Tech Firms Find Washington Isn't So Hands-Off Anymore -- Update

By John D. McKinnon, Byron Tau and Douglas MacMillan Features Dow Jones Newswires

Technology firms, which long enjoyed a hands-off approach from Washington aimed at fostering their growth, are facing more political challenges from both parties amid growing concerns over the companies' size, influence and perceived lack of accountability.

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New scrutiny by Congress of Facebook Inc. over its acceptance of Russian ad buys in the 2016 campaign is just the latest in a string of policy problems facing technology firms.

It was already a tough year for Silicon Valley in Washington, where lawmakers have been pushing proposals that could roil the industry, including measures on net neutrality, privacy and liability. The industry's standing suffered again in the past week when lawmakers laid plans for public hearings to examine whether Facebook and other social-media platforms were used by foreign governments during the 2016 campaign to manipulate the U.S. election. Lawmakers also signaled they are considering new legislation to address online spending by foreign adversaries -- a potential blow to the firms' cherished freedom from close government oversight.

"This is a Wild, Wild West," said Sen. Mark Warner, a Virginia Democrat, about the possible need for more controls on internet companies.

It wasn't long ago that President Barack Obama held a festival on the White House grounds to celebrate high-tech firms and their transformative power. Dubbed "South by South Lawn," the event last October was the coda of a cozy relationship in which Silicon Valley became a powerful influence on Mr. Obama's presidency and a core of his support.

In contrast, at a White House meeting between tech leaders and President Donald Trump earlier this year, Microsoft Corp. Chief Executive Satya Nadella led off by urging Mr. Trump to maintain an "enlightened" immigration policy as well as government research spending -- two areas where the new administration had clashed with Silicon Valley. Mr. Trump responded by urging other CEOs to keep their comments "a little shorter."

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The end of the tech-friendly Obama administration has opened the sector to more policy challenges from both the right and left, amid growing concern over the companies' influence. Compounding the problem for the industry has been its occasional lack of broad-based support among Republicans in recent years, a situation that became more acute following the GOP sweep in the 2016 election.

In the internet's early days, Washington often took a light-touch approach designed to nurture the fledgling industry. Now, though, some lawmakers say big internet firms eventually could lose key aspects of the special legal protections they enjoy under U.S. law. There is even talk of possible antitrust scrutiny for some big tech firms in the U.S., following the European Commission decision to issue a record $2.91 billion fine against Alphabet Inc. unit Google for allegedly abusing the power of its dominant search engine. The company filed an appeal of the fine on Monday.

"Antitrust, privacy and overall trust in tech companies are serious emerging issues that represent important potential threats to the Valley, " said Ted Ullyot, partner for policy and regulatory affairs at the venture-capital firm Andreessen Horowitz and the former general counsel of Facebook. "All the more reason why tech companies need to understand and engage with the policy arena, starting early in their development, to help minimize those threats in the current environment," he said.

The companies involved didn't want to comment on their standing in Washington. But some of the largest companies have boosted their spending on lobbyists and hired influential former government officials to help craft their response to regulatory pressure. Largely, this message still rests on the idea that the tech companies generally are providing valuable free services to users.

That may not be enough to ward off the current push by U.S. regulators and Congress, said Nick Sinai, former U.S. deputy chief technology officer during the Obama administration.

"Tech companies need to realize that presumption of good faith is eroding," said Mr. Sinai, now a venture partner at Insight Venture Partners. "They need to make sure they are good neighbors, good employers, good at delivering on the promises they make to customers, and think hard about who they have been leaving out or affecting."

So far this year, tech firms have faced new or more intense fights over issues such as user privacy, net neutrality, antitrust, intellectual property and their legal immunity for unlawful third-party posts such as those linked to sex trafficking.

In March, the House and Senate passed GOP-backed legislation that rolled back Obama-era rules that had benefited internet companies by tightening user-privacy rules for their nascent rivals in the wireless and cable sectors.

After internet activists complained about the measure, GOP Rep. Marsha Blackburn of Tennessee, an influential subcommittee chairman, stunned internet firms by proposing privacy legislation that would impose big new burdens on the internet firms, as well as the wireless and cable companies.

In April, Federal Communications Commission Chairman Ajit Pai proposed a rollback of Obama-era rules on net neutrality that long were championed by the internet industry. The rules require internet providers to treat all traffic equally.

Then in August, a bipartisan group of more than 25 senators introduced legislation to pull back online firms' near-blanket immunity from lawsuits over harmful third-party posts, at least for sites involved in marketing adult services. The aim is to curb what experts view as an epidemic of online sex trafficking, including of children.

Internet companies have appeared to score at least a few policy victories, some of them significant, for example on autonomous-vehicle oversight, which gave them more flexibility in developing such vehicles.

But a legislative showdown with the tech companies over political manipulation during the election is adding to concern that the industry is losing its influence in Washington.

Sen. Richard Burr (R., N.C.), who is chairman of the Senate Intelligence Committee, which is investigating foreign interference into the 2016 election, has signaled he is likely to call a public hearing on the issue of social-media activity.

A Facebook spokesman said Thursday that the company "will continue our cooperation with the relevant investigative authorities" who are looking into foreign meddling.

Antitrust worries also have grown this year, particularly among liberal Democrats and some Republicans. Mr. Trump himself raised concern about possible antitrust issues regarding Amazon.com Inc. during the campaign. But to date his administration hasn't made any public moves against Amazon, and even quickly approved the company's deal to buy grocery chain Whole Foods.

The president's nominee to be the Justice Department's antitrust chief, Makan Delrahim, who has yet to be confirmed by the Senate, promised to "investigate and vigorously enforce the antitrust laws with respect to online platforms," as with other firms. Mr. Delrahim also promised to protect American businesses from "discriminatory antitrust enforcement" by foreign authorities.

One of the biggest advantages Congress conferred to the industry in the 1990s is the immunity given to internet businesses for harm created by user posts. But lawmakers including Sens. Rob Portman (R., Ohio) and Richard Blumenthal (D., Conn.) decided this year to amend the 1996 Communications Decency Act to remove immunity from classified-ad sites such as Backpage.com, which have been criticized for publishing ads purportedly linked to sex trafficking. Backpage.com contends it uses industry-leading practices to prevent sex-trafficking ads, including ads featuring minors, from showing up in its classified listings.

The senators have run into intense opposition from big firms such as Facebook and Google, as well as trade group the Internet Association. The companies worry about being dragged into lawsuits inadvertently, despite their considerable efforts to suss out illegal trafficking.

Ms. Blackburn's privacy bill is potentially one of the most worrisome developments for big online firms, including Google and Facebook. Her legislation would strengthen U.S. consumers' privacy rights online, allowing for customers to opt in before the firms can use their browser history or other sensitive data. Such a requirement could reduce the amounts of data available to the firms for their lucrative online advertising business.

The companies have launched an all-out lobbying effort to defeat the legislation, dimming its chances of enactment. The bill appears to be stalled at least in part because of the tech companies' opposition.

Google's own talking points about the bill described it in near-apocalyptic terms, arguing it "imperils the future of internet commerce and economic growth in the U.S.," and "undermines the business models of all companies that provide online services."

Write to John D. McKinnon at john.mckinnon@wsj.com, Byron Tau at byron.tau@wsj.com and Douglas MacMillan at douglas.macmillan@wsj.com

(END) Dow Jones Newswires

September 15, 2017 19:25 ET (23:25 GMT)