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The ecommerce killer lurking in the Competes Act

Protocol Policy

Hello, and welcome to Protocol Policy! Justice Stephen Breyer's pending retirement from the Supreme Court is the talk of the town today, but without any big tech — or Big Tech — cases headed to the court soon, it's too early to guess what the implications could be. So here's what matters today: A big bill promoting billions for STEM spending is ticking off tech companies, the FTC may face another lawsuit over its aggressive antitrust enforcement, and the Pentagon says Microsoft's VR isn't ready for prime time.

The ecommerce killer lurking in the Competes Act

There’s a lot for tech to love in the America Competes Act, which was introduced into the House last night. It includes billions of dollars in funding for AI, quantum computing and semiconductors, among other things. It’s the first step toward getting the Senate’s much-celebrated effort to invest in tech and science to President Biden’s desk.

But you might still be pissed about it despite all the upsides. Because buried in the bill is a provision, the Shop Safe Act, meant to crack down on the sale of counterfeit goods online. The downside? It would end up creating tons of liability for almost every online marketplace — and other platforms too, the same way that putting restrictions on online speech becomes a huge burden even for companies not named Facebook.

  • The bill holds “electronic commerce platforms” liable if they sell counterfeit goods that “implicate health and safety.”
  • Your company can avoid liability if you can show you followed certain practices, including verifying sellers’ identities, displaying sellers’ identity and contact information and proactively screening for counterfeits, among other things. But it's a tall order.

And is your company affected? Well, the bill goes way beyond traditional ecommerce companies, so potentially yes.

  • Any platform or site with at least $500,000 in annual sales that allows for “arranging the sale or purchase of goods” qualifies as an ecommerce platform, according to the definitions in the bill.
  • That of course implicates Amazon and eBay — but what about messaging platforms? Gmail? If your users can sell stuff on your platform, good luck.

You can blame COVID-19: Shop Safe is a response to the rampant online sales of counterfeit health and personal protective equipment during the pandemic. But critics argue it would cripple smaller ecommerce platforms and entrench the most dominant ones — namely Amazon.

  • It’s a lot easier to vet sellers and automatically screen for counterfeits if you have the budget of a $1.4 trillion company.
  • “Rather than pursue a consensus approach to brand protection, the inclusion of these provisions would railroad small American businesses for the benefit of global brands,” CCIA President Matt Schruers said in a statement.
  • Others, including Eric Goldman, a professor at Santa Clara University School of Law, argue that because Shop Safe would overturn an important piece of trademark case law, it “gives trademark owners absolute control over online marketplaces.”

It’s not just tech companies that are worried. Advocacy groups like the EFF are raising alarm bells about what the bill means for people’s privacy.

  • “Should you really have to provide ID to open an email account, just in case you sell something using it? Requirements like this threaten not only competition but user privacy, too,” the EFF wrote in a blog post last year after the House introduced its version of the bill.
  • The bill does include some exemptions for sellers who only sell a small number of items on a platform, but still, its scope is massive.

To be clear: The Competes Act is a huge win for the tech industry overall. It includes:

  • $52 billion for semiconductors through the CHIPS Act.
  • Investments in regional tech hubs.
  • A new visa program for startup entrepreneurs, their employees and their families.
  • And investments in STEM education.

But the Shop Safe Act would affect a huge portion of tech, even if you don't consider yourself "a commerce company.” The bill has already been the subject of a huge lobbying blitz and you can expect a lot more where that came from.

— Issie Lapowsky (email | twitter)

In Washington

The Chamber of Commerce is threatening to sue the FTC over unfulfilled public records requests. The Chamber previously filed a litany of requests in hopes of finding evidence of how the FTC “has manipulated its rules and procedures” through its antitrust crackdown.

Thought the chip shortage was coming to an end? Not so fast. "We aren’t even close to being out of the woods as it relates to the supply problems with semiconductors," Commerce Secretary Gina Raimondo said. Median chip inventory has fallen from 40 days to fewer than five days.

The FTC needs to issue rules on data minimization, civil rights, dark patterns and more, Consumer Reports and the privacy group EPIC argued in a white paper. In the absence of congressional action, the FTC is all but certain to start looking at wholesale data regulation once it has a full slate of commissioners.

The Pentagon said Microsoft's HoloLens goggles aren't ready for combat. An internal document calls into question the Army's plans to spend $22 billion on the goggles over 10 years — a contract Microsoft won despite employee protests.

The First Step Act was supposed to help incarcerated people get early release from prison. But a DOJ report finds the algorithm used to determine who’s eligible, called Pattern, created significant racial disparities, predicting that incarcerated people of color are at risk of reoffending at far higher rates than white people.

Gigi Sohn got a new round of endorsements backing her nomination to the FCC, from the Communications Workers of America, the National Urban League and Obama tech adviser Jim Kohlenberger.


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In the courts

The FTC reached a $4.2 million settlement with Fashion Nova over claims the clothing retailer hid negative reviews. This is the first FTC settlement of its kind and could dissuade other online retailers from hiding or manipulating unfavorable reviews.

A judge in Arizona declined to toss out a lawsuit against Google that alleges it deceived users with its location data collection practices. The decision came just a day after attorneys general in three other states and D.C. filed a similar case against Google.

On Protocol

The FTC is arguing that Meta’s privacy failures are an antitrust issue and courts are beginning to buy it. Protocol’s Ben Brody explains why that’s good news for the privacy movement in the U.S.

Still confused about the FAA's 5G conflict? We broke down everything you need to know. The TL;DR: Everything turned out OK, but the conflict highlights a bigger problem of miscommunication between federal agencies.

Google killed FLoC — but not out of the goodness of its heart. FLoC created a slew of privacy and competition headaches for the tech giant. But its new ad targeting tool, Topics, may not stand up much better to scrutiny.

In the C-Suite

Airbnb's top policy executive and former Clinton administration official Chris Lehane is leaving Airbnb for a crypto venture. Which one? That's still a mystery. Give us a shout if you've got any ideas. (That means you too, Chris.)

Thanks for reading — see you Friday.

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