WEBVTT - Meta’s Biggest Legal, Regulatory Questions 0:00:14.000 --> 0:00:17.680 Hello, and welcome to the Votes and Verdicts podcast, hosted 0:00:17.720 --> 0:00:22.560 by Bloomberg Intelligence, the investment research platform of Bloomberg LP. 0:00:23.640 --> 0:00:28.120 This podcast series examines the intersection of business policy and law. 0:00:28.720 --> 0:00:33.879 I'm Matt Chuttenhallmey, an analyst with Bloomberg Intelligence covering USTMT, 0:00:34.159 --> 0:00:38.440 litigation and policy, and I'm joined today by my colleaguess 0:00:38.440 --> 0:00:41.400 Tamlin Basin, who covers the same issues in Europe, and 0:00:41.560 --> 0:00:45.760 Jennifer Ree are a Bloomberg Intelligence expert on anti trust. 0:00:46.560 --> 0:00:49.560 This podcast is the third installment in the series. Matt 0:00:49.560 --> 0:00:52.519 and I have started earlier this year talking about the 0:00:52.520 --> 0:00:58.400 biggest legal questions in the US INAU, including our most 0:00:58.400 --> 0:01:02.760 recent episode which focused entirely on regulation of AI. Now, 0:01:02.760 --> 0:01:04.679 for this addition, we thought we'd do something a little 0:01:04.680 --> 0:01:07.720 bit different. We thought we zero in on one company 0:01:07.800 --> 0:01:11.560 and look at the legal and policy issues facing that company. 0:01:12.120 --> 0:01:17.280 We chose Meta formerly Facebook for the company to examine 0:01:17.480 --> 0:01:19.240 in this and we're going to look at their litigation 0:01:19.400 --> 0:01:24.640 and policy risks world wide, from antitrust to data privacy 0:01:25.000 --> 0:01:28.400 to concerns about how social media is harming children. Now, 0:01:28.400 --> 0:01:30.520 our plan today is to give an overview of the 0:01:30.520 --> 0:01:33.880 most material leal risks that the company faces. 0:01:34.360 --> 0:01:38.280 Yeah, and I think antitrust has really emerged as a 0:01:38.360 --> 0:01:41.760 major risk for a number of tech companies in recent years, 0:01:41.800 --> 0:01:44.840 including metas so I think it makes sense to start 0:01:44.880 --> 0:01:49.680 our conversation today with Jen with a focus on in antitrust. 0:01:49.760 --> 0:01:54.640 And Jen, you've said before that Meta's primary antitrust risk 0:01:55.160 --> 0:02:00.680 is an FTC lawsuit that's challenging its acquisitions of Intram 0:02:01.320 --> 0:02:04.760 and WhatsApp. Can you take us through the allegations in 0:02:04.800 --> 0:02:05.320 that case. 0:02:06.360 --> 0:02:09.120 Yes, sure, Thanks so much for having me, Matt and Tamlin. 0:02:09.680 --> 0:02:12.079 I'm happy to be joining your podcast, and I'll tell 0:02:12.080 --> 0:02:13.880 you it's kind of a nice change to be talking 0:02:13.919 --> 0:02:17.240 about Meta right now in Meta's anti trust risks, at 0:02:17.320 --> 0:02:20.359 least to me, probably not to Meta, because lately it's 0:02:20.360 --> 0:02:23.520 been all about Alphabet, So it's good to talk about 0:02:23.560 --> 0:02:27.440 another tech platform that also is in the anti trust crosshairs. 0:02:28.520 --> 0:02:31.480 The FDC has been quietly litigating against the company. You know, 0:02:31.560 --> 0:02:33.600 we haven't seen very much in the news about this, 0:02:34.000 --> 0:02:36.760 and as Matt, as you said, it's primarily over the 0:02:36.760 --> 0:02:39.839 company's acquisitions of Instagram and WhatsApp, and I think it's 0:02:39.880 --> 0:02:43.000 really this suit is the only significant anti trust risk 0:02:43.320 --> 0:02:45.919 that Meta faces at least in the US right now. 0:02:47.040 --> 0:02:49.079 And just by way of background, this suit was actually 0:02:49.080 --> 0:02:52.600 filed during the Trump administration, so some time ago, and 0:02:52.639 --> 0:02:55.560 then Biden's anti trust enforcers at the Federal Trade Commission 0:02:55.600 --> 0:02:57.160 picked it up and ran with it. And when this 0:02:57.240 --> 0:03:00.440 suit was filed, Meta was actually still called Facebook. So 0:03:00.480 --> 0:03:02.359 at least going forward, I'm going to refer to the 0:03:02.440 --> 0:03:06.920 defendant as Facebook. And what the FDCs alleged here is 0:03:06.919 --> 0:03:11.480 that Facebook unlawfully maintained a monopoly position it had attained 0:03:11.760 --> 0:03:15.720 lawfully in a personal social networking services market in the US, 0:03:16.040 --> 0:03:18.560 and they did this through a pattern of buying up 0:03:18.600 --> 0:03:22.840 companies that they deemed to present competitive threats. Now, the 0:03:22.880 --> 0:03:27.280 FDC also says Facebook imposed some restrictive policies that unjustifiably 0:03:27.360 --> 0:03:31.560 hindered other potential rivals. But that conduct has kind of ceased. 0:03:31.880 --> 0:03:34.280 That was highlighted, and it seesed many years ago. So 0:03:34.360 --> 0:03:38.080 really the primary issues here are the acquisitions. So what 0:03:38.120 --> 0:03:40.320 the FTC says is that there was this course of 0:03:40.360 --> 0:03:43.240 anti competitive conduct for years and the aim of it 0:03:43.280 --> 0:03:47.200 was to suppress serious competitive threats. So first one they 0:03:47.320 --> 0:03:51.440 highlight is Instagram, which Facebook bought in twenty twelve, and 0:03:51.520 --> 0:03:54.680 at the time, Instagram was a competitor in mobile photo sharing, 0:03:54.680 --> 0:03:56.840 which was becoming a really big deal right around then. 0:03:57.160 --> 0:03:59.440 And Facebook actually tried to do this on their own, 0:03:59.440 --> 0:04:03.120 this mobile photo sharing, but wasn't successful, And according to 0:04:03.120 --> 0:04:05.760 the FTC, it was quite worried that Google or Twitter 0:04:05.920 --> 0:04:09.280 or Apple would buy Instagram and then expanded into a 0:04:09.280 --> 0:04:12.240 bigger Facebook competitor, so it bought the company to prevent that. 0:04:12.720 --> 0:04:16.640 And then the second acquisition that's highlighted is WhatsApp, acquired 0:04:16.640 --> 0:04:21.200 in twenty fourteen and at the time considered a potential competitor. So, 0:04:21.520 --> 0:04:24.320 I mean, as most people know, WhatsApp is a messaging app, 0:04:24.680 --> 0:04:27.080 But what the FTC says is that it really had 0:04:27.120 --> 0:04:30.400 all the ingredients it needed to move into social networking, 0:04:30.560 --> 0:04:33.920 and Facebook was worried that it would. So what the 0:04:34.000 --> 0:04:36.560 FTC says is that the harm caused by these i'll 0:04:36.560 --> 0:04:40.720 call them defensive acquisitions, that this has harmed users of 0:04:40.760 --> 0:04:43.479 personal social networking in the US because they're deprived of 0:04:43.560 --> 0:04:48.719 the benefits of competition, which could include increased choice, better quality, 0:04:48.960 --> 0:04:51.960 more innovation, things like that. And the FTC says this 0:04:52.000 --> 0:04:56.280 also impacts advertising prices because by suppressing and neutralizing the 0:04:56.320 --> 0:05:00.760 emergence and growth of personal social networking rivals also suppresses 0:05:00.800 --> 0:05:04.159 meaningful competition in the sale of advertising. So, in other words, 0:05:04.160 --> 0:05:07.599 more competition and personal personal social networking is likely to 0:05:07.640 --> 0:05:11.560 mean more competition in the provision of advertising. So essentially 0:05:11.640 --> 0:05:13.359 that Matt is the suit in a nutshell. 0:05:14.040 --> 0:05:18.120 Thanks Thanks Jen, that's a helpful overview. I understand the 0:05:18.240 --> 0:05:22.240 FTC is actually pushing for divestitures as part of this suit. 0:05:22.360 --> 0:05:25.720 Is that a real risk that Meta might be forced 0:05:25.760 --> 0:05:28.880 to divest these divisions? 0:05:29.320 --> 0:05:30.480 Yeah, it absolutely is. 0:05:30.640 --> 0:05:32.680 I think it's gunning hard for something like that, but 0:05:32.720 --> 0:05:35.200 I'll tell you, I think it's really unlikely that that's 0:05:35.240 --> 0:05:37.840 going to happen. I mean, at the outset, it's going 0:05:37.880 --> 0:05:40.120 to be really hard. I think for the FDC to 0:05:40.120 --> 0:05:43.000 win on liability, you know, they have to show that 0:05:43.120 --> 0:05:46.520 Facebook bought these rivals with the express purpose of killing 0:05:46.520 --> 0:05:50.039 off competition and there were no other pro competitive, legitimate 0:05:50.040 --> 0:05:53.200 business reasons for the deals. Now, they have some documents 0:05:53.200 --> 0:05:56.080 that tend to support that. Even Mark Zuckerberg had a 0:05:56.120 --> 0:05:59.120 document that said it's better to buy than compete. That's 0:05:59.200 --> 0:06:01.919 not helpful, but you know, they also then have to 0:06:02.040 --> 0:06:05.480 argue with theoretical that consumers and the social media market 0:06:05.520 --> 0:06:08.600 would have been better off if Facebook hadn't bought the companies. 0:06:08.880 --> 0:06:10.880 And I think that's where it could get tough, because 0:06:10.920 --> 0:06:13.680 Facebook didn't buy these companies and then just kill them off. 0:06:14.440 --> 0:06:17.120 Facebook devoted a lot of resources to them and developed 0:06:17.120 --> 0:06:19.839 them both into the popular products they are today. And 0:06:19.880 --> 0:06:21.919 there's no guarantee that either one of them would have 0:06:21.960 --> 0:06:24.840 thrived without those resources behind them. I mean, they were 0:06:24.839 --> 0:06:28.280 both really, really small when they were acquired, and Instagram 0:06:28.440 --> 0:06:31.719 had eight employees and had yet to be profitable at 0:06:31.760 --> 0:06:34.640 the time that Facebook picked it up, So who knows 0:06:34.640 --> 0:06:37.320 what would have happened there. And there is some precedent 0:06:37.360 --> 0:06:40.680 that's been set in the big antitrust case that a 0:06:40.680 --> 0:06:43.839 lot of people point to against Microsoft that in the 0:06:43.920 --> 0:06:46.680 two thousand early two thousand there was a decision and 0:06:46.720 --> 0:06:50.239 there's some helpful precedent from that case for the FTC 0:06:50.440 --> 0:06:53.640 that says that the FTC doesn't have to prove that 0:06:53.680 --> 0:06:57.720 these companies would actually have developed into viable platform substitutes, 0:06:58.279 --> 0:07:03.560 but just whether the exclusion of the threat contributed significantly 0:07:03.680 --> 0:07:07.360 to Facebook's continued monopoly power. But I still think that 0:07:07.360 --> 0:07:10.720 that's something that's very difficult to show when you think 0:07:10.720 --> 0:07:14.280 about the digital landscape and how it changes, including the 0:07:14.400 --> 0:07:17.040 rise of TikTok. Since this suit was filed, I think 0:07:17.080 --> 0:07:20.120 it's still hard to say, hey, because they bought these 0:07:20.120 --> 0:07:24.080 companies that contributed to their current dominant position in social networking. 0:07:24.960 --> 0:07:27.520 And I should just add on this, Matt that even 0:07:27.560 --> 0:07:30.280 if the FDC did win on liability, I think unwinding 0:07:30.320 --> 0:07:33.760 the deal is very unlikely, again because of Microsoft precedent. 0:07:34.320 --> 0:07:37.240 That court said it cautioned against what it called a 0:07:37.320 --> 0:07:40.760 drastic remedy because of the uncertainty about the long term 0:07:40.800 --> 0:07:43.200 efficacy of a business that gets carved out, And certainly 0:07:43.200 --> 0:07:45.560 I think a judge would really worry about that now, 0:07:45.600 --> 0:07:47.920 because these are two very popular products, and who knows 0:07:47.920 --> 0:07:51.080 what would happen if Facebook had to carve them out 0:07:51.400 --> 0:07:54.880 and sell them to somebody else. So, and the last 0:07:54.880 --> 0:07:57.640 thing I would say about remedies is that even if 0:07:57.680 --> 0:08:00.000 the FDC were to win on liability, there are less 0:08:00.080 --> 0:08:03.240 drastic remedies that could be imposed short of a breakup, 0:08:03.360 --> 0:08:06.960 like data sharing or interoperability requirements. So at the end 0:08:06.960 --> 0:08:10.560 of the day, I question even whether the FTC can 0:08:10.560 --> 0:08:13.120 win on liability, but even if it did, I highly 0:08:13.160 --> 0:08:15.320 doubt what will end up happening as a breakup. 0:08:16.960 --> 0:08:20.360 Now, Jena, what's the timeline? Where do things stand now 0:08:20.400 --> 0:08:21.120 in this litigation? 0:08:21.520 --> 0:08:24.520 Yeah, it's been moving pretty slowly, but I think theoretically 0:08:24.560 --> 0:08:26.720 it might be able to get to trial next year 0:08:27.240 --> 0:08:31.600 or early twenty twenty five. Discovery finished up, motions to 0:08:32.000 --> 0:08:35.240 dismiss have finished up. The parties are going to meet 0:08:35.400 --> 0:08:37.840 meeting with the judge in early one Q to discuss 0:08:37.840 --> 0:08:40.800 schedules for summery judgment briefing. So really that's just the 0:08:40.880 --> 0:08:42.760 last thing that has to happen before it can go 0:08:42.800 --> 0:08:45.120 to trial. And I think that can get done in 0:08:45.160 --> 0:08:48.199 twenty twenty four, and assuming met is unsuccessful, because I 0:08:48.240 --> 0:08:51.320 think they have a shot actually possibly a disposing of 0:08:51.360 --> 0:08:54.840 the case on summary judgment. But if they don't, that 0:08:54.920 --> 0:08:57.840 could probably get done next year, which could put trial 0:08:58.320 --> 0:08:59.920 in early twenty twenty five. 0:09:00.920 --> 0:09:03.839 Okay, And sort of beyond this case, what are some 0:09:04.080 --> 0:09:07.400 other antitrust risks that might be out there for Meta? Now? 0:09:07.840 --> 0:09:10.160 I think in the last Congress there was a big 0:09:10.160 --> 0:09:14.040 push for some legislation that would regulate some tech platforms. 0:09:14.320 --> 0:09:16.560 Are there any still bills still on the table that 0:09:16.640 --> 0:09:19.200 might impact Meta on the competition side. 0:09:19.480 --> 0:09:22.280 Yeah, Tamlin, You're absolutely right. I mean there was sort 0:09:22.280 --> 0:09:25.280 of a really there were bills last year that really 0:09:25.320 --> 0:09:27.600 had a lot of momentum, and I think some people 0:09:27.640 --> 0:09:30.800 thought they had a real shot, but that's absolutely faded. Now. 0:09:31.320 --> 0:09:33.480 There are bills that have been reintroduced in this current 0:09:33.520 --> 0:09:36.400 Congress with the goal in mind to regulate big tech. 0:09:36.600 --> 0:09:40.320 Some of them would impact Facebook Meta for sure, but 0:09:40.360 --> 0:09:43.160 they really haven't gotten any traction, and I don't really 0:09:43.200 --> 0:09:47.080 think they will, given that Congress is divided, and I 0:09:47.120 --> 0:09:49.440 think there are other matters that are likely higher on 0:09:49.480 --> 0:09:51.800 the priority list for those that are in a decision 0:09:51.800 --> 0:09:54.560 making position in the House of Representatives. But I'm just 0:09:55.000 --> 0:09:57.400 laying out what's out there right now that would impact 0:09:57.440 --> 0:10:00.720 META if it went forward. You do have proposals for 0:10:00.760 --> 0:10:04.760 a Digital Platform Commission that would establish a commission to 0:10:04.800 --> 0:10:08.360 regulate digital platforms, and it would give that commission pretty 0:10:08.400 --> 0:10:11.640 broad authority to issue rules and recommend standards for how 0:10:11.720 --> 0:10:14.599 large tech platforms should operate. But honestly, that kind of 0:10:14.679 --> 0:10:18.360 expansion of the administrative state is unlikely in this Congress, 0:10:18.400 --> 0:10:22.040 particularly given current efforts in some quarters to actually reduce 0:10:22.080 --> 0:10:25.560 the authority of the FTC. A couple of bills that 0:10:25.679 --> 0:10:31.360 would impact Meta. One would require data portability and interoperability 0:10:31.400 --> 0:10:35.840 buying among platforms. Another one would provide any anti exemption 0:10:35.960 --> 0:10:40.040 for news organizations that would allow collective bargaining by those 0:10:40.160 --> 0:10:43.000 organizations against the platform that use their new stories. So 0:10:43.000 --> 0:10:45.880 certainly that would impact Meta. But again, these bills have 0:10:45.960 --> 0:10:48.040 kind of been around for several years, they haven't really 0:10:48.080 --> 0:10:51.080 gained traction, so I don't see the threat of new 0:10:51.160 --> 0:10:54.120 laws as a significant one right now. I think the 0:10:54.160 --> 0:10:57.200 FTC's lawsuit is the more immediate risk with respect to 0:10:57.240 --> 0:11:00.640 antitrust at least, and then I think to close up. 0:11:00.679 --> 0:11:02.600 The only other thing I should add is that for 0:11:02.720 --> 0:11:06.000 acquisition activity, I think, you know, Meta should continue to 0:11:06.080 --> 0:11:10.439 expect a skeptical and difficult FTC, at least in this administration, 0:11:10.840 --> 0:11:13.200 to throw up some hurdles. You know, we already saw 0:11:13.240 --> 0:11:18.559 the FTC challenging Meta's acquisition within it was unsuccessful and 0:11:18.880 --> 0:11:21.600 Meta has bought the company. But I think going forward, 0:11:21.600 --> 0:11:24.560 if Meta tries to do other small deals or big deals, 0:11:25.200 --> 0:11:27.839 the FDC is probably going to carefully scrutinize those and 0:11:28.360 --> 0:11:29.720 throw some hurdles up in its way. 0:11:30.200 --> 0:11:32.240 Great, thanks, Jen. I think that's a great way to 0:11:32.320 --> 0:11:36.360 kick things off today, touching on the antitrust risks and 0:11:36.600 --> 0:11:40.280 that FTC case. But I want to turn shift gears 0:11:40.320 --> 0:11:43.280 a little bit. Another legal risk for the company has 0:11:43.320 --> 0:11:46.960 been the EU and sort of the rise of regulation there. 0:11:47.040 --> 0:11:52.800 And Tamlin, you're really our expert on that. Can you 0:11:52.960 --> 0:11:56.400 give us a high level overview of what that sort 0:11:56.400 --> 0:11:59.439 of new regulatory landscape looks like in the EU? 0:12:00.240 --> 0:12:02.880 Yeah? Sure, thanks Matt. So let's go back a little bit. 0:12:02.920 --> 0:12:07.280 So Meta has been by far the top target for 0:12:07.480 --> 0:12:11.880 general data protection regulation finds since those privacy rules took 0:12:11.880 --> 0:12:16.079 effect in twenty eighteen, and Meta is likely to remain 0:12:16.360 --> 0:12:21.960 in the EU regulators crosshairs as the attention shifts enforcing 0:12:22.080 --> 0:12:26.600 new content moderation and new competition rules. Now, the content 0:12:26.720 --> 0:12:30.079 rules which were brought in by the Digital Services Act 0:12:30.600 --> 0:12:33.600 do face an early test that that poses some risk 0:12:33.960 --> 0:12:37.400 if regulators managed to sort of broaden the scope of 0:12:37.400 --> 0:12:41.480 a platform's duties in connections with in relation to sort 0:12:41.480 --> 0:12:45.920 of harmful harmful content on the networks. Now, the competition rules, 0:12:46.080 --> 0:12:49.280 which are contained in the Digital Markets Act take effect 0:12:49.400 --> 0:12:53.640 in March, and those will focus further attention on how 0:12:53.720 --> 0:12:58.679 Meta separates data across its various platforms. Now, the DMA 0:12:58.679 --> 0:13:03.280 looks to significantly the market dominance of large tech platforms, 0:13:03.880 --> 0:13:06.720 and it would do this by sort of erecting barriers 0:13:06.720 --> 0:13:09.280 to the practices that Meta and other large tech firms 0:13:09.440 --> 0:13:13.480 have used to build those dominant market positions. And then meanwhile, 0:13:13.679 --> 0:13:15.240 in the back of all this, it is sort of 0:13:15.240 --> 0:13:19.960 assumed to be finalized AI regulation that could coultail Meta's 0:13:20.080 --> 0:13:23.200 roll out of sort of large language model systems in 0:13:23.240 --> 0:13:24.800 the U. So, yeah, I think I think it's fair 0:13:24.840 --> 0:13:27.880 to say there's a lot going on in Europe that 0:13:27.920 --> 0:13:31.120 could potentially throw throw up some more blocks to Meta 0:13:31.200 --> 0:13:32.000 over the near term. 0:13:32.520 --> 0:13:35.320 Yeah, okay, interesting, let let's let's let's dig in a 0:13:35.320 --> 0:13:37.560 little deeper on on on some of that. So it 0:13:37.559 --> 0:13:42.960 sounds like the Digital Markets Act could pose disruption over 0:13:43.000 --> 0:13:47.679 the medium term. How might Meta adjust to comply with 0:13:47.679 --> 0:13:48.120 with it? 0:13:49.040 --> 0:13:52.480 Yeah? Sure, so the Digital Markett Act or the dm A. 0:13:52.720 --> 0:13:57.160 So enforcement really began with that in September when the 0:13:57.160 --> 0:14:01.880 European Commission designated a number of gatekeeper platforms. Now, Meta 0:14:01.920 --> 0:14:04.559 was named a gatekeeper and the services subject to the 0:14:04.640 --> 0:14:11.520 rules include the Facebook platform, Instagram, WhatsApp, Messenger, and Meta Marketplace. Now, 0:14:11.559 --> 0:14:15.160 I should note that Meta has sued challenging those marketplace 0:14:15.280 --> 0:14:18.720 and messager designations as of now, though they're still being 0:14:19.120 --> 0:14:22.520 regulated as a gatekeeper. Now, there is a long list 0:14:22.560 --> 0:14:25.640 of dues and don'ts that gatekeepers will need to comply 0:14:25.760 --> 0:14:29.480 with by March of next year. Now, the DMA restricts 0:14:29.520 --> 0:14:35.440 preferential display and ranking. It prohibits the exclusive pre installation 0:14:35.520 --> 0:14:38.120 of apps, and there's also an obligation to share a 0:14:38.200 --> 0:14:41.240 click and query data and searches with rivals. And there's 0:14:41.280 --> 0:14:46.040 also the prohibition of wide parity clauses. Now, non compliance 0:14:46.240 --> 0:14:48.880 is going to be pretty stiff because the European Commission 0:14:49.000 --> 0:14:51.280 is going to be able to assess a spine of 0:14:51.360 --> 0:14:55.200 up to ten percent of a gate keeper's annual global revenue, 0:14:55.520 --> 0:14:58.640 and then multiple infractions can lead to the possibility for 0:14:58.720 --> 0:15:02.960 structural remedies such jet the breakup. Now, Meta, I think 0:15:03.040 --> 0:15:05.720 is going to rely on user consent to mitigate a 0:15:05.800 --> 0:15:09.040 lot of the risks from the DNA, and I think 0:15:09.080 --> 0:15:12.080 what regulators are going to focus on is whether users 0:15:12.200 --> 0:15:15.560 data is being shared across platforms as well as how 0:15:15.680 --> 0:15:19.160 Meta is obtaining consent for the use of third party data, 0:15:19.280 --> 0:15:23.840 and finally, whether it's tying its marketplace to its dominant 0:15:23.840 --> 0:15:26.840 social media networks for Instagram, Facebook. So I think we're 0:15:26.840 --> 0:15:29.200 going to buy as twenty twenty four goes along, we're 0:15:29.240 --> 0:15:32.760 going to see Meta in the sort of regulatory crosshairs 0:15:32.800 --> 0:15:35.480 of DMA enforcement makes sense. 0:15:35.760 --> 0:15:39.080 How about how about the dssay there's been there's been noise, 0:15:39.160 --> 0:15:42.880 there at any tangible risk from that one? 0:15:43.160 --> 0:15:47.080 Yeah, in short, probably nothing tangible, but we are going 0:15:47.160 --> 0:15:49.440 to get an early test for how broadly these rules 0:15:49.440 --> 0:15:52.720 are going to be construed. So the DSA brings nuke 0:15:52.800 --> 0:15:58.080 transparency and content moderation rules to social media platforms. The 0:15:58.120 --> 0:16:01.080 reason we don't see any huge risk overhang is that 0:16:01.120 --> 0:16:05.800 the DSA retained the liability shield for third party content, 0:16:06.000 --> 0:16:09.160 and it also didn't impose a general duty on a 0:16:09.200 --> 0:16:13.960 platform to monitor for illegal content. So instead the platform 0:16:14.040 --> 0:16:18.200 is just required to quickly remove objectionable content once it 0:16:18.240 --> 0:16:21.000 is made aware of it. However, there is going to 0:16:21.000 --> 0:16:24.680 be this general duty to mitigate against systemic risks, and 0:16:24.760 --> 0:16:27.440 here's where things might get a little bit tricky. Now 0:16:27.440 --> 0:16:30.160 that mitigation obligation isn't going to kick in for a while, 0:16:30.320 --> 0:16:34.200 but the European Commission, which has direct DSA enforcement powers, 0:16:34.520 --> 0:16:37.120 has already raised this mutigation issue in the wake of 0:16:37.120 --> 0:16:40.520 the violence in the Middle East. So after the violence erupted, 0:16:40.560 --> 0:16:43.320 there was an optick and objectionable content posted across social 0:16:43.360 --> 0:16:45.920 media platforms. So what we're going to see is is 0:16:45.960 --> 0:16:49.240 how broadly this mitigate these midilgation rules are stretched here. 0:16:49.720 --> 0:16:51.520 And while we don't think it's going to lead to 0:16:51.560 --> 0:16:54.920 this general duty to monitor, it could nonetheless result in 0:16:54.920 --> 0:16:59.200 some additional content moderation guidelines for metas platforms over medium term. 0:17:00.080 --> 0:17:03.680 Near term though DSA is mostly going to pose headline 0:17:03.720 --> 0:17:06.480 risk for Meta and for other social media platforms. 0:17:07.119 --> 0:17:07.520 Got it. 0:17:07.560 --> 0:17:07.800 Thanks? 0:17:07.840 --> 0:17:11.560 And another another law we heard about a lot a 0:17:11.560 --> 0:17:14.719 couple of years back was was GDPR, And I know 0:17:14.800 --> 0:17:19.720 Meta has racked up some fines there more recently is 0:17:20.280 --> 0:17:23.359 that over Now where do things stand on the GDPR? 0:17:24.440 --> 0:17:26.960 Yeah, so just put some numbers on those fines that's 0:17:26.960 --> 0:17:29.600 wracked up. So Meta has been fined over two point 0:17:29.600 --> 0:17:33.639 five billion euros under GDPR. That represents fifty eight percent 0:17:33.680 --> 0:17:36.359 of the total penalties that have been assessed under the 0:17:36.359 --> 0:17:39.320 Privacy law. Now there are a few inquiries still pinning, 0:17:39.400 --> 0:17:42.200 but I think those relate mostly to data breaches, So 0:17:42.240 --> 0:17:44.760 there might be a little bit of financial risk, but 0:17:45.760 --> 0:17:50.000 we see very limited risk of operational disruptions. And also 0:17:50.040 --> 0:17:54.280 Meta's decision recently to offer a subscription model in Europe 0:17:54.320 --> 0:17:59.160 for users that do not want the free ad space accounts, 0:17:59.800 --> 0:18:02.159 and that's going to offer for Instagram and Facebook users. 0:18:02.160 --> 0:18:05.400 I think that removes some of the GDPR scrutiny now, 0:18:05.400 --> 0:18:09.160 although the move will almost certainly be challenged by privacy advocates. 0:18:09.680 --> 0:18:12.080 I think these further inquiries are going to focus sort 0:18:12.119 --> 0:18:14.600 of on how content is structured. I think on the 0:18:14.600 --> 0:18:16.639 whole these are going to be much less disruptive than 0:18:16.680 --> 0:18:20.159 the GDPR inquiries that Meta has weathered today is I 0:18:20.200 --> 0:18:23.359 do think it's moving beyond GDPR as being a persistent risk. 0:18:24.280 --> 0:18:28.880 Okay, And sort of wrapping up on the EU side, Meta, 0:18:29.119 --> 0:18:33.680 like most of the big tech platforms, is investing heavily 0:18:33.880 --> 0:18:38.640 in AI, and there was recent news that Europe has 0:18:38.760 --> 0:18:43.720 just finalized an agreement on a broad regulatory package on AI. 0:18:44.119 --> 0:18:48.320 Can we say anything specific to Meta in that development? 0:18:49.080 --> 0:18:52.359 Yeah? Sure, And so you're right, the EU recently reached 0:18:52.400 --> 0:18:56.679 a provisional agreement to regulate AI. Now, the rules on 0:18:56.840 --> 0:19:00.400 general purpose AI systems could be relevant to Meta. Now, 0:19:00.400 --> 0:19:03.879 these rules, if they were enacted, would impose some transparency 0:19:03.960 --> 0:19:09.000 obligations on the systems that Meta is developing, that Google's developing, 0:19:09.119 --> 0:19:12.399 the chat GPTs that open ai has developed. Now, these 0:19:12.960 --> 0:19:17.359 transparency obligations would include requiring information on how the models 0:19:17.359 --> 0:19:19.680 were trained, a summary of what data was used to 0:19:19.720 --> 0:19:23.280 train them, and it would require these systems to have 0:19:23.359 --> 0:19:25.959 a copyright policy. Now, of course, there's been a lot 0:19:26.000 --> 0:19:28.119 of copyright noise for a lot of these systems because 0:19:28.200 --> 0:19:30.439 a lot of the right holders are worried about the 0:19:30.440 --> 0:19:34.280 ways that they were changed trained and are seeking compensation 0:19:34.400 --> 0:19:37.160 for that. Now, I should note that these still rules 0:19:37.200 --> 0:19:39.680 are still a long way from taking effect, and there's 0:19:39.720 --> 0:19:42.000 a chance that the obligations are going to be watered down. 0:19:42.400 --> 0:19:44.480 I think in the meantime, it's safe to say that 0:19:44.560 --> 0:19:47.760 Meta and pretty much any other tech platform investing in 0:19:47.800 --> 0:19:50.400 AI is going to have to pay attention to how 0:19:50.400 --> 0:19:55.160 the regulatory framework shapes up. But I think let's leave 0:19:55.200 --> 0:19:59.199 it there for Europe and let's go back to the US. Now, 0:19:59.240 --> 0:20:02.879 Matt in the US after the Cambridge Analytica Meta matter. 0:20:03.080 --> 0:20:06.600 Meta entered into a five million dollar settlement with FDC 0:20:06.720 --> 0:20:08.879 back in twenty twenty. I don't think that's the end 0:20:08.920 --> 0:20:11.240 of Meta's leader risk in the issue. So what is 0:20:11.280 --> 0:20:12.240 happening now? 0:20:12.920 --> 0:20:15.520 Yeah. You would think when you do a five billion 0:20:15.560 --> 0:20:19.240 dollars settlement, you would think, Okay, I think we're done 0:20:19.240 --> 0:20:25.320 with that, right, But apparently not. In May of this year, 0:20:25.560 --> 0:20:29.520 the Federal Trade Commission, which is now under democratic leadership 0:20:29.600 --> 0:20:33.080 under under Lena Khan, announced that it was looking to 0:20:33.200 --> 0:20:37.480 start a process to change the terms of that settlement. 0:20:37.960 --> 0:20:42.760 The FTC said that that they've conducted the first assessment 0:20:43.040 --> 0:20:47.080 under Meta's privacy program that it promised as part of 0:20:47.520 --> 0:20:51.320 that settlement, and the FDC found non compliance there So, 0:20:52.160 --> 0:20:55.200 instead of bringing a new action for non compliance, the 0:20:55.320 --> 0:20:59.320 FTC looked into its book of statutory Powers and it 0:20:59.359 --> 0:21:04.400 found that it had the power to modify previous consent decrees, 0:21:04.520 --> 0:21:07.919 and so in May, the FTC proposed a number of 0:21:08.000 --> 0:21:14.000 changes to that settlement, including a total ban on monetizing 0:21:14.119 --> 0:21:18.640 data from user users under eighteen. The FDC would also 0:21:18.840 --> 0:21:23.159 bar Meta from releasing any new products, any new features, 0:21:23.359 --> 0:21:28.160 any new services until an Assessor confirms that that medicine 0:21:28.200 --> 0:21:32.320 compliance with this privacy program. And so this is kind 0:21:32.320 --> 0:21:34.479 of a big deal for the company when when you 0:21:34.480 --> 0:21:39.280 have a federal agency imposing bans like that. Meta raised 0:21:39.280 --> 0:21:42.560 this on its last earnings calls as a material risk 0:21:43.359 --> 0:21:46.119 in the near term, and now the company's sort of 0:21:46.160 --> 0:21:49.920 throwing the kitchen sink of its litigation resources at trying 0:21:50.000 --> 0:21:54.560 to stop it. Earlier this fall, the company ran into 0:21:54.680 --> 0:21:58.040 the court that that blessed this twenty twenty settlement agreement, 0:21:58.400 --> 0:22:01.320 and it asked the court stop, you need to stop this, 0:22:01.440 --> 0:22:04.119 stop the FTC process before it can start. This is 0:22:04.200 --> 0:22:08.120 your jurisdiction, Court, It's not the FTC's role to come 0:22:08.160 --> 0:22:11.840 in and change an agreement that you already endorsed. But 0:22:12.359 --> 0:22:16.000 in November, the court refused to do so. It rejected 0:22:16.320 --> 0:22:20.120 Meta's request. The court said it didn't think it has jurisdiction. 0:22:20.880 --> 0:22:23.800 And so now we're sort of at the next step 0:22:23.880 --> 0:22:27.480 of Meta's efforts to try to stop the FTC process 0:22:27.520 --> 0:22:31.560 before it starts. Meta filed a new lawsuit just a 0:22:31.560 --> 0:22:34.960 week or two ago in federal court, saying the FTC 0:22:35.040 --> 0:22:39.760 is unconstitutional and it's using an unconstitutional process. It seeks 0:22:39.800 --> 0:22:43.560 a stay or an injunction to stop the process based 0:22:43.600 --> 0:22:49.000 on that claim. It also has has appealed the other 0:22:49.119 --> 0:22:52.960 judges ruling when he refused to stop the FDC, and 0:22:53.200 --> 0:22:56.600 it just a day or two ago filed another stay 0:22:56.680 --> 0:23:00.280 related to that, asking that court to hit pause on 0:23:00.320 --> 0:23:04.480 the FDC's proceeding. So the FTC's response, I mean, Meta's 0:23:04.520 --> 0:23:07.119 response to the FTC is due at the end of January, 0:23:07.520 --> 0:23:10.800 and metas sort of fighting hard to not even let 0:23:10.800 --> 0:23:14.080 that process start. I think what we should see two 0:23:14.119 --> 0:23:17.560 rulings from courts in January and whether it will hit 0:23:17.560 --> 0:23:21.679 whether those courts will hit pause on the process. I'm skeptical. 0:23:21.720 --> 0:23:24.120 I think that that's a hard thing for META to win. 0:23:24.240 --> 0:23:29.280 To stop the FTC process before it starts, Meta will 0:23:29.280 --> 0:23:31.240