Archive – 2020

July 2020

House Antitrust Subcommittee Highlights Partisan Divide on Big Tech Frustration

Special Hearing Report from PEI

In Brief – The blockbuster appearance of the CEOs of Amazon, Google, Facebook and Apple before the House Judiciary Committee’s Antitrust Subcommittee did not result in any major revelation or big error. If there was a spirit of bipartisanship when the subcommittee began its investigation of digital markets last June, something highlighted by Subcommittee Chairman David Cicilline (D-RI) in his opening comments, it was not on display in this five hour hearing. (Video here.) There is bipartisan frustration with the digital giants in the sense that people on both sides of the aisle are frustrated, angry and aggrieved, but scant agreement on what’s wrong or how to address concerns.

The subcommittee Democrats were far more focused on business policies that they claim are abuses of market power. The chairs of the subcommittee and full committee set the tone with opening remarks describing the digital giants as threats to both the economy and democracy. On the other hand, the subcommittee’s ranking Republicans opened with comments that “Big is not inherently bad” and turned to what became the repeated refrain that the social media platforms discriminate against conservatives.

The Democratic members focused their attention on Amazon and Facebook most often, nine question times each. Facebook was quizzed repeatedly over a range of scenarios related to acquisitions and the treatment of competitors on their services, as well as hate speech and misinformation. Amazon, on the other hand, faced questions on the widest range of concerns by some measure, with at least ten different abuses raised by committee Democrats. Apple was questioned six times, pretty much exclusively on App Store fees and policies. And Google’s advertising business and services accounted for the majority of its attention.

Republicans were far more focused, repeatedly raising the issue of the largest platforms being ideologically biased and penalizing conservative viewpoints. In the most tense exchange of the hearing, a Democratic member ridiculed the repeated claims of anti-conservative bias by a senior Republican, causing some serious shouting in the hearing room. Google was most in Republican sights, being the target of ideological questions nine times, more than twice the next company (Facebook). Apple, interestingly, was never the subject of Republican questions, with Twitter, not even in attendance, actually drawing more Republican attention. Unlike among the Democrats, Amazon was not often questioned, although action taken by Amazon’s Twitch service against the Trump campaign was called out. China, as a tech and national security threat, was raised on a number of occasions, including regarding Google’s willingness to engage in research in that country but not work on some U.S. DoD projects.

Looking Forward – The prospect that the highly ideological House Judiciary Committee, or the full House of Representatives, is going to move antitrust or digital markets legislation that could be enacted into law this year is near zero. Instead, both sides will mostly continue to press the social media giants on their (conflicting) views of content moderation, including political ads and other communications. Maybe the most candid comment from any of the CEOs came about five hours into the festivities when Mark Zuckerberg was being criticized for the third or fourth time by a Democratic member for not doing enough to push back on hate speech, misinformation and false claims related to COVID and Hydroxychloroquine. Having already been questioned and criticized by Republicans three or four time for Facebook inappropriately censoring valid COVID communications, including related to the same drug, he expressed exasperation saying that the company has taken meaningful action to block dangerous false claims, but as could be seen, many believe they are blocking too much.

If antitrust investigations of any of the companies is going to move forward anytime soon, it will come from the Department of Justice, the State AGs or outside the United States. The repeated use of injudicious internal company emails by committee Democrats, in particular from Facebook, gave some insight into the trove of documents collected by investigators and the kind of language used inside that company in particular. Most of all, the November election could have a very big impact, because a Democratic sweep of both Houses of Congress and the White House could set the stage for much more aggressive action on digital antitrust in 2021 as the most dramatic swing in terms of the economic and competition policy thinking is on that side of the aisle.

Senate Internet Subcommittee Highlights Bipartisan Route to Improving Section 230

Special Hearing Report from PEI

In Brief – If the hearing of the House Judiciary Committee’s Antitrust Subcommittee featuring the CEOs of Amazon, Google, Apple and Facebook is a much-hyped mega-blockbuster (watch here), Tuesday’s hearing in the Senate Commerce Committee’s Internet Subcommittee was an indie film that the cognoscenti might judge the more worthy creation (replay here). Those willing to sit through both will be able to judge which provided the most value in the category of Best Hearing to Craft Policy for the Future of the Digital Economy.

The Senate hearing focused on Sec. 230, a key legal foundation of the modern Internet that allows digital platforms to host user-generated content. Think social media, user-created video, ecommerce marketplaces, and every user comment board. The law, enacted in 1996, protects platforms from civil liability for content created by users, but also provides key legal protections to allow platforms to restrict or block content they find objectionable. The law has come under fire from the Left and the Right. As Subcommittee Chairman John Thune (R-SD) noted, both President Trump and former Vice President Biden have called for Sec. 230 to be repealed. But while there is bipartisan frustration and aggrievement, there is scant agreement on what’s actually wrong. Many conservatives claim that the largest platforms are ideologically biased and penalize conservative viewpoints, while many progressives see the opposite, claiming platforms often fail to restrict hate, false and dangerous claims.

The hearing was focused on the Platform Accountability and Consumer Transparency (PACT) Act, legislation sponsored by the Subcommittee’s Ranking Member, Sen. Brian Schatz (D-HI), and Chairman Thune. It is a thoughtful effort to reform but retain Sec. 230. While the witnesses each saw the legislation as less than a finished product, they each appeared to believe the bill could be the basis of a bipartisan effort to improve online content moderation without causing meaningful harm. At a high level, the bill would require digital platforms to clearly explain their content moderation practices, establish processes for users to challenge decisions, and take down court-determined illegal content in 24 hours. Platforms with fewer than a million users or two-year revenue of $25 million are exempt from the timetables but not the broad mandates.

Member Views – The four hearing witnesses, led by former Congressman Chris Cox, co-author of Sec. 230, each proved thoughtful experts in a hearing that was generally marked by serious questions, although some Senators slipped into partisan grievance mode. Sixteen participated over nearly three hours. Greater transparency in moderation was a baseline that generated the broadest support. From a more partisan perspective, concerns with abusive and false politically-related advertising was raised by a number of the Democratic Senators, while concerns with ideologically-motivated content moderation by dominant platforms Google, Facebook and Twitter was raised by a number of Republicans. Expect to see those issues raised in the context of Google and Facebook in the House Judiciary Antitrust Subcommittee.

Sen. Richard Blumenthal (D-CT) offered a contrast to the PACT Act’s effort to retain but improve Sec. 230, spending his allotted time advocating for the EARN IT Act, a bill recently passed by the Senate Judiciary Committee to repeal of Sec. 230 for user content related to child sexual abuse. Blumenthal called for platforms to be required to simply pull down all such content and did not ask any questions.

Amazon Makes 3 – eCommerce Giant in Talks to Invest in India’s Reliance Retail

Report from Reuters

In Brief – Continuing the trend of U.S. digital platform giants investing in India, in particular the conglomerate run by Mukesh Ambani, India’s richest man and the reported 5th richest person in the world, Amazon is reported to be eyeing a 9.9% stake in Reliance Retail. Earlier this month, it was reported that Google was in advanced talks to invest $4.5 billion in Reliance Industries’ Jio Platforms, the conglomerate’s digital services wing, which had received a $5.7 billion infusion from Facebook in April. Jio Platforms is the country’s top mobile phone company who used low-price plans to increase the number of Indian Internet users by hundreds of millions. In early June, Amazon was reported to be negotiating a $2 billion investment India’s No. 2 mobile carrier Bharti Airtel, a Jio Platforms competitor.

Context – Geopolitical tensions are accelerating the digital decoupling between China and the United States, and China with India, with India taking on a heightened profile as a key global digital market. The Indian Government is actively engaged on a range of key digital policy issues, including taxationprivacy and data protectionintermediary guidelinesencryption and regulation of digital communications. One of the longest running battles pits the country’s largest ecommerce marketplaces, Amazon and Walmart-owned Flipkart, against traditional retailers. India’s strict foreign direct investment (FDI) laws allow foreign-owned enterprises to operate digital marketplaces but not retail businesses. Amazon and Flipkart have been accused of illegal tactics to circumvent the retail FDI rules and are the subject of investigations by both the Indian competition authority and the Indian Enforcement Directorate that enforces FDI restrictions. As more U.S. digital giants align themselves with Reliance Industries’ digital services, retail and telecommunications arms, one has to wonder if the Indian public interest community will press to add competition policy reform to the mix.

DC Considers Sales Tax on Advertising That Could Be Path to State Digital Services Taxes

Report from the Washington Post

In Brief – The City Council of the District of Columbia, looking to offset some of the tax revenue impact of the pandemic, appears to have pulled back from an expansion of the city’s sales tax to cover the advertising business. The original proposal would have expanded the city’s sales tax to cover advertising, including digital advertising. While the general DC sales tax rate is 6%, the proposed rate for advertising was 3 percent. A wide range of local media and marketing businesses opposed the tax, charging that it would harm the local economy.

Context – Digital services businesses everywhere should be watching two digital tax trends. One is the global effort to tax the revenues of digital giants, often called Digital Services Taxes (DST). DSTs are threatening a tax-and-trade war with France and other countries. In the U.S., some state legislators are likewise looking at the massive online ad revenues of giants like Google, Facebook and Amazon with similar tax desires. This spring, the Maryland legislature passed a state DST but it was vetoed. A strong legal argument against the Maryland DST was that it violated the federal Permanent Internet Tax Freedom Act by discriminating against Internet advertising because traditional advertising was not subject to sales tax. Covering all advertising with a sales tax addresses that legal shortcoming, something likely on the mind of tax proponents in DC. The U.S. Supreme Court’s 2018 “Internet Sales Tax” Wayfair decision authorized states to require out-of-state businesses to collect state sales tax when they sell to in-state residents. While the focus was on physical goods sold online, the eventual impact on digital services businesses will be profound, recently highlighted by a ruling of the Tennessee Department of Revenue. A state that combines the authority to impose sales tax collection on out-of-state businesses with an in-state advertising sales tax could unlock the path to a state DST tax model.

Apple “Find My” Developer Contract Revelations Add to Concerns Over App Store

Report from the Washington Post

In Brief – New Apple policies allowing third-party app developers to access and use the functionalities of Apple’s Find My capabilities, a location-based feature that comes preinstalled as an Apple app on Apple phones and tablets, were billed as a pro-competitive move to enable more open app development and compatibility with non-Apple services and devices. However, a leaked confidential Non-Disclosure and policy contract for participating developers reveals a range of restrictions on the ability of apps, and therefore the Apple users, to use the capabilities with non-Apple services and devices. Apple policies related to location-based services and the Find My app are a central issue raised by Tile, a device location hardware and app company, that has complained to the European Competition Authority and the House Antitrust Subcommittee about Apple conduct.

Context – This report on the Apple restrictions imposed on app developers building on the Find My capabilities illustrates the challenges in turning a traditional congressional hearing into a coherent learning opportunity. There are many issues facing each giant company, few of which can, in five minutes, be cogently summarized into a question or two that will push a relatively nimble CEO to reveal anything new. Another recent example is the report that Amazon used investment talks with startups to gather information used to develop competing offerings. The CEO hearing will eventually fill a day and offer us some interesting video, but the key work will be the antitrust agencies in the U.S. and Europe slogging away.

House Antitrust Mega Hearing with CEOs of 4 Platform Giants – POSTPONED to 7-29

Report from Politico

In Brief – The highly anticipated appearance of the CEOs of the 3rd, 4th, 5th and 6th most valuable companies in the world, including the 1st and 4th wealthiest individuals on Earth, in front of the House Judiciary Committee’s Antitrust Subcommittee, has been pushed back due to a scheduling conflict created by ceremonies in honor of recently-deceased civil rights icon Congressman John Lewis. The CEOs of Amazon, Facebook, Google and Apple are now expected to appear before the subcommittee remotely on Wednesday, July 29.

Context – There are reports that the Chairman of the Antitrust Subcommittee is considering changes to the standard hearing format to improve the focus of the proceeding. Suggestions included breaking up the single panel of four CEOs and having each appear separately, giving a statement and facing questions. Other ideas included expanding each subcommittee members’ question time to ten minutes from the usual five, or giving one or two Members a special 30-minute block to engage in a deeper interrogation. While the Committee Majority is reported to be committed to holding the hearing in the subcommittee, which has fewer members and therefore may yield less repetitive questioning, the Ranking Republican has called for the hearing to be opened to the full committee roster and use the traditional five minute process. Finally, Republicans have asked for Twitter’s CEO to be added to face questions regarding ideological content moderation. While unlikely, the delay will provide more time for the two sides to debate the process.

Democratic Senate Foreign Relations Leader Adds to U.S.-China Tech Decoupling Momentum

Report from the Washington Post

In Brief – Senator Robert Menendez (D-NJ), the ranking Democrat on the Senate Foreign Relations Committee, has released a minority staff report on the digital policies of the People’s Republic of China (PRC), which it labels “digital authoritarianism.” China is described as championing a digital governance regime that supports the Chinese Communist Party’s priorities of mass surveillance and control over communications and content, as well as investing in technology that aids authoritarian control, such as facial recognition and surveillance tools. China is said to be exporting their technology and model of digital governance by appealing to national governments interested in controlling the online ecosystem, as well as lobbying inside international organizations and standards setting bodies.

Context – The technology decoupling between China and the U.S. is accelerating and the level of bipartisan support in Washington is noteworthy. TikTok, the super-popular short-video app owned by Chinese-based Bytedance, is at the center of the policy storm. Just this week, the Democrat-controlled House of Representatives added a Republican-sponsored amendment to the FY 2021 Defense Bill to prohibit TikTok from being used on smart phones provided to federal government employees, and in the Republican-controlled Senate, the Government Affairs Committee unanimously passed similar legislation. This follows TikTok bans imposed by U.S. military services, FTC sanctions for violating children’s privacy, and a security-based CFIUS review of TikTok’s key acquisition of Music.ly. India recently banned a number of Chinese apps, including TikTok, and there is talk of the same in the United States. ByteDance only operates TikTok outside China, and has a separate service for inside China. The company is reportedly discussing options to restructure TikTok potentially as a different corporation with no connections to China.

Slack Finally Invites Microsoft Back to the Antitrust Party by Filing Complaint in Europe

Report from TechCrunch

In Brief – Slack, a leading chat-style, remote collaboration platform, has file a complaint with the European Competition Authority charging Microsoft with anti-competitive conduct. Slack alleges that Microsoft has unfairly bundled its Teams product, which Slack claims is a competing remote collaboration service, with its market-leading Office 365 software package, a charge that is nearly identical to those facing Microsoft in the late 1990’s from web browser company Netscape. That evolved into the landmark antitrust case pitting Microsoft against regulators in the United States and the European Union, leading to decade-long legal battles and settlements restraining the company’s business practices. Microsoft has responded to Slack’s claims contending that the Teams product is very different from the Slack service, in particular by combining video capabilities with text-based services.

Context – Microsoft, despite its standing as a digital giant in software, cloud services, gaming and business services, has largely avoided the antitrust “techlash” confronting Google, Amazon, Facebook and Apple (often referred to as GAFA). The House Judiciary Committee’s Antitrust Subcommittee’s July 27 hearing will include testimony from the CEOs of those four digital giants, and Microsoft would be the only tech company with a trillion-dollar market cap not invited to the grilling. Likewise, the Justice Department and Federal Trade Commission are both engaged in antitrust investigations of the GAFA companies, Google and Facebook face active State AG antitrust investigations, and each of the GAFA are under a range of investigations in Europe. However, it is worth remembering that until Spotify, and more recently Tile, amped up criticism of Apple, that giant appeared to be skirting by as well. Finally, it has been reported that Microsoft leaders had themselves been talking to antitrust regulators about competition concerns they had with mobile operating system providers Apple and Google.

Amazon Fails to Convince Court on Arbitration for Disputes with Gig-Style Delivery Drivers

Report from Reuters

In Brief – A unanimous three-judge panel of the 1st U.S. Circuit Court of Appeals has ruled that workers engaged in Amazon’s “gig labor” style last-mile package delivery service are exempt from mandatory arbitration based on the interstate commerce transportation worker exemption in the Federal Arbitration Act (FAA). The plaintiff, a Massachusetts-based delivery person, was classified by the company as an independent contractor and filed a class action lawsuit alleging that he and other delivery persons were misclassified and should be employees. Amazon argued that the worker was required to settle his disagreement through binding arbitration based on his contract and was prohibited from suing the company, but the plaintiff countered that Amazon delivery people were exempt from arbitration mandates based on the FAA transportation worker exemption, a position supported by the District Court. The Circuit Court panel again rejected Amazon’s argument that local delivery personnel were not interstate transportation workers because most deliveries involved moving packages from distribution centers to addresses in the same state, instead ruling that Amazon package delivery was often interstate in nature, with packages originating in a different state than the delivery, so workers engaged in a portion of the process could avail themselves of the exemption.

Context – Arbitration provisions are used by many digital platforms to avoid a range of user suits and class actions, including in the workplace context. Challenges to arbitration have been noteworthy for the ride hailing and delivery platforms because of the FAA exemption for some transportation workers broadened by the Supreme Court’s 2019 New Prime v. Oliveira decision. The issue might end up in front of the Supreme Court as related cases involving Uber in New Jersey and California, and Amazon in Washington and Massachusetts, are working their way through federal courts.

Noted Antitrust Critic of Big Tech (esp. Google and FB) is Consulting for Amazon and Apple

Report from Bloomberg

In Brief – Fiona Scott Morton, a Yale University economist and former Justice Department official, is widely regarded as one of the most respected and vocal critics of the tech giants. She co-authored papers in the past two months on how the U.S. Government could execute antitrust cases against both Google and Facebook. It was also recently revealed that Scott Morton has been advising two of the other four main targets of the U.S. Government’s antitrust investigation of the biggest tech companies — Amazon and Apple. The fact that she was paid by Apple and Amazon was not disclosed in either of the papers regarding Google and Facebook, which were funded primarily through a grant from the Omidyar Network. She responded to concerns regarding the lack of disclosure by saying that Apple and Amazon didn’t pay her to write the papers and neither focused on Apple or Amazon.

Context – Amazon, Apple, Facebook and Google are all grappling with federal investigations. A Justice Department lawsuit against Google is likely to come this summer. Each also face investigations in Europe. With immense resources at their disposal, the potential for conflicts among experts could multiply as regulators and companies hire top tier legal and economics support crucial in shaping or deflecting cases involving claims of anti-competitive behavior. This 2017 WSJ expose is an interesting deep dive into Google’s aggressive investment in academic and think tank experts, and the others are likely following. On the lobbying front, Amazon, Facebook and Google spend tens of millions per year, each among the most active companies in Washington, and spending on experts such as Scott Morton is generally not considered a reported lobbying expense and is above that line, so to speak. The CEOs of all four mega platforms will be appearing before the House Judiciary Committee’s Antitrust Subcommittee on Monday, July 27 for a historic session. We’ll all see if it proves enlightening.

Uber Drivers File GDPR Data and Algorithm Transparency Suit to Prove Employee Status

Report from The Guardian

In Brief – A group of UK-based Uber drivers are opening a new litigation front in the global challenge to Uber’s treatment of drivers as independent platform users rather than employees by filing suit in Amsterdam claiming that the EU’s General Data Protection Regulation (GDPR) gives them the right to review data Uber holds on their driving performance and the algorithms that determine how the app assigns driving jobs. The GDPR provides users with rights to access user-related data that a company holds on them, but it also governs “automated decision making” processes that significantly affect a person. The plaintiffs are arguing that the company’s use of data related to a driver’s performance, such as late arrivals, cancellations, attitude and other behaviors proves that the drivers are not treated as independent contractors, as well as claiming that access to the algorithms is needed to determine if some drivers might be discriminated against.

Context – Uber driver classification litigation is well underway in many jurisdictions. France’s top court ruled this spring that an Uber driver who left the platform in 2017 and sued for benefits should be considered an employee, Canada’s highest court ruled last month that the arbitration provision in Uber’s driver contract could not be used to block class action labor suits, and the company’s final appeal of a 2017 worker classification decision will be heard by the UK’s top court this week. However, this the new GDPR-based suit may prove to have impacts across digital commerce platforms. If the GDPR requires platforms to provide users with data involved in automated rankings and processes, and the ability to challenge decisions and obtain human reviews, it could reach well beyond ride-sharing, and dovetail with the EU’s Platform-to-Business regulation enacted last year, and the upcoming EU Digital Services Act.

Twitter Hack Raises Specter of Election-Focused Hack Leading to Chaos and Disruptions

Report from Politico

In Brief – The hack of 130 prominent Twitter accounts, including former Vice President Biden and tech business leaders Jeff Bezos, Bill Gates and Elon Musk, has raised widespread concerns over the cyber security practices of the company, ongoing vulnerability to human-focused hacking schemes, and the potential impact of cyber threats on the 2020 campaign. The intrusion was reportedly carried out by a small number of hackers who gained access to key company systems that allowed them to access individual accounts from inside. A deep dive from the New York Times based on interviews with the purported hackers is here.

Context – Twitter being a mass communications tool for so many politicians and government officials, with President Trump as the highest profile example, and the fact that former Vice President Biden’s account was taken over, has raised the reddest of red flags. While this hack was done to carry out a relatively small-time cryptocurrency scam, the possibility that a similar intrusion could be used to disrupt the election is on the minds of government leaders. While many elected officials have called on Twitter to simply do security better, there is no foolproof cyber system, in particular when people are involved who can make mistakes or choose to compromise the system. During the hours when Twitter blocked all verified accounts from sending tweets, President Trump announced his decision to change his campaign manager through a Facebook post rather than a tweet. Always using more than one communications channel has a clear and easy to implement security benefit. Politicians, elected officials and government agencies should exercise “communications service redundancy”, meaning always communicating over two or more channels at the same time in order to expose when a different message goes out on just one. This Best Practice could be the easiest defense against a politically-focused malicious hack on any one of the main social media communications platforms, each of which could be compromised at some point.

European Court Rejects Data Transfer Privacy Shield Over U.S. Surveillance Powers

Report from CNet

In Brief – The European Court of Justice (ECJ) has ruled that the EU-US Privacy Shield, a core legal mechanisms that allows businesses to transfer personal data from Europe to the United States, does not adequately protect European citizens. This is the second time the ECJ has struck down a core EU-US data sharing regime, having rejected the Safe Harbor Principles in 2015. The decision is based on concerns with U.S. Government intelligence surveillance programs, which it said do not permit Europeans recourse to limit searches in a manner that is required under EU law, nor are the programs limited “by the principle of proportionality, in so far as the surveillance programs based on those provisions are not limited to what is strictly necessary.” Senior EU and U.S. officials expressed a commitment to address the Court’s objections through further negotiations.

Context – While this legal challenge, and the earlier Safe Harbor version, were brought by a strident privacy advocate who has campaigned against Facebook data practices for a decade, this ruling is not about commercial data or privacy practices. It is about national security, intelligence and anti-terrorism surveillance practices. The laws in question were created in the Cold War, updated following 9/11, and modified since. The 2013 Snowden revelations energized the tension between security and civil liberties in the U.S., but also led to the challenges in Europe. Whether the U.S. will meaningfully limit surveillance programs in order to avoid commercial impacts is a question, as is whether EU governments, also concerned with terrorism and digital communications, want U.S. capabilities to be less robust. Finally, Brexit is mentioned because U.S. intelligence services are most closely aligned with the “Five Eyes” countries (UK, Canada, Australia and New Zealand), so post-Brexit there is no longer a Five Eyes member in the EU, and data transfers to the UK themselves might also be challenged. Then there is data and China.

Aggressive Department of Labor Rule-Making Plan Expected for Gig Worker Classification

Report from Bloomberg Law

In Brief – 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. Worker classification is a key question for a wide range of independent work, including skilled freelancers and many traditional trades. The issue is central to “Gig” work platforms, especially ride sharing and delivery. Guidance issued by the Obama Administration DoL in January 2016 was withdrawn by the Trump Administration in 2017, and a 2019 DoL opinion letter linked to an independent worker platform squarely put the current Administration in the camp viewing many such workers as independent contractors. 2019 also saw California, with AB 5, become ground zero for Democratic-led worker classification legislation intended to drastically pare back the digital platform gig business model, a position supported by former Vice President Biden. The intent of the DoL regulatory effort is to put in place formal rules that would be more difficult to overturn than other forms of guidance if Biden wins the White House in November.

Context – It looks like independent worker classification rule-making might be setting up like the partisan back-and-forth at the Federal Communications Commission over Net Neutrality rules. While Democratic leaders, aligned with the labor movement, have widely supported AB 5, states have not rushed to follow up, even when controlled by Democrats. The negative impact on creative freelancers, such as writers, photographers and other skilled professionals, emerged in California and stalled bills in states like New Jersey and New York. When the U.S. House passed broad worker rights legislation earlier this year, with a provision allowing independent contractors to organize and join unions, Democratic leaders argued that the bill was not AB 5 and was only focused on union organizing.

Gig Worker Legal Showdown East Coast Edition – Mass AG (finally) Sues Uber and Lyft

Report from the New York Times

In Brief – Massachusetts’ Attorney General has sued Uber and Lyft claiming that the companies misclassify drivers as independent contractors rather than as employees, violating the state’s independent contractor classification law, which was a forerunner of California’s AB 5 and the three-prong ABC Test. The law, enacted in 2004, requires companies to treat workers as employees if they control how workers perform tasks or if the work is a routine part of a company’s business. Despite the law, Uber, Lyft and other large gig work platforms have operated in Massachusetts as they have in the rest of the country without facing legal challenges from the state. In filing the suit and asking for an injunction forcing an immediate change in company policies, the MA AG sited the impacts of the COVID pandemic and economic downturn highlighting the risks of independent contractor drivers not benefiting from employer-provided health benefits or traditional unemployment insurance. Both companies reiterated that surveys repeatedly show the vast majority of platform drivers prefer not to be employees.

Context – California’s Attorney General filed suit in May against Uber and Lyft and recently filed for a preliminary injunction to require the companies to immediately comply with AB 5. 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. An early AB 5 case in California challenged Instacart last fall, and the initial ruling in California Superior Court highlighted the issue of independent contractors needing to be “free agents”. It will be interesting to see if Uber drivers in MA soon see the platform policies road tested in California.

The Hits Keep Coming with TikTok Fined for Children’s Privacy Violations in South Korea

Report from the Korea Times

In Brief – The Korean Communications Commission (KCC) has determined that TikTok, the highly popular Chinese-based short-video social media app, failed to protect user data as required by Korean privacy laws, including improperly collecting data of children under the age of 14, and fined the company 186 million won — around $155,000 – which is equivalent to 3% of the company’s annual sales in South Korea, an amount designated for such violations under local privacy laws. Similar issues led to TikTok reaching a settlement with the U.S. Federal Trade Commission in 2019, resulting in a $5.7 million fine and agreement to remove all videos uploaded by anyone under the age of 13. A coalition of U.S. consumer advocates recently filed a follow-on complaint with the FTC claiming that the company has not followed through on its settlement commitments.

Context – TikTok is the most successful Chinese platform globally, and as the technology decoupling between China and the U.S. accelerates, TikTok’s policy challenges are quickly growing. Concerns focus on the widespread view that user data could be accessed by the Chinese Government no matter where it’s stored because of disbelief that any Chinese-based Internet company leader could refuse a government ask. Along with its COPPA problems, TikTok has faced bans imposed by U.S. military services and a security-based CFIUS review of TikTok’s key acquisition of Music.ly in 2017. The company has attempted to reinforce its U.S. bona fides by recently naming a former top Disney executive to the roles of TikTok business unit CEO and COO of ByteDance, and quickly built up a lobbying presence in Washington. India recently banned a collection of Chinese apps, including TikTok, following border clashes, and threats of a similar U.S. ban have emerged, reportedly leading to ByteDance executives discussing options to somehow restructure TikTok as a company outside of China.

Apple (and Ireland) Win Appeal Against $15 Billion European Commission Tax Assessment

Report from CNBC

In Brief – The European General Court has sided with Apple and Ireland, overturning a 2016 European Commission decision by its Competition Authority, led by Margrethe Vestager, that Ireland had provided Apple with nearly $15 billion in state aid in the form of illegal tax benefits. Apple was ordered to pay Ireland that sum, a decision that Amazon and the Government of Ireland both objected to, claiming that the tax arrangement was legal and justified based on where Apple engaged in much of its operations covering the EU, Middle East and Africa. The European Commission, which has a mixed record in the state aid cases brought by Commissioner Vestager against corporate tax arrangements in countries like Ireland, Luxembourg and the Netherlands, has two months to appeal to the European Court of Justice.

Context – While Apple is a tech company, the state aid tax cases brought by Commissioner Vestager are not part of the Digital Services Tax (DST) debate. Yes, anger over seemingly very low corporate tax rates paid by big tech companies are driving both issues. And Vestager favors DSTs. However, the state aid tax cases target national government tax agreements with companies far beyond digital services, including Starbucks, Fiat, Nike, Anheuser-Busch InBev and McDonalds. Apple is not primarily a digital services provider. Even Amazon, targeted for its tax dealings with Luxembourg, was scrutinized for transfer pricing in the context of its retail business, not digital services. Vestager has repeatedly argued that the state aid tax cases were not an attempt to simply tax American tech companies more, and the targets seem to prove it. But if Europe’s courts largely fail to pare back the national government tax tools used to incent investments in smaller, lower tax markets, often to the benefit of digital companies, simply imposing new taxes on digital businesses might prove an easier way to address the sense of tax unfairness.

Tennessee DOR Rules that Out-of-State Digital Service Provider Owes State Sales Tax

PEI Analysis

In Brief – The Tennessee Department of Revenue (DOR) has issued a revenue ruling (see here) determining that an out-of-state business providing digitally delivered services to businesses based Tennessee must collect state sales tax, unless a service is specifically exempted. The case involved a business that provided digital services such a phone “On Hold Messaging”, ambient music playlists and specialized video content, all of which could be provided remotely, such as to small doctor offices. The DOR did rule that some news content that could be added to the specialized video feed, including weather updates or a stock ticker, constituted an information service exempt from Tennessee sales tax.

Context – The long running Internet Sales Tax debate was resolved by the U.S. Supreme Court’s landmark Wayfair decision. In 2018, the Court overturned its long-held “physical presence test” that limited sales tax duties to in-state businesses, permitting states, going forward, to require out-of-state businesses to collect state sales tax when they sell to in-state residents. While the focus was on physical goods sold online, the eventual impact on services businesses, especially as more services can be delivered digitally, is often overlooked and could emerge as a major tax issue for smaller digital businesses. State sales taxes have primarily been focused on physical goods. Of the 45 states that have sales taxes, only four tax all services, while the other 41 have a patchwork of rules on services. Many professional services, which can increasingly be provided remotely, were often politically protected from sales tax based on the argument that in-state businesses would lose out to out-of-state competitors who could easily serve customers electronically, something the Internet makes ever easier. As Tennessee shows, with states empowered to tax businesses with a “virtual presence” when serving customers over the Internet, all of those services become for more attractive for more state governments to tax.

U.S. Readies Tariffs for French Digital Tax but Continues Delay Hoping for Deal

Report from Reuters

In Brief – In the latest step in the long-running drama over threats to impose a new form of corporate taxes on large “digital” companies, the United States Trade Representative (USTR) announced that supplemental duties of 25% will be applied to $1.3 billion of French cosmetics and handbags in response to France’s 3% digital services tax (DST) targeting the revenues of large digital services companies, most of which are U.S.-based. USTR has delayed tariffs for up to 180 days in order to allow the countries to resolve the digital tax standoff, likely through multilateral tax talks at the Organization for Economic Co-operation and Development (OECD).

Context – Pressure continues to grow to change the taxation of digital companies to increase taxes paid in countries with large consumer markets, such as the UK, France, Italy, and India, rather than countries where digital companies claim to engage in the majority of their operations, generally the U.S. and smaller markets like Ireland, the Netherlands, Luxembourg, and Singapore. France has led, imposing a 3% DST on companies last summer, which nearly resulted in U.S. trade retaliation. A number of countries have followed suit. The U.S.-France standoff has provided a model, with threats of digital taxes and retaliatory tariffs being repeatedly deferred in hopes of a broad deal at the OECD, where talks have proceeded with fits and starts. There is bipartisan opposition to foreign DSTs in Washington, but as new tax rules for a wide range of consumer-facing companies have become more clear, concerns from non-digital U.S. industries have grown. The U.S. has slowed talks and appears to be relying on tariff threats, readying retaliation against the EU and nine countries. The French tariffs are a model. Most recently, four targeted countries led by France offered to initially limit their DSTs to Internet search and social media companies, which they consider pure-play digital firms, and called for more talks.

Google Joins U.S. Digital Giants in Rush to Invest in India’s Digital Ecosystem

Report from the BBC

In Brief – Continuing the trend of U.S. digital platform giants investing in India, Google’s CEO announced that the company would be investing $10 billion into an India Digitization Fund dedicated to a range of projects to expand ecommerce and the digital ecosystem, in particular for small businesses and underserved communities. In addition, it has been reported that Google is in advanced talks to invest an additional $4 billion in Jio Platforms, the digital arm of Reliance Industries Ltd., which received a $5.7 billion infusion from Facebook, and more than $2 billion from major U.S. private equity firms, earlier this year. Jio Platforms is noted for dramatically transforming the domestic Indian telecommunications market by offering very low price plans and helping increase the number of Internet users by hundreds of millions.

Context – The decoupling of the Internet in China and the Internet in the United States is accelerating in the face of changes to the status of Hong Kong and a growing range of U.S.-China tensions. India, with it’s very large population, rapidly expanding Internet usage, and relative openness to global Internet businesses in comparison to the closed Chinese digital environment, is key growth market for the largest global digital businesses and fierce battleground between Chinese digital giants and their top U.S. competitors. Indian tensions with China are also heightened and the country recently banned dozens of Chinese-based apps, including TikTok, which has India as its largest market. The Indian Government is actively engaged on a range of important and controversial digital policy issues, including digital taxationprivacy and data protectionintermediary guidelines, encryption and regulation of digital communications, and legal/regulatory battles pitting the country’s largest ecommerce marketplace businesses, Amazon and Walmart-owned Flipkart, against traditional retailers and the country’s foreign direct investment laws.

Uber Giving California Drivers Pricing Options to Increase Their Independence

Report from NBC News

In Brief – As the legal fights heat up over AB 5, California’s new worker classification law, Uber continues to lead the way in making platform policy changes to reinforce the independent nature of drivers, a potentially critical distinction between company employees and independent contractors in worker classification lawsuits. Earlier this year, Uber rolled out changes to provide drivers with greater fee and route transparency, and to allow them to reject ride offers without penalty. The company also tested a new pricing tool allowing drivers to set a price above or below the Uber-recommended fare. That pricing tool is now being released across the entire state. In their announcement, Uber said that the new pricing tool gives drivers the option of accepting the price set by the company’s algorithms or choosing a different multiplier, up or down. Riders will be shown price differences between drivers causing some to argue that the price competition will further harm drivers.

Context – While Uber, Lyft and DoorDash have succeeded in getting a proposition on California’s November ballot to establish app-based drivers as independent workers, the main action is in the courts. California’s Attorney General filed suit in May against Uber and Lyft and recently filed for a preliminary injunction to require the companies to immediately comply. Uber argues that most of their drivers do not want to be employees and prefer working at their own pace. Earlier this year, in a first test of applying AB 5 to a gig platform, a San Diego Superior Court judge ruled that Instacart was likely misclassifying some of the people who do in-store grocery shopping services as independent contractors when they should be employees. A key point raised by the judge was that Instacart “already took steps to bring itself into compliance, and… relatively minor additional steps will allow it to be in full compliance by ensuring the shoppers are true free agents.” Uber appears committed to stressing that “free agent” concept with drivers.

EU’s Google-FitBit Decision May Hinge on Google Refraining from Data Bolstering Ads

Report from Reuters

In Brief – Reports indicate that Google may be able win approval for their $2.1 billion acquisition of fitness-wearables and app business Fitbit from the European Competition Authority, a key hurdle for the deal, if they commit to not using FitBit’s health-related data to bolster the Google advertising business. While Google has described the deal as aiming to bolster competition in the wearables market, and FitBit accounts for a relatively small and declining share in competition with a number of large competitors including Apple, privacy advocates and tech critics on both sides of the Atlantic have aggressively questioned the deal on multiple grounds, including the charge that giving Google access to a large new data store will boost its dominance in online search and digital advertising, as well as threatening health privacy.

Context – This merger provides an opportunity to observe how willing competition regulators will be to expand beyond traditional antitrust formulations to rein in the largest digital companies. Based on traditional reasoning, blocking the deal is hard to justify. However, this acquisition tests two new arguments. First, that a few 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). A Google deal with the EU built on digital advertising commitments would hint at the competition regulators sticking to more traditional reasoning by focusing on specific markets, digital advertising and services, where Google (along with Facebook) enjoys very large market shares. Not too big in general, but too dominant in a relatively specific market. The UK’s CMA and Australia’s ACCC are both engaged in aggressive competition reviews of digital advertising, and the search advertising and ad services markets will reportedly be the main focus of the U.S. State AG antitrust suit targeting Google.

ByteDance Considering New Structure for TikTok to Address Anti-China Digital Concerns

Report from Wall Street Journal (pay) and Reuters

In Brief – ByteDance, the Beijing-based smart phone app business that operates TikTok, the short-form user-generated video platform that has exploded into the most successful Chinese-based digital service for users outside of China, is reportedly considering changing the corporate structure of TikTok in an effort to protect the business from being penalized in its biggest markets over its Chinese ties. ByteDance operates a range of apps in China, including a Chinese-market version of TikTok, but TikTok, with 2.2 billion global downloads, is its top property. Border clashes between India and China recently led to the Indian Government banning a range of apps from Chinese companies, including TikTok, and threats of a similar ban from the U.S. Government have emerged as relations with China deteriorate. Senior ByteDance executives are discussing options such as creating a new management board for TikTok or establishing a headquarters for the app outside of China to distance the app’s operations from China.

Context – The Chinese Government essentially decoupled the Internet in their country from the rest of the world a decade ago through a range of censorship and surveillance regimes. The major U.S. Internet businesses largely do not operate in the country. The largest Chinese digital platforms have huge operation in China and are growing in some global markets, but until TikTok have not had a huge global service. The pushback against TikTok in the United States includes concerns that user data could be accessed by the Chinese Government no matter where stored because of widespread disbelief that any Chinese-based Internet company could refuse a government ask. TikTok has faced bans imposed by U.S. military services, a security-based CFIUS review of TikTok’s key acquisition of Music.ly in 2017, and a COPPA charge at the FTC. The company recently named a top Disney executive to the roles of TikTok business unit CEO and COO of ByteDance.

Turkey Proposes New Social Media Controls in Long-Running Internet Platform Feud

Report from Reuters

In Brief – Consistent with a long history of frustration with social media and other digital platform businesses, Turkey’s President has announced his intention to legislate new limits on how social media platforms operate in the country, and that platforms that do not comply will be shut out. The decision is reported to have followed recent rounds of online criticism and insults of the President and his family. As was proposed in legislation earlier this spring but later withdrew, global social media platforms would be required to appoint representatives in Turkey to respond to legal requests to ban content and users that the government finds in violation of Turkish law. A number of prominent digital platforms, including Twitter, Facebook, WhatsApp and YouTube have been intermittently blocked in Turkey in recent years.

Context – Political leaders in countries around the world are frustrated with things people post online. The Avia Online Hate Speech law enacted in France earlier this year, requiring platforms to take down a range of objectionable content in 24 hours, and some in an hour, was recently struck down by the French Constitutional Court for limiting free speech. The European Parliament passed legislation last year to require platforms to take down pro-terrorism content in one hour, but it remains bogged down over concerns with the impact on expression. The EU’s landmark Digital Services Act expected later this year will likely include new EU-wide platform policing mandatesGermany and Australia already have takedown regimes in place, the British Government remains committed to legislating recommendations of the UK Online Harms White Paper, and Ireland is considering social media legislation. Finally, in the U.S., the debate over Sec. 230 sees both Presidential candidates expressing frustration over their treatment by social media platforms, although unsurprisingly they each object to different content and policies.

European Regulators Asking Competitors for Concerns with Google-FitBit Deal

Report from pymnts.com

In Brief – As they press forward with their review of Google’s $2.1 billion acquisition of fitness-wearables and app business Fitbit, European Union regulators have sent questionnaires to the companies’ rivals to ask if the tie-up will hurt competition. Topics included concerns over the treatment of competitive fitness tracking apps in the Google Play Store and the potential for user data gathered through FitBit services to power Google’s ad business with new data streams that will distance the company from competitors. As the EU aims for a July 20 recommendation, an international collection of nearly two dozen “Consumer and Citizen Groups” expressed deep concerns with the proposed takeover that they call a “game-changer” for digital and health markets and a “test case” for regulators to check the ability of digital giants to expand their ecosystems. (Their statement is here.)

Context – The citizen groups are correct that the Google-FitBit merger is a test case. Based on traditional antitrust reasoning, blocking the deal is hard to justify. FitBit is falling behind giants Apple and Xiaomi, and Google is not a major player in the market. However, general concern with the digital giants getting bigger through acquisition is real, and given Google’s dominant position in online advertising, one can argue that any new source of data will harm competition. Health data is also particularly sensitive to privacy concerns even as Apple, Amazon and Google charge headlong into the space. If the leading competition authorities are going to make the case that some data-powered businesses simply have too much data and cannot acquire more, look here, and with Australia’s ACCC, and a U.S. Justice Department already building a Google antitrust case. Facebook’s bid for GIPHY, an animated GIF platform, could be the test case as to whether competition officials will choose to see a future competitor in every nascent platform, as many do looking back at independent Instagram, WhatsApp and DoubleClick.

Amazon Announces New Policy to List Sellers Real Names and Addresses on Site

Report from the Washington Post

In Brief – Amazon has announced a change in its policy regarding the public display of information regarding third-party sellers on the site, likely in response to concerns that seller anonymity contributes to the sale of fraudulent goods on Amazon. As of September 1, sellers’ business name and address will appear on the site, and individual (non-business) sellers will have their personal name and address listed. Amazon’s announcement referenced similar policies in Europe, Japan and Mexico, although it is unclear if those policies cover all sellers or just professional business sellers. Goods owned by third party sellers account for more than half of sales on Amazon’s marketplace, although through Amazon’s massive Fulfillment By Amazon logistical system they handle many products from third-party sellers more like a traditional retailer.

Context – For decades, some brand owners and retailers have accused Internet marketplaces of facilitating counterfeiting and the sale of stolen goods, often lobbying to make Internet marketplaces liable for the actions of independent sellers. A coalition of House Judiciary members has introduced legislation to increase the liability of ecommerce platforms for counterfeit trademark goods, and some see Amazon’s announcement as part of their preparation for Jeff Bezos appearing before the committee on July 27. Analysts also see the change increasing the ability of brand owners to police their authorized retailers who might also sell online in violation of contract terms. Back in 2008 the House Judiciary Committee first debated legislation attempting to impose new liability on marketplaces related to supposedly stolen goods, something still championed by large retailers. The Trump Administration has called for expanding platform responsibility to identify and block counterfeits and ban sellers, especially focusing on products from China. If you are interested in the kind of privacy concerns being expressed by small Amazon sellers by the change, here is a long and interesting discussion thread.

U.S. Platforms Refusal to Comply with Hong Kong Security Law Could Mark Further Internet Split

Report from Reuters

In Brief – Major U.S.-based Internet companies, including Google, Facebook and Twitter, have announced that they will not comply with user data requests from Hong Kong law enforcement as required under the new security law that is widely seen as ending the independence of Hong Kong from China’s rigid censorship regime. These platforms do not operate in China and do not comply with China’s broad Internet censorship regime, but have operated in Hong Kong, whose citizens engage in active political debate on the platforms. Refusal to comply with the new law would appear to open the platforms’ employees to potential criminal sanctions, whether based in Hong Kong or traveling through China. The new security law criminalizes criticism of government policy regardless of where the user is based and could open the platforms to Chinese law enforcement requests regarding users outside of Hong Kong.

Context – China illustrates that the Internet in any locality is not beyond the reach of government. Networks used to reach the Internet are local and controllable. The Chinese Government essentially “decoupled” their Internet from the rest of the world a decade ago and Chinese equivalents of nearly all the major U.S.-based digital platforms thrive inside China. Hong Kong was an exception, with the Internet operating more like the rest of the world and the U.S. platforms operating side-by-side Chinese platforms. That may be ending. ByteDance’s announcement that it will pull TikTok from Hong Kong is newsworthy, but not because they are taking a strong stand, but because ByteDance operates TikTok only outside China. They have a separate video app for users inside China. As opposed to leaving Hong Kong in protest, pulling TikTok is their affirmation that Hong Kong’s Internet is firmly Chinese. Chinese-based digital platforms like TikTok are becoming a political flashpoint, with India recently banning nearly 60 Chinese-based apps following border clashes, while the U.S. Government is reportedly considering a similar move.

US Supreme Court Sides with Booking.com Over PTO in Domain Name Trademark Case

Report from NBC News

In Brief – In a case bringing together the Internet’s top-level domain (TLD) name system and trademark law, the United States Supreme Court (USSC) has sided with online travel agency Booking.com in its trademark dispute against the U.S. Patent and Trademark Office (PTO). The dispute arose from the PTO’s decision to reject the company’s trademark application based on “booking” being a generic term, which cannot be trademarked, and that combining the term with “.com” did not alter that restriction. The company argued that the PTO should be judging each trademark application on a case-by-case basis, including in cases of otherwise generic words with .com, and that it had produced evidence that most people understood the combined name to be the company, not a general term. An 8-1 majority opinion sided with the company, in particular that the determination should be done case-by-case, and that in this case the company had proven that its name did meet the test of being specific and distinctive.

Context – Unrelated to the substance of the legal matter, the PTO v. Booking.com case will hold a place in Supreme Court history as the first one where the Court heard oral arguments remotely by conference call, and equally noteworthy, had allowed the call to be broadcast and live streamed. (You can find it here.) While making court predictions based on oral arguments is always fraught with peril, I will harken back the PEI email of May 6 which noted that the company’s position appeared to be strong based on the fact that the PTO had granted trademark protection to web names such as Weather.com, Tickets.com and Dating.com, as well as the trend of the High Court to move away from black-and-white per se rules for years, which the PTO was defending. Another such Internet policy case was the 2018 Wayfair decision where the Court ended its black-and-white physical presence test that for decades had prohibited a state from imposing sales taxes on any web (or mail-order) retailer who did not have a physical presence in the state.

Google Releases Plan to Pay Some Media Companies for Content on a New News Service

Report from Forbes

In Brief – Google has announced that it intends to launch a new news service later this year that will involve the company paying licensing fees to some news publishers to include content on the service. Google says the new service will allow users to access some content that would otherwise be blocked by company paywalls, increasing reader access to content and expanding visibility of content when publishers employ paywalls to increase monetization. The project, which will be incorporated into the Google News and Discover services, will initially roll out in Australia, Brazil and Germany, but is expected to grow in scope. Media giants in Australia and Germany have been some of the most aggressive critics of Google and have enjoyed some recent regulatory successes against the search giant.

Context – Traditional news media businesses in markets globally are rallying around emerging proposals to require the social media and search businesses that dominate digital advertising revenues, Facebook and Google in particular, to pay them for creating digital media content, whether consumed directly on digital platforms on linked from them. Google’s new news service that pays some major media companies appears similar in spirit to the Facebook News endeavor announced last fall which aims to promote the curated content of major news sources and reportedly funnels millions in payments to large media enterprises. Google and Facebook are rolling out programs to pay news media enterprises directly as regulatory efforts are moving forward in a growing number of countries to require them to pay media companies. These payments schemes are being proposed by competition regulators investigating the two companies’ strength in the digital advertising market, led by Australia, as part of its two-year digital platform competition review, and France, through a change in copyright law and a recent competition policy ruling. They are quickly gaining support from major media in other countries.

Combination of Yahoo! Japan and Line Messaging App Delayed as Pandemic Slows Regulators

Report from Japan Times

In Brief – The merger of Yahoo! Japan, owned by Japanese conglomerate SoftBank, and the messaging app provider Line, which is owned by South Korean digital giant Naver, will not be completed in October, as originally forecast by the companies, due to reported delays in antitrust reviews due to the coronavirus pandemic. The companies have not announced a new date. 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 – The global focus on whether competition authorities will change their standards for digital mergers and acquisitions is likely to fall on Google’s bid acquire FitBit, the Facebook plan for GIPHY, or even Amazon’s purchase of electric self-driving vehicle developer Zoox, 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. Serious thinking on digital platforms is going on in Japan. It’s parliament recently enacted legislationinitiated last fall by the Abe Government to require the largest digital commerce platforms, both domestic giants Yahoo! Japan and Rakuten, as well as Google, Apple, Amazon and Facebook, to give small business users advance notice of any contract changes, set up processes to reply to complaints, and improve transparency into how search results are determined. It is reported that the government is planning legislation for January 2021 to tackle fraudulent online marketplace sellers by requiring ecommerce platforms to verify seller identities and be responsible for resolving any conflict between buyers and sellers.

Climate Activists Appeal to New Facebook Oversight Board to Prohibit Misinformation

Report from Axios

In Brief – A group of fifteen progressive climate change activist leaders have called upon the newly formed Facebook content moderation Oversight Board to limit the ability of Facebook users, in particular an organization called the CO2 Coalition, to spread what the signatories call “climate misinformation”. The letter is addressed to Helle Thorning-Schmidt, former prime minister of Denmark, and a co-chair of The Oversight Board, who the letter authors note was an advocate for strong climate-related policies during her time in government. The creation of an independent Oversight Board of experts to review user appeals of Facebook content moderation decisions was a project introduced by Facebook in November of 2018, has been established with a grant of $130 million from the company, and the first 20 Board Members were announced in May. The group has not yet made rulings on any content decision appeals and it is unclear what the scope of their oversight will be.

Context – Content moderation is a huge challenge for digital platforms, and the political ramifications grow when a platform is especially large. While Facebook’s effort to create an appeals board is bold and interesting, big questions remain. The range of political and policy topics where idealogues, advocates and political leaders charge opponents with misinformation seems endless. Google faced a request in January from the Chair of the U.S. House Select Committee on the Climate Crisis to restrict “dangerous climate misinformation” on YouTube, which was denounced by conservatives as an effort to stifle free speech. Whether the Oversight Board will play a role in setting high-level policies for political issue content on Facebook is an open question.

Bill Weakening Sec. 230 Protections Regarding Child Sexual Images Passes Senate Committee

Report from The Hill

In Brief – The Senate Judiciary Committee overwhelmingly passed an amended version of the “EARN IT Act” showing bipartisan support for pushing digital platforms to aggressively block user generated content depicting child sexual abuse. The original version of the bill proposed making digital platform protection from civil liability for all user conduct, notably from Sec. 230 of the Communications Decency Act (CDA), contingent on complying with standards to be set by a Department of Justice (DoJ) commission to combat child sexual abuse. A wide range of technology, civil liberty and cyber security experts charged that bill was over-broad and a tool to ban strong encryption. The new version of the bill dropped the link between the recommendations of the DoJ commission and Sect. 230, and the Committee added further language stating that the use of encryption did not increase liability for platforms. The current version of the bill is a targeted exclusion from Sec. 230 very much like the FOSTA-SESTA bill passed in 2018 to ban online content related to sex trafficking.

Context – The EARN IT Act pulled together concern over online harms to young people, law enforcement opposition to encryption, and frustration over Sec. 230. As was seen with FOSTA-SESTA, rules to combat sexual violence online carry political weight. However, the pushback to protect encryption and the general liability protection in Sec. 230 was meaningful and the EARN IT Act now looks a lot more like its sex trafficking predecessor than a direct confrontation on the big issues. The encryption debate likely shifts to Chairman Graham’s new bill mandating law enforcement access to encrypted data as well as direct DoJ pressure on Apple and Facebook. Sec. 230 is certain to remain a nearly daily topic as the two parties fight over ideological content moderation, shadow-banning, fake news, misinformation, hate speech and political ads.

UK CMA Wraps Up Digital Platform and Advertising Study With Call for Digital Regulator

Report from the BBC

In Brief – The UK Competition and Markets Authority (CMA), the country’s competition authority, released its Final Report in a year-long study of digital platforms and digital advertising. Google and Facebook, the two platforms that the CMA believe dominate digital advertising and the broader media and digital ecosystems in the country, are the focus. The CMA proposes that the UK Government create a new regulatory agency, the Digital Markets Unit, to oversee platforms with market power, and recommends a code of conduct for Google, Facebook and other major industry players to restrain exploitative or exclusionary practices. Among other recommendations, CMA proposes that Google be required to share user data with search and advertising rivals, while Facebook would be required to give consumers a choice over whether to accept targeted advertising.

Context – The digital advertising market is emerging as a focus of competition authorities looking to reign in Google and Facebook, and regulators in different markets appear to be sharing playbooks. As the CMA hands legislative recommendations to the UK Government, Australia’s ACCC is in the midst of its own review of digital advertising and the same two giants. Also, Google’s dominance of search advertising and the ad services market is reportedly the main focus of their U.S. State AG antitrust coalition. The CMA’s recommendations regarding Facebook and data are similar to the German FCO’s data and privacy competition case against Facebook recently restored in court. Finally, the focus on digital advertising dominance brings many of the same media players to the table who claim that these two platforms capture an unfair share of online advertising revenues. Recent efforts in AustraliaFranceCanada and Malaysia to require them to simply pay media enterprises is a direct method to address what some in media see as the ad revenue result of the perceived competitive imbalance.

Republican Senators Introduce Legislation to Mandate Law Enforcement Access to Encryption

Report from NBC News

In Brief – Three influential Republican Senators led by Judiciary Committee Chairman Lindsey Graham (R-SC) have introduced the “Lawful Access to Encrypted Data Act”, legislation to allow law enforcement authorities to gain access to encrypted data following the receipt of a court order. S. 4051 covers data held on devices like smart phones and tablets, as well as traversing messaging and video services, and requires device manufacturers and service providers to provide assistance to law enforcement to access encrypted data after a court issues a warrant that authorizes law enforcement to search and seize the data. The legislation authorizes the U.S. Attorney General to require service providers, such as Facebook, and device manufacturers, such as Apple, to report on their ability to comply with court orders, including timelines for compliance. A wide range of technology, civil liberties and cyber security experts denounced the bill as a frontal assault on broad-based data security and privacy.

Context – The policy fight over encryption stretches back to the 1990’s pitting civil libertarians and technologists against law enforcement advocates looking to extend analog wiretapping regimes to all forms of digital communications. Apple and Facebook are under the brightest spotlight. Nearly the entire U.S. technology industry rallied behind Apple in 2016 in a confrontation over forced “unlocking” of iPhones, an issue being replayed under AG Barr’s leadership following last December’s Pensacola Naval Base terrorist shootings. Globally, Facebook’s WhatsApp is under intense scrutiny and legal pressure in major markets including India and Brazil, while the UK and Australia join AG Barr in pressing Facebook to abandon plans to apply end-to-end encryption to all messaging services. Encryption appears to be a key issue in the Department of Justice’s antitrust review of Facebook, as well as their broader review of digital platformsSection 230 reform and the EARN IT Act.

California AG Files for Preliminary Injunction in Legal Showdown with Uber and Lyft

Report from Politico

In Brief – California’s Attorney General and city attorneys from Los Angeles, San Francisco and San Diego have filed for a preliminary injunction to force Uber and Lyft to immediately classify drivers on their platforms as employees under the state’s high-profile employee classification law, AB 5. They filed suit in May to enforce the law on the ride-hailing platforms, and the California Public Utilities Commission has advised the companies to treat workers as employees now. Uber and Lyft have not reclassified California users, instead pursuing legal and political efforts to protect their business model and the ability of their users to remain independent contractors, which remains popular with many. AB 5 litigation began last fall. A San Diego City Attorney suit achieved a ruling that Instacart was likely misclassifying some shoppersIndependent truckers earned a stay in federal and state courts on preemption grounds. Uber and Postmates, as well as freelance writers, did not achieve injunctions.

Context – The COVID downturn has highlighted how drivers, as independent contractors, do not receive employer-provided health benefits or traditional participation in unemployment insurance. However, the flexible platform model has allowed many drivers to keep working by moving platform to platform, from driving people to delivering food, essentials and packages when ride-hailing demand dried up. While the big gig platforms have been the political focus of the AB 5 debate, skilled freelancers, especially writers, gained attention when AB 5 cost them work, stymying legislation in other states. The COVID downturn has severely harmed independent workers in California’s film, music and theater industries, as well as a wide range of personal services, leaving many without work or benefits, which some see as a sign of the potential impact of AB 5 and others see as the result of non-corporate work models.

Uber Turns Acquisition Attention to Postmates After Grubhub Deal Falls Through

Report from the New York Times

In Brief – Coming off its aborted effort to acquire Grubhub, which ended up being purchased by European-based platform Just Eats Takeaway, Uber has made a bid for Postmates. The four largest food delivery platform services in the U.S. are DoorDash, Grubhub, Uber Eats and Postmates. An Uber Eats-Grubhub tie-up would have vaulted the combined business above DoorDash and consolidated 80% of the market in two firms, which raised immediate antitrust concerns. While an Uber Eats Postmates pairing would not exceed the industry leader, reducing the top competitors to three could still be problematic. Postmates is reported to have explored an IPO last year, an effort paused by a lack of market interest, but with food delivery bolstered during the pandemic, it is said to be weighing that route in lieu of the Uber bid.

Context – Progressive Democrats have voiced concerns that the pandemic downturn will lead to a wave of corporate consolidation that would harm competition and consumers, and some have proposed a moratorium on mergers and acquisitions, an idea rejected by Republicans. However, whether a combination of numbers three and four in a growing (if not yet profitable) market will pass regulatory scrutiny, despite the support of business analysts who believe consolidation in the market is needed to achieve profitability, is another matter. As noted, one of Europe’s largest delivery platforms acquired Grubhub, providing capital without eliminating a top player. And Amazon’s significant investment in UK delivery platform Deliveroo, held up for months by the UK Competition and Markets Authority, was recently approved. Between increased scrutiny of big tech acquisitions (see Google-FitBitFacebook-GIPHY), a spate of city-level efforts to restrain delivery app fees imposed on restaurants, and ongoing efforts to stifle the gig platform model of independent work, a number of public policy antagonists and hurdles may stand in the way.