Politics

Trump just vetoed the NDAA because it doesn’t repeal Section 230

But it looks like tech is going to be just fine.

Trump just vetoed the NDAA because it doesn’t repeal Section 230

Lawmakers are set to return to Washington to override his veto next week.

Photo: Tasos Katopodis/Getty Images

The tech industry will likely emerge unscathed from a chaotic end-of-year showdown between Congress and President Trump over its Section 230 legal protections.

On Wednesday, the president vetoed the National Defense Authorization Act in part because it does not repeal Section 230 — but tech industry representatives said they remain cautiously optimistic that Congress has enough votes to override the veto later this month.

"The Act fails even to make any meaningful changes to Section 230 of the Communications Decency Act, despite bipartisan calls for repealing that provision," Trump said in a message accompanying the veto. "It is a 'gift' to China and Russia," he wrote.

Key lawmakers, including top Republicans, have made it clear they're planning to override the veto, the first time they'll do so during Trump's presidency. Tech lobbyists have largely shrugged off the possibility that Section 230 repeal or reform could actually make it into the NDAA.

"Regarding the NDAA, there appears to be little consternation by the legislators that the veto can't be overridden," said Arthur Sidney, vice president of public policy with the Computer & Communications Industry Association, which represents companies including Google and Facebook. "We are always vigilant because Section 230 is such an important law to both technology companies and consumers. But we're hopeful that, based upon publicly available information, there's enough support to override it."

Meanwhile, congressional aides and lobbyists shot down the prospect of Section 230 repeal playing a serious role in negotiations around the future of the COVID-19 omnibus bill, which Trump has hinted he might veto as well.

"The likelihood of [Section 230 reform] getting attached to NDAA or omnibus, I put as a low threat," said Carl Szabo, vice president of tech trade group NetChoice, describing the feeling within tech as "cautious optimism" and "trust-but-verify."

Sen. Lindsey Graham, a top Trump ally, set off alarm bells with a Tuesday night tweet suggesting the fates of the NDAA and omnibus bill could rest on Democrats' willingness to compromise on Section 230 reform. "I hope Speaker [Nancy] Pelosi will agree with President Trump that Big Tech needs to be reined in by winding down Section 230 liability protections," Graham tweeted. "I have reason to believe this combination will lead to President Trump supporting the NDAA and COVID19 omnibus bills."

But any last-ditch effort to include Section 230 reform language in the sprawling omnibus bill, which is already in a tenuous position, would be a non-starter for Democrats. "There is no move to put 230 repeal on the floor," said one Democratic aide. "Senator Graham is watching too much Fox News."

At the same time that Graham was threatening Section 230 repeal on Twitter, his lead counsel on tech and IP-related issues, Joe Keeley, sent an email announcing he is leaving his position at the end of this year, the Senate Judiciary Committee confirmed. Keeley will move to the Senate Budget Committee during the next session.

Congress is set to return to Washington on Dec. 28 to override Trump's NDAA veto. And lawmakers have indicated they're gearing up for a second override if Trump follows through on his implied threat to veto the omnibus bill, which passed both chambers with huge majorities this week. Trump has claimed that he will not sign the legislation unless lawmakers bump up direct payments from $600 per individual to $2,000 — an effort supported by Democratic leaders and a sticking point for most Republicans.

If Trump does not sign the omnibus bill, he will be holding billions in COVID-19 relief and $1.4 trillion in government funding. He could be teeing up the fourth government shutdown of his tenure, but so far, most Washington insiders remain in the dark about what his next move might be.

The tech industry, meanwhile, will remain on high alert for future threats to its business — especially after President-elect Joe Biden this week appointed Bruce Reed, a close adviser who has called for Section 230 to be completely reformed, to be his deputy chief of staff.

"More time is necessary to consider Section 230 because it is an important issue," Sidney said. "One thing is for sure: It shouldn't be wedged into must-pass legislation."

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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