nokia logo
If you can't beat 'em, sue 'em.

Earlier this week, Nokia filed suit in the U.S. to force Apple to pay royalties on Nokia patents involving cell phone technology. Nokia claims the iPhone infringes on its patents.

As I write in The Laws of Disruption, for better or for worse (mostly for worse) litigation has become an everyday weapon in the strategy arsenal of companies trying to slow down, distract, or simply stop competitors. Compared to traditional competitive tools such as better products or superior services, these days litigation can be a relatively inexpensive way to put a thumb on the scales of competition. (Emphasis on "relatively.")

Nokia, of course, is not simply a patent troll. It has smart phone products of its own and is continuing to develop them, hoping to compete with Apple, especially as the iPhone moves into the European smart phone market. Unlike NTP, which used an injunction against Research in Motion to extract half a billion in tribute or face shutdown of the Blackberry network in 2006, Nokia is asking only for compensation (amount not yet determined) based on "fair and reasonable" rates.

I haven't reviewed any of the ten patents that Nokia claims Apple infringes. I don't have to. It's almost certain that the iPhone infringes them. It's also nearly certain that Apple has patents of its own that Nokia infringes. All of these patents are bound to be overly broad, perhaps ridiculously so.

An overwhelmed U.S. Patent Office has, for many years, simply approved most applications and outsourced to the courts the actual determination of which patents ought to have been granted in the first place. More than half of all patents litigated to a final decision are found to have been improperly granted, and the number is growing. (The problem is just as bad in Europe.)

Not that anyone expects in this or most cases like it that a trial and appeals will actually determine if the patents are valid. That's not the point. Nokia has already "convinced" 40 other device makers to license its patents, regardless of their merit. Negotiations with Apple weren't moving along fast enough, so Nokia brought suit to up the ante.

Now there will be more posturing, name-calling, counterclaims, and overblown rhetoric about preserving Nokia shareholder interests and Apple's right to innovate the American way. Nokia's vice-president for legal and intellectual property was already quoted in The Wall Street Journal as saying the suit was necessary to stop Apple's attempt to "get a free ride on the back of Nokia's innovation."

In the meantime, the two companies will continue to negotiate, feign, and trade draft cross-licensing agreements in a dangerous game of "chicken."

Shaw Wu, an analyst with Kaufman Brothers, gets it just right when he says in the Journal article that "I really think this is more a function of Nokia trying to compete with Apple more than anything else, even if it's through the courts."

So long as the patent system remains in ruins, expect more of this kind of "competition." And if you don't expect it, you're likely to be a victim rather than a competitor.

For better or worse...

CNETMy analysis of the FCC's proposed neutrality rules appears this morning on CNET.

No surprise, I think the FCC's plan is a bad idea, and I think, more to the point, that the FCC is the wrong organization to be "saving" the open Internet. Among other crimes, as the Electronic Frontier Foundation points out, the FCC is the same regulator who has ramped up the penalties and frequency of fines for "indecent" content over the airwaves.

The FCC is also the organization that has tried repeatedly to push through, at the behest of the media industries, the notorious "broadcast flag," which would force electronics and software companies to limit the legal use of broadcast content.

Meanwhile, the agency that now believes there is a severe lack of competition in broadband provisioning--severe enough to regulate--has done everything it can to stop alternative broadband technologies, including broadband over power lines and municipal wireless projects.

The open Internet is a great thing, but the FCC is wrapping itself in the flag of Internet freedom and consumer advocacy in a most unconvincing manner.

2

lifelock logoJulia Angwin's column in The Wall Street Journal argues that identity theft is nothing but a "fear campaign."

Not exactly.

I also have some strong words about the overuse and abuse of the term "identity theft" in The Laws of Disruption, and have written elsewhere in this blog on the subject. But I don't think the problem is, as Angwin writes, merely a linguistic construct "designed to get us to buy expensive services that we don't need."

Let's start with where I agree. By and large, "identity theft" is a term that is being kept alive by organizations with a vested interest in making the problem sound as severe and dangerous as possible. Angwin mentions credit bureaus and companies such as Lifelock who sell insurance against the problem. I would add to that list traditional insurers who are also selling identity theft policies, software companies such as McAfee and Norton who sell anti-malware products and services, and the U.S. Federal Trade Commission, which reports every information theft as identity theft even when it is only credit card companies who are at risk. Each of these groups has its own reasons for keeping the problem at the forefront of consumer fears about Internet commerce.

Angwin is also right to point out that the true problem--which for the most part are unauthorized purchases--is not a problem for consumers. Credit card companies and banks, by law, bear nearly all of the actual losses. (Of course the losses--still some $48 billion in 2008--are ultimately paid by consumers in the form of higher interest rates and other card and merchant fees.) Most consumers pay nothing when their card is stolen and used by thieves. Even when new accounts are opened in your name (the truer example of identity theft), the average loss to consumers is less than $600. The scale of identity theft in both frequency and cost has been steadily declining since the FTC began keeping records in 1999.

But I wouldn't go as far as Angwin in saying there's no problem here. Because while it's true that consumers have no legal responsibility to pay for unauthorized charges on credit cards and bank withdrawals, many victims of Internet-related fraud do pay a significant price.

Once consumers stop the unauthorized charges and close the fraudulent accounts, many encounter a demonic maze of obstacles trying to clear the criminal activity from their credit reports, scores, and credit card accounts. And ignoring the errors is not an option. Keeping an accurate profile is essential for everything from applying for a mortgage to getting a job or apartment--basic life activities, in other words. Yet these financial records are in the hands of shadowy third parties--who charge, when they can, just to divulge what inaccurate information they have on file. Either by design or ineptitude, these organizations make correcting their own errors nearly impossible for consumers.

The victims of identity theft are victimized not so much by the information criminals, but by the information managers.

Federal and state regulations are supposed to protect consumers from this kind of abuse, too, but enforcement is poor.

Accurate financial data is critical in the development of the information economy. We need more transparency in the operation of credit bureaus, agencies, credit card companies and others who have appointed themselves the guardians of consumer financial records. We need a Federal Trade Commission that is interested more in protecting consumers than protecting the markets for consumer protection products that are in part unnecessary and in part insurance against the incompetence of the industry the FTC supposedly regulates.

As Mark Twain once said, "A lie can travel halfway around the world while the truth is putting on its shoes."

We still need tools to give the truth a fighting chance.

jameson“Science fiction,” literary critic Frederic Jameson once said, “is a kind of nostalgia for the present.”

Meaning: when faced with the possibility of revolutionary change, it’s human nature to frame it in reductive metaphors. A car is a horseless carriage. A TV is radio with pictures. Steel cable is wire rope. A Blackberry is a wireless telephone. Information is “intellectual property.”

I thought of this again reading Nate Anderson’s recent post at Ars Technica, a wonderful piece he called “100 years of Big Content Fearing Technology—in its Own Words.” Anderson, Associate Editor at the site, detailed some of the most inflammatory comments made by information content producers and distributors in response to revolutionary technologies of the past—the player piano, the VCR, the photocopier.

In every case, those with a vested economic interest in existing media and business models for exploiting it see every breakthrough as catastrophic. The photocopier will put an end to books. The VCR will be the death of the movie industry. Napster will destroy the music business. “I say to you that the VCR is to the American film producer and the American public,” the late Jack Valenti fumed, “as the Boston Strangler is to the woman home alone.”

It’s fun to read these quotes in retrospect, because the irony is always that disruptive technologies invariably create new uses, new markets, and new wealth, much of it captured by those trying the hardest to make time run backward and uninvent the new media. The VCR, it’s now completely clear, saved the movie industry. Or rather, it transformed it into a new industry, bigger, more productive, and richer than the old one.

Anderson has some sympathy for the doomsayers, though, and so do I. For one thing, the transition to new media is rarely a gentle one. Consumers experimenting with new technologies often bypass existing channels, ignore borders and boundaries, and break the law. We don’t call them disruptive technologies for nothing.

In the end, as I argue in The Laws of Disruption, those who cling to a dying past always turn to law, usually a combination of lawsuits, regulatory change, and new laws forced through to put the brakes on the inevitable. Sometimes it helps to slow things down, maybe just a little. Often it warps the direction of change, creating unintended and unexpected consequences that often boomerang. The movie industry lost their case to ban the Betamax, thank goodness. Yet Sony, which won the case, lost the market to the more open and more customer-focused VHS.

The new medium, to badly paraphrase Marshall McLuhan, creates a new message. But it’s impossible to get that message until consumers have a chance to play with the medium for a while. How long depends in part on how quickly the technology reaches critical mass. Thanks to Moore’s Law, that period has gone from years to months.

There’s almost not enough time to resist. So why bother?

I am regularly drawn to this quote from the pioneering antitrust lawyer Brooks Adams, great grandson of John Adams. Arguing before the Interstate Commerce Commission a little over a hundred years ago, Adams wrote:

There is no ancient and abstract principle of right and wrong which can safely be deduced as a guide to regulate the relations of railways and monopolies among our people, because railways and monopolies are products of forces unknown in former times. The character of competition has changed, and the law must change to meet it, or collapse. Such is my general theory.

Adams was cadging the Commissioners. The law always collapses, as he well knew. Which is not as bad as it sounds. Soon enough, old metaphors are replaced by new metaphors, and with them a new legal system that better fits the new reality.

That, after all, is what a revolution is: replacing one system of government with a different, perhaps better, system.

The Federal Trade Commission has announced plans to regulate the behavior of bloggers.  Unfortunately, not their terrible grammar, short attention spans or inexplicably short fuses.

Instead, the FTC announced updates to its 1980 policy regarding endorsements and testimonials, first developed to reign in the use of celebrity endorsers with no real connection or experience with products they claimed to use and adore.

The proposed changes require bloggers who recommend products or services to disclose when they have a “material connection” to the provider—that is, that they were paid to write positive reviews or given freebies to encourage them to do so.  (The FTC, of course, is limited to activities in the U.S.)

You might think bloggers would be flattered to be put in the same category as celebrities, but no.  The response has been universal outrage, as noted by Santa Clara University Law Professor Eric Goldman in his detailed analysis of the proposed changes. (The complete FTC report is available here, but it is 81 pages of mostly mush.)

The principal objection is that the changes, which take effect December 1st, continues to exempt journalists in traditional media but not those in what the agency quaintly refers to as “new media”—that is, those whose content appears online, whether in blogs, social networking, email, or other electronic communications.  While professional journalists can be trusted to speak truthfully about products even when they are provided sample or review copies, bloggers cannot.

L. Gordon Crovitz’s column in today’s Wall Street Journal nicely dismantles the faulty reasoning in the Commission’s analysis.  Moreover, Eric Goldman’s post (cited above) argues persuasively that the one example the FTC gives of a violation of the policy as applied to bloggers is directly at odds with Section 230 of the Communications Act, which provides broad immunity to third parties for content posted by someone else through any Internet service.  So it may be that the proposed change is pre-empted by the broad and sensible provisions of Section 230, which creates a wide breathing space for interactive communications to develop. (The FTC makes no mention of Section 230 in its report.)

To me, in any event, this is a classic problem of the poor fit between traditional legal systems and rapidly-evolving new information technologies.  Legal change, as I write in The Laws of Disruption, relies heavily on the process of “reasoning by analogy.”  When confronted with new situations, lawmakers, regulators and judges will look for analogous situations elsewhere in the law and apply the rules that most closely match the new circumstances.

In times of radical transformation at the hands of disruptive technologies, however, reasoning by analogy is a terrible way to develop a  body of law for new activities. Bloggers are not like journalists and they are not like celebrity endorsers.  They are like bloggers—a new form of communication, still very much in its early stages of development, that uses new technology to engage in a new kind of conversation.

No old rule, extended and mangled until it is unrecognizable, is likely to fit the new situation.  And rather than try to guess at a new rule, regulators should fight their natural tendencies and just wait.  For now, the Web has been developing a variety of self-correcting mechanisms and reputational metrics that may do an effective and efficient job of policing abuses of the trust between bloggers and their readers.  Sorry folks, but we may not need the FTC and its cumbersome enforcement mechanisms to save the day this time.

What’s more, the risk of applying ill-considered old-world regulations to new situations is that regulations (even if lightly or not at all enforced) will retard, skew, or otherwise chill the development of new ways of interacting at the heart of digital life.

That doesn’t seem to worry the FTC.   “[C]ommenters who expressed concerns about the future of these new media if the Guides were applied to them,” they say, “did not submit any evidence supporting their concerns.”

Let’s turn that objection around to the right direction.

The FTC did not submit any evidence of a problem that needs to be solved, or of their ability to solve it.