I’m Betting That Overwatch Loot Boxes Aren’t Gambling (under 31 USC 5362)

Disclaimer: As with all of my posts, this is NOT LEGAL ADVICE. This is academic analysis on a subject of law – and I don’t even have a good tool set (WestLaw, Lexis, etc) for that.

Introduction: Micro Transactions and Loot Boxes

The business model for free to play games is to include micro-transactions for aesthetic, trivial add-ons. For Counter Strike: Global Offensive, this manifests as the opportunity to pay a few dollars to buy a key to unlock boxes which are randomly distributed during play. Paying to unlock a box gives a play a random chance to receive aesthetic enhancements for a weapon (a “skin”). The rarity of the skins varies widely. Some of the most rare and prized ones are occasionally sold on eBay (or other 3rd party sites) for over $1,000.*

The question is: Are Loot box systems gambling? What about cereal boxes, TCG booster packs, or other things that allow children to participate in contests involving chance?

Some internet-folk grew a discussion thread to eight pages on the Overwatch forums discussing this topic, and not a single one of them reached for a legal definition of the subject at hand. People just talked about how they felt about the subject. Apparently, it takes a law degree to find the first search result on Google. Law has some flexibility – and that makes these questions difficult-, but there are rules, people!

What is the Definition of Gambling?

(For simplicity, I removed references to Insurance, Commodities, and Securities.)

31 U.S. Code § 5362 – Definitions

(1)Bet or wager.—The term “bet or wager”—

(A) means the staking or risking by any person of something of value upon the outcome of a contest of others, a sporting event, or a game subject to chance, upon an agreement or understanding that the person or another person will receive something of value in the event of a certain outcome;

[Lotteries and gambling administration]

(E) does not include—

[Insurance, Commodities or Securities]

(viii) participation in any game or contest in which participants do not stake or risk anything of value other than—

(I) personal efforts of the participants in playing the game or contest or obtaining access to the Internet; or

(II) points or credits that the sponsor of the game or contest provides to participants free of charge and that can be used or redeemed only for participation in games or contests offered by the sponsor; or

[Fantasy Sports]

Analysis: Winning the Gamble Must be Distinct from Winning the Prize

The real key is in part (1)(A): “upon the outcome of a contest of others, a sporting event, or a game subject to chance, upon an agreement or understanding that the person … will receive something of value in the event of a certain outcome.”

Let’s take three examples that are not legally considered gambling: buying TCG booster packs, putting random prizes in cereal boxes, and… *sigh* there are a lot of reasons I don’t want to mention a certain online service that sends subscribers monthly boxes containing a random assortment of goodies… but imagine that such a thing exists.

My best guess** is that the law requires the “certain outcome” and the prize (“receive something of value”) to be two different and distinct things. In the case of cereal boxes and booster packs, the “certain outcome” is the prize. There is a chance of getting a Holographic Charzard, but winning only means getting the Holographic Charzard. You cannot “win” the card without, at the very same time, having the card: winning the prize always already entails having the prize.

In contrast, consider some examples that are legally considered gambling: slot machines, lottery tickets, and blackjack. In each of these cases, the outcome entitles the player to a prize: the slot machine dispenses quarters (“makes it hail”) as a result of the outcome. For a slot machine, the outcome itself is only a sequence of matched cherries or bars; for a TCG booster pack, the outcome of opening a pack is having a stack of cards.

This distinction may seem pedantic or petty, but it allows people to play games of chance without involving money. It allows people to play poker among friends for no money, or to made idle wagers for fun. It allows Disney to sell boxes of figurines with one shrouded “mystery” figurine included and it allows schoolteachers to play “Science Bingo” in class. It’s a tiny distinction that allows a lot of innocent behavior.

Application To Loot Boxes

However, there is still an interesting metaphysical investigation required to conclude this legal analysis: is the opening of a loot box like the opening of a booster pack, or is it like playing a slot machine? Is it actually two different events, or only one? Does the computer run the RNG when it is unlocked, and then determine the prize based on the outcome of the RNG? Or does the loot box already “contain” the prize before the opening?

Blizzard already told players not to bother hoarding loot boxes in the hope of getting future skins, because the contents of the box are already determined when the box is given to the player. If this is true (and if my guesswork-analysis is correct) then there is good reason to think that loot boxes are not legally considered gambling under 31 USC 5362.

I don’t know if a judge would actually go to this level of technical granularity, but there has been a long-standing debate about whether electricity should be legally classified as a “good” or as a “service” – and the distinction relies on a scientific understanding of whether you are being given electrons at your home, or just having your electrons vibrated. It seems like the order of operations carried out by a computer program is somewhat of a macro-level question than the movement of sub-atomic particles.

 

*A tiny cottage industry grew out of this: 3rd party websites that allowed people to wager their digital property from Valve’s game. Several of these sites were recently issued cease-and-desist letters after one of them was revealed to be promoting itself under false and misleading pretenses on YouTube.

** I looked around, and was surprised that I didn’t find a case, law review article, or law that dove into this issue with more specificity. I suspect that there has been a case about this, or at least an article – I just don’t have access to a law library right now.

Watching Over Copyrights and Brands, Part II

You can protect a brand in a lot of ways. You can wave the law around like a sword, or hide behind it like a shield. Or you can not worry about using the law to your advantage and just make a product that others can’t top. One of the most fun things about law school was learning about all of the ways around the law – not breaking or circumventing it, but bridging over the gaps and cracks. Gaps and cracks happen most when the law hasn’t kept up with culture or technology, which is where I think the law is most exciting and interesting.

One of the most genius aspects of the overwhelming media hype-package of Overwatch is the way it manages concerns for copyright and trademark infringement. Blizzard achieved a level of branding and promotion that reduces their concerns for infringement. Overwatch is inimitable. That doesn’t make it invulnerable, but it might be the next best thing.

Junk from Rats Can’t Hurt the Bastion of the Marketplace

Even before I ever visited New York City, I knew that people sold cheap, counterfeit Rolexes on the streets. Having this explained to me as a child is also how I heard about Rolex, incidentally – and learned that it was different from Rolo. I always thought it was interesting that everyone knew about this black market for counterfeit goods, but no one seemed extremely worried. I think one reason for the lack of concern is that Rolex knows they won’t go out of business because of cheap knock-offs.

The best games, from the biggest studios­, have less to worry about when their IP is infringed or “heavily borrowed.” Dominating the games market is less about legal force than it is about marketing and loyalty. For one thing, Activision can’t claim copyright over the concept of a military-shooter and force other studios to not make games that compete with Call of Duty. So Activision makes Call of Duty a brand, because brands command loyalty. A given Call of Duty game may be worse in every respect to a competitor’s game, but fans will still choose the inferior product because of its franchise. (This is one of two reasons anyone rooted for the Cubs from 1945- 2015.) Blizzard created something powerful: a genuinely superior product that commands tremendous brand loyalty.

Just Palette-Swap For A New Game! Sounds Pharah- don’t you McRee?

Of course, just because no one can succeed in really ripping off Overwatch doesn’t mean people won’t try. League of Legends had this experience, also. Generally, game knockoffs like these are about as much of a concern as e-mails from dispossessed millionaire Nigerian princes. It’s a reprehensible practice that creates clutter and will accidentally trick some people, but they aren’t going to displace the original.

Companies can compete with Overwatch, but they can’t replace it. The entire experience is too complete and interconnected. No parasitic effort can trick a gamer into thinking they have the real deal, no one can deliver a superior version of the same experience, and no one pull more brand loyalty in online gaming.

Leaving your Trace(r) Mei Show that You’ve been a (Road)Hog, and You’ll Get No Mercy

Although Blizzard won’t feel the financial impact of the feeble efforts of clones, there are things that can still undermine the game. For example, a company could make an add-on that allows players to cheat at the game. Of course, a company called Bossland did exactly that. Rather than simply ban the players who use this add-on (per violations of EULA and ToS agreements), Blizzard has gone after the makers of the program – who are super proud of what they do.

I am a little bit surprised that they cite copyright infringement in their claim. This is interesting because it seems well outside the scope of traditional copyright law, but copyright law has been slowly evolving in the last decade. I think the technical details of how Bossland’s program interacts with Blizzard’s game could be essential to determining if applying copyright law is appropriate. After the recent ruling in Google v. Oracle, courts are more likely to find infringement just from making two programs talk. (The fair use defense that saved Google is not going to help Bossland.) In this case, it seems extremely likely that Bossland had to access and take (or manipulate) some of Blizzard’s code, which may be enough for infringement. But the ways that 3rd parties can interact with programs is still an interesting question for copyright law to resolve.

Regardless of the copyright claim, I think the other claims made by Blizzard are plenty strong enough to win, so I don’t think a court will end up going into detail about it.

Watching Over Media and Brands, Part I

More than any game I’ve ever seen, Overwatch is a multi-media, total brand experience. The trailers for the game could compete with Pixar shorts in every respect. The game is supplemented with comics, toys, and a professional eSports scene. It sets new industry standards in showmanship, advertising, and storyline. This is a lot more than just a video game. This is the new model for integrating a concept across every medium and platform to reach every possible audience in every way. This isn’t just the new benchmark in video games. This is the blueprint for every successful future entertainment product. Blizzard understands “today’s media landscape” as more than a business-boardroom buzzword. Other industries also have successful examples of dominating multiple platforms, though none quite on this scale.

Today’s musicians can’t get away with merely releasing music. They need to tweet and vlog, and most crucially, they need to do live performances. Katy Perry recently set the record as the most followed person on Twitter, even though publishing 140-character quips was never in the job description of a musician or a pop star. Similarly, writers can’t just write books anymore- they need to write about their writing, and then talk about writing about their writing with other writers who want to talk about talking about writing. John Green aspired to be a writer when he took a job doing data entry at a publishing company. At the time, he didn’t hope to become a transmediaplatformleader-we-don’t-have-a-word-for-this-thing. However, his understanding and use of YouTube and Twitter allowed him to promote his young adult fiction beyond what a traditional book publisher would imagine. His new media fed his career in the old media, and vice-versa. (And compared to Twitter and YouTube, video games are old media.*)

Movies won’t succeed just by creating more epic battle scenes in 3D to justify the expense of going to the theater. They need to change the experience in more fundamental ways- they probably need a smooth integration of social media, but they also need some interaction the viewers can’t get outside the theater. They need to learn what Prince knew: you can’t get the live-show experience sitting alone in your home. One way movies could adapt to the 21st century is to turn an evening at the movies into a kind of social event, akin to a concert, sports game, or convention. Another way is to make it an even more technologically-driven experience, with augmented reality or virtual reality – a kind of entertainment-themed, futuristic, individualized experience like a museum or library. That is a lot more expensive, though, and all of the theaters near me just spent a lot of money upgrading their seats.

The media channels of the 21st century aren’t just more avenues for information – they are layers of information interacting with the other layers. Television programs and movies also have to adapt to the way consumers use the newest technology. Adaptation looks like spreading out- growing to cover a larger area – but it’s also about moving to new places entirely. Entertainment has to infiltrate and flow through multiple channels. It also still relies heavily on sponsorship in many cases, which means advertising also has to be integrated across these media.**

There are other ways of adapting, such as just adding alcohol to a bookstore.  Don’t rule anything out, I guess. Especially if you don’t think anyone under 21 even knows about your store or your product, anyway.

 

 

*Not that video games are mainstream yet. My Facebook newsfeed recently informed me that Torbjorn was set to be “‘nerfed’ for consoles in future update.” The word “nerfed” was in quotations, which tells me that mainstream journalists don’t know what it means and don’t think it’s a word. (Or they’re very conscious about not genericizing Hasbro’s trademark, even though that trademark is, strictly speaking, in all-caps.)

**The alternative to advertising is some form of upfront pay-to-play, which is what Overwatch did.

 

 

Her Data Is Part of Her Story, But Her Story is not Just Her Data.

Her Story” is a great example how piecing together bits of information can create a picture of a person or an event. It is also an example of some of the limits of that picture.

Hack Her Data, Hack Her Story

Her Story” is difficult to describe or classify as a game. It’s a little like trying to find and organize the pieces of a detective novel. The game doesn’t give the player a lot of direction; part of the game is the discovery of the game itself. The game allows the player to search a police database to find short movie clips from several police interviews with a woman. No context is given for why the woman was interviewed or why the player is searching the database. However, by finding and watching the clips, the player gains clues that allow new searches. This cycle of searching and information is the core mechanic of the game.

Hacking to Learn

Hacking can mean a lot of things, but it is broadly about investigation (sometimes, it is an investigation that is against some laws). It can be done for a wide range of reasons and can take many different forms, many of them legal– or even a legitimate business. Regardless of the specific details, hacking always involves exploring the possibilities and limits of a system in order to learn or discover something. In “Her Story,” the hacking is learning what the in-game database can find that will help the player piece together a coherent string of events and characters.

The Limits of Hacking

Even after hacking together all of “Her Story,” something about the picture is incomplete. Why is the player watching these interviews? The game gives the player this answer after piecing together enough of “Her Story,” but hacking a person’s data doesn’t necessarily answer all of the questions about that person. For most criminal hackers, the pieces of data have enough of the story: credit card numbers, bank accounts, social security numbers, addresses, birth dates, etc. Sometimes we need more than a collection of data about a person, and those are often cases where believing data too blindly can cause problems, from legal decisions in courts or policies to judgments in our interpersonal relationships. As mountains of data pile up for each of us, the temptation to describe and explain people using that data also grows. This data has a lot of appeal because it can measure and evaluate some things very effectively. This effort to make life more efficient comes brings at least two potential drawbacks: First, the data can be misleading in myriad ways, and second, the data seems so powerfully scientific and sound that questioning it (or its interpretation) can become almost taboo.

Her Story

There will always be hackers trying to steal financial information and identities. But that threat is known and recognized, so experts fight against it and consumers take protective measures. The data we give to companies and employers and government is riddled with pitfalls, and blind faith in big data will amplify those problems. In “Her Story,” twists emerge as the player pieces the plot together. After enough of the story is pieced together, the game asks the player if “you understand why [the woman] did what she did.” I’m not sure any collection of data can ever really answer that.

Where Is The Fair Use? Where Its Always Been.

Copyright law is not the most difficult area of law. Contracts, Torts, and Constitutional Law are massive categories that cover a lot of dense and complex content. However “easy” copyright might be, it is still an area of law with technicalities and layers of exceptions and conditions. Though copyright law doesn’t have the Rule Against Perpetuities or questions of Personal Jurisdiction, there are other complications: the triennial review process for 1201 research exceptions, or the federal preemption exemptions under the 1976 Copyright Act for pre-1972 recordings, for example.

Fair use is a sliver of copyright law that doesn’t seem complicated, but people can still get it wrong. In programming, brackets and semicolons matter if you want your program to run and not crash. In law, words and details matter if you want a favorable result. Being sloppy or lazy, generalizing broadly, or simplifying and condensing are all quick ways to lose in law. The fair use doctrine can feel easy for an educated adult to grasp, but there are important details in this tiny section of US law.

Fair Use Is Not Everywhere

Fair use is not a defense against the abuse of a copyright claim system. A huge part of the #WTFU discussion has been the complaint that takedown notices (or strikes) are issued by people who don’t have any claim to the copyright. This is a problem, but it is not a fair use problem. To use the fancy words: The copyright abuse of which most YouTube content contributors complain is a failure to meet the definitions in section 101, or to meet the cause of action available in section 501(b). Section 107 exceptions to copyright are not implicated. Therefore, there is no “fair use” claim.

Fair Use Is Not Pretending You Didn’t Do It

The true fair use part of #WTFU is that copyright holders issue strikes against critics who (arguably) deserve the protection of fair use. The unsatisfying answer is that this in accordance with the law. Section 107 of the United States Code is an exception to copyright infringement. Fair use is really a defense that says, “Yes, I am violating copyright, but I have an approved reason to do it.” Fair use admits copyright infringement. It does not replace copyright infringement. (The 9th Circuit in Lenz notwithstanding.)  In this case, the law is designed to defend accused infringers, not prevent the accusation.

Fair Use Is Not The Money Maker Yo’ Federal Statutes Gave Ya

Fair use is not meant to protect commercialized activity. Whether Nostalgia Critic is covered by fair use is an interesting question, because he’s “doing criticism,” but he’s also “doing entertainment” and monetizing (even if indirectly) the video. * Fair use is not a checklist that gets someone a total exemption from copyright infringement if any single box gets ticked. It is a balancing test, and all of the factors get considered. Balancing tests make for the least clear and predictable answers in law.

The Best Case For Fair Use On YouTube?

The strongest fair use argument is for “Let’s Play”-style content. Games are meant to be played. They are supposed to engage the decision-making faculties of the brain, in the same way that movies are meant to engage the sight and hearing of the audience. In an important way, filming someone playing a game is like hearing someone read a movie script. Not only is it transformative, but it changes the economic impact analysis. Uploading music or film to YouTube may well replace the original content, but I disagree that footage of someone else playing a game is a replacement for playing the game.** A court might not see things this way.

Situation Normal

The daily internet realities of copyright and trademark don’t match US law. The real problem is not that Google*** is failing to deliver on the legal promise of FAIR USE. The problem is that the law is more or less working as it’s written. There are questions to ask here, but I don’t think Google has those answers.

 

 

*There have always been book reviews written for profit, as well as parodies and commentaries of works. But not every case of journalism, parody, or fandom wins under a section 107 defense. And that’s why it’s a grey area- or at least more grey than people realize. It is clear that 17 USC 107 was never meant to support commercial entertainment enterprises, so it is a little off-kilter to hear people invoke it as essential to their livelihoods. However, it’s also clear that Title 17 of the USC was never meant to prohibit criticism or education.

**It is very important not to confuse “Let’s Play”-style content with eSports, because footage of someone else playing a game is a very good replacement for … that person playing that game.

***All of this ignores some relevant DMCA analysis and distinctions between US Federal Court and YouTube’s Content ID System.

“And We Shall Call It… This Land.”

The “Wild West” makes a great setting because of the potential for exciting adventures to be combined with deeply human stories. From video games to books to film to television programs, the setting always lends itself to a certain kind of appealing story. The collection of myths and legends about the expansion of the United States around the end of the 19th century was influenced by political conditions at the time as well as the propagation of new, life-changing technologies.

The stories about this era are characterized by three elements: the chaos of lawlessness, the excitement of opportunity and discovery, and the dangers of an inhospitable world.* These elements are also current forces on the internet. As technology pushes the frontier ever further, these “wild” elements become more obvious. Music is the most familiar territory of this frontier, but 3D printing has already started to show its unwillingness to fit some naming conventions – and  even experts don’t have words for what we’re about to start doing this year.

I. Adapt or Perish?

Metallica** famously brought the suit against Napster that eventually led to the P2P service’s closure. Last month, the band’s manager declared that YouTube is now the villain – or, more specifically, “the Devil.” Radiohead put it a little more gently, only saying it is “the Wild West.” Music was one of the first discoveries in the frontier of the internet, but it remains unsettled because the internet keeps unfolding new possibilities. However, there are those who have adapted and succeeded. Metallica won’t “do something” about YouTube, but if Metallica doesn’t join the 21st century, YouTube will probably “do something” about Metallica. It is a mistake to show up to the frontier and behave as though you are still in the city. The Wild West is nothing if not competitive, and survival requires using the new resources to overcome the dangers of the frontier. The internet won’t be the end of music, but it is very probably the end of many 20th century business models of the music industry.

II. Nameless Crafts

Copyright (like all intellectual property) requires attribution to work. The world has to know who created a work in order to protect that work.  Michael Weinberg has pointed out that there isn’t an easy or obvious way to actually affix the attribution of a 3D printed object to the object itself. Other works of art subject to copyright have some kind of attribution somewhere in the work itself. Paintings, of course, are often signed in a corner. Films often play some credits over the main title sequence, and then include the full attribution information at the end. Near the front of almost every published book is a page with the copyright and publication information on it (I was taught in 2nd grade that it should be the second verso, but I was taught that in a room with card catalogues, so it’s clearly archaic). Digital media has publication information (and sometimes purchasing information) included in the data or metadata. But the actual blueprint for a 3D printed object rarely includes the name of the designer (or the conditions for Creative Commons use). How we think about attribution might need to be rethought—or how we structure the ecosystem of 3D printing might need a little adjustment.

III. Unnamed Arts

Tilt Brush is a program developed by Google for use in this year’s generation of virtual reality devices. Google describes it as a painting program, but I think it’s better described as sculpting virtual space itself (and maybe simultaneously painting the sculpture as the creation is summoned). For my part, it’s as awe-inspiring a sight as anything that explorers, settlers, and cowboys saw when they went West. It is just as much of a frontier: breathtaking, wondrous, a beautiful world of possibility.

I have already traced a little of the lineage of copyrights. Photographs and musical recordings had to be worked into the law. Now a new technological possibility is born, and the law must again decide how to accommodate it: Should a work created inside Tilt Brush be considered a painting, a sculpture, a computer program, or some entirely new category of copyrightable work? I think it’s extremely telling that artists use “painting, “sculpting,” and “designing” so loosely and interchangeably. They are the ones doing it, and the ones most proficient in doing it, yet they don’t know how to say what they are doing. Can we blame them? They are conjuring art from the digital ether in a world that we fold up into a microchip. Why would anyone have a word for that until you’ve done it?

Do We Have to Settle This Frontier?

How we decide to think about a new kind of technology and its relationship to copyright makes a very big difference. In 1908, there was a question about whether the player pianos (ever so popular in the Saloons of the Wild West) were violating copyright. The Supreme Court decided that the piano rolls were not reproductions of the music. Part of the dicta explains that the piano rolls were not readable in the way that sheet music was readable, as the rolls could only be read by machines. This case was superseded by other laws and cases, but it’s very obvious that the digital era could never tolerate the principle that translating a work into machine code removes its copyright protection.

IV. The Ever-Expanding Frontier

Civilization “won” and “tamed” the Wild West by just building on top of it. It’s possible that big business interests will shape policy and technology to accommodate their needs in the digital frontier. However, I think the success of start-ups shows that there is success to be had in adapting to the new landscape. Adapting to the landscape might be more successful than forcing the landscape to adapt to the old notions of how civilized folk ought to go about their affairs. The internet is still a frontier. The parts of it that are now wild and lawless, full of opportunity and danger – it will all get settled eventually. Of course, by the time that happens, there will be new frontiers and new adventures.

* Each of these connects with deeply American cultural values of independence, hard work, and determined endurance.

**I love the twist that the most successful and enduring band of Generation X’s loud, anti-establishment music has been the front man in the fight against the sudden and unsatisfying effects of Generation Y’s hallmark technologies. I guess Metallica lived long enough to see themselves become the monster– or the establishment, if you like.

Popping Caps in CS:GO and Cable Cutters

The big selling point for capitalism is usually “innovation and progress.” When folks compete in a free market, they try to make the best product at the lowest cost, and thereby win the customers and the money. The market rewards those who can find new ways to make a product more efficiently, or who can simply provide a better overall service. The winner is the one who can do the best job, and when your society is full of the best possible products and services, everyone is a winner.

But economists never count on some of the alternative strategies available. Sure, you can try to win more customers by making a better product—or you can surround your competitor’s store with lava. That’s another way to win.

Cheese or Cheating?

In the CS:GO quarterfinals of DreamHack 2014, Fnatic was losing a match to LDLC. Fnatic stunned the audience—and even the shoutcasters—when they performed a previously unknown “boost” maneuver that allowed them to see most of the map. Using this vantage point, Fnatic went on to stage an amazing comeback and win the quarterfinals round. LDLC filed a complaint with DreamHack administrators, arguing that the specific “boost” performed was not legitimate. DreamHack administrators eventually agreed, and determined that the match should be replayed (Fnatic declined to replay the match and LDLC advanced to the semifinals round, eventually winning the tournament).

The legitimacy of the boost remains an extremely controversial topic. Some argue that players should be permitted to do anything that the game allows them to do, provided that they do not modify the actual code of the game. Others argue that the effect of this technique gave clear evidence that it was a game flaw (to those who are familiar with the game), and Fnatic should have known that its use would not be permitted by the tournament rules. (Specifically, the use of the boost made some wall textures transparent and the boost was considered “pixel walking.”) Along with a lot of implications for game developers and esport tournaments, a central question here is: what is the difference between cheese and cheating?

Cheese is the use of an unorthodox or surprising strategy or tactic to attempt to win a game in a way that avoids the standard methods of play. It is often considered bad manners or unsportsmanlike, but finds some level of tolerance in competitive game play. (Cheese strategies are prone to backfire badly, as they often require a very drastic “all-in” decision which leaves little room for recovery if not successful.) Cheating also avoids standard methods of play, but does so through a violation of established rules.

Data Capping or Kneecapping?

Comcast supplies cable as well as internet. Thanks to the smorgasbord of entertainment options available on the internet, people don’t need 17,000 cable channels when they want to engage in one of America’s most popular past-times: doing “nothin’.” Many Americans are cancelling their cable subscription services (“Cutting the Cord“) because they can get the entertainment the need from the internet. Comcast might have noticed the drop in their cable subscriptions, because they started imposing data caps on some cities. The effect is that people can’t watch unlimited Netflix if they only get 100GB/month, so they have to go back to cable if they want to watch shows and movies. Comcast is using its power as an ISP to “leverage” its revenues as a cable provider—not by making its own product better, but by interfering with its customer’s ability to access a competitor’s product.

So, is Comcast bending rules or breaking them? There is no law against ISPs imposing data caps on customers. Comcast’s merger with NBC-Universal was approved by the Department of Justice. Comcast’s market conditions are not like the capitalist’s ideal free market: Comcast has the incentive to interfere with entertainment-content providers, and they have very few competitors who would prevent them from doing so. The effect might not be the kind of innovation that capitalists hope to see from competition, but it’s still led to an innovative way to undermine competition.

I imagine that either the FCC or the DoJ will have to examine this behavior and decide whether this constitutes a violation of antitrust law or is unduly harmful to consumers. It seems easy to make the case that it undermines innovation and competition, but because these regulators have approved all of the conditions that caused this activity, it will require a lot of regulatory untangling to explain why the natural result of several legal decisions turns out to be illegal.