Ohio AG Sues To Declare Google Search A Public Utility

 In light of rising concerns about the Cancel Culture, and specifically various actions by the #BigTech social media sites, there have been increasing calls for regulation of Facebook, Google, Twitter, and the like as common carriers. In other words, imposing regulation akin to traditional public utilities which, generally, are subject to nondiscrimination obligations.

For example, Justice Clarence Thomas has suggested the idea in a concurring opinion in Biden v. Knight First Amendment Institute. I wrote about Justice Thomas's opinion here in Part 3 of my "Thinking Clearly About Speaking Freely" series.

Now comes the Ohio Attorney General suing in an Ohio state court to have Google's search engine declared a utility-style common carrier subject to common carrier obligations.

While I'm concerned about many of the actions taken by the dominant social media platforms, I'm reluctant, at least at this point, to support moves to treat them as common carriers. As I explained recently here, they don't all hold themselves out indiscriminately to serve all comers in the way that traditional public utilities do, and they don't all necessarily exercise the same degree of marketplace dominance. These are the two most prominent indicia of common carriage at common law.  Moreover, common carrier regulation, more often than not, has been applied in a way that discourages investment and innovation, even when, in theory, the common carrier regime incorporates "reasonableness" standards that allow for some flexibility.

And aside from all that, with regard to the Ohio AG's action, I worry about a patchwork of state regimes imposing different regulatory requirements on what truly are national and international business operations.

No doubt the Ohio lawsuit bears close watching.

The History of Our Future

According to a report in the March 13^thedition of Communications Daily, former FCC Chairman Tom Wheeler said something at a recent Brookings Institution event which caught my eye. Mr. Wheeler, now a Visiting Fellow in Governance Studies at Brookings, said: “The rules that have worked for industrial capitalism are no longer sufficient for internet capitalism.”

I take it Mr. Wheeler made the comment, at least in part, in the context of a discussion regarding the release of his new book, "From Gutenberg to Google: The History of Our Future." I like that catchy title. I've ordered the book, and I may well like more than the title when I have a chance to read the book – probably after the FSF Eleventh Annual Telecom Policy Conference on March 26! To be candid, though, while his book is billed as a "history of the future," about which I'm not so sure, based on Mr. Wheeler's history as FCC chairman, I suspect I'll find enough with which to disagree to report back later.

In the meantime, back to the notion that the "rules that have worked for industrial capitalism are no longer sufficient for internet capitalism." I get there is an uneasiness, warranted in my view, with actions and practices of what is often referred to as "Big Tech" or, if you prefer the stock market jargon, the "FAANGs". That would be Facebook, Apple, Amazon, Netflix, and Alphabet's Google. Indeed, at one extreme, Senator Elizabeth Warren has urged the "break up" of Facebook, Google, and Amazon.

At the Brookings event, Communications Daily reports that Mr. Wheeler declared Facebook isn't a neutral carrier of information but instead exercises editorial control over what users see. In other words, he is asserting Facebook is more than a "mere platform" as the company has long maintained. Mr. Wheeler suggests that Facebook should release the open application programing interfaces showing how it gathers and publishes content. To like effect, Senator Lindsey Graham, who happens to be the Chairman of the Senate Judiciary Committee, said just last week that the algorithms used by Facebook and Google should be released and scrutinized for bias.

So, I get the uneasiness that many feel regarding social media's dark side, and I understand the need for Congress and other appropriate public policymakers to address matters such as the privacy and data security practices of Internet providers.

But I get a sense of unease, too, when Mr. Wheeler apparently suggests a new set of doctrines by conjuring up the notion of "internet capitalism." Here's Merriam-Webster's dictionary definition of capitalism:

: an economic system characterized by private or corporate ownership of capital goods, by investments that are determined by private decision, and by prices, production, and the distribution of goods that are determined mainly by competition in a free market

I prefer to stick with accepted precepts and first principles. In my view, we are more likely to get the law and policy right for Internet providers and platforms if we don't abandon basic precepts and first principles. For me, capitalism based largely on private decision-making in free markets is a first principle. Therefore, whatever new restrictions and remedies, if any, that may be needed to deal with today's Internet maladies should be considered in the context of the capitalist framework that has been central to the American experience since the nation's Founding. There is no reason to resort to today's suddenly fashionable socialist frame or perhaps tomorrow's fashionable "internet capitalism."

Now, it is important to emphasize, although there should be no need to do so, that Webster says capitalism is an economic system characterized "mainly" by competition in a free market. I certainly agree. Thus, it is clear that proper regulation of private entities – say, for example, properly formulated privacy regulation and data protection mandates – is not inconsistent with a traditional understanding of capitalism as favoring "competition in a free market" as the default presumption.

For capitalism to function properly – indeed for America's larger experiment as a democratic Republic to thrive – adherence to the rule of law is essential. This leads me to mention one other matter that may cause unease. At the Brookings event, Mr. Wheeler bemoaned the fact that, in his view, the fast pace of technological change is short-circuiting democratic processes so "authoritarians" can offer "slogans instead of solutions." As examples, he held up "The Wall" and "Brexit." Mr. Wheeler is not alone, of course, in raising concerns about how speech is employed – some say "weaponized" – on the Internet. But I worry because some of his words and actions during his FCC tenure supported placing more power in the hands of the government to regulate the content of speech than was warranted.

I don't want to debate the merits of any such particular policies here. Rather, the point I wish to emphasize is that, in addressing any legitimate concerns, adherence to the rule of law means nothing if it does not mean adherence to the First Amendment's free speech guarantee. Just as capitalism doesn't mean there cannot be any regulation, the First Amendment doesn't mean that there cannot be any curtailment of speech whatever. But accepted First Amendment jurisprudence makes clear that any curtailment can only be allowed if the government demonstrates a compelling justification and employs the least restrictive means possible to achieve the asserted interest.

And, above all this, which sadly is often misunderstood: The First Amendment is intended to impose limits on government's power to curtail speech, not to empower government improperly to limit the speech of private parties – and, yes, that includes Internet providers and platforms. In a rule of law regime that protects liberty, there are lines in the Constitution that must not be crossed in the name of some claimed "higher purpose," whether such purpose be in the minds of this or that Congress, President, or particular government administrative agency official.

Well, those are some thoughts provoked by my reading about the Brookings event and about Tom Wheeler's new book, "From Gutenberg to Google: The History of Our Future." Even though I may disagree with parts of it, I bet the book will be a worthwhile read. Mr. Wheeler is a long-standing amateur historian, and whether looking back in history, or forward into the future, it is important to discuss, in a civil fashion, and across all kinds of aisles, the ideas he addresses.

Oh, and finally, speaking of discussing important ideas – that's exactly what we will be doing at the Free State Foundation's Eleventh Annual Telecom Policy Conference on Tuesday, March 26, at the National Press Club. I hope you will join us. We are nearing capacity, though, so please register now if you wish to attend. You may register here, and a flyer listing the speakers is here.  

A 3 Minute Read Gone Bad

Jared Whitley has a piece titled "Facebook Is Not the Bad Guy" which The Weekly Standard ran on July 30. The piece advertises itself, right at the top, as a "3 min read."

Thankfully, it wasn't any longer. Because, say, if it were a "6 minute read," it might have been twice as flawed as it already is.

The premise of the piece is that, when it comes to data privacy and security concerns, the focus on Facebook, and presumably Google, Amazon, and other web giants, is misplaced. Mr. Whitley suggests "the media have been quite gleeful in their cheering of Facebook's recent bad news." Then, he claims "we're picking on the wrong bad guys." According to Mr. Whitley: "Telecom companies – AT&T, Verizon, Comcast – have access to more of our data and treat it with nowhere near the scruples that Silicon Valley does."

Even a cursory read of Mr. Whitley's piece will demonstrate he produces no evidence to support the claim that the "telecom companies" [he means: Internet service providers or ISPs] lack the "scruples" of Facebook, Google, and the other web giants. Mr. Whitley tosses out character-bashing bombs based on nothing more than his assertion "that they're eager to get into the digital advertising space that Google and Facebook dominate."

The reality, whether Mr. Whitley wants to admit it or not, is that Facebook has been in the news because its conduct and practices regarding privacy and data security have been problematic, even if not necessarily unlawful. Facebook's senior executives, including Mark Zuckerberg and Sheryl Sandberg, have acknowledged the company's privacy and data security shortcomings surrounding the Cambridge Analytica matters and other incidents.

My purpose here is not to pile on to Facebook to build a case that it is a "bad guy" – to use Mr. Whitley's terminology. Or to assert that a case has been made for heavy-handed government intervention of Facebook or Google. Rather my purpose is to show that if Mr. Whitley, or anyone else, is concerned about online privacy, it's unwise to ignore the web giants because, to paraphrase Willie Sutton, that's where the market power – and hence money – is.

It may be true, as Mr. Whitley claims, that the Internet service providers like Comcast and Verizon are eager to get into the digital advertising space. Sure enough. But it is also true, as he concedes, that in this space "Google and Facebook dominate."

As of December 2017, Google and Facebook accounted for 73% of the U.S. digital advertising market. And as of July 2018, Google had access to over 86% of all Internet searches in the United States and controlled almost 50% of the web browsing market. Despite its recent troubles, in July 2018, Facebook still controlled 54% of the social media market. The market shares of these web giants indisputably are significantly larger than that of any single Internet service provider.

In a February 2016 paper, “Online Privacy and ISPs: ISP Access to Consumer Data is Limited and Often Less than Access by Others,” Peter Swire and his colleagues stated that 70% of Internet service provider traffic would be encrypted by the end of 2016. Under that scenario, ISPs, at best, only have access to 30% of consumer data. Encryption keeps getting ever more prevalent so, in 2018, ISPs likely have access to even less consumer data. In other words, the Googles and Facebooks of the world, not the ISPs, have far greater access to consumers’ personal information than ISPs.

In the face of this reality regarding market power dominance in the digital advertising space, I'm baffled as to why Mr. Whitley felt the need to portray Internet service providers as the "bad guys" in order to defend Facebook, Google, Amazon, or other web companies. In a two-sided market, ISPs connect consumers to Internet access and web companies like Facebook to deliver content. Both sides have an incentive to collect consumer data to deliver targeted advertising and to respond to evolving consumer demand with innovative, pro-consumer offerings. Done right, this enhances overall consumer welfare.

What we don't want to do (per Mr. Whitley) is to engage in unfounded sweeping generalizations. Instead, we want to have a regulatory regime that emphasizes consumer disclosure and consumer choice. And we want to target bad actors – "bad guys" if you will – for appropriate sanctions if they are found, after proper procedure, to have committed unfair or deceptive practices or other abuses.

And we want to make even a "3 min read," or perhaps especially a "3 min read," accurate, not rife with unfounded accusations.

Internet Giants Aim to Preserve Their Regulatory Advantage

Internet giants Google, Amazon, and Facebook, among others, announced, through their trade association, the Internet Association, that they plan to join legal challenges to the FCC’s recent Restoring Internet Freedom Order (RIF Order). Internet Association President & CEO Michael Beckerman issued the following statement in conjunction with the announcement:

The final version of Chairman Pai’s rule, as expected, dismantles popular net neutrality protections for consumers. This rule defies the will of a bipartisan majority of Americans and fails to preserve a free and open internet. IA intends to act as an intervenor in judicial action against this order and, along with our member companies, will continue our push to restore strong, enforceable net neutrality protections through a legislative solution.

The recently-repealed 2015 Open Internet Order approach is not so neutral at all, however, in its practical effect. The Order had the effect of supporting the imposition of stringent privacy restrictions on Internet service providers (ISPs), like Comcast and Verizon Wireless, which did not apply to Google, Amazon, and other major Internet companies that are among the largest collectors of personal consumer data. This approach, under which the largest Internet giants are subject to less stringent privacy regulation, attracted strong bipartisan criticism, as former Federal Trade Commission Chairman Jon Leibowitz, a Democrat appointee, explained in April 2017:

By creating a separate set of regulations that bind only internet service providers — but not other companies that collect as much or more consumer data — with heightened restrictions on the use and sharing of data that are out of sync with consumer expectations, the FCC rejected the bedrock principle of technology-neutral privacy rules recognized by the FTC, the Obama administration, and consumer advocates alike. Protecting privacy is about putting limits on what data is collected and how it is being used, not who is doing the collecting, and for that reason, a unanimous FTC — that is, both Democratic and Republican commissioners — actually criticized the FCC’s proposed rule in a bipartisan and unanimous comment letter as “not optimal,” among 27 other specific criticisms of the rule (emphasis added).

The 2015 Order also imposed several strict conduct regulations on ISPs like Comcast and Verizon Wireless. These public utility-like neutrality limitations were not applied to system administrators for business networks, to cloud backup services during uploads of data from customers, or to online gaming services that may throttle bandwidth at certain times to prevent their services from overloading and crashing. It also does not apply to traffic on private networks operated by “edge providers” like Google and Amazon.

And we’ve now learned that it did not apply to Apple’s sub rosa throttling of iPhones in what Apple now claims – when the throttling was discovered – was an attempt to preserve the battery life of phones. While Apple argues that this undisclosed throttling was needed as a measure to protect iPhone owners, it could also have the effect of encouraging more iPhone owners to pay to upgrade from their older devices instead of replacing their batteries. In any event, Apple did not disclose the practice to its consumers.

Tom Evslin, former chief technology officer for the state of Vermont and former chief executive of VoIP provider ITXC Corp, described in August 2017 how Google and Amazon engage in the same throttling and prioritization behavior that they seek to prohibit ISPs from doing:

In fact, however, web giants like Google and Amazon have private networks that connect to the internet in many locations. They have data caches (think of them as content warehouses) around the world. Their websites do pop up faster than yours because their bits travel mostly on their private networks and avoid internet backbone and interchange congestion. In other words, they have their own private fast lanes. You can’t achieve this speed for your website unless you build a private network of your own (unlikely) or host your website on Amazon or Google, in which case they may share some of their private access network. I have hosted services on Amazon, and they charge me more depending on how many locations from which I want my data served. In other words, faster is more expensive on their network.

Conveniently these private fast lanes are specifically exempt from the 2015 Federal Communications Commission’s Open Internet (aka “net neutrality”) regulations, which reclassified basic internet access service in a way that lets the FCC micromanage it and prohibit public “fast lanes.” The members of the Internet Association are “edge services,” so they are unregulated by this rule.

Regardless of how much Internet Association members like Google and Amazon may claim they want to bring back “net neutrality” to protect consumers, a significant impact of their actions is to try to re-impose regulation to protect themselves from ISP competition. If they succeed, the result will be to keep more stringent regulations on their ISP competitors. To the extent that regulation of providers of services in the Internet ecosystem is needed, it at least should be a somewhat uniform enforcement regime, not one so disparate that ISPs are regulated in a much more heavy-handed manner than Internet web giants like Google and Amazon.

"The Next Google"

In advance of the filing of reply comments in the FCC’s Restoring Internet Freedom proceeding (a.k.a. the “net neutrality proceeding”), I’ve been thinking about the “next Google.”

You know the one to which I’m referring. I’ve been in countless debates regarding net neutrality regulation over the past decade when a Google representative – arguing in favor of stringent net neutrality regulation – has said: “We’re not concerned about Google because we’re big enough to protect ourself. We’re concerned about the next Google.”

Other pro-net neutrality advocates, mimicking Google, often invoke the “next Google” as justification for their pro-regulatory position. For example, in a blog published on April 29, 2014, then-FCC Chairman Tom Wheeler said he would impose Title II public utility regulation to protect the “next Google.”

Even President Obama adopted the meme in August 2014, declaring: “[T]he position of my administration, as well as a lot of the companies here, is that you don’t want to start getting a differentiation in how accessible the Internet is to different users. You want to leave it open so the next Google and the next Facebook can succeed.”

Worrying about the next Google or the next Facebook got me thinking about an article published in the Wall Street Journal on August 9, 2017, titled, “The New Copycats: How Facebook Squashes Competition from Startups.” Read it yourself if you want a real basis for worrying about the “next Google” or “next Facebook.”

Here are just a couple of excerpts:

“Silicon Valley is dominated by a few titans, a development that’s fundamentally altering the nature of America’s startup culture. While it’s as easy as ever to start a company, it is getting harder to grow fast enough and big enough to avoid getting either acquired or squashed by one of the behemoths.”

“The deep pockets of giants such as Facebook, Alphabet Inc.’s’ Google, Apple Inc. and Amazon make it increasingly difficult for startups to compete and stay independent. The four firms have a combined market capitalization of almost $2.5 trillion, a rough equivalent to the annual gross domestic product of France.”

The article details the strategies and tactics employed by Facebook, Google, and the other Silicon Valley behemoths (to stick with the WSJ’s terminology) to either squash any emerging rivals, or to buy them out. Hence, if you are truly concerned about the “next Google” or the “next Facebook,” what you should worry about – much more than net neutrality – is how Google and Facebook use their undisputed market dominance, along with their “squash or acquire” tactics, to block emerging competitive threats from gaining a real foothold.

Scott Cleland, who closely tracks the financial results and market activities of the Silicon Valley titans, reported in a recent blog that public data show that Google, Amazon, and Facebook have acquired approximately 350 potential competitors to “ensure no innovative ‘garage startup’ has a plausible competitive opportunity to seriously threaten the Internet cartel’s dominance.” And he concluded:

The most recent data from second quarter 2017 earnings show that Google and Facebook have a digital advertising cartel that commands 96% of all digital advertising growth. The analysis shows that it isn’t broadband providers that content providers must fear will engage in anti-competitive or discriminatory behavior, it is the Google-Facebook ad cartel.”

Not surprisingly, there are increasing calls for antitrust or other government authorities to investigate and sanction – or even regulate as public utilities – Google and Facebook, and perhaps other Internet behemoths (to stick with the WSJ’s terminology.) I’m not advocating such action here. In my view, in a dynamic market environment such as that presented by the present Internet ecosystem, caution is warranted before either antitrust or regulatory remedies are imposed. The costs to innovation and investment to “de-FANG-ing” the Internet giants may well outweigh the benefits.

What I am actually advocating is this: The next time you hear the “next Google” invoked as a justification for imposing stringent, inflexible net neutrality regulation (whether by “Title II” or any other name), please take such ritual incantation with a big grain of salt.

Here is what I think that Google, Facebook, Amazon, and the other Silicon Valley giants really may be worried about. That absent rigid net neutrality anti-discrimination mandates, emerging competitors might have an opportunity to strike deals with Internet service providers that give them the opportunity to differentiate themselves with innovative market offerings that appeal to new consumer demands. Or that absent an absolute ban on paid prioritization, new entrants might have an opportunity to strike deals with Internet service providers that allow them more readily to offer innovative new applications. An absolute ban on paid prioritization may prohibit start-ups from giving assurances regarding the speed and reliability of proposed offerings that are necessary to attract investors and consumers.

If you really believe that Google is worried about the “next Google” not emerging, I’ve got a bridge I’d like to sell you at a bargain price. Don’t get me wrong: I’m not saying that Google should be worried about protecting the next Google – only that it’s fanciful to think that it is. When Google claims to be, that’s reason enough to question the validity of whatever proposition it’s peddling.

One final thought: Google – back when it truly was the “next Google” – emerged and grew to achieve market dominance at a time when no heavy-handed net neutrality regulations, much less Title II public utility regulations, were in place governing Internet service providers’ practices.