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Thursday, 31 March 2011

End corporate right to defend against defamation? Essentially the same argument supporting short selling: transparency

What have corporate defamation and short selling got in common?
Related: Joint Committee on the Draft Defamation Bill propose radical limits on corporate defamation proceedings.
On the surface, not very much.  Despite misplaced fears of some in the investment community, short selling per se should not adversely affect a company's stock price, whereas inaccurate information from a credible source can hugely affect market value.

There's still a moral question over short selling.  Is it right that someone can profit from a failure? Especially when that failure may result in job losses and other social injustice.

More importantly, does allowing someone to profit from a failure motivate that person to do everything in their power to cause that failure? For example - spreading information (true or otherwise) that could be detrimental to the interests of the company.

Yet there is a highly convincing arguments in support of short selling - it's one of balance, and transparency.

All corporations have the ability - a duty, in fact, to their shareholders - to promote themselves, their products and services.  Only regulatory influence dictates when corporations must (in the interests of their shareholders) make negative statements to the markets; and (in the interests of consumers) refrain from inaccurate or misleading statements about their products.

There's often an ocean between an accurate representation of the facts and what a corporation can reasonably get away with without breaking any rules, and this is recognised as an important freedom in a competitive market.

Naturally, corporations opt to present themselves in the best light possible, and invest an awful lot of cash to acheive this.

Without short selling, existing investors have only one interest - in seeing the company profit.  They become promoters of the company, with a vested interest in seeing positive information flow, and negative information stalled.  Essentially the same interests as the company and its PR machine, with a few well-defined exceptions (shareholder revolts).

Short selling introduces a pool of  investors with an interest in the negative.  A set of people with an interest in seeing negative stories about the company emerge.  In theory this should bring natural balance to the market and act in the overall best interests of all shareholders, as it increases transparency.

Of course one would never advocate a system that promotes malicious activity in spreading falsehoods for financial profit, but the mere existence of the ability of a corporation to sue for libel may discourage those with legitimate grievances from raising these grievances in public.

This is especially true in the UK, where not only is defence of a libel action incredibly hard, as the onus is on the defendant to prove their statements are true (not on the claimant to prove false), but also the cost of defence is beyond the means of many citizens and it's not always possible to reclaim the full cost of defence even if the defendant is successful (source).

The net effect of libel laws, especially in the UK, is chilling.  That is, people are discouraged to make negative statements in public, even if they believe the statements to be true.

I'm sympathetic to libel in some very personal instances.  I can't imagine what it would be like to be maliciously accused in public of a heinous crime, but if I was I would want a way to clear my name.

But in the corporate world, as I've already discussed, businesses are expected to have a fearsome spin machine.  Big business especially has access to press contacts and advertising channels that the ordinary campaigning citizen, blogger or even city trader could dream of.

If someone publishes inaccurate information about a company, surely the company can just publish a rebuttal?  Instead of investing in libel lawyers, invest in advertising and press releases.  If the company can't mount a reasonable public defence then I really would start asking questions about the real value of the corporation.

I see strong parallels in the case for short selling and the case against corporate defamation. Short selling provides an incentive to get bad news out of the corporation and into the public domain.  It's good for overall transparency, and therefore in the interests of all shareholders.

Allowing corporate libel is a disincentive against publishing negative statements; it'd bad for corporate transparency. Removing the ability to sue would remove this disincentive and improve transparency.


UPDATE 19:05 31/3/11 Interesting twitter discussion with @PhotoInsomniac:
@JamesFirth Agree re: short-selling up to a point. But short-selling exposes you to infinite risk, so only the mighty can dabble...
[link to tweet]
After a few exchanges to reflect this I'm pretty sure this doesn't dent my analogy, the jist being that if we agree that incentives to root-out bad news are good in one context, why not remove the disincentives in another?

Note: Traders will know the "infinite risk" can be mitigated in most cases by placing a limit buy order to close the short when losses reach a certain level. (Please don't take this as investment advice!)

Wednesday, 30 March 2011

Net neutrality vs regulation - the lesser evil?

Committee room 19 saw a very useful debate on  "Open Internet". The session wasn't listed as Net Neutrality, which is kind of ironic as I do think we need a wider debate on open competition on the internet - yet last night's session focussed on the traditional network neutrality issues of traffic shaping, blocking and premium preferential streaming capability.

The session of the Digital Economy All-party Parliamentary Group (#deappg) was chaired by Eric Joyce MP and the panellists were:
  • Jean-Jaques Sahel, Director Government
  • Affairs, Skype.
  • James Heath, Controller for Policy, The BBC
  • Kip Meek, Senior Public Policy Adviser, Everything Everywhere
  • Robert Hammond, Head of Postal and Digital Communications, Consumer Focus
  • Rob Reid, Which?
  • Dominique Lazanski, The Tax Payer’s Alliance
  • Jim Killock, The Open Rights Group
All panellists agreed with the aim of preventing carriers exploiting their privileged position as a trusted communications service provider for monopolistic purposes, but there was a range of views on interpretation of this general aim.

On one side Kip Meek, advisor to mobile provider Everything Everywhere (T-mobile UK + Orange UK merger), didn't seem overly-concerned by the list of potentially monopolistic mobile ISP practices reeled off to audience applause by Skype's Jean-Jacques Sahel; chiefly blocking VOIP, p2p, streaming, tethering, etc.

At the other end of the spectrum, adding to Jean-Jacques' impassioned appeal, Consumer Focus and Which? outlined the consumer issues.  Transparency and ease of switching ISP were listed as crucial safeguards against potentially dodgy practices by ISPs, the rationale being with consumers in the driving seat that the best interests of the consumer should be serviced by the open market of ISPs.

Slightly aside, Kip Meek didn't see any problems with the current switching regime, whereas audience questions highlighted the problem with contract lock-ins.

I wanted to shout out some of the technical barriers too: there's no migration plan for cable customers, except paying to reconnect a BT line (where available)!  Also there are reports that some customers have been left without internet for extended periods when switching providers (particularly when moving from an "unbundled" provider back to BT backhaul or to another unbundled provider).

On the issue of regulation an interesting point: what was the lesser evil? Legislation, now, in the absence of a clear and well-defined problem, might restrict innovation in the ISP market.

We don't yet know that all non-neutral practices are "bad".  Some clearly are, eg. blocking a rival provider's website, yet some, such as preferential streaming services, might turn out to be not so bad after all.  The test will be whether these practices inhibit competition by raising cost barriers to new entrants, or prove counter-intuitive to theorists adamant that the only way forward is a big fat pipe.

In some respects the internet built itself in the absence of regulation.  It remains today a mishmash of interconnected autonomous networks. Some pioneers of the internet are now arguing for regulation to keep carriers neutral, despite no evidence yet that any business or individual is suffering at the hands of anti-competitive practices by ISPs.

But network neutrality makes sense not only for competition reasons but also as it encourages good network engineering principles.  As soon as ISPs start integrating content delivery with their pipes we're left with a muddle that could raise reliability, security and data protection issues.  I'm thinking Phorm (nudge at Kip).

I'm genuinely torn.  I like the principles of network neutrality; they make good sense.  However, over-regulation can be illiberal, increase red tape and further bloat the size of government.

Legislate too soon and we may end up with a red flag act for the digital age. Leave the market to itself and we may kill competition for digital services such as streaming video or VOIP.

Audience Monopoly

As I raised in the Q&A, neutral networks is only one part of the competition equation.  It's all very well in principle having a neutral infrastructure that allows anyone to start their own net venture, but in reality the biggest hurdle facing new entrants going to be building an audience, and in this respect there are wider competition questions.

In my post Audience Monopoly  I look beyond neutral networks to emerging dominant portal services such as Facebook, which last November accounted for a staggering 25% of all US traffic.  These services already own the user space.  They're where people head when they first go online, and often stay for the duration of their session.

Add search engines into the mix: search-engine neutrality - preventing anti-competitive ranking.  A low ranking could kill a business - or even swing an election. If regulation is ever needed we're facing is a trans-jurisdictional nightmare similar to the regulatory issues I discussed in Elastic Jurisdiction.

I want to see an Open Internet where competition thrives.  Dominant players must not be allowed to prevent regrowth and regeneration in the market by raising artificial barriers to entry or acting out of self-interest.

I don't think regulation or legislation is needed - for now at least.  But I would like to see the wider questions raised - promoting open-market competition with technologies that transcend national boundaries - get some early exposure so governments aren't playing catch-up if and when problems start to manifest.


Tuesday, 29 March 2011

The Enrichment Economy

Or: understanding national governments' seemingly absurd position on strengthening intellectual property rights despite evidence this will damage the overall economy

The measure of economic success is the size of the economy, typically measured as the gross domestic product (GDP).

Wikipedia enlightens us:
GDP refers to the market value of all final goods and services produced within a country in a given period. It is often considered an indicator of a country's standard of living
The digital revolution has raised some very awkward problems surrounding the protection of intellectual property.  I wrote about this last week as the Knowledge Economy Paradox. Digital innovation seems to thrive on the absence of monetary barriers to re-use, as the open source software community have shown.  Similar applies to visual arts with so called mash-ups - remixing photos, art, video and music to create original works as a derivative of other artists' works.

The paradox comes about because without a legal mechanism to protect digital content it's impossible to trade intellectual property, therefore the result of the innovation can't be monetised and count towards a country's GDP.

Since many see GDP as an indication of a country's standard of living it has immense political overtones.  This explains why governments, as well as rights holders with large IP portfolios(!), are keen to see protection of intellectual property strenthened.

The "think of the poor creative artist" argument sounds pretty reasonable, but it's a minor issue compared to the hundreds of billions at stake in the corporate IPR markets.  Besides, when recording studios had a complete monopoly on the industry, music lovers faced escalating album prices whilst many artists continues to receive a pittance in royalties.

For the creative market to work properly, including fair rewards for artists and creators, we might need to look at alternative mechanisms to GDP for measuring how such products improve our standard of living.

I call this the Enrichment Economy - an as-yet undefined measure of how the creative works we consume for free improve our lives.  Whether it's reading a 19th century novel now in the public domain on your Kindle via Project Gutenberg or listening to a public domain audio book by Librivox; researching using the Creative Commons Wikipedia or enjoying a satirical mash-up of a popular song.

The stuff we get for free makes us happy and therefore improves our standard of living.  But it doesn't count towards GDP so it can't be measured and governments can't tout their country's successes.

Clay Shirky in his book Here Comes Everybody: The Power of Organizing Without Organizations uses Coase Theorem to explain why there are some worthwhile activities that the internet enables people to achieve through collaboration, but remain commercially non-viable due to the cost of organising the collaborators.  He uses the concept of a Coasian Floor to describe these.  This excellent podcast explains more.

Using money to reward creation is in some extent flawed for three reasons:
1. The more you pay someone for a creative task isn't necessarily proportional to the results. See Dan Pink on the surprising truth about what motivates us.
2. Strong protection of intellectual property can inhibit innovation (see Knowledge Economy Paradox), and contribute to making the transaction cost of collaboration far outweigh the value of the output of collaboration (Shirky, Coase)
3. Now that economies have abandoned the gold standard, the only physical limiter to the value of currency in circulation is the value of goods.  Once intangible assets are included in the economy there's no physical limiter whatsoever.  Intellectual property like all other assets is worth what a buyer is prepared to pay, but when it sits on a corporate balance sheet it's worth a best-guess estimate.

Just a note on point 3.  I compiled the graph below for a different reason, but I was struck by the red line.  It's the growth in UK GDP since 1900.  Is the massive rise since the 1970's really reflective of an equivalent massive increase in the standard of living? Or is GDP as an economic indicator now unbound and spiralling upwards due to the ethereal nature of Intellectual Property?


Friday, 25 March 2011

Georgie Claus is coming to town

Check out the lyrics I wrote, music adapted and  performed by iWillBattle and conceived by James O'Malley (this track features in episode 77 of the Pod Delusion, which is well worth a listen)

PLUG: The Pod Delusion!

Thursday, 24 March 2011

The problem is tracking, not cookies. Don't let the UK implement bad EC law

I sense a break in ranks in the UK digital rights movement with the announcement by Alexander Hanff of Privacy International that the UK will be implementing an EC law that prevents any website using a browser cookie without your consent, and that the government is likely to reject browser settings as an adequate consent mechanism.

Or maybe I'll simply be outcast for daring to suggest that a useful browser feature should not be blamed for a bad practice that happens to use that feature.

So much needs to be written on this I will start with a brief summary of my main points and update later.  For now, apologies, you'll have to rely on search engine if you need the background facts.  If you disagree, or I've got anything wrong, get in touch or leave a comment.

Problem 1: how can a website remember that a user does not consent to a cookie being stored on their machine if, in the absence of consent, the website is not allowed to set a cookie?

This isn't a tree falling in the woods philosophical conundrum, it's a hard technical problem.  You visit a website, it asks "do you consent to me using cookies?".  You click no, the pop-up goes away and you get your first page.  You then click to a second page on the site.  You get the same pop-up again.  And again, and again.

If a site can't set a cookie without consent, it can't distinguish from new visitors, and previous visitors who've said no.  It can't rely on the IP address for this, as more than one individual user can share a single IP address.

This is why browser preferences are a good technical solution.  If anything, the EC should have spent the last 8 years working with the tech community on the problem, rather than drafting laws.  If the browser controls were more prominent, and easy to use, it would help.

Maybe as a last resort, laws could force websites to indicate that your current browser setting allows tracking.  But laws should be there as a backstop, see my later points.

UPDATE: courtesy of @nevali I'm reminded of a solution to this: putting session identifiers back into the URL, like we (those of us writing websites prior to universal adoption of cookies by all browsers around 19097) used to do.  This is nasty, brings it's own problems, and will require EU websites to use software different to the rest of the world.  See next point.

Problem 2: it's a global market

How do we regulate websites operated from outside the EU?  Block them? I think not - that would need a massive censorship operation!  We can prevent EU companies from using them.  But then that may lead to a cost-overhead for companies operating within the EU that companies outside the EU don't face.

Problem 3: cookies are inherently good

The technical standard describing how cookies work (RFC 2965) are inherently privacy-friendly, and should if implemented rigorously prevent tracking of users between different websites.  I'll expand on this later, but essentially cookies can't be set on top-level domains (TLDs).  And cookies are inherited by sub-domains, but not super-domains, meaning subdomains can see cookies set by the parent website, but the parent website can't see the cookies of its children.

The reason tracking has got out of control is that cookies can be manipulated by JavaScript and other scripting languages, meaning a website can embed an element from a 3rd-party domain then utilise scripts to share data between the two domains, allowing tracking across all websites that embed the 3rd-party element.  This is the real problem.

Problem 4: the EC should be harmonising laws, not creating new laws

The EC usually gets involved when laws need to be harmonised amongst member states, and in this case the EC law usually reflects a middle-ground between member states.  This directive has somehow crept in, probably because measures are introduced in massive packages that make debate even harder, on what is already a complex subject.

The cookie law is a new law that no other member state currently has.  Action from the EU to address the massive implications of data gathering on an industrial scale is admirable, but this particular law is daft.


Wednesday, 23 March 2011

IPv6 switchover - a problem that won't solve itself

Conducting the IPv6 party,
Timico's Trefor Davies
Gary Feldman singing
The Day The Routers Died
Ed Vaizey (Minister for internet)
Simon McCalla, Nominet
The last IP address block
Net pioneer prof Peter Kirstein
Abigail Harrison wasn't gurning!
Analogies between the Y2K Millennium Bug and the need to switch the internet to IPv6 aren't necessarily helpful, we heard at last night's panel session of @tref and Timico's Bring On IPv6 party at the London Transport Museum last night.

IP - Internet Protocol - makes the internet happen, but we've run out of IP addresses and it needs to switch to a new address system.

The purpose of the party was to raise awareness, and the presence of government Minister with responsibility for the internet Ed Vaizey must have gone a long way to help.

One of the reasons Y2K analogies aren't helpful is that there's no obvious epiphany looming, contrasting with Y2K, which was caused by the impending deadline of 31st December 1999.

In some respects we've already passed the deadline.  IP addresses are allocated by the Internet Assigned Numbers Authority (IANA) to regions from a central pool.  Allocations are made in blocks - known as subnets - and on 3rd February 2011 the last block was allocated.

Soon, maybe as early as April, the first Regional Internet Registry (RIR) - organisations responsible for allocating IP addresses to ISPs - will run out of IP addresses, meaning no new IP addresses for ISPs.

But internet users worldwide won't notice a problem until their ISP is unable to offer them an IP address for their connection, meaning the user will be forced to share an IP address with many other subscribers using a technology called Network Address Translation (NAT).

Some subscribers using a NAT ISP may not notice a difference.  In some countries, especially in Africa, standard services have always used NAT, with customers paying a premium if they wanted their own IP address.

But many customers will notice. Online gamers, users of some internet telephony services, businesses, publishers will probably be the first affected.

And of course, no new IP addresses effectively means no new ISPs in a region once the RIR responsible has exhausted its pool, dampening competition in the market and in all likelihood leading to higher prices.

Analogies with the millennium don't work. Critical systems will not fall over, as they will always - and I mean always - find a way of getting the IP addresses needed.  There is no well-defined point at which the ordinary user will notice a problem, and the emergence of problems will be localised by region.

In addition, the switch-over is far harder than making computers Y2K compliant, as it requires co-ordination and co-operation between ISPs, web hosts, web site operators, equipment manufacturers and subscribers to fix a problem most people don't even know exists.

The new system must work alongside the existing system, applies to every device that connects to the internet - security systems, set-top boxes, mobile phones, printers... - plus there's many more computers in existence now than in 2000.

The IPv6 problem won't solve itself, and we can't expect any major impetus from national governments until problems such as competition in the market and ISP pricing get severe enough to force action.  And at that point, it will still take significant time - several years - to complete the transition.

There is however 2 similarities with the Millennium Bug. 1: The problem is real, and IPv6 switch-over must happen, and 2: many software engineers, especially those with experience developing real-time embedded systems ;-), might find an abundance of short-term job opportunities!

On the plus side, engineers love solving problems. With a momentum of support from the goodwill of the tech community driving the switch-over, the problem might just get solved - before too many people notice.


Tuesday, 22 March 2011

The knowledge economy paradox

Books don't enter the public domain in the UK until
70 years after the death of the author
The single problem facing the content industry: the internet wasn't designed for monetised content.  It's a technology to facilitate knowledge transfer; sharing of information, and content is just information.

Digital technologies in general are not well-suited to "protecting" information (if, by protection, we're talking about preventing content being freely copied).

Software engineers strive to simplify interaction - interaction between computers and people, and between computers and other computers; to make data transfer easier, not harder.

I'm painfully aware that reducing the protection afforded to rights holders, either by reducing the length of copyright terms or broadening fair use, ignores the conundrum of how content creators are to be encouraged or rewarded for investing time and money in content.

But copyright in the internet age is fatally flawed, given:

Premise 1: undesirable consequences result from measures designed to protect digital content. Closed platforms promote monopolies and prevent knowledge sharing. When open platforms are used, measures to prevent illicit sharing heavily impinge on a consumer's civil rights - right to privacy in communications and right to freedom of speech and expression. 

Premise 2: knowledge sharing, and the ability to build on other people's principles, ideas and works, is vital to innovation.

The knowledge economy paradox

Conclusion: jurisdictions that attempt to enforce a strong copyright protection regime will see reduced innovation, especially in the knowledge economy, compare to jurisdictions that adopt a weaker copyright protection model.  This leads to a paradox.

Jurisdictions adopting a strong copyright protection mechanism will have robust measures in place that allow trade in intellectual property (IP) with a minimised risk of infringement. The IP markets will work, yet there is a risk these markets will stifle innovation by erecting barriers that prevent knowledge sharing and re-use. Licensing costs and terms can make it hard to launch new products that build on the strictly-protected intellectual property rights of others.

Countries opting for weak protection of IP will have increased innovation, but innovators will struggle to protect each innovation, therefore the innovative output will not be fully reflected in the economic output in these jurisdictions.  The IP markets will not work.

It is therefore important for protection of IP to strike a balance, both in the length of the term of protection and in providing fair mechanisms for licensing and re-use.

Thursday, 17 March 2011

Submission to consultation on News Corp takeover of BSkyB

This is my submission to the Department for Culture, Media and Sport's accelerated and limited public consultation into the proposed take-over of BSkyB by Rupert Murdoch's News Corporation.

The closing date for submissions is 21st March, so there's still time to submit your own here.

The Secretary of State for Culture Jeremy Hunt has decided to limit this consultation to media plurality for reasons stated here.  I decided to ignore this restriction in my own brief submission.

I'm concerned that the proposed buy-out will impact competition and plurality in the online news market, and this aspect may not have been fully assessed.  I therefore urge the Secretary of State to refer this deal for Competition Review.

My concerns stem from the estimated 2.5 million broadband subscribers using BSkyB's internet service Sky Broadband.  The proposed deal could put News Corporation in a position to give discounted, bundled or preferential access for Sky Broadband subscribers to its online news titles; in particular its non-free services such as The Times, News of The World and The Daily (iPad newspaper).

This dominant position could adversely effect other publishers in the online news sector if News Corporation chose to promote News Corporation's online titles to Sky Broadband customers (so-called "cross-promotion" deals).  It may also give News Corporation a dominant position in the sale of advertising slots should the company decide to offer cross-media deals providing TV, online and printed newspaper advertising; and this may have an adverse impact on competition in the market for advertising.

The deal might restrict the plurality of news sources accessed by a bulk of Sky Broadband subscribers if, for example, News Corporation decided to promote its own online news content on its portal services, such as launch pages provided by default to subscribers of an ISP.

This deal could potentially lead to a closed market of news - TV and online - for BSkyB customers, and provide serious challenges for other online newspapers looking for new ways to make online journalism pay.

James Firth
 I hope that captures my feelings on the matter!