California crackdown

While all eyes were on Capitol Hill this week (recess is over, people), the tech industry was dealt blow after blow in its own backyard, with Gov. Gavin Newsom signing into law both a new transparency bill and a kids privacy bill that tech giants fought hard to kill. The one-two punch from Newsom highlights just how tarnished the tech industry’s reputation has become on its own home turf.

Let’s start with the first law Newsom signed: AB 587. This one requires social media companies making more than $100 million in annual revenue to publish their terms of service and submit semiannual reports to the state attorney general, detailing how they enforced those terms. Each violation can cost them up to $15,000.

• At first, that sounds like a small change from the platform policies and enforcement reports that platforms like Facebook, Instagram and YouTube already publish. But as the bill’s co-author, Democratic assembly member Jesse Gabriel, put it in an interview with Protocol, “If these companies were already reporting all this information, they wouldn't have fought this so hard.”
• The law brings some uniformity to all of those reports, so that companies have to share the same information, over the same time periods, rather than cherry-picking their favorite metrics.
• The industry, of course, argued the requirement would force companies to fork over “sensitive information about how we implement policies, detect activity, train employees, and use technology to detect content in need of moderation.”

The law is different from Texas’ and Florida’s social media laws. It says nothing, for instance, about how social media companies enforce speech. But it could run into the same challenges.

• “We don't require anybody to have any particular type of policy. We don't require anybody to take any type of action,” Gabriel said.
• But experts say there are still issues with the government compelling companies to explain their editorial decisions — and punishing them if they make decisions based on information that is not clearly laid out in their policies and reports.
• “The published versions never can capture ALL of the service’s editorial rules,” legal scholar Eric Goldman wrote in a forceful takedown of the proposal in June. That means “every service always will be noncompliant,” Goldman wrote.

Then there’s the California Age-Appropriate Design Code Act. That law has been no less controversial, and not just for tech.

• The act requires all California companies providing online services that children might access to default to the highest level of privacy settings and conduct privacy impact assessments and report them to the attorney general.
• It also prevents those businesses from using children’s personal information indiscriminately.
• Just the threat of the bill — coupled with the U.K.’s similar Age Appropriate Design Code — motivated tech companies, including Instagram and TikTok, to implement new policies to give kids a safer, more private experience on their apps.
• But critics of the law fear it could wind up jeopardizing kids’ privacy by compelling companies to use new, untested age-verification tools. Already, Instagram is using facial analysis to weed out underage users.

What’s fascinating about all of this is that it’s happening in California, the state where Big Tech is arguably most influential. Don’t forget: Back in 2009, then-San Francisco Mayor Newsom announced his first run for governor at Facebook’s headquarters, saying the company represents “the best of the new economy in California.”

Now? “California will not stand by as social media is weaponized to spread hate and disinformation that threaten our communities and foundational values as a country,” Newsom said in a statement about the transparency law Tuesday night.

What a difference 13 years and a tech-funded recall campaign make.

— Issie Lapowsky (email | twitter)

In Washington

The Ethereum split may have reclassified the cryptocurrency as a security. Yesterday, Securities and Exchange Commission Chairman Gary Gensler said that the split could trigger the Howey test, since “the investing public is anticipating profits based on the efforts of others.”

The Consumer Financial Protection Bureau said it will issue guidance on “buy now, pay later” products. In a report, the agency outlined concerns over the risk BNPL products posed to consumers.

Meta had a quiet day in Congress thanks to TikTok. TikTok COO Vanessa Pappas was joined by executives from Meta, Twitter and YouTube as part of a Senate committee hearing on social media and homeland security. Pappas denied allegations of China having access to U.S. user data, as Buzzfeed reported in June. Sens. Rob Portman, Mitt Romney and Josh Hawley were particularly vocal about the potential security risks posed by TikTok operating in the U.S., given its ties to China.

Senators touted the potential benefits of the Platform Accountability and Transparency Act. In the morning panel of that same Senate hearing, Portman and several former social media executives suggested the bill had the potential to increase the transparency of social media platforms and align platform incentives with public interests.

The Federal Trade Commission is going after deceptive user interfaces. The agency voted in its Thursday open meeting to make public a report on the use of “dark patterns” sites to manipulate people into making certain decisions. Examples include auto-renew subscriptions, e-commerce countdown clocks and convoluted privacy option interfaces.

A MESSAGE FROM ALIBABA

Alibaba — a leading global ecommerce company — is a particularly powerful engine in helping American businesses of every size sell goods to more than 1 billion consumers on its digital marketplaces in China. In 2020, U.S. companies completed more than $54 billion of sales to consumers in China through Alibaba’s online platforms.

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In the states

California sued Amazon over creating artificially high prices. Attorney General Rob Bonta alleged Amazon limited price competition by forcing third-party sellers to give their lowest prices on Amazon, precluding other platforms from competing on price. The District of Columbia sued Amazon over a similar allegation in 2021; that case was dismissed in March.

The Justice Department has created a nationwide network of crypto prosecutors. The Digital Asset Coordinators Network assigned over 150 federal prosecutors to act as subject matter experts and advisers for U.S. attorneys offices prosecuting cryptocurrency-related crimes.

Around the world

The EU will likely investigate Microsoft’s $75 billion acquisition bid for Activision Blizzard. Brussels will follow in the footsteps of the U.K.’s Competition and Markets Authority, which will likely escalate its antitrust investigation into the deal after Microsoft declined to provide any suggested remedies.

Tesla is considering moving more battery production from Germany to the U.S. to take advantage of a revamped EV credit that prioritizes domestic production, according to The Wall Street Journal.

In the media, culture and metaverse

Uber reported a major breach that started with an employee’s Slack account. Uber took down Slack and several other internal systems on Thursday to assess the extent of the attack. The hacker claimed to be 18 years old and, in announcing the breach over Slack, said Uber should pay its drivers more. Uber’s former head of security, Joe Sullivan, is facing criminal charges for failing to disclose a security breach in 2016.

The Oversight Board scrutinized Meta’s use of automated image takedowns. In particular, it said the use of Media Matching Service — which uses the decision of a human content moderator to automate future image takedowns — had the potential to “amplify the impact of incorrect decisions.” The board specifically referred to a political cartoon in Colombia that had been placed in the Media Matching Service.

In data

$20 billion: That’s how much Adobe agreed to pay for design platform Figma, in a deal that will ring all kinds of antitrust alarms. If the deal goes through, Figma would be Adobe’s largest acquisition by far —and it would also make VCs, including a16z, Sequoia and Greylock Partners, much richer.

TikTok pulls an Instagram

TikTok is the hottest social platform around right now, but that doesn’t mean it’s above “borrowing” from competitors (hence, pulling an Instagram). With a new product launch on Thursday, TikTok began offering its own in-app version of BeReal. It’s not alone, though: Snapchat and Instagram have also borrowed design elements from the buzzy BeReal.

A MESSAGE FROM ALIBABA

Using economic multipliers published by the U.S. Bureau of Economic Analysis, NDP estimates that the ripple effect of this Alibaba-fueled consumption in 2020 supported more than 256,000 U.S. jobs and $21 billion in wages. These American sales to Chinese consumers also added $39 billion to U.S. GDP.

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