February 2010

The 2004 Janet Jackson-Super Bowl reveal seems like ancient history. But as the Third Circuit Court of Appeals heard new oral arguments in the case on Feb. 23, the future of broadcast television was very much at stake.

Whether or not this court, and ultimately the Supreme Court, decides to uphold the Federal Communications Commission's authority to regulate fleeting indecency will impact not only broadcasters' bottom lines, but their ability to compete in a multi-platform media world. First, there's the matter of the fine. When CBS stations were cited for broadcasting Jackson's "wardrobe malfunction," the fine was $550,000. Thanks to legislation to increase the penalty tenfold, the same fine would cost CBS more than $5 million today. But the ongoing regulatory uncertainty has been costly in and of itself.

The FCC has a backlog of well over a million indecency complaints, as well as TV station licenses up for renewal, that are awaiting some regulatory clarity. And networks have already taken expensive precautionary measures. But if the court upholds the FCC's ability to levy hefty fines for fleeting images and language, broadcasters may not be the only ones looking over their shoulders. As the saying goes, once you see the camel's nose enter the tent, the camel can't be far behind. So the commission, emboldened by the courts, may seek to extend its regulatory powers over content into other media, including cable, satellite and the Internet—something broadcasters would applaud.

The prospect of the FCC regulating content in other media has come up as the commission considers its regulatory responsibility to children. FCC Chairman Julius Genachowski continues to promote parental choice, but the FCC is trying to figure out how it may need to regulate kids content differently in the digital age.

The State Department has given $15 million in the past two years to private projects that use technology and training to promote online freedoms.

It is reviewing applications for $5 million to support work including research into circumventing firewalls and surveillance and $30 million more will be available later this year, said Daniel Baer, deputy assistant secretary of State for democracy, human rights and labor. Helping activists creates a dilemma by exposing them to retribution from repressive governments. Projects are so sensitive and the people involved at such risk that the State Department declined to identify current applicants. One Washington-based group that got the bulk of the money doled out so far -- more than $13 million for projects worldwide -- asked not to be named, fearing Chinese employees would be jailed. AccessNow's founders haven't received government funds and said they would have reservations about accepting any because they want to remain independent and protect contacts in countries where taking foreign money is a crime. The group does disseminate open-source software that receives indirect U.S. support, including Tor, a network of virtual tunnels that allows people to surf anonymously. Built on work by the U.S. Office of Naval Research, the science and technology arm of the Navy and Marine Corps, Tor was developed by researchers at the Massachusetts Institute of Technology in Cambridge and volunteers. It is used by an average of 8,000 people in Iran and 100,000 in China at any moment, said Andrew Lewman, executive director of the nonprofit Tor Project.

The Federal Trade Commission's request for more regulatory powers tops the 2010 list of worst Internet legislation ranked by e-commerce coalition NetChoice.

The iAwful list (Internet Advocates' Watchlist for Ugly Laws) also includes state bills aiming to restrict free trial offers in Maine and Oregon, a bid to expand Internet sales taxes, and efforts in Colorado, Indiana and Wyoming to tax digital downloads. "States are increasingly trying to expand Internet sales taxes, by forcing online retailers to become tax collectors and by imposing new taxes on online services" said NetChoice executive director Steve DelBianco. "Tax collectors' creativity knows no bounds when it comes to designing new schemes for extracting cash from large and small businesses."

The year-old list ranks the top 10 pieces of state and federal legislation that threaten e-commerce and Internet use. NetChoice uses the list to generate publicity for the laws that are sometimes not well known to Internet users.

The Department of Justice's Antitrust Division issued the following statement after announcing the closing of its investigation into the proposed Internet search and paid search advertising agreement between Microsoft Corporation and Yahoo! Inc.:

The Antitrust Division obtained extensive information from Microsoft, Yahoo! and a wide range of market participants. Experience and expertise developed during our 2008 investigation of the proposed Google/Yahoo! search advertising agreement also informed our analysis. After a thorough review of the evidence, the division has determined that the proposed transaction is not likely to substantially lessen competition in the United States, and therefore is not likely to harm the users of Internet search, paid search advertisers, Internet publishers, or distributors of search and paid search advertising technology. In addition, the proposed agreement likely will enable more rapid improvements in the performance of Microsoft's search and paid search advertising technology than would occur if Microsoft and Yahoo! were to remain separate.

The proposed transaction will combine the back-end search and paid search advertising technology of both parties. U.S. market participants express support for the transaction and believe that combining the parties' technology would be likely to increase competition by creating a more viable competitive alternative to Google, the firm that now dominates these markets. Most customers view Google as posing the most significant competitive constraint on both Microsoft and Yahoo!, and the competitive focus of both Microsoft and Yahoo! is predominately on Google and not on each other.

The search and paid search advertising industry is characterized by an unusual relationship between scale and competitive performance. The transaction will enhance Microsoft's competitive performance because it will have access to a larger set of queries, which should accelerate the automated learning of Microsoft's search and paid search algorithms and enhance Microsoft's ability to serve more relevant search results and paid search listings, particularly with respect to rare or "tail" queries. The increased queries received by the combined operation will further provide Microsoft with a much larger pool of data than it currently has or is likely to obtain without this transaction. This larger data pool may enable more effective testing and thus more rapid innovation of potential new search-related products, changes in the presentation of search results and paid search listings, other changes in the user interface, and changes in the search or paid search algorithms. This enhanced performance, if realized, should exert correspondingly greater competitive pressure in the marketplace.

Although this particular transaction is not likely to cause harm, the department will continue to be vigilant in our enforcement of the antitrust laws in the search and paid search advertising industry."