Monthly Archives: November 2016

Washington, DC – Internet Association President and CEO Michael Beckerman issued the following statement on the passage of the “Consumer Review Fairness Act of 2016” in the U.S. Senate:

“The internet industry applauds the Senate’s passage of this important piece of bipartisan legislation and calls on President Obama to sign it into law. Enshrining protections for freedom of expression online into law allows the internet to thrive. ‘Gag clauses’ in form contracts harm consumers and violate both American principles of free speech and the values inherent in a free and open internet.”

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Washington, DC – Internet Association General Counsel Abigail Slater issued the following statement on the release of the Federal Trade Commission’s (FTC) sharing economy report:

“The internet industry welcomes the FTC report on the sharing economy and its considerable benefits for American consumers. Consumers enjoy increased competition, lower prices, and better quality services when sharing economy platforms are able to compete. Consumer protections are hardwired into sharing economy platforms and the internet industry welcomes the FTC’s recognition of this important attribute.”

BECKERMAN: “The internet industry is a critical force for growth in our modern economy.”

Washington, DC – Today the Internet Association released a policy roadmap detailing opportunities for the incoming administration and Congress to enable continued growth and success in the internet ecosystem, and in turn, the U.S. economy.

“The internet industry is a critical force for growth in our modern economy,” said Internet Association President and CEO Michael Beckerman. “We look forward to working closely with the Trump administration along with Republicans and Democrats in Congress to implement policies that promote innovation and cement the internet’s role as a driver of economic and social progress for future generations. Internet companies are a key component for freedom and economic growth at home and abroad. The story of this industry embodies the spirit of free enterprise.”

The internet sector represented nearly 6 percent of GDP and 3 million jobs in 2014, with significant growth in the sector expected over the coming years. The roadmap encompasses nine key issue areas, focusing on policies that will continue to spur innovation, jobs, and economic advancement.

In the roadmap’s opening letter: “From its inception, the internet was built on an open architecture that lowers entry barriers, fosters innovation, and empowers choice. The internet represents the best of American innovation, freedom, and ingenuity.”

To read the full letter and roadmap, click here.

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SACRAMENTO, CALIF. – Robert Callahan, California Executive Director of the Internet Association, issued the following statement ahead of tomorrow’s vote on Measure K1 in Alameda, and Measure K in Watsonville:

“Despite what city officials want voters to believe, these ballot measures include hidden, new taxes on websites and apps that stream video content. Voters must understand that applying the Utility Users Tax to websites and apps represents a broad expansion of the definition of utilities, and could lead to increased taxes on these services in California. It would also open the door for countless other industries to be targeted for similar tax grabs in the future. Websites are not utilities, and should not be subject to the Utility Users Tax.”

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SLATER: “It’s no secret that poor quality patents are the patent troll’s weapon of choice against companies large and small.”

Washington, DC – Today, the Internet Association, along with the Computer & Communications Industry Association, Dell, Garmin, Intel, Red Hat, Samsung, SAP America, SAS Institute, The Software & Information Industry Association, Symmetry, and Vizio, filed an amicus brief with the United States Court of Appeals for the Federal Circuit in the Aqua Products, Inc. case supporting the U.S. Patent Office’s (PTO) efforts to improve patent quality.

The Internet Association and the other amici defended the PTO’s inter partes review (IPR) process and its positive outcomes for the U.S. patent system. The IPR process was created as part of the 2011 America Invents Act (AIA) to help clear low quality patents from the patent system.

“It’s no secret that poor quality patents are the patent troll’s weapon of choice against companies large and small,” said Internet Association General Counsel Abigail Slater. “The PTO has taken a careful and fair approach to the IPR process, and the patent system has fewer bad patents as a result.”

The amicus brief asks the Federal Circuit to hold that the Patent Trial Appeals Board (PTAB) may place the burden of persuasion on the patent holder to demonstrate the patentability of proposed amended claims, and that the PTAB may sua sponte raise patentability challenges to such claims. These rules promote the Congressional intent behind the 2011 AIA, directing the PTO to consider the effect of its rules on “the economy” and “the integrity of the patent system.”

The brief states, “Poor-quality patents pose a major problem for amici and other American innovators, and we agree that new statutory tools to improve patent quality were (and are) urgently needed. The AIA created several such tools that Congress hoped would ‘establish a more efficient and streamlined patent system’ and ‘limit unnecessary and counterproductive litigation costs.’ Inter partes review represents an important part of Congress’s effort to combat poor-quality patents. It provides a relatively quick and cost-effective mechanism through which interested parties, like amici, can challenge and eliminate claims ‘that should not have issued.’”

For more information, please read the Internet Association blog post by Abigail Slater further explaining the importance of this case.

To read the full brief, click here.

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Highlights the importance of mobile contracts

Washington, DC – Today, the Internet Association and Consumer Technology Association (CTA)^TM announced the filing of an amicus brief with the United States Court of Appeals for the Second Circuit in support of Uber Technologies, Inc. and the validity of mobile contracts.

The Internet Association and CTA argue in the brief that the court’s decision, “gave short shrift to the way in which consumers and internet- and mobile-based companies have been formulating contracts for years…” Should the district court’s decision be allowed to stand, the associations argue in the brief, the decision will threaten the many benefits of enforceable contracts signed via mobile device.

“Consumers want the convenience of mobile contracts and understand the enforceability of these agreements,” said Abigail Slater, General Counsel of the Internet Association. “Contracts signed via mobile device must be enforceable for the U.S. economy to benefit from future innovation online, and we hope the Court will reverse this unfortunate decision.”

A recent study from the Internet Association reports that the internet sector is responsible for nearly $1 trillion, or six percent of GDP. CTA finds that 19 percent of Americans rely on their smartphones for some access to the internet, and 10 percent of Americans access the internet mostly from their smartphones. Another study estimates that mobile commerce likely accounts for one-third of all online commerce in the United States and 40 percent worldwide.

“The ability to execute and enforce mobile contracts is fundamental to the online economy,” said Gary Shapiro, CEO and president of CTA. “The ease and convenience of mobile contracts greatly benefit users and innovators. We urge the court to reverse its decision.”

The brief states, “…mobile device usage is changing the way consumers are accessing the Internet, researching products and services, providing information to others, and contracting with companies. Consumers are able to do so on the go, untethered from their desktop computers or laptops, much less the brick and mortar locations of traditional consumer-facing companies. As consumers increasingly use their smartphones, all parties desire predictable and fair guidelines to direct their relationships, particularly in forming contracts.”

Finally, the brief argues that the court erred in its presumption against binding arbitration in contracts.

To read the full brief, click here.

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Introduction

Five years after one of the most heated internet policy debates of the 21st century, a new report claims that Stop Online Piracy Act (SOPA)-style website blocking isn’t such a bad idea after all. We disagree.

The new report from the Information Technology and Innovation Foundation (ITIF) claims that requiring internet service providers to block websites that host questionably legal content can prevent piracy. This analysis, and the public policy outcomes for which it advocates, are deeply flawed for a number of reasons.

Blocking sites ignores important legal implications for free speech, setting dangerous precedents for censorship and free speech. It’s also a terribly inefficient way to address online piracy. The United States has already enacted effective laws to prevent address illegal activity online-  new website blocking law would undermine the success of these laws. Finally, the analysis and evidence used to justify blocking websites is suspect and overstated.

Stepping Back: The Policy Around Piracy

The public opposition that ultimately blocked SOPA was not about piracy itself, it was about fears that SOPA’s resulting website blocking would also unintentionally restrict legal content and online speech. We can all agree on the worthy goal of reducing copyright infringement online, but the potential for unnecessary censorship caused by SOPA would have significantly undermined the technical and public policy foundations of a free and open internet.

To fully understand the potential harm of SOPA, it’s important to understand the foundational goals of copyright law: advancing the arts for the public good.

Existing policies balance the exclusive rights of creators with the flexibility needed to foster further creativity and the public interest. Laws like SOPA could force the blocking of websites that contain legal material, and would undermine the safe harbors that have grown legal online platforms.

The flexibilities in copyright law like fair use that protect the public’s access to legal content are not always clear. For example, the ITIF report refers to the benefits of blocking per se illegal material (meaning something that is illegal always, by its existence), such as child pornography. Accessing music, video and other intellectual property content may infringe copyright in one instance and be legal in another depending on how it was acquired or used. Combating piracy is a legitimate public policy objective, but protecting the public’s access to the scale and diversity of legal online platforms offers society significant economic, social, and cultural gains.

Through the Digital Millennium Copyright Act (DMCA), the U.S. has already established a robust legal structure to facilitate cooperation between industries in combating online infringement. This law lays the groundwork for addressing online copyright infringement – including safe harbor clauses that require internet platforms to expeditiously remove infringing content when identified – and has allowed internet companies and traditional creators alike to grow in the digital age.

The consistent, cooperative effort between creators and platforms is necessary to continually maintain a system of protections in a rapidly changing environment. However, creating an ecosystem of censorship and legal uncertainty through a SOPA-like regime would undermine the efficacy of the DMCA’s notice and takedown system.

The Numbers Don’t Add Up

Blocking websites has self-evident, dangerous legal implications, but there is also little evidence that it would be effective. The research drawn on by the ITIF report is well-intentioned in providing more empirical analysis to the issue, but their findings are ultimately unreliable.

After recreating the analysis utilized by the ITIF report – using the same data and procedure, but with more robust controls added – we found that blocking 53 piracy websites in the UK resulted in only a 1%-5% reduction in total online piracy, and that unblocked piracy increased between 0.1%-3.5%. However, even our results are not definitive because the original study’s approach (which we use) is insufficiently rigorous to produce any reliable results.

The first statistical red flag in the analysis drawn on by the ITIF report is the implausibly high R-squared figures in their regression summary tables. These figures are 0.979, 0.851, 0.99, and 0.97 for the four regressions reported.

Second, even taking the R-squared values at face value, the report’s summary statistics do not match their claimed results. Specifically, the report claims that Visits to Blocked Piracy Sites fell from 86,735 visits prior to the implementation of a SOPA-like website blocking regime, to 10,474 visits in the post-block period. However, the study’s flaws are highlighted when the pre-implementation Average Visits to Blocked Sites Per User are added together: there are only 62,894 Visits to Blocked Piracy Sites in the pre-period, compared to the 86,735 previously stated.

Third, the summary regression results report only 20 observations – 10 observation groups over two periods – but the analysis setup should result in 60 total observations. The study claims to look at a 7-month period – with 3 months of pre-block observations, the month of implementation (which is not included in the regression), and 3 months of post-block observations. Something doesn’t add up.

These obvious discrepancies cast doubts on their results, but there are more problems with the fundamental design of the study itself. First, there is little rationale for removing the month of implementation from this type of model – a better approach would have been to use a 1 or 2-month time lag in the model to account for delays in reaction to the website block.

Second, the baseline case used to benchmark the impact of new website-blocking legislation provides little insight. The control case was a group segment that was larger than all other segments combined and which had no Visits to Blocked Piracy Sites. A better approach would have been to use a control group that was similar in size and in the frequency of Visits to Blocked Piracy Sites, but who were not subjected to the November 2014 website blocking.

Third, the researchers fail to accurately adjust for up unobservable shocks and influences over time. They use a post-treatment dummy, rather than a time fixed-effect, which fails to incorporate that their study used six periods of observations.

Finally, there is an a priori expectation that blocking certain websites would lower the number of Visits to Blocked Piracy Sites. This tells us nothing. The more important question relates to what happens to Total Piracy Visits and Unblocked Piracy Visits – i.e. does piracy simply switch from blocked sites to other sites that are still accessible. To do this, the model should include a series of controls to account for all piracy activity including the use of unblocked sites, VPNs, legal subscriptions, and others.

Fixing The Issues

After discovering the flaws in the analysis, we reran the analysis using the same model and create two adjusted models that address those flaws.

The following three difference-in-difference model specifications were used in the replication:

where LnVisits_JT indicates the natural log of visits made by consumer group j during period t. After_T is a dummy variable for the post-treatment period and TreatIntensity_J is the average number of Visits to Blocked Piracy Sites per user in each segment. The term ControlVector_J represents a series of controls in natural log form (to allow for results as elasticities) for 1) Users in Segment, 2) Legal Subscription Visits, and 3) VPN Visits. The term μ_j is a set of segment fixed effects. Specification 1 is the original report model, Specification 2 adds in the series of controls for other types of piracy activities while leaving in the segment fixed effects and Specification 3 is the same as the Specification 2, but removes the segment fixed effects – which we feel are unnecessary given the inclusion of the control characteristics.

Because of discrepancies in the report’s data and claimed results, we used two scenarios. Scenario 1 used the figures from the summary statistics and Scenario 2 used the figures claimed in the results via the text. Since the figures reported in the summary statistics are for the pre-period only, the paper assumed an average 25% increase in 1) Users in Segment, 2) Legal Subscription Visits, and 3) VPN Visits in each segment in Scenario 1.

Finally, we do not agree with the control used in the original study so we ran our additional analysis with both the original study’s control group (Segment 0) and with a new control group labeled as the Alternative Control. The Alternative Control group (Segment 10, which replaces Segment 0) has the average number of each of the metrics from across the other 9 segments and assumes no treatment.

New Results

Across the three model specifications, in both data scenarios (Scenario 1 and Scenario 2), and using both the original control group and Alternative Control group, the results are statistically significant and consistent.

They show a reduction of just 1%-5% Total Piracy Visits and a corresponding increase of approximately 0.1%-3.5% in Unblocked Piracy. These are far less impressive results for advocates of website blocking than those found in the ITIF study. These findings are also the result of a more rigorous analysis, with a fuller set of scenarios that include proper controls, a better counterfactual scenario.

The results presented here illustrate two things, the claimed evidence on the effectiveness of website blocking is clearly suspect and, in the realm of internet policy, we must be careful to allow time for the sector and its members to innovate and develop effective solutions.

Conclusion

The Internet Association deplores illegal activities through any medium and strongly supports existing laws like the DMCA Section 512 to address legitimate infringement claims. However, website blocking is ineffective and is antithetical to a free and open internet. Promoting censorship online will undermine the effectiveness of successful laws and threaten the public’s interest.

Alluding to the once censored Fitzgerald – censored for ‘promoting’ illegal activity – we must be able to consider opposing thoughts at the same time and evaluate them fully.

Appendix: Regression Summary Tables