You might remember this bill from our February iAwful list.  This law creates fines for anyone who sends an email advertisement to a minor in the registry for any product a minor cannot buy.   

It plays out like this, suppose a minor subscribes to the email updates of NASCAR driver Brad Keselowski, driver of the No. 2 Miller Lite Car.  Everytime that minor recieves an email with a picture of Brad or the car, Miller Lite may vilate HB 1418 since there is an inherent ad for beer, sent to a minor.

But it doesn't stop with NASCAR.  HB 1418 could impact other professional sports.  Think of the last time you saw a football or baseball game without an ad for beer.

To stop HB 1418, last week I went to Indianapolis to testify against it.

First up at the hearing was the CEO of Unspam, the company bidding to run Indiana's registry.  His was a sales pitch. 

Then I had my change to talk about the real harm of this bill.  I opened by analogizing the choice between "building fences around pools vs. teaching kids to swim," and "to protect our kids from all emails vs. teaching them to surf responsibly." 

Then I explained how this bill would hurt Indiana businesses like TGI Friday's and Kroger, whose emails include ads for beer and wine.  I added another great example: ads from auto dealers, since a minor cannot sign a purchase contract for cars in Indiana. These unintended consequence took many of the legislators by surprise.  (You can read my written testimony here).

Then I went on to explain how the Unspam program is a mirage of state revenue and that Utah actually lost money with its Unspam registry program. 

Finally, I explained how existing email services like Yahoo! Mail, AOL, and Hotmail already stop loads of spam and let parents set additional filters to eliminate unwanted emails.

In the end, no vote was taken, and legislators acknowledged that more discussion is required.

Nonetheless, I ask Indiana, if the goal is to prevent children from seeing ads for beer and cars, why would you let them watch NASCAR, let alone have the state host its events?

-Carl

So what does it say about the so called “Main Street Fairness Act” that Sen. Richard Durbin (D-IL) and Rep. John Conyers (D-MI) chose to slip the measure into the legislative agenda on a Friday afternoon, at the end of July, right in the middle of an apocalyptic congressional battle over the debt ceiling?

It’s almost as if the sponsors know that the bill – backed by big box mega stores like Walmart and Target – isn’t the panacea of “fairness” that supporters are making it out to be.

The stated purpose of the Main Street Fairness Act is to “level the playing field” between online sellers and traditional bricks and mortar retailers by requiring online sellers to collect sales taxes on purchases from states where the seller has no physical presence. 

The reality of the bill is that it would impose unfair and disproportionate collection burdens on exactly the sort of small businesses that lawmakers say are vital to the economic recovery. 

And the real kicker? The proposal would generate a paltry amount of revenue, adding less than three-tenths of a percent to total state and local taxes.

According to the SSTP's own study, small businesses spend 17 cents of their own money to collect and file every dollar of sales tax they send to their home states.  This bill would force small online retailers to collect for two dozen states, requiring expensive software updates, inviting exposure to an army of auditors, and cutting into resources they'd rather spend on building businesses and creating jobs.

So if the bill isn’t a revenue generator, and it’s not making things any more “fair,” what exactly is the purpose of it? Do big box stores really need more help steamrolling small and midsized sellers, by undercutting their ability to compete?

Of all the problems with the Main Street Fairness Act, one of the worst is that it fails to define safe harbors for small businesses that could be crushed by its onerous, multi-jurisdictional collection regime.

Past attempts to pass similar legislation included a specified safe harbor that protected small businesses from the cost and complexity of this new Internet tax.  Today’s legislation leaves the job of defining such safe harbors up to the unelected tax administrators on the SSTP’s Governing Board.  That's like letting the foxes run the hen house.

This Governing Board, for example, claims to have simplified definitions, but it defines beef jerky as "candy" while defining cotton candy as not candy.

If this all seems a little ridiculous and unfair to you, you're not the only one.   Not a single Republican joined the Democrats sponsoring these bills.  On the other hand, there was wide bi-partisan support for a House Resolution to protect small businesses from just this sort of tax collection burden.  

So there's no bi-partisan support, no protection for small business, and no real simplification.   Maybe a hot Friday afternoon in the middle of a landmark debt debate, is the time to showcase something you’re not very proud of.

1. Know how to handle a gun without hurting yourself, and

2. Ready, Aim, then Fire.

Same rules ought to apply when states go hunting for new tax revenue. Lawmakers first need to understand where potential tax revenue is hiding and how to get it in their sights. Then they create legislation that minimizes collection costs.  Then, and only then, should they pull the trigger and create new tax law.

On Tuesday, Maryland took the first step in hunting safety by holding a hearing on whether and how to hunt for new tax revenue in places like professional services and uncollected use tax on out-of-state purchases.

NetChoice was invited to testify as to the dangers of hunting for the wrong game and to correct some bad hunting habits that have shown up in previous tax bills -- especially the affilliate nexus, or "Amazon Tax".

Steve explained how every state that enacted an affiliate nexus law saw Amazon and Overstock cancel their affiliate relationships (except NY, where Amazon collects so it could sue the state).  Steve explained how many elementary school PTAs in Maryland rely upon these affiliate commissions to buy playground and science equipment.

Steve challenged the Maryland committee to see the fallacy in a recent BaltimoreSun editorial calling for  “companies like Amazon.com to fork over the money”.  But Amazon doesn't have any sales tax from Maryland customers, since it is not required to collect for states where it has no physical presence. And even if Amazon did collect, the money they'd be forking over" would come straight from the pockets of Maryland taxpayers.

Finally, Steve explained how the Streamlined Sales Tax plan is “not ready for prime time,” and would impose big collection burdens on small Maryland businesses who sell to customers around the country.

We left the Capitol knowing that this was only a preliminary hearing and that Maryland has no illusions of big game as it plans to hunt taxes among online retailers.

Kudos to Maryland on practicing proper hunting safety by educating itself before it drafts new tax legislation. It was a refreshing contrast to what's happened in California and Illinois this year, where the lawmakers' mantra was, "Ready ... Fire! ...  Aim."

Today we put that question to FTC Chairman Leibowitz after he spoke to the Brookings Institute.  Leibowitz started his speech by reciting benefits of data collection and online advertising.  Then came the expected "But, ....", where the Chairman said these benefits were offset because consumers don't know that their data is being sold to marketers and data brokers.

That's the best he could do for justifying new privacy laws?  That consumers don't know how their online data is used to do advertising and marketing?  The collection and sharing of consumer data goes back decades, starting when we filled-out warranty registration cards for our new toasters and blenders.

So Carl stood up asked the Chairman his own version of "Where's the Beef?":

"Chairman, you said the harm to consumers is that they don't know what happens to their data.  But consumers seem to be flocking to sites like LinkedIn and Facebook, instead of running away in fear.  Is there some data the FTC can reveal that links consumer privacy concerns to their abandonment of the Internet?   Where's the Harm?"

But Chairman Leibowitz's response did not cite any studies or stats about privacy concerns.  Instead, he talked about consumer concerns over data breaches -- where bad actors break-in to company databases to steal credit card numbers.  

Now, we all agree that data breach is bad for consumers, and it's terrible for the companies and banks who pay most of the costs of credit card fraud.  But conflating data breaches with privacy is really just dodging the question.  

So Steve went back with a challenge to this conflation of privacy with data breaches:

That's like saying the FTC should start regulating auto production because bad guys have been breaking into cars and stealing people's stuff. 

The FTC isn't giving us any satisfaction when asked for evidence of harm to justify new laws and regulation of online privacy.   It's like that feeling you get when you pick up the bun on a fast-food burger, only to find a puny little patty.

Where's the beef?

The Rolling Stones said it best, "you can't always get what you want, but sometimes you get what you need."  But according to a new study, Internet users are getting what they need and what they want.

A week ago I discussed the facts related to social networking, its benefits, and privacy.  

And this past Monday, at the 3rd Internet Governance Forum – USA (IGF-USA), Lee Rainie from the PEW Research Institute, reported several more recent PEW findings as part of a proclamation of the benefits of social media:

• 59% of Americans connect to Internet through smartphones
• 33% use location services
• 9% attach their location to their tweets and other posts
• 2/3 of adults and 3/4 of teens have created content on the Internet.

• Users generally say that they get what they want from the Internet.

But the benefits do not stop there.  

When Q&A opened, NetChoice was first at the mic, asking Lee about PEW findings that Facebook users were more politically engaged, and socially interactive than non-Facebook users.  We asked Lee if Facebook just attracted people who already had these positive qualities, or if Facebook helped cultivate these qualities in its users.

Lee responded with PEW findings that “people are aware of more aware of the social issues when they are in social networking spaces and more likely to engage in political activities.”  

Lee said that despite concerns that social media lets people self-select others with extreme views,  Facebook exposes users to a broader range of political views from their ever-expanding networks of friends.  

So people get what they need in the form of more exposure to outside world and greater community involvement.  And when asked, people say they are getting what they want.  

Maybe the Rolling Stones had a catchy song, but in the context of the Internet, the lyrics are "you can always get what you want, and you always get what you need."

Well § 230 created the foundation on which today’s user-generated-content sites like AOL forums, LinkedIn, and Facebook were built.  That little law creates the protections for online businesses to host content without the legal liability for the content added by users. 

For example, if I posted on an AOL forum that “Disney Kills Kids” (it doesn’t and I love Mickey Mouse), then AOL might be liable for defamation for hosting my post.  But § 230 protects AOL from liability to Disney (I’m still liable, but AOL isn’t).

With the protections afforded to them through § 230, online businesses have grown without fear of lawsuits.  In fact, § 230 is so important that Congress has twice ratified its existence, noting “it is the policy of the US ... to preserve the vibrant and competitive free market that presently exists for the Internet”[1] by using § 230 “to prevent lawsuits from shutting down websites and other services on the Internet.”[2]

But some courts are ignoring the law and risking the future of online interactions by stripping away the § 230 protections that facilitated the growth of the Internet.  This happened most recently in the civil lawsuit against StubHub.

It all began with a child nagging her parent, Jane Hill, for tickets to Hannah Montana.  Jane then used StubHub to locate a seller of the tickets.  After buying the tickets above face-value, and attending the show, Jane then decided to sue StubHub under the state’s anti-scalping law.

The trial court then defied the protections of § 230 and found for Jane.

Leave aside the fact that StubHub never bought, sold, or even touched the ticket; that no action was taken against the actual seller of the tickets; or the fact that Jane knew the tickets were above face value when she bought them; and that she used the tickets to see the show, StubHub is still protected from Jane’s lawsuit under § 230. 

StubHub, like an online bulletin board or a newspaper classifieds page, merely provided the environment for a buyer of tickets to find a seller of tickets.  This is the exact type of service that § 230 was created to protect!  

Seeing this threat to online businesses, NetChoice joined several other groups in filing an appellate amici brief to help preserve the future of online publishers and platforms.

Because if we begin stripping away the protections afforded by § 230 to online services and expose them to lawsuits, where does that leave these online services, and where does that leave us?

Well the services, if they have to risk potential lawsuits for creating new innovative systems, will likely avoid such innovations.  And that leaves us in a world without user-generated-content services from businesses like AOL forums, LinkedIn, and Facebook.

So sometimes the laws that you have never heard of protect some of the best services you enjoy. 

So rather than taking the facts and applying some “spin” to them, I will list the facts and let them do the talking.

The Pew study found that:

1. “Facebook users are more trusting than other people.”  Facebook users are three times more likely to trust other people than non-internet users.
2. Social network users “are more politically engaged.”  LinkedIn users, for example, are 19% more likely to vote than those not using social networking sites.
3. “Facebook users have more close relationships.”  Facebook users have 9% more close relationships.

So social networking helps society by generating more trusting, socially interactive, and politically active users.

In fact, just today US Representative Whitman stated that users of social networking sites ask better questions of his office and provide better feedback since those users have taken the time to better learn the issues.

But the results of this Pew study don’t stop there.

Along with the positives generated from social media, the Pew study also helped dismiss many of the anti-social networking allegations of privacy groups such as Common Sense Media.

Last year, Common Sense Media commissioned a study that concluded, “83% of adults … are more concerned about online privacy than they were five years ago.” 

But the numbers just don’t add up.  The Pew study found that people who use social networking sites are more trusting now than they were five years ago.  And the study found an increase of 51% of all adults using social networking sites now as opposed to 8 years ago.  If people are more concerned about privacy, their habits certainly do not reflect such fears.

It's not just Pew’s numbers that can do the talking.  There are lots of people willing to overlook privacy concerns to use social networking sites.  Facebook has over 750 million users.  LinkedIn sees 1.3 million new subscribers every month.  And Twitter sees 300,000 new accounts every day. 

Letting Common Sense Media’s own numbers speak for themselves, they too oppose Common Sense Media’s allegations.

That same Common Sense Media study mentioned above only 24% of adults surveyed said they would prefer to pay for ad-supported services they get for free today and not share any information.  While Common Sense Media didn't mention this result in their summary; this is the real trade off between privacy and free services.

Perhaps the privacy advocates should take a moment and actually look at the numbers and what they say.  Social networking sites create better citizens who are more than happy to continue enjoying their free services in exchange for a little bit of information…res ipsa loquitor.

• Location based services benefit consumers and businesses;
• Self-regulation is working;
• Consumers already must affirmatively consent to most geo-location collection;
• The FCC can assist the industry’s self-regulation program;
• And consumer education efforts on privacy are already underway.

In particular, we used our "Dynamic Self-Regulatory Framework" to reaffirm our views that industry self-regulation is the best policy.  As one of only ten comments filed, NetChoice was joined by the IAB and DMA.  

We still don’t understand where these ongoing calls for Government regulation are coming from; we still await a privacy groups’ showing of consumer harm; we still wait for the “clamoring” of consumers for government regulations; and we still wait for any showing of the failure of industry self-regulation.

Hopefully the FCC will see that there is not yet any need for them to further regulate the online world and will instead follow our comments and join us in standing shoulder-to-shoulder with industry self-regulation.

At the start of the hearing Senator Kerry asked the FTC, FCC, and Department of Commerce “What is the harm that new privacy legislation will solve?” – a question that should have been asked last year at the beginning of this entire process.  Each of the respondents failed to identify a specific harm that consumers now endure. 

The FTC dodged the question about harm to consumers and instead talked about how consumer privacy concerns are preventing adoption of the Internet.  But even this dodge does not show a need for legislation.  Empirical evidence shows more and more consumers are going online as Cyber Monday has higher sales than Black Friday.  So even if consumers are concerned about the collection and use of their online privacy, it’s not stopping their use of the Internet. 

Failing to answer the threshold question of this entire discussion, where is the harm to consumers, the Senate turned from asking questions of the regulators to hearing from industry.  Senator Rockefeller seemed surprised to learn that under a Do Not Track regime, like the one in his proposed legislation, consumers might see more ads than they do now.  Perhaps this was something that required more consideration by the Senator before he introduced legislation.

At the conclusion of this hearing many posed questions were left unanswered.  How are consumers harmed by a lack of legislation, what type of privacy legislation do we need, and most importantly, do we need any privacy legislation?  After six months of discussions, hearings, and proposed bills, these questions should have answers.  But perhaps the lack of answers shows that privacy legislation is a solution in search of a problem.

-Carl Szabo

If passed, this would have taxed “specified digital products,” which includes “digital audio-visual works”, “digital audio works,” and “digital books.”  But such a measure might have caused more harm that good.  It would have driven away e-retailers, made Rhode Island’s ecommerce businesses less competitive, taxed Rhode Island residents, and hurt the state's green initiatives (since digital goods don’t have boxes or require gas to transport). 

We went out to help inform the state legislators of these harms.  We sent letters to every legislator, and we even went to the local Rhode Island radio stations.

But, in the eleventh hour, moments before the final budget went before a legislative vote, the Rhode Island legislators realized the harm they might be bringing their state and they removed the tax on digital goods.  

So the home of the first discount department store decided to once again favor new business models and made the smart move to not tax digital goods.

-Carl