News & Insights 2 old

September 2021

Facebook to Testify on Instagram Impact on Teens in Upcoming Senate Commerce Hearing

Report from CNBC

In Brief – Facebook’s Head of Global Safety will reportedly be the lead witness in a September 30th hearing of the Senate Commerce Consumer Protection Subcommittee on the impact of social media platforms on young users. Research by Facebook that found the company’s massively popular Instagram service appeared to negatively impact the psyche some young users, especially teen girls, was a major revelation in the multi-part Facebook expose in the Wall Street Journal built on a massive leak of company documents and emails regarding controversial company policies. The subcommittee is led by two of Capitol Hill’s most vocal Big Tech critics, Chairman Richard Blumenthal (D-CT) and Ranking Member Marsha Blackburn (R-TN).

Context – The Facebook leaks show that the company spent a lot of time, energy and resources to try to understand a wide range of challenges related to the use and impact of its gargantuan global social media platforms. While no one can say they ignored things, the public airing of internal debate, ideas and controversies is a mess. The first WSJ story detailed a Facebook system designed to keep automated tools used to stop objectionable material from shutting down the communications of “important” people without human oversight. That apparently grew to cover millions of users, including politicians. The innovative Facebook Oversight Board, which criticized special treatment for politicians in the context of President Trump, is going to review that system. Sens. Blumenthal and Blackburn have chosen to first focus on the Instagram report. “Protecting kids” from the evils of digital platforms may be the Big Tech reform with the best chance for winning broad bipartisan support in Congress. Facebook is certain to be raked over the coals on 9/30 like they were at a hearing last week. From a legislative perspective, if Congress regulates Instagram it will likely impact popular teen destinations TikTok, YouTube and Snap too. Maybe, like the Chinese Government, they will aim to police teen gaming too.

Tech Trade Groups Sue to Block Texas Social Media Content Moderation Law

Report from The Hill

In Brief – As expected, trade groups representing social media platforms have filed a federal lawsuit to block the recently enacted Texas state law regulating the content moderation practices of social media companies. Governor Greg Abbott (R) and most Republican lawmakers argue that the law is needed to address anti-conservative bias and censorship by large digital platform companies. Like a law passed this spring in Florida, which was successfully challenged in federal court by the same tech trade groups, the Texas measure prohibits large social media companies from blocking, banning, demonetizing or discriminating against a user based on their viewpoint, requires the platforms to disclose their moderation policies and actions, and creates an appeals process for users to challenge decisions.

Context – Sensing a Groundhog Day situation? Charges that the biggest social media platforms are ideologically biased have been simmering for years, but at this point 90% of Republicans suspect ideological motives behind decisions. Policies related to COVID and vaccines have accentuated partisan divides, with Democrats pushing platforms to block “misinformation” while Republicans defend the right to express alternative viewpoints. Federally, Congress is too divided to act on the underlying statute, Sec. 230, or anything else that would change the status quo. The politics are relatively clear in Republican-dominated states, hence laws passed in Florida and Texas. But the legal barriers are also relatively clear — the First Amendment rights of the platforms and the Commerce Clause establishing federal preemption by Sec. 230. To create a different spin, expect to hear more from Republicans that the largest platforms are “common carriers”, an argument raised by Supreme Court Justice Clarence Thomas. Globally, where governments are not constrained by the First Amendment, populist regimes in Poland, Hungary and Brazil pressing similar anti-bias legislation, while the EU, UK, Canada are going the other way to mandate how platforms address certain “misinformation”.

Amazon to Face Lawsuit Over Surreptitious Monitoring of Flex Driver Facebook Groups

Report from Reuters

In Brief – Amazon’s effort to avoid a class action lawsuit accusing the digital and logistics giant of invading the privacy of drivers who participated in the company’s “Gig” work Flex delivery program has been rejected by US District Court Judge William Hayes. Amazon is alleged to have monitored private Facebook groups used by Flex drivers while off duty, including using automated tools to intercept posts and gather information about planned protests, labor organizing, pay and benefits complaints, and whether drivers had been approached by researchers studying Amazon. The company attempted to have the complaints resolved through individual arbitration but the judge rejected the request ruling that the driver complaints did not arise from company actions related the drivers’ performance of services.

Context – Amazon is likely the largest Gig platform business of all, mastering the use of digital platforms to direct the provision of a service done by “independent” third parties. Gig platforms can rapidly scale because many of the investments related to labor, infrastructure, equipment or inventory are paid by the third parties. A key legal and policy question is the degree of control the platform exerts on the third-party providers, especially when a platform appears to be running a traditional business while shifting liability, regulatory or worker costs over to third-party users who are not actually “independent”. (See the distinction made by the CJEU between platforms AirBNB and Uber.) Amazon’s massive delivery network is built on two Gig platforms. One is a fleet of small delivery companies that Amazon sponsored, outfitted and retains. Amazon faces criticism for monitoring (including with AI-enabled cameras) and directing the drivers who work for those “companies” as if they were hired by Amazon directly, and the Amazon pressure leading to safety and worker concerns. Amazon also runs its Uber-style delivery platform for one-off drivers called Flex, which is at issue here and has faced criticism for worker misclassificationshirking safety and AI-enabled monitoring.

Facebook “Last Call” In Australia for Media Payments Deals May Lead to Showdown

Report from the Brisbane Times

In Brief – Facebook is reported to have informed Australian publishers that have not reached media content licensing deals that it had stopped negotiations and would encourage them to maximize benefits from free traffic generated by the site and explore deals with other large online sites. Talks to arrange content licensing deals between Australian media businesses and both Facebook and Google were spurred by enactment of the country’s News Media Bargaining Code, legislation aiming to force the giants to financially compensate traditional media enterprises when their content appears on the platforms. Facebook, like Google, has signed deals with a number of Australian media outlets, including News Corp Australia, Nine Entertainment, the Australian Broadcasting Commission, Guardian Australia and Junkee Media. However, some media enterprises that have arranged payments deals with Google, including TV broadcaster SBS and print site The Conversation, have not come to terms with Facebook. When The Conversation complained earlier this year about Facebook’s reticence to negotiate, Australia’s chief competition regulator indicated that it could lead to the appointment of a government arbitrator under the framework of the new law.

Context – Media businesses globally want government to force Google and Facebook to divert ad revenue to them. Australia and France have been most aggressive. Google and Facebook have put together billion dollar payment schemes, but negotiating deals with every “media” business in any country is a huge and complex task, especially when one side thinks the authorities will step in and set better terms. In France, Google has said they are willing to pay, but have been fined $593 million for not coming to acceptable terms quickly enough. As seen here, announcing “last call” on payments invariably leads to unhappy media enterprises feeling left out. Only last week, Australian radio stations announced they would negotiate collectively, indicating they think the bar will remain open.

32 State AGs Support House Anti-Big Tech Bills – Yes, It’s Mostly Democrats

Report from Reuters

In Brief – A bipartisan group of 32 US State Attorneys General, including six Republicans (ID, LA, NE, ND, TN and UT) sent a letter to congressional leaders urging them to enact the six antitrust reform bills passed by the House Judiciary Committee in June. Four are drafted to apply just to Amazon, Apple, Facebook and Google (and possibly Microsoft), making it harder for them to acquire smaller firms, mandating data portability and interoperability, preventing them from preferencing their own services or products on their platforms, and restricting them from operating multiple platforms that create a conflict of interest. Two of the bills apply more broadly, one raising federal fees on corporate merger reviews and the other allowing state attorneys general to keep antitrust cases in federal courts in their own states.

Context – When the anti-Big Tech bills passed the House Judiciary Committee the math did not look great for supporters. While Democrats have largely coalesced around a major antitrust overhaul and a willingness to take drastic action against Big Tech, even on the 44-seat House Judiciary Committee, where the Democrats hold a six-seat advantage, the most aggressive bills passed with margins of just one, four and six votes. On the House floor, there is just a 9-vote Democratic majority, and opposition from a number of California Democrats, and some moderates, is a big problem. The Republicans are even more divided. House GOP leaders criticize the anti-Big Tech bills as overly regulatory and are rallying around narrower efforts to repeal Sec. 230, ban social media “censorship”, and ease court processes to simply break up the covered companies. Rep. Ken Buck (R-CO), the top Republican on the House Antitrust Subcommittee, leads Republican efforts to pass the aggressive antitrust bills, but the increasingly broad and partisan competition policy efforts centered at the FTC under new Chair Lina Khan are creating Republican anxiety over a big change in the antitrust regime.

DoorDash Sues New York City Again – This Time Over Customer Data Sharing Mandate

Report from CNBC

In Brief – DoorDash has filed a federal lawsuit in the Southern District of New York to block a New York City law that requires food delivery services to share customers’ names, phone numbers, emails, and delivery addresses with a restaurant that fulfills a customer order unless the customer opts out on a per order basis. The new city ordinance goes into effect in December. In its complaint, DoorDash argues that customers entrust it with sensitive data that they might not entrust to small businesses that may not have equally robust data privacy and security protocols. The company also argued that restaurants will be able to use its trade secrets to compete directly with DoorDash, which does seem the point.

Context – Restaurants, many of them independent small businesses, have proven particularly influential in the largely local urban politics of the food delivery platform market. Commissions and fees charged to restaurants often amount to 30 percent. That is clearly high enough to lead to vocal complaints from many restaurant owners, but apparently not high enough to allow the major delivery platforms to be profitable. In addition, despite those fees, many driver advocates complain that pay is too low. Delivery apps were central to restaurant survival during pandemic shutdowns, but the fees sill rankled. Many large cities, including New York, imposed temporary regulations and fee caps. New York City made their fee caps permanent in August, at 15% for delivery services and 5% for advertising and other non-delivery services, and the major platforms filed a federal lawsuit to block the mandate. San Francisco has also made permanent the fee caps initiated in 2020, also prompting litigation. At the state level, the California legislature has been most active, most recently enacting AB 286, to prohibit delivery platforms from charging higher prices than those set by the restaurant, retaining any portion of tips, and requiring the platforms to provide a cost breakdown of each transaction to both customers and the restaurants.

Federal Election Commission Rejects Complaint that Twitter Illegally Aided the Biden Campaign

Report from the New York Times

In Brief – The Federal Election Commission (FEC), an election oversight body that has three commissioners from each of the two major political parties, has unanimously rejected a pair of complaints filed by the Republican National Committee arguing that Twitter and Snapchat violated federal campaign laws by engaging in content moderation to support the Biden presidential campaign. The claims involved the decision by Twitter to block distribution of a controversial late October New York Post article regarding emails obtained from a laptop that was alleged to have belonged to Hunter Biden, as well as a similar complaint targeting Snapchat for removing President Trump from its Discover feature. The FEC decisions recognized “difficult policy questions involved with social media moderation” that may be appropriately addressed by Congress while rejecting that they are campaign finance issues.

Context – Charges that social media content moderation is ideologically biased are only growing. It has emerged as a top Republican grievance nationally. Pew reports that 90% of Republicans suspect ideological motives behind platform decisions, but so do 59% of Democrats. Anti-abortion activists have long claimed ideological platform censorship. COVID and vaccines have more recently exposed partisan divides, with Democrats pushing the platforms to block “misinformation” while Republicans defend alternative viewpoints. Some progressives even call for platforms to block “climate misinformation” which would only amplify partisan divides. While the US Congress appears too divided to act on Sec. 230 or content moderation bias, Republican-dominated states, led by Florida and Texas, have enacted state laws. Florida’s has been halted by a federal judge and Texas’s is likely to follow. Internationally, populist regimes in PolandHungary and Brazil press very similar bias charges as Republicans while the EUUKCanada and others are pressing for government to determine and mandate action against classes of “misinformation”.

Indian Competition Authority Finds Google Abused Dominance in Restricting Device Makers

Report from Reuters

In Brief – A report of the Competition Commission of India (CCI) that is going through the final internal clearance process has found that Google abused the dominant position of its Android operating system in India to reduce the ability and incentive of device manufacturers to develop and sell devices operating alternative versions of the Android operating system. The report by the country’s antitrust agency, which follows a two-year investigation of Google’s Android practices, has not yet been shared with company representatives, but Google responded to the report saying that it looks forward to working with the CCI to demonstrate how Android has led to more competition and innovation.

Context – The reported Indian antitrust findings, coming on the heels of a fine and order by the Korean Fair Trade Commission regarding very similar Android practices, highlights the complexity of Google’s Android practices. Google has allowed the Android operating system code to be used by developers and device makers in a relatively free “open source” manner, but companies that produce devices or software that is branded as Android compatible (for example, using the green robot logo) must follow a range of contractual mandates. The code is open source but Android as a device ecosystem is not. An example in practice is Amazon’s wide range of Fire devices which use operating systems built on modified Android code but are not branded Android devices or Android compatible. While one of the three successful EU Competition Authority cases against Google also targeted the company’s restrictions on Android-branded device manufacturers, focusing on contractual restrictions related to pre-loaded apps like search, it is not surprising that Google’s Android practices are especially scrutinized in Korea and India, which are the two major markets where Android holds the largest operating system market share. For example, it is estimated that the market share for Android in India exceeds 95 percent!

Brazil’s Supreme Court and Senate Block President Bolsonaro’s Social Media Decree

Report from the New York Times

In Brief – The Brazilian Supreme Court and the president of the Senate have blocked the decree from President Jair Bolsonaro, a polarizing figure likened by many to former President Trump, that aimed to restrict the ability of social media companies to police online content and user accounts. Posts related to the COVID pandemic have proven especially problematic for President Bolsonaro and his supporters, with many limited or blocked for violating health misinformation rules on Facebook, YouTube and Twitter, resulting in claims that the platforms restricted speech in arbitrary and biased ways. The social media decree was a type of Presidential emergency order intended to address urgent situations that expires in 120 days unless Brazil’s Congress make them permanent. Along with the Supreme Court ruling that the decree was invalid for not addressing an emergency, the Senate’s president said that the body would not act on the measure and that the President could not propose them again this year.

Context – As the social media platforms have become a major (and sometimes the major) way people communicate, political and government leaders have become increasingly interested in policing discussions. Of course, they all insist on good motives. And the legal and regulatory regimes are different in each case, so the range of potentially acceptable interventions are different. While governments in Russia and India have gone to the extreme of threatening to jail executives to force platforms to ban (or not ban) accounts, accusations of ideological bias are emerging globally from leaders who believe that they have a different worldview than the leaders of US tech companies. Ruling parties in IndiaPolandHungaryFlorida and Texas are all pressing for similar limits on platform content restrictions as Bolsonaro. At the same time, the EUFranceUKGermanyAustraliaCanada and many Democrats in the US Congress are proposing that government require platforms to limit or ban some content.

The FTC Reports on Hundreds of Small Acquisitions by Big Tech Platforms

Report from Reuters

In Brief – After more than year of research, FTC reported on the results of its study of acquisitions relatively small firms by the five largest US digital platform companies. As a group, Amazon, Apple, Facebook, Google and Microsoft made 616 acquisitions over the previous decade where the value exceeded $1 million but the deals did not trigger the criteria for automatic review by the FTC or the Justice Department because the value clearly fell below the financial thresholds, was structured in a way that brought a deal below the cap, or was otherwise exempt. The FTC did not offer recommendations or conclusions regarding antitrust law.

Context – Acquisition reform is a major component of policy changes advocated by those looking to combat the growth and power of Big Tech. The biggest tech companies acquire smaller companies for a wide range of reasons, and if one thinks the tech giants are already “too big”, then stopping this simple path to getting bigger is easy to explain and understand. Big Tech critic Sen. Josh Hawley (R-MO) is very straightforward making that case. One step in the acquisition review process is notification thresholds. In the US, companies must inform antitrust officials about deals that exceed $368 million in value, while deals below that level but above $92 million involve formulas based on the assets and revenues of the firms. Acquisition targets have been accused of selling assets or structuring themselves to avoid review. A key change in acquisition review thresholds is underway in Europe where Austria and Germany have both made changes to require notification for deals that involve a relatively high price for a low revenue firm. As the German regulator puts it, that is “often an indication of innovative business ideas with great competitive market potential”. With all the talk of blocking acquisitions, many in the venture capital industry argue that actually stopping innovators from having their nascent businesses acquired by large firms will stifle what has been a key engine for entrepreneurship.

Irish Data Protection Commission Opens Two TikTok GDPR Probes

Report from the Financial Times

In Brief – Adding to the regulatory and legal signals that Chinese-based TikTok has ascended into the ranks of the global digital super elites, the Irish Data Protection Commission (IDPC) has announced that it is opening two investigations into the social media phenom’s data practices and compliance with the bloc’s General Data Protection Regulation (GDPR). The IDPC will examine TikTok’s handling of data for children under age 18, as well as its policies governing the transfer of personal data for EU users to third countries, in particular, China. The company, which created a European Safety Advisory Council this spring to help address concerns, responded to the news of the probes by stating it would fully cooperate with the Irish regulator and that it had implemented extensive policies to properly handle children’s data and comply with EU rules over data transfers to third countries.

Context – Ireland is home to the European headquarters of tech giants including Google, Facebook, Apple and Microsoft and under the GDPR’s “One Stop Shop” regulatory regime the IDPC is the lead privacy regulator for those companies. Many privacy advocates fault the IDPC for moving far too slowly to address privacy abuses, citing hundreds of GDPR complaints that remain unresolved, in many cases year’s after they were initially filed. While the IDPC begins GDPR investigations that may stretch a few years, TikTok is facing legal and regulatory scrutiny in many national markets. In July, the Dutch data protection authority fined the company 750,000 euros for failing to provide its privacy policy in Dutch, and three consumer organizations in the Netherlands have filed follow-on lawsuits claiming billions of Euros in damages. A similar collective action suit has been filed in the UK as well. The European Data Protection Board made up of 27 national privacy authorities has a task force to look into TikTok. The company has settled cases brought by Italian authorities, the Korean Communications Commission and the US Federal Trade Commission and faces ongoing probes in France and the UK.

Apple and Google Bow to Russian Threats and Block Political Opposition’s Voting App

Report from the New York Times

In Brief – After weeks of Russian Government pressure to ban the so-called smart voting apps of the political opposition led by jailed opponent Alexey Navalny, Apple and Google finally bowed to demands and removed the apps the day before the election under threats that in-country company executives would be jailed. While the ruling party of President Putin and parliamentary allies are expected to retain an overwhelming combined majority in the Russian Duma, opponents aligned with Navalny planned to use the apps to inform voters of the local challengers most likely to upset the ruling party and hold the margin down. The organizations and their online activities were outlawed by the government or otherwise designated as foreign interference in the elections. The Russian Government had increased pressure on digital companies all year as the opposition focused its efforts online with mixed reactions from the platforms. Russia’s leading domestic online platform, the search firm Yandex, is reported to have blocked a range of Navalny web sites and search terms related to opposition activity starting weeks before the election.

Context – National governments have two tools of last-resort to force digital companies to comply with demands. As we see in this case, when the company has in-country personnel, threatening to throw some employees in jail tends to do the trick. This is why Internet content regulation laws in Turkey and India include requiring social media companies to name in-country compliance officers. Those are people on the line to be threatened with jail. We saw it in action earlier this year in India. When dealing with digital platforms that do not have in-country employees, governments can order local network companies (who are filled with in-country personnel) to block the traffic of the offending sites. The Facebook ban in Uganda or Twitter in Nigeria are examples. If circumvention by VPN is too great, network companies can be ordered to shut down access to the Internet entirely, like Uganda did around its election.

Dutch Court Rules Uber Drivers are Employees and Due Taxi Driver Labor Benefits

Report from Reuters

In Brief – Uber has suffered another European court setback on the issue of whether drivers on the platform should be classified as independent contractors or Uber employees, with the Amsterdam District Court ruling that approximately 4,000 Uber drivers working in the Dutch capital should be classed as employees and granted benefits required under a collective labor agreement for taxi services in the region. Uber indicated it will appeal the decision and that “an overwhelming majority of the drivers wish to remain independent” and want flexibility in how they work.

Context – As Uber and food delivery platforms suffer more court setbacks in Europe (SpainFranceItalyUKNetherlands) keep in mind two things about independent work on digital platforms. First, a lot of people like flexibility and autonomy in their work and feel ill served by traditional jobs. Second, smart rulings on “independent work” consider how much control the platform exerts over the “independent” worker. In terms of European Gig work cases, the difference between how the ECJ ruled on AirBNB (more autonomy for “hosts”) compared to Uber (strong control over drivers) is still the smartest thing. This Dutch court considered this distinction, as did a Spanish court looking at rental platform VRBO. In terms of work models and personal desires, studies and surveys have found that most people engaged in independent work like it, highly valuing flexibility and autonomy, even with lower pay and few traditional benefits. However, about a quarter are consistently unhappy, want a traditional job and think they are mistreated. This unhappiness is driving much of the debate. Turning highly flexible non-traditional work platforms into traditional employers cannot serve both. For some new insights into views on traditional work models, look to how people are thinking about “return to office” policies and their desire to keep the flexibility, autonomy and lifestyle benefits of working on their own. Oh, and many traditional jobs are getting worse in terms of scheduling and pace.

Radio Stations to Collectively Bargain for Google and Facebook Payments in Australia

Report from MediaWeek

In Brief – Commercial Radio Australia, an Australian trade group representing over 250 commercial radio broadcasters, will be authorized to collectively negotiate with Facebook and Google for direct payments. The Australian News Media Bargaining Code, enacted earlier this year, requires Facebook and Google to financially compensate traditional media enterprises in Australia when news content they created appears on either of the platforms. The two digital giants have engaged in negotiations with the leading media businesses in Australia and have reached agreements with many of the largest. The law also authorizes media enterprises to choose to collectively bargain to reach agreement with the giants, which may prove more helpful to smaller players. The radio stations’ move for collective bargaining follows a similar designation for Country Press Australia to represent regional newspapers.

Context – The global media payments fight is about media companies looking for their national governments to force Google and Facebook to divert some ad revenue to domestic media enterprises to help address the impacts of digitization on traditional media business models. While the debate has focused on old line newspapers and other print media leaders, this move in Australia illustrates that the scope of “media” that appears on digital platform can grow very large. France and Australia have been most aggressive in forcing the largest platforms to pay their domestic media enterprises. Google and Facebook have responded by instituting multi-billion-dollar programs to pay media for using content in curated services to avoid crossing what appear to be their “lines in the sand,” which for Google is paying for basic search results, and for Facebook is paying for user posts and links. However, negotiating content deals with every “media” business in a country is a huge and complex task, in particular when one side thinks the government will step in and set terms in the case of an impasse.

KFTC Targets Google Policies Blocking Android “Forks” by Android Device Giants

Report from Reuters

In Brief – The Korean Fair Trade Commission (KFTC) has fined Google 207 billion won ($176.64 million) for abusing its dominant position in the Korean mobile operating system market and using contract terms to block Android device manufacturers from also using customized versions of the Android operating system (OS). Android’s share of the mobile OS market in Korea, home to Samsung and LG, two of the largest Android device manufacturers, is one of the highest in the world. Google is ordered to stop employing “Anti-Fragmentation Agreements” (AFAs) that prohibit device makers from selling branded Android devices and also devices built on modified versions of the Android OS. The KFTC argues that freeing Android device manufacturers to develop modified Android systems will expand innovation and consumer choice. Google argues that its policies to promote Android device compatibility benefit consumers and says it will appeal the ruling.

Context – The KFTC decision highlights the fact that while Google has allowed the Android OS code to be used by developers in a relatively free “open source” manner, manufacturers that produce devices that are branded as Android compatible (for example, using the green robot logo) must follow a range of contractual mandates. The code is open source but Android as a device ecosystem is not. An example is Amazon’s wide range of Fire devices. The operating systems are built on modified Android OS code, a “fork” as the KFTC calls them, but they cannot be branded Android devices and Amazon does not also manufacture branded devices. Google’s AFAs force manufacturers to choose to be part of the official Android system or build independent modified devices. The KFTC is challenging that long-time Google policy. One of the three successful EU Competition Authority cases against Google also targets the company’s restrictions on Android-branded device manufacturers, focusing on contractual restrictions related to pre-loaded apps. Google is appealing that 4.34 billion euro fine.

Irish Civil Liberties Group Adds to Criticism That Irish Regulator is Failing to Police Big Tech

Report from the Irish Times

In Brief – The Irish Council for Civil Liberties, a non-profit organization advocating for human rights and civil liberties, has produced a report calling the Irish Data Protection Commission (IDPC) the “worst bottleneck” for enforcement of the EU’s General Data Protection Regulation (GDPR). Ireland is home to the European headquarters of a number of the largest digital companies, including Google, Facebook, Apple, Microsoft and Twitter, and under the GDPR’s “One Stop Shop” regulatory regime the IDPC is the lead privacy regulator for those companies. The Council’s report claims that the IDPC has failed to rule on 98 per cent of 164 significant complaints about privacy abuses brought against tech companies, comparing the lack of follow-through with the Spanish privacy regulator, which it claims has produced 10 times more draft decisions with a smaller overall budget.

Context – Many privacy advocates blame the GDPR “One Stop Shop” policy for a lack of major penalties hitting big tech companies. Most of the largest US-based digital platforms (and TikTok, too) have located their European HQs in countries like Ireland or Luxembourg, putting their data commissions in the lead role on big cases. Earlier this year, public criticism of the IDPC by top privacy regulators of other EU member states led EU Commissioner Vera Jourova to call for an end to the spats and to urge regulators to work cooperatively. The “One Stop Shop” also took a hit in June from the EU’s top court when the ECJ ruled that the Belgian Data Protection Authority could initiate judicial proceedings against Facebook in Belgium when the IDPC chose not to pursue a complaint in Ireland. Finally, as the massive Digital Markets Act and Digital Services Act move through the EU’s legislative process, member states led by France, Germany and the Netherlands are leading efforts to cut back on the “One Stop Shop” policy in those regimes by expanding the authority of national regulators to enforce the many new mandates.

Food Delivery Battles Heat Up as Apps Sue New York City Over Fee Cap Legislation

Report from the Wall Street Journal

In Brief – Food-delivery app companies DoorDash, Grubhub and Uber Eats have filed suit in federal court to block legislation enacted by New York City in August that will cap commissions the platforms can charge restaurants at 15% for delivery services and 5% for advertising and other non-delivery services. Commissions and fees charged to restaurants often amount to 30%, a level which has led many restaurants to aggressively complain while market analysts note that the major players in the remain unprofitable. Many large cities, including New York, imposed temporary regulations, including fee caps, on restaurant delivery apps in 2020 when the pandemic forced many restaurants to shut their dining rooms and more consumers turned to apps for delivery. The platforms argue NYC’s permanent price controls unconstitutionally interfere with freely negotiated contracts can that the regulations will harm consumers, delivery drivers and restaurants. Unlike many food delivery markets, New York City is not dominated by one of the major apps, with all three estimated to hold shares from 30 to 40 percent.

Context – If you are looking for a deep dive on the food delivery world in New York, this expose is for you. New York City’s move to make delivery fee caps permanent follows similar action by San Francisco. The delivery apps sued SF as well. Capping fees will also likely reduce delivery pay. In Chicago, the city has filed twin lawsuits against DoorDash and Grubhub, accusing them of deceptive business practices. At the state level, the California legislature has been especially active. Last August, they enacted legislation setting a range of sanitation standards on delivery apps and blocked apps from offering delivery from restaurants that do not expressly permit the app to carry their food, even though “unaffiliated” restaurants are not charged fees. This month, the state legislature enacted AB 286, which prohibits delivery platforms from charging higher prices than those set by the food facility, retaining any portion of tips intended for the delivery driver or for the food facility, and requires the platforms to provide a cost breakdown of each transaction to both customers and the restaurants.

Another Court Ruling on Amazon Gig Transportation Workers and Binding Arbitration

Report from Reuters

In Brief – The 3rd Circuit Federal Court of Appeals has added to the growing body of cases involving drivers on Gig work platforms attempting to avoid the binding arbitration provisions in the platform’s user agreement by appealing to the exemption included in the Federal Arbitration Act (FAA) for transportation workers engaged in interstate commerce. The plaintiff, Ryan Harper, was an Amazon Flex package delivery driver based in New Jersey who sued alleging the company misclassified him as an independent contractor and claimed Amazon could not force his case into arbitration because of the FAA exemption. While the District Court ruled that the case could proceed to discovery on the issue of whether Harper was a covered transportation worker, the Appeals Court sent the case back to the District Court to determine if the driver should arbitrate his claims under state law governing arbitration if the federal FAA does not apply.

Context – Mandatory arbitration is a common corporate legal tactic used to avoid expensive litigation, especially class action lawsuits. While widely used by tech companies, it is not remotely limited to them. Along with limiting consumer suits, arbitration agreements have been a common practice related to employment contracts. On the consumer front, Amazon made news recently by dropping its arbitration provision from its consumer user agreement and is allowing them to file lawsuits after enterprising class action attorneys filed tens of thousands of arbitration claims costing the company millions in fees. However, Amazon, possibly the largest Gig work platform company of all, is not dropping arbitration from agreements with the millions of sellers on its marketplace, many of whom have complained to the US Congress about how Amazon uses arbitration to avoid responsibility for practices harming sellers, or its many kinds of Gig drivers. The Gig driver issue might eventually end up in front of the Supreme Court as cases involving Uber in New Jersey and California, and Amazon in WashingtonMassachusetts and New Jersey pile up.

DC AG Expands Antitrust Suit That Accuses Amazon of Driving Up Prices Off Amazon

Report from the Washington Post

In Brief – The Attorney General of the District of Columbia (DC AG) has expanded the antitrust suit filed against Amazon in May that charges the ecommerce marketplace and logistics behemoth with anticompetitive conduct that protects sales on Amazon from low price online competition by driving up prices elsewhere on the Internet. The original complaint focused on Amazon’s “price parity” or “MFN” practices that block “third party sellers” (TPSs) who sell on the Amazon marketplace from offering lower prices on any other website. While Amazon claimed to abandon their MFN practices in Europe in 2013 and in the US in 2019, many TSPs claim that they face the same policy enforced by Amazon through its Buy Box algorithm that penalizes sales on Amazon if TSPs sell for less elsewhere. That drives many TSPs to raise prices off Amazon, even when fees are less and would allow lower prices. The amended complaint adds an Amazon practice called Minimum Margin Agreements (MMAs) that push Amazon’s wholesale suppliers for Amazon “first party” retail sales to likewise raise prices off Amazon. MMAs require a wholesale supplier to pay money back to Amazon if Amazon lowers its price to match prices available in other online venues and its profit margin falls below the MMA level. Like TSPs responding to MFN policies, suppliers allegedly respond to MMAs by ensuring the goods they sell do not appear cheaper online off Amazon to ensure they are not financially penalized by Amazon.

Context – Among US competition enforcers, the DC AG is furthest along in understanding the Amazon commerce model. Amazon is dominant in ecommerce marketplace sales, critical to small and mid-size product sellers, and ecommerce logistics services. DC AG alleges that the company uses its control of the marketplace to push sellers into the high price logistics service, while protecting both platforms from low-price competition, and harming consumers, through MFN and MMA practices. Regulators in Brussels and Italy have been ahead of the curve on Amazon and FBA logistics as well.

Epic Appeals Federal Court Ruling in Its Epic Antitrust Clash with Apple

Report from Reuters

In Brief – Epic Games has informed the Federal District Court for the Northern District of California that it intends to appeal the ruling handed down last week by District Court Judge Yvonne Gonzalez Rogers in its federal antitrust suit against Apple. The notice of appeal does lay out the legal arguments that the company intends to make.

Context – Epic Games has been engaged in a major global campaign to overturn the ability of Apple and Google to charge app developers fees reaching 30 percent. (See page 23 of the ruling to read more on the campaign.) Last week’s ruling is important because it sets the bar for how US Courts look at antitrust claims that allege the two giant mobile platform companies are monopolists dominating their own platforms, at least in the context of fee levels. Despite a surprising number of post-decision analyses describing the ruling as a decent result for Epic and aggrieved developers, based largely on a misunderstanding of what “steering” means, the Epic appeal illustrates that they basically lost. However, they are not giving up the US legal fight. They are fighting in many other arenas and conceding defeat in US federal court is too negative a signal. One arena is the US Congress and legislative efforts to change federal antitrust law, or simply regulate Apple and Google’s app stores directly, and advocates on Capitol Hill reacted to Judge Gonzalez Rogers’ ruling with those calls. In South Korea, legislation requires Apple and Google to allow developers to use alternative payments system, potentially circumventing fees. Epic has asked Apple to approve Fortnite with its alternative payments system. Apple has refused. The South Korea legislation is far more than a steering policy and Apple and Google may need to design some alternative systems to collect fees. Finally, examples of more compelling legal cases that might emerge include when a giant has two dominant platforms that feed off each other, or a platform giant that discriminates against platform users that compete with the giant’s other services.

Special Report – Epic v Apple Antitrust Ruling

If It Were a Boxing Match, Apple Scored a Technical Knockout Over Epic Games

Report from the Wall Street Journal

In Brief – Judge Yvonne Gonzalez Rogers has handed down her ruling in the Epic v Apple antitrust case, ruling that Apple is not a monopoly. Apple will not be required to change its “walled garden” iPhone operating system model in which users can only download apps through the App Store, and where Apple sets and enforces the rules, and charges fees, often at a level of 30%, which opponents call “monopoly rents” and the judge expressed deep skepticism in her lengthy ruling. On the biggest questions, Epic Games lost. However, the judge did rule that Apple engaged in anticompetitive “steering” by prohibiting app developers from informing users of alternative payments options outside of the iOS app itself and ordered Apple to immediately allow apps to inform users of payments options outside the Apple system. 

Context – Regardless of your view on the decision, Judge Gonzalez Rogers can be commended for two things at least. First, she pushed the pace and the world of digital public policy now has an initial federal antitrust decision on app stores in the US. By comparison, a hearing on Google’s motion to dismiss Epic’s suit against its Play Store is scheduled for this fall and if the full case goes to trial it is likely to occur well into 2022! Second, Judge Gonzalez Rogers was pretty transparent in her views. Going back to the earliest hearings in the case, she expressed to the Epic legal team that while their suit raised interesting questions, online gaming might prove a particularly bad case to argue Apple was a monopoly given so many options available for gamers and developers. In addition, she was quite open and direct at trial criticizing Apple’s anti-steering policies that she is now ordering them to change. As noted in our email on September 7, Apple’s recently announced settlement with the Japan Fair Trade Commission allowing “reader apps” to communicate with users about payments alternatives outside of Apple, which the company has said would be implemented globally, as well as a class action suit settlement offer to small app developers that is in front of Judge Gonzalez Rogers as well, propose changes to their policies on apps communicating with users on payments alternatives. Apple saw this component coming and is making changes.

I’m sure we’ll dedicate more space to how this likely plays out globally, but at a high level it reaffirms the conjecture that government regulation, rather than antitrust adjudication, is the more likely route if the two major app stores are forced to make major changes. Besides the no-brainer that some changes to in-app communications with users is coming for Apple, look for antitrust enforcers and regulators to focus more on potential discrimination in policies and enforcement by Apple and Google when their in-house apps compete with third-party apps. That was not an issue with gaming, but would be for music and many other kinds of apps. And with the recent legislation in South Korea in mind, Apple and Google will likely develop alternative fee billing arrangements for apps that choose not to use their payments service.

Australian High Court Rules Media Enterprises are Liable for Online User Comments

Report from Reuters

In Brief – The High Court of Australia has ruled that media companies that post content on social media pages that allow users to post comments are liable for defamation contained in the user comments regardless of whether the media enterprise was aware of the content. The plaintiff in the case appeared in a series of news stories in 2016 regarding abuses in the Australian youth detention system. The media companies’ online distribution methods included posting the stories on their Facebook pages that included allowing user comments. The plaintiff alleged that some comments were defamatory and sued three of the largest media companies arguing that they were legally liable as publishers because they invited comments. The High Court affirmed that view, following the New South Wales Supreme Court and then Court of Appeals.

Context – This is a very interesting case, but it is likely to be misunderstood. It is not about an Australian version of Sec. 230, although in the US, protection from liability for user generated content in comments sections, including for traditional media sites, is a major use case for explaining the role of Sec. 230. In short, the court ruled that user comments as part of online news sites are legally the same as traditional letters those media enterprises choose to publish. If comments appear on the media enterprises’ page, the enterprise is the publisher and responsible. Arguments that there are too many online comments to police did not hold sway. Many argue that this will soon extend to all Australian sites with comments, leading to a drastic reduction of user speech across the board. Facebook, by the way, recently gave Australian users the ability to turn off comments. Sec. 230 defenders in the US argue the same would happen in the US without Sec. 230. Ironically, while Sec. 230 protects US websites from legal liability for user comments, it also enables platforms to penalize sites who allow user comments if those user comments break platform rules.

Europe’s Top Court Again Rules “Zero Tariff” Policies Violate EU’s Net Neutrality Rules

Report from Euractiv

In Brief – With its second ruling in two years against mobile phone “zero rating” offers, the European Court of Justice (CJEU) is making it clear to telecom companies, online services providers, and consumers that offering to exempt some online applications and behaviors, even popular ones, from customer data caps is a violation of the EU’s net neutrality rules enacted in 2015. NN advocates argue that the practice (also called “zero tariff”) violates the level playing field principle of the open internet and distorts online activity. Last year, the CJEU ruled against a straight-forward plan from Telenor in Hungary that exampled a range of popular applications, including Facebook and Twitter, from data caps. The latest ruling overturned offers from Vodafone and Deutsch Telekom in Germany that allowed customers to use services in Germany without data caps if they accepted slower data speeds when roaming outside Germany. EU rules, however, require mobile operators to allow customers to roam across the EU “like at home,” and the CJEU determined that the plans violated “the general obligation of equal treatment of traffic, without discrimination or interference, as required by the regulation on open internet access.”

Context – Net neutrality debates stretch back to the mid-2000’s. While behaviors such as web blocking and throttling remain relatively rare, practices such as “paid prioritization” and “zero rating” are more challenging from a net neutrality perspective. While the EU has moved forward in a relatively straight line, the story in the US has been different. The Obama FCC enacted NN rules in 2015, which were overturned by the Trump FCC in 2017. Federal courts upheld both. California enacted its own NN law in 2018 which is also being challenged in court. While President Biden has been a consistent advocate of “strong” net neutrality, he has not nominated a third Democratic commissioner to the FCC and is facing increased criticism from consumer and NN advocates for delaying their drive to restore national NN rules that will address issues like zero rating plans.

Brazilian President Signs Decree Limiting Social Media Platforms Content Moderation Practices

Report from the BBC

In Brief – Brazilian President Jair Bolsonaro, a polarizing figure likened by many to former President Trump, has signed a decree aiming to restrict the ability of social media companies to police online content and user accounts. He argued that regulatory changes were needed to protect freedom of speech and stop the “arbitrary removal” user of profiles. Posts related to the COVID pandemic have proven especially problematic for President Bolsonaro and his supporters, with many limited or blocked for violating health misinformation rules on Facebook, YouTube and Twitter. The decree was announced as thousands of his supporters converged on Sau Paulo and Brasilia to rally in marches to protest the country’s Supreme Court and political opposition in the Congress. Last year, Facebook complied with an order from the Supreme Court to block the accounts of dozens of Bolsonaro supporters accused of spreading misinformation about federal judges.

Context – Shockingly, there is rarely consensus on what constitutes “censorship,” “misinformation,” acceptable online topics and the role of digital platforms or governments to set standards on political speech. On one extreme is the digital ecosystem in China. Then there are aspirational social media regulations in Turkey and India aimed at forcing the platforms to respond to government concerns. In Russia, the competition regulator has accused YouTube of discriminatory conduct taking down pro-government videos, and the government has called on Google and Apple to block an election app used by political opponents. Nigeria and Uganda have banned social media platforms that enforced content rules on top government leaders. Like in Brazil, ruling parties in PolandHungaryTexas and Florida charge platforms with ideologically discriminatory content moderation and propose limiting platform authority. The EUFranceUKGermanyAustralia, and Canada are also directing content moderation, proposing that government set standards requiring online platforms to limit or ban some content.

GAO Report Highlights Growing Use of Facial Recognition in Federal Agencies

Report from The Hill

In Brief – The US Government Accountability Office (GAO) reports that 18 of the 24 federal agencies it surveyed currently use facial recognition technologies. The most common use case, by 14 agencies, was to permit employees to access their digital devices. However, six use the technology to generate leads in criminal investigations and five use it for physical security, including scanning real time surveillance video to try to identify people on a watchlist. Finally, ten large agencies, including Homeland Security, Justice, Treasury and Defense reported plans to grow their facial recognition capabilities in the next few years. The GAO found that Clearview AI, the controversial facial recognition service built on billions of photos scraped from the largest social media platforms, was being used by the Justice Department, Immigration and Customs Enforcement, and the Air Force, while officials in other agencies admitted to asking agents of state or local law enforcement entities who procured the service to run pictures through the system and share the results with them.

Context – Facial recognition-enabled surveillance is one of the most controversial “AI” technologies. The European Commission’s legislative package on AI limits but does not prohibit real-time use of biometric surveillance by law enforcement and courts in the UK, where public video surveillance is commonplace, are setting law enforcement parameters as well. Three US states have recently legislated some limits, with Maine taking the most aggressive action this summer, following Massachusetts and Virginia where more robust law enforcement carveouts were included. Progressive leaders in the US Senate and House have proposed banning its use by federal law enforcement, and Sen. Jeff Merkley (D-OR) has proposed a complete federal moratorium, a policy reiterated by a coalition of 40 racial justice and civil liberties groups. The bipartisan “The Fourth Amendment Is Not For Sale Act” would prohibit federal law enforcement agencies from accessing Clearview AI via non-federal law enforcement colleagues.

Google Appeals French Competition Authority Fine in Media Payments Showdown

Report from Reuters

In Brief – In the latest legal maneuver over the effort by French media companies and the French Government to force Google to pay them when media content appears in Google search results, Google has appealed the 500 million euros ($593 million) fine imposed in July by the French competition authority. The regulator penalized the company for failing to reach agreements with media companies to compensate them when their content appeared in search results. When France legislated new “neighboring rights” in copyright law in 2019 and required that media companies be paid when news story snippets appeared in Internet search results, the regulator warned Google that simply ending snippets, as the search giant had done in other countries, would be considered an abuse of dominance and ordered the company to negotiate payments. In its appeal, Google affirms that it respects the new neighboring rights, contends that its efforts to negotiate media agreement have been sincere and comply with the new law, but that the large fine is disproportionate and that the corporate talks should be given more time.

Context – Not unlike the fight over app store payments, which boil down to app develops looking for government to mandate lower commissions for Apple and Google, the global media payments fight is about media companies looking for governments to force Google and Facebook to divert some ad revenue to media enterprises. France and Australia have been competing to be the most aggressive on behalf of media companies. Google and Facebook have responded by instituting multi-billion-dollar programs to pay media for using content in curated services to avoid crossing what appear to be their “lines in the sand,” which for Google is paying for basic search results, and for Facebook is paying for user posts and links. However, negotiating content deals with every “media” business is a huge and complex task, in particular when one side thinks the government will step in and set terms in the case of an impasse.

Nigeria’s Twitter Ban Remains in Place Despite August Hopes It Would Be Lifted

Report from PUNCH

In Brief – Despite expectations rising through the month of August that the Nigerian Government’s ban on the use of Twitter in the country would be lifted, the head of the Nigerian Communications Commission (NCC) has informed the country’s network operators and mobile telecommunications companies that no changes in government policies have been made. Nigeria suspended Twitter (over Twitter) in early June, accusing the platform of repeatedly allowing misinformation and fake news to spread through the country with “real world violent consequences”. The ban followed the social media platform deleting a controversial tweet made by the country’s President, in which he threatened to punish secessionists, as well as temporarily freezing his account. Nigeria’s telecom companies implemented the government order, largely blocking direct access to the platform, but many Nigerians reportedly employed VPNs to bypass the domain restrictions. The head of the NCC has indicated that the company has agreed to address seven of the ten government demands but that the current policies would likely remain in place for the remainder of the year.

Context – The Nigerian Government efforts to turn off Twitter parallel the Ugandan Government’s Facebook shutdown. The Ugandan Government shutdown the entire Internet in the country for a week in January surrounding the country’s national elections, and social media sites were down for nearly a month. But the government continued to block Facebook, which has been widely used by the political opposition. Ugandan Government frustration with social media had previously led to it instituting an “over-the-top” (OTT) services tax that required mobile providers to charge users 200 schillings a day ($.055 US) for using 50 communications apps including Twitter, Facebook, and WhatsApp. However, Ugandans widely adopted VPN services to circumvent the levy through non-Ugandan servers, which led the government to propose replacing the OTT tax and with mobile data usage tax.

Texas Republicans Finally Follow Florida with Social Media Content Moderation Regulation

Report from Houston Public Media

In Brief – After falling short in the final days of the regular legislative session in May due to procedural maneuvers by Democrats that ran out the clock, the Texas State House and Senate have passed a bill on the hot-button Republican issue of regulating the content moderation practices of giant social media platforms to end alleged ideological censorship. The bill, expected to be signed by Governor Greg Abbott (R), is similar in effect to a measure enacted this spring in Florida, and aims to prohibit large social media companies from blocking, banning, demonetizing or discriminating against a user based on their viewpoint, disclose their moderation policies and actions, and create an appeals process for users to challenge decisions. Like the Florida law and similar bills considered this year in states where the legislature is firmly controlled by Republicans, the Texas legislation has been criticized as being unconstitutional and is certain to be quickly challenged in court.

Context – When Florida’s social media regulation law was blocked by a Federal Judge, I was reminded of Casablanca’s Captain Renault being “shocked” that gambling was going on in Rick’s Café Américain. Expect the same near-term outcome in Texas. But that that won’t change the politics. Social media “censorship” has quickly become a top Republican issue nationally. Pew reports that 90% of Rs suspect ideological motives, but so do 59% of Democrats. On substance, the two main legal barriers to state laws such as these are high. Section 230 is very clear on the moderation authority of digital platforms and the chances that Democrats and Republicans in Congress will agree on “censorship” changes to Sec. 230 are slim. The 1st Amendment rights of platforms to manage their sites seem very clear as well. That said, expect to hear more from Republicans about Justice Clarence Thomas’s ideas on regulating large social media platforms which includes various legal and regulatory theories, and more “common carrier” type ideas.

Apple Agrees to Allow Digital Subscription Apps to Alert Users to Other Payment Options

Report from the New York Times

In Brief – Apple has agreed to allow developers of “reader apps” to communicate with users in their app regarding payment options outside the app itself. The change was made as part of a settlement with the Japanese Fair Trade Commission. Reader apps are described as services that provide content such as e-books, video and music, such as Netflix of Spotify, that do not offer a free tier with incremental payments for additional content. Covered reader apps will be able to let users know, in the app, that additional payments can be made outside the app, which would avoid Apple’s current method for collecting a commission. Apple will implement the change globally. This is the third incremental change in Apple’s App Store policies in recent weeks, following a proposal to lower commissions to 15% for media services participating in Apple News and a class action settlement offer in US Federal Court to allow small developers to communicate with users outside their app to encourage alternative payments options.

Context – The string of changes in Apple policies are a preface to the upcoming ruling from Judge Yvonne Gonzalez-Rogers in the blockbuster Epic v Apple antitrust trial. The JFTC and small developers settlements change Apple “anti-steering” policies restricting how developers can communicate with their users. Gonzalez-Rogers was quite critical of the practice in the trial. But the big developers are not satisfied with the proposed changes. Payments service competition is not the real issue. They want governments to lower the fees collected by Apple and Google. As is clear from Google’s statement in response to South Korean legislation requiring Google and Apple to allow developers to use other payments, the next step might be an alternative fee collection regime, noting that “just as it costs developers money to build an app, it costs us money to build and maintain an operating system and app store. We’ll reflect on how to comply with this law while maintaining a model that supports a high-quality operating system and app store.”

Progressive Groups Urge FTC to Block Amazon’s Bid for MGM as More Than a “One-Off Deal”

Report from Deadline

In Brief – A collection of 33 progressive organizations and the Los Angeles-based Writers Guild of America West have sent a letter to the Federal Trade Commission (FTC) urging the regulator to block Amazon’s effort to buy Hollywood studio MGM. Amazon’s $8.45 billion bid for MGM is the second largest acquisition in its history. The FTC’s review offers Chairwoman Lina Khan, who rose to prominence criticizing the traditional antitrust legal framework for failing to address abuses by Amazon, an opportunity to challenge the platform giant’s unique business model that bundles services like digital video in with its ecommerce offering and gives them to Prime customers. The letter dispenses with traditional discussions of market shares and prices (the only number included is the price Amazon paid for the studio), arguing “it is not simply a one-off deal for streaming content; it is the latest move in Amazon’s overarching strategy to create numerous interconnected points of dominance over businesses and consumers” that the conglomerate uses to “weaponize them against workers, businesses, and ultimately consumers.”

Context – Amazon’s MGM bid offers Biden Administration antitrust regulators an excellent opportunity to try out new competition enforcement thinking. Rejecting the deal based on traditional antitrust analysis will be a longshot. MGM is not considered a major studio and Amazon holds less than a 20% share in the video streaming market. (This opposition letter from four labor unions at least tries to make a case based on market shares and numbers.) But it is noteworthy that Amazon reportedly paid a 40% premium over offers from large platforms like Apple, and yet rarely charges directly for Prime Video subscriptions, instead giving it away as one of the many Prime Membership benefits. Delving into its complex and little-understood business model and determining in what market the payoff comes may be the direction pursued by Khan (and Amazon has petitioned to have her recused) and her FTC team.

EU Extends Deadline for Review of Facebook’s Kustomer Deal as Tech Merger Standards Shift

Report from Reuters

In Brief – The European Commission’s Competition Authority (ECA) has announced that it is extending the deadline for the second phase of its investigation of Facebook’s acquisition of Kustomer, a US-based customer relationship management (CRM) software startup, until January 7, 2022. When the deal, reportedly in the range of $1 billion, was announced last November, the social network and digital advertising giant described it as a bid to grow Kustomer’s CRM business as well as the utility of Facebook’s messaging service WhatsApp for business users. The deal did not trigger the revenue-based threshold for review by the European Commission, but the Austrian Competition Authority claimed that it met its newly revised national merger review threshold based on purchase price. Austria opened a review and then transferred the brief to the ECA using Article 22 of the EU Merger Regulation. The ECA proceeded to a second phase review based on concerns with markets for CRM software and online display advertising services.

Context – While a rethink of acquisitions by giant platforms has been discussed as part of the Big Tech antitrust agenda for years, some potentially groundbreaking reviews are now in the pipeline and may signal a meaningful shift. Along with Austria, Germany has also adopted an acquisition price-based review threshold in order to investigate relatively high-price (above $400 million), low revenue acquisitions, which it says is “often an indication of innovative business ideas with great competitive market potential”. The German regulator is now also opening an investigation of Facebook-Kustomer. Also, the UK’s CMA is well into a second-phase review of Facebook’s acquisition of GIF platform Giphy, which is also not a profit-making business, and is calling for the deal to be unwound. Finally, it’s not just digital giants. The EU is challenging the acquisition of medical technology company Grail by Illumina, also based on an Article 22 referral. In all of these cases, the acquisition target was a relatively small US firm with no operations in the EU.

Amazon Begins to Lobby Third Party Sellers to Lobby Congress Against Big Tech Bills

Report from CNBC

In Brief – Amazon has begun to encourage third-party merchants through emails and a campaign website to get involved in lobbying Congress against bills aiming to regulate Amazon and the other largest digital platforms. Amazon has been discussed as being especially vulnerable to the Ending Platform Monopolies Act, sponsored by Rep. Pramila Jayapal (D-WA) and recently passed by the House Judiciary Committee, which proposes breaking up dominant platform companies that operate business lines that pose a clear conflict of interest with users of the platform, as well as preventing the platforms from linking the purchase or use of a service in exchange for access to the platform. Amazon claims the legislation could block it from allowing third-party merchants on its marketplace. However, Rep. Jayapal has indicated that the more likely problem for Amazon would be its policies that link use of Fulfillment by Amazon for warehouse storage, packing and shipping in exchange for better placement in Amazon search results.

Context – One of the biggest misconceptions in the Big Tech debate involves Amazon’s role as a traditional retailer, albeit armed with the largest digital services infrastructure, and the role of third-party sellers. Many mistakenly think Amazon wants to out-sell the third-party sellers and the success of those sellers is a reflection of those smaller merchants out-competing Amazon. Amazon’s 2018 shareholder letter said as much. In fact, third-party sellers sell more than 60% of the volume on Amazon because those sales are far more profitable for Amazon. Instead, the key Amazon commerce strategy involves linking FBA logistics to third-party sales, giving Amazon retailer-style control of the products and the customer experience while also maximizing revenues and reducing risk. This is why Amazon so aggressively pushes sellers to use FBA. Amazon would more likely spin-off their low-margin retail business than drop third-party selling. But if they can’t link FBA and third-party sales their core strategy is at risk.

Google Asks Court to Dismiss Ohio AG’s Suit Claiming Google Search is a Public Utility

Report from The Hill

In Brief – Google has filed a motion to dismiss the novel lawsuit filed by Ohio Attorney General Dave Yost (R) in June that seeks to declare the digital giant’s search business a public utility or “common carrier” that should be subject to state government regulation to prohibit the company from preferencing its own products, services or websites in search results. The lawsuit is based on a century-old state statute historically used to regulate railroads, electricity and the telephone and argues that Google’s dominance in search results brings a duty to offer competitor services equal treatment on the Google search results page. Google argues that Ohio law defines common carriers as businesses that charge a fee to deliver a standardized service, which Google does not do, as the company does not charge users for search results and attempts to provide “results tailored to a specific query”. Google further argues that even if the AG’s contentions are accurate, which the company disputes, designating Google as a public utility for being popular with users would not be any more valid under state law than declaring a large retailer or news outlet a public utility in Ohio towns where they enjoy large market shares.

Context – Google is more than a decade into facing antitrust complaints charging that it discriminates against specialized “vertical” search services in its dominant general Internet search service. The EU’s initial antitrust “comparison shopping” case is a version of the same argument. More recently, a coalition of vertical search businesses called on the European Commission to investigate Google’s “OneBox”, search discrimination is the focus of one the two US State AG complaints, and self-preferencing is the subject of an Android Auto investigation in Italy. However, the claim that the largest platforms are “common carriers” is also increasingly being pulled into the debate over “ideological censorship” raised by Republicans and Supreme Court Justice Clarence Thomas who aim to regulate content moderation.

App Developers Claim Big Legislative Win Over Google & Apple in South Korea

Report from CNBC

In Brief – The South Korean National Assembly has passed a bill to overturn the business models of the Apple and Google app stores, requiring them to permit apps to use alternative payments services for in-app payments and prohibiting the platforms from penalizing app developers that choose alternatives. While both mobile platform giants often charge app developers 30% commissions for revenues earned on their mobile apps, they otherwise have very different models. While Apple’s walled garden” has faced more criticism in the US and Europe, Google is more in focus in Korea (and India) due to Android’s operating system shares in those markets. The Coalition for App Fairness, a global advocacy and lobbying organization that argues Apple and Google are monopolies, applauded the South Korean legislation and called for other governments to follow suit.

Context – With just two giant smartphone platforms (outside China) but millions of app developers globally, the politics for Apple and Google are tough. They may be two of the richest companies, but app developers like Epic Games and Spotify are worth tens of billions and are investing in legallobbying and regulatory campaigns in many countries. Apple and Google are asking the US Government to step in to protect their businesses. The fight over “payments” is NOT about competition in payments services, it is about Apple’s and Google’s fees. The platforms use their in-house payments service to collect their fees without having to rely on billing or collections. Whether the 30% fees, a level in-line with a wide range of digital marketplaces, are legally justified, is the real issue. Three things to keep in mind – (1) We should soon learn how one US Federal judge thinks about fees when Judge Gonzalez-Rogers rules in the Epic v Apple antitrust case. (2) The Korean legislation highlights the emerging legal, policy and business challenges of governments regulating US-based “global” digital services in ways that may prove contrary to US law and policy. (3) Will the two mobile giants try to establish other billing systems to collect the same fees?

UK CMA Announces Provisional Decision That Facebook’s Giphy Deal Should Be Unwound 

Report from the Wall Street Journal

In Brief – The UK Competition and Markets Authority (CMA), the country’s competition regulator, which is engaged in a review of Facebook’s 2020 acquisition of GIF website Giphy, has provisionally found that the merger would substantially lessen competition in markets for social media services and online display advertising, two markets in which the CMA has determined Facebook has significant market power. As part of its merger review, the regulator found that Giphy had begun offering advertising services is the US, was exploring overseas growth including to the UK, and that Facebook’s acquisition would prevent the platform from emerging as a display ad competitor. The CMA also believes it is likely that Facebook would restrict access to Giphy’s inventory to undermine rival social media competitors such as Twitter. Facebook had appealed to the UK’s Competition Appeals Tribunal that the CMA had overstepped its authority but that appeal was soundly rejected by the court. The CMA has now indicated that it believes unwinding the acquisition is the one remedy that will address the competition problems. Facebook has until October 6, when a final decision is due, to address the regulator’s concerns.

Context – The CMA’s review of Facebook’s acquisition of Giphy is emerging as an important test case of a potential global rethink of acquisition policy for tech giants. When initially reported, some charged Facebook with trying to replay its 2013 acquisition of Onavo to engage in “digital surveillance” to identify “killer acquisitions”. Not anymore. Now, the CMA is casting Giphy, a non-profitable digital enterprise with a nascent advertising business, in the role of Instagram or WhatsApp, a small firm that some claim could grow into a major competitor. As the CMA tests its authority to quash a deal by a global platform, and there is bipartisan talk in the US Congress of an acquisition review overhaul, tech and VC financiers are raising warnings that restricting acquisitions would undermine the US entrepreneurial ecosystem.

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