News & Insights 2 old
COPPA Expansion Again in Spotlight with Castor Kids Privacy Act
Report from the Washington Post
In Brief – Rep. Kathy Castor (D-FL) has added to the legislative support for expanding the coverage of the Children’s Online Privacy Protection Act (COPPA) by re-introducing the “Kids PRIVCY Act”. The bill expands COPPA, which currently governs web services targeting children under age 13, up through 17 year-olds. Expanding children’s online privacy rules to young people under 18 parallels the guidance of the UK’s Information Commissioners Office (ICO) and is one of a number of provisions in the legislation drawn from the ICO’s Age-Appropriate Design Code that goes into effect in September. Castor’s bill would ban targeted ads based on a teen’s online activity, require sites to get permission before collecting, using or selling the data of users younger than 18, and apply to all sites used by youngsters, not just those that specifically cater to them. The bill provides parents with a private right of action against companies as part of the enforcement regime, a controversial provision in other privacy bills.
Context – While both major parties sound equally angry at Big Tech, they are often speaking different languages when it comes to most policies, especially online “misinformation” or ideological “viewpoint censorship”. However, one topic where the two sides might be able to come together appears to be regulating how websites deal with young users. It was very noteworthy that when the CEOs of Google, Facebook and Twitter appeared before the House Energy & Commerce Committee in April, that Republicans spent more time talking about the platforms harming young people that even the conservative mantra of ideological platform bias, and imposing new regulations on large websites related to impacts on children is a major component of a wide range of draft Republican bills to rewrite online regulation. Democrats have called for expanding COPPA for years, and a recently introduced Senate bill with bipartisan sponsors would expend COPPA coverage up to age 16.
FTC Republicans Voice Concerns with More Partisan FTC Policies
Report from Reuters
In Brief – A hearing of the House Energy & Commerce Committee to discuss bills to reform the Federal Trade Commission (FTC) offered the first opportunity for FTC Chair Lina Khan to appear before the Congress in her new role, as well as giving the Republican FTC Commissioners an opportunity criticize the new leadership for moving too quickly on decisions, leaving too little time for debate, and assuming too much power. Khan has changed the FTC practice of deliberating and voting in private meetings that some argue promoted consensus building, moving to holding public meetings and votes, including recent 3-2 votes along party lines to expand the authority of FTC staff to carry out investigations, and discard a policy position instituted during the Obama Administration to base FTC antitrust complaints on court-approved jurisprudence including the consumer welfare standard, which has been much maligned by progressive antitrust reformers including Chair Khan before she joined the Commission.
Epic Games and State AG Suits Targeting Google Play Store Combined for October Hearing
Report from The Verge
In Brief – Following the late June filing of a new antitrust complaint targeting Google’s Play Store policies and fees by a coalition of State Attorneys General, Epic Games, who kicked off a global legal and regulatory battle against app store giants Apple and Google last August, filed an amended complaint against Google adding some additional allegations. Federal Judge James Donato, who is overseeing the growing number of antitrust cases targeting Google’s Play Store, has ruled that Epic’s complaint, the new lawsuit from the State AGs, as well as two other Play Store-related complaints, should be combined into a single proceeding, at least for the purposes of preparing for trial. The growing collection of litigants have agreed to a slightly delayed schedule to address Google’s Motion to Dismiss the complaints before trial. Google now has until August 20 to file its motion to dismiss. The hearing is scheduled to start October 14.
Context – Despite neither Apple nor Google being dominant in smart phone operating systems, app store fees and policies have emerged as a leading digital competition issue globally. Both companies often charge 30%, a rate in line with many digital services marketplaces, but they otherwise have always had very different models. Apple’s restrictive “walled garden” initially was more in focus with US and EU regulators, and has drawn intense criticism from super giants Facebook and Microsoft. Google has had more permissive app policies but has faced growing scrutiny, especially in markets like India and Korea where Android devices have very large market shares. Apple and Google may be two of the world’s most valuable companies, but developers like Epic Games are worth billions and are willing to spend millions on lobbying, regulatory and legal fights. The headline legal event remains the Epic v. Apple trial. An initial decision might come as early as August, providing initial insights into how US judges will evaluate market definition, pricing and legal questions.
Appeals Court Allows Indian Competition Probe of Amazon and Flipkart to Continue
Report from Reuters
In Brief – The High Court in the southern Indian state of Karanataka has dismissed appeals by Amazon and Flipkart that aimed to halt the Competition Commission of India’s (CCI) investigation into their business practices. The CCI initiated the investigation last year following years of complaints that the US firms (Flipkart is owned by Walmart) violated Indian law by promoting select sellers on their ecommerce marketplace platforms in an effort to circumvent laws prohibiting foreign owned retail businesses. The CCI’s investigation was delayed for more than a year by court challenges, but it was reinstated by the court in Karanataka in June. The two ecommerce giants have now run out of appeals in the state courts and both have filed appeals with the Indian Supreme Court to again shut down the investigation.
Context – Both US-owned ecommerce businesses have faced years of accusations from Indian retailers that they violate the country’s foreign direct investment (FDI) laws that allow ecommerce marketplaces to be foreign-owned but prohibit FDI in multi-brand retail, online or offline. A Reuters expose in February that was allegedly based on internal Amazon documents detailed the company’s questionable practices, and Flipkart argues that no similar evidence related to its business has been compiled by the CCI. While the CCI reviews the alleged conduct from a competition law perspective, the FDI enforcement agency has an ongoing investigation as well. In addition, new ecommerce rules are expected to in place soon, further reinforcing that marketplaces cannot preference any sellers. Finally, a new chapter in Indian ecommerce may be opening with the emergence of Reliance Industries, the conglomerate run by Mukesh Ambani, as a top Indian-owned ecommerce player. Reliance and Amazon have been engaged in court battles since last year over Reliance’s effort to acquire the retail and logistics assets of Indian retailer Future Group, a move Amazon claims to be able to contractually block.
EU Review of Facebook’s Kustomer Deal Reflects Shift Against Big Tech Startup Bids
Report from Reuters
In Brief – The European Competition Authority (ECA) is expected to proceed to a full investigation of Facebook’s acquisition of Kustomer, a US-based customer relationship management (CRM) software company. When the deal, reportedly in the range of $1 billion, was announced last November, the social network giant described it as a bid to grow Kustomer’s business as well as the utility of messaging service WhatsApp for business users. Although the acquisition did not meet the legal threshold for direct review by the European Commission, which is based in part on revenues, the Austrian Competition Authority claimed that it met its national threshold, based on purchase price, and then engaged Article 22 of the EU Merger Regulation to ask the EU to step in and take up a review of the transaction. That initial review was announced in May, with the Commission noting competition concerns related to markets for CRM software and online display advertising services. The next phase review is expected to run 90 days.
Context – Rethinking acquisitions is an important part of the digital competition policy discussion, but until recently, there was not a clear change in practice. For example, Google’s bid for FitBit, a big name but not remotely a market leader in fitness wearables, was approved by the ECA, the US and Japan (although not by Australia). But a new trend appears underway. Along with the ECA taking up the Kustomer review based on the Article 22 procedure to circumvent its current thresholds, the German Competition Authority is also now stepping in on Kustomer, claiming it fits its new threshold, which includes high-price (above $400 million), low revenue acquisitions, which it says is “often an indication of innovative business ideas with great competitive market potential”. Also watch the review of the acquisition of medical technology company Grail by Illumina, which also was taken up by the ECA based on an Article 22 referral, despite Grail having no EU business. The ECA review was cited recently by the FTC, who is also fighting the tie-up, as a reason not to expedite US court proceedings.
Amazon Bows to Flood of Claims and Drops Mandatory Arbitration for Consumer Users
Report from the New York Times
In Brief – Amazon has bowed to a plaintiff attorney strategy of filing consumer user arbitration claims in bulk and changed its customer terms of service to allow consumer to file lawsuits. The move followed the company receiving more than 75,000 individual arbitration demands from just one law firm on behalf of Echo users claiming that their voice recordings were being stored without their permission. Amazon’s mandatory arbitration process obligated the company to pay for the initial filing fees related to each claim, which was adding up to tens of millions of dollars in filing fees alone. The company notified the plaintiffs lawyers in May of the change, which has now been implemented, with users notified that disputes can be brought in state or federal courts in King County, Washington.
Context – Mandatory arbitration is a common corporate legal tactic used to avoid more expensive litigation, especially class action lawsuits. While widely used by tech companies, it is not remotely limited to them. Along with binding consumers, arbitration agreements have been a common practice related to employment contracts. Tech giants have also faced pressure in that context, especially related to sexual harassment claims. Tech leaders Google, Facebook, Microsoft, AirBNB and eBay exempted such charges from arbitration in 2018. The unique issue for platforms like Amazon involves small businesses and others who sell or work on a platform. Amazon’s recent change does not impact sellers. Sellers have complained to the US Congress about how Amazon uses arbitration to avoid responsibility for practices harming sellers, and the US Antitrust Subcommittee called for end to the practice in its comprehensive 2020 report on digital markets. Amazon is also years into appeals over court rulings that it could not hold its “Gig” delivery drivers to arbitration agreements because they are considered interstate transportation workers, again asking the Supreme Court in June to take on the question.
FTC Granted 3 Additional Weeks to Salvage Tossed Facebook Federal Antitrust Case
Report from Reuters
In Brief – The federal judge who dismissed the Federal Trade Commission’s (FTC) antitrust case against Facebook, as well as a similar complaint filed by a coalition of 46 states, has granted the FTC three additional weeks to file an amended complaint. The FTC now has until August 19, and Facebook, who did not object to the FTC request, will have until October 4 to respond. The initial antitrust suits from the FTC and the State AGs each argued that Facebook engaged in unlawful monopolization of social networking services, in particular by buying up potential future rivals such as Instagram and WhatsApp, and were seeking to unwind those transactions. Judge James Boasberg completely dismissed the States’ complaint, arguing that they had waited too long to challenge the mergers. The judge accepted that the FTC did have that authority, but he ruled that agency’s initial complaint was deficient, failing to show that Facebook had monopoly power in the social networking market and calling out a lack of data to back up their claims.
Context – While the Biden Administration has named a trio of aggressive antitrust enforcers with long track records harshly criticizing the digital giants, Judge Boasberg’s unexpected dismissals sent a clear message that antitrust laws, legal precedents and judges will have a major impact on the process in the US. In his initial ruling, Boasberg wrote “It is almost as if the agency expects the court to simply nod to the conventional wisdom that Facebook is a monopolist.” The Administration has wholeheartedly adopted the broad progressive antitrust reform agenda which targets Big Tech but also airlines, banking, beer, broadband, hearing aids, meat-packing, mobile-phones, railroads and shipping. And the views go well beyond the Administration lawyers and deep into the economic policy team. There is some Republican support for major Big Tech antitrust legislation in the US House, but conservative reticence appears to be growing, especially on the subject of FTC authority, where Chair Lina Khan faces recusal petitions from Amazon and Facebook.
Unionized Google Tech Contractors Reach Labor Contract Deal with HCL Technologies
Report from the Pittsburg Post-Gazette
In Brief – The United Steelworkers Union (USW), representing 65 Pittsburg-based employees of the multibillion-dollar Indian-based IT consulting and contract services company HCL Technologies, who work as contractors for Google, announced a tentative contract agreement with HCL. Google employs a very large number of contract workers that are not employees of the digital giant, a common practice in tech firms. The HCL employees covered by the deal work alongside Google employees in the digital giant’s Pittsburg office, complained that they did not receive the same benefits as Google employees, and voted to unionize under the auspices of the USW nearly two years ago. The USW announcement claimed that the three-year contract includes meaningful wage, benefits and job security improvements.
Context – The highly politicized topic of unionization of “tech workers” and Big Tech is rife with confusion and misunderstanding. Many in the media are advocating for labor organizers and the stories that have garnered the most attention are least on point. For example, the labor defeat in the Amazon fulfilment centers in Alabama earlier this year was not about tech workers at all. It was an effort to unionize a heavy industry logistics workforce comparable to UPS and FedEx. Likewise, when 230 Google employees and contractors created the Alphabet Workers Union in January, it was specifically not an economic bargaining entity, instead it focuses on company policies and progressive causes. To be clear, many contractors that keep tech campuses operating (janitorial staff, food service, security and others) are unionized. But traditional labor organizers have had almost no success organizing high tech workers through campaigns such as the CWA’s Campaign to Organize Digital Employees. So, the HCL union success does reflect an actual, if small, labor win among high tech workers, similar to programmers organizing at very small tech firms like Glitch, Kickstarter and Change.org over the past two years.
Australian Competition Authority Turns Its Digital Policing Attention to Online Marketplaces
Report from The Sydney Morning Herald
In Brief – The Australian Competition and Consumer Commission (ACCC), one of the most aggressive digital company regulators in the world, has announced that it will begin a review of online commerce marketplaces. The ACCC is in the second year of its Digital Platforms Inquiry project to study and report on the functioning of digital services markets including for search engines, social media, messaging, digital advertising, digital content aggregation and electronic marketplace services. As in many countries, ecommerce has grown significantly in Australia during the pandemic, and while online marketplaces have operated in the country for over two decades, Amazon only opened its first fulfilment center in the country four years ago. In announcing the new report, which is due in March 2022, the ACCC said it would be reviewing a range of issues impacting marketplace buyers and sellers.
Context – Marketplaces have been one of the most enduring and successful platform models of the commercial internet, offering consumers access to a wide range of goods from a wide range of sellers, and providing millions of small and remote sellers unprecedented access to consumers and economic opportunity. Throughout, there have been legal and regulatory concerns with products sold by independent small and transient sellers who were not part of a traditional retail network. The Amazon model that presents itself as a marketplace of independent sellers but stocks and handles the goods for many sellers in its distribution centers like a retailer handles products from wholesalers in its stores, is creating important regulatory and legal questions. This retailer-like Amazon FBA model is a central feature of a series of product liability cases in the US, as well as a recent suit filed by the US Consumer Product Safety Commission. Amazon policies linking their marketplace service with their logistics services is also emerging as an antitrust issue in Italy, the European Commission and the UK.
Sen. Klobuchar Proposes to Have Government Determine Prohibited Health Misinformation
Report from the Wall Street Journal
In Brief – Sen. Amy Klobuchar (D-MN), a leading tech critic and the Chair of the Senate Antitrust Subcommittee targeting the tech giants, has followed up on applauding President Biden’s harsh criticism of Facebook over not blocking vaccine misinformation (which he later walked back a bit) by introducing legislation to impose liability on social media platforms when misinformation on health issues are promoted by their content surfacing algorithms. The Health Misinformation Act, which includes one additional Democratic cosponsor, would amend Sec. 230, to hold social media platforms directly liable when “health misinformation”, as defined by the US Department of Health and Human Services, is allowed to circulate on a platform during a “national health emergency”. The bill proposes to target “non-neutral” algorithms, exempting simple timelines that surface the last things posted by users.
Context – This bill is not getting enacted. Seriously, the best question to ponder is why a senior Democratic leader would propose to do exactly what Republicans decry, namely put government officials in charge of determining the content allowed on major websites. Social media platforms increased their content moderation practices in 2020, especially on COVID and election processes, and most Americans suspect ideological motives, including Democrats. Now anti-vaccine content is front and center. On these issues and more, Democrats call for the social media sites to take more aggressive action and Republicans criticize them for ideological censorship. Just weeks ago, former President Trump filed federal lawsuits against the largest platforms claiming they are government actors because they coordinate with public officials on content moderation, making the case that Democratic public officials engage in tactics like threatening Sec. 230 to push the platforms to engage in content moderation the government itself is banned from doing. Those suits are very likely to fail. But what purpose does a bill like this serve?
Frustration Over Vaccine Misinformation Drives White House Sec. 230 Criticism
Report from CNN
In Brief – As COVID case numbers have grown and vaccine progress has seriously slowed, the White House has aggressively stepped-up criticism of vaccine misinformation circulating on social media platforms. President Biden personally criticized Facebook in the harshest terms (before slightly walking back the charge that the company was killing people) and White House staff stated that platforms like Facebook should be accountable for the misinformation circulating on their sites and that the Administration was “reviewing” whether Sec. 230 should be changed. While Democrats themselves are proving more willing to accept COVID vaccines that Republicans, pushing the platforms to police vaccine misinformation online is a priority of Democratic leaders. Earlier this spring, a dozen Democratic State Attorneys General called on Facebook and Twitter to “take immediate steps” to more aggressively enforce their policies against vaccine misinformation, and Sen. Amy Klobuchar, a leading tech critic and the Chair of the Senate Antitrust Subcommittee targeting the tech giants, applauded the President’s criticism of Facebook and expressed support for making changes to Sec. 230 to push content controls.
Context – President Biden and former President Trump both called for repealing Sec. 230 in 2020, and Big Tech critics fill both parties. But Sec. 230 bills are going nowhere. Why? Because of complete disagreement on the nature of the problem. Social media platforms increased their content moderation practices in 2020, especially on COVID and election processes, and vaccine misinformation is the latest example. On all these issues, Democrats consistently call for more aggressive moderation and Republicans claim ideological bias. Just weeks ago, former President Trump filed suit against the largest platforms claiming they are government actors because they coordinate with public officials on content moderation. While those suits are very likely to fail, the White House appears to be trying to direct platform policies and partisan division on moderation could not be more stark.
New House GOP Anti-Big Tech Caucus Led by Republican Champion of Antitrust Bills
Report from Axios
In Brief – Rep. Ken Buck (CO), the top Republican on the House Antitrust Subcommittee and the lead Republican supporter of a series of aggressive antitrust reform bills led by progressive antitrust reformer and Subcommittee Chairman David Cicilline (D-RI), has joined with four other conservative House Republicans to create the Freedom from Big Tech Caucus. The group intends to focus on addressing anticompetitive conduct, censorship of conservative viewpoints, the relationships of the companies with the Government of China, and the impact of their services on the mental health of young people. Earlier this year, Rep. Buck called on Republicans to reject campaign contributions from Amazon, Apple, Facebook, Google and Twitter, although reportedly receives major support from corporate adversaries.
Context – Despite the appearance of anti-tech unanimity, you must look at least one level below the surface when tracking the legislative measures in the US Congress facing the digital giants and the broader platform industry. Sec. 230 reform is stymied by Democrats wanting to push platforms to better control “misinformation” while Republicans see the same as anti-conservative censorship, the top Big Tech concern among Republicans by far. Another key division is among Republicans. While Rep. Buck is supporting antitrust legislation that runs contrary to traditional Republican views, House Republican Leaders are pushing a much narrower Big Tech agenda that claims to support breaking up the biggest platforms and blocking “censorship” but rejects strengthening the general antitrust enforcement authority of the FTC or otherwise regulating tech companies. The Biden Administration’s increasingly wholehearted adoption of the very broad progressive antitrust reform agenda, which targets Big Tech but also airlines, banking, beer, broadband, hearing aids, meat-packing, mobile-phones, railroads and shipping, is potentially further undermining chances for the tech-focused bills of Cicilline and Buck.
Flipkart Argues They are Different Than Amazon and Should Be Investigated Separately
Report from Reuters
In Brief – Flipkart is challenging its inclusion, side-by-side with Amazon, in the Competition Commission of India (CCI) investigation of anticompetitive conduct in the ecommerce market. Flipkart’s submission to the court in the State of Karnataka argues that the regulator has “confused the facts” between Flipkart and Amazon, fails to recognize that the two firms are “qualitatively different” and that they are also “fierce competitors”, asking for the CCI to independently examine the case against the two platforms. Both US-owned ecommerce businesses have faced years of accusations from Indian retailers that they violate the country’s foreign direct investment (FDI) laws that allow ecommerce marketplaces to be foreign-owned but prohibit FDI in multi-brand retail, online or offline. A Reuters expose in February that was allegedly based on internal Amazon documents detailed the company’s questionable practices, and Flipkart argues that no similar evidence related to its business has been compiled by the CCI.
Context – The years-long dogfight pitting Indian retailers against Amazon and Flipkart is interesting if repetitive. However, the emergence of Reliance Industries, the conglomerate run by Mukesh Ambani, India’s richest man, as a major Indian-owned digital and ecommerce player, may shake up the market and the politics. Reliance and Amazon have been engaged in court battles since last year over Reliance’s effort to acquire the retail and logistics assets of Indian retailer Future Group, a move Amazon claims to be able to contractually block. Meanwhile, Walmart’s Flipkart is bringing in their own billionaire, expanding their logistics in partnership with Gautam Adani’s Adani Group. In addition, new ecommerce rules, under consideration for almost two years, are expected to require ecommerce platforms to treat sellers equally, including through algorithms, and ensure greater transparency of seller terms and conditions.
Google Delays Play Store In-App Billing Crackdown as Regulatory Pressure Builds
Report from Ars Technica
In Brief – Faced with rapidly intensifying scrutiny of the policies and fees of the Google Play Store, the company has announced that it is delaying the effective date by six months of its policy change to require apps to use Google’s payments service and pay its fees. While Google has technically required apps distributed through the Play Store to use its payments service, which carries a 30% fee, for in-app digital goods purchases, it had not consistently enforced the rule outside of gaming apps. In September 2020, it announced that it was going to enforce the rule for all in-app digital purchases, requiring new apps to use Google payments and pay the requisite fees, as of January 2021, while existing apps were given until the end of September. Google quickly faced criticism from developers and regulators, especially in markets where Android devices hold very large market shares compared to Apple devices, leading Google to announce country-specific delays in India, then Korea, and now overall.
Context – The app store policies and fees of Apple and Google are facing intense scrutiny. There are millions of app developers globally, most very small, and just two giant mobile platforms (outside China). A few very large app companies, led by Epic Games and Spotify, are investing in legal, lobbying and regulatory campaigns in numerous markets to police app store policies and the limit the fees. Apple and Google both often charge 30%, but they otherwise have always had very different models. Apple’s restrictive “walled garden” has been more in focus with US and EU regulators and has drawn intense criticism from super giants Facebook and Microsoft. Google has had more permissive app policies but has still faced intense scrutiny, especially in India and Korea. Epic Games has sued it like they did Apple, and will likely see a trial in US federal court next year. A coalition of US State Attorneys General has also filed a similar suit against Google. And both app store giants are prime targets of the EU’s Digital Markets Act.
CPSC Adds to Chorus Arguing That Amazon FBA Means It Is Not Just a Marketplace
Report from Reuters
In Brief – The US Consumer Product Safety Commission (CPSC) has filed suit against Amazon to force the ecommerce and logistics giant to accept legal responsibility for products that are sold over its marketplace and handled through its “Fulfilled by Amazon” service. The CPSC complaint argues that Amazon operates as a “distributor”, like a traditional retailer, when a product is sold over its marketplace and also fulfilled through its distribution centers. The specific charges involve a range of products including hair dryers that are electrocution risks, carbon monoxide alarms that don’t work, and children’s sleepwear that are not flame retardant. Amazon responded that their actions in response to the CPSC recalls are very similar to what the agency asks, but the company categorically refuses to be designated as a distributor, which carries additional responsibilities than it currently accepts. On the other hand, the agency argues that when products are sold on the Amazon site and stored and handled in Amazon facilities it is functionally a distributor simply going by a different name.
Context – Legal and regulatory concerns with products sold by small and transient sellers on ecommerce marketplaces go back to the earliest days of the commercial Internet. But the recent decision of the CPSC to sue Amazon over recall practices is new and different. It is based on the understanding that Amazon has evolved into a business unlike other ecommerce marketplaces. It stocks and handles the goods for most of the top sellers on its marketplace in its distribution centers like a retailer handles products from wholesalers in its stores. This retailer-like Amazon FBA model is a central feature of a series of product liability cases where the company could face liability like a retailer when a product sold on its marketplace is also handled by FBA. The way Amazon links their marketplace services with their logistics services is also emerging as an antitrust issue in Italy, Europe and the UK.
Wide Ranging Biden Competition Order Includes Call to Restore Net Neutrality Rules
Report from The Verge
In Brief – Among the wide range of policy initiatives included in President Biden’s Executive Order on Promoting Competition in the American Economy was Net Neutrality (NN), a tech issue that has largely united Democrats for over a decade. The order directs the FCC to restore the NN rules enacted by the Obama Administration in 2015 and overturned by the Trump Administration in 2017. In addition, the agency is instructed to address excessive broadband early termination fees, restart an Obama-era rulemaking to create a “broadband nutrition label” to provide clearer information to consumers on prices and performance, and prevent landlords from providing broadband providers exclusive access to building residents. The FCC currently has just four commissioners, two Democrats and two Republicans, and the Biden Administration has not yet nominated a fifth commissioner. With the telecommunications industry and the two Republican commissioners consistent opponents of NN mandates, action at the FCC is likely to remain largely on hold until the commission roster is filled out with a third Democratic member.
Context – The predictability of NN fights offers relief from the uncertainty of difficult times. There is a firm partisan divide between Democrats joining consumer advocates supporting “strong” NN and Republicans joining network companies objecting to mandates. The Obama FCC enacted NN rules in 2015. The Trump FCC overturned them in late 2017. Federal courts upheld both. In response to the Trump NN repeal, California enacted a landmark state NN law in mid-2018, which is now being litigated. The fact that the Biden Administration moved on NN is not surprising, although jumbling up the message with initiatives covering airlines, banking, beer, hearing aids, meat-packing, mobile-phones, railroads and shipping, along with mergers, acquisitions and non-compete clauses, did dampen down the attention. Also, Republicans are going to use the debate to claim online viewpoint discrimination by social media giants is far more prevalent than online bandwidth discrimination.
ECJ Advocate-General Defends Automated Copyright Filters But Proposes Limits
Report from Euractiv
In Brief – Article 17 of the EU Copyright Directive, which incentivizes digital platforms to employ automated upload filters to block copyright violations by users, has received qualified support from a key legal advisor to the European Court of Justice (ECJ). Under Article 17, platforms face increased liability for copyright violations of users, but they can be exempted from liability if they take measures to prevent illegal uploads, in particular through automated content recognition and take-down tools. Poland challenged Article 17 arguing that it violates the fundamental right to freedom of expression by promoting over-broad blocking of legal content. The opinion from Advocate-General Henrik Saugmandsgaard Øe rejects a blanket ban on the use of automated upload filters by digital platforms in the EU to protect against copyright violations, but in a move to address concerns of online speech advocates, proposes that the tools should be limited to blocking identical, or near-identical copies of copyright works. EU judges often follow the legal opinions of the court-appointed legal expert, but do not have to.
Context – While digital platforms enjoyed a recent win in their long-running battle with Europe’s rights owner industries over counterfeits and other unauthorized online activity, with the ECJ ruling that digital platforms are not liable for users uploading unauthorized material unless the platforms failed to take quick action to remove or block access to the content when notified, the court’s decision was based on the 20-year old Ecommerce Directive and did not address the changes made through the 2019 EU Copyright Directive. And looking forward, the EU’s Digital Services Act is going to further rewrite the platform liability regime. The French Government, an advocate for luxury brands, is calling for modifying the one-stop-shop mechanism included in the initial DSA to give more authority to national regulators, and the lead European Parliamentarian on the DSA bill is also calling for prioritizing online commerce liability.
Epic Games’ Wins Australia Appeal to Get Lawsuit Against Apple Back Online
Report from CNet
In Brief – A three-judge panel of Australian Federal Court has overturned an April judicial decision to pause Epic Games’ antitrust lawsuit against Apple to give priority to the similar Epic lawsuit in US Federal District Court. Epic Games has been challenging the app store policies and fees of Apple and Google in courts and regulatory agencies globally, initially filing private antitrust lawsuits in the US and following up with similar suits in the UK and Australia. The giant game developer has also lodged regulatory complaints in the EU and the UK, and supported lobbying efforts in a number of US States. The initial court ruling in Australia to defer Epic’s case followed a similar decision of the UK Competition Appeal Tribunal in February, but the Australian Competition and Consumer Commission had encouraged the Australian Court to allow the litigation to resume and not defer the legal issues to the US case.
Context – The Epic v Apple decision from Judge Gonzalez Rogers in US Federal District, which could come as early as August, is likely to be the most important happening in the app economy public policy space this year, at least in the US. Based on prevailing antitrust jurisprudence, Apple sits in a pretty good place. Its fees are in line with other digital marketplaces. Apple has always designed their ecosystem as a very controlled environment, both in comparison to Microsoft in the PC world or Google’s Android in the mobile world. Arguing that consumers are not consciously buying into that controlled environment when they buy Apple devices is a tough case to make. In Europe, the regulatory mood appears quite different. The European Commission has investigated Apple’s App Store policies related to music streaming services and released an initial decision that the iPhone maker had a dominant position and has engaged in anticompetitive conduct. In addition, the Commission has proposed the Digital Markets Act to regulate digital “gatekeepers” such as Apple with limitations called for by developers like Epic.
Ohio Reps Propose Privacy Bill With Business Backing by Leaving Out Class Action Lawsuits
Report from the Columbus Dispatch
In Brief – The Ohio Personal Privacy Act (OPPA), a Republican-backed effort in the State General Assembly with backing from the Republican Lt. Governor and a number of business groups, could set up the state to follow Virginia and Colorado in enacting comprehensive consumer data protection in 2021. The OPPA will require covered companies to provide notice about what data they collect, where they sell it and how people can opt out. Consumers would be allowed to access their personal data, request that a business correct or delete personal data collected for commercial purposes, and tell a company not to sell their personal data. There is no private right of action, with enforcement residing with the Ohio Attorney General. The law would cover businesses with at least $25 million in gross annual revenues in Ohio, hold personal data on 100,000 or more consumers in the state, or derive at least half of their revenue from the sale of personal data and hold data on 25,000 or more consumers.
Context – State debates over online privacy bills continue to point to the issue of enforcement, in particular whether private class action lawsuits are authorized, offering the best thumbnail guide to prospects for legislative success. When privacy legislation includes a “private right of action”, a policy strongly supported by many progressive consumer advocates, it appears to consolidate enough opposition from Republicans, business and tech interests to stifle legislation. In Virginia and Colorado, both with unified Democratic control, bills generally modeled on California’s CCPA, without class action lawsuit enforcement, earned enough business and Republican support to be enacted earlier this year. In Washington, a state with unified Democratic control and strong progressive influence, and Florida, with Republican control and conservative leaders looking to punish Big Tech, class action provisions stalled legislation. Ohio, like Florida, has unified Republican control of state government, offering insight into the no-class-action model in a red state.
Twitter Names Local Company Officials in Compliance With Indian Social Media Law
Report from Reuters
In Brief – Twitter has defused a confrontation with the Indian Government over compliance with the social media regulations established earlier this year to allow the government to better control communications going on over the popular digital platforms. In particular, Twitter has filled three roles required by the law — an in-country “grievance officer”, chief compliance officer, and an employee to respond to law enforcement requests. Other major social media platforms, including Facebook and Google, had already filled the necessary roles. Twitter’s belated moves followed the Indian Government winning a court order that the company was not in compliance with the law and therefore would no longer enjoy the liability safe harbor for prohibited user-generated content appearing on the platform.
Context – Governments around the world want social media platforms doing more to police objectionable content. The Indian rules share a number of features with the social media mandates enacted last summer in Turkey, in particular the requirement to maintain company representatives in the country to respond to government requests to take down objectionable content in 48 hours. The purpose of the local company officials is to provide the government with people to arrest, or at least threaten to arrest, to motivate the companies to be responsive to government demands. In April, the companies were responsive to the Indian Government when Facebook, Twitter and Instagram were ordered to take down dozens of social media posts criticizing of its handling of the pandemic, including calls for the Prime Minster to resign. Russia is another market where the government is threatening social media platforms, in particular YouTube, for carrying objectionable political speech and allowing video communications alternatives to state-run media. The EU, France, UK, Germany, Australia, and Canada are each proposing content moderation regulation as well.
Vestager Warns Apple Privacy Does Not Justify Protecting App Store From Competition
Report from Reuters
In Brief – European Commissioner Margrethe Vestager, the EC’s antitrust head and co-leader on tech policy, has warned Apple not to use privacy and security concerns to justify protecting its App Store from competition. The EC has investigated Apple’s App Store policies related to music streaming services, and released an initial decision in April that the iPhone maker had a dominant position in the market for app distribution on Apple devices and had engaged in anticompetitive conduct. In addition, the Commission has proposed the Digital Markets Act, landmark legislation to prevent digital “gatekeepers” such as Apple from engaging in practices that advocates claim undermine competition in digital markets. Apple has always tightly managed participation in its iOS mobile operating system, including requiring all apps to be distributed through its App Store, claiming that users benefit from a controlled and secure user experience, in particular to protect privacy. Vestager stated she supports more privacy choices for consumers but does not believe it requires blocking app store competition.
Context – There is growing tension in digital policy between competition concerns and privacy concerns. Along with being central to Apple’s App Store policy defenses, it is a big issue in the digital ad industry, which already faces a religious-like opposition to targeted advertising from many privacy advocates. Apple’s changes to ad-related data collection practices for apps, requiring apps to give users an opt-out of ad-related collection, has raised strong objections from the digital ad industry and is central to a heated policy and business model conflict with Facebook, the leading defender of how targeted advertising benefits small advertisers. Google’s plans to end third-party cookies in the Chrome browser, which it dubs the Privacy Sandbox, has raised similar digital ad industry competition charges. Regulators have taken notice in the UK, EU and US and Google recently announced a delay in their cookie plans.
Facebook Joins Amazon in Asking for FTC Chair Khan to be Recused from Investigations
Report from the Wall Street Journal
In Brief – Following the example of Amazon, Facebook has filed a petition with the Federal Trade Commission (FTC) to have the agency’s new chair, Lina Khan, recused from participating in matters related to antitrust investigations into the social media giant. Khan has been a high-profile public critic of the digital giants on antitrust matters, and Facebook, like Amazon, was able to cite numerous public statements and past work that would lead “any disinterested observer” to believe that she has already decided the material facts relevant to matters related to the company. Just a few weeks ago, Federal District Judge James Boasberg dismissed the two high profile antitrust lawsuits filed against Facebook last December, one from the FTC and one by a coalition of 46 state attorneys general. The judge’s opinion called the FTC complaint “legally insufficient” for failing to support allegations that Facebook was a monopoly, including lacking data, and gave the agency 30 days to file an amended complaint. The Facebook petition is asking for Chair Khan to be recused from that decision.
Context – There has not been any doubt about Chair Khan’s views on Facebook, Amazon, the other digital giants or antitrust laws broadly. Those views are a major reason she was nominated as an FTC Commissioner by President Biden, was confirmed by the Senate, including with support from 21 Republicans, and was then named FTC Chair. The standard for recusal of an FTC Commissioner is not detailed. The chances that she recuses herself, or the other FTC Democrats vote to recuse her, are very small. On the Facebook case, the two current Republican Commissioners voted against filing last fall, so without her vote, it likely fails. Instead, the Facebook (and Amazon) legal teams are likely getting their objections on the record early, citing decades old decisions of the Federal DC Court of Appeals that use the “any disinterested observer” language in hopes of hitting a legal Hail Mary months or even years from now. They certainly have no shortage of lawyers.
Head of German Competition Authority Wants More Flexible Regulatory DMA
Report from the Financial Times
In Brief – As the European Parliament and Member States debate the landmark digital platform regulation proposals introduced by the European Commission in December, the head of the German competition authority is arguing that the EU’s Digital Markets Act (DMA), designed to stop anticompetitive conduct by the largest digital platform “gatekeepers”, is too prescriptive and focused on the past practices of the platforms, and potentially too inflexible to quickly deal with problematic new behaviors. He believes the DMA should be designed more like the new German law allowing the German competition authority to identify digital companies “of paramount significance on competition across markets” and proactively establish rules to protect competition in the markets they occupy. Since January, the German regulator has begun proceedings to designate Facebook, Amazon, Google and Apple as such in hopes of quickly intervening to address whatever emerges over the next five years related to each.
Context – A huge policy divide among advocates of reining in the digital giants is between those who support breaking them up into smaller companies, believing that competition in markets with more participants would restrain abuses and foster innovation, and those who call for large platforms to be closely overseen by new digital regulators. Ironically, EU Commissioner Margrethe Vestager, who has challenged each of the GAFA in her role as Europe’s top antitrust official, is a champion of regulating them rather than breaking them up, oftentimes referring to the “Hydra” problem of breaking a giant up only to end with two who are equally dangerous. This debate is becoming particularly vocal among US conservatives, such as in the House Judiciary Committee, where a number of Republicans led by Rep. Dan Bishop (NC) expressed support for legislation to quickly try to break up the giants in court but vociferously objected to expanded authority at the FTC to become an ongoing digital regulator, an idea applauded by Vestager as consistent with the DMA.
Biden Department of Justice Ends Trump-Era TikTok Ban Litigation
Report from Reuters
In Brief – The US Justice Department (DoJ) has ended federal litigation related to President Trumps effort to shut down or force a sale of Chinese-based social media phenom TikTok’s operations in the US, asking two federal appeals courts to dismiss its legal challenges to court rulings that had blocked the Trump Administration ban. The DoJ’s motions follow President Biden’s mid-June decision to revoke President Trump’s TikTok and WeChat executive orders and replace them with a new directive requiring security reviews of all apps that fall under the jurisdiction of foreign adversaries, including China. The Administration has described this new app security policy is replacing ad hoc company-focused bans with a more structured security review process that will be based on criteria developed by the Commerce Department to address national security and data security risks.
Context – The prospect that Chinese authorities could access and compile data on users outside China from Chinese-based app businesses through the country’s broad National Intelligence Law, embedding government personnel inside Chinese-based companies, or simply by privately threatening the Chinese-based business leaders, is an issue in a growing number of markets. The aggressive action of the Chinese Government to shutdown the services of Didi, China’s largest Uber-like platform and one of the country’s digital giants, based on concerns that the company did not handle user data in a manner approved by the government, adds to the concerns. The aggressive Chinese Government move, following on the heels of the experiences of Jack Ma and Ant Financial that spilled over to the broader Chinese digital sector, did more than send shockwaves through the US investment community following Didi’s IPO by just days. It also reinforced the ability and willingness of the Chinese Government to take extreme action against the country’s largest digital companies over how user data is handled.
Apple Prevails Over App Developer Blix as Federal Antitrust Complaint is Dismissed
Report from Reuters
In Brief – The federal antitrust lawsuit pitting email and messaging app developer Blix against Apple has been fully dismissed in US District Court. The most recent decision focuses on Blix’s claims that Apple engaged in anticompetitive conduct regarding its “Single Sign On” (SSO) service for apps. The decision, which ends the case, follows a similar dismissal in November of Blix’s antitrust and patent violation complaints regarding its email and messaging software. Judge Stark again has ruled that Blix failed to offer direct or indirect evidence of Apple’s monopoly power or anticompetitive conduct, rejecting arguments related to Apple locking in consumers or developers, stealing ideas from developers using the App Store platform, or unfairly linking together Apple apps and services. Apple’s SSO policy was that it required app developers who included a third-party SSO service in their app, such as those offered by Google and Facebook, also include the Apple SSO option. The judge ruled that policy expanded consumer choices.
Context – The now final resolution of the Blix case, which gained notoriety as one of the app developers criticizing Apple for anticompetitive practices, is a sort of legal hors d’oeuvre as the digital platform economy awaits the decision from Judge Gonzalez Rogers in the Epic Games v. Amazon case. Blix v Apple has raised search ranking manipulation, preferential treatment of first-party apps, whether a company’s app store or operating system accounts for a separate market, and whether either company app store or operating system is dominant. The result shows that these are meaningful hurdles in the US courts. However, as we saw when the initial antitrust complaints from the FTC and State AGs against Facebook were dismissed, some take a decisive rejection in court as evidence that the legal framework is wrong rather than that the case was weak. It also illustrates why the large app developers are investing in legislative initiatives, for example in Europe and the US, to change the legal framework.
Google Fined $593 Million for Failing to Appropriately Pay French Media Publishers
Report from Bloomberg
In Brief – Google has been fined 500 million euros ($593 million) by the French competition authority for failing to provide an appropriate level of payments to French publishers when their news content came up in search results. The fine is the second-biggest antitrust penalty in France for a single company. Following the enactment of EU copyright law reform in 2019, France legislated that media companies should be paid when news story snippets appeared in Internet search results. When Google threatened to simply end snippets, the French competition regulator ruled that would constitute an abuse of Google’s dominance in search and ordered Google to maintain snippets and pay for them. Google expressed disappointment in the latest decision and stated that it was working to reach appropriate agreements.
Context – The Internet has overturned the business model of traditional media. So, the industry and champions in government are working to force Google and Facebook to pay them when users link or search for media content. It is a media-targeted version of Digital Services Taxes. France and Australia have been competing to be the most aggressive to get payments schemes going. And more countries are sure to follow suit. Google and Facebook have each instituted multi-billion-dollar programs to pay media for using content in curated services to avoid paying for simple posts, links and search results. Now even the payments schemes are bringing new legal challenges. In Germany, the competition authority has opened an investigation of Google’s News Showcase based on the concern that some German news media businesses might gain preferential treatment from Google by joining. In Australia, a publisher of current affairs commentary by academics has complained that Facebook won’t negotiate payments, which could lead to government-run binding arbitration. And one of the main antagonists in France has been the wire service AFP which is demanding payment from Google when other sites run AFP stories and those sites end up in search results.
Latest App Store Complaint – State AGs Sue Google Over Play Store Policies and Fees
Report from the Washington Post
In Brief – A bipartisan group of 37 State Attorneys General and the District of Columbia have filed an antitrust lawsuit against Google alleging that it maintains a monopoly in the market for distributing apps for the Android operating system. This adds to State AG antitrust complaints filed last fall regarding the company’s search practices and advertising business. Although the Google Play Store is not the exclusive place for a developer to distribute Android apps, it is the place where an overwhelming share of Android apps are downloaded. The suit claims that Google uses a wide range of tactics to advantage its Play Store over other app distribution options, dissuades device and network providers from building major app store rivals, and otherwise create an environment that leaves developers with “no reasonable choice” but to use the Play Store and accept Google’s fees, which the AGs allege are “extravagant” and harm users and developers. Google responded that its app policies were more open than major competitors (Apple!), that its fees are in line with other app stores, and that complaints are driven by “a handful of major app developers who want the benefits of Google Play without paying for it.”
Context – Despite neither Apple nor Google being clearly dominant in smart phone operating systems, app store fees and policies have emerged as a leading digital competition issue globally. Both Apple and Google point to the other in their own defense, highlighting their different business models and similar fees across many digital platforms. Apple and Google may be two of the world’s most valuable companies, but developers like Epic Games, Spotify and Match are worth tens of billions and are willing to spend millions on lobbying, regulatory and legal fights. The headline legal event remains the antitrust trial pitting Epic against Apple. Oral arguments concluded in May and a decision might come as early as August, which will provide insights into key market definition, pricing and legal questions.
European Commission Appearing to Blink on Digital Levy to Help OECD Tax Plan Forward
Report from the Financial Times
In Brief – The European Commission is expected to announce that plans for a new EU-wide digital levy intended to raise revenues to help offset borrowing to fund the post-pandemic economic recovery will be delayed until at least the fall. The EU digital levy, announced in general in January with a specific plan expected this month, has drawn strong opposition from the Biden Administration which has framed their efforts to reach international consensus on global corporate tax reform as a replacement for national Digital Services Tax (DSTs). European Commission leaders have argued that the digital levy was not the same as the DSTs and was expected to impact a much larger number of digital firms, including many European digital companies. However, following a meeting of the G20 Finance Ministers that added momentum to the OECD corporate tax reform plan, the Commission will slow down its digital levy.
Context – Charges that the largest American tech companies don’t pay enough taxes in many countries where they have many customers led a number of EU Member States, including France, Italy and Spain, to enact national DSTs that would raise taxes on digital platforms with global revenues of at least 750 million Euros. That was thought to cover approximately 30 firms, many but not all being US-based, and kicked off major US-EU trade tensions. The current two-part OECD corporate tax reform plan resuscitated by the Biden Administration includes a complicated alternative plan to tax 100 companies with global revenues exceeding 20 billion euros ($24 billion) and a profit margin above 10 percent. That new tax, which the supporters argue replaces discriminatory digital taxes, is combined with a new global minimum corporate tax of at least 15 percent, the top Biden priority. Despite the ongoing success of the OECD plan, questions remain on the substance as well as the political challenges in the US Congress and Europe, with a few reluctant Member States.
House Republican Big Tech Agenda Highlights Lack of Bipartisanship Behind Antitrust Reform
Report from The Hill
In Brief – Top House Republicans have outlined their prescription to address the big digital platforms, focusing on conservative charges that the platforms are ideologically biased and discriminate against conservative viewpoints. Both Rep. Jim Jordan (R-OH), the lead Republican on the House Judiciary Committee, and Rep. Kevin McCarthy (R-CA), the House Minority Leader, describe their agenda as speeding up antitrust enforcement, in particular by state attorneys general, requiring greater transparency of platform content moderation standards and practices, and holding digital platforms accountable for their content moderation actions by significantly changing Sec. 230 of the CDA to limit the ability of platforms to restrict content the platform finds objectionable but is otherwise legal and protected from government censorship. Rep. Jordan also proposes to strip the Federal Trade Commission (FTC), now led by tech critic and progressive antitrust reformer Lina Khan, of its antitrust jurisdiction.
Context – When the House Antitrust Subcommittee released bipartisan bills in June to change antitrust law for the four or five biggest tech platforms, we said the alliance between progressive antitrust reformers and conservatives outraged by perceived big tech viewpoint bias was tenuous at best. We also said that Republican efforts to change Sec. 230 to restrict platforms from policing objectionable content to stop “censorship” was doomed because R’s and D’s hold completely opposite views. And we said a major progressive push on a broad antitrust agenda would threaten bipartisan cooperation to rein in Big Tech. These things are coming to pass. The Biden Executive Order on antitrust is very broad, hitting many sectors beyond Big Tech. FTC Chair Khan has started with a very aggressive and partisan agenda, resulting in an anti-FTC pushback from Republicans. And the Republicans are focusing on Sec. 230 rather than antitrust in Congress and pushing state-level social media “censorship” laws likely to be overruled in court.
Former President Trump Files Class Action Lawsuits Claiming Illegal Social Media Censorship
Report from the Wall Street Journal
In Brief – Former President Donald Trump has sued Facebook, Twitter and Google, and each of their CEOs, as the lead plaintiff in a class action suit. The plaintiffs claim that content moderation actions by the platforms, such as Twitter and Facebook suspending President Trump following the US Capitol riot in January, violate their 1st Amendment rights. Cognizant that the 1st Amendment limits government conduct, not private actors like the platforms, the suits claim that the platforms are effectively state actors that often act in league with government officials. Similarly, the suits ask the court to rule Sec. 230 of the CDA unconstitutional for encouraging this censorious link between platforms as the government.
Context – First, these suits will not succeed. It borders on ridiculous to argue that the platforms were government actors when they banned the head of the government. But they do matter as more fodder to stoke partisan outrage around social media “censorship”. Pew reports that 90% of Republicans suspect ideological motives behind platform decisions, but so do 59% of Democrats. Anti-abortion activists have long argued platform censorship. COVID, voting processes, and vaccines have more recently exposed partisan divides. Some progressives even call for platforms to block “climate misinformation”. There are two very robust legal barriers to efforts to stop platforms from moderating content, whether through state laws like the one in Florida just blocked by a federal judge, or these and similar lawsuits. Sec. 230 is very clear on the moderation authority of platforms and the chances that Democrats and Republicans will agree on any “censorship” changes are very slim. Republicans want less platform moderation and Democrats want more. The 1st Amendment rights of platforms to manage their sites seems very clear as well. That said, as courts rule against them, expect to hear more from Republicans about Justice Clarence Thomas’s ideas on regulating social media platforms which includes various legal and regulatory theories.
European Parliament Passes Law to Again Allow Scanning for Child Sex Images
Report from Politico
In Brief – After months of negotiations the European Parliament has approved a law to allow digital platforms to scan user communications to detect and report child sexual abuse. The standoff pitted the European Commission, child protection advocates and the largest tech platforms against privacy advocates and their supporters in Parliament. The legal uncertainty over child sex abuse scanning emerged last year after messaging services were classified as “electronic communications services” which are prohibited from routinely processing users’ traffic or content data by the e-Privacy Directive. Despite strong support from child advocates, the European Commission was unsuccessful in pushing a temporary exception through the parliament last year. Facebook eventually announced that it would stop scans pending a legislative change while Microsoft and Google continued their efforts. The final bill was limited to three years in duration and does not apply to voice communications.
Context – Given that the biggest tech platforms have scanned for child sex abuse content for years without much criticism (except for not being effective enough), the level of conflict over this matter should be kept in mind in a few other contexts. Terrorism is right there with child sex abuse as the most criticized online harms, and the European Court of Justice (ECJ) sided with privacy advocates last fall in ruling that national laws, such as in France and Belgium, requiring the bulk collection of communications metadata to fight terrorism, were generally unlawful, and also rejected the US-EU Privacy Shield authorizing transatlantic data transfers based on US security and intelligence practices failing to meet EU privacy standards. Child sex abuse and terrorism also lead the long list of online ills that platforms will be expected to police more effectively under the Digital Services Act, although using proactive monitoring to meet new mandates clearly causes significant anxiety with many privacy advocates.
End of Microsoft-Google Public Policy Truce Highlights Microsoft Support for Regulation
Report from Bloomberg
In Brief – Google and Microsoft have ended a more than five-year-long truce on public policy, legal and regulatory issues. The two digital giants are major business rivals for software services, cloud computing and artificial intelligence and were bitter lobbying and legal rivals when Google was initially a major target of government antitrust scrutiny a decade ago in the aftermath of Google’s success in building its dominance in Internet search.
Context – While each of the five biggest US digital giants has expressed support for proposals to more heavily regulate digital markets to some degree, Microsoft stands out. They have stepped out strongly in favor of regulating the app store rules and fees. Microsoft has submitted complaints with the EU Competition Authority, proposed app store principles aligned with the Coalition for App Fairness led by Spotify and Epic Games that would overturn Apple and Google’s app store businesses, and expressed support for the Digital Markets Act regulating them. On app stores, Microsoft is aligned with Facebook, at least in regards to Apple, and the level of public vitriol between Microsoft and Google currently pales in comparison to the CEO-level feud between Apple and Facebook. Microsoft has also stepped squarely into the highly politicized global effort to mandate that Google and Facebook start paying major media companies when users (and media businesses themselves) post links to news content on social media or have content appear in basic search results. In Australia, when Google indicated that it would likely strike Australian media results from basic search rather than pay websites for appearing in search results, Microsoft publicly expressed support for the landmark legislation and announced that Microsoft’s Bing would provide search in Australia including with mandatory payments if Google pulled itself from the market. A pro regulation Microsoft will have plenty of opportunities to get involved on the opposite side of platforms in the coming few years.
EU Digital Levy Threatens OECD Agreement On Global Corporate Tax Overhaul
Report from Politico
In Brief – In anticipation of a proposal from the European Commission to impose a new tax on “digital companies” operating in Europe, the Biden Administration is calling on the EU to stand down and stick to the global corporate tax overhaul making progress at the OECD. In response, European Commission leaders are arguing that the EU’s “digital levy” is not the same as the “digital services taxes” (DSTs) that are tied into the global tax talks and should proceed on their own regardless. The EU digital levy proposal, along with an extension of the bloc’s carbon-trading regime and a carbon border adjustment levy, are planned as the key funding mechanisms to pay for the EU’s 750 billion euro post-pandemic economic recovery initiative. At the OECD global talks, a direct DST initiative has been replaced by proposed rules for taxing a set of the world’s biggest and most profitable consumer-facing companies.
Context – Charges that digital platforms don’t pay enough taxes in many countries where they have many customers (but not many employees or facilities) led a number of EU Member States, including France, Italy and Spain, to enact national DSTs that were targeted at digital platforms with global revenues of 750 million Euros. That was thought to cover approximately 30 firms, many but not all being US-based. The current OECD Pillar 1 tax plan supported by the US does not directly target digital platforms but instead targets 100 companies with global revenues exceeding 20 billion euros ($24 billion) and a profit margin above 10 percent. That is likely fewer digital firms than the national DSTs, but definitely hits the largest. The latest OECD plan also proposes to reduce the revenue threshold to 10 billion euro in coming years. In comparison to the OECD plan, the EU digital levy is expected to impact hundreds of digital services companies earning revenues in Europe, a much larger number than even the national DSTs intended to be sidelined by the OECD plan. Hence the opposition from the Biden Administration.
Facebook Could Face Government Arbitrator to Arrange Payments to AU Media Firm
Report from Reuters
In Brief – The Conversation, an Australian-based media site that publishes current affairs commentary by academics, has complained to the Australian Competition and Consumer Commission (ACCC) that Facebook has refused to negotiate a licensing deal for payments when content from the site appears on the social media platform. The Australian News Media Bargaining Code, enacted earlier this year, requires Facebook and Google to financially compensate traditional media enterprises in Australia when their news content appears on the platforms. The two digital giants have reached agreements with a growing number of Australian media enterprises, including a deal reached between Google and The Conversation. The Chair of the ACCC has indicated that if Facebook has refused a publisher’s request to negotiate a licensing deal, it could lead to the appointment of a government arbitrator.
Context – The Internet has overturned the advertising and subscription-based business model of traditional media. Google and Facebook have successfully shaped the new digital ad-based ecosystem, and traditional news businesses and their champions in government are working force the digital giants to pay them when users link or search for media content. Google and Facebook have each instituted multi-billion-dollar programs to pay media for using content in specialized and curated services to avoid payments for simple links. In the US, Members of Congress have joined the chorus criticizing the digital giants for harming “local media”. Rather than calling for the government to mandate payments, legislation proposes to exempt traditional news media businesses from antitrust laws to allow them to collectively bargain on ad terms and payments. Country Press Australia, representing 160 regional newspapers, will be authorized to collectively negotiate with Facebook and Google Australia, and almost 30 Danish media companies are meeting to form a collective bargaining organization to negotiate with the platforms.
Global Tax Talks Continue to Promise Historic Deal as OECD Announces Overwhelming Support
Report from the Washington Post
In Brief – The most significant change in global corporate tax policies in generations moved forward as the Organization for Economic Cooperation and Development (OECD) announced that 130 countries signed off on a pair of blueprint agreements to allow national governments to increase their rights to tax the largest companies even when they largely operate in other countries (Pillar 1) and impose a minimum tax rate of 15% on companies (Pillar 2). The Pillar 1 effort has been driven by a growing number of countries imposing “digital services taxes” (DSTs) on large Internet companies, many of which are American. The current plan is that companies with global revenues exceeding 20 billion euros ($24 billion) and a profit margin above 10% will be subject to new rules whereby 20% to 30% of company profits above the 10% margin will be taxable in countries based on where consumers reside, rather than where the company operates. The Biden Administration has shifted the US focus away from DSTs over to minimum corporate tax rates. A deal that includes a 15% global corporate minimum tax, which some believe would reduce domestic opposition to its efforts to increase US corporate taxes, seems to be its goal even if the other half raises taxes on many digital firms.
Context – The new Pillar 1 proposal is not a DST per se, but it will impact many of the same companies as the DSTs and is the priority of countries pressing for digital taxes. In addition, the global revenue threshold will fall to 10 billion euros in the future. In a very specific effort to cover Amazon, with very large revenues but low book profits, the company’s cloud services businesses will be taxed separately, while financial firms are largely exempted due to UK efforts. The Pillar 2 global minimum tax agreement faces opposition from some smaller markets, including Hungary, Estonia and Ireland in the EU. Questions related to dealing with national non-rate tax incentives, tax “bases” and the calculation of profits promise great complexity beyond tax rates. If you want a somewhat deeper dive, read this WSJ Q&A.
Amazon Calls for FTC Chair Khan, Noted Critic, to be Recused from Company Matters
Report from Bloomberg
In Brief – Amazon has filed a petition with the Federal Trade Commission to have the agency’s new chair, Lina Khan, a noted critic of the company, recused from any antitrust investigations into the digital and ecommerce logistics giant. The company argues that Ms. Khan, who rose to prominence in antitrust circles in 2018 as a law student for authoring a widely read law review article criticizing the traditional antitrust legal framework for failing to address abuses by Amazon, has a clear track record criticizing Amazon for anticompetitive conduct and could not be impartial in antitrust matters involving the company. Besides citing her paper Amazon’s Antitrust Paradox, Amazon calls out a range of other academic work, her time with the Open Markets Institute, and work as a counsel on the House Antitrust Subcommittee as is reviewed competition in digital markets, including a focus on Amazon.
Context – There has not been any doubt about Chair Khan’s views on Amazon, its business model and practices, when she was nominated as an FTC Commissioner by President Biden, was confirmed by the Senate, including support from 21 Republicans, and was quickly thereafter named FTC Chair. The FTC has an open, wide-ranging antitrust investigation into Amazon’s business practices based on the 2019 agreement between the FTC and the Justice Department to divide up investigations into the Amazon, Apple, Google and Facebook. The FTC will also review Amazon’s proposed $9 billion acquisition of Hollywood studio MGM. Rejection is a longshot under traditional antitrust analysis but could offer Khan an opportunity to press for new thinking. The standard for recusal of an FTC Commissioner is not detailed, but Sen. Mike Lee (R-UT) did ask Khan about the issue in her confirmation hearing, citing a federal appeals court decision that said a former FTC chairman shouldn’t have participated in a case because he had investigated the same issue as a lawyer for the Senate antitrust subcommittee.
Federal Judge Blocks Florida Social Media Regulation From Going Into Effect
Report from the Wall Street Journal
In Brief – A federal district court judge has blocked Florida’s landmark legislation to regulate the content moderation practices of social media companies. The bill has been strongly supported by Governor Ron DeSantis (R) and most Republican leaders across the state, addressing what they claim is anti-conservative bias by many large digital platform companies. The bill would require digital platforms to publish content moderation standards, prohibits “arbitrarily” censoring users, imposes mandates on platforms when dealing with elected officials, political candidates and news organizations, and gives users the ability to file lawsuits and win damages. Critics have consistently argued that the legislation was unconstitutional, both for violating the 1st Amendment rights of the platforms, as well as being preempted by federal law, in particular Sec. 230 on the Communications Decency Act. Federal Judge Robert Hinkle’s order went into detail on both grounds. Governor DeSantis says the state will appeal.
Context – In the spirit of Casablanca’s Louis Renault, who was “shocked” that gambling was going on in Rick’s Café Américain, nobody could be truly surprised by this legal ruling. But it 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 Ds. On substance, the two legal barriers to laws such as Florida’s, the Utah bill passed earlier this year and then subject to a “friendly veto”, or legislation expected in Texas, are major hurdles. Section 230 is very clear on the moderation authority of platforms and the chances that Democrats and Republicans will agree on “censorship” changes 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.
Facebook Succeeds in Having Antitrust Complaints Tossed Out of Court
Report from the New York Times
In Brief – Federal District Judge James Boasberg has dismissed antitrust lawsuits against Facebook filed by the US Federal Trade Commission (FTC) and a coalition of 46 states before any pretrial proceedings had progressed. Both complaints argue that Facebook engaged in unlawful monopolization of social networking services by buying up potential future rivals such as Instagram and WhatsApp, and was seeking to unwind those transactions years after the fact. The FTC also argued Facebook imposed anticompetitive conditions on third-party app developers. In his FTC opinion, Boasberg agreed with the social media giant’s contention that the agency’s lawsuit was “legally insufficient” for failing to support allegations that Facebook was a monopoly, strongly criticizing the government for not providing data to back up its claims of market dominance. He also questioned the government allegation that limiting developer access to the platform was legally problematic. While such a major setback for the government at the first hurdle is unusual and unexpected, the judge gave the FTC 30 days to file an amended lawsuit to address the shortcomings he identified. The State AGs’ lawsuit suffered a more striking setback. The judge dismissed the case in its entirety on the grounds that the AGs had waited too long after the Instagram and WhatsApp acquisitions to bring their legal claims. However, Judge Boasberg did support the authority of the federal government to double back and challenge acquisitions even years later.
Context – Facebook’s motions to dismiss at the outset, arguing that nearly all of its revenue come from advertising, a highly competitive market, stands in contrast to Google, which did not file an initial motion to dismiss. Google’s federal antitrust case is scheduled for trial in mid-2023. To be clear, the FTC case against Facebook is not over. The lead Democrats and Republicans on the congressional antitrust subcommittees have called on the FTC to redouble their efforts and an amended complaint is all but certain.