Archive – 2021-22

FTC Begins Lengthy Process of Broad Privacy and Data Security Rulemaking

Report from TechCrunch

In Brief – The US Federal Trade Commission kicked off a rulemaking process to address concerns related to online privacy, which it describes as “harmful commercial surveillance”, and “lax data security”, releasing a 95-question Advance Notice of Proposed Rulemaking (ANPR). The agency, which moved forward after a party-line 3-2 vote of the commissioners, offered 60 days for comments and a public forum on September 8 to gather feedback. Issues raised in the ANPR include data security practices, potential harms to children, the addictiveness of some online services, and that whether consumers face retaliation from companies that require consenting to surveillance as a condition for service. If a majority of the commissioners decide to move forward on formal rulemaking, the agency would draft and release new rules and initiate a further public consultation process. FTC Chair Lina Khan stated that the FTC initiative would not conflict with congressional efforts to pass a comprehensive federal privacy law, including the American Data Privacy and Protection Act (ADPPA) that passed the House Energy & Commerce Committee on a bipartisan vote in late July.

Context – A lot of balls are up in the air on privacy and data security, and this effort by the FTC is not the most important right now. The strident language of the ANPR, starting with “harmful commercial surveillance” and running through the 95 questions, is not trying to find common ground or bridge differences. On the other hand, a Hill deal on federal privacy legislation remains possible this fall if the ADPPA basically replaces the antirust legislation as Congress’s solution to “deal with Big Tech”. The digital giants far prefer that result, which is likely why the US Chamber of Commerce was silent on the ADPPA in committee despite questionable treatment of class action suits. On the other hand, the Chamber expressed strong reservations about the partisan ANPR, arguing it exceeds the FTC’s legal authority, raising concerns heightened by the Supreme Court’s “Major Questions Doctrine.”

Food and Drug Administration Warns Amazon to Stop Fulfilling Illegal OTC Drug Sales

Report from the National Law Review

In Brief – The US Food and Drug Administration (FDA) has sent a warning letter to Amazon regarding the storage, packing, and shipping of products that violate the Federal Food, Drug, and Cosmetic Act (FD&C Act). In its letter to Amazon, the FDA reported that it purchased “Over the Counter” (OTC) drugs purporting to provide mole and skin tag removal on the Amazon marketplace that violated the FD&C Act, as no such OTC are currently approved. While the offending products were offered for sale by third parties, the FDA noted that Amazon was also directly responsible for storing, handling and delivering the products in question through its logistics business. The agency called on Amazon to explain within 15 days the specific steps it is taking to ensure that Amazon will no longer introduce, deliver, or cause the introduction or delivery into interstate commerce, of drug products with mole and skin tag removal claims, and threatened potential legal action if they did not.

Context – The FDA is the second major federal consumer safety agency to challenge Amazon’s unique retailer-like business model that combines the largest digital marketplace for online sellers with a logistics business that stores, handles, packs and ships the goods for those same marketplace sellers, just like a retailer handles products from wholesalers. Last summer, the Consumer Product Safety Commission (CPSC) filed suit against Amazon regarding a range of dangerous products, arguing that the company operates as a “distributor”, like a traditional retailer, when a product is both sold over its marketplace and also 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 logistics providers in similar cases.

Amazon Buying iRobot’s Smart Vacuums Raises Competition and Privacy Complaints

Report from Bloomberg

In Brief – Amazon’s $1.7 billion acquisition of iRobot, the maker of the market-leading Roomba smart vacuum, is expected to face serious scrutiny from the US Federal Trade Commission, which is led by Lina Khan, who rose to national prominence as a law student by authoring a progressive antitrust critique of Amazon. The acquisition has been harshly criticized by antitrust reform champions and consumer advocates for a range of reasons, including traditional competition charges that Amazon will leverage their online commerce dominance to undermine other robot-vacuum competitors and reinforce their existing smart-home product suite, and novel concerns over Amazon using the floor-mapping Roombas to increase the already vast and sensitive data holdings of the company in ways that some believe threaten personal privacy. However, iRobot’s declining market share and lack of profitability raise questions about the strength of a legal challenge.

Context – Despite the Biden Administration naming high profile antitrust reformers like Khan and Jonathan Kanter to top competition positions, little concrete action to stop giant Big Tech acquisitions has ensued. The FTC did not challenge Amazon’s $8 billion acquisition of mid-level studio MGM, but Khan did not have a Democratic majority at the time. But Amazon is giving the enforcers more opportunities to test their theories. The iRobot deal follows on the heels of Amazon buying health care provider One Medical for $3.9 billion, reports say it is also bidding for Sygnify Health, which is expected to fetch $8 billion, and possibly videogame developer Electronic Arts. If size matters, the biggest Big Tech acquisition of all, Microsoft’s $70 billion bid for videogame giant Activision Blizzard, is sitting in front of competition regulators globally, including the FTC. At the other end of the deal size spectrum, Meta’s $400 million bid for VR app startup Within Unlimited is the one Big Tech bid that has drawn an actual FTC legal challenge. Meta and the FTC are scheduled to meet in federal court in December.

Late Push for Federal Bill to Force Google and Facebook to Pay Media Companies

Report from the Baltimore Sun

In Brief – Bipartisan legislation to force the largest digital platforms, in particular Google and Meta, to pay local newspapers and news broadcasters when content shows up on their platforms, has been updated to increase its chances in the closing weeks of the 117th Congress. The new version of the Journalism Competition & Preservation Act exempts news publishers with fewer than 1,500 full-time employees from antitrust laws to allow them to negotiate as a group to win better payments terms from platforms. Earlier versions of the bill did not cap the size of the media recipients, potentially benefiting huge media outlets that are growing through national and international subscriptions, and granted media companies expanded copyright protection that advocates of online free speech strongly rejected. The forced media payments effort is led by the Hill trio spearheading Big Tech antitrust reform — Sen. Amy Klobuchar (D-MN), Rep. David Cicilline (D-RI), and Rep. Ken Buck (R-CO) — and claims backing from hundreds of consumer, labor, and conservative groups. The measure calls on the platforms to engage in good faith negotiations with the media collectives, and in the event of an impasse, news publishers can demand baseball-style arbitration — an all-or-nothing process where federal arbitrators choose one side’s offer to settle a dispute.

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 their aid, but trying to force Google and Facebook to pay local media is a global phenomenon. Both platforms have created curated media services that have paid hundreds of millions of dollars to media companies aiming to reduce political heat. While Google recently announced a further expansion of that effort in Europe, Meta’s leadership is reportedly frustrated with paying huge sums without resolving the political pressure and may end media payments entirely, claiming most users don’t want news, preferring TikTok-style creator content.

Google Announces Another Delay to the Chrome “Privacy Sandbox” Cookie Plans

Report from CNBC

In Brief – Google has announced a further delay in the rollout of its “Privacy Sandbox” plan to replace third-party cookies in the market-leading Chrome browser. The plan, first announced in 2020 and justified by consumer privacy expectations and similar cookie policies in other web browsers, immediately generated opposition from ad industry participants concerned that changes would bolster Google’s market-leading “adtech” business. Google has repeatedly said it would work with the industry to address concerns and cited those efforts in pushing back the roll-out date to 2024.

Context – “Targeted advertising” is one of the most interesting topics in digital policy. On one hand, many privacy advocates, including regulators, want to get rid of it with religious fervor. They appear to believe that less effective, more expensive, advertising is better for people. On the other hand, the digital ad industry keeps growing, and despite complaints that it is dominated by just a few firms, Google, Meta and Amazon at this point, there are many adtech enterprises. They don’t agree that targeted advertising is inherently bad, and when they see reforms pinned on “privacy” harming their businesses to the benefit of giant platforms like Apple and Google, they are willing to complain to competition regulators. Apple’s massive IDFA ad-tracking change is harming many advertising-based businesses, including giant platforms like Meta and Snap, while Apple’s advertising business grows. Antitrust authorities in Germany and Poland have taken up investigations on behalf of smaller adtech enterprises swept up in the harm from Apple’s policy change. Finally, the most interesting Big Picture development is Google’s Privacy Sandbox agreement with the UK CMA to have the regulator to review, sign-off on, and likely oversee, the company’s eventual cookie replacement technology to certify that it does not preference Google or unfairly harm competitors. With laws like the DMA coming online, expect more regulators to step into this type of tech business “co-pilot” role.

Uber Wins a Disability Access Court Battle but May Now Be in a Case-By-Case ADA War

Report from The Verge

In Brief – A federal judge in California has sided with Uber and ruled that the Americans with Disabilities Act (ADA) does not require the ridesharing service to offer a special wheelchair-accessible vehicle (WAV) service in New Orleans, Louisiana and Jackson, Mississippi. Judge Richard Seeborg rejected the claims brought by two motorized wheelchair users, residents of the cities in question, who sued Uber over the lack of WAV accessible Uber services in their cities. The plaintiffs argued that Uber operates WAV programs in cities such as New York, Los Angeles, Boston and San Francisco and therefore violate the ADA by discriminating against similarly disabled people in markets where they do not offer a WAV service. The decision ended up resting on the judge’s determination that the accommodation was not “reasonable” for Uber to offer, a requirement of the ADA, in the two markets at issue just because they offer the service in some very large cities. While the judge rejected a number of Uber arguments, including that ADA accommodations needed to be of a de minimis cost, and that requiring Uber to offer WAV services would effectively punish it for offering WAV services elsewhere, he found Uber’s high cost-estimates compelling, which were based on the smaller number of users needing and offering WAV vehicles in the cities at issue.

Context – The decision throws open this ADA question to market-by-market cost analyses, at least for Uber, and potentially for other platforms. The judge rejected the Uber argument that forcing it to offer direct WAV services would fundamentally alter its business as a digital platform. The fact that Uber has offered direct WAV transport services elsewhere was key on that question and again illustrates the legal downside of crossing the line from offering a platform service connecting buyers and independent sellers, to offering transportation services more directly and therefore being judged as a transportation company itself. While this judge believed that requiring Uber WAV offerings was too costly in those cities, it may not be elsewhere.

The Senate’s Big Tech Antitrust Bill Does Not Hit Key Summer Vote Milestone

Report from Bloomberg

In Brief – After months of lobbying by anti-Big Tech champions and backing from both progressive and conservative quarters, the leading bill to reform federal antitrust law to pare back the power of the largest digital platforms will not come up for a vote in the US Senate before the August recess. The American Choice and Innovation Online Act (ACIOA), which aims to block the digital giants from preferencing their own products and services, has been touted by backers as the lynchpin measure with enough bipartisan backing to break through the Senate’s key 60 vote threshold. They repeatedly targeted a vote before the August recess as an important milestone to getting the measure enacted in 2022. However, at a recent fundraising event, Senate Majority Leader Chuck Schumer (D-NY) responded to a question regarding the bill’s status noting that it was not supported by 60 Senators at this point and would not be brought to floor before the coming recess, a fact confirmed by antitrust reform champion and bill sponsor Amy Klobuchar who is now looking to the fall.

Context – Once the EU enacted the Digital Markets Act (DMA) and Digital Services Act (DSA), we said that the top digital policy question for the rest of 2022 is whether this US antitrust overhaul for Big Tech is enacted. Despite repeated claims of vote count optimism by Democratic and Republican backers (which is often not a sign of actual strength), there have been ongoing Democratic holdouts, questions over whether Republicans would “give” congressional Democrats a high-profile win before the election, growing partisan controversy over FTC policies that belies giving the agency major new power, and legitimate questions over whether voters would like stocks of tech giants further harmed in a major down market. We’ve consistently said the odds were against the bill and those odds have now gotten worse. On the US policy front, look to court cases and progressive activism at the FTC for action. And since the EU has jumped into digital platform regulation with two feet, we should get a giant regulatory A/B test as the DMA and DSA roll out without US equivalents.

Indonesian “Social Media Law” Goes Into Effect with Search, Payments and Gaming Platforms Impacted

Report from Reuters

In Brief – As the Indonesian Government fully implemented enforcement of its strict online content moderation law enacted in November 2020, a range of search, gaming and payments platforms including Yahoo, Steam, Epic Games and PayPal were completely blocked by the Ministry of Communication for failing to appropriately register under the new regime. It is reported that access to PayPal was temporarily restored to allow users to move funds as well as to give the company additional time to register if they choose to go that route. The law gives authorities broad powers to compel platforms to take down content within 24 hours that is deemed unlawful or that “disturbs public order”, as well as disclose user data. It has faced sharp criticism from civil libertarians and free speech defenders. Popular social media platforms were considered the primary target of the measure and all the major players including Google, Meta, TikTok and Twitter had signed on by the deadline, but the law’s scope covers nearly all types of digital platforms and platforms as varied as Apple, Microsoft, Amazon, Alibaba, Netflix and Spotify have registered as well.

Context – Despite its position as the world’s fourth most populous country, a top twenty economy, and a leader in the fast-growing Southeast Asian digital market, the increased regulation of online activity in Indonesia is oft overlooked. But it’s another example of a government seeing content they don’t like online and pushing platforms to police it. China, Russia, Turkey, India and a growing number in Central Asia and Africa are easy to criticize as online censors. Indonesia too. But Germany, Australia and France were early adopters as well. While the EU’s Digital Services Act and UK Online Safety Bill claim to set rules for online content moderation and demand free speech protection at the same time, they are certain to create similar tensions, although likely over different disfavored content. Free speech advocates see their efforts empowering authoritarians nonetheless.

FTC Sues to Block Meta’s $400 Million Acquisition of VR App Developer Within Unlimited

Report from Bloomberg

In Brief – The Federal Trade Commission has filed suit to block Meta Platforms from acquiring virtual reality (VR) application developer Within Unlimited alleging that the digital giant is already “a key player at each level of the virtual reality sector” and that adding the popular developer of fitness app Supernatural to its business will undermine competition and harm consumers. The FTC complaint, filed in Federal District Court in California, requests that the court issue a temporary restraining order blocking the acquisition as they challenge it in administration proceedings. Meta responded that the FTC suit is “based on ideology and speculation, not evidence” and would send “a chilling message to anyone who wishes to innovate in VR.”

Context – Yes, FTC Chair Lina Khan, champion of the progressive antitrust reform movement, passed on Amazon’s $8 billion purchase of MGM. Now, as they challenge Meta’s $400 million effort to buy a VR app developer, Microsoft’s mega deal for Activision, is squarely in view. The FTC’s Democratic majority moved forward on this “experimental” Meta case against the recommendation of commission staff. Both Republican commissioners opposed. Republican Commissioner Noah Phillips criticizes activist antitrust regulators for being aggressive with small deals but shrinking in the face of the giant deals. This is not just a US phenomenon. The UK CMA’s big stand has been to unwind a similar-sized Meta deal, the $315 million acquisition of US startup Giphy, a business with no UK or EU operations. And the European Commission’s competition authority now claims the right to challenge any acquisition it says could impact Europe without any size threshold at all. The current US regulators may not object to Europeans blocking US startup deals, but that might not be the case in a few years. Finally, the FTC is also in court trying to undo Meta’s long-ago acquisitions of Instagram and WhatsApp claiming they monopolized social media. But now their market cap is falling fast and they are changing to operate like growth giant TikTok.

Anti-Online Marketplace Riders are Dropped and CHIPS and Science Bill Passes

Report from the Wall Street Journal

In Brief – The $280 billion spending bill dubbed the CHIPS and Science Act aimed at boosting US semiconductor manufacturing and a range of other science and technology initiatives passed the House of Representatives following Senate approval and will be signed into law by President Biden. Although the measure faced late opposition from Republican leaders after Democrat-only climate, Medicare prescription drug, and tax legislation appeared to be moving through the Senate, the initiative framed as standing up to the challenge posed by China passed with bipartisan support. More than $200 billion of the spending in the bill comes in future years and depends on further congressional action, but $52 billion will be funneled to chip manufacturers without further action, including $39 billion in direct financial assistance to help construct manufacturing facilities, $11 billion to support semiconductor research and workforce training, and $2 billion to push laboratory advances into military applications. Finally, the bill also creates a 25% investment tax credit for companies that invest in semiconductor manufacturing in the US.

Context – The biggest news related to the CHIPS and Science Act for digital platforms was not what was included in the final compromise bill, but what ended up being left on the cutting room floor. Among the big pieces of extraneous baggage that was tossed off the semiconductor and science train as it was leaving the station for the last time were the INFORM Consumers Act requiring online marketplaces verify larger third-party sellers and suspend those who do not meet the disclosure requirements in the bill, the SHOP SAFE Act that aimed to overturn online trademark liability law to pin liability for counterfeiting by third-parties on marketplace platforms themselves, and the Country of Origin Labeling Online Act. Each of these pieces of legislation include major initiatives of long-time opponents of online commerce platforms, especially the traditional retailers and luxury brand manufacturers, who are certain to now look for other vehicles to continue their many-year legislative campaigns.

Instagram Faces Influencer Criticism for Changing the Platform to Be Like TikTok

Report from the Wall Street Journal

In Brief – In the midst of making changes to its app operations that move away from its core photo-based social media service to emulate TikTok’s short-video model, Instagram, one of Meta’s most popular applications, has publicly responded to criticism from a number of high profile “influencer” users that have been highly successful in the traditional Instagram model. While noting that changes are tests and less successful ones may be pared back, Instagram President Adam Mosseri largely defended them as responding to shifting user preferences, noting that while photo-based content will always be important on Instagram, the market seems to be inexorably moving toward video.

Context – What’s the public policy issue linked to Instagram and Facebook operating more like TikTok? Think about it in the context of the Federal Trade Commission’s federal antitrust complaint. Like in many antitrust cases, defining the market of the company in question, and then determining that company’s market share and power, is key. The FTC suit is based on the argument that Facebook is the dominant “personal social networking” company whose top competitor is Snapchat (whose revenue model, like Facebook, is now under fire). They argue that TikTok, YouTube and LinkedIn are not direct competitors. The suit, dismissed on its first go by Federal Judge James Boasberg for a lack of data, survived on the second attempt by showing that Facebook has held at least an 80% share of that oddly narrow social media market since 2012. Now consider Meta’s rebuttal. They argue that their business is as a digital advertising platform and that they compete with those giant social media platforms for user attention and advertiser dollars. Google (28%), Facebook (24%) and Amazon (15%) currently hold the largest shares of digital ad revenues, but none is at 30% singularly. Pair that up with Meta shifting the operations of their two money-making platforms to operate much more like TikTok, the social media growth powerhouse, and the FTC case seems to be getting past its sell by date quickly. And a trial is not likely until late 2023!

UK Issues Guidance on Gig Worker Classification to Align With Top Court’s Uber Ruling

Report from HR Magazine

In Brief – The UK Department for Business, Energy and Industrial Strategy has released guidance to assist workers and businesses in navigating the issue of worker classification following the landmark decision of the UK High Court in February 2021 that ordered Uber to reclassify drivers as workers rather than independent contractors. The new guidance is built around the UK’s existing three-classification model, with “employees”, “workers” (short for “limb (b) workers”) and the “self-employed”. The High Court determined that Uber drivers were “workers”, in the middle tier, and the new guidance offers people and employers information on how to appropriately classify workers and which benefits apply to which classes. For example, the new checklist notes that platform-enabled “workers”, are entitled to paid holidays, payments that reaches the National Minimum Wage, and the right to join a trade union, however do not qualify for benefits like maternity leave, statutory bereavement leave, paid time off, or redundancy pay.

Context – Gig work might be one digital policy issue where the UK finds true middle ground between the US and EU regulatory models in large part because of its existing three-part rather than binary classification regime. The US and Europe continue to diverge, at least for Gig ridesharing and delivery drivers. European courts continue to support classifying them as employees and both Spain and Portugal enacted Gig driver and food delivery worker laws last year. The big kahuna is the European Commission’s massive legislative initiative on digital labor platforms that directs a Europe-wide change on worker classification for platforms that strictly control the performance of workers, as well regulating “algorithmic” management practices for all labor platforms. On the other hand, reclassifying platform workers as employees has been stymied in the US since voters in deep-blue California voted to exempt Gig drivers from the state’s law classifying many independent contractors as company employees, leaving out the main targets while throwing many true independent contractors into turmoil.