Interoperability as a Standard-based ICT Competition Remedy

1. Interoperability as a Standard-based ICT Competition Remedy Dr Ian Brown (Oxford) and Prof. Dr Chris Marsden (Sussex) IEEE SIIT 24 September 2013

2. Standards-based interoperability framework • We assess regulatory intervention • according to the code solutions used. • Standards-based solutions involve both • competition analysis and • interoperability requirements • in strategic communications sectors. • We conclude that such standards frameworks are urgently needed • to enable citizens to make most effective use of the opportunities offered by ICTs

3. We analyse the regulatory shaping of “code” standards • Technological environment of Internet • comprising hardware, software and their interactions, • notably in the protocols and standards used to achieve interoperability • to achieve more economically efficient and socially just regulation. • Acknowledging that “openness” in standards is controversial • Kretchmer (2008) Open Standards Requirements

4. History of competition policy for open technology standards • Long predates the Internet (Kahin and Abbate 1995) • Governments see success of open standards as • solutions for the well-known entrenchment of • dominant Internet commercial actors using network effects • (Pitofsky 1998; Lemley and McGowan 1998). • Evidence of extensive network effects and • innovation that can rapidly tip markets • Bar/Borrus/Steinberg 1995; Cowie/Marsden 1999 • focussed policymakers’ attention on interoperability • solution to emerging competition & innovation problems • (EC 1997, De Nardis ed. 2011, van Schewick 2011)

5. Many de facto standards created outside formal SSOs • Producers and consumers coalesce around a dominant product or service, • E.g. Windows OS, Intel microproc architecture • Problems of interoperability and refusal to licence by the de facto standards setters, • heavily enmeshed and interdependent environment of computer software and hardware. • De facto standards setters leverage dominance into other areas(Coates 2011)

6. Regulatory constraints created Internet innovation in 1980-90s • Cannon (2003): fundamental regulation • imposed on U.S. telecoms firms in 1980s • open network architecture (ONA) • 1985 Computer III inquiry • U.S. Federal Communications Commission (FCC). • (Computer II and III inquiries refer to investigations by the FCC into the regulation of data transfer and the conditions necessary to achieve an increasingly competitive market for that data.) • European equivalent amounted to • interoperability plus • physical interconnection between networks • (Coates 2011)

7. Microsoft lessons? • Microsoft crushed Netscape • moment of “Schumpeterian emergency” • (Bresnahan, Greenstein, and Hendersen 2011) • Mehra 2011:innovative upstarts outwit clumsier behemoths? • Android/Apple v. Windows Mobile

9. Interoperability was solution imposed – or refuted • Microsoft competition litigation, • beginning with U.S. antitrust investigation in 1991 prior to the dawn of mass Internet adoption, • enforced interoperability and application programming interface (API) disclosure, • Intel settling similar investigation into interoperability and anticompetitive practices. • Interoperability adapted by the complainants in • Google and Facebook investigations EC 2010 (IP/10/1624) • Apple’s iTunes price discrimination settlement EC in 2007–2008 (IP/08/22) • preliminary antitrust investigation into Apple’s App Store policies (IP/10/1175).

10. Law and Code; Code and Law • Interoperability is not a panacea or magic bullet in all cases • Understanding protocols/standards • as well as legal regulation, • leads to a better understanding of how • regulation can shape “better” standards • support interoperability and competition • Where required? • Lessig 1999/2006, Zittrain 2008

11. Regulating Code Good Governance and Better Regulation in the Information Age (MIT Press) @IanBrownOII @ChrisTMarsden #RegulatingCode

12. Empirical investigation • Five case studies and one ‘prior art’ (encryption, anonymity, security) • Multi-year empirical investigation • Builds on various EC/other studies including • ‘Self-regulation.info’ (2001-4), ‘Co-regulation’ (2006-8), ‘Towards a Future Internet’ (2008-10), ‘Privacy Value Networks’ (2008-11), ‘Network neutrality’ (2007-10) ‘Internet science’ (2012-15) • Reassesses prior art in view of ‘hard cases’ • Topics with no organised regulation/self-regulation • Due to lack of consensus over solutions • Clash between market outcomes and human rights

13. Prosumers not super-users • Web 2.0 and related tools make for active users, not passive consumers • US administrative & academic arguments • self-regulation may work for geeks, • but what about the other 99%? • European regulatory space • more fertile ground to explore prosumerism • as both a market-based and • citizen-oriented regulatory tool

14. Government and market failure • Industry capture of regulators & legislators • Incumbents introduce new barriers to entry • Continued exclusion of wider civil society • tenuous chain of accountability of participants • to voters, shareholders and NGO stakeholders. • effectiveness, accountability and legitimacy of these groups in representing the public interest?

15. EC Responses to Problems • Better open standards procurement? • Decision No 922/2009/EC on interoperability solutions for European public administrations (ISA) • Better multistakeholder standard setting? • Multi Stakeholder Platform • Commission Decision OJ C 349, 30.11.2011, p. 4 • Recognised in EC Regulation (2013) on European standardisation, • amending Council Directives 89/686/EEC and 93/15/EEC and Directives 94/9/EC, 94/25/EC, 95/16/EC, 97/23/EC, 98/34/EC, 2004/22/EC, 2007/23/EC, 2009/23/EC and 2009/105/EC and repealing Decision 87/95/EEC and Decision No 1673/2006/EC • Reinforces ICT standardisation efforts from Framework Directive 2002/21/EC

16. Towards interoperability as prosumerlaw • Solution for prosumers& competition • enhance competitive production of public goods • innovation, public safety, and fundamental rights • Key aspects: • Communications not competition policy • Ex ante intervention (ex post supplements) • Interoperability (incl. FRAND) • Fair and reasonable defined by govt procurement • Not detailed rate of return regulation • Note that IT software leaders make supra-normal returns • Detailed software interoperability, • not the general description offered by Gasser/Palfrey 2012 • Specifics in Gasser (2007)

17. What regulation teaches about code • Ex ante +ex post intervention • Interoperability • Procurement policy + regulation/competition • A biased policy towards open code – • Data open to mash-ups (government) • Systems interoperable (procurement) • Use of alternatives to market leader (e.g. Linux) • Via competition remedies and sponsorship

18. Information regulation precedent • Must-carry/must-offer obligations, • imposed on many market actors, • including obliged to offer FRAND terms • (common carriers, broadband access providers, cable broadcasters, electronic program guides); • Interconnection requirements on telcos, • especially those with dominance— • And AOL/Time Warner merger requirement for instant messaging interoperability • Application programming interfaces (API) disclosure requirements, • placed on Microsoft by EC upheld by ECJ

19. EC Mandated Browser Choice • 2011: MSFT refused to allow browser choice by default in Windows 7 • fined €561m March 2013, • previously fined €497m 2007 €860m 2012. • Browser “error” expensive line of code

20. Kroes’ promise post-Microsoft • Will “seriously explore all options to ensure that significant market players cannot just choose to deny interoperability. • “The Commission should not need to run an epic antitrust case every time software lacks interoperability.”

21. Euro-Interoperability Framework • Response to multi-€bn competition cases: • Microsoft saga (to 2009), Intel (2009), Apple (2010), Rambus (2009) • Google (2013?) perhaps Facebook.... • Coates (2011: Chapters 5-6) • Announced by DG Comp (CONNECT) Commissioner Kroes 2009-2010 • Bias in favour of interoperability in policy • Concerns are broader than competition • Include privacy, IPR, security, fundamental rights

22. Economics and Human Rights • Open data, open code, and human rights • Blizzard of Internet governance principles 2011 • Law/economics, or human rights, do not translate • OECD/EC vs. UNHCR/OSCE/Council of Europe • This apparent dialogue of the deaf • competition policy & corporate governance problem • Urgent task: dialogue between discrete expert fields • ICT growth driver and transformative technology • transformative role in communication and dialogue • ‘arms trade’ in censorship technology; Twitter ‘revolution’ (sic)

23. EC Regulation (2013) Recital 41 • “It is essential for the development of European standardisation to • continue fostering and encouraging the active participation of European organisations • representing SMEs, consumers and environmental and social interests. • Such organisations pursue an aim of general European interest

24. Article 5.1 • European standardisation organisations • shall encourage and facilitate • appropriate representation & effective participation • of all relevant stakeholders, • including SMEs, consumer organisations and environmental and social stakeholders • in their standardisation activities. • They shall in particular encourage and facilitate such representation and participation through the European stakeholder organisations receiving Union financing

25. Developing study of code regulation • Similarities and cross-over with • complexity science • network science • web science/graph theory • Match Internet regulation to complexity theory • Longstaff (2003), Cherry (2008), Schneider/Bauer (2007) • Network science fusion of scientific/fundamental elements from various components • Internet Science? EC Network of Excellence

26. Many Research Questions? • Book published 22 March 2013 • ‘Regulating Code’ in proceedings of ICIS, April 2013 • ‘Prosumer law’ paper for EuroCPR (Marchversion now on SSRN) • ‘Interoperability as a Code-Based Competition Remedy’ in Proceedings of IEEE SIIT • Comments welcome

27. Developing 2013 case studies • Data protection in Social Networks • Enforcement failures, Privacy by Design • Dominance, network effects, corporate social irresponsibility • Search Neutrality • Net neutrality argument • Code-based solution to competition problem • Prosumer focus cf. Microsoft

28. Google FTC and EC cases • Competition investigation both sides of Atlantic since 2010: • Settled with US authorities 3 Jan 2013 • Settlement proposal to EC 1 Feb 2013 • Experts have severely criticized timing and content of FTC settlement • Grimmelman argued: “If the final FTC statement had been any more favourable to Google, I’d be checking the file metadata to see whether Google wrote it.” Source: Google proposal leaked to SearchEngineLand, 25/4/13

29. Grimmelman argued: “If the final FTC statement had been any more favourable to Google, I’d be checking the file metadata to see whether Google wrote it.”

30. 4 lines of complaint Search bias: Google favours own products over competitors in results Vertical Search Opt-Out – • Google don’t let websites opt out of particular uses of pages it indexes. • complete opt-out giving up all Google traffic, a significant driver of traffic – • especially Europe: Google has 90% search market in UK, Nl, France, Germany Restricted 3rd party use of AdWords: • “API Client may not [function] copies data between Google and 3rd Party.” • Companies can advertise on Google and Bing, • but cannot use a program to copy Google AdWords campaigns over to Bing. • dropped by Google as token interoperability sop to FTC’s investigation; Injunctions against standards-essential patents, • including those by Google-acquired Motorola Mobility • see Posner’s now–famous judgment in June 2012 • FTC concluded (4-1) unfair competition, Google agreed not to engage in it • fires a shot not just at Google, but also at rivals –clever concession by Google!

31. Google and competitors routinely privately regulate other’s code • points 3 and 4, • Google claimed the right to regulate others’ use of code, • to use the AdWords API or • to use Motorola Mobility’s patents..

32. “Prosumer law” approach • interoperability and content neutrality • Google to reinforce search neutrality • NOT bias results with search algorithms • relatively trivial (by Google standards) amendment to its code • allow websites more flexibility in listing, • rather than complete opt-out via the existing robots.txt convention.

33. We do not make strong normative claim that Google should adopt neutral perspective • (nor do we adopt approach to net neutrality), • We advocate truth-in-advertising • Any search engine (or ISP using search) • claiming verifiably neutral results • produce the same

34. Or prominently advertise its product as • commercially driven, • affiliate-biased • selective search engine.

35. Requirement does not impose significant regulatory burden • reinforces the brands of search providers of integrity. • would not apply to selective search providers if labelled such • ‘a search engine which selectively provides you with search results according in part to its commercial affiliations’ • (or equivalent wording) • prominently displayed above search results in that case.

36. Code-based solutions lighter than €1b fines or structural separation • In book, we suggest similar approach • to network neutrality violators • could not advertise their services as allowing end-users’ choice • in accessing the ‘Internet’ • when in fact it is a commercial Intranet • to which full access is provided.

37. Social networks: US solutions instead of EU non-enforcement • Facebook’s 400m European users • 27 national regulators of personal data. • Facebook chose regulator relocated in 2006 • from Dublin to Portarlington, Co. Laois, Ireland, • Google is also regulated from Portarlington. • While German state and federal regulators and others may rattle sabres at Facebook, • Irish regulator audited Facebook spring 2012 • insisting on remedial action on nine counts

38. Prosumer law: direct intervention • Abusive dominant social networking sites • prevent Facebook, Google+ any other • from erecting a fence around its piece of the information commons: • ensure interoperability with open standards • Which lowers entry barriers (in theory!) • Enforcement of privacy law even in Portarlington

40. 50 ways to leave Facebook • Not sufficient to permit data deletion • as that only covers the user’s tracks. • Interconnection and interoperability, • more than transparency and • theoretical possibility to switch. • Ability for prosumersto interoperate to permit exit • Lower entry barriers tend to lead to increased consumer welfare

42. US FTC constant audit • Class actions: • 2011 $8.5m Google Buzz. • Jan 2013, Facebook $20m • Nov 2012, FTC Google settled for $22.5m • tracking cookies for Safari browser users • 2012, both agreed to settle privacy complaints • FTC privacy audit of products for a 20-year period. • That’s until 2032! • Sector-specific regulation of social networking already exists de facto in the United States, • Europeans wring their hands on the sidelines. • proposed new European Regulation • unlikely to be implemented before 2016.