Public Policy Issues in

Technologies
The Chinese University of Hong Kong

Chun-Hung Cheng

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 Privacy Issues
• Under http, a browser transmits an individual’s IP
address to a web server every time it requests a page.
We can track individual’s web activities whenever a user
provides personal info.
• A browser also transmits a remote host identifier. It
reveals the user’s Internet service provider. The user
gives away the identity by logging onto a network.
• A cookie is a short text file containing coded identifiers
that web sites place on a user’s hard disks to allow
browsing back and forth among various pages in a
website. It can be used to track a user’s “clickstream”.

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 Privacy Regulations
• Online transactions information possessed by
Internet sellers has a potentially significant
market value.
• People may view these information as their
private property.
• Basic legal principles governing the transfer of
property require firms to give individual the
opportunity to authorize the use of their
property.
• Firms devote their resources to compiling data
about their customer’s clickstreams. Do the firm
have the right to it?
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 USA
• Customers are concerned with the use of their
data.
• Will this concern reduce the business activities?
• One way would be more rules and regulations
• Another is to hold companies liable for misusing
data.
• Federal Trade Commission enforces are liability
laws.
– Post privacy statements,
– Provide information about how info is used
– Honor their commitment.

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 EU
• US limits the use of data collected online. EU
prohibit the unauthorized transferal of online
customer data.
• Under Data Protection Directive, companies
must obtain written permission (not online
permission) from the customer before his/her
data is transferred to another companies.
• Foreign companies must develop a separate
track for EU marketing, sales, customer service.

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 China (1)*
• The Constitution can only provide the basis
other rules and regulations for online privacy
protection:
– Article 38 states that the human dignity of citizens
should not be infringed.
– Article 39 provides that the premises should be
trespassed.
– Article 40 requires that the freedom and privacy of
correspondence of citizens are protected by law.
*Refer to http://www.ibls.com/internet_law_news_portal_view.aspx?s=latestnews&id=2192 for detail

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 China (2)
• Civil Protection
– No provision for the right of privacy as the personality
right.
– The opinions of the Supreme People’s Court
stipulates that in case anyone propagates the privacy
of any other person in writing or orally, which result in
a certain influence, such act should be determined as
act infringing the citizen’s right of reputation.
– The infringement on the right of privacy is prerequisite
on the infringement on the reputation.

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 China (3)
• Criminal Protection
– Article 252 provides that whoever, conceals destroys
or unlawfully opens another person’s letter thereby
infringing upon the citizen’s right to freedom of
correspondence, if the circumstances are serious
should be sentenced to fixed term imprisonment.
– Article 253 provides that any postal worker who
opens without authorization or conceals or destroys
mail or telegrams shall be sentenced to fixed term
imprisonment.
– The infringement is not convicted of the crime of
invasion of privacy but the crime of violation of
freedom of communication.

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 China (4)
• Legal Protection to Internet Privacy
– Article 7 of the Measures for Security Protection
Administration of the International Networks provides
that users’ freedom of communication and
communications secrecy are protected by law.
– Article 18 of the Implementation Rules for Provisional
Regulations of the Administration of International
Networking of Computer Information provides that it is
prohibited to infringe on the privacy of others by
accessing computer systems without authorization,
tampering with the information of others or sending
information in the name of others.

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 China (5)
– The provisions on the Technical Measures for the Protection of
the Security of the Internet requires that the providers of the
Internet services and entity users of the network should be
responsible for carrying into effect the technical measures for the
protection of the Internet security and should guarantee the
normal functioning of the technical measures for the protection of
the Internet security. The information as registered by users
should not be publicized or divulged without the approval of the
users, unless it is otherwise provided for by any law or
regulation.
– The Ministry of Information Service has a regulation to protect
citizen’s privacy of correspondence in using Internet e-mail
services.
– The Personal Information Protection Act protects a wider scope
of the personal privacy of a citizen including for instance your
cellular phone number, home address, medical files, occupation,
etc.

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 Hong Kong (1)*
• Personal Data Privacy Law is based on six
principles
– Principle 1: purpose and manner of collection of
personal data
– Principle 2: accuracy and duration of retention of
personal data
– Principle 3: user of personal data
– Principle 4: security of personal data
– Principle 5: information policies and practices to be
generally available
– Principle 6: access to personal data.
*Refer to http://www.pcpd.org.hk/english/publications/infor_book.html for detail

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 Competition Laws (1)
• Competition laws (i.e., antitrust laws) are
statutes designed to achieve benefits of
competition for consumers and producers.
– Limit the pricing power available to firms.
– Restrict price discrimination (price differentials must
reflect actual distinctions in the costs of providing
goods or services to different customers).
– Prohibit predatory pricing in some countries. Price is
reduced to drive competitors out of business and
dissuade potential rivals from entering the market.

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 Competition Laws (2)
• Concentration ratio is the shares of total industry sales
by the top few firms. The most commonly measure is the
four-firm ratio.
• The problem with this ratio is that it may fail to capture
important differences among structures of different
industries.
• Herdindahl-Hirschman index is the sum of the squares of
the market shares of each firm in an industry. The lower
the index reflect a higher potential for more broad-based
competition.
• Relevant market refers the extent of the marketplace
containing all available products that directly impinge on
the prices charged by individual firms.

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 Competition Laws (3)
• The relevant market is determined by whether
consumers view firms’ products as close or
imperfect substitutes.
• The cross price elasticity of demand is the
percentage change in the quantity of an item
demanded resulting from the percentage change
in the price of a related item. A low value implies
that consumers regard two different markets for
the two related items.

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 E-Commerce Antitrust (1)
• Three issues in E-Commerce emerge
– Digital product bundling,
– Exclusive deals involving Internet-ready cell
phones

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 Digital Bundling (1)
• Bundling (tie-in sales) involves offering two or
more products for sales as a set.
• Firms utilize it to practice price discrimination.
• They could use it to extend monopolistic power
over one product into the market for another
item.
• In 1990s, Corel provided Wordperfect, Lotus.
Netscape provided Navigator. Microsoft
provided Word, Excel, Internet Explorer.

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 Digital Bundling (2)
• Corel almost teetered bankruptcy. Netscape
discontinued updates.
• The rivals of Microsoft claimed that tie-in sales of
Windows and other programs to computer
manufacturers drove them out of business. They
complained that Microsoft extend its
monopolistic power in Operating Systems to
other application software.
• In 1998, US Department of Justice accepted
Netscape’s complaints.
• The court almost requires Microsoft to split into
separate companies.
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 Digital Bundling (3)
• Finally, Microsoft reached a settlement requiring
only that the company make its application
programming interfaces available to makers of
other application software.
• In 2003, RealNetworks, a producer of audio- and
video-playback software, filed one against
Microsoft. RealNetworks complained that
Microsoft bundled its own Media Player software
within Windows.

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 Digital Bundling (4)
• In 2005, Microsoft agreed to a legal settlement in
which it paid RealNetworks more than $750
million. In addition, Microsoft agreed to promote
RealNetworks online Rhapsody service on its
MSN site.
• In 2004, EU ruled that Microsoft’s bundling of
audio-video software together with Windows was
an anti-competitive business practice and
assessed a $600 million fine.

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 Digital Bundling (5)
• In 2007, a small Norwegian software firm selling
a web browser called Opera filed a complaint
against Microsoft’s browser-bundling tactic.
Mozilla and Firefox later jointed the complaint.
• Microsoft had 46% of the market while Mozilla
and Opera combined had another 46%.
• Microsoft reached a legal settlement under
which it imbedded within Windows a customer
option to choose an alternative browser to
Internet Explorer.

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 Exclusive Dealing (1)
• Exclusive dealing, a form of vertical restraints,
typically involves contractual arrangement in
which a distributor agrees to sell only an item
produced by a particular firm and not the
products of the firm’s competitors.
• Exclusive contracts were common cell phone
distribution. Under which, a cell phone
manufacturer permits only a specific
telecommunications firm to offer its cell phones
to customers.
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 Exclusive Dealing (2)
• Some critics argue that
– This arrangement may limit competition and
enable the firms to charge higher prices.
– Some customers lose out as they are unable
to utilize the latest technologies. They are
outside the networks and cannot use the
technology.

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 Exclusive Dealing (3)
• Defenders argue that
– For telecommunication providers, exclusive
agreements compensate for risks taken by
introducing the latest in broadband-enabling cell
phone technologies to the market.
– For cellular manufacturing producers, they ensure
broad-based marketing and strong efforts to sell the
new products.
– Lack of access in rural area is not a new problem. In
fact, this technology offer new solution to access
problem in rural area.
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 Exclusive Dealing (4)
• The US Department of Justice
investigated the issue.
– There is little evidence that cell phone
producers were forced to the deal.
– Research in Motion and Apple established the
deal with Verizon and AT&T when their
market share were less than 1% each.

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