Archives For Eli Dourado

Last week the International Center for Law & Economics, joined by TechFreedom, filed comments with the Federal Aviation Administration (FAA) in its Operation and Certification of Small Unmanned Aircraft Systems (“UAS” — i.e, drones) proceeding to establish rules for the operation of small drones in the National Airspace System.

We believe that the FAA has failed to appropriately weigh the costs and benefits, as well as the First Amendment implications, of its proposed rules.

The FAA’s proposed drones rules fail to meet (or even undertake) adequate cost/benefit analysis

FAA regulations are subject to Executive Order 12866, which, among other things, requires that agencies:

  • “consider incentives for innovation,”
  • “propose or adopt a regulation only upon a reasoned determination that the benefits of the intended regulation justify its costs”;
  • “base [their] decisions on the best reasonably obtainable scientific, technical, economic, and other information”; and
  • “tailor [their} regulations to impose the least burden on society,”

The FAA’s proposed drone rules fail to meet these requirements.

An important, and fundamental, problem is that the proposed rules often seem to import “scientific, technical, economic, and other information” regarding traditional manned aircraft, rather than such knowledge specifically applicable to drones and their uses — what FTC Commissioner Maureen Ohlhausen has dubbed “The Procrustean Problem with Prescriptive Regulation.”

As such, not only do the rules often not make sense as a practical matter, they also seek to simply adapt existing standards, rules and understandings promulgated for manned aircraft to regulate drones — insufficiently tailoring the rules to “impose the least burden on society.”

In some cases the rules would effectively ban obviously valuable uses outright, disregarding the rules’ effect on innovation (to say nothing of their effect on current uses of drones) without adequately defending such prohibitions as necessary to protect public safety.

Importantly, the proposed rules would effectively prohibit the use of commercial drones for long-distance services (like package delivery and scouting large agricultural plots) and for uses in populated areas — undermining what may well be drones’ most economically valuable uses.

As our comments note:

By prohibiting UAS operation over people who are not directly involved in the drone’s operation, the rules dramatically limit the geographic scope in which UAS may operate, essentially limiting commercial drone operations to unpopulated or extremely sparsely populated areas. While that may be sufficient for important agricultural and forestry uses, for example, it effectively precludes all possible uses in more urban areas, including journalism, broadcasting, surveying, package delivery and the like. Even in nonurban areas, such a restriction imposes potentially insurmountable costs.

Mandating that operators not fly over other individuals not involved in the UAS operation is, in fact, the nail in the coffin of drone deliveries, an industry that is likely to offer a significant fraction of this technology’s potential economic benefit. Imposing such a blanket ban thus improperly ignores the important “incentives for innovation” suggested by Executive Order 12866 without apparent corresponding benefit.

The FAA’s proposed drone rules fail under First Amendment scrutiny

The FAA’s failure to tailor the rules according to an appropriate analysis of their costs and benefits also causes them to violate the First Amendment. Without proper tailoring based on the unique technological characteristics of drones and a careful assessment of their likely uses, the rules are considerably more broad than the Supreme Court’s “time, place and manner” standard would allow.

Several of the rules constitute a de facto ban on most — indeed, nearly all — of the potential uses of drones that most clearly involve the collection of information and/or the expression of speech protected by the First Amendment. As we note in our comments:

While the FAA’s proposed rules appear to be content-neutral, and will thus avoid the most-exacting Constitutional scrutiny, the FAA will nevertheless have a difficult time demonstrating that some of them are narrowly drawn and adequately tailored time, place, and manner restrictions.

Indeed, many of the rules likely amount to a prior restraint on protected commercial and non-commercial activity, both for obvious existing applications like news gathering and for currently unanticipated future uses.

Our friends Eli Dourado, Adam Thierer and Ryan Hagemann at Mercatus also filed comments in the proceeding, raising similar and analogous concerns:

As far as possible, we advocate an environment of “permissionless innovation” to reap the greatest benefit from our airspace. The FAA’s rules do not foster this environment. In addition, we believe the FAA has fallen short of its obligations under Executive Order 12866 to provide thorough benefit-cost analysis.

The full Mercatus comments, available here, are also recommended reading.

Read the full ICLE/TechFreedom comments here.

[Cross posted at the CPIP Blog.]

By Mark Schultz & Adam Mossoff

A handful of increasingly noisy critics of intellectual property (IP) have emerged within free market organizations. Both the emergence and vehemence of this group has surprised most observers, since free market advocates generally support property rights. It’s true that there has long been a strain of IP skepticism among some libertarian intellectuals. However, the surprised observer would be correct to think that the latest critique is something new. In our experience, most free market advocates see the benefit and importance of protecting the property rights of all who perform productive labor – whether the results are tangible or intangible.

How do the claims of this emerging critique stand up? We have had occasion to examine the arguments of free market IP skeptics before. (For example, see here, here, here.) So far, we have largely found their claims wanting.

We have yet another occasion to examine their arguments, and once again we are underwhelmed and disappointed. We recently posted an essay at AEI’s Tech Policy Daily prompted by an odd report recently released by the Mercatus Center, a free-market think tank. The Mercatus report attacks recent research that supposedly asserts, in the words of the authors of the Mercatus report, that “the existence of intellectual property in an industry creates the jobs in that industry.” They contend that this research “provide[s] no theoretical or empirical evidence to support” its claims of the importance of intellectual property to the U.S. economy.

Our AEI essay responds to these claims by explaining how these IP skeptics both mischaracterize the studies that they are attacking and fail to acknowledge the actual historical and economic evidence on the connections between IP, innovation, and economic prosperity. We recommend that anyone who may be confused by the assertions of any IP skeptics waving the banner of property rights and the free market read our essay at AEI, as well as our previous essays in which we have called out similarly odd statements from Mercatus about IP rights.

The Mercatus report, though, exemplifies many of the concerns we raise about these IP skeptics, and so it deserves to be considered at greater length.

For instance, something we touched on briefly in our AEI essay is the fact that the authors of this Mercatus report offer no empirical evidence of their own within their lengthy critique of several empirical studies, and at best they invoke thin theoretical support for their contentions.

This is odd if only because they are critiquing several empirical studies that develop careful, balanced and rigorous models for testing one of the biggest economic questions in innovation policy: What is the relationship between intellectual property and jobs and economic growth?

Apparently, the authors of the Mercatus report presume that the burden of proof is entirely on the proponents of IP, and that a bit of hand waving using abstract economic concepts and generalized theory is enough to defeat arguments supported by empirical data and plausible methodology.

This move raises a foundational question that frames all debates about IP rights today: On whom should the burden rest? On those who claim that IP has beneficial economic effects? Or on those who claim otherwise, such as the authors of the Mercatus report?

The burden of proof here is an important issue. Too often, recent debates about IP rights have started from an assumption that the entire burden of proof rests on those investigating or defending IP rights. Quite often, IP skeptics appear to believe that their criticism of IP rights needs little empirical or theoretical validation, beyond talismanic invocations of “monopoly” and anachronistic assertions that the Framers of the US Constitution were utilitarians.

As we detail in our AEI essay, though, the problem with arguments like those made in the Mercatus report is that they contradict history and empirics. For the evidence that supports this claim, including citations to the many studies that are ignored by the IP skeptics at Mercatus and elsewhere, check out the essay.

Despite these historical and economic facts, one may still believe that the US would enjoy even greater prosperity without IP. But IP skeptics who believe in this counterfactual world face a challenge. As a preliminary matter, they ought to acknowledge that they are the ones swimming against the tide of history and prevailing belief. More important, the burden of proof is on them – the IP skeptics – to explain why the U.S. has long prospered under an IP system they find so odious and destructive of property rights and economic progress, while countries that largely eschew IP have languished. This obligation is especially heavy for one who seeks to undermine empirical work such as the USPTO Report and other studies.

In sum, you can’t beat something with nothing. For IP skeptics to contest this evidence, they should offer more than polemical and theoretical broadsides. They ought to stop making faux originalist arguments that misstate basic legal facts about property and IP, and instead offer their own empirical evidence. The Mercatus report, however, is content to confine its empirics to critiques of others’ methodology – including claims their targets did not make.

For example, in addition to the several strawman attacks identified in our AEI essay, the Mercatus report constructs another strawman in its discussion of studies of copyright piracy done by Stephen Siwek for the Institute for Policy Innovation (IPI). Mercatus inaccurately and unfairly implies that Siwek’s studies on the impact of piracy in film and music assumed that every copy pirated was a sale lost – this is known as “the substitution rate problem.” In fact, Siwek’s methodology tackled that exact problem.

IPI and Siwek never seem to get credit for this, but Siwek was careful to avoid the one-to-one substitution rate estimate that Mercatus and others foist on him and then critique as empirically unsound. If one actually reads his report, it is clear that Siwek assumes that bootleg physical copies resulted in a 65.7% substitution rate, while illegal downloads resulted in a 20% substitution rate. Siwek’s methodology anticipates and renders moot the critique that Mercatus makes anyway.

After mischaracterizing these studies and their claims, the Mercatus report goes further in attacking them as supporting advocacy on behalf of IP rights. Yes, the empirical results have been used by think tanks, trade associations and others to support advocacy on behalf of IP rights. But does that advocacy make the questions asked and resulting research invalid? IP skeptics would have trumpeted results showing that IP-intensive industries had a minimal economic impact, just as Mercatus policy analysts have done with alleged empirical claims about IP in other contexts. In fact, IP skeptics at free-market institutions repeatedly invoke studies in policy advocacy that allegedly show harm from patent litigation, despite these studies suffering from far worse problems than anything alleged in their critiques of the USPTO and other studies.

Finally, we noted in our AEI essay how it was odd to hear a well-known libertarian think tank like Mercatus advocate for more government-funded programs, such as direct grants or prizes, as viable alternatives to individual property rights secured to inventors and creators. There is even more economic work being done beyond the empirical studies we cited in our AEI essay on the critical role that property rights in innovation serve in a flourishing free market, as well as work on the economic benefits of IP rights over other governmental programs like prizes.

Today, we are in the midst of a full-blown moral panic about the alleged evils of IP. It’s alarming that libertarians – the very people who should be defending all property rights – have jumped on this populist bandwagon. Imagine if free market advocates at the turn of the Twentieth Century had asserted that there was no evidence that property rights had contributed to the Industrial Revolution. Imagine them joining in common cause with the populist Progressives to suppress the enforcement of private rights and the enjoyment of economic liberty. It’s a bizarre image, but we are seeing its modern-day equivalent, as these libertarians join the chorus of voices arguing against property and private ordering in markets for innovation and creativity.

It’s also disconcerting that Mercatus appears to abandon its exceptionally high standards for scholarly work-product when it comes to IP rights. Its economic analyses and policy briefs on such subjects as telecommunications regulation, financial and healthcare markets, and the regulatory state have rightly made Mercatus a respected free-market institution. It’s unfortunate that it has lent this justly earned prestige and legitimacy to stale and derivative arguments against property and private ordering in the innovation and creative industries. It’s time to embrace the sound evidence and back off the rhetoric.

The ridiculousness currently emanating from ICANN and the NTIA (see these excellent posts from Milton Mueller and Eli Dourado on the issue) over .AMAZON, .PATAGONIA and other “geographic”/commercial TLDs is precisely why ICANN (and, apparently, the NTIA) is a problematic entity as a regulator.

The NTIA’s response to ICANN’s Governmental Advisory Committee’s (GAC) objection to Amazon’s application for the .AMAZON TLD (along with similar applications from other businesses for other TLDs) is particularly troubling, as Mueller notes:

In other words, the US statement basically says “we think that the GAC is going to do the wrong thing; its most likely course of action has no basis in international law and is contrary to vital policy principles the US is supposed to uphold. But who cares? We are letting everyone know that we will refuse to use the main tool we have that could either stop GAC from doing the wrong thing or provide it with an incentive to moderate its stance.”

Competition/antitrust issues don’t seem to be the focus of this latest chapter in the gTLD story, but it is instructive on this score nonetheless. As Berin Szoka and I wrote in ICLE’s comment to ICANN on gTLDS:

Among the greatest threats to this new “land rush” of innovation is the idea that ICANN should become a competition regulator, deciding whether to approve a TLD application based on its own competition analysis. But ICANN is not a regulator. It is a coordinator. ICANN should exercise its coordinating function by applying the same sort of analysis that it already does in coordinating other applications for TLDs.

* * *

Moreover, the practical difficulties in enforcing different rules for generic TLDs as opposed to brand TLDs likely render any competition pre-clearance mechanism unworkable. ICANN has already determined that .brand TLDs can and should be operated as closed domains for obvious and good reasons. But differentiating between, say .amazon the brand and .amazon the generic or .delta the brand and .delta the generic will necessarily result in arbitrary decisions and costly errors.

Of most obvious salience: implicit in the GAC’s recommendation is the notion that somehow Amazon.com is sufficiently different than .AMAZON to deny Amazon’s ownership of the latter. But as Berin and I point out:

While closed gTLDs might seem to some to limit competition, that limitation would occur only within a particular, closed TLD. But it has every potential to be outweighed by the dramatic opening of competition among gTLDs, including, importantly, competition with .com.

In short, the market for TLDs and domain name registrations do not present particular competitive risks, and there is no a priori reason for ICANN to intervene prospectively.

In other words, treating Amazon.com and .AMAZON as different products, in different relevant markets, is a mistake. No doubt Amazon.com would, even if .AMAZON were owned by Amazon, remain for the foreseeable future the more relevant site. If Latin American governments are concerned with cultural and national identity protection, they should (not that I’m recommending this) focus their objections on Amazon.com. But the reality is that Amazon.com doesn’t compromise cultural identity, and neither would Amazon’s ownership of .AMAZON. Rather, the wide availability of new TLDs opens up an enormous range of new competitive TLD and SLD constraints on existing, dominant .COM SLDs, any number of which could be effective in promoting and preserving cultural and national identities.

By the way – Amazonia.com, Amazonbasin.com and Amazonrainforest.com, presumably among many others, look to be unused and probably available for purchase. Perhaps opponents of Amazon’s ownership of .AMAZON should set their sights on those or other SLDs and avoid engaging in the sort of politicking that will ultimately ruin the Internet.