March 7, 2021

Volume XI, Number 66

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March 04, 2021

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The Worm Turns on Big Tech, New Types of American Threats

I have written recently about the crashing tsunami of change in legal attitudes toward the largest U.S. data, technology and internet companies, especially in the antitrust realm. As we consider whether GAFA critic Tim Wu will keep a seat warm in the White House waiting for an FTC spot to open, we should examine the other ways that Big Tech is morphing from the belle of American business to the beast that all wish to tame.  

The Europeans have targeting this group for many years now, issuing historically huge fines against them and even changing the privacy laws in part to make attacks on Google, Facebook, Apple, and Amazon easier and more consequential. But here in the U.S. since the end of the last government anti-trust action against Microsoft in the early ‘aughts, these companies had been free to operate as they pleased and grow to any size they liked by any means they chose. But now, a new wave of antitrust suitsattacks on decades-old legal protectionsnew theories from the states, and antitrust energy in the new Senate leadership all demonstrate that big tech is clearly in the cross-hairs of U.S. regulators and legislators.

There is nothing like blood in the water to bring the smaller sharks to a feeding spot. So this week we will discuss a few of the secondary threats to Big Tech in the U.S. Let’s start with state taxes. Two weeks ago Maryland enacted a tax that targets technology companies recording more than $100 million in advertising sales per year. The Washington Post reports “Under tight fiscal constraints, Maryland lawmakers adopted their tax last week to raise about $250 million annually for local education reform initiatives. Their vote — overriding an earlier veto from Gov. Larry Hogan (R) — came as roughly a dozen states, including New York, Indiana, Montana and Washington, are considering ways to tax tech giants over the advertisements they sell, the data they collect or the services they offer.” 

Warned that the tax possibly violates both the First Amendment and federal laws against taxing Internet companies in a discriminatory way, Maryland was promptly sued by groups backed by Amazon, Facebook, Google and others.  The suit had national scope and was vocally supported by the U.S. Chamber of Commerce and the Internet Association. The lawsuit and its supporters make their pleas on behalf of small business, which they claim would be forced to pay higher fees for advertising to cover these taxes. The problem for Big Tech, of course, is that if successful, the tax could be duplicated – and possibly in more aggressive forms – by 49 other states. $250 million here, $250 million there, and sooner or later you are talking about real money.

A proposed law in North Dakota is written in support of small businesses and attacks an entirely different aspect of the Big Tech money stream – the 30% vigorish shaken out of app developers in order to be listed within the Apple or Google app stores. This is the same tack taken by Epic Games last summer in its various lawsuits, and apparently the public affairs lobbyist that wrote the legislation said she had been hired by Epic Games to open this second front in the war against 30% app sales fees. The New York Times reports “The North Dakota bill focuses on Apple’s and Google’s practices of taking a cut of up to 30 percent from many app sales on smartphones, a policy that brought the companies a combined $33 billion last year, according to estimates from Sensor Tower, an app data firm... The bill would prohibit Apple and Google from requiring apps to use their payment systems, which enable them to collect their commissions. It would also require Apple and Google to allow users of their smartphones to download apps from outside their flagship app stores.” 

Apple lobbyists are apparently telling North Dakota state senators that passage of the bill would put North Dakota citizens at greater risk for cyberattacks and lawsuits. As with the Maryland tax, a law limiting fees paid by North Dakota app developers would be less harmful to Apple and Google than the precedent could be in demonstrating a vulnerability to other states, and opening this line of attack for everyone.

And then there is “Mr. Sweepy.” The Times also reported last week about a wave of filings against Big Tech companies by individuals and small businesses, some of them reacting to information unearthed from government anti-trust cases. Craig McDaniel of Tulsa, Oklahoma, goes by the business name Mr. Sweepy and has sued Google seeking damages after advertising revenue fell on his website. McDaniel’s sweepstakes website generated about $150,000 per year, an amount that dropped considerably starting in 2012. Mr. Sweepy blames Google’s rules and its market dominance for his business losses.

Cases like this one, asking for class action certification, seem to represent another front against Big Tech. Some are making privacy claims, some purely economic arguments. Many make quasi anti-trust arguments founded on the size of the company they are suing and its assumed power in the online marketplace. All of them are hoping that state and federal claims against the tech companies bolster their arguments and make success more likely.

So, as the worm turns and the huge U.S. internet companies suddenly begin to look vulnerable, the plaintiffs and tax seekers emerge like ants swarming a bear. After all, there is nothing more American than piling on when vulnerability has been exposed.

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Copyright © 2020 Womble Bond Dickinson (US) LLP All Rights Reserved.National Law Review, Volume XI, Number 54
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About this Author

Theodore Claypoole, Intellectual Property Attorney, Womble Carlyle, private sector lawyer, data breach legal counsel, software development law
Senior Partner

As a Partner of the Firm’s Intellectual Property Practice Group, Ted leads the firm’s IP Transaction Team, as well as data breach incident response teams in the public and private sectors. Ted addressed information security risk management, and cross-border data transfer issue, including those involving the European Union and the Data Protection Safe Harbor. He also negotiates and prepares business process outsourcing, distribution, branding, software development, hosted application and electronic commerce agreements for all types of companies.

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704-331-4910
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