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Platforms have benefited greatly from special legal and regulatory treatment
Feb 11th 2017
GOOGLE, Facebook and other online giants like to see their rapid rise as the
product of their founders brilliance. Others argue that their success is more
a result of lucky timing and network effects the economic forces that tend to
make bigger firms even bigger. Often forgotten is a third reason for their
triumph: in America and, to some extent, in Europe, online platforms have been
inhabiting a parallel legal universe. Broadly speaking, they are not legally
responsible, either for what their users do or for the harm that their services
can cause in the real world.
It is becoming ever clearer, however, that this era of digital exceptionalism
cannot last for ever. Governments and courts are chipping away at the
sovereignty of internet firms, and public opinion is pushing them to police
themselves better. Given their growing heft, this shift is likely not just to
continue but to accelerate.
When the internet went mainstream in the mid-1990s, online firms feared being
held liable if their services were used in illegal ways for instance, when
subscribers posted copyrighted content or defamatory information. The danger
was underlined in 1995, when an investment firm sued Prodigy, an early online
service, alleging that it had been defamed in one of its discussion forums.
Plaintiffs later dropped the suit, but they had claimed $200m in damages.
To shield firms against potentially ruinous suits, as well as to protect free
speech online, Congress in 1996 added a section to a law that otherwise focused
on the more headline-grabbing topic of obscene material online: the
Communications Decency Act (CDA). This section, now known by its number, 230,
immunised online firms for torts committed through their services. Soon
afterwards the European Union created a similar safe-harbour rule in its own
e-commerce directive of 2000.
All this can be seen as an implicit subsidy for a nascent industry, according
to Anupam Chander of the University of California, Davis. Online firms have
been exempt from regulations that apply to offline firms, he argued in a paper
in 2013. That is similar to the way in which American courts in the 19th
century gave railroads and other firms a leg-up by limiting liability for harm
caused by defective machinery.
Only a few exceptions to immunity were allowed. One was obviously illegal
content, such as child porn. As a result of lobbying by film studios and record
labels, the exceptions also included copyrighted material. In 1998 Congress
also passed the Digital Millennium Copyright Act, which requires online firms
to take down infringing content as soon as they have been put on notice. In
Europe similar rules apply.
Although limiting liability online was intended to protect sites hosting
digital content, it carried over to service platforms. Airbnb, which lets
people rent out their homes, has long held that it is not responsible for the
actions of hosts and guests. Uber, a ride-hailing service, has argued that it
is just a technology firm and needn t comply with many of the detailed
regulations that apply to conventional transport businesses (which must, for
instance, conduct more thorough security checks on drivers than Uber carries
out). Accordingly, the terms of service for such platforms usually disclaim any
liability.
If the tide is turning, it is the result of a combination of causes. One reason
to expand liability for online platforms is their size: they are no longer
fragile startups. Airbnb s inventory of 2.3m rooms makes it bigger than the
three largest hotel chains Hilton, Marriott and InterContinental combined.
Incumbents are demanding that online rivals obey rules that constrain everyone
else. The internet is no longer a discrete side activity, says Jonathan
Zittrain of Harvard Law School.
Airbnb stands accused of reducing the supply of affordable housing in big
cities. Uber is said to worsen traffic problems and to weaken public-transport
systems by luring away passengers. Facebook and Twitter are accused of enabling
the spread of fake and biased news during America s election. Such services
have also become favourite hangouts for bullies and trolls.
As these negative externalities become more obvious, public calls for
regulators and the platforms themselves to take action is mounting. Facebook is
a case in point. After Donald Trump s victory, it came in for much criticism
for not having done enough to limit the spread of fake news. In Germany, many
worry that false news, particularly Russian misinformation campaigns, could
influence federal elections in September.
It is also becoming exceedingly hard to maintain that platforms are like
telecoms networks neutral . The argument that they do not interfere in the
kind of content that is shown was a key rationale for exempting them from
liability. But they are starting to resemble regulators themselves, which makes
it odder still that they act outside legal limits. Facebook s algorithms
determine what members see in their news feeds. Uber s software decides what
drivers get paid. It is getting easier to police platforms, too, thanks to
artificial-intelligence techniques which can recognise and predict patterns of
bad user behaviour.
Unsurprisingly, given Europe s penchant for regulation, and the fact that most
big platforms are based in America, European bodies have been first to take
steps to rein them in. An important change was a decision in 2014 by the
European Court of Justice, the European Union s highest court, to establish a
right to be forgotten . Search engines must stop linking to information about a
person if it is found to be inadequate, irrelevant or excessive and if the
person has asked the firms to do so. Later this year, the same court will be
asked to decide whether Uber is just a digital service or a transport company;
if it is judged to be the latter, it will need to comply with a web of rules
written in the analogue age, which would lift its costs significantly.
The European Commission, the EU s executive body, last year proposed plans to
regulate platforms. It will not change its e-commerce directive, but it has
pushed platforms into signing up to a voluntary code of conduct which commits
them to actively and swiftly remove illegal hate speech such as racial abuse
(instead of reacting to complaints). Some EU member states are considering
going further: the German government may bring in a law to impose fines of up
to 500,000 ($534,000) on a platform like Facebook if it fails to take down
illegal content within 24 hours.
Section 230 of the CDA is under pressure, too. True, the Supreme Court recently
refused to revive an unsuccessful lawsuit against Backpage, an American site
for classified ads with a popular adult section, which had been accused of
facilitating forced prostitution. But last year saw a swarm of adverse
Section 230 rulings, says Eric Goldman of the Santa Clara University School of
Law.
Too much mayhem
In May a court allowed a lawsuit to proceed against Model Mayhem, a network
that connects models and photographers, for having failed to warn users that
rapists have used the site to target victims. In June a judge decided that
Yelp, a site for crowdsourced reviews, cannot challenge a court order to remove
a defamatory review of a lawyer by a client. Courts and lawmakers are not about
to abolish section 230, says Daphne Keller of the Centre for Internet and
Society at Stanford Law School, but it is unlikely to survive for decades.
Service platforms are also facing new operational restrictions. Late last year
Uber ended an experiment with self-driving cars in San Francisco after
resistance from the authorities. Uber is also embroiled in lawsuits in several
countries over whether its drivers should be treated as full-time employees (in
October a London court said they are, entitling them to the minimum wage and
holiday pay). Many cities are creating new rules, or enforcing old ones, on who
can rent out their homes and for how long. One example is New York s move in
October to pass a law imposing fines of up to $7,500 on hosts who advertise
stays of 30 days and less on Airbnb and similar sites.
He s worried
Tech firms fear what regulators might do. Content platforms say that in the
short term they fret most about being required energetically to police their
platforms, which would be difficult and costly and could turn them into
censors. All share a longer-term concern that they could end up being regulated
in exactly the same way as pre-internet incumbents, which would make them less
profitable and perhaps even destroy their business models.
The industry would naturally prefer self-regulation. Platforms not only have
strong incentives to spot bad actors, but good information to identify them and
the means to sanction in response, notes Urs Gasser of the Berkman Klein Centre
for Internet & Society at Harvard University. Yet self-regulation goes only so
far: platforms may have not much incentive, for instance, to do something about
noisy short-term tenants or to limit drivers working hours.
They are working hard, nonetheless, to show willing. Only a few weeks after
Mark Zuckerberg, Facebook s boss (pictured), batted away criticism of the
company s election coverage, he announced that the firm would work with
fact-checking sites to verify news and allow users to flag fake stories. Uber,
for its part, recently launched Movement, a website sharing its aggregate ride
data with urban-planning agencies, so that they can see, for instance, what
effect a baseball game has on traffic patterns.
If there has to be regulation, Nick Grossman of Union Square Ventures, a
technology investor, wants regulators to shift from the idea of handing out
permission to do things to an accountability-based approach he calls
Regulation 2.0 . In the past, he argues, regulators were data-poor : to do
their job, local agencies, for instance, had to actively select who was allowed
to do what by handing out licences to drive a cab, say. Now that data are
plentiful and available in real time, regulators could instead check regularly
on whether service providers are following certain policy goals.
Internet activists and the firms themselves may deplore the fact that the early
heyday of digital exceptionalism is drawing to a close. Michael Masnick, the
editor of Techdirt, a site covering tech policy, worries about limits on free
speech, and also warns that regulation can stymie innovation. Rules are
disproportionately costly for small firms. Google has the money to hire enough
lawyers to handle requests based on the right to be forgotten. For smaller
search engines, it is a big burden.
But giving platforms a free pass is increasingly difficult for regulators and
courts: they simply have become too important for the economy and society more
generally. Successful online platforms, in other words, carry the seeds of
their own regulation.
This article appeared in the Business section of the print edition under the
headline Eroding exceptionalism