News & Insights 2 old

Biden Administration Publicly Supports Senate Big Tech Anti-Discrimination Bill

Report from the Wall Street Journal

In Brief – After naming a tech policy team with high-profile Big Tech critics, and facing months of pressure, the Biden Administration finally expressed support for a major piece of antitrust legislation intended to block the largest digital platforms from preferencing their own products and services competing against offerings from other businesses. The bill is the American Innovation and Choice Online Act (S. 2992), which passed the Senate Judiciary Committee on a bipartisan 16-6 vote in January, seven months after the House Judiciary Committee passed four major Big Tech antitrust bills. The House bills have been stalled due to Democratic holdouts and opposition from Republican leaders who are focused on platform censorship but wary of expanding the influence of federal regulators. Similar concerns appear to be slowing the Senate bill and the body’s 60-vote threshold remains a major hurdle.

Context – Major legislation aimed at digital platforms might make it through the 117^th Congress, but it’s not a lock by any means. The platform anti-discrimination bill faces bipartisan concerns, and it’s not clear how the Biden Administration helps with Republican votes. It may hurt. The Senate Judiciary Committee has also passed a bill regulating app stores, meaning just Google and Apple. Fewer targets helps reduce opposition, and giants like Microsoft and Facebook support that idea. Legislation targeting online services to young people, such as expanding COPPA, might have the best odds due to strong Republican support. Bills touching content moderation, or broad Sec. 230 changes, are super longshots. Finally, the real deal is in Europe. The EU Digital Markets Act, with all the same sort of platform anti-discrimination policies in the Senate bill, has been finalized and will soon usher major regulation into law. The Biden Administration continues to express some reservations about the DMA, but when they do, US Progressives strike out at them. If Congress ends up failing to regulate the Internet, they think Europe should.

Round 2 – EU’s Digital Services Act May Be Wrapped Up by End of April

Report from Reuters

In Brief – Following on the heels of the agreement to finalize the Digital Markets Act (DMA), EU Commissioner Margrethe Vestager has expressed optimism that negotiations to finalize the equally impactful Digital Services Act (DSA) could be wrapped up in April. Where the DMA is inspired by competition law concerns and creates a regulatory regime imposing specific duties and constraints on very large digital platforms, the DSA aims to direct how digital platforms address illegal and objectionable online content. Content moderation. The European Commission proposed the DSA in December 2020, the European Council and European Parliament agreed to versions last winter, and “trilogue” negotiations have been underway for weeks. The DSA trilogue negotiations are now focused on a few open issues including the types of online marketplace subject to the rules policing online commerce, the regulation of targeted advertisements, especially to minors, the definition of Very Large Online Platforms (VLOPs) that face tougher regulation, and the responsibilities of large search engines to moderate search results.

Context – The DMA and DSA are the most important digital policy initiatives in the world. The EU is the largest Western market moving relentlessly to rewrite the rules of the digital ecosystem. Three things to keep in mind… First, both the DMA and the DSA regulate many more platforms than just Amazon, Apple, Facebook, Google and Microsoft. The DMA is likely to impact around a dozen to start and will grow over time. The DSA creates rules for all platforms hosting user content while imposing more stringent duties on platforms with 45 million users. Second, both measures create a governance model that envisions regulators in a co-pilot role with companies when it comes to design decisions. The duties are high level, but implementation is going to require regulators to oversee myriad technical and operational details. Finally, content moderation regulation is not getting through the US Congress. Advocates see Europe as their next best option.

Microsoft’s Activision Campaign Extends to Agreeing to Recognize Potential Raven Union

Report from the Washington Post

In Brief – Amid their effort to win regulatory sign-off on their proposed $68.7 billion acquisition of giant game developer Activision-Blizzard, Microsoft has stated that it will not stand in the way of a small group of employees at one of Activision’s subsidiaries from creating a union. Activision has nearly 10,000 employees across 11 studios. Raven Software, with approximately 300 workers, is facing a union drive involving around 30 game testers who identify bugs and other problems. The game testers, backed by the Communications Workers of America, proposed to create the “Game Workers Alliance”, but their effort was rejected by Raven and Activision management. The workers have appealed to the National Labor Relations Board as well as publicly calling on Microsoft to support the organizing effort.

Context – Breaking into tech industries has been a top priority of organized labor for years. They employ large and growing numbers of workers, as well as being symbolic leaders in the economy. In addition, many high-tech workers and management are politically and socially progressive, especially those based in east and west coast tech hubs. That said, the highly compensated workers have not been very receptive. In most cases, the energy and attention has been focused on efforts like organizing workers in Amazon fulfilment centers, which don’t involve tech workers at all. One new development to watch involves public pressure campaigns from progressive activists aimed at management teams that appear vulnerable. For example, a truly notable high tech labor win was the recent campaign to unionize the 600+ high tech workers of the New York Times Company. That is now the largest true tech worker union in the country. That campaign included progressive activist investors publicly lobbying the NY Times management, who regularly voice editorial support for the labor movement, to accept the union. This time, Microsoft’s massive gaming acquisition is in front of the FTC, who recently expanded their antitrust inquiry of the deal, and is led by a pro-labor chair in Lina Khan.

Apple Urges Appeals Court to Reject Epic’s Appeal (and Overturn Anti-Steering Order)

Report from the Wall Street Journal

In Brief – In the latest step in the epic antitrust legal battle between Apple and Epic Games, Apple has filed its initial brief in the Federal Ninth Circuit Court of Appels rejecting Epic Games’ contention that Judge Yvonne Gonzalez Rogers erred in her fall 2021 ruling that largely dismissed Epic Games’ federal antitrust complaint against Apple. The judge’s 185-page ruling argued that Epic failed to prove that Apple’s App Store was a monopoly, or that the phone giant was using its App Store rules and payments policies in ways that violated federal antitrust law. Along with arguing that the appeals court should reject Epic’s appeal as wrong on the law and the facts, Apple is looking to have the appeals court overturn a one-page order from Gonzalez Rogers. Based on California consumer protection law rather than federal law, that order requires Apple to end a range of “anti-steering” practices that block developers from allowing users to buy digital content outside of Apple’s payment system. Apple has won a stay of that anti-steering order from the Court of Appeals while the case proceeds.

Context – With so much money at stake, and with Epic filing similar legal cases in so many other jurisdictions, appeals were always going to happen. Despite Apple’s near knockout in Round 1, Epic Games has put together a very impressive coalition for Round 2. They are backed by 35 State Attorneys General, elite law and business professors, and Microsoft (briefs linked here, here and here). In addition, the US Department of Justice has filed a brief that it claims is neutral but is highly critical of the judge’s legal reasoning. (Amicus briefs at the appeals stage are often excellent policy reading because they face strict length limits!) Apple is certain to muster an alliance as well in the coming few weeks. However, the global tide is against them. The recently finalized EU Digital Markets Act is going to result in European Commission regulators trying to set terms for the App Store in that huge market.

Google Announces App Payments Pilot with Vocal Apple Critic Spotify

Report from the Wall Street Journal

In Brief – As the legal, regulatory and legislative fights over the app payments policies of mobile operating system giants Apple and Google continue in markets globally, Google and Spotify have announced a pilot project in which the giant music streaming app developer will begin to collect payments outside the Google payments service. If a user chooses to pay Spotify directly instead of using Google’s billing system, Spotify won’t have to give Google its entire 15% fee, however the specifics of the financial deal, meaning the level of the commission Google will earn, the billing terms and conditions, and any other financial and business relationships between the two companies, were not announced.

Context – The biggest developments in the app payments fight have been coming out of South Korea, the Netherlands, and US Federal Court in California. Keep in mind that this is not about payments “choice”, it’s about fees. App developers object to the Apple and Google fee levels that often reach 30 percent. Shockingly, they want to pay less. South Korea enacted legislation last year to require Google and Apple to allow app developers to pay through alternative systems. Google responded with a plan that allows payments alternatives, but still bills for fees, providing a 4% break but collecting up to 26% in a new manner. Apple is the focus in the Netherlands where the national competition authority mandated that dating apps could use payments alternatives. Apple eventually followed the Google model, but apps choosing alternative payments would only save 3% on fees. That plan has been rejected by the Dutch regulator. Policy in the two biggest markets is not aligned. Apple largely won their antitrust showdown with Epic Games in US Federal Court last year (but appeals are underway). In the EU, the Digital Markets Act has been finalized and is very likely to regulate app store payments and fees. We continue to expect the mobile OS giants to announce new global payments and commission systems this year to try to get ahead of regulators.

Bipartisan US Senate Bill Targets Secret Law Enforcement User Data Collection

Report from the Washington Post

In Brief – Sens. Ron Wyden (D-OR) and Steve Daines (R-MT) have introduced legislation in the US Senate to require law enforcement agencies to notify individuals when their emails, texts or location data has been accessed as part of a law enforcement government investigation. That is currently the case with traditional wiretaps or bank record requests, but not when electronic communications and mobile device data is accessed. The major digital platforms report that they receive tens of thousands of such requests each year, but law enforcement agencies often keep their surveillance activities private, hidden through gag orders that block tech and telecom companies from alerting users that information has been collected by government agencies. The Government Surveillance Transparency Act would mandate that targets of court-ordered data surveillance be informed after investigations are concluded, and that if the information is sealed to protect an active investigation that the gag order be renewed every 180 days.

Context – This issue pitting US law enforcement and its allies against US civil libertarians and privacy advocates is best understood alongside the higher profile efforts by the US Government and European Commission to restore legal clarity to the transferring of data involving European citizens between the EU and the United States. While giant digital platforms are pulled into the fights because they hold the data, their privacy policies and data practices are not at issue. Instead, it’s about American law enforcement and intelligence laws and practices. The effort to put in place an agreement to replace the US-EU Privacy Shield is highly complex because there is no expectation that the US Congress will meaningfully change US data surveillance laws intended to combat terrorism and criminal activities. Likewise, this surveillance legislation to end secret data collection, or a similarly bipartisan measure from Sen. Wyden to block law enforcement from buying data they are prohibited from collecting, remain longshots.

The EU’s Immense Digital Markets Act Regulatory Regime Marches Forward

Report from Politico

In Brief – An agreement on the landmark Digital Markets Act (DMA) has been reached between the European Council and the European Parliament to institute an unprecedented EU regulatory regime on “digital gatekeepers”. The last big issue hammered out was the size and scope of the companies covered. The threshold is companies providing at least one “core platform service” (search engines, social media, messaging, mobile operating systems, online advertising services, cloud computing, video-sharing, web browsers and virtual assistants) with a market capitalization of at least 75 billion euros ($82.6 billion) or annual revenue of 7.5 billion euros ($8.26 billion) and at least 45 million monthly users in the EU, or 10,000 annual business users. The meat of the regulatory regime is 18 competition policy-inspired mandates often referred as the “Do’s and Don’ts” (a great table is found here). They include prohibiting the companies from favoring their own services on their platform over rivals’ services, preventing users from removing pre-installed software or apps, allowing users to select their browser, search engine and personal voice assistant, and requiring that the companies obtain “explicit consent” to target ads based on personal data. The European Commission will handle regulatory enforcement.

Context – The DMA is a game-changing development in Europe. Inspired by decade-long competition cases targeting Google, the EU has now largely rejected case-by-case competition law enforcement for digital giants. The DMA’s new regime will cover more than Amazon, Apple, Google, Meta and Microsoft. It’s more like “Very Large” platforms, with a dozen or more projected to be covered straight away, but that will depend on regulator decisions. Finally, while many look to how the EU’s GDPR inspired global online cookie pop-up notices and project that the DMA regulations will eventually go global, these mandates change fundamental platform operations. It will be interesting to watch whether some platforms roll out EU-only versions.

On the Road to “Schrems III” – US and EU Agree In Principle on Data Transfers

Report from the Wall Street Journal

In Brief – With President Joe Biden in Brussels to discuss the response to the ongoing Russian invasion of Ukraine, he and EU President Ursula von der Leyen announced an agreement in principle to resolve an ongoing standoff threatening the ability of companies to transfer data on European users to facilities in the United States. The current predicament, which could freeze a wide range of business operations in Europe and the United States that involved processing, using or storing data involving Europeans, is the latest stage of nearly a decade of European legal challenges arguing that US national security and intelligence laws allowing law enforcement authorities to access data held by US-based communications firms violate Europe’s Charter of Fundamental Rights. Following the 2013 Snowden revelations, the European Court of Justice (ECJ) in 2015 overturned the US-EU Safe Harbor Agreement on data transfers. A new regime dubbed the US-EU Privacy Shield was instituted in 2016, but the ECJ struck that down in 2020. US and EU officials have been working to hammer out another agreement since. The most recent announcement did not include any specifics and many privacy advocates were highly skeptical, including Max Schrems, who authored the complaints that sank the two earlier agreements.

Context – Despite Facebook’s name being on the two major ECJ cases, the data practices of American tech companies, while often criticized by European privacy advocates (including Mr. Schrems), are not at issue. This is about American security, intelligence and anti-terrorism surveillance laws and practices. There is no expectation that the US Congress will meaningfully change laws intended to combat terrorism and criminal activities. EU political leaders, who keep reaching deals with the US, probably don’t want less robust intelligence surveillance either. So, the specifics of the latest deal likely involve some quasi-judicial appeals process for EU citizens that leaders hope will pass muster with EU judges when challenged.

Australia to Move Forward on a Social Media Misinformation Law

Report from the Sydney Morning Herald

In Brief – The Australian Government has announced legislative plans to reduce the spread of online misinformation. The measure, expected to be submitted to parliament later this year, will put the Australian Communications and Media Authority (ACMA), the country’s communications regulator, in charge of the regulatory scheme. The major digital platforms, led by Facebook, Google, Twitter, Microsoft and TikTok, have signed up for a voluntary code of conduct to address misinformation and disinformation. The ACMA will be given new authority to compel platforms to share information with the regulator on the instances of misinformation and disinformation on their platforms, as well as the platform’s efforts to control it. The measure is also expected to authorize the ACMA to develop a compulsory regime if it deems the move necessary.

Context – Led by Prime Minister Scott Morrison, Australia continues to press its case as the most aggressive Western regulator of online activity and digital platforms (Great Britain and France are taking note). Morrison aggressively moved to legislate takedowns of abhorrent images following the 2019 Christchurch massacre, and followed up with an Online Safety Bill in 2021 regulating a broader range of objectionable content on social media. His government has also pressed aggressively on Big Tech antitrust and is forcing Facebook and Google to pay domestic media companies. He is now pushing for legislation to require social media companies to pierce online anonymity or face defamation risks directly for anonymous posts. This latest effort to regulate misinformation is another example of “mission creep” when governments try to regulate online harms. Australia moved quickly to legislate in 2019 and 2021, and now the UK Online Safety Bill and the EU Digital Services Act will put regulators in the role of setting misinformation standards among other “legal but harmful” content. Australia is now playing to catch up in the regulatory arms race.

Progressives Release “We Are Here, We Are Here” Anti-Merger Bill

Report from The Hill

In Brief – Senator Elizabeth Warren (D-MA) and Representative Mondaire Jones (D-NY), joined by stalwarts of the progressive wing of the Democratic Party including Sen. Bernie Sanders (I-VT) and Rep. Alexandria Ocasio-Cortez (D-NY), have introduced legislation to prohibit large corporate mergers, overhaul federal government merger review processes and ease the ability of regulators to overturn past mergers. The bills ban mergers valued at greater than $5 billion or where the companies would have greater than 33% share of a market, and allow the Federal Trade Commission (FTC) and Department of Justice (DoJ) to reject deals without a court order.

Context – Most bills are symbolic, tools to rally support or send messages. These bills have no chance of being enacted. So, what’s the message? Frustration, and that the Progressives still believe in an economy-wide overhaul of competition policy. Despite the Biden Administration naming strong advocates of a major antitrust overhaul to top positions, broad policy change has not appeared. Even the highly focused antitrust bills aimed at the tech giants remain stalled. While there is some Republican support led by Rep. Ken Buck (R-CO), he is frustrated with Republican Leadership opposition. And there are enough Democratic holdouts to block the bills. On the acquisition front, the European Commission’s recent approval of the $8.45 billion Amazon-MGM deal was noteworthy. No merger revolution there. The EU took a traditional view (again), pointing out that MGM was not that important a studio and Amazon was not dominant in any video market. They passed on the opportunity to test how Amazon gives away digital services to power Prime. Instead, the Europeans expect to use their landmark Digital Markets Act to regulate very large platforms like Amazon, and US progressives are likely banking on the same. That’s why Sen. Warren continues to attack Biden’s Secretary of Commerce for raising concerns with the DMA. If the US Congress won’t regulate the Internet, she thinks Europe should.

European Commission Proposing a VLOP Supervisory Fee in DSA Talks

Report from Euractiv

In Brief – The European Commission is proposing to add a “supervisory fee” imposed on large digital platforms to the Digital Services Act (DSA) to fund the ongoing regulatory oversight work that may be assigned to the Commission under the landmark online regulatory legislation. The DSA aims to establish new EU-wide standards for how digital platforms deal with objectionable content. The European Commission, Council of Member States and European Parliament are now engaged in “trilogue” negotiations to arrive at a final version of the legislation. Unlike the parallel Digital Markets Act (DMA), which imposes new competition policy-inspired regulatory mandates on “Digital Gatekeepers”, the DSA proposes to regulate all digital platforms. However, a class of large platforms designated as Very Large Online Platforms (VLOPs) will face heightened obligations. While most platforms will be regulated under the DSA by a home-country regulator in a manner similar to the controversial “One Stop Shop” of the EU’s General Data Protection Regulation (GDPR), the three-way DSA talks appear to be moving toward assigning regulation of VLOPs to the European Commission. The Commission would therefore like VLOPs to pay a supervisory fee akin to a fee regulated banks pay to the European Central Bank.

Context – The scope of the digital platforms covered is a key difference between the DMA and the DSA. The DMA targets dominant giants. While the exact scope remains a contentious issue in the DMA trilogue, both in terms of digital markets and the size of the businesses, the intent is to regulate dominant platforms, something with clear support across the political spectrum in Europe. The DMA is poised to be wrapped up soon. The fact that the DSA imposes obligations on all platforms, and then attempts to define a class of VLOPs for greater obligations, is a controversial topic given the very wide range of platform models, many with little connection to some online risks. Concerns of free speech advocates are likely slowing things as well.

Australia Sues Facebook Over Ads Pushing Financial and Crypto Frauds

Report from TechCrunch

In Brief – The Australian Competition and Consumer Commission (ACCC), the country’s competition regulator, has filed a lawsuit against Meta Platforms (Facebook) in Australian Federal Court alleging that the social media giant failed to prevent scammers from using the Facebook advertising system to effectively target people for financial frauds. The advertisements for cryptocurrency or other investment schemes often used fake news articles that falsely used the names and likenesses of famous Australians. Rod Simms, the longest serving Chairman of the ACCC and a top global antagonist of the US-based digital platform giants, who wrapped up his tenure leading the agency just days after the suit was filed, said “The essence of our case is that Meta is responsible for these ads that it publishes on its platform… scam ads were being displayed but Facebook did not take sufficient steps to address the issue.”

Context – Once lawmakers decide to start directing platforms on how best to address objectionable online behaviors, it becomes increasingly hard to limit the scope and exclude problems, as if any specific problem is not “important enough” to warrant special care. This “Mission Creep” has been fully on display in the UK with the Online Safety Bill recently submitted to Parliament. Financial frauds were added to the laundry list of online harms after high profile media coverage of online scams in the UK last year. What started almost four years ago as an effort to stop online child sexual exploitation and support for terrorism, now covers hate speech, harassment, threats, disinformation, revenge porn, racism, the promotion of suicide or eating disorders, financial frauds schemes, romance scams, as well as requiring pornography sites to implement age verification systems and dissuade (but not end) anonymous social media users. Mission creep clearly runs market-to-market as well. Australia enacted its own Online Safety Law last year, with a narrower scope than the UK. They appear to feel like they are missing out.

UK Online Safety Bill Finally Submitted to Parliament

Report from the Financial Times

In Brief – After more than three and a half years of study, discussion, legislative drafting and debate the UK Government has introduced an Online Safety Bill in the UK Parliament. The massive Internet regulatory measure is expected to be enacted into law. Initially framed as an effort to direct tech companies to police objectionable content such as terrorism recruitment and child sexual abuse material, backed up by strict regulatory oversight, the proposal has grown in scope throughout the process. The bill requires digital platforms to act quickly to block a wide range of content and threatens executives with jail time for some of the most egregious violations of the new law. Recent additions include requiring porn websites to employ an approved 18+ age-verification system, social media platforms to offer a user ID system that allows users to block posts from anyone who does not register under their real name, and requiring social media platforms to block online ads for financial frauds. One of the most contentious topics has been the requirement that platforms police a range of “legal but harmful” content, rather than just illegal content, raising concerns from free speech advocates. The final list of “legal but harmful” content and related duties will be detailed in follow-on legislation, but the Open Rights Group criticized the bill as leading to an “Orwellian censorship machine”.

Context – Once lawmakers decide to direct how digital platforms police objectionable behaviors and content, there is an inevitable mission creep. Who wants to tell people that the problem they care about is not important enough? So, a measure that started with combatting terrorism and protecting youths from sexual abuse, now covers harassment, hate speech, threats, disinformation, revenge porn, racism, the promotion of suicide or eating disorders and romance scams. Expect a similar process to play out in the European Union as the Digital Services Act is enacted and regulators try to police objectionable speech and have free speech too.

Amazon Closes MGM Acquisition After FTC Passed on Challenging the Acquisition

Report from the Washington Post

In Brief – Following the decision by the European Commission Competition Authority (ECA) to approve Amazon’s $ 8.45 billion acquisition of movie and television studio MGM, and the inability of the US Federal Trade Commission to challenge the deal before a statutory clock expired, Amazon announced completion of the transaction. The European regulator stated that overlaps between Amazon and MGM are limited, that their combined market shares across audio and video markets are relatively low, that MGM’s digital content could not be considered “must-have” by consumers, and that adding MGM to the overall Prime services bundle did not significantly impact Amazon’s position as a provider of ecommerce marketplace services. While it is reported that FTC Chair Lina Khan, who came to prominence by authoring Amazon’s Antitrust Paradox, was interested in challenging the acquisition to scrutinize Amazon’s business model that gives away billions in digital services in order to protect dominant positions in ecommerce marketplace services and fulfilment center logistics, the lack of a third Democratic FTC commissioner on the panel, and the opposition of the two Republican commissioners, stymied her ability to move forward.

Context – Acquisition “reform” may be near the top of Big Tech antitrust talking points, but regulators are still staying well inside the traditional policy mindset when the tech giants are buying. The EU’s MGM decision was key because the FTC was clearly hamstrung. When the EU passed on investigating Amazon’s business model of giving away billions in digital services to consumers to get them into Prime, the opportunity passed. Seriously, most EU officials looking to regulate alleged Big Tech abuses are likely turning their attention to the Digital Markets Act (DMA) anyhow. So Microsoft is probably more optimistic on buying Activision-Blizzard but should be preparing for life long-term under the DMA.

DC Judge Sides with Amazon on Price Policy in Opposite Ruling to Federal Judge Last Week

Report from Reuters

In Brief – District of Columbia Superior Court Judge Hiram Puig-Lugo has granted Amazon’s motion to dismiss a complaint filed last year by Washington D.C. Attorney General Karl Racine (D) contending that Amazon’s price parity policies penalizing third-party sellers’ goods on the Amazon Marketplace when they try to sell the same goods for lower prices off of the Amazon Marketplace are a violation of DC’s antitrust laws. AG Racine’s suit alleges that Amazon’s policies push sellers to raise their prices on venues elsewhere on the Internet in order to not be penalized on the dominant Amazon Marketplace, harming consumers who lose those lower-priced options. Judge Puig-Lugo did not issue a written order. In response to the ruling, the DC AG’s office said that the judge “got this wrong” and noted that a federal district court judge allowed a similar complaint to proceed in federal court a week earlier.

Context – The same Amazon policies received opposite rulings from two judges in a week. You can see why FTC Chair Lina Khan struck a nerve with her paper the Amazon Antitrust Paradox. In DC Court, Amazon scored a win. But in Federal District Court, Amazon suffered a setback. Both suits involve Amazon’s “price parity” policies that push sellers to offer the same price on Amazon as they offer anywhere online. Amazon’s policies have been controversial for years. They dropped their direct prohibition in 2013 in Europe and 2019 in the US, but still penalize offending sellers through algorithms. Whether Amazon enjoys market dominance is a key question. Their share of ecommerce marketplace sales approaches 70 percent while charging high fees to sellers. Both suits argue that sellers won’t forgo sales on the massive Amazon marketplace to offer lower prices on other venues, even when lower fees would allow it, harming consumers off Amazon. Online price parity is not limited to retail marketplaces, with regulators in Korea, Japan, India and the EU looking at policies on large hotel and travel booking platforms.

Microsoft the Target of Another Cloud Computing Competition Complaint in Europe

Report from the Wall Street Journal
In Brief – It has recently come to light that France-based cloud services provider OVHcloud filed an antitrust complaint last summer with the European Commission Competition Authority accusing Microsoft of abusing its dominant position in business software services to preference its cloud services business in ways that undermine cloud services competitors. The complaint targets Microsoft licensing practices for its Office productivity suite as well as accusations that Microsoft software intentionally works less well on non-Microsoft cloud offerings.

Context – While Microsoft has seemed to largely avoid the antitrust backlash confronting the other four US-based tech giants, the trillion-dollar software, cloud, gaming and business services giant will be challenged to keep escaping the regulatory dragnet. With so many major lines of business, the company is increasingly accused of using one major business unit to grow other business units. For example, Slack filed an antitrust complaint with the European Commission in mid-2020 accusing Microsoft of preferencing its Teams service. German cloud business Nextcloud has also filed an antitrust complaint against Microsoft at the European Commission, and says it intends to file separate complaints with the German and French antitrust authorities. The most important development on competition policy in digital markets, especially in Europe, is the Digital Markets Act (DMA) legislation that will soon impose a set of regulatory rules on large “Digital Gatekeepers” (see a table of the 18 DMA “Do’s and Don’ts” here). This will likely replace much case-by-case digital competition enforcement. A coalition of small EU-based cloud services providers are pressing to have business software services added to the industries covered by the DMA because they argue that Microsoft, Oracle and SAP, a German software giant, all link their popular business software services to their cloud offerings in ways that undermine small cloud rivals.

The EU Competition Authority Declines to Challenge Amazon’s MGM Acquisition

Report from the Wall Street Journal

In Brief – As indicated by early March reports, the European Commission Competition Authority (ECA) has approved Amazon’s $8.45 billion acquisition of movie and television studio MGM without further review or conditions. In its announcement, the ECA stated that overlaps between Amazon and MGM are limited and their combined market shares across audio and video (AV) markets are relatively low, including in production, licensing, theatrical distribution and streaming. They also concluded that MGM’s digital content cannot be considered “must-have” by consumers. Finally, they probed how adding MGM’s content to Amazon’s existing bundle of AV, retail and marketplace services would impact the conglomerate’s overall Prime offering and concluded that it would not significantly impact Amazon’s position as a provider of ecommerce marketplace services.

Context – FTC Chair Lina Khan must be thinking “Et tu Margrethe?” Not unlike in December 2020, when the ECA approved Google’s $2.1 billion acquisition of stumbling fitness wearables innovator FitBit over opposition from consumer and privacy advocates, the ECA has greenlighted an even bigger acquisition based on traditional market analysis. FitBit, the one-time market leader, had fallen well behind larger competitors and needed a buyer. Google promised not to disadvantage competitors and won approval along traditional lines. With Amazon-MGM, the ECA is again staying inside the box. MGM is not a top studio, their content is not remotely must-have on its own, and Prime Video not dominant in streaming. But the acquisition would give regulators a chance to probe why Amazon gives away billions in digital services to bolster Prime each year, and how they make those losses up (hint – through over a hundred billion in marketplace and logistics fees paid by third party sellers looking to reach the Prime buyers). The ECA has passed. Maybe the FTC won’t, but without three Democratic FTC Commissioners, probably not. And the European Commission probably thinks their Digital Markets Act will regulate Amazon conduct anyway.

TikTok and Oracle May Reach US User Data Deal That Could Satisfy CFIUS

Report from Reuters

In Brief – TikTok is reported to be close to reaching a deal with Oracle that would result in the super-popular, Chinese-owned social media platform storing its US users’ data in Oracle cloud servers in the United States in a manner that would not allow TikTok’s Beijing-based parent company ByteDance, or other entities in China including government officials, to access the data. A team of Oracle officials, including engineers and cyber security experts, would act as gatekeepers and the US users’ data and would not be under TikTok’s supervision. If the arrangement is finalized (questions remain regarding the level of access Chinese managers will have to data), it is hoped that the relationship will resolve concerns that the US Government’s national security-focused Committee on Foreign Investment in the United States (CFIUS) continues to have with US data stores held by Chinese companies, including TikTok, and possible Chinese Government access. The Oracle model could possibly be replicated in other important TikTok markets.

Context – The Trump Administration’s efforts to ban WeChat and force ByteDance to sell off TikTok’s US operations, which came on the heels of India banning dozens of Chinese-owned apps, were unprecedented accelerations in the digital divide between China and other markets. However, the Biden Administration slowed things way down in 2021, largely stepping away from the legal battles stifling the Trump WeChat and TikTok orders and embarking on an effort to create a not-yet-finalized process to address security implications of digital services, apps and equipment from countries, including China, that raise national security concerns. The implications of digital platforms sharing data with businesses inside China continued to be a growing issue, especially in Japan. The very public Chinese Government crackdown on its domestic digital giants and their billionaire leaders has also pressed home the reality that the government can impose its will on even its largest companies, which legally includes the right to access their user data.

EU and UK to Investigate Google-Facebook Jedi Blue Advertising Deal

Report from the New York Times

In Brief – The European Commission Competition Authority and the UK Competition and Markets Authority have opened parallel investigations of a digital advertising business agreement between Google and Facebook and announced that they will cooperate in the effort. The investigations are focused on a joint company project initiated in 2018 called Jedi Blue that came to light through the December 2020 federal antitrust complaint brought against Google by a coalition of US State Attorneys General led by Texas AG Ken Paxton (R). That lawsuit alleges that Google gave Facebook special terms and access to its ad server tools allocating advertising space across the Internet in return for Facebook its abandoning a rival advertising technology called “Header Bidding” that some argue could undermine Google’s control over online ads. Both Google and Facebook have disputed the allegations, arguing that it wasn’t an exclusive deal, that Facebook did not receive special treatment compared with other large advertising partners, and that Header Bidding grew in popularity over the years in question.

Context – Google was hit with three government-led antitrust suits in US federal court in late 2020. A complaint from the US Department of Justice (DoJ) focused narrowly on Google search, in particular the company’s relationship with Apple; a complaint from State AGs led by Colorado’s Phil Weiser (D) more broadly focused on Google’s search practices; and the complaint led by Texas AG Paxton focused on Google’s advertising business, including the claims related to Facebook. The very large market shares of Google in digital advertising services and Facebook in online display advertising seemed ripe targets for antitrust authorities at the time with market inquiries were underway in the UK and Australia. However, major antitrust cases do not move quickly. The federal cases focused on Google search practices are tentatively looking at a September 2023 trial date, and in January Google moved to dismiss the TX AG advertising case, which is likely a long-shot but will slow the process down.

Federal Judge Rejects Amazon Motion to Dismiss Suit Targeting “Fair Pricing Policy”

Report from Bloomberg

In Brief – Federal District Court Judge Richard A. Jones has rejected Amazon’s motions to dismiss a consumer class action lawsuit accusing Amazon of employing anticompetitive “fair pricing” agreements that push third party sellers to raise their prices on other ecommerce platforms to unnecessary levels. Amazon’s pricing practice is often referred to as a “price parity” or “MFN” clause. Some argue that MFN policies can drive up consumer prices when the offending business, in this case Amazon, is a dominant platform, so that while competitor platforms might charge lower fees, third-parties users won’t pass the lower fees along to consumers through lower prices for fear of losing sales on the dominant platform. Amazon has a controversial track-record of price parity policies. Under regulatory pressure, Amazon abandoned their direct MFN contract clause in Europe in 2013 and in the US in 2019. However, the company still penalizes sellers who sell at lower prices off Amazon, including lowering their chances to “Win the Buy Box”. In his order rejecting some of Amazon’s motions to dismiss, Judge Jones rules that the plaintiffs arguably have paid unnecessarily higher prices on platforms with lower fees due to the Amazon practices.

Context – This lawsuit makes very similar allegations to a complaint filed in DC Court by the Attorney General of Washington, DC. Both suits argue that Amazon is the dominant ecommerce marketplace, and small and mid-sized product sellers depend on sales on that marketplace. Amazon is also the dominant provider of ecommerce logistics services. At the heart of Amazon’s ecommerce strategy, which is increasingly based on sales by third-party sellers, is linking success as a seller on its marketplace with using Amazon’s logistics services, which often comes with high fees. Those high fees are then protected by penalizing sellers who sell at lower prices off Amazon. That price parity policy shields the high cost of Amazon’s logistics service from price competition off-Amazon. Regulators in Brussels and Italy are looking at similar Amazon practices.

Google Announces New Efforts to Promote User Data Portability

Report from TechCrunch

In Brief – Google has announced that it is stepping up what it describes as its long-standing efforts to make user data portability easier and more secure by committing to spend $3 million and “hundreds of hours” of its engineers’ time over the next five years to build on initiatives such as open-source Data Transfer Project (DTP). The move comes at a time when lawmakers in a number of markets are considering data portability and interoperability mandates to make it easier for users to switch away from digital giants in order to promote competition. Google highlighted two policy priorities clearly aimed at policymakers. On “reciprocity”, Google says that “platforms that allow people to import their data should also allow them to export it.” This is emerging as an issue in Europe, where the Digital Markets Act (DMA) regulating the largest digital gatekeeper imposes data interoperability mandates on them but not small platforms, as well as the initial draft of the Data Act that aims to promote competition in the IoT space, but exempts platforms designated as gatekeepers under the DMA from being authorized to receive third party companies’ data. The second policy issue is “Privacy and Security”, a long-standing issue raised by the largest platforms on the context of efforts such as DTP. Google believes that portability requirements “must include safeguards against unauthorized access, diversion of data, and other types of fraud”.

Context – Giving smaller competitors access to large platforms’ data, and users greater ability to move platforms, is receiving serious attention in a growing number of markets. The EU, with the Digital Markets Act, is furthest along with interoperability and portability both being part of the bill’s Do’s and Don’ts. However, the issues are truly complicated and there is no consensus. For example, while the FTC held a workshop on the topic in 2020, and the House Judiciary Committee passed an interoperability and portability bill last year, the Biden Administration has been raising serious concerns with European officials about their DMA provisions.

Indian Regulator Drops Investigation of Amazon Retail Allegations Raised by Reuters

Report from the Economic Times

In Brief – The Competition Commission of India (CCI), the country’s antitrust regulator, has announced that it has closed an investigation of allegations that Amazon had engaged in anticompetitive practices by illegally operating as a retailer on its Indian ecommerce marketplace platform. The CCI had opened the investigation of Amazon’s marketplace following a lengthy expose from Reuters in February 2021 claiming that internal Amazon documents revealed that the company engaged in maneuvers over nearly a decade to circumvent the country’s strict foreign direct investment (FDI) laws prohibiting non-Indian businesses from operating retail enterprises. FDI laws do allow non-Indian businesses to operate third-party ecommerce marketplaces. The Reuter’s report focused on allegations that Amazon used “independent” third party retailers as de facto Amazon house brands on their marketplace to replicate first-party retail sales. The Confederation of All India Traders, a trade association of over 70 million Indian shopkeepers, had called on the CCI to shut down Amazon after the Reuters expose and harshly criticized the regulator as being “spineless” and “toothless” for dropping the matter.

Context – All the while Amazon has been facing FDI-related investigations from the CCI and Indian Enforcement Directorate, the real headline news has been its massive legal and business battle with Reliance Industries, an emerging digital conglomerate led by India’s richest man. The two digital and retail titans have been fighting over India’s Future Retail since mid-2020, with Amazon blocking Reliance’s efforts to buy the retailer with numerous legal maneuvers stretching from a Singaporean arbitration panel to the Indian High Court. While the CCI has considered overturning the Amazon investment in Future that has allowed it to stymie Reliance, Reliance purchased ownership of leases to Future stores and took hundreds over when rents were not paid. Talks between Amazon and Future to resolve the standoff did not yield a resolution and the Indian High Court will again address the legal dilemma.

Utah State Privacy Legislation Adds to Roadmap on Getting US Privacy Bills Done

Report from Bloomberg

In Brief – The Utah Consumer Privacy Act, legislation modeled on bipartisan privacy legislation enacted last year in the Virginia, has been passed the Utah House of Representatives and Senate and is expected to be signed by Governor Cox (R)  shortly. The bill provides consumers the right to notice, access, portability, and deletion and allows people to deny companies the right to target them with advertising or sell their personal information. It also requires companies to notify customers if they are collecting “sensitive” information including biometric or genetic data, health information, citizenship data, sexual orientation, racial origin, or religious beliefs, and allow people to opt-out of their use. The bill does not allow for a private right of action and reserves enforcement to the Office of the State Attorney General.

Context – If Utah becomes the fourth state to enact comprehensive consumer legislation it will further reinforce the impression that whether private class action lawsuits are in the enforcement mix is the best thumbnail guide to prospects for success. Enforcing privacy standards with a “private right of action”, a policy strongly supported by many progressive consumer advocates, appears to consolidate enough opposition from Republicans, business and tech interests, to stifle legislation. But left out, bills can move. This has played out in California, then Virginia, then Colorado. These first three states to get across the finish line had unified Democratic control of state government. Utah is the opposite, with unified Republican control, which may point to more red state successes. As opposed to examples of legislative success, including class action suits in bills has proved a hurdle too high to jump in both Democratic and Republican strongholds. In Washington, with strong progressive leadership, and Florida, with Republican leaders looking to punish Big Tech, privacy bills that included class action lawsuits stalled in 2021. Class action enforcement is also the main, although not the only, substantive hurdle that keeps federal privacy legislation stalled on Capitol Hill.

UK Online Safety Bill Expands to Cover Advertising That Leads to Frauds and Scams

Report from Reuters

In Brief – As the UK Government marches toward submission of the Online Safety Bill to Parliament, the massive digital regulation effort continues to expand in scope. The latest move is confirmation that that the bill, originally designed to regulate how digital platforms police user-generated content, will be expanded include online advertising that promotes financial frauds and scams. In announcing the expansion, the Department for Digital, Culture, Media & Sport (DCMS) called out paid ads used to steal personal data, breaks into bank account and sell fraudulent financial investments. Along with expanding the Online Safety Bill to cover ad-based fraud schemes, DCMS announced that the government would be launching a new consultation on proposals to more aggressively regulate the full online advertising industry to promote greater transparency, accountability and safety.

Context – Once policymakers decide that government should direct digital platforms on how best to address objectionable behaviors and content, one huge challenge is limiting the scope of the problems that are “important enough” to warrant special care. Call it Mission Creep. This has been happening with the Online Safety Bill. When some online financial frauds received high profile media coverage last year, political, finance and regulatory officials called for the big digital platforms to solve that problem too. So, if you’re keeping score at home, a platform regulation effort that started with calls to stop online terrorist content and protect youths from sexual abuse, now covers hate speech, harassment, threats, disinformation, revenge porn, racism, the promotion of suicide or eating disorders, financial frauds schemes, romance scams, as well as requiring pornography sites to implement age verification systems, and social media platforms to implement a user ID verification system that will not be mandatory or users, but will require platforms to reduce the circulation of content from non-verified users.

EU Reportedly Leaning in Favor of Approving Big Amazon-MGM Deal

Report from Reuters

In Brief – Sources close to the European Commission Competition Authority (ECA) indicate the key EU regulator will approve Amazon’s $8.45 billion acquisition of movie and television studio MGM without further review or conditions. European approval would come as Amazon has reportedly notified the US Federal Trade Commission (FTC) that it had provided the US antitrust regulator all the information requested and was triggering a regulatory clock that would require the FTC to formally decide to oppose the deal by mid-March, and short of that move the ecommerce and logistics giant would complete the transaction. The parallel acquisition review in the EU could have delayed Amazon’s ability to close the deal, with the ECA facing a March 15 deadline to announce that it was approving the deal (with or without remedies), opening an in-depth investigation, or even just pushing back the deadline.

Context – While a lot of musings about acquisitions by digital giants has occurred in recent years, there is no clarity on where policy is going. In 2020, Google $2.1 billion bid for stumbling fitness wearables innovator FitBit raised opposition from consumer and privacy advocates but won EU approval (but not Australia or US). In 2021, the hot issue was bids for startups. Facebook deals for Kustomer and Giphy were in focus. Again, no clarity. Kustomer cleared and Giphy was rejected by some regulators (and approved by others). Multibillion-dollar deals are again getting top billing and still no consensus for change. Microsoft’s huge $19.7 billion deal for health care AI firm Nuance was recently cleared. Google has announced a $5.4 bid for cybersecurity firm Mandiant to better protect cloud services. The massive $70 billion Microsoft bid for Activision seems too big to ignore. Despite thought that the FTC or EU would press Amazon on MGM as a way to probe how Amazon gives away digital services to bolster Prime and make up the losses through huge third-party seller fees, it is not clear that either regulator is willing to pull the trigger.

Justice Thomas Continues to Troll for a Good Supreme Court Case to Limit Sec. 230

Report from CNBC

In Brief – Justice Clarence Thomas has again used a formal notice regarding the docket of the U.S. Supreme Court to publicly call for “an appropriate case” to “address the proper scope of immunity under Section 230”. The most recent instance of Thomas filing lengthy and unprompted commentary on the federal Internet liability provision occurred as the Court declined to take up an appeal from a Texas woman who was friended on Facebook as a 15- year-old by a man who turned out to be a sex trafficker. The Supreme Court annually rejects thousands of writs of certiorari asking for the panel to take a case, simply placing them on a list designated “CERTIORARI DENIED”. Thomas added an unusual three-page statement asking for a better Sec. 230 case (see page 7). In 2020 the Supreme Court likewise rejected an appeal in the case of Malwarebytes v. Enigma Software dealing with the fringe case of Sec. 230 and anticompetitive conduct. Thomas agreed with that decision as well, but filed a nine-page statement (see page 12) calling for a better case Sec. 230 case.

Context – Justice Thomas’s public Sec. 230 campaign is unusual to say the least. “Platform censorship” and the belief that the largest digital companies discriminate against conservative viewpoints is a top Republican political issue nationally. The fact that the tech giants are largely based in progressive bastions adds to the Us-vs-Them political framing. In 2020, Pew found that 90% of Republicans (and 59% of Democrats) believe that social media sites censor viewpoints that they find objectionable, but a more recent Gallup report reveals the Americans are highly fragmented on whether and how government should get involved in online content moderation. Some Republican-dominated states have enacted bills to override Sec. 230 and restrict online content moderation, but such laws in Florida and Texas were quickly stayed by federal courts. Justice Thomas keeps filing unsolicited opinions that read like amicus briefs explaining where he stands on the issues of Sec. 230 and content moderation by the biggest platforms.

Federal Judge Sends State Digital Ad Tax Challenge to Maryland State Court

Report from Bloomberg

In Brief – Federal District Court Judge Lydia Kay Griggsby has dismissed most of the federal court challenges against Maryland’s landmark digital advertising tax, ordering that the case should be heard in Maryland state court based on the procedures of the federal Tax Injunction Act. Maryland’s tax on digital advertising revenues, with a sliding rate scale based on a company’s global revenues, targets Google, Facebook and Amazon in the manner of Digital Services Taxes (DST) enacted by countries like France, Great Britain and India. The US Chamber of Commerce and a trio of tech industry trade groups challenged Maryland’s law in federal court almost immediately after it was enacted in early 2021. While Judge Griggsby’s order dismissed most of the substantive arguments of the plaintiffs on venue grounds, sending them to state court, she is permitting the business groups to continue to challenge the law’s “anti-pass through” provision in federal court. That provision prohibits companies from passing the tax cost along to Maryland costumers through higher prices, which the judge argues in not a tax.

Context – The Biden Administration has negotiated a huge two-part global corporate tax reform plan that they hope will end national DSTs, although hurdles, especially in the US Congress, remain. However, the same desire to capture digital company revenues that drove the taxes internationally are inspiring a growing number of US States as well. Maryland was first in the nation, but bills have been circulating in states including Massachusetts, Connecticut and Texas. The most compelling argument against the state taxes is that they clearly violate the federal Permanent Internet Tax Freedom Act (PIFTA), which prohibits states from taxing commercial activity on the Internet that is not taxed the same way offline. Judge Griggsby did not rule on the substance of that argument. Instead, the case will now head to state court for a likely multi-year slog which will test whether seemingly clear language from a federal law and the US Constitution hold sway in Maryland courts.

UK CMA Clears Microsoft’s Acquisition of Healthcare Tech Company Nuance as Deal Closes

Report from RTTNews

In Brief – The UK Competition and Markets Authority has approved Microsoft’s $19.7 billion acquisition of artificial intelligence and speech technology company Nuance Communications, which is the third largest purchase by the digital technology giant after its $26.2 billion acquisition of LinkedIn and the recently announced $70 billion bid for giant game developer Activision-Blizzard. The Nuance deal had already been approved by regulators in the United States, Australia, and the European Union. The CMA nod completes the regulatory circuit and Microsoft has formally closed the deal. Nuance has been a healthcare industry technology powerhouse for years, based on its market share in speech recognition, artificial intelligence and natural language processing.

Context – A broad rethink of acquisitions by giant digital platforms is underway. In 2021, the focus was on Facebook buying startups Kustomer (approved) and Giphy (opposed by the UK CMA). Multibillion-dollar deals are the focus in 2022, highlighted by Amazon’s bid for MGM and Microsoft’s massive deal for Activision-Blizzard. As much as the super-giants using their financial heft to grow even bigger seems a simple target, the trend has been the opposite. In 2020, the highest profile digital acquisition was Google buying FitBit, which won approval from the EU despite widespread opposition from consumer and privacy advocates. The Microsoft purchase of Nuance follows that pattern, with none of the major regulators standing in the way. The FTC will be the lead US agency reviewing Amazon-MGM and Microsoft-Activision. Both will test the ability of Chair Lina Khan to go outside the traditional competition policy box. For example, MGM is not a major studio and Amazon has less than 20% share in the video streaming market, but the company paid a premium despite not charging most users for Prime Video. The Activision deal is simply the most expensive ever by a digital platform giant, nearly three times bigger than #2, also by Microsoft when it bought LinkedIn.

UK Expands Anti-Encryption Efforts with Novel Institutional Investor PR Campaign

Report from the Financial Times

In Brief – In a new and novel front in its battle to end the use of secure end-to-end encryption (E2EE) by social media and digital communications platforms, the UK Government is funding a public relations campaign to push large institutional investors holding shares in Meta Platforms (Facebook) to press the social media giant to drop its plans to expand E2EE on its messaging services. E2EE allows users to communicate with each other without the platform, law enforcement, or other third parties capable of intercepting transmissions, to decipher the contents. Law enforcement officials and child safety advocates have long argued that this protects sex abusers and other criminals. Facebook’s WhatsApp messaging service has long included E2EE, and the company announced in 2019 that it planned to merge its Facebook and Instagram messaging platforms with WhatsApp, using E2EE on all services. Law enforcement leaders in global markets, including the US, UK and Australia, were harshly critical and called on Facebook to drop the plan. Last fall, in the midst of the “Facebook Whistleblower” controversy, the company announced a delay but not a full course change. The UK Home Office has now funded a half-million-pound PR campaign developed by advertising agency M&C Saatchi that aims to pressure major shareholders like Blackrock and Vanguard Group to push Facebook to drop their encryption plans.

Context – The policy fight over encryption stretches back to the 1990’s pitting civil libertarians and technologists against law enforcement looking to extend analog wiretapping regimes to all forms of digital communications. It was a focus of President Trump’s second Attorney General, William Barr, who regularly lambasted Facebook and Apple. The UK Government has been equally aggressive and combatting child sexual abuse material has been a top argument for their Online Safety Bill that both child advocates and privacy advocates agree will likely push platforms to drop strong E2EE under threat of massive liability.

State Attorneys General Investigating Impact of TikTok on Teenage Users

Report from the New York Times

In Brief – A bipartisan group of eight state attorneys general are adding to the political dogpile surrounding social media and young users by opening an investigation of the impact of TikTok on teen physical and mental health. The probe is led by attorneys general from California, Florida, Kentucky, Massachusetts, Nebraska, New Jersey, Tennessee and Vermont. The AGs will look into techniques TikTok uses to boost teen engagement with a particular focus on what TikTok might know about negative impacts. TikTok responded that it looks forward to providing the AGs with information on the company’s teen safety and privacy protections.

Context – When Facebook Whistleblower Frances Haugen departed the company with thousands of internal documents and spearheaded an anti-Facebook PR and lobbying campaign, the charge that resonated most widely was that its platforms were knowingly harmful to children. There was particular focus on evidence that they had studied teen users of Instagram and found that nearly a third of the girls in one indicated that the platform contributed to negative body image. As we noted last fall after initial congressional hearings focused on Facebook, other social media platforms popular with teens were certain to also fall under scrutiny, and they have. The Senate Subcommittee on Consumer Protection soon called in social media giants Snap, TikTok and YouTube to discuss their impact on young users, and highly popular Chinese-owned TikTok came in for especially harsh questioning. While Haugen’s call for broad social media regulation is unlikely to bear fruit in the US Congress due to partisan disagreement over policing “misinformation” (although it is coming in the EU and UK), legislation targeting kids online may be another matter. In his State of the Union, President Biden commended Haugen and called on Congress to enact stronger children’s privacy rules, ban targeted advertising to children, and pressure social media companies to design their products with child safety in mind.

Russian Fake War News Law Pushes TikTok to Block Russian Uploads

Report from the Washington Post

In Brief – TikTok has announced that it will suspend both live-streaming and new content from Russia in response to Russian legislation that bans what the government calls “fake” news about its military, including language that describes Russia’s attack against Ukraine as an “invasion,” under threat of a 15-year prison sentence. Russia, which has been ramping up its pressure on social media platforms for over a year because they allow news to circumvent state-controlled media, did block access to Facebook, but that platform is not widely used in Russia and they have not yet shut down more popular YouTube or Instagram.

Context – When you read something like Axios’s Scott Rosenberg writing “The internet promised a world in which no government could fully hide the truth from its people. Russia’s free-speech crackdown following its invasion of Ukraine is testing that premise as never before,” please know that this borders on ridiculous. Nothing is unprecedented or unexpected regarding the Russian Government’s Internet clampdown or the platforms’ reaction (as companies hate their employees getting arrested). The aspiration that the Internet was a free speech haven outside government control was made famous in a manifesto by John Perry Barlow in 1996… 25 years ago! Ancient history. Since then, we’ve seen the “Internet” in China. Governments can control the Internet by directing the companies that operate the infrastructure that people use to reach the Internet. Full stop. The China experience is why TikTok’s efforts to navigate the situation in Russia is interesting. But nothing about Russia’s efforts to control Internet platforms is unprecedented or approaches the comprehensive control inside China. Rather, be smart and know that governments in Russia, Central Asia, India, Turkey and Africa have been endeavoring for years to police social media platforms in ways that seemingly aspire to be more like China. That a war would push Russia further and faster is no surprise. But civil libertarians see platform regulation efforts in places like the UK and EU in a similar vein.

NY Times Digital Workers Vote to Unionize Creating Largest Digital Worker Union

Report from the New York Times

In Brief – A group of approximately 600 software engineers, product managers, designers and data analysts across the New York Times Company’s many services have voted overwhelmingly to create the Times Tech Guild, which becomes the largest unionized digital services workforce in the country that will collectively bargain on traditional wage, benefit and workforce matters. The new digital worker union is part of the News Guild of New York, the union that has represented New York Times editorial and media workers since the 1940’s, as well as writers and editors at the company’s product review website Wirecutter. Digital subscriptions are the New York Times’ largest revenue source and the company’s digital products include non-news products such as games, a cooking app and the Wirecutter website. While the New York Times editorial position has traditionally been very pro-labor on policy issues, the company’s management faced criticism for strongly opposing the creation of the Tech Guild.

Context – The prospect of unionizing Big Tech is a highly politicized issue with media outlets often advocating for labor organizers. The ongoing labor battles in some of Amazon’s huge fulfillment centers is regularly in the news, but it involves a blue-collar logistics workforce comparable to UPS, FedEx and the Postal Service, not high skilled tech employees. At Raven Software, one of Activision-Blizzard’s smaller game studios, approximately 30 game testers are trying to organize, but again, they are hourly employees playing games to find bugs, not programmers. The Alphabet Workers Union, created in January 2021, claims around 800 Google and contractor employees as members, but it’s specifically not an economic bargaining entity at all, but instead a group focused of policy advocacy. So, the new Times Tech Guild, a real collective bargaining union for hundreds of skilled digital workers, is newsworthy and may finally point to Labor gains among skilled tech workers, at least in a highly pro-labor business.

Amazon Trying to Force the Federal Trade Commission’s Hand on MGM Merger Approval

Report from the Wall Street Journal

In Brief – Amazon is reported to have notified the Federal Trade Commission (FTC) that it has provided all the information requested regarding its $8.45 billion acquisition of MGM, triggering a regulatory clock that expires in mid-March for the FTC to challenge the acquisition in a manner that would delay completion of the deal. If the FTC does not file a challenge, Amazon would be free to complete the merger under US antitrust law and force the FTC to later challenge it in federal court. At the same time, the deal may be challenged in other markets as well. For example, the European Commission’s Competition Authority also has a provisional deadline in March. It must act by the 15th to approve the deal (with or without remedies), decide to open an in-depth investigation, or it could even delay the deadline for this initial decision. If European enforcers choose to open a deeper investigation or delay the initial decision, it will delay Amazon’s ability to close the deal and effectively give the FTC more time.

Context – A broad rethink of acquisitions by giant digital platforms is underway. In 2021, the focus was on Facebook buying startups Kustomer (approved) and Giphy (opposed by the UK CMA). Multi-billion dollar deals are the focus in 2022 with Amazon’s bid for MGM and Microsoft’s massive bid for Activision-Blizzard. Amazon-MGM will reveal whether regulators will try to go outside the traditional competition policy box regarding the business model of a giant platform. It is not likely to be blocked using traditional antitrust analysis. MGM is not a major studio and Amazon has less than 20% share in the video streaming market. But Amazon paid a premium over other large video platforms and yet rarely even charges directly for Prime Video. Will antitrust regulators try to delve into its complex and little-understood business model and argue that the anticompetitive payoff comes in different markets they do dominate? (The answer, if they look, is third party seller marketplace and FBA fees.)

Net Neutrality Advocate Gigi Sohn’s Nomination to FCC Finally Proceeding to Senate Floor

Report from Reuters

In Brief – The long-delayed nomination of Gigi Sohn to join the Federal Communications Commission (FCC) as the body’s fifth commissioner, and more importantly the third Democratic commissioner, appears to finally be on track as the Senate Commerce Committee sent her nomination on to the full body on a tied vote (a procedure possible due to the 50-50 split in the Senate). If, as now expected, all 50 Democratic Senators will support her nomination, then Vice President Harris should finally resolve the standoff. Sohn is a highly respected progressive champion of Net Neutrality and other telecommunications policies backed by consumer advocates. She has been strongly supported by progressive groups while conservatives and broadband company advocates have been equally strident in their criticisms.

Context – The partisan Net Neutrality divide, Democrats supporting “strong” NN and Republicans objecting to mandates, is a political football with hardened positions on both sides. The Obama FCC, with Sohn serving a top staffer to Chairman Tom Wheeler, enacted landmark rules in 2015. They were overturned by the Trump FCC in 2017. President Biden campaigned in support of NN and another FCC reversal was fully expected. Of course, Senate Democrats, even with the barest majority, would approve a pro-NN FCC Commissioner. But it has proven harder than anticipated. It became increasingly clear that net neutrality opponents were pulling out all stops to block Sohn, and in doing so, hoping to delay achieving a Democratic majority on the FCC and stymie the agency moving forward on new rules. Maybe even dreaming of getting to 2023 and a possible Republican majority in the Senate that could block any pro-net neutrality FCC nominee. The key question was whether all Democrats would support Sohn. In that light, the real news from the Commerce Committee vote was that Sen. Krysten Sinema (D-AZ), a rare Democratic NN skeptic, voted in favor despite reports of aggressive lobbying of her by broadband giants

Biden SOTU Praises Frances Haugen and Calls for Online Kids Privacy Legislation

Report from The Verge

In Brief – President Biden’s first State of the Union address included a call for legislation to regulate digital services used by children, in particular social media platforms, and “Facebook Whistleblower” Frances Haugen was honored with an invitation to sit in the First Lady’s box. Haugen was a mid-level product manager on Facebook’s team charged with combatting 2020 election interference who became disillusioned with the company’s efforts to address problems on their vast sites. After notifying the company in early 2021 that she would be departing, she spent weeks taking pictures of thousands of internal documents and discussion threads regarding the platform’s many challenges, left and spearheaded a professional PR and lobbying campaign arguing that Facebook could be run better by regulators. Harms to younger users, in particular an internal Facebook study that indicated that Instagram appeared to contribute to body image problems for nearly a third of teenage girls studied, resonated widely. Along with commending Haugen, President Biden called on Congress to enact stronger children’s privacy rules, ban targeted advertising to children, and pressure social media companies to design their products from the ground up with child safety in mind.

Context – Haugen’s call for major regulation of social media platforms is unlikely to bear fruit in the Congress, where partisan disagreement over how platforms police “misinformation” stands in the way. But imposing new restrictions focused on kids may be another matter. It’s become a top Republican social media criticism. Leading Senate tech critics Richard Blumenthal (D-CT) and Marsha Blackburn (R-TN) recently introduced a bill to rewrite online rules for all tech services with users under age 17, while others propose expanding and updating COPPA. As much as some hope that President Biden’s call-out will boost these efforts, it’s possible that politicizing the issue will undermine Republican support in an election year.

German Court Blocks General Reporting of Suspicious Social Media Content to Police

Report from Reuters

In Brief – The Administrative Court of Cologne has ruled that provisions of the Network Enforcement Act (NetzDG) intended “to combat right-wing extremism and hate crime” by requiring large social networks to regularly report potentially criminal content to law enforcement authorities violate European Union law and do not need to be enforced by Google and Facebook. The German NetzDG law, enacted in 2018, is one of the most aggressive efforts in Western democracies to force online content moderation, requiring large social media platforms to remove the most egregious illegal content within 24 hours of receiving a report. Amendments were added in 2020 and 2021 to require large social networks to regularly forward suspicious user content such as hate speech, terrorism propaganda, and depictions of child sexual abuse, to the Federal Criminal Police Office, rather than the past practice of responding to law enforcement requests. The court’s decision largely rested on the EU’s country-of-origin principle, holding that Germany did not appropriately consult with Ireland, the Member State where Google and Facebook have their EU headquarters. While Google and Facebook challenged the law in mid-2021, TikTok and Twitter did not raise legal challenges until January 2022. A decision regarding their compliance obligations is forthcoming.

Context – As social media companies are pressed from both sides to enforce a kind of wartime censorship surrounding Russia’s Ukraine invasion, remember that governments around the world have looked at digital platforms for years, seen content they don’t like, and pushed platforms to police it. Social media regulation in China, Central Asia, Russia, Turkey, India and Ethiopia is easy to criticize on censorship grounds. But Germany, Australia and France were early adopters as well, including a French law already struck down for limiting speech. And expect the content moderation regimes that are likely to be most impactful, the EU’s Digital Services Act (which will largely supersede NetzDG) and the UK Online Safety Bill, to be enacted this year.

In Counterpoint to Progressives, 30 US House Members Urge Biden to Push Back on DMA

Report from CNBC

In Brief – A bipartisan group of 30 Members of Congress have called on the Biden Administration to push back on the EU’s landmark Digital Markets Act (DMA) that aims to regulate anticompetitive conduct by digital “gatekeepers”. The US legislators claim the measure is intended to target US-based digital platform business alone, avoiding European-based companies in order to preference their ability to grow, as well as missing Chinese-based platform giants. The Biden Administration is reported to have raised concerns about the DMA with EU policymakers earlier in the month, as well as in November, as part of the bilateral Transatlantic Trade and Technology Council. In each case, the Administration has come under fire from progressive advocates of aggressive antitrust action against Big Tech who see the EU’s DMA as consistent with their antitrust reform agenda, much of which President Biden has seemed to support.

Context – The EU is moving relentlessly to put regulators deep into the processes of digital platforms. The DMA’s gatekeeper regulations (a great table is here) align with the Big Tech antitrust bills passed by the House Judiciary Committee last summer, as well as the two bills recently passed by the Senate Judiciary Committee. To be clear, in terms of targeting US companies, the bills passed by the congressional committees are far more highly targeted than the EU’s major digital initiatives. The House Judiciary Committee bills impact just Amazon, Apple, Facebook, Google and (maybe) Microsoft. The EU DMA is expected to cover a couple dozen platforms. When the Senate Judiciary Committee reported out the American Innovation and Online Choice Act to end self-preferencing by the big five, they did expand it to cover Chinese digital giants as well, so maybe there is that. But thinking the DMA only covers the five US giants is just incorrect at this point. Instead, the DMA and DSA are more regulatory in part because they impact more platforms, something US progressives support but are not achieving in the Congress.

The UK Online Safety Bill Further Expands with Mandatory ID Verification Policies

Report from the Guardian

In Brief – As the UK Government prepares to submit its Online Safety Bill to Parliament, the massive digital regulation effort continues to expand in scope. The latest target is anonymous users of social media, who some contend are the primary purveyors of online trolling and hate. The current plan is to require large social media platforms to create a system that allows users to verify their identity, and combine it with a parallel system to allow users to block communications from other users who have not verified their identity. The identity verification process can reportedly include systems based on facial recognition, two-factor authentication or government issued identity documents, but the final set of options will be determined by the regulator, Ofcom. Government officials stressed that they are not banning anonymity or requiring online users to post under their actual names, agreeing that anonymity is important to protecting many vulnerable people. However, users who do not feel comfortable confirming their identity with the digital platforms will see the reach of their activity limited.

Context – Two things to keep in mind. First, the UK Online Safety Bill is proving that once governments decide they will direct online platforms on how to do the work of fighting objectionable content, it becomes very hard for politicians to say that some bad conduct should not be policed. The UK effort started with calls to police online terrorist content and protect youths from sexual abuse, but it now covers hate speech, harassment, threats, disinformation, revenge porn, racism, the promotion of suicide or eating disorders, financial frauds schemes and romance scams, and, most recently, age verification for pornography. Online trolling is bad, and the UK Government is following in the wake of Australian Prime Minister Scott Morrison, who is proposing legislation to end social media anonymity claiming it is abused by “trolls” and “cowards” to “say the most foul and offensive things.”

Major Social Media Platforms Respond to Western Pressure to Block Russian Media

Report from the Washington Post

In Brief – With the Russian invasion of Ukraine entering what appears be an even more violent phase, the largest social media platforms are responding to pressures from European and US government leaders to shut down the ability of Russian media to use the platforms to spread what is widely considered Russian Government propaganda and misinformation. YouTube announced that Russian media channels would be blocked, action that followed similar limits imposed by Facebook and Twitter. Chinese-owned TikTok also joined the ban on Russian state media operations, although it is not clear if the platform, which has been widely used in the opening days of the invasion to broadcast video of the Russian military incursion, will adopt their parent company’s policy of blocking videos in China originally uploaded by Ukrainians to show Russia’s war.

Context – As US and European leaders press the platforms to shut down Russian media operations, the Russian Government is pressing just as hard to keep its media channels broadcasting in the name of “free speech”. This has been going on outside the spotlight for some time. A test run last year pitted YouTube against Russian state media efforts to broadcast anti-vaccine and COVID information on German-language channels clearly aimed at European audiences. The German Government called on YouTube to block the channels for violating the YouTube’s COVID misinformation policies, action the platform eventually took. This led to a confrontation with the Russian communications and antitrust regulators. The situation inside Russia is even more complicated. Facebook, YouTube, Twitter and TikTok serve as alternative communications hubs for political opposition to President Putin and state controlled media. The Russian Government will likely push the platforms to block antiwar sentiment on the platforms and demand unfettered state media inside Russia. If the platform companies push back, expect showdowns with law enforcement and potential shutdowns of the services in Russia.

Dutch Competition Authority Continues to Reject Apple’s Offer on Dating App Payments Choice

Report from TechCrunch

In Brief – For the sixth week running, the Netherlands’ competition regulator has determined that Apple’s proposal to comply with their decision to allow iPhone dating apps to use alternatives to the Apple payments service falls short and again fined the digital giant 5 million euros. The weekly fines are capped at 50 million euros total. Apple’s latest bid allows dating apps distributed through its Dutch language App Store to use two non-Apple payments services options along with the Apple payments service. Payments processed directly by Apple would continue to collect its commission of 15 or 30 percent. Payments processed by one of the other payments services would not need to auto-collect the Apple commissions, but the dating app provider would still need to pay Apple commissions of 12 or 27%, a three percent savings. The current point of conflict is reported to be Apple’s requirement that dating app developers choosing to avail itself of payments alternatives use a version of their app designed and distributed solely for the Netherlands market. The regulator argues that this requirement is an undue burden. Apple has responded that market-specific versions of apps are not unusual when markets involve different regulatory mandates.

Context – The biggest news from Apple’s Dutch dating app showdown is that the company has finally joined Google and stated that they intend to continue charging app developers commissions even if they don’t process payments. Google made their stance clear in their proposal to comply with an app payments law in Korea. While Apple eventually offered a 3% fee reduction, Google proposed 4% off. App developers have not been happy with either proposal. They want to pay much lower commissions. This is a global legal and regulatory campaign. It is not surprising that neither company is willing to expand their single market changes globally at this stage, but don’t be surprised if new global payments and commission systems are announced by both companies this year.

Bipartisan Senate Committee Action on Two Big Tech Bills Amps Up Lobbying

Report from PEI

In Brief – Last June the Judiciary Committee of the US House of Representatives passed four major bills that supporters argue will address anticompetitive conduct by the largest digital platforms, namely Amazon, Apple, Google, Facebook (now Meta Platforms) and, possibly, Microsoft. The bills have not been considered by the full House due to Democratic holdouts and opposition from Republican leaders focused on concerns with ideological censorship but wary of regulatory control. In addition, there is a general sense that the Senate, with its 60-vote threshold, is a more important hurdle. Recently, the Senate Judiciary passed two Big Tech antitrust bills, one regulating Apple’s and Google’s app stores, and one banning the largest platforms from preferencing their own services. The result has been a flurry of lobbying and public relations activity on both sides. Here’s a rundown —

US Chamber of Commerce of Commerce Opposes the Senate Bills. Report from Bloomberg.
Trade Group Representing Largest Publishers Supports the Senate Bills. Report from Reuters.

Divisions Among Conservatives Getting More Attention. A major report from the Heritage Foundation calling for a range of aggressive anti-Big Tech actions was subsequently criticized by experts from the Cato Institute and Institute for Policy Innovation.
Big Tech Mobilizing Lobbying and Outreach in Minority Communities. Report from Politico.

Context – Tactically, none of this is particularly innovative or unusual for a major lobbying campaign. In fact, the biggest surprise might be that last summer’s House action did not kick this off earlier. The overriding reality is that the EU’s Digital Markets Act, with a collection of similar regulatory mandates targeted to large platforms (the EU law is expected to cover more than just the biggest five, by the way), is a near certainty to be enacted this year. Those supporting regulation of the platforms could rest on that likelihood, but given recent comments of EU Commissioner Margrethe Vestager, there is comfort in large markets all regulating in similar fashion.

Haugen’s Legal Team Reinforces “Whistleblower” Moniker With More SEC Complaints 

Report from the Washington Post

In Brief – The legal team backing Frances Haugen, the now famous “Facebook Whistleblower”, has filed a further set of complaints with the Federal Securities and Exchange Commission (SEC) alleging that the company misled investors and government officials regarding problematic content on the site including climate change and vaccine opposition. The SEC has been a central part of the Haugen strategy from the beginning because her designation as a “Whistleblower”, rather than just an employee who took confidential documents, is linked to Facebook committing fraud or breaking laws. Facebook continues to argue they consistently worked to address content issues and were forthcoming about the challenges.

Context – First, the irony of the Facebook Whistleblower. The largest platform for online sharing and communications, with all its messy, nasty, and negative aspects, allowed its employees to post, save and read huge amounts of discordant internal communications. Then a frustrated, eloquent and ideological employee took pictures of thousands of those documents and discussion threads, quit and spearheaded a highly professional multi-country PR and lobbying campaign arguing that the company could be run better by regulators. In the spirit of social media, Haugen even explained how and why she did it, including the professional rollout. Legislation to regulate social media was well underway in the EU and UK before her intervention, but she helped it along. In the US, her call for regulators and experts to oversee content moderation is less likely to succeed. There is bipartisan anger but little agreement on whether there should be a heavier or lighter hand on content moderation. The recent SEC complaints focus on Facebook and climate change and vaccines. Not much political agreement there. More certain is that companies are tightening internal communications policies to reduce chances that they experience a similar document heist. Also, if content moderation legislation stalls as expected, more enterprising lawyers may try a content moderation end run to regulators like the SEC or FTC, especially if the SEC takes the complaints seriously. (You have to think Facebook’s SEC filings on company “risk factors” have included all the problematic content issues for years.)