Constitution Day at the FCC

Constitution Day officially is September 17, 2016. This year marks 229 years since the signing of the Constitution on September 17, 1787, in Philadelphia.

Not many people celebrate Constitution Day, but I’ve always thought it worthy of commemoration. It’s an opportunity to take a moment – or maybe more than a moment – to think about the Constitution’s meaning and its relevance to today’s issues.

Over the years, I’ve written often about the ways the FCC’s actions implicate constitutional strictures and constitutional values. Because the FCC regulates media, communications, information services, and now the Internet, it is not surprising that many of the agency’s actions implicate the First Amendment’s free speech guarantee.

While many of the FCC’s actions present a target-rich environment, today I want to focus on just one current proceeding that implicates several different constitutional provisions – and that appears to run up against constitutional constraints.

The proceeding I have in mind is the Commission’s proposal for the government to mandate a new design, with new functions and features, for video navigation devices and apps, and, now, in its latest iteration, even to impose a compulsory license on video distributors that will dictate the terms and conditions under which they must make available their video programs to all who wish to take them.

Let’s consider the ways this proposal implicates constitutional strictures.

First, whether or not the FCC acknowledges this explicitly in so many words, the agency proposes to require video distributors like Comcast, AT&T, Charter, Verizon, CenturyLink, Frontier, and the multitude of others, to utilize a government-prescribed format, rather than one of their own choosing, for presenting a navigation search menu. And the video distributors will not be permitted to “discriminate” in the way they present the search menu content and functions.

No less than a government diktat regarding the content of video programing, a government diktat prescribing the permissible presentation, arrangement, and content of a search menu violates the First Amendment’s free speech guarantee as well. In light of the acknowledged competitiveness of the video distribution market, including the competitiveness of the navigation device and app market segment, the government can offer no compelling reason for restricting the speech of the video distributors.

Second, the FCC’s proposal most likely runs afoul of the Constitution’s Intellectual Property Clause because it almost certainly would lead to violation of copyright owners’ rights. As the Copyright Office explained in its August 3, 2016, letter to members of Congress: “The rights protected by the Copyright Act are ‘exclusive’ to the copyright owner, meaning that the copyright owner generally has full control as to whether or how to exploit his or her work, including by entering into licensing agreements.” Even while the FCC has continued to selectively leak revisions to its proposal, nothing has changed the fact that copyright protection would be jeopardized under a regime that requires programming to be shared across multiple devices under an open standard license.

And now, the FCC appears – again without explicitly acknowledging this in so many words – intent on imposing a new compulsory license that would require copyrighted programming to be made available to all entities on a non-discriminatory basis. Of course, such a compulsory license is the very opposite of the exclusive control which Article 1, Section 8, Clause 8 of the Constitution confers on copyright owners: "To promote the progress of science and useful arts, by securing for limited times to authors and inventors the exclusive right to their respective writings and discoveries." For a full historical and jurisprudential examination of the Founders’ intent regarding the Intellectual Property Clause, please see my book, co-authored with Free State Foundation Senior Fellow Seth Cooper, The Constitutional Foundations of Intellectual Property.

It is true that the FCC doesn’t enforce copyright violations and is not a repository of copyright expertise. All the more reason for the Commission to consider carefully the views of the government entity – the Copyright Office – possessing specific copyright expertise and charged with advising Congress regarding copyright policy. The FCC, like all government agencies, has a responsibility to uphold constitutional values. If the FCC acts consistently with its responsibilities, it will pull back its video navigation proposal.

Finally, the FCC keeps revising its proposal “on the fly.” And now, in its latest iteration, the proposal includes the compulsory license discussed above. This appears to be – although all we have to go on are FCC Chairman Tom Wheeler’s blog and a minimal “fact sheet” – a significant departure from the original proposal. As a matter of due process – even aside from compliance with Administrative Procedure Act notice and comment requirements – the agency should put its latest revised proposal out for public comment in a “Further Notice of Proposed Rulemaking.”

Such a “Further Notice” would enhance the prospects that the Commission would end up with a result that constitutes sound policy and comports with the law – or at least a result that comes closer to those obvious goals. Following this course seems to be required as a matter of fundamental fairness, which is what the Constitution’s due process clause is all about.

Again, September 17 is Constitution Day. Don’t let it pass without giving some thought to what the Founders bequeathed to all of us.

Truth be told, the FCC commissioners ought to consider everyday Constitution Day as they conduct the agency’s business. But, for now, perhaps Chairman Wheeler and his fellow commissioners will use the occasion of this particular Constitution Day to stop and reflect on how the agency’s problematic navigation device proposal comports with important constitutional constraints and values.

Carla Hayden Should Focus on Modernizing Copyright Office

On September 14, 2016, Carla Hayden was sworn in as the first female and first African American Librarian of Congress. The Librarian of Congress oversees the Copyright Office, which has not seen any major reforms since the 1970s. As FSF President Randolph May stated in a March 2016 blog, if the “Copyright Office for the Digital Economy Act” is not adopted, Ms. Hayden will need to focus her efforts on modernizing the Copyright Office to achieve an easily accessible, efficient, and reliable registration and recordation system.

Congratulations to Carla Hayden!

FCC Commissioner Pai Introduces Plan to Close the Digital Divide

Today, FCC Commissioner Ajit Pai introduced his “Digital Empowerment Agenda,” which would increase the availability and affordability of broadband and close the digital divide. Commissioner Pai’s plan would establish gigabit opportunity zones to bring broadband to the nation’s most economically challenged areas, extend mobile broadband to rural areas with high costs and low population density, remove regulatory barriers to allow for more private investment and deployment of next-generation broadband networks, and promote entrepreneurial activity by eliminating old rules that create barriers to new technologies and competitors.  

Commissioner Pai’s agenda is a tremendous initiative to eliminate the digital divide and provide benefits to consumers throughout the U.S. economy.

FCC Analysis Shows No Evidence of Market Power in BDS Market

This week, George Ford, Chief Economist at the Phoenix Center for Advanced Legal & Economic Public Policy Studies, published a paper entitled “How (and How Not) to Measure Market Power Over Business Data Services (BDS).” Dr. Ford finds that the analysis of the FCC’s white paper “Empirics of Business Data Services” by Professor Marc Rysman “is unsupported by basic economics and good econometrics, and is thus incapable of providing any meaningful evidence regarding the presence or absence of market power.” 

I wrote in a June 2016 Perspectives from FSF Scholars that the FCC’s analysis lacked consistent data collection and a robust understanding of the variables that impact BDS prices. Moreover, FSF President Randolph May and Senior Fellow Seth Cooper stated in a July 2015 Perspectives from FSF Scholars that the FCC’s Notice of Proposed Rulemaking is infected with special pleading and rent-seeking. If adopted, the FCC’s NPRM may have the unintended consequence of creating market power in the BDS market.

AT&T Exempts DirecTV and U-verse Content from Data Caps

On September 7, 2016, AT&T announced that its mobile consumers could access content from the DirecTV application and the U-verse application without the data counting towards consumers' monthly data caps. Zero-rated programs, also known as free data programs, are very popular among consumers. In dynamically competitive markets, such as the video and mobile broadband markets, these innovative offerings give consumers additional choices and often provide low-cost options for low-income consumers.

Access Now's Position on BEREC Guidelines Would Restrict Access

In an “Action Alert,” a group called Access Now continues to take a position that, if adopted, ironically would have the effect of impeding access to Internet services, especially to lower-income persons. Here’s why. 

Access Now urged the European Union’s (EU’s) Body of European Regulators of Electronic Communications (BEREC) to adopt rigid guidelines regarding “net neutrality,” including guidelines that would prohibit on a blanket basis any form of so-called zero-rating. Zero-rating generally refers to various types of service offerings whereby access to specified websites or applications does not count towards any data cap in place. 

Rather than adopt the rigid position advocated by Access Now and others, the BEREC Guidelines released on August 30, 2016, permit the various national regulatory authorities to exercise discretion to determine, on a case-by-case basis, whether a particular zero-rating practice should be prohibited because, in effect, it is discriminatory or anticompetitive. This is the case-by-case approach I advocated, along with my Free State Foundation colleague, Seth Cooper, in a letter to BEREC on July 26. 

Here is what we said, in part, in that letter:

“Free data or zero rated plans do not block or restrict access to websites that are not participants in the plans subscribers sign up for. Subscribers to free data plans, who are not typically high-volume users, can still access websites of their choice. Moreover, wireless consumers do not have to sign up for free data plans. They may choose other plans as they see fit. A ban would deprive consumers of the ability to choose a plan that they conclude best fits their needs.

In view of the pro-adoption, pro-consumer benefits conferred by free data or zero-rated plans and the lack of any concrete evidence of consumer harm inherent in such plans – discussed at greater length in the two attachments appended hereto –we urge BEREC to adopt implementing guidelines that are consistent with the case-by-case approach contained in the EU rules.”

Now, having failed to get BEREC to adopt an inflexible ban on zero-rated services, Access Now is suggesting that “‘sub-Internet’ offers like Facebook’s Free Basics” are incompatible with the BEREC Guidelines and, therefore, banned.

This is wrong. However the Guidelines are applied to entities that are Internet Service Providers (ISPs), by their terms they do not appear to apply to Facebook or similar websites/applications, which the BEREC Guidelines refer to as Content and Applications Providers (CAPs). Access Now suggest that Facebook’s Internet Essentials offering, which doesn’t allow unrestricted access to all sites reachable on the Internet, is a “sub-Internet” service subject to the zero-rating provisions. But it appears that the Guidelines intend to differentiate between ISPs and CAPS, so that whatever “sub-Internet” services may be, they linked to offerings by ISPs, not CAPS like Facebook.

Aside from this reading of the Guidelines, at bottom, it is important to keep foremost in mind this important point, which we made in our submission to BEREC. Innovative zero-rated plans share an important characteristic: “they offer consumers an attractive low-cost option for using wireless data services.” For this reason, if the position of Access Now and its allies were to be accepted, access to the Internet, especially access by low-income persons, would be restricted rather than expanded. 

With Strong IP Protections, Film and TV Made $131 Billion in 2014

The Motion Picture Association of America (MPAA) announced new figures regarding the economic contribution of the motion picture and television industry to the United States economy. Here are some of the key findings regarding the industry’s economic contribution:

• The industry contributed $131 billion in sales to the overall economy in 2014 (up 2% from 2013).

• The industry supported 1.9 million jobs and $121 billion in total wages in 2014.

• The industry is comprised of nearly 89,000 businesses in total, located in every state in the country. These are mainly small businesses; 84% employ fewer than 10 people.

• The industry made over $41 billion in payments to more than 345,000 local businesses in 2014.

• The industry generated $19.3 billion in public revenues in 2014 from sales taxes on goods, state income taxes, and federal taxes including income tax, unemployment, Medicare and Social Security, based on direct employment in the industry.

The motion picture and television industry’s contributions to the U.S. economy would not be possible without strong intellectual property (IP) rights protections. Although online piracy is still a huge problem that has the effect of destroying jobs and investment, despite this loss, Americans still benefit from hundreds of billions of dollars in economic activity generated by the motion picture and television industry.

Strong IP rights protections promote creativity, innovation, and investment by content creators and by artists and entrepreneurs throughout the entire economy. In the motion picture and television industry and other creative industries, consumers, ultimately, are the beneficiaries of such innovation and investment.

Thinking Things Through IV: Competition and Regulation

Five years ago I did a series of posts – actually only three – which I titled “Thinking Things Through.” I no longer recall why I abandoned the title after “Part III.” But I’ve decided to resurrect it now for a new series of posts with the idea that it’s an appropriate time to reflect on where matters stand as the Tom Wheeler-led Federal Communications Commission (presumably) draws to a close – and to look ahead.

In these “Thinking Things Through” posts, I intend to engage in such thinking at a fairly high level – a “macro” level if you will – rather than to address the nitty-gritty details that typify argumentation in particular proceedings. I understand, of course, that in many instances the nitty-gritty details are important, perhaps even determinative, and that they necessarily are a subject of dispute. But often, in the context of such back-and-forth dueling arguments, larger principles and ideas get lost – or deliberately ignored – in the minutiae.

So, at least for the purpose of these “TTT” posts, I propose to address some matters of importance in the context of the larger ideas and fundamental principles involved. And I propose to do so with a commitment to brevity consistent with my purpose.

So, I begin first with the topic of “Competition and Regulation.”

Early in his tenure as FCC Chairman, Tom Wheeler regularly touted what quickly became a mantra, “Competition, Competition, Competition.” And in his maiden speech at Ohio State University in December 2013, Mr. Wheeler articulated his so-called “see-saw” rule: “When competition is high, regulation can be low.” A couple of months later at the University of Colorado Law School, he repeated the see-saw rule in the exact same words: “When competition is high, regulation can be low.”

And to boot, Mr. Wheeler quoted Abraham Lincoln’s Second Inaugural Address to the effect: “As our case is new, so we must think anew, and act anew.”

I submit that when it comes to “competition and regulation,” the FCC’s actions under Mr. Wheeler’s leadership have been characterized by anything but “thinking anew.” Rather, they have been characterized by old thinking more fitting for the long-gone age of Ma Bell.

When I hear Mr. Wheeler’s “competition, competition, competition” mantra, or his “see-saw” rule, a different Lincoln quote comes to mind. In his April 1864 “Address at a Sanitary Fair,” Lincoln said: "We all declare for liberty; but in using the same word we do not all mean the same thing."

Like “liberty,” the word “competition” is accorded near universal approbation. But it should now be clear that in declaring for “competition” – even in triplicate! – Mr. Wheeler has a particularly narrow definition of the word in mind, a definition that does not comport with that of many respected regulatory economists and experts. And Mr. Wheeler has a particularly seductive purpose in mind as well: By adopting the narrowest, most restrictive view of the relevant market, he tilts his self-constructed see-saw towards more regulation.

We have seen this strategy play out over and over again during Mr. Wheeler’s tenure. A few examples:

• In adopting the Open Internet order, the Commission concededly did not perform any meaningful analysis of the Internet access market in a traditional sense, for example, by determining the number of competitors, their market shares and market trends, the prospects for additional competition, and the like. The agency did not conclude a real market failure existed. Instead, it rested its findings regarding Internet service providers’ claimed market power on a flimsy “gatekeeper” theory premised on the asserted difficulty and costs subscribers confront in switching from one ISP to another. Note that this theory necessarily is premised on the fact that there is actually more than one competitor in the market.

•  In proposing to regulate Business Data Services (formerly Special Access), the Commission suggests the relevant market for assessing competition may be as narrow as a single building, even though, as former FCC Chief Economist Tim Brennan explained in a recent Free State Foundation Perspectives, defining a geographic market as a building location does not make sense as a matter of market analysis. Moreover, the Commission appears intent on downplaying cable operators’ expanding BDS offerings in assessing marketplace competition, and downplaying the prospects for even further competition attributable to cable operator offerings.

•  Aside from all its other problematic aspects, the Commission’s proposal to adopt a new “open standard” mandate regulating the design functions and capabilities of video navigation (set-top box) devices ignores the plethora of choices consumers now have for receiving video programming from new video distribution services, devices, and apps. And, while the Commission considers a new government-imposed technical mandate, additional choices for distributing and viewing video programming become available almost every week.

•  As the Commission engages in what has become an ongoing charade of completing congressionally-mandated reports assessing competition in the mobile services and video services markets, and assessing the timeliness and reasonableness of broadband deployment, it consistently departs from past practice by simply refusing to determine the relevant markets are competitive. Among other devices, it does this, as pointed out in a recent Free State Foundation Perspectives by my colleagues Seth Cooper and Michael Horney, by refusing to acknowledge the substitutability of wireless and wireline services. And with regards to determining the reasonableness of broadband deployment, the Commission simply continually redefines “broadband” to narrow the extent of its reach in order to prevent the agency from making an affirmative reasonableness finding. This ploy, however divorced from the reality of actual consumer demand and expectations, allows the agency to claim a justification for further regulation.

Other examples could be provided. But the ones I have highlighted above show how the Commission all too frequently employs the stratagem of improperly constricting a relevant geographic or product market in an effort to portray a lack of competition – and thereby the need for maintaining or increasing regulation.

I have always acknowledged that there may be some specific geographic and product markets that, because of a lack of effective competition, should be subject to proper regulatory oversight by the Commission. But to go back to Mr. Wheeler’s metaphor, I do mean, emphatically, to say that the see-saw should not be artificially tilted towards regulation by misusing or misconstruing marketplace data in efforts to conclude competition does not exist where it surely does.

Finally, this note on a fix: With a relatively modest change to the Communications Act, Congress could prevent the invocation of mantras such as “competition, competition, competition” from substituting for rigorous economic analysis that fairly accounts for the dramatic changes that have taken place – and continue to do so – in most segments of the communications marketplace. As I first suggested in a Free State Foundation Perspectives five years ago, in recognition of the increased consumer choice that has occurred in the last two decades, Congress should require the FCC to presume, absent clear and convincing evidence to the contrary, that effective competition exists in those instances in which the agency assesses market competition.

This simple rebuttable evidentiary presumption would not itself determine the outcome of any particular proceeding. But it would make it more difficult to avoid evidence-based findings of effective competition by stratagems designed to tilt the see-saw in the regulatory direction.

Labor Day 2016

I have not been nearly as regular in writing Labor Day messages as I have with my Memorial Day, Independence Day, and Thanksgiving Day messages. I make no apologies for that, except perhaps to offer only the weak, and not entirely true, excuse that I’ve avoided overly laboring on Labor Day weekend.

But in this roiled – and still roiling – election year, with what I consider to be the flawed nominees of our two major parties, I find myself thinking about some of our past presidents, especially those who demonstrated strength of character, intelligence, thoughtfulness, and principled leadership.

As many regular readers of this space know, I often turn to Abraham Lincoln. And so it is on this Labor Day, for Lincoln had much to say that is worth contemplating concerning “labor” and its relationship to individual freedom and the American free enterprise system.

Lincoln, of course, was America’s first Republican president. I fear that far too few today know – or appreciate – that the party of Lincoln grew out of the antebellum “Free Soil, Free Labor” movement, itself grounded, of course, in the growing antislavery agitation leading up to Lincoln’s election in 1860.

As Seth Cooper, my Free State Foundation colleague, and I showed in our recent book, The Constitutional Foundations of Intellectual Property, Lincoln’s thought concerning “free labor” was grounded largely in his understanding of the meaning of the Declaration of Independence, most particularly the Declaration’s proclamation that all persons are endowed with certain inalienable rights, including “Life, Liberty, and the Pursuit of Happiness.” For Lincoln, this meant, consistent with the Lockean view, that every person enjoys a natural right to enjoy the fruits of his or her own labor. As Lincoln put it as early as 1847, “each person is naturally entitled to do as he pleases with himself and the fruits of his labor.”

Or, as Lincoln put it more colorfully: “I always thought the man that made the corn should eat the corn.”

And here is Lincoln, in his 1859 Address to the Wisconsin State Agricultural Society, eloquently connecting his understanding of “free labor” to the opportunity for individual advancement in the American free enterprise system:

The prudent, penniless beginner in the world, labors for wages awhile, saves a surplus with which to buy tools or land, for himself; then labors on his own account another while, and at length hires another new beginner to help him. This, say its advocates, is free labor – the just and generous, and prosperous system, which opens the way for all – gives hope to all, and energy, and progress, and improvement of condition to all. If any continue through life in the condition of the hired laborer, it is not the fault of the system, but because of either a dependent nature which prefers it, or improvidence, folly, or singular misfortune.

Of course, when Abraham Lincoln uttered all these words, the evil of slavery had yet to be eradicated. And more needed to be accomplished in the decades after the Civil War to protect the rights of those who had been enslaved to make meaningful the opportunity to reap the benefits of “free labor.”

That said, on this Labor Day 2016, I submit that it’s certainly worth taking at least a little time to consider what Lincoln had to say about free labor, freedom, and free enterprise. Like much of what Lincoln said, his words still resonate – and have meaning – today.

PS –  If you are interested in learning more about Lincoln and the Free Labor movement, especially including what Lincoln said about protecting intellectual property rights in the context of a person’s natural right to enjoy the fruits of his or her labor, see Chapter 10 of our book, The Constitutional Foundations ofIntellectual Property – A Natural Rights Perspective.