FCC Proposes “Net Neutrality” Rule

Federal Communications Chairman Julius Genachowski is proposing to make it a formal rule that Internet service providers and wireless carriers cannot discriminate against certain types of traffic (e.g., file sharing or gaming) by degrading service.  The proposal, if made effective, may force US phone companies to open their wireless networks to rival internet services (e.g., Skype, Google Voice).  Senate Republicans are moving to prevent the rules.

The idea of “net neutrality”, the principle that internet access should be unencumbered, seems pro-consumer in spirit.   But what are the likely implications in the marketplace?  Assuming, as other commentators have pointed out, that there’s really “no such thing as voice or text or music or TV shows or video”, and that “[t]hey are all just data”, then the flat fee pricing models currently offered by service providers will probably need to change, and soon.  

For example, we expect customers will no longer pay $30 per month for internet, $40 per month for phone, and another price for cable television.  Instead, they will be charged a single price for accessing their data.  The question that remains unanswered:  Will data plans be priced to be unlimited or based on usage?  At the moment, customers that make only occasional phone calls and make slight use of the internet (e.g., minimal web browsing or occasional e-mailing) are effectively subsidizing other customers who consume an enormous amount of bandwidth accessing multimedia content (e.g., downloading movies or playing games).  But as technological innovation continues, and ever larger amounts of data are delivered to customers in widely diverging degrees, it seems highly likely that, if companies cannot discriminate in their delivery of certain types of data, they will eventually start charging customers based on the amount of data that customer actually consumes.

$32.4 Million Verdict for Louis Vuitton in Suit Against ISPs

A California jury has awarded Louis Vuitton damages in the amount of $32.4 million against two internet service providers (ISPs) and their operator for contributory trademark infringement based on their hosting of websites that sold knock-off Louis Vuitton products.  For the full story, see this article in ars technica.  This decision may lead ISPs to respond more proactively when they receive notice of infringement.  It also serves as a helpful reminder that the Digital Millennium Copyright Act’s (DMCA) safe harbor for ISPs does not extend to activity the ISP knows is taking place.