For my latest column in The Hill, I explored the European Union’s (EU) endlessly expanding push to regulate all facets of the modern data economy. That now includes a new effort to regulate artificial intelligence (AI) using the same sort of top-down, heavy-handed, bureaucratic compliance regime that has stifled digital innovation on the continent over the past quarter century.

The European Commission (EC) is advancing a new Artificial Intelligence Act, which proposes banning some AI technologies while classifying many others under a heavily controlled “high-risk” category. A new bureaucracy, the European Artificial Intelligence Board, will be tasked with enforcing a wide variety of new rules, including “prior conformity assessments,” which are like permission slips for algorithmic innovators. Steep fines are also part of the plan. There’s a lengthy list of covered sectors and technologies, with many others that could be added in coming years. It’s no wonder, then, that the measure has been labelled the measure “the mother of all AI laws” and analysts have argued it will further burden innovation and investment in Europe.

As I noted in my new column, the consensus about Europe’s future on the emerging technology front is dismal to put it mildly. The International Economy journal recently asked 11 experts from Europe and the U.S. where the EU currently stood in global tech competition. Responses were nearly unanimous and bluntly summarized by the symposium’s title: “The Biggest Loser.” Respondents said Europe is “lagging behind in the global tech race,” and “unlikely to become a global hub of innovation.” “The future will not be invented in Europe,” another analyst bluntly concluded.

That’s a grim assessment, but there is no doubt that European competitiveness is suffering today and that excessive regulation plays a fairly significant role in causing it. As I noted in my column, “the EU’s risk-averse culture and preference for paperwork compliance over entrepreneurial freedom” had serious consequences for continent-wide innovation.  I note in my recent column how:

After the continent piled on layers of data restrictions beginning in the mid-1990s, innovation and investment suffered. Regulation grew more complex with the 2018 General Data Protection Regulation (GDPR), which further limits data collection and use. As a result of all the red tape, the EU came away from the digital revolution with “the complete absence of superstar companies.” There are no serious European versions of Microsoft, Google, Facebook, Apple or Amazon. Europe’s leading providers of digital technology services today are American-based companies.

Let’s take a look at a few numbers that illustrate what’s happened in Europe’s tech sector over the past quarter century. Here’s an old KPGM breakdown of market caps for public Internet companies over an important 20 year period, from 1995 to 2015, when the digital technology marketplace was taking shape. Besides the remarkable amount of churn over that period (with only Apple appearing on both lists), the other notable thing is the complete absence of any European companies in 2015.

Next, here’s a chart I constructed using CB Insights data for global unicorns ($billion valued companies) from 2010 up through early 2022. It shows how the U.S. dominates fully half the list with China having a 16% share, but all of the European Union’s firms equal just a 9 percent slice of the world’s share.

If you want to see a per capita breakdown of VC investment by country, here’s a handy Crunchbase News chart. While the U.S. is geographically much larger than Europe, a breakdown of VC funding on a per capita basis reveals that only Estonia ($915B) and Sweden ($700B) have startup investment on par with America ($808B). No other European country has even half as much per capita VC investment as the U.S., and most don’t even have a quarter as much.

As we enter the “age of AI,” what will the EU’s same regulatory model for mean for AI, machine learning, and robotics in Europe? We do have some early data on that, too. Here’s a breakdown of AI-related VC activity and AI unicorn in 2021 from the recent State of AI Report 2021, with European countries already trailing far behind:

Also, here’s some data on recent AI investment by region from the latest Stanford “AI Index Report 2022” which again highlights a gap that is only growing larger:

It’s important to listen to what actual AI innovators across the Atlantic have to say about the new EU regulatory efforts. Just last month, the UK-based Coalition for a Digital Economy (Coadec), an advocacy group for Britain’s technology-led startups, published a report entitled, “What do AI Startups Want from Regulation?” Coadec surveyed its members to gauge their feelings about the EU’s proposed approach to AI regulation, as well as the UK’s. 76% of those startups said that their business model would be either negatively affected or become infeasible if the UK were to echo the EU by making AI developers liable, and an equal percentage said they had varying concerns about whether it’s technically even feasible to make their datasets “free of errors,” as the EU looks set to demand. Respondents also said they feared that the new AI Act would be particularly burdensome to small and mid-size entrepreneurs because they cannot afford to deal with the costly compliance hassles like the larger competitors they face. This would end of being a replay of the burdens they faced from GDPR, which decimated small businesses. “The experience of GDPR demonstrated how unclear, complex and expensive regulations drove many startups out of business, and disproportionately impact startups that survived–GDPR compliance cost startups significantly more than it did the Tech Giants,” the Coadec report concluded.

At least those UK-based innovators might be in a slightly better position post-Brexit with the British government now looking to chart a different–and much less burdensome–governance approach for digital technologies. In fact, the UK government recently released a major policy document on “Establishing a Pro-Innovation Approach to Regulating AI,” which makes a concerted effort to distinguish its approach from the EU’s. “We will ask that regulators focus on high risk concerns rather than hypothetical or low risks associated with AI,” the report noted. “We want to encourage innovation and avoid placing unnecessary barriers in its way.” This is consistent with what the UK government has been saying on technology governance more generally. For example, in recent report advocating for Innovation Friendly Regulation, the UK government’s Regulatory Horizons Council argued that, when it comes to the regulation of emerging technologies like AI, “it is also necessary to consider the risk that the intervention itself poses.” “This would include the potential impact on benefits from a particular innovation that might be foregone; it would also include the potential creation of a ‘chilling effect’ on innovation more generally,” the Council concluded. Clearly, this approach to technology policy stands in stark contrast to the EU’s heavy-handed model. So, there is a chance that at least some innovators based in the UK can escape the EU’s regulatory hell.

What about AI innovators stuck on the European continent? What are they saying about the regulations they will soon face? The European DIGITAL SME Alliance, which is the largest network of small and medium sized enterprises (SMEs) in the European ICT sector, represents roughly 45,000 digital SMEs. In comments to the EC about the impact of the law, the Alliance highlighted how costly the AI Act’s conformity assessments and other regulations will be for smaller innovators. “This may put a burden on AI innovation” the Alliance argued, because smaller developers have limited financial and human resources of SMEs.” “[A] regulation that requires SMEs to make these significant investments, will likely push SMEs out of the market,” the group noted. “This is exactly the opposite of the intention to support a thriving and innovative AI ecosystem in Europe.” Moreover, “SMEs will not be able to pass on these costs to their customers in the final customer end pricing,” the Alliance correctly noted because, “[t[he market is global and highly competitive. Therefore, customers will choose cheaper solutions and Europe risks to be left behind in technology development and global competition.”

In March, the Alliance also hosted a forum on “The European AI Act and Digital SMEs,” which featured comments from some operators in this space. Some speakers were quite timid and you could sense that they might have feared pushing back too aggressively against the European Commission so as not to get on the bad side of regulators before the rules go into effect. But Mislav Malenica, Founder & CEO Mindsmiths didn’t pull any punches in his remarks. His company Mindsmiths is trying to build autonomous support systems in many different fields, but their ability to innovate and compete globally will be severely curtailed by the EU AI Act, he argued.

I usually don’t spend time transcribing people’s comments from events, but I went back and watched Malenica’s multiple times because his remarks are so powerful and I wanted to make sure others hear what he was saying. [Malenica’s opening comments during the event run from 42:29 to 49:34 of the video and then he has more to say during Q&A beginning at the 1:27:28 of the video.] Here’s a quick summary of a few of Malenica’s key points (listed chronologically):

• “I’m not sure we are doing everything we can do actually to create an environment that’s innovation friendly.”
• “we see a lot of uncertainty. We see fear.”
• “basically we won’t be able to get funding here.”
• while reading through the AI Act, he notes, “I don’t see start-ups being mentioned anywhere, and startups are the main vehicles of innovation.” […] “I find it very arrogant”
• if AI Act becomes law, “what we’ll do in Europe is we’ll create a new market and that’s the AI markets based on fear,” and in how to just build products that avoid the wrath of government or lawsuits.
• “we are really stifling innovation” and that means Europeans will have to import autonomous products from foreign companies instead of making them there.

Later, during in the Q&A period, Malenica notes how his first virtual currency startup had to use half it’s investment capital just dealing with regulatory compliance issues, and most venture capitalists wouldn’t get behind launching in Europe because of such legal hassles. He reflects upon what this mean for other innovators going forward as the EU prepares to expand their regulatory regime for AI sectors:

• “I don’t think we’re missing talent. That’s just a consequence” of all the regulation. “We are missing a sense that you have opportunities here. If you the opportunities here, then the talent will come, the funding will come, and so on because people see that they’ll be able to make money, they’ll be able to build companies, and so on.”
• “If we now take a look at the 10 biggest companies market capitalizations in the world, we’ll see that none of them comes actually from Europe” with U.S. tech companies dominating the list. “So, we missed that wave completely.” Why? “Because we didn’t inspire anyone to take action,” and that is about to happen for AI.
• “We need to decide if we are going to be a land of opportunities, or will we be just consumers of other people’s tech, the same we are right now” for digital software and services.
• “We’re already finding excuses for the loss” of the AI market, he argues.

Malenica’s comments are extraordinarily demoralizing if you care about innovation. Now, I’m an American and one way to look at this dismal situation is that, by hobbling its own startups and existing AI innovators, Europe is doing the U.S. another favor by essentially taking itself out of the running in next great global tech race. Europe’s actions may also mean that America gains many of their best and brightest if they come to the U.S. when looking to create the next great algorithmic service or application because they can’t do so in the EU. This is exactly what happened over the past few decades for Internet startups, Malenica noted.

But that’s dismal news in another sense. Europe is filled with brilliant innovators, highly-skilled talent, world-class educational institutions, and even many venture capitalists looking to invest in this arena. Unfortunately, the continent’s suffocating regulatory approach makes it nearly impossible for digital technology innovators to have a fighting chance. Through their heavy-handed policies, European officials have essentially declared their innovators “guilty until proven innocent.” And that means that Europeans and the rest of the world are being deprived of many important life-enriching and life-saving AI applications that those innovators could create. Technological innovation is not a zero-sum game that only one country can “win.” Innovation drives growth and prosperity and lifts all boats as its benefits spread throughout the world. When European innovators prosper, people all over the world prosper along with them.

Is there any chance the European Commission softens its stance toward emerging technologies and looks to adopt a more flexible governance approach that instead treats AI innovators as innocent until proven guilty? I think it is extremely unlikely that will happen because, as Malenica noted, European technology policy is too rooted in fear of disruption and extreme risk-aversion. EU officials are forgetting that the most important lesson from the history of technological innovation is there can be no progress without some risk-taking and corresponding disruption. My favorite quote about the relationship between risk-taking and human progress comes from Wilbur Wright who, along with his brother, helped pioneer human flight. “If you are looking for perfect safety,” Wright said, “you would do well to sit on a fence and watch the birds.” European policymakers are essentially forcing their best and brightest innovators to sit on the fence and watch the rest of the world fly right past them on the digital technology and AI front. The ramifications for the continent will be disastrous. Regardless, as I noted in concluding my recent Hill column, Europe’s approach to AI “shouldn’t be the model the U.S. follows if it hopes to maintain its early lead in AI and robotics. America should instead welcome European companies, workers and investors looking for a more hospitable place to launch bold new AI innovations.”

Alas, European officials appear ready to ignore the deleterious impact of their policies on innovation and competition and instead make regulation their leading export to the world. In fact, the European Commission will soon open a San Francisco office to work more closely with Silicon Valley companies affected by EU tech regulation. European leaders have basically surrendered on the idea of home-grown innovation and are now plowing all their energies into regulating the rest of the world’s largest digital technology companies, most of which are headquartered in the United States. It’s no wonder, then, that The Economist magazine concludes that, “Europe is the free-rider continent” that “has piggybacked on innovation from elsewhere, keeping up with rivals, not forging ahead.” Instead, “the cuddly form of capitalism embraced in Europe has markedly failed to create world-beating companies,” the magazine argues.

European officials want us to believe that they are somehow doing the world a favor by being its global tech regulator, when instead the are simply solidifying the power of the largest digital tech companies, who are the only ones with enough resources–mainly in the form of massive legal compliance teams–to live under the EU’s innovation-crushing regulations. Sadly, many US policymakers hate our own home-grown tech companies so much now, that they are willing to let this happen. In a better world, those American lawmakers would stand up to European officials looking to bully tech innovators and we would reject the innovation-killing recipe that the EU is cooking up for AI markets and expects the rest of the world to eat.

Additional Reading on AI & Robotics:

• Adam Thierer, “How Science Fiction Dystopianism Shapes the Debate over AI & Robotics,” Discourse, July 26, 2022.
• Adam Thierer, “Why is the US Following the EU’s Lead on Artificial Intelligence Regulation?” The Hill, July 21, 2022.
• Adam Thierer, “Algorithmic Auditing and AI Impact Assessments: The Need for Balance,” Medium, July 13, 2022.
• Adam Thierer, “What I Learned about the Power of AI at the Cleveland Clinic,” Medium, May 6, 2022.
• Adam Thierer, Governing Emerging Technology in an Age of Policy Fragmentation and Disequilibrium, American Enterprise Institute (April 2022).
• Adam Thierer, “How to Get the Future We Were Promised,” Discourse, January 18, 2022.
• Adam Thierer, “A Global Clash of Visions: The Future of AI Policy,” The Hill, May 4, 2021.
• Adam Thierer, “A Brief History of Soft Law in ICT Sectors: Four Case Studies,” Jurimetrics, Vol. 61 (Fall 2021): 79-119.
• Adam Thierer, “Artificial Intelligence Governance in the Obama–Trump Years,” IEEE Transactions on Technology and Society, Vol, 2, Issue 4 (2021).
• Adam Thierer, “The Worst Regulation Ever Proposed,” The Bridge, September 2019.
• Ryan Hagemann, Jennifer Huddleston Skees & Adam Thierer, “Soft Law for Hard Problems: The Governance of Emerging Technologies in an Uncertain Future,” Colorado Technology Law Journal, Vol. 17 (2018).
• Adam Thierer & Trace Mitchell, “No New Tech Bureaucracy,” Real Clear Policy, September 10, 2020.
• Adam Thierer, “OMB’s AI Guidance Embodies Wise Tech Governance,” Mercatus Center Public Comment, March 13, 2020.
• Adam Thierer, “Europe’s New AI Industrial Policy,” Medium, February 20, 2020.
• Adam Thierer, “Trump’s AI Framework & the Future of Emerging Tech Governance,” Medium, January 8, 2020.
• Adam Thierer, “Soft Law: The Reconciliation of Permissionless & Responsible Innovation,” Chapter 7 in Adam Thierer, Evasive Entrepreneurs & the Future of Governance (Washington, DC: Cato Institute, 2020): 183-240.
• Andrea O’Sullivan & Adam Thierer, “Counterpoint: Regulators Should Allow the Greatest Space for AI Innovation,” Communications of the ACM, Volume 61, Issue 12, (December 2018): 33-35.
• Adam Thierer, Andrea O’Sullivan & Raymond Russell, “Artificial Intelligence and Public Policy,” Mercatus Research (2017).
• Adam Thierer, “Shouldn’t the Robots Have Eaten All the Jobs at Amazon By Now?” Technology Liberation Front, July 26, 2017.
• Adam Thierer, “Are ‘Permissionless Innovation’ and ‘Responsible Innovation’ Compatible?” Technology Liberation Front, July 12, 2017.
• Adam Thierer, “The Growing AI Technopanic,” Medium, April 27, 2017.
• Adam Thierer, “The Day the Machines Took Over,” Medium, May 11, 2017.
• Adam Thierer, “When the Trial Lawyers Come for the Robot Cars,” Slate, June 10, 2016.
• Adam Thierer, “Learning by Doing,” the Process of Innovation & the Future of Employment,” Technology Liberation Front, September 25, 2015.
• Adam Thierer, “Problems with Precautionary Principle-Minded Tech Regulation & a Federal Robotics Commission,” Medium, September 22, 2014.
• Adam Thierer, “On the Line between Technology Ethics vs. Technology Policy,” Technology Liberation Front, August 1, 2013.

In early January, the Trump Administration announced a new light-touch regulatory framework and then followed up with a proposed doubling of federal R&D spending on AI and quantum computing. This week, the European Union Commission issued a major policy framework for AI technologies and billed it as “a European approach to excellence and trust.”

It seems the EU basically wants to have its cake and eat it too by marrying up an ambitious industrial policy with a precautionary regulatory regime. We’ve seen this show before. Europe is doubling down on the same policy regime it used for the internet and digital commerce. It did not work out well for the continent then, and there are reasons to think it will backfire on them again for AI technologies.

An Ambitious Industrial Policy Vision

The new EU framework includes a lot of catchphrases and proposals that are an industrial policy lover’s dream. In an attempt to create “an ecosystem of excellence” and ensure the “human-centric development if AI,” it identifies a variety of existing or new industrial planning efforts, including: Digital Innovation Hubs, Enterprise Resource Planning, the Digital Europe Programme, the Key Digital Technology Joint Undertaking, and broad-based public private partnerships. This is all part of an official “Coordinated Plan” prepared together with the Member States “to foster the development and use of AI in Europe.”

To accomplish that, the Commission says it will “facilitate the creation of excellence and testing centres” that will “concentrate in sectors where Europe has the potential to become a global champion.” The Commission also wants to give special consideration to growing small and mid-size enterprises (SMEs) is establishing these plans.

Again, it’s an ambitious industrial policy vision, and one that will be accompanied by a wide variety of (yet-to-be-determined) regulatory enactments to shape the development and use of AI. But if that approach really works, why aren’t European digital companies global leaders today? Instead, firms based mostly in the US have risen to become household names across the globe. Regulation had an influence on that result because American firms enjoyed a policy regime that was rooted in “permissionless innovation,” which generally allows experimentation by default and addresses concerns by using more flexible, ex post remedies. By contrast, Europe’s internet policy approach was rooted in the precautionary principle, or the notion that innovation is essentially guilty until proven innocent. New technologies are to be subjected to prior constraints—or what the new European Commission white paper calls “prior conformity assessments”—before being allow into the wild.

Precautionary Regulation Dominates

Despite losing that last round of the innovation wars, the new EU white paper makes it clear that Europe will keep using a precautionary approach. What does that mean for AI regulation? The problem here begins with defining what is a “high-risk” AI application requiring prior restraints. The white paper defines it in a somewhat circular fashion, saying that, “an AI application should be considered high-risk where…(it) is employed in a sector where, given the characteristics of the activities typically undertaken, significant risks can be expected to occur” and is “used in such a manner that significant risks are likely to arise.” Instead of providing legal certainty, this definition clarifies almost nothing and will require future regulatory inquires to determine the full scope and nature of AI controls.

There’s also a lot of talk in the proposal about preemptively addressing “risks for fundamental rights,” which is understandable. AI innovations can raise various safety, security, and privacy concerns that deserve to be taken seriously. But what about the risk of not having access to important AI innovations at all? What about the risk of losing out on life-enriching—and in many cases life-saving—innovations because, instead of “building trust,” the regulatory regime builds the exact opposite: fear of innovating.

Entrepreneurs and investors respond to incentives. Before building or investing in a new technology, they want to know how long it will take to get that good or service launched—assuming they can get approval at all. Every innovator and investor factors such political risk into their business plans. When the potential costs of product launch overwhelm the likely benefits, they will abandon innovative efforts or look to engage in them elsewhere.

The EU says “the race for global leadership is ongoing,” and claims that, “Europe offers significant potential, knowledge and expertise” through its efforts to make the continent an AI innovation hub. Indeed, some of the best AI researchers are in Europe, and there are plenty of brilliant people brimming with entrepreneurial enthusiasm about creating world-class AI applications. But all that knowledge and enthusiasm do not matter much if the regulatory deck is stacked against innovation from the start.

And Even More Expansive Regulation Down the Road

Beyond the precautionary approach in that document, the EU’s accompanying white paper on safety and liability implications of AI leaves open the possibility of an expansion in preemptive regulatory requirements. “Additional obligations may be needed for manufacturers to ensure that they provide features to prevent the upload of software having an impact on safety during the lifetime of the AI products,” the document notes. Moreover, if an ongoing AI software update “modifies substantially the product in which it is downloaded, the entire product might be considered as a new product and compliance with the relevant safety product legislation must be reassessed at the time the modification is performed.”

That sort of regulatory regime may sound quite sensible at first blush. In practice, however, it means that every conceivable tweak to an algorithm requires costly and complex regulatory approval. If traditional computer software had required regulatory approval before any new modifications could be made, most consumers would still be stuck with an aol.com email address and Windows 95 as an operating system.

What the European Commission proves with its new AI policy framework is that it is easy to talk a big game about planning for an innovative future, but it is an entirely different thing to actually bring one about. The European approach will have clear competitive effects, or more specifically, anti-competitive effects. As is already the case with the EU’s regulatory approach to the data economy and GDPR in particular, regulatory compliance costs continue to skyrocket and small and mid-size enterprises struggle to cope. This means that only firms operating the largest digital platforms are able to shoulder these burdens, leaving consumers without as many competitive, low-cost choices as they might otherwise enjoy. Not even generous government support for SMEs will be able to counter-balance the costly entry barriers associated with over-regulation.

Solidifying Market Power of Existing Giants?

This is why it is so ironic how worried the EU is about the market power of Google, Facebook and other US-based tech giants: the regulatory burden now helps those firms maintain their market dominance. Over-regulation by the EU undermined both home-grown and international investment and competition that might challenge those existing players. With each addition layer of AI regulation that now gets piled on top of the Europe’s existing regulatory burden, the prospects for creative destruction decrease, as do the chances for life-enriching innovations to ever make it to consumers.

While the European Commission will, no doubt, insist that they are implementing this new AI regime with the very best of intentions in mind, there is no escaping the fact that regulation involves complex trade-offs and unforeseeable consequences. The consequences in this case are likely a bit easier to predict, however: By smothering new AI applications in layers of red tape, we can expect fewer innovations and less competition.

Despite all the talk of boosting SMEs, perhaps the EU will eventually become more like China and unabashedly support larger home-grown firms to make sure they are part of the global AI race. China has already made waves on this front with its 2017 “New Generation Artificial Intelligence Development Plan,” an audacious industrial policy plan which seeks “to build China’s first-mover advantage in the development of AI [and] to accelerate the construction of an innovative nation and global power in science and technology.” The document is as much a manifesto about geopolitical power as it is about technological governance. And it does not try to hide China’s authoritarian impulse to meticulously plan every facet of daily life under the auspices of promoting global technological leadership. China’s AI manifesto even concludes with a section on “public opinion guidance” that creepily insists the country will, “Fully use all kinds of traditional media and new media to quickly propagate new progress and new achievements in AI, to let the healthy development of AI become a consensus in all of society, and muster the vigor of all of society to participate in and support the development of AI.”

The new European AI industrial policy framework does not go as far as China’s, not only because the continent is obviously more open and democratic by nature, but also because the EU is a collection of many countries and cultures that will never be able to speak as coherently and forcefully with one voice on all technological governance matters. In fact, the EU’s new governance framework explicitly leaves room for more tailored AI regulation by individual member states.

Conclusion

This leaves Europe stuck between the polar opposites of China and the US when it comes to AI governance. China’s meticulously detailed, highly centralized, state-driven approach stands in stark contrast to the more bottom-up, adaptive American approach which insists that regulators, “must avoid a precautionary approach that holds AI systems to such an impossibly high standard that society cannot enjoy their benefits.”

The US approach also leans heavily on “soft law,” or informal governance mechanisms that are not as burdensome as precautionary regulatory controls. Soft law can include a wide variety of tools and methods for addressing policy concerns, including multistakeholder initiatives, best practices and standards, agency workshops and guidance documents, educational efforts, and much more. These are the governance tools the dominated for the internet and digital platforms for that past twenty years in the US, and they will likely continue to be the primary governance mechanisms for artificial intelligence, robotics, the internet of things, and other emerging tech sectors.

The EU probably thinks it has found the Goldilocks formula and gotten AI policy just right by falling between China and the US on the governance spectrum. It is more likely, however, that European policymakers will be unable to resist the urge to over-plan and micro-manage AI markets until they are once again left wondering how they got stuck trying to regulate market leaders that are headquartered oceans away from them. With the US once again adopting a more flexible approach, we could see a replay of the Web Wars, with innovators and investors putting their efforts behind AI launches in the US instead of Europe. Meanwhile, China will likely attract far more global venture capital for AI and robotics launches than they did for digital platforms. This could really put the squeeze on Europe.

Only time will tell. But, to paraphrase Yoda, when it comes to global artificial intelligence governance, one thing is clear: Begun the AI war has.

This article originally appeared at techfreedom.org

On December 15, the European Commission announced that it had reached agreement with the European Parliament and the Council on a new EU Data Protection regulation. The new regulation, which is not yet public, has been under negotiation since January 2012, and would replace Europe’s 1995 Data Protection directive, which left implementation up to nation states.

“ Europe has a collective insecurity complex about the Internet,” said Berin Szoka, President of TechFreedom. “The problem isn’t that Europeans aren’t innovative, but that Europe’s most innovativeusually leave the gray continent to start web businesses in the U.S., where innovation doesn’t require permission. Now, it seems, European governments have thrown in the towel: instead of trying to stop the digital brain drain by making Europe more open to innovation, they’re cracking down on the data flows that drive web companies. Their hodgepodge of new measures will prove either crippling, counter-productive or utterly unworkable.”

“ The worst idea is banning young teens from using social media without parental consent,” continued Szoka. “We already know that kids 13 and under simply lie about their age to get access to the sites they want to use. Teens will do the same, making the promise of parental control utterly illusory. That, in turn will undermine social media platforms’ efforts to offer age-appropriate experiences for their users. The only way to avoid this will be to age-verify all users, which means tyingeveryone’s Internet use to a verified identity — in short, ending online anonymity. Similarly, the ‘right to be forgotten’ sounds great, but in practice, means giving users a right to censor speech about them they don’t like.”

“ The new regulations will harm startups most,” concluded Szoka. “Allowing fines of up to 4% of a company’s global revenue will make all companies reluctant to experiment with new offerings that unsettle established norms. From Google’s Street View to Facebook’s NewsFeed, yesterday’s ‘creepy’ has proved to be today’s ‘awesome.’ Now, that line will be drawn by bureaucrats rather than consumers. Ironically, it’s established, American companies that will be most able to deal with the burden of compliance — which is why, of course, these heavy-handed regulations will no doubt be enforced arbitrarily. Regulatory discretion will be used as a tool of digital protectionism — yet another way for regulators to vent their frustration as Europe falls further and further behind Silicon Valley. Ordinary Europeans will be told that only tougher measures will bridge the gap, and Europe’s sad spiral of digital self-destruction will go on, and on, and on…”

Last week marked the conclusion of the ITU’s Plenipotentiary Conference, the quadrennial gathering during which ITU member states get together to revise the treaty that establishes the Union and conduct other high-level business. I had the privilege of serving as a member of the US delegation, as I did for the WCIT, and to see the negotiations first hand. This year’s Plenipot was far less contentious than the WCIT was two years ago. For other summaries of the conference, let me recommend to you Samantha Dickinson, Danielle Kehl, and Amb. Danny Sepulveda. Rather than recap their posts or the entire conference, I just wanted to add a couple of additional observations.

We mostly won on transparent access to documents

Through my involvement with WCITLeaks, I have closely followed the issue of access to ITU documents, both before and during the Plenipot. My assessment is that we mostly won.

Going forward, most inputs and outputs to ITU conferences and assemblies will be available to the public from the ITU website. This excludes a) working documents, b) documents related to other meetings such as Council Working Groups and Study Groups, and c) non-meeting documents that should be available to the public.

However, in February, an ITU Council Working Group will be meeting to develop what is likely to be a more extensive document access policy. In May, the whole Council will meet to provisionally approve an access policy. And in 2018, the next Plenipot will permanently decide what to do about this provisional access policy.

There are no guarantees, and we will need to closely monitor the outcomes in February and May to see what policy is adopted—but if it is a good one, I would be prepared to shut down WCITLeaks as it would become redundant. If the policy is inadequate, however, WCITLeaks will continue to operate until the policy improves.

I was gratified that WCITLeaks continued to play a constructive role in the discussion. For example, in the Arab States’ proposal on ITU document access, they cited us, considering “that there are some websites on the Internet which are publishing illegally to the public ITU documents that are restricted only to Member States.” In addition, I am told that at the CEPT coordination meeting, WCITLeaks was thanked for giving the issue of transparency at the ITU a shot in the arm.

A number of governments were strong proponents of transparency at the ITU, but I think special thanks are due to Sweden, who championed the issue on behalf of Europe. I was very grateful for their leadership.

The collapse of the WCIT was an input into a harmonious Plenipot

We got through the Plenipot without a single vote (other than officer elections)! That’s great news—it’s always better when the ITU can come to agreement without forcing some member states to go along.

I think it’s important to recognize the considerable extent to which this consensus agreement was driven by events at the WCIT in 2012. At the WCIT, when the US (and others) objected and said that we could not agree to certain provisions, other countries thought we were bluffing. They decided to call our bluff by engineering a vote, and we wisely decided not to sign the treaty, along with 54 other countries.

In Busan this month, when we said that we could not agree to certain outcomes, nobody thought we were bluffing. Our willingness to walk away at the WCIT gave us added credibility in negotiations at the Plenipot. While I also believe that good diplomacy helped secure a good outcome at the Plenipot, the occasional willingness to walk the ITU off a cliff comes in handy. We should keep this in mind for future negotiations—making credible promises and sticking to them pays dividends down the road.

The big question of the conference is in what form will the India proposal re-emerge

At the Plenipot, India offered a sweeping proposal to fundamentally change the routing architecture of the Internet so that a) IP addresses would be allocated by country, like telephone numbers, with a country prefix and b) domestic Internet traffic would never be routed out of the country.

This proposal was obviously very impractical. It is unlikely, in any case, that the ITU has the expertise or the budget to undertake such a vast reengineering of the Internet. But the idea would also be very damaging from the perspective of individual liberty—it would make nation-states, even more than the are now, mediators of human communication.

I was very proud that the United States not only made the practical case against the Indian proposal, it made a principled one. Amb. Sepulveda made a very strong statement indicating that the United States does not share India’s goals as expressed in this proposal, and that we would not be a part of it. This statement, along with those of other countries and subsequent negotiations, effectively killed the Indian proposal at the Plenipot.

The big question is in what form this proposal will re-emerge. The idea of remaking the Internet along national lines is unlikely to go away, and we will need to continue monitoring ITU study groups to ensure that this extremely damaging proposal does not raise its head.

Good news! As the ITU’s Plenipotentiary Conference gets underway in Busan, Korea, the heads of delegation have met and decided to open up access to some of the documents associated with the meeting. At this time, it is only the documents that are classified as “contributions“—other documents such as meeting agendas, background information, and terms of reference remain password protected. It’s not clear yet whether that is an oversight or an intentional distinction. While I would prefer all documents to be publicly available, this is a very welcome development. It is gratifying to see the ITU membership taking transparency seriously.

Special thanks are due to ITU Secretary-General Hamadoun Touré. When Jerry Brito and I launched WCITLeaks in 2012, at first, the ITU took a very defensive posture. But after the WCIT, the Secretary-General demonstrated tremendous leadership by becoming a real advocate for transparency and reform. I am told that he was instrumental in convincing the heads of delegation to open up access to Plenipot documents. For that, Dr. Touré has my sincere thanks—I would be happy to buy him a congratulatory drink when I arrive in Busan, although I doubt his schedule would permit it.

It’s worth noting that this decision only applies to the Plenipotentiary conference. The US has a proposal that will be considered at the conference to make something like this arrangement permanent, to instruct the incoming SG to develop a policy of open access to all ITU meeting documents. That is a development that I will continue to watch closely.

Last week, I participated in a program co-sponsored by the Progressive Policy Institute, the Lisbon Council, and the Georgetown Center for Business and Public Policy on “Growing the Transatlantic Digital Economy.”

The complete program, including keynote remarks from EU VP Neelie Kroes and U.S. Under Secretary of State Catherine A. Novelli, is available below.

My remarks reviewed worrying signs of old-style interventionist trade practices creeping into the digital economy in new guises, and urged traditional governments to stay the course (or correct it) on leaving the Internet ecosystem largely to its own organic forms of regulation and market correctives:

Vice President Kroes’s comments underscore an important reality about innovation and regulation. Innovation, thanks to exponential technological trends including Moore’s Law and Metcalfe’s Law, gets faster and more disruptive all the time, a phenomenon my co-author and I have coined “Big Bang Disruption.” Regulation, on the other hand, happens at the same pace (at best). Even the most well-intentioned regulators, and I certainly include Vice President Kroes in that list, find in retrospect that interventions aimed at heading off possible competitive problems and potential consumer harms rarely achieve their objectives, and, indeed, generate more harmful unintended consequences. This is not a failure of government. The clock speeds of innovation and regulation are simply different, and diverging faster all the time. The Internet economy has been governed from its inception by the engineering-driven multistakeholder process embodied in the task forces and standards groups that operate under the umbrella of the Internet Society.   Innovation, for better or for worse, is regulated more by Moore’s Law than traditional law. I happen to think the answer is “for better,” but I am not one of those who take that to the extreme in arguing that there is no place for traditional governments in the digital economy. Governments have and continue to play an essential part in laying the legal foundations for the remarkable growth of that economy and in providing incentives if not funding for basic research that might not otherwise find investors. And when genuine market failures appear, traditional regulators can and should step in to correct them as efficiently and narrowly as they can. Sometimes this has happened. Sometimes it has not. Where in particular I think regulatory intervention is least effective and most dangerous is in regulating ahead of problems—in enacting what the FCC calls “prophylactic rules.” The effort to create legally sound Open Internet regulations in the U.S. has faltered repeatedly, yet in the interim investment in both infrastructure and applications continues at a rapid pace—far outstripping the rest of the world. The results speak for themselves. U.S. companies dominate the digital economy, and, as Prof. Christopher Yoo has definitively demonstrated, U.S. consumers overall enjoy the best wired and mobile infrastructure in the world at competitive prices. At the same time, those who continue to pursue interventionist regulation in this area often have hidden agendas. Let me give three examples: 1.  As we saw earlier this month at the Internet Governance Forum, which I attended along with Vice President Kroes and 2,500 other delegates, representatives of the developing world were told by so-called consumer advocates from the U.S. and the EU that they must reject so-called “zero rated” services, in which mobile network operators partner with service providers including Facebook, Twitter and Wikimedia to provide their popular services to new Internet users without use applying to data costs. Zero rating is an extremely popular tool for helping the 2/3 of the world’s population not currently on the Internet get connected and, likely, from these services to many others. But such services violate the “principle” of neutrality that has mutated from an engineering concept to a nearly-religious conviction. And so zero rating must be sacrificed, along with users who are too poor to otherwise join the digital economy. 2.  Closer to home, we see the wildly successful Netflix service making a play to hijack the Open Internet debate into one about back-end interconnection, peering, and transit—engineering features that work so well that 99% of the agreements involved between networks, according to the OECD, aren’t even written down. 3.  And in Europe, there are other efforts to turn the neutrality principle on its head, using it as a hammer not to regulate ISPs but to slow the progress of leading content and service providers, including Apple, Amazon and Google, who have what the French Digital Council and others refer to as non-neutral “platform monopolies” which must be broken. To me, these are in fact new faces on very old strategies—colonialism, rent-seeking, and protectionist trade warfare respectively. My hope is that Internet users—an increasingly powerful and independent source of regulatory discipline in the Internet economy—will see these efforts for what they truly are…and reject them resoundingly. The more we trust (but also verify) the engineers, the faster the Internet economy will grow, both in the U.S. and Europe, and the greater our trade in digital goods and services will strengthen the ties between our traditional economies. It’s worked brilliantly for almost two decades. The alternatives, not so much.

The ITU is holding its quadrennial Plenipotentiary Conference in Busan, South Korea from October 20 to November 7, 2014. The Plenipot, as it is called, is the ITU’s “supreme organ” (a funny term that I did not make up). It represents the highest level of decision making at the ITU. As it has for the last several ITU conferences, WCITLeaks will host leaked documents related to the Plenipot.

For those interested in transparency at the ITU, two interesting developments are worth reporting. On the first day of the conference, the heads of delegation will meet to decide whether documents related to the conference should be available to the public directly through the TIES system without a password. All of the documents associated with the Plenipot are already available in English on WCITLeaks, but direct public access would have the virtue of including those in the world who do not speak English but do speak one of the other official UN languages. Considering this additional benefit of inclusion, I hope that the heads of delegation will seriously consider the advantages of adopting a more open model for document access during this Plenipot. If you would like to contact the head of delegation for your country, you can find their names in this document. A polite email asking them to support open access to ITU documents might not hurt.

In addition, at the meeting, the ITU membership will consider a proposal from the United States to, as a rule, provide open access to all meeting documents.

This is what WCITLeaks has always supported—putting ourselves out of business. As the US proposal notes, the ITU Secretariat has conducted a study finding that other UN agencies are much more forthcoming in terms of public access to their documents. A more transparent ITU is in everyone’s interest—including the ITU’s. This Plenipot has the potential to remedy a serious deficiency with the institution; I’m cheering for them and hoping they get it right.

Jack Schinasi discusses his recent working paper, Practicing Privacy Online: Examining Data Protection Regulations Through Google’s Global Expansion published in the Columbia Journal of Transnational Law. Schinasi takes an in-depth look at how online privacy laws differ across the world’s biggest Internet markets — specifically the United States, the European Union and China. Schinasi discusses how we exchange data for services and whether users are aware they’re making this exchange. And, if not, should intermediaries like Google be mandated to make its data tracking more apparent? Or should we better educate Internet users about data sharing and privacy? Schinasi also covers whether privacy laws currently in place in the US and EU are effective, what types of privacy concerns necessitate regulation in these markets, and whether we’ll see China take online privacy more seriously in the future.

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Related Links

• Practicing Privacy Online: Examining Data Protection Regulations Through Google’s Global Expansion, SSRN
• Journal of Transnational Law, Columbia University

Last month, I wrote at The Guardian that NSA surveillance is harming our Internet freedom efforts. Now we have tangible evidence of that. Speaking at the UN Human Rights Council on behalf of Cuba, Venezuela, Zimbabwe, Uganda, Ecuador, Russia, Indonesia, Bolivia, Iran, and China, Pakistan delivered the following statement (video, starts around 52:25). Pay special attention to the last two paragraphs:

Mr. President,

Freedom of expression is a fundamental human right. The right to privacy is an essential element of the right to freedom of expression as defined in the ICCPR. At the last session of the Human Rights Council, the Special Rapporteur on Freedom of Expression presented his report which focused on the right to privacy and freedom of expression and opinion in the context of states surveillance of communications systems.

We believe that this is an area of great concern, particularly in light of recent revelations regarding the use and abuse of advanced surveillance technologies by some states. These involve unilateral unauthorized access to private data and performing extensive, in-depth surveillance on live communications and stored information with examples including email, voice chat, videos, photos, file transfers, and social networking details. The extent of recent events of mass data collection has been far greater than the global community knew and is a serious violation of the right to privacy as well as domestic and international law.

Much of the world’s electronic communications pass through only one country because electronic communications data tend to follow the least expensive route rather than the most physically direct route, and the bulk of the world’s Internet infrastructure is also based there. This provides an opportunity for intercepting the private communications of foreign nationals as their electronic data pass into or through that one country.

This situation is further aggravated when we see several major international internet and telecommunication technology companies overstepping in privacy and information theft including companies like Microsoft, Yahoo, Google, Facebook, YouTube, AOL, Skype and Apple. Some of these entities have been developing and executing their own surveillance capabilities and intruding into the private space of their customers around the globe without their knowledge or consent. As the Special Rapporteur has mentioned in his report, the private sector corporations often facilitate some states in their surveillance of individuals and states are increasingly adopting legislation requiring communications service providers direct access to the communications data. This is a disturbing development because this is intrusion of privacy on a mega-scale. It means that states can use these technologies and data against persons who are not their citizens and do not reside in their borders. This has complicated legal and human rights implications.

Article 12 of the Universal Declaration of Human Rights, and numerous international statutes and treaties forbid such systems of massive, pervasive surveillance. More importantly, the international community needs to take urgent action to protect individuals from such violation of their fundamental freedom.

A transparent international system with adequate international framework of internet governance including appropriate safeguards is all the more important in such circumstances. The internet is too big, too international and too much of a household thing to be left operating by a few who have misused it without any international legislation and monitoring of these abuses.

The existing mechanisms like the Internet Governance Forum established under the paragraph 72 of the World Summit on Information Society (WSIS)-Tunis Agenda have not been able to deliver the desired results. A strategic rethinking of the global internet governance mechanism is inevitable. Further development of an international mechanism in the context of ‘Enhanced cooperation’ within the WSIS Tunis Agenda can be a concrete way forward. However we will need to be sincere in our efforts to ensure a transparent, free, fair and respectful international intergovernmental mechanism of internet governance and one that also ensures the right to privacy.

I am American earning an industrial PhD in internet economics in Denmark, one of the countries that law professor Susan Crawford praises in her book Captive Audience: The Telecom Industry and Monopoly Power in the New Gilded Age. The crise du jour in America today is broadband, and Susan Crawford is echoed by journalists David Carr, John Judis and Eduardo Porter and publications such as the New York Times, New Republic, Wired, Bloomberg News, and Huffington Post. One can also read David Cay Johnston’s The Fine Print:  How Big Companies Use ‘Plain English’ to Rob You Blind.

It has become fashionable to write that American broadband internet is slow and expensive and that cable and telecom companies are holding back the future—even though the data shows otherwise.  We can count on the ”America is falling behind” genre of business literature to keep us in a state of alert while it ensures a steady stream of book sales and traffic to news websites.

After six months of pro-Crawford coverage, the New York Times finally published two op-eds[1] which offered a counter view to the “America is falling behind in broadband” mantra. Crawford complained about this in Salon.com and posted a 23 page blog on the Roosevelt Institute website to present “the facts”, but she didn’t mention that the New York Times printed two of her op-eds and featured her in two interviews for promotion of her book.   I read Crawford’s book closely as well as her long blog post, including the the references she provides.  I address Crawford’s charges as questions in four blogs.

1. Do Europeans and East Asians have better and cheaper broadband than Americans?
2. Is fiber to the home the network of the future (FTTH), or are there competing technologies?
3. Is there really a cable/mobile duopoly in broadband?
4.  What is the #1 reason why older Americans use the internet?

For additional critique of the America is falling behind broadband myth, see my 10 Myths and Realities of Broadband.   See also the response of one of the op-ed authors whom Crawford criticizes.

How the broadband myth got started

Crawford’s book quotes a statistic from Akamai in 2009. That year was the nadir of the average measured connection speed for the US, placing it at #22 and falling. Certainly presenting the number at its worse point strengthens Crawford’s case for slow speeds. However, Akamai’s State of the Internet Report is released quarterly, so there should have been no problem for Crawford to include a more recent figure in time for her book’s publication in December 2012. Presently the US ranks #9 for the same measure. Clearly the US is not falling behind if its ranking on average measured speed steadily increased from 22nd to 9th.

Crawford notes on her blog ”Tussling over contestable rankings is not a good use of our time” and then proceeds to list the rankings of the US from a number of content delivery networks.  She does not explain, however, the implication of this measurement.  Akamai is the world’s largest content delivery network, speeding over one-third of all the content on the web and capturing 1 billion IP addresses per day.  It is the most reliable longitudinal measure, but its methodology should be clarified.

Akamai measures speeds in a similar way to how cars are clocked on a freeway. For example a radar detector can measure the speed of a car at any moment, say 50 mph.  However that car could go 100mph or 25 mph. It’s just what is captured at the moment of measurement.  As for broadband, there may be a 100 Mpbs connection to a person’s home, but if that subscriber only signs up for 5 Mbps, Akamai will only report 5 Mbps.  As a matter of fact the Akamai Q1 2013 report shows Washington DC, Vermont and New Jersey with higher average peak speeds than South Korea, the #1 country. For an in depth discussion of broadband statistics see The Whole Picture: Where America’s Broadband Networks Really Stand from the Information Technology & Innovation Forum.

Incidentally recent reports from both the Federal Communications Commission[2] and the White House (Office of Science & Technology Policy and the National Economic Council) contradict the dour picture critics paint about American broadband. See the report Four Years of Broadband Growth.

Don’t Europeans and East Asians have better and cheaper broadband than Americans?

This is the wrong question. The question we should ask ourselves instead is how well have nations applied broadband technologies to improve their economy and standard of living? With all this discussion about speed, some consider ultra-high-speed wired broadband for its own sake, as an end in itself.  But bandwidth alone does not an economy make.   Instead we need to envision broadband as in important input to the information economy ecosystem.

Citing a report from the New America Foundation, Crawford asserts that Americans pay ”three or four times” more for the same download services as in other countries.  The fact of the matter is that I can find broadband prices both higher and lower around the world. The website of the leading Danish broadband provider TDC offers a package of 24 channels, 20Mbps broadband, and either fixed telephony or 4 hours mobile telephony for for 414 DKK ($58.73 + 25% tax = $73.41). There is a one-time fee of 399 DKK ($70 + 25% tax=$88).The similar monthly  package goes for $60-$70 in the US. The next level package of 50 Mbps is $80. So in this example, broadband is only slightly more expensive, depending on the local tax, than in the US. Indeed the OECD points out Spain and Norway as some of the most expensive countries for broadband.  Keep in mind as well that most of Denmark’s residents live in the major cities in apartments or in houses more closely packed that a typical American suburb, which also explains some of the price difference.

To be sure, we can find countries where broadband may be less expensive, but gasoline is four times as high. Local conditions and taxation will change the price. For this reason economists use a basket of goods and services to when evaluating consumer prices.  The market price of broadband in two countries may not reflect the same inputs.  The price can vary for many reasons including the network type, the network speed, the type of subscriber (individual, business, company etc), whether the item is sold in bundle, whether the subscriber has a certain exemption, taxes, and other factors not limited to geography, density and so on.  Economists and financial analysts who study prices build complex, dynamic models to reflect these factors.

The OECD provides the most comprehensive, global information on broadband prices, but it relies of national governments to provide the data, rather than collecting it directly from retailers or websites.  This challenge to determine “the facts” is also exacerbated by competing sources.  Indeed the most comprehensive source of broadband information comes from the Organization of Economic Cooperation and Development (OECD).  Their Broadband Portal offers a wealth of data on many broadband measurements.  Plus the new OECD Communications Outlook  published in July 2013, has the most recent comparison for prices globally.

Other positive information about the US appears in the the most recent from OECD report.  It notes the decline in the price of megabit per second of advertised speed. In the 2011 report showed that the US ranged between $1.10-71.49, but that number has fallen to $0.53-$41.70 in the 2013 report. That translates to a 51% improvement at the low end and a 41% improvement at the high end.   Some countries have lower prices, but the decline of the price for the US shows that thing are getting better, not worse, for broadband.

Let’s look at the mobile example. Using information from Bernstein Research and analyst Craig Moffett, Crawford asserts that mobile prices are too high.  On this point, one should defer to the GSM, the global standards organization for the mobile industry. Its report on mobile in the US and Europe notes that yes, Americans do pay more for mobile than Europeans ($69 vs. $38 for an average monthly subscription), but Americans use five times more voice and twice as much data.  From a G-20 perspective the OECD notes that “Given that mobile broadband constitutes a relatively new market compared to fixed broadband, there tends to be greater experimentation in wireless markets. Moreover, the evolution of the smartphone ecosystem has resulted in a complex array of stakeholders who determine these prices.“ [3]

Furthermore Europeans may have lower prices for mobile, but this is because wholesale rates are regulated to be artificially low. European consumers have a low price in the short term, but in the long run they are shortchanged because European carriers haven’t made enough profits to invest in infrastructure.  This is outcome of the “services based competition model” (allowing new entrants to resell incumbent’s services at a low price) which hasn’t panned out to deliver the infrastructure investments as hoped. Clinton Administration economist Ev Ehrlich who also studies this issue published his op-ed The Myth of America’s Inferior Broadband in the Wall Street Journal describing this situation.

Finally, roaming prices are still not harmonized, so when a European travels from one country to another, there are surcharges on calls and SMS. Imagine if you were charged a different rate each time you entered a new state in the US.  Such is the case in Europe.

OECD updated pricing information published in July 2013 notes that entry level prices should be no more than $30 purchasing power parity.  The America entry level monthly price is $27.Thereafter, if people want faster speeds, they pay for it.  That is only fair.  This means that for as little as $27, people can be assured bandwidth to do essential email and web browsing for job applications, online banking, and so forth.  A forthcoming blog post will investigate the issue of low-income Americans for whom $27 is too much.

As for people who pay $100 or more per month for broadband, which amounts to cost of a daily visit to Starbucks, that number should be put into perspective by measuring it against the cost to purchase the same content and communication services piecemeal.  One would have to add up the price of all the newspaper subscriptions, the movie tickets, the DVDs, the CDs, the long distance calls as well as to add some kind of premium to cover the applications we have today that never existed before the web.  On balance, broadband is a tremendous value in the US. When one sees cheaper prices in other countries, one needs to consider that often these citizens pay three times for broadband: with subscriptions, with rent/home owners fees, and with taxes.  The benefit for Americans is that they pay for broadband once, and they pay what it costs.

High Speed Broadband Adoption

From the research perspective, the leaders of my institute, The Center for Communication, Media and Information Studies in Copenhagen, published a report titled “Broadband Bandwidths in a 2020 Perspective” reflecting on the needs of developed countries such as the US. Their assessment is speeds are increasing faster than consumers demand them. The report notes that in Denmark, one of the perennial top performing countries in the OECD for broadband adoption, 65% of homes are passed by a broadband technology that can deliver 100 Mbps, but only 0.7% subscribe to the fastest tier.^[4]  Danes can get what they need from lesser speeds, and the price of the faster service is not justified from their perspective.

Even during the financial crisis in 2009, the supposed low point of performance of broadband speed, activity on America’s broadband networks was in full swing.  At the time I worked for a web analytics software company in Silicon Valley. Our software was enabled on over 2000 enterprise websites visited by millions of Americans every day.  These websites ran the gamut: ecommerce, news, banking, education, student financial aid applications, B2B, video-embedded media, and so on.  Never once did our customers complain that there a was not sufficient broadband for end users’ needs, that they were missing out on customers because of lack of broadband access, or that speeds were too slow. On the contrary, broadband had enabled new markets.  Broadband was so ubiquitous that it was no longer a differentiator. Thus these companies wanted to deploy every additional advantage, including search marketing, behavioral targeting, multivariate testing and so on.  Even more impressive was that almost none of these companies were based in major cities or even Silicon Valley.  In that way, broadband brought the death of distance.

Broadband and Employment

We can learn a lot of the folly of the broadband for its own sake mentality from South Korea, #1 in Akamai’s study with an average measured speed of 45 Mbps. Their primary uses of broadband are by far video game entertainment for consumers and video conferencing for businesses.  The problem with these two applications is that they drive little revenue versus the traffic they consume on the web.  Much of real time entertainment is piracy, and the money in games is largely in the hardware.  As for online gaming, less than 5% of players pay for games.  Video conferencing was thought to be a great revenue opportunity for platform providers, but users are choosing free versions of Skype instead.  So these two endeavors don’t generate the cash flow that create jobs.

Broadband has enabled some industrial productivity and supports a marginal “Gangam Style” entertainment economy in South Korea.  It is estimated that performer Psy made about $8 million from his famous song, including the 1.6 billion YouTube views and the iTunes sales.[5]  Few performers will ever achieve that level of success. His is not a replicable business model, let alone a business case for broadband.  The real money in South Korea’s economy still comes from electronics, automobiles, shipbuilding, semiconductors, steel, and chemicals — the same growth engines from the pre-broadband days. Ditto for Japan and Sweden.

Most important, the national broadband project in South Korea has not yielded the jobs that were expected. Broadband has enabled entertainment but not employment. A new report by the Korea Information Society Development Institute, “A Study on the Impact of New ICT Service and Technology on Employment,” bemoans the situation of “jobless growth.” The government is also concerned about internet addiction, which afflicts some 10 percent of the country’s children aged between 10 and 19, who essentially function only for online gaming but not in other areas of society.

Europe also has challenges translating broadband into employment. My colleague at the Ifo Center for the Economics of Education and Innovation in Munich published the results of her econometric study of the impact of broadband internet on employment on 8460 municipalities in West Germany. Over the last five years the German government has invested €454 million (almost $600 million) to bring broadband to the rural areas. Though there is an impact on local employment by local broadband infrastructure, the impact is very slight. The econometric study shows that an increase of DSL penetration by 10% yields between 0.03-0.16% increase in employment. This research suggests is that broadband alone is not enough to stimulate employment. Other factors such as level of education, professional skills, existing employment opportunities, types of extant industries and so on also play a role in employment.

Broadband and Economic Growth

What is important about broadband is not measuring speeds and counting rank, but turning technology in productive use in the economy. In spite of all of the challenges of broadband, America leads the world in broadband-based industries.  Mary Meeker of Kleiner Perkins Caulfield Byers assessed the world’s top internet companies, and found the US an unusually strong performer.  Of the top 25, the US had the most, 14; China, 3; Japan, 2; South Korea, 2; Russia, 2; and the UK and Argentina each have 1.[6]  The point is that the USA, with just a fraction of the world’s internet users and with an oversized investment (one-quarter of the world’s financial outlay in internet infrastructure) has been able to leverage broadband into over $1 trillion of market value in 2013 alone with just 14 companies.  This is a stunning achievement, and it does not even take into account all of the small and medium sized American companies that would have never existed without broadband.

Given Crawford’s supposition of alleged high prices that limit adoption and force consumers to slower speeds, I conclude the opposite after reviewing the data. Consumers have broadband at all price levels as well as speeds.  The vast economic growth and the transformation of the US from and industrial to an informational economy means that the US gets a lot of bang for its broadband buck.  Whatever the circumstances, the US has managed to turn broadband into productive use better than other nations.  To be sure, the broadband and economic development equation is complex, but it’s not true that Europeans and East Asians have it better when it comes to broadband. The next blog post addresses the question of whether fiber to the home will be the network of the future or whether network technologies will compete.

Are we as globalized and interconnected as we think we are? Ethan Zuckerman, director of the MIT Center for Civic Media and author of the new book, Rewire: Digital Cosmopolitans in the Age of Connection, argues that America was likely more globalized before World War I than it is today. Zuckerman discusses how we’re more focused on what’s going on in our own backyards; how this affects creativity; the role the Internet plays in making us less connected with the rest of the world; and, how we can broaden our information universe to consume a more healthy “media diet.”

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Related Links

• Rewire: Digital Cosmopolitans in the Age of Connection, Zuckerman
• What Ethan Zuckerman’s Rewire tells us about the internet changing our lives, Morrison
• Rewire: Rethinking Globalization in an Age of Connection Zuckerman

Next week, I’ll be in Geneva for the 2013 World Telecommunication/ICT Policy Forum, better known by the acronym WTPF-13. This is the first major ITU conference since the WCIT in December, and the first real test of whether what some are calling the “post-WCIT era” really exists, and if so, what it means. For those just now tuning in, the WCIT was a treaty conference in Dubai in which some ITU member states pushed hard to make elements of the Internet subject to intergovernmental agreement, resulting in the refusal of 55 countries to sign the treaty. I published a retrospective account of my experience at the WCIT at Ars Technica.

The WTPF will be different than the WCIT in several important ways:

• It’s not a treaty conference. The output of the meeting is instead a report and several opinions. Draft text of these have been negotiated over three preparatory meetings of an “Informal Experts Group” (IEG). The WTPF will finalize the text, which is non-binding, but is likely to be selectively quoted at future treaty conferences in order to pursue the agenda of each member state.
• Sector members can participate. The ITU is an intergovernmental organization, and member states are its primary constituency. However, the ITU also allows for “sector members,” which are mostly corporations that are involved in international telecommunications. Sector members will have microphones and be able to address the chair during the WTPF, something they could not do during the WCIT. It has not yet been made conclusively clear to me whether sector members will be able to formally vote, if a formal vote is held. (Secretary-General Hamadoun Touré said there would be no voting at the WCIT, but both informal and formal votes were held.)
• The Internet is explicitly on the table. The Secretariat promised that Internet governance would not be considered at the WCIT, but it ultimately was, which is one reason that the conference failed to produce a treaty that all countries could feel comfortable signing. But the official theme of the WTPF is “international Internet-related public policy matters,” so there is widespread agreement that the Internet is a suitable topic of discussion at the WTPF, even if there is little agreement on conclusions.
• Anybody can download and read the official WTPF documents. Before and during the WCIT, working drafts and member state contributions were kept secret. Jerry Brito and I started WCITLeaks in order to give the general public access to these documents. For whatever reason—whether exposure of the lack of transparency in the WCIT process embarrassed the ITU Secretariat, or they were planning to make the WTPF more open anyway—all WTPF documents are available for your perusal, several in all six official ITU languages. Either way, I’m happy to applaud the decision to make the documents available.
• The WTPF is only three days long. The WCIT was almost two weeks. This imposes significant limitations on the amount of deliberation that can occur. There is also a WTPF every 4 years, whereas a WCIT happens only on an as-demanded basis.

Since the conference is going to be short, I expect that most of the debate will focus on the six draft opinions that have been attached to the Secretary-General’s report. The report itself is probably too long to receive substantial revision in only three days. Consequently, the opinions are likely to be where the action is. The draft opinions are:

1. Promoting Internet Exchange Points (IXPs) as a long term solution to advance connectivity
2. Fostering an enabling environment for the greater growth and development of broadband connectivity
3. Supporting Capacity Building for the deployment of IPv6
4. In Support of IPv6 Adoption and transition from IPv4
5. Supporting Multi-stakeholderism in Internet Governance
6. On supporting operationalizing the Enhanced Cooperation Process

Opinions 1 and 2 will be consider in Working Group 1, 3 and 4 will be considered in Working Group 2, and 5 and 6 will be considered in Working Group 3.

The United States has expressed qualified support for the current draft text of all six opinions in its contribution to the WTPF:

The United States is prepared to endorse the consensus achieved by the IEG and adopt the six non-binding opinions as presented in the annex to the Secretary General’s report. We take this approach based on our desire for a successful forum, despite some concerns with respect to the opinions on multi-stakeholderism and enhanced cooperation. But we recognize, as we hope all participants do, that to attempt to renegotiate the text or introduce new topics or opinions during this meeting would cause significant difficulties and upset the consensus already achieved.

Nevertheless, other countries have proposed substantial changes to the draft IEG text. Perhaps the most controversial opinion is number 5 on multi-stakeholderism. Multi-stakeholderism is a tricky element of international Internet politics. Most participants have agreed at one point or another that the “multi-stakeholder” institutions that currently govern the Internet are an important part of the Internet’s success. However, this has led the more authoritarian countries to insist that governments are stakeholders too, and it has led those who support greater ITU involvement in international Internet policy to insist that the ITU is a multi-stakeholder organization.

For example, in a speech two weeks ago in Brussels, Secretary-General Touré said:

This opinion reiterates what I have been saying for some time—that the ITU has been multi-stakeholder from its inception, and that it was the success of the multi-stakeholder approach within ITU that inspired the multi-stakeholder principles agreed at the ITU-led World Summit on the Information Society, WSIS.

Now, Opinion 5 does  not say that the ITU is a multi-stakeholder organization (read it yourself), and the ITU is certainly not and has never been a multi-stakeholder institution, unless “multi-stakeholder” is defined as simply having multiple stakeholders. Among those who originally advocated multi-stakeholderism, the term connotes a certain bottom-up, voluntary, inclusive, and even informal process, which is incompatible with intergovernmentalism. This…loose talk…by the Secretary-General appears to be intended to position the ITU to take a more active role in Internet governance. Some member states share Dr. Touré’s apparent agenda. For example, Brazil’s proposed replacement for Opinion 5 explicitly says, “ITU is a multistakeholder organization.”

Russia’s proposed edits to Opinion 5 focus much less on the ITU itself and more on the role of government. For instance, it invites member states:

to exercise their rights on Internet Governance to control distribution, appropriation and development of Internet numbering, naming, addressing and identification resources and support the operation and development of the basic information and communication infrastructure, include the Internet, at the national level.

In other words, Russia wants to supplant existing Internet governance structures with national laws.

Aside from Opinion 5, the other major issue I am keeping my eye on is Working Group 2 on IP addresses and the IPv6 transition. Late last week, there was an unexpected shuffling of Working Group chairs. The chairwoman of WG3 was removed, the chairman of WG2 was moved to WG3, and Musab Abdullah from Bahrain was announced as the new chairman of WG2.

Those of us who were at the WCIT remember Mr. Abdullah as a forceful advocate for measures, like calling party identification and government-managed naming and numbering resources, that would have enabled greater government control of telecommunication services. And Bahrain is one of the most repressive regimes with respect to the Internet in the world. Reporters Without Borders considers Bahrain one of only five “state enemies of the Internet” in 2013.

So why did this shakeup of Working Group chairs happen, and why is one of the world’s top censors now chairing the Working Group on IP addressing? Could there be a strong push in favor of an expansive role for governments in assigning IP addresses, one that would allow governments to more easily link IP addresses to individuals in order to support censorship? We’ll find out next Wednesday morning when WG2 convenes.

For updates during the WTPF, follow me on Twitter. As always, any views expressed in this post or in future posts and tweets are my own, and should not be attributed to any government or delegation.

People of the same trade seldom meet together, even for merriment and diversion, but the conversation ends in a conspiracy against the public. — Adam Smith, The Wealth of Nations

As we approach the World Telecommunication/ICT Policy Forum, the debate over whether intergovernmental organizations like the International Telecommunication Union should have a role to play in Internet governance continues. One argument in favor of intergovernmentalism, advanced, for instance, by former ITU Counsellor Richard Hill (now operating his own ITU lobbying organization, delightfully named APIG), goes as follows:

• Everybody already agrees that governments are sovereign within their own territories.
• Other than a few “separatists,” everyone agrees that national laws apply to use of the Internet within national borders.
• It may be advantageous to “harmonize” national laws concerning the Internet.
• Harmonization of national laws happens through intergovernmental organizations, such as the ITU.
• Therefore, intergovernmental organizations such as the ITU should have a role in Internet governance.

My purpose in this post is to unpack the third premise. Who exactly benefits (and who is harmed) when national governments harmonize their national laws concerning the Internet?

One way to begin to answer this question is to see which governments think they would benefit from a greater intergovernmental role. One rough metric might be International Telecommunication Regulations (Dubai, 2012) signatories. In the map below, signatories are shown in black.

If it’s not clear from the map, there is a strong correlation between authoritarianism and support for the ITRs. Ninety-one percent of those countries ranked as Full Democracies in the Democracy Index opposed the ITRs, while 91 percent of those countries listed as “Authoritarian” supported them.

What national laws do these authoritarian regimes believe need harmonization? I am not privy to any government’s internal deliberations, but as The Economist reports, many of these countries are engaged in “monitoring, filtering, censoring and criminalising free speech online.” It seems to me that the most reasonable hypothesis is that countries like Algeria, Saudi Arabia, Bahrain, China, United Arab Emirates, Russian Federation, Iraq, and Sudan would benefit from a “national Internet segment” because it would normalize the idea of such monitoring and censorship.

In other words, authoritarian regimes favor intergovernmental “harmonization” of national Internet laws because it would enable them to get away with more authoritarianism. China already basically operates a “national Internet segment;” traffic into and out of China is filtered by the government. It is going to be a problem for the Chinese government when its subjects become wealthier, more empowered, and ultimately able to point to Internet policy outside of China and politely ask why part of the Chinese Internet is missing. If other countries were to adopt national Internet segments, the Chinese government would be able to avoid this uncomfortable conversation.

The “cooperation” that is likely to result from intergovernmental Internet policymaking is not the solving of communications problems, which is already accomplished quite ably through international technical organizations such as the Internet Engineering Task Force, but a kind of collusion. If we all agree to respect each other’s right to control information within our respective borders, say the authoritarian regimes, we can tame the more revolutionary aspects of the Internet and solidify our grip on power.

In practice, therefore, intergovernmentalism seems to enable national policies that are not only deplorable from a broadly liberal perspective, but illegal under international law. The Universal Declaration of Human Rights, Article 19 reads:

Everyone has the right to freedom of opinion and expression; this right includes freedom to hold opinions without interference and to seek, receive and impart information and ideas through any media and regardless of frontiers.

Intergovernmentalism should be opposed, therefore, not merely by “separatists,” those who believe national governments have no business applying national law to the Internet. It should be opposed by anyone who does not wish to advance the agenda of censorship.

At Mobile World Congress in Barcelona last month, I was surprised that nobody had access to 4G mobile Internet services. How could Barcelona, the second largest city in Spain and host to the “world’s premier mobile industry event,” lack access to 4G? In the opening day keynote session, Vittorio Colao, Vodafone’s CEO, said Europe has only 6% of the world’s LTE connections, and Telefónica’s CEO, César Alierta, said only 17% of European mobile subscribers have smartphones. European mobile operators agreed they are lagging the world in 4G deployment and penetration due to existing price regulations that discourage new infrastructure investments.

Europe now stands at a crossroads: Does it adopt the modern, investment-based approach toward wireless markets that made the US the world’s 4G leader, or does it further increase regulation and impose new obligations on “over the top” ( e.g., Skype) services? Our history with the regulation of rural telephone companies demonstrates the perils of the second option. Yet European mobile operators appear ready to embrace new regulations as a means to enhance their business and create a “balanced relationship” with “US companies” that provide over the top (OTT) services.

Declining revenues in Europe are driving their choice. In Q4 2012, Vodafone’s European year-over-year revenue declined an average -7.6%. Telefónica’s Q4 2012 European revenue declined -6.5% as its primary source of revenue shifted from Europe to Latin America. Deutsche Telekom’s Q4 European revenue declined -4.0%, and Orange’s year-end revenue declined -5.7% in France and -1.7% overall.

Operators attribute these declines to price regulation and competition from unregulated OTT services. In Europe, operators kept “local” calling rates relatively low by relying predominantly on higher mobile termination (e.g., payments received from another mobile operator or a wired telephone company to complete a call) and roaming rates to generate revenue. This approach worked successfully until 2009, when the European Commission (EC) decided to regulate mobile Internet termination and roaming rates. European Mobile operators now struggle to replace the lost revenue resulting from this mandated price regulation.

EC regulations may have reduced prices, but they have also discouraged 4G development in Europe. Price regulations limit potential returns on investment in 4G infrastructure, yet they do not apply to OTT providers, whose business models can take full advantage of any additional capacity mobile operators create. Rene Obermann, Deutsche Telekom’s CEO, described the benefits of asymmetrical regulation for OTT services this way: “You invest – We take the profit.”

For years European mobile operators asked the EC to stop regulating their prices. After the EC extended its pricing regulations last year, mobile operators floated a new approach: if they could not succeed in getting freed from government price controls, then why not level the playing field by pursuing similar regulations for OTT services?

At Mobile World Congress, Alierta explained it this way, “New monopolies are hurting consumers,” yet are “entirely unrestrained by regulators.” He cited Google and Apple as monopolies Europe must “break” to “ensure those who risk investment can reap the benefits.” Similarly, Colao urged the EC to adopt rules that don’t discriminate against mobile operators, and Obermann claimed the European regulatory paradigm favoring OTT companies is “unsustainable in the long run.”

Their frustration is understandable; however, I expect European mobile operators may regret giving up on the investment-based approach. The US experience indicates that EC regulatory protection would render Europe’s mobile providers forever reliant on price regulated termination charges. In exchange for the short-term benefits of protectionist policies, they would sacrifice their long-term ability to innovate and thrive in the era of the mobile Internet.

In the US, we have witnessed first-hand the negative consequences of regulatory protection. America’s rural carriers have traditionally relied on a similar scheme of regulated “terminating access” charges for support. These charges were intended to provide predictable revenues to a stable telephone monopoly, but have proven ill suited to markets with new cable and mobile competitors. Today US regulators struggle to keep the antiquated telephone network on life support in competitive markets while the survival of rural carriers dependent on price regulated revenues hangs in the balance. The US experience illustrates the dangers of protectionist regulation: It works only so long as the government agrees with you and creative destruction is held at bay.

Europe can learn from our experiences with the dying, price regulated telephone market and thriving, lightly regulated mobile market. The free market is the best way for European mobile operators to grow and for European governments to achieve their 4G goals. The question is whether European mobile operators will survive until the EC realizes it.

When Jerry and I started WCITLeaks, we didn’t know if our idea would gain traction. But it did. We made dozens of WCIT-related documents available to civil society and the general public—and in some cases, even to WCIT delegates themselves. We are happy to have played a constructive role, by fostering improved access to the information necessary for the media and global civil society to form opinions on such a vital issue as the future of the Internet. You can read my full retrospective account of WCITLeaks and the WCIT over at Ars Technica.

But now it’s time to look beyond the WCIT. The WCIT revealed substantial international disagreement over the future direction of Internet governance, particularly on the issues of whether the ITU is an appropriate forum to resolve Internet issues and whether Internet companies such as Google and Twitter should be subject to the provisions of ITU treaties. This disagreement led to a split in which 55 countries opted not to sign the revised ITRs, the treaty under negotiation.

Where does this divisive ITR revision leave us? It means that the next two years or so of ITU meetings have the potential to be extremely interesting. In particular, the World Telecommunication/Information and Communication Technology Policy Forum (WTPF) in May 2013 in Geneva and the ITU Plenipotentiary Conference (known as “Plenipot”) in October-November 2014 in Busan, South Korea, are worth watching closely.

Unlike the WCIT, the WTPF is  not a treaty conference. It is a meeting that produces opinions and reports. Also unlike the WCIT, at WTPF the Internet is explicitly on the table in an up-front, honest way. The opinions and reports produced at WTPF about the Internet will be used as input documents into Plenipot, which is a full treaty conference. At Plenipot, the entire Constitution and Convention of the ITU is subject to revision, so it is extremely likely that the Internet will be considered. One contact of mine has called Plenipot “WCIT 2.”

There is some good news. So far, all WTPF preparatory documents have been 100% open to the public. WCITLeaks applauds the ITU for this policy. Transparency provided directly by the ITU is  better than the transparency we have provided in the past, because the ITU’s public documents are often available in multiple languages, something that WCITLeaks does not have the resources to offer. For example, here is the fourth draft of the SG’s report from the Informal Experts Group for WTPF. Note that it is available in English, Arabic, Chinese, Spanish, French, and Russian. The multilingual availability of this document ensures that an even broader array of global civil society will be able to more closely follow WTPF preparations.

The bad news is that we do not yet know if WTPF documents  beyond the preparatory phase will be publicly available. When those documents appear, they will be listed here, but it is possible that users who are not affiliated with Member States or Sector Members won’t have access. In addition, we do not yet know what the policy will be toward access to documents relating to Plenipot.

We hope that the ITU will continue to take these important steps toward greater transparency. At the same time, we are ready to reprise our WCIT role if necessary. To that end, we have reoriented the WCITLeaks site to focus on WTPF and future conferences. WCIT-related documents will continue to be available at wcitleaks.org/wcit. As always, you can stay up to date by following @WCITLeaks on Twitter. Happy leaking!

Would you pay good money for accurate predictions about important events, such as election results or military campaigns? Not if the U.S. Commodity Futures Trading Commission (CFTC) has its way. It recently took enforcement action against overseas prediction markets run by InTrade and TEN. The alleged offense? Allowing Americans to trade on claims about future events.

The blunt version: If you want to put your money where your mouth is, the CFTC wants to shut you up.

A prediction market allows its participants to buy and sell claims payable upon the occurrence of some future event, such as an election or Supreme Court opinion. Because they align incentives with accuracy and tap the wisdom of crowds, prediction markets offer useful information about future events. InTrade, for instance, accurately called the recent U.S. presidential vote in all but one state.

As far as the CFTC is concerned, people buying and selling claims about political futures deserve the same treatment as people buying and selling claims about pork futures: Heavy regulations, enforcement actions, and bans. Co-authors Josh Blackman, Miriam A. Cherry, and I described in this recent op-ed why the CFTC’s animosity to prediction markets threatens the First Amendment.

The CFTC has already managed to scare would-be entrepreneurs away from trying to run real-money prediction markets in the U.S. Now it threatens overseas markets. With luck, the Internet will render the CFTC’s censorship futile, saving the marketplace in ideas from the politics of ignorance.

Why take chances, though? I suggest two policies to protect prediction markets and the honest talk they host. First, the CFTC should implement the policies described in the jointly authored Comment on CFTC Concept Release on the Appropriate Regulatory Treatment of Event Contracts, July 6, 2008. (Aside to CFTC: Your web-based copy appears to have disappeared. Ask me for a copy.)

Second, real-money public prediction markets should make clear that they fall outside the CFTC’s jurisdiction by deploying notices, setting up independent contractor relations with traders, and dealing in negotiable conditional notes. For details, see these papers starting with this one.

[Aside to Jerry and Adam: per my promise.]

[Crossposted at Technology Liberation Front, and Agoraphilia.]

As some of you know, I’ve been closely following the World Conference on International Telecommunication, an international treaty conference in December that will revise rules, for example, on how billing for international phone calls is handled. Some participants are interested in broadening the scope of the current treaty to include rules about the Internet and services provided over the Internet.

I haven’t written much publicly about the WCIT lately because I am now officially a participant—I have joined the US delegation to the conference. My role is to help prepare the US government for the conference, and to travel to Dubai to advise the government on the issues that arise during negotiations.

To help the general public better understand what we can expect to happen at WCIT, Mercatus has organized an event next week that should be informative. Ambassador Terry Kramer, the head of the US delegation, will give a keynote address and take questions from the audience. This will be followed by what should be a lively panel discussion between me, Paul Brigner from the Internet Society, Milton Mueller from Syracuse University, and Gary Fowlie from the ITU, the UN agency organizing the conference. The event will be on Wednesday, November 14, at 2 pm at the W hotel in Washington.

If you’re in the DC area and are interested in getting a preview of the WCIT, I hope to see you at the event on Wednesday. Be sure to register now since we are expecting a large turnout.

Vinton Cerf, one of the “fathers of the internet,” discusses what he sees as one of the greatest threats to the internet—the encroachment of the United Nations’ International Telecommunications Union (ITU) into the internet realm. ITU member states will meet this December in Dubai to update international telecommunications regulations and consider proposals to regulate the net. Cerf argues that, as the face of telecommunications is changing, the ITU is attempting to justify its continued existence by expanding its mandate to include the internet. Cerf says that the business model of the internet is fundamentally different from that of traditional telecommunications, and as a result, the ITU’s regulatory model will not work. In place of top-down ITU regulation, Cerf suggests that open multi-stakeholder processes and bilateral agreements may be a better solutions to the challenges of governance on the internet.

Download

Related Links

• Keep the Internet Open, by Cerf
• Information about the World Conference on International Telecommunications (WCIT), Internet Society
• WCITLeaks.Org

Today, Jerry and I are pleased to announce a major update to WCITLeaks.org, our project to bring transparency to the ITU’s World Conference on International Telecommunications (WCIT, pronounced wicket).

If you haven’t been following along, WCIT is an upcoming treaty conference to update the International Telecommunication Regulations (ITRs), which currently govern some parts of the international telephone system, as well as other antiquated communication methods, like telegraphs. There has been a push from some ITU member states to bring some aspects of Internet policy into the ITRs for the first time.

We started WCITLeaks.org to provide a public hosting platform for people with access to secret ITU documents. We think that if ITU member states want to discuss the future of the Internet, they need to do so on an open and transparent basis, not behind closed doors.

Today, we’re taking our critique one step further. Input into the WCIT process has been dominated by member states and private industry. We believe it is important that civil society have its say as well. That is why we are launching a new section of the site devoted to policy analysis and advocacy resources. We want the public to have the very best information from a broad spectrum of civil society, not just whatever information most serves interests of the ITU, member states, and trade associations.

At the same time, we’re not backing off from our original position. We think the ITU’s policy of keeping WCIT-related documents secret is becoming increasingly untenable. We received an email from the ITU’s press office yesterday announcing a global press briefing. Here is what it said:

As the conference approaches, there is quite a lot of misinformation being circulated concerning the agenda and process of the conference. Join this global discussion to find out what’s REALLY going to be discussed, and how the process of proposals and debates operates to ensure a global consensus among all countries.

Misinformation, they claim—about documents  the ITU keeps secret. If the ITU and its client states have nothing to hide, why are they keeping information from the public? The best way to fight misinformation is with transparency. We call on the ITU and its member states to make all documents associated with global telecommunications available to the public.

We could also use your help. Please help us spread the word about WCITLeaks to anyone who may be interested. In addition, we ask our users around the world to apply pressure to their governments to make their documents publicly available. Finally, please make good use of our new resources section; it is vital for the future of the Internet that the global citizenry be well-informed about potential threats to the free flow of information.

This post originally appeared on elidourado.com.

Facebook has quietly launched a real-money online gambling application in the U.K., marking a major thrust of the social networking site into online gambling.

The Financial Times is reporting that starting today, Facebook will offer users in the U.K. ages 18 and over online bingo and slots for cash prizes. Slate.com  picked up the story this afternoon.

“Gambling is very popular and well regulated in the U.K. For millions of bingo users it’s already a social experience [so] it makes sense [for us] to offer that as well,” Julien Codorniou, Facebook’s head of gaming for Europe, Middle East and Africa, told the Financial Times.

It’s telling in and of itself that Facebook has a gaming chief for the EMEA region. The synergies of social media and gambling has been seriously discussed for several years, mostly in foreign venues,  as the U.S. government until recently, has been hostile toward Internet gambling.

However, the recent thaw on the part of the Department of Justice, seen most recently in its settlement (don’t-call-it-an-exoneration) with PokerStars, plus state action toward legalization in in states such as Nevada and Delaware, point to eventual legalization of Internet gambling in the U.S.

In that respect, look for Facebook to be ready. Research from The Innovation Group,  a gaming marketing research company, shows that more than half the users on online gaming come in through social media or search. Companies such as Zynga, which began by offering multiplayer social games such as Cityville, Castleville and Mafia Wars on Facebook, are particularly well-positioned. Zynga’s most popular on-line game is poker, and Zynga and companies like it have a logical growth path into online gambling. Given their established connection with social networks, it’s a good shot we’ll see virtual online casino environments emerge within social networks such as Facebook, Google+, Orkut and others.

The natural convergence of social media and gaming environments has been explored fairly extensively. European researchers such as Jani Kinnunen of the Game Research Lab at Finland’s University of Tampere finds this running both ways. As social networks explore gaming, gaming sites explore social networking.

Skill gaming sites can be excellent examples of new forms of gambling. Casual web-browser based games (any game can be a gambling game). Players can place a monetary bet on their games and play against each other, which requires social interaction between player.

Moreover, games and game-related interaction don’t have to be situated in the same place. Kinnunen notes that online poker sites and player forums are usually separated. Poker forums are online communities where players can interact with each other before and after playing, communicating, learning new skills, exchanging tips for good gaming sites and so on.

What we have yet to learn is how Facebook is setting up age-verification and security procedures, as well as location-based restrictions. All of these will be part of the picture once Internet gambling moves forward in the U.S., and they represent technology skill strengths Americans have. The central takeaway today, however, is that a major U.S. company has entered the international online gambling market, where legitimacy has long been established. Facebook’s move is another step toward extending that legitimacy to the U.S.

Today is a a big day for WCIT: Ambassador Kramer gave a major address on the US position and the Bono Mack resolution is up for a vote in the House. But don’t overlook this Portuguese language interview with ITU Secretary-General Hamadoun Touré.

In the interview, Secretary-General Touré says that we need $800 billion of telecom infrastructure investment over the next five years. He adds that this money is going to have to come from the private sector, and that the role of government is to adopt dynamic regulatory policies so that the investment will be forthcoming. It seems to me that if we want dynamism in our telecom sector, then we should have a free market in telecom services, unencumbered by…outdated international regulatory agencies such as the ITU.

The ITU has often insisted that it has no policy agenda of its own, that it is merely a neutral arbiter between member states. But in the interview, Secretary-General Touré calls the ETNO proposal “welcome,” categorically rejects Internet access at different speeds, and spoke in favor of global cooperation to prevent cyberwar. These are policy statements, so it seems clear that the ITU is indeed pursuing an agenda. And when the interviewer asks if Dr. Touré sees any risks associated with greater state involvement in telecom, he replies no.

If you’re following WCIT, the full interview is worth a read, through Google Translate if necessary. Hat tip goes to the Internet Society’s Scoop page for WCIT.

In my last update on WCIT, I noted that due to pressure generated by WCITLeaks, the Secretary-General of the ITU promised to make a recommendation to the ITU’s Council to open up access to WCIT preparatory documents. Here is what has happened since then:

• Secretary-General Touré indeed made his recommendation to the Council.
• The Council responded by releasing a single document, TD-64, which has already been on WCITLeaks for weeks. Indeed, it was the first document we posted.
• The ITU issued a press release declaring this to be a “landmark decision.”

As I told Talking Points Memo, I am not impressed by the ITU’s landmark decision. In fact, I am more convinced than ever that the ITU is too out of touch to be trusted with any role in Internet governance.

Consider these quotes from Secretary-General Touré at May’s WSIS Forum, highlighted by Bill Smith at CircleID:

• “The ITU is as transparent as organizations are.”
• “The transparency of the ITU is not something that you can question.”
• “We don’t really have too much to learn from anybody about multi-stakeholderism because we almost invented it.”

Troubling, no?

If you would like to see first-hand how transparent the ITU is, you can visit its site and download TD-64, the “draft of the future ITRs.” Then go to WCITLeaks.org to read all the other documents it wants to keep from you.

Thanks to TLFers Jerry Brito and Eli Dourado, and the anonymous individual who leaked a key planning document for the International Telecommunication Union’s World Conference on International Telecommunications (WCIT) on Jerry and Eli’s inspired WCITLeaks.org site, we now have a clearer view of what a handful of regimes hope to accomplish at WCIT, scheduled for December in Dubai, U.A.E.

Although there is some danger of oversimplification, essentially a number of member states in the ITU, an arm of the United Nations, are pushing for an international treaty that will give their governments a much more powerful role in the architecture of the Internet and economics of the cross-border interconnection. Dispensing with the fancy words, it represents a desperate, last ditch effort by several authoritarian nations to regain control of their national telecommunications infrastructure and operations

A little history may help. Until the 1990s, the U.S. was the only country where telephone companies were owned by private investors. Even then, from AT&T and GTE on down, they were government-sanctioned monopolies. Just about everywhere else, including western democracies such as the U.K, France and Germany, the phone company was a state-owned monopoly. Its president generally reported to the Minster of Telecommunications.

Since most phone companies were large state agencies, the ITU, as a UN organization, could wield a lot of clout in terms of telecom standards, policy and governance–and indeed that was the case for much of the last half of the 20th century. That changed, for nations as much as the ITU, with the advent of privatization and the introduction of wireless technology. In a policy change that directly connects to these very issues here, just about every country in the world embarked on full or partial telecom privatization and, moreover, allowed at least one private company to build wireless telecom infrastructure. As ITU membership was reserved for governments, not enterprises, the ITU’s political influence as a global standards and policy agency has since diminished greatly. Add to that concurrent emergence of the Internet, which changed the fundamental architecture and cost of public communications from a capital-intensive hierarchical mechanism to inexpensive peer-to-peer connections and the stage was set for today’s environment where every smartphone owner is a reporter and videographer. Telecommunications, once part of the commanding heights of government control, was decentralized down to street level.

There’s no going back. Even authoritarian regimes understand this. Fifty years ago, when a third-world dictatorship faced civil strife, it could control real-time information by shutting off its international telephone gateway switch. Not so today. So much commerce, banking, transportation and logistics depends on up-to-the-second cross-border data flow that no country, save for truly isolated regimes such as North Korea, can afford to cut themselves off the global Internet, even for one day.

That’s why it’s no surprise that the authoritarian regimes of China and Russia, supported by even more despotic states such as Iran, are spearheading the UN/ITU effort. Their politically repressive regimes can’t function with the Internet, but their economic regimes, tied as they are to world trade, can’t function without it. That’s why attempts at Internet control have to be more nuanced and cloaked in diplomacy.

As we see in the leaked documents, their agenda is masked as concerns about computer security and virus and malware detection, or in arguments about how nation-states have a historically justifiable regulatory responsibility for setting technical standards for IP-to-IP connections. But dig deeper and you find their proposed solutions would give them the power to read emails, record browser habits and extort fees from web sites and services such as Google, Facebook and Twitter (if they aren’t going to block them completely).

In the long run, it is doomed to fail. As an organism, the Internet defies top-down control. Every time a country attempts to impede certain types of Internet communications, via firewalls, filters, or outright domain name blocks, individuals create workarounds. It’s not that difficult.

That simple fact might engender complacency among netizens here in the U.S. And besides, speaking out against ominous plots by UN agencies makes us sound too much like the nutty neighbor with the backyard bunker.

But there are serious risks to what the ITU and the UN are attempting. Even if only gets part of what it wants, the ITU’s Internet grab stands to seriously damage the global free and open Internet.

First, as a multi-lateral “international” agreement, the ITU plan will give repressive regimes cover for Internet clampdowns. Even if the U.S. does not sign on, all it will take is buy-in a few other Western governments, who might just see the treaty as convenient (see the U.K.’s recent Home Office ideas), to allow the more egregious dictatorships in the world to take repressive action.

The U.S. should be leading all democratic governments in speaking out against the ITU plan. A weak-willed “I’m-OK-you’re-OK” approach, or worse, a non-judgmental relativism that suggests American ideas of Internet freedom should defer to a more repressive country’s “national culture,” are simply not acceptable.

It seeks to displace multi-stakeholder development. The collaborative culture of the Internet, driven by consensus and undergirded with a commitment to open standards and platforms, is the ITU’s primary target. When a nation-states make rules for phone networks, they can specify equipment, favor their domestic manufacturers, create cumbersome compliance rules, and ban possession of non-compliant devices all with the force of heavy-handed law. This is hardly far-fetched. Ethiopia has made Internet phone calls (i.e. Skype) illegal.

It seeks to normalize government regulation of the Internet. For more than 30 years, deregulation has been the predominant policy toward the Internet. This trend has managed to hold on despite numerous attempts at censorship, “neutrality” regulation and price controls. The most common proposition we hear runs to the effect of the Internet has become so important that it needs regulation. Frankly, the Internet has survived and thrived since its beginning without top-down state regulation. Worldwide access continues to grow. By and large, international data networks operate reliably and inexpensively. If anything, the burden of proof for regulation of the ‘Net should be ever higher. Why, exactly, do we need an international regulatory regime for the Internet? So far those who would impose one haven’t said so. And sorry to say, because citizens are taking to the streets with their iPhones and demanding basic freedoms is not an acceptable reason.

More Coverage:

WCITLeaks Gets Results

The UN’s “Internet Takeover” and the Politics of Kumbaya

WCIT is About People vs. Their Governments

This morning, the Secretary-General of the ITU, Hamadoun Touré, gave a speech at the WCIT Council Working Group meeting in Geneva in which he said,

It has come as a surprise — and I have to say as a great disappointment — to see that some of those who have had access to proposals presented to this working group have gone on to publicly mis-state or distort them in public forums, sometimes to the point of caricature.

These distortions and mis-statements could be found plausible by credulous members of the public, and could even be used to influence national parliaments, given that the documents themselves are not officially available — in spite of recent developments, including the leaking of Document TD 64.

As many of you surely know, a group of civil society organizations has written to me to request public access to the proposals under discussion.

I would therefore be grateful if you could consider this matter carefully, as I intend to make a recommendation to the forthcoming session of Council regarding open access to these documents, and in particular future versions of TD 64.

I would also be grateful if you would consider the opportunity of conducting an open consultation regarding the ITRs. I also intend to make a recommendation to Council in this regard as well.

Jerry and I commend Dr. Touré for reversing his position on open access to these documents. We like to think that WCITLeaks.org played a role in precipitating this sudden change. Like Dr. Touré, we lament that WCIT planning documents have been subject to so much unhelpful speculation and possibly misrepresentation, but we think that this has happened precisely because they were not available to the public. We’re glad the ITU seems to be recognizing this fact and we look forward to reading the documents once they become public. That said, they remain inaccessible for now and we will continue to solicit leaks as long as that is the case.

Despite these salutary possible changes in ITU policy, I want to highlight some of Dr. Touré’s remarks, which are full of political spin. He said,

There have also been a number of accounts stating that there is some sort of barrier, conflict or even war between telecommunications and the Internet.

In the converged world of the 21st century, this is plainly ridiculous. Who can stand up today and tell me the difference, in terms of traffic passing across networks, between voice, video, and data?

Nobody denies that convergence between IP networks and traditional networks is happening. More and more voice and video is being carried over data networks. But Dr. Touré would have us infer from this that the ITU’s mandate should automatically expand to cover these new data networks. What we deny is that the ITU is needed to regulate data connections at all. The ITU is increasingly becoming obsolete. But like any other bureaucratic organization, it constantly seeks a new justification for its existence. And Internet users should oppose Internet governance as such a justification, because we have our own, “native” Internet governance institutions.

I read a striking fact yesterday in a document that we posted on WCITLeaks. As of 2009, only 6% of US-originated telephone traffic is settled according to the charging and accounting provisions of Article 6 of the ITRs; the other 94% is settled according to private contracts. The proportions are similar for other countries. Even in its traditional niche, voice telephony, the world has moved on from the ITU. And of course, 0% of global Internet traffic today is settled according to the ITRs. It’s not “ridiculous” to demand a rationale for the expanded role the ITU sees for itself.

There are some other distortions in Dr. Touré’s speech. For instance, he lists some “important” ITU activities, such as developing standards for cable modems. This claim is way overstated. DOCSIS was developed by CableLabs, a non-profit R&D consortium run by cable operators. True, it was later ratified by the ITU, but it was already in use when the ITU ratified it. It is not that case that but for the ITU, we would not have standardized cable modems. Dr. Touré also mentions “the radio frequencies used to implement WiFi.” Again, Wi-Fi was not developed by the ITU, and it seems misleading to suggest that without the ITU, we would not have standardized wireless Internet capabilities.

Perhaps the most exaggerated claim that Dr. Touré makes is that the ITU is a bottom-up organization:

I am proud of the ITU’s tradition of open discussion amongst its membership, and I am proud that the ITU works bottom-up, thanks to inputs from its 193 Member States and 552 Sector Members.

Give me a break. Compare the ITU to a truly bottom-up organization, like the IETF:

The IETF is completely open to newcomers. There is no formal membership, no membership fee, and nothing to sign. By participating, you do automatically accept the IETF’s rules, including the rules about intellectual property (patents, copyrights and trademarks). If you work for a company and the IETF will be part of your job, you must obviously clear this with your manager. However, the IETF will always view you as an individual, and never as a company representative.

When the ITU adopts policies similar to the IETF’s, I’ll be happy to call it bottom-up.

It’s clear that the ITU feels threatened by the increased attention that WCITLeaks has sent its way. Good. We believe that political institutions should be transparent and required to justify their continued existence in the face of social change.

As Jerry noted ten days ago, our little side project got some good press right after we launched it. I am delighted to report that the media love continues. On Saturday, WCITLeaks was covered by Talking Points Memo, and a Wall Street Journal article appeared online last night and in print this morning.

I think it’s great that both left- and right-of-center publications are covering WCIT and the threat to our online freedoms posed by international bureaucracy. But I worry that people will infer that since this is not a left vs. right issue, it must be a USA vs. the world issue. This is an unhelpful way to look at it.

This is an Internet users vs. their governments issue. Who benefits from increased ITU oversight of the Internet? Certainly not ordinary users in foreign countries, who would then be censored and spied upon by their governments with full international approval. The winners would be autocratic regimes, not their subjects. And let’s not pretend the US government is innocent on this score; it intercepts and records international Internet traffic all the time, and the SOPA/PIPA kerfuffle shows how much some interests, especially Big Content, want to use the government to censor the web.

The bottom line is that yes, the US should walk away from WCIT, but not because the Internet is our toy and we want to make the rules for the rest of the world. The US should walk away from WCIT as part of a repentant rejection of Internet policy under Bush and Obama, which has consistently carved out a greater role for the government online. I hope that the awareness we raise through WCITLeaks will not only highlight how foolish the US government is for playing the lose-lose game with the ITU, but how hypocritical it is for preaching net freedom while spying on, censoring, and regulating its own citizens online.

Today, WCITLeaks.org posted a new document called TD-62. It is a compilation of all the proposals for modification of the International Telecommunication Regulations (ITRs), which will be renegotiated at WCIT in Dubai this December. Some of the most troubling proposals include:

• The modification of section 1.4 and addition of section 3.5, which would make some or all ITU-T “Recommendations” mandatory. ITU-T “Recommendations” compete with standards bodies like the Internet Engineering Task Force (IETF), which proposes new standards for protocols and best practices on a completely voluntary and transparent basis.
• The modification of section 2.2 to explicitly include Internet traffic termination as a regulated telecommunication service. Under the status quo, Internet traffic is completely exempt from regulation under the ITRs because it is a “private arrangement” under article 9. If this proposal—supported by Russia and Iran—were adopted, Internet traffic would be metered along national boundaries and billed to the originator of the traffic, as is currently done with international telephone calls. This would create a new revenue stream for corrupt, autocratic regimes and raise the cost of accessing international websites and information on the Internet.
• The addition of a new section 2.13 to define spam in the ITRs. This would create an international legal excuse for governments to inspect our emails. This provision is supported by Russia, several Arab states, and Rwanda.
• The addition of a new section 3.8, the text of which is still undefined, that would give the ITU a role in allocating Internet addresses. The Internet Society points out in a comment that this “would be disruptive to the existing, successful mechanism for allocating/distributing IPv6 addresses.”
• The modification of section 4.3, subsection a) to introduce content regulation, starting with spam and malware, in the ITRs for the first time. The ITRs have always been about the pipes, not the content that flows through them. As the US delegation comments, “this text suggests that the ITU has a role in content related issues. We do not believe it does.” This is dangerous because many UN members do not have the same appreciation for freedom of speech that many of us do.
• The addition of a new section 8.2 to regulate online crime. Again, this would introduce content regulation into the ITRs.
• The addition of a new section 8.5, proposed by China, that would give member states what the Internet Society describes as a “a very active and inappropriate role in patrolling and enforcing newly defined standards of behaviour on telecommunication and Internet networks and in services.”

Over at TIME.com I write that we should keep a close eye on moves by Russia, China and other countries to move Internet governance to the UN:

All this year, and culminating in December at the World Conference on International Telecommunications in Dubai, the nations of the world will be negotiating a treaty to govern international telecommunications services between countries. It is widely believed that some countries, including Russia and China, will take the opportunity to push for U.N. control of Internet governance. Such a turn of events would certainly be troubling. …

It’s amazing to think about it, but no state governs the Internet today. Decisions about its architecture are made by consensus among engineers and other volunteers. And that, in fact, is what has kept it open and free.

“Upending the fundamentals of the multi-stakeholder model is likely to Balkanize the Internet at best, and suffocate it at worst,” FCC Commissioner Robert McDowell said recently in a speech. “A top-down, centralized, international regulatory overlay is antithetical to the architecture of the Net, which is a global network of networks without borders. No government, let alone an intergovernmental body, can make decisions in lightning-fast Internet time.”

Read the whole thing at TIME.com.

The Stop Online Piracy Act (SOPA), a controversial bill before the House of Representatives aimed at combating “rogue websites,” isn’t just about criminal, foreign-based sites that break U.S. intellectual property laws with impunity. Few dispute that these criminal websites that profit from large-scale counterfeiting and copyright infringement are a public policy problem. SOPA’s provisions, however, extend beyond these criminal sites, and would potentially subject otherwise law-abiding Internet intermediaries to serious legal risks.

Before moving forward with rogue websites legislation, it’s crucial that lawmakers take a deep breath and appreciate the challenges at stake in legislating online intermediary liability, lest we endanger the Nozickian “utopia of utopias” that is today’s Internet. The unintended consequences of overbroad, carelessly drafted legislation in this space could be severe, particularly given the Internet’s incredible importance to the global economy, as my colleagues have explained on these pages (1, 2, 3, 4, 5, 6)

To understand why SOPA could be a game-changer for online service providers, it’s important to understand the simmering disagreement surrounding the Digital Millennium Copyright Act (DMCA) of 1998, which grants certain online service providers a safe harbor from liability for their users’ copyright infringing actions. In exchange for these protections, service providers must comply with the DMCA’s notice-and-takedown system, adopt a policy to terminate users who repeatedly infringe, and meet several other conditions. Service providers are only eligible for this safe harbor if they act to expeditiously remove infringing materials upon learning of them. Also ineligible for the safe harbor are online service providers who turn a blind eye to “red flags” of obvious infringement.

The DMCA does not, however, require providers to monitor their platforms for infringing content or design their services to facilitate monitoring. Courts have held that a DMCA-compliant service provider does not lose its safe harbor protection if it fails to act upon generalized knowledge that its service is used for many infringing activities, in addition to lawful ones, so long as the service provider does not induce or encourage users’ infringing activities.

Defenders of the DMCA safe harbor argue that it’s helped enable America’s Internet-based economy to flourish, allowing an array of web businesses built around lawful user-generated content — including YouTube, Facebook, and Twitter — to thrive without fear of copyright liability or burdensome monitoring mandates.

Conversely, some commentators, including UCLA’s Doug Lichtman, argue that the DMCA inefficiently tips the scales in favor of service providers, to the detriment of content creators — and, ultimately, consumer welfare. Pointing to a series of court rulings interpreting the safe harbor’s provisions, critics argue that the DMCA gives online intermediaries little incentive to do anything beyond the bare minimum to stop copyright infringement. Critics further allege that the safe harbor has been construed so broadly that it shields service providers that are deliberately indifferent to their users’ infringing activities, however rampant they may be.

What does SOPA have to do with all of this? Buried in the bill’s 78 pages are several provisions that run a very real risk of effectively sidestepping many of the protections conferred on online service providers by the DMCA safe harbor.

Section 102

Section 102 of SOPA empowers the Attorney General to seek a court order against an allegedly infringing foreign website. Such a court order would, if granted, effectively deny the site access to payment processors, ad networks, and even parts of the domain name system. Under § 102, a foreign, U.S.-directed website is deemed a “foreign infringing site” if:

[T]he owner or operator of such Internet site is committing or facilitating the commission of criminal violations [involving illegal copyright infringement, counterfeiting, or theft of trade secrets] and the Internet site would . . . [therefore] be subject to seizure in the United States . . . if such site were a domestic Internet site.

The part about websites “subject to seizure in the United States” refers to 18 U.S.C. § 2323, which states among other things that “[p]roperty subject to forfeiture” includes:

Any property used, or intended to be used, in any manner or part to commit or facilitate the commission of [criminal copyright or trademark infringement].

This definition of a “foreign infringing site” is enormously troubling. Note the absence of any requirement of actual or constructive knowledge on the part of the site operator, let alone criminal intent. Under § 102, a foreign website built around user-generated content may be deemed an “infringing site” simply because its server has facilitated the criminally infringing acts of a single user — even if the site operator neither induced nor knew of the user’s unlawful activities. While an innocent foreign site operator might eventually be able to persuade a court to vacate an order deeming it a “foreign infringing site,” SOPA imposes an astonishingly low burden on the Attorney General of showing that a site is a “foreign infringing site.” If the bill is enacted as is, foreign websites that contain any user-generated content had better watch out.

SOPA proponents defend § 102 by pointing out that its definition of infringing sites comes straight out of the 2008 PRO-IP Act, which established the aforementioned civil forfeiture provision in 18 U.S.C. § 2323. But this statute’s constitutionality is currently being challenged in federal court by a team of attorneys that includes Stanford law professor and copyright guru Mark Lemley. The law’s breadth raises serious First Amendment concerns since it permits ex parte seizures of entire outlets of speech (e.g., websites) simply because the outlet has been used in some unlawful manner. SOPA may be based on existing law, but why should Congress extend this overbroad provision of the PRO-IP Act to encompass an even broader range of websites? If anything, lawmakers should revisit PRO-IP and narrow its applicability to sites intentionally operated for the purpose of committing or facilitating criminal infringement. Via Techdirt, even Floyd Abrams, a constitutional scholar who represents content companies that strongly back SOPA, conceded in a recent letter to Congress that unanswered questions remain regarding the constitutionality of 18 U.S.C. § 2323.

Section 103

The next section of SOPA, Section 103, isn’t any better. This section provides for private rights holders to seek court orders against U.S.-directed websites — including domestic sites — to deny them access to U.S. payment processors and ad networks. Section 103 deems a website “dedicated to theft of U.S. property” if any of the following conditions are met:

1. [The site] is primarily designed or operated for the purpose of, has only limited purpose or use other than, or is marketed by its operator or another acting in concert with that operator for use in, offering goods or services in a manner that engages in, enables, or facilitates [copyright infringement, circumvention of copyright protection systems, or trademark infringement]; or
2. [The site operator] is taking, or has taken, deliberate actions to avoid confirming a high probability of the use of the . . . site to carry out acts that constitute [copyright infringement or the circumvention of copyright protection systems]; or
3. [The site operator] operates the . . . site with the object of promoting, or has promoted, its use to carry out acts that constitute [copyright infringement or the circumvention of copyright protection systems], as shown by clear expression or other affirmative steps taken to foster infringement.

The first prong of this definition encompasses any website that “has only limited purpose or use other than . . . engag[ing] in, enabl[ing], or facilitat[ing]” copyright infringement, circumvention of copyright protection systems, or trademark infringement. This language comes from 17 U.S.C. § 1201, also known as the DMCA anti-circumvention provisions. Just how “limited” of non-infringing uses must a site have to meet this definition? It’s hard to say. As Rob Pegoraro cheekily observed in a recent Roll Call op-ed, “‘[l]imited’ is one of those wonderfully elastic words — notice the ever-longer yet still ‘limited’ copyright terms granted to artists and creators?” This section of SOPA would be more clear if it relied on the “capable of substantial non-infringing uses” test originally articulated by the U.S. Supreme Court in its famous 1984 Betamax opinion, Sony Corp. v. Universal City Studios, Inc., which has since been interpreted by numerous federal courts in copyright infringement cases.

The second prong of the § 103 definition, which covers websites that take “deliberate actions to avoid confirming a [high probability of infringement],” is perhaps the most worrisome of the three prongs. This language appears to have been lifted directly from a 2011 U.S. Supreme Court decision,  Global-Tech Appliances, Inc. v. SEB S.A. In that case, a patent infringement lawsuit, the Court found the defendant liable for inducement on the grounds that it took willful steps to blind itself of the existence of the patent at suit. The Court held that “willful blindness” exists when (1) a defendant subjectively believes that there is a high probability that a fact exists; and (2) the defendant takes deliberate actions to avoid learning of that fact.

Note, however, that Section 103 omits the first prong of the Global Tech willful blindness test, the subjective belief element. This omission might simply be an oversight — or it could reveal the intent of the bill’s authors to cast aside the subjective knowledge standard (which currently applies to service providers in the context of knowledge for purposes of the DMCA) and replace it with an objective, “reasonable person” standard. If plaintiff bringing a SOPA action is only required to show that a website operator should have known of its users’ infringement from the perspective of a “reasonable” operator, and that the site’s operator acted in some manner that had the effect of contributing to its ignorance of infringing activities by users, a vast array of websites that currently enjoy the protections of the DMCA safe harbor may face significant new legal risks. After all, website operators make design decisions all the time that might foreseeably impact on their awareness (or lack thereof) of user’ potentially infringing activities. Who knows what sort of well-intentioned, albeit deliberate, decisions might amount to”avoiding confirming a high probability” of infringement?

As David Sohn of the Center for Democracy & Technology has pointed out, “[t]his seems like a backdoor way of imposing a monitoring obligation on any website that allows users to post content.”  Temple Law Professor David Post, writing at the Volokh Conspiracy, observed that the bill might make it a “violation of law to keep the prosecutors from ‘confirming’ that you’re violating the law — all the prosecutor has to show, to make you vanish from the Net, is that you’ve somehow tried to keep the prosecutor off of your website!”

Why SOPA Could Endanger the DMCA Safe Harbor

SOPA proponents have dismissed concerns that the bill would risk undermining the DMCA safe harbor. U.S. Register of Copyrights Maria Pallante, testifying in a House Judiciary Committee hearing on SOPA on November 16, told members of Congress that it was extremely unlikely that any actions brought under SOPA would impact websites otherwise shielded by the DMCA safe harbor. Techdirt reports that Viacom executive Stanley Pierre-Louis recently argued that SOPA would not “[expand] the scope of secondary liability claims and [diminish] DMCA protections,” noting that “[t]here is no rule that permits ‘willful blindness’ of obvious wrongdoing under U.S. law, and nothing in the DMCA or any other statute has been deemed to hold otherwise.”

Technically, Pallante and Pierre-Louis are correct; SOPA’s provision at 102(c)(2)(A)(iii) appears to leave existing doctrines of copyright liability vis-à-vis the DMCA safe harbor untouched.

In practice, however, SOPA has the potential to effectively usurp the DMCA safe harbor in important respects. If the bill is enacted, online service providers would face a new worst nightmare: being cut off from payment processors, ad networks, and possibly even Internet service providers. As Eric Goldman recently explained, if a “website goes offline because of cash flow problems caused by the cutoff attributable to a single UGC content item, all of the UGC on that website goes dark because of a single content item.”

To avoid such an outcome, website operators will likely do everything they can to avoid falling under SOPA’s definitions — even if that means going above and beyond the requirements of the DMCA safe harbor. While I’m all for websites voluntarily taking prudent and measured actions to combat unlawful user activities (e.g., YouTube’s Content ID system), there are good reasons to be very skeptical of any legislation that effectively imposes on site operators any duty or obligation to monitor, or facilitate the monitoring of, user activities.

Fair concerns have been raised by thoughtful commentators about the DMCA’s limitations and shortcomings. Those concerns deserve a serious examination in the halls of Congress, and perhaps may even merit some careful, targeted tweaks to the DMCA. But the extraordinary remedies provided contained in SOPA should be reserved for genuine rogue sites that willfully flout U.S. laws with impunity and are beyond the reach of U.S. law enforcement authorities. While there are U.S.-based websites out there that violate copyright and trademark laws, extraordinary remedies (such as “going after the money”) should not be the primary method of penalizing such sites. If a rights holder believes that a domestic website is infringing on its copyright or trademark, the proper means of obtaining recourse is to file a civil lawsuit and, when appropriate, seek injunctive relief. The U.S. Marshals Service is tasked with enforcing civil judgments and other court orders entered against domestic actors by federal courts, and parties may obtain writs of execution to order law enforcement intervention against American individuals or businesses that violate court orders.

We Have To Pass The Bill To Find Out What’s In It

Reasonable people read SOPA’s provisions in very different ways. For instance, Terry Hart, writing at Copyhype, has eloquently defended SOPA’s definitions, arguing that “[t]he actions that would subject a provider to SOPA’s provisions are the same ones that would subject it to a copyright infringement suit under existing law and are actions that would not be protected under DMCA safe harbors.” But while SOPA’s definitions are based largely on well-established, time-tested statutes and precedents, some of the language isn’t as clear-cut as it might seem at first glance, as I explain above.

As a result, it’s tough to predict how SOPA would actually impact online service providers. Federal judges vary widely in the methods they employ in attempting to interpret vague statutes. There is no such thing as stare decisis when it comes to statutory construction; some judges focus on the plain meaning of a statute’s language, while others pour through committee reports and hearing transcripts in hopes of divining the legislature’s true underlying intent.

With apologies to Nancy Pelosi, what this means is that we probably won’t know what’s in SOPA until it’s passed. Even then, only after years of costly litigation will the contours of the bill’s provisions likely begin to approach a state of clarity. Consider that the DMCA, now thirteen years old, continues to engender serious disagreement among federal courts to this day. (For instance, courts disagree on what it means for a service provider to take “volitional acts” that encourage users to engage in infringement.)

SOPA’s potential breadth is especially problematic given that its potential victims are small, entrepreneurial Internet start-ups that lack the resources to pay a team of lawyers to examine their operational decisions for potential SOPA violations. As leading high-tech venture capitalist Fred Wilson has argued, “venture capitalists will think more than twice about putting $3mm of early stage capital into startups if they know that the vast majority of the funds will go to pay lawyers to defend the companies instead of to hire engineers to create and build product.”

Lawmakers Should Tread Carefully

While combating rogue foreign websites that violate U.S. laws flagrantly and with impunity should be a priority for lawmakers, SOPA’s definitions and remedies are simply too broad and too vague in their current form. They would cast a cloud of legal uncertainty over America’s innovative, startup-driven Internet economy. It would be a grave mistake to grant such powerful new tools to Justice Department and rights holders and assume that federal trial judges will interpret SOPA’s provisions as narrowly as is necessary to ensure legitimate Internet companies do not suffer adverse effects.

The recent House Judiciary Committee hearing on SOPA made clear just how much work remains to be done to craft an effective but targeted approach to rogue sites. Serious questions remain unresolved — not only about SOPA’s impact of the DMCA safe harbor, but also about cybersecurity, due process and free speech. Additional hearings are needed to explore these important issues with Internet engineers, law professors, and venture capitalists. Marking up the legislation before the end of 2011 — as Chairman Lamar Smith desires, according to the National Journal — would be a serious mistake.

For more on SOPA and rogue websites legislation; see: 

• Ryan Radia, Preliminary Thoughts  on Stop Online Piracy Act (SOPA)
• Ryan Radia, Congress Should Amend SOPA to Address Cybersecurity, Due Process Concerns
• Ryan Radia, Congress takes another stab at combating Rogue Websites with the PROTECT IP Act
• Ryan Radia, Five Ways Congress Can Fix COICA Copyright Bill
• Joint Letter from Public Interest Groups to the House Judiciary Committee on the Stop Online Piracy Act
• Timothy B. Lee, ArsTechnica, The Stop Online Piracy Act: Big Content’s full-on assault against the Safe Harbor
• Letter from Sens. Ron Wyden, Rand Paul, Jerry Moran, and Maria Cantwell to Congressional Leadership objecting to the PROTECT IP Act
• U.S. Rep. Zoe Lofgren’s Opening Letter on SOPA
• Prof. Eric Goldman, Why I Oppose the Stop Online Piracy Act (SOPA)/E-PARASITES Act
• Prof. David Post, How About Occupy Hollywood?
• Fred Wilson, Protecting The Safe Harbors Of The DMCA And Protecting Jobs
• Terry Hart, SOPA: New remedies for existing liability
• Rob Pegoraro, Online Piracy Act is Copyright Overreach
• Center for Democracy & Technology, The Stop Online Piracy Act: Summary, Problems and Implications
• Sherwin Siy, Public Knowledge, House Version of Rogue Websites Bill Adds DMCA Bypass, Penalties for DNS Workarounds
• Techdirt’s SOPA coverage
• Parker Higgins, Electronic Frontier Foundation, What’s On the Blacklist? Three Sites That SOPA Could Put at Risk
• Corynne McSherry, Electronic Frontier Foundation, SOPA: Hollywood Finally Gets A Chance to Break the Internet
• Larry Downes, TechFreedom, SOPA: Hollywood’s latest effort to turn back time

In a speech today before the Internet Governance Forum entitled “Taking Care of the Internet,” Neelie Kroes, Vice President of the European Commission, responsible for the Digital Agenda for Europe, argued for “a globally coherent approach” to preserve “the global character of the Internet, and keep it from fragmenting.” That sounds good in theory but, as always, the devil is in the details. No one wants to see a highly balkanized Internet with each country and continent becoming a digital island cut off from the rest of Internet. On the other hand, if “a globally coherent approach” means layers of international red tape and bureaucracy, then fragmentation doesn’t sound so bad by comparison. That’s particularly true for those of us who live in countries to cherish principles of freedom of speech and free enterprise, as we do in the United States.

For example, to most of the rest of the planet, America’s First Amendment is viewed as a pesky local ordinance that simply interferes with the ability of government to establish rules for acceptable speech and expression throughout society. What, then, does “a globally coherent approach” to Internet governance mean when America’s values conflict with other countries and continents? Does it mean that the U.S. should conform to a global norm as established by a “consensus body”? Who would that be? The OECD? The United Nations? The International Telecommunications Union? If so, it is clear that protections for freedom of speech and expression would be sacrificed on the altar of “consensus” or a “coherent global approach” to Net governance.

The same holds true for commercial regulation. The U.S. leaves more breathing room for commercial experimentation and entrepreneurialism than most other governments across the globe. It is likely that a more “globally coherent approach” to Internet governance would lead to a ramping up of regulations governing commercial interactions online.

Thus, there should be some limits to how far we are willing to go in the name of avoiding “Internet fragmentation.” America shouldn’t be ashamed to boast of its superior “light-touch” framework for online policy, and it should defend it against efforts that would force a sort of global regulatory super-convergence and lead to a future that is less free for online denizens.

“Global Internet Governance: Research and Public Policy Challenges for the Next Decade” is the title for a conference event held May 5 and 6 at the American University School of International Service in Washington. See the full program here.

Featured will be a keynote by the NTIA head, Assistant Secretary for Commerce Lawrence Strickling. TLF-ers may be especially interested in the panel on the market for IP version 4 addresses that is emerging as the Regional Internet Registries and ICANN have depleted their free pool of IP addresses. The panel “Scarcity in IPv4 addresses” will feature representatives of the American Registry for Internet Numbers (ARIN) and Addrex/Depository, Inc., the new company that brokered the deal between Nortel and Microsoft. There will also be debates about Wikileaks and the future of the Internet Governance Forum. Academic research papers on ICANN’s Affirmation of Commitments, the role of the national governments in ICANN, the role of social media in the Middle East/North Africa revolutions, and other topics will be presented on the second day. The event was put together by the Global Internet Governance Academic Network (GigaNet). Attendance is free of charge but you are asked to register in advance.