Archive – 2021-22

US FTC Expected to Challenge Microsoft’s Massive Activision Blizzard Deal

Report from Politico

In Brief –  The Federal Trade Commission (FTC) is reportedly preparing to formally challenge Microsoft’s $69 billion acquisition of video game giant Activision Blizzard. Although it is not guaranteed that the commissioners will vote to oppose the deal, the investigatory work is reported to be largely completed and the FTC’s professional staff are skeptical of the companies’ arguments. Despite earlier indications that the FTC’s focus would be on the deal’s labor impacts, a challenge is likely to be grounded in more traditional concerns with competition in video game consoles, game development, and emerging gaming platforms such as subscription services and cloud gaming. With antitrust authorities in the UK and Europe already having opened in-depth probes of the deal that will run into spring 2023, the FTC is unlikely to need to try to win a temporary injunction in Federal District court. Instead, a challenge will likely be filed directly in the FTC’s in-house administrative court.

Context – Microsoft’s Activision deal, the biggest digital acquisition of all time, faces competition regulators in the US, EU and UK who have repeatedly talked up their concerns with Big Tech, but until now they have only challenged deals for small startups, such as Meta trying to buy Giphy and Within. Sony, whose PlayStation is the top game console, has been the most vocal and visible opponent of the deal, in particular charging that Microsoft could foreclose access to leading Activision games such as Call of Duty to undermine competition. The UK and EU have officially expressed concerns aligned with Sony’s arguments. Although Microsoft has not yet tabled a formal concession offer, they have said they are willing to address the concern and are expected to offer a proposal soon. That said, it now seems a footnote that Brazil’s competition authority completely rejected Sony’s argument when approving the deal. Instead, Microsoft is facing wildcards such as the EU’s concern with how gaming consolidation could impact competition in PC operating systems, where Windows OS is dominant, as well as US antitrust regulators public wariness with concessions to remedy deal problems.

European Commission Likely to Accept Amazon Antitrust Settlement Offer

Report from Bloomberg

In Brief – Reports point to European Commission competition officials leaning toward accepting Amazon’s settlement offer to end a pair of antitrust investigations. The European Commission has challenged two practices of the ecommerce giant, which are the alleged abuse of third-party seller data to unfairly compete with the sellers, and unfair terms and preferencing, including through the Buy Box algorithm, of goods from sellers who use Amazon’s logistics services, which carry high fees for Amazon. Amazon is committing to stop using data on independent sellers on its marketplace for its competing retail business, as well as to treat all sellers equally, regardless of using Amazon’s logistics, in the selection of the “buy box” that leads to most sales on its marketplace. While the Commission could make a decision as early December, Amazon’s settlement offer has generated opposition from consumer groups and could delay approval until 2023.

Context – Amazon is the largest online retailer, the largest ecommerce marketplace provider, and the largest ecommerce fulfilment center services provider. Unlike true marketplaces, Amazon physically handles the goods for most of their top marketplace sellers just like their own retail goods. The Prime program “gives” subscribers billions of dollars of digital services to beef up their retail loyalty and allow Amazon to direct their purchases to the goods Amazon awards the Buy Box, which nearly always use Amazon fulfilment centers. This unique and opaque business model has been roiling the regulatory environment for years. Complaints about Amazon misusing third-party seller data to grow its own retail business have generated significant interest but largely miss the point. Amazon’s most important and profitable ecommerce business is third-party sellers using FBA to sell on Amazon, not low-margin direct retail. When the European Commission added FBA and the Buy Box to their case, they improved it. The German FCO and UK CMA are also moving that way. And the US FTC may engage at some point as well.

UK Competition Regulator Advances Investigation of Apple-Google Mobile Duopoly

Report from Wall Street Journal

In Brief –  The UK Competition and Markets Authority (CMA), the country’s antitrust regulator, has announced that it is proceeding with a deep dive “Phase 2” investigation of the impact of what it calls the “effective duopoly” of Apple and Google in the mobile ecosystem. The regulator is focusing on two issues: how the two companies control web browsers for mobile devices; and charges that Apple’s App Store policies restrict cloud-based gaming on its devices. The antitrust regulator noted that the UK Parliament has not enacted a digital platform regulatory regime like the European Union, and therefore it intends to use its “existing powers to tackle problems where we can.” CMA market investigations can lead to binding orders on companies to change practices but not fines.

Context – The UK continues forward with schizophrenic post-Brexit digital policies. The government’s “New Digital Strategy to make UK a global tech superpower” aims to boost tech startup investments and highlights an AI Action Plan that eschews a centralized regulator or single legislative standard, explicitly drawing distinctions with the EU’s AI approach, which it claims lacks flexibility and undermines innovation. At the same time, the UK Online Safety Bill (OSB) proposes to regulate how digital platforms handle a wide range of objectionable content, impose a new age verification requirement on sites with pornography, and a novel plan to dissuade online anonymity. The OSB may prove more onerous than the EU’s highly regulatory Digital Services Act regime. On other fronts, the CMA forced Meta to sell-off gif marketplace startup Giphy, a landmark win for opponents of Big Tech acquisitions but also a setback for startup entrepreneurs looking to “exit” via acquisition, as well as opening investigations of Google’s adtech business, Apple’s in-app payments policies, and Amazon’s marketplace and logistics practices. The UK government is also a leader in the effort to deter strong encryption, while the UK courts have ruled Uber drivers are company workers and may extend the decision to other gig work platforms.

Germany’s Social Media Law May Be a Concrete Challenge to Musk-Twitter

Report from TechCrunch

In Brief –  The German social media content moderation law commonly referred to as NetzDG, which requires platforms to promptly respond to reports of hate speech, may provide an early test of whether Musk-Twitter will face substantive legal or regulatory consequences from changes being made to its content moderation policies and practices. The NetzDG law, which has faced criticism from many civil libertarians since its enactment in 2017, allows for fines of up to 50 million euros for failing to comply with takedown notices. Hate speech is broadly defined in Germany, including speech related to Nazism and Holocaust denial, and Twitter’s German service has imposed more strict content moderation standards in part due to the law. In 2020, the law was amended to require platforms to report certain types of illegal content to the Federal Criminal Police. In an early test of how the law may impact the platform beset by major leadership, staff, and policy changes, a specialty IT law firm in Germany has announced that it had already won a judicial hearing against Twitter under the NetzDG law.

Context – Musk’s defense of “free speech”, criticism of “woke” thinking, and moves to lift user bans imposed for past policy violations deemed to fall short of illegal, has upset many progressives. But more relevant to content moderation policy will be “local laws” that he said he plans to follow. In the United States, you have the First Amendment that protects very offensive content, so that threshold is very low. And partisan differences have stymied social media content regulation even if it could pass constitutional muster. But outside the US, in places like the EU and India, political leaders are already calling on him to follow their social media laws. In those places, his mantra may mean more interventions, although the company will need to have staff to do the work. On the business front, Musk Tweeted that the platform cannot become a “hellscape” and said he would set up a content moderation council, but later reversed course in response to what he said was progressive groups attacking the business.

*** PEI Daily Briefing Schedule Announcement ***

The holiday season is upon us and PEI daily updates will be on a World Cup-filled Thanksgiving break for a week. Daily emails will return on Tuesday, November 29.

As always, if you have a question regarding any public policy matter impacting the digital platform economy, even during the coming week, please feel free to email by replying to this message or otherwise typing into your email service. I will get back to you during a half-time break.

Big Tech Antitrust Backers Meet at White House — So You’re Saying There’s a (Lame Duck) Chance

Report from Bloomberg

In Brief –  Advocates for landmark antitrust legislation targeting Amazon, Apple, Google, Meta, and Microsoft gathered at the White House to recommit to a final push during the upcoming “Lame Duck” session of Congress. A small group of tech executives and venture capitalists that support the legislation, including the CEO of Yelp, met with nearly a dozen White House officials. A collection of bills changing how federal antitrust law applies to a handful of the largest digital platforms were reported out of key committees in the House and Senate but were never scheduled for a floor vote in either body. The Senate, with its 60-vote requirement and arcane scheduling procedures has been considered the bigger barrier, and the anti-Big Tech lobbying team agreed to focus their Lame Duck efforts on the American Innovation and Choice Online Act and the Open App Markets Act, which have passed the Senate Judiciary Committee.

Context –  Once the EU wrapped up their giant digital regulatory bills, the Digital Markets Act and the Digital Services Act, the biggest policy question left for 2022 was whether the Congress would similarly rewrite digital public policy in the United States. The House Judiciary Committee reported out their bills in June of 2021 and the Senate Judiciary Committee in January. The coalition of backers in both bodies was mainly Progressive Democrats who support major antitrust reform and Republicans angered by what they consider ideologically motivated digital giants. Despite repeated claims of bill supporters that they “had the votes”, they never got their day on the floor. In both bodies, growing Republican concerns with regulatory overreach, especially at the FTC, combined with Democratic naysayers from California and moderate districts, held the bills back. Lame Duck strategies are longshots with controversial legislation, especially when at least one House of Congress changes hands, but they are often the last gasp of unsuccessful lobbying campaigns. Why not? Lobbyists get paid to lobby. A similar effort is underway with two Senate bills to regulate how digital platforms serve users under age 17.

Japan Fair Trade Commission Investigating Search Engine Treatment of News Businesses

Report from Asahi Shimbun

In Brief –  The Japan Fair Trade Commission (JFTC), the country’s competition authority, is asking Japanese media companies about the search ranking practices of five major digital platforms, including Yahoo News and Google News. The agency is reaching out to 300 firms, including newspapers, magazines, and broadcasters, with nearly 40 questions about the practices of Yahoo News, Google News, SmartNews, LINE News, and Gunosy. Facebook and Twitter are not included in the preliminary investigation. The latest inquiry follows a JFTC market report on digital advertising published in early 2021 that included complaints from media companies about opaque transaction conditions and ambiguous ranking-algorithm settings of news aggregators. The regulator, who recommended negotiations between the media companies and platforms at the time, claims that they continue to hear similar news industry complaints. If the agency proceeds with a formal investigation and finds some or all the aggregators abusing Japan’s Anti-Monopoly Law, they could attempt to impose more concrete remedies on digital platforms.

Context –  Japan, home to a robust digital economy with a unique mix of domestic and foreign-based platform giants, increasingly provides an interesting angle on digital policy. For example, its Ministry of Economy, Trade & Industry (METI) has a new regulatory structure to oversee five digital giants – Amazon, Google, Apple, Rakuten and Yahoo Japan – to improve the transparency of platform policies and protect smaller businesses from unilateral changes in rules and fees. However, the JFTC investigation of news aggregators is different. And while media company anger at the Internet, and desire to reorder the digital ads business to increase payments from digital companies, is global, Japan is again taking a somewhat different angle. Most countries, led by Australia and France, are focused on clawing money away from Google and Meta. New Zealand and Canada are just the most recent examples. But the JFTC is looking at Japanese news platforms as well.

Bills to Protect Young Internet Users Pushed for Congressional Lame Duck

Report from Washington Post

In Brief –  Advocates of legislation to force digital platforms to implement news rules to regulate how young people use online services are lobbying for action in the end-of-the-congress “Lame Duck” session. They are pressing for two bills passed earlier this year by the Senate Commerce Committee, the Kids Online Safety Act and the Children and Teens’ Online Privacy Protection Act. Among the major hurdles standing in the way are an ongoing disagreement between the key Senate and House committees over the appropriate scope of digital privacy legislation. While the Senate Commerce Committee advanced the two proposals focused on younger users, the House Energy & Commerce Committee advanced the American Data Privacy and Protection Act, a comprehensive data privacy bill that was a bipartisan breakthrough on an issue that has been stalled for over a decade due to partisan disagreements. That bill was stalled in the House by opposition from progressives and Democrats from California, especially Speaker Nancy Pelosi, and in the Senate by the Chair of the Senate Commerce Committee.

Context –  The campaign to regulate digital platforms in the US appears to have fallen short. Backers will need to simply savor their European wins. The Big Kahuna was the antitrust legislation. Bills with bipartisan backing from Progressives pushing to rewrite antitrust law broadly and Conservatives incensed by content moderation practices of the largest platforms, failed to make it to the Senate or House floor. Their backers are also pushing for an 11th hour Lame Duck win. That’s very unlikely. Privacy legislation always seemed a possible Big Tech legislative fallback. And “protecting kids” online has had very vocal Republicans champions. Plus, “protecting kids” has always been the top justification of online regulation. Just look to the UK, EU, California, and France. An under-18 “Splinternet” is a real possibility. That said, Lame Duck strategies are almost always longshots that fall short, especially when one or both Houses of Congress is changing party.

Italy Places Moratorium on Government Facial Recognition (Except for Police)

Report from Reuters

In Brief –  The Italian data protection authority has imposed a broad moratorium on government uses of facial recognition technology (FRT) and “smart glasses” that extends until a law governing the practices is adopted or at least the end of 2023. The moratorium was issued as part of the regulator’s response to FTR plans from two Italian provincial governments. However, the agency provided a potentially broad exception by allowing the technologies to be used as part of judicial investigations or to fight crime. Privacy advocates and civil libertarians, who have long warned of harms from biased FRT and that fighting crime will be used to justify the creation of a technologically sophisticated surveillance state, expressed concerns with the carve out.

Context –  Facial recognition-enabled surveillance is a highly controversial “AI” technology in part because it is increasingly real. Look to China’s surveillance state. The European Commission’s legislative package on AI, noteworthy for proposing a broad regulatory regime for AI and biometric technologies, considers FRT “high risk” but largely exempts law enforcement and other government security uses from limits, and even allows some real-time biometric surveillance. The Italian privacy regulator’s carve out for law enforcement only adds to that trend. In the UK, where public video surveillance is commonplace, the courts are setting parameters on law enforcement, pointing out shortcomings in police practices but allowing the general trend to continue forward. A number of US states have enacted some limitations of government use of facial recognition, with Maine taking the most aggressive stance, while most other states provided various law enforcement carveouts. In the US Congress, a Left-Right coalition of privacy advocates, progressives, and libertarian conservatives have raised concerns with federal and law enforcement using the technologies, but legislation seems a long way off.

Epic Games and Apple Square Off in Front of US Ninth Circuit Court of Appeals

Report from Reuters

In Brief –  Following on the heels of its In the latest stage of the epic antitrust legal battle between Epic Games and Apple, a three-judge panel for the Federal Ninth Circuit Court of Appeals heard from lawyers for the two corporate giants, the US Department of Justice, and the California Attorney General in the appeals of the landmark antitrust decision delivered by Federal Judge Yvonne Gonzalez Rogers in September 2021. Gonzalez Rogers largely dismissed Epic Games’ federal antitrust complaint against Apple, ruling over 185 pages that Epic failed to prove that Apple’s App Store was a monopoly, or that the phone giant was using its App Store rules and payments policies in ways that violated federal antitrust law. However, the ruling was a split decision, with the judge also issuing a one-page order rejecting Apple’s anti-steering policies prohibiting app developers from directing their users off the Apple ecosystem to make purchases. The hearing (video here) covered Epic’s appeal of the bulk of the original decision, essentially arguing that Gonzalez Rogers got it all wrong, Apple’s appeal of the anti-steering order, and the federal agency arguing that the original ruling applies federal antitrust law to Apple’s “walled garden” model in a way that will undermine antitrust action against many large digital platforms. A ruling is expected in around nine months.

Context –  With so much money at stake, and with Epic filing similar legal cases in so many other jurisdictions, appeals were always going to happen. Despite Apple’s near knockout in Round 1, Epic Games has put together a very impressive coalition for Round 2, backed by 35 State Attorneys General, elite law and business professors, and Microsoft. (All amicus briefs available here) Epic Games filed suits against Google and Apple at the same time, and the initial Google trial is not even scheduled until early 2023. In the US, the main action will continue to be in the courts, as congressional action on the app store giants is a longshot in the coming Lame Duck session and next Congress with divided control of the House and Senate. In Europe, the Digital Markets Act covers Apple and Google, but how might not be clear until 2024.

Oversight Board Tells Facebook to Allow Russian Invaders to be Compared to Nazis

Report from Washington Post

In Brief –  The content moderation policy Oversight Board, created by Facebook in 2020 to provide a somewhat independent Supreme Court-like panel to adjudicate Facebook content moderation decisions, has rebuked the company for improperly blocking posts that called Russian military forces Nazis or fascists when involved in the invasion of Ukraine. The Board of academics, journalists, lawyers, and other free speech experts, ruled on a specific case that involved an image of a dead body and an accompanying quote calling for the killing of fascist invaders of Ukraine. The Board considers appeals of specific content moderation decisions, and Facebook has promised to abide by those decisions, and also provides broader policy recommendations that the company considers. In this case, the experts ruled that the post did not violate the company’s content rules or its responsibility to protect human rights, as well as recommending that the guidance be applied broadly to other similar posts in the future.

Context –  Hundreds of millions of people post content on digital platforms every day… endless video, audio, images, and text in all combinations. True to form, some people create huge volumes of bad stuff, running from the illegal and depraved to an unlimited range of objectionable, hateful, mean, uninformed and misleading. The number of nuances and “grey areas”, as well is mind-boggling scale issues, never ends. Super smart tech policy expert Mark Masnick describes the content moderation job as “Impossible to do well”. The Facebook Oversight Board idea deserves a shout out for the most innovative attempt to improve the process at scale. Think of it as you follow the real time saga of how Elon Musk’s Twitter tries to deal with the endless challenges. Musk has said he is setting up a Moderation Board to give his company advice. TikTok and Spotify have expert advisor panels. The actual US Supreme Court will soon hear a case asking if digital platforms, in this case YouTube, can be found liable when terror attacks happen if they failed to block “terrorist” content well enough beforehand.

Google Settles Big Deceptive Location-Tracking Suit — State AG Edition

Report from Washington Post

In Brief –  Following on the heels of its Google and the Attorneys General of 40 states have agreed to settle a lawsuit alleging that Google violated state consumer protection laws by collecting and retaining location data on Android devices even after users selected “Location History” account settings that turned off tracking. As reported in an AP story in 2018, a collection of other settings involving Google apps such as Maps, Search and YouTube, enabled location data tracking and retention. Google will pay a $391.5 million settlement, which the state AGs claim is the largest of its kind, as well as agree to provide better transparency into the collection and use of location data. Google’s response to the settlement was that the investigation was “based on outdated product policies that we changed years ago” and released a blog post describing their ongoing changes to the treatment of location data.

Context –  Location tracking is a ubiquitous aspect of smart phones and facilitates many of the tools that people rely on. However, a lack of clarity on when and where Google collected location data, how long they kept it, and how they used it, especially from 2014 to 2017, has dogged the company since the AP investigation. They have been accused of using deceptive “dark pattern” tactics to trick users into thinking they had opted out of tracking when that was not in fact the case. The company has faced lawsuits in many markets. An Australian court sided with that country’s consumer protection regulator on a similar charge in 2021. And Google recently reached an $85 million settlement with Arizona’s AG, the first State AG to bring a complaint. Then there is the European Union, and the Attorneys General of Texas, Washington State, Indiana, and Washington, DC, who have each brought related state-level actions. Google was successful in having a consumer class action lawsuit dismissed in US Federal District Court in December 2019 for being too speculative and failing to identify any actual harms, but that seems increasingly distant history.

LinkedIn v hiQ Labs Ruling Reinforces That Violating Website Terms of Use Can Be CFAA Violation

Report from AdWeek

In Brief –  A ruling from Federal District Court Judge Edward Chen has delivered LinkedIn their most striking win in the five-plus year legal battle with hiQ Labs, a defunct human resources data analytics firm that gleaned data from the public LinkedIn pages of clients’ workers and provided insights into employee flight risks. LinkedIn, developing their own corporate HR service, eventually attempted to block hiQ from scraping data in 2017, claiming it and other mass copying of data violated LinkedIn’s Terms of Service and were a violation of the federal Computer Fraud and Abuse Act (CFAA). HiQ Labs won a preliminary injunction against LinkedIn’s ban in federal District Court in early 2019, a result upheld by the Ninth Circuit Court of Appeals, but the legal threats to its business model led to it going out of business by 2020. The court saga continued, with LinkedIn’s appeal to the US Supreme Court resulting in a remand back to the Ninth Circuit Court of Appeals in light of the High Court’s Van Buren decision, with the Ninth Circuit again ruling on behalf of hiQ in April 2022. But back in District Court the tide has turned. LinkedIn won dismissal of the initial temporary injunction in August based on hiQ no longer operating a business.

Context –  The most recent decision is particularly noteworthy for Judge Chen appearing to consider clear Terms of Service prohibiting automated scraping to be a “gates down” situation per the Supreme Court’s Van Buren framework. Advocates of the open Internet who have supported hiQ Labs throughout their legal standoff with LinkedIn are certain to be disappointed. That said, the scraping-based digital service to watch more closely is controversial facial recognition business Clearview AI, which claims to be built on more than 10 billion pictures scraped from the public social media pages of hundreds of millions of online users. Clearview AI, being sued by social media sites who claim that the mass downloading of photos violates their Terms of Service, argues they just operate like a search engine for pictures.

German Competition Authority Shifts Two Amazon Probes Under New Tech Authority

Report from Reuters

In Brief –  Following on the heels of its July ruling that Amazon falls under its new legal authority to proactively address competition threats from the largest digital platforms, the German Federal Cartel Office (FCO) has shifted two ongoing investigations of Amazon under the new regulatory authority. One of the investigations involves how Amazon algorithms review and respond to the pricing of third-party retailers who use the Amazon marketplace. The second involves the issue of so-called “brand gating” and whether Amazon reaches agreements with some brand manufacturers that result in third-party retailers on their marketplace being penalized or excluded. The new regulatory model hinges on the FCO’s determination that Amazon is dominant in regard to its marketplace services for third-party sellers, a ruling that Amazon is challenging in German court. In the new announcement, the head of the FCO applauded the new regulatory authority as improving the speed and efficiency of addressing anticompetitive conduct by digital giants and says that its Amazon action remains enforceable until the Federal Court of Justice rules on the company’s appeal.

Context –  In 2021, the German legislature responded to arguments that the traditional competition enforcement model was far too slow to stop the anticompetitive abuses of digital giants by granting the FCO authority to proactively establish rules to protect competition in the markets the very largest platforms occupy. The regulator has ruled that Google, Meta, Amazon, and Apple fall under the new hybrid antitrust-regulatory authority. The EU’s Digital Market Act (DMA) establishing 18 high-level “Do’s and Don’ts” for “digital gatekeepers” is another example. The DMA is expected to be fully operational in early 2024. The German regime, which is more open-ended in some ways, and has more than a year head-start, is a harbinger of sorts. Some German officials have expressed concerns that the DMA is too restrictive in scope and the European Commission may not have the regulatory resources to carry out the job.

Apple Sued Over Allegedly Deceptive Privacy Settings and Tracking in Apple Apps

Report from Gizmodo

In Brief –  Apple is facing a federal class action lawsuit filed by an iPhone user that alleges the digital giant has been illegally collecting analytics data about iPhone and iPad users’ app and browsing history even after users configure their privacy settings to turn off the collection of analytics data. The digital giant has advocated for high privacy standards in public relations and legislative battles with companies like Meta that primarily rely on advertising revenue, including making a high-profile change to its operating system that requires app developers to ask users up front if they want to opt-in to data collection for targeted ads. Many users don’t. The new complaint alleges that “Apple’s privacy guarantees are completely illusory” because Apple collects personal information and communications content from many Apple apps regardless of users expressed preferences and uses the data for its own advertising business.

Context –  We’ve been saying for months that the The intersection between data collection, privacy, and advertising is a morass of conflicting interests and user expectations. “Targeted advertising” is one of the most contentious topics in digital policy. Many privacy advocates want to get rid of it altogether. They seem to think less effective, more expensive, advertising is better for people. And also ignore the fact that highly targeted advertising clearly benefits small, specialized businesses. Smaller ad industry players sense anticompetitive intent when giants like Apple and Google, who run their own phone platforms, make “privacy” changes. They complained about Apple’s ad data opt-in requirement in a number of major markets, with the German competition authority opening a review. Google has faced similar accusations regarding its “privacy sandbox” proposal to end third-party cookies in Chrome and has agreed to allow the UK competition regulator to approve its plans before being implemented. Finally, Google has faced years of litigation accusing it of not clearly explaining to users that Google still collected much browsing and app data even after a user selected “Incognito” browsing mode in Chrome.

Microsoft Faces New Cloud Services Complaint in the EU from Amazon-Affiliated Group

Report from Reuters

In Brief –  CISPE, a trade group of 25 cloud services providers in Europe, including global market leader Amazon, have filed an antitrust complaint with the European Commission Competition Authority targeting Microsoft’s cloud and software licensing policies. Microsoft, a leader in business productivity software, has been accused of leveraging its software to benefit its cloud business, in particular through a 2019 license change for MS Office Suite and Windows 10 & 11 that imposed a surcharge when the software was used on a non-Microsoft cloud. Microsoft recently changed those license provisions to address antitrust complaints from small Europe-based cloud providers, eliminating the fee when the Microsoft software is used on cloud services provided by all companies other than Amazon, Google and Alibaba, the three largest cloud services providers alongside Microsoft. Amazon and Google were highly critical of the plan when it was announced, and the CISPE complaint alleges discriminatory bundling and tying of Microsoft products, self-preferencing pricing, and locking in customers.

Context –  Cloud services are being brought into the European digital competition debate from three directions. The three largest cloud services providers, Amazon, Microsoft, and Google, are companies that will be covered by the new Digital Markets Act in some manner, but it’s not entirely clear how. Earlier this year, EU Commissioner Margrethe Vestager said that she was not concerned with the cloud market. The recent complaints against Microsoft are based on dominance in the business software market, not cloud services, where it is second largest. Interestingly, despite the entreaties of smaller EU-based cloud providers, business software was not included as a digital service covered by the DMA, which some attribute to the prominence of SAP, a German company. Finally, Microsoft’s willingness to abandon their software license surcharge for all the smaller cloud providers is potentially a good will gesture to the European Commission reviewing the antitrust implications of their massive acquisition of Activision Blizzard.

Biden Says the Implications of Foreign Influence on Musk’s Twitter Worth “Being Looked At”

Report from Washington Post

In Brief –  In his first press availability after mid-term elections where Democrats performed unexpectedly well, President Biden responded to a question about whether the US Government should investigate the potential national security implications of Elon Musk acquiring Twitter with non-US investors, saying “I think that Elon Musk’s cooperation and or technical relationships with other countries is worthy of being looked at. Whether or not he is doing anything inappropriate, I am not suggesting that. I am suggesting that it’s worth being looked at, and that’s all I’ll say.” Musk has emerged as a critic of President Biden and the progressive wing of the Democratic Party, including encouraging people to vote Republican in the recent election. The question to Biden follows reports that investors who supplied $250 million or more into Musk’s newly private Twitter were entitled to some manner of confidential information rights, although it’s not yet clear what that means. Reports have focused on investors connected to Saudi Arabia, Qatar, and a crypto exchange founded in China.

Context –  We’ve been saying for months that the Committee on Foreign Investment in the United States (CFIUS) raised bigger regulatory concerns for Musk-Twitter than the FTC. While a CFIUS challenge would push traditional norms, the agency is historically opaque, the standards for review are not fixed, and deals involving data-rich digital firms have become a big priority on the bipartisan security agenda. High profile non-US investors into the bid likely give CFIUS a hook to delve deeper. In that context, the kind of “confidential information” investors would actually have access to would make a very big difference. Personal information on users would be problematic, while business information would be less so. Finally, although Tesla’s reliance on the Chinese market and their government’s interest of influencing online debates has been raised, that question would be hard to squeeze into a review.

Aggressive Unfair Competition Plan Accelerates Partisan Acrimony Over FTC Direction

Report from Bloomberg

In Brief –  The Federal Trade Commission’s Democratic majority has issued a new policy statement describing how the agency interprets its authority under Sec. 5 of the Federal Trade Commission Act to prevent “unfair methods of competition”. The three Democratic Commissioners, led by progressive antitrust champion and noted Big Tech critic Lina Khan, believe that the FTC has not appropriately used its existing legal authority to address a wide enough range of unfair and anticompetitive practices, focusing unnecessarily on narrow price effects and economic balancing tests that allowed broadly damaging and illegal corporate behavior. Commission policy statements inform and direct stakeholders, especially businesses, on how it plans to enforce the law. Its last one on unfair methods of competition, a one-page statement in 2015, was revoked under Khan’s leadership last year. The new version runs 16 pages and aligns with views of the progressive antitrust reformers that are influential in the Democratic Party. The reaction from Republicans and the business community was expectedly harsh, rejecting what they call gross overreach by regulators who want to direct the economy and pick winners and losers.

Context –  Lina Khan earned meaningful Republican support when the Senate confirmed her. That seems forever ago. Her tenure is increasingly partisan and divisive. Senate Republicans grilled her at a recent hearing and describe her agency as “out of control”. The House Republicans are already planning aggressive oversight hearings. And the sole Republican FTC Commissioner has accused her policy team of Marxist thinking. Bipartisan support for the new policy statement is basically zero. Planned FTC rulemaking on contentious issues like privacy and Gig work, without Congress legislating, will exacerbate frictions. Finally, the Supreme Court’s revival of the “Major Questions” doctrine that limits agency authority to meaningfully change a federal standard absent legislative direction, as well as an upcoming ruling on the constitutionality of the in-house FTC courts, will add to the conflict.

European Commission Announces Deeper Probe of Huge Microsoft-Activision Deal

Report from Wall Street Journal

In Brief –  As expected, the European Commission Competition Authority has announced a deeper investigation into Microsoft’s $69 billion acquisition of giant game developer Activision Blizzard. The Commission will deliver its decision by March 23, 2023. Following a review of feedback from industry stakeholders, the regulator has outlined a number of concerns with the huge deal, including that Microsoft may foreclose access to top Activision games to game console competitors, but also to competitors developing offerings in nascent markets for multi-game subscription services and cloud gaming. These have been top concerns of PlayStation owner Sony, the most vocal and visible opponent of the deal. Unlike other major market regulators, the European Commission also added concerns that the deal could reduce competition in the PC operating system market, where Microsoft’s Windows is dominant, claiming that Microsoft could link distribution of Activision’s PC games via the cloud in a manner that operates better on Windows and therefore undermines the ability of rival operating system providers to compete.

Context –  Microsoft’s Activision deal, the biggest digital acquisition of all time, is now facing full reviews in the US, EU, and UK by regulators who have talked up their concerns with Big Tech acquisitions. Up until now, serious challenges have targeted deals for relatively small startups, such as Meta trying to buy Giphy and Within. Microsoft-Activision is the farthest thing from that. Looking at the lay of the land, the UK and EU have officially expressed concerns aligned with Sony’s arguments. Although Microsoft has not made an official concession to address these concerns yet, they have talked about it. It now seems a footnote that Brazil’s competition authority completely rejected Sony’s argument when approving the deal. Along with the EU wildcard of raising Windows OS, the US FTC is reportedly focused on game industry labor effects, an additional issue that is likely behind Microsoft’s newly progressive stance on labor organizing.

New Zealand Approves 10 Years of Media Collective Dealing for Google-Meta Cash

Report from iTWire

In Brief –  The Commerce Commission of New Zealand, the country’s competition authority, has announced that it has granted the News Publishers’ Association of New Zealand (NPA) authorization for ten years to collectively negotiate with Meta and Google regarding the terms and conditions of the display on their platforms of the content of participating news media companies. The regulator believes that collective bargaining by the NPA will allow the news media companies, who are individually far smaller than both Google and Meta, to pool their resources, reduce negotiating costs, and potentially enable smaller media companies to achieve greater compensation that could lead to more and better domestic news content. New Zealand’s Ardern Government is also reported to be preparing legislation modeled after Australia’s news media bargaining regime requiring the platform giants to negotiate compensation deals or face mandatory government-directed arbitration.

Context –  Traditional media businesses have been complaining for two decades that the internet ruined their business model. France and Australia have most aggressively come to the aid of media companies, but the desire to force Google and Meta to pay local media companies is a global phenomenon. There is bipartisan support in the US Congress for a collective bargaining exemption similar to New Zealand’s, although time is running out on the 117th Congress. In terms of direct payments, both Google and Meta have created curated media services and paid hundreds of millions of dollars to media companies aiming to reduce political heat. Google recently announced a further expansion of that effort in Europe, but Meta’s leadership is reportedly frustrated with paying huge sums without resolving the political pressure and may end media payments entirely. They claim most users don’t want news and prefer entertaining TikTok-style content. In Canada, where the government is also considering an Australia-style payments regime, Meta insists that turning off news media sharing is a possibility.

European Commission Proposes New Regulation for Short-Term Rental Platforms

Report from Euractiv

In Brief –  The European Commission has announced a draft law to regulate short-term rental platforms like Airbnb and Booking.com in a way that attempts to balance the interests of urban tourist hotspots like Paris, Amsterdam, and Barcelona that have aggressively tried to limit the platform-based alternatives to traditional hotels, and smaller cities and rural communities that have been more welcoming of digital accommodation platforms as tools to broaden tourism beyond the most popular cities. In jurisdictions where national or local authorities require rental providers to register their offerings, the governmental registration requirements and processes are to be streamlined and harmonized, and the platforms will be required to display the government-issued registration numbers on every listing, conduct random checks to ensure that registration numbers are valid, and provide the results of these random checks to authorities. Platforms will also provide monthly data to authorities on the number of nights each property is rented and the number of guests staying per night. Enforcement of the short-term rental regulation will go to the Member States’ Digital Services Coordinators who will also help implement the newly enacted Digital Services Act.

Context –  Platform-enabled short-term vacation rentals have been highly controversial in top European tourist destinations for years. The 18-strong European Cities Alliance on Short-Term Rentals pressed the European Commission to include regulation of short-term rental platforms under the Digital Services Act and for the targeted Commission proposal to hew a hard line. Many of the data collection and registration measures in the new Commission proposal align with their views, but their call to shift liability to the digital platforms when property owners flouted local laws was not included. The digital accommodation platforms did not take a universal hard line, with AirBNB taking the view that EU-wide rental platform standards could prove beneficial compared to disparate locality-by-locality regulation.

TikTok Tells European Users That Company Employees in China Can Access Their Data

Report from Guardian

In Brief –  TikTok has announced an update to its privacy policy in European markets that clarifies that user data can be accessed by company employees that are located outside of Europe, including in China. The Chinese-owned social media giant says that the data is accessed by employees with a demonstrated need to ensure that the platform’s services are “consistent, enjoyable and safe”. Besides China, European user data could be accessed by TikTok or related company employees in the United States and Singapore, the two countries where TikTok servers hold European user data, as well as Brazil, Canada, Israel, Japan, Malaysia, and Philippines. TikTok plans to open a European data center in Ireland in 2023.

Context –  TikTok is the only Chinese digital giant with hundreds of millions of rabid users outside China. Security officials in countries that see themselves in strategic competition with China are raising concerns that user data could potentially be accessed by a Chinese Government that is heavily investing in digital surveillance. While it’s worth noting that Meta, like TikTok, is also building an EU data center to hold EU user data to help address GDPR concerns, many security experts are suspicious of TikTok’s massive data holdings regardless of where data is stored as long as TikTok is part of a conglomerate located in China due to that government’s immense influence over its tech giants. For example, US user data is largely stored in the US, but a recent Forbes report based on leaked company documents accused TikTok of allowing a corporate security team based in China to track the location of US-based users. TikTok aggressively denied the charges, claiming that the company does not collect “precise GPS location information from US users”, but did not refute the contention that Chinese employees can access the data regardless of where it is stored. CFIUS, a US government panel with powers to block foreign investments, continues to scrutinize TikTok and is reported to be near a complex data-housing and access deal that utilizes Oracle but may not fully block sharing data with China.

UK Data Protection Authority Warns Companies About Using AI to Judge Emotion

Report from Gizmodo

In Brief –  The UK Information Commissioner’s Office (ICO), the country’s privacy regulator, has issued a clear warning to companies considering the use of Artificial Intelligence (AI) “emotional analysis” technology tools, arguing that the risks of discrimination currently far outweigh any potential benefits. The field often combines facial recognition tools, including gaze tracking and facial movements, to discern a person’s emotional state, and some incorporate additional data including gait analysis, heartbeats, and skin moisture. The ICO’s Deputy Commissioner said, “Developments in the biometrics and emotion AI market are immature. They may not work yet, or indeed ever. While there are opportunities present, the risks are currently greater,” adding “we are concerned that incorrect analysis of data could result in assumptions and judgements about a person that are inaccurate and lead to discrimination.” The ICO believes that while there are risks inherent in biometric tech such as facial recognition for ID verification, emotional analysis is uniquely worrisome.

Context –  The fact that AI is such an amorphous and nebulous concept, as well as how very small firms have proven capable of big (and disconcerting) breakthroughs — see Clearview AI – adds complexity and uncertainty to the regulatory picture. The European Union is attempting to wrap up a comprehensive EU approach to AI regulation, although finalizing the AI Act introduced in 2021 to set an EU-wide legal and regulatory framework, focused on “high risk” systems, has proven harder than many expected with pushback from smaller Member States. The UK Government has announced a “New Digital Strategy to make UK a global tech superpower” and proposed an AI Action Plan that eschews a centralized regulator or single legislative standard, explicitly drawing distinctions with the EU’s AI approach, claiming it lacks flexibility and undermines innovation. But then the ICO warns off an entire “high-risk” application. The Biden Administration continues the US trend of sticking to high level principles as Congress isn’t legislating anytime soon.

Amazon Once Again in the FDA’s Sites for Selling and Handling Unapproved Drugs

Report from Endpoints News

In Brief –  The US Food and Drug Administration (FDA) has sent a warning letter to Amazon regarding its role in the distribution of three drugs, marketed as dietary supplements, that included an undeclared pain medication, and were therefore sold and distributed in violation of the Federal Food, Drug, and Cosmetic Act (FD&C Act). While the offending products were offered for sale on the Amazon Marketplace by third parties, the FDA noted that Amazon was also directly responsible for storing, handling, and delivering the products in question through its FBA logistics business. The agency called on Amazon to explain within 15 days the specific steps it is taking to address the FDA’s concerns and threatened potential legal action if they did not. This is the second time this year that the FDA has targeted Amazon for the practice of allowing the marketing and sale of illegal products on its marketplace site while handling the goods in a manner that this is equivalent to a retail business.

Context –  The FDA is one of the two federal consumer safety agencies that appears willing to challenge Amazon’s retailer-like business model that claims to be a digital third-party marketplace that is distinctly sperate from online sellers on the platform, but then stores, handles, packs and ships the goods for most of the largest sellers on the marketplace in the same way a retailer handles products from its wholesalers. In 2021, the Consumer Product Safety Commission (CPSC) filed suit against Amazon regarding a range of unsafe products, arguing that the company operates as a “distributor”, like a traditional retailer, when a product is both sold over its marketplace and fulfilled through its distribution centers. In January, executive branch judge James Grimes sided with the CPSC, ruling that Amazon meets the statutory definition of the term “distributor” for products that are sold on its marketplace and held in its FBA fulfillment program, and doesn’t fit an exception provided to independent logistics providers in similar cases because Amazon also markets and concludes the sale of the products.

South Korean Regulator Fines Booking.com for Non-Transparent Recommendation Practices

Report from Yonhap News Agency

In Brief –  The South Korean Fair Trade Commission (FTC), the country’s competition authority, has fined two Booking.com online travel agency websites for deceptive use of search results, terms, and symbols that gave consumers the perception of being impartial reviews but were instead based on advertising-type payments to the platform. For example, Booking.com placed a “thumbs-up” logo next to hotels that paid fees without informing users of the financial relationship. Although the level of the fines, just 2.5 million South Korea won, was small ($1,751 USD), the decision provides clarity on what the regulator expects in terms of website transparency related to paid endorsements, rankings, search results, and consumer reviews. The FTC noted that placing hotels higher in search results due to payments was “deceiving” as consumers were likely to believe certain businesses were placed at the top based on their services and facilities.

Context –  The US Federal Trade Commission (US FTC) has been working to provide truth-in-advertising direction to the burgeoning digital “influencer” industry since 2017, including a “Disclosures 101 for Social Media Influencers” guide in 2019, and rulemaking this year proposing changes to its Guides Concerning the Use of Endorsements and Testimonials in Advertising (the “Endorsement Guides”). Among the proposed revisions to the Endorsement Guides, which focus on the need for transparency by advertisers, endorsers, and platforms, are explanations related to practical application of US FTC guidelines to social media platforms, online “influencers,” and businesses that prepare or present consumer reviews, both for their own products and for third-party products. Moving beyond just guidelines, the US FTC is proposing to develop new regulations regarding unfair and deceptive practices in digital marketing, including paying for fake reviews, paying for positive reviews for your own product or negative reviews about competitors, suppressing negative reviews on a company’s own websites or other platforms, or buying or selling followers, subscribers, views, or other social media influence.

EU Expected to Open Phase Two Review of Microsoft’s Massive Activision Acquisition

Report from Politico

In Brief –  The European Commission Competition Authority is expected to launch a Phase 2 investigation into Microsoft’s $69 billion acquisition of giant game developer Activision-Blizzard when the first phase of its antitrust review expires on November 8. Microsoft had a Phase 1 deadline of November 1 to make a formal commitment to address the Competition Authority’s concerns but allowed it to pass without an official offer. The agency has been gathering feedback from gaming industry competitors and other stakeholders on issues including Microsoft’s activity in cloud gaming and services, as well as the prospect that they could limit access to Activision’s top games. Chief deal critic Sony has been publicly alleging that Microsoft would eventually limit access to “Call of Duty”, harming competitors and users who have purchased non-Microsoft platforms. Microsoft has made repeated assertions that it would make Call of Duty “available on the same day on both Xbox and PlayStation.”

Context –  Microsoft’s Activision deal is the biggest digital acquisition of all time. While tech acquisitions are coming under greater scrutiny, rejections have been focused on small deals. The US FTC made a “second request” to Microsoft for additional information in mid-summer. They are said to be focusing on gaming industry labor impacts, a less traditional antitrust issue, and likely a reason Microsoft has taken steps to support labor organizing inside Activision. The UK Competition and Markets Authority has announced that it believes the deal could harm competition in the gaming industry and is now in its deeper dive Phase 2 review, with a decision due in March of 2023. The European Commission therefore makes three. Microsoft has racked up one big positive decision with the Brazilian competition authority granting its full approval. Most striking was that regulator’s complete rejection of Sony’s Call of Duty arguments, stating that even if Microsoft did make it an exclusive game, there was no evidence that it would undermine competition in the overall console market or harm consumers.

Second Big Amazon Joint-Venture Retailer in India to Stop Selling on Amazon Marketplace

Report from Reuters

In Brief – Appario, one of the biggest sellers on Amazon’s marketplace in India, will cease selling on the platform within the coming 12 months. The consumer electronics retailer is a joint venture partially owned by Amazon. It is the second top seller on Amazon’s Indian marketplace to drop off the site in the last 16 months, following similar news related to Cloudtail in August 2021. The moves are seen as part of an ongoing legal and regulatory challenge to Amazon’s marketplace model in India. Ecommerce in India is greatly impacted by the country’s strict foreign direct investment (FDI) laws that prohibit foreign ownership of multi-brand retail businesses but allow foreign-owned third-party ecommerce marketplaces. The two largest ecommerce marketplaces in the country, Amazon and Flipkart, are US-owned. Each company has faced years of allegations that they circumvent retail FDI laws by preferencing a small number of giant sellers rather than giving all third-party sellers a true level playing-field, and both have been under investigation by the Indian competition authority and the Indian Enforcement Directorate (which enforces FDI laws). Allegations targeting Amazon were bolstered by internal documents leaked in 2021 that showed how just 35 of the 400,000 retailers on their Indian site accounted for two-thirds of all the 2019 sales. Cloudtail and Appario alone were 35% of total revenue.

Context –  Amazon’s opaque business model as the largest online retailer, largest marketplace, and largest ecommerce logistics provider, has confused policymakers and regulators for years. The biggest misunderstanding is that Amazon is primarily a retailer. That’s 2010 thinking. Amazon’s most profitable and important ecommerce business is third-party sellers using FBA to sell on Amazon, not old-school retail sales. Amazon’s India business is a testing ground for company strategies to run their business with zero official retail sales and reliance on preferencing key third-party sellers. Although they may have run over the legal guardrails there.

EU Expected to Open Phase Two Review of Microsoft’s Massive Activision Acquisition

Report from Politico

In Brief –  The European Commission Competition Authority is expected to launch a Phase 2 investigation into Microsoft’s $69 billion acquisition of giant game developer Activision-Blizzard when the first phase of its antitrust review expires on November 8. Microsoft had a Phase 1 deadline of November 1 to make a formal commitment to address the Competition Authority’s concerns but allowed it to pass without an official offer. The agency has been gathering feedback from gaming industry competitors and other stakeholders on issues including Microsoft’s activity in cloud gaming and services, as well as the prospect that they could limit access to Activision’s top games. Chief deal critic Sony has been publicly alleging that Microsoft would eventually limit access to “Call of Duty”, harming competitors and users who have purchased non-Microsoft platforms. Microsoft has made repeated assertions that it would make Call of Duty “available on the same day on both Xbox and PlayStation.”

Context –  Microsoft’s Activision deal is the biggest digital acquisition of all time. While tech acquisitions are coming under greater scrutiny, rejections have been focused on small deals. The US FTC made a “second request” to Microsoft for additional information in mid-summer. They are said to be focusing on gaming industry labor impacts, a less traditional antitrust issue, and likely a reason Microsoft has taken steps to support labor organizing inside Activision. The UK Competition and Markets Authority has announced that it believes the deal could harm competition in the gaming industry and is now in its deeper dive Phase 2 review, with a decision due in March of 2023. The European Commission therefore makes three. Microsoft has racked up one big positive decision with the Brazilian competition authority granting its full approval. Most striking was that regulator’s complete rejection of Sony’s Call of Duty arguments, stating that even if Microsoft did make it an exclusive game, there was no evidence that it would undermine competition in the overall console market or harm consumers.

Second Big Amazon Joint-Venture Retailer in India to Stop Selling on Amazon Marketplace

Report from Reuters

In Brief – Appario, one of the biggest sellers on Amazon’s marketplace in India, will cease selling on the platform within the coming 12 months. The consumer electronics retailer is a joint venture partially owned by Amazon. It is the second top seller on Amazon’s Indian marketplace to drop off the site in the last 16 months, following similar news related to Cloudtail in August 2021. The moves are seen as part of an ongoing legal and regulatory challenge to Amazon’s marketplace model in India. Ecommerce in India is greatly impacted by the country’s strict foreign direct investment (FDI) laws that prohibit foreign ownership of multi-brand retail businesses but allow foreign-owned third-party ecommerce marketplaces. The two largest ecommerce marketplaces in the country, Amazon and Flipkart, are US-owned. Each company has faced years of allegations that they circumvent retail FDI laws by preferencing a small number of giant sellers rather than giving all third-party sellers a true level playing-field, and both have been under investigation by the Indian competition authority and the Indian Enforcement Directorate (which enforces FDI laws). Allegations targeting Amazon were bolstered by internal documents leaked in 2021 that showed how just 35 of the 400,000 retailers on their Indian site accounted for two-thirds of all the 2019 sales. Cloudtail and Appario alone were 35% of total revenue.

Context –  Amazon’s opaque business model as the largest online retailer, largest marketplace, and largest ecommerce logistics provider, has confused policymakers and regulators for years. The biggest misunderstanding is that Amazon is primarily a retailer. That’s 2010 thinking. Amazon’s most profitable and important ecommerce business is third-party sellers using FBA to sell on Amazon, not old-school retail sales. Amazon’s India business is a testing ground for company strategies to run their business with zero official retail sales and reliance on preferencing key third-party sellers. Although they may have run over the legal guardrails there.

Musk Assures European Leaders That Twitter Will Follow the DSA

Report from Reuters

In Brief –  Elon Musk has assured the European Commission that Twitter will abide by the groundbreaking content moderation rules entailed by the European Union’s new Digital Services Act (DSA) that was enacted earlier this year. The legislation directs how all digital platforms address a wide range of objectionable and illegal content, including new rules on deceptive website “dark patterns”, limitations on targeted advertising, specific take-down duties, and transparency requirements. Large platforms, which have over 45 million users, face more stringent requirements. The most recent outreach by Musk is not the first time since his interest in running Twitter became known that he has assured European leaders that he understands and respects their social media content moderation plans. In May, he met with European Commissioner Thierry Breton and discussed the DSA, following up the meeting with a statement that “I think it’s exactly aligned with my thinking.”

Context – Act One of the Musk-Twitter saga is over. The big public policy question in Act Two is how Musk running Twitter will impact content moderation, both on Twitter and also in bigger regulatory and legal contexts like the US Congress and the Supreme Court. Musk’s defense of “free speech” and criticism of “woke” thinking has upset many progressives and delighted many conservatives. But more relevant to content moderation policy are likely to be his repeated reference to following “local laws” and his outreach to advertisers. In terms of “local laws”, in the United States, you have the First Amendment. That may lead to a less restrictive set of rules, at least in terms of what is required. But outside the US, in places like the EU and India, political leaders are already calling on him to follow their social media laws, which direct content moderation. His mantra may mean more interventions there. Then add in the business imperative of having a platform that is acceptable to most users. As he said in his opening outreach to advertisers, “Twitter obviously cannot become a free-for-all hellscape, where anything can be said with no consequences.” And then he set up a content moderation council to think things through.

Head of OECD Tax Division Warns of Conflict if Global Corporate Tax Reform Fails

Report from Financial Times

In Brief – As he departs from the Organization for Economic Cooperation and Development (OECD), where he led the tax department for a decade, Pascal Saint-Amans has expressed concern that the groundbreaking corporate tax reform deal negotiated under his watch may not enter into force anytime soon and the result could be destructive bilateral tax and trade conflicts. Saint-Amans was a lead architect of the multinational plan to resolve two long-time global corporate tax concerns — the right way to tax digital giants like Google and Apple, and efforts by some countries to promote corporate investments by offering very low tax rates to multinational companies that invested in their market. “Pillar 1” of the OECD plan, which was initially just a new tax on very large companies that sell digital services, was modified to address approximately 100 highly profitable consumer-facing companies, enabling governments in countries where users buy services to impose corporate taxes alongside the governments where the companies operate their businesses. “Pillar 2” aims to undermine “tax havens” with countries agreeing to tax multinational companies at least 15 percent. Despite real progress in 2021, the effort to finalize the deal faces multiple hurdles in the US, Europe, and with developing countries. Without unexpected progress, he sees a reversion back to trade threats like in 2020, as well as US digital companies facing more new taxes.

Context –  Getting global corporate tax reform across the finish line was always a very tough ask. Back in 2020, a host of EU Member States, as well as India and Turkey, enacted national Digital Services Taxes (DSTs). The Trump Administration argued that only the US had the right to tax the companies and threatened major trade retaliation. The Biden Administration shifted its focus to the global minimum tax and progress followed. Some of the national DSTs are now being imposed. Governments in Europe and India have agreed to rebate tax overages to digital giants once the full global deal goes into effect, but if there is no deal, those agreements will expire in 2023 and the DSTs will continue and likely expand.