Adam Thierer's Blog, page 69

Four Unintended Consequences of Misapplied Privacy Regulation

Today Reason has published my policy paper addressing privacy concerns created by search, social networking and Web-based e-commerce in general.

These web sites have been in regulatory crosshairs for some time, although Congress and the Federal Trade Commission have been hesitant to push forward with restrictive legislation such as “Do Not Track” and mandatory opt-in or top-down mandates such as the White House drafted “Privacy Bill of Rights.” An the U.S. seems unwilling to go to the lengths Europe is, contemplating such unworkable rules like demanding an “Internet eraser button”—a sort of online memory hole that would scrub any information about you that is accessible on the Web, even if it is part of the public record.

In my paper, It’s Not Personal: The Dangers of Misapplied Policies to Search, Social Media and Other Web Content, I discuss the difficulty of regulating personal disclosure because different people have different thresholds for privacy. We all know people who refuse to go on Facebook because they are wary of allowing too much information about themselves to circulate. Where it gets dicey is when authority figures take a paternalistic attitude and start deciding what information I will not be allowed to share, for what they claim is my own good.

Top down mandates really don’t work, mainly because popular attitudes are always in flux. Offer me 50 percent off on a hotel room, and I may be willing to tell you where I’m vacationing. Find me interesting books and movies, and I may be happy to let you know my favorite titles.

Instead, ground-up guidelines that arise as users become more comfortable with the medium, and sites work to establish trust, work better. True, Google and Facebook often push the envelope in trying to determine where user boundaries are, but pull back when run into user protest. And when the FTC took up Google’s and Facebook’s practices, while the agency shook a metaphorical finger at both companies’ aggressiveness, it assessed no fines or penalties, essentially finding that no consumer harm was done.

This course has been wise. The willingness of users to exchange information about themselves in return for value is an important element of e-commerce. It is worth considering some likely consequences if the government pushes too hard to prevent sites from gathering information about users.

Free Services Go Away

Hundreds of thousands, if not millions, of sites support themselves through targeted advertising. If the federal government began to clamp down on websites’ ability to use consumer information to target ads, an immediate consequence would be a decline in the amount of free content, information and services available on the Web. A University of Toronto study of Web sites in Europe, where targeted advertising is heavily regulated, found that advertising effectiveness decreased  65 percent relative to counterparts in the rest of the world, and predicts that of European sites will see a declining share of the $8 billion in global online ad revenues decrease over time because they can’t effectively deliver an audience of interested customers.

This may explain why there are no European search of social media sites that rival Google and Facebook, and why Hyves, a Netherlands-based social networking sites, charges a fee for users access most of the benefits Facebook, LinkedIn, Google+ and Pinterest users get for free.

‘Mother, May I?’ trumps experimentation

Regulation forces companies to evaluate compliance issues before pursuing a potentially innovative product or service direction. As a result, innovation is slowed, or does not happen at all, not because of market considerations, but on the advice of legal counsel. This is a major risk of any regulation or legislation in technology, an area that is constantly changing and evolving, and where success and survival often hinge on out-of-the-box thinking. It is another reason why guidelines are preferable to law.

Regulations against information-sharing undermine the community-building benefit of the medium

One of the reasons people go online is to meet and interact others who share interests and passions. Individuals with unique interests—from birdwatching to Axis & Allies gaming—can connect with far more like-minded individuals than they might in their own geographic community. These communities in turn build knowledge bases that the general population of users can turn to from time to time. For example, someone planning a vacation in New York City can use Google to find a bevy of bulletin boards and forums, some quite granular, that provide information about shows, restaurants and attractions, all from people who have shared their experience. These boards thrive because search engines like Google and social networks like Facebook drive traffic to them—all based on preferences. Regulate this technology away and the Web loses its unique community-building character.

Privacy regulation won’t address information security issues

Politicians often conflate privacy and security. The two are related, but are not the same thing.

Security pertains to the protection of critical user information that, if disclosed, can result in theft or fraud. Neither Do Not Track nor the on-line privacy “bill of rights” truly addresses security issues related to on-line information.

Wire fraud laws already make it illegal to steal user information. Identity theft and identity fraud are crimes. Companies that fail to adequately protect confidential and sensitive information, such as social security numbers, banking information or specific health-related data, that in the wrong hands could be used for malicious purposes. By contrast, the information websites collect, collate and process for targeted marketing is not highly personal and confidential, but has to do with individual habits and preferences that could otherwise be easily observed—does the person prefer beer or wine? The Cubs or the White Sox? Mystery novels or biographies? For the most part, it is anonymized. True, Facebook and other sites allow users to post pictures and disclose more intimate personal details such as religion or sexual orientation, but again, users can decide whether to disclose these facts and, if they do, decide who may see them. Opt-in, Do Not Track and privacy bills of rights are all about substituting government mandates for individual discretion. They do not strengthen or expand on any current laws against online fraud or theft, which by themselves are quite strong.

Make no mistake, personal choice must be respected, and the right to confidentiality should be protected. Yet specific harms must be understood, delineated and targeted in any legislation or regulation before it goes forward. The information economy is called so for a reason. Nothing would be more counterproductive to it than clumsy government policies designed to generally inhibit the voluntary exchange and use of information. Right now, search, social media and informational websites are the most visible users of consumer information, but in the background, many of the automated, intelligent services we expect the Web to support will need to trade in user information. These include such basic applications as Web-enabled home appliances, such as refrigerators that sense when you’re low on milk to more critical services such as health care management. This is why it’s best to derive privacy policies from a strong and constantly evolving knowledge base of best practices, rather than to codify them into laws that, in their failure to foresee innovation, will discourage it.

Broadband and Competition Conference at GMU Law

The Information Economy Project at the George Mason University School of Law is hosting a conference in about three weeks, on Friday, April 19. The conference title is From Monopoly to Competition or Competition to Monopoly? U.S. Broadband Markets in 2013. There will be two morning panels featuring discussion of competition in the broadband marketplace and the social value of “ultra-fast” broadband speeds.

The morning keynote address is from Commissioner Joshua Wright, Federal Trade Commission. The lunch keynote is from Dr. Robert Crandall, Brookings Institution.

The panelists include:

Eli Noam, Columbia Business School
 

Marius Schwartz, Georgetown University, former FCC Chief Economist
 

Babette Boliek, Pepperdine University School of Law
 

Robert Kenny, Communications Chambers (U.K.)
 

Scott Wallsten, Technology Policy Institute
 

A continental breakfast will be served at 8:00 am and lunch will be served at noon. We expect to adjourn at 1:30 pm. You can find an agenda here and can RSVP here. Space is limited, so early responses are encouraged.

Chilean in Chains: Net Neutrality Does Not Mean Internet Freedom

Free Press is holding its National Conference for Media Reform next week. The conference agenda describes the Internet as “central” to freedom of expression, which is how all mass media technologies have been described since the invention of the printing press ushered in the mass communications era. Despite recognizing that the Internet is a mass media technology, Free Press does not believe the Internet should be accorded the same constitutional protections as other mass media technologies. Like so many others, Free Press has forgotten that the dangers posed by government control of the Internet are similar to those posed by earlier mass media technologies. In a stunning reversal of the concepts embodied in the Bill of Rights, Free Press believes the executive and legislative branches of government are the source of protection for the freedom of expression. In their view, “Internet freedom means net neutrality.”

Tell that to Rodrigo Ferrari, a Chilean blogger who knows firsthand that net neutrality laws don’t protect freedom of expression on the Internet. According to a letter sent by PEN America to United States Attorney General Eric Holder and Secretary of State John Kerry, Ferrari created what was clearly a parody Twitter account that mimicked Andronico Luksic, a wealthy Chilean businessman. PEN America alleges that, at the request of Chilean authorities, the US Departments of State and Justice pressured Twitter to release data identifying Rodrigo as the owner of the parody account and may have provided this information to Chilean authorities without a subpoena or a formal request from the court hearing the case. As a result of US government action, Twitter shut down Ferrari’s parody account, and Chilean authorities are prosecuting Ferrari for the crime of “usurpation of identity” (a form of identity theft), which could result in a prison sentence.

If net neutrality actually meant Internet freedom, Ferrari would not be facing time in prison. Though both Chile and the US have imposed net neutrality regulations, that didn’t stop government authorities in either country from conspiring to deprive Rodrigo Ferrari of his privacy and subject him to criminal prosecution for expressing his views using the Internet. In 2010, Chile became the first country to impose net neutrality regulations, including a regulation that expressly requires that Internet service providers guarantee the privacy of users. At the time, one enthusiastic blogger said, “Chile is China’s antonym in Internet world.” Another asked, “If Chile can, why can’t we?” Later that same year, the Federal Communications Commission followed the Chilean example by imposing net neutrality regulations on Internet service providers in the US, shortly before the European Union rejected net neutrality rules as “unnecessary” and potentially harmful to innovation and investment.

Why didn’t Chilean and US net neutrality regulations “mean” Internet freedom for Ferrari? Because net neutrality regulations don’t restrain government authorities and are not intended to protect consumers in any event. Net neutrality regulations are designed to maximize the access of content providers to consumers and consumer information that can be used to sell advertisements. That is why the net neutrality regulations adopted in Chile and the US apply only to “Internet service providers” (i.e., the companies that provide residential Internet connections). Twitter is not currently considered an “Internet service provider,” which means it can “block” whatever expression it wants.

To be clear, though I don’t support the actions of US authorities as alleged by PEN America, I’m not advocating that net neutrality regulations be extended to Twitter or other content providers. Ironically, however, neither is Free Press or any other net neutrality advocate. They support government restrictions applicable only to network operators despite evidence that Internet content is being “blocked” by content providers for commercial reasons. Net neutrality advocates also oppose First Amendment protection for Internet service providers despite evidence that the US government is using the Internet in a way that could chill our freedom of expression.

The asymmetrical approach to Internet regulation supported by net neutrality advocates may have succeeded in distorting the economics of the Internet marketplace, but the evidence indicates it has done nothing to enhance “Internet freedom.” Just ask Rodrigo Ferrari.

Sean Flaim on the private enforcement of copyrights

Sean Flaim, an attorney focusing on antitrust, intellectual property, cyberlaw, and privacy, discusses his new paper “Copyright Conspiracy: How the New Copyright Alert System May Violate the Sherman Act,” recently published in the New York University Journal of Intellectual Property and Entertainment Law.

Flaim describes content owners early attempts to enforce copyright through lawsuit as a “public relations nightmare” that humanized piracy and created outrage over large fines imposed on casual downloaders. According to Flaim, the Copyright Alert System is a more nuanced approach by the content industry to crack down on copyright infringement online, which arose in response to a government failure to update copyright law to reflect the nature of modern information exchange.

Flaim explains the six stages of the Copyright Alert System in action, noting his own suspicions about the program’s states intent as a education tool for repeat violators of copyright law online. In addition to antitrust concerns, Flaim worries that appropriate cost-benefit analysis has not been applied to this private regulation system, and, ultimately, that private companies are being granted a government-like power to punish individuals for breaking the law.

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Related Links


Copyright Conspiracy: How the New Copyright Alert System May Violate the Sherman Act, Flaim
Op-ed: Imminent “six strikes” Copyright Alert System needs antitrust scrutiny, Flaim
Let’s give the Copyright Alert System a chance, Brito
Here’s what an actual “six strikes” copyright alert looks like, Ars Technica

Shouldn’t We Worry If Patents Are Negatively Correlated With Growth?

Last week I attended an event on software patents at GW Law School. The event made me uncomfortable because it was—as one would expect at a law school event—dominated by lawyers. The concerns of the legal academics, practitioners, and lobbyists participating in the round table discussion were very different from those one would expect for a policy audience. For example, the participants agreed that there is no elegant way to partition software patents from other patents under current law and that current Supreme Court jurisprudence is unsophisticated, relying on the wrong sections of the U.S. Code.

Missing from the discussion was the single most important fact about patents: that they are negatively correlated with economic growth.

It is pretty easy to eyeball this relationship using data from the USPTO on number of patents granted and from the BLS on real GDP per capita.

Patent grants have exploded in the past two decades or so, and real GDP per capita growth has declined over the same period. Now, patent proponents can argue (rightly) that correlation is not causation—growth could have been even worse over the past few decades had we not had strong patent protection. But correlation is correlated with causation, so proponents of strong patent laws should have to explicitly make that argument using real evidence.

In addition to U.S. time-series data, we can examine the international cross-sectional evidence. As Petra Moser concludes in her recent JEP article:

Overall, the weight of the existing historical evidence suggests that patent policies, which grant strong intellectual property rights to early generations of inventors, may discourage innovation. On the contrary, policies that encourage the diffusion of ideas and modify patent laws to facilitate entry and encourage competition may be an effective mechanism to encourage innovation.

Taken together, absent some additional evidence from patent proponents, this time-series and cross-sectional evidence suggests we are on the wrong side of the Tabarrok Curve.

If there is any evidence that software patents in particular have a positive effect on innovation or growth, I have yet to see it. Here’s hoping proponents of the current system will take up the challenge and respond with such evidence. But if they do not, then we should abolish software patents even if it means adopting some relatively bizarre legal formulations as the lawyers fear.

17 Free-Market Tributes to Robert McDowell on His FCC Tenure

Robert McDowell, one of the two Republican Commissioners on the Federal Communications Commission, announced on Wednesday that he would soon resign. In his seven years on the FCC, Commissioner McDowell has been a consistent critic of over-regulation and a champion of both Internet freedom and the rule of law. He’s earned a uniquely loyal following among policymakers and thought leaders alike in the free market tech policy community, not only in the U.S. but around the world.  Here are just a few tributes to this remarkably humble and personable regulator—the regulator who, again and again, cried, in the most mild-mannered-but-firm way possible: “Hold on a minute, have we really thought this one through?”

Sen. John Thune (R-SD): “As we have seen with his recent leadership on efforts to prevent foreign government intervention in the operation and use of the Internet, Rob has been a consistent voice cautioning against unnecessary governmental regulations. I hope the president’s nominee to replace him will approach the job with the same passion and energy that Rob exhibited and will be similarly committed to finding market-based solutions to our nation’s communications challenges whenever possible.”

Rep. Fred Upton (R-MI): “At a time when broadband and wireless technology are transforming voice, video, audio and data communications, we could not have asked for a better steward than Commissioner McDowell. With every decision, he has fought to ensure we are creating an environment for investment, innovation, and growth. And he has done so with both eloquence and good humor. No question that he has left the communications landscape better than he found it. We thank him for his service.”

Rep. Greg Walden (R-OR): “For more than a half decade, Robert McDowell has embodied the consummate FCC commissioner. He has kept a steadfast eye on how to foster a vibrant communications marketplace for the American people and the American economy. He has always stood up to protect the freedom of the Internet for all, and at every turn he has made sure to respect good process, good policy, and the rule of law. The country is all the better for his service. With much gratitude, we wish him all the best wherever his path may take him.”

Ajit Pai, FCC Commissioner: “Robert McDowell has served with honor and distinction since 2006. On issues as varied as Internet governance, spectrum policy, and media ownership, the American people have benefited from Rob’s steadfast leadership. I’m proud to call him a friend and a colleague.”

Michael Powell, former FCC Chairman: “Rob McDowell is a man of vision and principle who has fully digested the lessons of free markets in a free society.  His commanding articulation of policy and his compelling advocacy for market mechanisms is not a product of ideology or cheap political theater.  Rather, It is the result of studious examination of what approaches best maximize the public interest.  The American people have been well-served by his stewardship.”

Bryan Tramont, Former FCC Chief of Staff: “Commissioner McDowell has been a stalwart defender of freedom throughout his FCC career. He and his team have been both intellectually robust and consistent in standing for free markets, consumers, and the rule of law. His leadership and generosity of spirit will be sorely missed.”

Berin Szoka, TechFreedom: “Rob McDowell has been the Internet’s best friend in Washington. He’s consistently warned against the Trojan Horse of regulations like Net Neutrality and the ‘ends-justify-the-means’ tactics behind them. From inside the regulatory ‘sausage factory,’ he cautioned that even the best-intentioned regulation is all too often captured by corporate interests—and always spreads.”

Geoffrey Manne, International Center for Law & Economics: “Rob McDowell has been one of the most powerful voices of reason and restraint at the FCC. His speeches, statements and dissents demonstrate his unwavering recognition that regulators are constrained by ignorance of the future and the inevitability of unintended consequences—that the communications network to Hell is paved with Title II. Nowhere is this humility more important than in the regulation of the Internet. His voice will be sorely missed.”

Adam Thierer, Mercatus Center: “Commissioner McDowell has been a great champion of freedom across the board, from traditional communications and media reform to cutting-edge Internet policy issues. On one issue after another, fans of liberty could count on Rob McDowell to perfectly articulate and defend the pro-freedom position on high-tech policy matters whenever and wherever he wrote or spoke.”

Randolph May, The Free State Foundation: “Throughout his entire tenure, Commissioner McDowell brought a principled approach to his work, and his decisions were always thoughtful, and, yes, even scholarly. These attributes are to be valued in any Commissioner, and they are especially valued by think-tankers. The fact that Rob applied his principled approach in the service of advancing free market-oriented and First Amendment-friendly positions made his service that much more important, and his legacy that much more enduring.”

Grover Norquist, Americans for Tax Reform: “Rob McDowell is that rare man in the alphabet soup (FCC, FDA, EPA) regulatory swamp of Washington who did not fall to “regulatory capture”—being captured by the interests of government over the american people. The goal is freedom, opportunity and not European social engineering. Rob McDowell never took his eye of the ball.”

Katie McAuliffe, Digital Liberty: “One of the great things about Commissioner McDowell is that he knows how to let the market work.  At a panel when talking about Net Neutrality he said ‘There was no problem before the order, and no problem after the order. There was no market failure.’  And he has stayed consistent in this belief fighting for internet freedom at the ITU and UN meetings.  As a champion of Internet Freedom he will be sorely missed.”

Dominique Lazanski, TaxPayers’ Alliance (UK): “Rob is an international leader and a strong defender of freedom. He has accomplished so much at the FCC because he has stood up for what he believes. He is a role model for free market policy internationally. He is an outspoken voice of reason in the ongoing ITU Internet governance debates. There is no doubt that he will continue to be a positive force on technology and communication policy in the future.”

Alberto Mingardi, Instituto Bruno Leoni (Italy): “Limited government is an art that requires patience and care. Rob McDowell defended individual liberty and free markets in the terra incognita of telecommunications. He did so with passion and humility, understanding the fragility of the fabric of technological innovation. I hope Rob’s passion will gain him many imitators, all over the world.”

John Stephenson, American Legislative Exchange Council: “Robert has been a leader for reform of our nation’s communications policies. He showed other policymakers how consumers and the Internet benefit from more market-based and innovative approaches to regulation. With his strong, thoughtful outlook, and sense of humor, Robert has also been a delight to know and hear speak.”

Larry Downes, author, The Laws of Disruption: “Comm. McDowell is both a gentleman and a scholar. That, alas, is a very rare combination, perhaps even an endangered species.”

Jeff Eisenach, American Enterprise Institute:  “Rob has shown an unsurpassed willingness to endure personal sacrifice in the cause of Internet freedom and the common weal.  With this in mind, and apologies to his family, I hereby nominate him for Chairman … of the ITU!”

Here are just few of McDowell’s greatest lines:

“[W]e are losing the fight for Internet freedom…. The Internet is no longer at a crossroads – with freedom and prosperity down one avenue, and command and control government domination down the other” – Senate Testimony (2013)

“The most common request we receive from industry is, ‘Please regulate my rival.’ Essentially, this request translates into, ‘My rival is running too fast, and I want government to slow him or her down to my level.’” – The Siren Call of “Please Regulate My Rival”: A Recipe for Regulatory Failure (Italy, 2012)

“The most sublime of the first 10 amendments is, of course, the First. Instead of limiting rights, the Framers intended the Bill of Rights to act as a bulwark protecting the sovereignty of the individual from state intrusion.” – Defending the First Among Our Freedoms (2011)

“To me, the core mission of the FCC is to promote freedom, especially the freedom of speech or the freedom to communicate. The freedom to communicate has been the singular fundamental right at the heart of every successful democracy over the centuries.” – Technology and the Sovereignty of the Individual (Sweden, 2011)

For more McDowelly goodness, check out his speeches, statements and testimony. Last year, we tried to distill the values McDowell has championed in our  Declaration of Internet Freedom, especially the top two:

Humility. First, do no harm. No one can anticipate what the future holds and what tradeoffs will accompany it. Don’t meddle in what you don’t understand — and what you can all too easily break, without even seeing what’s been lost. Often, government’s best response is to do nothing. Competition, disruptive technological change, and criticism from civil society tend to resolve problems better, and faster, than government can.

Rule of Law. When you must intervene, start small. Regulation and legislation are broad, inflexible, and prone to capture by incumbent firms and entrenched interests. The best kind of “law” evolves one case at a time, based on simple, economic principles of consumer welfare — alongside the codes of conduct and practices developed by companies under pressure from competitors and criticism. Worst of all, when regulators act without legal authority, or regulate by intimidation, they undermine the rule of law, no matter how noble their intentions.

New MRU Online Courses on Economics of Bundling & Cable TV Regulation

As noted here last week, as part of their Marginal Revolution University online courses, Tyler Cowen and Alex Tabarrok have been rolling out several classes on “Economics of the Media.” I think TLF readers will be interested in checking out their lessons on “Bundling” and “Cable TV Regulation” since these are topics we have frequently discussed here over the years. I’ve embedded those two presentations below, but please go the MRU site and watch all the videos in their media economics course when you get a chance. They are excellent.

Robert McDowell: Champion of Liberty

We learned today that Robert M. McDowell, who has served as a Commissioner at the Federal Communications Commission for almost seven years, will be leaving the agency shortly. I’m sad to hear it. Commissioner McDowell has been a great champion of freedom across the board, from traditional communications and media reform to cutting-edge Internet policy issues. On one issue after another, fans of liberty could count on Rob McDowell to perfectly articulate and defend the pro-freedom position on high-tech policy matters whenever and wherever he wrote or spoke.

I can’t even begin to list all the things we’ve written here over the years at the TLF about McDowell and his excellent body of work while he served at the FCC, but a quick custom search of this blog yields dozens of columns all gushing with praise for the seemingly endless string of outstanding speeches and statements that he made since joining the agency in 2006.  But I just want to highlight two of McDowell’s most eloquent speeches and strongly encourage you to go read or re-read them because they will inspire you to keep up the good fight to expand the sphere of liberty in this field:

“ Technology and the Sovereignty of the Individual ” (June 27, 2011)
“ The Siren Call of “Please Regulate My Rival”: A Recipe for Regulatory Failure ” (June 28, 2012)

Here a few choice passages from these amazing speeches:

from “Technology and the Sovereignty of the Individual”:

To propel freedom’s momentum, policy makers should remember that, since their inception, the Internet and mobile connectivity have migrated further away from government control. As the result of longstanding international consensus, the Internet itself has become the greatest deregulatory success story of all time. To continue to promote freedom and prosperity, regulators should continue to rely on the “bottom up” nongovernmental Internet governance bodies that have a perfect record of keeping the ‘Net working and open. We must heed the advice of leaders like Neelie Kroes, who has consistently called on regulators to “avoid over-hasty regulatory intervention,” and steer clear of “unnecessary measures which may hinder new efficient business models from emerging.” I couldn’t agree more. Changing course now could not only trigger an avalanche of international regulation, but it could halt the progress of freedom’s march as well.

With these pragmatic principles in mind, freedom-loving governments everywhere should resist the temptation to regulate in the absence of pervasive market failure.  Needless government intrusion into the Internet’s affairs provides nefarious authoritarian regimes with the political cover they desire to justify their interference with the ’Net.  To prevent an escalation of international regulation, we should encourage the kind of positive and constructive chaos that only unfettered competition can produce.  We should adopt spectrum policies that promote flexible uses, spectrum allocation through fair auction processes and, when appropriate, unlicensed use of the airwaves to spur innovation and adoption.  Fueling freedom in this way will turn the world upside down for the better.

from “The Siren Call of “Please Regulate My Rival”: A Recipe for Regulatory Failure” (I especially love this one since I was honored to be cited in it!):

“Regulating my rival” is a seductive notion for many, but it only lures its victims to rocky shores before revealing itself as a perilous Siren call. Telecom companies should not look to regulate their “rivals,” Internet content and applications companies, down to their level – especially not through an intergovernmental body.

Instead, network operators should seek deregulation by their home governments to allow them full flexibility to produce and price freely in competitive markets. In fact, as history shows us, attempting to regulate rivals will only produce unintended consequences that will harm the companies advocating regulation. More importantly, consumers end up losing the most. In short, the opposite of what is desired will occur, something called “regulatory failure.” No government, let alone an intergovernmental body, can make economic and engineering decisions in lightning fast Internet time. Nor can any government mandate innovation. But new rules can undermine investment, innovation and job creation all too easily.

Despite these realities, resisting the temptation to regulate is difficult for many. Furthermore, deregulation can seem counterintuitive to some. We always hear talk of “market failure,” but we rarely see analyses of “regulatory failure.” Perhaps that is why, in the words of Professor Adam Thierer, “regulation always spreads.” As world economies contract and government debt mounts, repeating the same government actions of regulating more and spending more of the public’s money will only produce the same results: shrinking economies and growing debt. It is time to reverse these trends, but doing so will require tremendous political courage.

We can start by avoiding any expansion of regulation to the Internet. Its phenomenal success can be traced directly to its voluntary and self-governing structure, the result of a multi-stakeholder process free from top-down governmental influences. In fact, policy makers should head in the opposite direction of the proposals outlined earlier. We should learn from the voluntary, bottom-up, self governance approach in the image of the non-hierarchical Internet itself, and look to apply this successful model elsewhere. Revolutionizing public policy through a fundamental modernization of legacy laws to clear away unnecessary regulatory obstructions will uncork the flow of investment capital, spark innovation, drive economic growth and propel job creation. Couldn’t today’s world economy benefit from such positive and constructive change?

On the other hand, dragging rivals down to the lowest common denominator of overly regulated international telecom companies will enshrine mediocrity at best, and, at worst, snuff out incentives to take risks and reap the resulting rewards, therefore killing opportunities to revitalize moribund economies and improve the human condition.

Robert McDowell is a great champion of liberty. His voice at the agency will be missed, but his legacy never forgotten. Thank you, Robert, for all that you have done.  (It is almost enough to make me forgive you for being a Duke grad and such a big Blue Devil basketball fan! Go Hoosiers.)

A Better, Simpler Narrative for U.S. Privacy Policy

Last week on his personal blog, Peter Fleischer, Global Privacy Counsel for Google, posted an interesting essay entitled “We Need a Better, Simpler Narrative of US Privacy Laws.” Fleischer says that Europe has done a better job marketing its privacy regime to the world than the United States and argues that “The US has to figure out how to explain its privacy laws on the global stage” since “Europe is convincing many countries around the world to implement privacy laws that follow the European model.” He notes that “in the last year alone, a dozen countries in Latin America and Asia have adopted euro-style privacy laws [while] not a single country, anywhere, has followed the US model.” Fleischer argues that this has ramifications for long-term trade policy and global Internet regulation more generally.

I found this essay very interesting because I deal with some of these issues in my latest law review article, “The Pursuit of Privacy in a World Where Information Control is Failing” (Harvard Journal of Law & Public Policy, vol. 36, no. 2, Spring 2013). In the article, I suggest that the U.S. does have a unique privacy regime and it is one that is very similar in character to the regime that governs online child safety issues. Whether we are talking about online safety or digital privacy, the defining characteristics of the U.S. regime are that it is bottom-up, evolutionary, education-based, empowerment-focused, and resiliency-centered. It focuses on responding to safety and privacy harms after exhausting other alternatives, including market responses and the evolution of societal norms.

The EU regime, by contrast, is more top-down in character and takes a more static, inflexible view of privacy rights. It tries to impose a one-size-fits-all model on a diverse citizenry and it attempts to do so through heavy-handed data directives and ongoing “agency threats.” It is a regime that makes more sweeping pronouncements about rights and harms and generally recommends a “precautionary principle” approach to technological change in which digital innovation is more “permissioned.”

Put simply, the U.S. regime is reactive in character while the E.U. regime is more preemptive.  The U.S. system focuses on responding to safety and privacy problems using a more diverse toolbox of solutions, some of which are governmental in character while others are based on evolving social and market norms and responses. To be clear, law does enter the picture here in the U.S., but it does so in a very different way than it does in the E.U.  Fleischer actually explains that point quite nicely in his essay:

[W]hat is the US model?  People in the privacy profession know that the US has a dense “patchwork” model of privacy laws: every individual US State has numerous privacy laws, the Federal government has numerous sectoral laws, and numerous other “non-privacy” laws, like consumer protection laws, are regularly invoked in privacy matters.  Regulators in many corners of government, ranging from State attorneys general, to the Federal Trade Commission, and armies of class action lawyers inspect every privacy issue for possible actions.

Indeed, in my new law review article, I summarize the litany of cases the FTC has brought recently on the data security and privacy front using its authority under Section 5 of the Federal Trade Commission Act to police “unfair and deceptive” practices. State AGs are active on this front as well, and there is plenty of class action activity every time there’s a privacy or data security screw-up.

Meanwhile, public officials continue to work collaboratively with privacy advocates, corporations, and educators to develop better education and awareness-building efforts, including “best practices” on safety, security, and privacy issues.

For more details on this U.S. model, please consult pages 436-454 of my article, in which I provide a comprehensive overview of what I refer to as America’s “3-E Approach” to dealing with online safety and digital privacy concerns. The “3-Es” refer to education, empowerment, and targeted enforcement of existing legal standards. As I note in the article:

[America’s “3-E Approach”] does not imagine it is possible to craft a single, universal solution to online safety or privacy concerns. It aims instead to create a flexible framework that can help individuals cope with a world of rapidly evolving technological change and constantly shifting social and market norms as they pertain to information sharing.

But what frustrates Fleischer is that the U.S model still doesn’t translate into a simple narrative for international audiences:

How on earth do you explain US privacy laws to an international audience?  How do you explain the role of class action litigation to people in countries where it doesn’t even exist?  The US privacy law narrative is convoluted. That’s a pity, since almost all of the global privacy professionals with whom I’ve discussed this issue agree with me that the sum of all the individual parts of US privacy laws amounts to a robust legal framework to protect privacy.  (I didn’t say “perfect”, since laws never are, and I’m not grading them either.)

By contrast, Europe’s privacy narrative is simple and appealing.  Its laws are very general, aspirational, horizontal and concise.  Critics could say they’re also inevitably vague, as any high-level law would have to be.  But, like the US Bill of Rights, they have a sort of simple and profound universality that has inspired people around the world.  And they are enforced (at least, on paper) by a single, identifiable, specialist regulator.

I understand the frustration Fleischer is expressing here regarding how to frame the U.S. model for broader audiences. But the crucial point here is that, as he correctly notes, “the sum of all the individual parts of US privacy laws amounts to a robust legal framework to protect privacy,” even if it is the case that we will never achieve anything near perfection when it comes to online privacy (or online safety for that matter). But it is unfortunate that Fleischer ignores the many other moving pieces at work here that are important to the U.S. system, especially the diverse array of educational and awareness-building efforts as well as the astonishing array of empowerment tools that currently exist to help user protect their privacy to the degree they desire.

Of course, it should also be obvious that the U.S. regime is never going to appeal to a global audience as much as Europe’s privacy regime for the same reason that many other U.S. policy regimes don’t appeal to certain countries or their leaders: Our systems aren’t regulatory enough in character for them! But while those top-down, centralized, preemptive regulatory regimes will almost always be more “aspirational, horizontal and concise” — and, therefore, have greater appeal to activist-minded lawmakers and regulators — that also means those regimes will likely leave less breathing room for social evolution (i.e., evolving norms about safety and privacy) and economic innovation (new digital goods and services that potentially disrupt those regulatory expectations). That has real consequences for long-term growth and overall consumer welfare.

Regardless, to the extent we need “a better, simpler narrative for U.S. privacy policy” as Fleischer suggests, I believe we can boil it down to a few words: bottom-up, evolutionary, flexible, and reactive. What this means for public policy is clear: We need diverse tools and solutions for a diverse citizenry, while leaving plenty of breathing room for ongoing innovation and the evolution of social norms and market responses. Whether it’s online safety or digital privacy, public policy should take into account the extraordinary diversity of citizen needs and tastes and leave the ultimate decision about acceptable online content and interactions to them. We should look to educate and empower citizens so that they can make decisions about their online safety and privacy for themselves so that policymakers are not constantly trying to make decisions on their behalf.

This is a model worth defending, even if it is sometimes hard to delineate its contours.  Please read my HJLPP article for a fuller exploration of that model and a defense of it.

Will Europe Regulate Over the Top Services on the Mobile Internet?

At Mobile World Congress in Barcelona last month, I was surprised that nobody had access to 4G mobile Internet services. How could Barcelona, the second largest city in Spain and host to the “world’s premier mobile industry event,” lack access to 4G? In the opening day keynote session, Vittorio Colao, Vodafone’s CEO, said Europe has only 6% of the world’s LTE connections, and Telefónica’s CEO, César Alierta, said only 17% of European mobile subscribers have smartphones. European mobile operators agreed they are lagging the world in 4G deployment and penetration due to existing price regulations that discourage new infrastructure investments.

Europe now stands at a crossroads: Does it adopt the modern, investment-based approach toward wireless markets that made the US the world’s 4G leader, or does it further increase regulation and impose new obligations on “over the top” (e.g., Skype) services? Our history with the regulation of rural telephone companies demonstrates the perils of the second option. Yet European mobile operators appear ready to embrace new regulations as a means to enhance their business and create a “balanced relationship” with “US companies” that provide over the top (OTT) services.

Declining revenues in Europe are driving their choice. In Q4 2012, Vodafone’s European year-over-year revenue declined an average -7.6%. Telefónica’s Q4 2012 European revenue declined -6.5% as its primary source of revenue shifted from Europe to Latin America. Deutsche Telekom’s Q4 European revenue declined -4.0%, and Orange’s year-end revenue declined -5.7% in France and -1.7% overall.

Operators attribute these declines to price regulation and competition from unregulated OTT services. In Europe, operators kept “local” calling rates relatively low by relying predominantly on higher mobile termination (e.g., payments received from another mobile operator or a wired telephone company to complete a call) and roaming rates to generate revenue. This approach worked successfully until 2009, when the European Commission (EC) decided to regulate mobile Internet termination and roaming rates. European Mobile operators now struggle to replace the lost revenue resulting from this mandated price regulation.

EC regulations may have reduced prices, but they have also discouraged 4G development in Europe. Price regulations limit potential returns on investment in 4G infrastructure, yet they do not apply to OTT providers, whose business models can take full advantage of any additional capacity mobile operators create. Rene Obermann, Deutsche Telekom’s CEO, described the benefits of asymmetrical regulation for OTT services this way: “You invest – We take the profit.”

For years European mobile operators asked the EC to stop regulating their prices. After the EC extended its pricing regulations last year, mobile operators floated a new approach: if they could not succeed in getting freed from government price controls, then why not level the playing field by pursuing similar regulations for OTT services?

At Mobile World Congress, Alierta explained it this way, “New monopolies are hurting consumers,” yet are “entirely unrestrained by regulators.” He cited Google and Apple as monopolies Europe must “break” to “ensure those who risk investment can reap the benefits.” Similarly, Colao urged the EC to adopt rules that don’t discriminate against mobile operators, and Obermann claimed the European regulatory paradigm favoring OTT companies is “unsustainable in the long run.”

Their frustration is understandable; however, I expect European mobile operators may regret giving up on the investment-based approach. The US experience indicates that EC regulatory protection would render Europe’s mobile providers forever reliant on price regulated termination charges. In exchange for the short-term benefits of protectionist policies, they would sacrifice their long-term ability to innovate and thrive in the era of the mobile Internet.

In the US, we have witnessed first-hand the negative consequences of regulatory protection. America’s rural carriers have traditionally relied on a similar scheme of regulated “terminating access” charges for support. These charges were intended to provide predictable revenues to a stable telephone monopoly, but have proven ill suited to markets with new cable and mobile competitors. Today US regulators struggle to keep the antiquated telephone network on life support in competitive markets while the survival of rural carriers dependent on price regulated revenues hangs in the balance. The US experience illustrates the dangers of protectionist regulation: It works only so long as the government agrees with you and creative destruction is held at bay.

Europe can learn from our experiences with the dying, price regulated telephone market and thriving, lightly regulated mobile market. The free market is the best way for European mobile operators to grow and for European governments to achieve their 4G goals. The question is whether European mobile operators will survive until the EC realizes it.