Two weeks ago, as Facebook CEO Mark Zuckerberg was getting grilled by Congress during a two-day media circus set of hearings, I wrote a counterintuitive essay about how it could end up being Facebook’s greatest moment. How could that be? As I argued in the piece, with an avalanche of new rules looming, “Facebook is potentially poised to score its greatest victory ever as it begins the transition to regulated monopoly status, solidifying its market power, and limiting threats from new rivals.”

With the exception of probably only Google, no firm other than Facebook likely has enough lawyers, lobbyists, and money to deal with layers of red tape and corresponding regulatory compliance headaches that lie ahead. That’s true both here and especially abroad in Europe, which continues to pile on new privacy and “data protection” regulations. While such rules come wrapped in the very best of intentions, there’s just no getting around the fact that  regulation has costs. In this case, the unintended consequence of well-intentioned data privacy rules is that the emerging regulatory regime will likely discourage (or potentially even destroy) the chances of getting the new types of innovation and competition that we so desperately need right now.

Others now appear to be coming around to this view. On April 23, both the  New York Times and The Wall Street Journal ran feature articles with remarkably similar titles and themes. The New York Times article by Daisuke Wakabayashi and Adam Satariano was titled, “How Looming Privacy Regulations May Strengthen Facebook and Google,” and The Wall Street Journal’s piece, “Google and Facebook Likely to Benefit From Europe’s Privacy Crackdown,” was penned by Sam Schechner and Nick Kostov. “In Europe and the United States, the conventional wisdom is that regulation is needed to force Silicon Valley’s digital giants to respect people’s online privacy. But new rules may instead serve to strengthen Facebook’s and Google’s hegemony and extend their lead on the internet,” note Wakabayashi and Satariano in the  NYT essay. They continue on to note how “past attempts at privacy regulation have done little to mitigate the power of tech firms.” This includes regulations like Europe’s “right to be forgotten” requirement, which has essentially put Google in a privileged position as the “chief arbiter of what information is kept online in Europe.” Meanwhile, the  WSJ article opens with this interesting story about the epiphany EU regulator Věra Jourová had upon visiting with the supposed victims of the EU’s new General Data Protection Regulation, or GDPR:

When the European Union’s justice commissioner traveled to California to meet with Google and Facebook last fall, she was expecting to get an earful from executives worried about the Continent’s sweeping new privacy law. Instead, she realized they already had the situation under control. “They were more relaxed, and I became more nervous,” said the EU official, Věra Jourová. “They have the money, an army of lawyers, an army of technicians and so on.”

Indeed they do. And that means that they are better positioned to absorb the significant costs of compliance that will be associated with the new GDPR rules, which are somewhat ambiguous and will require a great deal of ongoing interpretation and legal wrangling.  The Journal essay also cites an unnamed Brussels lobbyist for an media-measurement firm saying, “The politicians wanted to teach Google and Facebook a lesson. And yet they favor them.” Consider this paragraph from the WSJ essay about how the two firms worked diligently to come into compliance with the new GDPR regulations:

Once the law passed in spring 2016, Google and Facebook threw people at the problem. Google involved lawyers in the U.S., Ireland, Brussels and elsewhere to pore over contracts and procedures, said people close to the company. Facebook mobilized hundreds of people in what it describes as the largest interdepartmental team it has ever assembled. Facebook lawyers spent a year scrutinizing the law’s lengthy text. Designers and engineers then toiled over how to implement changes, according to Stephen Deadman, Facebook’s global deputy chief privacy officer. During the process, Facebook got frequent access to regulators across Europe. It met with Helen Dixon, the data protection commissioner in Ireland, where the company bases its European operations, and her staff to run through changes Facebook was planning. Ms. Dixon’s agency provided the firm with feedback on the wording of its consent requests, Facebook said.

Now ask yourself how many other smaller existing or new firms would be in a position to do the same thing. Answer: Not many. We’re already seeing the deleterious effects of the GDPR on market structure, the  Journal reports. “Some advertisers are planning to shift money away from smaller providers and toward Google and Facebook,” Schechner and Kostov note. And they end their essay with the telling thoughts of Bill Simmons, co-founder and chief technology officer of Dataxu, Boston-based company that helps buy targeted ads, who says, “It is paradoxical. The GDPR is actually consolidating the control of consumer data onto these tech giants.” The  NYT essay included a funny tidbit about how “Some privacy advocates also bristle at the idea that these new restrictions would help already powerful internet companies, noting that is a well-worn argument employed by tech giants to try to prevent future regulation.” That’s a highly unfortunate attitude. If privacy advocates really care about improving the situation on the ground, then the best way to do that is with more and better choices. Sadly, it seems that with each passing day the write off the idea of any new competition emerging to today’s tech giants. “Can Facebook be replaced?” asks Olivia Solon writing in The Guardian today. Some probably think not, but as Solon notes, “prominent Silicon Valley investor Jason Calacanis, who was an early investor in several high-profile tech companies including Uber certainly hopes so. He has launched a competition to find a ‘social network that is actually good for society,'” and his “Openbook Challenge will offer seven “purpose-driven teams” $100,000 in investment to build a billion-user social network that could replace the technology titan while protecting consumer privacy.” In a blog post announcing the Challenge, Calacanis wrote: “All community and social products on the internet have had their era, from AOL to MySpace, and typically they’re not shut down by the government — they’re slowly replaced by better products. So, let’s start the process of replacing Facebook.” I don’t have any idea whether this Openbook Challenge will succeed. It’s hard building big, scalable digital platforms that satisfy the diverse needs of a diverse world. But this is exactly the sort of innovation that we should be encouraging. Even the very threat of new competition will keep the big dogs on their toes. Alas, all the new regulations being consider will likely just leave us with fewer choices and regulations that probably won’t even do all that much to truly better protect our data or privacy. But hey, at least it was all well-intentioned!

Updates :

• Nick Kostov and Sam Schechner, “Google Emerges as Early Winner From Europe’s New Data Privacy Law,” Wall Street Journal, May 31, 2018, https://www.wsj.com/articles/eus-strict-new-privacy-law-is-sending-more-ad-money-to-google-1527759001

Today marks the 10th anniversary of the launch of the Apple iPhone. With all the headlines being written today about how the device changed the world forever, it is easy to forget that before its launch, plenty of experts scoffed at the idea that Steve Jobs and Apple had any chance of successfully breaking into the seemingly mature mobile phone market.

After all, those were the days when BlackBerry, Palm, Motorola, and Microsoft were on everyone’s minds. Perhaps, then, it wasn’t so surprising to hear predictions like these leading up to and following the launch of the iPhone:

• In December 2006, Palm CEO Ed Colligan summarily dismissed the idea that a traditional personal computing company could compete in the smartphone business. “We’ve learned and struggled for a few years here figuring out how to make a decent phone,” he said. “PC guys are not going to just figure this out. They’re not going to just walk in.”
• In January 2007, Microsoft CEO Steve Ballmer laughed off the prospect of an expensive smartphone without a keyboard having a chance in the marketplace as follows: “Five hundred dollars? Fully subsidized? With a plan? I said that’s the most expensive phone in the world and it doesn’t appeal to business customers because it doesn’t have a keyboard, which makes it not a very good e-mail machine.”
• In March 2007, computing industry pundit John C. Dvorak argued that “Apple should pull the plug on the iPhone” since “There is no likelihood that Apple can be successful in a business this competitive.” Dvorak believed the mobile handset business was already locked up by the era’s major players. “This is not an emerging business. In fact it’s gone so far that it’s in the process of consolidation with probably two players dominating everything, Nokia Corp. and Motorola Inc.”

A decade after these predictions were made, Motorola, Nokia, Palm, and Blackberry have been decimated by the rise of Apple as well as Google (which actually purchased Motorola in the midst of it all). And Microsoft still struggles with mobile even though they are still a player in the field. Rarely have Joseph Schumpeter’s “perennial gales of creative destruction” blown harder than they have in the mobile sector over this 10 year period.

The lesson here is pretty clear. As Yogi Berra once quipped: “It’s tough to make predictions, especially about the future.” But there’s more to it than just that. These mistaken predictions serve as a classic example of those with a static snapshot mentality disregarding the potential for new entry and technological disruption to shake things up. “In dealing with disruptive technologies leading to new markets,” says Clayton M. Christensen, author of The Innovator’s Dilemma, “researchers and business planners have consistently dismal records.”

This has implications not only for business forecasting but also for public policy, which is notoriously shortsighted when it comes to the potential for new technological innovations to shake up existing markets. Just because you think a particular firm or sector it the proverbial “King of the Hill” one day, it doesn’t mean they will be able to sit on that lofty perch forever. Likewise, policymakers cannot neatly “plan progress” by incessantly intervening in the hope of directing markets and technologies toward some supposedly better end. Picking winners and losers–or even just trying to stimulate more “winners”–will likely end very badly.

In his book,  The Year 2000: A Framework for Speculation on the Next Thirty-three Years, the futurist Herman Kahn wisely noted that:

History is likely to write scenarios that most observers would find implausible not only prospectively but sometimes, even in retrospect. Many sequences of events seem plausible now only because they have actually occurred; a man who knew no history might not believe any. Future events may not be drawn from the restricted list of those we have learned are possible; we should expect to go on being surprised.

But we can only “expect to go on being surprised” by leaving plenty of breathing room for the evolution of markets and technology. While all social and economic experiments are accompanied by a great deal of unpredictability and disruption, history indicates that most of those experiments will result in greater progress and prosperity–just as the iPhone did. But developments such as these are almost impossible to predict or plan beforehand. We have to get the environment for innovation right and then let creative minds work their magic.

The Federal Trade Commission (FTC) is taking a more active interest in state and local barriers to entry and innovation that could threaten the continued growth of the digital economy in general and the sharing economy in particular. The agency recently announced it would be hosting a June 9th workshop “to examine competition, consumer protection, and economic issues raised by the proliferation of online and mobile peer-to peer business platforms in certain sectors of the [sharing] economy.” Filings are due to the agency in this matter by May 26th. (Along with my Mercatus Center colleagues, I will be submitting comments and also releasing a big paper on reputational feedback mechanisms that same week. We have already released this paper on the general topic.)

Relatedly, just yesterday, the FTC sent a letter to Michigan policymakers about restricting entry by Tesla and other direct-to-consumer sellers of vehicles. Michigan passed a law in October 2014 prohibiting such direct sales. The FTC’s strongly-worded letter decries the state’s law as “protectionism for independent franchised dealers” noting that “current provisions operate as a special protection for dealers—a protection that is likely harming both competition and consumers.” The agency argues that:

consumers are the ones best situated to choose for themselves both the vehicles they want to buy and how they want to buy them. Automobile manufacturers have an economic incentive to respond to consumer preferences by choosing the most effective distribution method for their vehicle brands. Absent supportable public policy considerations, the law should permit automobile manufacturers to choose their distribution method to be responsive to the desires of motor vehicle buyers.

The agency cites the “well-developed body of research on these issues strongly suggests that government restrictions on distribution are rarely desirable for consumers” and the staff letter continues on to utterly demolish the bogus arguments set forth by defenders of the blatantly self-serving, cronyist law. (For more discussion of just how anti-competitive and anti-consumer these laws are in practice, see this January 2015 Mercatus Center study, “State Franchise Law Carjacks Auto Buyers,” by Jerry Ellig and Jesse Martinez.)

The FTC’s letter is another example of how the agency can take steps using its advocacy tools to explain to state and local policymakers how their laws may be protectionist and anti-consumer in character. Needless to say, this also has ramifications for how the agency approaches parochial restraints on entry and innovation affecting the sharing economy.

In our forthcoming Mercatus Center comments to the FTC for its June 6th sharing economy workshop, Christopher Koopman, Matt Mitchell, and I will address many issues related to the sharing economy and its regulation. Beyond addressing all five of the specific questions asked in the Commission’s workshop notice, we also include a discussion about “Federal Responses to Local Anticompetitive Regulations.” Down below I have reproduced the current rough draft of that section of our filing in the hope of getting input from others. Needless to say, the idea of the FTC aggressively using its advocacy efforts or even federal antitrust laws to address state and local barriers to trade and innovation will make some folks uncomfortable–especially on federalism grounds. But we argue that a good case can be made for the agency using both its advocacy and antitrust tools to address these issues. Let us know what you think.

The Federal Trade Commission possesses two primary tools to address public restraints of trade created by state and local authorities: advocacy and antitrust.[1]

Through its advocacy program, the Commission can provide specific comments to state and local officials regarding the effects of both proposed and existing regulations.[2] Commissioner Joshua Wright has noted that, “For many years, the FTC has used its mantle to comment on legislation and regulation that may restrain competition in a way that harms consumers.”[3] Thus, at a minimum, the Commission can and should shine light on parochial governmental efforts to restrain trade and limit innovation throughout the sharing economy.[4] By shining more light on state or local anti-competitive rules, the Commission will hopefully make governments, or their surrogate bodies (such as licensing boards), more transparent about their practices and more accountable for laws or regulations that could harm consumer welfare. However, to be successful, the Commission’s advocacy efforts depend upon the willingness of state and local legislators and regulators to heed its advice.^[5]

The Commission has already used its advisory role in its recent guidance to state and local policymakers regarding the regulation of ridesharing services. The Commission noted then that “a regulatory framework should be responsive to new methods of competition,” and set forth the following vision regarding what it regards as the proper approach to parochial regulation of passenger transportation services:

Staff recommends that a regulatory framework for passenger vehicle transportation should allow for flexibility and adaptation in response to new and innovative methods of competition, while still maintaining appropriate consumer protections. [Regulators] also should proceed with caution in responding to calls for change that may have the effect of impairing new forms or methods of competition that are desirable to consumers. . . .  In general, competition should only be restricted when necessary to achieve some countervailing procompetitive virtue or other public benefit such as protecting the public from significant harm.[6]

This represents a reasonable framework for addressing concerns about parochial regulation of the sharing economy more generally.

Unfortunately, in areas relevant to the regulation of the sharing economy (e.g., taxicab regulations and rules governing home and apartment rentals) anticompetitive regulations have remained on the books—and in some instances have expanded—in spite of more than 30 years of Commission comment and advocacy.[7]  In fact, as Public Citizen noted in a recent Supreme Court filing:

[M]any more occupations are regulated than ever before, and most boards doing the regulating—in both traditional and new professions—are dominated by industry members who compete in the regulated market. Those board member-competitors, in turn, commonly engage in regulation that can be seen as anticompetitive self-protection. The particular forms anticompetitive regulations take are highly varied, the possibilities seemingly limited only by the imaginations of the board members.[8]

In these instances, the Commission’s antitrust enforcement authority may need to be utilized when its advocacy efforts fall short with regard to regulations that favor incumbents by limiting competition and entry.[9] Many academics have endorsed expanded antitrust oversight of public barriers to trade and innovation.[10] As Commissioner Wright has argued, “the FTC is in a good position to use its full arsenal of tools to ensure that state and local regulators do not thwart new entrants from using technology to disrupt existing marketplace.”[11] He notes specifically that he is “quite confident that a significant shift of agency resources away from enforcement efforts aimed at taming private restraints of trade and instead toward fighting public restraints would improve consumer welfare.”[12] We agree.

The Supreme Court’s recent decision in North Carolina State Board of Dental Examiners v. Federal Trade Commission made it clear that local authorities cannot claim broad immunity from federal antitrust laws.[13] This is particularly true, the Court noted, “where a State delegates control over a market to a nonsovereign actor,” such as a professional licensing board consisting primarily of members of the affected interest being regulated.[14] “Limits on state-action immunity are most essential when a State seeks to delegate its regulatory power to active market participants,” the Court held, “for dual allegiances are not always apparent to an actor and prohibitions against anticompetitive self-regulation by active market participants are an axiom of federal antitrust policy.”[15]

The touchstone of this case and the Court’s related jurisprudence in this area is political accountability.[16] State officials must (1) “clearly articulate” and (2) “actively supervise” licensing arrangements and regulatory bodies if they hope to withstand federal antitrust scrutiny.[17] The Court clarified this test in N.C. Dental holding that “the Sherman Act confers immunity only if the State accepts political accountability for the anticompetitive conduct it permits and controls.”[18] In other words, if state and local officials want to engage in protectionist activities that restrain trade in pursuit of some other countervailing objective, then they need to own up to it by being transparent about their anticompetitive intentions and then actively oversee the process after that to ensure it is not completely captured by affected interests.[19]

Some might argue that this does not go far enough to eradicate anti-competitive barriers to trade at the state or local level that could restrain the innovative potential of the sharing economy. While that may be true, some limits on the Commission’s federal antitrust discretion are necessary to avoid impinging upon legitimate state and local priorities.

Over time, it is our hope that by empowering the public with more options, more information and better ways to shine light on bad actors, the sharing economy will continue to make many of those old regulations unnecessary. Thus, in line with Commissioner Maureen Ohlhausen’s wise advice, the Commission should encourage state and local officials to exercise patience and humility as they confront technological changes that disrupt traditional regulatory systems.[20]

But when parochial regulators engage in blatantly anti-competitive activities that restrain trade, foster cartelization, or harm consumer welfare in other ways, the Commission can act to counter the worst of those tendencies.[21] The Commission’s standard of review going forward was appropriately articulated by Commissioner Wright recently when he noted that, “in the context of potentially disruptive forms of competition through new technologies or new business models, we should generally be skeptical of regulatory efforts that have the effect of favoring incumbent industry participants.”[22]

Such parochial protectionist barriers to trade and innovation will become even more concerning as the potential reach of so many sharing economy businesses grows larger. The boundary between intrastate and interstate commerce is sometimes difficult to determine for many sharing economy platforms. Clearly, much of the commerce in question occurs within the boundaries of a state or municipality, but sharing economy services also rely upon Internet-enabled platforms with a broader reach. To the extent state or local restrictions on sharing economy operations create negative externalities in the form of “interstate spillovers,” the case for federal intervention is strengthened.[23] It would be preferable if Congress chose to deal with such spillovers using its Commerce Clause authority (Art. 1, Sec. 8 of the Constitution),[24] but the presence of such negative externalities might also bolster the case for the Commission’s use of antitrust to address parochial restraints on trade.

[1]     See Maureen K. Ohlhausen, Reflections on the Supreme Court’s North Carolina Dental Decision and the FTC’s Campaign to Rein in State Action Immunity, before the Heritage Foundation, Washington, DC, March 31, 2015, at 19-20.

[2]     Id., at 20. (“The primary goal of such advocacy is to convince policymakers to consider and then minimize any adverse effects on competition that may result from regulations aimed at preventing various consumer harms.”) Also see James C. Cooper and William E. Kovacic, “U.S. Convergence with International Competition Norms: Antitrust Law and Public Restraints on Competition,” Boston University Law Review, Vol. 90, No. 4, (August 2010): 1582, “Competition advocacy helps solve consumers’ collective action problem by acting within the regulatory process to advocate for regulations that do not restrict competition unless there is a compelling consumer protection rationale for imposing such costs on citizens.”).

[3]     Joshua D. Wright, “Regulation in High-Tech Markets:  Public Choice, Regulatory Capture, and the FTC,” Remarks of Joshua D. Wright Commissioner, Federal Trade Commission at the Big Ideas about Information Lecture Clemson University, Clemson, South Carolina, April 2, 2015, at 15, https://www.ftc.gov/public-statements/2015/04/regulation-high-tech-markets-public-choice-regulatory-capture-ftc.

[4]     Cooper and Kovacic, “U.S. Convergence with International Competition Norms,” at 1610, (“Competition agencies could devote greater resources to conduct research to measure the effects of public policies that restrict competition. A research program could accumulate and analyze empirical data that assesses the consumer welfare effects of specific restrictions. Such a program could also assess whether the stated public interest objectives of government restrictions are realized in practice.”)

[5]     Cooper and Kovacic, “U.S. Convergence with International Competition Norms,” at 1582, (“The value of competition advocacy should be measured by (1) the degree to which comments altered regulatory outcomes times (2) the value to consumers of those improved outcomes. For all practical purposes, however, both elements are difficult to measure with any degree of certainty.”).

[6]     Federal Trade Commission, Staff Comments Before the Colorado Public Utilities Commission In The Matter of The Proposed Rules Regulating Transportation By Motor Vehicle, 4 Code of Colorado Regulations, (March 6, 2013), http://ftc.gov/os/2013/03/130703coloradopublicutilities.pdf.

[7]     Marvin Ammori, “Can the FTC Save Uber,” Slate, March 12, 2013, http://www.slate.com/articles/technology/future_tense/2013/03/uber_lyft_sidecar_can_the_ftc_fight_local_taxi_commissions.html (noting that, “not only does the FTC have the authority to take these cities to impartial federal courts and end their anticompetitive actions; it also has deep expertise in taxi markets and antitrust doctrines.”) Also see, Edmund W. Kitch, “Taxi Reform—The FTC Can Hack It,” Regulation, May/June 1984, http://object.cato.org/sites/cato.org/files/serials/files/regulation/1984/5/v8n3-3.pdf.

[8]     Brief of Amici Curiae Public Citizen in Support of Respondent, North Carolina State Bd. of Dental Exam’rs v. FTC, (August 2014): 24.

[9]     Brief of Antitrust Scholars as Amici Curiae in Support of Respondent, North Carolina State Bd. of Dental Exam’rs v. FTC, (August 6, 2014): 24, (“Antitrust review is entirely appropriate for curbing the excesses of occupational licensing because the anticompetitive effect has a similar effect on the market—and in particular consumers—as does traditional cartel activity.”)

[10]   See Mark A. Perry, “Municipal Supervision and State Action Antitrust Immunity,” The University of Chicago Law Review, Vol. 57, (Fall 1990): 1413-1445; William J. Martin, “State Action Antitrust Immunity for Municipally Supervised Parties,” The University of Chicago Law Review, Vol. 72, (Summer, 2005): 1079-1102; Jarod M. Bona, “The Antitrust Implications of Licensed Occupations Choosing Their Own Exclusive Jurisdiction,” University of St. Thomas Journal of Law & Public Policy, Vol 5, (Spring 2011): 28-51; Ingram Weber “The Antitrust State Action Doctrine and State Licensing Boards,” The University of Chicago Law Review, Vol. 79, (2012); Aaron Edlin and Rebecca Haw, “Cartels by Another Name:  Should Licensed Occupations Face Antitrust Scrutiny?,” University of Pennsylvania Law Review, Vol. 162, (2014): 1093-1164.

[11]   Wright, “Regulation in High-Tech Markets,” at 28-9.

[12]   Wright, “Regulation in High-Tech Markets,” at 29.

[13]   North Carolina State Bd. of Dental Exam’rs v. FTC, 135 S. Ct. 1101 (2015).

[14]   Id.

[15]   Id. Also see Edlin & Haw, “Cartels by Another Name,” at 1143, (“Who could seriously argue that an unsupervised group of competitors appointed to regulate their own profession can be counted on to neglect their selfish interests in favor of the state’s?”); Brief Amicus of the Pacific Legal Foundation and Cato Institute, North Carolina State Bd. of Dental Exam’rs v. FTC, (August 2014): 3, (“Antitrust immunity for private parties who act under color of state law is especially problematic, given that anticompetitive conduct is most likely to occur when private parties are in a position to exploit government’s regulatory powers.”)

[16]   See Maureen K. Ohlhausen, Reflections on the Supreme Court’s North Carolina Dental Decision and the FTC’s Campaign to Rein in State Action Immunity, before the Heritage Foundation, Washington, DC, March 31, 2015, at 16, https://www.ftc.gov/public-statements/2015/03/reflections-supreme-courts-north-carolina-dental-decision-ftcs-campaign, (“states need to be politically accountable for whatever market distortions they impose on consumers.”); Edlin & Haw, “Cartels by Another Name,” at 1137, (“political accountability is the price a state must pay for antitrust immunity.)

[17]   See Federal Trade Commission, Office of Policy and Planning, Report of the State Action Task Force (2003): 54, (“clear articulation requires that a state enunciate an affirmative intent to displace competition and to replace it with a stated criterion. Active supervision requires the state to examine individual private conduct, pursuant to that regulatory regime, to ensure that it comports with that stated criterion. Only then can the underlying conduct accurately be deemed that of the state itself, and political responsibility for the conduct fairly placed with the state.”) This test has been developed and refined in a variety of cases over the past 35 years. See: California Retail Liquor Dealers Ass’n v. Midcal Aluminum, Inc., 445 U.S. 97 (1980); Cmty. Comm’ns Co., Inc. v. City of Boulder, 455 U.S. 40, 48-51 (1982); City of Columbia v. Omni Outdoor Advertising, Inc., 499 U.S. 365 (1991); FTC v. Ticor Title Ins. Co., 504 U.S. 621 (1992).

[18]   North Carolina State Bd. of Dental Exam’rs v. FTC, 135 S. Ct. 1101 (2015).

[19]   Edlin & Haw, “Cartels by Another Name,” at 1156. (“Requiring that the state place its imprimatur on regulation is at least better than the status quo, in which states too often delegate self-regulation to professionals and walk away.”) See also North Carolina State Bd. of Dental Exam’rs v. FTC, 135 S. Ct. 1101 (2015) (“[Federal antitrust] immunity requires that the anticompetitive conduct of nonsovereign actors, especially those authorized by the State to regulate their own profession, result from procedures that suffice to make it the State’s own.”).

[20]  Maureen K. Ohlhausen, Commissioner, Fed. Trade Commission, “Regulatory Humility in Practice,” Remarks of the American Enterprise Institute, Washington, D.C. (April 1, 2015).

[21]   Edlin & Haw, “Cartels by Another Name,” at 1094, (“state action doctrine should not prevent antitrust suits against state licensing boards that are comprised of private competitors deputized to regulate and to outright exclude their own competition, often with the threat of criminal sanction.”). See also Brief Amicus of the Pacific Legal Foundation and Cato Institute, North Carolina State Bd. of Dental Exam’rs v. FTC, (August 2014): 2, 21, http://www.americanbar.org/content/dam/aba/publications/supreme_court_preview/BriefsV4/13-534_resp_amcu_plf-cato.authcheckdam.pdf, (noting that courts “should presume strongly against granting state-action immunity in antitrust cases.  It makes little sense to impose powerful civil and criminal punishments on private parties who are deemed to have engaged in anti-competitive conduct, while exempting government entities—or, worse, private parties acting under the government’s aegis—when they engage in the exact same conduct. . . . “Whatever one’s opinion of antitrust law in general, there is no justification for allowing states broad latitude to disregard federal law and erect private cartels with only vague instructions and loose oversight.”)

[22]   Wright, “Regulation in High-Tech Markets,” at 7.

[23]   FTC, Report of the State Action Task Force, 44, (“an unfortunate gap has emerged between scholarship and case law. Although many of the leading commentators have expressed serious concern regarding problems posed by interstate spillovers, their thinking has yet to take root in the law. Such spillovers undermine both economic efficiency and some of the same political representation values thought to be protected by principles of federalism.”); Brief Amicus of the Pacific Legal Foundation and Cato Institute, North Carolina State Bd. of Dental Exam’rs v. FTC, (August 2014): 13, (“Allowing states expansive power to exempt private actors from antitrust laws would also disrupt national economic policy by encouraging a patchwork of state-established entities licensed to engage in cartel behavior. This would disrupt interstate investment and consumer expectations, and would have spillover effects across state lines.”) Cooper and Kovacic, “U.S. Convergence with International Competition Norms,” at 1598, (“When a state exports the costs attendant to its anticompetitive regulatory scheme to those who have not participated in the political process, however, there is no political backstop; arguments for immunity based on federalism concerns are severely weakened, if not wholly eviscerated, in these situations.”

[24]   See Adam Thierer, The Delicate Balance: Federalism, Interstate Commerce, and Economic Freedom in the Technological Age (Washington, DC: The Heritage Foundation, 1998): 81-118.

The Mercatus Center at George Mason University has just released a new paper by Brent Skorup and me entitled, “A History of Cronyism and Capture in the Information Technology Sector.” In this 73-page working paper, which we hope to place in a law review or political science journal shortly, we document the evolution of government-granted privileges, or “cronyism,” in the information and communications technology marketplace and in the media-producing sectors. Specifically, we offer detailed histories of rent-seeking and regulatory capture in: the early history of the telephony and spectrum licensing in the United States; local cable TV franchising; the universal service system; the digital TV transition in the 1990s; and modern video marketplace regulation (i.e., must-carry and retransmission consent rules, among others.

Our paper also shows how cronyism is slowly creeping into new high-technology sectors.We document how Internet companies and other high-tech giants are among the fastest-growing lobbying shops in Washington these days. According to the Center for Responsive Politics, lobbying spending by information technology sectors has almost doubled since the turn of the century, from roughly $200 million in 2000 to $390 million in 2012.  The computing and Internet sector has been responsible for most of that growth in recent years. Worse yet, we document how many of these high-tech firms are increasingly seeking and receiving government favors, mostly in the form of targeted tax breaks or incentives.

We argue that the creeping cronyism could have two major negative ramifications. First, it could dull entrepreneurialism and competition in this highly innovative sector since time and resources spent on influencing politicians and capturing regulators cannot be spent competing and innovating in the marketplace. Cronyism will also negatively impact consumer welfare by denying consumers more and better products and services. Additionally, consumers might end up paying higher prices or higher taxes due to government privileges for industry.

Second, cronyism also raises the specter of greater government control of the Internet and of the digital economy. When policymakers dispense favors, they usually expect something in return. They also become accustomed to having greater informal powers over the sector receiving favors, and contribute to DC’s infamous “revolving door” problem.

High-tech America’s recent embrace of Washington could take it down the familiar path followed by the agriculture, telecommunications, and automotive sectors (among many others), with government becoming both protector and punisher of industry. Today’s dynamic tech industries will increasingly come under the “Mother, may I?” permission-based regulatory regime that encumbered the older information technology sectors.

Finally, this paper offers strategies for stalling and diminishing the cronyism already taking root in the high-tech sector. We suggest several targeted reforms to limit or undo cronyism. Generally speaking, however, we note that, as economist David R. Henderson argued in an earlier Mercatus Center report, “There is only one way to end, or at least to reduce, the amount of cronyism, and that is to reduce government power.”

The paper can be downloaded from the Mercatus website, SSRN, or Scribd. The Scribd version is embedded down below. (Also, here’s some coverage of the paper over at the Washington Post’s “Wonkblog” from our old colleague Tim Lee. Here’s more coverage from Bloomberg Businessweek and the San Francisco Chronicle. And here’s a U.S. News oped that Brent and I wrote condensing our paper into just 600 words. Finally, a short 3-minute video of me discussing the problem of tech cronyism is also embedded below.)

A History of Cronyism and Capture in the Information Technology Sector [Thierer and Skorup – July 2013] by Adam Thierer

Today I’ll be testifying at a Senate Commerce Committee hearing on online privacy and commercial data collection issues. In my remarks, I make three primary points:

1. First, no matter how well-intentioned, restrictions on data collection could negatively impact the competitiveness of America’s digital economy, as well as consumer choice.
2. Second, it is unwise to place too much faith in any single, silver-bullet solution to privacy, including “Do Not Track,” because such schemes are easily evaded or defeated and often fail to live up to their billing.
3. Finally, with those two points in mind, we should look to alternative and less costly approaches to protecting privacy that rely on education, empowerment, and targeted enforcement of existing laws. Serious and lasting long-term privacy protection requires a layered, multifaceted approach incorporating many solutions.

The testimony also contains 4 appendices elaborating on some of these themes.

Down below, I’ve embedded my testimony, a list of 10 recent essays I’ve penned on these topics, and a video in which I explain “How I Think about Privacy” (which was taped last summer at an event up at the University of Maine’s Center for Law and Innovation). Finally, the best summary of my work on these issues can be found in this recent Harvard Journal of Law & Public Policy article, “The Pursuit of Privacy in a World Where Information Control is Failing.” (This is the first of two complimentary law review articles I will be releasing this year dealing with privacy policy. The second, which will be published early this summer by the George Mason University Law Review, is entitled, “A Framework for Benefit-Cost Analysis in Digital Privacy Debates.”)

Testimony of Adam D. Thierer before the Senate Committee on Commerce, Science & Transportation hearing…

Some of My Recent Essays on Privacy & Data Collection

1. A Better, Simpler Narrative for U.S. Privacy Policy – March 19, 2013
2. On the Pursuit of Happiness… and Privacy – March 31, 2013 (condensed from Harvard Journal of Law & Public Policy article, “The Pursuit of Privacy in a World Where Information Control is Failing”)
3. Isn’t “Do Not Track” Just a “Broadcast Flag” Mandate for Privacy? – Feb. 20, 2011
4. Two Paradoxes of Privacy Regulation – Aug. 25, 2010
5. Privacy as an Information Control Regime: The Challenges Ahead – Nov. 13, 2010
6. When It Comes to Information Control, Everybody Has a Pet Issue & Everyone Will Be Disappointed – Apr. 29, 2011
7. Lessons from the Gmail Privacy Scare of 2004 – March 25, 2011
8. Who Really Believes in “Permissionless Innovation”? – March 4, 2013 (condensed from Minnesota Journal of Law, Science & Technology law review article, “Technopanics, Threat Inflation, and the Danger of an Information Technology Precautionary Principle”)
9. The Problem of Proportionality in Debates about Online Privacy and Child Safety – Nov. 28, 2009
10. Obama Admin’s “Let’s-Be-Europe” Approach to Privacy Will Undermine U.S. Competitiveness– Jan. 5, 2011

[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. First, Wu contends that “information monopolies” are pervasive in the information economy. Wu’s “monopolists” include Facebook, Apple, Google, and even Twitter. In The Master Switch and essays like “In the Grip of the New Monopolists,” Wu argues that these so-called monopolies are increasing their market power and require more aggressive oversight and regulation.Second, Wu argues that traditional antitrust analysis is not sufficient for information systems because they carry speech. He claims, “Information industries… can never be properly understood as ‘normal’ industries,”and traditional forms of regulation, including antitrust enforcement, “are clearly inadequate for the regulation of information industries.”Wu believes that because information industries “traffic in forms of individual expression” and are “fundamental to democracy,” they should be subject to greater regulatory treatment.Third, in contrast to current competition law’s focus on horizontal relationships, Wu desires a reinvigorated regulatory enforcement that addresses “the corrupting effects of vertically integrated power” in the information sectors.He is particularly concerned about private threats to free speech arising from such vertical integration.The solution, he says, is preventing vertical mergers in the information economy and the mandatory divestiture of vertically integrated companies. To implement this, Wu proposes a Separations Principle for the information economy, which would segregate information providers into three buckets, which we have labeled information creators, information distributors, and hardware makers.This article outlines Wu’s separations proposal, explains why his fears regarding vertical relationships should be rejected by regulatory and antitrust policymakers, and illustrates the legal and practical problems his Separations Principle poses. Wu justifies his Separations Principle by citing monopolies and market power in the information economy. He also advocates using U.S. antitrust authorities to enforce his Principle. We argue that the antitrust harms he fears are not present, and we highlight scholarship on the accepted benefits of vertically integrated firms. We show that Wu’s remedies are policy preferences wrapped in the language of competition law. In fact, the information economy is largely competitive and does not warrant interventionist regulatory enforcement. Since much of American economic vitality flows from the information economy and technology, policymakers should reject a radical antitrust remedy like Wu’s preemptive Separations Principle.

The paper can be downloaded from the Mercatus website, SSRN, or Scribd.

It’s my great pleasure this week to be participating in a 2-day symposium on “Competition in Online Search” that is being hosted by the Antitrust & Competition Policy Blog.  Daniel Sokol, Associate Professor of Law at the University of Florida Levin College of Law, was kind enough to invite me to join the fun. Professor Sokol is the editor of the Antitrust & Competition Policy Blog. Others participating in this symposium include: James Grimmelman (NY Law); Eugene Volokh (UCLA); Marvin Ammori (Stanford Law); Mark Jamison (Univ. of Florida); Eric Clemons (Wharton School); Dan Crane (Michigan Law); and both Marina Lao and Frank Pasquale (Seton Hall); and more.

My entry is now live. In it, I focus on how dynamically competitive and innovative the digital economy has been over the past 15 years and question to need for intervention at this time, especially of the “public utility” variety. I’ve re-posted my entry below, but make sure to head over to the Antitrust & Competition Policy Blog to read all the contributions to this excellent symposium.

_______________

If you blink your eyes in the Information Age you can miss revolutions. Let’s take a quick walk back through our turbulent recent history:

• Just five years ago, MySpace dominated social networking and had The Guardian wondering, “Will MySpace Ever Lose Its Monopoly?” A short time later, MySpace lost its early lead and became a major liability for owner Rupert Murdoch. Murdoch paid $580 million for MySpace in 2005 only to sell it for $35 million in June 2011.
• Just six to eight years ago, the mobile landscape was ruled by Palm, BlackBerry, Nokia, and Motorola. Palm is now all but dead and BlackBerry is trying to stay afloat while Nokia and Motorola had to cut deals with Microsoft and Google respectively in order to survive.
• Just 10 years ago, AOL’s hegemony in online services was thought to be unassailable, especially after its merger with Time Warner. But the merger quickly went off the rails and AOL’s online “dominance” quickly evaporated. Losses grew to over $100 billion and the entire deal unraveled within just a few years as AOL’s old dial-up, walled-garden business model had been completely superseded by broadband and the new Web 2.0 world.
• Just 12 years ago, Yahoo! and AltaVista were the go-to companies for online search. No one turns to them first today when they go looking for information online.
• And just 15 years ago, Microsoft was on everyone’s mind. Today, the firm is struggling to remain part of cocktail party chatter when the topic of modern Tech Titans is discussed. For example, a recent Fast Company cover story on “The Great Tech War of 2012” only mentioned Microsoft in passing. The rise of search, social media, and cloud computing represented disruptive shifts that Microsoft wasn’t prepared for.

The graveyard of tech titans is littered with the names of many other once-mighty giants. Schumpeter’s “gales of creative destruction” have rarely blown harder through any sector of our modern economy. And so now we come to the question of Google’s dominance in the field of search. Should we be worried? Some say yes, and the rhetoric of public utilities and essential facilities is increasingly creeping into policy discussions about the Internet, including the search layer. A growing cabal of cyberlaw experts—Tim Wu, Dawn Nunziato, Frank Pasquale, among many others—argue that some sort of regulation is needed.

But the recent history I recounted above makes it clear that patience and humility are the more sensible policy prescriptions. Calls for regulation or public utility classification are particularly premature and problematic. As I argued in my recent white paper, “The Perils of Classifying Social Media Platforms as Public Utilities,” search and social media platforms do not resemble traditional public utilities and there are good reasons why policymakers should avoid a rush to regulate them as such.

First, there has not been any serious showing of monopoly power in the search or social media sectors in which Google operates. It’s also impossible to find any way in which consumer welfare is currently being harmed by Google. All their products are free and constantly evolving. New technologies and rivals continue to emerge. DuckDuckGo, for example, differentiates itself in search by stressing privacy above all else. Meanwhile, the contours of these markets are constantly evolving in a dynamic way, making market definition challenging. Is Facebook a search company? Signs are good that it soon could soon become a formidable one.

These market-definition considerations are especially important because of how long it takes to formulate regulations or impose antitrust remedies. In a market that changes this rapidly, taking several months or even years to complete rulemakings or litigate remedies will almost certainly mean that most rules will be completely out of date by the time they are implemented. And once implemented, there will be very little incentive to rework them as rapidly as the market contours change. Regulation could retard innovation in search and social media markets by denying firms the ability to evolve or innovate across pre-established, artificial market boundaries. Second, treating these digital services as regulated utilities would harm consumer welfare because public utility regulation has traditionally been the archenemy of innovation and competition. Public utility regulation has a long, lamentable history that has been well-documented by economists and political scientists. That’s why it is usually considered the last resort, not the first option. Moreover, the traditional goals of public utility regulation — universal service, price competition, and quality service — are already being achieved without intervention. And as Marvin Ammori and Luke Pelican outline in a new study, all the proposed antitrust remedies to deal with Google in particular also have serious downsides. Almost all the cures would be worse than whatever disease it is critics hope to solve with antitrust intervention.

Third, treating today’s leading search and social media providers as digital essential facilities threatens to convert “natural monopoly” or “essential facility” claims into self-fulfilling prophecies. The very act of imposing utility obligations on a particular platform or company tends to lock it in as the preferred or only choice in its sector. Public utility regulation also shelters a utility from competition once it is enshrined as such. Also, by forcing standardization or a common platform, regulation can erect de jure or de facto barriers to entry that restrict beneficial innovation and the disruption of market leaders.

Fourth, because social media are fundamentally tied up with the production and dissemination of speech and expression, First Amendment values are at stake, warranting heightened constitutional scrutiny of proposals for regulation. As Eugene Volokh noted in a recent white paper, social media providers should possess the editorial discretion to determine how their platforms are configured and what can appear on them.

Will Google meet the same fate as earlier Tech Titans? It’s impossible to know. But with the wrecking ball of creative digital destruction doing such a fine job of keeping competition and innovation thriving, we’d be smart to reject heavy-handed, top-down regulation of such a dynamic segment of our economy at this time.

Writing over at the conservative Big Government blog (part of the Breitbart.com network of blogs), someone who goes by the pseudonym “Capitol Connection” has posted an editorial about the debate over retransmission consent reform that is full of misinformation and misguided policy prescriptions, at least if you believe is truly limited government. The piece is entitled, “Big Cable Would Prefer if You Paid Their Bills,” and the problems are almost immediately evident from that headline alone.  First, what is a supposedly small government-oriented blog doing using a silly label like “Big Cable” to describe a vigorously competitive sector of our capitalist economy? Using terms like “Big Cable” is a silly lefty tactic. Second, no one in the cable industry is proposing anyone “pay their bills” except for the customers who enjoy their services. Isn’t a fee for service part of capitalism?

Anyway, that’s just the problem with the title of the essay. Sadly, the rest of the piece is filled with even more erroneous information and arguments about the retransmission consent regulatory process as well as the bill that aims to reform that process, “The Next Generation Television Marketplace Act” (H.R. 3675 and S. 2008). That bill, which is sponsored by Senator Jim DeMint (R-SC) and Rep. Steve Scalise (R-LA), represents a comprehensive attempt to deregulate America’s heavily regulated video marketplace. In a recent Forbes oped, I argued that the DeMint-Scalise effort would take us “Toward a True Free Market in Television Programming” by eliminating a litany of archaic media regulations that should have never been on the books to begin with. The measure would:

• eliminate: “retransmission consent” regulations (rules governing contractual negotiations for content);
• end “must carry” mandates (the requirement that video distributors carry broadcast signals even if they don’t want to);
• repeal “network non-duplication” and “syndicated exclusivity” regulations (rules that prohibit distributors from striking deals with broadcasters outside their local communities);
• end various media ownership regulations; and
• end the compulsory licensing requirements of the Copyright Act of 1976, which essentially forced a “duty to deal” upon content owners to the benefit of video distributors.

This represents genuine and much-needed deregulation of a market that has been encumbered with far too much top-down control and micro-management by the FCC over the past several decades. To be clear, none of these rules apply to any other segment of our modern information economy. Every day of the week, deals are cut between content creators and distributors in many other segments of the media industry without these rules encumbering the process. The DeMint-Scalise bill is an attempt to get big government out of the way and let these deals be cut in a truly free market without regulators putting their thumb on the scale in one direction or the other.

Thus, it came as a bit of a shock to me to see a blog that rails against and is self-titled Big Government suggesting that we should retain a form of big government regulation! Indeed, the author gets the intent of the DeMint-Scalise bill exactly backward. The author says the The Next Generation Television Marketplace Act:

would strip broadcasters of their ability to negotiate in the free marketplace. Some cable operators, it turns out, would love to provide Americans with the quality content American broadcast companies churn out. They just don’t happen to want to pay for it.

The author of the piece also says that cable industry representatives:

are lobbying in Washington for key provisions in legislation that would that would allow the Federal government to intervene in what is otherwise a sound, private sector marketplace that benefits consumers each and every day. And they’re doing so under the guise of “deregulation.”

This is all utter poppycock. While I am sure that the cable industry would love to get all that content free of charge, that’s not what the DeMint-Scalise bill would do. It doesn’t end free-market contracting; it bolsters it. Again, the bill would get the government out of the business of setting rules for how these deals get cut and instead allow these big boys to come to the bargaining table and hammer out these deals on their own.  That is called deregulation and true capitalism!

The author of the misguided Big Government editorial seems to be resting their case on a letter that the American Conservative Union (ACU) sent to members of Congress in late March. I addressed the claims found in that letter in this essay and pointed out that ACU had almost everything exactly backward. Both the ACU letter and the Big Government essay just keep erroneously assuming that the end of the regulatory retrans process means that “broadcasters [will] be forced to simply give away their signals and content.” Again, nothing could be further from the truth. As I noted in my response to the ACU letter:

nothing in this bill forces content creators or broadcasters to deal their content to other distributors. And nothing in the bill gives those other video distributors the right to freely distribute content without the permission of its owners. In sum, the bill does not repeal copyright law — it only repeals the compulsory licensing rules that force content owners to deal their programming against their consent on government regulated terms.  That means copyright is actually strengthened under this bill and that content owners have more bargaining power than they do today. Thus, the ACU is horribly mistaken in asserting that the DeMint-Scalise bill would “allow an uncompensated use of broadcast signals and content.” The exact opposite is the case.

Finally, if nothing else convinces the folks at the Big Government blog and the ACU of the error in their thinking, consider this: The preservation of the current retransmission consent regime and all its corresponding regulations means the preservation and growth of the Federal Communications Commission as a federal regulatory agency overseeing the information economy. Is that a truly free market-oriented position? Do we need federal bureaucrats overseeing free market contractual negotiations in this or any other sector? Because that’s what the law allows today. By contrast, the DeMint-Scalise bill offers us the chance to finally get real deregulation rolling and get FCC downsizing back on track. You will never get a smaller FCC by advocating the retention of regulation.

Thus, I think it’s pretty clear which approach is the most liberty-enhancing. I hope, therefore, that the ACU and the folks at the Big Government blog will reconsider their position.

As I’ve mentioned here previously, PFF has been rolling out a new series of essays examining proposals that would have the government play a greater role in sustaining struggling media enterprises, “saving journalism,” or promoting more “public interest” content. We’re releasing these as we get ready to submit a big filing in the FCC’s “Future of Media” proceeding (deadline is May 7^th).  Here’s a podcast Berin Szoka and I did providing an overview of the series and what the FCC is doing.

In the first installment of the series, Berin and I critiqued an old idea that’s suddenly gained new currency: taxing media devices or distribution systems to fund media content. In the second installment, I took a hard look at proposals to impose fees on broadcast spectrum licenses and channeling the proceeds to a “public square channel” or some other type of public media or “public interest” content.

In our latest essay, “The Wrong Way to Reinvent Media, Part 3: Media Vouchers,” Berin and I consider whether it is possible to steer citizens toward so-called “hard news” and get them to financially support it through the use of “news vouchers” or “public interest vouchers”?  We argue that using the tax code to “nudge” people to support media — while less problematic than direct subsidies for the press — will likely raise serious issues regarding eligibility and be prone to political meddling.  Moreover, it’s unlikely the scheme will actually encourage people to direct more resources to hard news but instead just become a method of subsidizing other content they already consume.

I’ve attached the entire essay down below.

The Wrong Way to Reinvent Media, Part 3: Media Vouchers

by Adam Thierer & Berin Szoka*

PFF Progress on Point 17.4 [PDF]

Should the government play a greater role in the media sector in the name of sustaining struggling media enterprises, “saving journalism,” or promoting public media?  In this ongoing series of essays, we’ve been analyzing proposals that would have public policymakers use taxes, subsidies, or regulations to accomplish those objectives.

Part 1 of this series examined proposals to fund media content via a tax on consumer electronics, broadband service, or cell phone bills.^[1] Part 2 critiqued proposals to impose fees on broadcast spectrum licenses and channeling the proceeds to a “public square channel” or some other type of public media or “public interest” content.^[2] Other essays in this series will address proposals to tax private advertising revenues to support public media; expand postal subsidies; directly subsidize out-of-work journalists; and to prop up or bail out failing media entities.  A wrap-up essay will then focus on some potentially constructive policy reforms that could assist media enterprises without a massive infusion of state support or regulation of the press.

In this installment, we will consider whether it is possible to steer citizens toward so-called “hard news” (“serious” journalism)—and get them to financially support it—through the use of “news vouchers” or “public interest vouchers”?  We will argue that using the tax code to nudge people to support media—while less problematic than direct subsidies for the press—will likely raise serious issues regarding eligibility and be prone to political meddling.  Moreover, it’s unlikely the scheme will actually encourage people to direct more resources to hard news but instead just become a method of subsidizing other content they already consume.

Funding Hard News is Hard

Funding “hard news” has always been challenging.  Financing a team of dedicated local beat reporters, investigative journalists, national desks, foreign bureaus, and all the associated production facilities and support staff is an extremely expensive undertaking.[3] And, for all that trouble and expense, hard news rarely turns a healthy profit.  Often it has been considered a “loss leader” for media companies and has been cross-subsidized by other types of content or services.[4] This is why “bundling” has been such a popular model for many media operations such as newspapers, magazines, and cable television.  By tying news production to other types of content or services, media operators have been able to sustain the production of hard news, despite its general unprofitability on its own.

It’s worth recalling that a business model to sustain hard news production and dissemination on a mass scale really only developed mid-way through our Republic.  The early history of media in this country was characterized by the “partisan press” due to the heavy reliance on a patronage model and direct association with political parties and figures. This changed with the rise of large daily newspapers in the mid-1800s and then broadcast radio and television in the early half of the 20 ^th century.[5] Media providers were able to cross-subsidize news production independent of private or political patronage thanks to three things: (1) high-speed printing presses or broadcast facilities, (2) geographic-based market and pricing power, and (3) the widespread advertising base that was made possible by (1) and (2).

Over just the past 15-20 years, we’ve seen this traditional model upended.  Increased competition and technological/platform proliferation are placing an enormous strain on traditional media operations and business models. Schumpeterian “creative destruction” is at work in a serious, and for many, painful, way.

This is what is keeping the Federal Communications Commission,[6] the Federal Trade Commission,[7] some in Congress,[8] and many media worrywarts up at night: the fear that, as traditional financing mechanisms falter (advertising, classifieds, subscription revenues, etc.), many traditional news-gathering efforts and institutions will disappear.  And that’s leading to calls for government intervention or assistance of some sort to prop up struggling entities or directly subsidize the hard news that many of them have traditionally provided but may not be able to for much for longer.

Can Vouchers “Nudge” Citizens to Support Hard News?

One much-discussed proposal would create a “public interest voucher” or what Robert W. McChesney & John Nichols, authors of the new book The Death and Life of American Journalism, call a “Citizenship News Voucher.”^[9] This is a variant on the “artistic freedom voucher,” an idea first put forward in 2003 by economist Dean Baker as an alternative to copyright law as a means of incentivizing artistic creation.[10] The regulatory activist group Free Press, which McChesney founded, has also endorsed a news voucher scheme.[11]

The idea is fairly straightforward: give every American a voucher (McChesney and Nichols propose $200) to support the non-profit news entities of their choice by listing those entities on their tax return.  (If half of all adult Americans actually used their voucher, that would cost at least $20 billion/year.[12])  They assume this would be an efficient way of channeling money to hard news providers while avoiding the serious concerns that arise when government officials or agencies are the ones providing or steering the subsidies.  McChesney and Nichols go so far as to call their tax-and-redistribute proposal “a libertarian’s dream,” since “people can support whatever political viewpoint they prefer or do nothing at all.”[13]

McChesney and Nichols seem to be building on the approach popularized by Richard Thaler and Cass Sunstein in their highly influential 2008 book Nudge: Improving Decisions about Health, Wealth, and Happiness.^[14] Based on behavioral economics studies, Thaler and Sunstein argue that both government and private actors must inevitably make decisions about “choice architecture” and that, by setting defaults, incentives and rules smartly, “choice architects” can and should improve private decision-making—but only where they can do so without blocking, fencing-off or significantly burdening choices.^[15] While their proposal might not qualify as a nudge in the strict sense defined by Thaler and Sunstein, the essential similarity between the concepts lies in trying to restructure the choices Americans make about media consumption by changing how they spend money on media—with the declared goal of “improving” both media consumption and the media itself (by “freeing it” of supposedly evil corporate influences).

Problems with the News Voucher Proposal

While nudges might be less objectionable in circumstances where it’s objectively evident what’s really “good” for us, the same can hardly be said for media consumption.  “Nudging” consumers towards better media choices isn’t based on clear science about, say, eating better or getting more exercise, but on highly subjective decisions about what kind of information consumption is really good for individuals, communities, and polities.  For policymakers to imagine that they can steer the public’s tastes or behavior in more desirable directions through law (including media subsidy schemes) is a profoundly elitist enterprise.^[16] In the case of “news vouchers,” the hope is that the public can be encouraged to at least channel some additional support to news-gathering activities and institutions.  The problem, however, is that some people just don’t much like being “nudged” by officials from afar and they’ll often take steps to evade such paternalism—however ostensibly “libertarian” it might be.  And it could lead to a host of unintended consequences, discussed further below.[17]

As a general matter, it simply isn’t possible to make consumers choose the “right” media in an age of information abundance.^[18] With so many voices competing for our attention, it’s impossible make people watch, listen, or read if they don’t want to.  That’s especially true with hard news, which has never netted major ratings.  As Ellen P. Goodman of the Rutgers-Camden School of Law has noted: “Given the proliferation of consumer filtering and choice, these kinds of interventions are of questionable efficacy.  Consumers equipped with digital selection and filtering tools are likely to avoid content they do not demand no matter what the regulatory efforts to force exposure.”[19] As Goodman rightly argues, “regulation cannot, in a liberal democracy, force viewers to consume media products they do not think they want in the name of the public interest.”[20] There’s no reason to believe this situation has ever been different or will ever change:  Writing in 1922, famed journalist Walter Lippmann noted that, “it is possible to make a rough estimate only of the amount of attention people give each day to informing themselves about public affairs,” but “the time each day is small when any of us is directly exposed to information from our unseen environment.”[21]

McChesney and Nichols’ effort to sell this scheme as “a libertarian’s dream” is a huge stretch.  There aren’t too many libertarians—or anyone else for that matter—who favor sending more money to the federal government only to win back the right to spend it on “qualifying media entities.”  And regarding their claim that “people can support whatever political viewpoint they prefer or do nothing at all,” well, people are already free to do whatever they want with their money when it comes to media products!  Why do we need to send money to Washington first and then have policymakers tell us how we can spend it?  This seems like a needless nudge—and one that would likely result in government bureaucracy taking a cut of the money or meddling in media markets.

Analogies to educational vouchers don’t work because we long ago decided to treat education as a public good and force everyone to pay for it.  “Voucherization” may make sense as a more efficient and “libertarian” way to fund such traditional public goods, when we absolutely have to force people to spend money on certain goods or services.  While McChesney and Nichols claim that the time has come for the government to fund media as such a public good, most people probably wouldn’t agree, since the private provision of media services has worked quite well for some time—being funded by a mix of advertising and subscription revenues for centuries.  They repeatedly claim that era is over (with little substantiation) but, in reality, it is their policies that would end private, for-profit media by taxing and regulating it to death.[22]

Second, what counts as a “qualifying media entity,” and how will the IRS make that call?  Can just any outlet that purports to gather and report “news” draw support from this new federal program?  McChesney and Nichols aren’t clear: They want the IRS to “determine eligibility—according to universal standards that err on the side of expanding rather than constraining the number of serious sources covering and commenting on issues of the day.”[23] They specify only that the entity must be a non-profit (though not necessarily a federally-recognized 501(c)(3)); not accept advertising; “do exclusively media content”; “cannot be part of a larger organization or have any non-media operations”; and that everything the medium produces must be made available immediately upon publication on the Internet and made available for free to all.”[24] But, anticipating objections about the dangers of political meddling, they also insist that “the government will not evaluate the content to see that the money is going toward journalism.  Our assumption is that these criteria will effectively produce that result, and if there is some slippage so be it.”[25] The only mechanism they can suggest for reducing fraud and ensuring “seriousness” is that, “for a medium to receive funds it would have to get commitments for at least $20,000 worth of vouchers” (100 full donations of the $200 voucher).[26]

But will policymakers really let citizens redeem their vouchers on The National Inquirer or People magazine?  How about the satirical The Onion or Jon Stewart’s Daily Show?  “This is a risk we are more than willing to take,” McChesney and Nichols say since they are “operating on a gut instinct that people will use their vouchers to fund serious media while reaching into their pockets to pay for copies of The National Inquirer at the supermarket checkout.”^[27] Of course, it’s always easier to take such risks when you are playing with other people’s money!  (Nearly half of all Americans don’t pay any Federal income taxes,[28] so their $200 news voucher is definitely coming out of someone else’s tax bill.)

But it’s naïve to believe this idea is going to change the face of journalism in any serious way.  Most people will spend their vouchers on whatever media outlets and content they are currently consuming, which probably isn’t what McChesney and Nichols (or most policymakers) would prefer.  “The program may not develop exactly the type of journalism our greatest thinkers believe is necessary,” McChesney and Nichols admit.[29] But the real question is: What sort of demands will policymakers begin making if the voucher program ends up channeling money into media entities that don’t measure up to their standards or desires?  Qualification criteria would inevitably become the tool of political meddling.

The Inevitable Strings & the Political/Constitutional Paradox

This raises a fourth concern: How long will it be before government starts attaching more strings to the vouchers?  To borrow a recent headline from The Wall Street Journal, how long will it be before the “Economic Policy ‘Nudge’ Gives Way to a Shove?”^[30] Although, in theory, the news voucher idea lets consumers figure out how to steer the funds, it’s unlikely much of those funds would go toward hard news, civic-minded or “high brow” content if consumers were actually free to choose.  How do we know this?  Because we already know what consumers choose today—and those “poor” choices are part of the supposed “problem” to be solved by media vouchers.  Once people start redirecting taxpayer dollars to content that the elites and policymakers don’t like, the nudge will become a shove and more interventions will follow in the form of “voucher guidance and compliance” hearings, rules, etc.

But the pressure for strings won’t just come from the top down because, as Thomas Jefferson famously put it in the 1786 Virginia Act for Establishing Religious Freedom, “to compel a man to furnish contributions of money for the propagation of opinions which he disbelieves, is sinful and tyrannical.”[31] That is, we naturally—and rightly—resent subsidizing speech that is antithetical to our own values.  McChesney and Nichols dismiss this natural (presumably bourgeois?) indignation by saying, “people will have to accept that some of the vouchers are going to go to media that they detest.”^[32] In one sense, they are dead wrong: People won’t just accept that.  They may accept subtle, indirect subsidies, but the more clear it becomes that they are being forced to pay for media they detest—and that could scarcely be more clear than with a refundable tax credit “voucher”—they will protest and demand that certain viewpoints, or at least kinds of content, be deemed out of bounds.

But in another sense, McChesney and Nichols are probably correct: For such a scheme to work, it probably can’t come with any content strings, because this is probably what the First Amendment would require.  Yet they don’t actually explain that point, stopping only to say that we all just have to become more tolerant of “dissent”— i.e., subsidize those who disagree with us!  In this sense, news vouchers therefore would likely fall prey to a common paradox faced by proposals for the government to subsidize speech: What’s politically feasible is unconstitutional and what’s constitutional is politically impossible.  Specifically, the kinds of eligibility restrictions necessary to push a voucher scheme through Congress would probably cause the courts to strike down the whole scheme.  Even if the courts were willing to strike down only the eligibility provisions as “severable” from the rest of the scheme, the whole scheme would likely die in the very next federal budget if the courts require the funding of “offensive” or “frivolous” content.  Understanding why this is the case requires a brief overview of key First Amendment case law.

In general, “when the Government appropriates public funds to establish a program it is entitled to define the limits of that program.”^[33] Thus, in its 1991 Rust v. Sullivan decision, the Supreme Court upheld a law forbidding federal funding for family planning services to go to abortion counseling.^[34] But the Supreme Court later clarified that such viewpoint discrimination is permissible only “[w]hen the government disburses public funds to private entities to convey a governmental message.”^[35] By contrast, where subsidies are “designed to facilitate private speech,” government may not discriminate against viewpoints it does not like.^[36] Thus, the government may not fund legal services but bar funding for defendants trying to amend or otherwise challenge existing welfare law.^[37]

The First Amendment prohibits not only such viewpoint discrimination but content discrimination as well.  In 2003, the Supreme Court held that the University of Virginia could not exclude religious groups from drawing on the University’s Student Activity Fund, even though the Fund’s eligibility requirements did not discriminate against any particular religion.^[38] Yet in 1995, the Court had upheld another content restriction: a requirement that the National Endowment for the Arts (NEA) “take into consideration general standards of decency and respect for the diverse beliefs and values of the American public” when making grants to “help create and sustain not only a climate encouraging freedom of thought, imagination, and inquiry but also the material conditions facilitating the release of . . . creative talent.”^[39] The Court concluded, in an 8-1 majority, that the “’decency and respect’ criteria do not silence speakers by expressly threaten[ing] censorship of ideas.”^[40] This decision rested largely on the fact that “Educational programs are central to the NEA’s mission” and “it is well established that ‘decency’ is a permissible factor where ‘educational suitability’ motivates its consideration.”^[41] The Court left the door open to future First Amendment challenges to the statute “as applied,” such as “[i]f the NEA were to leverage its power to award subsidies on the basis of subjective criteria into a penalty on disfavored viewpoints.”^[42]

What explains these starkly different outcomes is that the Court decided that the University of Virginia’s Student Activity Fund constituted a “limited public forum”^[43] intended to “encourage a diversity of views from private speakers,” but the NEA did not.  The University had funded all speech except “religious editorial viewpoints” from its Student Activities Fund, into which every student paid a $14 mandatory fee each semester.  By contrast, the NEA made only a limited number of grants through a “competitive process” according to principles of inherently content-based principles of “excellence” as well as “geographic, ethnic, and esthetic diversity.”  Thus, it was permissible, in principle, for the NEA to exclude “indecent” content.

The Supreme Court’s decision in U.S. v. American Library Association, Inc. (2003) also suggests that content restrictions regarding Citizen News Vouchers would be struck down.  The Court held that the First Amendment did not bar Congress from requiring in the Children’s Internet Protection Act (CIPA) that “a public library may not receive federal assistance to provide Internet access unless it installs software to block images that constitute obscenity or child pornography, and to prevent minors from obtaining access to material that is harmful to them.”^[44] Critically, the Court held that libraries were not public fora:

A public library does not acquire Internet terminals in order to create a public forum for Web publishers to express themselves, any more than it collects books in order to provide a public forum for the authors of books to speak. It provides Internet access, not to “encourage a diversity of views from private speakers” … but for the same reasons it offers other library resources: to facilitate research, learning, and recreational pursuits by furnishing materials of requisite and appropriate quality.^[45]

But what is the purpose of the news voucher scheme if not to “encourage a diversity of views from private speakers?”  Indeed, this is precisely how McChesney and Nichols attempt to sell their scheme—as a “libertarian’s dream.”  But, paradoxically, the more “libertarian” and broader subsidies for speech are, the more likely the political/constitutional paradox mentioned above is to arise.

The Citizenship News Voucher Fund proposed by McChesney and Nichols strongly resembles the University of Virginia’s Student Activity Fund:  In both cases, consumers are taxed to finance a fund that is, in theory, available to any entity that meets certain basic eligibility criteria.  No attempt is made in either case to ensure the quality of content or activities being funded.  Indeed, McChesney and Nichols explicitly reject such oversight of voucher spending and insist that taxpayers must accept that much of the fund will simply be wasted on media that falls well short of the “hard” or “serious” news they’re trying to save.  (By contrast, the Corporation for Public Broadcasting, whose budget McChesney and Nichols propose increasing nine-fold to fund more public media,[46] more closely resembles the NEA as a selective grant-maker.)

Also distinguishing the Court’s decision upholding CIPA’s content-based restrictions is the fact that both Justice Kennedy in his concurrence and Justice Souter in his dissent (joined by Justice Ginsburg) agreed that First Amendment problems could be solved to the extent that adults could opt-out of filtering.^[47] But with news vouchers, the government either restricts the eligibility of certain publications to receive vouchers depending on their eligibility or it does not.

Furthermore, unlike with CIPA or the NEA, the Citizenship News Voucher wouldn’t be related to educational settings, so it’s not even clear a “decency” requirement like that Congress imposed on the NEA’s grant-making could be imposed on voucher eligibility.[48] Magazines like Playboy offer a mix of pornography and thoughtful commentary on the news, proving that there is a market for such combination of journalism and controversial entertainment and photography.  Going even further, “Naked News” is a daily show whose buxom anchors strip while delivering the news.^[49] Why wouldn’t millions of Americans, especially younger men, use their voucher for such content?  Who’s going to draw the line between porn-spiced news and “serious” content?

The typical taxpayer will be outraged by having to subsidize some media outlet, whether because of its objectionable viewpoint or indecent or unserious content.  He will fiercely resist being compelled “to furnish contributions of money for the propagation of opinions which he disbelieves and abhors,” as Jefferson put it.  Good luck getting even the most “tolerant” gay voters, for example, to accept being taxed to pay for fundamentalist Christian perspectives on the news—or vice versa!  McChesney and Nichols don’t actually say anything about the First Amendment, but do recognize that, for their program to be accepted, the American people will have to swallow the “hard pill” of accepting that “some of the vouchers are going to go to media that they detest” and “embrace dissent in reality and not just rhetoric.”^[50] They seem to think this “hard pill” is a benefit of their scheme because it would teach us all to be more tolerant of “dissent.”  That’s easy for an endowed professor at a taxpayer-funded university and avowed neo-Marxist like Robert McChesney to say, but it’s not likely to fly with most Americans.  Disputes over “qualifying entity” eligibility will only add new rancor to the Culture Wars (over sex, abortion, religion, politics, etc.).

Realistically, it would likely take years for a news voucher bill to make its way through Congress, and if it ever did pass, it would likely be tied up in the courts for years, requiring at least one visit to the Supreme Court.  If any content strings are included, the law could well lead to the same kind of ordeal as with the 1998 Child Online Protection Act, which spent nearly 9 years in litigation and went up to the Supreme Court twice.^[51] Yet somehow McChesney and Nichols imagine their proposal will save media today at this critical moment of technological transition.

Down with Copyright, Down with Capitalism?

There’s another problematic caveat to the McChesney-Nichols variant of the news voucher idea: They would disallow any copyright protection or advertising support for an entity who receives voucher funds.  That’s an effort by the authors to steer even more media activity away from the commercial sphere and toward what might be thought of as a “public option” for the press—what McChesney and Nichols euphemistically (and repeatedly) call “post-corporate” media.

Let’s not forget that McChesney has argued (during an interview on the Canadian-based “Socialist Project”) that “the ultimate goal is to get rid of the media capitalists,” and that, “unless you make significant changes in the media, it will be vastly more difficult to have a revolution.”  So, it’s important to keep his true intentions in mind when he starts claiming to have found “a libertarian’s dream” of a solution to what ails America’s media sector.^[52] It sounds more like a central planner’s dream.  The true “libertarian’s dream” would be to leave Americans free to make their own choices about media without additional meddling from the State, and to look to innovation to fund media through a combination of advertising, sponsorship, subscriptions and micropayments.

Related PFF Publications

• The Wrong Way to Reinvent Media, Part 2: Broadcast Spectrum Taxes to Subsidize Public Media , Adam Thierer, Progress on Point 17.2, March 2010.
• The Wrong Way to Reinvent Media, Part 1: Taxes on Consumer Electronics, Mobile Phones & Broadband, Adam Thierer & Berin Szoka, PFF Progress on Point 17.1, March 2010.
• Testimony at FCC’s Hearing on “Serving the Public Interest in the Digital Era”, Adam Thierer, March 2010.
• Public Option for Press Should Get the Red Pen, Adam Thierer, The Daily Caller, Jan. 2010.
• Chairman Leibowitz’s Disconnect on Privacy Regulation & the Future of News, Adam Thierer & Berin Szoka, Progress Snapshot 6.1, Jan. 13, 2010.
• Socializing Media in Order to Save It, Adam Thierer, City Journal, March 2009.
• A Manifesto for Media Freedom, Adam Thierer and Brian Anderson, 2008.
• Media Ownership Proceedings, W. Kenneth Ferree, Testimony before the Federal Communications Commission, Nov. 3, 2009.
• Media Myths: Making Sense of the Debate over Media Ownership, Adam Thierer, June 2005.

[1] Adam Thierer & Berin Szoka, The Progress & Freedom Foundation, The Wrong Way to Reinvent Media, Part 1: Taxes on Consumer Electronics, Mobile Phones & Broadband, PFF Progress on Point 17.1, March 2010, www.pff.org/issues-pubs/pops/2010/pop17.1-the_wrong_way_to_reinvent_media.pdf.

[2] Adam Thierer, The Progress & Freedom Foundation, The Wrong Way to Reinvent Media, Part 2: Broadcast Spectrum Taxes to Subsidize Public Media, Progress on Point 17.2, March 2010, www.pff.org/issues-pubs/pops/2010/pop17.2-wrong_way_part_2.pdf

[3] “Until now, the iron core of news has been somewhat sheltered by an economic model that was able to provide extra resources beyond what readers—and advertisers—would financially support. This kind of news is expensive to produce, especially investigative reporting.” Alex S. Jones, Losing the News: The Future of the News that Feeds Democracy (2009) at 4.

[4] “For a long time, publishers have used news as a ‘loss leader,’ a product sold below costs to create other sales.” The Media Consortium, The Big Thaw: Charting a New Future for Journalism, July 2009, at 36, www.themediaconsortium.org/thebigthaw.

[5] James T. Hamilton notes that, “nonpartisan reporting emerged as a commercial product in American newspaper markets in the 1870s.  Before that time, many papers openly proclaimed association with a particular political party.”  James T. Hamilton, All the News That’s Fit to Sell (2004), at 3.

[6] The Federal Communications Commission (FCC) recently kicked off a new “Future of Media” effort with a workshop on “Serving the Public Interest in the Digital Era.” See Federal Communications Commission, FCC Launches Examination of the Future of Media and Information Needs of Communities in a Digital Age, FCC Public Notice, GN Docket No. 10-25, Jan. 21, 2010, at 2, http://hraunfoss.fcc.gov/edocs_public/attachmatch/DA-10-100A1.pdf

[7] The Federal Trade Commission (FTC) has hosted two workshops asking “How Will Journalism Survive the Internet Age?” www.ftc.gov/opp/workshops/news/index.shtml

[8] Both the Senate and House of Representatives have held hearings about “the future of journalism,” and Senator Benjamin L. Cardin (D-MD) recently introduced the “Newspaper Revitalization Act,” which would allow newspapers to become nonprofit organizations in an effort to help them stay afloat—but also curtail their political editorializing.  See http://cardin.senate.gov/news/record.cfm?id=310392.

[9] Robert W. McChesney & John Nichols, The Death and Life of American Journalism (2010) at 201-206. McChesney discussed this idea in more detail when he spoke at the recent FTC event on saving journalism.  Robert W. McChesney, Rejuvenating American Journalism: Some Tentative Policy Proposals, Presentation to FTC Workshop on Journalism, March 10, 2010, www.ftc.gov/opp/workshops/news/mar9/docs/mcchesney.pdf

[10] Dean Baker, The Artistic Freedom Voucher: An Internet Age Alternative to Copyrights, Nov. 5, 2003, www.cepr.net/documents/publications/ip_2003_11.pdf.

[11] Free Press, Saving the News: Toward a National Journalism Strategy, May 2009, at 36, www.freepress.net/files/saving_the_news.pdf.

[12] McChesney & Nichols, supra note 9 at 205.

[13] Id. at 204.

[14] Richard H. Thaler & Cass R. Sunstein, Nudge: Improving Decisions About Health, Wealth, and Happiness (2008).

[15] They define choice architecture as follows:  “A structure designed by a choice architect(s) to improve the quality of decisions made by homo sapiens. Often invisible, choice architecture is the specific user-friendly shape of an organization’s policy or physical building when homo sapiens come into contact with it. Examples of choice architecture include a voter ballot, a procedure for handling well-meaning people who forget a deadline, or a skyscraper.”  Nudge Glossary of Terms, www.nudges.org/glossary.cfm.

[16] See Adam Thierer & Berin Szoka, The Progress & Freedom Foundation, What Unites Advocates of Speech Controls & Privacy Regulation?, Progress on Point 16.19, Aug. 11, 2009, www.pff.org/issues-pubs/pops/2009/pop16.19-unites-speech-and-privacy-reg-advocates.pdf.

[17] As Glen Whitman notes in challenging such “nudging”: “the new paternalism carries a serious risk of expansion. Following its policy recommendations places us on a slippery slope from soft paternalism to hard. This would be true even if policymakers — including legislators, judges, bureaucrats, and voters — were completely rational. But the danger is especially great if policymakers exhibit the same cognitive biases attributed to the people they’re trying to help.”  Glen Whitman, The Rise of the New Paternalism, Cato Unbound, April 5, 2010, www.cato-unbound.org/2010/04/05/glen-whitman/the-rise-of-the-new-paternalism.

[18] Adam Thierer, The Progress & Freedom Foundation, Why Expansion of the FCC’s Public Interest Regulatory Regime is Unwise, Unneeded, Unconstitutional, and Unenforceable, Testimony Before the Federal Communications Commission Hearing on “Serving the Public Interest in the Digital Era,” March 4, 2010, www.pff.org/issues-pubs/testimony/2010/2010-03-04-Thierer_Remarks_at_FCC_Hearing.pdf.

[19] Ellen P. Goodman, “Proactive Media Policy in an Age of Content Abundance,” in Philip M. Napoli, ed., Media Diversity and Localism: Meaning and Metrics (2007) at 370, 374.

[20] Id.

[21] Walter Lippmann, Public Opinion (1922), at 53, 57.

[22] For example, among other things, McChesney and Nichols call for a 5% tax on consumer electronics, a 3% tax on monthly ISP & cell phone bills, a 2% sales tax on advertising, and a 7% tax on broadcasters.  See McChesney & Nichols, supra note 9 at 209-11.

[23] Id. at 202.

[24] Id.

[25] Id.

[26] Id.

[27] Id. at 205.

[28] http://www.taxpolicycenter.org/UploadedPDF/1001289_who_pays.pdf

[29] McChesney & Nichols, supra note 9 at 205.

[30] Jonathan Weisman, Economic Policy ‘Nudge’ Gives Way to a Shove, Wall Street Journal, March 8, 2010, http://online.wsj.com/article/SB10001424052748704869304575103980232739138.html.

[31] http://religiousfreedom.lib.virginia.edu/sacred/vaact.html

[32] McChesney & Nichols, supra note 9 at 205.

[33] Rust v. Sullivan, 500 U.S. 173, 194 (1991).

[34] Id. (emphasis added).

[35] Rosenberger v. Rector and Visitors of Univ. of Va., 515 U.S. 819, 833 (1995) (emphasis added).

[36] Legal Services Corp. v. Velazquez, 531 US 533, 542 (2001).  The Court in Rosenberger noted:

even in the provision of subsidies, the Government may not “ai[m] at the suppression of dangerous ideas,” Regan v. Taxation with Representation of Wash., 461 U.S. 540, 550 (1983), and if a subsidy were “manipulated” to have a “coercive effect,” then relief could be appropriate. See Arkansas Writers’ Project, Inc. v. Ragland, 481 U.S. 221, 237 (1987) (Scalia, J., dissenting); see also Leathers v. Medlock, 499 U.S. 439, 447 (1991) (“[D]ifferential taxation of First Amendment speakers is constitutionally suspect when it threatens to suppress the expression of particular ideas or viewpoints”). In addition…, a more pressing constitutional question would arise if Government funding resulted in the imposition of a disproportionate burden calculated to drive “certain ideas or viewpoints from the marketplace.” Simon & Schuster, Inc. v. Members of N. Y. State Crime Victims Bd., 502 U.S. 105, 116 (1991).

Id. at 587.

[37] 531 U.S. at 542.

[38] Rosenberger v. Rector and Visitors of Univ. of Va., 515 U.S. 819, 833 (1995).  The University’s rule prohibited funding of any group that “primarily promotes or manifests a particular belie[f] in or about a deity or an ultimate reality.”

[39] National Endowment for the Arts v. Finley, 524 U.S. 569, 574 (1998).

[40] 524 U.S. at 583 (quoting R. A. V. v. St. Paul, 505 U.S. 377 (1992) (internal quotations omitted).

[41] Id. at 584 (citing  Board of Ed., Island Trees Union Free School Dist. No. 26 v. Pico, 457 U.S. 853, 871 (1982); see also Bethel School Dist. No. 403 v. Fraser, 478 U.S. 675, 683 (1986)).

[42] Id. at 587.

[43] 515 U.S. 819 (1995).

[44] U.S. v. American Library Association, Inc., 539 U.S. 194 (2003).  See generally Robert Corn-Revere, United States v. American Library Association: A Missed Opportunity for the Supreme Court to Clarify Application of First Amendment Law to Publicly Funded Expressive Institutions, Cato Supreme Court Rev. 105, 2003, www.cato.org/pubs/scr2003/publiclyfunded.pdf.

[45] Id. at 207 (quoting Rosenberger, 515 U.S. at 834).

[46] McChesney & Nichols, supra note 9 at 192, 199.

[47] “If, on the request of an adult user, a librarian will unblock filtered material or disable the Internet software filter without significant delay, there is little to this case.” American Library Association, 539 U.S. at 214 (Kennedy, J. concurring).  Justice Souter agreed that it would ‘‘tak[e] the curse off the statute for all practical purposes’’ if adult patrons could obtain an unblocked Internet terminal ‘‘simply for the asking,’’ but doubted this would actually happen in practice.  Id. at 232.

[48] Cf. Rosenberger, 515 U.S. at 584 (“Educational programs are central to the NEA’s mission.… And it is well established that ‘decency’ is a permissible factor where ‘educational suitability’ motivates its consideration.”).

[49] See www.nakednews.com.

[50] Id. at 205.

[51] See Adam Thierer, Closing the Book on COPA?, Technology Liberation Front, Jan. 21, 2009, http://techliberation.com/2009/01/21/closing-the-book-on-copa/.

[52] Adam Thierer, The Progress & Freedom Foundation, Free Press, Robert McChesney & the “Struggle” for Media, Aug. 10, 2009, http://blog.pff.org/archives/2009/08/free_press_robert_mcchesney_the_struggle_for_media.html

Wrong Way to Reinvent Media Part 3 – Media Vouchers [Thierer & Szoka – PFF] http://d1.scribdassets.com/ScribdViewer.swf

Tim Wu: Not Looking Happy about Being So Wrong

Three years ago this month, Columbia University Law School professor Tim Wu released a controversial white paper in conjunction with the New America Foundation entitled, “Wireless Net Neutrality: Cellular Carterfone and Consumer Choice in Mobile Broadband.” It contained a litany of accusations regarding supposed corporate shenanigans in the mobile marketplace, including: intentional crippling of features and functionality; refusal to allow 3rd party attachments or intentional curtailment of a market for 3rd party application developers; and various concerns about “discrimination” of one sort or another.

Here at the TLF, we responded quite forcefully. I think every one of us piled on this study in one way or another. (ex: Hance, Jerry, James, Tim Lee, me x 2, + a podcast).  I called his proposal “a declaration of surrender” since Prof. Wu was essential calling the game early and raising the white flag on mobile competition. Further, I argued he was essentially asking for “the forced commoditization of cellular networks” which “would necessitate at return to the rate-of-return regulatory methods of the past.”  Others were a bit more kind to him, but we were all pretty skeptical of his gloomy claims. However, each of us here also argued that the wireless market (especially the applications side of the market) was still developing and that we’d have to check back in a few years to see how well the hands-off approach worked out.

Well, thankfully, we now know for certain that Tim Wu’s was much too lugubrious in his outlook and far too quick to call for regulatory intervention to solve a non-crisis. On the occasion of the 3rd anniversary of the release of Prof. Wu’s paper, CTIA-The Wireless Association filed a short paper with the FCC taking stock of just how far the mobile marketplace has come in just three short years. The results are really quite remarkable, as CTIA’s letter notes:

Contrary to the professor’s view of how the ecosystem would evolve, in the absence of regulation, every element of the wireless ecosystem has expanded. Today, the fact that there are over six hundred devices in the U.S. offering hundreds of different capabilities for consumers, over 170,000 applications, more open networks with open developer initiatives and software development kits, the sale of phones through numerous online and retail outlets, multiple operating systems, and the launch of the newest and most innovative handsets first in the United States demonstrates that the mobile wireless ecosystem continues to evolve to serve customers, contrary to Professor Wu’s arguments.

The filing goes on to examine each of the complaints Prof. Wu had articulated and then discusses current marketplace realities. Here’s the summary:

• Professor Wu asserted that carriers had a “near lock” on the retailing of mobile devices that, presumably, would only be altered through regulatory intervention. Today, consumers can purchase handsets from carriers, directly from manufacturers, through brick-and-mortar retail chains, via Internet discounters, and through a healthy secondary market. For example, Best Buy, Target, Wal-Mart, TigerDirect.com, Amazon.com, LetsTalk.com, Apple, Nokia, Google, Motorola and many others all sell handsets directly to consumers. The recent Best Buy catalog alone lists over a hundred wireless devices for sale. • Professor Wu argued that the U.S. market had only “a small fraction of the phones available [elsewhere],” implying that carriers restricted the diversity of handsets. Today, the U.S. market has over 630 devices manufactured by 33 different companies, including the BlackBerry® Tour 9630, Samsung Omnia, HTC TouchPro, Motorola Droid, Apple  iPhone 3GS, Motorola Karma QA1, BlackBerry® Bold, Motorola Cliq, myTouch 3G, G1, BlackBerry® Pearl Flip, HTC Touch Pro2, Palm Pre, HTC Hero, Samsung Instinct S30, Cricket TXTM8, Motorola Evoke QA4, Samsung JetSet, Motorola Hint, Samsung Finesse, Samsung Messager, LG Tritan, Samsung TwoStep, and the LG Rhythm. Of note, almost every one of the phones listed above was first launched in the United States. • Professor Wu painted a picture of a “stalled” application market where developers were unable to create applications for mobile devices. Today, a vibrant “apps” market exists where over 170,000 applications are available for popular operating systems, and where developers as young as age 9 can navigate the approval process to become highly successful. At least seven different companies, none of whom are affiliated with wireless carriers, market the overwhelming majority of these applications. • Professor Wu criticized carriers’ control over handset design. Today, all major carriers, and most of the other carriers in the country, have extensive open network development platforms for devices and software. Intra-industry groups have developed the Open Handset Alliance (which has created the Android operating system), and several other operating systems have moved to an open platform. Additionally, as discussed above, numerous handset manufacturers are selling directly to consumers. • Professor Wu stated that the “oligopoly” in handset sales resulted in a market where consumer-friendly capabilities, such as Bluetooth, Wi-Fi, and picture distribution, were “crippled.” Today, all of these capabilities, and hundreds more that reflect a broad array of consumer desires, are available to U.S. consumers. With the wealth of options, consumers can make buying decisions based on a range of factors. This is exactly the market that consumers want, and regulators should encourage.

Now, I’m sure some folks will say, “hey, we can’t trust industry to report on this stuff,” but these are facts, folks. CTIA hasn’t made anything up here. If anything, I think they’ve actually gone too easy on Tim and underplayed just how revolutionary the changes we’ve seen over the last 3 years have been.

That’s especially the case on the operating system front.  This war among Apple, Google, Microsoft, RIM (Blackberry), Palm, Symbian, and others has actually forced me to ask if we have, “Too Much Platform Competition” in this arena. App developers must now craft their offerings for so many platforms that it has become a significant developmental hassle and expense. But hey, from a consumer perspective, this is great! And it shocking how vibrant that OS-level competition continues to be. (For more details, see Berin’s post on “The Fiercely Competitive Mobile OS & Device Markets.”)

And then there’s the applications market. As I have noted in my essays repeatedly hammering Jonathan Zittrain’s equally dismal view of the digital world, today’s market for 3rd party mobile applications would have been virtually unfathomable just a few years ago. Can you even remember 2005 when we had none of those apps at our disposal? Today, by contrast, Apple’s App Store alone has over 100,000 apps in 20 different categories (available in 77 countries) to choose from. Android and Windows Mobile apps are also exploding. Frankly, I get exhausted trying to filter through the thousands and thousands of apps in the Android marketplace I now have to choose from. Again, we had zip, zero, zilch, nadda, N-O-T-H-I-N-G to choose from just a few years ago.  Folks, that is called progress—insane, amazing, beautiful, miraculous progress!

The following GigaOm chart was intended to show average app prices but also includes total app figures for each of the five leading mobile operating systems:

So, will Tim Wu come out and admit that his pessimism was unwarranted? Somehow I doubt it. But allow me to offer him a way to save face: I remember debating Tim about these issues in New York a few years back and he told me that he really didn’t want to see the feds jump in and start aggressively regulating most high-tech markets. Instead, he just wanted to shake things up and put the fear of God in the hearts of private operators so they would change their ways for the better in an effort to avoid the sledgehammer of federal regulation. (Tim, if you are reading this and have forgetting that conversation, it was at that FOSI dinner in New York where we were also debating who was a bigger Dungeons & Dragons nerd back in our childhood. I think you at least had the better of me in that debate!)

So, to save face here, Tim should declare victory and go home.  He should tell the world he single-handled revolutionized the wireless world with his vociferous agitation for a comprehensive federal regulatory regime for mobile and that it has blessed us one of the great capitalist success stories of our time.

Thank you Professor Wu for making the world a better place!

As I noted in a recent paper with my PFF colleague Barbara Esbin (“An Offer They Can’t Refuse: Spectrum Reallocation That Can Benefit Consumers, Broadcasters & the Mobile Broadband Sector“) an official at the Federal Communications Commission (Blair Levin) recently suggested that it might be possible to craft a grand bargain whereby television broadcasters get cash for some (or all) of their current spectrum if they return it to the FCC for reallocation and auction.  Such a deal could, eventually, open up significant amounts of prime spectrum for next-generation mobile broadband and data services.

Is such a deal feasible and in the best interests of broadcasters?  Is the arrangement necessary to encourage growth in broadband penetration consistent with the goals of the Recovery Act?  Will Congress go along with the deal, or would it be blocked as contrary to “the public interest?” Alternatively, would lawmakers back the deal but seek a significant cut of the auction proceeds, leaving less available for broadcasters?  These and other policy issues will be discussed at “ Let’s Make a Deal:  Broadcasters, Mobile Broadband, and a Market in Spectrum,” a congressional seminar hosted by The Progress & Freedom Foundation. The event will be held Tuesday, December 1st from 9:00am to 11:00am in the Holeman Lounge, 13th Floor, at the National Press Club, 529 14th Street, NW in Washington, DC.

Panelists confirmed so far for the event include:

• Blair Levin, Executive Director, Omnibus Broadband Initiative, Federal Communications Commission
• Coleman Bazelon, Principal, The Brattle Group
• David Donovan, President, Association for Maximum Service Television
• Kostas Liopiros, Principal, The Sun Fire Group
• John K. Hane, Counsel, Pillsbury Winthrop Shaw Pittman LLP
• and 1 or 2 more to come!

I will be moderating the event.  Those interested in attending can register here.  Should be a spirited debate.

Wal-Mart is often cast as a villain by some labor unions, local politicians and small retailers, but for the average consumer Wal-Mart has been a savior: A relentless price-cutting machine that instantly changes the dynamics of every market it touches. Indeed, when Wal-Mart decides to jump into a sector by offering a new good or service in its stores, something akin to “the Southwest effect” on steroids kicks in: That market segment is often transformed overnight in that the good or service Wal-Mart starts delivering is essentially instantly commoditized. For the seller of that good or service, this is both a blessing and a curse: They gain the massive market reach that goes along with being in Wal-Mart’s 8,000 retail stores. On the other hand, they instantly surrender any semblance of pricing power they once had.  And this typically also puts downward pressure on prices not just for the particular good carried in the Wal-Mart stores, but for that entire market segment more generally. [This exact scenario is currently playing out in the book marketplace as Wal-Mart has gone to war with Amazon in cost-cutting bonanza.]

The reason I bring all this up is because, as most of you probably already heard, Wal-Mart jumped into the prepaid cell phone business this week with the launch of Straight Talk:

a new solution in no-contract cellular, exclusively at more than 3,200 Walmart stores nationwide starting October 18, 2009. Straight Talk will bring to the market a new low price for no-contract wireless service with two prepaid plans now available to customers nationwide at $30 and $45 a month. Straight Talk will only be available in Walmart stores and online at www.Walmart.com and www.StraightTalk.com. The average U.S. adult spends $78 on his or her cell phone bill to receive 1000 minutes a month. By switching to the $30 Straight Talk plan, for example, the average 1,000 minutes-per-month consumer could save more than $500 per year and still be on a reliable nationwide network.

I don’t want to overplay the significance of this development, but I really do believe that Wal-Mart’s presence in this field is significant, at least for entry-level mobile phones. While it would be easy for those of us who use more advanced smartphones to shrug off the Wal-Mart announcement, it would be a mistake for reasons made clear by David Worthington over at Technologizer:

As a technophile, it’s tempting for me to point out the short comings of those devices. There are only a few stock applications available, and unlimited data on a flip phone does not translate to the same experience that I have surfing the Web on my iPhone. But that does not matter, because the people who would buy these phones wouldn’t care. … It’s.. an economical choice for families with shoestring budgets. Leading wireless companies provide family plans, but they aren’t cheap, and usually require a commitment. … A pre-paid plan doesn’t require families to purchase much more than what they want to pay for. Whether Wal-Mart becomes a viable wireless company or not is up to the market, but its track record is pretty solid. Wal-Mart rapidly became the largest grocery store in the United States after all, and it has more locations than other pre-paid wireless companies. I’m guessing it’ll do well.

You better believe it. Have you seen the stacks of prepaid calling cards that adorn the shelves in every Wal-Mart checkout line?  Do you think they just have those there for decoration?  That’s a huge business, folks. While some of us haven’t touched a prepaid calling card since our college days decades ago, millions of people buy and use such cards every day.  As Worthington notes, prepaid plans mean you don’t have to pay for more than you’ll think you need and for many folks that’s about all they want to hear.  Esoteric inside-the-Beltway debates about tethering, Net neutrality, app stores, etc., are meaningless to most people.  They just want a phone that works at the right price — namely, cheap!

Finally, this development certainly calls into question the asinine theories being bandied about in Washington these days about the mobile marketplace lacking competition and innovation, something recent studies have shown to be complete bunk.  I’m not saying that Wal-Mart’s entry into this sector is going to turn cell phones into the equivalent of the toothpick or napkin market; there will always be room for differentiated phones and plans, especially at the higher end of the market. But as the retailing giant expands its reach in this sector, it’s bound to have an impact — especially for the entry-level devices and plans that low-income consumers might want.  Somehow I doubt this will let the regulation-happy gang over at our current FCC sleep any easier at night, but it should.

Over at Ars, Ryan Paul has an appropriately sharp-tongued response to the Mozilla Foundation’s troubling move to become a cheerleader for the European Commission’s ongoing antitrust efforts against Microsoft. Apparently Mozilla will assist the EC’s investigation “by offering expertise about the browser market.”

Paul focuses on what’s wrong with this in both a micro and macro sense. He rightly points out that the potential remedies here do not bode well for the future of this sector, since regulatory tinkering with high-tech product standards is bound to end badly and create a terrible precedent for future interventions. “It’s hard to find a rational argument in favor of mandatory standards enforcement,”  Paul says. “It would be punitive and unhelpful to the advancement of the web.” Moreover, Paul notes that things have never looked better on the browser front:

Claims that Microsoft’s monopoly status has eliminated competition in the browser market sound hollow in the face of the profoundly vibrant browser market that exists today. The record-setting launch of Firefox 3 added up to over 8 million downloads in the first 24 hours alone. Firefox’s global market share continues to climb every month and the browser has grabbed almost 30 percent of the European market.

And let’s not forget about those two little companies called Google and Apple who have competing products in the field! They’re making serious inroads in the browser wars. Moreover, Microsoft is struggling to hold on to whatever “dominance” they have left in their core market: OS. As Paul concludes:

To the observant tech enthusiast, all signs seem to indicate that Microsoft’s monopoly is on its way out. The Redmond giant is in no danger of annihilation, but it’s definitely not positioned to dictate terms to the rest of the industry anymore.

But what is perhaps most shocking about Mozilla’s call for intervention is the way that Mozilla Foundation chairperson Mitchell Baker minimizes the importance of not just Firefox, but the entire open source movement, when justifying EC intervention in this marketplace.

“The success of Mozilla and Firefox does not indicate a healthy marketplace for competitive products,” she wrote. “I am convinced that we could not have been, and will not be, successful except as a public benefit organization living outside the commercial motivations. And I certainly hope that neither the EU nor any other government expects to maintain a healthy Internet ecosystem based on nonprofits stepping in to correct market deficiencies.”

As Paul points out in his Ars story, “[Mozilla’s] position on this matter is highly questionable.” Indeed, I believe it’s more than just highly questionable, it’s a bit of insult to an entire community of developers. Paul is generally correct in his response that:

There are quite a few open source software enthusiasts who would argue that, for a broad range of software products, the emergence of a Mozilla-like model is actually desirable and highly advantageous for consumers. A point will eventually arrive for many kinds of software where there is simply no point in trying to derive value from shrink-wrapping it, and then efforts will converge around collaboratively-developed open source implementations that will displace and eliminate the need for proprietary commercial implementations. Why should that be viewed as unhealthy?

Indeed, but it actually goes beyond that. The message that Mozilla’s Baker seems to sending to the open source community is: You can’t change the world. Your voluntary, collaborative actions cannot correct market deficiencies or fulfill unmet needs.

Geez, isn’t that what the open source movement is all about?!  I’m hardly some sort of open source / free software fanatic — indeed, I envision a future full of plenty of open source AND proprietary types of software and service — but the beauty of the open source movement to me is the way it has so nicely filled unsatisfied niches of demand in the software universe.  And, here’s the really important point, as Paul points out in his Ars article:

The popularization of the open source development model arguably emerged as a response to Microsoft’s monopoly. Developers had to find innovative ways to compete with an entrenched product. If the government had intervened in the software industry at an early stage and those conditions hadn’t existed, the browser market could arguably be a lot less rich and competitive than it is today. If Internet Explorer had never gained the dominant marketshare to necessitate a change in the status quo, the only browser choices we would have today might be between an ad-encumbered Opera and a proprietary Netscape.

That is exactly right. I have been making the argument for many years that it is at a market’s supposedly darkest hour that we are likely seeing some of the most exciting innovation being spawned. People don’t innovate most when they are completely happy with the world around them. It’s when they are pissed-off that they get cracking!!  Mozilla’s Firefox is the perfect example of that. And so is just about everything that Google and Apple have developed in response to Microsoft over the past 10 years.

And yet, sadly, the folks at the Mozilla Foundation want to now become handmaidens to the state — and the European Commission, no less — in their pathetic effort to stick it to a competitor using the law instead of using more marketplace innovation and competition. SHAME ON YOU MOZILLA!  I would dump your browser today if I didn’t love it so much! And thank you to all the brilliant, dedicated people behind the scenes who do keep innovating and making Firefox even better. I sincerely hope that the Mozilla Foundation doesn’t speak for you on this matter.

As TLF readers may know, I took over in July as Chairman of the Board of the Space Frontier Foundation.  As I explained in my recent interview on The Space Show, SFF has been the leading citizens’ advocacy group for space commercialization since 1988.  Dedicated to promoting Princeton physicist Gerard O’Neill‘s vision of space settlement, as described in his 1976 masterpiece The High Frontier, the Foundation has always argued that “space is a place, not a program.”

We sent out the following press release on October 28, calling for a major transformation of the U.S. government’s space program by which the U.S. government would buy commercial transportation to the International Space Station.  We’ll have more to say about this in the coming weeks.

Space Frontier Foundation Finds Funding Source for COTS-D

The Space Frontier Foundation today called upon Presidential candidates Barack Obama and John McCain to invest the $2 billion in new funds they have promised to NASA for reducing the “Gap” in U.S. human spaceflight (after the Space Shuttle is retired in 2010) to spur innovation and competition in America.

Foundation Chairman Berin Szoka said “It’s time that our national leaders give American entrepreneurs a shot at closing this gap. Let’s take the two billion dollars in the candidates’ plans and fund up to five winners of COTS-D.”

The NASA Authorization Act of 2008, recently signed into law by the President, directs NASA to “issue a notice of intent [by mid-April 2009] … to enter into a funded, competitively awarded Space Act Agreement with two or more commercial entities’ for transporting humans to the ISS”-the “Capability D” of NASA’s Commercial Orbital Transportation Services program (or COTS-D for short). But that directive is not yet funded.

Szoka continued, “Let’s have an American competition in space – to create good jobs, fuel innovation, and close the gap more quickly. With private funds matching government’s investment, we can dramatically leverage the $2 billion to produce breakthroughs in a new American industry – commercial orbital human spaceflight.”

By investing in several different approaches, the government will win no matter who wins this new race, and also benefit from the resulting price competition.

Many American companies, including Boeing, PlanetSpace, SpaceDev, SpaceX, and t/Space have each previously submitted credible COTS-D proposals to NASA. Each of these firms has reached the semi-finals of one of the previous NASA COTS competitions. Increasing funding for COTS by $2 billion would allow NASA to fund all five of these promising companies’ proposals with COTS agreements, and in so doing, build redundancy into the human spaceflight capability available to NASA and other customers.

“It’s popular in Washington to use ‘The Gap’ to cynically justify continued funding of an expensive jobs program,” concluded the Foundation’s co-founder, Bob Werb. “We’re using ‘The Gap’ to advocate a policy that will bridge a gap that matters much more: the chasm between a dying government Human spaceflight monopoly and an emerging, free and competitive marketplace that can open the space frontier to everyone.”

The Federal Circuit significantly limited the patentability of software and business methods today.  Mike Masnick at TechDirt summarizes the holding of the case as follows:

the court has said that there’s a two-pronged test to determine whether a software of business method process patent is valid: (1) it is tied to a particular machine or apparatus, or (2) it transforms a particular article into a different state or thing. In other words, pure software or business method patents that are neither tied to a specific machine nor change something into a different state are not patentable.

I’m sure several of my TLF colleagues will have a great deal to say about this.   Tim Lee has already written about this on Ars Technica:

The Bilski decision, then, is a clear signal that the pendulum has begun to swing back toward tighter limits on software and business patents. However, it remains to be seen how far the court will go in this direction. Bilski was a relatively easy case. The applicant made little effort to hide the fact that he was seeking to patent a mental process, something the Supreme Court has clearly said is not allowed. Therefore, the Federal Circuit’s rejection of this patent doesn’t tell us how it will rule when confronted with software or business method patents that are tied more directly to a physical machine or a transformation of matter. And indeed, the Federal Circuit reiterated that some software and business method patents are valid, so we are unlikely to return to the near-prohibition on such patents that prevailed until the early 1980s.

Thoughts?

Debates about online privacy often seem to assume relatively homogeneous privacy preferences among Internet users.  But the reality is that users vary widely, with many people demonstrating that they just don’t care who sees what they do, post or say online.   Attitudes vary from application to application, of course, but that’s precisely the point:  While many reflexively talk about the “importance of privacy” as if a monolith of users held a single opinion, no clear consensus exists for all users, all applications and all situations.  

If a picture is worth a thousand words, this picture makes the point brilliantly—showing:

locations where [Flickr] users are more likely to post their photos as “public,” which is the default setting, in green. Places where Flickr users are more likely to put privacy controls on their photos show up in red.

Of course, geography is just one dimension across which users may vary in their attitudes about privacy, but the map makes the basic point about variation very well.  Seeing what users actually do in real life says a lot more about their preferences than merely polling them about what they think they care about in the abstract—as my colleagues Solveig Singleton and Jim Harper argued brilliantly in their 2001 paper With A Grain of Salt: What Consumer Privacy Surveys Don’t Tell Us (SSRN).