News & Insights 2 old
UK Government Supports Expanding Scope of Online Regulation Beyond Illegal Content
Report from the Financial Times
In Brief – As the UK Government marches forward to finalize and enact the Online Safety Bill, the UK Cabinet is reported to have rallied around expanding the scope of the bill beyond “illegal content” to also include “legal but harmful” content, drawing a new round of objections and concerns from the UK tech industry and free speech advocates. From its inception, the campaign to police online activity in the UK highlighted terrorism content and child sexual exploitation and abuse (CSEA), but the scope has consistently grown, now covering a wide range of online ills including hate speech, harassment, threats, disinformation, revenge porn, racism, the promoting suicide or eating disorders, and online frauds such investment and romance scams. The final bill, expected in weeks, will propose that the Office of Communications determine the specifics of all the classes of offensive content, the moderation practices, and how they will evaluate and enforce compliance, while being “pro-innovation” and protect user rights.
Context – Governments around the world look at digital platforms and see content and communications they don’t like, and many are moving to establish legal and regulatory regimes to tell platforms how to police it all. Among dozens of examples, the top two to be following are the EU’s Digital Services Act (DSA) and the UK Online Safety Bill. The DSA, which is moving through the EU’s legislative process in parallel with the Digital Markets Act targeting dominant “gatekeepers”, involves the biggest market, but the UK legislation is noteworthy for pushing the envelope on being most regulatory and intrusive in the scope of online ills and speech it aims to police. Social media regulation in China, Central Asia, Russia, Turkey, India and Ethiopia is easy to criticize on censorship grounds. But defining misinformation, disinformation, hate speech and viewpoint censorship case-by-case raises similar concerns everywhere. Free speech advocates point out that when Western governments regulate speech it empowers repressive regimes.
Leading Senate Tech Critics Propose Overhauling Online Rules for Users Under 17
Report from The Hill
In Brief – Senators Richard Blumenthal (D-CT) and Marsha Blackburn (R-TN), two of Capitol Hill’s most aggressive tech critics, have introduced legislation to overhaul the regulation of all digital services with users under the age of 17. The Kids Online Safety Act pulls together long-time concerns including that young people spend too much time online, that the activities can damage their mental health and wellbeing, and that platforms improperly target young people to build future audiences. Many of the issues were highlighted by “Facebook Whistleblower” Frances Haugen in a hearing hosted by the two Senators. The bill requires all digital platforms and services with users under 17 to allow them to turn off features designed to “increase, sustain or extend the use” of the platform (such as “autoplay), set defaults to the most restrictive levels, allow young users to opt out of algorithmic recommendation systems, establish a duty of care for platforms to prevent and mitigate harm to minors such as through eating disorders, self-harm, substance abuse and suicide, and require platforms to provide academic researchers and nonprofit organizations with access to data to research harms to the safety of minors.
Context – As Internet regulation advances in markets around the world, claims of negative impacts on children play a unique role. As noted earlier, in cases like the UK Online Safety Bill, harms to children are headline ills that are used to validate broad regulatory sweeps covering a wide and growing list of online problems. Same in Russia. In the US, where broad digital regulation appears less likely due to partisan divides over online speech controls, focusing on young users, whether through broad mandates like the Blumenthal-Blackburn bill or just expanding and updating COPPA, might be the main hope for digital regulators. Similar moves are underway in California, where legislators have proposed a state bill to create a version of the UK’s Age Appropriate Design Code, and Australia, where new privacy standards for users under 16 are being considered.
Social Media Will Face Pressure to Police Disinformation Surrounding Russian Attack
Report from Politico
In Brief – As Russian troops invade Ukraine, US social media platforms are facing governmental pressure in Europe and Washington to push back on their platforms being used to circulate reports and claims that may be “disinformation”. The Russian Government’s history of using a wide range of cyber influence techniques, from official state-run media outlets projecting the party line, to support for influence campaigns using manipulated media and untrue claims, to direct hacking and cyber warfare, has Western officials on alert and looking for the giant platforms to do more. As one European Parliamentarian said, “The most effective way of doing this is to regulate the social platforms,” praising the EU’s Digital Services Act in particular.
Context – First, inside Ukraine there is a vibrant tech sector with home-grown startups as well as facilities and employees linked to large global digital businesses, and they will be facing physical and emotional disruptions and efforts to simply keep employees safe. Second, pressure on digital platforms to police online content to conform to what governments call misinformation and disinformation, when factual clarity in wartime is notoriously hard to confirm, will test the ability of the Internet to allow for more voices and independent voices, even in democracies. Finally, in Russia, non-Russian social media platforms Facebook, YouTube, Twitter and TikTok, are very popular and serve as alternative communications hubs for political opposition to President Putin and the state controlled traditional media. The government has been engaged in an increasingly confrontational legal and regulatory battle with them for more than a year. One precursor to potential platform efforts to slow Russian social media information efforts involved YouTube shutting down Russian state media German-language channels for COVID and vaccine misinformation violations, drawing harsh Kremlin criticism and Russian antitrust fines. Platform company operations on the ground in Russia may get precarious.
Facebook Closes Acquisition of CRM Startup Kustomer Ending One Regulatory Saga
Report from Reuters
In Brief – Following reviews by the UK Competition and Markets Authority, the European Commission’s Competition Authority, and the German Bundeskartellamt, Meta Platforms (Facebook) has announced that it has completed its $1 billion acquisition of Kustomer, a US-based customer relationship management (CRM) software startup that facilitates customer service over online chat formats. Regulators had expressed concern that Facebook could use the deal to gain new access to customer data to grow its dominant display advertising business, as well as harm CRM competitors by cutting off their access to its WhatsApp, Instagram and Facebook messaging services, but each cleared the deal.
Context – A broad rethink of acquisitions by giant digital platforms is underway, but there are some distinct threads to keep an eye on. In 2021, the most interesting cases involved acquisitions of innovative startups. Two Facebook acquisitions were most in focus. The Kustomer acquisition was one. The second was the acquisition of GIF-platform Giphy. Like Kustomer, Giphy is a relatively small US-based startup that did not have large revenues and was not yet profitable. That acquisition also faced multiple reviews. In the EU, the deal was recently approved by Austria, the Member State regulator who took the lead, with conditions to protect the ability of other social media platforms to access its GIFs. However, the UK CMA has rejected the Giphy acquisition and is suing Facebook to unwind the deal. On the policy front, countries are reducing acquisition review “thresholds”, at least for Big Tech, to investigate more bids for startups. In a unique twist, the Bundeskartellamt says that relatively large bids for small, not profitable firms is a sign of likely competitive harm, and its leader said that the Kustomer deal gave him a “stomach ache” but there were not grounds to stop it. 2022 will highlight big deals, with Amazon’s $8.4 billion bid for MGM and Microsoft’s massive $70 billion acquisition of game giant Activision-Blizzard under review.
Legal Challenge to Maryland Digital Advertising Tax Argued in Federal Court
Report from AP
In Brief – Maryland’s first in the nation state tax on digital advertising revenues, with a sliding rate scale based on the global revenue of the company that targets Google, Facebook and Amazon, was the subject of oral arguments in Federal District Court in Maryland. The bill, passed by the Maryland legislature in early 2021, is modeled after Digital Services Tax (DST) proposals 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, arguing that the state tax is preempted by 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.
Context – European DSTs were a driving force behind the global tax policy standoff that has led to the massive two-part corporate tax reform deal negotiated by the Biden Administration last year. While the Trump Administration blocked foreign DSTs with trade threats, the Biden Administration changed tactics and crafted a deal. The deal will end national DST taxes and replace them with a novel tax reallocation scheme covering approximately 100 highly profitable global companies. That proposal was paired with an agreement to tax multinational companies at a rate no lower than 15 percent. While DSTs may prove to be yesterday’s news internationally, the Maryland digital advertising tax is a reminder that US States are interested in the same revenue grab, with bills circulating in Massachusetts, Connecticut and Texas. PIFTA was intended by Congress to prohibit the kind of tax imposed by Maryland, although some states are reportedly interested in challenging the constitutionality of two-decade old PITFA. Short of that blockbuster reversal, the cleanest state workaround would be to put a non-discriminatory tax on all advertising services, something the District of Columbia considered but abandoned last year.
Australian Regulator Rules That Amazon Must Pay Gig Drivers Union-Set Hourly Wage
Report from Reuters
In Brief – The New South Wales Industrial Relations Commission had ordered employers of “Gig Work” package delivery drivers, a business dominated by Amazon, to pay a minimum wage set by the Transport Workers Union (TWU) in the state. The TWU filed a complaint against Amazon in 2020, the year Amazon established its Gig delivery service in Australia, arguing that Amazon Flex drivers were paid less than minimum wage when insurance, fuel and maintenance costs were accounted.
Context – Despite not being top of mind like Uber, Instacart and DoorDash, Amazon has been one of the largest Gig Work businesses for years, using “independent contractors” under tight control of Amazon to provide core services. Today, two Gig platforms are central to their burgeoning delivery service. One is the Delivery Service Partner (DSP) fleet of “independent” small businesses who work for Amazon and Gig workers themselves, and Flex, Amazon’s Uber-style delivery driver app who supply their own vehicles. Both face criticism for worker misclassification, lax safety and aggressive monitoring. This article is from a UK-based journalist who went “undercover” as a DSP driver. It reads remarkably like this “undercover” Amazon fulfilment center worker article from 2012, a time when Amazon operated its growing network of ecommerce fulfilment centers with mostly “independent contractor” workers. Amazon has since largely staffed their fulfilment centers with company employees and now face unionization efforts among their massive manual labor workforce with remarkably high turnover levels. In the UK, the law firm that forced Uber to reclassify drivers as company workers is now targeting Amazon, and the European Commission is exploring important concepts like “algorithmic control” and “bogus self-employment” as they develop legislation on Digital Labor Platforms that attempts to address abuses that have emerged primarily through platforms for ridesharing, food and package delivery.
Senators Introduce Bill to Direct Social Media Platforms on How To Stop Misinformation
Report from The Verge
In Brief – The Social Media NUDGE Act, legislation authored by Sens. Amy Klobuchar (D-MN) and Cynthia Lummis (R-WY), attempts to regulate how large digital platforms determine the placement and circulation of content, which the authors refer to as algorithmic amplification. The legislation directs the National Science Foundation and the National Academy of Sciences, Engineering and Medicine to study “content neutral” ways to slow down the spread of harmful content and misinformation, such as asking users to read an article before sharing it, as Twitter has done in some cases. The recommendations would be compiled into a set of best practices that would be codified by Federal Trade Commission. The regulator would be authorized to mandate that social media platforms with more than 20 million users implement the recommendations or face FTC enforcement actions, including fines.
Context – “Algorithms” and “Misinformation” are two common buzzwords in the debates surrounding online content moderation. One of the core claims made by “Facebook Whistleblower” Frances Haugen was that company algorithms promoted content that it knew was harmful, untrue or both. She called for government regulators and technology experts to investigate and oversee those algorithms, claiming Facebook put profit over doing what she said was right. Whether this legislation moves is questionable. Besides stark constitutional problems from running headlong into the First Amendment, partisan problems appear quickly when academics or experts decide what is misinformation. Sen. Klobuchar has a bill where federal health officials determine what is medical misinformation on issues like vaccines and penalize platforms that don’t ban the content. It’s not going anywhere. A bill from House Democrats proposing to pull Sec. 230 liability from content circulated by algorithms, again targeting objectionable content, is also not moving. However, look to Europe for eventual algorithm oversight and regulation through the EU DSA and DMA or the UK Online Safety Bill.
Google Plans to Expand Digital Sandbox Ad Tracking Changes to Include Android
Report from the New York Times
In Brief – Following up on more than two years of conflict surrounding their “privacy sandbox” plans to block third party cookies for ad tracking on the Chrome browser, and replace them with a suite of tools to support digital advertising, Google has announced that they plan similar moves on the Android ecosystem. When Google announced their plans for Chrome in 2019 they stressed how the privacy expectations of users had changed and that other major browsers, including from Apple and Microsoft, blocked third-party cookies. Many ad industry participants cried foul claiming that changes developed by Google would likely harm competitors and further reinforce Google’s dominant position in the digital advertising market. Facing legal and regulatory pressures in many countries, Google reached an agreement with the UK Competition and Markets Authority (CMA) to oversee the Chrome privacy sandbox regime to ensure that it does not preference Google or unfairly harm competitors, including ongoing CMA oversight. Google again frames their Android plan as a reaction to market realities, in particular Apple’s change in advertising-related tracking that allows users to block aps from ad tracking. Once again, Google claims that it is committed to balancing effective digital ads with more privacy.
Context – Many privacy advocates claim to want to get rid of targeted advertising, as if less efficient ads are better for some, or that most people would rather pay subscriptions for services. But ad ecosystem changes threaten many small and nascent industry participants. Facebook, not the best advocate right now, has been the one giant company willing to defend targeted advertising as benefiting millions of small businesses who use it to find customers despite small ad budgets, although Google makes that point in comparing their new plans to Apple’s anti-advertising stance (despite their own growing ad business). More than anything, expect Google to find a regulator willing to be a CMA-like co-pilot to sign off on Android changes.
Texas AG Sues Facebook for Violating Biometric Privacy with Facial Recognition Photo IDs
Report from the Wall Street Journal
In Brief – Texas Attorney General Ken Paxton, an aggressive legal antagonist of the largest digital platforms, has filed suit against Facebook alleging a decade of violating Texas’s biometric privacy law through a photo labeling program based on facial recognition. The state’s biometric privacy law allows for $25,000 in damages per violation and the suit is expected to ask for hundreds of billions in damages. Facebook abandoned it’s photo labeling program last year, claiming that while compliant with appropriate laws, the policies and expectations surrounding facial recognition were in flux. Illinois, with its Biometric Information Privacy Act (BIPA) that allows for private class action enforcement, has been at the heart of facial recognition litigation nationwide, including a landmark lawsuit targeting Facebook which the company settled for $650 million in damages. The Texas biometric privacy law has similar provisions, but does not authorize private class action suits, limiting enforcement to the state’s AG.
Context – Two things to keep top of mind. First, facial recognition is the AI technology consistently creating the most regulatory and policy angst. US Government uses of facial recognition, both current and planned, is particularly worrisome to progressives and civil libertarians, especially involving Clearview AI, which controversially built a leading service using personal photos available on social media sites, and has been targeted by suits and regulators in multiple countries. The IRS recently announced, then scrapped, plans to enable facial recognition for online access to certain taxpayer services. Second, there has been major business community angst with BIPA’s private right of action, which has led to a flood of lawsuits. Limiting enforcement to regulators and law enforcement, such as with the Texas law, has been seen as preferable. But the actions AG Paxton, who has taken legal action against a growing number of tech companies that he accuses of ideological discrimination, may create a different set of concerns.
Russian Competition Authority Rules YouTube Content Moderation is an Antitrust Abuse
Report from Reuters
In Brief – In another step in the increasingly lengthy drama pitting the Russian Government against US-based social media companies, the Russian competition authority has determined that YouTube’s content moderation practices have violated Russian competition law and the company will be fined. The level of the fine is still to be determined. The regulator opened an investigation of YouTube in April alleging biased content moderation practices, rules that are “opaque, biased and unpredictable,” and blocking or deleting accounts without appropriate notice or justification. With television in the country mainly controlled by the government, political opponents have often turned to YouTube.
Context – Fining YouTube for content moderation discrimination is just one more instance of the increasingly open conflict between the Russian Government and the platforms. YouTube, Facebook and Twitter have emerged as key alternative communications hubs for political opposition to President Putin and the state controlled traditional media. In late September, Russia threatened to restrict YouTube in Russia to punish the platform for taking down two German-language YouTube channels operated by RT, Russia’s state media company, for violating the YouTube rules against COVID and vaccine misinformation following complaints from the German Government. Earlier that month, on the eve of the national elections, Google and Apple buckled under Russian Government pressure to remove election apps used by opposition parties after in-country company executives were threatened with arrest. Twitter has been subjected to a mobile device slowdown in Russia since March, with regulators charging the platform with hosting harmful posts including child pornography, drug abuse information or calls for minors to commit suicide. The Russian competition authority also recently opened an antitrust case against Apple for failing to allow app developers to tell customers about alternative payment options when using its App Store platform.
NLRB Looking to Revise Independent Contractor Standards to Facilitate Labor Organizing
Report from Bloomberg
In Brief – The National Labor Relations Board (NLRB) is again considering revising its worker classification standards to distinguish independent contractors from employees under the National Labor Relations Act (NLRA). The agency oversees worker and employer rights related to collective bargaining and union organizing and is one front in the regulatory and court battles regarding independent-contactor-based “Gig Work” business models. However, as the case at hand highlights, pitting the Atlanta Opera and a union representing hairstylists and makeup artists, traditional industries, skilled independent workers and freelancers would also be heavily impacted. This prompted a wide range of traditional business associations, labor groups, and their respective political backers, to submit briefs.
Context – While gig work platforms are often criticized as schemes to deny workers traditional benefits like health and unemployment insurance, paid time off and a minimum wage, benefits are not directly at issue here. The NLRB is involved because the NLRA explicitly excludes independent contractors from union organizing. Amending the NLRA to tighten independent contractor standards by instituting the “ABC” Test (central to the AB 5 gig labor fight in California) is a key part the PRO Act, organized labor’s top federal legislative priority. That bill, strongly supported by the Biden Administration, has passed the House of Representatives but is stalled in the Senate due to Republican opposition. A brief filed by Senate Republicans criticized the NLRB’s efforts as a “thinly-veiled attempt to institute via regulatory command” what the Congress could not enact. A similar effort occurred during the Obama Administration, with the NLRB tightening classification standards in two cases involving FedEx drivers only to be overturned by the DC Federal Circuit Court. A further Biden Administration initiative is tied into their aggressive stance on antitrust law, with the DoJ Antitrust Division filing a supportive NLRB brief and FTC Chair Lina Khan speaking out against gig work platforms.
European Publishers File Another Google Complaint with the EU Competition Authority
Report from Reuters
In Brief – The European Publishers Council, a trade group representing leading media businesses across Europe, including Axel Springer, News UK, Conde Nast, Bonnier News and Editorial Prensa Iberica, has filed a formal complaint with the European Competition Authority (ECA) alleging that Google has a digital adtech stranglehold that is harming press publishers. The European Commission already has an open investigation of Google, started in June, into whether Google favors its online display advertising technology services to the detriment of advertising industry rivals, advertisers and online publishers. Google made $147 billion in revenue from online ads in 2020, tops in the world.
Context – Google is more than a decade into major EU antitrust cases implicating search practices, its advertising business, and conduct related to Android. Over the past decade, the ECA ruled against Google in each, imposed fines and faced repeated legal challenges. And new iterations have emerged. Last week, it was a private antitrust lawsuit building on the ECA’s successful comparison shopping case. Here the focus is back to advertising. Google’s digital ad dominance goes back so far that the key question initially was whether digital advertising was even a separate market. Not anymore. Japan is now proposing regulations to increase digital advertising transparency and oversight of Google and four other platforms, the UK’s CMA and Australia’s ACCC are in the midst of digital advertising market reviews, one to the two big US State AG antitrust complaints against Google, led by Texas, is focused on advertising market abuses, and a digital advertising investigation of Google by the French competition regulator resulted in Google agreeing last year to pay a fine of nearly $270 million and make changes to its advertising services to address concerns from competitors, publishers and advertisers. Although the settlement in France only requires Google to make the changes in France, they will likely be an opening bid of policy changes in these other venues.
Small Cloud Services Firms Want the DMA Expanded to Cover Enterprise Software Giants
Report from Bloomberg
In Brief – A coalition of relatively small EU-based cloud services companies and their trade associations have called for the landmark EU Digital Markets Act (DMA) to be expanded to cover the giants of business software licensing, Microsoft, Oracle and SAP. The DMA aims to regulate the largest “digital gatekeepers” by imposing a set of regulatory rules (see a table of the “Do’s and Don’ts” here) rather than relying on case-by-case competition law enforcement. The small cloud businesses accuse the three software giants of unfairly linking their enterprise software to their cloud services to the detriment of small cloud competitors. The DMA, proposed by the European Commission in December 2020, has recently been approved by the European Council of Member States and the European Parliament, and now enters trilogue negotiations between the three bodies to iron out differences. The fact that SAP is a German company has led some to speculate that this is driving the exclusion from the DMA’s scope.
Context – From the earliest days of the DMA, the scope of the massive regulatory overhaul has been the top issue. Scope covers two main factors – the markets/industries covered, and the size of the firms designated as “gatekeepers”. A concise overview is in this memo from the European Parliament. The Commission’s proposal covers intermediation services such as marketplaces and app stores, search engines, social networking, video sharing platforms, messaging, operating systems, cloud services and advertising platforms, while the European Parliament’s version adds web browsers, virtual assistants and connected televisions. The Parliament also increased some financial size standards by over 20 percent, up to 8 billion euros in revenues and 80 billion euros in market cap. Finally, the US Government continues to argue that the DMA unfairly targets just US companies, which may refer to the prospect that some giant Chinese-based platforms may fall outside scope at least early on.
EARN IT Act Threatening Sec. 230 and Encryption Passes Senate Judiciary Committee (Again)
Report from the Washington Post
In Brief – For the second time in two years the Senate Judiciary Committee has overwhelmingly passed the “EARN IT Act” to push digital platforms to aggressively block user generated content furthering child sexual abuse. The bill threatens platforms with the loss of Sec. 230 immunity against civil lawsuits and opens websites up to lawsuits under state online child protection laws. From its initial crafting in 2020, the bill has faced charges that it was intended to undermine the ability of websites and technology providers to provide strong encryption to users to protect their online communications from outside monitoring. That issue rallies a diverse collection of privacy, civil society, cyber security and technology company advocates. The bill was amended in 2020 to allay encryption concerns and ease passage in the Judiciary Committee, but the controversial measure still did not proceed to the Senate floor. The current version of the bill faces redoubled charges that it is an attack on encryption, in particular because some of the changes made in 2020 have been rescinded. While the bill was reported from the Judiciary Committee without any votes against, Senators from both sides of the aisle publicly expressed concerns during the hearing, including about encryption, and the path to the Senate floor remains uncertain.
Context – The policy fight over encryption stretches back to the 1990’s pitting civil libertarians and technologists against law enforcement advocates looking to extend analog wiretapping regimes to all forms of digital communications. During the Trump Administration it was a focus of Attorney General Barr and both Facebook and Apple were regularly lambasted. It is also a global policy battle, with the UK and Australia similarly aggressive. Charges of child abuse, especially sex abuse, is often the point of the spear in Internet regulation, for example being a headline charge behind the UK Online Safety Bill that will soon be introduced to regulate everything from policing hate speech and suicide prevention to online financial and romance scams.
Three EU Member States Throw Sand in the Gears of Global Tax Reform
Report from Politico
In Brief – The global corporate tax reform effort, originally initiated as a response to concerns with the taxation of digital services businesses, that resulted in a massive two-part deal negotiated at OECD last year, has hit a speedbump in Europe as Estonia, Hungary and Poland raised opposition to the EU’s implementation timeline. The tax reform deal’s “Pillar One”, which was initially focused on digital taxes, was reworked to cover approximately 100 highly profitable companies and aims to reallocate some of their tax payments to countries based on the location of customers. (There is a good one-paragraph summary of the complex Pillar One “reallocation” plan in this article.) “Pillar Two” addresses the Biden Administration’s priority of ending corporate tax havens by reaching multinational agreement that countries set their corporate tax rate for multinational companies no lower than 15 percent. Although European countries were primary drivers of the digital services tax (DST) effort that led to the eventual OECD agreement, a handful of EU Member States who pursue investment-focused economic growth strategies that included relatively lower corporate tax rates were publicly reluctant to sign on to the broader agreement that would require them to adopt new tax rates. The latest concerns raised by the three EU Member States regarded the ability of other key countries, in particular the United States, to implement the agreement due to expressions of concern in the US Congress.
Context – There are legitimate questions regarding whether needed legislative changes will get through Congress. A number of countries, including India and a number in the EU, that have enacted DSTs and begun imposing the taxes on a number of very large digital services companies, have reached agreement with the US Government on rebate plans linked to when the global agreement goes into effect. Those accruing company DST payments may help create corporate leverage in Congress for whatever federal tax changes are needed to implement the agreement.
European Competition Authority Will Make Initial Decision on Amazon – MGM by March 15
Report from Reuters
In Brief – The European Commission’s Competition Authority has set March 15 as its deadline to make an initial decision regarding Amazon’s plan to acquire movie and television studio MGM for $8.45 billion. Amazon’s May 2021 offer was reported to be about 40 percent more than from other potential buyers, including Apple and Comcast, highlighting Amazon’s unique video service business model. Amazon uses Prime Video, a type of video offering that other streaming services sell, primarily as a giveaway to increase the attractiveness of Prime Memberships.
Context – A broad rethink of acquisitions policy related to giant digital platforms is underway. As we outlined last week, Facebook acquisitions of two startups, Giphy and Kustomer, are examples of the impact of lower acquisition review thresholds catching smaller deals for startups looking for “exit” strategies, and the potential of a growing number of regulators arriving at different decisions. Amazon-MGM puts two more potential trends in focus. First, will regulators start blocking the mega-giants from using acquisitions to get a lot bigger? In 2020 Google’s FitBit acquisition was approved despite vocal anti-Big Tech objections. Amazon’s bid for MGM, and even more on point, Microsoft’s massive bid for Activision-Blizzard, tests whether, at some point, size really does matter. Second, Amazon’s bid for MGM is a test of whether regulators will be willing to think outside the competition policy box regarding the business models of the largest platforms. Rejecting the deal based on traditional antitrust analysis will be a longshot. MGM is not considered a major studio and Amazon holds less than a 20% share in the video streaming market. But who can look past the fact that Amazon reportedly paid a major premium over offers from large video platforms yet rarely charges directly for Prime Video subscriptions? Delving into its complex and little-understood business model and determining in what market the payoff comes may be pursued by regulators in Europe and the US. (The answer is third party seller fees.)
Google Hit By Private Antitrust Suit from Swedish Shopping Site Following EU Court Loss
Report from CNBC
In Brief – Sweden-based price comparison website PriceRunner, a leading comparison shopping site in Nordic countries, is suing Google for 2.1 billion euros ($2.4 billion) over allegations that it manipulated search results in favor of its own comparison shopping service, harming competitor sites and consumers. The complaint, which is being filed in court in Stockholm, parallels the “Google Shopping” case brought by the European Commission’s Competition Authority (ECA). The Commission’s 2017 finding of anticompetitive conduct by Google resulted in a $2.7 billion fine and the demand that the digital giant end its anticompetitive conduct. Google appealed the Commission’s decision and the fine, and began implementing a remedy overseen by the ECA to provide comparison shopping sites access to preferential placement on Google’s search results page by participating in an advertising-style auction. On the litigation front, Google’s challenge was recently rejected by the European General Court, but the company is appealing that decision to the EU’s highest court. PriceRunner, who reported that it is backed in their antitrust suit by a litigation investment firm providing the needed resources to survive a lengthy court process, wants Google to pay compensation for profits it lost in the UK since 2008, and in Sweden and Denmark from 2013 onward.
Context – Unlike the other digital giants, Google is more than a decade into major EU competition cases on Search, Advertising and Android. The “Comparison Shopping” case, focused on the big issues of platform “self-preferencing” and “vertical search” abuses, was the first decided. The fact that it continues a decade later, and that vertical search competitors argue that there are ongoing Google abuses, is a driving force behind the EU’s Digital Markets Act “gatekeeper” legislation that aims to regulate the largest digital platforms rather than pursue case-by-case enforcement. Rather than look to the ECA to bring more vertical search cases, we might see a flood of private litigation, especially if PriceRunner succeeds.
Pro-Labor NY Times Fights Effort to Organize Hundreds Into Largest Tech Union Shop
Report from the Wall Street Journal
In Brief – A group of approximately 600 workers from the digital services units of the New York Times may become the largest unionized digital services workforce in the country. Digital subscriptions are the newspaper’s largest revenue source and the company’s digital products extend beyond the traditional daily newspaper to encompass non-news products such as games, a cooking app and product-recommendation website. The New York Times management, which saw the National Labor Relations Board reject its argument that the group of employees organizing was overly broad, continues to advocate against the organizing effort arguing that employees and the organization will lose flexibility that is key to the company’s growth. The employee vote is scheduled to run through March 7.
Context – The prospect of unionizing Big Tech is highly politicized and media outlets often advocate for labor organizers. The irony that the New York Times Editorial Board is generally very supportive of organized labor, but leaks of internal communications surrounding the union drive express standard anti-labor arguments, is not lost on observers. To be clear, most supposed “high tech” labor organizing has not been among skilled tech workers. The ongoing labor battles in Amazon’s huge fulfillment center network involves a blue-collar logistics workforce comparable to UPS, FedEx and the Postal Service. At Raven Software, one of Activision-Blizzard’s game studios, approximately 30 game testers are trying to organize, but they are not programmers and make approximately $20 per hour playing game to find bugs. The Alphabet Workers Union, created in January 2021, includes 800 Google and contractor employees but it’s specifically not an economic bargaining entity at all, but instead a group focused of policy advocacy. Socially progressive activist investors have interjected themselves into the Times labor battle, calling for management to accept the union, something progressive tech company management might soon face more often.
Microsoft Backs App Store Regulation Ideas in Bid for Activision Acquisition Support
Report from the Wall Street Journal
In Brief – Microsoft has announced Open App Store Principles that largely align with legislative proposals aimed at regulating the Apple and Google app stores. The move is widely seen as an outreach effort to government regulators that must sign off on Microsoft’s $70 billion acquisition of game development giant Activision Blizzard. The app store policies cover much of the same ground as a proposal the company released in late 2020. Microsoft promises to hold its own apps to the same standards as third-party apps, not preference its own apps over competing ones in rankings or the application of rules, and not require apps to use Microsoft’s payment system for in-app purchases. However, once again, the Microsoft app store promises do not apply to its huge Xbox game console business, which operates under similar rules and with similar fees as the Apple and Google mobile app stores. The Windows app store covered by the policy is not a large business, and its Windows Phone was a failure.
Context – Microsoft’s Activision-Blizzard acquisition is the largest attempted by any of the five digital giants. By far. Microsoft’s $26b acquisition of LinkedIn is, interestingly, #2. If limiting the ability of the tech giants to use their financial heft to get bigger and stronger is a serious policy, this is an obvious test. The deal dwarfs Amazon’s $8.5b bid for MGM, which is also under fire, and the scant $2.1b Google paid for FitBit, which raised hackles. Microsoft has mostly seemed to slip past the regulatory and public criticism dogging the other four mega giants. Their strategy clearly includes sometimes vocally aligning with pro-regulation advocates, including its support for regulating app stores (especially Apple’s) and inserting themselves into the media payments fight in Australia against Google and Facebook. On app store policies, the hypocrisy of exempting Xbox was called out by Google, but those looking to regulate Apple and Google policies and fees likely don’t care if they can count the world’s second largest company a supporter.
Age ID for Porn in the UK Appears Back in Online Safety Bill After Being Ditched in 2019
Report from the Guardian
In Brief – The British Government has revived plans to make pornography websites carry out age checks, which would likely require British users to provide data such as their credit card or passport details to prove they are over 18. The proposal is expected to be added to the Online Safety Bill that has been under final drafting and review for months, expanding the measure to bring commercial porn sites within the legislation’s scope, as the current draft bill applies only to platforms for user-generated pornography such as OnlyFans. A plan to require age verification for online pornography was first proposed by the Conservative Party during the 2015 general election campaign and was initially scheduled to go into effect in July 2019. However, the government repeatedly delayed implementation due to technical difficulties and widespread concern from privacy advocates, especially regarding the tracking and leaking of individuals’ online viewing habits, eventually scrapping the plans that fall and indicating that the issue would be addressed as part of the Online Harms effort.
Context – The UK Online Safety Bill, which was spawned by the UK Online Harms White Paper, directs digital platforms to police objectionable user content under the guidance and enforcement of regulators. It essentially parallels the EU’s Digital Services Act. Stopping terrorist content and protecting youth from sexual abuse have been the headline goals from the beginning, but the endlessly expanding scope illustrates how difficult it is to argue that some ills are not so bad that government does not need to get involved in directing how they will be policed. So, the scope of the Online Safety Bill is much broader, covering objectionable conduct including hate speech, harassment, threats, disinformation, revenge porn, racism, and promotion of suicide or eating disorders. Last fall, consumer champions campaigned, it seems successfully, to add financial and romance scams. Now add in porn and age verification.
Austrian Court Approves Facebook’s Giphy Acquisition Creating Break with UK CMA
Report from Reuters
In Brief – An Austrian antitrust court has approved Facebook’s $315 million acquisition of GIF platform Giphy, with the digital giant agreeing to conditions including granting social media competitors access to Giphy’s image library for five years and helping set up “an alternative provider of a GIF library” within seven years. The Austrian approval contradicts the recent decision of the UK’s Competition and Markets Authority (CMA) to reject the 2020 deal, even with similar conditions, and ordering Facebook to unwind the deal and sell the company. Facebook is appealing the CMA’s rejection.
Context – A broad rethink of acquisitions by giant digital platforms is underway. This case focuses on two big issues. First, acquisition “thresholds” for government review are shrinking, meaning more reviews of acquisitions of digital startups. Second, as more regulators in more countries review more acquisitions, the prospect of conflicting decisions grows, with more agencies and courts claiming veto power. Two Facebook acquisitions, this Giphy deal, and the acquisition of Kustomer, a messaging-focused CRM startup, highlight both. Each is a US-based startup with no physical EU operations. An Austrian court was the venue for this Giphy decision because Austria lowered its review threshold in 2017 down to 200 million euros. Austria claimed jurisdiction over both deals, handing the Kustomer review over to the European Commission, which signed off in January, and engaging directly on Giphy. Regulators in larger markets including Germany, France, the UK, the EU (through the DMA), and Big Tech-focused antitrust bills in the US Congress, all call for reviewing essentially all acquisitions by the largest tech companies. The Giphy and Kustomer experiences also point to a future where more regulators and courts do not agree. The UK CMA approved the Kustomer bid well before the Commission, while the Giphy acquisition is an ongoing direct conflict. US regulators did not intervene in either case. Who’s in charge? Entrepreneurs and venture capital firms are worried.
US Federal Court of Appeals Rejects Effort to Block California State Net Neutrality Law
Report from CNBC
In Brief – The State of California’s landmark Net Neutrality (NN) law, enacted in 2018 after the Trump Administration’s FCC overturned the Obama Administration FCC’s NN order, will go into effect as a three-judge panel of the Federal Ninth Circuit Court of Appeals rejected an effort brought by trade groups representing major broadband companies to enjoin the law pending ongoing legal action. The California law prohibits Internet service providers serving customers in California from blocking or throttling traffic, requiring fees from web services to deliver or prioritize traffic to consumers, or exempting favored services from data caps, often called “zero-rating”. The appeals court ruling reinforced the argument that the FCC’s 2017 determination that broadband services were information services not regulated by the FCC in the same manner as telecommunications services left open to states the option to regulate them.
Context – The partisan Net Neutrality divide, with Democrats supporting “strong” NN and Republicans objecting to mandates, is a political football that saw the Obama FCC enact landmark rules in 2015, which were overturned by the Trump FCC in 2017. President Biden campaigned in support of NN in 2020 and another FCC reversal was fully expected. While the broadband industry and NN advocates engage in the federal courts over the California law, the main focus of attention has been on the US Senate and the surprisingly long wait to seat a third Democratic Commissioner on the FCC. While Senate Democrats approving a pro-NN FCC Commissioner seemed a formality (filibuster rules don’t apply), in a 50-50 Senate it’s proving harder than anticipated. Nominee Gigi Sohn, a longtime champion of NN and other progressive telecommunications priorities, has been tied up for months. It turns out that Sen. Krysten Sinema (D-AZ) has been a rare Democratic NN skeptic and is a potential roadblock who is garnering lobbying interest from broadband giants.
Apple Puts a Number on Payments Choice Offering 3% Rate Cut in the Netherlands
Report from Bloomberg
In Brief – Apple has announced that app developers choosing a non-Apple payments service to sell in-app services will pay 3% less in commissions to Apple. The proposal only applies to dating apps in the Netherlands where the national competition regulator has ruled that Apple’s payments rules were an anticompetitive abuse. Apple’s latest compliance plan details that app developers using payments alternatives will still owe 27% commissions on sales over iPhones, will face audits to ensure compliance in paying fees, and will take on the burden of collecting appropriate taxes. App developer advocates are not happy.
Context – This is big news because Apple has finally joined Google and publicly made it clear they intend to continue charging commissions to businesses that make money over their mobile device ecosystems. Both charge large app developers 30% for most app-based sales. Those fees are in line with many digital marketplaces and with pre-Internet retailer mark-ups. Both companies have used their in-house payments processing service as their bill collecting method. Apple, with their “walled garden” model, has been especially strict. This simplified bill collection and made it hard for developers to skirt fees. App developers have campaigned globally to overturn these payments mandates. But payments is a phony debate. App developers want lower fees. At least that is now coming into focus. When Korea mandated app payments choice last year, Google, dominant in Korea, eventually announced that apps choosing payments alternatives will pay 4% less in Google fees. For example, 26% rather than 30%. Apple indicated a similar policy in Korea, and then the Netherlands, but without revealing fee numbers. Now they propose 3% off, so 27% rather than 30%. Soon enough we’ll see if legislators and regulators will simply try to get into the business of regulating fees on digital ecosystems, as US Senator Alex Padilla (D-CA) recently discussed at a hearing to approve app store antitrust legislation that included payments choice.
Senate Bill Authorizing Media Collective Bargaining for Online Ads Exposes Conservative Divide
Report from Politico
In Brief – The Senate Judiciary Committee’s antitrust panel held a hearing to review the Journalism Competition and Preservation Act, legislation authored by the Subcommittee’s Chair, Sen. Amy Klobuchar (D-MN), to amend federal antitrust laws to allow news media companies to band together and bargain collectively with Google and Facebook in an effort to drive up the fees they get paid when ads appear on their websites and beside their digital content. While the media bargaining legislation has some bipartisan support, including from Rep. Ken Buck (R-CO), the lead House Republican backing antitrust bills targeting the dominant digital giants, the Senate hearing highlighted that the proposal faces meaningful splits among Republicans and conservatives, including from a leading online conservative media outlet that aggressively criticizes the bill for attempting to establish a government-sanctioned media “cartel”.
Context – Media companies have been trying to squeeze payments out of Google and Facebook for years. The Internet overturned the media business model, wiping out paid classifieds and eventually broadly transforming advertising. They see Google and Facebook, the two digital ad giants, and argue they benefit from media content they don’t pay for. The French and Australian governments have been the most aggressive in recent years, but calls for media payments are proliferating globally. While Google strongly objects to paying for basic online links, and Facebook for user posts, they both have created billion dollar programs to pay media companies for licensed content to forestall government mandates. Large media incumbents are more than capable of negotiating and lobbying on their own, but “collective bargaining” where media companies negotiate together, which generally requires an antitrust exemption, has been proposed to help smaller companies. It is currently authorized in Australia, which might shed light on how such a regime would operate.
Amazon Settles Price Fixing Case Linked to Its Algorithms Setting Seller Prices
Report from the Washington Post
In Brief – Amazon has settled a price-fixing investigation by the Washington State Attorney General’s office, paying $2.25 million and promising not to resume a program called “Sold by Amazon” that allowed third-party sellers on its marketplace to hand control of the day-to-day pricing of their products over to Amazon’s algorithms. The program, offered to some third-party sellers starting in 2018, allowed sellers to set a minimum price that Amazon’s pricing algorithm would not go below, but the algorithm could set prices above the floor. The WA AG argued that in practice the program acted as a price fixing agreement that prevented sellers from independently choosing to lower their prices to make more sales, and was also used by Amazon to shield its own products from downward price pressures by raising third party seller prices up to the level Amazon was selling at, denying consumers lower price options.
Context – “Sold by Amazon” is another example of how the Amazon marketplace for “independent” third-party sellers often controls the business of the third parties in ways that are unique to Amazon and often appears more like a retailer dealing with wholesalers. The most obvious example is how Amazon handles most of the products sold by third parties in its FBA fulfilment center system. Operationally, from storing, picking, packing, shipping and customer services, there is no difference between a third-party seller’s product handled by FBA and the product from a wholesaler that Amazon sells as a retailer. The major difference is in the fees and the massive bump in profitability for Amazon when the product nominally comes from the third party rather than Amazon, which is the major reason third party sales on Amazon, especially from FBA, are growing so fast on Amazon. Amazon’s de facto control over prices set by third-party sellers is not only at issue in this case, but also in an illegal price fixing complaint filed by the DC Attorney General alleging that Amazon penalizes sellers who sell for lower prices off Amazon, driving them to raise prices on other platforms to maintain sales on Amazon’s dominant platform.
Austrian Regulator Rules Google Data Analytics Violates EU “Privacy” Laws
Report from the Wall Street Journal
In Brief – The ongoing legal, political and policy conflict over whether data collected in Europe can be transmitted to the United States or even handled by US firms received another negative ruling in Europe as the Austrian data protection authority has ruled that the use of Google Analytics to track how people use websites violates the EU’s General Data Protection Regulation, and other Member State privacy authorities are opening similar reviews. The Austrian regulator argues that the US Foreign Intelligence Surveillance Act (FISA), a national security intelligence statute allowing US intelligence agencies to access data held by US communications services, extends to all data-handling businesses, a contention Google rejects as speculation not based on US law or practice.
Context – People toss around the term “privacy” in the debate over “cross-border data flows”, but the laws at issue are not related to consumer privacy at all. Yes, Google is involved in this case, and Facebook was involved in the court cases that saw the European Court of Justice void the US-EU Safe Harbor in 2016 and the US-EU Privacy Shield in 2020, but company practices were not at issue. This is about the reach of US national security intelligence agencies, and inflamed by the Snowden revelations. It is a tough nut to crack. The US Government, and most EU Government leaders, want to allow Europeans to be able to do business with US companies that handle data. Hence the two (overturned) agreements. Getting to another fix is a top priority of the bilateral Transatlantic Trade and Technology Council. There is little support in Congress to weaken US national intelligence authority or capabilities. US intelligence authorities face limits in their ability to collect data on Americans, but have always had greater leeway outside the US with non-Americans. EU courts are pushing for Europeans have more authority to challenge US intelligence activities than Americans have, which may require changing US law. And all the while European intelligence agencies have similar surveillance authority.
Senators Send Second Shot Across Big Tech’s Bow – This Time Targeting Apple and Google
Report from CNBC
In Brief – For the second time in two weeks the Senate Judiciary Committee approved aggressive legislation targeting the largest digital platforms. This time, the target was Apple and Google, with S. 2710, the Open App Markets Act, passing by a strong 20-2 vote. In mid-January, the Committee passed the American Innovation and Online Choice Act 16-6, blocking all the digital giants from preferencing their own products and services on the platforms they operate. The latest bill responds to complaints from app developers, some small but others large companies like Epic Games and Spotify, prohibiting Apple and Google from requiring developers to use their payment system, blocking them from prohibiting apps from being offered for lower price on other venues, or restricting app developers from directly communicating with their users for legitimate purposes. Although both bills could technically now proceed to the Senate floor, like in the US House, there remain questions as to whether the bills truly have the votes to pass.
Context – If Congress legislates to meaningfully change the practices of tech giants, targeted antitrust offers the best chance. Many Republicans are very angry about perceived ideological bias by the largest platforms. Enough may be willing to swallow concerns with over-regulation to cooperate with Democrats who are much more comfortable regulating. One edge the advocates of the Open App Markets Act have over the other bills is that it really only impacts two of the five giants. (Then add the fact that Microsoft and Facebook are actually quite supportive of the concept.) Divide and conquer. Here at PEI we’ve been saying for months that the fight over app payments “choice” is a distraction. App developers don’t just want choice, they want to regulate lower fees. We are seeing in Korea and the Netherlands that Google and Apple may segregate fees from payments. With that in mind, Sen. Padilla (D-CA) had the most interesting comment, speaking out loud (see here at 36 mins) that the real issue is fees and maybe Congress should just cap fees.
The Biden Administration Pokes Its Head Above the Parapet Again to Critique EU DMA
Report from Politico
In Brief – Once again, the Biden Administration is expressing concerns with EU officials over the bloc’s landmark Digital Markets Act (DMA) that aims to regulate anticompetitive conduct by digital “gatekeepers”. US officials reportedly circulated an eight-point policy document challenging the DMA as part of the Transatlantic Trade and Technology Council process. It raised issues including cybersecurity risks and undermining technological innovation, and well as reiterating that the legislation targets US companies where similarly situated non-US companies would not be covered. The US shared a similar policy paper in November raising concerns with the DMA and the Digital Services Act (DSA) while the tech bill were under consideration in the European Parliament and the European Council of Member States. Both have since been approved by the Parliament and the Council, and “Trilogue” negotiations that will also include the European Commission are expected to hash out final legislation in the first half of this year.
Context – There is a lot happening on the digital policy front globally, but the DMA and DSA are the most important. The EU is moving relentlessly to rewrite the rules governing the digital ecosystem to put regulators deep into the processes of digital platforms. The DMA’s gatekeeper regulations (a great table is here) parallel the Big Tech antitrust bills passed by the House Judiciary Committee, but the DMA covers dozens more platforms than just Amazon, Apple, Facebook, Google and Microsoft covered by the House bills. So, who are the “similarly situated non-US companies”? Maybe Chinese platforms? They were added to the House bills in the Senate Judiciary Committee, so there’s that. The other interesting thing to watch is the reaction of US progressives. In December, they angrily chastised Commerce Secretary Raimondo when she questioned the DMA. Many Big Tech critics see the EU bills as the main hope to accomplish their policy goals that face an very uphill road in the US Congress.
German Ad Industry Disregards UK CMA and Files EU Complaint Over Google Privacy Sandbox
Report from the Financial Times
In Brief – A coalition of German publishers, advertisers and industry groups have filed a complaint with the European Commission’s Competition Authority alleging that anticompetitive harms will result from Google’s “Privacy Sandbox” plan to phase out support for third party cookies in the Chrome browser. The current standoff began in 2019 with Google announcing its plan to change Chrome to meet the privacy expectations of users, noting that the other major web browsers had already made the change. While privacy advocates have supported ending cookie tracking, most ad industry participants, including publishers, have raised concerns that the changes would likely harm competitors and further reinforce Google’s dominance in digital advertising services due to its unprecedented alternative user data. In response to those concerns, the UK’s Competition and Markets Authority (CMA) opened an investigation of Google’s plan and reached an agreement with company last November to have the development of the Privacy Sandbox occur with oversight and input from the UK regulators to ensure that “Chrome will apply in the same way to Google’s ad tech products as to any third party.”
Context – When announced last fall, the novel agreement between Google and the CMA to have government officials oversee a highly technical development project to redesign the world’s most used Internet browser was a clear example of the direction of digital regulation moving towards regulators sitting in technical “co-pilot” or auditor roles to try to certify that technical systems were appropriately fair. This latest suit adds the corollary that it might get quite complex with multiple regulatory co-pilot seats needed because different countries might not trust other regulators to do the job. As a sidelight, it is always ironic to see privacy advocates and their regulatory supporters battle to end targeted ads (because inefficient advertising is better) while their competition regulators are engaged in helping grow a bigger and more competitive digital ad industry.
DoJ Antitrust Chief’s Microsoft Ties Likely to Push Review of Activision Deal to the FTC
Report from the New York Post
In Brief – The question of whether the Department of Justice’s Antitrust Division or the Federal Trade Commission’s Competition Bureau will lead the antitrust review of Microsoft’s massive $70 billion bid for game developer Activision Blizzard is being complicated by the deep ties that the DoJ’s Assistant US Attorney General for Antitrust, Jonathan Kanter, has had with the digital behemoth. Both agencies claim to have expertise on a wide range of industries and antitrust challenges, and the DoJ has been the lead agency on most issues related to Microsoft in the past, including acquisitions of businesses like Nuance and LinkedIn. On the other hand, the FTC has generally taken the lead on investigations in the gaming industry, including Activision’s 2015 acquisition of the developer behind Candy Crush. The fact that Kanter spent more than a decade as a legal advisor and lobbyist for Microsoft on regulatory issues may require him to be recused from the Microsoft-Activision deal review, pushing the matter over the FTC.
Context – In normal times, the unusual dual-regulator process of US Federal antitrust enforcement often means that a big merger sees the Department of Justice’s Antitrust Division and Federal Trade Commission’s Competition Bureau vie for the right to lead the government review. Guessing the winner is a bit of a parlor game for insiders. This time, the focus is likely to be unusually intense. On one hand, the Biden Administration and its top antitrust officials, Kanter, FTC Chair Lina Khan, and White House advisor Tim Wu, have made aggressive antitrust enforcement a top Administration priority. Kanter and Khan announced a major policy review just days before the deal was announced. And the size of this deal dwarfs most other acquisitions by the digital giants. But it also highlights the unusual effectiveness of Microsoft, despite its size, to avoid the intense scrutiny of the other digital giants, and even to ally itself to antitrust efforts targeting other giants like Apple and Google. In fact, Kanter was part of the anti-Google efforts.
35 State AGs (Microsoft, DoJ and Profs) Supporting Epic Over Apple in Appeal Battle
Report from The Verge
In Brief – Last year’s epic legal clash between Epic Games and Apple ended with US Federal District Court Judge Yvonne Gonzalez Rogers issuing a 185-page decision that was a near complete victory for Apple on the Federal antitrust allegations. Epic sued Apple accusing the smartphone giant of violating antitrust law by requiring app developers to use the Apple payment system that serves as Apple’s bill collection tool for apps that sell digital content over the Apple smart device ecosystem. The judge found for Apple on all federal antitrust law complaints, although she sided with Epic on a charge tied to California consumer protection law and issued a one-page order requiring Apple to allow app developers to include links to non-Apple payments options in their apps. Epic appealed the main ruling arguing the judge erred in her federal law legal reasoning. The digital games giant, who is a leader in the global battle to force down Apple and Google fees, has mustered a heavyweight collection of supporters backing their appeal, including 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 and is likely to aid in Epic’s effort to have the decision overturned.
Context – Regardless of the initial trial outcome, in a case with so much money involved, appeals were always going to happen, and both sides did not disappoint. And when cases get to the appeals stage, the “amicus” briefs are often some the best reading. (They generally face strict length limits!) Amicus filings also give great insight into the coalitions engaged on big legal fights. Despite Apple’s near knockout in Round 1, the Epic coalition looking to win Round 2 is really impressive. All the more reason for Apple and Google to get serious rolling out new fee collection systems and proceed to the debate over whether governments should start regulating app marketplace fees like utilities.
Anti-Ecommerce Copyright Bill Could Derail Bill to Bolster Competition with China
Report from the New York Times
In Brief – As the Democratic Leadership in the US House works to put together a bill designed to bolster national efforts compete with China that can be melded with the U.S. Innovation and Competition Act passed by the Senate last summer, an effort by change trademark law to force online marketplaces to police online sellers may help sidetrack the legislation. A range of differences on core issues already separate the Senate-passed legislation and the bill that may be considered on the House floor, including changes to skilled worker immigration law included in the House bill, a much greater focus on China-specific foreign policy measures in the Senate bill, and differences on whether tens of billions in federal research and development funding should be directed at advancing specific technologies or left more open-ended. In addition, House Republicans argue that the Senate bill was developed in a bipartisan fashion but they have been largely ignored. Finally, inclusion of the SHOP SAFE Act, a contentious measure intended to allow luxury brands and other critics of open ecommerce to impose a range of duties on marketplace platforms like Amazon, eBay, and Etsy that online commerce advocates argue will harm millions of small businesses, is expected to further undermine chances for final agreement.
Context – One of the digital policy battles that is nearly as old as the Internet is the fight over online “piracy”. The Digital Millennium Copyright Act (DMCA) created the “notice and takedown” process for copyright infringements. Trademark infringement was not covered by the DMCA. Instead, the Tiffany lawsuit against eBay, with the ecommerce marketplace prevailing due to its efforts responding to trademark owner notices, has been the prevailing law. Luxury brands and others looking to reduce commerce on small businesses marketplaces have been attempting to change liability law for counterfeits, “stolen goods” and other unauthorized sales of legitimate products for almost two decades.
ECA Clears Facebook’s Kustomer Bid with 10-Year Non-Discrimination Commitment
Report from Bloomberg
In Brief – The European Competition Authority (ECA) has cleared the Meta Platform (Facebook) $1 billion acquisition of Kustomer, a US-based customer relationship management (CRM) software startup that facilitates customer service over online chat formats. The regulator had expressed concern that Facebook could use the deal to gain new access to customer data to grow its dominant display advertising business, as well as harm CRM competitors to Kustomer by cutting off access to its WhatssApp, Instagram and Facebook messaging services. The regulator determined that the data and advertising risks were not significant, and to address the threat of withholding access to its messaging services to CRM competitors, Facebook provided a broad 10-year commitment to non-discriminatory access. The ECA’s clearance follows a similar decision from the UK Competition and Markets Authority (CMA) while the Germany Federal Cartel Office (FCO) continues to review the deal.
Context – A broad rethink of acquisitions by giant digital platforms is underway. Keep an eye on three big issues (the Kustomer deal touches on the second and third). First, will regulators start blocking the mega-giants from using acquisitions to get bigger? In 2020 Google’s FitBit acquisition was approved despite vocal anti-Big Tech objections. Amazon is now acquiring MGM and Microsoft has made a massive bid for Activision-Blizzard. Does size really matter? Second, acquisition review “thresholds” are shrinking, at least for Big Tech. Reviews of this deal, and Facebook’s acquisition of GIF-platform Giphy (rejected by the CMA), both involve relatively small, non-profitable startups, signal a shift. Many countries are lowering thresholds, at least for Big Tech, some proposing to review all acquisition, and the German FCO says relatively large bids for small, not profitable firms is a sign of competitive harm. Lastly, there is the risk of deals getting tied down by multiple reviews in different countries if regulators feel less inclined to use deference and find consensus.
Raven Studios Management Reject Game Testers Request to Form a Labor Union
Report from the Washington Post
In Brief – Video game development studio Raven Software, known for the Call of Duty franchise, and a subsidiary of Activision Blizzard, the target of a massive Microsoft acquisition bid, has rejected the request of a group of two dozen Quality Assurance (QA) workers to form a union. Activision Blizzard has nearly 10,000 employees and operates 11 studios, including Raven, which has approximately 300 workers. The game testers, many of whom were initially contractors, reacted to an early December management decision to eliminate the contractor positions of a dozen testers, while moving the remaining QA workers into full-time positions, by proposing to form a union and going on strike, which lasted five weeks. The proposed union is called the “Game Workers Alliance” and is organizing with the Communications Workers of America (CWA), a major labor union that endeavors to organize tech businesses. The request of the QA workers to have their union recognized by management was rejected and the two sides will work to set up a vote under the auspices of the NLRB.
Context – The politicized topic of unionizing Big Tech is rife with confusion and misunderstanding. Media often advocates for labor organizers and the stories that are not on point. Ongoing efforts to organize the labor force that works in Amazon’s huge fulfilment center network is a giant Labor effort but is not about tech workers, it’s a logistics workforce comparable to UPS, FedEx and the Postal Service. The Raven Software workers are game testers, not programmers, and make approximately $20 per hour, so again, not quite “high tech”. Last year, 65 workers of multi-billion dollar Indian-based IT services business HCL, who worked as contractors to Google, did unionize under the United Steelworkers Union. It’s an HCL union, not a Google union, but it did involve contact programmers. Lastly, 800 Google workers created the Alphabet Workers Union in January 2021, but it’s specifically not an economic bargaining entity at all, but instead a group focused on company policies and championing progressive causes.