Carolyn Homer

Give & Take: Fifth Amendment Complicates Net Neutrality

by Carolyn Homer on July 30, 2010 · 25 comments

in Legal, Regulation, Tech & Telecom

Opponents of net neutrality, including the Competitive Enterprise Institute, have pointed to numerous grounds upon which the detrimental scheme could be challenged. These include its deterrent effect on investment, its unsatisfactory grounding in FCC statutory authority, and that it violates the First Amendment.

Via the Free State Foundation’s outstanding Perspectives series, a forthcoming paper from Boston College Law Professor Daniel Lyons offers an even stronger basis for challenge: The Fifth Amendment. Under Prof. Lyons’s theory, net neutrality would run afoul of eminent domain. It would constitute a regulatory taking, requiring just compensation.

Under Supreme Court precedent, any governmental regulation that results in “permanent, physical occupation” of private property constitutes a per se taking. This is true even where the government itself is not doing the occupying. If the government grants access to other parties to freely traipse across private property, it’s still a taking. In effect, the government has forced one party to give a permanent easement to another party, destroying the first’s “right to exclude.”

This applies in the net neutrality context. Instead of allowing broadband providers to dictate terms of service and variable pricing models based on demand, the providers would be forced to allow content creators unlimited access to their networks. In essence, “content providers would receive the equivalent of a virtual easement to traverse broadband providers’ networks.” If it’s a compensable taking for the government to require cable lines to be installed, it’s also a taking for the government to require that those cable lines carry certain content.

And lest opponents start arguing “But it’s only electricity! That’s not what Court meant by physical.”, Prof. Lyons has a rebuttal:

As a factual matter, the transmission of content over broadband networks is not some metaphysical act. It takes place in a real physical space: the fiber-optic and copper wires, and associated electronics, that comprise the broadband network. Transmission of Internet content primarily involves the movement of electrons (which are physical particles) that occupy rivalrous limited space on telecommunications wires en route from the Internet to the end-user consumer. While the electrons are invisible to the naked eye and travel very quickly within a sheathed wire, the physical act of transmission is nothing more than a microscopic version of vehicles traveling along a highway—or pedestrians traversing an easement. In other words, the mandatory transmissions do physically occupy the service providers’ property.

Lyons goes on to describe how the FCC lacks the constitutional authority to authorize such a taking. A Title II reclassification could thus be void from Day 1. Only Congress can take this action, if action is taken at all. But if Congress acts, they should understand that the regulation will come with a multimillion dollar price tag in legal fees and compensation payouts from the Treasury. That’s not smart policy — jeopardizing taxpayer dollars for a scheme that was ill-conceived from the very beginning.

USA prevents effective oil spill cleanup

by Carolyn Homer on June 30, 2010 · 2 comments

in Energy, Environment, Regulation

As readers may recall, a brouhaha erupted three summers ago concerning BP’s planned expansion of its Whiting Refinery near Chicago, Illinois. BP had received permission to release marginally more pollutants, including ammonia and mercury, into the water. Facing public outcry, BP held a press conference explaining that the water they were releasing was actually cleaner than the Lake Michigan water from which it came. The public remained unconvinced, insisting that regardless of the net effect, BP should still comply with the strict original standards.

Ironically, that same rabid devotion to EPA standards has made the current BP Gulf oil spill worse. As the Financial Post explains, the Netherlands and other foreign countries with highly developed cleanup vessels offered their services to the United States in the days after the Deepwater Explosion – but the US turned them down. Even though foreign technology far eclipsed our own, and would have resulted in far less oil polluting our shores, we nonetheless rejected it because the clean water it produced did not quite meet EPA standards. Chalk this up as yet another example of regulations accomplishing the opposite of their intended purpose: instead of benefitting the American public, they magnified the harm.

For Whom the Dell Tolls

by Carolyn Homer on June 30, 2010

in Odds & Ends, Regulation, Tech & Telecom, Trade

Less than fifteen years ago, Dell computers were the hot desktop brand. In a rapidly growing market, Dell developed a unique business model which helped to price out competitors. By 2004, Dell had become the market leader in desktop computer sales. Business school case studies focused on Dell’s extraordinary success.

With this prominence, Dell found itself implicated in antitrust lawsuits brought by the FTC against Dell directly (1996), against Microsoft (1998), and most recently against Intel (2009).

Yet these antitrust lawsuits had little effect on the dynamic personal computer market. The FTC ‘s suits had the pretense of promoting competition – a measure that was unnecessary in an industry where competition is already fierce. Consider the graph above tracking the market share of various desktop brands since 1997. Note that even the industry leaders only comprise about 50% of the total market.

dellmarketshare 

Dell’s decline started when it failed to perpetuate its initial successes and respond to the changing market. As the New York Times wrote yesterday, Dell is currently embroiled in a lawsuit against Advanced Internet Technologies, which alleges that Dell knowingly sold defective computers in the mid-2000s.

This should serve as a reminder to the FTC. Before jumping to accuse businesses of anti-competitive conduct, they should remember to look at the state of the actual, thriving, competition. Corporations that seem abundantly successful today often self-destruct or fall prey to unanticipated market forces tomorrow. Competitors lie in wait to take advantage of any weakness. From the New York Times:

“Dell, as a company, was the model everyone focused on 10 years ago,” said David B. Yoffie, a professor of international business administration at Harvard. “But when you combine missing a variety of shifts in the industry with management turmoil, it’s hard not to have the shine come off your reputation.”

Before diving into antitrust investigations against Google, Apple, or any other tech company, it would behoove the FTC to remember that important lesson — markets change.