Save the Covered Business Method program expansion

by on November 19, 2013 · 0 comments

The Hill is reporting that Rep. Goodlatte, under pressure from “companies like Microsoft, IBM and Apple,” is planning to drop the provision in his patent reform bill that expands the Covered Business Method (CBM) program. Mike Masnick also has commentary.

Julie Samuels explains CBM review:

The “Covered Business Method Review” (CBM) was first introduced in 2011’s America Invents Act. It created, for a limited time, an additional avenue of patent review at the Patent Office. Unfortunately, as drafted, it really was only intended to apply to patents that deal with financial institutions.

CBM is a good program. First, we have long favored the use of Patent Office procedure to challenge patents; it is much cheaper and much quicker than going to court. Second, it allows for more ways to challenge patents than other types of Patent Office review—making it a more robust procedure that promises to knock out more improvidently granted patents. Third, it automatically puts concurrent patent litigation between the parties on hold.

Putting ongoing litigation on hold is no small thing. Patent litigation often costs each side well into the millions of dollars, while CBMs cost just a fraction of that. This means that more people will be in a position to challenge bad patents and fight back against the trolls who wield those patents.

The original Goodlatte bill would have expanded CBM review to patents beyond the financial sector.

From a public choice perspective, it is unsurprising that finance would have better patent law than the rest of the economy: finance is a concentrated industry that can go up politically against and offset another concentrated industry, the patent bar. But non-finance covered business method patents are asserted against all kinds of companies, for practices as banal as retrieving data from a database (not joking: “A method of retrieving information from a database record having plural fields“) or selling things online (“An apparatus to market and/or sell goods and/or services over an electronic network“). The fact that the victims of these patent assertions are dispersed throughout the economy means that they are not organized enough to effectively oppose the patent interests that are lobbying against the CBM program expansion.

Still, it is very disappointing that Rep. Goodlatte is caving to such lobbying. I already thought that his bill did not go far enough; now it goes even less far.

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What’s at Stake with the FTC’s Internet of Things Workshop

by on November 18, 2013 · 2 comments

Tomorrow, the Federal Trade Commission (FTC) will host an all-day workshop entitled, “Internet of Things: Privacy and Security in a Connected World.” [Detailed agenda here.] According to the FTC: “The workshop will focus on privacy and security issues related to increased connectivity for consumers, both in the home (including home automation, smart home appliances and connected devices), and when consumers are on the move (including health and fitness devices, personal devices, and cars).”

Where is the FTC heading on this front? This Politico story by Erin Mershon from last week offers some possible ideas. Yet, it still remains unclear whether this is just another inquiry into an exciting set of new technologies or if it is, as I worried in my recent comments to the FTC on this matter, “the beginning of a regulatory regime for a new set of information technologies that are still in their infancy.”

First, for those not familiar with the “Internet of Things,” this short new report from Daniel Castro & Jordan Misra of the Center for Data Innovation offers a good definition:

The “Internet of Things” refers to the concept that the Internet is no longer just a global network for people to communicate with one another using computers, but it is also a platform or devices to communicate electronically with the world around them. The result is a world that is alive with information as data flows from one device to another and is shared and reused for a multitude of purposes. Harnessing the potential of all of this data for economic and social good will be one of the primary challenges and opportunities of the coming decades.

The report continues on to offer a wide range of examples of new products and services that could fulfill this promise.

What I find somewhat worrying about the FTC’s sudden interest in the Internet of Things is that it opens to the door for some regulatory-minded critics to encourage preemptive controls on this exciting new wave of digital age innovation, based almost entirely on hypothetical worst-case scenarios they have conjured up. Continue reading →

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FCC Chairman Wheeler Signals Pro-Investment Approach to Communications Regulation

by on November 18, 2013 · 0 comments

From the time Tom Wheeler was nominated to become the next FCC Chairman, many have wondered, “What would Wheeler do?” Though it is still early in his chairmanship, the only ruling issued in Chairman Wheeler’s first meeting signals a pro-investment approach to communications regulation.

The declaratory ruling clarified that the FCC would evaluate foreign investment in broadcast licensees that exceeds the 25 percent statutory benchmark using its existing analytical framework. It had previously been unclear whether broadcasters were subject to the same standard as other segments of the communications industry. The ruling recognized that providing broadcasters with regulatory certainty in this respect would promote investment and that greater investment yields greater innovation.

The FCC’s decision to apply the same standards for reviewing foreign ownership of broadcasters as it applies to other segments of the communications industry is very encouraging. It affirms the watershed policy decisions in the USF/ICC Transformation Order, in which the FCC concluded that “leveling the playing field” promotes competition whereas implied subsidies deter investment and are “unfair for consumers.” Continue reading →

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H Block Spectrum Highlights Risk of No Shows at FCC Incentive Auction

by on November 18, 2013 · 0 comments

I recently prepared a paper for the Expanding Opportunities for Broadcasters Coalition and Consumer Electronics Association that provides empirical data regarding the costs of restricting the eligibility of large firms to participate in FCC spectrum auctions (available in PDF here). The paper demonstrates that there is no significant likelihood that an open incentive auction would substantially harm the competitive positions of Sprint and T-Mobile. It also demonstrates that Sprint and T-Mobile have incentives to constrain the ability of Verizon and AT&T to expand their network capacity, and that Sprint and T-Mobile could consider FCC restraints on their primary rivals a “win” even if Sprint and T-Mobile don’t place a single bid in the incentive auction. (Winning regulatory battles is a lot cheaper than winning spectrum in a competitive auction.)

Some might think it is implausible that Sprint or T-Mobile would decide to forgo participation in the incentive auction. However, the recent announcement by Sprint that it won’t compete in the H block auction highlights the difficulty in predicting accurately whether any particular company will participate in a particular auction. Sprint’s announcement stunned market analysts, who had considered Sprint a key contender for the H block spectrum. Until recently, Sprint had given every indication it was keen to acquire this spectrum, which is located directly adjacent to the nationwide G block that Sprint already owns. It participated heavily in the FCC’s service rules proceeding for the H block (WT Docket No. 12-357) and even conducted its own testing to assist the FCC in assessing the technical issues. But, by the time the H Block auction was actually announced, Sprint decided its business would be better served by focusing its efforts on the deployment of its trove of spectrum in the 2.5 GHz band. Continue reading →

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Yes, Net Neutrality is a Dead Man Walking. We Already Have a Fast Lane.

by on November 15, 2013 · 1 comment

“Net neutrality is a dead man walking,” Marvin Ammori stated in Wired last week, citing the probable demise of the FCC’s Open Internet rules in court. I’d agree for a different reason. Net neutrality has been dead ever since the FCC released its net neutrality order in December 2010. (This is not to say the damaging rules should be upheld by the DC Circuit. For many reasons, the Order should be struck down.) I agree with Ammori because we already have the Internet “fast lane” many net neutrality proponents wanted to prevent. Since that goal is precluded, all the rules do is hang Damocles’ Sword over ISPs regarding traffic management.

The 2010 rules managed to make both sides unhappy. The ISPs face severe penalties if three FCC commissioners believe ISP network management practices “unreasonably discriminate” against certain traffic. Public interest groups, on the other hand, were dissatisfied because they wanted ISPs reclassified as common carriers to prevent deep-pocketed content creators from allying with ISPs to create an Internet “fast lane” for some companies, relegating most other websites to the so-called “winding dirt road” of the public Internet.

Proponents emphasize different goals of net neutrality (to the point–many argue–it’s hard to discern what the term means). But if preventing the creation of a fast lane is the main goal of net neutrality, it’s dead already. Consider two popularly-cited net neutrality “violations” that do not violate the Open Internet Order: Netflix’ Open Connect program and Comcast not counting its Xfinity video-on-demand (VOD) service against customers’ data limits

Both cases involve the creation of a fast lane for certain content and activists rail against them. Both cases also involve network practices expressly exempted from net neutrality regulations. The FCC exempted these sorts of services because they are important, benefit the public, and should be encouraged. With Open Connect, Netflix scatters its many servers across the country closer to households, which allows its content to stream at a higher quality than most other video sites. Comcast gives its Xfinity VOD fast-lane treatment as well, which is completely legal since VOD from a cable company is a “specialized service” exempt from the rules.

“Specialized service” needs some explanation since it’s a novel concept from the FCC order. The net neutrality rules distinguish between “broadband Internet access service” (BIAS)–to which the regulations apply–and specialized (or managed) services–to which they don’t apply. The exemption of specialized services opens up a dangerous loophole in the view of proponents.

BIAS is what most consider “the Internet.” It’s the everyday websites we access on our computers and smartphones. What are specialized services? In the sleepy month of August the FCC’s Open Internet Advisory Committee released its report on what criteria specialized service needs to meet to be exempt from net neutrality scrutiny (these are influential and advisory, but not binding):

1. The service doesn’t reach large parts of the Internet, and
2. The service is an “application level” service.

The Advisory Committee also thought that “capacity isolation” is a good indicator that a service should be exempt. With capacity isolation, the ISP has one broadband connection going to the home but is separating the service’s data stream from the conventional Internet stream consumers use to visit Facebook, YouTube, and the like. This is how Comcast’s streaming of Xfinity to Xboxes is exempt–it is a proprietary network going into the home. As long as carriers don’t divert BIAS capacity for the application, the FCC will likely turn a blind eye.

What are some examples? Specialized service is marked by higher-quality streams that typically don’t suffer from jitter and latency. If you have “digital voice” from Comcast, for example, you are receiving a specialized service–proprietary VoIP. Specialized service can also include data streams like VOD, e-reader downloads, heart monitor data, and gaming services. The FCC exempted these because some are important enough that they shouldn’t compete with BIAS Internet. It would be obviously damaging to have digital phone service or health monitors getting disrupted because others are checking up on their fantasy football team. The FCC also wanted to spur investment in specialized services and video companies like Netflix are considering pairing up with ISPs to deliver a better experience to customers.

That is to say, the net neutrality effort has failed even worse than most realize. The FCC essentially prohibited innovative business models in BIAS, freezing that service into common-carrier-like status. Further, we have an Internet fast lane (which I consider a significant public benefit, though net neutrality proponents often do not). As business models evolve and the costs of server networks fall, our two-tier system will become more apparent.

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New paper on the FTC’s dangerously broad Section 5 authority

by on November 14, 2013 · 0 comments

The following is a guest post by James C. Cooper of George Mason University School of Law.

What are the limits to the FTC’s Section 5 antitrust authority? The short answer is, who knows. The FTC has been on a 100-year quest to find the maleficence that it alone was meant to combat. Early in its history, the Supreme Court appeared to give the FTC license to challenge a wide range of conduct that had little to do with competition. A series of appellate setbacks in the 1980s – relating largely to claims that Section 5 could reach tacit collusion and oligopolistic interdependence – led the Commission to retrench. Since then, the FTC has avoided litigating a Section 5 case, focusing primarily on invitations to collude (ITCs), and breaches of agreements to disclose or to license standard essential patents. Of course since all of these cases have settled, no court has had to opportunity to weigh in on whether Congress meant Section 5 to cover this type of conduct.

In my new Mercatus Center working paper, The Perils of Excessive Discretion: The Elusive Meaning of Unfairness in Section 5 of the FTC Act, I argue that the undefined nature of Section 5 leaves the FTC with broad discretion to investigate and extract settlements from companies. Although the appellate rebukes of the 1980s provide some clear boundaries, given firms’ understandable aversion to litigation – especially when only injunctive relief is on the table, and when the risk of follow-on private suits is much lower than it would be under a Sherman Act settlement – there is still a relatively large zone in which the FTC can develop this quasi Section 5 common law with little fear of triggering litigation, which would lead to appellate review. (A similar problem exists with respect to the FTC’s use of its Section 5 authority to become the de facto national privacy and data security regulator, but that’s another post).

Continue reading →

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Problematic “Do Not Track Kids” Bill Reintroduced

by on November 14, 2013 · 0 comments

Sen. Edward J. Markey (D-Mass.) and Rep. Joe Barton (R-Texas) have reintroduced their “Do Not Track Kids Act,” which, according to this press release, “amends the historic Children’s Online Privacy Protection Act of 1998 (COPPA), will extend, enhance and update the provisions relating to the collection, use and disclosure of children’s personal information and establishes new protections for personal information of children and teens.” I quickly scanned the new bill and it looks very similar to their previous bill of the same name that they introduced in 2011 and which I wrote about here and then critiqued at much greater length in a subsequent Mercatus Center working paper (“Kids, Privacy, Free Speech & the Internet: Finding The Right Balance”).

Since not much appears to have changed, I would just encourage you to check out my old working paper for a discussion of why this legislation raises a variety of technical and constitutional issues. But I remain perplexed by how supporters of this bill think they can devise age-stratified online privacy protections without requiring full-blown age verification for all Internet users. And once you go down that path, as I note in my paper, you open up a huge Pandora’s Box of problems that we have already grappled with for many years now. As I noted in my paper, the real irony here is that the “problem with these efforts is that expanding COPPA would require the collection of more personal information about kids and parents. For age verification to be effective at the scale of the Internet, the collection of massive amounts of additional data is necessary.” Continue reading →

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A Nice Illustration of The Law of Disruption in Action

by on November 13, 2013 · 0 comments

My friend and frequent co-blogger Larry Downes has shown how lawmaking in the information age is inexorably governed by “The Law of Disruption” or the fact that “technology changes exponentially, but social, economic, and legal systems change incrementally.” This law is “a simple but unavoidable principle of modern life,” he said, and it will have profound implications for the way businesses, government, and culture evolve going forward. “As the gap between the old world and the new gets wider,” he argues, “conflicts between social, economic, political, and legal systems” will intensify and “nothing can stop the chaos that will follow.” This has profound ramifications for high-tech policymaking, or at least it should.

A powerful illustration of the Law of Disruption in action comes from this cautionary tale told by telecom attorney Jonathan Askin in his new essay, “A Remedy to Clueless Tech Lawyers.” In the early 2000s, Askin served as legal counsel to Free World Dialup (FWD), “a startup that had the potential to dramatically disrupt the telecom sector” with its peer-to-peer IP network that could provide free global voice communications. Askin notes that “FWD paved the way for another startup—Skype. But FWD was Skype before Skype was Skype. The difference was that FWD had U.S. attorneys who put the reigns on FWD to seek FCC approvals to launch free of regulatory constraints.” Here’s what happened to FWD according to Askin: Continue reading →

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Tom Brokaw on Old vs. New Media

by on November 12, 2013 · 0 comments

Tom BrokawI think I owe Tom Brokaw an apology. When I first started reading his most recent Wall Street Journal column, “Imagine the Tweets During the Cuban Missile Crisis,” I assumed that I was in for one of those hyper-nosalgic essays about how the ‘good ‘ol days’ of mass media had passed us by and why the new media era is an unmitigated disaster. Instead, I was pleased to read his very balanced and sensible view of the old versus news media environments. Reflecting on the evolution of the media marketplace over the past 50 years since JFK’s assassination, Brokaw notes that:

The media climate has changed dramatically. The New Frontier, as Kennedy liked to call his administration, received a great deal of attention, but 50 years ago the major national information sources consisted of a handful of big-city daily newspapers, a few weekly news periodicals and two dominant TV network evening newscasts. Now the political news comes at us 24/7 on cable, through the air, the digital universe, on radio and print. And it comes to us more and more as opinion rather than a recitation of the facts as best they can be determined. News is a hit-and-run game, for the most part, with too little accountability for error.

This leads Brokaw to wonder if the amazing media metamorphosis has been, on net, positive or negative. “The virtual town square has been wired and expanded,” he notes, “but the question remains whether more voices make for a healthier political climate. With a keystroke we can easily move from an online credible source of information to a website larded with opinion or deliberately malicious erroneous claims. Have we simply enlarged the megaphone, cranked up the decibel level, and rallied the like-minded without regard to facts or consequences?” Continue reading →

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Anupam Chander on free speech and cyberlaw

by on November 12, 2013 · 0 comments

Anupam Chander, Director of the California International Law Center and Martin Luther King, Jr. Hall Research Scholar at the UC Davis School of Law, discusses his recent paper with co-author Uyen P. Lee titled The Free Speech Foundations of Cyberlaw. Chander addresses how the first amendment promotes innovation on the Internet; how limitations to free speech vary between the US and Europe; the role of online intermediaries in promoting and protecting the first amendment; the Communications Decency Act; technology, piracy, and copyright protection; and the tension between privacy and free speech.

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