The big news out of Europe today is that the European Court of Justice (ECJ) has invalidated the 15-year old EU-US safe harbor agreement, which facilitated data transfers between the EU and US. American tech companies have relied on the safe harbor to do business in the European Union, which has more onerous data handling regulations than the US. [PDF summary of decision here.] Below I offer some quick thoughts about the decision and some of its potential unintended consequences.

#1) Another blow to new entry / competition in the EU: While some pundits are claiming this is a huge blow to big US tech firms, in reality, the irony of the ruling is that it will bolster the market power of the biggest US tech firms, because they are the only ones that will be able to afford the formidable compliance costs associated with the resulting regulatory regime. In fact, with each EU privacy decision, Google, Facebook, and other big US tech firms just get more dominant. Small firms just can’t comply with the EU’s expanding regulatory thicket. “It will involve lots of contracts between lots of parties and it’s going to be a bit of a nightmare administratively,” said Nicola Fulford, head of data protection at the UK law firm Kemp Little when commenting on the ruling to the BBC. “It’s not that we’re going to be negotiating them individually, as the legal terms are mostly fixed, but it does mean a lot more paperwork and they have legal implications.” And by driving up regulatory compliance costs and causing constant delays in how online business is conducted, the ruling will (again, on top of all the others) greatly limits entry and innovation by new, smaller players in the digital world. In essence, EU data regulations have already wiped out much of the digital competition in Europe and now this ruling finishes off any global new entrants who might have hoped of breaking in and offering competitive alternatives. These are the sorts of stories never told in antitrust circles: costly government rulings often solidify and extend the market dominance of existing companies. Dynamic effects matter. That is certainly going to be the case here.

#2) Cross-border digital trade suffers: This conclusion follows from point #1, of course. Writing just before the decision was announced, lawyers as Norton Rose Fulbright’s Data Compliance Report blog noted that if the safe harbor was invalidated, “the impact on the world economy would be immense.” Well, here we are.  Dan Castro of ITIF hopes that EU and US officials can pull back from the brink of this impending disaster and “finish the process of creating a Safe Harbor 2.0 with terms that give comfort to all parties.” I suspect that many tech companies are hoping for the same miracle to occur. But don’t hold your breath. The Europeans have decided that this is the hill that they will die on. They haven’t shown too much interest in preserving an innovative tech market or enhancing global digital trade flows in the past due to heightened concerns about privacy, and there’s no reason to think they will back down now with a more measured approach. Importantly, as I noted in my earlier essay, “How Attitudes about Risk & Failure Affect Innovation on Either Side of the Atlantic,” this trans-Atlantic clash of vision transcends the debate over privacy law. It’s about broader cultural and political attitudes toward risk-taking and disruption. Most leaders in Europe value stability–both economic and cultural stability–more than US officials and citizens. This tension was always bound to reach a breaking point and the Digital Economy and data handling policies is where the you-know-what is finally hitting the fan.

#3) Web Balkanization accelerates: This is just another blow to the idea of a seamless global Internet. But as tech lawyer Tiffany C. Li pointed out on Twitter this morning in response to the decision, while Web pundits decry balkanization in other contexts, many of them seem to be cheering it on in this case because this decision deals with privacy and data regulation, which they favor more regulation of. But you can’t have your cake and eat it to. Indeed, the great irony of so many “Internet freedom” debates today is that pundits absolutely hate the idea of Internet control and Web balkanization… right up until the point where they absolutely love it! Think of this as the tech policy world’s selective morality problem. (I elaborated on these themes in my essays “When It Comes to Information Control, Everybody Has a Pet Issue & Everyone Will Be Disappointed,” and “Copyright, Privacy, Property Rights & Information Control: Common Themes, Common Challenges.”)

Interesting that the same ppl who decried Russia’s data localization law now cheer EU upping extraterritorial data regulation. #SafeHarbor

— Tiffany C. Li (@tiffanycli) October 6, 2015

@AnupamChander @AdamThierer Yes, #Schrems opens up possibility that companies will now have to comply w/28 different DPAs applying 95/46/EC. — Tiffany C. Li (@tiffanycli) October 6, 2015

This is the beginning of the Balkanization of the Internet: http://t.co/mbFxxhN7tQ

— Dino A. Dai Zovi (@dinodaizovi) October 6, 2015

Another step toward the jurisdictional balkanization of the Internet https://t.co/83FIYvU2Sm — Milton Mueller (@miltonmueller) October 6, 2015

#4) But the big dogs won’t bolt out of Europe: But this should also be another reminder that there are no “John Galt moments” in the world of tech, as some tech libertarians hope. The biggest players won’t pack their bags and head home because there’s still too much money sitting on the table in Europe. Big firms will instead scramble to comply, just as they are trying to do with the so-called Right to Be Forgotten ruling. Of course, this just exacerbates problem #1 already discussed above: The big dogs stay and do their best to comply with the costly regulatory regime while smaller players get crushed by the rules and all the other potential new entrants just stay home.

#5) The decision ignores the real problem: widespread government surveillance: I don’t often find myself agreeing with Cory Doctorow on much, but he gets it exactly right when he notes that, “this doesn’t mean that Europeans won’t be subjected to mass surveillance, including mass surveillance by the NSA.” He elaborates:

If the European Court of Justice wants to end mass surveillance of Europeans, it can only do so by banning mass surveillance — by ruling that laws that treat foreigners’ data as fair game are unconstitutional. If US tech giants want to get loose from a farcical, expensive, and pointless exercise that continues to treat them as adjuncts to the world’s spy agencies, they need to lobby the US government to change the laws under which it treats foreigners as fair game.

Thus, it would certainly be nice if, as CDT suggested in response to the ruling, that the “EU Safe Harbour Ruling Should Reinvigorate Surveillance Reform Efforts.” Of course, that requires that tech companies muster the courage to stand up to public officials here in the States who always want them to (literally) hand over the keys to the kingdom. That’s why the current debate over crypto backdoors is so essential. It’s good to see a number of tech companies pushing back on that front and refusing to get rolled by law enforcement and national security agencies the way that far too many telecom and tech companies have been in the past. Following today’s ECJ ruling, tech companies are realizing just how serious this problem really is because now European officials are striking out against the safe harbor agreement as a surrogate for their general frustrations with US surveillance more generally. Indeed, in a press release following today’s ECJ ruling, the Internet Association, which represents major US tech firms, noted that, “The Internet industry has consistently supported surveillance reform” and the Association pushed for swift congressional action to clarify and limit existing surveillance powers. It remains to be seen whether the US tech sector and other related industries will be able to push back effectively against the growing surveillance state leviathan, but it’s more clear today than ever before why that’s a fight worth having.

Well, you got it!  Here’s a essay of mine that The Daily Caller ran today discussing the ramifications of the decision.

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Internet freedom got a reprieve Tuesday when the U.S. Court of Appeals for the District of Columbia slapped down a brazen attempt by the Federal Communications Commission (FCC) to ignore the rule of law and begin imposing onerous regulations on broadband network operators. The decision, Comcast v. FCC, deals with arcane matters of regulatory agency jurisdiction, but the stakes were profound and the ramifications for the future of the Internet will reverberate for years to come.

In a nutshell, the FCC argued it had the right to impose so-called “Net neutrality” regulations on a private broadband operator based merely on a handful of principles that the agency had previously said it would not be enforcing as law. Net neutrality regulations would put FCC bureaucrats in the Internet’s driver’s seat and let them determine what was “just and reasonable” of private networks. Critics have rightly feared that Net neutrality sounded all too much a Fairness Doctrine for the Internet since similar language had been used in the broadcast era to justify all sorts of FCC meddling and micromanagement.

Regardless, the FCC’s original position—that its Net neutrality principles were only principles and nothing more—made sense since even a high school civics student can tell you that only Congress can make laws. Moreover, for a brief time, even the FCC seem to realize that laws that would comprehensively regulate such an important sector of the American economy, as Net neutrality rules would, almost certainly require our elected leaders in Congress to reopen and tweak existing statutes like the Telecommunications Act of 1996. After all, Congress had never authorized wide-reaching regulation of the Net or broadband networks, and so, if the agency wanted to extend its regulatory tentacles and wrap them around the Internet it only seems reasonable they get the blessing of lawmakers before doing so. And, for a time, the FCC stuck to a “Hands Off the Net” approach.

Regrettably, the FCC decided to ignore that earlier logic, throw statutory authority to the wind, and instead concoct creative interpretations regulatory authority via something know as “ancillary jurisdiction.” To simplify things greatly, the agency has some leeway under existing laws to use various clauses of previous congressional enactments to regulate the sectors and technologies it oversees. In this case, the FCC claimed that it had “ancillary jurisdiction” to enforce amorphous Net neutrality policy principles against Comcast under past case law or, more amazingly, via some of the deregulatory-minded passages from the Telecom Act of 1996. It was an astonishing display of bureaucratic hubris that flaunted the rule of law and asked the courts to essentially look the other way while the agency magically invented its own authority to act and expand its powers.

But the U.S. Court of Appeals for the District of Columbia (the D.C. Circuit) was not about to turn a blind eye. In fact, this particular appeals court has been a near constant pain in the keister for the FCC since the agency’s regulatory shenanigans are frequently brought before the court and just as frequently struck down as over-zealous, unconstitutional exercises of power.

In yesterday’s Comcast decision, the D.C. Circuit calmly but meticulously decimated each and every twisted rational that the FCC set forth in defense of its Internet power grab. Paraphrasing an earlier Supreme Court decision, the court noted that the FCC’s decision, not only “strain[ed] the outer limits of even the open-ended and pervasive jurisdiction that has evolved by decisions of the Commission and the courts,” but sought to “shatter them entirely.” More profoundly, the court noted that “Were we to accept [the agency’s] theory of ancillary authority, we see no reason why the Commission would have to stop there, for we can think of few examples of regulations that apply to [] common carrier services, [] broadcast services, or [] cable services that the Commission… would be unable to impose upon Internet service providers.”

In other words: Stop right there FCC! This is exactly what courts should be doing when rogue regulatory agencies run well afoul of their statutorily-defined limits, but all too often agencies get a free pass instead in the name of “agency deference.” Luckily that didn’t happen this time around thanks to the D.C. Circuit.

The question now is whether the FCC learns its lesson — that it should seek the proper authority from Congress before it imposes new regulations like Net neutrality rules — or if the agency instead engages in another effort to concoct regulatory authority via regulatory re-classification. If the agency takes that latter approach and tries to pigeonhole the Internet and broadband services into the public utility regulatory models of the past, it will set the stage for Regulatory World War III. Lawsuits will fly. Some carriers have already promised as much.

When will the agency accept the fact that it is not above the law and that there is a right way in a democracy to go about changing policies that have such a profound impact on our economy? Regardless of what one thinks of the recent health care bill, imagine if the Department of Health and Human Services would have tried to ram it through as a regulatory scheme instead of having Congress debate it and vote on it. People would have been outraged. And yet that’s exactly what the FCC is proposing to do when it comes to Net neutrality regulation and regulatory reclassification of the Internet as sleepy public utility. You know, because public utility regulation has worked soooo well in other contexts!

The D.C. Circuit’s decision yesterday should encourage the Commission to pause and reconsider its current approach. Unfortunately, it’s more likely that the agency will instead retrench and fight on in a futile attempt to take the law into its own hands and ignore the will of Congress. For the sake of Internet freedom, we have to hope the courts will continue to hold the line against such shameless regulatory overreach. And if Congress does use this as an opportunity to reopen the Telecom Act, they should tightly limit the powers of the FCC and make a strong stand in defense of Internet freedom.

I’ve been blathering on about this week’s big Supreme Court decision in FCC v. Fox, [See Parts 1, 2, 3, 4, 5], so I thought I would just wrap this series of essays up with a collection of other articles and views on the decision in case readers are looking for alternative perspectives:

Mainstream Media Stories

• Associated Press
• Reuters
• New York Times (+ more analysis)
• Washington Post
• Wall Street Journal
• Legal Times
• TV Week
• Variety
• Kansas City Star
• USA Today
• Ars Technica

Conservative, Religious, & “Family” Groups

• Parents Television Council
• Common Sense Media
• Concerned Women for America
• Town Hall.com

Free Speech Advocates or Other Views

• The SCOTUS Blog
• Free Expression Policy Project (Marjorie Heins)
• ACLU
• Media Access Project (Andy Schwartzman)
• Center for Creative Voices in Media (Jonathan Rintels)
• First Amendment Center (David Hudson)
• Free State Foundation (Randy May)
• Michael Dorf
• Marc Randazza
• Reason’s Hit and Run
• Volokh Conspiracy (Eugene Volokh)
• TechDirt

As I noted earlier, the U.S. Supreme Court today handed down a historical First Amendment decision in the case of Federal Communications Commission v. Fox Television Stations.  The Court ruled in the FCC’s favor by a 5-4 margin.  My initial general thoughts are here. In this piece, I’ll talk a bit more about the majority’s decision in the case.

The most important thing to realize about the Court’s 5-4 decision in FCC v. Fox is that the Court has intentionally dodged all the serious constitutional issues in play here and instead decided the case solely on procedural grounds. “We decline to address the constitutional questions at this time,” the majority says. (p. 26) Writing for the majority, Justice Scalia says:

There is… no basis in the Act or this Court’s opinions for a requirement that all agency change be subjected to more searching review. Although an agency must ordinarily display awareness that it is changing position… and may sometimes need to account for prior fact finding or certain reliance interests created by a prior policy, it need not demonstrate to a court’s satisfaction that the reasons for the new policy are better than the reasons for the old one. It suffices that the new policy is permissible under the statute, that there are good reasons for it, and that the agency believes it to be better, which the conscious change adequately indicates.

Of course, it’s not entirely unusual for the Court to decide important regulatory cases by sticking to administrative law / APA issues, but what’s different in this case is that we’re not talking about the regulation of widgets here. We are talking about the regulation of freedom of speech and expression. Shouldn’t the administrative law analysis change a bit when the issues at stake implicate profound constitutional imperatives? I think so, but the majority doesn’t address that. Moreover, because they dispense with all constitutional considerations, the majority never gets around to answering how much continuing sense this broadcast speech regulatory regime makes in an age of media and technological convergence. I discussed the illogical “First Amendment Jurisprudential Twilight Zone” that has developed in this field in this essay, this law review article, and a video presentation.  Sadly, today’s decision just makes matters more confusing and unfair.  After all, those children that the Court thinks the FCC might be protecting with these regulations are currently over on YouTube and Hulu watching all those same shows!

On a related note, the majority also never mentions its recent Internet jurisprudence, which has all gone squarely in favor of robust First Amendment protection for the Net and online speakers. In particular, the “least restrictive means” test that has developed in those cases (i.e., deferring to user self-help tools before allowing state regulation) is completely ignored by the majority in this case.  Again, welcome to the jurisprudential Twilight Zone.

Finally, I must address the stunning assertion that Justice Scalia sets forth in the last paragraph of his decision, which is the only one that addresses Pacifica and the constitutional issues at stake here. In that paragraph, Scalia adopts the shocking logic set forth by Solicitor General Gregory Garre during oral arguments for this case.  As I pointed out in my summary of the oral arguments, during questioning from the justices, Garre suggested that the government actually had a stronger case today when it regulates broadcast platforms differently than all other forms of media. His reasoning: Precisely because there are so many other unregulated platforms where kids might see or hear objectionable media, it was vital for the government to quarantine one platform and make sure it is safe from objectionable programming. This is an astonishing argument for the government to set forth as a rationale for regulation as it essentially turns the old “scarcity” and “pervasiveness” rationales for regulation on their heads. Back in the old days, we were told broadcasting had to be regulated because it was scarce or because it was pervasive in our lives. Today, by contrast, the government tells us we have to regulate broadcast platforms because of media abundance. In other words, it’s ‘damned if you do, damned if you don’t’ for broadcasters! There is no escape from regulation under this logic.

Amazing, Justice Scalia, endorses this logic in today’s decision:

The Second Circuit believed that children today “likely hear this language far more often from other sources than they did in the 1970’s when the Commission first began sanctioning indecent speech,” and that this cuts against more stringent regulation of broadcasts. Assuming the premise is true (for this point the Second Circuit did not demand empirical evidence) the conclusion does not necessarily follow. The Commission could reasonably conclude that the pervasiveness of foul language, and the coarsening of public entertainment in other media such as cable, justify more stringent regulation of broadcast programs so as to give conscientious parents a relatively safe haven for their children. [p. 26]

What is Justice Scalia — a strict constitutionalist — doing endorsing these inventions and reinventions of contorted theories of the First Amendment? It’s bad enough that he is allowing a constitutional abomination like Pacifica to stand, but here we have him rubber-stamping its reinvention by a creative-minded solicitor.  This is judicial activism with a vengeance!!

[Next up… I will discuss the very interesting concurring opinion by Justice Thomas.]