News & Insights 2 old
Facebook Joins Google Announcing Plan to Spend $1 Billion on Media Content
Report from the Wall Street Journal
In Brief – In the face of growing momentum to require Facebook and Google to pay media companies, Facebook has announced its intention to commit $1 billion over the next three years for the licensing of news media content. This spending commitment matches what Google announced last October. The political fight has been pushed to the fore in Australia with the government’s proposed News Media Bargaining Code empowering the government to set payment terms for the two companies for news links in search and news feeds. Although Google had threatened to withdraw its search engine from the country, they recently signed media company payment deals and expect basic search to be spared. Although Facebook had warned for months that it would likely block news from its site rather than have the government set the terms for it to pay media companies who voluntarily post news, the company caused a huge stir when it followed through. After a few days both sides stepped back, news was back on Facebook and the bill was amended in hopes of finding an acceptable solution.
Context – The world is watching the media payments conflict in Australia. Government and media everywhere can use money. Facebook was not the first to cut off a service in this fight. Google ended its News service in Spain in 2014 when payments were ordered for snippets, and a key decision from the French competition authority last year tried to foreclose that option for Google with the charge that it was be an abuse of a dominant market position if tried in France. Google, despite having signed deals with hundreds of French publishers, is now facing an antitrust investigation because some are not signed on. And the EU’s top technology officials are also speaking out, with Commissioner Thierry Breton criticizing Facebook for refusing to have payment terms imposed on it, and Commissioner Margrethe Vestager saying that threats by a dominant provider to withdraw services from a market might be illegal.
California Net Neutrality Law Goes Into Effect as Judge Turns Down Broadband Companies
Report from the New York Times
In Brief – The State of California’s landmark Net Neutrality (NN) law, enacted in 2018 after the Trump Administration’s FCC overturned the Obama Administration FCC’s NN order, will immediately go into effect after Federal District Court Judge John Mendez rejected a motion by trade groups representing all the major broadband companies to enjoin enforcement of the law. The law prohibits Internet service providers from blocking or throttling traffic, requiring fees from web services to deliver or prioritize traffic to consumers, or exempting favored services from data caps, often called “zero-rating”. Although Judge Mendez gave only an oral opinion, he said he applied the standard federal court multifactor test for preliminary injunctions, including the likelihood of success on the merits of the motion, whether the plaintiff would suffer irreparable harm without the injunction, and whether the public interest would be supported by the injunction, rejecting the case from the network providers on each score.
Context – The predictability of net neutrality fights offers relief from the uncertainty of difficult times. There is now 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 FCC repeal, California enacted its law in mid-2018. The state agreed to refrain from enforcing its law while the FCC’s NN repeal was fully litigated, which concluded in late 2019. At that point, the two sides reengaged on the California litigation, with the Trump Department of Justice (DoJ) siding with broadband providers. The Biden Administration supports strong NN and so the DoJ recently withdraw from the case leaving the network providers alone. And it will not be a surprise when a new FCC majority proceeds to restore federal NN rules once a third Democratic Commissioner is appointed and confirmed.
Poland Proposing Legislation to Limit Social Media “Censorship” of Conservative Views
Report from Fox News
In Brief – The conservative government of Poland is pressing forward on its plan to legislate limits on the ability of social media companies like Facebook and Twitter to “censor” users by removing posts on political or social topics if the content is not illegal under Polish law. Conservatives in Poland, like in the United States, argue that the giant platforms often penalize culturally conservative viewpoints as hate speech. The plan would require platforms establish an appeals process for users and give platforms 24 hours to respond. The law would also establish a national “freedom of speech council” to review platform decisions. The council would have the power to order platforms to restore deleted content and lift restrictions on users, backing up orders with fines for non-compliance.
Context – Ideological aggrievement with platform content moderation practices is only growing. In the US, when conservatives discuss digital platform legislation, they generally propose prohibiting action against “legal” speech. See the “anti-censorship” bills proposed in states like Florida, Nebraska, Oklahoma and North Dakota. They sound like the proposal in Poland, and a similar effort in Hungary. Democrats come from the other side, criticizing platforms for letting dangerous and hateful content slide and proposing new standards. Online hate-speech legislation in France, as well as content moderation standards in the EU’s Digital Service Act, likewise force platforms to do more. The biggest difference between the EU and the US is the role of the First Amendment. It severely restricts government authority to regulate speech and protects the rights of businesses to do so. In Europe, leaders from all sides want government making the calls on acceptable speech, not companies. They just disagree on what should be allowed. That is largely not possible in the US. The independent Facebook Oversight Board, a non-government review body with a role similar to the Polish speech council, is a creative potential alternative outside of government and the company.
German Court Halts Google Putting Public Health Agency in Search Result “One Box”
Report from Deutsche Welle
In Brief – A Munich Regional Court has temporarily blocked an Internet-search cooperation project between Google and the German Ministry of Health on antitrust grounds. The project involves Google putting a “knowledge panel” at the top of its search engine result page when a German user searches for information on 160 common illnesses. The box provides a quick response from the digital portal of the German health ministry, as well as a link to the health ministry’s web portal. The largest private health services digital portal operator in the country, NetDoktor.de, complained that the agreement violated competition law, a position affirmed by the initial court ruling. The court determined that the health ministry’s agreement with Google restricted competition in the market for health portals by locking up the top position in Google search results, which was no longer available to private operators. NetDoktor.de claims that it gets about 90 percent of its users from Google searches.
Context – Google dominates Internet search in Europe with market shares exceeding 90% in many countries. The longest running antitrust case being pursued by the European Commission against Google, on comparison shopping, involves charges of search engine result manipulation. The use of “One Box” knowledge panels by Google, giving a site or service a preferenced location at the top of search results, is increasingly a major complaint about Google search practices. Last fall, a large coalition of Internet businesses and trade groups called on the EU Competition Authority to open an investigation of Google using the “One Box” to preference its own search portals for accommodations, travel and jobs, penalizing vertical search competitors. While this German health portal case does not involve Google self-preferencing, it is based on similar arguments of search result page manipulation and harm to competing web sites that are not preferenced by Google.
Indian Retailers Call for Government to Shutdown Amazon for Violating Retail Law
Report from Reuters
In Brief – The Confederation of All India Traders (CAIT), an influential trade group of Indian retailers representing 80 million retail shops, has called for the Indian Government to shut down Amazon’s operations in the country following a lengthy expose from Reuters claiming that internal Amazon documents reveal that the company engaged in maneuvers over nearly a decade to circumvent the country’s laws prohibiting non-Indian businesses from operating retail enterprises. The Indian ecommerce market, and retail more broadly, is greatly impacted by the country’s strict foreign direct investment (FDI) laws that prohibit foreign ownership of multi-brand retail businesses but allow foreign-owned enterprises to operate third-party ecommerce marketplaces. The two largest ecommerce marketplaces in India are US-owned Amazon and Flipkart (owned by Walmart). Each has faced years of allegations that they violate FDI laws by exceeding the scope of practices for third-party marketplaces and are already under investigation by the Indian competition authority and the Indian Enforcement Directorate. India tightened its laws regarding ecommerce marketplaces in 2018 and in January reports surfaced that it was considering doing so again.
Context – This dogfight pitting Indian retailers (and some domestic tech firms) against Amazon and Flipkart (and some retail “partners”) is interesting if somewhat repetitive, with set battle lines for years. Now, like with many digital issues in India, the entrance of Reliance Industries, the conglomerate run by Mukesh Ambani, the country’s richest man, may shake up the market and the politics. Jio Platforms, the conglomerate’s digital services wing, is reported to be planning to partner with Facebook, an major investor in Reliance, to embed the JioMart ecommerce app into WhatsApp, giving it and Reliance’s retail wing a preferenced place in front of 400 million Indian WhatsApp users. This could add an Indian-owned ecommerce power to the market with unknown impacts.
Uber Loses Driver Employee Classification Case in the UK Supreme Court
Report from the New York Times
In Brief – The UK’s top court has determined that a group of former Uber drivers were misclassified as independent contractors and should have received employee benefits including the minimum wage and paid vacations. The court ruled that Uber acted as more than a platform connecting drivers with passengers, citing its role in directing drivers, including setting rates and assigning rides. While the ruling does not immediately apply to all Uber drivers in the UK, labor advocates argue that the decision will force Uber and other “Gig” work platforms to change their business models. The company claims that the five-year long case revolved around outdated company practices and Uber will work with UK drivers to determine the benefits they want, including flexibility and autonomy.
Context – Litigation regarding the proper classification of platform-enabled independent workers is well underway in many jurisdictions. Uber was handed a similar result in Paris last year. The level of control that a digital platform imposes on workers has emerged as an important factor. It was key to European Court of Justice rulings on Uber (2017) and AirBNB (2019), with Uber adjudged to be a driving service due to the level of control it imposed on drivers while AirBNB was considered a digital service because hosts had control over their terms. When California’s courts began to consider cases under AB 5, the question of whether platform workers were treated as “free agents” was raised and Uber instituted driver policy changes to emphasize their independence. While the state judge considering charges that Uber and Lyft violated AB 5 did not grant much weight to the Uber policies, the matter was largely overridden by the passage of Prop 22 exempting ridesharing and delivery services from the law. Finally, the U.S. Federal Court of Appeals for the Third Circuit has ruled that the worker classification issue for Uber drivers should be considered at trial, overturning a previous District Court summary judgement ruling in Uber’s favor.
Australia and Facebook Reach Deal to Restore News Content to Site
Report from the Wall Street Journal
In Brief – Just a day after the Australian Finance Minister announced that there would be no more amendments to legislation to require Facebook and Google to pay Australian media companies, and five days since Facebook responded by blocking all news content from its site in Australia, the Australian Government and Facebook have announced an agreement to amend the bill and for Facebook to restore news content. The Australian plan is based on the finding that the Google and Facebook domination of digital advertising has defunded journalism. The proposed bill requires the digital giants to pay media companies when links to their content shows up in search results and news feeds. Although Google had threatened to withdraw its search engine from the country, they recently signed payment deals with top media companies, including News Corp, the largest publisher. Facebook has argued for months that media companies vastly overstate the financial value of news on Facebook, and the platform would rather ban news than have the government unilaterally impose payment terms when media companies, and other users, freely upload news content and benefit from links. The two sides have each stepped back, with the legislation being changed to give more time for business-to-business negotiations, recognize the voluntary media support programs of Facebook (and Google) and confirm that the platforms can stop carrying covered media content if they choose.
Context – Australian leaders and media champions repeatedly say governments around the world are inspired by this effort to impose a targeted news media tax on Facebook and Google. They are right, the money look good. EU Commissioner Thierry Breton, a lead EU campaigner for digital platform regulation, said as much criticizing Facebook’s refusal to have payment terms imposed on it. Given that payments schemes are based on the contention that media companies are unfairly getting the short end of the financial stick when they place their content on Facebook without charge, it’s interesting to follow how Facebook voluntarily ending that abuse received so much criticism.
Italian Competition Regulator Fines Facebook Over User Signup Practices
Report from TechCrunch
In Brief – The Italian AGCM, the country’s competition and consumer protection authority, has imposed a fine of 7 million euros on Facebook for failing to properly inform users about its data collection and use practices when they sign up for the service. This follows a 5 million euros fine in 2018. In both cases, the AGCM accuses the digital giant of failing to provide users with immediate and clear information on the collection and use of user data for commercial purposes, which the regulator considers an unfair trade practice. In 2018, along with the fine, Facebook was ordered to publish a corrective statement on its homepage, app and the personal Facebook page of each user in Italy, clarifying its data policies. The AGCM based the most recent fine on the platform failing to comply with that 2018 order. Facebook’s response is that they remain engaged in judicial appeals of the AGCM’s initial findings.
Maryland Digital Advertising Tax Faces Federal Internet Tax Legal Challenge
Report from the Washington Post
In Brief – As expected, Maryland’s first-in-the-nation state tax on digital advertising revenues, modeled after the Digital Services Tax (DST) proposals being enacted in a growing number of countries, is being challenged in federal court. The US Chamber of Commerce and a trio of tech industry trade groups have filed a lawsuit in federal district court in Maryland arguing that the state tax is preempted by federal law and violates various constitutional prohibitions against state taxes on out-of-state activity. The Maryland law, enacted through a veto override, establishes a new gross revenue tax on digital advertising undertaken by non-media companies, is targeted squarely at revenue collected by tech giants like Facebook, Google and Amazon, with a sliding rate scale based on the global revenue of the company.
Context – While the suit makes a number of claims, the most important challenge regards the non-discrimination provision of the federal Internet Tax Freedom Act (ITFA) which prohibits US states and localities from taxing any Internet-delivered service more harshly than the non-Internet version. It is quite simple and this tax seems about as clear a violation as possible, although one never knows with judges. Last summer, the DC City Council considered imposing a sales tax on all advertising services, Internet-delivered or not. That would likely work from the perspective of ITFA. Of course, it would raise taxes on local businesses who use advertising. By the way, national DST regimes of foreign countries are not bound by ITFA. Most national tax efforts have been stymied the past two years by trade war threats of the Trump Administration and some hope for a multilateral tax deal at the OECD. Whether the Biden Administration will fight with the same vigor is an open question. Lastly, less publicized is the fact that Maryland also expanded its sales tax to cover streaming services like a growing number of states. This is OK under ITFA when non-Internet versions, like renting or buying CDs and DVDs, is taxed.
TikTok India May Be Sold to an Indian Business as India-China App Standoff Continues
Report from Bloomberg
In Brief – ByteDance, the Chinese-based digital giant that owns short-video social media phenom TikTok, is said to be exploring a sale of its TikTok India operations to local rival Glance in the face of the Indian Government app ban that has shut down TikTok since mid-summer last year. Prior to that ban TikTok had grown to over 200 million users, but the shutdown has seriously harmed the business and small video competitors are sprouting up. Discussions have been initiated by SoftBank Group, which is a major investor in Glance’s parent company, InMobi, as well as in ByteDance. Along with the two businesses themselves, the Indian Government and the Chinese Government will need to agree to the sale, a major challenge given the state of the bilateral relationship that led to India banning hundreds of Chinese apps last year citing data privacy and security risks. The Chinese Government has since enacted new rules requiring Chinese digital businesses to get government signoff for any sale that would export technology to another country, including algorithms.
Context – The unprecedented Indian bans on Chinese apps proved a precursor to the Trump Administration’s equally unprecedented efforts aimed at blocking TikTok, WeChat and Chinese payments apps in the US, citing similar security and privacy concerns. A major policy question is whether the Biden foreign policy team will meaningfully dial back the unconventionally aggressive Trump actions. The Department of Justice recently asked the federal courts hearing challenges to the app bans, as well as the CFIUS order for ByteDance to divest itself of TikTok’s US operations, to delay proceedings while they formulate their overall strategy. It is also reported that ByteDance has scrapped its proposal to use Oracle as a secure holder of its US TikTok data. Drastic “decoupling” of the U.S. and Chinese tech economies seemed very radical a few years ago, but now sees growing bipartisan and industry support.
App Store Fees State Focus – ND Senate Rejects Bill Regulating App Store Payments
Report from the New York Times
In Brief – The North Dakota State Senate, for a few days in the spotlight of app developer efforts to inspire governments to force Apple and Google to change their mobile operating system business models, has decisively rejected legislation attempting to block the digital giants from requiring app developers to use their payments systems. The bill failed 37-11. The text was the product of lobbying by Epic Games and the Coalition for App Fairness (CAF). Large app developers like Epic and Spotify are investing in legal, PR and regulatory campaigns globally to force Apple and Google to change their policies and fees, which often reach 30 percent. CAF, a coalition created last year by developers including Epic and Spotify, recently hired a local-campaign lobbying expert from a DC-based lobbying firm as its first Executive Director. Similar legislation is percolating in other states including Massachusetts, Georgia, Arizona.
Context – The first months of the year include more state legislative activity because only 11 state legislatures are scheduled to meet beyond June 1, and six meet every other year. Along with the CAF state-level campaign, other issues with recent state activity include privacy, digital taxes and social media “censorship”. On privacy, it looks like Virginia will enact a comprehensive bill in the manner of California. Keeping enforcement by a private right of action out was key to bipartisan support. A similar bill in Washington State remains stalled as progressive privacy advocates demand class action enforcement. On taxes, Maryland’s legislature overrode a veto to enact a digital advertising tax aimed at Google, Facebook and Amazon in the model of European DSTs. It will face major problems in court, especially for violating the federal Internet Tax Freedom Act. Maryland also expanded sales taxes to digital streaming, a tax policy on stronger legal footing. Finally, a number of states governed by Republicans are considering legislation to ban political content moderation, another idea that faces major constitutional hurdles.
Epic’s Campaign Against Apple’s App Store Continues Global Expansion – Invades EU
Report from the Wall Street Journal
In Brief – Once again, Epic Games, the giant game developer who owns the mega-franchise Fortnite, has expanded the scope of their legal and regulatory campaign to overturn the business models of mobile operating system developers Apple and Google, this time filing a complaint against Apple with the European Competition Authority. This follows Epic’s antitrust suits in US Federal District Court, and the UK Competition Appeal Tribunal, as well as a similar antitrust complaint filed with the Australian Competition and Consumer Commission. Both mobile operating system platform giants charge 30% fees for in-app purchases, which Epic calls monopoly rents. The European Competition Authority is already reviewing Apple’s App Store practices in investigations of allegations that Apple discriminates against competitors when it offers its own app services, including music, e-books, gaming and cloud computing.
Context – Epic kicked off their global legal battles by modifying the Fortnite app to violate Apple App Store (and Google Play Store) rules to avoid fees. Apple and Google each responded by removing the Fortnite app from their app stores. In US District Court, Epic has failed to win injunctions blocking either company’s app store bans. The recent US federal antitrust case of Blix v Apple, which saw the charges of the email services provider dismissed, highlighted important issues related to market definition for app stores and operating systems, and whether either Apple or Android is dominant. Similarly, the presiding judge in the federal Epic v. Apple suit continues to raise the fact that all the game platforms, including the game consoles, charge the same fee levels as Apple. While Epic continues to pursue legal cases, the broader app developer campaign may find more joy with legislation and regulation. The EU’s Digital Markets Act aims to impose a range of new regulatory requirements on digital “gatekeepers”, including Apple and Google. Even giants like Microsoft and Facebook are openly talking about supporting the effort to protect their apps.
Controversial Social Media Platform Parler Back Online After Being Booted by Amazon
Report from the New York Times
In Brief – Parler, the Twitter-like social media app that grew in popularity with conservatives angered by perceptions of ideological content moderation by the largest platforms, and was knocked off the Internet following the US Capitol riot, has reemerged online. Parler has always been very public about its limited content moderation standards based on taking down illegal, but not controversial, speech, and using human moderators (largely volunteers) as opposed to digital scans and algorithms. Following the US Capitol riot and threats to the Inauguration spreading online, including by people on Parler, Apple and Google pulled its app from their app stores, and Amazon cancelled Parler’s AWS web hosting service entirely. Parler has remained largely offline since. It filed a federal antitrust suit against Amazon but saw its motion for a temporary restraining order rejected. Parler’s Board also removed its CEO who reportedly was interested in adopting more strict moderation practices. The Parler app remains suspended by Google and Apple. Its new web host, Los Angeles-based SkySilk, claims to support free expression but not illegal content of any kind, and is reportedly concerned it will face attacks from ideologically-motivated hackers, a concern other small host companies reportedly shared.
Context – The partisan divide on content moderation is not narrowing. It is growing. Parler’s treatment is more important that any individual ban. Democrats continue to criticize the major platforms for doing too little on what they see as hate speech and misinformation, and as for Parler, the Chair of the House Oversight Committee is investigating its funding and has called on the FBI as well. Republicans see the platforms censoring legal speech from conservative voices. The giants blocking a more open alternative has seriously energized conservatives, including prompting threats of state laws to stop platform “censorship” (bills that are very likely unconstitutional) as well as potential Republican support for aggressive antitrust legislation targeting the digital giants.
Facebook Bans Australian News Content From Its Platform in Feud Over Mandated Payments
Report from NBC News
In Brief – The battle pitting Australian media enterprises and their government champions against Google and Facebook took its latest twist as Facebook announced that it is banning news media content from its site in Australia, as well as banning Australian news media content from its sites globally. The Australian Government claims that the pair’s dominance of digital advertising has defunded journalism and has proposed legislation to address the competitive imbalance by creating a mandatory licensing regime requiring the digital giants pay Australian media businesses when links to their content shows up in search and news feeds. Google has vociferously objected to the concept of paying for traditional search links, and threatened to withdraw its search engine from the country. However, Google has recently brought its News Showcase, a new billion-dollar global licensing program to pay publishers for curated content (but not search links), to Australia and signed up a number of Australian media leaders, including News Corp. Facebook, on the other hand, has claimed that news is not a major driver of its user engagement, that the media industry has overvalued their content in payment discussions, and that they might drop media stories from its News Feed and block users from posting links. They now have.
Context – Media businesses globally blame the Internet for destroying their business models. Attempts to force Google and Facebook to pay them directly are increasingly popular. Australia and France have been out front in the effort. In France, Google and publishers recently struck a payment agreement related to news appearing on specific Google News pages, but not for general search links. While Facebook has its own news payments program, it appears willing to take drastic action in the face of a mandated payment rates. When Google threatened to pull its search service from Australia, government leaders said companies can leave Australia if they want. We’ll see if companies are also free to restrict content.
Virginia Privacy Bill’s Bipartisan Support Shows Impact of Dropping Class Action Suits
Report from The Hill
In Brief – The Virginia Consumer Data Protection Act, comprehensive consumer privacy legislation taking provisions from laws in California and Europe, has been passed overwhelmingly by the Virginia House of Delegates and Senate and appears set to become law by April. The legislation gives residents new rights to access, correct, delete and obtain a copy of personal data, and to opt out of the processing of personal data for targeted advertising, and assigns new obligations to companies such as transparency, purpose limitation, data minimization, and various data-security requirements. If signed into law, the provisions would take effect in 2023 and apply to a somewhat narrower range of businesses than the California Consumer Privacy Act, including those who control the personal data of at least 100,000 state consumers. Most notably, the Virginia bill does not provide for a private right of action (aka consumer class action lawsuits) as an enforcement tool, but instead gives the state’s Attorney General exclusive rights to bring enforcement actions against offending companies.
Context – The bipartisan success of consumer data privacy legislation in the Virginia state legislature should be seen in contrast to the struggle to enact similar legislation in Washington State. Both are home to tech industry hubs and Democrats enjoy unified control of state government. A top takeaway is the impact that disagreements over a “private right of action” can have on prospects for legislative success. Insistence on class action enforcement has been stalling action in Washington State, while a similar bill without it moved with bipartisan support in Virginia. Many had predicted that Congress would enact federal privacy legislation in 2020. It did not happen. Like in Washington State, insistence on a “private right of action” by key Democrats, and opposition from Republicans and most business interests, have stymied the process. Like in Virginia, if that requirement is dropped, things could move.
Top Florida Republicans Propose Legislation to Stop Political “Censorship” by Tech Giants
Report from AP News
In Brief – A collection of the highest-ranking Republican state government officials in Florida, led by Governor Ron DeSantis, the Speaker of the House, and the President of the Senate, have announced their intention to press for state laws to address claims of anti-conservative censorship of viewpoints, candidates and services by large digital platforms like Facebook, Google, Twitter and Amazon. The proposals include requiring digital platforms to publish user content moderation standards, prohibiting “arbitrarily” censoring users, mandating the ability of elected officials, candidates and news organizations to use platforms free from algorithmic manipulation, and giving users the power to opt out of algorithms. Similar “platform censorship” legislation has been introduced by Republicans in other states where the GOP holds more institutional power than at the federal level, including Nebraska, Kentucky, Oklahoma, Arizona and North Dakota.
Context – First, state laws like these would almost certainly be ruled unconstitutional due to federal preemption and the First Amendment rights of the platform companies. That said, Republican tech censorship bills highlight that the partisan divide on social media content moderation and Sec. 230 is not narrowing. It was wide in 2020 and is probably growing. Democrats continue to charge the platforms with failing to fully control what they call hate speech and misinformation. Republicans see the platforms too often censoring legal speech from conservative voices. The Trump bans, and especially the shutting down of social media platform Parler by Amazon, has created little room for agreement. While Sec. 230 reform legislation, such as the latest from Sen. Mark Warner (D-VA), might get hearings, don’t expect anything broadly pushing platforms to take action against more user content to pass. Instead, look more to targeted antitrust action for Republican anger with Big Tech to temporarily align with progressive regulatory instincts.
Microsoft Champions Broad Tech Regulation Rather Than Targeted Antitrust Cases
Report from CNet
In Brief – Microsoft’s top leaders believe that regulation of digital giants is more effective than antitrust cases to address concerns about tech company abuses. Microsoft was the target of high-profile government antitrust suits in the US and Europe stretching from 1992 to 2013. While Google and Facebook are already the subject of major antitrust complaints from the US Government and State AGs, and Apple and Amazon are reported to be subject to investigations, and all four are under scrutiny from European competition authorities, the software and business services behemoth believes that government leaders are rightly concluding that competition cases are “too narrow and too slow” and that major legislation, such as the EU’s Digital Markets Act, aimed at regulating digital “gatekeepers”, and Digital Services Act, directing platforms how to moderate user content, is a smarter way to proceed.
Context – While each of the five biggest US tech giants has increasingly expressed support for proposals to more heavily regulate digital markets, Microsoft is standing out. Regulating app store rules and fees of Apple, and to a lesser extent Google, is a top priority (of Facebook too). Along with submitting complaints with the EU Competition Authority, Microsoft has proposed app store principles aligned with the Coalition for App Fairness led by Spotify and Epic Games that challenge mobile operating system financing, and links the issue to the Digital Markets Act. Microsoft called for federal regulation of facial recognition during last year’s racial justice demonstrations and suspended selling services to law enforcement agencies. Finally, Microsoft has joined the intense debate over the unprecedented Australian Government plan to require Google and Facebook to pay major media companies for links to news content, including when they appear in basic Internet search, supporting the legislation and announcing that Microsoft’s Bing would provide search in Australia including with mandatory payments if Google pulled itself from the market.
Coalition for App Fairness Taps Grassroots Lobbying Expert to Lead Anti-App Store Alliance
Report from Axios
In Brief – The Coalition for App Fairness (CAF), an international alliance of app developers and tech enterprises charging Apple and Google with anti-competitive app store practices, has announced that Meghan DiMuzio, a grassroots lobbying veteran, would be the group’s first Executive Director. CAF was founded in mid-2020 by 14 businesses led by Spotify, the Swedish-based music app that was central to the EU opening an antitrust investigation of Apple, and Epic Games, the Fortnite game developer who has filed numerous antitrust lawsuits against Apple and Google. While Epic has pressed a litigation strategy, the CAF appears more focused on legislative or regulatory relief. Its operations are based in Washington, DC and Brussels, and now its Executive Director is the former grassroots team leader of a DC-based lobbying firm. In a potential sign of things to come, the North Dakota Senate recently held a hearing on legislation that would prohibit Apple’s App Store policies and fee structures in line with CAF proposals.
Context – App store policies are facing scrutiny globally. There are just two dominant mobile operating system platforms (outside China), but there are millions of app developers who rely on them. It’s increasingly clear that large companies like Epic Games and Spotify are willing to invest resources in major legal and regulatory campaigns. While Apple and Google both charge 30% fees, they otherwise have very different policies. Apple’s “walled garden” model places the company squarely in control of apps in the name of user experience. Google has generally had a more open system and allowed non-Google app stores to operate. Apple, with its more restrictive App Store policies, has been more in focus with US and EU regulators. But Google’s Android has many more users globally, is very dominant in some markets, and is increasingly in the spotlight in South Korea and India. App store policies will be central to the debate over the landmark EU Digital Markets Act aimed at regulating digital “gatekeepers”.
Maryland Enacts First State Digital Advertising Tax Modeled on EU Digital Tax Efforts
Report from the New York Times
In Brief – The Maryland state legislature has enacted the nation’s first state-level tax on digital advertising revenues by overriding last May’s veto by Governor Larry Hogan (R). The tax bill’s advocates intend to increase taxes on digital giants like Google, Facebook and Amazon who earn many millions of dollars facilitating digital advertising in the state. The tax intentionally parallels the Digital Services Tax (DST) proposals being enacted in a growing number of countries, especially in Europe. The new tax will face legal challenges on a number of grounds, in particular as a violation of the “non-discrimination” provision of the federal Permanent Internet Tax Freedom Act (PITFA), which prohibits states from imposing taxes on an Internet-delivered service that is not imposed on non-Internet equivalents.
Context – Digital taxes are justified by claims that digital giants are uniquely able to operate remotely, escaping taxation by governments where their customers live and shifting profits to tax havens. In response, the taxes are based on the customer location not the business location, apply to local revenues not profits, and contain high thresholds intended to exempt smaller (local) firms. Congressional opposition to national DSTs has been bipartisan and the Trump Administration fought hard with trade sanction threats. Most countries deferred their DSTs in response and talks for a global deal continue. The big question now is whether the Biden Administration will fight traditional allies as hard. For US States, PITFA is likely a real barrier. Watch for three work-arounds – (1) expanding a Maryland-type digital advertising tax to all advertising, thinking most ads will shift online anyhow; (2) imposing a sales tax on advertising services and requiring Internet platforms to collect the tax (the DC City Council debated this); or (3) expanding sales taxes to cover the services most often delivered digitally. The hard part is just taxing remote companies without local customers seeing prices raised, as Amazon, Google and Apple are doing in some countries already.
Biden Administration DoJ Asks Courts to Delay Chinese App Ban Court Battles
Report from the Washington Post
In Brief – The Department of Justice (DoJ) has asked federal appeals courts to place holds on proceedings related to Trump Administration efforts to ban the US operations of the widely used WeChat and TikTok apps, both operated by giant Chinese-based digital companies, in order to provide the Biden Administration time to review the bans in the context of the new Administration’s overall China policy. Both bans were blocked by federal court injunctions. The US Court of Appeals in San Francisco recently heard DoJ arguments that the WeChat injunction, granted on First Amendment grounds because the service was essential to engage in protected speech with people inside China due to similar non-Chinese apps being blocked there, should be overturned because adversarial foreign governments should not be able to weaponize the First Amendment by banning competitive communications services. In the case of TikTok, two federal district courts granted injunctions blocking the ban based on the argument that the International Emergency Economic Powers Act (IEEPA), the statutory basis of the bans, does not permit the President to sanction “informational materials” or “personal communications”. The DoJ argued that the IEEPA limitations are intended to apply to bans on specific content pieces, not delivery services. The appeals of the injunctions in both cases will now likely sit for some weeks.
Context – The requested pauses of the Chinese app ban court fights come on the heels of a similar pause of the CFIUS-based order to force TikTok-owner ByteDance to divest its US operations. The big question is whether the traditionalist Biden foreign policy team will meaningfully dial back the unconventionally aggressive Trump team’s policy towards TikTok, WeChat and Chinese payments apps. The door to step back appears cracked open. However, where drastic “decoupling” of the U.S. and Chinese tech economies seemed radical a few years ago, the concept has growing bipartisan and industry support.
Biden DoJ Drops California Net Neutrality Fight Leaving Court Challenges to ISPs
Report from the Wall Street Journal
In Brief – The Biden Administration Department of Justice (DoJ) has withdrawn the federal lawsuit challenging the State of California’s net neutrality (NN) law. In response, the US District Court handling the matter dismissed the DoJ’s case. The State of California still faces a legal challenge to its NN law brought by a coalition of the trade groups representing all the largest highspeed network providers, including the American Cable Association, the Wireless Association, the Internet & Television Association and US Telecom. The network companies argue that internet networks are inherently interstate in nature and therefore regulating their operations is reserved solely to the federal government.
Context – The legislative, legal and regulatory battles over NN stretch back to the mid-2000’s and now features a firm partisan divide between Democrats supporting “strong” NN and Republicans objecting to blanket mandates. In mid-2018, the State of California responded to the Trump FCC’s repeal of the Obama-era FCC’s NN rules by enacting the California Internet Consumer Protection and Net Neutrality Act. California agreed to refrain from enforcing its 2018 NN law while the FCC’s 2018 repeal of the 2015 rules was fully litigated by NN advocates trying to stop the Trump FCC. Once the US Court of Appeals confirmed the FCC’s 2018 repeal in a late 2019 opinion, net neutrality advocates and opponents reengaged with the California litigation. A key component of the Federal Court of Appeals’ 2019 ruling was a rejection of the FCC’s “Preemption Directive” which proposed to preemptively overturn all state net neutrality laws, leaving the Trump FCC to have to challenge state NN laws case-by-case. Hence, the DoJ challenge in California that has unsurprisingly now been left to broadband companies. And it will also not be a surprise to see the new FCC majority proceed to restore 2015-type NN policies once a third Democratic Commissioner is appointed and confirmed.
Amazon and Reliance Continue Legal Battle of Titans Over Future of Retail in India
Report from the Times of India
In Brief – A three-judge panel of the High Court in New Dehli has sided with Future Retail and Reliance Industries by overturning a single judge decision that sided with Amazon to block Reliance’s $3.4 billion acquisition of Future Retail. Amazon and Reliance Industries, the conglomerate run by Mukesh Ambani, India’s politically influential richest man, are engaged in a legal battle over the right to buy the assets of Future Retail, a large but not profitable retail and logistics company seen by both as a key piece in building a nationwide retail and ecommerce empire. Amazon can appeal to the Indian Supreme Court.
Context – There are (at least) three things to keep in mind with this showdown. First, given the reality that China, the world’s largest ecommerce market, is not going to have non-Chinese digital leaders, the stakes are huge with India as the largest ecommerce growth market remaining on the board. Second, the country’s retail and ecommerce industries are dramatically impacted by India’s unique and often strict Foreign Direct Investment laws. They allow foreign-owned enterprises to own third-party ecommerce marketplaces but not retail businesses, whether online or brick-and-mortar. The result is a long-running policy battle pitting the Indian retail industry against the country’s two largest ecommerce marketplaces, Amazon and Walmart-owned Flipkart, over accusations of circumventing FDI laws. Third, it is increasingly hard to see any digital policy in India and not find a connection to Ambani and Reliance. Last year, Google, Facebook and major US-based tech investment firms pumped billions into Reliance’s digital properties, led by Jio Platforms, the conglomerate’s digital services wing and the country’s top mobile phone company. Another component of the Reliance retail strategy is reported to be a coming partnership with WhatsApp to embed the JioMart ecommerce app into WhatsApp giving it a preferenced place in front of 400 million Indian WhatsApp users.
Biden China Team Puts Order Forcing TikTok US Sale on Hold Pending Full China Strategy
Report from the Wall Street Journal
In Brief – The Biden Administration has reportedly shelved the order from the Committee on Foreign Investment in the United States (CFIUS) to require TikTok, the super-popular social media app owned by Chinese tech giant ByteDance, to sell off its US operations, pending a broad review of the strategic policy toward China. CFIUS is a federal interagency panel that has the authority to review and reject all acquisitions by foreign firms. It claimed authority to review ByteDance’s operations of TikTok in the US due to the company’s 2017 acquisition of video app Music.ly. Last August, CFIUS ruled that TikTok threatened US national security due to its massive US user data holdings being subject to Chinese Government demands. Rather than agree to sell TikTok, ByteDance reportedly engaged in months of talks with the Trump Administration to address data concerns by establishing a business arrangement with Oracle to house and control data on US users. In November, TikTok also asked a federal appeals court in Washington to vacate the CFIUS order, and CFIUS granted a series of delays putting off enforcement. The Department of Justice is scheduled to reply to the court on February 18.
Context – One big digital policy question has been whether the traditionalist Biden Administration foreign policy team will seriously dial back the unconventionally aggressive Trump Administration policy towards TikTok, WeChat and Chinese payments businesses in the context of their overall China policy. Here at PEI, we’ve thought the answer was almost certainly yes because the efforts to ban the WeChat and TikTok apps were not cautious, conventional or linked to traditional allies. Beyond CFIUS and TikTok, the Biden Administration will soon need to decide if they will attempt to counter the federal court WeChat and TikTok injunctions that limit Presidential authority to act to protect national security. The WeChat and TikTok legal experience in the US has been very different from the Jack Ma and Ant experience in China.
Danish Bike Rental App Accuses Google of Preferencing Lime Scooter in Google Maps
Report from the Danish Broadcasting Company
In Brief – Donkey Republic, a Danish app-based bike rental company, and other members of trade group Cycling Industry Europe, are charging Google with unfairly using its Google Maps platform to preference the Lime electric scooter business which is partly owned by Google, and threatening to file a complaint with the European Competition Authority (ECA). Google made a major investment in Lime in mid-2018 and announced an integration into Maps later that year. The CEO of Donkey Republic is a critic of electric scooters as undermining healthy mobility options and harming the environment, an advocate of micro-mobility regulation, and a sponsor of the 2017 Copenhagen Letter calling for a “new Renaissance” to put the human, and not just the “user”, ahead of business in technology design.
Context – “Self-preferencing” is one of the digital platform policies most often raised as an anti-competitive abuse. Many critics of Big Tech argue that companies should not be free to use a dominant platform to preference another service or product it owns to the detriment of competing services or products. It is a major theme of the EU’s Digital Markets Act proposal that aims to impose new regulatory rules on large digital platforms that serve as “Gatekeepers”. With Google, the ECA is a decade into a series of legal battles that include a range of self-preferencing charges, especially related to its search service that holds greater than a 90% market share. Last fall, a collection of 165 European and American Internet businesses and trade groups accused Google of giving its specialized 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 competition case rather than wait for possible Digital Markets Act regulation. Donkey Republic’s concerns with Google Maps reiterates that the number of different platform services that could be impacted by new rules is very large.
Google Aims for Media Payments to Replace Links Payment in Australia Standoff
Report from Reuters
In Brief – As the standoff between the largest Australian media enterprises & their champions in the Australian Government and Google & Facebook heats to a boil over a legal mandate that the two giants pay media companies for links in search and social news feeds, Google has announced its News Showcase service will open in the country. The Google News Showcase is a licensing program that pays publishers to curate content but does not pay for links appearing in traditional search. The company announced the project in October to illustrate its support for professional journalism, committing $1 billion to the endeavor that it claims now supports media enterprises in a dozen countries. While 25 Australian companies are reported to be participating as it kicks off in the country, some of the largest and most vocal champions of the AU News Media Bargaining Code legislation have ridiculed the effort.
Context – Media businesses blame the Internet for harming their business models and politicians globally are calling for digital giants Google and Facebook to pay them directly. Australia and France are most out front in forcing payments to media. In France, Google and publishers recently struck a payment agreement related to news appearing on specific Google News pages, but not for general search links. The AU legislation proposes a mandatory payment regime for search links, an idea Google and notable Internet champions decry as fundamentally changing the Internet. Google has threatened to potentially end its search service in Australia, resulting in further criticism from top AU Government leaders and public statements that the company can leave Australia if they want. Microsoft has announced its support for the payment for news links idea and government leaders have said Bing is a potential search substitute in Australia. Microsoft’s willingness to pay for search links follows recent talk that they think new regulation is preferable to antitrust enforcement to address concerns with digital giants.
UK CMA Final Ruling on Viagogo’s StubHub Acquisition is to Divest Non-US Business
Report from the BBC
In Brief – The UK Competition and Markets Authority (CMA) has announced that Viagogo, the UK’s largest secondary event tickets platform, must divest itself of the non-US operations of StubHub, the secondary ticket platform it acquired from eBay Inc. for $4.5 billion in November 2019. The CMA quickly expressed concerns and initiated a review of the deal, which added the world’s largest secondary ticket platform, StubHub, to the largest largest ticket resale platform in the UK. The deal was completed in February 2020, just weeks before the global pandemic largely halted the global live events industry. The CMA’s final report notes that the combined share of the two companies for event ticket resale digital platform services in the UK is over 90%, and determines that the merger would likely negatively impact competition and lead to increased fees for ticket resellers and buyers, worsen non-price terms and conditions for resellers and buyers, reduce customer service and harm innovation. StubHub’s largest and most profitable business, in the United States, will be retained by Viagogo, but the CMA decision will mean that StubHub’s international business – which includes the UK – will need to be independently owned and run by a completely separate company approved by the CMA.
Context – Some digital platform acquisitions can be seen as opportunities for competition regulators to potentially break new ground. For example, Google’s bid for FitBit is giving authorities the chance to rule that a digital giant is simply too big to acquire a large new sensitive data source. Facebook’s acquisition of Giphy, compared by some to the company’s 2013 acquisition of VPN app company Onavo, is testing thinking on “digital surveillance”. The FTC and State AG antitrust suits against Facebook are relitigating the WhatsApp and Instagram purchases as “killer” acquisitions. The Viagogo-StubHub review is far more traditional. The #1 UK secondary ticket platform acquired platform #2, which is generally problematic.
Irish Data Protection Authority Sends Draft WhatsApp GDPR Fine to Fellow EU DPAs
Report from Politico
In Brief – The Irish Data Protection Authority (IDPA) is reported to have submitted the preliminary decision from its two-year investigation of allegations that WhatsApp failed to meet the transparency requirements of the General Data Protection Regulation (GDPR) related to how the messaging app shared user data with Facebook, proposing a fine of between €30 million and €50 million and remedial data policy changes to bring the company into compliance. A tech company fine of that magnitude would be largest issued under the GDPR, although the French data authority recently issued a €100 million fine to Google under the e-Privacy directive for violating cookie policies. Per GDPR policies, the draft IDPA decision has been forwarded to the data protection authorities (DPAs) of the other EU Member States to review and make recommendations. A majority of the DPAs must approve of a GDPR settlement before is it finalized, a process that can take months.
Context – The GDPR instituted the “One-Stop-Shop” policy which established that the privacy regulator in the home of a company’s EU headquarters would be the “lead supervisory authority” for privacy compliance. That means Ireland or Luxembourg for many of the biggest platforms. This IDPC WhatsApp case is second in a line of GDPR challenges facing big U.S. tech companies based in Ireland. The first decision, involving Twitter and the failure to appropriately make timely notifications related to a data breach, resulted in five months of squabbling with other EU data counterparts over jurisdiction, scope and the amount of the fine, which the IDPA initially proposed as €300,000 and eventually landed at €450,000. The transparency issues in this WhatsApp case are more complex and the multi-agency process could stretch even longer. Privacy advocates are widely frustrated with GDPR enforcement, blaming the One-Stop-Shop policy, Ireland and Luxembourg for standing in the way of big penalties for US tech giants.
Europe Set to Rule in March on Microsoft’s Acquisition of Game Developer ZeniMax Media
Report from Reuters
In Brief – The EU Competition Authority (ECA) is scheduled to provide its initial decision to Microsoft by March 5 on the digital giant’s $7.5 billion acquisition of ZeniMax Media, a major game developer that includes successful studios like Bethesda Softworks and major titles like The Elder Scrolls, Fallout, Doom, Quake and Wolfenstein. The ECA can approve the deal as proposed or with concessions from Microsoft, or it could decide to open a more comprehensive and lengthy review of the acquisition. The Xbox platform and gaming is the top consumer-focused business line of Microsoft, competition with Sony and its PlayStation platform is fierce, and Microsoft has historically lacked the type of exclusive, high-quality games that Sony promotes as a major selling point for its PlayStation consoles. If the ZeniMax deal is completed, Microsoft will own more studios than Sony and many of the world’s most popular game franchises, although it is not clear how many would become exclusive to the Microsoft platforms
Context – Video games, including games on mobile devices, PCs, and game consoles, is a $160 billion industry estimated to be four times larger than Hollywood and three times the music industry. Mobile gaming has been in the public policy spotlight for months due to Epic Games, the giant developer behind the Fortnite mega-franchise, leading a legal and regulatory campaign to overturn the app store business models of mobile operating system giants Apple and Google. Microsoft jumped squarely into that debate last October by announcing principles for running its app store for Windows devices that closely aligned with the principles of the Coalition for App Fairness led by Epic Games and Spotify. However, Microsoft’s principles don’t apply to its own Xbox platform, which is a “walled garden” with rules and fee levels in line with Apple and the other major game consoles. Microsoft’s announcement acknowledged they “have more work to do to establish the right set of principles for game consoles.”
French Bill to Combat Religious Separatism Includes Online Regulation from EU’s DSA
Report from Politico
In Brief – Legislation being debated in the French National Assembly to combat what the government calls separatism, terrorism and religious extremism has become the vehicle for provisions expanding the responsibilities of online platforms to takedown hate speech in France. The new online regulations are modeled after the European Commission’s recently introduced Digital Services Act. The “Article 19” proposals in the bill include due diligence and transparency obligations related to content moderation policies and results, and establishes the French audio-visual regulator as the enforcer of digital content-moderation practices. Online hate speech has been a French Government priority for years and the current legislation drew in part from the country’s Avia Law enacted last year. The French Constitutional Court overturned that law due to a 24-hour takedown mandate that it determined threatened rights to free expression. The current bill does not include the 24-hour rule.
Context – The European Commission intends to rewrite the rules governing the digital economy, at least in Europe. The Digital Markets Act (DMA) and the Digital Services Act (DSA) are the primary legislative vehicles. The DMA aims to address competition concerns with giant digital “gatekeepers”. The DSA aims to better police harmful online content. Germany and France have championed more aggressive online regulation. The French effort to legislate DSA provisions at the national level follows enactment in Germany of a DMA-style competition law empowering the country’s antitrust authority to proactively regulate large digital platforms to prevent them from abusing their market power. Some see these national efforts as attempts to push forward the DSA and DMA, which must still pass muster in the European Parliament and with Member State governments, while some tech industry leaders have challenged them as undermining EU-wide standards.
Top Spanish Court Applies CJEU AirBNB Ruling to Vrbo in Catalan Tax Registration Case
Report from El Pais
In Brief – In a case stretching back to 2015, the Spanish Supreme Court has overruled an order by the Government of Catalonia to require HomeAway, a digital platform for short-term rentals now called Vrbo, to proactively remove listings for rentals that did not include their tourist apartment registration number. The Government of Catalonia proposed that the platform had 15 days to block listings from advertisers who did not appropriately comply. The Superior Court of Catalonia affirmed the government order in 2018, but that ruling has now been annulled by the national Supreme Court which has determined that Vrbo, consistent with a landmark 2019 ruling of the European Court of Justice (CJEU) regarding regulatory obligations of short-term rental platform AirBNB, is an information society service provider. As such, it is required to respond to specific demands of the government regarding postings that do not comply with local regulations, but not to continuously and proactively monitor and enforce local tourism laws and regulations.
Context – Short-term rentals and the digital platforms that facilitate them have been highly controversial in Europe, especially in the most popular tourist destinations like Paris, Barcelona and Amsterdam (pre-pandemic, of course). AirBNB, the largest platform and the subject of the key CJEU decision cited in this Spanish court case, has been the subject of widespread regulatory, tax and liability challenges. While the European Commission’s Digital Services Act is most often described as proposing EU-wide platform content moderation rules to address ills like hate speech, terrorism recruitment, child sex abuse and disinformation, commerce-related content is also right in the mix, including counterfeits, digital piracy and regulatory compliance. AirBNB itself has called for consideration of a single European oversight body to set EU-wide rules for short-term rental services as part of the DSA.
Klobuchar Antitrust Bill Targeting Tech Consolidation Could Lead to Bipartisan Reform
Report from CNBC
In Brief – Sen. Amy Klobuchar (D-MN), Chair of the Senate Antitrust Subcommittee and champion of strengthening antitrust law and enforcement, has introduced the “Competition and Antitrust Law Enforcement Reform Act” to combat consolidation in digital markets dominated by tech giants as well as in the overall economy. The bill includes a reset of the standard for enforcement and shifts the burden of proof onto dominant firms in merger cases, adds a prohibition against “exclusionary conduct” to the Clayton Act to make it harder for dominant firms to prove mergers won’t harm competition, and strengthens antitrust agencies with more resources and new enforcement tools, including the ability to impose civil penalties of up to 15% of revenues. Three Democrats joined as original cosponsors.
Context – A 50-50 Senate means that the full progressive wish list on antitrust reform (see last year’s 450-page report on digital markets from the House Antitrust Committee Majority as an example) is not being enacted now. However, gavels in the hands of Democrats does change the prospects for some areas of policy cooperation, and as we’ve pointed out for some time, targeted changes in antitrust law might be one. A window on what’s possible is the 19-page report from Rep. Ken Buck (R-CO) in response to the House Antitrust Subcommittee’s overarching plan. He’s now the top Republican on that panel. There is some overlap with parts of Sen. Klobuchar’s bill, including changing the burden of proof in merger cases, clarifying that market definition is not required if there is direct proof of market power, and more resources for antitrust agencies. The two things to watch for are whether progressive reformers will signal their willingness to accept much less than they aspire too, and whether a serious legislator among the Senate Republicans starts to head down the path outlined by the Buck Report.
Canadian Privacy Commissioners Decry Clearview AI as Illegal and Totally Unacceptable
Report from the CBC
In Brief – Canada’s national privacy commissioner, and three regional commissioners, have released a report concluding that controversial facial recognition technology firm Clearview AI violated Canadian privacy laws by collecting and processing photos of Canadians from social network web sites without their knowledge or consent. Upon releasing the report, the privacy commissioners called the company’s business “completely unacceptable”, “deeply troubling” and “illegal”. The investigation into Clearview began a year ago after a New York Times expose revealed that the small, little-known firm had collected and processed billions of photos found on Internet sites and developed a powerful facial recognition tool for commercial use. Privacy laws in Canada require businesses to get consent from a person to use their personal data, but the company argues that public information on the Internet is exempted from the legal limitation on gathering data and describes Clearview AI as simply an Internet search engine for photos. Although the service was sold for a period of time to Canadian users, especially in law enforcement, the company withdraw the service from the country in July. The report calls on Clearview to purge all data on Canadians and stop processing new photos.
Context – Facial recognition is one of the most controversial “AI” technologies. It is a central feature of the oft-criticized Chinese Government surveillance regime. In the EU, a legislative package on AI expected soon is likely to be include facial recognition as a “high-risk” AI application. In the US, concerns over discriminatory aspects of the technology has led IBM, Microsoft and Amazon to halt sales to law enforcement, although Amazon’s incoming CEO is reported to be a major champion. A range of bills were introduced by Democrats in the 116th Congress and civil liberties and privacy advocates intend to press the Biden Administration to limit the use of facial recognition by federal agencies.
Third Run at Washington State Privacy Bill Still Plagued by Class Action Lawsuit Hurdle
Report from the Seattle Times
In Brief – Data privacy legislation modeled after the EU’s GDPR and the California Consumer Privacy Act has been passed by the Washington State Senate’s Committee on Environment, Energy & Technology. This is the third effort to move major digital privacy legislation through the Washington State legislature. The bill, which applies to most businesses that target services to state residents, process data from at least 100,000 consumers, or makes 25% of revenues from data processing related to 25,000 or more consumers, gives consumers the right to access, correct or delete data collected on them, as well as the right to opt-out of certain data processing for targeted advertising, the sale of data and profiling. A similar bill failed in the state’s House of Representatives last year primarily over disagreements between business and privacy advocates over whether a private right of action for consumers would be included. The current bill, supported by a range of tech and business groups, does not include a consumer private right of action, and major privacy advocates are not supportive for that reason.
Context – Many predicted that Congress would enact federal privacy legislation in 2020. It did not happen. Yes, there is interest on both sides of the aisle, but don’t underestimate the real policy disagreements that divide Democrats and Republicans. The role of consumer class action lawsuits (aka “private right of action) is at the top of the list. The ongoing real world experience of private class action suits tied to Illinois’ Biometric Information Privacy Act, with a wide and growing range of companies that employ some manner of biometric technology being sued in Illinois, is a clear warning to opponents of unfettered private right of action as a privacy enforcement tool. Instead, look for the Biden FTC under Acting Chair Rebecca Slaughter, who has been a strident voice for more aggressive enforcement and penalties in tech cases, to be the more likely venue for meaningful federal privacy action.
German Competition Authority to Use New Platform Law to Review Facebook-Oculus Links
Report from Reuters
In Brief – The Bundeskartellamt, Germany’s competition authority, has announced that it is extending the scope of its investigation into Facebook’s plan to more tightly link its Oculus virtual reality (VR) products with the company’s social media network, basing the expansion on the country’s new law giving it proactive authority to address competition threats from large platforms. The new authority rejects the traditional competition enforcement model of regulators investigating dominant businesses for anticompetitive abuses after they have caused harms, and then imposing penalties, a process many charge is too slow for digital markets. The Bundeskartellamt 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. In December, the Bundeskartellamt had opened up an investigation of Facebook following announcements over the summer pulling the Oculus VR business, acquired in 2014 but operated independently, into the company, contending the changes could hurt competition in VR and social networking. The proposed changes included renaming the business “Facebook Reality Labs”, requiring new Oculus users to log in through a Facebook account, and ending support for stand-alone Oculus accounts by 2023.
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, Japan and the EU. Many see the new German legislation as an effort to push forward the EU’s Digital Markets Act “gatekeeper” regulatory proposal. Watch this Facebook-Oculus investigation for a real-world example of how it could work.
Federal Trade Commission Settles with Amazon Over Scheme to Cheat Drivers on Tips
Report from TechCrunch
In Brief – Amazon will pay $61.7 million in a settlement with the Federal Trade Commission (FTC) over allegations that the company used customer tips to subsidize the promised hourly wages of some “gig work” Amazon Flex delivery drivers who were recruited with promises of $18 to $25 hourly pay plus all customer tips. The FTC plans for the entire financial settlement to be used to compensate affected drivers. The FTC says that Amazon lived up to its stated Amazon Flex pay terms from 2015 to 2016, but its complaint alleges that Amazon surreptitiously changed its payment practices in late 2016 and began withholding some customer tips to offset the company’s hourly wage bill, all the while deceiving the drivers, many of whom questioned what they suspected were changes in payment practices. The FTC issued a civil investigative demand to Amazon regarding Flex driver pay practices in May of 2019, and in August of 2019 the company announced changes to driver pay practices that were similar to the original compensation plan.
Context – In the first Federal Trade Commission settlement of the Biden Administration, new Acting Chair Rebecca Slaughter and Republican Noah Phillips added a joint statement where they noted that while they do not agree on many aspects of the gig work business model, they do agree that “platforms that facilitate this gig economy must treat their workers fairly and non-deceptively” and that the alleged conduct of Amazon was “outrageous”. They further noted they while they do not always agree on the proper scope of rulemaking and penalty authority, something clearly apparent over a string of tech platform cases where Commissioner Slaughter dissented from a Republican majority opinion, they do agree that Congress should be authorizing the FTC to assess civil penalties to deter similar deceptive practices, help gig workers and make labor markets more efficient.
CMA Continues to Press Competition Concerns over Facebook’s Acquisition of Giphy
Report from CNBC
In Brief – The UK Competition and Markets Authority (CMA), the country’s competition regulator, has announced that it is officially opening an investigation into Facebook’s $400 million acquisition of Giphy, the largest online GIF site and a tool integrated into social media services like Twitter, Tinder, Slack and iMessage. While US and Australian regulators have expressed concerns, the CMA has taken the most aggressive steps to challenge the deal announced last May, issuing an Initial Enforcement Order in June calling on the companies to freeze integration activities. The CMA is scheduled to decide by March 25 whether it will oppose the acquisition and proceed to a second phase review.
Context – Your digital acquisition policy scorecard should include reviews based on “digital surveillance”, “killer acquisitions” and the idea that some of the platforms are too big to acquire large new data sources. Facebook-Giphy is generally criticized as a potential “digital surveillance” acquisition that could help Facebook identify threats and targets for future acquisitions, a tactic ascribed to its purchase of Onavo prior to the acquisitions of Instagram and WhatsApp (deals being re-litigated in the FTC and State AG antitrust complaints). The recently-abandoned Visa acquisition of digital financial services firm Plaid was challenged by the US DoJ as a “killer acquisition” intended to block Plaid from developing into a viable debit payments challenger. Finally, Google’s purchase of fitness wearables firm FitBit, approved by the European Competition Authority and Japan but not by Australia, tested thinking on whether some platforms are too big to acquire a large new data source. On broader policy, the head of the CMA is calling for a new UK merger regime for large digital companies, the chief of the French competition authority is calling for all acquisitions by digital giants to be investigated, and the House Antitrust Subcommittee has proposed merger policy reforms that received positive feedback from Republicans.
Independent Facebook Oversight Board’s First “Rulings” on Platform Takedown Decisions
Report from TechCrunch
In Brief – Just months after the independent Facebook content Oversight Board (OB) opened for business and accepted a handful of challenges to company takedown decisions, the body has released their first five rulings, telling the company to reverse four out of five content takedowns and recommending a number of policies. Since the project was announced over two years ago, Facebook has described the OB as an independent body that would allow Facebook users to challenge company content removal decisions by appealing to a panel of 20 eminent academics, lawyers, journalists and human rights activists from across the globe (expected to grow to 40 in the coming year). Reflecting the global reach of Facebook, the five cases reviewed by the OB were from Asia, Europe, North America and South America, and spanned policies over hate speech, misinformation and nudity. Facebook is committing to abide by the OB’s case decisions but not necessarily to change overall content moderation policies as recommended.
Context – Content moderation is a huge and increasingly politicized challenge for platforms. The EU, France, UK, Germany, Australia, Turkey and others are proposing content moderation regulation. It is worth stepping back and noting there is nothing like this Facebook effort. It is bold and creative. Scale is an immense challenge. Can a quasi-independent “Supreme Court” give confidence to a global community of nearly 1.7 billion people including political leaders, ideologues and policy advocates? Three things to keep in mind: (1) Facebook has asked the OB to review the ban imposed on former President Trump; (2) four of the five decisions went in the direction of less-restrictive moderation, the “free speech” position; and (3) Facebook is clearly trying to find a path that balances the desire of many to put social media content guidelines more in the hands of government leaders, such as the EU Digital Services Act initiative, with the US First Amendment that seriously limits government authority but protects private company action.
Governor Cuomo Proposes Short-Term Rental Platforms Collect NY Sales Taxes
Report from the Wall Street Journal
In Brief – The state budget proposal of New York Governor Andrew Cuomo imposes sales tax collection duties on short-term rental platforms such as AirBNB and VRBO. This proposed expansion of marketplace sales tax collection would go into effect on April 1, 2021, is estimated to raise $10 million for the state this year and $18 million in subsequent years, as well as similar amounts for local governments. The budget plan does not propose changing the state’s regulatory treatment of short-term rentals although some reacted by expressing support for opening up regulatory issues as well. The state Budget Division has ruled that vacation rentals have always been subject to sales tax but platforms have not been required to collect them, leaving the tax duties to the “hosts” or to platforms coming to “voluntary” agreements with counties in the state, something Airbnb has negotiated with 34 of New York’s 62 counties.
Context – After the long-running debate over Internet Sales Taxes was resolved by the U.S. Supreme Court’s landmark Wayfair decision in 2018, overturning the precedent that states could only require in-state businesses to collect sales taxes, the primary strategy to expand tax collection to Internet-enabled commerce has been to impose the tax collection duties on digital platforms rather than the actual businesses, many small, selling goods and services. This “marketplace collection” drastically simplified the compliance work for states by capturing many taxable transactions within the framework of a few large platforms. Of the 45 states that have sales taxes, 42 have instituted marketplace collection laws. While 45 states impose sales tax on tangible goods, most only tax a subset of services, and the move by New York illustrates how platform tax collection simplifies services sales tax collection as well. Expect that to grow. For example, a bill introduced in the Washington State legislature would authorize cities to impose a short-term rental tax collected by the digital platforms to fund affordable housing projects.
California WeChat Users Sue Tencent Over Censorship and Chinese Surveillance
Report from the Washington Post
In Brief – A group of California-based users of the WeChat mobile app, a centerpiece of Chinese digital giant Tencent, has filed a class action lawsuit in California Superior Court alleging that the company has censored and surveilled them, and shared their data with Chinese authorities, violating their free-speech and privacy rights and causing economic harms. The suit, organized by the group Citizen Power Initiatives for China, seeks an injunction to halt the alleged practices and financial compensation for financial losses, emotional trauma and psychological stress. Tencent has declined to comment on the lawsuit but has stated in the past that it “operates in a complex regulatory environment, both in China and elsewhere.” The company is required to heavily censor the app inside China and share data on users with the government, and it is widely recognized that some censorship extends to users outside China.
Context – This WeChat user suit is a counterpoint to the WeChat user suit challenging the Trump Administration’s attempt to ban the WeChat app as a tool of Chinese surveillance and censorship. Those WeChat users have been successful in temporarily blocking the WeChat ban on First Amendment grounds, a position recently challenged by the DoJ in the Ninth District Court of Appeals arguing that a foreign government cannot weaponize the First Amendment by blocking competitive services. The WeChat and TikTok bans are high profile platform examples of the digital decoupling between the US and China, a development that is quickly becoming mainstream. For example, a group of tech industry leaders including former Google CEO Eric Schmidt calling itself the China Strategy Group has published a memo, obtained by Axios, advising national technology policy in the context of US-China strategic competition, contending that China “plays by a different set of rules” and concluding that “some degree of disentangling is both inevitable and preferable” to the alternative where China’s non-democratic norms have “won”.
California-Based Grindr Faces Massive GDPR Fine From Norwegian Data Authority
Report from The Guardian
In Brief – The Norwegian Data Protection Authority (NDPA) has announced a preliminary finding that US-based Grindr, the world’s most popular gay dating app, violated the European General Data Protection Regulation (GDPR) by improperly collecting and sharing personal data about its users, and proposed a fine of over $11 million, equal to approximately 10% of the company’s global annual revenue. The NDPA opened their investigation last year following a report from the Norwegian Consumer Council analyzing how a range of popular apps share user data with the behavioral ad industry and challenging whether the apps get the necessary and legally valid consent from users. The GDPR authorizes corporate fines of up to 4% of annual global revenue or €20 million, whichever is higher, and the NDPA proposed “a fine of high magnitude as our findings suggest grave violations of the GDPR” due to the particularly sensitive nature of the app and the lack of legal consent to the data sharing.
PEI Special Report – Any Real News From Cabinet Confirmation Hearings?
Digital Services Taxes – Secretary of Treasury Janet Yellen
In Brief – Despite press reports and claims from some European leaders that incoming Secretary Yellen was amenable to revenue-based Digital Services Taxes (DST) being imposed on digital giants, that is a misunderstanding. On DST, Yellen expressed support for “the cooperative multilateral effort… through the OECD/G20 process, and to working to resolve the digital taxation disputes in that context, which was the public position of the previous Administration and entirely expected.
Context – US opposition to national DST regimes is bipartisan. US companies and the US Treasury would take disproportionate hits. That biggest roadblock to DST regimes has been the reputation of the Trump Administration to use trade retaliation, even with traditional allies. We did not learn anything new from Secretary Yellen about the U.S. negotiating position at the OECD or whether the Biden Administration is willing to match the Trump Team’s anti-DST trade threats.
Section 230 – Secretary of Commerce Gina Raimondo
In Brief – On the controversial topic of eliminating Sec. 230, the cornerstone Internet platform liability provision, incoming Secretary Raimondo said, “we need some reform in Section 230,” expressing concerns with misinformation and hate speech that proliferates on some online platforms. That language is in-line with a recent shift among Democratic leaders away from talking about Sec. 230 “repeal” and towards Sec. 230 “reform” that accounts for the importance of the provision.
Context – Big Tech bashing is often Bizarro World Bipartisanship. Don’t be fooled. The two parties agree that giant platforms are very bad while completely disagreeing on substance. This is the case on Sec. 230 and content moderation. Democratic critics focus on failures to block misinformation and want more done. Republicans see platforms censoring conservatives and demand less content moderation. Raimondo’s comments do not point to the sides coming together.
The Facebook – Apple CEO Feud Gets Hotter. Very, Very Hot.
Report from the Wall Street Journal
Context – Besides further exposing the religious-like schism over targeted digital advertising, this feud highlights three trends. First is the growing tension between digital ad industry competition concerns and privacy concerns. Google has faced similar charges as Apple regarding proposed changes to third-party cookies in the Chrome browser, which it calls its Privacy Sandbox. Second, the legal and regulatory fight over mobile operating systems and app store policies is dividing even the super giants, with Apple and Google on one side and Facebook and potentially Microsoft lining up on the other side aligned with big developers like Epic Games and Spotify. Finally, Facebook is speaking positively about the highly-regulatory gatekeeper model outlined in the EU Digital Markets Act as protection from Apple and could drastically shake up that debate.
Google Threatens to Pull Search Out of Australia in Forced Media Payments Fight
Report from the BBC
In Brief – Google has threatened to shut off its search engine in Australia if the government enacts a law that forces it to pay media companies when links to their web content appears in standard Google search results. Google argues (submission #38 here) that an “obligation to pay for links would break the way search engines and the internet work.” The Australian Prime Minister responded that they make the laws in Australia and they don’t respond to threats. The parliament is considering a bill to establish a News Media Bargaining Code that empowers government arbiters to impose payment regimes on the platform giants if they do not come to voluntary payments agreements with the media companies. Facebook and Google argue that the process is not balanced and does not account for the full value they provide media enterprises. Last fall, Facebook threatened block news article links from News Feeds in Australia.
Context – Many media businesses blame the Internet for undermining their advertising business models and call for Google and Facebook to pay them directly. Australia and France are boastfully claiming they are showing global leadership by forcing such payments. In an interesting parallel, after months of talks, Google and French publishers recently struck an agreement for Google to pay French news publishers when their online content appears on specific Google News pages, but not for general search links. Google and Facebook have both created major news curation services that involve payments to media businesses to turn down political heat. On the matter of payments for simple links, Sir Tim Berners-Lee, the creator of the world wide web, submitted to the AU parliament (#46 here) that the proposed Code “risks breaching a fundamental principle of the web by requiring payment for linking between certain content online.” Whether Google would actually shut down its search engine and potentially other services in Australia, like they did in China in 2010, is a super interesting question.
Amazon Announces Plan to Increase Fees on Spanish Sellers to Account for Digital Tax
Report from Reuters
In Brief – Amazon has announced that it will be raising the fees charged to Spain-based sellers by 3% in April to account for the new Spanish national Digital Services Tax (DST). Spain proposed national DST legislation in February of 2020, enacted the tax in October, and it took effect in mid-January of this year. The revenue tax hits digital services companies with worldwide revenues of at least 750 million euros and at least 3 million euros in Spain. Spain is one of a group of ten countries proceeding with digital tax plans that have been scrutinized by the United States Trade Representative (USTR) as potentially unfair and discriminatory trade barriers, with the USTR releasing its Spanish findings on January 13 that the tax does discriminate against US companies, is a burden on commerce, and is actionable under Sec. 301 of the Trade Act, which authorizes retaliatory tariffs.
Context – Europe has been the hotbed of DST efforts aimed at increasing digital company taxes paid to countries where Internet users reside rather than countries where digital enterprises set up business operations. In short, shifting tax revenues from the US and countries like Ireland, Luxembourg, and Singapore, to countries like the UK, France, Spain, and India. Because most of the companies initially targeted are American, and because the net effect is likely to shift tax revenue from the US to other national treasuries, US opposition has been bipartisan. But the biggest barrier to the new taxes was the belief that the Trump Administration was very willing to engage in trade wars, including with traditional allies, to stop them. While all sides claim to want a multilateral tax deal, talks at the OECD are bogged down. A top digital policy question for 2021 is whether a Biden Administration that is looking to reinvigorate relationships with European allies will match the Trump Team’s anti-DST intensity and trade war threats. Along with Amazon, Google and Apple have been announcing offsetting in-country fee increases.