Preventing ‘Techlash’ in 2018: Regulatory Threats

By Megan L. Brown

U.S. Chamber of Commerce President Thomas J. Donohue on January 10, 2018, warned that “techlash” is a threat to prosperity in 2018. What was he getting at? A “backlash against major tech companies is gaining strength — both at home and abroad, and among consumers and governments alike.” “Techlash” is a shorthand reference to a variety of impulses by government and others to shape markets, services, and products; protect local interests; and step in early to prevent potential harm to competition or consumers.

These impulses lead to a variety of actions and legal standards that can slow or change the trajectory of innovations from artificial intelligence to the Internet of Things (IoT) to business process improvements. According to Mr. Donohue, “[w]e must be careful that this ‘techlash’ doesn’t result in broad regulatory overreach that stifles innovation and stops positive advancements in their tracks.” Here are a few examples of the challenges ahead:

  • Global privacy and security regulations impose compliance obligations and erect barriers to the free flow of data, products, and services. Examples include the European Union’s General Data Protection Regulation (GDPR), its Network Information Security Directive (NIS Directive), e-Privacy initiative, and a nascent effort on IoT certifications. “A growing number of countries are making it more expensive and time consuming, if not illegal, to transfer data overseas.” [1] China’s new cyber law “requires local and overseas firms to submit to security checks and store user data within the country.” [2] Such efforts may be intended to level the playing field with large U.S. technology companies, but whatever their impetus, they create enormous compliance costs and impediments to multinational operations. [3] Emerging regulation around the world may do more harm than good, particularly to U.S.-based organizations.
  • Premature regulation and oversight drives up the costs of doing business, particularly for new entrants or disruptors. Government should act only when it has evidence of actual harms to consumers or competition and the benefits outweigh the costs. When government rushes in with a technical mandate, innovation suffers. Likewise, if the government demands business changes without evidence of anti-competitive effects, it distorts the marketplace. Premature regulations impose unnecessary compliance burdens, so governments should exercise “regulatory humility” and wait for experience and evidence.
  • Unjustified class action litigation over technology strikes fear in the hearts of innovators. The growth of “no injury” lawsuits in targeting the technology sector likewise is a concern. Class action plaintiffs were quick to sue GM and Toyota after news reports of a vulnerability in Jeeps, and dozens of plaintiffs immediately sued Intel after chip processor vulnerabilities named Meltdown and Spectre were reported. [4] While courts have generally rejected suits based on “risk of hacking,” [5] plaintiffs continue to push these theories, along with novel “economic loss” claims from “overpaying for” [6] vulnerable devices. Legal uncertainty about such claims, and the rush to obtain damages awards and attorneys’ fees, threatens to increase costs and chills companies’ willingness to engage.
  • State laws, such as those attempting to impose “net neutrality” and online privacy obligations at the state level, threaten to balkanize regulation of technology. “Lawmakers in at least six states, including California and New York, have introduced bills in recent weeks that would forbid internet providers to block or slow down sites or online services.” [7] State-by-state regulation of global ISP and carrier network practices is likely to create major inefficiencies. Likewise, state privacy laws create complexity for organizations whose operations, products, and customers cross state lines. Industry has decried “balkanized privacy regulation at the state level” which creates “a hazardous web of conflicting state-by-state laws for any company operating in the online space.” [8]
  • Local barriers, like restrictive zoning regimes, stunt technology deployment and innovation. Tomorrow’s innovations in health care, transportation, conservation, entertainment, and more depend on a robust technology infrastructure, including telecommunications facilities. [9] But many local jurisdictions are hesitant to allow deployment in public rights-of-way, and others see the explosion of small cell telecommunications facilities as a revenue stream. [10] Local barriers to deployment will slow innovation in communications technology, which may make many communities, and the United States at large, less competitive in the global economy. This is particularly troubling as other countries, like Japan and South Korea, welcome the next generation of communications technology.

2018 will be an important year for global regulation of technology, as issues from privacy to cybersecurity to competition percolate in legislatures around the world. As we enter what some call the Fourth Industrial Revolution, governments have to consider their role in supporting innovation. Hopefully the United States continues to lead by example, resisting “techlash” with a light regulatory touch and a lot of humility. The United States likewise should urge other countries not to punish success, and instead let innovators — not regulators — create the future.

[1] Cross-Border Data Flows: Where Are the Barriers, and What Do They Cost? https://itif.org/publications/2017/05/01/cross-border-data-flows-where-are-barriers-and-what-do-they-cost

[2] T. Miles, U.S. asks China not to enforce cyber security law, Reuters (Sept. 26, 2017) https://www.reuters.com/article/us-usa-china-cyber-trade/u-s-asks-china-not-to-enforce-cyber-security-law-idUSKCN1C11D1

[3] Ann M. Beauchesne, Megan Brown, Sean Heather, Principles for IoT Security; The IoT Revolution and Our Digital Security (Sept. 2017), https://www.uschamber.com/IoT-security

[4] See S. Czarnecki, Intel faces dozen class action lawsuits over chip flaws, https://www.prweek.com/article/1454201/intel-faces-dozen-class-action-lawsuits-chip-flaws (Jan. 10, 2018).

[5] Cahen v. Toyota Motor Corp., No. 16-15496 (9th Cir. Dec. 21, 2017) https://scholar.google.com/scholar_case?case=7591856924921942948&hl=en&as_sdt=6&as_vis=1&oi=scholarr

[6] Id. While the court in Cahen found that the “economic loss theory is not credible, as the allegations that the vehicles are worth less are conclusory and unsupported by any facts,” a future Plaintiff may survive a motion to dismiss with stronger allegations.

[7] C. Kang, States Push Back After Net Neutrality Repeal, N.Y. Times (Jan. 11, 2018) https://www.nytimes.com/2018/01/11/technology/net-neutrality-states.html

[8] Et tu, California? ISP Privacy Bill Moving through the Legislature (June 21, 2017) https://www.ana.net/blogs/show/id/rr-blog-2017-06-et-tu-california

[9] Thomas K. Sawanobori & Paul V. Anuszkiewicz, CTIA, High Band Spectrum: The Key to Unlocking the Next Generation of Wireless, 1, (June 13, 2016), https://www.ctia.org/docs/default-source/default-document-library/5g-high-band-white-paper.pdf

[10] See Jonathan Babcock, Joshua Turner, and Anna Gomez, 5G Deployment Faces Unique Challenges Across The US, Law360 (Aug. 1, 2017) https://www.law360.com/articles/950330/5g-deployment-faces-unique-challenges-across-the-us

Written by Megan L. Brown, Partner at Wiley Rein LLP

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More under: Cybersecurity, Internet Governance, Law, Policy & Regulation, Privacy

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Posted on: January 16, 2018

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