Designs

The Advisory Council on Intellectual Property (ACIP) report on Designs Protection [PDF] has been released.

The report states that in 2012 ACIP asked

to investigate the effectiveness of the designs system in stimulating innovation by Australian users and the impact the designs system has on economic growth. 

The following Terms of Reference were endorsed:

Inquire, report and make recommendations to the Australian Government on the operation and effectiveness of the Designs Act 2003 in supporting innovation, having regard to: any new opportunities for enhancing the Act’s effectiveness and efficiency; and  any deficiencies and unintended consequences arising from the Act’s implementation.

ACIP has approached this review with three broad questions in mind:

1. Has the Designs Act ‘provided a simple, cost‐effective designs system that provides Australian designers with more effective rights’? 

2. Are the provisions in the Designs Act operating as intended? 

3. Should policy decisions implemented in the Designs Act be reconsidered in light of experience with the new designs system and international and technological developments in the intervening decade?

As a result of the review, ACIP sees a clear need for increased harmonisation with international practices and treaties as this will benefit users of the system and help streamline its administration for the Government. ACIP considers that several of the changes introduced under the Designs Act need to be revised. Particularly, ACIP recommends compulsory examination for renewed designs, removal of the option for publication of designs as an alternative to registration and the re‐introduction of an opposition process. 

There is clear scope to improve design protection and clarify the law for both owners and third parties. ACIP sees benefits in introducing a grace period to protect against inadvertent disclosure of a design, changing the terminology used in the Act to clarify the distinction between a registered design and a certified design and improving consistency between the designs and copyright legislation. ACIP also recommends that the enforcement of design rights be extended to include authority for the Australian Customs and Border Protection Service to seize infringing goods. 

ACIP has also identified a number of minor, technical changes that could be made to the Designs Act to correct anomalies, streamline the processing of design applications and enhance the effectiveness of the system. 

In the course of the review ACIP considered the impact of new technologies on design protection. Consistent with the views of many stakeholders, ACIP considers that reform to address challenges posed by technologies such as 3D printing would be premature. ACIP considers that there are questions about the role of the designs protection system in Australia’s IP system as a whole. ACIP believes that if an overarching review of IP is undertaken by an independent body the role of design law and its interaction with other systems should be part of this review. ACIP would recommend that design law should be specifically included to avoid the common temptation to focus on the more prominent IP systems – patents, copyright and trade mark – and neglect smaller IP systems such as design.

ACIP offers the following recommendations

R 1 ACIP recommends that the Designs Act should be amended, as soon as practicable, to address anomalies identified by stakeholders and to adopt certain specific reforms that will bring Australian designs law into better alignment with equivalent laws of major trading partners, international treaties and proposed international treaties. 

R 2 a. ACIP recommends that Australia promote efforts to harmonise and streamline procedures for acquiring international registered design rights. b. Australia should commence an investigation into the implications of joining the Hague Agreement, including consulting with WIPO. Australia should monitor usage of the Hague system and in particular whether usage of the system increases as a result of recent expansions of its membership. c. Australia should work actively through the Designs Law Treaty process to promote harmonisation of filing requirements. 

R 3 ACIP recommends extending the maximum term of protection of designs to 15 years only if a decision is made to join the Hague Agreement. 

R 4 ACIP recommends changing the terminology for a registered but uncertified design to make it clear that the design does not, until certification, confer enforceable rights. ACIP suggests the term ‘uncertified design’ should be used. 

R5 ACIP recommends removing the option of the publication regime (ie without registration) from the designs process. 

R 6 ACIP recommends requiring a request for examination of the design by the first renewal deadline (five years). 

R 7 ACIP recommends introducing a system of opposition following certification, if recommendation 6 is accepted. 

R 8 a. ACIP recommends improving the process for multiple design applications by reducing the fees for each additional design added to the application, in accordance with the original proposal of the ALRC. b. ACIP further recommends that details regarding the eligibility of designs for inclusion in a multiple design application be developed with a view to consistency with relevant international treaties and proposed international treaties and harmonisation, if possible, with requirements in other major offices where Australians are likely to file design applications. 

R 9 ACIP recommends automatic publication at six months after the filing date, with the possibility to request publication earlier if desired, and with an amendment to the innocent infringer defence in subsection 75(2) of the Designs Act. 

R 10 ACIP recommends retaining the requirement of distinctiveness and section 19 of the Designs Act in its current form. 

R 11 ACIP recommends allowing amendment of the Statement of Newness and Distinctiveness in ways that identify particular visual features of the design as new and distinctive, up to the point of certification. 

R 12 ACIP recommends introducing a grace period of six months before the filing date, together with a prior user defence. Applicants who rely on the grace period to protect the validity of their design rights should be required to file a declaration to that effect. 

R 13 a. ACIP recommends retaining the current requirement that protection relates to the visual appearance of a whole product. b. ACIP recommends that, in investigating opportunities for international cooperation in design application processes and requirements with other offices overseas, IP Australia consider whether allowing partial product registrations would enhance harmonisation of application requirements in a way that would substantially advantage Australian applicants. If significant advantages to Australian applicants can be shown and IP Australia can confirm that such protection does not give rise to substantial practical or legal issues overseas, then ACIP would support reform of Australian law. 

R 14 ACIP recommends that the treatment of virtual or non‐physical designs be reconsidered, for example by allowing consideration of the product in its active state, not just its resting state, when considering validity. 

R 15 ACIP recommends that steps should be taken to make section 18 of the Designs Act consistent with the overlap provisions of the Copyright Act 1968. 

R 16 ACIP recommends the Government consider introducing (with appropriate resourcing of Customs) border protection measures that align with the Trade Marks and Copyright Acts (Notice of Objection Schemes) to allow for the seizure by Customs of alleged design infringements which are identical to certified designs. 

R 17 ACIP recommends retaining section 71 of the Designs Act in its present form. 

R 18 ACIP recommends amending the legislation as soon as practicable to address specific anomalies identified by stakeholders and listed by ACIP below. ACIP considers that these amendments would improve the operation and consistency of the Act and in some cases, consistency with other IP systems. The Designs Act and/or the Designs Regulations 2004 should be amended to ensure:

a. That rules regarding the identity of Convention applicants are consistent with rules relating to entitlement to designs; 

b. That international Convention applicants are not disadvantaged in cases where formal requirements differ between jurisdictions, by expanding the rules relating to priority claiming; 

c. Courts have the power, similar to that available under the Patents Act 1990 to refuse to revoke a design registration on the basis of lack of entitlement of the named applicant in appropriate circumstances; 

d. Design registrations are revocable on the basis of a lack of entitlement at the time of the revocation proceeding (rather than at the time of registration); 

e. The prior art base against which newness and distinctiveness is considered is expanded to include designs for products other than the product the subject of the registered design; 

f. The ground of revocation on the basis of fraud, false suggestion or misrepresentation extends to fraud, for example, during certification (not just registration); 

g. The opportunity to amend is broadened to allow for amendment other than to overcome a ground of revocation; 

h. Exclusive licensees have the right to bring proceedings for infringement; and 

i. Grace periods for renewal deadlines align with other IP Rights.

R 19 ACIP recommends no change to the trade mark/design overlap. 

R 20 ACIP recommends no change to the Repair Defence. 

R 21 ACIP recommends no change to the designs system at this time to respond to 3D printing and scanning technologies. 

R 22 ACIP recommends that Australia should not introduce protection for unregistered designs. 

R 23 ACIP recommends that the role of the designs system be specifically included in any broader review of Australia’s IP framework, such as a broader review that may be proposed in the Final Report of the Competition Policy Review.

Counterveillance

'Mediating the Med. Surveillance and Counter-Surveillance at the Southern Borders of Europe' by Huub Dijstelbloem comments

Opening up the political dimensions of surveillance and counter-surveillance 'mystery guests' as well. These invited guests work for the airport, directly or indirectly, and their task is to test security measures. Schiphol also receives uninvited guests trying to test their level of security. One of the best known of these is SBS reporter Alberto Stegeman, who regularly tries to prove that security measures at Schiphol are inadequate; by successfully forging a KLM ID-card for instance. Less well known perhaps is the case of the American artist Rozalinda Borcila. As part of her project Geography lessons, she aimed 'to intervene in apparently controlled spaces that are policed through technologies of visualization and information management' (Amoore 2009, 26). Unfortunately, she was deported after being caught making videos of Schiphol's airport security.

The undercover guests acting on behalf of Schiphol itself are mainly an internal business affair, but Stegeman's activities are part of the regular undercover media repertoire. Borcila's case, however, touches upon a different category of action. Hers is neither just a form of civil disobedience nor of artistic expression. Instead, her project relates to a type of political question, and to reflection on the public and private side of technologies and their role in the inclusion and exclusion of citizens and aliens in today's mobility circus. In contrast to the surveillance regime of the airport, she performs a certain kind of counter-surveillance.

As a category of all kinds of empirical examples, counter-surveillance concerns a broad spectrum of forms and meanings, varying from initiatives of so called 'inverse surveillance' or 'sousveillance' (Mann, Nolan and Wellman. 2003) and the development of apps to support migrants, to initiatives in radical geography concerned with mapping and counter-mapping. As a concept, counter-surveillance is related to both a culture of resistance and to a broader account of the role of protest and the control of state power in liberal democracies

An adequate definition to start with is Monahan's (2006, 516), which defined counter-surveillance as 'intentional, tactical uses, or disruptions of surveillance technologies to challenge institutional power asymmetries'. He explained that such activities can include 'disabling or destroying surveillance cameras, mapping paths of least surveillance and disseminating that information over the Internet, employing video cameras to monitor sanctioned surveillance systems and their personnel, or staging public plays to draw attention to the prevalence of surveillance in society' (Monohan, 515).

Monohan has investigated different kinds of interventions in the technical and the social faces of public surveillance. He has described initiatives of the Institute of Applied Autonomy (IAA), a collective of technicians, artists, and activists engaged in projects in 'productive disruption and collective empowerment' and of the group RTMark which advocates a more radical and direct approach - namely destroying cameras. In addition, he has analysed Steve Mann's Shooting Back project, which utilizes high-tech devices to take video footage of security personnel, and the Surveillance Camera Players (SCP), a New York based, ad hoc acting group. The analysis led him to the conclusion that 'current modes of activism tend to individualize surveillance problems and methods of resistance, leaving the institutions, policies, and cultural assumptions that support public surveillance relatively insulated from attack'.

Although Monohan's definition creates a certain kind of sensitivity for what counter-surveillance is about, his conclusion leaves room for some questions. To say that Borcila's project at Schiphol did not touch upon the 'institutions, policies, and cultural assumptions that support public surveillance' suggests that something important has not been taken into account. To clarify the kind of political space that was opened up by her project - and the kind of political realm that has been created by many other forms of counter-surveillance to which I will refer in this chapter - we also need to open up the concepts of both surveillance and of counter-surveillance in order to better understand their meaning and their mutual interaction.

The concept of surveillance is usually applied to state activities and technologies that aim to register and control certain populations (e.g. Foucault). However, as Rosanvallon (2008) clarified, the concept of surveillance has historically referred to the initiatives of citizens to control state power as well. According to him, 'surveillance constitutes a hidden and protean aspect of modern politics' as does the inverse phenomenon; namely the surveillance of power by society (2008, 31-32). In this chapter, I will focus on this democratic dimension, and share 'counter-surveillance' under the umbrella of what Rosanvallon called the 'counter-democracy', i.e. all forms of controlling governmental power. As such, 'counter-surveillance' is rooted in liberal democracies both historically and conceptually.

By opening up the notions of surveillance and counter-surveillance, more insight can be gained into what exactly is at stake in the confrontations between state initiatives to protect borders against unwelcome migrants, and the actions of various groups to create more public awareness of today's border drama; to circulate information about it, to visualize it, to make it a public issue, to protest against it, to sabotage it or to use it as an opportunity to mobilize public support for migrants and to take care of them. This chapter is structured in the following way. Section 2 will deal with three transformations seen by Europe's borders and the resulting surveillance regime. Section 3 will present some examples of counter-surveillance as initiated by a number of European NGOs, activist groups and researchers which react and reflect on these transformations and aim to 'mediate the Mediterranean', i.e. they visualize the Med as a place of contestation that not only seems to consist of a humanitarian drama, but of a technologically mediated drama of conflicting representations as well. In addition, I will introduce an analytical framework based on Pierre Rosanvallon's account of counter-democracy as to understand the conceptual, historical and political background of counter-surveillance. In section 4, I will use Rosanvallon's notion of 'powers of oversight' to evaluate current initiatives of counter-surveillance. Section 5 continues the search for the political dimension of public actions related to surveillance by elaborating on the writings of Hannah Arendt, specifically on the idea of a 'portable public realm' (Ring 1991) apparent in her work. Using Louise Amoore's (2009) notion of 'lines of sight', section 6 investigates the nature of the representations, such as images and maps, that both surveillance and counter-surveillance provide us with. The last section, section 7, presents the conclusions

Computer Trespass and the IOT

'Norms of Computer Trespass' by Orin S. Kerr in (2015) Columbia Law Review (Forthcoming) comments

Federal and state laws prohibit computer trespass, codified as a ban on unauthorized access to a computer. In the last decade, however, courts have divided sharply on what makes access unauthorized. Some courts have interpreted computer trespass laws broadly to prohibit trivial wrongs such as violating Terms of Service to a website. Other courts have limited the laws to harmful examples of hacking into a computer. Courts have struggled to interpret authorization because they lack an underlying theory of how to distinguish authorized from unauthorized access.

This Essay offers such a theory. It contends that authorization is inherently contingent on social norms. Starting with trespass in physical space, it shows how concepts of authorization necessarily rest on shared understandings of what technologies and its users are allowed to do. Norms classify the nature of each space, the permitted means of access, and the permitted context of access. This idea, applied to the Internet, readily answers a wide range of difficult questions of authorization under computer trespass laws such as the Computer Fraud and Abuse Act. It shows that the open norms of the web authorize most kinds of web use. On the other hand, the closed norms of authentication limit use of canceled or shared accounts. Properly understood, the norms-based nature of trespass does not render unauthorized access laws uncertain. To the contrary, the lines to be drawn become surprisingly clear once you identify the correct norms of computer usage.

'The Internet of Things and the Fourth Amendment of Effects' by Andrew Guthrie Ferguson in (2016) 104 California Law Review (Forthcoming) comments 

By 2020 there will be billions of “things” connected through the “Internet of Things.” These smart devices built within our homes, cars, smartphones, clothing, and accessories present new possibilities for technological surveillance for law enforcement.

This network of smart devices also poses a new challenge for a Fourth Amendment built around “effects.” The constitutional language protecting “persons, houses, papers, and effects” from unreasonable searches and seizures must confront this change. This article addresses how a Fourth Amendment built on old-fashioned “effects” can address a new world when things are no longer just inactive, static objects, but objects that create and communicate data with other things.

The article seeks to answer two questions. First, what is the definition of an “effect” for Fourth Amendment purposes in a world defined by an interconnected, network-like Internet of Things? Second, assuming that a Fourth Amendment “effect” has a broader definition that potentially includes the digital information embedded in the object and the wireless communication signals emanating from the device, then what expectation of security should attach to these effects?

As to the first question, this article argues that the Fourth Amendment’s definition of effects can encompass the smart objects and related data that populate the Internet of Things. As a doctrinal matter, the Fourth Amendment has evolved beyond narrow constitutional definitions. “Persons” now include more than physical bodies, including clothing, bodily fluids, and even corporations. “Papers” now include digital recordings, writings, business documents, and other communication. “Houses” now include curtilage, barns, apartments, and commercial spaces. So too with “effects” – a broader understanding can be created consistent with Fourth Amendment principles. This definition would include a defined portion of the effect’s functionality including its necessary communication with other devices and stored data. An “effect” is no longer just the physical object but also the smart data and communicating signals emanating from the device.

As to the second question, once effects are defined as including not just the physical object, but also the data and functionality of the object, the threshold question of whether there was a Fourth Amendment search becomes quite complicated. Is the virtual recovery of stored data in a device a search? Is the interception of wireless data from interconnected sensors a search? Drawing a line to demarcate a threshold of protection in a non-physical world presents real challenges to technology and Fourth Amendment doctrine. The project motivating this article is redefining an effect to answer these difficult questions.

How the Fourth Amendment adapts to these new sensor surveillance systems will be a central issue in the coming years. This article seeks to establish a framework for analyzing the Internet of Things within the current Fourth Amendment doctrine, as well as to show the existing gaps in coverage. The article then seeks to provide an alternative theoretical framework to fill these doctrinal gaps.

Copyright Duration

'Common Myths About the Economic Effect of Copyright Term Extensions for Sound Recordings' by George Robert Barker comments

The Canadian Government recently announced that it is amending the Copyright Act to extend the term of protection for performers and makers of sound recordings from its current 50 years to 70 years. This will bring Canada’s laws more into line with those of more than 60 countries which have protection of 70 years or more, including many of Canada’s major trading partners that have terms of 70 years or more, such as the U.K., Germany, France, Italy, Belgium, Ireland, Australia, Singapore, Mexico (75 years) and the United States (95 years).

Some have questioned the economic consequences of such an extension. This report examines and debunks four myths about the likely economic consequences that have been raised by certain copyright users’ advocates following the government’s recent Budget announcement on April 21, 2015. The four (4) myths are as follows:

Myth 1: Heavy Costs to Consumers in Royalty Payments. It is claimed that term extension will cost consumers millions of dollars in extra royalties.

Myth 2: Royalty Payments Will Be Sent Out of the Country.

Myth 3: No Additional Incentive for Creativity. It has been claimed that “[l]ong copyright terms are a poor recipe for compensating creators who generally receive low royalties from their works.”

Myth 4: Less Entering the Public Domain. It is claimed that term extension will simply leave Canadians with 20 additional years of no new works entering the public domain.

These common mistakes in economic analysis have been revived from the 2005-9 UK and EU debate, and the 2005 Australian debate on term extension. In each of those cases, these arguments were considered and rejected by policy makers in deciding to extend the term of copyright.

In this paper, I review the evidence cited in support of each of the above four contentions, using accepted economic methodology and current economic thinking on topics related to copyright term of protection. I find a number of errors undermining the studies which oppose term extension including that they ignore digital piracy; ignore the free rider problem; assume copyright creates a monopoly; assume deadweight costs due to non-rivalry; make modelling errors; and ignore the facts, in particular on what happens to consumer prices. I conclude that term extension is likely to have a net positive economic effect by

i) first helping to restore revenues, and the incentive to invest in new copyright goods, which has been adversely affected by the effects of digital piracy; and

ii) second enhancing incentives to invest in, market, maintain and enhance existing copyright goods.

Wikileaks and Finkelstein on Press Self-Regulation

A recent post noted Julian Assange's splenetic response to his failed relationship with the Guardian. In the latest issue of that newspaper there is a feisty response by Catherine Bennett, tartly commenting

The collaboration has been a long time in coming, but so close is the current working relationship between WikiLeaks and the Daily Mail that it is becoming difficult to believe that the two organisations were ever at odds.

Hardly any time has passed since the paper was happy to style Assange a “traitor”, aka “the slimy WikiLeaks founder”; his most notable achievement, in that newspaper’s estimation, to have cost Britain around £9m – to date – for policing the Ecuadorian embassy. All the WikiLeaks editor in chief appeared to have in common with the Daily Mail editor Paul Dacre, was a mutual abomination of the Guardian. ...

No disrespect to the Mail’s showbusiness reporters but Assange has surely outstripped all rival contributors since his colleagues at WikiLeaks dumped a massive file of Sony Pictures’ emails (originally hacked by persons, allegedly North Korean persons, unknown) in a new, search-friendly format, accompanied by the founder’s high-minded justification. “This archive shows the inner workings of an influential multinational corporation,” Assange said. “It is newsworthy and at the centre of a geopolitical conflict. It belongs in the public domain. WikiLeaks will ensure it stays there.”

No government or corporation will ever be powerful enough to suppress, for instance, the fact that a famous friend of Sony Entertainment’s CEO once newsworthily tried to set up their famous mutual friend with someone also quite well known who fancied him, though it newsworthily didn’t work out. Whether it reflects the evidence, in this cache, of people doing the sort of things they might well do inside a global film production company, or the shocking complacency of a meretricious western media, the geopolitical implications of Sony’s emails appear to have attracted less attention than content featuring celebrities or money or bitching or anything remotely embarrassing to do with bottoms.

Bennett goes on to comment

“Once again,” tweeted Glenn Greenwald, celebrated champion of the individual against the state’s covert mining of personal data, “@wikileaks has performed a great journalistic function & service with this new archive.” Although not so journalistic that it involved any effort at editing, so as to separate out politically and fiscally telling material from the morally indefensible.

In terms of gossip, admittedly, there is no arguing with Greenwald’s assessment: WikiLeaks’s lurch into celebrity scandal was instant inspiration to fellow content providers at Gawker and its sister blog, the purportedly feminist Jezebel. Hardly had WikiLeaks released 173,132 emails and more than 30,000 documents than the latter’s editors had fallen upon the (former) Sony Pictures chair, Amy Pascal’s Amazon shopping history, added scatological commentary and transformed it into clickbait gold. ...

[L]esser members of staff who have neither cracked distasteful jokes about Obama nor had the impudence to buy La Prairie face cream, nor earned enough money to have forfeited all privacy rights, remain equally vulnerable to this form of dehumanisation. Questioned about this invasion of the privacy of those Sony employees and their correspondents who were naive enough to think their work email accounts safe for exchanges about, say, illnesses, bereavements and relationships, Greenwald tweeted: “It wasn’t @wikileaks that did the hack. And there is very close government dealings w/Sony.” So by all means laugh at the expense of staff who rank too low to help progress Sony’s sinister web of geopolitical alliances, but who nonetheless unwittingly volunteered for what is called, when GCHQ does it, the bulk interception of private correspondence. ...

How much Greenwald’s invocation of a greater good will soothe Sony employees whose data has been made so instantly trawlable can perhaps be gauged from the previously exposed and mocked. Julian Assange, for instance, has objected vigorously to media portrayal that, he said, took liberties with his privacy, even when the offending material (like the hacked Sony emails) was already accessible online. In 2012, Ofcom ruled that his privacy had not, after all, been violated in a Channel 4 documentary that showed him dancing in a club. Assange, it said, “was not shown engaged in an activity which would reasonably be considered to be private or in circumstances which could normally give rise to a legitimate expectation of privacy”.

But Assange’s shyness, in that instance, is at least consistent with principles he outlined to writer Andrew O’Hagan, for an autobiography subsequently published without his authorisation. His early “cypherpunk” adventures, he stressed, were all about protecting individual privacy from data-hungry corporations and governments and his personal life was no exception; it was a “category error” to suggest otherwise. “Disclosure is my business,” he said, “but we don’t deal in gossip.”

Well, he does now.

'When Does Press Self-Regulation Work?' by Ray Finkelstein and Rodney Tiffen in (2015) 38(3) Melbourne University Law Review 944 comments

All societies must make decisions over what to regulate and how. Short of ‘black letter law’, there are many codes of conduct and models of self-regulation. The press has always been considered a special case, because of the conflicts and potential abuses involved in government regulating an industry which has a central role in reporting and commenting on government activities. However, any consideration of the role of press councils in Britain and Australia shows how, in practice, self-regulation of the press has failed as an avenue for providing accountability. Those who feel aggrieved by coverage only erratically achieve redress or a clear right of reply. Public opinion polls consistently find a low opinion of press performance and ethics.

Finkelstein and Tiffen argue

 Regulation is not of itself an appealing idea. No political leader would call for a general increase in regulation. Rather, everyone is against ‘red tape’, against ‘excessive’ regulation and against onerous compliance costs. When the Rudd government was elected, one of its four most senior ministers, Lindsay Tanner, had the title Minister for Finance and Deregulation. The Abbott government also had a Minister for Deregulation, Josh Frydenberg. 

Deregulatory rhetoric reached a peak in March 2014, when the government had a ‘Repeal Day’. It announced ‘the abolition of more than 1000 acts of  Parliament and the repeal of more than 9500 regulations’. Some of these were historical curiosities and anachronisms, such as the Defence Act 1911 (Cth), which regulated how long a senior cadet could drill for. So some of the effect was ‘the theatre of scrapping dead letters and fiddling with trivia’. One claim was that the savings would add up to $700 million. But, warned The Sydney Morning Herald’s economics editor Ross Gittins, ‘don’t ask how that figure was arrived at’. The dominant theme, according to public policy scholar John Wanna, was that the regulations were all part of a ‘“culture of compliance and enforcement that stifles productivity” and that by eliminating all unnecessary regulation we will be liberated’. The image here is of regulation as the product of either an aimless, irrational bureaucracy or meddling, expedient politicians. The attack on regulation is also a symptom of the aversion to state intervention that became more insistent and pervasive in the late 20th century. According to Chris Berg of the Institute of Public Affairs, ‘[r]egulation suppresses innovation, raises consumer prices, ties the sector down in compliance costs, and opens up opportunities for rent-seeking.

Such unqualified anti-regulation generalisations are not helpful to an understanding of the role of regulation. They obscure rather than illuminate the choices all societies make about what should be regulated and how. A society devoid of all regulation may seem like a utopia to some ideological warriors but would prove to be an unlivable nightmare for its members. ... 

The press has always been — and certainly has always seen itself to be — a special case in terms of regulation. On the one hand, the case for regulation is strong. It is a powerful, non-democratically organised force which influences the political process and shapes cultural attitudes, and which can cause great damage to businesses and to people’s lives. In all forms of power, those who exercise it must be subject to some constraint. Otherwise, the temptation for abuse may be compelling. As regards the press, Cohen-Almagor asserts 

'As it is unthinkable to allow other agents of power in society to act without proper professional standards, so it is unthinkable to allow journalists to act with complete freedom and oblivious attitude to risks and harmful consequences'.

Baker has identified several other values, intrinsic to the press, that might justify regulation: first, the wish of members of the public to have access to diverse options rather than having one or a few media owners having power over content choice; second, the need for effective opportunities for speakers to reach large target audiences; third, the important democratic principle that regulating arrangements’, for example, to secure or ‘gain market share’. the community is not subject to potential political or cultural manipulation by one or a few media owners; and fourth, the desirability that there be a broad opportunity for discursive participation. 

However, the press also is an area where official regulation is perhaps uniquely contested because of the press’s struggle to establish its independence from the state, to assert its democratic role in holding governments to account, and to argue plausibly that no official body can be an impartial arbiter, but instead will always be influenced by ulterior motivations and partisan self-interest. 

The press’s democratic role is at the forefront of those who seriously consider the issues. Professor Julian Disney, chair of the Australian Press Council (‘APC’), said ‘[t]he press is a means to an end ... which is the public’s right to information. So that’s the underlying driving force, and it is important to always think of that, its ultimate importance from the point of view of democracy. Sir Brian Leveson began the hearings for his major inquiry in November 2011 by declaring that ‘[t]he press provides an essential check on all aspects of public life. That is why any failure within the media affects all of us. At the heart of this Inquiry, therefore, may be one simple question: who guards the guardians?’ It would be remarkable if the commercial interests of the publishers, especially in a concentrated oligopolistic newspaper market such as Australia’s, were always identical with what is best for democracy. 

Moreover, running in close parallel with the narrative of the press and democracy is the press and power. Members of the press are often very conscious of their capacity to affect political fortunes. In 2007 Mathias Döpfner, Chief Executive Officer of the Axel Springer SE media group, the owner of Bild newspaper, said: ‘whoever takes the elevator up with Bild will also take the elevator down with it’. The Guardian editor Alan Rusbridger explained the long inaction and lack of response to the phone hacking scandals at Rupert Murdoch's News of the World as a combination of fear, dominance and immunity. People were frightened of this very big, very powerful company and the man who ran it. And News International knew it. They had become the untouchables of British public life. ... It is a company intensely interested in its political muscle — an influence which politicians now readily admit they routinely courted because they felt they had no alternative. There became an unspoken reciprocity about the business and regulatory needs of Mr Murdoch and the political needs of anyone aspiring to gain, or stay in, office. 

So the need for regulation of the press is compelling, but the difficulties of doing it in a way that is fair, and does not compromise the press’s democratic role in holding government to account, are formidable. But, as we shall see, self-regulation presents as many problems. 

In relation to the activities where self-regulation has been most effective, though, the press does not present a promising scenario. Ownership of the press is concentrated rather than dispersed. There is not a belief that rogue behaviour will be punished by the market, but rather that it will be rewarded. While there are broadly agreed codes of conduct, their application in practice is rarely agreed on by all. The result is that both in Australia and in Britain, the country on which Australian practice has often drawn, self-regulation by the press is widely and justly seen as a failure 

 In discussing proposals for reform the authors comment

Many, including many in the press itself, accept that there must be some press regulation and that, because of the key weaknesses outlined above, the APC has only very partially succeeded as an avenue for accountability. However, it is universally agreed that any reforms must be carried out so as to ensure the freedom of the press, so that newspapers can effectively carry out their functions of discovering and testing the truth and of providing a critical report on the political and social life of the community. Appropriate regulation can and will further these ends. The thrust of the Finkelstein Inquiry proposals was ‘about making the news media more accountable to those covered in the news, and to the public generally’. It sought to address the weaknesses of the APC by:

• first, and most contentiously, preventing publishers from opting out by giving the work of the APC statutory underpinning; 

• second, having agreed formulas for how and where adjudications would be published; and 

• third, guaranteeing secure funding by having government finance the APC, indexed at twice the current level.

It should be stressed that there was no proposed change in standards. Rather these would continue to be the current ones, ones which the industry says that it already embraces. There was to be no change in the composition of the APC — it would remain as half industry and half public representatives. Finally the sole punishment was publication of the adjudication and in some cases offering a right of reply. The Finkelstein Inquiry’s main aim was to offer a forum for redress that: a) was as conciliatory as possible; b) carried no financial or legal risk for either party; c) procedurally was simple, quick and cheap; and d) would enlarge rather than restrict the flow and exchange of information and views. Although the report recommended secure government funding and a statutory basis to underpin the APC’s authority, it would not give the government of the day any extra power to influence news coverage than that which it already possesses. The report explicitly set out procedures to ensure its independence. The proposal was one of compulsory self-regulation, with standards, procedures and outcomes closely following the current practices of the APC. The inquiry was proposing minimal reforms. They would have little impact on the practice of journalism. They would not affect at all issues of newsworthiness or story selection. The complaints that the Greens and Labor held about the Murdoch press, for example about double standards in news judgement, would not be touched. But it would give better procedures for testing and resolving issues of misrepresentation. 

Despite the modesty of the proposals, the reaction was immediate and extreme. Visiting celebrity Naomi Wolf called the report ‘step one to fascism'. of a jihad against that company’. The former Chairman of News Limited, John Hartigan, saw it 'as part of of a jihad' against that company. Bob Cronin, group editor-in-chief of the West Australian Newspapers Group, described it as ‘the most outrageous assault on our democracy in the history of the media, and likened its proposals to 'what was common when Joe Stalin was running the Soviet Union'. The economist Henry Ergas wrote in The Australian that ‘Finkelstein’s proposals would empower state-appointed officials to silence dissent’, while columnist Andrew Bolt thought that such ‘thought police can only stifle debate’. Paul Kelly thought it was ‘another threat to freedom in Australia’, and that it reflected ‘naive hubris’. The Australian Financial Review thought 'it constituted a Labor plan to control the media’, while The Sydney Morning Herald editorialised that the report wanted to impose ‘reason’ on society, but ‘[t]hat experiment was tried last century and, in 1989 it collapsed amid rejoicing with the Berlin Wall. But the spirit of that disastrous experiment clearly lives on in experiments such as this'. The head of the Institute for Public Affairs, John Roskam, thought it was 'intellectual arrogance at its most breathtaking ... the totalitarian fallacy: don’t let the people decide (because the people are too stupid), let judges and academics decide for them. The Finkelstein Report overturns two centuries of Western political philosophy'. 

Then Opposition Leader Tony Abbott was squarely in the critics’ camp. He thought the Finkelstein Inquiry looked like ‘an attempt to warn off News Ltd from pursuing anti-government stories. 'It's easy to imagine the fate of Andrew Bolt or Alan Jones, for instance, at the hands of such thought police’, he argued. 

They conclude

 Laura Stein has observed that the press

favors the interests of advertisers, shareholders, and more valued audience segments over those of the broader populace, including the poor, the very young and old, and racial and ethnic minorities. [The press] also systematically disfavor[s] unpopular and minority viewpoints ...

There are several reasons for this. The most important is that newspapers are businesses. They exist to make money. At the same time newspapers also report the news, ‘act as watchdogs’ and ‘unearth scandals’. But newspapers do these things to succeed in business. 

Along the way they publish inaccurate, misleading and distorted information which is rarely corrected and, when it is, even more rarely with due prominence. Not only this, the press, while free to be partisan, ought to distinguish clearly between comment, conjecture and fact. This ‘obligation’ is routinely treated with contempt. 

The proposal in the Finkelstein Inquiry report aimed to establish a forum independent of both government and industry that would provide redress to those injured by the press. It did so in ways that enlarged — and did not restrict — the flow of information, and through procedures with no financially punitive sanctions on either side beyond public exposure. The successful hostility of the press to having a statutory basis for such procedures means that for the foreseeable future, beyond the rule of statutes and torts, such as defamation and contempt of court, the main means of accountability will continue to be voluntary self-regulation. 

There are some who believe in press self-regulation. The Swedish Press Ombudsman Ola Sigvardsson declared that ‘[a]mong the Swedish publishers there is a desire to behave decently, to behave in an ethical way. I think many publishers just think it’s a good thing to do’. A journalist thought the German Press Council sits within a vibrant array of wider media accountability instruments, including ‘ombudsmen, codes of newsroom ethics, reader advisory councils, correction corners, online portals that specialise in media criticism and self-criticism, media literacy campaigns to encourage reader interaction, and so on. 

Experience tells us that the thought that such rosy scenarios represent the future of press self-regulation in Australia is foolish. Still, it is not surprising that action by government, even though not directed to fettering or gagging the press, is never likely to occur. It is the press and not the government that runs the show.

Costs

Full disclosure in the the PE space? 'Beware of Venturing into Private Equity' by Ludovic Phalippou in 2009 comments

Because a buyout fund buys 100 percent of the company and controls it, it has often been argued that buyout funds reduce the problems created by a separation of ownership and control. Buyout funds are in full control of companies but minority shareholders. The majority of the shareholders are the investors in the funds. This new governance structure may introduce new agency conflicts and preserve some of the old ones. To understand whether buyout funds reduce overall agency conflicts, we need to better understand the relation between buyout funds and their investors. As a step in this direction, this paper describes the contracts between funds and investors and the return earned by investors.

The average fund charges the equivalent of 8 percent fees per year despite a return below that of the Standard and Poor's 500. This excessive rent raise the question of why does the marginal investor buy buyout funds? I explore one potential - and probably the most controversial - answer: some investors are fooled.

I show that the fee contracts are opaque and difficult to quantify. In addition, compensation contracts imply lower fees at first sight than in reality. What generate large fees are some details of the contracts, not the big headline. Investors may thus underestimate the impact of fees. I also show the different aspects of the fund raising prospectuses that can be misleading. I then discuss whether investors can learn or whether this situation may persist. Finally, to further understand the potential agency conflicts between buyout funds and their investors, I discuss a few features of buyout contracts that exacerbate conflicts of interest, rather than mitigate them. For example, several contract clauses provide steep incentives that distort the optimal timing of investments, their leverage, their size and the number of changes operated in portfolio companies.

Phalippoustates

A large literature has pointed out that publicly owned companies may suffer from a separation of their ownership by dispersed shareholders and their day-to-day control by managers. This separation of ownership and control leads to a number of so-called agency conflicts, in which management may not act in the best interests of shareholders.

Because a private equity fund buys 100 percent of the company and controls it, it has often been argued that the arrangement will reduce these agency problems (Jensen, 1989; Shleifer and Vishny, 1997). But while private equity funds have full control of companies, the fund itself is acting on behalf of outside investors. In a typical scenario, a private equity buyout fund buys a company by borrowing money from banks and by using cash provided by a small group of large investors such as university endowments or pension funds. The companies targeted for buyout could be listed on a stock exchange (for example, Nabisco in 1989 or Hospital Corporation of America in 2006) or be privately held (Hertz Corp. bought from Ford in 2005 or Warner Music bought from Time Warner in 2004). This new private equity fund governance structure may ameliorate some agency conflicts, but it may also introduce new ones. As a step towards understanding whether private equity buyout funds reduce overall agency conflicts, this paper describes the contracts between funds and investors and the return earned by investors.

The paper sets the stage with a puzzle: the average performance of private equity funds is above that of the Standard and Poor’s 500 – the main public stock market index – before fees are charged, but below that benchmark after fees are charged. This fact leads naturally to a discussion of the institutional background of buyout funds, beginning with the compensation contracts between the fund and the investors. Next, it covers how buyout funds report their returns, explaining terms like “multiples” and “internal rates of return.”

The average private equity buyout fund charges the equivalent of 7 percent fees per year, despite a return below that of the Standard and Poor’s 500. Why are the payments to private equity funds so large? Why does the marginal investor buy buyout funds? I explore one potential – and probably the most controversial – answer; that is, some investors are fooled. I show that the fee contracts are opaque. The compensation contracts for buyout funds typically imply lower fees at first sight than actually occur. The larger fees are generated by what seem like minor details in these contracts. Investors may thus underestimate the impact of fees. I also show the different aspects of the fund raising prospectuses that can be misleading for investors. I then discuss whether investors in private equity funds learn over time or whether the “low performance – high fee” situation may be persistent. Finally, to further understand the potential agency conflicts between buyout funds and their investors, I discuss a few features of buyout contracts that exacerbate conflicts of interest, rather than mitigate them. For example, several contract clauses provide incentives that can distort the optimal timing of investments, of their leverage, and of their size.

The conclusion emphasizes that these problems with buyout funds should perhaps not be considered too surprising, given that similar issues arise in other common investment vehicles like many mutual funds and hedge funds.

 Pinto again? 'The Use of Economics in Defense of General Motors’ Decision Not to Fix Faulty Ignition Switches Demonstrates that Economics Is Not A Moral Theory' by Daniel Isaacs in (2015) Connecticut Law Review [PDF] comments

The General Motors’ Company recently faced problems with a faulty ignition switch. One might think that GM’s handling of its ignition problem was obviously disastrous, as it killed and maimed many innocent people. Leading law and economics scholar Eric Posner disagrees. He maintains that GM’s actions may have been reasonable if the cost to GM to fix the defect was less than the amount the ordinary person would pay to avoid the risk. His perspective is important and dangerous, because it will encourage similar behavior. Nonetheless, he offers an argument that on the surface seems persuasive. In this Essay I propose to show how Posner is wrong and what makes GM’s actions wrong. Moreover, I offer a different model to understand how companies like GM should approach similar problems.

 Isaacs states General Motors

engineers knew for years that the company installed faulty ignition switches in its vehicles. The switches, when jostled, caused the cars to stall, leaving drivers unable to maintain their speed and disabling air bags. Nevertheless, in meeting after meeting, and despite a toll of numerous deaths and many injuries, those with the authority and responsibility to fix the problem failed to act.

To most people, GM’s actions were clearly wrong. However, Eric Posner, a leading law and economics scholar, disagrees and argues that the public may be asking the wrong question in condemning GM. He maintains that his application of economics as a moral theory demonstrates that GM may have acted properly.  He contends that a manufacturer’s decision as to whether to fix a defective component should turn on whether the cost of fixing the component exceeds what the “ordinary person” would pay to avoid the risk. That is, Posner asserts that if it would cost the manufacturer more than the amount the ordinary person would pay to avoid the risk, the manufacturer would be morally justified in keeping its defective product in the stream of commerce.

I disagree, and maintain that economics is a poor tool for making normative decisions like the ones GM faced. Economics does have the advantage of giving definitive answers to difficult questions, and Posner’s argument has some facial appeal. The problem is that he and GM are wrong and other businesses may be following GM’s lead in using economics to make normative decisions. That is why Posner’s perspective is so important and yet dangerous. GM’s lawyers say that everyone was responsible, but no one took action.  However, economics is not a measure of human responsibility to others or to society and it is, therefore, a poor tool for making the normative decisions that GM faced.

... Posner argues that we should not be so quick to condemn GM for its failure to recall its cars with faulty ignition systems. Based on economic theory, he maintains that GM may have acted properly.  While Posner maintains that it is hard to know whether GM acted reasonably or not, his economic argument as to how to analyze the question is flawed. His argument is based on the hypothetical amount that people would pay to avoid the risk of death as a result of GM’s faulty ignition system. Posner also argues that the public should not focus on the claim that it would have cost GM fifty-seven cents per car to fix the ignition switch defect. Instead, he calculates that the risk of being killed as a result of a faulty ignition switch is extraordinarily low, “.0000007 . . . . [t]hat’s less than one in a million.” He reasons that during the same time period the defect increased the risk of death in 2002 “(by .0000007) from .0000567 [in other GM cars] to .0000574.”

He then applied:

a concept known as the “value of a statistical life,” which is derived from studies of how much people need to be paid in order to accept a slightly greater risk of death. . . . The current standard is $7 million. The $7 million figure implies that an ordinary person would be willing to pay about $5 to avoid a .0000007 risk of death in a given year.

Doing the math, Posner calculates that GM “should have fixed the ignition switch if the cost was less than $5 per car, multiplied by the number of years left in the car’s useful life.” Based on the value of a statistical life analysis, Posner argues that GM should have paid “$40, or $5 per car multiplied by the average eight years of remaining time on the road.” GM claims that in 2007 it would have cost $50 to fix each car, so  Posner recognizes that: GM may have known of the problem as early as 2001 but believed that a design change fixed the problem. It revisited the issue in 2004 after receiving a complaint from a customer that the vehicle ‘can be keyed off with knee while driving.’ In 2005 engineers concluded that possible fixes were too costly or inadequate, and later GM told dealers to tell customers to remove heavy items from key rings. Also in 2005, a fatal accident occurred that may have been caused by the ignition switch problem. In 2006 GM began installing modified ignition switches in 2007 models. Over the ensuing years, more fatal accidents occurred and GM conducted additional investigations.

Posner concluded that although “it’s close . . . if it cost $50 to repair an ignition switch, then GM acted reasonably by saving this money rather than recalling cars for the sake of a benefit of $40.”...

Posner’s argument with respect to the proper moral theory GM managers should have applied in determining whether to recall the faulty ignition systems is flawed for three main reasons. First, with respect to a known defect, like the one at issue at GM, the analysis should not be based on the amount “the ordinary person” would pay to avoid the risk compared with the cost to the employer to make the repair. GM was not dealing with random events. Instead, Posner is considering a known defect that manifested in personal injuries and deaths. The rate of injury and cost of repair are immaterial when the actions at issue are known ones, as they were in the case of GM’s actions concerning the faulty ignition switch. For example, if I were to swing a bat in a public space (even if I were blindfolded) I would not know who I am going to hit, but eventually, I am likely to injure someone. When I do, factors such as my costs of not swinging the bat, the amount of time people are in the area, or the amount of money people would pay to avoid the risk of being hit are irrelevant to the question of whether I am morally justified in swinging the bat. Once GM knew that the ignition switch was defective, and that it could cause the airbags to fail to deploy, Posner’s cost-based analysis is, at best, a barometer of the improper behavior—a measure of how bad the action is—but it is irrelevant to the moral questions the company faced because he offers a measure that begins above the threshold line of unethical behavior. As a matter of business ethics, if a company knows that a component is defective, and is on notice that the defect caused injury, it should fix the defect—or not sell the product—not balance the cost of fixing the defect against the amount the average person would pay to avoid the risk so as to see whether it should do so as Posner advocates.

Second, Posner does not claim that GM actually conducted a hypothetical “value of a statistical life” analysis with respect to the GM customers who purchased vehicles with faulty ignition switches; and he recognizes that his calculations exclude the costs of personal injuries, the damage to property, and the possibility that GM knew about the defect earlier than it claims. Similarly, it is odd that Posner accepts 2007 as the date to conduct the risk benefit analysis, when GM appears to have known about the problem much earlier.

Third, no one appears to have actually disclosed the risk of death or injury to GM’s customers before they purchased their vehicles or actually paid them to avoid the risk. Specifically, it does not appear that GM told potential purchasers that their cars may stall in the middle of an intersection, that their airbags would not deploy, and that GM may have known that a faulty ignition switch would cause injuries or death to some of them and that they, for a price, could avoid the risk by purchasing a product that did not contain the defect.

Relying on Posner’s economic theory is akin to holding someone to a hypothetical contract that provides that where the cost to the company of repairing a known defect is less than the amount the consumer would pay to avoid the risk, the manufacturer would have no duty to make the repair.