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This Week in Law 247
Evan Brown: Coming up next on TWIL we'll be talking to Professor Spencer Weber Waller, Ryan Radia and Lisa Borodkin about all kinds of interesting things dealing with the Comcast, Time Warner merger. We'll talk about privacy. We'll talk about trademarks, terms of service and a number of other great things. Next on TWIL.
Netcasts you love, from people you trust. This is TWIT! Bandwidth for this week in law is provided by CasheFly at CacheFly.com. This is TWIL, This Week in Law, episode 247, recorded February 21, 2014.
Mergers of Dystopia
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Evan: Hi everyone and welcome to episode 247 of This Week in Law. This is where we get together every week and take a detailed look at the law and policy issues that affect technology and we otherwise pontificate and comment and generally have a pretty good time here. I'm Evan Brown in Chicago hosting the show this week while Denise is out. So let me introduce you to our terrific guests Spencer Weber Waller is a professor at Loyola University Chicago school of law and the faculty director at the Institute for consumer antitrust studies. He teaches antitrust law, civil procedure and other subjects. Welcome to the program Prof. Waller.
Spencer Waller: Hi Evan, thanks for having me.
Evan: It's great to have you here and it's great to have Chicago well represented today. I'm looking forward to our conversation here. I'd also like to welcome back to the show, Ryan Radia associate director of technology studies at the Competitive Enterprise Institute CEI is a public policy organized nation that pushes limited government, free enterprise and individual liberty. I think this pretty much sums it up; Ryan let me know if you agree to note that Ron Paul has praised CEI and Al Gore has lamented it. Does that do it justice to sort of give people an idea of what CEI is all about?
Ryan Radia: A little more nuance, but I think, for a short description that's good.
Evan: Finally welcome back to the show Lisa Borodkin. Lisa is an intellectual property litigation and new media attorney in Los Angeles and a great friend of the show. It's great to see you again Lisa.
Lisa Borodkin: You too Evan happy Friday greetings from the sunny Central District of California.
Evan: That's great. We do have a coast-to-coast show today. We've got Ryan in Washington DC and Spencer and I are here in Chicago and then you are out there on the West Coast. So it's truly a nationwide effort today. There is the real Chicago theme. We were talking about this a little bit before the show… Lisa you’re originally from here right, you grew here?
Lisa: Right I’m from Libertyville.
Evan: That’s right, representing the Northern Suburbs. And then Ryan you went to North Western and like I said of course Prof. Waller and I are here in Chicago. SO it sounds like we should be sitting around talking about the Black Hawks right? But instead let’s talk about a few legislation regulation and policy issues. So as you know the vast majority of the people in the universe, in the world are not experts on anti-trust or these competition regulations issues. So it’s wonderful that we have a panel like this to talk about some of these issues and some of these nuances. Of course the big news story for the last could of weeks has been the Comcast – Time Warner merger. Prof. Waller I’d like to talk to you first about this. From time to time in the news we hear stories of big corporations, big service providers, big producers of whatever – big participants in the market, 2 of more of those coming together for a merger on the scope of something like this. Could we just start from a very general level and help us start to understand how we should start thinking about the relevant issues to unpack when we hear a new story about 2 big companies coming together like this.
Spencer: Sure. So we’re sitting at 2014 and this is the 100th anniversary of the Clayton Act which is one of the 2 big Anti-trust laws. There is the Sherman Act and the Clayton Act. In 1914 Congress passed a law that made mergers unlawful if they have a tendency - not an actuality but a tendency to substantially lessen competition or a tendency to create a monopoly. Which 100 years in we don’t look at size, we look at power. So in general we look at the relevant market that the firms compete in and their effect on consumers and competition. So it’s not really just the size. For example there are enormous corporations – Chrysler is huge but it doesn’t have a great deal of power. You wouldn’t worry too much unless they merged with General Motors or Ford. So in this case large mergers above 200 million dollars get reported to both the justice department and the FTC. They decide among themselves which one will review it and then they apply the Clayton Act that I just described. They get some filings from the companies and then they almost always in a merger that has any serious potential for harm, file what's called the second request where they ask the companies for huge amount of documents and then they run a very full investigation of the market. So that's the process and a little bit of the substance. In the area of media mergers, it's a little more complicated because in addition to the antitrust review. There is a review by the federal communications commission that looks at competition issues and also looks at a broader public interest standard. But those are the two things that are going to go on in this merger.
Evan: How do you go about measuring the power that's at stake here? I know you made the distinction between size and power when it comes to the analysis here. What kind of factors go into thinking about the power of the parties involved?
Spencer: Well, there's two things going on, there's two sets of Crystal balls going on. The government has to get a crystal ball, because in these cases, the parties can merge, they can't finish the deal until the antitrust review has been completed. So the government is predicting what is the likely- not the inevitable, but the likely effect of this merger and then the parties have some opportunity to get out there crystal ball and say no that's not right and there might be some inefficiencies, or some other things you ought to consider, but the government has that first crack at it and has not first obligation to look into the future and figure out what's likely to happen. So what is power? Power in the law is power to raise price or the power to exclude competition. It can be either one of those.
Evan: Ryan, how do you approach thinking about these issues when you first hear stories of large mergers, large corporate transactions taking place. What's the first thing that goes through your mind when you start doing an analysis? Applying the expertise that you have and the perspective that you have to situations like this?
Ryan: It’s very similar to Prof. Waller's analysis. Any deal that exceeds that $200 million threshold, among others, is likely going to be subject to some degree of antitrust scrutiny. Of course, when there is a transfer of wireless licenses the communications act empowers the federal communications commission to review the deal as well. Any time one of these big telecom media mergers is announced what I tend to look at is first what sort of relevant markets might exist. How might the transaction increase the share of the merged entity in that market, and if so how is that likely to affect consumer welfare. Then there is the political side of things which is especially relevant, as far as the Federal Communications Commission is concerned, there is a long-standing scholarly debate over what exactly the public interest standard means, but I think it's fair to say, regardless of what you think it should mean we don't really have a good understanding of what it means and the courts have not articulated it. The FCC's discretion here is much more whatever the three of the five commissioners think it is, whereas on the antitrust side, there is decades of precedent regarding what sort of conduct is anti-competitive under the Sherman, Clayton acts, although that precedent is not as well flushed out in all areas. So one thing that was interesting in this merger the Comcast, Time Warner deal that will get into is that it raises some competition issues that involve buyer power which we don't have as much as an understanding of how the courts might approach it. So the question is, what will the agencies - what will the FTC, what will the Justice Department, which I think is likely to be the one taking lead on this deal, do in the coming weeks and months? Of course, there's going to be a lot of money spent by all sides of this companies that support the deal, companies that opposed the deal, and lots of public interest groups, nonprofit on all sides of the issue. There's going to be an academic debate that goes on and there's going to be a lot of money thrown around and political considerations as well, both which are interesting, depending on which side of the game you're interested in, or both.
Evan: Prof. let's go back and make sure we've got things sorted out. Again, this is for listener and the viewer of the program. It's comprised mostly of certainly consumers and content producers and business people, entrepreneurs, practicing attorneys who don't deal with antitrust issues, but we certainly all participate in the marketplace here and from a general public participation perspective, we're interested in these things. Let's make sure resort out what governmental powers or what governmental agencies are at work here. What laws they are applying and what their relative interests are. You mentioned that the Department of Justice would be playing a role, as well as the Federal Trade Commission as well. Is that right Prof?
Spencer: Partly when big mergers are filed the companies file their applications and then there deal documents with both the FTC and to the Justice Department and in the real world, only one of those agencies, reviews, it given that the Justice Department reviewed the prior Comcast NBC Universal deal, it's almost 99% is Ryan said that they will also be the agency that does the antitrust review on this new merger. So basically what you're going to find as we continue the conversation is Ryan and I probably agree on the description of how the law works and what people do and then we come from a very different normative place. I run an institute that looks at these issues of antitrust and regulation from sort of a consumer side perspective, but in terms of what happens: the antitrust division of the Justice Department is broken up into various sections that specialize in industries or occasionally one parts of the antitrust laws. So there's a section in the Justice Department - I don't remember the name of it, that handled the prior merger and is almost certainly going to handle this merger, they will assign a team of lawyers, paralegals and in-house economist to look at all the deal documents figure out what additional information they want from the companies. They will talk to customers, they will talk to competitors, they will listen to anybody else, but it's not a lobbying analysis within the antitrust division as much as it is a legal and economic analysis. It's about what they think the probable effects of this deal will be. They're looking for any substantial indication that this is going to raise price, reduce service, limit innovation or otherwise adversely affect anything that consumers and suppliers and customers care about in this industry.
Evan: And so they'll be applying the Clayton act, is that what we need to be looking at?
Spencer: Yes and that’s the hundred-year-old statue that I started talking about before the law has really developed since 1950 there's older case law that says any deal that produces a combined firm with more than 30% of a relevant market, you've got to fight about what that is. At least the old cases say that's presumptuous illegal, but right now that's really just a starting place for the analysis the government starts with these numbers. What's the relevant market where do these companies compete or act as supplier, customer relationships, they look at issues. If it's horizontal competition they're looking at how big is the market share. What are the efficiencies, if any, what is the likely harm to competition? If it's a vertical merger, which this is also in part, they will look at the effect on upstream and downstream and they're making - they're getting out their crystal balls that I talked about because in the end, they've got to do one of three things. They can either say okay, go ahead and merge they can say we will go to court and oppose this, or they will often say, and this is what has happened frequently in the past that we'll go to court, unless you change the deal in a particular way. So what's important for the audience to realize is that in spite of a lot of loose talk in the papers, the antitrust division and the FTC and other deals those agencies don't block mergers what they say is were going to go to court. They have to convince a judge that the law that we've been talking about is likely to be violated.
Evan: Can you think of some similar situations in the past that would help illustrate how this could turn out if the Department of Justice were to go to court? Does this look like any transaction that has played out that way in the past that people would know about?
Spencer: Oh , sure, there's a, this happens all the time the agencies get thousands of deals well over 90% are cleared without any substantial investigation within 30 days, 5 to 6% get this so-called request where the government needs a lot more documents to figure out its position. We’re talking about maybe a couple dozen deals a year where the agencies say we have a serious concern, let's sit down and negotiate what would take away our concern. And then there's just a tiny number of cases where they go to court and actually challenge it recently the government challenged the ATT acquisition of T-Mobile, which was abandoned and earlier than that, when Comcast purchased NBC Universal, they raised serious competition issues and the parties worked out an extremely complicated consent decree that will be relevance to what they do in this case, and we can talk about the details of that, but that's one deal that they blocked in one deal that they let through with conditions and there are just hundreds and hundreds of deals where the paperwork is filed and the parties go ahead and close the transaction shortly thereafter.
Evan: Last week, professor you were on Chicago tonight a news program on local television talking very informatively about this and I think you said something there that would indicate that you think that's what happens in this situation here right, a very complex agreement is struck a year from now. That's the perspective we'll be seeing on that. Am I getting that right?
Spencer: The time frame on that sounds about right to me. The Justice Department may not have gotten this required filing yet. I don't know whether the parties have prepared that or submitted it, but whenever they do it's not a surprise that they undoubtedly informed the Justice Department beyond the media reports. So the DOJ will get that a second request, which is like a gigantic administrative subpoena will go out and the deal is then put on hold while the DOJ completes its investigation. In the real world that is 5 to 7 months, and throughout that process they'll be having conversations with the parties, both about producing the evidence that they wanted as they begin to formulate their position. They'll start talking about what deals would render it acceptable if there are any. So I expect by the end of the year you'll know the Justice Department's position. I think there's some grounds for concerns that we can get into in that discussion, but I think there will be a constant back-and-forth about whether a new consent to create will emerge that will extend the basic framework from the old one.
Evan: Ryan what's the FCC's relative role then, the interest that it will be bringing to the analysis, as opposed to the Department of Justice.
Ryan: Well , the FCC certainly will and can consider consumer welfare in its assessment of the deal, but it also will likely consider other factors like how this deal might affect minority ownership of media. There are a whole host of factors that the FCC could use. It's worth noting that in the AT&T and T-Mobile merger that the Justice Department suit to block was actually going to court AT&T filed its reply in the Columbia District Court. It was seemingly ready to fight out and antitrust case and would have probably produced an interesting result either way, but then a couple months after the DOJ's pseudo-block the deal the FCC announced - this was back during Chairman Ted Kautsky term that it too would seek to stop the deal. The difference is when the FCC seeks to do that the remedy is not to go to an article through federal court under the communications act, but to rather go to an administrative law judge who works for the FCC, then to the full commission with the five commissioners and only then does a - that's engaging a licensed transfer have the ability to get review from a federal court. So it was only after the FCC also decided to stop the deal that ATT T-Mobile backed out. So in this case, it will be interesting to see if both the Justice Department and the FCC try to block the deal or just one of them. From my vantage point, because of the competition issues that we can discuss in a moment; think it's probably somewhat more likely that the FCC will act because the case be made against this deal on antitrust, while certainly not crazy, not meritless is not as robust as it was in, say, the ATT T-Mobile situation. The FCC however, although I don't expect it to try to block the deal has the means to do so in a way that is from the perspective of Comcast or Time Warner or cable more worrisome. That's sort of how it's likely to play out over the next few months is we'll see these two different sets of agencies evaluating this deal under two different frameworks, both which are procedurally difference.
Spencer: They also talks to each other Evan. They were closely together so they don't waste their time and duplicate effort, but they have completely different standards which is what Ryan's talking about.
Evan: They are tasked with different things. So that would make sense that they do different things to approach it
Spencer: Both sides are very sophisticated. They share a lot of common analytical frameworks, but the FCC has much broader powers as we have been talking about.
Evan: I don't want to hold back this conversation anymore. I've been trying to lay some ground work here of how it'll work procedurally and what the law is to all of this - what law applies to all of this and helps us understand it, and imagining where it's going to go here, but let's talk about these competition issues here that could be controversial in our conversation here. So, Prof. Waller, good or bad - this deal?
Spencer: Troublesome, I'm not sure if it's good or bad, but it raises serious antitrust issues. It's a complicated case and this is going to be a less controversial show, than you might have envisioned because Ryan and I probably agree on most of these things. I agree with his characterization that it raises much harder issues to wrap around than ATT T-Mobile. Let me just back up on that deal. And why the Justice Department charged ahead and we never got a resolution. In that market, consumers buy cell phones and both companies competed in most of the big cities. When you merge them together it took out a player. So in many markets you went from 4 to 3, from 3 to 2, and in many cities when you combine those two companies you get a very high market share and cell phones are a difficult industry to enter, so you couldn't count on brand-new markets popping up in 16 new cities. In addition, AT&T and T-Mobile both competed in the nationwide market for corporate and government contracts and so that merger conceivably could have compacted competition in both of those markets. So now cut to the deal and cut to what we're talking about today. Right now, these two companies don't compete directly for consumers in any city or very many cities that I'm aware of.
Evan: That seems to be a point that people really try to drive home that they are different markets. There's not a single customer that they're competing over, that seems like it would be really relevant.
Spencer: It’s highly relevant. It's not a particularly good thing that you don't have a choice of cable companies, but that exists in this deal isn't going to make it any worse in the short term. You don't have this direct overlap where today there are two or three companies fighting for your business and tomorrow there will just be one left. You have the same number. If you're a Time Warner Company the name of your cable company will change, but you'll still have the same cable company. There is a nationwide market, though, where they do compete and the competition could be affected in that. They buy content they distribute content; they do business with Internet backbone. And so in that sense this nationwide market is consolidating the merger will produce an entity that has approximately 30% of all customers nationwide, for phone service, or cable service and approximately 50% if I understand it right for customers to buy a bundle of Internet, cable and phone. So the concerns are a little bit different. There more vertical than horizontal. For example, cable companies buy content and so this combined entity will be in a position to both throw its weight around as a buyer in buying content and because it's also good content provider Comcast produces programs they have acquired a vast amount of programming when they bought NBC Universal, Time Warner has some content as well. They're in a position of both being a competitor and a supplier and distributor for other people's content and that's terrifying for a number of companies, particularly the Netflix of the world, movie studios that depend on them as the pipe into people's homes. So those are some of the issues and then the other way around is when Comcast and Time Warner are selling content distributing content. They may favorite versus the distribution of the other competing cable systems. So those are the concerns and those are harder, much harder to wrap antitrust around when there are three cement companies in the country and two of them merge that's pretty easy and you can come up with a pretty easy remedy. It's much harder to wrap your head around this sort of buyer seller relationship and come up with the remedy that will preserve competition. The Justice Department as I mentioned before in the earlier deal that the deal will go through, but impose some conditions, primarily what they call both net neutrality and nondiscrimination provisions. So that for a certain number of years the combined Comcast NBC Universal is not allowed to favor its own distribution or its own content and they establish some kind of cool actually, but complicated arbitration provisions. If somebody thinks they're getting screwed basically.
Evan: I like the cement company example; it's a rock solid analogy. Thank you. Ryan what do you see as the big concerns?
Ryan: Well, I completely agree that it doesn't matter that for purposes of this discussion that most people in the country have 2 wireline providers for broadband and television. If you imagine a situation where, say, there were three wireline nationwide, and this deal would result in Comcast being one of those three everywhere in the country, but no more than one from a competition perspective that would be actually slightly more concerning, because that would be 33% rather than 30%. So the way to start looking at this is the side where Comcast is buying contents for now, mainly on the television side where it's buying content from the broadcaster stations in each local market, along with nationally cable networks from companies like Time Warner, which is distinct from Time Warner cable. Time Warner owns TNT, TBS and other companies. Then there are a lot of other big players in this market, you have Viacom, of course, which owns Comedy Central, VH1, MTV, Nickelodeon Walt Disney Company, News Corp, CBS, Scripps network AMC and discovery communications among many others. So, from the perspective of competition it's really that side of the market. The nationwide market for selling content to television providers where there is the potential argument for decreasing in competition by the increase in Comcast share. So today, Comcast has roughly 22,000,000 subscribers nationwide. After this deal that will now go to about 30 million of 100 million so that's a market increase there's no doubt about that. Whether a content provider should be terrified - I maybe when you such a strong word, but certainly concerned that their leverage might decrease. There are a couple of issues here. First of all, an increase from 22 to 30 is not an insignificant increase. However, right now, if you look at the global concentration in the market for television, you have a market that is un-concentrated – at least according to the frame work that the anti-trust agencies use. You have a HHI under 1500, after this deal if you just look at the market for nationwide content and you assume that all content providers are competing against one another. That number after this deal with increased to slightly above 1500, which would make it a moderately concentrated market, which is not by any means an automatic rejection, but you can make the case that this is going to raise some concerns. However, there's also the challenge of whether it's a bad thing, or a good thing or consumer welfare, for programming costs to be facing greater pressure multi-channel video program distributor. That's the term that's used sometimes to refer to it a cable company or satellite company or a fiber company that is delivering video if you look at the price history of television of the last decade, and longer cable television bills and satellite bills go up every year by a rate that almost always exceeds inflation by several percent. The main reason for that is programming costs are going up the program creators are investing a big share of that in producing more expensive programming which consumers like on the other hand, consumers don't like their rates going up. So the question is, if Comcast after this deal could put more leverage on the company selling the content, even if that might be seller harmful to the content companies themselves is a harmful for the overall welfare picture? I think it's far from clear. And I think it's actually unlikely that it is. And even if it is, it's probably very minor because of 30%. It's still far from the level where you could really act as a dominant player and really force the prices down dramatically on the margin Comcast might be able to. Then there's the other issue which is, of course, Comcast is competing against the networks with this ownership of NBC Universal, but that market for content as albeit not extremely un-concentrated, it's not clear that this merger would let Comcast significantly crowd out the other creators of programming in the market for video so that's the side of what this could mean from a negative perspective or consumer welfare than the other side is what's the positive Pro competitive side of this deal. Now you always hear economy scale efficiencies and so forth to make out a little more concrete for folks who deal with these companies, Comcast or Time Warner, my understanding is that the state. It will certainly be flushed out in coming months, but in general, Time Warner cable offers a lesser product on the broadband side, than Comcast does. In most markets Comcast is offering higher throughput connectivity per dollar spent. So if I were a Time Warner cable subscriber, which I'm not. I'm actually Comcast subscriber, I would be somewhat happy that Comcast were buying my cable company. Sure, I may not like either cable company, but at least Comcast in part because of its scale and in part because of its vertically integrated structure which allows it to earn profits that other pure infrastructure providers can't has built a network that is better than that of many other cable companies. So that's the potential benefit of this deal that for the 8 million subscribers whose cable company will be bought out, they could end up with a better broadband product and they could end up with television product where programming costs are increasing at a lower rate. The question is, is this sufficiently troubling on net when you take these two considerations among others to merit the Justice Department suing and federal court blocking the deal? I think it's unlikely of course as data is analyzed the price behavior of the buyers in the market for content. That may change that analysis may be more complex, but for now, I don't see a very good argument that this deal is sufficiently harmful to competition, to justify intervention, especially of course, when we recognize that any time you block the merger there's a serious risk of a false positive where you prohibit a procompetitive deal because you don't know exactly how to evaluate the future. So, given the presumption that I think has been implied by a number of reports. When in doubt, you probably want to let a deal goes through a long, with the clear benefits to consumers here. I think it's probably a good thing, and will probably succeed on the antitrust side.
Evan: Prof. in your opinion in a piece in the Chicago Tribune, you said this deal has the potential to do a variety of mischief down the road. Does that kind of assertion do anything to respond to what Ryan said there about the effects of this thing?
Spencer: The Tribune gave me a total of 400 or 450 words, so I didn't get a chance to get into the details, or even address the efficiency arguments that the defendants are going to articulate that Ryan did a nice job of explaining. So to respond; first of all Ryan and I come from a slightly different place. There's a huge body of research that suggests that large megamergers between roughly equal firms, particularly stock deals are just a recipe for disaster or shareholders, for customers, for everybody and that the efficiencies are often thrown out there. And again, this is sort of the other side of the crystal ball. The firms are saying, oh, yeah. If the merger goes through it's going to be great for all these reasons. The history is they don't often get realized. AOL Time Warner is one of the classic examples that was supposed to produce all kinds of efficiencies for everyone, and it was just a disaster for everyone concerned. Even on the company and shareholders side. So it's not that I'm against efficiencies. I think they're great when they are truly provable in advance. They should be considered very heavily by the government and its possible. If you're a Time Warner customer that good things may come out of it, albeit at a higher price. My intuition is even if they get better service, it will be paid for higher fees by existing Comcast users and the use of leverage and buying power to sort of drive better terms with the companies that the combined entities will do business with. From the consumer side and Ryan's talked a lot about consumer welfare, but not actual consumers you got to ask yourself, are you getting better service and are you getting better prices? Another way of saying it is if the company saves any money if they do, are they passing it along. Is it from the fact that they're better at their job or just that there the bigger company that's able to push around their customers and their suppliers and those are all questions that are going to be decided by huge amounts of privately available confidential information? The government will have that and I'll never see it, and Ryan will never see it. We'll only know what the final positions of the agencies are. So efficiencies are easy to forecast, but are hard to realize. Here's the problem; when you complete this merger, you will have a large vertically integrated entity that produces content, distributes it, provides phone service, provides Internet service, and it will make it very difficult for even more efficient companies who are not as integrated to compete. So for example if you're only a content provider, you must work out a deal with Comcast. You do not walk away from 30% of the customers for your content. If you are a competing ISP or cable company, you need content you need customers and so I'll give you another example from a few years ago. Live Nation and Ticketmaster merged and Live Nation is the largest at the time, promoter of concerts, manager of talent, and controlling arenas. Ticketmaster was the largest ticketing service in the country and you created this vertically integrated company so that if you were an independent concert promoter, you needed to do business with one of your biggest competitors in order to book arenas and get ticketing services, etc. and again, it raises these exact same issues of open access, not free access just open an equal and not discriminatory access that I think are going to come up in the future when this deal goes through, now as a matter of prediction. I don't think they're going to block it. I think they're going to sit down and negotiate and extend some more of the terms that currently require net neutrality and nondiscrimination. My biggest fear is those terms expire in a few years. It's hard enough now and it won't be enough at the end of the day for the customers and competitors to have open market.
Evan: You said those magic words, net neutrality, and we can't talk about this issue without addressing the question of net neutrality. The whole problem with content and the problem with the vertical market that you're talking about Prof. seems to be a lot like, or have a lot of the same pain points that people have when they think about net neutrality, but it also seems a little bit different. Can you say little bit more about how network neutrality plays into the analysis and the question on this point?
Spencer: One of the things that the FCC brought to bear. It's a little bit different than the Justice Department is they impose the condition in allowing the NBC Comcast merger to go through because the companies agreed to so-called net neutrality that they would not discriminator changer charge different fees based on the identity of the user. You can charge congestion pricing to everybody. You can charge volume pricing plans to everybody, but for example they couldn't charge more as an Internet provider to Netflix versus Google or something else. So that's in place, and it'll be there for few more years. I think it runs through either 2016 or 2018. So with this merger you have, in essence, even a larger share of Internet service provider that the combined companies would have and I would assume that the FCC - well, the companies have agreed that they'll be subject to the existing net neutrality rules. I imagine the FCC will try to extend them either in scope or in a number of years.
Evan: Ryan what's your thoughts on how network neutrality plays into this?
Ryan: I agree with Spencer's prediction. It plays into this because even though today. The main situation where Comcast is buying content on the video side the whole idea of a television package that exists separately from your broadband is going to become obsolete. It's a matter of when, not if. We've seen over the last few years toward cutting has gone from a very small phenomenon to a nontrivial one and it will become bigger as the years go on. So the question is a decade from now will Comcast, at least on the infrastructure side simply be providing that commodity of here's the pipeline for you, the user to access information from the entered at from Netflix, Google, Amazon and so forth, or will it be doing more? Will it have deals saying that Netflix contents doesn't count against your monthly usage, which is currently 300 GB per user, whereas say a deal by not have such content from, say, HULU. That sort of market is likely to merge eventually. And of course, the net neutrality conditions would postpone that at least as far as Comcast is concerned, which is why Comcast is actually volunteered to extend its commitment to net neutrality for few years beyond what it's currently promised to do under the Comcast NBC Universal deal. So the question that is raised is do we generally think that it's troubling for these arrangements to emerge whereby a content provider arranges either an exclusive deal, or some sort of special treatment with the broadband provider or do we think that these arrangements could be good. Of course, I think that they could be bad in some situations, but I think they are more likely to be good than bad, and the important reason that's the case is because to me, based on what we've seen over the past few years, the leverage a lot of this leverages helped by providers of content. So Netflix has grown to a point where it's been able to negotiate arrangements with many Internet providers to get its content to their users without having to risk the public Internet. By coding Netflix data near the ISP’s users within the ISPs network. You have to ask yourself if you are a Comcast subscriber, and you have Fios as a competitor – fortunately, not everyone does, but let's take that example. If Comcast and say Netflix get into a dispute that results in Comcast degrading Netflix are you willing to switch to Verizon, Verizon has a better agreement with Netflix? To me that data would suggest at least so far, the antidotal evidence that consumers are much more interested in getting the data that they want that they are in having a cable company versus another broadband provider. Of course the fact that there are only two providers right now, colors, this conversation although we may see some wireless competition and future we may see Google cyber take off, but those are both highly speculative. But, this idea that we should have a blanket ban on these agreements seem troubling to me. That's what the FCC tried to do and was shot down in some respects by circuit recently and is now revisiting so a framework to me that considers the nature of these agreements and the incentive and ability of each last mile provider to engage in harmful conduct is crucial that something that for instance, the antitrust laws consider but the conditions the FCC would seek to impose would not it would be just as the Comcast Universal deal was - a blanket ban on these sort of preferential arrangements if it were extended as part of this deal I suspect it would also be a blanket ban. A per se rule for this sort of conduct seems unwise to me, especially as applied to all last mile providers but even applied to Comcast. What's so bad for instance, if Google wants to arrange a deal that allows its Comcast users to get Google content without counting against their usage cap for instance. I don’t see that as necessarily harmful and I’d like to see those sorts of arrangements play out before prescribing them universally.
Evan: Let’s talk about that. That sounds like an invitation to address that issue Prof. What do you think of Ryan’s – what’s so wrong with that?
Spencer: Well I think the key is – I don’t remember if you used the phrase or if Ryan used it. The key is infrastructure and we have a tradition that goes back 500 years that when you talk about infrastructure which can be very traditional stuff like roads, waterways, a port. People who control infrastructure are deemed common carriers and this goes back to medieval times. Even inn keepers had to sort of take everybody at whatever their posted rate was and not to discriminate based on their identity. If you need 2 rooms you charge them for 2 rooms but imagine a situation where some company owns a highway and also owns a trucking company. The question is what tolls are they going to charge? When they are a common carrier they have to charge everybody the same tolls whether it’s their own trucks or a competing truck. In a world where you do it on a case by case basis all of a sudden my trucks can’t get on Ryan’s highway without paying a higher toll and that’s the kindergarten version of what we’re talking about in this much more complex world where the FCC has to analyze this. So 2 things have come up and we’re talking about what is good policy – not just necessarily good antitrust law for this merger. Net neutrality is the regulatory response to try to keep infrastructure as a common carrier. And with antitrust we go one step further with if you can control the infrastructure and you discriminate against a competitor with respect to access, we may impose a duty of access, we may impose triple damages or monopolization under what’s called the Essential Facilities Doctrine. The simplest example I can give you actually comes out of Europe and not the United States – there are a bunch of companies that for just history control a port. They also run a ferry service out of that port and guess what happens every time a competing very service, whether it's more efficient or not, tries to get access? They can't get into the docks, they can't get terminal space, and they can't use the port. I like to see a world where you combined the regulatory notion of net neutrality and the antitrust notion of essential facility doctrine and keep infrastructure open and is really important because the point of that structure is people use it to create stuff downstream and we don't know what's coming, and we don't know who's going to be the winners or the losers of having broadband access that can be authors or scholars that can be musicians or movie producers and if you have net neutrality or something like it, you don't have to pick winners or losers, everybody gets it on the same basic terms they have to pay for it or whatever and then they win or lose downstream and society is often very much the better for it.
Evan: I am wondering - what you're talking about here sounds like the issues touch on some very serious concerns that I've read some commentary that would suggest that a merger of this sort in the media context actually is a threat to free speech. Professor is that overstating it is just being too grandiose in articulating one of the concerns that a reasonable person may have or is - how should we think about the idea that this threatens free speech?
Spencer: It’s not a First Amendment issue, but it is a potential threat to people who need any of these whether it's the content, whether it's the Internet access, to do what they do. I like to think of it as creative spillovers. We just don't know what's going to come out of all of this, but yet to call that free speech that's not where I go. I've seen those arguments. I understand what they're talking about, but that tends to get more wrapped up in the Bill of Rights stuff, that just isn't applicable here.
Evan: Are you just a sensible on the issue Ryan? Not ask you a loaded question.
Ryan: Sure, so of course, a company that has infrastructure could use it to stifle the opponents it doesn't like. I participated in a - to the DCC circuit in the Verizon case, arguing in fact that the net neutrality violates the First Amendment by compelling Internet providers to carry viewpoints with which they might not agree which you could compare to the Miami Herald case where the Supreme Court held that you cannot force a newspaper to carry editorials by respondents that disagree with the newspaper, but in all likelihood, with the exception of a provider that wants to provide family-friendly Internet service, you're not going to see a major provider block viewpoint, it doesn't like because that's bad business. Just as a lot of these major corporations try to avoid taking controversial policy positions on issues that don't really matter to them. Your goal is not alienate customers. Your goal is to make money and the best way to do that is to focus on the economical side. So there's much more merit to the concerned that the gatekeeper authority might be used to leverage infrastructure for profits , than the concern about free speech, although I don't think that concern is all that serious.
Evan: Prof. You said, the Chicago Tribune gave you 450 words, you get more than that here, why don't you put a cap on this for us before we move on to a topic other than this merger deal. How do we think about this?
Spencer: Think about it from the point of view of the real consumer five or 10 years from now as the industry further consolidates whether this deal is allowed to go through or not. Are they going to be better off are they going to get worse services at prices that are better or worse than now. How fast is innovation going to proceed? Are content providers going to be disadvantaged? We have to predict the future. That's why merger cases are in general harder that a cartel case or a monopolization case where you have something that's actually happened and you simply add a law, whether it's good or bad. This is an industry where as Ryan points out, there are essentially two wires into the home. One was on the cable side and one was on the historical phone company side those industries don't compete all that vigorously. Susan Crawford has a terrific book about captive audience that talks about some of these issues. This merger is that going to immediately reduce options for the consumer, they will still have the same two wires, but down the road how can we best make this market more competitive? I'm convinced that you want to keep infrastructure companies much more like the old-fashioned telephone or even the electrical grid. If you control the pipes you shouldn't control content. That's why this merger is troubling to me. I'm just going to put on my hat what I think should happen but what I think will happen. I think there will be hard negotiations, I think there will be a consent decree that will impose continued conditions of nondiscrimination and conditions of net neutrality, the companies will be delighted to go forward on that basis. That makes me extremely concerned the best arguments that they have is that they have some continuing and future competition with the telecom companies with dish TV, with satellite TVs and eventually mobile some of that is true. However, none of those are exactly reasonable alternatives. The problem is, yes, the media world is converging, but if you buy that basic notion, that convergence, everything that means you let Comcast by every single cable company and they'd still be making those arguments that the other industries somehow constrain them. The evidence is it's a weak constraint and it's going to get weaker.
Evan: Lisa, you're still with us right?
Evan: What do you think? For me, from my perspective, this has really been a privilege to be able to hang out with Prof. Waller and with Ryan and to hear about all these things. What kind of a horse to you have in this race. What are your thoughts, what are your perspectives?
Lisa: I have cable Internet from Time Warner and I’m very concerned about the content discrimination. I represent a lot of content creators a lot of homegrown sort of YouTube type creators and just under the smell test - I mean the whole thing just stinks. I don't know why Comcast has to own NBC and universal, they made this very shortsighted, short-term agreement to keep the delivery of services neutral. I don't know why this has to end in 2017. It just seems sort of a priori evident that of course, consumers are going to, that, of course there's going to be discrimination if they've explicitly agreed that after the expiration of that consent decree, they can throttle competitors like Netflix. So I'm very concerned about it, and I'm very sensitive to the rhetoric that is being put out about defining the market in a very facile one-dimensional way, just based for example on the remarks of Comcast CEO. He was only focused on the market for television - cable television subscribers, but he's not looking at the vertical layers of bundled services. So yes, I'm very keen to understand from Prof. Waller and from Ryan exactly what all of the foreseeable effects on content creators as well as on content consumers. For years I've sought to understand why it is that everyone just seems to accept that, of course you want massive amounts of speed download, but upload everyone should be content with only a fraction of what you can pay for download. Aren’t our voices also importance and I haven't seen anything that's trying to help people who are trying to start companies that rely on the ability to project a dissenting or diverse voice. So I'm extremely concerned about the merger and I hope that, if nothing else, it will provide a moment to show everyone the importance of net neutrality. Many other countries have it, it's something very capable of being passed in law and I definitely hope that the arguments ultimately are supported by hard data, statistical evidence and a history of how these giant media conglomerates have actually used their power in the past and I'm sure were going to get into the Netflix throttling accusation story later on in the show, but I just can't stress enough how important it is that we look at all angles of the story and not just at the consumer market as passive recipients or viewers of cable television, because the facts. That it concerns our ability to communicate with each other and innovate on the Internet and start businesses that depend on high-speed output instead of just download I think that's all a very critical part of this conversation.
Evan: I think those are some great points and no doubt will be much more to happen as the story develops and as the different processes take place over the next years, thank you for those comments. So let's move onto another topic, but before we do that the panel might take a quick relaxation break here. Let's take a moment to say thank you to the sponsor of episode 247 of This Week in Law. Scottevest - I'm actually wearing a Scottevest. So my question for you is how many pieces of clothing are actually engineered not just designed but engineered. Scottevest clothing is engineered with tons of pockets to make carrying and using your gadgets easy, comfortable and discrete. We are fans of Scottevest, you can see that here because we carry a lot of stuff. We also love how you can wire a battery pack from one pocket into another to keep your electronics charged all day without being tangled. It's a lifesaver for Google glass users too I presume, I'm not so fortunate to have been a Google glass user yet. If you can get the camera back on me had like to just show I've got the vest and there's just tons of pockets in here, some of them. I haven't even figured out how to get into them yet. I can carry all my stuff. Of course I've got my cell phone. I've got my digital camera. I'll just give you a little demonstration of all the stuff you can carry in this, sunglasses of course. I've got all the stuff that you need when you carry around to have a useful effective, productive life, all the tools that I use every day. So it's a great product I can actually say that. So Scottevest is more than just a vest they make high-quality, hoodies, jackets, shirts, pants, and other items for men and women to carry their gadgets and gear in style. They include a patented personal area network or pan to keep your wires under control. Perfect for battery packs as we were saying earlier, or your headphones, especially at the gym. They are engineered with tons of hidden pockets that I showed you, essential to keep your cash, gadgets and important documents safe, especially when you're traveling. Scottevest actually has a pick pocket guarantee and will reimburse you up to $1000 if you are pickpocketed while wearing your Scottevest. So I thought that was interesting - you could put somebody up to picking your pockets. So over 10 million pockets sold and counting in celebration of its 13th anniversary Scottevest is running a 40% off sale for 14 of their best selling items now through February 24, so that deadline is approaching quickly, that's Monday. Sale items include the men's and women's trenches, Scottevest’s new puffer jackets. I have one of those two, and it is amazing. It's so warm, even though it's thin and lightweight, fleece 7.0 cardigans bamboo Polo’s, performance T-shirts and convertible travel patents, which can quickly change from full length pants to shorts. So visit Scottevest.com/twit that is S C O T T E V E S T .com /twit to check out the great Scottevest products that you can buy for 40% off during this sale and be sure to use the promo code TWIT13 at the checkout. That is TWIT13 for Scottevest’s 13th anniversary, but you only have until 9 PM Mountain Time on February 24th, that's Monday to take advantage of this incredible sale. If you're watching and you listened to this late, and you've missed the sale be sure to check them out anyway and use the code. Scott Jordan from Scottevest said he would put up other great deals just for the twit Army like you all and they feature different sale items daily for 20% off. That is Scottevest.com/twit and use the code TWIT13 at checkout. We thank Scottevest for their support of TWIL. All right, let's keep it moving on and talk about some privacy issues. I think this is pretty big news this past week, the Massachusetts Supreme Court held that the cops should have gotten a warrant before they obtained cell site location information on a criminal defendant, trying to figure out where he was at the time of a murder that he was suspected of. This idea of cell phones, mobile devices being big sources of information is an important one, and in this case here the Massachusetts state Supreme Court recognized that a person has an expectation of privacy in data that happens to be stored by someone else, somewhere else. Professor, did you take a look at this, and what are your thoughts on this, from your perspective?
Spencer: Sure. I took a quick look at it, particularly in an article that was at the National Review online about this, and it’s a major step forward. There are two things going on here: The first is, this is a decision under Massachusetts state constitution, and their equivalent of the Fourth Amendment, so it wouldn’t be binding in federal courts, and it wouldn’t necessarily be adopted in any of the other states. This is a big step forward. This is among the few decisions that have said that an individual has a reasonable expectation of privacy with respect to data stored by a non-governmental entity, and so all that’s very different. The U.S. Supreme Court, about a year ago, said that the Federal Government needed a warrant (or any state would need a warrant), with respect to putting on a tracking device – a GPS – on a drug dealer’s car. But there, the information was being gathered by the government, not a private entity. So I applaud this decision, it’s a major step forward, and I don’t know enough about all fifty state constitutions, and my best guess is that this won’t spread widely outside of Massachusetts. But it’s definitely a step in the right direction. In my prior life I was an Assistant U.S. Attorney, and we had to get warrants for a wide variety of things, and it’s just not that hard. You just have to demonstrate probable cause. It’s a proceeding where you go in to a judge, there’s nobody on the other side, you have an affidavit and sometimes an agent or a police officer to support your application. Unless the judge really sees something that smells, he or she grants the warrant, and you proceed. So, it involves a little extra work, and a little extra time. I’m delighted that they’re going to have to do this in Massachusetts going forward.
Evan: Right. In this case, what they had done was gotten a “D Order” – an order under section 2703-D of the Stored Communications Act, the federal statute – to get this information from I believe it was Sprint. So the court was sort of giving the government another bite at the apple here; they remanded the case back to the trial court, allowing them another chance to put forth information whether there was probable cause. So, in this particular case, this defendant isn’t necessarily walking free yet, and this information may very well be evidence, but it is important and – I think you kind of intimated it there – Massachusetts does kind of tend to be very pro- data privacy in its legislation. Lisa, what do you think of this decision?
Lisa: Oh, I agree, I think it is also a step forward. I think that it’s such a minimal requirement, when you compare it to the magnitude of the type of information that law enforcement could collect regarding your whereabouts. I did appreciate the distinction that was being drawn here, between the actual cell phone records and the location information that is collected and stored by the cell phone providers. I hope to see more decisions like this in other states, even if they are only under state constitutions.
Evan: Ryan, what do you think?
Ryan: I, too, am happy about the decision. Federal appeals courts, so far, have not given us much hope that, ultimately, we will see cell-site location information being protected by the warrant requirement. On the other hand, the Jones decision – albeit relating to the physical attachment of a device to a car – showed that there is unanimity on the Supreme Court about location tracking in some contexts. Whether that extends to the compelled disclosure of information from cell phone companies will be interesting to see. I think that it’s helpful that the Massachusetts Supreme Court looked at the distinctions between relating to the physical attachment of a device to a car – showed that there is unanimity on the Supreme Court about location tracking in some contexts. Whether that extends to the compelled disclosure of information from cell phone companies will be interesting to see. I think that it’s helpful that the Massachusetts Supreme Court looked at the distinctions between what’s happening when the government forces a company to divulge location data from what was happening in the classic case, of Smith v. Maryland, where the Supreme Court said that the Fourth Amendment does not impose a warrant requirement when the government obtains dialed number information — who you’re calling on the phone. What the Massachusetts court explained was that, among other things, there’s no volitional disclosure of your location information with your cell phone in the same way that you’re typing a dialed phone number to tell the phone company where to send your call. The fact that your cell site information is being collected in the first place is something that some people don’t know about, and – even though of course we all know that our cell phones are connecting to a tower – where the tower is, what sort of information is being collected doesn’t have that same sort of volitional quality of sharing that motivated the Supreme Court in the Smith case. Although I have some skepticism about whether there’s any good reason why sharing information with a third party with arrangement to keep it private should be exempt from the Fourth Amendment requirement, there are some interesting reasons why this is distinct along with, of course (as Lisa explained), the more uniquely invasive privacy implications of the government being able to figure out where you’ve been, and where you’re going, prospectively.
Evan: Professor Waller, what the court did was take a look at – from a different perspective, draw a different conclusion – the “Third Party Doctrine,” which was articulated in those cases that you’ve talked about. Is it Smith v. Maryland? Is that one of them? And then there’s the Miller case that does that as well. What the court in Massachusetts did here was recognize that there is an expectation of privacy when that data is in the possession of a third party, because of this “volitional” element of it here. They talk about how it’s different than bank records, or phone numbers dialed, where you know that you are providing that to the third party. Your location information is just done involuntarily. So to speak. I mean, I think that is probably overstating it a little bit, but because of that, the court made a qualitative different and said that there is an expectation of privacy. Is there a risk, though, that there is a slippery slope here, that we’re going down, especially with the evolution of technology? If you think of where we may be in twenty, thirty, fifty years, with all of the technology that may be integrated into our bodies (Google Glass is just a harbinger of something like this), won’t someday all information be going somewhere else, and involuntarily being disclosed, so that the Third Party Doctrine is essentially eviscerated by this exception that the court seems to be articulating here?
Spencer: You know, I’m not an expert on the Fourth Amendment. I’ll leave that to my Constitutional Law and Criminal Procedure colleagues. The problem has always been the reasonable expectation of privacy. That changes over time, and that can cut both ways. In general, the reasonable expectation of privacy, in a sort of subjective, societal sense, is less and less. We’re all aware of how little privacy we have with respect to information that’s being generated by us, or collected by others. So that could really cut the other way, down the road. The more consumers become aware, and the more people become aware, of how much data is being drawn from us or provided by us, could be used by a more conservative court to say “Anybody in their right mind had no reason to think that this is protected from government search or gathering.”
Evan: Lisa, have you given any thought as to whether, if courts were to take this position more broadly about the reasonable expectation of what essentially is metadata here (it’s information about where you were; it’s not the contents of your communication)… have you given any thought as to whether this could affect any of the law suits, particularly the one by Senator Paul against the NSA for the collection of metadata. What do you think of that? Is that just crazy talk?
Lisa: No! I mean absolutely, what you’re seeing is a convergence of scary entities that are amassing power and amassing data all at once. I think that it does – you know, it’s only one of fifty states – but it does go into the overall social analysis and expectation of changing norms and privacy. I think these small victories for privacy are very important, but think about what’s been going on in the news lately: If you can track people’s locations, and you can also have drones do civilian attacks, it doesn’t take much connecting of the dots to put together this dystopian possible future. All these little pieces, you need to sort of play them out, into the worst-case scenarios, to understand why each of these small things becomes very critical over time. So you have a precedent now, in one of the states, and if that’s the only precedent there is, it’s going to be useful, possibly. Not necessarily persuasive, and certainly not binding on other states. Then, if you have enough of these precedents, the Supreme Court can look at them to define what is society’s expectation. I realize that there are legal problems with the vehicle that Rand Paul’s lawsuit is using, but the spirit of it is quite legitimate, and quite important, and we should be generating a dialog on whatever level we can to understand. Everyone, wake up! What’s going on?! We’re consolidating power in a few private enterprises, and also, bit by bit, have the opportunity to shape privacy law going forward. So that’s the connection I would make between this Massachusetts case and the Rand Paul lawsuit.
Evan: Your using an interesting word reminded me that I do need to drop in a pass phrase for those folks listening for MCLE credit, or other professional credit. Let’s go with “dystopia.” And, if you can spell that on the first try without consulting a dictionary, whether it’s “i” or “y” at the beginning, I think you should get double credit, right? Does anybody agree? So “dystopia,” the first MCLE pass phrase for episode 247 of “This Week in Law.” Ryan, last word on privacy, cell site information, cell site location information, and the expectation of privacy.
Ryan: Well, we’ve all been talking about the courts, but it’s worth noting that there are several bills in Congress, with bipartisan support in both chambers, that would statutorily impose a warrant requirement on this sort of access. That would extend, of course, not only to federal law enforcement, but also to states as well. One bill is the GPS Act, supported by folks like Senator Ron Wyden, Mark Kirk, and John Conyers, and many others in both chambers. So, we may see this resolved through legislative vehicle, such that the courts don’t need to get weigh in. That’s what Justice Alito suggested in his concurrence in Jones — that, with some of these complex technical issues, it may be better for legislatures to set a floor that’s [indistinct] to the constitution, so we don’t have to rely on generalist judges to make these determinations for us.
Evan: Great. Alright, well let’s move on now, and talk about an interesting trademark issue. Lisa, you put this in the run-down for today. There’s this ongoing trademark saga with King, the maker of “Candy Crush,” with the different things that are going on with trademarks and their conduct and activities. Their maneuvering! Tell us what’s on there, what you saw interesting about this story.
Lisa: Oh, I thought this was kind of interesting, just because there’s so much merger and acquisition activity going on in the news, and it seemed to go along with the announcement that King, which is the gaming company that publishes “Candy Crush Saga,” has filed for an intended IPO. I don’t know what they’re going to do with all that extra money, I don’t know why they would want to invite all of the FCC oversight, but be that as it may, they’re making tons of money on this game, “Candy Crush.” But it has a slight trademark issue with a pre-existing Casual Games smart phone game called “Candy Swipe,” which functions very similarly (from what I’ve read) to “Candy Crush Saga.” For those of you that don’t know, the story is basically that this smaller game publisher published some sort of open letter and trademark opposition to “Candy Crush Saga,” claiming “confusion among the public” as to the source of their… in the gaming world, I guess it’s called “lining up three,” or “swipe,” lining up three of the same candy. Anyway, the game mechanics are somewhat similar, but they did have priority in terms of the date that they had applied for the trademark. So initially, King had published an open letter, saying that they didn’t want to overstep their bounds, or impinge on other game makers. But then, interestingly – sort of around the time that they seemed to have been getting ready for their initial filing, for the contemplated Initial Public Offering – they acquired another game publisher, that had a Casual Game under the name “Crush Candy” or “Crusher Candy” (it’s in the show notes). Now that they have amended their response in the trademark office to claim prior use, because (I found it to be somewhat disingenuously represented) basically what they said in this amendment to their trademark office filing was “Well, it’s come to our attention that there is a prior use of a smart phone game with ‘Candy’ in the trademark, and we happen to own the assets of this company. So, we own the assets of this company, and we want to claim prior use.” Basically, it’s one of these stories about a little guy getting pushed around by a big company, but it does raise interesting issues about the nature of trademark law, and the need to protect your mark, or protect your territory, and the public policy reasons about it. I talked to a friend of mine, Rocky Rawls, yesterday (who actually was my boss when I did the Starbucks work that we were talking about last week, with the ‘Dumb Starbucks’ editorial), and I asked him what he thought of this. He said “Well really, it doesn’t help you, because you can acquire the assets of another company, and you can acquire the mark, but if you didn’t use the mark for a similar good or service, it’s not going to help you retroactively.” I thought that was kind of an interesting story. I think this goes to show, sort of, that when you are accountable to shareholders, you’re going to make business decisions that are defensible in terms of what affects your bottom line. You may mean well, you may like to be a good member of the gaming community, but if what your shareholders expect is to produce value and beat competitors, you may do something like this. And I do definitely see a correlation between this apparent about-face by King in its trademark policy and the filing of the IPO documents.
Evan: It seems to be that people seem to think that King is acting a little bit trollish here, wouldn’t you agree? That they recognize this problem, so then they go acquire rights, got rights from somewhere else to then try to make a superior showing in a trademark dispute. Do you agree, Lisa, that that seems to be the critique? I don’t think anybody’s calling them a troll in this, but is that something that seems to be rubbing people the wrong way on this?
Lisa: I do. The initial impression is one that does seems that it is a predatory move. I mean, if you look at the quality of King’s game, and the quality of the game that they’re supposedly competing with, and the quality of the game that they acquired, they’re nowhere near in the same type of category. I don’t think that a customer would think that they came from the same source. So this does seem predatory, and I do think it’s interesting, from a trademark perspective. Why can’t they be happy with the $1 million a day in cash that they make through the app store? I don’t know why that’s not enough for them. I guess they’re worried someone’s going to cancel their mark. And if they do, so what?! I mean, why don’t they just make a non-confusing mark, and just continue cashing in all that money? [laughs]
Evan: Right. What do you think, Ryan? Is there anything wrong with King’s approach to maneuver with what trademark law may or may not allow to try to get the most rights?
Ryan: I’m not familiar enough with this dispute to condemn it, but it doesn’t sit entirely right with me either. I don’t see a substantial likelihood of confusion here, although I haven’t played either of the games at issue. And it also seems somewhat… you might say it looks a little like a troll, as you might traditionally consider it in the patent context, to buy up this trademark for this reason. I’m skeptical, as well.
Evan: Professor, what about you? What do you see as a good use of trademarks in contexts like this, perhaps from a consumer interest standpoint?
Spencer: Well, I’ll defer to Lisa as the working expert on this, so it’s hard for me to weigh in on this specific dispute. The only think I would notice is that, of all the IP rights, trademark seems to have expanded the farthest the fastest, certainly in recent years. It’s inconceivable when you create the basic notion of trademark – originally, as just an indication of origin and source – to get to the point where we’re at today, where it’s a valuable form of property, it’s a foundation for branding, and in many industries it’s probably more valuable than patents and copyrights. So in terms of how the consumer has benefited, or not, it’s something that deserves a lot more attention, and it spills over into my area a little bit. Brands can be a source of competitive power that take advantage of consumers, but as to the specifics, I’m just not familiar enough.
Evan: Mmm-hmm. That’s an interesting point. What do you think about that, Lisa – the expansion of trademark law? Because I think this is an idea that is lost on people pretty often, the idea that trademarks really – trademark law, historically, traditionally, has existed to protect the consumer, so that they know the source of the particular product that they’re purchasing here. What would be your comment on the assertion that it has expanded, and moved now more to protect the entity asserting the trademark rights, kind of having lost sight of the original intention of “protect consumer?”
Lisa: This reminds me of a thesis that the French semotician Jean Baudrillard had put forth in the 1980s, which was—
Evan: Let me stop you right there. With an introduction like that, you could say whatever, and we’d believe you, even if we haven’t heard of any of that stuff. “Oh, well then, of course, if it was French, and he has a name like…” [all laugh] Ok, go on…
Lisa: [laughing] I’m just trying to loosen up the mood here, with all this doom and gloom. He posited that, in the future, there will be so much information and such in inundation of signifiers, that the strength of a signal itself would have value in itself. Not just what it was actually standing for, but just how strong it was. So, logos in themselves have value, and I think in trademark law that is absolutely true, that it’s not just what the logo is standing for, but how recognizable worldwide the logo is. And we see this all around the world. You’ll see these logos in very unexpected places. And trademark law… it’s about protecting assets that are valuable as indicating the quality of a source. It’s supposed to protect the consumer, but it also is supposed to reward the mark holder for having a good reputation. So I do think that it’s one of these areas of law that is only bound to become more significant, and some playfulness like we saw last week… But it’s serious business.
Evan: You wonder if it should expand, or at least become a little bit more flexible. If you think of the way media is evolving – I’m thinking of disputes like Dish Hopper for example, that allow one to excise commercials from their media consumption experience – where else, then, do brands get the opportunities to make themselves known, except in the content themselves (which, by its very nature, that sort of expansion would seem to necessitate a need for the expansion of what trademark rights are)? It seems like there ought to be something like that there. Let me ask again, for the second time, would something like that be crazy talk? Ryan, what do you think?
Ryan: No, I don’t think that’s crazy. I mean, as this content market evolves, we will certainly see the meaning of what it is to have trademarks change. I also think that Professor Waller’s point, about this massive expansion of trademark, is interesting, especially in that – unlike copyright and patents – it’s not mentioned in the constitution. It’s also not traditionally conceived of as quite a property right in rem, to the extent of patents and copyrights, yet it’s expanded quite a bit, which is interesting, given that its purpose is, in some respects, more circumscribed than these other types of intellectual property.
Evan: Well, very good. Lisa, anything else you want to say about trademarks?
Lisa: Well, not today. [laughs] I think that’s a lot for today, but I did enjoy the discussion.
Evan: Good. The second MCLE pass phrase for episode 247 of “This Week in Law” is “aircraft.” “Aircraft” is the second MCLE pass phrase. So, did you see that Dropbox changed its Terms of Service, and that there are some people who find this to be of interest? There’s a piece over on Lawyerist, , by Sam Glover, that was published yesterday, on the 20th, highlighting that Dropbox amends its Terms of Service to add mandatory binding arbitration, and also no class actions. Lisa, let me go right back to you on this. What should we make of companies trying to constrain the rights of its [sic] users in this way?
Evan: Mmm-hmm. Professor, is this bad corporate behavior, for companies to be taking away the class action right of its users?
Spencer: Well, this makes me crazy at a lot of different levels. Lisa is absolutely right, the Supreme Court has said it’s fine, and in addition to the Concepcion case, there’s a case from within the last year involving American Express and a little restaurant in Little Italy, in New York, called Italian Colors. The Supreme Court just laid the hammer down. It was five to four. I urge everybody to read Justice Kagan’s dissent. It’s brilliant, it’s forceful, it’s the strongest… It basically says that American Express forces all merchant accounts to waive arbitration – I’m sorry, to waive litigation, engage in arbitration, and give up any collective arbitration, so that all a restaurant could do, in this case, was bring an individual arbitration. And people need to know how it’s different than litigation. Arbitration, you pay a substantial filing fee, as opposed to the $350, I think it is, in Federal court to bring a case. You pay a case based on the amount of damages you claim. You pay for the arbitrator’s time, you and the other side split that up, they don’t work for free. Obviously, a litigant can’t pay a judge, that’s called bribery. And so on. In general, you’re responsible for the other side’s costs if you lose. And so no one in their right mind will bring a small dispute to arbitration. The risk is companies will completely insulate themselves from liability, including the misuse of the very power that forces you into arbitrating something that you’re never going to do. It’s legal, it’s terrible… I commend Dropbox, for both sending us all an email, which I received the other day, and for providing this opt-out that Lisa talked about. I just must say one the $350, I think it is, in Federal court to bring a case. You pay a case based on the amount of damages you claim. You pay for the arbitrator’s time, you and the other side split that up, they don’t work for free. Obviously, a litigant can’t pay a judge, that’s called bribery. And so on. In general, you’re responsible for the other side’s costs if you lose. And so no one in their right mind will bring a small dispute to arbitration. The risk is companies will completely insulate themselves from liability, including the misuse of the very power that forces you into arbitrating something that you’re never going to do. It’s legal, it’s terrible… I commend Dropbox, for both sending us all an email, which I received the other day, and for providing this opt-out that Lisa talked about. I just must say one brief clarification: it’s not free, it’s sort of premium. There’s three or four different levels, depending on how much storage space you use. So this does, in fact, affect a fair amount of consumers who are paying real money, even right now.
Evan: Right, and there’s also the concern about the whole issue of the privacy aspect of this, and whether or not Dropbox is working with the NSA, to bring that up again. Ryan, what do you think about companies doing this? Are these good decisions for them to make, in the marketplace?
Ryan: Sometimes they may be good decisions, especially when it’s a service that’s a low price, or un-priced. Of course, if I’m a user of a service, and I suffer a loss, I want all remedies available to me. But, if you look at it from a dynamic perspective, if companies are making decisions about what products to develop, and what prices to charge, I can see lots of situations where limiting your liability as a company, or even if arbitration effectively means that many avenues of recourse won’t even be worthwhile, basically eliminating most of your liability might allow you to offer better products at a lower price than you otherwise would. Of course, there are challenges, such as the fact that a lot of people don’t read these. But to the extent that people are at least generally aware of what they’re getting into, which of course is a big if, there are lots of benefits to be had by allowing these limitations on liability, limitations on class action, limitations on litigation, to exist. One of the great things about the Internet, and shows like this, and the many intermediaries that disseminate information, is that they are doing a lot of the work for consumers, in reading contracts, noticing these changes that people might not otherwise notice, and publicizing them. There have been several examples of companies changing their Terms of Service in response to outrage from users, sparked by a very small percentage. To me, that sort of “cop on the beat” that doesn’t arise from government but arises out of the varying non-private entities that are looking at these is the best way to balance these competing concerns of wanting companies to be able to adjust their liability to allow them to deploy the best products to consumers who maybe don’t expect the ability to obtain recourse. They want to use the service as is, they understand what they’re getting into, that you’re not putting important data on Dropbox, that you’re willing to lose it and maybe even be publicized without recourse; you should be allowed to do that. Of course the information is a problem, but that’s getting better as time goes on, so I would expect that we should gradually become less skeptical of these arrangements, even if there are some reasons to be skeptical today.
Evan: Great. Said very well from somebody who comes from an organization that pushes individual liberty. And on that note, speaking of your organization, Ryan, CEI… Switching topics here… Your organization – you were one of the co-authors on this, I believe – filing some comments with the, wait, was it with the FCC?
Evan: It wasn’t the FAA, was it? It was the FCC, in response to a notice of proposed rulemaking, about the use of mobile devices on aircrafts. So give us the – here you go – 30,000-foot view on what those issues are.
Ryan: So, for twenty-three years, it’s been illegal to use a cell phone on an airplane. Well technically, a cell phone on certain bands, but we’ll set that aside. That’s an FCC rule. There was also a long-standing FAA rule that also limited mobile devices. As we all know, late last year that rule was lifted, so you can use a tablet and a smart phone at the same time from gate to gate now. But not in transit, no. The FCC rule however, still prohibits many transmissions during flight. However, many foreign countries have lifted these rules for flights above ten thousand feet, or three thousand meters. So, if you’re flying abroad, in many cases, if you have a world-capable phone (quad-band GSM, or whatever), you will actually be able to get on what’s called a “picocell” in your plane that is linked to a ground-based cell network, either via satellite or via spectrum. You can do data in some cases, text and even, in some cases, voice, albeit at a higher rate than on the ground. Of course, many people are worried that it would be terrible if it were legal to use a cell phone to make a call on a plane. I understand those concerns, and I think that’s exactly why Delta Airlines filed comments saying they have no plans to allow voice calls, regardless of what the agency does. What we argued in our comments was that the FCC should, as it is moving toward lifting this rule and allow people to make cell phone calls, engage in cell phone data transmissions on aircraft that have installed the relevant equipment and obtained consent from the ground wireless providers, to make it unlikely to cause interference with the ground network. I don’t see a reason why the government needs to be involved in this. Of course, it might by unfortunate for somebody to get on a plane, realize after they board and bought the ticket, that everyone is talking on a cell phone. But I’m guessing that the media, especially in this case, will report very aggressively on which airlines allow in-flight calls. Southwest has said maybe they will. Of course, the FCC has to act, but then this goes back into the FAA’s hands, or the DOT, which is technically statutorily the entity that is the ultimate power broker here, to finally allow this use in-flight on U.S. airplanes. I think there’s a good chance that, within the next few years, we will see airlines start to offer in-flight mobile data, maybe in some cases voice. The benefit, of course, is that instead of having to authenticate with GoGo Wi-Fi or something, put in a credit card, you have a cell phone or tablet that’s already authenticated with your wireless provider, and reduces the hassle of billing, which is one major benefit, along with the ability to make calls. I would doubt – for the many countries that allow this, most voice calls that occur are very short, a few minutes long, because it’s expensive to talk in flight, and people just generally have etiquette. Like, you don’t kick the seat in front of you; you don’t chatter away for an hour. Which is why I think it probably shouldn’t be a governmental issue.
Evan: I wish that etiquette would translate to the Metro here in Chicago, that you all are probably familiar with. In your comments to the FCC, Ryan, you talked about this Supreme Court case from 1946 that resolved the issue of whether it was a trespass at common law for an aircraft to fly over private property. And the Court held – I’m certainly not quoting chapter and verse from the opinion here, and I’m greatly glossing over some of the detail and nuance summarizing – essentially, if you fly high enough over private property, as to not bother the people and the property there, it’s not a trespass. How does that notion relate to this issue? Because I think there’s got to be an interesting comparison that you’re making here, but help us understand how that case from 1946 relates to this situation.
Ryan: Sure. So, the wireless carriers that we use – Verizon, AT&T, and so forth – own exclusive licenses for various bands of spectrum, whether it’s 700 megahertz, PCS, and so forth. These companies place bids at auction for these exclusive licenses. If a plane is allowing users to make and receive cell phone calls, the question is: to what extent does the wireless carrier that owns the exclusive license first, even own the rights at that level? Right now, no wireless carrier actually can offer service at 35,000 feet. Maybe, you’ll get service if you’re traveling over the Rockies, where the antennas are at an unusually high altitude, but they’re not offering service that’s usable at that level. Then there’s the question: what happens if one carrier says “I consent to the airline using my spectrum in each of its aircraft,” but another carrier doesn’t? Is the aircraft, or whichever company installs that unit in the aircraft, engaging in unlawful interference under the FCC’s rules? Under the current rules, it would be, if it were emitting anything, even beyond a very tiny amount of emissions on licensed spectrum. So one issue the Commission has to figure out is what exceptions it will create, because it’s not feasible to say that an airliner has to get consent from every single wireless carrier across the country. Because there aren’t just the big four, there are lots of regional carriers that have spectrum in one market where a different carrier has spectrum a hundred miles away, or a thousand miles away. So that’s the analogy to the Cosby case – that there is a strong case to be made that the transaction costs of requiring negotiation to clear all rights will prohibit this from emerging, so there needs to be a balancing act that reflects this cost. What we propose is that airlines can operate on licensed spectrum without opt permission from the carrier only for the purposes of lifting the noise floor, which prevents interference, and also to figure out which devices are compatible with the airline’s picocell. Remember, though, that the spectrum used to transfer this information from the plane to the ground is not the wireless carrier’s spectrum. It’s either a mobile satellite’s service, or the air to ground link, or something along those lines, or it could be spectrum that hasn’t even been put up for auction yet. We’re only talking about the spectrum within the aircraft, remember, because your cell phone can’t communicate over all bands, it only is capable of operating on those bands that its radio supports. So that’s the issue, whether that very minor interference, where a cell phone connects to a picocell fifty feel away inside an airplane to authenticate with Verizon, or figure out if it’s AT&T (in which case it gets no service), whether that’s an interference. We said it should not be, although in the future, perhaps that will change. If carriers begin to put balloons up in the sky, for instance, that operate using their spectrum, such that they might want to make use of the spectrum inside of aircraft. Because they’re not using is right now, a very limited exception to their exclusive rights seems sensible to us.
Evan: Great. Well thank you for bringing us up to date on that, and the interesting work that your organization is doing with the FCC on that. So we’re rolling things up here, we’ve got to wrap things up here in the next few minutes. As you know, if you are a frequent watcher of “This Week in Law,” we wrap up each episode with a Tip of the Week, and a Resource of the Week. So the tip this week is “How Not to be a Glasshole.” There is a piece over on CNN this week, Doug Gross over at CNN .com wrote a great piece talking about some information that Google released this week of some “do’s” and “don’ts” to avoid awkward moments if you become a user of Google Glass, which is of course going to be introduced into the market later this year. So, just some common-sense stuff here… The tip would be to review these if you are going become a glass user. “Do ask for permission.” It’s just like using the camera on your cell phone or something like that. “Don’t be creepy or rude.” If somebody asks you to take off your Google Glass, comply. “Don’t ‘Glass-out,’” that kind of is like going into your own little world because you are so enthralled and so enamored by reading, as it says here, “reading War and Peace on your Glass.” Anybody plan to become a Glasshole— I mean a Glass user, when these things go on market? Lisa, [are] you going to get a pair?
Lisa: I’ll sit this one out. I’ll wait for them to come out with frames are more my style. [laughs]
Evan: I hear you. I think there are some new styles, that was one of the announcements here, so, we’ll see what you like. Professor, what about you?
Spencer: Not unless they develop a bifocal version.
Evan: [laughing] There you go. Ryan? You’re also an eyeglass—
Ryan: I’m pretty interested. I already wear glasses, and adding a little more weight doesn’t seem like that big of a deal. I’d rather for it to be integrated into my eyeball, or directly interfacing into my brain, but I suppose we’ll have to wait a few decades for that. For now, being able to read emails while walking down the street sounds good to me. Might not be so good for the other people, but I think it should be interesting to try. I haven’t tried it, so I’m not sure if I’ll buy it, but I’m very interested.
Evan: Good. Well, I bet we don’t have to wait a few decades. I bet that integrated technology will be here sooner. I have a couple of Resources of the Week for you. If you are a bitcoin enthusiast, and are concerned about the ongoing value of the bitcoin, you might want to check out the Winkdex. This of course is named after the brothers Winklevei; they have put this thing together. It’s at Winkdex.com. Lisa, I wonder if there’s a trademark issue, because the first time I looked at it, it looks like “Windex” a little bit, so maybe Windex could be diluted in this regard. But anyway, it’s a blended price index, designed to reflect the true price of bitcoins, and you can go see how it fluctuates from time to time. Let me go around the room and take a survey here. Lisa, do you own any bitcoins?
Lisa: No! I’m very interested. It took a big dip last week, and I’m just trying to figure out who is a legitimate source of bitcoin, but I am very interested in it.
Evan: Professor, are you engaging in commerce in this fashion?
Spencer: Nope, I’m just studying it. I’m fascinated as to whether it’s going to become sort of a tradable asset, or really a payment mechanism. I’m betting that it’s going to end up being more of a investable commodity, and they’re not going to achieve their goals of revolutionizing payment, but what a great attempt.
Evan: Ryan, is this how you’re going to retire?
Ryan: I don’t think so. Speculative assets aren’t my cup of tea, but as a payment system, it would be great if it takes off. I’m skeptical that bitcoin is going to be the one that revolutionizes payments, but it wouldn’t surprise me if something like it someday does.
Evan: Great. Finally, this is probably the most important Resource of the Week for you. It’s a brand new Tumblog – does anybody still say Tumblog anymore? – Tumblr site… get ready for it here… thingsthatarecheaperthanwhatsapp.tumblr.com. We were kicking this around before the show started, and you know, most things in this world are cheaper than the price of Whatsapp, which Facebook is going to be reportedly buying for something like $19 billion. So, you know, some interesting things on this list. For example, the Hubble Space Telescope: $10 billion cheaper than Whatsapp. The London Olympics were cheaper, American Airlines, the country of Iceland, I think Jamaica – the country of Jamaica… Here’s one that kind of pulls at the heartstrings, right Lisa? I think you mentioned this. Clean water and sanitation for the entire planet: $10 billion. Aren’t we all a bunch of first-world Glassholes, to be thinking about things like this, if we could do that? So, everybody take a look, and put things in perspective by checking out thingsthatarecheaperthanwhatsapp.tumbly.com. Some very useful information. Well, that wraps it up. Let’s go around the room and say our farewells. Professor Waller, great to talk with you. Like I said, what a privilege to get your insight in-depth on these very current and interesting anti-trust competition issues, really appreciate you being on the show. Thank you very much.
Spencer: My pleasure, any time. Look forward to even talking about the anti-trust stuff with Facebook and Whatsapp, although I bet Ryan and I agree that at the end of the day, that one doesn’t pose any serious threats.
Evan: Right, and I know that you have written a very interesting paper about social media and anti-trust concerns, so anybody who does a search for your name on the SSRN Network about that, I would commend that interesting writing from a couple of years [ago], but still very timely.
Spencer: Thanks for having me.
Evan: Ryan Radia, Ryan Radia, great to talk with you again.
Ryan: Thanks. It’s great to be back.
Evan: Yes, yes. So, we look forward to talking with you again soon on some of these issues. Really do appreciate your commentary, and your insight on this, so it’s been great. Thank you. And finally, Lisa Borodkin, great to talk with you again.
Lisa: You too, and I really enjoyed the discussion with Professor Waller, and with Ryan. I hope to see you around on social media, if not Whatsapp, in the future.
Evan: [laughing] Sounds good. And thank you all very much for listening, or watching episode 247 of “This Week in Law.” Twenty-four seven… I guess we’re coming at you with episode 247 here. Be sure to check us out on our Facebook page, also at twit.tv/twil. Denise will be back next week. You can always reach out to Denise or me at any time. She is firstname.lastname@example.org; I am email@example.com. She is @dhowell on Twitter; I am @internetcases on Twitter. Thanks everybody for watching and listening. Thank to everybody in IRC for participating as well, and until next week, take care and we’ll see you then!