Law, Policy, and The Convergence
of Telecommunications
and Computing Technologies

March 7-9, 2001

March 7, 2001 PROCEEDINGS


DEAN JEFFREY S. LEHMAN: Good afternoon. My name is Jeffrey Lehman, and as the Dean of University of Michigan Law School, it is my privilege to welcome you to the Park Foundation Conference on Law, Policy, and the Convergence of Telecommunications and Computing Technologies. I am delighted to welcome you here this afternoon and to welcome those of you who are watching on the Web Cast.

This conference has brought to our campus a truly extraordinary assemblage of talent and experience. I would like to pause and say a few words on how we actually reached this day. When we chronicle the evolving nature of human society, we often concentrate on the relationship between people and their technology. We frequently divide human prehistory and human history into ages according to the prevailing technology. Thus, human prehistory is described by reference to the dominant material used in fabricated tools--the Bronze Age and the Iron Age. We describe the late 19th century and most of the 20th century by reference to developments in the way people move themselves from place to place--the automotive Age, the Jet Age, and ultimately the Space Age. At the end of the 20th century, our focus shifted away from the displacement of the human body from place to place. Instead, we concentrated on changes in the relationship between human beings and information, and what a remarkable development that was. Think, if you will, about the span of human history before the information age. There had been relatively trivial changes in the way that people analyzed information since the abacus, in the way that people stored information since Gutenberg, in two-way communication since Samuel Morse and Alexander Graham Bell, and then came the past quarter century. Technological developments fundamentally altered the ways in which we remember, the ways in which we think, and the ways in which we remember/share ideas.

Our first impulse was to categorize these breathtaking developments in basic science and engineering from the perspective of the end user. We call them developments in computing technology on the one hand, and telecommunications technology on the other. But now even that categorization no longer makes sense. Everywhere we look we see inanimate objects that are able to do everything--they store information, they process information, they share information with other inanimate objects in distant locations. For individual human beings the implications are overwhelming. Think about how we spend our waking hours. Think about the activities that we undertake each day to generate income and wealth. Think about the ways we choose to stimulate our minds and to nurture our spirits today. Think about how many minutes each day that we now spend analyzing lost clusters and deciding whether to delete lost chains. Those implications are equally overwhelming when we think about our collective lives. The world is becoming democratized and internationalized. Nation states and multi-national organizations are now confronting separately and together a host of fundamental questions of collective action--questions that we sometimes describe as questions of law and policy.

In considering those questions of law and policy, I would submit that our society looks to universities to play a distinctive supporting role. That role derives in part from our weakness. Unlike the institutions of government, we have no power to make our policy ideas binding. That is a good thing. It does not make us neutral, but it makes us safer and less threatening. Moreover, unlike the institutions of the private sector, we have no need to take action tomorrow or the next day. We do not need to justify the time we spend pursuing an idea. These distinctive qualities of universities have their costs, to be sure, but they also have their benefits. We can take a longer view, we can ask questions for their own sake, we can ruminate, we can reflect, and we can undertake the slow and painstaking work of ongoing research that might have very little likelihood of leading to a profitable result. Hence, this conference.

The premise of this conference is that leaders in the world of action-- leaders in government and leaders in the business world--are closest to the most important legal and policy questions raised by technological convergence. And those leaders are uniquely positioned to frame those questions. The premise is that thoughtful leaders in the world of action sometimes wake up in the middle of the night wondering where this is all leading, and that when they go back to work in the daytime, they have neither the time nor the resources to pursue the question very deeply. And here is where the special role of the university can help. We have invited those leaders to come to Ann Arbor these three days, we have challenged them to reflect upon the issues of law and policy that they believe are the most challenging and significant, today, five years from now, ten years from now. Each panel will consider a different domain. Each will be led by someone who's exceptionally well-placed to reflect in that way. Then we have surrounded those leaders with discussants. Some of the discussants are also, in their own right, leaders in the world of action. Most of the discussants are academics--accustomed to using the tools of one or more academic disciplines to probe, to test, and to understand. And then we are surrounding the panelists with you, our audience--a heterogeneous audience of interested and engaged participants.

Each panel discussion will include time for questions and answers and comments, which we encourage you to submit on cards as the panels are proceeding. There will be people in the aisles waiting to take your questions. Also if you look in the yellow packets that you received when you were registering, you will find seven yellow sheets. There is a sheet for each panel discussion. Each sheet includes five questions, they're the same five questions for each panel. We will be reserving five minutes at the end of each panel for you to complete those sheets. Please take the time to do so. We will be tabulating the responses to those questions and we will be posting the outcomes on the conference Web site. And we will be using the responses to help frame the research agenda that we hope will be one of the ultimate products of this conference. In the yellow folders there are also blue evaluation forms for the conference as a whole. We encourage you to fill those out as well. And if you are seeking continuing legal education credit for your attendance here, there's a place to sign up out in the hall.

This conference has been a huge undertaking and I want to thank the many people who had a hand in its production. I want to start by thanking the Park Foundation, and in particular, Jerry Libin of the Park Foundation board. This conference would not have happened were it not for the Foundation's commitment to support research and study of these issues expressed through an extraordinarily generous grant to the Law School. I also want to thank the individual leaders of the other parts of the University who are jointly sponsoring this event. I am speaking here of the President's Information Revolution Commission, the Business School, the College of Engineering, the Communications Department of the College of Literature, Science, and the Arts, the Gerald R. Ford School of Public Policy, and the School of Information. The breadth and depth of talent and knowledge and experience that is found in those commissions, departments, schools and colleges is unsurpassed anywhere in the world, and the spirit of collaboration that this university sustains--a spirit that actively supports efforts to draw people to work together on projects such as this is one of several reasons why the whole of the University of Michigan is so much greater than the sum of its parts. I also want to thank the student editors of the Michigan Telecommunications and Technology Law Review, and especially SallyJean Tews, for their hard work and commitment in helping to support the logistics of this event--from speaker ideas to postering [sic], to speaker management and to the publication of these proceedings. If any members of the audience have any questions as the conference unfolds, I encourage you to seek out one of the editors of the journal. They have nametags with blue ribbons that say "host" on them. Finally I want to thank the other members of the planning committee at the Law School--Edith Baise, Trey Boynton, Lisa Mitchell-Yellin, Nancy Marshall, David Siegel, and Amy Smith. Their hours and hours of hard work and planning have produced a conference that we can all be extremely proud of.

So now it's time to begin, and we begin with the William W. Cook lecture on American institutions, to be delivered by Joel Klein. When William W. Cook died, he bequeathed funds to the University of Michigan to inaugurate a distinguished lecture series on American institutions. Cook believed that institutions matter more than the forms of wealth that are tradable in the marketplace. And he cherished those American institutions that he conceived to be distinctly legal. His list included the written constitution, popular sovereignty, universal suffrage, federalism, judicial review, separation of church and state, and equality of opportunity.

Between Cook's death and today, 39 different sets of Cook lectures have taken place. Their subjects are listed on the back of your program. Each series has explored one or more American institutions, usually in the context of a larger problem. If Cook were alive today, I'm confident that he would be impressed to see how broadly the lecture series has ranged across the many different institutions that contribute to American social, political, and intellectual life. With each round of Cook lectures we are tempted to ask ourselves a question--what makes this topic so especially American? The lectures are supposed to be, after all, about American institutions. And each year we must ask ourselves what justifies the implicit claim that a topic of potential universal interest is also a particularly American interest. Some years this question is not so difficult. Consider, for example, 1961/62, which was about the Supreme Court palladium of freedom. Some years the question is a bit more challenging, such as 1971/72, where the topic was simply frontiers of ignorance.

This year, to begin the Park Conference, Joel Klein will consider the role of government in the emerging high-tech global economy. Mr. Klein is perhaps uniquely well qualified to reflect upon the interaction between government and the high-tech private sector. A graduate of Columbia College and the Harvard Law School, Mr. Klein clerked first for Chief Judge David Bazelon on the DC Circuit, and then for Justice Lewis Powell at the Supreme Court. He worked at a public interest law firm, the Mental Health Law Project, and then spent 17 years in private practice in Washington, DC. In 1993 he joined the Clinton Administration--first in the White House Council's office and then in the Justice Department's AntiTrust Division. His four-year tenure as the head of the division was one of the longest in our nation's history. Needless to say, his prominent leadership in the Microsoft case made him a household name. But as important as the Microsoft case was, it was only one element of a portfolio that placed Mr. Klein at the center of every major policy discussion about how our regulatory system should adapt to a changing technological reality. A month ago he agreed to become the Chairman and Chief Executive Officer of Bertelsmann, Inc., overseeing the American corporate functions of the world's third largest media conglomerate. Please join me in giving a warm welcome to our 40th William W. Cook lecturer on American Institutions, Joel Klein.

The 2001 William W. Cook Lecture on American Institutions: "The Role of Government in the Emerging High Tech Global Economy"

JOEL KLEIN: Thank you, Jeff, for that very warm, generous introduction. You do not know how honored and pleased I am to be here and to deliver this truly prestigious lecture. And I want to thank all the people you thanked by name, but whose names I don't know for having made this possible, but I especially want to thank you for your efforts in bringing me here and asking me to think about America's institutions.

I've been out of the government for about six months, and I've had a lot of time to think about those things. And I want to agree with a couple of points you made in your introduction and pivot from those into some remarks.

First, I think the changes brought about by the revolution in information technologies and biotechnologies are so profound that none of us alive today can truly appreciate their implications. I think we are at an inflection point in history. And at such times, understanding of the significance and endurability of institutions can be very critical because rapid change, as much as it bangs against individuals, can bang against institutions.

Second, something you said that I think is very important now, and that is that we are at a time in an intersection between wealth creation and other institutional values that are being generated by this particular set of technological revolutions that's going to pose some great challenges. And there is a tendency, in many quarters, to seek refuge in complexity as a way to obscure. And I hope if my remarks achieve nothing else today, they bring a certain simplicity to that which is enduring even though we move through a time of rapid transformation and change.

And finally, I couldn't help but note that you mentioned that I have become a household name, but how quickly that fades! I left the Justice Department in October, and the following . . . I left on a Friday, the following Monday I was walking to make a speech at a television museum, and as I walked in I heard one person lean over to another and say, "You see that guy? He used to be Joel Klein!" And I compared that with four years earlier, and you know, there's that old great song, now that I'm in the media business, "Used to Be's Don't Count Anymore," and I compared that with four years earlier, and about three days, literally four years earlier, three days after I took my job I had the good fortune to announce a settlement with Archer Daniels Midland for $100 million for a cartel case. We had never seen anything like it in the history of antitrust--up until then the largest judgment or fine was about $10 million. And it was a big deal. Of course I had nothing to do with it, I just happened to be there to announce it. And I was on all the news and everything that night. And I heard from everyone, old girlfriends who said, "My mother was right, you did amount to something!" All of that! And it was about three days. I mean it was a cartel, nobody would defend it, it was about three days as good as it gets. And then of course on the fourth day there's an op ed piece in one of our nation's leading newspapers entitled, "Hey Joel, This is the Land of the Free." And it goes on to take a pretty heavy whack at me for interfering in a free market economy and not understanding business practices and so forth and so on. So that Friday I came home from work, sat down, and was having a stiff drink when my daughter came home from school. She was then 12 1/2. She said to me, "Hey, Daddy, I saw you in the newspaper today." You know, my first thought was what kind of 12-year-old reads the Wall Street Journal? But then I thought, "Well this is the price you pay if you send your kid to private school with lots of Republicans!" But I was worried about it because she was 12 1/2 and very impressionistic, and I was worried about how she would take the article because it was quite harsh (hi Chris!) it was quite harsh about me. And I was trying to think of how to explain to her about the media comments about which I'll make a little later. And before I could say anything she said, "You know, Daddy," she said, "you're just like Madonna." And I said, "Julia, I don't understand, what do you mean just like Madonna?" She said, "Well look at that headline, it says, 'Hey, Joel, This is the Land of the Free."' She says, "You know how few people in America are known only by their first name Daddy?" She said, "You, Madonna, and Cher!" So my view is that if my daughter thinks I'm in the same league with Madonna and Cher, have at me Wall Street Journal!

What I want to talk about today is really trying to think about the experiences I had during the last seven years--first as Deputy Counsel to the President and then for the past four years as head of the antitrust decisions. And especially in that last period, I arrived at a time of enormous challenge and complexity, and I made numerous decisions about . . . as I say in the theaters you should keep your cell phones off and all that! I made numerous decisions about mergers and anticompetitive practices that had a significant bearing on our economy at a transformational time in economic history-- decisions involving many major US corporations--from Microsoft to American Airlines, to Archer Daniels Midland, to the telephone companies, the banks, and lots and lots of others. I got to look at tons and tons of documents, meet with numerous CEOs of our leading companies, and talk to endless experts-- industrial experts and academic experts who are generous with their time. And I watched and observed our economy during an enormous transitional period--from one that went from perhaps what we used to call the old economy, to something that we now call the new economy that makes a conference like this possible. And just think about it--when I started in government, no one but a few propeller-heads at DARPA (Defense Advanced Research Projects Agency) really knew what the Internet was all about. And it was a remarkable personal as well as professional experience, and I am grateful beyond measure for having had the opportunity. And based on that experience and the time I've had to think about it (and I spent about four and a half months between jobs), I've come to the conclusion that we as a nation put too much faith in the free market, and not enough faith in government. And let me be clear, I say that with enormous respect and admiration for markets, and some real disdain for certain government actions that we have observed, including some in the antitrust arena. And to me the argument is not about what I will characterize as the false dichotomy between free markets and government regulation--a sort of left/right issue. That's not what this is about. Rather, it is about getting it right--how we create a society in which markets are allowed to do what they do best while government is allowed to do what it does best.

And in that regard, I want to summarize the three points that I'd like to develop here today. First, I believe that competitive markets do provide the best way to maximize wealth creation and that therefore as an operational principle, government ought to be very careful about imposing regulation that tends to make markets less competitive. Second, I also believe that in the absence of consumer-driven antitrust enforcement, markets will not remain competitive, but instead will be regulated (if I can use that word in this context) by dominant companies exercising market power to their advantage and at the expense of the economy and consumers. And third, and to me this is the critical point I want to get across today, in my view I believe even if, even if we get the intersection between one and two (that is between . . . if antitrust enforcement turned out to be perfect), even if we get that right, what we will have done, which is important in itself, is to have maximized wealth creation. We will not have answered certainly the [inaudible] if not the more important question of how we allocate the wealth that we have created--how much that we as a society spend on a safety net to protect the less fortunate, how much we spend on education and healthcare, which rights we protect, and which interests we advance or retard. All of these questions at myriad levels must be resolved one way or another by some form of government and not resolving them and abandoning them is a resolution in itself. The Market, bless its many virtues, no matter how efficient and effective it might be, will not resolve those fundamental issues for our society. And how we resolve those issues of allocation and values, I submit, probably even more than how big a pie we bake, will say a great deal of what kind of people we are and what kind of people we will be.

In sum, the thesis I want to discuss with you today is that as far as America's institutions go, as we stand here now, at the dawn of a new century, and in many ways as this conference reflects, a new era, a high-tech era, information and biological, a globalized era unprecedented in economic organization, we are at serious risk as a people of undervaluing government and perhaps relatedly overvaluing the free market. This can have significant consequences for our nation, our children, and our lives, and I don't think this is a partisan point in any way, shape, or form.

But first, let me start by giving markets their due, which is plenty. And I think it is probably going to surprise some people, but I really do have a great respect for the free market, and I'm quite skeptical, quite skeptical about a lot that takes place today in the name of governmental regulation. I believe that the best market regulator there can be is competition by free, and independent competitors. And when that exists, the government ought to stay out. I don't think the government ought to try to improve the competition that competitors are likely to bring. Most importantly, I think government ought to be careful about creating or improving competition through measures like forced access and price regulation. There may be times, as I'll come to, when they are necessary, but one ought to be skeptical about them. Such measures by and large are either ineffective or worse, they distort incentives in a way that ultimately will harm the economy. For example, by forestalling or eliminating research and development that could lead to new innovation and new services or products.

The reason competition works so well is precisely because it's atomistic--because it keeps everyone focused on bringing value to the customer or the consumer. I remember a conference I was at where somebody did a takeoff on James Carville's, "It's the economy, stupid," and said, "It's the customer, stupid," and I think that's right. But where regulatory impositions, hurdles exist, economic players necessarily focus, at least in part, on how to deal with those hurdles to their own self-advantage, how to position themselves in the political/regulatory process, to secure the benefits of hurdles, to try to reduce those hurdles, and this can have all sorts of unintended and I think economically inefficient effects. It was a day not so long ago when we had a lot of this kind of what I like to call "top-down" regulation--that is where government was by and large in the business of price and access regulation. Washington had numerous agencies like the ICC (Interstate Commerce Commission) and the CAB (Civil Aeronautics Board), which used to regulate surface and air transportation. Today there is still some. The FCC (Federal Communications Commission) and FERC (Federal Energy Regulatory Commission) probably the most prominent, but even they, I believe, are not likely to be long for this 21st century world. Technology, driven by our ever-vigilant entrepreneurial spirit, will bring us competition and local service and local telephone and energy service, and that will be, I believe, the end of price and access regulation.

Now I want to make . . . as I said, everything should have it's appropriate caveats, I want to make a point here, and that is the problem which leads to things like price and access regulation, is often these transitional periods. And again, I think we need to be cautious as we approach them, but as you take the local telephone monopoly or the local utility monopoly in energy and try to transform it to competitive markets, you can't just say, "Let the games begin." And so inevitably we get a fair amount of the kind of regulation that we've seen, for example, under the 1996 Telecom Act. The truth is while I think it's necessary and I certainly supported the approach that was taken, the fact is here we are almost five years later, and it's been rather limited effects in this process. And it seems to me and it's always seemed to me (and I've said this previously), that if we're going to have, for example, meaningful competition in telephony, it's going to be through different wire, wireless structures to the same home, it's not going to be through an endless series of litigations and regulations trying to figure out the right price point for competitors to gain access to the local loop that's controlled by the monopolist. It may be necessary, but it's certainly going to be ineffective. And in the end it seems to me that whether it's DSL, cable-modem, satellite transmission--the new technologies--with the ability to transform, not just access to the home, but to create a whole new business model, the thing that all these people who are leading these panels are out there trying to figure out, those will be the driver. And unfortunately for all of us, there are going to be these in-the-meantime debates that have to take place, that will be frustrating, and my own advice to policymakers is in that arena, give the Market as much free . . . as much headway, as much leeway as you can, because it is probably (not always but probably) a better way to lead to good outcomes than through top-down regulation. The amazing thing about what I've just said, it's actually enormously important, and yet it's not very controversial. You know, 20/30/40 years ago, when I was sort of in college was . . . certainly 30 or 40 years ago, when I was college and law school, there were serious debates about the best way to organize one's economy. People actually talked about socialism, managed capitalism, free and independent markets and so forth, but it was a serious set of debates. Interestingly, there's very little of that as we stand here today. I mean a decade ago, at conferences I used to attend, people talked about the European model of national champions and heavy regulation. Even more important, the Asian model of sort of government-managed capitalism--the Keiretsu type structure, the Chaebal structure in Korea--as being the juggernaut that would rule the economy of the 21st century. And remarkably now there's almost universal consensus throughout Europe, Asia, and America, that atomistic capitalistic competitive markets are probably the best way for wealth creation, pure and simple. That is a remarkable fact and a critical fact in understanding where we are in a world history today.

Now this brings me to my second point, and now, at least, we'll start to get a little controversial, and I see this as a conundrum, and that is that free and competitive markets work, but markets won't remain free if left alone. Especially this is true in the areas in which we're going through deregulation. The reason they were regulated in the first place is because typically there were very few competitors, often times one, and there were significant barriers to entry. And as a result, that's why we had to have regulated monopolies. In any case (and this is something people seem prepared to debate and I find it astonishing) that if the government simply abandoned antitrust enforcement, that our markets would remain free and competitive. And I can give you several different examples that come to mind, but it seems so obvious to me. If you were in business, you would rather eliminate competition, sell your products at a higher price, and make greater profits. And everybody admits that an unregulated monopolist . . . if the local tel. co.'s didn't have price regulation over the last 30 years, they certainly would have been able to charge much higher prices and made much more profits. And yet do people think if the government went away, that people wouldn't fix prices or merge to monopoly. Today, for example, Boeing and Airbus--two titan competitors--only two of them--create civilian aircraft. It's a highly competitive market because these are huge purchasers from there, two big competitors. Why wouldn't they merge if there was no merger policy? And do you know the significance that would have in terms of cost of civilian aircraft and in terms of innovation in civilian aircraft if we move from two to one? People are all over the news these days about the airlines going from six to three in America today as a possible scenario as we watch several pending mergers. Why wouldn't they go to one if there were no antitrust enforcement? And I could go through example after example that make this obvious point. So therefore I think we're not debating whether there should be government intervention in a free market economy, we're simply debating how much, how often, and what circumstances. I think that's an important debate. But that's a regrettable conclusion, let me be very candid with you. I would rather a world in which competitive markets were truly self-sustaining--in which people wouldn't price-fix or merge in their self-interest to monopoly power, because when there is government intervention, necessarily people will be making important decisions--these were difficult decisions I made when I blocked the WorldCom/ Sprint merger, when I blocked the Lockheed Martin/Northrop Grumman merger. And of course nobody has perfect foresight much less perfect . . . I mean perfect hindsight much less perfect foresight in this kind of world, and so necessarily the art of government intervention is imperfect. People used to ask me "What is the most important quality for the job you're now in?" I used to always say "a thick skin and a heavy dose of humility." But the truth is human imperfectability cannot be a prescription for abdication here.

Sound antitrust enforcement I believe is doable, frankly I think is less difficult than some of the newspaper discussions might suggest. And actually in my view I think it can be reduced to two simple principles about which the facts may make their application complicated in specific incidences, but the principals I don't think are essentially that complex. And basically we focus on these words I've used before, it's a well-understood microeconomic concept called market power. And what is market power? Market power is simply in the absence of competition, what a business would price its product out or what innovation it would do. And to give you the simple, trivial example (and you can think of millions of others), if in a town there were two gas stations and those gas stations have to compete, it will drive the price of gasoline pretty close to the costs of the two competitors. And you might have a cost advantage that would allow you to charge a little more or a little less, and you also need to get some return on capital to pay for your time and so forth. If those two gas stations were to merge or be allowed to set prices, and for some reason there was a zoning ordinance and you said you couldn't have anymore gas stations, those two gas stations would raise the price immediately, they would figure out the intersection of their price and demand curves in a way that would allow them to maximize profit and not compete it away in the process. That's all that market power is about, and that is what drives business. When you're in business (which I now am), what you're interested in is getting market power--brand recognition, a little bit of a differentiated product so that somebody will stick with you through some period of time, pay a little more for your name, you want a first-mover advantage if you can get it, you want to have barriers to entry around your position if they can be had, and so forth and so on. And the only question we need to focus on in this debate is how you go about getting market power. There are good ways to get it and bad ways to get it.

And in my view, the first principle that we need to assure (not complex) is that government cannot allow businesses to gain market power through merger or through cartel-like agreements, that is price-fixing or market allocation agreements. Rather, market power should be allowed under one circumstance-- should be earned the old-fashioned way through what antitrust laws generally call "superior skill, foresight, or industry." If you develop a computer program that everyone wants, go ahead, make a bundle, that's the American way. But don't make a bundle by agreeing on prices with your competitors or merging with them to eliminate competition. And if government doesn't prevent these kinds of things, that is agreements or mergers, no one else will. People will make a bundle and just as theft would be prevalent in the absence of law enforcement, so too would agreements to eliminate competition.

Now the second and admittedly more controversial thing that governments need to do to protect competitive markets is to make sure that market power, even if legitimately earned through superior skill, foresight, and industry, is not used to prevent new entrance and thereby prevent competition from reemerging. Let me give you an example of what I'm talking about here. Suppose that a company through lawful means gains a monopoly on personal computer operating systems, which in practical terms means that no computer manufacturer can sell a PC without using that operating system. That's a good position for a company to be in, and not surprisingly, a company having such a monopoly would not want to give it up. And so that I'm clear with everybody here, that's a perfectly reasonable thing for a business to want. But how it goes about protecting itself can be absolutely critical to our economy, to innovation, and to consumer welfare. If it does it by improving its product, by bringing some new innovation to the market, that's all the good for consumers and for the economy. On the other hand, there are a couple of things that a monopolist might do to protect and extend its monopoly, which without government intervention would harm our economy, lead to higher prices, and less innovation. I don't want to use jargon here, but after all this is a law school, so let me say at least this much.

The two activities I'm about to describe are classic anticompetitive tactics that have long been condemned and must continue to be condemned in a new economy as well as the old. The first is generally called exclusionary behavior, and the second generally called predatory behavior. And as for exclusionary behavior, this is simply behavior that prevents others from getting product out, which in no way benefits consumers. The simplest example (and let's just take this example that I started with before), suppose our operating system monopolist said to all the computer manufacturers, that "You can't get my operating system unless you agree not to buy software--any kind of software (word processing, any kind of software) from any other company." In other words, "If you want my operating system, which you need to run your computer, you've got to get all your software from me." There's nothing good, absolutely nothing good about that for our economy or consumers. But it might well be good for an OS (Operating System) manufacturer who wants to extend its one monopoly into multiple monopolies. It's exclusionary and the government should step in to prevent it.

Now let me shift to the second type of behavior--predatory behavior. It's a little more complicated because this is a way where you create a short-term benefit for consumers, but the only purpose is to kill competition and then recoup much more in the long-term. So let me change the facts a bit. Suppose this operating manufacturer sees a potentially competitive product (let's just call it a browser for this discussion) that's being manufactured by another company. And suppose the operating system manufacturer thinks this new piece of software could undermine his operating system monopoly because it will be on virtually all computers. In order to create a platform, you need ubiquitous distribution. Very few pieces of software are going to be on all computers-- operating systems are one; in our history the second one that's as close to operating systems in ubiquity are browsers. And the fear is if you have ubiquity, applications writers can now write to your software, so the reason that an operating system monopoly has real power is because all the apps writers write to it, that makes the operating system more in demand, which makes the apps writers write to it. And so a strategy to defeat that kind of market power would involve finding another type of software--the browser--for the potential for ubiquitous distribution and the exposure of API's (Application Programming Interface) so that other programmers could write at least in part to your system, your new browser, that you have out there. Now faced with that kind of challenge, a business might well decide that they would develop their own browser, even if it cost a lot to develop and sell, and give it away for free. Now why would anyone do that--spend all this money and give it away for free? That's exactly what happened in the case I brought. Think about it. When your browser is free, it drives all the profit out of this potentially threatening browser--this piece of software that could become a platform that could erode your current monopoly, because people understandably prefer free to some positive price. But think about it. Now there's a free browser, even though it costs you some money, and it drives all the profit out of browsers. So your competitor's business has now been wrecked. What's going to go on? Where are his or her revenues coming from to pay staff, to distribute their new browser, to develop it, to upgrade it, and so forth? You suck the profit out, and in the meantime you have your OS monopoly to sustain you through this transition, and then there's no threat remaining to your OS monopoly. That's predatory behavior in my view, and it harms consumers even though in the short run the price of browsers is lowered. After all, this is a clear deterrent to innovation, because once you see that these kind of practices occur, who's going to spend their money to do the R&D to develop a new piece of software when the oxygen can be sucked out of the market?

Now what's remarkable to me (and I don't have a personal attachment anymore) is that serious, thoughtful economists somehow have been urging the various media that these kinds of behaviors--the predatory and the exclusionary behaviors that I just described--should not be barred by law. Just a couple of weeks ago, in fact, Nobel laureate, Gary Becker, from the University of Chicago, along with one of his colleagues there, wrote an op ed piece arguing that antitrust should be limited to a narrow category of offenses, like price fixing, and it shouldn't deal with exclusionary or predatory behavior at all. And they said (and I quote), "As to predatory activities, there is very little empirical evidence to support theories of such behavior, and we know of no historical example where economists are in broad agreement that alleged predatory behavior led to consumer harm." Now to be candid, that kind of quote reminds me of the old saying, that when you tell an economist that his theory doesn't square with reality, and ask him what he plans to do, his response is, "Well I better recheck reality." Let me be clear. I tend to be skeptical about allegations of predation, and in my years in the Justice Department, I heard hundreds of them and virtually almost without exception rejected them. But that doesn't mean it doesn't happen, and indeed we brought a case that I think is as clear a case and as important a case to our economy as one might imagine. And it deals with an issue that's on everybody's minds.

As I flew here today from New York to Detroit, everybody in the audience knows what airline I took! And if I had gone from New York to Atlanta, you'd know what airline I took. And if I had gone from New York to Dallas, probably as well would know what airline I took. In the airline industry, 30 years ago . . . fewer than that, 28 years . . . 23/24 years ago, we deregulated. We had the kind of price output regulation, price access regulation I talked about before, and we deregulated. I supported that effort at the time, I continue to think it's the right thing today. But the way the industry evolved, because of economies of scale and scope and the efficiency of the hub system, the way it evolved, we now essentially have six dominant airlines that don't compete head-to-head, but have a fair amount of shelter in terms of their hub traffic. And I believe they're extracting monopoly rents as a result of that. Now the one significant exception to this dominant carrier hub-based model that's emerged, has been Southwest Airlines, which was a new entrant with low costs and an efficient business model. Southwest has increased travel throughout the United States, lowered costs, and has put competitive pressure on the majors as it began to get some of the efficiencies of scope and scale that enabled it to build out its network. Other entrepreneurs observing Southwest's success decided to do the same thing. The major airlines obviously didn't like this, and so they set out to defeat these new entrants, and they did it with remarkable success. And one of the things they figured was remember how I said it all clustered around a hub--there's real efficiencies in bringing all these people to a single airport and letting them switch planes and move on, because you can then move people to lots of different cities rather quickly if they have to transfer. And one of the things the major figured out is if these new upstarts actually begin to grow up, throw off a revenue stream, they can then develop some of the efficiencies that will enable them to be truly powerful competitors. And so essentially what we have witnessed is efforts to kill these new upstarts very, very quickly before they begin to get the kind of traction like Southwest has, which makes it almost impossible now to take it out because it's in too many markets with too much traffic.

Now a case we filed against American I think demonstrates as classic an example of predatory behavior as one might see. American basically employed a strategy of lowering its prices and flooding the market where there was a new entry. So, for example, if somebody entered from Dallas to Wichita and had a price that was significantly below American's, American lowers its price to that number and just kept adding capacity until it takes the new entrant down below 40 percent, which is his breakeven point. And obviously for the same price, and with endless amounts of opportunity, people will prefer American (frequent flyers, etc.) to the new entrant. You take them below 40 percent and it shuts down. And I think it's clear from this case, from the Department of Justice's complaint and the data we now have, that this is going to create long-term harm if it's not stopped to the American economy.

Now it's usually rare to be able to demonstrate this kind of harm. That doesn't mean it doesn't occur. It doesn't mean that if innovation is deterred . . . you can't see what innovations are deterred, but that's at least at some level speculative. In this case, there are real data that demonstrate, I think, the nature and scope of the problem.

Let's take the three cities that were involved with these new low-cost entrants. Start with Colorado Springs. Before the new entrant came into this market (this is Dallas-Colorado Springs), we were looking at a situation where about 4,000 passengers flew a month and the cost of the transportation was $155 one way. The new entrant comes into the market, we went from 4,000 to 20,000, and the price went from $155 on average down to $88. So we got 20,000 people flying at $88, and the new entrant charges that price. It could fly all of those people at that price and remain profitable. It had to come down below 40 percent to lose it's market. The new entrant couldn't survive in that market because American flooded it, and then after it left the price went back up to $135 and fewer than half the people (9,000 people) travel. That is by any economic analysis a significant output effect. That is there are 10,000 people a month that could be flying that route who are no longer flying that route because of this predatory practice. And there were similar numbers on Wichita and Kansas City. And the impact of this, I think, is to have not just simply an effect on passengers, but actually on some of these cities where in terms of new business, when the number of people have that fly in and out and the number of businesses that you can build in those cities, is affected and so forth. And I think that is a classic example, one that would take place if the law didn't prohibit it, and the only reason for it is to drive the new entrant out. It wouldn't have made sense for American to drop its price and flood the market for any other reason, because it was admittedly lowering its profitability during the time that it took these activities in order to knock the entrant out and recoup its monopoly profits afterward. And frankly you don't have to take my word for it. The CEO of American Airlines came right out and said while they were developing this plan, "If you're not going to get them," (meaning the new entrants), "out of the market, then there's no point to diminish our profit." So let me be very blunt here, this case concerns me a great deal, because I think there is economic skepticism that's legitimate, but skepticism and nihilism are very different things. There's a great deal that concerns me because I think we are faced with a serious problem in airline competition in the United States today, and I think the growth of new low-cost carriers could have a significant impact. But if the law allows people to drop their price to match and then flood in a way that is clearly uneconomical in the short-run but economical in the long-run, then that is precisely what will happen, and we will see this continued single carrier hub dominance model.

So let me sum up here. There's ultimately one principle that I believe should guide the regulatory intersection between government and a free market economy. Government should enforce a coherent, competition-based antitrust regime that focuses on agreements between competitors to acquire market power or the misuse of market power by single firms engaging in the kinds of exclusionary and predatory practices that I just described. In attempting to achieve this balance, I think we need to be vigilant to ensure that we do not overvalue the workings of markets without antitrust enforcement. In the end, I believe the greatest impediment to efficient and effective markets is not likely to be overly zealous government intervention (although that could happen), but rather the absence of competition that is sure to result without government intervention.

Now to turn specifically to some of the issues that you're going to discuss. "That may all be true," people have told me for several years, "in the old economy. But we now face a new economy--a technologically-driven economy, and so the antitrust enforcers should stay their hands." Well, I find that argument wholly unpersuasive. Let me say why. First of all, the economy may change, but human nature doesn't change. The economic incentives to make more money, to accumulate more wealth, that drives the entrepreneurial spirit, which is perfectly desirable in order to build a strong economy. That human nature will be every bit as true in the new economy, if anything more true, because the potential returns are so extraordinary, as it was in the old economy. Now it's true that technology changes, and that may affect the way we think about these issues in terms of how the government intervenes on given facts, but that doesn't mean that the government simply stays its hand. When I was head of the Antitrust Division, Larry Summers (a friend of mine, a person I know and admire) delivered a lecture, he was Secretary of the Treasury. And he talked about how in the new economy partially because of interconnection, partially because of the nature of software, we were likely to see short-term monopoly power exist. And a lot of people thought that somehow this was a criticism of the Justice Department. They said that in our case against Microsoft. And the truth is that Larry and I have talked and others talked to me about it, and I completely agree with his thesis. I think we may well see what he called short-term monopoly profits because of the nature of needing the single standard and the way software (all the expense is in the R&D (Research and Development) and not in the marginal cost of another operating system or another word processor). But the question is even if you assume that model, the question is not whether, therefore, since we're going to have a series of monopolies, the antitrust people ought to stay out.

There are two answers to the question. First of all, you could have a situation of serial monopoly--one practice replacing another in the new economy. But that's absolutely critical to innovation. You don't want the first monopolist to control the innovation trajectory. You want to allow somebody in that browser scenario that I gave you, to come in behind and challenge the first monopolist, because after all, it's going to be consumer choice that decides whether the second monopolist will replace the first. And I believe in a highly entrepreneurial society that if people are not blockaded, if they're not excluded, or if they're not faced with predatory practices, you could see that kind of leapfrog which would be perfectly fine--and that seems to be fully consistent with the view I have. The other possibility may be before people have an all-out standards war to decide whether their video player will be a VHS (Video Home System) or Sony, they may decide to adopt an open standard. Today the Internet is an open standard. It could be proprietized (I could show you how to proprietize it if you wanted to know how, and we could all have to pay a fee simply to get on it), but right now it's an open standard with access that is for free. So basically the question of how this plays itself out is a question of technology, but it's not a question of the need for or the absence of antitrust enforcement. The fact of the matter is contrary to any suggestion about short-term monopoly, Microsoft's operating system monopoly on a desktop has been in effect for a decade, and there's no end in sight. There's no diminution of market share. And it did exactly what we predicted it would do in our case--it used that monopoly and as a result of it, there's now a second monopoly in browsers. During the course of that period, essentially the browser wars are over, and Microsoft's IE (Internet Explorer), through the practices I believe we alleged, basically has become a second monopoly.

So I think there is a serious error of thought, if people somehow think the new economy needs less antitrust enforcement in some generic sense than in the old. In my view you need to focus on the facts in any antitrust case, but that the measure of intervention is always going to be based on those principles I gave you before--people shouldn't be allowed to merge or collude to market power, and they shouldn't use market power as a barrier for new entrants to come into the market.

Now let me turn in the remaining time to what I see as the most significant part of the discussion in this Cook lecture, and that is my concern about the decline of government as an institution and its potential consequences for our nation. Because even if we achieve the perfect level of antitrust enforcement, as I said before, that will only assure that we maximize wealth creation. It's no small feat, it's very significant, and we shouldn't underestimate its importance to the future of the globe. But it is something actually that we in America have generally done quite well. We're an extremely wealthy nation, and we have been for a long time. Sure, we should strive to do better, and we should eliminate unnecessary regulation and not enforce the antitrust laws improperly, but whatever else we may say here today, I think it's fair to say that wealth creation is not likely to be our greatest challenge in the 21st century. In my view, the challenge that will be most difficult (and they're becoming increasingly difficult) is how we divide that pie--how will we attempt to address an issue that technology is now going to present us with, which is an increasing gap between the have's and the have-not's--what they call now at fancy conferences the "digital divide." And what will our values be as a people? Will we be tolerant of differences, or will we seek to be an exclusionary society? Technology can serve either end, and biotechnology threatens to elevate those stakes exponentially. Will our borders remain open, or will we try to shut our borders to keep what we have for those who are here?

I think our history with respect to those kinds of issues has been one of which we can be proud, although it certainly has been far from perfect. Our treatment of minorities has certainly been troubling at times, but when you look across the world and throughout history, I think America stands as one that has been more open and inclusive, and one that has shown a real concern for the less fortunate. We have been brought at times kicking and screaming to this point, but there's no question. We made real progress with respect to eliminating discrimination, increasing tolerance and sharing the wealth. But there's much to be done and technology, as I said, will not make those challenges easier, they will make them more difficult.

But for all these and other reasons, just as in the past, we will need strong and well-respected government institutions to bring the collective will to bear on these terribly, terribly difficult techno-generated increasing social problems. History has taught us, whether it was Brown v. Board of Education or Lyndon Johnson's Civil Rights agenda in the 1960's, that leadership by government matters. These instincts--which some have called, the call to our better angels, are not always spontaneous. And we do need governmental leadership to get us where we need to go. And here is my greatest concern, because I believe, frankly, our governmental institutions are increasingly in disfavor. It's not just clear from the polls, but you cannot be in government as I was for the last seven years without feeling this sense of decline day in and day out. And while it was an enormously gratifying opportunity for me, the hardest part of the job was feeling that sense that I was affiliated with an institution that was on the decline in some collective sense. I grew up, as many of you did, at a time when America believed that public service was the highest, the noblest calling, and that those of us (and I especially count myself among this group), like many of you in the audience today, those of us to whom so much has been given by this great country, we have an obligation to give back. When President John Kennedy said, "Ask not what your country can do for you, ask what you can do for your country," it resonated with a nation and inspired an era where we made great strides in civil rights and creating a safety net for the less fortunate. Today that spirit has been displaced, I fear, by a collective sense of "it's time to get mine." I've spent a lot of time talking to college students, law school students, high school students, because I think that's the shot you get, is when they're young, and I have encountered many who care about public issues, but I am stunned, stunned, by the amount of disdain for government, qua government, that I encountered among people too young, I should have thought, to be so cynical. It's probably best summed up by an experience that--I generally don't have particularly good memory--but best summed up by experience that's indelibly etched on my mind when I spoke to a computer science class at a leading university--all sort of terribly talented people. And after about 35 minutes into teaching this class, one of the students raises his hand and says, "I don't get it Mr. Klein." He says, "You actually appear to be smart, and yet you're in government. Why would you do that?" The obvious inference being why wasn't I out there making millions and millions like all his dot-com friends? I worry a lot about that. I've experienced it personally, I carry it with me. And I thought, "Why is it? Why did I grow up at a time when I stood for hours at 59th Street and Columbus Circle to watch John Kennedy speak? And why does it still resonate in my bones when he said, 'Ask not what your country can do for you?"' And I think there are probably two reasons that are part of the social transformation that's inevitably being driven by the technological transformation, and I'm not sure how successful we will be in combating these forces.

First, I believe that our politics have become so awash in money--that the average citizen rightfully can't help but think that the rich are different, not just in terms of what they can buy in private, but actually what they can buy in the public sector as well. That will obviously build a great deal of cynicism and increasing non-engagement by the citizenry. John McCain, a man I admire, actually tapped into this sentiment during his campaign last year, and I truly hope that he and others continue to push for measures that will help restore a sense that not everything in America is for sale. This is not going to be an easy problem to remedy, it costs a great deal to run for office, people are obviously entitled to try to affect policy through lobbying and all sorts of other ways. But I don't think it's undoable and indeed one of the reasons I don't think it's undoable is because of this little miracle I call the Justice Department, which people really don't particularly understand or appreciate, and that is even today, somewhat uniquely, I believe, in America, we have a law enforcement agency that even in the current situation is really pretty immune from money and political pressure. My sense is that both parties and the people from both parties who serve, view themselves as guardians of that particular responsibility.

And not since the Dita Beard--ITT scandal in '74 during the Nixon Administration where money did change hands and it appeared to affect an antitrust decision, I don't think there's been a credible charge that a law enforcement decision's been made by the Justice Department on the basis of campaign contributions or political influence. Now remember, this is no small miracle. During my tenure I sued some of the most powerful corporations in the globe--Archer Daniels Midland, General Electric, Lockheed, WorldCom, Microsoft. Almost without exception, none of them ever attempted to bring political pressure to bear. People on the hill wouldn't call and say, "What are you doing to my company?" People in the executive branch wouldn't call. And that is something that people don't understand how important that is to the way we go forward. And I want to tell you, during this ADM thing (Archer Daniels Midland--one of the most powerful companies in the whole country with a great deal of political influence), we were prosecuting them for a serious cartel. We imposed, as I said before, a $100 million fine on them, we sent the son of the CEO to prison for more than two years, and before all of that happened, my friends in Europe and my friends in Asia would say to me time and again, "There is no way in the world you will be able to do that--the politics in America will not allow it."

So I think this is an amazing thing. And I think if you think back on it, it's something that should lead us to go forward with a belief that, yes, we can restore some faith. There are going to be significant disputes about policy--there should be--but just as Bill Baxter (Ronald Reagan's antitrust chief) was able to break up AT&T, even in the face of political noise, because he thought it was the right call under the antitrust laws, I continue to believe that future Departments of Justice--Democrat and Republican--will be able to operate effectively outside the sphere of crass political influence. But unfortunately, I think that is the exception. It's an important exception and one worth bearing in mind. But even today, unfortunately, many Americans don't believe that's true of the Justice Department.

And this brings me to my final concern, and that is among the reasons that I think government is generally in decline, is that the politics of personal destruction fueled by the media is very much a part of our modern political culture, and this greatly affects both the way the public views public service, and the way people view serving as government officials. For whatever reasons, I'll leave this for others to figure out, life is becoming increasingly a soap opera, in which the popular media are dominated by Jerry Springer-like shows, even when it comes to political discourse. We seem to like a food fight much more than a discussion. Entertainment rather than policy is what drives ratings. And what could be more entertaining than some dogged media pursuit of some high-government official. Now this kind of journalism may be good for the bottom line, and I understand that, but it certainly takes a toll on people who are caught in the crosshairs. And I want to be clear. It's not to say that government officials somehow shouldn't be called to the carpet for wrongdoing and held accountable, but I think it's clear that the press ought to focus a little bit too on making sure that they have the facts, and not be too quick to jump from one inference to another by calling motives, much less people's integrity, rapidly into question. In my experience, people who are quick to impugn motive are usually a little slow in their ability to debate merit.

I have a little personal experience in this as well, and I don't think of myself as unduly thin-skinned, but I find these kinds of attacks (you have a family, you have friends) quite painful. And there were two kinds that I experienced--one bothered me a little less than the other. The first was somehow I would bring a case (the Microsoft case) because I was trying to help the competitors for some political reason. Never mind the fact that I had been asked to bring six or seven different cases against Microsoft that I didn't bring by different competitors. But the logic of it makes no sense. It was publicly known (not through anything that I did) that these so-called competitors (the two principal ones in this case--Netscape and Sun) were headed by prominent Republicans who were very strong supporters of Republican candidates. But that didn't stop people from trying to push the argument. And the one that was much more troubling, on serious newspaper editorial pages, was that somehow we brought this case because the Attorney General had refused to prosecute political contribution cases, and this was a way to kind of mask that fact, and therefore we brought this kind of case. And as I say, these are serious op ed pages, editorial pages. Absolutely no basis in fact for that kind of allegation. I can tell you it seems self-serving but it didn't happen. It didn't happen. But there is absolutely no basis in fact for that allegation.

And I will tell you the following couple of things that would seem obvious here. Number one, whatever else one thinks, the Attorney General's decision not to prosecute some of these campaign contribution issues hardly escaped public press or congressional notice. So if our scheme was to divert attention, it was not a particularly effective scheme. Second of all, in the time that I was in the Justice Department, not once did the Attorney General ever ask me my views on any of those issues, and I not once shared any of those views with her. Yet, people are willing to make that kind of analysis rather than to engage the merits. And let me be clear, in all the major cases I brought, I think there are arguments on the other side, I don't think we had a monopoly on the correct legal analysis, but this effort to go after people's motives, to challenge people's integrity, is the kind of thing that I think is corrosive and insidious over time. And I don't think this is going to be an easy one to reverse as well, but I do want to say in concluding, that I think President Bush is on to something, when he attempts to introduce a new civility into our political discourse. Let me be clear--civility is not a substitute for sound policy. And there will be legitimate disagreements about policy, but our nation (and to bring it back to this lecture), the most important institution in our nation, our government, which has served us so well for all its flaws, will be a whole lot better off if the politics of personal destruction on both sides, by both parties, and the media is moved to the back, and the merits of tough and important issues become the measure of public discourse. At a minimum I believe, that should help to foster a climate that attracts our most talented people--be they Republicans, Democrats, or some third party--to serve in government. And we as a people will be better served by that no matter what happens every four years in an election and by any other change that we could imagine right now. Thank you.

DEAN JEFFREY S. LEHMAN: Mr. Klein has agreed to take a couple of questions. We are scheduled for a break at 3:15. Yes, right down here.

QUESTION: I have a question about what happens when laws cross international boundaries. I have two examples. One is there is a fellow in England who is about 40 years old and would come to the University of Minnesota web sites and quote racist things about certain racial groups. Some 19-year-old kids in these groups would then post very mean things about this fellow, but they would post it about him, not about this ethnic group. He then sued in English court, saying that the University of Minnesota was publishing these quotes and we were advised by lawyers there that we would probably lose if we fought it.

The second example is shorter. France is fighting the GE Honeywell merger. How do we deal with that kind of issue?

ANSWER: Yeah, the second I actually know a little bit about, although I'm not personally involved. This has become a serious set of problems you've put your finger on. As a matter of policy, this is not as a matter of institutions, but as a matter of policy, how we figure out how nation states regulate a global economy is going to be enormously complicated, and both of the examples you give are illustrative of that.

Obviously, in the GE Honeywell case, the European Union, which is looking at it along with the United States Department of Justice, is concerned because of the implications for aircraft in Europe. They have a legitimate concern; it's not a fanciful thing. They're not just sort of meddling in our economy. And what essentially is going to go on is the following: It's gonna be basically at first through working together. We've spent more time on Worldcom Sprint working with the Europeans to make sure we've stayed on the same page; to make sure our analysis where congruent didn't diverge. And you'll see more of that.

Second, we're going to see more and more treaties with more and more laws that emerge regulating the global economy. It's gotta be jet-lagged because people are not quick to yield sovereignty. The last formal act I did before I left the Department of Justice was to call for a global competition initiative precisely to address these issues. The Attorney General and I appointed a 12- person outside advisory committee for a two-year study. This is the third time in American history that ever happened at the Justice Department, antitrust division, for a two-year study of these issues, and they came up with some important, but by no means definitive, conclusions. So there's going to be a great deal of work and attention on this, but we will slowly evolve toward treaties, toward a greater role for the WTO (World Trade Organization) in the world economy, and in the meantime, responsible agencies will redouble their efforts to stay on the same page in particular transactions. And I'm not involved, but I'm sure in the GE Honeywell matter there is a lot of discussion between the Department of Justice--I got no horse in the race-- between the Department of Justice and the European Union.

QUESTION: You talked a little bit about the fact that the browser wars were over and essentially that Microsoft had a second monopoly. Do you think that there was anything, looking back, that you would have done, that you could have done, differently to prevent that outcome?

ANSWER: It's very hard to say in the following sense: The one thing I agree with is the world moves remarkably quickly. I mean, one of the wonderful things I thought about in the old Standard Oil case is the oil sat in the ground long enough for us to take a very, very hard look at what to do with it. That's not going to be true in technology. In the end, I don't think it's absolutely critical that you reverse course on a particular event, and I don't think we were likely to be able to find a way to influence that particular event.

I think what's critical is one, you establish the rules so that people are clear, and two, that you prevent that thing from happening a second, third-For example, one would worry about a same kind of development with respect to voice recognition, which could be a transforming platform technology on personal computers. So to some extent, that seems to me that there's going to be an inevitable lag between a lawsuit and the economy that you're trying to intervene in, but it's not a fatal lag because if the problem never would recur again, it doesn't matter that you missed it once. And if it would recur again, having a modus vivendi from being able to tackle it is critical.

QUESTION: Do you think there's a need for any legislative reform that would ensure [inaudible]?

ANSWER: I don't. I honestly believe these principles I've articulated, if they are enforced and they are bedrock antitrust principles, I think we'll get where we want to go. The antitrust laws--There have been a couple of times-- Sometimes they were under-enforced, and a few times and certainly in the Sixties, they were over-enforced. They had a big is bad kind of connotation. By and large, they have been rather well-enforced on a bipartisan basis. It was, after all, Bill Baxter who did take the action to break up AT&T and brought some other important antitrust matters. So and we, frankly, allowed more merger activity to go through in America, even though people perceive us as being, if you will, a somewhat activist antitrust enforcers. I think the colorations are typically not accurate, and I think by and large, we've seen a pretty steady bipartisan support for the kind of predatory, exclusionary, anti-collusive, anti-merger to market power analysis that I put forward here. And I think we'll continue to see that.

QUESTION: I was a patent attorney at one time in the 1960's; that was my first law job, at that time, I remember [inaudible] there was a surprising statement made by, I think it was the head of the Antitrust Division of the Justice Department. He went on record as saying he was going to abolish the United States patent system. In other words, [inaudible]. I don't know how he proposed to go about this, but they did-they were very active in taking on [inaudible]. I wondered, since I've been out of touch with that for so long, I've wondered if you have a feeling on what the antitrust [inaudible].

ANSWER: Sure, I think--far from abolishing--I think we're quite respectful of patents, and I think patent law and intellectual property law in general is an essential compliment to antitrust enforcement because obviously without some protection for intellectual property, nobody's going to do the research to be able to bring product to market. I mean, you can make a lot of money if you find a drug that cures cancer, but you gotta spend a lot, a lot of money--and a lot of people are doing that, in order to make the bet. And if people could then copy your formula the day you brought it to market, you couldn't recoup any of your R&D, nobody would go into the game.

Seems to me, though, that technology will require us to start to think through how we protect intellectual property. The role of copyright is very different in a software-driven universe than it is, for example, in a books & music-driven universe. Cases like Napster are going to challenge us in that respect, and that doesn't mean challenge us to abandon intellectual property; on the contrary. But we're going to have to think about it. And the other issue, which the National Academy of Science has just put together a commission to look at, which I think is a fascinating issue, is how we deal with this whole set of issues of patenting business practices. The double-click kinds of issues--I mean, the single-click kinds of issues and so forth. So my own guess is, generally speaking in America today, technology is going to make us take a look at intellectual property protection, patent protection and copyright protection, but there is no place that sensibly thinks that we ought to eliminate or seriously curtail it.

DEAN JEFFREY S. LEHMAN: We have time for just one more question.

QUESTION: You made a couple of references to biotechnology as being transformative in ways that you really didn't elaborate. I was wondering what you had in mind there; if you had something in particular in mind about the role of antitrust law or the convergence of --

ANSWER: I think in several ways--I don't know about antitrust law, but I think--I mean, you'll find this hard to believe, but I actually think there are a few things in the world more important than antitrust law! One of them is what's going on in biotechnology. I think, first of all, you're going to raise the following kinds of moral, ethical and other issues, and no one knows quite how to deal with them: The whole issue of cloning, the whole issue of being able to select how you want to recreate yourself or not recreate yourself--all of this is going to be out there--the question of allocation of who gets access to which of these new technologies, some of which--I mean, in a world in which we don't have universal health care and health services, some of these technologies are gonna be very expensive. And finally, I mean, it's going to be transformative in our lives in the sense that people may live--I have a friend who's got a major biotech company. He says, "If I make it to seventy-five, I can be here forever." He said, "The hard part may be to make it to seventy-five," he tells me, "but if I can just ride it out!" You know, forever is a long time, I must say. I probably have a more mellow view of antitrust enforcement, but I think those are transformative social questions. I mean, how one thinks--I don't mean this facetiously, but if you think about living a life for 150 years, it's a different enterprise than the enterprise that one might live for less. And when you say--When people get married and say "for better, for worse and for richer or poorer," it's hard enough to do it for the times we now operate in, but can you imagine --

(Laughter) (Applause)

DEAN JEFFREY S. LEHMAN: Okay, we have a ten-minute stretch break, and then we will reconvene at 3:30 with the first full panel.

Adapting to Rapid Changes in Consumer Behavior

DEAN JEFFREY S. LEHMAN: Okay. Our first panel is on the topic Adapting to Rapid Changes in Consumer Behavior. Let me take just a few moments to introduce the panelists. The panel leader is Donn Davis. Donn is a graduate of Miami University and the University of Michigan Law School. He was a media lawyer with Sidley & Austin in Chicago for a few years before joining the Tribune Company in Chicago. At the age of twenty-nine he was serving as Chief Counsel of the Chicago Cubs and thereafter he led the Tribune's move out onto the internet as President of Tribune Ventures. In 1998 he left the Tribune to join AOL first as Senior Vice-President of Business Development and now is President of the AOL Interactive Properties Group which includes such businesses as Moviefone, WinAmp, ICQ, MapQuest, and AOL Instant Messenger, which I should say probably consumes about two hours of my teenage son's evening every night.

DONN DAVIS: Is that all? We're not doing our job.


DEAN JEFFREY S. LEHMAN: The commentators are Doug Lichtman, John Riedl and Mary Snapp. Doug Lichtman is an Assistant Professor of Law at the University of Chicago, School of Law, where his research focuses on the question of how modern technology will challenge, redefine and re-enforce traditional legal principles. John Riedl is an Associate Professor in the Computer Science and Engineering Department at the University of Minnesota and also the Chief Scientist for Net Perceptions, an Internet marketing software company that grew out of a research project on collaborative filtering that he started in 1992. Mary Snapp has spent the last dozen years in the Law and Corporate Affairs Department of Microsoft where she is currently Deputy General Counsel leading the group of fifty-five lawyers and sixty paralegals which provide broad-based legal support to Microsoft's worldwide product development groups, its worldwide OEM sales organization and its worldwide marketing groups. I will keep the time on this panel. I ask that the members of the audience write up questions and we should have people with little blue cards who will be . . . I see one person standing back here, over here. As questions come to you ask for a little blue card or if you want to hold one during the talk and then write that's great and then bring them up to me and then I will pose the questions to the panelists after they're done speaking. So without further ado let me turn things over to Donn Davis.

DONN DAVIS (AOL): Thank you, Dean. Hearing Joel Klein just now and his discussion of Microsoft actually reminded me of a Microsoft story from a different perspective, from an AOL perspective. AOL has 8,000 call center operators who answer the phone if you have questions about using your AOL software. Many of the calls aren't even about the AOL software, and such is this one. The caller says, "I have a problem," and walks the rep through the problem. The rep says, "I don't think your operating system is on, can you go ahead and open Windows?" And the caller says, "I'll be right back, I'm not near it right now." True story. My theme to start this panel is we must put at the center of the technology revolution the consumer. There are a lot of issues that are best resolved by keeping consumers front and center in our thinking. Real consumers are not on the bleeding edge, but rather are on the very simple "I'm not near the window." I'm going to try to set up over the next 15 minutes how we allow the technology revolution to flourish for consumers and then have each of the panel members comment on it and then get to your questions.

With new technologies, consumers keep changing the world. The television, telephone, and Internet are the big three transformational technologies. The last one, the Internet revolution, started about ten years ago. Do not be fooled by the dot-coms becoming dot-bombs last year. A lot of fizz and a lot of euphoria went out of the Internet marketplace. It was good fizz that went out of it, because the laws of business are not suspended just by the Internet. You have to have consumers and you have to turn a profit. Internet companies that have both are entering the next phase stronger than ever. We are really just at the beginning of the Internet golden age, the beginning of what will be the Internet Century. The last ten years was a warm-up. The first inning of a nine-inning game. The next ten years are the middle innings--or the second Internet revolution. The technologies that enable interactivity will continue to shape consumers in a very, very powerful way. Both Moore's Law and Metcalf's Law dictate that the Internet is happening faster than television and telephone did. It took three times longer for 50 percent of the people to get the telephone and the television than to get online. Moore's Law and Metcalf's Law. It's happening faster. It's also happening in a much more disruptive way to existing business models and existing behavior. Today more AOL members will send an email than the post office will deliver letters today. Today more people on the Internet will send an instant message than they will make phone calls today. So this is not something that is for our kids' generation, this is in fact driven by my generation. I'm 38 years old. When I sat in this classroom 14 years ago, none of my classmates would have had a computer.

The first Internet revolution made online a convenience for many. I'd like to illustrate this using some statistics you haven't seen. These are ones that make the point for me. The first test is a survivor test. People are asked, desert island, one choice--television, phone, or connected to the Internet. Not even close the vast majority pick the Internet. The second test is what I call a Martha Stewart test (this applies to my parents). My dad's 70 years old, he knew for Christmas I was going to get him a computer. He had never been online or used a computer. I knew he was anxious. I told him months ahead. Finally it comes out why. My mom calls. "We don't have a place to put it." "Put it in the study?" "That won't work." "The family room?" "That won't work?" This is a reality for many. The third test is a friends test. By any measure, the Internet is about interactivity, it is about socialization. Three out of four people have used it to communicate regularly with friends and family. And the last one I call a ultimate convenient test. What's e-commerce about? It's about your pajamas. Stores are open a finite period of time, but online is better than that, it's about your pajamas.

So that's just a warm-up for what the second Internet revolution is going to be about. The second Internet revolution is about making interactivity a necessity for many. We think online will be more central than the telephone and the television. Today there's four key boxes in the home. One entertains you (the television), one sets your mood (the radio), one is for communication (the phone), and what the PC's really about is life management (email, my pictures, my calendar, my finances). These four key boxes are all coming together. When people talk about convergence, one way to think about it from a consumer's standpoint, is the four boxes that most consumers use for their life coming together and alive around interactivity.

The last ten years were about the PC, about narrowband dialup. When I came to AOL, dark ages, four years ago, our service was optimized for 28.8 modem speeds. That was the ideal, where 80 percent of the mass market got online. The next ten years adds critical concepts. Connected devices, home networks, wireless, broadband. What do those words mean? It means interactivity is part of your life wherever you go, whatever you do. It's part of whatever device you use. It should become invisible. Consumers do not buy technology. That's the biggest mistake that I think many Silicon Valley companies have made. None of us want technology, we want services. We want technology to be an enabler, not an end in itself. So the next revolution is really about the connected consumer.

One example of the connected consumer can be seen using your stock portfolio information. Right now it's on your PC. There are stocks you want to follow. You don't want to build a whole new stock portfolio on your mobile phone, you don't want a whole new stock portfolio on your Palm, you don't want a whole new stock portfolio on your cable box. You want your stock portfolio updated and displayed to you anytime, anywhere, any device, any type of network.

So let's talk a little bit about who's going to make all this happen. Joel talked a little bit about the government role. I think we can build on his thinking saying the government is important but not decisive. Another participant is technologists, without them there is no idea. But most brilliant technologies never catch on. Consumers don't buy technology. Another participant is marketers who too often try to sell technology and change consumer behavior through marketing campaigns. Law too needs to be involved, but not front and center. All four--government, technologists, marketers, legal--play a role, but not a decisive one.

When you study the first Internet revolution, it's the consumer that was driving it. The consumer decided on the eventual winners of that revolution. All the constituencies have a major role to play. This is the chain--idea, consumers try, consumers like, industry prospers, issues crop up, all the constituents in the right balance work on those issues. When we artificially or intrusively alter this chain competition's stifled and solutions are not flexible, moderated, and even-handed.

From digital music to interactive television to fair access on cable. From access to privacy to security. These all started with a consumer saying, "I've got a problem." So the question is--How do we create the right framework? How do we create a framework so everybody needed to make the online medium really central to consumers participates appropriately? It's not about a product, it's not about a technology, it's not about a company. It's about a medium. So how do we have the needed flexibility? I suggest we need a prism, not a crystal ball.

What not to do. A crystal ball approach to solving privacy, to solving digital downloads of music, to solving fair access of high-speed cable. Step one of a crystal ball approach would be to guess about the future even though with Moore's Law and Metcalf's Law it's changing every 24 months in ways we'll never see. Step two, would be to make a bunch of rules, not guidelines, but rules based on guesses. Step three would be, let us live with that decision even though the speed of which things change poses a new question. Here would be a prism approach. Let consumers shape the market, let industry respond, and let other constituents shape the debate. This prism framework would be flexible and employ three principles--Freedom, Faith, Fairness. Freedom. Allow industry to experiment and innovate. What we knew two years ago we don't know today. Faith. Nobody wants a Wild West, it ain't good for anybody. People have to have confidence that basic rights, basic security, and basic access aren't threatened. Critical bedrocks. Fairness. What we need is technology-neutral solutions, a reasonable playing field. It's hard to understand the technologies and their impact. That is why a crystal ball approach doesn't work.

I'm going to get the panel rolling with a quick-case study. There was a lot in the news over the last year regarding digital music. I happen to know somewhat well, Justin Frankel, the creator of the most popular music player WinAmp as he was an employee in my group at AOL. So I have the distinction of being his boss as he invented in the exploding digital music market. I learned from Justin, all of 19 years old, that at the center of these revolutions consumers are speaking. In this instance they want a new way to consume music. They don't want to just buy a CD and put it in the single-purpose device. They want the ability to take music portably, they want the ability to share it, they want the ability to remix it. It's a whole new generation of music lovers. So why were some "stealing" music? Because that was the only way some consumers could do it. If there was a legal and paid way to consume music a new way they wouldn't "steal" it. It's just the framework around digital music had not caught up with consumers. Most people in the world don't wake up every day and want to be a criminal, so I think all we've learned this last year is that a new generation of music lovers want to consume music in a new way.

What I'd like to kick off for the panel to talk about is not a debate whether the second Internet revolution is happening and whether its impact is going to be bigger than the first Internet revolution. That's not the issue. What I would like to kick off to discuss is what is the framework so we make sure it's done right. I suggest doing it right comes down to democracy 101 and business 101. By democracy 101 I mean it's about the people--we must put the consumer at the center of it all. By business 101 I mean it is about all the constituents playing a measured role that uses a flexible prism approach. It starts with listening to the consumers and what they're doing and what's not working for them and what they'd like to do that they can't do.

So I guess I'd ask Mary to come up and--even though you are employed at Microsoft, and me at AOL, I'm sure you have a reasonably consistent view with us!

MARY E. SNAPP: Thank you very much. Could we have, since the screen is blue, lights in the front as well? It's interesting--Donn says that it's all about the pajamas, and my theory is that it's all about the chair in the internet revolution. There's first the concept of no chair, and that's with your PIM (Personal Information Manager) or your PDA and your phone, where you're walking and talking at the same time. There's your desk chair that you're using your PC from, there's your easy chair that you're watching interactive TV from, and then there's your bad chair when you're sitting on an airplane and you're using your eBook or your laptop. So my theory is it's all encompassed in a chair, so between the two of us, I think we have it completely wrapped.

In terms of thinking about the topic and legal policy, I wanted to really think about it in terms of a couple of ways. First of all, what is the change in consumer behavior that we're talking about, how does that affect the law and policy issues, and then who's doing the adapting? We are assuming that it might be industry, but it's not necessarily. It could be the government, it could be the courts, it could be the industry as well, and sometimes a combination of all three. And as we look at those areas, I'd like to focus on two particular areas in the law as bases or examples, and that's copyright and privacy. You can find, I think, similar parallels in defamation and also obscenity and decency, but we will focus on these two. At least, I'm going to focus on these two for today.

Copyright law, as most of you know, really had its genesis a hundred years ago in music and literature, and so we're really today adapting what is a long line of cases, based on old technology and old economy to what is a new set of businesses. Less than twenty years ago we had the first case that really looked at computer software and determined that computer software was, in fact, copyrightable. That was decided at the appellate court level in the Apple v. Franklin case reversing the district court which had determined that software was part of the machine, and therefore, not copyrightable. So we've come a long way, even in twenty years in this regard.

I look at 1995 as the paradigm shift with respect to the internet-and copyright law, which had gotten a little bit ho-hum in the software industry. With a string of five or six cases, a copyright has come to the fore again in terms of the notion of adapting old case law to new technology. And in this sort of paradigm shift, what we saw was a raft of cases that were brought with the old legislation, trying to adapt the new technology to it. Many of these cases settled because they didn't really want to be the poster child for the first case in really dealing with new technology in the copyright area. But we then saw legislation passed in a number of these areas, and now what we are seeing is litigation related to clarification of new legislation that has passed. So what we see is a bit of virtuous cycle between technology, consumer demand, legislation, litigation for clarification, and that cycle continues to evolve law and policy, keeping in mind, always at the beginning, the consumer demand. And when I think about copyright in terms of consumer demand, I'm going to talk about three basic areas.

The first is the notion of online service providers. When we think about the internet, many consumers want to go to a particular portal site, and they want information collected there. Online service providers filled that role, but there was a lot of concern in the early days, 1995, 96, 97, about what the liability of online service providers was for direct copyright infringement of third party content--not content that they owned, but third party content, whether it was either stationary posted on their site, placed on their site in a chatroom, whether it was on their site as a result of something called cachéing or mirroring, which helped to improve the performance of that web site, or whether it was on that web site because there was a link to a site that contained infringing material.

This really led to a lot of anxiety among online service providers, and we have a few pieces of litigation in that area, most notably the Religious Technology Center v. Netcom case, which really dealt with the question of contributory infringement of an online service provider, who, with respect to third party content, knew or should have known that the content was infringing. We've certainly started to think about vicarious infringement cases as well. However, with the DMCA, the Digital Millennium Copyright Act of 1998, we have provided some safe harbors for online service providers, and that has dealt with a lot of the anxiety which existed for the three or four years preceding the passage of that act.

The second area to think about is one that Donn's already identified, and that is music on the internet. Clearly, consumers want to listen to music in a new way, and certainly there has been litigation testing the bounds of the copyright law with respect to the new technology. In the RIAA v. Diamond Multimedia Systems, we had the question of whether the Audio Home Recording Act applied from a PC to a downloading from the PC to an MP3 device. The act was written thinking about televisions. And so the question is interpretation of that act with respect to the Rio device. Another case was UMG Recordings v. This is the locker room case where essentially posted about 80,000 different songs on the internet site, users had purchased a CD and they had to verify their purchase, but nonetheless, they listened to that song from the internet. Again, questions of fair use here were asked and really answered, not to the benefit of MP3 with respect to the use of essentially this locker room service. And there has recently been legislation introduced that would make legal certain kinds of those locker room services for people who had already purchased the CD.

The third case is A&M Records v. Napster, and I assume we're going to be talking a fair bit about that, particularly at the end of the panel--or the end of the three days--but certainly we have the peer-to-peer networking sets of issues here, and you have a scenario here where Napster is actually not doing any of the copying, it's not doing any of the mirroring, there's no song that's actually resident, or content resident, on any of the Napster servers, but nonetheless, we have the questions of contributory infringement there. So music is the second area where consumers and law and policy have intersected.

The third area is one that I would call "information or technology access tools." And in these cases copyright law was attempted to be applied, but it actually didn't quite work and so what we find here are courts reaching out to equitable principles to guide their decision in areas where you look really hard to try to find the copyright infringement. There are several examples here. The first is the framing case--Washington Post Co. v. Total News if some of you are familiar with that. But where copyright may or may not have applied, that case was settled. I think, by far, the better claim there was unfair competition or tortious interference with contract. Linking is another example. Is "linking" copyright infringement, depending on what the frame looks like when you go to the site? Probably not, but are there potential claims related to unfair infringement related to, for example, advertising content? Maybe; that could be the case depending on what happens.

Hot news is another equitable principle utilized as a result of the NBA v. Motorola case, and in this case again the question was what rights did the NBA have to exclusive broadcast of the basketball games and information associated with those games. No copyright infringement here because what the associated group known as "STATS" did was basically convey facts. However, the court allowed as how there might be a "hot news" claim related to unfair competition.

And finally, UCITA, which is the effort to change the Uniform Commercial Code to allow enforceability for shrinkwrap licenses and also clickwrap licenses under certain constraints. We think this is really important as an industry, not so much because of the need for copyright protection, but because many of these licenses go beyond copyright protection and impose contract restrictions that are necessary to make those licenses enforceable and actually to allow the business model to be practiced and to allow the broad distribution of low cost technology.

And then finally, legislation. We talked about, briefly, the Digital Millennium Copyright Act, and as a result of that act we already have had several pieces of clarifying litigation. The first is the "DVD hacker" case, which tried to rely on the interoperability exception to the DMCA. The second was the Real Networks v. Streambox case, which really focused on the anti-circumvention provisions of that piece of legislation. And the third is Napster which also attempted to rely on the DMCA with respect to the safe harbor for OSP liability. So-and you'll see it again-litigation following legislation and ongoing advancement of the technology, sparking more questions in the areas of law and policy.

I'll spend just about five minutes on the topic of privacy, and it also is one where we've seen the virtuous cycle at work. In terms of privacy, I think it's very obvious that studies show that about 87% of internet users say that they are "concerned" to "very concerned" about privacy. Actually, only about 25% of those users, those influential users have purchased things online, and I think it's because they now know from Donn Davis that they will be caught in their pajamas! The second piece is what web sites have done and what the industry has done. Virtually all web sites collect personally identifiable information, or "PII." Of the 100 most popular sites, about 45% of those abide by what's called the Fair Information Practices, whereas only about 15% of the other sites do. So I think what you're finding here is that the very busiest, most popular, sites are taking the lead in terms of industry self-regulation. Now why is privacy so significant? Two things, I think. First of all, the internet allows a consolidation of traditional access to information in a way that's never been done before. Before you had to go to many places to aggregate information. For example, you went to DSHS; you had to go to the Vehicle Information Service; you had to go to the courts to collect public information about people. With the Internet you can collect that information almost instantly looking to one place. Secondly is the notion of consumer preferences being tracked online. And there are many ways in which this happens. One is when the user supplies information; secondly are "click-throughs" through advertising, third is cookies; fourth is the browser history that's tabulated; and finally there's the unique serial numbers associated with your PC through which information can be tracked. Now all of this is potentially good because it permits personalization. Essentially, you can decide through the use of this information what data you want to get. But on the other hand, data then is being collected about you as well. So there is a trend in industry to abide by the Fair Information Practices which are: notice of what information is being collected and how it will be used, your choice as to whether to permit that information to be collected or not, your ability to access the information to determine if it is correct, and finally your right to insure that that information is kept very secure.

The FTC has been very interested in this area over the last couple of years. They've issued four studies in the last two years with respect to online practices. They have recommended legislation in the case of kids' online privacy issues with the result being the Online Privacy Children's Protection Act and they've also recommended legislation in the area of online profiling. So I think in this area with the FTC's strong recommendation we are quite likely to see some legislation despite industry self-regulation efforts. There are literally hundreds of bills in the state legislatures today. There are dozens of bills at the federal level all relating to different degrees of constraints or severity with respect to the enforcement of the Fair Information Principles.

Now there is industry self-regulation happening, and I would be remiss if I didn't say a word about this. Certainly we have the seal programs which companies voluntarily join and the primary one of those is TRUSTe. We have trade associations like the Online Privacy Alliance, which by contract insures compliance with Fair Information Practices. Some sites have determined they will not advertise on sites that do not post privacy policies. We have self-regulatory tools that consumers can use like P3P, which allows you to set your preferences with respect to policy and allows, then, you to compare a site's policy with your preferences. We have cookie management or cookie blocker kinds of things, and we have anonymizers where you go through an intermediate party to surf the Internet so that you are not known. And the names of these companies are great: they're Zero Knowledge, PrivaSeek, e-Nonymous. All of these are ways in which industry has sought to self-regulate.

So when I look at these areas I think first about copyright. And in terms of policy, you have the tension between old copyright law and new technology. You have the First Amendment sets of issues, that is, the "information wants to be free" set of issues. You have the tension with competition law and then you have the tension with equitable principles in terms of what should and shouldn't happen with respect to content online. With respect to privacy, we're talking about consumers' need and desire for privacy at the same time as we're talking about access to information being important, at the same time as we are talking about the need for consumers to control their own destiny. And, quite frankly, the third piece of that is that even if you believe that "information wants to be free," there needs to be a business model, a viable business model on the Internet. To date that has been advertising and guess what makes advertising rates more lucrative: the ability to provide more personal information or demographic information that you collect when consumers are online. So the intersection of each of those points among those two areas I think will be quite significant for now and probably for the next 10 years.

JOHN RIEDL: Good afternoon everyone, I'm John Riedl. I'm an associate professor at the University of Minnesota and chief scientist at Net Perceptions.

In November of 1992 I was at the computer supported cooperative work conference and I saw a talk given by Professor Shumpei Kumon who's a technologist who studies the overarching flows of the affects of technology on our society. And he gave a talk in which he described something that he referred to as the wisdom economy. His idea was that we were soon going to see a change from the age of information in which we live today to the age of wisdom. Now what did he mean by this? Well the idea is today most of us would already say we have enough information. Does that fit your model of the world? Do you get enough in your email today? Do you find enough in your law books today for what you need to read? But what we need is to get just that piece of information that's most interesting to each of us, that's most valuable to us that lets us do our jobs better, that lets us study more effectively. Now at that conference with me was Paul Resnick and we got talking about this problem and started speculating about how we could solve the problem of the age of wisdom. And we felt there were some fundamental technologies that were missing. These are technologies that would help connect people to the information they need more efficiently than any technologies that had been seen before. But the problem with all the technological approaches that were being taken to date is that they were fundamentally trying to make the computers more smart about what humans find interesting or deep or valuable. And that's something, that as a computer scientist I can tell you, we're several decades away from. Now I believe in a philosophical sense that getting computers to be just as smart as us isn't all that hard. It will happen eventually. In fact we heard Donn mention Moores' Law before. How many of you know Moore's Law? So about half of the people in here? I'll tell you Moore's Law and Metcalf's Law, which Donn also mentioned, are more important than any other law you will learn here in law school. What it says fundamentally is computers keep getting faster and they keep getting faster so much faster than anything else that can happen, exponentially quickly, that the speed of computers is going to dwarf our imaginations over small periods, just a decade or two decades. So I buy computers are going to be just as smart as us. HAL is going to happen. The problem is it won't be for quite a while. So what are we going to do in between now and then?

Well in between now and then we need to do something that lets us all gang up on this information overload problem. And what Paul Resnick, who's now on the faculty in the school of information here at Michigan, and I came up with is a model that says what we're all going to do is take the time to share with each other our opinions about all of this information. And then we'll have a computer do something that a computer does really, really well. Which is lots of ugly statistics and number crunching to figure out based on what you think is interesting what I might find interesting. We call that collaborative filtering and that's the heart of something called recommender systems. What we're going to look at today in my part of the panel is three things that have been happening over the last 10 years. Those things are first the use of recommender systems to make the life of consumers better. The second is the use of recommender systems to make businesses more money. And the third is the conflict between those two goals and how that fundamental conflict leads to two problems that somebody had better resolve.

So first, recommenders help people. Here's a picture of the website that I use in my research group. We call it MovieLens and it's a website that helps people find movies that you might like to see. I encourage you to go check it out if you're interested in movies. This is an example of the MovieLens website helping a group of, I think it's five people in this case, find some movie that all of them would like to go see. And it shows collections of movies on the far left and then stars telling which people would like which movies.

Here's another version of this site. Last Christmas I spent my Christmas vacation hacking up a version of the site that runs on my phone. So now, is this a great app or what, you walk into Blockbuster all of the movies that you wanted to see or ever heard about are checked out you whip out your phone, click a button or two, tell it what kind of movie you're in the mood for and then it gives you back a set of movies that you might like to see based on your personal preferences and its experiences with you at that site. This is changing the way we consumers deal with information. No longer is information just ganging up on us, now we're ganging up on it.

Here's another example of MovieLens. This is an example of what we call an explanation interface. The problem you find with these recommenders is that when they give you a list of things some of the times you look at them and you say, "Why do you think I would like My Life in Rose? Why would I like that movie? Why would I ever go see it?" And the explanation interface lets us tell you what it is that convinced us that that's something you would like. We can say, for instance, well you've tended to agree with these 100 people over the past 20 movies that you saw. Every single one of them liked this movie; you probably ought to go see it. It's something that you're likely to like. Or we can say look we've been predicting for you for a year now; we're right 98 percent of the time, shut up and go see the movie. We call that the law professor style of recommendation.

Now let's take a look at how recommenders are helping businesses, which in many ways is at odds with how it's helping people. This is an example of GUS, which is one of the largest call center operations on the Internet. And people call in to GUS in Great Britain trying to buy stuff. They have a wide collection of all sorts of eclectic kinds of things that they're trying to sell people. And they did a study where they used their traditional cross-sell methods which say if you buy the housecoat you might like the pink bunny slippers, for instance, because a marketing person thinks that's what people ought to buy. And then they also compared that to using a recommender system based on collaborative filtering to try to understand which group of people you had been similar to in your past purchases and make a recommendation to you based on that similarity. Now what they found out is that they were able to take the average cross-sell value up by 60 percent, read millions of dollars per year, and the cross-sell success rate went up by 50 percent. More people accepted the suggestions if they were made using this technology than if they were made using traditional marketing methods.

Now what does that mean to businesses? Well to give you an example, a very large company that does a whole bunch of catalog sales, they won't let me tell you their name, but they just did a big study with one of their accountants, Price Waterhouse Coopers, in which they analyzed the costs and the benefits to them of putting this technology in on their sites. And they came up that it would benefit them, net, $20 million per year to put this technology in. So that's why businesses care.

Here's another set of three examples. I'll just pick one of them. Let's say the middle one because it's the most surprising. This was a medium-sized, European, outbound call center operation. So this is a place where they call you right about when you're sitting down to dinner to try and sell you something. And in this case they were trying to see a whole bunch of electronic equipment that was overstocked--it hadn't gotten sold when it was supposed to so they wanted to push it out to people who might like it. So they used a recommender system to go figure out who they should bother during dinnertime and then to call those people and ask them if they wanted to buy it. And they found that they got a dramatic increase in the rate of acceptances using this technology. 6.7% of the people they called bought the $350 average purchase price item, which is incredible if you've ever looked at statistics from one of these centers. That's at least double maybe triple what a call center would be happy to achieve. So this is why businesses care a whole lot about this kind of technology.

Now there are two problems I'd like to point out about this picture. And I'll catalog them both under where's the wisdom? When I started out telling you how Paul Resnick and I were going to go solve the problem of the wisdom age and when we look at what businesses are doing with our technology we find that they're not using wisdom in two ways. One deep and one shallow. The deep one I'm going to return to in the next segment of the talk, the shallow one I'll cover now.

The shallow one is almost all of these applications are applications of recommenders to commerce, not to information, which was a great shock to us when we founded Net Perceptions six years ago we thought that everybody was going to want to use our technologies for helping people find information. That's what we had been studying in the research lab, that's what we thought was most important. And the reason for this, I think Mary touched on earlier in her talk, which is nobody's figured out how to make any money from information. Right, if you go up to a newspaper that's online on the web and you say, "Look I've got a technology that's going to help your users zero in on the information that they really want and find exactly the parts of your site they're most excited by and your customers are going to love this," you know what the site will usually say? "So great they're going to click on fewer pages because they find what they want. I'm supported by advertising. How does that help me? I'm not in business," they'll say, "primarily to help my customers. I'm in business to help my advertisers." Isn't this an interesting problem?

Let's look at the deeper questions now. We're going to do that by talking about the future of recommenders, asking the question about how this conflict between businesses and consumers is going to be resolved. First of all, privacy. Privacy versus personalization is often seen, I think correctly, as a conundrum. If you have perfect privacy you don't get any recommendations. I can't tell you what kind of product you're going to like best if I literally know nothing about you. If all I know is what color tie you wear, I know you're not a computer scientist but I don't know anything else about you. And, on the other hand, if I know deep information about all the things that you've done on my sites since the beginning of time and I've been tracking all that click stream information that Mary talked about then I know a lot and I can probably make good recommendations. But you have legitimate concerns. Am I going to treat that information wisely? Mary talked, and I think in a very positive form, about industry self-regulation. I'll give another spin on it. Has anyone looked at Amazon's privacy policy lately, just to pick an example? Go read it. What's it say? It says "Okay we'll share your information with anyone we're really friendly with. And, if you've been following the news lately, if we go bankrupt we'll share it with anybody we want to to make some more money." Now how does that make you as a consumer feel? I mean that's a privacy policy. It's officially stated, they tell you what they're going to do with your information almost whatever they want to do with your information. That's something we have to be concerned about.

Microsoft Wallet is something that Microsoft has proposed off and on as a way of solving this privacy problem. They say, "We'll solve the privacy problem. Give all your private information to us and we'll keep it secret." Enough said. So is this a question of the business versus consumer fundamentally, well yes and it is in other ways as well. For instance here's a website called, until recently one of my favorite websites for getting information about things I might want to buy. Here's some PC speakers because I wanted to buy a surround sound system for my new personal computer. And as I went to I got a set of ratings on all the speakers and these ratings are written by other consumers just like me. This is great collaborative filtering in action. Recommender system helping me find what I want. So what happened? Does anyone know the ending of this story? Ever heard of A subsidiary of eBay. New owners of Deja. Maybe not mostly concerned with my happiness in life because they're a business that makes money by selling things to customers. This is the trend. Do businesses want the recommender to mostly help us? Is that their job? Is that how they see the world? Or do the businesses want the recommender mostly in order to sell more products, which they're being pretty successful at as I showed on the earlier page? Another business was talking to me about the possibility of using an offshoot of recommendation technology that we've been studying that let's you figure out what circular adds to put in those little inserts in newspapers to figure out how to make more money. They figure that per year they can save and make a net of about $30 million by using the technology. Now that's enough money to change a business' behavior.

What do I see as happening? Well I think we have to have two sledge hammers that are going to make life better for us. And the first of those sledgehammers is what I call profile in a pocket. I can put all of the opinions I need about you on a smart card device in about 40 kilobytes of information. You can carry it with you wherever you want. You don't need Microsoft Wallet or keeping all your private information in order to get good recommendations. You can get good recommendations when you keep your information in your pocket. Of course, after you get those recommendations you're still probably going to go buy something so we also need to anonymize payment and shipping. It turns out that's not that hard. It's reasonable technologically. We computer scientists know how to solve this problem. Someone go make a business to do it please. Where I can buy something from a company and they can ship it to me without ever knowing who me is or where I live. Isn't that cool? Ask me about it later and I'll tell you more about it.

Or we can do personalization in a pocket. Here's my old technology PDA palm five, PDA device. This PDA has about 4 megabytes of memory. In two megabytes of memory I can write a total soup to nuts personalization service, a recommender system that recommends to you which products you want to buy and that runs on a device you carry with you in your pocket. Now you don't need the business to give you recommendations. You don't need Deja. Nobody can buy your PDA from you and start subverting it and making it do things that you don't want it to do. That's a very exciting technology. So I can do this in two megabytes. New PDAs now a days have 64 megabytes of memory. Very reasonable that we'll have that type of technology to carry with us.

So the bottom line. When Paul Resnick and I set out to try to realize Shunpike Koumone's vision of a wisdom economy we realized there was an opportunity for technology to take over and to make our lives better. What's happened to date is that this technology is being subverted by the businesses that are implementing. We all have to participate in making a case to businesses that by serving us better, by creating value for us they're doing the thing that will help them and the thing that they have to do. Otherwise we're going to go get personalization in a pocket and not need them anymore. Thank you very much.


DOUGLAS LICHTMAN: I'll keep my comments relatively brief just so we can get open to questions. But when I was first invited to talk on this panel I read the topic, and the topic was Adapting to Rapid Changes in Customer Behavior. As a law professor who teaches technology-related courses, I was itching to be invited to a slightly different panel. Something along the lines of Adapting to Incredibly Slow Changes in Consumer Behavior--because on that one I've got a lot to say it turns out. Law reacts well to slow. Rapid is sort of put in there to get us law people a little nervous. Law doesn't move quickly and you know that just from the things that we're talking about here. That everyone so far has just referenced Napster without explaining it. We know that we all already know that. That should be surprising to us. That we all have had enough time to understand a big legal case; but again it's gone on so slowly that we have. Same thing with Microsoft. We're just referencing things and theories about Microsoft assuming that everyone will already know them. Tells us something about law. That law moves really slowly. That we think that this stuff has already gotten so into culture, so into popular press, that everyone knows these concepts and knows what's at stake. Law moves slow and it's something that we're always reminded of as we're thinking of legal issues related to the topics of this panel.

That said, I'm not sure that slow is a bad thing. I think Donn was sort of getting at this in the beginning of his remarks. One thing slow does is it keeps the government out in the beginning. He talked of prisms and crystal balls. What I think what he was trying to say is government shouldn't move too quick. Let the government be a little slow, let more information come out and as government gets more information we'll do a better job dealing with law. Again think of Napster. We really understand that issue so much better today than we did a year ago. And so the slowness has helped us and helped the courts have time to figure out how you address these issues. So slow can be good in that way, in a way sympathetic to what Donn said.

Slow might be good in another way, as well, and Napster is probably a great example of this. In that slow might make it that we don't need to get involved as a legal matter. Might instead be that strategy and other sort of business moves can come in and solve problems. This actually is going on right now and Napster is still being fought out in the courts and musicians are still making music. They can't wait for the courts to solve this. And so a popular group called Barenaked Ladies released a CD about a month and a half ago. Again and they knew that the Napster case would still be going on but they wanted to get their music out while people still enjoy them. And so what they did was say we're not going to wait and use the law, we're not going to see what happens in the case. What we're going to do is we're going to think about this strategically, we're going to play smart.

How did they play smart? Well what they did was they went onto Napster themselves and they put up files that represented their own music. They pretended that they were college students and put hundreds and hundreds of files into the Napster database as if it was their latest music. So the CD came out and they flooded the net with their own music. Of course when you went on Napster and downloaded this music thinking you were getting it safe from a University of Michigan student and instead accidentally getting it from the artist it wasn't the right stuff. You download it, you hit play, you got five seconds of a song and then the Barenaked Ladies would cut off and say, "Excuse me, if you're a fan you should be buying our music and not stealing it on the web." Incredibly effective though, right?

If you think about what the war was, the war here is the battle between the price of legal music and the price of illegal music. And Barenaked Ladies recognized that all they need to do is make illegal music a little more expensive. Make it a little more time-consuming, a little more difficult. And they could totally do that by flooding the market with, in essence, decoy files. Right now Napster is cluttered with Barenaked Ladies music most of which are these duds. At the same time they got cute PR. They didn't do it nastily and cleanly the way I just summarized it. They were really funny. These were great little downloads actually worth going to Napster just to get these. They make jokes about how the technology has evolved, about how they're being so tricky and so on. They did it with a nice PR spin.

And again the big point here is that they didn't need to wait for law. They already used technology to sort of mitigate the problem, they realized Napster is a community of folks who don't know each other, it's an anonymous person giving music to another anonymous person. So they said, "Hey, we can do that. We watched "The Mole" on ABC, we recognize this idea that you can sort of sneak around and pretend you're a nice person and in fact not be" and so they did that: they polluted the database and solved their problem. So law being slow may be not such a big deal.

That said, what I do worry about, as a law guy, is to worry about what happens when law does get involved? Again if slowness just gives us room to get more information to be predicting things that we understand better, and slowness gives room for strategy to come in and solve problems so maybe law doesn't have to, at the end of the day though law is getting involved later on. I mean it's kind of difficult in a lot of these settings to know how to get involved and let me give you two examples just to show why it is we're not sure what to do.

One: if you go back into the 1960s where the big antitrust case we talked about wasn't Microsoft it was the case against the Bell Telephone System. And in that case we can read those documents knowing what's to come you see how difficult these issues were even pre-Internet. For example one of the early skirmishes in the breakup of the Bell system was a question over whether Bell had to allow other parties to make telephone equipment. It was sort of conceded in this time period that Bell was going to own all the wires and the question was if you own the wires did you also get to make and sell all the telephones? Or could you have someone else come in and make phones. So for example if I wanted to open up a company and make a Snoopy telephone, the question was was I allowed to do that? Or could Bell say I own the wires so I also get to decide who makes the phones? The Department of Justice came in and thought they were weighing in on the side of innovation. They said we like having a lot of folks involved, we think we want different companies that want to make Snoopy phones, someone will make a cool conference phone and so on, so they said, "Bell if you try to stop this market we're going to come after you." And Bell said, "No, you're completely missing the point. The reason we want to control both markets is that that's best for innovation." Bell said, "You know, Department of Justice, if you get what you wish for, we have one set of companies making telephones and then us doing the wires it will be very hard to upgrade the phone system. If we want to upgrade the phone system we're going to have to get all these other companies to agree to change their equipment too. We'll change the wires and we'll have to call the guy that makes the Snoopy phone and he'll have to change his phone. Call the guy that makes the conference phone, he'll have to change his phone and so on." And Bell said, "That's really going to be difficult. So once you take what was one telephone system and let a large number of firms get involved you're slowing down innovation."

They made this argument in court. They lost but it's at least a plausible argument. It gives us pause. We don't quite know what the answer is. Maybe telling Bell to play nice was the right thing, maybe not. Law had to make that decision, the Department of Justice made that decision, it's not clear it was the right decision. There's something to Bell's point about keeping the system under uniform control to allow change. If you don't believe in the phone system think of FM radios. If the FCC tomorrow, the government entity that controls the regulation of that area, said they want to move the FM spectrum from the numbers you're used to to a different part of the spectrum we'd all revolt. We'd say we'd have to throw out our FM radio and have to buy a new one. We wouldn't want to do that. We'd resist change. Why? Because we own some of the equipment and the radio broadcasters own different equipment. Same thing. So when you separate out ownership of a system you might slow down change. Again just note how difficult it is for law to analyze these.

At the same time we're worried about law dealing with new technologies too and sort of the new technology John talked about is amazingly interesting technology and we have to think about dealing with that. Just to throw one idea out and some ideas John said. I think First Amendment issues are going to come up in this recommender system collaborative filtering world. John paints it, as he totally should, as a boon for the consumer. Right, we're going to give you this new way to move information around and that way you're going to get to choose what you want to listen to. Choose movies, choose books and so on. And we might react to it and say, "That's great for free speech." That's going to make sure we listen to a lot of different things, we get things we enjoy and so on. But I worry and I don't know what the answer to this is, but in general law worries about the role of money in speech markets. We all want to make sure it's not only the wealthy who gets to speak but actually a lot of folks get to speak. And so for example cable systems are regulated in part to make sure that people other than just those who have ownership rights get to speak on cable. Cable owners have to allow other folks to put information on and so on and the idea is we want to make sure that even if you don't have money you can come online and let your information go out on the cable system. Well I wonder how important money's going to be in a world of collaborative filtering? Where you've got these databases of recommendations and I'm a very wealthy speaker. My bet is I can seed the database. I can go out and immediately get a hundred people to look at my item just by paying them to do so. And once I've done that my bet is the database is going to start recommending my product because the database is going to be familiar with it. A lot of people will know about it and so the statistics that John gets to run in his system will tend to pop my information out. So if I have a book and I have a lot of money I can overwhelm his system quickly with my money and then he's going to start recommending me. So again you have this weird tie that we have to figure out how to deal with as a legal matter. We always have to worry about money and the First Amendment here in a new technology we're going to have to figure out the technology to understand how money and technology work.

Overall where am I going with all this? I think I'm going to say that these markets look the same as every other market to me. I don't see anything radically different here. We always have a setting where law is a little slower than the pace of change. That might be good. Again, give the government time to catch up, gives strategy the time to solve problems so the law doesn't have to. Always when law does get involved, it is not easy. It would be a dull business I was in if it was easy to figure out the right answers. We wouldn't need smart folks like Joel Klein running the show. These are complicated questions as the Bell example points out. There is not an intuitive answer to go with.

I sort of disagree with Donn to summarize at the end by saying the customer is always right, people always win. I don't think that is right in any market, let alone this one. Usually when we talk about the customer is always right you say it with a wink and a nod. Or when the waiter comes up to your table at the end of the meal, agreeing with whatever you ask him to do, saying the customer is always right. You don't feel good about yourself. It's just his way of saying you're wrong, but as a business matter I'm going to do what it is that you told me to do.

And I think as a policy matter, that's the half we keep in mind. We recognize that the customer is not always right. We don't take people as we find them. We sometimes intervene. We try to give them more information. We sometimes overrule them. Same thing with people always win, we know that the people don't always win. We think maybe Microsoft is doing stuff that the people don't like. Making us use products we're aren't completely happy with and so on. We sense in all sorts of markets that market power and other factors cause the people to lose.

The final slide is actually great--I'm sitting here being a discussant reacting to what's said. The final slide was good--the last two things that Donn said I think are off. The customer isn't always right. People don't always win. And that's great for what I do, it leaves a little room for law to come in. We can help solve some of those issues. Come and help, make sure that the customer is getting things that they ought to get. Sometimes trumping them, sometimes trumping the companies who don't really want to serve exactly what the customer wants. And I think that we can also help to make sure that the people have some of the power against some of these large corporations that they might not.

DEAN JEFFREY S. LEHMAN: We have just about 15 minutes left. I'd like to ask the panelists to come back up. I've got a bunch of questions here. I've clumped the questions into three clumps.

When technology becomes so integrated in our lives that we are not aware that we have become dependent on it, is that not the point at which it becomes dangerous? Explain those dangers and whether this is an area where law should intervene to think about technological dependence.

It seems that the consumers are more controlled than ever because the technology has become more sophisticated even as it has pretended to become more friendly and easy. Don't you think that the crystal ball or the prism approach would ultimately lead somewhat surreptitiously to a corporation driven world, rather, while perhaps giving consumers the impression that they are in charge.

And finally, in a consumer driven economy how does innovation go beyond what the consumer can perceive and, therefore, demand? Will we somehow be limited to what today's consumers know how to demand?

So a set of questions about the relationship between the producer and the consumer. The first one really is the pusher and the drug-dependent person. I'll open it to any of you and in any order.

DONN DAVIS: The second question reminds me of a certain argument that some people have made about AOL. They've talked about this walled garden which they state doesn't really have consumer choice because AOL is not the open Internet. When you look at the user statistics we have 35 million AOL members and they spend more than half of their time in this walled garden despite the Internet being pervasive and always a click away on every screen of that walled garden. So, that indicates that consumers don't always want a wide-open set of choices. Happy meal number 4 is probably the most successful selling hamburger in the world, right? Why is that? Consumers don't want five million things on the menu. They want to try happy meal number 4 provided there are other choices on the menu if they want them. That way consumers have the best of both worlds and I don't think you get into a dangerous steering of consumers. Instead you have a selection for consumers and yet choice for more.

JOHN RIEDL: I'll take a swing at it from the perspective of are we consumers being controlled. And I would say that with recommender systems that's a very real danger. The marketers understand us better than they ever have before and they're able to make predictions about what our behaviors are going to be. On the other hand, as someone who understands what the technology is underneath, I feel a lot less control when I think of it as I have a whole bunch of friends who are trying to help me find the next book to buy. Now, there's a really intriguing question underneath that. What if someone is subverting that recommender system so that it's not really a whole bunch of friends telling me what book to buy but as Douglas was suggesting what if it's a whole bunch of sneaky people trying to trick me into buying this book that I don't really want? That's a question I haven't seen any strong research on how to handle. There was a paper at this year's electronic commerce conference (ACMEC) conference in which they addressed technologies that you can use to search for patterns of opinion behavior that seem bogus. And you can look for those patterns of behavior and try to say this really isn't a opinion of the marketplace saying this is a good book for you. This is somebody trying to get in the system to try and get you to buy this book. Now the question that I'd raise and kind of the underlying theme to my whole talk is how are we going to make sure that businesses use the technology in that right way and the healthy way rather than businesses going out there and trying to get in the systems themselves. You know an example of that is Amazon sends out emails trying to talk people into buying books. And they've just recently announced that they now will expect the publishers of the books to pay for having their book recommended in the email. Now of course they promise that that doesn't influence editorial decision, which we all believe. But that's an issue.

MARY E. SNAPP: I would just like to take a crack at part of this question, too. I'll focus on the drug dealer and the pusher. I'm not so sure that technology advancements and the notion of people becoming "dependent," was the word used, on technology is any different today than it's been for the last 100 years. You can think about, for example, buying a car. I mean we're pretty dependent in our society today on a car. Does that make a difference between some people's ability to work in certain areas whether they have a car or not? Certainly. Can you make parallels with that sort of mobile transportation and the digital divide? I think so. And so I think what you really come down to is that you shouldn't necessarily impede technology advancements but certainly there's a role for legislation and the court system and consumer demand to try to guide the advances in such a way that it ends up protecting consumers where they need to be protected. It's very interesting, you come down to this question of the personalization versus privacy sets of issues and I agree with John. That's a very complex topic area. I'd like to take a cut at personalization in a different way

With the ability to personalize your preferences I think we risk a society in which an individual chooses and can choose not to be exposed to a wide range of ideas and thoughts that they are otherwise exposed to in other aspects of their lives today. And I've heard this example used where someone says, "You know they open up a newspaper, they're interested in a certain article but as they flip through they get interested in something else and they read two or three articles in the newspaper." If you instead have your personalization preferences set up on your computer and on your Internet choices you may not see those kinds of things. Is that good for society as a whole? It may not be. How do you manage something like that? And I think that's sort of the flip side to one of the privacy kinds of issues.

DEAN JEFFREY S. LEHMAN: I've heard that last phenomenon described as narrowcasting, the opposite of broadcasting, as the sort of limiting the range of ideas and people you can become exposed to.

JOHN RIEDL: Yeah to pick up on Mary's idea. We've been asked a bunch of times, "Well what if you do perfect collaborative filtering? Doesn't that mean that all the Ted Kaczynskis get together into the unabomber forum and get to talk to each other about being better unabombers and they're not harassed by all of us complaining about it. And you know that's a risk. And that's something that there's a real issue with. I saw a talk by Bob Putnam who's the guy who wrote Bowling Alone. If you haven't read that I strongly recommend it. A great book about why the social network really matters. And one of the challenges he gave to the computer science research community he was talking to is we have to be exploring the ways in which our technology is going to influence society and asking questions like this. A famous psychologist who studies human user interfaces, Sarah Keisler at Carnegie Mellon University, was in a tutorial I gave on recommender systems earlier this year and she said that one of the things we ought to look at is this line of psychological research that says that if you put two people in a room together and they don't know anything about each other, they'll just ignore each other. But if you put them in a room together and you can tell them something they have in common you can really help to encourage them to create a network with each other. So as an example we could put any two of you in this room who use MovieLens, we could put you in a room and say, "Hey guys, this is a movie that you two would both really love. This is something you have in common. You ought to consider talking about this movie together." And that's a way technology can actually bring people closer together than they might have been otherwise. It's kind of interesting to think about that whole spectrum of the negatives and the positives.

DEAN JEFFREY S. LEHMAN: I want to call things to an end by asking everyone to please thank our wonderful panelists for a terrific panel. We resume tomorrow morning with a detailed focus on the topic of privacy where the panel leader will be Jennifer Granholm, the Attorney General of Michigan. Thank you again for being with us.


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