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Tech Regulation

Our Well-Timed Warning on FTX, Bankman-Fried and Future Cryptocurrency Regulations

This letter was sent to Senators, Congressmen of relevant committees, and regulators in the Consumer Financial Protection Bureau, Securities and Exchange Commission, and Commodity Futures Trading Commission in the aftermath of the FTX collapse. The previous letter can be viewed here.

Referring to the previous letter we sent to lawmakers and regulators on October 26, 2022, warning of the influence and inherent financial risks posed by then FTX CEO Sam Bankman-Fried and his related companies, here we offer our thoughts on what you should consider for future regulation on digital assets, cryptocurrencies, and the platforms that use them.

As you will have read by now, the alleged criminal actions of Mr. Bankman-Fried and his affiliated companies (FTX International, FTX Europe, Alameda Research, etc.), have led to several bankruptcy filings, will likely lead to expensive lawsuits, and, without a doubt, will invite investigations and questions from your colleagues and committees in Congress. All of these are necessary and prudent.

The halting of withdrawals for billions of dollars of customer funds, the intermingling of company and customer assets, the collateralization of new crypto tokens backed by nothing, and the unsustainable leverage conspired to create one of the most calamitous events in recent financial history. It is a stain on the reputation of creative entrepreneurs and builders providing value in the cryptocurrency space. This is made all the more troubling by the influence of this company and its leaders in our nation’s capital.

The significant influence of Mr. Bankman-Fried and his companies among Congressional members and staff, donations to political campaigns, and the close relationship with regulators present a damning case of what happens when politically connected firms aim to control and shape legislation without input from consumers and citizens.

While decision-makers were eager to meet with Mr. Bankman-Fried and mirror his biased suggestions on cryptocurrency policy in legislation and enforcement actions, consumer groups like ours sounded the alarm about the conflicts of interest detrimental to sound and principled policy for the millions of Americans who use and invest in cryptocurrencies like Bitcoin.

The Consumer Choice Center began writing publicly about the conflicts of interest and risky financial dealings of these companies and Mr. Bankman-Fried in September 2022, and how they would pose a considerable risk both to the legitimate cryptocurrency industry and to the savings and investments of millions of consumers. We remain steadfast in our conviction.

That said, as consumer advocates, we remain optimistic about the promises of Bitcoin, its cryptocurrency offspring, and the innovative blockchains, decentralized technologies, and crypto services that have evolved around them.

Users of decentralized technologies, however, do not need an industry approach to regulation. Regulations exist to set the rules of the game, not to chart the leaders of the game. This previous approach gave cover to FTX and its affiliated companies and has led to the disaster we see today.

The main caution we invoke, therefore, is that many proposed regulations aim to cement existing industry players and lockout innovative upstarts, while at the same time requiring the same restrictive rules that caused many people to explore cryptocurrencies in the first place.

As we have stated, if rules on crypto and its customers help solidify the financial portfolios, positions, and stock prices of only a select few companies, this will drive innovation away from our shores.

The bad actions of this particular company, while shocking and injurious to many, reflect the mistakes and alleged crimes of those involved. They do not, in any certain terms, condemn the wonderful possibilities of a crypto future nor the millions of consumers who responsibly use these technologies.

The frauds allegedly perpetrated are not too far removed from those of regulated financial firms that have deservedly reaped the consequences of misbehavior, either by the market or law enforcement. That the end product was cryptocurrencies instead of credit default swaps or mortgages makes no difference.

Fraud is fraud and remains illegal no matter what product a company is selling.

This is a stark contrast to the system of fractional-reserve banking that now underlies much of the American financial system and creates the incentives of malfeasance aided by loose monetary policy.

We should not mistake the ills of the current system for those of cryptographically secure digital assets.

With that in mind, rather than the approaches of several self-interested industry leaders, consumers deserve regulation on cryptocurrencies and digital firms that enforce existing rules on fraud (known as “rug pulls”), remain technologically neutral, offer reasonable and minimal taxation, and provide legal transparency. Punishing fraud and abuse, insider trading, and self-dealing should remain the focus.

As consumer advocates, we promote the principle of “self-custody” for crypto consumers, holding private keys to digital assets. This is a cryptographically secure method of controlling cryptocurrencies as originally intended, and one that should be an industry standard. This is the strongest method by which exchanges, brokerages, and those who regulate them can protect consumers. 

The aim of cryptographic digital assets and decentralized digital cash, since the founding of Bitcoin in 2008 by Satoshi Nakamoto, has centered on creating permissionless, peer-to-peer transactions offering a final settlement in a decentralized manner. That should be the guiding principle rather than temporary self-interest.

The whims of a select few industry players, however successful they may be, cannot be the guiding light for the future of decentralized digital money, as the saga of FTX has proven.

The Consumer Choice Center created a policy primer on Principles for Smart Cryptocurrency Regulations in September 2021 to highlight these concerns and we hope you will apply them.

We remain at your disposal for any further exploration of how best to craft rules, guidance, and regulation on the future of cryptocurrencies in our country, so that all society may benefit.

Sincerely yours,

Yaël Ossowski

Deputy Director

Consumer Choice Center

Aleksandar Kokotovic

Crypto Fellow

Consumer Choice Center

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An Overzealous FTC Isn’t Good for Consumers or Startups

Last month, Facebook’s parent Meta Platforms asked an American judge to dismiss the Federal Trade Commission (FTC)’s lawsuit attempting to block Meta’s proposed acquisition of virtual content producer Within Unlimited- maker of the Supernatural virtual reality fitness app. The lawsuit makes the tenuous, speculative claim that since VR platform Meta already owns many VR apps, including movement-based ones like Beat Saber that compete for users with Supernatural, a “monopoly” will “tend to be created” and competition and consumers will be worse-off if the deal proceeds. Never mind that Supernatural faces competition from more similar squarely fitness-focused VR apps that Meta doesn’t own, like Liteboxer and FitXR, as well as non-VR fitness apps like those offered by Apple and Peloton.

It’s the latest in the FTC’s many efforts, under current chairperson Lina Khan, to more aggressively contest tech acquisitions on the basis that tech giants have too much power and influence, even where harm to consumers is spurious or non-existent. Although large tech giants like Meta, Google and Amazon may indeed be guilty of wrongdoings that warrant legal sanction, the stifling of legitimate business deals by unelected bureaucrats will only harm consumers and the viability of start-ups by deterring competition and innovation in the cutthroat, investment-intensive tech world.

Since the 1970s, antitrust enforcement has focused on whether a business practice actually hurts consumers, rather than harming their competitors or some other stakeholder. After all, elected officials are capable of passing laws that target concrete harms corporations inflict on workers and the public. And private businesses shouldn’t expect protection from cutthroat competition since it’s a consequence of doing business. Consumers benefit from companies having to deliver new, better or cheaper products to attract and retain customers. So long as a firm doesn’t use its position to harm consumers by restricting output relative to prices, there’s no reason why antitrust regulators like the FTC should stifle its expansion. Especially when that expansion benefits consumers.

This is especially true for tech. Start-ups depend on millions in investment to develop and deploy their products. Investors value these firms based not only on the viability of their products, but on the firm’s potential resale value. Larger firms also often acquire smaller ones to apply their resources, existing expertise and economies of scale to further develop their ideas or to expand them to more users.

Making mergers and acquisitions more expensive, without strong evidence they’ll hurt consumers, makes it tougher for start-ups to attract the capital they need and will only deter innovators from striking out on their own or developing ideas that could improve our lives in an environment where 90% of start-ups eventually fail and 58% expect to be acquired.

It doesn’t matter that the FTC’s merger challenges may fail in court or even before their own internal administrative judges, including recently under chair Khan. The risk and cost of lawsuits themselves deter investment and beneficial deals. Especially given the uncertainty posed by incorporating vague, amorphous concepts like “fairness” into antitrust analysis that could lead to arbitrary decisions inconsistent with the rule of law. As noted by the late Supreme Court Justice Stewart, the only consistency in antitrust cases when there’s no clear guiding principle like the consumer welfare standard is that “the government always wins.”

Conversely, opponents of the “consumer welfare” standard, including Khan, argue that it fails prevent the concentration of economic and political power. However, this prioritizes speculative harm from a firm growing too big over real harm from giving governments and regulators ability to wield power for political ends or of those lobbying them.

Former presidents Johnson and Nixon both used threats of antitrust enforcement to coerce media outlets into favorably covering their governments. And it’s no secret or surprise that the FTC is frequently approached by firms urging it to deploy taxpayer resources towards antitrust suits against their competitors. More recently, Mark Zuckerberg, who has openly asked for politicians to tell him what content to censor, admitted that Facebook suppressed the Hunter Biden laptop story after government agency pressure. Conservatives should be especially conscious about encouraging agencies to target companies on vague or speculative grounds.

The FTC has the resources it needs to go after malicious actors that definitively harm consumers, as evinced by its multimillion-dollar settlement with extramarital affair website Ashley Madison over poor cybersecurity and data privacy practices and consumer deception, and other successful cases including chair Khan’s commendable pursuit of businesses that illegally collect and misuse children’s data. These are a far better use of the agency’s time and taxpayer funding than a zealous approach to blocking acquisitions and other legitimate business practices that could benefit consumers and that the innovative start-up ecosystem depends on.

Originally published here

Consumers Stand to Lose From Swipe Card Regulations

Politicians and a coalition of powerful retail giants are pushing bills intended to limit the fees that businesses pay when a customer buys things with a credit or debit card. 

Bipartisan Senate Amendment 6201 would require cards to allow businesses to route payments through networks unaffiliated with Visa or Mastercard — the nation’s two biggest card issuers and would force issuers to make all payment networks available to retailers for routing transactions, regardless of which one the customer wants.

The amendment’s proponents argue that it will undermine Visa and Mastercard’s hold on the card sector, where they collectively hold 80 percent of the market share while providing some inflation relief to consumers by lowering transaction costs that businesses typically pass on to them. 

But the reality is murkier. The amendment doesn’t mention consumers, and there’s no guarantee we’ll face lower prices at the store or online. Instead, consumers stand to lose from fewer choices, less credit access, less secure transactions, and the evaporation of reward programs and other benefits.

Card interchange fees typically account for just 1 percent to 3 percent of the final price, even when passed on to consumers. Previous restrictions, like the 2010 debit card interchange fee cap, didn’t even lead to cost savings for most businesses. Smaller businesses often saw their costs increase. Only a small number of large retailers experienced lower costs. And 22 percent of retailers increased prices charged to the consumers, while 1 percent lowered prices. 

A lack of significant perceived benefits for most retailers could partly explain why Australia, where financial institutions have allowed merchants to choose lowest cost payment networks for routing customer transactions since 2018, has seen low take-up rates for this functionality.

Moreover, interchange fees help pay for various services, including rewards programs, interest-free periods, and payment guarantees, so merchants don’t have to worry about a customer’s credit history, security protocols, and other banking services. Forcing card issuers to reduce the fees they can levy means cuts to these benefits and programs — reducing consumer choice while deterring fraud protection and cybersecurity innovation. 

It’s not just the wealthy who rely on these benefits. Eighty-six percent of credit cardholders have active rewards cards, including 77 percent with a household income lower than $50,000.

Australia’s 2003 interchange fee restrictions resulted in fewer services, fewer benefits and higher annual fees. Americans could soon feel similar pain.

Cardholders are also likely to bear at least some of the estimated $5 billion cost of the technical infrastructure needed for issuers to comply with the amendment. Banks have also responded to previous interchange fee restrictions by hiking the feesthat Americans are charged for opening and using checking accounts, with fewer banks offering no-fee accounts.

Lower-income Americans could be harshly affected by reduced access to credit. Credit unions that serve underbanked communities are already expressing concerns about the policy. Credit unions and community-owned banks also rely more on interchange fees to stay afloat than larger banks, which depend more on interest rates. Lower interchange fees could force these institutions to raise interest rates on credit cards, even though they serve a higher proportion of cardholders who don’t carry a balance or don’t pay penalty fees.

Congress can provide long-term inflation and cost-of-living relief by repealing costly, counterproductive regulations that benefit moneyed special interests at ordinary Americans’ expense. 

This makes more sense than a misguided payment system regulation that will lower choice, benefits and payment security for cardholders while putting pressure on banks and credit unions to hike interest rates and fees.

Originally published here

CRYPTOMONNAIES : QUE PROPOSE L’UNION EUROPÉENNE ?

Les cryptomonnaies, NFT et autres tokens divers et variés attirent toute l’attention des législateurs européens. 

Le règlement de l’Union européenne sur les marchés de crypto-actifs (MiCA), en chantier depuis début 2018, est enfin finalisé. Cette législation vise à « harmoniser le cadre européen pour l’émission et la négociation de divers types de tokens cryptographiques dans le cadre de la stratégie de l’Europe en matière de finance numérique ».

Depuis sa première annonce, il a suscité de nombreuses discussions et quelques controverses. Il a longtemps été redouté – mais aussi salué – par l’industrie des cryptomonnaies.

Examinons pourquoi ce texte de loi pourrait être l’un des plus importants que nous ayons vus pour le marché des cryptos jusqu’à présent.

Le MiCA sera applicable dans tous les États membres de l’UE, ainsi qu’avec toutes les entreprises opérant dans l’UE. Il a d’abord été discuté suite au marché haussier de 2017, une période enivrante où le Bitcoin atteignait de nouveaux sommets. A l’époque, plus d’un millier de tokens ont commencé à fleurir au milieu d’Initial Coin Offerings (ICOs, l’équivalent des introductions en Bourse pour les actions), et plus de la moitié avaient disparu moins de quatre mois après leur création.

Un marché plus rapide que la loi

La Commission européenne a publié son plan d’action fintech en mars 2018 et a demandé à l’Autorité bancaire européenne (ABE) et à l’Autorité européenne des marchés financiers (AEMF) d’examiner si le cadre réglementaire européen existant en matière de services financiers s’appliquait aux crypto-actifs. Après avoir décidé que la plupart des crypto-actifs n’entraient pas dans le champ d’application de la réglementation financière actuelle, les régulateurs ont commencé à travailler sur un nouveau cadre législatif dans le cadre du « Digital Finance Package », qui est finalement devenu le MiCA.

Depuis le début de ces discussions, le marché des cryptomonnaies a connu un marché baissier, atteignant son point le plus bas dans les premiers jours suivant les annonces de la pandémie. Un autre marché haussier a suivi, avant que la tendance à la baisse reprenne le dessus, fin 2021.

De nouvelles craintes réglementaires sont apparues au cours des deux premiers trimestres de 2022. Puis des événements tels que l’effondrement du stablecoin Terra et les faillites de Three Arrows Capital et Celsisus ont suivi.

Dans un environnement aussi changeant, il n’est pas difficile de comprendre que le champ d’application du MiCA a dû évoluer par rapport à sa conception initiale. Les NFT n’existaient pratiquement pas à l’époque de la conception de la législation ; le « DeFi Summer » n’était pas d’actualité ; Meta s’appelait encore Facebook, et travaillait à ce moment-là sur son « Libra », un projet fort méprisé (vous en souvenez-vous ?).

Il n’a pas été facile de créer un cadre juridique offrant une sécurité juridique à la fois aux investisseurs et aux émetteurs de cryptomonnaies dans ce type d’environnement, et les régulateurs sont retournés à la table à dessin à plusieurs reprises. Ce que nous avons devant nous aujourd’hui sera le texte de loi le plus important pour les cryptomonnaies jusqu’à maintenant.

De nouvelles règles pour tout le monde

L’une des principales règles qui affectera le secteur est l’obligation à laquelle devront se soumettre les Crypto Asset Service Providers (CASP), c’est-à-dire les entreprises d’investissement et toute personne fournissant des services de garde (« staking »). Ils seront responsables de toute perte de fonds de clients, sauf s’ils sont en mesure de prouver qu’elle résulte d’événements indépendants de leur volonté. Un certain nombre de mesures visent à prévenir les délits d’initiés et les manipulations de marché.

Au cours du processus d’élaboration du MiCA, plusieurs discussions animées ont eu lieu sur la preuve de travail (« proof of work »), ce que l’on appelle le « minage », et les effets potentiels de cette pratique sur l’environnement. Malgré la pression importante exercée par certains groupes, les législateurs ont, à juste titre, évité toute interdiction potentielle de la preuve de travail, qui est l’une des méthodes utilisées pour vérifier les transactions sur la blockchain (par exemple celle de Bitcoin). Toutefois, les acteurs du marché des cryptomonnaies seront tenus de déclarer des informations sur leur empreinte climatique.

Quant aux protocoles financiers décentralisés, ils n’entrent pas dans le champ d’application du MiCA et la Commission européenne publiera un rapport distinct à leur sujet en 2023.

Les cryptomonnaies stables, ou stablecoins, ont fait l’objet d’une grande préoccupation et de nombreux débats lors du processus de rédaction du MiCA. Suite aux préoccupations exprimées par le Conseil européen, des restrictions supplémentaires sur l’émission et l’utilisation de ces monnaies ont été ajoutées à la législation. Les stablecoinspourraient selon eux constituer une menace pour la souveraineté monétaire et « les banques centrales devraient pouvoir demander à l’autorité compétente de retirer l’autorisation d’émettre des tokens référencés par des actifs en cas de menaces sérieuses ».

Comme indiqué dans le texte, les tokens référencés par des actifs (ART) doivent pouvoir être rachetés à tout moment au prix d’achat, ce qui rend plus ou moins impossible le lancement de tout stablecoin non libellé en devises. Cela rend presque impossible l’innovation dans ce domaine et prive les consommateurs européens de la possibilité de participer à de tels investissements potentiels. Avec les plafonds d’émission et les limites sur les paiements à grande échelle pour les stablecoins non libellés en euros, cela crée un environnement confus et peu convivial pour les consommateurs lorsqu’il s’agit de ces tokens.

Et pour les NFT ?

Même avec toutes les mises à jour et la volonté de suivre les évolutions du secteur du crypto, le MiCA ne couvre pas certains éléments très importants de la crypto-économie actuelle.

Les NFT sont pour la plupart hors du champ d’application de cette législation. Cependant, les membres du Parlement européen ont fait valoir que de nombreux NFT sont en fait utilisés comme des instruments financiers et pourraient être soumis à des normes différentes.

En revanche, les NFT fractionnés, ainsi que les « tokens non fongibles dans une grande série ou une collection doivent être considérés comme un indicateur de leur fongibilité » et seront traités non pas comme des crypto-actifs uniques, similaires à l’art numérique ou aux objets de collection.

Les actifs ou les droits représentés par les NFT doivent également être uniques et non fongibles pour qu’un actif soit considéré comme tel. Le fait que les autorités nationales chargées de l’application de la loi puissent adopter des points de vue divergents sur la question de savoir si un actif peut être considéré comme non fongible ou non, s’il nécessite un livre blanc (whitepaper) ou comment il sera réglementé, est quelque chose qui devrait être préoccupant. Cela pourrait en effet potentiellement créer de nombreuses incohérences et préoccupations tant pour les émetteurs que pour les consommateurs. L’UE devrait publier un autre rapport sur les NFT afin d’apporter plus de clarté dans ce domaine.

Une fois que les traducteurs en auront terminé avec la version finale du texte, on s’attend à ce que le MiCA soit publié officiellement aux alentours d’avril 2023, ce qui signifierait que les règles relatives aux cryptomonnaies stables commenceront à être appliquées en avril 2024 et que les règles du CASP seront appliquées à partir d’octobre 2024.

L’Union européenne étant la troisième économie mondiale, les effets de cette législation auront un large impact sur le secteur, sur les consommateurs et les investisseurs, et auront certainement une certaine influence sur les autres régulateurs dans le monde.

Le fait que l’UE soit à l’avant-garde de la réglementation de l’innovation technologique est quelque chose que nous n’avons pas souvent vu dans le passé.

Avec l’adoption du MiCA, il appartiendra aux acteurs du secteur et aux consommateurs de s’assurer que les mesures introduisent la certitude et permettent à l’innovation de se développer. Et, si ces priorités sont maintenues, que ces mesures soient copiées et appliquées ailleurs. Quoi qu’il en soit, un long et passionnant voyage nous attend dans le domaine.

Originally published here

Where is the FTC’s privacy report?

Data privacy is a fundamental liberal democratic principle for citizens + consumers.

In December 2020, the Federal Trade Commission ordered security and privacy data from Big Tech firms to inform potential future rules that would impact all consumers.

It’s nearly November 2022 but we still have NO report. Why?

We know that our interactions with companies and government involve privacy trade-offs that we must weigh individually. That’s what informed consumer choice is all about, and why we fight for smart data and privacy rules

Enough with data leaks/hacks!

We need smart data and privacy rules that can:
💡Champion Innovation
🛡Defend Portability
📲Allow Interoperability
👨‍💻Embrace Technological Neutrality
👩‍⚖️Avoid patchwork legislation
🔒Promote strong encryption

Learn more! 👇

Originally tweeted by Consumer Choice Center (@ConsumerChoiceC) on April 21, 2021.

The FTC began its 2020 investigation into data practices from major tech companies to try to understand their algorithms, data collection, and monetization. Tech firms provided this within 45 days.

But still no FTC report.

In August 2022, FTC called for public comments on commercial data practices and surveillance by tech firms, presumably informed by the data they collected and analyzed in their report.

But still no FTC report.

Maybe that’s why the deadline was pushed from October 20 to November 21, the week of Thanksgiving…

By then, will American consumers and citizens have access to the FCC report?

The FTC is asking for citizen comments on the data practices of tech firms, we deserve to know what’s in the report they’ve been cooking up for nearly 2 years.

As Joel Thayer writes, it’s an absolute failure that a major agency has fallen behind on this task, especially considering their ream of lawsuits and actions against these same tech companies.

If the FTC wants to empower consumers and provide a framework that we can debate, it needs to prove it. While data and consumer privacy are vital for consumers and innovators, we know this FTC chair has an agenda that will have sweeping ramifications.

FTC Chair Lina Khan has aimed to stop mergers and acquisitions and issued record fines on tech companies against the advice of her own staff. If FTC wants to invoke consumer privacy as another regulatory hammer, consumers deserve a say.

In our view, consumer and data privacy rules must provide balance and protection:

  • Champion Innovation
  • Defend Portability
  • Allow Interoperability
  • Embrace Technological Neutrality
  • Avoid patchwork legislation
  • Promote and allow strong encryption

Anyone who wants to submit a comment to the FTC on their “Trade Regulation Rule on Commercial Surveillance and Data Security” — even without the report — should submit one here.

RÉSEAUX SOCIAUX ET MÉDIAS : LA FIN DE L’ENTRAIDE ?

Quand l’Etat choisit les gagnants et les perdants sur le marché, cela ne se termine jamais bien.

Certaines personnes partageront cet article sur les réseaux sociaux, ce qui augmentera le trafic vers le site de La Chronique Agora. Plus de trafic sur un site web signifie qu’un nombre plus important d’utilisateurs seront susceptibles de cliquer sur le contenu de ce même site, ce qui génère des revenus publicitaires.

En ce sens, Facebook ou Twitter agissent comme des multiplicateurs d’exposition pour les entreprises médiatiques. Toutefois, les législateurs en Europe, aux Etats-Unis et ailleurs, ne voient pas les choses de cette façon.

La sénatrice démocrate Amy Klobuchar a par exemple proposé le « Journalism Competition and Preservation Act » de 2021 (JCPA), qui prétend protéger les médias locaux en permettant aux diffuseurs de se regrouper pour négocier les conditions de distribution du contenu. En substance, cette législation permettrait aux entreprises médiatiques de coordonner les prix sur quelque chose dont elles bénéficient – les réseaux sociaux permettant aux utilisateurs de partager des liens.

Une concurrence pas vraiment libre

Le projet de loi exempte les entreprises de médias des lois « antitrust » pendant quatre ans, même si les entreprises des réseaux continueraient d’être concernées par ces lois. Selon Mme Klobuchar, cela permettrait de détourner les bénéfices des géants du net vers les entreprises de médias qui ont connu des difficultés au cours des dernières décennies – notamment en raison de leur incapacité à s’adapter au modèle en ligne.

Le projet de loi de Klobuchar ne va pas tout à fait aussi loin que ce qu’auraient souhaité certains responsables de la réglementation en Europe. En 2018, la Commission européenne a proposé une nouvelle législation sur le droit d’auteur qui imposerait une « taxe sur les liens ». Celle-ci obligerait les plateformes à payer l’éditeur pour l’utilisation de « snippets » (image et courts extraits de texte, comme ce qui s’affiche dans les résultats d’une recherche sur Google) ou à ne pas autoriser du tout la publication du lien.

Cette proposition a suscité des protestations à grande échelle dans toute l’Europe, au motif qu’elle réduirait l’accès à l’information, limiterait la liberté d’expression et favoriserait les « fake news ». Finalement, l’UE a édulcoré la proposition et, à ce jour, de nombreux pays membres de l’UE traînent les pieds pour mettre en œuvre certains aspects de la réforme du droit d’auteur.

Le JCPA est un argument moins élaboré que l’approche européenne du droit d’auteur. Pour Amy Klobuchar, il s’agit simplement de redistribuer les moyens financiers d’un acteur économique à un autre, non pas par le biais de la fiscalité, mais par la création de cartels. Cela créerait une myriade de problèmes.

Exempter un secteur économique des règles antitrust crée un précédent auquel d’autres secteurs feront pression pour accéder. Après tout, si les entreprises de médias peuvent s’unir pour combattre Meta et Twitter, pourquoi les conglomérats hôteliers ne peuvent-ils pas s’entendre pour limiter l’offre d’Airbnb ?

Quand l’Etat choisit les gagnants et les perdants sur le marché, cela ne se termine jamais bien et expose en l’occurrence les législateurs à une influence indue. En fin de compte, la question pourrait très bien être : Amy Klobuchar ne cherche-t-elle pas à bénéficier d’une couverture médiatique positive à travers ce projet de loi et ses effets ?

Mauvaise nouvelle pour les citoyens

Ceux qui s’inquiètent de la concentration du marché dans le domaine des médias devraient considérer ce projet de loi d’un œil très critique. Si certains peuvent bénéficier des cartels, ce n’est jamais le cas des citoyens et des consommateurs.

Il est également peu probable que ce projet de loi aide efficacement les entreprises médiatiques en difficulté. De nombreuses plateformes médiatiques génèrent déjà la majorité du trafic de leur site web, et donc de leurs revenus, par le biais des clics sur les réseaux sociaux – ainsi, une taxe sur les liens devrait être beaucoup trop élevée pour produire des résultats.

Cela pourrait conduire les réseaux sociaux à bloquer purement et simplement le partage de liens vers certains sites d’information, comme cela s’est produit en Australie lorsqu’une législation similaire a été mise en œuvre. Lorsque l’Espagne a tenté de mettre en place une taxe sur les liens, Google News a fermé ses services dans le pays (et ne les a rouvert que récemment, après que l’UE a atténué la législation locale).

Les prémisses sous-jacentes de ce projet de loi aux Etats-Unis, ou des législations qui ont été considérées par l’Union européenne, sont doubles.

D’une part, elles supposent que la situation critique des entreprises journalistiques est due aux géants des réseaux sociaux comme Meta ou Twitter. Le fait que Facebook ait fermé le partage de liens d’actualité en Australie l’année dernière prouve que la plateforme n’a pas besoin de contenu d’actualité pour survivre ; les médias ont besoin de Facebook bien plus que Facebook n’a besoin d’eux.

L’autre hypothèse est que l’économie est statique. Facebook et Twitter, à moins qu’ils n’innovent, ont peu de chances de rester les acteurs les plus importants dans le domaine des réseaux sociaux. Ils savent mieux que quiconque dans quelle mesure ils peuvent devenir superflus aux yeux de leurs utilisateurs : pensez à MySpace.

Si nous acceptons cette situation pour les réseaux sociaux, nous n’appliquons pas le même raisonnement à l’espace médiatique. Pourquoi les journaux et les diffuseurs ne pourraient-ils pas s’adapter à l’espace numérique d’une manière financièrement viable, sans l’intervention de l’Etat ?

Regulators and Politicians Are Coming for the App Store

New legislation and an antitrust lawsuit threaten Apple’s monopoly over its App Store. The Department of Justice recently joined Fortnite developer Epic Games in appealing the latter’s failed 2020 lawsuit against Apple. Epic alleges that the tech giant’s exorbitant 30 percent commission on in-app transactions, which users are forced to conduct through the App Store, violates competition laws and harms consumers. 

Meanwhile, Congress could soon pass the Open App Markets Act (OAMA), a bipartisan bill that would stop app platforms from monopolizing payment systems for in-app transactions, restrict them from preferencing their own apps over competitors’ in-store, and require them to permit “sideloading” — the installation of unverified third-party apps outside of official app marketplaces.

This could give smartphone users access to more apps while increasing competition between developers. Lower entry barriers into the lucrative iPhone app market of more than 118 million Americans could spur innovation in apps that may not have been viable before. It would also encourage investment in developer start-ups and could lower prices for in-app purchases, including for emerging technologies like NFTs, by allowing developers to circumvent Apple’s commissions through alternative digital payment methods.

But is there more to the story?

Users aren’t likely to abandon their iPhones for competitors over costly in-app fees and a sideloading ban once locked in. Conversely, they may see this as a trade-off for better app vetting and data security and privacy controls that Apple promises. Android phones don’t levy 30 percent commissions on in-app transactions, but Google collects and monetizes user data for targeted advertising to a greater degree with fewer controls. 

Though conversely, analysts note that Apple’s own data collection and monetization also fuels its growing ad business, which is expected to grow to $20 billion/year in revenues by 2025. Sideloading outside the App store certainly threatens this segment of Apple’s business.

As for security, discerning adults can trust themselves in navigating less restrictive app marketplaces or in taking precautions if they sideload unverified apps. But the same can’t be said for vulnerable demographics like children or the elderly.

Though the OAMA permits smartphone operating systems to restrict or remove apps over legitimate security and privacy concerns, this may be difficult to implement regarding sideloading. A 2020 Nokia cybersecurity reportblamed sideloading, which is already possible on Android devices, for 15 to 47 times higher rates of malware infection on those devices relative to iPhones.

In any case, Google and Apple’s alternative business models have resulted in a split smartphone market. Apple holds 59 percent of the American market, while the global market is dominated by Android, whose share is 72.2 percent. Both companies face competition from alternative smartphone manufacturers like Huawei and non-smartphone app marketplaces, including gaming consoles like the Xbox, which are exempt from the OAMA.

In a competitive market where users already choose what they value, is a legislative or court mandate limiting companies’ abilities to tailor platforms to their user base necessary or desirable? The ability to monetize the app marketplace funds capital-intensive investment in platform and app ecosystem development. Stymying this ability could harm consumers by discouraging innovation and competition between platforms.

And if Target or Walmart’s ability to “self-preference” by placing home brand products in prime locations relative to competing alternatives is an accepted business practice that isn’t seen as “anti-competitive,” then how is self-preferencing on digital platforms different? Consumers already discern between brands and often choose alternatives for reasons other than cost or product placement — whether online or at brick-and-mortar stores. Placing limitations on self-preferencing may result in stores or platforms levying higher prices from consumers elsewhere or offering fewer choices.

The OAMA is likely to yield greater choices in apps for Apple customers and greater opportunities for developers. But there could still be some adverse long-term consequences. At the very least, provisions that restrict self-preferencing should be reconsidered as they won’t meaningfully increase choices consumers already face.

Originally published here

americans for tax reform

Why Political Interference in Big Tech Continues To Be a Big Mistake

little common sense and a little historical context make it relatively easy to see that monopoly power concerns for Big Tech are blown out of proportion, since internet incumbents don’t last forever and even the greatest industry leaders can be beaten at their own game. Take for instance AOL’s AIM, which despite having immense market powercouldn’t maintain its dominant position indefinitely – and the same is true for others within the tech sector.

Gen Xers remember when Facebook replaced Friendster and Myspace, just as younger audiences have now replaced Facebook with TikTok and Snapchat. And while TikTok is garnering quite a bit of media attention, Twitch and Discord are poised to be next as preferred platforms. 

Based on these examples, the pitching of proposals in Congress regarding who can or cannot tweet seems counterintuitive, especially since Twitter ranks rather low in usersanyway. 

Yael Ossowski, deputy director of the Consumer Choice Center, notes that “If Congress succeeds in changing antitrust laws to curb tech power, it will not be to the benefit of the typical user and consumer online. Rather, it would fulfill the political goals of a coalition that seeks to curtail much more than mergers and acquisitions: certain political speech, movements they view as hostile, and products to which they would rather consumers not have access.” Indeed, having the government determine who can post or what can be posted is a more concerning matter than that of a private organization.

Given that government oversight tends to grow overtime, and that regulations rarely get repealed once in place, competition serves a better means than government interference for curtailing Big Tech’s bad behavior. Even the best of the best in the business realm go by the wayside in due time, which is why calls for antitrust action against Big Tech should be squashed and claims for content moderation should also be put to rest – despite the detestable deleting of accounts and posts based on political grounds.

The market should be allowed to do what it does best – as conveyed by Joseph Schumpeter and those who advocate for his stance – incentivize competition via consumer interests and promote creative destruction through innovative processes. 

Government interference will only generate greater forms of technocracy, resulting in any entrepreneur in this realm to spend a greater amount of time and money navigating legal matters rather than on learning how to serve users best. And the amount of big bucks Big Tech is currently spending on lobbying fees could certainly be put toward better and more productive use.

Although politicians herald antitrust as being a means for mitigating the abuse of market power, the opposite is true. Antitrust results in nanny state stipulations that inhibit competition from new entrants and increases opportunities for regulatory capture – which, given Congress’s limited understanding of the tech space, is highly likely as the best of the best in the industry will be called upon to advise and consult on the rules being made.  

The aftereffects of antitrust have always been anti-producer, anti-consumer, and anti-progress. Ayn Rand rightly asserted that, “The Antitrust laws—an unenforceable, uncompliable, unjudicable mess of contradictions—have for decades kept American businessmen under a silent, growing reign of terror.” And according to a study for the Competitive Enterprise Institute, “Aggressive antitrust enforcement can create considerable economic uncertainty, which can have a chilling effect on long-term investment and innovation in both products and in business practices that benefit consumers.” 

It is important to remember that a monopoly in its truest sense is not occurring whenever the potential for an alternative to come about is present. And while some cry foul to how some in Big Tech are calling the shots on posting privileges, or how the creation of competing platforms has been hampered by restrictions of certain hosting sites, such asAmazon blocking Parler, the social media landscape is shifting. New entrants and options may not have come about as quickly as we’d like, but alternatives are gaining ground.

It should also be noted that even when there are limited options in a market economy, this does not always mean something is wrong, in fact it can actually mean that something is right. Consumers are creatures of habit, and so if value is being provided for and people are satisfied, other options may simply not be necessary nor desired. And for most of social media’s history, this was the case. Being able to interact online at no cost has been, and continues to be, a great benefit to many. 

Limited choice can also occur when consumers consist of a small or captive market – Milton Friedman noted how it would be inefficient to have more than one telephone poll producer in each town. Fortunately, unlike Friedman’s example, the World Wide Web is a limitless townsquare and so is our potential for contacts and queries – therefore one platform will never be enough. In fact, according to the Global Web Index, Gen Z and Millennials have, on average, 8.4 social media accounts and are known to gravitate toward other sites whenever something better comes along. 

Currently, image-based platforms are proving to be favored by younger audiences, while decentralized P2P platforms are also making waves. Online usage rates, and online offerings, will adjust to interests at hand, and given that network effects are diminishing through the consolidation of accounts, converting followers from one platform to another is getting easier. Perhaps no one knows this better than Mark Zuckerberg. As it turns out, after Meta acquired Instagram and WhatsApp, one of Facebook’s biggest concerns is competition coming from within. And when all three of these platforms became unavailable for roughly six hours, in October of  2021 due to a network outage, online audiences utilized other sites or simply logged off – proving people can pivot and adjust as needed.

Rest assured that Big Tech is more vulnerable than many realize, and competition isproving to be plentiful. The government’s meddling in social media matters is not only a waste of time and resources for both the public and private spheres, but also a big mistake for promoting the progress of user services and options.

Originally published here

Every Industry Should be Concerned about the News Cartels Meant to Bully Big Tech

The Journalism Competition and Preservation Act (JCPA) was introduced in 2021 as a means of protecting local media outlets from becoming obsolete due to the competitive landscape shifting to the online realm. The JCPA claims that the playing field needs to be leveled for news outlets in need of viewers and compensation must be allotted for the content sharing occurring on digital platforms.

This bill, receiving serious consideration from the Senate, would grant broadcasters the ability to collectively collude on matters of revenue generation, sharing privileges, and link click-through access. Essentially, the JCPA will exempt select parties within the news industry from price fixing policies and antitrust penalties – all for the sake of socking it to Big Tech.

The passing of this legislation should be a primary concern for any business professional since it will not only create new forms of industry interference but also set a new precedent regarding antitrust application. And here is why: 

  • The JCPA is targeted since it only focuses on one sector with one bullseye – Big Tech. Historically antitrust policy has had a broad application, but if the JCPA passes, it opens the door for other firms to be specifically called out in the future on similar grounds.
  • The JCPA is preferential in that although antitrust cases are being brought forth against digital platforms, bands of broadcasters will be granted safe harbor from cases being brought against them. They would be absolved from adhering to existing antitrust laws.
  • The JCPA is ex post facto in that changes and charges are to be applied regarding content sharing and link clicking, which were previously free and freely accessible.

The basic premise is that it will “provide a temporary safe harbor for publishers of online content to collectively negotiate with dominant online platforms regarding the terms on which content may be distributed”.

So, first and foremost, we must ask what is meant by “temporary” given that nothing is ever short-lived when agencies and accolades are involved. According to the bill, news outlets with online content will not be held accountable for violations of antitrust law for a four-year term. But, even if those four years are truly locked in place, it is unlikely that any oversight committee, which will be required in this case, will easily disband when that timespan has lapsed – particularly once funding streams and authority status are established.

We must also ask why “safe harbor” should be granted to select firms. Protectionist measures via legislation are a waste of resources given that private actors have historically done a better job at curtailing or even catching bad behavior in a competitive market.

It was Sherron Watkins who exposed Enron, not the SEC, and it was Bernie Maddoff’s sons who turned him in, not federal agents. And just as Mark Zuckerberg’s Facebook unseated Tom Anderson’s Myspace as the social networking site of choice, someone else will come along and upend Meta’s dominance. That is how the market works over time. This leads to the third and final point: should “dominant online platforms” truly be a concern?

While some assert that cable TV simply can’t compete, and “newspapers are locked in a life-or-death struggle with tech giants” we must acknowledge that change is hard and you can’t stop progress. In 2010, the last full set of Encyclopaedia Britannica was printed, and it hasn’t been missed by consumers or even the company that produced them.

Microsoft’s Encarta made the purchase of printed text obsolete, and now Wikipedia makes Encarta CD-ROMs a thing of the past. And one could argue we have greater access and education at our fingertips for it. 

As conveyed by the deputy director of the Consumer Choice Center, “It is up to media firms to discover innovative and effective methods of capturing digital audiences, not lobby governments to siphon money for them.”

Platforms vary in terms of function and service, and Big Tech is not impervious to natural forms of competition given the dynamic nature of market mechanisms and consumer needs. Take, for example, Netflix, which launched in 2007 and skyrocketed to success in 2013 with the release of its first series, House of Cards – coincidentally a storyline based on power struggles and corrupt cronies in Congress. By 2016, Netflix was being touted as monopolizing the streaming service sector and for a few years, the press readily called attention to its success as something to question and even fear.

In 2013, the term FANG stocks came about to represent industry giants with a stronghold in certain lucrative sectors and who could serve as the whipping boy for Big Business on Capitol Hill.  FANG included companies that we love to use but also love to loathe: Facebook (social media), Amazon (e-commerce), Netflix (streaming entertainment), and Google (search engine). 

Although we see these companies being under great scrutiny in the halls of Congress for their supposed monopolization of power, we can see before our eyes how the market is moving despite lobbying efforts and party officials crying foul. Indeed, fast forward to today and the FANG acronym is less applicable not only given name changes (Facebook to Meta) but position changes, whereas success is now dwindling for Netflix.

Hulu, HBO Max, Disney+, Prime Video, Starz, Peacock, Paramount Plus, Apple TV Plus, and more have all emerged despite Netflix’s previous power position. And the same will be true for others in the Big Tech realm over time. Decentralized P2P platforms are increasing in users and Facebook is facing cannibalization from within.

Twitter is another great example of a Big Tech firm that bureaucrats love to bash. Presently, arguments over posting privileges are being raised by Congressional members but if to have a little patience, we can already see the market is making moves. Twitter’s power is waning in comparison to other platform providers in users and reach, and so much of the time spent debating Dorsey’s former firm could be better spent on other matters.

To be sure, Senators have a skewed view of how the market works, and even a limited understanding of where their concerns should lie in regard to the digital media realm – and yet the interest for interference is growing. 

In addition to the JCPA, the House and Senate Judiciary Committees are also aiming to further their control over the online realm through the proposed tech accountability package. This package is proposed as a means for curtailing the dominance of certain digital platforms, but in reality, it is a significant power grab – and the power they are after is truly alarming.

These proposals further embed politics in economics, whereas the government will not only serve as a referee but also determine who can or can’t play. Congress will be corralling competition for online content creation and distribution, and the JCPA will substantiate such a mandate.

While economic power is limited by the market (since purpose and profit are determined by the exchange of goods, services, investments, labor, etc.), political power is a tricky beast given the incentives present for incumbents and the power of the purse strings for those in prominent positions.

To be sure, the network effects of political dynasties in DC are a more troublesome matter than the network effects of social media and so we should be very wary of allowing the government to have a larger role in industry matters – even when it comes to Big Tech.

americans for tax reform

Why Political Interference in Big Tech Continues To Be a Big Mistake

little common sense and a little historical context make it relatively easy to see that monopoly power concerns for Big Tech are blown out of proportion, since internet incumbents don’t last forever and even the greatest industry leaders can be beaten at their own game. Take for instance AOL’s AIM, which despite having immense market powercouldn’t maintain its dominant position indefinitely – and the same is true for others within the tech sector.

Gen Xers remember when Facebook replaced Friendster and Myspace, just as younger audiences have now replaced Facebook with TikTok and Snapchat. And while TikTok is garnering quite a bit of media attention, Twitch and Discord are poised to be next as preferred platforms. 

Based on these examples, the pitching of proposals in Congress regarding who can or cannot tweet seems counterintuitive, especially since Twitter ranks rather low in usersanyway. 

Yael Ossowski, deputy director of the Consumer Choice Center, notes that “If Congress succeeds in changing antitrust laws to curb tech power, it will not be to the benefit of the typical user and consumer online. Rather, it would fulfill the political goals of a coalition that seeks to curtail much more than mergers and acquisitions: certain political speech, movements they view as hostile, and products to which they would rather consumers not have access.” Indeed, having the government determine who can post or what can be posted is a more concerning matter than that of a private organization.

iven that government oversight tends to grow overtime, and that regulations rarely get repealed once in place, competition serves a better means than government interference for curtailing Big Tech’s bad behavior. Even the best of the best in the business realm go by the wayside in due time, which is why calls for antitrust action against Big Tech should be squashed and claims for content moderation should also be put to rest – despite the detestable deleting of accounts and posts based on political grounds.

Read the full text here

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