News & Insights 2 old

January 2021

Parler Suffers Setback in Amazon Antitrust Suit Aimed to Quickly Get Back Online

Report from the New York Times

In Brief – Parler, the Twitter-like social media app popular with outside-the-mainstream conservatives, has had its federal court bid to be immediately restored by Amazon’s AWS cloud business rejected by US District Judge Barbara Rothstein. Parler’s service, using minimal content moderation policies, grew in popularity as an alternative to platforms accused of ideologically-biased moderation. Following the US Capitol riot, President Trump being removed from Twitter, and further online threats, Apple and Google pulled Parler from their app stores, and AWS cancelled the service’s web hosting entirely, taking it off the Internet. Parler, which remains largely offline, filed a federal antitrust suit against Amazon, which also provides services to Twitter. Rothstein denied Parler’s motion for a temporary restraining order, concluding that it had failed to show its underlying lawsuit was likely to succeed on the merits.

Context – While the widespread social media bans imposed on then-President Trump has garnered the most public attention, including by European leaders looking to regulate content moderation, the plight of Parler is likely to have a bigger impact on US digital policy. First, conservatives who allege ideological bias by the largest platforms will be further angered that even moving to alternatives can be foreclosed by the same large platforms. Second, Parler’s legal gambit was a longshot and the rejection not surprising, given the flexibility private companies have to interpret and enforce contract clauses, and that there are cloud services competitors. In addition, federal court cases, including the Supreme Court’s 2019 Manhattan Community Access Corporation decision, continue to reinforce that private companies that offer public forums are not subject to First Amendment constraints on editorial discretion. The Parler episode is likely to further drive Democrats and Republicans apart on major Sec. 230 reform, but it might align more Republicans with progressive advocates of aggressive antitrust actions targeting the digital giants.

Apple Sued by Anti-Hate Speech Campaigners to Remove Telegram from App Store

Report from the Washington Post

In Brief – The Coalition for a Safer Web, a DC-based advocacy group combatting online hate speech, has filed a lawsuit against Apple demanding that the company remove the Telegram messaging and social media app from its App Store due to the prevalence of hate speech, extremist content and illegal behavior in violation of the company’s app guidelines and California hate speech law. The complaint, filed in US District Court in California, describes how Telegram has been used to discuss a wide range of violent conduct, and accuses Apple of negligent infliction of emotional distress and violating California’s business code. The Coalition is aiming to build on Apple’s suspension of the Twitter-like Parler app from its App Store following the Capitol riot based on the determination that Parler’s limited content moderation efforts led to users engaging in hateful and violent discussions prohibited by Apple’s guidelines. A similar suit targeting Google, who also removed the Parler app, is in the works.

Context – The post-Capitol riot social media bans and Parler’s shut-down led to a rush of people signing up for encrypted chat apps like Telegram and Signal, small privacy-focused Facebook competitor MeWe, and other more fringe services. Some of the shift was likely due to the long-held concerns, stoked by President Trump and many other conservative activists, that the major platforms were biased. However, many of the most extreme critics moved their communications onto platforms that were harder for law enforcement to track just as concerns over Inauguration violence were peaking. Another driver of Signal app growth has been the proposed change in the WhatsApp privacy policy (not to message security or encryption), which has caused blowback globally, including Elon Musk encouraging people to ditch WhatsApp for Signal. Finally, in a sign that the Parler-related political battle will only heat up, the Chair of the House Oversight Committee has called for the FBI to investigate Parler business links to Russia.

Amazon Sues EU to Consolidate Marketplace and Logistics Antitrust Cases

Report from Reuters

In Brief – Amazon is asking the EU’s General Court, Europe’s second-highest, to consolidate two competition investigations that are targeting the relationship between third-party seller success on the Amazon ecommerce marketplace and the use of Amazon’s logistics services business. The Italian competition authority opened an investigation nearly two years ago into whether Amazon illegally preferences third-party sellers who also purchase its logistics services. In November, the European Competition Authority (ECA) opened an investigation into marketplace and logistics tying allegations, focusing on the German and French markets, and explicitly exempting the Italian market due to the Italian investigation already underway. Amazon argues that European law says that when the European Commission decides to investigate a matter, national competition authorities cannot investigate the same topic, and that the ECA’s effort to exclude Italy should not override that rule.

Context – Amazon is fundamentally unlike other ecommerce marketplaces. It is also the dominant player in the physical business of ecommerce logistics, stocking and handling the goods for many of the top sellers on its marketplace in its distribution centers, much like a traditional retailer handles products from its wholesalers. In the United States, this retailer-like Amazon model is coming to the fore in a series of product liability cases. On the antitrust front, these European investigations into Amazon’s policy of linking Buy Box success to the use of the FBA logistics business is the most important development. While charges have dogged Amazon for years that they unfairly use third-party seller marketplace data to develop their own competing retail products, Amazon consistently responds that they are not a large share of overall retail and that other large retailers sell even more “house brands” than they do. Amazon’s market share responses related to FBA, logistics and the Buy Box will be less compelling.

European Parliament Pressing Forward for Big Tech CEOs to Testify at Committee Hearing

Report from Politico

In Brief – The European Parliament has firmed up its plans to call the CEOs of Amazon, Apple, Facebook and Google to testify before the Parliament’s Committee for Economic and Monetary Affairs. The proposed hearing, which would be conducted remotely due to the pandemic and also the logistical benefits, would focus on competition in the digital economy and taxes. EU parliamentarians have been working since late last summer to call the four CEOs before the European legislature after the four testified together before a high-profile July hearing of the US House Antitrust Subcommittee. It is reported that the companies have not been willing to agree to have their CEOs attend, that Amazon and Apple appear the most reluctant while Google is most willing, and that the European Parliament does not have the authority to require their attendance in the same manner as the US Congress does. The committee will send invitations after it has agreed on a date.

Context – Last summer’s five-hour hearing of the House Antitrust Subcommittee (video here) included the Committee’s Democrats releasing a lengthy report laying out their case that digital markets were suffering from major anticompetitive abuses, but their comprehensive progressive plan to address the problems was, and is, a very long way from concrete legislation. In Europe, the situation is different. Major public policy proposals are moving. The European Commission has introduced the Digital Markets Act, to regulate the largest digital “gatekeepers”, and the Digital Services Act, to direct platforms on how they should moderate objectionable online content. The EU Parliament will act on them in the coming year. Taxes are also on the agenda in Europe, including Digital Services Taxes that face bipartisan US opposition. Apple’s and Amazon’s tax disputes with the European Competition Authority might explain their particular reluctance to attend.

Facebook Sends Its Trump Ban to Its Independent Policy Oversight Board for Outside Ruling

Report from the Washington Post

In Brief – Just months after the independent Facebook content Oversight Board (OB) opened for business reviewing company content moderation decisions, Facebook’s management has asked it to pass judgement on the company’s decision to ban Donald Trump from posting on the company’s sites. Since the project was announced over two years ago, Facebook has described the OB as an appeals body operating outside the company’s content moderation process that allows Facebook users to challenge company content removal decisions. Following the violent invasion of the Capitol, Facebook indefinitely banned Trump from posting on its sites. The former President, who has over 35 million followers on Facebook and over 25 million on Instagram, will be able to submit his views to a five-person panel chosen from the Board’s 20 members, as will other members of the Facebook community. A decision is expected to take two or three months, likely meaning he will remain banned for at least that time. Facebook has committed to abiding by the OB’s decisions on specific cases.

Context – A wide range of social media platforms, including Twitter, Facebook, YouTube and Snap blocked former President Trump’s activity following the January 6th Capitol riot. Some of the most noteworthy critics of these social media bans came from European leaders who argued that governments should determine what online speech is not acceptable, not companies. The prospect of the Facebook OB, a global collection of eminent academics, lawyers and human rights activists, giving their opinion, is a truly interesting prospect. In the US, the First Amendment severely limits the government from active speech moderation, whether directly or through company mandates. While Europe discusses government content moderation regulation through the Digital Services Act, Facebook deserves some credit for attempting to set up a process that provides orderly input on speech constraints outside government mandates.

USTR Expresses Opposition to Australia Forcing Google and Facebook Pay AU Media

Report from Reuters

In Brief – The US Government has weighed in with strong reservations against Australian Government legislation to require Facebook and Google provide financial compensation to major Australian media companies when their content appears in Facebook’s newsfeed and Google’s search results. The Australian Federal Government has been aggressively pressing forward for more than a year to address the alleged competitive and financial imbalance between Google and Facebook and the country’s media companies. If the platform giants and media companies do not come to voluntary payments agreements (and talks in early 2020 proved fruitless) the proposed News Media Bargaining Code mandates government arbiters impose rates on the companies. Facebook and Google have strongly argued that the proposed regime fails to account for the full value the digital platforms provide media enterprises, a position reiterated by the United States Trade Representative (USTR) submission to the Australian Senate Committee reviewing the bill. (All submissions available here.) The USTR letter also raises concerns that the proposal’s arbitration process and the requirement for the platforms to provide media companies access to algorithms violate the US-Australia Free Trade Agreement.

Context – Many traditional news businesses blame the Internet for undermining their advertising business models and are rallying around proposals to require large online advertising platforms, especially Google and Facebook, to pay them directly. Australia and France are out front, but the trend is going global. Google and Facebook have each initiated “voluntary” media content curation initiatives involving hundreds of millions of dollars in payments to try to turn down the heat. The desire of the incoming Biden Administration to improve relations with traditional US allies will face tests on issues like this one, and Digital Services Taxes, where the Trump Administration was willing to threaten trade wars to stop unilateral digital taxes.

Federal Court of Appeals Hears US Arguments to Overturn Injunction of WeChat App Ban

Report from Bloomberg

In Brief – A three-judge panel of the U.S. Court of Appeals in San Francisco has heard arguments in the Department of Justice’s appeal of the preliminary injunction issued last fall blocking the Trump Administration’s effort to ban the operations of WeChat, a Chinese social media “super app”. The US Government determined that WeChat is a national security threat because it cooperates with the Chinese state censorship and surveillance regime and is capable of building dossiers on U.S.-based WeChat users that could be accessed by Chinese security services. Federal Judge Laura Beeler based her order largely on First Amendment grounds, agreeing with the U.S.-based WeChat users that the service was essential to engage in protected speech with people inside China due to similar non-Chinese apps being blocked in China. US Government lawyers argued before the appeals court that adversarial foreign governments should not be able to weaponize the First Amendment by banning competitive communications services, and the judges did question whether a First Amendment-based ruling would foreclose the ability of the federal government to address national security concerns.

Context – The Trump Administration effort to ban the WeChat and TikTok apps was an unprecedented manifestation of the ongoing digital decoupling between the US and China. Both app bans were blocked by federal court injunctions. While the WeChat injunction was based on First Amendment grounds, two federal district courts granted injunctions blocking the TikTok ban based on an alternative argument that the International Emergency Economic Powers Act (IEEPA) does not permit the President to sanction “informational materials” or “personal communications”. In the TikTok cases, the DoJ is arguing that the IEEPA limitations are intended to apply to bans on specific content, not services, and it urged the WeChat appeals court to refrain from addressing the IEEPA issues without fully briefing the issue.

Consumer Groups Complain Amazon Uses Abusive Tactics to Block Prime Cancellation

Report from the New York Times

In Brief – Led by a Norwegian consumer rights group, a broad range of consumer advocates in Europe and the United States are urging regulators to take action against Amazon over web site design features that they claim manipulate users by thwarting consumers from cancelling their Prime memberships. The Norwegian Consumer Council’s complaint accuses Amazon of breaching the EU’s Unfair Commercial Practices Directive by using complicated navigation menus, skewed wording, confusing choices, and repeated nudging. The highlights are laid out in this short cartoon video. Sixteen consumer groups in Europe and the United States are following up with national regulators, including Public Citizen in the US, who have raised it with the Federal Trade Commission (FTC).

Context – Many web sites have always used some sneaky tactics to spur users to take actions, including making purchases, sharing data and signing up for marketing programs. These website design tactics have been lumped under the heading “dark patterns”. In the last Congress, Sen. Mark Warner (D-VA), a champion of new regulatory frameworks for digital businesses, authored S. 1084, a bipartisan dark patterns bill that would prohibit digital firms with more than 100 million users to create 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 as a ballot initiative in November, aims to effectively ban dark patterns by invalidating consumer consent when used. Finally, while comprehensive US Federal privacy legislation is bogged down over consumer class action enforcement and state preemption, some Internet regulation might gain traction in Congress if targeted at the largest platforms, the model of the EU’s Digital Markets Act. A more aggressive FTC under Democratic leadership is the most likely locale for federal action in the next two years.

India May Tighten Ecommerce FDI Rules to Limit Amazon & Walmart

Report from Reuters

In Brief – India is reported to be considering further revising its foreign direct investment (FDI) rules for e-commerce businesses to address perceived efforts by Amazon and Walmart to circumvent Indian policies to protect the Indian retail industry from foreign-owned competitors. The move continues the country’s long-running digital policy battle pitting the two largest ecommerce marketplaces, Amazon and Walmart-owned Flipkart, against traditional retailers and others concerned about the influence of the US-based digital giants. India’s often strict FDI laws allow foreign-owned enterprises to operate third-party ecommerce marketplaces but not retail businesses, whether online or brick-and-mortar. Amazon and Flipkart have been accused of illegal tactics to circumvent the retail FDI limits and are the subject of competition and FDI enforcement investigations. Additional regulatory changes could hurt Amazon because it holds indirect equity stakes in two of the largest online retailers that sell on its platform in India.

Context – It is increasingly hard to look at digital platform policy in India and not find a connection to Reliance Industries, the conglomerate run by Mukesh Ambani, India’s politically influential richest man. Last year, GoogleFacebook and a number of major US-based tech investment firms pumped billions into Reliance’s digital properties, led by Jio Platforms, the conglomerate’s digital services wing. Jio Platforms, a business unit of the country’s top mobile phone company, is reported to be partnering with Facebook’s WhatsApp, which is hugely popular in India, to embed Reliance Retail’s JioMart ecommerce app into WhatsApp within six months, giving it a preferenced place in front of 400 million Indian WhatsApp users and potentially putting an Indian-owned ecommerce business in serious contention with Amazon and Walmart-owned Flipkart, which might be simultaneously squeezed from the government side.

Epic’s App Store Legal Battle Continues Global Expansion – Invades UK

Report from Bloomberg

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 suit against both companies in the UK Competition Appeal Tribunal, with preliminary hearings on January 21 (AppleGoogle). This follows Epic’s antitrust suits in US Federal District Court charging Apple and Google with anticompetitive app store policies, as well as a similar complaint filed with the Australian Competition and Consumer Commission. Both platform companies charge 30% fees for in-app purchases, a fee level Epic calls monopoly rents.

Context – Epic kicked off the legal battle by modifying its Fortnite app to intentionally violate Apple App Store (and Google Play Store) rules to avoid the fees charged by both. Apple and Google each responded by removing the Fortnite app from their app stores. Epic has failed to win injunctions blocking either Apple’s or Google’s app store bans. The recent federal antitrust case of Blix v Apple, where a range of antitrust charges were leveled by the email developer against Apple, only to see them dismissed, raised important issues related to market definition for app stores and operating systems and whether either company’s services is dominant, points to the hurdles facing app store legal challenges in the US context. The presiding judge in the federal Epic v. Apple suit continues to raise the fact that all the game platforms, including the consoles, charge the same fee levels as Apple, pointing to similar hurdles. The EU’s Digital Markets Act may drastically change the regulatory environment there, and the public affairs campaign initiated by large developers like Epic and Spotify points to a regulatory Plan B. In an equally political play, Apple has announced that developers who earned less than $1 million in app revenues in 2020, the 98% of developers who earn just 5% of app revenues, will be charged only 15% in 2021.

Labor Union and Drivers File Suit to Block California Proposition 22

Report from the Washington Post

In Brief – A trio of rideshare drivers, along with the Service Employees International Union, have filed a lawsuit with the California Supreme Court to have Prop. 22, enacted in November with 58% support, ruled unconstitutional. The ballot initiative exempted ridesharing and delivery platform businesses from AB 5, the state law to force “Gig work” companies to make platform workers company employees. The petition alleges that Prop. 22 imposes unconstitutional limits on the state legislature and fails to limit itself to a single subject. Lawsuit supporters cited precedents in Prop. 187, a 1994 ballot initiative limiting benefits available to undocumented immigrants, and Prop. 8, a 2008 ballot initiative impacting same-sex marriages, while Prop. 22 supporters called the lawsuit “meritless”.

Context – A flurry of lawsuits aimed at overturning AB 5 were filed after it went into effect. The only success involved independent truckers, with federal regulation of interstate trucking preempting California labor law. As Prop. 22 enters its litigation phase, the top questions for independent work models are whether more states will finally head down the path set by California, how will the anti-Gig Work coalition address their problem with “digital creatives” such as freelance writers, and what will the Biden Administration and Democratic Congress do? No states enacted AB 5-type laws in 2020. The shutdowns had an impact, but opposition from freelance writers and other professionals stopped a major effort in New Jersey before the shutdown, and California passed AB 2257 exempting writers and many others from AB 5 in September. Federally, look for worker classification rules to turn into a partisan football at the Department of Labor (DoL), much like net neutrality is at the FCC. The Trump DoL overturned Obama Administration guidance in 2017, and recently released DoL rules will likewise likely be overturned by the new DoL leadership under AB 5-supporters President Biden and VP Harris.

Google Completes FitBit Acquisition While US and Australia Reviews Linger

Report from CNBC

In Brief – After a year of back-and-forth with competition regulators globally, Google has announced the completion of its $2.1 billion purchase of the fitness wearable business FitBit. The acquisition faced broad opposition from consumer groups and data privacy advocates, as well as fitness app and wearables competitors. The European Competition Authority (ECA) appeared to be the unofficial lead competition authority dealing with Google throughout 2020, and a set of concessions including decade-long commitments to wall off FitBit’s health data from advertising and maintain Android interoperability for other wearables and fitness app companies won approval for the deal from the ECA in December, and Japan and South Africa followed suit. But antitrust reviews remain active at the US Department of Justice (DoJ) and Australia’s Competition and Consumer Commission, two competition authorities engaged in other contentious battles with the massive search and digital advertising conglomerate.

Context – Acquisition reviews offer real-time signals of the willingness of regulators to challenge the business models of the largest digital platforms. Given that FitBit has fallen well behind giants Apple, Xiaomi, Samsung and Huawei in the wearables market and bolstering Google as a direct competitor would traditionally be considered pro-competitive, this deal is testing regulatory thinking on whether some platforms are simply too big to acquire a large new data source as well as the tolerance of behavioral remedies. Tech company “Killer Acquisitions” are also being scrutinized. The DoJ’s objection to Visa’s acquisition of fintech company Plaid, which was recently called off, was alleged to be an effort to stifle an emerging debit services competitor. Facebook is most in focus on killer acquisitions, with the FTC and State AG antirust complaints relitigating their WhatsApp and Instagram deals, and the UK competition authority challenging their recent Giphy acquisition as a surveillance tool for killer deals.

European Court Advisory Opinion Cracks Open GDPR One-Stop-Shop Policy

Report from CNBC

In Brief – The “One-Stop-Shop” policy of the EU’s General Data Protection Regulation (GDPR), which established that the privacy regulator in the home of a company’s EU headquarters is the “lead supervisory authority” for privacy compliance, is at risk as a key adviser to the European Court of Justice (ECJ) has opened the door to the data protection agencies in any EU country being able to take legal action in some situations. The opinion from Advocate-General Michal Bobek comes in a case pitting Facebook and the European Union together against the Belgian Data Protection Authority (BDPA). The BDPA aims to challenge Facebook’s cookie policies in Belgian court, but Facebook and the EU both argue that the GDPR establishes that the Irish Data Protection Commission (IDPC) is Facebook’s privacy regulator. The BDPA argues that the Irish authority has not taken up its request to challenge Facebook’s cookie policy, and in such a case, other national privacy authorities can step in. Bobek’s opinion grants the lead authority general competence over cross-border data processing and limits the power of other data authorities, but contends that other data protection authorities can bring cases in some instances. EU judges often follow such opinions but do not have to. The ECJ ruling is expected in two to four months.

Context – Privacy advocates are widely frustrated with the GDPR One-Stop-Shop policy. Many blame Ireland and Luxembourg for standing in the way of big penalties for US tech giants. In its first major tech company GDPR decision, the IDPC recently imposed a 450,000 euro fine on Twitter for a data breach, but faced months of contentious review by other European privacy bodies and the fine fell far short of what some wanted. The French data protection agency recently imposed a 100 million euros fine on Google and a 35 million euros fine on Amazon for cookie policy violations, basing the rulings on the EU’s e-Privacy Directive, rather than the GDPR, likely to circumvent the “One-Stop-Shop” rule.

Germany Granting Proactive Powers to Competition Authority to Police Digital Giants

Report from Politico

In Brief – The German parliament has approved a competition law reform bill empowering the Bundeskartellamt, Germany’s competition authority, to proactively act to prevent large digital platforms from abusing their market power before markets are meaningfully impacted. The legislation, which earned support from Germany’s three major governing parties, must still be passed by the Bundesrat, in what is expected to be a formality. The new model largely rejects the traditional competition enforcement model of regulators investigating dominant business for anticompetitive abuses and then imposing penalties, a process critics contend is too slow for digital markets. Instead, the Bundeskartellamt will identify digital companies “of paramount significance on competition across markets”, a process that could start by the end of March. The agency would then establish rules to protect competition in the markets they occupy, such as prohibiting preferential treatment to their own services or hindering interoperability with other services. The legislation also shifts the burden of proof to the platforms in front of the competition authority, meaning companies would need to demonstrate that they did not break the law, and shortens the appeal procedure by sending cases directly to the Federal Supreme Court.

Context – The changes to German competition law for digital giants highlights the grey area between competition policy, which is traditionally enforced ex-post, and ex-ante regulation. In most countries, competition authorities have been on the front lines of addressing concerns with giant tech businesses. With their expertise, they are also being turned to for regulatory models, for example in the UKKoreaJapan and the EU. The EU’s comprehensive Digital Markets Act regulatory proposal is linked to the competition law reform in Germany, with many seeing it as an effort by Germany to drive the DMA process forward. Some tech leaders argue that the German reforms instead undermine the EU effort to set uniform standards.

Visa Drops Plans to Acquire FinTech Firm Plaid After DoJ Opposes as Killer Acquisition

Report from CNBC

In Brief – Visa and Plaid, a financial technology services platform, have announced that they have voluntarily abandoned Visa’s proposed $5.3 billion acquisition plan in the face of opposition from the US Department of Justice (DoJ). Plaid is a financial technology services platform that uses APIs to connect consumer bank accounts to thousands of popular finance and investment apps, including Venmo, Robinhood and Chime. The DoJ had described Visa as a monopolist in online debit payments services, with a 70% market share and a web of restrictive contracts with merchants and banks to protect its monopoly. It contended that the acquisition was intended to block Plaid from developing into a viable debit payments challenger – a kind of “killer acquisition” – as Plaid had developed plans to roll out a nascent payments service in late 2021 that Visa thought could develop into a debit services competitor.

Context – Rethinking acquisition reviews is a key part of the digital markets competition policy debate. The review of Google’s bid for FitBit, recently approved by the European Competition Authority but rejected by Australia, is testing thinking on whether some platforms are simply too big to acquire a large new data source. The UK CMA review of Facebook’s $400 million acquisition of Giphy, a platform for shareable digital images, is described by some as an acquisition of a “digital surveillance” tool that could identify targets for “killer acquisitions”, as some describe Instagram and WhatsApp (an issue being re-litigated in the FTC and State AG antitrust complaints against Facebook). The head of the CMA is also calling for Parliament to adopt a new 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’s report on competition in digital markets includes merger policy reforms, some of which received positive feedback from Republicans.

Controversial Clearview AI Used by Law Enforcement Teams Identifying Capitol Rioters

Report from the New York Times

In Brief – A range of law enforcement agencies are using the facial recognition tools of Clearview AI in the crowdsourced effort to identify individuals who rioted and invaded the US Capitol. The once low-profile company burst into the consciousness of civil libertarians following a New York Times expose last January, and has since announced that it would only contract its services with government agencies and instituted new compliance features aimed at preventing abuse. The company describes itself as a search engine for pictures, building a database of billions of photos of individuals copied from social media platforms across the Internet, without consent of the platforms or the users. Clearview AI clients, which are reported to include 2400 federal, state and local law enforcement entities, can upload pictures of unknown individuals and the service returns matches and web links to where the indexed pictures were found on the Internet, which often includes names. It faces numerous lawsuits, in particular under the Illinois Biometric Information Privacy Act, where its cases have recently been consolidated in Federal District Court for the Northern District of Illinois.

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 Europe, a legislative package on AI expected soon is likely to be include facial recognition as a “high-risk” AI application. In the U.S., concerns over discriminatory aspects of the technology has led IBMAmazon and Microsoft to halt sales to law enforcement, and a range of bills were introduced in the 116th Congress. The Massachusetts state legislature passed meaningful limits in a December police reform bill that was subsequently blocked by Governor Charlie Baker (R) and pared back. Finally, civil liberties and privacy advocates intend to press the Biden Administration to impose stricter rules on federal agencies.

European Leaders Decry Trump Social Media Bans – Only Government Should Censor

Report from Bloomberg

In Brief – A number of European leaders, most prominently German Chancellor Angela Merkel, French Finance Minister Bruno Le Maire, and European Commissioner Thierry Breton, have strongly criticized Twitter and Facebook for banning President Trump following the invasion of the US Capitol. Each argued that only elected governments should have the power to regulate speech, not private companies, and that the ability to squelch the US President was evidence that the platforms have too much power. Breton, a champion of bringing digital platforms under a strict regulatory regime, called on the US Government to support Europe’s Digital Services Act (DSA) and Digital Markets Act (DMA) proposals.

Context – It is a teachable moment when European leaders, who have had strained relations with President Trump, criticize his social media banishment more aggressively than most Republican leaders, who have been more concerned with Amazon, Apple and Google blocking the Parler app. Europe does not have a 1st Amendment. When speech restrictions are considered, government is first in line. The DSA proposes comprehensive rules for platforms to address objectionable content. The US Constitution severely limits speech regulation by government entities, but companies do not face those restrictions. Plus, while the two parties both complain about the social media giants, they see vastly different problems. Democrats criticize the platforms for letting much dangerous content slide, see the current bans as too little too late, and want legislation to tighten standards. Conservatives see progressive platforms uniting to threaten legitimate conservative voices. When they talk legislation, it is to prohibit platforms from banning legal speech, which translates into few limits on the content Democrats decry. As opposed to coming together on how platforms police speech, Democrats and Republicans may be more likely to unite on digital antitrust rules more in line with Europe’s DMA.

FTC Addresses Fraudulent Mobile Game Advertiser – Dems Take Chance to Rip Apple and Google

Report from TechCrunch

In Brief – The Federal Trade Commission has reached a settlement with Tapjoy, a company that operates a mobile game advertising platform that offers game players rewards of in-game virtual currency if they complete actions such as signing up for a free-trial offer, providing personal information, or taking a survey. The FTC alleged that Tapjoy was aware that many gamers never received promised rewards, and the company deceived consumers by failing to address the problems or stop making deceptive claims, instead changing policies to discourage deceived consumers from complaining. The proposed settlement prohibits Tapjoy from misrepresenting rewards, requires the clear display of terms, to monitor the advertisers using its platform for failure to deliver rewards, and discipline deceptive advertisers. While the FTC Commissioners unanimously supported the proposed settlement, the two Democratic Commissioners added a supplemental statement that expressed concerns over harmful practices in online gaming, including unlawful surveillance, dark patterns, and facilitation of fraud. The two were harshly critical of Apple and Google and their app store business models and fees, calling them “gatekeeping giants”, charging them with imposing “taxes and regulations on the mobile gaming industry”, attributing abusive advertising practices to game developers trying to escape high fees, and promising greater scrutiny of the industry and platforms in the coming years.

Context – The Biden Administration will very likely result in a much more aggressive FTC on digital matters. The highly critical commentary on Apple and Google app store practices adds to a series of partisan 3-2 decisions on major digital cases with the two Democratic commissioners decrying the lack of redress, weak (or non-existent) financial penalties or admission of wrongdoing including on Facebook (Cambridge Analytica), Google (YouTube COPPA violations), Zoom and Sunday Riley Skin Care cases.

Trump DoL Issues Permissive Gig Worker Classification Rule on the Way Out the Door

Report from the Wall Street Journal

In Brief – The US Department of Labor (DoL) has announced a final rule clarifying the standard for employee versus independent contractor status under the Fair Labor Standards Act (FLSA), a question central to debates over so-called “gig” work platforms. The rule, which interprets existing federal regulations rather than establishing new ones, focuses on two “core factors” for distinguishing between employees and independent contractors: the “nature and degree of control over the work” and the “opportunity for profit or loss” based on initiative and investment. It is set to take effect on March 8th, although this could change after President-elect Biden takes office. In addition, it only covers federal employment laws enforced by the DoL, leaving states in many cases free to establish their own laws and regulations.

Context – The political energy behind tightening worker classification laws has been focused on digital ride-sharing and delivery platforms. However, the AB 5 experience in California illustrates the wide a range of independent workers, professionals and creative freelancers that use independent contractor models. No states followed California in 2020. AB 5 itself was pared back by the CA legislature in September, exempting a wide variety of independent workers, including writers. Then, in November, state voters enacted Prop. 22 fully exempting ride sharing and delivery platforms from AB 5 and allowing the platforms to offer drivers some limited, employee-like, benefits, without making them employees. At the federal level, the issue is turning into a partisan regulatory football much like net neutrality at the FCC. Obama DoL guidance released in January 2016 was withdrawn by the Trump Administration in 2017, and the new rules continue their push to more permissive rules. However, President Biden and Vice President Harris both were strong supporters of AB 5 and their Labor Department is expected to move to freeze and overturn the Trump Administration regulatory and labor enforcement policy.

Google “Privacy Sandbox” Cookie Plan Faces UK CMA Scrutiny for Potential Ad Market Impacts

Report from the BBC

In Brief – The UK Competition and Markets Authority (CMA), the country’s competition regulator, has announced that it has opened a six-month initial investigation of Google’s “privacy sandbox” plans to change its Chrome browser to phase out third-party cookies, pitting privacy concerns with online tracking against desires for more online advertising competition. Third-party cookies help advertisers target customers based on the websites they have visited. Google argues that the changes would match the treatment of cookies by web browsers from Microsoft, Apple and Mozilla, and that moving to an online ad ecosystem without third-party cookies is supported by privacy advocates. Critics of the plan note Chrome’s disproportionate 70% browser market share and claim Google’s huge digital advertising business will benefit as competitors lose access to the data. They claim that Google has access to many alternative tools to determine the online activities of users to support its advertising business, but smaller digital marketing companies could lose up to 75% of their revenue.

Context – The prospect of the UK’s competition regulator, which is expected to gain major new digital platform regulatory powers in the coming two years, attempting to mandate the technical operations of the most used Internet browser is a foreshadowing of the upcoming EU Digital Markets Act debate. In addition, the conflicts between privacy concerns and claims of anti-competitive impacts are stacking up. Google’s plan to move domain name system (DNS) queries to encrypted HTTPS protocol faces similar charges. Apple’s plan to require all third-party apps to get opt-in permission to collect Apple’s iOS advertising identifier, which is used to deliver targeted ads, faces an antitrust suit in France and recently was at the center of a public brawl with Facebook who charges that Apple’s change will harm small business advertisers and announced that it plans to support Epic Games in its antitrust suit against Apple.

FCC Chairman Drops Controversial Sec. 230 Rulemaking – Everyone Can Focus on Parler

Report from The Hill

In Brief – The outgoing Chairman of the Federal Communications Commission (FCC) has announced that he will not move forward with Sec. 230 rulemaking to limit the ability of companies to moderate online user content based on ideological considerations, an idea proposed by President Trump’s May 28 Executive Order in response to alleged anti-conservative social media company bias. The Trump Administration had replaced Republican FCC Commissioner Mike O’Rielly, a regulatory skeptic, with regulation supporter Nathan Simington, who was confirmed by the Senate in December. However, Democratic FCC Commissioners Rosenworcel and Starks both objected to Trump’s Sec. 230 order and it was expected that the new FCC majority would have moved to dismiss further action on the regulatory proceeding regardless.

Context – The FCC’s Sec. 230 rulemaking effort, derided by most FCC experts due to the clear language of Sec. 230 opposing federal regulation of Internet content, was always a secondary front in the partisan battle over online content moderation. Chairman Pai pulling President Trump’s Sec. 230 proposal is overshadowed by the riotous attack on the US Capitol incited by President Trump, and the subsequent social media bans imposed on the President and purveyors of a range of partisan and election conspiracies. Pai did not object to those bans. However, Republicans and Democrats remain diametrically opposed on the problem with online content moderation, Republicans convinced that large platforms are ideologically biased and selectively censoring conservatives, while Democrats reject the charge and contend that platforms have let disinformation and hate speech deeply poison the system. A series of actions by digital giants to block access to Parler, an alternative to Twitter that takes a relatively hands-off approach to content moderation, is now the most important flashpoint in the debate, in particular after Amazon turned off Parler’s AWS-provided servers, shutting it down.

California Bans Food Delivery Platforms from Taking Orders for Unaffiliated Restaurants

Report from ABC News

In Brief – Even as pandemic-related restrictions continue to impact the restaurants across the state of California, the Fair Food Delivery Act has gone into effect regulating “food delivery platforms”. The law prohibits online businesses that act as intermediaries between consumers and food facilities from offering delivery from restaurants that do not have an “express agreement” with the online delivery platform. While the major food delivery platforms have business relationships with many of the restaurants listed on their platforms, and charge the restaurants fees that often reach 30%, the platforms also list many “unaffiliated restaurants” and take consumer orders from them as well. While unaffiliated restaurants are not charged fees, some have decried the practice, claiming that customers do not understand that the restaurant has no relationship with the delivery service and the restaurant cannot control the customer experience. As the delivery platforms adjust to the new law, signing up additional restaurants and dropping those that don’t sign on, some question the implications of being forced off the popular services for takeout purchased at full price without fees. It is also reported that New York City is considering a similar restriction on unaffiliated food delivery.

Context – Food delivery platforms have grown in prominence during the pandemic. Ironically, while California has banned platforms from providing deliveries to consumers when restaurants don’t pay any fees, high restaurant fees have been more controversial. Many large cities imposed fee caps and other mandates on the deliver platforms in 2020, including Los Angeles, New York, Chicago, and Washington, D.C. And even with seemingly high fees, the food delivery apps continue to appear to be losing money, raising questions about the model and leading some to call for industry consolidation, such as Uber, the 3rd largest platform, acquiring smaller delivery platform Postmates last year.

Change in Privacy Law Pushes Facebook to Stop Child Sex Abuse Image Scans in Europe

Report from the BBC

In Brief – Following an amendment to the European Electronic Communications Code expanding the definition of “electronic communications services” to include messaging services, Facebook has announced that it will stop running its child abuse detection tools on content communicated in the EU over its Facebook Messenger app due to uncertainty over the legality of such monitoring tools under the  EU e-Privacy Directive. Operators of electronic communications services are forbidden from routinely processing users’ content or traffic data. Despite strong objections from child advocates, the European Council was unsuccessful in adopting a temporary exception before the amendment came into force in December, and has announced its intention to propose legislation by the second quarter of 2021. Other digital communications companies, including Microsoft and Google, have announced that they will continue their efforts to detect and remove child abuse content as European authorities resolve the issue.

Context – The conflict between privacy standards and the use of technical tools to block child pornography and grooming is the latest example of the significant policy rift between security and privacy advocates being played out in Europe. In October, the European Court of Justice (ECJ) sided with privacy advocates and ruled that national laws on the bulk collection of data intended to fight terrorism, such as in France, Belgium and the UK (pre-Brexit), were generally unlawful and such data collection could only be allowed when governments face a “serious threat to national security” and should be limited to a period that is “strictly necessary”. That followed the July ECJ ruling that the US-EU Privacy Shield failed to meet EU privacy standards based on the court’s interpretation of US security and surveillance practices, just as it invalidated the US-EU Safe Harbor in 2015. The data transfer situation with the UK post-Brexit is noteworthy and might fall next given the more open-ended UK surveillance and security regime.

MA Governor Signs Police Reform After Facial Recognition Provisions are Weakened

Report from Boston 25 News

In Brief – Massachusetts Governor Charlie Baker (R) has signed an amended police reform bill that included watered-down restrictions on the law enforcement use of facial recognition tools. The Governor sent the initial bill back to statehouse criticizing a number of provisions, including on facial recognition, which he defended as a tool to fight crime. The initial bill limited facial recognition searches to investigations of violent felonies and required police to obtain a warrant before accessing the state motor-vehicle photo database. The final bill allows facial-recognition searches made on a lower court-approved “reasonable grounds” standard in any criminal investigation. The final bill also establishes a commission charged with evaluating facial recognition and making legislative recommendations by the end of the year.

Context – Facial recognition is one of the most controversial “AI” technologies because recent advances have taken the tech from theoretical into the real world. It is a central feature of the Chinese Government surveillance regime raising widespread and bipartisan concerns. In Europe, where a comprehensive legislative package on AI is expected to be released in the first quarter of 2021, facial-recognition technology is likely to be included among “high-risk” AI applications with stricter regulatory standards proposed. In the U.S., concerns over discriminatory aspects of the technology has led tech giants IBMAmazon and Microsoft to halt sales of the services to law enforcement. Sen. Ed Markey (D-MA) and House Members Ayanna Pressley (D-MA) and Pramila Jayapal (D-WA) have sponsored legislation to ban the use of facial recognition by federal law enforcement agencies and Sen. Jeff Merkley (D-OR) has proposed a moratorium on all federal agencies until a comprehensive federal policy is in place. Civil liberties and privacy advocates have announced their intentions to press the Biden Administration to impose stricter rules on federal agencies.

What Does A 50-50 Senate Mean for Top Digital Platform Policy Issues?

*** A Special PEI Report ***

The Senate run-off elections in Georgia have resulted in Democrats enjoying very narrow margins in the House and Senate. How will this change the outlook for the top digital platforms public policy issues in 2021?

To set the stage, a 50-50 Senate with Vice President Harris holding the tie-breaking vote has three major impacts: (1) Democrats take over committee chairs and have greater ability to set agendas; (2) President Biden will have a much easier time winning confirmation of nominees (and judges); and (3) Democrats will be able to circumvent the Senate’s 60-vote requirement on taxing and spending priorities enacted through the budget reconciliation process. (We don’t see the Senate “eliminating the filibuster” and getting rid of the 60-vote threshold on everything else.)

If you want a refresher on the Top 10 Digital Public Policy Issues from 2020 and what the election of President Biden meant, click here. This report focuses on five of them. And the results from Georgia are not likely to be breaking a major logjam on any of them. The top platform issues are not about federal spending, taxes or entitlements and so they don’t fit into “reconciliation”. And getting 60 Senate votes on contentious issues will remain very hard.

BUT, we see two digital policy opportunities for Democrats and Republicans to come together and enact “incremental, bipartisan reform” if lawmakers are willing to accept much less than their dream policy changes.

Section 230 and Social Media Content Moderation

Both Donald Trump and Joe Biden expressed support for eliminating Sec. 230, the cornerstone Internet platform liability provision. But like a microcosm of conservative and progressive critics, they saw the problem from opposite sides. Candidate Biden and Democratic critics were repeatedly angered by what they saw as platforms not blocking misinformation, deceptions and hate speech. Conservatives saw the platforms censoring conservatives, too often under the guise of the concerns identified by Democrats. Don’t expect President Biden to solve that contradiction any more than Trump could.

Opportunity for Incremental, Bipartisan Action – Content moderation “transparency” is a potential Sec. 230 middle ground that could be fertile ground if there is an appetite for bipartisan cooperation towards incremental change that does not offend either side’s priorities. Something building off the Schatz-Thune PACT Act in the Senate could emerge.

Digital Giants and Antitrust

A major antitrust law rewrite is very unlikely with a 50-50 Senate. Republicans are not interested in a drastic change in antitrust law and the issue does not fit into budget reconciliation so the 60-vote rules apply. Make no mistake, Google, Facebook, Amazon and Apple will remain in the crosshairs. The DoJ and FTC antitrust complaints against Google and Facebook, now with solid bipartisan support from dozens of State Attorneys General, will continue. And Hill Democrats have been more willing than Republicans to press Amazon and Apple on anticompetitive conduct, so their problems could ratchet up.

Opportunity for Incremental, Bipartisan Action – While a major antitrust law rewrite or regulation of the tech giants is not moving (look to the EU for that), some narrow and targeted, but still meaningful, changes in antitrust law could be possible. Look to the report released by Congressman Ken Buck (R-CO) in response to the House Antitrust Subcommittee Democrats’ major plan to reign in the digital giants for an idea of what might be possible. But Democrat reformers will need to accept much less than they aspire too.

Comprehensive US Privacy Legislation

Like with Section 230, despite talk on both sides about the problem, very meaningful policy disagreements divide Democrats and Republicans. Top of the list are consumer class action lawsuits as an enforcement tool and preempting aggressive state privacy laws. Democrats running committees in the House and Senate will increase the level of talk, but that doesn’t mean either side is more willing to back down on the big issues. Instead, watch a more aggressive Biden FTC, and how the issue develops in the states, where privacy legislation in 2020 was stalled by the pandemic lockdowns.

TikTok, WeChat and China “Decoupling”

The biggest change is the transition from Trump to Biden, not Republicans to Democrats in the Senate. There are leading congressional Democrats who have long appeared willing to more aggressively challenge China, but the traditionalist Biden Administration foreign policy team is likely to dial back the aggressive Trump Administration policy towards WeChat, TikTok and Chinese payments business as they develop their overall China policy.

Classifying Gig Workers as Employees

After California’s landmark AB 5 legislation was enacted in 2019, many expected big happenings targeting “gig” platforms in 2020. It did not happen. First, opposition from freelance writers and other “digital creatives”, and then the pandemic shutdowns, stymied action in other states. Then the year ended with the overwhelming passage of Prop. 22 in California. Federal worker classification legislation is not moving through a 50-50 Senate. However, President Biden and VP Harris were both strong supporters of AB 5 so their Labor Department will likely jump on overturning Trump Administration regulatory and labor enforcement policy sympathetic to independent contractor models. (Similar to the FCC and Net Neutrality.)


Courts Honing-In on Product Liability Implications of Amazon’s Logistics-Based Model

Report from Reuters

In Brief – The Texas Court of Appeals for the Fifth District has asked the Texas Supreme Court to rule on the question of whether Amazon is appropriately considered a retailer, rather than a marketplace, for product liability purposes when a third-party sells a product on the Amazon Marketplace and Amazon stores, handles and ships the product through Amazon’s FBA logistics business. (Opinion here.) The case of McMillan v. Amazon involved a toddler injured by the battery of a defective television remote sold by a Chinese-based seller on the Amazon Marketplace but where Amazon’s logistics service also stored and handled the product. The Appeals Court is asking the State High Court whether “Amazon is a “seller” of third-party products sold on Amazon’s website when Amazon does not hold title to the product but controls the process of the transaction and delivery through Amazon’s Fulfillment by Amazon program?”

Context – Amazon is fundamentally unlike other ecommerce marketplaces. It is also the dominant player in the physical business of ecommerce logistics, stocking and handling the goods for most of the top sellers on its marketplace in its distribution centers, much like a retailer handles products from wholesalers. The retailer-like Amazon model is coming to the fore in a series of product liability cases. Along with the McMillan case in Texas, the California Court of Appeals recently ruled in Bolger v Amazon that the company could face product liability charges like a retailer when the product was also handled by FBA, and the Federal District Court for the Southern District of New York will similarly allow the Brodie v. Amazon product liability case to move forward for a food product sold by third-party seller but stored and handled by Amazon FBA. A recent logistics industry report estimates Amazon’s market share in ecommerce fulfilment center services at 60%, and Amazon marketplace policies to pressure sellers to use its logistics services is now also the subject of an antitrust investigation in Europe.

Trial Date Set for Google – DoJ Antitrust Suit in Sept 2023, So Summer Break is Safe

Report from CNBC

In Brief – Giving some perspective to the likely pace of major antitrust legal action targeting the largest digital platforms, Federal District Court Judge Amit Mehta 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. Both Google and the DoJ agreed with that timeline at the status hearing. In addition, three Democratic State Attorneys General have joined the DoJ complaint filed in October, joining the initial group of 11 Republican State AGs. Google now faces three major government antitrust suits in the United States, with two different groups of states filing new complaints in December. It is possible that at least one of the two new state-led Google suits will be consolidated with the federal case.

Context – The DoJ-led suit is focused on allegedly anti-competitive efforts by Google to prevent alternative search engines from gaining meaningful scale and traction, in particular highlighting Google’s business deals with Apple to be the default search engine on Apple devices and browsers. A long-expected complaint led by Texas AG Ken Paxton (R) focuses on Google’s conduct in the digital advertising market, including a relationship with Facebook the plaintiffs claim undermines user privacy and was intended to foreclose advertising competition. Paxton is joined by nine other State AGs, all Republicans. The other State AG complaint confronting Google is from a bipartisan group of 38 States led by Colorado AG Phil Weiser (D), Nebraska AG Doug Peterson (R), and New York AG Letitia James (D). It is focused on Google’s dominant Internet search engine and allegedly anticompetitive conduct aimed at specialized “vertical” search businesses. Google argues that there is abundant consumer choice in search, that it is easy to switch services, that large and emerging competitors are operating in the digital advertising market, and that prices have been consistently falling.

Sec. 230 Repeal Fails as Congress Ends – Poison Pill Effort Highlights Partisan Division

Report from CNet

In Brief – Sec. 230 of the Communications Decency Act, the core liability provision allowing Internet platforms to host user-generated content and moderate objectionable behavior, was caught up in the partisan legislative wrangling at the close of the 116th Congress but remained intact as the Congress adjourned amidst post-election controversies and pandemic challenges. President Trump’s veto of the Defense Authorization Act, which he justified in part on the fact that it did not repeal Sec. 230, was overridden with strong bipartisan support, the first veto override of his term. Then, when the President agreed to sign the bipartisan pandemic stimulus legislation, he called for last-minute legislation increasing stimulus checks to $2000, repealing Sec. 230 and creating a commission to investigate the Presidential election. Congressional Democratic leaders moved a stand-alone increase in relief checks. Senate Republican leaders refused to act on legislation that did not include all three issues, which was widely seen as a poison pill. The combined legislation did not move before the Congress ended.

Context – To the very end we saw that Republicans and Democrats both criticize Big Tech, and Sec. 230 is a convenient target, but their concerns are so different that there is little bipartisan agreement on changes. As Trump ramped up his demands to repeal Sec. 230 based on charges of anti-conservative bias, Speaker Nancy Pelosi (D-CA), who has called for its repeal in the past, shifted her position to the law needing to be reformed rather than repealed. Meanwhile, the CEOs of Facebook and Twitter have expressed support for some changes to the law focusing on transparency in platform rules, processes and enforcement actions, and some mid-size platforms, including Snap, Reddit and Tripadvisor, have created the Internet Works coalition to defend the provision. In 2021, keep an eye on something like the Schatz-Thune PACT Act in the Senate as a sign of bipartisan action.

Non-Traditional Google Worker “Union” Goes Public with Focus on Company Policies 

Report from the New York Times

In Brief – A group of approximately 280 Google employees and contract workers have created the Alphabet Workers Union in partnership with the Communications Workers of America (CWA), a non-traditional “minority union” form of worker organization that does not attempt to collectively bargain on behalf of a company’s employees but instead will attempt to highlight its members concerns with company policies. In their opinion piece that ran in the New York Times, the group’s two software engineer leaders focused on Google policies related to hiring diversity and inclusion, the company’s willingness to work with certain governments and agencies, and the societal impact of company algorithms and artificial intelligence products. The members are reported to have pledged to pay annual dues of 1 percent of compensation to pay for staff and organizing.

Context – As opposed to a breakthrough in bringing traditional labor organizing to a tech giant with over 200,000 employees and contract workers, this small worker group illustrates the difficulties that traditional labor organizers have had with campaigns such as the CWA’s Campaign to Organize Digital Employees. Amazon, Facebook, Google and others have faced employee activism on non-financial company policies in recent years. Actual traditional labor organizing is different. To be clear, many services contractors that keep tech campuses operating (janitorial staff, food service, security and others) are unionized. A group of non-tech Instacart employees in Illinois joined a union last year, and Amazon is similarly facing a traditional labor organizing drive in an Alabama distribution center. While traditional labor organizing among tech workers with “tech” roles is more rare, a group of 80 contract software coders working for Google in Pittsburgh organized last year, as did programmers at the app developer Glitch and the Kickstarter platform.

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