Net Neutrality: Innovation in the Age of the Internet

How the debate about Net Neutrality can learn from the successes (and failures) of Intellectual Property Rights

Net neutrality is currently a topic en vogue; various pundits, netizens and companies have weighed in on whether or not regulations are required to keep the internet open and equally accessible to all. While the debate often involves phrases like “free market”, “data discrimination” and “walled gardens”, the argument is really one about innovation. In fact, the phrase “net neutrality” was coined by Tim Wu in his paper, Network Neutrality, Broadband Discrimination, where he observed that the “questions raised in discussions of open access and network neutrality are basic to both telecommunications and innovation policy”. As such, both sides of the net neutrality debate ultimately rely on innovation as a justification for their arguments. The most popular defence for net neutrality critiques “access tiering”, where telecom providers charge web sites and application providers more for premium, high speed services. The argument is that start-ups will not be able to afford such rates and will therefore be unable to compete with established firms. This is invariably followed by the statement that the internet has had the impact that it has had because of the ability of such start-ups to distribute their new and innovative ideas on a global scale. In other words, it is not so much about the potential of access tiering to cause monopolisation as it is its capacity to hinder innovation. On the other hand, detractors of net neutrality argue that increased regulations will only hamper telecom and content providers from innovating new technologies and business models with which to operate.

Given the importance of innovation in the global debate globally it is unusual that debates in India have not discussed it more prominently. The Indian discourse on net neutrality has been characterised more by a debate about free markets vs. regulations than the composition of best innovation policy. This is unfortunate because not only is innovation supremely relevant to the discourse on net neutrality, but much can be learnt from the previous methods of promoting innovation – Intellectual Property Rights (IPR).

One such lesson is the danger of romanticising aspects of the issue. The ultimate purpose of IPR is to legally ensure the expectation of earning money from a new idea so that people have an incentive to invest their time and money to create and innovate. This purpose has been significantly buttressed by the narrative of romantic authorship. The moral argument for securing financial rewards for people who come up with brilliant new inventions, stories or songs is one that very few can counter. However, as with many other laws, the reality is different. IPR, more often than not, secures the interests of publishers and distributors, not authors. This is merely an outcome of simple economics; the people spending money on creating and distributing a product will expect a financial return regardless of whose idea it originally was. It is not to say that the romantic author does not deserve his due, merely that his importance is often overstated.

This very human tendency towards romanticism (especially when discussing human creativity and innovation) must be kept in mind when debating net neutrality as it is very easy to become detached from ground realities. A good example at the heart of net neutrality is the narrative that the internet is a network that has revolutionised society due to its non-discriminatory and open nature. While this is true to an extent, it has prevented certain realities from entering the popular discourse on net neutrality, namely that it is already possible for content providers to pay for faster content delivery. Content providers can cache their data with content-delivery networks like Akamai, who store it in servers across the world so that the travel time to end users is shorter. Akamai, obviously, charges a fee for this service. It is therefore important to be wary of placing undue emphasis on the more appealing or engaging aspects of the net neutrality debate and keep in mind the requirements of a successful internet, whatever they may be.

Another way in which IPR is relevant is the extent to which it has adapted to the internet or more accurately failed to. The world wide web is easily the most disruptive technology of our time and it will be unsurprising if future generations end up viewing the advent of the internet on par with the Industrial Revolution in terms of its impact on societies and economic activity. One of the more prominent of these impacts has been on traditional methods for the distribution and publishing of content; the internet has rendered physical book and music stores obsolete for most customers. This has occurred due to new and legal online distribution models like e-books or iTunes, as well as less legal ones like Napster or BitTorrent. Attempts by record companies to use IPR to secure their traditional distribution lines against online piracy have been unmitigated disasters. Lawsuits have been a waste of money because perpetrators are almost instantly replaced even when they are successful while some of the less successful lawsuits show a clear reluctance to accept the changing dynamics of the industry. This spectacular failure of music companies in enforcing IPR in courts demonstrated that the best solutions to adapting to the Internet might not be legal-centric.

One such non-legal solution for many businesses has been the adoption of new revenue models based on the volume of traffic on their websites. Companies measure this traffic in incredible detail and use the data collected in two ways. One is to use to it to invite ads from companies with the lure of targeted and more effective advertising. The other method is to sell the data itself to marketing companies; a great deal can be learnt about consumption habits of consumers through their online behaviour. Google was the pioneer in the first method as a majority of its early growth can be attributed to advertising revenue. Facebook is one of the industry leaders in the second model (though it does also utilise advertising) as the ubiquitousness of Facebook means that user data is a treasure trove for marketers. These new volume-based revenue models are crucial to the debate about net neutrality.

Another way in which firms have adapted to the internet is to update the age-old techniques of hostile maneuvering. Though intended to promote innovation, IPR has sometimes skewed too much in favour of securing financial returns of existing ideas. This has enabled many firms use their IP portfolios aggressively to threaten and browbeat competitors to maintain a big piece of the market. It should be pointed out that the costs of litigation can achieve this same purpose even in the presence of a balanced IP regime. The various patent battles between cell phone manufacturers are an excellent example of the aggressive use of IPR. However, as IPR has been shown to be a comparatively toothless remedy on the internet, firms needed to find alternate methods to secure their market domination.

These methods have invariably been more technical in nature than legal and capitalise either on the traffic dependence of online revenue models or the capacity requirements of data-intensiveness of services like video streaming or VoIP. Advancements in technologies like Deep Packet Inspection (DPI) have allowed companies to discriminate data in a manner not possible during the early years of the internet. Companies can now enter into preferential agreements with telecom providers to ensure that their websites run faster or cheaper than their competitors. Faster speeds attract more customers, especially with data-intensive content, and give companies a competitive advantage. Cheaper data rates for certain websites and zero rating schemes in particular, are even worse in that they can consolidate and strengthen the market share of established firms and prevent entrants from securing enough customers to make their business model operational.

It is at this stage that the last, and perhaps the most important, takeaway from IPR becomes relevant. The concept of Copyright evolved largely as a reaction to another disruptive technology: the printing press. The press drastically changed both the volume and content of books capable of being published; previously most books were biblical as they had to be labouriously and expensively hand-written by monks. Though the process of its evolution was slow, copyright was first codified by the jurisprudentially revolutionary law, the Statute of Anne. Not only was the statute the first law for copyright, it transformed copyright from a tool for monopolisation and censorship to one that encouraged education and creativity. It did this by making the monopoly over a work temporary thus creating the concept of public domain (previously all works were owned by publishers forever). To put it another way, the printing press was such a disrupting technological advancement that it forced a new type of juristic thinking. It can be argued that the internet has had as much of an impact on societies, if not more and as such, will and should lead to the creation of a new jurisprudence. This can be evidenced not only by the debate about net neutrality but also the global concern over privacy and surveillance in the post-Snowden era. It is thus imperative that regulators of the internet do not limit their perspective by willy-nilly resorting to existing models of regulation. In other words, it is hoped that regulators will follow the path laid by the Statute of Anne and themselves innovate a new body of jurisprudence in order to secure innovation on the internet.

Madhav Chandavarkar is a Research Associate with Takshashila Institution and can be found on Twitter on his handle @MadChap88. The views expressed here are personal

Other responses on Net Neutrality by the Takshashila Community:

Viability, not just Neutrality by Pranay Kotasthane

Net neutrality is like Net Neutrality by Varun Ramachandra

Using price discrimination to ensure Net neutrality by Anupam Manur

The Financial Viability of net neutrality by Devika Kher

How 2ab explains net neutrality by Karthik Shashidhar

Thoughts on Net Neutrality and Zero Rating by GK John

On net neutrality and national interest by Nitin Pai

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