Archives: 06/2013

Government Spying on Foreign Customers Is Bad for U.S. Business

I’ll leave the privacy/con law issues related to the latest government spying reports to my Cato colleagues who know about these things. I just wanted to mention one economic aspect of all this. Orin Kerr notes the following over at the Volokh Conspiracy

Here’s an excerpt from a forthcoming article of mine … :

The reality of global Internet access means that U.S.-based Internet services often have a heavily foreign customer base. Consider Gmail, the popular e-mail service provided by Google. Google is headquartered in California, and its servers currently reside there. But Gmail’s business is truly international, and slightly less than 30% of Gmail’s users reside in the United States. This chart shows the percentage of Gmail’s users that are in a handful of different countries as of 2012:

United States 29.7%

India 8.9%

Japan 3.4%

Russia 3.3%

Brazil 3.2%

United Kingdom 2.9%

China 2.7%

Iran 2.6%

Facebook’s user base is even more heavily foreign than is Gmail’s user base. To be sure, using Facebook has become as American as apple pie: About 54% of Americans presently have a Facebook account. At the same time, only about 16% of Facebook’s users are located in the United States. The rest, about 84%, access Facebook from abroad. For United States-based services like Gmail and Facebook, United States users form a small subset of its global customer base.

It sounds like the PRISM program takes advantage of that by giving the NSA access to the computers of the major U.S. based providers so it can search for the information of non-U.S. persons—subject to the NSA’s judgment of who is a non-U.S. person—and monitor them in realtime.

It seems to me that this revelation can’t be good for these companies in terms of use by non-Americans. Who wants to use a communication service that the U.S. government uses to spy on you? Not many people, I’m guessing. As a result, there may be a great opportunity here for foreign-based internet companies to market themselves with a slogan along the lines of, “We won’t give the U.S. government access to your email account.” So, in addition to all of the obvious downsides of a massive government spying operation, we may also be driving foreign customers away from U.S. businesses.

Why The NSA Collecting Your Phone Records Is A Problem

Privacy advocates and surveillance experts have suspected for years that the government was using an expansive interpretation of the Patriot Act’s §215 “business record” authority to collect bulk communications records indiscriminately. We now have confirmation in the form of a secret order from the secret Foreign Intelligence Surveillance Court to Verizon — and legislators are saying that such orders have been routinely served on phone carriers for at least seven years. (It seems likely that similar requests are being served on Internet providers — increasingly the same companies that provide us with wireless phone services).

Some stress that what is being collected is “just metadata”—a phrase I’m confident you’ll never see a computer scientist or data analyst use. Metadata—the transactional records of information about phone and Internet communications, as opposed to their content—can be incredibly revealing, as the recent story about the acquisition of Associated Press phone logs underscores. Those records, as AP head Gary Pruitt complained, provide a comprehensive map of reporters’ activities, telling those who know how to look what stories journalists are working on and who their confidential sources are. Metadata can reveal what Websites you read, who you communicate with, which political or religious groups you’re affiliated with, even your physical location.

In a way, the ground was prepared for this indiscriminate collection of Americans’ data way back in the 1970s, when the Supreme Court held, implausibly, that we surrender our expectation of privacy—and with it, the protection of the Fourth Amendment—just by using modern technology that leaves traces of our activity on someone else’s computers. But Americans were also sold a false bill of goods when Congress passed and reauthorized the Patriot Act powers used here—which we were repeatedly assured were only intended to be used to track “bad guys.” What we weren’t told was that, if the government thinks datamining ALL our records might help identify “bad guys,” then that information too is “relevant” to an investigation.

This collection is probably well enough intentioned. The problem is that these records are likely to be retained in databases indefinitely. Which means we don’t just need to worry about whether the government’s motives are pure when they collect the information. Even if they are, someone with access to that data, maybe in five or ten years, may be unable to resist the temptation to use that information for other purposes. That could mean investigating ordinary crimes: If you can data mine for suspicious terrorist activity patterns—which as Jim Harper and Jeff Jonas have pointed out is likely to be extremely difficult—you can plug in “suspicious patterns” that may identify drug dealers and tax cheats as well. Still more disturbing is the possibility that, the intelligence community has repeatedly done historically, those records could be exploited for illegitimate political purposes, or even simple greed. (Imagine probing communications for signs of an impending corporate merger, product launch, or lawsuit.)

We are, predictably, being told that this program is essential to protecting us from terrorist attacks. But the track record of such claims is unimpressive: They were made about fusion centers, and the original NSA warrantless wiretap program, and in each case collapsed under scrutiny. No doubt some of these phone records have proven useful in some investigation, but it doesn’t follow that the indiscriminate collection of such records is necessary for investigations, any more than general warrants to search homes are necessary just because sometimes searches of homes are useful to police.

In the short term, we should hope for an Inspector General audit of this program, both to look for abuses—as a similar audit of National Security Letters uncovered “widespread and serious” misuse of authority—and to skeptically interrogate the claim that such sweeping collection is somehow indispensable to national security. In the longer term, we need to follow the suggestion of Justice Sotomayor in United States v. Jones and think hard about the “third party doctrine,” which leaves all this increasingly voluminous and revealing metadata stripped of constitutional protection.

NSA Spying on a Gazillion Americans

Today’s widespread outrage over reports that the National Security Agency is conducting widespread, untargeted, domestic surveillance on millions of Americans reminds me of this post from July 2012, in which Sen. Rand Paul reported on a private briefing he’d received. He couldn’t reveal what he’d learned, but he was able to report that the number of Americans subject to surveillance was closer to “a gazillion” than to zero. Now we have a bit more information. As I wrote then:

Sen. Rand Paul (R-KY) gave a great speech on surveillance last week at FreedomFest. Actually, he gave two good speeches, but the one embedded below is his short 6-minute talk at the Saturday night banquet. He talks about our slide toward state intrusion into our phone calls, our emails, our reading habits and so on. You know how big the surveillance state has gotten? The answer is “a gazillion.” Watch the speech—complete with high-falutin’ references to Fahrenheit 451 and the martyr Hugh Latimer!

Rising Religious Intolerance in Indonesia

Indonesia could become a significant Asia power and counterweight to China. It is the world’s most populous Islamic nation but sports a tolerant reputation.  Indonesians evicted the Suharto dictatorship and created a democratic and increasingly prosperous state. So far, the artificial country has successfully countered multiple secessionist pressures.

Perhaps even more important, Indonesians could encourage Islam to move in a more liberal direction. Muslims make up nearly 90 percent of the population, but Indonesia’s politics traditionally have been secular. In its new report, “In Religion’s Name: Abuses Against Religious Minorities in Indonesia,” Human Rights Watch noted that “Indonesia is rightly touted for its religious diversity and tolerance.”

Unfortunately, however, as in the Middle East, the end of dictatorship in Indonesia has loosed intolerant religious forces. The victims are many. Reported HRW: “Targets have included Ahmadis (the Ahmadihay), Baha’is, Christians, and Shias, among others.” Offenses include state discrimination and mob violence. 

As I explained in my new column on American Spectator online:

HRW pointed to the use of blasphemy and conversion laws “to impose criminal penalties on members of religious minorities in violation of their rights to freedom of religion and expression.”  Such abuses are common in Pakistan, where violent jihadist sentiments are strong.  All religious minorities, as well as atheists, are at risk.

Expansive state control gives government many other avenues for discrimination if not persecution. HRW reported: “state discrimination on the basis of religion extends beyond the building of churches, mosques, and temples. Various government regulations discriminate against religious minorities, ranging from the provision of ID cards, birth and marriage certificates, and access to other government services.”

For instance, officials refuse to register marriages if the government doesn’t recognize the religion of one of the parties.  Without registration children are not issued birth certificates listing both parents.  National ID cards are required, but sometimes cannot be obtained without choosing among five officially recognized religions.  Refusing to list a religion can lead to charges of atheism and blasphemy.

The worst problem may be the government’s failure to protect religious minorities from violence. Such attacks are becoming more frequent. I have visited a church and Bible school destroyed by mobs, as well as a church that was bombed. In none of these cases was anyone ever punished. 

Indonesia could become a regional and even global leader. However, to do so, it needs to protect the lives and liberties of all of its citizens, irrespective of their religious beliefs.

Presidents Barack Obama and Xi Jinping Chart the Future of U.S.-China Relations

As the 1970s dawned, the People’s Republic of China was a closed, forbidding society. Then came the famed opening to the West. Reforms unleashed the creativity of the Chinese people, causing the PRC to go from isolated backwater to emerging giant; which is changing the international order. 

Chinese President Xi Jinping is meeting President Barack Obama in California this week. Much is at stake in their administrations forging a working relationship.

As I explained in my latest Forbes online column:

There is abundant cause for misunderstanding and disagreement across a range of issues. Treating each other as adversaries, as advocated by some in both countries, would be disastrous. Neither nation, nor Asia and the world, would benefit from conflict between the two.  In contrast, much could be achieved if the world’s superpower and incipient superpower develop a cooperative relationship.

Chinese officials with whom I spoke last week in Beijing spoke of a new “great power relationship” to reshape ties between Beijing and Washington.  Despite obvious differences in important areas, Liu Jieyi, Vice Minister of the Communist Party’s International Department, rightly argued that “there are many issues where we have common interests and common responsibilities.” What sets today apart from the Cold War struggle with the Soviet Union is the fact that current differences don’t constitute “structural and irreconcilable conflicts and problems,” in Liu’s words.

That doesn’t mean the gaps separating the two countries on questions ranging from human rights to security policy are small. Obviously, it is easier to call for cooperation than to practice it. 

Nevertheless, there is no necessity for conflict. Peace requires cooperation when possible and accommodation when necessary. That means the willingness on both sides to negotiate and compromise. Most critical is to avoid the temptation to treat the other side as an enemy, which could turn into a self-fulfilling prophecy.

Even Americans should celebrate in China’s “rise,” which has raised countless numbers of people out of poverty. But there are legitimate reasons why other nations worry about China’s dramatic entry into the world system

The U.S. and China must find a way to work together not only for themselves, but also for the rest of Asia and the world. The most important relationship in coming years will be that between America and China. We all must make it a century of cooperation rather than confrontation.

How an ObamaCare Slush Fund Pays For Nanny-State Lobbying

Did you know that the Affordable Care Act creates an enormous, multi-billion-dollar slush fund — in the out years, it will raise $2 billion a year in perpetuity — for the federal government to spend on more or less anything that might “improve health and help restrain the rate of growth” of health-care costs? That the spending can bypass the Congressional appropriations process, and is rife with expenditures for the purposes of lobbying government itself, which is supposed to be an unlawful use of federal funds?

Somehow it didn’t sink in until I read this excellent investigation in Forbes by Stuart Taylor, Jr., the distinguished commentator and journalist now associated with the Brookings Institution. Because almost any cause arguably advances health, the administrators end up with close to unlimited discretion as to how to spend the money, which results in the usual array of goofy-sounding grant activities ranging “from ‘pickleball’ (a racquet sport) in Carteret County, N.C. to Zumba (a dance fitness program), kayaking and kickboxing in Waco, TX.”

It’s tailor-made for log-rolling and rewarding local friends, but the dangers go beyond that. In particular, as outraged Republicans from Fred Upton (R-Mich.) in the House to Susan Collins (R-Me.) in the Senate have been documenting, large sums from the program have been devoted to the purpose of lobbying for the passage of legislation at the local and state level — notwithstanding specific statutory language making that an unlawful way of spending money raised from federal taxpayers.

To quote Taylor:

* In Washington state, the Prevention Alliance, a coalition of health-focused groups, reported in notes of a June 22, 2012 meeting that the funding for its initial work came from a $3.3 million Obamacare grant to the state Department of Health. It listed a tax on sugar-sweetened beverages (SSB), “tobacco taxes,” and increasing “types of outdoor venues where tobacco use is prohibited” as among “the areas of greatest interest and potential for progress.”

* The Sierra Health Foundation, in Sacramento, which received a $500,000 grant. in March 2013, described its plans to “seek local zoning changes to disallow fast food establishments within 1,000 feet of a school and to limit the number of fast food outlets,” along with restrictions on fast food advertising. A $3 million grant to New York City was used to “educate leaders and decision makers about, and promote the effective implementation of… a tax to substantially increase the price of beverages containing caloric sweetener.”

* A Cook County, Ill. report says that part of a $16 million grant “educated policymakers on link between SSBs [sugar-sweetened beverages] and obesity, economic impact of an SSB tax, and importance of investing revenue into prevention.” More than $12 million in similar grants went to groups in King County, Wash. to push for changes in “zoning policies to locate fast-food retailers farther from … schools.” And Jefferson County, Ala., spent part of a $7 million federal grant promoting the passage of a tobacco excise tax by the state legislature.

These aren’t isolated flukes: they look very much like the normal and planned operation of the program. A $7 million grant to activists in the St. Louis area went in part toward lobbying for the repeal of a state law barring municipal tobacco taxes. The Pennsylvania Department of Health reported on how it used a $1.5 million federal grant: “210 policy makers were contacted … 31 ordinances were passed … there were 26 community presentations made to local governments .. . and 16 additional ordinances were passed this quarter, for a cumulative total of 47.”

This is outrageous. Congress has enacted and reiterated the ban on lobbying with federal funds because of the obvious unfairness of requiring taxpaying citizens to support political efforts of which they disapprove. Now a combination of the most politicized sector of public health activism (which likes to dictate how people live) and a cross-section of the local political class (which likes to find new ways of raising taxes) is getting massive federal subsidies to pursue such lobbying, often on a scale that can bulldoze disorganized local opposition. If you were wondering why some bad new ideas for local legislation (e.g., zoning to keep fast-food restaurants out of big-city neighborhoods) seem to be everywhere despite a tepid level of voter enthusiasm, now you know. You’re paying for them to be everywhere.(cross-posted in adapted form from Overlawyered).

P.S. Check out this April report on the problem by the investigative group Cause of Action.

U.S. Trade Agency Bans iPhones

Well, some of them anyway. The U.S. International Trade Commission has found that Apple infringed one of Samsung’s patents related to 3G technology and issued an injunction against the importation and sale of the iPhone 3GS, iPhone 4, iPad 3G, and iPad 2 3G.  These are not the latest models, but neither are they obsolete. (For a very helpful and thorough explanation of the issues in the case, check out Florian Mueller’s FOSS Patents blog.)

The outcome in this case offers an excellent example of why having a redundant patent litigation venue at the ITC with slightly different laws and procedures is bad public policy. If this patent had been litigated in federal district court, where the vast majority of patent litigation takes place, the judge would have refused to issue an injunction as contrary to the public interest—even if Apple egregiously and remorselessly infringed Samsung’s patent.

The patent at issue in the ITC investigation is what’s known as a standard-essential patent. This is a term for technology that’s so ubiquitous as to be necessary for interoperability within the industry (like 3G) and that the patent owner has agreed to license to anyone who makes a reasonable royalty offer (thus promoting it to become the industry standard). It is highly unlikely that a federal district court would issue an injunction against any product based on infringement of such a patent, because doing so would be excessively disruptive and unfair. In fact, the Justice Department and other antitrust agencies have argued that merely seeking an injunction based on one of these patents might violate antitrust law.

None of this matters at the ITC, where injunctive relief is the only remedy available. In 2006, the U.S. Supreme Court held that courts should award only monetary damages in patent cases unless there are special circumstances necessitating an injunction and doing so would not harm the public interest. The purpose and consequence of the Supreme Court’s decision was to prevent patent trolls from using small patents to get large settlements. But monetary damages are unavailable at the ITC, and the agency decided the Supreme Court’s ruling didn’t apply to them.

In the Apple-Samsung case, Apple claimed that Samsung’s request for royalties of 2.4 percent was unreasonably high. If the patent is worth less than 2.4 percent of the product’s value, an injunction against selling the entire phone is excessive. This is especially true when the technology is virtually impossible to design around. Rather than simply deciding who pays what to whom in a dispute that is mostly about licensing fees, a sales ban deprives consumers of choice in the market.

The good news is that efforts are underway in Washington to fix the problem of excessive remedies at the ITC. The White House released a proposal for patent reform this week that included a call “to enhance consistency in the standards applied at the ITC and district courts.” Specifically, they want the ITC to use the same public interest test that courts use before issuing an injunction (Rep. Devin Nunes made a very similar proposal last year). This is a good plan. It would likely have prevented the new iPhone ban and will do a lot to make the ITC less attractive to patent trolls.

Fixing problems at the ITC by making it more like district court litigation, however, shows very clearly how redundant and unnecessary it is to have two venues for patent litigation. Why should we have the ITC hearing patent cases in the first place?  There is no satisfactory answer to that question. As I argued in a Policy Analysis last year, the ITC’s power to investigate and exclude imports for patent infringement not only disrupts the proper functioning of the U.S. patent system, it also violates international trade rules. We could save ourselves a lot of trouble down the line by shutting the whole thing down.