Topic: Telecom, Internet & Information Policy

Governor Spitzer Gets It Right

In a Cato TechKnowledge newsletter issued today, I’ve updated the world on the status of the REAL ID Act.

One of the more interesting recent developments is the decision by New York Governor Eliot Spitzer to break the link between driver licensing and immigration status. He and the Department of Motor Vehicles commissioner announced the policy September 21st.

De-linking driver licensing and immigration will reduce unlicensed driving, uninsured driving, hit-and-run driving, insurance costs for legal drivers, and roadway injuries. Linking driving and immigration status is a requirement of REAL ID, and Spitzer’s move is another nail in the coffin of this national ID law.

In my TechKnowledge piece, I laud the governor’s action as follows:

Spitzer is not willing to shed the blood of New Yorkers to “take a stand” on immigration, which is not a problem state governments are supposed to solve anyway.It’s a welcome — and somewhat surprising — move, to see a Democrat and law-and-order-type former attorney general resist mission creep in a state bureau and hold fast to the federal system devised in the constitution. But he’s done the right thing. Thanks most recently to Governor Spitzer, and to state leaders from across the ideological spectrum, REAL ID is in collapse.

The move has subjected Spitzer to withering political attacks from Republicans. The attack most embarassing to witness, though, comes from “relatives of 9/11 victims.”

Freedom to Unlock

Tim Wu has a great article chronicling his decision to unlock his iPhone (which allows him to use it with carriers other than AT&T and run applications not authorized by Apple). He then considers the legal and ethical implications of his actions:

Did I do anything wrong? When you buy an iPhone, Apple might argue that you’ve made an implicit promise to become an AT&T customer. But I did no such thing. I told the employees at the Apple Store that I wanted to unlock it, and at no stage of the purchasing process did I explicitly agree to be an AT&T customer. There was no sneakiness; I just did something they didn’t like.

Meanwhile, lest we forget, I did just throw down more than $400 for this little toy. I’m no property-rights freak, but that iPhone is now my personal property, and that ought to stand for something. General Motors advises its customers to use “genuine parts,” but it can’t force you to buy gas from Exxon. Honda probably hates it when you put some crazy spoiler on your Civic, but no one says it’s illegal or wrong.

The worst thing that you can say about me is that I’ve messed with Apple’s right to run its business exactly the way it wants. But to my mind, that’s not a right you get in the free market or in our legal system. Instead, Apple is facing trade-offs rightly beyond its control. When people unlock phones, Apple loses revenue it was hoping for, but also gains customers who would have never bought an iPhone in the first place. That’s life.

This is exactly right. Apple, it should be emphasized, was entirely within its rights to sign a contract promising that the iPhone would only be sold in conjunction with AT&T’s wireless service. But that contract binds Apple and AT&T; it doesn’t bind Apple’s customers. Absent any explicit contractual agreement, customers are under no legal or moral obligation to use their iPhones only in the ways Steve Jobs wants them to. Hence, unlocking your iPhone is, as Wu puts it, “legal, ethical, and just plain fun.”

It’s also worth highlighting that part of the reason Wu concludes that unlocking the iPhone is legal is that the Copyright Office included cell phone unlocking as one of its explicit exemptions to the Digital Millennium Copyright Act, the law that I’ve argued is holding back innovation in other parts of the consumer electronics industry. It’s great that the Copyright Office has recognized that using your iPhone with the carrier of your choice has nothing to do with copyright infringement, but it’s still not legal to (for example) build a DVD player that will fast-forward through commercials, or to build an MP3 player that will play songs purchased from iTunes. It would be better if the DMCA’s anti-circumvention provisions were repealed, so that inventors didn’t have to go begging to the bureaucrats at the Copyright Office for permission to engage in this kind of beneficial tinkering.

So Many Reasons Government Shouldn’t Fund Newspapers

The Columbia Journalism Review has an article suggesting that the government should step in and stop the red ink at the nation’s leading newspapers. Declan McCullagh has a great post enumerating all the many reasons that’s a bad idea. Here’s one of the most important:

Government money tends to come with strings attached. Sure, at first, a handout may seem free. But over time, that tends to change.

Look at the ongoing controversies over the National Endowment for the Arts. In response to controversial photographs (including a provocative retrospective of photographer Robert Mapplethorpe’s work) in an NEA-funded exhibit, Congress did two things. It reduced the NEA’s budget for the next fiscal year and then slapped a new restriction on the agency, saying that its grants must take “into consideration general standards of decency and respect for the diverse beliefs and values of the American public.”

Mapplethorpe was, of course, a brilliant photographer, and some of his work has inspired my own modest efforts. But the U.S. Supreme Court upheld the NEA funding restrictions as constitutional, concluding that they’re perfectly OK “when the government is acting as patron rather than as sovereign.”

That patrons can muzzle the recipients of their largesse should be no surprise. Last decade, librarians lobbied Congress to create the E-rate program, which levied taxes on Americans’ phone bills to pay for wiring schools to the Internet. It was an unalloyed, billion-dollar political win for the librarians — until Congress decided to force them to filter out porn if they wanted the cash.

They howled, they complained, they sued. They lost. The Supreme Court ruled in 2003 that the law “is a valid exercise of Congress’ spending power.”

It’s also worth noting that, as Mike Masnick has pointed out repeatedly, news gathering isn’t in decline. Only the portion of the news business that involves shipping people reams of ink-stained paper is having trouble. Most other parts of the news business are thriving. Cable and satellite news channels are thriving, news websites are seeing record traffic, and the blogosphere is providing hundreds of thousands of new sources for news and analysis. The trends in journalism are only alarming for people who think that journalism is synonymous with the print edition of the New York Times. Ironically, that attitude seems to be over-represented among the people in charge of educating the next generation of journalists.

TechCrunch Exposes D.C. Trade Association Advocacy for REAL ID

In an excellent post, Michael Arrington at TechCrunch notes the advocacy of the Information Technology Association of America in favor of the REAL ID Act, our nation’s moribund national ID law.

His title “Conflicts of Interest: …” draws out nicely the schism that ITAA’s advocacy for REAL ID creates for its membership. They work to serve us when they sell products directly, but work to hurt us when they sell surveillance infrastructure to the government. Helpfully, he also provides links to information about the House and Senate bills to repeal REAL ID.

Asked in the comments how he would characterize himself politically, Arrington replies, “hard core libertarian.”

Open Networks and Regulation

Thomas Hazlett, professor at George Mason and one of the smartest people writing about telecom regulation today, has an interesting column about the iPhone that’s largely framed as a rebuttal to this Slate column by Columbia law professor Tim Wu. Wu’s column, published the week of the iPhone launch, argues that the iPhone isn’t truly revolutionary because like other cell phones, it’s a “walled garden.” It only works with AT&T’s wireless service, and it only offers the features that Apple and AT&T have approved ahead of time. A truly revolutionary phone, Wu says, would be an open platform that would allow third parties to develop new applications and services.

Hazlett, in contrast, feels that Apple’s walled garden represents the ingenuity of the market process:

Apple could have offered its device as an “open” platform, but instead chose (as with iTunes, iPods and Apple computers) to control how it builds, and how buyers use, its product. It aims for competitive superiority. Quashing its model bops the innovator on the head.

Unbundling phones from networks is suggested as a policy fix in the US. European phones, working with different Sim cards across carriers and borders, are the model. Innovation in the European Union is said to flourish. But the iPhone came first to the US, as did the BlackBerry and advanced broadband networks using CDMA data formats. That is not surprising given that US networks are afforded wide latitude in designing their systems. Licences in the EU mandate a GSM standard. What is recommended as “open” in fact deprives customers of a most basic cellular choice: technology.

Personally, I think they’re both right. Hazlett is right that government regulation of spectrum is a bad idea, and that robust property rights are far preferable. But Wu is right that open platforms tend to be more innovative than closed platforms. For example, during the 1990s the Internet’s open architecture allowed the creation of dozens of innovative startups like Netscape, Yahoo, and Google. The closed networks of companies like AOL and Compuserve simply couldn’t compete. There’s every reason to think a similar explosion of innovation would happen if it became easier for third parties to build new wireless devices and applications.

And indeed, if you read Wu’s article closely, nowhere does it advocate government regulation. Wu’s article is about technology and economics, not public policy. It doesn’t say anything a libertarian couldn’t whole-heartedly endorse. Of course, Wu has argued elsewhere in support of government regulations to force wireless networks more open. And I think he’s wrong about that—you can listen to a conversation Wu and I had on the subject back in June here. But it’s entirely possible to agree with his technological point about the merits of open networks without jumping to the conclusion that government regulations are called for.

Indeed, I think it’s important that when libertarians argue in opposition to some government regulation, that we not fall into the trap of reflexively opposing the goal the regulation is trying to achieve. There are a lot of computer geeks who are passionate advocates of open networks because they believe (correctly in my view) that open networks tend to provide greater opportunities for entrepreneurship. The argument that closed networks are superior is not only dubious on its merits, but it’s also guaranteed to drive a lot of people into the arms of the pro-regulatory side. I think it’s far better to leave debates about network architecture to the geeks, and focus on the more fundamental point that government regulations inevitably have unintended consequences such as regulatory capture.

More on Google/Doubleclick

Related to my last post, the New York Times’ technology blog has an excellent write-up about the case that illustrates just how arbitrary the standards in antitrust merger reviews can be:

Google’s $3.1 billion deal in April to buy DoubleClick set off a wave of advertising acquisitions by Microsoft, Yahoo, AOL and others. All of those deals have been completed, but Google is still waiting while regulators in Washington and Europe consider the antitrust and privacy implications of its proposed combination…

Several consumer groups are opposing the merger because they fear that Google and DoubleClick will have too much information about Internet users. Most observers suggest that although the commission regulates privacy, its opinion of the merger must reflect antitrust issues only. The groups opposing the deal have argued that there are in fact precedents for the commission to take privacy concerns into account. (The Electronic Privacy Information Center, which is against the merger, lists many documents supporting its view here. Google’s take is here.)

In the end, Mr. Lindsay writes that Google may well be forced to accept some limitations on its use of data about Internet users. It may be required in the United States to anonymize data about users after 18 months, something it already agreed to do with European regulators. And there may be some limits imposed on how data from DoubleClick’s ad serving system can be used by Google.

Now, as our own Jim Harper will be the first to tell you, there are reasons for consumers to be concerned about the data-retention policies of large Internet companies, Google included. But if new regulations about online privacy are needed, those regulations should be proposed and debated in Congress. It’s totally inappropriate for government regulators who are supposed to only be reviewing a merger on antitrust grounds to use the review as a pretext to single the company out for special, extra-legal privacy regulations. Whatever problems Google’s privacy policies might have, they’re certainly not attributable to monopoly power on Google’s part: even after the merger Google would have less than a third of the online advertising market.

Unfortunately, the lesson Google is likely to learn from this ordeal is the same one Microsoft learned a decade ago: you can never hire too many lobbyists. Regardless of what the law might say, Washington insiders will find ways to punish successful companies that don’t spend resources cultivating influence in Washington. Is it any wonder that Google has been pouring millions of dollars into a beefed-up Washington presence?

Dueling Antitrust Complaints

A decade ago, Cato scholars argued that the Justice Department’s antitrust case against Microsoft was a witch hunt instigated at the behest of Microsoft’s competitors. They also warned about the inevitably harmful consequences of the politicization of the technology industry. Once technology firms succeed in hobbling a competitor using antitrust law, other companies are likely to respond in kind, leading to a never-ending stream of antitrust litigation.

That prediction has been borne out in spades, as Microsoft, once a principled critic of antitrust law, has discovered the joys of using antitrust as a competitive weapon. This week we learn that Microsoft has enlisted the assistance of a public relations firm to build support for blocking Google’s acquisition of DoubleClick on antitrust grounds. Never mind that there are dozens of firms in the highly competitive online advertising industry, including aQuantive, a company Microsoft snapped up for $6 billion back in May.

Of course, Google’s hands aren’t clean either. In June, we learned that Google has asked the Justice Department to investigate Microsoft for “bundling” a search functionality with its operating system, despite the fact that desktop search has been a standard feature of operating systems for decades.

Unfortunately, we seem to have opened a Pandora’s Box that will be difficult to close. It’s a shame that Microsoft has backed down from its former, principled stance on antitrust, but it’s hardly surprising. Filing frivolous antitrust complaints is now just a part of doing business in the software industry. That’s great for antitrust lawyers, but it’s hard to see how anyone else benefits.