Hello, and welcome to the Votes and Verdicts podcast hosted by Bloomberg Intelligence, Bloomberg LP's investment research platform. In this podcast series, we talk about the intersection of business policy and law.
My name is Matt Schuttenhelm.
I'm an analyst with Bloomberg Intelligence covering US litigation and policy in the TMT space. I'm joined today by my Bloomberg Intelligence colleague in London, Tamlin Basin, who covers tech litigation and policy in Europe. Today we're going to walk through some of the biggest issues around US and EU tech regulation with the goal of getting you up to speed on our latest thinking on the current state of play on all things tech. With one exception, we won't
be discussing antitrust in the tech space today. For that, look for a future podcast from our Bloomberg Intelligence colleague, Jennifer Reed.
Hi, Matt, I'm happy to be joining you today. It seems like the tech industry has been caught in the regulatory crosshairs of European regulators for a few years now, and in Europe at least, the tough rhetoric has been backed up by some fairly onerous regulations and it's starting to feel like the US may be starting to catch up, certainly catching up on the rhetoric side, at least. I
look forward to our discussion. I think we're going to have any to talk about, even without waiting into those competition issues that Jim will handle, right.
Yeah, So today, on the US side, we will walk through questions on data privacy regulation, section two thirty of the Communications Decency Act, a potential TikTok ban, and broadband regulation. And then on the E side, we will talk about GDPR enforcement, some new content moderation regulations, Europe's own response to TikTok, and the fair shared debate. So with that, let's let's dive right into the questions, and I'll start
with one for you, Tamlin. Years ago, we heard a lot about how GDPR was going to massively change how companies operated in Europe. Yet, at least from my perspective here in the US, it seems like it hasn't had that dramatic impact.
Can you talk us through what's what's going on there with GDPR? Yeah, sure, Matt.
And we're actually nearing the five year anniversary of GDPR first taking effect. That was in May eighteen when it first really began to take effect, and it's true that there hasn't been a sea change and how large platforms have operated in Europe during that time, I would say that there are some signs that its beginning to have an impact now. The threat of GDPR, which stands for
the General Data Protection Regulation, was always basically twofold. One was the direct financial liabilities and this is because GDPR allows refines up to four percent of a company's total annual revenue. The second, and arguably in the grand scope of things, the larger threat, was on whether there was going to be a significant change to how these platforms
collected and used personal data. Now, on the first threat and looking at sort of damages and fines, there has yet to be any one massive, multi billion dollar penalty issued against the platforms. However, in twenty two alone, Ireland's Data Protection Commissioner, which has jurisdiction over most of the big platforms, issued a total of five decisions against Meta for an aggregate of over one billion euros and financial penalties.
The highest of these was a four hundred and five million euro penalty find based on how Instagram was collecting and processing data on children in January it announced a total of three hundred and ninety million euros and fines for how the platform's Facebook and Instagram were allowed to change their terms of service in order to gain a legal basis for the collection and use of personal data
now here the Irish Commisioner. The Irish Commissioner ultimately said that they couldn't sort of bake the terms bank consent into their terms of service. But this is where we're sort of going to detour. The reason that GDPR is sort of slow moving is because it was designed to get consensus from all of Europe's data regulators and the way to do that is again, Ireland is sort of
the regulator of primary authority. But when Ireland wants to issue you a financial penalty or say a platform does or does not violate GDPR, and when it's a large platform that sort of works across all countries in the EU, it has to publish a sort of draft opinion and get the essentially work towards towards consensus with the regulators and the other countries. So going back to this terms of service, Ireland's data regulator initially said that Facebook and
Instagram could do this. However, then when it sent that draft opinion to other regulators, there was objections. Ultimately it went to the European Data Protection Board. There was designed to sort of resolve differences among regulators. Now the Data Protection Board sided with someone's other regulators and said that
these terms of service could not be changed. So what that means is Iron's diary regulator then had this fine opinion, wasn't one that it initially agreed with, but one that it had to enforce on Facebook, and it said that it could not change those terms of service. That decision is ultimately going to be appealed up to Europe's top court,
and that is going to take a few years. But that takes a lot of time, which is makes a lot of sense because GDPR was a massive new legislative development and it's going to take its time to work through the courts. It's still early days for GDPR, and I think it's going to take some time to develop and find out where the boundaries of those data collections are.
And I think that actually brings it back to you, Matt, because because again GDPR began about eight nine years ago when discussions initially began, but it seems like data previously legislation at least in the last few congresses, has really picked up for a few years now, and it seems like there might be some momentum to actually getting something done. Can you tell us how that stands?
Yeah, yeah, Camlin, it's been on the US side. I think you're right.
You know, it's definitely lagging behind and trying to catch up to what Europe moved ahead with first.
But you know, it's remarkable.
You know, twenty years ago there was this bipartisan consensus that that the Internet works best with with with the regulators staying out of the way. Now that's that's basically completely reversed, and everyone agrees there needs to be regulation of these businesses. The problem is that no one's been able to reach a consensus on how to do it here.
Here in the US.
But you're right, there has been progress for the first time, and I think it's useful to step back and go to what you were talking about, how how this can impact the business model. You know, you know, Google and Facebook make hundreds of billions of dollars a year using data for advertising. And what we're talking about here is is legislation or regulation that goes directly to imposing limits on how they can use that data, and that can
be really impactful for these businesses. You look at, for example, what Apple did with its change in app tracking, and Facebook alone said it's change in the ability to track data across different apps using Apple's products cost Meta ten million dollars last year. We're potentially talking about more significant changes in limits on how data is used, and so it can have a really meaningful impact on these companies depending on how this legislation takes shape. So far in Congress,
nothing has really gotten close to the finish line. But we did, as we said, get closer than ever. I think last term in Congress, when the House of Representatives passed a law that made it out of the House Committee.
Now it ran into trouble because some in the Senate didn't think it went far enough, it didn't regulate aggressively enough, and some in California, which has adopted its own law, we're concerned that this federal law would trump the state's ability to do more in terms of regulation and so and now we have a Congress that is more divided than it was last year, with Republicans controlling the House of Representatives and Democrats still controlling the Senate and the Presidency.
I think that makes it tougher for Congress to get anything over the finish line. Given the difficulty of these issues and how they're sometimes politicized. What I think is really worth watching for investors in the near term, though, is the Federal Trade Commission is trying to move ahead with its own rules. It says, Okay, Congress, you're not
going to do this. We'll move ahead. We have the power to make rules defining what is an unfair or deceptive practice, and we're going to have We're going to go ahead and tackle what what FTC chair Lena Khan has called the surveillance advertising business market and tackle it with regulations. And while I think that's going to take some time, the FTC rulemaking process is extremely slow and it's rarely been used before, and I think it's likely
to run into legal problems. If they go aggressive with these new rules, as I think they will, I think it still matters.
For these companies for this reason.
I think even if the whole effort fails in court, I think those new rules end up shaping the debate about what it is to regulate in an aggressive or strong way, and So what now might be perceived as strong regulation could change after the FTC moves ahead with its proposals, and that could be a meaningful impact for these companies.
So what I'm telling clients now is to keep an.
Eye on the advance of that FTC rulemaking because it could be significant.
And that's really interesting, Matt to see how that's developed over the years. Talking about how you know things potentially failing in court, I want to bring your attention to sort of the liability shield for Internet companies. This is I think Section two thirty and I believe there was a Supreme Court challenge to Section two thirty just a few weeks ago, and you actually, I believe went to the oral arguments. Can you tell tell us how those arguments shaped out and what's going on there?
Yeah. Sure.
So that's a big deal because we again for the you know, since since nineteen ninety six here in the US, we've had this this protection in federal law that says that anytime something bad in the real world happens that's linked to the Internet, you can't sue the platform for that.
You can you can sue the.
The poster of that content, but not the platform that hosts it. That's why Section two thirty is very important. Plus, it says that the platforms have the ability to restrict content if they're acting in good faith, they can go clean up their sites and remove speech without facing liability
for that. And we've had again, the courts have adopted a very broad reading of that liability protection over the last twenty years, and so most cases against Internet platforms tied to content posted by others, those cases get tossed out very quickly with a motion to dismiss in court. The companies don't face costly discovery, and so that's been
the status quo for a long time. But there's increasingly been a lot of noise on both sides of the political aisle suggesting maybe we need to change that liability shield, and Congress has tried to do it, not really gotten very far with serious efforts. But yes, the Supreme Court sort of out of nowhere. There was no split in the courts, which is usually why the Court steps in. It took this case about Google, and that was surprising
in itself. Why would the Court take a case about a statute that the courts aren't even divided about how they read how they read it, and so that suggested real risk. And the idea here pushed by the Biden administration in the court case was that, Okay, maybe Google and Facebook and these other platforms shouldn't be responsible for content posted by third parties. That's what the liability shield does.
But if they recommend that content, and then they're taking an affirmative act and they should be liable potentially at least shouldn't be shielded by Section two thirty when they take that affirmative step. And so that's what this case was about. That was argued in February, and we went into it with real concerns that the platforms could see
significant disruption. But what came out of the argument was then a little bit surprising because despite the Supreme Court sort of surprisingly taking this case, the justices didn't really seem.
Too anxious to make major changes in Section two thirty.
There was a real concern about disrupting how the Internet operates because the meta Google, their whole system is built on using algorithms to organize content and recommend content. And the justices, I think we're worried that if the companies face liability for that one, you're going to see it just the court's flooded with lawsuits against these companies and I think it could mean hundreds of millions of dollars of new litigation expense for the companies, and the court
was concerned about that. But more than that, the court was concerned that, you know, they might break the Internet, and that these are nine judges that don't know very much about how this stuff actually works. I think they're a little bit wary about what they're stepping into there. So what looked like a significant threat I think might not turn out to be. I expect we'll see a decision in the second quarter of this year on that. And with that, let me let me toss it back
to you, Tamlin. So, Europe recently adopted two new sets of rules that were again aimed at the tech industry, the d m A and the DSA. Can you tell us what those are about?
Yeah, absolutely, Matt. So I'm gonna focus mostly on the Digital Services Act or the DSA. And this sort of builds off what you were just talking about because we can sort of think of this as the counterpart to Section thirty two thirty, although it's a much updated counterpart as it just took effect this year, and actually, in fact companies still have a few months until they must
fully comply. However, light two thirty Section two thirty there is protection for the platforms against liability for the post name of third party content, which is a huge thing because, as you said, so many people are saying roll this back, and you really risk some unintended consequences for the Internet. However, the updated law treats platforms differently based on bizarre or we'll say delightful acronym v LOOP, which stands for a
very large, large online platform. Now, for these platforms, there are going to be heightened obligations relating to transparency for how content moderation policies are made and how these policies are carried out. Now, this is an update to the former law which was called the e Commerce Directive, and unlike the e Commerce Directive, under the DSA, there are significant penalties in the wings if very large, very large
platforms run a fowel of these moderation rules. This is even more than GDPR because it's up to six percent of total global revenue. So there's definitely some degree of added risk here for the platforms. I think it's going to take time to find out how strict these rules
are being applied. I'll just say anecdotally, so far, the one firm that is getting the most attention under the DSA is Twitter, and the reason is because regulators have been very interested in how all of the layoffs and how all of the volatility within that company is impacting its ability to monitor against illegal or harm content, which was one of the motivating factors for sort of updating the DSA. Turning over the DNA, which stands for the
Digital Markets Act. Now, this primarily targets what it calls gatekeeper platforms, and it's going to harness those platforms with a wrap of obligations intended to allow new players to entermarkets. It goes into effect later this year. It's definitely something to keep an eye on. But this is is primarily a competition based law, so we're gonna leave it there
for now. I do, however, Matt, want to turn it to your favorite app, TikTok, And there's a lot of noise I think on both sides of the Atlantic about potential risks that TikTok poses and whether or not TikTok should be banned. So can you tell us what's the likelihood of TikTok being removed from everybody's stone in the US.
Yeah, that's a great question, Tamlin and I and this is really I think, you know, great news for companies like like Meta and Alphabet, which have faced so much scrutiny over the past couple of years here here in DC, to finally shift the focus to to someone else in itself.
Is is a good thing?
Is it going to be stripped off of your phone in the US? I'm I'm pretty skeptical that that's going to play out, But but you're absolutely right that this is this is a growing movement I think where and you're you're seeing bipartisan interests in in upping the pressure on on TikTok. You right now, you have the Biden administration going through what's known as it's scipious process uh TO to review TikTok for national security reasons. At the same time, you have states moving ahead with bans on
use of the app for government employees. You saw the federal government do that and and ban use for federal government employees, and and you see Republican House members advancing bills last week, you saw in the Senate Mark Warner, a leading Democrat, advance a bill that would give the Biden administration new power outside of the scipious process to step in and mitigate or prohibit security threats, and TikTok could potentially be on the list of things that that
the Biden administration could use for that new power. Now, there is momentum for these things that's different though than I think, suggesting that this is likely to lead to a band that makes you know, Facebook and Google see a competitor disappear here in the United States.
And I said that for two reasons.
One, TikTok is extremely popular here, and there is potential political risk I think for this administration if it were to move ahead and take that, you know.
Most extreme step for.
People, unless you know, maybe you and I are a little more engaged in this than a lot of America's younger voters, and I think there could be a concern that their reaction to this might not be a great thing for the next presidential election. I think that's a concern for the administration if it were to go to that most extreme step.
Number Two, there's a First Amendment problem here.
The Trump administration tried to move ahead with a TikTok band and it ran into trouble in court for two reasons. One, the statute didn't let it do what it wanted to do, but also the First Amendment. Now, Congress can fix the statute part and remove that as a legal problem, but Congress can't change the Constitution, and the First Amendment is
still going to be a problem. And basically courts are going to say, Okay, maybe you have an important interest in going after TikTok here, but are you tailoring your response appropriately or are you blocking more.
Speech than is necessary?
And that effectively is going to make the Biden administration use a total ban as sort of a last resource. It's going to have to pursue other alternatives first, and I think that's where we're more likely to land. Is some sort of divestiture or other measures too to reduce
China's potential influence over TikTok. But I think it's unlikely that that they'll go to a total band, that that that is a major gain for for the competitors, for Google, for Facebook, and just to see this this competitor fall away in the US, that seems unlikely.
What about what about in Europe? What are you seeing on on on the TikTok side there.
Yeah, so it's actually a bit similar to what you were describing in the US. So we have seen some moves to ban the apps from the phones for staff of the European Parliament, some moves like that. TikTok is trying to peers in Europe. It's sort of proactively taken measures to update and enhance its privacy and data security practices, trying to sort of mute a lot of the criticism criticism it's facing. So it's still early days here, but
TikTok is definitely facing some headwinds. I like you, I'm a bit skeptical that there's going to be a total ban in Europe. On the popularity that you mentioned as a counterweight to a potential ban, it is one reason that's also relevant here. On the flip side, though, I'll note that there's a bit of a corollary in Europe that might not necessarily be present in the US, and
that's what happened a few years ago with regards to Huawei. Now, in terms of positioning and network infrastructure, the Chinese firm didn't have all that much of a foothold in the US, but it's kit had been heavily leveraged to build four
G networks in Europe. However, pressure and a lot of it that came from the US government on the inclusion of Huawei and five G network builds caused a lot of European carriers to sort of turn against it and in some place rip out the existing Huawei infrastructure and replace it. The beneficiaries of that have primarily been Nokia and ericson, So so there, you know, there things can happen, and its potential that that the push to ban TikTok
could accelerate. That said, I think there are a few reasons to think that a popular customer facing app like TikTok would be treated differently than Huawei was, which, at least with respect to network build outs, Huawei was fairly far removed from the public's awareness. It's will definitely have to wait and see how it's developing, because it does definitely seems like every week there's a little bit more momentum and people are talking about a potential ban a
little bit more. But right now I'm a bit dubious that it goes that way. I'm gonna I'm gonna one final question, Matt, and this this is one of your favorite topics going back quite a few years, and it's net neutrality. Seems like we've been talking about net neutrality for a decade, maybe longer, but in the last few years, I haven't seen on that much about it. Is Is there a chance that Biden's FCC might revive some of those rules.
Yeah, there's there's a chance.
I mean, that's sort of the remarkable thing is is what a hot topic net neutrality was here in DC for so long, and now how so much of the focus has shifted from the platforms that deliver you the Internet, the wires and the wireless delivery of that. We're talking you know, your your internet service provider, Comcast, AT and T, Verizon,
T Mobile. It's now shifted so much to what we've We've spent most of this call on the the actual Internet platforms themselves, Meta and Facebook and Google and and so net neutrality has really been by it for a couple of years now, since the Trump administration tore down the rules that the Obama administration had had put in place. There is very little broadband regulation in federal law right now.
Some states are moving ahead and though the FCC under Biden, I think, would like to move ahead with restoring aggressive broadband regulation. It's had trouble getting anything off the ground, and one of the reasons for that is that the FCC is still.
Stuck in a dead block.
There are two Democrat commissioners and two Republican commissioners, and President Biden has been unable to get the Senate to confirm a third Democrat, and he's just about to start over in that process to nominate a new candidate. That in itself is likely going to drag for months. And so even if the FCC wanted to start on something controversial like this, it doesn't have the votes until it
gets that that fifth member. Then even when that can get started, it takes a long time to get through the regulatory process.
And the courts are are pretty.
Aggressive lately in terms of limiting agency's power to adopt major rules. And and what I'm referring to here is is the major Question doctrine the Supreme Court announced last year. I think you're going to see that new doctrine used against the FCC if it moves ahead with aggressive broadband regulation.
So there are there are substantial hurdles facing broadband regulation here in the US, and so I think the the internet service providers should should feel pretty good in the near term that that they shouldn't see major disruption on the regular tory side anytime soon. How About in Europe there seems to be some sort of net neutrality like arguments brewing there.
Can can you walk us through that? Yeah?
Absolutely, and yeah this is very recent In fact, in February, the European Commission launched a twelve week consultation on, among other things, whether all stakeholders are contributing a fair share to making sure networks are really sufficiently equipped to meet these really bold connectivity and broad band goals that the
EU has put in place. It really In short, the question is whether services like TikTok, Netflix, YouTube and potentially Meta, whether they should be forking over more funds to reduce the capital intensive burden on telecom carriers as they build out these five G networks. Now, unsurprisingly the idea was welcomed by some of those telecom carriers, and there's pretty
serious opposite from the tech terms. I'll note that my colleague Matthew Bloxham is going to go to in the greater detail at a during a webinar later this month, which is actually going to have stakeholders from both the sort of big tech content side as well as the carrier side. So I strongly encourage listeners to check that out to get a deeper understanding of how this argument
is beginning to shape up in Europe. So it's definitely another one to watch for, and I think over the summer we're going to see a lot of lobbying by votes or the platform side and the carrier side to really try to shape how this consultation goes. And now, Matt, I think that wraps up what we have time for today. As a reminder, you can find Bloomberg Intelligent Research Intelligence research on all of the topics that we've discussed today and on many more on the Bloomberg terminal by typing
big bi for Bloomberg Intelligence. Thanks a lot for joining me, and let's definitely try to reconnect in a few months to see what else is growing across the tech regulation landscape.
Sounds good, Thanks dam Ling.