Baltimore Sun Op-Ed Urging Veto of MD Digital Ad Tax

Today's edition of the Baltimore Sun features an op-ed that Free State Foundation President Randolph J. May and I wrote regarding the ill-conceived, and first of its kind, tax on digital advertising recently passed by the Maryland General Assembly.

In a blog post on March 13, we addressed the shortcomings of what at the time was pending legislation. An effort to generate additional revenues for education based upon a proposal conceived to discourage targeted advertising, Senate Bill 2 inappropriately singled out one form of commercial speech – digital, but not traditional – advertising, in violation of both specific federal law and the First Amendment.

It targeted large platforms (e.g., those that generate more than $100 million in annual gross revenues) with a tax ranging from 2.5 to 10 percent of annual gross revenues derived from "digital advertising services," unduly burdening interstate commerce – and implicating the Commerce Clause – by sweeping in revenues generated both in other states and globally.

And it relied upon an unworkable mechanism to determine when digital advertising is provided within Maryland's borders.

Nevertheless, on March 18, Maryland's legislature adopted an amended version of S.B. 2, House Bill 732. H.B. 732 responds to that last critique – S.B. 2's failure to identify accurately in-state digital advertising – by punting the question to a future rulemaking by the Comptroller. Otherwise, it suffers from all of the flaws we identified in S.B. 2.

The FSF op-ed, which urges Maryland Governor Larry Hogan to veto this misguided bill, can be found here. 

Free State Foundation President Randolph May and I will be participating in a Federalist Society teleforum to discuss themes from our new book Modernizing Copyright Law for the Digital Age – Constitutional Foundations for Reform. The book is available for purchase at Amazon and at Carolina Academic Press. 

The teleforum will take place on March 31 at 12 p.m. EDT. We are honored that Professors Adam Mossoff and Michael Risch will be joining us for the teleforum. Additional information is available at the Federalist Society's website. Call in and listen, and feel free to offer your own questions on copyright modernization reform to the teleforum panelists. 

U.S. Needs More Mid-Band Spectrum

CTIA has released a new report by Analysys Mason that demonstrates that the U.S. needs to make available more mid-band spectrum as quickly as possible if we are not going to fall behind other countries in the race for 5G leadership. The new report offers further support for what Free State Foundation scholars have been saying for many months.

First, it should be acknowledged that FCC Chairman Ajit Pai's "5G Fast Plan," which includes freeing up spectrum, already has played a very constructive role and will continue to do so with regard to speeding 5G deployment. If you haven't seen it already, I urge you to watch the video of Chairman Pai's remarks at the Free State Foundation's Twelfth Annual Telecom Policy Conference on March 10.

Nevertheless, the Analysys Mason report shows the case for making more mid-band spectrum available for licensed use remains pressing. Here are some key Analysys Mason findings.

• On average, other countries will have 5X more licensed mid-band than the U.S. by end of year.
• On average, other countries will have 5X more licensed mid-band than the U.S. by end of year.
• 310 MHz is the amount of mid-band spectrum needed to close the gap.

We shouldn't need a wake-up call, and I am cautious about invoking the COVID-19 pandemic gratuitously or wantonly as a basis for public policy actions. But I do think there is widespread agreement that the current coronavirus crisis has made all Americans more aware of the importance to the country's general welfare and security of having in place robust, ubiquitous broadcast networks. And there should be widespread agreement as well that the availability -- in a timely fashion -- of more mid-band licensed spectrum has an important role to play.     

Marketplace Solutions for "Privacy Resignation"

During her keynote address (available in the form of prepared remarks and video) at "Broadband Beyond 2020: Competition, Freedom, and Privacy," the Free State Foundation's Twelfth Annual Telecom Policy Conference on March 10, FTC Commissioner Christine S. Wilson discussed the need for federal privacy and data security legislation.

Noting the existence of information asymmetries, she argued that market forces may not be sufficient to resolve concerns relating to online privacy. In particular, she highlighted the concept of "privacy resignation," i.e., "the notion that consumers rationally choose to forego expending significant time and effort protecting personal information."

Might the marketplace on its own deliver solutions to address this need?

According to NBC News, privacy may "finally be living up to its promise as a profitable business." The International Association of Privacy Professionals (IAPP) in 2019 released a report identifying over 250 companies focused on privacy technology, up from less than 50 in 2017.

While many privacy businesses tailor their services to the compliance needs of corporate clients, others focus directly on consumers.

One example is Jumbo, which has developed apps for iOS and Android that "empower[] you to take control of your privacy and security, right from your phone." Jumbo is designed to simplify user access to, and control of, privacy settings on popular platforms such as Twitter, Facebook, Amazon, and Google.

Another is Disconnect, whose "mission is to improve the internet and the world by empowering people to exercise their right to privacy."

To the extent that "privacy resignation" is a widespread issue, it creates economic incentive for marketplace participants, whether existing providers or new entrants, to fill the void.

Modernizing Copyright Law for the Digital Age – E-Book Now Available

Modernizing Copyright Law for the Digital Age – Constitutional Foundations Reform, the new book by Free State Foundation President Randolph May and I, is now available in Kindle e-book format. Print copies are available for order at Amazon as well as at Carolina Academic Press's website. Our earlier book, The Constitutional Foundations of Intellectual Property: A Natural Rights Perspectiveis now also available for Kindle.

President Trump Renominates Commissioner O'Rielly to Another Term

Can't say it any better than I did in this tweet when I heard the good news that President Trump will renominate FCC Commissioner Michael O'Rielly to a new term!

I am very pleased that President Trump will renominate @mikeofcc to another term @FCC.

He's been a leader in advocating communications policies based on free market principles and reform of @FCC's own processes. And a workhorse in promoting #5G. 

This is an imp't appointment!

Chairman Pai's Keynote and Hot Topics Panel Videos from #FSFConf12 Are Released!

The Free State Foundation held its Twelfth Annual Telecom Policy Conference on March 10 at the National Press Club in Washington, DC. This year's Conference theme was: "Broadband Beyond 2020: Competition, Freedom, and Privacy." The final two #FSFConf12 videos have now been released and they are available online. 

Keynote Address – Ajit Pai, Chairman, Federal Communications Commission, delivered via video and "Conversation with FCC Commissioner Michael O'Rielly and former FCC Commissioner Mignon Clyburn" with Free State Foundation PresidentRandolph May(Begins at 8:37 on video)

  

Panel: "Hot Topics in Communications Policy"

Moderators: 

Seth Cooper, Director of Policy Studies and Senior Fellow, The Free State Foundation, and Andrew Long, Senior Fellow, The FreeState Foundation

Panelists:

James Assey, Executive Vice President, NCTA – The Internet & Television Association; Mary Brown, Senior Director for Technology and Spectrum Policy, Cisco; James Cicconi, Senior Executive Vice President, AT&T; and Deborah Lathen, Chair, Policy Committee, MMTC, Former Chief, FCC Cable Services Bureau, and President, Lathen Consulting LLC

Other videos from #FSFConf12 are available and they are linked from this March 17 blog post by Free State Foundation Senior Fellow Andrew Long. 

FCC Acts to Maintain Lifeline Enrollment

In an action I applaud, the FCC took action yesterday to ensure maintenance of Lifeline service for low-income persons during the COVID-19 outbreak. See the description below the FCC's action.

Acting on its own motion, the FCC’s Wireline Competition Bureau today temporarily waived for 60 days the requirements for recertification and reverification of Lifeline subscriber eligibility, as well as requirements affecting enrollment representatives working on behalf of Lifeline service providers.

“We find that, in light of the coronavirus pandemic and community efforts to slow its spread, requiring Lifeline subscribers to respond to recertification or reverification efforts over the next 60 days would be an unreasonable burden on low-income households. Because we recognize the importance of connectivity for all Americans during this pandemic, we do not believe that the public interest would be served by de-enrolling Lifeline subscribers who are unable to complete the recertification process or reverification process over the next 60 days. We will continue to monitor the situation to determine whether any additional waiver of these rules and deadlines is needed beyond the 60-day waiver period and will otherwise direct USAC [Universal Service Administrative Co.] to promptly send or re-send recertification and reverification notices, as needed, to subscribers impacted by the waiver at the end of the 60-day waiver period,” the bureau said in an order adopted today in WC docket 11-42.

Now Available: Videos of FSF Conference Keynotes from Jeffrey Rosen, Christine S. Wilson, and Robin Colwell

The Free State Foundation held its Twelfth Annual Telecom Policy Conference last Tuesday at the National Press Club in Washington, DC. Perhaps you were unable to attend "Broadband Beyond 2020: Competition, Freedom, and Privacy," either in person or via Facebook live stream. Or maybe you were one of the many in the audience and would like to take a second look. In either case, we have good news: the morning keynote addresses are now available on our YouTube page.

After a Welcome and Introduction by Free State Foundation President Randolph J. May, Jeffrey Rosen, Deputy Attorney General of the United States, kicked things off with remarks that touched on technological innovation, antitrust, and Section 230 of the Communications Decency Act of 1996. Alden Abbott, General Counsel of the Federal Trade Commission, afterwards provided his Reactions.

Next up was FTC Commissioner Christine S. Wilson, who gave a speech entitled "Free Markets, Regulation, and Legislation: A Place for Everything, and Everything in Its Place." Commissioner Wilson discussed the benefits of free markets, competition, and deregulation; the "toxic outcomes" that can result from heavy-handed regulatory regimes; and the need for federal privacy and data security legislation. Two Members of FSF's Board of Academic Advisors – Theodore Bolema, Executive Director of the Institute for the Study of Economic Growth in the Department of Economics at Wichita State University, and Tim Brennan, Professor of Public Policy and Economics at the University of Maryland – followed up with their Reactions to her remarks.

Robin Colwell, Special Assistant to the President for Economic Policy, gave the final keynote before the lunch break. Ms. Colwell discussed the critical role that broadband plays in the economy and Americans' lives; pending legislation; efforts to address the digital divide; and 5G. Michelle Connolly, Professor of the Practice of Economics, Duke University, and Member of FSF's Board of Academic Advisors, then offered her Reactions.

Maryland's Proposed Digital Advertising Tax Would Do Harm

By Randolph May and Andrew Long

The so-called Kirwan Commission, established by the Maryland General Assembly in 2016, recommended a number of rather expensive reforms that it contends would improve the quality of public education in the state. To fund the Kirwan Commission proposals, the legislature is considering a tax on digital advertising services that singles out large online platforms. Such an approach is more likely to result in legal bills than increased funding for education. Considering that the proposed legislation is based upon a proposal apparently designed to force online providers to abandon ad-supported business models – rather than generate actual revenue – perhaps that is not surprising.

On January 8, 2020, incoming Maryland State Senate President Bill Ferguson (D-Baltimore) and President Emeritus Thomas V. Mike Miller (D-Calvert) introduced SB 2, legislation that targets digital advertising services with a tax on annual gross revenues. Delegate Alonzo T. Washington (D-Prince George's County) sponsored similar legislation in the House of Delegates, HB 695.

The first bill of its kind in the nation, SB 2 would impose a tax – ranging from 2.5 percent up to 10 percent – on annual gross revenues derived from "digital advertising services" provided via a "digital interface" within the state. It would not apply to traditional forms of advertising (print, TV, and radio, etc.). In addition, companies with less than $100 million in annual global gross revenues would be exempt. The focus thus is on large digital platforms (for example, Google and Facebook).

SB 2 is riddled with impracticable language. For example, the definitions of both "digital advertising services" and "digital interface" are broad and vague: the former includes "advertisements in the form of banner advertising, search engine advertising, interstitial advertising, and other comparable advertising services," while the latter applies to "any type of software, including a website, part of a website, or application, that a user is able to access."

Similarly, as originally drafted, SB 2 would have applied to any digital advertising service (1) when a user's device is assigned "an Internet Protocol address that indicates that [it] is located in the State," or (2) the user "is known or reasonably suspected to be using the device in the State" (emphasis added). (To our knowledge, companion bill HB 695 still includes this language.) As the Association of National Advertisers has explained, however, "consumers' IP addresses don't always reveal their locations," particularly when they are on mobile devices, and "the 'reasonably suspected' test for use … would be very difficult, if not impossible, to apply." Recent amendments to SB 2 have eliminated these problematic attempts to define the geographic application of the tax. Unfortunately, their replacement – an apportionment fraction that defines the amount of annual gross revenues to which this state-specific tax applies – inappropriately uses nationwide digital advertising revenues for its denominator.

Legislative analysts estimate that SB 2 could generate as much as $250 million per year in tax revenues. That assumes, however, that SB 2 survives judicial challenge, which, under a number of legal theories, is doubtful. For example, the Permanent Internet Tax Freedom Act prohibits discriminatory taxes on electronic commerce – but SB 2 would apply only to online advertising, and solely the largest providers. In addition, the U.S. Supreme Court on more than one occasion has struck down industry-specific taxes on First Amendment grounds. Similarly, the Maryland Court of Appeals in 1958 held that a tax on TV, newspaper, and radio was unconstitutional under the First Amendment. Given its focus on companies with annual gross revenues over $100 million, SB 2 also is vulnerable to a challenge under the Commerce Clause: a significant portion of those revenues likely are derived from activity outside of the state, therefore the tax could be found to discriminate impermissibly against interstate commerce.

Even if it withstands judicial scrutiny, SB 2 is a bad idea that would harm both consumers and businesses in Maryland. Digital advertising is a significant contributor to the economy, generating $130 billion in annual revenues. However, SB 2 would jeopardize that success by imposing a second levy, in addition to the sales tax, on goods and services marketed via digital advertising. A double tax would increase prices for consumers. As a consequence, demand – and sales tax revenues – would decline. That is why the Association of National Advertisers calls SB 2 "one of the most serious threats to advertising in the United States that we have encountered in decades."

In addition, SB 2 would encourage companies to redirect advertising expenditures to other states. That, along with increased costs, would lead to a reduction in total spending on digital advertising in Maryland, which would harm local businesses, in particular those that depend on advertising revenues. Were it to go into effect, SB 2 would subject consumers to higher costs, reduce sales tax revenues, and generate less funding for education than anticipated by disincentivizing participation in Maryland's digital advertising marketplace. Considering the immodest proposal that inspired it, this last harm, in particular, is to be expected.

Senate President Ferguson told the Washington Post that the draft legislation builds upon a May 6, 2019, article in the New York Times by economist Paul Romer. In that opinion piece, Romer advocates for a tax on digital advertising – specifically targeted advertising – not because of the revenue it would generate, but rather due to his objection to targeted advertising generally.

But this is misguided. Targeted advertising is the lifeblood of the Internet as we know it. Consumers willingly provide personal information (browser history, etc.). In return, they receive "free" content and services. Exposure to targeted ads – which, incidentally and importantly, provide information on specific offerings that, by definition, they are likely to find compelling – is the non-monetary price that they agree voluntarily to pay. This voluntary exchange enhances consumer welfare, and even more so for low-income individuals.

Romer makes clear, however, that he would prefer that digital platforms abandon this win-win business model and switch to ad-free subscription (pay) services. A tax on targeted advertising is the stick he would use to force them to do so. In fact, when Romer testified in late January at a hearing before the Maryland State Senate's Budget and Taxation Committee hearing on SB 2, he reportedly stated that he wants targeted advertising to stop and that he would be happy if the tax resulted in no revenue.

A tax on digital advertising services would reduce consumer welfare by imposing on ad-supported services additional costs, in the form of taxes, specifically and primarily designed to modify providers' behavior. According to its architect, that harm is a feature, not a bug.

Maryland should reject this highly flawed digital advertising tax and look elsewhere for a source of additional revenue for education if it wants to fund some or all of the Kirwan Commission recommendations. All told, SB 2 would require the state to expend substantial sums on legal fees; likely never go into effect; lead to higher prices if it did; shift advertising spending to other states; harm both consumers and businesses, in particular those dependent upon ad revenue; and undermine popular ad-supported business models. In other words, it would do more considerably harm than good.

FTC Commissioner Wilson's FSF Conference Keynote on Free Markets, (De)Regulation, and Privacy Legislation

Commissioner Christine S. Wilson of the U.S. Federal Trade Commission gave an important keynote address at the Free State Foundation's Twelfth Annual Telecom Policy Conference. "Broadband Beyond 2020: Competition, Freedom, and Privacy" was held on Tuesday, March 10 at the National Press Club in Washington, DC. As in previous years, a stellar lineup of presenters offered valuable insight and food for thought on a wide range of topics. Commissioner Wilson's speech was no exception.

In an address entitled "Free Markets, Regulation, and Legislation: A Place for Everything, and Everything in Its Place," the Commissioner proclaimed her strong support for free markets, competition, and deregulation; explained how government intrusion leads to "toxic outcomes" for consumers; touted the benefits of the FCC's Restoring Internet Freedom Order; and laid out both high-level principles and specific objectives that federal privacy legislation should achieve.

Using the Interstate Commerce Commission and the Civil Aeronautics Board as historical examples, Commissioner Wilson described how consumers suffer when government prioritizes other "public interest" objectives over competition. A better approach, she argued, is limited intervention.

In that vein, she expressed her strong support for the President's deregulatory agenda. In particular, his Executive Order requiring that, for every new regulation created, two must be eliminated. She highlighted the FTC's efforts to date to eliminate unnecessary rules and expressed her belief that there is more work to be done.

The Commissioner also praised the FCC's Restoring Internet Freedom Order and, more broadly, touted the benefits of competition laws over proscriptive rules, asserting that "[t]he replacement of the FCC's extensive regulatory framework with the FTC's broad and flexible Section 5 principles will protect consumers while also facilitating investment and innovation."

On the topic of consumer privacy, Commissioner Wilson identified specific market failures (i.e., asymmetric information and "privacy resignation") that, in her opinion, justify federal privacy and data security legislation. Such a bill, she argued, should (1) incorporate a harm-focused, risk-based approach; (2) hold entities that handle data accountable; (3) empower informed consumer decision making through transparency; and (4) take competition into account.

In addition to these "high-level principles," she recommended that federal privacy legislation accomplish the following specific objectives: designate the FTC as the enforcing agency; provide for civil monetary penalties; apply to non-profits and common carriers; include "targeted and narrow" rulemaking authority; preempt state laws; and NOT create a private right of action.

Commissioner Wilson's prepared remarks are available on the FTC's website here.

Washington Times Publishes FSF Scholars' Take on Modernizing Copyright Law

Free State Foundation President Randolph May and I published an op-ed in the Washington Times. 

In the piece, we take on issues involving online copyright infringement and the need for increased online platform accountability -- issues we examine in more detail in our new book, Modernizing Copyright Law for the Digital Age: Constitutional Foundations for Reform (Carolina Academic Press, 2020). Our thanks go to the Washington Times for running our op-ed. It was published in the March 11 print edition (pictured here), and the online edition is available here.

FSF Conference Keynote by Robin Colwell, Special Assistant to the President for Economic Policy

One of the many highlights of the Free State Foundation's Twelfth Annual Telecom Policy Conference held at the National Press Club in Washington, DC on Tuesday, March 10, 2020: A keynote address by Robin Colwell, Special Assistant to the President for Economic Policy.

In her remarks, Ms. Colwell stressed the importance of broadband to the economy, innovation, and citizens' lives. She mentioned several pieces of relevant, pending legislation, including the Secure and Trusted Communications Networks Act, the Secure 5G and Beyond Act, and the Broadband DATA Act. And she discussed administration efforts to close the digital divide, such as the FCC's Rural Digital Opportunity Fund and the USDA's ReConnect Program.

On the topic of 5G, she assured that "the Administration is pushing aggressively on all fronts to ensure American leadership" and laid out three primary goals: deploying 5G rapidly using a free enterprise-driven approach; promoting security in all aspects of 5G networks worldwide; and maintaining American leadership in 5G research and development.

Ms. Colwell also praised the FCC's recent C-band Order as "a huge step in the right direction" in making critical mid-band spectrum available to the wireless industry.

Finally, she noted that a Presidential Summit on 5G Innovation is scheduled to take place in April.

Ms. Colwell's prepared remarks can be accessed here.

Deputy AG Rosen's FSF Conference Keynote on Competition & Innovation

The Free State Foundation held its Twelfth Annual Telecom Policy Conference on Tuesday, March 10, 2020, at the National Press Club in Washington, DC. The opening keynote address was delivered by U.S. Deputy Attorney General Jeffrey Rosen. DAG Rosen's address addressed topics in antitrust, competition, and innovation. The prepared text of his address is available online at the Department of Justice's website. John Eggerton's write-up for Multichannel Newson DAG Rosen's address is also available online.  

FSF's Twelfth Annual Telecom Policy Conference - Agenda Available

WHAT: FSF's Twelfth Annual Telecom Policy Conference

WHERE: National Press Club, 529 14th Street, NW, Washington, DC

WHEN: Tuesday, March 10, 2020 – 8:45 AM - 2:15 PM

The Free State Foundation will hold its Twelfth Annual Telecom Policy Conference on Tuesday, March 10, 2020, at the National Press Club in Washington, DC. This is the guarantee: As in previous years, a truly outstanding lineup of senior officials and prominent experts from the FCC, other government agencies, industry, academia, and think tanks will discuss and debate the most important communications and Internet policy issues of the day, including Internet freedom and net neutrality, broadband deployment, competition policy, spectrum policy and the 5G rollout, privacy regulation, the video services landscape and regulatory environment, universal service, and more.

Confirmed speakers for the conference have been announced:

Alden Abbott – General Counsel, Federal Trade Commission 

James Assey – Executive Vice President, NCTA – The Internet & Television Association

Theodore Bolema, Executive Director of the Institute for the Study of Economic Growth in the Department of Economics at Wichita State University, and Member of FSF's Board of Academic Advisors

Tim Brennan - Professor of Public Policy and Economics, University of Maryland, Baltimore County, and Member of FSF's Board of Academic Advisors

Mary Brown – Senior Director for Technology and Spectrum Policy, Cisco

Brendan Carr – Commissioner, Federal Communications Commission

Jim Cicconi – Senior Executive Vice President-External and Legislative Affairs, AT&T

Mignon Clyburn – Former Commissioner, Federal Communications Commission, and Fellow at Open Society Foundations

Maurita Coley – President and CEO, Multicultural Media, Telecom and Internet Council

Robin Colwell – Special Assistant to the President for Technology, Telecom, and Cybersecurity Policy

Michelle Connolly – Professor of the Practice of Economics, Duke University and Member of FSF's Board of Academic Advisors

Seth Cooper – Director of Policy Studies and a Senior Fellow, Free State Foundation

Valerie Green – Executive Vice President & Chief Legal Officer, Ligado Networks

Thomas Johnson – General Counsel, Federal Communications Commission

Andrew Long – Senior Fellow, Free State Foundation

Randolph May – President, Free State Foundation

Michael O'Rielly – Commissioner, Federal Communications Commission

Ajit Pai – Chairman, Federal Communications Commission

Jeffrey Rosen – Deputy Attorney General, Department of Justice

Christine Wilson – Commissioner, Federal Trade Commission

THE CONFERENCE AGENDA IS HERE!

REGISTRATION IS COMPLIMENTARY, INCLUDING CONTINENTAL BREAKFAST AND LUNCH. BUT YOU MUST REGISTER TO ATTEND.

REGISTER NOW HERE!

#FSFConf12