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Posted on Net Neutrality Special Edition - 14 December 2017 @ 9:31am

Why Must The FCC Insult Everyone's Intelligence By Misrepresenting Broadband Investment?

from the big-question dept

Last month, I wrote a post detailing Ajit Pai's big lie, concerning his totally false claim that the order the FCC voted on today simply brings the internet back to where it was in 2015. As we explained that's not even remotely close to accurate. That same post also mentioned a second, but still important, lie that Pai and Pai's supporters have been telling repeatedly: that the 2015 rules harmed broadband investment.

There are two very important things to discuss regarding this claim. First, it is simply not true. Second, whether or not it is true, broadband investment is an incredibly meaningless proxy for whether or not the rules are good.

Let's start with the first point. There is no credible evidence that Title II harmed investment. While the big broadband companies have made claims about this, and telco-funded thinktanks have pushed out studies claiming this, on financial reports (where the consequences can mean jail time if they're lying), they all admit that classifying broadband under Title II has not harmed investment.

Here's Neil Smit, Comcast Cable's President and CEO telling Wall Street that nothing about Title II changes anything (on page 16):

On Title II, it really hasn't affected the way we have been doing our business or will do our business. We believe on Open Internet and while we don't necessarily agree with the Title II implementation, we conduct our business the same we always have...

He immediately follows that up by stating:

We have invested significantly in our capacity and will continue to do so and that includes both the -- we launched a 2 gigabit speed, 2 gigabit symmetrical speed recently. We are rolling that out across 18 million homes by the end of the year...

That doesn't sound like the disaster for broadband investment that Pai and his supporters are claiming.

How about AT&T? AT&T's Randall Stephenson was asked by a UBS analyst "are these net neutrality or Title II rules an impediment..." and Stephenson responded:

No, we don’t think so.

How about Charter (formerly Time Warner Cable)? Well, just last year at a UBS conference, he said:

I mean, Title II, it didn't really hurt us; it hasn't hurt us.

And, that wasn't the first time he said that. A year earlier he made it clear the company changed nothing about its investment plans:

"the commission’s decision to reclassify broadband Internet access under Title II has not altered Charter’s approach of investing significantly in its network to deliver cutting edge services."

Verizon is basically the only big broadband provider that didn't directly contradict its claims with a statement specifically about Title II... but, it did increase its investment spending quite a bit. Verizon's only comments have basically been the company saying that it continues to invest exactly as planned prior to the 2015 rules change. None of this should be surprising. As we've explained there is nothing in the 2015 order that increases compliance costs -- so long as you're not screwing over customers. The only way that the 2015 Open Internet Order should be a burden is if the broadband providers were doing something that broke the rules.

And, of course, just yesterday we noted that contrary to Pai's claims of five smaller ISPs decreasing investment, the actual data showed the opposite -- that they had all expanded. And that says nothing of the over 40 small ISPs which spoke out in favor of keeping the 2015 rules, in part because it allows them to invest more, knowing that the giant incumbents mentioned above can't use certain unfair, anti-competitive practices to keep them out of a market.

Without a legal foundation to address the anticompetitive practices of the largest players in the market, the FCC’s current course threatens the viability of competitive entry and competitive viability. As direct competitors to the biggest cable and telephone companies, we have reservations about any plan at the FCC that seeks to enhance their market power without any meaningful restraints on their ability to monopolize large swaths of the Internet.

It certainly looks like Pai's rules may actually cause some of those ISPs to decrease their investment as they'll have trouble competing with the large incumbents.

That's why it's so ridiculous not just to see Pai make these false claims about investment, but to also see Pai's handpicked "chief economist" ridiculously claim that this FCC "is no longer an 'economics free zone.' This line was parroted a lot leading up to the 2015 rules (which, we must remind you, have been approved by the courts). People claimed that there was no economic basis for the changes in 2015, which ignores the fact that the 2015 rules pretty clearly lay out the economic rationale for reclassifying broadband under Title II. You can see it starting on Page 150 of the order.

And yet, in Pai's new order he insists that it's conclusively proven that the 2015 order hurt investment. He does name multiple studies -- though every single one comes from a group or organization connected to the big broadband players. It's hard to see how that's a neutral, careful analysis. And, of course, some commenters on the proposal pointed to the studies that debunked all those studies -- and rather than actually address those points, Pai's rules hand-wave all of them away as just not credible.

But, of course, if you start to dig into the studies that Pai does rely on... they're terrible. Basically all of them make questionable assumptions -- assumptions that if you start to question them, the entire "economics" claims fall apart. Take, for example, the "study" by the Free State Foundation, which the FCC points to as saying its results are "consistent with other evidence in the record that indicates that Title II adversely affected broadband investment." But read the analysis. It is hardly a rigorous economic look at broadband investment. It's an extrapolation, with a bunch of assumptions.

Here is how I calculated that figure.

USTelecom publishes data on broadband capital expenditures (capex) for each year dating back to 1996. Using this historical data, I collected figures on the previous twelve years before the Open Internet Order was adopted in February 2015. I picked 2003 as the first year because the market had just collapsed from the dot-com bubble and total broadband capex was at its lowest point since 1996. I established a trend line from 2003 to 2016, which created a linear pattern over the first 12 years before the Open Internet Order and estimated what we could have expected broadband capex to be in 2015 and 2016 without Title II public utility regulation.

I also collected broadband capex data on sixteen of the largest ISPs for years 2014, 2015, and 2016. My sample found a 2.46% decline from 2014 to 2015 and a 4.69% decline from 2015 to 2016, totaling an overall decline of 7.04% from 2014 to 2016.

Count the assumptions. The date range is an assumption (at least that one's explained). The "trend line" is a total extrapolation, without any research into whether or not there's a reason for such a trend line or even if the timeline is a large enough sample size for a reasonable trend line. As for the capex data -- why on "sixteen of the largest ISPs." Sixteen is a fairly strange number. What happens if you just look at the top 3? Or the top 10? Or all of them? This is not a rigorous analysis.

And, of course, if it's really true that all of these think tanks funded by the telcos magically have more insight into what's happening with broadband investment, then... does that mean all those quotes we mentioned above are examples of these CEOs lying on investor calls? Because, if so, that seems like a pretty big deal. But, I'm generally going to assume that the execs are telling the truth to Wall St. and relying on others to put forth the misleading arguments -- which Pai then parrots, and his "Chief Economists" gets to play make believe and say that the FCC cares about economics again.

But, really, none of this matters. Because my second point is more important: Broadband investment is not a good proxy for whether or not Title II is a good or bad idea. It's a giant broken windows fallacy. I'll use a few extreme examples to prove the point: if "broadband investment" is the sole proxy that we use as economic proof of a good or bad policy, well, then the best policy for the FCC right now is to physically destroy the internet. With all internet infrastructure broken, it will surely boost investment and economic activity around rebuilding the internet, right? Of course, no one would consider that a good policy, but if our metric is purely investment, then that's the kind of crazy result you get. Or, let's say that new technologies are developed that allow people to implement better broadband more cheaply. Indeed, that's what some broadband access providers have been claiming. In that case, investment is likely to drop, even though the speeds/access/value that everyone gets increases.

Especially when you're discussing a technology field, any halfway competent economist knows that you have different forces at play than in static markets. With technology, thanks to innovation, stuff gets cheaper as it gets better. Yet, under the new FCC's sole focus on broadband investment as an economic measure, a more efficient, cheaper roll-out to more people would be "bad" because it would decrease investment. That's not to say either of things have actually happened, but just to demonstrate the pure uselessness of aggregate investment data. It's not "economics," its junk science. It's pretending that the numbers are meaningful because they're numbers.

But the real "economic" test should be about the value to the end user. And broadband access and speeds is one part of that. But only one part. Indeed, a huge part of this discussion is how the real value on the internet comes from the edge providers, the apps and services that people use on the internet. That's why the network is valuable. And the problem with killing net neutrality is it puts that in danger. It can make it more expensive, or limit competition, or make some of those services go away altogether. And that decreases the value of the internet to every user. And that's because the internet works off of network effects for the services on them. That is, with many services, the more people use them, the more valuable they get. Killing net neutrality will interfere with those network effects in many cases, again decreasing value.

So, in short, even ignoring that the FCC's numbers are bogus, so is its entire framing of the net neutrality debate. Perhaps it's not surprising that the framing used here -- broadband investment -- only measures what the giant telco/cable companies do related to the internet. Because, after all, Chairman Pai has made it pretty damn clear that that's all he cares about. But it's economics malpractice to ignore where the actual value is on the network, and what these rules will do to all those service providers and the end users.

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Posted on Techdirt - 11 December 2017 @ 1:27pm

Congress Fixes More Problems With FOSTA Bill... But It Still Needs Work

from the getting-better... dept

Congress continues to push for a bill to deal with the use of the internet for sex trafficking. Over the past few months we've discussed multiple attempts at this. Most of the initial action happened on the Senate side, with SESTA -- the "Stop Enabling Sex Traffickers Act." That was a terrible bill with many, many problems. The Senate then put forth a revised version that had marginal improvements, but still many, many problems. While it was voted out of committee, Senator Wyden put a hold on it, noting how bad it would be for the internet and free speech.

From there, the action moved over to the House, with its version, called FOSTA -- the "Fight Online Sex Trafficking Act." Believe it or not, FOSTA as initially written was even worse than SESTA. However, there's now a planned markup of the bill in the House Judiciary tomorrow, and it's over a totally revised "manager's amendment" from Judicary chair Rep. Bob Goodlatte, rather than the original FOSTA that was sponsored by Rep. Ann Wagner. As law professor Eric Goldman points out, of the four bills presented so far, the Goodlatte Manager's Amendment is by far the best, but still has significant problems that should be corrected if the bill is to move forward.

One oddity: the new FOSTA doesn't just focus on sex trafficking, but expands to all online prostitution. This seems both dangerous and unnecessary. While there are legitimate debates to be had about whether or not prostitution should be legalized, the issues around prostitution are clearly different than the issues of coerced sex trafficking. Yes, there is obviously some overlap between trafficking and prostitution, but automatically sweeping both issues together is problematic for a whole host of policy reasons. Everyone should be reasonably against trafficking of unwilling individuals. The issues around willing and consentual transactions involving sex are a lot more complicated. Conflating both in a single bill seems... dangerous.

However, some elements of FOSTA are clearly better than what we saw in SESTA. Instead of focusing on punching a giant hole in CDA 230, the new FOSTA takes a smarter approach. It first creates a new crime (outside of CDA 230), which would be 18 USC 2421A, which would make it a crime to take actions "with the intent to promote or facilitate the prostitution of another person." What's important here is the "intent" standard. The previous bills all used some form of "knowledge" or "knowing conduct." Here, you need to have the actual intent to promote or facilitate prostitution, which is a much more reasonable standard for making these actions criminal. The crime can be "enhanced" if the party engages in "acts of reckless disregard of the fact that such conduct contirubted to sex trafficking violation[s]" but that's only once the intent is already shown. Again, this seems like a more reasonable approach, and would solve the problems we had with the knowledge standard -- and the fear that this would disincentivize monitoring or helping law enforcement under SESTA.

Still, as Eric Goldman notes, this bill could lead to "dubious investigations" and fishing expeditions as prosecutors look to show "intent" on platforms with many, many users, where some of those users may be engaged in prostitution:

Consider how this could play out for giants like Google or Facebook. Despite their best efforts, surely both networks have some online prostitution activity. Let’s hypothesize that 0.01% of their site usage relates to online prostitution. Across a billion-member userbase, a 0.01% online prostitution usage converts to 100,000 users. So even if Google and Facebook get it 99.99% right, state and local prosecutors could still point to tens of thousands of online prostitution incidents as circumstantial evidence of the services’ “intent” to promote or facilitate online prostitution. And the statutory baseline of 5+ prostitutes frames the issue to make the online giants look like hotbeds of prostitution activity. So even if a prosecutor’s case will fail in court, substitute FOSTA would give state and local prosecutors a lot of juice to go after the Internet giants.

Goldman suggests one possible fix for this:

We can’t easily eliminate the risk of bogus state and local investigations due to substitute FOSTA, but we can blunt the 5+ language. Something like “promotes or facilitates the prostitution of 5 or more persons HIMSELF OR HERSELF (NOT CONSIDERING THE ACTS OR CONTENT OF ANY THIRD PARTIES).” This change would not treat third party promotions as part of the enhancement, and it would take some wind out of the sails of overeager prosecutors who can find many more than 5+ ads on a site.

But, that won't totally eliminate bogus fishing expeditions.

Another problem with the bill is some convoluted language in which Congress wants to say that this isn't really changing CDA 230, but it can be read in the exact opposite way. Here's the language:

Consistent with section 230 of the Communications Act of 1934 (47 U.S.C. 230), a defendant may be held liable, under this subsection, where promotion or facilitation of prostitution activity includes responsibility for the creation or development of all or part of the information or content provided through any interactive computer service.

As Goldman notes, you can read this to say that "if an online service is responsible for ANY content on its site, it is responsible for ALL content, including all third party content," even though that's almost certainly not what is meant. Instead, it appears to be Congress (needlessly) reconfirming the state of CDA 230, which many of us have pointed out in response to critics: that it already allows prosecution when the service provider is the developer of the content itself (rather than just a third party host). This paragraph is unnecessary, as that's what the law already says, and by adding this new, convoluted language that can be read in the exact opposite way... it's only going to lead to a bunch of lawsuits around this provision and the (horrifying) possibility of a court reading it to change CDA 230.

Overall, I tend to agree with Goldman that it's still unclear why this bill is necessary, other than political grandstanding.

I continue to believe that Congress does not need to pass any bill: the SAVE Act did the work Congress wanted it to do; the Rentboy and MyRedbook prosecutions show the DOJ has effective legal tools (recall that both involved a prosecution for online prostitution, not sex trafficking, so they cover very similar ground to substitute FOSTA); Congress has other anti-sex trafficking initiatives in queue that may be more helpful; and it’s not empirically clear that efforts to extinguish online prostitution ads will protect victims. So here’s how I’d rank my priorities:

1) best outcome: no legislative changes

2) second-best outcome (a distant second): substitute FOSTA due to the intent scienter, national legal standard and tight linkage between civil and state law enforcement claims and the federal crime

3) third-best outcome (substantially behind substitute FOSTA): SESTA as amended, which fixed some of SESTA’s roughest edges but still retained its core imposition of the moderator’s dilemma

4) fourth-best outcome: FOSTA as introduced. That version is probably already defunct. At least, I hope so.

I might take this a step further. These bills really seem misguided, and seem much more designed for political grandstanding and the ability for their sponsors to claim they "did something" on a hotbutton topic. But, as noted, while sex trafficking is a real problem, it's a much smaller one than politicians claim. And, all of these bills will actually make it more difficult for law enforcement to track down and arrest the real criminals. That, again, seems misguided. Targeting intermediaries and tools, rather than the sex traffickers themselves, has always seemed like a backwards approach. I'm all for law enforcement seeking out and arresting sex traffickers. But these bills still seem to focus on criminalizing third parties, rather than the actual traffickers, and in doing so, make sure that the actual trafficking activity is more difficult for law enforcement to track down. That's even more true when you conflate prostitution with sex trafficking. So, while the manager's amendment on FOSTA is clearly a "better" solution, it's still a probably unnecessary and counterproductive one.

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Posted on Techdirt - 11 December 2017 @ 12:10pm

The Free Market Argument For Net Neutrality

from the market-failure dept

On Thursday of this week, the FCC will vote to undo the 2015 Open Internet Order. While the FCC insists that this will just be bringing back the internet to the regulatory framework it had prior to 2015, that is not true. It will be changing the very basis for how the internet works and doing so in a dangerous way. Starting on Tuesday, a bunch of organizations are teaming up for a massive #BreakTheInternet protest. Please check it out. The post below is designed to answer many of the questions we've received about "free markets" v. "regulations" on net neutrality, and why we believe that the 2015 rules are consistent with the beliefs of those who support free market solutions.

I've already written about some of the reasons why I changed my mind about net neutrality rules, in which I mentioned that my standard position is to be pretty skeptical of government intervention in innovative markets. But many of the people I know who are opposing net neutrality -- including FCC Chair Ajit Pai -- like to couch their opposition in "free market" terms. They talk about the "heavy hand of regulation" and "getting government out" of the internet and stuff like that. But as far as I can tell, this is a twisted, distorted understanding of both the telco world and how free markets operate. So, for those folks, let's dig in a bit and explore the free market argument for net neutrality. And, I should note, this is clearly not the argument that many people supporting net neutrality are making, but this is why I think that even those of us who still believe in free markets helping innovation should still support rules for net neutrality.

To start with, this is also not the anarchist's argument for net neutrality (or the "AnCap's" argument). If you don't believe the government should ever do anything, well, then nothing is going to convince you. However, if you believe that in cases of market failure, the government has a role, then do keep on reading. As the famous (and very "free market") economist Milton Friedman wrote:

The need for government in these respects arises because absolute freedom is impossible. However attractive anarchy may be as a philosophy, it is not feasible in a world of imperfect men. Men's freedoms can conflict, and when they do, one man's freedom must be limited to preserve another's as a Supreme Court Justice once put it, "My freedom to move my fist must be limited by the proximity of your chin."

And here, there's an argument that what the broadband players are attempting to do to the internet, is very much the equivalent of punching everyone in the face -- by being able to effectively block, diminish, silence people and organizations from expressing themselves or taking part in the public communications networks that we all rely on these days. If you believe that being able to participate on the internet is a right that people should have -- and that their abilities to participate and contribute to society are massively limited when the internet is blocked or diminished, then removing net neutrality represents a threat to those rights. That doesn't mean that the internet should be heavily regulated, but as we'll see below, under certain specific conditions, to make sure that freedom and a free market exists, a few light touch rules can absolutely make sense -- and even the staunchest free market supporters have long recognized that to be the case.

Even if you believe that the government should almost always keep out of a market, because the solution is often worse than whatever market failure it's trying to solve -- keep reading, because I'll try to address that argument as well. If we accept that there are cases of market failure, and the government might need to step in, then it's important to recognize what are the characteristics of market failure, and what are the possible remedies that serve to protect a free market, while minimizing the risks associated with government intervention (such as picking winners and losers, regulatory capture, etc.).

Of course, a classic type of market failure is cases where there is what's known as a natural monopoly. This is a case where there are high infrastructure costs and/or related barriers to entry, and where the economies of scale suggest that one giant player will or should dominate. These often (though not always!) lead to public utilities as a solution. The idea here is that it doesn't make sense to have multiple parties building out repetitive infrastructure, as it's costly and limits the economies of scale. So, roads are one example of this. We don't want competing private companies constructing roads, because that's inefficient and would lead to non-compatible systems and under-utilization of the roads of many parties. This is also the case with phone lines. You don't want every company that wants to become a phone company to have to string up redundant wires to every building, as it would overcrowd telephone poles, be extra costly, and diminish the economies of scale. In short: it's wasteful.

Guess what other market has many of the characteristics of a natural monopoly? Broadband internet. The infrastructure costs are quite high, and it is wasteful if every provider has to build out the entire infrastructure to every building, doing the same work as multiple other companies. That, again, would lead to really inefficient results. You would have overbuilt, redundant infrastructure, which would be wasteful, while limiting the economies of scale that would benefit those same providers. This does not mean that we should automatically turn broadband into a public utility, however. Some of us still believe that the solution here should be to build out the infrastructure, but make sure there's widespread competition at the service level. This is not how it's set up now (in most places), but ideally could be done by laying dark fiber, and letting any service provider drop in their own equipment to offer service over that fiber (this beats the "wholesale" model that some places currently use, which still gives too much power to the single dominant provider).

To me, this still seems like the most logical "free market" solution to the problem of the highly concentrated, non-competitive, awful customer service broadband world we live in today. Rather than hope and pray that competition at the infrastructure level will appear like magic, just move things up a notch, and let there be competition at the service layer, while the infrastructure layer is considered (accurately) a natural monopoly.

Unfortunately, there appears to be zero appetite for this solution among policy makers, even though it would target the real problem -- the lack of competition. Given that, the current net neutrality rules represent another approach that at least carefully attempts to solve the market failure problem.

Still not convinced there's a market failure issue? Let's look at a second reason to suggest that there's a serious market failure in the broadband world: crony capitalism. For good reason, believers in free markets are greatly concerned about "crony capitalism," in which government actions pick winners and losers -- and the winners are often those corporate giants most closely connected to the government officials (hey, remember how Ajit Pai just joked about how he, a former Verizon lawyer, was a Verizon shill? That was funny...).

So, now take a quick look at who is worried about the removal of the 2015 rules. Is it the big guys? Nope. AT&T, Comcast and Verizon are positively giddy about the new rules. Facebook and Google have been pretty quiet altogether, making only token statements on the issue. None of them care. They're all well connected enough that this isn't going to bother them. Even Netflix -- who helped lead the fight last time -- has backed off the issue.

Who's actually making noise about this? Well, beyond all of you internet users, it's the smaller companies, who know they'd be in trouble. Github, Pinterest and Patreon have been urging all their users to contact Congress over net neutrality. Reddit has become net neutrality central. Automattic/Wordpress have been vocal on this issue as well. Earlier this year, over 1,000 startups told Ajit Pai not to kill net neutrality.

Take a second and think which solution is likely to help the crony capitalists, and which is likely to help the upstarts, innovators and entrepreneurs. It certainly looks like Ajit Pai's plan is a win for the crony capitalists, and a loss for innovators. So if you believe in a free market in which upstarts are able to come in and innovate, and where crony capitalism doesn't work. it certainly looks like you should support net neutrality and be against Ajit Pai's plan to destroy the rules.

And that's because the Open Internet Order of 2015 -- despite claims to the contrary by Pai and others -- is not about setting up some giant regulatory burden. There are no "compliance" costs. All it does is set some basic rules that prevent predatory practices by the giant companies.

And, believe it or not, some of the biggest supporters of free markets have recognized the need to stop such predatory practices for the sake of the free market. They've long recognized that dominant firms, with the power to discriminate, aren't just creating monopoly rents for themselves, but they are actually set up to block the functioning of a free market. That is the case with the broadband access market.

To see how this works in practice, let's take a look at the views of one of the philosopher kings of the free market: F.A. Hayek. Hayek's many works have, repeatedly, argued against government interference in most areas, quite rightly noting that it often distorts markets in dangerous ways, can limit overall benefits, and (especially) lead to things like regulatory capture. But... he has some exceptions. And many of those exceptions would appear to apply to the net neutrality debate. For example, in Law, Legislation and Liberty, in the midst of a longer discussion on why "big" is not necessarily "bad" (an argument I mostly agree with), in trying to distinguish "big" from "bad" he tries to highlight the kind of "bad" behavior he finds objectionable and worth preventing via government action. And the key to him: when businesses can discriminate and treat different customers differently for the same product -- especially on products on which the customers are dependent:

In modern society it is not the size of the aggregate of resources controlled by an enterprise which gives it power over the conduct of other people, so much as its capacity to withhold services on which people are dependent. As we shall see in the next section, it is therefore also not only simply power over the price of their products but the power to exact different terms from different customers which confers power over conduct. This power, however, is not directly dependent on size and not even an inevitable product of monopoly-although it will be possessed by the monopolist of any essential product, whether he be big or small, so long as he is free to make a sale dependent on terms not exacted from all customers alike. We shall see that it is not only the power of the monopolist to discriminate, together with the influence he may exercise on government possessing similar powers, which is truly harmful and ought to be curbed. But this power, although often associated with large size, is neither a necessary consequence of size nor confined to large organizations. The same problem arises when some small enterprise, or a labour union, which controls an essential service can hold the community to ransom by refusing to supply it.

Later, in discussing how the real evil of monopoly is to crowd out competition, he notes how the power to discriminate can be used in such a fashion:

... the power to discriminate, can in many ways be used to influence the market behaviour of these others, and particularly to deter or otherwise influence potential competitors.

Hayek admits that this is a tricky problem to solve. He admits that some monopolists may, indeed, provide better overall service, but we should be careful where there are situations where they might restrict competition -- and thus, he notes that there may even be cases where "rules of conduct" should be put forth to prevent such discrimination:

... since the power of the monopolist to discriminate can be used to coerce particular individuals or firms, and is likely to be used to restrict competition in an undesirable manner, it clearly ought to be curbed by appropriate rules of conduct.

Specifically, he notes that "aimed discrimination intended to enforce a certain market conduct should clearly be prohibited." This all certainly can be read as recognition that a system like the FCC's 2015 Open Internet Order would match. The open internet order was not heavy-handed regulation (contrary to Pai's statements). It merely prevents discriminatory behavior by those services that the public now depends on, where they have little to no choice in alternative providers. And thus, under such conditions, Hayek sees that "rules of conduct" with clear prohibitions can make sense. Admittedly, he does then say that -- unlike the 2015 rules -- he's not convinced making the rules a "punishable offense" would make sense, but rather would prefer a system where breaking such rules would become "the basis of a claim for damages."

But, either way, even Hayek recognizes that while in most cases, government rules are a bad idea, in certain very specific cases, they can make sense. And a key area where that does make sense is where you have companies with the power to discriminate in anti-competitive ways that could distort the market. And while Hayek's suggestion that making the punishment for breaking such rules be civil damages from those injured, I'd argue that this would actually be a less effective situation in the internet access market. Because, if you're in a situation where a giant internet access provider, such as a Comcast, Verizon, or AT&T decides to throttle or discriminate in some way that harms a provider, it's most likely going to be a smaller provider -- such as an internet startup. Such a startup is unlikely to have the means, or the time, to then take the giant broadband provider to court, and fight against that company's well-paid lawyers that such discrimination should lead to damages.

Indeed, this is part of the usefulness of the 2015 rules: they are simple and straightforward, making it easy for broadband providers to follow them (no throttling, no blocking, no paid prioritization) without increasing the transaction costs of protecting the innovative edge providers.

Now, let's go back to Milton Friedman, whom we'd mentioned in the opening. In his Capitalism and Freedom, he discusses "technical monopolies," by which he means natural monopolies as we discussed above. Friedman notes that he believes that these happen very infrequently, and even in some cases it's best to leave such markets unregulated because over time, markets will shift and what may be a natural monopoly today may not be one in the long term. He uses railroads as an example, pointing out that while they initially had a natural monopoly, over time things like airplanes and highways eroded that -- while also noting that the attempt to regulate railroads created terrible regulatory capture. And he's right, that most of the time, it is not necessarily a good idea for the government to get involved. But, he argues that there are times when the situation is such that leaving things alone for a natural monopoly will create too much harm:

The choice between the evils of private monopoly, public monopoly, and public regulation cannot, however, be made once and for all, independently of the factual circumstances. If the technical monopoly is of a service or commodity that is regarded as essential and if its monopoly power is sizable, even the short run effects of private unregulated monopoly may not be tolerable, and either public regulation or ownership may be a lesser evil.

He discusses various examples, but notes that, in the end, you need to weigh the costs and benefits:

Our principles offer no hard and fast line how far it is appropriate to use government to accomplish jointly what it is difficult or impossible for us to accomplish separately through strictly voluntary exchange. In any particular case of proposed intervention, we must make up a balance sheet, listing separately the advantages and disadvantages. Our principles tell us what items to put on the one side and what items on the other and they give us some basis for attaching importance to the different items. In particular, we shall always want to enter on the liability side of any proposed government intervention, its neighborhood effect in threatening freedom, and give this effect considerable weight. Just how much weight to give to it, as to other items, depends upon the circumstances. If, for example, existing government intervention is minor, we shall attach a smaller weight to the negative effects of additional government intervention.

And this brings up the next important point. The actual "intervention" in the 2015 Open Internet Order are, indeed, quite minimal. What has struck me in rereading many different texts, by a variety of free market economists on issues related to natural monopolies, is their almost universal failure to imagine the kind of light touch "regulation" set up by the 2015 order. Indeed, nearly all of them talk about rate setting, taxation or even public ownership as the only viable regulatory options (and then go on to discuss the problems with each). But it's important to note that the 2015 net neutrality rules explicitly block the FCC from engaging in any of these practices.

Instead, the rules are almost surprisingly mild, given the argument that broadband access is a natural monopoly and a market failure. There is no rate setting. There is no taxation. There is no public ownership. There is merely a prohibition on a few activities (blocking, throttling, paid prioritization) that are deemed to do significantly more harm than good in cutting off competition, innovation and freedom of expression.

And that brings us back around to the questions of where and how we want free markets to thrive. There are many different levels of the economy, and if you have strong infrastructure that is built so that anyone has access, then that creates the parameters for strong free market competition for goods and services built on top of that infrastructure. Take the road system, for example. While you may have some extreme folks in the AnCap camp who believe that even roads should be privatized, it does not take a PhD in economics to realize the harm that might cause. Making roads more costly to use would limit usage. The power of some companies to "own" the roads would likely limit the types of businesses and retail operations that could make use of those roads. Shipping would be more expensive. Commuting would be more expensive. The amount of innovation and competition that could be built on top of the infrastructure layer would become more expensive. Thus, while you might have a free market in "roads" you would limit or destroy the free market of every business that relies on roads (which is a significant portion of the economy). And that leaves out the silliness of a having a free market in roads, because who wants competition on different roads?

The same is true of the internet. In giving the big broadband access providers the ability to put up tollbooths on the internet, you significantly limit the free market on the internet. You limit the ability of smaller upstarts to innovate and get online. You make it much more difficult for competition among those edge providers and services. Indeed, such a world only creates more incentives for a few giant internet companies (think: Google, Facebook, Amazon) since those will be the only ones who can go toe-to-toe with the access providers and negotiate deals. The end result is that while you may have a free market in "broadband," you lose it on all of the (more valuable, more important) services built on the internet. And, as with roads, the entire concept is silly. We should have a free and open network, at much faster speeds, such that we can get more experimentation, more competition, and more of a free market among edge providers and services on the internet.

Indeed, when you get competition at layers above the infrastructure layer, you actually make the infrastructure more valuable. The weird conceit of AT&T, Verizon and Comcast, in pushing for the policies that they want, is that it is the network itself that is the value, and that the edge providers/internet services that everyone uses are somehow getting a "free ride." But that ignores the reality. It's the various services, whether it's Techdirt or Reddit or Github or Pinterest or Airbnb or YouTube or Snapchat or whatever else you use, that make the network itself valuable. Allowing more of a free market at that level helps make the underlying network itself that much more valuable as well.

The broadband companies take offense to the idea that they're just supplying "dumb pipes," but dumb pipes with a healthy competitive market of services built on those dumb pipes is more valuable for everyone. It's more valuable for the end users. It's more valuable for the edge service providers. And, importantly, it's more valuable for the infrastructure providers themselves, even if they somehow fail to recognize that.

In the end, the free market case for net neutrality rules is that it stops a clear natural monopoly market failure, with very lightweight rules that merely serve to ensure that there's much more robust and widespread free market competition among edge providers, in a manner that makes the entire ecosystem more valuable. Taking away those rules, as Ajit Pai and his friends would like to do, creates a non-free market. It enables crony capitalism, where a few giant corporations effectively control the central infrastructure on which the public is dependent, with almost no oversight and no prevention of discrimination or abuse. That will lead to less innovation, less competition and less value (though, more rent extraction by those giant providers).

So, yes, even if you consider yourself a free market believer, who worries about government intervention, you should still be supportive of the 2015 Open Internet Rules, while quite concerned about Pai's plan to role them back. What he's pitching is not a free market, but a locking down of the market to favor a few corporate cronies.

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Posted on Techdirt - 8 December 2017 @ 10:44am

Dear Tech Guys: HBO's Silicon Valley Is NOT An Instruction Manual

from the it's-a-lesson-in-what-not-to-do dept

I've been living in Silicon Valley for just about twenty years at this point, and lived through the original dot com bubble (got the t-shirt, etc.). And there are a few small signs that remind me quite a bit of the "bad stuff" that started to show up in the 1999/2000 time frame, just before everything collapsed. One of the biggest issues: the carpetbaggers. Basically, as things get frothier and frothier, a "different" kind of entrepreneur starts to show up. In the original dot com bubble, these were frequently described as "MBA's" -- but as someone with an MBA degree, I find that to be a bit misleading too. There were plenty of good, smart, tech-savvy MBAs who added value to the innovation community. The real problem was the people who came to (a) get rich and (b) party (not always in that order). Getting rich and having a good time aren't necessarily bad things, but if they're what you're focused on, then bad things tend to result.

Lots of people like to mock the whole mantra of "we're changing the world" in Silicon Valley, and sometimes it deserves to be mocked. But... in many cases, there is actual truth to it. And, in many cases, there are entrepreneurs and innovators who really are trying to change the world and make it a better place. The problem is that you have the other element -- the carpetbaggers -- who show up with no actual interest in innovation or in making the world a better place, but who readily adopt the terminology and slogans of those who do. And, these days, we're seeing more and more of those types of people in the Valley. It's been happening for years, but it's been getting worse and worse lately. It's why people talk about "Techbros" with dumb, but flashy, company ideas, while ignoring entrepreneurs working away at truly world-changing products and services.

I've been thinking more and more about this lately, especially as a whole bunch of stories have come out in the tech world (as in so many other industries) about sexual harassment and sexual assault. And, as in so many industries, this has been an issue for a long time around here -- and often not taken seriously. Earlier this year -- before many of the bigger stories came out -- I wrote about why Silicon Valley needs to get its act together and grow the fuck up. But with many of the revelations coming out, showing how widespread the culture of harassment (and assault) has been, it's a much bigger problem.

That's why this story from Bloomberg is so flabbergasting. Even after all of this, to hear that some tech companies are hiring good looking models to attend their holiday parties is just so... dumb.

Local modeling agencies, which work with Facebook- and Google-size companies as well as much smaller businesses and the occasional wealthy individual, say a record number of tech companies are quietly paying $50 to $200 an hour for each model hired solely to chat up attendees. For a typical party, scheduled for the weekend of Dec. 8, Cre8 Agency LLC is sending 25 women and 5 men, all good-looking, to hang out with “pretty much all men” who work for a large gaming company in San Francisco, says Cre8 President Farnaz Kermaani. The company, which she wouldn’t name, has handpicked the models based on photos, made them sign nondisclosure agreements, and given them names of employees to pretend they’re friends with, in case anyone asks why he’s never seen them around the foosball table.

To be honest, the story is so dumb, and no companies are actually named, that I'm wondering how much of this story is actually planted by the modeling companies hoping to make it reality. But... these days, we're hearing about so much bad behavior that it may very well be happening.

And I saw more than a few people commenting on Twitter that this seemed like something straight out of HBO's Silicon Valley. Which leads me into another thought that I've been toying with recently. Last time I was in Washington DC, some friends based there were asking me what I thought of the show, and I said that for all of its famed "accuracy," I thought it was ruining the actual Silicon Valley. My friends suggested this was ridiculous, since the show clearly made most of the protagonists out to be fairly buffoon-like, and worthy of mockery. But... without other guidance, it really feels like many people are arriving in Silicon Valley with the HBO show as their mental model of how things are supposed to be. And, even if the show is "truthy" in how it portrays certain people/activities, it does so for the sake of entertainment. Thus, it only presents the really exaggerated versions, and creates entertaining caricatures of certain types of people, while leaving out the many, many, other people who actually get real shit done here, without being buffoons or assholes.

People out here, for the most part, still love the show, because they recognize elements of reality within those characters and events -- but it misses out on the nitty-gritty of how stuff gets done and the fact that some people are legitimately doing good stuff without being horrible people. But if everyone now coming into Silicon Valley is coming in with HBO's Silicon Valley as their model -- too many are looking at the show as an instruction manual, rather than a giant warning sign of what not to do. In some ways, it reminds me of the classic 90's indie film Swingers with Jon Favreau and Vince Vaughn. When it came out, I remember lots of guys trying to "take lessons" from the movie in how to pick up women, even though the entire point of the movie was to make fun of those people with their tricks and rules and games.

Assuming that story of hiring models for parties really is true, it feels like yet another brick in this problematic wall of "techbro" culture taking over from what has always been the true core of Silicon Valley, involving non-assholes who really are changing the world. It would be great if we could get more of that, and less of the HBO version, no matter how entertaining it might be.

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Posted on Net Neutrality Special Edition - 7 December 2017 @ 10:40am

Why I Changed My Mind On Net Neutrality

from the and-why-ben-thompson-should-too dept

Long time readers of Techdirt may know (as I've noted several times), that in the mid-2000s when the net neutrality debate was first heating up, I was against the FCC putting in place rules to protect net neutrality. As I explained at the time, the concept of net neutrality was important, but I had so little faith in the FCC that I expected any rules it put together would cause more harm than good. I similarly argued that the fight over net neutrality was really a symptom of a larger problem (the lack of competition in the broadband market), rather than the problem in itself. I was also heavily influenced by a paper that Professor Ed Felten wrote in 2006 called Nuts and Bolts of Network Neutrality, which mostly (as the title suggests) goes through the various arguments for and against net neutrality rules. But it concludes with a position I agreed with for a while: that while net neutrality was important, actual rules that protected it would be tricky to get right -- and the "best" policy might just be the "threat" of rules should broadband providers engage in bad behavior. Thus, that threat, might prevent bad behavior, without having to put in place bad rules:

Net neutrality advocates are right to worry that ISPs can discriminate—and have the means and motive to do so—in ways that might be difficult to stop. Opponents are right to say that enforcing neutrality rules may be difficult and error-prone. Both sides are right to say that making the wrong decision can lead to unintended side-effects and hamper the Internet’s development.

There is a good policy argument in favor of doing nothing and letting the situation develop further. The present situation, with the network neutrality issue on the table in Washington but no rules yet adopted, is in many ways ideal. ISPs, knowing that discriminating now would make regulation seem more necessary, are on their best behavior; and with no rules yet adopted we don’t have to face the difficult issues of linedrawing and enforcement. Enacting strong regulation now would risk side-effects, and passing toothless regulation now would remove the threat of regulation. If it is possible to maintain the threat of regulation while leaving the issue unresolved, time will teach us more about what regulation, if any, is needed.

So, what changed, leading me to eventually move to supporting the Open Internet Order of 2015? Well, as Felten predicted (he's good at that sort of thing...), the market continued to develop, legal precedent got set, and we got a lot more information on what was happening. On top of that, we got decent (though not perfect) rules from the Wheeler FCC, which were non-burdensome, and did quite a lot of good.

I wanted to explore in greater detail what it was that made me change my opinion on this -- and I'll do it while also countering someone else's arguments. A bunch of people have been pointing me to what Ben Thompson from Stratechery has been saying about net neutrality over the past couple weeks. Ben is very smart and extraordinarily insightful on issues related to innovation and policy, and I probably agree with him about 85% of the time. Thus I do find it interesting to explore where we disagree -- and net neutrality is one of those places. But what's most interesting to me is that after going through Ben's thoughts on this multiple times, I think that he's really in the place I found myself a decade ago -- supporting net neutrality, but being wary of the FCC's implementation. So, as part of my reasoning for why I changed my mind, I'll also try to explain why Ben should change his mind as well. If you haven't followed Ben's statements here's his original blog post, which was initially called "Why Ajit Pai is Right," but was later changed to "Pro-Neutrality, Anti-Title II."

His second blog post on it was entitled The Broadband Tradeoff; The Importance of Antitrust. Finally, he did a podcast discussing his views called Two Terrible Options, which focuses on the supposed "tradeoffs" between the current rules and Pai's plan, arguing that he thinks Pai's plan is better for actually keeping net neutrality. But he, unfortunately, bases that conclusion on a series of incorrect or misleading facts, some of which I'll try to correct below.

Ben's starting premise -- which I agree with -- is that there are tradeoffs to any regulations and he, like me, comes from a starting place of being skeptical of the need for regulation without significant evidence that it is necessary.

Any regulatory decision — indeed, any decision period — is about tradeoffs. To choose one course of action is to gain certain benefits and incur certain costs, and it is to forgo the benefits (and costs!) of alternative courses of action. What makes evaluating regulations so difficult is that the benefits are usually readily apparent — the bad behavior or outcome is, hopefully, eliminated — but the costs are much more difficult to quantify. Short-term implementation costs may be relatively straightforward, but future innovations and market entries that don’t happen by virtue of the regulation being in place are far more difficult to calculate. Equally difficult to measure is the inevitable rent-seeking that accompanies regulation, as incumbents find it easier to lobby regulators to foreclose competition instead of winning customers in an open market.

Ben's second point, then, is on the difference between ex ante (beforehand) and ex post (afterwards) regulatory regimes, noting that ex post regimes can allow for more experimentation that can be good:

I absolutely support regulation of ISPs and the preservation of the neutrality (at least in terms of blocking content), I just think we should stick to ex-post instead of ex-ante until there is compelling evidence of systematic abuse.

And, again, that was my position more than a decade ago, and remained as such for quite some time. Here's why I've changed my mind. First, Ben's position (and the position of everyone, including Ajit Pai) who insist that there's no evidence of "systematic abuse" are (conveniently) ignoring (or are unaware of) the long history here. This is not a situation where broadband providers have shown no interest in abuse. They have regularly and clearly stated their intent to systematically abuse their dominant position in the market. As we've discussed, this goes back to AT&T's former CEO Ed Whitacre declaring, back in 2005, his intent to charge edge providers for daring to be what his broadband subscribers demanded from the network:

"Now what they would like to do is use my pipes free, but I ain't going to let them do that because we have spent this capital and we have to have a return on it. So there's going to have to be some mechanism for these people who use these pipes to pay for the portion they're using. Why should they be allowed to use my pipes? The Internet can't be free in that sense, because we and the cable companies have made an investment and for a Google or Yahoo! or Vonage or anybody to expect to use these pipes [for] free is nuts!"

But -- Pai, Ben and others may retort -- since then there hasn't been any evidence of them actually doing so. First off, that's not entirely true. There is a decently long list of examples of bad behavior by broadband providers (though Pai and his supporters like to dismiss those as anomalies). But the more important point is that it's always been the Feltenesque threat of rules that have kept the big broadband providers in check. Because it was right around the time that Whitacre announced his intention to start charging edge providers, that then FCC chair Michael Powell had released his guiding principles paper on "preserving internet freedom" that noted the FCC needed to "keep a sharp eye on market practices" to stop broadband ISPs from doing things like blocking competing services. And, soon after that, the FCC fined Madison River for blocking VoIP services.

In other words, the FCC had made it clear that it would crack down on such bad behavior that the big broadband players had clearly stated they planned to engage in. Of course, what followed after that was a series of attempts by the FCC to enforce such rules against other abuses, where the courts repeatedly told the FCC that it didn't have the authority to punish the broadband providers if they were classified as Title I information services. So, you have to know all of this history to understand the threat of systematic abuse. Ben claims that there's no evidence of it, but that's not true. There are the stated intentions of the broadband companies to abuse net neutrality. Beyond the Ed Whitacre statement above, during one of the lawsuits against the FCC (filed by Verizon over the 2010 rules), the company flat out said in court that it intends to violate net neutrality and would do so if the rules were not in place:

"I'm authorized to state by my client today that but for these rules, we would be exploring those types of arrangements," Verizon's attorney, Helgi Walker, said at the time.

So, again, we have multiple examples of the broadband players directly saying that they would violate net neutrality if given the opportunity -- repeatedly held in check by an FCC that tried to set rules saying it wasn't allowed. But eventually, the courts made it clear that such rules were not enforceable under Title I, and the only way to make rules that stick is under Title II, which the Tom Wheeler Open Internet Order finally did.

In other words, the big broadband providers have been clear that they intend to violate net neutrality. They were only held in check by the FCC, but the courts had twice thrown out attempts at rules, until Wheeler reclassified to Title II -- which the courts have since blessed. Given that history, it's reasonable to shift from my Feltonian position of a decade ago to one where it seems fairly obvious that if we are to keep neutrality, we need Title II to make it work. That's exactly what the courts have said.

That's not the only reason either. Another thing that had become clear over the intervening decade was that these broadband companies had only grown larger, more dominant and more powerful -- along with a long history of horrible customer care (being so dominant does that) and outright nefarious behavior (leading to various fines). Going back to the Powell days, where he insisted that broadband-over-powerlines was the Great Broadband Hope for competition, we've seen consistently less and less competition in the broadband realm.

In short, the situation has consistently gotten worse on the competitive front, at the same time the big players have insisted that they intend to initiate bad behavior, and the only check against that bad behavior (the possibility of rules from the FCC) got shot down in the courts until they were reclassified as Title II. Put all that together, and if you support net neutrality, as Ben claims to, there's almost no argument against Title II.

But, while we're at it, we need to correct a few other misconceptions put forth by Ben (and some other supporters of Pai's plan). First, is the idea that this can all be dealt with via antitrust and the FTC. As we noted recently, depending on the outcome of an AT&T lawsuit, the FTC may be blocked from having any regulatory say over broadband providers as well. Relying on the FTC is unlikely to solve many of the problems put forth by violating net neutrality, because they don't fall under areas where the FTC can regulate -- whether it's false advertising/misleading users or outright scams.

Ben, somewhat oddly, makes a number of other factual errors during his podcast. He claims that the 2015 rules have really only caused problems for small ISPs because of the burdensome cost of those regulations. That's... wrong. A whole bunch of those ISPs told the FCC they want the rules to remain. They're not the ones agitating to remove the rules. Indeed, they point out that by killing the rules and consolidating the power of the giant broadband players (i.e., AT&T, Verizon, Comcast) it creates an even more unfair market. Those giants can craft deals with internet services and companies that make it harder for the smaller ISPs to compete.

Along those same lines, Ben insists that the 2015 rules are obviously costly in compliance terms. But there is no compliance issue. There's nothing you need to do to comply other than not block, not prioritize, and not throttle. If you read the 8 pages of actual rules, there's no compliance issue if you're not violating net neutrality. As one small ISP, Sonic, has noted, the 2015 order is only a regulatory burden if you plan to violate net neutrality. And that's because there are some provisions for services that want to violate net neutrality, whereby they'd need to ask the FCC for permission to do so:

The Commission may waive the ban on paid prioritization only if the petitioner demonstrates that the practice would provide some significant public interest benefit and would not harm the open nature of the Internet.

Another point that Ben and others have raised, partially correctly, but mostly misleadingly, is that the key issues that people point to recently on the net neutrality front: interconnection disputes and zero rating, were not covered by the 2015 order. In one sense, this is accurate. Indeed, one of our big complaints with the 2015 rules was that they left these loopholes in place. But... that's not (as Ben suggests) a reason to ditch those rules. After all, literally days after the new rules were voted on, the big broadband players magically ended all their interconnection disputes. And that's because they knew that without fixing that, they'd face net neutrality complaints, and the FCC would almost certainly find those efforts to violate open internet principles.

As for zero rating? Well, Ben insists in his podcast that the lack of any FCC authority over that meant that the rules don't matter. Apparently, he missed the fact that the Wheeler FCC actually told companies that zero rating was anti-competitive late last year, telling AT&T it needed to knock it off. Of course, it was easy for people who don't follow this stuff to miss, because one of Ajit Pai's first moves upon taking over from Wheeler was to tell AT&T not to worry about that complaint.

This also highlights another error that Ben made in his writing and podcast. In the podcast, he keeps insisting that the difference between Title II and Title I is ex ante v. ex post rulemaking. Specifically, he argued that using Title II is silly because it only allows preset rules, and doesn't allow for "ex post" rulemaking to go after new bad behavior (citing interconnect and zero rating as examples). But, as we just pointed out in the previous paragraph, under Title II, the FCC could still make some ex post rulings on bad behavior that went against net neutrality (which is also why the interconnection fights disappeared -- because companies knew the FCC would find it problematic). What Ben misses is that under Title I, there's basically no "ex-post" process at all. The Pai FCC is washing its hands of any authority or any concern for neutrality at all (removing even the Feltonian "threat" of rules), and handing it off to the FTC which may not have any authority at all, and if it does, fairly limited authority that can't go after much of the promised bad behavior.

On top of that, there's much more uncertainty without the rules -- and uncertainty itself can be a pretty large regulatory barrier. The rules set out principles and key issues that the FCC believe in about the internet. And they allowed the FCC to step in "ex post" to correct behavior that violated those principles. But under the new lack of rules, there are no such principles. And while the FTC may step in, ex post, to go after some really egregious behavior, it's not clear what it will focus on (if anything) or why. That leads to much greater uncertainty than the set rules of the 2015 Open Internet Order.

During the podcast, Ben also suggests that the FCC's "success" in getting Comcast to stop throttling BitTorrent (pre-Title II) shows that we don't need Title II, and that the FCC's ex-post orders under Title I were sufficient. Except, once again, that ignores the actual history here. Yes, Comcast stopped throttling BitTorrent. But it took the FCC to court and won. So, what "worked" back in 2008 would not work the next time. It's odd to claim that the FCC succeeded against Comcast when it lost the lawsuit. Comcast didn't go back to throttling BitTorrent because other net neutrality rules were still pending (and because the company had agreed to some temporary net neutrality conditions for mergers. But those will go away).

I'll just end with one final oddity from Ben's position. During the podcast, he argues (as we have argued for a long time) that getting more competition should be the focus -- and to get there he's specifically a supporter of local loop unbundling. That's the process by which the service layer is separated from the infrastructure layer and you can have multiple service providers offering service on the same fiber. I'm all for that as well. It's what we had in the dialup days when there was a ton of competition. But... amazingly, what Ben seems unaware of, is that the law that enables local loop unbundling is Title II. It's right there in Section 251(3). Of course, it's important to note that the Wheeler order (unfortunately) deliberately promised not to make use of this part of the law (via "forbearance"). But moving away from Title II is, by definition, moving away from local loop unbundling. So to say you're against Title II, but for local loop unbundling is just... strange.

The larger point here, though is that while there certainly were a number of reasons to be hesitant about supporting Title II or even explicit rules from the FCC a decade ago, enough things have happened that if you support net neutrality, supporting Title II is the only current way to get it. Ajit Pai's plan gets rid of net neutrality. The courts have made it clear. The (non) competitive market has made it clear. The statements of the large broadband providers have made it clear. The concerns of the small broadband providers have made it clear. If Ben does support net neutrality, as he claims, then he should not support Pai's plan. It does not and will not lead to the results he claims he wants. It is deliberately designed to do the opposite.

So, yes. For a long time -- like Ben does now -- I worried about an FCC presenting rules. But the courts made it clear that this was the only way to actually keep neutrality -- short of an enlightened Congress. And the deteriorating market, combined with continued efforts and statements from the big broadband companies, made it clear that it was necessary. You can argue that the whole concept of net neutrality is bad -- but, if you support the concept of net neutrality, and actually understand the history, then it's difficult to see how you can support Pai's plan. I hope that Ben will reconsider his position -- especially since Pai himself has been retweeting Ben's posts and tweets on this subject.

Update: And... just as this post was going live, Pai was, once again, tweeting about Ben's post, even though Pai must know that Ben's claims are wrong, and Pai's plan does not match with what Ben claims:

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Posted on Techdirt - 6 December 2017 @ 4:25pm

The Strange Fight Over Who Should Take John Conyers Spot Atop The Judiciary Committee

from the there's-a-bit-more-to-look-at-than-that... dept

As you may have heard, Rep. John Conyers recently stepped down from his role as Ranking Member (basically top member of the minority party) on the powerful House Judiciary Committee, and this week has announced his retirement, in response to multiple accusations of sexual harassment. That has kicked off something of an interesting and important debate over who should replace him as ranking member on the Judiciary Committee.

The next in line by seniority is Rep. Jerry Nadler. But right behind him is Rep. Zoe Lofgren. By way of disclosure, I'll note that I've gotten to know Lofgren over the years, and have donated to her election campaign. But even before I'd ever spoken to her, I've noted how she remains one of the few people in Congress who seems to consistently do the right thing on basically all of the issues that we care about at Techdirt. You can see our past coverage of stories involving Lofgren. Most specifically on copyright and surveillance, she hasn't just been on the right side, she's been leading the way. She is, almost single-handedly, the person who stopped SOPA from passing. She has consistently raised important issues and introduced important bills and amendments concerning copyright, NSA surveillance and the CFAA among other things.

Obviously, I think she'd make a great ranking member for the Judiciary Committee (or the chair should the House flip sides in the future). So I was happy to see her recently announce her intention to run for the Ranking Member position against Nadler. Who knows if she'll actually get the position, but I found it odd that upon announcing it, she was immediately attacked by, of all places, The Intercept, which put forth a really strange article accusing Lofgren of being a Google shill. This was strange on multiple levels -- though, I get it. Lofgren gets called a "Google shill" for the same reasons that we do here at Techdirt. Because, even though we frequently disagree with Google on a variety of issues, on the whole we support many of the same policies that protect free speech and open innovation online.

That's also true of Lofgren. While she's supported key policies on copyright, online speech, innovation and surveillance, she's similarly pushed back against Google quite frequently as well. She's publicly criticized the company for its lack of diversity. She's voted against a bill to expand H1-B visas that Google supported. She voted against Trade Promotion Authority (which Google stupidly supported -- as noted in one of my links above) that paved the way to moving forward on TPP. On top of that, the tech industry has mostly pushed back on CFAA reform, such as Lofgren's Aaron's Law, because companies want to have it as a tool to use against employees at times. Just recently, Lofgren has started digging into competition inssues in Silicon Valley, warning about the lack of competition and how it's a problem -- a position that, more than likely, Google finds worrisome.

That's just part of why it's so odd that the Intercept, of all publications, would post this article suggesting that Lofgren doesn't belong as the ranking member on the Judiciary Committee just because she's "close" to Google. Even odder, is the fact that the authors of the piece -- two reporters whose work I've long respected, Ryan Grim and Lee Fang -- focus entirely on claiming that Lofgren is a product of Google, while ignoring anything about Nadler. Not only has Nadler been on the wrong side of many of these same key issues, if you consider Lofgren somehow tied to Google (again, incorrectly) then you would similarly have to conclude that Nadler is in the pocket of the legacy entertainment industry, and their ongoing quest to destroy the internet as we know it. If you start looking at Nadler's campaign finance situation, it sure looks like he's the MPAA and the RIAA's favorite Congressman.

In the last campaign cycle, the RIAA gave significantly more to Nadler than any other Democrat. Same with Disney. Same with Sony. Same with Time Warner. Same with Universal Music. Same with the Association of American Publishers. Same with ASCAP. While Viacom gave a bit more to three other members, Nadler was the 4th highest support on the Democratic side. Comcast gave a little more to Conyers, but again, Nadler is near the top of the list. The Grammys have given more to Nadler than any other Democrat, and he repays them by holding events with them all the time.

There's a pretty clear pattern here. If the legacy copyright players want something on the Democratic side, Nadler's their guy. And, maybe that doesn't matter to the Intercept. Maybe it doesn't matter that bad copyright policies that he promotes would have serious downsides to the way the internet works, to free speech and to privacy. Maybe, the Intercept has decided that any possible "connection" to Google is worse than everything else. But considering that the whole creation of The Intercept came about because of the Snowden revelations, and a key focus of The Intercept is to report on the evils of government surveillance, it's kind of surprising that it would publish an article promoting Nadler over Lofgren while ignoring that Nadler has not always been a close friend of surveillance reform. It's true that he's sponsored some reform efforts, including the USA Freedom Act, but just last month he was seen voting against an important amendment brought forth by Lofgren, to end backdoor searches in the ongoing effort to reform Section 702.

So it seems odd that the Intercept is effectively arguing that Nadler would make a better ranking member on Judiciary, even as Lofgren has a stronger record on stopping government surveillance, just because some (falsely) believe that Lofgren is "tied" to Google. And, at the very least, if they're going to tar Lofgren because her views sometimes align with Google's, it seems that it could at least treat Nadler equally by looking into his close connections with the legacy entertainment business.

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Posted on Net Neutrality Special Edition - 6 December 2017 @ 9:33am

What Happened To Everyone Complaining About The Length Of The 2015 Net Neutrality Rules?

from the oh-look,-they-were-lying dept

If you've followed the whole net neutrality debate for a while, you may remember one of the more ridiculous talking points when the 2015 rules were put in place: it was the line that the rules were "400 pages of regulation on the internet." People kept listing out the page numbers to suggest how crazy it was, and just how much bad stuff the FCC must be doing in "regulating the internet." Ajit Pai kicked it all off with his tweet with a picture of himself holding the initial version of the rules, complaining that it was "Obama's 332-page plan to regulate the internet."

Others picked up on this theme. The eventually released rules were 400 pages exactly, leading to lots of hand-wringing and whining from the usual suspects about how this was some sort of massive takeover of the internet, hidden in so many pages. Of course, that ignored that the actual "rules" take up just a few pages in the order. It's actually eight pages. You can see them on pages 283 through 290 of the 400 page document. All the rest of it just explains the rules -- as is required by law -- responding to comments that had been raised during the open comment period. And, even more pages are devoted to explaining what the rules do not allow the FCC to do. Also, part of the 400 pages included Ajit Pai's own 64 pages of "dissent." It's hard to see how that should be counted as part of the "regulation."

And yet that didn't stop the likes of Ajit Pai from insisting that there were 332 pages of regulations in there. And for others to pick up on similar numbers or the full 400 page number. A group called "American Action Forum" called it a "400 page monstrosity." During her campaign for President, Carly Fiorina said the first thing she would do as President is "roll back the 400 pages of regulations the FCC just rolled out over the internet." Leaving aside that the President can't overrule the FCC like that, she's also relying on that misleading 400 page number. Infowars got in on the action also, saying that the hidden within the 400 page rules were a plan "to seize the entire internet." And, oh boy, were there lots of tweets attacking the whole 400 pages thing. For example, here's Mike Wendy, a consistent gadfly in policy discussions, always always always supporting the telco's position, insisting that the new rules are 400 pages (even though he, of all people, knows better):


But, I'm curious where are all these people now, in commenting on the size of Ajit Pai's order? In its current form, it weighs in at a hefty 210 pages (and that's before additional things like Commissioner statements/dissents will get added). It's true that these "rules" are "shorter" than Wheeler's. The actual rules this time are 2 pages, rather than 8. But, I'm curious why Carly Fiorina isn't complaining about 200+ pages of "new" rules for the internet. Indeed, I can't find any comment from her anywhere. American Action Forum doesn't have a story up complaining about 200 pages of new internet regulations. Infowars seems positively giddy that Ajit Pai has released 200+ pages of new rules, apparently freeing us from some sort of George Soros conspiracy or something. Meanwhile, I've gone through Mike Wendy's tweets, and despite him tweeting many, many, many times about the "400 pages" in Wheeler's rules, somehow he doesn't ever seem to mention the over 200 pages in Pai's rules. He doesn't mention why it takes "over 200 pages to explain" why Pai is rolling back the last order. I wonder why. Instead, he's declaring these new 200+ pages of rules a "win for consumers, society, innovation and free speech." Hmmmmmm. It's almost as if it's not the page count that matters at all...

Incredibly, many of the people now cheering on the new rules are still attacking the original order as being "400 pages" without acknowledging that the new "rules" are over 200 pages.



Obviously no one is complaining about 200+ pages of new regulations because these aren't 200+ pages of new regulations. But neither was the FCC's 2015 order 400 pages of new regulations. There are lots of things to be concerned about with what Ajit Pai is doing here, but it does seem important not to forget the absolute bullshit that some people spewed in response to the 2015 rules, complaining over and over again about how they were so many pages long (even though they really weren't) -- when literally none of those people are commenting on the length of the new order.

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Posted on Techdirt - 5 December 2017 @ 10:44am

Days Before Doing Verizon's Bidding, Ajit Pai Gives A Talk At Verizon

from the drain-the-swamp dept

So, either no one at the FCC gives a shit any more or there's no one there with the slightest perspective on how this might look, but earlier today, Ajit Pai gave a talk at Verizon. Pai, as you know, used to be Verizon's deputy General Counsel -- though that was a while ago, and just because he used to work there doesn't necessarily mean he would be regulating in their interest. However, basically every move that Pai has taken since becoming chair of the FCC has been exactly what Verizon has asked for, no matter how ridiculous. Given that, you'd think at least someone in his office would have the sense to say "perhaps talking at Verizon just days before giving them a HUGE gift in destroying net neutrality is... not a good look."

But, in these "drain the swamp" times, apparently it's totally fine to give a talk at the company whose bidding you are doing, against the interests of the public, just days before you do it. That it looks corrupt as hell doesn't matter, because this is Washington DC. Specifically, Pai spoke at the International Institute of Communications' Telecomunications & Media Forum event that is not only held at Verizon's DC offices, but heavily sponsored by Verizon:

Not only that, but Pai's talk was sandwiched between two different Verizon execs, as if to just drive home the giant "fuck you!" Verizon and Pai are saying to the public and what they think of everyone.

It's almost as if he's gloating about just how much he's become Verizon's pet regulator. Even if there's nothing officially "wrong" here, this is yet another example of what Larry Lessig has called "soft corruption", where these actions -- even if aboveboard -- present such a strong sense of corruption that it makes the public trust our government even less. Ajit Pai may not care that the public doesn't trust him, but giving a talk at Verizon right now just cements in many people's minds that he's looking out for them, and not us.

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Posted on Net Neutrality Special Edition - 5 December 2017 @ 9:26am

AT&T, Whose Ex-CEO Promised To Wreck Net Neutrality, Insists It Won't Do Anything To Net Neutrality

from the yeah,-nice-try dept

AT&T is the latest big broadband player to try to suggest that everyone just calm down a little about this whole thing where the FCC destroys net neutrality. And, sure, some of the reports out there and some of the predictions being made about the impending death of net neutrality are fairly exaggerated. But, there are serious concerns, and AT&T's decision to set up some strawmen to knock over ignores the importance of the issue.

Also, while AT&T ignores this, let's bring up a bit of history. Because it was former AT&T CEO Ed Whitacre who kicked off much of this debate back in 2005 when he declared that he was going to start charging successful internet sites to reach "his" customers over "his" pipes:

"Now what they would like to do is use my pipes free, but I ain't going to let them do that because we have spent this capital and we have to have a return on it. So there's going to have to be some mechanism for these people who use these pipes to pay for the portion they're using. Why should they be allowed to use my pipes? The Internet can't be free in that sense, because we and the cable companies have made an investment and for a Google or Yahoo! or Vonage or anybody to expect to use these pipes [for] free is nuts!"

As we pointed out at the time, this statement is incredibly misleading. Everyone -- especially those companies -- pay for their own bandwidth. And when AT&T's customers connect to the internet, the reasons it's worth it to them to pay AT&T for internet access is because they can access the entire internet, and not just the parts that AT&T gets to charge companies double for.

So, with that in mind, let's take a look at the nonsense AT&T's top lobbyist, Bob Quinn, posted to AT&T's blog.

AT&T intends to operate its network the same way AT&T operates its network today: in an open and transparent manner. We will not block websites, we will not throttle or degrade internet traffic based on content, and we will not unfairly discriminate in our treatment of internet traffic (all consistent with the rules that were adopted – and that we supported – in 2010, and the rules in place today).  These commitments are laid out in the broadband details section of AT&T’s main website.  They represent a guarantee to our customers that we will provide service in an open and transparent way.  They have been, and will continue to be, enforceable commitments.  We will not remove that language and we will continue to update any changes we make to our network management practices. Those commitments are not new.  They have been formally in place in one form or another at AT&T since 2005, and we have also publicly disclosed how we manage internet traffic with a version of our current broadband details description on our website since 2010.

If AT&T is making no changes and intends to operate the same way, why has AT&T been pushing so hard against the 2015 rules and for this repeal? And, again, it was the company's former CEO who made those statements above about how it's "nuts" that all these internet companies get to ride "his pipes... for free." Does that really sound like a company that has no intention of doing paid prioritization or fast lanes and slow lanes? Yes, Whitacre is no longer CEO, but the current CEO, Randall Stephenson, worked for Whitacre for many, many years and was his handpicked successor. So it's not as if AT&T has some new, more enlightened management.

What is different is that AT&T has learned that being so blatant and so upfront about their plan to screw over internet users and websites goes over poorly in the press. So they figured out a while back how to make the behavior sneakier. They can play around with interconnection. They can dabble in zero rating. And, as some will no doubt point out, the 2015 open internet order did not explicitly deal with either of these loopholes (which was one of our biggest complaints with the order). But it did signal an FCC that wouldn't allow such bad actions (which is why interconnection fights all disappeared almost within seconds of the order being approved).

In short: AT&T will seek to use whatever power it can to extract rents from the internet. Remember, this is a company that has been fined over and over and over again by the FCC for a variety of bad, anti-consumer behavior. And, remember, some of those fines (for SMS cramming) were under Title II. Do we magically think that AT&T is going to suddenly stop fucking over its users once the FCC has publicly stated "do whatever the fuck you want, we no longer care."

We not only have enforceable commitments on blocking, throttling and discrimination on our own network, we also have incentives to ensure that other ISPs adhere to these same open internet principles. Take, for example, DIRECTV NOW, our over-the-top video service that travels over broadband connections whether owned by AT&T or someone else. We depend on an open internet for this service, and we accordingly conduct ourselves – and will continue to conduct ourselves – in the same manner we expect to be treated when we rely on the infrastructure of others to provide services to our customers.

This sounds nice, doesn't it? Except, should we forget that the previous FCC actually found that AT&T abused its relationship with DirecTV in a way that violated its net neutrality rules? I mean, does Quinn just hope that people reading his blog post don't remember what happened less than a year ago?

Besides, AT&T knows damn well that, as large as it is, it can easily negotiate good terms for competitors to carry DirecTV Now, while at the same time it has the leverage to fuck over smaller competitors.

The day after the FCC’s decision, consumers are going to see no changes to how their internet works. Everyone will be able to access their favorite websites; no one’s traffic will be throttled based on content; and the consumer internet is going to work the same way it did the day before the FCC order is adopted.

Well, sure. The day after the FCC's decision nothing is going to change because AT&T knows that a bunch of lawsuits will be filed, and it's not stupid enough to do something so blatant that it will be used as fodder in that lawsuit. It'll wait. And if the rules are upheld, you'll then suddenly start to notice little changes here and there. And, frequently, they'll be couched and framed in ways to look supportive of the consumer, rather than anti-consumer. They'll be things like zero rating, where AT&T will pretend that it's giving you "free data" even though it's really only "free" from the arbitrarily low and onerous caps that it sets itself.

Consumers will, however, see enormous benefits from the FCC’s actions. Utility regulation over broadband can only inhibit incentives for network investment.

They keep saying this, but this is hogwash. Again, the net neutrality rules was not "utility regulation." It was a basic framework that said you can't fuck over users. It was only a burden if your intent was to fuck over users. So if AT&T claims it was a burden... it was because it intended to fuck over users.

By lifting that cloud here, the FCC will restore the bi-partisan, light-touch regulatory structure that made the United States the world leader in mobile broadband infrastructure.

Hogwash. This is the same AT&T that bid billions last year under Title II in the big FCC spectrum auction. If it really felt hamstrung over the rules, why would it have invested so much in that spectrum?

The doomsayers, of course, have a different view, conspicuously colored by a litany of hypotheticals and hyperbole, and generally devoid of facts. Some are calling this the death of the internet as we know it. The doomsayers, however, have been making these and similar dire predictions for years. In 2010, in response to the first FCC Open Internet rules, Free Press warned:

“These rules don’t do enough to stop the phone and cable companies from dividing the Internet into fast and slow lanes, and they fail to protect wireless users from discrimination. No longer can you get to the same Internet via your mobile device as you can via your laptop. The rules pave the way for AT&T to block your access to third-party applications and to require you to use its own preferred applications.”

Of course, none of those predictions ever came true then and they won’t come true after the FCC acts here either. There will be a lot of talk over the next two weeks on what the FCC’s net neutrality order means. The truth is that, at first, no one will notice a difference in how their internet works. But when the removal of utility regulation translates into greater broadband investment and increased innovation on the internet…well, everyone will eventually notice that.

Actually... the one who is "devoid of facts" here is Bob Quinn at AT&T. Because under those rules, what Free Press predicted did happen. Remember when AT&T blocked Google Hangouts on mobile? Or when it blocked Facetime? Both of those happened under the weak 2010 rules, just like Free Press predicted.

And, I should note, this seems like another reason not to trust AT&T here. It's directly denying it had done the very thing... it did. I know in this age of alternative facts some powerful folks believe that if you just say you didn't do the thing you absolutely did, many people will believe that you never actually did it. But the facts are here.

Furthermore, AT&T's statement is even more disingenuous, because the 2010 rules were fought over in court for many years, which again was a reason why AT&T and others didn't go all out in implementing really bad behavior, so as not to give an assist to the courts.

Either way, AT&T's statement is extremely misleading, ignores significant history from AT&T in both what its execs have said it intends to do and the company's actual actions. AT&T's Bob Quinn is spewing alternative facts here, and the public shouldn't accept his lies.

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Posted on Free Speech - 4 December 2017 @ 3:44pm

Angry, Threatening Lawyer Fails To Sue As Promised, Drops His SLAPP Suit

from the wise-decisions dept

A couple weeks back we wrote about the somewhat odd decision making of an angry lawyer named Jason Lee Van Dyke, whom we'd also written about years ago for some spectacularly bad lawyering. This year he's also gotten really really pissed off at three (very different) people: Ken White, Asher Langton and Talib Kweli. The first two have appeared on Techdirt many times. Ken is a criminal defense and First Amendment lawyer. Asher has an astounding ability to sniff out frauds online. And Talib is a musical genius among other things. But, Van Dyke has spent months angrily lashing out about them on the internet (well, the lashing out at Kweli was more recent).

When we last checked in on him, he was threatening to add those three individuals -- plus the Huffington Post -- to a fairly obvious SLAPP suit that he had already filed in Texas against an Ohio-based publication called the Mockingbird. Lots of people had pointed out that Texas has a fairly robust anti-SLAPP law, which could lead to Van Dyke having to pay up -- and Van Dyke's response (not atypical from his earlier responses) was to lash out and threaten more lawsuits and to promise violence if he was sanctioned.

He then went so far as to contact Mockingbird's lawyer to ask for leave to amend the existing lawsuit with the three individuals mentioned above, plus the Huffington Post (which had also written about the lawsuit).

So... despite the promises to add more names to the lawsuit, that didn't happen. And despite the claims that he was going to just keep fighting the lawsuit... a few days later, Van Dyke agreed to dismiss the suit with prejudice, and the judge agreed. Gerry Bello at Mockingbird has a post on this as well, which reveals that Van Dyke told Bello's lawyer that the reason for the dismissal was that his "immediate supervisor at the company where I am employed" had "instructed" Van Dyke to dismiss the case. It is not clear where Van Dyke is currently employed or who told him to do this. Van Dyke has generally held himself out as being self-employed as a lawyer.

One hopes that this is actually Van Dyke recognizing that repeated threats of both violence and lawsuits against critics is not a particularly wise idea. I'm not holding my breath that this is the case, however. In the meantime, we've heard from others that various bar complaints have been filed against Van Dyke, and given his actions and statements, at the very least you have to wonder how much longer he'll be able to practice law, no matter who "employs" him.

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Posted on Free Speech - 4 December 2017 @ 1:31pm

Security Researcher Held In Jail For 8 Months Because He Wrote An Angry Blog Post, Released For Now

from the first-amendment-issues dept

Over the past month or so we've written a few times about security research Justin Shafer. As you may recall, he first came to our attention, when the Justice Department decided to subpoena the identities of five Twitter users because Shafer had tweeted a smiley emoji at them. No, really. I'm not exaggerating. That's literally what happened. Shafer saw some Twitter users discussing a case totally unrelated to his own, tweeted an emoji, and the DOJ is demanding the identity of those he tweeted the emoji at.

That then got us more interested in what the hell happened to Shafer -- where it appears that the DOJ had a weird vendetta against him. His house was raided three separate times -- mainly because he had helped expose security problems with some software. The company complained that Shafer had violated the CFAA, and thus his house got raided and all of his family's electronics were seized. Of course, he wasn't charged with anything because there was nothing to charge him with. Then there was a second raid. Same result. No charges. Shafer was apparently getting fed up with FBI agent Nathan Hopp (he initially misheard the name as "Hawk"). Eventually, after finding out about another case that Hopp was involved in, he did some online digging of public, online records to find out more about Hopp. Then he did something unwise, and which I would not recommend, but which it's hard to see how it could be illegal. And that is that he contacted Hopp's wife, after finding her Facebook page -- and asked her to have Nathan return the stuff that had been seized.

And, yes, this is a dumb thing to do, no matter how angry or frustrated you might be. But... is it criminal? Well, the DOJ claimed it was, leading to a third raiding and Shafer being arrested for "cyber stalking." And then things got even crazier, because after being released on bail, Shafer was quickly dragged back to jail and had been locked up since April, because he blogged about the case. The conditions of his release said that he couldn't use social media to contact Hopp or his family. The DOJ claimed -- and a magistrate judge amazingly agreed -- that the blog post (1) was social media (2) was "indirect contact" and (3) broke the conditions of his release. And thus, he was in jail. Last month, his lawyers appealed that decision, claiming it was a First Amendment violation.

And, on Friday he was released from jail as a judge agreed to release him, pending the trial (also, apparently there's a superseding indictment coming soon, so we'll see if the DOJ has anything more than "he sent some inappropriate Facebook messages."). The conditions of his release still seem fairly ridiculous as it includes this:

The defendant shall not have access to any computer.

Of course, immediately after that it also talks about how he can use a computer, but all usage will be monitored. It's a bit confusing, but it appears that he can use his own computer in very limited ways, if it has monitoring software, but cannot use other computers. And he's barred from social media (Facebook, Twitter). He's allowed to blog, if the blog posts "comply" with the rest of the release conditions -- including not "providing identifying information" on the people he's accused of "cyber stalking" or encouraging or inviting "others to contact or harass such persons." And, generally speaking, it's probably a good idea for him to refrain from such activity whether or not it was a condition of getting freed.

Still, it's difficult to see (a) why he was arrested in the first place and (b) why he sat in jail for 8 months over a blog post. The whole case still just stinks of the DOJ getting angry at the guy because he didn't roll over when they raided his house twice.

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Posted on Net Neutrality Special Edition - 4 December 2017 @ 10:44am

Ajit Pai Attacked Hollywood & Silicon Valley Because Even Republicans Are Against His Net Neutrality Plan

from the that's-a-temper-tantrum,-not-leadership dept

We were mystified last week when FCC chair Ajit Pai decided to attack both Hollywood and Silicon Valley because some (not all) people in both communities have spoken out against his plans to gut net neutrality. The attacks were weird on multiple levels. Regarding Hollywood, the comments were strangely personal -- picking out a list of entertainers, often taking their comments out of context, and attacking them in very personal ways. It was, to say the least, unbecoming of an FCC chair to directly pick on entertainers for voicing their opinions. The attacks on Silicon Valley were... even stranger. First, he claimed that the demand to keep net neutrality was really a ploy by the largest internet companies (i.e. Google & Facebook) to keep their dominant position. But that ignores the fact that without net neutrality, they're well positioned to further entrench their position. More importantly, it totally ignores the fact that neither Google nor Facebook have been strong advocates of net neutrality (and, in many cases, have pushed back against net neutrality).

Bloomberg now has an article up explaining why Pai would make these attacks: apparently even among Republican activists, there's effectively no support for his plan to kill net neutrality. So, rather than (1) admit he's made a huge mistake or (2) give good reasons for his plan, he thought he'd pull a sort of Trumpian game of blaming other people that Republicans are supposed to hate, in the (not very accurate) stereotypical view of the US from the reality distortion field known as Washington DC.

For some reason, restoring the lost power of huge telecom companies hasn’t lit a fire in grassroots circles on the right, a point that Pai’s political allies have been acknowledging privately for months. So the FCC chair came back from Thanksgiving looking to create a spark. In a speech on Tuesday, Pai angrily denounced celebrities and tech companies who have been criticizing his plans to undo the 2015 rules. Hollywood is always a good scapegoat, of course, and Republicans looking to stir up anger in 2017 do well to frame their issues as a response to the unchecked power of Silicon Valley.

[....]

This isn’t a new tactic for Pai. “He had the same complaints about us being shills” for internet companies, said Tom Wheeler, the FCC chairman who ushered in the 2015 rules. Anger towards tech on the right has only grown since then. Brent Skorup, a research fellow at the Mercatus Center, a research organization at George Mason University with a free market bent, regularly talks to Republican Congressional offices about tech policy. “They see a lot of these issues through the lens of payback for tech companies,” he said. (Skorup supports Pai’s approach.)

This is not how good policy is made. This is not leadership. This is the Chairman of the FCC throwing a childish temper tantrum and blaming industries, just because he thinks it might provide him additional cover for his bad, poorly thought-out plan. "But, Mommy, those other kids were mean to me, why are you blaming me?!?!??!"

Once again, it's worth remembering that outside the bubble of Washington DC, net neutrality is widely supported across party lines. Multiple studies back before the 2015 rules were put in place found that Republicans/conservatives supported net neutrality by an overwhelming amount (over 80%). A more recent study from last year found the same thing.

At this point, it's undeniable that the vast, vast, vast majority of Americans who understand the issue favor having net neutrality rules in place. It is a small, but vocal, contingent of folks (often with ties to the telco/cable duopoloy) who magically feel differently about it. A good FCC chair would actually convince people why he's right and why they're wrong. But that's not what's happening. Pai is just lashing out, and because he thinks his side hates Hollywood and tech, he's decided to try to somehow, nonsensically, strap his own argument to the anti-Hollywood, anti-Silicon Valley message he thinks will help get people excited.

It's a bad strategy for someone with a bad policy.

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Posted on Techdirt - 1 December 2017 @ 7:39pm

What Happens If The DOJ Ends Up With Martin Shkreli's Sole Copy Of The Wu Tang Clan Album?

from the questions-questions-questions dept

So, this story has been bouncing around the internet quite a bit today, but in case you somehow missed it, the Justice Department is seeking to get its hands on the only copy of the Wu Tang Clan album Once Upon a Time in Shaolin. In case you somehow missed this story, there are a few separate background pieces that are necessary to explain. First up, as a combination business model experiment/publicity stunt, back in 2014, Wu Tang Clan announced that it would be selling just a single copy of their latest album. It was an interesting attempt to bring some sort of scarcity back to music and see how the market would respond.

A year and a half later, a totally different story dominated the news. A story about a pharmaceutical company most people hadn't heard of, named Turing Pharmaceutical, buying up the rights to a drug called Daraprim, that many AIDS and cancer patients relied on... and jacking up the price on it from $13.50 per pill to $750 per pill. Soon after that, the young CEO of Turing, named Martin Shkreli, had his smirking face plastered all over the news for his trollish "I'm a villain, but so fucking what" response to all the hatred directed his way.

What does one story have to do with the other? Well, sometime after Martin Shkreli became everyone's favorite villain, it was revealed that he was the one who had purchased Once Upon a Time in Shaolin for $2 million. While Shkreli, at times, has hinted at releasing the music, or even reselling it, nothing much has come of it. At the very end of 2015, Shkreli was arrested -- not over jacking up drug prices, but for securities fraud.

Right after the arrest, Sarah Jeong wrote a fantastic article about how the arrest might lead to the album getting out. The 4th item on the list... asset forfeiture:

If Shkreli is convicted, the direct proceeds of his crimes will now belong to the government. This is what is known as criminal asset forfeiture. (The government has not sought civil asset forfeiture here, which is a slightly different form of seizure that does not require convicting a person of a crime.)

The United States has requested the forfeiture of "any property, real or personal, which constitutes or is derived from proceeds traceable" to the crimes in the indictment against Martin Shkreli. But when the US attorney said he did not know where the funds for the purchase of the Wu-Tang album came from, he was implying that the album would not be the subject of criminal asset forfeiture.

However, in our wild and improbable hypothetical, the album is implicated in the case and ends up being seized. If Shkreli is convicted, then the album might then become the subject of criminal forfeiture. The multi-million-dollar work of art would then end up on GSA Auctions, alongside dilapidated drug-running Chevrolets and extremely questionable lab equipment.

So... it's now two years later and that "wild and improbable hypothetical" has become fact. The government has filed for criminal forfeiture of Shkreli's assets. You may recall that he was convicted earlier this year and is in jail. As a quick side note: this is different than civil asset forfeiture -- the process we regularly complain about involving law enforcement taking money and assets from people without ever charging anyone for a crime. This is criminal asset forfeiture, after the person has been convicted of the crime, and where the government seeks to disgorge them of the profits from the criminal activity.

Here, the Justice Department notes that Shkreli owes them a lot of money. And it wants to get at his assets:

The Court should hold Shkreli financially accountable for his criminal conduct by requiring him to forfeit the amounts above, which total $7,360,450.00, and enter a forfeiture money judgment against him in that total amount. As set forth herein, this total amount represents a conservative computation of the proceeds Shkreli personally obtained as a result of his three different securities fraud crimes of conviction. Furthermore, pursuant to 21 U.S.C. § 853(p) and Fed. R. Crim. P. 32.2, the government seeks forfeiture of certain substitute assets of Shkreli in order to partially satisfy the forfeiture money judgment.

Got that last part? Basically, he should cough up this money, but if he can't we're going after his other assets... including:

Specifically, the following substitute assets owned by Shkreli have, to date, been identified and now that Shkreli has been convicted, the Court should direct that they be forfeited to the United States in partial satisfaction of his forfeiture money judgment: (a) $5 million in cash that is currently held in an E*Trade brokerage account ending in the digits “0258” as security for Shkreli’s bond, pursuant to orders of the Court dated January 7, 2016, August 24, 2016 and October 19, 2017; (b) Shkreli’s interest in and the monetary value of any and all shares held in an entity called Turing Pharmaceuticals; (c) the album “Once Upon a Time in Shaolin” by the Wu Tang Clan, as well as any proceeds derived from the sale of such album; (d) the album “The Carter V” by Lil Wayne, as well as any proceeds derived from the sale of such album; (e) an Enigma machine, as well as any proceeds derived from the sale of such machine; and (f) a Picasso painting, as well as any proceeds derived from the sale of such painting.

The other album listed, the Lil Wayne one, is another one that Shkreli claims he's the sole owner of. Except, of course, that one appears to have been a leak of some sort, and not through a Wu Tang style sale.

Of course, does this mean that once the US government gets it, the Wu Tang album can be released to the public? It would be a strange world if the US government were suddenly the record label for what would likely be a hugely popular album. But... that's unlikely to be how it works. Wu Tang Clan likely still holds the copyright (there was no indication that they also transferred the copyright with the album, though it's possible?). Jeong went through some of the scenarios in her post two years ago:

The weird thing is that it's not clear what happens to the contract that Shkreli signed when he bought the album. Presumably, the contract allowed him to transfer his limited distribution rights if he ever sold the physical record to another person. But what happens if the record gets seized by the federal government as part of a criminal forfeiture?

Let's say the government seizes the record, sells it on GSA Auctions, and then I buy it and upload the whole thing onto the internet. If Shkreli had uploaded the whole album for free, Wu-Tang couldn't sue him—as per the terms of the contract. But if I do it, there's no contract preventing Wu-Tang from suing me, even though I'm now the rightful owner of the One True New Wu-Tang Album.

That is, unless the government manages to successfully seize Shkreli's intellectual property rights in the Wu-Tang album.

Seizing the actual rights to the album would certainly be an odd move, but not unprecedented. In May, the federal government tried to seize the trademarks of the Mongol Nations motorcycle club after securing criminal convictions against many of its members, and then bringing a RICO indictment against the club itself. They ultimately failed—but not because trademark seizure isn't possible.

Still, the Mongol Nations forfeiture was likely targeted at suppressing future use of the trademark, rather than setting up a government-owned Mongol Nations swag shop. "I don't think the FBI will start a Wu-Tang imprint," said Parker Higgins, copyright activist at the Electronic Frontier Foundation.

And, of course, don't expect to FOIA it away from the government either. Attempts to get other copyright-covered works via FOIA haven't worked out so well.

Still, prying it out of Shkreli's hands, at least increases the possibility that wherever else it ends up may be more likely to figure out a way to get it out into the world...

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Posted on Net Neutrality Special Edition - 30 November 2017 @ 11:52am

After Attacking Random Hollywood Supporters Of Net Neutrality, Ajit Pai Attacks Internet Companies

from the why? dept

So, we already talked about FCC chair Ajit Pai's odd attacks on a small group of Hollywood celebrities for daring to support net neutrality, but his other point of attack seemed even more random: internet companies. Remember, the whole point of Pai doing this -- according to his very own words -- is to get the government out of the internet and to allow for what he calls "internet freedom." But, it's funny, because that's not really the message you'd get if you heard Pai speaking over the past few days. In his talk on Tuesday he seemed to be suggesting that perhaps Twitter, in particular, needed a heavy dose of regulation:

Anyway, the criticism of this plan comes from more than just Hollywood. I’m also well aware that some in Silicon Valley have criticized it. Twitter, for example, has said that it strongly opposes it and “will continue to fight for an open Internet, which is indispensable to free expression, consumer choice, and innovation.”

Now look: I love Twitter, and I use it all the time. But let’s not kid ourselves; when it comes to an open Internet, Twitter is part of the problem. The company has a viewpoint and uses that viewpoint to discriminate. As just one of many examples, two months ago, Twitter blocked Representative Marsha Blackburn from advertising her Senate campaign launch video because it featured a pro-life message. Before that, during the so-called Day of Action, Twitter warned users that a link to a statement by one company on the topic of Internet regulation “may be unsafe.” And to say the least, the company appears to have a double standard when it comes to suspending or de-verifying conservative users’ accounts as opposed to those of liberal users. This conduct is many things, but it isn’t fighting for an open Internet.

This is, of course, playing to his political base, who are currently angry at Twitter. But... it's also... strange. Both of the examples he brings up are misleading or were overblown. We were among those who mocked Twitter for blocking Blackburn's ad, but as a bunch of people, who chided us in the comments, correctly noted, no one stopped Blackburn from posting the tweet -- just from promoting it as an advertisement on Twitter's ad platform. Which is really different than blocking content -- and, not only that, but Twitter backed down within hours of this becoming public, admitting it was a mistake. The story about Twitter "warning users" that "a link to a statement by one company on the topic of Internet regulation 'may be unsafe'" is also exaggerated. Twitter's sketchy anti-spam/anti-malware detector for links, very briefly, accidentally warned that AT&T's blog may be unsafe. Once again, this lasted for a very short time, and was clearly a mistake by the filter.

Indeed, these examples serve to undermine Pai's whole point. First of all, having someone with regulatory power directly claim that "Twitter is the problem" while suggesting (misleadingly) that it's unfairly censoring content is... just strange for Pai. It sounds like he's suggesting that Twitter needs to institute some sort of "fairness doctrine" which is a policy basically universally opposed by Republicans, and especially Pai. Hell, just last month, Pai said the following:

Pai also discussed the FCC's history with the Fairness Doctrine, which was eliminated in 1987. When in force, the doctrine required stations to devote some programming to controversial issues of public importance and to air contrasting views on those issues.

"We learned that it was an affront to the First Amendment to have the government micromanaging how much time a particular broadcast outlet decided to devote to a particular topic," Pai said today.

Moreover, "it was an administrative nightmare. You had FCC employees literally spending hours upon hours listening to broadcasts, watching them, and logging to the second how much time a broadcaster spent on one side of the issue vs. the other," Pai said.

And yet, now, with his comments about how Twitter filters, he certainly seems to be hinting at the idea that Twitter should be forced to implement a sort of "fairness doctrine" itself.

But the bigger issue is that Pai is directly saying this in response to the company opposing his plans. It's a very Trumpian move. Rather than respond to the actual points raised by Twitter, Pai is attacking them and implicitly threatening them with excessive regulation. While pretending to be the great deregulator. What a hypocrite. He goes on:

And unfortunately, Twitter isn’t an outlier. Indeed, despite all the talk about the fear that broadband providers could decide what Internet content consumers can see, recent experience shows that so-called edge providers are in fact deciding what content they see. These providers routinely block or discriminate against content they don’t like.

This is conflating a variety of different things -- and again, certainly appears to be Pai pining for a fairness doctrine on the internet (but not for internet access) just because internet companies have supported net neutrality. But the larger point is that he's deliberately comparing apples to orangutans. Internet access providers -- whom Pai is looking to free up to do whatever the hell they want -- are clear natural monopolists. They control the last mile to the home and the vast majority of Americans have no real competition in those providers. And they control THE WHOLE PIPE, meaning they can legitimately completely block users' access or degrade it or cause other problems. The so-called "edge providers" are completely different. They all have competitors. They don't control overall access. There's no monetary cost to switching or avoiding them.

The examples from the past year alone are legion. App stores barring the doors to apps from even cigar aficionados because they are perceived to promote tobacco use. Streaming services restricting videos from the likes of conservative commentator Dennis Prager on subjects he considers “important to understanding American values.” Algorithms that decide what content you see (or don’t), but aren’t disclosed themselves. Online platforms secretly editing certain users’ comments. And of course, American companies caving to repressive foreign governments’ demands to block certain speech— conduct that would be repugnant to free expression if it occurred within our borders.

It's pretty odd to couch this as a "free expression" argument, because the courts have made it clear that filtering decisions by the platforms are, themselves, protected under the First Amendment. And, as we've discussed, the Prager lawsuit is silly and going nowhere fast. So far, all of the actual examples that Pai has tossed out are... bad examples. They don't actually show what he wants them to show and they just underline how weak his evidence is.

But the larger point is that if YouTube doesn't want to host your content, there are lots of other ways to host your content. But if Verizon says "fuck you" and you don't have any other options than Verizon, you're screwed. That's why net neutrality matters so much for internet access providers. This attempt to turn the issue around on so-called "edge providers" has long been the distraction flag attempted by the big broadband players, but it's meaningless. Complaining that Google's algorithms decide what you see and what you don't -- well, what the hell does he want? Google is a search engine. The whole point of it is to rank links based on search criteria. Is Pai arguing that they shouldn't rank at all and just throw up random results any time anyone does a search?

As for the fact that these companies have caved to some foreign governments to take down content -- we agree, that's repugnant. And we've said so many times and urged these companies to take stronger stands where they could. But... it's not just "repressive foreign governments" who have been pressuring these platforms to take down content. It's the US government as well. Remember, as we speak, we have Congress rushing to pass a law in SESTA that will require platforms to remove lots of content or face criminal liability. We have that same Congress threatening new regulations on Facebook, Twitter and Google for the supposed crime of allowing Russian propaganda to exist on those platforms. We have the US government telling these same tech platforms to magically stop ISIS. And, frankly, Twitter especially took a much stronger "free speech" stance for years and got slammed for it over and over again, often by US government officials. To now argue that their decision to do some filtering (often badly) is somehow an affront, after they were pressured into doing so, often by this very same US government, is just ridiculous.

In this way, edge providers are a much bigger actual threat to an open Internet than broadband providers, especially when it comes to discrimination on the basis of viewpoint. That might explain why the CEO of a company called Cloudflare recently questioned whether “is it the right place for tech companies to be regulating the Internet.” He didn’t offer a solution, but remarked that “what I know is not the right answer is that a cabal of ten tech executives with names like Matthew, Mark, Jack, . . . Jeff are the ones choosing what content goes online and what content doesn’t go online.”

Except what happened with Cloudflare was quite different. Could you ever imagine AT&T President Randall Stephenson posting about the moral dilemma over whether or not AT&T should do something that might harm some customers? Cloudflare was addressing a serious issue by kicking off a discussion. AT&T just fucks over users at basically every opportunity. Comcast didn't discuss a moral dilemma it faced when throttling BitTorrent. It hid from it. AT&T didn't discuss the moral dilemma it had in blocking the use of Facetime.

For Pai to use the fact that Cloudflare's Matthew Prince held an open and transparent conversation about this against him, while enabling the broadband companies to continue their fuckery in secret, is incredibly hypocritical.

Nonetheless, these companies want to place much tougher regulations on broadband providers than they are willing to have placed upon themselves.

Except, that's ridiculous. Again, one is core access infrastructure. One is edge-providers. There aren't any "net neutrality" regulations you can place on edge providers that make sense. It would lead to things like no spam filtering, and no ranked search results. That's nonsensical.

So let’s be clear. They might cloak their advocacy in the public interest, but the real interest of these Internet giants is in using the regulatory process to cement their dominance in the Internet economy.

This one is pure bullshit. First off, as we've noted, the biggest, most dominant, internet companies -- Google and Facebook -- have more or less sat out net neutrality fights for the past few years. Indeed, both companies actually were against net neutrality in other countries. Without net neutrality, Google and Facebook can actually expand their dominant positions, because if anyone can pay up to Verizon, Comcast and AT&T to get preferred treatment, it's Google and Facebook.

It's the smaller internet companies who get screwed. That's why the most vocal opponents to Pai's plan have not been Google or Facebook. But over 1,000 startups who know how much damage Pai's plans will do, in part by cementing Google and Facebook's position in the market. So, for Pai to claim that internet companies are supporting net neutrality for their own dominance... there's no evidence to support that at all. Indeed, without net neutrality it's much harder for new entrants, since they can't cut the same kinds of deals with the access providers.

And here’s the thing: I don’t blame them for trying. But the government shouldn’t aid and abet this effort. We have no business picking winners and losers in the marketplace. A level playing field, not regulatory arbitrage, is what best serves consumers and competition.

And that's the most hilarious statement of all, given that Pai has spent his entire time as chair tilting the playing field towards three companies: Verizon (his former employer), Comcast and AT&T.

On Wednesday, Pai continued his attacks on internet platforms, in some ways contradicting his statements from just a day earlier. You see, now he's upset that these platforms allow people to be rude to him online. Because, what the fuck, nothing matters anymore:

In a way, one could say that ‘social media’ is perhaps the most inapt phrase ever coined. It allows us to stay in touch while keeping a distance. It has sped the breakdown in human interaction. It has fed the unfiltered id at the expense of genuine understanding. And it has to some extent enabled the worst of human impulses — the drive to associate only with one’s own and to exclude the ‘other.’”

So, uh, then what should Twitter do. Should it take steps to reduce this kind of thing as it sounds like you now want -- or should it filter. And if it filters, then you go back to your complaints from the day earlier that how dare Twitter filter content that Pai and his supporters like.

I guess if Pai's point is to prove that we don't want the internet regulated by the likes of someone like himself, because his viewpoints are nonsensical and contradictory -- well sure. But it's an odd strategy to bet on "I'm so crazy, you don't want me to regulate the internet." And, of course, that, itself, totally misrepresents the 2015 open internet rules -- which again only apply to bad behavior by access providers that harm the public.

Either way, Pai seems to now be channeling his boss, the President. His arguments use his political pulpit to badger anyone who disagrees with him, refuse to address actual issues, and make points that are nonsensical and self-contradictory. The simple fact is that the public wants an open and free internet. And Pai is looking to kill that, no matter how many times he pretends his order helps the internet. The only people who seem to support Pai's plan have connections to the big broadband players, and that should tell you something pretty clearly.

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Posted on Net Neutrality Special Edition - 30 November 2017 @ 10:50am

Absent Facts To Support Repealing Net Neutrality, Ajit Pai Wildly Attacking Hollywood Tweeters

from the well,-that's-one-strategy dept

As the old lawyer saying goes: "When the facts are on your side, pound the facts. When the law is on your side, pound the law. When neither is on your side, pound the table." It appears that FCC chair Ajit Pai has taken that to heart. Neither the law, nor the facts are on his side with regards to his attempt to gut net neutrality, so he's done the modern equivalent of pounding the table: blame Hollywood and the internet companies for the fact that almost everyone disagrees with his plan to kill net neutrality.

The law is against him, because in order to reverse the order from the previous FCC, Pai needs to show that this change is not "arbitrary and capricious." Many people falsely assume that the FCC can just make whatever rule it wants, and thus with every change of the FCC the rules can flip flop. But that's not how it works. While the courts give strong deference to administrative agencies in their decision-making capabilities, one area where the courts will push back is if a regulatory change is found to be "arbitrary, capricious, an abuse of discretion, or otherwise not in accordance with the law." The courts have already upheld the 2015 Open Internet Order by Tom Wheeler as legitimate, where that FCC showed that reclassifying broadband as a Title II service was perfectly reasonable based on the changes to the market conditions since broadband was declared a Title I information service a decade or so earlier. So, for Pai's plan to actually pass judicial scrutiny, he has to prove that the market has changed so much in the past two years, that an obvious correction is necessary. So far, the only thing he's been able to rely on are clearly bogus studies that are easily debunked by the companies themselves in their statements to Wall Street about the impact of the 2015 rules. Thus, both the rules and the law are against him.

Of course, rather than face up to the fact that the vast majority of Americans (Democrats, Republicans, everyone) support keeping net neutrality rules in place, Pai has spent the last week or so only retweeting his supporters and ignoring detractors entirely. And, now, apparently, his "pounding the table" is to lash out at famous Hollywood stars... and internet companies (note: not internet access companies), as if they're the problem.

On both Tuesday and Wednesday he decided to lash out. In this post, we'll focus on the weird lashing out at famous people, and in a follow up, we'll talk about his misguided attacks on internet companies. But, really, it's kind of frightening that Pai -- who has regulatory power over some actions of the entertainment industry would randomly call out some actors and slam their pro-net neutrality tweets. How dare they do such a thing, according to Ajit Pai.

Next, I’d like to take on the main criticisms I’ve heard directed against the plan and separate fact from fiction—one claim at a time. And given that some of the more eye-catching critiques have come from Hollywood celebrities, whose large online followings give them out-sized influence in shaping the public debate, I thought I’d directly respond to some of their assertions.

He then proceeds to namecheck Kumail Nanjiani, Cher, Mark Ruffalo, George Takei, and Alyssa Milano -- claiming to rebut each of their tweets that he found offensive. Not surprisingly, with each one he either misrepresents what these actors said, or the facts around what his plan will do. It's almost pathological.

For Nanjiani, Pai repeats his big lie that he's just returning things to where they were pre-2015, and that it will be just like the way the internet was from 1996 through 2015.

Perhaps the most common criticism is that ending Title II utility-style regulation will mean the end of the Internet as we know it. Or, as Kumail Nanjiani, a star of HBO’s Silicon Valley put it, “We will never go back to a free Internet.”

But here’s the simple truth: We had a free and open Internet for two decades before 2015, and we’ll have a free and open Internet going forward.

As we've explained in fairly great detail, that's hogwash. Since 2004, every previous FCC chair has sought to put forth and enforce net neutrality rules, and from 2008 on, they've been shot down by the courts every time, saying that to enforce the net neutrality rules the FCC wanted, it had to reclassify under Title II. At no point was the internet under the regulatory regime that Pai is pushing with his order.

Regarding Cher, he stated:

Another concern I’ve heard is that the plan will harm rural and low-income Americans. Cher, for example, has tweeted that the Internet “Will Include LESS AMERICANS NOT MORE” if my proposal is adopted. But the opposite is true. The digital divide is all too real. Too many rural and low-income Americans are still unable to get high-speed Internet access. But heavy-handed Title II regulations just make the problem worse! They reduce investment in broadband networks, especially in rural and low-income areas. By turning back time, so to speak, and returning Internet regulation to the pre-2015 era, we will expand broadband networks and bring high-speed Internet access to more Americans, not fewer.

Except, again, there is nothing in the rules that are onerous. Well, unless you're trying to screw over subscribers. As successful smaller ISP Sonic has noted, the only regulatory burden from Title II is if you're behaving badly towards customers. That's why over 40 small ISPs told Pai that they supported keeping the rules, and that removing the 2015 order gives the giant broadband companies -- Verizon, Comcast and AT&T -- too much power to cut them out of the market. For Pai to argue that this order will magically restore competition and broadband deployment is laughable.

And, on a separate note, for someone claiming to support expanding rural and low-income broadband, Pai has some serious explaining to do. Since taking over the FCC he's eliminated rules that stopped telcos from ditching copper networks, he's argued that a single broadband provider can count as "sufficient competition," has downgraded what counts as broadband to pretend there's more competition when there isn't, and has basically made up out of thin air claims that uncompetitive markets are competitive. In short: Pai is not credible on this. He's done everything to give more power to the giant internet access providers, who have shown little interest in providing broadband to rural and low-income households.

Pai's "responses" to Mark Ruffalo and George Takei were similarly misleading (a key point with Ruffalo is that Pai totally misinterpreted Ruffalo's tweet, which was concerned about giant ISPs controlling the internet, for the government "controlling" the internet -- which it does not), but let's jump forward to his response to Alyssa Milano:

Shifting gears, Alyssa Milano tweeted, “We’ve faced a lot of issues threatening our democracy in the last year. But, honestly, the FCC and @AjitPaiFCC’s dismantling of #NetNeutrality is one the biggest.” I’m threatening our democracy? Really? I’d like to see the evidence that America’s democratic institutions were threatened by a Title I framework, as opposed to a Title II framework, during the Clinton Administration, the Bush Administration, and the first six years of the Obama Administration. Don’t hold your breath—there is none. If this were Who’s the Boss?, this would be an opportunity for Tony Danza to dish out some wisdom about the consequences of making things up.

First off, the reference to "democracy" by Milano isn't specifically about Title I v. Title II, but about how the internet itself works. A weakened internet, controlled by a few giant monopolists, who have the power to block or diminish access to content can absolutely harm democracy. But, even more to the point, the fact that Pai is ignoring the fact that the overwhelming majority (98.5% by one report) of unique -- non-bot, non-pre-filled form -- comments to the FCC on this matter supported keeping the rules.

Meanwhile, one of Pai's mentors and strongest supporters -- who lead the Trump transition team for the FCC and recommended Pai become chair -- Jeff Eisenach showed exactly the contempt he feels towards "democracy" when it comes to the FCC, directly spitting on the idea that the FCC should reflect democratic ideals:

So... maybe Pai and Eisenach should confer on whether Verizon, Comcast and AT&T want them to be supporting democracy this week or undermining it. Because, they seem to be confused.

Meanwhile, it appears that Pai assumed these Hollywood folks didn't understand the issue so they wouldn't possible hit back with facts. Not so with Milano, who responded in fairly great detail about why net neutrality is quite important to democracy, and why Pai is being misleading in his claims.

Either way, the whole thing is weird. Tons and tons of people have been speaking out on this issue. Why Pai decided to pick on five famous actors/singers, when they're hardly a representative sample is anyone's guess. Perhaps he's hoping that his audience would think that the vast, widespread criticism and backlash he's facing was just driven by "liberal" Hollywood. Perhaps he's hoping that by naming famous names it will distract from his lack of facts. But all it really highlights is just how weak Pai's case really is.

Stay tuned for our next post on his even odder decision to attack internet companies.

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Posted on Techdirt - 28 November 2017 @ 10:43am

Uber Waymo Trial Delayed After Justice Department Jumps In, Unprompted, To Tell Judge That Uber Was Withholding Evidence

from the holy-shit dept

So lots of people were gearing up for the Waymo/Uber trial starting next week over Uber's alleged efforts to get Waymo's (Google's self-driving car project) trade secrets. There are a whole bunch of issues around this case that are interesting -- from questions involving what really is a trade secret to where the line is between controlling former employees and allowing people to switch jobs within an industry. But... all of that has been completely tossed out the window as more and more evidence piles up that beyond those key legal issues, Uber sure did some shady, shady stuff. This morning, the latest bombshell (in a long line of bombshells) is that the judge has delayed the trial after the Justice Department got involved, totally unprompted. No, really.

You have to piece together some of the details, because some of the key documents are heavily redacted, but let's try to unpack what appears to have happened. Earlier this year, the judge in the case, William Alsup, referred the case to federal prosecutors to also investigate whether anything criminal had happened. Normally, in such cases, federal prosecutors will spend quite a while looking into the details and no one -- including the judge who made the referral -- will hear boo from the DOJ until charges are filed (if that ever happens). Except... that's not what happened. Apparently while investigating the possible criminal behavior by Uber, the DOJ noticed that Uber had failed to hand over a key piece of evidence during discovery. Specifically, it appears to be a letter from a former Uber security analyst named Richard Jacobs, concerning efforts by Uber to access competitor trade secrets -- and to conceal that information (there is some suggestion that this involved using disappearing messaging apps).

This would have been required to be handed over during discovery, but was not. And no one would have known about it, had the acting US Attorney for the Northern District of California not decided, unprompted, to let Judge Alsup know about it -- leading Judge Alsup, just last week, to order Uber to hand it over to Waymo. You can get some of this from the heavily redacted filing made by Waymo's lawyers, in which you can hear their exasperation over just finding this out.

Also, Judge Alsup order Jacobs to appear in court and answer questions, and reports from the courtroom suggest it's been... messy. Reporters Kate Conger and Joe Mullin have been providing some fairly astounding color commentary. A few snippets from their tweets:

As computer security guru Matt Blaze points out, there are plenty of good reasons for companies to want to use secure communications -- but doing so explicitly to avoid having your conversations show up during discovery certainly doesn't look good in court.

Either way, Judge Alsup appears to be less than happy about all of this:

“We're going to put trial off … because even if half of what’s in that letter is true it would be a huge injustice to Waymo to have to go to trial now,” the judge said...

Judge Alsup also noted that "the public is going to hear everything" about this evidence, so there's likely to be more coming down the road.

Once again, there are all sorts of interesting legal questions underlying this case -- but as happens all too often, it appears that some fairly blatant bad behavior is likely to obscure much of that. While it may make for more entertaining stories, it can muck up some of the legal questions. Or, as lawyers sometimes note, bad cases make bad law. This is shaping up to be a bad case with a pretty clear pattern of incredibly bad behavior by Uber (which, of course, appears to be consistent with the company's reputation). And, unfortunately, that seems likely to distract from some actually important issues that could have a much wider impact, concerning questions around trade secrets and employment.

But, no matter what, withholding evidence like this during discovery -- not to mention some of that evidence being an explanation of how the company tried to avoid discovery -- is a double layer cake of extremely sketchy behavior. It seems unlikely that this will end well for Uber.

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Posted on Techdirt - 28 November 2017 @ 9:34am

How Patents Have Contributed To The Opioid Crisis

from the monopolies-make-people-do-fucked-up-things dept

Over at Quartz, there's a very interesting article about how patents may have contributed to the opioid crisis in the US. It's based on a recent paper, May Your Drug Price Be Ever Green, by law professor Robin Feldman (who has done lots of great work about problems in our patent system) and law student Connie Wang.

For many years, we've written about how the pharmaceutical industry has become so overly reliant on patents for their business model, that's it's become destructive. We've argued that the misaligned incentives of the patent system, especially in pharmaceuticals has so distorted incentives that the big drug companies basically have become focused solely on keeping exclusivity that it has lead to a lot of tragic game playing, where the cost has literally been people's lives. This went into overdrive a decade or so ago when big pharma realized that many of their biggest sellers had patents expiring, and their pipeline had failed to come up with new drugs to replace the monopoly rents of the old. This resulted in all sorts of gamesmanship designed to allow big pharma to retain monopoly rights even after a drug should have gone off patent. This included pay for delay schemes, whereby big pharma effectively paid off generic makers to keep them out of the market for longer.

And then there's the trick of making basically the same drug, but with just a slight, non-essential change, and getting a patent on the new drug. Of course, you might wonder why that would stop people from moving to generics. There are all sorts of games played over this, including misrepresenting the "new" drug as somehow better, or even tarnishing the reputation of the old drug for no other reason than to drive people to the new one. Or, a really nefarious trick: stop selling the older drug a little while before it's gone off patent, to effectively force patients who need it onto the new drug, making it much less likely they'll go to the generic copy of the old drug, since there's a big gap in when it was available.

Another trick is Big Pharma threatening doctors for prescribing generics.

Basically, if there's been some sort of sleazy underhanded way to make people pay more for drugs than they really should, Big Pharma companies have probably done it. And that takes us back to Feldman and Wang's study. Basically it puts some numbers to the anecdotes and examples we've talked about over the past few years:

This study examines all drugs on the market between 2005 and 2015, identifying and analyzing every instance in which the company added new patents or exclusivities. The results show a startling departure from the classic conceptualization of intellectual property protection for pharmaceuticals. Key results include: 1) Rather than creating new medicines, pharmaceutical companies are recycling and repurposing old ones. Every year, at least 74% of the drugs associated with new patents in the FDA’s records were not new drugs coming on the market, but existing drugs; 2) Adding new patents and exclusivities to extend the protection cliff is particularly pronounced among blockbuster drugs. Of the roughly 100 best-selling drugs, almost 80% extended their protection at least once, with almost 50% extending the protection cliff more than once; 3) Once a company starts down this road, there is a tendency to keep returning to the well. Looking at the full group, 80% of those who added protections added more than one, with some becoming serial offenders; 4) The problem is growing across time.

And what does that have to do with the opioid crisis? Well, Purdue Pharmaceutical, the makers of OxyContin -- the key drug that's at the heart of the crisis -- has messed with the formulation of OxyContin 13 times to effectively "extend" the patent. Some of these may have good intentions behind the modifications, such as the changing of OxyContin to "abuse proof" pills that are much harder to crush and snort. But, as the Quartz article notes, the constant revamps of the formula and the extending of the patent cliff allowed Purdue to continue promoting the drug. And, famously, Purdue got tons of people hooked on OxyContin by falsely claiming that it was non-addictive. The story of the rise of OxyContin and the false marketing involved in its success is legendary and has been written about in academic papers and the press over and over again. Indeed, the New Yorker just did a giant article on the rise of OxyContin and the dark legacy of Purdue Pharmaceutical's aggressive and misleading marketing. The short summary from that article:

Purdue launched OxyContin with a marketing campaign that attempted to counter this attitude and change the prescribing habits of doctors. The company funded research and paid doctors to make the case that concerns about opioid addiction were overblown, and that OxyContin could safely treat an ever-wider range of maladies. Sales representatives marketed OxyContin as a product “to start with and to stay with.” Millions of patients found the drug to be a vital salve for excruciating pain. But many others grew so hooked on it that, between doses, they experienced debilitating withdrawal.

Since 1999, two hundred thousand Americans have died from overdoses related to OxyContin and other prescription opioids. Many addicts, finding prescription painkillers too expensive or too difficult to obtain, have turned to heroin. According to the American Society of Addiction Medicine, four out of five people who try heroin today started with prescription painkillers. The most recent figures from the Centers for Disease Control and Prevention suggest that a hundred and forty-five Americans now die every day from opioid overdoses.

That part about how it led many to switch to heroin, because OxyContin is too expensive? Well, that all goes back to patents. Obviously Purdue held the key patent on OxyContin for a while, but that expired in 2013. And yet, four years later, there still aren't generics to take its place. As the Quartz article explains:

The company is still profiting off “abuse-deterrent” OxyContin. Though there are currently “authorized generics” of OxyContin available, these are made by manufacturers with licenses to use Purdue’s formula. In other words, Purdue makes money off them. And there are currently no approved abuse-deterrent generics in the US. In September of this year, FDA commissioner Scott Gottlieb said that soon the agency plans to issue guidelines to assist companies who are trying to file applications for these types of generics. No word on when that document will be published, however.

Obviously, this is not the sole reason -- or perhaps even a major reason -- behind the opioid crisis. But it has clearly contributed to it. Purdue Pharma certainly deserves much of the blame for everything its done. And it took doctors way too long to realize the problems and risks of these drugs. But the artificially inflated prices of OxyContin, driven not just by patents, but by the games played by Purdue and other pharma companies, certainly helped keep the prices ridiculously high, often driving people to heroin or other, even more dangerous opioids.

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Posted on Techdirt - 27 November 2017 @ 11:59am

Treasury Department Report Shows ComputerCOP Used Bogus Endorsement Letter To Get Police To Distribute Keylogger

from the bad-news dept

A little over three years ago, we wrote about a detailed investigation by Dave Maass at EFF to reveal that an app called ComputerCOP, that was given out by hundreds of police departments to parents supposedly for protecting their kids, was actually dangerous spyware that transmitted information typed by users (including kids) over the internet without encryption. Even worse, tax dollars were being used by police departments to "purchase" this software for distribution to unsuspecting parents. The details were ugly, and it even included ComputerCOP using a bogus "endorsement letter" from the Treasury Dept. -- leading the Treasury Department to put out a fraud alert about the software, stating:

Neither the Treasury nor the Treasury Executive Office for Asset Forfeiture endorses this or any other particular product and the use of equitable sharing funds does not in any way imply such an endorsement. A letter purporting to be from the Treasury Executive Office for Asset Forfeiture [link] is not genuine.

Incredibly, even after all of this was revealed, we noted that many police departments continued to stand behind the software and even claimed that EFF was "not credible" (and, bizarrely, said that the software would have "stopped Columbine").

Three years have gone by and Maass and EFF are back, noting that the original report spurred an investigation by the Treasury Department into the software which confirmed the EFF's reporting, even noting that the company had doctored a letter to claim that the software was endorsed by the Treasury Dept. From the report:

The investigation determined that the allegation is substantiated. Specifically, no less than three law enforcement agencies solicited by ComputerCOP reported the TEOAF memorandum in the solicitation influenced the law enforcement agency's decision in purchasing ComputerCOP's software. After discussions with TOIG, DOJ/U.S. Marshal Service, and Treasury Office Counsel, ComputerCOP agreed to post a disclaimer on their website to dissociate the Treasury Department from their products. Additionally, ComputerCOP agreed to immediately cease use of the altered letter from the Treasury Department.

However, as Maass also notes, ComputerCOP evaded prosecution because the three-year statute of limitations had run out. Of course, I'm curious how that's true, given the claim that the company had continued to use the letter until all of this was revealed.

New FOIA documents show that, after a multi-year investigation, the Inspector General concluded that ComputerCOP had indeed “altered the 2001 letter from TEOAF and made it appear to be blanket permission for all law enforcement agencies to use equitable sharing funds to purchase the software.” Indeed, ComputerCOP made this claim on the rate card it provided to agencies. 

As part of its investigation into the letter, Treasury investigators sent questionnaires to 240 agencies that had purchased ComputerCOP. Of the few dozen that responded, three law enforcement agencies—the Peabody Police Department in Massachusetts, the Alaska Department of Public Safety, and the Greene County Sheriff's Office in Missouri—told Treasury that the fraudulent letter had directly influenced their decision to purchase the product. 

The closed investigative report indicates the Treasury Inspector General was unable to send the case for prosecution “due to the fact that the three year statute of limitations on the offense had lapsed.” Instead, after discussions with the Justice Department and the U.S. Marshal Service, Treasury concluded it was enough for ComputerCOP to cease using the altered letter and to post a disclaimer on their website.

And Maass also notes that while ComputerCOP promised to post a disclaimer on its website, that disclaimer appears to have gone away -- and is still pushing misleading (at best) claims about the software.

Unfortunately, it may be time for the Treasury Department to re-open the case. While ComputerCOP did once advertise the disclaimer, EFF could no longer find that language anywhere on its website.  

Making matters worse, the company’s website now claims that the keylogging feature “is not intrusive in any way.” This is an outrageous claim considering that this type of technology is more commonly deployed by stalkers and malicious hackers, and, in certain circumstances, its use could violate wiretapping laws.

And, yes, incredibly, there are still police departments out there purchasing the software and handing it out to unsuspecting parents -- including just this summer when McGruff the Crime Dog was handing out the software on Long Island.

There are enough problems with police these days and how they interact with the public. They shouldn't be contributing to making computer security worse by handing out dangerous software.

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Posted on Net Neutrality Special Edition - 27 November 2017 @ 9:31am

Ajit Pai's Big Lie

from the not-at-all dept

I want to start out this post by making a key point: I know that it's become fashionable to launch into personal and ad hominem attacks on people we disagree with politically of late. We've sought to avoid doing that here on Techdirt, even if we often will criticize people and their positions in stark terms. Over the past few days, however, the ad hominem attacks on FCC chair Ajit Pai by some have been absolutely disgraceful -- and absolutely counterproductive. I disagree with Pai quite a lot (as you'll see below). But the venom and attacks he's received from many are not just unfair and misguided, but only serve to bolster the idea that the people arguing against him are unhinged from reality. I've met Pai a few times and have found him to be both thoughtful and intelligent. I still believe that he is deeply misguided about multiple important issues, but we can debate those issues without resorting to personal attacks. I hope that others will follow suit.

Ever since Ajit Pai became chair of the FCC he's been systematically undoing more or less everything his predecessor, Tom Wheeler, accomplished during his (perhaps surprisingly) effective chairmanship. To do that, Pai has engaged in a series of statements and positions that, at best, have involved misrepresentations of reality. There are a number of these that may be worth exploring, but I want to focus on one that I'll refer to as Ajit Pai's Big Lie, because it's the key argument he's made, underlining his reasoning for chucking out the existing net neutrality rules. Here is the opening paragraph from the FAQ that Pai released last week, setting out his reasoning... and also succinctly presenting Ajit Pai's Big Lie:

Over twenty years ago, President Clinton and a Republican Congress established the policy of the United States “to preserve the vibrant and competitive free market that presently exists for the Internet . . . unfettered by Federal or State regulation.” For decades, Commission policies encouraged broadband deployment and the development of the Internet. That ended two years ago. In 2015, the Commission imposed heavy-handed, utility-style regulation on Internet service providers (ISPs). Since then, broadband investment has fallen for two years in a row—the first time that that’s happened outside a recession in the Internet era. And new services have been delayed or scuttled by a regulatory environment that stifles innovation.

You might think that the "Big Lie" is the idea that the 2015 rules killed investment. And that is a lie. Actual evidence from financial reports has proven that completely false repeatedly. But, that's a smaller lie here. Ajit Pai's Big Lie is the idea that gutting all net neutrality protections is somehow returning FCC policy to the way things were two years ago, and that "for decades" the FCC kept out of this debate. All of that is wrong. And, unlike the other lie concerning investment -- where Pai and others can fiddle with numbers to make his claims look right -- Ajit Pai knows that the Big Lie is false.

Pai likes to point back to the Telecommunications Act of 1996 as his starting point in claiming that the internet is free from regulations, and suggests that things just changed with the 2015 FCC order. But he literally knows this is wrong. First of all, for all his talk of using 1996 as the starting date to show "decades" of supposedly unchanged FCC positions on this, he conveniently leaves out that the FCC didn't actually classify cable broadband as an information service... until 2002. That's from the FCC's own announcement about it. And this was fought out in court, eventually leading to the Brand X Supreme Court ruling in 2005 that said the FCC had the right to determine if broadband was an information service or a telco service (which is why the 2015 order has been upheld).

And, even then, telco (i.e., DSL) based broadband was still classified under Title II. It was only in 2005 that the FCC officially reclassified telco-based broadband as an information service, rather than a Title II covered telco service. This move actually stripped broadband of the one feature that had created the most competitive markets: the requirement to share their lines.

So, as a starting point, the idea that there's been a consistent policy position from 1996 until 2015 is simply wrong. The FCC itself changed the classification of broadband providers in 2002 and again in 2005.

Next, the idea that "net neutrality" itself is a new concept that only came about with the 2015 order is complete and utter hogwash. And, again, this is something that Pai knows well. If you go back through the previous four FCC chairs -- under both Democrat and Republican administrations -- they all supported net neutrality. They just struggled with how to implement it. In 2004, then FCC chair Michael Powell presented his "guiding principles" for "preserving internet freedom." In that document, Powell laid out an early argument for net neutrality (before the term had really caught on), noting that it was important that broadband providers offer up full access to the entire internet equally.

In that speech, he actually warned of why it would be dangerous for an internet access provider to block a competing VoIP service, and that the FCC "must keep a sharp eye on market practices that will continue to evolve rapidly." And, indeed, a year later, when Powell discovered that a small ISP named Madison River was blocking VoIP calls via Vonage, Powell's FCC fined Madison River using Title II as the justification (the consent decree refers to 47 USC 208, which is part of Title II).

So we had a Republican FCC chair who clearly supported net neutrality and used Title II to make it happen. How the hell can Ajit Pai square this with his claim of no one using Title II or supporting net neutrality until Tom Wheeler's 2015 order?

And we're just getting started. Powell's successor was Kevin Martin -- another Republican under President George W. Bush. Martin also strongly supported net neutrality and, in many ways, kicked off the process that eventually resulted in Wheeler's order. It was under Martin's watch that it was discovered that Comcast was throttling BitTorrent and the FCC issued an order telling Comcast to knock it off. By that point, the FCC had already (see above) made it clear that broadband was not a Title II service, so it relied on other parts of its claimed mandate to issue the order.

That went to court and the court said that the FCC did not have the proper authority to police such a net neutrality violation under the existing rules. The court said that the FCC was trying to stretch its ancillary authority too far -- that even though the FCC wanted to, it could not enforce net neutrality requirements on information services. Basically, the court was telling the FCC it fucked up in reclassifying broadband away from Title II, even as it still believed in the importance of net neutrality (and, yes, again, as a reminder, this was under a Republican FCC).

That's why the next FCC chair, Julius Genachowski, proposed a different set of rules for net neutrality in 2010. However, under tremendous pressure from the broadband providers, Genachowski punted and tried to craft net neutrality rules without reclassifying broadband companies under Title II. Verizon (who helped write the rules) still sued over these new rules... and won. Basically, the court said (again) "Hey, FCC, you clearly want net neutrality, but the only way to do that is to reclassify broadband under Title II."

It was only then, with the next FCC chair, Tom Wheeler, that the FCC actually did so. And that's why Wheeler's Open Internet order has been held up in court already.

But read through all of this carefully, and try to square this with Ajit Pai's Big Lie -- that since 1996, broadband has been treated one way, and there's been no FCC push for net neutrality. The FCC considered broadband covered by Title II for nearly a decade after the Communications Act of 1996, and even as it was reclassifying broadband to be an information service, every single FCC chair expressed strong support for net neutrality and tried to enforce it against those who violated those principles. It was only because the courts pushed back, and noted that if the FCC wanted to enforce net neutrality, broadband needed to be Title II, that the FCC made that switch, supported with both the backing of the court (in those earlier rulings and following the order) and plenty of evidence for why it was necessary.

For Pai to argue that he's trying to bring things back to how they were from 1996 to 2015, he has to ignore all of that history. He's not taking us back to that era. He's doing something worse. He's wiping out the rules that courts said were necessary to enforce the FCC's long-held position on net neutrality. And, more importantly, he's reversed course on the FCC's long-held position on net neutrality.

And he's doing so with his Big Lie that he's merely reverting back to where things used to be.

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Posted on Techdirt - 22 November 2017 @ 12:25pm

Uber Hid Security Breach Impacting 57 Million People, Paid Off Hackers

from the not-good,-uber,-not-good dept

It's no secret that Uber's management over the years has been pretty sketchy, if not downright nefarious. At some point I may write a longer post about this, but it appears that the company culture took the idea of reasonably pushing back on bad laws (such as those that restricted competition in the taxi space) and took it to mean that it could just ignore all sorts of rules. And it appears that a company culture was created that celebrated rulebreaking in all sorts of ways -- most of which were bad. The company has a new CEO, Dara Khosrowshahi, who comes in with a strong reputation and has indicated his intent to change the culture. On Tuesday, the company admitted that it had covered up that data on 57 million users had been leaked. While the data didn't include credit card info or trip data, it did include drivers' license info for 7 million drivers, and the email addresses and phone numbers of 50 million riders.

It's bad enough that the data leaked, but covering it up is serious -- and means that the company is going to be hit with lawsuits. California (among others) has a strong data breach law, and it seems quite likely that Uber broke that law in failing to alert people that their info had been accessed. Perhaps more incredibly, the cover-up happened at the very same time that the company was negotiating with FTC officials over a previous data breach. Also, it appears that Uber paid off the hackers who were trying to extort the company to keep the data secret:

Here’s how the hack went down: Two attackers accessed a private GitHub coding site used by Uber software engineers and then used login credentials they obtained there to access data stored on an Amazon Web Services account that handled computing tasks for the company. From there, the hackers discovered an archive of rider and driver information. Later, they emailed Uber asking for money, according to the company.

Apparently, Uber paid the hackers $100,000 to keep the data from getting out.

In response to this, Khosrowshahi has put up a blog post taking responsibility for this and more or less admitting that the company had royally fucked up. He also fired two employees who were apparently responsible for covering this up (the report technically says one was "asked to resign" while the other was fired). The whole thing sounds like a complete shitshow from a company that, well, has a history of Broadway-level shitshows.

While the blog post is clearly an attempt to show that the company is trying to turn over a new leaf, the whole situation is still troubling. The blog post doesn't mention paying off the hackers -- it just says that the company "obtained assurances that the downloaded data had been destroyed." It certainly feels like the overall statement could be stronger. Here's part of it:

At the time of the incident, we took immediate steps to secure the data and shut down further unauthorized access by the individuals. We subsequently identified the individuals and obtained assurances that the downloaded data had been destroyed. We also implemented security measures to restrict access to and strengthen controls on our cloud-based storage accounts.

You may be asking why we are just talking about this now, a year later. I had the same question, so I immediately asked for a thorough investigation of what happened and how we handled it. What I learned, particularly around our failure to notify affected individuals or regulators last year, has prompted me to take several actions:

  • I’ve asked Matt Olsen, a co-founder of a cybersecurity consulting firm and former general counsel of the National Security Agency and director of the National Counterterrorism Center, to help me think through how best to guide and structure our security teams and processes going forward. Effective today, two of the individuals who led the response to this incident are no longer with the company.
  • We are individually notifying the drivers whose driver’s license numbers were downloaded.
  • We are providing these drivers with free credit monitoring and identity theft protection.
  • We are notifying regulatory authorities.
  • While we have not seen evidence of fraud or misuse tied to the incident, we are monitoring the affected accounts and have flagged them for additional fraud protection.

None of this should have happened, and I will not make excuses for it. While I can’t erase the past, I can commit on behalf of every Uber employee that we will learn from our mistakes. We are changing the way we do business, putting integrity at the core of every decision we make and working hard to earn the trust of our customers.

It will be interesting to see if the company can really change its culture. I still think that the concept behind Uber is powerful and can do some fairly useful things in the world, but the way in which the company has gone about running its business has been a disgrace.

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