The Patent Case that Threatens the Internet

The Court of Appeals for the Federal Circuit heard oral arguments today in a case about dental retainers that could threaten the free flow of information over the Internet.  The question is whether the U.S. International Trade Commission has the authority to bar the “importation” of digital transmissions.  The case has serious implication for the future of 3D printing, internet service providers’ liability for copyright piracy, and the internet’s global infrastructure. 

The ITC has the power to ban imports to prevent “unfair competition” and has become a popular venue to enforce U.S. patents.   A Cato Policy Analysis from 2012 details how the ITC’s patent enforcement powers are unnecessary, protectionist, and inconsistent with U.S. trade obligations

The case before the appeals court today involves products that are manufactured inside the United States based on schematics generated by a computer in Pakistan.  The production of those schematics is covered by a patent owned by Align Technology, who successfully petitioned the ITC to issue an order barring its competitor ClearCorrect from transmitting the data from Pakistan to the United States.

An editorial in yesterday’s New York Times explained the dangers of allowing the agency to have power over digital transmissions:

The I.T.C. has long had the power to forbid companies from importing physical goods like electronics, books and mechanical equipment that violate the patents, copyrights and trademarks of American businesses. It does so by ordering customs officials to seize items at the border or by issuing cease and desist orders to importers. The commission’s order to ClearCorrect was the first time it had sought to bar the transfer of digital information. If the appeals court upholds this decision, it could set a precedent that would allow businesses to seek to block all kinds of data transmissions.

Of course businesses should be able to protect their patents and copyrights. But there are far better ways to do so. In this case, for example, Align could sue ClearCorrect and seek damages for patent infringement. Or the company could ask a judge to order ClearCorrect to stop selling products made using the information contained in the files.

It is not even clear that the commission has the authority to restrict international data transfers. Congress has given it authority to block the import of “articles,” which for decades has been understood to mean physical goods. In last year’s ruling, a five-member majority of the commission ruled that the word “article” includes data.

Groups like the Motion Picture Association of America and the Recording Industry Association of America are supporting the commission’s view. They argue that, as trade increasingly becomes digital, the definition of “article” should include data. The Internet Association, which represents companies like Facebook, Google and Twitter, is asking the court to reverse the decision.

We already know from leaked documents that the MPAA plans to use the ITC’s potential jurisdiction over data transmissions  as a way to block Americans from accessing foreign websites that host copyrighted movies.

The purpose of the ITC’s patent enforcement power is to make sure that U.S. companies have a remedy against foreign infringers who are otherwise unreachable by a domestic court.  That’s why the ITC’s remedy is a ban on future imports rather than money damages for past infringement like you would get in federal district court.  But the bulk of the ITC’s caseload, including the Align case, involves disputes between parties that can and do sue each other in U.S. courts. 

In today’s global economy, it’s particularly pointless to have a specialized IP court for imports, digital or otherwise.  The fact that an article is imported from outside the United States or a piece of information travels through a foreign computer server has no bearing on whether that product infringes a U.S. patent or copyright. 

Giving the ITC power to bar cross-border data transmissions invites mischievous litigation without serving any legitimate public policy goal.

The Bad and Ugly of the GOP’s Foreign Policy, Part 1

The GOP’s Cleveland debate was spirited, but shed little light on foreign policy. There are important differences among the participants, but few were exposed.

For instance, elsewhere Donald Trump opined that Crimea was Europe’s problem and asked why Washington still defended South Korea. These sentiments deserved discussion.

No multi-candidate forum can delve deeply into such complex issues, however. Even those Republicans giving formal foreign policy addresses have come up short. The GOP contenders have been largely captured by a reflexive, even rabid interventionism which ignores consequences and experience.

Leading the hawks is Sen. Lindsey Graham, a member of the Senate’s unabashedly pro-war caucus. In the interventionist middle some candidates demonstrate hints of reluctance, such as Ted Cruz and John Kasich. Sen. Rand Paul brings up the rear, uncomfortably gyrating between his father’s views and the GOP conventional wisdom.

Chris Christie delivered a formal foreign policy address in which he easily staked his claim to being most committed to violating Americans’ civil liberties through surveillance of dubious value. He charged that his critics were “ideologues,” yet opposed any restraints on the new, far-reaching presidential powers that he demanded.

His foreign policy views are even worse. At age 52, Christie declared: “I don’t believe that I have ever lived in a time in my life when the world was a more dangerous and scary place.”

This is nonsense. As I pointed out on Forbes online: “Christie barely missed the Cuban missile crisis. During his life the Cold War raged, the Vietnam War was lost, the Soviets invaded Czechoslovakia and Afghanistan, and China’s Mao Zedong unleashed the bloody Cultural Revolution. People talked about the potential for a ‘nuclear winter’ from a nuclear exchange. Today the U.S. vastly outspends its potential adversaries and is allied with every major industrialized power save China and Russia.”

 “Building stronger alliances” is a “pillar” of Christie’s foreign policy. U.S. foreign policy is based on “partnership with the people and nations who share our values,” he explained. Like the totalitarian Saudis, brutal Egyptian military, and dictatorial Central Asian states?

Moreover, America’s friends can defend themselves. For instance, South Korea has 40 times the GDP of the North; Japan possesses the world’s third largest economy. Europe has a larger GDP and population than America and multiple of those of Russia.

Many so-called allies are security black holes, making America less secure. Why would Washington wish to confront nuclear-armed Moscow over interests the latter considers vital by defending nations such as Georgia and Ukraine, which always have been irrelevant to America’s security?

Christie argued that “We didn’t have to be a global policeman who solved every problem.” But that’s what Washington has done with perpetual social engineering through foreign aid, military intervention, war, and more.

In Christie’s view squandered U.S. credibility is why Russia grabbed Crimea, Syria’s Bashar al-Assad used force against his opponents, and “Iranian-backed militias are rampaging across Yemen.”

In fact, Washington never was going to go to war over Crimea with nuclear-armed Russia. Assad was determined to remain in power and therefore had to fight, irrespective of Washington’s view. Yemen’s Houthis have been in revolt for decades and have never had much connection to Iran, let alone America.

Of course, Christie demanded more military outlays. But it would be easier “to keep our edge” if Washington didn’t constantly squander Americans’ resources defending other nations and rebuilding failed states.

Christie insisted that “What happened on 9/11 must never happen again.” But he failed to understand that promiscuously supporting authoritarian regimes, aiding foreign combatants, dropping drones and, most important, bombing, invading, and occupying other lands creates enemies determined to do America ill.

Rubio and Bush also have given formal speeches, but sound no better than Christie. Most GOP candidates promise brave new interventions and wars.

If Republicans really believe in limited government and individual liberty, they should promote peace. It is time for a real Republican debate over foreign and military policy.

Maintaining and Enforcing Spending Caps Is a Huge Test of GOP Credibility on Fiscal Policy

Let’s celebrate some good news.

When politicians can be convinced (or pressured) to exercise even a modest bit of spending restraint, it’s remarkably simple to get positive results.

Here’s some of what I wrote earlier this year.

…one of the few recent victories for fiscal responsibility was the 2011 Budget Control Act (BCA), which only was implemented because of a fight that year over the debt limit. At the time, the establishment was screaming and yelling about risky brinksmanship. But the net result is that the BCA ultimately resulted in the sequester, which was a huge victory that contributed to much better fiscal numbers between 2009-2014.

And “much better fiscal numbers” really are much better.

Here’s a chart I put together showing how the burden of federal spending declined between 2009 and 2014. And this happened for the simple reason that spending was flat and the economy had a bit of growth.

But now let’s look at some bad news.

Ecuador’s Ambassador Misses the Point: Dollarization

Ecuador’s ambassador to the U.S., Francisco Borja Cevallos, wrote a letter, “Ecuador’s Progress,” which was published in the New York Times on August 8th. Ambassador Borja reviews a number of Ecuador’s recent economic accomplishments. Fine. After all, by Latin American standards, Ecuador has performed well. Indeed, my Misery Index rankings for the region in 2014 show that only Panama, Mexico, and El Salvador performed better than Ecuador did.

What Ambassador Borja failed to mention is the true source of Ecuador’s relative success: dollarization. Yes, Ecuador is dollarized. Ecuador represented a prime example of a country that was incapable of imposing the rule of law and safeguarding the value of its currency, the sucre. The Ecuadorian sucre traded at 6,825 per dollar at the end of 1998, and by the end of 1999 the sucre-dollar rate was 20,243. During the first week of January 2000, the sucre rate soared to 28,000 per dollar.

With the sucre in shambles, President Jamil Mahuad announced, on January 9, 2000, that Ecuador would abandon the sucre and officially dollarize the economy. Telephone calls from both President Bill Clinton and U.S. Treasury Secretary Larry Summers encouraged Mahuad to dollarize. The positive confidence shock was immediate. On January 11th — even before a dollarization law had been enacted—the central bank lowered the rediscount rate from 200 percent a year to 20 percent. On February 29th, the Ecuadorian Congress passed the so-called Ley Trolebus, which contained dollarization provisions. It became law on March 13th, and after a transition period in which the dollar replaced the sucre, Ecuador became the world’s most populous dollarized country. And dollarization remains, to this day, highly popular; most Ecuadorians — 85 percent — still give dollarization a thumbs up. What Ecuadorians fear is that President Rafael Correa, who has opposed dollarization in the past, might just abandon the greenback, which is Ecuador’s anchor of stability.

Is There Really a National Teacher Shortage?

Motoko Rich of the New York Times reports:

Across the country, districts are struggling with shortages of teachers, particularly in math, science and special education — a result of the layoffs of the recession years combined with an improving economy in which fewer people are training to be teachers.

So do we really have a shortage of teachers today, compared to historical levels? How big were the recession layoffs in historical context? I offer an updated chart below of the % change, since 1970, in the number of teachers and students, as well as the change in the cost per graduate of a public school K-12 education.

As the chart reveals, the recession layoffs were tiny when compared to the massive growth in our teaching workforce since 1970. To this day, we employ over 150% as many teachers as we did in 1970, to teach only 109% as many students. In other words, the number of teachers has grown 5 times faster than enrollment. That does not mean that there couldn’t be a small portion of districts in the U.S. that really need to hire teachers, but it does mean that there is no “national teacher shortage” compared to historical levels of employement. To anyone who claims otherwise, we can only ask: a shortage compared to what?

Republicans Looking for Libertarian Voters?

Recently I got an envelope at home that looked important. It had no return address, just a notice that said “DO NOT DESTROY/OFFICIAL DOCUMENT.” Trembling, I tore it open. The reply envelope inside also looked official, with “PROCESS IMMEDIATELY” emblazoned across the top. But since it was addressed to the Republican National Committee, I began to suspect that it wasn’t actually an OFFICIAL DOCUMENT. It did say that I had been specially selected “to represent voters in Virginia’s 8th Congressional District” and that I was receiving documents registered in my name, with tracking code J15PM110. The document must be returned by August, 17, 2015.

So in another words, just another dishonest communication from a political party. The dishonesty didn’t even wait for the letter, it started with the outer envelope.

But I wouldn’t take time to complain about mere political dishonesty. What I actually found interesting was the first question on my 2015 CONGRESSIONAL DISTRICT CENSUS. It was a simple question, asking how I describe my political ideology:

1. Do you generally identify yourself as a:

  • Conservative Republican
  • Moderate Republican
  • Independent Voter who leans Republican
  • Liberal Republican
  • Tea Party Member
  • Libertarian
  • Other____________________

So it’s nice to see that at last political professionals are noticing the existence of libertarian voters. My colleague David Kirby and I have been writing about libertarian voters for about nine years now, starting with our paper “The Libertarian Vote.” In that paper we found that some 13 to 15 percent of voters give libertarian answers to three standard questions about political values. (And as Clive Crook wrote in the Atlantic, why do so FEW Americans give such “characteristically American answers” to the questions?) The Gallup Poll, with a slightly easier test, found that 24 percent of respondents could be characterized as libertarians. David Kirby found that some 34 percent of Republicans hold libertarian views, which might just be what the RNC wants to investigate.

However, our studies have also shown that more voters hold libertarian views than know or accept the word “libertarian.” In a followup study done by Zogby International we found that only 9 percent of the voters we identified as libertarian chose the “libertarian” label. (That is, only 9 percent of 15 percent, or about 1.5 percent of the electorate.) Fifty percent chose “conservative” and 31 percent “moderate.” So the RNC survey, even if the results are actually tallied, is likely to underestimate the number of Republicans who hold libertarian views. A better question, which they didn’t ask, might be 

“Would you describe yourself as fiscally conservative and socially liberal?”

In the Zogby survey 59 percent of respondents answered “yes” to that question. When we made the question a little more provocative, adding the word “libertarian”–

“Would you describe yourself as fiscally conservative and socially liberal, also known as libertarian?” 

–44 percent of respondents still said “yes.” Now that would be a fun question for the RNC to ask next time! Or indeed the DNC.

Clinton’s Debt-Free Tuition Plan Seems Likely to Flunk

Over the next couple of days, Democratic presidential candidate Hillary Clinton will be playing up her new, $350-billion proposal primarily intended to make paying public college tuition a debt-free experience.

Beware “free”!

According to early information about the plan – I couldn’t find details on Clinton’s campaign Web page yet – under the proposal the federal government would spend $200 billion over ten years on public colleges and universities, with a condition that states also increase their higher ed outlays. The goal would be to make paying public college tuition debt-free for all. In addition, the plan – called the “New College Compact” – would give $25 billion to historically black colleges and universities, and other schools with low endowments, over ten years. Next, the proposal would allow all current student debt holders to refinance loans at lower interest rates and sign up for income-based repayment plans capping monthly payments at 10 percent of discretionary income and forgiving whatever remained after 20 years. The loan-term plan is estimated to cost $125 billion over ten years.

Of course, as with any politically good plan, it seems details on how all this would be paid for – other than to say the rich will cover the $35-billion annual price tag – will be announced at some later, likely quieter date. Ditto details on how the plan will ensure colleges spend all the new, forced taxpayer largesse on instruction rather than fluff like climbing walls and water parks that students demand and schools, increasingly, deliver. Putting off these latter details could be especially important politically because while colleges love money, they do not love strings. To keep maximum support from the Ivory Tower – typically a welcoming edifice for Democrats – you’ll want to keep the downside hazy.

Of course, the estimated price tag is just the most immediate, obvious cost of the plan. The more hidden cost would be the plan’s deleterious effects: encouraging yet more people to spend more time in programs even less tethered to real-world needs. Quite simply, when someone else pays your bills you are more likely to consume, and less likely to think efficiently about what you are consuming. That’s been the higher education problem for decades, and this plan would have someone else foot even more of the bill.

Already we see massive overconsumption of higher ed: About a third of bachelor’s degree holders are in jobs that don’t require the credential. Lots of employers seek people with degrees for jobs that don’t appear to need college-level learning. And “college-level learning” has come to mean less and less actual learning. In other words, thanks largely to third-party funding, we appear to have a vicious cycle of credential inflation that would almost certainly get even worse as more and more people saw college as “free.” And no, it does not appear that spending more on higher education automatically increases human capital and, hence, economic growth. Indeed, government college spending may well hamper growth by taking money from the individual taxpayers who earned it – and would have used it for their real needs – and giving it away to colleges regardless of what people need.

“Free” always sounds so good. Until, that is, you think through how costly “free” can be.