Tech Bytes – Tid Bits in Tech News: Government stakes its Claim to High-Tech Market

Wednesday, members of the Network Advertising Initiative (NAI) met with Microsoft to kindly explain to the software giant that it is no longer permitted to service the needs of American consumers. From now on, extra-constitutional agreements reached by special interests and un-elected bureaucrats will dictate the direction of the high-tech industry.

Critics of the Microsoft antitrust trial have long argued that this would be the outcome of the government’s case and this week’s developments prove that to be true.

The NAI-FTC agreement is but the first example of a dynamic sure to be ubiquitous in the information age: the bureaucracy’s attempt to replace products with litigation and regulation.

The NAI is an alliance between the ten leading online advertisers including DoubleClick, Engage, 24/7 Media, and AdForce. After a months-long negotiation with the Federal Trade Commission (FTC) and Department of Commerce, the NAI agreed on July 27th to a self-regulatory arrangement that would require them to disclose their information collection practices, allow consumers to “opt-out” from such information collection, and prevent them from merging that information with personally identifiable information without the consumer’s consent.

With a few slight changes to its current browser, Microsoft accomplished overnight all of the goals it took months for the NAI and FTC to set. The beta version of the new Internet Explorer 5.5 browser alerts users when tracking devices, known as “cookies,” are sent from the Web site (first party) or online advertiser (third party). The browser permits users to decline to accept both cookies, or one or the other.

This innovation has the potential to end the online privacy debate once and for all; consumers would be empowered to decide what information to share and with whom to share it. Yet instead of applauding, regulators regard the consumer control provided by the browser as a political crime of the highest degree: How dare Microsoft marginalize the extra-constitutional political process!

Perhaps Jeff Connaughton, a lawyer for the firm that negotiated the FTC-NAI agreement, best explains the government’s aversion to the browser: “We should avoid over-broad solutions that undermine appropriate policy solutions we worked hard to develop.”

Such comments are representative of a political class that opts for litigated and brokered solutions rather than the consumer empowerment of the market. The phrases, “over-broad” and “appropriate policy solutions,” suggest that American consumers cannot be trusted to make their own decisions about their own information. How dare Microsoft “undermine” the agreement the bureaucracy “worked hard to develop.”

The NAI fears that consumers will decide to never accept third-party cookies, thereby preventing ad agencies from analyzing consumer preferences and tracking the effectiveness of their online advertisements. Although beneficial to consumers, these changes could prove cataclysmic for the online advertising industry. That is what the NAI explained to Microsoft executives in appeals made at Wednesday’s meeting.

Blessed with the coercive force of government, federal regulators and state attorneys general don’t have to make such appeals. Instead, they responded to the consumer empowerment of the browser with new charges of antitrust violations. Regulators contend that the browser would be “anti-competitive” because it could steer Web users to reject cookies placed by third parties and accept those placed by first parties, including Microsoft’s Web portal and commerce group

Microsoft is emblematic of the fast-paced technological environment that regulators fear because of its pace and fluidity. The NAI-FTC agreement is but the first example of a dynamic sure to be ubiquitous in the information age: the bureaucracy’s attempt to replace products with litigation and regulation.

The unique nature of the new economy presents fascinating dilemmas to private enterprise. Now regulations and laws cannot only dictate processes and parameters, but actually act as surrogates for products and innovation. Government is now in the business of competing directly with products produced by private industry.

It appears for now that the more Microsoft innovates, the more litigation it will face.