June 2007

Protectionism 2.0 – Or, the Rise of the New Mercantilists

by on June 21, 2007 · 0 comments

How do the direct and indirect trade barriers of some nations unfairly harm the ability of foreign (particularly American) IT companies to monetize digital innovations and distribute intellectual assets globally? That’s the focus of a new paper from Rob Atkinson and Julie Hedlund at ITIF, entitled The Rise of the New Mercantilists: Unfair Trade Practices in the Innovation Economy.

Today’s innovations have much shorter life-cycles, so companies need
broader, faster market distribution in order to earn returns on
innovation–money they invest in tomorrow’s innovations. These companies seek
sales and licensing markets all across our “flat world.” The ITIF report discusses how it’s not your father’s form of protectionism anymore (such as tariffs and direct subsidies). Companies also face protectionist trade barriers in the forms of lax enforcement of intellectual property piracy and counterfeiting, disparate competition regulations, government preferences and standards manipulation.

Now here’s the crux of the question: is this a new
form of protectionism – what my colleague Steve DelBianco and I call “Protectionism 2.0”? Or are these more subtle forms of trade barriers the result of legitimate public policy goals? Probably a bit of both, but one has to ask – if Microsoft were a German company would it be facing the full wrath of competition regulators? Or if Apple were Dutch, or Norwegian, or French – would it be scrutinized by regulators in those countries eager to break the link between iTunes and iPod?

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DRM Leaves Consumers High and Dry

by on June 21, 2007 · 6 comments

Hugh D’Andrade points out that Sony is rumored to be on the verge of ditching its proprietary, DRM-encumbered Connect service. As he points out, it’s a cautionary tale for consumers considering the purchase of DRM-infected content:

Sony Connect customers could strip out DRM from their music, or tech creators could reverse engineer the DRM to create compatible devices. But sadly, these solutions are illegal under the Digital Millenium Copyright Act (DMCA).

The truth is, these dangers exist whenever you buy DRMed music from any vendor. You’re locked into the limited array of players that the DRM is compatible with, and, if that DRM some day is entirely unsupported, you’re out of luck.

The continuing appeal of vinyl records shows how wrong-headed this approach is.
LPs continue to play just fine, decades after the makers of the first record players have gone out of business, thanks to the kind of interoperability that DRM lacks. That’s not just good value for customers who bought LPs, it’s also good value for a society that values archives and the ability to access its cultural history long after the companies that distributed it have died off.

This isn’t the first time this has happened. Users who bought music infected with Microsoft’s PlaysForSure DRM faced a similar dilemma when Microsoft announced its introduction of the incompatible Zune format. Buying DRM-encumbered content always means that you’re dependent on the company that created the DRM scheme.

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Correcting the Consumer: New Report Urges Washington to Fix Talk Radio “Structural Imbalance”

by on June 21, 2007 · 4 comments

Why do conservatives do better on the radio than liberals, and what can be done about it? That’s the question addressed in a study released today on talk radio by two left-leaning policy groups, the Center for American Progress and Free Press. The conclusion: conservative success in radio is due to the ownership structure of radio, and Washington can fix the problem through greater controls on radio ownership.

The conclusion is no doubt a comforting one to left-of-center radio programmers. No one, after all, likes to be told they are unpopular. Yet, it is as wrong as it is dangerous. None of the number-crunching in the CAP/Free Press study contradicts the essential fact that conservative talk radio is more successful because it is more popular. More people listen to it, so radio stations provide more of it. And that’s not a problem that Washington can – or should – “fix.”

The CAP/Free Press study is based first on one unsurprising finding: there’s a lot more conservative radio on the air than liberal radio. Of the political talk radio programming in the top ten markets, for instance, the study found 76 percent is conservative, and 24 percent is liberal. That percentage varies quite a bit by market – some markets were overwhelmingly conservative, while others – such as Chicago and New York – were split almost evenly between left and right.

The $64,000 question is why conservatives are doing better. To their credit, the authors dismiss the repeal of the Fairness Doctrine as the root cause, saying correctly that the “Fairness Doctrine was never, by itself, an effective tool to ensure the fair discussion of important issues.” (What they don’t mention, however, is that the doctrine was very successful at discouraging such discussion.)

Instead, CAP and Free Press point to the ownership structure of radio. Radio stations owned by women or minorities, and those owned locally, they conclude, have less conservative programming than those that are not. Twenty-eight percent of minority-owned stations, for instance, air conservative talk shows, compared to just over 50 percent of non-minority owned stations. Their conclusion: Washington should strictly enforce broadcast ownership rules, combined with strict “public interest” requirements, to solve the “problem” of conservative radio predominance.

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The DMCA’s Toll on Innovation

by on June 21, 2007 · 6 comments

You’ll occasionally hear the argument that critics of the DMCA are exaggerating its anticompetitive effects. Sometimes, DMCA supporters will demand examples of technologies that have been stifled. This is, of course, an unfair question because it’s impossible to identify the technologies that weren’t developed due to a bad legal regime.

But today Ars has a textbook example of the way the DMCA is being used not to control piracy, but to strangle a new technology that Hollywood doesn’t like:

The proposed amendment was revealed by Kaleidescape CEO Michael Malcolm, whose company triumphed in a legal battle against the DVD CCA earlier this year. Kaleidescape manufactures pricey home media servers (starting at $10,000) that rip and store all of a customer’s media for DRMed playback throughout the home. The DVD CCA said that Kaleidescape was opening the door to piracy and interpreted the license to say that a DVD must be physically present in a drive in order for a movie to be played.

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Google’s Neutrality Non Sequitur

by on June 21, 2007 · 0 comments

Google makes some excellent points in the comments it filed with the Federal Communications Commission in a proceeding examining proposals for network neutrality regulation.

First, Google argues that packet prioritization (i.e., Quality of Service) is a “poor proxy for additional bandwidth.”

[T]he engineers at Internet2 conducted a detailed technical analysis of QoS
in broadband networks. Their conclusion is that QoS is a relatively poor proxy for additional
bandwidth:

In most bandwidth markets important to network-based research, it is cheaper to buy more capacity and to provide everybody with excellent service than it is to mess with QoS. In those few places where network upgrades are not practical, QoS deployment is usually even harder (due to the high cost of QoS-capable routers and clueful network engineers).

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Privacy and Race in the EU

by on June 21, 2007 · 4 comments

An interesting essay on the downstream effects of keeping government from collecting data about race, ethnicity, or religion in France from the National Journal.

The European vision of privacy has always puzzled me. On the one hand, given the power of their welfare state, it makes sense to take some prophylactic measures to prevent a second holocaust. But why grant the powers to begin with, if one believes the risk of their abuse is so high that the government cannot be trusted with information to administer them?

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Google Bulks Up

by on June 20, 2007 · 0 comments

My former boss David Boaz has a great post lamenting Google’s decision to dramatically expand its political muscle:

Google’s brilliant staff are now spending some of their intellect thinking up ways to sic the government on Microsoft, which is once again forced to give consumers a less useful product in order to stave off further regulation. The Post’s previous story on Google’s complaint called it ”allegations by Google that Microsoft’s new operating system unfairly disadvantages competitors.”
Bingo! That’s what antitrust law is really about–not protecting consumers, or protecting competition, but protecting competitors. Competitors should go produce a better product in the marketplace, but antitrust law sometimes gives them an easier option–asking the government to hobble their more successful competitor.
Recall the famous decision of Judge Learned Hand in the 1945 Alcoa antitrust decision. Alcoa, he wrote, “insists that it never excluded competitors; but we can think of no more effective exclusion than progressively to embrace each new opportunity as it opened, and to face every newcomer with new capacity already geared into a great organization, having the advantage of experience, trade connection and the elite of personnel.” In other words, Alcoa’s very skill at meeting consumers’ needs was the rope with which it was hanged.
I look forward to more competition between Microsoft and Google–and the next innovative company–to bring more useful products to market. But I’m saddened to realize that the most important factor in America’s economic future — in raising everyone’s standard of living — is not land, or money, or computers; it’s human talent. And some part of the human talent at another of America’s most dynamic companies is now being diverted from productive activity to protecting the company from political predation and even to engaging in a little predation of its own. The parasite economy has sucked in another productive enterprise, and we’ll all be poorer for it.

I regard Google as the good guys on at least some of the issues their lobbyists are likely to focus on. But the broader point is spot on: these lobbying battles are a massive waste of talent. The more power Washington has over the technology industry, the more money companies will spend ensuring that that power is used to help, rather than hurt them. This is one of the reasons it’s a good idea to think twice before enacting legislation that will expand government power.

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Net Noise

by on June 20, 2007 · 4 comments

The FCC’s call for comments on net neutrality ended on Friday and, as Wired News reports, over 11,000 individuals had something to say on the issue. As much as I like the idea of people getting involved in politics, the NN issue has brought out the sad, herd-like, mentality of a lot of people who simply want to vent against what they see as “the fabulously wealthy and the corporate world” (see Wired piece).

Net neutrality is a non-issue that became a big issue BECAUSE some fabulously wealthy corporations (think Google and Ebay here) wanted everyone to get into a tizzy so they had better bargaining chips for broadband prices for themselves. Indeed, the nature of the net neutrality debate was recently revealed when a bill to establish net neutrality principles was defeated in Maine. After the defeat, supporters of net neutrality claimed a victory simply because the legislature agreed to a non-binding resolution to study the issue. Claiming success when the reality is actually defeat smacks of the kind of tactics corrupt dictatorships resort to in their last days. Perhaps this is a sign that the net neutrality militia is about to go belly-up.

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Illinois Passes Franchise Reform

by on June 20, 2007 · 0 comments

Ars reports that Illinois is the latest state to jump on the franchise reform bandwagon. I haven’t looked at the specific bill, but if it’s anything like Missouri’s legislation I think it’ll be good for consumers.

Perhaps the best thing about it is that each new telecom bill that passes reduces the risk of new telecom legislation at the federal level. Franchise reform was near the top of the telcos’ wish list in the last Congress, and without that spur, they’re likely to lobby against any changes in telecom rules. Eighteen months ago I argued that we should all be rooting for the telecom bill to go down in flames, and I got my wish in the last session. I’m rooting for the same outcome this session.

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DHS Acknowledges Computer Break-Ins

by on June 20, 2007 · 0 comments

The very Department of Homeland Security that is seeking to require states to collect and share information on every driver and state ID card holder, including scanned copies of their birth certificates, “suffered more than 800 hacker break-ins, virus outbreaks and other computer security problems over two years, senior officials acknowledged to Congress.”

In one instance, hacker tools for stealing passwords and other files were found on two internal Homeland Security computer systems. The agency’s headquarters sought forensic help from the department’s own Security Operations Center and the U.S. Computer Emergency Readiness Team it operates with Carnegie Mellon University.

In other cases, computer workstations in the Coast Guard and the Transportation Security Administration were infected with malicious software detected trying to communicate with outsiders; laptops were discovered missing; and agency Web sites suffered break-ins.

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