Texas Computer Repair - Background

Litigation Backgrounder

Texas Government-mandated Computer Repair License Does Not Compute

 

The Issue in a Nutshell

Mike Rife runs a successful computer repair business in Austin, Texas.  Now the government wants Mike to close his business and complete a three-year apprenticeship under a licensed private investigator before he can continue solving his customers’ computer problems.  The state of Texas now demands that computer repair companies obtain private investigators’ licenses.  To get that license, the manager or owner of every computer repair company must complete either a criminal justice degree or a three-year apprenticeship under a licensed private investigator.

If Mike continues working without a private investigator’s license, he risks criminal penalties of one year in jail and a $4,000 fine.  The government can also charge Mike with civil penalties of up to $10,000 per violation—just for examining computer files and telling a customer what went wrong.

Computer repair companies are not the only ones at risk under the new law.  Consumers who knowingly take their computers to unlicensed companies are subject to the same penalties.  Like the companies they use, consumers are faced with a difficult choice:  risk punishment for having the work performed by an unlicensed company or pay much higher fees to one of a small group of computer forensics companies around the state.

Computers are frequently unreliable.  When something goes wrong, people call a computer repair company to examine the computer, tell them what went wrong and fix the problem.  Computer repair shops are everywhere.  They represent the friendly, entrepreneurial, human face of an increasingly complex technology industry.  The state of Texas is now telling computer repair shops that they had better watch their back, lest any of them diagnose a computer problem in a way that runs afoul of the licensing law.

Texas claims to be working hard to bring technology innovators to the state.  Yet at the same time the government is telling technology entrepreneurs that their chosen profession will be highly regulated and subject to the same licensure requirements as P.I.s and private security guards.  Texas is saying—to Mike Rife and others—that technology entrepreneurs are not welcome in the Lone Star State.

The regulation of computer repair is an example of how a declining cartel (in this case, private investigators) can capture new profits by asking the legislature to regulate its competitors out of business.  The pattern is consistent:  capture a lucrative business area by making it illegal for your competitors to perform the same work without complying with burdensome licensing requirements.


Introduction

Computer repair shops highly value their independence.  Mike Rife has run AustinPCTech for more than a decade.  David Norelid operates Citronix Tech Services in Houston, a business he started when friends and family encouraged him to put his knowledge of computers to good use.  David uses the money he makes at Citronix to pay for his bachelor’s degree in information technology management.  Business is so good that David and his business partner plan to expand Citronix after David graduates.

Mike and David have hundreds of happy customers between them.  The jobs those customers ask Mike and David to perform run from the mundane (installing anti-virus software) to the enormously complex (reconstructing the data on a hard drive after complete system failure).  But no matter how big or small a job is, it always involves accessing files on the computer.

The state of Texas, however, now wants Mike, David, and others like them to obtain a private investigator’s license before they access data on the computers they work on, or else risk a year in jail and a $4,000 fine,[1] and civil penalties of up to $10,000 every time they fix a computer.[2]  Since 2007, anyone who accesses non-public computer files to gather information about the “causes of events” and the “actions of persons” is deemed by the government to have conducted an “investigation” and must therefore have a private investigator’s license.[3]

Obtaining this license will put Mike and David out of business.  To get a license, the owner or manager of each company must complete either a criminal justice degree or a three-year apprenticeship under a licensed investigator.[4]  There is a $441 fee to apply for the license and a $416 annual renewal fee.  Applicants’ fingerprints are kept on file with the FBI.  Applicants must pass a 200-question written examination and carry $200,000 in professional liability insurance.

Repairing a computer almost always involves looking at the data to determine the “causes of events”—what went wrong with the computer.  The cause of those events will frequently be tied back to the “actions of persons.”  Whether a careless child downloaded a virus or an unscrupulous employee visited prohibited websites that installed malware, the essence of computer repair is figuring out what happened to a computer and reporting the cause of the problem to the computer’s owner.

The Texas Private Security Board is the state agency that is charged with regulating private investigators and security guards.[5]  In 2007, in conjunction with investigations industry representatives, the Board asked the Texas Legislature to amend the Texas Occupations Code to include analysis of computer data as a regulated service.[6]  The industry then sought clarification from the Board about the scope of the new law.  In an interpretation issued in August 2007, the Board stated that “content-based analysis” of computer files constitutes a “regulated service.”[7]  In January 2008, the Board issued a further clarification stating, “Computer repair or support services should be aware that if they offer to perform investigative services … they must be licensed as investigators.”[8]

The new law makes potential criminals out of thousands of technology entrepreneurs in Texas.  It also makes potential criminals out of consumers who use unlicensed computer repair services.  A customer commits a Class A Misdemeanor (punishable by up to one year in jail and a $4,000 fine) by knowingly using the services of an unlicensed company to perform an investigation.[9]  If parents take their computer to a repair company and ask it to determine whether their child has been visiting prohibited websites, those parents could face jail time if they knew that the company did not possess an investigations license.

The law will impact Texas’s rural citizens hardest of all.  Independent computer repair shops are everywhere, but they are unlicensed.  Computer forensics companies (which employ licensed investigators) are concentrated in big cities like Dallas and Houston, where such companies specialize in providing litigation support to large law firms.  If small computer repair companies are prevented from performing traditional computer repairs, rural residents may have to ship their computers hundreds of miles for basic repairs at expensive computer forensics companies.

 

Efforts to Create a Computer Diagnostics Cartel Come to Texas

Private security has long been cartelized through licensure requirements.[10]  However, traditional investigators have seen their once-profitable occupation eroded by changes in technology and individual lifestyles.[11]

So private investigators did what many declining cartels do:  they asked the legislature to move more activities onto the list of services that only licensed individuals may provide.[12]  Only the Private Security Board and investigations industry lobbyists testified before the Texas Legislature about the new law.[13]  The Legislature passed the new law without public comment from computer repair companies, or consumers or other individuals who were about to become subject to its licensing requirements.[14]  Now, through a series of interpretations, the Board is laying the groundwork to begin cracking down on unlicensed companies that perform investigative services—companies like those run by Mike Rife and David Norelid. 

This is how cartels work.  They regulate competition out of existence, thus limiting consumer choice and raising the price of services that customers have previously been receiving from unlicensed “competitors.”[15]

 

The Plaintiffs—Texas Slams the Door on Technology Entrepreneurs

The amendment to the Texas Occupations Code to include analysis of computer data as a regulated service is being challenged by the owners of several Texas computer repair companies.  Mike Rife has a thriving computer repair business.  Mike’s customers range from small businesses that outsource their information technology work to families and individuals who prefer his personalized brand of computer support.  Mike runs AustinPCTech from a workshop at the back of a mail center, which serves as a pick-up and drop-off location for his customers.  He is a typical entrepreneur:  all energy and motion, carefully growing his business and enjoying the freedom that comes with being your own boss.

David Norelid started Citronix Tech Services in Florida before moving to Texas to pursue his bachelor’s degree in information technology management.  David works full time while attending school, an opportunity made possible by the flexible schedule he enjoys as an entrepreneur.  He runs Citronix with his friend and business partner.  Upon graduation, David intends to continue growing Citronix into a full-service computer shop.

Business is good and David loves what he does.  He welcomes competition from large “big box” computer repair companies because he is confident in his ability to compete on price and quality of service.  What David cannot compete with is a state-created cartel that tells him he must dramatically curtail his practices or risk jail time and massive civil penalties. 

Suing on behalf of Texas consumers is Dallas resident Erle Rawlins.  Erle owns and operates Real Estate Consumer Consultants, a real estate buyers’ agency service.  His computers contain the confidential information of clients he is representing in the purchase of new homes throughout the Dallas-Fort Worth region.  When Erle’s computers break down, he goes to the same computer repair shop he has been using for 15 years.  They provide him with responsive, quality service at reasonable prices.  Under the new law, however, Erle, and consumers like him, will be limited to using one of a handful of specialty computer forensics companies in Dallas, all of which charge rates that are much higher than what he currently pays.

Thane Hayhurst owns and operates Kiwi Computer Services and iTalent Consulting Group, both in Dallas.  Kiwi Computer is a traditional do-it-all computer repair company that Thane has operated in Dallas since 1992.  More recently, Thane opened iTalent Consulting, which offers IT outsourcing services to many prominent local businesses.  iTalent sends employees on assignments (some lasting for many months) to clients’ businesses where the consultant works to implement on-site computer and IT solutions.  Both of Thane’s businesses are impacted by the new law because Thane and his employees are not licensed private investigators.  Thane is worried the government will decide he can no longer offer many of the services he currently provides to his clients.

Texans are working hard to attract technology entrepreneurs to the state.[16]  At the same time, the government is telling entrepreneurs that they must become private investigators simply to repair a computer.  Laws like this tell computer entrepreneurs that they are not welcome in Texas, and that they must risk jail time—and tens of thousands of dollars in civil penalties—in order to continue working in their chosen occupation.

 

A Three-Year P.I. Apprenticeship Just to Work on Computers

It is difficult to obtain an investigations company license.  Each licensed investigations company—including sole proprietorships—must be managed by an individual who has completed either a criminal justice degree or a three-year apprenticeship under a licensed investigator.  Each licensed investigator must submit his or her fingerprints to the FBI, pay a $441 licensing fee, complete a 200-question written examination, and obtain $200,000 in liability insurance.[17]

Thus, for David or Mike to continue working on customers’ computers, they must either go back to school and earn a criminal justice degree or close up shop while they complete a three-year apprenticeship under a licensed private investigator. 

 

Massive Penalties for Running Afoul of the Law

Computer repair companies that conduct anything the Board deems to be an “investigation” without a license are subject to two kinds of penalties.  They may be charged with a Class A misdemeanor, which is punishable by up to one year in county jail and a $4,000 fine.[18]

In addition to criminal penalties, the government can assess civil penalties of up to $10,000 per offense.[19]  The law does not say what constitutes an “offense”—it could mean each investigation or it could mean each file that was accessed.  Regardless, multiple $10,000 penalties would quickly drive a small company out of business.

Consumers are subject to the same penalties— jail time and crippling civil fines —if they knowingly use an unlicensed computer repair company to perform work that constitutes an investigation in the eyes of the government.[20]  Their only alternative is to use the services of cartel members, which drives up the price of repairs and decreases consumer choice.

 

A Regulatory Agency Out of Touch With Modern Technology

The Private Security Board has traditionally regulated private investigators, security guards, bounty hunters, and other individuals who are, in the course of practicing their occupation, likely to encounter physical violence.  Computer repair bears no relationship to the traditional role of private investigators.  This disconnect is reflected by the fact that the Board does not recommend that would-be private investigators learn anything about computers before taking the licensing exam.

The Board recommends an investigator’s exam study guide called Private Investigator Exam Secrets.[21]  The 173-page study guide devotes less than half a page to the analysis of computer data before acknowledging that investigators are not qualified to perform the work.[22]  The Board-recommended study guide tells exam-takers that “computer crime investigations usually demand the use of highly experienced personnel, or third-party experts.”[23]

The Board’s own study materials make no reference to computer diagnostics.  The study materials instruct test-takers to “have a good attitude,” “anticipate danger and hazards,” and “write as neatly and clearly as possible,” but they do not tell an investigator anything about how to properly analyze computer information.[24]

 

Legal Challenge

The Texas Constitution protects the right of Texans to economic liberty—the right to earn an honest living free from unreasonable governmental interference.[25]  Along with rights to speech and property, the right to work in an occupation is one of the most fundamental rights that Texans enjoy.  Any law regulating an occupation must be justified by a legitimate state interest in regulating the activity.[26]  Furthermore, any such regulation must actually achieve its stated purpose and cannot be a mere pretext to further ulterior motives.[27]

The newly formed Institute for Justice Texas Chapter (IJ-TX) is challenging the new law on the basis that it unconstitutionally denies computer repair companies the right to work in their chosen profession.  First, the law denies computer repair companies the right to conduct basic computer forensic work at the request of their clients.  Clients will sometimes ask a computer repair technician to tell them how a third party has used the clients’ computer.  Has a spouse been exchanging emails with a secret lover?  Has a child been visiting prohibited websites?  An experienced technician does not need a private investigator’s license to answer these questions.  He or she needs to be good at accurately interpreting the information that is found on a computer’s hard drive.

Second, IJ-TX is challenging the law because it is overly broad.  The overbreadth of the law creates tremendous uncertainty about which activities are regulated and which are not.  Under an expansive reading of the law, many mundane computer repair activities could be regulated by the Board.  The diagnosis of computer problems involves developing an understanding of the “causes of events” and frequently the “actions of persons”—regulated activities according to the Board.  Computer entrepreneurs must therefore conduct repairs under a cloud of legal uncertainty.

Third, IJ-TX is challenging the Private Security Board’s interpretation of the law on the basis that it violates the Texas Constitution’s free speech guarantee that everyone is free to “write or publish [their] opinions on any subject . . . .”[28]  The Board has interpreted the law to mean that a computer repair company can acquire data for a customer, but that the company cannot then offer an opinion about the significance of that data.[29]  The Institute for Justice is challenging this as an unconstitutional restriction on free speech because it prohibits the computer repair company from offering an honest opinion about data they have lawfully obtained.

Finally, IJ-TX is challenging the law on behalf of Texas consumers who are made into criminals simply for using computer repair companies that they know are unlicensed.  The ability of consumers to contract with the company of their choosing is being irrationally restricted by the new law.  The Texas Constitution protects citizens from arbitrary and unreasonable restrictions on individual liberty,[30] including the right to contract with the company of one’s choosing for everyday transactions like computer repair.

 

The Defendants

The defendants in this case are the seven members of the Texas Private Security Board, who are being sued in their official capacities.  The Board, located in Austin, is responsible for the licensing and regulation of private investigators in Texas.[31]  Of the seven Board members, three are licensed private investigators and four are public members.

 

IJ:  A History of Protecting Economic Liberty and Free Speech

The Institute for Justice and its state chapters have scored a number of significant victories for economic liberty and free speech.  Among these victories are:

  • Swedenburg v. Kelly—Representing Virginia and California vintners as well as New York wine consumers, the Institute for Justice persuaded the U.S. Supreme Court to declare unconstitutional New York State’s laws that barred the interstate direct shipment of wine to New York consumers.  IJ also persuaded the 2nd U.S. Circuit of Court of Appeals to enforce the First Amendment by striking down a prohibition on advertisements and solicitation for alcoholic beverages by anyone other than licensed retailers.

  • Craigmiles v. Giles—In 2003, a federal appeals court upheld a lower court ruling that found Tennessee’s government-imposed cartel on casket sales unconstitutional.  This is the highest pro-economic liberty court decision since the New Deal.

  • Franzoy v. Templeman, et al.—The Institute for Justice represented two interior designers in challenging New Mexico’s titling law, which was very similar to Texas’ current law.  Rather than attempt to defend its blatantly unconstitutional speech restrictions, the New Mexico Interior Design Board chose to seek an amendment to the law through the legislative process, which reopened the market.  The Governor signed the new law into effect in April 2007.

  • ForSaleByOwner.com Corp. v. Zinnemann—The Institute for Justice persuaded the U.S. District Court for the Eastern District of California to enforce the First Amendment and strike down the State of California’s attempt to impose real estate broker licensing requirements on an informational website. 

  • Wexler v. City of New Orleans—The Institute for Justice persuaded the U.S. District Court for the Eastern District of Louisiana to enforce the First Amendment by striking down an ordinance that prohibited booksellers from selling books on city sidewalks without a permit.

  • Farmer v. Arizona Board of Cosmetology—In 2003, the Institute for Justice Arizona Chapter filed a lawsuit on behalf of braider Essence Farmer to dismantle Arizona’s onerous cosmetology regime, which required braiders to attend 1,600 hours of courses that taught nothing about braiding.  As a result of the case, Arizona's legislature exempted braiders from the regime.  Farmer now braids freely in her own shop, Rare Essence Studio, in Glendale, Ariz.

  • Jones, et. al. v. Temmer, et. al.—Taxi entrepreneurs Leroy Jones, Ani Ebong and Girma Molalegne opened Freedom Cabs, Inc., in Denver in 1995 after IJ helped them overcome Colorado’s protectionist taxicab monopoly.  Stemming from pressure in the court of public opinion created by their lawsuit, the Colorado legislature enabled Freedom Cabs to become the first new cab company in Denver in nearly 50 years.  Testimony by Jones and Institute for Justice President Chip Mellor also contributed to the breakdown of government-sanctioned taxicab monopolies in Indianapolis and Cincinnati.

In addition to these cases, IJ has opened up the market for Las Vegas limousines, New York City commuter vans, bed and breakfast owners in Seattle, and hairbraiding in Arizona, California, the District of Columbia, Mississippi, Minnesota, Washington.  IJ has also secured the free speech rights of other clients in Florida, Michigan, Minnesota, New Hampshire, Oklahoma and Washington.

 

The Litigation Team

The lead attorney in this case is Institute for Justice Texas Chapter Executive Director Matt Miller, who litigates under the Texas Constitution in the areas of economic liberty, free speech, property rights and school choice.  He will be joined in the litigation by Wesley Hottot, staff attorney[32] at the Institute for Justice Texas Chapter.

 

The Institute for Justice

The Institute for Justice is a public interest law firm that advances a rule of law under which individuals can control their destinies as free and responsible members of society.  Through litigation, communication, outreach and strategic research, IJ secures protection for individual liberty and extends the benefits of freedom to those whose full enjoyment is denied by the government.

The Institute for Justice Texas Chapter is located in Austin and litigates under the State and Federal constitutions to reinvigorate economic liberty, preserve property rights, promote educational choice and defend the free flow of information essential to politics and commerce.


For more information, contact:

John E. Kramer
Vice President for Communications
Institute for Justice
901 North Glebe Road, Suite 900
Arlington, VA 22203-1854
jkramer@ij.org
Phone: (703) 682-9320 ext. 205

Matt Miller
Executive Director
Institute for Justice Texas Chapter
816 Congress Ave, Suite 960
Austin, TX 78701
mmiller@ij.org
Phone: (512) 480-5936 ext. 302



[1] Tex. Occ. Code § 1702.388 (2007).

[2] Tex. Occ. Code § 1702.381 (2007).

[3] Opinion Issued in Response to Questions from Industry and Public, Texas Private Security Board, August 21, 2007.

[4] Tex. Occ. Code § 1702.114(a) & Company License Application Instructions and General Requirements for Licensing, Texas Private Security Board, revised November 2007, available online at: http://www.txdps.state.tx.us/psb/forms/forms/PSB-27- GeneralInstructionsforC-L.pdf (last visited: June 10, 2008).

[5] See, e.g., Private Security Board website, available online at http://www.txdps.state.tx.us/psb/agency/ default.aspx.

[6] See H.B. 2833 (Tex. Leg. 80th Sess.).

[7] Opinion Issued in Response to Questions from Industry and Public, Texas Private Security Board, August 21, 2007.

[8] Opinion Issued in Response to Questions from Industry and Public, Texas Private Security Board, October 18, 2007.

[9] Tex. Occ. Code § 1702.381(b) (knowingly using an unlicensed investigator) and § 1702.388 (criminal penalty).

[10] Texas first licensed private investigators in 1969, when it created the Texas Board of Private Detectives, Private Investigators, Private Patrolmen, and Private Guard Watchmen.  SB 164, Tex. Leg. 61st Sess., 1969.

[11] “iSpy: Detectives are losing business to Internet-savvy clients,” David Lazarus, San Francisco Chronicle, B1, (July 19, 1999).

[12] After the law’s passage, state Rep. Joe Driver (R—Garland) authored a piece for the website of the Association of Security Services and Investigators of the State of Texas (ASSIST) entitled “The Making of Sausages and Laws,” in which he recounts the amendments’ history and praises the organizations’ representatives for their “many weeks working on proposed changes to the law that would make it fairer and more manageable for the industry and its employees, as well as improve public safety.”  Available online at http://www.assisttexas.org/art203.shtml (last visited June 9, 2008).

[13] See House Law Enforcement Committee April 16, 2007 meeting minutes, available online at http://www.capitol.state.tx.us/tlodocs/80R/ witlistmtg/html/ C4202007041614001.HTM (last visited June 9, 2008).

[14] Id.

[15] Morris M. Kleiner, Licensing Occupations: Ensuring quality or restricting competition (Kalamazoo, MI: Upjohn Institute, 2006).

[16] See, e.g.., the Texas Technology Initiative, available online at http://www.txti.org  (last visited June 9, 2008).

[17] Tex. Occ. Code § 1702.114 (2007).

[18] Tex. Occ. Code § 1702.388 (2007).

[19] Tex. Occ. Code § 1702.381 (2007).

[20] Tex. Occ. Code §§ 1702.381 and 388 (2007).

[21] Published by Morrison Media, LLC, available online at http://www.mo-media.com/privateinvestigator/ (last visited June 9, 2008).

[22] Id. at 64-65.

[23] Id. at 39.

[24] PSB Level One Training Course, available online at the Private Security Board’s website: http://www.txdps.state.tx.us/ psb/testing/levelone_review.aspx (last visited June 9, 2008).

[25] Texas Constitution Article I, Sections 3 and 19.

[26] See Chandler v. Jorge A. Gutierrez, P.C., 906 S.W.2d 195, 202 (Tex. App.—Austin 1995, writ denied); see also Fulfurrias Creamery Co. v. City of Laredo, 276 S.W.2d 351, 353 (Tex. App.—San Antonio 1965, writ ref’d n.r.e.).

[27] See Mayhew v. Town of Sunnyvale, 964 S.W.2d 922, 938 (Tex. 1998).

[28] Texas Constitution, Article I, Section 8.

[29] Opinion Issued in Response to Questions from Industry and Public, Texas Private Security Board, August 21, 2007.

[30] See Mayhew v. Town of Sunnyvale, 964 S.W.2d 922, 938 (Tex. 1998).

[31] See Private Security Board website, available online at http://www.txdps.state.tx.us/psb/agency/ default.aspx  (last visited June 9, 2008).

[32] Not yet licensed to practice in Texas; application pending.


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