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[UPDATE 4/30/13: This article was subsequently published in Volume 65, Issues 2 of the Federal Communications Law Journal in April 2013. The links below now point to the final FCLJ version.]

The Mercatus Center at George Mason University has just released a new paper by Brent Skorup and me entitled, “Uncreative Destruction: The War on Vertical Integration in the Information Economy.”  Brent, who is the research director for the Information Economy Project at the George Mason University School of Law, and I have been working on this paper since the Spring and we are looking forward to getting it published in a law review shortly. The paper focuses on Tim Wu’s “separations principle” for the digital economy, something I’ve spent some time critiquing here in the past. Here’s the introduction from the 44-page paper that Brent and I just released:

Are information sectors sufficiently different from other sectors of the economy such that more stringent antitrust standards should be applied to them preemptively? Columbia Law School professor Tim Wu responds in the affirmative in his book The Master Switch: The Rise and Fall of Information Empires. Having successfully pushed net-neutrality regulation into the policy spotlight, Wu has turned his attention to what he regards as excessive market concentration and threats to free speech throughout the entire information economy.To support his call for increased antitrust intervention, Wu explains his view of competition in the information economy—a view that deviates substantially from current mainstream antitrust theory. Continue reading →

On Friday, California Governor Jerry Brown signed SB 1161, which prohibits the state’s Public Utilities Commission from any new regulation of Voice over Internet Protocol or other IP-based services without the legislature’s authorization.

California now joins over twenty states that have enacted similar legislation.

The bill, which is only a few pages long, was introduced by State Senator Alex Padilla (D) in February.  It passed both houses of the California legislature with wide bi-partisan majorities.

California lawmakers and the governor are to be praised for quickly enacting this sensible piece of legislation.

Whatever the cost-benefit of continued state regulation of traditional utilities such as water, power, and landline telephone services, it’s clear that the toolkit of state and local PUCs is a terrible fit for Internet services such as Skype, Google Voice or Apple’s FaceTime. Continue reading →

I’ve been hearing more rumblings about “API neutrality” lately. This idea, which originated with Jonathan Zittrain’s book, The Future of the Internet–And How to Stop It, proposes to apply Net neutrality to the code/application layer of the Internet. A blog called “The API Rating Agency,” which appears to be written by Mehdi Medjaoui, posted an essay last week endorsing Zittrain’s proposal and adding some meat to the bones of it. (My thanks to CNet’s Declan McCullagh for bringing it to my attention).

Medjaoui is particularly worried about some of Twitter’s recent moves to crack down on 3rd party API uses. Twitter is trying to figure out how to monetize its platform and, in a digital environment where advertising seems to be the only business model that works, the company has decided to establish more restrictive guidelines for API use. In essence, Twitter believes it can no longer be a perfectly open platform if it hopes to find a way to make money. The company apparently believes that some restrictions will need to be placed on 3rd party uses of its API if the firm hopes to be able to attract and monetize enough eyeballs.

While no one is sure whether that strategy will work, Medjaoui doesn’t even want the experiment to go forward. Building on Zittrain, he proposes the following approach to API neutrality:

  • Absolute data to 3rd party non-discrimination : all content, data, and views equally distributed on the third party ecosystem. Even a competitor could use an API in the same conditions than all others, with not restricted re-use of the data.
  • Limited discrimination without tiering : If you don’t pay specific fees for quality of service, you cannot have a better quality of service, as rate limit, quotas, SLA than someone else in the API ecosystem.If you pay for a high level Quality of service, so you’ll benefit of this high level quality of service, but in the same condition than an other customer paying the same fee.
  • First come first served : No enqueuing API calls from paying third party applications, as the free 3rd-party are in the rate limits.

Before I critique this, let’s go back and recall why Zittrain suggested we might need API neutrality for certain online services or digital platforms. Continue reading →

Google’s first lesson for building affordable, one Gbps fiber networks with private capital is crystal clear: If government wants private companies to build ultra high-speed networks, it should start by waiving regulations, fees, and bureaucracy.

Executive Summary

For three years now the Obama Administration and the Federal Communications Commission (FCC) have been pushing for national broadband connectivity as a way to strengthen our economy, spur innovation, and create new jobs across the country. They know that America requires more private investment to achieve their vision. But, despite their good intentions, their policies haven’t encouraged substantial private investment in communications infrastructure. That’s why the launch of Google Fiber is so critical to policymakers who are seeking to promote investment in next generation networks.

The Google Fiber deployment offers policymakers a rare opportunity to examine policies that successfully spurred new investment in America’s broadband infrastructure. Google’s intent was to “learn how to bring faster and better broadband access to more people.” Over the two years it planned, developed, and built its ultra high-speed fiber network, Google learned a number of valuable lessons for broadband deployment – lessons that policymakers can apply across America to meet our national broadband goals.

To my surprise, however, the policy response to the Google Fiber launch has been tepid. After reviewing Google’s deployment plans, I expected to hear the usual chorus of Rage Against the ISP from Public KnowledgeFree Press, and others from the left-of-center, so-called “public interest” community (PIC) who seek regulation of the Internet as a public utility. Instead, they responded to the launch with deafening silence.

Maybe they were stunned into silence. Google’s deployment is a  real-world rejection of the public interest community’s regulatory agenda more powerful than any hypothetical. Google is building fiber in Kansas City because its officials were willing to waive regulatory barriers to entry that have discouraged broadband deployments in other cities. Google’s first lesson for building affordable, one Gbps fiber networks with private capital is crystal clear: If government wants private companies to build ultra high-speed networks, it should start by waiving regulations, fees, and bureaucracy . Continue reading →

Is competition really a problem in the tech industry? That was the question the folks over at WebProNews asked me to come on their show and discuss this week. I offer my thoughts in the following 15-minute clip. Also, down below I have embedded a few of my recent relevant essays on this topic, a few of which I mentioned during the show.

In this new Money Morning article,The Antitrust Curse: What Apple Can Learn From Microsoft, IBM,”  David Zeiler wonders whether the antitrust lawsuit filed against Apple and several book publishers by the U.S. Department of Justice last week could open the door to a broader case against Apple or, at a minimum, simply become a major distraction to the firm and it’s ability to innovate going forward. He uses IBM and Microsoft as case studies in this regard and notes that, “the problem with being in the DOJ’s gunsight is that it distracts management, makes the company hesitant to innovate, and blemishes the company’s public image.  While antitrust woes may not have been entirely responsible for Microsoft and IBM ceding their dominant positions in tech, they were clearly a major factor,” he says. “And worse for Apple, the e-book case could be just the beginning.”

Quite right. I raised the same concern in my recent Forbes column,”Regulatory, Antitrust and Disruptive Risks Threaten Apple’s Empire,” which Zeiler was kind enough to quote in his essay. In that piece, I argued:

Even if Apple beats back [the eBooks] investigation, broader questions are being raised about the company’s power that could invite a much broader investigation. The danger for Apple is that antitrust becomes an omnipresent threat that must be factored into all ongoing business decisions. Antitrust is a particular danger to Apple because the firm is highly vertically integrated and that integration is the source of many of their innovations.  As earlier tech titans like IBM and Microsoft learned, when antitrust hangs like the Sword of Damocles, every decision about how to evolve and innovate becomes a calculated gamble.

Regarding the earlier impact that antitrust Sword of Damocles had on Microsoft, Zeiler unearthed this terrific 2005 quote from Mark Kroese, a general manager of information services at the Microsoft Network, who described the impact of the MS antitrust case on innovation at the firm as follows: “Working at Microsoft today vs. five years ago is different,” Kroese said. “If anyone thinks the antitrust case hasn’t slowed us down, you’re wrong. If I want to meet with a products manager for Windows, there needs to be three lawyers in the room. We have to be so careful, we err on the side of caution. We are on such a fine line of conduct.” Regarding how antitrust chilled IBM, Zeiler cites veteran tech journalist Steve Wildstrom of Tech.pinions who noted,  “Twelve years of litigation were an enormous distraction in a time of rapid technological and business change. IBM management became cautious and over-lawyered, constantly looking over its shoulder-a condition that persisted for years after the case ended. The antitrust case was almost certainly a major cause of the serious decline of IBM in the late 1980s and early 90s,” Wildstrom said.

Of course, it is impossible to scientifically determine to what degree antitrust harassment contributed to either IBM or Microsoft’s inability to innovate and adapt to the rapidly changing market conditions. And let’s be clear: both IBM and MS have found ways to rebound and innovate in other ways. But one wonders what was lost in the process as the threat of antitrust constantly loomed and potentially chilled innovative efforts that could have kept both firms on the cutting-edge. Continue reading →

So, the Department of Justice has formally filed suit against Apple and several major book publishers claiming collusion over eBook pricing. Let’s say Apple and the publishers are guilty as charged and in violation of our nation’s antitrust laws. Here’s my opinion on that: So what? What Apple and the publishers are doing here is trying to find a way to sustain creative works in an era when copyright law is slowly dying. As I noted here in a post yesterday, I take no joy in reporting the fact that property rights for intellectual creations no longer function effectively. I wish they did still work, but they are failing rather miserably in an age of highly decentralized digital dissemination. Moreover, I am not prepared to see government go to absurd enforcement extremes in an attempt to make intellectual property rights work. But, that being said, something needs to sustain and cross-subsidize cultural creations in an age of mass piracy. I have increasingly come to believe that consolidation of content and conduit (or devices) is a big part of the answer. Alternatively, some sort of informal collusion among cultural creators and information distributors may be the answer.

Apple and the publishers have figured that out and come up with a plan that keeps intellectual works flowing while making sure that the creators behind them get paid. At a time when copyright critics always say “just find a better business model” Apple and the publishers did just that. But now Department of Justice officials say that business model should be forbidden. That’s crazy.  If we’re going to let copyright die, we should at least grant more pricing and deal-making flexibility to the creative community to structure business arrangements that might give them a lifeline.

But won’t such deals give publishers and other creative artists and industries more pricing power that will help them keep prices up artificially? Yes, of course! That is the whole point! God forbid we actually have to pay something to cultural creators. Ain’t that a scandal. But here’s a news flash: That’s what copyright law was all about, too. It was about helping creators put some fences around their “property” to help them maintain some degree of pricing power for goods with zero marginal cost. The scheme worked brilliantly for many years. It spawned a vibrant marketplace of ideas and helped America become the leading exporter of expressive works on the planet. But now the effectiveness of traditional copyright is fading rapidly. Industry consolidation, cross-promotions, pricing deals, and so on, will increasingly be the “better business model” some will turn to.  So, are we going to allow it? Or will critics just keep mouthing “go find a better business model” and have the government step in every time they don’t like the one industry chooses?  I say let experimentation continue.

The Mercatus Center at George Mason University has just released my new white paper, “The Perils of Classifying Social Media Platforms as Public Utilities.” [PDF] I first presented a draft of this paper last November at a Michigan State University conference on “The Governance of Social Media.” [Video of my panel here.]

In this paper, I note that to the extent public utility-style regulation has been debated within the Internet policy arena over the past decade, the focus has been almost entirely on the physical layer of the Internet. The question has been whether Internet service providers should be considered “essential facilities” or “natural monopolies” and regulated as public utilities. The debate over “net neutrality” regulation has been animated by such concerns.

While that debate still rages, the rhetoric of public utilities and essential facilities is increasingly creeping into policy discussions about other layers of the Internet, such as the search layer. More recently, there have been rumblings within academic and public policy circles regarding whether social media platforms, especially social networking sites, might also possess public utility characteristics. Presumably, such a classification would entail greater regulation of those sites’ structures and business practices.

Proponents of treating social media platforms as public utilities offer a variety of justifications for regulation. Amorphous “fairness” concerns animate many of these calls, but privacy and reputational concerns are also frequently mentioned as rationales for regulation. Proponents of regulation also sometimes invoke “social utility” or “social commons” arguments in defense of increased government oversight, even though these notions lack clear definition.

Social media platforms do not resemble traditional public utilities, however, and there are good reasons why policymakers should avoid a rush to regulate them as such. Continue reading →

tumblr_m04g8byWGw1qdu5t4o1_500The cover story of this week’s The New Republic is a review by Evgeny Morozov of Walter Isaacson’s biography of Steve Jobs. In 10,000 words it is more illuminating about what made Steve Jobs tick than Isaacson’s 656 pages of warmed-over anecdotes and Wikipedia glosses. Morozov gets it right when he draws the connection between Bauhaus and Apple–functionalism and simplicity über alles. But he doesn’t seem to like where this takes Apple or Jobs.

He calls Jobs’s adherence to the Bauhaus ideal “a kind of industrial Platonism” in which products have a true form or essence that must be discovered and revealed by a designer. What consumers think they want is irrelevant; they will know what they want when it is presented to them. That’s true as far as it goes, but Morozov is the real Platonist here.

Morozov’s ultimate indictment of Apple is that it refuses to consider the externalities its technologies impose on “society.” One may love one’s Apple products and how they have improved one’s life, but, Morozov says,

We need to identify the other moral instructions that may be embedded in a technology, which it promotes directly or indirectly. And this fuller analysis requires going beyond studying the immediate impact on the user and engaging with the broader–let us call it the “ecological”–impact of a device. (“Ecological” here has no environmental connotations; it simply indicates that a technology may affect not only its producer and its user, but also the values and the habits of the community in which they live.)

What is this negative externality Apple’s technology is inflicting on the value and habits of our communities? It’s that apps will kill the open Internet, except not for the reasons we think. Morozov cites and dismisses Jonathan Zittrain’s “generativity” critique saying that Zittrain is concerned only with the threat to innovation. Morozov, on the other hand, is concerned with loftier “ethical and aesthetic considerations.” Namely, that Apple’s app paradigm “may be destroying the Internet in much the same way that the automobile destroyed the sidewalks and the playgrounds.”

The point is not that we should forever cling to the shape and the format of the Internet as it exists today. It is that we should (to borrow Apple’s favorite phrase) “think different” and pay attention to the aesthetic and civic externalities of the app economy. Our choice is between erecting a virtual Portland or sleepwalking into a virtual Dallas. But Apple under Steve Jobs consistently refused to recognize that there is something valuable to the Web that it may be destroying.

After reading a competing cover story about Portland in another newsweekly, I’m not sure the choice is as clear as Morozov thinks it is. But the message is clear: like Portland’s planners do about a “livable city,” Morozov has a vision of what is the Internet’s pure form, and it’s not one left to messy markets.

Morozov quotes a Newsweek interview with Jobs just a few years after the Web was invented. Jobs sees it as “the ultimate direct-to-customer distribution channel.” He essentially predicts that you’ll be able to buy books online and that the bookstore will know what you like.

That the Web did become a shopping mall fifteen years after Jobs made his remark does not mean that he got the Web right. It means only that a powerful technology company that wants to change the Web as it pleases can currently do so with little or no resistance from anyone. If one day Apple decides to remove a built-in browser from the iPad, as the Web becomes less necessary in an apped world, it will not be because things took on a life of their own, but because Apple refused to investigate what other possible directions—or forms of life—“things” might have taken. For Jobs, with his pre-political mind, there was no other way to think about the Internet than to rely on the tired binary poles of supply and demand.

The notion that Apple turned the web into what it is today singlehandedly is laughable. Apple was moribund until 2000, didn’t introduce the iTunes Store until 2003, and has never had a strong presence on the web. The web has become what it is today because the convenience of getting any book you want, whenever you want it, and cheaply beats little bookstores stocked by proprietor’s whims, however aesthetically pleasing they may be–which they’re often not. And for the record, I hope we can all agree the web is more than a shopping mall.

More to the point, though, Jobs was not as much a Pied Piper as we’d like to think he was. Depite all his marketing moxie, he was constrained by the market. If Jobs ever thought there was a true essence of a computer, it was the Power Mac G4 Cube. As Isaacson says, “it was the pure expression of Jobs’s aesthetic.” And it was a flop. “Jobs later admitted that he had overdesigned and overpriced the Cube, just as he had the NeXT computer.” Remember the NeXT cube? How about the iPod Hi-Fi? The buttonless iPod shuffle? Ping? Those tired poles of supply and demand told Jobs “no” time after time, but we might just as easily dismiss gravity or entropy as tired.

If Apple were to remove the browser from the iPad today, there would be, shall we say, less demand for the tablet. If at some future date there is no more demand for a web browser, and Apple removes it to little fanfare, then what is the harm?

I guess it is some Platonic Internet that we’d lose. A pure internet that we don’t know we want. One that only philosopher-kings can see. One they will discuss at “Berlin-based think tanks” and in the pages of “quarterly magazines,” as Morozov praises Google for sponsoring. And it’s an Internet the philosopher-kings would plan for us the same way Neil Goldschmidt and his friends planned Portland.

No thanks. I prefer a Steve Jobs, pursuing a functionalist ideal with little care for the consequences, yet checked by those tired poles and the “perennial gale of creative destruction” that will someday catch up with Apple.

The DOJ’s recent press release on the Google/Motorola, Rockstar Bidco, and Apple/ Novell transactions struck me as a bit odd when I read it.  As I’ve now had a bit of time to digest it, I’ve grown to really dislike it.  For those who have not followed Jorge Contreras had an excellent summary of events at Patently-O.

For those of us who have been following the telecom patent battles, something remarkable happened a couple of weeks ago.  On February 7, the Wall St. Journal reported that, back in November, Apple sent a letter[1] to the European Telecommunications Standards Institute (ETSI) setting forth Apple’s position regarding its commitment to license patents essential to ETSI standards.  In particular, Apple’s letter clarified its interpretation of the so-called “FRAND” (fair, reasonable and non-discriminatory) licensing terms that ETSI participants are required to use when licensing standards-essential patents.  As one might imagine, the actual scope and contours of FRAND licenses have puzzled lawyers, regulators and courts for years, and past efforts at clarification have never been very successful.  The next day, on February 8, Google released a letter[2] that it sent to the Institute for Electrical and Electronics Engineers (IEEE), ETSI and several other standards organizations.  Like Apple, Google sought to clarify its position on FRAND licensing.  And just hours after Google’s announcement, Microsoft posted a statement of “Support for Industry Standards”[3] on its web site, laying out its own gloss on FRAND licensing.  For those who were left wondering what instigated this flurry of corporate “clarification”, the answer arrived a few days later when, on February 13, the Antitrust Division of the U.S. Department of Justice (DOJ) released its decision[4] to close the investigation of three significant patent-based transactions:  the acquisition of Motorola Mobility by Google, the acquisition of a large patent portfolio formerly held by Nortel Networks by “Rockstar Bidco” (a group including Microsoft, Apple, RIM and others), and the acquisition by Apple of certain Linux-related patents formerly held by Novell.  In its decision, the DOJ noted with approval the public statements by Apple and Microsoft, while expressing some concern with Google’s FRAND approach.  The European Commission approved Google’s acquisition of Motorola Mobility on the same day. Continue reading →