Lawyers Write Law, And Then Are The Only Ones To Make Millions Directly Off Of It

from the regulatory-capture-and-rent-seeking dept

It's difficult not to become even more cynical when you read stories like the following one. Sent in by Eric Goldman, it's about a state law in California that was mainly written by two lawyers: Joaquin Avila, a law professor from Seattle, and Robert Rubin, the "legal director" for the Lawyers' Committee for Civil Rights of the San Francisco Bay Area. So, here's the interesting thing: since this state law has been put in place (seven years ago), the only lawsuits have been brought by Rubin's committee or Avila and they've made themselves over $4 million with a few more lawsuits pending and a bunch more threatened (again, all from either Avila or Rubin's committee).

What a great deal: write a law, and then be the only lawyers to use the law to make millions.

As for the law itself, it was a law that apparently very few people were asking for -- requiring that state courts carve out specific districts that favor minority groups, so they are not excluded from local elections. Here's how the AP describes it:

The California statute targets commonly used "at-large" elections -- those in which candidates run citywide or across an entire school district. Avila said that method can result in discrimination because whatever group constitutes the majority of voters can dominate the ballot box and block minorities from winning representation. As a remedy, the law empowers state courts to create smaller election districts favoring minority candidates.

Officials in several California communities said they never heard complaints of voter discrimination until the lawyers stepped forward. In one case, the Tulare Local Healthcare District, now known as Tulare Regional Medical Center, was sued even though its five-member governing board is a rainbow of diversity -- two emigres from India, a Hispanic, a black and a white. The lawsuit argues Hispanics, who make up about a third of local voters, have been shortchanged.

Of course, there are many reasons why the exact makeup of a governing board might not match the exact percentage of the population (including the simple fact that most people vote on issues, not the ethnicity of the people they're voting for). But, even if there was a problem it seems highly questionable that the two lawyers who wrote the bill are now profiting tremendously from it and appear to be the only ones who do so.

It's stories like this one that make us so nervous about so much legislation. This is the type of law they create: it maysound good (who's going to argue against diversity?). But, the actual law appears to have been nothing more than a way for these lawyers to go around collecting millions, while disrupting communities and schoolboards, and sending their taxpayer money to these lawyers.

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FCC: We Want Net Neutrality

from the yes,-but... dept

As was rumored last week, FCC boss, Julius Genachowski, gave a speech where he pushes to have the FCC's "principles of network openness" codified into law. Basically, he's come out in support of a net neutrality law, giving the FCC the power to regulate the issue. In the speech, he suggests that the four principles that were already put forth by former FCC chair Michael Powell get two additions, and have all six codified as law. The first four are:

• Freedom to Access Content. First, consumers should have access to their choice of legal content
• Freedom to Use Applications. Second, consumers should be able to run applications of their choice.
• Freedom to Attach Personal Devices. Third, consumers should be permitted to attach any devices they choose to the connection in their homes.
• Freedom to Obtain Service Plan Information. Fourth, consumers should receive meaningful information regarding their service plans.

To that, Genachowski adds the following two:

• The fifth principle is one of non-discrimination -- stating that broadband providers cannot discriminate against particular Internet content or applications.
• The sixth principle is a transparency principle -- stating that providers of broadband Internet access must be transparent about their network management practices.

I have to admit that the sixth principle sounds a lot like the fourth, and the whole thing remains pretty vague. The more interesting bit is the plan to include wireless technologies in what's covered here, something the FCC hasn't paid nearly as much attention to in the past.

While I believe that the basic concept of a neutral internet is very important to keeping the internet as a platform for innovation, I have to admit that I'm quite nervous about any attempt to put it into the law. First, many are noting that the telcos will undoubtedly heavily lobby the process to make sure that the final legislation has plenty of loopholes and quid pro quo aspects in it. As Broadband Reports notes:

While anyone and everyone will participate, you can expect lobbyists for AT&T, Comcast and Verizon to continue to get the best seats. Be mindful that lobbyists will likely work very hard to make these principles as weak as possible so they can only be used in the most egregious instances of foul play. This is a perfect opportunity for telecom lobbyists to pre-empt tougher federal laws, that not coincidentally picked up steam in Congress last week.

Also be aware that when lobbyists see discussions of "transparency," their immediate thought is that it's a perfect opportunity to push harder for low usage caps and high per-byte overages. Mega-carriers believe that as long as they're facing expectations of honesty when it comes to network management, they might as well use the opportunity to their advantage in almost vindictive fashion. Expect the industry's continued dream of shifting from flat-rate pricing to metered billing to play a starring role as the rules get hashed out.

Not surprisingly, the broadband providers rushed out prepared statements that all start off with "applause" for Genachowski, followed by something rather different than applause... each positioning reasons for why putting such principles into law is a bad, bad idea. In other words, expect a big fight and any law to be greatly watered down.

My biggest fear, honestly, isn't in what happens with this particular law, but what happens down the road. I believe that Genachowski really is committed to reasonable internet principles. But once we've given the FCC a mandate to regulate how the internet works, then those laws can and will be updated and changed. What if the next FCC chair is a former telco exec -- certainly not outside the realm of possibility. Opening up that door is likely to result in some very bad legislation down the road.

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Journalistic Regulatory Capture

from the a-part-of-the-machine dept

Tim Lee recently highlighted an interesting, but worth exploring, aside made by Will Wilkinson, talking about the concept of "journalistic capture." You are (hopefully) aware of the concept of regulatory capture -- whereby regulators effectively become tools of the industries they regulate. There are a variety of reasons behind this, in part due to the fact that industries will always have more advanced lobbying activities rather than consumers or other parties, but also due to the fact that there's often a revolving door between regulators and the industries they regulate. That's why industry lobbyists all too often write the bills that regulators introduce and pass. Regulators are all too happy to allow this to happen -- as their main source of information about those industries comes straight from the industry reps themselves. Thus, the "need" for any particular piece of legislation is quite often presented from the industry's viewpoint directly. Basically, since the industry controls the flow of information, the laws come out in their favor. Regulatory capture at work.

Wilkinson's point is that something quite similar often happens with journalists and the industries or individuals they cover. Basically, the journalists are almost entirely reliant on their sources within the industry to provide the information necessary for reporting on that industry. Thus, the insiders are able to shape the story and often have it come out to their advantage -- just like laws and regulatory capture. It's certainly not a new concept to think that journalists often become too chummy with the industry insiders they cover -- but thinking of it in terms of "journalistic capture" is quite an intriguing concept which deserves more widespread recognition and discussion -- especially in an era where so many people distrust journalists and are looking for sources they feel aren't as biased.

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A History Lesson For Those Advocating Network Neutrality Laws

from the unintended-consequences dept

Over at News.com, Declan McCullagh writes that Barack Obama's election as the next president of the United States has bolstered the hopes of those hoping to impose network neutrality regulations on the Internet. While Obama's key advisors have been cagey about precisely what the new administration's stance on the issue will be, it's a safe bet that we'll be hearing a lot about the issue in the coming months. This seems like a good time for a long-overdue conclusion to my ongoing series on network neutrality regulation.

One of the things that has been missing from the network neutrality debate has been a sense of how it fits into the broader history of government regulations of network industries. It's easy to imagine that the Internet is so new and different that historical comparisons just aren't relevant. But as we've seen with copyright and patent debates, we can learn a lot from historical experiences that may not seem immediately relevant.

I think this is equally true in the network neutrality debate. While the specifics of network neutrality are unlike anything that has come before, the general principles involved—non-discrimination, competition, monopoly power, and so forth—have actually been with us for more than a century. Indeed, today's network neutrality debate bears a striking resemblance to the debate that led to the very first American regulatory agency: the Interstate Commerce Commission, which was created to regulate the railroad industry.

The railroad industry was the high-tech industry of its day, and it had many of the same kinds of transformative effects on the 19th Century American economy that the Internet is having today. As with today's Internet, some parts of the railroad market were highly competitive, while other markets were served by only one or two firms. And people had concerns about the behavior of the largest railroad firms that echoed those that people have about large Internet providers today: that they restrict competition, discriminate among customers.

In 1887, Congress passed legislation (you can read an abridged version here) that is strikingly similar to the proposed network neutrality legislation that we're debating today. The Interstate Commerce Act declared it illegal to charge different prices to different customers for "the transportation of a like kind of traffic under substantially similar circumstances and conditions." It also said that railroads may not "make or give any undue or unreasonable preference or advantage to any particular person, company, firm, corporation, or locality, or any particular description of traffic." Compare that to the leading network neutrality proposal during the last Congress, which would have required network providers to deliver content on a "reasonable and nondiscriminatory" basis without imposing "a charge on the basis of the type of content, applications, or services made available."

Unfortunately, the story of the Interstate Commerce Commission does not have a happy ending. Grover Cleveland appointed a railroad ally named Thomas M Cooley as the first chairman of the ICC. The ICC was widely regarded as toothless for its first couple of decades, largely rubber-stamping railroad industry decisions. Things got even worse after the turn of the century, when the ICC began actively discouraging competition in the railroad industry. The ICC had the power to decide when new firms were allowed to enter the railroad industry, and by the 1920s, the FCC was actively working to discourage competition and push up railroad rates. In the 1930s, the ICC gained authority over the infant trucking industry, and used its authority to slow the growth of the trucking industry to protect the railroads from competition. By 1970, things had gotten so bad that a Ralph Nader report described the ICC as "predominantly a forum at which transportation interests divide up the national transportation market."

What went wrong? The story is too long and complicated to fully describe in a blog post, but I think there are two key lessons. First, the authors of the ICA dramatically underestimated the complexity of the railroad industry and the difficulty of government oversight. One of the reasons the ICC was relatively toothless in its early years is that it was completely overwhelmed with paperwork, as dozens of railroads sent it information about thousands of routes. The railroad industry was simply too complex and dynamic for a few Washington bureaucrats to even understand, to say nothing of regulating them effectively.

Second, the ICC's failure is a classic example of what economists call "regulatory capture": the ability of special interests to gain control of the regulatory process and use it to their advantage. Because the railroads cared more about railroad regulation than anyone else, they were adept at getting their allies appointed to key positions at the commission. Over time, the ICC not only ceased to be an effective watchdog of consumer interests, but actually began actively defending the interests of the railroads at consumers' expense. For about six decades—from about 1920 to 1980—the ICC pursued policies that reduced competition and raised prices in the railroad industry. And when trucking emerged as a potentially disruptive innovation, the ICC helped to limit its growth and slow the corresponding decline of the railroad industry.

The story of the ICC is not an isolated case. Similar stories can be told of the Civil Aeronautics board, which limited competition in the airline industry until the 1970s. And, of course, there's the example of that the FCC actively promoted AT&T's monopoly in the telecommunications market until it was broken up in 1984.

We can certainly hope that Congress has learned from the experiences of the 20th century and will avoid the most egregious mistakes it made in the 20th century. But it's worth remembering that many of the conditions that led to the ICC's problems are still with us. Today's FCC, like the ICC of the 20th Century, has a revolving door between the commission and the firms they regulate. And the Internet, like the railroad industry of the 19th century, is extraordinarily dynamic and complex. As a result, there's a real danger that if Congress gives the FCC the power to regulate the Internet, it will make things worse, either because it cannot keep up with the Internet's rapid evolution, or because industry incumbents will succeed in getting their own allies in key positions within the commission. Either way, the results could be very different from what network neutrality proponents are hoping for.

Timothy Lee is an expert at the Insight Community. To get insight and analysis from Timothy Lee and other experts on challenges your company faces, click here.

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