Discovery Institute

October 20, 2014
Study shows credit card companies collect millions for cyberlockers that infringe copyright laws


A report by NetNames for the Digital Citizens Alliance has found that the "overwhelming use of cyberlockers is for content theft." At least 79-84% of sampled files on 30 of the most popular online file sharing destinations infringed copyright, according to the analysis.

The report also estimates that the sites generate profit margins of 88-96% on combined revenue of over $95 million per year. The primary sources of income are premium account subscriptions enabled by payment processors such as VISA and MasterCard, and advertising.

Every cyberlocker that offered paid premium accounts to users provided the ability to pay for those subscriptions by Visa or MasterCard, with only one exception. Only a single cyberlocker accepted PayPal.

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June 17, 2014
First Sale in the Digital Age

The House Judiciary Committee examined the "first sale" doctrine at a recent field hearing in New York City as part of the committee's comprehensive review of copyright. The first sale doctrine made perfect sense during the Industrial Age, but in some respects it's problematic for the Digital Age.

Consumers have the right to give away, lend or sell a book that they own, thanks to a 1908 Supreme Court decision that was subsequently codified by Congress at 17 U.S.C. ยง109(c). There's no dispute that "[p]hysical copies of works in a digital format, such as CDs or DVDs, are [covered] in the same way as physical copies in analog form."

However, consumers with an Internet connection are downloading more and more digital content from remote servers pursuant to license agreements. And the first sale doctrine does not apply to digital files that are transmitted from machine to machine, according to the Copyright Office, because transmission results in two copies (one on each machine).

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May 29, 2014
Copyright Alert System successfully launches


Over 1.3 million notices of alleged copyright infringement were sent to users of peer-to-peer (P2P) networks suspected of illegally sharing copyrighted material over a ten month period beginning in late February 2013, according to the Center for Copyright Information (CCI).

The Copyright Alert System, a voluntary private sector initiative of the CCI that is "based on the premise that most consumers will take corrective action if alleged copyright infringement involving their Internet account is brought to their attention," generated the notices.

P2P networks are monitored on behalf of recording artists and music producers, filmmakers, and creators and distributors of movies and television shows, and notices of alleged copyright infringement are generated through the use of publicly available IP address data. This information is shared with Internet Service Providers (ISPs), who then deliver up to six separate alerts (for repeat violations) to the corresponding account holders without sharing any personally-identifiable information about their customers.

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March 12, 2014
Industry combating online piracy


The Digital Millenium Copyright Act's notice-and-takedown safe harbor is rapidly becoming obsolete. The safe harbor, aka Section 512 of Title 17 of the U.S. Code, is the subject of a hearing tomorrow in the House Judiciary Subcommittee on Courts, Intellectual Property, and the Internet.

The safe harbor limits the liability of online service providers for copyright infringement if they remove infringing content upon receiving notice from the copyright owner. Safeguards are built into the law to protect against the possibility of erroneous or fraudulent notifications.

The problem is the safe harbor was designed for the Internet as it existed 15 years ago, before broadband. Most people did not access video over the Internet when Congress enacted the DMCA in 1998. As the Federal Communications Commission concluded at the time,

Due to bandwidth and other limitations, this method of video distribution does not yet produce programming that is comparable in length, quality, or convenience to broadcast video. Before Internet distribution of video becomes competitive in the video distribution marketplace, significant improvement must be made in this form of delivery.

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March 4, 2014
Repeal Satellite Television Law

The House Subcommittee on Communications and Technology will soon consider whether to reauthorize the Satellite Television Extension and Localism Act (STELA) set to expire at the end of this year. A hearing scheduled for this week has been postponed due to weather.

Congress ought to scrap the current compulsory license in STELA that governs the importation of distant broadcast signals by Direct Broadcast Satellite providers. STELA is redundant and outdated. The 25 year-old statute invites rent-seeking every time it comes up for reauthorization.

At the same time, Congress should also resist calls to use the STELA reauthorization process to consider retransmission consent reforms. The retransmission consent framework is designed to function like the free market and is not the problem.

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February 24, 2014
Advertisers vs. ad-supported pirate sites

A sampling of 596 web sites that deal primarily in pirated content made an estimated $227 million in annual advertising revenues, according to the Digital Citizens Alliance (See: "Good Money Gone Bad: Digital Thieves and the Hijacking of the Online Ad Business - A Report on the Profitability of Ad-Supported Content Theft"). "The 30 largest sites studied that are supported only by ads average $4.4 million annually, with the largest BitTorrent portal sites topping $6 million. Even small sites can make more than $100,000 a year from advertising."

"It is important to note that the advertising profits garnered by content thieves do not equate with the losses incurred by the owners of the content," notes the report. "These losses are unquestionably greater by many orders of magnitude..."

Fortunately, the advertising industry is not willing to tolerate intellectual property infringement. "The future health of digital media is at stake," according to Bob Liodice, head of the Association of National Advertisers, "and we owe it to ourselves, our industry and its brands to attack the issue head-on."

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December 20, 2013
The Overblown Case For Retrans Reform


Retransmission consent came under attack again this month, and two long-awaited bills on the subject have finally been introduced--the Next Generation Television Marketplace Act (H.R. 3720) by Rep. Steve Scalise, and the Video CHOICE (Consumers Have Options in Choosing Entertainment) Act (H.R. 3719) by Rep. Anna G. Eshoo.

The American Cable Association's Matthew M. Polka has reiterated his view that the process whereby cable and satellite TV providers negotiate with broadcasters for the right to retransmit broadcast signals is a "far cry from the free market," and Alan Daley and Steve Pociask with the American Consumer Institute claim that retransmission consent jeopardizes the Broadcast Television Spectrum Incentive Auction.

As Jeff Eisenach pointed out at the Hudson Institute, "Congress created retransmission consent in 1992 to take the place of the property rights that it and the FCC abrogated. Prior to 1992, broadcasters weren't permitted to charge anyone for retransmitting their signals."

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June 6, 2013
Regulation and Competition in the Digital Economy

View my remarks during a panel discussion entitled "Regulation and Competition in the Digital Economy," sponsored by the American Consumer Institute on Jun. 6, 2013.



May 13, 2013
Satellite Carrier Subsidies Are Unwarranted

DISH Network gets another opportunity on Tuesday to plead with Congress for another Satellite Home Viewer Act reauthorization--ostensibly to protect consumers from unwarranted rate increases and program blackouts, but actually to preserve and expand DISH Network's and DirecTV's access to broadcast programming at regulated, below-market rates.

A couple minor provisions in the Act that have nearly outlived their original purpose are due to expire, but DISH Network is taking advantage of this opportunity to argue that "there is much more that Congress can do to expand consumers' access to local programming..." DISH's plea is an example of the narcotic effect of supposedly benign regulation intended to promote competition by giving nascent competitors a leg up. DISH Network, in particular, has become addicted to artificially low prices for broadcast programming, and will seize any opportunity to reduce its programming costs some more through regulation.One of the problems with betting your shareowners' company on regulation is that in politics, nothing lasts forever. Another is that there are certain laws of economics, and they still apply. Shareowners really ought to be on high alert for the appearance of a Beltway, State Capitol or City Hall strategy--firms that can compete and win in the marketplace have no need for regulatory advantages.

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January 10, 2013
Crawford's Misplaced Nostalgia for Utility Regulation

In her new book, Captive Audience, Susan Crawford makes the same argument that the lawyers for AT&T made in Judge Harold H. Greene's courtroom in response to the government's antitrust complaint beginning in 1981, i.e., that telephone service was a "natural monopoly." In those days, AT&T wanted regulation and hated competition, which is the same as Crawford's perspective with respect to broadband now. Here is what she said today on the Diane Rehm Show:

Diane Rehm: "Is regulation the next step?"

Susan Crawford: "It always has been for these industries, because it really doesn't make sense to have more than one wire into our homes. It is a very expensive thing to install; once it's there, it has to be kept up to the highest level of maintenance, it has to allow for lots of competition at the retail level--across this wholesale facility--and it has to be available to consumers at reasonable cost. That kind of result isn't produced by the marketplace; it doesn't happen by magic, because ... when you can divide markets, and cooperate, you're not going to come up with the best solution for consumers.

In her book, Crawford candidly says that "America needs to move to a utility model" for broadband ... and "stop treating this commodity as if it were a first-run art film..."

It's time for a stroll down memory lane.

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December 9, 2012
FCC Risks Getting Sidetracked on Spectrum Auctions

On Wednesday, the Subcommittee on Communications and Technology will conduct an oversight hearing of the implementation of spectrum auctions by the Federal Communications Commission.

The subcommittee members ought to consider the fact that although the mobile wireless industry faces an acute shortage of spectrum ("broadband spectrum deficit is likely to approach 300 MHz by 2014"), the FCC risks getting distracted and mired in a pointless effort to leverage its spectrum auctioning authority to manipulate the structure of the mobile wireless industry.

In mid-2011, former Commissioner Michael J. Copps warned of "darkening clouds over the state of mobile competition ... we find ongoing trends of industry consolidation." As Copps saw it, increasing concentration will lead to higher prices for consumers. His solution was for the market to have more competitors that look and perform like AT&T and Verizon Wireless.

Since Congress failed to prevent the FCC from engaging in what the late Alfred Kahn once called "oxymoronic efforts to promote competition by regulation" when it adopted the Middle Class Tax Relief and Job Creation (JOBS) Act in February, the path was clear for the FCC to act on Mr. Copps' pessimism. The commission issued a Notice of Proposed Rulemaking in late September for establishing caps on mobile spectrum holdings. The NPRM is designed to eliminate AT&T's and Verizon Wireless' access to additional spectrum they need in the short-term to meet growing demand for mobile broadband services.

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November 2, 2012
Roosevelt Tried To Abolish the FCC

No doubt you are aware that the Communications Act of 1934 eastablished the Federal Communications Commission, which has profoundly affected the broadcast, cable, telecommunications and satellite industries. You will recall that the legislation was signed into law by President Franklin D. Roosevelt. What you may not realize is that President Roosevelt made two subsequent attempts to abolish the Federal Communications Commission.

On Jan. 23, 1939, Roosevelt wrote similar letters to Senator Burton K. Wheeler and Congressman Clarence F. Lea urging dramatic FCC reform.

I am thoroughly dissatisfied with the present legal framework and administrative machinery of the [Federal Communications] Commission. I have come to the definite conclusion that new legislation is necessary to effectuate a satisfactory reorganization of the Commission. New legislation is also needed to lay down clear Congressional policies on the substantive side - so clear that the new administrative body will have no difficulty in interpreting or administering them. I very much hope that your committee will consider the advisability of such new legislation.

Although proposals for FCC reorginization were introduced at the time, Congress did not act. Then World War II intervened. It wasn't until 1996 that Congress "comprehensively" updated the 1934 Act. But the 104th Congress left the "present legal framework and administrative machinery of the Commission" intact, and it failed to to "lay down clear Congressional policies on the substantive side."

Roosevelt wanted to transfer the functions of all independent agencies like the FCC to cabinet departments. A 1937 initiative for this purpose failed. Two years later, Roosevelt took aim at the FCC directly.

Roosevelt's specific issues with the FCC of the 1930s are a subject for a subsequent essay (they were primarily on the radio side, although also relevant to the telephone side). In any event, his 1939 letter reinforces a libertarian critique of the 1934 act. The law was overly broad and created too much room for the FCC to establish its own policy preferences instead of serving to enforce the policies of elected congressional representatives and the president.

Althouth well-intentioned, the FCC (even to its most famous creator) was a disapointment and a mistake. The 113th Congress should carefully consider the 32nd president's advice.


August 13, 2012
No More Backscratching Between Phone Companies

An ad campaign urged residents of Butler, GA to "Stop AT&T From Raising Your Rates" by planning to attend a public hearing earlier this month at the Taylor County Courthouse to provide testimony in Docket #35068, Rate Cases on the Track 2 Companies.

The Georgia Public Service Commission sets the phone rates in Butler, but politics are politics, and AT&T is a better scapegoat for an ad campaign. AT&T doesn't even provide the town's phone service, although the telecom giant does help finance it. That's because Georgia consumers pay a hidden tax on their phone bills that subsidizes the phone service provided by Public Service Telephone Co. in Butler. You guessed it, PST paid for the ads.

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July 9, 2012
Still Seeking Advantageous Regulation in Telecom

One of the most egregious examples of special interest pleading before the Federal Communications Commission and now possibly before Congress involves the pricing of "special access," a private line service that high-volume customers purchase from telecommunications providers such as AT&T and Verizon. Sprint, for example, purchases these services to connect its cell towers.

Sprint has been seeking government-mandated discounts in the prices charged by AT&T, Verizon and other incumbent local exchange carriers for years. Although Sprint has failed to make a remotely plausible case for re-regulation, fuzzy-headed policymakers are considering using taxpayer's money in an attempt to gather potentially useless data on Sprint's behalf.

Sprint is trying to undo a regulatory policy adopted by the FCC during the Clinton era. The commission ordered pricing flexibility for special access in 1999 as a result of massive investment in fiber optic networks. Price caps, the commission explained, were designed to act as a "transitional regulatory scheme until actual competition makes price cap regulation unnecessary." The commission rejected proposals to grant pricing flexibility in geographic areas smaller than Metropolitan Statistical Areas, noting that

because regulation is not an exact science, we cannot time the grant of regulatory relief to coincide precisely with the advent of competitive alternatives for access to each individual end user. We conclude that the costs of delaying regulatory relief outweigh the potential costs of granting it before [interexchange carriers] have a competitive alternative for each and every end user. The Commission has determined on several occasions that retaining regulations longer than necessary is contrary to the public interest. Almost 20 years ago, the Commission determined that regulation imposes costs on common carriers and the public, and that a regulation should be eliminated when its costs outweigh its benefits. (footnotes omitted.)
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June 14, 2012
Government cares more about politics than the tech economy

The hottest companies in Washington, DC right now include Netflix, Sprint and T-Mobile. What do these firms have in common? They are all marketplace losers.

A few years ago, the Supreme Court said that the Sherman Act "does not give judges carte blanche to insist that a monopolist alter its way of doing business whenever some other approach might yield greater competition" (see: Verizon v. Trinko, 2004). Yet this is precisely the course of action that technocrats are taking as a result of accepting invitations from Netflix to conduct a "wide-ranging antitrust investigation" of the cable industry and from Sprint and T-Mobile to find a way to block Verizon Wireless' acquisition of additional spectrum.

Netflix built a successful mail order DVD business when it wasn't very practical to download movies over the Internet. Fortunately for Netflix, consumers can send and receive, but they cannot rent DVDs from the Post Office. There are legal and political constraints that prevet the U.S. Postal Service from diversifying into new lines of business, and these restrictions conferred a significant degree of monopoly protection on Netflix. Incidentally, saving the Postal Service requires diversification, among other things. What was great for Netflix wasn't so good for the postal system (upon which we all depend).

Although some advocates of network neutrality wanted to postalize broadband, the Federal Communications Commission said no. Apparently, we are going to have that debate all over again.

Cable companies obviously will not be prevented from competing against Netflix and other online video providers. But a drive to eliminate any conceivable competitive advantage that cable providers may have would ultimately lead to extensive regulation, including, most likely, infrastructure sharing rules like those the Supreme Court looked at in AT&T v. Iowa Utilities Board (1999). In his separate opinion, Justice Stephen Breyer warned that "rules that force firms to share every resource or element of a business would create, not competition, but pervasive regulation, for the regulators, not the marketplace, would set the relevant terms."

The current administration promised to reinvigorate antitrust enforcement. What that means is a return to the economic stagnation of the 1970s, when antitrust forced consumers to do business with uncompetitive, inefficient firms. It is no exaggeration to speak of antitrust as a form of corporate welfare financed by hidden taxes on consumers. The reality is that government cannot create competition; it can only suppress competitors.

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