Google-Verizon Pact: Makes BP Look Good

Internet service providers need only one loophole to really kill an open Internet. Maybe the most ridiculous one is the liability limit. The maximum fine for a violation that could make a company billions is $2 million dollars.
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A lot of people have been discussing the Verizon-Google pact, including venture capitalists (on NYT's Room for Debate) and Silicon Valley companies. Most people agree: Google does evil, calls it net neutrality.

Last week I wrote up a guide of the FCC negotiations on net neutrality, setting out all the loopholes, and noting that the carriers needed only one loophole to kill an open Internet. Verizon and Google announced their pact two days ago. Rather than including one loophole, they went down the checklist and included just about every loophole they could.

Maybe the most ridiculous one--which has received almost no attention--is something I didn't mention last week. It's the liability limit. The maximum fine for a violation, after all the loopholes are met, is $2 million dollars.

Limiting liability comes straight from the corporate lobbyists' playbook to get away with whatever they want.

Let's say you want to engage in off-shore drilling. There's a slight chance of, um, a huge environmental disaster in the Gulf causing billions in damage, requiring billions for clean-up. No worries, says BP. Limit liability for clean up to only $75 million.

This liability limit has become a symbol of corporate greed in passing the risk of disaster to the US government and US citizens.

Yet, the BP limit is almost 40 times larger than the Google/Verizon pact.

You have to hand it to Google. Going from "Don't Be Evil" to "Greedier than BP" overnight is a pretty impressive trick.

Let's play this out a little.

Vuze. When Comcast blocked peer-to-peer technologies, a company called Vuze filed a petition with the FCC. Venture capitalists had invested over 20 million in Vuze. Under the Verizon-Google Pact, Comcast could violate net neutrality, after all the procedural hurdles and loopholes tying Vuze's lawyers (and its funders) in agency litigation, Comcast would only have to pay $2 million.

Facebook. Google competes with Facebook, having a social network that was once popular in Brazil. Let's say, through a shady deal between Google and Verizon, and no disclosure, a pure flagrant violation of net neutrality results in Facebook operating with annoying glitches. Users are frustrated. Facebook loses market share. Facebook presses its case, tries to prove Verizon is interfering. After months of litigation, Facebook manages to convince the FCC--though the FCC is usually captured by telco companies like Verizon. So the victory is great news. In fact, Facebook even gets an injunction--going forward, Verizon can't engage in the same activity.

But what does Facebook get for months of lost market share--some of which may not return--and months of litigation? Verizon has to pay 2 million dollars.

Verizon makes 2 million dollars in revenue every 10 minutes. Verizon makes 10 million in profit every 3 hours.

Facebook, while still private, is likely valued at far over a billion dollars. It is so much cheaper for Google to pay off Verizon and mess with Facebook than to invest in a better social network, or something else useful for society. (I am assuming social networks are more useful than blocking technologies and lobbyists.)

I know: why would Verizon and Google do something so egregious? One goal of law--as we learn in law school from the first day of contracts--is to deter bad behavior. If the punishment for bank robbery was $10, we'd have more bank robberies. Google and Verizon would mess with Facebook because there is no penalty. Oliver Wendell Holmes used the example of the "bad man," explaining we cannot assume people will act well without any penalty. Verizon and Google have a duty to their shareholders to maximize profit. Their proposal essentially says that cheating on your taxes lets you keep the taxes, if you pay 5 bucks. Of course their shareholders will expect cheating; the law makes it profitable.

Maybe that's why Facebook opposes the pact. The pact is full of loopholes, and then, in the $2 million dollar fine, a trap door.

The same works for any other company. Amazon has billions in revenue. While interrupting Amazon, even egregiously, without disclosure, Verizon can direct consumers to its own e-commerce site. For Verizon, just three hours of profits is enough to take billions in market share from Amazon. What would stop them? This is easy money. Easier than innovating.

Amazon too opposes the pact.

Let's say you're a venture capitalist. You know, one of the ones who supports net neutrality. Like all of these guys. You make an investment in a software company you think could hit big. You invest 1 to 5 million, if not more, depending on the round and nature of financing.

For three hours of profit, or a mere 2 million fine, Verizon or AT&T or Comcast can run roughshod over your company. You can bring a case--but only for wireline interference, not wireless (the biggest loophole). You bring your case to forums favoring the carriers, to be honest about the FCC. You hire lawyers who can address every loophole, who likely are specialized in the FCC. And then, after all that, if you win (unlikely), Verizon pays the FCC a measly 2 million...

You're better off just bribing Verizon to stop blocking you. Or paying for priority on the new, different Internet with paid priority, that is part of the pact.

But I guess, that's probably the point. For Verizon and Google, you having to pay to play is a "feature" not a "bug" of the 2 million dollar fine. It gives them leverage.

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