By Jerri-Lynn Scofield, who has worked as a securities lawyer and a derivatives trader. She is currently writing a book about textile artisans.
The Wall Street Journal published an article Monday, States Loom as a Regulatory Threat to Tech Giants, examining the emerging stance state attorneys general are taking on regulating US companies that dominate the internet:
State officials are raising risks for companies such as Facebook Inc.,Twitter Inc. and Alphabet Inc.’s Google as the states begin piecing together a coordinated legal strategy for confronting the firms over alleged antitrust violations and data-privacy abuses, and over what some Republicans say is a suppression of conservative speech.
Tensions have been simmering for months, but they surfaced publicly last week when the Justice Department said U.S. Attorney General Jeff Sessions would meet with several state attorneys general later this month to discuss a “growing concern” that the companies are hurting competition and “stifling the free exchange of ideas” on their platforms.
CNBC reported the text of the full statement by Department of Justice (DoJ) spokesman Devin O’Malley last week in Sessions getting serious about tech company crackdown, will meet with state attorneys general:
“We listened to today’s Senate Select Committee on Intelligence hearing on Foreign Influence Operations’ Use of Social Media Platforms closely. The Attorney General has convened a meeting with a number of state attorneys general this month to discuss a growing concern that these companies may be hurting competition and intentionally stifling the free exchange of ideas on their platforms.”
The CNBC account highlighted Trump’s calls for the breakup of tech companies:
Last month, Trump said Facebook, Twitter and Google were “treading on very, very troubled territory and they have to be careful.” He’s also said the companies could be engaging in antitrust behaviors, without offering evidence for the claims.
And the WSj account noted that the Federal Trade Commission has started to investigate the industry.
State AGs Can Drive Independent Enforcement Agendas
AGs in many states have considerable authority to drive independent enforcement agendas. Take the example of the tobacco industry, which I discussed in States Launch New Joint Probe into Company Sales and Marketing Practices for Opioids:
In 1998, following many years of investigation and litigation, 46 state AGs entered into a Master Settlement Agreement with the four largest tobacco companies– Brown & Williamson, Lorillard, Philip Morris, and R.J. Reynolds. As part of that settlement, the companies agreed to pay out more than $200 billion over 25 years, as well as to make significant changes in the way they sold and marketed their products. They also agreed to disband their lobbying organizations, to fund anti-smoking efforts, and to make public information provided during the discovery process.
Such separate priorities may also extend to areas in which the federal government regulates extensively, such as securities law (or at least did in the not-so-distant past), as I discussed in this post, Mary Jo White Leaves Behind a Weakened SEC for Trump to Weaken Further:
During the administration of President George W. Bush, state attorneys general used state authority to prosecute securities and financial transgressions. Notably, former New York state Attorney General Eliot Spitzer relied on authority provided by the state’s 1910 Martin Act, which predates the federal securities law, to take legal action actions against insurance firms for brokerage practices, hedge funds for improper trading practices in mutual fund shares, and investment banks for conflicts of interest that distorted the investment research they provided, to name some of the most significant initiatives. Spitzer’s successors as attorney general, current New York Governor Andrew Cuomo and current Attorney General Eric Schneiderman, have not had the impact that Spitzer had when he was lauded as the Sheriff of Wall Street.
Another New York regulator, Benjamin Lawsky, superintendent of New York’s Department of Financial Services used the threat of denying a NY state banking charter to force tougher terms on settlements in which the Eric Holder/Loretta Lynch DoJ and other federal regulators had rolled over (see this post by Yves for a summary: Wall Street’s Nemesis, Benjamin Lawsky, to Resign in June.).Other states, such as California, have their own expansive statutes– though now-US Senator Kamala Harris demonstrated when she served as California’s AG that she more interested in virtue-signalling than taking scalps.
Crusading state AGs are not just Democrats. As I wrote in New EPA Lawsuit Policy Advances Trump’s Deregulatory Agenda, Scott Pruitt– who recently stepped down as EPA administrator:
has been a longstanding bugbear of environmentalists. In his previous role as attorney general for the state of Oklahoma– a major producer of oil and natural gas– he either filed or joined lawsuits that sought to stymie the modest pro-regulatory environmental and climate change agenda the EPA previously espoused.
Like-minded Republicans AGs often joined him in these efforts.
So, What’s On the Agenda for These AGs?
The most immediate threat to the tech industry might arise in the area of antitrust enforcement– which, shall we say, has not been a major priority for recent administrations, although the European Union has investigated and fined Google over competition concerns. Yet as recently as the Clinton administration, Microsoft was a target of an major antitrust action instigated by multiple state AGs in conjunction with the DoJ
Over to the WSJ again:
The [Sessions meeting ] announcement—released amid last week’s congressional hearings into the practices of Facebook and Twitter—shed little light on who was raising the concerns or what remedies might be under consideration. But recent comments by several of the state attorneys general suggest they are actively exploring an antitrust investigation and hope to enlist Washington.
“I think the companies are too big, and they need to be broken up,” Republican Louisiana Attorney General Jeff Landry said Thursday in a radio interview.
There is some evidence that party politics are driving this potential enforcement initiative:
Republicans’ allegations that the tech companies suppress conservative voices has bubbled up for months in conservative media and was amplified by Mr. Trump late last month. Democrats have said that is the issue—more than antitrust policy—behind the coming Justice Department meeting, with Republicans hoping to stir their conservative base ahead of November elections
All the attorneys general who are expected to attend this month’s meeting in Washington are Republicans, with Democratic officials saying they have yet to be invited.
Although it’s too soon to say where these preliminary discussions between the DoJ and the the state AGs may lead, I want to draw attention to another development– the weakening of the hold of corporate Democrats on the direction of the party. David Sirota published an interesting piece in Monday’s Guardian, Yes, let’s wipe out Trump. But take neoliberal Democrats with him, too.
Sirota’s piece wasn’t especially concerned about Big Tech per se, and focused on a percolating progressive policy agenda. He mentions regulation, but only as it affects financial firms and pharmaceutical companies and where so far, corporate Democrats have successfully insulated their paymasters from any significant increase in legal liability.
But if progressives start to wield greater influence on the Democratic side– and Republican AGs follow through with a tougher approach to enforcement– the future might shape up to be a less comfortable operating environment for US internet companies. Or at least we might hope.