Network regulation considered by Congress and STF may inhibit innovation

Pressure from the government, Congress and the Federal Supreme Court for stricter regulation of social networks has heightened the concern of executives and sector representatives with the economic risks for their activities in the country. And recent decisions, both by the Executive and the Judiciary, imposing what may or may not be published by companies in relation to the subject itself, have already demonstrated to these companies the difficulty they will have to invest and innovate in the country, if the bill is approved of fake news (PL 2630/2020).

The most drastic decisions, in this sense, handed down in the last two weeks, came from the National Consumer Secretariat (Senacon), linked to the Ministry of Justice, and Minister Alexandre de Moraes, from the Federal Supreme Court. In summary, they ordered Google, Meta (owner of Facebook, Instagram and WhatsApp), Spotify and Telegram to remove ads and messages critical of the Fake News PL from their platforms and publish opinions favorable to the proposal, whose purpose is to expand government supervision. on the moderation of content carried out by companies.

This would be done by revising Article 19 of the Marco Civil da Internet, according to which platforms cannot be held responsible for the content posted by their users. They can only be condemned to pay compensation to the victim of a supposedly offensive message if the Judiciary judges that it is in fact illegal and fails to comply with a removal order.

The fake news PL, also called by the opposition “Censorship PL”, imposes a “duty of care” on the networks, in which the companies themselves would be required to monitor more closely everything that is posted in order to then inform a supervisory body, periodically, how they curbed criminal manifestations on their platforms, as well as the volume of posts found.

The analysis of the content would be up to them, not the Judiciary, but if the supervisory body understands that due care was not taken, it could punish them with a fine and even suspension of their activities. The fear is that this body, probably linked to the government, will start to pressure the networks to suppress content that is not necessarily illegal or criminal, but uncomfortable for the government.

At the STF, the majority of justices are willing to demand that the platforms also spontaneously remove unwanted content, especially those that may characterize an incentive for violent protests against the institutions, such as what happened on January 8, when there was an invasion and depredation of the headquarters of the Three Powers in Brasilia.

Technology companies say that, to mitigate the risk of being punished – mainly due to the fact that they are forced to analyze a huge amount of content, posted at all times, and often subjective and subject to multiple interpretations –, they start to eliminate a large amount of number of publications, even if they are not illegal. This would unreasonably restrict the free exchange of ideas and information on the Internet.

Study points to billionaire losses for social networks

But not only that. From an economic point of view, more rigorous management of content posted by users would increase the cost of technology and personnel to analyze all this material quickly. In addition, platforms could lose users and advertisers, either because of lack of interest in a more limited network in terms of content, or because of the risk of being banned or having their posts, even if lawful, constantly suppressed.

A study published last year by Insper estimated that the main companies in the sector would lose BRL 23 billion in market value and revenue of BRL 47 million per year. Users would also be affected, with a loss of up to BRL 4 billion. The calculation took into account billing data in Brazil from Facebook, Instagram and YouTube.

To arrive at the figures, the researchers compared the scenario before and after 2014, when the Civil Rights Framework for the Internet was approved. Until then, it was enough for the social network to receive an extrajudicial notification from any person, communicating that a certain post would be offensive or illegal, for it to remove it, at the risk of being condemned to indemnify the victim together with the author of the demonstration. In many cases, the platform did this even if the content was legal, out of an excess of precaution, so as not to run the risk of being convicted. This is what would happen again with the revision of Article 19 of the Civil Rights Framework for the Internet.

“A social network that has 1,000 posts per minute has less market value and less utility for users than a network that has 1 million posts per minute. So, the volume of manifestation in that network matters. But if the social network is threatened with bearing a worse and more expensive evil than the loss of posts, which are the indemnities, it will be forced to sacrifice the content. Before the Marco Civil da Internet, the company did not want to start deleting everything, but it would be worse if it did not and opened the doors to a legal liability whose size it could not even measure. It was the lesser of two evils,” explains Ivar Hartmann, an associate professor at Insper and one of the authors of the study.

For him, the most important thing, however, is not how much the social network company failed to profit, but how much worse the service would be for the user. “I don’t know if people will stop using the social network or use it less, the fact is that they will be enjoying a product of much lower quality. And it’s not just any quality, a luxury, we’re talking about much lower freedom of expression, which is not a luxury”, says Hartmann.

Review may hamper new initiatives in the digital economy

The Fake News PL says that the platform could be administratively punished if it is notified of allegedly illegal content and fails to exercise the duty of care to remove it. It is not clear, however, how the STF will impose the punishment in these cases, if the Marco Civil da Internet rule is revised.

The problem, however, is not restricted to Big Techs, which have the resources, structure and personnel to bear the costs. Marcel Leonardi, a lawyer and professor at FGV Law, whose clients have been companies and investors in the technology sector for more than 20 years, says that the revision of the Civil Rights Framework for the Internet could also prevent the emergence and growth of new initiatives in the digital economy.

“When the government aims at regulation, it is very common to think only of large platforms, because that is what we are used to using. Today, we can know them as big, but one day they weren’t. There was a regulatory framework from 10 or 20 years ago that was helpful for them to flourish in Silicon Valley,” he says.

Leonardi cites a study by the Associação Brasileira de Startups, according to which, from 2015 to 2019, the number of these companies in the country more than tripled, from 4,151 to 12,727, a jump of 207%.

One of the factors that contributed to this expansion was the rule in Article 19 of the Civil Rights Framework for the Internet, which gave more legal certainty to new companies in the digital sector by determining the need for a court order to hold platforms and internet providers accountable.

This was important, for example, for platforms that host online courses, such as Hotmart, through which anyone can offer training in an area they master and sell that content. The same rule made possible the existence of sites that gather consumer reviews of certain companies, such as Reclame Aqui; or customer reviews of food and restaurants on delivery apps, such as Ifood, for example.

The current text of the Fake News PL says that the new moderation rules would only apply to platforms with more than 10 million users and would not apply to e-commerce providers. But there is a fear that this will be changed in the proposal itself or later. Excessive restrictions, says Leonardi, tend to drive users to less regulated services abroad. The same tends to occur with investors, who may prefer to invest in startups in other countries.

Prior censorship entails political costs for platforms, says expert

Lawyer Daniel Becker, who also serves companies in the field, says that holding platforms accountable for third-party content brings two costs, one political and the other economic.

“Being forced to carry out prior censorship, companies will control content much more rigidly and this will reduce the degree of freedom in society, which will have a very high political and democratic cost for the country. And there is the economic cost, because platforms proliferated a lot with the Civil Rights Framework for the Internet, which allowed companies to intermediate relationships between agents, whether economic, as is the case of marketplace companies, or social, as is the case of social networks. “, it says.

Alexander Coelho, a lawyer specialized in Digital Law and Data Protection, has a similar opinion. “Companies that operate in the digital market need a favorable environment to invest in new technologies and develop their businesses. If regulation is excessively rigid or poorly designed, it can create unnecessary obstacles to the development of companies, increasing their costs and making it difficult to expand their services, “he says.

He also points out that regulatory uncertainty can lead to a reduction in investments in innovation, since companies can choose to adopt a “more conservative posture” in investments and wait for a clearer definition of the rules before investing in new technologies.

André Marsiglia, a lawyer specializing in freedom of expression, understands that there is an economic impact both in the absence of legislation and in excessive regulation.

“A regulation, such as that of the Fake News PL, made with dubiousness, ambiguities, and a censorious Judiciary, creates legal uncertainty and a hostile environment that impacts the market. Applications and platforms are afraid to plant their feet in the country, with offices in a robust way, to expand their businesses, to form lasting partnerships, to invest in the national market”, he concludes.