noble: Get service out to everyone in the community, preferably at a very cheap rate. Alas, the result of mandating that result is clear: You get less competition, less investment, less innovation, and less consumer choice. And often you don’t even get everyone served.

Consider this Wall Street Journal article today, “Google Fiber Is Fast, but Is It Fair? The Company Provides Neighborhoods With Faster and Cheaper Service, but Are Some Being Left Behind?” In the story, Alistair Barr notes that:

U.S. policy long favored extending service to all. AT&T touted its “universal service” in advertisements more than a century ago. The concept was codified in a 1934 law requiring nationwide “wire and radio services” to reach everyone at “reasonable charges.” In exchange for wiring a community, telecommunications providers often gained a monopoly. Cities made similar deals with cable-TV providers beginning in the 1960s.

The problem, of course, is that while this model allowed for the slow spread of service to most communities, it came at a very steep cost: Monopoly and plain vanilla service. I documented this in a 1994 essay entitled, “Unnatural Monopoly: Critical Moments in the Development of the Bell System Monopoly.” As well-intentioned regulatory mandates started piling up, competition slowly disappeared. And a devil’s deal was eventually cut between regulators and AT&T to adopt the company’s advertising motto — “One Policy, One System, Universal Service” — as the de facto law of the land. Continue reading →

Today my colleague Eli Dourado and I have filed a public interest comment with the New York Department of Financial Services on their proposed “BitLicense” regulatory framework for digital currencies. You can read it here. As we say in the comment, NYDFS is on the right track, but ultimately misses the mark:

State financial regulators around the country have been working to apply their existing money transmission licensing statutes and regulations to new virtual currency businesses. In many cases, existing rules do not take into account the unique properties of recent innovations like cryptocurrencies. With this in mind, the department sought to develop rules that were “tailored specifically to the unique characteristics of virtual currencies.”

As Superintendent Benjamin Lawsky has stated, the aim of this project is “to strike an appropriate balance that helps protect consumers and root out illegal activity—without stifling beneficial innovation.” This is the right goal and one we applaud. It is a very difficult balance to strike, however, and we believe that the BitLicense regulatory framework as presently proposed misses the mark, for two main reasons.

First, while doing much to take into account the unique properties of virtual currencies and virtual currency businesses, the proposal nevertheless fails to accommodate some of the most important attributes of software-based innovation. To the extent that one of its chief goals is to preserve and encourage innovation, the BitLicense proposal should be modified with these considerations in mind—and this can be done without sacrificing the protections that the rules will afford consumers. Taking into account the “unique characteristics” of virtual cur-rencies is the key consideration that will foster innovation, and it is the reason why the department is creating a new BitLicense. The department should, therefore, make sure that it is indeed taking these features into account.

Second, the purpose of a BitLicense should be to take the place of a money transmission license for virtual currency businesses. That is to say, but for the creation of a new BitLicense, virtual currency businesses would be subject to money transmission licensing. Therefore, to the extent that the goal behind the new BitLicense is to protect consumers while fostering innovation, the obligations faced by BitLicensees should not be any more burdensome than those faced by traditional money transmitters. Otherwise, the new regulatory framework will have the opposite effect of the one intended. If it is more costly and difficult to acquire a BitLicense than a money transmission license, we should expect less innovation. Additional regulatory burdens would put BitLicensees at a relative disadvantage, and in several instances the proposed regulatory framework is more onerous than traditional money transmitter licensing.

As Superintendent Lawsky has rightly stated, New York should avoid virtual currency rules that are “so burdensome or unwieldy that the technology can’t develop.” The proposed BitLicense framework, while close, does not strike the right balance between consumer protection and innovation. For example, its approach to consumer protection through disclosures rather than prescriptive precautionary regulation is the right approach for giving entrepreneurs flexibility to innovate while ensuring that consumers have the information they need to make informed choices. Yet there is much that can be improved in the framework to reach the goal of balancing innovation and protection. Below we outline where the framework is missing the mark and recommend some modifications that will take into account the unique properties of virtual currencies and virtual currency businesses.

We hope this comment will be helpful to the department as it further develops its proposed framework, and we hope that it will publish a revised draft of the framework and solicit a second round of comments so that we can make sure we all get it right. And it’s important that we get it right.

Other jurisdictions, such as London, are looking to become the “global centre of financial innovation,” as Chancellor George Osborne put it in a recent speech about Bitcoin. If New York drops the ball, London may just pick it up. As Garrick Hileman, economic historian at the London School of Economics, told CNet last week:

The chancellor is no doubt aware that very little of the $250 million of venture capital which has been invested in Bitcoin startups to date has gone to British-based companies. Many people believe Bitcoin will be as big as the Internet. Today’s announcement from the chancellor has the potential to be a big win for the UK economy. The bottom line on today’s announcement is that Osborne thinks he’s spotted an opportunity for the City and Silicon Roundabout to siphon investment and jobs away from the US and other markets which are taking a more aggressive Bitcoin regulatory posture.

Let’s get it right.

There’s a small but influential number of tech reporters and scholars who seem to delight in making the US sound like a broadband and technology backwater. A new Mercatus working paper by Roslyn Layton, a PhD fellow at a research center at Aalborg University, and Michael Horney a researcher at the Free State Foundation, counter that narrative and highlight data from several studies that show the US is at or near the top in important broadband categories.

For example, per Pew and ITU data, the vast majority of Americans use the Internet and the US is second in the world in data consumption per capita, trailing only South Korea. Pew reveals that for those who are not online the leading reasons are lack of usability and the Internet’s perceived lack of benefits. High cost, notably, is not the primary reason for infrequent use.

I’ve noted before some of the methodological problems in studies claiming the US has unusually high broadband prices. In what I consider their biggest contribution to the literature, Layton and Horney highlight another broadband cost frequently omitted in international comparisons: the mandatory media license fees many nations impose on broadband and television subscribers.

These fees can add as much as $44 to the monthly cost of broadband. When these fees are included in comparisons, American prices are frequently an even better value. In two-thirds of European countries and half of Asian countries, households pay a media license fee on top of the subscription fees to use devices such as connected computers and TVs.

…When calculating the real cost of international broadband prices, one needs to take into account media license fees, taxation, and subsidies. …[T]hese inputs can materially affect the cost of broadband, especially in countries where broadband is subject to value-added taxes as high as 27 percent, not to mention media license fees of hundreds of dollars per year.

US broadband providers, the authors point out, have priced broadband relatively efficiently for heterogenous uses–there are low-cost, low-bandwidth connections available as well as more expensive, higher-quality connections for intensive users.

Further, the US is well-positioned for future broadband use. Unlike many wealthy countries, Americans typically have access, at least, to broadband from telephone companies (like AT&T DSL or UVerse) as well as from a local cable provider. Competition between ISPs has meant steady investment in network upgrades, despite the 2008 global recession. The story is very different in much of Europe, where broadband investment, as a percentage of the global total, has fallen noticeably in recent years. US wireless broadband is also a bright spot: 97% of Americans can subscribe to 4G LTE while only 26% in the EU have access (which partially explains, by the way, why Europeans often pay less for mobile subscriptions–they’re using an inferior product).

There’s a lot to praise in the study and it’s necessary reading for anyone looking to understand how US broadband policy compares to other nations’. The fashionable arguments that the US is at risk of falling behind technologically were never convincing–the US is THE place to be if you’re a tech company or startup, for one–but Layton and Horney show the vulnerability of that narrative with data and rigor.

Even though few things are getting passed this Congress, the pressure is on to reauthorize the Satellite Television Extension and Localism Act (STELA) before it expires at the end of this year. Unsurprisingly, many have hoped this “must pass bill” will be the vehicle for broader reform of video. Getting video law right is important for our content rich world, but the discussion needs to expand much further than STELA. Continue reading →

In 2012, the US Chamber of Commerce put out a report claiming that intellectual property is responsible for 55 million US jobs—46 percent of private sector employment. This is a ridiculous statistic if you merely stop and think about it for a minute. But the fact that the statistic is ridiculous doesn’t mean that it won’t continue to circulate around Washington. For example, last year Rep. Marsha Blackburn cited it uncritically in an oped in The Hill.

In a new paper from Mercatus (here’s the PDF), Ian Robinson and I expose this statistic, and others like them, as pseudoscience. They are based on incredibly shoddy and misleading reasoning. Here’s the abstract of the paper:

In the past two years, a spate of misleading reports on intellectual property has sought to convince policymakers and the public that implausibly high proportions of US output and employment depend on expansive intellectual property (IP) rights. These reports provide no theoretical or empirical evidence to support such a claim, but instead simply assume that the existence of intellectual property in an industry creates the jobs in that industry. We dispute the assumption that jobs in IP-intensive industries are necessarily IP-created jobs. We first explore issues regarding job creation and the economic efficiency of IP that cut across all kinds of intellectual property. We then take a closer look at these issues across three major forms of intellectual property: trademarks, patents, and copyrights.

As they say, read the whole thing, and please share with your favorite IP maximalist.