Belated notes: Wharton Colloquium on Media & Communications Law

Wharton Colloquium on Media and Communications Law (papers available at link; due to a hilarious series of barriers and unforced errors, I only attended the Saturday session)

Christopher Yoo, The Federal Takeover of the U.S. Telephone System During World War I

He wants to use the history of the WWI takeover to change our understanding of how telecom developed in the US—for example, time of day pricing came out of the period of government control. Bell System’s financial history: 1895—earnings went into freefall with competition. 1913-1918—not a huge recovery, despite reconsolidation; revenues take off with the gov’t takeover, and a bunch of mergers that the takeover allowed/encouraged because the gov’t believed in common ownership.

Economies of scale: true with mechanical switching, not switchboard operators, who don’t scale; mechanical switching only came into use in the 1920s, but the consolidation was before then. There were problems of switching, of trunk lines, and signaling: there was no way to tell when someone was done with a call other than the operator monitoring the line. Thus increased connections increased the burden nonlinearly. Traditional economies of scale justification for reconsolidation is probably false.

Network effects: there’s never been a proper study of the independent telephone industry. The independents were not like Bell, only smaller; didn’t use long distance tech, but attached adjacent exchanges, but tech may have been much better. In Muncie, AT&T can give you Chicago, but the independents could give you Fort Wayne, which was more important to most callers. Independents had much more density in Midwest; would have expected network effects to work in their favor. Didn’t want to interconnect with the Bell system. They were racing to own the market. Unclaimed customers existed—wanted to outbuild, not interconnect, to force a choice by the customer they were racing to claim.

Independents had integrated systems, and 50% market share in 1907. By 1913 it was 45%. Bell was not a monolith then (when gov’t began monopoly oversight). Some argued that the government didn’t enforce antitrust enough, but there was no real consolidation until WWI. Bell cut way back on acquisitions 1912-1918, so Yoo thinks gov’t signals worked to slow consolidation. Independents started to want Bell deals because they were at the end of greenfields, undeveloped markets and entering a period of expensive intensive competition to get revenue from existing customers. He thinks this is an untold part of the story affecting gov’t regulators.

Primary driver for reconsolidation was the federal gov’t: didn’t want duplication, instead postalization. Very different story.

Universal service: Some say this is a post hoc rationalization for consolidation. Yoo’s contrary conclusion: there is cross subsidy from urban to rural areas; uniform pricing can be discriminatory if costs vary. Rate averaging was a tradition in the postal system as a conscious policy; Ulysses Grant used it as a reason for gov’t ownership of telegraph systems. WWI gov’t policy: keep rates low (that didn’t happen) and extend service; made rates uniform as a cross-subsidy.

Lessons: why did they give it back? They couldn’t afford it. Needed to raise capital to upgrade the equipment. Gov’ts need to finance out of acquisitions, not risk capital. Didn’t have institutional apparatus to run it, so kept all the industry people in place. When does gov’t ownership work best? Gov’ts have trouble raising capital, so if there’s dynamic tech change that may not work well, just as people argue that incumbents don’t like to explore tech.

Marsden: this is a very temporary, short period of gov’t control: was there really any battle over returning to private ownership? Also, compare the Civil War control of the telegraph system as a useful benchmark.

Yoo: Other interesting stuff was happening in WWI Europe; French telephone system sucked so they had to build their own systems.

Susan Crawford: Gov’t ownership may be a straw man: Teddy Roosevelt’s position—what we need is supervision. TR says: I don’t mind big companies as long as they’re not acting like the government.

Yoo: AT&T sought the middle ground of regulation. Progressives disagreed vehemently about this—e.g., Bob LaFollette; by 1924 his platform squarely endorses gov’t ownership, where in the early 1900s he had been more regulatory. Progressives struggled with scientific management, wanting centralized control.

Crawford: there was a lot of unhappiness with the service being provided. Discuss how that factored in.

Yoo: primary complaint—rates. Some complaints about service, but really it was that the rates were too high. Comparing per capita development in Europe/US, hugely favored the US. The fight was about rates versus coverage.

Christoper Marsden, Internet Co-Regulation: Towards a Theory of Constitutionalism

His paper focuses on the European approach to coregulation; needs more on the US. His book is about European content regulation of the internet. Mandatory filtering and other troubling developments are on the horizon. Human rights principles from European law are being used by big telecom companies to strike down recent UK regulation, railroaded through just before an election, which provides for stringent and nonjudicial remedies against those accused of unlawful downloading. Judicial review is pending.

Wikileaks: attempts to take down Wikileaks are a classic case study of private censorship—we don’t know if they broke any laws; haven’t been charged; yet things are happening with Mastercard, Paypal, Amazon’s cloud service, denying them access. Claim is that this is purely private, not a result of government pressure, but commercial decisions. He says this offends natural justice.

European system: coregulation, which at least appears to have formal intervention by government which can be reviewed, though this is mostly untested in terms of judicial review. Mostly a no-go in the US because of antitrust. US government doesn’t use carrots to control private behavior; Europe uses carrots as well as sticks. Blocking lists proposed in the UK: he thinks this is a terrible idea because the lists are badly constructed; it’s an ineffective alternative to going after the sites themselves—we could chase them as we do with phishing sites; it violates freedom of expression. Other countries have much cruder blocking in place, and other countries don’t; possibility of 27 different systems of blocking.

Soft law: solutions without statutory authority, a lot more in Europe than in US. European Commission has legislative initiative, and strong soft powers/industry liaison. Powers of patronage. EC can also issue Recommendations advising industry, such as 1998 recommendation Rec[98]460 on protection of minors and human dignity: detailed code of conduct for ISPs, updated 2006; forerunner to Ecommerce Directive. European Parliament/Council is highly critical because these are unilateral, nondemocratic, unaccountable.

EC likes to give out carrots, more than sticks. Companies need gov’t approval to avoid regulation. They’re generally happy to cooperate, even if it’s formally self-regulation.

What is civil society’s role? More than just industry is concerned with internet regulation. Legitimacy requires participation: when the European Commission carries on about ICANN, it’s doing its job.

Smarter self-regulation: Europe allows far closer relations between government and business than US on things like web blocking. In the US, there’d be First Amendment and antitrust barriers to getting dominant ISPs together to agree on how to treat speech.

EC now requires all large social networking sites to report on how they’re contributing to privacy and fundamental human rights of their users. Not a legal requirement, but a practical one. FB: do they need an “abuse” button on every page of their site to allow people to report cyberbullying, as Bebo had? (Drowned the Irish police in reports; they ended up forwarding the complaints to the schools, because most complaints were about kids bullying other kids; which also has privacy implications.) FB said “get lost,” and won.

We are moving towards formally recognized co-regulation, with statutory authority to step in where it doesn’t work. EC doesn’t prioritize innovation, think the technology is mature; many European politicians just hate the internet.

My comments: Maybe the US is just more corrupt—we don’t give carrots for behavior, we just give money to our private sector. This is why my assumption is that the gov’t is rarely in the driver’s seat in these partnerships.

As a theoretical matter, does co-regulation have to come from the executive/legislative branches? In other words, could we consider Google as co-regulator because of its relation to the judicial system? The paper’s model seems to suggest that government approval/threat of sanctions comes under the heading of co-regulation, which could encompass judicial approval/threat, but Marsden also suggested that the threat of gov’t takeover is the primary sanction, which wouldn’t fit the judicial model. Google and eBay (and Facebook and Twitter) appear to be privatizing TM law as well as copyright, perhaps more so in the US than in Europe. Judicial deference in US and Europe seems to be emerging (possibly could compare judicial concept of good faith in an intermediary as it affects secondary liability to other forms of government deference to industry consensus/rules).

Marsden: his concept is based on legislative power. The soft law aspects are not based on legislation, but they come from a body that has the power to make legislation if it’s ignored.

The closer the issue comes to national security/terrorism, the more the power shifts to the state, and the more nervous the firms get about working with the gov’t, because in those instances the gov’t has no interest in cost-benefit analysis or market barriers or anything else of concern to the private sector.

Andrea Matwyshyn, (Techno)Essentializing Breach

Paper is about whether there’s something special about breaches of contract that involve technology. Courts have increasingly accepted arguments that essentialize the impact of networks and computers on the contract itself. She disagrees. Focusing on the role of the computer is focusing on a salient but ultimately irrelevant characteristic from the standpoint of contract.

Ad: “terrorism: if you suspect it report it,” with pictures of cameras, computers, phones, luggage, and vans. Penn Gillette’s response, using the same pictures: “average people doing nothing wrong, leave them alone.” Tech is everywhere; is it special? Congress passed CFAA based in part about a freakout over the movie WarGames. (Talk about a moral panic.) Now, Microsoft sponsors the HacKid Conference, for kids who like to hack—hacking is a term that is not just a threat.

Some courts have accepted that breach of contract constitutes invalidation of authorization for purposes of the CFAA, making the access unauthorized and thus violative of the CFAA, potentially criminally so.

Crawford: point is it’s inappropriate to leverage breach of contract into a criminal violation. But that relies a lot on contract, and yet there’s so much academic and other questioning of the legitimacy of mass market contracts—should they be binding? These aren’t real contracts in the traditional sense; should we be treating them with the sanctity of contract?

Matwyshyn: To the extent that the harm that arises isn’t contemplated by the contract, there may be a CFAA claim, but it shouldn’t be based on breach of contract.

Crawford: but privity as a reason to cabin harms strikes her as odd.

Brett Frischmann: An act that constitutes breach could also constitute copyright infringement; so why couldn’t an act that constitutes breach also violate some other law like the CFAA? Do you want to push people into engaging in contracts more, or do you want to provide incentives for people to not engage in contracts for better protection under CFAA?

Matwyshyn: wants to push towards contract. The types of harms pushed into CFAA are harms that money can fix. To the extent that there’s some other category of equitable harm that isn’t covered by the contract, we might have a CFAA argument, but in general there are other regimes with other remedies. If there’s recourse for the harm, we’re not trying to fix the harm any more when we apply the CFAA.

My comment: (I agree with Crawford’s point re: being careful not to suggest that these contracts are or should be legitimate or even enforceable on all their terms under contract law.) I am not sure that the focus on hacking in the paper is warranted: if the basic claim is that a breach of contract isn’t enough to violate the CFAA, then you might need further emphasis on the point that it rarely takes hacking of any kind to breach a contract. The case of Lori Drew’s criminal prosecution for misstating biographical data on her profile didn’t involve hacking of any flavor; even if the legislative target was all hacking, the construction of the CFAA that encompasses pure breach would be a mistake.

Christian Sandvig: interested in paper’s discussion of developmental reasons to use tech. New tech always creates freakout about social status/kids (telephone: some people worried that a white person might talk to a black person and not know it!). Moral panic/technological essentialism—talk more about that.

Matwyshyn: Paul Ohm’s myth of the superuser also fits in: the devil of our time. There’s a psychology behind it: people trying to make sense of change and focusing on the salient aspects even if they’re not that important.