Adam Thierer's Blog, page 114

ACS Blog Debate on Google: Retrograde Antitrust Analysis is No Fit for Google

[I am participating in an online "debate" at the American Constitution Society with Professor Ben Edelman.  The debate consists of an opening statement and concluding responses.  Professor Edelman's opening statement is here.  I have also cross-posted this opening statement at Truthonthemarket.]

The theoretical antitrust case against Google reflects a troubling disconnect between the state of our technology and the state of our antitrust economics.  Google's is a 2011 high tech market being condemned by 1960s economics.  Of primary concern (although there are a lot of things to be concerned about, and my paper with Geoffrey Manne, "If Search Neutrality Is the Answer, What's the Question?," canvasses the problems in much more detail) is the treatment of so-called search bias (whereby Google's ownership and alleged preference for its own content relative to rivals' is claimed to be anticompetitive) and the outsized importance given to complaints by competitors and individual web pages rather than consumer welfare in condemning this bias.

The recent political theater in the Senate's hearings on Google displayed these problems prominently, with the first half of the hearing dedicated to Senators questioning Google's Eric Schmidt about search bias and the second half dedicated to testimony from and about competitors and individual websites allegedly harmed by Google.  Very little, if any, attention was paid to the underlying economics of search technology, consumer preferences, and the ultimate impact of differentiation in search rankings upon consumers.

So what is the alleged problem?  Well, in the first place, the claim is that there is bias.  Proving that bias exists — that Google favors its own maps over MapQuest's, for example — would be a necessary precondition for proving that the conduct causes anticompetitive harm, but let us be clear that the existence of bias alone is not sufficient to show competitive harm, nor is it even particularly interesting, at least viewed through the lens of modern antitrust economics.

In fact, economists have known for a very long time that favoring one's own content — a form of "vertical" arrangement whereby the firm produces (and favors) both a product and one of its inputs — is generally procompetitive.  Vertically integrated firms may "bias" their own content in ways that increase output, just as other firms may do so by arrangement with others.  Economists since Nobel Laureate Ronald Coase have known — and have been reminded by Klein, Crawford & Alchian, as well as Nobel Laureate Oliver Williamson and many others — that firms may achieve by contract anything they could do within the boundaries of the firm.  The point is that, in the economics literature, it is well known that self-promotion in a vertical relationship can be either efficient or anticompetitive depending on the circumstances of the situation.  It is never presumptively problematic.  In fact, the empirical literature suggests that such relationships are almost always procompetitive and that restrictions imposed upon the abilities of firms to enter them generally reduce consumer welfare.  Procompetitive vertical integration is the rule; the rare exception (and the exception relevant to antitrust analysis) is the use of vertical arrangements to harm not just individual competitors, but competition, thus reducing consumer welfare.

One has to go back to the antitrust economics of the 1960s to find a literature — and a jurisprudence — espousing the notion that "bias" alone is inherently an antitrust problem.  This is why it is so disconcerting to find academics, politicians, and policy wags promoting such theories today on the basis that this favoritism harms competitors.  The relevant antitrust question is not whether there is bias but whether that bias is efficient.  Evidence that other search engines with much smaller market shares, and certainly without any market power, exhibit similar bias suggests that the practice certainly has some efficiency justifications.  Ignoring that possibility ignores nearly a half century of economic theory and empirical evidence.

It adds insult to injury to point to harm borne by competitors as justification for antitrust enforcement already built upon outdated, discredited economic notions.  The standard in antitrust jurisprudence (and antitrust economics) is harm to consumers.  When a monopolist restricts output and prices go up, harming consumers, it is a harm potentially cognizable by antitrust; but when Safeway brands, sells, and promotes its own products and the only identifiable harm is that Kraft sells less macaroni and cheese, it is not.

Understanding the competitive economics of vertical integration and vertical contractual arrangements is difficult because there are generally both anticompetitive and procompetitive theories of the conduct.  One must be very careful with the facts in these cases to avoid conflating harm to rivals arising from competition on the merits with harm to competition arising out of exclusionary conduct.  Misapplication of even this nuanced approach can generate significant consumer harm by prohibiting efficient, pro-consumer conduct that is wrongly determined to be the opposite and by reducing incentives for other firms to take risks and innovate for fear that they, too, will be wrongly condemned.

Professor Edelman has been prominent among Google's critics calling for antitrust intervention.  Yet, unfortunately, he too has demonstrated a surprising inattention to this complexity and its very real anti-consumer consequences.  In an interview in Politico (login required), he suggests that we should simply prevent Google from vertically integrating:

I don't think it's out of the question given the complexity of what Google has built and its persistence in entering adjacent, ancillary markets.  A much simpler approach, if you like things that are simple, would be to disallow Google from entering these adjacent markets.  OK, you want to be dominant in search?  Stay out of the vertical business, stay out of content.

This sort of thinking implies that the harm suffered by competing content providers justifies preventing Google from adopting an entire class of common business relationships on the implicit assumption that competitor harm is relevant to antitrust economics and the ban on vertical integration is essentially costless.  Neither is true.  U.S. antitrust law requires a demonstration that consumers — not just rivals — will be harmed by a challenged practice.  But consumers' interests are absent from this assessment on both sides — on the one hand by adopting harm to competitors rather than harm to consumers as a relevant antitrust standard and on the other by ignoring the hidden harm to consumers from blithely constraining potentially efficient business conduct.

Actual, measurable competitive effects are what matters for modern antitrust analysis, not presumptions about competitive consequences derived from the structure of a firm or harm to its competitors.  Unfortunately for its critics, in Google's world, prices to consumers are zero, there is a remarkable amount of investment and innovation (not only from Google but also from competitors like Bing, Blekko, Expedia, and others), consumers are happy, and, significantly, Google is far less dominant than critics and senators suggest.  Facebook is now the most visited page on the Internet.  Many online marketers no longer view Google as the standard, but are instead increasingly looking to social media (like Facebook) as the key to advertisers' success in attracting eyeballs on the Internet.  And at the end of the day, competition really is "just a click away" (OK, a few letters away) as Google has no control over users' ability to employ other search engines, use other sources of information, or simply directly access content, all by typing a different URL into a browser.

Finally, even if there is a concern, there is the problem of what to do about it.  Even if Google's critics were to demonstrate that bias is anticompetitive, it is relevant to any analysis that bias is hard to identify, that there is considerable disagreement among users over whether it is problematic in any given instance, that a remedy would be difficult to design and harder to enforce, and that the costs of being wrong are significant.

Tom Barnett — who was formerly in charge of the Antitrust Division at the DOJ and who now represents Expedia and vociferously criticizes Google (including at the Senate hearings in September) — has himself made this point, observing that:

No institution that enforces the antitrust laws is omniscient or perfect.  Among other things, antitrust enforcement agencies and courts lack perfect information about pertinent facts, including the impact of particular conduct on consumer welfare . . . . We face the risk of condemning conduct that is not harmful to competition . . . and the risk of failing to condemn conduct that does harm competition . . .

Condemning Google for developing Google Maps as a better form of search result than its original "ten blue links" reflects retrograde economics and a strange and costly preference for the status quo over innovation.  Doing so because it harms a competitor turns conventional antitrust analysis on its head with consumers bearing the cost in terms of reduced innovation and satisfaction.

Strengths and Weaknesses in the FCC Chairman's USF Speech

Federal Communications Chairman Genachowski previewed the universal service reform plan the commissioners are discussing in a speech today.

The speech offers a masterful summary of the myriad inefficiencies created by the current universal service subsidies and intercarrier compensation payments. Most of the examples highlight plain old-fashioned waste. The universal service program collects billions of dollars from telephone subscribers, then simply wastes a goodly portion of it by subsidizing telephone competition in places where unsubsidized service from cable or satellite already exists, subsidizing multiple mobile wireless competitors, and subsidizing local phone companies that have little incentive for cost containment because they are still subject to rate-of-return regulation. The intercarrier compensation system uses per-minute charges to collect billions of dollars from telephone subscribers and hands it to phone companies that sometimes charge as little as $8 a month for phone service. There's also a race to game this system as the companies that benefit seek new ways to inflate the regulated charges they collect, and the companies that pay seek clever ways to avoid paying.

It's a powerful brief for reform. Never thought I'd live to see the day whan an FCC chairman would say so many things that are substantiated by economic research.

Nevertheless, a few parts of the speech give me cause for concern about the solutions the FCC commissioners may be discussing.

First, the chairman claims that 18 million Americans live in areas without access to broadband — up from the 14 million estimated in the National Broadband Plan.  The size of this figure suggests to me that the FCC is still over-estimating the number of people without access by defining "broadband" as a speed fast enough to exclude 3G wireless, many small rural Wireless Internet Service Providers, and satellite. Absent an adjustment in the definition of broadband, the subsidy program will be larger than it needs to be, and so telephone consumers will pay excessive universal service charges.

Second, the FCC still seems bent on subsidizing at least two broadband competitors in rural areas through the Connect America Fund and a separate Mobility Fund. This essentially presumes that fixed wireless service  and 4G mobile are, and always will be, separate services, and every rural customer is entitled to both. If the goal is basic broadband connectivity in places that allegedly have no broadband at all, why not make all technologies compete for a single subsidy in these places before proceeding to subsidize two?

Third, there's a certain amount of technological favoritism.  Wireless subsidies will be awarded based on competitive bidding from the outset.  Subsidies for (fixed) service to homes and businesses will transition from current payments to competitive bidding — faster for phone companies subject to price caps, slower for phone companies under rate-of-return regulation. Satellite is mentioned just once — in a sentence discussing how service will be extended to the most remote areas. This continues the pattern set in the National Broadband Plan, which viewed satellite as a special-purpose technology suitable only for remote areas. For reasons unexplained, the plan assumed that wired and wireless broadband could expand capacity in response to subsidies, but satellite could not.

In summary: The speech gave a great diagnosis of the problem and sketched out solutions that will surely improve things compared to the way they are now.  But given that opportunities to actually achieve universal service reform (as opposed to just talking about it) come around rarely, there's still room for improvement.

Strengths and weaknesses in the FCC chairman's USF speech

Federal Communications Chairman Genachowski previewed the universal service reform plan the commissioners are discussing in a speech today.

The speech offers a masterful summary of the myriad inefficiencies created by the current universal service subsidies and intercarrier compensation payments. Most of the examples highlight plain old-fashioned waste. The universal service program collects billions of dollars from telephone subscribers, then simply wastes a goodly portion of it by subsidizing telephone competition in places where unsubsidized service from cable or satellite already exists, subsidizing multiple mobile wireless competitors, and subsidizing local phone companies that have little incentive for cost containment because they are still subject to rate-of-return regulation. The intercarrier compensation system uses per-minute charges to collect billions of dollars from telephone subscribers and hands it to phone companies that sometimes charge as little as $8 a month for phone service. There's also a race to game this system as the companies that benefit seek new ways to inflate the regulated charges they collect, and the companies that pay seek clever ways to avoid paying.

It's a powerful brief for reform. Never thought I'd live to see the day whan an FCC chairman would say so many things that are substantiated by economic research.

Nevertheless, a few parts of the speech give me cause for concern about the solutions the FCC commissioners may be discussing.

First, the chairman claims that 18 million Americans live in areas without access to broadband — up from the 14 million estimated in the National Broadband Plan.  The size of this figure suggests to me that the FCC is still over-estimating the number of people without access by defining "broadband" as a speed fast enough to exclude 3G wireless, many small rural Wireless Internet Service Providers, and satellite. Absent an adjustment in the definition of broadband, the subsidy program will be larger than it needs to be, and so telephone consumers will pay excessive universal service charges.

Second, the FCC still seems bent on subsidizing at least two broadband competitors in rural areas through the Connect America Fund and a separate Mobility Fund. This essentially presumes that fixed wireless service  and 4G mobile are, and always will be, separate services, and every rural customer is entitled to both. If the goal is basic broadband connectivity in places that allegedly have no broadband at all, why not make all technologies compete for a single subsidy in these places before proceeding to subsidize two?

Third, there's a certain amount of technological favoritism.  Wireless subsidies will be awarded based on competitive bidding from the outset.  Subsidies for (fixed) service to homes and businesses will transition from current payments to competitive bidding — faster for phone companies subject to price caps, slower for phone companies under rate-of-return regulation. Satellite is mentioned just once — in a sentence discussing how service will be extended to the most remote areas. This continues the pattern set in the National Broadband Plan, which viewed satellite as a special-purpose technology suitable only for remote areas. For reasons unexplained, the plan assumed that wired and wireless broadband could expand capacity in response to subsidies, but satellite could not.

In summary: The speech gave a great diagnosis of the problem and sketched out solutions that will surely improve things compared to the way they are now.  But given that opportunities to actually achieve universal service reform (as opposed to just talking about it) come around rarely, there's still room for improvement.

 

 

 

 

ACM Seeks Policy Analyst

Public Policy Analyst/Computing and IT Policy

A leading organization of computing professionals is seeking a Public Policy Analyst in its Washington DC Office of Public Policy. The position will assist in carrying out the society's policy agenda by working with the federal government, the organization's volunteer leadership and other organizations. The position's duties include:

• Following, researching, analyzing and reporting on policy issues being discussed in the Congress, the Executive Branch, the Judicial Branch and the media
• Providing advice and direction on policy issues and strategies for engagement • Keeping members informed of relevant policy developments
• Developing and/or reviewing policy position statements (letters, white papers, etc.)
• Planning meetings and/or conference calls
• Developing and managing projects to implement policy agenda
• Maintaining and updating website
• Identifying and recommending opportunities to further the overall policy agenda
• Producing and distributing newsletters, blog posts and various other communications

The qualifications for this position are:

• Minimum of a Bachelor's Degree
• Command of the legislative, regulatory and legal process, including the ability to conduct legal research and analyze policy developments
• Minimum of three years of experience in the policy, legislative or regulatory
environment
• Superior communication (writing and oral) and organizational skills
• Demonstrated interest in and/or prior experience in the technology policy
• Ability to work both in teams and independently
• Self-starter and ability to manage multiple projects and meet tight deadlines • Strong IT skills

Applicants should submit a resume and cover letter describing interests and qualifications by e-mail policy.analyst.job@gmail.com

What Censoring Violent Content Looks Like

A year ago, I filed a joint amicus brief with the Electronic Frontier Foundation urging the Supreme Court to overturn California's paternalistic law on the dangerous grounds that videogame depictions of violence constituted "obscenity" unprotected by the First Amendment. Fortunately, we won. Thus, the First Amendment protects all media, while parents have a variety of tools available to them to limit what content their kids can consume, or games they can play.

But in case you're wondering what the world might look like had the decision gone the other way, check out the contrast between the US version of Maroon 5′s hit song "Misery" and the UK version. First, here's the (raucous and sexy) US version:

Now, here's the UK version, where the sexually suggestive parts remain (kids love that stuff) but all the "violent" parts have been replaced with, or covered by, ridiculous cartoon images. Really, it's just too funny. The best part is where the knife she uses to stab the gaps between his fingers on the table has been replaced with a cartoon ice cream cone. Don't try that at home, kids—you'll make a chocolatey mess!

In case you were wondering, the US version has nearly 47 million views while the UK version  has a paltry half million views. Gee, I wonder why… (Actually, I suspect that most of the UK version's viewers watched it because it's so hilariously stupid.)

Parents can easily turn on  YouTube's safe search tool to block many objectionable videos—and lock it so kids can't turn it off.  (CBS made a great video explaining how to do this for parents.)

Given the enormous scale of videos on YouTube, Safe Search isn't perfect: It wouldn't block this particular video, probably because the video doesn't trigger any obvious keywords like "porn" and not enough users have complained about it to bring it to the attention of Google's human review team. But it's easy to find a wide variety of tools that will restrict kids' access to specific domains, such as YouTube. This allows parents to supervise their kids' use of those sites.

Now, if you don't think Google's blocking enough, it's easy to flag a video as inappropriate by clicking on the flag below the video, which expands a dialogue box, like so:

Like all web tools, parental controls are always evolving. In the next update, I'd love to see Google allow parents to restrict their kids' use of YouTube to certain playlists, either set up by the parents themselves or by, say, third party groups dedicated to screening content for parents. That would empower parents to configure YouTube as they see fit and trust that their kids can use the site wisely, without parents having to watch the whole time or rely on a necessarily imperfect (but still pretty darn good) tool like SafeSearch.

As a constitutional matter, the important point here is the one Adam Thierer always makes: parental control tools need not be perfect to be preferable to government regulation. That's an (accurate) paraphrase of the Supreme Court's clear 2000 decision on this subject in U.S. v. Playboy:

 It is no response that voluntary blocking requires a consumer to take action, or may be inconvenient, or may not go perfectly every time. A court should not assume a plausible, less restrictive alternative would be ineffective; and a court should not presume parents, given full information, will fail to act.

That's freedom for you! As the Court went on to add:

Technology expands the capacity to choose; and it denies the potential of this revolution if we assume the Government is best positioned to make these choices for us.

Parental controls aren't perfect but they're getting better all the time. Would you rather live in the UK's world of crude, cartoonish and clumsy censorship?

It's For the Children: A Template for Hill Testimony on Child Safety Issues

[NOTE: The following is a template for how to script congressional testimony when invited to speak about online safety issues.]

Mr. Chairman and members of the Committee, thank you inviting me here today to testify about the most important issue to me and everyone in this room: Our children.

There is nothing I care more about than the future of our children. Like Whitney Houston, "I believe the children are our future."

Mr. Chairman, I remember with fondness the day my little Johnny and Jannie came into this world. They were my little miracles. Gifts from God, I say. At the moment of birth, my wife… oh, well, I could tell you all about it someday but suffice it to say it was a beautiful scene, with the exception of all the amniotic fluid and blood everywhere. I wept for days.

Today my kids are (mention ages of each) and they are the cutest little angels on God's green Earth. (NOTE: At this point it would be useful for you to hold up a picture of your kids, preferably with them cuddling with cute stuffed animals, a kitten, or petting a pony as in the example below. Alternatively, use a picture taken at a major attraction located in the Chairman's congressional district.)

Notice the boy's "USA Rocks" t-shirt. Very crucial.

So, let me be clear: I love my children. And I will do anything to keep them safe. I hope you will, too.

That's why I am here today to testify in favor of H.R. 1776, "The Keep our Innocent Darlings Safe Act." The "KIDS SAFE" bill is essential if we love our children and care about their future. It would take sensible steps to shield them from the many evils of the world around us, especially the dangerous villains who haunt the Internets.

Let me tell you about those evils fiends.

Predators are everywhere, I tell you.  At any given second, their hands could reach right through the computer screen and abduct our kids. It could happen, I tell you.  But we mustn't allow it if we love our children. That's why we ask you to support "CyberCop," or proposal to have trained law enforcement officers who visit everyone's home once a year just to see how everyone is doing and to warn the kiddies about the dangers of the Net.

Then there's all the smut and nasty talk online.  Who's going to help me clean it up? If we love our children, we must. That's why I hope you'll support our new software tool, "CyberScrubber," which will sanitize the Net and make it safe for our children.  We'd like to see all ISPs forced to install this software once you've mandated our solution as the law of the land. We can make them a very generous deal for bulk installments.

And let's not forget about the vilest wretches of them all: Advertisers! These nefarious scum are trying to do the unthinkable: Convince our kids to buy their products. We all know what happens next. Little Johnny and Jannie will put a gun to Mom and Dad's head and force them to drive right to the store to buy whatever it is their innocent little eyes have seen online. There's no stopping them once the commercial devil has corrupted their souls, I tell you! Thus, we propose a ban on online ads and jail time for any online company who tries to produce free websites that are powered by commercial messages.

Sure, some will say all this is a matter of personal and parental responsibility, but… (NOTE: At this point it is important to deflect any thought in the minds of the Committee that parental responsibility has a role to play here. Find a crafty way of telling the Committee that, in essence, parents are naïve dopes who don't really know how to raise their own children or what's in their best interest. Sure this contradicts your overall message that everybody loves and cares about their own kids, but remember: YOU care about them even more!)

I propose we give parents a helping hand. They can't do it alone. Uncle Sam needs to sitting right beside them for the ride.

That's why I favor the proposal in the KIDS SAFE Act to create a new federal Office of Humanity, Child Love, & Adolescent Protection (OH-CLAP).

OH-CLAP should be generously funded and fully staffed with trained child development experts and others like me who profess a profound passion for loving children. By spending billions of taxpayer dollars and regulating all online speech and commerce, we can prove to the world how much more we Americans love our children.

I beg you to not listen to those nattering nabobs of negativism who raise pesky questions about technical implementation, constitutional limitations, or fiscal constraints. Clearly, these people just don't love the children.

Intentions are all that matter here. Neither our Constitution nor technical feasibility should stand in the way of us doing all in our power to protect the fragile, impressionable minds of our children.

In closing, let me again reiterate — as I have the previous four dozen times you have invited me here to testify — the importance of fully funding groups like mine that truly care about the children. Thanks to the tireless work and dedication of Congressmen ________ and ___________, my organization was able to secure another $90 million grant through an earmark in the latest Department of Defense authorization bill.

While we greatly appreciate this support, this is $10 million less than the $100 million we asked for as part of our "100 Million Ways to Love the Little Lads" crusade last year. Stated differently, children will feel $10 million dollars less loved this year because of this scandalous funding shortfall.

So, if this Congress really loves the children, we'd ask that you step up your support for us, and groups like ours—but mostly us—so that we can adequately protect our kids from various online evils. (NOTE: Consider mentioning predators again to close things out.)

For the sake of the children, the time to act is now!

Thank you, and God Bless the Children.

Attachment: Invitation to annual "Kids Love Fest" celebration where we will honor the latest "Loving Lawmaker of the Year" award winners.

 

 

Derek Bambauer on censorship

On the podcast this week, Derek Bambauer, associate professor of law at Brooklyn Law School, discusses his forthcoming University of Chicago Law Review article entitled Orwell's Armchair. In the paper, Bambuer writes that America has begun to censor the Internet, and he distinguishes two forms of censorship: hard and soft. He defines hard censorship as open and transparent, and where the government directly controls what information can and cannot be transmitted. Soft censorship, says Bambauer, is indirect, where government tells third parties to prevent users from accessing information, and it's not clear what is being censored. He submits that if America is going to censor the Internet, it should do so through hard censorship. Indirect censorship strategies, he writes, are less legitimate than direct regulation.

Related Links

Orwell's Armchair , by Bambauer"Filtering On The March", Info/Law"Revised 'Net censorship bill requires search engines to block sites, too", ARS TechnicaOpen Net Initiative

To keep the conversation around this episode in one place, we'd like to ask you to comment at the webpage for this episode on Surprisingly Free. Also, why not subscribe to the podcast on iTunes?

Copyright, Done Right: Warrantless Factory Searches Aren't the Right Way to Stop DVD Piracy

California police will now be able to conduct warrantless searches of optical disc (DVD, CD, BluRay) factories to look for piracy and seize pirated discs, under a bill just signed by California Governor Jerry Brown (full text). Even those who think copyright law has gone much too far, or cherish fair use, shouldn't defend such blatant, commercial piracy, which does nothing but deny creators the market for their artistic products. One need only look at China to see how such infringement can destroy creative industries.

The bill's sponsors justify this law as necessary to enforce existing laws that require manufacturers to label discs so their origin and validity can be established. That seems like a reasonable requirement and one worth enforcing.  But like the Electronic Frontier Foundation, I'm highly skeptical the courts will uphold the constitutionality of this law. And I worry about the consequences of upholding warrantless searches. The debate centers on whether optical disc manufacturing qualifies as a "closely regulated industry" under New York v. Burger, 482 U.S. 691, 701. (1987). The sponsors argued:

In determining whether a particular industry is closely regulated, the Court looks to a history of regulation in the industry as well as the hazardous nature of the industry. Examples of closely regulated industries that fall under this exception include auto dismantling yards and the mining industry. Here, the optical disc manufactures are subject to the provisions of chapter 11.5 of the Business and Professions Code, as well as 653h and 653w of the Penal Code [California's anti-copyrighting laws]. These manufacturers are also subject to federal copyright restrictions. These provisions may be enough for a court to determine that this industry is closely regulated, and therefore, potentially subject to administrative searches.

That's a pretty weak argument—and one that could sweep in a wide variety of other industries, including media. That analysis goes on to allege that the searches and seizures authorized by the bill would be reasonable, which EFF also disputes on all points. As a subsequent California Senate committee counsel's official legal analysis noted, "It is unclear whether this bill, which allows law enforcement to search private property without a warrant, would stand up to a constitutional challenge." That official analysis, which covers both sides of the argument goes on to note (p. 7) the First Amendment problems raised by deeming any media business, including those that only manufacture physical media, as "closely regulated."

The bill's sponsors make a second argument that would set an even more dangerous precedent:

Additionally, California courts have held that an industry need not be closely regulated if the industry is newer and involves a "high risk of illegal conduct or of serious danger to the public." Currier v. City of Pasadena, 48 Cal. App. 3d 810, 814 (Ct. App. 1975). Here, because of the high number of pirated optical discs, the searches could fall under this exception to a warrant requirement.

In other words, piracy is a big enough problem, in terms of total number of discs pirated, not necessarily prevalence of manufacturers engaging in piracy, that the Fourth Amendment just doesn't apply. The rationale is essentially what the Fourth Amendment was designed to thwart: On the eve of the American Revolution, the British decided that widespread circumvention of the Stamp Act, etc., and the widespread distribution of seditious, anti-British literature presented what they probably would have referred to as a "high risk of illegal conduct or of serious danger to the public." They engaged in widespread warrantless searches. We fought a war against them—and won. Our victory was perfected in passage of the Fourth Amendment, which itself was inspired by similar protections in George Mason's Virginia Declarations of Rights. So many creative legal ideas developed in California, I'm pretty skeptical the U.S. Supreme Court will accept this justification for widespread warrantless searches.

This sort of pernicious thinking extends well beyond copyright. TechFreedom has joined fifty-two other organizations and companies, as well as a number of leading law professors, in the Digital Due Process Coalition, a philosophically diverse array of groups that all agree on the need to stop warrantless searches of remotely held data. The principles apply just as much in the digital era as in 1776. Law enforcement should have to meet the Fourth Amendment's requirements for searches and seizures.

As someone really sympathizes with the artists whose livelihoods are destroyed by wholesale copying of optical discs, I also fear this draconian action will cost copyright holders the moral high ground in the piracy debate. Among the strongest points generally made by what EFF and other copyright skeptics derisively (and unhelpfully) refer to as "Big Media" is that blatant copyright infringement undermines respect for the rule of law. They're exactly right. But no one will take that argument seriously unless copyright holders themselves obey the law—the highest law of the land—the Constitution.

As always, the challenge remains: how do we enforce copyright laws to serve the Constitutional's goal of promoting the "Progress of Science and useful Arts?" I've yet to hear why law enforcement can't thwart disc piracy within the bounds of warrant requirement that governs the rest of their activity. One might argue, for example, that law enforcement should have to meet a lower standard of proof (than "probable cause"), given the diminished expectation of privacy in commercial optical disc manufacturing. I'd be worried about the implications of that argument, too, but it would be a better one.

But again, the problem cited by the bill's sponsors seems to be enforcement of existing labeling laws. So if that's the problem, bypassing the warrant requirement seems to make it only somewhat easier and cheaper for law enforcement to inspect factories. So why not make sure law enforcement has the resources it needs to follow constitutional procedures? That's a much better solution that creating the apparatus of surveillance that will be used for many other nefarious purposes—if not here in the U.S., then in the many other countries around the world with governments eager to find the pretense of legitimacy for their snooping, or another tool of "soft power" to exert over the private sector. I'd challenge EFF and other copyright skeptics to offer alternative proposals for stopping blatant piracy while respecting the Fourth Amendment.

Sen. Joe Lieberman was able to strong-arm Amazon and other companies to cut off hosting service to Wikileaks not because of any legal authority, but because of the many forms of soft power the U.S. government held over Amazon. Warrantless searches create the worst sort of soft power, because they allow governments to conduct a "fishing expedition" through a company's records and facilities. Look hard enough and you'll eventually find something to charge them with—or just plant the evidence. That might not happen in California, but it happens all the time around the world.

Technological Pessimism vs. Human Adaptation

I'm currently finishing up my next book. It addresses various strands of "Internet pessimism" and attempts to explain why all the gloom and doom theories we hear about the Internet's impact on modern culture and economy are not generally warranted.  A key theme of my book is that most Internet pessimists overlook the importance of human adaptability in the face of technological change.  The amazing thing about humans is that we adapt so much better than other creatures. We learn how to use the new tools given to us and make them part of our lives and culture. The worst situations often bring out the most creative, innovative solutions. Media critic Jack Shafer has noted that "the techno-apocalypse never comes" because "cultures tend to assimilate and normalize new technology in ways the fretful never anticipate."

In a cultural sense, humans have again and again adapted to technological change despite the radical disruptions to their lives, mores, manners, and methods of learning. As Aleks Krotoski recently points out in her new Guardian essay, "How the Internet Has Changed Our Concept of What Home Is":

We are adaptable creatures and will work within the confines of our existing homes to integrate this new creature into our lives. We have already made the web part of our domestic ecologies and we continually imbue it with a sense of place. Perhaps its malleability is why it has been so successful and why we are willing to bring this interruptive technology into our most intimate worlds.

Human adaption also works magic in an economic sense. Entrepreneurs are constantly developing disruptive technologies that transform markets and expand opportunities. Innovators respond to incentives, including short-term spells of excessive "market power." [More on that in my latest Forbes column, "No One Owns a Techno Crystal Ball."]

Techno-pessimism and technopanics are born from irrational fears and a failure to appreciate that humans have, many times before, faced and conquered the technological unknown. Simply put, pessimists have very little faith in human ingenuity and resiliency.

Net Neutrality goes to Court…Again

On NPR's Marketplace this morning, I talk about net neutrality litigation with host John Moe.

Nearly a year after the FCC passed controversial new "Open Internet" rules by a 3-2 vote, the White House finally gave approval for the rules to be published last week, unleashing lawsuits from both supporters and detractors.

The supporters don't have any hope or expectation of getting a court to make the rules more comprehensive.  So why sue?  When lawsuits challenging federal regulations are filed in multiple appellate courts, a lottery determines which court hears a consolidated appeal.

So lawsuits by net neutrality supporters are a procedural gimmick, an effort to take cases challenging the FCC's authority out of the D.C. Circuit Court of Appeals, which has already made clear the FCC has no legal basis here.

But Verizon's lawsuit challenges the rules as material changes to existing licenses for spectrum, a challenge that is exclusive to the D.C. Circuit.  If the D.C. Circuit agrees that the rules can be challenged under that provision of the law, then the case stays in D.C..

Beyond the procedure, the substance of Verizon's challenge will be formidable.  In the 2010 Comcast case, the court eviscerated the FCC's argument that various provisions of the Communications Act give them the authority to police broadband providers.

And the Open Internet order largely repeated those arguments, a sure sign that the agency really doesn't expect to win here.  The December vote was largely symbolic, fulfilling an Obama campaign promise to codify net neutrality and moving the noisy and messy proceeding from the agency to the courts.

The real issue here is convergence.  In 1996, when the Communications Act was last overhauled, the commercial use of the Internet was in its infancy.  Broadcast TV, radio, telephone, cable, mobile and data services were still separate technologies, and the 1996 Act gave the FCC separate and different authority over each.  For the Internet, the agency got next to no authority.

In the 15 years since President Clinton signed the 1996 act, of course, the world of communications has been revolutionized by the Internet and broadband.  The FCC's traditional regulatory subjects have largely converged onto the TCP/IP protocol, generating a flowering of innovation and new devices and services.  Cable providers are phone companies, phone companies are content providers, and computer companies such as Apple and Google are, well, everything.

Consumers are living in a golden age of communications, but the agency has been left with little to oversee.  Wireline voice has become an unprofitable and shrinking business as consumers cut the cord.  The audience for broadcast TV is getting older and smaller at a rapid pace.  This term, the Supreme Court is likely to slap the agency again for its Victorian sensibilities with regard to TV and radio content censorship.

Perhaps Congress will someday decide that broadband services require the kind of oversight and micromanagement the FCC once had over traditional forms of communication.  Then again, wiser heads may take note of the success of the Internet in a world without much regulation, and decide to leave well enough alone.  Perhaps a great overhaul of communications law will clear the decks altogether, creating a single body of law for the converged industries.

Who can say?  But in the meantime, the FCC can't simply grant itself new authority to regulate.  Regardless of the sincerity of its belief that "prophylactic" rules to preserve the Open Internet are important, federal agencies can't regulate without Congressional authorization.  Whether in the courts or in Congress itself, the net neutrality rules will be struck down, first and foremost because the FCC had no power to enact them.