captioning performed by vitac what about private roads, you can sort of, we don't need to deal with those problems go back to the '50s. >> yeah. i'd say, i don't know that i have much to add. the world of bids is certainly less regulated than some of the world's more regulated. there's plenty of regulation that i think is an increasing problem. >> and there's something about the world of bits where we have to realize that it's a cautionary tale. we had, you know, these geese

laying all these golden eggs in technology and the other one left is the computer goose. the finance goose was called last year with dodd frank. so i think unnecessarily excessive regulation of computers is dangerous because it's the only thing that's left. >> i think peter is wrong about one thing and i'll try to explain why it doesn't challenge but strengthens his thesis. >> environmental regulation is somewhat different from all the others because when you're concerned that things that were done are action nabl in 1200. you can say what you want about the levels of innovation. the big problem with the environmental protection act and the clean air act was not that it chose to regulate, but you have to go down a level and

figure out what this proper scheme of regulation is. and you can't answer that question by saying i'm pro or against. let me jes tell you one of the huge blunders that they all made, which was they thought they would grandfather all technology and regulate new technology. this is the most expensive word, the word "new." what this did is completely disrupted the transmission cycle from old to new transitions. the regulations on the new stuff were intolerable so the biggest areas on litigation is what counts as a modification. this has gone on for 40 years because you don't ally the new stuff to come in under the same thing. what you needed was a system of regulation that replicated common law rules in which damages which were caused by

externalalities were basically punished, and if you had just done that system, you would have been able to stop 95% of these problems with a tiny fraction of the current cost. so that what happens is, it's one thing to say, and peter's right clearically, ramp it down in order of magnitude. but when you do regulations, there's no substitute for knowing what's going on inside of industry, particularly in cases where regulation is needed. and that's where the other piece of information has gone wrong. the system designed for environmental protection regulation on every area you care to talk about is fatly flawed. the political stuff on transitions turned out to be a 40 year issue. >> my name is chris from the university of pennsylvania. the question builds a little on the last one, going to the two industries which mr. theil discussed, the computers and the finance. a lack of regulation in the financial industry in the face of inadequate regulation exposed

us to systematic risk and required strong governmental intervention. what are the major risks andor costs of lack of regulation regarding technology? is it limited to restrictions on innovation or are there broader risks? and following up on that, going to the rule based regulatory system, and given a slight mismatch in speed between which a regulation is passed a technology develops, how can legislation be developed that is flexible enough to address some of the issues we've talked about and others that will arise in the future? >> look, i think this is a very hard problem and as richard suggested in his answer to the last question, it's a hard problem any time you've got to intervene and you can't avoid intervening at some level. the -- to me, by and large, and i think this is in line with what richard is saying, we're

just agreeing all the time. it's kind of alarming. >> i disagree you on vaccines. >> it seems to me, for the reasons you suggest, we are, generally speaking, better served with common law and flexible rules than detailed legislative set parameters, in part because congress can get them wrong because they don't understand or have a vested interest, or in part because they just don't change. you know, i think, so, for example, in the patent system, i have argued, along with dan burke, the way we need to account for the very different characteristics of the pharmaceutical and the biotechnology industries and the i.t. is by having general rules

that the courts can actually apply with some sensitivity to the needs of different circumstances. >> the key illustration on that is on injukttive relief. the common law rule whrp to massively dislocating injunctions was to delay innovation in position. so you have this mosaic in the business you're in and there's a thing that's patented we give you six months to pay a royalty and by that time you design around it and all is well instead satisfy shutting the thing down. and that's a classic illustration where you do that for him but you don't do it for a guy who wants to infringe on lipitor. so yes, mark, you're exactly right. >> on your first question, so it seems to me, we're starting to see, i think there are two mechanism xs by which we start to regulate the computer industry. one is hollywood which has a powerful lobby machine which is pushing very hard to try to

restrict the freedom of the internet precisely because they view that as a real danger point to them because a lot of the stuff that crosses the internet is piracy. that did not go away with the defeat of sopa and pepa. it will be back. the other one i think which people pay less attention to and in some sense is a harder problem because you've got to worry about it, at some level is cyber security. the real nightmare story for computer regulation is some destructive infrastructural attack do the internet that takes out some critical, whether it's the airline network or the electric grid or something. that would not only be catastrophic in its own right, i think computers are largely unregulated area goes away. >> my name is henry and from california southern law school.

just a quick question. a number of you have touched about the issue of the global marketplace and i was wondering if you could comment on the creeping danger of harmonizing with foreign law. i speak specifically of recent controversies that the european demands adopt a privacy regime similar to what exists in jurp. what is the danger, what is the magnitude and how can we reconcile these types of demands from foreign governments that we expand our regulatory regime. >> i've got a couple thoughts about that one. i think when you talk to harmoniization, i think you tack to ratcheting up. when you see the move from the united states -- you move into

the burn convention, what you see again and again on the international level are so-called minimum standards of protection. so every country has to provide at least this much, but is free to regulate more and more. so the imbalance that occurs there is you protect more and more, but what you leave out is the safetity valves designed to make sure that the regulations don't go so far to kill the golden goose. you have a whole bunch of salvety val us and fair use that other people use the material to do new things. so if you ratchet up the protection constantly, and you leave behind the protections that are supposed to protect critically important public speech rights, than harmonization is a recipe for er0eding. >> what they did is by having

harmonization allowed to create cartels. what happens in the european union, which peter did not mention, is that the wrecking of the labor markets by har monization, once you have the common market is open, subject to brussels which is a big plus, but then you get the protective barrier so as to keep everybody else out, that's what's happened in the american agricultural market. the reason it's more disastrous in labor is because in labor the productivity goes down, where as the technological improvements in agriculture until we got on this war against gmos was large enough that it more than offset the monopoly losses. but american labor, you go right

back to those 37 decisions, harm onization becomes a synonym for cartlization. >> on the internet in particular, the problem is it doesn't obey national boundaries. right? so, you know, i mean general harmonization is usually a good thing, but it doesn't work on the internet, because your bits rntd obeying those boundaries. so my worry is that the alternative to some level of more or less harm monization is the equell length on the opposite side of what tony is talking about, is the most restrictive regulatory regime ends up controlling. >> i agree with that in a sense that, although i don't like

international governments, international bodies. on the other hand, if you are an internet business, you are confronted with just a nightmarish set of complex local rules and sort of state by state rules in certain areas of the u.s. when we ran paypal we had to find ways money rules, it was probably harder if you have had a single one. >> by the way, this also comes up with standard setting organizations. and what happens is is now another report i think it's by the ftc announcing private market failures they want to basically get more government included in setting these things. i actually wrote with scott and dan a report for qualcomm on the other side of it, and i'll mention to you one fact, which is that these organizations, all of them in hundreds of different standard setting organizations

and the number of breakdowns when you do it is very small, about the antitrust laws, the one very good set of antitrust rules are essentially who can join a particular group and essentially what you do is allows complements but not substitutes to come together because that allows you to overcome the double marginalization problem without creating a cartlization problem. that's a classic illustration where they did it right in the 1990s and they're about to do it wrong in the next decade if the new ftc report takes over. >> i was going to say one practical objectsization on some of the one-kwa ratchet issue, the danger of harmondayization, i think the danger of technology, as peter alludes, we have, since we -- we have users in so many different countries with many -- they do not embrace an american vision of free

speech. so even, we're not just talking about pakistan but countries like france and germany and others will familiously since t early yahoo days of 2001 and 2002, on nazi content, for example. the rules were established that yes, even though you serve this from the united states, if it's viewable in france, that's a violation. but the technological facts, now we block by i.p. address. there's content posted in sweden but not allowed in pakistan. we can block that. >> just to underscore, so are many versions of harmonization.

there are problems that can be solved the hard part is figuring out which one p you than the you want to do. it's different than the national government because the ability to get substantive harmonization is a qualititive issue. >> my question is primarily directed at mr. theil and mr. lemley. with technology being the last area without broad regulation, in light of the failure, the current failure and controversy surrounding proposed bills regulating the technology area, how do you feel that the technology sector will be ultimately regulated? >> i have an answer. >> let's let the people who were asked to answer. >> this may be our last chance to disagree. >> i'll try to disagree with

you. i think the greatest protection technology has against regulation is the pace of innovation. that is, the more that you can constantly choing and morph your product, the more difficult it is for people from the outside to take it over. it's when the technology becomes stable like electricity and tell phones and so forth that you can start having impressive national rate regulation systems such as those developed between 1880 and 1940. i don't think you'll ever be able to get that in the technology business. i think that as long as you innovate, you'll be safe. if they slow down and start to regulate you'll never be able to speed up again. >> one elaboration on that is my intuition is the future is very sensitive to initial conditions. so if you can sort of imagine a model where there's an escape velocity from politics and you get the positive feedback that goes quickly enough, the technology outpaces the political system and we continue to see acceleration.

that's what's happened thus far in the computer area. or you can imagine a case where the political system sort of dampens down things and you end up with monopoly-like industries and you have arguments that are like utilities and should be regulated more heavily and that's what i submit has happened everywhere else. because you have this positive feedback loop between technology and politics, whichever one goes faster will dominate and you can imagine different in the future and we can imagine a world that's completely static or we can have one where you have, where progress starts to reaccelerate and the computers sort of take over everything. there's one goose left, it's powerful enough to overrun everything else. but that's the question. >> so it comes back, i think, to where i started. which is the idea of the mother may i regime.

so the real question is do i have to seek forgiveness or do i have to seek permission? in a regulatory world where i have to seek permission, you're not going to outrun it. technology is not going to outrun politics in that world. in a world in which i can build it and do a bunch of things, if i can run fast enough that the world starts to see the benefits, it turns out to be harder and harder to regulate those benefits away. we've seen it again and again in copyrights and media technology. fik can get my technology fast enough, the people who want to shoot it down weent be able to. tivo makes it fast enough, the copyright owners -- they can't sue them today.

it's just it's implausible as a matter of regulation. so. >> what you do is you imbed the commercial in the show. so as to avoid the fact. that's the adaptive response. >> or you make your commercials better. >> well, but the super bowl, people prefer it. >> last question. >> i'm a law student from georgetown and i, one of the things that some of my friends and i have been considering during this whole internet piracy debate has been the increasing globalization of media. and in particular, movies and television shows that have different distribution dates in different countries. and, so, this question i think is for the panel at large.

i know that i have friends who, for example, downloaded "downtown abbey" for example, that was shown in the uk three months earlier than it was released here and there are programs that won't ever be released here from other countries. how can corporations work on that? how can regulations work on that? which is more effective in the marketplace? i mean, that's something, i mean -- personally, if distribution is simplifiesimpli would be more -- we would be more than willing to pay to -- >> i think this is critically important, right? so, if hollywood's goal on the internet is make sure it doesn't

interfere with our eight tiered distribution model in which it can only go to hulu between week five and month three and then it's got to come back off and it's got to be in red box only 28 days thereafter, that's all going away and it should go away. this is arbitrage via the internet and it's a good thing. and, you know, there's a piracy problem out there. and you know, we need to think about intelligently how to solve that problem. i think it's not a bunch of new laws. adding sopa and pepa is not the way to solve that problem. what hollywood needs is a business model, not a new law, that takes advantage of the digital world. the music industry is starting to get there. a dozen years ago, their goal was stop the digital transition.

no music in digital format. they fought and lost that battle for a while and then they started to kind of make -- figure out ways to make money in this digital world, in part because we allow lots of people to have lots more access to things they never would have seen because they were only released in the u.k. the video industry is not there yet in part because for them the piracy problem is more recent as band width has increased. >> i have a slight disagreement with this. i don't think we ought to tell firms if they have an efficient business model forget it because we can't enforce it. there's a deep problem in the law of torts. the private right of action against the admitted wrong doer is very difficult to enforce so you want to get another action against somebody which is always overbroad. so for example you're in an apartment house and somebody mow lesses you, you can't find the

victim, you sue the apartment house for that. that's the trade off and it's tremendously difficult. so what happens is when you see the writing on the wall. after a while you give up on the law and go to self-help and the point is we'd rather have as little of that shift as possible without having the overprotection and that's a very hard problem to solve. >> just one quick point. if hollywood really were satisfied with private enforcement, that would be one thing. hollywood wants the government and the taxpayers to pay the price for that enforcement, and that's especially ironic when the windowing is helping drive the piracy problems because the firms are not responding to the demand by giving users what they want at a fair price, then the piracy is only going to get worse because you can't get it legally. >> the complication is what they're saying is private enforcement is broken down, we need public enforcement. this is the same argument that

people made in favor of consumer protection laws. and so it's not just enough to say that these characters are completely wrong. you have to be much more specific in trying to figure out the overbreadth and underbreadth and my objection to these statutes is it seems to me the industry is not aware there are facts that are things on the other side of this. >> they're aware now. >> they better be. >> it's okay. and with that, i'll just tell you a quick story. i went to chicago, i taught there, and one of the things i learned, if you're dealing with richard, you go to him with any question that you have, and you get sort of the epstein version of the universe with respect to it. and when he finishes you kind of go yeah, but. and he'll spend the next 15 minutes explaining all the

arguments on the other side and walk away thinking you're really smart to have thought of all those arguments. it's true. thanks so much to the panel. >> all right. when you walk outside of the auditorium. >> shortly we're planning to go live to capitol hill as jpmorgan ceo jamie dimon ril return for another hearing on his company's $2 billion trading loss. this morning he's set to appear before the house financial committee. last week he apologized but he said that no client, customer or taxpayer money was lost. this hearing is expected to get under way shortly. while we wait, here is some of what he had to say last week on capitol hill. >> questions for the record. i want to remind my colleagues

that the record will be open for the next seven days for opening statements and any other materials you would like to submit. now i will introduce our witness. mr. jamie dimon is the chairman of the board, president and chief executive officer at j.p. morgan chase and company. mr. dimon, your full written statement will be included in the hearing record. please begin your testimony. >> chairman johnson, members of the committee, i'm appearing today to discuss recent losses in a portfolio held by j.p. morgan chase's chief investment office. these losses have generated considerable attention. and while we're still reviewing the facts, i will explain everything i can to the extent possible. jpmorgan's six lines of business provide a broad array of financial products and services to individuals, small and large

businesses, governments and not for profit institutions. these include deposit accounts, loans, credit cards, mortgages, capital markets advice and fund raising, mutual funds and other investments. let me start by explaining what the chief investment office does. like many banks, we have more deposits than loans. at quarter end, we held approximately $1.1 trillion of debusiness it's and $700 billion in loans. cio, along with our pressurery unit, invest excess cash in a portfolio that includes treasuries, 5g9cys, mortgage banged securities t cooperate debt and other domestic and oversays assets. it also serves as a vehicle for managing the consolidated entity. in short, the bulk of the responsibility is to manage the portfolio in a conservative manner.

while the primary purpose is to invest axis liabilities, it also maintains a smaller portfolio whose original intent was to protector hedge the company gets a systemic event like a financial crisis or the euro zone situation. so what happened? in december 2011, as part of a firm-wide effort, we instructed cio to reduce assets and associated risk. to achieve this in the synthetic portfolio, the cio could have reduced existing positions. instead it embarked on a complex strategy that entailed any positions that it did believe it offset the existing ones. this strategy ended up creating a forth folio that was larger and more complex and hard to manage risks. this portfolio morphed into

something created new and potentially larger risks. as a result we've let a lot of people down and we are sorry for it. let me tell you how it went wrong, these are not excuses, these are reasons. we believe now that a series of events led to the difficulties in the synthetic credit portfolio. these are detailed in my written testimony, but i'll highlight the following. it was poorly conceived and vetted. in hind sight, the cio trader did no not have the understanding of the risks they took. the risk riments should have been specific to that portfolio, only allowing lower limits of risk on each specific risk being taken. cio should have gotten more scrutiny from senior management and the firm-wide risk control function. in response to this incident. we've already taken a number of