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TOTM In a recent long-form article in the New York Times, reporter Noam Scheiber set out to detail some of the ways Uber (and similar companies, . . .
In a recent long-form article in the New York Times, reporter Noam Scheiber set out to detail some of the ways Uber (and similar companies, but mainly Uber) are engaged in “an extraordinary experiment in behavioral science to subtly entice an independent work force to maximize its growth.”
Read the full piece here.
TOTM Ever since David Teece and coauthors began writing about antitrust and innovation in high-tech industries in the 1980s, we’ve understood that traditional, price-based antitrust analysis . . .
Ever since David Teece and coauthors began writing about antitrust and innovation in high-tech industries in the 1980s, we’ve understood that traditional, price-based antitrust analysis is not intrinsically well-suited for assessing merger policy in these markets.
For high-tech industries, performance, not price, is paramount — which means that innovation is key…
TOTM Earlier this week the European Commission cleared the merger of Dow and DuPont, subject to conditions including divestiture of DuPont’s “global R&D organisation.” As the . . .
Earlier this week the European Commission cleared the merger of Dow and DuPont, subject to conditions including divestiture of DuPont’s “global R&D organisation.” As the Commission noted:
The Commission had concerns that the merger as notified would have reduced competition on price and choice in a number of markets for existing pesticides. Furthermore, the merger would have reduced innovation. Innovation, both to improve existing products and to develop new active ingredients, is a key element of competition between companies in the pest control industry, where only five players are globally active throughout the entire research & development (R&D) process.
In addition to the traditional focus on price effects, the merger’s presumed effect on innovation loomed large in the EC’s consideration of the Dow/DuPont merger — as it is sure to in its consideration of the other two pending mergers in the agricultural biotech and chemicals industries between Bayer and Monsanto and ChemChina and Syngenta. Innovation effects are sure to take center stage in the US reviews of the mergers, as well.
TOTM What does it mean to “own” something? A simple question (with a complicated answer, of course) that, astonishingly, goes unasked in a recent article in . . .
What does it mean to “own” something? A simple question (with a complicated answer, of course) that, astonishingly, goes unasked in a recent article in the Pennsylvania Law Review entitled, What We Buy When We “Buy Now,” by Aaron Perzanowski and Chris Hoofnagle (hereafter “P&H”). But how can we reasonably answer the question they pose without first trying to understand the nature of property interests?
Popular Media BEWARE THE LURKING variable. Even if you didn't suffer through a semester of college statistics, you're probably familiar with the adage "correlation doesn't imply causation." But if you haven't had the pleasure, it's a fairly easy concept to grasp.
Beware the lurking variable. Even if you didn’t suffer through a semester of college statistics, you’re probably familiar with the adage “correlation doesn’t imply causation.” But if you haven’t had the pleasure, it’s a fairly easy concept to grasp.
TOTM My colleague, Neil Turkewitz, begins his fine post for Fair Use Week (read: crashing Fair Use Week) by noting that Many of the organizations celebrating . . .
My colleague, Neil Turkewitz, begins his fine post for Fair Use Week (read: crashing Fair Use Week) by noting that
Many of the organizations celebrating fair use would have you believe, because it suits their analysis, that copyright protection and the public interest are diametrically opposed. This is merely a rhetorical device, and is a complete fallacy.
If I weren’t a recovering law professor, I would just end there: that about sums it up, and “the rest is commentary,” as they say. Alas…
Amicus Brief Section 5 of the Federal Trade Commission Act, 15 U.S.C. § 45 [“Section 5”], is a consumer protection statute, not a data security rule...This fundamental point has been lost in the Commission’s approach to data security.
Section 5 of the Federal Trade Commission Act, 15 U.S.C. § 45 [“Section 5”], is a consumer protection statute, not a data security rule. See Commission Statement of Policy on the Scope of Consumer Unfairness Jurisdiction, Letter from the FTC to Hon. Wendell Ford and Hon. John Danforth, United States Senate (Dec. 17, 1980) [“Unfairness Statement”], reprinted in International Harvester Co., 104 FTC 949, 1073 (1984) [“International Harvester”] (quoting 83 Cong. Rec. 3255 (1938) (remarks of Senator Wheeler)) (“Unjustified consumer injury is the primary focus of the FTC Act….’”).
This fundamental point has been lost in the Commission’s approach to data security. The touchstone for Section 5 actions is not “reasonableness,” but consumer welfare: Does this enforcement action deter a preventable “unfair” act or practice that, on net, harms consumer welfare, and do the benefits to consumers from this action outweigh its costs? Section 5’s purpose is neither fundamentally remedial nor prescriptive. Concern for consumer welfare means deterring bad conduct, avoiding over-deterrence of pro-consumer conduct, minimizing compliance costs, and minimizing administrative costs (by focusing only on substantial harms) — not preventing every possible harm. Instead of weighing such factors carefully, or even performing a proper analysis of negligence, as it purports to do, the Commission has effectively created a strict liability standard unmoored from Section 5.
Across the Commission’s purported guidance on data security, it has likewise failed to articulate a standard by which companies themselves should weigh costs and benefits to determine which risks are sufficiently foreseeable that they can be mitigated cost-effectively. Thus, in addition to violating the intent of Congress, the FTC has also violated the Constitution by failing to provide companies like LabMD with “fair notice” of the agency’s interpretation of what Section 5 requires.
ICLE White Paper It's hardly an overstatement to claim that data is (or is fast becoming) the lifeblood of the modern economy. As new business models built on innovative uses of data emerge in the economy, these businesses are confronted with increasing regulatory constraints that may work to limit both the scope of their operation as well as their corporate structure.
It’s hardly an overstatement to claim that data is (or is fast becoming) the lifeblood of the modern economy. As new business models built on innovative uses of data emerge in the economy, these businesses are confronted with increasing regulatory constraints that may work to limit both the scope of their operation as well as their corporate structure.
Nominally in the name of consumer protection, largely in response to foreign government surveillance threats, but also significantly as a form of protectionism, many countries around the world have adopted various and differing data localization laws — what Chander and Le aptly call “data nationalism” — that either preclude or make more difficult the removal of data from a particular country.
Multinational data platforms (e.g., search engines, product review sites, electronic payment services (including credit cards), data brokers, and the like) that process data in a central location and/or that combine data across borders in order to improve their predictive algorithms are particularly affected by such rules.
Regulatory and legal approaches that make the collection and use of data more expensive along certain dimensions must, at least marginally, induce some companies to alter their behavior to avoid those costs and, consequently, to eschew potentially more beneficial business arrangements in favor of ones that correlate with lower regulatory risk, lower regulatory cost, and/or greater regulatory predictability. “However, regulation often influences behavior in ways that differ from the initially stated rationale.” By disrupting organizational structures designed to work with data, firms will respond to these regulations not only by altering their data collection and use practices, but also the organizational structures that complement them.
Data (information) regulation (as opposed to other types of regulation) is particularly likely to affect institutional structure. As Luis Garicano notes:
Organizations exist, to a large extent, to solve coordination problems in the presence of specialization. As Hayek pointed out, each individual is able to acquire knowledge about a narrow range of problems. Coordinating this disparate knowledge, deciding who learns what, and matching the problems confronted with those who can solve them are some of the most prominent issues with which economic organization must deal.
Regulations that affect how firms can collect, store, use and disseminate information may thus have significant effect on firm governance and organization.
Faced with costly regulations, firms engage in something akin to regulatory arbitrage. They face a tradeoff between incurring (or reducing) regulatory costs on the one hand, and increasing transaction costs on the other and, when regulatory costs are high enough relative to transaction costs, will rationally choose the latter over the former:
[Firms] face a tension between reducing regulatory costs on the one hand and increasing Coasean transaction costs on the other. Deal lawyers routinely depart from the optimal transaction-cost-minimizing structure even though restructuring the deal reduces its (nonregulatory) efficiency. A corporation that needs cash might minimize transaction costs by entering into a secured loan, but instead, in order to improve the cosmetics of the balance sheet, enters into an economically similar transaction to securitize the assets. A company that would minimize agency costs by incorporating in Delaware decides that, to save on taxes, it will instead incorporate in Bermuda. So long as the regulatory savings outweigh the increase in transaction costs, such planning is perfectly rational.
Unlike the theory of regulatory arbitrage, however, what I am suggesting here is not simply that firms exploit imperfectly drafted laws and regulations in order to opt-in to more preferable legal regimes (although that is certainly part of it). Instead, I am also suggesting that firms will structure their businesses in part to minimize the impact of legal rules, even where they still apply.
While many data and related privacy regulations are nominally aimed at consumer protection, efforts to avoid stricter consumer protection per se, in order to “exploit” consumers may not be the primary or even significant impetus behind firms’ efforts to arbitrage such rules. Instead they may be driven more significantly by efforts to evade the broader consequences of such laws for how their businesses innovate and experiment, what business models they employ, and how they are structured.
A related point is that effective use of data often (always?) requires implementation of complementary organizational structures. Rules affecting the collection and use of data may under-appreciate the inter-relatedness of data (technology) and its internal implementation (organization), such that their enactment and enforcement will engender not just technological responses, but organizational ones, as well.
Regulation imposes costs and rational actors seek to avoid those costs. But the situation here isn’t binary. Sometimes, when parties avoid costs, they merely seek to avoid a higher expense, and substitute for something more affordable — a substitution that is, by definition, a second-best (or worse) outcome.
This dynamic could manifest itself as companies simply choosing to collect and use less data, but it could mean a lot of other things as well. It could affect corporate organization (e.g., deterring vertical integration or creating “data firewalls” between different divisions of a company), encourage limits on the geographic scope of data collection or operation, affect the mechanisms for determining executive compensation, or (further) encourage jurisdictional considerations to dictate incorporation and principal place of business decisions. While choosing second-best options is rational from the perspective of regulated parties, it is nevertheless costly to society, both in terms of the firm’s efficient operation relative to its operation in a viable alternative regulatory regime and to consumer welfare generally.
Data regulations may also deter entry, thereby indirectly affecting business and organizational decisions of incumbent firms in the market.
Such consequences are often unobserved and unintended. The hypothesis presented here is that the actions of over-eager regulatory agencies will have a host of unintended effects not just on data use directly, but on how firms are organized, how business is done, and on corporate governance more broadly. The goal of this project is to discover and elucidate as much of this unseen ground as possible, and to determine the extent to which particular information regulation rules affect these outcomes.
TOTM Yesterday the Chairman and Ranking Member of the House Judiciary Committee issued the first set of policy proposals following their long-running copyright review process. These . . .
Yesterday the Chairman and Ranking Member of the House Judiciary Committee issued the first set of policy proposals following their long-running copyright review process. These proposals were principally aimed at ensuring that the IT demands of the Copyright Office were properly met so that it could perform its assigned functions, and to provide adequate authority for it to adapt its policies and practices to the evolving needs of the digital age.
In response to these modest proposals, Public Knowledge issued a telling statement, calling for enhanced scrutiny of these proposals related to an agency “with a documented history of regulatory capture.”
