Category Archives: Digital Life

Albert Gallatin and the First National Broadband Plan

Over the weekend, I published an op-ed in The Des Moines Register encouraging the FCC to heed the lessons of the first national broadband plan, the one Secretary of the Treasury Albert Gallatin sent to Congress in 1808.

Gallatin was a remarkable figure in the early history of the federal government, and his accomplishments include being the longest-serving Treasury secretary (1801-1812) to date. His report on the Subject of Public Roads and Canals, completed at the request of Congress, remains one of the seminal documents in the history of American infrastructure. It is a masterpiece of dispassionate policy-making and clear-headed writing.

Alas, the document is available nowhere online, and the only in-print copy I can find is published by the aptly-named Dodo Press. This is indeed unfortunate given the renewed interest in network infrastructure as a form of national technology. The NBP published in March by the FCC, despite its nearly 400 pages and thousands of footnotes, makes no reference to Gallatin or his plan. Continue reading →

There’s Something About ECPA

I write in “The Laws of Disruption” of the risk of unintended consequences that regulators run in legislating emerging technologies.  Because the pace of change for these technologies is so much faster than it is for law, the likelihood of defining a legal problem and crafting a solution that will address it is very slim.  I give several examples in the book of regulatory actions that quickly become not just obsolete but, worse, wind up having the opposite result to what regulators intended.

An unfortunate example of that problem in the news quite a bit lately is the Electronic Communications Privacy Act or ECPA.   (My first published legal scholarship, in 1994, was an article about a provision of ECPA that allowed law enforcement officers to use evidence they came across by accident in the course of an otherwise lawful wiretap, see “Electronic Communications and the Plain View Exception:  More ‘Bad Physics.’”)

Passed in 1986, ECPA at the time was a model of smart lawmaking in response to changing technologies.  It updated the federal wiretap statute, known as Title III, to take into account the rise of cellular technologies and electronic messages–which didn’t exist when the original law was passed in 1968.

In essence, ECPA brought these new forms of communications under the legal controls of the wiretap law, meaning for example that police could not intercept cell phone transmissions without a warrant, just as under Title III they needed a warrant to intercept wireline calls.  Private interception was also made illegal.

Lost in the Clouds

A lot has happened since 1986, and unfortunately for the most part ECPA hasn’t kept up.  Most significant has been the explosion of new data sources of all varieties, and in particular the now billions (trillions?) of messages sent and received each day by individuals communicating through the Internet.  The potential evidence those messages contain for a variety of investigations—criminal, civil, terror-related—has made them an irresistible target for law enforcement as well as civil litigants.

In addition to the sheer volume of new data sources, the other significant change undermining ECPA’s assumptions has been the movement to cloud-based services, particularly for email.  In the early days of email (say, 1995), ISPs kept messages on their servers only until the user, through a client email program such as Eudora, downloaded the message to his or her personal computer.  Once downloaded, the message was immediately or soon after deleted from the server, if for no other reason than to save storage space.

Storage, however, has gotten cheap, and the potential uses of stored data for a variety of purposes has made it attractive for ISPs and other services (e.g., Google’s Gmail) to retain copies of messages and other user data on a permanent basis.

The drafters of ECPA had great foresight, but they couldn’t have imagined these changes.

Here come the unintended consequences.  Under the law, law enforcement agents hoping to get access to your emails as part of an investigation are required to obtain a warrant, just as they would need a warrant to search your home and seize your computer.

But for data stored on a third party computer—an ISP or other cloud provider—the warrant requirement applies only for “unopened” messages and only for 180 days after receipt.  Once the message is opened and 180 have passed, any stored data can be obtained without a warrant based on the much lower standard of a subpoena.

In some sense, this means that as users move to cloud computing they are inadvertently and unknowingly waiving protections against law enforcement uses of their data. Keep your data only locally on equipment in your home or office, and the police need a warrant to look at or take it.  Leave it in the cloud somewhere, and they can get at it without much fuss at all.

This turn of events, the result not of any secret conspiracy so much as the random confluence of technological inventions since 1986, is almost certainly not what the drafters of ECPA had in mind.  It is more likely to be just the opposite.  For ECPA, like the wiretap law it amended, was intended to give greater protection to communications than what the Fourth Amendment to the U.S. Constitution would otherwise have provided.

A Very Brief History of the Fourth Amendment in Cyberspace

The Fourth Amendment, recall, protects citizens from “unreasonable searches and seizures” by the government.  (We are, it bears emphasizing, talking ONLY about government access here—employers, parents, friends and companies are not subject to the Fourth Amendment.)

Which is to say, the Fourth Amendment is the absolute floor of citizen protections from government.  Title III and ECPA were intended to raise that floor for telephone and later data communications to something that gave citizens more, not less, privacy.

At some point, indeed, technology may push the law below the standards of the Fourth Amendment, making it unconstitutional.  That’s been a concern all along, from the beginning of the wiretap statute itself in 1968.  The passage of Title III followed landmark Supreme Court decisions in the Katz and Berger cases, in which the Court reversed the 1928 Olmstead case, which allowed the police to intercept phone calls of a suspect without a warrant.

The Olmstead decision, Justice Harlan wrote in his concurrence to Katz, was “bad physics as well as bad law, for reasonable expectations of privacy may be defeated by electronic as well as physical invasion,” 398 U.S. at 362 (1967).

Harlan’s phrasing has proven prophetic.  In order to avoid the metaphysical problem of explaining how electronic interception could constitute a “search” or a “seizure” when no physical property of the subject is involved, the Court focused instead on the “reasonable” part of the Fourth Amendment.

Search and seizure, the Court has held over the last fifty years, is really about privacy, and a “reasonable” expectation of privacy for any information law enforcement agents want to gather requires a warrant.  What part of a wiretap is a search and what part a seizure are questions neatly elided (though perhaps too neatly as we’ll see) by the “reasonable expectation of privacy” standard.

The privacy standard has proven at least somewhat resilient to changing technologies.  But with mainstream adoption of revolutionary information technologies comes changing expectations of what is reasonably expected to be “private” information.  Indeed, Olmstead can be seen as a perfectly understandable decision in light of the fact that in 1928 nearly all telephones were connected through party lines, where no caller had any expectation of privacy.

But that also means there is no absolute baseline for Fourth Amendment challenges (usually by a criminal defendant) to evidence collected by the government.  Again, Title III and ECPA can and did set a higher bar than was required as a constitutional minimum, but even as those intentions have been reversed by technology it does not automatically follow that ECPA is now below what the Fourth Amendment requires.

Absent special protections citizens may have had from ECPA, the question under Fourth Amendment jurisprudence becomes:  Do users who keep email and other data archived with ISPs and other cloud providers have an expectation of privacy?  Is that expectation reasonable?

The Ugly Details

Not surprisingly, courts are increasingly asked to weigh in on those questions, and the results are also not surprisingly inconclusive.  (David Couillard at Ars Technica reviewed some of the case law in a recent article, “The Cloud and the Future of the Fourth Amendment.”)

Earlier this month, the Department of Justice abandoned an attempt to avoid a search warrant even for mail messages less than 180 days old in a case that involved Yahoo mail.  (See Declan McCullagh, “DOJ Abandons Warrantless Attempts to Read Yahoo E-mail.”)

Google, which came to Yahoo’s defense, has begun disclosing just how many requests for information about its users it receives from various government agencies.  (See Jessica Vascellaro, “Google Discloses Requests on Users.”)

It’s also worth noting that sometimes technology goes the other way—making it harder for law enforcement officials to collect evidence and conduct investigations.  Encryption is a good example here—stronger encryption protocols make it easier for criminals to hide activity from the police.

Indeed, law enforcement and privacy advocates are in some sense always engaged in a complicated dance.  As technology constantly changes the delicate balance between the sanctity of private activity and the need for effective law enforcement, lawmakers are regularly asked by one side or the other (or both) to change the law to bring it back into something that satisfies both groups.

The Digital Due Process Coalition

The cloud computing problem has inspired the creation of an interesting coalition aimed at returning ECPA where its drafters intended to set the scales.  The group, called Digital Due Process, was launched in March and is calling for specific reforms of ECPA to take into account the reality of digital life in 2010.  (For those who want the legal details, the site includes an excellent analysis by my one-time boss Becky Burr, see “The Electronic Communications Privacy Act of 1986: Principles for Reform.”)

The Digital Due Process group is a remarkable coalition of organizations and corporations who might not otherwise be thought to agree on too many issues of technology policy.  It includes advocacy groups normally thought to be on the right or the left, including the ACLU, the Center for Democracy and Technology, the Progress and Freedom Foundation, the Electronic Frontier Foundation and the American Library Association.  Corporate members include Google, AT&T, Microsoft, eBay, and Intel.

One might think that with such specific recommendations and such a wide coalition of support from across the ideological spectrum that ECPA reform would be a slam dunk.  But of course that would ignore one very powerful lobby not represented by Digital Due Process–the lobby of law enforcement agencies.

These agencies almost certainly recognize that the move to cloud computing has given them unintended and unprecedented access to information otherwise protected by the law, but naturally they are loathe to let go of any advantage in the fight against crime.

Though there have been some calls in Congress for enacting the reforms called for by the coalition, the success of Digital Due Process is far from certain.  And even if the group does succeed, there’s no telling how long it will be before the scales become unbalanced yet again, or in whose favor, by the next set of disruptive information technologies to become mainstream.

As Thomas Jefferson said, “The price of freedom is eternal vigilance.”

A Few Words on Comcast v. FCC: Net Neutrality Neutralized

The D.C. Circuit Court of Appeals issued its opinion today in Comcast’s appeal of sanctions issued in 2008, rejecting the FCC’s authority to issue the sanctions in the first place.  (Brent Kendall of The Wall Street Journal has already reported the story, see “Court Strikes at Net Neutrality.”)

The ruling punished the cable company’s efforts to throttle peer-to-peer traffic over its network of some customers using the BitTorrent application, a network management principle the FCC said violated its “policy” on open and transparent Internet or “net neutrality.”   Since Comcast agreed to more subtle forms of traffic management and to make such decisions more transparent, the FCC left them with a slap on the wrist.  Comcast appealed nonetheless.  (Appeals of FCC adjudications go directly to the D.C. Circuit.)

I’ve read through the court’s 36-page opinion, which will serve as an important marker in the “net neutrality” debate.  It largely follows the harsh line of questioning taken during the oral arguments for the case back in January, where the panel challenged the FCC to identify a specific statutory provision that gave them authority to impose the neutrality principles—in this case, in an adjudication that Comcast had failed to follow the rules.

In 36 pages, there is not a single reference to any arguments made by Comcast.  Instead, the court “begins and ends” by dismantling the brief of the FCC, rejecting every effort to tie the Commission’s “ancillary jurisdiction” to something—anything!–in the Communications Act that could justify the sanctions.

When the FCC issued its Notice of Proposed Rulemaking on net neutrality in October of last year (rules that would in essence codify the basis for sanctions in the Comcast case), it cited as its authority to issue the rules none other than “ancillary jurisdiction”–making the same argument there that the D.C. Circuit has now rejected.  (See Paragraph 83 of the NPRM.)

FCC Commissioner Robert McDowell dissented from that aspect of the NPRM, noting “My view is that regulation of network management is simply not reasonably ancillary to responsibilities set forth under other sections of the Act.”

The D.C. Circuit agrees.  In conclusion, the court notes:

It is true that “Congress gave the [Commission] broad and adaptable jurisdiction so that it can keep pace with rapidly evolving communications technologies.”  It is also true that “[t]he Internet is such a technology,” indeed, “arguably the most important innovation in communications in a generation.” Yet notwithstanding the “difficult regulatory problem of rapid technological change” posed by the communications industry, “the allowance of wide latitude in the exercise of delegated powers is not the equivalent of untrammeled freedom to regulate activities over which the statute fails to confer . . . Commission authority.” [citations omitted]

The spin doctoring of this opinion will now commence.  But it is very hard to see how the NPRM can go forward—or survive even the briefest of legal challenges should the FCC simply do so—given this ruling.  The FCC could try to appeal to the U.S. Supreme Court or go back to Congress for explicit authority to issue net neutrality rules.  As I’ve written earlier, the FCC could also try to reclassify Internet services under the common carrier rules of Title II, where it has extensive regulatory powers.

Each of these paths is fraught with dangers and unintended consequences.

Perhaps it’s time for the Commission instead to take a step back and ask a question that was missing from the many posed in the NPRM:  Why regulate at all?

EBay Wins Important Victory Against Tiffany

As the Wall Street Journal is already reporting, today eBay sustained an important win in its long-running dispute with Tiffany over counterfeit goods sold through its marketplace.  (The full opinion is available here.)

I wrote about this case as my leading example of the legal problems that appear at the border between physical life and digital life, both in “The Laws of Disruption” and a 2008 article for CIO Insight.

To avoid burying the lede, here’s the key point:  for an online marketplace to operate, the burden has to be on manufacturers to police their brands, not the market operator.  Any other decision, regardless of what the law says or does not say, would effectively mean the end of eBay and sites like it.

Back to the beginning.  Tiffany sued eBay over counterfeit Tiffany goods being sold by some eBay merchants.  The luxury goods manufacturer claimed eBay was “contributorily” liable for trademark infringement—that is, for confusing consumers into thinking that non-Tiffany goods were in fact made by Tiffany.

The problem of counterfeit items has been a long-standing problem for electronic commerce, and as one of the largest and first online marketplaces it’s little surprise that eBay has found itself so often in the cross-hairs of unhappy manufacturers.  While the company has generally won these lawsuits, it lost an important case in France at about the same time the trial court in the Tiffany case ruled it its favor in 2008.

(A related problem that was explicit in the French case is that luxury goods manufacturers are unhappy in general with secondary markets given the tight—sometimes illegal—control they exert over primary channels.  Electronic commerce doesn’t respect local territories, fixed pricing and regulating discounting, perhaps the bigger headache for companies such as Tiffany’s.)

The struggle for courts is to apply traditional law to new forms of behavior.  Many of the opinions in these cases tie themselves in knots trying to figure out just what eBay actually is—is it a department store, where a variety of goods from different manufacturers are sold?  Is it a flea market, where merchants pay for space to sell whatever they want?  Or is it a bulletin board at a local grocery store, where individuals offer products and services?

Of course eBay is none of these things.  But courts must apply the law they have, and the case law for trademark infringement is based on these kinds of outdated classifications.  In the “common law” tradition, judges decide cases by analogy to existing case laws.  That means when there isn’t a good analogy to be found, the law is often thrown into confusion for a long period of time while new analogies get worked out.  Disruptive technologies create such discontinuities in the law, particularly for common law.

At the heart of these decisions is a question of control.  The more the marketplace operator controls the goods that are sold, the more likely they will be found liable for all manner of commercial misconduct.  (Tiffany also sued for false advertising, for example, claiming that eBay ads placed on Google searches promising Tiffany goods at low prices on its site were false, given that some of the goods were counterfeit.  Of course some of the goods were NOT counterfeit.)

A department store operator has complete control over the source of merchandise, and so would be held liable for selling counterfeits.  A bulletin board host has no control, and so would not be held liable.  Flea market operators sit somewhere in between, and depending on the extent and obviousness of the counterfeiting that takes place, operators are sometimes held liable along with the counterfeiters themselves.

The eBay marketplace sits somewhere between the two extremes.  On the one hand, eBay can and does have the ability to review the text of listings prior to their posting, and provides extensive service to merchants including listing services, postage and packaging, and payment management through PayPal.  It can and does respond to complaints by buyers of misrepresented goods (condition and source, e.g.) and by trademark holders who are given extensive tools to review listings to check for counterfeits.  And it charges the sellers for these services—indeed, that is the source of its revenue.

On the other hand, eBay never has physical possession of the goods that are sold through its marketplace—indeed, it never sees them.  That’s an essential feature of the company’s success—eBay couldn’t handle millions of listings in a limitless range of categories if merchants actually sent the goods to eBay during the course of an auction, the way high-end auctioneers such as Sotheby’s and Christie’s would do.

EBay (or buyers for that matter) can’t inspect the goods (other than through photos and text descriptions) prior to purchase, and even if it could the company doesn’t have the expertise to evaluate authenticity and condition of everything from buttons to Rolex watches to cars.  That’s why eBay’s buyer feedback system is so important to the efficient operation of the marketplace.

In today’s decision, the Second Circuit Court of Appeals in New York mostly affirmed the trial court’s holdings.  It agreed that for eBay to be liable for the trademark infringements of its misbehaving sellers, the company had to have actual knowledge of their activities and still continue doing business with them.

There was substantial evidence to the contrary—including direct policing by eBay as well as the tools provided to manufacturers to review and flag suspicious listings.  As the court noted, eBay has plenty of incentives to ensure counterfeit goods stay off the site—for unhappy buyers mean the loss of liquidity and the loss of any competitive advantage.

Tiffany objected to the fact that the eBay tools put the burden on trademark holders rather than marketplace operators to ensure the authenticity of the goods.  But the court agreed with eBay that such is indeed the burden of a trademark, a valuable and exclusive right given to manufacturers to encourage the creation of consistent and quality goods and services.  Since eBay acted on actual knowledge of infringement and could not be said to have willfully ignored the illegal behavior of some merchants, the company had fulfilled its legal obligation to trademark holders.

The opinion is, as to be expected, largely a discussion of legal precedent and the law of trademark.  That, after all, is the role of an appellate court—not to retry the case, but to review the trial judge’s findings in search of legal error.  The decision by the appellate court will serve as a powerful precedent for eBay and other e-commerce sites in the future.  (Tiffany says it may appeal to the U.S. Supreme Court, but it’s unlikely for many reasons that the Court would take the case.)

One important feature of the case that is not discussed directly in the appellate decision, however, is worth highlighting.  Though courts rarely say so explicitly, an important factor in deciding cases has to do with the practical limits of the remedy requested by a plaintiff, in this case Tiffany’s.  Given what eBay already does to police counterfeit goods, it’s hard to see what Tiffany’s actually wanted the company to do—that is, what it wanted the courts to order eBay to do had it won the lawsuit.

For aside from money damages, the purpose of a lawsuit and the reason the taxpayers fund the legal system is that court decisions let everyone know what behaviors are acceptable and which are not–and how to correct those that are not.  Had eBay lost, they would have had to pay damages, but more to the point the loss would have sent a message to them and others to change their behavior to avoid future damage claims.

So would would a loss have signaled?  In essence, eBay would have had either to agree not to sell any Tiffany goods (a limit other brands would have demanded as well) or to verify and authenticate all items before allowing them to be listed on the site.  That would have been the only way to satisfy Tiffany’s that their view of the law was being followed.

That remedy, though theoretically possible, would have meant the end of eBay and sites like it (including Amazon Marketplace).  It would in essence have said that any auction or other third-party sales model other than the high-end Sotheby’s or Christie’s approach is inherently illegal.  For there would have been nothing left to distinguish eBay’s low-cost approach to buying and selling—all of the efficiencies would have been eaten up by the need to authenticate before the auction began.

Such a remedy would have been economically inefficient—it would, to use Ronald Coase’s terminology, have introduced a great deal of unnecessary transaction costs.  For most of the items on eBay are accurately described, and for them the cost of authentication would be a waste.  eBay practices in essence a post-auction model of authentication.  If the buyer doesn’t agree with the description of the item once they receive it, eBay will correct the problem after the fact.

That’s much more efficient, but it does introduce cost to brand holders such as Tiffany’s.  A buyer who gets a counterfeit good may think less not only of the seller and of eBay but also of Tiffany’s.  Worse, the buyer who doesn’t realize they’ve received a counterfeit good may attribute its poorer quality to Tiffany’s, another form of damage to the mark.

The court’s decision implicitly weighs these costs and concludes that eBay’s model is, overall, the more efficient use of resources.  The brand owner can always sue the eBay sellers directly, of course, and can use the tools provided by eBay to reduce the number of bad listings that get posted in the first place.  Those enforcement costs, the court implies, are less than the authentication costs of Tiffany’s proposed remedy.  Faced with two possible outcomes, the court chose the more economically efficient.

Under the “law and economics” approach to legal decision-making, that finding would have been made explicit.  Some appellate judges, including Richard Posner and Frank Easterbrook, would have actually done the math as best they could from the record.

In any case, the finding seems economically sound.  Meanwhile, the law is still struggling mightily to catch up to reality.

Google v. Everyone

I had a long interview this morning with the Christian Science Monitor .  Like many of the interviews I’ve had this year, the subject was Google.    At the increasingly congested intersection of technology and the law, Google seems to be involved in most of the accidents.

Just to name a few of the more recent pileups, consider the Google books deal, net neutrality and the National Broadband Plan, Viacom’s lawsuit against YouTube for copyright infringement, Google’s very public battle with the nation of China, today’s ruling from the European Court of Justice regarding trademarks, adwords, and counterfeit goods, the convictions of Google executives in Italy over a user-posted video, and the reaction of privacy advocates to the less-than-immaculate conception of Buzz.

In some ways, it should come as no surprise to Google’s legal counsel that the company is involved in increasingly serious matters of regulation and litigation.  After all, Google’s corporate goal is the collection, analysis, and distribution of as much of the world’s information as possible, or, as the company puts it,” to organize the world’s information and make it universally accessible and useful.”  That’s a goal it has been wildly successful at in its brief history, whether you measure success by use (91 million searches a day) or market capitalization ($174 billion).

As the world’s economy moves from one based on physical goods to one driven by information flow, the mismatch between industrial law and information behavior has become acute, and Google finds itself a frequent proxy in the conflicts.

As I argue in “The Laws of Disruption”, the unusual economic properties of information make it a poor fit for a body of law that’s based on industrial-era assumptions about physical property.  That’s not to say there couldn’t be an effective law of information, only that the law of physical property isn’t it.  Particularly not when industrial law assumes that the subject of any conflict or effort to control (the res as they say in legal lingo) is visible, tangible, and unlikely to cross too many local, state, or national borders—and certainly not every border at the same time, all the time.

To see the mismatch in action, consider two of Google’s on-going conflicts, both in the news this week:  Google v. China and Google v. Viacom.

Google v. China

In 2006, Google made a Faustian bargain with the Chinese government.  In exchange for permission to operate inside the country, Google agreed to substantially self-censor search results for topics (politics, pornography, religion) that the Chinese government considered dangerous.  The company had strong financial motivations for gaining a foothold in the astronomically-fast expanding Chinese Internet market, of course, but also had a genuine belief that giving Chinese users access to the vast majority of its indexed information had the potential to encourage fewer restrictions over time.

Apparently the result was the opposite, with the government tightening, rather than loosening the reins.  Google’s discomfort was compounded by the revelation in January that widespread hacking and phishing scams had penetrated the Gmail accounts of several Chinese dissidents, leading the company to announce it would soon end its censorship of Chinese searches.  (It also added encryption technology to Gmail and, it is widely believed, began working closely with the National Security Agency to help identify the sources of the attacks.)  Though Google has not claimed the attacks were the work of the Chinese government or entities under its control, the connection was hard to miss.  Google is hacked, Google decides to end cooperation with the government.

This week, the company made good on its promise by closing its search site in China and rerouting searches from there to its site in Hong Kong.  As a result of the long occupation of Hong Kong by western governments, which ended in 1997 when the U.K.’s “lease” expired, Hong Kong maintains special legal status within China.  Searches originating in Hong Kong are not censored, and Hong Kong appears to be largely outside China’s “great firewall” which blocks undesirable information including YouTube and Twitter.

For residents of the mainland, however, the move is a non-event.  China quickly applied the filters that Google had applied on behalf of the government for searches originating inside the country.  So Google searches in China are still censored—only now Google isn’t doing the censoring.  The damage to the company’s relationship with the Chinese government, meanwhile, has been severe, as has collateral damage to the relationship between China and the U.S. government.  The story is by no means over.

Google v. Viacom

Also in the last week, a number of key documents were released by the court that is hearing Viacom’s long-running copyright infringement case against Google’s YouTube.  The case, which began around the same time that Google made its deal with China, seeks $1 billion in damages from copyright violations against Viacom content perpetrated by YouTube users, who posted everything from short clips to music videos to entire programs, including “South Park” and “The Daily Show.”

Under U.S. law, Internet service providers are not liable for copyright infringement perpetrated by their users, provided the service provider is not aware of the infringement and that they respond “expeditiously” to takedown requests sent to them by the copyright holder.   (See Section 512 of the Digital Millennium Copyright Act,  http://www.copyright.gov/legislation/dmca.pdf)  Viacom claims YouTube is not entitled to immunity in that it had actual knowledge of the infringing activities of its users.

Discovery in the case has revealed some warm if not smoking guns—guns that the parties resisted being made public.  (See the New York Times Miguel Helft’s as-always excellent coverage, and also coverage in the Wall Street Journal.)  Viacom claims it has found a number of internal YouTube emails that make clear the company knew of widespread copyright infringement by its users, though Google characterizes those messages as having been taken out of context.

Perhaps more interesting has been the embarrassing revelation that many (though still a minority) of the Viacom clips, from MTV and Comedy Central programming for example, were posted by Viacom itself.  Indeed, these noninfringing posts were often put on YouTube under the guise of being posted by non-affiliated users in the hopes of giving the clips more credibility!

These “fake grassroots” accounts, as Viacom marketing executives referred to them, made use of as many as 18 outside marketing agencies.  Most embarrassing is that Viacom’s own legal team has now admitted that hundreds of the YouTube postings it initially claimed in its list of infringing posts were actually authorized posting by Viacom or its affiliates, disguised to look like unauthorized postings.

(Since 2007, Google has somewhat quieted the concerns of copyright holders over YouTube by introducing filtering technologies that let copyright holders supply reference files that can be digitally compared to weed out infringing copies.  This is an example, for better and for worse, of what Larry Lessig has in mind when he talks of implementing legal rules through software “code.”  Better because it avoids some litigation, worse because the code may be overprotective—filtering out uses that might in fact be legal under “fair use.”)

Google v. Everyone

What do the two examples have in common?  Both highlight the difficulty of judging the use of information with traditional legal tools of property and borders.

In the first example, China considers some forms of information to be dangerous.  To some extent, in fact, all governments restrict the flow of information in the name of national security, consumer safety, or other government aims.  China (along with Burma and Iran) are at one end of the control spectrum, while the U.S. and Europe are at the other end.

Google believes, as do many information economists, that more information is always better than less, even when some of it is of poor quality, outright wrong or which espouses dangerous viewpoints.  Google’s view was perhaps best put by Oliver Wendell Holmes, Jr. in his 1919 dissent in Abrams v. United States, 250 U.S. 616 (1919):

[T]he ultimate good desired is better reached by free trade in ideas…[T]he best test of truth is the power of the thought to get itself accepted in the competition of the market, and that truth is the only ground upon which their wishes safely can be carried out. That at any rate is the theory of our Constitution.

But even legal systems that believe in the “the marketplace of ideas” as the preferred forum for determining information value can’t resist the temptation sometimes to put their finger on the scales.  Congress and some states have tried and failed repeatedly to censor “indecent” content on the Internet (fortunately, the First Amendment puts a stop to it, but, as John Perry Barlow says, in cyberspace the First Amendment is a local ordinance).  Just this week, Australia came under fire for proposals to beef up the requirements it places on Internet service providers to censor material deemed harmful to children.  The Google convictions in Italy last month suggest that not even Europe is fully prepared to let the marketplace of ideas operate without the worst kind of ex post facto oversight.

Likewise in the Viacom litigation, it’s clear regardless of the final determination of legal arguments that some information uses that are illegal are nonetheless valuable to those whose interests are supposedly being protected by the law.  Viacom can make all the noise it wants to about “pirates” “stealing” their “intellectual property,” as if this were the 1800’s and the Barbary Coast.  .  Those who posted copyrighted material to YouTube were not doing it with the intent of harming Viacom—their intent was just the opposite.  What’s really going on is that users—fans!—who value their programming were using YouTube to share and spread their enthusiasm with others.

Yet intent plays no part in copyright infringement.  The law assumes that, as with physical property, any use that is not authorized by the “owner” of the information is with few exceptions likely to be financial detrimental.  That is certainly what Viacom claims in the litigation.   But the company’s own behavior tells a different story.  Why else would they post their own material, and pretend to be regular users?  Put another way, why is information posted by an anonymous fan more valuable to Viacom than information posted by the company itself?  What is it about an unsanctioned sharing that communicates valuable information to the recipient?

By posting the clips, YouTube users added their own implicit and explicit endorsement to the content.  The fact that Viacom marketing executives pretended to be fans themselves demonstrates the principle that the more information is used, the more valuable it can become.  That’s not always the case, of course, but here the sharing clearly adds value—in fact, it adds new information to the content (the endorsement) that benefits Viacom.

Whether that added value is outweighed by lost revenue to Viacom from users who, having seen the content on YouTube, didn’t watch it (or the commercials that fund it) on an authorized channel ought to be a key consideration in the court’s determination, but in fact it has almost no place in the law of copyright.  Yet Viacom obviously saw that value itself, or it wouldn’t have posted its own clips pretending to be fans of the programming.

Productive v. Destructive Use

Both these cases highlight why traditional property ideas don’t fit well with information uses.  What would work better?  I present what I think is a more useful framework in the book, a view that is so far absent from the law of information.  That framework would analyze information uses not under archaic laws of property but would rather weigh the use as being “productive” or “destructive” or both and determine if, on the whole, the net social value created by the use is positive.  If so, it should not be treated as illegal, regardless of the law.

What do I mean?  Since information can be used simultaneously by everyone and, after use, is still intact if not enhanced by the use, it’s really unhelpful to think about information being “stolen” or, in the censorship context, of being “dangerous.”   Rather, the law should evaluate whether a use adds more value to information than it takes away.  Information use that adds value (reviewing a movie) is productive and should be legal.  A use that only takes value away (for example, identity theft and other forms of Internet fraud) is destructive and should be illegal.  Uses that do both (copyright infringement in the service of promoting the underlying content) should be allowed if the net effect is positive.

Under the productive/destructive model, Google’s actions in entering and now exiting from China make more sense as both policy and business decisions.  Censoring information is destructive in that it gives users the appearance of complete access where in fact the access has been limited.  That harm should be weighed against the benefit of providing information that otherwise wouldn’t have been available at all to Chinese users.

That the government became more rather than less concerned about Google over time might imply that Google had gotten the balance right—that is, that the Chinese government was increasingly aware that even what it originally thought of as benign information could have the kind of transformative effects it wanted to avoid.

Is China wrong to censor “dangerous” information?  Economically, the answer is yes.  There is a strong correlation between countries who are on the “freer” end of the censorship spectrum and those that have gained most financially from the spread of information technology.  The more information there is, the more value gets added by its use, value that is allocated (roughly, sometimes poorly) among those who added the value.

Likewise, the posting of Viacom clips on YouTube should weigh the productive value of information sharing (promotion and endorsement) against the destructive aspects–lost revenue of paid viewers on an authorized channel supported by cable fees, advertising sponsorship, and purchased copies in whatever media.

Under that kind of analysis, it might turn out that Viacom lost little and gained a great deal from the unpaid services of its fans, and that in fact any true accounting would have credited the fans for $1 billion in generated value rather than the other way around.  Or maybe it was a wash.  But just to consider the lost revenue, particularly using the crazy method of modern copyright law (each viewed clip is considered as a lost sale), is certain to misjudge the true extent of the harm, if any.

A lingering problem in both these examples is the difficulty of determining both the quality and quantity of the productive and destructive uses of the information in question.   How much harm did Google censoring cause?  How much value did YouTube users generate?

We don’t know, not because the answers aren’t knowable but because the tools for making such determinations are so far very primitive.  Traditional rules of accounting follow the industrial assumptions of physical property—that is, if I have it then you don’t, and once I’ve used it, it’s gone or at least greatly depleted—that information doesn’t follow.   It makes little or no allowance for the fact that information use can be non-diminishing, or even productive.

So how would we measure the harm to Chinese Internet users from the censored information, or the value of the information they could get before Google left town?  How would we measure the value of “viral” marketing of Viacom programming posted by real (as opposed to “fake grassroots”) fans?  How would we measure the actual losses Viacom suffered—not the statutory damages they claim under copyright law, which are surely far too generous?

Well, one problem at a time.  First let’s change the rhetoric about information use, positive and negative, from the language of property to a language that’s better-suited to a global, network economy.  If we do, the metrics will invent themselves.

Apple v HTC: The Plot Sickens

I’m quoted briefly in a story today in E-Commerce Times (see “Apple’s Patent Attack:  This Too May be Overhyped” by Erika Morphy) about the patent lawsuit filed this week by Apple against rival mobile device maker HTC.

Apple, of course, produces the iPhone, while HTC makes Google’s Nexus One and other devices that run on Google’s Android operating system.

So right from the start this case looks less like a simple patent dispute and more like a warning shot over Google’s bow.  The two companies are increasingly becoming rivals.  In August of last year, Google CEO Eric Schmidt resigned from Apple’s board.  Apple CEO Steve Jobs wrote at the time, “Unfortunately, as Google enters more of Apple’s core businesses, with Android and now Chrome OS, Eric’s effectiveness as an Apple Board member will be significantly diminished….”

The apocalyptic rhetoric from analysts that accompanied the lawsuit (see Marguerite Reardon’s piece on CNET, “Is Apple Launching a Patent War?”), however, is both under and overselling the story.  It’s both much worse and not as bad as it seems.

The Undersell

The war is actually already going on, and ranges far beyond Apple and HTC.  The mobile device industry is deeply embroiled in prolonged legal battles over patents, with perhaps dozens of complaints and counter-claims flying back and forth.  Nick Bilton of The New York Times this week produced a simplified chart of who is suing whom, which he described as a “patent lawsuit Super Bowl party.”

As I write in Law Eight of The Laws of Disruption, patent litigation has “evolved” from being a last resort in the protection of proprietary technology to the first step in protracted negotiations between industry participants over how to divide up a rapidly-growing pie.  Here’s how it works.  Everyone flood the Patent Office with applications, drafted as broadly as possible.  The over-burdened examiners, who are incentivized to process applications quickly, find it is easier to say yes than to say no, and grant a large percentage of patents that are far too generous and clearly don’t meet the legal requirements for protection.

As I wrote last year in The Big Money, patent grants are out-of-control, one of the many symptoms of what most legal scholars agree is a system that has become utterly broken.  (The U.S. Supreme Court is currently reviewing a case that could see the end of so-called “business method” patents and perhaps even patents for software.  See “Can You Patent a Cat and a Laser Pointer?”)

Meanwhile, the parties all sue each other, and after years of poring over each other’s documents during discovery, figure out, more-or-less, who’s really invented what.  They wind up cross-licensing everything to everybody else and agreeing to mutual defense pacts against future challenges to the good and bad patents.  Apple says it has no interest in licensing its technology, but simply wants to stop competitors from ripping off their property.  We’ll see.

It is very likely that many of these patents, if recent history is any guide, are absurdly overbroad and would not survive full litigation. And full litigation is neither likely nor the goal of the parties. The real point of all this legal posturing is to obtain cross-licenses that will ultimately deter new competitors from entering the market.

There is a better way to protect invention without years of expensive litigation.  In some industries, subject to government approval, the major players simply pool their patents and establish open terms under which anyone can license them.  Sprint, Cisco, Intel and Nextel, for example, have pooled their WiMax patents to ensure a single standard emerges.  A mobile device pool would have been harder to fashion, but would also have avoided a lot of bloodshed (and legal fees).  In the end I suspect the results will be the same.

The Oversell

At the same time, the stakes aren’t quite as life-or-death as many commentators believe.  For example, the E-Commerce Times story quotes Greg Sterling on what a loss for Apple in the suit against HTC would mean:  “It would mean open season on any IP — anything could be copied.”  Hardly.  All it would mean is that the particular patents Apple is claiming either don’t hold up under careful scrutiny or, if they do, that HTC is found not to have infringed them.

More to the point, patent protection is only one way—and perhaps the least effective—that competitors secure competitive advantage in rapidly-growing and rapidly-evolving markets for new technology.  Offering superior service, an ever-growing menu of new options and features, and competitive pricing also works just fine.

Apple in particular has a significant advantage that has nothing to do with its patent portfolio:  the thousands of third-party 3G apps it sells to its customers.  The iPhone’s popularity today has little to do with proprietary technology, and everything to do with the enormous network of third-party software developers Apple has wrangled to write apps for its devices.

The apps drives network traffic, of course, but also drives what economists call “network effects.”  The more people use their iPhones the more people who don’t have one feel nudged to get one. Even if Apple loses the litigation, the network is unaffected.

The real winners in the mobile device patent war will be based not on patents but on the ability to build a robust network with compelling consumer offerings.  As it should be.