Politics

Tech is shrugging off the Section 230 veto threat

Even as Trump intensifies his threats to veto the NDAA, tech lobbyists are confident the industry will emerge scot-free.

Tech is shrugging off the Section 230 veto threat

The tech industry is largely shrugging off the prospect that President Trump will strongarm Congress into repealing Section 230 in the NDAA.

Photo: Oliver Contreras/Getty Images

The tech industry is largely shrugging off the prospect that President Trump will strongarm Congress into repealing Section 230 in the National Defense Authorization Act, even as Trump intensifies his threat to veto the legislation unless it repeals the foundational law of the internet.

On Tuesday, the White House officially notified lawmakers that Trump intends to veto the NDAA because it "fails to make any meaningful changes" to Section 230 as written.

"Section 230 facilitates the spread of disinformation online and is a serious threat to our national security and election integrity," said the message from the Office of Management and Budget. "It should be repealed."

Key lawmakers on both sides of the aisle remain bullish on the NDAA, insisting it will become law even if Congress has to override a veto from Trump. The House approved the NDAA 335-78 on Tuesday night, though House Minority Leader Kevin McCarthy said he wouldn't vote to override Trump's veto and it's yet to be seen what will happen in the Senate.

Tech trade groups have been holding meetings with members of Congress and Hill aides over the past week to educate them about Section 230, particularly focusing on the Senate and House Armed Services Committees, which oversee the NDAA but do not have jurisdiction over Section 230. And lobbyists for the companies have kept their finger on the pulse of the debate.

But sources in the tech industry told Protocol they're mostly taking a hands-off approach as they remain optimistic that the NDAA will not include a provision to repeal Section 230 and Congress can muster up the votes to override any Trump veto.

"The fact that there are some concerns being raised in the House is disheartening, but it's not necessarily a death knell," said Carl Szabo, the vice president of tech trade group NetChoice, which represents companies including Facebook, Google, Twitter and TikTok. "NDAA is going to pass."

One tech industry source said trade groups and companies have been expressing concern on Capitol Hill about the eleventh-hour effort, but they remain confident about their prospects.

At the end of the day, tech industry representatives are mostly outsiders looking in as members fight and negotiate amongst themselves over pushing through the must-pass defense bill, which includes hundreds of billions of dollars in appropriations and follows months of bipartisan, bicameral talks. Two congressional aides said the companies were clearly tracking the action in Congress but have not flooded the zone with lobbying efforts, as Republicans and Democrats made clear there's no appetite to push Section 230 reform through the NDAA. Senate Armed Services Chairman Jim Inhofe told Trump that the bill could not move if it included Section 230-related provisions, prompting the president to call him out by name on Twitter.

Steve Haro, a principal with lobbying firm Mehlman Castagnetti Rosen & Thomas, said most members of Congress already know where the tech industry stands on Section 230 after years of outreach. (Haro's firm represents companies including ByteDance, Indeed and the Information Technology Industry Council.)

"Companies, executives and advocates are resources for them," Haro said. "We have been providing information as needed. But because of the nature of how this has come up, it has not led to … a full-court press. Because it's not a serious effort."

He added: "Even if folks [on the Armed Services Committee] weren't aware of 230 before, they're saying, 'Well, this is not germane to this bill. This is not something we should be taking up in the NDAA.'"

It's possible that Senate Majority Leader Mitch McConnell could refuse to bring the legislation to the floor, but he is facing a delicate set of dynamics, as he's working hard to ensure Republicans win a pair of runoff elections in Georgia, a state where support for the military runs deep. And there's still room for Trump to back off the veto threat.

"I still find it hard to believe that this president would take hostage support for our troops because he's dissatisfied with social media moderation," said Matt Schruers, president of the Computer & Communications Industry Association, which counts Amazon, Google, Facebook, Twitter and Pinterest as members. "But even if he does, I don't see Congress standing by and letting pay raises for servicemen and [service]women be an innocent bystander in political sniping."

However, while Schruers said it's possible to shrug off this latest threat as mere posturing, he believes it's illustrative of a broader misunderstanding of Section 230 in Congress, where there's bipartisan interest in reforming the law during the next session.

Update: This article was updated at 7:11 p.m. ET to reflect the House vote.

Image: Yuanxin

Yuanxin Technology doesn't hide its ambition. In the first line of its prospectus, the company says its mission is to be the "first choice for patients' healthcare and medication needs in China." But the road to winning the crowded China health tech race is a long one for this Tencent- and Sequoia-backed startup, even with a recent valuation of $4 billion, according to Chinese publication Lieyunwang. Here's everything you need to know about Yuanxin Technology's forthcoming IPO on the Hong Kong Stock Exchange.

What does Yuanxin do?

There are many ways startups can crack open the health care market in China, and Yuanxin has focused on one: prescription drugs. According to its prospectus, sales of prescription drugs outside hospitals account for only 23% of the total healthcare market in China, whereas that number is 70.2% in the United States.

Yuanxin started with physical stores. Since 2015, it has opened 217 pharmacies immediately outside Chinese hospitals. "A pharmacy has to be on the main road where a patient exits the hospital. It needs to be highly accessible," Yuanxin founder He Tao told Chinese media in August. Then, patients are encouraged to refill their prescriptions on Yuanxin's online platforms and to follow up with telehealth services instead of returning to a hospital.

From there, Yuanxin has built a large product portfolio that offers online doctor visits, pharmacies and private insurance plans. It also works with enterprise clients, designing office automation and prescription management systems for hospitals and selling digital ads for big pharma.

Yuanxin's Financials

Yuanxin's annual revenues have been steadily growing from $127 million in 2018 to $365 million in 2019 and $561 million in 2020. In each of those three years, over 97% of revenue came from "out-of-hospital comprehensive patient services," which include the company's physical pharmacies and telehealth services. More specifically, approximately 83% of its retail sales derived from prescription drugs.

But the company hasn't made a profit. Yuanxin's annual losses grew from $17 million in 2018 to $26 million in 2019 and $48 million in 2020. The losses are moderate considering the ever-growing revenues, but cast doubt on whether the company can become profitable any time soon. Apart from the cost of drug supplies, the biggest spend is marketing and sales.

What's next for Yuanxin

There are still abundant opportunities in the prescription drug market. In 2020, China's National Medical Products Administration started to explore lifting the ban on selling prescription drugs online. Although it's unclear when the change will take place, it looks like more purely-online platforms will be able to write prescriptions in the future. With its established market presence, Yuanxin is likely one of the players that can benefit greatly from such a policy change.

The enterprise and health insurance businesses of Yuanxin are still fairly small (accounting for less than 3% of annual revenue), but this is where the company sees an opportunity for future growth. Yuanxin is particularly hoping to power its growth with data and artificial intelligence. It boasts a database of 14 million prescriptions accumulated over years, and the company says the data can be used in many ways: designing private insurance plans, training doctors and offering chronic disease management services. The company says it currently employs 509 people on its R&D team, including 437 software engineers and 22 data engineers and scientists.

What Could Go Wrong?

The COVID-19 pandemic has helped sell the story of digital health care, but Yuanxin isn't the only company benefiting from this opportunity. 2020 has seen a slew of Chinese health tech companies rise. They either completed their IPO process before Yuanxin (like JD, Alibaba and Ping An's healthcare subsidiaries) or are close to it (WeDoctor and DXY). In this crowded sector, Yuanxin faces competition from both companies with Big Tech parent companies behind them and startups that have their own specialized advantages.

Like each of its competitors, Yuanxin needs to be careful with how it processes patient data — some of the most sensitive personal data online. Recent Chinese legislation around personal data has made it clear that it will be increasingly difficult to monetize user data. In the prospectus, Yuanxin elaborately explained how it anonymizes data and prevents data from being leaked or hacked, but it also admitted that it cannot foresee what future policies will be introduced.

Who Gets Rich

  • Yuanxin's founder and CEO He Tao and SVP He Weizhuang own 29.82% of the company's shares through a jointly controlled company. (It's unclear whether He Tao and He Weizhuang are related.)
  • Tencent owns 19.55% of the shares.
  • Sequoia owns 16.21% of the shares.
  • Other major investors include Qiming, Starquest Capital and Kunling, which respectively own 7.12%, 6.51% and 5.32% of the shares.

What People Are Saying

  • "The demands of patients, hospitals, insurance companies, pharmacies and pharmaceutical companies are all different. How to meet each individual demand and find a core profit model is the key to Yuanxin Technology's future growth." — Xu Yuchen, insurance industry analyst and member of China Association of Actuaries, in Chinese publication Lanjinger.
  • "The window of opportunity caused by the pandemic, as well as the high valuations of those companies that have gone public, brings hope to other medical services companies…[But] the window of opportunity is closing and the potential of Internet healthcare is yet to be explored with new ideas. Therefore, traditional, asset-heavy healthcare companies need to take this opportunity and go public as soon as possible." —Wang Hang, founder and CEO of online healthcare platform Haodf, in state media China.com.

Zeyi Yang
Zeyi Yang is a reporter with Protocol | China. Previously, he worked as a reporting fellow for the digital magazine Rest of World, covering the intersection of technology and culture in China and neighboring countries. He has also contributed to the South China Morning Post, Nikkei Asia, Columbia Journalism Review, among other publications. In his spare time, Zeyi co-founded a Mandarin podcast that tells LGBTQ stories in China. He has been playing Pokemon for 14 years and has a weird favorite pick.

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