Today the Federal Trade Commission (FTC) missed the mark in authorizing release of a staff report calling for legislation and regulation of the “Internet of Things.”

The Internet of Things is already affecting the daily lives of millions of Americans through the adoption of health and fitness monitors, home security devices, connected cars and household appliances, among other applications.  Such devices offer the potential for improved health-monitoring, safer highways, and more efficient home energy use, and a myriad of other potential benefits.  The rapidly increasing use of such devices, which transfer data electronically, also raises privacy and security concerns.  In November 2014 the FTC convened a one-day workshop to study the rapidly changing Internet of Things.

On January 27, 2015, the FTC staff released a report based on the record established by the workshop and follow-on comments from the public.  Unfortunately, the report went far beyond describing the state of play and setting forth the views of interested parties.  In particular, the FTC staff recommended detailed approaches businesses should follow to promote security and privacy in the Internet of Things, and repeated its prior call for strong data security and breach notification legislation.  The FTC voted 4-1 to issue the staff report, with Commissioner Joshua Wright dissenting and Commissioner Maureen Ohlhausen concurring but expressing opposition to two of the report’s recommendations (calling for privacy legislation and for companies to delete “excessive” but valuable data).

Commissioner Wright’s thoughtful dissent centers on the report’s failure to apply cost-benefit analysis to its recommendations, without which it is not possible to determine whether the recommendations are socially beneficial or harmful.  As Wright points out (footnotes omitted):

“Acknowledging in passing, as the Workshop Report does, that various courses of actions related to the Internet of Things may well have some potential costs and benefits does not come close to passing muster as cost-benefit analysis. The Workshop Report does not perform any actual analysis whatsoever to ensure that, or even to give a rough sense of the likelihood that the benefits of the staff’s various proposals exceed their attendant costs. Instead, the Workshop Report merely relies upon its own assertions and various surveys that are not necessarily representative and, in any event, do not shed much light on actual consumer preferences as revealed by conduct in the marketplace. This is simply not good enough; there is too much at stake for consumers as the Digital Revolution begins to transform their homes, vehicles, and other aspects of daily life.”

More specifically, Wright critiques the FTC’s proposal that companies limit the scope of data retention (“data minimization”) to protect consumers’ “reasonable expectations” and deter data thieves – as he explains, this proposal fails to discuss the magnitude of such costs to consumers and supplies no evidence demonstrating that the benefits of data minimization will outweigh its costs to consumers.  In a similar vein, Wright opposes the report’s proposal that companies adopt specific “security by design” measures, noting that:

“Relying upon the application of these concepts and the Fair Information Practice Principles to the Internet of Things can instead substitute for the sort of rigorous economic analysis required to understand the tradeoffs facing firms and consumers. An economic and evidence-based approach sensitive to those tradeoffs is much more likely to result in consumer-welfare enhancing consumer protection regulation. To the extent concepts such as security by design or data minimization are endorsed at any cost – or without regard to whether the marginal cost of a particular decision exceeds its marginal benefits – then application of these principles will result in greater compliance costs without countervailing benefit. Such costs will be passed on to consumers in the form of higher prices or less useful products, as well as potentially deter competition and innovation among firms participating in the Internet of Things.”

In sum, Wright concludes:

“Before setting forth industry best practices and recommendations for broad-based privacy legislation relating to the Internet of Things – proposals that could have a profound impact upon consumers – the Commission and its staff should, at a minimum, undertake the necessary work not only to identify the potential costs and benefits of implementing such best practices and recommendations, but also to perform analysis sufficient to establish with reasonable confidence that such benefits are not outweighed by their costs at the margin of policy intervention.”

The FTC does best when it rigorously evaluates the costs and benefits of its regulatory recommendations and proposed enforcement actions.  Unfortunately, in recent years it has lost sight of this common sense principle (particularly in the consumer protection area) in imposing highly burdensome advertising substantiation and data security enforcement requirements through litigation and consent decrees.  The detailed recommendations in the Internet of Things report suggest that the FTC may be eyeing public reports as a new source of “friendly persuasion.”  Because many firms may choose to adopt costly FTC business practice “suggestions” so as to avoid costly investigations and litigation, the actual harm in foregone business innovation and consumer welfare losses may not be readily apparent.  The competitive process and American consumers, however, are the losers – as are smaller companies that can less afford to absorb the costs of FTC micromanagement than their larger rivals.

Henry Manne was a great man, and a great father. He was, for me as for many others, one of the most important intellectual influences in my life. I will miss him dearly.

Following is his official obituary. RIP, dad.

Henry Girard Manne died on January 17, 2015 at the age of 86. A towering figure in legal education, Manne was one of the founders of the Law and Economics movement, the 20th century’s most important and influential legal academic discipline.

Manne is survived by his wife, Bobbie Manne; his children, Emily and Geoffrey Manne; two grandchildren, Annabelle and Lily Manne; and two nephews, Neal and Burton Manne. He was preceded in death by his parents, Geoffrey and Eva Manne, and his brother, Richard Manne.

Henry Manne was born on May 10, 1928, in New Orleans. The son of merchant parents, he was raised in Memphis, Tennessee. He attended Central High School in Memphis, and graduated with a BA in economics from Vanderbilt University in 1950. Manne received a JD from the University of Chicago in 1952, and a doctorate in law (SJD) from Yale University in 1966. He also held honorary degrees from Seattle University, Universidad Francesco Marroquin in Guatemala and George Mason University.

Following law school Manne served in the Air Force JAG Corps, stationed at Chanute Air Force Base in Illinois and McGuire Air Force Base in New Jersey. He practiced law briefly in Chicago before beginning his teaching career at St. Louis University in 1956. In subsequent years he also taught at the University of Wisconsin, George Washington University, the University of Rochester, Stanford University, the University of Miami, Emory University, George Mason University, the University of Chicago, and Northwestern University.

Throughout his career Henry Manne ’s writings originated, developed or anticipated an extraordinary range of ideas and themes that have animated the past forty years of law and economics scholarship. For his work, Manne was named a Life Member of the American Law and Economics Association and, along with Nobel Laureate Ronald Coase, and federal appeals court judges Richard Posner and Guido Calabresi, one of the four Founders of Law and Economics.

In the 1950s and 60s Manne pioneered the application of economic principles to the study of corporations and corporate law, authoring seminal articles that transformed the field. His article, “Mergers and the Market for Corporate Control,” published in 1965, is credited with opening the field of corporate law to economic analysis and with anticipating what has come to be known as the Efficient Market Hypothesis (for which economist Eugene Fama was awarded the Nobel Prize in 2013). Manne’s 1966 book, Insider Trading and the Stock Market was the first scholarly work to challenge the logic of insider trading laws, and remains the most influential book on the subject today.

In 1968 Manne moved to the University of Rochester with the aim of starting a new law school. Manne anticipated many of the current criticisms that have been aimed at legal education in recent years, and proposed a law school that would provide rigorous training in the economic analysis of law as well as specialized training in specific areas of law that would prepare graduates for practice immediately out of law school. Manne’s proposal for a new law school, however, drew the ire of incumbent law schools in upstate New York, which lobbied against accreditation of the new program.

While at Rochester, in 1971, Manne created the “Economics Institute for Law Professors,” in which, for the first time, law professors were offered intensive instruction in microeconomics with the aim of incorporating economics into legal analysis and theory. The Economics Institute was later moved to the University of Miami when Manne founded the Law &Economics Center there in 1974. While at Miami, Manne also began the John M. Olin Fellows Program in Law and Economics, which provided generous scholarships for professional economists to earn a law degree. That program (and its subsequent iterations) has gone on to produce dozens of professors of law and economics, as well as leading lawyers and influential government officials.

The creation of the Law & Economics Center (which subsequently moved to Emory University and then to George Mason Law School, where it continues today), was one of the foundational events in the Law and Economics Movement. Of particular importance to the development of US jurisprudence, its offerings were expanded to include economics courses for federal judges. At its peak a third of the federal bench and four members of the Supreme Court had attended at least one of its programs, and every major law school in the country today counts at least one law and economics scholar among its faculty. Nearly every legal field has been influenced by its scholarship and teaching.

When Manne became Dean of George Mason Law School in Arlington, Virginia, in 1986, he finally had the opportunity to implement the ideas he had originally developed at Rochester. Manne’s move to George Mason united him with economist James Buchanan, who was awarded the Nobel Prize for Economics in 1986 for his path-breaking work in the field of Public Choice economics, and turned George Mason University into a global leader in law and economics. His tenure as dean of George Mason, where he served as dean until 1997 and George Mason University Foundation Professor until 1999, transformed legal education by integrating a rigorous economic curriculum into the law school, and he remade George Mason Law School into one of the most important law schools in the country. The school’s Henry G. Manne Moot Court Competition for Law & Economics and the Henry G. Manne Program in Law and Economics Studies are named for him.

Manne was celebrated for his independence of mind and respect for sound reasoning and intellectual rigor, instead of academic pedigree. Soon after he left Rochester to start the Law and Economics Center, he received a call from Yale faculty member Ralph Winter (who later became a celebrated judge on the United States Court of Appeals) offering Manne a faculty position. As he recounted in an interview several years later, Manne told Winter, “Ralph, you’re two weeks and five years too late.” When Winter asked Manne what he meant, Manne responded, “Well, two weeks ago, I agreed that I would start this new center on law and economics.” When Winter asked, “And five years?” Manne responded, “And you’re five years too late for me to give a damn.”

The academic establishment’s slow and skeptical response to the ideas of law and economics eventually persuaded Manne that reform of legal education was unlikely to come from within the established order and that it would be necessary to challenge the established order from without. Upon assuming the helm at George Mason, Dean Manne immediately drew to the school faculty members laboring at less-celebrated law schools whom Manne had identified through his economics training seminars for law professors, including several alumni of his Olin Fellows programs. Today the law school is recognized as one of the world’s leading centers of law and economics.

Throughout his career, Manne was an outspoken champion of free markets and liberty. His intellectual heroes and intellectual peers were classical liberal economists like Friedrich Hayek, Ludwig Mises, Armen Alchian and Harold Demsetz, and these scholars deeply influenced his thinking. As economist Donald Boudreax said of Dean Manne, “I think what Henry saw in Alchian – and what Henry’s own admirers saw in Henry – was the reality that each unfailingly understood that competition in human affairs is an intrepid force…”

In his teaching, his academic writing, his frequent op-eds and essays, and his work with organizations like the Cato Institute, the Liberty Fund, the Institute for Humane Studies, and the Mont Pelerin Society, among others, Manne advocated tirelessly for a clearer understanding of the power of markets and competition and the importance of limited government and economically sensible regulation.

After leaving George Mason in 1999, Manne remained an active scholar and commenter on public affairs as a frequent contributor to the Wall Street Journal. He continued to provide novel insights on corporate law, securities law, and the reform of legal education. Following his retirement Manne became a Distinguished Visiting Professor at Ave Maria Law School in Naples, Florida. The Liberty Fund, of Indianapolis, Indiana, recently published The Collected Works of Henry G. Manne in three volumes.

For some, perhaps more than for all of his intellectual accomplishments Manne will be remembered as a generous bon vivant who reveled in the company of family and friends. He was an avid golfer (who never scheduled a conference far from a top-notch golf course), a curious traveler, a student of culture, a passionate eater (especially of ice cream and Peruvian rotisserie chicken from El Pollo Rico restaurant in Arlington, Virginia), and a gregarious debater (who rarely suffered fools gladly). As economist Peter Klein aptly remarked: “He was a charming companion and correspondent — clever, witty, erudite, and a great social and cultural critic, especially of the strange world of academia, where he plied his trade for five decades but always as a slight outsider.”

Scholar, intellectual leader, champion of individual liberty and free markets, and builder of a great law school—Manne’s influence on law and legal education in the Twentieth Century may be unrivaled. Today, the institutions he built and the intellectual movement he led continue to thrive and to draw sustenance from his intellect and imagination.

There will be a memorial service at George Mason University School of Law in Arlington, Virginia on Friday, February 13, at 4:00 pm. In lieu of flowers the family requests that donations be made in his honor to the Law & Economics Center at George Mason University School of Law, 3301 Fairfax Drive, Arlington, VA 22201 or online at http://www.masonlec.org.

The famous epitaph that adorns Sir Christopher Wren’s tomb in St. Paul’s Cathedral – Si monumentum requiris, circumspice (“if you seek his monument, look around you”) – applies equally well to Henry Manne, who passed away on January 17.  Wren left a living memorial to his work in St. Paul’s and the many other churches he designed in the City of London.  Manne’s living memorial consists in the law and economics institutions which he created and nurtured during a long and productive career.

Manne is justly deemed one of the three founders of the law and economics movement, along with Guido Calabresi and the late Ronald Coase.  Manne’s original work on the theory of the firm and the efficiency justifications for insider trading was brilliant and provocative.  Of greatest lasting significance, however, was his seminal role in creating and overseeing institutions designed to propagate law and economics throughout the legal profession – such as the Law and Economics Institutes for Professors, Judges and Economists, and the Center for Law and Economics at Emory University (later moved to George Mason University).  Furthermore, with the expansion of law and economics programs to include foreign participants, law and economics insights are influencing litigation, transactions, and regulatory analysis in many countries.  Manne’s initiative and entrepreneurial spirit were a critical catalyst in helping trigger this transformation.

The one institution that is perhaps most intimately associated with Manne and his philosophy – Manne’s St. Paul’s Cathedral, if you will – is George Mason Law School in Arlington, Virginia.  When Manne became George Mason’s Dean in 1986, he arrived at a fledgling school of no particular distinction, which was overshadowed by major long-established Washington D.C. law schools.  Manne immediately went about overhauling the faculty, bringing in scholars with a strong law and economics orientation, and reinstituting the Center for Law and Economics at Mason.  Within a few years Mason Law became a magnet for first rate young law and economics scholars of a free market bent who found a uniquely collegial atmosphere at Mason.  Mason retained its law and economics orientation under subsequent deans.  Today its faculty is not only a source of pathbreaking scholarship, it is a fount of wisdom that provides innovative (and highly needed) advice to help inform and improve Washington D.C. policy debates.  This would not have been possible without Henry Manne’s academic leadership and foresight.  (Full disclosure – I have been an adjunct professor at George Mason Law School since 1991.)

Finally, I should mention that those of us who write for Truth on the Market (TOTM), not to mention countless other websites that share TOTM’s philosophical orientation, are indebted to Henry Manne for his seminal role in the law and economics movement.  I am sure that I speak for many in offering my heartfelt condolences to Henry’s son, Geoffrey Manne, the driving force behind TOTM.  Geoff, like the visitors to Christopher Wren’s masterwork, we look around us and delight in your father’s accomplishments.

During the 2008 presidential campaign Barack Obama criticized the Bush Administration for “the weakest record of antitrust enforcement of any administration in the last half century” and promised “to reinvigorate antitrust enforcement.”  In particular, he singled out allegedly lax monopolization and merger enforcement as areas needing improvement, and also vowed “aggressive action to curb the growth of international cartels.”

The Obama Administration has now been in office for six years.  Has its antitrust enforcement record been an improvement over the Bush record, more of the same, or is its record worse?  Most importantly, have the Obama Administration’s enforcement initiatives been good or bad for the free market system, and the overall American economy?

On January 29 a Heritage Foundation Conference will address these questions.  You can register to attend this conference in person or watch it live at Heritage’s website.

The conference will feature an all start lineup of top antitrust enforcers and scholars, including four former Justice Department Assistant Attorneys General for Antitrust; a former Federal Trade Commission Chairman; two current Federal Trade Commissioners; five former senior antitrust enforcement officials; a distinguished federal appellate judge famous for his antitrust opinions; and a leading comparative antitrust law expert.  Separate panels will address FTC, Justice Department, and international developments.  Our leadoff speaker will be GWU Law School Professor and former FTC Chairman Bill Kovacic.

As an added bonus, around the time of the conference Heritage will be releasing a new paper by Professor Thom Lambert that analyzes recent Supreme Court jurisprudence and federal antitrust enforcement applying a “limits of antitrust” decision-theoretic framework.  Stay tuned.

On December 11 I published a Heritage Foundation Legal Memorandum on this topic. I concluded that the federal courts have done a fairly good job in harmonizing antitrust with constitutionally-based federalism and First Amendment interests (petitioning, free speech, and religious freedom). Nevertheless, it must be admitted that these “constitutional constraints” somewhat limit the ability of antitrust to promote a procompetitive, pro-efficiency, pro-innovation, pro-consumer welfare agenda. Anticompetitive government action – the most pernicious and long-lasting affront to competition, because it is backed by the coercive power of the state – presents a particularly serious and widespread problem. How can antitrust and other legal principles be applied to further promote economic freedom and combat anticompetitive government action, in a manner consistent with the Constitution?

First, it may be possible to further tweak antitrust to apply a bit more broadly to governmental conduct, without upsetting the constitutional balance.

For instance, in 2013, in Phoebe Putney, the United States Supreme Court commendably held that general grants of corporate powers (such as the power to enter into contracts) to sub-state governmental entities are not in themselves “clear articulations” of a state policy to displace competition. Thus, in that case, a special purpose hospital authority granted general corporate powers by the State of Georgia could not evade federal antitrust scrutiny when it orchestrated a potentially anticompetitive hospital merger. In short, by requiring states to be specific when they authorize regulators to displace competition, Phoebe Putney makes it a bit more difficult to achieve anticompetitive results through routine state governmental processes.

But what about when a subsidiary state entity has been empowered to displace competition? Imposing a greater requirement on states to actively supervise decisions by self-interested state regulatory boards could enhance competition without severely undermining state prerogatives. Specifically, where members of a profession dominate a state-created board that oversees the profession, the risk of self-dealing and consumer harm is particularly high, and therefore the board’s actions should be subject to exacting scrutiny. In its imminent ruling on the Federal Trade Commission’s (FTC) challenge to anticompetitive rules by the dentist-dominated North Carolina Dental Board of Dental Examiners (rules which forestall competition by storefront teeth whitening services), the Supreme Court will have the opportunity to require that states actively supervise the decisions of self-interested regulators as a prerequisite to federal antitrust immunity. At the very least, such a requirement would make states be more cautious before giving a blank check to potentially anticompetitive industry self-regulation. It could also raise the costs of obtaining special government favor, and shed needed light on rent-seekers’ efforts to achieve regulatory capture.

Unfortunately, though, a great deal of anticompetitive governmental activity, both state and federal, is and will remain beyond the bounds of federal antitrust prosecution. What can be done to curb such excesses, given the practical political difficulties in achieving far-reaching pro-competitive legislative and regulatory reforms? My December 11 Heritage Memo highlights a few possibilities rooted in constitutional economic liberties (see also the recent Heritage Foundation special report on economic liberty and the Constitution). One involves putting greater teeth into constitutional equal protection and due process analysis – say, by holding that pure protectionism standing alone does not pass muster as a “rational basis” justification for a facially anticompetitive law. Another approach is to deploy takings law (highlighted in a current challenge to the U.S. Agriculture Department’s raisin cartel) and the negative commerce clause in appropriate circumstances. The utility of these approaches, however, is substantially limited by case law.

Finally, competition advocacy – featuring public statements by competition agencies that describe the anticompetitive effects and welfare harm stemming from specific government regulations or proposed laws – remains a potentially fruitful means for highlighting the costs of anticompetitive government action and building a case for reform. As I have previously explained, the FTC has an established track record of competition advocacy filings, and the International Competition Network is encouraging the utilization of competition advocacy around the world. By shedding light on the specific baleful effects of government actions that undermine normal competitive processes, competition advocacy may over time help build a political case for reform that transcends the inherent limitations of antitrust and constitutional litigation.

It’s easy to look at the net neutrality debate and assume that everyone is acting in their self-interest and against consumer welfare. Thus, many on the left denounce all opposition to Title II as essentially “Comcast-funded,” aimed at undermining the Open Internet to further nefarious, hidden agendas. No matter how often opponents make the economic argument that Title II would reduce incentives to invest in the network, many will not listen because they have convinced themselves that it is simply special-interest pleading.

But whatever you think of ISPs’ incentives to oppose Title II, the incentive for the tech companies (like Cisco, Qualcomm, Nokia and IBM) that design and build key elements of network infrastructure and the devices that connect to it (i.e., essential input providers) is to build out networks and increase adoption (i.e., to expand output). These companies’ fundamental incentive with respect to regulation of the Internet is the adoption of rules that favor investment. They operate in highly competitive markets, they don’t offer competing content and they don’t stand as alleged “gatekeepers” seeking monopoly returns from, or control over, what crosses over the Interwebs.

Thus, it is no small thing that 60 tech companies — including some of the world’s largest, based both in the US and abroad — that are heavily invested in the buildout of networks and devices, as well as more than 100 manufacturing firms that are increasingly building the products and devices that make up the “Internet of Things,” have written letters strongly opposing the reclassification of broadband under Title II.

There is probably no more objective evidence that Title II reclassification will harm broadband deployment than the opposition of these informed market participants.

These companies have the most to lose from reduced buildout, and no reasonable nefarious plots can be constructed to impugn their opposition to reclassification as consumer-harming self-interest in disguise. Their self-interest is on their sleeves: More broadband deployment and adoption — which is exactly what the Open Internet proceedings are supposed to accomplish.

If the FCC chooses the reclassification route, it will most assuredly end up in litigation. And when it does, the opposition of these companies to Title II should be Exhibit A in the effort to debunk the FCC’s purported basis for its rules: the “virtuous circle” theory that says that strong net neutrality rules are necessary to drive broadband investment and deployment.

Access to all the wonderful content the Internet has brought us is not possible without the billions of dollars that have been invested in building the networks and devices themselves. Let’s not kill the goose that lays the golden eggs.

During the 2008 presidential campaign, Barack Obama criticized the Bush Administration for “the weakest record of antitrust enforcement of any administration in the last half century” and promised “to reinvigorate antitrust enforcement.” Has the Obama Administration’s antitrust enforcement record over the last six years lived up to this extravagant promise? More specifically, what grade should be assigned to Obama Administration antitrust policy overall?

The Heritage Foundation will explore these questions in a January 29, 2015 conference entitled “Obama Administration Antitrust Policy: A Report Card.” The conference will start with a bang, with keynote remarks by former FTC Chairman, Professor Bill Kovacic – perhaps the most dynamic antitrust orator of our time.   The conference will then feature a free-flowing discussion among antitrust experts, with separate panels discussing the U.S. Federal Trade Commission (FTC), the Justice Department’s Antitrust Division, and international antitrust. Speakers will include top notch practitioners and scholars who have led the FTC and the Antitrust Division – and one distinguished federal jurist, D.C. Circuit Judge and George Mason Law Professor Douglas Ginsburg, who has been a leading academic, Assistant Attorney General for Antitrust, and OMB Administrator for Information and Regulatory Affairs. Former Assistant Attorney General for Antitrust James Rill, who was the leader in promoting international antitrust convergence, will also speak.

Best of all, the conference (including lunch) is free – all you need to do is register for it at the Heritage Foundation’s website. You won’t want to miss it.

Last week, the George Washington University Center for Regulatory Studies convened a Conference (GW Conference) on the Status of Transatlantic Trade and Investment Partnership (TTIP) Negotiations between the European Union (EU) and the United States (U.S.), which were launched in 2013 and will continue for an indefinite period of time. In launching TTIP, the Obama Administration claimed that this pact would raise economic welfare in the U.S. and the EU through stimulating investment and lowering non-tariff barriers between the two jurisdictions, by, among other measures, “significantly cut[ting] the cost of differences in [European Union and United States] regulation and standards by promoting greater compatibility, transparency, and cooperation.

Whether TTIP, if enacted, would actually raise economic welfare in the United States is an open question, however. As a recent Heritage Foundation analysis of TTIP explained, a TTIP focus on “harmonizing” regulations could actually lower economic freedom (and welfare) by “regulating upward” through acceptance of the more intrusive approach, and by precluding future competition among alternative regulatory models that could lead to welfare-enhancing regulatory improvements. Thus, the Heritage study recommended that “[a]ny [TTIP] agreement should be based on mutual recognition, not harmonization, of regulations.”

Unfortunately, discussion at the GW Conference indicated that the welfare-superior mutual recognition approach has been rejected by negotiators – at least as of now. In response to a question I posed on the benefits of mutual recognition, an EU official responded that such an “academic” approach is not “realistic,” while a senior U.S. TTIP negotiator indicated that mutual recognition could prove difficult where regulatory approaches differ. I read those diplomatically couched responses as signaling that both sides opposed the mutual recognition approach. This is a real problem. As part of TTIP, U.S. and EU sector-specific regulators are actively engaged in discussing regulatory particulars. There is the distinct possibility that the regulators may agree on measures that raise regulatory burdens for the sectors covered – particularly given the oft-repeated motto at the GW Conference that TTIP must not reduce existing levels of “protection” for health, safety, and the environment. (Those blandishments eschew any cost-benefit calculus to justify existing protection levels.) This conclusion is further supported by public choice theory, which suggests that regulators may be expected to focus on expanding the size and scope of their regulatory domains, not on contracting them. To make things worse, TTIP raises the possibility that the highly successful U.S. tradition of reliance on private sector-led voluntary consensus standards, as opposed to the EU’s preference for heavy government involvement in standard-setting policies, may be undermined. Any move toward greater direct government influence on U.S. standard setting as part of a TTIP bargain would further undermine the vibrancy, competition, and innovation that have led to the great international success of U.S.-developed technical standards.

As a practical matter, however, is there time for a change in direction in TTIP negotiations regarding regulation and standards? Yes, there is. The TTIP negotiators face no true deadline. Moreover, as a matter of political reality, the eventual U.S. statutory adoption of TTIP measures may require the passage by Congress of “fast-track” trade promotion authority (TPA), which provides for congressional up-or-down votes (without possibility of amendment) on legislation embodying trade deals that have been negotiated by the Executive Branch. Given the political sensitivity of trade deals, they cannot easily be renegotiated if they are altered by congressional amendments. (Indeed, in recent decades all major trade agreements requiring implementing legislation have proceeded under TPA.)

If the Obama Administration decides that it wants to advance TTIP, it must rely on a Republican-controlled Congress to obtain TPA. Before it grants such authority, Congress should conduct hearings and demand that Administration officials testify about key aspects of the Administration’s TTIP negotiating philosophy, and, in particular, on how U.S. TTIP negotiators are approaching regulatory differences between the U.S. and the EU. Congress should make it a prerequisite to the grant of TPA that the final TTIP agreement embody welfare-enhancing mutual recognition of regulations and standards, rather than welfare-reducing harmonization. It should vote down any TTIP negotiated deal that fails to satisfy this requirement.

In March 2014, the U.S. Government’s National Telecommunications and Information Administration (NTIA, the Executive Branch’s telecommunications policy agency) abruptly announced that it did not plan to renew its contract with the Internet Corporation for Assigned Names and Numbers (ICANN) to maintain core functions of the Internet. ICANN oversees the Internet domain name system through its subordinate agency, the Internet Assigned Numbers Authority (IANA). In its March statement, NTIA proposed that ICANN consult with “global stakeholders” to agree on an alternative to the “current role played by NTIA in the coordination of the Internet’s [domain name system].”

In recent months Heritage Foundation scholars have discussed concerns stemming from this vaguely-defined NTIA initiative (see, for example, here, here, here, here, here, and here). These concerns include fears that eliminating the U.S. Government’s role in Internet governance could embolden other nations and international organizations (especially the International Telecommunications Union, an arm of the United Nations) to seek to regulate the Internet and limit speech, and create leeway for ICANN to expand beyond its core activities and trench upon Internet freedoms.

Although NTIA has testified that its transition plan would preclude such undesirable outcomes, the reaction to these assurances should be “trust but verify” (especially given the recent Administration endorsement of burdensome Internet common carrier regulation, which appears to be at odds with the spirit if not the letter of NTIA’s assurances).

Reflecting the “trust but verify” spirit, the just-introduced “Defending Internet Freedom Act of 2014” requires that NTIA maintain its existing Internet oversight functions, unless the NTIA Administrator certifies in writing that certain specified assurances have been met regarding Internet governance. Those assurances include findings that the management of the Internet domain name system will not be exercised by foreign governmental or intergovernmental bodies; that ICANN’s bylaws will be amended to uphold First Amendment-type freedoms of speech, assembly, and association; that a four-fifths supermajority will be required for changes in ICANN’s bylaws or fees for services; that an independent process for resolving disputes between ICANN and third parties be established; and that a host of other requirements aimed at protecting Internet freedoms and ensuring ICANN and IANA accountability be instituted.

Legislative initiatives of this sort, while no panacea, play a valuable role in signaling Congress’s intent to hold the Administration accountable for seeing to it that key Internet freedoms (including the avoidance of onerous regulation and deleterious restrictions on speech and content) are maintained. They merit thoughtful consideration.

Microsoft and its allies (the Microsoft-funded trade organization FairSearch and the prolific Google critic Ben Edelman) have been highly critical of Google’s use of “secret” contracts to license its proprietary suite of mobile apps, Google Mobile Services, to device manufacturers.

I’ve written about this at length before. As I said previously,

In order to argue that Google has an iron grip on Android, Edelman’s analysis relies heavily on ”secret” Google licensing agreements — “MADAs” (Mobile Application Distribution Agreements) — trotted out with such fanfare one might think it was the first time two companies ever had a written contract (or tried to keep it confidential).

For Edelman, these agreements “suppress competition” with “no plausible pro-consumer benefits.”

Microsoft (via another of its front groups, ICOMP) responded in predictable fashion.

While the hysteria over private, mutually beneficial contracts negotiated between sophisticated corporations was always patently absurd (who ever heard of sensitive commercial contracts that weren’t confidential?), Edelman’s claim that the Google MADAs operate to “suppress competition” with “no plausible pro-consumer benefits” was the subject of my previous post.

I won’t rehash all of those arguments here, but rather point to another indication that such contract terms are not anticompetitive: The recent revelation that they are used by others in the same industry — including, we’ve learned (to no one’s surprise), Microsoft.

Much like the release of Google’s MADAs in an unrelated lawsuit, the ongoing patent licensing contract dispute between Microsoft and Samsung has obliged the companies to release their own agreements. As it happens, they are at least as restrictive as the Google agreements criticized by Edelman — and, in at least one way, even more so.

Some quick background: As I said in my previous post, it is no secret that equipment manufacturers have the option to license a free set of Google apps (Google Mobile Services) and set Google as the default search engine. However, Google allows OEMs to preinstall other competing search engines as they see fit. Indeed, no matter which applications come pre-installed, the user can easily download Yahoo!, Microsoft’s Bing, Yandex, Naver, DuckDuckGo and other search engines for free from the Google Play Store.

But Microsoft has sought to impose even-more stringent constraints on its device partners. One of the agreements disclosed in the Microsoft-Samsung contract litigation, the “Microsoft-Samsung Business Collaboration Agreement,” requires Samsung to set Bing as the search default for all Windows phones and precludes Samsung from pre-installing any other search applications on Windows-based phones. Samsung must configure all of its Windows Phones to use Microsoft Search Services as the

default Web Search  . . . in all instances on such properties where Web Search can be launched or a Query submitted directly by a user (including by voice command) or automatically (including based on location or context).

Interestingly, the agreement also requires Samsung to install Microsoft Search Services as a non-default search option on all of Samsung’s non-Microsoft Android devices (to the extent doing so does not conflict with other contracts).

Of course, the Microsoft-Samsung contract is expressly intended to remain secret: Its terms are declared to be “Confidential Information,” prohibiting Samsung from making “any public statement regarding the specific terms of [the] Agreement” without Microsoft’s consent.

Meanwhile, the accompanying Patent License Agreement provides that

all terms and conditions in this Agreement, including the payment amount [and the] specific terms and conditions in this Agreement (including, without limitation, the amount of any fees and any other amounts payable to Microsoft under this Agreement) are confidential and shall not be disclosed by either Party.

In addition to the confidentiality terms spelled out in these two documents, there is a separate Non-Disclosure Agreement—to further dispel any modicum of doubt on that score. Perhaps this is why Edelman was unaware of the ubiquity of such terms (and their confidentiality) when he issued his indictment of the Google agreements but neglected to mention Microsoft’s own.

In light of these revelations, Edelman’s scathing contempt for the “secrecy” of Google’s MADAs seems especially disingenuous:

MADA secrecy advances Google’s strategic objectives. By keeping MADA restrictions confidential and little-known, Google can suppress the competitive response…Relatedly, MADA secrecy helps prevent standard market forces from disciplining Google’s restriction. Suppose consumers understood that Google uses tying and full-line-forcing to prevent manufacturers from offering phones with alternative apps, which could drive down phone prices. Then consumers would be angry and would likely make their complaints known both to regulators and to phone manufacturers. Instead, Google makes the ubiquitous presence of Google apps and the virtual absence of competitors look like a market outcome, falsely suggesting that no one actually wants to have or distribute competing apps.

If, as Edelman claims, Google’s objectionable contract terms “serve both to help Google expand into areas where competition could otherwise occur, and to prevent competitors from gaining traction,” then what are the very same sorts of terms doing in Microsoft’s contracts with Samsung? The revelation that Microsoft employs contracts similar to — and similarly confidential to — Google’s highlights the hypocrisy of claims that such contracts serve anticompetitive aims.

In fact, as I discussed in my previous post, there are several pro-competitive justifications for such agreements, whether undertaken by a market leader or a newer entrant intent on catching up. Most obviously, such contracts help to ensure that consumers receive the user experience they demand on devices manufactured by third parties. But more to the point, the fact that such arrangements permeate the market and are adopted by both large and small competitors is strong indication that such terms are pro-competitive.

At the very least, they absolutely demonstrate that such practices do not constitute prima facie evidence of the abuse of market power.

[Reminder: See the “Disclosures” page above. ICLE has received financial support from Google in the past, and I formerly worked at Microsoft. Of course, the views here are my own, although I encourage everyone to agree with them.]