Great theme, but produced from a brick-and-mortar, “face time” perspective. Get with it lawyers!

Tamara McNutly @ Facebook.
 

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No, the title is not meant to imply a post about the privacy implications of mobile medical apps for psychotherapy. Instead, we’re taking a look at how the government acts at cross-purposes to itself when it comes to the oh-so-slow development of rules for new technologies and markets. The last few weeks have seen a couple of remarkable announcements, one from the FTC about digital advertising disclaimers and one from the SEC about corporate financial disclosures. Both were presented by the agencies as ways to enable use of social media by corporations — but instead just make things much harder, if not totally impracticable.

Two weeks ago, the Federal Trade Commission basically said “to heck” with form factor and responsive Web design by concluding that disclaimers, caveats and related mandatory advertising disclosures cannot be put into a popup window and must be in the same “conspicuous” format — font size and all — regardless of the device or medium. The FDA had already cracked down on trailblazing pharma firms that tried Facebook advertisements on the same grounds. Both enforcement decisions demonstrate a complete lack of familiarity with new media and an inability to flexibly apply the principles of regulatory schemes to changing circumstances.

Even if, unlike advertiser contentions, potential “Do Not Track” mandates for Web browsing would not kill the Internet content industry, the FTC has signaled it is prepared unilaterally to dictate the size of social media ads in the guise of consumer protection. The old guidance allowed for “proximity” of disclosures — that is, disclosures that were “near, and when possible, on the same screen.” The new guidance places heightened emphasis on disclosures being clear and conspicuous to consumers across all platforms. The newly announced principle is that disclosures should be “as close as possible,” with short form disclosures such as hyperlinks or hashtags permitted only when their meaning is understood by consumers. Read more »

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Given news that a European consortium of rivals has submitted yet another monopolization complaint against Google to the EU Commission, it is time to take stock of where we are in this long-running saga. A month ago the U.S. Federal Trade Commission (FTC) dropped its independent investigation, concluding that the facts did not support an antitrust prosecution of Google. Since then, the rhetoric from Google’s critics has reached absurd levels.

For instance, Bloomberg ran an editorial titled The FTC’s Missed Opportunity On Google. There the editors opined that “The FTC missed an opportunity to explore publicly one of the paramount questions of our day: is Google abusing its role as gatekeeper to the digital economy?” It is unfortunate that a leading American business publication could have so little understanding of competition policy and the role of antitrust law in policing the U.S. market economy. The editorial starts from an incorrect premise and proceeds to suggest, of all Luddite things, regulation of Internet search engines as “a public utility of sorts for e-commerce.” That’s obviously the theme of Google’s commercial rivals, but it’s neither correct nor appropriate.

Google’s alleged search dominance is hardly that of a gatekeeper. The fact is that Google neither acts like nor is sheltered from competition like the monopolists of the past, something the company’s critics never claim because they just can’t. Google succeeds only by running faster than its competitors. There’s nothing about Internet search that locks users into Google’s search engine or its many other products. Nor is new entry at all difficult. There are few, if any, scale economies in search and the acquisition of “big data” in today’s digital environment is relatively low cost, due to massively scalable storage architecture. Microsoft’s impressive growth of Bing in a mere three or so years shows that new competition in search can come at any time. Facebook’s recent, disruptive entry into search, leveraging its own trove of personalized user data, proves the point. As a result, Google remains surrounded by scores if not hundreds of competing providers of search, and succeeds relative to those rivals because its algorithms and search results are deemed superior (more accurate and useable) by Web patrons.

Read more »

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A few weeks ago, the head of competition for the European Union, Joaquin Almunia, reportedly instructed Google that the search giant must make “sweeping changes” to its business model by extending restrictions the Europeans are insisting upon for Web search into the mobile realm. (See EU Orders Google to Change Mobile Services | Reuters.)

Is he possibly for real? We all know mobile is growing by leaps and bounds, powering political revolutions, connecting the developing world to the new information economy, and disrupting legacy industries. That market dynamism should instead counsel for a restrained approach, delaying government intervention until at least some of the dust settles, because mobile is different. Here’s why — and how that matters.

1.  Apps Rule Mobile, Not Web Search

With more than 300,000 mobile applications released in the last year alone, “apps are increasingly replacing browsers as the method of choice for connected consumers to find and use information.” This striking user preference is neither difficult to discern nor hard to understand. One can see it walking on nearly any downtown street as teenagers query Foursquare and Facebook apps for friend check-ins, businessmen find lunch spots with OpenTable or Yelp, and 20-somethings search for trending hashtag topics inside Twitter’s app. In other words, in the mobile realm apps rule.

Wired’s editor-in-chief Chris Anderson in 2010, along with Square’s COO Keith Rabois in 2011, both predicted flatly that the Web is dying and mobile devices with dedicated apps are to blame. Apple’s Steve Jobs (watch his keynote) said it a bit more provocatively:

On a mobile device, search hasn’t happened. Search is not where it’s at. People aren’t searching on a mobile device like they do on the desktop. What is happening is they are spending all of their time in apps.

The numbers now prove that all three of these pundits were correct. As much as 50% of mobile search is happening in apps today. In March, a remarkably small 18.5% of all smartphone and tablet usage was in the browser; the rest was through apps. Nearly half of smartphone owners today shop using mobile apps. The international wireless association GSMA reported as far back as 2011 that second only to texting (and even more than actual calls), native apps comprise the highest level of smartphone activity. Yelp’s CEO Jeremy Stoppelman told Wall Street on August 2 that a majority of weekend searches now come in through its mobile app and that “by choosing the Yelp app people are bypassing search engines and consequently their engagement is higher.” Even venerable Craigslist is today battling mobile apps.

So mobile Web search is either dead or dying. That’s in part, as explained in the next bullet, because mobile users need, want and expect immediate answers, not a listing of URLs for browsing. Blue links just do not cut it anymore when users are mobile.

Read more »

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We’ve written previously about the Computer Fraud and Abuse Act (CFAA) being limited by judicial interpretation, especially for employers as civil plaintiffs, and offered tips on alternatives to controlling unauthorized access to or use of enterprise IT systems by employees. Reports Of The Computer Fraud and Abuse Act’s Demise Have Been Greatly Exaggerated | Information Intersection. The terrain is getting even murkier.

The Court of Appeals for the Ninth Circuit last April in Nosal gave the statute a limited construction, holding that the “exceeds authorized access” offense is “limited to violations of restrictions on access to information, and not restrictions on its use.” That may make sense from the perspective of a law dating to 1984 and initially designed to criminalize physical damage to computing systems, but not from the perspective of how courts transition precedent from one technical era into another. The CFAA is not that old. Yet already we are confronted with an increasing conflict as to its basic scope when applied to civil remedies for insiders who exceed their authority and injure corporate good will or IP. Indeed, cybersecurity experts often warn that the greatest threats to business IT systems and the information they store arise not from hackers, but dishonest or disaffected employees, even “well-meaning insiders.”

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For decades Penn State football fans claimed their program was different, better and purer than others-a model for all college sports. But former FBI director Louis Freeh’s 267-page report blew a hole through that claim last Thursday. It is withering, thorough, believable: When Nittany Lions coach Joe Paterno, school president Graham Spanier and others were told that Sandusky was molesting children, they all felt bad. For Sandusky.

Shattered | SI-Everywhere.

The whole Sandusky scandal is revolting. This quote from Michael Rosenberg of Sports Illustrated captures the disgust which most Americans feel towards the once-proud institution. Joe’s family protests, but taking down his statue and revoking the record-setting coaching victories was the least that could be done to restore some modicum of respect to college football.

I’m not a reactionary liberal and think the personal loyalty shown towards Sandusky was admirable. But when one is talking about serious child abuse for more than decade, a crime is a crime, just as much now as in 1998. Not reporting this serial child molester to the authorities for prosecution — and at the very least severing his ties to the Penn State football program, which facilitated his evil — is and remain completely inexcusable. We can only hope Paterno is red-faced in his grave.

NCAA sanctions Penn State for Sandusky scandal | Reuters.

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For all the discussion, dead-on accurate, about law holding back technological innovation, sometimes it works the other way around. When industries are transformed by disruptive new technologies and business models, the law itself can be in for a game-changing, forced makeover.

Take the European Union (EU) and digital music. Everyone by now realizes that the introduction of portable MP3 music players, coupled with Apple’s pioneering iPods and iTunes music store, have revolutionized the market for distribution of recorded music. Gone are the days of buying albums (or even CDs) just to get one hit song. Music is available on any device, in the cloud, streaming on desktops, and everywhere else, and it’s intensely personal playlists involved. As a result, the hockey stick adoption curve shows that hardly a decade after digital music downloads first gained popularity, “record stores” – Tower Records,
anyone? – are a thing of the past, record labels (EMI as the latest) appear to be on their last hurrahs, and fully 1/2 of all music
purchased in the United States is totally digital, never burned to a physical product.

That has not been the case in the EU. Despite a standard of living in excess of the US, less than 20% of music sold in Europe is digital. That’s in part because, under the EU Treaty, copyright licensing is conducted on a member state basis. This “balkanization” of the law (pun intended) means that digital sellers in the EU need to negotiate separate deals with each label and for each country, from France to the Czech Republic to Turkey, under very different legal regimes. That’s obviously a recipe for increasing costs and timeframes for entry, bad for business and keeping new distribution models from consumers.

In response, the EU Commission used its competition powers a couple of years ago to harmonize copyright laws in order to make them consistent throughout the EU, aimed at breaking down national barriers in the digital music business and making it possible for rights holders to issue pan-European licenses.  As one can observe from a similar step towards telecom “liberalisation” in the ‘00s, however, that itself requires a vigilant enforcer at the EU level to ensure that parochial national legislatures and courts do not slow roll the process. This 2008 licensing change helped Apple launch its iTunes music store in all 27 European nations, but so far no one else.  In 2009, major members of the online music industry — including
Amazon, iTunes, EMI, Nokia, PRS for Music, Universal, and others — signed a pact with the European Commission to work towards wider music distribution in Europe.

 Yet Apple remains the only digital music seller with licenses to operate in every EU country.  And even then, Apple rolled out iTunes stores in Poland, Hungary and 10 other European countries just last year, seven full years after arriving in Germany, the UK and France. As ArsTechnica comments:

Unlike the US, online music in Europe is typically only sold through one country’s stores at a time — this is despite the EU’s efforts to effectively eliminate the borders of its 27-country membership when it comes to products and services. As such, if you’re in Spain and want to buy a song from France’s iTunes store, you can’t — the store blocks you from making the purchase because you aren’t in France. This has led to companies like Apple rolling out individual music stores for each European country with a large enough market, but the fragmentation has caused nothing but headaches for end users who just want to listen to their favorite music.

Finally—One iTunes Store to Rule Them All (in Europe).

 The reality is therefore that the “single market” for intellectual property rights (IPR) contemplated in the EU’s 2011 report is far from ready to roll. As Neelie Kroes, who once took on Microsoft and now serves as the EU’s Vice President, asked rhetorically in ’08, “Why is it possible to buy a CD from an online retailer and have it shipped to anywhere in Europe, but it is not possible to buy the same music, by the same artist, as an electronic download with similar ease?”

So this week the EU is going a step further.  Singling out “collecting societies” – European analogs to ASCAP and BMI which gather royalties of about €6 billion, or $7.5 billion, annually from radio stations,  restaurants, bars and other music users and distribute the proceeds to authors, composers and other rights holders – the EU plans to push towards a directive requiring greater efficiency, transparency and reciprocity.  Royalty-collection societies could be forced under the draft rules to transfer their revenue-gathering activities to rivals if they lack the technical capacity to license music to Internet services in multiple countries. The idea seems to be that if it cannot reduce the sheer number (some 250) of collecting societies, at least the European Commission can make sure they operate as much in unison as possible.

A lesson to be drawn from this ongoing saga is that just as technical innovation can disintermediate industries and eliminate arbitrage as an economic profit motive among different markets, so too can it work to force elimination of legal differences among jurisdictions. Especially where the medium is the Internet, inherently global and regulated by no one (unless the European-centric International Telecommunications Union has its way), these legal changes can occur very quickly. Believe it or not, the four years over which the EU has been working for digital copyright licensing harmonization is lightning pace for the law.

Note:  Originally prepared for and reposted with permission of the Disruptive Competition Project.

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Comedy Central’s South Park has opened the door for “fair use” copyright defenses to shut down infringement lawsuits before they saddle defendants with discovery expenses or force a settlement for cost reasons.

The U.S. Court of Appeals for the 7th Circuit in Chicago ruled just weeks ago that the cartoon’s parody of a popular Internet video — if you watch South Park, you know which one — was a protected parody. The episode “Canada on Strike” lampoons the juxtaposition of viral videos’ popularity with their typically paltry financial returns through advertising and licensing. Brownmark Films, which owns the copyright on the original video, sued Comedy Central and network owner Viacom for infringement. (Incidentally, both music videos were posted on You Tube, the same company that Viacom had sued for a billion dollars in March 2007 for alleged copyright infringement.) The appeals panel unanimously agreed that the South Park video was “obvious” fair use, “providing commentary on the ridiculousness of the original video and the viral nature of certain YouTube videos,” and upheld the suit’s dismissal.

Fair use under copyright law occurs when an earlier work is used by a latter work for commentary, parody, education or some other purpose whose main goal is not to secure financial gain. Recognizing the essential nature of South Park as a mature, adult-oriented animated series, the 7th Circuit emphasized that “[t]he show centers on the adventures of foul-mouthed fourth graders in the small town of South Park, Colorado. It is notorious for its distinct animation style and scatological humor [and] frequently provides commentary on current events and pop-culture through parody and satire.” Yet without getting into all the procedural wrinkles, the court also broke new legal ground in its discussion of the role of early dismissal of “weak claims” and disposition based on a fair use claim alone, in fighting against the “chilling effects” of First Amendment-related litigation.

Despite Brownmark’s assertions to the contrary, the only two pieces of evidence needed to decide the question of fair use in this case are the original version of [the viral video at issue] and the [South Park] episode at issue… We think it makes eminently good sense to extend the [incorporate by reference] doctrine to cover such works, especially in light of technological changes that have occasioned widespread production of audio-visual works. The expense of discovery … looms over this suit. Ruinous discovery heightens the incentive to settle rather than defend these frivolous suits. [Thus,] district courts need not, and indeed ought not, allow discovery when it is clear that the case turns on facts already in evidence.

An unusually frank and colorful opinion by long-time Circuit Judge Richard Cudahy (first appointed by President Jimmy Carter in 1979) provides some comedy itself. Brownmark could have offered its own evidence to defeat the fair use defense but chose not to, Cudahy wrote. Its “broad” discovery request made Brownmark look like a “copyright troll” and would allow “expensive e-discovery of emails or other internal communications.” Brownmark’s only plausible copyright claim could be be that the parody harmed the market for its original video, but “as the South Park episode aptly points out, there is no ‘Internet money’ for the video itself on YouTube, only advertising dollars that correlate with the number of views the video has had.” Cudahy concluded “[i]t seems to this court that” the parody video’s “likely effect, ironically, would only increase ad revenue.”

Sometimes the courts actually do get it when technology is involved, although we have no idea whether Judge Cudahy himself watches South Park. As the Electronic Frontier Foundation, which submitted an amicus brief on behalf of Comedy Central, explained:

The opinion joins a growing body of precedent affirming that it’s proper to dismiss some copyright cases early, and that it’s possible in appropriate cases to determine whether a use is noninfringing without engaging in lengthy discovery. These rulings are important not only to protect speech, but also in fighting back against copyright trolls. Trolls depend on the threat of legal costs to encourage people to settle cases even though they might have legitimate defenses.

Of course, “trolls” are in the eye of the beholder. Like terrorists, one person’s troll may be another’s “freedom fighter.” So whether or not particular litigants merit that somewhat pejorative description, it’s clear that the costs and burdens associated with defending copyright claims — including but not only for Internet-distributed video — just went down a whole lot. While Brownmark involved a seemingly easy fair use case in the defendants’ favor, it will be inter­esting to see whether future courts will grant motions to dismiss where the fair use analysis is less obvious. In any event, copyright infringement plaintiffs should be aware that the road to discovery where a defendant raises a fair use defense is not be quite as smooth as it used to be.

As to judicial comedy, we express no opinion, but do like the district judge’s tact. “For as remarkable and fascinating the parties and issues surrounding this litigation are, this order, which will resolve a pending motion to dismiss will be, by comparison, frankly quite dry.”

The legal issues [in this case] are hardly the sort of subject that would create millions of fans, as the work of all of the parties before the court did. Nonetheless, while the court has a ‘tough job,’ ‘someone has to do it,’ and, ‘with shoulder to the wheel,’ this court ‘forge[s] on’ to resolve the pending motion. Janky v. Lake County Convention & Visitors Bureau, 576 F.3d 356, 358 (7th Cir. 2009).

Note: Originally written for and reposted with permission of my law firm’s Information Intersection blog.

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One year ago, the Wall Street Journal and other business publications reported that the Federal Trade Commission (FTC) had launched an investigation into “Twitter and the way it deals with the companies building applications and services for its platform.” The gist of the apparent competitive concern was that Twitter — which has grown from nothing to a significant new medium of social communications in just five years — had decided to limit access to its application programming interfaces (APIs) for third-parties, such as HootSuite, Echofon and the like, selling Twitter “client” software.

There’s no doubt Twitter is a disruptive technology. Of course, in 2000 the FTC was so convinced that an AOL-Time Warner combination would monopolize Internet content that it saddled the then-biggest merger with an onerous consent decree that evaporated, as did AOL itself, in the relative blink of an eye. Now it appears the agency is making the same mistake again. Assuming that a new and evolving technology represents a stand-alone market for antitrust purpose is dangerous where disruptive entrants are concerned, because as AOL illustrates, despite a first-mover advantage, even in network effects markets that may “tip” to a single firm competitive reality changes more quickly and in ways even the brightest pundits and government policy makers could never predict.

Given that Twitter is in competition with Facebook, LinkedIn, Tumblr, Pinterest, Instgram and many other social networking and messaging services, including the near-moribund Google+, you’ve got to wonder why the FTC could even plausibly hypothesize that Twitter has anything approaching monopoly power. One can perhaps understand policy neophytes like Mike Arrington naively saying that Twitter has a “microblogging monopoly,” but not seasoned antitrusters.

Twitter management explained at the time that “Twitter is a network, and its network effects are driven by users seeing and contributing to the network’s conversations. We need to ensure users can interact with Twitter the same way everywhere.” That’s a quintessential business judgment by corporate managers who presumably know their users (tweeters) and customers (advertisers) best. The company’s motivation is also clear and perfectly valid: it doesn’t want third parties making money — namely, coming into direct rivalry by selling ads — off its service, and thus depriving Twitter of potential revenue. It is incontestable that Twitter could vertically integrate into the client software business itself (a first step in which it did by acquiring TweetDeck), without any possible antitrust constraints. In this light, what could conceivably be wrong with Twitter setting ground rules that require third-party providers to utilize a common user interface (UI) scheme?

As Adam Thierer of the Technology Liberation front observed in 2011:

This episode again reflects the short-term, static snapshot thinking we all too often see at work in debates over media and technology policy. That is, many cyber-worrywarts are prone to taking snapshots of market activity and suggesting that temporary patterns are permanent disasters requiring immediate correction. Of course, a more dynamic view of progress and competition holds that “market failures” and “code failures” are ultimately better addressed by voluntary, spontaneous, bottom-up responses than by coercive, top-down approaches

Ironically, the Twitter decision to control API usage and effectively boot off some third-party software had only one economic effect. It cannibalized Twitter’s own developer and partner ecosystem, on which the company had relied heavily through its first years of extraordinarily rapid growth, in favor of an internal solution. That decision alienated some Twitter users and almost certainly reduced the absolute number of tweets sent and received — and thus the page views on which Twitter’s advertising rates are necessarily based. It also risked alienating the venture capitalists who have invested an estimated $475  million over just one-half of a year in companies working to develop Twitter-compatible apps and utilities. So the only firm Twitter is really hurting by this practice is Twitter itself. Eating your own ecosystem is hardly the stuff of monopolization.

Sacrificing independent distribution in favor of vertical integration is also a business model companies adopt and reject like roller coasters. In the oil industry, for instance, the most famous government antitrust case of them all is 1911’s Standard Oil, which broke up the vertically integrated petroleum monopoly assembled by John D. Rockefeller. Today, Standard’s offspring are rapidly disintegrating, divesting both wholesale distribution of refined oil products and retail gasoline dealerships. Sometimes conventional business wisdom extols vertical integration, other times it emphasizes an Adam Smith-type comparative advantage. But isn’t that the essence of marketplace competition? And in turn isn’t that something our nation’s competition policy should leave in the hands of market participants rather than government agencies?

The answer from Forbes is a simple yes:

If the FTC is indeed investigating Twitter, they are likely to find this case pretty boring. In acquiring the third party apps widely adopted by its users, Twitter is simply making a gradual, not to mention inevitable, move closer to its customer base. The startup is often slammed for its struggle to adopt a serious business model. Now that Twitter has finally figured out it is awfully difficult to build a business as a plumbing conduit, suddenly it’s lambasted as the next Microsoft.

In fact, the issue here is far more significant for technologies down the road that no one has as yet even conceived. Twitter seems sufficiently well-established that it will likely survive an FTC investigation, at least in the short run, and however misguided the government’s underlying assumptions may be. But start-ups which have not yet escaped from private betas and coders’ college dorm rooms will give pause, as they grow, before deciding to sever relations with partners that helped them “get big fast.” The fear is that cutting off downstream firms, even if taken for objectively valid business reasons, will catalyze an FTC or European Union antitrust investigation of whether the firm has “abused” its “market dominance.”

A threat of government action can be just as debilitating to innovation as premature enforcement intervention into the marketplace. Let’s hope the FTC’s 2011 Twitter investigation is mothballed in 2012, and that in the future investigations of segment-leaders in nascent technology spaces are opened only where — unlike the case of Twitter — there’s clearly an economically valid market and practices involved which are unambiguously anticompetitive. The FTC has said nothing about the Twitter issue for a year, while the San Francisco Examiner revealingly comments that “[i]n the space of [that] year, the FTC has racked up more legal action involving the high tech world than the FCC and both houses of Congress combined.” Note to Chairman Leibowitz: it’s time to let this one go, now. If your agency wants to do that quietly in order to save face, no one in Silicon Valley will mind at all. We won’t tell.

Note:  Originally prepared for and reposted with permission of the Disruptive Competition Project.

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Dewey & LeBoeuf is the biggest AmLaw 200 firm to collapse, but its not the only one. Here are 10 other law firm failures that made news in their day.

Not Too Big to Fail | American Lawyer

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