17 posts categorized "Corporatism"

Antipiracy workflow [REDACTED]

Something really interesting to watch: the movie and recording industry's compact with big ISPs to police peer to peer file sharing behavior and degrade or cut off service to suspected copyright infringers - all without involving the courts or any legal process - looks like it is about to launch.

The compact involves the Recording Industry Association of America (RIAA), the Motion Picture Association of America (MPAA), member companies of those groups, and ISPs like AT&T, Verizon, Comcast and Time Warner.

Though we have previously flagged the extra-judicial nature of the content industry's policing system, we don't keep up with the story of the system's implementation. Ars Technica and TechDirt cover the topic regularly and well.

But one thing we do regularly on this blog - one of its raisons d'être - is publish or link to publicly available documents that say more than what news organizations pull from them.

The content industry's policing system will likely yield many such opportunities.

Case in point: the entity organized by the big media companies to administer the policing system - or at least the public communication aspects of it - commissioned a purportedly independent study to assess the efficacy and accuracy of the program.

Antipiracy workflow

That independent study, "Independent Expert Assessment of MarkMonitor AntiPiracy Methodologies" from Stroz Friedberg, LLC, is available online in a heavily redacted form. The illustration shown here is from the report, and one of only two illustrations in the report that were not redacted (there appear to have been seven others that have been removed).

Here's some copy from the report, as redacted, that gives you some sense of what's hidden:

"To identify infringing works, MarkMonitor personnel search for [potentially offending files] and add the results to a [database] that captures relevant metadata about each file, including its name, hash values, and size. This identified content is next reviewed manually or with automated fingerprinting technology to determine if it is an actual infringing copy of the protected work. Once the work has been reviewed, its status is updated in a [database] to indicate that it has been confirmed as an actual infringing work.

"Concurrently, identified infringing searches and torrents are deployed to [collection mechanisms]. The [collection mechanism] is a custom-built software application that runs on servers deployed in datacenters geographically spread [REDACTED]. MarkMonitor has designed the [collection mechanisms] to specifically target [REDACTED]. The [collection mechanisms] search for, download portions of, and create evidence packages or 'cases'of infringing works including (among other data points) IP address, port, time/date, size, PeerID, and hash values.

"[REDACTED] [S]cripts run to verify that the collected evidence is in fact a verified infringing work and meets all program requirements."

Even more absurdly, the report's recommendations for improving the policing system have all been redacted. See this partial screenshot of page 11 from the report.

Enhancement recommendations

To their credit, the RIAA, MPAA and ISPs have posted their compact online. Links to it and amendments that have been made available, just below. This looks like the makings of administrative law without the involvement of any elected government.

Corporations are real, it's the shareholders who are the fictions

For a very different take on corporate law, watch this C-SPAN video of Cornell Law Prof. Lynn Stout talking to an audience at the Clinton School of Public Service at the University of Arkansas.

Stout2Among Prof. Stout's views:

  • As if countering progressive critiques of corporate personhood from discussions of the First Amendment, Stout maintains that corporations are very real; if any actor in the corporate context is fictional, it is the shareholder.
  • Shareholders are not "owners" in any meaningful way. Rather, shareholders have contractual interests in corporations, alongside others with contractual interests, such as bondholders and employees.
  • Stout denies that the interests of all corporate stakeholders are best served by maximizing the value of the holders of the "residual interests," i.e., the shareholders; Stout says that this proposition, argued by economists, is only true in the context of bankruptcy.
  • Shareholders and the public at large were both served better when corporate managers were regarded as hired hands, whose responsibilities were characterized in broader terms; the emphasis of maximizing shareholder value in the short term has perversely caused corporations to be less effective at increasing value for all concerned, including shareholders.
  • Government regulation of executive compensation has backfired. Stout seems to suggest that boards of directors would behave more responsibly, if they could not hide behind compensation formulas mandated by regulation.
  • To counter the value-destroying, short term behavior of public corporations, Stout suggests corporations treat long and short-term shareholders differently. For instance, both voting and dividend rights could be weighted to favor the shareholder who holds it, her or his position longer. In terms of public policy, the long-term capital gains holding period should be more like 3 to 5 years, rather than one year.
  • Corporate disclosure is a two-way street: Stout says corporate bylaws should require shareholders to reveal more about themselves and their shareholding agendas. No shareholder, whether individual or institutional, holds shares of public corporations in isolation; all shareholders have broader interests and aims.

At every turn, Stout attacks what she regards as received but erroneous wisdom, propagated by economists and obligingly regurgitated by lawyers who should know better or at least think more clearly, that corporate directors have legal duties to maximize profits for shareholders. Corporate law requires no such thing, she maintains.

Revolving Doors

Friday last on the Diane Rehm Show I heard some distressing remarks from Ron Elving, an NPR reporter whose work I ordinarily like. He floated this explanation for why the government has failed to prosecute any prominent Wall Street bank or executive:

Ron Elving: "I think that there's a reality here that people have to bite down on that's extraordinarily distasteful, and that is that when you look at the law, you're not just talking about what is the law. You're talking about what you can make stick in a courtroom. And what the Department of Justice has learned again and again is when you try to take people to court and you try to prove complex cases in front of a jury, you're going to be putting government Justice Department attorneys up against the very finest, the most experienced, often times former Justice Department attorneys, people who have had extraordinary careers who are going to be the defense lawyers for the banks or for whichever miscreant you're going after in court. And you are going have to have not only an extraordinary case, not just the people who were egregious, not just the people send email saying, hey, let's do some really bad stuff, but that they specifically broke the letter of certain laws, did it repeatedly, did it in a certain particular way and make sure that they jury has no other decision it can make other than guilty. That turns out to be extremely difficult under our laws and in our courts."

Diane Rehm: "Especially when you have top New York lawyers going up against you."

Elving: "As you might very well have and if you take these people on."

It's a variation of the "revolving door" meme, a fork more insidious than the root version.

Let me explain.

Revolvingdoors

The "revolving door" theory posits that regulators are so keen not to piss off prospective employers in the private sector, they won't bring actions against the mightiest corporations and chieftains on Wall Street. (The authors of a study, "Does the Revolving Door Affect the SEC’s Enforcement Outcomes," would likely say I am describing only the "rent-seeking hypothesis" of the revolving door; there is a positive, "human capital hypothesis," which we'll get to, below.) 

Elving's variation seems to posit that, even when regulators do get up the nerve to bring a case, they'll end up getting thrashed anyway in court. By whom? The very lawyers who had been pulling their punches before leaving to work for Wall Street!

A sort of "damned if you don't, trounced if you do" attitude about the efficacy of enforcing the law.

This is depressing. As Rehm herself, quoting an email from a listener, said later on the show:

 "The idea that we can't take a bank fraud case to court because their lawyers are too high powered is the most outrageous argument for lack of prosecution I've ever heard. If we take Ron Elving's advice, we might as well hand over the keys of the republic to the bankers right now."

But the authors of the aforementioned SEC study say this is not right. "[T]he current implementation of revolving doors," they conclude, "is not associated with observable compromise in enforcement effort." And that's not all. "If anything," they write, "future job prospects make SEC lawyers increase their enforcement efforts while they are at the SEC." In short, the study supports, not the rent-seeking hypothesis, but the human capital hypothesis, which is that government lawyers who want to signal competence to prospective employers have more incentive to kick ass in court and will tend to be more aggressive at enforcement.

That's the marketplace we want live in.

I also take a lot of comfort from this perspective from Broc Romanek, writing about the SEC enforcement study:

"Personally, I'm not surprised in the least by the study's findings. Generally speaking, SEC alumni treat the agency with more respect than those that have not graced its hallways - and I imagine that translates into not trying to push the envelope beyond the grey areas of the law. And I can't imagine that the colleagues that they leave behind would cut corners for them. People that work at the SEC believe in the mission of investor protection."

Photo: Todd Metcalfe / Flickr.

Gotham, Delaware

Some weeks back, the New York Times ran a half-hearted (half-baked) exposé of international criminals and domestic tax cheats who form business entities in the state of Delaware.

The broad implication was that Delaware makes it too easy to form a corporation. As though the Delaware Secretary of State were a DMV handing out licenses to new drivers without requiring a road test. Or an agency issuing a permit to carry a concealed weapon without doing a background check.

GothamkrakowI read the piece wide-eyed.

As a start up and emerging company lawyer, I appreciate the rare efficiency represented by how easy Delaware makes it to form a new corporation or LLC. It's fast, it's fairly priced, and it's one small but important expediter of launched ventures and consummated deals.

The reporter, Leslie Wayne, connected the wrong dots.

Broadly speaking, a corporation is a legal fiction, the essential purpose of which is to spur economic activity by shielding entrepreneurs and investors from many of the costs of the business (shift some "externalities," if I'm remembering the law-and-economics school vocabulary, to society at large). Delaware gets it right by understanding that there is no moral or ethical or criminal gatekeeper function to be performed at the time an entity is formed.

The dots to connect are the criminal actions with the criminal actors.

Photo: Maciej Zygmunt / Flickr.

Save Democracy

I decided not to take my site down for Protest SOPA Day.

Instead, I want my site to do two things today: (1) provide links to sites with more information about the effort to defeat SOPA; and (2) offer a brief comment about how SOPA is symptomatic of our broken democracy.

Here are links about SOPA and the protest against it:

Here's my comment:

Before SOPA, there was PROTECT IP. After defeating SOPA and PIPA, there will be something else - unless we fix our government.

The overarching problem is that the US Congress is controlled by money, and the money is corporate.

Ninety-four percent of the legislative sponsors of SOPA received payments in the current election cycle from Time-Warner, Comcast, and/or the National Cable & Telecommunications Association. The corruption is bipartisan in nature, too; a top Democrat seems as able to exact tribute for the bill as its Republican sponsor.

The corporations are not evil. They are doing what corporations are supposed to do. (Which of us, were she the CEO of a big media company, wouldn't take every legal advantage? Shareholders expect that, and should.)

The fault, rather, lies with natural persons: the Congress people who sell out, who don't expect more of themselves; the citizens who put up with lobbying, and advertising, and don't expect more of their country.

Tea party, #occupy, defeat SOPA - may they all coalesce.

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Photo by Kevin Dooley.

Quiet Rooms? Why Talk About Income Inequality Should Be Public

Republican candidate attacks on Mitt Romney for being a successful private equity investor are backfiring.

They are certainly making me sympathetic with Romney, for the first time. On TV, the man has no personal charm whatsoever; but the more that facts about Bain are discussed, the more it sounds like his tenure there was successful.

President Obama is measuring himself against other standards - politician, statesman, author - but Romney's private equity background puts into relief Obama's utter lack of experience in running private businesses to generate returns to shareholders. If Romney ends up being the GOP nominee, we're set up for a national discussion about (to paraphrase a recent NPR story) the meaning of capitalism in America.

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Romney is definitely old school, if not actually freeze-dried. I think his "quiet rooms" comment is telling. You can relate the remark to very traditional, East Coast Republican sensibilities of decorum and respect for authority.

But the fact of the matter is that most businesses, even many new startup ventures, treat compensation as a taboo subject, something not to be discussed with employees as a group. With some notable exceptions, the owners, boards and management of most businesses aren't transparent about compensation - their own, nor that paid to employees at large. Payroll details are even regarded as proprietary, competitive information. Inequitable compensation within an enterprise - Sally should be making as much as Bob given x, y and z - is indeed something the appropriate echelon of a company will discuss "in a quiet room."

I don't know that America is ready to imagine itself an "ownership society" (the term was previously misappropriated by the sellers of publicly traded stock, though in that use it never meant actual ownership and control of the thing owned). Perhaps the concept will overtake popular discussion at a time we least anticipate. But I hope the election will extend the discussion about income inequality and political corruption that #Occupy started. Romney's comment, while descriptively accurate regarding the ways businesses operate, is a terrible way to approach laws and policy for the common good. 

The political system needs to be made democratic, so that the voice and the interests of the lowest paid worker are as important to legislators and Presidents of the United States as the voice and the interests of the highest paid CEO. That is not true of our system today. Romney doesn't "get" that at the moment, though it is tantalizing to wonder if his experience may ultimately put him in a better position to appreciate that distinction than President Obama can.

For another view, one framed by political history, on what the attacks on Romney mean, see this post from my friend Mark Byrnes, "Romney, Bain, and the End of the Reagan Coalition."

Flickr photo, "the quiet room at the Reynolds Club," by supafly.

Cable Industry Payments to SOPA Sponsors

Political action committees (PACs) for two cable companies, Comcast and Time-Warner, together with a PAC for the cable industry trade association headed by a former Chairman of the FCC, the NCTA, have contributed an aggregate $134,500 so far to the 2012 reelection campaigns of the sponsor and the 31 co-sponsors of SOPA.

In fact, of the 32 members of the House of Representatives signing on to sponsor SOPA, only two did not receive any current election cycle contribution from any of the Comcast, Time-Warner, or NCTA PACs. (The two are Representative Mark Amodei and Representative Peter King.) Most of the SOPA sponsors received 2012 campaign contributions from at least two of the three PACs. Seven sponsors received current election cycle contributions from all three PACs.

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Not surprising: SOPA originating sponsor Representative Lamar Smith, the Chairman of the House Judiciary Committee, received contributions from all three PACs. Somewhat surprising: Representative Debbie Wasserman Schultz received more from these three PACs than Smith ($17,500 for Schultz, to Smith's $15,000).

Details are on this Google Doc spreadsheet.

Here's my methodology.

  1. I went to OpenSecrets.org and found a page there listing "TV/Movies/Music" PAC contributions to candidates for federal office for the 2012 election cycle.
  2. I then compared the top several industry PACs (listed in order of contributions) from the OpenSecrets.org site against a pdf on the House Judiciary Committee site listing private supporters of SOPA.
  3. Having identified the top PACs on OpenSecrets.org that were also listed by the Judiciary Committee as SOPA supporters, I drilled into the specific, legislator by legislator, contributions by those PACs as listed on other pages at OpenSecrets.org. (The relevant pages are identified in the Google Docs spreadsheet.)
  4. A PAC for the National Association of Broadcasters is listed as the second biggest contributer among the TV/Movies/Music PACs for the 2010 election cycle, but I did not include their contributions in the written analysis above because the National Association of Broadcasters does not show up on the Judiciary Committee pdf list of supporters of SOPA. (However, the spreadsheet has a column showing this PAC's contributions to the sponsors, which seems to match the overall pattern of the other three PACs.)

Stopping at three is just a reflection of how much time I had to flip back and forth from the OpenSecrets.org data on each PAC, and the spreadsheet listing SOPA's sponsors. It would be ideal, of course, to ferret out the financial contributions of each of the supporters listed on the Judiciary Committee pdf, or otherwise tease out patterns or aggregate contributions or surface "stealth" supporters of SOPA through use of the OpenSecrets.org (or other public) campaign contribution databases.

I don't begin to understand how contributions to entities set up to shadow but not "officially" speak for candidates might be traced, if at all.

OpenSecrets.org said the data I was looking at was based on Federal Election Commission data released on December 5, 2011. So it may not reflect additional payments being made recently to the bill's sponsors.

If you'd like to help me continue to build out the spreadsheet and/or keep it current, please say so in the comments and I'll send you a Google Docs invite to edit it.

Flickr Photo, "Auctioning off furniture at the old Canterbury Public Library building after it closed," by Christchurch City Libraries.

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