Happy 2018 to our readers! It has become a Socially Aware tradition to start the New Year with some predictions from our editors and contributors. With smart contracts on the horizon, the Internet of Things and cryptocurrencies in the spotlight, and a number of closely watched lawsuits moving toward resolution, 2018 promises to be an exciting year in the world of emerging technology and Internet law.
Here are some of our predictions regarding tech-related legal developments over the next twelve months. As always, the views expressed are not to be attributed to Morrison & Foerster or its clients.
From John Delaney, Co-Founder and Co-Editor, Socially Aware, and Partner at Morrison & Foerster:
Regarding Web Scraping
Web scraping is an increasingly common activity among businesses (by one estimate, web-scraping bots account for as much as 46% of Internet traffic), and is helping to fuel the “Big Data” revolution. Despite the growing popularity of web scraping, courts have been generally unsympathetic to web scrapers. Last August, however, web scrapers finally received a huge victory, as the U.S. District Court for the Northern District of California enjoined LinkedIn from blocking hiQ Labs’ scraping of publicly available user profiles from the LinkedIn website in the hiQ Labs, Inc. v. LinkedIn Corp. litigation. The case is now on appeal to the Ninth Circuit; although my sense is that the Ninth Circuit will reject the broad scope and rationale of the lower court’s ruling, if the Ninth Circuit nevertheless ultimately sides with hiQ Labs, the web scraper, the decision could be a game changer, bringing online scraping out of the shadows and perhaps spurring more aggressive uses of scraping tools and scraped data. On the other hand, if the Ninth Circuit reverses, we may see companies reexamining and perhaps curtailing their scraping initiatives. Either way, 2018 promises to bring greater clarity to this murky area of the law.
Regarding the Growing Challenges for Social Media Platforms
2017 was a tough year for social media platforms. After years of positive press, immense consumer goodwill and a generally “hands off” attitude from regulators, last year saw a growing backlash against social media due to a number of reasons: the continued rise of trolling creating an ever-more toxic online environment; criticism of social media’s role in the dissemination of fake news; the growing concern over social media “filter bubbles” and “echo chambers”; and worries about the potential societal impact of social media’s algorithm-driven effectiveness in attracting and keeping a grip on our attention. Expect to see in 2018 further efforts by social media companies to get out ahead of most if not all of these issues, in the hopes of winning over critics and discouraging greater governmental regulation.
Regarding the DMCA Safe Harbor for Hosting of User-Generated Content
The backlash against social media noted in my prior item may also be reflected to some extent in several 2017 court decisions regarding the DMCA safe harbor shielding website operators and other online service providers from copyright damages in connection with user-generated content (and perhaps in the CDA Section 230 case law discussed by Aaron Rubin below). After nearly two decades of court decisions generally taking an ever more expansive approach to this particular DMCA safe harbor, the pendulum begun to swing in the other direction in 2016, and this trend picked up steam in 2017, culminating in the Ninth Circuit’s Mavrix decision, which found an social media platform provider’s use of volunteer curators to review user posts to deprive the provider of DMCA safe harbor protection. Expect to see the pendulum continue to swing in favor of copyright owners in DMCA safe harbor decisions over the coming year.
Regarding Smart Contracts
Expect to see broader, mainstream adoption of “smart contracts,” especially in the B2B context—and perhaps litigation over smart contracts in 2019 . . . .
From Aaron Rubin, Co-Editor, Socially Aware, and Partner at Morrison & Foerster:
Regarding the CDA Section 230 Safe Harbor
We noted previously that 2016 was a particularly rough year for Section 230 of the Communications Decency Act and the immunity that the statute provides website operators against liability arising from third-party or user-generated content. Now that 2017 is in the rear view mirror, Section 230 is still standing but its future remains imperiled. We have seen evidence of Section 230’s resiliency in recent cases where courts rejected plaintiffs’ creative attempts to find chinks in the immunity’s armor by arguing, for example, that websites lose immunity when they use data analytics to direct users to content, or when they fail to warn users of potential dangers, or when they share ad revenue with content developers. Nonetheless, it is clear that the knives are still out for Section 230, including in Congress, where a number of bills are under consideration that would significantly limit the safe harbor in the name of combatting sex trafficking. I predict that 2018 will only see these efforts to rein in Section 230 increase.
From Julie O’Neill, Online Marketing Desk Editor, Socially Aware, and Partner at Morrison & Foerster:
Regarding Online Advertising
In 2018, we expect to see the Federal Trade Commission continue to enforce the provision of its Endorsement Guides that requires advertisers and influencers to clearly and conspicuously disclose when the advertiser has provided an endorser with any type of compensation in exchange for an endorsement. In particular, after multiple warnings, the FTC is likely to bring actions not only against advertisers (its traditional targets) but also against celebrity endorsers who fail to disclose that brands pay or otherwise compensate them in return for their endorsements on social media and elsewhere. The FTC might also address what types of disclosures meet its “clear and conspicuous” standard in this context. Advertisers that use celebrities and social influencers should pay close attention.
From Christine Lyon, Privacy Desk Editor, Socially Aware, and Partner at Morrison & Foerster:
Regarding the Global Impact of New EU Privacy Legislation
In 2018, companies will feel the effects of the EU’s new General Data Protection Regulation (GDPR) even if they have no presence in the EU. GDPR comes into force in May 2018 and will substantially expand data protection rights and obligations. Importantly, GDPR applies not only to companies established in the EU, but also can extend to companies outside the EU—specifically, to companies that process personal data of EU individuals in offering them products or services (including free products or services) or monitoring their behavior. The effects on social media and other online services will be significant. The dramatic increase in penalties under GDPR—up to the greater of €20 million or 4% of total worldwide annual turnover for the prior the preceding financial year—raises the stakes for privacy compliance. (Readers can stay on top of key GDPR developments through our GDPR Resource Center.)
The hotly-debated EU e-Privacy Regulation, when finalized, also will require companies to re-evaluate their practices for cookies, direct marketing, and other online marketing practices. Stay tuned—2018 will be a busy year on the privacy front.
From J. Alexander Lawrence, Litigation Desk Editor, Socially Aware, and Partner at Morrison & Foerster:
Regarding Key Copyright Litigation Developments
I’m keeping a close eye on what could be two important copyright decisions in the media space, both involving online services.
In the appeal of the dispute between BMG and Cox Communications regarding Cox’s liability for its users’ alleged downloading of copyrighted material using Cox’s Internet service, the Fourth Circuit heard oral argument last year and a decision should come down this year. The case should provide guidance on the scope of the DMCA safe harbor as well as the ability to assert secondary liability for copyright infringement where a product or service, like Cox’s service, has substantial non-infringing uses.
Also, the Second Circuit heard oral argument last year and should issue a decision soon in Fox News’s dispute with TVEyes. TVEyes provides a searchable database of TV news clips and asserted a fair use defense under the Copyright Act. The Second Circuit’s upcoming decision should provide further guidance on the boundaries of fair use.
From Paul Goldstein, Stella W. and Ira S. Lillick Professor of Law, Stanford Law School, and Of Counsel to Morrison & Foerster:
Regarding Copyright and Fair Use
Watch for fair use to spread as an object of debate around the world, and for the doctrine to be adopted into the laws of more than the present handful of countries that have so far embraced this quintessentially American doctrine. Paradoxically, also watch for private companies entering into Internet-oriented license agreements covering areas that arguably fall within fair use. The reason for the paradox: even if adopted, the contours of fair use are too vague to form the basis for commercial transactions.
From Michael A. Jacobs, Partner at Morrison & Foerster and Co-Chair of the Firm’s IP Practice Group:
Regarding Key Patent Litigation Developments
Here’s a patent litigation prediction for 2018: the U.S. Supreme Court’s TC Heartland decision on patent venue will lead to greater geographic diversity for patent cases. The U.S. District Courts for Delaware and the Northern District of California will continue to see increased filings but there will also be more cases filed in other venues. We’ll probably see patent litigators boning up on multidistrict litigation (MDL) procedures. The U.S. International Trade Commission (ITC) will see an uptick in filings as it offers patentees one-stop shopping against multiple defendants. On another front, IPRs (which the Supreme Court will uphold in Oil States) will begin to look more like reexamination proceedings—and become less favored by defendants—as patentees learn to amend their claims to avoid invalidation.
From Joshua Ashley Klayman, Of Counsel to Morrison & Foerster and Co-Chair of the Firm’s Blockchain and Smart Contracts Practice:
Regarding Blockchain, Cryptocurrencies and Digital Token Sales
In 2017, blockchain, cryptocurrencies and digital token sales moved into the mainstream spotlight, and regulators and market participants found themselves working overtime to understand and keep up with the swift pace of technological and economic innovation.
My prediction for 2018 is that token sales will continue to be an important form of capital raising for early stage companies and an increasing number of established and well-known organizations. I predict that we will see a trend toward more token sales being structured as self-described sales of securities, particularly as a growing number of alternative trading systems are established on which those tokens may be traded.
In addition to security token sales that proceed under Regulation D or Regulation S exemptions from registration, I predict that we will see some token sales that are launched as registered securities offerings, as well as a number of blockchain-related companies that explore mini-IPOs under Reg A+. Traditional Wall Street “underwriters” will get involved in the token sale space and provide marketing for some high-profile token sales, and we will see more and more hedge funds and institutional investors trading digital tokens.
Apart from token sales, we will see an increase in blockchain-enabling legislation, and governmental and quasi-governmental blockchain projects will move beyond pilot phases and into practical reality. In the United States, at tax time, token traders and their accountants may struggle to accurately calculate personal tax liability relating to last year’s purchases, sales and exchanges of digital tokens, and the new U.S. tax rules’ elimination of any possibility that token-for-token exchanges might constitute like-kind exchanges likely will lead to the development of better and better token-tracking tax software.
From Susan H. Mac Cormac, Partner at Morrison & Foerster and Chair of the Firm’s Social Enterprise and Impact Investing Group:
Regarding Climate Change-Related Risk
In the coming year, we expect to see greater recognition by companies that, as with cyber security, the risk to business operations as a result of climate change is material and needs to be factored into planning and decision-making at the board and management level. As a result, we expect to see increased adoption of integrated reporting by public companies. We also anticipate a greater focus on ESG (environmental, social and governance) factors by private companies, mainstream VC and private equity investors (whether or not they self-identify as part of the “impact” community). Finally, we expect greater recognition of the positive and negative environmental impacts of new technology (e.g., blockchain, drones, Bitcoin and so forth).
From Alistair Maughan, Partner at Morrison & Foerster and Co-Chair of the Firm’s Technology Transactions Group:
Twelve months ago, uncertainty over the effect of Brexit loomed large over the Technology, Media and Telecoms (TMT) sectors in the UK. And now, at the start of 2018 . . . well, the TMT industry faces the same level of uncertainty as it did in January 2017. At least we know the date when the UK will leave the European Union—Friday 29 March 2019 (11 PM UK time, to be precise)—and that the government will use a Great Repeal Act to import all prior EU laws into UK law, thereby giving the UK the chance to pick and choose at leisure which ones it will keep and which ones it will ditch. But negotiations over the so-called “divorce bill” have moved at a snail’s pace and prevented progress on key issues such as whether the UK will still have access to the EU single market (either directly or via a customs union) and the rights of EU nationals to live and work in the UK. I don’t expect progress and certainty to emerge any quicker in 2018 than in 2017. Brexit will be like your kids’ homework: all done in a last-minute panic.
Regarding EU Developments
Meanwhile, the juggernaut of EU regulation grinds on—encompassing the TMT sectors right across the EU. The EU’s Digital Single Market initiative is well past the halfway point (in terms of time elapsed, but not in terms of progress achieved) and the EU Commission has set itself a challenging agenda of legislative and regulatory change for the TMT sectors in 2018. The GDPR will come into force in May 2018 and companies with EU operations should already have plans to take that into account. The EU also plans to implement regulation on digital contracts, telecoms reforms, copyright changes and the use of non-personal data. So look out for a steady stream of legal and regulatory change from Europe affecting the TMT sector.
Regarding the Internet of Things
The market for Internet of Things (IoT) will continue to mature—fueled by the perfect storm of more effective analytics applications, edge computing and roll-out of 5G—especially as companies start to identify more industrial uses of IoT applications. Maybe the hype around Bitcoin will recede (or maybe the late-2017 bubble will burst) and the media will realize that blockchain and distributed ledger technology (DLT) is the real story—but only if real-life use cases for DLT bear more obvious fruit.
Regarding AI and Machine Learning
Finally, I expect to see many more AI-based projects in the next 12 months as large Internet platforms put huge amounts of resources behind projects to train and develop machine-learning engines. That ought to mean more use of existing chatbot technology—and evolving into genuine speech-based conversation engines—but the real gains will again be behind-the-scenes as companies use AI and machine-learning to make significant efficiency gains in their standard processes.
From Erin M. Bosman and Julie Y. Park, Partners at Morrison & Foerster:
Regarding IoT and Product Liability
In 2018, we expect to see regulators and courts grapple with the ever-decreasing distinctions between software, hardware, privacy and safety with respect to the Internet of Things. Who should be liable for software failures in connected products? What if the software is open source software, distributed on an “AS IS” basis? Who is responsible when a privacy breach leads to bodily injury such as through a home break-in? The companies that will succeed in the IoT space will be those that can predict—and therefore limit—their liability through manufacturing, licensing and supply agreements, and that can think creatively about harm prevention from the get-go by using connectivity to deploy effective warnings and implement automatic safeguards.
From Obrea Poindexter and Sean Ruff, Partners at Morrison & Foerster and Co-Chairs, FinTech Group, and Jeremy Mandell, Associate at Morrison & Foerster:
In 2018, we expect that FinTech companies will continue to innovate with new and expanded financial product and service offerings driven by consumers’ demands for speed and convenience. We also expect broader adoption of emerging technologies, including artificial intelligence and distributed ledger, and broader utilization of big data by new and established financial services providers. We expect a potential resolution of the remaining uncertainty in the marketplace lending context regarding the “valid when made” doctrine, either through the conclusion of the Madden case or by legislative fix.
On the regulatory side, some of the hurdles for the OCC’s special purpose charter have been cleared, but it is unclear whether there is appetite at the OCC or demand by the industry for the OCC to exercise that authority. With the change in leadership, the 2018 priorities at the CFPB appear to be changing, as well. We expect that, in 2018, the CFPB will be more measured in its rulemaking and enforcement activity (and certainly in its press releases!), but we also anticipate that the CFPB will continue to be accessible, including through Project Catalyst, to FinTech companies seeking to innovate in consumer financial services.
From Kristina Ehle, Partner, and Jannis Werner, Associate, in Morrison & Foerster’s Berlin Office:
Regarding Regulation of Online Content
Germany is poised to see continued controversy over increasing limitations on free speech on the Internet. Currently at the center of the public debate is the “Act for the Improvement of Legal Enforcement in Social Networks” (“NetzDG”), which was enacted by Chancellor Merkel’s previous coalition. After the Act’s transition period ended on January 1, 2018, online platform operators must now put into place strict procedures for the removal of offending content, ensuring removal of “obviously illegal” content within 24 hours and that of any other “illegal” content without undue delay. Failing to correctly install such procedures can result in fines of up to five million Euros.
The NetzDG did not technically expand the underlying legal obligation for platform operators to delete illegal third-party content hosted by them when becoming aware of it, but it does create considerable incentives to “err on the side of deletion,” as failing to remove content now carries additional repercussions. The potential chilling effects on free speech are evident, and there is doubt as to whether the NetzDG is constitutional.
In practice, the first two weeks of the NetzDG have seen the suppression of Tweets by opposition members of parliament, the temporary banishment of the country’s most widely known satirical journal from Twitter, and the removal of evidently innocuous Facebook posts by an Internet-famous street artist—to mention only the most widely-reported incidents. Challenges against the NetzDG are pending before the Federal Constitutional Court, and its political backers appear to be on the defensive. It remains to be seen whether the Act will stay in force, but whether with the NetzDG or without it, the regulation of online speech will continue to be a hot-button issue in Germany for 2018.