Category Archives: Information Economics

“Fake Neutrality” or Government Takeover?: Reading the FCC’s Net Neutrality Report (Part III)

In Part I of this analysis of the FCC’s Report and Order on “Preserving the Open Internet,” I reviewed the Commission’s justification for regulating broadband providers.   In Part II, I looked at the likely costs of the order, in particular the hidden costs of enforcement.  In this part, I compare the text of the final rules with earlier versions.  Next, I’ll look at some of the exceptions and caveats to the rules—and what they say about the true purpose of the regulations.

In the end, the FCC voted to approve three new rules that apply to broadband Internet providers.  One (§8.3) requires broadband access providers to disclose their network management practices to consumers.  The second One (§8.4) prohibits blocking of content, applications, services, and non-harmful devices.  The third One (§8.5) forbids fixed broadband providers (cable and telephone, e.g.) from “unreasonable” discrimination in transmitting lawful network traffic to a consumer.

There has of course been a great deal of commentary and criticism of the final rules, much of it reaching fevered pitch before the text was even made public.  At one extreme, advocates for stronger rules have rejected the new rules as meaningless, as “fake net neutrality,” “non neutrality,” or the latest evidence that the FCC has been captured by the industries it regulates.  On the other end, critics decry the new rules as a government takeover of the Internet, censorship, and a dangerous and unnecessary interference with a healthy digital economy.  (I agree with that last one.)

One thing that has not been seriously discussed, however, is just how little the final text differs from the rules originally proposed by the FCC in October, 2009.  Indeed, many of those critical of the weakness of the final rules seem to forget their enthusiasm for the initial draft, which in key respects has not changed at all in the intervening year of comments, conferences, hearings, and litigation.

The differences—significant and trivial—that have been made can largely be traced to comments the FCC received on the original draft, as well as interim proposals made by industry and Congress, particularly the framework offered by Verizon and Google in August and a bill circulated by Rep. Henry Waxman just before the mid-term elections.

1.      Transparency

Compare, for example, the final text of the transparency rule with the version first proposed by the FCC.

Subject to reasonable network management, a provider of broadband Internet access service must disclose such information as is reasonably required for users and content, application and service providers to enjoy the protections specified in this part. (Proposed)

A person engaged in the provision of broadband Internet access service shall publicly disclose accurate information regarding the network management practices, performance and commercial terms of its broadband Internet access service sufficient for consumers to make informed choices regarding use of such services and for content, application, service and device providers to develop, market and maintain Internet offerings. (Final)

The final rule is much stronger, and makes clearer what it is that must be disclosed.  It is also not subject to the limits of reasonable network management,  Rather than the vague requirement of the draft for disclosures sufficient to “enjoy the protections” of the open Internet rules, the final rule requires disclosures sufficient for consumers to make “informed choices” about the services they pay for, a standard more easily enforced.

By comparison, the final rule comes close to the version that appeared in draft legislation circulated but never introduced by Rep. Henry Waxman in October of 2010. It likewise reflects the key concepts in the Verizon-Google Legislative Framework Proposal from earlier in the year.

As the Report makes clear (¶¶ 53-61), the transparency rule has teeth.  Though the agency declines for now from making specific decisions about the contents of the disclosure and how is must be posted, the Report lays out a non-exhaustive list of nine major categories of disclosure, including network practices, performance characteristics, and commercial terms, that must be included.  It’s hard to imagine a complying disclosure that will not run to several pages of very small text.

That generosity, of course, may be the rule’s undoing.  As anyone who has ever thrown away a required disclosure from a service provider (mortgage, bank, drug, electronic device, financial statement, privacy, etc.) knows full well, information “sufficient” to make an informed choice is far more information than any non-expert consumer could possibly absorb and evaluate, even if they wanted to.   The more information consumers are given, the less likely they’ll pay attention to any of it, including what may be important.

The FCC recognizes that risk, however, but believes it has an answer.  “A key purpose of the transparency rule,” the Commission notes (¶ 60), “is to enable third-party experts such as independent engineers and consumer watchdogs to monitor and evaluate network management practices, in order to surface concerns regarding potential open Internet violations.”

Perhaps the agency has in mind here organizations like BITAG, which has been established by a wide coalition of participants in the Internet ecosystem to develop “consensus on broadband network management practices or other related technical issues.”  Or by consumer watchdogs, perhaps the agency imagines that some of the public interest groups who have most strenuously rallied for the rules will become responsible stewards of their implementation, trading the acid pens of political rhetoric for responsible analysis and advocacy to their members and other consumers.

We’ll see.  I wish I shared the Commissions confidence that, “for a number of reasons” (none cited), “the costs of the disclosure rule we adopt today are outweighed by the benefits of empowering end users and edge providers to make informed choices….”  (¶ 59).  But I don’t. Onward.

2.       Blocking

The final version of the blocking rule (§8.5) consolidated the Content, Applications and Services and Devices rule of the original draft.  The final rule states:

A person engaged in the provision of fixed broadband Internet access services, insofar as such person is so engaged, shall not block lawful content, applications, services or non-harmful devices, subject to reasonable network management.

A more limited rule applies to mobile broadband providers, who

[S]hall not block consumers from accessing lawful websites, subject to reasonable network management, nor shall such person block applications that compete with the providers’ voice or video telephony services, subject to reasonable network management

Much of the anguish over the final rules that has been published so far relates to a few of the limitations built into the blocking rule.  First, copyright-reform activists object to the word “lawful” appearing in the rule.  “Lawful” content, applications, and services do not include activities that constitute copyright and trademark infringement.  Therefore, the rule allows broadband providers to use whatever mechanisms they want (or may be required to) to reduce or eliminate traffic that involves illegal fire-sharing, spam, viruses and other malware, and the like.

A provider who blocks access to a site selling unlicensed products, in other words, is not violating the rules.  And as the agency finds it is “generally preferable to neither require not encourage broadband providers to examine Internet traffic in order to discern which traffic is subject to the rules” (¶ 48), there will be considerable margin of error given to providers who block sites, services, or applications which may include some legal components.

On this view, though the FCC otherwise contradicts it—see footnote 245 and elsewhere—a complete ban on the BitTorrent protocol, for better or worse, might not be a violation of the blocking rule.  Academic studies have shown that over 99% of BitTorrent traffic constitutes unlicensed file sharing of protected content.  Other than inspecting individual torrents, which the agency disfavors, how else can an access provider determine what tiny minority of BitTorrent traffic is in fact lawful?

A second concern is the repeated caveat for “reasonable network management,” which gives access providers leeway to balance traffic during peak times, limit users whose activity may be harming other users, and other “legitimate network management” purposes.

Finally, disappointed advocates object to the special treatment for mobile broadband, which may, for example, block applications, services or devices without violating the rule.  There is an exception to the exception for applications, such as VoIP and web video, that compete with the provider’s own offerings, but that special treatment doesn’t keep mobile providers from using “app stores” to exclude services they don’t approve.  (See ¶ 102)

Of course even the original draft of the rules included the limitation for “reasonable network management,” and refused to apply any of the rules to unlawful activities.  The definition of “reasonable network management” in the original draft is different, but functionally equivalent, to the final version.

The carve-out for mobile broadband, however, is indeed a departure from the original rules.  Though the Oct. 2009 Notice of Proposed Rulemaking expressed concern about applying the same rule to fixed and mobile broadband (see  13, 154-174), the draft blocking rule did not distinguish between fixed and mobile Internet access.  The FCC did note, however, that different technologies “may require differences in how, to what extent, and when the principles apply.”  The agency sought comment on these differences (and asked for further comment in a later Notice of Inquiry).  Needless to say, they heard plenty.

Wireless broadband is, of course, a newer technology, and one still very much in development.  Spectrum is limited, and capacity cannot easily be added.  Those are not so much market failures as they are regulatory failures.  The FCC is itself responsible for managing the limited radio spectrum, and has struggled by its own admission to allocate spectrum for its most efficient and productive uses—indeed, even to develop a complete inventory of who has which frequencies of licensed spectrum today.

Adding additional capacity is another regulatory obstacle.  Though mobile users rail against their providers for inadequate or unreliable coverage, no one, it seems, wants to have cellular towers and other equipment near where they live.  Local regulators, who must approve new infrastructure investments, take such concerns very much to heart.  (There is also rampant corruption and waste in the application, franchising, and oversight processes at the state and local levels, a not-very-secret secret.)

The FCC, it seems, has taken these concerns into account in the final rule.  Its original open Internet policy statements—from which the rules derive—applied only to fixed broadband access, and the October, 2009 draft’s inclusion of mobile broadband came as a surprise to many.

The first indication that the agency was considering a return to the original open Internet policy came with the Verizon-Google proposal, where the former net neutrality adversaries jointly released a legislative framework (that is, something they hoped Congress, not the FCC, would take seriously) that gave different treatment to mobile.  As the V-G proposal noted, “Because of the unique technical and operational characteristics of wireless networks, and the competitive and still-developing nature of wireless broadband services, only the transparency principle would apply to wireless at this time.”

The Waxman proposal didn’t go as far as V-G, however, adding a provision that closely tracks with the final rule.  Under the Waxman bill, mobile providers would have been prohibited from blocking “lawful Internet websites”, and applications “that compete with the providers’ voice or video communications services.”

So the trajectory of the specialized treatment for mobile broadband is at least clear and, for those following the drama, entirely predictable.  Yet the strongest objections to the final rule and the loudest cries of betrayal from neutrality advocates came from the decision to burden mobile providers less than their fixed counterparts.  (Many providers offer both, of course, so will be subject to different rules for different parts of their service.)

At the very least, the advocates should have seen it coming.  Many did.  A number of “advocacy” groups demonized Google for its cooperation with Verizon, and refused to support Waxman’s bill.  (It should also be noted that none of the groups objecting to the final rules or any interim version ever actually proposed their own version—that is, what they actually wanted as opposed to what they didn’t want.)

3.      Unreasonable discrimination

The final rule, applicable only to fixed broadband providers, demands that a provider not “unreasonably discriminate in transmitting lawful network traffic over a consumer’s broadband Internet access service.”  (§ 8.7, and see ¶¶ 68-79 of the Report).

Though subtle, the difference in language between the NPRM and the final rule are significant, as the FCC acknowledges.  The NPRM draft rule noted plainly that “a provider of broadband Internet access service must treat lawful content, applications, and services in a nondiscriminatory manner.”

The difference here is between “nondiscrimination,” which prohibits all forms of differential network treatment, and “unreasonable discrimination,” which allows discrimination so long as it is reasonable.

The migration from a strict nondiscrimination rule (subject, however, to reasonable network management) to a rule against “unreasonable” discrimination can be seen in the interim documents.  The Verizon-Google proposal, which called for a “Non-Discrimination Requirement,” nonetheless worded the requirement to ban only “undue discrimination against lawful Internet content, application, or service in a manner that causes meaningful harm to competition or to users.” (emphasis added)

Rep. Waxman’s draft bill, likewise, would have applied a somewhat different standard for wireline providers, who “shall not unjustly or unreasonably discriminate in transmitting lawful traffic over a consumer’s wireline broadband Internet access service,” also subject to reasonable network management.

Over time, the FCC recognized the error of its original draft and now agrees “with the diverse group of commenters who argue that any nondiscrimination rule should prohibit only unreasonable discrimination.” (¶ 77)

As between the suggested limiting terms “undue,” “unjust” and “unreasonable,” the FCC chose the latter for the final rule.  Though many have complained that “unreasonable” is a nebulous, subjective term, it should be noted that of the three it is the only one with understood (if not entirely clear) legal meaning, particularly in the context of the FCC’s long history of rulemaking and adjudication.

The earliest railroad regulations, for example, which also provided the beginning of the FCC’s eventual creation and authority over communications industries, required reasonable rates of carriage, and empowered the Interstate Commerce Commission to intervene and eventually set the rates itself, much as the FCC later did with telephony.

One lesson of the railroad and telephone histories, however, is the danger of turning over to regulators decisions about what behaviors are reasonable. (Briefly, regulatory capture often ends up leaving the industry unable to respond to new forms of competition from disruptive technologies, with disastrous consequences.)

The V-G proposal gets to the heart of the problem in the text I italicized.  Despite the negative connotations of the word in common use, “discrimination” isn’t inherently bad. As the Report makes clear, in managing Internet access and network traffic, there are many forms of discrimination—which means, after all, affording different treatment to different things—that are entirely beneficial to overall network behavior and to the consumer’s experience with the Internet.

The draft rule, as the FCC now admits (see ¶ 77 of the Report), was dangerously rigid.  If any behavior should be regulated, it is the kind of discrimination whose principal purpose is to harm competition or users—though that kind of behavior is already illegal under various antitrust laws.

For one thing, users may want some kinds of traffic – e.g., voice and video – to receive a higher priority over text and graphics, which do not suffer from latency problems.  Companies operating Virtual Private Networks for their employees may likewise want to limit Web access to selected sites and activities for workers while on the job.

A strict nondiscrimination rule would have also discouraged or perhaps banned tiered pricing, harming consumers who do not need the fastest speeds and the highest volume of downloads to accomplish what the want to online.  (Without tiered pricing, such consumers effectively subsidize power users who, not surprisingly, are the most vociferous objectors to tiered pricing.)

Discrimination may also be necessary to manage congestion during peak usage periods or when failing nodes put pressure on the backbone.  Discrimination against spam, viruses and other malware, much of which is not “lawful,” is also permitted and indeed encouraged.  (See ¶ 90-92.)

By comparison, the Report notes three (¶ 75) types of provider discrimination that are of particular concern.  These are:  discrimination that harms competitors (e.g., VoIP providers of over-the-top telephone service, such as Skype or Vonage, that competes with the provider’s own telephone service), “inhibiting” end users from accessing content, services, and applications of their choice (but see the no-blocking rule, above, which already covers this), and discrimination that “impairs free expression,” including slowing or blocking access to a blog whose message the broadband provider does not approve.

On that last point, however, it’s important to note that Congress has already given broadband providers (and others) broad freedom to filter and otherwise curate content they do not approve of or which they believe their customers don’t want to see.  Under Section 230 of the Communications Decency Act,

“No provider or user of an interactive computer service shall be held liable on account of . . . any action voluntarily taken in good faith to restrict access to or availability of material that the provider or user considers to be obscene, lewd, lascivious, filthy, excessively violent, harassing, or otherwise objectionable, whether or not such material is constitutionally protected.”

The goal of Section 230 was to immunize early Internet providers including CompuServe and Prodigy from efforts to exercise editorial control over message boards whose content was provided by customers themselves.  But it gives providers broad discretion in determining what kind of content it believes its customers don’t want to see.  So long as the filtering is undertaken in “good faith” (e.g., not with the intent of harming a competitor), there is no liability for the provider, who does not, for example, become a “publisher” for purposes of defamation law.

The FCC (¶ 89) acknowledges the limit that Section 230 puts on the discrimination rule.

On the harm to competitors prong, the FCC waffles (see ¶ 76) on whether “pay for priority”—the bugaboo that launched the neutrality offensive in the first place, actually constitutes a violation of the rules.  While a broadband provider’s offering to prioritize the traffic of a particular source for a premium fee “would raise significant cause for concern,” the agency acknowledges that such behavior has occurred and thrived for years in the form of third party Content Delivery Networks.  (See footnote 236)  CDNs are allowed.   (More on CDNs in the next post.)

So in the end the discrimination rule doesn’t appear to add much to the blocking rule or existing antitrust laws.  Discrimination against competing over-the-top providers would violate antitrust.  Blocking or slowing access to disfavored content is already subject to the blocking rule.  And interfering with “free expression” rights of users is already significantly allowed by Section 230.

What’s left?   “The rule rests on the general proposition,” the agency concludes (¶ 78), “that broadband providers should not pick winners and losers on the Internet,” even when doing so is independent of competitive interests.  What exactly this means—and how “reasonable” discrimination will be judged in the course of enforcing the rules—remains to be seen.

Next:  The exceptions and what they say about the real purpose of the rules

One Hundred Years of Coase: Reading the Open Internet Report (Part II)

In my previous post on the FCC’s Open Internet Report and Order, I looked at the weak justification given for the new rules the Commission approved on Dec. 21, 2010

In this post, an aside on the likely costs of the rules, and in particular the costs of enforcement.

Last week was the 100th birthday of Nobel prize-winning economist Ronald Coase, a remarkable man I have had the great fortune to know personally. Among his many contributions to the field, Coase has always advocated for more empirical research and other data collection to help lead the field out of its theoretical quagmire. To that end, Coase co-founded the International Society for New Institutional Economics, and served as its first President in 1996.

Unfortunately, the FCC, which owes a great debt to Coase for his early championing of auctions for radio spectrum, does not seem to have learned much else from his work. In a section optimistically captioned, “The Benefits of Protecting the Internet’s Openness Exceed the Costs” (¶¶ 38-42), the Commission makes no effort to calculate either with any hint of rigor. Wishing away serious economic analysis, the Report simply states that “By comparison to the benefits of these prophylactic measures, the costs associated with the open Internet rules adopted here are likely small.”

The sole citation for this remarkable claim is to comments filed by Free Press, one of fifty citations to Free Press in the Report. So far as I know, Free Press does not keep economists on staff, nor did they perform any economic analysis of the benefits or costs of rules that, of course, weren’t in any case finalized until months after comments were filed.

So the belief that the costs are likely small, let alone the value of the benefits not of the open Internet but of the rules adopted to salvage it, is simply that—a belief, or, more likely, a mere hope.

The Report goes on to note that openness and no-blocking are already the “norm” and the “status quo” for broadband Internet providers (so, again, why are new rules so urgently required?), and therefore the only significant compliance cost the FCC envisions is for the new transparency rule, which will require disclosure of network management practices that consumers are imagined to use in deciding which broadband provider to choose. (See ¶¶ 39, 43, and 53-61)

The transparency rule itself, § 8.3, will be discussed in a later post. But assuming that complying with this rule represents the only significant change to existing practices by broadband Internet providers required by the new rules, it probably won’t add enormous new costs. On the other hand, this is also the rule least likely to deliver much in the way of benefits. (Just take a look at the Truth in Lending Disclosure on your last mortgage refinance or read the required FDA disclosure for a recent prescription—which you surely didn’t do before deciding to complete the transaction—to get a sense of just how useful the newly-required network management disclosure will be.)

The Nature of Enforcement

But what of the costs of enforcing the rules, or defending against a claim that a broadband Internet provider has violated them?  The Report here is eerily silent.

There are three types of actions that may be taken to enforce the rules.

First, any individual or organization may file an informal complaint, without paying any fee, through the FCC website. (¶ 153.) Though such complaints will not automatically lead to agency action, “the Enforcement Bureau will examine trends or patterns in complaints to identify potential targets for investigation and enforcement action.”

Second, under ¶ 160, the agency itself may initiate actions, perhaps based on trends or patterns it notes in the informal complaints.

The third avenue for enforcement, the filing of a formal complaint, is the most worrisome. Under § 8.12 of the Order, “Any person may file a formal complaint alleging a violation of the rules….” (emphasis added) (See also ¶¶ 154-159)

In his greatest work, “The Nature of the Firm” (1937), Coase plainly and clearly laid out his belief that business organizations exist only to the extent that their internal costs are less than the costs of using the market to perform every activity associated with the production and marketing of the firm’s products and services. The market in reality is not the magic font of perfect efficiency that theoretical economists assume in their models. Each transaction between a buyer and a seller has certain inefficiencies or costs associated with it, costs Coase referred to as “transaction costs.”

I have written in all of my books about the importance of transaction costs in understanding how the Internet—which reduces transaction costs—is putting unique pressures on the structure of firms, and there’s no need to repeat that discussion here.

But of the six categories of transaction costs Coase introduced in 1937, one that seems not to have penetrated the FCC’s analysis is the one he called “enforcement costs.” In the even the terms of a transaction are not met to the satisfaction of buyer or seller or both, various mechanisms—including arbitration, negotiation, regulators and/or the courts—must be invoked to ensure the bargain made is the bargain received.

In many cases these costs can be exorbitant; indeed, far greater than the value of the underlying transaction. A rational consumer won’t sue the maker of a rubber band that breaks the first time you use it.

At least not when the consumer has to bear the costs of litigating the claim herself. The loss of value from the broken rubber band is a fraction of a penny. The cost of initiating—let along prosecuting—a lawsuit would exceed that price by several orders of magnitude. And, in most situations, the most the consumer could hope to win would be the fraction of a cent. The cost of enforcing the implied promise of a working rubber band—and the seller’s cost of defending itself—are lost.

But what if the consumer can offset nearly all of the enforcement costs on someone else—on the FCC, perhaps, or their broadband ISP provider? If “any person” who believes something is amiss could file an open Internet complaint and pay only a small filing fee to start the machinery of enforcement, why not bring a complaint for any perceived infraction, no matter how small or, indeed, illusory?

And that, unfortunately, is exactly the kind of incentive system created by the Order.

The existence of the new open Internet rules, of course, may operate as a deterrent against the behaviors they prohibit. But it is also likely that the agency will be called upon to enforce the rules against broadband access providers who are accused of violating them. The enforcement costs can be significant—including the costs to the agency itself (that is, to the taxpayers), as well as to the companies accused, rightly or wrongly, of violations.

Bizarrely, the Report makes no mention of the costs of enforcement or their potential impact on the cost-benefit analysis that is dispensed with so quickly. Yet the rules as written are likely to introduce substantial enforcement costs, as evident by looking at the mechanisms for making and resolving complaints. (¶¶ 151-160).

The Danger of a Private Right of Action

In legal terms, the ability of any individual to initiate an enforcement action is known as a private right of action. Federal law grants very few such broadly-written rights. There are, of course, hundreds of millions of American consumers, and giving all of them the right to initiate a formal proceeding that the FCC and the complained-of party must address can generate enormous costs.

But that is precisely what the new rules have done. Regardless of the merits or specifics of a complaint, “the defendant must submit an answer.” In cases where the “facts” are disputed, “a thorough analysis of the challenged conduct might require further factual development and briefing.” (¶ 156) Moreover, “the broadband provider must answer each claim with particularity and furnish facts, supported by documentation or affidavit, demonstrating reasonableness of the challenged practice.” (¶ 157)

In resolving formal complaints, “the Commission will draw on resources from across the agency—including engineering, economic, and legal experts—to resolve open Internet complaints in a timely manner.” (¶ 159)

These are the general comments in the Report. Specific “pleading requirements” laid out in the Order provide the procedures for filing complaints, answers and replies, conducting discovery, developing and supporting legal arguments, verifying facts and documents submitted, and the like. (§§ 8.13-8.17) These sections are in fact far longer and more detailed than the rules themselves, and in essence create a system of adjudication that is similar to the most complex cases brought in federal court.

For example, any broadband provider served with a complaint must respond within 20 days, and must respond to each and every fact referenced in the complaint, supported with documentation including affidavits, legal authority, and other evidence. The Commission “may specify other procedures,” including hearings and oral arguments, and “may require the parties to submit any additional information it deems appropriate for a full, fair, and expeditious resolution of the proceedings, including copies of all contracts and documents reflecting arrangements and understandings alleged to violate” the rules.

Again, a party filing a formal complaint can be any person or organization so long as they have a good faith belief that the broadband provider has violated the rules. (They need not themselves be a customer of the broadband provider.)

Since the kind of blocking and traffic discrimination the rules prohibit can only be distinguished from “reasonable network management” practices (or indeed, behavior that may appear to involve ISP activity but which may simply be a function of overall network conditions at any given time) by reference to detailed discovery, we can expect a lot of complaints to be filed that will turn out not to reveal violations of the rules.

Since consumers aren’t likely to know with any certainty that the behaviors they observe are in fact violations of the rules without extensive and technically complicated discovery, in other words, any slow-down, hiccup, temporary outage or other network artifact that appears to suggest interference will constitute a good faith belief that a violation has occurred, and therefore put the broadband provider (and the FCC) to the cost of demonstrating otherwise.

Is your Internet connection acting up today? Did it take a long time to watch the latest YouTube video? Did you have trouble finding the website you were looking for? Could be that your ISP is blocking or otherwise discriminating against particular content, so perhaps you should submit a formal complaint to the FCC just in case.

All the costs will be borne by others—the provider on the one hand and the FCC on the other.

It’s not Just Money that’s Being Wasted

Such an open-ended grant of standing to “any person,” whether for good or for evil, cannot be squared with the belief that “the costs associated with the open Internet rules adopted here are likely small.” Even if no violation of the rules is ever found—even if no broadband provider ever interferes illegally with the open Internet in the future—providers and the agency will find themselves buried under mountains of complaints, all of which must be investigated and responded to…within 20 days of the filing, no less.

It isn’t just money that will be wasted. The process of enforcement could undermine basic Constitutional protections as well. If a complaint alleges that a broadband provider is interfering with traffic—perhaps on an on-going basis—in ways that violate the rules, the FCC will of necessity analyze large volumes of traffic to determine if a service is being blocked or unreasonably discriminated against. And that means not just looking at traffic patterns but, of course, at the contents of the packets themselves.

The FCC, in other words, in the name of enforcement, will be looking at the Internet behavior not only of the person making the complaint but perhaps of many other customers of the same provider or other providers for comparison.

Economists were clearly absent from discussions about the cost of the rules. But one would have thought at least that civil libertarians would pause at new rules that, in the name of an open and transparent Internet, give the FCC the ability to observe traffic—to perform deep packet inspection—that in any other context would require federal officers to obtain a search warrant based on probable cause of a crime.

But no.  So far, not a peep.

Next: the final rules and what they “preserve.”

Radio commentary on rescuing the National Broadband Plan

I recorded a commentary today  for KQED–NPR in the Bay Area–on the importance of the National Broadband Plan.  In the wake of tumult over net neutrality, Title II, and other regulatory gibberish, the important goals of the NBP, published in March of 2010, have been lost.  That’s unfortunate, because the authors did a great job of setting out ambitious goals essential to maintain U.S. competitiveness.  The plan also relies for funding on private investment and incentives, giving it a realistic chance of success.

While recent polls indicate that few Americans want the government involved in encouraging adoption of broadband, I believe this is one example where intervention–if only of the cheerleading and goal-setting variety–is appropriate.  As I’ve written extensively elsewhere, the Internet’s success is a function of network effects, as succinctly described by Metcalfe’s Law.  The more people who have broadband access, the more valuable the network is for everyone.  And the better the chances for serendipitous new uses and applications to flourish.

Those of us who already have broadband access, in other words, would benefit just as much from getting non-users online as those users themselves.

Perhaps even more.

Domain Name Seizures and the Limits of Civil Forfeiture

I was quoted this morning in Sara Jerome’s story for The Hill on the weekend seizures of domain names the government believes are selling black market, counterfeit, or copyright infringing goods.

The seizures take place in the context of an on-going investigation where prosecutors make purchases from the sites and then determine that the goods violate trademarks or copyrights or both.

Several reports, including from CNET, The Washington Post and Techdirt, wonder how it is the government can seize a domain name without a trial and, indeed, without even giving notice to the registered owners.

The short answer is the federal civil forfeiture law, which has been the subject of increasing criticism unrelated to Internet issues.  (See http://law.jrank.org/pages/1231/Forfeiture-Constitutional-challenges.html for a good synopsis of recent challenges, most of which fail.)

The purpose of forfeiture laws is to help prosecutors fit the punishment to the crime, especially when restitution of the victims or of the cost of prosecution is otherwise unlikely to have a deterrent effect, largely because the criminal has no assets to attach.  In the war on drugs, for example, prosecutors can now seize pretty much any property used in the commission of the crime, including a seller’s vehicle or boat.  (See U.S. v. 1990 Toyota 4 Runner for an example and explanation of the limits of federal forfeiture law.)

Forfeiture laws have been increasingly used to fund large-scale enforcement operations, and many local and federal police now develop budgets for these activities based on assumptions about the value of seized property.  This has led to criticism that the police are increasingly only enforcing the law when doing so is “profitable.”  But police point out that in an age of regular budget cuts, forfeiture laws are all they have in the way of leverage.

Sometimes the forfeiture proceedings happen after the trial, but as with the domain names, prosecutors also have the option to seize property before any indictment and well before any trial or conviction.  Like a search warrant, a warrant to seize property requires only that a judge find probable cause that the items to be seized fit the requirements of forfeiture—in general, that they were used in the commission of a crime.

The important difference between a seizure and a finding of guilt—the difference that allows the government to operate with such a free hand—is that the seizure is only temporary.  A forfeiture, as here, isn’t permanent until there is a final conviction.

The pre-trial seizure is premised on the idea that during the investigation and trial, prosecutors need to secure the items so that the defendant doesn’t destroy or hide it.

If the defendant is acquitted, the seized items are returned.  Or, if the items turn out not to be subject to forfeiture (e.g., they were not used in the commission of any crimes the defendant is ultimately convicted for), they are again returned.  Even before trial, owners can sue to quash the seizure order on the grounds that there was insufficient (that is, less than probable) cause to seize it in the first place.

All of that process takes time and money, however, and many legal scholars believe in practice that forfeiture reverses the presumption of innocence, forcing the property owner to prove the property is “innocent” in some way.

In current (and expanding) usage, forfeiture may also work to short-circuit due process of the property owner.  (Or owners—indeed, seized property may be jointly owned, and the victim of the crime may be one of the owners, as when the family car is seized when the husband uses it to liaison with a prostitute.)

That’s clearly a concern with the seizure of domain names.  This “property” is essential for the enterprise being investigated to do business of any kind.  So seizing the domain names before indictment and trial effectively shuts down the enterprise indefinitely. (Reports are that most if not all of the enterprises involved in this weekend’s raid, however, have returned under new domain names.)

If prosecutors drag their heels on prosecution, the defendant gets “punished” anyway.  So even if the defendant is never charged or is ultimately acquitted, there’s nothing in the forfeiture statute that requires the government to make them whole for the losses suffered during the period when their property was held by the prosecution.  The loss of the use of a car or boat, for example, may require the defendant to rent another while waiting for the wheels of justice to turn.

For a domain name, even a short seizure effectively erases any value the asset has.  Even if ultimately returned, it’s now worthless.

Clearly the prosecutors here understand that a pre-trial seizure is effectively a conviction.  Consider the following quote from Immigration and Customs Enforcement Director John Morton, who said at a press conference today, “Counterfeiters are prowling in the back alleys of the Internet, masquerading, duping and stealing.”  Or consider the wording of the announcement placed on seized domain names (see http://news.cnet.com/8301-1023_3-20023918-93.html), implying at the least that the sites were guilty of illegal acts.

There’s no requirement for the government to explain the seizures are only temporary measures designed to safeguard property that may be evidence of crime or may be an asset used to commit it.  Nor do they have to acknowledge that none of the owners of the domain names seized has been charged or convicted of any crime yet.  But the farther prosecutors push the forfeiture statute, the bigger the risk that courts or Congress will someday step in to pull them back.

Updates to the media page

The fall has been filled with important developments in the technology world, and I continue to be a regular source for journalists as well as publishing frequent editorials and analyses of my own.  I’ve just posted another ten items to the Media Page of my website, including several articles I’ve written for CNET News.com, an election-day op-ed in Roll Call, legal analysis for The Wall Street Journal and a long review of “The Laws of Disruption” in the International Journal of Communications.  The accidents continue to pile up at the dangerous intersection of innovation and the law, the main theme of The Laws of Disruption.

Some highlights:

The U.S. Supreme Court heard arguments in EMA v. Schwarzenegger, which challenges California’s ban on violent video games on First Amendment ground.  My article for CNET explained why the timing of the case is significant, with implications for all new media enterprises.

The European Commission is preparing new legislation to guarantee its citizens a “right to be forgotten.  On CNET, I explain why that well-intentioned initiative could have disastrous consequences for the digital economy.

My election-day op-ed for Roll Call, the leading newspaper of Capitol Hill, urged Congress to stop the FCC’s dangerous plans to “reclassify” broadband Internet access and treat it like 1930’s-style telephone business.

My detailed analysis of Rep. Henry Waxman’s proposed net neutrality bill, a last-minute effort to resolve the long-running conflict before the election, was featured on The Wall Street Journal’s “All Things Digital.”

In the important Vernor decision, the Court of Appeals in California ruled that licensing agreements that deny users a right to resell copies of software are enforceable.  Though many viewed this decision as harmful to consumers, I explain why developments in the software industry have already relegated license agreements to the margins, in a controversial article for CNET News.com.

NextGenWeb, sponsored by the U.S. Telecom Association, interviewed me one of many recent visits to Washington.

As the new Congress prepares to convene in January, watch for more important developments.

Resurrecting the National Broadband Plan: Why is Washington Fighting a Winning Strategy?

I published an opinion piece today at CNET, calling on all tech stakeholders in Washington to stop the pointless quibbling and sniping about net neutrality, reclassification, and other side-show issues.  (I’m too depressed to list them here—but see “Fox-Cablevision and the Net Neutrality Hammer” for an example of just how degraded the conversation has become.)

Instead, why not focus on a positive message, one that has the potential for win-win-win-win?  For example, the National Broadband Plan, issued in March, eloquently made the case for a U.S. commitment to universal broadband adoption.  Not as a matter of gee-whiz futurism but in the interest of giving Americans “a better way of life.”

As a technology optimist, I happen to agree.  Broadband Internet provides users with much more than cute kitten videos and finding old friends on social networking sites (not that there’s anything wrong with these).  As the plan makes clear, it also gives them access to education and employment opportunities otherwise hard to find (and certainly at a much higher price), access to government services, public safety and better health care options. The Internet will play a key role in the development of a “smart” energy grid.

And as more urban countries with higher penetration rates and faster speeds have learned to their delight, the network effects of having everyone online generate all kinds of serendipitous positive returns.

Even better, achieving the goals of the NBP won’t require massive taxpayer spending, making it palatable to both Democrats and Republicans.  Most of the $350 billion it will cost to get 100 mbps speeds to 100 million Americans—a key benchmark of the plan—will come from private investment, much of it already planned for.

So moving forward with the Plan will improve the lives of ordinary citizens, make government more responsive and responsible, stimulate the economy, and help keep the U.S. competitive in a global information economy.  And it can be done without significant taxpayer expense or new regulatory overhead.

This is the feel-good story of the decade.  Come on, everybody!  We can use my barn.

It’s all in the plan. But given the strum and drang exerted over largely inside-the-beltway minutia, the NBP’s positive messages has been drowned out.

Case in point:  a recent report from the NTIA reveals that among the 25% of American homes that don’t have a single Internet user, the most frequently cited reason not to sign up for a broadband service is that they just don’t want it.  A full two thirds of the non-users, according to the report, “reported a lack of need or interest as their primary reason for not having broadband at home.”  Cost was a much lower factor.  Only four percent cited lack of availability.

It’s depressing and disappointing that so many of my fellow citizens haven’t gotten the message:  the Internet is cool, and broadband access will pay for itself many times over.

It’s also frustrating to the authors of the NBP, whose herculean efforts were unfairly and unduly overshadowed by the universal hand-wringing that followed the D.C. Circuit’s decision in the Comcast case, which came out just a few weeks later.  (For the record, NBP executive director Blair Levin agrees with legal scholars who don’t believe Comcast undermined the FCC’s ability to move forward with the plan itself:  “I think there is a lot of good stuff that can be done to advance the National Broadband Plan,” he recently told CNET’s Marguerite Reardon, “that doesn’t require any action from Congress.”)

In some sense the mid-term elections have provided the opportunity for all stakeholders—Congress, the FCC, lobbyists and advocacy groups—to resurrect the NBP and feature it as the central document in a national dialogue on technology policy.  It’s the right thing to do for the economy, and for individuals.  And in one of those rare harmonic convergences, it’s also politically expedient.  It’s positive!  It’s bi-partisan!  It’s high-tech!

So why isn’t anyone doing it?