Sealand and HavenCo Part III: Why Did HavenCo Fail?

Previously on Survivor: Sealand, I’ve discussed Sealand’s history and HavenCo’s rise and fall. Today, I’d like to move into Part III of my paper, and start thinking about what HavenCo’s experience means for the rule of law.

In my Internet Law class, I teach the HavenCo story by giving my students a slightly fictionalized version of the facts, circa 2000. I then ask them to take the role of lawyers advising a client considering investing in the HavenCo-style venture. Will it work? Why, or why not?

Most of my students, like most of the commenters here, come back with some variant on, “No, of course not!” Here are some of the common explanations for HavenCo’s failure:

  • You and What Army?: Shotguns suffice for fighting off German lawyers, but you’ll need more serious firepower if you plan to tangle with a government that has access to rocket launchers, speedboats, fighter jets, scuba divers, trained dolphins, and/or cruise missiles. HavenCo staff sometimes told the press that no other country would launch an attack so close to Britain — which, if you think about it, also presumably means that no other country would interfere if Britain moved to occupy the platform.

  • The Wrong Threat Model: HavenCo’s plan to destroy servers rather than let attackers get their hands on them was a plausible way of assuring client confidentiality. For the client whose only copy of sensitive data is stored on Sealand, though, a smoking wreck of a server is not exactly a good outcome. HavenCo was vulnerable to a concentrated denial-of-service attack.

  • Law Doesn’t Work Like That: There’s a deep irony in the fact that a company that celebrated the transformative power of the Internet to erase all borders was so deeply invested in the idea that the physical location of a computer server was the only jurisdictional fact that mattered. From the perspective of 2011, the idea that one could resist a subpoena by saying, “The data is on Sealand” is laughable. The best that can be said for HavenCo is that, as of 2000, this principle was not yet so clearly established.

  • A Nice Place to Visit, But You Wouldn’t Want to Live There: Even if your data is beyond jurisdictional reach, you aren’t. Unless you’re willing to spend the rest of your life on Sealand, you’re going to have to submit to some country’s jurisdiction over your person sooner or later. Actually, even that wouldn’t have worked: HavenCo swore that for security reasons, even its own customers wouldn’t be permitted to visit Sealand.

  • It’s Dangerous to Go Alone: Just as the pirate radio stations of the 1960s were cut off when England made it a crime to supply them from within England, HavenCo depended on assistance from those on shore. For example, as Jonathan Zittrain explained, “Sealand itself must get its network connectivity somewhere – and could be at risk of losing it should its own Internet service providers reject its activities, or be pressured by nearby governments to do so.” This dependence was dramatically illustrated when Winstar, which supplied HavenCo with its primary network link, went bankrupt and stopped providing service.

  • And How Were You Planning to Pay for That: HavenCo was never able to offer one-stop offshoring. If you want to do business in a country, you need a way to accept payments from people there. That fact, however, gives the local government leverage over you; if they don’t like what you’re up to, they can cut off your access to the payment system. The U.S. has played this card against online gambling, targeting payment processors in adition to gambling sites themselves.

  • A Bad Time to Be a Dot-Com: HavenCo wasn’t the only startup to run out of money in the early 2000s. Its financial projections were based on the assumption that colocation would be profitable even without the regulatory arbitrage, but the bottom fell out of that market with the dot-com crash. HavenCo was left with one of least practical colocation sites on the planet.

  • You Can’t Compete with Free: In hindsight, Napster did much more than HavenCo to undermine governmental control over the Internet. HavenCo took law seriously enough to worry about; Napster demonstrated that for many purposes, law could simply be ignored. HavenCo was stuck selling a boutique product into a commoditized market, one where the prevailing price was very close to zero.

  • Who Needs Sealand When There’s Iceland: It turns out that while every country puts some restrictions on Internet use, they don’t all apply the same rules. Things that would have you prosecuted for promoting ethnic hatred in German or France barely raise eyebrows in the United States. The United States, on the other hand, has had very a difficult time putting the squeeze on WikiLeaks, despite some rather public gnashing of teeth.

I’d like to make three observations. First, HavenCo’s demise, like Rasputin’s, was overdetermined. Looking for a single cause of failure is beside the point. Second, the struggle between HavenCo and national governments was ultimately so one-sided that they never had to lift a finger to deal with it. HavenCo fell, rather than being pushed.

And third, these explanations all appeal to the conflict between HavenCo and national law. How you feel about the ultimate result — Law: 1, HavenCo: 0 — depends on how you feel about national authority. If you think of law as the legitimate expression of a political community’s will, HavenCo’s loss is everybody’s gain. If instead you see governments as glorified thugs and law as a series of commands backed up by threats, you may feel a bit more wistful at HavenCo’s fate.

This isn’t, however, the only way to look at HavenCo’s relationship to law. After all, why did HavenCo need Sealand? Why not just set up shop on a very fast speedboat, or in the caverns beneath Wayne Manor?

The answer, of course, is that HavenCo was hoping that Sealand’s sovereignty would protect it. That meant that HavencCo was reliant on international law. If Sealand had just been just an quirky vacation home, HavenCo would never have come knocking. HavenCo was also reliant on Sealand law; it would have been a complete non-starter without Prince Michael’s willingness to pass a highly permissive Internet law. All of this suggests that something more was going on than just a game of Undermine All Laws. . . .

Tomorrow: too much law, or too little?