Truth on the Market

Academic commentary on law, business, economics and more

Archive for February, 2006

Google User Privacy

Posted by Keith Sharfman on February 19, 2006

I have some questions about Google’s reluctance to turn over user search data to the government. (For background on this story, see here.)

1. Why does Google gather this data to begin with? Wouldn’t the best way to protect user privacy be not to save this information in the first place? Why does Google need to know the identities of those who use the Google product?

2. Does Google release the information it collects to private third parties such as advertisers? If so, why the public-private distinction? Aren’t the same privacy interests implicated in both the private and public contexts? Why not ask the users themselves when they contract with search engines about the circumstances under which their data may be disclosed to third parties? In the early days of the Web, I published a paper, “Regulating Cyberactivity Disclosures: A Contractarian Approach,” 1996 University of Chicago Legal Forum 639, arguing that disclosure of a user’s “cyberactivities” to private third parties should be permitted as a default matter, so long as users have the affirmative right to opt for non-disclosure. Additional “public disclosure” language could easily be added to such opt out clauses.

3. If Google and other search engines such as Yahoo continue to collect user data, then shouldn’t there be a market opportunity for a search engine to break away from the pack and offer users the guarantee of privacy by simply not collecting user data to begin with? If this were to happen, it would be interesting to see which data collection procedure will end up becoming the norm. If enough users vote with their keystrokes in favor a “no collection” regime, one could imagine all the search engines feeling some pressure to adopt such a policy. But it’s equally plausible to think that many users will not care very much one way or the other, in which case users who are idiosyncratically private will have the “no collection” option but the majority of other users will stay with search engines that continue to collect search data.

Posted in markets, privacy, technology | 6 Comments »

Management Talent Leaving in Droves for Private Equity

Posted by Bill Sjostrom on February 19, 2006

According to this Business Week article, top managers are fleeing public companies for jobs with private equity funds to hunt for deals, head portfolio companies, or both.

The attractions are twofold: money and freedom. The pay can be outrageously good even at the entry levels; for CEOs, it can be spectacular. The flexibility is alluring, too. In private equity there’s less annoyance from the Sarbanes-Oxley Act, the controversial regulations passed in 2002 to police publicly held companies. And many private CEOs will avoid the Securities & Exchange Commission’s new proposal that would require the highest-paid executives at public companies to disclose their compensation in excruciating detail. (These rules and proposals still apply to companies that issue registered public debt.)

Regulatory issues aside, the fundamental nature of private-equity work is different. CEOs have a freer hand to do the tough but necessary things to repair companies for the long term, with less focus on quarterly results and placating public shareholders and more on meeting the strategic yardsticks of a multiyear turnaround effort.

Looks like we should add contributing to public company executive brain drain to the list of possible SOX and executive pay disclosure costs.

Posted in private equity, sarbanes-oxley | 1 Comment »

Bargaining in the Shadow of Justice Alito

Posted by Josh Wright on February 18, 2006

David Fischer at Antitrust Review posts an excerpt from Information Resources, Inc.’s (IRI) press release issued to explain the recent settlement of their ten year long litigation against VNU (A.C. Nielsen, IMS Health, and Dun and Bradstreet). IRI’s claims were based on an “above cost” bundling theory that Thom has discussed in detail here. In that post, Thom expressed optimism (like me) about Justice Alito’s influence on the Supreme Court’s antitrust jurisprudence in large part because of his sensible dissent in LePage’s. It looks like we do not have to wait long to for evidence of that influence. Notice this section from IRI’s press release:

Even if IRI were to prevail at the Second Circuit on the bundling issue, both litigation teams felt there was a significant risk that the Supreme Court would rule against IRI if it accepted the case for appeal, particularly in light of the current make-up of the Supreme Court and the fact that Justice Alito, the newest addition to the Supreme Court, was the author of an appellate court decision in 2002 that was adverse to IRI’s bundling position in this case. Although Justice Alito’s position was overturned on en banc review by the Third Circuit Court of Appeals in 2003, Justice Alito has recently expressed his opinion that his original view of that case was correct.

I do not recall seeing such a detailed explanation of a settlement, at least, not referencing an individual Justice’s views on a particular subject. In any event, I guess this means that antitrusters might have to wait a bit longer for SCOTUS to articulate a rule for above cost bundling.

Posted in antitrust | 3 Comments »

Donaldson & Pitt & Levitt & Breeden (Oh my!)

Posted by Geoffrey Manne on February 18, 2006

The Council on Foreign Relations puts on some really impressive webcasts/conference calls. Here’s one TOTM readers may be especially interested in (if, that is, you’re one of those lucky people who doesn’t get hives listening to extended bouts of highly-politicized self rationalization):

The SEC in a Globalizing Securities Market:
A Conversation with the Past Four Chairmen

with

WILLIAM H. DONALDSON
Chairman & CEO, Donaldson Enterprises, Inc.;
Chairman, Securities and Exchange Commission, 2003 to 2005
Speaker

HARVEY L. PITT
CEO, Kalorama Partners;
Chairman, Securities and Exchange Commission, 2001 to 2003
Speaker

ARTHUR LEVITT
Senior Advisor, The Carlyle Group;
Chairman, Securities and Exchange Commission, 1993 to 2001
Speaker

RICHARD C. BREEDEN
Chairman, Richard C. Breeden & Co.;
Chairman, Securities and Exchange Commission, 1989 to 1993
Speaker

BENN STEIL
Senior Fellow and Director of International Economics,
Council on Foreign Relations
Presider

Wednesday, February 22, 2006
8:30 a.m. to 9:45 a.m. (Eastern Time)

See below the fold for viewing instructions

Read the rest of this entry »

Posted in administrative, securities regulation | Comments Off

One of many much-needed lessons about foreign oil

Posted by Geoffrey Manne on February 18, 2006

dilbert2006021523379.jpg

Posted in international trade, markets | 6 Comments »

State of the Blogosphere

Posted by Bill Sjostrom on February 18, 2006

Below are highlights from the recent two part “State of the Blogosphere” Report by David Sifry, the founder and CEO of Technorati. Click here for Part 1 and here for Part 2.

From part 1:

  • Technorati now tracks over 27.2 Million blogs.
  • The blogosphere is doubling in size every 5 and a half months.
  • It is now over 60 times bigger than it was 3 years ago.
  • On average, a new weblog is created every second of every day
  • 13.7 million bloggers are still posting 3 months after their blogs are created.
  • Spings (Spam Pings) can sometimes account for as much as 60% of the total daily pings Technorati receives.
  • Sophisticated spam management tools eliminate the spings and find that about 9% of new blogs are spam or machine generated.
  • Technorati tracks about 1.2 Million new blog posts each day, about 50,000 per hour.

From part 2:

  • Blogging and Mainstream Media continue to share attention in blogger’s and reader’s minds, but bloggers are climbing higher on the “big head” of the attention curve, with some bloggers getting more attention than sites including Forbes, PBS, MTV, and the CBC.
  • Continuing down the attention curve, blogs take a more and more significant position as the economics of the mainstream publishing models make it cost prohibitive to build many nice sites and media.
  • Bloggers are changing the economics of the trade magazine space, with strong entries covering WiFi, Gadgets, Internet, Photography, Music, and other nice topic areas, making it easier to thrive, even on less aggregate traffic.
  • There is a network effect in the Technorati Top 100 blogs, with a tendency to remain highly linked if the blogger continues to post regularly and with quality content.
  • Looking at the historical data shows that the inertia in the Top 100 is very low – in other words, the number of new blogs jumping to the top of the Top 100 as well as the blogs that have fallen out of the top 100 show that the network effect is relatively weak.

Here’s an NYT article that talks about the report.

Posted in blogging | 1 Comment »

Blogging and Tenure

Posted by Bill Sjostrom on February 17, 2006

I had my post-decision debriefing meeting with our Reappointment, Tenure and Promotion (RP&T) Committee this week (I got promoted to associate). This was my first RP&T meeting since I started blogging so I was interested in getting the committee’s take on it. Without a doubt it is favorable. In fact, to my surprise the committee consensus was that my blogging can count as scholarship, teaching and service for tenure purposes. It is up to me to make the case in my tenure materials as to why it should count. I plan to do so.

Now, I’m under no illusion that I can blog my way to tenure; I still intend to continue to crank out traditional scholarship. But it’s nice to know that blogging can help. And I think it’s a smart move for law schools, especially regional law schools like mine, to encourage faculty blogging—many of the benefits that flow to the blogger also flow directly or indirectly to the blogger’s school.

Posted in blogging, law school | 8 Comments »

ABA: You MUST follow the law. (Unless we don’t like it.)

Posted by Thom Lambert on February 17, 2006

WARNING: This post is off-topic for this blog (it doesn’t relate to markets). If that bothers you, don’t read any further. Moroever, I do not purport to speak for my co-bloggers. Their opinions of the issue discussed below may differ from my own.

Having issued those caveats, I cannot resist making one more comment (my first comment is here) on the American Bar Association’s utter hypocrisy regarding the rule of law.

At its mid-year meeting this week, the ABA did two notable things. First, the House of Delegates “voted overwhelmingly” to approve a resolution calling on the President to follow the law with respect to domestic spying. Among other things, the six-clause resolution “call[ed] upon the President to abide by the limitations which the Constitution imposes on a president…” (Paragraph 1), and “urge[d] the President, if he believes [the law] is inadequate…to seek appropriate amendments or new legislation rather than acting without explicit statutory authorization” (Paragraph 2). In other words, Mr. President, you must abide by the Constitution, and if you don’t like a statute, you can’t just violate it; you should go to the legislature and get it amended.

While I’m taking no position on the legality of the NSA’s domestic spying program, this little tongue-lashing seems appropriate for an organization that, according to its own press release, “works to build public understanding around the world of the importance of the rule of law in a democratic society.”

But what about the ABA’s second major action this week? After chiding the President for not following the law, the Association turned its attention to the law schools. It told them that, to be accredited (i.e., to be viable at all), they must demonstrate their commitment to racial and gender diversity “by concrete action.” That means they must show actual results, not just sincere and extensive efforts. Moreover, they’re not allowed to let that pesky little law thing get in their way. The Association specifically stated that:

The requirement of a constitutional provision or statute that purports to prohibit consideration of gender, race, ethnicity or national origin in admissions or employment decisions is not a justification for a school’s non-compliance with Standard 211.

(Amended standards available here.)

So I’m confused. The organization dedicated to “build[ing] public understanding around the world of the importance of the rule of law in a democratic society” is telling the President he must follow the Constitution and statutes, but public law schools don’t have to (and, indeed, are not permitted to, if doing so would cause them to disappoint the Almighty ABA)? I guess the law applies only when we like what it’s telling us to do. Or maybe the rule is that lawyers are above the law. Maybe Michael Greco can explain this to me.

(It’s interesting to note, by the way, that the ABA’s website proudly posts all sorts of information about its little lecture to the President. There’s zero mention of the order telling law schools to ignore the law.)

For more on the ABA’s accreditation standards, see here, here, and here.

Posted in musings, universities | 9 Comments »

Burger King Files for IPO

Posted by Bill Sjostrom on February 16, 2006

Burger King Holdings, Inc. filed a registration statement with the SEC today for the sale of $400 million of common stock (click here). While the prospectus does not include a price range or specify how many shares will be sold by BK vs. existing shareholders, it does contain a number of tidbits, including the following:

• BK has enjoyed seven consecutive quarters of positive comparable sales growth in the United States.

• For fiscal 2005, BK had revenues of $1.94 billion, net income of $47 million, and cash from operating activities of $218 million.

• The BK brand represents 36% of the total assets on BK’s balance sheet.

• 90% of BK restaurants are franchises.

• BK has $1.35 billion is outstanding debt.

• It looks like all of the IPO proceeds will be used to pay down debt.

• BK will be listed on the NYSE under the symbol BKC

• The group of three private equity funds that currently own 95% of BK (the prospectus refers to them as “sponsors�) will retain a majority stake post IPO. Hence, BK will qualify as a “controlled company� under NYSE rules and therefore will not have to comply with various corporate governance standards.

• The sponsors will be party to a post-IPO shareholders agreement providing for the right of each sponsor to appoint two members to the BK board and certain drag-along, tag-along, and registration rights.

As early reported, BK borrowed $350 million so that it can pay a $367 million cash dividend (95% of which will go to the sponsors) on February 21, 2006. BK will also pay $33 million to holders of BK options and restricted stock unit awards, primarily members of senior management, which we refer to as a compensatory make-whole payment. Additionally, BK agreed to pay a one-time $30 million fee to terminate its management agreement with the sponsors upon completion of the IPO.

Posted in IPOs | Comments Off

Trouble at XM

Posted by Bill Sjostrom on February 16, 2006

A week ago XM inked a three-year, $55 million deal with Oprah for a new channel called “Oprah And Friends.” XM shares rose 4.75% on the day the signing was announced, closing at $25.78 (article).

Today, XM announced that its net loss widened to $286.3 million in the fourth quarter from $188.2 million for the year-earlier period even though revenue more than doubled to $177 million from $83.1 (press release).

More ominously, on 2/13 Pierce Robers, an XM director, resigned. In a letter filed with the SEC he stated as follows:

I have been troubled about the current direction of the company and do not believe that it is in the best interest of the company’s shareholders. For some time I have made my analyses and observations known in an increasingly vociferous manner to the Board and a number of senior managers of the Company. I am not having any useful effect and I care too much and believe in my own views too much to just “go along�.

Given current course and speed there is, in my view, a significant chance of a crisis on the horizon. Even absent a crisis, I believe that XM will inevitably serve its shareholders poorly without major changes now. It is clear to me that I cannot be part of the solution and I will not be part of the problem.

I think this really casts a shadow on XM. A noisy resignation like this is quiet unusual. Directors presumably know that SEC regulations require the public disclosure of such a resignation and any related letter. As a result, the typical procedure is to cite something vague like “personal reasons.â€? Note also that Robert’s owns 122,000 XM shares and had to have known that his noisy resignation would cause XM’s share price to drop (XM shares are currently at $23.74, down $1.51 on the day). Read the rest of this entry »

Posted in business, markets, technology | Comments Off

 
Follow

Get every new post delivered to your Inbox.

Join 1,035 other followers