Aereo’s antenna system is frequently characterized perjoratively as a Rube Goldberg contraption, including in the Supreme Court oral arguments. Funny enough, Preston Padden, a veteran television executive, has characterized the legal system producing over-the-air broadcast television–Aereo’s chief legal opponents–precisely the same way. It’s also ironic that Aereo is in a fight for its life over alleged copyright violations since communications law diminishes the import of copyright law and makes copyright almost incomprehensible. Larry Downes calls the legal arguments for and against Aereo a “tangled mess.” David Post at the Volokh Conspiracy likewise concluded the situation is “pretty bizarre, when you think about it” after briefly exploring how copyright law interacts with communications law.

I agree, but Post actually understates how distorted the copyright law becomes when TV programs pass through a broadcaster’s towers, as opposed to a cable company’s headend. In particular, a broadcaster, which is mostly a passive transmitter of TV programs, gains more control over the programs than the copyright owners. It’s nearly impossible to separate the communications law distortions from the copyright issues, but the Aereo issue could be solved relatively painlessly by the FCC. It’s unfortunate copyright and television law intertwine like this because a ruling adverse to Aereo could potentially–and unnecessarily–upend copyright law.

This week I’ve seen many commentators, even Supreme Court justices, mischaracterize the state of television law when discussing the Aereo case. This is a very complex area and below is my attempt to lay out some of the deeper legal issues driving trends in the television industry that gave rise to the Aereo dispute. Crucially, the law is even more complex than most people realize, which benefits industry insiders and prevents sensible reforms. Continue reading →

Today is the second and final day of NETmundial and the third in my series (parts 1 and 2) of quick notes on the meeting.

  • Yesterday, Dilma Rousseff did indeed sign the Marco Civil into law as expected. Her appearance here began with the Brazilian national anthem, which is a very strange way to kick off a multistakeholder meeting.
  • The big bombshell in Rousseff’s speech was her insistence that the multilateral model can peacefully coexist with the multistakeholder model. Brazil had been making a lot of pro-multistakeholder statements, so many of us viewed this as something of a setback.
  • One thing I noticed during the speech was that the Portuguese word for “multistakeholder” actually literally translates as “multisectoral.” This goes a long way toward explaining some of the disconnect between Brazil and the liberals. Multisectoral means that representatives from all “sectors” are welcome, while multistakeholder implies that every stakeholder is welcome to participate, even if they sometimes organize into constituencies. This is a pretty major difference, and NETmundial has been organized on the former model.
  • The meeting yesterday got horribly behind schedule. There were so many welcome speeches, and they went so much over time, that we did not even begin the substantive work of the conference until 5:30pm. I know that sounds like a joke, but it’s not.
  • After three hours of substantive work, during which participants made 2-minute interventions suggesting changes to the text, a drafting group retreated to a separate room to work on the text of the document. The room was open to all participants, but only the drafting group was allowed to work on the drafting; everyone else could only watch (and drink).
  • As of this morning, we still don’t have the text that was negotiated last night. Hopefully it will appear online some time soon.
  • One thing to watch for is the status of the document. Will it be a “declaration” or a “chairman’s report” (or something else)? What I’m hearing is that most of the anti-multistakeholder governments like Russia and China want it to be a chairman’s report because that implies a lesser claim to legitimacy. Brazil, the hosts of the conference, presumably want to make a maximal claim to legitimacy. I tend to think that there’s enough wrong with the document that I’d prefer the outcome to be a chairman’s report, but I don’t feel too strongly.

As I blogged last week, I am in São Paulo to attend NETmundial, the meeting on the future of Internet governance hosted by the Brazilian government. The opening ceremony is about to begin. A few more observations:

  • The Brazilian Senate passed the landmark Marco Civil bill last night, and Dilma Rousseff, the Brazilian president, may use here appearance here today to sign it into law. The bill subjects data stored on Brazilians anywhere in the world to Brazilian jurisdiction and imposes net neutrality domestically. It also provides a safe harbor for ISPs and creates a notice-and-takedown system for offensive content.
  • Some participants are framing aspects of the meeting, particularly the condemnation of mass surveillance in the draft outcome document, as civil society v. the US government. There is a lot of concern that the US will somehow water down the surveillance language so that it doesn’t apply to the NSA’s surveillance. WikiLeaks has stoked some of this concern with breathless tweets. I don’t see events playing out this way. I am as opposed to mass US surveillance as anyone, but I haven’t seen much resistance from the US government participants in this regard. Most of the comments by the US on the draft have been benign. For example, WikiLeaks claimed that the US “stripped” language referring to the UN Human Rights Council; in fact, the US hasn’t stripped anything because it is not in charge (it can only make suggestions), and eliminating the reference to the HRC is actually a good idea because the HRC is a multilateral, not a multistakeholder, body. I expect a strong anti-surveillance statement to be included in the final outcome document. If it is not, it will probably be other governments, not the US, that block it.
  • In my view, the privacy section of the draft still needs work, however. In particular, it is important to cabin the paragraph to address governmental surveillance, not to interfere with voluntary, private arrangements in which users disclose information to receive free services.
  • I expect discussions over net neutrality to be somewhat contentious. Civil society participants are generally for it, with some governments, businesses, parts of the technical community, and yours truly opposed.
  • Although surveillance and net neutrality have received a lot of attention, they are not the important issues at NETmundial. Instead, look for the language that will affect “the future of Internet governance,” which is after all what the meeting is about. For example, will the language on stakeholders’ “respective roles and responsibilities” be stricken? This is language held over from the Tunis Agenda and it has a lot of meaning. Do stakeholders participate as equals or do they, especially governments, have separate roles? There is also a paragraph on “enhanced cooperation,” which is a codeword for governments running the show. Look to see in the final draft if it is still there.
  • Speaking of the final draft, here is how it will be produced: During the meeting, participants will have opportunities to make 2-minute interventions on specific topics. The drafting group will make note of the comments and then retreat to a drafting room to make final edits to the draft. This is, of course, not really the open governance process that many of us want for the Internet, one where select, unaccountable participants have the final say. Yet two days is not a long enough time to really have an open, free-wheeling drafting conference. I think the structure of the conference, driven by the perceived need to produce an outcome document with certainty, is unfortunate and somewhat detracts from the legitimacy of whatever will be produced, even though I expect the final document to be OK on substance.

The Supreme Court hears oral arguments today in a case that will decide whether Aereo, an over-the-top video distributor, can retransmit broadcast television signals online without obtaining a copyright license. If the court rules in Aereo’s favor, national programming networks might stop distributing their programming for free over the air, and without prime time programming, local TV stations might go out of business across the country. It’s a make or break case for Aereo, but for broadcasters, it represents only one piece of a broader regulatory puzzle regarding the future of over-the-air television.

If the court rules in favor of the broadcasters, they could still lose at the Federal Communications Commission (FCC). At a National Association of Broadcasters (NAB) event earlier this month, FCC Chairman Tom Wheeler focused on “the opportunity for broadcast licensees in the 21st century . . . to provide over-the-top services.” According to Chairman Wheeler, TV stations shouldn’t limit themselves to being in the “television” business, because their “business horizons are greater than [their] current product.” Wheeler wants TV stations to become over-the-top “information providers”, and he sees the FCC’s role as helping them redefine themselves as a “growing source of competition” in that market segment. Continue reading →

Patrick Byrne, CEO of Overstock.com, discusses how Overstock.com became one of the first online retail stores to accept Bitcoin. Byrne provides insight into how Bitcoin lowers transaction costs, making it beneficial to both retailers and consumers, and how governments are attempting to limit access to Bitcoin. Byrne also discusses his project DeepCapture.com, which raises awareness for market manipulation and naked short selling, as well as his philanthropic work and support for education reform.

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Pre-NETmundial Notes

by on April 18, 2014 · 1 comment

Next week I’ll be in São Paulo for the NETmundial meeting, which will discuss “the future of Internet governance.” I’ll blog more while I’m there, but for now I just wanted to make a few quick notes.

  • This is the first meeting of its kind, so it’s difficult to know what to expect, in part because it’s not clear what others’ expectations are. There is a draft outcome document, but no one knows how significant it will be or what weight it will carry in other fora.
  • The draft outcome document is available here. The web-based tool for commenting on individual paragraphs is quite nice. Anyone in the world can submit comments on a paragraph-by-paragraph basis. I think this is a good way to lower the barriers to participation and get a lot of feedback.
  • I worry that we won’t have enough time to give due consideration to the feedback being gathered. The meeting is only two days long. If you’ve ever participated in a drafting conference, you know that this is not a lot of time. What this means, unfortunately, is that the draft document may be something of a fait accompli. Undoubtedly it will change a little, but the amount of changes that can be contemplated will be limited due to sheer time constraints.
  • Time will be even more constrained by the absurd amount of time allocated to opening ceremonies and welcome remarks. The opening ceremony begins at 9:30 am and the welcome remarks are not scheduled to conclude until 1 pm on the first day. This is followed by a lunch break, and then a short panel on setting goals for NETmundial, so that the first drafting session doesn’t begin until 2:30 pm. This seems like a mistake.
  • Speaking of the agenda, it was not released until yesterday. While NETmundial has indeed been open to participation by all, it has not been very transparent. An earlier draft outcome document had to be leaked by WikiLeaks on April 8. Not releasing an agenda until a few days before the event is also not very transparent. In addition, the processes by which decisions have been made have not been transparent to outsiders.

See you all next week.

Andrea Castillo and I have a new paper out from the Mercatus Center entitled “Why the Cybersecurity Framework Will Make Us Less Secure.” We contrast emergent, decentralized, dynamic provision of security with centralized, technocratic cybersecurity plans. Money quote:

The Cybersecurity Framework attempts to promote the outcomes of dynamic cybersecurity provision without the critical incentives, experimentation, and processes that undergird dynamism. The framework would replace this creative process with one rigid incentive toward compliance with recommended federal standards. The Cybersecurity Framework primarily seeks to establish defined roles through the Framework Profiles and assign them to specific groups. This is the wrong approach. Security threats are constantly changing and can never be holistically accounted for through even the most sophisticated flowcharts. What’s more, an assessment of DHS critical infrastructure categorizations by the Government Accountability Office (GAO) finds that the DHS itself has failed to adequately communicate its internal categories with other government bodies. Adding to the confusion is the proliferating amalgam of committees, agencies, and councils that are necessarily invited to the table as the number of “critical” infrastructures increases. By blindly beating the drums of cyber war and allowing unfocused anxieties to clumsily force a rigid structure onto a complex system, policymakers lose sight of the “far broader range of potentially dangerous occurrences involving cyber-means and targets, including failure due to human error, technical problems, and market failure apart from malicious attacks.” When most infrastructures are considered “critical,” then none of them really are.

We argue that instead of adopting a technocratic approach, the government should take steps to improve the existing emergent security apparatus. This means declassifying information about potential vulnerabilities and kickstarting the cybersecurity insurance market by buying insurance for federal agencies, which experienced 22,000 breaches in 2012. Read the whole thing, as they say.

[The following essay is a guest post from Dan Rothschild, director of state projects and a senior fellow with the R Street Institute.]

As anyone who’s lived in a major coastal American city knows, apartment renting is about as far from an unregulated free market as you can get. Legal and regulatory stipulations govern rents and rent increases, what can and cannot be included in a lease, even what constitutes a bedroom. And while the costs and benefits of most housing policies can be debated and deliberated, it’s generally well known that housing rentals are subject to extensive regulation.

But some San Francisco tenants have recently learned that, in addition to their civil responsibilities under the law, their failure to live up to some parts of the city’s housing code may trigger harsh criminal penalties as well. To wit: tenants who have been subletting out part or all of their apartments on a short-term basis, usually through web sites like Airbnb, are finding themselves being given 72 hours to vacate their (often rent-controlled) homes.

San Francisco’s housing stock is one of the most highly regulated in the country. The city uses a number of tools to preserve affordable housing and control rents, while at the same time largely prohibiting higher buildings that would bring more units online, increasing supply and lowering prices. California’s Ellis Act provides virtually the only legal and effective means of getting tenants (especially those benefiting from rent control) out of their units — but it has the perverse incentive of causing landlords to demolish otherwise useable housing stock.

Again, the efficiency and equity ramifications of these policies can be discussed; the fact that demand curves slope downward, however, is really not up for debate.

Under San Francisco’s municipal code it may be a crime punishable by jail time to rent an apartment on a short-term basis. More importantly, it gives landlords the excuse they need to evict tenants they otherwise can’t under the city’s and state’s rigorous tenant protection laws. After all, they’re criminals!

Here’s the relevant section of the code:

Any owner who rents an apartment unit for tourist or transient use as defined in this Chapter shall be guilty of a misdemeanor. Any person convicted of a misdemeanor hereunder shall be punishable by a fine of not more than $1,000 or by imprisonment in the County Jail for a period of not more than six months, or by both. Each apartment unit rented for tourist or transient use shall constitute a separate offense.

Here lies the rub. There are certainly legitimate reasons to prohibit the short-term rental of a unit in an apartment or condo building — some people want to know who their neighbors are, and a rotating cast of people coming and going could potentially be a nuisance.

But that’s a matter for contracts and condo by-laws to sort out. If people value living in units that they can list on Airbnb or sublet to tourists when they’re on vacation, that’s a feature like a gas stove or walk-in closet that can come part-and-parcel of the rental through contractual stipulation. Similarly, if people want to live in a building where overnight guests are verboten, that’s something landlords or condo boards can adjudicate. The Coase Theorem can be a powerful tool, if the law will allow it.

The fact that, so far as I can tell, there’s no prohibition on having friends or family stay a night — or even a week — under San Francisco code, it seems that the underlying issue isn’t a legitimate concern about other tenants’ rights but an aversion to commerce. From the perspective of my neighbor, there’s no difference between letting my friend from college crash in my spare bedroom for a week or allowing someone I’ve never laid eyes on before do the same in exchange for cash.

The peer production economy is still in its infancy, and there’s a lot that needs to be worked out. Laws like those in San Francisco’s that circumvent the discovery process of markets prevent landlords, tenants, condos, homeowners, and regulators from leaning from experience and experimentation — and lock in a mediocre system that threatens to put people in jail for renting out a room.

opengraphI’m thrilled to make available today a discussion draft of a new paper I’ve written with Houman Shadab and Andrea Castillo looking at what will likely be the next wave of Bitcoin regulation, which we think will be aimed at financial instruments, including securities and derivatives, as well as prediction markets and even gambling. You can grab the draft paper from SSRN, and we very much hope you will give us your feedback and help us correct any errors. This is a complicated issue area and we welcome all the help we can get.

While there are many easily regulated intermediaries when it comes to traditional securities and derivatives, emerging bitcoin-denominated instruments rely much less on traditional intermediaries. Additionally, the block chain technology that Bitcoin introduced for the first time makes completely decentralized markets and exchanges possible, thus eliminating the need for intermediaries in complex financial transactions. In the article we survey the type of financial instruments and transactions that will most likely be of interest to regulators, including traditional securities and derivatives, new bitcoin-denominated instruments, and completely decentralized markets and exchanges.

We find that bitcoin derivatives would likely not be subject to the full scope of regulation under the Commodities and Exchange Act because such derivatives would likely involve physical delivery (as opposed to cash settlement) and would not be capable of being centrally cleared. We also find that some laws, including those aimed at online gambling, do not contemplate a payment method like Bitcoin, thus placing many transactions in a legal gray area.

Following the approach to Bitcoin taken by FinCEN, we conclude that other financial regulators should consider exempting or excluding certain financial transactions denominated in Bitcoin from the full scope of the regulations, much like private securities offerings and forward contracts are treated. We also suggest that to the extent that regulation and enforcement becomes more costly than its benefits, policymakers should consider and pursue strategies consistent with that new reality, such as efforts to encourage resilience and adaptation.

I look forward to your comments!

It was my great pleasure to join Jasmine McNealy last week on the “New Books in Technology” podcast to discuss my new book, Permissionless Innovation: The Continuing Case for Comprehensive Technological Freedom. (A description of my book can be found here.)

My conversation with Jasmine was wide-ranging and lasted 47 minutes. The entire show can be heard here if you’re interested.

By the way, if you don’t follow Jasmine, you should begin doing so immediately. She’s on Twitter and here’s her page at the University of Kentucky School of Library and Information Science.  She’s doing some terrifically interesting work. For example, check out her excellent essay on “Online Privacy & The Right To Be Forgotten,” which I commented on here.