EU Commission Finds That X Has Violated the Digital Services Act

Report from EuroNews

In Brief – The European Commission has made a preliminary determination that X has failed to comply with several provisions of the Digital Services Act (DSA), the EU’s law to regulate content moderation and increase the transparency of digital platforms. The Commission’s findings involve DSA requirements on dark patterns, advertising, and providing necessary data access for researchers. Of note, the regulator considers X’s “Blue checkmark” for “verified accounts” to be a deceptive “dark pattern” by failing to correspond with industry practice because anyone can obtain “verified” status by paying for a subscription. The regulator also believes that the company fails to meet requirements to provide a searchable repository of advertisements and provide access to its public data to researchers. The initial Commission request for information from X regarding DSA compliance was made last October, just days after the Hamas attack on Israel. Besides the DSA transparency provisions that the Commission is citing in this preliminary determination, their formal investigation of X also challenged the platform’s compliance with DSA requirements more explicitly focused on content moderation, including countering the dissemination of illegal content and information manipulation. Those investigations continue.

Context – EU Commissioner Theirry Breton took to X last October at the start of this process and said, “we have indications of X/Twitter being used to disseminate illegal content & disinformation” related to Hamas’s attack on Israel. It’s noteworthy that the Commission’s initial findings stick to more technical sections of the law and the Commission’s questions that raise censorship concerns remain open. Nevertheless, X’s owner responded to the preliminary determination alleging that, “The European Commission offered X an illegal secret deal: if we quietly censored speech without telling anyone,” and that X would challenge the Commission findings in court. Breton responded, also on X, “Be our guest @elonmusk. There has never been — and will never be — any “secret deal”.”

German Court Applies Antitrust Law In Facebook Content Moderation Case

Report from Heise Online

In Brief – A non-profit association of film enthusiasts in Dusseldorf, Germany, has successfully circumvented jurisdictional limits on lawsuits targeting social media platforms for their content moderation decisions by challenging a Facebook decision to freeze the group’s page as an antitrust violation. The Düsseldorf Regional Court found that Meta had improperly exploited its dominant position in Germany when it blocked the film group’s page in December 2021 without prior notice or specific reason. The case stemmed from Facebook blocking the group’s page based on a determination by its content moderation algorithms that probably considered still photos from a documentary on indigenous peoples as violations of the rules against nudity. The group could not get its page unblocked and sued Meta in early 2023. Meta has their EU headquarters in Ireland and tried to force the claim to be dealt with there, but the Dusseldorf court ruled that it had “international jurisdiction” because the matter was an antitrust claim rather than a dispute over contractual terms. The film group argued that Facebook, the dominant social media platform in Germany, must protect its users’ fundamental rights, including giving prior notice and objective reasons for removing a page. Along with accepting jurisdiction based on the competition law claim, the court said that the EU’s Digital Services Act “requires a clear, specific and comprehensive justification” to block a user.

Context – Frustration with the legal and regulatory implications of so many large digital platforms setting up their EU headquarters in Ireland (and a lesser extent Luxembourg), led to the EU’s two major digital economy regulatory overhauls shifting primary enforcement authority to the European Commission for the largest digital platforms. The Digital Services Act regulates content moderation policies and the Digital Markets Act regulates the largest “gatekeepers” using competition law principles. Meta is regulated by Brussels for both. Although, if this ruling stands, content moderation could be a matter for country-by-country competition suits as well.

Microsoft Reaches Deal with EU Cloud Companies to Avert Antitrust Action

Report from Reuters

In Brief – Microsoft and the association of Cloud Infrastructure Services Providers in Europe (CISPE) have reached an agreement to resolve the concerns that many of the small and mid-size cloud services companies in Europe have with practices that the software giant uses to preference its Azure cloud services business with customers that use its highly popular business software. The deal will allow most CISPE members to offer Microsoft applications and services on Microsoft’s cloud infrastructures with the main preferential features and similar prices to Microsoft, compensates the members for losses over the last two years, and establishes an ongoing monitoring body. In exchange, CISPE has agreed to withdraw the antitrust complaint it lodged with the EU’s competition authority. The European Commission must still review the agreement and judge its impact on cloud services competition across the EU, and CISPE reserved the right to refile their complaint if the agreement is not fully implemented within nine months. Finally, the Microsoft concessions do not apply to the other largest cloud services providers, Amazon’s AWS (the largest in Europe and a CISPE member), Google, or Alibaba.

Context – Allegations that Microsoft leverages its dominant software packages, including Office 365 and Windows OS, to preference its other digital services, is a complaint that extends beyond Azure cloud services. The European Commission has recently found that Microsoft has engaged in anticompetitive conduct by bundling its Teams service into Office 365 nearly four years after Slack filed an antitrust complaint. German software company NextCloud accuses Microsoft of unfairly bundling its OneDrive cloud system into Windows. The EU’s Digital Markets Act (DMA) regulatory regime will likely impact some or all of these issues at some point. Microsoft is a DMA gatekeeper (as are Amazon and Google). Microsoft’s Windows OS and LinkedIn are currently designated as regulated core platforms. And while the DMA does apply to cloud services, none of the gatekeepers’ cloud businesses have so far been designated as regulated core platforms.

South African Sellers Complain About Amazon Using Algorithms to Set Price Floors

Report from MyBroadband

In Brief – Just months after Amazon opened its South Africa-based business, third-party sellers in the country are complaining that the ecommerce giant is imposing a price parity policy on them that penalizes their Amazon listings if they sell the product for a lower price on a competing marketplace, even when the costs on the other platform are lower. The sellers report that Amazon carries out this pricing policy by not placing a product into the key “Add to Backet” slot if the seller offers the product for a lower price elsewhere. A product will be able to gain the prime selling position if the seller raises the price on the other site up to their price on Amazon. This practice discourages sellers from taking advantage of promotions and discounts on competing platforms because those gains are offset by lost sales on Amazon. The South African Competition Commission released a report in 2023 directing domestic ecommerce platform Takealot to address several anticompetitive behaviors including removal of its own price parity clause from seller contracts.

Context – Amazon’s use of its Buy Box (“Add to Basket”) algorithm to enforce a “fair pricing policy” is a feature of several lawsuits in the United States. It is particularly relevant because the harm to consumers involves driving up prices, in this case on platforms other than Amazon, which is especially important in the context of US antitrust law. In addition, Amazon is the dominant online marketplace for small business retailers in the US, and its fee level for top sellers now averages over 50 percent, which exceeds fees on most other platforms. Several antitrust lawsuits alleging harm from fair pricing have survived Amazon’s motions to dismiss, including two class action suits in federal court in Washington State, and a lawsuit by the Attorney General of California in California state court. Amazon’s practices aimed at dissuading marketplace sellers from offering lower prices on competing platforms is also incorporated into the US Federal Trade Commission’s antitrust complaint scheduled for trial in October 2026.

Amazon Faces European Commission Questions Regarding DSA Compliance

Report from Reuters

In Brief – The European Commission has given Amazon until July 26 to provide more detailed information on its Digital Services Act (DSA) compliance, including the transparency of its recommender systems, digital ad repository, and its risk assessment report. In its announcement, the Commission noted that the European Court of Justice recently rejected Amazon’s request to be exempt from the obligation to make its advertisement repository publicly available while its legal challenge to its designation as a Very Large Online Platform (VLOP) is being decided, and therefore the company is required to comply with the full set of DSA obligations. An Amazon spokesperson said that the company, “shares the goal of the European Commission to create a safe, predictable and trusted shopping environment,” and “we think this is important for all participants in the retail industry.”

Context – Last July, Amazon filed a challenge in the EU General Court opposing Commission’s decision to designate it as a VLOP under the DSA, the EU’s law regulating online content moderation. VLOPs, which have more than 45 million monthly active users, are regulated directly by the European Commission and face stricter criteria for dealing with objectionable material, greater transparency requirements, and must submit regular risk assessments. Nineteen large digital platforms, including two search engines, were initially designated as VLOPs. Amazon argued that they should not be designated a VLOP because they are not the largest retailer in any country of the EU and that holding them to different standards than other retailers is unfair. On the other hand, the Commission argues that the DSA is very clear in its application to large marketplace platforms, and Amazon is the largest marketplace in Europe. In the initial court decision, the President of the General Court ruled that Amazon was required to comply with the DSA requirements related to its personalized recommendation systems but should be exempt from the requirement to publish an ad repository. The European High Court later ruled that Amazon was required to comply with all DSA obligations while its challenge worked its way through the courts.

Supreme Court Will Hear Challenge to Texas’s Online Porn Age Verification Law

Report from Jurist News

In Brief – The US Supreme Court has announced that it will hear an appeal to a lawsuit from an adult entertainment industry trade group challenging the constitutionality of a Texas law requiring pornography sites on the internet to use age verification technology and block users under age 18. After it was enacted last June, the law was challenged on 1st Amendment grounds and a federal district court judge ruled that it failed the strict scrutiny test for free speech cases. However, that decision was overturned by the 5th Circuit Federal Court of Appeals who chose to apply a far less stringent legal test, The case titled Free Speech Association v Paxton will be heard in the upcoming Supreme Court term, which runs from October 2024 through June 2025.

Context – Efforts to cordon off parts of the internet from teens are only gathering steam. Keeping teens off porn sites is obviously popular, but social media is the real target. A common state legislative tactic is to try to avoid strict legal scrutiny on free speech grounds by focusing regulations on “content neutral” app and website features, such as recommendation algorithms and auto-play, not classes of content. However, since the mandates are targeted by age, some manner of age verification is either required or strongly implied. The litigation queue is already filled with laws from states both red and blue, including Arkansas, Ohio, Utah, Texas, Florida, California, New York, and Maryland. Federal judges have generally not been sympathetic to the social media safety laws, blocking them from going into effect and raising concerns on 1st Amendment and privacy grounds. Online age verification implicates both concerns. The 5th Circuit decision backing the Texas law imposing an age verification requirement on internet porn sites was a rare US court success involving internet age-gating, but now it will face review by a High Court increasingly willing to take on internet policy issues. Outside the US, age verification mandates, especially for porn sites, are having more success, including in France, Great Britain, and Germany.

Federal Judge Dismisses Class Action Alleging Deceptive Amazon “Buy Box”

Report from Reuters

In Brief – US District Judge Marsha Pechman dismissed a class action lawsuit filed by two Amazon shoppers that alleged the company harmed them and millions of other consumers by deceptively placing higher-priced products in their “Buy Box” to sell more items that used Amazon’s Fulfillment by Amazon (FBA) and boost Amazon fees. The lawsuit claimed that the ecommerce and logistics giant’s practices violated Washington State’s Consumer Protection Act (CPA). Judge Pachman’s ruling determined that the plaintiffs did not satisfy two of the five elements needed to prove a violation of the CPA, failing to show any specific examples where they were harmed by purchasing higher-priced products from the Amazon Buy Box rather than an equivalent lower-priced offering, and in doing so failing to show that Amazon caused actual harm to the plaintiffs. The judge gave them 30 days to amend their complaint.

Context – Amazon is the largest ecommerce marketplace provider and the largest ecommerce fulfilment services provider. Unlike true marketplaces, Amazon directly handles the goods for most of their top marketplace sellers just like their own retail goods. Amazon uses the Prime program and the Buy Box algorithm to effectively direct most consumer purchases to goods that use FBA and bring in high fees. Company practices that preference products from sellers who use Amazon logistics, even when lower priced alternatives are available, have been under increasing legal and regulatory scrutiny. In the EU, Amazon agreed in mid-2022 to offer shoppers a second Buy Box with an alternative shipping option. The company also reached a settlement with the UK Competition and Markets Authority. In the US, Amazon has not made similar concessions and the practice is targeted in the FTC’s major antitrust complaint scheduled for a 2026 trial. A different consumer class action complaint alleging that Amazon violated federal antitrust law by pushing sellers to use its FBA logistics service was dismissed earlier this year because the alleged harms were to marketplace sellers not to the consumer plaintiffs.

Apple Accepts Epic Games’ App Store App for European iPhones

Report from TechCrunch

In Brief – Apple has approved Epic Games’ games marketplace app for iPhones and iPads in Europe after months of disagreement over the app’s design and threats by Epic to escalate the standoff to the European Commission’s Digital Markets Act (DMA) regulators. Apple had twice rejected the “Epic Games Store” app, claiming that the design of some buttons and labels were too similar to those in Apple’s App Store. Among the 18 competition-styled regulatory mandates imposed on so-called “gatekeepers” by the DMA is the requirement to allow third-party app stores to operate as long as they do not endanger the hardware or operating system of the digital giant’s platform. Apple is currently one of the seven companies designated as gatekeepers under the DMA. Apple had already approved Epic Games Fortnite app to be readmitted to the Apple App Store in Europe after being expelled for violating App Store rules as part of a campaign kicked off in 2020 by Epic Games to use legal and regulatory pressure to force Apple to reduce its app developer fees.

Context – The DMA directly threatens Apple’s core user proposition of a highly curated iPhone ecosystem that promotes user privacy, security, and a tightly controlled user experience. Apple is trying to set boundaries on DMA mandates against self-preferencing and requiring interoperability, and a high-profile confrontation with the European Commission enforcers seems very likely. The Commission has already made a preliminary determination that Apple’s DMA compliance plan for the App Store falls short by failing to allow app developers to freely steer consumers to alternative buying channels outside the Apple ecosystem to purchase content for lower prices with lower fees. The regulator also believes that the fees charged by Apple for off-Apple purchases are too high, and will be opening a DMA review of Apple’s proposal for a new per-download “Core Technology Fee” for large app developers who choose to avail themselves of lower fees on transactions carried out off the Apple system.

Nvidia Expected to Face Antitrust Charge Sheet in France

Report from Reuters

In Brief – Nvidia, which reported in recent months that it is facing antitrust scrutiny in a number of markets including the EU, France, UK, and China, is likely to soon face formal charges of anticompetitive conduct in France. The French antitrust regulator recently issued a report on competition and the market for generative artificial intelligence (GAI), which cited the risk of abuse by chip providers and expressed specific concerns with the unique role of Nvidia’s CUDA chip programming software, which has been central to advancements in GAI and operates best on Nvidia hardware. The initial investigation of Nvidia by the French authorities was linked to an investigation of the cloud services business and the Nvidia charge sheet is expected to include concerns regarding the AI giant’s investments in, and sales to, various cloud services providers.

Context – One mantra of tech regulation advocates is that governments should not make the “same mistakes” with AI that they made with social media, including having a more activist competition policy. In the US, the two federal antitrust agencies recently agreed to divide up lead authority on two big potential AI-related targets, with the Department of Justice (DoJ) taking Nvidia and the FTC looking into Microsoft’s relationship with OpenAI and other AI startups. The presumption that massive size is key to AI success is strong with many regulators, including the DoJ’s antitrust chief and the head of the German Competition Authority, but some experts see the largest GAI models hitting a point of diminishing returns and smaller specialized systems may prove more efficient. Besides the fact that some of the biggest AI leaps have come from startups such as OpenAI and Clearview AI. Do take note that the French officials are interested in Nvidia’s CUDA rather than just its GPU (Graphics Processing Unit) hardware. CUDA is a programming language with a massive community of AI developers that is operated by Nvidia and is tightly integrated with their processors. If they have a “moat”, this is it.

High Court’s Regulatory Rulings May Hamper Progressive Regulation Plans

Report from the Washington Post

In Brief – A series of Supreme Court rulings paring back the authority of federal agencies is likely to hamper efforts to regulate digital markets and tech business models absent federal legislation. The two decisions that overturned the legal principle called “Chevron deference”, a four-decade-long direction to federal judges to defer to executive branch agencies when they make rules and interpret laws, lowers the bar for legal challenges alleging that an agency has misapplied the law or exceeded its statutory authority. The Biden Administration has backed regulatory interventions to achieve progressive policy goals on several digital policy issues where Congress has failed to legislate, including data privacy, Gig-style work platforms, net neutrality, and artificial intelligence. The Court’s conservatives have also weakened the authority of agency-based administrative law judges, such as at the FTC, and resuscitated the “Major Questions Doctrine” that rejects agencies regulating on important topics absent direct statutory authority.

Context – The recent decisions that have pared back the authority of executive agencies have cut directly along the Court’s ideological fault line, just as many of the digital policy issues that are stalled in Congress and have progressives pressing for strong agency action are highly ideological. The FTC offers the clearest examples. Meta accuses the agency of trying to make policy on behavioral advertising and how social media serves teens, and Kochava argues that they are legislating on the use of mobile phone location data. Add in rulemaking on “unfair methods of competition”, “commercial surveillance”, Gig work, “all in pricing”, and merger reviews that appear more aligned with European regulators than US court rulings. But don’t expect the increased risk that regulatory actions will eventually be overturned in federal court to temper the agencies now. First, the new legal landscape doesn’t change the political dynamics. Plus, the prospect that a regulation will be trimmed or overturned in court actually makes it easier to privately explain to opponents that they shouldn’t get so upset by your regulatory plans.

House GOP Leaders Torpedo Committee Action on Bipartisan Privacy Bill

Report from the Washington Post

In Brief – Top House Republican leaders torpedoed the plans of the House Energy & Commerce Committee to mark-up federal data privacy legislation crafted by Cathy McMorris Rodgers (R-WA), who leads the House Committee, and Senator Maria Cantwell (D-WA), who leads the Senate Commerce Committee. The committee heads released draft legislation in April that some saw as a bipartisan breakthrough that could lead to a major data privacy bill being enacted this year. They claimed to resolve the top two issues of partisan disagreement that have stymied privacy bills in Congress, the ability to use consumer class action lawsuits to enforce the law, a priority for many Democrats that is rejected by most Republicans and business groups, and robust state law preemption, a priority of many Republicans that is rejected by many Democrats, especially from states like California with their own data privacy laws. Although McMorris Rodgers believed the compromises were acceptable, and the committee was expected to pass the bill, Speaker of the House Mike Johnson (R-LA) and Majority Leader Steve Scalise (R-LA) intervened to express their opposition to the committee’s Republicans, leading to action being cancelled. The prospects for the bill being resuscitated this year are not seen as good.

Context – Last Congress, a bipartisan data privacy bill earned the backing of three of the four primary committee leaders, including McMorris Rodgers, with only Senator Cantwell holding out, likely because the class action provision was not permissive enough. That bill died amidst complicated legislative crosscurrents in the House and Senate. This year’s deal included a big left shift on class actions, leading us to question how the business community would react. Consider this development an answer. Other big hurdles include the tight legislative calendar, very narrow House and Senate majorities, Republican and business antipathy for the current FTC leaders, and GOP reluctance to give President Biden a big win. Rather than wait for legislation, progressives are calling on the FTC to enact strong new federal privacy rules this fall.

Uber and Lyft Agree to Ridesharing Minimum Pay in Massachusetts

Report from the Wall Street Journal

In Brief – Uber and Lyft have reached an agreement with the Attorney General of Massachusetts to settle a long-running legal and political battle over the pay and benefits for ride-share drivers in the state. The settlement ends a lawsuit filed by the state in 2020 and allows the companies to continue to classify their drivers as independent contractors. The two platforms agree to pay drivers minimum earnings of $32.50 per active hour spent on a trip as well as some employee-type benefits, including paid sick leave based on the number of hours they spend on the job. The companies also will pay the state a combined total of $175 million to resolve allegations that they violated the state’s wage and hour laws in past years, with most of that money being distributed to drivers. The state sued Uber and Lyft in 2020 demanding that they classify their drivers as employees on the heels of California enacting AB 5 in 2019 to reclassify many independent workers, including rideshare drivers, as employees. However, in November 2020, California voters overturned AB 5 for ridesharing and delivery workers by strongly backing Prop. 22, which kept rideshare drivers as independent contractors but committed the platforms to minimum pay and benefits levels. The ridesharing companies then attempted to enact a similar ballot measure in Massachusetts, but the effort has been tied up in state courts since.

Context – In May, two years of contentious battles over ridesharing legislation in Minnesota was resolved with agreement to set a statewide minimum pay rate for drivers, allow the platforms to hire drivers as independent contractors, and guarantee some employment-type benefits. That deal was noteworthy because while Minnesota is a solidly blue state and Minneapolis-St. Paul are progressive bastions, ridesharing regulation, in particular setting pay floors, has been limited to very wealthy coastal cities of New York (2019) and Seattle (2022) and the states of California (2020) and Washington (2022). We said at the time to expect more city and state officials nationwide to explore similar deals.

European Commission Thinks Apple’s New App Store Plan Violates the DMA

Report from Bloomberg

In Brief – The European Commission has made a preliminary determination that Apple’s plan to bring its App Store rules into compliance with the Digital Markets Act (DMA) falls short. The competition regulator believes that Apple fails to allow app developers to freely steer consumers to alternative buying channels outside the Apple ecosystem to purchase content for lower prices with lower fees. The iPhone giant’s DMA compliance proposal provides three sets of terms to app developers, and the Commission says that none allow developers to provide off-Apple pricing information within their app, and the “link-out” process for a developer to take a user to a website to make a purchase is subject to problematic restrictions. The regulator also believes that the fees charged by Apple for off-Apple purchases are too high. Along with its preliminary anti-steering findings, the Commission has opened a DMA review of Apple’s proposal for a new per-download “Core Technology Fee” for large app developers.

Context – The DMA challenges Apple’s core user proposition more than the other “gatekeepers”. While most alleged anti-competitive practices of tech giants are non-transparent and hidden inside highly complex operations, a core value proposition of the highly popular iPhone has been its “walled garden” model that Apple argues promotes privacy, security, and a better user experience. Changing the iPhone ecosystem is likely to be more noticeable to users than changes to Google search or Meta ads. Apple is trying to set boundaries on DMA mandates against self-preferencing and requiring interoperability. The company’s app industry antagonists, who are pursuing similar changes to circumvent Apple fees in the US and elsewhere, cried foul as soon as Apple released its DMA plan. The Commission is backing the app developers, and the two sides are likely moving to a court showdown. In response to the EU regulatory environment Apple announced its new AI iPhone features will not be released in Europe, causing Commissioner Margrethe Vestager to claim that they must be anti-competitive plans.

Australia Considering Forcing Meta to Carry News (and Pay for It)

Report from the Guardian

In Brief – The prospect that Meta will walk away from news company payments by blocking news posts on their Australian sites has led to calls for “must carry” legislation requiring Facebook and Instagram to carry news, pay for it, and be banned from the country if they refuse. Although both Google and Meta threatened to block news-related services during the tense Australian legislative negotiations in 2021, the News Media Bargaining Code was enacted and both platform giants eventually negotiated media payments deals. However, Meta has since determined that news content is not that important to their platforms and said they will ban news content if local law requires that they pay media companies when third parties, including media companies themselves, post news on their platforms. Meta has not engaged in talks to extend their Australia media payment deals worth $70 million, shut down the Facebook News service in the country, and appear prepared to block news content like they have done in Canada. An AU Treasury assistant secretary has told a parliamentary inquiry that the government was considering “must carry” rules for Meta.

Context – Australia was a leader forcing Google and Meta to pay media companies when news content appeared on their platforms. Many jurisdictions have since considered similar legislation. Meta changed the dynamic last year when they banned news links in Canada rather than join their payments regime. The change has apparently had little negative impact on Meta’s platforms. The California legislature is considering similar legislation and Meta is saying they will implement a ban. Google has also tested a news ban in the state, but they pay in Canada and have never fully implemented a search ban. It is worth noting that with “must carry” rules for television, cable and other TV services, they are required to carry some broadcast signals, but they are not required to also then pay for them. When broadcasters want to be paid, there are “retransmission consent” rules that prohibit the video platforms from using the broadcast streams for free.

US Supreme Court Chooses Not to Disrupt Social Media Ecosystem for Now

Report from Platform Economy Insights

In Brief – The US Supreme Court handed down decisions on two major cases involving social media content moderation that neither undermine the legal basis for current practices nor definitively reject challenges to the status quo. Nine justices agreed to send challenges to laws enacted by Texas and Florida to regulate online content moderation back to lower courts for more thorough review. Six justices rejected a legal challenge to Biden Administration efforts to encourage social media platforms to restrict some content, ruling that the plaintiffs did not have a legal basis to bring the suit.

Regulating Content Moderation – (Report from the New York Times) The Texas and Florida laws were enacted in 2021 by Republican-dominated state governments arguing that the giant platforms engaged in ideological censorship of conservative voices. Opponents argue that the platforms are private businesses with 1st Amendment rights to engage in editorial control. The court unanimously chose to send the two laws back to lower courts to engage in more thorough reviews of the laws. Both laws remain paused by injunctions as they proceed. The unanimous ruling is clear on the point that social media platforms have free speech rights to engage in editorial practices, but five justices signed onto four concurring opinions.

Censorship-by-Proxy – (Report from the New York Times)  Another case based on Republican objections to allegedly biased content moderation, the plaintiffs claimed that Biden Administration officials pressured platforms to restrict certain speech, engaging in illegal government censorship-by-proxy. Six justices tossed out the suit from two Republican AGs and a handful of individuals, and the 5th Circuit ruling that sided with them, arguing that the plaintiffs did not have standing to sue. On the key question of when government efforts to influence platforms crosses the line from acceptable jawboning to censorship-by-proxy, the opinion says, “Because we do not reach the merits, we express no view as to whether the Fifth Circuit correctly articulated the standard for when the Government transforms private conduct into state action.”

Context – Both decisions are operationally similar to how the High Court dealt with Sec. 230 last year. In Gonzalez v. Google, plaintiffs argued that when platforms used algorithms to present content to users, they were no longer protected by Sec. 230 because the algorithmic presentation of content was distinct from the third-party content itself. The Court accepted that case, and many believed that a majority, led by Sec. 230 critics Thomas and Alito, were going to drastically narrow the law. Instead, they completely passed on ruling on that question, an indication that they would wait for a different case and different facts. It does now seem that Justices Thomas, Alito, and Gorsuch on the right, and Jackson on the left, are most willing to shake up the online status quo, while Roberts, Sotomayor, and Kavanaugh are most opposed, and Barrett has been very influential in pushing the Court to avoid major rulings when possible.

European Commission Tells Meta That “Pay or Consent” Plan Violates the DMA

Report from the Wall Street Journal

In Brief – The European Commission has made a preliminary determination that Meta’s “Pay or Consent” plan to offer users the binary option of Facebook and Instagram with targeted ads, or purchasing paid, ad-free versions, does not comply with the Digital Markets Act (DMA). Digital “gatekeepers” must obtain user consent for combining their personal data from “core platform services” with other company services, including its ad network. If users refuse to give consent to the use of personal data for ads, the regulator argues that a gatekeeper is required to offer them a free option that uses less-personal data for advertising but provides similar functionality as the version employing targeted ads, so in this case, a third option. Meta argues that offering users the choice between an ad-free version that they pay for, which, if refused, is consent for personalized advertising, is based on European Court of Justice rulings.

Context – Meta’s ad-free subscription versions Facebook and Instagram in Europe were a response to two regulatory threats. This Commission action is based on the DMA, however Meta has been dealing with legal challenges based on the EU’s privacy regime for years. Under the GDPR, they must have a valid legal basis to use customer data, and after years of legal battles Meta is basing their targeted advertising on the argument that it if a company offers users the choice between a free advertising-based service and a subscription-based service, those who do not choose to pay are consenting to ads on the platform. Privacy advocates object, and EU privacy authorities recently did as well. The Commission’s competition regulators are joining in and saying that while the DMA does not require Meta to offer its services for free, it does require the company, and presumably all giant platforms with ads, to offer versions that are free and employ far less-efficient, less-targeted, low-value  advertising. While neither EU law bans targeted advertising, if EU enforcers and eventually courts interpret the laws in that way, it will reverberate throughout the massive and complex digital ad ecosystem, including for publishers and advertisers.