Cato Panel Criticizes Spyware Bills

November 5, 2004. The Cato Institute held a panel discussion titled "Here We Go Again: Congress Attempts to Outlaw Spyware". The speakers were Commissioner Orson Swindle of the Federal Trade Commission (FTC), Jim Harper, Cato's Director of Information Policy Studies, and Susan Chamberlin, Cato's VP for Government Affairs. They criticized pending spyware bills.

The House approved two spyware bills before recessing for the general election. The Senate Commerce Committee approved its own bill. The Congress could enact a spyware bill when it reconvenes later this month.

Commissioner Swindle (at right) suggested that spyware legislation could do more harm than good. He also stated that in the area of information technology, "by the time we solve the problem legislatively, the problem no longer exists", because industry has already solved it. He said that he believes that industry can solve this problem.

He was asked why the House has not followed the recommendations of some members of the FTC on this issue. Swindle answered, "it is an even numbered year". He also stated that "too often legislation moves through because it is emotional."

He also said that "some of the legislation has some rather strong notice and consent provisions", and that this is getting into "European" type privacy safeguards. He concluded, "we don't want to go there".

Jim Harper also reflected on the notice provisions of the Gramm Leach Bliley (GLB) bill, the GLB financial privacy regulations, and the Health Insurance Portability and Accountability Act (HIPAA) regulations. He argued that we "pretty much failed miserably".

The House approved HR 2929, the "Securely Protect Yourself Against Cyber Trespass Act", or SPY ACT, by a vote of 399-1 on October 5, 2004. See, Roll Call No. 495. HR 2929 is the House Commerce Committee's spyware bill. It prohibits certain conduct with respect to spyware, and gives the FTC civil enforcement authority. See, story titled "House Passes First Spyware Bill" and story titled "Summary of House Commerce Committee Spyware Bill" in TLJ Daily E-Mail Alert No. 991, October 6, 2004.

The House approved HR 4661, the "Internet Spyware (I-SPY) Prevention Act of 2004", by a vote of 415-0 on October 6, 2004. See, Roll Call No. 503. This is the House Judiciary Committee's bill. It amends Title 18 to provide criminal penalties for certain conduct related to spyware. See, story titled "House Approves Second Spyware Bill" in TLJ Daily E-Mail Alert No. 993, October 8, 2004.

The Senate has not approved either of these bills. However, there is also S 2145, the "Software Principles Yielding Better Levels of Consumer Knowledge Act", or SPY BLOCK Act, sponsored by Sen. Conrad Burns (R-MT) and others. The Senate Commerce Committee amended and approved S 2145 on September 22, 2004. See, story titled "Senate Commerce Committee Approves Spyware Bill" in TLJ Daily E-Mail Alert No. 983, September 24, 2004.

Harper stated that the problem is not the existence of law. He noted that the FTC already has authority to pursue certain spyware related conduct under the Federal Trade Commission Act.

Indeed, the FTC filed a civil complaint [14 pages in PDF] in U.S. District Court (DNH) against several defendants alleging unfair and deceptive trade practices in violation of Section 5(a) of the FTC Act, which is codified at 15 U.S.C. § 45, in connection with fraudulent dissemination of spyware. The FTC filed this complaint at the same time that the Congress was debating spyware legislation. See, story titled "FTC Files Complaint Against Spyware Con Artists" in TLJ Daily E-Mail Alert No. 994, October 11, 2004.

He added that there are state and federal computer fraud and abuse statutes, and the cause of action for trespass to chattels. He concluded that "finding the people who do it is the most difficult problem", and this requires a lot of leg work by the FTC and internet service providers.

Harper also compared pending spyware bills to the CAN SPAM Act. He said that the CAN SPAM Act has not reduced spam, and the spyware bills would not reduce spyware.

Harper also discussed the potential impact of spyware legislation on innovation. He said that if legislation is passed, then companies that develop new products will have to spend legal fees to have lawyers review how the product might violate the statute, and then spend more to modify the product to bring it in line with legal recommendations. He said that for small companies and start up companies with limited funding, these increased costs would be significant.

He also said that spyware legislation "was supported, or at least not resisted, by a whole host of tech companies that are represented in DC, that signed off." He said that they will not be harmed by this legislation because they can afford the costs of compliance. Harper added, "Those are not innovative companies. They are closing the door on the next innovative companies. So, we need to think, not of the companies of today, but of companies of the future."

The event was held in the Capitol Building, and was attended by Congressional staff and others. The FTC "wants to work with the staffs up on the Hill", said Swindle, "to get it right".