Tech Pick of the Week
Is it unconstitutional to allow Texas law prohibiting platforms to moderate content to take effect?
… The new Texan law in question is called Texas House Bill 20, or H.B.20 for short, and it prohibits social media companies from moderating content on the grounds of “the viewpoint of the user or another person”. It was implemented last year. As I understand it, it means that platforms – such as Twitter- can’t moderate content because of what the user says, or how the user says it. It also mandates disclosure to the public as to how any content moderation is being undertaken by large tech practices, together with the explanation of available remedies. The philosophy does not seem to be that apart from Elon Musk’s.
NetChoice, a trade association of businesses (eg. TikTok, Google, Twitter, Facebook etc) and Computer Communications Industry Association (members include Amazon, Apple, BT, Cloudflare, Deliveroo, Dish, Google, Facebook, Uber, Twitter etc) who share the goal of promoting free speech sued Texas because the law forces businesses to carry objectionable speech (eg. hate or extremist speech speech, discriminatory content, health (eg. Covid) disinformation, foreign propaganda, pornography). The District Court ordered an injunction preventing H.B.20 from taking effect, stating that the law violated the First Amendment (freedom of speech) by preventing companies from exercising “editorial discretion over…platform’s content”. The law also conflicts with section 230 of the Communications Decency Act which enables social media platforms to take down content which they in good faith find objectionable. Texas appealed, arguing that the law protects free speech. The Fifth Circuit (generally perceived to be very conservative) overturned this. Similar law is in place in Florida, but there is an injunction in place, owing to NetChoice suit there. The Plaintiffs have now filed an emergency appeal to the Supreme Court to get this decision overturned. Not only will platforms be forced to carry objectionable speech, they are concerned that advertisers will withdraw support. NetChoice said that the “shocking decision to greenlight an unconstitutional law—without explanation—demanded the extraordinary response of seeking emergency Supreme Court intervention”.
BigTech / Data / Platforms
US and EU come closer to combat anticipated worsening chip shortages, labour enforcement and food supply crisis
… US Department of Commerce have set up an early warning system for the US to get ahead of disruptions that may arise in relation to chip supply chain. This has been fruitful and so the US is extending the scope to the EU. Both blocs are working to increase chip supply and the regions want to ensure that those efforts do not lead to tensions in trade between them. The move is reported to have been spurred by the Russian invasion into Ukraine. The second Trade and Technology Council meeting is taking place now.
US Federal Trade Commission (FTC) to consider tighter rules on collecting and using children’s data.
…Current rule requires services directed to children to give notice and obtain consent of parents before collecting, using or disclosing childrens’ personal information. FTC considers more may need to be done such as:
limiting period of data retention, and only for long as necessary
sufficient security requirements to preserve confidentiality
consideration of whether data needs to be, or should be allowed to be collected
transparency around the collection and usage of childrens’ data
These are similar to EU rules, such as GDPR.
EU Commission proposes new rules to prevent dissemination of Child Sexual Abuse Materials (CSAM)
…The new proposed rules will mean tech companies will have further obligation to do the following, with the EU Centre facilitating:
- Risk assessments and propose mitigation measures
- This may include the detection of CSAMs which are unknown (eg. by using AI)
- Courts can render “Detection Orders” to get platforms to detect known CSAM
- Targeted detection obligations – measures need to put in place to detect known CSAM which are posted
- Microsoft’s photo DNA hashing system which identifies duplicate images (from pixel characteristics) is well-known.
- Detected CSAM have to be reported to EU Centre
- Effective removal – Internet Service Providers have to take CSAM down / disable access including in the case of websites hosted outside EU.
Note that, the same Privacy vs Safety debate applies, as it did with the UK Online Harms Bill. The major issues are
- that tech firms will have to scan messages (eg. iMessage, WhatsApp, Signal) for CSAMs, and so civil rights groups are against it from a privacy standpoint
- tech firms / governments can abuse the system to look for something which is not sufficiently related to CSAMs
- end to end encryption (meaning only sender and recipient can see the messages) will be compromised and users can be vulnerable to cyberattacks.
Tech companies are to use the most unintrusive method to detect CSAMs, by, for example, using the metadata of the messages, rather than the message itself. The trouble is too many CSAMs may get through the net if only metadata were relied upon.
EU member states agree on stricter cybersecurity measures as a result of heightened cybersecurity attack threats
…The NIS 2 (Network and Information Systems Directive) can now move towards approval. The Directive imposes a risk management approach with a minimum list of basic security elements that have to be applied, process for incident reporting and mandates companies to address cybersecurity risks in supply chains and supplier relationships. Member States are also bound to co-operate in managing cyber-crisis. Compared to the current rules which concerned key services such as energy, banking, telecoms, health and transport, NIS2 will encompass a wider range of companies such as digital services, manufacturing of critical products and medical device manufacturers.
Antitrust consumer complainants ask Californian judge to order Meta to turn over Cambridge Analytica info
…In its complaint, consumers (users of Facebook) have alleged that Facebook engaged in the following anticompetitive practices:
- Bought other companies such as Instagram and WhatsApp to kill off competition whilst they were still small with the purpose of entrenching their dominant position. Had it not been for these acquisitions consumers would have had more social media platforms to choose from.
- Misrepresented their data collection and use practices such that users were lured into using Facebook under a false premise. In relation to this, there is a claim for breach of Stored Communications Act, Video Privacy Protection Act, and claims for negligence, invasion of privacy and breach of contract.
There are parallel suits by advertisers and the FTC on this theme.
You may recall that the Cambridge Analytica scandal concerned the revelation that certain third party apps had access to data of up to 87million personal users on Facebook. That harvested data was psychologically profiled and then sold to various others, including Cambridge Analytica which used it for political advertising. Plaintiff say that papers that related to the investigation into the Cambridge Analytica scandal are relevant and not privileged (because they were created for a business purpose, not for seeking legal advice) and should be turned over to them.
Linkedin settles with Data scraping Mantheos
…The settlement includes Mantheos agreeing not to data scrape the Linkedin platform. The claim concerned Mantheos’ selling of on-demand scraping of more than two dozen LinkedIn member data fields, including members’ work experience, education, skills, titles, posts, comments, and reactions to the posts of others. Mantheos was alleged to have used an extensive network of fake LinkedIn accounts to gain access to areas of LinkedIn’s platform that are accessible only to real, logged-in LinkedIn members.
“Social Listening” company Mantheos admitted that it data scraped, but did not admit liability.
The cause of action was breach of contract, fraud, breach of Lanham Act (dilution of TM – Mantheos used the Linkedin trade mark in their marketing materials).
Linkedin is in litigation with other companies for data scraping:
Against HiQ – for data scraping publicly accessible accounts (to my knowledge it does not involve scraping via creating fake accounts) by using bots.
Against 3Taps – this time Linkedin is a Defendant. 3Taps sought declaratory judgment that it is allowed to access and use publicly-available facts and information from LinkedIn’s webpage.
Faltering Netflix decides to offer ad-supported services at a cheaper price point
…Netflix was once a darling of the tech industry. So much so that the N in FAANG (Facebook, Amazon, Apple, Netflix, Google – the US version of GAFA) had Netflix in it. It was the first to offer streaming content via one portal. It did have, and enjoyed for a while, that first mover advantage but the streaming market is now crowded with large well resourced businesses such as Comcast/Sky, Amazon Prime, Disney, HBO etc which have other revenue streams to fund content creation. Now Netflix have conceded that it has to provide ad-supported services to increase subscription numbers which saw a drop for the first time and reflected in the quarterly results. The trick is to make sure that its full paying subscribers don’t jump ship to the ad-supported version. Personally, my feel is that Netflix have done it the right way round. Had they offered ad-services from the outset, they may not have had so many subscribers opting to pay the premium version. But now most of their subscribers are so used to the premium version, they might find the ad-supported version so annoying that it is worth paying the premium. Certainly, I’m sure that is what Neflix are hoping.
Musk says he’s withdrawing from the Twitter deal because its public claim that it has “less than 5 percent” of fake accounts likely to be a significant understatement
…but buying at a lower price might be a possibility, he says. Musk explained that he was waiting for a logical explanation for the number of fake/spam accounts. He said that Twitter claims that they know the number but they claim that there is this “complex methodology that only they can understand”. Musk says it’s a material adverse misstatement, and it’s a big deal. If the house is advertised as having less than 5% termites, that might be acceptable but if it happens that it had 95% termites after all then that’s not OK, because if the termites leave the house will disappear…Note that it has been reported that 40 percent of all website traffic is run by bots.
So why is the proportion of fake accounts such a big deal? That’s because it impacts on the number of true humans any advertiser on Twitter would be exposed to, and that is how Twitter’s revenues are generated. “So how do advertisers know what they’re getting for their money? This is fundamental to the financial health of Twitter” – he Tweeted. Unlike some other platforms (eg. Facebook) where advertisers can expect to get customers to purchase a product (where what is important is that the advertiser gets exposed to those that are likely to be interested in purchasing the particular product, rather than getting a product in front of as many people as possible), Twitter advertisement is more about profile raising.
Crypto
Panic in the crypto market as crypto exchange Coinbase regulatory filing amended to make explicit consequences of bankruptcy to users
…The regulatory filing stated that cryptocurrency held by Coinbase for customers “could be subject to bankruptcy proceedings and such customers could be treated as our general unsecured creditors”. This means, should Coinbase go bankrupt, customers’ assets can be used to pay back Coinbase’s secured creditors. The filing came after Coinbase posted poor results (and also the Terra crash, see below), causing its valuation to shrink by a quarter. Coinbase CEO Brian Armstrong tweeted soon after that customers’ assets are safe with them, and that the statement was made because Coinbase had to include a new risk factor based on a new SEC requirement called SAB 121. He continued “For our retail customers, we’re taking further steps to update our user terms such that we offer the same protections to those customers in a black swan event. We should have had these in place previously, so let me apologize for that”. The black swan event means some extraordinary event, such as Coinbase going under. If Coinbase is using customers’ cryptoassets to invest elsewhere (which is what banks do) then it may well be that a business like Coinbase is ripe for regulation, just likes the banks are. Unsurprisingly, the Securities and Exchange Commission (SEC) has now said that regulations are coming as digital assets ought to be treated as securities.
EV
Israeli EV start up REE to set up automated factory in the UK
…It helped to hire in the UK following shut downs of Ford or Honda factories, says the company. The company specialises in corner technology which enables a completely flat and modular chassis that supports the EVs to provide maximum room for passengers, cargo and batteries with the smallest footprint. No cutting corners in that business, in which case.
UK’s EV industry is looking good, though REE hasn’t discounted setting up in the EU. There is Arrival which makes EV in the UK. Nissan, Stellantis and Ford have invested in EVs or components in the UK. Rimac, a Croatian start up and Polestar have set up UK research or engineering facilities in the UK.
Businesses from a range of sectors call the EU to ban the sale of all Internal Combustion Engine (ICE) cars by 2035
…Those calling for the ban include those from unrelated sectors Sanofi, Unilever and Tesco. It also includes auto manufacturers with emphasis on EVs (such as Arrival – an EV company and Ford – which is massively invested in EV) and EV related companies such as ChargePoint. They also ask that the EU set charging infrastructure targets. The EU will be setting the CO2 targets by the end of this year.
The auto sector on the whole, such as European Automobile Manufacturers’ Association (ACEA) and European auto supplier representation (Clepa) have pushed back on strict interim targets against the backdrop of supply chain issues and chip shortages / knock on effects on job losses. Mercedes and BMW have said that more investment into infrastructure is required.
Gaming
Highly profitable and long partnership between FIFA and EA Sports come to an end as parties fail to agree on licence fee
…FIFA wants more money and EA says FIFA asks too much. The game will from now on be called EA Sports FC, with more or less the same content. Users may nevertheless continue calling the game FIFA anyway. Reminds me of the time when Amazon temporary ceased its lucrative deal with Visa owing to a disagreement on the commission rate, only for the parties then to back track. I wonder whether the same will happen again.
The game is the biggest title in EA’s offering. Premier League has called EA a “long term and valued partner” and president of the Spanish equivalent, La Liga said “committed to partnering with EA Sports FC…for years to come”. EA has also partnered in other sporting areas, such as with Madden NFL (American football), F1, UFC. Other EA titles include The Sims 4 and Apex Legends.
Intellectual Property
Disney’s privileges might be up for more pounding by the US government
…Senator proposes The Copyright Clause Restoration Act which would
- Limit copyright protection period to 28 years with an option to renew, totalling 56 years
- In the US, pre 1978 works attract 95 years protection period, post 1978 works are protected for 70 years after the death of the author.
- Limitation on the period to apply retrospectively to those with market cap of over $150billion / in a motion picture / in wired telecommunication services
- Companies such as Disney has had special deals with the government allowing an extended copyright protection period for up to 120 years.
Objective is to provide protection period only for a sufficient period enough to encourage innovation.
Disney is also losing the privilege as a special taxing district as a result of it opposing the so called “Don’t Say Gay” bill (now approved), which bans schools to educate young children on gender identity and sexual orientation.
If a patent owner wins a patent infringement case against a company (Amazon in this case), can it then go against its customers for infringement? Federal Circuit rule says No
…PersonalWeb Technologies, which owned data processing patents sued Amazon, and agreed to voluntarily dismiss the claim. The plaintiff subsequently sued 50 of Amazon Web Services (AWS) customers for patent infringement. The appellate court, the Federal Circuit said that the Kessler Doctrine applied, which provides that the initiation of a follow on IP litigation against customers of a party that has won a previous related litigation is prohibited. PersonalWeb petitioned to the Supreme Court to decide the point, but that was rejected.
I am not clear about the circumstances that led to the voluntary dismissal but if there were a settlement between PersonalWeb and AWS, one would guess AWS would have put in a condition that PersonalWeb is not to go after its customers…
Owner of patent concerning capturing cheques on a mobile phone and depositing them at a bank without actually having to go to the bank wins patent infringement case against PNC bank
…This is a warning to all financial services companies that provide services via an app in particular (because financial institutions typically have deep pockets), but also extends to any company that provides services via an app. Or cloud for that matter.
A jury in Eastern District of Texas have awarded USAA, the plaintiff in this case $218 million. USAA has already won a patent trial against Wells Fargo. This is not the only case concerning patent infringement suits over app based technology against a financial institution.
Trade Secrets
“Doctrine of Inevitable Disclosure” dismissed in a trade secrets case in Georgia State – PowerPlan v Lucasys
…What is “Doctrine of Inevitable Disclosure”? It is where a group of employees leave an employ and set up a competitor. The original employer’s case would be that it would be impossible to set up shop without using proprietary knowledge of the original employer. The situation is more common than you might imagine, and I for one have come across matters like this before.
However, such a case is actually quite difficult to get off the ground, as was the case here. The departing employees didn’t have unauthorised access to proprietary information (because they had legitimate access when they were employees), and there is no concrete proof that they will use the proprietary information which they may have taken away in their heads when running the new business. The Court did allow the plaintiff PowerPlan to re-plead the case, to specify any instances of misappropriation (eg. downloading proprietary information and sending to their personal email address) or threatened misuse, or actual misuse.
Completely separately there is an interesting associated parallel antitrust claim. Powerplan the former employer, has a 99% share in the lucrative area of utility management software market. The antitrust claims are that (i) Powerplan has acted anticompetitively by threatening Lucasys’ customers citing the trade secrets case and (ii) proposing authorised vendor agreements to Lucasys with clauses that would unlawfully restrict the right of counterparties to develop competing software using Powerplan’s undefined confidential information. Powerplan had refused to limit that to source codes and trade secrets.
California proposes rule making it difficult to keep confidential orders and settlements which concern defective products and environmental hazards
…If the Public Right to Know Act bill is implemented California will join other states. The rule if adopted would mean that litigation papers will be sealed only if keeping them confidential outweights the public interest. Businesses say it would be burdensome and make it difficult for defendants to settle. There is also a concern around the possibility of forced disclosure of trade secrets.
In the Spotlight
Apps
Sea, Singaporean tech giant makes a move into Indonesia’s Insurance Market
…Indonesia is the 4th largest country by population (after China, India, US – a note for pub quiz goers) and the biggest economy in South Eastern Asia– so the underlying strategy is likely to be similar to that of Amazon who is slowly but very surely laying the ground works to expand the client base in India (to get more data). There was coverage recently about Meta investing in network infrastructure in Nigeria. So we know where this is going. If the EU bloc’s regulations are far stricter than other regions, then you could get a splintering effect where you start getting regional giants – rather than what we see now where the US BigTechs are sprawled across the globe.
Back to the story – it has been reported that New York listed Sea (which has an international base, spanning Asia, Latin America and Europe) is planning to purchase an Indonesian insurance company suspected to be Asuransi Mega Pratama. Sea provides various services:
- Ecommerce (Shopee, second largest in Indonesia)
- Sea already allows insurers to sell policies on its ecommerce platform
- Mobile gaming (generates most revenue and the business profited during the pandemic)
- Digital financial services (payments, consumer lending, banking).
It has been making losses owing to increased expenditure on promotions such as free shipping and vouchers to gain market share. Their loss making reasons may well be network effects, as demonstrated by the different movements in the share price of Uber and Lyft following the most recent quarterly results. Sea wants to become a Super App.
What’s a Super App?
These are Apps that carry out multiple services and I would say, have become indispensable. It is centred around fintech (ie: integrated payments system). Courtesy of Wikipedia, here are the prime examples:
- WeChat (China, owned by Chinese megatech Tencent – very roughly, China’s answer to Facebook) – the godfather of Super Apps. Offers messaging, social media, payments, e-commerce rolled into one.
- Chinese regulators have forced WeChat to open up their platforms to other competitors however
- Alipay (China, owned by Chinese megatech Alibaba – very roughly China’s answer to Amazon) – mobile and online payment platform.
- Gojek (Indonesia) – it provides GoRide, GoSend, GoShop, and GoFood among 20 or so services, including Paylater, which is a wealth management service
- Backed by Tencent, Google, Paypal, Facebook, JD.com among many other big names
- Grab (HQ in Indonesia and Singapore) – it provides GrabTaxi, food delivery, insurance and payments as well as online healthcare and remittances
- Also planning to launch wealth management service
- Has investments in Ovo, a large digital payments platform in Indonesia.
- Grab bought Uber’s business regional operations in 2012
- Backed by Toyota, Hyundai, Didi (makes sense with its mobility focus), SoftBank, Microsoft among others
There is an interesting article comparing Gojek with Grab (albeit published sometime ago)
Super Apps naturally have access to a lot of data, and clever use of data enable them to compete more effectively, and centres around provision of digital payment technology. It therefore presents a threat to traditional banks:
- Super Apps can provide loans to businesses that traditional banks cannot offer because they have the data to be able to more accurately assess the risks of the potential borrower.
- Super Apps can offer benefits that banks can’t offer, such as discounts on their sister services when their payments system is used.
- Super Apps are just much more agile and lack the inertia / sluggish culture that some traditional banks may have cultivated.
- Threat particularly felt in Asia compared to say, Europe and the US because the demand for digital and mobile services is higher, “leapfrogging generation of paying by plastic and cheque books to paying online through e-wallets”, comments an advisor at Citi.
- This is an important point. Headlines in Tech mainly looks at US developments on the basis that frontiers of tech are focussed there (I believe, mainly because the venture climate in US is the most advanced and culturally engrained). But when it comes to fintech, it may well be that we need to be monitoring South East Asia.
Some, like Citibank have seen the writing on the wall, and have taken the if you can’t beat them, join them philosophy, allowing their credit cards to be linked to the platforms. The bank has also partnered with India’s Paytm (digital payments, trade in gold, foreign currency exchanges, insurance services app) to launch India’s first physical unlimited cashback credit card.
By the way, Musk also floats the idea of converting Twitter into a super-app potentially or creating one from scratch (ie: he could walk away from the Twitter deal?) – From being a digital town square, which is inclusive with a high He said that WeChat was an incredible app, which allows users to shop, text and social media within one app. Owing to regulatory hurdles one can’t help but question whether that opportunity has now passed, at least in the EU and possibly also the US.
Sea’s connections
Sea’s anticipated insurance target, Asuransi Mega Pratama is owned by Indigo, son of Indonesian business tycoon Ganda, and nephew of Martua Sitorus, co-founder of Wilmar International, a major agribusiness in Singapore. Indigo owns 50% share of Sea’s digital payments units. The mutual trust and benefits are apparent.
Delving Deeper
Cryptocurrency market loses confidence as stablecoin loses peg
… Here is what is reported (I’ve looked at a number of reports and they don’t all say the same thing – so I have cobbled together what made sense to the best of my ability):
What is a Stablecoin?
Stablecoins are cryptocurrencies which are much less volatile than your usual cryptocurrency– they are pegged for example to the US Dollar. One would use stablecoins because exchanging crypto to fiat and vice versa is costly and slow, so stablecoins enable traders to make timely trades which is critical when cryptocurrencies are so volatile. Users also use stablecoins to hold cryptocurrency without having to convert it into fiat. It is also easier to avoid various tax implications – which may or may not be lawful.
The idea with TerraUSD, Tether or USDC is that they are pegged to the US Dollar, so you can at all times exchange one of these with one US Dollar. Tether and USDC pegs to the dollar by having an asset backing their stability, such as currency held in reserves. Tether was fined by the US Security and Exchange Commission (SEC) because whilst it initially advertised that it was backed 1-to-1 by traditional currency, it transpired that it was securitised against less stable assets.
TerraUSD need to knows in a nutshell (but hugely simplified because it is very complex)
But the TerraUSD is different – it is an algorithmic stablecoin with only code backing it –although the foundation behind the cryptocurrency has Bitcoin in reserves to defend the peg. The uniqueness of it is that it should be less vulnerable to the whims of the federal reserve. It was popular because you could use what is called the Anchor protocol (like a bank) to receive yields (like an interest rate) of up to 20% (too good to be true). Terra became very popular for this feature. Indeed, until recently the great majority of Terra was parked in (“staked” in – in crypto language) the Anchor account.
TerraUSD is kept stable by structuring the coin with a sister cryptocurrency called Luna on the same Terra blockchain, which is algorithmically designed to keep the value of TerraUSD constant. Luna is not a stablecoin in that its value is determined on the usual market economics, but you can exchange it for Terra 1-to-1. When you exchange Luna for the Terra, the Luna is burnt (meaning extinguished) and if you exchange Terra for Luna, the Luna is minted (meaning created). The supply of Luna is therefore controlled. If the Terra price is below $1, what you would then do is to swap the Terra for a dollar worth of Luna, and if Terra price is above $1, then you would swap $1 worth of Luna with Terra. The Luna price changes depending on the on-goings of the Terra blockchain, to control the value of Terra. However, if the value of Luna’s market cap falls below the market cap of circulating Terra, there is insufficient liquidity to collaterise TerraUSD in circulation.
How did TerraUSD/Luna crash?
However, the TerraUSD /Luna cryptocurrency crashed when an attacker withdrew copious amounts of TerraUSD from the Anchor account and dumped them to short Bitcoin – so it is reported. Terra value dropped, punters rushed to exchange their Terra for $1 worth of Luna, and more Luna had to be supplied. The foundation loaned its own Bitcoin to prop up the Luna to stabilise Terra but the Bitcoin value fell further. This led to the massive de-pegging of Terra, and wiped out most of the value in Terra. Binance, the world’s largest cryptocurrency exchange, halted the trading of Terra and Luna indefinitely.