Memorial Day 2015

Cicero said: “The life of the dead is placed in the memory of the living.”

I have been thinking of this – in these days leading up to Memorial Day – ever since May 8th, which was the 70th anniversary of V-E day.

“V-E Day” – for Victory-in-Europe Day – commemorates the day in 1945 when the Nazi forces laid down their arms throughout Europe. For all practical purposes, May 8th marked the end of World War II in Europe.

While the 70th anniversary of V-E Day received some notice, it was not as much as I would have hoped. More than 400,000 U.S. soldiers, sailors, Marines, and Coast Guardsmen lost their lives during the war, with another 671,000 wounded. When I was growing up, with WW II’s huge import and loss of life still fresh in mind, I can remember annual V-E Day commemorations. Indeed, I recall, at a young elementary school age, my parents telling me on more than one May 8th, “Today is V-E Day.” And then taking time to explain its meaning.

I understand, of course, that as the decades pass, those most directly affected by WW II – or any war, for that matter – pass away too. And, among those still living, memories fade. This is only natural.

All the more reason why, on Memorial Day, it is well to recall Cicero’s injunction.

Or, for another way of thinking about the obligations Memorial Day imposes, recall Lord Acton’s statement that “history is not a burden on the memory but an illumination of the soul.”

So, on Memorial Day, we remember those who gave the ultimate sacrifice not only in WW II, but also in all our nation’s other wars, right up through Afghanistan and Iraq.

You can usually find me on the Mall in D.C. on Memorial Day Weekend. I am always heartened to see – and to be with – the crowds gathered to pay their respects at the various memorials, with the World War II, Korean War, and the Vietnam Memorial all in close proximity.

If you happen to be visiting a memorial this Memorial Day, or just honoring those who should be remembered in your own way wherever you may be, it may be apt to recall what Missouri Senator Thomas Hart Benton said in eulogizing John Quincy Adams, who died in the chambers of his beloved U.S. House of Representatives: “Death found him at the post of duty and where else could it have found him?”

Wherever you may be, my best wishes for a safe and memorable holiday!

PS – My past Memorial Day messages are here: 2014, 2013, 2012, 2011, 2010, 2009, 2008, 2007

FSF Distinguished Fellow Deborah Tate Develops Tennessee Business Court

Free State Foundation Distinguished Adjunct Senior Fellow Deborah Taylor Tate, Director of the Administrative Office of the Courts in Tennessee, reports the Tennessee Supreme Court has established a pilot business court to be housed in the Nashville Metro-Davidson County courthouse, with the expectation of statewide expansion. The program, which Ms. Tate played a large role in developing, will oversee complex, corporate litigation, and business-to-business disputes using pretrial procedures specially adapted to business cases to streamline litigation and provide greater predictability and consistency of decisions.

Congratulations to Debi for her leadership in getting the pilot program up and running!

New Report Shows That Consumers Demand More Licensed Spectrum

A new report released on May 11, 2015, by The Brattle Group in conjunction with CTIA - The Wireless Association entitled “Mobile Broadband Spectrum: A Vital Resource for the American Economy” found that spectrum licenses issued to U.S. wireless carriers generate $400 billion annually in economic activity. Spectrum licenses also have a very large positive multiplier effect on other parts of the economy. The $400 billion in directly attributable economic activity does not even include the value of mobile applications, which use licensed spectrum for their business platforms.

Due to a robust and competitive wireless market, the report says that the downward pressure on prices has saved wireless consumers somewhere between $5 - 10 trillion over time – the aggregated difference between what consumers are willing to pay and what they actually pay. This income effect has led to positive spillovers in many other parts of the economy because consumers have more money to spend on other goods and services. Additionally, licensed spectrum creates positive spillovers for job creation. According to the report, for every person employed in the wireless industry, an additional 6.5 people will be employed in other sectors.

There is no doubt that the wireless industry is growing quickly in the U.S. The FCC will need to auction off more spectrum in order to keep up with the demands of consumers and conduct the auctions in a way that does not encumber them with extraneous conditions. (See this blog for more on spectrum auctions.)

FCC Shouldn't Push Video Device and Content Controls on Advisory Committee

It's been mere months since Congress repealed the FCC's costly and innovation-inhibiting integration ban on video device designs. But the Commission already appears to be pushing for new controls on video devices.

The FCC has charged the new technical advisory committee on downloadable security to include methods for unbundling video programming content and menu displays. That strays from Congress's mandate for a report on downloadable security for next-generation devices. The Commission has created new obstacles to consensus and completion of the required report. Its charge to the committee, if implemented, would enable third-parties to repackage and rebrand video programming and menus, thereby infringing on the editorial rights of video service providers.

The FCC should respect the limited role Congress gave it. Its assistance to the committee should not include influencing the report to reflect broader regulatory ambitions. The Commission should let the committee focus its report on downloadable security.

The STELA Reauthorization Act of 2014 (STELAR) repealed the FCC's misguided "integration ban" on video devices. The integration ban prohibited multi-channel video programming distributors (MVPDs) providers from including security functions and navigation functions in the same video device. In other words, no cable or DBS set-top box could, by itself, both surf video channels or menus and de-crypt secured video transmissions for viewing. The FCC even forbade video navigation devices from directly downloading security functions.

Section 629 of the Communications Act only requires the Commission to "assure the commercial availability, to consumers" of MVPD services of video devices "from manufacturers, retailers, and other vendors not affiliated with any multichannel video programming distributor." The integration ban was an anti-innovation obstacle of the FCC's own making.

Thankfully, Congress finally repealed the integration ban. Accompanying the repeal, STELAR required the FCC to facilitate a report recommending future downloadable security standards for video devices:

[T]he Chairman of the Commission shall establish a working group of technical experts representing a wide range of stakeholders, to identify, report, and recommend performance objectives, technical capabilities, and technical standards of a not unduly burdensome, uniform, and technology- and platform-neutral software-based downloadable security system designed to promote the competitive availability of navigation devices in furtherance of section 629 of the Communications Act of 1934…

Pursuant to STELAR, the FCC established the Downloadable Security Technical Advisory Committee (DSTAC). The committee includes select working groups and convenes monthly meetings as it works toward reporting to Congress in September of this year.

Unfortunately, in its setup of DSTAC the FCC needlessly overcomplicated an already complex undertaking. The Commission staff's preliminary instructions stated the "committee shall develop" a method to disaggregate its bundled content and menu products into outputs through a "black box" for third-parties to repackage "even if participants believe that those features should not be mandatory."

Requiring DSTAC to develop methods for disaggregating bundled video programming and menu contents are outside the scope of STELAR's mandate. Congress directed the FCC's Chairman to establish a working group focused on a "downloadable security system."

By directly including disaggregated video programming and menu content outputs in its charge to DSTAC, the FCC has created an unnecessary hurdle. Getting different and competing industries, companies, and other stakeholders to reach consensus on technical specs is hard enough. But including extraneous matters over which DSTAC members are strongly at odds compounds the difficulties. Not surprisingly, members of DSTAC as well as observers have voiced objections to the Commission needlessly bringing in technical and regulatory side issues.

Unfortunately, the FCC staff's instructions are reminiscent of its misguided 2010 AllVid plan – a comprehensive set of proposed new controls on how all MVPDs design and operate the video navigation devices they make available to subscribers. The AllVid proposal would have mandated that all MVPDs make available to subscribers a special "adapter" or a "gateway" device for allowing all consumer electronic devices throughout a subscriber's home network to access MVPD services. AllVid also would have required disaggregation or unbundling of MVPD video programming and related content for rebranding and repackaging to consumers by unaffiliated providers.

Aspects of FCC's instructions to DSTAC that bear similarity to AllVid repeat some of AllVid's basic mistakes. Government controls on how video devices are designed or operate undermine basic freedom to design and market products and services for consumers. AllVid would have hampered MVPDs' future ability to innovate and compete with unregulated manufacturers of mobile devices, tablets, video game consoles, and other video viewing devices. And by pushing a DSTAC toward a "black box" for third-parties to repackage content and menu products, the Commission again appears to urge a restrictive approach to innovation.

In addition, AllVid posed a serious First Amendment problem. Requiring disaggregation of MVPD video programming and related content would have interfered with the editorial discretion of MVPDs in their provision of a retail service. AllVid would have undermined an MVPD's ability to select, control, and identify its own unique message under its own branded service. The Commission staff's instructions that DSTAC develop a method to disaggregate bundled content and menu products into outputs for third-parties to reassemble and rebrand presents similar First Amendment problems. Such an approach would undermine protected speech selection and presentation choices of video programming and displays by MVPDs.

In a set of follow-up instructions issued on April 27, the FCC staff appeared to partly walk things back. It called on DSTAC to make video and menu content disaggregation an alternative approach to be included in its report. But the revised charge to DSTAC is still outside the scope of what Congress called on the FCC Chairman to do. And the underlying anti-innovation and First Amendment problems posed by requiring MVPDs to surrender editorial control over video programming content and menu displays remain.  

The FCC should completely remove video and menu content disaggregation methods from its charge to DSTAC. The Commission should instead focus the group on downloadable security. Keeping DSTAC's charge narrowly confined to the terms of STELAR offers the best chance for achieving consensus in its report to Congress.

In any event, the process and work of DSTAC warrant only modest expectations going forward. The FCC should do its best to follow Congress's mandate. But Congress assigned a difficult task. Downloadable security for video services is a multi-faceted and complex topic. And the FCC has a sorry history regarding regulation of video devices. Aside from the integration ban and AllVid, one shouldn’t overlook CableCARD – a $1 billion set-top box regulatory regime that few consumers adopted and which was later thrown out by the D.C. Circuit. The unsuccessful CableCARD experience suggests the practical limits to government controls over how video devices are designed and operate.

DSTAC's assembly of a report that will satisfy all stakeholders is unlikely given the technical and other issues surrounding video services and devices. But the FCC should stick to the law and avoid any future actions that risk making an unavoidably complicated task utterly impossible.

World IP Day at the IPI Event!

On April 30^th, the Institute for Policy Innovation (IPI) hosted an event in connection with World IP Day entitled “Get Up, Stand Up For Music and IP.” It had a series of panelists and speakers and covered all aspects of intellectual property.

Congressman Doug Collins started the event off with a passionate speech on the role intellectual property has played in his life. He said that innovation and entrepreneurship are about thinking, acting, and doing, and IP rights are fundamental to completing that process.

The first panel consisted of four music industry executives who explained how copyright and branding are prevalent throughout the process of finding and signing an artist, making an album, marketing the album, and distributing the album among various digital platforms. It was interesting to hear about how record companies operate in the digital age and more specifically how they help develop the unique identity of the individual artist. They also discussed WhyMusicMatters.com, which is a website dedicated to artistry and expression in the music industry.

There was also a discussion on patents from a group of experts representing various industries from retail to communications to research and development – an indication of the vast impact IP has on the economy. While the panelists had differing opinions on what reformed patent legislation should look like – some were more supportive of the Senate’s latest bill than others – they were all fairly optimistic that bipartisan legislation will be signed by President Obama by the end of the year.

World IP Day is an opportunity for ordinary people to take a step back and consider all the economic benefits that have resulted from intellectual property rights. It’s an opportunity to promote greater public understanding concerning the importance of IP rights.

Strong IP rights are important for ensuring that content providers, artists, innovators, and marketers can earn a return on their creative works and the labor that makes them possible. Protection of IP rights incentivizes more innovation, investment, and economic growth.  

Thanks to IPI for hosting a fun and stimulating event!

Maria Pallante Supports the Property Rights of Musicians and Artists

I haven’t had a chance to review the actual testimony today of Maria Pallante, director of the U.S. Copyright Office and Register of Copyrights, before the Senate Judiciary Committee, only Broadcasting & Cable’s report of her testimony by John Eggerton.

But according to the B&C report, Ms. Pallante made several important points with which I agree.

She supported some form of fix so that artists holding the rights to pre-1972 sound recordings can be compensated for performances of these works. As my colleague Seth Cooper has explained here and elsewhere, state courts – quite correctly – recently have ruled in several different cases that artists must be compensated under various existing state law property rights-like remedies for performance of pre-1972 recordings. But Ms. Pallante is right to suggest that Congress should consider amending the Copyright Act to provide federal protection as well.

Ms. Pallante’s testimony also apparently urges Congress to remedy the current gap in the law whereby broadcasters escape payment of compensation for transmitting sound recordings. This exemption from payment of royalties for using the intellectual property of the music artists doesn’t make sense. Representatives Marsha Blackburn and Jerrold Nadler have introduced the “Fair Play Fair Pay Act” which would create a public performance right applicable to broadcasters for their transmission of copyrighted sound recordings. Seth Cooper, in this blog commending the Blackburn-Nadler bill, explains why broadcasters should not continue to be treated with favoritism vis-à-vis other technological platforms that are required to pay for use of copyrights recordings. Ms. Pallante’s support for considering redress for this inequity is commendable.

According to John Eggerton’s reporting, Ms. Pallante also will urge Congress to make unauthorizing streaming of content a felony just like the unauthorized downloading of copyrighted content. There may well be disagreements concerning the degree of culpability, and, therefore, the severity of punishment that is appropriate, for those who knowingly commit theft of intellectual property in different circumstances. But there shouldn’t be disagreement that those who knowingly commit such crimes should be held responsible. So, it is necessary and appropriate for Director Pallente to remind us that theft of intellectual property online – like theft of property wherever it occurs –is a serious crime.

It is entirely fitting that Ms. Pallante’s testimony takes place close to World Intellectual Property Day, celebrated each April 26. And it is still close enough to April 26 to remind you of the series of scholarly papers my colleague Seth Cooper and I have authored in our series of works addressing the constitutional foundations of intellectual property. If you’re interested in delving more deeply into foundational principles relating to the protection of intellectual property rights, I commend these papers to you.

Randolph J. May and Seth L. Cooper, "The Constitutional Foundations of Intellectual Property," Perspectives from FSF Scholars, Vol. 8, No. 13 (2013).

Randolph J. May and Seth L. Cooper, "Reasserting the Property Rights Source of IP," Perspectives from FSF Scholars, Vol. 8, No. 17 (2013).

Randolph J. May and Seth L. Cooper, "Literary Property: Copyright's Constitutional History and Its Meaning for Today," Perspectives from FSF Scholars, Vol. 8, No. 19 (2013).

Randolph J. May and Seth L. Cooper, "The Constitution’s Approach to Copyright: Anti-Monopoly, Pro-Intellectual Property Rights,” Perspectives from FSF Scholars, Vol. 8, No. 20 (2013).

Randolph J. May and Seth L. Cooper, "The 'Reason and Nature' of Intellectual Property: Copyright and Patent inThe Federalist Papers," Perspectives from FSF Scholars, Vol. 9, No. 4 (2014).

Randolph J. May and Seth L. Cooper, "Constitutional Foundations of Copyright and Patent in the First Congress," Perspectives from FSF Scholars, Vol. 9, No. 18 (2014).

Randolph J. May and Seth L. Cooper, "Life, Liberty, and the Protection of Intellectual Property: Understanding IP in Light of Jeffersonian Principles," Perspectives from FSF Scholars, Vol. 9, No. 25 (2014).

Randolph J. May and Seth L. Cooper, "Intellectual Property Rights Under the Constitution's Rule of Law,"Perspectives from FSF Scholars, Vol. 9, No. 31 (2014).

Randolph J. May and Seth L. Cooper, "Reaffirming the Foundation if IP Rights: Copyright and Patent in the Antebellum Era," Perspectives from FSF Scholars, Vol. 9, No. 38 (2014).

Randolph J. May and Seth L. Cooper, “Adding Fuel to the Fire of Genius: Abraham Lincoln, Free Labor, and the Logic of Intellectual Property, ” Perspective from FSF Scholars, Vol. 10, No. 2 (2015).

Prince George's County Council Budget Hearing

On April 28th, I had the privilege of testifying before the Prince George’s County Council during its fiscal year 2016 budget hearing. I warned the County Council that its proposed budget includes a 50 percent increase in telecommunication taxes that would negatively affect the County residents.

Not only would this tax increase require Prince George's County residents to pay the second highest wireless tax and fee burden in the country (when including state and federal taxes), but it would disincentivize wireless Internet Service Providers from investing and innovating within the County. This proposal should be rejected because this tax increase would also greatly and negatively impact poor residents who want to connect to the Internet.

Check out this blog for more on the proposal.

Could the FCC Be Listening to the Market Talk?

By Gregory J. Vogt, Visiting Fellow

The FCC has received criticism from a number of commenters regarding incentive auction procedures the agency proposed in a December 2014 Public Notice. Given that some procedures in the Notice were inconsistent with a market-oriented auction design, there now is some welcome news that the FCC may be listening more closely to the market.

Until now, a majority of Commissioners seemed too dismissive of market concerns when they proposed complex auction procedures designed to skew results toward favored bidders, i.e., any other bidder other than AT&T or Verizon. The recent intimations, if they turn out to be true, would be better news for consumers, who voraciously are demanding more bandwidth for mobile broadband services which the incentive auction can remedy in part. Consumers should hope that a majority of FCC Commissioners listen more closely to the market talking.

The incentive auction is designed to permit broadcasters voluntarily to give up over-the-air broadcast spectrum in the “reverse” portion of the auction in exchange for part of the proceeds in the “forward” portion of the auction among mobile broadband providers. That auction is currently scheduled for early 2016.

The December 2014 Notice’s proposed auction procedures were roundly criticized, including by two FCC Commissioners, in particular for proposals that would establish “dynamic reserve pricing” and define “unencumbered” spectrum. Chairman Wheeler reportedly went off script at the National Association of Broadcasters’ (NAB’s) annual trade show to indicate that “we got your message” concerning complaints about those two issues. This remark appeared to be in line with comments made earlier in the week by FCC incentive auction staff as well as Commissioner O’Rielly. The President and CEO of the NAB, Gordon Smith, was encouraged by Wheeler’s remarks that the FCC would consider simplifying the rules and let the market function in the auction process.

I, too, am encouraged by the Chairman’s remarks, but only concrete action will prove whether the Commission is actually listening to the market. The FCC should continue its long-standing policy to auction spectrum in accordance with free market principles. Free market auctions optimize the prices for limited spectrum and ensure that it is efficiently allocated to the highest and best use. Such a result is even more critical to the incentive auction because it is intended to encourage significant voluntary contributions of spectrum by broadcasters, which can then be repurposed to meet the critical consumer need for mobile broadband.

Focusing on the need for market-based incentives in the incentive auction is critical. Broadcasters are now more interested in this auction, particularly after the unprecedented values achieved in the recent AWS-3 auction. Some analysts now estimate (summarized here) that the incentive auction may yield $60 to $80 billion. The Congressional Budget Office underscored the critical nature of auction procedure decisions when it estimated a wide potential range, from $10 to $45 billion, based largely on the auction’s unprecedented and complex nature. These estimates are painting a rosier picture for the incentive auction’s success.

The two key issues highlighted by the Chairman’s recent remarks are:

First, a “dynamic reserve price” is a somewhat euphemistic term used in the Notice to describe a methodology to reduce the going-in price for certain spectrum to address “anomalies” or “hold outs.” Although the Commission decided last summer to set going-in reverse auction prices, the anti-market impact of artificially manipulating potential prices undermines broadcaster incentive to volunteer spectrum, which disserves the aim of the auction and ultimately consumer interests. Broadcasters have already identified 1100 TV stations potentially impacted. The process complicates the auction and unfairly limits broadcaster gains.

Second, the Notice also proposed to define “unimpaired” spectrum, i.e., spectrum in the national market that may not be used by up to 20 percent of the population. The 20 percent threshold is far too high, creating serious questions on the value of such “unimpaired” spectrum. A market-based design abhors the creation of spectrum of uncertain value, where spectrum is potentially unusable in some large urban markets where spectrum is needed most. The FCC should offer only unimpaired spectrum (in accordance with a reasonable definition outlined above) to all bidders in order to simplify the auction, increase market-oriented bidding, and thus improve bidding results.

I’ve said before, here and here, that creation of “reserve spectrum” available only to favored large, well-capitalized international bidders contains unacceptable risks that the incentive auction will fail. But given that the FCC has already made the erroneous decision to create “reserve spectrum” for a favored few, it should not make matters worse by adopting unworkable “dynamic reserve pricing” or create an unreasonably high threshold for defining unimpaired spectrum. And it certainly should reject the renewed call to increase the size of the “reserve spectrum.”

Both the FCC and Congress have already established the main goal of the incentive auction: to encourage maximum broadcaster participation. The Chairman’s recent indication that the FCC could be rethinking dynamic reserve pricing and the definition of “unencumbered” spectrum are welcome news for consumers. Now a majority of the Commissioners just need to listen to the market talk.