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In a piece I wrote a couple of weeks ago, I talked about the lessons to be drawn from the aftermath of a six-year-old bankruptcy story about United Airlines carelessly posted on a Bloomberg site, comparing it to wacky Internet rumors about the presidential candidates:

With human judgment so eclipsed by responses to atomized, instant data, can there be much doubt that intentional manipulations—of the markets, and of the electorate—should be expected?

Yesterday an anonymous citizen journalist posted to a CNN site that Steve Jobs had been rushed to a hospital after a heart attack, and Apple’s stock dropped 5.4%. The SEC is investigating.

Of course there are morals here. That citizen journalism, the exploitation of millions of eyes and ears through the wonder of Internet connectivity, is a wonderful evolution of journalism, except when it isn’t because any damn fool can say anything and there’s no validation or fact-checking. That instantaneity, much as we love it, sometimes has a big pricetag. And maybe that it’s worth asking whether the law protecting CNN in this case (it bears no responsibility for the anonymous poster’s falsehood) may be a little too generous.

But mostly what I’m thinking is that it didn’t take long for one of my predictions to come true. The other one, about the opportunity to manipulate the election by spreading a last-minute rumor, wouldn’t be timely quite yet. But I’ll bet there are people thinking about how to pull it off.

A report out of the University of Toronto, sponsored by the OpenNet Initiative, reveals that text messages sent via the Chinese variant of the popular Skype software, known as TOM-Skype, are not only filtered and censored, but stored, apparently for later analysis. The report is only 12 well structured pages and easy to read. There is also a New York Times story about these discoveries.

In 2005, Skype, which is owned by eBay, formed a business relationship with TOM Online, a Chinese provider of wireless services, to launch the Chinese version of Skype called TOM-Skype. The service advertises end-to-end encryption, making it a favorite of dissidents and democracy advocates. The Epoch Times reported, for example,

Skype has become a popular communication tool among democracy activists in mainland China in recent years. Due to its excellent vocal clarity, fewer imposed restrictions, and an end-to-end encryption feature making it difficult to monitor, many Chinese democracy activists have favored Skype over traditional telephones and other similar communication tools.

It’s been known for some time that not all text messages were getting through, and that mentioning Falun Gong and such prohibited institutions would cause messages to go undelivered. When called on it, Skype claimed that the messages were simply discarded. Not true.

Not only not true, but drastically not true. The full text of the messages is retained on servers in China along with the identifying information about their source and destination — and so are some messages without any significant keywords, apparently logged based simply on their sender and recipient information.

Due to weak security on the TOM-Skype servers, the researcher was able to download more than one hundred thousand messages and analyze them. Many mentioned the Communist Party or quitting the party or Falun, but others mentioned democracy, the Olympic Games, Taiwan, or milk powder.

The technology is there to do the surveillance — and much of it is in private hands, cooperating with governments in highly profitable ventures that are not what they seem to be.

Skype unequivocally states that there is no surveillance of voice conversations. But why should anyone believe them?

Blown to Bits will be re-launched next Tuesday, October 7, in a conversation hosted by the Berkman Center for Internet and Society, where I am privileged to be a Fellow. The event will take place in Maxwell Dworkin G125 at 6PM, and will be followed by a reception in the lobby. We’ll finish in plenty of time for people to go off and watch the presidential debate. Further details here. Hal, Ken, and Harry will all be there. Come and join us!

Readers of B2B Chapter 8 (Bits in the Air) know about the dynamic of spectrum utilization. Incumbents who got use of the spectrum when technologies were less advanced and could use the resource less efficiently fight to maintain their control and to keep out any competition. They simply have no business reason to look to the public interest of letting others use what they regard to be their land — even though they don’t need as much of it as they used to — or for that matter to use any newly available land, if that would create competition for their business. This dynamic is a huge innovation-stifling force.

The issue of the day is what to do with the parts of the spectrum that will be freed up with TV broadcasting goes all-digital, which will happen in this coming February. The stakes are extremely high, and the level of distortion and rhetoric matches.

There are two basic possibilities; To auction the spectrum to private parties who would be licensed to use it, keeping out anyone else, in exactly the way television, radio, and cellular telephone incumbents now hold licenses to use certain spectrum bands; or to allow the spectrum to be used in an unlicensed fashion, in the way the use of little radio broadcasters and receivers, in the form of the wireless routers used for Internet access in homes and in coffee shops, emerged when a small sliver of spectrum was made available for unlicensed use some years ago.

As the federal government looks for ways to raise cash these days, the advocates for licensed use are claiming that an auction for licensed uses might raise as much as $24B, and that unlicensed use would cause all manner of interference with everything from television to the wireless microphones used in churches.

Advocates for unlicensed use counter that the amount that could be raised from an auction is grossly exaggerated and the interference claims are bogus. And that the economic benefits of allowing the development of unlicensed technologies are enormous. (“Unlicensed” does not mean “unregulated.” Those wireless routers have to stay in their spectrum band and under their power ceiling.)

A clear and sober rebuttal of the incumbents’ claims is in a report called “There is No Windfall in the White Space” by the New America Foundation. From the Summary:

As Alexander Pope opined, hope springs eternal: And exploiting this natural optimism are interest groups holding out the hope of a budgetary windfall for a cash-strapped Congress if only more spectrum can be auctioned at ever-higher prices. Now it is the turn of the digital television (DTV) “white space” to spur this forlorn hope. And this hope is as precisely forlorn as the economic analysis presented below concludes. A one-time auction of the guard band and other vacant channels in each local television market ‚Äì so-called “spectrum white space” ‚Äì would provide minimal revenue to the Treasury, while simultaneously ensuring that most of this unused “beachfront” spectrum will remain fallow, stifling the broadband services and innovation that could generate far more long-term economic activity.

Or you can read this brief report about Google co-founder Larry Page’s opinion, as he expressed it to Congress this week:

Calling claims of potential interference with existing broadcast stations “garbage” and “despicable,” Page charged that FCC field tests this summer had been “rigged” against spectrum-sensing technology that’s designed to enable exploitation of white space.

Google, as we blogged earlier, wants to promote a technology that would allow the same phone to use whatever cellular service is available. More than that, it would actually take bids, on the fly, from the services whose signal power in the area was strong enough, and place the call on whatever network made the best offer.

The level of rhetoric is quite high here. But it’s a once-for-all-time decision between having the government sell an asset to the highest bidder to cover a small part of its debt, or making it available for the public good through innovation by a much broader variety of private enterprises. The incumbents’ experts simply can’t be trusted, and the NAF report explains why.

Just when you thought it might be safe to go back into the water …. the DMCA anticircumvention sharks have started circling again.

Last week I blogged about how it is becoming more and more apparent, to the content industry as well as to consumers, that Digital Rights Management (DRM), enshrined in law through the DMCA’s anticircumvention provision, is a dead-end business model as well as a drag on innovation. See Signs of a Move Towards Balance? (Part 2 of 2).

But not everyone has gotten the message, in particular not the Motion Picture Association of America, which today filed a lawsuit against Real Networks, charging it with violating the DMCA by distributing RealDVD.¬† The RealDVD software lets consumers copy DVDs to their personal computers.¬† It doesn’t permit unlimited copying, but rather uses its own form of DRM to lock the copy to be playable on only a single PC; additional PCs require additional licenses.

What we’re seeing here is another example of the dynamic described in B2B, where the industry uses the Copy Control Association (CCA) licensing scheme to squelch innovations that they don’t like: innovations like RealDVD that (horrors!) make DVDs more friendly¬† for consumers.

Real Networks, for its part, has filed its own suit, asking court to rule that RealDVD is in compliance with the CCA license.¬†¬† That’s not unreasonable: at first blush, RealDVD seems a lot like the Kaleidescape case described in chapter 6 of B2B, where the content industry huffed and puffed, but where the court found there was no license violation.¬† Yet, that was a different court.

Regardless of who wins in court, the fact is that this continues the DMCA’s track record as a dead weight hanging over the head of innovation.¬† Decisions that should be made on the basis of technology and consumer choice are instead being made by courts struggling to interpret a law that was a bad idea when it appeared in 1998 and has revealed itself to be a worse and worse idea every year.

Hal, Ken, and Harry are on Emily Rooney’s Greater Boston tonight at 7pm, on WGBH in Boston (Channel 2, the local PBS affiliate). We’re probably going to be the final segment, airing about 7:20.

Here’s a link to the recording of our segment.

There’s plenty of reason to be angry at Congress today, but the House, at least, has gotten one right. It passed a bill, H.R. 6146, with a very simple text, once you get past the preamble and definitions:

Notwithstanding any other provision of Federal or State law, a domestic court shall not recognize or enforce a foreign judgment concerning defamation unless the domestic court determines that the foreign judgment is consistent with the first amendment to the Constitution of the United States.

This is aimed at fighting back against libel tourism, which is a product of the Internet and the globalized economy. In Blown to Bits we tell the tale of a lawsuit successfully undertaken in Australia against a magazine published in the U.S., because of an article allegedly slandering an Australian businessman, Joseph Gutnick. Australia decided that the magazine was “published in” Australia because Barrons sent the bits there — that is, you could sit in Australia at your web browser, click a few links, and the story would appear on your screen. Australia follows U.K. conventions about defamation, which are much friendlier to the plaintiff than those in the U.S. First Amendment rights to free speech are so strong in the U.S. that you have to do a lot to say something about someone for which that person could collect damages.

So the bill essentially says that even if someone wins a libel suit against you in his own country, the U.S. courts won’t help him collect the damages, unless his country has the same free speech standards as the U.S. (which few places do).

This bill doesn’t solve the problem by any means. If you’re an American guilty of libel in Saudi Arabia, maybe U.S. courts won’t enforce the Saudi court’s judgment, but you probably don’t want to plan your next vacation for Riyadh, or you’ll get arrested. More seriously, if the defendant is a corporation — Dow Jones, say, which publishes Barrons — this law can’t prevent the plaintiff’s government from seizing its assets in that country, or imprisoning its employees.

Still, it’s a start, as the New York Times correctly editorializes today.

In a piece we published in May, we noted:

[Geolocation] data would be a goldmine for advertisers targeting their ads at cell phones — they would love to know not only who you are, but where you are. And it would be a boon for shoppers, too — imagine being able to ask, when Nordstrom’s doesn’t have your favorite stockings in your size, if any nearby store has them in stock.

But to do that, you’d have to have enough information about what you were looking for to type in the identifying information, or else spend time Web browsing, a clumsy process on a cell phone. Not very realistic as we described it.

A Japanese company has an application for Google’s new phone that does something similar to what we had in mind, but much more practical and more widely useful. You see the stockings in the store, whip out your phone, and point the camera at the bar code on the package. The camera doesn’t actually photograph the bar code; it reads it, and then gives you back a list of nearby stores with the same item, and what they are charging for it.

Brilliant. If I were running a fancy department store with high ceilings and high overhead, I’d be shaking in my shoes at the prospect of people using my nice premises for shopping, and discount stores for buying.

More on retail applications of bar code scanning by cell phone in this article by Erik Hermansen.

Signs of a Move Towards Balance? (Part 1 of 2) reported on the mistrial in the Jammie Thomas case, with the court coming to appreciate the overreaching of prosecutions for music sharing, rejecting the RIAA position that simply “making music available” should be punishable as unauthorized distribution, and Judge Davis recommending that Congress reconsider the egregious statutory damage penalties for copyright infringement.

Last week’s other optimistic signal was the continued erosion of DRM-protection as a means of music distribution.¬† Digital Rights Management (DRM), remember, is the technological band-aid that prompted the 1998 Digital Millennium Copyright Act (DMCA), the law that we rail against in B2B as an anticompetitive drain on innovation. We argued in the book that DRM hurts consumers and competitiveness, and we took approving note of some alternative distribution models for music that were coming to market just as we were completing our manuscript, such as the availability of DRM-free music from Amazon.

Two days ago, MySpace joined the DRM-free music distribution party with what may turn out to be the most significant of all the new models: MySpace music. MySpace users can now select from hundreds of thousands of non-DRM tracks to stream to their computers. The service is free to MySpace users, supported by advertising. You must be connected to the net to use the service. If you want a copy to listen to off-line, you’ll have to buy it from Amazon or iTunes.

Actually, I bet people have already using stream recorders to save he tracks for offline use. But in any case, having to be connected to the Internet isn’t a big deal any more. The reality is that MySpace users now have the “universal jukebox”, as we described it in B2B, that Napster presented in 2000 and 2001. The appeal will be just as great, and this time it’s legal. Of course, where MySpace goes, can Facebook be far behind? And who knows what other budding social networks? We’re finally coming to the end of the hallucination that DRM is the key to the Internet content economy. Today it’s free music tracks, but video will follow: it’s only a matter of storage and bandwidth, and the inexorable pace of Moore’s Law. Are you listening, MPAA?

As if on cue, but surely unrelated, Walmart yesterday announced the death of a third large DRM music service and the consequent stranding of consumers. This follows on the heels, as we previously reported, of Microsoft (April 23, 2008, MSN Music RIP) and Yahoo! (July 26, 2008, Yahoo joins the ‚Äústrand our DRM customers‚Äù game). As of October 9, the hapless purchasers of music tracks from Walmart.com Digital Music, will no longer be able to move “their” music to new machines, compliments of Walmart ceasing to support its license server.

So DRM-based music distribution continues to die: consumers don’t want to buy it, providers don’t want to support it, and there are wildly better alternatives emerging. But it’s still the same old story with Congress continuing to not get the message, and continuing to grasp on to DMCA anticircumvention and even starker penalties for copyright infringement. Our solons still live in fear of some 1990’s bogeyman story of entertainment industry imminent collapse that never was true and becomes more transparently a fairy-tale every day.

As we wrote in B2B:

If the content industry moves to better business models and the DRM battles subside, the DMCA’s anticircumvention provisions may continue to be anti-consumer, anti-competitive blots on the digital landscape. Unless repealed from the legal code, they would remain as battlefield relics of a war that was settled by peaceful means—unexploded ordnance that a litigious business could still use in ways unrelated to the law’s original intent.

Let’s give all those Congressman MySpace accounts, so they can learn what a dying system they’re trying to shore up.

If you have a WiFi at home and in your office, you can carry your computer back and forth and the radio transmitter and receiver in the computer will connect to whichever network is available at the moment. Same if you take your laptop to Starbucks.

Why doesn’t your cell phone work that way? If you have a contract with T-Mobile and it works fine in your apartment, you may go to Starbucks and find you have no reception, even though everyone else there is happily chatting away on their phones. If they have Verizon and Verizon has a good signal at the Starbucks, they may not be able to use their phones if they come visit you at your home. The only recourse under these circumstances is to cancel one contract and take out another — hardly something to be done so you can make a call from Starbucks — or even more absurdly, to carry two phones. Why can’t someone make a phone that just latches onto whatever cellular service is available locally, and works out the billing in some seamless way?

Because of the way the radio spectrum is split up among the cell phone companies. It’s a regulatory, not a technical problem.

And Google is out to fix it. The company has filed a patent on technology that would work in the obviously right way, and it has asked the FCC to change the way the spectrum is allocated to make the necessary blocks of spectrum available.

This story is very much along the lines of Chapter 8, where we plead for deregulation that would stimulate innovation and vastly greater efficiencies in the way the spectrum is used. What we have is lockdown of the spectrum by a few incumbent stakeholders, who will, no doubt, raise all kinds of bogus technical claims about the problems with Google’s proposal in order to protect them from competition.