A young man, his brother, and a few friends start a cutting-edge company in his home. Within a few years, the company grows exponentially and dominates the American economy. Within a few more years, the government takes notice and begins to regulate the company and to limit its power.
No, we’re not talking about a 21st century technology company; we’re describing Standard Oil over 100 years ago.
The more things change, the more they stay the same. As yesterday’s tiny tech startups grow into today’s economic behemoths – Amazon, Google, Apple, and others – they are facing greater government scrutiny. Whether over encryption, access to users’ stored data, or notice to users of government data requests, the examples are multiplying daily, and in some sense, they echo the Standard Oils of the past.
In addition to their skyrocketing growth, these companies have begun to expand into more conventional industries – Uber’s entry into the transportation industry and Airbnb’s into the hotel industry are but two examples. The public is welcoming this expansion. A recent poll showed that 1/3 of global banking and insurance customers would consider switching their accounts to Silicon Valley giants if they offered such services. As this “tech creep” accelerates, government’s interest is growing.
Large tech companies have known this is coming for some time, and have prepared. Last year alone, tech firms spent close to $50 million on lobbyists. Generally a liberal industry, tech companies enjoyed an amicable relationship with the Obama Administration, but many are wondering what to expect now that the 45th President has taken office.
“A Different Kind of Republican”
On the campaign trail, President Trump became known as “a different kind of Republican,” staking out a more protectionist stand on trade, and a more interventionist stance on antitrust policy than the typical Republican candidate. At times, however, he articulated a more traditionally Republican, small government, laissez-faire approach to regulation, promising to “no longer regulate our companies and our jobs out of existence”
A stormy relationship with tech.
The relationship between President Trump and the tech sector has been rocky. Technology companies largely supported Secretary Clinton in 2016 (along with Obama in 2008 and 2012). President Trump fueled this divide by repeatedly siding against the tech industry in the campaign -- from supporting the FBI in the encryption debate to opposing one of the industry’s most significant proposed mergers. Apple, in turn, declined to help fund the 2016 Republican National Convention, even though it had done so in the past.
President Trump attempted to mend fences in a December meeting with tech executives but any détente that created has quickly faded. This week, a large number of tech companies filed papers supporting the challenge to the President’s executive order limiting immigration. Google’s CEO recently referreding to the President’s actions as “evil things."
Beyond the already-storming immigration debate, here are six other areas where tech’s entanglement with government will be noteworthy during the Trump Administration:
Sorry, Apple, the encryption debate is not over.
In February 2016, President Trump called for an “Apple boycott” until the company agreed to help the FBI unencrypt San Bernardino shooter Syed Farook’s iPhone. Ultimately the FBI was able to break into the iPhone without Apple’s help (paying an unnamed company over $1 million dollars to do so).
The encryption issue is not going away, though. The technology used to break into Farook’s phone only works on older iPhones. Moreover, encryption is spreading fast in the marketplace, making it a barrier to law enforcement on more devices daily. Congress has generally sided with tech. On December 20, 2016, a bipartisan House Committee released a report criticizing the use of a “backdoor” to allow law enforcement to bypass encryption on devices. The House report concluded that “[a]ny measure that weakens encryption works against the national interest.” In turn, Apple CEO Tim Cook has made it clear that he views this issue as vital to privacy and the tech industry, so he is not likely to back down.
Law enforcement is not likely to back down, either. The Trump Administration can be expected to focus on empowering law enforcement and intelligence agencies with the resources and legal authority to access encrypted data, whether through offensive hacking or enforced back doors. This approach will be supported by Trump’s Attorney General, Jeff Sessions, who is pro-law enforcement on encryption issues. Moreover, FBI Director James Comey, whom President Trump has invited to remain in office, stated in August that he intends to re-ignite the encryption battle in 2017 and force tech companies to allow law enforcement in through back doors, declaring that “there is no such thing as absolute privacy in America.” The trifecta of the President, the FBI Director, and an Attorney General on the same page will put the Justice Department in a fighting mood on this issue.
“Closing that internet up.”
On the campaign trail, President Trump spoke of the damage being done to American security through use of the internet by terrorists and their supporters. He decried this trend and publicly pondered “closing that internet up in some ways,” i.e., getting (or forcing) internet providers to filter out malicious or threatening content. The statement drew immediate criticism from the tech community, which has long opposed such policies. Several tech giants were criticized in the tech community in 2005 after assisting foreign governments with internet filtering efforts. When U.S. government officials have more recently attempted to engage tech leaders on cooperative internet filtering, they have been rebuffed.
Restricting terrorist access to the internet is not a novel concept, nor is it a partisan policy. A 2010 Senate report by Senator Lieberman affirmed the President’s authority during war, threat of war, or “a state of public peril” to “take over wire communications in the United States” and “shut a network down” under Section 606 of the Communications Act of 1934. Foreign democracies such as the United Kingdom operate government centers devoted to such work. President Trump’s campaign rhetoric on radical Islamic extremism, his emphasis of the issue in his inaugural address, make such an effort increasingly likely. Expect the tech community to continue to resist, citing the First Amendment and the importance of a free internet.
The Net Neutrality battle returns
The advent of a Republican administration, and particularly President Trump’s appointment of FCC Commissioner Ajit Pai to chair the Commission, mean that the net neutrality fight will be reignited. This struggle over whether internet service providers should enable equal access to all content and applications regardless of the source, without favoring or blocking particular products or websites, or alternatively be permitted to differentiate the price for some (e.g., high volume) users over others, has been around for some time. In the Obama Administration, the fight was pretty much settled in favor of net neutrality, particularly with the FCC’s 2015 rulemaking treating internet providers as public utilities. Incoming Chairman Pai, however, opposed those rules and has promised to “take a weed whacker” to the FCC’s “regulatory underbrush.” The fight is on again.
“Trust-busting” comes to tech.
After President Trump promised to fight the largest merger announced in 2016, two questions have loomed large: Will he? And, if he does, what does that mean for the rest of the tech industry? Tech giants, who are in the habit of buying up smaller companies, as well as trying to tie customers to their platforms, keep a close watch on antitrust policy. In 2013, Google -- like Microsoft before it -- was threatened with a potentially costly legal battle when the Federal Trade Commission staff said the company “unlawfully maintained its monopoly” over internet searches, though the 20-month probe was eventually closed. What action President Trump takes with respect to mergers in the tech sector, and the Administration’s approach to antitrust enforcement more generally, will depend on whom he appoints to the Antitrust Division of the Justice Department and the Federal Trade Commission (FTC). Attorney General Jeff Sessions testified during his confirmation hearing that he would enforce antitrust law, but the question of course is to what extent?
Two factors support a conclusion that a Trump Administration will not enforce antitrust laws aggressively. First, Trump’s focus in dealing with the corporate world is preserving American jobs, while antitrust policy is more about the consumer than the worker (although some argue that workers benefit from aggressive antitrust enforcement because mergers seek corporate streamlining, leading to fewer jobs). This means that President Trump may care less about industry consolidation as long as it does not cost Americans their livelihoods. Second, antitrust is one field where a President’s appointees traditionally have significant autonomy, and it appears this President is likely to appoint traditional laissez-faire Republicans to DOJ and the FTC. This, however, does not necessarily mean smooth sailing for companies hoping to merge. As one of us has written elsewhere, in the absence of scrutiny at DOJ or the FTC, the Senate might step in to provide vigorous oversight.
To the extent President Trump still ventures into antitrust, certain industries are likely candidates. In addition to his general disaffection for Big Tech, the President’s dislike for the mainstream media is well known and has continued past his inauguration. This could bode ill for attempts by tech companies, many of which are becoming more involved with news and media, to acquire, be acquired, or merge.
The importance of cybersecurity grows.
This is perhaps the easiest and most obvious prediction. Despite his protestations regarding alleged Russian interference in the election, the President has been steadfast in emphasizing the need for stronger cybersecurity, and this is not likely to change. Indeed, the Administration plans to release a major report on cybersecurity within its first 90 days in office. Moreover, Congress is guaranteed to remain engaged on these issues, having signaled in a bipartisan way that cybersecurity is foremost on its mind. Three different Senate committees are investigating Russian interference in the election, including hacking. Perhaps more important for tech companies, Senator John McCain announced in January the establishment of a new Senate Armed Services Subcommittee on Cybersecurity. It will join the House Homeland Subcommittee on Cybersecurity, Infrastructure Protection, and Security Technologies, which legislates and oversees elements of cybersecurity, infrastructure protection, and promoting security technologies. Tech companies are virtually certain to face testimony in Congress, as well as increased regulation and legislation relating to cybersecurity in the coming years.
An area of cybersecurity drawing increasing attention is the security of Internet of Things (IoT) devices. These connected consumer products (e.g., wireless routers, webcams, baby monitors, web-connected thermostats) continue to proliferate exponentially, while proving to be security risks, becoming robot armies for crippling distributed-denial-of-service (DDoS) attacks. Such attacks have brought many networks to their knees, temporarily taking down or slowing top destinations like Twitter, Amazon, Netflix, and Spotify by leveraging hacked IoT devices. However, because the burden of these attacks falls on innocent third parties, rather than price-conscious consumers or profit-conscious manufacturers, government might be the only entity willing and able to address these vulnerabilities. In one sense, IoT presents a classic case for government regulation, in which market participants have no economic incentive to solve the problem themselves. The case is even stronger where IoT vulnerabilities affect the critical infrastructure (e.g., Israeli researchers recently demonstrated that they could take over all the smart lightbulbs in a city the size of Paris by attacking only one). Indeed, President Trump has indicated deregulation efforts will not apply to areas compelled by public safety and has ordered a review of all U.S. cyber defenses and vulnerabilities, including critical infrastructure. But if this one is to be adequately addressed, it will require international cooperation. The internet knows no national boundaries and neither does the Internet of Things. Mere regulation in the U.S. would not stop IoT abuse hobbling American companies. A key question here is whether President Trump’s criticism of our foreign trade partners will prevent the kind of international collaboration that would be required to address this problem.
Tech moves into conventional industries, and faces conventional regulation.
The movement of technology companies into “non-traditional” sectors – such as the taxi and hotel businesses – is forcing them to confront government’s long-standing regulation of these industries. The initial skirmishes have already taken place in this battle. For example, Maryland passed a law last July that extended taxi regulations to ride-sharing services such as Uber and Lyft. More recently, the state backed down when it agreed not to force Uber and Lyft to conduct the same security checks on its drivers that are required of taxi companies. Similarly, a growing number of cities, including in New York and California, are imposing regulations on Airbnb’s internet hospitality business. While this fight will grow, it is likely to remain in the cities and states, and therefore be less affected by the advent of the Trump Administration.
Like the oil industry 100 years ago, the technology industry’s explosive growth and expansion have garnered increased governmental scrutiny. The rise of President Trump means that scrutiny evolv in new directions, but it is unlikely to go away.