Reason Magazine - Topics > Antitrust

Mr. Brin Goes to Washington

kmw@reason.com (Katherine Mangu-Ward) — Thu, 07 Feb 2008 12:00:00 EST

This is what happens when you set up a Washington office.

One day, you're the victim. The big, bad, established corporations are using their influence with Congress to beat up on you and stall important business deals. All you're trying to do is defend yourself from the onslaught. You bring in a lobbying team to defend your reputation and keep an eye on potential future attacks, and then, the next thing you know, you are the big, bad corporation using your influence on Congress to beat up your competitors. What happened? Let's examine a case study.

In April Google set out to purchase DoubleClick, an online ad network, for $3.1 billion. The deal immediately encountered resistance from privacy advocates who fretted about ever-increasing stores of data in Google's hands, and from competitors and regulators concerned about Google's growing market power. The fear was that Google's already significant share of online advertising would be dramatically increased with the purchase of DoubleClick, leading to concerns about diminished competitiveness in the market for online ads. The prime mover of these objections was Microsoft, which lost out to Google in the bidding for DoubleClick.

After much sturm und drang, Google finally got the OK from the Federal Trade Commission (FTC) on the purchase last month, and is likely to get similar approval in Europe shortly.

In its finding [PDF] about the possible harm to competition resulting from the merger, the FTC noted that "the clear majority of third parties expressing such concerns were Google's current or potential competitors." Surprise!

This is just the most recent chapter in a story that begins way back in 2004, when a few people began grumbling about privacy concerns with Google's email service, Gmail. A couple of legislators stuck their noses into the issue and Google started to feel a chill in the air. It was time, they realized, to set up shop in the Capitol City.

Conventional wisdom says that the most important thing for an up-and-coming corporate powerhouse is not to make The Microsoft Mistake: Bill Gates ignored all things political until he woke up one morning to find that his company was monopolist public enemy number one. Charged with illegal bundling of Internet Explorer into its operating system, it looked like the company might actually be broken up into small fragments, as when AT&T was smashed into the "Baby Bells." The battle that followed between Microsoft and the Department of Justice bloodied the company and locked in Microsoft's reputation as the big-bellied robber baron of the digital age (a reputation reason contested in our November 2001 cover story on antitrust hysteria).

To avoid that pitfall, Google decided to get some loafers on the ground in Washington while people can still remember the company's motto ("Don't be evil") and most congressmen felt rather warm and fuzzy about Google (with an emphasis on the "fuzzy," Congress is not remarkably tech savvy, by and large).

"We're seeking to do public policy advocacy in a Googley way," said Andrew McLaughlin, Google's director of public policy and government affairs. Adorable. Harmless. A reasonable precaution, nothing more. Riiiiight.

As the DC shop got set up, things looked fine. Google's manifesto for its Washington office is good—really good. They're pro-net neutrality, the dullest important political issue on the table in America today (which is saying something). Reasonable people can disagree on the issue, and reasonable people do—the combination of boring and byzantine makes it hard to build consensus—but the logic of Google's stance is solid, and consistent with the rest of its policy.

Their position on copyright enforcement is moderate and well considered. They seek to maintain the status quo on liability for third party providers online. This is something Google has an obvious stake in, but most reasonable people, including many distinguished judges, agree that no one benefits if someone can sue Facebook because they were offended by party photos posted by a user.

But then, in June 2006, Google co-founder Sergey Brin comes to Washington and has trouble setting up meetings with congressmen. The shop takes things up a notch, hiring another dozen lobbyists and professionalizing the operation.

Last Friday, Microsoft announced a $44.6 billion bid to take over Yahoo!. On Sunday, Google exec David Drummond posted a note on the official Google blog musing aloud about the possibility that Microsoft, were it allowed to bid for Yahoo, would "attempt to exert the same sort of inappropriate and illegal influence over the Internet that it did with the PC."

Apparently, Google has decided to take things further by opting for the "do unto others as they have done unto you" strategy.

When a company seeks advantage over its rivals by manipulating the economic and legal environment rather than through open competition, economists call it rent-seeking. It's not a flattering term. The temptation of rent-seek is almost irresistible, especially once you have a lobbying staff in place.

This most recent lashing out at Microsoft isn't the first of its kind. Last summer, Google took on Microsoft's Vista, claiming that the desktop search function discriminated against Google's competing product. Microsoft caved, tweaking Vista to allow Google Desktop. This was a pretty obvious follow-on from the initial antitrust case, and it would have been almost impossible for Google to resist the temptation to take Microsoft down a peg, but it's rent-seeking nonetheless.

Regulatory capture is a related phenomenon. When a company has a longstanding lobbying presence, there's bound to be a certain amount of fraternizing with the enemy. Government agencies often rely on the companies that they are supposed to be monitoring for information about the industry. The tech sector is particularly vulnerable to this problem since entirely new kinds of problems can appear rapidly.

In addition, while it's not technically a manifestation of regulatory capture, the way presidential candidates have been popping in and out of the Googleplex, you'd think it was a diner in Iowa, with Sen. Hillary Clinton (D-N.Y.) and Sen. John McCain (R-Ariz.) both visiting early last year.

And naturally, inevitably, as night follows day, congressional anti-trust hearings are set to follow. The House anti-trust task force has hearing scheduled for tomorrow, February 8, with the Senate threatening similar action if Yahoo moves in the direction of Microsoft's offer.

Google can (and does) quite fairly point at Microsoft and say "They started it!" But moms never accept that kind of finger pointing after a playground brawl, and we shouldn't either.

Katherine Mangu-Ward is an associate editor for reason.

Let a Pro Tell You What That House Is Worth. Really, You Must.

bdoherty@reason.com (Brian Doherty) — Wed, 18 Apr 2007 10:15:00 EDT

Jonathan Lansner in the Orange County Register writes of the state of Arizona's Board of Appraisal's attempt to ban Zillow unless it gets itself an official state appraisers license. Zillow is a website that provides to private citizens a free computer-generated guess about possible home values--a "zestimate," if you will. Which is distinct from an "appraisal," because, well, you need a licensed trained professional for that, as Arizona is trying to insist. Some excerpts from this account of protecting politically connected jobs, er, supporting vital professional licensure:

In some ways, this is a silly regulatory debate over what Arizona defines as a legal appraisal of a property and who can legally do such home valuations. This smells like a regulatory body protecting its own flock........
More importantly, Arizona v. Zillow feels like a shot across the bow to the budding business of arming consumers nationwide with critical information they need to navigate the muddy waters of a housing market.
Zillow is a pioneer in putting computerized home valuation models in the hands of consumers......
Where do these automated home price values come from? High-brow math splices together transactional nuggets – like prices of recent purchases near a home or how similar homes are selling in a region – to arrive at ballpark estimates. Bankers have been using these tools for a decade or more as a backstop for human-made appraisals as well, in some cases to make mortgage loans.
..........
Zestimates are usually seen by industry insiders as rough guesses of a home's value. In fact, Zillow acknowledges an error rate of plus or minus 7.2 percent within its nationwide price database of 51 million homes. In fact, one consumer group has complained to the Federal Trade Commission that Zillow's estimates too frequently mislead the public about real estate values.
But this isn't a fight about whether Zestimates are any good. It's about whether or not you should see them.
...........
If numerous professionals in the business are using automated valuations – from lenders to some appraisers to investors who buy mortgages – the consumer should be able to get a taste of these models, too.

More on this from the Arizona Republic.

Stop Me Before I Regulate Again!

rbalko@reason.com (Radley Balko) — Thu, 04 Jan 2007 08:14:00 EST

In the latest issue of Wired, always-interesting Lawrence Lessig admits he was wrong about Microsoft:

I was one of those reluctant regulators. As the evidence of Microsoft's practices became clear, I remember well thinking, "Of course the government needs to do something." And I remember very well the universal impatience with the notion that the market would solve the problem. How could it, when any other company was likely to behave just as Microsoft did?
We pro-regulators were making an assumption that history has shown to be completely false: That something as complex as an OS has to be built by a commercial entity. Only crazies imagined that volunteers outside the control of a corporation could successfully create a system over which no one had exclusive command. We knew those crazies. They worked on something called Linux.
I wanted to believe that Linux would prevail. But I'm a lawyer, and lawyers aren't programmed to see how profitable innovation might happen without commercial control. I didn't like the idea of regulation; I just didn't see any alternative. The suits would always beat the rebels. Isn't that why they were so rich?

The success of Linux and Firefox's bite into IE's market share shows how even a seemingly invincible Godzilla like Microsoft is susceptible to competition if it lets its market dominance breed cockiness and complacency.

Lessig applies this lesson to the "net neutrality" debate, but only to admit he has failed to learn it. He calls himself a "reluctant regulator" on neutrality, though he concedes that he may be making the same mistake there that he made with Microsoft.

Jesse Walker interviewed Lessig for reason in June 2002. And Joseph Bast and Dave Kopel blasted the Microsoft antitrust case in November 2001.

Illegal Settlement

jsullum@reason.com (Jacob Sullum) — Tue, 01 Nov 2005 00:00:00 EST

The 1998 agreement that settled 46 state lawsuits against the four major tobacco companies is mind-numbingly complex. But the essence of the deal, according to a federal lawsuit filed in August by the Competitive Enterprise Institute (CEI), is pretty simple: The states got payments totaling more than $200 billion during the first 25 years; the tobacco companies got protection from liability and competition; and consumers got screwed.

CEI, a D.C.-based pro-market think tank, is suing on behalf of a smoker, a tobacconist, a distributor, and two small manufacturers. The plaintiffs argue that the Master Settlement Agreement (MSA) negotiated by state attorneys general with the leading tobacco companies violates the Constitution's Compact Clause, which says "no State shall, without the consent of Congress...enter into any Agreement or Compact with another State."

Under the MSA, the states use a system of financial punishments to prevent companies that did not participate in the deal from gaining market share at the expense of those that did. Freed from the threat of competition, the major cigarette makers raised prices and forced smokers to cover the cost of the settlement payments. According to CEI, they raised their prices even more than was necessary to pay the states.

In addition to the Compact Clause, CEI says, the MSA violates federal antitrust law, bankruptcy law (by giving the states privileged status as creditors), the Federal Cigarette Labeling and Advertising Act (by regulating cigarette advertising and promotion, an area the law reserves to Congress), and the First Amendment (by restricting advertising and lobbying). The suit also argues that the MSA usurped the federal government's authority over interstate commerce by regulating the national cigarette market and its fiscal authority by imposing what amounts to a nationwide cigarette tax.

But the heart of the case is the Compact Clause, since there's good reason to believe Congress, if given the opportunity, would have objected to the MSA. In 1997 the attorneys general who put together the agreement asked Congress to endorse a similar deal, implicitly conceding that the Compact Clause required such approval. When Congress turned them down, they decided they didn't need permission after all.

Who Should Reign Supreme?

Fri, 01 Jul 2005 00:00:00 EDT

During the next three years, George W. Bush will certainly nominate one and perhaps as many as three new Supreme Court justices. Any one of those nominations could set off a battle comparable to the political donnybrooks over Clarence Thomas and Robert Bork; just one could be enough to shift the balance of power on the bench.

With senatorial filibustering over lower-court appointees filling the headlines as of print time, we'll leave the question of what will happen for another day. For our special courts issue, we asked several legal experts whom they'd like to see on the court. We also asked whom they liked best on the current court and who was their favorite Supreme Court justice of all time. Our participants range from the far left to the hard right, but they're all libertarians in whole or in part.

A lawyerly bunch, some respondents chose not to answer every question (we're not sure why, but those with cases pending in front of the Court seemed especially reluctant to name a current fave), but they all gave us interesting--and sometimes radically different--responses.

Andrew Napolitano

Napolitano, the youngest life-tenured Superior Court judge in New Jersey history, is a senior judicial analyst for Fox News and the author of Constitutional Chaos (2004).

Nominees for the Court: Judge Alex Kozinski, U.S. Court of Appeals for the 9th Circuit; Robert George, McCormick Professor of Jurisprudence, Princeton University; Ron Paul, U.S. House of Representatives (R-Texas).

All three of my nominees share some truly invaluable traits. Each has successfully triumphed over a form of tyranny: Kozinski escaped from Eastern European communism, George neutralized a liberal Princeton faculty, and Paul has resisted the Republican House leadership. Each believes the Constitution means what it says; that is, that the federal government is legally limited to the 18 specific powers given to it in the Constitution, and that the rights enumerated in the Bill of Rights are in fact guaranteed and cannot be taken away by Congress or the executive branch. They all hold that life begins at conception. They also believe that our rights are pre-political, hence natural, hence they come from God, not the government, not the consent of the governed, and not from any other source. Finally, and just as important as all of the above, each of my nominees possesses great personal courage.

Favorite sitting Supreme Court justice: Antonin Scalia, for writing in Printz v. United States (1997) that the Constitution confers upon the Congress "not all governmental powers, but only discrete, enumerated ones."

All-time favorite Supreme Court justice: George Sutherland, for writing in his dissent in Home Bldg. & Loan v. Blaisdell (1934) that "whether the legislation under review is wise or unwise is a matter with which we have nothing to do. Whether it is likely to work well or work ill presents a question entirely irrelevant to the issue. The only legitimate inquiry we can make is whether it is constitutional. If it is not, its virtues, if it have any, cannot save it; if it is, its faults cannot be invoked to accomplish its destruction. If the provisions of the Constitution be not upheld when they pinch as well as when they comfort, they may as well be abandoned."

Nadine Strossen

Strossen is a professor at New York Law School and the president of the American Civil Liberties Union.

Favorite sitting Supreme Court justice: David H. Souter. His well-researched, thoughtful opinions reflect the kind of classic conservatism that respects individual freedom and restricts government power to undermine it. His opinions also make clear that he is conscientiously engaging in intellectually honest, rigorous analysis, applying governing precedents and principles to the particular facts, rather than providing post hoc rationalizations for conclusions that result from personal policy preferences. Consistent with this open-minded approach, he has candidly acknowledged in an opinion that, upon further research and reflection, he realized that one of his votes in a prior case was wrong. (This was 2000's City of Erie v. Pap's AM, in which he confessed error regarding his prior vote in Barnes v. Glen Theatres [1991]. Both had to do with the question of whether nude dancing was protected as free expression under the First Amendment. In Pap's, he said he hadn't learned anything about nude dancing since Barnes, but he'd learned a lot about the First Amendment since then.) Accordingly, his opinions demonstrate how important it is to maintain the independence of the federal judiciary, relatively insulated from majoritarian political pressures.

All-time favorite Supreme Court justice: Louis Brandeis. His inspiring opinions concerning free speech and privacy continue to provide the most eloquent, enduring justifications not only for these particular freedoms but also for civil liberties in general. The rationales of these opinions apply to particular factual circumstances he could not have foreseen, since the opinions recognize in general that there will be future technological developments and threats to national security that will be invoked as purported justifications for restraining fundamental rights.

Richard Epstein

Epstein is a professor of law at the University of Chicago and author, most recently, of Skepticism and Freedom: A Modern Case for Classical Liberalism (2003).

All-time favorite Supreme Court justice: My hidden favorite is Mahlon Pitney, who served with both Louis Brandeis and Oliver Wendell Holmes (between 1912 and 1922) and consistently outdueled them on key issues dealing with freedom of contract.� Widely discredited or ignored, he wrote such key decisions as Coppage v. Kansas (1915), which held that employers on railroads could not be forced to bargain collectively; Hitchman Coal v. Mitchell (1917), which held unions liable for tortious interference with contract when they urged workers to remain on the job after joining the union, when they had promised to quit if they did so; New York Central RR Co. v. White (1917), which upheld workers' compensation laws against federal challenges; and International News Service� v. Associated Press (1918), a seminal case on the common law tort of misappropriation.

Mike Godwin

Contributing Editor Godwin is legal director of Public Knowledge.

Favorite sitting Supreme Court justice: I'm happy with John Paul Stevens, who wrote the opinion of the Court in the Communications Decency Act case, Reno v. ACLU (1997). Stevens was responsible for the unfortunate plurality decision in FCC v. Pacifica (1978), which gave us the problematic notion of broadcast "indecency." But he redeemed himself in Reno v. ACLU, when he led the Court in refusing to extend that notion to the Internet. It's true that the Court struck down the CDA in a 9-0 vote, but it meant a lot that Stevens was the one who corralled the runaway indecency doctrine before it stampeded over the new democratic power of the Internet. Stevens also wrote the Court's majority opinion in Universal City Studios v. Sony (1984). That case, which found that VCRs, and by implication other recording and transfer technologies, are lawful if they are capable of substantial use that does not infringe on copyrights, set the stage for 20 years of accelerating technological innovation, from the iPod to TiVo.

All-time favorite Supreme Court justice: Chief Justice John Marshall is an easy pick, so I won't pick him. Instead, I'd like to draw your attention to Louis Brandeis, one of the finer, more thoughtful pens to write Supreme Court dissents. His comments about speech and privacy are so good that they ring true today. Here's Brandeis on freedom of speech in Whitney v. California (1927): "Fear of serious injury cannot alone justify suppression of free speech and assembly. Men feared witches and burned women. It is the function of speech to free men from the bondage of irrational fears." And here's Brandeis on wiretapping in Olmstead v. U.S. (1928): The Framers "conferred, as against the Government, the right to be let alone--the most comprehensive of rights and the right most valued by civilized men." Brandeis understood things about individual liberty and autonomy that many more-modern justices don't.

David Post

Post is a professor of law at Temple University and a former clerk for Justice Ruth Bader Ginsburg.

Nominees for the Court: Richard Posner, U.S. Court of Appeals for the 7th Circuit. He has an obviously formidable intellect--his new-book-every-six-months routine is testament to that. And though his law-and-economics approach can sometimes be doctrinaire and rigid, he would bring a kind of intellectual vitality to the Court that could help shake up some old ideas that take root from time to time.

Steve Williams and David Tatel, both judges on the U.S. Court of Appeals for the D.C. Circuit. They have the same thing that Posner has: brilliance, and they're not afraid to go where their intellect leads them. Williams is a libertarian conservative, Tatel a Clintonian liberal; it's why they make a good pairing.

Harvard President Larry Summers. I'm being only half-facetious. Summers might find a job with life tenure quite attractive these days, and I've long thought that having one or two non-lawyers on the Court would be a good thing. "The life of the law," Holmes wrote, "is experience," and he was right--you don't need to have been inducted into the priesthood to understand the issues in the vast majority of cases (and in any event, that's why you have lawyers representing both sides, to explain to you precisely what they think the issues are). Summers is just the kind of guy you'd want there; like Posner, Williams, and Tatel, he's not afraid to turn things upside down and think about them in new ways. In fact, I'd take my chances with a court composed of these four.

Favorite sitting Supreme Court justice: It's gotta be Ruth Ginsburg. Not only because I clerked for her (twice, actually--once on the D.C. Circuit, once at the Supreme Court), but because she's judicious, in the best sense of that word--careful, thoughtful, fair. Second place goes to Scalia, probably because he's not careful, thoughtful, or (particularly) fair, only brilliant. If I had to choose the collected opinions of one sitting justice to take with me to the desert island, it would have to be Scalia; he's the Great Dissenter of this generation (e.g., read his truly devastating analysis in dissent in the recent case declaring execution of juveniles unconstitutional).

All-time favorite Supreme Court justice: Oliver Wendell Holmes. He wrote prose like an angel. Before Holmes, legal opinions read like they had been translated into English from some other language; Holmes wrote muscular, modern English, and he transformed the entire form for the better, almost single-handedly.

While he was deeply and profoundly skeptical about human beings and their affairs, he was never cynical; though he understood perfectly well that judges did not reveal Truth, or Platonic Justice, but simply worked out more (or sometimes less) reasonable accommodations between competing interests, he never allowed that to get in the way of his obligations as a judge to render the best justice he could in any given case. And his great free speech dissents (with Brandeis, usually) are the most eloquent modern defenses of the central role the First Amendment must play in our political system.

Larry Klayman

Klayman is chairman and general council of Judicial Watch.

Nominees for the Court: Of those mentioned as likely picks, I like Judge Alex Kozinski of the 9th Circuit and Judge J. Michael Luttig of the 4th Circuit. I have appeared in front of both of them on several occasions, and both are independent-minded conservatives who are not afraid to put a check on abusive government behavior and power. Kozinski is even brave enough to rule against abusive judicial conduct in disciplinary proceedings. In a case I had before Luttig, he was highly critical of the Internal Revenue Service's abusive tactics.

While he hasn't been mentioned as a possible nominee, I also like Judge Royce C. Lamberth of the U.S. District Court for the District of Columbia, who presided over many of my cases against the Clinton administration. He is an iconoclast who has a healthy skepticism of government power and, like Kozinski and Luttig, is sensitive to the needs of the common man, a trait sometimes lacking in conservatives. Lamberth was the judge who allowed me to take discovery in a simple FOIA case against the Clinton Commerce Department. It was this case that exposed and triggered the campaign finance/Chinagate scandal.

Favorite sitting Supreme Court justice: I really do not have one, but of those on the bench I would say Justice Clarence Thomas, who is also a friend. He can sometimes be overly simplistic, � la Scalia, in his reading of the Constitution, but he does have a fear of government power. This was no doubt reinforced by his own experience.

All-time favorite Supreme Court justice: Chief Justice John Marshall is my favorite, and not just because he was chosen by my favorite founding father, John Adams, who believed that without ethics and morality there will be no lasting liberty. While Marshall was a Federalist and I believe in "states' rights," his affirmation of federal power as the supreme law of the land was important in the early days of our nation. And Marshall believed, as I do--and this is not typically conservative--that the judiciary is perhaps the most important branch of government. Indeed, this is why I founded Judicial Watch: to not only watch the judiciary, because it is so important, but to use it to guard against the tyranny of the other two branches. Judges are our most important public servants, and they can use their power wisely or, as is often the case, unwisely. But they are necessary, within constitutional limits, to serve as a check on the abuse of government and tyranny among ourselves.

Siva Vaidhyanathan

Vaidhyanathan is an assistant professor of culture and communication at New York University and the author of Copyrights and Copywrongs: The Rise of Intellectual Property and How it Threatens Creativity (2001) and The Anarchist in the Library: How the Clash between Freedom and Control is Hacking the Real World and Crashing the System (2004).

Nominees for the Court: Bill Clinton. If only he had not been disbarred! The Court needs a persuasive politician on it right now. In the tradition of John Marshall, Hugo Black, and Earl Warren, Clinton could steer disparate justices toward a common goal. He is a master compromiser and a true moderate in a country that seems to lack them. Plus, the Supreme Court is one of the last places in American life where being a polymath pays off. No one is a quicker study than Clinton.

Cass Sunstein. Sunstein is an accomplished author and professor at the University of Chicago School of Law. He is a true moderate with a reasonable (i.e., not fundamentalist) view of free speech and a healthy respect for the Necessary and Proper Clause of the Constitution. He is brilliant and persuasive.

Kathleen Sullivan. The former dean of Stanford Law School is a master litigator and one of the world's leading experts on civil liberties. She would bring a fresh perspective at a time when civil liberties are at best taken for granted, at worst under concerted attack. She is also well-versed in technology and intellectual property issues, having argued such cases in federal court and presided over the premier law school in Silicon Valley, if not the world.

Favorite sitting Supreme Court justice: John Paul Stevens. I'm very nostalgic about the Court of the '70s, and he's the one who triggers the most nostalgia. He's got great institutional wisdom, a deep memory, and a sense of the Court's place in the world. He's also been steady and consistent in his jurisprudential vision. I've always enjoyed reading his opinions.

All-time favorite Supreme Court justice: Louis Brandeis. He did the most to move the court into the modern age and helped make it flexible and forward looking. You can't find a stronger civil libertarian. And he had a good style of forging consensus, but he wasn't afraid to be a strong dissenter either. Much of the most interesting reading to come out of the 20th-century Court is Brandeis dissents.

Randy Barnett

Barnett is a professor of law at Boston University and the author, most recently, of Restoring the Lost Constitution (2003). He represented the respondents in Ashcroft v. Raich before the Supreme Court this term.

All-time favorite Supreme Court justice: Most famous Supreme Court opinions either stretched clauses beyond their original meaning to authorize governmental power or interpreted textual barriers out of existence. Given this history, I have no Supreme Court heroes. But Justice Rufus Peckham (1838�1909) authored the opinion in Lochner v. New York (1905), one of the few decisions in which the Supreme Court exhibited skepticism about a claim of governmental power and protected a liberty not included in the Bill of Rights. By placing the burden on the state to justify its restriction on the liberty of contract in the form of a maximum hours law for bake shop employees (but not owners), Peckham in effect employed a presumption of liberty, which I think should be used to protect all liberties. On the other hand, Peckham silently joined the 8-to-1 majority in Plessy v. Ferguson (1896). As I said, I have no Supreme Court heroes.

Chip Mellor

Mellor is president and general counsel of the Institute for Justice.

Nominees for the Court: Pepperdine law professor Douglas Kmiec would be sympathetic on many libertarian issues; not flag burning or some national security issues, perhaps, but economic liberty certainly.

Justice Janice Brown of the California Supreme Court would be terrific.

A dose of Richard Epstein on the Court could only be good for America, even if pretty disruptive in the short term.

Favorite sitting Supreme Court justice: I don't really have a favorite, but I certainly admire Justice Clarence Thomas for his intellectual integrity and willingness to go to first principles and articulate those in a direct and thoughtful way.

All-time favorite Supreme Court justice: I don't think I could pick a particular justice, but there are opinions and dissents I like a great deal. The dissents in the Slaughterhouse Cases (1873) by Justices Joseph Bradley and Stephen Field were clear and insightful in their defense of individual rights, here economic liberties.

Harvey Silverglate

Silverglate is a Boston-based criminal defense and civil liberties litigator and writer.

Nominees for the Court: Eugene Volokh, UCLA Law School, because he is a consistent and forceful defender of First Amendment rights and, in particular, has a deep understanding of how "harassment" law poses a mortal danger to free speech and free thought in academia and in the workplace.

Judge Frank H. Easterbrook, 7th Circuit, because, as a principled conservative, he wrote the profound opinion in American Booksellers Association v. Hudnut (1985) and tore the "civil rights protection" facade off an ordinance that sought to censor protected speech. This opinion was summarily affirmed, without dissent, by the Supreme Court.

Judge Nancy Gertner, U.S. District Court in Boston, because, as a principled liberal and a former criminal defense, civil rights, and civil liberties trial lawyer, she understands the realities of the system but refrains from going beyond the proper role of a judge in changing it. She delivers impartial, honest, fair, and realistic justice to the extent allowed by the law.

Favorite sitting Supreme Court justice: Antonin Scalia. He is willing to say that when a constitutional right appears on its face to be absolute, it is entitled to be enforced despite the government's breathless claims that enforcement will mean the collapse of the Republic. His decision in last summer's "enemy combatant" case--charge and try him or release him--cut through the nonsense and obfuscations that appeared to dazzle the other justices. Despite Scalia's blind eye on the subject of religion, he lends important heft to the enforcement of certain crucial rights much in danger during the current "war on terror."

All-time favorite Supreme Court justice: Robert Jackson. His magisterial opinion for the Court in West Virginia Board of Education v. Barnette (1943), decided in the middle of a world war and reversing a "patriotic" precedent only three years old, proclaimed the right of Jehovah's Witness children to refuse to pledge allegiance to the flag, thereby securing in one fell swoop the First Amendment rights to freedom of speech, religion, and conscience. He was one of the most powerful and elegant writers ever to sit on the Court, and he put his magnificent talent to work in support of a broad and deep vision of liberty.

Nat Hentoff

Hentoff, a nationally syndicated columnist, writes regularly for both the Village Voice and The Washington Times. His most recent book is The War on the Bill of Rights and the Gathering Resistance (2003).

Nominees for the court: The first is John Noonan of the 9th circuit, who is just the fairest jurist I've ever known of. The second is Jack Weinstein. He is a federal district judge in Brooklyn, and he is a judge who really believes in judging in the interest of justice. The third is David Cole, a professor of constitutional law at the Georgetown University Law Center in Washington. He is a superb interpreter and has a historical knowledge of the Constitution, so he'd be a valuable member of the bench.

All three believe and act on the idea spelled out in the 14th Amendment: Everybody is entitled to due process of law and to equal protection of the laws. They can't be categorized as either conservative or liberal, but they are all very much concerned with civil liberties. During this war on terror which has no foreseeable end, supporting the protection of individual liberties against the government is a very important requirement for anybody on the Supreme Court.

Favorite sitting Supreme Court justice: That's hard, because I'm really not a fan of any of them. I would say Anthony Kennedy, because he at least has the ability to get out of any particular kind of category of conservative/liberal and think for himself. I wish he did it more often.

All-time favorite Supreme Court justice: It's gotta be a tie: William O. Douglas and William Brennan. Both were champions of the Bill of Rights, and we are Americans because of the Bill of Rights.

Michael McMenamin

Contributing Editor McMenamin is a lawyer in Cleveland.

Nominees for the Court: The late Republican Sen. Roman Hruska once famously said, in support of a failed Nixon Supreme Court nominee, that mediocre people deserve representation on the Supreme Court too. Be careful what you wish for. The concept of a "representative" Supreme Court is as unfortunate as it is extra-constitutional, but it has become the norm in the last 30 years. That, coupled with the partisan response of the Senate to all Supreme Court nominees from a president of the opposite party, has fulfilled Hruska's wish. There have always been a few hacks on the Supreme Court, but the last three decades have seen an almost unprecedented parade of compromise choices of undistinguished jurists, none of whom had established much, if any, of a judicial reputation before their elevation to the bench. Few on the highest bench today have managed to rise above their humble and obscure origins.

My three choices go against this grain. They have a record and a reputation. Regardless of whom they replace, the average intellect and integrity level of the Supreme Court would be increased by their presence. For that reason, among others, you will get really good odds in Las Vegas by placing your bets on them but don't bet more than you can afford to lose.

My first choice is Alex Kozinski of the 9th Circuit, a Reagan appointee and the immigrant child of Holocaust survivors whose father was a minor Communist Party functionary in East Europe. He is the most libertarian federal judge in the country and easily the most entertaining writer, being the founder, president, and sole member of OOPPSSCA (Organization of People Patiently Seeking Supreme Court Appointment). Even when Kozinski is dead wrong (e.g., extolling the virtues of snowboarding over those of skiing), he's fun to read and his judicial opinions are clear and consistent.

My second choice is Richard Posner, 7th Circuit U.S. Court of Appeals, another Reagan appointee who is a brilliant Chicago school law and economics scholar as well as an engaging and even more prolific writer than Kozinski. As with Kozinski, you don't always agree with his decisions, but his opinions are always clear and consistent. Sanity on the Supreme Court regarding antitrust law was achieved in large part because they had Posner's opinions to guide them.

My third choice, also a Reagan appointee, is a trial judge, 74-year-old Robert Douman from the Eastern District of Virginia. Lawyers who appear before him describe Douman as "exceptionally bright," "a really brilliant guy," "an honest guy who says what he thinks," "a very talented and learned guy." I like him because he had the guts to tell John Ashcroft's Department of Justice three times that they couldn't hold an American citizen (Yaser Hamdi) indefinitely without access to a lawyer. The Supreme Court eventually agreed with Douman, but his opinions read better.

Favorite sitting Supreme Court justice: Clarence Thomas. He has displayed incredible personal courage and integrity. He speaks frequently to African-American groups, especially young people, and never has a U.S. marshal confiscate a journalist's recordings, as happened with his colleague Antonin Scalia. Plus he's the best writer on the Court (notwithstanding the opinion of functionally illiterate Senate Minority Leader Harry Reid) and the one most attuned to protecting individual economic as well as civil liberties.

All-time favorite Supreme Court justice: The first John Marshall Harlan, a brilliant Kentucky jurist appointed by Rutherford B. Hayes. Harlan was the sole dissenting vote in the shameful 1896 decision Plessy v. Ferguson, which created the "separate but equal" doctrine to justify segregation, a decision used by Woodrow Wilson to undo the nascent desegregation in government facilities begun by his Republican predecessors Theodore Roosevelt and William Howard Taft.

Judge Jim Gray

Gray, a trial judge in Orange County, California since 1983, is the author of Why Our Drug Laws Have Failed And What We Can Do About It (2001).

All-time favorite Supreme Court justice: My all-time favorite U.S. Supreme Court justice is Louis D. Brandeis, who understood and acted upon Ben Franklin's warning that one who would trade a little bit of liberty for a little bit of security deserves neither. Brandeis was and is an effective voice for liberty against the intrusion of the government.

For example, in Olmstead v. United States (1928), which was the first wiretap case in Supreme Court history, Justice William Howard Taft wrote for the Court that a wiretap was not a "physical entry," and by speaking on a telephone, defendant Olmstead might just as well have been broadcasting to the world. In his dissent, Brandeis argued that "the progress of science and invention will make it possible for the government, by means more effective than the rack, to obtain disclosure in court of what is whispered in the closet."

Since that time, Brandeis' dissent in Olmstead has gradually evolved into controlling law in personal privacy cases such as Griswold, Estes, Miranda, and Katz. We owe this great justice a great debt, and he is my hero.

Free at Last

matt.welch@reason.com (Matt Welch) — Sun, 01 May 2005 00:00:00 EDT

Nancy Barrick sounded concerned. Her city's two daily newspapers--the family-owned, market-leading Seattle Times and the Hearst Corporation's lagging Seattle Post-Intelligencer--had announced in early February that they were both doubling newsstand prices to 50 cents. Given the "intense financial pressure" the papers were facing, the KOMO-AM news anchor asked me, "what can be done?"

I had to suppress a laugh. Daily news publishing is one of the most profitable businesses in the United States, with average operating margins last year of 20 percent among publicly traded newspaper companies (compared to about 5 percent for the dreaded Wal-Mart). Dominant dailies in even second-tier cities are swollen with enough ads, news pages, and editorial employees to make a European journalist collapse with envy. The Seattle Times, with a weekday circulation of 230,000, has a staff of 1,600; The Sun, England's largest-circulation daily at 3.5 million, has just over 500.

Seattle's jacked-up prices are a logical consequence of letting the federal government "protect" local newspaper markets. In 1970, in the middle of the industry's 50-year contraction, Richard Nixon signed the Newspaper Preservation Act, which allowed rivals in the same city to sidestep antitrust law by forming "joint operating agreements," or JOAs, in which a single entity could set prices and handle the business operations for ostensibly competing newsrooms.

The law was supposed to save struggling newspapers and give multiple editorial voices to cities not named New York. In practice, it has done little to stanch newspaper closures--15 of the original 28 JOAs have ended with just one paper left standing--and much to prevent new voices from entering markets in the first place. Provided with a license to fix prices, JOAs have effectively scared off new entrants (who wouldn't be able to enjoy their antitrust exemption) and hiked ad rates and circulation fees for their captive audiences.

Meanwhile, the corporate parent companies of some lagging JOA partners have learned that the shortest path to their ideal situation--sole ownership of a newspaper monopoly--is to underperform deliberately.

Such is the case in Seattle, where Hearst finds itself in the same position it faced in 1990s San Francisco: the owner of the foot-dragging half of an unhappy JOA. The San Francisco Chronicle, like the Times, was owned by a local family who had grown tired of splitting profits with a deep-pocketed circulation bleeder that showed no signs of trying very hard. After some high-profile and unprecedented meddling by the Justice Department's antitrust division, Hearst bought the Chronicle in 2000 for $660 million while handing over its stumbling Examiner, plus $66 million, to San Francisco's eccentric Fang family.

The Fangxaminer was a resounding artistic and financial failure, but Hearst's former flagship paper may once again be asserting its historic role after being sold last year for $20 million to Philip Anschutz. The reclusive Denver billionaire entrepreneur, who founded Qwest Communications and owns the country's largest movie chain, has shocked easily-fooled industry observers by demonstrating decisively, from coast to coast, that daily newspapers no longer need to be saved.

Anschutz converted the Examiner into the fastest-growing format of newspaper in America (and the world): a free tabloid. In this young century alone, scores of smaller freely distributed dailies have been launched across the country, from Santa Monica to Aspen to Nashville to Philadelphia. After decades of losing newspapers, some cities are suddenly gaining not just one but two new dailies. Among them are Chicago, Dallas, New York, and now Washington, D.C.

Most of the new tabloids, though by no means all, print Monday through Friday, run short and gossipy stories from wire services, fill about 40 pages, and are distributed along public transportation routes. They come in English and Spanish; are owned by local activists, Swedish Marxists, and American media magnates; and rarely employ more than 40 workers or spend more than $10 million a year. While the average broadsheet reader is a white man approaching his 50th birthday, two-thirds of free-tabloid readers are under 45, and fully half are female. Metro, the trailblazing 10-year-old Swedish chain that owns papers in 42 cities worldwide, including Boston, Philadelphia, and New York, demands and usually receives operating profits in each of its markets within just three years.

"I've been in this business for 30 years," the World Association of Newspapers' Jim Chisholm told The New York Times last fall. "And for the first time we're really seeing lots of exciting things happen."

Until now, this exciting model has produced little of journalistic note in the U.S., aside from a funny columnist here and there, a handful of aggressively hyper-local newsrooms, and some frank features about drinking and sex. But Anschutz expanded the tabloid horizons this January with his launch of the Washington Examiner.

Instead of 40 pages, the 260,000-circulation D.C. Examiner has been printing between 56 and 64. Staff writers fill a good percentage of the news hole, and the paper publishes on weekends. A lively opinion section called "The American Conversation" spills over several pages. In its early days, the paper looks like a slimmer version of the New York Daily News, with politics that lean in the conservative direction of the three-year-old New York Sun.

Most intriguing and promising of all is the fact that Anschutz has registered the Examiner trademark in 69 cities, including the JOA-afflicted markets of Albuquerque, Birmingham, Cincinnati, Denver, Detroit, Las Vegas, Salt Lake City, Tuscon--and Seattle. "This is the biggest development in the newspaper business since the launch of USA Today," Washington Examiner Editor John Wilpers told the Richmond Times-Dispatch in late January. "This could be the next big thing."

If you thought the journalism establishment would welcome this development with open arms, you'd be wrong. Four decades after the passing of media criticism godfather A.J. Liebling, who spent a lifetime lamenting each newspaper death and celebrating each newspaper birth, his would-be descendants have mostly heaped derision on the first newspaper boom of their lifetimes.

In 2002, when I was in discussions with ex�Los Angeles Mayor Richard Riordan about launching a free tabloid, local journalism professors and media columnists were eager to pour cold water on a business model none of them had heard of. Analyst John Morton, the ubiquitous go-to source for every article about the American newspaper industry, was contemptuous then and remains so now, even after three years of newspaper launches. "You don't want to go into a daily market against a paper that's already dominant," he told the San Francisco Chronicle in February. "I suspect [Anschutz] will lose money for some time."

Boardrooms tend to respond a little more quickly than newsrooms, though, and the big boys are eagerly jumping on the tabloid bandwagon. The Tribune Co. has launched papers in Chicago and New York, Knight-Ridder announced in January that it plans to expand heavily into free tabs, and The New York Times itself bid $16.5 million in January to buy 49 percent of the Boston Metro, less than a year after Times Publisher Arthur Sulzberger called the free papers "degrading."

The Times-Metro deal hit a snag in January, when the Justice Department announced it was investigating possible antitrust ramifications. The complaint behind the investigation, initiated by the paid tabloid Boston Herald, alleges that since the Times already owns the market-leading Boston Globe, it could use its leverage to squeeze the Herald out of business.

The Herald, like the newspaper chains that successfully lobbied Richard Nixon 35 years ago, understands that nothing can prop up a struggling newspaper, at the expense of new competitors, better than the federal government. But newspapers have been doing just fine these last five years without Uncle Sam's help. If the government wants to preserve newspapers, the best thing it can do is get the hell out of the way.�

The Reluctant Planner

Wed, 01 Dec 2004 00:00:00 EST

His decision to loosen media ownership rules "insulted your intelligence and wounded democracy," one newspaper columnist declares. He's obsessed with "trying to save America's virtue," writes another. He has presided over "an end to an era of competition," a consumer advocate argues. He's Michael K. Powell, 41, arguably the most controversial chairman in the history of the Federal Communications Commission (FCC), the central planner charged with overseeing the structure and details of telecommunications in America.

As a young man, Powell joined the Army, following in the footsteps of his father, Secretary of State Colin Powell. After a back injury ended his military career, he took up law, graduating from Georgetown University Law Center in 1993. In 1997 the Senate selected him to be one of the two Republican commissioners at the FCC. (The agency has five commissioners, three traditionally picked from the governing party and two from the opposition.) When George W. Bush became president, he tapped Powell for the top job.

There are two ways to look at Powell's performance in office. One is the way Powell portrays himself: as a "Reagan-era child" eager to lighten the government's burden on the communications industries. This Powell has a vision of digital convergence--of a market where cable, telephone, cellular, and satellite companies compete to sell bundles of video, voice, and data packages across Internet-style networks--that is finally gaining traction in the market and in Washington. In this coming world, he argues, government regulation is much less necessary.

That Powell applied the same deregulatory principle to long-established limits on the number of television stations a single company can own. Powell and the other two Republican commissioners approved a modest plan to liberalize those regulations in June 2003, but it was a Pyrrhic victory. Public interest groups denounced the move, and legislators retightened some of the rules. Others were overturned by the U.S. Court of Appeals for the 3rd Circuit.

That's one perspective on Powell. Another view argues that the chairman isn't the deregulator he's reputed to be--that in fact, he's made the government more intrusive. His FCC has pushed an industrial policy�style mandate for digital television (DTV), and last year it forced TV and computer manufacturers to include anti-copying tools in their products. In August the agency took a similar step with Internet telephones, requiring them to install surveillance-friendly wiretap equipment in the name of homeland security.

And while Powell's proposed changes to the media ownership rules were deregulatory in many ways, they would have tightened the caps on how many radio stations a company may own, while grandfathering in most of the acquisitions that predated the rule change. Worse, the chairman seems more interested in letting existing broadcasters merge than in letting new broadcasters emerge: During the Clinton years, he voted against a plan to license new low-power outlets on the FM band, citing the possible "economic impacts" on incumbent stations.

Then, too, politics has forced Powell to eat some of his deregulatory words. Where he once wanted to re-evaluate rules governing "indecency" in broadcasting, he now enforces them with a vengeance. His agency has issued 21 fines--and two consent decrees--for $4.7 million within the last year.

In August--one month prior to issuing the biggest fine of all, a $550,000 slap at CBS owner Viacom for its role in the Super Bowl halftime show featuring Janet Jackson's bared breast--Powell sat down in his office to discuss these issues with reason Editor-in-Chief Nick Gillespie, reason Managing Editor Jesse Walker, and Drew Clark, senior writer for National Journal's Technology Daily.

reason: What would you say of someone who said, "There is nothing unique about the scarcity of radio frequencies....Rather than continuing to engage in willful denial of reality, the time has come to move forward toward a single standard of First Amendment analysis that recognizes the reality of the media marketplace and respects the intelligence of American consumers."

Michael Powell: It sounds like you're reading a speech of mine.

Reason: From 1998.

Powell: I thought it sounded familiar.

I completely agree. Do you think a 12-year-old knows what a broadcast channel is? Do you think that they have any idea what the differences between Channel 4 and Channel 204 are? Do you think that the First Amendment ought to change as the dial changes?

I don't. To suggest that we bend the First Amendment for one industry singularly is to do hazard to our most cherished principle.

Reason: What's changed in the six years since you made the speech?

Powell: Nothing's changed, and that's part of the problem.

Reason: But you're talking a lot more about indecency now.

Powell: Yeah. It's quite consistent, actually. The indecency laws, first of all, are statutes. The people of the United States, through legislation, have made indecent speech between the hours of 6 a.m. and 11 p.m. over only one medium, broadcasting, unlawful. They have invested in this commission authority to enforce that law. The commission does it in response to the complaints from the public. Many people have tried to argue that we should be like the FBI on indecency and be affirmative, that we should go out and listen to television and radio. We don't do that. We wait for the American people to complain, and then we act on complaints. What has happened in the period you've identified is indecency complaints have skyrocketed.

Reason: So you can take complaints. But why do you actually need to levy fines against someone who uses, say, an expletive in a passing phrase, as Bono did at the Golden Globes?

Powell: The statute says two things. It makes indecency unlawful, and it makes profanity unlawful. How do you say it's not profane? It's in the criminal code, which means John Ashcroft could theoretically go try to slap handcuffs on you. Now, nobody expects that, but there's nothing about that statute that says otherwise. If the f-word's not profane, then I don't have any idea what profanity is in America. Presented squarely with a case like that, it became very difficult to say it's not profane, even though I think you could debate whether it's indecent.

Reason: But this was the first case where you've used a profanity standard.

Powell: In the past there are some profanity cases linked to blasphemy. But I don't see anything in [the definition of] profanity that says "f-you" is OK but "f-God" is the only thing we care about.

Reason: Do you think it's appropriate that radio broadcasters have to meet a different standard than, say, a filmmaker when it comes to indecency or profanity?

Powell: This goes back to, do I think that the First Amendment should be less protective of broadcasting than it should be of cable? I don't particularly.

I can make an argument that radio is free. I can make the argument the Supreme Court has made: It's the one medium that uses a public asset and resource, as opposed to being purely private. The airwaves belong to the United States government and you license use. They're the public's airwaves.

Reason: Should the airwaves belong to the United States government?

Powell: That battle was over in 1920. You could've argued that there should have been a private property model of spectrum, and many people have written brilliant articles about how you could have done that. Ronald Coase won the Nobel Prize for arguing that. But I can't live in every century. Nearly 100 years ago, Herbert Hoover as secretary of commerce decided the airwaves belong to the public.

Reason: But things have changed, in part because of the Coase article. The philosophy of auctions took off in the '90s, and one can grant de facto property rights without de jure property rights. Wouldn't you say we're moving more toward that system?

Powell: Clearly. Most of the property right�esqe things you're talking about in public spectrum are our initiatives. This is a commission that has promoted secondary leasing, secondary markets. This is a commission that eliminated arbitrary spectrum caps [on cellular companies' holdings]. It is a commission that creates more flexibility in licenses. Those are all de facto property rights. How many speeches have I given where I say, "Let's move from command-and-control spectrum models to more market-based spectrum models"?

But let's be candid: Broadcasting will always have a different set of dynamics associated with it. Why? Because it is content, and because it's very, very political.

Reason: Let's move to the very political issue of the media ownership rules.

Powell: We're not talking about media ownership. We're talking about broadcast ownership. I'm troubled by the continued approach in which media that are extremely competitive with each other--media that compete for news, information, resources--are nonetheless cut up and categorized differently and then get entirely different regulatory regimes.

Reason: Can you give a quick example?

Powell: One of the biggest firestorms was over this national cap [on what percentage of the national television audience a single owner can reach], whether it was 35 percent [the former cap], 45 percent as we suggested, or 39 percent, which Congress picked. Going to 45 percent means maybe one to two more stations per network in the United States. That's all that means. So a broadcast network is only allowed to reach with its product 45 percent of America.

But why can cable reach 100 percent? Satellite television can reach 100 percent. The Internet reaches 100-plus, if you want to go outside the U.S.

Reason: So why 45 percent? Why not 46 percent? Why not 100 percent?

Powell: This is where it's not just an academic argument. If Congress wants, as the 535 representatives of the American public, to say we're going to draw a limit, they can draw a limit. They can delegate that authority to an institution like this one, whose duty it is to follow the limit. And no matter what my personal view is, I'm not going to debate whether there should be a limit.

Reason: If Clear Channel suddenly owns six, seven, or, under a different regime, a dozen radio stations within the same market, is that something people should worry about?

Powell: Yeah, absolutely. It's something the commission worried about. It's rarely reported, but we tightened the radio rules. I hate when people describe my views as laissez faire, because I don't think there's any such thing. Capitalism would not work without the rule of law, and it would not work without certain understandings about rules and limitations.

I'm an antitrust lawyer. I completely accept that concentration at some measurable level becomes anti-competitive and harmful to the American consumer.

Reason: Can you give an example of that?

Powell: There's Standard Oil.

Reason: Most of the revisionist histories of Standard Oil show that by the time it had its maximum market penetration, it was actually charging less for oil.

Powell: You may know more about the specifics of Standard Oil than I. But I do believe in the cases and the theories that show that at a certain level of monopolistic control people can extract monopoly rents and affect output in a way that harms the American consumer.

I think the United States, more than any other nation in the world, has got antitrust right. The presumption is business is OK. The presumption is mergers are not in and of themselves bad. People forget that monopoly isn't even illegal. The only thing we're looking for is whether the monopoly actually causes anti-competitive effects that are measurable on consumers. I've worked at the antitrust division. I've seen cases where we believed unequivocally that it did. You can find them. You could find the price increases, you can find the data that would demonstrate that and that you needed to do something about it.

But in media, it's less than that. If all we were doing is measuring concentration in the traditional way, we all know how to do that. I could decide whether Clear Channel is too big on concentration and anti-competitive grounds, but the argument in the country is not that. Something far short of that should be a "no" on diversity grounds, which is a compelling objective.

Reason: Do you think there's any principled way to determine the right levels of diversity and localism?

Powell: At the end of the day you have to do something that you're comfortable with, but you have to accept a big margin of error. What are you trying to achieve with localism? Issues relevant to their community and not just issues relevant to the nation and the world are part and parcel of what's covered by properties that are licensed in the public interest.

I can pull public records and look at programming choices and what percentage of local news is on vs. five years ago, and I can measure it. We did all of this in the media ownership proceeding, and the reason I am a little saddened by what happened is that the work in there is phenomenal. We had data that never existed before. We found things to measure that aren't antitrust mathematical but are indicative of a good story, and things that were indicative of a bad story.

Reason: What do you think accounted for the firestorm over the ownership rules?

Powell: It's because this is an extraordinarily media-intense culture. Getting your voice heard is a source of both pleasure and aggravation.

The debate is more of a stalking horse for a general anxiety about media's role in our daily lives than it is about the rules. It became symbolic in an era where there was deep anxiety about globalization, a deep anxiety about corporate America. And the rise of things like Fox, which is the first network with a more conservative element in it. There's a whole 'nother constituency that thinks that's the problem.

Reason: If you had to do it over again, what would you have done differently?

Powell: There are a lot of tactical things I would do differently. We got hit with a perfect storm. Look at some of the groups who are most effectively mobilized against us. We've never heard of them here at the FCC. I don't know who Code Pink and MoveOn.org are. In many ways, the anti-war movement suddenly came to the FCC. And that was a hard thing to have seen in advance.

I'm not so sure I would have put everything together, which I think is the right answer from a legal, technical approach. We created this enormous gravitational pull because all the broadcast rules were together, as opposed to past commissions that did a rule here and next year did a rule there. Maybe that's the better way to do it.

Reason: When low-power FM came up for vote in 2000, you dissented in part, rejecting the arguments that the FCC does not "pick winners and losers" and pointing out that "we regularly consider the economic impacts of our actions on licensees." Do you think the FCC should be picking winners and losers?

Powell: No. Not at all.

Reason: Well, you voted against the proposal.

Powell: The short answer is, "No, of course we shouldn't, and nobody will say we should." There's no question that every day here I have lobbyists that come in this room paid lots of money to make me pick a winner. They make an argument about the public policy benefit of doing it their way, but at the end of the day, sometimes it's just, "We want you to be on our side."

A public policy official needs to know how to be disciplined and objective about the choices they are making, but I pick winners and losers by coincidence, not by consciousness.

Reason: You've done more than any other chairman to increase the number of megahertz devoted to unlicensed spectrum. Why?

Powell: The commission made an interesting error many years ago and issued the unlicensed band because they thought the spectrum was junk. We didn't invent WiFi [wireless fidelity] or anything. The only thing I think we should be credited for is that we started to observe that very positive things were happening in that space, not just baby monitors and microwave ovens. Suddenly people were bringing very interesting products to consumers at very low cost.

We jumped on that and said this is something the government should reinforce rather than try to stamp out. Because the history of the FCC is, when something happens that it doesn't understand, kill it. We tried to kill cable. We tried to kill long-distance. When [MCI founder] Bill McGowan starting stringing out microwave towers that threatened AT&T, the FCC tried to stop him. The FCC tried to kill cable because it was going to threaten broadcasting. I don't want to make those mistakes. The philosophy of my commission is when we see something that's disruptive but powerful, stop talking about killing it. Talk about empowering it.

So we jumped on WiFi and said, "Let's see how far this can go." It's gone way farther than I would have imagined. I don't think I could do unlicensed for all the spectrum in the United States and not melt down the universe, but can we pick selective bands under certain parameters and do that? Yeah. And it's teaching us a lot about how much more we might be able to do with it.

Reason: What about unlicensed broadcasting? Why not let pirate stations operate if they're not interfering with other stations nearby?

Powell: You just put in an enormous caveat: if they don't interfere. The way we manage interference is through licensing. I could say, "Why don't we just let everybody buy a car and get on the road and as long as they don't run into anybody, it's OK?" Well, because somebody who buys the car might be up to something that they shouldn't be. Or maybe there's no way to have a record-keeping function so that when the car wrecks I know who did the wrecking. You won't be very happy if the interference is with the LAX tower as a plane's landing and we find out--which has happened--that a pirate radio station was responsible for that and we didn't even know who they were. Licenses are a way of knowing in advance who's authorized to operate and that they have been given clear understanding about what the operating parameters are and that they're legally obligated to follow them.

Reason: In a world where there is competition between cable and wireless and telephone for video and voice and data, what is the role of the FCC? Couldn't we just eliminate it, shut its doors, hire a spectrum court, and pass antitrust enforcement over to Justice?

Powell: If you want to. So let's engage in a hypothetical about putting yourself out of business. The communications system, let's be blunt, is littered with social and political policies that have been embraced by the country and codified by the Congress, and it's created an institution to administer them. Don't ask me to defend it. I'm administrating it. The universal service program is a commitment by the United States to provide ubiquitous and affordable phone service. You can let the market do it and you can pay $300 a month for phone service in Montana.

Reason: You think that's what you'd pay? You can get cellular service for $40 a month.

Powell: Yes. We have places in the United States where the cost of a basic land line would be $200 to $300.

You said things in your statement that are important, but don't trivialize them and say, just set up a court for spectrum. We are that court. You can put it in something else you want to call a court, but that's who we are, and we've been doing it for 70-something years and we're probably the best in the world at it.

Universal service is not an economic policy; it's a social policy. Public interest obligations on broadcasters, as much as you may want to disagree with them and as much I might want to disagree--they're just social and political policy.

Reason: But clearly you are doing more than just implementing the will of Congress and being a spectrum court. You are implementing industrial policies like digital television, which will require all Americans to swap out televisions receiving broadcasts for newer models. [Once that's completed, every broadcast station will give back the second television channel it was loaned for free in 1997, and cease analog broadcasting.] When did you decide this was worthy of embracing and pushing?

Powell: When I decided that Congress had made a legal judgment that that's what they wanted to do and asked this agency to make it happen. When I realized that this country was wasting way too much spectrum in broadcasting, and it needed to get it back, and the only way to get it back is to get the transition over. When I realized that if somebody doesn't help drive this transition forward, hundreds of megahertz of spectrum that could be deployed for other creative uses or for public safety or for homeland security were laying unused. I am not free to be nothing but an academic about the way I think about the world. I am duty-bound to try to administer the policies that are in place and make them work, no matter what my personal preferences are.

I didn't write the industrial policy of DTV, and I've been on record criticizing why we did it in the first place. But it's done. Sitting around whining about it at conferences is not the same as getting it done.

When I set out to get it done, I also didn't do what some people would've done. The Powell plan was a voluntary plan.

Reason: Except for the requirement that televisions include digital tuners.

Powell: Absolutely, except for the tuners. There's a good reason to do tuners. Sometimes you play hardball. The consumer electronics industry wasn't going to play with the Powell plan. I can count every TV from now on against the transition, which means I can get the spectrum back for the country to use sooner. Am I super comfortable with it on my own philosophical bent? No. Does it mean sometimes you use your authority to make the greater good happen? Yes. I'm not going to run away from that.

Reason: When do you think the broadcasters are going to give up those channels?

Powell: Even with them in good conscience steadily clunking along, this could be 30 more years. And why do I come up with a number like that? Because if all we're doing is waiting for consumer adoption of an expensive product, we have to reach 85 percent before we can get it [under current law]. So when did the VCR reach 85 percent penetration? It took almost 35�40 years before it did so. We're looking at how to accelerate the transition and perhaps administer a date certain.

Reason: So what do you think the date will be?

Powell: It can be whatever we make it be, but what we've talked openly about is 2009.

Reason: The plan includes a hard date for the transition.

Powell: The word hard means because we say so. So Congress can say, legally, tomorrow. It's talked about 2006 or 2007.

Reason: Would you prefer that it's 2006 rather than 2009?

Powell: I'm a little guarded because I think the only people who should not have to pay a price for transition are consumers. They weren't at the industry policy table. They're not the ones doing the deal, and I think you've got to be very careful that the transition is at least not an abrupt one for them--"go buy a $3,000 television tomorrow so we can be finished."

Reason: What about the price consumers are bearing by having government regulation of electronic equipment, like the broadcast flag for Hollywood?

Powell: Specifically what?

Reason: The price of innovation being reduced by someone having to come and beg your agency for approval to implement a new consumer-friendly device like TiVo.

Powell: I think the premise of your question is false. The notion that a complete laissez-faire deployment of equipment always will produce a quicker and more optimal, more innovative solution is not accurate. You wouldn't have a personal computer if there weren't a standard. You wouldn't have the production of content if there weren't protections for the creators of content.

Reason: Do you think the current copyright extensions are legitimate?

Powell: I'm not a copyright expert. I have no interest in becoming a place to resolve digital copyright issues more broadly.

Now, the broadcast flag is about a very specific problem associated with the transition to digital television. To me that has a greater good associated with it, which is recouping $70 billion of [spectrum] assets to deploy at a higher and better use.

Reason: Are you going to be able to stop digital piracy of copyrighted materials?

Powell: You'll never stop free downloading, but can iTunes be compelling enough to restrict the bleeding enough to create a rough balance? The copying machine lets you copy a book, but there are certain transaction costs and barriers. I still think the vast majority of people want to do things legally, and if it's cheap and compelling enough, they'll do it legally. Millions of consumers still buy DVDs quite happily, so I don't think the answer is you've got to stop everything. I think the answer is you have to deter the most egregious abuses so that the producers will continue to produce.

Reason: Let's turn that around. Can you have enough piracy to get big content promoters to give people the things they want?

Powell: Well, I think the music industry is a beautiful case in point. They might kill me for saying so, but I think [Napster inventor] Shawn Fanning did America a service. If Napster hadn't woken them up, I don't think you would have had MP3 players. I don't think you would've had iTunes. I don't think you would've had the iPod. I don't think you would've had the idea of the single-song transaction.

There's a long tradition of that in communication technology. If you didn't have Bill McGowan breaking the law, you would've never had MCI. You would've never had a competitive long-distance industry. If you didn't have [Dish Network founder] Charlie Ergen, who dared to say "I'm going to pop up a few satellites and challenge broadcasters in a different way...."

What's bright about this future is there's so much more power in radical innovators and their work that there'll be constant new challenges to innovate or die.

Reason: Two weeks ago the FCC approved the FBI request to permit wiretapping of voice-over-Internet calls, even though the law clearly exempts the Internet.

Powell: Tentatively concluded. An important distinction.

Reason: What was the rationale for that, if the Internet is exempted?

Powell: The question presented to us was, could something be a telecommunications service under the provisions of digital wiretap law even if ultimately it became an information service under the Telecom Act--two different statutes? The tentative conclusion was it could be.

Reason: Everyone's saying you've bent over backward because you want the Department of Justice to support your appeal on the Brand X Internet Services decision, which would have permitted regulation of cable modems. Is that what's going on here?

Powell: I think that's too cynical, but parts of it are true. The Brand X decision is the scariest and worst decision that exists on the books today for the future of the Internet. I think it's been underobserved and underappreciated how dangerous it is. It says that every Internet transport provider just became a telephone company. That means broadband over power line, that means WiFi, that means ultrawideband, third generation wireless. The costs to consumers in the cable industry alone are breathtaking.

Reason: What do you think you're going to be remembered for at the FCC?

Powell: I always hate legacy questions. We set out with a simple vision. If you go to the first major speech I ever gave on the eve of becoming chairman, we called it digital migration. We said the communication industry is turning completely over to a new paradigm, and that paradigm is enormously positive for the American economy and the American consumers. The goal of the commission is to completely turn it from an institution looking backward at disputes over the past, to keep it focused on the future and the broadband platforms and the services that are going to run over them. The vision is to get this country to migrate from its essentially 100-year-old analog infrastructure to one that is like the Internet: an infrastructure that's digital, bit-capable, Internet Protocol�based.

Reason: How does increased content regulation play into that?

Powell: I think it will be increasingly difficult to argue for content-premised legislation for broadcasters only.

Reason: Does that mean Congress is going to extend content regulation further into cable or other traditionally nonregulated areas, or does it mean they give up trying to regulate broadcasting?

Powell: Well, what Congress chooses to do is anyone's guess. But I would say this: There's an enormous sledgehammer on the other side: the First Amendment and the way the courts view it. Every day the Internet becomes an increasingly effective tool for democracy and political organization. The irony is we're most attacked on broadcasting by organizations who use the Internet to make themselves effective.

Reason: So you're saying a group like MoveOn--

Powell: --dot org--

Reason: --wants the FCC to regulate broadcasts more even as the platform for their power is unregulated?

Powell: Well, I think that's a factual truth. I think it's interesting. We've seen John Kerry raise his millions over the weekend using the Internet. We've seen the phenomenon of Howard Dean. We see targeted advertising. The tools that I have embraced, and were the core of the choices we made in the media ownership proceeding, are being utilized in this election, which is the most critical moment of democracy. Maybe we were right but were too soon. I have no doubt that my children are going to be in a world that's much more about Internet distribution than broadcast television.

This is the same Supreme Court that struck down all the communication decency attempts on the Internet. This is the same Court that wouldn't let you regulate cable. You're getting this divided regime that ultimately is going to become arbitrary and indefensible. If my TV has a broadband pipe to it and has two-way interactivity and I'm picking NetFlix programs and downloading to my TiVo, is it a TV or is it the Internet? I think it's going to look a lot more like the Internet than it's ever going to look like a television. So one day some court is going to say, "This doesn't work." If Congress gets there first, I would admire them for their foresight, but if they don't, I think that the day will come where, as a constitutional matter, such divisions are not sustainable.

Reason: How would you define your politics?

Powell: I consider myself moderate, slightly right of center. It depends on the issue. I'm a big believer in individual entrepreneurship and innovation. I think American capitalism is the finest economic system ever invented. It has crushed-- not beaten, crushed--every alternative deployed in the history of the world, and we should be proud of it instead of embarrassed by it.

The market has delivered more value to poor Americans and raised standards of living around the world more than any system I know, and I just wish we would stop having to reargue the value of the American marketplace. I wish we could stop having to convince people every 10 years that enterprise and opportunity and innovation are not bad things.

I'm a Reagan-era child. When I was in college, Reagan was the reinvigorating force in American life.

Reason: Do you feel that George Bush has an appreciation for the future of technology and for its role in communications and in society?

Powell: Yes, I do. But I also have a healthy respect that presidents are human beings. What keeps that man up at night, the focus of his greatest attention, is Iraq and the war on terrorism. He's not going to micromanage everything.

Reason: So you get to micromanage it?

Powell: I hope not, but you have to do what you're supposed to do.

I'm increasingly excited that I can actually talk to you about your TiVo and what that means for convergence. I can talk about your WiFi network at home. I can talk to my son about a cell phone, and he knows what I'm talking about. For the first time, I actually have neighbors who know what it means that digital transition gets spectrum back. Because they never had a reason to think about spectrum. That was the mystery world of broadcasting, and no one really paid attention to it. But now they do, because they can actually imagine that spectrum belongs to people in their own homes. What I love about WiFi is it's a way of saying you, not some institution, own the spectrum in your home.

Reason: If John Kerry were to win, what would happen to what you've tried to do here at the commission?

Powell: I think a lot of it is secure. Certainly, any chairman is powerful and can change course. We changed course from the previous administrations. That's what elections are for. But I do think we did something that is unique and lasting, which is we tried to build the policy around impenetrable technology trends. You can have a different vision if you want to, but you're not going to stop Voice over Internet Protocol. You are not going to stop the continued march of WiFi.�

Class Conflict

jsullum@reason.com (Jacob Sullum) — Fri, 16 Jan 2004 00:00:00 EST

Creators' Syndicate

I did not realize I had sued Citibank until I received my latest Visa bill. The statement includes a credit of 73 cents labeled "SCHWARTZ SETTLEMENT REFUND."

It turns out the money is my share of the $18 million that Citibank put up to settle a class action lawsuit arguing that the bank had violated the Truth in Lending Act by counting its customers' payments as late if they arrived after 10 a.m. on the due date. In theory, the 73 cents I got compensates for late fees I should not have been charged.

But Citibank says calculating each customer's overpayment was impractical, so it must have used some sort of guesstimate. In any event, the typical refund was less than a dollar. The lawyers got $9 million, later reduced to a mere $7.2 million.

Since there's nothing obviously fraudulent about requiring payments by 10 a.m. rather than 1 p.m. (the new deadline Citibank agreed to under the settlement), this looks to me like another shakedown in which a company pays off lawyers to avoid the expense and risk of a trial. Even if there was merit to the complaint about Citibank's late fees, it's hard to see the utility in an arrangement that lets lawyers pocket $7.2 million while giving plaintiffs essentially nothing.

That sort of deal is all too common in class action lawsuits. The attorneys who file them can walk away with huge rewards while their ostensible clients get coupons worth a few bucks or checks so small they're not worth cashing.

A few years ago, the Blockbuster video chain settled a class action that accused it of charging inappropriate late fees. Each customer who signed up got free movie rentals and discount coupons worth $18 at most; the lawyers got $9.3 million. In a 2002 settlement of two lawsuits challenging its shipping and handling charges, the Columbia House record club agreed to give each class member a discount voucher for one CD and pay lawyers more than $5 million.

Despite such perverse outcomes, the Association of Trial Lawyers of America (ATLA) insists there is nothing wrong with class actions that needs fixing. ATLA President David S. Casey Jr. claims a new study shows "the system is working correctly."

Not quite. The study, which appears in the premiere issue of the Journal of Empirical Legal Studies, examines fees and client recoveries in 370 class actions recorded in court decisions from 1993 to 2002. "Contrary to popular belief," write the authors, Cornell law professor Theodore Eisenberg and NYU law professor Geoffrey P. Miller, "we find no robust evidence that either recoveries for plaintiffs or fees for their attorneys as a percentage of the class recovery increased."

One weakness of the study is that settlements and fees are more likely to be reported in federal class actions. If, as tort reformers argue, state courts are more prone to excessive settlements, an upward trend might not be apparent in the available data.

Even if inflation-adjusted settlements and fees have not risen on average during the last decade, the total cost of class actions is going up because more are being filed. The number of federal class actions doubled between 1997 and 2002, and Federalist Society surveys of corporations indicate that the number of state class actions also has risen dramatically in recent years.

Another limitation of Eisenberg and Miller's study is that averaging results across states tends to conceal problems with particular jurisdictions. One of the most notorious is Madison County, Illinois, which sees more class actions per capita than any other county in the U.S. and had a record number in 2003. Madison County made news last year with a $10.1 billion award in a tobacco class action, accompanied by lawyers' fees of $1.8 billion.

Eisenberg and Miller found that "the amount of client recovery is overwhelmingly the most important determinant of the attorneys' fee award." That may seem fair, but it's not when damages are absurdly high, or when a settlement is a payoff to make the lawsuit go away rather than appropriate compensation for real injuries. Basing fees on the total "client recovery" is also unreasonable when the settlement is overvalued (as it probably will be when it consists of coupons that might not be used) or when the amount received by each plaintiff is negligible.

I'm not sure whether fee regulation is the right solution, but I thought I might as well put in my 73 cents' worth.