News & Insights
White House Reviewing New Labor Department Rule Limiting Independent Work
Report from Reuters
In Brief – The White House’s Office of Information and Regulatory Affairs is reviewing a major rule proposal from the Department of Labor (DoL) on the contentious issue of classifying workers as independent contractors or employees, which has been at the center of Gig work political battles for years. While platforms like Uber, Lyft, Instacart, and Amazon are often highlighted, traditional industries including contracting, trucking, and health care, as well a new generation of skilled digital freelancers, may be impacted. The Obama Administration’s DoL interpreted federal labor law on the issue in a more restrictive manner. The Trump DoL rejected those interpretations and enacted rules that supported more classification flexibility. The Biden DoL cancelled the Trump rules, but a federal judge blocked that effort in March for violating the Administrative Procedures Act. Business groups are expecting the new rules to align with labor advocates who support tightening worker classification standards.
Context – The Biden Administration’s stance on Gig work is support for reclassifying most platform workers as employees. This runs contrary to the evidence that most participants prefer the independent model, especially for side work and second jobs that account for most such work. The politics shifted in November 2020 away from restrictive laws when voters in deep-blue California passed Prop. 22 to exempt ridesharing and delivery from the state’s new strict classification law. Urban freelancers have also stepped up defending independent work from restrictive legislation in other Democrat-led states. Big labor legislation and Gig work compromise bills are bogged down in Congress. Like on many digital issues, Europe is moving in a direction US progressives support but implementing similar policies in the US through regulation will likely mean federal lawsuits and pushback if Republicans take control of Congress. On the compromise front, the State of Washington and Seattle are breaking ground on ridesharing and delivery regulation that foregoes reclassification.
Google Criticizes European Telco Lobbying to Force Digital Platforms to Pay New Fees
Report from Ars Technica
In Brief – Google’s top business executive in Europe has publicly criticized ongoing efforts of European telecommunications companies to convince the European Commission to require digital platforms to pay some new type of supplement fee to the network companies to ostensibly help pay for ongoing network upgrades. Reinforcing a stance laid out by more than 50 members of the European Parliament earlier this year, the Google executive argued that moving to a “sender-pays” model for Internet traffic would undermine Europe’s Open Internet “Net Neutrality” principles as well as raise the prices that European consumers pay for a range of online services, amounting to cost shifting at best.
Context – Like the big media companies lobbying national governments to force Google and Facebook to pay them when consumers access their media content on the giant digital platforms, telecom companies have been accusing Internet platforms of “free-riding” for decades. The telecom giants are now hoping to finally reap some financial wins from their lobbying like the media companies are enjoying. The most inspiring national Internet bandwidth payments policy from the perspective of the network companies comes from South Korea. There, the telecom companies have been uniquely successful in imposing mandatory data usage fees on Internet-based businesses to subsidize the data usage of consumers. This despite clear net neutrality concerns. For example, Facebook and Netflix have been engaged in long-running legal and regulatory battles on the issue, including Netflix being asked to pay added fees to South Korea’s dominant network company because its Korean-produced Squid Game was so popular with Korean viewers. Top European Commission tech policy leaders Margrethe Vestager and Thierry Breton have both indicated that the Commission is likely to open a consultation on the topic in 2023 which might result in a new regulated bandwidth payments regime, although consumer advocates seem solidly opposed.
Two Narrow Antitrust Bills Expose GOP Divisions Undermining Big Tech Antitrust Effort
Report from The Hill
In Brief – Public infighting between top Republicans on the House Judiciary Committee before House floor votes on a pair of relatively minor antitrust policy bills points to increasing partisan division that may be dooming the prospects for major antirust legislation targeting the digital giants. When the House Judiciary Committee passed four landmark bills to restrain alleged abuses by Amazon, Apple, Facebook, Google, and Microsoft in June of 2021, they also passed two less controversial bills. One increases filing fees for large mergers, while the second allows state attorneys general to select their federal court venue when bringing antitrust legal challenges, rather than having them consolidated in one federal circuit court. While the four Big Tech antitrust bills in the House, and two major bills in the Senate, remain stymied short of floor action, the two lesser bills have been scheduled for House floor votes. Top Republicans on the Senate Judiciary Committee have called on House Republicans to back the bills, which have already passed the full Senate, but the top Republican on the House Judiciary Committee, who along with the Republican Leadership has rejected the thrust of the major antitrust bills, has aggressively criticized the narrow bills, in particular the bill raising merger fees, claiming it would further empower the FTC.
Context – The fact that the two less-controversial bills are being “cut loose” and moved to the House floor is not a good sign for the major Big Tech antitrust bills. The partisan division on antitrust is wide and getting wider. When tech critic Lina Khan was confirmed as an FTC Commissioner there was real bipartisan support. Now, even the Senate Republicans’ message supporting the narrow bills, which include increased agency merger fees, referred to “President Biden’s out-of-control FTC.” Khan was heavily criticized by Republicans in a recent Senate hearing, and Republican Commissioner Christine Wilson has accused the FTC leaders of Marxist thinking. Agency rulemaking on contentious issues including privacy, Gig work, and antitrust, absent changes in federal law, promises to exacerbate frictions. Watch out if Republicans take the Congress.
European Commission Continues AI Regulatory Initiative with Liability Proposals
Report from Reuters
In Brief – The European Commission has released a pair of legislative proposals intended to update liability law to address changes it claims are created by artificial intelligence (AI). The new AI Liability Directive lightens the burden of proof on victims by introducing a “presumption of causality”, which means victims only need to show that a manufacturer, developer, or users of an AI system failed to comply with AI regulatory requirements, but once the failure is established, it will be presumed that it led to the harms that occurred and the defendant will need to prove otherwise. Second, under a “right of access to evidence”, victims can ask a court to order companies to provide information about the inner workings of high-risk AI systems so that they can find out what went wrong and identify the liable person. The Commission also proposes updating the Product Liability Directive to better deal with smart devices and AI-enabled services. The changes include allowing users to sue when software updates render their smart-home products unsafe or when manufacturers fail to fix cybersecurity gaps. While the Commission’s proposed legal framework for AI goods and services is primarily focused of the developers of “high-risk” AI, the new liability proposals apply broadly manufacturers, developers, or users of AI technology. The liability proposals are expected to be considered by the European Parliament and the Council of Member States in 2023.
Context – The two liability provisions are part of a comprehensive EU approach to AI regulation. The Czech Republic, serving as President of the European Council, is working to finalize the AI Act setting the legal and regulatory framework for AI, which is focused on “high risk” systems. The Commission claims that the AI Act will reduce but not eliminate all AI risks, and the liability changes will make compensation for victims more realistic and effective. The legislative progress of the AI Act, released in April 2021, has been slower than expected, with Member States concerned about the broad scope of the mandates.
TikTok Data Security Deal with US Government Close But Not Final
Report from the New York Times
In Brief – TikTok and the Committee on Foreign Investment in the United States (CFIUS) are reported to have reached tentative agreement on data handling practices, and oversight of recommendation algorithms, of the super-popular Chinese-owned short-video social media app. CFIUS, a multi-agency federal government panel with powers to block foreign investments in the US, began investigating TikTok in 2020 as the Trump Administration ratcheted up national security concerns with Chinese-owned tech companies. While President Trump’s executive orders to block Chinese-owned apps TikTok and WeChat were stymied by federal courts, CFIUS continued its investigation of TikTok parent company ByteDance’s 2017 acquisition of Musical.ly, an app merged with TikTok. The tentative agreement between CFIUS and TikTok is said to require the company to store US user data in the United States, likely on Oracle servers. Oracle would also monitor TikTok’s recommendation algorithms to certify that the Chinese government is not attempting to influence the American public. Finally, TikTok would create a board of security experts to monitor the company and report to the US Government. Divisions are reported between the various government agencies who are members of CFIUS, as well as between senior officials within some agencies, while congressional Republicans call for increasingly tough action.
Context – Despite insistence from some camps in the Biden Administration that security concerns with China are paramount, there has not been clarity. When Biden stepped back from the Trump WeChat and TikTok initiatives, he kicked off an effort to create a new process to review digital services and equipment from countries that raise national security concerns, namely China. It’s still not done. In addition, regardless of where TikTok data on US users is stored, leaks regarding data access by Chinese-based executives, and news that top US-based company officials actually report to Chinese bosses who pull the ultimate levers, continue to plague the company.
Senate Committee Passes Bill to Increase Social Media Payments to Traditional Media
Report from Reuters
In Brief – Bipartisan legislation intending to force Google and Meta to pay more to local newspapers and news broadcasters when content shows up on their platforms, was passed by the Senate Judiciary Committee after being temporarily sidetracked by a disagreement over the controversial topic of content moderation by the digital platforms. The Journalism Competition & Preservation Act exempts news publishers with fewer than 1,500 full-time employees from antitrust laws to allow them to negotiate in large groups to win better ad-related payments terms from the platforms. A federal arbiter will pick between the two offers when deals are not struck. The committee was expected to pass the bill in early September but an amendment by Sen. Ted Cruz (R-TX) to prohibit negotiations between media outlets and platforms on content moderation standards unexpectedly passed, causing Committee Democrats to pull their support. However, the two parties later agreed on language clarifying that only financial terms could be the subject of group talks, clearing the way for the bill to pass 15-7. Concerns over how the measure could impact ideologically divisive online content and sites continues to plague the bill.
Context – Traditional media businesses have been complaining for two decades that the internet ruined their business models. Globally, complaints have centered on Google and Facebook. They are the most trafficked websites. Media stories appear on both. And they dominate digital advertising. Traditional media claims the two have unfairly captured their ad revenues. France and Australia have led the way in pressing the platforms to pay more to media companies. Both platforms responded by creating curated media services that paid hundreds of millions of dollars to media companies to reduce political heat. While Google recently announced an expansion of that effort, Meta is reportedly frustrated with paying huge sums without resolving the political pressure. They reportedly may end media payments entirely, claiming most users prefer investments in TikTok-style creator content.
UK Online Safety Bill Moving Forward with Focus on Protecting Under 18 Internet Users
Report from the BBC
In Brief – As the UK Government of Liz Truss sets out its agenda, new Culture Secretary Michelle Donelan says moving forward on the Online Safety Bill (OSB) is a priority. In line with campaign comments from Prime Minister Liz Truss, the legislation will be changed to protect “free speech”, which is taken to mean provisions requiring platforms to address undefined “legal but harmful” content will be modified, while rules regarding the content that appears to those under age 18 will be retained. The bill was introduced to Parliament in March after more than three and a half years of study, drafting, and debate. Initially framed as a strict regulatory effort to force tech companies to police terrorism recruitment and child sexual abuse material, the proposal grew in scope to cover hate speech, harassment, disinformation, revenge porn, racism, the promotion of suicide or eating disorders, financial fraud 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.
Context – Think about the UK OSB in three lights. First, it’s an important secondary battle in the fight over online content moderation, censorship, and free speech. It’s not top tier like the EU’s Digital Services Act (DSA), which is enacted and moving to the implementation phase, or the likely Supreme Court battle involving the First Amendment in the US, but it raises the same issues. Like in the EU, UK political leaders are very confident they can protect free speech and tell platforms to police speech. Second, the PM’s desire to “protect” those under age 18, combined with provisions regarding Age ID, points to a potential surveillance-powered Under-18 splinternet similar to where California may be going. Finally, the OSB is moving forward at the same time the UK Government is trying to differentiate itself from the EU on technology industry regulation, which it criticizes as lacking flexibility and undermining innovation. But that was on Artificial Intelligence regulation. On platform regulation, the OSB offers no quarter to the EU’s DSA.
FTC Rejects Amazon Effort to Shield Top Execs from Testifying in Probe of Prime Tactics
Report from the Wall Street Journal
In Brief – The Federal Trade Commission (FTC) has rejected Amazon’s petition to block the agency from forcing company CEO Andrew Jassy, and long-time CEO, founder, and current Chairman of the Board Jeff Bezos, from testifying as part of the FTC’s investigation of Amazon’s practices and procedures faced by consumers who desire to cancel their Prime subscription. Last year, the company was accused by consumer groups in many countries of using “dark pattern” tactics including complicated navigation menus, skewed wording, confusing choices, and repeated nudging to thwart consumers intentions, including a complaint filed with the US FTC. The highlights of the criticisms are laid out in a short cartoon video made by the Norwegian Consumer Council. FTC Commissioner Christine Wilson, one of the two Republicans on the panel, delivered the decision, which did accept the Amazon request to allow the company and individual executives to be represented by the same legal counsel.
Context – From the earliest days of the commercial Internet many web sites have used some sneaky tactics to spur users to take actions, including making purchases, sharing data, and signing up for marketing programs. An almost unlimited range of design tactics including fonts, colors, sizes, images, repetition, and confusing grammar have been lumped by critics under the heading “dark patterns”. Regulation of website design dark patterns is soon coming in the EU as part of the Digital Services Act. In July, the European Commission announced that Amazon had agreed to change to a simple two click unsubscribe process using a prominent and clear “unsubscribe” button. The change probably just reflects the company’s realization that a new legal standard will soon be in place. Despite the ongoing FTC investigation, the agency’s interest in the broader topic, and bipartisan dark pattern legislation introduced in the past two congresses, Amazon has not announced any changes for its US site.
FTC Continues Forward on Path That Might Lead to Blocking Amazon’s iRobot Deal
Report from the Washington Post
In Brief – The Federal Trade Commission (FTC) has formally made a “second request” for additional information from Amazon and iRobot, the manufacturer of the popular Roomba robot vacuum, confirming weeks of reports that the agency would aggressively scrutinize Amazon’s $1.7 billion acquisition of the smart home device company. The FTC is said to be interested in a number of potential anticompetitive impacts, including on head-to-head competition in household robots, as Amazon also sells the Astro, a high-end robot for household tasks, the connected smart-home device market, where Amazon is a strong competitor with its Ring security devices and Alexa digital assistance, and on the retail market generally. The FTC is also inquiring about data issues raised early on by privacy and consumer advocates, who claimed that Roomba devices collected valuable mapping data on the inside of users’ houses that could give Amazon an unfair advantage in competition with other household goods retailers.
Context – Two things to keep in mind. First, is the FTC, or any of the other rhetorically strident antitrust enforcers, finally going to challenge a truly large Big Tech deal? Yes, the UK CMA is trying to unwind Meta’s purchase of Giphy, and the FTC is trying to block Meta’s purchase of Within Unlimited, but both are relatively small startups valued at well under $1 billion. Some critics of activist competition enforcers argue they challenge smaller deals because it is safer. Amazon’s iRobot deal is hardly big, especially compared to the Microsoft’s $70 billion bid for Activision Blizzard, or even Amazon’s recent $8 billion acquisition of MGM, but the FTC has also submitted a second request on Amazon’s $3.9 billion bid for One Medical. So, maybe. Second, if they pull the trigger and challenge the deal, will they prevail in court? Federal judges initially dismissed the FTC’s blockbuster antitrust suit against Facebook, and have recently rejected the FTC effort to block Illumina’s acquisition of Grail and the DoJ effort to block UnitedHealth from acquiring Change Healthcare.
Florida Appeals to Supreme Court on Rejected Social Media Law – Tech Groups Agree
Report from Politico
In Brief – The State of Florida has petitioned the US Supreme Court to accept its appeal of the decision by a panel of US Federal 11th Circuit Court of Appeals to block most of the state’s law enacted last year to prohibit large social media companies from imposing content moderation restrictions on public officials, candidates for public office, and media outlets. Florida was the first state to enact a social media law intended to stop what many Republicans allege is ideologically biased viewpoint discrimination through content moderation. Florida’s law was blocked by a federal district court judge as a violation of the First Amendment editorial discretion rights of the digital platforms, as well as being preempted by federal law in the form of Sec. 230 of the Communications Decency Act. Florida appealed that decision but it was unanimously affirmed by the appeals court. A similar law was later enacted in Texas, and like the Florida statute it was blocked by a federal judge. However, a three-judge panel of the 5th Circuit rejected the contention that the statute violated the platforms’ First Amendment rights, adopted the arguments that they were common carriers that imposed “censorship” on users, overturned the initial court decision, and ordered the court to allow the law to go into effect. Tech company trade groups engaged in the court battles are supporting the effort to get the issue to the high court.
Context – Predicting whether the US Supreme Court will accept a specific case is always precarious, but it is likely that the topic will be on the court docket soon. Back in May when five Justices accepted an emergency petition to the Court’s “Rocket Docket” to stay the same Texas law that the 5th Circuit keeps supporting, Justices Alito, Thomas, and Gorsuch signed a dissenting opinion that expresses sympathy for amending First Amendment law as applied to social media platforms. Justice Thomas has been targeting social media platforms for years. Four justices need to agree to accept a case. With both sides in the dispute asking the court for clarity, expect a case to emerge to fit the bill.
US DoJ and California AG Get to Make Arguments in Epic-Apple Appeal Trial
Report from TechCrunch
In Brief – The US Department of Justice (DoJ) and the State of California have each been granted the opportunity to make oral arguments during next month’s appeals trial in the landmark antitrust case pitting game developer Epic Games against Apple. Epic filed federal antitrust suits against Apple and Google in 2020 arguing that each operates an illegal mobile operating system monopoly. The 2021 trial result was largely a win for Apple, with federal Judge Yvonne Gonzalez Rogers ruling that it was not a monopoly, but both Epic and Apple filed appeals. The DoJ, which is weighing its own case against Apple, and a coalition of State AGs, were among those filing amicus briefs on behalf of Epic Games. The Ninth Circuit Court of Appeals has granted the DoJ 10 minutes and the California AG 5 minutes, as well as giving Apple an additional 10 minutes (for a total of 30) to address the additional arguments.
Context – Regardless of the initial trial outcome, in a case with so much money involved, appeals were always going to happen. Amicus briefs at the appeals stage are often some the best reading. (See links above) The pace of the Epic – Apple case is impressive. Oral arguments for the appeals will be held before the initial Epic – Google trial is even held. That’s scheduled for January. Even moving quickly, trial court Judge Gonzalez Rogers thinks Epic-Apple issues could end up in the Supreme Court in a few more years. With the US DoJ and a host of State AGs lining up against Apple, it’s interesting to think about “judicial independence” in practice in the context of Big Tech. A federal judge dismissed the initial antitrust suits against Facebook, and despite allowing the FTC to proceed on their second take, the States AGs are still shut out. An administrative judge recently rejected the FTC antitrust suit against Illumina over the Grail acquisition and a federal district court judge similarly rejected DoJ blocking the UnitedHealth acquisition of Change Healthcare. European judges have been far more supportive of their governments’ Big Tech initiatives.
FTC Democrats Announce Gig Work Agenda to Address Claims of Platform Abuse
Report from MarketWatch
In Brief – The Federal Trade Commission, by a 3-2 party-line vote of the commissioners, has released a policy statement outlining a range of harmful issues that it believes Gig workers face, including deceptive claims from platform companies about wages and hours, unfair contract terms, and the true responsibilities of the workers and the platforms. In a nod to the years-long battle over the proper classification of people who work using Gig platforms, whether as independent contractors or platform employees, the director of the FTC’s Bureau of Consumer Protection said, “No matter how gig companies choose to classify them, gig workers are consumers entitled to protection under the laws we enforce.” A major focus of the agency’s plans is addressing “unfair or deceptive” algorithms, which it claims are often hidden in a system that fosters a “power imbalance”, as well as more traditional competition policy abuses such as wage fixing and monopoly-creating mergers.
Context – The environment at the FTC is getting increasingly partisan and divisive, and that’s seriously undermining what appeared to be some real bipartisanship just a year-and-a-half ago when Commissioner Lina Khan was confirmed by the Senate. (Being named FTC Chair did not require Senate action.) One reason is that the FTC majority, led by Khan, appears poised to try to substantively change federal policy on major issues like privacy and antitrust in the absence of congressional direction. This Gig Work initiative appears to fit that model. There is no question that the Biden Administration’s stance on Gig work is support for reclassifying platform workers as employees. But that effort has been stymied in the US since voters in deep-blue California passed Prop. 22. Big labor legislation is bogged down in Congress and Gig work compromise bills are as well. Like on many digital issues, Europe is moving on Gig work in a direction that Chair Khan and US progressives support, but attempting to implement those policies absent congressional action is not likely to be well received by Republicans, especially if they take control of Congress.
Biden Reiterates Concerns Over Tech Competition with China in New CFIUS Directive
Report from the New York Times
In Brief – President Biden has issued an executive order (EO) directing the Committee on Foreign Investment in the United States (CFIUS), a panel with powers to block foreign investments in the US, to focus more attention on potential risks related to investments in US high-tech businesses coming from countries that pose long-term security risks. China is clearly the focus. Priorities include supply chain resiliency, US technological leadership, cybersecurity, the aggregate level of investment in a targeted industry, and access to sensitive personal data. While CFIUS, a Cold War institution, was traditionally focused on outright acquisitions, it has increasingly reviewed minority investments in technology firms that could lead to sharing sensitive or cutting-edge technology. While TikTok, the super-popular short-video app owned by Beijing-based ByteDance, is the highest profile target of CFIUS scrutiny in recent years, and is certainly an example of potential impacts due to sensitive personal data, high-tech sectors such as artificial intelligence, quantum computing and biotechnology are also priorities.
Context – The Trump Administration accelerated the digital divide between the US and China in 2020 taking aggressive action against TikTok and WeChat. The Biden Administration slowed things way down, revoking Trump’s WeChat and TikTok orders, stepped away from the resulting legal battles, and embarked on a bureaucratic effort to create a still not-yet-finalized process to address digital services, apps and equipment from countries that raise national security concerns. This CFIUS order is not that promised policy. CFIUS is widely reported to still be scrutinizing TikTok (based on its 2017 acquisition of Musical.ly), which faces ongoing questions of Chinese influence on its operations, and a data-housing arrangement with Oracle to address concerns. The other big tech industry question mark is whether CFIUS will meaningfully slow the flow of Chinese money into US venture capital funds, which are reported to be near record highs in 2022.
Vestager Indicates Amazon’s Antitrust Offer Probably Needs More Work
Report from Reuters
In Brief – European Commissioner Margrethe Vestager, the EU’s top competition enforcer and one of Europe’s most influential tech policy leaders, has indicated that Amazon’s settlement offer to end a pair of antitrust investigations may need to be improved. The Commission investigations, begun un 2019 and 2020, focus on how Amazon allegedly uses third-party seller data to unfairly compete with the sellers, and how Amazon uses a variety of methods, including the Buy Box algorithm, to push sellers to use Amazon’s pricey and increasingly dominant logistics services. Earlier this summer Amazon’s proposal was shared with industry and public interest stakeholders who were given until September 9 to submit reactions. A dozen European-based non-governmental organizations jointly responded by publicly calling on the Commission to reject the antitrust settlement offer outright, arguing that it is far too weak to address the core problems with Amazon, and that the Commission should instead vigorously press forward on its antitrust cases as well as robustly enforce the recently enacted Digital Markets Act.
Context – Amazon is the largest online retailer, the largest ecommerce marketplace provider, and the largest ecommerce fulfilment center services provider. Unlike true marketplaces, Amazon often physically handles the goods for their top marketplace sellers just like they do for their own retail goods. The Prime program “gives” subscribers billions of dollars of digital services at no additional cost to beef up their retail loyalty and allow Amazon to direct their purchases to the goods Amazon awards the Prime mantel. This opaque business model has been roiling the legal and legislative environment for years. The biggest misunderstanding about Amazon is that they are primarily a retailer. That’s off base. Their biggest and most profitable business is Prime consumers buying third-party goods stored in their logistics business. They earn more and spend less on those sales. The European Commission, Italian, German, and UK competition regulators digging into that linkage is Amazon’s top risk.
California AG Files A New Lawsuit Charging Amazon with Setting Online Price Floors
Report from Bloomberg
In Brief – California’s attorney general, Rob Bonta (D) has filed an antitrust lawsuit against Amazon claiming that the ecommerce and logistics giant stifles competition and harms consumers by penalizing third-party sellers and wholesalers who sell goods for lower prices on other internet sites. Amazon has pushed sellers for years to have their goods on Amazon sell at prices that are not higher than can be found elsewhere. Critics allege that Amazon’s ecommerce marketplace has become so important to smaller brands and retailers that the sellers are unwilling to lower prices on competing venues with lower fees for fear of losing sales on Amazon. Consumers therefore lose those lower-priced options. The latest suit challenges Amazon under California state laws in California Superior Court. It follows similar consumer class action lawsuits brought in federal court in Washington State, and one by the AG of the District of Columbia in DC Superior Court. Amazon rejects the premise of the argument, claiming that sellers are free to set their prices on Amazon and consumers benefit when no online prices are lower than those on Amazon. Courts have been split on the issue, with a federal judge rejecting Amazon’s effort to dismiss a suit in Washington State, while a DC judge dismissed the case in Washington, DC.
Context – Amazon’s “price parity” policies have been controversial for years. The company claimed to abandon them in 2013 in Europe and 2019 in the US, but instead replaced a contractual prohibition with identical policies enforced through its Buy Box algorithm that penalizes sellers who violate the lowest price policy. Sellers know that if they sell for less elsewhere, even when lower fees make it possible, they will suffer greatly on Amazon. Anticompetitive effects of price parity policies often rest on the offending platform’s dominance. In Amazon’s case, their share of ecommerce marketplace sales approaches 70 percent, even while charging high fees to sellers, especially when sellers use Amazon’s FBA for logistics. Using FBA, by the way, is the other key seller behavior pushed by the Buy Box algorithm.
Biden White House 2022 Campaign Tech Priorities – Sec. 230 Opposition Still There!
Report from Reuters
In Brief – The White House hosted an event bringing together senior Biden Administration officials, the DC Attorney General, representatives of public interest, privacy and consumer protection advocacy groups, and some companies that have championed more aggressive Big Tech antitrust policies, to discuss “the harms that tech platforms cause and the need for greater accountability.” They also released “Principles for Enhancing Competition and Tech Platform Accountability” that included promoting greater tech sector competition; adopting robust federal privacy protections, especially for children online; rescinding special legal protections for large tech platforms; increasing transparency about platforms’ algorithms and content moderation decisions; and ending discriminatory algorithmic decision-making.
Context – The event appears to be appropriately filed squarely in the campaign bin. It includes the major technology priorities pushed by progressive Democrats on Capitol Hill and at the Federal Trade Commission. Despite some support from Hill Republicans on some privacy legislation and Big Tech antitrust reform, none of the major initiatives have mustered enough support to get a floor vote in the Senate or the House of Representatives. Whether that happens before Election Day is the biggest open question in the digital policy space. The most interesting inclusion in the White House document is the call for “fundamental reform of Sec. 230.” Back in 2020, then candidate Biden, and then President Trump, both called for ending Sec. 230. However, despite the “bipartisan” nature of the frustration with platforms, Sec. 230 legislation has gone nowhere under either Administration because Democrats and Republicans actually hold opposite views on both the problem and the solution. Raising it here seems a throw-away. Maybe President Biden insisted? In other tech policy 2022 campaign matters, racial justice advocacy group Color of Change released its Black Tech Agenda.
Federal Court Upholds TX Social Media Law Continuing Momentum to Supreme Court
Report from the Wall Street Journal
In Brief – A three-judge panel of the US Fifth Circuit Court of Appeals has overturned a December District Court decision that Texas legislation prohibiting large social media platforms from suppressing the communications of users based on their message was likely a violation of the First Amendment. The 90-page opinion of Judge Andrew Oldham exhaustively rejects arguments of the social media platforms that their content moderation practices are functionally and legally equivalent to the editorial practices of newspapers, and that the platforms could not be classified as common carriers because they never agreed to permit speech that violates their terms of service. Where the two-judge majority considers the platforms to be communications common carriers in the tradition of telegraph and telephone companies that emerged in previous centuries, dissenting Judge Leslie Southwick used 20 pages to argue that the platforms are akin to newspapers and that the Supreme Court has considered curating what appears on their pages to be, itself, a form of speech protected by the First Amendment. Southwick did agree with the majority that the transparency provisions should be allowed to go into effect.
Context – The top takeaway is that everything is pointing to a Supreme Court showdown. Federal legislation on Sec. 230 and all things content moderation, including on algorithms and transparency, has been stymied by a total disconnect between Democrats and Republicans. States with one-party control are a different matter. Republican-led Florida and Texas acted first, enacting laws to combat ideological “viewpoint” discrimination. Democrat-led New York and California have followed with laws pushing platforms to combat hate speech and harassment. Judge Oldham’s opinion expends considerable energy arguing why the Texas law is acceptable even if Florida’s was ruled not, while the agreement of all three judges on transparency mandates may be heartening to backers of the California law. Expect to hear far more about newspapers and telegraph companies.
South Korea Fines Google and Meta for Deficient Notice and Consent for Data Collection
Report from Reuters
In Brief – The South Korean Personal Information Protection Commission, the country’s data protection authority, has fined Google $52 million (69.2 billion won) and Meta $22 million (30.8 billion won) for failing to clearly inform users of their data collection policies and obtaining prior consent. The company practices involved the collecting and analyzing of online behavioral activity that was then used to serve customized advertisements. The fines are the largest ever in South Korea for violating personal information protection laws and the first dealing with behavioral advertising. Google and Meta both expressed disagreement with the agency decisions and noted that while they would continue to work cooperatively with the regulator, they would explore options to challenge the decision.
European Court Upholds Android Antitrust Decision and $4 Billion Fine Against Google
Report from the Wall Street Journal
In Brief – The EU’s General Court in Luxembourg, the bloc’s second highest, largely upheld a $4.3 billion antitrust decision against Google by the European Commission Competition Authority that found the digital giant abused the market dominance of its Android operating system to entrench its Google search engine and Chrome browser dominance on mobile devices. The Commission’s 2018 decision targeted Google’s practice of bundling together the licensing of its apps for official Android devices. Google expressed disappointment with the ruling and defended the openness of the underlying Android operating system.
Context – Unlike the other digital giants, Google is more than a decade into major EU competition cases on Search, Advertising and Android. Most Google-related antitrust challenges globally still follow one of those three themes. Last year, the same EU Court upheld the Commission’s “Comparison Shopping” case targeting Google’s “self-preferencing” and “vertical search” abuses. This decision challenges the hybrid nature of Google’s Android Operating System. The source code can be used in an “open source” manner, but if manufacturers produce devices to be branded as official “Android” devices (think green robot logo), they must follow contractual mandates including regarding apps. Amazon’s Fire line is an example of devices using Android OS but not being Android branded. The underlying code is open source, but the Android device ecosystem is not. The Korean Fair Trade Commission is also challenging Google on these policies, which have limited Samsung and LG flexibility regarding Android “forks”. The EU decision also takes a broad view on “Single Brand Markets”. Google argues that official Android devices are not a separate market and compete with a range of devices, especially from Apple. The issue also arises with Android and Apple app stores, gaming, online advertising, and social media platforms, to name a few. Finally, the decade-long time frame of the Google cases was a driving force behind the EU’s Digital Markets Act that largely replaces Big Tech antitrust cases with regulation.
California Enacts Social Media Content Moderation Regulation and Transparency Bill
Report from the Washington Post
In Brief – California has enacted legislation to require social media companies to publicly post their policies regarding hate speech, disinformation, harassment, and extremism, and regularly report data on the enforcement of their policies. Gov. Gavin Newsome (D) said that the law was a response to social media being “weaponized to spread hate and disinformation.” California’s effort to mandate transparency and reporting on social media company content moderation policies follows similar provisions being included in social media legislation enacted in New York, Texas, and Florida. Legal and internet policy experts believe that efforts to mandate public disclosure and government review of content moderation practices is a First Amendment violation of editorial speech, and the US Supreme Court recently stayed Texas’s version of social media content moderation regulation.
Context – Despite bipartisan anger and handwringing over social media’s ills, federal legislation is stymied by a total disconnect between Democrats and Republicans on the problems and the solutions. States with one-party control are a different matter. Republican-led Florida and Texas acted first, enacting laws to combat “viewpoint” discrimination. Democrat-led New York and California have followed with laws pushing platforms to combat hate speech and harassment. They all have likely constitutional problems. The Federal 11th Circuit ruled against Florida’s law straightaway. A 5th Circuit panel refused to block Texas’s law, but the US Supreme Court stepped in. Expect similar federal court action on the New York and California entries. With four USSC Justices siding with the 5th Circuit, a full Supreme Court case seems likely relatively soon. On a positive note for those cheering sensible digital platform policy, the California legislature did amend AB 587 to target their “social media law” to actual social media by adding Sec. 22681 exempting platforms focused on commercial transactions, as well as reviews of products, sellers, services, events, or places.
Advocacy Groups Call for Rejection of Amazon Competition Settlement Offer
Report from TechCrunch
In Brief – A dozen European-based non-governmental organizations have urged the European Commission to reject the antitrust settlement offer made by Amazon, arguing that it is far too weak to address the core problems with Amazon, and that the Commission should instead vigorously press forward on its antitrust cases. The groups also argue that the settlement offer falls short of the likely requirements imposed by the Digital Markets Act, enacted earlier this year, creating potential legal and policy confusion over the behaviors needed to comply with European law. The submission from the advocacy groups addresses the two issues covered by the Commission investigations, which are the alleged abuse of third-party seller data to unfairly compete with the sellers, as well as unfair terms and preferencing, including through the Buy Box algorithm, of goods from sellers who use Amazon’s logistics, and raises other charges as well, such as predatory pricing, unfair labor practices and problematic acquisitions.
Context – Amazon is the largest online retailer, the largest ecommerce marketplace provider, and the largest ecommerce fulfilment center services provider. Unlike true marketplaces, Amazon physically handles the goods for most of their top marketplace sellers just like their own retail goods. The Prime program “gives” subscribers billions of dollars of digital services at no additional cost to beef up their retail loyalty and allow Amazon to direct their purchases to the goods Amazon awards the Prime mantel. This opaque business model has been roiling the legal and legislative environment for years. Complaints about Amazon misusing third-party seller data to grow its own retail business largely miss the point. Amazon’s most important and profitable ecommerce business is third-party sellers using FBA to sell on Amazon, not direct retail sales. When the European Commission added Prime and FBA to their competition case, they improved it. The German FCO and UK CMA are moving that way as well. Amazon, for its part, rejects the application of the DMA and the similar new German regulatory authority to its business.
Uber Settles a Driver Payroll Tax Dispute in NJ. Backing Down on Driver Classification in US?
Report from the New York Times
In Brief – Uber has reached a settlement with New Jersey’s Department of Labor over unpaid unemployment taxes for drivers using the Uber app from 2014 to 2018, agreeing to pay $100 million, significantly less than the original claim for $650 million brought in 2019. The department’s commissioner says that the payment confirms that the Uber drivers are company employees, while the company continues to reject that status.
Context – The news from Uber in New Jersey is outside the trendline we’ve been seeing on the Gig worker classification front. This is more in line with European developments, where courts and legislatures continue to support classifying Gig workers as platform company employees, at least for ridesharing and delivery, and especially for Uber. The Swiss high court recently added another judicial setback to Uber’s tally. In the UK, Uber was ordered to treat drivers as workers, a middle-ground status between contractors and full employees. The big kahuna for all the digital work platforms is the European Commission’s massive legislative initiative that includes new rules on worker classification as well as “algorithmic” management. On the other hand, reclassifying platform workers as employees has been stymied in the US since voters in deep-blue California passed Prop. 22 in late 2020 exempting Gig drivers from the state’s law classifying many independent contractors as company employees. Uber led that counterattack. Organized labor’s Gig work priorities are likewise stalled in Congress. The Biden Department of Labor did overturn some Trump-era independent contractor guidance offering a little consolation. The State of Washington and Seattle have both advanced middle-ground initiatives on platform drivers that maintains their independent contractor status and inherent flexibility while mandating improved pay and some employee-like benefits. Finally, an expected Prop. 22-style ballot initiative in Massachusetts was recently derailed by a court decision.
Speaker Pelosi’s Rejection of Bipartisan Comprehensive Privacy Bill Derails Effort
Report from Axios
In Brief – The American Data Privacy and Protection Act (ADPPA), comprehensive federal data privacy legislation that passed the House Energy & Commerce Committee by an overwhelming 53-2 vote in July, and brought together the Democratic Chairman of the committee with the top committee Republicans in both the House and Senate, has hit a major stumbling block as Speaker Nancy Pelosi (D-CA) has announced her opposition to the bill due to its impact on California’s rapidly emerging data privacy legal and regulatory framework. Without the acquiescence of the Speaker, the legislation is not likely to be voted on by the full House of Representatives. Despite the bill’s strong bipartisan backing, prospects in the Senate were already tenuous due to the opposition of key Democratic Chairwoman Maria Cantwell (D-WA). Even when the bill sailed through the House committee, the two votes against were from California Democrats, reinforcing the fact that many of California’s Democratic Party leaders and their progressive backers were not satisfied with the bill, claiming it was weaker than the state’s landmark laws. Lead House Committee Republican Cathy McMorris-Rodgers does not sound willing to compromise more.
Context – The top two substantive hang-ups stymieing federal privacy legislation for years have been the role of consumer class action lawsuits and the preemption of state laws like California’s. Democrats and privacy activists have supported allowing class action suits and opposed strong preemption of state laws. Republicans and business groups take the opposite positions. That dynamic appeared to have been weakened this time around by the momentum of Big Tech antirust legislation. The ADPPA seemed poised to be an alternative way for Congress to challenge Big Tech. The digital giants and Hill Republicans appear to prefer that result. However, if enough privacy activists remain opposed to its compromises, and Democratic leaders like Pelosi and Cantwell back them, the bill’s prospects are slim. A narrower online teen privacy bill is the most likely fallback.
Sweden-Based Spotify Reminds Everyone That It’s a Lead Apple and Big Tech Antagonist
Report from the Financial Times
In Brief – Daniel Ek, the billionaire co-founder and CEO of Stockholm-based Spotify, met with top technology policy leaders of the European Commission, including Commissioners Vestager and Jourova, to call for quicker action to sanction Apple for alleged anticompetitive conduct. Spotify lodged a complaint with the European Commission Competition Authority in 2019 and the regulator announced its preliminary findings in April 2021 that Apple has a monopoly over the distribution of music streaming apps onto Apple phones and violates European competition law by charging app developers high commission fees and forbids them from telling users about cheaper alternatives elsewhere. Ek has expressed frustration with the EC’s competition law enforcement processes which can stretch for years.
Context – Spotify, one of Europe’s top digital platform companies, filing an antitrust complaint against Apple in Brussels, helped kick off what has grown into a global battle over app store fees. It’s right up with the Epic Games lawsuits. Apple and Google now recognize that despite the fact that mandating the use of their own payments service being the most efficient way to collect their fees, they must offer alternatives. Legislative and regulatory challenges in South Korea and the Netherlands have been driving this, but it is a global trend. Both Google and Apple have developed alternative payments plans that value the service at 3 to 4%, and they are not wrong. They also argue that the rest of their overall commission, which can reach 26%, is in line with many other digital markets. That is true as well. But the huge app developers driving the fight never really cared about doing payments processing, they want to pay much lower fees. At this point, focus on three things. First, watch the emerging battle over public utility-style price regulation of app fees. Second, will the EU’s Digital Markets Act regulatory structure, which will cover Apple and Google app stores, subsume competition enforcement actions in Europe. Finally, do Spotify concerns with non-fee Apple policies undermining streaming service competition get their due?
Top Five Digital Policy Questions for the Rest of 2022
With everyone settled in from the summer holidays, and the US midterms rapidly approaching, we share the ten digital policy questions and issues we think are most timely, important, and interesting for the rest of the year.
1) Will the US Congress enact Big Tech antitrust legislation? Once the EU adopted the Digital Markets Act and Digital Services Act, this became the clear #1 issue for the rest of 2022. The two biggies are S. 2992, the American Innovation and Choice Online Act prohibiting the largest five or six platforms from preferencing their own services, and S. 2710, the Open App Markets Act, that would regulate the Apple and Google app stores. We think they each have about a one-in-three chance before the election.
2) Will the US Congress enact a major online privacy bill? It was looking like the prospects of Big Tech antitrust were waning and federal privacy legislation might take its place as Congress’s anti-Big Tech accomplishment. The digital giants far prefer that result, and so do Hill Republicans. But Sen. Maria Cantwell (D-WA) and Speaker Nancy Pelosi (D-CA) have stymied the American Data Privacy Protection Act. It’s now a slightly bigger longshot than the antitrust bills. A narrower children’s privacy bill is a better bet.
3) What happens in the November congressional election? This question doubles the importance of Question #1 on Big Tech antitrust. If the Republicans retake the US House, and S. 2992 hasn’t been enacted, it’s not coming back in 2023. Rather than expanding antitrust law, a Republican House (or Senate) will relentlessly rake the social media platforms over the coals for ideological censorship. A Republican Senate likely dooms new Net Neutrality rules if a 3rd Dem FCC commissioner is not in place.
4) Do the FTC or EU Competition Authority challenge Microsoft – Activision Blizzard? Despite Big Tech antitrust activists holding all the key enforcement positions, no large Big Tech deals have yet been assailed. At $70 billion, Microsoft-Activision Blizzard is the largest ever. It’s also a test of Microsoft’s progressive-regulator goodwill campaign with overtures on cloud services competition, app store regulation, labor organizing, and legislation forcing Google and Facebook to pay media companies.
5) December’s trial pitting the FTC v. Meta over the Within Unlimited acquisition. OK, not a question, but the most interesting Big Tech trial since Epic Games v Apple in 2021. The Khan FTC hasn’t challenged a billion-dollar Big Tech acquisition yet, but they are trying to stop Meta from buying a VR fitness app developer for $400 million. The regulator is coming off some key court setbacks, including on the Illumina-Grail deal, and they are challenging a “dominant” digital giant that looks less so each month.
The Second Five… in no particular order.
How Much DMA and DSA Regulatory Compliance Is Rolled Out in the EU? The biggest development of 2022 has been the enactment of the EU’s Digital Markets Act regulating platform “gatekeepers” and the Digital Services Act regulating content moderation. Truly groundbreaking. Everyone should be wondering how these massive regimes will be implemented, from nuts & bolts operational duties and costs, to how much flexibility regulators will give to different types of platforms.
Does the new UK Truss Government Meaningfully Change the Online Safety Bill? The new Prime Minister says her top Internet priority is to protect UK users who are under age 18, and that seems far more expansive that just child sexual abuse material. She also claims to support more free speech online. Is an Under-18 splinternet and constant online Age ID coming to the UK (and California)?
Is Facebook willing to be news-free rather than pay media companies for user posts? The US Congress may be a hotspot this fall in the global campaign to force Google and Facebook to pay more to media companies when their content appears on the platforms, but the most interesting development might be Meta concluding that news content on Facebook is not worth paying for or even having.
Does the UK CMA finally force to Meta to unwind the Giphy acquisition? The UK CMA ordering Facebook to unwind its $315 million deal for GIF platform Giphy was a precursor for the FTC blocking the Within deal. Meta keeps fighting an uphill battle in UK courts and pushed the CMA to re-evaluate their decision because the agency knew, but did not reveal, that Snap had bought their own GIF platform.
The Musk-Twitter Trial. October’s Musk v Twitter trial will be a massive headliner. The issues at play are not that important for tech policy, but if Elon Musk is ordered to buy Twitter, it may have a huge impact on the debates over platform competition and online content moderation as one huge platform will suddenly be led by a vocal leader who has taken notable non-progressive stances.
Meta Fined $400 Million by Irish Data Protection Commission for Instagram Practices
Report from the New York Times
In Brief – The Irish Data Protection Commission (DPC) has levied a fine of 405 million euros on Meta for violating the General Data Protection Regulation (GDPR) through its treatment of Instagram accounts for children aged 13 to 17. Among the problems highlighted by the Irish regulator, who serves as the lead GDPR enforcement authority for many digital platform businesses that have their EU headquarters in Ireland, was to set accounts to public by default and allow teenagers with business accounts on Instagram as aspiring influencers to make their email addresses and phone numbers public. Meta responded to the ruling by noting that they fully engaged with the DPC through the investigation, and that it involved old privacy settings that were changed over a year ago.
European Commission Blocks Illumina – Grail Deal with Broad Tech Policy Impacts.
Report from the Wall Street Journal
In Brief – The European Commission has formally blocked Illumina’s 2020 acquisition of Grail, a US biotech startup, for $7.1 billion. Grail makes cancer identification tests using patient blood samples that run on machines made by Illumina. Despite the Grail business having no sales or operations in Europe, the European Commission Competition Authority opened an investigation of the merger based on the request of a coalition of member states led by France. Illumina challenged the Commission’s authority to review the deal based on lack of any Grail business in the EU, but the EU General Court upheld the Commission’s expansive review authority. Illumina is appealing that EU General Court decision and is expected to appeal the Commission’s substantive rejection of the deal as well.
Context – The legal saga of Illumina’s acquisition of Grail, while coming from the biotech world, raises important policy issues for the digital platform economy. First is the move towards lower (or even no) size thresholds, both in sales and business operations, in acquisition reviews, and the impact that will have on digital startups. Smaller acquisition targets, far from their mature shape or profitability, mean regulators looking to measure market impacts must forecast, or speculate, how businesses and markets will evolve many years in the future. Some also see small deals as more attractive targets for activist antitrust regulators to challenge because the legal pushback is weaker, and there appears to be a growing body of evidence in the digital space that this is the case, such as with Giphy and Within. The second issue is how a global divergence on acquisition law and policy will play out, especially when it involves companies with no operations in the markets rejecting deals. While the Democratic majority at the FTC also opposed the Illumina-Grail deal, a federal administrative judge rejected the FTC case. US-EU antitrust divergence has occurred in the past with but not with regulators stopping relatively small deals for completely remote firms.
Microsoft Offers Special Software Licensing Deal to Help Small Cloud Services Providers
Report from Bloomberg
In Brief – Microsoft is changing its licensing terms for its most popular business software, in particular MS Office Suite and Windows 10 & 11, to eliminate a surcharge that applies when the software is stored and used on a cloud service provided by a company other than Microsoft. The supplemental charge was initiated in 2019 as an incentive for software customers to adopt Microsoft’s cloud service. A coalition of European cloud services providers, all of which are small compared to Microsoft and the other market leaders, complained to the European Commission Competition Authority that the practice was anticompetitive and unfairly leveraged Microsoft’s software leadership to preference its cloud business and harm competitors. The new licensing rules, which are scheduled to go into effect on October 1, will eliminate the supplemental software fee when the Microsoft software is stored and used on cloud services provided by companies other than Amazon, Google and Alibaba, who are the three cloud services providers comparable to Microsoft. Amazon and Google were highly critical of the proposal.
Context – Microsoft’s software fee change is one more goodwill step taken to bring regulators onside in its quest to win approval of its nearly $70 billion acquisition of videogame giant Activision Blizzard, the largest acquisition ever by one of the digital giants. Microsoft is also backing unprecedented app store regulation targeting Apple and Google, labor union organizing in the video game industry, and legislative efforts in many markets to force Google and Facebook to pay media companies when news articles and video clips appear in search results or social media posts. With the UK CMA going to the legal mat to block Meta’s $315 million acquisition of Giphy, and the FTC going to court to block Meta’s $400 million bid for VR app-maker Within, the Activision deal is pushing the envelope on whether size matters at all in the acquisition policy battle.
Truth Social’s Google Play Store Rejection Highlights Its Operational Problems
Report from the New York Times
In Brief – More than six months after its iPhone app made its debut in the Apple App Store, Truth Social’s Android app is still not approved by the Google Play Store, and yet the social media company has chosen not to distribute an Android app directly to users. Truth Social is the Twitter-like social media platform announced by former President Trump in October 2021 as an “anti-woke” alternative. The service is reported to have around 2 million users and is engaged in financial battles with key vendors. Google has refused to approve the app due to concerns that it does not appropriately moderate content that incites violence.
Context – One of the most significant differences between Google’s Android ecosystem and the Apple iOS ecosystem are their very different policies on distributing apps outside their two app stores. Apple does not allow apps to be downloaded outside their App Store, a practice often called “sideloading”. Google does not prohibit sideloading. So, while the Google Play Store is the largest Android app distribution platform by far, and critics argue that it is unfairly preferenced on Android devices, apps don’t need access to the Play Store or Google’s approval to be distributed. This key difference has been playing out for over a year with another social media alternative that is popular with conservatives opposing the content moderation practices of the giants – Parler. Parler’s app was banned by Apple’s App Store and Google’s Play Store soon after the Jan. 6 Capitol Riot, and the site was kicked off the web entirely by Amazon abruptly withdrawing its AWS web hosting. Parler eventually found alternative web hosting and reached an agreement with Apple to increase its content moderation and got back into the App Store in May of 2021. Parler is still not in the Google Play Store. It distributes its Android app in other ways. Rather than the misinformed narrative that Google is blocking Android users from getting Truth Social, the better question is whether Apple will address calls to drop Truth Social from the App Store and the overall iPhone ecosystem.
Google Expands Plan for Play Store Payments Alternatives to Cover Most Non-US Markets
Report from TechCrunch
In Brief – Google is broadly expanding the markets covered by its “User Choice Billing” program that allows app developers, other than for video games, to use payments services other than Google’s to process purchases on their Android apps distributed through the Google Play Store. The new markets covered by what Google continues to call a “pilot” program include India, Australia, Indonesia, Japan, and the European Economic Area (EEA). Developers that choose to offer an approved non-Google payments option will pay Google 4% lower fees, meaning a developer paying a 15% commission to Google would pay 11%, while a developer paying 30% to Google would see that fall to 26 percent. However, developers availing themselves of the options would need to pay the alternative payments provider a fee directly. Google charges developers who earn $1 million or less from apps distributed in the Play Store just 15%, which they claim covers 99% of Android developers, but most Google fees are paid by a relatively small number of very large developers who still pay 30% on most sales. The United States region and game developers are not currently part of the program.
Context – Apple and Google use their payments services to conveniently collect their app commissions. We’ve been saying for many months that they would eventually accept payments processing alternatives while defending their right to charge app developers commissions and rolling out new billing systems. Legislative and regulatory challenges in South Korea and the Netherlands have been driving this, but it is global trend. Google and Apple have been arguing that payments is a service worth 3 to 4%, and they are not wrong. They also argue that the rest of their commission is in line with a wide range of digital markets. That is true as well. But the biggest app developers never really cared about doing their own payments processing, they just want to pay much lower fees. We are watching a slowly developing battle over public utility-style price regulation of app fees.
US Federal Trade Commission Expands Scrutiny of Two Big Amazon Acquisitions
Report from The Verge
In Brief – Two major Amazon acquisitions, its $1.7 billion deal for iRobot and $3.9 billion bid for One Medical, have resulted in “second requests” from the US Federal Trade Commission (FTC). When mergers and acquisitions worth more than $100 million occur involving companies that operate in the United States, the parties are required to notify the FTC and the Department of Justice and share information on the deal. The regulators have 30 days to challenge the transaction, although the agencies can request that the companies provide additional information, which is a “second request.” Once the companies respond to the additional questions, the agencies have 30 more days to challenge the deal.
Context – Despite the Biden Administration naming high profile antitrust reformers like Lina Khan, Jonathan Kanter, and Tim Wu to top positions, little concrete action to stop giant Big Tech acquisitions has ensued. The FTC, despite being led by Chairperson Khan, a highly prominent antitrust critic of Amazon, did not challenge the company’s $8 billion acquisition of mid-level movie studio MGM. But Khan did not lead a Democratic majority at the time. Now she does. Amazon is certainly giving the enforcers more opportunities to test their acquisition theories. With the iRobot and One Medical deals, critics have focused on charges that Amazon will gain access to too much personal information on customers of the two acquisition targets, such as iRobot’s in-home digital maps and patient records from One Medical. However, blocking the deal based on the digital giant then holding too much sensitive data will require a novel antitrust theory. iRobot’s falling market share and One Medical’s overall small share of medical services undermine more traditional antitrust challenges. The FTC’s effort to block Meta’s $400 million purchase of VR app developer Within will be in front of a federal judge in December, while everyone waits on the FTC and other top regulators globally reviewing Microsoft’s massive bid for gaming giant Activision Blizzard.
California Passes Legislation to Impose New Child Safety Duties on Websites for Under-18 Users
Report from the Washington Post
In Brief – The California State Senate and Assembly have both unanimously approved AB 2273, the California Age Appropriate Design Code Act, legislation requiring a wide range of websites and digital services frequented by children to offer upgraded privacy and safety protections by default unless there is a “reasonable certainty” that a particular user is an adult. Under existing law, online platforms are required to treat users under age 13 as children, but that is raised to under 18 by the legislation, a change opposed by groups including TechNet and the Chamber of Commerce who argued under 16 was more appropriate. The web site design practices included in the legislation are largely drawn from the UK’s Age Appropriate Design Code, which went into effect last fall. It includes 15 design practices such as prohibiting collecting and retaining a child’s personal information that is “not necessary to provide a service,” and restricting the collection of precise geolocation information. In response, Google has made “SafeSearch”, which screens out potentially inappropriate content, its default browsing mode for minors globally, while TikTok and Instagram have disabled direct messaging between children and adults they don’t follow.
Context – The conventional wisdom that social media usage is harmful to young people largely doesn’t hold up under analytical scrutiny, including through a major study published last year based on massive UK data. Nevertheless, protecting kids remains the most potent engine driving online regulation. The Senate Commerce Committee passed two bipartisan bills aimed at regulating online platforms serving minors in late July. The European Commission has proposed legislation it says targets online child sexual abuse material that critics say will prohibit strong encryption, a charge that has plagued the congressional EARN IT Act. Finally, online privacy advocates argue that the California legislation will require broad online age verification and tracking that is particularly vexing and will create threatening new online data pools.
UK Competition Regulator Outlines Concerns with Huge Microsoft-Activision Deal
Report from the BBC
In Brief – The UK Competition and Markets Authority has announced that it believes Microsoft’s $68.7 billion acquisition of developer Activision Blizzard could substantially lessen competition in the gaming industry and it will proceed to an in-depth Phase 2 review unless the companies promptly propose an acceptable set of remedies. Activision Blizzard produces some of the most popular video game franchises, including Call of Duty and Candy Crush. The CMA is concerned that Microsoft could undermine current and future entrants into console gaming by providing access to top games on much worse terms. Sony, Microsoft’s largest competitor in console gaming, has raised that concern with regulators, focusing on Call of Duty. The CMA is also highlighting concerns with next-generation “cloud gaming”, noting Microsoft’s combination of a leading gaming console, a leading cloud platform, and the leading PC operating system, creates a unique threat to future competition. Microsoft says it will not cut off competitors from major titles like Call of Duty, although whether that means their subscription services is less clear, and that the deal is based on growing its mobile phone game capabilities.
Context – Criticism of Big Tech acquisitions has been a major component of the “Techlash” for years, but it’s still not clear how it will manifest. A big issue is whether regulators will flex their performance muscles against relatively small deals for startups while letting the truly giant deals go forward to avoid huge battles. Republican FTC Commissioner Noah Phillips has leveled this charge. See the UK CMA trying to unwind Meta’s $315 million acquisition of Gif platform startup Giphy, the FTC, against the advice of staff, suing to block Meta’s $400 million acquisition of VR app developer Within, and the EU eliminating any deal size threshold for antitrust reviews. Microsoft’s bid for Activision is the biggest digital acquisition of all time, and it has recently consummated multi-billion dollar deals in health care and gaming, without regulatory objection, as have the other digital giants. Size appears to matter.
In an Australian Court Reversal, Google Not Liable for Defamatory Search Results
Report from Reuters
In Brief – The Australian High Court has sided with Google and overturned the State of Victoria’s court of appeals that had affirmed a 2020 trial court finding that Google was liable for $40,000 in damages for including links in search results to an online article that was ruled to be defamatory. The 5-2 majority ruled that the article in question, while defamatory, was written and published by independent content producers not controlled or influenced by Google, stating that Google “does not own or control the internet.” The underlying case involved George Defteros, a lawyer who was accused of a range of improprieties in online articles in 2004. In 2016, Mr. Defteros asked Google to remove the article from search results, but the company refused, claiming that the online publication was a reputable source and that the notice filed by Defteros’s lawyers contained “false” claims. Google’s appeal warned that holding it “liable as the publisher” for providing hyperlinks would force the company to “censor” search results.
Context – Applying Australian defamation laws to Internet platforms is very much in flux. Last year, the country’s High Court ruled that news media companies that post stories on Facebook are liable for defamatory comments left by users as if they were published Letters to the Editor. That decision led many media sites to shut down user comment boards and also led former Prime Minister Scott Morrison, a vocal Big Tech critic, to propose legislation imposing defamation liability on social media sites for comments made by anonymous users. That bill failed to clear the parliament before Morrison’s defeat in May. Google suffered a major liability setback in June when a federal judge sided with former politician John Barilaro who sued the company over defamatory videos posted on YouTube and won an award of over $500,000. That judge ruled that YouTube did not properly apply its moderation standards and that the video platform chose to keep the videos up to make more advertising revenue. In Europe, an advisor to the European Court of Justice is recommending that Google be required to fact check online content as part of the Right to be Forgotten, a duty the search giant says goes too far.
Norway’s Data Authority Wants to Fine Facebook for Transferring Data to the US
Report from Politico
In Brief – The Norwegian data protection authority is calling for Facebook to be fined for what it describes as “particularly serious” violations of the GDPR for continuing to transfer personal data of European users to the United States for processing even after the European Court of Justice (ECJ) ruled in Schrems II that the US-EU Privacy Shield was invalid. Facebook continued to engage in data transfers under Standard Contract Clauses (SCCs), which were not definitively prohibited under Schrems II, but the Irish Data Protection Commission (DPC) challenged that company decision. Norway’s Datatilsynet made its recommendations in response to the DPC circulating its proposed remedy in that action, which reportedly did not include a fine.
Context – The ECJ invalidated the bilateral US-EU Privacy Shield agreement in 2020 just like it overturned the US-EU Safe Harbor in 2015. While the ECJ did not directly rule that SCCs were also deficient, the court did raise serious questions, and the DPC took them on board in challenging Facebook on its continued practices. The key point is that despite Facebook’s name being on the two major ECJ cases, its corporate data practices are not at issue. The legal standoff is about American security, intelligence and anti-terrorism surveillance laws and practices. The US Congress is very unlikely to change laws intended to combat terrorism and criminal activities. EU political leaders, who keep reaching deals with the US in order to avoid major digital service shutdowns, don’t seem to want less robust security surveillance in Europe either. So, the negotiators are well on the way to a third bilateral agreement that will attempt the resolve the problem, likely through a quasi-judicial appeals process for EU citizens that leaders hope will pass muster with EU judges. Meta may soon have an operational solution to get out of the litigation cycle through the opening of a massive clean-energy data center in the Netherlands, its first in the EU, although anti-development activists stand in the way.