Time for the Supremes to Decide ‘Net Neutrality’

rcm_logo_followTime for the Supremes to Decide ‘Net Neutrality’

By Thomas Hazlett & Joshua Wright

The FCC’s dramatic 2015 pivot on Internet regulation sought to envelope advanced broadband networks in the shroud of telephone company rules rolled out in the Mann Elkins Act of 1910. These historic common carriage “Title II” regulations – originally the province of the Interstate Commerce Commission, long ago antiquated and finally abolished in 1995 — were cited as exemplars by the Commission in last year’s Open Internet Order. Continue reading

FTC’s Joshua Wright Lectures at Clemson on April 2 — Video archive available

Federal Trade Commissioner Joshua D. Wright presented a Big Ideas About Information lecture on April 2, 2015 at Clemson University.   Sponsored by the Information Economy Project and the John E. Walker Department of Economics, Commissioner Wright spoke on Regulation in High-Tech Markets: Public Choice, Regulatory Capture, and the FTC.  

A prolific scholar in law and economics, Joshua Wright was appointed to the Federal Trade Commission by President Obama in January 2013. Commissioner Wright’s lecture focused on the tendency for regulatory regimes to frustrate technological innovation. An example is the tax industry, heavily regulated for almost a century. Continue reading

Hazlett and Wright Pen Wall Street Journal Op-Ed on FCC Over-Management of the Internet

Link

The-Wall-Street-Journal-LogoJoshua Wright, IEP Scholar on leave and current FTC Commissioner, joined Thomas Hazlett to write an Op-Ed in the Wall Street Journal titled “Micromanaging the Web Would Be a Macro Mistake.” The Op-Ed warns of the issues that arise when the FCC attempts to over manage internet regulations, such as net neutrality. In an attempt to prevent anti-competitive behavior by ISPs, net neutrality regulations have actually had an anti-consumer effect. A much more efficient means to control anti-competitive behavior already exists in the form of anti-trust law.

The full article follows:

Micromanaging the Web Would Be a Macro Mistake
The FCC doesn’t seem to realize that antitrust law is enough to ensure fairness.

Thomas W. Hazlett And
Joshua D. Wright
July 13, 2014

The cry for Internet regulation is familiar. “Net neutrality” rules are the most recent episode in a recurring story in which proponents seek to limit competition while claiming that nothing less than the future of the Internet is at stake.

More than a decade ago there was Open Access, a proposal for the Federal Communications Commission to let third parties use cable TV lines at regulated wholesale rates so they could offer competing broadband service. Proud corporate supporters included GTE, a large phone company competing with cable operators, and AOL, then the largest Internet service provider. Their argument mirrored that of net-neutrality proponents today: Without it, the major Internet service providers would create their own fast lanes and stifle competition. The Clinton administration’s FCC rejected the idea, and the fears proved groundless. The Internet continued to grow rapidly with innovations from Google to Facebook.

That history makes the current debate over network-neutrality rules seem surreal. Columbia Law professor Timothy Wu, for instance, declared during a June congressional hearing that the modern Internet was nurtured on principles of neutrality that the FCC is only trying to enshrine, protecting against “new rules that reportedly would put a price tag on climbing aboard the Internet.”

Not so. The modern, open Internet evolved in the marketplace, with customers and firms making unregulated deals. The government’s primary contribution has been to clear out the “public utility” regulations that would have stifled it. As FCC Commissioner Ajit Pai explained in February when the FCC announced its latest attempt to salvage net-neutrality rules: “The Internet was free and open before the FCC adopted net-neutrality rules. It remains free and open today. Net neutrality has always been a solution in search of a problem.”

Moreover, Internet access has always required parties to ante up, and those who have paid more have received superior terms. Consider backbone providers, which are data transport networks that form the core of the Internet. They connect with other large networks called “peers” free of charge. Smaller networks and Internet service providers, on the other hand, pay for the same service. Content suppliers such as Apple, MTV and Major League Baseball use private, high-capacity pipes to avoid jams and improve customer experience. They pay content delivery networks like Akamai to access these pipes; giant data pushers such as Google run their own. These fast lanes improve the web, wired and wireless. Fast lanes are features, not bugs.

The fear among net-neutrality supporters is that major Internet service providers such as Verizon or Comcast will engage in anticompetitive behavior known as vertical foreclosure. Comcast, for instance, might prevent customers from viewing Disney -owned programs like ESPN, so as to favor its own network, NBC Sports. This fear overlooks the fact that not only is ESPN’s content widely available via Comcast and competing services, but such behavior is already unlawful, if harmful to consumers, without net-neutrality rules, thanks to antitrust law.

Nevertheless, the FCC imposed neutrality regulations in 2007 and 2010. The D.C. Circuit vacated both sets of rules. FCC Chairman Tom Wheeler, who seems to believe the third time is the charm, is now advancing a proposal that would give the agency power to review individual agreements between Internet companies on a case-by-case basis. Such micromanagement is sure to be inimical to the Internet’s development.

Critics challenged the agency in 2010 to produce empirical evidence of vertical foreclosure by Internet service providers, and the FCC came up with what it claimed was a supportive econometric study. The study looked at cable video, not broadband markets. The FCC’s report, which relied entirely on anecdotes, was remarkable in one sense: It found but a handful of allegations. As FCC Chief Economist Gerald Faulhaber put it in a 2011 paper, “By any standard, four complaints about an entire industry in over a decade would seem to be cause for a commendation, not for restrictive regulations.”

There is evidence, however, that net-neutrality regulation harms Internet users. In 2011, the FCC filed a complaint against Metro PCS, a small company less than 1/10th the size of Verizon Wireless, for violating net neutrality. The provider offered “all you can eat” mobile service—voice, text and data—for just $40 a month. There was a twist: Though most video streaming was blocked to avoid network congestion, users could watch unlimited YouTube videos because Google (YouTube’s parent) had engineered a compression technique that prevented traffic jams.

MetroPCS had a neutrality “problem.” It favored Google’s content over other streaming sites. Yet Metro PCS had no financial stake in Google, customers got extra content and lost nothing, and no competitive harm occurred. The D.C. Circuit eventually struck down the FCC’s rules, mooting the complaint, but not before the agency revealed its suspicion of new technological fixes undertaken by upstart rivals offering consumers superior services.

The FCC claims that a neutrality mandate serves consumers, but overwhelming historical and economic evidence suggests otherwise. While antitrust law is not without its own history of abuse, it has developed a consumer-centric framework based on economic analysis and evidence. Antitrust law gives consumers a chance to reap the benefits from business arrangements like those between MetroPCS and Google while protecting them from those that truly harm competition.

If you think the Internet is broken today, wait until the FCC administers case-by-case approvals of traffic agreements to fix it.

Mr. Hazlett is a professor of economics at Clemson University and previously served as Chief Economist of the FCC. Mr. Wright, a lawyer and economist, is a member of the Federal Trade Commission.

Joshua Wright thinks the FTC should not be designing your iPad

Former IEP Senior Fellow Joshua Wright, currently a commissioner at the Federal Trade Commission, gave a strong dissent to an FTC settlement with Apple Inc. The Wall Street Journal ran an article describing Wright’s objections to the settlement. As stated in the article:

In his dissent Mr. Wright, an expert in law and economics formerly with George Mason University, said the FTC majority ignored the legal requirement that the agency find a “substantial injury to consumers which is not reasonably avoidable” and that regulators conduct a cost-benefit analysis to ensure that any damage caused by the alleged unfair practice is “not outweighed by countervailing benefits to consumers or competition.”

Read the article in the Wall Street Journal here.

The full text of Joshua Wright’s dissent can be found here.

Wright on Uber and New Business Models in the Online World

FTC Commissioner Joshua Wright, formerly a senior fellow at IEP, recently published an op-ed in the Washington Post about the role of competition in bringing about consumer benefits. In particular, Wright highlights the innovative business models the Internet enables in the taxi market:

A wave of creative destruction is now crashing down upon the taxicab industry. Until recently, a consumer hailed a cab on the street or telephoned a dispatch service and paid with cash. New smartphone applications such as Uber and Hailo are revolutionizing the industry by using GPS-enabled wireless devices to match consumers and drivers with the tap of a screen and a credit card payment. As is to be expected with any outbreak of creative destruction and innovation, consumers are reaping the benefits and entrenched interests are fighting back to suppress this new form of competition. The entrenched interests include not only taxicab drivers but the bodies that regulate them.

Read the whole piece here.

IEP Senior Fellow Joshua Wright Confirmed as FTC Commissioner

Days ago the U.S. Senate unanimously confirmed Professor Joshua Wright, an Information Economy Project Senior Fellow, as commissioner at the Federal Trade Commission. As reported at The Hill’s Hillicon Valley and other news sources, Professor Wright’s confirmation took place after the holidays on January 1 after a months-long vetting by the Senate. FTC Commissioners serve seven-year terms. Because of this appointment and the obligations it entails, Prof. Wright will take a leave of absence as Senior Fellow at IEP.

Professor Wright’s most recent work with IEP included a 2012 article in the Indiana Law Review, The Law and Economics of Network Neutrality (co-authored with IEP Director Thomas Hazlett).

Congratulations to Commissioner Wright!

Dr. Joshua D. Wright, Senior Fellow, On Leave

Senior Fellow, On Leave, Information Economy Project and Professor of Law, George Mason University School of Law, 703-993-8236, jwrightg@gmu.edu, Joshua Wright’s Faculty Page.

Joshua Wright is a Professor of Law at George Mason University School of Law.  In January 2013, Professor Wright was confirmed as President Obama’s nominee to the Federal Trade Commission and is currently on leave from IEP and GMUSL.  Professor Wright was a Visiting Professor at the University of Texas School of Law and was a Visiting Fellow at the Searle Center at the Northwestern University School of Law during the 2008-09 academic year.

Professor Wright received both his J.D. and a Ph.D. in economics from UCLA, where he was managing editor of the UCLA Law Review, and a B.A. in economics with highest departmental honors at the University of California, San Diego.  Professor Wright clerked for the Honorable James V. Selna of the Central District of California and taught at the Pepperdine University Graduate School of Public Policy.

Professor Wright’s areas of expertise include antitrust law and economics, empirical law and economics, intellectual property and the law and economics of contracts.  His publications have appeared in leading academic journals, including the Journal of Law and Economics, Antitrust Law Journal, Competition Policy International, Supreme Court Economic Review, Yale Journal on Regulation, Journal of Competition Law and Economics, Review of Law and Economics, and the UCLA Law Review.   Professor Wright is also the co-editor of two volumes forthcoming in 2010: Pioneers of Law and Economics (Elgar Publishing) and Competition Policy and Patent Law under Uncertainty: Regulating Innovation (Cambridge Press).  Professor Wright has also testified at the joint Department of Justice – Federal Trade Commission Hearings on Section 2 of the Sherman Act as well as the Federal Trade Commission’s FTC at 100 Conference.

Professor Wright is on the editorial board of the Antitrust Law Journal, Global Competition Policy, Supreme Court Economic Review and Competition Policy International.  He is a co-founder of the Microsoft – George Mason Annual Conference on the Law and Economics of Innovation, a member of the National Science Foundation Advisory Panel for Law and Social Sciences, and a regular contributor to Truth on the Market, a weblog dedicated to academic commentary on law, business, and economics.

University of California, Los Angeles, J.D.
University of California, Los Angeles, Ph.D. (Economics)
University of California, San Diego, B.A.

Video Coverage of The Digital Inventor: How Entrepreneurs Compete on Platforms

8:45 AM  Welcoming Remarks
Daniel Polsby, Dean, George Mason University School of Law
Thomas Hazlett, Prof. of Law & Economics, George Mason University

9:00 AM  Breakfast Keynote
Design, Institutions, and the Evolution of Platforms
Richard Langlois, University of Connecticut

9:30 AM  Platforms, Modularity, and Complementary Goods
Moderator: Joshua Wright, George Mason University School of Law
Andrei Hagiu, Harvard Business School, Multi-Sided Platforms
Salil Mehra, Temple University Beasley School of Law, Platforms, Teamwork and Creativity: Mediating Hierarchs in the New Economy

10:30 AM  Industry Keynote:
Donald Rosenberg, Qualcomm, Inc., Intellectual Property and Platform Development

11:00 AM  Patent Litigation: Software Patents, Licensing, and Mobile OS Platforms
Moderator: Adam Mossoff, George Mason University School of Law
Anne Layne-Farrar, Compass-Lexecon, The Brothers Grimm Book of Business Models: A Survey of Literature and Developments in Patent Acquisition and Litigation
James Bessen, Boston University School of Law, The Private Costs of Patent Litigation

12:00 PM  Luncheon Keynote
David Teece, Haas School of Business, UC Berkeley, Why “Walled Gardens” Isn’t Inconsistent with Open Innovation: Understanding How Ecosystems “Management” Promotes Progress

This entry is part 2 of 3 in the series Digital Inventor Conference 2012

If Search Neutrality is the Answer, What’s the Question?

ICLE Antitrust & Consumer Protection Program White Paper Series, Lewis & Clark Law School Legal Studies Research Paper No. 2011-14, George Mason Law & Economics Research Paper No. 11-37.  Geoffrey A. Manne, Executive Director, International Center for Law & Economics (ICLE); Lecturer in Law, Lewis & Clark Law School, Joshua D. Wright, Professor of Law, George Mason University School of Law.

In recent months a veritable legal and policy frenzy has erupted around Google generally, and more specifically concerning how its search activities should be regulated by government authorities around the world in the name of ensuring “search neutrality.” Concerns with search engine bias have led to a menu of proposed regulatory reactions. Although the debate has focused upon possible remedies to the “problem” presented by a range of Google’s business decisions, it has largely missed the predicate question of whether search engine bias is the product of market failure or otherwise generates significant economic or social harms meriting regulatory intervention in the first place. “Search neutrality” by its very terminology presupposes that mandatory neutrality or some imposition of restrictions on search engine bias is desirable, but it is an open question whether advocates of search neutrality have demonstrated that there is a problem necessitating any of the various prescribed remedies. This paper attempts to answer that question, and we evaluate both the economic and non-economic costs and benefits of search bias, as well as the solutions proposed to remedy perceived costs. We demonstrate that search bias is the product of the competitive process and link the search bias debate to the economic and empirical literature on vertical integration and the generally-efficient and pro-competitive incentives for a vertically integrated firm to favor its own content. We conclude that neither an ex ante regulatory restriction on search engine bias nor the imposition of an antitrust duty to deal upon Google would benefit consumers. Moreover, in considering the proposed remedies, we find that by they substitute away from the traditional antitrust consumer welfare standard, and would impose costs exceeding any potential benefits. Full text available on SSRN: http://ssrn.com/abstract=1807951.

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Does Antitrust Enforcement in High Tech Markets Benefit Consumers? Stock Price Evidence from FTC v. Intel

38 Review of Industrial Organization 387-404 (2011).  Joshua D. Wright, Professor of Law, George Mason University School of Law.

Antitrust enforcement efforts in the United States and abroad have been ramped up in high-tech industries, rekindling stale and largely unresolved debates concerning the appropriate role of antitrust enforcement in high-tech markets. Like the previous enforcement actions against Microsoft, and likely enforcement efforts in the future against similarly situated business firms, recent enforcement efforts challenging Intel’s business practices raise the same fundamental issues concerning the effectiveness of competition policy in dynamically competitive industries. Full text available on SSRN: http://ssrn.com/abstract=1739786.

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