Wednesday, January 27, 2010

Surreal Contracts

Contract law is one of the fundamental building blocks or our free-market democratic society. When people enter into a contract, they have entered into a mutual agreement for whatever action they have agreed to, such as buying a car or remodeling a house. Contracts, or at least some people claim they are, are used when you purchase a cell phone plan. Over at the Technology Liberation Front Adam Thierer wrote: "What is All This Nonsense about Smartphone Early Termination Fees?" The theme of his article is that early termination fees are a necessary business decision by the cell phone companies to recoup the cost of selling their phones below cost to attract customers. I won't be discussing that issue here.

What I will be discussing is his misplaced comment that: "AND THEN THEY FORM A CONTRACT WITH THE BUYER TO MAKE THE DEAL WORK. And that contract obligates both sides to live up to their end of the deal." Technically, Adam is correct - people negotiate a contract that defines the obligations of both parties to assure that the agreement is carried out. Unfortunately the reality of the situation, from my point of view, is that cell phone contracts are NOT valid contracts.

First, has anyone ever heard of an off-the-street consumer walking into the friendly neighborhood cell phone store negotiating (forming) a "contract"? Do the cell phone companies allow you to cross out sections on the "contract" that you don't like? I have not heard of the consumer being able to negotiate.

Second, contracts obligate both parties to live up to their end of the deal. Well the cell phone companies have a standard clause that they can change the terms of agreement anytime they wish. No such luck for the consumer, the consumer is locked in. Here is the what Verizon has: "Can Verizon Wireless Change This Agreement or My Service?" In that section, Verizon states: "We may change prices or any other term of your Service or this agreement at any time, but we'll send you written notice first. If you use your Service after the change takes effect, that means you're accepting the change. But if a change to your Plan or this agreement has a material adverse effect on you, you can cancel the line of Service that has been affected within 60 days of receiving the notice with no early termination fee." (Emphasis added).

Adam concludes with: "But, if you default on that loan by breaking your contract, you’ll be hit with a penalty — an early termination fee — since it would leave the carrier without a way to recoup the cost of that shiny new mobile mini-computer that they handed you on the cheap when you just absolutely had to have the hot new toy in town." But what recourse does the consumer have if the cell phone company cuts him or her off? The cell phone becomes a paper weight. I guess Adam believes that consumers are not hurt financially should their cell phone service be unceremoniously terminated.

While I don't consider cell phone contracts to be valid, there is an aspect of contract law related to adhesion contracts. Cell phone contracts could be considered adhesion contracts. Adhesion contracts, to me, are not valid since they cannot be negotiated. But then there is debate within the legal community about whether adhesion contracts are valid. I will leave that up to you to review. As for me, I am NOT a lawyer and my comments simply reflect my personal opinion.

Speaking of the Consumer

The Technology Liberation Front posted an article: "heading to FTC’s next “Exploring Privacy” workshop at Berkeley Law School". According the the FTC, "The Federal Trade Commission will host a series of day-long public roundtable discussions to explore the privacy challenges posed by the vast array of 21st century technology and business practices that collect and use consumer data." What is interesting are the background posts of Berin Szoka and Adam Thierer. Both profess that: "consumers are empowered with real privacy controls so they can make the privacy choices that are right for them, rather than a one-size-fits-all choice imposed by someone else." Therefore, regulation is unnecessary.

What's wrong with this? Despite the boisterous public claim that the consumer is somehow "empowered" there is virtually no mention of the consumer as having any rights whatsoever. Essentially, their thesis boils down to companies have a right to violate your privacy anyway manner that they wish. If you have an issue with that it is your responsibility to protect yourself. I would hardly call that empowerment.

I previously discussed this issue in Misplaced Regulatory Blame II. In that post, I wrote: "Similar to Mr. Gomes article both these articles fail to acknowledge that the right of privacy belongs to the "recipient" not the instigator. Since the free-market (especially Forbes) promotes the concept of self-responsibility; these articles - instead of lambasting regulation - should have demanded that companies act responsibility to protect privacy. ... What is ludicrous is that instead of demanding responsible corporate behavior, Mr. Baldwin advocates that people buy products to defend their privacy!!!! The obvious between the lines interpretation is that corporations have an unrighteous entitlement to invade your privacy. If you want to protect it, you need to pay-up or suffer the consequences. Sounds a bit like extortion."

It's unfortunate that both Berin and Adam, despite their rose colored assertions that the consumer is living in a technological utopia of unlimited choice and empowerment, seem to imply (through their silence) that the consumer has no rights. The consumer has rights, David Boaz on Libertarian concepts wrote "Individual Rights. Because individuals are moral agents, they have a right to be secure in their life, liberty, and property. These rights are not granted by government or by society; they are inherent in the nature of human beings. It is intuitively right that individuals enjoy the security of such rights; the burden of explanation should lie with those who would take rights away."

The obvious fact that this issue is surfacing as a regulatory concern with the FTC is anecdotal proof that the consumer feels that they are being unreasonably abused and are now pleading for regulatory intervention. Instead of protesting possible regulatory intervention, Berin and Adam, assuming that they actually believe in consumer rights, should be calling for the private sector to clean-up their act. After all, if you don't want regulation, a bit of self-control and responsible action helps.

Monday, January 25, 2010

Catbert Strikes Again

Years ago we went to see a movie. I was struck by a display of posters around the theater loudly proclaiming how the movie theater was responding to patron concerns. This caught my attention. Since when does a company proclaim that they have actually listened to the consumer? As I approached the sign I was able to read that there had been complaints about small children making too much noise. The response of the movie theater, to now require an admission fee for small children! So much for my hopeful thoughts concerning reasonable prices for popcorn and drinks.

Link to the Dilbert Cartoon above by Scott Adams.

Give a Man a Fish, Make it Illegal to Teach Fishing.

The trend with so-called intellectual property is that the supposed owner has a post-sale entitlement to extort a revenue stream. Give a man a fish, make it illegal to teach fishing". While Russel is writing from the perspective of his observations concerning philanthropy, Russel remarks can be expanded to apply to the content industry as a whole. That is that the content providers: "... are actively involved with making a variety of "teaching" (sharing of knowledge) expensive and/or illegal."

The post by was found via TechDirt. Additionally, for added context on how so-called intellectual property is adversely affecting our educational system through outrageous monetization, see the TechDirt posts: "School Wants To Claim Copyright Over Any Lesson Plans Created By Teachers" and "Professors Claiming Copyright Over Their Lectures". Ultimately, how could students ever use the knowledge that they have been taught should that knowledge be locked behind a copyright paywall?

Sunday, January 24, 2010

Where Are the Pirates?

The Washington Post writes: "'Avatar' tops box office for sixth-straight week". In that article Derik Lang writes ""We're witnessing box office history," said Paul Dergarabedian, box office analyst for "We're watching all of these big records fall, and there doesn't seem to be an end in sight. 'Avatar' is dominating at a time where it has no big summer blockbusters to compete with it. It's perfectly poised to keep breaking all these records.""

Hollywood professes to claim that piracy is destroying their business. Neglected in this unsubstantiated biased assertion is the question of whether Hollywood is even producing quality movies that people desire to watch. Declines in Hollywood's revenue stream could simply be a reflection of poor product quality and the subsequent desire of the public not to spend money at the theater rather than piracy. Avatar affirms the concept - give the people what they want; they will come and spend.

Friday, January 15, 2010

Piracy: The Trend Of The Decade

Lee Gomes has a good article in Forbes, "Piracy: The Trend Of The Decade". He concludes that: "Defenders of digital content might overplay their hands, alienating the few paying customers they have left." Clearly he recognizes that the corporate attack on piracy is becoming counterproductive.

But there is subtle aspect to the whole piracy debate that is being overlooked. When we read about piracy, the emphasis usually tends to be on how the consumer is misbehaving. This concept is then used to demand legal "protection". After all shouldn't we be able to protect our property? What is being discounted in many media articles is that some corporations are busily pirating from each other. As a quick point, it is disingenuous for companies to complain about consumer piracy, while they themselves are busily pirating!

At this point, to be fair, I need to quickly acknowledge that Lee recognizes that the corporations are not the simple innocent victims of abuse that they publicly claim to be. Lee writes: "While a few studios do business with Redbox, others are filing lawsuits and describing Redbox in the sort of predatory terms that were once reserved for, well, Napster. It's a curious way of treating an entirely legal business that seems dedicated to radically expanding the customer base for your product."

Getting back to corporate content piracy, Lee notes that: "Apple's iTunes online music store sells legal copies of songs, and while it is certainly well trafficked, by most estimates it accounts for a tiny percentage of the music loaded onto iPods." The implication, of course, is that a lot of the music loaded by the consumer on their iPod is potentially pirated. (Yes a lot of the music on the iPod could actually be from a legally bought CD, but some even claim that this type of transfer is copyright infringement.)

Well, one of the really good points about Forbes, is that they are willing to expose examples of corporate abuses. A quick, search of Forbes, discloses numerous patent infringement (pirating) articles such as: "Kodak Develops Suit Against Apple, RIM" and "Nokia Slaps Apple With Lawsuit". While these articles clearly exist, they are seldom discussed in terms of the piracy.

Since the lawsuits have not been adjudicated, I cannot actually make any affirmative statement on whether Apple has or has not actually undertaking any piracy. Nonetheless, the fact that lawsuits have been filed highlights that some companies who expect the consumer to respect their so-called "intellectual property" appear quite willing to "borrow" content from other companies. When companies believe that they can "borrow" content at will, it becomes unethical for these companies to demand that the consumer be punished for essentially the same conduct.

In fact, we can go a step further as Lee notes: "Consider the recent jailing on felony charges, later dropped, of a woman for camcordering a few minutes of the hit film New Moon while attending a birthday party at a movie house. " So why does this woman get arrested for "infringement" as a criminal act, but Steve Jobs is not arrested when his company (Apple) infringes? So if you are a consumer, you are guilty of a criminal offense for "infringement" but when you are a company "infringement" is only a civil matter. (Please note that this is not meant to be an anti-Apple post, I am simply using Apple as an example.)

As an interesting conclusionary statement, the Electronic Frontier Foundation writes: "Most Pirated Movie of 2009 ... Makes Heaps of Money". If reports such as this one prove numerous one could "claim" that piracy actually helps product sales rather than hinder them. In fact, Felix Oberholzer-Gee and Koleman Strumpf of the Harvard Business School have written articles discussing the interrelationship of "File-Sharing and Copyright".

Friday, January 8, 2010

Misusing Numbers

A favorite hobby of many special interest groups is "lying" through the use of statistics. This recently cropped with regards to the veracity of the scientific "proof" underlying global warming. In a similar vain, the Technology Liberation Front hosted an article by Steven Titch "Is This What Market Failure Looks Like?" regurgitating a mind numbing stream of numbers (such as number of text messages sent) that purportedly document that the free market is healthy. Mr. Titch, then concludes that: "Metrics such as these are the best weapon against attempts at regulation, especially from an administration keen to find a “market failure” rationale wherever it looks. High-tech consumer electronics remains a bright spot in what has been a down economy. It is best left on its own to thrive."

What is wrong with Mr. Titch's post is that numbers in isolation and without context mean nothing. Raw numbers by themselves do not prove nor do they disprove the success of the free market. Furthermore, these numbers do not prove nor do they disprove the beneficial/disadvantageous effects of regulation. All the raw numbers document is activity.

As Mr. Titch published his post, there were stories behind the raw data. Currently the cable companies and the content providers are fighting over subscription fees. The New York Times reported that: In a Clash Over Cable, Consumers Lose. The Washington Post reports that "Netflix to delay delivery of Warner's latest DVDs". The clear implication of these articles is that the companies are not really competing within the idyllic concept of the free market. Frankly these agreements, besides limiting consumer choice, raise serious questions concerning collusion and the utilization of monopolistic business practices. Hardly free market ideals.

What continues to disappoint is that we have a website that purports to be an advocate for technological freedom but seemingly overlooks corporate business practices that frustrate technological freedom. I previously discussed this issue here:"Nanny State Hypocrisy?" If the Technology Liberation Front is serious about improving technological freedom use real scientifically valid research to document the functioning of the free market (good and bad). Don't simply just throw-out a bunch of meaningless gibberish to see what sticks.

Monday, January 4, 2010

A False Choice

The New York Times reports: "Trying to Add Portability to Movie Files". Brad Stone writes in this article: "At the Consumer Electronics Show, a big high-tech gathering that will begin Wednesday in Las Vegas, Hollywood studios and consumer electronics makers plan to lay out some steps they are taking to simplify this digital future — and perhaps stem the worrying decline in home entertainment sales. ... The group is setting out to create a common digital standard that would let consumers buy or rent a digital video once and then play it on any device. It might sound technical, but it could be crucial to persuading consumers to buy all the splashy new Internet-connected gear that tech companies will demonstrate at C.E.S., like HDTVs and set-top boxes that can download TV shows and films." (Emphasis added.)

What is wrong with this? Common digital standards that simplify the digital future already exist. There is no need for a big high-tech gathering to create one.

The article is disingenuous since it implies to the consumer that a new digital standard is necessary when none is needed and fails to disclose the real reason why this new digital "standard" is being pursued. It is being pursued to develop yet another form of DRM that restricts the consumer freedom of choice.

Particularly distressing is Mr. Stones quote of Mr. Singers remark that: "“Consumers shouldn’t have to know what’s inside,” he said. “They should just know it will play.”" Translation, consumers are not entitled to know how their freedoms are being taken away by dubious business practices.

Implying, as Mr. Stone's article has, that a consumer is being provided with increased freedom of choice while actually depriving the consumer of choice, is a false choice based on the assumption that the consumer is too stupid to realize how their freedom of choice continues to be eroded.

(1/6/2010) Update: Since originally posting I had an additional thought and I ran across a couple other posts on this topic.

First, as a result of an email exchange, it occurred to me that I overlooked a deficiency in Mr. Stone's article. In his article he states how the content industry is trying to make the consumer happy by providing content that will be portable. What he fails to mention in his article is that these companies willfully designed propriety file formats to purposely prevent content portability! Now that the companies realize that that strategy was a mistake, they now purport to be consumer friendly by working on a new standard, which I have pointed out is totally unnecessary.

Fortunately this is a good lead-in for: "Will they ever learn? Hollywood still pursuing DRM". In that post, Dan Wallach writes: "In today's New York Times, we read that Hollywood is working on a grand unified video DRM scheme intended to allow for video portability, such as, for example, when you visit a hotel room, you'd like to have your videos with you. ... What's sad, of course, is that you can have all of this today with very little fuss."

TechDirt has the following article: Is Hiding A New DRM Standard Behind The Guise Of 'It Works On Any Device' Really That Compelling?