IP: Let the marketplace dictate rules, says White House

[Dave Farber <farber () cis upenn edu>]

In no rush to regulate the Net


Let the marketplace dictate rules, says White House adviser
Magaziner


BY RORY J. O'CONNOR Mercury News Washington Bureau


BURLINGAME -- Vexing issues ranging from privacy rights to codes
of commercial conduct and taxation confront the emerging
cyberspace marketplace -- and the marketplace itself should
develop most of the rules, according to Ira C. Magaziner,
President Clinton's senior adviser for policy development.


The go-slow approach to regulation, which Magaziner discussed
Wednesday in a speech at the annual Computers Freedom and Privacy
conference, is at the heart of the Internet policy Clinton will
endorse, perhaps as soon as next month. While that approach is
favored by most of the Internet industry, it may face opposition
among some consumer groups, privacy advocates and members of
Congress, where several efforts are already under way to regulate
some parts of the Net.


The policy is based on a white paper written by Magaziner late
last year, and since revised based on a flood of comments to the
White House from Internet users and businesses. Among the paper's
most significant provisions: Electronic commerce should not be
taxed; industry should develop a ``uniform commercial code'' for
cyberspace; the government shouldn't attempt to regulate Internet
content, instead relying on ratings systems and screening
technology; and industry should also develop a self-regulating
regime to address consumer concerns about the privacy of the
information collected about them online.


``We do this quite humbly, because I think there is more risk the
government will do something wrong, rather than fail to do
something it should,'' Magaziner said. ``So we have to approach
the Internet and electronic commerce very carefully.''


Many of the areas addressed in the new policy are controversial
and could have a significant impact on both users and the U.S.
economy.


Taxing electronic commerce, for example, has been proposed in
several states where budgets are tight, as an attractive
alternative to raising other taxes or cutting government services.


But Magaziner called Internet taxes a poor idea, both because of
the unwieldy bureaucracy they would entail and of the potential to
stifle growth in the new medium. The government would do better to
let the market grow, he said, and get its share of the revenues
through the existing corporate tax structure on profits.


The government also is under some pressure to protect consumer
privacy in online transactions. Companies that offer goods and
services for sale via the Internet have the ability to mine a rich
vein of data about anyone who visits their virtual store, far more
than a merchant with a physical storefront.


``The things we are able to use and collect online are really
fantastic,'' said Jason Olin, president of CD-Now, an online
purveyor of music.


Privacy advocates and many consumers have urged the online
industry to severely restrict data-gathering activities. They have
asked companies to get explicit permission from consumers before
collecting any information at all, and in some cases have demanded
that companies pay consumers if they market any information about
them to others.


While the administration believes privacy issues are serious, it
is unlikely to step in soon with such controls.


``This is an issue where we want to avoid a regulatory approach,
and encourage industry to step forward'' to develop its own
standards and codes of behavior, Magaziner said.


That is the approach favored by the Federal Trade Commission,
which plans a second-annual public hearing on the topic in June,
said Commissioner Christine Varney. But she warned industry to be
ready to demonstrate progress by then, or face the possibility
that regulators or Congress would take a much more active role.


``I believe, in general, government should regulate only when
there's been a demonstrable marketplace failure,'' she said,
noting that only ``four or five'' proposed industry guidelines
have been forwarded to the FTC, when the number ``should be 40 or
50.''


The industry must also come up with comprehensive rules for such
things as creating contracts and resolving business disputes in
online commerce, by developing an online version of the Uniform
Commercial Code, Magaziner said. Such rules would need to be
adopted worldwide because of the international nature of
electronic commerce, he said.


Some Internet legal experts said the idea had merit, but that it
need not be adopted everywhere internationally.


``There's a misconception that there have to be the same
(Internet) laws in all countries, or there'll be some e-commerce
haven'' for fraud, said Carey Heckman, director of the Stanford
Law and Policy Technology Center. ``Consumers can be educated to
avoid the havens.''


Published Thursday, March 13, 1997, in the San Jose Mercury News