Archive – 2019

ECJ Rules That AirBNB is a Digital Platform Business, Not a Real Estate Business

Report from the BBC

In Brief – The European Court of Justice (ECJ) has ruled that AirBNB should be considered an ‘information society service’ rather than a real estate business. The French hotel industry lobby had brought the case arguing that AirBNB operates as a property rental firm and should be regulated as such under French law. In ruling that AirBNB was a digital platform rather than a real estate enterprise, the court opinion highlighted the fact that AirBNB’s platform was not simply an “ancillary” or add-on service to a wider property business, that the property owners who used the platform were also able to offer their homes for rent through other channels, and that AirBNB did not set or cap the rent charged by home-owners.

Context – This decision by the ECJ stands in contrast with the court’s Uber decision in 2017 that the service is appropriately considered a transport business. The court’s reasoning differentiating AirBNB’s platform from Uber’s platform points to how the degree of control exerted over users may prove to be the most important question in gig economy platform cases. The ECJ noted the case against AirBNB was unlike the one made against Uber, with Uber setting the fare for rides and assigning each passenger a specific driver, while AirBNB does not determine the rental price charged for property and lets customers choose which home to rent. In the United States, the legal implications of the level of control exerted by a platform is playing out in a price-fixing antitrust case brought against Uber that is currently in arbitration. Likewise, the three-question ABC Test to determine worker classification from the California Supreme Court’s Dynamex decision may hinge, case-by-case, on the level of control exerted by the platform for most digital platforms. Not only might fully setting prices for “independent” users itself be an antitrust violation, it is possible that courts will see price-setting as a significant indicator of “control”.

JFTC on Platform Data Policies and Superior Bargaining Position

Report from Reuters

In Brief – The Japan Fair Trade Commission (JFTC) has released new guidelines regarding how it views the possibility that a range of data policies imposed on users by the largest digital platforms could represent an anticompetitive abuse of a superior bargaining position under the Japan Anti-Monopoly Act. The JFTC has been engaged in a broad review of large digital platforms since the spring and the new guidelines regarding anticompetitive data policies are a key component of those efforts.  The JFTC summary of the guidelines are available here. New guidelines regarding the review of mergers and acquisitions by large digital platforms have also been released by the JFTC this week.

Context – Platform terms and conditions is a focus of digital competition reviews in Japan, the world’s fourth largest ecommerce market. The JFTC undertook a broad review of the seller terms and conditions of the country’s three largest ecommerce platforms, Amazon, Rakuten and Yahoo! Japan, in early 2019 based on the theory that they were exploiting an unfair bargaining position. Amazon settled with the JFTC by changing a number of seller requirements, including scrapping an MFN price provision that is causing regulatory concerns in many markets, as well as ending a program requiring sellers to cover the cost of an Amazon buyer rewards program. More recently, a group of small merchants that sell on the Rakuten marketplace asked the JFTC to investigate a proposed Rakuten “free shipping” program where the platform would offer buyers free shipping on all orders exceeding 3,980 yen ($36) but would require the sellers to pay for the actual shipping costs. It is reported that the JFTC has recently informed Rakuten that the shipping plan could violate the Anti-Monopoly Act and the company will be reconsidering the program.  Finally, the cabinet-level digital policy working group created by Prime Minister Abe in September is reported to be drafting legislation on fair platform terms and conditions to be submitted to the parliament in early 2020.

California Attorney General Says There Will Be No Delay on CCPA Starting January 1st

Report from Reuters

In Brief – The California Attorney General has announced that he does not intend to extend the effective date for the landmark California Consumer Privacy Act (CCPA) beyond January 1, 2020.  The draft regulations, which are currently the subject of a series of public hearings, outline how users will be able to request that data be deleted and opt out of having their information sold to a third party, require businesses to treat consumer choices made in privacy settings, such as through browsers, as valid opt-out requests, and govern the sale and transfer of data. The law applies to enterprises that engage in business in California and have $25 million in gross revenue, use personal information on 50,000 or more in-state consumers, or derive 50% or more of its revenues from selling consumers’ personal information. Larger firms, those that handle personal information for more than 4 million CA consumers, will be subject to additional requirements.

Context – Since its enactment, the CCPA has been seen as either catalyzing a federal privacy law or serving as a de facto national privacy policy. With the CCPA’s effective date just around the corner, talk continues on Capitol Hill regarding federal legislation, but hurdles stand in the way in 2020.  A number of states are moving on their own versions (here is a helpful chart of state action), creating concerns over a morass of differing laws, leading some to expect a legal challenge to the CCPA’s constitutionality based on interference with interstate commerce. A number of the largest digital businesses are releasing high level plans, including Microsoft, which plans to apply it’s CCPA compliance efforts to users nationwide, and Facebook, which is clarifying that it’s ad-based data practices are limited to their contractual terms. Finally, the author of the California ballot initiative that led to the CCPA being enacted in 2018 has announced plans to legislate through another major privacy initiative in 2020, releasing a draft and needing to gather 600,000 signatures by April of next year.

Disney Apologizes for Deceptive Frozen 2 Movie Influencer Project in Japan

Report from the New York Post

In Brief – Disney Japan has admitted to engaging in a social media influencer-based advertising campaign for the movie Frozen 2 that included the company, through its advertising partner, directing the social media influencers to not reveal that they were being paid to promote the movie. After initially not being clear about Disney’s role in the affair, the company acknowledged and apologized for their role in directing the online content creators to not report their financial links to the promotional campaign.  While Japan’s consumer laws bar false or misleading advertising, the country’s Consumer Affairs Agency has not issued specific guidance related to paid social media influencers, and it is reported that it is common in Japan for companies to pay influencers for social-media posts without disclosing the relationship.

Context – The rapidly evolving multi-billion dollar online influencer industry continues to challenge companies, users and regulators. The US Federal Trade Commission (FTC), who brought its first case against deceptive online influencers in 2017, recently provided comprehensive updated guidance to online influencers, advertising businesses and brands. This followed a recent FTC settlement with the cosmetics company Sunday Riley for intentionally misrepresenting online reviews which drew criticism for lacking meaningful penalties. Unlike Japan, where there are no official guidelines, the Advertising Standards Authority in the UK released comprehensive guidelines on the practice of paid influencers in 2018, and this report from the European Advertising Standards Alliance, a pan-European industry body, provides guidelines as well as a helpful summary on the country-by-country regulatory regime such as it exists.

Japan Fair Trade Commission Releases Digital Platform Merger Guidelines

Report from Reuters

In Brief – The Japan Fair Trade Commission (JFTC), the country’s competition authority, has released new guidelines regarding reviews of the merger and acquisition proposals of digital platform businesses, providing insight into JFTC thinking on the potential competition impacts of a range of data and platform policies of large digital businesses. The JFTC has been engaged in a broad review of large digital platforms since the spring and the acquisition guidelines are one product of that process. The merger guidelines do not require additional legislative action. The release from the JFTC, as well as links to the full guidelines, are available here.

Context – The JFTC’s update to digital platform acquisition guidelines should be considered in the context of the broader review of the regulation of large digital platforms in Japan, as well as the evolution of thinking on the acquisition practices of the largest digital platforms in major markets globally. Along with the new JFTC digital acquisition guidelines, Japanese Prime Minister Abe has established a cabinet-level working group that is drafting legislation on fair platform terms and conditions expected to be submitted to parliament in early 2020. The JFTC will also release further guidelines related to digital platform terms and practices as the exercising of a dominant market position. The proposed merger of Yahoo! Japan and the Naver-owned Line app business will provide a high-profile opportunity to see the new guidelines in practice. The Australian Government’s plan to pursue the policy recommendations of the Australia Competition and Consumer Commission’s Digital Platforms Inquiry includes support for the two merger policy proposals. In the UK, merger review changes are under active consideration and the Competition and Markets Authority is engaged in a review of the Amazon – Deliveroo transaction and the Google acquisition of Looker. In the U.S., the Department of Justice has announced a review of Google’s acquisition of FitBit, which is likely to draw scrutiny in a number of major markets globally.

California AB 5 Gig Labor Law Already Costing Freelancers Work Opportunities and Income

Report from the CNBC

In Brief – In an early sign of the impact of California’s AB 5 employment law, which takes effect Jan. 1, 2020, freelance writers are seeing their work opportunities and income falling. AB 5, legislation implementing the ABC Test for worker classification from the California Supreme Court’s Dynamex decision, was primarily described as a reaction to large “gig labor” ride sharing and delivery platforms, but the law is expected to impact a wide range of traditional independent, part-time and freelance work. While some categories of independent workers were given special exemptions, including architects, doctors, insurance agents and truck drivers, other independent workers were not. Freelance writers, a thriving creative community of people who often claim to prefer independent work, were addressed with a provision setting an employee threshold of 35 articles a year, a standard that many freelance writers describe as far too low.  Preparing for January, Vox Media is ending the use of 200 freelance writers for the California team coverage of its sports-based media site SB Nation, replacing them with a much smaller team of 20 employees.

Context – As additional states explore legislation modeled on California’s bill, the impact on independent workers outside the high-profile gig labor platforms is likely to gain attention. The New Jersey state legislature is moving forward on gig worker legislation with advocates hoping for final action before the legislative session ends on January 15, however concerns are being raised by a wide range of traditional small businesses and contractors, including freelancers, truck drivers, bakers, wedding photographers and musicians testifying against the bill. Next door in New York State the legislature is debating gig worker classification legislation and travel agents have mobilized to express concerns. Handy, the household help platform app, has proposed a threshold of 25 hours a week indicating an employee. In Europe, the gig worker standards legislation passed by the European Parliament in April institutes a much lower threshold of just three hours per week.

Net Neutrality Advocates Continue the Regulation – Litigation Cycle By Asking Fed Court to Rehear Case

Report from The Hill

In Brief – A group of net neutrality advocates led by Mozilla have filed a collection of petitions calling on the U.S. Court of Appeals for the DC Circuit to rehear the October decision of a three-judge panel of the same court upholding the Federal Communications Commission’s (FCC) repeal of the FCC’s Obama-era net neutrality rules. Mozilla, the original lead in the 2017 lawsuit against the FCC, said the October 2019 ruling conflicts with both a Supreme Court decision and a prior ruling from the D.C. court of Appeals, and that the judges misinterpreted legal precedent over the FCC’s regulatory powers. Along with the Mozilla-led petition, similar petitions were filed by a coalition of digital public policy interest groups, the National Hispanic Media Coalition, and the County of Santa Clara, California with the California Public Utilities Commission.

Context – The legislative, legal and regulatory net neutrality battles stretch back to the mid-2000’s. (Here is a solid history.) It is now marked by a partisan ideological divide with most Democrats supporting “strong” net neutrality and nearly all Republicans objecting to strict mandates, in particular on the key issue of “paid prioritization”. The most recent regulation – litigation cycle started with FCC rule-making in 2010 and 2015, each challenged by the telecommunications industry in court, with the 2010 rules falling and the FCC’s 2015 rules prevailing. In 2017, the FCC, led by the new Republican majority, overturned the 2015 rules, were challenged in court by net neutrality advocates, and prevailed this past October in the DC Court of Appeals. October reactions from Democratic and Republican policy leaders illustrate the ongoing policy disagreements. If the next President is a Democrat, expect the FCC to move back toward the 2015 policy. In addition, the October court decision appears to leave open the prospect of state-level net neutrality laws which will likely result in FCC and court challenges.

FTC Considers Pursuing Injunction to Block Facebook Plans on WhatsApp and Instagram

Report from the Washington Post

In Brief – Facebook may soon see their major business plan to fully integrate the operations of their three largest businesses – Facebook, Instagram and WhatsApp – challenged by the U.S. Federal Trade Commission (FTC). Last January, Mark Zuckerberg announced his intention to combine the underlying technical and communications infrastructure of the three businesses with a combined 2.6 billion users. The FTC is reported to be considering pursuing a federal court injunction to block the move, arguing that fully integrating the businesses could undermine antitrust reviews by making it functionally impossible to later separate the businesses units, a potentially striking remedy some advocate, and setting up a precedent-setting litigation battle.

Context – Facebook is deeply engaged on a wide and growing range of public policy fronts, with impacts potentially metastasizing across digital business models generally. On the antitrust front, the FTC is operating in parallel with separate investigations from the Department of Justice and a coalition of 47 State AGs. The Australian Government is moving forward on Digital Platform Inquiry recommendations with FB squarely targeted, Japan’s Fair Trade Commission and Prime Minister Abe’s digital platform working group are expected to release plans in 2020, and the German competition authority continues to target FB data practices. Encryption policy is tightly linked to the Facebook integration plan, extending WhatsApp end-to-end encryption to all communications, and stopping that plan appears to be a top priority of Attorney General Barr, while WhatsApp encryption is causing friction in markets including the UK, AustraliaIndia and Brazil. Add ongoing user content moderation challenges, including political advertising policies causing anger on all sides, plans for an “independent” global content moderation board that could operate like a policy appeals court, data portability, and new privacy laws, including Facebook’s plans regarding the new California privacy law, and it only scratches the surface.

Australia Releases Action Plan to Move Forward on ACCC Digital Platforms Inquiry Recommendations

Report from The Guardian

In Brief – The Government of Australia has released their plan of action following the two-year Digital Platforms Inquiry by the Australian Competition and Consumer Commission (ACCC), which resulted in a 600+ page report that included 23 policy recommendations for the Australian Parliament and Government. The government’s “Response and Implementation Roadmap” addresses 17 of the 23 recommendations. Headline plans include creating a new digital unit within the ACCC with a mandate to focus on online advertising and ad-tech services that determine how consumers are targeted through the use of data. The government is also calling on the largest digital platforms and domestic media businesses to work with the ACCC to develop a voluntary code of conduct to address bargaining power imbalances, including how advertising revenue is shared, how media content is accessed and presented, and develop a process for media businesses to be alerted to changes in algorithms that determine how content is ranked online. Finally, the government intends to enact legislation instituting higher penalties for breaches of the Australian Privacy Act in 2020, as well as open a new 18-month inquiry into whether more wide-ranging changes to the Privacy Act are required.

Context – The Digital Platforms Inquiry has been driven by Australian leaders who are willing to be aggressively critical of the tech giants. Australia’s traditional media industry has been a key champion of the regulatory campaign and the inclusion of a range of proposals to improve the business prospects of traditional media firms is a unique focus of the ACCC package compared to most digital competition reviews globally. Many of the priorities of the traditional media are included in the plan moving forward, and the push to create a voluntary regime to change the business and content relationships between media and the platforms continues that focus. And the release from Prime Minister Morrison states that if a voluntary regime agreeable to the digital giants and traditional media is not in place by November 2020 the Government will look to develop a mandatory regime.

YouTube Calls on FTC to Provide More Guidance to Worried Creators on COPPA Compliance

Report from TechCrunch

In Brief – As Google prepares its platform, and the immense community of video content creators, to deal with the changes required to bring the YouTube platform into compliance with the Child Online Privacy Protection Act (COPPA), the company has called on the Federal Trade Commission (FTC) to provide additional guidance to content creators and the company. Google’s blog post focused on two main topics – more clarity on the standards that will be used to determine content that is designed for kids to better enable content creators to accurately self-identify appropriate videos, as well as proposing some exemption when adults watch videos that are deemed to be designed for kids. Tens of millions of people post content on YouTube, and millions monetize videos to some degree, and many users are expressing concern over how new FTC and Google rules could harm their micro businesses and even open them up to civil penalties from the FTC.

Context – As YouTube developed into a platform of 1.9 billion users viewing a billion hours of videos a day, many viewers (and even content creators) were young people. (Click here for some striking figures on how many content creators have various subscriber levels.) YouTube was accused of not appropriately complying with COPPA, engaging in user tracking and targeted advertising on content it recognized as targeting children. In its August settlement with the FTC, Google admitted to practices that violated COPPA, agreed to pay a $170 million fine, the largest in COPPA history, and to change a range of data-related practices. On one hand, the settlement faced significant criticism from privacy advocates, including dissents from the FTC’s two Democratic Commissioners. On the other hand, a wide range of small content creators are concerned that the loss of advertising revenues, ability to be included in recommended videos, subscriber notifications and links to merchandise, will shut down their channels. With the dramatic changes in online video platform usage since COPPA was enacted in 2000, the FTC is undertaking a public consultation and Google encouraged content creators to submit views. At the same time, Sens. Ed Markey (D-MA) and Josh Hawley (R-MO) have sponsored legislation to tighten COPPA restrictions, including implementing new rules for 13-15 year-olds.

Indian Government Releases Draft of Comprehensive Privacy and Data Handling Law

Report from the New York Times

In Brief – India has proposed groundbreaking privacy and data handling rules to be enacted in 2020 as the nation’s first major data protection law.  The draft bill, dubbed the “Personal Data Protection Bill of 2019” and akin to Europe’s GDPR, includes limits on usage, collection, and processing of personal data, along with the setting up of an Indian data protection authority. The draft imposes special rules on large social media companies which are widely used in India and have been implicated in a number of public safety controversies. While companies will face a wide range of new obligations related to various classes and categories of sensitive personal data, and are expected to receive two-years to get into compliance once the law passes, the proposed rules also includes a unique provision requiring companies to hand over “non-personal” user data to the government when requested. Many Indian civil libertarians have expressed concerns that the draft empowers government agencies to collect any data of its citizens without consent if it is deemed to serve sovereignty and larger public interests.

Context – Data privacy is just one of a series of active digital public policy issues in India. The Indian Supreme is scheduled to hear arguments in January regarding the authority of the Indian Government to compel Facebook’s WhatsApp service, and other social media services, to share private, encrypted user data with law enforcement. The Court has requested that the Government finalize new digital intermediary guidelines, which were initially proposed in December 2018, by the court date. The national Government also proposed new ecommerce rules in early 2019, which included a range of proposed marketplace obligations, potential data localization mandates, and reiterated foreign direct investment limitations on ecommerce marketplaces if the platform also engaged in direct retailing, seen as a direct challenge to Amazon and Walmart who own Indian ecommerce marketplaces. The two retailers were recently targeted by organized protests from a powerful Indian shopkeepers union alleging they are each engaged in predatory pricing in violation of new rules meant to protect local businesses. Finally, the central government is moving forward on bids for a national facial recognition system that is expected to be linked into law enforcement authorities.

Attorney General Barr Using Section 230 Threats to Press on Encryption and Platform Speech Policies 

Report from the Washington Post

In Brief – In a pair of speeches in Washington, DC, U.S. Attorney General William Barr reiterated his views on a range of digital platform policy issues including competition policy, Section 230 of the Communications Decency Act, privacy, transparency, consumer fraud, child exploitation and public safety. While noting that the Department of Justice (DoJ) continues to investigate the largest digital platforms with antitrust concerns as a core focus, he again reiterated the message that direct federal action to address privacy, transparency or public safety could also come from the DoJ’s digital platform efforts. AG Barr also expressed the concern he often raises that platforms selectively moderate political speech in a manner that discriminates against conservative voices and that Sec. 230 liability standards enable that behavior.

Context – The top AG tech priorities appear to be law enforcement concerns with end-to-end encryption, in particular by Facebook, and discriminatory content moderation practices by all the largest platforms, as highlighted by the White House this summer. Threatening Sec. 230 appears to be a tool to get greater cooperation on both. On encryption, AG Barr joined the top UK and Australian law enforcement officials in a letter in October calling on Facebook to abandon their end-to-end encryption plans, and he told CEOs this week that end-to-end encrypted apps are being used by terrorists, drug cartels, and child porn and molestation rings, with law enforcement learning of horror stories about how people are dying or being molested and officers can’t access communications. However, Facebook is not publicly backing down, responding this week to the three governments that an encryption backdoor for law enforcement was inconsistent with user safety and privacy. The company is also engaged in high profile encryption-related litigation in major WhatsApp markets India and Brazil. On anti-conservative speech restrictions, AG Barr continues to press a claim made by a number of conservative activists that Sec. 230 is enabling discrimination. While platform speech moderation policies have led to criticism from progressives and conservatives, legislation sponsored by Sen. Josh Hawley (R-MO) that ties content moderation political neutrality to Sec. 230 still has no Senate cosponsors, and most progressive tech critics actually see platforms suffering from the opposite problem of being too lenient on what they see as abusive conservative outlets.

Democrats Announce They Will Support USMCA Trade Deal (with Sec. 230 Language Included)

Report from CNBC

In Brief – After three years of effort it looks like the US-Mexico-Canada Agreement (USMCA), the follow-on trade agreement to NAFTA, will be enacted, with Speaker of the House Nancy Pelosi announcing House Democrat support for the final deal, and the trade ministers for the three countries signing the final details in Mexico City.  NAFTA was harshly criticized by President Trump, in many cases putting him at odds with pro-trade business leaders, but there was broad agreement to update the nearly three decade-old pact, such as adding sections dealing with the digital economy and Internet, including rules on civil liability with respect to third-party content for Internet platforms that depend on interaction with users, modeled on Sec. 230 of the Communications Decency Act (CDA).  The Sec. 230-style provisions are part of the final deal despite recent concerns from Speaker Pelosi.

Context – With decades of friction between the Internet industry and the entertainment and telecommunications industries over U.S. platform liability laws, including CDA Sec. 230, and now rising anger over the content moderation policies of the largest platforms, calls emerged this year from the left and right to pull provisions supporting Sec. 230 from new U.S. trade deals. When Speaker Pelosi called for the provision to be dropped from the USMCA, she added her voice to the bipartisan leaders of the House Energy & Commerce Committee, conservative Sen. Ted Cruz (R-TX) and others. They argue that including Sec. 230-style language in trade deals could undermine efforts to amend the U.S. law, which many progressives believe protect platforms who do not police objectionable content enough, and conservatives argue from the opposite perspective that the law enables platforms to discriminate against conservative content. As a matter of law, trade agreement language consistent with existing federal law does not legally tie the hands of this or future Congresses to amend Sec. 230. Hence, this was primarily a political signal-sending exercise. It is worth noting that the same week that Sec. 230 was part of the final USMCA, the U.S.-Japan Digital Trade Agreement with a similar Sec. 230 civil liability provision was winning support in the Japanese parliament and will also soon go into effect.

UK Competition & Markets Authority Announces Challenge to Amazon Investment in Deliveroo

Report from CNBC

In Brief – The UK Competition and Markets Authority (CMA) has announced the results of its Phase 1 review of the Amazon investment in UK-based food delivery service Deliveroo, which determined that the merger raises serious competition concerns for UK customers, and will be referred for a phase 2 investigation unless the parties offer acceptable concessions to address these competition concerns. The deal was announced in May, drew attention from the CMA in late June, and the Phase 1 review was initiated in October.  Deliveroo is one of Europe’s fastest growing platform companies and uses 60,000 riders to deliver meals from more than 80,000 restaurants and “dark kitchens” in 13 countries.  The CMA reported that their initial review raises concern that the Amazon investment in Deliveroo may harm competition by keeping Amazon from re-entering the restaurant delivery business, as well as promote consolidation in the grocery delivery services market, where the two companies are market leaders.

Context – Increased scrutiny of acquisitions by the largest digital platforms has become a component of digital competition policy reviews and reform plans globally, including in the United StatesUKJapan, and Australia. Proposals include lowering acquisition value review thresholds, being more creative about risks related to adding to the data capabilities of the largest platforms, and taking a longer view on the potential impact on future competition when small platforms are snapped up. The UK’s Competition and Markets Authority (CMA) recently opened a review of Google’s $2.6 billion acquisition of the big data analytics firm Looker, which is seen as an investment to better compete with Amazon and Microsoft in cloud computing, and is similar to the recently announced Google plan to acquire FitBit, seen by many as designed to better compete with Apple on wearables and fitness services, and which is now reported to be under review from the United States Department of Justice. The proposed merger of Yahoo! Japan and the Naver-owned Line app business will raise similar issues in Japan and Korea in the coming year.

U.S. Proposes That OECD Pillar One Digital Tax Alternative Be A Safe Harbor

Report from Reuters

In Brief – After months of demands by the United States to reject country-by-country digital services taxes (DST) that its claims discriminate against the United States, and instead develop a broad multilateral corporate tax reform plan, the US Secretary of the Treasury notified the General Secretary of the Organization for Economic Cooperation and Development (OECD) that the US has serious concerns with the proposed OECD Pillar One tax proposal. The OECD Pillar One proposal has emerged as the leading plan to meet US concerns and avoid tit-for-tat trade and tax wars as the US imposed tariff penalties in response to DST plans. The proposal was endorsed by the G20 Finance Ministers at an October meeting in Washington, DC, and subject to public hearings in Paris. Despite consistent US opposition to digital-only taxes, it appears that the largest non-digital US companies have issues with new tax rules, and so the letter from the Treasury Secretary proposes making the new regime a “safe harbor”, which apparently means that each company could voluntarily choose to avail itself of the new regime in lieu of facing national DSTs. The response letter from the head of the OECD states that throughout the negotiating process nobody had ever mentioned a safe harbor and asked for a rapid explanation to keep the effort on the rails.

Context – New digital taxes have been especially popular in countries with large Internet-enabled consumer bases who are not home to the largest digital companies. France has been a DST leader, enacting a national digital tax in mid-2019, and a number of countries are following the French DST model. (See helpful summaries on national DST efforts in Europe and Asian markets.) TurkeyItaly and Austria were recently called out by the US Trade Representative for objectionable plans. While the apparent US about-face was quickly criticized by French officials, a complete lack of clarity might be driving concerns more than any substantive problem, because if it boils down to the new system only applying to Internet firms who “voluntarily” choose the new regime to avoid national DST taxes, that would seem consistent with the initial French goal of imposing new taxes on Internet firms.

Bernie Sanders Proposes Breaking Up Broadband Companies and Regulating Rates

Report from CNBC

In Brief – Top tier Democratic presidential candidate Bernie Sanders (I-VT) has released a sweeping proposal to expand publicly-financed high speed broadband investment, regulate high-speed Internet access rates in a utility model, and break up broadband companies by separating Internet access network services businesses from digital content, entertainment and services operations. The plan would create $150 billion in grants and aid for local and state governments to build publicly owned broadband networks as part of the Green New Deal infrastructure initiative. The Sanders proposal criticizes Comcast, ATT and Verizon directly, and each own major digital content businesses that a Sanders Administration would attempt to separate from their network infrastructure business.

Context – The Sanders public broadband investment, rate regulation, and corporate break-up plan is not the first tech industry observers have seen in recent weeks. As the UK national election rapidly approaches, it is worth noting that Labour Leader Jeremy Corbyn also made a major broadband-focused campaign pledge, proposing to have the government provide free, high-speed broadband, to all by nationalizing the broadband division of BT (formerly British Telecom), and taxing large Internet companies including Google, Facebook and Amazon. It has also been speculated that a Labour government might take control of the smaller UK broadband businesses. On this side of the Atlantic, the legislative, legal and regulatory battles over net neutrality and broadband policy stretch back to the mid-2000’s. (Here is a mid-length history.) The Federal Appeals Court of the District of Columbia recently issued a decision that largely upholds the Federal Communications Commission’s (FCC) partisan decision in 2017 to overturn the FCC net neutrality rules from 2015 which were also enacted by a partisan vote. There is a partisan and ideological divide with most Democrats supporting “strong” net neutrality and nearly all Republicans objecting to strict mandates, in particular on the key issue of “paid prioritization”. While the Sanders proposal is clearly sitting at the more extreme end of spectrum, if the next President is a Democrat, expect the FCC to take action that moves back toward the FCC’s 2015 policy.

New Jersey Gig Labor Classification Law Moving Forward Despite Small Business Concerns

Report from NJ.com

In Brief – The New Jersey state legislature is moving forward on major gig worker legislation, with the Senate Labor Committee passing legislation that was passed by the State Assembly in November. The legislative action, inspired in part by the enactment of AB 5 in California, follows a July report from NJ Governor Phil Murphy’s Task Force on Employee Misclassification, which detailed a wide range of claimed abuses of gig, platform and independent contractor business models. While advocates are hoping for final action before on the end of the current legislative session on January 15, 2020, concerns are being raised by a wide range of traditional small businesses and contractors that the legislation will overturn long-time small business models.

Context – New Jersey is stepping forward as the most aggressive jurisdiction picking up the gig worker regulation mantle as California moves toward the litigation phase after enactment of AB 5.  Last month, the NJ Department of Labor and Workforce Development determined that Uber drivers should have been classified as employees, and issued a request for the company to pay $530 million in back taxes for unemployment and disability insurance for 2014-2018, as well as $119 million in accrued interest. Next door in New York State the state legislature is debating gig worker classification legislation as well, and like in California and New Jersey, more traditional independent workers such as travel agents are expressing deep concerns with draft bills. In New York, household help app Handy has proposed using hours worked on a platform to determine employment status, with at least 25 hours a week indicating an employee. The appropriate regulatory and tax treatment of service providers who use digital platforms to connect with people looking to hire project-based help is a global. To give context to the hours-based proposal from Handy, the gig worker standards law passed by the European Parliament in April proposes a much lower threshold of just three hours per week.

NATO-Affiliated Researchers Detail Ease of Buying Fake Likes and Followers

Report from the New York Times

In Brief – Researchers from the Latvia-based NATO Centre of Excellence on Strategic Communications has released a report claiming that the buying of inauthentic likes, followers and other tools to expand reach and relevance on the major social media platforms, including Facebook, YouTube and Twitter, remains relatively simple and cheap, and that despite efforts to counter the fake activity, the platforms failed in most cases to take down the inauthentic support. The NATO-affiliated group was established in 2014 and focuses on strategic communication challenges to the Alliance’s political and military objectives. The group secretly paid 11 Russian and five European companies that sell fake social media engagement a total of approximately $330 and were able to generate over 3,500 comments, 25,000 likes, 20,000 views and 5,000 followers, for posts and accounts of high-profile European political leaders.

Context – While fake product reviews have been an unfortunate part of the Internet consumer experience for many years, and problems facing Amazon are gaining in prominence, the murky world of fake social media followers and influence efforts is a more recent phenomenon.  Earlier this fall, U.S. Federal Trade Commission reached a $2.5 million settlement with the owner and CEO of the now defunct firm Devumi, which made millions selling fake indicators of social media influence on platforms including Twitter, YouTube, Vine, LinkedIn, Pinterest and SoundCloud, and first faced sanction from the New York AG.  Along with some law enforcement activity, platforms such as TwitterFacebook and YouTube are engaged in their own efforts to combat the multinational fakes problem, although the report from the NATO Center of Excellence for Strategic Communications questions their effectiveness against various forms of fake accounts and bots climbing into the billions globally. There are also increasing calls questioning whether the underlying follower systems are creating unhealthy environments.

Speaker Pelosi Calls for Sec 230 Liability Policy to be Removed from USMCA Trade Deal

Report from CNBC

In Brief – In the latest flare-up of an ongoing debate over whether digital platform liability rules should be included in trade agreements involving the United States, Speaker of the House Nancy Pelosi (D-CA) has called for language modeled after Section 230 of the Communications Decency Act (CDA) to be removed from the U.S.-Mexico-Canada Trade Agreement (USMCA), the updated NAFTA trade pact, claiming that its inclusion threatens the ability of the USMCA implementing legislation to pass in the US House.

Context – There are two decades of history with trade agreements being a peripheral battleground between the U.S. Internet industry and long-time policy adversaries in the U.S. entertainment and telecommunications industries frustrated with U.S. Internet liability laws, CDA Section 230 and the notice-and-takedown regime of the Digital Millennium Copyright Act. As seen with repeated incidents resulting in strident criticism of the largest platforms, there is frustration from progressives (doctored Pelosi video or Facebook political ad policy) and conservatives (WH social media summit) often including threats to change Sec. 230. At the same time, the speech moderation concerns on the left and right come from different directions, with progressive believing that platforms do not moderate aggressively enough, while conservatives charge platforms with biased over-moderation. Regardless, some on both sides, likely spurred by the aforementioned industry competitors, have opposed trade agreements supporting the current U.S. liability rules, including from the bipartisan leaders of the House Energy & Commerce Committee, conservative Sen. Ted Cruz (R-TX) and now Speaker Pelosi. As a matter of law, inclusion of the provision in the USMCA does not legally tie the hands of this or future Congresses to amend Sec. 230, and the USMCA implementing bill itself does not change federal liability law. Instead, this is a political signal-sending exercise and, oddly, a battle over whether the other countries will have domestic laws more or less conducive to Internet platform models.

Indonesia Rolls Out New Rules Establishing Substantial Digital Presence for Tax Laws

Report from Reuters

In Brief – Indonesia has announced a regulation that will deem foreign companies engaged in significant digital business in the country to have the equivalent of a physical presence in the country, and requires those digital businesses to appoint a representative in the country and comply with all national tax laws, including corporate and VAT taxes, in the same manner as domestic businesses. Indonesia has the largest and fastest-growing Internet commerce market in Southeast Asia. The regulation, described as creating a “level playing field” for tax and regulatory purposes, considers the number of users, Internet traffic, and level of ecommerce transactions in determining whether an overseas digital business will be considered the same as an in-country enterprise. The policy is reported to be supported by the domestic Internet industry.

Context – Governments across Southeast Asia are moving forward to address concerns with digital platforms, both the more easily regulated local enterprises as well as the largest international platforms heavily used by their large and growing online populations. Along with this tax policy, Indonesia is discussing legislation to require social media platforms to much more aggressively police user content the government finds objectionable. Proposals to change the meaning of “permanent establishment” and the “nexus” standard needed for governments to tax companies has been a major component of the global debate over new tax rules for the digital economy, especially among developing countries. It has been a focus of India’s contribution to the global digital tax debate, is a key component of the OECD Pillar One proposal being debated to avoid new country-by-country digital services taxes, and was a key concept in the US Supreme Court’s South Dakota v. Wayfair decision that established new authority for US states to apply sales tax laws to Internet-enable businesses that do not have a physical presence in a state.

Union of Japanese Small Online Merchants Asks JFTC for Review of Rakuten Shipping Plan

Report from the Japan Times

In Brief – A group of small merchants that sell on the Rakuten ecommerce marketplace, one of the leading digital commerce platforms in Japan, are forming a union to bargain collectively with the marketplace on seller terms and conditions and are asking the Japan Fair Trade Commission (JFTC) to investigate Rakuten’s proposed “free shipping” policy as a violation of Japanese competition law. Rakuten has announced plans to offer buyers free shipping on orders exceeding 3,980 yen ($36) starting in mid-March next year, and has informed sellers that they would be required to pay for the actual shipping costs, causing many sellers to cry foul due to what they claim are already narrow retail margins.

Context – Platform terms and conditions, and the concern that large digital businesses are engaged in unfair treatment of small business users, is a focus of digital competition reviews in Japan, the world’s fourth largest ecommerce market.  A high-profile cabinet-level government working group created by Prime Minister Abe in September is reported to be drafting legislation on fair platform terms and conditions to be submitted to the parliament in early 2020. The JFTC undertook a broad review of the seller terms and conditions of the country’s three largest ecommerce platforms, Amazon, Rakuten and Yahoo! Japan, in early 2019 based on the theory that they were exploiting an unfair bargaining position in violation of Japan’s anti-monopoly law.  Amazon settled with the JFTC by changing a number of seller requirements, including scrapping the type of MFN price provision that is causing regulatory concerns in many markets, as well as ending a program requiring sellers to cover the cost of an Amazon buyer rewards program. The later might be a precedent if the JFTC takes up the review of the Rakuten shipping offer as requested by the new seller union. Concerns that small and medium-sized businesses face unfair terms on large digital platforms is also a top tier regulatory concern in Europe and the subject of so-called P2B legislation enacted by the European Parliament in April.

UK CMA Announces Review of Google’s Acquisition of Data Analytics Firm Looker

Report from the New York Post

In Brief – The UK’s Competition and Markets Authority (CMA) has opened a review of Google’s $2.6 billion acquisition of the big data analytics firm Looker which was announced in June, asking for input from the public by December 20 on whether the acquisition could lead to a “substantial lessening of competition” in the market.  When Google announced its intention to purchase Looker in June, the acquisition was seen as an investment in improving the Google cloud computing business in order to improve its competitive position in relation to cloud services market leaders Amazon and Microsoft. While the US Federal Trade Commission has approved the acquisition it is reported that the Department of Justice continues to review the deal.

Context – Increased scrutiny of acquisitions by the largest digital platforms has become a component of digital competition policy reviews and reform plans globally, including in the United StatesUKJapan, and Australia. Proposals include lowering acquisition value review thresholds, being more creative about risks related to adding to the data capabilities of the largest platforms, and taking a longer view on the potential impact on future competition when small platforms are snapped up.  For example, the UK Competition and Markets Authority (CMA) is engaged in a review of Amazon’s investment in food delivery service Deliveroo. While there is broad concern with the largest firms getting larger, increased competition between giant platforms is seen by some as an important force for greater efficiency and welfare gains. The Google acquisition of Looker, seen as an effort to better compete with Amazon and Microsoft, is similar to the recently announced Google plan to acquire FitBit, seen by many as designed to better compete with Apple on wearables and fitness services. The proposed merger of Yahoo! Japan and the Naver-owned Line app business will raise similar issues in Japan. Finally, Looker’s history as a tech firm still led by a founder (like FitBit) will raise questions about how acquisition limits could foreclose an important route to monetize entrepreneurial activity, undermining innovation and venture capital risk taking.

*** SPECIAL SENATE HEARING REPORT ***

Senate Commerce Committee Holds Major Hearing on Privacy Bills

In Brief – The Senate Commerce Committee, potentially the most important committee among many along the complex procedural route to a comprehensive federal data privacy law, held a hearing to gather feedback on possible components of a federal bill. Both the Chairman, Roger Wicker (R-MS), and Ranking Democratic Member, Maria Cantwell (D-WA), have introduced bills or substantive legislative outlines, and the committee leaders invited a panel of five privacy policy experts from corporate and public interest organizations that publicly support federal privacy legislation to comment on the proposals. Over the course of two-and-a-half hours, Senators asked the panel a series of largely yes-or-no questions on a range of potential bill components. The hearing video can be seen here.

The bills and many hearing questions reflected a meaningful level of bipartisan agreement on individual rights (access, correction, deletion, and portability, consent, and special treatment of sensitive categories of information), business obligations (minimization, use limitations, data security, and the responsibility to bind corporate partners to the same obligations), the role of the Federal Trade Commission (first-offense fining authority, rule-making and resources) and State AG enforcement authority. The fact that the witnesses all supported a new federal law added to the spirit of agreement.

Private Right of Action & State Preemption – As expected, the major substantive snags were state law preemption and whether private, class-action lawsuits, would be included as an enforcement tool. For those not keeping score at home, most Republicans and business groups want strong state preemption and oppose a private right of action, while many Democrats and strong privacy advocates are wary of state preemption and believe a private right of action is needed. These differences were clear from the panel and many Senators. Of note, a number of Republican Senators linked private lawsuits, small firm compliance costs, and the prospect that regulatory complexity could lock-in tech giant dominance.

Could “Privacy Law” Morph Into New Internet Law?  A number of Senators raised their pet digital legislative priorities, including “Filter Bubbles”“Dark Patterns”“COPPA II”, and concerns with IoT, facial recognition and discrimination through algorithms and AI. Unlike with core data privacy, where there was general agreement on the playing field of issues, many of these proposals delve into website and device design, or the permissible uses of data and technology, often in prescriptive ways. If these proposals are added to privacy legislation, and a number of Senators made it clear that they wanted to do that, it could ratchet up the scope and complexity, and likely undermine consensus, even if the hurdles of private lawsuits and state preemption are overcome.

Not a Day to Applaud the Internet and Smart Anything – Lastly, it’s worth noting that nobody, not one Senator or witness, ever voiced the opinion that many people actually value the many benefits and services that are the result of data-enabled business models and innovations. There were a few mentions of the value of “innovation”, especially by smaller businesses, and that some consumers and parents have different privacy expectations than others, but the idea that many people would not want to trade away modern services and devices was left unsaid. This was a hearing focused on the idea that people are scared and don’t understand that some trade-offs between data privacy and benefits are a good deal

U.S. – France Digital Services Tax Conflict Flares Up Threatening Tax and Tariff Battle

Report from the New York Times

In Brief – The United States Trade Representative has announced that the US Government may impose up to $2.4 billion in retaliatory tariffs of up to 100% against a range of French exports, including wines, cheeses and luxury products, as early as January 1st, in response to the 3% digital services tax (DST) enacted by France that the US Government claims is a discriminatory, anti-US trade barrier. France has been a leader in the effort to tax large digital services companies in a new way that is based on taxing revenues rather than profits and taxing based on the jurisdiction where consumers reside rather than based on the jurisdiction where the company engages in its business operations.

Context – The belief that large digital companies fundamentally upend traditional international corporate tax regimes is widely held, especially by countries with large Internet-enabled consumer bases who are not also home to the largest digital companies. France has been a DST leader, including driving a failed EU-wide DST effort in 2018 that was supported by many large European countries but blocked by a coalition of smaller EU countries who are home to a number of digital businesses. France responded by enacting a national digital tax in mid-2019 that would mostly impact US businesses. The Trump Administration responded with a tariff retaliation threat, supported by bipartisan congressional leaders, and called for a multilateral tax agreement extending beyond hard-to-define “Internet companies”. It seemed an uneasy truce was in place. The tax and trade fight now appears to be shifting from cold war to shooting war. A number of countries are following the French DST model (see helpful summaries on national DST efforts in Europe and Asian markets) and TurkeyItaly and Austria were specifically called out by the USTR. The OECD Pillar One tax proposal, endorsed by the G20 Finance Ministers in October and the subject of recent OECD hearings, was seen as a possible avenue to avoid a tax and tariff battle. However, keep an eye on emerging reports that the US Government and non-Internet U.S. businesses (take a look at the US Chamber’s review) are moving away from the OECD path and instead may try country-by-country tariffs threats to block DST taxes.

Singapore Begins Enforcing Landmark Fake News Law by Targeting Facebook

Story from the Washington Post

In Brief – For the first time, the Singapore Government has used its landmark “fake news” law to force what it claims are factual corrections of two Facebook posts.  Singapore’s Protection from Online Falsehoods and Manipulation Act (POFMA), which took effect in October, allows government ministers who deem information posted online to be false to order correction notices or removal of the material, if they believe that is in the public interest. The law defines public interest broadly—from maintaining security to maintaining confidence in government. In the first case, the government responded to a Facebook post from a domestic opposition politician who criticized the government for investing in a failing restaurant chain. The government drafted a lengthy rebuttal and ordered the poster to preface his post with the statement “This post contains false statements of fact. For the correct facts, click here.”  The Singapore-based Facebook user agreed to comply. In the second instance, the government contested a post from an Australian-based blogger containing accusations about the arrest of a supposed whistleblower and election rigging in Singapore. The blogger refused to comply with the order and Facebook therefore complied with a government order to notify readers of government concerns, posting – “Facebook is legally required to tell you that the Singapore government says this post has false information.”

Context – Singapore has been most out front in attempting to force social media platform users to correct what the government contends is misinformation, raising alarms over potential political censorship, other governments in the region are expressing similar interests. Indonesia is developing a regulatory proposal to compel social media platforms to proactively monitor and delete user content that the government deems objectionable and is expected to release a plan in 2020. Thailand’s Telecommunications Commissioner unveiled a proposal this summer for digital platforms to support the creation and operation of a series of “fake news centers” in countries across South East Asia where the major platforms would cooperate with national governments to address problematic online content.

Top Senate Commerce Committee Democrat Releases Privacy Bill

Report from CNBC

In Brief – Sen. Maria Cantwell (D-WA), the top Democrat on the Senate Commerce Committee, released the Consumer Online Privacy Rights Act (COPRA), her opening legislative proposal in the federal digital privacy debate. Some highlights of the lengthy bill include granting users the right to detailed information on the information companies hold and the right to ask for data to be deleted or corrected, enacting special policies for a range of sensitive data including biometrics and precise locations, limiting data collection to information reasonably needed for a service to function, and providing a new FTC-based enforcement regime. On the highest profile sticking points, the bill does not preempt state privacy laws and does provide for a private right of action. The bill includes added burdens for large enterprises holding data on 5 million or more users, and some exemptions for small businesses with revenues below $25 million and data on fewer than 100,000 users.

Context – Many analysts believed a range of factors, including the enactment of the California Consumer Privacy Act (going into effect January 1, 2020), the prospect of other state laws, and ongoing criticism of the digital giants from both sides of the political aisle, would lead to a bipartisan federal privacy law in 2019. That did not happen. However, recent weeks have seen senior Democratic policy leaders in the Senate and House releasing privacy proposals, including a “core principles” document from top Senate Committee leaders, a bill from top Internet policy thought-leader Sen. Ron Wyden (D-OR), and a bill from veteran Bay Area Californians Reps. Zoe Lofgren and Anna Eshoo. Talk of bipartisan cooperation continues and the Senate Commerce Committee is holding a privacy policy hearing on December 4th that will likely include some hopeful 2020 projections. But a range of meaningful hurdles stand in the way, including serious substantive policy disagreements (not limited to just “private right action” and “state preemption”), election year political and schedule challenges, and the prospect that digital privacy advocates believe that the 2020 elections, including a California state ballot initiative, will improve prospects for a much more restrictive federal bill in 2021.

Czech Republic Adds to National Digital Services Taxes Drive

Story from Bloomberg Tax

In Brief – The Czech Republic has joined the slow march of national governments creeping forward on Digital Services Taxes (DST) aimed at large, mostly US-based, tech companies, which the U.S. Government vigorously opposes as transparently discriminatory. The Czech Government has finalized a DST proposal that will be submitted to the Czech Parliament in early 2020. The legislation applies a 7% tax to in-country revenues of digital services businesses with a size threshold of 750 million Euros ($823 million) and approximately $4.3 million in sales in the Czech Republic. The global size threshold is similar to the OECD “Pillar One” proposal, the leading multilateral draft, as well as major national initiatives from France, Italy and the UK. However, the Czech 7% tax is meaningfully higher than those national proposals, but is in line with the recent legislation in Turkey.

Context – A Czech DST would add to the proliferation of national digital tax proposals and corresponding U.S. tariff retaliation threats. France’s DST, enacted in early 2019, kicked off U.S. tariff threats and was reportedly the subject of a 90-day bilateral cooling off deal that now appears to have expired, could mean DST-related trade penalties are coming. Other noteworthy national DST proposals include ItalyTurkeyCanada and Mexico.  Click links for helpful summaries of the national DST situation in Europe and a number of Asian markets. The U.S. business community and government are united in calling for multilateral corporate tax reform that goes beyond digital companies, and the OECD appears to be the leading venue for potential agreement. However, the OECD Pillar One proposal, which was the subject of public hearings in late November (deep dive meeting report here) is complicated and controversial, as clear from the US Chamber of Commerce’s review, and a recent report from France predicts that the U.S. Government will pull back from the OECD effort and threaten country-by-country trade retaliation to block DST taxes.