Washington in Review - April 26, 2019

Congress may be in recess until April 29, but the rest of us are carrying on business as usual as we’re seeing a lot of policy action both in the states and internationally. The US is in the midst of ongoing trade talks with Japan and the EU. Because of escalating privacy concerns, states and the federal government are considering legislation to regulate IoT devices. The White House unveiled its new plans for 5G deployment and increased accessibility for rural broadband. Bipartisan interest in examining Section 230 protections for big tech companies is heating up once again. We cover these issues and more in this week’s edition of the WiRe.

Want our Strategic Policy Advisory team to take a look at other topics? Let us know in the comments!

Section 230 Gone Awry? Congress Thinks So

There has been a bipartisan interest for Congress to examine Section 230 protections for technology companies over the past year and House Speaker Nancy Pelosi (D-CA) recently stated that Section 230 may soon be in jeopardy. Section 230, a landmark provision in the Communications Decency Act (CDA), essentially provides tech platforms with safe harbor protections for the content posted and created by their users. Republican Senators have expressed similar concerns about allowing technology companies to self-regulate in light of the freedom they have under the CDA. Technology companies have long fought to preserve Section 230, as their entire business models rely upon the immunities it grants.

What does it mean?

• If big tech companies cannot show they can adequately self-regulate, Congress could consider drastically repealing Section 230 to hold them strictly liable for the content posted to their platforms.
• With an increasing number of countries looking to limit the era of self-regulation for big tech, companies should work proactively to address their content moderation processes and procedures so as to avoid the possibility of red tape and excessive regulation in the US.

IoT Regulation is (May Be) Coming

The Illinois State Senate recently passed the Keep Internet Devices Safe Act, a bill that would ban Internet-of-Things (IoT) device manufacturers from collecting and storing audio obtained from Internet-connected devices without first disclosing it to consumers. Heavy industry lobbying efforts significantly defanged the bill, which originally sought to enable consumers to sue tech companies for recording them without consent. In its current form, the State Attorney General will have exclusive authority to bring a cause of action for any such violations. Interest in IoT regulation is not limited to the state level, evidenced by the bipartisan US Senate’s March introduction of the IoT Cybersecurity Improvement Act, which seeks to establish baseline cybersecurity standards for IoT devices, and an upcoming April 30 Senate Commerce hearing on “Strengthening the Cybersecurity of the Internet of Things.”

What does it mean?

• With the Illinois bill having already received significant industry pushback, any further state legislation seeking to similarly impose restrictions on Internet device manufacturers will likely be met with contention.
• As proposed IoT regulations continue to unfold, impacted companies should work with state and federal legislative bodies to ensure pending regulations neither impede their business growth nor stunt their product development plans.

Break the Internet? EU Copyright Directive Gets Approved

Last week, the Council of the European Union, the EU body that represents the executive governments of its member states, approved the new EU Directive on Copyright in the Digital Single Market (the Directive). As we noted in our previous edition, the European Parliament signed off on the Directive late last month. Under the new Directive, Article 17 (formerly Article 13) makes online platforms liable for copyrighted material uploaded by their users. That means that online platforms may face legal action for infringing uploads without having received, or having failed to timely respond to a takedown notice. Each of the 28 countries in the EU now has two years to transpose the Directive into its own national laws.

What does it mean?

• Companies impacted by the Directive may use this two-year implementation window to engage policy makers and to try to shape how the Directive will take form in each respective nation.
• While the Directive makes clear that companies in violation of Article 17 “shall be liable for unauthorised acts of communication to the public,” no definitive penalty is mentioned in its text.

Bonjour! France Adopts Framework for Cryptocurrency Regulation

Last week, the French parliament passed Plan d’Action Pour la Croissance et la Transformation des Entreprises (PACTE), which permits the domestic recognition of cryptocurrencies and enables authorities to tax profits generated by crypto operators and investors. PACTE requires cryptocurrency exchanges and custodian providers to complete mandatory registration with the Autorité des marchés financiers (AMF), France’s financial markets authority, as well as obtain a certification from them. France’s Finance Minister Bruno Le Maire is also asking France’s EU partners to adopt its crypto regulatory framework. PACTE comes a few months after the French government reduced the tax rate on crypto currencies, as part of Le Maire’s plan to make France friendlier to crypto and blockchain technology. The tax rate changes have not yet been adopted.

What does it mean?

• As the EU has previously proposed that crypto service providers be brought under the scope of its anti-money ‎laundering regulations, the French approach may be more palatable to member nations. Companies in favor of France’s regulation should begin engaging EU stakeholders to shape the framework of future crypto policy in other nations.

Lone Star State Not Alone on Data Privacy: State Privacy Roundup

April proved to be a rollercoaster month on the state privacy front: Texas held public hearings on two proposed privacy bills, a group of tech companies voiced support for the Privacy for All Act, California legislators approved several notable CCPA amendments in committee, and the Washington Privacy Act failed to make it to the floor of the state House for a vote, likely ending its chances of passage this legislative session. The costs and benefits of awaiting federal privacy legislation were key themes at the Texas hearings, reflecting a range of industry viewpoints.

What does it mean?

• With the Washington bill receiving harsh criticism for Big Tech’s involvement in drafting and a group of 24 tech companies voicing support for heightened privacy protections in California, the influence of the tech industry continues to help drive comprehensive state privacy legislation. Companies should remain involved and seek opportunities to collaborate with privacy groups and state lawmakers.

EDPB Tries to Clarify “Bare Necessity” of Processing: Article 6 Guidelines

The EU Data Protection Board (EDPB) issued its anticipated draft Guidelines on processing personal data under Article 6(1)(b) (the Article) of the General Data Protection Regulation (GDPR). The Guidelines address the applicability of data processing in “contracts for online services” and the Article’s interaction with other lawful bases for processing. The guidelines reiterate that although data processing may be necessary to perform an online contract, online contracts must be valid and processing must comply with the spirit of GDPR principles, particularly data minimization and purpose limitation.

What does it mean?

• The EDPB issued the draft for public consultation and is accepting comments until May 24, presenting a key opportunity for companies to contribute viewpoints on the nuances of using contracts as lawful basis for processing.
• Companies may need to revisit legitimate basis analyses: the guidelines reverse previous guidance in key areas, one of which is “where processing is not in fact necessary for the performance of a contract, such processing can take place only if it relies on another appropriate legal basis.”

T-AI-dal wave of AI legislation

Discrimination and other ethical issues related to AI continue to gain public and legislative traction, as policy differences emerge between industry and the public sector. In recent months, federal legislators have proposed a series of bills on emerging tech, including the Algorithmic Accountability Act and Reps. Lawrence and Khanna’s resolution on ethical AI development.  Meanwhile, the SEC recently forced a shareholder vote over discrimination concerns related to a major tech company’s proposed rollout of facial recognition software to federal agencies.

What does it mean?

• The proposals highlight the knowledge gap between legislators and other stakeholders, offering broad principles but relatively few specifics tailored to emerging tech. AI policy presents a key opportunity for engagement between tech companies, academia, privacy organizations, and civil rights advocates in creating a balanced approach to guide forthcoming legislation.
• The Algorithmic Accountability Act ports the concept of privacy impact assessments (DPIAs) for companies that do automated decision making, including a fairness and balancing test; potentially impacted companies should consider their DPIA capabilities.

5G Finally Takes Center Stage

The American roll-out of 5G is underway, with the Trump administration announcing that the Federal Communications Commission (FCC) will conduct its largest ever spectrum auction later this year, with 3,400 megahertz across three different airwaves. Notably, President Trump posited that 5G roll-out will be "private-sector driven and private-sector led,” mollifying any outstanding speculation around nationalization of deployment efforts. Abetting the efforts to operationalize 5G across both urban and rural sections of the country is a $20.4 billion allocation from the Rural Digital Opportunity Fund to be distributed over the next 10 years. The fund is designed to provide 5G access to areas where broadband internet is not already  available.

What does it mean?

• With the FCC holding its next 5G auction on Dec. 10, carriers will be able to bid on 3,400 megahertz of new spectrum to aid in the development of 5G, the Internet of Things, and other advanced-spectrum based services.
• As President Trump is largely rejecting government intervention in 5G wireless networks, large telecommunications companies will have the opportunity to pioneer the development and roll out the new technology.

USMC-yay! US International Trade Commission Finds Net Positive Effect of USMCA

The International Trade Commission (ITC) released its report detailing the likely impact of USMCA on the US economy. The report projects a net positive increase to US GDP by ~$68 billion (0.35 percent) by year six, as well as the creation of ~176,000 US jobs (0.12 percent). The digital trade and e-commerce sections of USMCA would have the greatest impact on B2C e-commerce companies and express delivery companies due to an increase in the de minimis threshold at which customs taxes could be collected, as well as including provisions prohibiting most data flow restrictions and the forced localization of data.

What does it mean?

• Though the release completes a necessary milestone in getting the agreement passed, the USMCA still faces significant headwinds. Democrats still want more stringent labor standards included in the agreement, and there remains significant pushback from many Republicans, Canada, and Mexico on existing steel and aluminum tariffs.
• Read previous editions of the WiRe to learn more about additional hurdles to passing the USMCA.

As US-China Trade War Cools Down, US-Japan Trade Talks Heat Up

Last week, Japanese trade ministers traveled to Washington, DC to launch preliminary trade talks. In a statement released by the Office of the US Trade Representative (USTR), discussions centered around opening access to Japanese agriculture and automotive markets (both of which are politically sensitive industries in Japan), as well as establishing high standards around digital trade. The two sides agreed to continue discussions in the “near future,” though no official date has been announced.

What does it mean?

• As previously covered in the WiRe, the USTR believes that the USMCA contains the “most comprehensive and advanced digital trade rules ever negotiated” and will likely push to use them as a model for these negotiations.
• Discussions could prove to be difficult as Japan will aim to maintain provisions similar to those of the Comprehensive and Progressive Trans-Pacific Partnership (CPTPP). Allowing USMCA provisions in a bilateral trade deal may grant the US leverage in changing CPTPP should it choose to join the agreement, potentially causing issues with existing members of that agreement.
• Japan may be more open to agreements and structural changes, as they have been focused on modernizing agriculture markets to help spur GDP growth.

Playing Chicken Over Steel and the Environment

Although the EU and the US have agreed to begin trade talks covering non-automotive industrial goods, there appear to be some stumbling blocks out of the gate. The EU issued a directive stating that unless President Trump’s existing steel and aluminum tariffs are removed, no agreement can be finalized. Further complicating the picture, France and Belgium stated that they will refuse to support any trade agreement unless the US is willing to bring its climate/environmental targets in-line with the EU’s. Support of all EU member states is needed  to ratify any trade agreement.

What does it mean?

• Given today's trade environment, it is increasingly important for companies to have a keen understanding of how their supply chain operates, and how their goods or services can be impacted by tariffs.
• Businesses with exposure to European markets or with part or all of their supply chain in Europe should keep a close eye on negotiations as they develop.

For past issues of Washington in Review and other commentary on policy and regulatory issues impacting the Technology, Media, and Telecommunications industries, visit us on the web.

Contributors: Jocelyn Aqua, Regina Barillas, Rosie Brinckerhoff, Jennie Cunningham, Brian Dunch, Arie Esquenazi, Haley Fine, Nick Hall, Carl Holshouser, Josh Joseph, Dan Julian, Priya Kamdar, Julie Riccio, Rachel Roschelle, David Sapin, and Lenora Zimmerman.