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News & Insights

May 2022

Coordinator of UK Tech Regulation Fears Online Safety Bill Harming Small & Startup Platforms

Report from the Financial Times

In Brief – Gill Whitehead, the first head of the UK’s new Digital Regulation Cooperation Forum (DRCF), a group created to coordinate the activities of four UK regulatory bodies that are taking on increasing digital regulation roles, is concerned that startups and smaller digital firms may struggle with complying with the UK Online Safety Bill that is expected to be enacted this year. The DRCF aims to coordinate digital regulation carried out by the Competition and Markets Authority, Financial Conduct Authority, Information Commissioner’s Office and Ofcom. Whitehead, who had stints at the Bank of England, Deloitte and the BBC before spending three years at Google, is concerned that the Online Safety Bill could negatively impact competition “because there’s a cost to complying with the bill that might be prohibitive for smaller firms.” One area of new regulation is Ofcom’s authority to regulate algorithms, which Whitehead notes could result in the establishment of a third-party auditing regime similar to those in the financial sector, but she stressed that there is no industry consensus on what good algorithms look like. Ofcom believes it will require 44 million pounds and 300 staff to do that job, which Whitehead sees as itself a hiring challenge. The UK Government’s National AI Strategy also envisions a regulatory regime for Artificial Intelligence and Machine Learning, and the DRCF is providing input including proposing to use “regulatory sandbox” authorities and further algorithm auditing.

Context – The UK Online Safety Bill largely parallels the EU Digital Services Act, which likewise aims to regulate how all digital platforms address a wide range of objectionable digital content, with stiffer burdens for larger platforms. The DSA is unique in trying to squarely address regulation costs, imposing a new revenue-based fee of .1% of global earnings on platforms with 45 million or more EU users to fund enforcement. As digital regulation and auditing regimes proliferate, company costs and government funding mechanisms will as well.

India Launches Public Ecommerce Marketplace to Compete with Amazon and Flipkart 

Report from Reuters

In Brief – India’s Department of Promotion of Industry and Internal Trade (DPIIT) has launched its “open network for digital commerce” (ONDC), a public ecommerce platform designed by tech tycoon Nandan Nilekani, founder of Infosys Technologies, that aims to connect buyers, merchants, payment providers, and logistics service providers on a fully open-source ecosystem. The project aims to onboard 30 million sellers and to cover at least 100 cities by August. The goal is to provide a public alternative to the country’s two largest ecommerce companies, Amazon and Flipkart, which are both US owned. (Flipkart is a subsidiary of Walmart.) With the ONDC, the government hopes to replicate the success of its Unified Payments Interface (UPI), a country-wide digital payments platform which brought banks on a single platform and allowed seamless person-to-merchant payments starting in 2016. Indian retailers, with its base of millions of small shopkeepers, are key supporters of Prime Minister Narendra Modi, and have long accused Amazon and Flipkart of violating the country’s Foreign Direct Investment (FDI) laws. The ONDC service will emphasize ecommerce connecting small merchants and rural consumers.

Context – This news struck me as “municipal broadband” for ecommerce. But dig deeper, and it just reinforces that India is a unique ecommerce ecosystem with its massive pool of skilled IT workers and firms, the general view that it is the largest ecommerce growth market, but most of all its FDI laws prohibiting non-Indian businesses from operating retail businesses but allowing them to operate third-party ecommerce marketplaces. Amazon has long been accused of violating those FDI laws and has faced investigations by the Indian competition authority and FDI enforcement directorate. At the same time, Reliance Industries, an emerging digital conglomerate led by Mukesh Ambani, India’s richest man, has been attempting to build an Indian-based ecommerce alternative to Amazon. I wonder what he thinks of the ONDC?

Vestager Gives Hope to EU Telecom Companies on New Payments from Big Tech

Report from Reuters

In Brief – European telecommunications and broadband companies will be more optimistic about the prospect that the EU will force large digital video platforms such as Netflix, YouTube and Facebook to pay them new fees after European Commission Vice President for Digital Policy Margrethe Vestager expressed support for considering how digital companies could contribute more to network investments. Network providers have long pressed for digital giants to pay more based on the bandwidth their users consume when downloading or streaming online content, most recently releasing a report claiming that a small number of video, social media and tech companies account for more than 55% of all traffic on Europe’s mobile and broadband networks. In November, telecom company CEOs released a letter to EU policymakers calling on them to force digital giants to support network upgrades, as well as loosen competition standards to facilitate industry consolidation. Vestager, who leads the European Commission’s Competition Authority, again rejected calls for looser merger standards.

Context – Like the big media companies who have been increasingly successful in convincing governments to force Google and Facebook to pay them when consumers access their content online, telecom companies have been accusing Internet platforms of “free-riding” for decades. That despite the digital companies and all their users paying broadband companies for Internet access and bandwidth. Most inspiring to the network companies is South Korea, where telecom companies have been uniquely successful in imposing mandatory data usage fees on Internet-based businesses to subsidize the data usage of consumers despite clear net neutrality concerns. Facebook and Netflix have been engaged in long-running legal and regulatory battles, including Netflix being asked to pay added fees to Korea’s dominant network companies because its Korean-produced Squid Game was so popular with Korean viewers.

Epic Games Pulls Bandcamp into In-App Payments Fight with Google

Report from ArsTechnica

In Brief – Epic Games has filed a motion in Federal District Court in California to block Google from being able to impose its new in-app payment policy on Bandcamp, a music distribution platform popular with independent artists that Epic acquired in March. Epic Games kicked off their antitrust crusade in August 2020 by modifying in-apps payments on its massively popular Fortnite game, which caused the game to be suspended from the Apple and Google app stores. Epic then filed long-prepared federal antitrust lawsuits arguing that both platforms were illegal monopolies that charge overly high fees, often reaching 30 percent. Fortnite remains blocked on Apple’s App Store and Google’s Play Store, although users can still upload the Android game from other sites. Bandcamp is a platform that has never allowed in-app purchases on its iPhone app due to Apple’s rigid payments policy. However, Google has historically been less strict with its app upload and payments policies and Bandcamp’s Android app includes in-app purchases. Google is enforcing a tighter in-app payments policy for Play Store apps starting in June and have informed Bandcamp that it will be required to use Google’s payments service and pay a 10% commission on in-app sales. Epic Games is suing to block Google, a ruling it could not get for Fortnite, which is already blocked. Google responded to the suit arguing that the claim is meritless, that the proposed commission of 10% is less than Bandcamp itself charges users, and that there are other options to distribute Android apps.

Context – The key point is that Epic is not stepping back from their massive global legal and regulatory campaign against Apple and Google. They largely lost to Apple in US Federal Court, but a major appeals battle is underway. They continue to press on in the UKAustralia and EU. Their Google suit in US federal court has moved slower than their Apple suit and is scheduled for trial in late 2023, while the Apple suit’s appeal trial is expected in early 2024.

European Commission Files Antitrust Complaint Against Apple on Mobile Wallets

Report from the New York Times

In Brief – The European Commission (EC) Competition Authority has made an initial determination that Apple abused its dominant position in the provision of mobile wallets on its devices, in particular restricting third-party payments providers such as PayPal from accessing key technology that support mobile wallets. The Commission says that Apple’s anti-competitive practices dated back to 2015 when Apple Pay was launched, including restricting competitors from accessing Near Field Communications (NFC) capabilities that allow payments by tapping a phone or watch. Apple claims that its policies did not restrict competition in digital payments and protect iPhone users against frauds more effectively than more open access.

Context – This initial determination by the EC that Apple has engaged in anticompetitive conduct in payments is NOT part of the ever-growing fight over “in-app payments” hounding Apple and Google. Those fights are about the fees, often reaching 30%, that Apple and Google charge to app developers when the developers sell digital products and services. Developers like Epic Games and Match are not aiming for more competition in digital payments. They simply think paying 30% commissions to Apple and Google is unfair and apparently believe if they can avoid Apple’s and Google’s commission-collecting payments systems they can circumvent the fees. When Apple and Google offered to allow payments alternatives and proposed dropping their fees just 3 or 4%, app developers continued to object. These new charges are about actual competition in mobile payments services. It is similar to Spotify’s complaints to the European Commission. One set of objections involved Apple’s fees, which Spotify claims are too high. But other objections involve allegations that Apple preferences its own music service on its devices in ways to harm competitive music services such as Spotify. Hanging over all of this is that discriminatory treatment on dominant “gatekeeper” platforms will soon be regulated by the EU’s Digital Markets Act as well.

US Department of Justice Files Brief in DC Court Opposing Amazon in Price Fixing Case

Report from Bloomberg

In Brief – The US Department of Justice (DoJ) has stepped into a case in DC Superior Court brought by DC Attorney General Karl Racine (D) who charged Amazon with anticompetitive conduct through its price parity policies that allegedly penalized third-party sellers’ goods offered for sale on the Amazon Marketplace when a seller also tried to sell the same goods for lower prices elsewhere on the web. Racine’s suit was dismissed in March by DC Superior Court Judge Hiram Puig-Lugo at initial oral arguments, with the judge stating that the District’s complaint failed to plausibly allege that the policies had anticompetitive effects, including failing to show specific evidence that sellers raised prices off Amazon due to Amazon pressure or were penalized for setting a price below a certain level. The DC AG appealed the decision and that request for reconsideration is now backed by the DoJ who argues that the judge misapplied important antitrust law precedents, in particular dealing with contract provisions serving as concerted action in restraint of trade, and improperly raised the bar on plaintiffs challenging anticompetitive contractual restraints in the District of Columbia.

Context – As noted back in March, Judge Puig-Lugo’s ruling came on the heels of an opposite ruling in Federal District Court in Washington state. In DC Court, Amazon scored a win. But in federal court, Amazon suffered a setback. Amazon’s price parity policies have been controversial for years. Amazon claimed to drop their direct prohibition against selling products for lower prices off Amazon in 2013 in Europe and 2019 in the US, but they still penalize offending sellers through algorithms. Amazon’s market dominance is a key issue. Their share of ecommerce marketplace sales approaches 70 percent while charging high fees to sellers. Both suits argue that sellers won’t forgo sales on the Amazon marketplace to offer lower prices on other venues, even when lower fees on those platforms would allow it, harming consumers off Amazon.

Japanese Government Concerned with Apple-Google Dominance of Mobile Ecosystem

Report from the Japan Times

In Brief – The Japanese Government Council on Digital Market Competition has released an interim report on competition in the smartphone operating system (OS) market highlighting the dominance of Apple and Google and noting their ability to implement rules that may damage app providers and other businesses. The council said that the government will consider ways to prohibit anticompetitive actions by the two digital giant, including potential new regulatory options, such as increased disclosure of information on OS changes and granting a regulatory authority the right to block changes that could have a serious impact on businesses. The report notes that the development of a smartphone OS comes with enormous costs for companies involved, but also makes market entry difficult for newcomers, and that Apple and Google have the right to determine rules governing app developers. Apple was particularly critical of the report, which included raising concerns with the pre-installation of apps and the practice of limiting app distribution to just one app store, a practice of Apple but not Google.

Context – Japan, home to a robust digital economy with a unique mix of domestic and foreign-based platform giants, has been a leader in the effort to improve the terms and conditions that digital platforms provide to small business users. Its Ministry of Economy, Trade & Industry (METI) is putting in place a regulatory structure to oversee five digital giants – Amazon, Google, Apple, Rakuten and Yahoo Japan – under 2020 legislation to improve the transparency of platform policies and protect smaller businesses from unilateral changes in rules and fees. Japan now joins a growing number of countries exploring some form of app store regulation. More than anything, app developers want lower fees from both OS giants, and both Google and Apple have proposed 4% discounts when apps developers use their own payments services. Many app developers appear unhappy with the offers thinking the resulting fees are too high.

DHS Ramping Up Fight Again Online “Disinformation” Shockingly Causes Partisan Anger 

Report from The Hill

In Brief – In the Q&A portion of the Department of Homeland Security (DHS) budget hearing before the House Appropriations Committee, Secretary Alejandro Mayorkas described the formation of a DHS Disinformation Governance Board that will aim to better coordinate the agency’s programs and activities to combat online misinformation impacting illegal immigration, election interference and protecting critical infrastructure. (Watch the exchange here starting a 1:39:55) The board, which will operate within DHS’s Cybersecurity and Infrastructure Security Agency (CISA), will be led by Nina Jankowicz, a scholar at the Wilson Center and expert on political disinformation in Russia and Eastern Europe. CISA, a federal agency that is tasked with combating cyber threats, has been engaged in combatting “Mis-, Dis-, and Mal-information” (MDM) for years. Conservatives reacted harshly to word that a federal agency was stepping directly into debates over countering online speech on topics that many argue are often highly political, including accusations that Ms. Jankowicz is a partisan who defended social media efforts in late 2020 to restrict circulation of commentary regarding the Hunter Biden laptop.

Context – Once again, a top takeaway from the daily dust-up on social media content moderation is that no bipartisan agreement on anything related to regulating the content policies of the platforms is coming in the US anytime soon. Yes, the EU is enacting the Digital Services Act and the UK likely to enact the Online Safety Bill. Both will set rules for platforms to deal with objectionable content, including misinformation and disinformation as governments direct. While US regulation advocates are suffering FOMO, Democrats and Republicans are farther apart than ever, and Elon Musk buying Twitter makes chances for agreement more slim as conservatives applaud a major platform being less willing to restrict politically relevant content

Is Big Tech Antitrust Pressure Making 2022 the Year for Federal Privacy Legislation?

Report from the Wall Street Journal

In Brief – Despite years of effort to enact comprehensive US federal digital privacy legislation, only to see hopes repeatedly dashed by partisan disagreement, there is an increasing sense that 2022 may be the year that the logjam in Congress will break. In recent years, some predicted that state-by-state privacy laws would create enough business concern over regulatory complexity to overcome corporate opposition to a new national regulatory regime, but that did not come to pass. Others believed that the EU’s General Data Protection Regulation (GDPR) and concerns over the US ceding leadership on tech policy would drive similar federal legislation, but it did not. However, as federal legislators look to the remainder of the 2022 legislative calendar, there is growing hope among supporters that a federal bill might be doable because the areas of substantive disagreement have been greatly narrowed in recent years, with private class action enforcement as the biggest hurdle left, as well as the fact that the tech giants, threatened by major antitrust legislation, may see major digital privacy legislation as offering federal lawmakers the chance to ring up a big online policy accomplishment in place of the antitrust reform bills.

Context – We’ve been following the slow but steady march of state privacy laws, with Utah the most recent, and noting that Democrats compromising on the inclusion of private class action lawsuits is the best predictor of success. When a “private right of action” is included to mollify progressive consumer advocates, it consolidates enough opposition from Republicans and business interests to stifle legislation. Left out, bills can move. We think that is the case for federal legislation as well. Short of a comprehensive online privacy bill, something more focused on new privacy rules for children and teens online might be an even better bet. However, standing in the way of any major bill is the likely reticence of Republicans to give the Democrats and President Biden a popular accomplishment before the elections.

CFPB Head Rohit Chopra Warns of Big Tech’s Financial Services Practices

Report from Reuters

In Brief – Rohit Chopra, the Head of the US Consumer Financial Protection Bureau (CFPB) and a recognized champion of aggressive consumer protection regulation, reiterated concerns with the growing influence of the largest digital platforms on consumer financial services and warned of the emergence of “a consolidated market structure where finance and commerce co-mingle fueled by uncontrolled flows of consumer data”. In his testimony before the Senate and House Banking Committees, he likened this development to the market structure in China, where Alipay and WeChatPay are the dominant payments services and are linked to the dominant ecommerce provider and the dominant messaging service, giving them access to “an extraordinary set of data about consumers and businesses, including financial businesses that they may compete with”. Chopra, who has been a lightning rod for Republican criticism with charges that he overregulates, exceeds the legal authority of his agency and threatens to stifle innovation, kicked off his tenure at the CFPB last fall by ordering the largest digital businesses, including  Amazon, Apple and Facebook, to hand over information about how they gather and use consumer payment data and their financial services plans.

Context – Chopra’s appearances on Capitol Hill only reinforce the reality that while Big Tech firms come in for harsh and regular criticism from both Democrats and Republicans, which it comes to the specifics of regulation there are vast gulfs between the two sides. Chopra and his plans for CFPB are a case in point, as is the ongoing Senate battle to fill his former Commissioner seat at the FTC with consumer protection advocate Alvaro Bedoya. Concerns with the impact of digital giants on the financial services system are not new, stoked by highly regulated incumbents businesses and their regulatory overseers. Case in point was the February report of the European Supervisory Authorities (ESAs) on Digital Finance.

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