News & Insights 2 old
Three Down… German Competition Authority Moves to Regulate Google (One to go?)
Report from AP
In Brief – The Bundeskartellamt has announced that it is opening an investigation of Google based on the regulator’s new legal authority to proactively address competition threats from the largest platforms. The new law rejects the traditional competition enforcement model of regulators investigating dominant businesses for anticompetitive abuses after they have caused harms, a process many criticize as too slow for digital markets. The German competition regulator can now identify digital companies “of paramount significance on competition across markets” and establish rules to protect competition in the markets they occupy, such as prohibiting preferential treatment to their own services or hindering interoperability. Google is the third GAFA platform giant targeted by the Bundeskartellamt under the new law. In January, the agency announced that it was expanding its investigation of Facebook’s changes to its Oculus VR business under the new regime, and proceedings aimed at Amazon were opened last week.
Context – The new proactive German digital platform law highlights the grey area between competition policy, traditionally enforced ex-post, and ex-ante digital regulation. In many countries, competition authorities have been on the front lines of addressing concerns with giant tech businesses. They are being turned to for regulatory models in places like the UK, Korea and Japan. The EU’s Digital Markets Act (DMA) “gatekeeper” legislation aims to create a regulatory regime for large digital platforms all across Europe and may prove the most impactful of all because it will govern the largest market. Some see the new German legislation as an effort to push the DMA forward, although reports are emerging that national regulators, including in Germany, are concerned that the European Commission might not be up to the task of enforcing the new mandates. It might be that the Germans are more comfortable going ahead.
Now We Wait for Months – The Epic v Apple Antitrust Trial Wraps Up and Goes to the Judge
Report from the Wall Street Journal
In Brief – The three-week Epic v Apple antitrust trial has wrapped up. Per the request of both sides, Judge Yvonne Gonzalez Rogers, not a jury, will arrive at a ruling. Both CEOs testified and Epic’s Tim Sweeney attended the entire trial in person. Rather than traditional closing arguments, the judge asked for a debate format where she peppered the legal teams from both sides with questions on the final day. Overall, the case has moved very quickly. The whole affair was kicked off last August when the giant game developer modified its Fortnite app to violate Apple App Store (and Google Play Store) rules to avoid each platform’s 30% fees. When, as expected, the app was banned by both platforms, the game developer immediately responded with long-prepared federal lawsuits and a major PR campaign aimed primarily at Apple. Suits in the UK and Australia, antitrust complaints in the EU and the UK, and state lobbying followed.
Context – The decision from Judge Gonzalez Rogers 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 charges 30%. All the other major gaming platforms charge 30% as well. Twitch, as an example, charges 50%! Apple has designed their ecosystem as being very controlled. That has been the case since the earliest days, both in comparison to Microsoft in the PC world or Google’s Android in the mobile world. Epic is now arguing that consumers don’t know they are buying into that controlled environment when they buy Apple devices. That’s pretty ridiculous. And even if it was true, many consumers still seem to really like Apple devices and the regulated ecosystem. If a judge steps in and tries to overturn that business model, the chances are pretty good that it gets overturned. It does not add up as a monopoly or as consumer harm under current law. Apple should fear legislators and regulation more, especially internationally.
Google Loses Bid to Move Texas-led Antitrust Case to Federal Court in California
Report from Bloomberg
In Brief – Federal District Court Judge Sean Jorden has rejected Google’s effort to move the antitrust case filed by Texas Attorney General Ken Paxton and 13 other State AGs from the Eastern District of Texas to the Northern District of California. The complaint focuses on Google’s digital advertising business and is distinct from antitrust suits filed last year by the US Department of Justice and a further group of State AGs focused on Google’s search business. Google had argued that California was more convenient for many of the likely witnesses and experts and that the case was similar to a number of similar private class action suits filed against the company in that jurisdiction. The AGs argued that victims of the company’s conduct were in Texas and that the federal court in Texas has a track record of moving cases to trial more quickly than the federal court in San Francisco. The judge rejected Google’s convenience arguments and indicated that the private cases could unnecessarily delay the AG case. However, the next day, Judge Jordan handed down a decision on trial scheduling more in line with Google’s request, setting a tentative trial date for June 5, 2023, more than a year later than requested by the states.
Context – The outlines of the blockbuster US Government antitrust complaints against Google are coming into focus. Things really heat up in two years. Along with the June 2023 kick-off in federal court in Texas, District Court Judge Amit Mehta in the Federal DC Circuit has set September 12, 2023 as the tentative start date for the antitrust trial pitting the Department of Justice and a growing number of states against Google. That complaint is focused on the Google search business and deals arranged to be the default search engine on Apple devices and browsers. The other major State AG complaint, also filed in the DC Circuit, is focused on how Google’s search engine treats specialized “vertical” search businesses. The combination of the three covers much the same ground as reviews from UK and Australian competition authorities and complaints from vertical search competitors in the EU.
Biden Admin Willing to Accept Less Than Expected on Global Minimum Tax to Get Deal
Report from the New York Times
In Brief – In an effort to achieve a multilateral agreement to establish a “global corporate minimum tax”, the Biden Administration has indicated in talks with over 40 national negotiators that it would be willing to accept a rate floor of as low as 15 percent. That was a lower than expected as most anticipated a rate proposal more in line with the 21 percent included in a recent Administration corporate tax plan. A number of European tax officials responded positively to the proposal. The international talks to establish a global corporate minimum tax rate is linked to two other major policy efforts — the Biden Administration’s proposal to raise US corporate tax revenues to finance a range of federal spending priorities, as well as the parallel international talks to address concerns in many countries that largely digital companies don’t pay enough taxes in many markets. Negotiators continue to be publicly optimistic that agreements on a corporate minimum tax and digital services taxes (DST) can be reached this summer.
Context – The Biden Administration wants to increase US corporate tax rates that were reduced in 2017. That cut was premised on arguments that US corporate tax rates were higher than most other countries and therefore uncompetitive. The Biden Administration argues that if other countries would set higher rates, and stop a so-called “race to the bottom”, then US tax rates could be raised without harming the competitiveness of US-based firm. Tax policies impacting large US-based digital firms appear caught up in the dealing. Led by a number of EU Member States, a growing number of countries are proposing to tax revenues of large digital firms based on where their consumers live, rejecting traditional corporate tax principles. Despite a clear willingness to deal, the Biden USTR recently released retaliatory tariff proposals for six countries that have enacted DSTs, but it does not seem a secret that they are shooting for a package deal on digital taxes (OECD Pillar 1) and corporate minimum tax (OECD Pillar 2) issues.
Florida Governor Signs Landmark Partisan (and unconstitutional) Social Media “Censorship” Bill
Report from the Washington Post
In Brief – Florida Governor Ron DeSantis (R), widely seen as a rising political star, has signed legislation to regulate the content moderation practices of social media companies that many Republicans accuse of anti-conservative bias. The bill requires 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. The legislation has been widely criticized for being unconstitutional based on federal preemption through Sec. 230 on the Communications Decency Act and for violating the 1st Amendment rights of the platforms. Legal challenges, almost certain to be successful, are expected soon.
Context – As a legal matter, Florida’s new law (and anything similar coming from states like Texas) is not meaningful. They are political statements reflecting that “Platform censorship” has become a top Republican issue nationally. There are deep roots in the anti-abortion activist community who have long claimed mistreatment by major platforms, but 2020 saw notable acceleration with greater social media moderation of COVID and election communications, and vaccine views are following a similar pattern. Pew reports that 90% of Rs suspect ideological motives, but so do 59% of Ds. The Florida law also addresses candidate bans (i.e. Trump) and the news media stories (NY Post). As noted, two legal barriers are highly likely to stand in the way of laws like this. One is Section 230 of the CDA, a federal law, so Congress could change it. But the chances are very slim because the two parties are calling for opposite changes. Democratic officials generally criticize platforms for doing too little, Republicans decry too much intervention. Then the 1st Amendment constrains states and Congress. That said, Justice Clarence Thomas has ideas on regulating large social media platforms and wants to see a Sec. 230 case (read starting p.12).
More Online Price Parity News – DC Attorney General Files Antitrust Lawsuit Against Amazon
Report from CNBC
In Brief – The Attorney General of the District of Columbia has filed an antitrust suit in DC Superior Court charging Amazon with anticompetitive conduct prohibiting third party sellers (TPSs) who sell on the Amazon marketplace from offering lower prices on any other website. The practice is often referred to as a “price parity” or “MFN” clause. They can drive up prices faced by consumers when the offending business is a dominant platform, as Amazon is in online sales by TPSs, and competitive platforms charge lower fees, which cannot then be passed along to consumers. Amazon has a long and controversial track-record prohibiting sellers from offering better terms on competitive sites. The company abandoned their MFN contract clause in Europe under regulatory pressure in 2013, and in the US in 2019. However, many third-party sellers have charged that Amazon did not stop the practice but instead shifted to using its Buy Box algorithm, which determines which goods appear at the top of buyer search results, to impose the same price parity requirement. That charge is the heart of the DC antitrust complaint.
Context – The use of price parity clauses by digital platforms has been a controversial practice and regulatory concern for years. Amazon facing a price parity antitrust suit is the second big news of the week. It follows the German Supreme Court ruling that Booking.com’s “narrow” price parity clause, which prohibits hotels from offering lower prices on their own websites, was illegal. In 2013, Booking.com was blocked from imposing “wide” price parity that prohibited hotels from offering lower prices on all other online sites, including other accommodations platforms. But lower courts had permitted “narrow” price parity prohibiting hotels from offering better prices on their own website to stop freeriding. That distinction between wide and narrow MFN has now fallen, at least in Germany. The DC suit targeting Amazon efforts to circumvent regulatory scrutiny on MFN through algorithms could prove equally important.
Booking.com “Narrow” Price Parity Policy Rejected by German Supreme Court
Report from Le Figaro
In Brief – In the latest court decision in a long-running legal battle over third-party pricing on Internet marketplaces, the German Supreme Court has sided with the Bundeskartellamt, the country’s competition regulator, and the German Federation of Hoteliers, in ruling the Booking.com’s “narrow” price parity policy violated competition law. Booking.com has prohibited hotels offering rooms on its industry leading accommodations site from offering lower rates on other Internet sites. In 2013, the German competition authority ruled that the company’s “wide” price parity provision, which covered listings on competing accommodations platforms were illegal. Booking.com kept the policy for rates booked on a hotel’s own website, referred to as “narrow” price parity, a policy the regulator challenged in 2015. That determination was overturned in 2019 by a lower German court that concluded “narrow” price parity blocked hotels from free-riding on Booking.com’s web services. That ruling has now been overturned with the high court broadly blocking Booking.com from engaging in the practice.
Context – The use of price parity (or “MFN”) clauses by digital platforms has been a controversial practice and regulatory concern for years, in particular when applied to sales on competing platforms when fee levels are meaningfully different. The practice related to hotel bookings has also engaged regulators in Korea, Japan, India and the EU. The Korean Fair Trade Commission has also investigated the practice related to food delivery app platforms, fining Delivery Hero for blocking lower prices in restaurants, a result likely be cheered by U.S. litigants who have filed a class action suit targeting the four largest U.S. food delivery platforms for similar practices. Amazon also has a sketchy price parity track record, abandoning their MFN contract clause in Europe under regulatory pressure in 2013, and in the U.S. in 2019, although many third-party sellers charge that Amazon still uses its Buy Box algorithm to impose a de facto price parity requirement.
Amazon Indefinitely Extends Its Moratorium on Selling Facial Recognition to Police
Report from the New York Times
In Brief – Amazon, one of the largest developers of facial recognition technology, has indefinitely extended its moratorium on selling facial recognition services to law enforcement agencies. It had announced the initial one-year moratorium last summer in the midst of national protests against societal racial inequality and systemic law enforcement mistreatment of blacks, following an announcement by IBM that it would end its facial recognition business lines. Facial recognition technology has been widely criticized for chronic biases in identifying minorities, as well as threatening privacy and civil liberties. Amazon, which had been the largest provider of facial recognition services to law enforcement and a strident defender of the practice, coupled its moratorium announcement with a call for Congress to enact appropriate rules governing the technology and law enforcement.
Context – Facial recognition is one of the most controversial “AI” technologies, and the success of small Clearview AI, which built a tool it markets to law enforcement by scraping and analyzing billions of images from social media sites, shows it is not just the purview of giants. The European Commission’s recently released legislative package on AI proposes to severely limit real-time use of biometric surveillance by law enforcement, although it includes exemptions that have raised concerns with civil libertarians. In the UK, where public video surveillance is commonplace, courts are setting the parameters. In the US, progressive leaders in the Senate and House have proposed banning its use by federal law enforcement, and a coalition of 40 racial justice and civil liberties groups have called on President Biden to institute a complete federal moratorium. At the state level, Virginia recently enacted legislation prohibiting its use by local law enforcement without approval from the General Assembly, although Gov. Northam (D) demanded exemptions for the Virginia State Police and airport police forces.
Parler Adopts Content Moderation Acceptable to Apple to Get Back on iPhones
Report from the Washington Post
In Brief – Parler, the Twitter-like social media app that grew in popularity with conservatives angered by the content moderation of the largest platforms, and was knocked off the Internet by Amazon, Apple and Google following the US Capitol riot, has reemerged on Apple’s iPhones with a modified app that complies with Apple moderation standards. Apple had notified lead congressional Republicans on antitrust policy, Sen. Mike Lee (UT) and Rep. Ken Buck (CO), in April that an agreement with Parler was forthcoming. Parler’s core position on content moderation has been to allow users to post all legal speech, a very broad standard that includes much that is considered highly objectionable by many platforms. Parler on iOS is now much more restrictive. For the first time, Parler will use algorithmic scanning to identify posts with objectionable content. Those labeled “hate” will be blocked on Apple devices. Users on Android or the Web will be able to see them by clicking through.
Context – Most Republicans believe content moderation by digital giants is ideological and discriminatory. Where they control state government, such as Florida and Texas, they are attempting to restrict the practice (but are likely to hit constitutional roadblocks). Democrats see the opposite problem of too much hate and disinformation getting through. Congressional agreement on Sec. 230 changes is not emerging. The way Parler was decisively shut down is seen by many conservatives as the most striking example of big tech’s power to control speech, even more than treatment of President Trump. As opposed to Sec. 230 reform or content moderation regulation, aggressive antitrust highly targeted to the largest digital companies might be the venue for bipartisan cooperation. Also, conservatives are rallying around building alternative platforms such as Parler and then protecting them. Rumble is another example, a less-restrictive alternative to YouTube. Note that Rumble has already sued Google for preferencing YouTube in search, and is bulking up on their own servers, which would protect them from an AWS shutdown like Parler faced.
UK Antitrust Court Rejects Facebook Effort to Stop CMA from Holding Up Giphy Deal
Report from E&T
In Brief – The UK Competition Appeals Tribunal (CAT), the country’s lead competition court, has comprehensively rejected Facebook’s appeal of the Competition and Markets Authority’s (CMA) order to freeze its $400 million acquisition of GIF website Giphy. The CMA’s initial review concluded that the acquisition could hamper competition in the digital display advertising and social media services markets. The CMA’s analysis was made in the context of its earlier determination that Facebook has significant market power in both markets. 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. Facebook had appealed to the CAT that the CMA’s freeze order was unjustifiably wide in scope, was disproportionate and infringed the requirement of legal certainty. The tribunal’s judgement rejected Facebook’s legal claims and admonished the digital giant for not engaging with the CMA on the substance of its review.
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 saw a replay of Facebook’s acquisition of Onavo in 2013 for “digital surveillance” to identify “killer acquisitions”. However, the CMA instead seems to be casting Giphy, a relatively small and non-profitable enterprise with a nascent advertising business, in the role of Instagram or WhatsApp, the “killer acquisition” itself that could grow into a major player in the future. 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.
Vestager Loses Another Tax-Based State Aid Competition Case, This Time on Amazon
Report from the Wall Street Journal
In Brief – For the second time in less than a year the European General Court has rejected a major finding by the European Commission that a giant American tech company received impermissible “state aid” in the form of tax benefits from a European Member State government. In both cases, a decision by the European Commission’s Competition Authority, led by Margrethe Vestager, was overturned. Last July, the court sided with Apple and Ireland, this time Amazon and Luxembourg prevailed against a charge that the ecommerce and logistics giant received over $300 million in unfair tax benefits from the government. The European Commission has a mixed record in Vestager’s state aid cases targeting governments like Ireland, Luxembourg and the Netherlands, with decisions overturned on the digital giants and Starbucks, but prevailing against European-based companies like Fiat and Engie.
Context – Commissioner Vestager has consistently argued that the state aid tax cases were neither an effort to target US giants nor correct problems with the corporate taxation of digital businesses. And the company roster backed that up, including Starbucks, Fiat, Nike, Anheuser-Busch InBev and McDonalds. The court setbacks only reinforce the fact that they don’t seem a good strategy to address digital tax concerns. Instead, the EU and a number of large Member States will continue to press forward on Digital Services Taxes (DSTs), an effort strongly supported by Vestager. As much as Amazon prevailed in court on state aid, the recent report that they posted a net loss in Europe at their HQ in Luxembourg in 2020 despite many billions in highly profitable sales during the pandemic, has only reinforced the call for DSTs to tax digital company revenue, rather than profits, in large part to effectively tax Amazon. The ecommerce giant’s ability to avoid taxes by reinvesting nearly all revenues to avoid booking profits is causing a problem for the Biden Administration’s effort to negotiate a global corporate minimum tax agreement.
Pres. Biden Rescinds Pres. Trump’s Executive Order Aimed at Undermining Sec. 230
Report from Reuters
In Brief – President Biden has issued an executive order revoking President Trump’s May 2020 executive order directing the Federal Trade Commission and Federal Communications Commission to clarify that Section 230 of the Communications Decency Act did not permit social media platforms to moderate user content in a way that “censored” conservative viewpoints. That order followed increasing content moderation on issues such as the pandemic and election processes from platforms such as Twitter, Facebook, YouTube and Snapchat, including Twitter attaching notices to some presidential Tweets. The FCC opened a rulemaking process in the fall, inviting public comments, but the endeavor to link liability for platforms to how they moderated user-generated content was abandoned in the days before the leadership of the FCC was set to shift to Democratic commissioners. The Biden Administration has not pointed to any specific Sec. 230 reform plan.
Context – This is the way President Trump’s executive order attempting to change Section 230 ends, not with a bang, but a whimper. Two factors most led to this end. First, the clarity of Sec. 230 on the authority of platforms to moderate user content as they see fit always meant that the FCC or FTC could provide forums to air conservative grievances, but changing Sec. 230 would almost certainly require Congress. And legislation to reduce the ability of platforms to moderate content was plagued then, and remains hamstrung now, by the fact that Republicans and Democrats want the platforms to do the opposite things. When Republicans charge too much interference, Democrats counter that platforms accept too many lies and distortions. Conservative grievances are now getting their airing with state laws in places in like Florida, as well as through Sec. 230 skeptic and Big Tech critic Justice Clarence Thomas, who is calling for a case to challenge the scope of the judicial branch’s Sec. 230’s application.
Federal Court Rules Sec. 230 Does Not Protect Snap From Liability in Deadly Car Crash
Report from the Washington Post
In Brief – A panel of the Federal Ninth Circuit Court of Appeals has ruled that Section 230 does not protect Snap, Inc. from facing a claim of negligent product design from the parents of teenagers who died in a fatal car accident that occurred when one of the teenagers used the Snapchat app’s “Speed Filter” tool that calculates and tags a photo with the speed a user is traveling when the picture is taken. The District Court had held that Sec. 230, which protects interactive computer service providers from being responsible for information provided by users, and has often by construed very broadly by courts, protected Snap from liability. The Ninth Circuit reversed and remanded, finding that Sec. 230 was not implicated because the plaintiffs did not seek to hold Snapchat liable as a publisher or speaker, but rather for negligent product design, a duty that was independent of Snapchat’s role monitoring content.
Context – Sec. 230 has been in the spotlight over social media content moderation. The statute protects digital platforms from liability for content posted online when the content is created by third parties. It also protects a platform from lawsuits challenging its content moderation decisions. It is clearly on point as conservatives have charged many platforms with biased content moderation leading to viewpoint censorship, and as progressives have criticized the same platforms for allowing a wide range of dangerous and hateful information to appear online. However, less visibly, there has been ongoing debate over concerns that Sec. 230 has been applied by courts overbroadly, beyond content clearly created by third parties and beyond content moderation. This Snap filter product design case fits there, and Justice Clarence Thomas, public Sec. 230 skeptic and harsh critic of the largest platforms, laid out Sec. 230 scope arguments last October in an unsolicited call for a case to challenge the statute’s breadth. It’s worth a read (pages 12-21) and to note that a bit of a circuit split is evolving on the issue.
New York State Senator Proposing a Sales Tax on the Commercialization of User Data
Report from Fox News
In Brief – New York State Senator Andrew Gounardes (D) is introducing legislation to impose a sales tax on the commercialization of data created by residents of New York State. The Data Economy Labor Compensation and Accountability Act will tax companies two percent of global gross receipts generated from the commercialization of data, multiplied by the percentage of the company’s total data subjects residing in New York State, regardless of where the company is based. The legislation will exempt companies with less than $5 million in gross receipts from data commercialization as well as companies that are three or fewer years old. The bill author contends that the legislation is intended to encompass a much larger share of data-enabled commercial activity than the Maryland digital advertising services tax, the constitutionality of which is currently being challenged in court based on preemption by federal Permanent Internet Tax Freedom Act (PIFTA), which prohibits states from taxing commercial activity on the Internet that is not taxed the same way offline.
Context – Critiques of earlier iterations of the Gounardes tax have noted that gaining commercial benefit from consumer data is a very nebulous concept, businesses benefiting from consumer data extend far beyond tech giants, and taxing the gains would be a nightmare to calculate. That said, this New York effort at an all-encompassing data tax is not the only state attempt to follow Maryland’s example. Connecticut, Massachusetts and Texas have bills to tax digital advertising services. Oregon is considering a tax on businesses that generate revenue from selling personal information. In Indiana, legislation was introduced to tax social media providers who have more than one million in-state account holders and at least $1 million in annual gross revenues in the state. Don’t underestimate the barrier of PIFTA, which on its face prohibits these types of state taxes targeting activity just done online, although some states are reportedly interested in challenging the constitutionality of the two-decade old federal law.
Germany’s Federal Cartel Office Targets Amazon Under New Platform Regulatory Authority
Report from TechCrunch
In Brief – The Bundeskartellamt has announced that it is opening an investigation of Amazon based on its new authority to proactively address competition threats from the largest platforms. The new law rejects the traditional competition enforcement model of regulators investigating dominant businesses for anticompetitive abuses after they have caused harms, a process many criticize as too slow for digital markets. The German competition regulator can now identify digital companies “of paramount significance on competition across markets” and establish rules to protect competition in the markets they occupy, such as prohibiting preferential treatment to their own services or hindering interoperability. Of the four largest platforms, Amazon is a conglomerate with an especially wide range of digital and physical businesses. Amazon is the second targeted, following a January announcement from the Bundeskartellamt that it was expanding its investigation of Facebook’s changes to its Oculus VR business.
Context – The new proactive German digital platform law highlights the grey area between competition policy, traditionally enforced ex-post, and ex-ante digital regulation. In many countries, competition authorities have been on the front lines of addressing concerns with giant tech businesses. They are being turned to for regulatory models in places like the UK, Korea and Japan. The EU’s Digital Markets Act (DMA) “gatekeeper” legislation aims to create a regulatory regime for large digital platforms all across Europe. Some see the new German legislation as an effort to push the DMA forward, although it might simply provide analysts a chance to see how early days of ex-post regulation of large platforms could work in the real world. A somewhat less aggressive platform regulatory effort is underway in Japan, where the five largest digital platforms in the country, Apple, Google, Amazon, Yahoo Japan and Rakuten face regulatory oversight and transparency mandates related to their treatment of small business users.
Senate COPPA Bill Shows Youth-Focused Online Regulation Could Offer Bipartisan Success
Report from Politico
In Brief – Sens. Ed Markey (D-MA) and Bill Cassidy (R-LA) have introduced legislation nicknamed COPPA 2.0 to expand the Children’s Online Privacy Protection Act (COPPA) to cover children from ages 13 to 15, in particular requiring parental consent for a range of website practices when a company “reasonably knows” that young users are on their platform, a broader knowledge standard than the current “actual knowledge” standard under COPPA. The bill also includes a ban on targeted advertising directed at children, requires companies to provide an “Eraser Button” for parents and children to permit users to delete a child or teen’s personal information, establishes cybersecurity requirements for connected devices targeted toward children, as well as a Youth Marketing and Privacy Division at the FTC.
Context – Vociferous criticism of Big Tech is strongly bipartisan, but behind the emotion the two sides are far apart on most policies, especially combatting misinformation, a top concern of Democrats, or addressing “viewpoint censorship”, a top concern among Republicans. However, there are two other issues where agreement might not be too far away. One example is comprehensive privacy legislation which largely hinges on the willingness of progressives to step back from private class action enforcement. If that dam broke, things could move relatively quickly, although the politics of Democrats walking back from a “private right of action” is tough. Bolstering COPPA and further regulating online services for children is the other top opportunity. It was illuminating to watch Republicans in a recent House Energy & Commerce Committee hearing more focused on criticizing the platforms for harming young people than even talking viewpoint censorship. That was a shock. Democrats, led by Markey, have long championed expanding COPPA. Lastly, rhetoric that the entire ad-based online business model is “addicting” are coming from both sides. Closing down business models involving younger users might not be too far away.
UK Online Harms Bill Draft Shows Commitment to Comprehensive Regulatory Vision
Report from the BBC
In Brief – More than two years into the UK’s effort to comprehensively regulate digital platforms to get bad things off the Internet, the Government has released its draft Online Safety Act. Spawned by the Online Harms White Paper, the proposal aims to direct platforms to police objectionable content under the guidance and enforcement of regulators. Terrorist content and protecting young Internet users from sexual abuse have been the headline goals from kickoff, however the scope is now much broader, covering ills including hate speech, harassment, threats, disinformation, revenge porn, racism, and promotion of suicide or eating disorders. Late on, online scams such as romance fraud and fake investment opportunities, discrimination against political viewpoints, or arbitrarily removing journalistic content, were added. UK Ofcom will serve as the regulator, establishing specific regimes, judging compliance, and issuing penalties, including fines, and in limited cases, the potential for criminal charges against platform executives.
Context – Objectionable content circulates online and on all kinds of digital platforms. From the Internet’s earliest days two top policy questions have been “Who is responsible, the person who puts the bad content online or the online venue where it appears?” and “What’s the best way to get bad things off the Internet?” Across the world, governments are moving to hold the platforms responsible and set regulatory regimes (see the EU, France, UK, Germany, Australia, Turkey as examples). This creates the related question of what types of content are bad enough to require regulation. The UK appears committed to pushing the envelope on being most regulatory, especially on scope, although Australia is likely to push back to be most interventionist. The EU’s Digital Services Act will have the benefit of impacting the largest market. Turkey and India are easy to criticize on censorship grounds, but defining misinformation, disinformation, hate speech and viewpoint censorship case-by-case will raise similar concerns everywhere.
Irish Court Rejects Facebook Bid to Block IDPC Threat on Contract-Backed Data Flows
Report from the Wall Street Journal
In Brief – The Irish High Court has rejected Facebook’s challenge to the Irish Data Protection Commission’s (IDPC) “own volition” investigation of whether Facebook’s data transfers from the EU to the US violate the EU’s data protection rules, a challenge that could further threaten the ability of companies to transfer European user data to the US for a wide range of uses. The current challenge to Facebook data practices sprang from the July “Schrems II” decision by the European Court of Justice (ECJ) that invalidated the bilateral US-EU Privacy Shield agreement just like the US-EU Safe Harbor was overturned in 2015. Many companies, including Facebook, were expected to use Standard Contract Clauses (SCCs) for the data security compliance needed to continue transfers. However, while the ECJ did not outright rule that SCCs were also deficient, the court raised serious questions. The IDPC took on those issues and notified Facebook that its SCCs were also likely not satisfactory, threatening Facebook’s data transfers, and potentially many other companies as well. Facebook argued that the IDPC had given it too little time to respond to SCC concerns and issued a judgment prematurely, winning an Irish High Court stay in September. That stay has been overturned. The IDPC now needs to finalize its draft decision ordering a suspension of Facebook’s contract-based data transfers and submit it to other EU privacy regulators for approval. That process could take months and will likely spur additional court challenges.
Context – Facebook’s name is on the ECJ decisions threatening US-EU data transfers but the cases are not primarily about the company’s privacy practices. US security, intelligence and anti-terrorism surveillance laws and practices are at issue. Whether the US will meaningfully change data access laws intended to combat terrorism and criminal activities, and whether EU governments truly want less robust intelligence surveillance, are the key issues for bilateral US-EU negotiations.
Federal Court Tosses Premature Twitter Suit to Block TX AG Paxton Information Request
Report from The Hill
In Brief – A federal judge in California has dismissed a lawsuit brought by Twitter that aimed to block Texas Attorney General Ken Paxton (R) from calling on Twitter to turn over documents related to content moderation decisions, including the January banning of President Trump. Paxton sent Twitter and four other platforms a civil investigative demand (CID) calling for a wide range of internal documents regarding platform moderation practices, citing concerns over potential violations of Texas consumer protection laws. Twitter responded in March with a federal suit to block the request, arguing that it was politically motivated harassment retaliating against the company exercising its First Amendment rights. Senior U.S. District Judge Maxine Chesney ruled that Twitter’s lawsuit was premature because the Texas AG’s January records request was not self-executing and he had not yet sought to enforce it, leaving open the option for the company to return to Federal Court in the Northern District of California if AG Paxton attempted to enforce the CID or otherwise impose a penalty on the company.
Context – Conservatives from Florida and Texas to Poland and Hungary are charging ideological bias and proposing laws prohibiting platform moderation of legal speech. While many Republican tech critics blasted the social media platforms for banning President Trump after the Capitol Riot (and Democratic tech critics blasted them for not stopping all the election misinformation in the run-up), many European leaders (beyond Poland and Hungary) were also vocal critics, arguing that government officials not companies should determine what speech is unacceptable. Although this Twitter suit was dismissed for jumping the gun, the 1st Amendment does set the US apart from nearly all other countries on this issue. Unless there is an unexpected change in 1st Amendment jurisprudence, government officials in the US cannot determine what speech moderation is unacceptable. Only the companies can make that call.
Google Fined by Italian Competition Authority for Preferencing Maps in Android Auto
Report from TechCrunch
In Brief – The Italian competition authority has fined Google €102 million for abuse of a dominant market position in blocking JuicePass, an electric car charging app from energy company Enel X Italia, from being used on Android Auto, Google’s mobile operating system for in-car dashboard information systems, and directed Google to approve the app. The Enel app allows users to find and reserve EV charging stations. The key issues in the case involve driver safety and the fact that Google’s own Maps service on Android Auto offers some overlapping EV charging functionality. While the Enel app is available on the general Android smartphone platform, the regulator noted that drivers should not be using their phone while driving, and so withholding access to Android Auto, which has been the case for more than two years, is blocking user adoption. Google respectfully disagreed with the decision, stating that driving safety was the priority for Android Auto, and noting that thousands of third-party apps had been approved.
Context – Preferencing the products and services that dominant platform themselves own over competitive alternatives is one the top criticisms of Big Tech. It is a major theme of the EU’s Digital Markets Act that proposes new regulatory rules for large digital platform “Gatekeepers”. Google has long faced self-preferencing charges related to its dominant search service. As recently as last fall, 165 European and American Internet businesses and trade groups accused Google of giving its “vertical” search services, such as for accommodations, travel and jobs, preferential “One Box” placement in its general search results, and called on EU Commissioner Margrethe Vestager to open a new case. In a non-search preferencing charge similar Enel’s Android Auto experience, Danish app-based bike rental company Donkey Republic has accused Google of unfairly preferencing the Lime electric scooter business (partly owned by Google) in its Maps app.
French Competition Regulator Sounds Warning on Big Tech Dominating FinTech
Report from Reuters
In Brief – The French competition authority has issued a report that raises concerns that the expansion of Google, Apple, Amazon and Facebook into fintech could destabilize the payments and financial services industries due to regulatory, financial, scale, data and technical advantages over traditional banking businesses and smaller fintech enterprises. The report builds on its analysis of the entry of the giant platforms into the payments sector and how they were able to their leverage their massive communities of users, data sets and technical capacity, providing advantages over competitors in building tailored services. The regulator also claims that the digital giants are not subject to the regulatory constraints faced by traditional enterprises that facilitate payments, providing the opportunity to earn greater profits or reduce prices to undermine competitors. Finally, Apple’s blocking of competitive payments services from using Near Field Technology on the iPhone is described as an anticompetitive tactic.
Context – The ability of the digital giants to leverage their immense scale to enter and dominate new markets is a top concern of Big Tech critics. It is manifesting in policy regarding acquisitions, the heads of the French and UK competition authorities have called for all acquisitions by the digital giants to be reviewed, and US Sen. Josh Hawley (R-MO) proposes banning them outright. The US Department of Justice showed its interest in fintech competition last year by opposing payments giant Visa’s bid to acquire fintech leader Plaid. Finally, most on point with the French fintech report might be the new quasi-regulatory authority given to Germany’s Bundeskartellamt, its competition regulator, to identify digital companies “of paramount significance on competition across markets”, which will include the four giants at issue here, and establish rules to protect competition in the markets they occupy and enter, such as prohibiting preferential treatment for their own services or hindering interoperability.
Car Sharing Platform Regulatory Progress Continues with OK Legislative Success
Report from Insurance Journal
In Brief – Oklahoma has enacted legislation to address insurance and tax regulatory issues related to digital peer-to-peer car sharing platforms, such as US market-leader Turo. Car sharing platforms, often described as an AirBNB-type marketplace for cars, enable car owners to help offset the cost of owning a car by allowing them to rent out their vehicle for short durations, and give consumers more rental options. Oklahoma SB 355, the Peer-to-Peer Car Sharing Program Act, requires all automobiles rented on peer-to-peer platforms to have valid insurance, ensures those vehicles are not subject to outstanding recalls, and require platforms to offer a liability backstop. On the contentious issue of rental car taxes, the state’s 6% levy will not be applied if the consumer excise tax on car purchases was applied.
Context – Car sharing platform legislation in Oklahoma follows on similar recent success in Florida. For years, regulatory and legislative antagonism between the traditional rental car industry and peer-to-peer car sharing has been reminiscent of the hotel industry’s efforts to hamstring short-term housing rental platforms. Progress is slowly being made. Agreement on insurance and safety policies, while technical, are proving manageable. The car sharing tax debates tend to boil down to the rental car industry arguing that the same taxes should be applied to all rental-type transactions, while the car sharing platforms argue that differences in sales taxes when cars are purchased by individuals compared to companies warrants differential treatment. Like in Virginia last year, finding common ground on taxes proved possible. The most challenging disagreements are over airport access. For example, Turo is in court in California over access by its users to LAX and in Massachusetts over Logan. In Florida, on the heels of the state’s new car sharing law, Turo and Tampa International Airport have come to agreement ending a major standoff and potentially hailing wider progress on that final and most sticky point.
Bipartisan Coalition of State AGs Strongly Oppose Instagram for Kids Plan
Report from the Washington Post
In Brief – The attorneys general (AGs) of forty-four US States and territories have called on Facebook CEO Mark Zuckerberg to abandon plans to create a version of social media app Instagram that is intended for children younger than age 13. The AGs joined together on a letter that combined general charges that online social media services are damaging to the physical, emotional and mental well-being of children, with direct and pointed criticism of Facebook and Instagram for their track record related to young users. Facebook responded to the bipartisan criticism of their effort to create a version of Instagram that they believe will be more appropriate for young users by arguing that many children currently use social media services, including Instagram, that are not intended for them, and they intend to design a version that would address drawbacks and increase parental visibility and control.
Context – While the two major US political parties compete to most harshly criticize Big Tech, they are far apart on most policies, including combatting misinformation or addressing “viewpoint censorship”. However, the two sides might be able to come together to further regulate online services to children. For example, in a recent House Energy & Commerce Committee hearing that featured bipartisan grilling of the CEOs of Google, Facebook and Twitter, it was noteworthy that Republicans were more focused on the theme that the platforms harm young people that even the conservative mantra of ideological platform bias. Democrats in the House and Senate have championed proposals to expand the Child Online Protection and Privacy Act (COPPA), including to expand its coverage from 13-year-olds up to age 16. In addition, as much as it challenges the entire business model of ad-based online commercial services that are “free” to users, members of both parties, including some that are sensible, increasingly raise questions with the entire business model as “addicting”, as if all media services don’t aim to increase user engagement.
Apple Faces Another UK Antitrust Lawsuit Challenging the App Store Policies and Fees
Report from the BBC
In Brief – Apple has been hit with the UK-version of a class action lawsuit on behalf of nearly 20 million UK Apple phone users alleging that the company operates its App Store as a monopolist and earns unlawfully excessive profit by locking out App Store competition and charging its 30% commission on in-app sales. The case has been filed with the UK Competition Appeal Tribunal (CAT), which must approve “collective action” class action cases in order for them to proceed. Organizers of the suit say they intend to seek damages of up to £1.5bn. Apple, who was recently before the CAT fending off a similar complaint from Epic Games, called this latest legal action “meritless”, noted that its 30% fee was “very much in the mainstream of those charged by all other digital marketplaces,” and the 84% of apps in the App Store are free and involve no commissions.
Context – Apple is facing charges involving its App Store policies and fees in courts (US, UK and Australia), from competition regulators (the EU’s recent complaint is probably the most “important” one right now), and from legislative challenges (the EU’s Digital Markets Act aimed at digital “gatekeepers” is the biggest effort). In terms of court battles, the complaint Epic Games lodged in US Federal District Court in California is the headline event because it has moved surprisingly quickly since Epic filed its suit last August. The two sides are halfway through the three weeks of scheduled testimony and questioning. Judge Yvonne Gonzalez Rogers, not a jury, will arrive at a ruling, potentially this summer, that will likely address important questions regarding the market definition for operating systems and app stores, including whether either Apple or Android is a dominant platform, whether the fees charged by Apple, which in fact are similar to those charged across gaming and other digital marketplaces, represent monopoly power. Then policymakers, regulators and courts in the other venues will react.
Tencent in CFIUS Discussions Regarding Data Access from Digital Gaming Investments
Report from Reuters
In Brief – Tencent, the Chinese digital giant that is one of the ten most valuable companies in the world, is reported to be engaged in talks with the Committee on Foreign Investment in the United States (CFIUS) to address concerns the regulator has with investments the company holds with U.S. videogame developers Riot Games and Epic Games. Tencent, which is a major stakeholder in dozens of online and digital gaming companies, owns a 40% share of Epic Games, the creator of the massive Fortnite franchise which has been in the news for months for its antitrust battle with mobile operating system giants Apple and Google, as well as Riot Games in its entirety, creator of League of Legends. Tencent made those investments in 2012 and 2011 respectively. CFIUS, which had its remit expanded by the Congress in recent years to increase scrutiny of foreign corporate data holdings, has the authority to order foreign companies to divest themselves of US investments. The regulator is concerned that Tencent’s access to Riot Games and Epic Games user data could pose a national security threat if the Chinese Government compelled Tencent to turn that data over to Chinese intelligence authorities.
Context – Tencent is most known to public officials for its massive WeChat “super app” that is accused of censoring and surveilling users in league with the Chinese Government. Such concerns led the Trump Administration to attempt to block WeChat operations in the US last year, a move paused by a federal court injunction and currently under review by the Biden Administration. The potential for Chinese authorities to compel Chinese-based tech companies to share data on their non-Chinese users is based on China’s broad National Intelligence Law. CFIUS has been investigating ByteDance’s TikTok regarding the same issue. And it’s not just in the US. Japanese security officials are taking a similar look at Tencent’s recent investment in Rakuten, one of Japan’s ecommerce leaders, and access to user data.
ACCC Wants to Participate in Epic’s Appeal of Delayed Apple Antitrust Suit in Australia
Report from ZDNet
In Brief – The Australian Competition and Consumer Commission has asked to be able to participate in the appeal filed by Epic Games in Australian Federal Court in its antitrust case against Apple. Epic is petitioning the court to overturn the recent decision by Justice Nye Perram to pause Epic’s case in Australia to allow the similar case in US Federal District Court to conclude before continuing with the Australian case. Judge Perram did express some concerns about a foreign court determining Australian competition law in his order, and ACCC’s request to intervene as a non-party comes in that context, with the agency asking leave to make submissions to the Full Court about the public policy considerations of disputes involving Australia’s competition laws being heard and determined by Australian courts.
Context – While Epic Games has shown a willingness to pursue legal and legislative challenges to Apple (and Google) app store policies in far flung locales from Australia, the UK and Brussels to North Dakota, Arizona and Washington, DC, the headline event in this epic antitrust battle royal is the federal trial in District Court in California. The case has been moving surprisingly quickly since Epic lodged its complaint last August and the two sides are halfway through the three weeks of scheduled testimony and questioning. Per the request of both sides, Judge Yvonne Gonzalez Rogers, not a jury, will arrive at a ruling. The judge faces important questions regarding the market definition for operating systems and app stores, including whether either Apple or Android is a dominant platform, and how Apple’s App Store is a monopoly in the distribution of gaming apps when there are five major gaming platforms, including three console systems, and each has similar policies and fee levels. If every platform is a monopoly onto itself regardless of overall market share, the digital platform business model is turned on its head. The legal and policy world is watching to see if this US federal judge will go there. Then policymakers and regulators in the other venues will react.
Indian High Court Delays Amazon v Reliance Legal Standoff Over COVID Crisis
Report from LiveMint
In Brief – India’s Supreme Court has delayed until June 28 consideration of Amazon’s appeal of the regulatory approval of Reliance Industries’ $3.4 billion acquisition of the retail and logistics assets of Indian retailer Future Group. The court is reported to be pushing off matters not related to the escalating COVID crisis gripping the country. Reliance Industries is the massive conglomerate owned by India’s richest man, Mukesh Ambani. He has been rapidly building a giant ecommerce and digital services business capable of taking on Amazon in India. Amazon argues that the Reliance – Future Group transaction violates a contractual deal Amazon had with Future Group blocking its sale to a wide range of other retailers, including Reliance. The companies have gone back and forth in a series of tribunals and courts since last fall, with the latest ruling pausing the regulatory proceedings but allowing Reliance and Future to continue their consolidation plans.
Context – The Indian ecommerce market, and its retail industry more broadly, is greatly impacted by the country’s foreign direct investment (FDI) laws that prohibit foreign ownership of retail businesses but allow foreign-owned third-party ecommerce marketplaces. The two largest ecommerce marketplaces in India are Amazon and Flipkart (owned by Walmart). Each has faced years of allegations that they violate FDI laws by exceeding the scope of practices allowed of marketplaces and are under investigation by the Indian competition authority and the agency that enforces FDI laws. Like most ecommerce issues in India, this Reliance v Amazon standoff is linked to the FDI issue. Reliance and Future Group argue that Amazon, a foreign-owned business, could not legally have controlled the operations of Future Group, a retailer. Reliance is the first Indian-owned business that looks capable of challenging the two US-owned ecommerce giants with a massive Indian-owned ecommerce retail and marketplace platform, changing the political dynamic in the ecommerce sector.
FTC Dark Patterns Workshop Illustrates How Broad and Varied the Concept Is
Report from Fast Company
In Brief – The Federal Trade Commission (FTC) held a public workshop titled “Bringing Dark Patterns to Light” on April 29, dedicating five hours across five panels of experts and advocates to discuss manipulate online interfaces. (Video here) The term “dark patterns” was coined in 2010 and is used to describe the ever-changing set of sneaky online design features intended to spur users to take actions, such as making a purchase or sharing data, or deter them from cancelling a subscription or dropping off a marketing list. The FTC panels explored how digital dark pattern tactics differ from traditional sales tactics, the targeting of certain groups, especially children, the current legal and regulatory regime, and whether additional rules, standards, or enforcement efforts are needed.
Context – A major challenge facing federal legislation on dark patterns is that the range of potentially manipulative coding and user interface practices is so varied that legislation soon looks like an effort to regulate the details of every website from font and button sizes and colors to grammar and double-negatives. Last Congress, Sens. Mark Warner (D-VA) and Deb Fischer (R-NE) introduced a dark patterns bill prohibiting digital firms with more than 100 million users from creating user interfaces “with the purpose or substantial effect of obscuring, subverting, or impairing user autonomy, decision-making, or choice to obtain consent or user data.” The California Privacy Rights Act, enacted by ballot initiative in November, targets “dark patterns” by invalidating consumer consent when they are used. Finally, while comprehensive US Federal privacy legislation has been bogged down over consumer class action enforcement, the SAFE DATA Act privacy bill from Republican leaders of the Senate Commerce Committee last year included sections on “dark patterns” and “filter bubbles”. If Democrats step back from demands for private class action enforcement, privacy legislation could gain traction and include unprecedented mandates on website and application design.
Biden Administration Labor Secretary Thinks Most Gig Workers are Misclassified
Report from Reuters
In Brief – The Biden Administration Secretary of Labor, Marty Walsh, has expressed major reservations with the “Gig” labor business model, stating that most gig workers should be classified as company employees. President Biden and Vice President Harris were both public supporters of California’s landmark worker classification law, AB 5, which aimed to overturn gig worker-based business models by classifying most independent contractors as employees. It has been anticipated that federal worker classification rules could turn into a partisan football at the Department of Labor (DoL), much like net neutrality has been at the FCC. The Obama Administration issued guidance in 2015 that indicated that most workers using app-based platforms should be treated as employees. The Trump DoL overturned that guidance in 2017 and released further regulations aligned with independent contractor business models this past January. And continuing the pattern, the current DoL has likewise withdrawn those January 2021 rules.
Context – As in California with AB 5, the political energy behind tightening worker classification laws have focused on ridesharing and delivery platforms, but broad changes to worker classification laws can threaten many kinds of independent workers, professionals and creative freelancers. No states followed California’s lead, and widespread frustration from many types of independent workers caused California to exempt many from AB 5 in September. Finally, state voters passed Prop. 22 fully exempting ride sharing and delivery platforms from AB 5. Federally, the top labor movement priority is the PRO Act passed in the US House. It dramatically expands organizing rights. The bill puts the ABC Test into federal law, which freelance advocates argue will drastically harm independent work. Bill supporters claim it only applies to federal labor law for organizing, allowing Gig labor unions. The highly partisan bill is unlikely to move in the Senate and gig labor issues will mostly play out federally at agencies like the DoL.
Amazon Confounds Corporate Taxes by Minimizing “Profits” Through Massive Reinvestment
Report from the New York Times
In Brief – Amazon saw revenues grow dramatically in Europe in 2020 as the pandemic boosted many business lines, but still reported a net loss of €1.2 billion in Luxembourg, home of its European headquarters, and therefore owed no corporate income taxes. The company also is due €56 million in tax credits that it could use to offset future tax bills when it reports a profit, adding to €2.7 billion in such credits already banked. An Amazon spokesman said the company paid all taxes required in every country in which it operated and that “corporate tax is based on profits, not revenues, and our profits have remained low given our heavy investments and the fact that retail is a highly competitive, low-margin business.”
Context – News of Amazon reporting a loss in Europe despite many billions in highly profitable sales from their different business lines highlights an important and often overlooked aspect of the ongoing fight over Digital Services Taxes (DST). In short, the headline justification for DSTs is that digital companies are able to do business over the Internet, making lots of money in countries with large users bases but doing the work in small or low-tax countries. Therefore, they don’t pay their “fair share” of taxes in many consumer-rich countries. In Europe, countries like France, Spain and Italy have enacted DSTs that impose 3% taxes on the revenues of large digital companies. The Amazon tax situation highlights why these countries based their DST levies on revenues, not profits. It was done to make sure they tax Amazon more. Amazon’s base “tax strategy” has not been to operate their business remotely, as their core commerce and logistics business is inherently local with distribution centers. Instead, the company has consistently reinvested so much that official profits (rather than revenues) have been relatively small, regularly reducing corporate taxes to near zero. This is causing a major problem for the Biden Administration as it tries to negotiate a global corporate minimum tax agreement for large and highly profitable companies because Amazon is not technically “profitable”.
Japanese Platform Regulator Expected to Address Digital Ad Practices of Giants
Report from The Japan Times
Context – Digital advertising has revolutionized the advertising industry by consistently delivering greater targeting capabilities and more quantifiable returns. Google, Facebook and most recently Amazon have been the biggest platforms. Due to the small number of giants, the industry has long been in the eyes of competition regulators. Go back over a decade, a major issue was whether digital advertising was a separate market or just part of advertising. Then, as it grew, the number of giant firms did grow from one, to two, and now three. While Japan considers a regulatory model to increase transparency and oversight, two national competition authorities who are vying to be the most regulatory in digital markets, the UK’s CMA and the Australia’s ACCC, are in the midst of digital advertising market reviews. In the US, the Google antitrust complaint led by the Attorney General of Texas is also focused on advertising market dominance and abuses.
Amazon Suffers Product Liability Loss in California Court Threatening All Marketplaces
Report from MediaPost
In Brief – California’s 2nd Circuit Court of Appeals has ruled that Amazon can be held liable for damages caused by a fire due to a defective hoverboard sold to Kisha Loomis by a Chinese-based seller. Amazon had initially prevailed in Superior Court, with the case dismissed based on the argument that it was just a third-party online marketplace service provider, and unlike a retailer could not be held strictly liable. The three-judge panel overruled that decision, reviving the Loomis suit with an expansive view of Amazon being strictly liable based on it being central to the vertical chain of distribution, and potentially through the “stream of commerce approach”. A concurrence further argued that Amazon liability also comports with the policy goal of tort liability to minimize the “social cost of accidents.”
Context – Every ecommerce marketplace should be concerned about the expansive Loomis ruling because it rejects the line of reasoning emerging in a number of recent Amazon liability cases that the ecommerce giant’s physical handling of goods is a differentiator in product liability cases. Amazon is the largest ecommerce site and it also operates the world’s the largest ecommerce distribution center business, Fulfillment By Amazon (FBA). It stocks and handles the goods for most of the top Amazon sellers in FBA centers, just like a retailer handles products in its stores. That retailer-like Amazon model is unlike other third-party ecommerce marketplaces and is coming to the fore in a series of product liability cases. The Texas Supreme Court is considering the implications of the Amazon FBA model on liability, the California Court of Appeals ruled last year in Bolger v Amazon that the company could face product liability charges like a retailer when the product was also handled by FBA, as has the Federal District Court for the Southern District of New York in Brodie v. Amazon. However, the hoverboard in the Loomis case was not stored and shipped from FBA facilities and therefore implicates true third-party marketplace models.
The Facebook Oversight Board OKs Trump Ban but Calls for Setting Definite Length
Report from the Wall Street Journal
In Brief – The independent Facebook Oversight Board (OB) made up of eminent academics, lawyers, journalists and human rights activists has determined that Facebook’s decision on January 7, 2021 to suspend President Trump’s account for violating platform rules in making posts regarding the election and related violence was justified, but the “indefinite” length of the suspension violated the platform’s rules. Facebook, not President Trump, asked the OB to review the company’s suspension decision. In its ruling, the OB noted that Facebook’s policies authorize removing violating content, imposing a time-bound period of suspension, or permanently disabling an account, and the company should have followed its rules in the context of the President’s account. The OB directed Facebook to therefore impose a specific penalty on former President Trump’s account consistent with its policies within six months.
Context – Charges of ideological censorship have led conservatives from Florida and Texas to Poland and Hungary to propose laws prohibiting platform moderation of legal speech. Not surprisingly, Republican tech critics blasted the OB and Facebook. Two things to keep in mind. (1) The 1st Amendment sets the US apart from nearly all other countries on this issue. When social media platforms blocked former President Trump, many European leaders were vocal critics, arguing that government regulators not companies should determine what speech is unacceptable. The 1st Amendment precludes that route, leaving US speech moderation to companies. It’s basically that or nothing. (2) The Trump decision by the OB was headline news, but it was not even the most important long-term development this past month. Instead, Facebook recently increased the remit of the OB, permitting it to rule on user appeals to force Facebook to take down content, rather than just appeal Facebook takedown decisions. For example, climate activists have called on the OB to block “climate misinformation” on Facebook. The OB will potentially become the arbiter of every claim about content ideologues call false, hateful or dangerous globally. That will be fun.
Florida Enacts “Car Sharing” Law Addressing Regulatory Issues for Digital Platform Model
Report from Florida Politics
In Brief – The two-month long Florida state legislative delivered a major digital regulation result when the State Legislature approved a bill to address key tax and insurance questions related to digital peer-to-peer car sharing platforms, such as US market-leader Turo. Governor Ron DeSantis (R) is expected to sign the legislation. Car sharing platforms, often described as an AirBNB-type marketplace for cars, enable car owners to help offset the cost of owning a car and give consumers more rental options. After a couple of years of contentious debate, the State Legislature agreed on a bill that requires the car sharing platforms to collect the state’s 6% sales tax and a $1 per day rental car surcharge, which is half the $2 surcharge for traditional rental car companies. On the insurance issue, the legislation requires that cars rented by owners carry standard liability insurance and that the platforms offer a liability backstop. Bill advocates turned back effort to increase the insurance threshold to the higher level imposed on rideshare drivers, and overcame the opposition of major airports on rental car access and fees.
Context – Car sharing platform legislative fights are similar to the how the hotel industry has tried to use tax and regulatory lobbying to slow competition from short-term housing rental platforms, which also has a deep history in tourism-rich Florida. The car sharing tax debates tend to boil down to the rental car industry arguing that the same taxes should be applied to all rental-type transactions, while the car sharing platforms argue that differences in sales taxes when cars are purchased by individuals compared to companies warrants differential treatment. Like in Virginia last year, finding common ground on taxes proved possible. Agreement on insurance policies also proved manageable. The most challenging disagreements continue over airport access. For example, Turo is in court in California over access by its users to LAX and in Massachusetts over Logan.
Florida Republicans Pass Bill to Block Political “Censorship” by Digital Platforms
Report from CNet
In Brief – The Republican-dominated Florida legislature has passed, and Gov. Ron DeSantis (R) is strongly expected to sign, legislation to regulate the content moderation practices of social media companies that many Republicans accuse of anti-conservative bias. The bill requires digital platforms to publish user content moderation standards, prohibits “arbitrarily” censoring users, mandates that elected officials, candidates and news organizations can use platforms free from algorithmic manipulation, and gives users the ability to opt out of prioritization algorithms. Users can file lawsuits and claim up to $100,000 in civil damages per violation, plus actual damages to their businesses, and punitive damages. Additionally, the bill authorizes the state Attorney General to take platforms to court. In a late addition, companies that operate theme parks in the state were exempted.
Context – “Platform censorship” is quickly emerging as a top Republican issue nationally. Social media platforms increased their policy-oriented content moderation in 2020, especially on COVID and election processes. Pew reports that 90% of Rs and 59% of Ds suspect ideological motives. Democratic officials regularly called for more aggressive action and Republicans charge ideological censorship. Vaccine views are now following the same pattern. Anti-abortion activists have long argued they are censored and progressives are calling for platforms to block “climate misinformation”. The issue is emerging in Republican-controlled legislatures nationally. Utah passed a bill earlier this year but the Republican Governor vetoed it due to constitutional concerns. They are warranted, based on federal preemption by Sec. 230 and the 1st Amendment rights of the platforms. That said, Justice Clarence Thomas appears to support the idea and recently filed his own amicus-style brief in the form of a 12-page concurrence to a two-sentence court order in order to discuss legal theories surrounding the debate. He appears set for a challenge of the Florida law.
Small Papers Getting Set to Collectively Bargain for Media Payments from Google and Facebook
Report from AdNews
In Brief – Country Press Australia, an Australian trade group representing 160 regional newspapers, will be authorized to collectively negotiate with Facebook and Google for payments under the news media bargaining code. The Australian News Media Bargaining Code, enacted earlier this year, requires dominant social media and search platforms, Facebook and Google at this point, to financially compensate traditional media enterprises in Australia when their news content appears on the platforms. The two digital giants have engaged in negotiations with the leading media businesses in Australia and have reached agreements with some of the industry leaders. The law also authorizes media enterprises to choose to collectively bargain to reach agreement with the giants, which may prove more helpful to small players.
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 to adjust the underlying business relationships. Australia, along with France, have been most out front in the effort to mandate payments to media. Google and Facebook have each instituted multi-billion-dollar programs to pay media for using content in their services. In the US, while Members of Congress have joined the chorus criticizing the digital giants for harming “local media”, they have largely refrained simply calling for government to mandate levies. However, a bipartisan coalition of US lawmakers are proposing legislation to exempt traditional news media businesses from antitrust laws for four years allowing them to temporarily bargain collectively with the largest digital platforms on ad terms and payments. Australia will provide a first example of what collective bargaining in media payments looks like in the real world.
Final EU Online Terrorism Content Takedown Regime Approved with 1-Hour Mandate
Report from Euractiv
In Brief – Despite widespread concerns among European civil libertarians that freedom of speech will be eroded, the European Parliament approved a new regulation targeting terrorist content online requiring digital platforms to take down offending content across all of Europe within one hour of being notified by a Member State government. Online terrorist content is material inciting terrorism or aimed at recruiting or training terrorists, as well as material that provides guidance on how to make and use explosives and firearms for terrorist purposes. The regulation has been under consideration since 2017, but the proposed one-hour mandate bogged down the effort over concerns with upload filters, impacts on smaller platforms and threats to free speech. Advocates added a provision to specifically not mandate automated filters, as well as language attempting to exclude content posted for educational, journalistic, artistic, research or awareness-raising purposes. Opponents remained convinced that many platforms would use upload filters due to the threat of fines reaching 4% of turnover and the short one-hour time limit, as well be expressing concern that some Member State governments could abuse the regulation to take down content across Europe that they classify internally as supporting terrorism.
Context – As governments move to regulate how digital platforms police online content, one big question is what’s “important enough” to warrant special mandates. Child exploitation and terrorism are often the headline ills. Look to the EARN IT Act in the US Senate, the French hate speech legislation (including the one overturned by the French Constitutional Court for a 24-hour takedown mandate being too restrictive of free speech), and the anticipated UK Online Safety Bill. The EU Digital Services Acy is likely to be the most grand regulatory scheme for platform content moderation and will replay many of the policy debates of the terrorism content regulation, but for a huge range of content.
Private Right of Action Torpedoes Consumer Privacy Bill (Again) – Florida Edition
Report from the Wall Street Journal
In Brief – Comprehensive privacy legislation fell at the final hurdle in the Republican-controlled Florida legislature over the controversial issue of allowing private consumer lawsuits against companies. Gov. Ron DeSantis (R) and top Republican legislators had pitched strong privacy legislation as part of their campaign to reduce the power and influence of big tech businesses that they claim discriminate against conservatives. While the state Senate and House each passed legislation, the two bodies split on the highly controversial issue of allowing consumers to file private lawsuits against offending companies, often called a “private right of action”. The House bill allowed for private consumer lawsuits while the Senate bill limited enforcement actions to the State Attorney General. The session ended without agreement.
Context – As state legislatures and the US Congress consider broad consumer data privacy, the issue of private class action lawsuits continues to offer the best thumbnail guide to prospects for success. In short, including enforcement through a “private right of action”, a policy strongly supported by many progressive consumer advocates, appears to consolidate enough opposition from Republicans, business and tech interests to stifle legislation. In Virginia, a state with unified Democratic control of the legislature and the governorship, a bill modeled on California’s CCPA, without private class action lawsuit enforcement, earned business and Republican support and was passed into law earlier this year. In Washington, a state with similar Democratic control, progressive insistence on class action enforcement bogged down legislation for the third year running. In Florida, with unified Republican control, class action lawsuits stalled legislation, even in the context of conservative anger with Big Tech. Prospects for comprehensive federal legislation likely hinge on a similar dynamic, with a private right of action needing to be dropped to bring on enough Republican and business support.
The Trial Begins in the Epic Digital Platform Legal Battle – Epic Games v. Apple
Report from the Washington Post
In Brief – The scheduled three-week court battle in Federal District Court in California between Epic Games and Apple begins on Monday, May 3. Per the request of both sides, Judge Yvonne Gonzalez Rogers, not a jury, will arrive at a ruling. The CEOs are scheduled to testify. The case has moved very quickly. It was kicked off last August when the giant game developer modified its Fortnite app to violate Apple App Store (and Google Play Store) rules to avoid each platform’s 30% fees. Apple and Google each removed Fortnite from their app stores and Epic responded by filing private antitrust lawsuits in US Federal District Court against both. Epic has since filed similar suits in the UK and Australia, lodged antitrust regulatory complaints in the EU and the UK, and supported lobbying efforts in many US States.
Context – The rapid pace of the case (the Google trial is expected in 2022) is likely to make the Epic v Apple court showdown the headline US event of 2021 in the global app store policy battles. The recent antitrust case pitting messaging app Blix against Apple, which saw Blix’s case dismissed, highlighted important issues related to market definition for operating systems and app stores, and whether either Apple or Android is dominant. As Judge Gonzalez has repeatedly noted, gaming is a tough business line to make the monopoly case. There are at least five major platforms — Sony PlayStation, Microsoft Xbox, Nintendo, Apple iOS and Google Android. Arguing that Apple’s 30% fee structure is “monopoly rents” is hard when all five have similar fees. The policies of the three console platforms are likewise as restrictive as Apple, and they are not being sued. And Google, which is more open, is being sued. At the end of the day, if every platform is a monopoly onto itself regardless of overall market share, the digital platform business model is turned on its head. We’ll soon see if the judge will go there. Epic and its allies may find more joy with legislation and regulation, such as the EU’s Digital Markets Act regulating “gatekeepers”. Or, with the European Competition Authority…
The EU Competition Authority Issues Preliminary Finding that Apple Violates Law
Report from the New York Times
In Brief – The European Competition Authority (ECA) has announced its preliminary finding in the complaint lodged in 2019 by Spotify, the world’s largest music streaming business, that Apple has abused its dominant position in the distribution of music streaming apps in its App Store. The ECA launched its formal investigation last June. The European regulator contends that Apple has a monopoly over the distribution of music streaming apps onto Apple phones through its App Store policies. In announcing the preliminary decision, Commissioner Margrethe Vestager, the EU’s top antitrust official, argued that Apple is in breach of competition law because it charges app developers high commission fees and forbids them from telling users about cheaper alternatives elsewhere. Apple can now reply to the ECA’s findings in writing and request a hearing. The overall process can take years (which has fueled the drive for the regulatory Digital Markets Act model to police large digital “gatekeepers”).
Context – Apple’s fees for digital services sold through iPhone apps is at the heart of the Spotify complaint. It is worth delving into the details a little to understand a key charge. Apple requires all iPhone apps to go through their App Store. All apps that sell digital services to users must employ the Apple payments system that collects Apple’s 30% commission. When the payment is for a subscription, Apple’s fee falls to 15% after the first year. An Apple rule that is central to the Spotify and ECA complaint is that while Spotify (and other) app users can purchase their subscriptions outside the Apple App Store, such as at Spotify’s website, where the Apple commission is not charged, Apple makes no money, and the price can often be lower, Spotify cannot advertise that lower price off-Apple method on their Apple App. Among their many arguments about market definitions and fees, Apple argues that Spotify advertising inside the Apple “store” that users can get lower prices buying elsewhere would not be allowed in any real-world retail store. Seriously, think about that one.