April 2011

Balancing Risk and Regulation

by on April 18, 2011 · 0 comments

So a few weeks ago I hit up Adam Thierer, who has done and is continuing to do great work on all things regulation, on some materials for a project I was working on regarding the precautionary principle in the digital space. Turns out Adam was in the middle of his own Digital Precautionary Principle piece as well. I’ll take our simpatico as a sign that this phenomenon may actually be taking place and that I’m not paranoid. (If you haven’t read his earlier piece on TLF, please do so).

While my piece on DPP is coming, hopefully this week, I’ll start things off with my article in today’s RealClearMarkets.com on regulations and risk and how regulating agencies are engaging in traditional “risk aversion behavior” to the detriment of the risk takers (aka entrepreneurs) in the private market. A smarter approach to regulating would incorporate both benefits and risks of NOT regulating. So many times the discussion is geared towards the notion that something has to be done, so how can we minimize the negative impacts, rather than, should we be doing anything at all or should we encourage the trial and error mechanisms that markets utilize?

While the piece isn’t targeted directly at the technology industry, I think it can apply there just as much as any other industry.

 

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The AT&T – T-Mobile Merger: Beyond the Arithmetic

by on April 18, 2011 · 5 comments

Following AT&T’s announcement last month of its planned acquisition of T-Mobile USA, pundits and other oddsmakers have settled in for a long tour of duty. Speculation, much of it uninformed, is already clogging the media about the chances the $39 billion deal—larger even than last year’s merger of Comcast and NBC Universal—will be approved.

Both the size of the deal and previous consolidation in the communications industry lead some analysts and advocates to doubt the transaction will or ought to survive the regulatory process.

Though the complex review process could take a year or perhaps even longer, I’m confident that the deal will go through—as it should. To see why, one need only look to previous merger reviews by the Department of Justice and the Federal Communications Commission, both of which must approve the AT&T deal. Continue reading →

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Bitcoin: Imagine a net without intermediaries

by on April 16, 2011 · 43 comments

Yesterday the FBI effectively [shut down](http://thehill.com/blogs/hillicon-valley/technology/156429-fbi-shuts-down-online-poker-sites) three of the largest gambling sites online and indicted their executives. From a tech policy perspective, these events highlight how central intermediary control is to the regulation of the internet.

Department of Justice lawyers were able to take down the sites using the same tools we’ve [seen DHS use](http://techland.time.com/2011/02/17/operation-protect-our-children-accidentally-shutters-84000-sites/) against alleged pirate and child porn sites: they seize the domain names. Because the sites are hosted overseas (where online gambling is legal), the feds can’t physically shut down the servers, so they do the next best thing. They get a seizure warrant for the domain names that point to the servers and [force the domain name registrars](http://pokerati.com/2011/04/15/poker-panic-11-update-on-domain-name-seizures/) to point them instead to a government IP address, such as [50.17.223.71](http://50.17.223.71). The most popular TLDs, including .com, .net, .org, and .info, have registrars that are American companies within U.S. jurisdiction.

Another intermediary point of control for the federal government are payment processors. The indictments revealed yesterday relate to violations of the [Unlawful Internet Gambling Enforcement Act](http://www.firstamendment.com/site-articles/UIEGA/), which makes it illegal for banks and processors like Visa, MasterCard and PayPal to let consenting adults use their money to gamble online. According to the DOJ, in order to let them bet, the poker sites “arranged for the money received from U.S. gamblers to be disguised as payments to hundreds of non-existent online merchants purporting to sell merchandise such as jewelry and golf balls.” ([PDF](http://www.wired.com/images_blogs/threatlevel/2011/04/scheinbergetalindictmentpr.pdf))

Now, imagine if there were no intermediaries.

[In my TIME.com Techland column today, I write about Bitcoin](http://techland.time.com/2011/04/16/online-cash-bitcoin-could-challenge-governments/), a completely decentralized and anonymous virtual currency that I think will be revolutionary.

>Because Bitcoin is an open-source project, and because the database exists only in the distributed peer-to-peer network created by its users, there is no Bitcoin company to raid, subpoena or shut down. Even if the Bitcoin.org site were taken offline and the Sourceforge project removed, the currency would be unaffected. Like BitTorrent, taking down any of the individual computers that make up the peer-to-peer system would have little effect on the rest of the network. And because the currency is truly anonymous, there are no identities to trace.

And if a P2P currency can make it so that there is no fiscal intermediary to regulate, how about a distributed DNS system so that there are no registrars to coerce? This is something Peter Sunde of Pirate Bay fame [has been working on](http://www.wired.co.uk/news/archive/2010-12/02/peter-sunde-p2p-dns). These ideas may sound radical and far-fetched, but if we truly want to see an online regime of “[denationalized liberalism](http://techliberation.com/2010/11/28/mueller%E2%80%99s-networks-and-states-classical-liberalism-for-the-information-age/),” as Milton Mueller puts it, then getting rid of the intermediaries in the net’s infrastructure might be the best path forward.

Again, check out [my piece in TIME](http://techland.time.com/2011/04/16/online-cash-bitcoin-could-challenge-governments/) for a thorough explanation of Bitcoin and its implications. I plan to be writing about it a lot more and devote some of my research time to it.

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FERPA Regulation Amendments as a Teachable Moment

by on April 16, 2011 · 6 comments

When legislation or regulation is what you rely on for privacy protection, your privacy protection relies on political consensus staying the same. When political consensus changes, your privacy can go away.

Witness the Department of Education’s proposed change to FERPA regulations—the Family Education Rights and Privacy Act—to make more data about students available to more people. The privacy protections that have applied until now are unlikely to withstand the Education Department’s belief that using data about students is more important.

To anyone who relied on FERPA for privacy protection: Oops!

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YouTube Introduces “Copyright School” to Educate Infringing Users

by on April 15, 2011 · 7 comments

In the ongoing copyright debates, areas of common ground are seemingly few and far between. It’s easy to forget that not all approaches to combating copyright infringement are mired in controversy. One belief that unites many stakeholders across the spectrum is that more efforts are needed to educate Internet users about copyright. The Internet has spawned legions of amateur content creators, but not all of the content that’s being created is original. Indeed, a great deal of online copyright infringement owes to widespread ignorance of copyright law and its penalties.

For its part, Google yesterday unveiled “Copyright School” for YouTube users. As Justin Green explains on the official YouTube blog, users whose accounts have been suspended for allegedly uploading infringing content will be required to watch this video and then correctly answer questions about it before their account will be reinstated:

Of course, boiling down the basics of copyright into a four and a half minute video is not an easy task, to put it mildly. (The authoritative treatment of copyright law, Nimmer on Copyright, fills an 11-volume treatise.) Copyright geeks and fans of “remix culture” will appreciate that Google’s video touches on fair use and includes links to in-depth resources for users to learn more about copyright. It will be interesting to see how Google’s effort influences the behavior of YouTube users and the incidence of repeat infringement.

Continue reading →

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Tax Day Thoughts on the Non-Tax USF Tax

by on April 15, 2011 · 1 comment

While most folks have been obsessing over their income taxes the past few weeks, Jerry Brito and I have been obsessing about a non-tax: the universal service assessments on our phone bills.

More specifically, the Federal Communications Commission has asked for comments on its plan to gradually turn the current phone subsidy program in high-cost rural areas into a broadband subsidy program in high-cost rural areas. This opens up a big tangled can of worms.  Comments are due Monday.  We deal with two issues in our comment:

Definition of broadband: Thankfully, the FCC is asking for comments on its proposal to define broadband as 4 Mbps download/1 Mbps upload. This is an important decision with a big effect on the size of the program. The 4 Mbps definition more than doubles the number of households considered “unserved,” because it doesn’t count 3G wireless or slower DSL or slower satellite broadband as broadband. It also raises the cost of the subsidies by requiring more expensive forms of broadband.

The definition fails to fit the factors the 1996 Telecom Act says the FCC is supposed to consider when determining what communications services qualify for universal service subsidies.  A download speed of 4 Mbps is not “essential” for online education; most online education providers say any broadband speed or even dialup is satisfactory. Nor is that speed “essential” for public safety; the biggest barrier to public safety broadband deployment is creation of an interoperable public safety network, which has nothing to do with USF subsidies. And the proposed speed is not subscribed to by a “substantial majority” of US households.  The most recent FCC statistics indicate that the fastest broadband download speed subscribed to by a “substantial majority” of US households is probably 768 kbps.

Definition of performance measures: Fifteen years after passage of the legislation that authorized the high cost universal service subsidies, the FCC has proposed to measure the program’s outcomes.  Actually, the FCC wants to measure intermediate outcomes like deployment, subscribership, and urban-rural rate comparability — not ultimate outcomes like expanded economic and social opportunities for people in rural areas.  But it’s a start …  provided that the FCC actually figures out how the subsidies have affected these intermediate outcomes, rather than just measuring trends and claiming the universal service subsidies caused any positive trends observed.  We have some suggestions on how to do this.  

Our full comment is available here.

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Exploiting Copyrightunities

by on April 13, 2011 · 1 comment

Reputation oils the gears of many markets. People’s expressions of opinion about goods and services help establish the reputations of sellers and service providers. Knowing that they are the subject of reputation systems that they do not control, service providers do a better job on average than they otherwise would. Slacking off even once can sully a reputation and produce well-placed economic sanctions: people won’t do business. Withdrawing reputation information from the public sphere will generally slow the process of winnowing bad actors out of any market and rewarding most highly the good ones. Commercial opinion is a little engine of positive externalities.

Federal privacy regulations under the Health Insurance Portability and Accountability Act shaped the information terms in health care services in ways people are right to disagree with. So it might be tempting to trade away one’s right to criticize a doctor for greater privacy protection. But a new site called DoctoredReviews.com argues against that bargain—indeed, it argues the bargain is illusory—and it criticizes the use of copyright law to enforce the deal.

Apparently, a group called Medical Justice is offering doctors a form contract to give to patients that holds out greater privacy protection for the patient if the patient will refrain from criticizing the doctor. That’s a deal people should be free to make, though—again—it’s probably a bad one. One way that the deal is enforced is by giving the doctor a copyright in the expressions of opinion that patients may issue. This gives the doctor a right to issue “take-down” notices to web sites where content critical of them is found.

This peculiar use of copyright takes the virtuous cycle where a patient talking about an experience with a doctor benefits others, and doesn’t just nip it—bringing it back to zero. It places enforcement costs on third parties. The enforcement of copyrights in commentary pushes negative externalities onto web site operators as it deprives markets of useful information.

The DoctoredOpinions site has a good, concise explanation of the law as it relates to website owners. I think copyright has some explaining to do—its distinction from rights in physical property is in high relief—if its enforcement can draw disinterested and uninvolved third parties into an administrative/litigation vortex.

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The “Privacy Bill of Rights” is in the Bill of Rights

by on April 13, 2011 · 0 comments

Every lover of liberty and the Constitution should be offended by the moniker “Privacy Bill of Rights” appended to regulatory legislation Senators John Kerry (D-MA) and John McCain (R-AZ) introduced yesterday. As C|Net’s Declan McCullagh points out, the legislation exempts the federal government and law enforcement:

[T]he measure applies only to companies and some nonprofit groups, not to the federal, state, and local police agencies that have adopted high-tech surveillance technologies including cell phone tracking, GPS bugs, and requests to Internet companies for users’ personal information–in many cases without obtaining a search warrant from a judge.

The real “Privacy Bill of Rights” is in the Bill of Rights. It’s the Fourth Amendment.

It takes a lot of gall to put the moniker “Privacy Bill of Rights” on legislation that reduces liberty in the information economy while the Fourth Amendment remains tattered and threadbare. Nevermind “reasonable expectations”: the people’s right to be secure against unreasonable searches and seizures is worn down to the nub.

Senators Kerry and McCain should look into the privacy consequences of the Internal Revenue Code. How is privacy going to fare under Obamacare? How is the Department of Homeland Security doing with its privacy efforts? What is an “administrative search”?

McCullagh was good enough to quote yours truly on the new effort from Sens. Kerry and McCain: “If they want to lead on the privacy issue, they’ll lead by getting the federal government’s house in order.”

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House votes to nullify net neutrality: what’s next?

by on April 12, 2011 · 0 comments

On Forbes this morning, I analyze the legislative and judicial challenges to last year’s FCC Open Internet rules, the so-called net neutrality order.

Despite the urgency of Friday’s budget machinations, the House took time out to pass House Joint Resolution 37, which “disapproves” the FCC’s December rulemaking.  If passed by the Senate and not vetoed by President Obama, HJR 37 would effectively nullify the net neutrality rules, and ensure the FCC cannot pass alternate versions of them absent new authority to do so from Congress.

Most commentators believe that the House action was merely symbolic.  Passage in the Senate requires only a simple majority, but the neutrality fight has turned violently partisan since the mid-term elections and getting a few Democratic Senators on-board may be hard.  More to the point, the White House last week pre-emptively threatened to veto the resolution.

Continue reading →

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