The SEC’s court loss is a conservative warning to tech regulators
Hello, and welcome to Protocol Policy! Today, I’m letting you crib my notes on that confusing decision about the SEC and what it means for the future of the agencies that regulate tech. Plus, serious lawmakers want to take down the online ad duopoly, the SEC doesn’t want to give Ripple its emails, and EU and U.S. officials are very cool with chip onshoring.
A recent federal appeals court decision is a reminder that conservative judges are deeply skeptical of the independent U.S. agencies that regulate and oversee tech — and a warning that in coming years, regulators might have to start functioning very differently.
Here’s what it boils down to: The SEC might have trouble tackling fraud the way it currently does. That is, at the very least, a power the agency would like to have intact as it revs up on crypto.
- I forgive you if you’re totally bored by talk of administrative procedure, adjudicative proceedings and public rights.
- What’s really going on is that the SEC, like the FTC and a lot of other federal agencies, has internal — but nominally independent — judges who make enforcement decisions. The process is structured like a trial, with all the arguing from opposing lawyers and disputes about producing documents you’d expect.
- A big difference, though, is the first appeal goes to the commission itself — in other words, the very same people who greenlit the process because they thought something was wrong — before an appeal can go to a regular court in the actual judicial branch.
The conservative, Louisiana-based Fifth Circuit, fresh off giving a boost to Texas’ anti-Facebook law, said that this setup violates the right to trial by jury in fraud cases.
- These processes accommodate two somewhat divergent impulses: Congress offered some rules and protections to people in agency proceedings while preserving the expertise regulators bring to highly specialized matters of law and business.
- While U.S. courts have generally blessed this setup, it’s the subject of plenty of criticism because it hardly seems like it would naturally be a neutral forum.
- That’s all gotten folded into the general conservative and business dislike of regulatory agencies, which is partially about annoyance that the Constitution barely contemplates these powerful bureaucrats but mostly about the fact that agencies are trying to regulate commerce.
This decision could signal a wholesale attack on the work of the SEC or FTC — although it’s not one, just yet.
- For one thing, the decision applies just to Texas, Louisiana and Mississippi.
- For another, these agencies don’t have to use this process. They can go straight to a judicial branch court — as the SEC did with Ripple or the FTC did with Meta — however much they might want to avoid busy, inexpert or skeptical judges.
The context, though, isn’t reassuring for anyone, like the many tech-skeptical lawmakers who would like to see robust action from federal agencies.
- The Supreme Court also recently agreed to hear a case about the ability of defendants in SEC in-house trials to challenge the whole constitutional basis of the process.
- The high court is hearing a similar case about the FTC as well, suggesting the conservative majority might like to open up that avenue as a defense strategy or tee up future cases reining in agency powers.
- The Supreme Court has also previously said the SEC needs to choose its in-house judges in a different way, and (unanimously) eliminated what the FTC thought was its power to quickly secure money for victims of frauds or anticompetitive behavior.
How much would a complete elimination of these administrative processes affect tech?
- The FTC, which has been zeroed in on tech for longer, has used it just recently to try to take on TurboTax, HomeAdvisor and the abandoned Nvidia/Arm deal.
- On the other hand, federal research found that the FTC in 2017 had one single administrative law judge. The SEC had five, while the CFTC had none and the NLRB had 34.
- The overwhelming majority didn’t regulate tech at all: More than 1,650 worked at the Social Security Administration, the government said.
All that means that, together, regulators who believe in their missions might want to have a few plans in place in case courts decide they have to go about them differently.— Ben Brody (email | twitter)
A bipartisan group of senators proposed a bill that would break up the digital ads empire at the heart of Google’s profits. Critics say the operation — which dominates the systems for publishers and advertisers as well as the auction technology linking them — is rife with conflicts of interest that enable extensive anticompetitive behavior.
The DOJ wants to step back from prosecuting good-faith security research under the notoriously broad Computer Fraud and Abuse Act. The CFAA, which became law way back in the ’80s, didn’t really contemplate research, and the Supreme Court recently narrowed its scope, to the benefit of scrapers. Researchers still worry they may face private litigation, however.
The FTC is looking to crack down on ed tech, especially overly broad data collection on kids doing their schoolwork and the potential use of that information in ads.A group of 85 House Democrats sent a letter to the White House decrying the Commerce Department’s solar panel probe. The Commerce Department inquiry kicked off in April, when a small California solar company asked the agency to investigate whether Chinese solar companies were skirting tariffs by shifting production to Southeast Asia. The House Democrats wrote that they’re concerned “about the devastating economic and environmental impacts” of the investigation, which is expected to last around a year.
A MESSAGE FROM CHAMBER OF PROGRESS
New polling shows that American voters do not see regulating tech companies as a priority. Their top concerns are strengthening the national economy (38%), followed by controlling inflation (37%). By contrast, only 5% of respondents prioritized regulating tech companies.
In the courts
The SEC doesn’t want to hand over emails and other documents that Ripple believes could help its case against the regulator. The lawsuit over whether Ripple failed to register $1.4 billion of XRP as securities might depend, in part, on documentation of a speech given by former director William Hinman. In that speech, Hinman argued that ether cryptocurrency isn’t a security.
AWS reportedly paid an employee $10 million as part of a settlement for allegations of discrimination and harassment levied against now-former executive Joshua Burgin. An AWS spokesperson confirmed the settlement but said the settlement figure was “wildly inaccurate.”
The second annual Trade and Technology Council, which just concluded, underscored the centrality of chip onshoring to national security objectives. EU and U.S. officials agreed to share information on the purpose, budget, form and recipient of semiconductor subsidies. Some experts said the collaboration is intended to help avoid a subsidy race in the vein of “Boeing versus Airbus.”
People with disabilities say automated systems and AI intended to facilitate digital access can only go so far. And while vendors of accessibility software often market their products in terms of helping companies avoid lawsuits, that approach might not be enough, according to some experts in the space.
Around the world
Google is pulling out of Russia, and many of its employees have already left. Most employees of Google’s Russian subsidiary had already elected to leave the country, with many headed toward Dubai, according to the Wall Street Journal. Russian authorities froze the subsidiary’s main bank account; Google plans to have the entity file bankruptcy.
Canada banned the use of Huawei and ZTE equipment from domestic 5G networks. If this feels like a news blurb from 2019, that’s because Canada’s government took three years to make the decision. Bloomberg reports that Canadian telcos BCE and Telus already limited their use of equipment from China-based vendors prior to the ban.Researchers found that Bing might have limited auto-suggestions for political dissidents and Chinese party leaders. The University of Toronto research group that identified the limitation also found it might not only apply to China, but also the U.S. and Canada.
In the media, culture and metaverse
Twitter revealed its plans to suppress the spread of disinformation, and it will start applying the policy to news coming out of Ukraine. The company said it would rely on information from multiple “credible sources” to determine what constitutes misinformation. Once something has been labeled misinformation, the platform will stop amplifying and recommending the post and limit users from engaging with it.
Elon Musk, ever-ready to make headline-grabbing claims, says he’s voting Republican for the first time, suggesting it was because of the response by the left to his planned purchase of Twitter (which he doesn’t seem to really want to go through with). Of course, in reality, he has a long history of donating to Republican candidates and organizations.Meta reminded employees to limit talk of abortions at work. Janelle Gale, the VP of HR, told employees at an all-hands meeting that the topic can “still leave people feeling like they’re being targeted based on their gender or religion.”
A MESSAGE FROM CHAMBER OF PROGRESS
New polling shows voters' top tech policy concerns are cybersecurity and data privacy. Only 7% of respondents prioritized antitrust action and 1% prioritized changes to app store rules. In fact, the majority (58%) believe the pending tech antitrust legislation would cause more harm than help to consumers.
Please don’t go! Signed, Baxter.
At least one group is happy with the shift back to pandemic-related office closures: dogs. The New York Times investigated the trend of furry friends contending with return-to-office plans, and found that dogs aren’t handling it so well. This part was especially emotional to read: “They photo-bombed Zoom meetings, typed cryptic messages on their humans’ laptops and found other ways to contribute to the interspecies work environment. For many people, the dogs were the only warm body around — therapist, companion and entertainment system rolled into one.” 😭Here’s to remote work and ample belly rubs!
Thanks for reading — see you Monday!