Archive – 2020
Amazon Supports Product Liability Bill If It Covers Marketplaces That Don’t Handle Goods
Report from Reuters
In Brief – In an unexpected shift in company policy regarding product liability, Amazon has announced its conditional support for landmark legislation in the State of California that would impose the same product liability standards on ecommerce marketplaces as currently apply to retailers who directly handle and sell consumer products. In a corporate blog post, Amazon expressed qualified support for California AB 3262 imposing strict liability on marketplaces if the legislation applies equally to “all online marketplaces… regardless of how a particular online marketplace makes money.” The Amazon position is that marketplaces should be treated alike whether they “charge third-party sellers up-front fees to post a product”, “charge sellers by taking a percentage of their sales”, or “charge advertisers”.
Context – Traditional retailers have long charged online marketplaces with unfair competition and lobbied to impose direct product liability duties on third-party ecommerce platforms. That effort continues and can be seen from the Trump Administration, with a particular focus on products from China, bills to expand marketplace liability in the U.S. House and Senate, and AB 3262. A major retailer coalition has formed to expand lobbying efforts. The defense for Internet marketplace platforms has been based on the key fact that they do not see or handle the goods sold by independent sellers so judging quality or finding defects is not possible and should be the seller’s duty. A retailer is different because they handle the products. But Amazon, is different and unique, combining a marketplace with its massive Fulfillment By Amazon fulfillment center system, handling products just like a retailer. This could become a key fact in the liability debate, which Amazon likely recognizes, as it was called out by the judges in the recent Bolger v. Amazon liability case in California, and a striking blog post from Etsy’s CEO, who makes a compelling argument that Amazon, unlike Etsy, is “effectively a retailer” not a marketplace.
California Appeals Court Grants Uber & Lyft a Stay on Driver Employment – Pyrrhic Victory?
Report from CNet
In Brief – A California appeals court has overturned last week’s California Superior Court ruling that granted an injunction requiring Uber and Lyft to immediately employ drivers using their platforms as requested by California’s Attorney General, who accuses the ride sharing platforms with violating AB 5, the state law enacted in 2019 to implement the worker classification ABC Test. Both Uber and Lyft had stated that if the employment mandate was not delayed by the courts while the case was argued that they would likely shut down operations in the state, at least temporarily. The Superior Court judge had granted the companies 10 days to appeal the injunction. With the stay, both companies have indicated that they will continue their operations in the state.
Context – While the companies are arguing in the courts that AB 5 does not require them to hire drivers as employees, they are also strongly supporting a California ballot initiative that will be in front of the state’s voters in November to clearly exempt their businesses from AB 5 and allow ride sharing platform drivers to receive a range of employee-like benefits from the companies while remaining independent contractors. One must wonder if the stay ends up being a legal Pyrrhic victory, as a few months without ride sharing in the state might have influenced California voters who like the services to support the ballot initiative that would protect the companies’ current business model. The stay does not improve their case in the trial court, where the judge granted the injunction with language that bordered on derision for the companies’ arguments.
Amazon Announces Plan to Increase Fees on French Sellers to Account for French DST
Report from CNBC
In Brief – Amazon has announced that as of October it will be raising the fees charged to France-based sellers who use the Amazon marketplace and logistics services by 3% to account for the new French national Digital Services Tax (DST). France enacted a 3% tax on the in-country revenues of large digital platforms, including ecommerce marketplaces, in July of 2019, but repeatedly delayed its implementation through intermittent negotiations with, and tariff threats by, the United States, before announcing in May that they would go into effect this year. The United States retaliated against France in July by imposing $1.3 billion in tariffs on a range of French luxury handbags and cosmetics that become effective at the end of the year if the disagreement is not resolved through a bilateral agreement or enactment of a multilateral digital tax accord at the Organization for Economic Cooperation and Development (OECD).
Context – While approximately 30 mostly U.S.-based digital companies are expected to be impacted by most proposed national DSTs, Amazon has been the corporate leader in announcing reciprocal fee increases on users. Their fee increase in France follows a similar announcement to UK-based sellers that their fees would be increasing by 2% as of September due to the UK’s national DST of 2% enacted in April. While the UK and France are in the national DST vanguard, the country numbers are growing, and the U.S. is readying tariff retaliation against nine countries and the EU collectively to follow on the French tariffs. The finance ministers of four of the targeted countries, including France and the UK, have offered to initially limit their national DSTs to Internet search and social media companies, which they consider “pure-play” digital firms, and called for more talks with the U.S. to resolve the dispute before a damaging tax-and-tariff war. The UK’s DST is also a point of contention for a potential post-Brexit trade deal with the U.S., with reports and public denials that it might be withdrawn in order to facilitate talks.
Naver Reports Yahoo! Japan – Line App Merger Approved by Key National Regulators
Report from The Hankyoreh
In Brief – South Korean digital giant Naver has reported that the Japanese Fair Trade Commission (JFTC) had completed its review of the proposed merger of Yahoo! Japan, owned by Japanese conglomerate SoftBank, and the messaging app provider Line, which is owned Naver. The JFTC’s review, which was initially intended to be completed by October, was delayed by the coronavirus pandemic, but its approval will join those by the competition regulators in South Korea, Taiwan and the United States, and the companies have announced they intend the merger to close in March of 2021. Line has about 165 million users of its messaging app in Japan, Taiwan and Southeast Asia while Yahoo! Japan has more 80 million monthly users. The new digital business will be owned 50:50 by Softbank and Naver, and while they are very large digital businesses in their domestic markets, the two argue that the combination is essential to compete regionally against Chinese and U.S.-based digital giants.
Context – Whether competition authorities will meaningfully change their standards for digital mergers and acquisitions remains an open question. Global attention is on Google’s bid to acquire FitBit, which offers an opportunity for new thinking on whether some firms simply have too much data as it is, the Facebook bid for GIPHY raises, which raises issues of digital surveillance, and even Amazon’s purchase of electric self-driving vehicle developer Zoox, which involves a GAFA giant accused of predatory pricing to expand into new markets. But the Yahoo! Japan – Line deal is an important test case in Japan, especially in light of the Japan Fair Trade Commission’s updated digital platform acquisition guidelines released in December. Both regional giants argue that the joint effort is needed to more effectively compete with U.S. and Chinese digital giants in Japan and elsewhere in the region, arguments which was always likely resonate with their national regulators.
Federal Judge Delivers a Split Decision on Injunctions in Round 1 of Epic Games v. Apple
Report from Bloomberg
In Brief – A Federal District Court judge has delivered a split decision in the first round of the high-profile legal clash between Epic Games, the game developer behind the hugely popular Fortnite franchise, and Apple, rejecting Epic’s motion to have its Fortnite app restored to the Apple Store but temporarily blocking Apple’s move to cut off all Epic Games services from all Apple developer tools. Epic Games had initiated the legal standoff by intentionally modifying its Fortnite app to violate Apple’s App Store rules requiring all in-app purchases to be run through the Apple payments service, with Apple taking a 30% fee. Apple responded by blocking the Fortnite app, and Epic Games kicked off a PR and legal campaign, suing Apple on antitrust grounds. Apple also threatened to block Epic’s popular “Unreal Engine” game development engine used by many independent developers, a move that prompted Microsoft to urge the Court to block that Apple sanction. While the judge ruled that Apple banning Fortnite would not be blocked pending a September hearing, as Epic Games had initiated the action, the Unreal Engine links to Apple were protected to avoid unduly harming developers not party to the dispute.
Context – Apple’s App Store rules and fees are increasingly criticized as anti-competitive and abusive. The European Competition Authority has opened an investigation spurred by music service Spotify and leading to other complaints, including from Facebook and Microsoft regarding Apple’s refusal to accept their cloud-based gaming services at all. There is also an open investigation by the Department of Justice. Facebook recently called on Apple to wave their payments policy and fees for a small business video-services app that Facebook says can help entrepreneurs who work with clients face-to-face deal with pandemic restrictions, but Apple refused. On gaming payments fees, Apple likely benefits from all three major gaming console companies and Google charging 30% as well.
TikTok Files Suit to Block President Trump’s Order Banning the App Based on Security Concerns
Report from the Washington Post
In Brief – TikTok has filed suit in the U.S. District Court for the Central District of California to block the Executive Order issued by President Trump on August 6, 2020, which aimed to ban the use of the mobile app in the United States. TikTok, the social media phenom that is owned by Beijing-based parent company ByteDance, is the most successful Chinese-developed mobile app in markets outside China. Upon filing its federal lawsuit, TikTok posted on its corporate web site a rebuttal of charges that it threatens the privacy of users or the national security of the United States. (The full complaint is available here.) A U.S. employee of the company has filed a separate but related federal lawsuit.
Context – Three things to keep in mind – (1) Momentum behind the digital disengagement between the U.S. and China has bipartisan support; (2) Presidential authority to take action based on national security concerns is rarely meaningfully challenged by the courts; and (3) It is unlikely that any data protocols will be able to convince security experts that the Chinese Government would not be able to extract any data it wanted from a Chinese company or its affiliates due to its unrestrained legal authority over Chinese citizens. The Administration is moving forward on two fronts, and forcing a sale that fully separates TikTok from China in a manner acceptable to the U.S. Government is the likely outcome. The August 6 order, challenged by Tiktok, is based on Presidential authority under the International Emergency Economic Powers Act, which has been widely used by Presidents, including President Trump. While the court might slow the process on procedural grounds, giving business negotiations more time, it is not likely to overturn the order. The Administration, through the Committee on Foreign Investment in the United States (CFIUS), has also given ByteDance 90 days to unwind it’s 2017 acquisition of Musical.ly and sell the app to a new owner. CFIUS’s expanded remit over data and concerns with Chinese digital businesses has been growing for years and also has bipartisan congressional support.
Administration Sets 90 Day Deadline for China’s ByteDance to Sell TikTok’s U.S. App
Report from NPR
In Brief – The Trump Administration has issued a second order aimed at ending the U.S. operations of social media phenom TikTok as a Chinese-owned social platform. On August 6, the President started a 45-day countdown to a ban prohibiting U.S. companies from engaging in business with TikTok, which is owned by Beijing-based ByteDance. The second order, from the Committee on Foreign Investment in the United States (CFIUS), gives ByteDance 90 days to unwind it’s 2017 acquisition of Musical.ly and sell the app to an owner acceptable to the U.S. Government.
Context – Economic, security and geopolitical concerns are leading to an accelerating tech disengagement between the U.S. and China, but the emergence of a distinct and largely separate Chinese digital world began over a decade ago. Chinese digital policies based on security considerations have shut U.S. digital platforms out of China. A similar separation is likely coming in the United States. CFIUS interest in Chinese businesses investing in U.S. digital firms has been growing for years and Congress recently expanded the remit of CFIUS to cover the acquisition of data on U.S. citizens and other cyber capabilities. CFIUS demanding the unwinding of the ByteDance acquisition of Musical.ly is similar to CFIUS intervention in Chinese-based Kunlun Tech’s acquisition of Grindr, a dating app, over user data concerns. Unsurprisingly, the demand that ByteDance sell TikTok, likely worth tens of billions of dollars, is stirring up a hornets’ nest. Official Chinese media is accusing the U.S. of theft, and TikTok is threatening a federal lawsuit, as are U.S. employees of the company. Microsoft is publicly considering acquiring some or all TikTok operations, but China hardliners in the Trump Administration have questioned that landing spot, and founder Bill Gates has expressed reservations from the business perspective. Other potential suitors have emerged, including Oracle and Twitter.
Giant U.S. Businesses Tell White House That They Need WeChat To Operate Inside China
Report from the Wall Street Journal
In Brief – More than a dozen major U.S. companies that consider China to be a critical market have appealed to the White House to allow U.S. corporate operations inside China to engage in business relations with WeChat. Representatives of corporate giants including Apple, Ford, Walmart and Walt Disney participated in a call with White House officials questioning the scope of the President’s executive order targeting the service, and expressed concerns over how damaging it would be to their business operations in China if they were not permitted to engage with Chinese users on WeChat.
Context – The Presidential executive orders targeting Chinese apps TikTok and WeChat highlight the stark difference between the digital world inside China and outside China. TikTok, the social media phenom, has tens of millions of ardent U.S. users and hundreds of millions globally. It is the first Chinese app to explode outside of China. TikTok getting a new owner acceptable to the U.S. Government will impact millions of young Americans. But WeChat is a much, much bigger digital force. It is often described as a Chinese “super app” and its role in China has no U.S. or global equivalent. Think of Facebook Messenger, PayPal, Uber, GrubHub and more combined. Yes, WeChat is used outside China, for example by Chinese travelers, students and nationals living abroad, and millions use it to communicate with family and friends in China. The service, intertwined with the Chinese digital security regime, has been accused of surveillance and censorship abroad, including in the United States. Blocking Chinese-owned apps from non-Chinese markets, such as by India or through the TikTok and WeChat orders, may create frictions and dire warnings of a “Splinternet”, but it is a relatively small change given Chinese digital policies. Corporate concerns over the WeChat ban shed light on fears of a much more disruptive divide that could endeavor to pull apart the vast and intertwined non-digital U.S. and Chinese economies.
Facebook Criticizes Apple on High Fees Imposed on Small Businesses in Video Program
Report from the Washington Post
In Brief – Facebook has joined the chorus of app providers and digital businesses criticizing the Apple App Store rules mandating the use of the Apple payments system for all in-app purchases and charging a 30% commission for transactions. The latest disagreement involves a new Facebook feature allowing users to create paid, live-streamed, video events such as a classes, which Facebook promotes as a revenue-generating tool for small business people hurt in the pandemic by not being able to meet in-person with clients. Facebook asked Apple to waive its 30% fee and let Facebook process the payments, claiming that it would not charge a fee to help the small business people, but Apple refused to modify its App Store payments rules. Facebook also asked Google to modify its Play Store fees, which are also 30%, which Google declined to do, but Google did approve Facebook processing payments on its own.
Context – Apple is increasingly facing charges that its App Store rules and fees are anti-competitive and abusive. The topic was raised repeatedly with Apple CEO Tim Cook at the recent House Judiciary Committee antitrust hearing with tech CEOs, including the charge that Apple is benefiting from the pandemic. The European Competition Authority has opened an investigation of the Apple App Store policies, spurred by European-based music service Spotify but leading to other complaints. It is reported that Facebook and Microsoft have each submitted complaints regarding Apple refusing to approve apps related their cloud-based gaming services. Epic Games, the creator of highly popular Fortnite, recently filed an antitrust suit against Apple in Federal Court (and one against Google as well) on these policies, adding to other private anti-trust litigation and an open investigation by the Department of Justice. There is history between Apple and Facebook, and likely animosity, as Cook has regularly criticized Facebook’s advertising-based business model as being less respectable than Apple’s business model.
California Court Rules Amazon Can Be Liable for Defective Product Handled By FBA
Report from CNBC
In Brief – The California 4th Circuit Court of Appeals has ruled that Amazon can be held liable for damages caused by a laptop battery sold on the Amazon platform by a Chinese-based battery manufacturer that exploded and harmed the plaintiff, Angela Bolger. Amazon had initially prevailed in Superior Court, arguing that it was just a third-party online marketplace service provider, and unlike a traditional retailer, was not in a position where it could be held liable. The three-judge panel overruled the Superior Court decision, detailing how Amazon was engaged in the retail operations involving the battery to a far greater extent than just providing a marketplace to the seller. The opinion notes the combination of services offered by Amazon, including the Fulfillment By Amazon logistics service which housed, handled, packed and shipped the battery from an Amazon facility in California, stating that “Amazon functions in much the same manner as a conventional retailer”.
Context – Traditional retailers and brands have charged online competitors, especially marketplaces, with unfair competition for as long as the commercial Internet has existed, arguing for changes in liability law to impose direct liability on platforms. The Trump Administration has called for expanding platform responsibility to block counterfeits and ban sellers, especially on products from China, bills to expand marketplace liability have been introduced in Congress and are moving through the California state legislature. A major coalition of retailers recently announced a concerted lobbying campaign. Amazon, the largest ecommerce marketplace, is at the center of the issue, and the case of Oberdorf v. Amazon is being taken up by the Pennsylvania Supreme Court. But the Oberdorf case, unlike the Bolger case, does not involve the key difference between Amazon and other major online marketplaces, which is that Amazon also operates the largest ecommerce logistics business and does all the services of a retailer for many of its marketplace products, including being able to inspect them.
Google Highlights Search Ranking “Gaming” Risk in Australian Media Support Scheme
Report from Reuters
In Brief – In Australia, where the Federal Government is aggressively pressing forward on legislation to address the alleged competitive imbalance between the country’s traditional media industry, and both Google and Facebook, Google has posted a public letter charging the plan with threatening to disadvantage small content creators. The draft News Media Bargaining Code proposes to create a system where the social media giants would pay media companies for linking to, or otherwise presenting content from, some media companies, but also calls for platform data sharing and algorithmic transparency. The Google criticism looks beyond payments and focuses on how privileged access to data and ranking algorithms could enable larger media companies to tailor their content to beat out smaller rivals and independent creators for user attention, advertising and other revenue. The Australian Competition and Consumer Commission quickly replied to the Google charges claiming that nothing in the draft directs any outcomes, with legislation still to be submitted to Parliament, and once enacted, a three-month bargaining phase between the platforms and the media companies addressing all particulars, with government arbitrators imposing terms when agreements are not reached.
Context – While many media giants globally are rallying around the idea that Facebook and Google should pay them through a sort of highly-targeted media tax scheme, the Bloomberg Ed Board and the CEO of the New York Times each recently raised concerns with a financial alliance between government and media. Like on digital taxes, France is leading on mandated media payments, with a competition court ordering Google to pay media companies for snippets and threatening a further competition challenge if Google simply ended the use snippets. In an effort likely intended to reduce media pressure, Facebook and Google have each announced news-based services that will pay some media for content.
Immigration & Customs Enforcement Signs with Controversial Clearview AI
Report from the Wall Street Journal
In Brief – The U.S. Immigration and Customs Enforcement (ICE) agency has signed a contract with controversial facial recognition company Clearview AI to give its investigators access to the firm’s search tools, which the agency claims will be used for investigations of cross-border criminal activity, including child exploitation, drug and human trafficking. The company’s facial recognition services, which it describes as a search engine for pictures, is based on a database of billions of photos of individuals that it has copied from across the Internet, in particular from social media platforms, without consent of the platforms or the users. Users can upload pictures of unknown individuals and the service returns matches and web links to where the indexed pictures were found on the Internet, which often includes names. The once low-profile company was the subject of a detailed New York Times expose in January, and has since announced that it would only contract its services with government agencies.
Context – Facial recognition is one of the most controversial “AI” technologies because recent advances have taken the tech from theoretical into the real world. It is a central feature of the Chinese Government surveillance regime raising widespread and bipartisan concerns. In the U.S., concerns over discriminatory aspects of facial recognition has led tech giants IBM, Amazon and Microsoft to halt sales of the services to law enforcement. Sen. Ed Markey (D-MA) has sponsored legislation to ban the use of facial recognition by federal law enforcement agencies and Sen. Jeff Merkley (D-OR) has introduced legislation to place a moratorium on all federal agencies until a comprehensive federal policy is in place. Clearview AI faces numerous lawsuits challenging their service, in particular under the Illinois Biometric Information Privacy Act, where cases have been consolidated in New York Federal Court and the company has engaged a leading First Amendment lawyer to advocate on their behalf.
Epic Games Gets Fortnite Banned from Apple and Google App Stores and Sues
Report from the BBC
In Brief – Following the release of Fortnite game app updates on the Apple App Store and the Google Play Store that intentionally violated the Apple and Google app store rules related to in-game payments and related fees, the Fortnite app was banned from the Apple and Google app stores. Apple and Google each mandates the use of their respective payments systems for in-app purchases, collecting a fee of 30 percent. Epic Games, the owner of the highly popular game franchise, objects to those payment terms, claims that both Apple and Google operate anti-competitively, and filed antitrust suits against each in Federal District Court in California. (Copies available here and here.)
Context – Until recently, Apple was not in the top tier of digital giants accused of anti-competitive conduct, but as the company has become more reliant on growing its services revenue, charges that it disadvantages competitors in the App Store have grown. Five Democratic members raised App Store policies and fees with Apple’s CEO in the House Judiciary Committee’s recent antitrust hearing. The new Epic Games suits add to an investigation opened in June by the European Competition Authority, a U.S. Department of Justice investigation and other private litigation. It is interesting that Epic is also going after Google, which unlike Apple, has always allowed app developers to offer apps outside the Google Play Store. Apple has always operated a closed system requiring iPhone apps to go through the Apple App Store. Of course, both Google and Apple point to the other company’s ecosystem and policies, with Google comparing their relative openness and Apple defending the consistency and user experience of their closed policies. While Epic is challenging the 30% fee structures on the Apple and Google mobile set-ups, each of the three major game console companies also have 30% in-game fee rates. Epic is not suing them, but console gaming is 6x more popular for Fortnite users than mobile.
Canadian Competition Authority Opens Investigation of Amazon Policies Toward Sellers
Report from the CBC
In Brief – Canada’s Competition Bureau (CCB) has launched a civil investigation into the possibility that Amazon is engaged in anti-competitive practices related to the operations of third-party sellers that sell on its site in Canada. In its announcement, the CCB invited marketplace sellers and other businesses to submit comments on Amazon policies impact third-party sellers’ willingness to offer their products for sale at a lower price on other retail channels (otherwise known as price parity), the ability to succeed on the Amazon marketplace without using the “Fulfillment By Amazon” service or Amazon’s on-site advertising, or Amazon policies to advantage its retail products over competing products from third-party sellers.
Context – As was on display at the recent House Judiciary Committee Tech CEO antitrust hearing, Amazon faces an impressively wide variety of anti-competitive charges. Mistreatment of third-party sellers is a primary subject of the EU Competition Authority. The FTC and Attorneys General of New York and California are reported to be investigating similar set of issues as the CCB, including the tying of Fulfillment By Amazon, the company’s dominant fulfillment center business, with preferential treatment on the Amazon Marketplace. This was a subject of questioning in the House hearing (see Rep. Scanlon’s questioning starting at 5:09 — yes, that’s five hours and nine minutes in). By the way, other issues raised in that hearing included Amazon Web Services misusing customer data to develop competing software services; Predatory pricing; Using investment talks to gather data from startups and then build competing products; Amazon device access being tied to digital content deals; Tying anti-counterfeit efforts to advertising and commercial deals; Stolen goods being sold on Amazon’s site; and Smart speaker voice assistant policies. The number of different behaviors might be slowing down the ability of investigations to arrive at consensus and build cases.
Uber & Lyft React to Judge’s Employment Ruling by Threatening California Shutdown
Report from CNBC
In Brief – Following a California Superior Court ruling that sided with the state’s Attorney General in the battle to force ride sharing platforms to make drivers company employees immediately, and rejected company arguments with language that often bordered on derision, both Uber and Lyft stated that if the employment mandate is not delayed by the courts that they may shut down operations in the state, at least temporarily. The AG, who filed suit against the companies in May for violating AB 5, the state worker classification law that many advocates hope will end “gig” business models, responded that he was unconcerned and questioned whether they should operate anywhere.
Context – The judge’s opinion, which is worth a read (it is August, after all), rejects the argument that Uber and Lyft are platform technology companies serving independent drivers and riders, rather than transportation companies selling rides to consumers. Like the AG, the judge sees the drivers, and presumably other independent workers, as victims. Uber argues that most of their drivers do not want to be employees and prefer working at will, and their polling corresponds to most other research on independent work, which shows a solid majority prefer independence, flexibility and autonomy, while a minority is dissatisfied, feels forced into non-corporate jobs, and would prefer traditional work with benefits (see here, here, here and here). The ride sharing companies have a ballot initiative in front of the California voters in November to effectively overrule AB 5 for their businesses and allow independent drivers to receive benefits, and some months of no ride-sharing might influence voters who like the services. Also, as much as California is often a harbinger of social and economic policy at the state level, the threat of AB 5 to many freelancers, including writers who prefer independent work, has stalled similar legislation in other states.
Department of Justice Asks Federal Court to Block California’s State Net Neutrality Law
Report from Reuters
In Brief – The U.S. Department of Justice (DoJ) has asked the Federal District Court for the Eastern District of California to block the California Internet Consumer Protection and Net Neutrality Act, a state net neutrality law enacted in mid-2018. California acted following the Republican-controlled Federal Communications Commission (FCC) voting in late 2017 to repeal the national net neutrality rules that the Democrat-controlled FCC had enacted in 2015. Given the cycle of rulemaking and litigation that had been ongoing for than a decade, the State of California agreed to refrain from enforcing its 2018 state law while the FCC’s 2017 rules were fully litigated. Last October, the Federal Court of Appeals upheld the FCC’s decision to overturn the substance of the 2015 net neutrality rules, but interestingly rejected a component of the FCC’s 2017 rule that imposed a blanket preemption on state governments prohibiting state-level net neutrality laws. That ruling potentially leaves the door open to state net neutrality laws, such as in California, which would need to be challenged case-by-case. That is what is happening now, with the DoJ arguing that the California law is preempted by federal statutes, including The Communications Act. A decision on the federal motion is not expected before mid-October.
Context – The legislative, legal and regulatory battles over net neutrality stretch back to the mid-2000’s. It is now marked by a solid partisan and ideological divide with most Democrats supporting “strong” net neutrality and nearly all Republicans objecting to strict mandates, in particular on the key issue of “paid prioritization”. States where Democrats hold sway may follow the lead of California and enact a strong state net neutrality law, leading to case-by-case federal court challenges. If Vice President Joe Biden is elected President in November, expect the FCC to take action that moves back toward the 2015 net neutrality policies.
French Privacy Authority Investigating TikTok Privacy and Data Practices
Report from TechCrunch
In Brief – The French privacy authority, CNIL, having opened an investigation of TikTok data practices in May, has since expended the inquiry to cover a broad range of the company’s data and privacy policies. The investigation now covers compliance with transparency requirement related to data processing, user data access rights, transfers of data outside of the EU, and policies related to children. In June, TikTok moved to expand its corporate operations in the EU, announcing plans to locate a data center in Ireland and establishing a regulatory compliance and content moderation “Trust and Safety” office there as well. It was noted by a CNIL spokesperson that TikTok was intending to claim Ireland as its “principle establishment” in Europe and designate Ireland’s Data Protection Commission (DPC) as its lead national privacy authority under the EU General Data Protection Regulation (GDPR). The Irish DPC is the lead national privacy agency for digital giants Google, Facebook and Twitter and is criticized by some for being cautious and slow with GDPR complaints.
Context – Caught in the middle of increasingly heated global power politics, with the United States and India, TikTok’s two biggest markets, taking action to ban the app, and the U.S. Government pressing to force a sale of the service to a non-Chinese business, the growing collection of privacy-related regulatory issues facing the short-video social media phenom might provide a sense of normalcy befitting a true digital platform giant. The European Data Protection Board (EDPB), which is made up of the EU’s 27 national privacy authorities, announced in June that they were establishing a task force to look into TikTok, and the British and Dutch data protection authorities have their own investigations as well. The Korean Communications Commission (KCC) recently fined the company for privacy violations, including improperly collecting data of children under the age of 14. Similar issues led to TikTok reaching a settlement with the U.S. Federal Trade Commission in 2019, and consumer advocates recently filed a follow-on complaint that the company has not followed through on its commitments.
Arizona Judge Rules That Google Location Tracking Documents Should Be Public
Report from the Arizona Mirror
In Brief – In one front in Google’s two-year saga of legal challenges related to their location data collection practices, a Maricopa County, Arizona, judge has ruled that investigatory records gathered by the Arizona Attorney General (AG), as part of a lawsuit filed against the company in May, should be publicly released. Google had argued that the materials should not be released if they prevail with their Motion to Dismiss. Arizona’s AG alleges that Google violated Arizona’s consumer fraud statutes by collecting user location data through a range of apps and features on Android phones even when users have selected a Google setting described as turning off location history. Google has contended in this case and others related to location data that their privacy policies are clear about the fact that location data is collected on Android phones and a range of Google apps.
Context – Location tracking is a ubiquitous aspect of smart phones and the apps that run on them. It was reported in media stories in mid-2018 that a feature of every user’s Google Account called Location History, which offered users the option of not having their location stored in their “Location History”, did not turn off location data collection on the phone, nor did it block Google from collecting location through a number of other means, including through a number of Google apps. The Australian Competition and Consumer Commission filed suit against Google in October 2019 for deceptive practices based on that policy, and the Irish Data Protection Commission opened a similar investigation in February in response to complaints from consumer rights groups. The Arizona AG’s suit falls in line with these. A consumer class action lawsuit filed in the U.S. District Court for the Northern District of California soon after the Google practices were publicly reported in 2018 was dismissed in December 2019 for being too speculative and failing to identify any actual harms.
California Judge Rejects Tech Platform Argument and Orders Uber & Lyft to Employ Drivers
Report from Reuters
In Brief – A California Superior Court judge has sided with the California Attorney General (AG) in the legal battle with Uber and Lyft, granting an injunction requiring the two ride-hailing businesses to immediately stop classifying drivers on their platforms as independent contractors and instead treat them as employees. The AG filed suit against the companies in May for violating AB 5, the state law enacted in 2019 to implement the worker classification ABC Test. The judge rejected Uber and Lyft with language that bordered on derision in many places, stating that the likelihood that the State will prevail is “overwhelming”. The companies were granted just 10 days to appeal. Both Uber and Lyft stated that drivers overwhelming want to be independent contractors, with Uber adding that they have made changes to their service to promote the independence of divers and ensure compliance with the law.
Context – California’s AB 5 was enacted last year to dramatically pare back, if not completely end, platform-enabled “gig” work business models in the home state of many platform businesses. The judge’s opinion is worth reading, especially pages 23-26, rejecting the argument that Uber and Lyft are technology services companies providing two-sided market services to independent drivers and riders, rather than transportation companies offering consumers rides. Other platforms might take solace from the judge citing the California Public Utility Commission regulating transportation network companies as a category of charter party carriers. However, in language that mimics labor movement opponents of independent work, the judge said “Were this reasoning to be accepted, the rapidly expanding majority of industries that rely heavily on technology could with impunity deprive legions of workers of the basic protections afforded to employees by state labor and employment laws.” That said, research into independent workers finds that a strong majority support being independent from companies, and the threat to many freelancers has stalled AB 5-type legislation in other states.
UK Competition Authority Orders Facebook to Halt Integration of GIPHY into Instagram
Report from Bloomberg
In Brief – The UK Competition and Markets Authority (CMA), which opened an investigation of Facebook’s acquisition of Giphy in June, has told Facebook to put in place formal barriers to the consolidation of the popular platform for shareable images into the Instagram business. The CMA has indicated that it wants Facebook to ensure that Giphy can continue to operate as a standalone business pending the decision of regulator. One issue that is expected to be probed by the CMA is whether the Giphy acquisition will give Facebook access to a new source of data and insights into user activity on other messaging and social media platforms, such as TikTok, Twitter, Slack and Tinder. This concern has been raised by antitrust reformers in the U.S. Senate, as well as the Australian Competition and Consumer Authority, which also opened an investigation into the Giphy acquisition in June.
Context – Like many national competition authorities, the CMA claims to be increasing scrutiny of the acquisition and investment plans of large digital platforms, thoroughly reviewing deals such as Google-Looker, PayPal-iZettle, Amazon-Deliveroo and Viagogo-StubHub. The brightest global spotlight is on Google’s acquisition of FitBit, which will provide insight into potential new thinking related to the largest platforms acquiring new sources of data to build user profiles, especially related to health. Another emerging topic is the practice of “digital surveillance”, large platforms gathering data on early stage digital businesses in order to carry out defensive acquisitions to ward off future competition. This was a major topic raised with Facebook by Democrats in the recent U.S. House Antitrust hearing (watch the hearing video for the five minutes starting at 4:27). Some argue that Facebook’s acquisition of VPN app company Onavo in 2013 was primarily as a digital surveillance tool and question whether Giphy could play a similar role.
Part 1 – Illinois Remains Ground Zero for Class Action Suits
In Brief – Illinois is central to biometric privacy class action litigation in the United States. The Illinois Biometric Information Privacy Act (BIPA) imposes a range of obligations on companies that collect or obtain biometric information (such as facial scans, fingerprints, iris scans and voice prints), including obtaining written consent before collecting or sharing such information, and most importantly, allows for a private right of action for violations. The Illinois Supreme Court ruled in January 2019 that a statutory violation was sufficient to trigger standing, a ruling that was affirmed by the Federal 9th Circuit Court of Appeals and was recently extended to the federal courts in Illinois by the 7th Circuit Court, meaning that company policy errors alone, absent concrete harm to plaintiffs, can trigger financial penalties.
Facebook Increases Settlement Offer to $650 Million (report from Bloomberg) – Facebook which has been ahead of the pack on BIPA lawsuits, and agreed earlier this year to settle a complaint related to its photo tagging service for $550 million, saw U.S. District Court Judge James Donato react skeptically to the offer and upped the settlement to $650 million to be distributed to Facebook users in Illinois. The judge questioned whether $150-$300 for each class member in Illinois was adequate.
TikTok Biometric Suits Consolidated (report from NPR) – The highly popular Chinese-based social media app can count biometric privacy among its many public policy challenges. Over twenty separate but similar private lawsuits were filed over the past year on behalf of TikTok users in California, where the company has offices, and Illinois, under BIPA. The suits have been merged into a single one and will go forward as a single case in federal court in California.
Tech Giants Sued for Using IBM Service to Improve Services (report from TechCrunch) – Microsoft, Google and Amazon have been sued for using a photo database created by IBM to help better train facial recognition systems to avoid racial and gender discrimination and other errors. The IBM project, called “Diversity in Faces”, involved scraping millions of photos off the service Flicker, which included descriptors but not personal information, and has resulted in IBM being the subject of a BIPA suit. Photo scraping for the purposes of facial recognition is how Clearview AI built and operates its controversial surveillance services marketed to law enforcement and others, although their system links to web pages with personal information. Clearview AI claims to have shut down its service in Illinois due to BIPA litigation.
Texas AG Investigating Facebook on Facial Recognition (report from Axios) – Texas, like Illinois, has a biometric privacy law requiring companies to obtain consent from individuals before collecting biometric information, but unlike BIPA, does not authorize enforcement through private litigation and requires actions to be brought by the state Attorney General. It was recently reported that the TX AG may be preparing to do just that with Facebook, having issued a civil investigative demand asking the company for materials related to its BIPA case.
Looking Forward – The explosion of private class action suits connected to Illinois’ BIPA, targeting a wide range of companies for a host of services involving some manner of biometric technology, especially facial scans, is certain to be central to the debate over any privacy legislation moving at the federal or state level, as use of private class actions in enforcement remains one of the main partisan sticking points.
Part 2 – Legislative Clarity Remains Elusive
Context – Facial recognition is a concern among progressives and conservatives. The technology has come under fire for chronic biases in identifying minorities, promoting a surveillance state threatening privacy and civil liberties, and accounting for a form of biometric information (along with voice, finger prints and other unique personal identifiers) that many believe should require clear consent before collection by private companies. While the European Commission has created an Expert Group on AI and has opened a consultation to prepare for regulating, nearly a dozen bills have been introduced in the U.S. Senate and House of Representatives attempting to address a range of commercial, law enforcement and broader government policy on the technology.
Limits on Commercial Use – Sen. Roy Blunt (R-MO) and Sen. Brian Schatz (D-HI) have sponsored S. 847 to require corporations to obtain affirmative consent before collecting or using facial recognition data, enforced by the Federal Trade Commission (FTC) and state attorneys general. Recently, Sen. Jeff Merkley (D-OR), one of the most engaged Members of Congress on the issue, introduced the National Biometric Information Privacy Act, a federal version of Illinois Biometric Information Privacy Act (BIPA), which permits private class action law suits to enforce its limits on corporate use of a range of biometric information, including face scans, and has led to a growing number of class action lawsuits filed against tech and other companies for collecting data on Illinois residents.
Limits on Law Enforcement – The policing reform legislation (H.R. 7120) passed by the House of Representatives in June in the wake of the racial justice demonstrations included a ban on the use of facial recognition in police body cameras and cruiser cameras. S. 4084, sponsored by Sen. Ed Markey (D-MA) and cosponsored by three other Democratic Senators would impose a broader ban on facial recognition to all federal law enforcement agencies and would link all federal aid to state and local law enforcement to following similar policies, and the bill’s House counterpart (H.R. 7356) has 14 Democratic cosponsors. In the face of national racial inequality protests, tech giants IBM, Amazon and Microsoft each announced changes to their facial recognition services by law enforcement agencies. Sen. Merkley’s S. 3284 would place a moratorium on all federal agencies from using facial recognition until a federal policy is in place. In the UK, the Court of Appeals recently ruled that an automated facial recognition system used by the South Wales Police violated privacy law by not being properly limited in its application and would require clearer legal parameters of use and oversight.
General AI – Unlike most federal legislation on facial recognition or “artificial intelligence”, the AI in Government Act (S. 1363), authored by Sen. Schatz and Sen. Ron Johnson (R-WI), has been passed a full Senate committee and is scheduled for consideration by the full Senate. The bill creates an AI Center of Excellence in the General Services Administration to improve the ability of government agencies to employ AI tools. S. 3771, sponsored by Sen. Maria Cantwell (D-WA), aims more broadly, creating a Federal Advisory Committee on Artificial Intelligence with members from corporations, academia, civil society and labor with a broad mandate to advise the federal government on a wide range of AI-related issues.
Europe Plans to Regulate – One pillar of the digital strategy of EU President Ursula von der Leyen is the promotion of human-centric, ethical and sustainable artificial intelligence. The European Commission established a 52-member High Level Expert Group on AI in 2018, including corporate, academic and civil society members, and released a White Paper on Artificial Intelligence in February, opening a consultation on a wide range of AI topics with the intent of regulating. Some envision Europe following up its influential, if not universally acclaimed, GDPR privacy regulation with some manner of globally influential AI regulation.
Looking Forward – Unlike the “clarity” of the rash of class action lawsuits targeting companies for collecting biometric information in violation of the Illinois BIPA, the federal legislative environment in Washington, and even in Europe, is anything but clear. Putting a temporary hold on law enforcement use of facial recognition is growing in support, but a lack of bipartisanship might limit it in the U.S. to one-party state or city actions, such as last fall’s moratorium in California. However, if Democrats win the White House and both Houses of Congress in November, expect federal action fairly soon in 2021.
White House Orders TikTok & WeChat Ban Driving U.S.-China Digital Decoupling
Report from the Washington Post
In Brief – As widely discussed for days, the White House has issued a pair of executive orders intended to prevent TikTok and WeChat from engaging in business in the United States. TikTok, the highly popular short-video social media app, is the first Chinese app to explode as a global phenomenon with hundreds of millions of users outside of China. WeChat, generally used inside China, is an oft-described Chinese “super app” with a wide range of communications and commerce applications, and is also used by Chinese nationals traveling or living outside China. The White House orders cite threats to the national security, foreign policy, and economy of the United States. The prohibitions go into effect in 45 days, which is widely seen as the window given to ByteDance to sell the TikTok service to an acceptable non-Chinese business.
Context – The Chinese Government has aggressively separated the digital ecosystem inside China from the rest of the world for security, economic and political reasons. This expose tells that story and focuses on WeChat, which is getting less attention than TikTok but is far more relevant to the “Chinese Internet”. U.S. actions to similarly decouple from Chinese digital businesses may have been inevitable and could reflect U.S. digital giants recognizing that they likely would never meaningfully operate inside China. The ability for China to retaliate against U.S. digital businesses is obviously limited because most are already blocked, but other U.S. tech giants in hardware, software or business services could suffer retaliation. Finally, the White House noted that India, which recently banned dozens of Chinese apps, and Australia, have taken action against WeChat, highlighting that the U.S. is not the only country concerned with the role of Chinese digital businesses. WeChat, which is central to communications and therefore censorship inside China, has been accused of censoring and tracking Chinese speakers in countries like Australia, Canada and the United States.
California Labor Commissioner Sues Uber & Lyft Pushing CA-Gig Platform Decoupling
Report from the Sacramento Bee
In Brief – The California Labor Commissioner has filed suits against both Uber and Lyft in Alameda Superior Court for misclassifying drivers who use the platforms as independent contractors and seeks to recover back pay and benefits for all drivers on the platforms. In a release, the Labor Commissioner noted that while over 5,000 drivers have filed claims for owed wages this year, they estimate that each ride-sharing platform “employs” over 100,000 drivers in the state.
Context – California’s Attorney General filed suit in May against Uber and Lyft for violating California’s landmark worker classification law AB 5 aimed at undermining “gig work” platforms such as those operated by the ride-sharing giants, and recently filed for a preliminary injunction to require the companies to immediately comply. Uber, in particular, has taken action in California to reinforce its potential legal defenses built around the independence of its drivers, instituting policies to give drivers greater fee and route transparency, allow them to reject ride offers without penalty, and exercise flexibility in the prices they charge. Uber has asked the court to reject the California suit because Uber and Lyft should not be targeted together, claiming meaningful differences in how the platforms operate. In addition, Uber argues that it is clearly a technology platform rather than a ride-sharing service, due to the fact that it operates a range of digital platforms, including for food, essentials and packages, which was very valuable to independent drivers when ride-hailing demand dried up. A decision from the judge on the CA AG’s injunction request is expected soon. The U.S. Department of Labor (DoL) is reported to be aggressively working to propose and finalize by the end of 2020 a federal worker classification regulation defining when workers are independent contractors or employees under federal wage law, which is expected to be far more supportive of platform models that enable independent workers.
Amazon’s Minority Investment in Deliveroo Finally Approved by UK CMA
Report from Reuters
In Brief – After a competition review that stretched over a year, the UK Competition and Markets Authority (CMA) has approved Amazon’s $575 million investment in UK-based food delivery platform Deliveroo. At the time of the deal’s announcement last May, Deliveroo was one of Europe’s fastest growing platform companies and used 60,000 riders to deliver meals from more than 80,000 restaurants and “dark kitchens” in 13 countries. In earlier stages of their review the CMA had concluded that the deal could reduce competition in the UK restaurant and grocery delivery markets by deterring Amazon from directly entering. However, in April, in the midst of the shutdowns, the CMA provisionally cleared the transaction, accepting the Deliveroo claim that it would likely cease to operate in the absence of the investment. The CMA’s final report cites the rapid turnaround in the market and is instead based on the competition effects, determining that Amazon’s minority investment is unlikely to deter its future delivery plans, but notes that moving to acquire a greater stake would likely reopen the question.
Context – Like many national competition authorities, the CMA claims to be increasing scrutiny of the acquisition and investment plans by large digital platforms, thoroughly reviewing deals such as Google-Looker, PayPal-iZettle, and Viagogo-StubHub. In the spotlight globally is Google’s acquisition of FitBit, which is the most likely to provide insight into potential new thinking in competition regulation on data holdings and the largest digital platforms. The acquisition and investment behavior of the digital giants was a major topic among Democrats in the recent U.S. House Antitrust hearing and foreshadows shifting policy if Democrats retake the White House in November. The food delivery market is also home to competition questions in the United States, with Uber following up its aborted effort to acquire Grubhub (purchased by European-based platform Just Eats Takeaway) with a bid for fourth largest platform Postmates.
Manipulated Speaker Pelosi Video News (Again) as FB Limits but Doesn’t Ban
Report from the Washington Post
In Brief – A clearly doctored video of Speaker of the House Nancy Pelosi, intended to give the impression that she was drunk at a news conference, recently popped up on TikTok, garnering thousands of views, and then after being blocked on TikTok spread on Facebook. The video was reviewed by a fact checking organization working with Facebook and deemed “partly false” in the sense that it was clearly modified and intended to deceive. While YouTube and Twitter are reported to have blocked the video, Facebook placed limits on the video’s circulation and attached a label to clearly identify that is doctored, but claimed that the video did not meet the company’s criteria for banning under their “manipulated media” policy announced in January, which is applied to “deepfakes” made using AI that are complete fabrications.
Context – The content moderation policies of the social media platforms — whether and how they “fact check”, label, restrict, “shadow ban”, demonetize, or outright ban posts or even users — continues to frustrate and anger both Democrats and Republicans when the topics are political in nature. (And in 2020, what’s not?) One of the clearest points of disagreement on display at the recent House Antitrust Subcommittee hearing featuring tech CEOs was on what’s wrong with the policies of Facebook, Google and Twitter. Democrats repeatedly charged the platforms with doing too little to block misinformation and hate speech, while the top Republican point over the five hours was that the platforms systematically discriminate against conservative viewpoints and voices. “Cheapfake” doctored videos of Speaker Pelosi made news last May and earlier this spring, and one must wonder if the vitriol will wane a bit just from repetition. Vice President Biden has been a target too. Angered, both have called for Sec. 230 changes or repeal to punish platforms for not pulling down misinformation, and President Trump has also called for a virtual repeal of Sec. 230, for the opposite offenses.
FCC Chairman Proposes Public Comment Period on Proposal to Regulate Social Media
Report from Reuters
In Brief – The Chairman of the Federal Communications Commission (FCC) has proposed that the agency open a 45 day public comment period on a petition filed by National Telecommunications and Information Administration (NTIA) asking the agency to enact new regulatory rules governing how social media companies moderate content. The NTIA petition was the product of President Trump’s May 28 Executive Order intended to limit the scope of Section 230 of the Communications Decency Act, which called for the FCC to find that “good faith” content moderation does not include ideologically biased practices. A full FCC rulemaking process would likely take months to complete, almost certainly pushing past the election.
Context – Initially, Republican FCC Commissioners affirmed the importance of the concerns over censorship without committing to concrete action. Democrats simply ridiculed the idea. FCC Republicans have opposed Internet regulation through two decades of Net Neutrality debate, and it was the Reagan Administration that ended the broadcast “Fairness Doctrine”. Regardless, charges of anti-conservative bias by social media companies energizes many conservatives. Four Republican Senators recently called on the FCC to act, the issue was constantly hammered by Republicans at the House Antitrust Subcommittee’s hearing with the big tech CEOs, and the nomination of Republican FCC Commissioner Michael O’Rielly to a second term, already cleared the key committee, has been withdrawn, reportedly due to comments he made questioning Sec. 230 regulation. The FCC can provide another forum for activists to air grievances (and circulate them on social media) but legislation is not happening anytime soon. The key fact is that Republicans and Democrats, both frustrated with the platforms, disagree completely on the problem. At the aforementioned House hearing, a Democratic member ridiculed the repeated Republican claims of anti-conservative bias leading to a lengthy and awkward shouting match at one point.
New York Attorney General Joins CA AG and the FTC in Amazon Antitrust Inquiries
Report from Bloomberg
In Brief – New York’s Attorney General is reported to be joining the investigations into Amazon’s market power that are being led by California’s Attorney General and the Federal Trade Commission. The report follows on the appearance of Amazon CEO Jeff Bezos at the hearing of the House Judiciary Antitrust Subcommittee that featured the CEOs of Google, Amazon, Facebook and Apple that explored the state of competition in digital markets.
Context – A review of the five-hour House Antitrust Subcommittee hearing highlights a difference between Amazon’s issues and the other three digital giants. With the others, investigators appear to be honing-in on a dominant business line or abusive practice, maybe two. Google’s dominance of digital advertising and search, Facebook’s use of acquisitions to stifle competition, and Apple’s App Store policies, were the focus of antitrust questions in the House hearing and regulatory investigations. Bezos was pressed on a much wider range of concerns. Mistreatment of third party sellers by Amazon’s retail arm, something being investigated by the EU Competition Authority, is clearly high on the list, but committee members also quizzed Bezos on a number of other charges, including: Tying third party sellers’ use of Fulfillment By Amazon, the company’s dominant fulfillment center business, with preferential treatment on its Marketplace; Amazon Web Services misusing customer data to develop competing software services; Predatory pricing; Using investment talks to gather data from startups and then build competing products; Amazon device access being tied to digital content deals; Tying anti-counterfeit efforts to advertising and commercial deals; Stolen goods being sold on Amazon’s site; and Smart speaker voice assistant policies. The wide range of concerns may be slowing down the ability of investigations to arrive at a consensus on addressing potentially anti-competitive Amazon practices.
White House Reported to Give Microsoft Six Weeks to Negotiate TikTok Acquisition
Report from Reuters
In Brief – Microsoft has confirmed on its corporate blog that it is engaged in talks with Chinese-based ByteDance over the sale of the U.S., Canadian, Australian and New Zealand operations of its super-popular short-video app TikTok. President Trump had reiterated a threat to ban the app in the United States and also initially indicated he did not approve of the rumored sale, but Microsoft’s CEO has discussed the company’s intentions with the President and stated that the company would attempt to finalize a deal by September 15. The negotiating process would be overseen by the Committee on Foreign Investment in the United States (CFIUS), and to add a further complexity, President Trump is reported to have indicated that he believed the U.S. Government should financially benefit in some manner for requiring the sale of Chinese-owned platform to a U.S. enterprise, something without precedent.
Context – The Chinese Government effectively decoupled the Internet in China from the rest of the world a decade ago. Major U.S. Internet platforms largely do not operate there. The top Chinese digital platforms have huge domestic operations, but TikTok is the first to explode globally. A range of tensions are driving a further technology decoupling between China and the United States. One front has been CFIUS scrutinizing Chinese-owned apps holding data on U.S. users. The proposed acquisition of MoneyGram by Ant Financial was rejected in 2018, the 2016 acquisition of Grindr by a Chinese firm was later forcibly unwound, and CFIUS has been engaged in a review of TikTok’s 2017 acquisition of Musical.ly, the result of which could be used to justify a U.S. TikTok ban, if it comes to that. The U.S. is not TikTok’s only major foreign policy problem. India is TikTok’s largest market (to be clear, ByteDance has a range of inside China apps, including a TikTok-like service, and makes most of its revenues in China), and border tensions with China recently led India to ban a number of Chinese apps, including TikTok, a policy India may extend. And Japanese officials are considering a similar move.
Appeals Court Rejects Public has Right to Know Limits on Fed Power to Break Encryption
Report from the Washington Post
In Brief – A three-judge panel of the 9th Circuit Federal Court of Appeals has rejected an appeal brought by the American Civil Liberties Union, the Electronic Frontier Foundation, and the Washington Post over a Federal District Court decision to seal its opinion regarding limitations on the federal government’s power to force a tech company to break its encryption to help law enforcement. The case originated in 2018 with the federal government attempting to compel Facebook to break encryption on its Messenger service in the context of a law enforcement investigation of MS-13 gang members. Facebook objected and prevailed in a closed federal court proceeding. The court’s opinion was sealed at the request of the Justice Department which claimed that ongoing investigations would be harmed if the court’s reasoning was made public. The plaintiffs argued that the public and other courts have a right to know the limitations of government powers under the Wiretap Act. The appeals court panel unanimously agreed with the DoJ that the potential damage to ongoing investigations outweighed the benefits of open proceedings.
Context – Federal law enforcement concerns with strong encryption are longstanding. Facebook and Apple are regularly the focus of charges, including from Attorney General Barr, that their policies aid all manner of evildoers. Department of Justice officials have indicated that their competition review of the largest digital platforms includes issues like encryption, and they have some support on Capitol Hill. The lack of transparency regarding the legal standards in the U.S. limiting law enforcement and intelligence access to digital communications could add to problems with data transfers between Europe and the U.S. The recent European High Court rejection of the U.S.-EU Privacy Shield was based on the concern that U.S. Government authority to access user data was not limited in a manner that is required under EU law, something with won’t be helped by arguments that explaining limits can itself be a threat.
Australia Releases Draft Plan to Force Google and Facebook Pay Media Companies
Report from CNBC
In Brief – Australia continues to press forward on a plan to mandate that Google and Facebook pay Australian media enterprises for creating content that appears on, or is linked to, the platforms. The development of a media compensation regime was a key recommendation of the Australian Competition and Consumer Commission’s (ACCC) landmark Digital Platforms Inquiry and the Australian Government believes they are setting an important global precedent to protect domestic media. The ACCC’s Draft News Media Bargaining Code proposes a system to cover content payments, data sharing, algorithmic transparency, bargaining frameworks and other issues. A final proposal will be submitted to the Parliament after a comment period ends on August 28. The plan proposes a three-month bargaining phase, and if agreements are not reached, arbitrators would be appointed to make binding decisions within 45 days. Google and Facebook continue to argue that the government undervalues the role the platforms play in connecting media companies to readers without compensation.
Context – Media giants globally are rallying around the idea that Facebook and Google should pay them. The companies’ CEOs were accused of harming independent journalism at the recent House Judiciary Antitrust hearing. A French competition court has ordered Google to pay media companies for snippets based on a change in French copyright law, a noteworthy case because the court preemptively rejected the Google tactic of simply ending the use of news snippets, employed when Germany and Spain mandated that Google pay. The publishing industry drive to “tax” the digital giants is quickly looking like a highly targeted, industry-specific version of the broader Digital Services Tax effort, complete with pandemic justifications. To reduce media industry pressure, Facebook, in late 2019, and Google, more recently, have announced programs to set up news-based services that will pay some sources.
Europe Rejects Google Ad Concessions on FitBit Deal and Will Continue to Investigate
Report from Reuters
In Brief – Reports indicate that the European Competition Authority will not sign off on Google’s $2.1 billion acquisition of fitness-wearables and app business Fitbit, instead extending their review through December. A range of objections have been raised by business competitors, consumer groups, privacy advocates and a wide range of public officials in Europe, the United States and elsewhere. Concerns are based on the potential impacts of the search and digital advertising giant gaining access to new kinds of personal data like fitness activities, heart rates and sleep patterns. Google had reportedly hoped that an offer to keep FitBit data separate from the Google advertising system would appease regulators, but that appears to have been insufficient with officials reportedly looking for guarantees that Fitbit’s data would be open to third-parties and would not be used to improve Google dominant search engine.
Context – Keep an eye on this merger to observe how willing competition regulators are to expand beyond traditional antitrust frameworks to rein in the digital giants. Based on traditional antitrust analysis, blocking the deal is hard to justify. FitBit was once the market leader in fitness wearables. No longer. Larger companies, especially Apple, Xiaomi, Huawei and Samsung are pulling away, and Google is not a major player. However, the acquisition tests two new arguments. First, that a few digital platforms, including Google, are simply too big to get bigger with more data. Second, that privacy rights are threatened by dominant platforms, with health data especially sensitive to privacy concerns (although Amazon and Apple are charging into the space as much as Google). The Australian competition authority has stated that it believes the acquisition could reduce competition in the supply of data-dependent health services and certain ad tech markets, and the U.S. Department of Justice is reviewing the acquisition as well.
New York Ordered to Process Unemployment Assistance for Ride Sharing Drivers
Report from the New York Times
In Brief – Four and half months after New York began pandemic-related shutdowns a Federal District Court judge has issued a preliminary injunction requiring the state to step up its effort to pay state unemployment insurance to Uber and Lyft drivers still going without benefits. While Judge LaShann DeArcy Hall criticized the companies for their long-running efforts to avoid complying with New York Department of Labor (NYDoL) requests to submit traditional wage and hour information, she ruled that the NYDoL was obligated to expeditiously turn to other sources of driver earnings data, in particular from the drivers themselves, to calculate payments. She gave the state 45 days to process pending claims.
Context – The impact of the pandemic shutdowns on platform-enabled “gig” workers was quickly sucked into the long-running legal and policy fights over employment benefits. However, traditional independent workers, such as shopkeepers, fitness trainers, musicians and hairdressers, have been harmed as well. With millions left outside the company-based state unemployment assistance regimes, Congress created Pandemic Unemployment Assistance (PUA) as part of the CARES Act in March. PUA provides a federally-funded unemployment benefit to independent workers who do not qualify for state unemployment. Many state unemployment systems struggled to deal with the huge spike in unemployed people while also trying to create a system to implement PUA, and independent workers continue to make up a disproportionate share of the pandemic downturn unemployed. The plaintiffs in this case contend that the State tried to push all platform drivers over to the federally-funded PUA program, something many drivers objected to due to lower benefit levels. The Federal Department of Labor continues to be concerned with PUA abuse as states try to adapt traditional company-based unemployment insurance models to new models of work.
ACCC Sues Google for Violating Privacy Law with Data and Tracking Policy Change
Report from Engadget
In Brief – The Australian Competition and Consumer Commission (ACCC), the country’s competition authority and consumer protection agency, has sued Google claiming that it did not provide consumers with appropriate notice to gain proper consent in 2016 when Google chose to integrate their internal Google search-based ad system with the Internet-wide ad system they operated after acquiring DoubleClick in 2008. The ACCC is contending that the change was a surreptitious price increase on consumers, based on a novel application of the idea that consumers pay for Google “free” services with their data, and the new regime compiled more data. This change in Google ad policies regarding DoubleClick data was also raised by Congresswoman Val Demings (D-FL) in the House Antitrust Subcommittee’s hearing featuring the CEOs of Google, Amazon, Facebook and Apple. Google’s CEO responded that the company has very clear privacy policies and gives users a range of options regarding how their data is used, including to opt out of targeted advertising.
Context – Google’s leading position in the digital advertising market is emerging as a top focus of competition authorities looking to reign in digital giants, and regulators in different markets appear to be sharing playbooks. The UK Competition and Markets Authority has released digital ad market legislative recommendations, and the ACCC is in the midst of a review of the digital advertising market focusing on Google and Facebook. Google’s dominance of both search advertising and broad ad services is also the main focus of the State Attorneys General probing them. Finally, digital ad market dominance brings many of the same media enterprises to the table who claim that Google and Facebook are harming journalism, an issue also raised in the House Antitrust hearing, and efforts are underway in Australia, France, Canada and Malaysia to require the companies to directly pay media enterprises.